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Operator: Thank you for standing by and welcome to the AllianceBernstein Holding L.P. Third Quarter 2025 Earnings Review. At this time, all participants are in a listen-only mode. After the remarks, there will be a question and answer session, and I will give you instructions on how to ask questions at that time. As a reminder, this conference call is being recorded and will be available for replay on our website shortly after the conclusion of this call. I would now like to turn the conference over to the host for this call, Head of Investor Relations for AllianceBernstein Holding L.P., Mr. Ioanis Jorgali. Please go ahead. Ioanis Jorgali: Good morning, everyone, and welcome to our third quarter 2025 earnings review. This conference call is being webcast and accompanied by a slide presentation that's posted in the Investor Relations section of our website. With us today to discuss the company's results for the quarter are Seth Perry Bernstein, President and CEO, and Thomas Rudolph Simeone, CFO. Onur Erzan, Head of Global Client Group and Private Wealth, will join us for questions after our prepared remarks. Some of the information we will present today is forward-looking and subject to certain SEC rules and regulations regarding disclosure. So I would like to point out the safe harbor language on slide two of our presentation. You can also find our safe harbor language in the MD&A of our 10-Q, which we filed this morning. We base our distribution to unitholders on our adjusted results, which we provide in addition to and not as a substitute for our GAAP results. Our standard GAAP reporting and reconciliation of GAAP to adjusted results are in our presentation, appendix, press release, and our 10-Q. Under regulation FD, management may only address questions of material nature from the investment community in a public forum. So please ask all such questions during this call. Now, I'll turn it over to Seth. Seth Perry Bernstein: Good morning, and thank you for joining us today. I am delighted to update you on our progress against our goals for AllianceBernstein Holding L.P., harnessing our diversified investment expertise and deep distribution capabilities. We remain steadfast in our commitment to providing better outcomes for our clients. On slide three, I will review the key business highlights of the third quarter. First, firmwide assets under management have reached a new milestone, sitting at $860 billion as of quarter-end. Bernstein Private Wealth has reached a record high of $153 billion, bolstering relationships within the ultra-high-net-worth client segment, including wealth creators, family offices, global families, and business owners. Our institutional asset management business, with $351 billion in AUM, caters to long-duration capital pools encompassing private markets, insurance, general account assets, and customized retirement plans. Our $356 billion retail platform serves robust markets like Asia Pacific and the US, offering secularly growing solutions such as SMAs, active ETFs, and model portfolios spanning a diverse asset allocation. Through scale, improved operating leverage, and a sustainable fee structure, we are driving consistent growth in revenues, earnings, and margins, capturing profitable growth aligned with market dynamics. Second, flow dynamics improved in the third quarter, excluding $4 billion of outflows related to the previously announced Equitable RGA reinsurance deal. Our firmwide net flows were $1.7 billion positive. Demand was led by two secularly growing asset classes and consistent organic growth engines for AllianceBernstein Holding L.P.: tax-exempt fixed income and private alternatives. In the third quarter, we had over $4 billion tax-exempt inflows, extending our streak of positive organic growth to 11 consecutive quarters. This quarter saw accelerated inflows from both retail and private wealth. AllianceBernstein Holding L.P. is the number one retail muni SMA manager. We grew our tax-exempt platform to more than $50 billion of AUM, despite a very turbulent macro backdrop for muni bonds. Private markets generated nearly $3 billion of net inflows, reflecting an improved backdrop for commercial real estate, coupled with strong origination for investment-grade corporate and ABS private placements. While active equities shed over $6 billion, driven by growth-oriented redemptions, we're seeing inflows in structured and defensive strategies such as our global structured equities, strategic core, and US select. Additionally, thematic investments such as security of the future and our disruptors ETF ticker continue to attract strong inflows and deliver relative outperformance. Taxable outflows of approximately $4 billion were largely episodic, excluding the impact from the reinsurance transaction. Firmwide taxable flows were flat, reflecting improved retail and private wealth dynamics where we observed modest inflows. Thirdly, we continue to enhance our third-party insurance asset management business, drawing on our extensive 40-plus years of experience in managing insurance assets. We're excited to announce our new partnership with Fortitude in strategic investment in FCA Re. This represents another major milestone in our ongoing efforts to expand our leadership in global insurance asset management. Leveraging our prominent competitive position in the Asia Pacific market, we're gaining further traction as a partner of choice for insurers in the region. Looking ahead, we're eager to expand our collaboration with Fortitude through this partnership. Year to date, we've successfully onboarded seven new insurance GA relationships spanning across eight strategies. These partnerships necessitate a high-touch client service approach that goes beyond traditional asset management. We've dedicated substantial operational resources and institutional expertise to provide a comprehensive client experience that is scalable, unlocking additional revenue streams beyond management fees. Our strategic alliance with Equitable gives us a competitive advantage, reinforcing our client-centric asset-light approach by leveraging the permanent capital commitment from Equitable, we concede and scale our higher fee, longer-dated private alternative strategies. To date, we've deployed approximately $17 billion of the $20 billion capital commitment made by Equitable to our AllianceBernstein Holding L.P. private markets strategies. We see further opportunity to increase this allocation over time as Equitable continues to grow its general account assets. Skipping to slide five, I'll review our investment performance, starting with fixed income. In the US, a weakening labor market and better-than-feared inflation readings raised the possibility of rate cuts, pushing yields lower. Conversely, European and Japanese sovereign yields increased due to concerns over government stability, increased fiscal spending, and the conclusion of the European Central Bank's rate-cutting cycle. Credit markets performed well with investment-grade corporate spreads tightening and risk-on sentiment for high-yield bonds. The Bloomberg US Aggregate Bond Index returned 2%, while the hedge global High Yield Index returned 2.7% in the third quarter. Our one-year performance faced challenges due to selection and emerging markets, high-yield corporates, and yield curve positioning, which detracted from our returns as longer yields fluctuated, ultimately ending lower. 30% of our fixed income assets outperformed over the one-year period. Despite rates volatility, active management of duration and credit exposure has generated strong long-term returns, with 86% and 70% of AUM outperforming over the three and five-year periods, respectively. Our flagship income strategies, American Income and Global High Yield, delivered high single-digit and low double-digit returns over the three-year period, both outperforming their Morningstar categories for that period. Notably, we observed a rebound in client flows into American income, reflecting resurgent interest in duration, extension, and US dollar-denominated assets, highlighting the enduring appeal of US assets supported by attractive rate differentials and deep capital markets. Looking ahead, we maintain a positive outlook on fixed income and we stand ready to capture the next reallocation wave as bonds regain their diversification value. Credit fundamentals remain robust and monetary policy clarity increases. Turning to equities, US equity markets delivered strong returns in the third quarter of 2025, benefiting from the resilient consumer spending, benign inflation readings, and strong GDP and corporate earnings growth. The S&P 500 returned 8.1% during the quarter, reaching record highs. Small-cap stocks outperformed large caps, driving a 12.4% return for the Russell 2000 in Q3. Global developed equities posted positive returns, although they underperformed the US, while emerging markets outperformed. Signs of improving market breadth are encouraging, but it's important to note that the recent rally was primarily driven by lower quality, unprofitable, high momentum, and heavily shorted names. Given our limited exposure to these equity baskets, our relative performance was affected with 22% of assets outperforming over the one-year, 41% over the three-year, and 53% of our equity AUM outperforming over the five-year. Despite these dynamics weighing on the relative performance across the active industry, our client discussions regarding our decisions to underweight in these risk units have been positive. Our investment philosophy centered around an active approach to quality investing continues to resonate with those seeking such strategies. Finally, I want to highlight the growing interest in international equities, where we have a diverse selection of active equity strategies with strong breadth and high-quality product offerings balanced across geographies. These include our international strategic equities, international small cap, international value, emerging market strategic core, China, and emerging markets value. Next, I'll briefly cover channel highlights before doing a deeper dive into our retirement and private alternatives capabilities. Turning to slide six with our retail highlights. Despite facing channel outflows for the second consecutive quarter, we observed a notable uptick in momentum, driven primarily by active fixed income. Sentiment around taxable fixed income has improved as rates volatility stabilized. Taxable net flows rebounded slightly in the third quarter, driven by our fixed income ETF platform in the US and improving demand for our American Income product in Asia. Furthermore, our tax-exempt retail inflows reaccelerated, growing organically at an impressive 26% annualized rate. We think the bond reallocation theme has more runway, and we stand ready to assist our clients in capturing the enduring value proposition of fixed income as we effectively demonstrated in 2024. Moving on to slide seven to cover our institutional channel. Our private alternative services are experiencing significant inflows with a range of existing, adjacent, and new strategies in illiquid credit attracting substantial investments from Equitable and third-party institutions. Our pipeline AUM currently sits at around $12 billion, showcasing notable fundings in both liquid and illiquid credit as well as active and passive equities. We anticipate an additional $1.5 billion in private market AUM in the upcoming quarters, a figure not yet accounted for in our pipeline. Next, I'll move to slide eight to cover private wealth. Through a blend of flexibility, insight, and personal attention, Bernstein Private Wealth continues to gain market share in the ultra-high-net-worth channel. Our Private Wealth channel delivered strong sales and the highest inflows in ten quarters, reflecting strong advisor productivity and cross-asset client allocations. Bernstein Private Wealth represents 18% of our firmwide assets with average client tenures of more than ten years, generating approximately 36% of our firmwide revenues. Moving to slide nine, I'd like to talk about how AllianceBernstein Holding L.P. is helping clients navigate one of their most important financial objectives: retiring with confidence. The retirement landscape has evolved a lot over the years. There are fewer younger workers to care for our aging populations, and with longer lifespans, the savings challenge is even greater. The shift from defined benefit to defined contribution plans is reshaping the way people prepare for their golden years. More than ever, the burden is on individuals to save on their own and choose their own investments. Getting it wrong could leave them without the reliable income stream in retirement that DB plans once provided. Innovation has played a pivotal role in addressing the evolving trends and challenges in retirement planning. Target date funds became very popular after the passage of the Pension Protection Act of 2006. It was a meaningful step in improving retirement outcomes, and it relieved individuals from the burden of having to make complex asset allocation decisions that they weren't trained to do. But markets have become increasingly complex, and we did continue to innovate by customizing target date funds at the plan and participant level and incorporating a broader set of asset classes, including private assets and insurance solutions that provide guaranteed lifetime income. AllianceBernstein Holding L.P.'s custom target date business was launched in 2006. Today, about two decades later, it stands at approximately $105 billion in assets under management across 27 global clients, mostly concentrated in the US, but also with a meaningful business in the UK. We've been an industry leader for well over ten years. We've seen more custom target date searches this year, and we're pleased to have been selected recently to design and manage a custom target date solution for a large US insurance company's DC plan. It's the second mandate we've won this year. Combined, they total nearly $4 billion, and both will be implemented in 2026. Additionally, we were selected earlier this year to run a custom retirement solution for one of the largest DC master trusts in the UK, which is expected to grow to significant scale over time. In collaboration with Equitable, we were first movers in the in-plan lifetime income market. Our industry-leading lifetime income strategy, also known as LIS, manages $13.5 billion of total assets, and $5 billion of that is guaranteed by five insurance companies. LIS gives DC plan participants a personalized target date portfolio with a flexible guaranteed income adoption, addressing both their accumulation and decumulation needs. When we first launched LIS in 2020, we designed it to comply with QDIA regulations so that it could be a true default option for DC plans. Our team's foresight proved invaluable. On September 23, an advisory opinion from the US Department of Labor affirmed that DC plan sponsors can benefit from ERISA's fiduciary safe harbor when they select AllianceBernstein Holding L.P.'s LIS program. This endorsement validates our approach and offers further reassurance to plan sponsors. The guidance significantly reduces regulatory uncertainty and shields our plan sponsor clients from potential litigation risks. That empowers them to focus on what really matters: solving for the best outcome for their participants. In fact, participants in our multi-insurer secured income portfolio have both guaranteed income for life and net-of-fee returns that have exceeded the typical target date fund benchmark since inception. Our design allows us to take on higher equity exposure and has delivered returns that have offset the cost of the insurance. We continue to expand our lifetime income platform to provide choice to plan sponsors. This includes the option to add lifetime income without changing their current target date provider and the new fixed annuity version of the SAB Secured Income Portfolio. Combining the recent DOL advisory opinion with our thirteen-year track record, expanded lifetime income solutions platform, and ongoing integrations of additional record keepers, we are well-positioned to benefit as interest in these solutions continues to grow. Expanding access to private assets in DC plans is another area where AllianceBernstein Holding L.P.'s innovation has already been addressing the need for more diversification and new return sources. We believe that incorporating private assets in target date funds can help deliver long-term results while also minimizing downside risks for participants. We've been doing this for a decade now, in both the US and the UK. We've embedded private assets into glide paths for many of our clients. This includes both corporate and public plans and spans private market segments such as private equity, private credit, and private real estate. Finally, I'd like to close with slide 10, which highlights our private market capabilities and our strong growth in this platform. Over the past decade, we've successfully expanded our private markets platform to nearly $80 billion in fee-paying and fee-eligible assets under management, representing a 17% year-over-year growth. We focus on credit-oriented strategies, offering diverse capabilities tailored to various risk-return and portfolio objectives. AllianceBernstein Holding L.P. Private Credit Investors, or ABPCI, our $22 billion middle-market direct lending platform, has a seventeen-year track record investing in directly originated, privately negotiated loans to core middle-market companies, offering a variety of solutions to institutional, insurance, and individual investor clients. AB CarVal, our $20 billion global asset-based credit platform, has a thirty-eight-year track record specializing in consumer, real estate, aviation, and energy transition opportunities, investing across drawdown, evergreen, and interval funds and across the capital structure from investment-grade private credit through opportunistic investing. US and European commercial real estate lending, our $12 billion commercial real estate lending platform, invests across property type and business plan in the US and Europe, expanding multiple risk-return profiles with fund, lead, and SMA offerings. Corporate and structured private placements, our $18 billion platform offers a differentiated relative value orientation to complement investment-grade portfolios. In addition to continued organic growth in this business of private credit markets, continued to scale and diversify, we're actively exploring strategic partnerships and lift-outs to further expand our capabilities. For instance, our structured private placement team we onboarded approximately one year ago and already manages more than $2 billion in AUM. More recently, we added a correspondent residential mortgage team to expand the origination capabilities of our existing residential mortgage platform. Our relationship with Equitable provides us with significant competitive advantage as we expand our private markets business. We continue to scale existing and develop new solutions in partnership with Equitable, leveraging our existing investment teams such as residential mortgages, NAV lending, and private investment-grade asset-backed finance. These solutions are also core to our offering to other insurance and institutional clients, helping drive diversified growth in our private markets franchise. Our ability to provide borrowers with a range of solutions across the cost of capital spectrum and match those investment opportunities to the various risk-reward profiles of our diversified client base is a competitive advantage. With strong momentum in the business, we're confident that we'll achieve our target of $90 billion to $100 billion of assets under management by 2027. Now I'll pass it to Tom to cover our financial results. Thomas Rudolph Simeone: Thank you, Seth. We are pleased to report strong financial performance in the third quarter, reflecting growth in asset management fees, driven by record AUM and focused expense discipline. Adjusted earnings for the third quarter came in at $0.86 per unit, representing a 12% increase compared to the prior year. Distributions grew uniformly with EPU as we distribute 100% of our adjusted earnings to unitholders. On slide 11, we present our adjusted results, which exclude certain items not considered part of our core operating business. For a detailed reconciliation of GAAP and adjusted financials, please refer to our presentation appendix or 10-Q. In the third quarter, net revenues reached $885 million, a 5% increase compared to the prior year. Base fees grew 5% year over year in line with net revenues. Total performance fees of approximately $20 million decreased by $6 million. Dividend and interest revenue, along with broker-dealer related interest expense, declined compared to the prior year, reflecting lower cash and margin balances within private wealth. Investment gains totaled $8 million, while other revenues were flat versus the prior year. Moving to expenses, our third quarter total adjusted operating expenses were roughly flat at $582 million compared to the prior year. In the third quarter, total compensation and benefits expenses amounted to $439 million, representing a 6% increase in absolute dollar terms compared to the previous year. This was due to a 48.5% compensation ratio of adjusted net revenues, slightly higher than the 48% ratio reported last year. We expect our fourth quarter 2025 compensation to revenue ratio will remain at 48.5%. We see potential upside if markets remain supportive for the remainder of the year. Compared to the previous year, third quarter promotion and servicing costs remained stable, while general and administrative expenses decreased by 17% year over year. This reduction was primarily due to lower professional fees and the one-time accelerated lease expense of around $12 million in 2024. Year to date, our non-compensation expenses are approximately $437 million, tracking better than our revised full-year guidance range of $600 million to $620 million for 2025. As a result of expense discipline and enhanced operational efficiency, we are again lowering our non-compensation expense projection to fall within $600 million to $610 million for the full year, anticipating a tick up in 2025. As a reminder, promotion and servicing accounts for roughly 20% to 25% of non-comp expenses and G&A for 75% to 80%. Third quarter interest on borrowings decreased by roughly $1 million versus the prior year due to lower cost of debt and lower debt balances. We have not funded our commitment to the Ruby Re sidecar, which we now expect will be called in 2026. In the meantime, we are pleased with the progress of the partnership and look forward to further advancing our collaboration with RGA. AllianceBernstein Holding L.P.'s effective tax rate was 6% in the third quarter, in line with our full-year guidance of 6% to 7%. Our operating income of $303 million is up 15% versus the prior year, reflecting strong margin expansion of 209 basis points. Over the last three years, operating income has grown at a 13% CAGR, reflecting 7% growth in revenues excluding Bernstein Research. While markets have been a tailwind to equity-driven revenues, that has not necessarily been the case for fixed income markets. We have managed to grow our liquid and private credit platforms largely organically, capitalizing on a strategic relationship with Equitable. At the same time, we have delivered on initiatives such as the Bernstein Research deconsolidation and the real estate relocation strategy to further enhance profitability and boost margins. Transitioning to slide 12, I'll cover the trajectory of our firmwide base fee rate net of distribution expenses. In 2025, our firmwide fee rate increased to 38.9 basis points versus 38.7 bps in the prior quarter. The sequential shift in AUM was supportive in 3Q as equity markets outpaced fixed income returns. Average active equity AUM made up 32.8% of firmwide AUM in the third quarter versus 32.3% in the prior quarter, but this is below the prior year's 34%, reflecting a negative year-on-year mix. Partially offsetting market dynamics, quarterly flows and FX dynamics were less supportive to our firmwide fee rate. We observed outflows from higher fee retail service alongside organic growth in lower fee categories such as SMAs, ETFs, and retirement. We continue to grow our private markets capabilities, which has also been supportive against the industry-wide fee rate pressures. Historical track record demonstrates a relatively durable fee rate, with our regional sales mix and strategic growth initiatives helping to partially mitigate industry-wide fee erosion. Over the past five years, our base fee rate has generally fluctuated between 39 and 40 basis points, reflecting relative stability versus the industry. Our all-in fee rate, including performances, has ticked higher over time, reflecting the growth in our private markets AUM. We are making significant strides in tapping into secularly growing long-duration capital pools that we can scale rapidly, leveraging our partnership with Equitable and our unique distribution capabilities. We remain enthusiastic about the value we bring to our clients and shareholders by focusing on scalable long-duration assets that align with our commitment to sustainable organic growth and long-term profitability, rather than solely concentrating on fee rates. Slide 13 offers a breakdown of our performance fees across private and public strategies. Third quarter performance-related fees totaled approximately $20 million, with nearly $18 million generated through our direct lending platform within private wealth, and approximately $2 million from institutional services, both public and private. In the fourth quarter, we expect an additional $35 million to $40 million in private market performance fees, reflecting modest upside from AB CarVal's strong performance coupled with an improved real estate backdrop for our CRE debt services. Strong year-to-date public markets have also increased the likelihood of upside from public market strategies that could potentially crystallize in the fourth quarter, assuming stable markets. Therefore, we expect an additional $5 million to $25 million from public performance fees. All in, we are raising our full-year performance fee guide to $130 million to $155 million in total performance fees from our prior guide of $110 million to $130 million. As you can see, the range of potential outcomes will largely be driven by our public market strategies. Assuming flat markets, we view our guide as a floor rather than a ceiling, although we caution that the prior year's upside was largely driven by sector-specific windfalls in select public strategies. Although public beta is volatile and difficult to predict, our public alternative strategies improve our market leverage profile and provide additional upside in strong markets. This complements our more dependable private market performance fees, creating an attractive performance fee stream for our business. Turning to slide 14, as previously mentioned, adjusted operating margin rose to 34.2% in the third quarter, a 209 basis point increase from the prior year. As a result of favorable market conditions and improved operational efficiency, our year-to-date adjusted margin of 33.4% stands above our market-neutral forecast of 33%. We are pleased with the progress we have made to enhance margins, currently exceeding the midpoint of our Investor Day target. As we have been adding investment teams, new product launches, and marketing efforts, which are aimed at delivering enhanced earnings over time. While we continue to be disciplined on expenses, we expect our ongoing allocation of resources to targeted growth initiatives such as new teams and products to drive organic growth and sustainable profitability over the long term. Before we proceed to the Q&A session, I want to express my sincere appreciation to all my colleagues for their continued contributions and commitment. We are steadfast in our goal to efficiently allocate capital, create value for our clients, investors, employees, and stakeholders by simultaneously diversifying and expanding our business. With that, we are pleased to answer your questions. Operator? Operator: Thank you. Questions. You're welcome to return to the queue to ask follow-up questions. Our first question will come from William Raymond Katz from TD Cowen. Please go ahead. Your line is open. William Raymond Katz: Okay. Thank you. Good morning. I apologize, my voice is dealing with a bit of a hoarse situation here. Maybe starting on the insurance opportunity. I was wondering if you could flesh out maybe how the economic opportunity would sit with the opportunity with Carlyle. And then I think you mentioned in your commentary that the Ruby Re might get extended out to 2026. So I was wondering, is that a delay and what might be driving that? Thank you. Onur Erzan: Hi, Bill. Let me take that. Yes, we are very excited about the continued momentum in our insurance asset management business. And FCA Re is our second sidecar investment to build on that positive experience we had with Ruby Re. Everything is going as planned with Ruby Re. We are pleased with the results to date. It's in line with our IRR expectations. And the relationship with RGA is off to a phenomenal start with all of the IMAs in place, and we already started deploying capital in all of the IMAs we have across multiple private alts mandates. So all in all, no issues with the sidecar expectations, performance, as well as our RGA relationship. That is obviously of the sidecar given we manage assets for the IGA balance sheet. And on the FCA Re, obviously, Carlyle is one of the investors with Fortitude as well as a number of Asian insurance companies. We really like that sidecar, and it's additive to Ruby Re because Ruby Re is in the asset-intensive space, primarily US liabilities versus FCA Re takes us to very attractive Asian insurance markets. It's also quite synergistic with our broader Asia strategy. So all in all, in terms of our insurance strategy with seven new clients in GA and 25 internal account relationships with eight new mandates and with two successful sidecar investments, we believe we are on track. Seth Perry Bernstein: And Bill, it's Seth, and I hope you're feeling better. But just to clarify, the timing of the funding on RGA hasn't changed. It was always gonna be deferred. Yeah. I mean, it was always scheduled to be over this period. So I don't think there's any delay of any sort to note. William Raymond Katz: Okay. Thank you for the clarification. And just maybe the second question. Just seems like a lot of attention around the opportunity in private credit. If you could speak to just a couple of different facets, maybe what you're seeing in terms of credit quality seems to be quite a kerfuffle out there, which doesn't seem logical to us but nonetheless. And I was wondering if you could also help us understand what the rate sensitivity might be to the extent that forward rates come down? How we might think about Part one fees into 2026? Thank you. Seth Perry Bernstein: Well, let me start, and whether it makes sense or not, Tom should jump in if I missed part of the answer. As we look at our various private credit teams, we see pretty competitive environments, pretty aggressive bidding for transactions across different asset classes. With maybe the exception of commercial real estate, which as you know has been out of favor for a while, although we do see more and more opportunities there. I'd also say that we do believe these are one-off transactions and don't suggest a broader material deterioration in credit quality. The economy continues to be fairly robust, albeit slowing. The maturities that many of our counterparties are facing are manageable, and their cash flow generation is positive. So on balance, we think we're in pretty good shape. With respect to First Brands, which is one of the names you did mention, we do have exposure there, and we're pretty well protected given that ours was an inventory financing vehicle rather than funding receivables. And we have a perfected interest and look, time is going to tell, but we feel at this point given the discussions we've had with all parties, we're sitting in a pretty good place. So all in all, we feel that they're continuing to grow. There will be deterioration in credits more broadly, and there will be individual names where fraud and other issues do arise. But we're not in any way shaken or disturbed by the course of the market. Thomas Rudolph Simeone: Yes. I think the only thing I did there, Seth, is as rates decline, that may have an impact on our ability to generate performance fees. Operator: Next question comes from Craig Siegenthaler from Bank of America. Please go ahead. Your line is open. Craig Siegenthaler: Thanks. Good morning, Seth. Hope everyone is doing well. My question is on your Asia business. And what you're seeing and hearing from investors in the region. Following Liberation Day in the trade conflicts in the first half of the year, how have investors in Asia reacted to that? Have you seen any demand rotations from US to Asia product or from US to global product? Onur Erzan: Hi, Craig. Let me take that question. To answer specifically for AllianceBernstein Holding L.P., actually in the third quarter, we definitely saw improvement in our Asia business, particularly in taxable fixed income. And we continue to see strong engagement from institutional clients as well. So all in all, despite the noise from tariffs, some of the debasement of the US dollar, we have not experienced any major impact on our business. But in our travels, anecdotally, clients talk more about getting exposure to other currencies and diversifying more into global and international equities. And also let me emphasize that our equities platform is a global platform. So although we are a US-headquartered global asset manager, our equity strategies are global. We have international strategies. We have regional strategies. We have global strategies. We are not necessarily at a disadvantage if there is a rotation away on a tactical basis or a structural basis from US equities into international or global. In our case, I think the pressure has been primarily in our large-cap growth product, and that is isolated in Japan. Obviously, as you know, we have delivered very impressive performance in Japan through that product over many, many quarters. I think it's natural to see some slowdown at some point. But I believe that is a much more product-specific trend as opposed to a broader structural or systemic risk for us. Our business. Seth Perry Bernstein: Craig, I would just add that we have on-the-ground fundamental research capabilities in China and in broader Asia. And we are seeing more and more inquiries for those strategies principally from outside the US, but that interest is there and growing. And I would also say just back on the institutional point in Asia, we are continuing to see demand institutionally through US fixed income. Craig Siegenthaler: Got it. Thank you, Seth. Craig Siegenthaler: My follow-up, I just wanted some clarifications on the strategic partnership with Fortitude Carlyle Asia REIT. So, how much capital do you invest in that sidecar? Where did those funds come from? And then I think you plan to manage private and liquid credit for Fortitude Carlyle Asia's general accounts. Is that right? What is the AUM potential? Onur Erzan: Yeah. So let me start with AUM and the asset class, and then Tom can add on the financing implications, etcetera. So in terms of the relationship, this is to manage assets for the sidecar itself. It is predominantly private credit. We expect that to be around $1.5 billion across multiple private credit strategies. So that has a lot of similarities to Ruby Re, but there are two differences with Ruby Re. Number one, this is for the sidecar itself. And then in terms of the AUM lift, AUM lift here is going to be even greater when all the capital is called and deployed. In terms of financing of these sidecars, I also want to highlight the funding of the equity typically takes time. And let me hand it over to Tom to talk about the timing and the capital implications. Thomas Rudolph Simeone: Yes. The commitment to FCA is $100 million. We plan to fund that in '26 or '27 when called. And there's a couple of levers or a few levers rather that we have available to us to fund it. We can, we're very under-levered, so we have credit lines available to us. And then we have units through two avenues, either public units or private units, and we'll evaluate the best course forward when we get there. Seth Perry Bernstein: Right. And also to remind our investors, and we talked about it when we made the original Ruby Re investments. When we think about the economics of these deals, economics come from two different parts, right? Number one is, on the equity investment, we generate earnings. So typically these sidecars are modeled to deliver mid-teens 15% IRR. And so that is one stream of income. And then in addition to that 15% on average IRR, you get the downstream economics on the assets you manage. With relatively long-term IMAs. And those IMAs tend to be very much focused on private credit. So pretty sticky assets, relatively high fee. And as a result, it should be accretive to our revenue base and earnings on multiple dimensions. Operator: Onur, Tom, thank you very much. Our next question comes from Alexander Blostein from Goldman Sachs. Please go ahead. Your line is open. Anthony Jameek Corbin: Hi, good morning, guys. This is Anthony on for Alex. Wanted to touch on the margin and kind of expense growth trajectory as we look out into the other couple of years, you guys are tracking ahead of your target for this year. And I appreciate the expense guide, but as we look out for the next couple of years, how should we think about the pace of margin expansion and non-comp expense growth? Thomas Rudolph Simeone: Hi, Anthony. How's it going? Look, I'm gonna anchor back to Investor Day in 2023. We had a long-term target of 30% to 35% operating margin. There were two big anchors to achieving that at that point in time. It was the BRS divestiture, as well as the relocation and consolidation strategy in the US. We've achieved those. We're currently at the midpoint. We're going to our 33% margin target for 2025. And from there, there's no other stories or big stories to share with you on the expense side. We don't have anything of that size that's going to impact our expenses. Be able to bring them down as those two that I just mentioned. But we continue to look for a lot of small wins just as evidenced by our decrease, our second decrease actually this year, our non-comp controllable expenses. We're going to continue to look at items like that, but there's nothing more I can share with you related to that at this point. Anthony Jameek Corbin: Thanks. That's helpful. And maybe for my follow-up, just on the buyback, I was pretty light this quarter, and I'm not sure if that had to do with the Equitable conversion. But how should we think about kind of the capital allocation strategy specifically around buybacks or maybe any potential inorganic opportunities? Thomas Rudolph Simeone: Yeah. The light buyback this quarter had nothing to do with Equitable. We do buy units back and retire them, as you're aware, for our deferred compensation plan. We probably have another $30 million to $35 million left to go this year to fund that. So I think it's just timing. I did read your note this morning. I just think it's a matter of timing. I think your number was pretty close. We only captured roughly $4 million of that in Q3 versus what you had. Anthony Jameek Corbin: Gotcha. Thanks. Operator: Our next question comes from Daniel Thomas Fannon from Jefferies. Daniel Thomas Fannon: Yes. Thanks. Good morning. Seth, I think you said the bond reallocation is underway. Wanted you to elaborate a bit on those comments. And then as we look at your performance and the products you have, do you think you're positioned to benefit materially from that reallocation if and when that occurs? Seth Perry Bernstein: Thanks, Dan. We continue to see, particularly in Asia, appetite remaining for taxable fixed income. While it's not at the gross sales levels they were prior to April, they are recovering, and we feel good about the trajectory there. From a relative performance perspective in our flagship products, we're doing fine. We could always do better, but I feel that that's not a hurdle to us gaining our share or better given our very strong distribution capabilities within the region. Additionally, we continue to look at new strategies to deploy in the region. When I look back in the US, we've had tremendous success in the tax-exempt SMA space. We think we're the largest player now in it, and we continue to see increasing adoption for our customized mass-customized solutions in a number of the key distributors and continue to grow as we innovate and develop more products. So look, I think that the short-term performance in the third quarter wasn't as good just given a couple of call-outs that I mentioned earlier on in emerging markets credit and given just the volatility and duration. But we're feeling good about performance and the team and the quality of the team and the discipline of their process. So Dan, I think it's in good shape. But there's always going to be volatility from quarter to quarter. Onur Erzan: Yes. Let me add a few specific points. As Seth mentioned, per Morningstar, we are the number one retail muni SMA manager based on net flows. So we definitely capture market share. In the third quarter, our annualized organic growth rate was around 26%, so very strong results there. Second, in terms of broadening from US fixed income to global fixed income as a proof point, we had a $5 billion global credits win in the third quarter in Publix. So that's definitely demonstrating that we can also play on the global bond transition. And then finally, given the growth of our ETF franchise, we have additional ways to participate in the fixed income flows from different channels. I'm very pleased that as of October, our ETF platform exceeded $10 billion, and right now the run rate flows on a monthly basis typically exceed $250 million, and we had multiple more than eight ETFs in the third quarter that delivered more than $50 million in net flows. So overall, I feel given we have a relatively modest market share in many of these client segments, with new vehicles and the broad platform, we have a long way to achieve further upside. Seth Perry Bernstein: I guess just the final point. The long-term performance is quite strong for those services. So yeah, we feel good with where we are. I hope that answers your question. Daniel Thomas Fannon: Yeah. Great. That's very helpful. And then, Tom, just a question on expenses, given the outperformance on the non-comp year to date. Can you just talk about what's been the biggest variance between the initial guidance you gave to start the year and where we sit today going into the fourth quarter? Thomas Rudolph Simeone: Yeah. It was really driven largely by the events of April and Q2. So we took on a couple of cost containment initiatives in Q2, and then the businesses have been delivering on those savings ever since. Daniel Thomas Fannon: Understood. Thomas Rudolph Simeone: Thank you. Onur Erzan: You're welcome. Operator: Our next question comes from John Joseph Dunn from Evercore. Please go ahead. Your line is open. John Joseph Dunn: Thank you. You guys mentioned some areas of equities like structured equities and strategic core thematic. Can you kind of highlight the profile of the investors who are putting money to work there? Onur Erzan: Sure, John. Hi, Onur again. Yes, let me comment on that. In terms of the structured equity, it is large Asian institutional. In terms of thematic products, healthcare has been more Europe, large European high net worths. In terms of some of the thematic like security of the future, we have a strong partnership with a large global private bank that has been the driver of that. So pretty global, it's well balanced between retail and geographically. John Joseph Dunn: Got you. And then, maybe just on the pipeline, like the outlook for getting it back to closer to where it had been last quarter. And then the composition as well? Onur Erzan: Sure. Yes, sure. Look, at the end, I mean, pipeline, I mean, good news is we have been deploying at very fast speeds. So eventually, you want to deploy so you can start generating revenue and assets. So we are very pleased that we are deploying. Although on a net basis, the pipeline came down given the deployments and the RGA dynamics, but ultimately we added a billion dollars to the pipeline. So it has been a strong quarter from that perspective. The other thing to highlight is, we don't basically get full credit for leverage on different products, which are fee-earning. Some of our competitors get credit on that leverage, including net flows, etcetera. So I wouldn't also kind of ignore the fact that we have $15 billion powder including leverage in our private credit platform. So that will also continue to flow in, and that's greater than our pipeline numbers. All in all, it's hard to promise a specific pipeline number. We are focused on deploying capital, generating revenue fast, and we are on track also with the build-out of our private credit platform given we are at $80 billion relative to our $90 billion to $100 billion '27 goal. Seth Perry Bernstein: I would just add that FCA is not included in that pipeline yet. And we continue to see good search activity. But I would just also remind everybody that when we win some of these larger customized retirement solutions, they tend to be quite lumpy in the way that they impact the pipeline. So they're hard to predict, but there's activity in that space. John Joseph Dunn: Thank you. Operator: Our next question comes from Benjamin Elliot Budish from Barclays. Please go ahead. Your line is open. Benjamin Elliot Budish: Hi, good morning and thanks for taking the question. Maybe just first on the private markets fees, you spent some time about what's going on in the public side. Curious on the private side in the slides you always emphasize that the majority comes from ABPCI. I would think that should be somewhat more predictable. I'm just curious what else I think the guidance came up a little over ten million for the full year. Just curious what else changed on the private side? And could you maybe touch on the sort of sensitivity to rates? I would assume a lot of that floating rate debt. So just curious if you could kind of frame that up? Thomas Rudolph Simeone: Yeah. So, Ben, it's Tom. How are you doing? I agree. PCI is very stable and dependable, consistent performer. We get to crystallize those as we go throughout the year each quarter. Some of the other products don't crystallize until year-end, so they've got a little bit more variability to it. And during the year, we've also got some performance fees. I'm just trying to see if I've yeah. We've got some performance fees in commercial real estate and CarVal in our forecast as well, Ben. Benjamin Elliot Budish: Okay. Maybe just following up on a separate topic, the target date discussion from earlier. Just curious if you could unpack a little bit for the partners where you are allocating to private and custom funds, what do the allocations look like? What are the fee rate implications? And are there any kind of are they custom enough such that they're not good read-throughs to what we might see as this market opens up more broadly? Or do you think that perhaps those are good indicators? Appreciate any thoughts there. Thank you. Onur Erzan: Sure. Let me take that, Onur here. In terms of our experience in DC and coming up with custom solutions, that goes back more than a decade, including the lifetime solutions. So we have deep experience structuring these solutions, including also alternatives into the glide path. We have been doing that for a long time both in the US as well as overseas, particularly the UK. Obviously, the executive order private alts in DC creates some momentum at least in terms of the talk track. I mean, our experience is typically DC market moves slowly given the litigation risk that is still high on the minds of the sponsors. And hence, although that's definitely a structural trend and we will definitely see more alternative assets in DC plans. I expect two things. One, I think it will start with more custom solutions like managed accounts, etcetera, as opposed to some of the existing large target date funds which are in commingled vehicles. So that will be my prediction. And two, in terms of the fees, given the pending litigation risk on the minds of the sponsors, there's going to be continued fee sensitivity in addition to the usual fee sensitivity of the institutional investors and the DC investors. So hence some of these alternatives products might not have the same fee levels as you see in some other channels. Definitely, there's going to be lower fees than the retail vehicles. And then in many cases, it might be even lower than some of the defined benefit plans. So that's how I think about it. That being said, in terms of our positioning, with $100 plus billion of custom retirement solutions including lifetime income, we are one of the biggest providers of custom solutions in the DC market globally. We definitely have a lot of ongoing partnership conversations as well. So as the market develops, we're going to be definitely in the front seat and we're going to be benefiting from that. But we are not taking any credit in our forecast in terms of any major flows coming from DC alts. Hopefully, that will be an upside if the market moves faster than I predict. Seth Perry Bernstein: I would just add that to Onur's point that it's going to take time for this to mature given the caution and the process. But it's not unreasonable to think that privates could be 10% of these portfolios over time. In composition, private credit will play a big part of that. But again, it's going to take we're still in the very early days of this evolution. And I think you're gonna continue to see more activity over time. Benjamin Elliot Budish: All right. Thank you all very much. Operator: And we have time for one last question. Last question will come from William Raymond Katz from TD Cowen. Please go ahead. Your line is open. William Raymond Katz: Great. Thanks for taking the extra question. So if you could unpack a little bit some of the success you're having on the private wealth side of the equation and just remind us of what the rate sensitivity is on cash? Thank you. Onur Erzan: Sure. Thanks for the question, Bill. Yes, on the success of the business, we have a strong third quarter. In terms of annualized net new assets, growth was seven-plus percent in terms of net flows if I use the management metric 3.5% annualized. So definitely very strong. And what I like about that is it's driven by both record run rate productivity from the advisor side, uptick in sales as a result, as well as reduction in outflow. So it's a very healthy picture. I mean, at the end of the day, there will be always quarter-to-quarter volatility, but I'm happy with the direction of our business. In terms of the sensitivity to rates, we have very, very little sensitivity to rates in our private wealth business when it comes to cash economics. The cash economics is less than 5% of the total revenue and earnings contribution is modest. And the good thing is since we are self-funding our margin with the cash balances, we have a locked-in spread between what we pay versus what we earn. The result is our sensitivity to absolute fee levels is very low, particularly when the rates remain positive. And I think it will remain positive for the foreseeable future. So all in all, it's a non-event for our business. So we are much more protected on that dimension related to some other broker-dealers that have an economic or business model highly dependent on the spread income. Operator: There are no further questions at this time. Mr. Jorgali, I turn the call back over to you. Ioanis Jorgali: Thank you all very much for attending our call today. We look forward to connecting with you. Please don't hesitate to reach out. Operator: And we're now in private. Have a great day, everyone. Ioanis Jorgali: Thank you very much, Julian. I appreciate the help. Thank you. That was great. Operator: It was my pleasure. Bye for now. Anthony Jameek Corbin: You guys wanna flip to Zoom for
Alexis Bonte: Good morning, and welcome to the Stillfront Q3 presentation. I am Alexis Bonte, the CEO of Stillfront, and I will be joined later by Tim Holland, our Interim CFO. I would like to start with a slight focus on Europe. As you can see, we had solid progress in Europe. We said a few quarters ago that we were in an investment phase in Europe in the first half of the year and that we would start reaping some of those rewards towards the later part of the year. As you can see, Europe returned to growth for the first time since Q1 of 2024, so in Q3, where the growth was just under 1%. What is important to say here, this is before the launch of the main new games that will happen in Q4. Those big new games, as a reminder, will be Big Farm: Homestead, that will launch towards the end of the year and will be within the Big franchise, and we'll build on the success that we had with Sunshine Island. Another big game that we announced previously that will launch in Q4 is Warhammer 40,000, which is a big important new launch on the Supremacy franchise with a major IP. And we also soft launched with a narrative franchise, the Unfolded: Webtoon Stories game with the Webtoon IP, and that soft launch is having some encouraging results. The marketing efforts also that we'll have in what we call Q5, which is right after Christmas. It's a good time to basically start scaling game. We'll see most of that revenue come into next year. Obviously, and that will impact the margins in Europe in Q4. But I just want to show that we say that we were going to basically really work on building up Europe in the first part of the year. And so I'm very happy to see that, and to be able to share that we are now reaping some of the results with the existing franchises, which are kind of showing the results in terms of live operations and how that is really performing. And also obviously excited about the new launches in our core business area of Europe. If we go into the KPIs that we have in Europe, so that resulted in a net revenue of SEK 643 million. That's up 0.6% year-on-year. UAC was at SEK 207 million, relatively stable. We were able to apply quite a lot of UA, especially in Supremacy at the beginning of the quarter. Then towards the end of the quarter, it was a bit harder to put more UA. But overall, I think we're with a healthy level in UA for Europe. And as you know, every quarter, it varies a lot whether we're able to place UA or not place UA. So that's something that we're always very, very attentive to. Adjusted EBITDAC was solid at SEK 154 million, which is a margin of 24%. Our key franchises in Europe grew by 0.4%, good performance. I was very happy, in particular, with Albion Online, who started doing a lot of investments in product marketing. I told you that I wanted the company to be less dependent on performance marketing and Albion Online's is a great game to be doing more product marketing and they had a really strong effort in product marketing, which actually has borne fruit and has been successful, and that gives me a lot of confidence for that franchise going forward. The smaller franchises actually grew faster in Europe. That was mostly due to -- from our Playa studio, a smaller franchise called Shakes & Fidget, which performed well year-on-year, and also had a small new launch called Mobile Dungeon, which helped that franchise scale a little bit. So that's Europe, very happy with the results in Europe. Continuing on to North America, as you know, and as we said from the beginning, North America has been our turnaround case. It's been really our problem side. It's the only business area that has negative growth. It is the business area that's actually dragging us down overall in terms of organic growth. Without North America, we would have very healthy growth across the group since both Europe and MENA and APAC are growing business areas. But that being said, we're continuing our turnaround efforts in North America, and we're -- and we are deliberately focusing on profitability. That's really what we want to do. We want to find the right level. We've made some very serious cost cutting in North America. I think we have a much healthier base now in that area. We also took some very hard decisions moving games to other business areas. And I would say that a lot of that work is done now. We ended up with basically SEK 246 million of revenues. That's 32.9% down year-on-year. So that's what is dragging down the organic growth. UAC was SEK 110 million. As I said before, we are extremely disciplined about UAC and what games it goes to, and we've really increased the discipline in North America around that. And that obviously has an impact on the net revenue profile of the business area. But then it also resulted in a large increase in our adjusted EBITDAC, which was SEK 36 million, which is a 15% margin. I think most of you will recall that North America was barely profitable a few quarters ago. And that obviously is a big change that now North America is a net positive contributor to our EBITDAC margin. And I think this is just a much more healthy base to work from. Both key franchises and other franchises were down in North America. Now the challenge for North America is going to be to work from that base. I do expect the decline to continue into Q4 as we're continuing with our discipline, but I do also expect North America to continue to be a net positive contributor in terms of EBITDAC as we work on improving things there. MENA and APAC, continued solid growth. Actually, growth has slightly increased quarter-on-quarter. Very happy with MENA and APAC. We have -- if you look at our key franchises, they grew by more than 18%. That's -- and going into even more detail, both Jawaker and the Board Ludo franchise from Moonfrog had very healthy double-digit growth. Very, very solid situation in MENA and APAC. Small level of UAC. There's very little dependency on UAC, EMEA and APAC. I think actually, we do have an opportunity there to boost a little bit the growth in the future and more likely in 2026, particularly for the Board franchise if we're able to place a bit more UAC there, but that's something that we're going to do carefully and slowly, and just basically the -- and with discipline as we've been very disciplined all the time. And adjusted EBITDAC as a result has continued to increase significantly with SEK 276 million, which is a 57% margin. So that's basically the main things on this side. I will now pass on to our interim CFO, Tim, for -- to talk a little bit about finance. Tim Holland: Thank you, Alexis, and good morning, everyone. On a group level, revenues declined by 7.8% organically, coupled with a 6% foreign exchange headwind. Our net revenue declined from SEK 1,595 million, down to SEK 1,373 million. And that was driven by a few different things, but primarily, it was driven by BA North America and specifically Word and HGM franchises. And as Alexis noted, we are much more focused on the profitability of those titles. So we did decrease user acquisition on a year-over-year basis. However, when you do decrease UA, that's obviously going to increase profitability, but it is going to decrease net revenue. But that was partly offset by strong performance in BA Europe. As Alexis noted, we're almost at 1 percentage point of organic growth for BA Europe, and that was driven by strong performance for Big, for Albion Online and for Supremacy as well. And we also had strong performance from BA MENA APAC, where we got to almost 3 percentage points of organic growth, and that was driven again by Jawaker and Board franchises. Looking at UAC. UAC came down year-over-year from SEK 462 million down to SEK 336 million, and that was driven primarily by year-over-year declines in UA spend for HGM and for Word. Looking at adjusted EBITDAC, that's up year-over-year from SEK 385 million up to SEK 436 million. I should note that's a 13% point increase on an absolute basis year-over-year, and our net revenue obviously declined by 14%, but we are showing strong margin resilience even with that net revenue decline. Adjusted EBITDA came in at 32% in terms of margin. Again, that's up 8 percentage points compared to Q3 of 2024. Again, that's primarily driven by decreased UAC as a percentage of net revenue. But one thing to point out as well is that our gross margin has improved on a year-over-year basis from 80 to 83 percentage points, and that's due to the continued success of our Web shop rollout, where we've improved our direct-to-consumer share of revenue year-over-year from 33% up to 44 percentage points in Q3 of 2025. Looking at our LTM free cash flow, that's down slightly year-over-year. Last time we spoke, we reported SEK 1,089 million in terms of LTM free cash flow. That's down to SEK 974 million, but that change is primarily related to working capital adjustments, which is a natural part of our business. So you are going to see that fluctuation from positive to negative in terms of our working capital adjustments. Next slide, please. Digging a bit further into our cash flow generation. Cash flow before changes in net working capital came in at SEK 357 million, of which is SEK 77 million in paid financial expenses. That is down year-over-year from SEK 101 million, down to SEK 77 million. The decrease that you're seeing there is due to two things. That's primarily due to a reduced interest rate environment, and then also a reduction in our interest-bearing debt. Of that cash flow from operations before changes in net working capital, there is taxes paid of SEK 90 million. That's up year-over-year from SEK 42 million, up to SEK 90 million. The reason for the increase is primarily due to Jawaker, where we're paying taxes for Jawaker in the UAE now under that new legislation where you have to pay 9% of your corporate tax -- taxable income there. I should note that we are under CFC taxation in Sweden, so we will be getting a credit back for that amount. So the SEK 42 million to SEK 50 million amount is more of a normalized basis for our taxes paid. Net working capital came in at SEK 47 million, negative SEK 47 million, and that is due to negative SEK 98 million in terms of liabilities. That negative movement for liabilities is due to a reduction in our UAC, but that was partly offset by a positive impact of SEK 51 million for our receivables, and that's primarily due to reduced net revenue. Looking at cash flow from investment activities, that came in at SEK 119 million, and that was primarily driven by SEK 116 million in terms of product development. I should note that, that's about 8.5% of our net revenue spent on product development. Last year, it was 9.4%. So we are spending less in terms of product development. However, we are taking a much more targeted approach in terms of product development by specifically spending more in Europe, spending more in MENA and APAC. We were spending less in terms of BA North America. Looking at our cash flow from financing activities that came in at SEK 326 million. That was primarily driven by SEK 335 million that was used to pay down our RCF. That's up year-over-year, and that shows our continued focus on deleveraging this business. Turning now to our free cash flow. You can see our free cash flow for the LTM basis was SEK 974 million. That is up year-over-year from SEK 835 million. And the difference between the two values primarily comes from reduced financing charges, reduced product development, and it's partly offset by taxes paid. And this table on the right primarily shows what we've done with that free cash flow. So we had, obviously, the cash portion of our earn-outs at SEK 618 million. And we also reduced our borrowings by SEK 268 million. Again, that's up year-over-year. And then we had our share buybacks for SEK 142 million over an LTM basis. And I will note, and as you probably saw from the press release this morning, we have announced a new program that will begin tomorrow. Next slide, please. Looking at our financial position, our financial position, total net debt decreased from SEK 5.9 billion last year in Q3 of 2024, all the way down to SEK 5.1 billion. That's a reduction of almost SEK 800 million, again, showing our focus on deleveraging this business. The middle table shows our maturity profile. The maturity profile remains strong. As you know, we don't have any major maturities until 2027. That large bar there of SEK 2.9 billion represents SEK 1 billion for a bond that's due in 2027, the RCF drawn of SEK 1.2 billion and SEK 0.7 billion in terms of our SEK term loan. Then we have a bond due in 2028, and a bond due in 2029. Looking at the right table, that's our net debt to EBITDA. We came in at 2.06x for our leverage ratio. That's obviously above where we want to be for our 2x leverage ratio target. However, we are down sequentially from Q2 2025. We are down from 2.18, down to 2.06. And then on a year-over-year basis, we're down from 2.08 to 2.06. I should note, excluding earn-outs, we are at 1.87x. And then we'll flip to the next slide here. Then this is the last slide before I'll pass it back to Alexis. But as we've noted in our report this morning, we are announcing the conclusion of our cost optimization program, which has been driven by fixed cost savings and direct cost savings. And this has been announced 1 quarter early. We view this program as being a fantastic success. As I noted, we saved a significant amount of costs, specifically with fixed cost in North America, and we've been very successful with our direct cost savings with the rollout of the Web shop, improving our gross margin. Going forward, we're, of course, going to continue to focus on cost savings and direct cost improvements. However, we want to take a balanced approach to invest in our key franchises and invest in the future of Stillfront. And with that, I'll hand it back to Alexis. Thank you. Alexis Bonte: Thank you, Tim. So basically, to conclude, we are starting to deliver on what we set ourselves to deliver a year ago. We have concluded the cost optimization program a quarter in advance at the maximum level that we had set. We are advancing very decisively with the turnaround in North America and making sure that it's got a healthier base and healthier profitability. We are returning Europe to a more healthy level of organic growth while still having solid margins, and a very interesting pipeline of new games coming in. And we have MENA and APAC that is continuing to go from strength to strength. And we're also leveraging some of the talent there to move some of the games that we had in North America into that region. So we are still very much at the beginning of what we would like to deliver, but we are definitely seeing the first signs that our strategy is working, which gives me a lot of confidence, but also makes me extremely thankful to all the teams at Stillfront. In terms of our key focus going forward, we're going to continue to focus relentlessly our investments on the key franchises. That is something that we will do more and more and more. We obviously -- we're a games company. So we will continue focusing on successfully launching new games. But as you can see from our CapEx with a lot more disciplined approach, but at the same time, I want to make sure that we have the right level of ambition. We will continue to -- with our discipline of delivering on strong margins and cash flow. And obviously, we are continuing to execute on the strategic review. You've seen that we've done some game closures this past quarter. We've also announced that we'll likely do some extra game closures, and we're also looking at, still, very carefully at some potential divestments. So with that, I think we are ready to take your questions, and thank you very much for your attention. Operator: [Operator Instructions] The next question comes from Erik Larsson from SEB. Erik Larsson: I have two questions. First off, I appreciate the outlook comments here on Q4. And as I understand it, your wording on Europe as we will potentially see weaker organic growth rates in Q4 versus what we saw here in Q3. But are you still confident on the ability to grow sequentially here, just to sort of get a feeling on the magnitude? Alexis Bonte: Yes. Maybe I can take that question first, and then Tim, you can build up. So yes, as we've indicated, we do believe that Europe might potentially be a little weaker in Q4, but still, it will be a completely different level to what you saw in Q1 and Q2. The reason why it's very difficult for us to really know where Europe will be is a lot of it depends on the year that we're able to allocate for Supremacy. And also most of the impact of the new games will be in the later part of the year and also towards next year, and it's very difficult to basically balance what will happen there. But it's definitely on another level going forward, and we're very confident that we've kind of found a new rhythm for Europe now. Tim, I don't know if you want to... Tim Holland: Yes. I mean, just as Alexis said, there's going to be variability from quarter-to-quarter, but we do believe in the long-term improvement in Europe. And then as Alexis mentioned as well, that's going to be heavily influenced by the new games. Erik Larsson: Okay. Then second and final question. Looking at your debt structure, it's start to look at some refinancing next year. So I just wanted to hear some thoughts how you think about the capital allocation. I guess you have reducing the absolute debt, giving better earn-outs, et cetera. So any thoughts there would be interesting to hear? Tim Holland: Yes. I mean we're going to get back to that. I think that our debt structure is strong. We have our maturity profile. Everything is primarily due in 2027 onwards. And that's a good timing as well because our earn-outs will be finalized in 2027 as well. So what we'll do with the extra cash could be amortizing much more on our RCF. We can also potentially do dividends. We could do acquisitions, but we'll get back to that at the appropriate time. Operator: [Operator Instructions] The next question comes from Rasmus Engberg from Kepler Cheuvreux. Rasmus Engberg: Warhammer Supremacy, when is that the game supposed to be out? Alexis Bonte: Rasmus, good to hear from you. So basically, we are having an initial launch, I think, around the end of this month, which will be a soft launch. And then we expect to basically scale the launch during the year to have, basically, a larger launch towards the end of the year. So Q4, but later part of Q4. Rasmus Engberg: Okay. And would you dare to say anything about Europe for next year? Do you think it's going to be largely stable then? Or you've taken some measures with launches and improvement of titles? Is Europe stable from these levels going forward? Or how do you think about it? Alexis Bonte: Yes. I mean the way we're thinking about it is we did a lot of work that was necessary to be done in Europe. We're really focusing our investments, focusing on the key franchises, making sure that we have a proper pipeline going forward. We're seeing the results, I think, basically more or less when we expected them, which is good. And that gives me very solid confidence for next year. Rasmus Engberg: And these new measures, you talked about closing some further games in North America, or potentially lowering them. That sounds like though there are more fixed cost savings sort of outside of the program? Or how should we think about that? Or is that going to be reinvested in something or? Alexis Bonte: Yes. I think there's a time to be doing cost savings and there's a time to go on the offensive. I think we've done what we had to do in terms of cost savings. And any further savings that we might receive from other game closures and all that, it is very much our intention to reinvest and to go on the offensive and to strengthen our pipeline. I think we have a strong base to do that. I think the cleanup that we had to do has mostly been done. And now it's about really being more aggressive going forward. Rasmus Engberg: Would it be possible to talk about sort of the better part of North America? Is that a stable part? How much is it? Is it possible to give any indication on that? Alexis Bonte: I mean we don't do breakdowns of business areas, obviously. I mean, I'll let Tim to build up. But obviously, we have some key franchise in North America. Those -- some of those key franchises, I think, have really good potential, but they need to increase their performance. I think we we've really raised the bar in terms of what we consider as good performance. I think there is a few franchise in North America that could do well. Some can do well within North America. Others, clearly, we didn't have the team or the right resources to make them work in North America. For example, like Word. And that's why we moved out Word games to Moonfrog in India, where the team there, a lot of people are former Zynga people that worked actually on Word games. So it was a perfect match. So we'll be kind of very direct with that. But yes, there are some good elements in North America, but they're going to have to demonstrate over the next 3 to 6 months that they can deliver basically. Tim Holland: Yes, nothing further to add other than we have some very strong franchises in North America. Like BitLife, there's probably nothing like it globally in terms of that title. And so we have high hopes for that title. But of course, we do need to see some stronger performance in that region. Operator: There are no more questions at this time. So I hand the conference back to the speakers for any closing comments. Alexis Bonte: Well, on behalf of Tim and myself, thank you very much for joining this call on the Q3 Stillfront results. As I just said, we're executing on what we said we were going to do. And we are happy to start seeing the first results of our strategy. And obviously, we aim to continue to deliver over this over the next quarters. Thank you very much for your time. Tim Holland: Thank you.
Conversation: Operator: Welcome to the Pandox Q3 presentation for 2025. [Operator Instructions] Now I will hand the conference over to Head of IR and Communications, Anders Berg. Please go ahead. Anders Berg: Thank you very much, and we would like to welcome all of you to this presentation of Pandox Interim Report for the third quarter 2025. I'm here together with Liia Nou, our CEO; and Anneli Lindblom, our CFO. And today, we also have the pleasure of having both Aoife Roche, Vice President at STR; and Rasmus Kjellman, CEO at Benchmarking Alliance with us. Aoife and Rasmus will provide a hotel market update on Europe and Nordics, respectively. And STR and Benchmarking Alliance are both leading independent research firms dedicated to the hotel market and the views they express are completely separate from Pandox. And we offer these presentations as a service to Pandox stakeholders. Please note that Aoife and Rasmus's presentations will be held after we have completed our formal earnings presentation, including the Q&A. So we start with Liia and Anneli's business update and financial highlights for the third quarter 2025, followed by the Q&A session. So with that, I hand over to Liia. Liia Nou: Thank you, Anders, and good morning, and welcome, everyone. The hotel market improved in the third quarter, supported by a good event calendar and active leisure travel. Together with the profitable contribution from completed acquisitions, this resulted in increased earnings in both our business segments. In the Lease's business segment, demand improved, but varied across markets. The Nordics developed the best with good rent growth in Sweden, Norway and Denmark, while Finland remained weaker. Overall, development in Germany and the U.K. was stable. Both revenue and profit increased in the Own Operations business segment. Demand improved while comparisons with the corresponding quarter last year eased with a gradual diminishing effect of the UEFA European Championships in Germany in 2024 as the quarter progressed. Total revenues increased by 5%, net operating income increased by 8% and cash earnings increased by 6%. Cash earnings per share increased by 1%, but adjusted for the financial net of SEK 37 million related to the ongoing acquisitions of Dalata Hotel Group, the increase was 7%. In the quarter, several important steps have been taken towards completion of the acquisition of Dalata, which is expected to take place at the beginning of November this year. Financially, we start on a strong base going into the completion of the acquisition. Adjusted for the ongoing acquisition, the loan-to-value was 46.4% compared to 46.7% at the end of the second quarter. This will enable us to also continue to make profitable investments in our existing portfolio. We expect the acquisition to contribute to revenue and NOI already in the fourth quarter with full effect on the revenue and cash earnings for the full year 2026. However, there will be a negative effect from transaction costs accounted for in the fourth quarter. On this page, we summarize some basic facts on Pandox. We are active in Europe, the world's largest hotel and tourism market with strong structural growth drivers. We only invest in hotel properties and create value through active and engaged ownership. We have long-term revenue-based leases with a worth of 14 years and good guaranteed minimum rent levels with skilled operators. Our portfolio has an average valuation yield of 6.24% and a yield spread of 240 basis points. We invest in climate change projects in our portfolio with good returns based on our SBTi validated targets. And we have a strong cash flow and strong financial position, which enable us to drive continuous profitable growth through acquisitions of new properties as well as value-accretive investments in our existing portfolio. We have a strong and well-diversified hotel property portfolio consisting of 162 hotels with approximately 36,000 rooms in 11 countries and 90 cities with a property market value of approximately SEK 76 billion and as I said, a blended average yield of 6.24%. We are divided into 2 mutually supportive and reinforcing business segments, leases and own operations. Leases where we own and lease out our hotel properties stands for 80% of the property market value. And in our own operations, we transform and run hotels in the properties we own and own operations makes up for 20% of our property market value. Our portfolio is upper mid-market hotels with mostly domestic regional demand, which is the backbone of the hotel market, regardless of which phase the hotel market cycle is in. We have one of the strongest networks of brands and partners in the hotel property industry, which ensures efficient operations and revenue management, which maximize cash flow and property values and continuous flow of business opportunities. And also importantly, a relatively large part of the investment in leases is shared with the tenant, which lowers our risk. I will later in this presentation, share some data on what the portfolio will look like after the acquisition of Dalata as well. Our business is to own, improve and lease hotel properties to strong hotel operators under long-term revenue-based leases. We do this through 3 principal value activities, property management, property development and portfolio optimization. Our ultimate goal is value creation, which we achieved through distinctive activities in our business segments, leases and own operations. Leases build upon long-term revenue-based leases with skilled operators, which share risk and upside and have joint incentives to improve the hotel product. And in own operations, an important tool for acquiring, repositioning and transforming hotels where we also have the optionality, which is -- where also the optionality is important for us. We can sign new leases, we can divest the property or keep it in the segment as long as it's the best option from a value perspective. Here, we have compounded annual growth rates for the markets we are currently active in. This is based on market data from STR over the period 2016 to 2025 year-to-date. Against them, we also plotted the portfolio market value as of 30th of September. Obviously, our portfolio has changed quite a lot over this period, but it shows our current exposure to different markets against the historical growth patterns. As you can see, Norway has had the highest growth with 5.3% and Finland, the lowest by 1.1%. Growth in our largest markets, U.K., Germany and Sweden has ranged between 3.3% and 1.2%. And these growth numbers are not adjusted for the pandemic, they are as is. The numbers on the map are the rolling 12-month RevPAR in local currency, just to give you a feeling for the current absolute differences between markets. Here, we would like to illustrate a few different yield spreads as an indication of our value creation over time. Starting from the bottom, we have the average cost of debt, followed by the blended yield on our portfolio, both at the end of the period and in this case, it's 30th of September. The next 2 boxes are the average yield on investment. The first one is unadjusted for the 2020 drop during the pandemic, while the second one excludes it. The underlying assumptions are outlined on the right-hand side of the page, and the period is 10 years 2015 to 2025, for which we have aggregated investments, net of divestments and the incremental increase in net operating income. We have then divided the aggregate incremental increase in NOI by investments to derive at an average yearly yield or return over the period, and it ranges from 7.5% to 11.5% depending if you adjust for the pandemic year. The yield spread range from already healthy 240 basis points to 780 basis points. Capital allocation is at the heart of what we do. Our focus is the expected and actual return, which is a product of many things rather than the property's location in a certain country or city. We evaluate each hotel property on an ongoing basis to ensure that each hotel property has an attractive yield potential, and we also analyze the effects on the property portfolio as a whole. We have an active acquisition strategy based on deep industry know-how, a long-term perspective and the ability to act freely throughout the hotel value chain. Over time, we are net buyers. At the same time, divestments is an important tool to free up capital for acquisitions and investments with a higher return potential. In the third quarter, we made 2 smaller divestments and our expectation is that we will be more active on the divestments in 2026, particularly in the Nordics. Here, we have a breakdown of the performance for a selection of countries, regions and cities versus 2024. You've seen this before. We show average daily rate, ADR on the vertical axis and occupancy on the horizontal axis. Thus [indiscernible] is a point corresponding to 2024 on both ADR and occupancy. In the boxes, we indicate how much higher or lower RevPAR is compared with the corresponding period 2024. Year-to-date, RevPAR growth has been mixed across our markets. Occupancy has been stable or growing in most markets, while average price have been more varied. In terms of RevPAR, the greatest relative improvement in the first 9 months took place in the Nordic markets with Norway as a leader and Sweden gradually picking up the pace. Oslo and Copenhagen were strong city markets. However, several important markets for Pandox saw only modest growth or declined such as Germany, Brussels and U.K. regional. Aoife Roche from STR and Rasmus Kjellman from Benchmark Alliance will talk more about the underlying trends in the hotel market later in this call. As we now move closer to finalizing the acquisition of Dalata, we can share more details on the financial effects of it. In short, the end game is 31 investment properties with long-term based leases with an estimated market value of SEK 16.7 billion, which will be added to the business segment leases with a net initial yield estimated to be 6.95%. Rent is estimated to be SEK 1.2 billion per year with a profitability in line with our existing lease agreements in the U.K. and Ireland. Until the divestment to Scandic can be completed, the hotel operations is reported as profit from discontinued operations with no effect on own operations. No significant effect on earnings for Pandox is expected to be reported under profit from discontinued operations. The balance sheet items, excluding the properties and related items are reported as assets and liabilities held for sale. There are several ways to think about this transaction from a value perspective. Here, we illustrate the different value components in the transaction, starting from the left from the purchase value, adding existing net debt in the target, adding estimated transaction cost and thereby driving at an enterprise value, then taking into account the divestment of Scandic for the operating platform and leased assets, adding value for assets under construction and then driving at an implied yield for [indiscernible] properties, which we intend to keep of 8.4%. This compared to the estimated market value for the same 31 investment properties with long-term revenue-based leases with an initial yield of 6.95% or a market value of SEK 16.7 billion when all steps have been completed in the transaction. The value is based on an estimated rental income of SEK 1.2 billion with a similar NOI as in our other leases in the U.K. and Ireland and an estimated average weighted yield of 6.95%. Compared, as I said, with an implied yield on the acquired properties of some 8.4%, we estimate tentatively a value uplift of some SEK 3 billion. Here's the tentative time line of the main remaining steps in the transactions. The key upcoming event is the court hearing in Ireland on the 29th of October, where the scheme hopefully will be sanctioned. This will allow us to take the final steps toward closing of the transactions, which we expect to take place early November 2025. And here, we mapped out the 31 investment properties from Dalata, which we will add to the business segment leases in the fourth quarter. We apologize in advance if some of the cities have been marked out wrongly. 21 of the properties are located in Ireland and 10 in the U.K. Dublin and London are the biggest cities markets with 11 and 5 hotel properties, respectively. And all hotels are well established with leading commercial positions in the markets. And this is what our portfolio in the U.K. and Ireland will look like, including Dalata. In total, it will include 63 hotels, of which 12 in Dublin and 11 in London. In number of rooms, the U.K. will account for 20% and Ireland, 12%. We thus increase our exposure to Ireland, in particular, but also to the U.K. market. In terms of destinations, our exposure will increase somewhat towards international destinations and decrease somewhat towards -- from regional destinations. And with that, I'd like to hand over to Anneli Lindblom, our CFO. Anneli Lindblom: Thank you, Liia. So good morning, everyone. In the third quarter, revenue and group net operating income increased by 5% and 8%, respectively, driven by acquisitions and improving demand in several Nordic markets. Own operation also improved, supported by acquisition and gradually easier comps due to the European Championship in football in Germany in June, July last year. Cash earnings and profit before change in value increased by 6% and 4%, respectively. Adjusted for financial cost of SEK 37 million related to the acquisition of Dalata, cash earnings increased by 12%. With the same adjustment, cash earnings per share increased by 7%. Currency was negative also in the third quarter. To reduce the currency exposure in foreign investments, Pandox's aim is to finance the investment in local currency. Equity is normally not hedged as Pandox' strategy is to have a long investment perspective. Currency exposures are largely in form of currency translation effects. In the third quarter, currency had a negative impact on both earnings and property values. As you know, we have the main part of our hotel properties outside Sweden and denominated in foreign currencies. On this slide, we show the change in the main valuation parameters for the total property portfolio year-to-date. And please remember that investment properties are recognized at fair value. According to IFRS, unrealized changes in value for operating properties are only reported for information purpose and is included in our EPRA NRV. For the first 9 months, the total unrealized changes in value were a positive SEK 284 million, driven by lower yields. As I said earlier, changes in currency had a negative impact on the balance sheet items for the period with a decline in property values of approximately minus SEK 3.1 billion in the period. On the 30th September, we finally closed the acquisition of Elite Hotel Frost in Kiruna with a transaction value of SEK 347 million. We also divested 2 hotel properties for a total value of SEK 67 million. End of period, the average valuation yield for investment properties was unchanged at 6.09%. And for operating properties, it decreased by 4 basis points to 6.84%. The blended yield decreased 1 basis point to 6.24%. And here, we have the average yield, the average interest on debt and EPRA NRV per share quarterly. In the period, growth of the EPRA NAV was a negative 2% measured on an annual basis adjusted for paid dividend and proceeds from the new shares. Our LTV at the end of the quarter amounted to 52%. The increase is mainly explained by the acquisition of shares in Dalata done during Q3, which are not part of the LTV definition on the asset side. Adjusted for the ongoing acquisition of Dalata, loan-to-value was 46.4%, which puts us firmly on the lower end of our range -- our policy range and provides a strong foundation for the completion of the transaction. The ICR on a rolling 12-month basis was 2.7x on a sequential basis and only marginally affected by the ongoing acquisition. Cash and credit facilities amounted to SEK 2.5 billion. And on top of that, we have unencumbered assets with a value of some SEK 900 billion as an untapped reserve. During the quarter, the constructive trend in our financing market continued. In the third quarter, we refinanced loans of SEK 2.9 billion, which makes it close to SEK 7 billion so far this year. End of quarter, sustainability-linked loans, including green loans accounted for more than half of total outstanding loans. Looking ahead, we have SEK 4.8 billion on debt maturing within 1 year. And our bank relations are strong and expanding across our markets. We have ongoing discussions on future financing and refinancing. There is a strong appetite among not only the Nordic banks to finance our hotel properties. So it's a really good bank market at the moment. 53% of the net debt is hedged, which is the lowest level since the first quarter 2023. And with that, I hand back to you, Liia. Liia Nou: Thank you, Anneli. We have said it before, the hotel market remains resilient, supported by strong underlying structural growth drivers. For the fourth quarter, we expect a stable hotel market. We expect a normal seasonality with slower demand from mid-December to mid-January. We expect positive contribution from already completed acquisition and repositionings and subject to completion of the acquisition of Dalata in early November to recognize both revenue and cost in part of the fourth quarter. However, there will be a sizable negative earnings impact due to the accounting of one-off costs relating to the acquisition. For example, the majority of transaction costs, which will be part of the enterprise value will be accounted for in the P&L in Q4. For 2026, we expect the acquisition to contribute substantially to both NOI and cash earnings. And we look forward to the court hearing for sanction of the scheme on the 29th of October and to start working together with Dalata and Scandic to complete the transaction in the best possible way. We'll now move over to the Q&A. And operator, we are ready for questions, and please don't forget to hand back the call to us afterwards after our external speakers' presentation. Operator: [Operator Instructions] The next question comes from Andres Toome from Green Street. Andres Toome: Just a few questions from me, please. Firstly, just wondering on leisure demand and especially in Sweden, quite a bit of improvement. Do you see sort of the monetary and fiscal stimulus that is coming in Sweden, helping consumer confidence and internal demand? Would you say that's the reason? Or is it more to do with just sort of not so tough comps last year? Liia Nou: I think it's a bit of both. There is still some hesitation in the sort of the overall market, but you see some easing. And we have, as I said, a very strong summer. So I think it's a bit of both actually. International inbound traffic coming in and especially from U.S., it's still continuing. And whereas, again, as I said before, Europe is not traveling so much outside to the U.S. So the net is actually quite positive as well. Andres Toome: Perfect. And then my second point was just around demand in the business segment. There's, of course, quite a lot of sort of measures being brought forward in Europe, especially in the Nordics and Germany in terms of fiscal and defense spending. Would you say that is starting to become visible at all for the hotel sector activity? Or how you perceive that? Liia Nou: I think there's still some way to go. There has been, as I said, especially in Germany, but it's still a little bit awaiting. There will be a gradual effect. But we do expect a stable and sort of stronger second half onwards. Andres Toome: Perfect. And then my last point is just on external growth. Of course, the Dalata acquisition was quite sizable. But how do you sort of see other opportunities out there, both in terms of scale and value creation perspective, which would be sort of akin to what you were able to do with Dalata. Liia Nou: Yes. Well, we are, as you are aware, excited about the Dalata acquisition. We do expect sort of an underlying stable growth, even though it's a sort of modest growth in most of the markets, but still a growth. Then on top of that, the acquisitions and on top of that, our value-creative investments. We do look at capital allocation quite a lot also to enable us to do more value-accretive acquisitions. So we like to keep the wheels spinning quicker and quicker basically. And it's also quite an attractive time for doing both acquisitions. So I think there's a favorable time to both dispose of assets, but also to look at further acquisitions. Andres Toome: And do you think there's a lot of opportunities out there for similar scale as Dalata was? Or would you expect sort of more smaller deals? Liia Nou: Well, for the time being, we have our hands full. I think there is -- in the short term, medium term is probably a little bit more on the smaller side for at least from our perspective, because, again, these larger acquisitions take quite a lot of time to actually consume sort of -- and we have a busy year in front of us also to integrate and to work together with Dalata and Scandic in the best possible way. Andres Toome: And then maybe finally, on the other end of that sort of net external growth picture, you've done some disposals as well. What sort of part of the portfolio do you think you could recycle? And how much do you think you can bring down LTV with that after this Dalata acquisition? Liia Nou: Well, we believe, as I said, it's a favorable time for doing transactions. And I think there's an appetite for assisting high-quality portfolio, especially in the Nordics, which have a potential after recovery after pandemic. So there is -- it allows for giving us liquidity to do more investments and normal acquisitions. I don't want to give a specific number, but we do believe there is a sizable or sort of sizable appetite depending on what type of investment. But we do have -- we do expect some divestments. We will, with our strong cash flow, come back to our target of around 50% quite quickly, but we will also look at capital allocation in a further way. Operator: The next question comes from Staffan Bulow from Nordea. Staffan Bulow: I have a couple of questions. First, on U.K. and Ireland, that would become a rather substantial share of your portfolio if the Dalata acquisition is closed. Could you elaborate what you see on those 2 markets in terms of RevPAR for 2026? And also if there are any structural long-term growth drivers you see on the Dalata geographies which's you perhaps don't see in Germany and Nordics. Liia Nou: Well, I think the 31 investment properties, which we intend to keep are in dynamic markets. I mean, over time, especially Dublin and London are high RevPAR markets with sort of stable, strong underlying demand. So we haven't given any guidance, and I think we'll come back to STR when it comes to the outlook for U.K. and Ireland, but a stable growth. This year, it's been stable, but both from the ADR and occupancy perspective. Staffan Bulow: Okay. That's clear. And a question on the Dalata portfolio. I appreciate that you provided additional information. Could you say something about the financing structure in terms of LTV and cost of debt? Liia Nou: So for the existing Dalata financing? Staffan Bulow: Yes, exactly. Liia Nou: What we have already included in our 2.4 and 2.7 announcement is that we have a sort of a margin of, I think it's 2.25% originally going up to 2.50%. So underlying [indiscernible] a top of 225 as on the margin. And then, of course, there's typically some arrangement fees that are linked to this. But basically very much in line with what we previously had on sort of acquisition debt. And when it comes to LTV, we are -- as we also announced earlier, coming out from 46%, 47%, there will be accounting-wise an increase in LTV, which will peak around 9% or so in the sort of mid-50s. But with the sort of -- with the structure we have, it translates into an LTV, which is close to 52% or so. Anneli Lindblom: Yes. And the number of -- the effect in the LTV will be reported in the coming quarters. The effect From the Dalata acquisition. Staffan Bulow: Perfect. And then one final question from me. There was an article in local media [indiscernible] mentioned that Pandox are looking to sell hotels in the Nordics. Could you perhaps comment the rationale for this? Is it about balance sheet strengthening after the Dalata deal? Or is it rather that you see favorable prices in the Nordics or sort of why would you like to divest in -- specifically in the Nordics? Liia Nou: Yes. As I mentioned just before, I think this is a favorable time for doing transactions. There's a quite good pricing picture and sort of interesting yields. Of course, it allows for getting some liquidity to do more value-creative acquisitions and investments. and also to get quicker back to the 50% LTV, which we are comfortable with. But it's more an opportunistic. It's not a need to do, but it's more a wish to do and to just sort of see whether there is an appetite for a high-quality portfolio in the Nordics with a great potential after the recovery in our market. Operator: [Operator Instructions] There are no more questions at this time. So I hand the conference back to the speakers for any written questions and closing comments. Anders Berg: It appears we have no written questions. So with that, we thank you for the questions we got on the phone. And then we move over to the external hotel market presentations, and I hand over the word to Aoife for that. Please go ahead. Aoife Roche: Good morning. So looking back on European performance this year requires some perspective. Performance has been lackluster, but that does depend which market class you are looking at and of course, the comps. Uncertainty has bred some indecision and it has slowed things down in the first half of the year, but the summer months give us great confidence that the year will end positively. But first, a helicopter view on global performance. Supply growth is quite stable, showing 1% growth in August. Europe recorded a similar trend with the majority of pipeline in early phase planning and in the in construction stages. Despite trading conditions, the appetite for travel remains positive, albeit somewhat subdued. The economy is vulnerable and volatile and the consumer is quite cautious, and this is duly reflected in the soft demand growth that we have recorded year-to-date August. However, on a more positive note, if we strip out the United States and Mainland China from the global demand numbers, we observed a 2% growth in demand year-to-date. With demand growth somewhat subdued, we observe occupancy growing at a similar pace, and we can see Europe growing here by 1%. Demand stimulation often brings rate elasticity, but buoyant markets and more specifically market classes are propping up this 2% ADR growth we are seeing year-to-date in Europe. If we look at it from a RevPAR perspective, global RevPAR is up 3% or 4.2% when we exclude the U.S. due to those declines in occupancy. So let's move to Europe. Much like the trend globally, the year-on-year change is similar with demand growth in Europe slowing down to single digits with August matching the global demand growth rate of 1%. Occupancy growth is led by countries that perhaps have more availability in terms of their recovery post pandemic and in many cases, more affordability, case in point, Central and Eastern Europe. But if we decouple occupancy from ADR and we look at RevPAR, we observed that occupancy gains don't always drive rate gains. Despite low occupancy gains, the perennial appeal of Southern Europe shows little price resistance for the high-end traveler. Luxury and upper upscale hotels contribute their lion's share of this growth. And of course, the sheer presence of the American traveler is accelerating that ADR. Elsewhere, consumer caution creates a more challenging climate for some, most evident in U.K.'s performance, which is at the end of August, down by 0.2%. And of course, after a rich calendar of events in 2024, Germany and France are seeing some declines in rates. Whereas on the left-hand side of this chart, you see Spain, Portugal, Greece, Ireland and Italy and some emerging countries in Central and Eastern Europe continue to grow their rates, albeit in some cases, quite modestly, where ADRs are possibly touching a ceiling like markets in Greece and Italy. The summer was always going to be a very tough one for Europe when drawing comparisons to a bumper summer of '24. Non-repeat music and sporting events were going to be sorely missed. However, with September's results surprisingly strong, hitting 3.3% growth in RevPAR, year-to-date, Europe is showing a 1.9% growth. This Q3 growth is propped up by events, sporting and music, and of course, international demand. Much of this international demand, however, is being pushed towards Southern Europe with a relatively high proportion of high-end hotels, it is no surprise that these countries such as France, Italy and Greece are capturing much of this international business. But the summer has most definitely pulled Europe up and out of any danger zone. In fact, 73% of all European submarkets grew RevPAR in September. Compare this to March, where only 44% were in positive territory and June 53%. The 2025 trend is tracking closely to 2008 post GFC until August when it broke away and hit that 73% versus 42% in September 2008. This may be the end of our cautionary tail as we go into Q4. Now without those events, we may not have seen such a strong Q3. The Oasis tour was a welcome relief for many U.K. cities and drove strong RevPAR through occupancy and rate. [Compression] also made a comeback with Cardiff and Birmingham almost to capacity. After a tough first half, the U.K. has seen some positive results in Q3 across all classes. Year-to-date September, U.K. gained a positive position versus last year. And now year-to-date, we are posting 0.5% growth on 2024. Germany, on the other hand, endures continued negative growth, down 3% on last year at September year-to-date. With little international demand to speak of and a very cautious domestic consumer, events are forming a crucial part of their recovery, as demonstrated on this slide by the impact of the biennial and NUGA Conference in Cologne and Sibos in Frankfurt. Much like events, groups have a very important part to play for hotels. 20% of all occupied rooms midweek in Europe are by a group traveler. Although less impactful than the transient traveler, the opportunity to drive ADR through group business is an important component to supporting the top and bottom line. Now international demand fully recovered in Europe in 2023, and it played a huge role in Europe's 2024 performance, particularly that of the luxury segment. With consumer caution a recurring theme, we observe one constant. That is that where demand is soft, so too is rate, except in the case of luxury hotels. Out of 500 hotels globally boasting an ADR of over $1,000, the majority of these are in Europe, Italy, France, Spain and Greece making up the vast majority and thereby explaining the ADR performances I showed earlier. Transatlantic routes from the U.S. are holding steady. And although ADR growth may be muted this year for many markets, this is not the case for the U.S. dollar traveler, as you can see in this slide, 6% more expensive in Ireland versus a 1% ADR growth, as an example. Now despite Europe being a more expensive choice for the American traveler, departures to Europe have remained very strong and year-to-date have grown by 5% on last year. From all of the above, we can conclude that trading is stable. Occupancy growth is supported by a supply growth that is diluted somewhat due to delays, cancellations and closures. And at the pan-European level, active pipeline rooms have grown by 2% year-over-year to July, but with growth concentrated in the early phase planning and the in construction phases, final planning phase rooms fell by 28% relative to 2024. This is further compounded by closures for every room that closes, only 3 more open. And although that does sound very positive, pre-COVID, that ratio was 5:1. Looking to the future, supply growth expectations in 2025 and '26 are below historical averages. But the short to medium term looks positive as occupancy stabilizes, supply growth is muted, this allows rates to grow as we go into Q4 and onwards to Q1 2026. Another positive sign comes from our business on the books data, which is showing positive business on the books versus same time last year for all major markets. 2025 was a year that had the economy as a headwind, and it also had comps that were brutal. Germany and U.K. markets were dealt a poor hand as a result. And here, you can see all of our forecast markets as of August 2025, the forecast for full year 2025. On the next slide, a more positive picture for 2026. Although it will have its challenges, we expect more European markets to yield a positive RevPAR performance. New supply or some event offsets may make it more challenging for some. And of course, Amsterdam is yet to take on a new VAT rate, which will undoubtedly impact ADR. So in the short term, we expect muted growth, but as we move to the medium term, normalcy resumes with occupancy and ADR resuming their fair share of contribution to RevPAR growth. To sum up, I'm sure you'll have your own takeaway today, but I will highlight some. Market dynamics differ greatly across the continent and are dependent on a myriad of factors ranging from source markets to demand and supply drivers. Uncertainty has bread in decision throughout the first half of '25, but we do foresee a positive end to the year with supply and demand factors underpinning the outcome as a market class. Thank you so much for your attention, and I am now going to pass over to Rasmus at Benchmarking Alliance. Rasmus Kjellman: Thank you very much, and good morning, everyone. I am Rasmus Kjellman, CEO of Benchmarking Alliance, and I will give you some of the latest numbers for the Nordic hotel industry. This will be a lot of information in about 10 minutes in a very high pace. So if you have any questions afterwards, just reach out to Pandox or to me, and I'll be happy to help. So Benchmarking Alliance is the largest supplier of benchmarking for hotel market data in the Nordics and the Baltics. We strive for the best possible coverage in those markets, and we are based in Stockholm, Sweden. As you see, we started in 2010, and we offer benchmarking for hotels, conference venues, spas and campings. So starting up with the Nordics. Looking at the country-wide averages in the Nordics and the Baltics, we see a positive trend through the entire field. Blue boxes show the year-to-date 2025 RevPAR development compared to last year and the orange boxes show last quarter Q2. And generally, we see an increase in RevPAR in all countries. In Finland, the increase is a bit slower, where we have seen a lot of new supply in some of the local Finnish markets as well as a slower recovery from the Asian markets and the proximity to Russia holding back the recovery. Baltics are continuing to recover after years of lost Russian demand and other negative effects from the war in Ukraine, where travelers are finding their way back to the Baltics, in particular to Riga. Moving to the capitals. Oslo have a strong development with Nor-Shipping, a large maritime industry conference as well as several smaller events driving demand. In Copenhagen, there's an Endo-ERN conference, the [indiscernible], the Copenhagen Rock Festival and Robby Williams events on the same weekend, all driving high demand and record levels in ADRs. Stockholm have difficulties in replacing the extreme demand of last year generated by Taylor Swift and Bruce Springsteen and the [Echo Congress]. Helsinki, May and June good Congress months and the Helsinki Metal Music Festival in August affected positively. Reykjavik bouncing back again after long periods of volcano eruptions last year. Interesting to see that the rest of Icelandic is increasing more than Reykjavik as countryside hotel suffers more from than the Reykjavik hotels. If you go in a bit more of details here, we can see the available rooms, sold rooms, occupancy, ADR and RevPAR in each city. In Stockholm, the lack of Congress and concerts this year mainly had an effect on rates. In Copenhagen, we see an increase mostly through demand and Oslo a really nice development in both rates and demand. In Oslo, [indiscernible] closed and undergoing total renovation by new owners and Helsinki struggles to get prices up even if demand is there. And Reykjavik has supply, but is showing increase in both demand and price. Also Tallinn and Riga show a good development all over. Riga; however, mainly in rates, but also coming from low levels. Just flip the slides here -- so if we're looking for the capital development in 2025, ancillary revenue has increased RevPAR in Stockholm. And in Copenhagen, we see more stable, whereas in Oslo, Helsinki and Reykjavik, it has decreased holding back the RevPAR development. And it's very interesting to look at the total revenue as well as other revenue in the hotels such as food and beverages, meeting events and don't necessarily follow the room department development. So this is why we believe looking at total revenue is very interesting. Diving into the segments. In the Stockholm market, there is some new supply in the luxury segment, holding back the occupancy levels while rates continue to increase. Mid-scale segment supply is due to capacity reopened after renovation and rebranding. And even though demand is there, the lack of events in concert this year can mostly be seen as loss of average rates in all segments, except in luxury. Moving to Oslo, shows a very steady and positive trend in all segments. The mid-scale and budget hotels previously mentioned can be seen in the loss of supply. Moving to Copenhagen. Luxury segment is starting to slow down in demand, but rates are still increasing. The upgoing trend can be seen in all segments, while it's only upscale and mid-scale hotels that can enjoy higher demand as well. Moving to Helsinki. Last of the Nordic capitals. Hotel Maria and Collections adding more supply to the luxury segment. However, the capacity has been utilized well, maybe at a cost of slightly lower rates. Otherwise, only smaller changes in the lower segments. So if we look in even more details to the Swedish market, we cover 36 markets, including all regional cities. And in this graph, each bubble represents the market and the size of the bubble represents the RevPAR. So if we look at the development for these bubbles in the next slide, we see that [indiscernible] is developing its RevPAR very strong. There's a lot of corporate projects in that area as well as active destination marketing from [indiscernible]. In Uppsala, we see Sweden live music conference in January. And left in the bottom with a very weak development or negative development affected by the Northvolt bankruptcy. Moving to the Norway and in the same way, looking at the different markets, Tromso is the Norwegian market with the highest RevPAR. And here is the [indiscernible] and the Midnight Sun has helped those markets a lot. And Oslo is the highest occupancy. So looking at the development for those markets, [indiscernible], very strong with the Ski World Championship in the end of February and beginning of March. Kristiansand had a very strong summer with an increase in the month of July with 25%. And Bodo had a culture capital opening weekend last year in February or [indiscernible] last year in March that was not replaced in any way this year. Moving to Denmark. Copenhagen is maybe not surprisingly, the strongest market in Denmark. And looking at the development for the Danish markets, [indiscernible] has a strong development, very large amount of out of order rooms last year due to renovations that are now back in sale. But in general, a strong development in all the countries -- in all the markets. Moving to Finland. We see Rovaniemi and the Arctic Tourism Santa Clause bringing people from all over the world to Rovaniemi with also seeing increased direct flights to the area. Helsinki is far behind, but of course, it's also a much larger market. Otherwise, most of the Finnish markets range on an ADR of EUR 100 to EUR 110 and an occupancy between 55% and 70%. So looking at the development of those local market, Rovaniemi, together with the largest cities, Helsinki, Espoo and Tampere is the ones increasing in Finland, Pori affected by slower corporate demand as well as Vantaa and Helsinki Airport area is struggling with large supply increase with 2 new hotels opening -- during last year. So as final part, looking into the future bookings. So if we look at the future bookings, 365 days from the 1st of October versus last year, we see a strong increase with future bookings in Stockholm. It's more than 20% up compared to last year. This is the [Eco Congress] coming back in February. We have the EHA Hematology Congress in June, and there is 2 concerts by [indiscernible] in July, bringing up demand. If we look at the Oslo market, the market is up more than 9% with a trade show travel match for the travel industry taking place in January, driving up demand in that period. Looking at Copenhagen, this market is also a very strong development, more than 19% up. We see a very general increase in the future bookings for the rest of this year and beginning and the start of next year. And -- last but not least, Helsinki, 13% up in the future bookings, very positive. In the beginning of 2026, it's maybe a bit pretty slow compared to last year with Congress missing out, but in general, a strong development. So that's a lot of market data in a few minutes. If you have any questions, please reach out to Pandox or to me, and I'm handing the word back to Pandox. Thank you. Anneli Lindblom: Thank you, and thank you for this great comprehensive hotel market update. And thank you all for participating in this call. We really appreciate your time and interest in Pandox. Our year-end report for 2025 will be published on the 5th of February 2026. And now we wish you a nice autumn, and don't forget to stay at our hotels when you're on the road. Thank you so much.
Jean Poitou: Good morning, good afternoon, good evening. I'm Jean Laurent Poitou, the Chief Executive Officer of Ipsos, and I'm delighted to be joined by you in presenting our third quarter results for the year 2025. I'm joined by Dan Levy, our Chief Financial Officer. Over the next 45 minutes or so, I will start by sharing a few observations about what I've seen since joining Ipsos last month. I'll share a little bit about myself, my background, and I'll talk about a few of the beliefs on which we will ground our strategy for the next few years. Dan will present our results, and we will open up, of course, for questions-and-answer session. Let me start with a few observations regarding what I've seen since joining Ipsos and spending time across various geographies with our clients, with our technology and digital partners and most importantly, with our teams. First of all, Ipsos has a unique position as an independent leader in market research. One of the characteristics that struck me most is the global reach and diversity of geographies, of sectors, of services we offer. No other firm have this combination of looking at, in particular, the people as citizens, as patients, as clients or customers who experience the channels and products of the companies we serve. That is combined with a long history. Ipsos is actually celebrating its 50th anniversary this year, which on top of the legacy it gives us, provides us with unmatched depth, breadth and length of data, which is the fuel without which no technology, digital and particularly artificial intelligence-based solution can be trained. The other thing I've been very impressed with is the robustness and diversity of our cadre of close to 20,000 people ranging from sociologists, project managers, researchers, data engineers, data scientists, field interviewers and all the support functions. Ipsos has a unique diversity of talent. I've also been impressed in discussing with clients, also with technology partners, digital solution providers that we work with and leverage with the trust and respect that Ipsos has in our industry. And that trust, particularly the trust from our clients, which materializes in the long-term relationship we have with many of our largest customers, is one of the foundations on which to build our future sustainable profitable growth. And then finally, we have the means to our ambitions. We have the financial profile with growth, and we will talk about that some more as we talk about our results; profits and cash, which are allowing us to have the wiggle room to invest or repurpose some of the existing investments into what we believe is critical to accelerate our organic growth in particular. So we have the means of our ambitions. However, we cannot rely on what got us there. My experience, which I'll talk about in a minute, shows me that it always is critical to be able to change and have the courage to change, in fact, at the moments when we are successful. There's no room for complacency in this rapidly evolving market. And in particular, as I think about the main 2 things I want to focus on, one, while our growth has been steady, the organic component of that growth does need to accelerate. It is absolutely critical. Second, I strongly believe that being a technology-enhanced professional services firm means that we need at this point of inflection in how technology, digital solution, artificial intelligence change the way many industries evolve. We must embrace this even more. There are very solid foundations on which to build, and we need to accelerate. We need to accelerate with speed as the main thing our clients are demanding of us and scientific rigor as the absolute mandatory ingredient. Without which, our clients won't trust the insights that we provide them based on the combination of what we learn from the real-world respondents we interview and mobilize and the data, including synthetic respondent that we leverage. So my beliefs in what will guide our direction moving forward. We will continue to be the diversified firm we are. We will have this unique advantage of leveraging the history of data that we can rely on and the breadth and depth of data so that we can train models and provide insights that are usable and actionable at speed with scientific rigor. And then we will continue to leverage the fundamentals of rigor and discipline, which I'm very clear are needed more than ever to drive the sustainable profitable growth I mentioned. I have the background to deliver on these ambitions. I come from over 3 decades of being a consultant, but more importantly and significantly over 2 decades being a leader in the professional services industry. I have a very international profile and background. I spent some of my youth in the U.S. I was an expatriate in Asia, based in Tokyo over a number of years. I've worked and lived across a variety of European countries. I understand the differences in the markets we serve from the U.S. to China, from Europe to Asia Pacific. I'm also a very growth and innovation-focused leader. And I believe that growth through innovation is, as I just touched on briefly, a key ingredient of what is going to drive Ipsos moving forward. Now I will be able to talk more about how those ingredients materialize in a strategy and financial trajectory for the years ahead. In January as it's pretty clear that with just a month or just over a month, in fact, under my belt at this point, it would be unreasonable to do it right now, even though I have the luck to be leveraging a lot of work that has gone on into building the strategy that I will disclose on January 22. In terms of what I will do over the next few weeks, I just mentioned that finalizing the strategy is absolutely critical. You all want to understand what we will be investing in, how we will continue to leverage mergers, acquisitions, but also partnerships as a way to fuel our growth as Ipsos historically has with over 100 acquisitions throughout its 50 years of history. I will be spending a lot of time, as I've already started to, in the field, meeting with the people, meeting with the clients where the action actually means that I will be able to get the best sense for what is critical in our future success. And then while we work on the long-term strategy, I will be raising the bar on execution on a few areas of rigor and execution discipline where it is absolutely critical that we get it right now and not later. So with that, let me hand it over to Dan, who will present our results for the quarter. Dan? Dan Levy: Thank you very much, Jean Laurent. So Ipsos posted a good performance in Q3 with a total growth in Q3 of 7.6%. And as you can see, an improvement in organic growth, 2.9%, compared to Q1, which was minus 1.8% and Q2, 0.7%. If we look at the first 9 months of the year, we posted a EUR 1.8 billion -- nearly EUR 1.8 billion revenue since the beginning of the year with a total growth of 3.6%, organic growth of 0.7%. Obviously, FX effect with negative impact, which is mainly linked to the depreciation of the dollar and a few other currencies against euro and the scope effect of around 5%, which is mainly coming from the acquisition of BVA of infas that we did since the beginning of the year. The situation is improving in the U.S., where organic growth since the beginning of the year amounts to 0.9%. And the U.S. is still a bit of a tale of 2 cities. Excluding Public Affairs, we are growing organically by 3% since the beginning of the year, and this is on the back of improvement in the pharma sector, good performance with CPG clients. But on the other hand, we do have a tough political context in the U.S., as you all know, with the DOGE at the beginning of the year and the shutdown that has now happened a few weeks ago, and we don't know how long it is going to last. And all of this, obviously, is continuing to impact our Public Affairs business, which is down by 15% since the beginning of the year. We see a good improvement and growth improvement across all regions in the third quarter. I've already spoken about Americas. But if you take EMEA, EMEA is growing by 10% as a total growth on the back of the acquisition of infas and BVA. Organic growth at the end of September is 1.6%, which is a good performance given the tough comparative that we had last year. And only on the third quarter, we are growing by 3.2% in EMEA. We see good performance in Continental Europe but also in Middle East, but this is partly offset by the situation in France, where, as you know, there is a lot of political instability. France is down because of this political instability and Public Affairs by 4%. If we were to strip out the Public Affairs business, France would be in slight positive growth. In Asia Pacific, we see a slight positive growth in China. But again, this is offset by the Public Affairs business in several countries in Asia Pacific, particularly in Australia, New Zealand and India, where there have been, either in '24 and '25, general elections and sometimes tough budget constraints. If we now move to the performance by audience, we see good performance across most audiences, but obviously, the performance is held back by our Public Affairs business. Our service line, which are dedicated to consumers, clients and employees are growing by 2% since the beginning of the year. This performance is driven by our activities relating to ad testing to marketing spending optimization and to mystery shopping. The Doctors & Patients audience is growing and is recovering compared to what we saw last year in 2024. It is growing by 5% since the beginning of the year organically. This is on the back of coming -- recoming innovation on a lot of several of pathologies. But on the other hand, there are risks on these audiences, which are coming from the current discussions in the U.S. on drug pricing and also the slowdown in the drug approvals by the FDA after there has been a few thousand layoffs in the FDA with the DOGE action. As you see, the Citizens business is really driving down the performance, minus 9.2% since the beginning of the year organically. It continues to impact by political instability, and this is the case in the U.S., in France and again, in several countries in Asia. If you strip out the Public Affairs business, our organic growth at the end of September would stand at 2.3% instead of 0.7%. And if we strip it out on the third quarter, we would grow by 4.2%, excluding Public Affairs, which shows how our performance is weighing down by Public Affairs and the rest of the business is doing well. We continue to see very good momentum on Ipsos.Digital. Over the first 9 months of the year, we are growing organically by 28%, mainly on product testing and ad testing. The profitability of Ipsos.Digital is twice the profitability of the group, and we target around EUR 140 million of revenue on Ipsos.Digital for 2025. So at the end of the third quarter, you have understood that the group posted a solid performance among the private sector clients, but the group organic growth is being impacted by our business on Public Affairs on the back of political instabilities, many general elections, budget constraints. And as a consequence, we revised our organic growth target to around 0.7% for 2025. Our operational discipline and financial discipline enables us to maintain and confirm our operating margin at around 13% at constant scope. This is excluding the temporary dilutive effect of the acquisitions of BVA of infas, which are estimated at around 60 basis points for 2025. I thank you for your attention. And now I hand over to Jean Laurent for some concluding remarks. Jean Poitou: Thank you, Dan. And I would like to emphasize what impresses me most in today's discussion, which is the growth trajectory, starting the year with minus 1.8% in the first quarter all the way to 2.9% in the quarter we're announcing today, which is a number that Ipsos hasn't reached in quite a while. And I think it's important to note that. And the other thing that is very important, as we all think about the impact that several disruptions, particularly digital AI and technology disruption may have in our markets. Our private sector activities, the ones where probably the innovation intensity is one of the highest, continues to grow quite significantly with 2.3% year-to-date and most importantly, 4.2% over the quarter we're announcing today. So those are some of my takeaways and things that I wanted to emphasize. Now I have to invite you to the very important Investor Day we intend to hold in January. That was initially scheduled to be in November. But as I alluded to in my introductory comments, it's quite clear that we need a couple of months to actually make this strategy mine and finalize it with the many people who are working on it together with me at the Ipsos management and in the teams. And then there will be the announcement of our annual results on February 25. Let me now open it for questions and answers. Operator: [Operator Instructions] The first question is from Conor O'Shea at Kepler Cheuvreux. Conor O'Shea: A couple of questions from my side. Just in terms of the lower guidance in the fourth quarter, could you give us a little bit more color in terms of the -- is this all Public Affairs related? And if so, in which markets? In particular, is it mainly the U.S. because of the shutdown? Or is it also in the French and U.K. markets? And also a broader question in terms of the sort of below par growth and maybe a bit early for you, Jean Laurent, to say, but do you see any kind of deflationary kind of drag on growth from AI, from generative AI so far? Or is the weaker growth only coming from -- or mainly coming from Public Affairs? Jean Poitou: So maybe on the last question, of course, this is not the time for growth outlook in '26, and we will talk about that some more early '26. But looking back, though, what I mentioned in my closing comments is the fact that in the private sector, where we are seeing probably some of the most intense AI-driven potential disruption, it hasn't been visible in our activity levels or in the deflationary impact you mentioned. That's one thing that I want to observe. Now obviously, we are watching that space and both looking at how our unique positioning in the market with the breadth of data will actually allow us to leverage what you just alluded to rather than be the victims of it. So that I'm very convinced is going to be a very important part of the strategy we announced in January. Now... Dan Levy: Yes. On the guidance, so it's true that we have seen an order book in Q3 and particularly in September, which was lower than expected during the summer. It is mainly coming from Public Affairs. And as you say, it's mainly U.S. and France, plus a few other countries that I mentioned during the presentation in Asia and particularly Australia, New Zealand and India. And not only have we seen lower order book than expected in Q3, but obviously, we also do the consequences on that in Q4 because we can imagine that given the political instability in France, for instance. And given the shutdown in the U.S., this is unlikely to improve significantly in Q4. So at the end of the day, the lower guidance is a consequence of not as good as expected situation on Public Affairs, particularly in the U.S. and France. Operator: The next question is from Marie-Line Fort, Bernstein. Marie-Line Fort: I've got two questions. The first one is about the Public Affairs segment, very naive question. The Public Affairs that still a real future given the increasing budgetary constraints? And how in the future will you deal with the restriction in the budget? The second question is about the BVA integration, how it's going on? And are you still targeting breakeven 2026, 2027? Could you give us an idea about that? Dan Levy: So maybe I can take the one on the Public Affairs. I think we should not be too much focused on the present. It is true that Public Affairs business has been difficult in 2024 and in 2025 for reasons that we clearly understand. There has been a lot of general elections. And we know that when there are general elections, there are patterns of electoral cycle, which tends most of the time to slow down the Public Affairs [ comments ]. On top of that, there has been some political instability in many countries and some budget constraints. It is true. On the other hand, we need also to remind us that Public Affairs started to use market research very late compared to private sector, and there is a catch-up that could keep on going in the next few years. And we are, at Ipsos, probably the only large actor on Public Affairs. Public Affairs tends to be a local market. We are the only large actors. Most of our competitors have divested their Public Affairs business. So there is a case, I mean, for growth in Public Affairs in the future, and we will -- when we will announce our strategy in January, decide whether this is a pillar of our strategy. But I think we should not remain too focused on the last 2 years, which it is true had been tough for Public Affairs, but which doesn't mean that it will be the case in the future. Jean Poitou: Regarding the integration status of the acquisitions, and I'll focus probably on the largest one because it's a large one and the largest one Ipsos has done since 2018, the BVA Family. It is proceeding. I'm coming from a history of having worked with companies that go through M&A transactions, I must say that the speed at which it is happening is a proof of the muscle memory of the ability that Ipsos has to acquire and integrate rapidly, particularly with the strength of its operations and financial and processes that are absolutely the same everywhere, which allows for these integrations to go relatively quickly and smoothly. We are already leveraging synergies. The organizations are aligned. We are also scaling the very important asset of the package testing, PRS IN VIVO, which was one of the key ingredients. And I must say, having been with the BVA teams in France and in Italy with DOA, it's a very cultural integration that is going on at the moment. Of course, it takes a bit of time. We're only 4 months into it. So I believe that it will take the usual 18 to 24 months to completely be less dilutive than it is today. And so we confirm that there is a transitional profitability dilution of around 60 basis points on this year's results. Operator: [Operator Instructions] Gentlemen, there are no more questions registered at this time. I turn the conference back to you for any -- excuse me. We do have one further question from Anna Patrice, Berenberg. Anna Patrice: Yes. Thank you very much for the introduction and all the information provided. Could you comment a little bit more on where you have seen acceleration because you had quite a good performance in Europe and in America in Q3? So a bit more specific, what has been driving this improvement? And why you think it will be accelerating in Q4 apart from Public Affairs? Dan Levy: Yes. So we have seen acceleration in Q3 on the back of a few service lines that I mentioned before, which are the consumers and clients audiences and particularly on things like ad testing and also mystery shopping. And as I said before, the profile of Q3, Q4 is mainly coming and the fact that as a consequence, we might see some slowdown in Q4 as a consequence of the guidance we just revised is again mainly coming from Public Affairs. Anna Patrice: Okay. But then the weight of the [indiscernible] is it more Q4 or Q3 or it's much the same thing? And does it mean that the Public Affairs will further decline. So it is minus 15% year-to-date. Do you expect that it will further decline in Q4? So more than 15%? Dan Levy: Yes. So again, as I said before, we have seen a lower-than-expected order book in the summer, particularly on Public Affairs with some delays in the decision-making, sometimes some cancellation of projects, particularly in the U.S. with the DOGE. And we have also drawn the conclusions in the Q4 forecast to an extent. So we have done very recently a new forecast with our countries to see where we stand when we look towards the end of the year. So the revision of the guidance, again, is coming mainly from lower-than-expected order book in Public Affairs in Q3 and the consequence we draw for Q4, given the fact that it's probably unlikely to improve in Q4. Now I'm not going to give specific numbers, but obviously, the numbers that we see on Public Affairs in Q3 and Q4, and the fact that we are doing good performance on the private sector on the private client sector is consistent with the new guidance of 0.7% organic growth for 2025. Anna Patrice: Okay. Understood. Another question to Dan, please. Before you were also communicating the growth by the client sectors like CPG, telecom, financial services, automotive, et cetera. So can you provide a bit more details how the growth was across the client sectors, please? Dan Levy: Yes, sure. So on the CPG clients, we are growing, and that's a good performance despite the tough comparison that we had last year. On CPG, we grew by 6% last year. I think, again, this reflects the fact that the CPG clients in a very evolving world needs to know a lot about change in consumer behavior, market and pricing optimization, measure of the impact of their advertising campaign. We see also very good performance on IDP, our DIY platform. Obviously, in the CPG, the situation is quite different across the different players. There are players where the growth is high and other players, a few of them, which are implementing currently some cost-saving measures. So this is what we see on the CPG. On the health care, I've already commentated what's going on. Public Affairs, we discussed it quite a lot. Maybe a few words on the big tech clients. On the big tech clients, we see, as you know, a very fierce competition among the different clients, the different big tech clients on AI, which are -- who are investing billions and billions to build new models and to build new apps using generative AI. As a consequence of this, these big tech clients tend to have shifted their market research demand from the marketing use and the marketing teams to the product development teams because they are investing a lot quite ahead of the innovation cycle, and we are clearly adapting to that. We also see, and Jean Laurent has mentioned that, that speed is absolutely key for these big tech clients. They need to have faster insights and they need to have also AI-integrated solutions. And again, a bit like in the CPG client, the situation is quite diverse among the different players. We see very strong growth with some of the big tech clients and lower demand with others. Operator: And the last question is coming from Marie-Line Fort, Bernstein. Marie-Line Fort: I just want to understand what is really missing to Ipsos to deliver stronger organic sales growth. It is a question of mix, technological tools, speed to market, execution. Could you classify what the importance in terms of these topics? Jean Poitou: Yes. Of course, a lot more will be shared as we finalize the strategy and discuss it with you on January 22. But you mentioned some of the key ingredients. Speed is absolutely the thing that clients are demanding of us. And the fact that we have solutions ranging from Ipsos.Digital to some of the solutions we have in, for example, creative or in product innovation are foundations, but we need to continue and accelerate, and that will be a big part of our prioritized investment and focused investments that we will spend more time disclosing in January 22. But we will be leveraging both for the processing chain. Everything from automated scripting to integrated and automated data processing all the way to more interactive and real-time data insights provisioning to our clients through the dashboard and the interactive tools we will put in their hands. So that has a significant impact both on speed and on the richness of usage and actionable insights that can be provided to our clients. And then we will also be using AI a lot more in the years ahead to create differentiated solutions, whether it is to generate more insights in the product innovation space, whether it is to accelerate it in creative or in market research for market and society understanding. So 2 main areas of focus. One is speed through accelerated and automated delivery of our research activities. The second one is a lot more customized and easy to use for our clients, parts of the technology stack on the client-facing activities that we do for them. Operator: Gentlemen, there are no more questions registered at this time. I turn the conference back to you for any closing remarks. Jean Poitou: Thank you very much. Thank you very much for attending today. I will be very happy to spend time with you again on January 22 for our Investor Day and then on February 25 for our annual results. Thank you very much.
Operator: Good day, and welcome to the POOLCORP Third Quarter 2025 Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Melanie Hart, Senior Vice President and Chief Financial Officer. Please go ahead. Melanie M. Hart: Welcome, everyone, to our third quarter 2025 earnings conference call. During today's call, our discussion, comments and responses to questions may include forward-looking statements including management's outlook for 2025 and future periods. Actual results may differ materially from those discussed today. Information regarding the factors and variables that could cause actual results to differ from projected results are discussed in our 10-K. In addition, we may make references to non-GAAP financial measures in our comments. A description and reconciliation of any non-GAAP financial measures included in our press release will be posted to our corporate website in the Investor Relations section. Additionally, we have provided a presentation summarizing key points from our press release and today's call, which can also be found on our Investor Relations website. We will begin today's call with comments from Peter Arvan, our President and CEO. Peter Arvan: Thank you, Melanie, and good morning, everyone. I am excited to share that our teams have maintained the momentum we established in the second quarter, delivering another solid performance in Q3. Thanks to their hard work and dedication. We continue to drive growth with top line sales up 1% and gross margin expansion of 50 basis points. This was fueled by consistent maintenance activity and encouraging signs of stabilization in both new pool construction and remodel. I'm also pleased to see that we achieved year-over-year growth in building materials for the first time since Q3 of 2022 driven by improvements in remodel activity and share gain. As you know, we have continued innovating and investing in our POOL360 applications. And I'm pleased to say that our adoption rate of these industry-leading tools continues to grow as our customers realize their full potential. Building on these successes, we recently shared our strategic road map for the next year and beyond with the entire management team at our international sales conference, and their excitement was palpable. The innovative products and ambitious growth plans we unveiled are already gathering a buzz and our teams are ready to hit the ground running as new initiatives start rolling out immediately. We're focused on key areas of our business where we know we can win. This forward-looking approach not only positions us to close 2025 with momentum, but also lays a strong foundation for an even more dynamic 2026. Looking at the macroeconomic environment, uncertainty around tariffs and elevated borrowing rates continue to weigh on consumer sentiment and limit discretionary demand, particularly for pool projects that require financing. While we observed overall permit data down mid-single digits year-over-year through August with considerable variability across the country, recent easing of interest rate policy offers a promising path forward towards relief. For clarity here, we believe it will take further reductions to bring borrowing rates to a level that will motivate potential entry-level pool owners to build. Despite these challenges, however, our new pool construction sales have outperformed industry permit data indicating continuous share expansion. On the remodel side, consumers remain focused on essential repairs and targeted improvements rather than large-scale upgrades. In response, our teams are leveraging our robust product portfolio, our strong private label offerings and enhanced technology while partnering with vendors to deliver innovative solutions and drive future growth. Overall, I am more than confident in our team's ability to adapt, execute and position us for long-term success. Now I will walk through our third quarter results. We reported $1.5 billion in net sales, up 1%, building on the growth we generated during peak season. Maintenance product sales performed well, particularly parts and private label chemical volumes. As mentioned, we saw growth in building materials used in new construction and remodel projects. mid-season price increases created a slight lift on top line, but were diluted some by chemical deflation. Related to our geographic markets, Florida produced 1% growth with Texas flat and California and Arizona each down 3%. Florida remained steady across our product categories and leads the country with new pools being built in 2025. While flat, Texas showed sequential improvement compared to recent quarters. New pool builds in Texas remain pressured, but continued to improve throughout the year and maintenance-related product sales showed resilience. In California, we see continued pressure on new pool builds, particularly in areas affected by recent wildfires. Arizona showed some deceleration in permits compared to earlier this year, but we believe this may be related to timing versus reversion, while maintenance held up for both California and Arizona during the quarter. In Europe, net sales decreased 1% for the quarter in local currency and increased 6% in U.S. dollar. Similar to last quarter, we saw growth in the southern countries while impacts from political strain and related consumer uncertainty pressured sales in France. For Horizon, net sales increased 3% in the quarter, supported by solid maintenance growth and improvement in sales for outdoor living products like landscape lighting, hardscapes and synthetic turf. Shifting to product categories. Total chemical sales declined 4% this quarter, reflecting some additional deflation. Overall, I consider the demand for chemicals and our performance to be stable. Our private label offerings generated volume growth during the quarter, showing that our teams are being successful in showing the power of our brands and the innovative products and systems that we offer. With our new product showroom displays and marketing support, our customers continue to see strength of our value proposition, and this bodes well for the upcoming selling season. Building Materials sales increased 4%, again driven by our expansive private label offering and elevated customer experience. We recently rebranded NPT, formerly National Pool Tile to National Pool Trends to align our brand name and marketing efforts to highlight our many offerings. The new name brings greater clarity to our value proposition, showing NPT as our customers' partner for complete backyard transformations using our tile pool finish decking to name a few. Our premier product offering, product sales specialists and consumer showrooms offer a one-of-a-kind customer experience, and it is shown in our results. Equipment sales, which excludes cleaners increased 4% during the quarter, mostly reflecting benefit from price and steady replacement volume for critical components. Turning to end markets. Our commercial sales increased 2% in the third quarter, showing steady momentum from a strategic focus area. We continue to make investments in our team during the quarter and created greater connections to key designers and builders to better support commercial aquatic projects. Sales to our independent retail customers declined 3%. Chemical deflation created mild headwinds here, while DIY consumers continue to be hesitant with discretionary purchases like cleaners and above-ground pools, spas and some equipment. For our Pinch A Penny franchise group, represented -- sales represented our franchisee sales to their end customers declined 1% during the quarter. Also of note, we have not seen any meaningful shift between do-it-for-me and do-it-yourself customers. Before covering progress on our initiatives, I want to briefly highlight gross margin ahead of Melanie's prepared remarks. I'm extremely pleased with the team's effort to expand gross margin by 50 basis points this quarter. Although the operating environment remains challenging, our teams continue to deliver by making strategic and efficient supply chain choices refining our network and applying disciplined buying and sales strategies, all while providing an unparalleled customer experience. A key investment area and differentiator for POOLCORP is our technology suite. POOL360 is the largest and most comprehensive set of customer-facing tools in the industry and our adoption rate continues to grow. For the quarter, sales through the tool represented an all-time high of 17% of our total sales for the third quarter, which demonstrates the customers' desire for technology that creates value. While still in the early stages, this growth shows the output of our technology investments over the past few years. Our targeted spend in our digital ecosystem is driving technology adoption and fueling not only growth in private label chemicals but also service and traditional B2B offerings. Our deliberate investments in innovation and enhancements of our tools have been key drivers of POOL360's impressive sales results. These advancements empower us to support higher sales efficiently while creating capacity for future growth. Increased POOL360 transaction adoption delivers significant benefits, not only strengthening our margins, but also elevating the customer experience, accelerating private label and exclusive product growth and enhancing our long-term competitive advantage. We completed 1 acquisition during the quarter, adding 2 locations in key markets. Additionally, we opened 1 greenfield bringing our year-to-date opening to 6 sales centers and we remain on track for additional openings in the fourth quarter to reach 8 to 10 new sales centers for the full year. Our Pinch A Penny franchise network added 1 new store in the quarter, adding to our Arizona presence and bringing the Pinch A Penney locations to 303 franchise stores. Touching on guidance. As we exit the pool season and enter the fourth quarter, we expect full year sales performance to be relatively flat to up slightly. We are confirming our diluted EPS guidance for the year to a range of $10.81 to $11.31 updated to reflect the $0.11 in realized ASU benefits year-to-date. At POOLCORP, our relentless pursuit of continuous improvement is driving us to lead the way on innovation across products and processes. Recognizing the industry's need for fresh ideas and solutions, we are making a new and intentional push to discover, shape and bring new innovation to market for our customers and as the strongest channel to market for our supplier partners by identifying emerging opportunities and thoughtfully guiding them from concept to market, we are helping to expand the total addressable market while delivering value unique to POOLCORP. Our team's product expertise is unmatched, backed by superior inventory availability, robust operating system and customer relationships that span decades in nearly every market we serve. Even as the macroeconomic environment presents challenges, the underlying strength of our industry and POOLCORP's distinctive capabilities remain clear. Our long-term growth trajectory is secure. Pools continue to be highly desirable and no company is better positioned than POOLCORP to help build and maintain the growing installed base. We have a strong competitive advantage, and we are continually strengthening it through strategic investments in our people, facilities, acquisitions, digital platforms, innovative private label and exclusive products, retail support systems, advanced chemical repackaging capabilities and consumer-facing marketing tools. Our commitment is focused and our path forward is clear. We mark our 30th anniversary as a public company. I want to thank our entire team for their exceptional dedication, which has driven our long-term success and positions us for the future. Over the past 3 decades, our growth and sustained success have been driven by the talent and commitment of our field leadership and support teams. All united by a focus on delivering the best customer experience and cultivating a go-to-market relationship with our valued suppliers. Looking ahead, I am confident that this foundation and our continued investment will equip us to enhance the differentiated value we provide to the pool and outdoor living industry while growing sales, expanding margin and generating strong cash flows and delivering exceptional returns for our shareholders. I will now turn the call over to Melanie Hart, our Senior Vice President and Chief Financial Officer, for her detailed commentary. Melanie? Melanie M. Hart: Thank you, Pete. For the third quarter, we saw year-over-year improvement in sales. driven by increased maintenance on the installed base, favorable pricing and market share gains, while noting that the impact from lower discretionary spend levels was less of a drag on a comparable basis compared to the third quarter of prior year. During the quarter, we realized a 3% benefit from pricing, reflecting the full quarter impact of price realization on the mid-season vendor price increases implemented in April and May. Trichlor selling prices continue to be impacted by the lower level of spend in the industry and somewhat offset our positive price realization in the quarter. Throughout the quarter, in certain markets, we saw some positive months where there were permit increases year-over-year from the prior period. However, in total, year-to-date permits remained below last year's level. Our estimate of new pool construction remains flat to slightly down, consistent with our expectations included in last quarter. Overall, the lower level of discretionary spend had a 2% impact on our sales for the quarter, similar to the impact we saw in the second quarter, with both Horizon and Europe having positive sales growth in the quarter. As Pete mentioned, we added 2 new sales centers through acquisition during the quarter, as well as one newly acquired location in October. These additions did not have a significant impact on our base business results, so we have not reported base business performance separately for the quarter. Our gross margin in third quarter was 29.6%, representing a 50 basis point improvement over prior year. This improvement was driven by favorable pricing, successful supply chain initiatives and an increase in sales of our expanded private label offering. All areas that we continue to focus on and excel in despite the persistent impact of the macro environment and lower levels of consumer discretionary spend. The sequential change from the second quarter margin is consistent with our typical seasonal trends. Operating expenses increased 5%, slightly ahead of the quarter-over-quarter changes we reported during the first half of the year. This increase includes the impact for our cumulative new greenfield locations that were not open in both periods. Also, as Steve described, the positive results we have seen with our expanded POOL360 initiatives we accelerated some incremental technology costs during the quarter because we believe that this further differentiates us from our competition and will yield better sales and operating leverage in the future. Operating income improved $2 million over prior year and was $178 million for the quarter. Interest expense of $12 million continues to compare favorably to prior year. Our effective tax rate was 23.5% for the quarter compared to 23.4% in prior year. ASU benefits contributed $0.01 in both periods presented. We generated diluted earnings per share of $3.40, up 4% from the $3.27 we realized in the third quarter of last year. Next, I'll discuss our balance sheet, cash flows and capital allocation. We finished September with inventory balances of $1.2 billion, up 4%, our lowest level of inventory we expect during the year as we exit the season. The increase includes product inflation and also includes stocking for our 9 new locations, including both our greenfields and the acquisition completed during the quarter. Total debt of $1.1 billion resulted in a leverage of 1.58x remaining at the low end of our stated target range of 1.5 to 2x. We generated $286 million in cash flow from operations year-to-date, compared to $487 million in the prior year. The decrease was primarily due to higher tax payments and investments in working capital. We expect to achieve our current year target of converting 90% to 100% of net income into cash flow from operations, which includes a deferred tax payment from prior year. We continue to execute on our share repurchases opportunistically under the authorization provided by the Board. We have completed $164 million of share repurchases through the third quarter with an additional $20 million through our earnings call ahead of $159 million through third quarter of last year. We have $493 million remaining under our share repurchase authorization. Looking at the year, we continue to expect full year sales to be relatively flat compared to the prior year, with 1 less selling day. This outlook reflects a modest decline in discretionary spending compared to last year, offset by positive impact from maintenance growth and pricing realization. In the prior year we baked 1% in the fourth quarter from weather-related hurricane activity, which at this time is not expected to reoccur in the fourth quarter. Our full year gross margin rate is forecasted to be similar to the prior year, which, on an ongoing basis reflects improvement as the prior year rate included a nonrecurring import tax benefit recorded in first quarter of prior year. This would include some improvement on a year-over-year basis in gross margins in the fourth quarter. While customer mix remains less favorable, these impacts are being offset by growth in private label sales ongoing supply chain improvements and pricing benefits. Our estimate for full year operating expenses remain in line with last quarter, with an expected annual increase over prior year of approximately 3%. This reflects productivity improvements, offsetting inflationary cost pressures with increases attributable to our investments in greenfield locations and our focus on technology initiatives. Forecast for interest expense estimated tax rate and share count for the full year are included in our quarterly earnings presentation posted on our website. There have been no significant changes to these estimates since last quarter, with interest expense updated to include share repurchase activity. As we typically see, our third quarter tax rate is lower than the annual rate due to discrete timing differences, and we expect our fourth quarter rate to be in line with the first and second quarter rate. We are confirming our diluted EPS range of $10.81 to $11.31 including $0.11 in ASU tax benefits realized year-to-date, of which we reported an additional $0.01 in third quarter that is now included in the range. I am pleased with our team's ability to perform and remain focused on our internal strategic initiatives, which have delivered tangible results year-to-date. This highlights the strength of our team and the significant value that industry-specific talent contributes across the outdoor living value chain. While we continue to manage the business effectively, we are also investing in our key strategic growth areas to create long-term value for our shareholders. I will now turn the call over to the operator to begin our Q&A session. Operator: [Operator Instructions] The first question comes from Susan Maklari with Goldman Sachs. Susan Maklari: My first question is diving in a bit on the comments you made around seeing some early signs of stabilization which is encouraging, given what we've seen in housing in the consumer as we think about this summer and into the fall. Can you talk a bit more about what is driving that and how you're thinking about the trends that you're seeing on the ground as we exit this year and maybe even into early 2026? Peter Arvan: Yes. As I mentioned, the permit data, when you look at that, which again only represents a portion of the market, is very sporadic. And so there isn't a consistent theme. But when you look at them from geography to geography, but I guess when we look at them in totality and then combine that with our comments that we're getting from our builder customers and remodel customers, I would tell you that the activity level is -- seems to have firmed up, and we are encouraged as evidenced by our growth in building material sales in the quarter, which it's been a long time since we've seen that. So I would say that overall, the comments tend to be more positive now I think it's going to take further interest rate cuts to really drive the entry-level pool buyer to jump in. But I think that overall, the consumer sentiment on new construction and large renovation projects seems to be fairly consistent and more optimistic than it was. Susan Maklari: Okay. That's good to hear. And then my second question is on innovation side, you mentioned that you accelerated some spend in the summer. It sounds like you've got some really good initiatives that are coming through the business. Can you talk about how you're thinking of the investments and the trends that we should expect into the fall and year-end? And then what that can mean for your ability to outgrow the market, even if things do stay relatively more challenging for next year or the next several years? Peter Arvan: Sure. So I'm going to break this down into a couple of areas. I'll talk about technology as it relates to POOLCORP's technology, and then I'll talk about technology related to the market. All of our investments in technology from a POOLCORP perspective are really designed to enhance the customer experience, to give them greater access, greater convenience and allow them to be more productive. I look at our suite of tools, whether it's the POOL360 service, which allows our service customers to essentially operate their business, invoice, market, schedule, do everything with the tool which allows them to be more productive. It allows them access to their catalog of products in POOL360, allows them to schedule pickups for products, have them delivered and frankly, have access to the entire network or whether you're talking about our industry-leading water test technology that we provide for our independent retailers that are selling our proprietary pool chemicals. Again, great product very good reviews for the homeowners and we've also extended that into an at-home app. So you can either bring the water test or bring your water to the store for testing or you can buy our proprietary Regal and E-Z Clor test strips take them home and then use again our proprietary app, test the water and get the same recipe, if you will, for correcting any water chemistry imbalances. So we look at our standard B2B tool, which is the -- where the preponderance of our traffic is and said, what can we do in order to enhance the customer experience to make that tool easier to use and the team has been relentless on that, which again provides more convenience, more information, more access for our dealers. And then the last thing that we have recently started launching is the -- an app that our counter people can use in our branches outside in the yard so that our customers don't even have to come inside. So if they're just getting product that is outside, they'll be met outside with a tablet and they can tap to pay. If they don't have an account, they can tap to pay or swipe a credit card out in the yard, which again gets them back to work. So I feel really, really good about the technology suite that we're rolling out for our customers. And I think that allows us to provide more convenience to our customers, a better experience and allows them to grow their business faster. And those all feed into our marketing tools too, which our consumer-facing marketing tools are designed to help our customers grow. So just a plethora of tools available and the adoption rate continues to grow. So very, very pleased with that. The other side of the technology that I mentioned has to do with product technology for the industry. I think our industry needs innovation and new product technology in order to grow I think customers are craving technology, convenience and value as it relates to those new products, which will give them reasons to invest in their backyard, in their swimming pool to make the ownership of a pool, whether you're talking about managing the water chemistry or managing your equipment pad, easier, more convenient and at a price point that is available for everybody. So we're very excited about the -- how technology will continue to impact this business and POOLCORP's role in driving that. Operator: The next question comes from David MacGregor with Longbow Research. David S. MacGregor: I just wanted to start by going back to the graphic in your deck where you referenced customer risk or customer mix, I guess. And just -- I presume we're talking about larger consolidated contractors and the kind of growing presence in the remodel work. But just thinking about longer-term margin implications here, and what are the levers that you have available to offset against that impact? Peter Arvan: I think what we -- what it means is that we continue to see consolidation at the customer level. And when you have consolidation at the customer level, they're looking for more tools and more convenience in order to help them be more effective. So for us, I actually think it's a big opportunity because nobody has the technology suite that we have today in order to integrate with them. So our systems are very flexible. It allows us to integrate with them. It allows -- some of the customers are choosing to use our software to operate their businesses and some of them are just choosing to integrate with us. So I actually think that it creates a competitive advantage for us, on one hand, it actually it makes them easier to deal with because we get more advanced notice, which allows us to be more productive when we're handling their orders, and it also gives them access to information on a self-service basis versus having to call and make inquiries, which again is -- just drives our cost to serve. So very comfortable with our ability to leverage our technology suite in order to help the larger companies be more efficient and grow their business. David S. MacGregor: That makes sense. And just as a follow-up, I want to go back to the 4% growth on equipment and how much of that would have been just kind of parts going into maintenance and repair versus equipment sales in the remodel segment? Peter Arvan: I think most of it right now is -- I mean, of course, every new pool gets a set of equipment a portion of the renovation and remodel will get new equipment. But the vast majority of the products that we sell are related to one of the critical components on the pool failed and had to be replaced, whether it was a pump or whether it was a heater or filter like the vast majority of our equipment sales, and it's -- frankly, it's always been this way, are for the replacement business for failed components. Operator: The next question comes from David Manthey with Baird. David Manthey: First question on chemicals. I was surprised that the weakness there, I think it's been recently flat to moderate growth. And could you talk about inflation, deflation broken down by chemicals, building materials, equipment. And I'm just wondering, is that chemicals? Is that something that happened recently? It seems like a slight change in trend versus what we've been seeing lately. Peter Arvan: Yes. I'll take that. Dave, I think the way -- here's the way I think about chemicals. I don't know that there's been any trend. I think we've mentioned on the last couple of calls that there's been some deflation on trichlor. Now remember, we break chemicals down into 3 buckets, right? There's the sanitizer, then there's balancers and then their specialty. So the most deflation that we have seen, and again, I wouldn't put it in the category of significant, I would just say that there has been some deflation is really in the santiser category. I don't think it should be -- I don't look at that in alarm. In fact, in my comments, I looked at our overall chemical business, and I said, you know what, our sales out the door on chemicals I would consider a fairly normal because you have to remember that it's -- our sales of chemicals goes into our service professionals and into our retail stores. So when you're within a few percent of the total I don't really look at that as an alarming trend one way or the other because that could be absorbed in just inventory on people's trucks when they actually bought an inventory in the stores. So overall, I would say there's been slight pressure in sanitizers, right, and sanitizers and shock. But I would say that the rest of the business, balancers and the rest of the specialty products are actually holding up holding up just fine. So nothing really alarming or noteworthy there. the rest of the inflation that you mentioned, building materials, I would say, not a tremendous amount of inflation there. I would call that slight and then on the equipment side, the equipment guys are all out with their pricing for the upcoming season. And I would say that, that's fairly consistent to what we have seen over the last couple of years. David Manthey: Okay. That's helpful. Looking out to next year, I'm not asking for guidance. I'm just thinking about how the model works here. And I think typically, you talk about if you're growing normal kind of 6% to 9% in that growth algorithm, you often have talked about keeping SG&A growth to 60% to 80% of the top line growth rate and I know there's also some costs that creep back in when you start reinstating bonuses, incentive comp and that sort of thing. So I just want to know how the model works mathematically, when we think about year 1 of mid-single-digit growth, let's say, do we see that kind of normal 60% to 80% growth rate in SG&A leverage? Or is it slightly higher than that in year 1 and then we start to hit that leverage as we go forward. Melanie M. Hart: Yes. So the model stays intact. We will see some upfront kind of recovery of expenses. So incentive compensation, as you mentioned, would be the one area. But of course, that would only track as far as our growth track. And then outside of that, what we've talked about from an expense-based standpoint, is we've managed variable expenses. And so when you think about kind of volume increases coming back, we will have some add backs as it relates to drivers and warehouse personnel, but that will be kind of limited from that standpoint because we've maintained all of our professional staffing, our sales center managers and our BDRs so initially, there will be those volume-related expenses as well as the incentive compensation that would come back in with the sales growth. Peter Arvan: So Dave, this is Pete. Really nothing new to report in that area. It's the same as we always have done. I guess what is noteworthy though is we continue to invest in the business for the long term. So we continue to increase the number of sales centers that we have in the markets that we believe are either at capacity now or poised for additional growth and opportunity. And we also continue to invest in technology because we are convinced that it's something that customers really want and value, it is an area that allows us to differentiate POOLCORP and an area that customers have been very happy with the investments that we've made. Now again, those investments are -- none of those are short term. Those are all long-term investments that we believe we make. They become foundational and become part of our operating system, become part of the customer's operating system. And the leverage on those will continue to climb in the out years. Operator: The next question comes from Ryan Merkel with William Blair. Ryan Merkel: I want to start with the commodity pricing down 1% in the chart. How much is trichlor down year-over-year? And then are you also seeing deflation in PVC? Just what else is in there? Melanie M. Hart: Yes. So we still are not seeing PVC stabilize. So it's getting better when you look at the quarter-over-quarter rates on the PVC, but it is still within the quarter a decline. And then when you look at trichlor, the overall impact of the pricing is, one, but the chemical pricing is down more than that since it's just a portion of about 12% of the sales overall. So it varies. Right now, it's somewhere kind of in the mid- to high single digits down from a pricing standpoint of where it was last quarter. Ryan Merkel: Yes. It's pretty interesting to see this persistent chemical deflation. I mean, usually, that commodity is kind of up 1 to 2 points pretty consistently every year just because more of a maintenance item. Like what is different today about trichlor? Why do we continue to see this persistent deflation? Peter Arvan: Yes. I think, Ryan, that trichlor, as you know, went up dramatically during COVID. It went from for -- when I look at the price of trichlor today compared to what it was pre-COVID it is significantly higher than it was. It was a crazy high number, it has come down from what I thought was an unsustainable number at the time but it is still up significantly over what it was during the COVID era. So again, what's changed? Really, nothing has changed from a demand perspective. I think in any given year, you're going to see ebbs and flows in demand that's tied to overall demand, which is whether when the pool is open, how hot the weather is, how wet the weather is but honestly, when I look at it, it's not a number that I think is moving. What would concern me is if it was moving sharply one way or the other. I think the movement is muted and I don't know that it is affecting anybody's long-term trend. I think that import regulation can have an impact on that depending on what the administration decides on that because some of the chemical is domestically produced. Some of it is sourced from imports. But overall, I don't get too excited about that number because, again, it's not moving sharply. During COVID,when it's skyrocketed and like a lot of things that was moving sharply, that was much more of a concern. But I look at the movement today and say, yes, it's down slightly. But in 6 months, it could be back where it was, too. And I don't know that I could explain why it would be up 4% or down 4% one way or the other. Overall, though, it's a portion of our chemical mix. And I think trichlor just happens to be the product that everybody pays very close attention to. But when we look at it in total, it's a much smaller part of the total. Operator: The next question comes from Trey Grooms with Stephens. Trey Grooms: So just from one comment earlier, I want to make sure I have this right. So sales still expected to be kind of flat. And I think Pete, you said flat to slightly down for the year. But we're still thinking 4Q overall should be up year-over-year. Is that still the right way to think about it? And then I guess, with the EPS range, you reiterated clearly. But given where we are this kind of late stage in the -- with the pull season pretty well behind this. I guess what would maybe get us to the higher end versus the lower end of the guide range here, given the expectation for sales? And then I think you mentioned gross margin to be roughly flat year-over-year for the year. So any color on that would be great. Melanie M. Hart: Sure. So for sales, fourth quarter, we would expect that to be kind of flat to slightly up. And what we're seeing there is we'll see incremental benefit from a pricing standpoint in fourth quarter, that's really offsetting the weather-related hurricane benefits that we got in the fourth quarter of last year. And then from a margin standpoint for fourth quarter, we are also expecting margin there to be up. So we would expect to continue to see all of the benefits of the things that we've been working on all year long. And we'll see that it should be kind of up slightly from where we are in third quarter with some benefits from product mix. Peter Arvan: The other thing I would to mention, which is always the case, our fourth quarter a portion of what happens in the fourth quarter is construction and remodel. And again, that is going to be dictated largely by weather in the seasonal markets is what I'm referring to. So right now, weather up North is still pretty good, pretty warm. And the folks that have contracts to build are still building, which is encouraging. So the longer the weather stays warm, that bodes well for the fourth quarter for us. Melanie M. Hart: And then in order to get to the higher end of the range, that would really be weather dependent. So at this point, basically, we don't have any -- we don't have a near-term hurricane or weather impact -- significant weather impacts that we're seeing. But that would -- that benefit from last year would -- if we saw that similar benefit, that would be where it would fall in the range. Operator: The next question comes from Scott Schneeberger with Oppenheimer. Scott Schneeberger: I guess, Melanie, I'll start with you, but Pete, if you have anything to add, I'd love to hear it. In the third quarter gross margin improvement, it looks like pricing and supply chain were about equal. It's a two-part question. In pricing, could you just delve into a little bit now that we have the full impact of the tariff increase in the third quarter level or to deeper, Melanie on what you're seeing, how have competitors reacted, how we should think about that going forward? There's some uncertainty, obviously, on November 1 as well. But just how we should think about the sustainability of that trickling forward? And then the second half of the question is on the supply chain piece, could you just take us into what -- how structural is that, how permanent are the fixes, maybe some anecdotes of the improvements you're conducting there? Melanie M. Hart: Okay. Yes. So sure. On the pricing front, we are seeing that the -- we did have a full quarter of the price increases that went into effect kind of mid-season. And those are at this point I would say, fully flushed through the cycle. And so when we're looking at the acceptance of that pricing overall within the market, we -- that is through the pricing channel, and we're not seeing any impact on what we're doing versus our competitors doing as it relates to pricing. Peter Arvan: And I'll take the second part of the question as it relates to supply chain activity. We have become more and more sophisticated with supply chain over the last couple of years. Very happy with the team's effort in that regard. I think we have better technology. They have embraced the AI tools that we have available to us. So I look at the actions that the supply chain team, which has to do with what we buy, when we buy, whom we buy, how we buy and making sure that we are partnering with our vendors to maximize our opportunities and benefits and say that we are as good in that area, if not better than we've ever been. So I would look for the gains that we see in that area to be sustaining. Operator: The next question comes from Garik Shmois with Loop Capital. Garik Shmois: You spoke to equipment price increases that have been announced for the next season. I'm just curious if you can speak to the early buy programs and if your approach for the coming season is taking any different shape than usual. Peter Arvan: Yes. Really, nothing new to report there. The vendors have -- there was only, I think, 1 year during the peak of COVID when the vendors modified their traditional early buy program. So the early buy programs are very, very similar to what they've always been. And we are certainly participating in those in a very strategic way as we always have. So there's really not much new to report on there. . Garik Shmois: Okay. And then just a follow-up question, just on SG&A and the guide for the year, a little bit of a nitpicky question, but I think, Melanie, you mentioned in your remarks and outlook for 3% SG&A growth this year. I think last quarter, it was maybe 2% to 3%. I just want to confirm that. Is that different? And if so, is it just related to the expenses that you saw primarily in the third quarter. Melanie M. Hart: Yes. We had the 5% increase for the third quarter. So that increased slightly because we did accelerate some of these technology investments. When we look forward to fourth quarter, we'll expect to see that rate higher than what we saw earlier in the year. I would say in the range of a 3% to 4% increase for the fourth quarter. Operator: The next question comes from Jeff Hammond with KeyBanc Capital Markets. Jeffrey Hammond: Just on pricing in the next year, I guess, we've gotten the price list or from some of the equipment guys ahead of the early buy seems like they're putting kind of normal plus 2 to 3 points with tariffs. And I'm just wondering, one, what are you hearing from kind of the rest of like your other categories around pricing into next year? And just kind of the level of fatigue as we -- it looks like we're seeing kind of another year of above-average price increases? Peter Arvan: Yes. I think as it relates to the rest of the suppliers, I would say fairly normal cadence. I think the equipment guys are above where most of the rest of our suppliers are. Your comment on that level of fatigue from our customers that is certainly something that we hear. Quite frankly, all of that is solved with innovation, right? So new products, new innovation, make those price increases far more palatable for the customers because it gives them something new to go sell and grow their business and to help address the concerns of the homeowners and pool owners. Jeffrey Hammond: Okay. Great. And then just on POOL360, continue to see good adoption there. I'm just wondering if you have a target or the way to think about what you think that percentage of adoption is a couple of years out. And what the pushback or feedback is on people that are may be more reticent to adopt? Peter Arvan: That's actually a really good question. I would tell you that when I look at the range, it gives me good comfort on this number as well as many others as I look across the expanse of our quantitative metrics at POOLCORP is the range. So whenever I see a very tight range on something, I look at it and say, okay, if the range is very tight, it tells me that, okay, this is really kind of what process capability is for the particular thing that we're talking about. In the case of POOL360, I can tell you that our range is pretty broad, which, again, I have people that are well above. I mentioned that we were at 17% for the quarter which is an all-time high for us. We have people that are nearly doubled that. In fact, there's a few that are actually above that. So I look at that and say that there is still significant room to improve the adoption of the tool. What we hear consistently from customers, it's an education thing, right? So first of all, we have to have something that is worth using. And I think we have that. I think the teams work very, very hard to make sure that we have a relevant set of tools that is best-in-class that exists primarily for the benefit of the customer. So this is not, hey, how can I operate POOLCORP cheaper. It's about how can we help our customers be more productive and improve the overall customer experience. And I think the teams have worked very hard to do that. So I look at the adoption rate in some areas, it is significantly higher than what it is for the total. So what's my target I guess my target is still significantly higher than where we are. Do I think we could be as a company, 25%, 30%, yes, I think we absolutely could do that. Could it be higher? And the answer to that is probably yes. but we don't have quite enough experience with it, and we need to spend more time with our customers to say, okay, what would it take in order to have this be your go-to every time? Operator: The next question comes from Steven Forbes with Guggenheim. Steven Forbes: Maybe to the follow-up on Jeff's there around POOL360. Is there a way to help frame to us sort of how a customer spend or wallet share evolves sort of 6 months, 12 months after initial adoption as we sort of build support right around that achievement of target that you just laid out? . Peter Arvan: Yes. I think the way I think about it is this, customers that have a very strong digital connection with their supplier tend to be -- we tend to grow faster with those companies. In particular, when you look at our digital tools related to water test, obviously, the water test was developed to support our private label chemicals, whether that's our Regal or E-Z Chlor brand. So every dealer that uses the software, every homeowner that buys the test strips and test their water using either the test strips or the in-store experience, they're going to get a recipe, if you will, or a prescription of chemicals to add to their water, which are all private label products. So the more -- the faster we drive adoption in that area, the faster we'll be able to grow our chemical business. And it becomes less about, well, I could buy this bottle of algaecide for $1 cheaper from someplace else that becomes, well, wait a minute, this is part of the recipe and the program that I'm using to manage my pool water that produces these great results and crystal clear. So whether it's that or whether it's the service tech that is using POOL360 service because every time that person needs something, he's drawing the quote from his/her POOL360 account rather than shopping around. So we see much greater stickiness for customers that use that. And frankly, every time we integrate with our customer software, again, that drives stickiness. So we love the potential of growing the business through closer technological connections with our customers. And as those businesses or as those connections grow, we believe our sales will grow faster than the average, if you will. Steven Forbes: Helpful. And then as we think about sort of future innovation and technological advances. When you talk to the builder community today, what's sort of in the pipeline as you think about opportunities to sort of continue to create a digital advantage and sort of drive further share capture? Like is there -- are there certain specific things that the builder community is asking you to innovate beyond or behind? Peter Arvan: Yes. I don't know that I'd focus specifically on the builders, right? Because the builder in our mind is the -- certainly, it's foundational because that's how the installed base grows. But the percentage of our business that is driven from builders as compared to the installed base of pools, which is maintenance from repair, the latter is far larger. So that's initially where we are focused. Now a lot of those tools can be used for the builders too. So we're investing for the builders with our -- a lot of the builders, in particular, the smaller builders, if you will, are very much in tune with and use our design centers and our digital catalogs for our building materials. But our focus right now is more with the maintenance and repair operations. Certainly, builders can use the same tools to get -- to prepare their quotes and order materials and order equipment sets for construction projects. That is something and then don't forget about our retailers, too, because the retailers, many of them are using their systems integrated with ours to do essentially replenishment to the stores to manage their inventory. So it is -- I wouldn't focus just on builders, I would just say we are looking to improve our customer experience on all facets of the business. Operator: The next question comes from Sam Reid with Wells Fargo. Richard Reid: Awesome. I wanted to touch on the relationship you've historically seen between home equity line of credit rates or HELOC and the demand for remodel and new pool, anecdotally, kind of what's the lag typically between lower HELOC rates and spend for some of those more discretionary categories? Peter Arvan: Yes. I don't know that I could quantify a strong link that says, okay, at this HELOC number, the project is a go at 50 basis points higher, it's a no go. I mean, I would just tell you, instinctually that homeowners today have a higher level of home equity than they've ever had before. And I think pools and new pools and renovation remodel certainly are still highly desirable. It stands to reason that as those rates come down, HELOC is one of the sources of financing that homeowners use to finance those projects. There's also other ways that they are doing it. But we just look for kind of overall more liquidity and lower rates is going to bode well for large renovation projects and allowing more customers that are -- have been waiting on the sidelines to get a pool to go ahead and pull the trigger and start construction. Richard Reid: That helps, Pete. And second question here. I know it's early, but I think you're going to be hosting an Analyst Day next year. You're going to follow your consistent kind of biannual schedule. So just along those lines, any high-level thoughts at this point around things that you think you might share or not share, just looking to get a sense for, are we going to potentially get an update to your algorithm or something along those lines? Peter Arvan: I can't give you all of my secrets now. It's way too early. It's not even Christmas, I would tell you, we put a lot of time and effort into our Analyst Day to make them -- Investor Days in order to make them worthwhile and show the best parts of the company and our focus areas and what gives us confidence in the future and what differentiates our value proposition. So at this point, that's all I'm going to give you is that I believe you're going to -- hopefully, you attend, and I believe that you'll leave there convinced more than ever that nobody is better positioned than POOLCORP to capitalize on this industry. Operator: Since we run out of our time, our last question comes from Collin Verron with Deutsche Bank. Collin Verron: The technology sounds really exciting, and sounds like you've already done quite a bit of investment behind it already. So I was hoping you can just help us think about the magnitude of the spend that you're doing there and how much more SG&A investment is there left to drive these initiatives? Or are those pretty much behind you and your start to reap the benefits as we move out to '26 and '27. Peter Arvan: Yes. I think when you start with technology, I look at the spend that we have on -- I don't -- it's not an alarming number. It's not a huge amount for a company of our size at all. And when I compare it against the benefits that we are seeing and will potentially and should see going forward. I think that in order to have anything relevant in the technology world, it's nothing. It's not like, hey, I spent a little bit of money and it's done. Technology changes at a very, very rapid pace. And we have to make sure that we change with it. AI is certainly going to have an impact on our business, the way we develop technology and the way we deploy technology and I think it's going to be helpful on both ends. But I don't look at the spend and say, wow, okay, we are spending hundreds of millions of dollars on an ERP system, we're not. We're spending as part of our normal course of business to make sure that we have the best, most relevant set of technologically up-to-date tools that create value for our customers, which again drives them to adopt the tools which makes for a stickier transaction because of the value that it creates for the customer. So I guess that's a long way of saying that I don't think we're spending a lot of money today but we're certainly not done spending. But like everything we do at POOLCORP, we try and squeeze the nickel just as hard as we can. And I think AI is helping us in that regard. Collin Verron: Great. That's really helpful color. And then maybe a more near-term question here. Melanie, you mentioned a few times the weather benefit that you guys saw last quarter. Any way you can help quantify just the magnitude of what you don't expect to repeat this year? Melanie M. Hart: It was a 1% benefit in fourth quarter of last year. That was the top line sales number. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Peter Arvan, President and CEO, for any closing remarks. Peter Arvan: I just want to thank you all for joining us today. We look forward to hosting our year-end call on February 19, when we will release our fourth quarter 2025 results and full year results. Thank you for your interest and support in POOLCORP, and I hope you all have a happy and safe holiday season and New Year. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Hjalmar Jernstrom: Good afternoon, and welcome to Pricer's Third Quarter 2025 Earnings Presentation here at DNB Carnegie. My name is Hjalmar, and I work as an analyst, and we are joined here today by CEO, Magnus Larsson; and CFO, Claes Wenthzel. Welcome, gentlemen. Thank you very much. And we have a lot to speak about. So let's get started right away. The floor is yours. Magnus Larsson: Excellent. So thanks, everyone, for joining. We're going to present now our third quarter for 2025. It's myself and Claes as mentioned by Hjalmar. And as always, let me just start with Pricer in a brief for those of you who don't know us since before. So our vision is to be the preferred partner for in-store communication and digitalization. We work within retail tech. We are a leader within retail tech, and we have been around for nearly 30 years or actually more than 30 years, and we have to date 28,000 stores sold across the world. Looking at market development and the Q3 highlights, of course, the first thing I want to lift is that we managed now in Q3 to have the best net sales so far in this year for a quarter, SEK 598 million. It's better than both Q1 and Q2. We had a very great increase in our recurring revenue. Why is that? So it's partly due to all the SaaS services we sell through Pricer Plaza. But we've also changed our business model and our pricing model for all software services, also older installs to subscription model only. So even if you, for whatever reason, are not able to actually connect your store to Pricer Plaza, you will still need to renew the software for your installed base or your installed server and the new pricing model is recurring. So basically, as of now, we are in principle only recurring when it comes to software sales. And this is why you can see the almost 50% increase in recurring revenue in this quarter compared to last quarter. You will also see that it's a quite high increase versus Q2. It's almost 20% increase versus Q2. This is one of the drivers behind the margin improvement. We're on 23% now for the quarter. And it's, of course, partly part of the recurring revenue, but it's also product mix, and I think Claes will speak a little bit more about it in detail. One of the highlights for me personally is, of course, that we, with our EBIT result, managed to -- it's a positive result, and it's actually not only for Q3, but with the result of Q2, we take the entire result for the full year into positivity. So I'm super happy for that. Something I'm a little bit less happy with is, of course, the order intake, which was bleak now in the quarter. We could see that there are many different reasons, but the key reason is the fact that there is still a lot of market uncertainty affecting the retailers' decision to invest. We have quite a few customers where we know there is a project they want to deploy, they want to get started with, but it's being pushed into the future. So we haven't lost them, and we do expect that there will be -- there will be -- the orders will actually come at a later stage. But it's clear, it's not only ourselves, we see it also for our competitors that this unwillingness to invest is affecting the market growth at the moment. Then on the Nordic side, as you probably know, if you followed us, we have been moving from a partnership sales model in the Nordic and Baltic market into a direct sales market approach. Since August, we have a full team in place. We can actually see that we're now getting traction on the order side. You don't really see it in the Q3 report, but I expect that it will be visible as of Q4 and forward on. And one first example of this new direct [ modes ] is that we got a direct frame agreement this week with Norgesgruppen, who is the -- one of the leaders on the Nordic market, but also then in Norway. Obviously, for those of you that are Nordic, that we announced a couple of days ago. So it's a frame agreement we expect to serve all the stores over the coming couple of years. One thing I would like also to speak about is that we have another customer. It's one of the largest Nordic customers. that we have. They now had their first store on Pricer Plaza and they have an ambition to actually do all their stores as soon as possible. So there will be a couple of hundreds by Christmas and then some more by beginning of next year. So it's a very clear trend also in the Nordic market for Plaza and connecting your stores. Looking at the organization and for those of you that will look more on the OpEx side of our business, we have invested over the last couple of months and quarters in our organization, in the commercial organization very much on the marketing side, on the sales side, on the product management side, all the parts of the organization that will actually help us build the value proposition of today, but also the value proposition of tomorrow and that will more in a larger extent, also engage with our customers directly. This has generated a lot of positive traction. Once again, not visible this quarter, but hopefully visible in the quarters to come. And as mentioned, the fourth quarter has started well from an order intake point of view. What are we actually solving? We've been looking at different industry trends and the macro trends. And today, I'd like to focus on two of them. One, our customers come to us, often it is to help them with improving the operational efficiency in the store. But it's also increasingly more on the in-store experience, how can they make the shoppers buy more, how can they actually get additional revenues from CPGs, so the brands. So I've got two examples. If you think about the operational cost pressure, I would like to take our customer SOK in Finland and the partnership that we have forged with them since 2023. It was a pretty long sales process, but we got a contract during autumn 2023, which we announced to the market. They started with 15 stores in 2023. And by today, they have -- we have deployed more than 6 million labels across 450 stores. So this is way above the initial discussions we had with them, and we will continue to deploy additional stores. They have some, I think, around 1,000 stores in total. Why did they select us? Well, the key reason was to get the operational efficiency in place, but it was also to improve the work environment for the staff and especially looking at replenishment and picking online orders. So they wanted to make sure there would be less time spent, but it would also be easy for the staff. And they can see now that when they did the pilot, they said, well, there was basically only one choice. You're the only one with a solution that works for us as we need. But it was also now we can see afterwards when they started to do employee engagement service that they have an increase in positive answers on the work environment. They can also see that it's faster to actually get an employee fully productive in the store. And I'm really happy for the cooperation and as Jarko Mäkkinen, the Head of Development at SOK says that Pricer has proven to be the partner that they wanted, acting as an extension of our own team. And of course, we feel the same way. It's very inspirational customer to work with. Here -- so this is very much on the store operational side. And if you're more interested in this case, I think you will have it now or it will come very soon, a video actually from SOK where they speak about why they selected us. The next thing would be then addressing the in-store experience. Price Avenue is a product that we conceptually launched in New York in January at the NRF event. We have now come to the place where we are starting pilots. So yesterday, we actually had our first Pricer Avenue aisle live. It's in a store north of Stockholm. It is very much a store where we will let our engineers just verify that everything is working as it should. But if you want to see it, you should go northwest of Stockholm and see if you can like locate the store, it's really nice. What you also see on the picture here is what we call the floating canvas. This is something unique to Pricer. It's a patented way of doing. And actually, we're the only one with the current look and feel of the general ESL on the market where you can do it. We -- unlike everyone else and unlike our old models, we have not made our thin so -- frames are so thin on the ESL that you can easily then build a picture over 2 ESLs or over 3 or 5, any -- actually, any number of ESLs you want, you can build the merchandise in the promotion area. So we're going to do in addition to what we just installed in Sweden, we will do pilots more of a commercial nature in Finland, in France and in the U.K. now during October and November. So there will be more updates on this, but we can see there is a huge interest in Pricer Avenue. And I think it's also fueled by the fact that there's no one else on the market that is actually doing it this way. So having done now the [ shameless ] marketing of Avenue, I hand over to you, Claes. Claes Wenthzel: Yes. Q3 is the best quarter for this year. You see we have a strong gross margin and gross profit, and we see effect in our production cost now from the weaker U.S. dollar. We have had a negative currency effect compared to last year with about SEK 10 million, which affected our EBIT of course. So -- but still, we have a return on sales of 6.5% for this third quarter. If we then look at the cash flow, the operating cash flow for the first 9 months is positive and SEK 16 million. Cash flow has been affected by the high accounts receivables and has actually increased by SEK 120 million in the third quarter. So this is just -- it's a timing effect, and that will be, of course, a positive effect from this now in the coming quarter. Then if we look at the order intake, it's, of course, weak, as Magnus said, but the backlog now when we go into the fourth quarter is higher than last year. On the sales side, it is the best this year, and it's SEK 598 million. Gross profit, it's also the best for the year with SEK 139 million. And even then the total result is, of course, the best for this year. Magnus Larsson: Good. Thanks, Claes. So going to the summary. Well, as I mentioned, the geopolitical situation is still affecting retailers' decision to invest. They believe in digitizing the stores. They are digitizing the stores, but we can see a lot less activity on the market. And I know, of course, there are questions, is the market growing? Yes, we believe that over the coming couple of years, there will be a massive growth. But we can see that this year and actually last year, we had poor growth in the market. If we look at the top 4 players, I would say that we had a standstill in the market last year, and there will probably be something similar here as well. But we still see the same interest from our customers. It's painful. It's, of course, something we don't want, but we actually still have the positive dialogues. And I think that's important to remember, especially when you feel frustrated over the lack of sales or lack of results, it will come back. I'm really happy that we managed to return to profitability this year. It's, of course, painful for everyone when you're actually not making money. We have committed in the Q2 report that we will be profitable for the year, and I think we can repeat that commitment to the market. Clear recovery in net sales. We improved our gross profit a lot versus Q2, but also versus Q3 last year. The Pricer Avenue pilots, I'm super excited to see them in place. The first install looked beautiful. And now when we do them fully for our additional customers, France, U.K., Finland, I expect a lot of interesting dialogues afterwards. The direct frame agreement with Norgesgruppen, very positive. I do expect more frame agreements coming out of the Nordic market within this year. And I would like to also close with saying that we have a strong position to really capitalize the future demand, the future opportunity. And I believe that with our setup, with our current portfolio, but above all, also with what we do now on the revenue side, there will be a lot of opportunities for us to grow into the future. So please bear with us, there will be improvements. Hjalmar Jernstrom: Thank you so much, and let's dive into the Q&A then. First, on the jump then in recurring revenue, which, of course, is very interesting. You mentioned there that you can also have a recurring revenue setup with sort of the non-Plaza customers, if I got that correctly. Could you just elaborate a bit on this initiative and this pricing? Magnus Larsson: So what we've done is we see that, of course, recurring revenue is a solid base for us to stand on. And we want to move all customers over to Plaza to get them connected. But we also see that some customers, they need to do the proper planning, they need to do the setup. And if you have almost 1,000 stores, as an example, you need to plan that transformation pretty carefully. But we do not want to wait for the revenue. So what we have done is that all customers with an old install that will still be installed on a server. We changed the price model and said that now you got the latest version, but it will be a recurring revenue model. So this is the key reason. So all the new softwares that we sell will be sold as a SaaS service. I'm sure there might be some exception, but at large, this is what we do. So this is -- has been one of the key reasons for the impact now in Q3. Hjalmar Jernstrom: Yes. And what does this mean for the prospects of recurring revenue? I mean I know you don't have a recurring revenue target currently, but what is the implications of this? And how much can it grow? I mean, just depending on now addressing also non-Plaza customers? Magnus Larsson: I think the key growth will come from connecting customers, and we have several projects ongoing. If you take Carrefour as an example, I think we've connected -- I can't recall the exact number, but somewhere roughly 500 additional stores this year. And we believe that all stores that we haven't connected so far, let's say, we have -- we sold 28,000 stores. We have a number of Plaza stores today, but there's probably at least 10 to 15 stores still to actually connect. And that will, of course, be one chunk of the forthcoming recurring revenues. The other one will be now as we get stores connected and our software team spend more time on developing applications and functionality rather than the basic Plaza functionality, we see that we will also be able to package and sell much more upsells to our customers and new functionalities that they would need to pay for. And we've come to a point now we have the R&D capability fully in place. We have the Plaza fully developed to the extent that we want. But we also have the product team that is now really good at packaging it in a way that will be easy for our sales team to do it. So I see that there are quite a lot of opportunities to actually grow this continuously. Hjalmar Jernstrom: It sounds like a lot of focus on recurring revenue currently then. Magnus Larsson: Absolutely. It's actually when we communicated internally, it's really the #1 objective is to get more customers and to make sure that every single customer is connected. Hjalmar Jernstrom: Yes. And on the pricing side, you mentioned the Avenue pilots currently running. Could you give us maybe some granularity on the pricing that you're expecting for this model? Is it mainly recurring and -- and what would sort of the margin profile be potentially. Magnus Larsson: You can see with Avenue, we will see a few different revenue streams. One is, of course, selling the ESL, which, we will not take it on our balance sheet. So we will still sell it as a product, but we will sell the software. We -- with the powered rail that we have in the system, we have a unique setup that we actually do expect that we'll be able to license for people that want to use it and sell it for their own IoT devices or for -- in the stores that we have, if they want to use it, they will have to pay a license fee. Then we have the ability to do the merchandising. There we're still looking at the price model, but we see that there is a real chance to actually get some increased revenues, hopefully, more than smaller amounts on the merchandise side. That's one of the things that we really want to test now when we do the new stores, France, U.K. and Finland, how can we actually -- how should we work with the merchandise side, especially. But I see, in essence, 3 different kind of revenue streams. Hjalmar Jernstrom: Is it possible to start up selling the avenue already in early 2026? Or when do you expect to maybe see sort of a ramp-up of... Magnus Larsson: It would be, we will actually have volume or will do small volume production during the first half, mainly because we know that customers that will never go for a full deployment immediately. Typically, when we approach our customers, they want to test it. They test it in one part of the store, then they might do an extended part of the store. But we would say, as of the second half of next year, that's when we're ready to do volumes, and I expect us to do volumes -- it will not be a bulk of our revenue, but I would expect it to be at least on a level where we can speak about it and say it's actually making a difference. Hjalmar Jernstrom: Yes, yes. And then if we move on to the order intake, maybe you mentioned Europe and also one impacting factor being that you're going to a direct-to-market approach here. Could you elaborate just how this is impacting the order intake here in the third quarter and why this sort of like dampens the order intake that you saw in Europe? Magnus Larsson: There are two key reasons. One is actually Nordic Baltic, where we can see that the transformation from distributor sales to direct sales -- now it's -- since all the Nordic customers know that we were doing this, they've been waiting, which means that some of them, they are waiting to invest, but it also means that some of them said that if they were not in a hurry, they probably took the investment and put it into next year's budget. So it's money that will come our way, but it's more of a timing issue. We can also see when we address franchisees. So now we have an organization in Sweden to do franchisee sales. Here, I see on a daily basis that we get store orders in, but it's coming now, and we got the full team in place at the end of August, but we can see that they're all busy, and we have had several orders, both from a store level until then the frame agreement like Norgesgruppen. The other one was Carrefour, where we had a very high order intake from Carrefour in Q3 last year. That order we got in Q2 this year, not exactly the same size, but still the large Carrefour order of the year came Q2 this year. Hjalmar Jernstrom: So it's reasonable then I assume to expect some sort of catch-up and maybe not Q4. I mean some -- you mentioned some budgets, they are taking it into 2026. So a gradual catch-up maybe from here. Magnus Larsson: I think there will be a gradual catch-up. And above all, I think the key message is that there will be a catch-up. This is not lost sales. This is sales that we will get. And we are, of course, in discussions with like Norgesgruppen and others on what are their investment plans for the future. We have a pretty good idea on what will happen and when. Hjalmar Jernstrom: Yes, yes. And then if we move on to the Americas region, could you just give us sort of like the current view of the impact from the tariffs? I mean you mentioned that this has been an issue and of course, maybe an ongoing issue as well. But still, I mean, there is for you some order intake in the Americas, which is sequentially improving even, if I recall correctly. And I mean, maybe this is outside of the U.S., it's Canada, but could you elaborate a bit on the drivers here and sort of like what do you currently see from the tariffs? Magnus Larsson: Yes, I think we can split it in U.S. and Canada. And if I start with U.S., we still -- there is still a slowness to make new investments. There are discussions. They have started again, but they are quite slow. But we can see that suppliers that actually had a contract in place, we can -- it seems like volumes are actually accelerating to make sure that they get things deployed as soon as possible with the rationale. We know the tariffs we have today, but we don't know the tariffs of the future. And I think that is the key rationale where you can see there is some acceleration on the market. But I think the key rationale is that we want to digitize. We had the contract. Let's do it now before it will be way too expensive. But for the rest, we see that there is still cautious. They are still waiting. So there's not a lot -- there are, of course, sales, but not as much as we would expect. It's actually much lower. In Canada, on the other hand, we see a lot of interest. We see that Sobeys deployment, it's progressing extremely well. We see it's catching a lot of interest. So in addition to the order that we got in December, then we're busy deploying it according to schedule. There's a lot of Sobeys franchisees that are constantly placing orders. We can see that there are spillover effects that we have other customers, we have the Metro Group in Canada as well. And of course, they look at all the new stores with 4 color labels. And we see a lot of incoming interest also here where we do believe that Canada will be a really good market for us over the coming couple of years, both Sobeys, Metro Group, Canadian Tire, they're soon fully deployed, but we have now done the first 4 color orders. So they will gradually start shifting their installed base over more and more towards 4 colors. So that will be continued sales as well, maybe not on the same level initially, but eventually. Hjalmar Jernstrom: And how much potential do you see in the Sobeys store network to grow there? I mean, what is the current like sort of penetration rate and I mean if you gain traction there, what's sort of like the potential that we could see? Magnus Larsson: I see it Sobeys and with the different formats, they have, say, roughly 1,500 stores. We -- there's still a lot of upside. Hjalmar Jernstrom: Yes. All right. Magnus Larsson: No numbers, I'm afraid. Hjalmar Jernstrom: No, that's fine. That's fine. Magnus Larsson: But it is same. I expect more. Hjalmar Jernstrom: Yes. You mentioned then some pilots running -- starting in October and November here for Avenue. Could you elaborate a bit on this? Is this new customers or current customers that... Magnus Larsson: So it's existing customers, and it's customers where we said that we will only do a few. We will select the customers we want to work with. We want customers where, of course, they will test it in their store environment and see does it work for them? How well do they like it. But we also want to test the commercial model. We want to make sure it's not just another label. We want to make sure that all the merchandise abilities are in place. We want to make sure that we have either their private brand or that they have another brand they work with as part of the campaign. So they've been -- we've been extremely selective in this process. We will do more promotion around these pilots. That's also been a requirement. We want to talk it and we need to talk about it. Hjalmar Jernstrom: All right. Thank you. Then we got a question on the line regarding the SOK that you mentioned. Could you just clarify a bit? Are you expecting to see additional rollouts here? Or have you already received these orders? Magnus Larsson: We're expecting to see more. So they've been driving it as a structured process. They've been doing a lot of deployment now with 450 stores, but they still have another more than 500 stores. Different formats still. There's been a focus on the large formats, even though we also won the smaller formats, which we were not certain that we would win. I think originally, they were thinking about having maybe dual vendors, but they decided to just go with us because they were so happy with how things were working. But we do expect to get more like store-by-store orders into the future more than like a structured. So I don't think we will have a very large PO, but I think we'll continuously have a good run rate business that will be on a good level. Hjalmar Jernstrom: And then on the U.K., I mean, a lot of questions regarding U.K., we know that it is a market with great potential. We see -- we see some deals being made in this market. Could you elaborate a bit on what you're seeing right now sort of like the current picture of the activity in the U.K? Magnus Larsson: We see a lot of activity. I mentioned many reports that I expect something to happen now during autumn, and I guess it just did. Everyone is looking at it, and we see the investment decisions are either being made or will come within the coming 6 to 18 months, I would say, or maybe as of now and within the coming 18 months, but everyone is looking at ESL. I expect the question to pop up. And yes, we are doing pilots with several of the Tier 1s. So we are in discussions. Yes, we were also in discussion. We were in final stages of negotiations with one of the large funds that were recently won by a competitor, but we actually said no. There were some commercial conditions that were -- I've never seen before actually. So we said this is unacceptable. So we declined. Hjalmar Jernstrom: Okay. Okay. Then we got some questions on the working capital. Could you maybe elaborate a bit on -- I guess, mainly on inventory. Do you feel that the levels that you currently hold are satisfactory? I mean, or do you feel that they are sort of -- maybe they could lean in some direction one or another if we look forward for the next maybe 2 quarters? Magnus Larsson: Yes. The inventory level now is higher than we actually expected. So we expect the inventory to go down. From the levels they are at the moment. And also regarding working capital now, also in the quarter, the accounts receivables has increased a lot. And as I said, it's just a timing effect. So that will also change. Hjalmar Jernstrom: All right. Thank you so much, Magnus and Claes, for coming in today and presenting and answering our questions. And I'll leave it to you for any concluding remarks. Magnus Larsson: All right. So thank you, Hjalmar. Thank you, Claes. Thanks for everyone watching. Thanks for joining. I hope you found it interesting. I hope you got something more out of the call than you could actually read out of the report. I would like to summarize saying that I'm very positive looking at the future, not very happy with 2025, but I see that things are improving. They were improving in Q3. We will make a profit for the full year. We have the dialogues in place to actually make sure that we come back and deliver better into the future. So thanks a lot.
Operator: Thank you for standing by. My name is Eric, and I will be your conference operator today. At this time, I would like to welcome everyone to the Q3 2025 Knowles Corporation Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Sarah Cook. Please go ahead. Sarah Cook: Thank you, and welcome to our third quarter 2025 earnings call. I'm Sarah Cook, Vice President of Investor Relations. And presenting with me today are Jeffrey Niew, our President and CEO; and John Anderson, our Senior Vice President and CFO. Our call today will include remarks about future expectations, plans and prospects for Knowles, which constitute forward-looking statements for purposes of the safe harbor provisions under applicable federal securities laws. Forward-looking statements in this call will include comments about demand for company products, anticipated trends in company sales, expenses and profits and involve a number of risks and uncertainties that could cause actual results to differ materially from current expectations. The company urges investors to review the risks and uncertainties in the company's SEC filings included, but not limited to, the annual report on Form 10-K for the fiscal year ended December 31, 2024, periodic reports filed from time to time with the SEC and the risks and uncertainties identified in today's earnings release. All forward-looking statements are made as of the date of this call, and Knowles disclaims any duty to update such statements, except as required by law. In addition, pursuant to Reg G, any non-GAAP financial measures referenced during today's conference call can be found in our press release posted on our website at knowles.com and in our current report on Form 8-K filed today with the SEC. This will include a reconciliation to the most directly comparable GAAP measure. All financial references on this call will be on a non-GAAP continuing operations basis with the exception of cash from operations or unless otherwise indicated. We've made selected financial information available in webcast slides, which can be found in the Investor Relations section of our website. With that, let me turn the call over to Jeff, who will provide details on our results. Jeff? Jeffrey Niew: Thanks, Sarah, and thanks to all of you for joining us today. As we continue to execute our strategy of leveraging our unique technologies to design custom engineered solutions and then deliver them at scale for customers and markets that value our solutions, we achieved strong results in the third quarter of 2025. Revenue was $153 million, up 7% year-over-year. EPS of $0.33, up 22% year-over-year, and cash from operations was $29 million, all of which were above the midpoint of our guided range. I believe our results continue to demonstrate that our focus on the markets and products where we have significant competitive advantage is paying dividends and positions us well for future growth. Now turning to the segment results. In Q3, Medtech & Specialty Audio revenue was $65 million, up 2% year-over-year. Our continued operational excellence, sustained success of new product adoption and cutting-edge technology is evidenced with our strong gross margins. I expect that Medtech & Specialty Audio will have revenue growth within the range of 2% to 4% over the year in 2025, and we are optimistic about our future growth opportunities we detailed at our Investor Day. In the Precision Devices segment, Q3 revenue was $88 million, up 12% year-over-year. We saw revenue growth across all our end markets: medtech, defense, industrial, and EV and energy. Our strong intimacy with our customers' applications has led to accelerating design wins. Coupled with robust secular trends in our end markets, I am confident in our ability to continue to grow revenue in the fourth quarter and beyond. While we are seeing growth across all our end markets, I would like to highlight the defense market as it was particularly strong with design wins and bookings outpacing other end markets. Our capacitors and RF microwave solutions serve a wide variety of military applications. We have a compelling product offering of RF filters being used in next generation of defense systems serving a broad base of applications from radar, detection and jamming to ground communications, ensuring reliable and secure military communications. Our capacitors provide the electrical energy source needed for extremely harsh applications like munitions and detonation devices. Defense spending is increasing and shifting towards spending on electronic warfare where our products are in high demand. In Q3, bookings in the PD segment remained strong, particularly in defense and with our distribution partners. We continue to believe that channel inventories are now at normalized levels as they are now matching orders to end market demand. We continue to collaborate with our customers leading to a robust pipeline of new design wins as our customers continue to choose our innovative and differentiated solutions across all the markets we serve. We are positioned well for organic growth, and I expect the Precision Devices segment will grow at the high end of our stated growth range of 6% to 8% in 2025. I would like to reiterate the strategy we are executing across both of our business units. We are leveraging our unique technologies, creating custom products through our customer application intimacy and then scaling into production with our world-class operational capabilities for end markets with strong secular growth trends. It is proving to be a winning combination, leading to year-to-date revenue growth of 5% and EPS growth of 15% on a year-over-year basis. John will go through our Q4 guidance shortly, but as we stated on previous calls, we are expecting to finish the year strong with revenue and EPS growth accelerating in the second half of 2025. As we look to next year, with new design wins ramping and a very healthy backlog of existing orders, we expect to see organic growth rates at the high end of our stated range of 4% to 6% for the total company. This is an increase from historical levels, supported by strong secular growth trends in our end markets and new initiatives such as the expansion of our specialty film production coming online. Cash generation from operations continued to be robust in the third quarter, allowing Knowles to purchase $20 million in shares and reduce outstanding bank borrowings by $15 million. We have a very strong balance sheet that will continue to support our growth as we pursue synergistic acquisitions and buy back shares while continuing to keep our debt at very manageable levels. In summary, as I said last quarter, I'm excited by the momentum and strength the business demonstrated and the growth opportunities that we have in front of us, both in the near and longer term. Our design wins continue to be strong across our product portfolio. This is driving increased demand for our products, which gives me confidence that we have entered a period of accelerated organic growth from historical levels. We are laser-focused on what we do best, designing custom engineered products and delivering them at scale for customers and markets that value our solution, positioning us well for growth in 2025 and beyond. Now let me turn the call over to John to detail our quarterly results and provide guidance for Q4. John Anderson: Thanks, Jeff. We reported third quarter revenues of $153 million, up 7% from the year ago period and at the high end of our guidance range. EPS was $0.33 in the quarter, up $0.06 or 22% from the year ago period and also at the high end of our guidance range. Cash generated by operating activities was $29 million at the high end of our guidance range, driven by lower-than-expected net working capital. In the Medtech & Specialty Audio segment, Q3 revenue was $65 million, up 2% compared with the year ago period, driven by increased demand in the specialty audio market. Q3 gross margins were 53%, flat versus the year ago period. As expected, segment gross margins in the third quarter improved more than 200 basis points sequentially, and we expect gross margins to be above 50% for the full year 2025. The Precision Devices segment delivered third quarter revenues of $88 million, up 12% from the year ago period. Segment gross margins were 41.5%, up 150 basis points from the third quarter of 2024 as higher end market demand and production volumes in our ceramic capacitors and RF microwave product lines resulted in increased factory capacity utilization. These improvements were partially offset by higher production costs and lower-than-expected yields associated with the ramp-up of the specialty film product line. It's worth noting that specialty film output trends within the quarter were positive. And as we exited Q3, we are well positioned for both sequential growth and gross margin improvement in the fourth quarter. On a total company basis, R&D expense in the quarter was $9 million, flat with Q3 2024 levels. SG&A expenses were $26 million, up $2 million from prior year levels, driven primarily by annual merit increases and higher incentive compensation costs. Interest expense was $2 million in the quarter and down $2 million from the year ago period as we continue to reduce our debt levels. Now I'll turn to our cash flow and balance sheet. In the third quarter, we generated $29 million in cash from operating activities. Capital spending was $8 million in the quarter. We continue to expect to generate operating cash flow of 16% to 20% of revenues for full year 2025. During the third quarter, we purchased 940,000 shares at a total cost of $20 million. We exited the quarter with cash of $93 million and $176 million of debt, which includes borrowings under our revolving credit facility and an interest-free seller note issued in connection with the Cornell acquisition. The remaining balance of the seller note matures next month, and we expect to fund this payment with a combination of cash on hand and revolver borrowings. Lastly, our net leverage ratio based on trailing 12 months adjusted EBITDA was 0.6x, and we have liquidity of more than $350 million as measured by cash plus unused capacity under our revolver. Before turning to the fourth quarter guidance, I want to give a brief update on the tariff situation as it relates to Knowles. While the situation remains fluid, we continue to believe our exposure to tariffs is less than 5% of revenue and 3% of cost of goods sold. We've had success in passing these additional costs on to our customers, and our expectation is to continue to do so without loss of business. Moving to our guidance. For the fourth quarter of 2025, revenues are expected to be between $151 million and $161 million, up 9% at the midpoint year-over-year. R&D expenses are expected to be between $8 million and $10 million. Selling and administrative expenses are expected to be within the range of $26 million to $28 million. We're projecting adjusted EBIT (sic) [ EBITDA ] margin for the quarter to be within the range of 22% to 24%. Interest expense in Q4 is estimated at $2 million and includes noncash imputed interest. We expect an effective tax rate of 7% to 11%. As we move forward, I expect the tax rate to increase in 2026 to the range of 15% to 19%. We're projecting EPS to be within a range of $0.33 to $0.37 per share. This assumes weighted average shares outstanding during the quarter of 87.2 million on a fully diluted basis. We're projecting cash generated by operating activities to be within the range of $30 million to $40 million. Capital spending is expected to be $12 million, and we expect full year capital spending to be approximately 5% of revenues as we've increased investments associated with capacity expansion related to our specialty film line. In conclusion, our year-over-year revenue and earnings growth were strong in the third quarter. And with the backlog and increased order activity, we expect to continue to deliver both sequential and year-over-year revenue and earnings growth in the fourth quarter of 2025. I'll now turn the call back over to the operator for the questions-and-answers portion of our call. Operator? Operator: [Operator Instructions] Your first question comes from the line of Christopher Rolland with Susquehanna. Christopher Rolland: Congrats. So I guess my first is going to be on specialty film. If you guys could just remind us on current capacity, your plans or even update us on your plans for capacity additions and how from a demand standpoint, you guys see revenue now into next year and whether you have high confidence on high-volume additional customer opportunities for this product in particular? Jeffrey Niew: Yes. Chris, let me separate that into 2 pieces of specialty film. Let me answer the first, which is a little bit easier, which is back to that energy order we received in Q1. So first, I think we're on track that starting really in the second quarter, but really fully ramping up at the end of the second quarter, that energy order will start to be delivered in the back half in full -- but starting in Q2, around $25 million or so. That's what we expect in that business. I think in the other portion of the specialty film business, right now, we have a backlog that's not counting again the energy order that's in excess of $25 million, close to $30 million backlog that to deliver on. And we see more orders coming. So we feel pretty comfortable as we look into next year that the specialty film line, probably is going to be in the $25 million to $30 million range this year. If you add the $25 million, it should be at least $55 million or $60 million next year. And we're expanding the capacity to fulfill those orders. Christopher Rolland: Excellent. And then perhaps we can talk about -- I think in the press release, you talked about design activity. I was wondering what you were alluding to and what underpins your high end of your target growth range? And just as we kind of think about Medtech or Precision Devices or any subsegment, what you would expect to be above and? Jeffrey Niew: Yes. So if you divide it that way, I think if I were to sit there right now, I would probably look at the Medtech & Specialty Audio business in '26 being in that 2% to 4% range for growth next year. I would sit there and say the Precision Device, which is now a business which is now obviously larger than the med tech is at the high end to maybe even slightly above the high end of the 6% to 8% that we provide for organic growth at the Investor Day. The underpinning of this, I wish I could point to and say beyond that energy order, which we highlight that it's like one customer or one application, we are just having a tremendous amount of success. And I would sit there and say, I really commend the teams within Knowles, Chris, in terms of execution. It's taking our unique technologies and then customizing them for specific applications across med, industrial, defense, and then delivering them at scale with a world-class operation. And we're just having a tremendous amount of design win activity across the board. And that's why I think we feel comfortable right now when you look at the growth rates, coupled with that energy order we'll start to deliver that all our markets are up. I was even looking -- I think like even this year, we're kind of having quite a bit of success this year in EV. That's in '25, which obviously a lot of people aren't. And that's all about very specialized design wins in EV where we're having obviously very unique and differentiated products. Operator: Your next question comes from the line of Bob Labick with CJS Securities. Bob Labick: Congratulations. Also my congratulations as well on the strong performance. Jeffrey Niew: Thanks, Bob. Bob Labick: Yes. So I just want to follow up on the kind of the specialty film. There's obviously lots of excitement going on in the capacitors. You talked about the energy order coming on next year and then the other specialty, I guess, I think you said medical and defense. And any way you can elaborate on some of the products that these are going into or the ability for follow-on orders in the non-big energy one and how that could progress over time? Jeffrey Niew: Yes. I think I talked about a couple of them that we've talked about before, but they're growing pretty rapidly and doing well for us. But it all -- the specialty film really focuses around pulse power applications. It's applications where the capacitor is not being used in a traditional sense as a building block of an electronic circuit. It's actually being used to store a significant amount of energy that needs to be released in a very rapid pace in order to power something. And we've talked about before about defibs. We talked about in the railgun application. We talked about more recently, radiotherapy is a great application for us. So there's a lot of applications that are emerging that are coming. I wouldn't -- beyond the energy ore, which is very unique in terms of the size, we have a lot of unique applications that are coming to market, and we continue to be called up on a weekly and daily basis. We seem to be in a very unique position, Bob, relative to the technology and the capability to deliver the solutions. And of course, it doesn't help to be U.S.-based in manufacturing in the U.S. as well. Bob Labick: Got it. Yes. It sounds like these are new applications solving problems may be better than before in kind of existing markets, but taking share from older technologies. Is that post... Jeffrey Niew: I wouldn't say taking share. I would say this is like new applications that didn't exist before that are requiring like a significant amount of power to be delivered in a very rapid period of time in order to power the device. I think one of the ones that we alluded to, which is coming is downhole. And that's another application that, quite frankly, we're taking prototype orders for right now, but we could see down the road with all the work that we've been doing that these downhole applications where our capacitors would be in high heat environments, have to be taken downhole in order to be involved in fracking and cleaning of drill bits. There's a whole bunch of different applications here that we've been working on for like a year or 2. And we're in the prototype phase right now, but everything indicates like that one is another application that would require pulse power. Bob Labick: Got it. Very exciting. And shifting gears, obviously, the balance sheet is in good shape. You're buying back stock. You've had M&A in the past. Can you just give us an update on the M&A environment? I don't know if it's like with tariffs, it slowed down. Has it like reopened up a little bit? Or what's the opportunity... Jeffrey Niew: Yes, we're definitely focused on this. I just think where we are today as a company is we have a great organic plan. And I think we want to make sure that if we do an acquisition, it becomes -- it's very obvious to our analysts, our shareholders why we did it. And so we're laser-focused on -- still on acquisitions. But I think we're in a position now where we're trying to be picky and making sure we're going to do something that makes sense, and that's really 1 plus 1 equals 3. I'm still hopeful we'll get something done over the next year or 2, but we want to make sure it's the right thing. I don't know, John, if you have any comments. John Anderson: I think that the environment has improved from a quarter ago. There's more assets out there. Interest rates expectations are coming down. So again, we've got a good pipeline, but it's difficult to say when we're going to be able to complete. And as Jeff said, we're being disciplined. Operator: Your next question comes from the line of Anthony Stoss with Craig-Hallum. Anthony Stoss: John, probably the first question for you. I'm curious if you can share the book-to-bill now and where it was maybe a quarter ago. And then palladium prices are up about 30% in the last 30 days. I know this impacted you guys early in 2022. I'm curious at what price of palladium do you think would have a negative effect on your gross margins? Jeffrey Niew: So I'm going to let John take the palladium question first, and then I want to just cover the book-to-bill. John Anderson: Yes, Tony, you're right. The palladium costs have increased. I will say we're pretty good in terms of -- we've got prebuys. We have a pretty good position at least through the first half of next year, where we're kind of locked in at prices below today's market price. If they continue to elevate, I know looking back 12, 18 months ago, they got over $2,000 a troy ounce -- as you mentioned, they're $1,500. Again, we're monitoring this closely. If there are opportunities to prebuy even beyond the second half of next quarter -- sorry, of 2026, we'll do that. But I don't see this impacting our gross margins in a negative way at this point. Jeffrey Niew: I mean we've had a kind of a -- when we went through this once before, obviously, we were able to raise prices. But I think one of the things that we've done is we've kind of fixed the price, as John said, through the middle of next year. So we're not subject to like big swings in volatility over a short period of time. And I would also add that if we get to the back half of next year and prices remain the same, I think we'll probably be having discussions with our customers about it. I mean, I don't think it's a big deal at this point. On the book-to-bill, our book-to-bill within PD was 1 for the quarter. And I just -- it's worth a little color here. It was the second largest order quarter in the last 4 quarters. I think what you're starting to see is, quite frankly, that one is the revenue is up significantly. And so it's getting a little bit more difficult to produce those crazy book-to-bills that we had in the first half, but we're starting to deliver on those. But I will say this, it was -- we had a very strong, again, bookings quarter. When I said it's the second largest bookings quarter we've had in the last 12 months. I would also just say that the backlog is quite high as well. And that's why we put so many orders in the last 3 quarters, again, not even counting the energy order. And so I think we feel very comfortable about how bookings are. I did look just yesterday at where the bookings were month-to-date, and it appears we're having another strong bookings month in October. So I think that the trends continue. It was -- as I said in the prepared remarks, it was particularly strong, the bookings in defense and then in -- with our distribution partners. We had well above 100 distribution partners in the defense market. Anthony Stoss: If I could sneak in one more for John. You said it's good to hear that the thin film you're making improvements in Q4 on the gross margin side. How much or how many more quarters do you think that will last? And what kind of impact is it at now? John Anderson: Tony, I mean, in terms of -- you're talking about the specialty film line specifically? Anthony Stoss: Yes. John Anderson: I mean margins, all I'll say in Q3 were -- we had a great quarter overall, but that was an area for opportunity improvement. Margins were well below the total company and the PD average. As I said, it's really a question of we're adding costs, both fixed overhead. We're incurring higher than normal scrap costs. We're seeing within the quarter -- within Q3, we saw some positive trends. So August was better than July. September was much better than August. So coming out of that, we're kind of trajectory is right. Jeffrey Niew: I think the question -- just -- I think you're not going to really see the full benefit of what we think the gross margin we can get to until probably late Q2 when the energy order starts to fully ramp. Because just remember, what's going on is we're hiring people, equipment is starting to run. We're putting overhead in place to deliver this energy order, but we're not actually delivering a lot of units yet or producing a lot of units. So it is impacting gross margin, and that's really not going to go away fully until mid- to late Q2. John Anderson: But I do, again, see sequential improvement from Q3 to Q4 in gross margins due to improved output and capacity utilization. Operator: Your next question comes from the line of Tristan Gerra with Baird. Tristan Gerra: Could you give us a sense of the gross margin leverage on incremental utilization rates and where utilization rates are currently? And also as a follow-up to the prior question, what is the gross margin impact from the ramp in specialty film in Q3? And assuming that impact, as you said, disappears by mid next year, is it kind of a linear decline? Or is it more of a decline that happens mostly when you start ramping in Q2 of next year? John Anderson: Yes. A lot of questions to unpack there, Tristan. I would say the first thing with respect to the gross margin utilization and capacity, you really have to look at it on a product line-by-product line basis. We have some product lines that are running close to full capacity within the ceramic capacitor business and others that we've got some capacity. So it's really difficult to kind of go and give you a blanket on what our capacity utilization is. Jeffrey Niew: But generally speaking, like our drop-through on incremental revenue. John Anderson: I would say that question is easier to answer on average, again, it depends on product line. But overall, you can think of 35% to 40% dropping to the bottom line on every dollar of sales. Our variable -- you can see our gross margin is, call it, 45%. Our variable contribution margin is higher than that, obviously. And we don't have a lot of incremental operating expenses. So if I was modeling this yes, every dollar of sales, kind of think of it as that 35% to 40%. Obviously, if it's MSA, it's going to be a little higher than that and certain areas within PD can be a little lower. But overall, kind of use that 35% to 40%. Jeffrey Niew: Maybe, John, if you agree, but I think what you're going to see is some linear improvement in Q4, Q1 and into Q2. And when you're going to see probably a bigger jump up in Q3 once we're fully running the production. So it's going to kind of be linear and then a jump up. John Anderson: Yes. The only thing I would say is sometimes Q1 has a little seasonality where in some... Jeffrey Niew: I'm talking about specialty film specifically. You will see linear sequential improvement Q3, Q4, Q4 to Q1, Q1 to Q2 and then a big jump up as we get into Q3. John Anderson: But in some of our other business, like MSA, typically, Q4 is a really good -- Q3, Q4 are good quarters, and then we see a little dip down in Q1. Jeffrey Niew: I think the overall theme, Tristan, is this. I still think that a number of our businesses, specifically the specialty film product category still has upside gross margin that should be -- help the overall company continue to start -- continue to raise EBITDA margins over time. John Anderson: Yes. I would -- just last point on this. If we're going to finish somewhere 44% to 45% in 2025, there is opportunity to go higher in 2026, really driven by the -- in the back half of '26, driven by that ramp-up in the specialty film line. Tristan Gerra: Okay. That's very useful. And then for my second one, your exposure to distribution and industrial within PD, is that still around 40%? And you've mentioned that inventory levels are back to normal. Is that the case for industrial and distribution as well? And you've mentioned a very nice ramp in industrial. So should we assume that even in that segment, inventory levels have normalized? And if not, when do you think that happens? Jeffrey Niew: I would say, generally speaking, a big portion of what we categorize in our distribution business is industrial, and that business is up. Now here's what I'd just say is it's a little opaque yet to answer the question on industrial growth year-over-year, because you're taking into account inventory burn down. But I can definitely say that if you look at the growth in distribution, we're going to have some pretty nice growth in our distribution business. And when we see their POS reports, they're seeing nice growth as well. And a big portion of that's industrial. Now again, it's hard to actually say how much industrial is growing. But I can tell you is the inventory is for sure out. We're definitely seeing ordering trends that are saying that orders are lining up with demand as opposed to if we're burning out inventory, we don't really need that much to order that much from you. Operator: There are no further questions at this time. Ladies and gentlemen, this concludes today's call. Thank you all for joining, and you may now disconnect.
Operator: Good day, everyone, and thank you all for joining us to discuss Equity LifeStyle Properties Third Quarter 2025 Results. Our featured speakers today are Marguerite Nader, our CEO; Patrick Waite, our President and COO; and Paul Seavey, our Executive Vice President and CFO. In advance of today's call, management released earnings. [Operator Instructions] As a reminder, this call is being recorded. Certain matters discussed during this conference call may contain forward-looking statements in the meanings of the federal security laws. Our forward-looking statements are subject to certain economic risk and uncertainty. The company assumes no obligation to update or supplement any statements that become untrue because of subsequent events. In addition, during today's call, we will discuss non-GAAP financial measures as defined by SEC Regulation G, reconciliations of these non-GAAP financial measures to the comparable GAAP financial measures are included in our earnings release, our supplemental information and our historical SEC filings. At this time, I would like to turn the call over to Marguerite Nader, our President and CEO. Please go ahead. Marguerite Nader: Good morning, and thank you for joining us today. I am pleased to discuss our third quarter results and will provide some insight into the strengths we see in 2026. Turning to the results for the third quarter, we delivered strong normalized FFO growth in line with our expectations of 4.6%. Our full year guidance shows continued strength in property operations and FFO. I would like to highlight some of the key demand drivers for our annual business and the access points for our new customers. There are approximately 7 million manufactured homes across the country, housing over 18 million people, accounting for about 6% of all U.S. housing. Outside of metro areas, this share increases significantly to 14%. New manufactured homes in our communities are designed to meet the needs of our core demographic, offering value both in terms of cost and quality of life. Construction and safety standards for manufactured housing have been meaningfully enhanced over time, making today's homes more durable and cost 60% less than that of a comparable site built home in the surrounding area. As important as affordability, our residents benefit from amenitized communities that foster a strong sense of belonging, security and connection. We serve a large and expanding market, which includes nearly 70 million Baby Boomers and 65 million members of Gen X within our target demographic. These individuals are increasingly seeking housing options that combine desirable locations, high-quality homes at attractive price points and a welcoming community environment. Our properties deliver on all 3 fronts, offering a value proposition that resonates with this growing segment of the population. Our marketing efforts focused on leveraging technology and insights into our customers' travel patterns and lifestyles to reach the nation's 8 million RV owners. We listen closely to feedback and adapt to evolving preferences. Our seasonal guests increasingly seek flexibility to book stays and visit multiple locations while Thousand Trails members value our new subscription-based memberships with tiered benefits that they can purchase online. Manufactured home buyers increasingly research and communicate with us online and via text. Our digital tools offer detailed information, virtual tours, online applications and text messaging with local sales agents. Alongside technology, our teams focus on personal outreach. Property managers build relationships with their customers invite guests to return next season and share new home opportunities that meet their needs. Turning to 2026 expectations. Within our manufactured housing portfolio, we expect to have issued 2026 rent increase notices to 50% of our MA presence by the end of October with an average rate increase of 5.1%. In our RV portfolio, annual rates have already been set for over 95% of our annual sites with an average rate increase of 5.1%. We continue to engage with our residents to identify and prioritize capital improvements within our communities. These efforts not only enhance the resident experience, but also support the long-term value of our assets. The anticipated rent increases position us to extend our long-standing track record of REIT-leading revenue growth. Our ability to share strong current results and provide early visibility into 2026 reflects the strength and dedication of our team. Their ongoing commitment to supporting our residents and customers is fundamental to our success. Through their focus on service quality and community, we've been able to consistently deliver superior operating performance over the past 2 decades. I will now turn the call over to Patrick to provide an overview of property operations. Patrick Waite: Thanks, Marguerite. As we wind down the summer season in the north, our Sunbelt properties are gearing up for their winter season. Our MH and RV properties in Florida, Arizona and South Texas are preparing for the inflow of customers and increase in activities. On-site teams have begun welcoming residents and guests to properties. Our manufactured homes and communities continue to experience consistent demand and offer desirable features and amenities at prices that provide value in their respective markets. In the quarter, we continued to experience a consistent pace of new home sales. Our Florida MH portfolio reached 94% of occupancy. Florida continues to be one of the top states for net in migration, which supports demand for our key submarkets like Tampa, St. Pete and Fort Lauderdale, West Palm Beach. To meet that demand, we developed more than 900 sites in Florida over the last 5 years. Florida is also supporting strong rent growth, reflected in mark-to-market rent increases of 13% to new homebuyers. Arizona and California are our next largest markets, which are 95% occupied. Home buyers in our Western markets are attracted to these communities due to their desirable locations, quality amenities and the substantial value they offer in their respective markets, particularly the coastal markets in California. We continue to execute on our expansion strategy, providing opportunities for more customers to enjoy our product offerings. This strategy leverages in-place utility infrastructure, operational efficiencies, zoning and the brand recognition of existing properties. We started the fourth quarter -- as we started the fourth quarter, we started a -- completed a 103 site expansion at Clover Leaf Farms and MH Community on the Gulf Coast of Florida. This was the second and final phase of development, which added a total of 170 sites plus an amenity core. The first phase of 67 sites is approaching 100% occupancy. We also continue to see growth on the RV side of our business. Our RV annual sites provide an affordable second home, whether it's lakeside retreat in the summer or warm weather destination in the winter. In the quarter, we increased annual RV occupancy by 476 sites. With respect to our Canadian customers, many of whom return year after year to their site in one of our properties for the winter season, we're engaging with them through personal outreach as well as our traditional marketing channels. The regional weather outlook for the winter season looks favorable. The NOAA Climate Prediction Center forecasts a La Nina pattern this winter. This season's forecast calls for warmer drier conditions in the south, along with cooler weather conditions in the north, making the Sunbelt particularly attractive for winter getaways. Our operations team has prioritized occupancy and revenue growth, while thoughtfully budgeting and executing on expenses. Our on-site teams are focused on providing excellent customer service, and we are leveraging technology to increase efficiency for the staff members. Tools like electronic lease agreements and SMS, text, customer service platforms have been well received by our customers and help ensure that our teams have more time to focus on delivering memorable experiences. Finally, the third quarter wrapped up our 11th annual 100 days of camping campaign, which saw record engagement among our social media fans and followers. The campaign had over 46 million impressions on social media, and we received nearly 1,100 photo entries of our viewers with our signature rally towels, which reflects a strong and active customer base that wants to engage with our properties and brands. Now I'll turn the call over to Paul. Paul Seavey: Thanks, Patrick, and good morning, everyone. I will discuss our third quarter and September year-to-date results, review our guidance assumptions for the fourth quarter and full year 2025 and close with the discussion of our balance sheet. Third quarter normalized FFO was $0.75 per share, in line with our guidance. Continued strong performance in our core portfolio resulted in 5.3% NOI growth in the quarter, 40 basis points higher than guidance. Core community-based rental income increased 5.5% for the quarter and for the September year-to-date period compared to the same periods in 2024. In the third quarter, we generated rate growth of 6% as a result of noticed increases to renewing residents and market rent paid by new residents after resident turnover. Core RV and Marina annual base rental income, which represents approximately 70% of total RV- and Marina-based rental income increased 3.9% for the third quarter and for the year-to-date period compared to the same periods last year. Year-to-date, in the core portfolio, seasonal rent decreased 7% and transient rent decreased 8.4%. We continue to see offsetting reductions in variable expenses. The net contribution from our total membership business consists of annual subscription and upgrade revenues, offset by sales and marketing expenses. The membership business contributed $16.8 million and $48.2 million net for the third quarter and September year-to-date periods, respectively, compared to the same periods last year. Core utility and other income increased 4.2% for the September year-to-date period compared to prior year. Our utility income recovery percentage was 48.1% year-to-date in 2025, about 150 basis points higher than the same period in 2024. In addition, we recognized higher tax pass-through income, mainly in Florida. Core property operating expenses for the year-to-date period were 60 basis points higher than the same period last year. This includes the change in membership expenses associated with the membership upgrade subscription program that was implemented earlier this year. Expense growth for the third quarter was 40 basis points lower than guidance, mainly resulting from savings in real estate tax expense. Third quarter core property operating revenues increased 3.1%, while core property operating expenses increased 50 basis points, resulting in growth in core NOI before property management of 5.3%. For the year-to-date period, core NOI before property management increased 5.1%. Income from property operations generated by our noncore portfolio was $1.8 million in the quarter and $8.3 million year-to-date. I'll now discuss guidance. As I do the following remarks are intended to provide context for our current estimate of future results. All growth rate ranges and revenue and expense projections are qualified by the risk factors included in our press release and supplemental package. We are maintaining our full year 2025 normalized FFO guidance of $3.06 per share at the midpoint of our range of $3.01 to $3.11 per share. Full year normalized FFO per share at the midpoint represents an estimated 4.9% growth rate compared to 2024. We expect fourth quarter normalized FFO per share in the range of $0.75 to $0.81. We project full year core property operating income growth of 4.9% at the midpoint of our range of 4.4% to 5.4%. Full year guidance assumes core base rent growth in the ranges of 5% to 6% for MH and negative 20 basis points to positive 80 basis points for RV and Marina. The midpoint of our guidance assumptions for combined seasonal and transient show a decline of 13.3% in the fourth quarter and a decline of 8.8% for the full year compared to the respective periods last year. Core property operating expenses are projected to increase 40 basis points to 1.4% for the full year 2025 compared to prior year. Our full year expense growth assumption includes the benefit of savings in payroll expense year-to-date in 2025, reduced membership expenses and the impact of our April 1st insurance renewal for 2025. Consistent with our historical practice, we make no assumption for the impact of a material storm event that may occur. Our fourth quarter guidance assumes core property operating income growth is projected to be 4.4% at the midpoint of our guidance range. In our core portfolio, property operating revenues are projected to increase 3.3%, and expenses are projected to increase 1.6%, both at the midpoint of the guidance range. I'll now provide some comments on our balance sheet and the financing market. We maintain our focus on balance sheet management and believe we are well positioned to execute on capital allocation opportunities. We have no secured debt scheduled to mature before 2028, and our weighted average maturity for all debt is almost 8 years. Our debt-to-EBITDAre is 4.5x and interest coverage is 5.8x. We have access to over $1 billion of capital from our combined line of credit and ATM programs. We continue to place high importance on balance sheet flexibility, and we believe we have multiple sources of capital available to us. Current secured debt terms vary depending on many factors, including lender, borrower sponsor and asset type and quality. Current 10-year loans are quoted between 5.25% and 5.75%, 60% to 75% loan-to-value and 1.4 to 1.6x debt service coverage. We continue to see solid interest from life companies and GSEs to lend for 10-year terms. High-quality, age-qualified MH assets continue to command best financing terms. Now we would like to open the call up for questions. Operator: [Operator Instructions] And our first question will come from Michael Goldsmith with UBS. Michael Goldsmith: First question is on the 2026 rent increases. Can you talk a little bit about the process that goes into setting those? And then I guess historically, RV has been at a higher rate than MH, and it has closed the gap here. So can you talk a little bit about what's going on there? And is there a risk that maybe you're not even conservative enough there. So just trying to get the thought process on that closing of the gap. Patrick Waite: Yes. Sure, Michael, it's Patrick. The process for the MH rate increases and the RV annual rate increases are very similar to one another. Our property operations teams review the competitive set. And as we work our way through our budget process, we set the rates for the upcoming year. So that's been consistent and the take that we're hearing, and it's early, is that the year is behaving very similar to prior periods. There's nothing really unusual. Just with respect to the fact that the annual has moderated somewhat, so it's just general market forces. We've come off of a period where the annual rate increases did outpace as you noted. The fact that, that's coming a little bit more in line, I don't think there's a real relationship between the 2 property types, it just has more to do with the overall cadence of the market. Michael Goldsmith: Got it. And my follow-up has to do with the seasonal reservation base for Canadian customers. It sounds like you've been reaching out and through traditional marketing channels and reaching out individually, I'm just trying to get a sense of the success rate there and just the ability to affect change and get that number higher as we approach the seasonal time. Marguerite Nader: Yes. I mean, Michael, one of the things that we've often talked about is that it's really the cold winter season that drives the reservations. We've had a very moderate October. So both in the United States and Canada, there hasn't been a lot of bad weather, which tends to dampen reservations a bit. So I think as we continue to head into winter, we will see increased reservations. On the Canadian front, as you know, there is a political issue there that is causing people to pause before coming to the United States. Operator: And the next question will come from Brad Heffern with RBC. Brad Heffern: On the reservation pace being down 40% for the Canadians, does that -- does guidance assume that the actual bookings from those customers end up being down 40%, or do you assume that they're just waiting longer to book, and there's some sort of moderation there? Paul Seavey: Yes. So Brad, I guess I can walk through. As we said, the combined seasonal transient growth is down 13.3% at the midpoint of that range. That compares to our prior guidance update issued in July when we assumed the combined seasonal and transient will be down 1.5%. That difference, the unfavorable development of $2.7 million is primarily related to seasonal and mainly the result of the lower reservations from Canadian customers. And I'll just walk through that just to kind of be clear on what's happened. So we've previously said that Canadians represent about 10% of our total RV revenue, 50 percentage from annual customers. So the remaining 50%, which is just over $21 million is generally split evenly between seasonal and transient. In the fourth quarter, we earn approximately 25% of our seasonal revenue for the year and approximately 15% of our transient revenue for the year. So that was the basis for our prior expectation of approximately $4.3 million of Canadian seasonal and transient in the fourth quarter. Our current Canadian reservation pace, as we said, is down approximately 40% compared to prior year. Brad Heffern: Okay. Got it. And then obviously, 4Q typically the lowest combined seasonal transient revenue quarter, first quarter typically the highest. So I'm just curious how much we should read the expectations for the fourth quarter into the first quarter as well? Paul Seavey: Yes. I mean, we're not providing guidance right now for 2026. I can say that the reservation pace from Canadian customers for the first quarter is similar to the pace that we're seeing for the fourth quarter. Operator: And the next question comes from Jana Galan with Bank of America. Jana Galan: Paul, I was just curious on the core FFO guidance range, fourth quarter, you have $0.06 of variability and full year is still $0.10. So just checking if there's any expectation of greater volatility or share count changes or anything to call out for the difference? Paul Seavey: Nothing to call out. We simply carried forward the convention that we've used all year with the $0.10 range for the year. Jana Galan: Great. And then Marguerite, curious on your MH comments at the beginning of the call and kind of the opportunity there, could you potentially be developing more sites or anything on the acquisition side available in MH that could be interesting? Marguerite Nader: Sure. Patrick, maybe can walk through our development. With respect to acquisitions, as you know, we'd certainly like to buy a high-quality MH portfolios. They're just difficult to source. I think we continue to see muted volume in terms of transactions. The ownership base is very fragmented, and we work with owners as they make their way towards becoming sellers. These assets have -- they've behaved and performed incredibly well over time. And so there's not a lot of desire to sell the assets. So -- but to the extent that there are opportunities to grow inside of the MH space, we would certainly want to continue to do that. Right now, as we look to deploying capital, we think that continuing to invest in our properties is a good return. And maybe, Patrick, you can walk through that. Patrick Waite: Yes. So for the year, we're looking to add about 400 to 500 expansion sites. That's on the lower end of what we've developed over the last 5 years on an annual basis. We had just over 1,000 sites delivered in 2020, and through the last 5 years, we've delivered about just shy of 5,000 sites. So now our goal is to be in that 500 to 1,000 site range. We think that's sustainable for the foreseeable future. But there will be some variability year-over-year when you're imposing a calendar year over a development pipeline. And as I mentioned on previous calls, we have had some headwinds just working our way through some of the administrative processes to get permits and complete developments in recent quarters. Operator: And our next question comes from Steve Sakwa with Evercore. Steve Sakwa: I guess I wanted to circle up on the MH rent increase. It's gone to 50% of the customers. But when you sort of look back historically, at the other 50%, how does that bucket trend relative to the first half? And then could you maybe just also comment on the decline in occupancy that we're seeing in the MH portfolio? Paul Seavey: Sure, Steve. With respect to the lease agreements with our customers, 50% of those agreements are based on market. The other 50% have some linked to CPI. Half of those are rent control or some other direct CPI link and the other are, what we call, long-term agreements. There are typically 2- to 3-year agreements, primarily in Florida, that we've entered into in negotiation with our customers. When we think about the first 50% that have been noticed for 2026, it is more heavily weighted towards Florida residents. And we do also have a higher percentage of customers going to market. So the notices in January tend to be slightly higher than what we might see throughout the year, subject to fluctuations in CPI as we issue notices throughout 2026 that are more heavily weighted to the CPI index. Patrick Waite: And then, Stephen, just with respect to the occupancy trends. I mean, we increased occupancy in the quarter. Year-to-date through Q1, Q2, we did have some hangover from the impact of hurricanes last year. We're past that now, and the trend is back towards increasing occupancy. Steve Sakwa: Okay. And then I guess second question, just you guys have done a very good job on expense containment both in the quarter and year-to-date at sub-1%. Just any kind of broad thoughts as you kind of look into next year on some of the puts and takes that you maybe got this year that were better or maybe worse? And how should we just think about that broad trend moving forward? Paul Seavey: Sure, sure. As we think about it, we focus quite a bit on the 2/3 of our expenses that are utilities, payroll and repairs and maintenance. And we have certainly in 2025, benefited with respect to payroll expenses as we've managed through some of the challenges we've seen in the RV transient business. So that for the year is trending close to flat. I wouldn't necessarily anticipate that as a run rate over the long term for payroll. Our insurance renewal that occurred in April of 2025 was favorable, and that was, as a reminder, for everybody, down 6% compared to prior year. And then the last thing I'll note is, in 2024, we saw some fairly significant increases in real estate taxes, particularly coming from the state of Florida. That, based on our preliminary TRIM notices, received for the 2025 tax year, that trend has reversed somewhat, and we've seen some relief from our expectations. Not to say that those taxes have declined necessarily. It's just some relief from our expectations. So we could see volatility in real estate taxes continue into 2026. Operator: And the next question comes from Jamie Feldman with Wells Fargo. James Feldman: I just wanted to make sure I understand the seasonal impact of the Canadian demand down 40%. So if we assume it stays at 40% into '26 based on the fact that so much of the income is hitting in 4Q and 1Q, like is there another 3% hit next year, or since you've already taken it out of -- if we already take it out of our '25 models, it's kind of the run rate already in '26. Can you just help us think through that? Paul Seavey: Sure. I mean, I think it's challenging to consider what we're experiencing in the fourth quarter, our run rate for '26 because clearly, the current environment is something that will likely change over the next 12 months. What I'll say about the first quarter is when you think about our expectation to earn 50% of our seasonal rent and 20% of our transient rent in the first quarter, that suggests that we -- that -- the 40% decline would be around $3 million. And what I'll say, as we think about the current environment, and how challenging it is as it relates to U.S. and Canadian relations, when we think about our long history, the only time period that we can see as any sort of reference point is during the pandemic. In late 2020 and early 2021, when there were travel restrictions in place, including the border closures, that impacted our expectations for seasonal and transient revenue. In January of '21, we anticipated a decline of $10 million in seasonal and transient revenue during that first quarter of 2021. And when we were on our call in April, the results proved better than that, and we ended up being down $6 million. Marguerite Nader: ; So it is about those last-minute bookings. And as I mentioned, as the weather changes and as the reservations increase and that pace increases. James Feldman: Okay. I guess in this environment, I think we've all learned not to get hopeful. Who knows it's around the corner. I mean, are there any data points or tea leaves you can point to that are actually giving you conviction that 40% is not the bottom, or 40% won't -- isn't going to stay around for a while? Marguerite Nader: I mean, what we've heard is that our customers or Canadian customers that have made reservations are excited to come back. And what we know from our long history of watching reservation pacing, it is a function of what's happening in one's local area. And as the snow starts to come down, the phone start to ring. So that's -- we don't think that's going to change. James Feldman: Can I ask one more since that was more of a follow-up. Marguerite Nader: Sure. Sure, Jamie. James Feldman: Okay. Just got to play by the rules here. Marguerite Nader: We'll appreciate that. James Feldman: So following up to Steve's question on expenses. You've -- your model has been very successful in being able to lower expenses based on the transient revenue decreases. At some point, does that relationship break, and you just can't cut anymore? I mean I know you've commented you think 40% is about as bad as it's going to get, but just theoretically, if it gets worse or if transient continues to decline, like is there some point where you just have fixed expenses that you can no longer compensate or mitigate the revenue declines? Marguerite Nader: Yes. I mean certainly, there are fixed expenses at the property level. There's a certain amount of staff that's needed just to run the business. But we look at this and evaluate it. The operating team does a great job evaluating it on a daily basis to understand who's coming into the properties, who's checking into the properties, and how many people are working. So we'll just continue to do what I think the team has done a really good job over the last 3 or 4 years on making sure that we're operating efficiently. Operator: And the next question comes from Eric Wolfe with Citi. Eric Wolfe: For the 5.1% price increase on annual RV, at what point over the next couple of months, will you have a good understanding of what the acceptance of those increases look like. So I'm trying to understand at what point do you know sort of the turnover for those properties, specifically for the Sunbelt locations that renew a bit earlier. And I think you've said in prior calls that the Phoenix market is by far the biggest in terms of annual customer for Canadian travelers. So do you have any early read on what that market looks like so far? Paul Seavey: Sure. So Eric, we mentioned that a portion of the notices or the rate increases for the RV annual are essentially effective now or over the next couple of months as the winter season is starting, and so we have visibility into the annual renewals right now, that's live. And then with respect to the summer season, those renewals tend to take effect in the middle of the second quarter. So that's when we start to gain visibility into customer acceptance. Marguerite Nader: And then, Eric, in terms of Canadian annuals, and we haven't seen any decrease in appetite for people -- for our annual customers to stay with us. We haven't seen an increase in home sale activity among the Canadians that are annuals with us. So that is all trending positively. Eric Wolfe: Got it. So I guess just to make sure I understand. I mean because I think if you look back to the fourth quarter call earlier this year, I think you said that you noticed a bit higher turnover in some of those Sunbelt locations. But it sounds like you're saying right now, you have very good insight, at least for the next 3 months because those rate increases are effective. I guess what I'm trying to understand is, at what point do you sort of have that locked in -- that 5.1% locked in? Is that by kind of like December, January, or is it already set for those 95% they've already effectively accepted those? Just trying to understand how turnover might change from the next 3 months to like the next 6 months and the potential for any kind of surprise come sort of the fourth quarter call. Patrick Waite: Yes. I guess, adding to what Paul said that the cadence of the Sunbelt, we're at the early stages of that process right now. And the notice is going out for the next summer season are being sent currently. So we're getting very early visibility there. I guess I'd say at this point, we don't see anything, as I mentioned earlier with -- just with respect to the MH and the RV notices. They seem very much like a run rate year for us. We're not seeing any indication that there's an unusual pattern. I would phrase that or characterize that as a normal rate of acceptance. And as we move into the summer season when those increases are effective in the second quarter, we'll have better visibility. But the early read is that it's behaving very much like a run rate year for us. Marguerite Nader: And Eric, I think it's also just an important data point that we covered in, I think Patrick covered it in his comments, but also in our release that we filled 475 annual RV sites in the quarter, which is a very high watermark for us. So I wanted to make sure you saw that. Operator: And our next question comes from John Kim with BMO Capital Markets. John Kim: I work at a Canadian bank, so I have to stick to Canada. In your discussions with your Canadian customers, how much of the reason that they're not returning due to weather versus the political environment? And if it's the latter, why would that not impact the annual RV customers? Marguerite Nader: Yes, I think there's a couple of things happening. So what we're hearing is the customers that have not booked -- that had previously booked, they are not interested due to political issues. So that's just what we're hearing. Now the reason it doesn't impact the annual customers, that annual customer has a home on site at one of our properties. They've already made that decision. They put capital on our properties. They own a home, they own an RV, maybe on the site, but that is -- they've made that commitment. So that's why -- I think that's why we're not seeing it because the -- on the seasonal base, they haven't made their way down yet. They haven't gotten the RV and started driving yet. So that's the difference that we're seeing. It's really a function of the political overtones right now. John Kim: Okay. And then on your guidance for the fourth quarter, seasonal transient down 13% at the midpoint. What do you assume as far as backfilling some of that Canadian demand with non-Canadians. And also, you mentioned the shorter booking window, like how much of that do you think -- like how much of the demand do you think just books kind of like last minute? Marguerite Nader: Yes. I would point -- I think Paul mentioned that what we -- how we dealt with things during COVID. We thought it was going to be one number ended up being much better, and that was because we were filling the properties with U.S. demand. The impact on the Canadian properties is a handful of properties has primarily the bulk of the discrepancy. And so those are -- that is something that we continue to market to United States customers, which we, in the past, have not. So we're continuing to try to provide them access to those properties that they previously didn't have access to because they were filled and reserved with our Canadian customers. Operator: And the next question comes from Jason Wayne with Barclays. Jason Wayne: Just on the RV and Marina annual, that came in a bit weaker than expected, a little lower guidance. You previously mentioned there was an impact from some storm damaged properties. So just wondering that's driving impact, and are the storm properties back online there? Patrick Waite: Yes. So what you're referring to is the impact on our Marina portfolio, the Marina annuals. We're working our way through that 3 specific properties that were previously damaged by storms. It's just taking us a little bit more time to work through the permitting process and completing construction. We expect those properties to come online fully in 2026. So we'll see a rebound. We're not seeing an impact from an overall demand perspective. Rather, it's driven by the impact of those properties that have some reduced capacity. Operator: Our next question will come from Wesley Golladay with Baird. Wesley Golladay: Can you talk about the seasonal and transient RV trends ex Canada? Paul Seavey: Sure. What I'd say just kind of walking through the math or the analysis that I discussed earlier. If you think about the remainder, what we're seeing is reservation level or pacing that is similar to what we've seen year-to-date in 2025. Wesley Golladay: Okay. And then when we look at the building blocks for '26 RV revenue growth, it looks like this year, overall revenue growth lagged the rate growth that was set last year. Do you expect similar headwinds this year on occupancy and other items? Patrick Waite: As we look forward, I'll go back to just what I highlighted with respect to the rate increases, and what we're seeing is early acceptance. I would expect that we're going to go to something that's a more normal trend for us, which would include occupancy that would improve over what we've seen over the prior year. Marguerite Nader: And the most recent data point we have on that is the sites that I mentioned just the annual growth -- annual RV sites growth in the quarter. Operator: And the next question comes from David Segall with Green Street. David Segall: I was hoping you can kind of provide a little more color on how you can backfill the missing demand from Canadian customers of domestic and domestic customers and whether that might involve discounted rates in order to spur demand? Marguerite Nader: Sure. It's really about exposing those customers to the property. So our marketing strategy really -- we engaged with previous guests and try to give them exposure to the new properties, making social media post. It's really important and making them very relevant and topical. We have over 2.2 million fans and followers between Facebook, Instagram and Twitter. We use pictures and videos of the locations to really help the customer make the decision to book. And then we're very focused on leveraging the current news cycle for topical material that we can really incorporate into our marketing, including sporting events, local festivals and that type of thing to draw people into and experience the properties. In many ways, we try to view it as a sample to property, you'll try it, you like it kind of thing. And I think we've been successful with that in the past. And then we successfully work with online travel agents, Expedia and Booking.com to post our properties on their websites. David Segall: Okay. So you're not necessarily trying to cut rates to fill demand, it's more of a marketing play. Marguerite Nader: Yes. That decision whether or not to offer concessions is done on a market-by-market or property-by-property basis and in some instances, where we see it makes sense to reduce rates and bring in volume, we will do that. David Segall: Great. And then for my second question, just with regard to the several hundred annual RV sites that you released in the quarter, looks like it effectively reversed the sites that went last quarter that went from manual to transient. Are you reletting the same sites that had been vacated last quarter or these different sites? And why the addition of these additional annual paying sites not seem to impact the outlook for the remainder of the year? Is it just too late in the year to make a difference? Paul Seavey: Yes. I think the latter part of your question is the answer to the impact. There is impact, of course, from filling those, but it's modest, just given the time left in the year. When you think about the chart that we provide that shows the site count, the annuals increased as you saw in the transient decrease. Essentially, the way that chart works, all sites are available for transient to the extent that we fill annuals, we're going to show that, and it just naturally offsets the transient. And finally, like I said, so we didn't release the same sites. It was the mix of sites that we filled in the quarter that changed. Operator: And the next question will come from Omotayo Okusanya with Deutsche Bank. Omotayo Okusanya: I just wanted to wanted to go back to Jana's question just about guidance. Again, just kind of given so late in the year already, but there's still that $0.10 gap from that perspective. Just wondering, again, at this point, what's driving the higher end or the lower end of guidance kind of at this late stage in the year? Paul Seavey: Well, I guess I'll just say when you look at the math, yes, there's a difference. I'll also comment. We've done this the other way in the fourth quarter, where we've reduced the range to $0.06, and we've had confusion on that. So I'm not sure which way is the right way to handle it on a go-forward basis. But with respect to the upper and the lower end of guidance, I think I would point to, as I mentioned, we don't have an assumption for a storm event. So that's not factored in at all to the extent that we see meaningful acceleration in something like MH occupancy, that could potentially drive revenues. We could see expense changes potentially if we have not yet seen meaningful impact from tariffs or other influencers on expenses. But I suppose it's possible that, that could come up in the quarter. And generally speaking, there could be just other points of volatility in the business, but there's not a signal as it relates to the difference between the guidance for the quarter and the guidance for the full year. Omotayo Okusanya: That's helpful. And then one follow-up question. In regards to kind of initiatives to kind of move some of the transient business over to annual, again to kind of just lower volatility in general. Could you talk a little bit about kind of what's happening along those lines, how successful you are at kind of making some of those conversions, or whether it's kind of been a little bit more difficult than you were anticipating? Patrick Waite: I'll just speak to the typical trends that we see. And of our annual customers, about 15% to 20% of them has previously stayed with us as a transient or a seasonal. That also adds to our seasonal customers, 15% to 20% of them has previously stayed with us as a transient customer. So that pipeline of an original transient stay that ends up migrating to longer-term stays for us is, call it, in that 20% range. And that's been relatively consistent. We are focused on -- we have guests on sites that they experience a high level of customer service and that they're presented with the ask of a take on a longer-term stay. Operator: Since we have no more questions on the line, at this time, I would like to turn it back over to Marguerite Nader for closing remarks. Marguerite Nader: Thank you. We appreciate you joining our call today. We look forward to updating you on our next call. Operator: This concludes today's conference call. Thank you for participating, and you may now disconnect.
Operator: Good day, everyone, and welcome to the First Internet Bancorp Earnings Conference Call for the Third Quarter of 2025. [Operator Instructions] And please note that today's event is being recorded. I would now like to turn the conference over to Ben Brodkowitz from Financial Profiles, Inc. Ben, please go ahead. Ben Brodkowitz: Thank you, operator. Hello, everyone, and thank you for joining us to discuss First Internet Bancorp's Third Quarter 2025 Financial Results. The company issued its earnings press release yesterday afternoon, and it is available on the company's website at www.firstinternetbancorp.com. In addition, the company has included a slide presentation that you can refer to during the call. You can also access these slides on the website. Joining us from the management team today are Chairman and CEO, David Becker; President and COO, Nicole Lorch; and Executive Vice President and CFO, Ken Lovik. David and Nicole will provide an overview, and Ken will discuss the financial results. Then we'll open up the call for your questions. Before we begin, I'd like to remind you that this conference call contains forward-looking statements with respect to the future performance and financial condition of First Internet Bancorp that involve risks and uncertainties. Various factors could cause actual results to be materially different from any future results expressed or implied by such forward-looking statements. These factors are discussed in the company's SEC filings, which are available on the company's website. The company disclaims any obligation to update any forward-looking statements made during the call. Additionally, management may refer to non-GAAP measures, which are intended to supplement but not substitute for the most directly comparable GAAP measures. The press release available on the website contains the financial and other quantitative information to be discussed today as well as the reconciliation of the GAAP to non-GAAP measures. At this time, I'd like to turn the call over to David. David Becker: Thank you, Ben. Good afternoon, and thank you for joining us on the call today. I want to start by highlighting the continued strength of our core business fundamentals and the key strategic execution. Our revenue engine remains robust. We delivered our eighth consecutive quarter of net interest income growth with net interest margin expansion continuing as planned. Additionally, our SBA and BaaS businesses contributed meaningful growth to noninterest income. In the third quarter, we maintained our top line growth momentum as adjusted total revenues reached $43.5 million, an increase of 30% over the second quarter. Revenue growth was driven by a significant increase in the gain on sale of SBA guaranteed loan balances. Net interest income was also up, marking the eighth consecutive quarter of growth. Net interest income increased over 8% compared to the linked quarter and was up 40% compared to the third quarter of 2024, driven by higher earning asset yields and lower deposit costs. Accordingly, net interest margin on a fully tax equivalent basis increased 8 basis points from the second quarter to 2.12%. Further, our prudent operating expense management and strong top line growth drove significant operating leverage for the quarter. During the quarter, we executed certain strategic actions that had a near-term negative impact on earnings but strengthened our financial position and set the stage for our future growth. First, we successfully completed the sale of $837 million of STL loans. This had several key benefits that advance our strategic priorities. The transaction enhances our interest rate risk profile, strengthens our capital ratios and expedites the optimization of our interest-earning asset base. These improvements will significantly enhance net interest margin and accelerate our progress towards achieving our near-term goal of a 1% return on average assets. During the quarter, we also took decisive and aggressive action to address credit issues in the small business lending and franchise finance portfolios. We recognized a $34.8 million provision for credit losses, which included $21 million of net charge-offs, additional specific reserves and a significant increase to the allowance for credit losses related to the small business lending. These actions reflect our intention to expedite the improvement of our portfolio's credit quality. As a result of these actions, total delinquencies were 35 basis points, as of September 30th, down from 62 basis points in the second quarter and 77 basis points in the first quarter. From the standpoint that delinquencies are the best indicator of potential future credit losses, this puts the health of our portfolio right in line with our peers. Importantly, our credit issues are isolated to small business lending and franchise finance portfolios. Credit quality across the remainder of our lending vertical is sterling, reflecting the strength and stability of our broader portfolio. Turning to lending activity for a minute. Our commercial lending teams continued to deliver a strong level of originations throughout the quarter. Excluding the impact of the loan sale, commercial loan balances were up $115 million or 3.2% and total loan balances were up $105 million or 2.4%. Heading into the fourth quarter, our loan pipelines remain strong, as our teams continue to see excellent opportunities, especially in our commercial real estate, single-tenant lease financing and commercial and industrial lines of business. Looking ahead, the fundamentals that drive our business, a differentiated model, experienced and dedicated teams, diversified revenue streams, solid capital position and disciplined risk management position us well to continue delivering sustainable growth and enhanced long-term shareholder value. Now I'll turn it over to Nicole to talk about small business lending and BaaS. Nicole Lorch: Thank you, David. Gain on sale of SBA loans rebounded strongly in the third quarter following our process improvements, generating $10.6 million in gain on sale revenue. We delivered another solid quarter for new loan originations and ended the quarter with $104 million in held-for-sale loans that we look to sell into the secondary market when the federal government reopens and loan sales resume. Anticipating the government shutdown, we proactively secured SBA authorizations for loans in our pipeline prior to September 30th, enabling us to continue to meet our borrowers' desired transaction time lines without disruption. Our pipeline remains robust at $260 million, positioning us well for gain on sale in future periods and for interest income on retained balances. We continue our drive for process improvement throughout the SBA initiative. This quarter, we made strategic investments in technology platforms, including AI technology to our document collection and verification steps to create a streamlined experience for our borrowers, eliminate manual tasks for our employees and to provide our credit teams better insights into new loan opportunities. We also introduced loan level predictive analytics to bolster our portfolio management processes and problem loan identification practices. Additionally, the learnings from our analytics engine enabled us to further refine our credit standards for better credit outcomes in future periods. Our commitment to innovation and excellence extends to the continued success of our fintech partnerships, which is commonly referred to as Banking as a Service or Simply BaaS. Through strong relationships forged with quality programs, sustained growth in deposit balances has provided us robust balance sheet liquidity as well as tremendous balance sheet flexibility. In the third quarter, we strategically moved over $700 million of fintech deposits off balance sheet to optimize our balance sheet size following the loan sale. We have continued to move additional deposits off the balance sheet here in the fourth quarter, but retain the flexibility to bring them back to fund growth opportunities or to meet liquidity needs as market conditions warrant. Total revenue from our fintech initiatives, consisting primarily of interest income and program and transaction fees was up 14% compared to the second quarter and up 130% from the third quarter of 2024. These results highlight the strong performance across our diverse business lines. I will now turn it over to Ken for additional insight into our third quarter performance and our fourth quarter outlook. Kenneth Lovik: Great. Thank you, Nicole. As a result of the strategic actions taken during the quarter, we reported a net loss of $41.6 million or $0.0476 per diluted share. Excluding the pretax loss on the loan sale of $37.8 million, adjusted net loss for the quarter was $12.5 million or $1.43 per diluted share. However, with the strong revenue growth and corresponding positive operating leverage mentioned earlier, adjusted pretax pre-provision income totaled $18.1 million, an increase of over 50% from the second quarter and almost 65% from the third quarter of 2024. Now turning to the primary drivers of net interest income and net interest expense during the quarter. Net interest income for the quarter -- for the third quarter was $30.4 million or $31.5 million on a fully taxable equivalent basis, both up about 8% from the second quarter. Net interest margin improved to 2.04% or 2.12% on a fully taxable equivalent basis, both up 8 basis points. The yield on average interest-earning assets rose to 5.68% from 5.65%, driven primarily by an 11 basis point increase in loan yields, as rates on new originations were 7.5% during the quarter. Looking forward, while the Federal Reserve lowered the Fed funds rate in September, we expect to see continued expansion in the portfolio yield, as new origination yields should remain above the current portfolio yield of 6.18%. Additionally, the sale of lower coupon single-tenant lease financing loans is expected to have a meaningful impact on the portfolio yield in future periods. Turning to our funding costs. The cost of interest-bearing liabilities declined to 3.90% from 3.96%, driven mainly by a 5 basis point decrease in interest-bearing deposit costs and a 7 basis point decrease in the cost of other borrowings, as we saw the benefit of paying down a significant amount of higher cost short-term Federal Home Loan Bank advances near the end of the second quarter. Deposit costs -- deposit costs declined as we continue to benefit from CD repricing and reduced broker deposit balances. Furthermore, we began moving some of our higher-cost fintech deposits off balance sheet in the quarter, which had a positive impact on deposit costs and this activity ramped up near quarter end following the loan sale. As noted on Slide 10 of the presentation, we continue to see favorable trends in CD pricing across the curve. As higher cost CDs mature, we expect them to be replaced by lower-cost fintech deposits or new CDs at more attractive rates or simply paid down with excess liquidity to assist in shrinking the balance sheet further. This shift in downward pricing, complemented by our ability to move deposits off balance sheet positions us extremely well to capitalize on further declines in deposit costs in the fourth quarter and into 2026. And when combined with higher loan origination yields, these dynamics support sustained growth in both net interest income and net interest margin even in the absence of further rate cuts from the Federal Reserve. At quarter end, $1.3 billion or 27% of our deposits were indexed to the Fed funds rate. So should we see additional interest rate cuts, expansion of both net interest income and net interest margin would be further enhanced. Now I'm going to take a few minutes to speak to asset quality, as there were a number of moving parts during the quarter, some of which are summarized on Slide 13 in the presentation. As David mentioned in his comments, we recognized a provision for credit losses of $34.8 million in the third quarter, which consisted primarily of $21 million of net charge-offs as well as additional specific reserves and a significant increase to the CECL reserve related to small business lending. To provide a little bit more detail on the net interest charge-offs in the quarter, $15.2 million were related to the small business lending portfolio as we took an aggressive approach to cleaning up problem loans that evolved over the quarter. Following these charge-offs, delinquencies in the small business lending portfolio declined over 50% compared to the prior quarter. Additionally, $5.3 million of net charge-offs were related to the franchise finance portfolio. These charge-offs had $3.5 million of existing reserves in place that were removed. Nonperforming loans totaled $53.3 million at the end of the third quarter, up $9.7 million from the linked quarter. The increase in nonperforming loans was primarily driven by moving 9 franchise finance loans with book balances of $14.2 million to nonaccrual with related specific reserves of $5.8 million. Delinquencies in our franchise finance portfolio decreased almost 80% from the second quarter and the pace of new delinquencies has slowed meaningfully, signaling improved borrower performance. A portion of the increase in nonperforming loans, about $1.8 million related to small business lending and represented the remaining balance based on estimated collateral values associated with the loans. At quarter end, the ratio of nonperforming loans to total loans was 1.47%, up from 1% in the linked quarter. The increase was driven not only by the increase in nonperforming loans, but also the decline in loan balances following the loan sale. The allowance for credit losses increased to $59.9 million in the third quarter, up $13.4 million or almost 30% from the second quarter. The increase was primarily driven by a significant increase in the ACL, as a result of updated inputs to the CECL model given recent industry trends in SBA loans, which show SBA loan default rates across the industry are approximately 2.3x higher in 2025 than in 2022. As a result, we more than doubled the small business lending ACL. Following this activity, the ACL now represents 1.65% of total loans, up from 1.07% in the second quarter. If you exclude the public finance portfolio, the ACL to total loans increases to 1.89%. As shown in one of the slides -- in one of the graphs on Slide 13, to emphasize the point David made in his comments, following the credit actions taken during the quarter, total delinquencies 30 days or more past due, excluding nonperforming loans, declined to 35 basis points at quarter end and are at their lowest point in a year. I will briefly touch on our capital position prior to moving on to our outlook for the fourth quarter. As announced in our press release and associated 8-K in September, we closed on the sale of $837 million of single-tenant lease financing loans with a net loss of $37.8 million at the end of the quarter. While the loss from the loan sale reduced shareholders' equity and regulatory capital, the reduction in risk-weighted assets was even more pronounced, leading to growth in regulatory capital ratios from the linked quarter. Related to the Tier 1 leverage ratio, we expect this ratio to increase significantly in the fourth quarter of 2025 as the average assets calculation resets lower with a full quarter effect of a smaller balance sheet. Furthermore, we were able to mitigate the impact of the loan sale on the tangible equity to tangible assets ratio by moving a significant portion of fintech deposits off balance sheet during the quarter. Now turning to the remainder of 2025, I would like to provide some commentary on our outlook for the fourth quarter of 2025. Note that these estimates assume a flat rate environment, consistent with prior quarters, we are not going to attempt to predict the timing and magnitude of Fed rate cuts. We remain excited about our strategies to drive net interest income and net interest margin growth, as loan yields continue to increase and deposit costs decline. During the fourth quarter, we expect loan balances to increase at an unannualized rate in the range of 4% to 6%. While this may seem like a high number, we expect origination levels to remain consistent with prior quarters, while the starting point is lower following the sale of the single-tenant lease financing loans. In addition to the continued benefit of higher loan yields and lower funding costs, we also expect a lift in the net interest margin resulting from the loan sale as the loan portfolio yield is further enhanced. For the fourth quarter, we expect the net interest margin on a fully taxable equivalent basis to increase to the range of 2.4% to 2.5%. In dollar terms, we expect fully taxable equivalent net interest income to come in the range of $32.75 million to $33.5 million for the quarter. With respect to noninterest income, we have about $104 million in loans currently held for sale plus additional loans that have closed thus far in the quarter. However, we do expect loan sale volume to be down from the third quarter. As a result, we expect noninterest income to come in the range of $10.5 million to $11.5 million for the quarter. The one caveat to this assumption is how long the United States government shutdown lasts. As a government program, sales of SBA loans into the secondary market have been halted during the shutdown. Assuming the shutdown ends sometime soon, we should be able to complete the loan sales during the quarter. However, if the shutdown continues for an extended amount of time, then the ability to execute the sale of all of these loans would be at risk. On the expense side, we continue to manage costs well and expect them to come in the range of $26 million to $27 million for the quarter. Moving to an update for our expectations for 2026. With regard to fully taxable equivalent net interest income and the provision for credit losses, we feel comfortable with where the analyst estimates currently are at. Moving to our outlook for noninterest income to Nicole's comments regarding heightened credit standards related to SBA lending, we expect origination volumes to decline from 2025 and have modeled noninterest income to be in the range of $41.5 million to $44.5 million. The lower SBA origination volume will have a corresponding impact on our forecast of noninterest expense for the year, which we now estimate to be in the range of $106 million to $109 million. With that, I will turn the call back to the operator so we can answer your questions. Operator: [Operator Instructions] Your first question comes from the line of Tim Switzer from KBW. Timothy Switzer: So I guess, the first one I had is on the credit outlook. And I understand it's tough to maybe put some numbers behind it or like a time line. But is there any way for us to get a sense of -- I'm sure this is probably peak charge-offs, but when do we see peak delinquencies, peak nonperformers and have confidence that those start to move down? And what is like embedded within the reserve in terms of credit losses? Like what's the credit content of the portfolio as you guys see it today? David Becker: I'll handle the delinquency side. As we discussed, those numbers keep coming down. Like at the current time on the franchise lending, we only have 4 delinquent accounts. It's at 35 basis points compared to 2 quarters ago when it was 77 basis points. So the leading indicators in our mind, are going all in the right direction and getting more and more stable. Obviously, there's a lot of economic activity going on in D.C. and around the world that can have impact on companies. So as you see today, it's a tough one. But as we're looking at it and working -- and it's right now impacting just 2 of the portfolios that we have, SBA and franchise, but it's all headed in the right direction currently from where we're at. I'll let Ken speak to how we've broken out. There's specific reserves, there's reserve reserves. There's some stuff that's in nonperforming that we're waiting on resolution of sale of assets, et cetera, could get some recovery back out of it. But he can give you a little more detail on how that lays out. Kenneth Lovik: Yes. Maybe we'll talk about nonperforming assets first, right? So the biggest -- the increase in nonperforming loans this quarter was primarily driven by certain franchise finance loans that we took action on during the quarter. These were either delinquent loans or loans with identified issues that we moved to nonaccrual and we put specific reserves on. I'll go to David's comment about delinquencies here and with regard to franchise finance, the delinquency number is now down significantly, right? I think I believe we had 4 loans that were delinquent at quarter end. And I guess, as a leading indicator there, I think we feel like in terms of the franchise portfolio, we've kind of seen the worst of the worst. Yes, there -- we do have existing nonperforming loans in there where we might have to adjust an existing specific reserve or there may be a loan that pops up. But I think we feel like we've kind of been through what I'd call maybe the last big bucket of problem loans there. And the credit outlook there should be -- should look good going forward. And quite frankly, those are -- if you break down our nonperforming loan bucket, the franchise loans are by far the biggest -- the largest single amount in there. So I think in terms of NPAs and NPA increases going forward, there might be some more additions with regards to SBA and the residual balances of what we don't charge off. But I think the large increases going -- I think we've kind of minimized the significant increases going forward. And I think we remain optimistic that we're getting close to being peak NPA level. And then to kind of address your question on the reserves and stuff. As we mentioned in the commentary, we made some significant adjustments to the ACL related to SBA. We essentially doubled it. We increased that number to about $27.5 million. And I think we kind of went to the high end on some of the assumptions in our CECL model there. And I think, obviously, a CECL model is a life of loan loss expectation, which is what our model is forecasting. So I think that's kind of a number that we feel comfortable with as we sit here today. Timothy Switzer: So does your reserve kind of embed the outlook you just talked about in terms of delinquencies remaining low, not too many new ones and NPAs moving down from here? Kenneth Lovik: Well, it does to a certain extent. I mean the CECL model is -- there are delinquencies do impact the calculation of the reserve. Most of our delinquencies are 60 days or less. You certainly get penalized when delinquencies are higher than that. But yes, the CECL model does take into account the impact of delinquencies within the math of the CECL model. Now nonperformers, those are not in the -- I mean, those are kind of taken out of the release -- those are taken out of the model and those have specific reserves. Those are called individually evaluated loans. So when something does move to nonperformer, we will do an individual analysis and put a specific reserve on that. So that's kind of the -- obviously, the biggest piece of the reserve of the ACL is the CECL reserve and then a secondary piece are the specific reserves, which are individually evaluated at the loan level. I say clear is mud, right? The bottom line play for both, I think SBA, and we're really, really comfortable on the franchise loans is that we got our arms around the problem. We moved an awful lot of stuff pulled things forward that we could justify pulling forward. Within the SBA world, there's a lot of guidelines, as to when we can put loans to nonperforming. We have to buy them back out of the secondary market. We have to jump through some hoops to get it. But we're as clean as clean can be today. And I think going forward, as we've spoken to in the past, we have been tightening down credit standards over time. We've got data through a group called [ Lumos ] of all the statistical stuff going on in the SBA world and vintages for '21, '22 seem to have peaked, which is also the vintages of loan originations, where most of our problem credits reside. We've tightened up credit significantly over the last 2 years and did another tightening up here within the last 60 days. So I think it's as good as we can get it right now. As I say, there are things happening around the world that could severely impact us. But if we see kind of consistent and status quo on tariffs, et cetera, we think that we're kind of the worst is behind us on both sides. Timothy Switzer: That's very helpful. I appreciate all the color there. And if I could get one more on the government shutdown. There's kind of 2 impacts here, right? If the government shutdown, you can't sell your loans, but also at some point, I mean, the SBA isn't approving new SBA numbers either. So is there a time line or like a deadline in terms of when this kind of slows down your ability to originate new loans? And let's just say we're shut down for another week or 2, how quickly historically is the SBA able to kind of catch up on that backlog of new applications for approval? Nicole Lorch: That's an astute question, Tim. We are -- we anticipated the shutdown. So on the loans that were through credit approval in our pipeline, we went ahead and got authorization prior to September 30th. So we went into the shutdown with about $94 million in pipeline loans that we have authorization on. So month-to-date, we have funded $18 million of new originations. We can continue to close and fund loans, where we have that authorization. So we have another $73 million, $75 million in loan closing right now. And as they work through that pipeline, we will be able to close them. So foreseeably, we can meet our borrowers' desired time lines for several weeks if the government shutdown were to persist. David Becker: One of the big questions on their throughput, Tim, is going to be -- there's a lot of firing and shuffling of the decks going on with personnel in D.C. right now because of the closure. SBA is kind of short staff to begin with. We're praying to god that the people didn't get cut loose or the people come back after it reopens. But part of that will be dependent upon how -- what the staffing situation is when the SBA reopens. So -- but we -- as Nicole said, we've got a prime stood up, ready to go, and we hopefully will catch up before the end of the quarter. We did reduce. We were thinking we did a little over $10 million last quarter in our projection here for the fourth quarter that Ken has given you numbers on. We backed that down from a little over $10 million to $8 million in anticipation that we might not be able to get everything through. But the rest of it, as Nicole said, we're primed ready to go as soon as they reopen and hopefully have the staff to process. Timothy Switzer: Yes. It's definitely a fluid situation, but it sounds like you guys were well prepared ahead of time. Operator: Your next question comes from the line of Brett Rabatin from Hovde Group. Brett Rabatin: Wanted just to go back to the franchise finance portfolio for a second. And obviously, that portfolio was originated by a third-party ApplePie. And so as we look at that portfolio, you're saying that delinquencies are down. But can you help us maybe get some confidence on just the remaining balances of $450 million of that portfolio? David Becker: The ultimate on that one is Crowe is in doing an audit of that portfolio currently. And as yesterday afternoon at 5:00, they've gone through over 90% of those loans as an external audit. They had no downgrades on the loans and had 2 upgrades. So we not only internally feel better about it. And you hit the nail on the head, Brett. The issue wasn't the remote origination, but it was the remote collection effort. And back probably almost 6 months ago now, 5, 6 months ago, we jumped in and took control with the assistance of the folks at ApplePie to do the collection efforts. And we now the minute somebody goes past due or has an issue or if they got a problem or a question or concern, we talk to them. We're not relying on the third-party servicer. So we have been through literally every loan file. Crowe has now been through 90%. We'll finish it up this week, hopefully, early next week. But we're very proud of the fact that right now, they've had 0 downgrades and 2 upgrades on what they've looked at. So we're -- our confidence level is high on franchise. Brett Rabatin: And then I don't know if you guys have it available, but criticized went from [ 108 to 128 ] last quarter. I don't know if you have that balance or you have to wait for the filings, but I was hoping you might have that figure. David Becker: Well, you'll have to wait till the filings because we don't have the formal number calculated. Brett Rabatin: Okay. And then just wanted to -- we started earnings season with Jamie talking about cockroaches, and we've seen a few what you would probably call idiosyncratic issues. How would you describe what you guys have experienced? Would you say it's all idiosyncratic? Would you say some of the stuff that you've had to deal with has been somewhat related to either a weakening consumer or anything in particular? Nicole Lorch: We have referred to our small business loans, Brett, in the past as snowflakes because they are all individual unique and each one has a story behind it. But I do think if you step back and you look at franchise finance as well as small business, there are probably some underlying commonalities to the loan. And so where the Lumos portfolio analysis has been really helpful to us is in identifying any trends that we might not have such as specific geographies, and I don't mean states, but I mean down to ZIP codes as well as we know that there are some industries certainly that have been tougher. We have been fairly insulated from any consumer stress that is out there because the portfolio that we have of consumer loans is to a very high credit quality borrower. What we might see in the future, if there were continued stress in the economy, for instance, is there might just be a slowdown in the acquisition of new recreational vehicles or horse trailers if those are not must-have items, but nice-to-have items and people make a decision not to acquire a new one. So what we might see would be a slowdown in the origination of new loans. But we're seeing that the borrower -- the consumer borrower has stayed very strong for us and for our portfolio. With the small business, we are identifying, where we can any commonalities and remediating those for future credit standards. David Becker: I think the issue -- I agree with Nicole 100% the consumer, I think, is weathering the storm fairly well currently until unemployment starts to rear its ugly head. But I think the small business side is starting to feel some of the effects. We've got a lot of economists around the state of Indiana, all the major universities, et cetera, that are starting to say, hey, it's going to get tougher before it gets better. We're just now starting to feel the impacts of tariffs on raw good and stuff. We're still a manufacturing state here in Indiana, and it's really starting to ripple through small manufacturers, independent players here in the state of Indiana that aren't able to absorb the cost. I have a son that's running a bicycle shop in Bloomington, Indiana, they proposed new tariffs on China go through a bicycle chain that 6 months ago cost $25 will now cost $100. And that's the thing. We don't know how much of this is going to be for real or not. But small independent retailers, small businesses are going to see some impact here over the next 2 to 3 months if things continue on the same path. So yet to be determined. And -- but I do agree with Jamie, if there's one cockroaches more as we well know in the SBA world. So we're on it as best we can be. And one of the things that Nicole pointed out that this Lumos technology and the AI product gets is it warns us of hotspots. So we can take a proactive position. And if we have a quick service restaurant in Southern Florida in certain ZIP codes in areas, they're saying this is a hotspot, take a look. We can talk to those owners before they hit a wall and run into problems. So the AI tech that we've implemented over the last 3 to 4 months has really given us huge insight to both the franchise portfolios as well as the SBA portfolio. Brett Rabatin: And if I could just sneak in one last one. David, you said you'd buy back stock when you got down to these kind of levels and we're down here again. Are you guys going to buy back stock at these levels? And how do you think about that versus maybe growing the capital further? David Becker: It's a mixed bag. It's a tough decision to make. But if we stay in the teens for any period of time here, we do have authorization ability over the next 2 years to buy back $25 million. Obviously, where our capital is today, we can't go spend $25 million tomorrow. But if it stays down here in the teens, we come out of blackout and all that good stuff for part of next week, we will definitely get into the market and buy some shares if it stays in the teens. And I think we have some directors, myself, in particular, that will also get into the market next week. So... Operator: Your next question comes from the line of Nathan Race from Piper Sandler. Nathan Race: I'm a little confused. I was going back to my notes from last quarter and I wrote down that you guys ceased originating franchise finance loans back in January, and you didn't have any deferments within franchise finance coming out of last quarter. So I guess, I'm just trying to understand what transpired with these handful of loans that moved to nonperforming and that you also charged off in the quarter. Was it just the collection efforts that you undertook that you just described earlier, David? Or would just appreciate any other color in terms of what transpired within the franchise portfolio over the last 90 days? Kenneth Lovik: Well, these would be loans that we were either monitoring, where we were aware that the borrower was struggling or perhaps the borrower went delinquent. And maybe last quarter -- because keep in mind, delinquencies came down $11 million. So if you just think about the math, most of that $14 million that we charged off or excuse me, moved to nonperforming this quarter were delinquent last quarter, right? They maybe were 30 days or 40 days or something like that. And obviously, when they're in delinquencies, as David talked about, the level of communication we have and speaking to the borrowers, trying to work through a situation or work through resolution. And those were the loans, the delinquencies, where it was most prudent to move them to nonperforming and put a specific reserve on them. And -- but to kind of go back the other way on it, we are seeing some success in some of our resolution strategies with that. So for example, there was about $1 million of 2 loans totaling about $1 million that were nonperforming last quarter that so obviously have been moved to nonaccrual, had a reserve against them. But our commercial -- or our credit administration team worked out a resolution, where we were made whole $0.90 on the dollar on those deals, which were -- which was obviously much better than what we had reserved. So there are a lot of moving parts, but I guess the simplest piece is that these were just delinquencies that we moved to nonperforming and put reserves on. Nathan Race: And Nicole, I know you mentioned that on the SBA side, these are snowflake situations in terms of where you're seeing charge-offs. But also just curious, are there any commonalities in terms of vintage or when these loans are originated, perhaps when rates were lower and now a lot of these small business borrowers are being rate shocked. Is there any line of thought into that scenario? Nicole Lorch: Yes, that's a great question. Thanks for asking, Nate. We do vintage analysis, and so we are modeling future credit outlook based on the vintages. And I think David talked about some hotspots in the portfolio that we have identified. I would say, more than an increase in rates that the borrowers -- it's yes, an increase in their loan rate has impacted their monthly payment amount. But I think we've modeled on a $1 million loan, a 25 basis point reduction is about $300 a month to them. So it's not just solely the movement of interest rates and the impact on the borrower, but inflation more generally and it driving up the price of their raw materials or inventory that they need to buy, the cost of labor has gone up for them. And in some pockets of the country, consumers are starting to slow down on buying. So what we do see is an impact of inflation more so than impact of interest rate directly. And again, that's data that we're getting from our predictive analytics engine. So it's been really helpful to us in identifying what those industries are that might be more inflation sensitive, and it allows us to better refine our credit standards. Nathan Race: And then, Ken, I think you mentioned you're comfortable with where kind of the projections are for NII for next year. I think it's around $150 million or so. Just curious, if we do get 4 or 5 rate cuts as reflecting the forward curve over the next 12 to 18 months, where do you see kind of the margin trending by the end of next year? Kenneth Lovik: Well, in -- okay. So as I said, we kind of model a flat rate scenario, not to try not to be in the business of guessing, where rates are. So if we think about a full rate NIM for next year, we're probably talking somewhere kind of in the range of 2.70% to 2.80%. That's a full year, and that kind of ramps up over the course of the year. So it's not maybe quite as pronounced a stair step up as we would have had previously but it does increase quarterly over the course of the year. Now on a static balance sheet given -- with the sale of single-tenant lease financing loans, that moved us a lot closer to being neutral, but we are still slightly liability sensitive. So for every 25 basis point rate cut, we see an annualized increase of, call it, $1.4 million of net interest income. Operator: Your next question comes from the line of George Sutton from Craig-Hallum. George Sutton: Can you just walk us through the moving off of the excess deposits, the mechanics of that? I believe you have a relationship with IntraFi and you get a fee on actually moving those deposits? And then structurally, how do you think about future deposits coming in when you have the ability to pull some of these deposits back in a scenario, where loan growth is good? Kenneth Lovik: Yes. The mechanics for pushing them off through the IntraFi network are pretty easy. When we set up several of our fintech relationships the depositor forms allow the deposits to be pushed into the IntraFi network either for reciprocal deposits or deposit insurance or to move off the balance sheet. And yes, we do make fee income, which is -- they pay us kind of a spread, call it, Fed funds minus. And we collect the difference between what the rate we're paying on the deposit and what we're getting paid through pushing it into the deposit network. So it kind of depends. I think where it's really been beneficial for us is the -- a lot of our, what I'll call, higher cost fintech deposits are kind of already approved to be into the IntraFi network. So it does a couple of things, right? It allows us to move kind of the higher cost, call it, Fed funds minus 20 basis points deposits off balance sheet. But we also see a lot of volatility and increasing volume in those. So it helps us to manage the size of the balance sheet. So if those deposits go up $200 million in a quarter and we don't need the $200 million, we can push that off the balance sheet. And then to your point earlier, we can bring those back onto the balance sheet very easily to help in the event that perhaps CD volumes are down or other deposit areas are down, we can bring those back onto the balance sheet very easily to fund loan growth or fund CD outflows. It just gives us a lot more flexibility to manage the balance sheet going forward. David Becker: The other side of that equation, George, as you pointed out, we have plenty of excess cash at the current time. We're still growing and anticipate growing the loan portfolio by 10% next year. We sold STL, but Maris is back in the marketplace, pushing close to $100 million in originations in just this quarter. It gives us a little better pricing there. It also enables us -- if the Fed does do another pop here at the end, we'll probably do a 100% drop on rates kind of across the board on our side to match it. Historically, if we dropped 25%, we would drop rates 10 to 15 points. Because of the excess cash, we have a lot better flexibility. We're also in a position now, I think, on CDs, particularly in the commercial markets, only our long-term CDs in the 4, 5-year category, we appear in the top 25 in the country. Nobody is buying those right now. So it's not impacting us, but we haven't been on the charts in the CD realm for the last 2 months. Renewal on CDs, we have over [ $400 million ] rolling this quarter at a [ 434, 435 ] cost. If they were to renew, it's going to be in a [ 370 ] range or if they go away because we're down lower than they can get elsewhere, we're okay with that. It buys us a lot of flexibility we've not had in years. So you're right, having that excess cash is a nice play. Plus it's not costing us anything, As Ken said, we can get it off balance sheet. pick up a few points. It doesn't mess up our NIMs, doesn't mess up our ratio. So it's a nice position right now compared to where the world was post Silicon Valley 2.5 years ago. George Sutton: So further on the flexibility perspective, that was a pretty meaningful strategic move to sell the single-tenant loans. And I'm just curious, if we think forward, say, 18 months from now, how different do you see the business being? Are there contemplations of moving in different directions? Or it obviously gives you flexibility. I'm curious what you're going to do with that flexibility. David Becker: We have a couple of fintech opportunities we're looking at that could grow significantly on the lending side. We have some leasing opportunities that are yielding us 7.5%, 8% versus the 5% we had on the single tenant. And the new single tenant that Maris is bringing back on board, we're on a 5-year term versus what was traditionally a 10-year term at north of 6%, 6.5%. So -- and there's also forward flow opportunity there with Blackstone. So it gives us a lot of flexibility. We, on the fintech side, kind of shied away from some of the bigger lending opportunities because of lack of cash. We're now back in that market and talking to some folks. So I think you hit the nail head on. We're going to probably have a little different portfolio mix 18 months from now than we have today. But we got a couple of opportunities we're looking at that could be very beneficial to us. Operator: Your next question comes from the line of John Rodis from Janney. John Rodis: Ken, just a follow-up question on -- for 2026, the NII guidance, the [ $149 million to $150 million ], is that on an FTE basis? Kenneth Lovik: No. well, that's GAAP. So add about $4.4 million to get to FTE. Operator: There are no further questions at this time. I will now turn the call over to Mr. David Becker. Please continue. David Becker: Thanks, John. Thanks, everybody, for joining us today. We obviously covered a lot of ground here. We have really, as we've discussed many times already, consistently delivered strong net interest income improvements over the last 12 to 18 months. Macro environment remains uncertain out here as to what's going on in the world, but our customer activity is stabilizing. Lending teams continue to do very well. Pipelines are solid. We are also excited about growth potential from the fintech partnerships, as I just discussed a minute ago, which will further diversify and strengthen our revenue base. So with improvements in the loan mix, anticipated reduction in deposit costs, if the Fed is to do something else, we're confident in our ability to deliver stronger earnings in the coming quarters. As fellow shareholders, we remain committed to enhancing the profitability and long-term value, and we thank you for your continued support, and have a great afternoon. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by, and welcome to Coursera's Third Quarter 2025 Earnings Call. [Operator Instructions] And this call is being recorded. [Operator Instructions] I would now like to turn the call over to Cam Carey, Vice President of Investor Relations. Mr. Carey, you may begin. Cam Carey: Good afternoon. Thank you for joining us for Coursera's Q3 2025 Earnings Conference Call. Today, I'm joined by Greg Hart, our President and Chief Executive Officer; and Ken Hahn, our Chief Financial Officer. Following their prepared remarks, we will open the call for questions. Our earnings press release was issued after market close. It is available on our Investor Relations website at investor.coursera.com, where this call is being webcast live and where versions of today's materials, including our quarterly shareholder letter, have been published. During this call, we will present both GAAP and non-GAAP financial measures. A reconciliation of non-GAAP measures to the most directly comparable GAAP measure can be found in today's earnings press release and supplemental materials. Please note that all growth percentages discussed refer to year-over-year change unless otherwise specified. All statements made during this call relating to future results and events are forward-looking statements based on current expectations and beliefs. Actual results and events could differ materially from those expressed or implied in these forward-looking statements due to a number of risks and uncertainties, including those discussed in our earnings press release, shareholder letter and SEC filings. Please refer to today's earnings press release for more details on our forward-looking statements. With that, I'll turn it over to Greg. Gregory Hart: Thank you, Cam, and good afternoon, everyone. We appreciate you joining us. Today, Coursera is reporting a strong third quarter. Earlier this year, we set clear priorities to drive continuous improvements in our execution, build durable capabilities across our platform and invest in product-led innovation to create more valuable customer experiences that can fuel our long-term growth. Our third quarter results reflect the early evidence of our efforts. We delivered revenue of $194 million, up 10% year-over-year. We increased our Consumer revenue growth rate to 13% year-over-year, driven by 7.7 million new registered learners and continued strength in our Coursera Plus subscription offering. Coursera Plus is large and growing at scale and now encompasses more than half of our Consumer segment revenue. We also demonstrated our commitment to operational discipline, generating $27 million of free cash flow, which was up 59% from the prior year. As a result of our progress and momentum, we are once again raising our expectations for full year revenue. We now expect to deliver revenue in the range of $750 million to $754 million, representing 8% to 9% growth from the prior year. The midpoint of this range is a $10 million increase from the annual guidance provided last quarter and a $27 million increase from our expectations in April, effectively doubling our full year growth rate from 4% to 8%. Before discussing the updates across our ecosystem and product experience, I'd like to address 2 recent changes to the Coursera leadership team. First, I am pleased to announce the appointment of Anthony Salcito as the new General Manager of our Enterprise segment. Anthony is an established leader in global education transformation with over 2 decades at Microsoft, where he served as Vice President of Worldwide Education. His experience in leveraging technology to develop skilled talent in the evolving workforce will be critical in supporting our customers and accelerating our Enterprise initiatives over the coming year. I also want to take a moment to recognize and thank Ken for his excellent service as Coursera's CFO over the past 5.5 years. I am personally grateful for his partnership since I joined as CEO. This year, his expertise has provided stability and continuity to the entire organization, and his tenure has shaped the long-term trajectory of Coursera from guiding our IPO to strengthening the financial performance and position we operate from today. We appreciate the important role he has played at Coursera. As this is his final call, I will provide our updated financial outlook in my closing remarks. With that, let's turn to the ongoing expansion of our ecosystem. Upon joining Coursera, one of my earliest observations was recognizing the untapped potential of our extensive data across one of the largest and most globally distributed learning platforms. Leveraging these insights allows us to drive continuous improvements in all aspects of our business from accelerating product innovation to enhancing the speed and agility of our content engine. Most importantly, our data offers a deep understanding of our primary customers, the learners. In September, we published our 2025 Learner Outcomes Report conducted in partnership with The Harris Poll, reflecting feedback from over 52,000 learners across 179 countries. The report found that 86% of learners joined to build new skills and transform their careers. Career advancement is the top motivation for learning on Coursera, and we continue to drive meaningful and measurable career outcomes for learners. 91% reported achieving a positive career outcome after completing a course on Coursera, encompassing salary increases, skill development, higher job levels and personal benefits. As individuals increasingly seek the skills necessary to adapt and thrive in today's evolving job market, Coursera continues to strengthen its position as the world's trusted source for verified learning. The quality of our content and the scale of our ecosystem are foundational assets we intend to increasingly differentiate and enhance through rapid innovation in how content is created, delivered and adapted for the unique needs of every learner. Over the past year, our catalog has expanded by 44% and now includes more than 12,000 courses developed by world-class instructors trusted for their expertise and career relevance. As demand for career-aligned education grows, we continue to expand our collection of job-focused micro credentials. We now offer nearly 100 professional certificates and have recently added new titles for Microsoft, AAPC and EC-Council. Additionally, we welcomed 12 new content creators to the Coursera community, including world-class universities, industry experts and learning providers like Pearson and SkillShare. Many of our partners view Coursera as a strategic platform to extend their global reach, create more personalized and interactive learning experiences designed to keep pace with the fast-changing education landscape and expand access to the emerging skills that are rapidly reshaping the requirements for individual jobs, business models and global labor markets. In 2025, AI skills are becoming essential, and demand has accelerated. We are now seeing 14 enrollments per minute in our catalog of more than 1,000 generative AI courses, up from 8 enrollments per minute last year. Generative AI is the most in-demand skill in Coursera's history, which is why I was thrilled to recently announce our content partnership with Anthropic, welcoming one of the world's leading AI research companies to our platform. As the need to develop new skills progresses at an unprecedented rate, Anthropic, like many of our partners, shares our commitment to helping learners and institutions everywhere apply the latest advancements in AI safely and effectively, unlocking new ways to learn, teach and work. Let's turn to our recent product updates. AI is transforming the way learners discover Coursera, engage with our content and verify their skills for career advancement. This year, we have been focused on accelerating our ability to deliver more value to learners and enhance the value of our business by driving improvements in our conversion, engagement and retention metrics over time. Our team has made remarkable progress developing new capabilities to enhance our customer experiences and strengthen our role in the future of learning. In September, our early efforts were on display during our annual conference, Coursera Connect. The event brings together our global ecosystem of learners, customers, universities and industry innovators to address evolving trends in education while introducing our latest features, tools and experiences. To start, I'll share 3 enhancements. First, Coursera Coach, our in-course GenAI tutor, is now integrated into 97% of our courses and available in 26 languages. We have added persistent memory and contextual understanding, delivering smarter, more relevant responses to drive better outcomes. Over 90% of learners reported an improved learning experience and more than 60% said coach has benefited their career. We also continue to make coach more personalized and interactive. Dialogue is now available in over 1,200 courses, enabling instructors to build and scale one-on-one immersive Socratic learning. We also introduced Role Play, which takes this level of interactive engagement even further through AI-driven simulations, allowing learners to apply their knowledge in real-life scenarios and receive real-time actionable feedback. Second, AI translations. Since 2023, advancements in machine learning have enabled us to rapidly expand access to text-based translations across our platform. We now offer more than 7,500 courses in up to 26 languages. In April, we introduced AI dubbing to bring native language learning to Coursera, starting with 100 courses. Today, AI dubbing is now available for more than 600 courses in 5 languages, and we expect to surpass 1,000 courses by the end of the year. As improvements in the speed and quality of this technology continue, we're excited to invest in bringing this experience to more learners in more languages with the goal of driving higher engagement and better outcomes. Third is Course Builder, our AI-powered authoring tool. In 2023, Course Builder was initially launched as a feature for our Enterprise customers interested in creating custom private courses. What makes it distinctive is its ability to blend the best of Coursera's catalog with internal context-relevant materials. At Connect, we announced that Course Builder will soon be piloted with our university and industry content partners, featuring new AI-powered content generation and catalog ingestion capabilities that are designed for speed, simplicity and flexibility. Most importantly, it is all backed by Coursera's learner data and designed with pedagogical best practices to deliver high-quality courses at scale. Next, our newest product offering, Skills Tracks. From our customer conversations, we know that most organizations struggle to measure training impact and identify skill gaps, particularly as job needs rapidly change. For individuals, the motivation to learn is focused on building skills that can make them more productive in their role or open new career opportunities. Skills Tracks are designed to address both requirements, keeping learners focus on essential skills through custom paths and content discovery while enabling admins to track progress and better align learning objectives with company business goals. Compared to existing courses and certificates, Skills Tracks offer a more structured and interactive approach to skill development built on our proprietary career graph and data-driven personalization. By focusing on role-specific competencies, practical hands-on applications and features to assess, track and verify proficiency, learners and businesses can better measure learning impact and ROI. We started with curated learning paths for data, IT, software and product and, of course, GenAI with more fields to come next year. For our final product update, I'd like to focus on our efforts to reimagine the learner journey on Coursera, encompassing improvements in search, discovery and onboarding. This quarter, we enhanced our site experience with a redesigned homepage to better guide learners through our funnel. We also made meaningful progress in our efforts to serve our growing population of international learners, launching new geo pricing and promotional capabilities to make our marketing activities more effective and ensure Coursera is accessible in emerging markets. From the early results, we're seeing positive signals in our new paid learner conversion. However, our efforts to attract, convert and retain learners more effectively through our funnel extend well beyond our platform. Search is fundamentally changing, and we intend to be at the forefront of understanding, experimenting and shaping how learners discover and start their journey, leveraging the strengths that have drawn 191 million learners to our platform over the last decade, on October 6, we were proud to announce Coursera as the first online learning platform to be embedded directly in ChatGPT. In a new partnership with OpenAI, we launched one of the first generation of apps in ChatGPT, putting our trusted world-class content directly where hundreds of millions of people are going to get answers related to education, skills and jobs. Learning is one of the most common use cases for ChatGPT and OpenAI shares our commitment to broadening access to high-quality education and essential skills. We're excited about the partnership and the innovation it will enable positioning Coursera at the forefront of AI-native learning experiences and strengthening our ability to help learners master the right skills to grow and advance in their careers regardless of where their learning journey begins. Our third quarter performance marked another step in laying the foundation for Coursera's next chapter of growth, and our progress is reflected in our financial outlook for the remainder of the year. For Q4, we anticipate revenue in the range of $189 million to $193 million, representing 5% to 8% year-over-year growth, primarily driven by our Consumer segment. Our assumptions on the more muted Enterprise environment have not changed. For adjusted EBITDA, we expect a range of $7 million to $10 million, leveraging the flexibility and capacity of our annual operating framework to fund our most productive growth initiatives. As I highlighted before, we are raising our full year 2025 revenue outlook to a range of $750 million to $754 million, representing 8% to 9% growth from the prior year. For adjusted EBITDA, we continue to target an annual adjusted EBITDA margin improvement of approximately 200 basis points to 8%. As a reminder, this reflects an additional 100 basis points of anticipated improvement from our initial full year target of 7%. This year has clearly demonstrated the value of our annual operating model as it relates to EBITDA. This long-standing framework has enabled us to assess our growth opportunities, allocate capital toward our most productive priorities, demonstrate our long-term commitment to operating with financial discipline and driving consistent scale in our model and ensure we are making the right long-term decisions on behalf of our learners, customers and shareholders. As we approach the end of the year, I am pleased with the strong progress our team has made across our 3 key growth priorities: delivering rapid product innovation, building a faster, more agile content engine and ensuring we are well positioned to meet and serve customers globally no matter where their learning journey begins. Our early achievements in 2025 are just the beginning of what I believe Coursera is capable of solving in the massive skilling opportunity that lies ahead of us. By continuing to invest in AI-driven innovations and personalized learning experiences, we are uniquely positioned to meet the evolving needs of learners and organizations worldwide. I am confident in our clear direction and excited for what we will build next. Now I will hand it over to Ken to discuss our financial performance in more detail. Ken, please go ahead. Kenneth Hahn: Good afternoon, everyone. Thank you, Greg, for the kind words. It has been a pleasure working with this team, particularly around growth enablement. Over the course of this year, we've made consistent progress through a focused effort to bolster Coursera's return to higher growth. In Q3, we generated total revenue of $194 million, an increase of 10% from the prior year period, leading us to raise our expectations for full year growth, as Greg just outlined. Please note that for the remainder of this call, I'll discuss our non-GAAP financial measures while reviewing our business performance unless otherwise stated. In Q3, gross profit was $108 million, up 10% year-over-year. This represented a 56% gross margin, which was consistent with the prior year period, reflecting improvements in our Consumer gross margin rate, offset by other cost of revenue and the greater mix of Consumer revenue driven by the segment's faster growth as compared to our yet higher-margin Enterprise segment. Total operating expense was $98 million or 51% of revenue, consistent with the prior year period. We deployed targeted investments in growth initiatives while demonstrating our long-standing commitment to operating with discipline and scaling annual profitability each year. Net income was $17 million or 8.6% of revenue, and adjusted EBITDA was $16 million or 8% of revenue. Since the start of this year, we have delivered over $52 million of adjusted EBITDA, putting us well on track to achieve our increased annual margin target of approximately 8%. Turning to cash performance and the balance sheet. Q3 marked another strong quarter of cash performance, generating $27 million of free cash flow, including approximately $2 million in purchases of content assets treated similarly to other categories of capital expenditures. Year-to-date, we've delivered more than $80 million of free cash flow, representing 55% year-over-year growth and reinforcing our strong financial position. As of September 30, 2025, we had approximately $798 million of unrestricted cash and cash equivalents on the balance sheet with no debt. Now let's discuss the results of our operating segments. As you know, we have evolved our operating model over the course of this year by implementing new capabilities under Greg's leadership, adding product and data expertise to our team and making investments across our platform from product to content and marketing to create and deliver more valuable experiences for our learners over time. Our strong Consumer performance shows promising signs of our renewed focus. In Q3, we delivered Consumer segment revenue of $130 million, up 13% from a year ago. Growth was driven by 2 primary factors. First, we welcomed 7.7 million new registered learners, expanding our total base to 191 million. We've maintained a strong top of funnel by broadening our global reach, diversifying our marketing channels and experimenting with new opportunities to reach and attract new learners, including directly embedding Coursera in ChatGPT as one of OpenAI's first generation of apps. Second, we've seen strong reception to Coursera Plus. As you know, our subscription efforts in the Consumer segment are not new. In 2021, we recognized that the rapid pace of skills transformation, combined with our growing catalog of career-focused education would naturally benefit from a bundled subscription offering that creates more value for our learners, content partners and ultimately, our business. Over time, we have continuously enhanced that value with the introduction of new content, product features and localized pricing, promotion and payment capabilities. As Greg highlighted, Coursera Plus has grown to become the majority of our Consumer segment revenue, providing important visibility with more predictable recurring revenue streams. Consumer segment gross profit was $80 million, up 16% from $69 million in the prior year period. Segment gross margin was 61%, an increase of 180 basis points from a year ago. The expansion in our gross margin rate has been driven by increased learner demand and engagement with content created under more recent production arrangements. As we have discussed, this new content typically includes a lower revenue share and associated content costs, reflecting the increasing value of Coursera's ecosystem and platform capabilities from AI native authoring, production and ingestion tools for our partners to Coursera Coach and other learner enhancements to our large growing distribution channel. Now moving to our Enterprise segment. Enterprise revenue was $64 million, up 6% from a year ago. Growth continues to be driven by our campus and business verticals, including a 10% increase in the total number of paid Enterprise customers to 1,724. As we've discussed in the past several quarters, customer demand and budget trends continue to vary by vertical, region and use case, which is reflected in our net retention rate of 89%. Our team will continue to monitor the dynamic corporate spend environment and remain focused on go-to-market positioning and Enterprise-focused product enhancements to reignite more significant long-term growth under Anthony's new leadership. Segment gross profit was $45 million, up 5% from $42 million in the prior year period. And segment gross margin was 70%. The margin rate was in line with the prior year period, which included a onetime revenue share benefit of approximately 150 basis points disclosed during our third quarter 2024 report. Without that historic onetime benefit, Enterprise segment gross margin would have expanded year-over-year, driven by the same content production and engagement trends contributing to the ongoing improvement in our Consumer segment margin. Before we open the call for questions, I want to reiterate what a rewarding experience it has been to serve as CFO during such a transformative chapter for Coursera, the industry and the broader technology landscape. I'm deeply proud of our achievements over the past 5.5 years, and I'm grateful for the continued support of our shareholders and analysts. Having partnered closely with Greg this year, I have full confidence in the leadership team's clarity of direction. It is a privilege to leave Coursera in such a strong financial position to serve as a bedrock for Greg's vision, the catalyst to accelerate the next phase of innovation, growth and impact for the millions of learners our platform serves. Now let's open the call for questions. Operator: [Operator Instructions] We'll take our first question from Josh Baer with Morgan Stanley. Josh Baer: And Ken, it's been great working together over the years. I know it's early, but I did want to ask about any takeaways you have from the start of the OpenAI embedded app and the integration there. Just anything around usage and engagement or expectations? And then the follow-up is on the financial side. What is the economic arrangement there? And how are you thinking about potential financial impact? Gregory Hart: Thank you, Josh. Good questions. This is Greg. First of all, we're incredibly excited about the partnership. Obviously, OpenAI is a place that people go to ask about basically everything, 800 million weekly active users, so an incredibly popular destination and learning is one of the most common use cases. And so the fact that OpenAI reached out to us to invite us to be one of the first 7 launch apps is incredibly exciting. Very, very early days on that partnership, obviously. So don't have anything to share yet on what we think that might look like and what that might do for the business over time. But I would say that given the traffic that ChatGPT sees and the fact that search is fundamentally changing, we're very glad that we're at the forefront of some of that change and being in the place that is driving a lot of that change because I think that gives us a real opportunity to understand and shape how learners can discover and start their journey with Coursera. On the financials, there is no economic arrangement between OpenAI and Coursera. This is really a top-of-funnel opportunity to get in front of people as they start their learning journey by asking questions in ChatGPT. And then the appropriate course will get surfaced so they can preview that content and then come through to Coursera to enroll and benefit from the full rich learning experience that we offer across the world-class content with -- as well our AI-driven features on Coursera. So Coursera Coach and Role Play dialogue, some of the things that I mentioned in my scripted remarks, and we're excited to see how it develops. Josh Baer: And on sales and marketing, the percentage of revenue increased year-over-year. Just hoping you could walk through some of the top priorities on sales and marketing investments and how you're assessing the returns on that spend? Gregory Hart: Thank you, Josh. The sales and marketing have been a very efficient and effective tool for us for a number of quarters. We continue to see really good results as we've scaled our marketing in terms of return on ad spend. And the model we use is really wherever we see efficiency at the right levels, we will continue to invest. One of the benefits of that is that often that is driving a subscription, not just a single course purchase. And so Coursera Plus, as we mentioned, has now crossed 50% of our Consumer segment revenue. That gives us a lot of visibility into forward-looking trends. And so when we find marketing channels that are effective at driving that, we will continue to invest in that. You see that reflected in the 7.7 million new registered learners and also in the 13% year-over-year revenue growth the Consumer segment had this year -- this quarter. Operator: We'll take our next question from Bryan Smilek from JPMorgan. Bryan Smilek: Thank you, Ken, for the great partnership throughout the years. Just curious more so on the 4Q revenue outlook. Totally appreciate Consumer continues to grow well and really unchanged macro outlook for Enterprise. Just curious, looking ahead, what drives the durability of the Consumer growth here, perhaps around the double-digit percent? And I guess, like can you just give a bit more color on what drives the declines more near term in terms of growth deceleration into 4Q? Gregory Hart: A couple of things that I'd comment on. Great question. So first of all, as we've mentioned on the scripted remarks, we're raising our full year revenue from $738 million to $746 million was our prior guide now to $750 million to $754 million, so representing 8% to 9% year-over-year growth. That, again, is up from a projection of 4% year-over-year growth back in April, an incremental $27 million at the midpoint. That is driven by our confidence in our business, a very strong top of funnel, 7.7 million new registered learners. Also the fact that with Coursera Plus, we get better visibility into the forward-looking revenue trends. We're also seeing a more responsive revenue model, driven by a combination of the marketing that I just mentioned and also some of the early efforts that we've made on the product side, learner journey, geo pricing, things like that. On the quarter, specifically Q4, what I would remind folks that you've seen this in prior years is that there's definitely a seasonality impact in Q4. Traditionally, Q4 is not as large a quarter as Q3 is. And so that is also part of what is being -- is playing out in the forward-looking guide. Bryan Smilek: And then I just had a quick question just around CapEx overall. I believe a few quarters ago, really entering 2025, we had discussed about up to $20 million in purchases of content assets. And the free cash flow clearly has come in nicely. And I imagine some of that is also driven by just AI content gains in terms of production. But just curious, how will you balance free cash flow growth going forward with incremental content investments? And is there anything just to keep in mind from a free cash flow perspective? Gregory Hart: At a high level, we've been very pleased with the impact of the content investments that we've made. You see that reflected in 2 stats. One is the growth of the catalog. So we now have more than 12,000 courses. That's up 44% year-over-year. The second is the gross margin expansion. And that is driven by both Coursera produced content and also a bit of a mix change to newer content that is at lower revenue share rates. We anticipate that both of those things, we will continue to invest in. We really like the appeal of the Coursera produced content. One of the reasons that we like it is that as AI gives us better and better tools, we're able to bring down the cost of creating each piece of that content so we can expand the catalog at potentially a faster clip while doing so with a lower per course spend. Operator: Our next question comes from Stephen Sheldon with William Blair. Stephen Sheldon: Congrats on a great run, Ken. So maybe for either Greg or Ken, just can you just talk more about the factors driving the continued Consumer acceleration this quarter? And on the international side, it sounds like you're starting to find the right localized pricing versus volume mix. Is that fair? And if so, could that be a factor kind of supporting continued strong growth in Consumer over the coming years as you optimize that balance and monetization? Gregory Hart: Great question. I'll start, and Ken, feel free to obviously to add. On the Consumer side, I mentioned marketing being one of the things that we've continued to improve. So that's certainly a factor. I would say also, it's just responsiveness in the course offering that we have and our efforts to improve the product experience as well. And so the expansion of the catalog, a lot of that is coming in areas and it's certainly being targeted at areas where we see a lot of demand. And so in GenAI, as I mentioned in the scripted remarks, we've doubled the size of our GenAI catalog year-over-year from 500 courses to more than 1,000 courses. Again, these come from leading industry partners, Anthropic being one that I mentioned in the scripted remarks as well and our academic partners in higher education, some of the leading universities around the world. That's driving incredible interest on the Consumer side as well as the Enterprise side. So that's certainly a factor. On geo pricing, you mentioned, we lowered the price across a range of countries earlier this year in the quarter. And the rationale for doing that was really that when I arrived, one of the things I observed within my first few weeks was our pricing internationally just simply didn't make sense for consumers in those markets. It was priced out of reach of most of those markets. And so we lowered our pricing substantially in those markets, up to 60% in different geographies. And the goal of that was to both ensure that we were able to reach the broad market of consumers that we aspire to serve with a more attractive price and also, of course, to drive higher overall revenue growth. And we've been pleased with the results so far of that, and we continue to believe that we will look at pricing as a tool within our toolkit to continue to fuel better growth and also make sure that we're serving our mission overall of enabling learning to be accessible to as many people around the planet as possible. Stephen Sheldon: And then just following up in Enterprise. NRR moved back just to touch this quarter after a few quarters of stabilization. So just curious how did trends look across the different end markets there between business, government campus? And how has overall corporate spending towards learning played into that? Has there been any additional softening there in recent months where it's getting harder to retain existing and sell new? I guess, what are you seeing on the kind of the budgetary side? Gregory Hart: Well, first of all, we're not pleased with 89% NRR. We also weren't pleased with 93% NRR last quarter. We won't be happy with NRR until we get that north of 100%. I would say we've seen mixed trends between our different verticals. So Coursera for Campus is a brighter spot. Coursera for Government is more challenged. We're not factoring in any material improvement right now just given what we're seeing across the market. So the diversification is certainly helpful across the different segments, but the Coursera for business remains the majority of our Enterprise segment. It remains a muted environment as we've communicated on past calls. And so we're not forecasting any change in that as we look ahead. One of the things we are trying to do through the conversations that we're having with our Enterprise partners is really make sure that we're very responsive to their needs. And so one of the things that we heard consistently from Enterprise partners was the need to have an offering that is more tightly attuned to the challenges they are seeing in their workforce. And so they all face a need to upskill and reskill their workforce given how much AI is changing the roles across their companies. And so we launched Skills Tracks at Coursera Connect. I mentioned that in the scripted remarks as well. That's a curated set of offerings. We launched with 4 different areas: data, IT, GenAI and software and product development. Those each encompass a whole host of job families and roles within those job families. And the goal is to give Enterprise the ability to create tailored learning paths for specific roles they have at specific levels that give their employees in those roles and at those levels, the right skills to adapt to how technology is changing their work that they do every day. And it measures impact and the ROI. And so we're rolling out verified credentials for those skills paths, and we'll continue to expand both the number of Skills Tracks that we offer as well as the verified credentials that go with them. And that's something that it's still early days, obviously, because we just launched this at Connect in September, but we've seen a very positive response in our conversations with our Enterprise partners. And I'm also very excited just to add on to have Anthony on board, Anthony Salcito, our new Enterprise GM, his experience at Microsoft, leading their worldwide education business in 2 decades doing that brings a wealth of expertise and highly relevant skills. He also has an energy and a strategic vision for where we can go that is incredibly exciting. So I'm really looking forward to seeing what he delivers in the business. Obviously, it will take time for that to take effect just because of the nature of an Enterprise business model, but very excited to have him on board as well. Operator: Our next question comes from Ryan MacDonald Ryan with Needham. Ryan MacDonald: Ken, best of luck. It was great working with you. Greg, maybe to start on the fourth quarter implied EBITDA guidance for margin. Can you just talk about sort of the key areas where you're investing here? And then -- and how maybe investors should think about sort of the framework between balance of growth and margin expansion, what that looks like heading towards '26 without giving guidance? Is there still an intent to sort of expand EBITDA margins while trying to grow? Or is fourth quarter of '25 more indicative of how we should think about sort of the margin profile heading into '26? Gregory Hart: So first of all, we've had for a number of years, a framework of providing an annual EBITDA margin guide. And the rationale behind that is we want to make sure that we're demonstrating both revenue growth and operating leverage every year year-over-year. So improvement on both of those things. The annual framework gives us flexibility to invest as the year progresses in the things that we think are going to be most effective at delivering against those 2 things. And so that's no different for our full year guide for this year as well. The key things that we are going to focus on within Q4 that will help drive growth, not just in Q4, but also next year and beyond are, first of all, continued investment in marketing efficiency and ad spend where we see an opportunity to do that, also experimenting with new channels. And so one of the reasons that we fund sales and marketing in Q4 is because that will then translate into revenue that persists into the following year. Second, continued investment in product. And so Patrick Supanc, our Chief Product Officer, who joined in the summer, is certainly still coming up to speed. Q3 was one of the largest quarters for launches of new features that Coursera has had in its history. We're really excited. Still early days on many of those features, but we're really excited directionally by the metrics that we're seeing those features deliver for us. And so we're going to continue to invest in that area as well. And so those are a few of the things that we're doing. But over the long term, just to circle back on that piece of your question, our goal is to continue to provide annual revenue growth and annual EBITDA margin leverage. Ryan MacDonald: I appreciate the clarification there, Greg. Maybe on just sort of the broader sort of AI upskilling, reskilling initiatives. Just curious to get your comment on the news from a couple of months ago about Google and Microsoft committing, I think, a combined $5 billion plus on sort of AI skills gap closures and sort of skilling initiatives with AI. Given both companies are Coursera partners, is there a role for Coursera to play in these initiatives? Can either company sort of route learners to the platform or sponsor learners to be trained sort of on their content through the Coursera platform? Or is this sort of completely separate from the existing relationships you have there? Gregory Hart: So Google obviously does route learners to Coursera for learning on a very regular basis. Our partnership with Google goes back many years. They're a very important partner for us. Microsoft also is an important content partner for us. I think it's still early days for both of those specific initiatives that you mentioned that they announced a little bit ago. We obviously are in ongoing dialogue with both of them on continuing to strengthen the partnership and look at ways that we can add value to the things that they're trying to accomplish and vice versa. I think that one of the benefits that Coursera offers is in addition to just content on GenAI, there's obviously a huge range of content beyond just general AI learning. Certainly, there's things that are specific about how GenAI can be applied to a given type of role, GenAI for finance, as an example, et cetera, but also a much broader catalog of learning in a whole host of other areas. And so we believe that's a benefit that we can bring to any one of those partnerships or future efforts that develop. Operator: Our next question comes from Rishi Jaluria from RBC. Rishi Jaluria: Nice to see continued momentum in the business. And Ken, let me echo my colleagues. It's been an absolute pleasure working with you since IPO over the years through all these earnings calls, Analyst Days, you name it. So wishing you the best for the next chapter. And again, really appreciate the partnership. Maybe I wanted to ask 2 AI questions. First, I want to go back to the OpenAI and Anthropic partnerships. I understand it's early new. You talked about kind of some of them as being pipeline generation. And you have these 1,000 AI courses on Coursera today, which is great to see that sort of growth. Over time, can these partnerships and other future contemplated ones, right, whether it's Google AI or other AI native companies, where there's not only those courses and for those tools in there, but also the opportunity for there to be actual certifications, right, whether it's an Anthropic certification or an OpenAI certification. And maybe the newly announced Anthropic course is exactly that. It was unclear to me just going through the website. But maybe just walk us through what does that opportunity look like to create these AI certifications attached to courses similar to what you had with Google and Facebook and IBM and Salesforce over the years? And then I've got a follow-up. Gregory Hart: I do think that's absolutely an opportunity for us, and that's something that I think is going to be increasingly important on both the Consumer and Enterprise side of our business. We see on the Enterprise side of the business, a need for Enterprises really to ensure that they have verified skills. And so the certificates are a way of ensuring that it's not just taking a course and gaining knowledge but actually gaining mastery of that material in a way that you can demonstrate within a role in the workforce. And so that's one of the reasons that we launched Skills Tracks with the verified credentials that I mentioned a bit ago. We certainly see the world moving in that direction. The importance of being a lifelong learner and continuing to develop new skills as the world around all of those changes at an increasingly rapid pace is unbelievably important. And that's where those certificates are really critical about demonstrating that it's not just that you've taken a course, but that, again, you have demonstrated mastery that you can apply in the real world. We certainly see that happening in the future with a number of our partners. We're in active conversations to do exactly that. And I would not be surprised at all to see that happen within the AI space as well. Rishi Jaluria: And then you alluded to this in the prepared remarks talking about leaning more into AI search. And obviously, it's a huge debate that we're having in software and internet of just the shift from traditional SEO to AI search and it's obviously caused a lot of controversy out there. Can you talk a little bit more specifically about some of the early signs of success that you're seeing in that shift? And how you intend to invest and measure success there? Because look, I understand even if overall raw traffic to the Coursera website is down, having -- you go to ChatGPT and you say, I need courses for advancing my career and Coursera is going to be the #1 within explanation versus going to Google and you have to sort through a bunch of different similar sounding things before realizing Coursera is the best option. So the industrial logic makes sense to me. But maybe can you just walk us through what you've seen so far and how you expect to invest against that opportunity and measure success there? Gregory Hart: Yes, great question. Obviously, search is fundamentally changing, as you just referenced. It used to be that people would do a web search and then they get a list of links, and they would click on one, see if it was a fit, go back to the search, click on the next, et cetera. And so you sort of pogo it in and out potentially. Now with LLMs, both ChatGPT and others, you can get much richer information right up front. And so we're incredibly excited about the integration into OpenAI because we get a chance to learn along the way as user behavior continues to evolve. I would imagine that over time, that integration, both for Coursera and for the other partners that ChatGPT has in their launch set of 7 will continue to improve. It will become more contextually aware. It will become better for the user, and it will become better also for the partner because they'll do a better job of identifying through the context of what the user has prompted ChatGPT on when to route them through to Coursera. You'll get more highly qualified traffic as a result of doing that. I also think that people will get more familiar with, for example, the Coursera integration, the video will come up, you can start playing the video, but then you can really assess by asking ChatGPT questions that will then basically query our -- the information we provide on that course to get more information upfront. Is it the right fit? Is it not the right fit? You can come through Coursera; you can enroll in that, or you can obviously look at other courses that might be a better fit. And so one of the things that we are investing a lot in is continuing to evolve our course detail pages to make sure that they do as good a job as possible at arming the user with education, the learner, the prospective learner with information they can use to decide if it's the right course for their goals. It's also why we're investing in onboarding and making sure that we do a good job at the start of that learner journey on Coursera and gathering information from the learner that we can use to help guide them to the best content for them, which is generally what is the career goal you're trying to accomplish. We just did our learner outcomes report, 86% of learners come to Coursera to advance their career. And so the more that we can know about what that career is, what job they're in and what their goals are, the better we can map them to the right content and start them on what is hopefully a very successful learning path for them. Operator: Our next question comes from Taylor McGinnis with UBS. Claire Gerdes: This is Claire Gerdes on for Taylor. I just wanted to ask on the 4Q revenue guide. You mentioned a couple of things before that might affect that with seasonality, but it does imply like a sequential decline and a further decel year-over-year. So can you just unpack the moving pieces there? As we think about heading into fiscal '26, just any thoughts you can provide on trends that you're seeing that we should keep in mind as we look into next year? Gregory Hart: Well, we'll provide our formal 2026 guide on the Q4 call in February after we've gone through the remainder of the year and completed our full planning process. In terms of Q4 itself, one of the things that you saw in Q3 was Consumer growth of 13% year-over-year and Enterprise growth of 6% year-over-year. So the businesses in Q3 performed a little different than they had in Q2 when both of them grew at 10% year-over-year. Our expectation on Enterprise remains muted. It has not changed from what we've communicated over the past few quarters, given the uncertain spending environment within business. We are seeing some bright spots in parts of the Enterprise business. But overall, our expectations are unchanged. And then on the Consumer side, we have a lot of visibility into that, given by the fact that we now have more than 50% of our Consumer segment revenue that's coming through Coursera Plus, so that gives us a lot of visibility into what that will be in Q4. And then we continue to invest in marketing where we see opportunity to do so efficiently to drive a really good return on that investment and to drive revenue growth. And so those are some of the things that are behind the Q4 guide overall, raising the guidance to $750 million to $754 million for full year, growth of 8% to 9% year-over-year. And again, I'd reiterate, when we gave that guidance for the full year for the first time on our April call, we expected $720 million to $730 million of revenue, 4% year-over-year. So we're taking that up from 4% year-over-year growth to 8% to 9% year-over-year growth. Operator: We'll take our next question from Nafeesa Gupta with Bank of America. Nafeesa Gupta: My question is on the Coursera Plus doing really well. It's been growing consistently, and you've been talking about it for the past couple of quarters. What do you think has led to this uptick in Consumer subscription increase in paid subscription conversion? I know you're doing a couple of things on pricing, product updates, but what do you think is driving this mostly? Gregory Hart: I think it's a combination of factors. One, I think on the Consumer side, there's obviously clear demand for educating and learning how to adapt in the world of AI, and we see that reflected in the incredible pace of enrollments for GenAI-related content, 14 per minute, as I mentioned earlier, which is up from 8 per minute last year. Our GenAI catalog has doubled in size from 500 to 1,000 courses. We now have more than 10 million enrollments in GenAI content on Coursera. Second, I would say, is the overall improvement in both our marketing and our focus on our Consumer business. And so one of the things that I observed when I joined Coursera was a real opportunity to get sharper on our funnel and do that in every stage of that funnel and through how we adapt our product experience to do a better job of taking learners through that funnel from prospect to paid learner. And so you're seeing some of that play out in some of the things that we launched during Q3. You mentioned some of the pricing changes that we made. That's one reflection of that. We also have updated and really evolved our approach to our homepage, and we're starting to do that across other parts of the site as well. You should expect to see an ongoing cadence of things like that play out on the site as Patrick and the team continue to move at a faster and faster pace. Product innovation was one of the main priorities that I had when I joined moving at a faster pace to innovate the product. I think you're starting to see some of the early green shoots of that, but that's something we're going to keep focused on. And I also think, frankly, one of the things that you see reflected in the Coursera Plus now representing more than 50% of our Consumer segment revenue is that we have an unbelievably rich catalog of content that represents an incredibly compelling value for somebody. We now have more than 12,000 courses and across all kinds of different domains, not just GenAI certainly, but of course, a broad range of tech, we've got health care-related material, finance, business, marketing, et cetera. And so it's a phenomenal deal. And so I think that's one of the other things that consumers are increasingly recognizing. And I think in international markets, we made that deal much more accessible through the pricing change that we made. And so I think those are a few of the things that are driving the momentum we're seeing in the Consumer business. Operator: We'll take our final question from Ryan Griffin with BMO Capital Markets. Ryan Griffin: This is Ryan on for Jeff Silber. Just wondering if any changes to the sales motion that you can speak to on the Enterprise segment. I know that the last few years have been plagued by a challenging macro, but wondering if you're thinking about anything differently, whether that's the pricing or your go-to-market strategy? Gregory Hart: Apologies, but we -- for whatever reason on our end, we could not hear you on that question. Cam Carey: Ryan, would you mind repeating that one? Ryan Griffin: Yes. Sorry about that. Can you hear me now? Cam Carey: Yes, we can. Yes, that's better. Thank you. Ryan Griffin: I was just wondering if there's any changes to the sales motion that you can speak to on Enterprise. I know the last few years have been flagged by a tough macro, but wondering if you're thinking about anything differently, whether that's the pricing in Enterprise or just your go-to-market strategy. Gregory Hart: Well, I'm sure that as Anthony -- he's in only his third week here. As Anthony gets up to speed, I'm sure he will have a number of recommendations on how to evolve our overall go-to-market, pricing, packaging, et cetera. One thing that I would mention is that Skills Tracks is not just a curated catalog offering, it is for new SKUs for our Enterprise partners with their own pricing, of course. And so we built Skills Tracks based on direct feedback that we had received from our Enterprise partners on the need to have more curated offerings, not just an entire catalog license. And so they are curated, tailored to very specific areas and to job families within those areas. I would imagine that as Anthony comes up to speed, he will continue to present new ideas for ways that we can help drive stronger growth within the Enterprise business by making it more responsive to the needs of workforces and institutions. And so I would expect continued innovation on product, on packaging, on our go-to-market on all of those things. Cam Carey: Thank you, Ryan, and thank you, everyone. That wraps today's Q&A session. A replay of the webcast will be available shortly on our Investor Relations website. We appreciate you joining us today. Operator: This concludes today's conference call. You may now disconnect.
Operator: Hello, and welcome to the Globe Life Inc. Third Quarter Earnings Release Call. My name is Jeannie, and I will be your coordinator for today's event. Please note, this call is being recorded. [Operator Instructions] I will now hand you over to your host, Stephen Mota, Senior Director of Investor Relations, to begin today's conference. Thank you. Stephen Mota: Thank you. Good morning, everyone. Joining the call today are Frank Svoboda and Matt Darden, our co-Chief Executive Officers; Tom Kalmbach, our Chief Financial Officer; Mike Majors, our Chief Strategy Officer; and Brian Mitchell, our General Counsel. Some of our comments or answers to your questions may contain forward-looking statements that are provided for general guidance purposes only. Accordingly, please refer to our earnings release 2024 10-K and any subsequent Forms 10-Q on file with the SEC. Some of our comments may also contain non-GAAP measures. Please see our earnings release and website for discussion of these terms and reconciliations to GAAP measures. I will now turn the call over to Frank. Frank Svoboda: Thank you, Stephen, and good morning, everyone. In the third quarter, net income was $388 million or $4.73 per share, compared to $303 million or $3.44 per share a year ago. Net operating income for the quarter was $394 million or $4.81 per share, an increase of 38% over the $3.49 per share from a year ago. On a GAAP reported basis, return on equity through September 30 is 21.9% and book value per share of $69.52. Excluding Accumulated Other Comprehensive Income, or AOCI, return on equity at 16.6% and book value per share as of September 30 is $93.63, up 12% from a year ago. Before I discuss the third quarter insurance operations, I would like to revisit the nature of the market we serve. As most of you know, we serve the lower middle to middle income market. This market is vastly underserved and has significant growth potential, providing us with a distinct competitive advantage. This advantage is protected due not only to our ability to efficiently reach this market through both exclusive and direct-to-consumer distribution channels, but also due to the tremendous amount of data and experience we possess as we have been in the same market for over 60 years with essentially the same products. The basic protection life and health insurance products we offer are specifically designed to help provide financial security to consumers in this market. We continue to be proud to serve this market and are grateful for the opportunity to help working families protect their financial future. In our insurance operations, total premium revenue in the third quarter grew 5% over the year ago quarter. For the full year 2025, we expect total premium revenue to grow approximately 5% as well, which is slightly higher than in 2024 and consistent with our 10-year average growth rate. Life premium revenue for the third quarter increased 3% from the year ago quarter to $844 million. Life underwriting margin was $482 million, up 24% from a year ago, driven by premium growth plus remeasurement gains due to good mortality experience, including the updating of both mortality and lapse assumptions. For the full year, we expect life premium revenue to grow between 3% and 3.5%. As a percentage of premium, we anticipate life underwriting margin to be between 44% and 46%. In health insurance, premium revenue grew 9% in the quarter to $387 million and health underwriting margin was up 25% to $108 million due primarily to premium growth and remeasurement gains. For the year, we expect health premium revenue to grow in the range of 8% to 9% and anticipate health underwriting margin as a percent of premium to be between 25% and 27%. Administrative expenses were $90 million for the quarter, an increase of 1% over the third quarter of 2024. As a percent of premium, administrative expenses were 7.3%. For the year, we expect administrative expenses to be approximately 7.3% of premium, the same as in 2024. I will now turn the call over to Matt for his comments on the third quarter marketing operations. James Darden: Thank you, Frank. I'd like to start with a few comments about our exclusive agency force. We currently have over 17,500 exclusive agents that sell only for us. These agents are the strength to grow Globe Life. While we frequently see short-term agent count fluctuations in a stair-step pattern, this agency force has consistently generated significant long-term growth. In fact, the average agent count has nearly doubled over the past 10 years. The ability to maintain and grow an exclusive agency force is a core competency of our company. As a reminder, we typically recruit individuals who haven't previously sold insurance and are looking for a better opportunity. This provides us with an enormous pool of potential recruits that provides a tremendous growth opportunity going forward. As we have mentioned in the past, there is a very close correlation between sales growth and agent count growth over the long term. And we are confident that our agent force will continue to grow, and our goal is to surpass 28,000 exclusive agents and $1.4 billion in annual sales by 2030. Now I'll discuss each distribution channel. First, let's start with our exclusive agencies, American Income, Liberty National and Family Heritage. At American Income, the life premiums were up 5% over the year ago quarter to $451 million. And the life underwriting margin was up 18% to $261 million. In the third quarter of 2025, net life sales were $97 million, flat compared to a year ago. But as a reminder, we had a difficult comparable this quarter as American Income had a 19% increase in life sales in the year ago quarter. The average producing agent count for the third quarter was 12,230 up 2% from a year ago. We are currently focused on initiatives to enhance our recruiting as growth in agent count will lead to future sales growth. At Liberty National, the life premiums were up 5% over the year ago quarter to $98 million, and the life underwriting margin was up 57% to $70 million. Net life sales were $24 million, flat from the year ago quarter, and net health sales were $8 million, up 4% from the year ago quarter. Average producing agent count for the third quarter was 3,847, up 1% from a year ago. We have a few initiatives underway that we expect to have a near-term positive impact. We have developed a new worksite enrollment platform designed to improve agent productivity and training. In addition, we are in the process of rolling out a new recruiting CRM, which will further enable the use of data and analytics to enhance the recruiting process. I continue to be optimistic about the future growth of this agency. At Family Heritage, the health premiums increased 10% over the year ago quarter to $119 million, and the health underwriting margin increased 49% to $51 million. Net health sales were up 13% to $33 million, and this is due to an increase in agent count and productivity. The average producing agent count for the third quarter was 1,553, up 9% from a year ago. And this is 5 consecutive quarters of strong agent count growth for family heritage. The continued focus of the past few years on recruiting and growing agency middle management has produced significant momentum and results. Now let's move on to our direct-to-consumer channel. In our DTC division of Globe Life, the life premiums were down 1% over the year ago quarter to $245 million while the life underwriting margin increased 29% to $114 million. While the life premiums were down slightly this quarter, net life sales were $27 million, up 13% from the year ago quarter. I'm very pleased to see this continued sales turnaround from the declining trend of recent years. As we mentioned on our last call, we have implemented new technology to enhance our underwriting process. This technology is helping improve the conversion of customer inquiries into sales. Now as a reminder, the value of our direct-to-consumer business is not only those sales directly attributable to this channel, but the significant support that is provided to our agency business through brand impressions and sales leads. We expect this division to generate approximately 1 million leads during 2025, which will be provided to our 3 exclusive agencies. Improved conversion of our direct-to-consumer leads across the enterprise allows us to increase our marketing spend and increase direct-to-consumer lead volume and marketing campaigns, which leads to sales growth in both our DTC and agency channels. United American is our General Agency division, and here, the health premiums increased 14% over the year ago quarter to $170 million, driven by the sales growth and Medicare supplement rate increases we have discussed previously. Health underwriting margin was $16 million, up $2 million from the year ago quarter. Strong activity across the entire agency resulted in net health sales of $25 million, an increase of approximately $9 million over the year ago quarter. Now I'd like to discuss projections. And based on the trends we are seeing, we expect the average producing agent count trends for the full year 2025 to be as follows: at American Income, an increase of around 2%, at Liberty National, an increase of around 4% and Family Heritage, an increase of around 8%. Net life sales for the full year 2025 are expected to be as follows: American Income, an increase of around 3%, Liberty National, an increase of around 1% and direct-to-consumer, an increase of around 4%. Net health sales for the full year 2025 are expected to be as follows: Liberty National, flat; Family Heritage, an increase of around 13%, United American, an increase of around 50%. Now let's move on to projections for 2026. And at the midpoint of our guidance, we expect sales growth for the full year to be as follows. For net life sales, we expect American Income to have mid-single-digit growth, Liberty National high single-digit growth; direct-to-consumer, low single-digit growth. For net health sales, we expect Liberty National to have high single-digit growth; Family Heritage, low double-digit growth; and United American mid-single-digit growth. I'll now turn the call back to Frank. Frank Svoboda: Thanks, Matt. We will now turn to investment operations. Excess investment income, which we define as net investment income less only required interest was $37 million, down approximately $3 million from the year ago quarter. Net investment income was $286 million in the quarter, slightly above last year's third quarter. The low growth of net investment income is consistent with the low growth in average invested assets. Required interest is up approximately 1% over the year ago quarter, relatively consistent with the growth in average policy liabilities. As a reminder, the growth in average invested assets and average policy liabilities is lower than normal, primarily due to the impact of the annuity reinsurance transaction in the fourth quarter of last year, which involved approximately $460 million of annuity reserves being transferred to a third party along with supporting invested assets. Net investment income was also negatively impacted in the current quarter by lower average earned yield as compared to a year ago. For the full year 2025, we expect net investment income to be flat and required interest to grow around 2%, resulting in a decline in excess investment income of around 10% to 15% for the year. The growth in average invested assets for the full year is lower than normal due to the impact of the previously mentioned annuity reinsurance transaction as well as higher dividend distributions from the insurance companies to the parent. Now regarding our investment yield. In the third quarter, we invested $279 million in fixed maturities, primarily in the municipal and industrial sectors. These investments were at an average yield of 6.33%, an average rating of A+ and an average life of 29 years. We also invested approximately $86 million in commercial mortgage loans and limited partnerships with debt-like characteristics and an average expected cash return of approximately 9%. None of our direct investments in commercial mortgage loans involve office properties. These non-fixed maturity investments are expected to produce additional cash yield over our fixed maturity investments while still being in line with our conservative investment philosophy. For the entire fixed maturity portfolio, the third quarter yield was 5.26%, up 1 basis point from the third quarter of 2024. As of September 30, the fixed maturity portfolio yield was 5.28%. Including the investment income from our commercial mortgage loans, limited partnerships and corporate owned life insurance investments, the third quarter earned yield was 5.46%. While we do own some floating rate investments, they are well matched with floating rate liabilities on the balance sheet. Now regarding the investment portfolio. Invested assets are $21.5 billion, including $18.9 billion of fixed maturities and amortized cost. Of the fixed maturities, $18.5 billion are investment grade with an average rating of A-. Overall, the total fixed maturity portfolio is rated A-, same as a year ago. Our fixed maturity investment portfolio has a net unrealized loss position of $1.1 billion due to the current market rates being higher than the book yield on our holdings. As we have historically noted, we are not concerned by the unrealized loss position and it is mostly interest rate driven internally relates entirely to bonds with maturities that extend beyond 10 years. We have the intent and, more importantly, the ability to hold our investments to maturity. Bonds rated BBB comprised 43% of the fixed maturity portfolio compared to 46% from the year ago quarter. This percentage is at its lowest level since 2003. As we have discussed on prior calls, we believe the BBB securities we acquire generally provide the best risk-adjusted, capital-adjusted returns due in part to our ability to hold securities to maturity regardless of fluctuations in interest rates or equity markets. While the percent of our invested assets comprised of BBB bonds might be a little higher than some of our peers, remember that we have little or no exposure to other high-risk assets such as derivatives, equities, residential mortgages, CLOs and other asset-backed securities. Below investment-grade bonds remain at historical lows at $455 million compared to $556 million a year ago. The percentage of below investment grade bonds to total fixed maturities is just 2.4%, are below investment-grade bonds as a percent of equity, excluding AOCI, are at their lowest level in over 30 years. While there is uncertainty as to where the U.S. economy is headed, we are well positioned to withstand a significant economic downturn due to holding historically low percentages of invested assets in BBB and below investment-grade bonds. In addition, due to the long duration of our fixed policy liabilities, we invest in long-dated assets. As such, a critical and foundational part of our investment philosophy is to invest in entities that can survive through multiple economic cycles. In addition, we have very strong underwriting profits and long-dated liabilities so we will not be forced to sell bonds in order to pay claims. With respect to our anticipated investment acquisitions for the full year 2025, at the midpoint of our full year guidance, we assume investment of approximately $800 million to $850 million in fixed maturities at an average yield of around 6.4%. And approximately $300 million to $400 million in commercial mortgage loans and limited partnership investments with debt-like characteristics and an average expected cash return of 7% to 9%. Also at the midpoint of our guidance, we expect the average yield earned on the fixed maturity portfolio to be around 5.27% for the full year 2025 and approximately 5.29% for the full year 2026. With respect to our commercial loans, limited partnerships and corporate-owned life insurance, we anticipate the yield impacting net investment income to be in the range of 7% to 8% for 2025 and 2026. In total, including these additional investments, we anticipate the blended earned yield to be approximately 5.45% in 2025 and in the range of 5.4% to 5.5% in 2026. Now I'll turn the call over to Tom for his comments on capital and liquidity. Thomas Gallagher: Thanks, Frank. First, I'll spend a few minutes discussing our available liquidity, share repurchase program and capital position. The parent began and ended the quarter with liquid assets of approximately $105 million. We anticipate concluding the year with liquid assets in the range of $50 million to $60 million. In the third quarter, the company repurchased approximately 840,000 shares of Globe Life Inc. common stock for a total cost of approximately $113 million at an average share price of $134.17. Including shareholder dividend payments of $22 million for the quarter, the company returned approximately $135 million to shareholders during the third quarter and approximately $580 million year-to-date. We expect share repurchases will be approximately $170 million and anticipate distributing approximately $20 million to our shareholders in the form of dividend payments in the fourth quarter. For the fourth quarter, share repurchases are higher than previously anticipated as we recently received approval for an extraordinary dividend from one of our subsidiaries, which will be -- which we anticipate will be available to support additional share repurchases by the parent. At the midpoint of our guidance, we anticipate share repurchases will total $685 million in 2025. In addition, we intend to distribute approximately $85 million to our shareholders in the form of dividends. We will continue to use our cash as efficiently as possible. We still believe that share repurchases provide the best return of yield to our shareholders over other available alternatives. Thus, we anticipate share repurchases will continue to be the primary use of the parent's excess cash flow after payment of shareholder dividends. The parent company's excess cash flow, as we define it, results primarily from the dividends received by the parent from its subsidiaries, less the interest paid on debt and is available to return to its shareholders in the form of dividends and through share repurchases. We continue to invest in our growth through investments in sales, technology, and the insurance operations. It should be noted that the cash received by the parent company from our insurance operations is after our subsidiaries have made substantial investments during the year to issue new insurance policies, implement new technologies, enhance operational capabilities, and modernize existing information technology as well as to acquire new long-duration assets to fund their future cash needs. Financial strength is paramount to our company's success, and we believe the $500 million contingent capital funding arrangement established early in this quarter, will add to our already strong capital generation capabilities that exist within our insurance companies. Now with regard to capital levels at our insurance subsidiaries. Our goal is to maintain capital within our insurance operations at levels necessary to support our current ratings. To do that, Globe Life targets a consolidated company action level RBC ratio in the range of 300% to 320%. Although the target range is lower than many of our peers, it is appropriate given the stable premium revenue from the large number of in-force policies, the nature of our protection products with benefits that are not sensitive to interest rates or equity markets. Our conservative investment portfolio and strong consistent underwriting margins, which result in consistent statutory earnings at our insurance companies. As we do every quarter, we performed stress tests on our investment portfolio under multiple economic scenarios, anticipating various levels of downgrades and defaults. If all estimated losses under our stress tests were to occur before year-end, which we believe is highly unlikely, we have concluded that we have sufficient capital resources exist within our subsidiaries and the parent to maintain our target RBC range and our share repurchases as planned. For 2025, we intend to maintain our consolidated RBC within the target range of 300% to 320%. As previously discussed, we continue to progress towards establishing a Bermuda reinsurance affiliate for the purpose of reinsuring a portion of new business and in-force life insurance policies issued by Globe Life affiliates. We currently estimate parent excess cash flow will increase from incremental earnings from our U.S. and Bermuda subsidiaries over time as the reinsurance block grows. This additional excess cash flow will enhance the financial strength of the company and provide additional flexibility, allowing the company to meet various capital and liquidity needs of the parent. We continue to make progress on the required regulatory filings and subject to approvals, we anticipate executing the first reinsurance transaction by the end of 2025, and we will provide an additional update on our next call. Now with respect to policy obligations for the current quarter. Each year, GAAP accounting requires us to review and generally update actuarial assumptions for mortality, morbidity and lapses. We have chosen to review and update as necessary both our life and health reserve assumptions in the third quarter each year. The remeasurement exhibit included in our supplemental financial information available on our website includes the impact of these assumption changes as well as experience related remeasurement gains and losses by distribution channel. When assumption changes are made, GAAP accounting standards require a cumulative catch-up adjustment going back to January 1, 2021, the transition date for LDTI. This cumulative catch-up is the assumption related remeasurement gain or loss. An assumption remeasurement gain lowers the reserve balances and indicates an improved outlook as less premium is needed to fund reserves to meet future policy obligations. The opposite is true if there is an assumption to remeasurement loss. For the quarter, the overall impact of both life and health assumption changes reduced policy obligations by $134 million, with life obligations reduced by $131 million and health obligations reduced by approximately $3 million, indicating an anticipation of an improved outlook for future policy obligations. To put this into perspective, total GAAP life and health reserves on our balance sheet are approximately $19 billion, so the adjustment to reserves is less than 1%. To better understand the performance of the business, we think it is beneficial to look at normalized underwriting margins, which exclude the impact of assumption changes and provide an improved basis for comparison of quarterly results. For the third quarter, normalized life underwriting margin as a percent of premium was 41.5% compared with 40.4% for the year ago quarter, which is a notable improvement and reflects recent favorable mortality experience. Normalized health margin as a percent of premium was 27.2% compared with 27.5% for the year ago quarter. For the Health segment, as expected, health margins as a percent of premium continued to increase from the first half of the year. This is largely driven by margin increases from the Medicare supplement business as 2025 premium rate changes became fully effective. So now with respect to guidance for 2025. For the full year 2025, we estimate net operating earnings per diluted share will be in the range of $14.40 to $14.60, representing 17% growth at the midpoint of our range and 11% growth when excluding the impact from assumption updates in both '24 and '25. The midpoint is higher than our previous guidance due to the anticipation of continued favorable mortality experience. Finally, with respect to 2026 guidance. For the full year 2026, we estimate net operating earnings per diluted share will be in the range of $14.60 to $15.30 representing 3% growth at the midpoint of the range. The growth rate is lower than historical averages given the significant impact of the assumption updates in 2025. At the midpoint of our guidance, we anticipate total premium revenue growth of 6% to 7%, with life premium revenue growth growing 4% to 5% and health premium revenue growing 9% to 11%. We anticipate underwriting margins as a percent of premium to be in the range of 40% to 43% for life and 24% to 27% for health. We anticipate net investment income growth will be approximately 3%. Although 2025 statutory results are not final for the year, we anticipate parent excess cash flows available to return to shareholders through both dividends and share repurchases in 2026 will be approximately $600 million to $700 million. This is greater than the amount available in 2025, excluding the impact of extraordinary dividends. On the next call, I'll provide an update as we get updated statutory results for 2025 and after we finalized the initial reinsurance transactions for the new Bermuda subsidiary. Those are my comments, and now I'll turn it back to Matt. James Darden: Thank you, Tom. Those are our comments, and we will now open the call up for questions. Operator: [Operator Instructions] We will take our first call from Jack Matten of BMO Capital Markets. Francis Matten: First question was just on the life sales growth of the exclusive agencies. I'm just wondering, is there anything you're seeing or hearing from customers that's driving more muted sales growth in recent quarters? Or is the challenge really around agent productivity given that you currently have a higher mix of newer agents? And I guess looking forward, what gives you confidence that life sales growth can reaccelerate in the coming quarters? James Darden: Yes. Thanks, Jack, for the question. It's not anything we're hearing from a consumer perspective as we talk with our agency owners. We're actually seeing an improvement in the premium on a per sale basis. And so we're not seeing any demand weakening from a consumer perspective. It really does get back to that agent count growth. And what I'd point to is usually followed years that follow significant growth years, we do temper the growth a little bit as we get those new agents onboarded. Start producing, and then they start moving into the middle management ranks. And then the middle managers out there in the field are responsible for a lot of the recruiting, training and onboarding. And so as I've mentioned before, one of the things we look at is just our whole recruiting pipeline. What we're talking about on the call on our agent count is those agents that are actually up and producing for us. But we look at what the agents are in the pipeline coming in as they get onboarded and licensed and trained, et cetera. And so our hires for AIL are actually up this quarter by 17%. And so this is individuals that have started into the process. They're in the process of taking exams, getting their licenses and then they move forward into training and selling their first policy. And so it's a good leading indicator for us. And so some of those trends are what we're seeing that gives us the confidence that 2026 will have a higher agent count growth, which bodes well for sales growth for 2026 as well as we've looked at some of our incentive programs and just getting our middle management focused on growing the agent count by recruiting activities and onboarding also plays into our consideration for our sales growth guide. Francis Matten: And my follow-up on excess cash flow. I think you said that the guidance for next year is $600 million to $700 million. I mean, does that include any assumption or any incorporation of a benefit from the Bermuda entity? And I guess [indiscernible] you called out, I think, an extraordinary dividend this quarter. Any other updates you can or color you can provide on that? I think it looks like you sort of the buyback guide for the full year by $50 million or $60 million. So just make sure I have the numbers right there. Thomas Gallagher: Yes. Thanks, Jack. The $600 million to $700 million does not include any benefit from the Bermuda affiliate. We -- it takes at least 2 accounting periods. The rules require 2 accounting periods for reciprocal jurisdictions. So we think the earliest time at this point would be 2027. And as I mentioned on prior calls, we'll try -- we'll work with and try to get reciprocal jurisdiction earlier, but it's just really not up to us. It's really up to the regulators to accept reciprocal jurisdiction status. Operator: Our next question comes from the line of Andrew Kligerman of TD Cowen. Andrew Kligerman: First question, just kind of following up on Jack's about the sales growth outlook and the recruiting outlook. You mentioned, Matt, on the -- in the comments earlier that you've got a newer worksite enrollment platform, a new recruiting CRM with different kinds of data and analytics, Those 2 things, they sound very interesting. Could you elaborate a little bit more on that and how they work and why they're different and why they'll have an impact? James Darden: Sure. So Liberty, as you may recall, about 75% of our business is marketed at work sites for those smaller employers. And we've rolled out -- or we're in the process of rolling out technology that's a new enrollment platform, and it really takes some of the lessons that we've learned in our processes on our individual sales and it really where an agent sits down with the client and really goes through and you've heard us talk about a needs-based analysis. And so on the worksite side, put some more tools in the hands of our agents where they sit down with the customer, go through their needs and help customize a package appropriate for them of the various different coverages and types of policies. And as I said, we're early on and rolling that out, but on the first few agencies that we've rolled that out, we've seen significant increase in premium production on a per worksite basis as well as just a per sale basis. And it exceeds 20-plus percent on the increase there. And so we anticipate as that gets rolled out across the entire agency, which will take into the beginning of next year, that's really going to be a tailwind for our worksite sales growth there. And then the recruiting CRM system, right now, a lot of our agencies are tracking that manually with spreadsheets and those type of things. And so just like a sales CRM system, the recruiting CRM system is going to have all of that data in one place to be able to for our agency owners and those middle managers to be able to have the data and the analytics they need to really understand their recruiting pipeline, much more on a real-time basis so they can see what's happening during the week as people start listening to our opportunity, come back for the different interviews, get through the various phases of taking the test, getting licensed and ultimately producing. And so what we've seen with some of our agencies that utilize more of a system that they've developed on their own, it's definitely an improvement for them to be able to manage all of that activity. And so we're designing a system that will be enterprise-wide, roll that out to the organization. And it will just give us a more real-time view into the recruiting pipeline and being able to manage the various conversion points that happen throughout the life cycle of a new person coming into the organization and getting up and producing. Andrew Kligerman: Sounds very impactful. And then my follow-up is still on the sales area, direct-to-consumer. And I think the stats you mentioned on the call were that while sales in direct-to-consumer were up 13%, premiums were down 1%. I'm kind of curious maybe a mesh of a question here. I'm kind of curious as to the policy retention ratio in direct-to-consumer? And then secondly, you mentioned low single-digit sales in direct-to-consumer next year. Is that just because you're going to -- you're having a really good second half of 2025 that you don't want to get too aggressive? James Darden: Yes. Let me address your first part of that question. Related to -- if you think about it, we've got a big in-force block. And so we've been discussing sales declines for quite some time over the last couple of years. And so those sales declines are hitting that our premium growth rate. And so we've only had 2 quarters now of positive sales growth, and it's been very strong and we anticipate that continuing. So the premium earnings are going to turn around as we continue to have positive sales growth. But that's just kind of the dynamic you're looking at from this quarter's perspective. And so we're very pleased. As we mentioned, this is technology and processes we've been working on for quite some time. They're coming to market here in Q2 and Q3, we're seeing the results. And so we're -- we've got very strong results here. And so we're just kind of cautiously optimistic is we're, at this point, before we see what fourth quarter looks like as we think about next year. And so I'd just say that's a good estimate right now based on what we're seeing early days. We'll certainly modify that as we have Q4 experience. But obviously, we've got a pretty good lift here in the last half of this year. And so we just want to be a little bit cautious about what we think at this early stage for 2026. Frank Svoboda: Andrew, one thing I'd just like to tack on to that is really the decline in the premium growth rate here that we're seeing in 2025 really has more to do with those -- the declining sales that we've been seeing here in the recent periods. Really, if you look at the lapse rates for DTC overall, they're pretty consistent with our long-term averages. We've actually seen very good lapse rates, favorable lapse rates, if you will, in our renewal. Once the policies have been on the books here for several years, really seeing with our renewal premium, seeing a little bit higher in some of the first year here the last few quarters. But again, it's really stabilized when you look at it overall, it's pretty consistent with our long-term rates. And then I think with -- as we're getting a little bit of that ability, as Matt was talking about, reinvesting some of those dollars and improving those sales, we really do anticipate some growth in premium -- overall premium income in 2026. And then assuming that, that continues on with growth in that low to mid-single digits on the sales side, then that will help to bring up the premium growth then as well. Operator: Our next call comes from Jimmy Bhullar of JPMorgan. Jamminder Bhullar: I had a couple of questions. Maybe first just on your 2025 guidance. If we look at what that's implying for EPS in 4Q, it seems like it's $3.25 to $3.45. So that's a lower number than you've had in the most recent quarter even at the high end, if you take out the remeasurement gain. So wondering if you're seeing anything in the business that suggests you to be conservative? Or just any color on sort of the guidance -- the implied guidance for 4Q? Thomas Kalmbach: Thanks, Jimmy, for the question. Yes, the $0.05 raise reflects the favorable third quarter results and anticipated fourth quarter results. One thing I'd say is third quarter, we benefited a little bit from timing on a couple of items. So for instance, we had a research and development tax credit that came through in the third quarter that we had planned for the full year, but just the timing was favorable to us. The other thing is that really mortality experience was really very favorable in the third quarter. And you kind of can see that from -- we expected remeasurement gains, but the remeasurement gain for life, excluding assumption updates was $18 million. So that's indicative of a pretty favorable quarter. And we -- to us, it's a fluctuation at this point. We'd like to see that -- we'd love to see that emerge in 2024, but it's not really -- sorry, in the fourth quarter, but it's not really in our guidance for the fourth quarter. And that would -- if it does come through, that would put us, I think, at the higher end of our guidance range. The other thing is health experience was very favorable as well in the third quarter that we really wouldn't expect that to continue in the fourth quarter either for both life and health. Fourth quarter claims tend to tick up a little bit just from a seasonal perspective, where we're starting to get in the flu season for life and then at the end of the year, people start visiting the doctor a little bit more and try to get some of those medical visits in. So we do see a little bit of an uptick oftentimes in the fourth quarter. So those are some of the things impacting kind of our fourth quarter EPS expectations, but I'm glad to see that we also raised the guidance by $0.05 in the midpoint. Jamminder Bhullar: Okay. And then secondly, could you comment on what you're expecting in terms of claims trends and sales in the health business. There's obviously been a lot of concern about margin compression at some of the major medical companies in various products. Your margins had gone down too, but they seem to be recovering. Should we assume that, that continues into 2026 as you implement price hikes? Or -- and then similarly, with a lot of companies indicating that they're going to raise prices on Med Advantage plans do you -- are you seeing that happen? And how is that affecting demand for your Med products? Thomas Kalmbach: I'll start first, Jimmy, on the health trends, we're really pleased with the third quarter with Medicare Supplement and the group retiree health trends. They are favorable to our expectations, which is great. And we've really seen the medical trend -- the claim cost trends really flattened, which is actually a nice sign for us. So we actually have built in the experience that we saw late in the fourth quarter of -- third and fourth quarter of 2024 as well as the experience we've seen in the first half of 2025 into our rate increase requests to regulators, and we really believe that those rate increases will bring us back to target profitability. Again, those get implemented throughout 2026. So in the first quarter, I think it's going to look a little bit more like 2025, but in the second, third and fourth quarter of '26, I think we'd see an increase in margins just because of the rate increases becoming effective then. James Darden: And then, Tom, it's fair to say that recent experiences, we're just kind of seeing trend moderate a little bit. We had some acceleration of that in Q3 and Q4 of last year. Thomas Gallagher: Exactly. Certainly, third quarter trend moderated. James Darden: And then, Jimmy, to answer your second part of your question, yes, we're seeing that related to the Med Advantage, which we don't write. As you know, the market that is providing a tailwind as price increases happen or carriers pull out of the market. It's definitely been a tailwind for us. It's hard to say now what 2026 will look like. That's when we kind of have a moderate growth, considering the significant sales growth that we've had for 2025. And so really, we need to see what happens here over the next quarter or 2. But right now, I do believe it will be a tailwind for us to continue to grow those sales in a profitable way, as Tom mentioned, related to our price actions. But there's a lot of dynamics, as you know, going on in that market. And so things change quite a bit. But currently, I think we're getting some benefit from a lot of that disruption that's going on in the Medicare Advantage space. Operator: Our next call comes from John Barnidge of Piper Sandler. John Barnidge: So my question is around health. The performance and production in the third quarter wasn't really that far off from the level you produced in the fourth quarter of a year ago. And I know there's some seasonality that would typically occur on the fourth quarter, and I understand you updated your sales assumptions. But this is more of a broader question. What are you seeing in the distribution environment, and we all have parents and the baby boomer generation is aging? Is there a portion of this cohort that more and more is in need of your products that will be secular in nature and more extended beyond just what we've seen in recent years? James Darden: Well, like I said, I just kind of go back to the conversation around where to the extent that there is -- Medicare Advantage has been growing for quite some time with just the appeal from a -- I think from a pricing perspective, some of those were offered at very low premiums or if not virtually free. And so I think now with some of what's happening on the profitability side, you see carriers increasing the rates. And so we kind of have a different customer in the Medicare supplement space where people are willing to pay for choice and willing to pay to keep their providers or be able to have the freedom of choice to go to who they want to. And so I think that will always be there for a segment. There's, of course, a segment of the market that was kind of on the bubble that may move back and forth depending on when they sign up of what's appealing at that point. But I think there will always be a place for Medicare Advantage from our product portfolio perspective. Frank Svoboda: Medicare Supplement... James Darden: Medicare Supplement, excuse me. I think there will always be that opportunity for us. It just -- as we've seen over a long period of time, we've been in this business forever. It ebbs and flows just a little bit with what's going on in the overall broader market. So we feel good from a long-term perspective, but just recognize there's going to be short-term disruption as we have pricing and competitive pressures in that marketplace. Thomas Gallagher: I do think there's some demographic characteristics of growing retirement a number of people that are in retirement and those that are retiring over the next few years is also a favorable dynamic that will support continued product sales. John Barnidge: My follow-up question. Shortly after the last call, the DOJ and SEC investigations have concluded. Is the EEOC investigation still ongoing? And what's your visibility into that -- taking care of itself? James Darden: As a reminder, the EEOC findings are not binding. The litigation has to actually be initiated, and there is no pending litigation. So don't really have anything to update from that perspective. It's just -- it's kind of status quo. Frank Svoboda: Yes. And John, I would just remind you that the courts have -- with respect to just the whole independent contractor or employee issue, the courts have addressed this issue in the past several times with regard to AIL sales agents and have always found that they have been appropriately classified. So if there are any lawsuits, we would vigorously defend those. Operator: Our next call comes from Joel Hurwitz of Dowling & Partners. Joel Hurwitz: Tom, on excess cash flow generation, the $600 million to $700 million is above the $500 million to $600 million run rate you mentioned a few quarters ago. I guess, what's the driver of the increase there? And is that level sustainable going forward before factoring in Bermuda benefits? Thomas Kalmbach: Yes. Thanks. I really do believe that it is sustainable. I think it's indicative of the improving trends that we've seen in mortality. To the extent that health margins continue to improve, that will be a tailwind for future years. And I also I think the investment income environment or the investment yield environment on '25 was more favorable than 2024. So as long as that stays consistent, I think we'll also benefit from higher yields going forward. Frank Svoboda: Yes. Then I would just remind you that the $500 million to $600 million range that I think Tom has talked about on prior calls was the amounts available for shareholder repurchase or share repurchases after dividends. And when Tom is talking about the $600 million to $700 million, that is the total excess cash flow. And so if you assume around $80 million, $85 million of dividends, shareholder dividends being paid out of that, that brings you back into the mid-$500 million consistent with what Tom had talked about before. Joel Hurwitz: And then just a follow-up. In terms of the '26 guidance and the margin guidance for life, does that factor in any expectation for remeasurement gains? Frank Svoboda: Yes, thanks. The -- with mortality, we just updated assumptions. As I mentioned, third quarter remeasurement gains, excluding the assumption update impact were very favorable as well, right? So we do expect that the -- our assumptions that our mortality is performing. We're getting mortality results, which are better than our assumptions, and we anticipate that mortality experience to continue into 2026, which we would then expect continued remeasurement gains relative to the assumptions that we just set. And so I think the important thing, I think, to pay attention to is what are the obligation ratios that are emerging. And are those obligation ratios staying similar to what we've seen in the third quarter. And I think that those -- that really is kind of the more -- the thing that I pay attention to more. I think as we see remeasurement gains, if we see continued positive remeasurement gains I think that's a leading indicator that we might have an assumption change. And so I think that's kind of what I would take from looking at remeasurement gains themselves. But the absolute number that I'd pay attention to would be policy obligations and I'd normalize those policy obligations for assumption updates. Operator: Our next call comes from Wes Carmichael of Autonomous Research. Wesley Carmichael: Just wanted to circle back to Bermuda real quick. Just curious, has there been any progress with the BMA or other regulators? And should we expect any change to your expectations on uplift to free cash flow or the timing there? I think you had previously mentioned $200 million and maybe that's in 2027, but I just wanted to see if that still stands? Thomas Kalmbach: Yes. Previous comments were $200 million trending over time. So over time, to $200 million of benefit. We have -- Bermuda has approved our business plan. We have started -- we've established the company. We're going through the licensing process, and we're going through U.S. regulatory approvals for the reinsurance transactions and the transfer of assets to the new entity. So we're in the middle of the approval process. And once we get that, then we can actually execute on that first reinsurance transaction. Frank Svoboda: And John, I would think that we haven't seen anything at this point in time that would really change what we said with respect to amount of timing at this point. I think as we kind of get the final approvals, I think we should be pretty close to being able to really give a little bit more guidance early next year on what that kind of looks like and maybe a little bit more sense of what that timing might be, too. Wesley Carmichael: And second question, I just wanted to come back to your comments on floating rate exposure. I think you mentioned that assets and liabilities are well matched. But how should we think about sensitivity of your NII, if we get additional Fed cuts from here? Frank Svoboda: Yes. I think it's around $1 million that -- for a 1% change in the short-term rates. Thomas Kalmbach: But I also think that there's a -- the geography of the change is -- happens in a few places, which is required interest would also go down a little bit if short-term rates went down. And then we have a floating rate debt as well, which would also go down as well. So we'd see a little bit reduction in financing costs, which is part of one of the offsets. So Frank, your $1 million is really a combination of the 2. Operator: Our next call comes from Ryan Krueger of KBW. Ryan Krueger: I just had a couple of quick ones. Can you give us a couple more details on your 2026 guidance in terms of admin expenses and excess NII growth? Frank Svoboda: Yes, Ryan. I think admin expenses, we still expect to be around 7.3% of premium, so very stable with 2025. So we're pleased with respect to that. And then with respect to net investment income, we probably see being up around 3% and required interest probably being a little bit higher than that, closer to maybe a little bit closer to 4%. Ryan Krueger: And then for the -- I guess, what did you assume for buybacks? I assume it's just the $600 million to $700 million of free cash flow minus the $85 million dividend, but I just wanted to confirm? Thomas Kalmbach: Yes, I think that's a reasonable way of looking at it. Yes. Frank Svoboda: I think that's right. And then it's really, again, fairly well spread out over the course of the year at this point in time with respect to the buybacks. One thing else I would know, Ryan, is as you think about -- bring the conversation around some of the floating rates, we do anticipate that interest or financing costs will be down a little bit next year as compared to 2025. Just given some of the floating rate exposure we have there on the CD balances and our term loan. We do -- we just follow the economist forecast with respect to what the expectations are around those changes in the short-term rates. Operator: Our next call comes from Elyse Greenspan of Wells Fargo. Elyse Greenspan: I guess my first question, given, I guess, your comments around share repurchase as well as, I guess, the plan outlined for next year. It feels like, I guess, M&A is still less likely, but I was just hoping to get some updated thoughts there. Frank Svoboda: Yes. I would say M&A is always in our minds, it's not foremost, if you will, and that we're feel compelled that we have to do on M&A transactions. So we're very comfortable with our ability to grow organically. And so with our baseline as we think about guidance, we anticipate that the excess cash flows would, in fact, be used for share repurchases. Now if an opportunity came along, that provided us a better return and a better answer to our shareholders than using that money for share repurchases then we would clearly divert some of that money and make a good positive acquisition. I think as -- we think about M&A, it's still really being very focused on opportunities that really improve the core of who we are around being able to provide protection-oriented products in the middle and lower middle income markets. And we really like distribution that comes along with that ability. So it's something that we feel that we can come in and help to grow much like the acquisition Family Heritage been over 10 years ago now, but an organization that is really hitting its stride as far as continuing to grow. So we'll also look for opportunities if there are for -- to help us within our operations and to make those operations more efficient, but that becomes from the value proposition there that we'd be looking for. Elyse Greenspan: And then I guess my second question, just given the focus right on agent recruitment, would you expect, I guess, the sales guidance in life to be more back-end weighted? Or I guess, maybe there's some easier comps to start the year. Just if you could kind of help us think about the cadence there? James Darden: Sure. As we've talked about before, it's definitely a momentum game with the agent count being a leading indicator for the sales growth. So early Q4 is good for us. And then as you might imagine, around the holidays and things like that, there's a little bit of slowdown and it picks up back again mid-January and moving forward. So the first quarter of the year definitely has an impact of determining what the entire year looks like. We're seeing some good, as I mentioned, positive momentum from our hires, which is a leading indicator for new agents. And so we've got hires up at 15% at Liberty and 17% up at AIL as compared to a year ago. And so I think that bodes well for where we're at for Q4 and leading into Q1 of next year. But there is typically a quarter or 2 lag, I'll say, between good increase in agent count growth then the sales growth comes as some of those agents get onboarded, producing and get a little bit more experienced. But I do agree with you. You also have to kind of go back and look at -- we're talking about quarter-over-quarter. You got to look at comps from the prior year quarters to kind of really think through that. But right now, as we had indicated, I think Liberty is set up well to have high single-digit growth next year and AIL in that mid-single-digit growth range. Operator: Our next call comes from Suneet Kamath with Jefferies. Suneet Kamath: First question, just in your prepared remarks, you talked about an extraordinary dividend. I was just curious if you could size that. And was that a 2025 event? Or is that something that's going to show up in 2026? Thomas Kalmbach: Yes, it was a 2025 event and it was $80 million. Suneet Kamath: And then I guess on this whole remeasurement mortality thing. I guess the way I think about it, and maybe I'm wrong, is every third quarter, you true-up your assumptions to your best estimates. But if you expect that mortality will still continue to improve or remain favorable, why would that not be in your best estimates at this point? Thomas Kalmbach: I think we just really want to see it emerge quarter-to-quarter before we actually put it into our valuation assumptions. There's been some discussion about do we have a pull forward of deaths from the pandemic. And so we're just patient in making those changes into our overall long-term assumptions. So again, they're long-term assumptions. And so we do see short-term trends that actually influence us in our judgments, but we want to really focus on kind of where we believe the long term is. James Darden: Yes. To me, that's the key. It's very much a long term over the life of the business assumption and we can have differences in the short run that are different from that. And I think Tom, is this a fair assessment is that we're fairly close to kind of pre-pandemic levels from a long-term assumption perspective. But some of our recent experience is actually more favorable than that. So we're reluctant to move it back to a short-term very favorable position at this point. Operator: Our next call comes from Tom Gallagher of Evercore ISI. Thomas Gallagher: First question is the long-term assumption changes that were made in 3Q, how much of a go-forward earnings boost is that -- will that result in, in terms of prospective earnings? Thomas Kalmbach: Yes. I actually -- I reflected those in my comments around normalized underwriting margins that we saw for the quarter. I think that's a good way to kind of think about the go-forward normalized and also just the range that I gave you for underwriting margins in general for each of the life and health. I think that's a reasonable range for where we see life underwriting income coming in or life underwriting margins and health underwriting margins. Frank Svoboda: Yes. So Tom, if you kind of look at it back in for 2024, your normalized margins were closer to a little under 40%. And now we're a little bit closer to 41%. I think Tom noted that maybe 41.5% for Q3 and maybe for the full year, we're closer to 41%. So you see a little bit of that uptick. And that really comes from having the lower policy obligations as a result of that assumption change. Thomas Kalmbach: It's exactly right. I mean in 2023, we're 38%. In 2024, we're 39.7%. In 2025, we're right around 41%. So it's really demonstrating the significant improvement in mortality we've seen over time. Frank Svoboda: And so something that as you think about those remeasurement gains, the normal fluctuations, if you will, each quarter as we continue to see positive experience below those long-term assumptions, then you still end up with some positive remeasurement gains, but that's really just showing that the book of business is still performing really better than the long-term assumptions and over time just by the nature of the long-term assumptions we wouldn't. We currently anticipate that eventually, they'll kind of revert back to those long-term assumptions. And -- but what we're seeing right now, as Tom was talking about. We do anticipate the trends that we're seeing right now, saying that we anticipate those continuing on into '26. As we get more experience as that emerges over time, then we'll either -- do you change those long-term assumptions? Or do you ultimately have fewer remeasurement gains. Thomas Gallagher: And just relatedly, just to clarify, are there any long-term assumption change benefits embedded in your '26 guidance? Or is it only some assumption of sort of current period remeasurement gains that you're assuming? Thomas Kalmbach: Yes. The way we're thinking about that is the range that we've provided. The top end of the range would be indicative of a number of things, but one of those possibilities could be an assumption update that comes through. And so we've tried to factor in, in the scenarios that we look at in determining the range, an assumption update of what that might do to the results overall. Thomas Gallagher: So high end would have something in it for that? Thomas Kalmbach: Correct. Thomas Gallagher: And then just, I guess, final question, if I could, in terms of thinking about -- I think you mentioned the actuarial assumption update was under 1% of reserves. Just to sort of compare how favorable the remeasurement gains are in quantifying it. I assume they're running well better than 1% of your long-term assumption in terms of current experience. And that's the reason you pointed out that the reserve release was under 1%. Can you quantify how -- like right now, if you just isolate to 3Q, how much more favorable is that running? Is it 3%? Is it 5%? Is it 10%? Can you give some sort of indication of comparing 1 versus the other? Thomas Kalmbach: That's a hard question to answer directly. What I'd say -- What I'd point to is, again, kind of looking at normalized underwriting margins and normalized policy obligations because I think that really -- the normalized policy obligations is really the underlying metric that reflects the actual experience that's coming through. And so I think that's kind of where I put a little bit of focus as far as looking at those trends, I think. James Darden: And I think the point of the 1% comment was just recognizing that a small change in an assumption can have a decent-sized impact in the current quarter and -- on a dollar-wise, on a dollar, yes, but not on 100% of reserve. And it's a cumulative catch-up from the day of transition. And so just slight tweaks and long-term assumptions can have a decent impact. So it's just really reflective of the reserve balances are moving significantly 1%. Thomas Kalmbach: I think what's also important there is what it's telling us, right, is when we have an adjustment from the assumptions that brings down reserve levels. That says that we have -- and I mentioned in my comments that we have a more favorable outlook of future profits from that business or future that we need less premium to fund the benefits that we have promised to our policyholders. So that's a really, I think, good indication of just kind of how the business is performing and how we think it's going to perform. Operator: Our next call comes from Maxwell Fritscher of Truist. Maxwell Fritscher: I'm calling in for Mark Hughes. Just further digging into DTC, how does this conversion rate lead to sales compared historically in the same channel? And then is that elevated compared to recent experience in DTC? Or are conversions high historically? James Darden: Yes. So the technology improvements that we've put in and just process improvements is that keep in mind, direct-to-consumer sale is fairly passive. The customer fills out an application. Well, in some of those instances, based on how they fill out the application, we have follow-up questions or we have information from data perspective related to some medical questions that we need to follow up on. And so there was times when we could not get a hold of a customer. And therefore, that policy just never got issued, it pinned out. And so now with more advanced data and analytics, we knew there was some good risk in there that we want to go ahead and issue, but trying to get past some of this friction. And so we're issuing those policies now without really changing our risk profile. So the conversion ratio has gone up just in the last couple of quarters as that's been implemented. And again, that's kind of a onetime adjustment upward for a new conversion ratio that we would expect on a go-forward basis and an improvement. The other thing that's going on in the direct-to-consumer channel, though is that as we have a better conversion of those advertising spend across the entire organization. Then you've heard me talk about in the previous quarters, how we scaled back advertising from unprofitable different campaigns. Well, we're able to go back into those campaigns and other campaigns because the profitability metrics have changed because now I'm issuing more policies with the same advertising spend. And so that's why I said in my comments that the that program and the conversion of looking at it enterprise-wide, meaning agency and direct-to-consumer allows us to spend more money on advertising, and that's growing sales, both in our direct-to-consumer channel as well as giving more leads and growing sales in our agency channel. And so that's what we're very pleased about is all of those channels working together from a growth perspective. Operator: There are no further questions in queue. I will now hand it back to Stephen Mota for closing remarks. Stephen Mota: All right. Thank you for joining us this morning. Those are our comments, and we will talk to you again next quarter. Operator: This does conclude today's call. You may now disconnect.
Operator: Welcome to WEG's Third Quarter 2025 Earnings Conference Call. I would like to highlight that simultaneous translation is available on the platform on the interpretation button via the globe icon at the bottom of the screen. We would like to inform you that this conference call is being streamed live and the audio will be available afterward on our Investor Relations website. [Operator Instructions] If we do not have time to answer all questions live, please feel free to send your questions to our email at ri@weg.net, and we will answer after completion of our conference call. We would like to emphasize that any forward-looking statements contained in this document or any statements that may be made during the conference call regarding future events, business outlook, operational and financial projections and goals and WEG's potential future growth are merely beliefs and expectations of WEG's management based on currently available information. Forward-looking statements involve risks and uncertainties and therefore, depend on circumstances that may or may not occur. Investors should understand that general economic conditions, industry conditions and other operational factors could affect WEG's future performance and lead to results that will be materially different from those in the forward-looking statements. Joining us today from Jaraguá do Sul are Andre Luis Rodrigues, Chief Administrative and Financial Officer; Andre Menegueti Salgueiro, Finance and Investor Relations Officer; and Felipe Scopel Hoffmann, Investor Relations Manager. Please, Mr. Andre Rodrigues, you may proceed. André Rodrigues: Good morning, everyone. It's a pleasure to be with you once again for WEG's earnings conference call. I'll begin with the highlights of the quarter on Slide 3, where net operating revenue grew 4.2% compared to the third quarter '24. In Brazil, performance was driven by solid industrial activity, continued deliveries in transmission and distribution projects and healthy demand for commercial motors and appliances. Growth was partially offset by a significant year-on-year decline in wind power generation revenue. In the external market, industrial activity remained strong in our main regions of operation, especially in Europe. In the power generation, transmission and distribution businesses, T&D operations in North America continued to show solid delivery volumes despite some fluctuations in general project deliveries. Our operating result measured by EBITDA reached BRL 2.3 billion, an increase of 2.3% compared to 3Q '24. EBITDA margin remained at a very healthy level, closing the quarter at 22.2%. Along the presentation, Andre Salgueiro will provide more details on this point. As for our return on invested capital, one of our main financial indicators remained at the high level of 32.4%, as we can see in more details on the next slide. Revenue growth and sustained high operating margins contributed to maintaining our return on invested capital at healthy levels despite the decrease compared to the same period last year. The reduction was mainly due to higher invested capital driven by investments in fixed assets and acquisitions during the period. It's important to remember that the ROIC for 3Q '25 or was positively impacted by the recognition of nonrecurring tax incentives in 4Q '23. Now I'll turn the floor over to Andre Salgueiro. André Salgueiro: Thank you, Andre. Good morning, everyone. On Slide 5, we show the evolution of net revenue by business area. In Brazil, demand for short-cycle products remained solid, particularly for low-voltage industrial motors and gearboxes across several operating segments. We also observed positive performance in long-cycle equipment deliveries such as medium voltage electric motors, especially in the oil and gas and mining sectors despite an investment environment that remains somewhat restricted. In GTD, the T&D business continued to perform well, driven by deliveries of large transformers and substations. The decline in revenue in this area was mainly due to the absence of new wind turbine deliveries as the pipeline for 2025 had already been anticipated. There was also a reduction in solar generation revenue this quarter, mainly reflecting the completion of large centralized solar generation projects executed over the last 3 quarters. In commercial motors and appliances, we continue to deliver positive results with growth in sales to key segments such as air conditioning, water pumps and compressors. In coatings and varnishes, sales of our main products remained strong with notable demand for liquid coatings used in the oil and gas segment. In the external market, short-cycle equipment benefited from continued healthy industrial activity across multiple regions with an improvement in the European market standing out. For long-cycle equipment such as high-voltage motors and automation panels, delivery volumes contributed positively, although geopolitical uncertainty continues to weigh on new investment levels. In GTD, we maintained good delivery volumes in T&D operations in North America despite a lower volume of deliveries in another key region, South Africa. Revenue moderation in this area was mainly driven by fluctuations in generation project deliveries in Europe and in India, a typical dynamic for this type of business, even with strong performance from the marathon generator operations in the United States and China. In commercial motors and appliances, demand remained positive, particularly in China and North America, along with contributions from both electric motor operations in Turkey. In coatings and varnishes, revenue growth was supported by strong performance in Mexico and the recent acquisition of the operations of Heresite in the United States. Slide 6 show EBITDA evolution, which grew 2.3%, while EBITDA margin closed the quarter at 22.2%, although slightly lower than the same period last year, mainly due to higher costs of some raw materials EBITDA margin remains strong, supported by the current project mix. Finally, on Slide 7, we show the evolution of our investments, which totaled BRL 673 million with 72% -- in 52% in Brazil and 48% abroad. In Brazil, we continue to modernize and expand production capacity at T&D while increasing capacity and productivity at our Jaraguá do Sul and Linhares sites. Internationally, we continue investments in Mexico, particularly the progress in building the new transformer factory and in the expansion of more production capacity in China. That concludes my section. And now I'll hand it back to Andre. André Rodrigues: On Slide 8, before moving on to the Q&A session, I would like to highlight a few points. First, during the quarter, we announced several important investments, including a BRL 1.1 billion plant in Santa Catarina to expand the energies unit's product portfolio and production capacity and also a USD 77 million investment in the special transformers plant in Washington, Missouri and BRL 160 million investment to further integrate and expand the electric motor production at the Linhares unit in Espírito Santo. In September, we also announced a target to address greenhouse gas emissions reduction in Scope 3. In addition to having our Scope 1, 2 and 3 targets for 2030 validated by the science-based targets initiative. More recently, we announced the acquisition of a controlling stake in Tupinamba Energia, a company with a strong presence in software and services for electric vehicle charging network management, aligned with our strategy presented at the last WEG Day to provide complete solutions for the e-mobility market. Finally, a few words on our outlook for the remainder of the year. Despite mitigation measures already underway, the geopolitical and macroeconomic environment requires close attention and brings short-term challenges. We remain focused on our investment plan to support growth in Brazil and abroad, both to strengthen our market mature businesses and to develop opportunities in new markets. Even amid a complex geopolitical backdrop, we continue to expect annual revenue growth and high operating margins, supported by our international presence and diversified product and solutions portfolio. This concludes our presentation, and we can now move on to the Q&A session. Operator: [Operator Instructions] Our first question comes from Lucas Esteves from Santander. Lucas Esteves: Congratulations on your results. I have 2 topics that I would like to approach, starting with the results acquired from Regal that you did not disclose this quarter. So I'd like you to give a bit more color on this business, how it behaved. Then I ask that because previously, you said that you were increasing capacity with generators. So I would like to understand that this is already reversing in an increasing volume and results or this is to be seen in the coming quarters? Second question, how WEG is positioning itself as a solution provider more than an equipment supplier. I ask that because when talking to stakeholders, we hear more and more that WEG is offering complete solutions, a generator instead of solar panels. So all that said, I would like to understand your strategy, if the company is going to position more and more as an OEM to product, if that can expand your market and if that somehow connects to the company's strategy to expand its footprint in the aftermarket. André Rodrigues: Lucas, this is Andre Rodrigues speaking. Thanks for your questions. It's a long question. If we forget something, please just remind us of the main points. I will start talking a bit about the integration of Regal. It is going on. It is as expected. When we talk about Regal -- Marathon, I'm sorry, when we talk about the businesses of Marathon, we are basically talking about 2 businesses, low-voltage motors and alternators. For low-voltage motors, we saw an accommodation in the market. And I think the main focus now of the entire industrial team of WEG Motors is gains synergies in the stage where we are without many investments in terms of verticalization. So optimizations of products, opportunities to reduce costs, all following as expected. The alternators business, as we mentioned on WEG Day, is a business that is developing very well. João Paulo, right after the acquisition, focused to try and increase capacity the most. We are making investments to increase capacity. This is probably to be completed at the end of this year, beginning of next year to continue developing the business giving the markets that demand this equipment and that have contributed positively for this business. So Marathon businesses have a very strong recognized brand in the U.S. market, particularly. Integration of admin areas, we are also evolving relatively well. We did have a huge challenge in terms of the carve-out of systems. We are talking about more than 150 systems. We're able to develop all the efforts before the deadline of the CSI that we had with them and also in terms of shared services that was provided, especially in the North America region by the Regal organization Rexnord, we also were able before the deadline to migrate to our shared service model, which is called WEG Business Services. So in this migration, we had especially gains in IT and to bring the business to our model. And with this, we had already a reduction of approximately $6 million in annual costs. Consequently, with this, together with all efforts in the industrial area, the good performance of alternators, Regal's margins are improving quarter-on-quarter. And we highlight that it is an integration process that will take 4 to 5 years. But the message is positive, and it is following as scheduled. André Salgueiro: This is Salgueiro speaking. As for your second question, WEG's model of becoming more and more focused on solutions. This is a reality. This was the main focus of our presentations on WEG Day, the last WEG Day that we held recently. And there, we brought 3 major topics: one, solutions for e-mobility. So WEG not only focusing on manufacturing powertrains or recharge stations or batteries for buses, but rather being more and more focused on following a complete solution, integrating it all. And this comes from the service center that we announced in São Bernardo do Campo for support and also the acquisition that we released -- recently announced of Tupinambá to complement the ecosystem. So we have been working to integrate more and more services and solutions. And the 3 main topics of WEG Day was e-mobility, microgrid and network reliability. That is to have more and more complete solutions for the market, not only focused on the product, but on the whole solutions and how we can help our clients on their journey. Operator: Moving on. Our next question comes from Gabriel Rezende from Itaú BBA. Gabriel Rezende: I have 2 questions. First, I would like to understand about the added capacity for transformers in West. I think this is going to be effected by '26, beginning of '27. And the market is more and more thinking of what '27 is going to be like for WEG. So are you selling already the additional capacity that you're going to have in transformers for '27? What is your pipeline for transformers? If you could talk about prices and volumes, that would be very good, especially about the additional capacity. And the second question, we have been monitoring yourself and the competitors and prices are going up in the U.S. because of tariffs and some inflation in the sector. I would like to know if you understand price increases in the U.S. offset loss in competitiveness or if you could have a drop in volume as price increases take place. André Rodrigues: Gabriel, I'm going to talk a bit about transformers, okay? Well, we have been announcing for some time now, 3 years, I would say, every year, a new package of investments of the business given the demand and how the market is heated in several segments, energy efficiency, generative AI. So WEG by the end of '23 made a solution. And in the beginning of the '27, we would have double global capacity for WEG in the transformer business. We are following the investment plans unchanged. Whenever we see a new opportunity, we reinforce the plan. We had a recent announcement, the modernization and increase of capacity in the special transformers plant in Missouri, an investment of $77 million. In addition, we have the new plant in Mexico, a new plant in Colombia, increasing capacity in Gravataí in Brazil to use the opportunities in the market. And when we have visibility, as we are having now of the completion of the project, we start already to have a backlog. So the answer is, yes, we are building our backlog in all the units in where we have visibility of completion. That is going to be by the first half of '26 to the end of '26 for us to seize opportunities as of '27. Of course, perhaps enjoying opportunities in the second half of '26. As for prices in the U.S., Gabriel, I think the whole process when the tariffs started to be discussed, made it clear that inflation would happen, not only for WEG, but for the whole American market as a whole. So it's just natural in our strategy to try and mitigate impacts is to use our commercial strategy in prices in the U.S. And you did say it's not only WEGs, it is WEGs and almost all the players in the market. And so this is a movement, especially the most relevant part that happened more recently that we still cannot measure in terms of details of impacts because in practice, it came into force in October. So we have to see how the activity is going to evolve from now on. So this is something that we'll have to monitor in the coming months how the market will respond to the commercial strategy. But again, it's not only motors, transformers or other products. It is the U.S. economic activity as a whole due to tariffs and price adjustments are being made throughout the industry. Operator: Our next question comes from Lucas Marquiori from BTG Pactual. Lucas Marquiori: I have just one question, but perhaps with some items. Still about tariffs, I was a bit lost in terms of times. Probably you already had an impact of the tariff this quarter. You are saying that you are having an effort of repricing of products. And then you have the waiver of what was shipped until mid-October. So perhaps the full impact in cost and margins is just going to show in Q4. I would just like to see if my understanding is correct. So the full quarter is just going to be in Q4 and how far you are in terms of passing on prices. You mentioned 10% in Q2, then we said mid-teens for the next quarter. Just to understand how long the curve is. And finally, the passing on costs to balance tariffs, this is something that the whole market changed the price dynamics. If you have a decrease in tariffs, you don't necessarily have to return that to clients. You can keep it in margin. So do you think this is standing if and if tariffs are renegotiated next year? So just the question with the same topic, tariffs. André Rodrigues: Thanks for your question, Lucas. I'll try to answer all the parts. The first point, what you mentioned is correct. We are going to have the full impact in the fourth quarter. We did have some impact in the third quarter, particularly the last month of the quarter in the month of October, we did have this impact. But throughout this moment when we had the information of tariffs, we started working on several fronts to mitigate the impact. There is not a silver bullet. You talked about recomposition or realigning prices, WEG's logistics chain to minimize that, and the company continues to work along these lines. Our expectation for the fourth quarter is to have a greater impact because of the tariffs. But again, we have lots of action plans and initiatives to mitigate the impact. In the end of the quarter, we are going to have a clearer view of whatever was possible to be mitigated and the impact. As for price realignment, well, the thing is we have to know what the market is going to be pricing. I cannot say that this is a given because if the tariffs change, if there is a change in process, a change in dynamics, we have to adjust according to the wind. Operator: Moving on. Our next question comes from Alberto Valerio from UBS. Alberto Valerio: A follow-up on tariffs because we are seeing lots of news on WEGs suiting its capacity in Mexico, United States, Brazil, Mexico. What is missing in Brazil for WEGs to eliminate 100% of its tariffs that is not producing anything in Brazil to be exported to the U.S. And second question, the exposure of BESS in WEG. There is an auction now in December, another larger auction for June next year. What should we expect from WEG for '26? André Rodrigues: Alberto, thanks for your questions. Okay. One point that is very important to reinforce is the investments that WEG is making in the U.S. along the recent years, the revenue that is produced and generated in the U.S. is increasing and WEG is doing that. In transformers alone, we expanded in the last 5 years, our 2 existing plants. We had a greenfield project. We are renovating a new one and increasing capacity. So added to everything we mentioned, restructuring, logistic chains and other initiatives that we are talking about, also the increase in capacity in the U.S. will help us to minimize the impact. André Salgueiro: Alberto, as for BESS, we did show on WEG Day our solutions for microgrid, even home use, the monogrid, industrial use, commercial agribusiness, until getting to that. So it's important to mention that WEG has a full portfolio today of products to serve the different segments, and we have been working very hard in this project of the small medium size, which is a good market demand. To give an estimate for the next year, perhaps it's too early because that depends on the development of the market from now on. And it did mention 2 important things, the auctions that are expected to happen this year and next year. And indeed, if they do happen, they may be a very interesting opportunity, much greater than we have today because today, opportunities are concentrated on mid-sized projects. We are seeing people wanting projects perhaps with a greater scale that we are having, but different from utility projects, which are the large projects that generally take place. So if the auctions happen, that can change. The market as a whole can grow, and that will depend on how much WEG is going to capture up this market along the next years. Operator: Moving on, our next question comes from Rogério Araújo from Bank of America. Rogério Araújo: I have 2 questions on my side. The first is the external GTD revenue. It did go down despite the favorable T&D movement. We did some accounts with transformers in North America, some assumptions considering the revenue of generation abroad. It may have dropped from 30% to 50% year-on-year. Does it make sense? Are our accounts correct? And if you could talk about the deliveries in the past until when this comparison basis is going to be kept? So this is my first question. Second, about margins. I do not recall if it was 1 or 2 quarters ago, you said if it weren't for the renewables mix, especially solar farms, margin would have gone up. And now the mix is down, especially solar farms and the margin did not really show the difference. I would like to know what hurt you. You did talk about tariffs affecting October. Was it this? Any other factors? But just for us to understand margins in the short term. André Salgueiro: Rogério, this is Salgueiro speaking. Thanks for your question. I'll answer the first GTD in the foreign market, and then Andre is going to talk about margins. We don't break down in our releases. What I can say is that indeed, generation did have a significant drop this quarter, especially because of somewhat weaker performance in the joint venture that we have in Europe compared to last year. And that, especially for the fact that we did have some important projects and concentration of deliveries last year that were not replicated this year and also because of reduction of revenue in generation in Asia Pacific, especially for projects that are served by the Indian operation. We did mention that in our release. I don't know if it was 100% clear, but in T&D, the quarter was slightly different. T&D had been growing in all operations in the external market this quarter. We continue with positive performance in T&D. North America continued with good performance. But in Africa, it did have a drop in revenue in the quarter. because some large transformers that we delivered last year and that these projects were not replicated this year. So there is an effect of a lower growth in GTD, the external market in generation, but also a portion of T&D in Africa. So what is doing well, positive without changes is T&D, North America and Colombia, altogether in this context. And Rogério, about margins, you were right. I think it was in the first quarter that we broke down how much margin we would have consolidated excluding that movement that started in the last quarter last year about solar farms and continued in the first and second quarters. I don't recall exactly the amount, but we can talk about that later on, but we did mention that, and it is in the transcription of our last call. I think it was the first quarter. Undoubtedly, what we see in terms of margin behavior, it is according expected. We expected a first half a bit more pressured because of the product mix. As the product mix with solar went down, the margin will improve, and it is improving. If you get year-to-date margins of WEG, it is within expectation to fluctuate between what we had in '23 and '24. Remember that when we are monitoring margins, we cannot talk about one quarter. This is very complicated because we have several business dynamics and everything. For instance, we did have the impact of the tariffs this quarter, not all action plans to mitigate that in place. And what we saw this quarter, compared to what we had last year and perhaps it is a bit of the result of the margins is that there was a bit of an increase in prices of the main raw materials, especially steel and copper, which also impacted the margin of the quarter. But again, I would like to stress that margins are improving quarter-on-quarter as expected, and we want to -- we believe that it's going to be fluctuating between what we had in the last 2 years. Operator: Our next question comes from Lucas Laghi from XP Investments. Lucas Laghi: I have 2. Thinking about the performance, I think it was the highlight of the performance this quarter. I would like to know your dynamics for external markets, especially in the U.S. Any concentrated delivery, any anticipation of purchases because of tariffs. So anything out of the ordinary? I'm thinking of industrial activity as a whole, when I take a look at the release of your competitors, you see a backlog that is very strong in the third quarter from the U.S. So in the U.S., some segments are doing very well. Others are doing poorly. I would like to understand if you could have an acceleration of revenues driven by the U.S. So try and understand how you see industrial activity as a whole, especially the U.S. And for internal GTD and perhaps that was the downside in terms of revenues, especially because of the drop in solar, as you had mentioned. So just to understand if we are already on a normal level or if you think that you can still have a decline in solar? How are things going on in [indiscernible] residential other? And do you think that 1/3 would be in T&D? I know that things are changing with solar, but how would you consider the internal GTD? So basically, external GTD and internal GTD, that's my question. André Salgueiro: Lucas, this is Salgueiro. Thanks for your questions. As for industrial electronic equipment, first, I would like to reinforce that we did see the market resuming. That's the upside. Brazil grew by 3.3%. And we do see also growth in the external market of 7.1% in reals and even stronger in dollars, almost 9%. So that shows a market and an industrial activity that's quite interesting. And that is reflected in our numbers. We did highlight the performance of Europe. I think it was the main highlight in terms of recovery because Europe was a region that was not doing well in recent quarters. And as of this quarter, we did see significant improvement. So that's an important point to highlight. And in the U.S. well, the U.S. has a bit of a different dynamic because of tariffs and everything that we have discussed before, but also the performance of industrial activity, especially with motors and projects is going on. It's happening, not at the same pace as before. We did mention in the call last year that the decision of new investment was on hold with the dynamics we still do not see a major change. But an important point that you did mention, and we can talk about that is that when you see orders coming, the performance is better than in the past, which shows that we might have for the future, an industrial activity in the external market with a more positive dynamics and here considering all regions and also the U.S. When we talk about GTD in the domestic market, you did mention 2 important points that justify the drop, the wind power, because we already knew that there was a lack of new projects and that continues. And the news this quarter that we tried to address to you in the comments of last call is that solar would be weaker in the second half of the year, especially for the fact that we no longer had the GC projects. So that was the main reason. And when we look into the performance of the third quarter compared to the second quarter, this is clear. When we compare the third quarter and third quarter, that's not so relevant because in the third quarter last year, we didn't have these projects. They started in the fourth quarter. And that's interesting, considering your question, when you look into the future, we do have a challenge for the fourth quarter, which is when we started centralized generation a bit stronger, and we don't have the projects this year. And another point is that the GTD market distributed generation is not heated either. So we do have projects. They are evolving, but at a pace that's slightly slower than in the past. So putting together the factors, we have a solar dynamics already reflected this quarter with a weaker performance and expectation because of the comparison base of centralized generation of last year, this movement can be even accelerated in the fourth quarter. Operator: Our next question comes from André Mazini from Citi. André Mazini: My question is about the competitive scenario with the acquisition of 50% of Prolec. In yesterday's call of GE Vernova, they talked about commercial synergies. Do you think that changes anything in the North American market? And also in the call, they said 20% of the orders of Prolec comes from hyperscalers and data centers. So if you would have an estimate of how much T&D orders in the foreign market comes from this type of customer? And finally, a follow-up of the last question. I don't know if you did mention that there was a prebuy. I didn't understand that. That's it. André Rodrigues: Thanks for your question. Well, the competitive scenario, what we saw yesterday, I think does not change much. It's a competitor that has already been in the market. They are just acquiring the remainder of the business. And we know that everyone is making investments to expand capacity and to enjoy demand. WEG positioned itself in the past. We believe that we started before the competition if we compare most of the competitors. And we also understand that in '26, we are going to be one of the first in the main markets to add this new capacity. As for supply to data centers, the number that you mentioned to WEG is very close to that in the U.S. So again, we do not see major changes considering the competition. I did not understand the second part of your question. Of course, it's another topic. If there was a prebuy in the third quarter in EEI given the tariffs. If there was a pre-buy people advance their orders. André Salgueiro: Mazini, this is Salgueiro. We cannot say that. The increase in tariffs started in the beginning of the year. The discussions and more concrete effect started with the 10%. Then we had the 50%. So it's important to reinforce that the 50% was specific to Brazil. And obviously, people know that WEG is a Brazilian company. It is based in Brazil, but it is very specific with its dynamics with local players. It can provide matters from different countries, Mexico, Asia. So we cannot say that this movement was relevant or if there was a significant effect on the third quarter. Operator: Our next question comes from Marcelo Motta from JPMorgan. Marcelo Motta: I have 2 questions. First, a follow-up on tariffs. We have a meeting of Trump Donald this weekend. We don't know if it's going to happen. But do you see anything, I don't know, considering information from the Ministry of Industry, what kind of a lobby is going on? Do you have backstage information for something that we should look into? And also your effective tax rate along the year, it has been going down. 15% was the top compared to the 7.5%. Do you think that this rate is going to continue to go down or it was just something that happened this quarter? So just to understand its curve because it's now below what was last year. André Rodrigues: Thanks for your questions, Motta. We would love to have some additional information. But unfortunately, we are also following the information with the same channels that you have. But when there is an opportunity to sit down and negotiate, we see it as a good time. And we hope that when it happens, when the meeting happens, it will help all of us to try and decrease tariffs to a more reasonable level. As for the effective rate, we always say that this is a number that will continue to fluctuate quarter-on-quarter. It's natural that it happens, especially because of the mix of results that are generated in Brazil compared to what is generated in other regions. So I think that's very important to say. When we compare it to last year, there are 2 effects. One, it is a better use of interest on equity for 2 reasons. We had an increase in our profit and loss. We had a capitalization this year and also an increase of PJLP, which is the rate that we use to calculate interest on equity. And in addition to that, we had the mix of growing results in the external market compared to Brazil, which also contributed to the positive fluctuation. For the future, once again, fluctuations are part of the day-to-day. But from what we understand, considered PJLP and others, we don't think we are going to have any significant change, at least in the short term. In the mid to long term, it is hard to elaborate because there are too many variables, too many discussions going on that may change assumptions. So in the future, the scenario can change. But we do not expect major changes when we consider this year, beginning of next year, so more of the short term. Operator: Moving on, our next question comes from Pedro Martin from Bradesco BBI. Daniel Federle: It's Daniel Federle from Bradesco asking. My question is about I, especially long cycles. It seems that past portfolios contributed to revenues, but sales are weaker at the front end. My question is, should we expect a drop in long-cycle products for the coming quarters? And how long does it take from weaker orders to generate weaker revenues? And the second question related to that, should we see a weakness in long-cycle products as an indicator of what's going to happen in short-cycle. That is the projects that are not happening right now would generate for the future a drop in short-cycle products? André Rodrigues: Daniel, thanks for your questions. You are correct when we look into projects, considering Brazil and also the external market. we do see an environment in which products are running at a slightly lower level than what we had in the recent past and abroad more concentrated in the U.S., because of uncertainties related to tariffs, and we did mention that in the last call, we were feeling that clients were postponing projects and in Brazil, because of higher interest rates. Some markets and remember, projects, sometimes they are connected to commodity cycles. And we had a very important cycle of investments in pulp and paper 2 or 3 years ago, and it went down. Now we are seeing some projects being resumed. But mining continues to be okay. Then we had a drop. We're seeing now some resumption. So it depends on the dynamic of each of the markets. When we talk about leading indicators, generally, the normal cycle is to see a deceleration in the demand of short cycle that will impact in long-cycle projects. And quite often when long-cycle projects is being impacted, we see a resumption in short cycle. I did mention that, that the coming of orders in short cycle gives us positive signs for Brazil and the external market. So we already see a resumption in a short cycle. Eventually, we can see a resumption of projects for the coming quarters. We cannot say that because we still do not have hard numbers on that. But perhaps the natural cycle would be like this. So let's wait and see, and we are going to give you updates as months go by to see if the demand and the long-cycle portfolio starts to respond to what we are seeing in recent quarters. Operator: We are now closing our Q&A session. Remember, if you have any more questions, you can send your questions to our e-mail ri@weg.net. I'm going to turn to Andre Rodrigues for his final remarks. Mr. Rodrigues? André Rodrigues: Well, once again, thank you so much for attending, and I wish you all an excellent day. Operator: WEG conference call is now concluded. We thank you for your attendance and wish you a good day. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Hjalmar Jernstrom: Good afternoon, and welcome to Pricer's Third Quarter 2025 Earnings Presentation here at DNB Carnegie. My name is Hjalmar, and I work as an analyst, and we are joined here today by CEO, Magnus Larsson; and CFO, Claes Wenthzel. Welcome, gentlemen. Thank you very much. And we have a lot to speak about. So let's get started right away. The floor is yours. Magnus Larsson: Excellent. So thanks, everyone, for joining. We're going to present now our third quarter for 2025. It's myself and Claes as mentioned by Hjalmar. And as always, let me just start with Pricer in a brief for those of you who don't know us since before. So our vision is to be the preferred partner for in-store communication and digitalization. We work within retail tech. We are a leader within retail tech, and we have been around for nearly 30 years or actually more than 30 years, and we have to date 28,000 stores sold across the world. Looking at market development and the Q3 highlights, of course, the first thing I want to lift is that we managed now in Q3 to have the best net sales so far in this year for a quarter, SEK 598 million. It's better than both Q1 and Q2. We had a very great increase in our recurring revenue. Why is that? So it's partly due to all the SaaS services we sell through Pricer Plaza. But we've also changed our business model and our pricing model for all software services, also older installs to subscription model only. So even if you, for whatever reason, are not able to actually connect your store to Pricer Plaza, you will still need to renew the software for your installed base or your installed server and the new pricing model is recurring. So basically, as of now, we are in principle only recurring when it comes to software sales. And this is why you can see the almost 50% increase in recurring revenue in this quarter compared to last quarter. You will also see that it's a quite high increase versus Q2. It's almost 20% increase versus Q2. This is one of the drivers behind the margin improvement. We're on 23% now for the quarter. And it's, of course, partly part of the recurring revenue, but it's also product mix, and I think Claes will speak a little bit more about it in detail. One of the highlights for me personally is, of course, that we, with our EBIT result, managed to -- it's a positive result, and it's actually not only for Q3, but with the result of Q2, we take the entire result for the full year into positivity. So I'm super happy for that. Something I'm a little bit less happy with is, of course, the order intake, which was bleak now in the quarter. We could see that there are many different reasons, but the key reason is the fact that there is still a lot of market uncertainty affecting the retailers' decision to invest. We have quite a few customers where we know there is a project they want to deploy, they want to get started with, but it's being pushed into the future. So we haven't lost them, and we do expect that there will be -- there will be -- the orders will actually come at a later stage. But it's clear, it's not only ourselves, we see it also for our competitors that this unwillingness to invest is affecting the market growth at the moment. Then on the Nordic side, as you probably know, if you followed us, we have been moving from a partnership sales model in the Nordic and Baltic market into a direct sales market approach. Since August, we have a full team in place. We can actually see that we're now getting traction on the order side. You don't really see it in the Q3 report, but I expect that it will be visible as of Q4 and forward on. And one first example of this new direct [ modes ] is that we got a direct frame agreement this week with Norgesgruppen, who is the -- one of the leaders on the Nordic market, but also then in Norway. Obviously, for those of you that are Nordic, that we announced a couple of days ago. So it's a frame agreement we expect to serve all the stores over the coming couple of years. One thing I would like also to speak about is that we have another customer. It's one of the largest Nordic customers. that we have. They now had their first store on Pricer Plaza and they have an ambition to actually do all their stores as soon as possible. So there will be a couple of hundreds by Christmas and then some more by beginning of next year. So it's a very clear trend also in the Nordic market for Plaza and connecting your stores. Looking at the organization and for those of you that will look more on the OpEx side of our business, we have invested over the last couple of months and quarters in our organization, in the commercial organization very much on the marketing side, on the sales side, on the product management side, all the parts of the organization that will actually help us build the value proposition of today, but also the value proposition of tomorrow and that will more in a larger extent, also engage with our customers directly. This has generated a lot of positive traction. Once again, not visible this quarter, but hopefully visible in the quarters to come. And as mentioned, the fourth quarter has started well from an order intake point of view. What are we actually solving? We've been looking at different industry trends and the macro trends. And today, I'd like to focus on two of them. One, our customers come to us, often it is to help them with improving the operational efficiency in the store. But it's also increasingly more on the in-store experience, how can they make the shoppers buy more, how can they actually get additional revenues from CPGs, so the brands. So I've got two examples. If you think about the operational cost pressure, I would like to take our customer SOK in Finland and the partnership that we have forged with them since 2023. It was a pretty long sales process, but we got a contract during autumn 2023, which we announced to the market. They started with 15 stores in 2023. And by today, they have -- we have deployed more than 6 million labels across 450 stores. So this is way above the initial discussions we had with them, and we will continue to deploy additional stores. They have some, I think, around 1,000 stores in total. Why did they select us? Well, the key reason was to get the operational efficiency in place, but it was also to improve the work environment for the staff and especially looking at replenishment and picking online orders. So they wanted to make sure there would be less time spent, but it would also be easy for the staff. And they can see now that when they did the pilot, they said, well, there was basically only one choice. You're the only one with a solution that works for us as we need. But it was also now we can see afterwards when they started to do employee engagement service that they have an increase in positive answers on the work environment. They can also see that it's faster to actually get an employee fully productive in the store. And I'm really happy for the cooperation and as Jarko Mäkkinen, the Head of Development at SOK says that Pricer has proven to be the partner that they wanted, acting as an extension of our own team. And of course, we feel the same way. It's very inspirational customer to work with. Here -- so this is very much on the store operational side. And if you're more interested in this case, I think you will have it now or it will come very soon, a video actually from SOK where they speak about why they selected us. The next thing would be then addressing the in-store experience. Price Avenue is a product that we conceptually launched in New York in January at the NRF event. We have now come to the place where we are starting pilots. So yesterday, we actually had our first Pricer Avenue aisle live. It's in a store north of Stockholm. It is very much a store where we will let our engineers just verify that everything is working as it should. But if you want to see it, you should go northwest of Stockholm and see if you can like locate the store, it's really nice. What you also see on the picture here is what we call the floating canvas. This is something unique to Pricer. It's a patented way of doing. And actually, we're the only one with the current look and feel of the general ESL on the market where you can do it. We -- unlike everyone else and unlike our old models, we have not made our thin so -- frames are so thin on the ESL that you can easily then build a picture over 2 ESLs or over 3 or 5, any -- actually, any number of ESLs you want, you can build the merchandise in the promotion area. So we're going to do in addition to what we just installed in Sweden, we will do pilots more of a commercial nature in Finland, in France and in the U.K. now during October and November. So there will be more updates on this, but we can see there is a huge interest in Pricer Avenue. And I think it's also fueled by the fact that there's no one else on the market that is actually doing it this way. So having done now the [ shameless ] marketing of Avenue, I hand over to you, Claes. Claes Wenthzel: Yes. Q3 is the best quarter for this year. You see we have a strong gross margin and gross profit, and we see effect in our production cost now from the weaker U.S. dollar. We have had a negative currency effect compared to last year with about SEK 10 million, which affected our EBIT of course. So -- but still, we have a return on sales of 6.5% for this third quarter. If we then look at the cash flow, the operating cash flow for the first 9 months is positive and SEK 16 million. Cash flow has been affected by the high accounts receivables and has actually increased by SEK 120 million in the third quarter. So this is just -- it's a timing effect, and that will be, of course, a positive effect from this now in the coming quarter. Then if we look at the order intake, it's, of course, weak, as Magnus said, but the backlog now when we go into the fourth quarter is higher than last year. On the sales side, it is the best this year, and it's SEK 598 million. Gross profit, it's also the best for the year with SEK 139 million. And even then the total result is, of course, the best for this year. Magnus Larsson: Good. Thanks, Claes. So going to the summary. Well, as I mentioned, the geopolitical situation is still affecting retailers' decision to invest. They believe in digitizing the stores. They are digitizing the stores, but we can see a lot less activity on the market. And I know, of course, there are questions, is the market growing? Yes, we believe that over the coming couple of years, there will be a massive growth. But we can see that this year and actually last year, we had poor growth in the market. If we look at the top 4 players, I would say that we had a standstill in the market last year, and there will probably be something similar here as well. But we still see the same interest from our customers. It's painful. It's, of course, something we don't want, but we actually still have the positive dialogues. And I think that's important to remember, especially when you feel frustrated over the lack of sales or lack of results, it will come back. I'm really happy that we managed to return to profitability this year. It's, of course, painful for everyone when you're actually not making money. We have committed in the Q2 report that we will be profitable for the year, and I think we can repeat that commitment to the market. Clear recovery in net sales. We improved our gross profit a lot versus Q2, but also versus Q3 last year. The Pricer Avenue pilots, I'm super excited to see them in place. The first install looked beautiful. And now when we do them fully for our additional customers, France, U.K., Finland, I expect a lot of interesting dialogues afterwards. The direct frame agreement with Norgesgruppen, very positive. I do expect more frame agreements coming out of the Nordic market within this year. And I would like to also close with saying that we have a strong position to really capitalize the future demand, the future opportunity. And I believe that with our setup, with our current portfolio, but above all, also with what we do now on the revenue side, there will be a lot of opportunities for us to grow into the future. So please bear with us, there will be improvements. Hjalmar Jernstrom: Thank you so much, and let's dive into the Q&A then. First, on the jump then in recurring revenue, which, of course, is very interesting. You mentioned there that you can also have a recurring revenue setup with sort of the non-Plaza customers, if I got that correctly. Could you just elaborate a bit on this initiative and this pricing? Magnus Larsson: So what we've done is we see that, of course, recurring revenue is a solid base for us to stand on. And we want to move all customers over to Plaza to get them connected. But we also see that some customers, they need to do the proper planning, they need to do the setup. And if you have almost 1,000 stores, as an example, you need to plan that transformation pretty carefully. But we do not want to wait for the revenue. So what we have done is that all customers with an old install that will still be installed on a server. We changed the price model and said that now you got the latest version, but it will be a recurring revenue model. So this is the key reason. So all the new softwares that we sell will be sold as a SaaS service. I'm sure there might be some exception, but at large, this is what we do. So this is -- has been one of the key reasons for the impact now in Q3. Hjalmar Jernstrom: Yes. And what does this mean for the prospects of recurring revenue? I mean I know you don't have a recurring revenue target currently, but what is the implications of this? And how much can it grow? I mean, just depending on now addressing also non-Plaza customers? Magnus Larsson: I think the key growth will come from connecting customers, and we have several projects ongoing. If you take Carrefour as an example, I think we've connected -- I can't recall the exact number, but somewhere roughly 500 additional stores this year. And we believe that all stores that we haven't connected so far, let's say, we have -- we sold 28,000 stores. We have a number of Plaza stores today, but there's probably at least 10 to 15 stores still to actually connect. And that will, of course, be one chunk of the forthcoming recurring revenues. The other one will be now as we get stores connected and our software team spend more time on developing applications and functionality rather than the basic Plaza functionality, we see that we will also be able to package and sell much more upsells to our customers and new functionalities that they would need to pay for. And we've come to a point now we have the R&D capability fully in place. We have the Plaza fully developed to the extent that we want. But we also have the product team that is now really good at packaging it in a way that will be easy for our sales team to do it. So I see that there are quite a lot of opportunities to actually grow this continuously. Hjalmar Jernstrom: It sounds like a lot of focus on recurring revenue currently then. Magnus Larsson: Absolutely. It's actually when we communicated internally, it's really the #1 objective is to get more customers and to make sure that every single customer is connected. Hjalmar Jernstrom: Yes. And on the pricing side, you mentioned the Avenue pilots currently running. Could you give us maybe some granularity on the pricing that you're expecting for this model? Is it mainly recurring and -- and what would sort of the margin profile be potentially. Magnus Larsson: You can see with Avenue, we will see a few different revenue streams. One is, of course, selling the ESL, which, we will not take it on our balance sheet. So we will still sell it as a product, but we will sell the software. We -- with the powered rail that we have in the system, we have a unique setup that we actually do expect that we'll be able to license for people that want to use it and sell it for their own IoT devices or for -- in the stores that we have, if they want to use it, they will have to pay a license fee. Then we have the ability to do the merchandising. There we're still looking at the price model, but we see that there is a real chance to actually get some increased revenues, hopefully, more than smaller amounts on the merchandise side. That's one of the things that we really want to test now when we do the new stores, France, U.K. and Finland, how can we actually -- how should we work with the merchandise side, especially. But I see, in essence, 3 different kind of revenue streams. Hjalmar Jernstrom: Is it possible to start up selling the avenue already in early 2026? Or when do you expect to maybe see sort of a ramp-up of... Magnus Larsson: It would be, we will actually have volume or will do small volume production during the first half, mainly because we know that customers that will never go for a full deployment immediately. Typically, when we approach our customers, they want to test it. They test it in one part of the store, then they might do an extended part of the store. But we would say, as of the second half of next year, that's when we're ready to do volumes, and I expect us to do volumes -- it will not be a bulk of our revenue, but I would expect it to be at least on a level where we can speak about it and say it's actually making a difference. Hjalmar Jernstrom: Yes, yes. And then if we move on to the order intake, maybe you mentioned Europe and also one impacting factor being that you're going to a direct-to-market approach here. Could you elaborate just how this is impacting the order intake here in the third quarter and why this sort of like dampens the order intake that you saw in Europe? Magnus Larsson: There are two key reasons. One is actually Nordic Baltic, where we can see that the transformation from distributor sales to direct sales -- now it's -- since all the Nordic customers know that we were doing this, they've been waiting, which means that some of them, they are waiting to invest, but it also means that some of them said that if they were not in a hurry, they probably took the investment and put it into next year's budget. So it's money that will come our way, but it's more of a timing issue. We can also see when we address franchisees. So now we have an organization in Sweden to do franchisee sales. Here, I see on a daily basis that we get store orders in, but it's coming now, and we got the full team in place at the end of August, but we can see that they're all busy, and we have had several orders, both from a store level until then the frame agreement like Norgesgruppen. The other one was Carrefour, where we had a very high order intake from Carrefour in Q3 last year. That order we got in Q2 this year, not exactly the same size, but still the large Carrefour order of the year came Q2 this year. Hjalmar Jernstrom: So it's reasonable then I assume to expect some sort of catch-up and maybe not Q4. I mean some -- you mentioned some budgets, they are taking it into 2026. So a gradual catch-up maybe from here. Magnus Larsson: I think there will be a gradual catch-up. And above all, I think the key message is that there will be a catch-up. This is not lost sales. This is sales that we will get. And we are, of course, in discussions with like Norgesgruppen and others on what are their investment plans for the future. We have a pretty good idea on what will happen and when. Hjalmar Jernstrom: Yes, yes. And then if we move on to the Americas region, could you just give us sort of like the current view of the impact from the tariffs? I mean you mentioned that this has been an issue and of course, maybe an ongoing issue as well. But still, I mean, there is for you some order intake in the Americas, which is sequentially improving even, if I recall correctly. And I mean, maybe this is outside of the U.S., it's Canada, but could you elaborate a bit on the drivers here and sort of like what do you currently see from the tariffs? Magnus Larsson: Yes, I think we can split it in U.S. and Canada. And if I start with U.S., we still -- there is still a slowness to make new investments. There are discussions. They have started again, but they are quite slow. But we can see that suppliers that actually had a contract in place, we can -- it seems like volumes are actually accelerating to make sure that they get things deployed as soon as possible with the rationale. We know the tariffs we have today, but we don't know the tariffs of the future. And I think that is the key rationale where you can see there is some acceleration on the market. But I think the key rationale is that we want to digitize. We had the contract. Let's do it now before it will be way too expensive. But for the rest, we see that there is still cautious. They are still waiting. So there's not a lot -- there are, of course, sales, but not as much as we would expect. It's actually much lower. In Canada, on the other hand, we see a lot of interest. We see that Sobeys deployment, it's progressing extremely well. We see it's catching a lot of interest. So in addition to the order that we got in December, then we're busy deploying it according to schedule. There's a lot of Sobeys franchisees that are constantly placing orders. We can see that there are spillover effects that we have other customers, we have the Metro Group in Canada as well. And of course, they look at all the new stores with 4 color labels. And we see a lot of incoming interest also here where we do believe that Canada will be a really good market for us over the coming couple of years, both Sobeys, Metro Group, Canadian Tire, they're soon fully deployed, but we have now done the first 4 color orders. So they will gradually start shifting their installed base over more and more towards 4 colors. So that will be continued sales as well, maybe not on the same level initially, but eventually. Hjalmar Jernstrom: And how much potential do you see in the Sobeys store network to grow there? I mean, what is the current like sort of penetration rate and I mean if you gain traction there, what's sort of like the potential that we could see? Magnus Larsson: I see it Sobeys and with the different formats, they have, say, roughly 1,500 stores. We -- there's still a lot of upside. Hjalmar Jernstrom: Yes. All right. Magnus Larsson: No numbers, I'm afraid. Hjalmar Jernstrom: No, that's fine. That's fine. Magnus Larsson: But it is same. I expect more. Hjalmar Jernstrom: Yes. You mentioned then some pilots running -- starting in October and November here for Avenue. Could you elaborate a bit on this? Is this new customers or current customers that... Magnus Larsson: So it's existing customers, and it's customers where we said that we will only do a few. We will select the customers we want to work with. We want customers where, of course, they will test it in their store environment and see does it work for them? How well do they like it. But we also want to test the commercial model. We want to make sure it's not just another label. We want to make sure that all the merchandise abilities are in place. We want to make sure that we have either their private brand or that they have another brand they work with as part of the campaign. So they've been -- we've been extremely selective in this process. We will do more promotion around these pilots. That's also been a requirement. We want to talk it and we need to talk about it. Hjalmar Jernstrom: All right. Thank you. Then we got a question on the line regarding the SOK that you mentioned. Could you just clarify a bit? Are you expecting to see additional rollouts here? Or have you already received these orders? Magnus Larsson: We're expecting to see more. So they've been driving it as a structured process. They've been doing a lot of deployment now with 450 stores, but they still have another more than 500 stores. Different formats still. There's been a focus on the large formats, even though we also won the smaller formats, which we were not certain that we would win. I think originally, they were thinking about having maybe dual vendors, but they decided to just go with us because they were so happy with how things were working. But we do expect to get more like store-by-store orders into the future more than like a structured. So I don't think we will have a very large PO, but I think we'll continuously have a good run rate business that will be on a good level. Hjalmar Jernstrom: And then on the U.K., I mean, a lot of questions regarding U.K., we know that it is a market with great potential. We see -- we see some deals being made in this market. Could you elaborate a bit on what you're seeing right now sort of like the current picture of the activity in the U.K? Magnus Larsson: We see a lot of activity. I mentioned many reports that I expect something to happen now during autumn, and I guess it just did. Everyone is looking at it, and we see the investment decisions are either being made or will come within the coming 6 to 18 months, I would say, or maybe as of now and within the coming 18 months, but everyone is looking at ESL. I expect the question to pop up. And yes, we are doing pilots with several of the Tier 1s. So we are in discussions. Yes, we were also in discussion. We were in final stages of negotiations with one of the large funds that were recently won by a competitor, but we actually said no. There were some commercial conditions that were -- I've never seen before actually. So we said this is unacceptable. So we declined. Hjalmar Jernstrom: Okay. Okay. Then we got some questions on the working capital. Could you maybe elaborate a bit on -- I guess, mainly on inventory. Do you feel that the levels that you currently hold are satisfactory? I mean, or do you feel that they are sort of -- maybe they could lean in some direction one or another if we look forward for the next maybe 2 quarters? Magnus Larsson: Yes. The inventory level now is higher than we actually expected. So we expect the inventory to go down. From the levels they are at the moment. And also regarding working capital now, also in the quarter, the accounts receivables has increased a lot. And as I said, it's just a timing effect. So that will also change. Hjalmar Jernstrom: All right. Thank you so much, Magnus and Claes, for coming in today and presenting and answering our questions. And I'll leave it to you for any concluding remarks. Magnus Larsson: All right. So thank you, Hjalmar. Thank you, Claes. Thanks for everyone watching. Thanks for joining. I hope you found it interesting. I hope you got something more out of the call than you could actually read out of the report. I would like to summarize saying that I'm very positive looking at the future, not very happy with 2025, but I see that things are improving. They were improving in Q3. We will make a profit for the full year. We have the dialogues in place to actually make sure that we come back and deliver better into the future. So thanks a lot.
Operator: Good afternoon, everyone, and welcome to Associated Banc-Corp's Third Quarter 2025 Earnings Conference Call. My name is Diego, and I will be your operator today. [Operator Instructions] Copies of the slides that will be referenced during today's call are available on the company's website at investor.associatedbank.com. As a reminder, this conference call is being recorded. As outlined on Slide 1, during the course of the discussion today, management may make statements that constitute projections, expectations, beliefs or similar forward-looking statements. Associated's actual results could differ materially from the results anticipated or projected in any such forward-looking statements. Additional detailed information concerning the important factors that could cause Associated's actual results to differ materially from the information discussed today is readily available on the SEC website in the Risk Factors section of Associated's most recent Form 10-K and subsequent SEC filings. These factors are incorporated herein by reference. For a reconciliation of the non-GAAP financial measures to the GAAP financial measures mentioned in this conference call, please refer to Pages 24 through 26 of the slide presentation and to Pages 10 and 11 of the press release financial tables. Following today's presentation, instructions will be given for the question-and-answer session. At this time, I would like to turn the conference over to Andy Harmening, President and CEO, for opening remarks. Please go ahead, sir. Andrew Harmening: Well, good afternoon, everyone, and thank you for joining us for our third quarter earnings call. This is Andy Harmening. I am joined once again by our Chief Financial Officer, Derek Meyer; and our Chief Credit Officer, Pat Ahern. I'll start some highlights of the quarter. Derek will cover the income statement and capital trends, and Pat will provide an update on credit quality. Over the course of 2025, we've been squarely focused on execution and delivering on the strategic growth investments we've made across our company. 9 months into the year, we continue to see several trends that are both leading to strong current results and positioning us for future performance. We're proving that we can grow and deepen our customer base organically. We've posted net household growth each quarter so far in '25 and are on pace to deliver our strongest year for organic checking household growth since we began tracking a decade ago. We're also proving that we can grow and remix our balance sheet simultaneously. On the asset side, we've added nearly $1 billion in high-quality C&I loans year-to-date while working down our mix of low-yielding low-relationship value resi mortgages. On the liability side, we added over $600 million in core deposits in the third quarter, enabling us to work down our wholesale funding mix. As this mix shift continues, it enables us to drive stronger profitability after delivering quarterly net interest income of $300 million in the second quarter, a record for our company. We posted another record of $305 million in Q3. And with this enhanced profitability comes enhanced capital generation. We added another 13 basis points of CET1 capital in Q3 and have now added 30 basis points year-to-date. This capital generation enables us to support our growth while continuing to execute on our organic strategy. Now I'll remind you, just because we're growing assets doesn't mean we're stretching. Credit discipline remains foundational to our strategy, and our growth is focused on high-quality commercial relationships and prime/super prime consumer borrowers, which is consistent with our conservative credit culture built over the last 1.5 decades. We continue to manage our existing portfolios proactively and meet with our customers regularly to stay on top of emerging risks. As we look at the remainder of 2025 and '26, Associated Bank has strong momentum that continues to build. While we continue to monitor risks tied to the macro uncertainty, our growth strategy puts us in a position to grow and deepen our customer base, take market share, remix our balance sheet and improve our return profile without having to rely strictly on a hot economy or a perfect rate environment. With that, I'd like to walk through some additional financial highlights on Slide 2. In Q3, we reported earnings of $0.73 per share. Total loans grew by another 1% versus the prior quarter and 3% versus Q3 of '24. Adjusting for the loan sale we completed in January, we've grown loans by 5.5% over that same time period. C&I lending has continued to lead the way as we deepen relationships across our markets and see noncompete agreements from our new RMs expire, we grew nearly $300 million of C&I loans and we've now grown C&I loans by nearly $1 billion year-to-date. Shifting to the other side of the balance sheet, seasonal deposit positive inflows came back as expected during the quarter, with our core customer deposits up 2% or $628 million from Q2. With that said, we're seeing more than just seasonal strength core customer deposits were also up over 4% or $1.2 billion relative to the same period a year ago. Moving to the income statement. Our Q3 net interest income of $305 million set a new record as the strongest quarterly NII we've seen in our company's history. Our NII was up 16% relative to Q3 of 2024. We also saw strong quarterly noninterest income of $81 million in Q3, a 21% increase from the prior quarter. The increase was driven primarily by capital markets revenue, wealth fees and a onetime asset gain of approximately $4 million tied to deferred compensation plans. Total noninterest expense was $216 million in Q3, up $7 million from the prior quarter. The quarterly increase was primarily driven by performance-based incentive programs, delivering positive operating leverage continues to help us post strong quarterly operating results and is a primary objective as we execute our plan. Managing credit risk is also a top priority, and we remain pleased with asset quality trends. In Q3, delinquencies were flat and nonaccruals were just 34 basis points of total loans. Net charge-offs were also flat at 17 basis points and our ACLL decreased 1 basis point to 1.34%. And finally, we posted a return on average tangible common equity of over 14% in Q3, a 250 basis point improvement from Q3 of last year. On Slide 3, we provide a reminder of how our strategic investments are transforming our return profile and setting us up for additional momentum over the remainder of this year and into 2022. First, we're positioned to take market share in commercial lending and deposit acquisition, thanks to a strategy predicated on hiring talented RMs in metro markets where we're underpenetrated. In fact, we've already seen results from our efforts. Through the first 9 months of the year, we've already added nearly $1 billion in C&I loans to our balance sheet with pipelines remaining strong and several more noncompete set to roll up between now and the first quarter of next year, we expect our momentum to carry through '26. And as those relationship C&I balances come onto the books, they're replacing lower-yielding nonrelationship resi mortgage balances that are rolling off, positioning us to diversify our asset base more profitably without changing our conservative approach to credit. This mix shift is driving enhanced profitability. Over the past 2 quarters, we saw our margin climb above 3% and posted back-to-back quarters of record NII. As we continue to grow and remix our asset base and support it with low cost core deposits, we see additional opportunity ahead. On Slide 4, we highlight our loan trends through Q3. On both an average and period-end basis, quarterly loans grew by 1% versus Q2. And that growth was once again led by the C&I category. On a spot basis, C&I loans grew by 3% or nearly $300 million versus the prior quarter. After adding nearly $1 billion in C&I balances to our balance sheet year-to-date, we feel very well positioned to meet or exceed the $1.2 billion growth target we originally set for ourselves in 2025, thanks to the strength of our pipelines and the additional lift from newly hired RMs as our noncompetes expire. Auto balances also grew by $72 million in the third quarter as we've continued to be, to selectively add prime and super prime balances to our book. Total CRE balances grew slightly for the quarter, but decreased by $160 million on a quarterly average basis. We expect elevated CRE payoff activity in the coming quarters as rates continue to fall. Overall, we continue to expect total bank loan growth of 5% to 6% for the year. Shifting to Slide 5. Total deposits and core customer deposits both bounced back as expected in Q3 following Q2 seasonality. Core customer deposits increased by over $600 million point-to-point with gross spread across most key categories. Relative to the same period a year ago, core customer deposits were up 4% or $1.2 billion. And growth in our core deposit book has enabled us to work down our wholesale funding balances. Here in Q3, overall wholesale funding sources decreased by 2% versus Q2. Based on our latest forecast, we now expect core customer deposit growth to come in towards the lower end of our 4% to 5% growth range for the year, but we remain confident in our ability to grow granular low-cost core customer deposits over time for 2 key reasons. First, our consumer value proposition stacks up well against any bank or fintech in the industry, and we have additional product upgrades planned for late Q4 of '25 and into 2026. This gives us an engine to attract deep and retain checking households over time, and it's already driving results. After posting the strongest organic primary checking household growth numbers we've seen since we began tracking a decade ago back in Q2, we followed that up with another quarter of solid growth in Q3. Second, we've refined our focus on commercial deposits by moving to a balanced scorecard, hiring relationship-focused RMs, launching a new deposit vertical and most recently, hiring Eric Lien as our new Director of Treasury Management. With pipelines growing and several noncompetes set to expire in the coming months, we feel very well positioned for growth in 2026. We continue to expect that our efforts to drive growth in lower-cost core customer deposit categories, will enable us to further decrease our reliance on wholesale funding sources over time. And with that, I'll pass it to Derek to discuss the income statement and capital trends. Derek Meyer: Thanks, Andy. I'll start on Slide 6 with our yield trends. In the third quarter, total earning asset yields remained flat at a 5.5% and interest-bearing deposit costs also held flat at 2.78%, while total interest-bearing liabilities ticked up 1 basis point to 3.03%. Within our major asset categories, slight decreases in commercial, CRE and auto yields were offset by slight increases in mortgage and investment yields. While total interest-bearing deposit costs were flat compared to Q2, they were down 55 basis points from Q3 of 2024. Moving to Slide 7. Third quarter net interest income of $305 million was up $5 million versus the prior quarter and $42 million versus Q3 of 2024. Q3, net interest margin held firmly above 3% at 3.04%, which was flat compared to Q2 but 26 basis points higher relative to Q3 of 2024. Based on our latest expectations for balance sheet growth and mix, deposit betas and Fed action, we continue to expect to drive net interest income growth of between 14% and 15% in 2025. This forecast assumes 2 additional Fed rate cuts in 2025. Given the potential for additional rates, we've provided a reminder of the steps we've taken to dampen our asset sensitivity on Slide 8. Over time, we put ourselves in a more neutral position to minimize interest rate risk. We've maintained repricing flexibility by keeping our funding obligations short we've protected our variable rate loan portfolio by maintaining received fixed swap balances of approximately $2.45 billion, and we built a $3 billion fixed rate auto book with low prepayment risk. While we're still modestly asset sensitive, a down 100 ramp scenario now represents just a 0.5% impact to our NII as of Q3. We expect to maintain this relatively neutral position going forward. Moving to Slide 9. Total securities increased to $9.1 billion in Q3 as we've continued to modestly build our AFS book. Our securities plus cash to total assets ratio climbed to 23.4% for the quarter. We continue to target a range of 22% to 24% for this ratio. On Slide 10, we highlight our noninterest income trends for the quarter. In Q3, total noninterest income of $81 million was up 21% relative to both the prior quarter and the same period last year. The increase in Q3 was primarily driven by strength in capital markets and wealth fees with an additional boost from nonrecurring asset gains. In the capital market space, in particular, the increase was due to an elevated level of activity in our syndications and swaps businesses. The asset gain booked during the quarter was approximately $4 billion for deferred compensation valuation adjustment. Given the strong quarter, we now expect a total of -- we now expect total 2025 noninterest income to grow by 5% to 6% relative to 2024, after excluding the nonrecurring items that impacted our fourth quarter 2024 and first quarter 2025 results from the balance sheet repositioning we announced last December. Moving to Slide 11. Third quarter expenses of $216 million were up $7 million versus Q2, with much of the increase attributed to performance. The increase came in personnel where we booked $4 million of additional expense for the same deferred comp valuation adjustment that was recognized as a gain in our noninterest income. Another large component was a $4 million increase in variable compensation expense the result of strong execution against our strategic plan. During Q3, the personnel bucket was also impacted by approximately $1 million of incremental health care costs relative to Q2. Outside of personnel expense, we also saw quarterly increases in technology, business and development and advertising expenses, offset by decreases in legal and professional fees, loan and foreclosure costs and other noninterest expense. As we've stated previously, we continue to invest to support growth, but driving positive operating leverage remains a top priority. Here in Q3, our efficiency ratio decreased for the third consecutive quarter coming in below 55%. Based on our latest forecast, we now expect total noninterest expense growth of between 5% and 6% in 2025 off our adjusted 2024 base. On Slide 12, capital ratios increased across the board once again in Q3. Our TCE ratio of 8.18% in Q3 was up 12 basis points versus the prior quarter and 68 basis points versus Q3 of 2024. Our CET1 ratio increased to 10.33%, a 13 basis point increase relative to the prior quarter and a 61 basis point increase versus the same period a year ago. Based on our expectations for growth in 2025 and current market conditions, we continue to expect to manage CET1 within a range of 10% to 10.5% for the year. I'll now hand it over to our Chief Credit Officer, Pat Ahern, to provide additional updates on credit quality. Patrick Ahern: Thanks, Derek. I'll start with an allowance update on Slide 13. Our CECL forward-looking assumptions utilized the Moody's August 2025 baseline forecast. This forecast remains consistent with a resilient economy despite the higher interest rate environment. It contains no additional rate hikes slower but positive GDP growth rates, a cooling labor market, continued elevated levels of inflation and continued monitoring of ongoing market developments and tariff negotiations. In Q3, our ACLL increased by $3 million to $415 million. This increase was primarily driven by an increase in commercial and business lending, which largely stemmed from a combination of loan growth, plus normal movement within risk rating categories. Our ACL ratio decreased to 1.34%, down 1 basis point from the prior quarter. On Slide 14, we continue to review our portfolios closely given ongoing uncertainty in the macro picture, but we maintain a high degree of confidence in our loan portfolios and continue to see solid performance in Q3. Total delinquencies were flat at $52 million in Q3. These delinquency trends are largely in line with the benign trends we've seen for the past several quarters. Total criticized loans ticked higher in Q3 with an increase in substandard accruing partially offset by decreases in the special mention and nonaccrual categories. [Audio Gap] With the current industry guidance. As a reminder, we do not feel that recent trends in this category are an indication of a material shift in the credit profile of the portfolio nor has there been a corresponding risk of loss. In fact, we continue to see resolution with some of our more stressed credits and liquidity remains present in the market in terms of both payoffs and loan re margin. Nonaccrual balances decreased to $106 million in Q3, and down $7 million versus Q2 and down $22 million from Q3 of 2024. Finally, we booked $13 million in net charge-offs during the quarter and $16 million in provision. Our net charge-off ratio held flat at 0.17%. All 3 of these numbers remain squarely in line with the figures we've seen over the past several quarters. In response specifically to tariffs and ongoing trade policy negotiations, we remain in contact with clients as the trade policy discussion continues. I would note that clients have been planning for tariff changes for some time, and we feel comfortable with the positioning of their strategies and the ability to execute when more clarity exists. Going forward, we remain diligent on monitoring other credit stresses in the macro economy to ensure current underwriting reflects the impact of ongoing inflation pressures and shifting labor markets to name just a few economic concerns. In addition, we continue to maintain specific attention to the effects of elevated interest rates on the portfolio, including ongoing interest rate sensitivity analysis bank-wide. We expect any future provision adjustments will continue to reflect changes to risk rates, economic conditions, loan volumes and other indications of credit quality. And finally, given the recent industry news surrounding nondepository financial institutions or NBFIs, I'd like to provide a brief update on where we stand. NBFI balances represent a minimal part of the bank's total loans largely comprised of REITs, mortgage warehouse lines and insurance company lending. These facilities have historically performed very well with relationships that average over 10 years with the bank. With that, I will now pass it back to Andy for closing remarks. Andrew Harmening: Thanks, Pat. In summary, we're really pleased with the results, both in the third quarter and year-to-date over the first 9 months. We feel very well positioned based on the actions we've taken. And believe that the enhanced strength and profitability profile, solid capital position and disciplined approach to growth will serve us well going forward. With that, we'll open it up for questions. Operator: [Operator Instructions] And our first question comes from Timur Braziler with Wells Fargo. Timur Braziler: C&I growth has been and remains pretty impressive here. I guess I'm just wondering what happens when the remaining RMs come off of their noncompete? To what extent should we expect that growth rate to accelerate? Is the expectation of that -- that growth rate accelerates from the area as they come online? Andrew Harmening: Yes. Well, good question. Look, we still have quite a bit of lag, we think, left in this. There are a couple of things that I look at, specific to this initiative I look at what is our production this year? Well, that production is up 12%. What does our pipeline look like? Our pipeline is up 31%. That's on the loan side. So as we head into the end of the year and you start to see some of the nonsolicitations and about half of them are already off. So we're getting up to that point where production, we would expect it to go up just a little bit next year. You may have a little more amortization because your portfolio has grown. What we believe though is we're set for a strong C&I growth above the market in 2026, probably as exciting and something we don't talk about. We thought there would be a lag effect to deposit production on commercial, and it's panning out the way that we thought we're adding some very good new names on the deposit side. But when we pull up our deposit production right now, our deposit production is up 23%. Now that's not seasoned, and we'll roll that into our seasonality and be able to forecast very clearly. But it's a very good omen because the pipeline itself is also up 46%. And I've been asking continually each quarter to our Head of Commercial Banking. When will we see that production start to catch up with the pipeline? And the answer is right now. Timur Braziler: That's good color. And then looking at fees this quarter, obviously very impressive. The guide does imply a pretty large step down in 4Q. Can you just maybe talk through some of the success you saw in 3Q and what the expectation is for decline in the coming quarter? Andrew Harmening: Yes. I mean, the fee income in some categories can be a little lumpy. We did have a onetime benefit through a portfolio asset gain. So that's not likely as repeatable at that level. However, when I look towards 2026 versus the fourth quarter, so it was a little bit higher in the fourth quarter but some of the underlying benefit that we're getting in capital markets, commercial production is up. Rates are trending down and likely to continue. That makes fixed rate conversion more attractive. Pipelines are up. And with fixed rate likely up and more popular in 20 -- or fixed rates likely more popular in 2026 and production trending up. We think that bodes pretty well for the forward view. The linked quarter-over-quarter is not likely to be quite as high for the reasons that I mentioned in Q4. Timur Braziler: Okay. And then just last for me. ROTCE, 14% this quarter continues to grind higher, 15% seems to be in striking distance. I guess how are you thinking about further improvement here in these next couple of quarters with rate cuts? Is there an ability here to continue grinding that higher? Or does that trend maybe take a step back a little bit as you digest these hikes or these cuts? Andrew Harmening: Derek, do you want to take that? Derek Meyer: Yes. Thanks, Tim. Yes. I think the opportunity is there. I think, again, I was just going to come back to the market's response to rates vis-a-vis deposits because obviously, the big, we had a nice uptick in fees we expect the hiring to help that continue, but it will still be choppy. So I see the opportunity on the margin side in the long run still being the bigger the bigger lever. And based on what we saw the first couple of weeks after the rate cut in September and the response to how we rolled out our deposit back book rate cuts and what we're seeing in the market response, the outlook is pretty good. So I think we have the ability to continue to grind that higher. I think it's going to bounce around quarter-to-quarter while we do that. But it feels like everything is on track. Operator: Your next question comes from Daniel Tamayo with Raymond James. Daniel Tamayo: Maybe just to follow up on the deposit side. You talked about the momentum you have there, certainly evident in the numbers. We did see deposit costs overall up a bit in the third quarter. Is there a read-through there on an increase in competition? Or something unusual. I'm just curious what you saw in the third quarter that drove those costs modestly higher? Derek Meyer: Yes. I don't think there's a lot to read you there. Part of our benefit, I know you remember the first part of the year and then the last year, we have seasonality that's in addition to account acquisition that affects the rates. And what happens this quarter is some of that seasonality is in accounts that are at the higher end of pricing. So as those things came back in, they came in at the higher rates relative to the back book and put a little bit of pressure on the overall yields. But I don't think we're uncomfortable with what we netted out altogether. Again, why my early canary in the coal mine read on deposit pricing is what happened when we went and looked at the $11 billion, $12 billion of managed rates we had to reprice right when the Fed cut and where are we able to execute on it and what was the response from the customers, and that went very well. Daniel Tamayo: Great. That's helpful color. Appreciate it. And then maybe for you, Andy, on the hires. You talked a lot about the solicitation agreements that those folks will be coming off. They are coming off and more coming. Just curious in terms of additional incremental hires that the pace around that timing if there's the time of the year, beginning of the year when that tends to happen. Andrew Harmening: Yes, I feel like we're open for quality relationship managers year-round. We've shared with our Head of the Commercial Bank that if there is a team that is well known in a market, that has a following that is interested in joining us, we'll consider that any quarter of the year. We don't have a stated plan to increase off of what we have because we know that what we have will lead to pretty solid growth next year. But we'll be opportunistic in a market where we see disruption in dislocation. When you see the M&A activity in the world, that usually leads to opportunity for those banks that have a good reputation in the space. I'll say, as you start to track talent as you start to do deals, you get a reputation that's positive. And so what I would say to that, Daniel, is we will be opportunistic, we won't have a stated number of new RMs, but should that opportunity arise. And I suspect it will during the year, we'll take advantage of that. Operator: Your next question comes from Scott Siefers with Piper Sandler. Robert Siefers: Let's see. So Andy, I just wanted to follow up a little on the loan growth discussion. I mean like the C&I really it speaks for itself. Maybe just a thought or 2 on where we stand with some of those areas that have been more of headwinds on total growth, like resi real estate rundown the CRE payoffs. I know you mentioned those in particular, will likely stay elevated in coming periods. But any reason that either of those or are there any recent headwinds would either accelerate or decelerate in coming periods? Just trying to get a sense for kind of likely interplay between the momentum in C&I and the things that have held back even stronger net growth. Andrew Harmening: Yes. No, that's a great question. You characterized resi as headwind. It's a headwind in terms of balances. It's a benefit in terms of having that run off and what that leads to, and it's purposeful, as you know. Certainly, if rates go down, they'd have to go down pretty significantly, say, 1% to 2% because of the position that those are in today to have a meaningful adjustment. But we plan for the decrease that we're seeing. So that's within the plan. The part that is maybe -- I'm not sure what adjective, a little bit less predictable but expected is CRE. So on the CRE front, as rates go down, there'll be a little bit of pent-up demand for pay downs, not just with us but across the industry. We're expecting that. So does that happen in 90 days? Does it happen in 120 days? Does it happen over 180 days? It's hard to say. So it could have a short-term impact. However, we've already gone back out to market. And the production on the commercial real estate side has increased versus the prior year. So we're up, for instance, about $100 million above the prior year in construction lending. And those are loans that will help offset some of that in 2026. So you could see a short-term impact if a couple of rate drops and there's an opportunity for some of our customers to refinance in the permanent market. So that would be a short-term thing. It doesn't worry me through 2026 because I think we've positioned ourselves with additional lending to make up for that. But probably on the CRE side, that's one where you might see it a little more quickly if rates become advantageous. Robert Siefers: Got you. Okay. Perfect. And then separately, just sort of following up on that last question about like sort of team and RM lists and stuff like that. I think during the third quarter, you made some comments about perhaps entering some new markets, I think, in particular, you sort of talked out like Oklahoma, Kansas City and Denver. I know you already -- or I believe you already did the team lift in Kansas City. But when you think about adding to the footprint, are you thinking still the bias is strongly organic? Or would M&A become a possibility at some point? Andrew Harmening: Well, I mean, the bias is strongly organic. We feel like we have a proved it out year, and we're 3 quarters into proving it out. We feel like we're stacking up quarters. So we're really pleased with that. but we want to do that through the fourth quarter. So that remains number one. And Scott, what I would say is I've been here 4.5 years. So I'm in year 5. And the focus has been the same. It's been execution and opportunity. And so when we see things -- and it has to be within our wheelhouse. It has to fit what we understand and what we know and what we can execute on. So that won't change. Does that mean it's organic or inorganic? I would leave it with we continue to evaluate opportunities in a way that's very similar to everything we've done over the last 5 years. Operator: Your next question comes from Jon Arfstrom with RBC Capital Markets. Jon Arfstrom: Andy, a question for you on the pipelines. When you talk about the lending pipeline increases, is that from new hires and market share gains? Or is it borrowers expanding and becoming more optimistic. Can you just kind of separate the two? Andrew Harmening: Yes. I don't think it's from the latter. I think you have an economy that's been -- news has been bouncing around and forecast of kind of perhaps a little bit slower GDP. What we've said is whether GDP is 1.5%, 2%, 2.5%, we believe we can grow. And so this is, I think, largely from the approach from the folks that we have brought into the team, these are A players. They are folks that could get a job anywhere in the country at any bank. And so being able to bring that kind of talent in. And then we've surrounded it with tools that we continue to establish to make it easier for them to do business. But I think the lion's share of this is on the pipeline, and I'm really pleased to see the production pulling through now. I mean that to me is what we've been waiting to see. We've seen it a little bit more each quarter. But I would say it's, by and large, it's mostly people. Jon Arfstrom: Okay. Good. Derek, one for you, just a follow-up on the margin. I appreciate Slide 8, but what is the message on the kind of the near-term margin outlook from here if we get a couple more cuts? You're talking about reducing asset sensitivity, but I'm wondering, are you signaling a little bit of a dip in the margin? Or do you think the mix shift is enough to keep the margin stable and moving higher? Derek Meyer: I think we believe that we've been very focused on stability. So generally speaking, our remixing generates a basis point or 2 of margin improvement. That's been true for many forecasts now. You could have a blip in any given quarter based on strange behavior in the market with deposit pricing or movements in the portfolio related to payoffs or nonaccrual reversals or pay downs. But I think over a quarter or 2, it's still mostly stability. And I know you're asking that because frequently, if there's a long lag in repricing deposits, you can get compression. But that's why I keep harkening back to what were the first steps that we were able to take and how did I see customers respond and do we see anything strange in the market that would take us off course and make everyone hesitant. And that hasn't -- I haven't seen a lot of that. It's still early, but it gives us confidence in committing to a pretty stable outlook. Andrew Harmening: Jon, I just -- I agree with everything Derek said, but I'd also add on to that is every time we go from a negative 2% to negative 1% to a 0% household growth, 2.5% to 1% to 1.5%. We intend to continue that trend as we head into next year. It's small incremental movements, but those are operating accounts that we're bringing in. That is the cream of the crop when it comes to how you think about managing your margin and your funding sources. And then we go into next year with, really, frankly, again, more tools than we've had before, whether it's a focus on wealth, the product mix that we're going to launch before year-end or it's the expansion of the vertical and HOA and title, that is significant and those are things we just haven't had. There are more quivers that fit into that. So the household growth as in addition to additional capabilities, that is what allows us to believe that we're able to remain either flat or slightly up as we go through the course of the next several quarters regardless of the multiple interest rate changes. Operator: And your next question comes from Jared Shaw with Barclays. Jared David Shaw: Tying into the margin, I guess it was this time last year that we got a little bit of an update on thoughts around beta on the deposits through the cycle. If we get the 2 cuts or if we get 2 more cuts this quarter, where do you see with the changes in the deposit base, where do you see that sort of cumulative beta moving from there? Derek Meyer: Yes. I think the range I'm thinking about now is about 55% to 58%, I think that's a little bit better potential. I think last time, it was more like 55%, 56% to the cycle. So again, things look good. And I also think we get more confidence as we get closer to the additional verticals rolling out because it gives us more options on how to manage levers and handle the higher-priced accounts. Jared David Shaw: Okay. And then on the expense, especially on -- specifically on the personnel expense, you called out a couple of things. As we look at fourth quarter, should we assume that the incentive comp stays in the numbers going forward? Or is that more of a onetime catch-up? How should we think of that? Derek Meyer: Yes. So the deferred comp is largely tied to market value. So if -- so that -- it should stay where it is, unless the market goes up a lot from here were down from here. So set that aside. We tie that largely to our forecast. So as long as if we are consistent with our guidance, we would expect that to stay at similar levels, not step up from here. but we're not going to complain if we blow through our guidance, and we have to share some of the comp for it. Andrew Harmening: And just to piggyback on that, too, Jared, you didn't ask necessarily about what we're expecting next year, but that usually is the next question. And we're planning for '26 expense increase to be -- the increase to be less than 25%. We've been opportunistic this year when we see opportunities to drive revenue and drive return and improve operating leverage, we've taken it. But those are manageable and we've already planned for going into if we don't have the exact same scenario. Jared David Shaw: Okay. All right. And then, Andy, I think in your comments, you mentioned something about a new deposit system or a system upgrade that can help drive maybe some incremental growth. Any details around that? And is that fully baked into the expense structure? Andrew Harmening: It is baked into the expense structure. The capability, really, it's a product enhancement first, on the wealth side that we expect to launch by the end of November that is substantial in the value proposition that we've had, which we've largely not built out before. So we focused on the consumer, growing that, mass affluent, growing that, commercial growing that, and it kind of meets at wealth management. So we believe that's one of the opportunities. The HOA title is a business where we have a very good team that's ready to go. And they have helped us with what capabilities their customers require in detail. And so that will be an ongoing road map. We expect to launch something either by the end of the year, if not the first part of January but then we think we'll have additional pieces in second quarter and third quarter. That will be a priority for us. It won't raise the cost. We'll do that at the expense of something else that is not such a large opportunity for the bank. Operator: And ladies and gentlemen, there are no further questions at this time. So I'll hand the floor back to Andy Harmening for closing remarks. Andrew Harmening: Well, look, we leave here pleased with the third quarter. We expect to land the plane in the fourth quarter and are optimistic about the fundamentals going into 2026. And as always, we appreciate your interest in Associated Bank. Operator: Thank you. And with that, we conclude today's call. All parties may disconnect. Have a good day.
Henrik Høye: Hello and welcome to the presentation of quarter 3, 2025 results for Protector. As always, I want to start with who we are and a small recap of what we do, this morning with all employees. The topic has for some time been the challenger. And it's, to us, very relevant with new technology and AI and a more uncertain future when it comes to what we -- or how we should do what we do. So what we have done lately is to involve all employees in exploiting the opportunities with AI. And we've done that through giving access to an enterprise model through Google to absolutely everyone. So it gives the opportunity to generate agents and use AI as we know it through ChatGPT and other types of platforms. But what we want from it is to make sure that everyone understands the value of data because when you use AI with poor or little data, then you get the wrong results. And data is our currency. It is 1 out of 2 targets we have for 2025 for the company. And we say -- we practice saying that it is our job to invest that data and create value by understanding our risks and making profits out of that. And some of the activity we've done is, as you have most likely heard, challenging to quantify in an actual return. But obviously, there are efficiency gains that you get immediately from usage of AI. But our focus is more to see if we can solve the more complex tasks. So focusing on really challenging AI and the creation of agents and support to solve what we either have seen as too capacity requiring or too complex to solve ourselves. And what we see is that we get these efficiency gains. So we can -- we've made some agents and some functionality that reads through health documentation for personal lines or employee benefits in Norway. It takes 5 hours normally to read through it and get something out of it. Now it's a few minutes. We do that for incoming e-mail. It makes it a lot more efficient. And that's interesting but that's something that will happen. So in our opinion, that's not where our focus should be. Our focus should be in seeing if we can get better results. And it is something interesting around the fact that you will accept a poorer accuracy from a human than what you will accept with AI. And what we can see is that we get very high accuracy with very little effort, for instance, on what we call preunderwritings, we get a tender, get lots of information from the broker and then we run it through a process that evaluates 7 criterias. And in order to decide whether we should spend time on it and evaluate it further and price it and quote it or not. And it is obviously also a start of the underwriting process. And we had one target and that was to increase the quote rate. So meaning that we should actually quote more than what we have done because sometimes it is noise in the decision of whether to quote or not and some kind of assumption from an underwriter that this is going to take a long time or since I've seen it previously, it is a bad risk, which is not necessarily the case. It needs to be based on data. And we've increased the quote rate in the U.K. from 38% to 44% through using an application that we've designed on AI. And that's to us being the challenger. And then this -- what we do becomes old very quickly as the technology develops. And we are not spending any time in predicting what this will look like in the future because I don't think that we are any -- or have any edge in that. But what we do know is that we're not taking advantage of a fraction of what we can do today. So we still have a lot of investment to do when it comes to utilization of AI and actually using data or investing data as our currency. And we've discussed different ways of investing that time. We could have set up some expert center of excellence groups and see if we could find something genius through those groups of people who know the technology and know the business. But we have decided that Protector is -- and we get some kind of -- I've never used our -- and I've used our values and our culture a lot in my decision-making every day but I've never used it as much as now because it is more uncertain. And due to who we are, people who have a common set of values who should make decisions all of us because that's what best-in-class decision-making is. We have decided that we will include absolutely everyone in it but also that the only focus of our leadership development program that starts now in the first quarter of 2026 is AI. The previous decision, not too long ago, was data because that has been a focus. But then we have realized that now it is about AI because it will include data. And we need to make all our leaders, there are 140 leaders in Protector today, responsible for taking that ownership of utilizing AI because the fact is it is here and we are not utilizing even a fraction of it. So that's been part of the topic. And in order to do those things, we have also decided that for the first time in many, many years, all Protector employees will get together. So in March, we will get all Protector employees together in Norway at a place that is big enough to house close to 700 people. And we will have workshops to decide together with everyone and prework before we go there, who we will be and where we want to be in 2030. So -- which could be an exercise that we did in the management group and we did as leaders but we want to include everyone in that. It's a complicated resource requiring -- task to do that well. And I don't know if we're going to do it well but at least we have decided that going forward, both because we are growing, becoming more people, more countries and getting a bigger risk or having a bigger risk of becoming like everyone else, which is, in my opinion, the biggest risk of Protector. We need to invest more in this and in our people. So that's how we -- that's the angle that we take to AI. And unfortunately, we don't have a lot of exciting demos and value creation documentation to share with you. But a lot of it is happening. And we are investing, which you have also seen in our cost ratio and which I will come back to. But then let's get over to the results. So the quarter 3 results are very strong on the profitability side. As always, I get back to normalizing that and explaining the underlying realities. We have a weak growth in quarter 3 and I'll get back to that as well. So -- and then the investment result is in absolute terms, poor and also that I will explain further when I get into that. On the side of that, the transfer deal of the portfolio on Danish workers' comp that we previously expected to be finalized in quarter 3 is -- and it was due to subjectivities and that is mainly the authorities in the different countries is now expected to complete in quarter 4. So volume. And I think that this is, in many ways, where we have spent more time this quarter because this is not anything close to what we have had previously in percent. It is the smallest quarter. It's 12% of the volume totally in Protector. So there is some volatility in it. But the composition is some underwriting discipline, which we should have. Profitability comes first. So we've lost some large clients, some of which we wanted to lose. So we actually priced them out. Some have been -- we haven't managed to match the price, which is fair. And then there is this normal churn where we don't manage to renew all the clients. And then there are some technicalities in this where inception dates moved from -- it was -- the volume incepted quarter 3, 2024 and then they've moved the inception date to another. We mentioned this in the quarter 1 presentation that we had some volume there that moved to quarter 2 and quarter 4. And there's some of that. But it's also -- so it's a mix of that, discipline and some technicalities but also some realities. And the reality is that, in particular, in the U.K. market, we don't get support from high inflation -- inflationary increases on the prices anymore. So the property market, which is our biggest product, is in a softening cycle. So the rates are going down. And then we don't get that -- and we get very high churn if we continue to increase prices and we don't need it, as you can see on the profitability side in the U.K. So that's a reality and we have talked about that before as well. I forgot to say that it's better if we have questions during the presentation then all of them are saved for the end. So please raise your hand and I guess you'll get a microphone if you have questions along the way here. So -- and the market situation in the different areas is interesting to say something about in quarter 3. And there is not anything very special from what we have communicated previously. So the softening property market in the U.K. and that's both corporate and public sector and housing makes it harder to retain the clients at the same rate levels and makes it harder to win new business. In the Nordic countries, it is no real change in the market situation. So it's still a rational market. But obviously, we don't get that support from the same inflationary increases also there. And our new sales in quarter 3 are on the low side. We've missed out on also some of the larger opportunities that sometimes come our way and now not -- I wouldn't read too much into that part of it because it doesn't look like a trend. So that's quarter 3. Any questions to quarter 3? [indiscernible]? Unknown Analyst: [indiscernible] I guess, I have 2 questions, Henrik. First, could you give a bit more flavor on the U.K. real estate statement you have on one of the bullets here to make us understand a bit more. And the second question is that you have seen so far EUR 460 million in France. Will that figure increase through quarter 4? Or is it kind of the final volume that you will see in entering January 1? Henrik Høye: Yes. I can do that. So I was just wondering if there were any more questions on quarter 3 because I was going to get to those 2 about France. Get the microphone and can run a bit now. Thomas Svendsen: Thomas Svendsen from SEB. So questions to the U.K., it has been -- the combined has been stable at around [ 80% ] for several quarters. So what is your assessment? What is sort of the new level of combined ratio there? Henrik Høye: On new sales? Thomas Svendsen: On new sales. Henrik Høye: No, I think that on the corporate, so commercial sector, we basically target below 91% and have been doing that for some time but we've been able to get rate increases in renewals. And so not a lot of difference on the corporate commercial sector. We've been quite stable there. But obviously, in the public sector and housing, where we haven't had a lot of competition, we have not targeted a lower combined but we have been able to increase our margin and still win business. So then I think that for new sales, I would say that we will close in towards 91% combined ratio on our new sales over time. But that market will fluctuate and have volatility. Ulrik? Ulrik Zürcher: Ulrik Zürcher, Nordea. You say that it's softening a bit in the U.K. Should we read anything into that into the renewal next year, has an impact on growth expectation? Henrik Høye: Yes. It has been softening for some time on the property side. If you read the big reports of property and property rates in the U.K., you'll see that there was quite significant rate reductions in that market. But that doesn't mean that we come from those extremely high levels on everything. So I wouldn't read too much into it. We see that we can be -- we can still be competitive in the U.K. property market. But the kind of 2023 -- 1st of April 2023 situation is not the case anymore. So it's more like a normal... Ulrik Zürcher: Yes. But we have to counter like something is the same, borough, like public market but then we also need to the new market, the real estate. So I'm just -- they're -- you're not saying there's any reasons why you shouldn't have very potentially high growth in U.K. next year in new business or... Henrik Høye: No. So -- and then I can come to that because that's interesting. In a market like the U.K. So we've -- we're in the corporate sector clients with GBP 50,000 and more annual premium and that's where we started. And we're in -- we've also entered what we call the mid-market between GBP 20,000 and GBP 50,000 approximately annual premium. So we're starting to get some kind of traction in that market. And then we've had public sector and housing the whole time. And that's where we have a fairly high market share. So we are a top 3 player there. There's still opportunities but the real opportunities lie in the commercial private space. And there, we will find pockets and segments that are fairly big pockets because it's the U.K. and the U.K. real estate is one of them. And there's 2 reasons why we are entering that market now. One and the most important one is that we have hesitated entering that market because of extremely high commissions. So there's been commissions between 30% and 40%, not only to the broker but also to the property administrators. And the value chain is not very transparent. We don't want to be part of that type of a value chain. And in addition to that, the volatility in those -- or fluctuations in those commission levels means that cost ratio -- cost advantage is not that important because it's -- a lot of it is with the brokers and the administrators. Now the authorities have put a focus on it. So the commission levels are coming down. So that market is more professional. It suits Protector in a better way. And then we have achieved the A rating, which is important in that sector because the banks who finance the properties, they require it in their contracts. So then we get an access to that market. So we've spent some time getting to know the brokers who operate in that market. So the large players -- the largest broker players in that market gathering data. And it's always a milestone to win the first client in the segment that has a new product. So the new terms and conditions and it is accepted by the market when you win the new client. So this is a big market. It's bigger than GBP 1 billion. That's our risk appetite. So that's basically what we will -- what we think we will quote on. So that's a big opportunity. And then on France, it is the same thing. We need to say something about what we know and what we know is the tender volume. It will [indiscernible] not stop there. So there is still volume coming out but we know -- this we've known for some time that the tender volume is quite -- is a high number for 1st of January '26 because we do pipelining together with the brokers. But then the ones that they don't know about will come out throughout quarter 4, especially on the motor side, which is 50% of this and -- but also on the public sector and housing side. In France, they have something they called failed tenders. So if a tender doesn't meet the criteria, then they put it in a failed category and then they can go out and negotiate those contracts. And they have budgets on -- so they -- most of them fail because of a budget that is too small on the premium. So -- and if it doesn't meet, then they have to, so they're required to cancel it. So they will come out. A few of those will come out as well. Ulrik? Ulrik Zürcher: Just one follow-up. You forgot a bullet point because you forgot to put in your expected win rate. Henrik Høye: And you can estimate and guess as much. I'm sure that we could probably be slightly more accurate than you but we don't know what the market is. And there is actually a -- so there's actually a reason for why we -- why I don't even want to indicate anything there because we -- from the beginning, which is right to do, we have been a bit more restrictive on terms and we have slightly higher margins on what we quote in the beginning. And it should be like that because we both need to get confidence in what we look at. And the first ones that come out have had slightly poorer data than what we require. And then we need to test the market. So we know very little about the quotes that are out in the market now because the ones we have sent out and have some feedback on, they are not representative for the majority of them. [indiscernible]? Unknown Analyst: Regarding the U.K. real estate market, you have won the first client now in the third quarter. Last time you presented, you said that you expected the first client to be on board at the earliest April 2026. I have in my notes. What has happened and has the process speed up? Henrik Høye: I think it's a combination of things. We -- so the reason why we said 1st of April was that we didn't believe that we were able to -- we were going to be able to collect this -- enough data to quote in that market before that batch 1st of April inception. And then we also know that we needed a different kind of process -- underwriting process and using technology has made it easier to create those models. So we have, in our IT systems today, 60% of the code is AI generated. But on the underwriting side, I'd say that probably at least 2/3 of the code is AI generated on our modeling. And that gives a huge advantage in developing these models. So we can make one version, benchmark it with another one. And then so we can create a lot of different models and benchmarks them with each other without being delayed in the process. So that's that. And then we've also got -- managed to get traction with at least one of the brokers earlier than what we expected. They were a bit skeptical in the beginning because there are many competitors in this market and it's a commodity and it's a -- so -- but then they've understood that we have an edge and have something to bring to the table. So then they have started to send us. So it's actually a case where we've said no to quote cases because we are not ready. Unknown Analyst: But is 1st of April also very important in this segment as the other in U.K.? Henrik Høye: 1st of April is because of some kind of a strange financial year setup there, is important in all segments but not at all like public sector. So it's more spread out in the real estate. But we don't have all the data. So we don't exactly, know exactly know how it's spread out. But it's less dominant 1st of April in real estate. Okay. So that's, volume. Again, so if you look at it, on the face, adjust for large losses and runoff compare the quarter 3 figures there to quarter 3 last year, you see a very similar number on the loss ratio. But the underlying realities are slightly better than that in '25 relative to '24. We have had large losses on the property side only in U.K., Sweden and Norway in quarter 3, not in the other countries. So then you understand that they are artificially low in Denmark, Finland and France to a certain degree. But France, as I said last time when we had black figures on the combined ratio, it's very early and I wouldn't read much into the loss ratios in France for quarter 3. So that's on the large loss side. Runoff gains in all quarters. We had a question around our practice of best estimate reserving, which we follow and which is correct, both on the case side and on the actuarial side. But obviously, following a period of time when there's been more uncertainty on the inflation, which I have mentioned before, there is a higher probability of some runoff movements and uncertainty sometimes makes us a bit more conservative. So I think that it's slightly higher probability that you get gains than losses for some time after a uncertain inflation period. So that shouldn't be too much of a surprise either. And then there was a big storm that mostly hit in Norway but also a little bit in the U.K. and Denmark. And for the Norwegian part of this, this is quarter 4 numbers. It is -- it doesn't make a big difference, as you can see, if you try to calculate those numbers and especially with the reinsurance side of it. So we get our share but the Natural Perils Pool is reinsured with a quota share this year. So it's not a very large number, some few tens of million Norwegian kroner approximately is what that will have an effect. So one large loss. Yes. So any questions on the claims development? I've touched upon some of these points that you could potentially see here, both on the runoff but also on the volatility for large losses. I think that still it's important not to kind of look for trends in large losses because this is about very few losses and it's very volatile. So I would still look at around 7% as a normalized level. When it comes to the cost ratio, it is up exclusive of commissions by a bit more than 1 percentage points for quarter 3. And there's been a development in the share price. We've talked about this before. And only that is -- so if you correct for that relative to quarter 3, this is real cost. So it's about the salaries for some key people that have been part of a bonus scheme for some time that follows with synthetic shares that follow the share price. And when there is a lot of movement there, it does affect. But if you correct for that, you're basically at the same level. And then France was booked on the other expenses row before. Now it's in the cost ratio. And so that's a bit more. So it's slightly lower if you correct for those 2. I don't think it's very important to correct for any of them because the important message I want to give and what we talk about with the employees is that we are in a position now where we have a lot of development opportunities on the volume side. So we've opened a new market. U.K. is still -- there's a lot of opportunities. And even in the Nordics, there are a lot of opportunities on facilities and the property side. So we're investing in creating. It's a great time to invest in creating better data and preparing ourselves for the future in utilizing AI. So let's do parallel processes where we create AI functionality that can do exactly the same as the process today and then we benchmark. That costs some resources and we could have been more efficient today and I've talked about that before. I still mean that. We have overcapacity and we're not stressing in taking out those efficiency gains at the moment because that's probably the wrong decision. Any questions on the cost side? [indiscernible]? Unknown Analyst: Not on the cost side but on AI. You are using a lot of time talking about AI and I understand you are putting a lot of effort on this. Regarding your competitors, how are they using the same tool? Do you have some indication or... Henrik Høye: Right now I think it's much better that we spend our time on how we can utilize it. But obviously, we should learn from successes and mistakes out there. So we need to look out, out the window as well. And -- but I think what we do see is that lot of our competition, they focus that on their customer experience and because of the consumer -- the weight of the consumer segments in their companies. So it's a lot about improving the customer journey or whatever they call it, which is not very relevant for us. And I also -- what I do hear and see is that it is a lot about efficiency. So it's automation, which is not what AI is -- that's not our focus at least. That's a bonus and it will happen. So let's not stress about getting some efficiency gains because we're all becoming more efficient every day and you are, I'm sure. So that's not the main aim of this. It's the quality. And automation and robots and that is something we could have done a long time ago. So that's not really about AI. But I think the focus is -- we hear that the focus is a lot around that. So to the investment side, I'm not planning on spending a lot of time here but please come with questions. So in absolute terms, poor equity results. And then we've done a -- so we've accumulated profits or own funds in the different currencies and countries as that has come in. And now we've moved that equity home. That increases the running yield on the interest rate, the bond portfolio slightly because we get better yield in the Norwegian bonds than what we have on average for the rest. And then on the underlying realities for our papers or the companies in the equity portfolio, it is a -- so we have some IT consultancy where there is some poorer underlying development. And other than that, it's a good development. So in total, we characterize that as okay. So it's not like it's just volatility there but we haven't changed any strategy. And 1 quarter is a short time. A year is a short time, as we've said many times on this area. No losses in the bond portfolio. Capital position is -- so, yes, so there's no -- if you look at the other income expenses row here, you see that it is a high increase. That is due to the increased debt that we have, the Tier 2 debt that we have increased during 2025, so the interest rates there. Other than that, nothing special. And then this is slightly new in how we present it. The biggest element that you can see here is on the market risk, on the solvency capital requirement on the market risk, the [NOK 558 million that is on the orange box is due to the -- to moving the equity from the branches to Norway that decreases the requirement on the market risk. But on the other side, we get less diversification. So -- but there is an effect there on the solvency, which takes the requirement down. And the solvency position is very strong. And we still see obviously some geopolitical uncertainty in the world. And then in spite of what you see on the growth side for quarter 3, we see a lot of opportunities. When that volume will come in, that I don't know because that's dependent on the market. But we see a lot of opportunities and we have the data and we are quoting and we're comfortable with the quotes we send to the market. So we still believe that over time, the growth journey of Protector will continue. And therefore, it's good to be on the solid side since there is some volatility in that. And so that we don't have to do stupid things or the wrong thing either on the insurance or the investment side in the future. Yes, Ulrik. Ulrik Zürcher: You have a Tier 2 bond that's up in December, right? Henrik Høye: Yes. Ulrik Zürcher: Will you refinance that? Or will you cancel it? Henrik Høye: So we will continuously look to what we can utilize because there is a -- so now we're not able to utilize and partially because the requirement has reduced, right, from taking the equity on. So we'll continuously monitor how much we can utilize. And there are also limitations on how much we can take in. So it may be that we wait. But most likely, we won't renew it in December. December is also a poor date. So it's better to have it at a different date but that's a small part of it. But we'll assess that going forward. And then we'll most likely renew it or fill up with something in 2026 on that. Is that an okay answer, detailed comment? Ulrik Zürcher: Yes. Because it's a bit important when we judge your like actual solvency now. It's like that bond is that, [ i.e.,] because now you're not utilizing, so you could pay that back and then you can utilize what you have or you're very forward leaning on growth, so you need... Henrik Høye: Also that's, so in general, what we will aim to do is to have what we can utilize. So that's where it will be. And then you probably in a good market, be a bit ahead of that curve rather than behind it. So I spent more time here on this than I usually do and we do that in the organization as well. But when it comes to the quarter 3 results, this is the same slide as I started out with. So any further questions outside of what we have covered so far or anything that we have online? Unknown Executive: Yes, we have a couple of questions. Some of them have been dealt with already. But continuing on the capital situation, which is assumingly very strong and the potential for high growth in France, given the numbers. Could you say something about how much of that volume we will win, how much that will kind of consume of capital? So how much will NOK 1 in growth consume January 1? Henrik Høye: I can't give an exact answer. But today, we -- I guess it's about 30%. So 1 unit is 0.3%. And then there is something on the -- especially on the cat side, natural catastrophes that will make a difference because France is a different geographical area. So we will get diversification. So a property will -- in France consumes less because we have a lot of property pounds and property kroners. So that's -- so yes, it consumes slightly less on the property side, not on the motor side. Any other questions? Thanks for coming. Thanks for listening. Unknown Executive: Thank you.
Operator: Thank you for standing by. My name is Greg, and I will be your conference operator today. At this time, I would like to welcome everyone to today's SS&C Technologies Q3 2025 Earnings Call. [Operator Instructions] I'd now like to turn the call over to Justine Stone, Head of Investor Relations. Justine? Justine Stone: Hi, everyone. Welcome, and thank you for joining us for our Q3 2025 earnings call. I'm Justine Stone, Investor Relations for SS&C. With me today is Bill Stone, Chairman and Chief Executive Officer; Rahul Kanwar, President and Chief Operating Officer; and Brian Schell, our Chief Financial Officer. Before we get started, we need to review the safe harbor statement. Please note that various remarks we make today about future expectations, plans and prospects, including the financial outlook we provide, constitute forward-looking statements for the purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in our Risk Factors section of our most recent annual report on Form 10-K, which is on file with the SEC and can also be accessed on our website. These forward-looking statements represent our expectations only as of today, October 23, 2025. While the company may elect to update these forward-looking statements, it specifically disclaims any obligation to do so. During today's call, we will be referring to certain non-GAAP financial measures. A reconciliation of these non-GAAP financial measures to comparable GAAP financial measures is included in today's earnings release, which is located in the Investor Relations section of our website at www.ssctech.com. I will now turn the call over to Bill. Bill Stone: Thanks, Justine, and welcome, everyone. Our third quarter results include record adjusted revenue of $1.569 billion, up 7% and adjusted diluted earnings per share of $1.57, a 17.2% increase. We delivered record adjusted consolidated EBITDA of $619 million, up 9.3%, resulting in quarterly adjusted consolidated EBITDA margin of 39.5%. Our third quarter adjusted organic revenue growth was 5.2%, with performance driven by GlobeOp with a 9.6% revenue growth and our Global Investor and Distribution Services or GIDS business with a 9% revenue growth. We saw strength across all alternative markets, and we are capitalizing on international opportunities. In our GIDS business, we successfully completed a large lift out in Australia on July 1 and announced an additional lift out for our U.S. life and pensions provider. Q3 Financial Services recurring revenue growth was 6.7%. For the 9 months, ended September 30, '25, cash from operating activities was $1.101 million, up 22% over the prior year. In Q3, we returned $305 million to shareholders, which included acquiring 2.8 million shares for $240 million at an average price of $86.82 and $65.8 million in common stock dividends. This quarter, we've raised our common stock dividend to $1.08, an 8% increase. SS&C's strong cash flow characteristics allow us to return capital to our shareholders in multiple ways. We continue to believe our shares are undervalued, and we'll continue to prioritize share repurchase. High-quality acquisitions that meet our financial criteria are also a key element of SS&C's capital allocation strategy. In September, we announced the acquisition of Curo Fund Services, a South African fund administration business. This acquisition deepens our relationship with 2 meaningful clients and gives SS&C a local presence in the African market. Our Calastone acquisition closed on October 14, a global team of 250 employees will join our GIDS business, reporting into Nick Wright. We are excited about Calastone's proprietary global funds network and the additional capabilities in money markets, ETFs and digital assets they bring to the SS&C solutions set. Tokenization is gaining meaningful traction amongst our clients, and we are pleased to offer a solution that supports their evolving digital asset strategies. I'll now turn it over the call to Rahul to discuss the quarter in more detail. Rahul Kanwar: Thanks, Bill. We had a strong third quarter with solid organic growth of 5.2% and improved margins. Across our business, we remain focused on taking care of our customers and deepening our product set and expertise. And we're pleased to see that focus translate into financial results. We continue to pay close attention to our cost structure and view intelligent automation and AI as both a revenue opportunity and a way to reduce repetitive tasks while enhancing career paths for our employees. We've seen the results of these efforts reflected in improved EBITDA margins to date and expect this positive trend to continue. GlobeOp had a good quarter with continued strength within our hedge fund client base, international wins in private markets and benefits from the ongoing trend towards retail alternatives. Looking ahead, we view GlobeOp as a key beneficiary of emerging technologies and aim to dramatically enhance user interfaces and client experiences as meaningful competitive differentiators. Our Global Investor and Distribution Solutions business had an excellent quarter, driven in part by successful lift-outs across the globe. We're encouraged by the potential these mandates unlock. SS&C continues to help accelerate the global transformation from traditional automation to AI-powered automation, selling purpose-built agents as a managed service. With SS&C as customer zero, we can leverage millions of daily use cases to build deep and comprehensive solution sets, which provide for both internal efficiency and external revenue opportunities. As one example, we sold an AI agent to a U.K.-based health care organization to automate MRI, CT and ultrasound request processing, saving over 15,000 radiologist hours annually. This frees clinical capacity, reduces outsourcing costs and addresses a global hospital challenge as well as points to the utility of these AI agents in a wide range of applications. With that, I'll turn it over to Brian to walk through the financials. Brian Schell: Thanks, Rahul, and good day, everyone. Unless noted otherwise, the quarterly comparisons are Q3 2024. As disclosed in our press release, our Q3 2025 GAAP results reflect revenues of $1.568 billion, net income of $210 million and diluted earnings per share of $0.83. Our adjusted non-GAAP results include revenues of $1.569 billion, an increase of 7% and adjusted diluted EPS of $1.57, a 17.2% increase. The adjusted revenue increase of $102 million was primarily driven by incremental revenue contributions from GlobeOp of $37 million, GIDS of $33 million, acquisitions of $17 million and a favorable impact from foreign exchange of $9 million. As a result, adjusted organic revenue growth on a constant currency basis was 5.2% and core expenses increased 4.1% or $37 million. Adjusted consolidated EBITDA was $619 million, reflecting an increase of $53 million or 9.3% and margin expansion of 90 basis points to 39.5%. Net EBITDA of $619 million is a quarterly record high for SS&C. Net interest expense for the third quarter of '25 was $104 million. a decrease of $6 million, primarily reflecting lower short-term interest rates. Adjusted net income was $396 million, up 16.5% and adjusted diluted EPS was $1.57, an increase of 17.2%. Our effective non-GAAP tax rate was 21.1%. Note, for comparison purposes, we have recast the 2024 adjusted net income to reflect the full year effective tax rate of 23.1%. Also note that diluted share count is down year-over-year to 252.6 million from 254.1 million, primarily as a result of share repurchases. Cash flow from operating activities grew 22%, which was primarily driven by growth in earnings. Our quarterly cash flow conversion was 115%, up from 99% last year. Our year-to-date cash flow conversion is 98% versus 89% last year. SS&C ended the third quarter with $388 million in cash and cash equivalents and $6.6 billion in gross debt. SS&C's net debt was $6.2 billion and our LTM consolidated EBITDA was $2.4 billion. The resulting net leverage ratio is 2.59x. As we look forward to the fourth quarter and the remainder of the year with respect to guidance, we will continue to focus on client service and assume that retention rates will be in the range of our most recent results. We'll continue to manage our business to support long-term growth and manage our expenses by controlling and aligning variable expenses, increasing productivity to improve our operating margins and effectively investing in the business through marketing, sales and R&D. Specifically, we have assumed short-term interest rates to remain at current level, an effective tax rate of approximately 23% on an adjusted basis and capital expenditures to be 4.2% to 4.6% of revenues, and revenues of approximately $20 million for the Calastone acquisition. For the fourth quarter of 25%, we expect revenue to be in the range of $1.59 billion to $1.63 billion and 4.5% organic revenue growth at the midpoint. Adjusted net income in the range of $394 million to $410 million. Interest expense, excluding amortization of deferred financing costs and original issue discount in the range of $106 million to $108 million. Diluted shares in the range of 251.5 million to 252.5 million. And adjusted diluted EPS in the range of $1.56 to $1.62. For the full year 2025, we are raising our top line guidance by $37 million at the midpoint and now expect revenue to be in the range of $6.21 billion to $6.25 billion and 4.6% revenue growth at the midpoint. For the full year 2025, we are also raising the midpoint of our earnings guidance. Specifically, we expect adjusted net income in the range of $1.522 billion to $1.538 billion. Adjusted diluted EPS in the range of $6.02 to $6.08, up $0.11 at the midpoint. And cash from operating activities to be in the range of $1.515 billion to $1.575 billion. Our 2025 guidance reflects our record results thus far in 2025, and we look forward to continued execution during Q4. And now back to Bill. Bill Stone: Thanks, Brian. SS&C's record adjusted revenues and adjusted EBITDA this quarter attest to our strong and long-term financial and operating strength. The 22% increase to $1.1 billion in operating cash flow through 3 quarters gives us the flexibility to pursue growth opportunities as we continue to pay down debt and repurchase shares. We also look forward to hosting almost 1,000 clients and prospects at our annual Deliver conference beginning this Sunday in Phoenix, Arizona. This year's conference will feature the latest and greatest SS&C's offerings, and we'll have our Chief Technology Officer there, Anthony Caiafa, will talk about all of our AI advancements within SS&C in the market. And our keynote speaker is Victor Haghani, founder and CIO of Elm Wealth and a co-founder of Long-Term Capital Management. So we appreciate all of you being here on the call, and I'll now open it to questions. Operator: Thanks, Bill. [Operator Instructions] All right. It looks like our first question today comes from the line of Dan Perlin with RBC Capital Markets. Daniel Perlin: Nice quarter here. I just wanted to try and get a sense around the 4Q organic guide around 4.5%. Kind of keeping in mind that Battea is contributing into that organic growth. So I'm just wondering, can you tell us at least directionally what the contribution of Battea would be in that 4.5% and -- or is that just kind of a conservative kind of jumping off point. It felt like it should be contributing, I think, more meaningfully in the fourth quarter. Rahul Kanwar: Yes. I think that the -- the one thing that I would just highlight is Q4 of the year before was by far our strongest quarter. So we think that's a reasonable jump in all point, not overly conservative, but also something that hopefully we can positively improve on. And Battea's contribution, I think we did about $16 million in Q4 last year. We expect to do about $25 million in Q4 this year. Daniel Perlin: Got it. Okay. That's great. And then just secondly, I mean, GIDS had a very successful organic quarter. I wanted to make sure I understood maybe the mechanics behind that a little bit. I think the contribution to that organic growth was driven by this lift out, but maybe if you could provide a little more details around that, that would be great. Bill Stone: Yes, that was a big chunk. We had a big lift out in Sydney, Australia, that we completed July 1. So we had a half a year from that. And we also sold other large lift outs as well, and we have a pipeline. So we're pretty confident in Q4 for GIDS and '26. Operator: And our next question comes from the line of Jeff Schmitt with William Blair. Jeffrey Schmitt: On the Curo Fund Services deal, could you discuss what attracted you to that business? And how much revenue is that generating? I guess why is that going to be held under GIDs if it's a fund administration business? Bill Stone: The African market is still quite a bit behind the European and the U.S. markets in fund administration and a lot of where you find these kinds of companies is in the life and pensions area. So the 2 large clients, we have very large insurers and they jointly owned Curo. So that's why it's going into GIDS. Jeffrey Schmitt: Okay. And did you mention how much revenue that's generating? Bill Stone: It's negligible. It's $15 million or so, I think. Jeffrey Schmitt: Okay. And then you had talked in recent quarters just about implementing agentic AI and Blue Prism. I think that had sort of been more bot-based automation in the past. So could you give us an update on kind of where you stand there? And what other businesses are you developing that for? Bill Stone: Well, we call ourselves customer zero. So we're doing it across our entire business. And as we have been leaders in most of the technologies that have come out over the last several years, we're now infusing all of those technologies with AI agents and making them smarter and faster. And again, with 27,000 people we have and literally thousands of experts, we believe that we bring the functional expertise to make really smart agents. You can use the greatest technology, but if you don't know what the hell you're talking about, they are not going to be particularly good agents. We think we have the largest, most sophisticated clients because we deliver. And I think that's what you're going to find with our delivery of AI agents. Operator: And our next question comes from the line of Alexei Gogolev with JPMorgan. Alexei Gogolev: Bill, it's clearly a competitive market out there. Could you elaborate on the potential impact from the lost business at State Street in-sourced SPDR. Will that impact on revenue be felt in 2026 or in 4Q of this year? Bill Stone: I mean we'll have a small impact. We still believe our WIT business will still grow, and that was kind of an ancillary business anyway. And it's not something that we were investing in to see if we could do more distribution of SPDR-like products. So while we don't ever like to lose revenue, but at the same time, this wasn't our focus. It's not really going to hurt us much and we look forward to taking those resources that we had there and apply them to things that we think can grow faster. Alexei Gogolev: Thank you, Bill. And then Brian, with GIDS and GlobeOp's growth performing quite well this quarter, how much does that revenue mix shift change margin outlook? I think you seem to have suggested that 3Q 2024, SS&C had strong performance of Intralinks and significant license sale that boosted WIT business. And both of those have visibly higher margins than GIDS and GlobeOps. Can you elaborate on margin impact this quarter? Brian Schell: Yes. No, I think what you saw is you saw the strength of the margin impact, actually, obviously, with the GlobeOp. It, obviously, already has very strong margins above the consolidated average and you saw an incremental contribution from them. I think that some of the things that GIDS has been doing is continue to try and work on their margin as well. But I'd say more broadly, because of the different growth areas, we're continuing to see positive signs from the rest of the business. So that's why you've been able to continue to see actually a margin uptake, right, from overall, right? So we're projecting that a greater than 50 basis point margin improvement in EBITDA, which has always been our kind of our general target. And so that mix shift hasn't affected our overall plans on a consolidated level. Bill Stone: And at 39.5%, you can compare us to any of our peers, we perform admirably relatively. Operator: And our next question comes from the line of Peter Heckmann with D.A. Davidson. Peter Heckmann: I wanted to follow up on Calastone a little bit. Two things there. Talk a little bit about how their existing operations complement your existing U.K. operations for advisory firms and then in wealth management firms. And then number two is remind us, is there any significant seasonality of Calastone's revenue? I seem to remember there was some seasonality to the first quarter for year-end statement, but I can't remember if that was correct. Bill Stone: So we're excited about Calastone. Jason Hammerson has built a great business, got 250 people, and I believe, have about 4,600 clients, fund companies and other asset managers and wealth managers around the world, and it really has a powerful tokenization process. It has very powerful ETFs. And many of you know that it looks like dual share class ETFs has been approved, and that's going to be another boon to the ETF market, which is pretty strong in the United States. And the mutual fund industry, where Calastone is also real strong, it's still strong in Asia and in Europe. So we really like the synergies we get with Calastone acquisition, and we look forward to building on our distribution networks together. Peter Heckmann: Okay. And then on the seasonality of revenue and anything significant there to call out? Bill Stone: I don't think so. I think, Pete, it's a great company, but relative size is not going to impact our growth rates are -- and there's no seasonality in any one quarter that's going to make much of a difference. Peter Heckmann: Really going to stand out. Okay. Appreciate it. Operator: And our next question comes from the line of Patrick O'Shaughnessy with Raymond James. Patrick O'Shaughnessy: So it sounds like, at least anecdotally, the M&A pipeline is starting to pick up. But obviously, that really hasn't translated to improved growth for Intralinks quite yet. What are you seeing out there in terms of the pipeline for Intralinks and the competitive landscape? Rahul Kanwar: Yes. I think it's a little bit like you just pointed out, we are seeing the early indicators of the pipeline. So the opportunities that we're talking to and the data rooms that are getting opened, we're seeing those numbers improve. Generally, revenue lags several weeks to maybe a few months from there, but we are starting to see some positive signs. Patrick O'Shaughnessy: Got it. I appreciate that. And then health care business, 2 consecutive quarters of positive year-over-year growth. What's your confidence level that, that business has positively inflected in a sustainable way? Bill Stone: Well, I think, Patrick, that one of the things people should keep in mind is we built DomaniRx while we ran this health care business, and we had 1 million hours in that development. So the Domani runs at -- or our health care business runs at 30%, 35% margins. We -- it's lumpy. You get $10 million, $20 million deals, sometimes way bigger than that. And we have a great client in Humana that we continue to build out further, and we have another great client in Centene. And so we have opportunities. And it's just selling into large banks, large insurance companies, large asset managers. Sometimes I think they're nimble when I sell into large health care organizations. Operator: And our next question comes from the line of Kevin McVeigh with UBS. Kevin McVeigh: Congratulations on terrific results. I think you came in $0.07 above the high end of the range, including kind of some -- it seems like, obviously, implementation work. I guess where was the source of the upside just relative to where expectations were on the EPS? Bill Stone: Well, again, we talked a little bit about the lift out we did in Australia that lifted the GIDS business. And then we also have had very strong performance out of GlobeOp. And even though we had some weaker revenue performance on Intralinks, they're still very profitable. So all of our businesses are doing well with opportunities. And in Q3, we had most of them hitting a pretty good stride. And we think in Q4, we have -- we're pretty good out of the gates, right? It's certainly towards the end of October, which is 1/3 of the quarter, and it's also got Thanksgiving and Christmas in the fourth quarter. So we're reasonably optimistic, as you can tell. Kevin McVeigh: You sound really encouraged. I guess you mentioned tokenization a couple of times with Calastone. Is there an opportunity to kind of implement that technology across the other business lines, similar to what you've done with Blue Prism? Bill Stone: There's opportunity. And one of the great things we always talk about is that you have to get right? So a lot of people dabbled in things like machine learning and natural language processing and robotic process automation and that -- but you buy a few licenses to UiPath or Automation Anywhere and you don't have any substance. SS&C spent $1.6 billion, $1.7 billion to buy Blue Prism so that we had 1,400 people that are steeped in these technologies. And now with what we're doing with AI agents and being customer zero, we get to add all kinds of capabilities in a very controlled manner so that we become your trusted source for AI at a -- in a regulated and highly complex industries. Operator: And our next question comes from the line of James Faucette with Morgan Stanley. James Faucette: Just wanted to ask a question on the general environment. Bill, you've had great insight previously into private credit flows, and there's been a lot of chatter about that market maybe beginning to show a little squishiness. Are you seeing anything from a flow perspective? Or do you consider that a bit of noise right now? Bill Stone: I think as more people get into it, James, that people need to learn and understand the vagaries of the private markets versus the public markets. But the smartest people in the industry are all over private credit and other new ways in which to develop returns that sometimes are not there in the public markets. And so we've had a bunch of the biggest players in the industry are our clients, and we've had talks by a number of them. And they're talking 100, 200 basis points more in the private markets than what they can get in the public markets. And so as long as that's true, and there's no -- nothing that's showing that it's not, I don't think it's going to slow down. James Faucette: Appreciate that. And then I wanted to ask on go-to-market. You've been more focused on selling some enterprise solutions that combine multiple products and services. The organic results are still really strong, but anything you can share qualitatively or quantitatively on the impact on that initiative and how it may be impacting things like average deal size or even customer retention? Bill Stone: Well, obviously, you work for a big investment bank and understand that you guys moving real quickly is kind of an oxymoron, right? And so I think what we see is that these larger and larger institutions, the top management wants to move fast. And what they find is that, that really is out of character for these large commercial and investment banks. And what they like about us is that we're still a pretty big place. We've got 27,000 people. We have 120 offices or 130 offices around the world. And so we can bring you scale and we still move pretty quickly. And relative to the gigantic banks, we moved very quickly. Operator: And it looks like there are no further questions. So I will now turn the call back over to Bill Stone for closing remarks. Bill? Bill Stone: Dan, thank you. So I think from a standpoint of our third quarter, we're happy to have performed well. We look forward to talking to you after the new year. And hopefully, we will surprise you positively. So have a good quarter. Thanks.
Operator: Good afternoon, ladies and gentlemen, and welcome to the South Plains Financial, Inc. Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the call over to Steve Crockett, Chief Financial Officer and Treasurer of South Plains Financial. Please go ahead. Steven Crockett: Thank you, operator, and good afternoon, everyone. We appreciate you joining our earnings conference call. With me here today are Curtis Griffith, our Chairman and CEO; Cory Newsom, our President; and Brent Bates, the bank's Chief Credit Officer. The related earnings press release and earnings presentation are available on the News and Events section of our website, spfi.bank. Before we begin, I'd like to remind everyone that any forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from those anticipated future results. Please see our safe harbor statements in our earnings press release and in our earnings presentation. All comments expressed or implied made during today's call are qualified by those safe harbor statements. Any forward-looking statements made during this call are made only as of today's date, and we do not undertake any duty to update such forward-looking statements, except as required by law. Additionally, during today's call, we may discuss certain non-GAAP financial measures, which we believe are useful in evaluating our performance. A reconciliation of these non-GAAP financial measures to the most comparable GAAP financial measures can also be found in our earnings release and in the earnings presentation. Curtis, let me hand it over to you. Curtis Griffith: Thank you, Steve, and good afternoon. As outlined on Slide 4 of our presentation, we delivered strong third quarter results, highlighted by solid earnings growth as we continue to experience net interest income expansion, supported by our low-cost community-based deposit franchise. The credit quality of our loan portfolio also continued to improve, and our return on assets markedly expanded. Our results demonstrate the strong foundation that we have purposefully built. We've added exceptional talent across the bank while also making the necessary investments in our technology platform that positions South Plains to efficiently scale our operations as we grow. We have also built strong liquidity and capital while continuing to improve the asset quality of our loan portfolio. As a result, I believe the bank is firmly positioned to accelerate our asset growth through both organic growth and accretive M&A opportunities. As Cory will expand upon, we continue to benefit from our competitors' acquisitions by attracting experienced lenders to the bank. We expect they will bring high-quality, long-term customer relationships they have built in their successful careers to South Plains. While we have been experiencing higher-than-normal loan paydowns, which has proved a headwind to loan growth, we expect an acceleration in growth next year through increasing our lending team by up to 20%. The investments that we've made in the bank, combined with the experience that we gained through the acquisition of West Texas State Bank also positions us to explore further acquisitions. Of note, we continue to engage in discussions with potential target banks in our core markets that we believe have the potential to fit our conservative nature and overall culture and meet our strict criteria for a deal. As I have said on many of these calls, we are only interested in acquiring a bank that possesses these qualities and makes sense for us and our shareholders. Importantly, M&A is not the only option that we have to grow. Our organic growth initiative is just in the early innings, and we are optimistic that we will see a sharp acceleration in loan growth in the year ahead. As a result, we will only do a deal that makes sense for the bank and our shareholders, of which my family and I are the largest. We believe that we are in a strong position to capitalize on opportunities to drive growth as the bank and the company each significantly exceed the minimum regulatory capital levels necessary to be deemed well capitalized. At September 30, 2025, our consolidated common equity Tier 1 risk-based capital ratio was 14.41%, and our Tier 1 leverage ratio was 12.37%. Given our capital position, we remain focused on both growing the bank while also returning a steady stream of income to our shareholders through our quarterly dividend and keeping a share buyback program in place. Last week, our Board of Directors authorized a $0.16 per share quarterly dividend, which will be our 26th consecutive dividend. Now let me turn the call over to Cory. Cory Newsom: Thank you, Curtis, and hello, everyone. Starting on Slide 5. Our loans held for investment decreased by $45.5 million to $3.05 billion in the third quarter as compared to the linked quarter. The decline was primarily due to a decrease of $46.5 million in multifamily property loans, mainly due to the payoff of 2 loans totaling $39.6 million. As Curtis mentioned and we have discussed on previous calls, we've been experiencing a heightened level of loan payoffs and paydowns through the year, which have been a headwind to loan growth. Looking forward, we expect level of paydowns and payoffs to moderate as we look to 2026. Our yield on loans was 6.92% in the third quarter as compared to 6.99% in the linked quarter. Our loan yield was boosted by 8 basis points in the third quarter due to $640,000 in interest and fees related to the resolution of credit workouts. As a reminder, our loan yield was also boosted by 23 basis points in the second quarter due to $1.7 million interest recovery from the full repayment of a loan that had been on nonaccrual. Excluding these onetime gains, our yield on loans was 6.84% in the third quarter and 6.76% in the second quarter, representing an increase of 8 basis points. Looking ahead, the impact to our loan yields from the FOMC's 25 basis point reduction in their benchmark interest rate in September was not material, though we do expect our loan yields to moderate. That said, we remain optimistic that we can continue to reprice our deposits and manage our margin as market rates decline. Importantly, our new loan production pipeline continues to remain solid and economic activity continues to be healthy. As we discussed on our second quarter call, we have a strong position in each of the communities and metro markets where we do business and have capacity within our existing infrastructure to expand our lending platform. We're actively recruiting lenders who fit our culture to grow our lending capabilities as we work to accelerate our loan growth, which is a priority for our management team. We continue to be very pleased with the quality of bankers that we are speaking with who have an interest in joining South Plains. We are also seeing dislocation from recent acquisitions in Texas, which is creating more opportunity to expand our platform. As Curtis touched on, our goal is to grow our lending platform by up to 20%, and we are more than halfway there, having added lenders in Houston and Midland since our last call. This builds on our success from the second quarter where we recruited several experienced lenders in our Dallas MSA. While loans in our major metropolitan markets of Dallas, Houston and El Paso held steady in the third quarter at $1.01 billion, as can be seen on Slide 7, we remain optimistic that loan growth will reaccelerate as we continue to add lenders across our metropolitan markets. At quarter end, our major metro loan portfolio represented 33.2% of our total loan portfolio. Skipping to Slide 10. Our indirect auto loan portfolio totaled $239 million at the end of the third quarter, which is relatively unchanged as compared to $241 million at the end of the linked quarter. We've been carefully managing this portfolio with a focus on maintaining its credit quality over the last 2 years, which has resulted in a decline in loan balances of $57 million since the third quarter of 2023 when the portfolio was $296 million. Over this time period, we have seen competitors become more aggressive at the higher end of the credit spectrum while volumes have declined. More recently, we have tightened our loan-to-value requirements to further ensure that we are proactively managing this portfolio in the current environment as well as any potential challenges to come. It is also important to highlight that we are primarily a lender through auto dealers to borrowers who are in our markets, 86% with super prime or prime credit ratings at origination. Our borrowers' strong credit profiles can further be seen in the credit metrics of this portfolio as our 30-plus days past due loans, which totaled approximately $575,000, improved 8 basis points to 24 basis points in the third quarter as compared to 32 basis points in the second quarter. At year-end 2024, our 30-plus days past due loans stood at 47 basis points. We believe our 30-plus past due loans are the best early indicator to any potential signs of credit stress in this portfolio and believe our tightened credit standards will further protect the bank and the credit profile of our indirect auto portfolio as we look forward. Additionally, our net charge-offs for all consumer autos were approximately $160,000 for the quarter as compared to $350,000 in the linked quarter. Given the stable profile of our indirect portfolio, combined with the success that we are having adding lenders to the bank, we expect loan growth to gradually accelerate to a mid- to high single-digit rate through 2026. We expect our new hires to begin contributing to a loan growth in '26, while the level of payoffs begin to diminish. We also remain cautiously optimistic that economic growth across our Texas markets can remain resilient and provide a tailwind to growth. Turning to Slide 11. We generated $11.2 million of noninterest income in the third quarter as compared to $12.2 million in the linked quarter. This was primarily due to a decrease of $1 million in mortgage banking revenues as can be seen on Slide 12. The decrease was mainly from a $769,000 quarter-over-quarter decline in the fair value adjustment of the mortgage servicing rights asset. Overall, our mortgage banking revenues have been relatively flat over the last 4 quarters given persistently high mortgage rates combined with low housing supply. We are pleased with how the business is performing in this low transaction environment and the recent easing of market interest rates and believe we are well positioned for the eventual upturn in volumes as rates look set to decline further. For the third quarter, noninterest income was 21% of bank revenues, essentially flat with the linked quarter and the year ago 2024 third quarter. Continue to grow our noninterest income remains a focus of our team. I would now like to turn the call over to Steve. Steven Crockett: Thanks, Cory. For the third quarter, diluted earnings per share were $0.96 compared to $0.86 from the linked quarter. This increase is primarily a result of the reduction in provision for credit losses and increase in net interest income, which I'll cover, partially offset by the decrease in MSR fair value adjustment Cory mentioned. Starting on Slide 14. Net interest income was $43 million for the third quarter compared to $42.5 million in the linked quarter. Our net interest margin calculated on a tax equivalent basis was 4.05% in the third quarter as compared to 4.07% in the linked quarter. As Cory touched on, we had loan interest and fee items related to specific credit workouts that positively impacted our NIM in both the third quarter and the second quarter. The third quarter impact was 6 basis points or $640,000, while the second quarter impact was 17 basis points or $1.7 million. Excluding these onetime items in both periods, our third quarter NIM increased by 9 basis points to 3.99% from the linked quarter. As outlined on Slide 15, deposits increased by $142.2 million to $3.88 billion at the end of the third quarter due to organic growth in both retail and commercial deposits. The increase was predominantly noted in the loan market and follows the overall $53.6 million decline during the second quarter. Noninterest-bearing deposits increased $50.7 million in the third quarter. Additionally, our noninterest-bearing deposit to total deposit ratio increased to 27% in the third quarter from 26.7% in the linked quarter. The mix shift change in deposits along with the continued drop in CD rates contributed to the 4 basis point decline in our cost of deposits to 210 basis points in the third quarter, down from 214 basis points in the linked quarter. Turning to Slide 17. Our classified loans decreased $21.1 million during the quarter. This includes the full collection of a $32 million multifamily property loan that had been talked about on prior calls. This is the second consecutive quarter with a positive resolution to a large previously classified and/or nonperforming loan that included full repayment of all amounts owed and shows our commitment to asset quality. Our ratio of allowance for credit losses to total loans held for investment was 1.45% at September 30, 2025, unchanged from the end of the prior quarter. We recorded a $500,000 provision for credit losses in the third quarter compared to $2.5 million in the linked quarter. The decrease in provision expense was largely attributable to a decrease in specific reserves, decreased loan balances and overall improved credit quality. I would note that we believe we continue to be well positioned for varying economic conditions. Skipping ahead to Slide 19. Our noninterest expense was $33 million in the third quarter as compared to $33.5 million in the linked quarter. $519,000 decrease from the linked quarter was largely the result of a decrease of $581,000 in professional service expenses related primarily to consulting on technology projects and initiatives. On September 30, 2025, we redeemed $50 million in subordinated debt. The redemption was done in conjunction with the end of the initial 5-year fixed rate period as the debt was to begin floating quarterly at a higher interest rate. We made the decision to repay the debt given the higher rates, combined with our view that we can readily access the fixed income market if and when a need arises. Moving to Slide 21. We remain well capitalized with tangible common equity to tangible assets of 10.25% at the end of the third quarter, an increase of 27 basis points from the end of the second quarter. Tangible book value per share increased to $28.14 as of September 30, 2025, compared to $26.70 as of June 30, 2025. The increase was primarily driven by $13.7 million of net income after dividends paid and by an increase in accumulated other comprehensive income of $9.1 million. This concludes our prepared remarks. I will now turn the call back to our operator to open the line for any questions. Operator? Operator: [Operator Instructions] Our first question is from Joe Yanchunis with Raymond James. Joseph Yanchunis: So you discussed your plan to increase your lending team by up to 20% next year. And that follows a relatively rapid pace of hires over the past couple of years. I guess how much of that growth is coming from true lenders versus support staff? And for context, can you tell us how many lenders we should use as a base to go off this growth? Cory Newsom: Yes. Nothing -- I think from the base is probably about 40. And as far as -- none of that includes support staff. That's all production. And I would say -- and based on the 20% that we're talking about, we've probably already achieved north of 10% so far this year. Curtis Griffith: We're partway to that. Joseph Yanchunis: And are there any particular markets that you can highlight where that growth has either come from or where you're expecting that growth to come from? Cory Newsom: Yes. Permian, Houston and definitely in the Dallas area. Joseph Yanchunis: Okay. So shifting gears here, and I apologize, I only heard most of your comments on your indirect auto portfolio. And I certainly understand your great past due ratios and low charge-off activity. However, I noticed in your deck, your concentration of subprime and deep prime indirect loans increased pretty materially. Can you talk about that? Cory Newsom: Repeat part of that. I didn't hear part of what you said. Joseph Yanchunis: Yes. It looks like there was an increase in subprime and deep subprime kind of concentration in that portfolio. Cory Newsom: I mean I don't see that. We haven't had much of it. Steven Crockett: Yes. Joe, this is Steve. I'll start with that. And I'll have to say the -- this is showing -- while it says on the deck, it's showing the category at origination. The numbers that actually got put in are updated information, so it's not as of origination date, which it normally is. I think we did not grab the consistent data we've been providing. This is really more updated and shows some changes in what's going on with borrower credit scores. And that is -- so that's why it does look different than what you've seen before. Joseph Yanchunis: Got it. Okay. That's helpful. And then lastly for me, just kind of a modeling question. Based on that $50 million of sub debt you guys redeemed, what was the incremental cost associated with that? If you happen to have that. Steven Crockett: Well, I mean, the $50 million, we were paying $4.5 million, and it would have been going up to $8 million. Joseph Yanchunis: No, I was wondering about any expenses that you incurred in the P&L from redeeming that. Yes, just to kind of try to understand the true run rate. Steven Crockett: Yes. And I may not be understanding. I mean, there was no expense to redeem it. It was at the end of the call period. Cory Newsom: If that's what you're wondering. We didn't go outside of the call period. We had the opportunity. The window opened and we took it. Operator: Our next question is from Woody Lay with KBW. Wood Lay: I wanted to follow up on the hiring initiative. You did a similar initiative back in 2021, and I believe it was pretty successful. So could you talk about your kind of previous experience being aggressive on the hiring front and how you're translating those past experiences to what you're doing now in the market? Cory Newsom: Yes. So if you go back to that time frame, we were fairly aggressive in hiring those. But if you also remember, we had a fair number of retirees that were coming around in the near term after that. And so we were as equally focused on making sure we were prepared to replace those as we were trying to increase our team at the same time. That's not the case today. We're just -- I mean, we feel like that we're in a position to continue to take advantage of some really good opportunities and for us to be able to expand in those markets. And the way we look at those, whenever we model one, we model to a breakeven in 6 months or less. And that's what we stay pretty well focused on to make sure that's how we do it. But if you still go back to the hiring process, it's pretty rigorous trying to make sure that we find a credit culture fit and a culture fit that fits into who we are. So it's quite an undertaking, but one that we're quite proud of and have had great success. Wood Lay: Yes. And then I believe you all said you are about 50% the way through there, but it doesn't feel like we've seen a huge expense impact from that. Is it fair to -- I guess, just how should we think about the expense growth rate from here given the additional hires you expect? Cory Newsom: Steve, you're usually on cleanup on me for stuff like that. But I mean, these guys are covering the way as we go on this. So the expense run hasn't been that bad. I mean it's from a net perspective. But Steve, what would you? Steven Crockett: Yes. I mean it will increase. It's increased a little bit as we've gone. I mean it hadn't all -- everybody hadn't all hit at one time has been spread out. And so that's -- again, I would expect overall noninterest expense to modestly increase. Cory Newsom: We've kind of taken the approach that this is the kind of money we're quite proud to be spending and having the increases on. Curtis Griffith: And remember that a significant part of the compensation will be in their ICP packages, and that won't get paid out until well into next year, even for the ones that are bringing the business on. Wood Lay: Yes. And maybe just last for me on M&A. You all sound a little bit more optimistic on the M&A front than maybe previous quarters. I know you are very stringent on who you look at and who would make a good target for you all. So could you just remind us sort of go down the checklist and what makes a good target for South Plains? Cory Newsom: I'm going to lead it off. It's number one, got to be a culture fit. And we've got to make sure that this is somebody that we think that we could go achieve success with long term. And the numbers have got to line up. There's no question. And I'll let Curtis talk a little bit further about this, but we're as focused on culture as anything that you can find because that's where we've seen more of the train breaks that really come from. Curtis Griffith: Yes. If we can't integrate the acquired banks successfully, then this is not good for anybody, not good for their customers, not good for our shareholders. So as Cory says, that's really what we focus on. But we also want to focus on successful banks, ones that are doing a good job with what they're doing, that have built some customer loyalty that they have -- again, and this is all part of the culture, but have that mindset among their employees that they're not there short timers for things. They're there for the long haul, and we want to just transition them over to be working for us. And that's the kind of group that we look for. And it's got to -- the numbers have to work. And right now, I think we're seeing out there in the marketplace, lots of activity. And it's interesting that it's coming at a time when bank stocks really aren't doing all that well. We're certainly not leading the market by any means. So a lot of the acquirers, including us, don't have a big multiple to play with. So you've also really got to look at someone that is looking at joining us up, joining with us as an investor to be there for the long pool, and they ultimately benefit, their shareholders ultimately benefit through the long-term growth in our stock. So it's a combination. And it's -- I think we are going to see some activity. I really do. We're looking at some very promising situations right now. Cory Newsom: Woody, both of your questions are kind of funny because they're kind of tied together. Typically, unless there's disruption involved, we're not hiring lenders or employees that are looking for a job. We look for contentment. I think the same thing goes as we look for an acquisition. There's a difference between somebody who may want to sell and somebody who has to sell, and we're much more focused on somebody who might want to sell. Wood Lay: Yes. That makes total sense. Operator: Our next question is from Stephen Scouten with Piper Sandler. Stephen Scouten: I'll see if you've gotten tired of asking -- answering questions about these new hires yet. When you bring these guys on, I know, Cory, you said think about like a 6-month breakeven. Are you guys targeting any specific kind of segment of lender like C&I versus CRE currently? And then ultimately, how big of a book of business do you anticipate each one of these people bringing over? Is it kind of -- is it a $50 kind of million book over time? Or what's the right way to frame up the potential of each kind of hire as you see it at a high level? Cory Newsom: So Woody -- I mean, to me, Stephen. We're mean I would say a good portion of these are -- I mean, there's still going to be CRE or real estate. I mean, portfolios as a general rule, I mean, we like the C&I when we can get it, but I mean we've never hit from the fact that we're a real estate bank and a lot of that stuff ties together. But if you -- I will just tell you this, I can't -- we've never gone out and hired somebody to see what portion of their book they could bring. We want to know what their abilities have been and how they generate business. And we really -- typically, we will hire them under the impression they not bring anything. But the people that we're hiring are carrying portfolios that might run anywhere from $75 million to $300 million to $400 million. And I mean, these guys have very good -- we're looking at people that have the capacity to go out and produce and have been very successful for long periods of time before they've ever joined our organization. So I would just tell you that I'm probably pretty conservative when I give you those numbers right there. Stephen Scouten: Okay. That's helpful. And just the ones -- I mean, if I'm doing the math kind of roughly right, it sounds like maybe you got 4 or 5 more lenders to add to get to this 20%. And the 4 or 5 maybe that you've already added that comprises the 10% already, what have they done so far? What kind of build have you seen in those people over -- I don't know what length of time that's been when you've added them, but over the duration of time that you've added them? Cory Newsom: I think you have to factor in that you're probably on the longest of 2 quarters in place as opposed to some that have been a little bit shorter than that. So I mean, I'm not prepared really to, I guess, rattle off any numbers because I didn't kind of expect that one. Are we seeing nice good-sized transactions coming across the table? Absolutely. Absolutely. I would venture to say I can't think of one that's not already breakeven. Stephen Scouten: So most of them have been there under -- it's all under 6 months. It sounds like maybe a lot of 3 months. So it's all been relatively recent. Got it. And then maybe going back on -- sorry. Cory Newsom: So typically, a lot of these people that you'll bring on, they may have a nonsolicit for a period of time on the front end. So it's getting where they are and the new business that they're chasing that doesn't conflict with anything they might have already had in agreements in place. So we're pretty careful about all of that stuff. So that's -- I mean, what we see is their overall ability and what we see probably in the first 6 months are probably a little bit different. Stephen Scouten: Got it. Helpful. And then maybe this one will be for Steve. I'm kind of curious on where you think like a good starting point is for the NIM next quarter. Obviously, there's a lot of puts and takes there with the recovery. I guess maybe starting from that 3.99% net of the recovery, but then I assume it looks like you're paying the sub debt off with existing liquidity. So I assume there'll be some NIM benefit there and then rate cuts. So if there's maybe a starting point you think about for fourth quarter as a jumping off point? Steven Crockett: Yes. No, that's a good question. I mean we -- as you said, there are lots of puts and takes. I mean that's -- we did show for, if you will, a 9 basis point increase, but the Fed movement just only occurred right at the end of the quarter and with a couple more scheduled. That's I'm going to say I don't necessarily foresee us increasing NIM. I mean, we could a basis point or 2 or it could decline a couple of basis points. In the short term, again, we've got some -- I think we've talked about before, some of our public funds that they are tied to an index, but they do -- they may lag until the following month or something like that where they will catch up. But it's -- we've done good. I think in the immediate term, it may -- you may see a slight decline in NIM until everything kind of works through the system. We're able to reprice deposits the way we need to. And you still have some loans coming off of low rates as they hit a 3- or 5-year mark. So again, like I said, lots of puts and takes, but that range is not a bad spot. Stephen Scouten: Okay. That's helpful. And maybe one last one for me. Just kind of going back to the indirect auto, and I hear what you're saying, Cory, losses obviously haven't really been material this quarter or in the past. But that data of credit scores and the migration, even though I know it's not apples-to-apples in the quarter-over-quarter presentation of it, but it does obviously show a migration of credit scores downwards. I mean, does that concern you at all? Or is that kind of part of why you guys have been pulling back a little bit in indirect auto? Or maybe any more color you can give about that credit score migration and what that maybe means for the consumer part of your book? Brent Bates: Yes. This is Brent. We have done kind of a study on -- typically once a year where we pull scores on the whole portfolio, soft scores on the whole portfolio. And what we're seeing is both this year and in last year, we saw some migration in the bottom half of those credit scores migrating downward. All through those 24 months, we really haven't seen delinquencies rise or other credit issues that would cause some concern. But it is something we actively monitor just like all other areas of credit risk where we're diligently looking for potential issues. Cory Newsom: And average duration on these loans ends up being, what, a little over 2 years. So it's... Curtis Griffith: Pretty. Cory Newsom: We just stayed so focused on the upper portion of that growing the higher-end stuff on the portfolio that we want to be very, very careful with it. Curtis Griffith: Stephen, it is very true all across the country, the folks kind of on the lower end, life is getting harder. It's getting tight out there, and you're seeing it in all kinds of areas. And I worry about that some just from the overall economy. The good news for us is, yes, we do have some of those, but we have very few of those. So we're not immune to some of our people having some credit problems. But so far, it just hasn't impacted us on any meaningful losses. And we don't think it will because so much of that portfolio is much higher credit scores. Cory Newsom: Yes. And go back and keep in mind one thing. I mean, if you put the dollar amount to it, you're still looking at less than $20 million that is in subprime or deep subprime in the whole portfolio, less than 2% of that is in non-autos, which would be in any type of an RV or something like that. We just don't get out into some of that stuff that's a little bit questionable. We're very, very careful about what we're going to put on our books. Stephen Scouten: Yes. Yes. No, that makes sense. And I guess at the end of the day, if the past dues are still good, maybe they're not paying their credit card, but they're continuing to pay their auto payment to make sure they got some way to get to work and the like. Cory Newsom: And that's what we've seen [indiscernible] years. I mean they'll pay for the car when [indiscernible] sometimes they may miss on something else. Operator: [Operator Instructions] Our next question is from Brett Rabatin with the Hovde Group. Brett Rabatin: I wanted to go back to payoffs. And I know that's been a topic for some quarters now, and you guys are optimistic. Obviously, all this hiring is going to help drive origination activity. To what extent does the commercial real estate book look vulnerable to the curve here to the permanent market, just given a dip here recently in rates. Does that concern you guys at all about continued payoffs maybe in the CRE book, just given where rates are? Brent Bates: Yes. This is Brent. I'll address that. I do think we're -- we still have some that are scheduled. We expect to have scheduled payoffs of some projects that are complete and stabilized into the first quarter, maybe second. So it's kind of a normal course a little bit. I mean I think what you've seen a little bit of in the past 6 months or so has been just partly efforts of identifying potential credit issues and resolving those and that put a little pressure on loan balances. But we will have some additional payments coming at us, we think, in the first and second quarter of next year, maybe a little earlier. Cory Newsom: And we were just looking over looking at our multifamily, it's down about $100 million over the last 3 quarters. If you take that $100 million and you try to reconcile it just a little bit, over half of that was the 2 credits that we told the whole world, we were exited. It did not matter. we exited without any loss or anything else, but we didn't feel like it was what we wanted on our balance sheet. But you take another 25% of that and it went into a nontraditional bank lender that let them take a P&I loan back to interest only. We're not doing that stuff. And so there's a little bit of that stuff that we're not lowering our credit standards to keep something on our books. We'll go out there and find new business to continue to replace it with, but we will not lower credit standards just because we're afraid of something is going to pay off. Here's the bigger one in all of that. I think in nearly every aspect of even what we've talked about, all those loans were at below market rates. We were okay they left. And so not all headwinds that come with some paydowns are necessarily a bad thing, especially if you were in a situation that you had some stuff that was back in the 4% or 5% rates that you don't really -- I mean, it's not something you really want to have on the books. Operator: There are no further questions at this time. I'd like to hand the floor back over to Curtis Griffith for any closing comments. Curtis Griffith: Thank you, operator. Thank you to all of those that participated on today's call. To conclude, we do believe our third quarter results demonstrate a strong financial position as well as growing earnings power and capital of the bank. While delivering our strong earnings growth, we've been making necessary investments to expand our capabilities, position South Plains to be a much larger company. Our growth will come from our strategic initiative focused on reaccelerating organic loan growth while seeking to expand South Plains through accretive M&A opportunities. We've continued to add experienced lenders all across our markets to expand our lending platform and increase our loan growth through 2026. We also continue to engage in discussions with potential acquisition candidates and are pleased with the opportunities we're evaluating. Fortunately, the organic loan growth initiative is also just in the early innings. We're optimistic we'll see that growth in the year ahead. As a result, we're only going to do a deal that makes sense for the bank and our shareholders. Taken together, we believe we're in a good position to deliver on our initiatives and drive value for our shareholders as we work to accelerate the growth of South Plains Financial. Thank you again for your time today. Operator: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Thank you for standing by. My name is Tina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Old Republic International Third Quarter 2025 Earnings Conference Call. [Operator Instructions] It is now my pleasure to turn the call over to Joe Calabrese with MWW. Joe Calabrese: Thank you, Tina. Good afternoon, everyone, and thank you for joining us for the Old Republic conference call to discuss third quarter 2025 results. This morning, we distributed a copy of the press release and posted a separate financial supplement. Both of the documents are available on Old Republic's website at www.oldrepublic.com. Please be advised that this call may involve forward-looking statements as discussed in the press release dated October 23, 2025. Assumptions, uncertainties and risks exist that may cause results to differ materially from those set forth in these forward-looking statements. For more information on these assumptions, uncertainties and risks, please refer to the forward-looking statement discussion in the press release and the company's other recent SEC filings, and the risk factors discussed in the company's most recent Form 10-K and other recent SEC filings. We may also include references to net income excluding net investment gains, or net operating income, a non-GAAP financial measure, in our remarks or in responses to questions. GAAP reconciliations are included in the press release. Presenting on today's conference call will be Craig Smiddy, President and CEO; Frank Sodaro, Chief Financial Officer; and Carolyn Monroe, President and CEO of Old Republic's National Title Insurance Group. Management will make some opening remarks and then we'll open the line for your questions. At this time, I'd like to turn the call over to Craig. Please go ahead, sir. Craig Smiddy: Okay. Thank you, Joe. Good afternoon, everyone, and welcome again to Old Republic's third quarter 2025 earnings call. In addition to our earnings release, we also issued a separate news release this morning regarding our agreement to purchase Everett Cash Mutual through a sponsored demutualization. We think this is reflective of our commitment to continue to pursue profitable growth of our specialty insurance business. ECM, as it's referred, is a leading insurer of farm and agricultural operations nationwide, writing $237 million of direct premium in 2024. We also added a new slide on ECM to the appendix of our investor presentation on our website, so there's more there for you to see if you're so interested. Strategically, ECM fits very nicely into our Specialty Insurance portfolio given our close cultural alignment and their narrow and deep focus on farm and ag specialty. ECM provides for further product diversification within our existing specialty insurance business. And we will not compete with any of ECM's current offerings or vice versa. So once the transaction closes, we expect ECM to be very well positioned from a capital and product perspective to pursue profitable growth geographically and through new product offerings. So we're very happy to have the ECM folks join the Old Republic family. So now turning to the earnings release. Our story of solid growth and profitability continued through the third quarter as we produced $248.2 million of consolidated pretax operating income. That's up from $229.2 million in the third quarter of '24. Our consolidated combined ratio was 95.3%, and that compares to 95% in the third quarter of last year. On our balance sheet, it remains strong, while we continue to invest in new specialty operating companies, make ongoing technology investments and also invest in talent across the organization. Our annualized operating return on beginning equity improved to an annualized rate of 14.4%, and that compares to 11.9% in the third quarter last year, which we think reflects our strong operating earnings and thoughtful management of capital. In Specialty Insurance, we grew net premiums earned by 8.1% compared to the third quarter of '24 when we produced $207 million of pretax operating income, up from $197.3 million in the third quarter last year. The Specialty Insurance combined ratio was at 94.8% in the quarter, compared to 94% in the third quarter last year. Despite the continuation of a slow real estate market, Title Insurance grew premium and fees by 8.3% compared to the third quarter last year; and produced $45.7 million of pretax operating income, and that's up from $40.2 million in the third quarter last year. The Title Insurance combined ratio was -- or excuse me, 96.4% in the quarter, and that compares to 96.7% in the third quarter last year. Our conservative reserving practices continue to produce favorable prior year loss reserve development in both Specialty Insurance and Title Insurance, and Frank will provide more details around that topic. So with that, I'll turn the discussion over to Frank. And then Frank will turn things back to me to discuss Specialty Insurance, followed by Carolyn, who will discuss Title Insurance. And then as the operator says, we will open it up for Q&A. So Frank? Francis Sodaro: Thank you, Craig, and good afternoon, everyone. This morning, we reported net operating income of $197 million for the quarter, compared to $183 million last year. On a per share basis, comparable quarter-over-quarter results were $0.78, compared to $0.71, a 10% increase. Net investment income increased 6.7%, primarily as a result of higher yields on the bond portfolio. Our average reinvestment rate on corporate bonds acquired during the quarter was 4.7%, compared to the average yield rolling off of about 4.1%. The total bond portfolio book yield stands at 4.7%, compared to 4.5% at the end of last year. Turning now to loss reserves. Both Specialty Insurance and Title Insurance recognized favorable development in the quarter, leading to a benefit in the consolidated loss ratio of 2.5 percentage points, compared to 1.3 points of favorable development last year. Within Specialty Insurance, workers' comp continued to have significant favorable development and accounted for the majority of the group's total favorable development. Commercial auto, general liability and property all had favorable development in the quarter. As we have mentioned in the past, general liability is a relatively small but growing line that does have some quarter-to-quarter volatility. This quarter, GL had favorable development, and the year-to-date impact was negligible on the Specialty Insurance loss ratio. We ended the quarter with book value per share of $26.19, which, inclusive of the regular dividend, equated to an increase of 18.5% year-to-date. That resulted primarily from our strong operating earnings and higher investment valuations. In the quarter, we paid $71 million in regular cash dividends and repurchased $44 million worth of our shares. We did not repurchase additional shares since the end of the quarter, leaving us with just over $910 million remaining on our current repurchase program. The recently launched operating companies and the ECM acquisition do not materially hinder our ability to return capital. So as usual, we will be discussing with our Board of Directors the most efficient way to return capital by the end of the year. I'll now turn the call back over to Craig for a discussion of Specialty Insurance. Craig Smiddy: Okay. Frank, thanks for that summary. Specialty Insurance net written premiums were up 6.9% in the third quarter, with strong rate increases on commercial auto and general liability, that I'll talk about momentarily. We had solid renewal retentions, strong new business writings and an increasing amount of premium in our new specialty operating companies. As mentioned in my opening remarks, in the third quarter, Specialty Insurance pretax operating income was $207.7 million, and the combined ratio was 94.8%. The loss ratio for the third quarter was 63.5%. That included 3.4 percentage points of favorable prior year loss reserve development, compared to 65.2% in the third quarter last year, which included 1.7 points of favorable development. The expense ratio was 31.3% in the third quarter, compared to 28.8% last year, primarily reflecting higher personnel expenses, including those within our newest specialty operating companies not yet producing premium, and ongoing investments in technology. For note, the year-to-date expense ratio and loss ratio tend to be better indications of run rates, and they also reflect changes in our mix of business toward lower loss ratios and higher commission ratios. Now to give you some details around our 2 largest lines of business: commercial auto and workers' compensation. Commercial auto net premiums written grew 7% in the third quarter, while the loss ratio came in at 68.3%, compared to 67.1% last year. Rate increases remained at the 14% level, which is the same we saw in the second quarter, and that's commensurate with the loss severity trend we're observing. Switching to workers' compensation. Net premiums written grew 6.7% in the third quarter, while the loss ratio came in at 63.8%, compared to 58.8% last year. Rates continue to remain relatively flat. And here too, that's consistent with what we observed in the second quarter. Loss frequency trend continues to decline, more than offsetting the increase in loss severity trend. So given the positive wage trend within payroll, and again that's what we apply our rates to, a declining loss frequency trend and a relatively stable loss severity trend, we think our rate levels continue to remain adequate. So we expect solid growth and profitability in Specialty Insurance to continue, reflecting the success of our specialty strategy and our growing contributions from our new specialty operating companies. Our operational excellence initiatives continue to contribute to this profitable growth by leveraging Old Republic's collective knowledge and expertise. And we also here too included a new slide on these initiatives in the appendix of our investor presentation on our website. So that concludes my remarks on Specialty Insurance, and I'll now turn the discussion over to you, Carolyn, to report on Title Insurance. Carolyn Monroe: Thank you, Craig, and good afternoon, everyone. Title reported premium and fee revenue for the quarter of $767 million. This represents an increase of 8% from third quarter of last year. The third quarter market story is a continuation of what we reported last quarter. We still see strong activity in the commercial sector, a modest uptick in refinance activity, and a softness in the residential purchase market driven by persistent price and affordability challenges. Overall, we are pleased with our revenue improvement during the year. Premiums from our direct Title operations were up 8% from third quarter of last year. Agency produced premiums were up 11% and made up nearly 80% of our revenue during the quarter, up from 78% during third quarter of 2024. Commercial premiums increased this quarter and were 26% of our earned premiums, compared to 20% in the third quarter of last year. Investment income was also up this quarter, by nearly 11%, compared to third quarter 2024, primarily reflecting higher investment yields earned. Our overall loss ratio decreased to 2.7% this quarter, compared to 2.8% in the third quarter of 2024. The slight improvement relates to continued favorable development in prior policy years. Agency premiums accounted for a larger share of our revenue this quarter, raising agent commissions and increasing our expense ratio by 1.9%. The remainder of our expenses decreased by 2.1% relative to premiums and fees. These changes led to a combined ratio of 96.4% for this quarter, an improvement over both last quarter and the 96.7% reported in the third quarter of 2024. Pretax operating income this quarter was $46 million, compared to $40 million in third quarter of last year. During the quarter, we continued progressing with the advancement of digital transaction tools and solutions for our direct operations and title agents through our strategic partnerships. We remain focused on the importance of providing our agents with the innovative technological solutions required to maintain a competitive edge. Thank you. And with that, I will turn it back to Craig. Craig Smiddy: Okay. Thank you, Carolyn. Well, that concludes our prepared remarks. So we'll now open up the discussion to Q&A where I'll try to answer your questions or I'll ask Frank or Carolyn for some help. Operator: [Operator Instructions] And our first question comes from the line of Gregory Peters with Raymond James. Charles Peters: For my first question, I want to go back to Frank's comments on capital. And I guess what I'm looking for is just how you are measuring excess capital, because it seems like there's a shift. Or maybe put it a different way, maybe your -- there's been a strategic decision not to hold as much excess capital. But either way, I'm just looking for how you're measuring capital right now. Is it reserves -- based on reserves, or what the ratios you're looking at and how you're thinking about excess capital in the context of what Frank was saying in the fourth quarter? Craig Smiddy: Yes, Greg. I'll start, and if Frank has anything to add, he can add it. Last year when we declared the $2 special dividend, we made note that we had this nice problem of continuing to have operating income retained earnings that were building faster than we could return capital to shareholders either through share repurchases or dividends. And so we issued a special dividend. When we contemplate that and discuss that with our Board, we look at several different enterprise risk management measures. And one of those is certainly the amount of capital we hold relative to the reserves. But there's been no major shift at all. It's really just a matter of, again, having a nice problem where we continue to just build capital faster than we could deploy it. So as we sit here this year, the same kind of thing has happened. We have built up capital again, and we have done so faster than we're able to return it through share repurchases or ordinary dividends. So as Frank indicated, it's a matter that, as we always do, we'll take up with our Board and suggest the best ways to return that to shareholders in a way that is most productive for the shareholders. So that's, again, no shift. We continue to look at multiple different metrics when we look at capital and we manage it thoughtfully as I indicated in my comments, and do a significant amount of analysis and make recommendations accordingly to our Board. Charles Peters: Great. And I was looking over your slide on Everett, and just curious if you could tell us a little bit more about this entity. You highlighted that there's not a lot of crossover in terms of product. So I'm just curious how you're thinking about this business and how it's going to sit inside Old Republic. And when -- more importantly, I know you've got these start-up operating companies, the 5 that you've outlined, does this become #6 as you branch off into some other types of businesses? So just some more color there would be helpful. Craig Smiddy: Sure, sure. So I'll start with the latter part of your question. And that is we definitely look at it as a new operating company within our existing portfolio of operating companies. I think that would take us up to 18 companies within our Specialty Insurance, and then, of course, our Title Insurance being our 19th. So one of the things that was very, I think, attractive to ECM was that decentralized model and the degree of independence and accountability that we give to each of those operating companies. And as I mentioned as well, just a strong cultural alignment of integrity and transparency and the other components of our cultural tenets that we share. So as far as the business itself, we, again, are thinking that it is very complementary, doesn't compete with our existing segments. It's a specialty segment in the marketplace. And that is the sole focus of Everett, which is exactly what our strategy is, and that is for our each of those 18 different operating companies to be an inch wide, mile deep in their specialty, focused very narrowly on what they do and do it better than anybody else. And ECM checks every one of those boxes. So I guess getting into more of the technicals, as I mentioned, ECM focuses on farm and ag business. And in that portfolio, farm owners and commercial, multi-peril make up 70% of their coverages, with inland marine and commercial auto each making up about 9% of their coverages. And another important attractive note is that their business skews more toward short-tail lines of coverage, which a lot of the new companies that we've added lately to diversify our portfolio have been, which is short tail kind of line, so you have a much faster understanding of how the business is performing. And again, we intend to give ECM the capital necessary to continue to drive expansion of their business. We expect they'll do that through geographic expansion. They started some geographic expansion by making an acquisition in late 2022 when they made an acquisition that allowed them to expand westward. And I think another attribute that is shared is they compete on the basis of expertise, relationships, ease of doing business around their specialty niche, just like all of our specialties. So again, their profile is very consistent with the profile of our existing specialty companies. And as such, we just think it's a perfect fit. Charles Peters: Excellent. And I -- just pivot to the Title business, my final question. Hope springs eternal that things and market will turn on the residential side. In the interim, I know you addressed this last conference call, in Texas there were some challenges on some rate rollbacks. I'm wondering if you're seeing any other regulatory pressures build up in any other states, or is it just normal operating status everywhere else? Craig Smiddy: Yes. I think it's been fairly consistent. Nothing significant has emerged. But Carolyn, you're much closer to the action than I am, so I'll turn it to you to maybe add any color you might have. Carolyn Monroe: Greg, no, it's been fairly quiet on the regulatory front, nothing out of the ordinary. Still waiting on the Texas. It was appealed. There was supposed to be a hearing in December, but really no word on that yet. But that's the only thing that's out there brewing right now. Operator: And our next question comes from the line of Paul Newsome with Piper Sandler. Jon Paul Newsome: I want to beat on the ECM dead horse a little bit more. I don't know if we'll actually get more precise numbers, but I'd like to know how this fits in with -- a little bit better with how it fits into the capital decisions that you're going to be making in the near future. I mean, I would imagine ECM is going to cost at least the statutory capital for you, folks. And then it sounds like -- again, correct me if I'm wrong in these assumptions, that there's an intention to put more capital into ECM. And then I guess, on top of that, you have whatever is left in your view of excess capital. And so I guess the questions are, are those the right pieces I should be looking at? And then can we talk about sort of like potential timing for those things? It sounds like ECM is going to close sometime in '26. I don't know if that means you'll hold on to capital a little bit longer this time around than some of the more speedy things you've done in the past at year-end. It's about 5 questions in there, I apologize. Craig Smiddy: Yes. I think we follow, though. Well, as we indicated in the release, we expect this to be accretive to book value per share. So you can infer from there that it is not -- will not be at least the amount of their statutory capital. And that is because of the structure of a sponsored demutualization. So from a high-level standpoint, the sponsored demutualization is not going to affect our view of capital as we get to that analysis with our Board and look at things -- how things look at the end of the year. There's really no consideration in that analysis of capital needs in order to follow through on the sponsored demutualization. Through that sponsored demutualization, ECM will end up with additional capital and that is what will enable them to pursue growth opportunities. As you know, Mutual has a limited amount of ability to raise capital. And under our umbrella here at Old Republic, we will have that capital if they need it. But just through the sponsored demutualization itself, they will end up with more capital to pursue those goals. And again, on top of that, we don't plan on contributing additional capital beyond that. So long story short, it is -- really doesn't move the needle at all when it comes to how we're looking at our capital position and the recommendations we'll be making with regard to returning capital to shareholders going forward. Jon Paul Newsome: Okay. That's great. Now follow-up questions on a different horse -- beat-up horse. Yesterday night, last night, we had some not-so-happy news out of Selective about commercial auto insurance rearing an additional problem for them. And I don't know if you can or would like to respond to that directly, but obviously, you are a big commercial auto writer. It's a different business, I recognize that. But maybe some thoughts on what you think is going on in the commercial auto business and why you may or not be ahead of the game there. Craig Smiddy: Sure. I'd be happy to talk about that again. We're quite proud of where we stand relative to the industry, as I think I've mentioned in prior quarters. We continue to put up favorable loss reserve development on commercial auto, while many of our peers over the course of the last few years have been putting up unfavorable development. And there's a lot of components that account for why we're in such a strong position. Again, I would point to just first and foremost the starting point of identifying the severity trend and then getting the commensurate rate that you need. And now we're going back 6 or 7 years, where we identified it a lot earlier than a lot of our peers and responded with rate increases to offset those trends we were seeing. I mentioned in my opening comments, we -- it's still a problem for the industry in that we think the trend is running somewhere in the low teens and we're getting rate increases on commercial auto of 14%. So that's been our MO for the last 6 or 7 years. We spot the trend. We get rate increase commensurate with that trend, once you have a good starting point. And I think a lot of our peers didn't have a good starting point because they didn't recognize it as quickly, maybe weren't getting the rate increases early enough and -- or not getting as strong as rate increases as necessary to keep up with that trend. And then there's other things just about the way we think about things and do business that are important. One of the things, Great West is our trucking business, and they do one thing and one thing only: long-haul trucking. They have a team of statisticians, analysts that are relying on data and analytics to adjust their rates in real-time fashion. They don't rely on ISO. A lot of our competitors rely on ISO. And if you're going to write commercial auto, long-haul trucking, you're relying on ISO, you're already probably behind the game. So we're real time. We have our own team. We have our own proprietary rate filings in every state. Those rate filings we have -- we have 42 tiers built within our proprietary rate filings, so that we can segment our business and analyze it and apply the appropriate rate, the appropriate risk, and do that, again, in a fashion that is very responsive to what we're seeing on trend. On the claims side, again, inch wide, mile deep. All we do is long-haul trucking claims. We have -- our folks are -- we have a catastrophic team, 5 airplanes that immediately get out to catastrophic events, immediately try to get our arms around the catastrophic losses that can certainly cause significant severity in the results. Our team in claims, they have relationships with all the EPA folks within all the states. So if you have a spill, a cargo spill or something like that, we know immediately how to handle it, immediately who to talk to mitigate the amount of damage from those kinds of instances. And I could go on about just, again, how specialized we are in that space. And then lastly, I would just say it's about reserving. It starts with case reserving. Great West is terrific at getting case reserves set to ultimate as quickly as possible. As a matter of fact, when they get those case reserves set, unlike many in the industry, our case reserves actually run off a little bit redundant, which is unheard of. So the only IBNR we really need is for true IBNR, where we actually don't know of an incident yet. But when we know of an incident, our case reserves are set to ultimate and set there very quickly. We don't stair-step, as it's so-called in the industry, like many like many do. And then when it comes to our IBNR reserving, we've talked about that on all of our lines, but we have a very conservative approach on our IBNR reserves whereby we'll set a loss pick at the beginning of the year. Auto liability, we're holding that loss pick at what we set it at, even if we see results come in that look better than expected. If we see results that come in and we think it's a little bit hotter than we expected, we will raise that initial loss pick. But we will not lower that initial loss pick until we get at least 3, 4 years out on commercial auto, 5 years out on workers' compensation. So those long-tail lines, we are very conservative in how we manage IBNR, in addition to, on all of our lines of business, our new Chief Claims Officer, new being he's been here a couple of years, came in at exactly the right time to help us address the legal system abuse issue, the severity issue, plaintiff attorney tactics. And he's helped in that regard. But one of his main charges is to ensure all of our companies are getting case reserves set to ultimate as quickly as possible on every one of our lines of business so that we can know what we have and ultimately respond and produce the kind of results we have, and have -- achieve our goal of having a couple of points of favorable development on average over time on every line of business. Operator: [Operator Instructions] And with no further questions in queue, I will now turn the call back over to management for closing remarks. Craig Smiddy: Okay. Well, we appreciate the interest. We appreciate the questions. And again, we look forward to welcoming the ECM stakeholders to the Old Republic family. And we also are looking forward to producing the strong profitable growth for our shareholders and all other stakeholders as well. And we look forward to reporting our year-end results next time we talk to you. So thank you very much. Operator: Thank you again for joining us today. This does conclude today's conference call. You may now disconnect.
Operator: Good afternoon and thank you for standing by. Welcome to the Deckers Brands Second Quarter Fiscal 2026 Earnings Conference Call. [Operator Instructions] I would like to remind everyone that this conference call is being recorded. I'll now turn the conference call over to Ms. Erinn Kohler, VP, Investor Relations and Corporate Planning. Please go ahead, ma'am. Erinn Kohler: Hello, and thank you, everyone, for joining us today. On the call is Stefano Caroti, President and Chief Executive Officer; and Steve Fasching, Chief Financial Officer. Before we begin, I would like to remind everyone of the company's safe harbor policy. Please note that certain statements made on this call are forward-looking statements within the meaning of the federal securities laws, which are subject to considerable risks and uncertainties. These forward-looking statements are intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. All statements made on this call today, other than statements of historical fact, are forward-looking statements and include statements regarding our ability to respond to the dynamic macroeconomic environment and the impacts on our business and operating results, including as a result of changes to global trade policy, tariffs, pricing actions and mitigation strategies and fluctuations in foreign currency exchange rates. Our current and long-term strategic objectives, including continued international expansion, the performance of our brands and demand for our products; anticipated impacts from our brand, product, marketing, marketplace and distribution strategies, product development plans and the timing of product launches; changes in consumer behavior, including in response to price increases, our ability to acquire new consumers and gain share in a dynamic consumer environment; our ability to achieve our financial outlook, including anticipated revenues, product mix, margin, expenses, inventory levels, promotional activity, anticipated rate of full price selling and earnings per share and our capital allocation strategy, including the potential repurchase of shares. Forward-looking statements made on this call represent management's current expectations and are based on information available at the time such statements are made. Forward-looking statements involve numerous known and unknown risks, uncertainties and other factors that may cause our actual results to differ materially from any results predicted, assumed or implied by the forward-looking statements. The company has explained some of these risks and uncertainties in its SEC filings, including in the Risk Factors section of its annual report on Form 10-K and quarterly reports on Form 10-Q. Except as required by law or the listing rules of the New York Stock Exchange, the company expressly disclaims any intent or obligation to update any forward-looking statements. On this call, management may refer to financial measures that were not prepared in accordance with generally accepted accounting principles in the United States, including constant currency. For example, the company reports comparable direct-to-consumer sales on a constant currency basis for operations that were open through the current and prior reporting periods. The company believes that these non-GAAP financial measures are important indicators of its operating performance because they exclude items that are unrelated to and may not be indicative of its core operating results. Please review our earnings release published today for additional information regarding our non-GAAP financial measures. With that, I'll now turn it over to Stefano. Stefano Caroti: Thank you, Erinn. Good afternoon, everyone, and thank you for joining today's call. Deckers delivered outstanding second-quarter results ahead of our expectations on both the top and the bottom line. Specifically, in the second quarter as compared to last year, we drove revenue growth of 9% and a 14% increase in diluted earnings per share. These results closed out a solid first half for Deckers' fiscal year 2026 with highlights that include total company revenue growing by 12%, HOKA revenue increasing by 15%, UGG revenue rising 12% and diluted earnings per share growing by 17%. In the first half, our international regions remain the driving force behind UGG and HOKA revenue growth, increasing 38% versus last year. Year-over-year gains were led by the wholesale channel, in part from earlier shipment timing, while DTC also delivered strong growth for the first half. We continue to see progress from our brand-building marketing investments in these regions, helping grow HOKA awareness and expand UGG mind share with consumers around the world. I could not be more pleased with how our teams are executing our strategy and connecting with consumers who are increasingly looking to HOKA and UGG for innovation and newness. In the U.S., consumer sentiment is still under pressure, but we're encouraged by the signs of progress we have seen in our business and have maintained our focus to ensure HOKA and UGG remain positioned for long-term success. The U.S. marketplace remains dynamic, with recent consumer trends indicating a heightened preference for multi-brand shopping experiences. We believe UGG and HOKA are prepared to acquire new consumers and gain share in this environment with consumers wherever they wish to interact with our brands as with strong brand partnerships with premium wholesalers, which help elevate our brands, UGG resonates with consumers with high-quality distinctive products that provide a unique tactile experience, HOKA sees the highest consumer adoption when people can try its unique blend of technologies, geometries and materials firsthand on their feet. We view this as a strategic opportunity to continue expanding our consumer base across both brands while maintaining this relationship through our direct-to-consumer business. This approach supports our long-term objective of achieving a balance of 50% between direct-to-consumer and wholesale channels. As we enter our historically largest fiscal quarter, our brand and global marketplace teams are focused on delivering profitable growth and building UGG and HOKA for sustainable value creation. I'm confident that our solid foundation, sound financial discipline and nimble operations will serve us well to continue executing against our long-term strategic objectives. Steve will provide additional details on our second quarter financial results and an update on our latest fiscal year 2026 projections later in the call. Prior to that, I will share further details on first half brand performance as well as the forward direction we see for HOKA and UGG. Starting with HOKA. Global HOKA revenue in the first half increased by 15% versus last year. Performance was driven by consumer-led updates to the brand's 3 largest road running franchises, the Clifton, Bondi and Arahi as well as exciting updates in the trail category with the expansion and evolution of the Mafate franchise. Bondi, Clifton and Arahi have continued to deliver strong growth and impressive sell-through rates for the brand as consumers embrace the significant enhancements implemented by our product team. The success of these top franchises helped HOKA gain market share. According to Circana, HOKA gained 2 points of market share in the overall U.S. Road running category for the past rolling 12 months ended September 25 and also outpaced the competition in Europe as one of the fastest-growing road running brands across Italy, France and Germany for the first half of 2025. Beyond the success of top franchises, the HOKA team is making great progress developing product families deeply rooted in the brand's origins. We're leveraging a multilayered approach to build recognizable icons that resonate across multiple categories and use cases, including dimensions of peak performance, everyday performance use and versatile active lifestyle. The Mafate, HOKA's original shoe is the latest example of how we are aligning our products within these key dimensions. Mafate X was created to deliver peak performance through maximum cushioning and carbon plate propulsion for agile long-haul efforts on the trail. Mafate 5 was upgraded to adapt to all types of trail terrain with premium performance cushioning and traction. And the Mafate Speed 2 has been reintroduced on the archive with an updated aesthetic to achieve a contemporary active lifestyle look. This product family has already contributed meaningful growth during the first half of the year and now accounts for a larger share of total brand revenue, supported by targeted marketing initiatives that have strengthened consumer awareness, visibility and alignment with HOKA's brand heritage. We have previously discussed the importance of the UTMB World Series finals in Chamonix, France, where HOKA is a title sponsor. The event includes 7 races attracting top trail runners from around the globe and nearly 100,000 spectators. HOKA reinforces leadership in UTMB, and it was the top brand in overall shoe share as well as among top 5 finishers, including first place finishes for HOKA athletes Jim Walmsley, Francesco Puppi and Martyna Mlynarczyk. Our marketing initiatives for the HOKA brand are designed to establish coherent product narratives that foster consumer engagement and encourage adoption across our portfolio. We're seeing traction with our approach to building product families that are supported by marketing investments. This approach will, over time, allow us to further segment and differentiate the marketplace. You will soon see this product strategy evolution come to life through the Mach franchise, where we recently introduced the X 3 peak performer in the lineup. And in spring '26, we'll be launching the Mach 7 and Mach Remastered for everyday road running and active lifestyle, respectively. From a regional standpoint, HOKA's performance in the first half was driven by the strength of our international business, where the brand continues to grow awareness and gain market share. We tailor our strategy for each region, taking into account the unique stages of brand distribution and awareness while staying attuned to evolving consumer preferences. What remains consistent is our focus to maintain high levels of full price selling as we continue to expand our presence within the premium and elevated marketplace. And we're very pleased with the HOKA brand's results across the board. HOKA has seen consistently strong gains across all international regions throughout the first half, with notable incremental revenue contributions from EMEA and China. In the EMEA region, HOKA is driving impressive results across all countries and segments of distribution, including market share gains and robust reorders with our specialty partners as we continue to drive double-digit growth. Best-in-class sell-through with our key sporting goods partners, significant percentage gains with athletic and lifestyle specialty accounts, where we are just beginning to build our business and broad-based strength in our DTC channel across Germany, France, Italy and the U.K. with our first German store opening in Berlin and a pop-up retail experience in Chamonix for UTMB. In China, the HOKA brand's premium positioning and product innovation continue to drive resilient consumer demand. Highlights include new store openings in key cities that are attracting strong consumer interest, substantial growth in loyalty membership with particularly strong gains with females and younger consumers, industry-leading full price selling and sell-through rates for wholesale exceeding the goals set for mono-brand partner locations. As we navigate a dynamic U.S. marketplace, HOKA continues to gain market share in the athletic footwear category, and we remain dedicated to controlling distribution and driving a pull model demand. There are a number of positive signals for the HOKA brand U.S. business that give us great confidence in the vast opportunities ahead for this brand with wholesale sell-through increasing double digits in the first half. DTC is delivering a sequential improvement from Q1 to Q2, maintaining a high-quality full-price business, a strong Spring/Summer '26 season order book, and positive feedback from retailers on our fall '26 product line. HOKA is a disruptive and transformational brand with the ability to further capture billions of incremental global market share dollars. Across both domestic and international markets, we'll continue to uphold our disciplined approach to marketplace management by building our DTC business and carefully exploring potential expansion into attractive wholesale channels and partnerships. We are committed to building sustainable growth for HOKA and are confident in the strategy we're executing to achieve this goal. As we enter the second half of fiscal '26, our priorities are driving healthy sell-through and gaining market share, leveraging our enhanced DTC loyalty program to drive consumer engagement, preparing the marketplace for spring '26 updates to Gaviota, Mach and Speedgoat franchises, and investing in marketing to build global HOKA awareness. Moving on to the UGG brand. Global UGG revenue in the first half increased by 12% versus last year. The UGG brand's first-half performance stayed consistent, fueled by our key brand initiatives. Top-performing styles remained in line with our 365 focus. Men's footwear achieved growth at twice the rate of the overall brand. International regions accounted for the lion's share of our growth. We are especially encouraged by the consumer response to newer products and expanded franchises aligned to our men's and 365 initiatives. Including the Mel franchise, which across sneaker, chukka and Chelsea silhouettes has more than doubled versus last year in the first half. The Classic Micro, our most versatile derivative to the original Classic boot, debuting as a top 5 style across DTC and wholesale and also the Zora Ballet Flat, an unmistakable UGG version of the timeless silhouette that is significantly outperforming our expectations in its first month since launch. While these products have driven positive sell-throughs, I would note that wholesale sell-in was the driver for total UGG brand performance in the first half, which includes benefits from earlier shipments that were carefully curated in alignment with our marketplace management strategy. These shipments have provided greater opportunities for consumers to discover UGG at wholesale points of distribution, which we believe in combination with the shifts to consumer shopping habits has put pressure on our DTC business near term. From a regional perspective, as anticipated, international markets are leading our growth, but we have seen a very strong order book conversion across all regions. The consumer response to our fall '25 collection has been very consistent globally, with consumers gravitating towards fresh seasonal colors and transitional newness such as the Classic Micro, Astromel, PeakMod and Zora Ballet Flat. This quarter, these styles saw gains as consumers preferred versatile buy-now, wear-now items. As we prepare to ignite UGG season, our teams have created cohesive brand stories with our iconic style and iconic design global marketing campaigns, aiming to generate excitement and drive consumer engagement. In August, UGG's Iconic From the First Step campaign featuring Stefon Diggs, Sarah Jessica Parker and Founder Brian Smith to celebrate the brand's legacy. In September, UGG served as the official starting partner for Highsnobiety's New York Fashion Week opening ceremony party aimed at building fashion credibility with influential males. At the beginning of this month, to celebrate Paris Fashion Week, UGG took over the atrium of Galerie Lafayette to create a curated icons pop-up store. And tomorrow, UGG will launch an aspirational product collaboration with the renowned Japanese fashion label, Sacai. These brand activations help the UGG brand generate momentum with consumers, while at the same time, maintaining cultural relevance. And our team will continue to build upon the compelling content we've created to elevate the brand and amplify key seasonal product stories. I'm confident that the global marketplace is well-positioned for UGG season. Thanks, everyone. I'll now pass it off to Steve to discuss our second-quarter financial results and provide an update on fiscal year 2026. Steve Fasching: Thanks, Stefano, and good afternoon, everyone. We are extremely proud of the results achieved in the second quarter and first half of our fiscal year 2026. For the second quarter, HOKA delivered more balanced growth across wholesale and DTC led by the strength of international and included sequential improvement in U.S. DTC compared to the prior quarter as we continue expanding the brand's presence to gain global awareness and market share. The UGG brand drove robust wholesale growth also led by the strength of international as we prepare the global marketplace for the brand's peak season. Our disciplined approach, flexible operating model and strong balance sheet continue to position us favorably in a dynamic marketplace as we head into the second half of our fiscal year 2026. We remain energized by the opportunities ahead for HOKA and UGG and look forward to further progress towards our long-term vision for these consumer-loved brands. Now let's get into the details of our second quarter results. Second quarter fiscal year 2026 revenue came in at $1.43 billion, representing an increase of 9% versus the prior year. Performance in the quarter was driven by HOKA and UGG, which increased 11% and 10% versus last year, respectively, with small offset primarily from winding down stand-alone operations of smaller brands. For HOKA, wholesale remained the primary driver of growth, increasing 13% in the quarter as the brand continues to experience strong sell-in and healthy sell-through with innovative and compelling products that are resonating with consumers. HOKA DTC grew 8% versus last year as international momentum carried through from the previous quarter, and we saw improvements in the U.S. business as anticipated. For UGG, growth was driven by wholesale, increasing 17% in the quarter, which was partially offset by a 10% decline in DTC. Wholesale strength was driven by strong demand from our retail partners, including earlier demand as well as European shipments that were pulled forward related to our upcoming third-party warehouse transition. UGG DTC was softer than anticipated, as we have continued to experience pressures from better in-stock positions with our wholesale partners due to increased allocations delivered earlier in the year in an effort to match the demand that has continued to build in recent years. A more challenging macroeconomic environment for the U.S. consumers with shifts in consumer preference toward multi-brand in-store shopping experiences. Additionally, we believe these factors will continue to have an impact on UGG growth in the second half. Gross margin for the second quarter was 56.2%, up 30 basis points from last year's 55.9%. Second quarter gross margins compared to last year benefited from price increases, favorable product mix, favorable foreign currency exchange rates and factory cost sharing with partial offsets from incremental tariffs on U.S. goods and channel mix headwinds. As a result of our price increases being implemented at the beginning of July, in combination with actions to bring additional inventory in ahead of increased tariff rates being implemented, we saw a slight delay in the net headwind of tariffs and did not experience a meaningful negative impact in the second quarter compared to the prior year result. However, this is unique to the second quarter, and our expectation of net tariff headwinds in the back half of fiscal year remain largely unchanged. SG&A dollar spend in the second quarter was in line with expectations at $477 million, up 11% versus last year's $428 million as we continue investing in key areas of the business. As a percentage of revenue, SG&A was 33.4% versus last year's 32.7%. Our tax rate was 21.7%, which compares to 24% for the prior year as a result of onetime benefits recorded in the quarter. These results culminated in diluted earnings per share of $1.82 for the quarter, which is $0.23 above last year's $1.59 diluted earnings per share, representing EPS growth of 14%. In terms of our second-quarter performance relative to the guidance we provided in July, gross margin was the primary driver of EPS favorability. Again, the better-than-expected gross margin result was largely driven by favorable timing of tariff-related variables unique to the second quarter, with benefits of our pricing actions flowing through in advance of the full burden from increased tariffs. Turning to our balance sheet. At September 30, 2025, we ended September with $1.4 billion of cash and equivalents. Inventory was $836 million, up 7% versus the same point in time last year. And during the period, we had no outstanding borrowings. During the second quarter, we repurchased approximately $282 million worth of shares at an average price of $109.31. As of September 30, 2025, the company had approximately $2.2 billion remaining authorized for share repurchases. Now moving into our forward-looking update. We are now providing an outlook for our full year fiscal 2026 and expect total company revenue of approximately $5.35 billion, with HOKA increasing by a low teens percentage versus last year and UGG growing in the range of a low to mid-single-digit percentage. Gross margin of approximately 56% as we anticipate headwinds from the impact of tariffs as this becomes material in the back half of this fiscal year with partial offsets from our mitigation strategies and normalized levels of promotion in a more pressured macroeconomic environment. SG&A to be approximately 34.5% of revenue, reflecting our commitment to investing in the long-term opportunities of our powerful brands. This results in an expected operating margin of approximately 21.5%, which remains at a top-tier level of profitability relative to our peers. We are projecting an effective tax rate of approximately 23%. And finally, we expect earnings per share in the range of $6.30 to $6.39. This guidance assumes a blended growth rate of approximately 9% from our 2 largest brands as we have streamlined our brand portfolio to focus on our most profitable long-term opportunities and expect to yet again deliver record years for UGG and HOKA, each with annual revenues north of $2.5 billion and significantly contributing to our best-in-class profitability profile. Within this revenue guidance, we continue to expect international to outpace U.S. growth and global wholesale to outpace DTC for this fiscal year. Over the longer term, our focus remains to create a balanced business across regions and channels as we continue building our consumer base, bolstering connections with consumers through direct relationships and capturing incremental market share for years to come. Regarding tariffs, with timing-related favorability seen in the second quarter results and our expectation of tariff impact in the second fiscal half largely unchanged, we now expect the unmitigated tariff impact on fiscal year 2026 to be approximately $150 million. Further, we now estimate that our mitigation efforts for this fiscal year will offset approximately $75 million to $95 million of this pressure, including benefits from select strategic and staggered pricing increases as well as partial cost sharing with factory partners. Please note, this guidance excludes any unforeseen charges that may be considered nonrecurring to our ongoing business or impact from any future share repurchases. Additionally, our guidance assumes no meaningful deterioration of current risks and uncertainties, which include, but are not limited to, further updates to imposed tariffs or other global trade policy, changes in consumer confidence and recessionary pressures, inflationary pressures, fluctuation in foreign currency exchange rates, supply chain disruptions and geopolitical tensions. Overall, our second quarter and first half fiscal year 2026 results illustrate the strong demand for our brands and strength of our disciplined model, giving us conviction to provide and achieve a compelling outlook for fiscal year 2026. We remain confident in the growth trajectory of our consumer-loved brands as our top-tier levels of profitability provide opportunities for targeted investments supported by our fortified balance sheet, all of which position us effectively to drive sustainable growth over the long term. Thanks, everyone. I'll now hand the call back to Stefano for his final remarks. Stefano Caroti: Thank you, Steve. Before we take your questions, I would like to highlight that our brands have continued to perform very well through the first half of this fiscal year. More importantly, we remain committed to supporting and strategically managing our brands to ensure sustained long-term growth. We believe that both HOKA and UGG are well-positioned across the global marketplace as we enter the holiday quarter, and our teams are energized and hyper-focused to deliver our full-year guidance. HOKA has established itself as a prominent global performance brand, extending far beyond its disruptive origins. HOKA is just beginning to realize its full potential and capability to innovate, and we are excited to continue building this transformational brand. And UGG brand continues to inspire generations of consumers with its iconic products and its global appeal. This powerful brand has established a unique position in the marketplace with a strong, loyal customer base and an ability to capture new audiences through compelling product evolution. These 2 premium brands maintain a strong commitment to the original values, consistently creating purposeful products while adapting to the evolving demands of their respective global customer base. We are very excited about the opportunities ahead and remain focused and disciplined on our approach to delivering long-term sustainable growth and value creation. I'd like to sincerely thank all of our valued employees across the Global Deckers team for their continued commitment to our collective success. Thank you all for joining us today and thank you to our shareholders for your continued support. With that, I'll turn the call over to the operator for Q&A. Operator: [Operator Instructions] Our first question comes from Laurent Vasilescu, BNP Paribas. Laurent Vasilescu: Stefano and Steve, very glad to hear that you are reinstating guidance here. And I wanted to ask about that. Originally, Steve, the framework, I think, on the fourth quarter call was calling for HOKA to grow mid-teens for this year, UGG to grow around mid-single digits. I think last quarter, I think there was greater confidence in that framework. With today's guide, lower expectations on those 2 metrics, can you maybe just unpack that a little bit more? Is there just a degree of conservatism? And I didn't hear anything about weather with regards to UGG of the low single to mid-single, but do you think that's a factor playing into your guidance? Stefano Caroti: Laurent, this is Stefano. We have 2 of the healthiest brands in the global marketplace with a very strong and loyal consumer base and a growing global demand. Our first half demonstrates the strength of these brands. For the back half, we are anticipating a more cautious consumer as the full impact of tariffs and price increases will be felt here in the U.S. Having said that, our brands are well-positioned when the consumer shows up for the holidays. And as always said, we don't manage our business month-to-month and quarter-to-quarter. We build brands for long-term profitable, sustainable growth. Steve Fasching: Yes, Laurent, this is Steve. I think just to talk a little bit about the guidance and kind of reorient everyone in terms of what we said at the beginning of the year, and you're right, we didn't give full year guidance and the fact and appreciate your recognition of that, giving guidance now, I think, is a demonstration of our confidence of how well our brands are performing in the marketplace and the continued path that we see on that. Part of the framework that we gave at the beginning of the year really said, if tariffs did not have an impact on consumers, how we saw kind of certain growth. And we still believe that, right? But we do know and we are more currently seeing some impacts on the U.S. consumer. So as U.S. consumers are beginning to see some price increases, it is impacting their purchase behavior within the consumer discretionary space. And so as we now look out at the next 6 months to give the full year guidance, our HOKA back half still is a low teen guide. So in many respects, we're not off of what we originally thought, maybe a little bit of a reduction, but we are now anticipating the impact of tariffs. So I think that's a demonstration, again, that the brand continues to do better than what we thought in a tariff-imposed environment. So we feel good about that. To Stefano's point, we're going to manage these brands for the long run. We're not going to try to chase growth in a current period that could be detrimental to the brand. And again, that is what our guidance reflects is we are going to maintain these brands. We're going to manage them in the marketplace that allows us to grow these -- grow these meaningful over a sustainable longer period of time. And I think that is a bit of what you're seeing in our guidance. And yes, we do know that the revenue is below where the consensus was. We're taking into account a consumer who's a little bit more cautious. I think is there opportunity that we could do better? Sure. And we'll see how the consumer shows up. And that's how we're looking at it. From an inventory position, we have inventory that if the consumer shows up, we will be able to capture some upside to this. But we're confident, again, in how our brands are performing in the marketplace internationally and domestically. We know domestically that the U.S. consumer is a little bit more pressured. So we're reflecting that in our outlook for the next 6 months. But again, our positioning of the brands remains with long-term sustainable growth in mind. And then just the other bit on the guidance. I think, again, we're showing a demonstration of how we can manage our business from an overall perspective. So even with a more conservative approach on some of the revenue guidance, we're still delivering profitability on a consensus bracket for the full year. So again, I think we will continue to manage these brands in a healthy way and drive long-term sustainable growth. Laurent Vasilescu: Very helpful. And then, Steve, just to understand a little bit more on the back half guide for HOKA, low double digits. I know you don't guide anymore by quarter out, but any nuances we should consider just because there are some compares that we can look at between 3Q and 4Q. I thought it was also interesting that you mentioned there's some positive reception regarding spring/summer order books. Maybe can you unpack that a little bit more? Steve Fasching: Yes, sure. I think in terms of how we're looking at the back half, more pressure in Q3 with more growth in Q4. So -- and again, I think that's where we're going to see how the consumer shows up kind of Thanksgiving through the holiday season. That's one thing that we're going to keep a very close eye on. We believe our brands are positioned better than most, right? If the consumer shows up, our brands are positioned to capture that demand. And so really, this is more about how does the consumer show up. So we're being a little bit more cautious with our third quarter growth with a little bit more aggressive growth in the fourth quarter. And then to your point on the order book, and I'll let Stefano jump in here, very confident with how things are shaping up and the consumer response to our products. Stefano Caroti: Yes. So, I'm very happy with what the teams have done specifically in the U.S. market for HOKA. We are growing awareness. We're gaining share really across every country. But specific to the U.S., the marketplace is clean. Sell-throughs are stronger than sell-in. Our full-price business is very, very strong. Our key franchises, Clifton, Bondi and Arahi are performing well in the marketplace. And our most recent product launches have also performed well and referring to Challenger, the Mafate family, Mafate X, Mafate 5, Rocket X 3, Rocket X Trail. Our order books are healthy. We're gaining share in Performance Run. We're back to #1 in specialty. And we're well set up with the transition to these new models I just mentioned. So our marketing also has been resonating, and we're seeing improvements also in our DTC business. So all is good on the HOKA side of the U.S. Operator: The next question is from John Kernan, TD Cowen. John Kernan: Steve, can you talk to the split between DTC and wholesale in Q3 and Q4 a bit more? The DTC compare gets a lot easier as you enter the fourth quarter. You did provide some color to Laurent's question. Just curious, the channel split between wholesale and DTC and what you're doing specifically to reaccelerate DTC same-store sales or omnichannel comps, particularly in America -- in the U.S. Steve Fasching: Yes. I think from a total company DTC perspective, we expect to continue to see improvements in Q3 and then further improvements in Q4. I think also important just to -- as you look at our growth and understand kind of what we said about this year is, again, remember, as we're expanding wholesale this year, we said much of that was going to come in the first half of the year, right? And that's what we've delivered and more so. And I think that's a demonstration of the strong demand that's out there for both brands is that our wholesale partners to get their hands on product earlier, they wanted to be able to showcase product earlier. And so we were selling in into that environment. That has put some pressure on our first half DTC. So with expanded distribution, right? It's more a demonstration of the growth of our demand for our brands and really a timing effect. And so it's not an indication of things kind of slowing down for brand and from a demand perspective, they are still increasing. And on a full-year basis, it still has increased. But as we've shipped more of that in the first half of the year, you're just seeing kind of a timing flow of that. And so in respect to that, right, that's where we'll see a little bit or expect a little bit more DTC growth on a percentage basis in the back half, a little bit more in Q3, a little bit more in Q4. And then with selling more in the first half in wholesale, you're going to see kind of lower numbers as a result of having more products move into the wholesale channel earlier in the year. John Kernan: That's helpful. And you obviously called out the company's top-tier profitability. I think you have the highest operating margin structure of anybody in the athletic footwear and apparel space. I was just curious, as we look into next year, obviously, tariff pressure is going to be pretty significant in the first half of the year. How do we put guardrails on the long-term margin structure of the business? We're finishing this year around 21.5%. Is north of 20% plus operating margins, how you look at the business long term? Steve Fasching: Yes, it's a good question, John, and we appreciate it. Clearly, right, what you're seeing. So last year, we delivered exceptional levels. Again, this year, I think in comparison to what others are saying, it's going to be another exceptional year with half of the year being impacted by tariffs. Next year, you're going to have kind of another half of year. So that will be a headwind to further margins. But again -- and I think you can see, as demonstrated by Q2, how we manage our business. So we are continuing to organically grow our business. The demand for our brands continues to increase. And at the same time, we're doing, I think, a very good job of managing an uncertain, volatile environment. And you can see how we've mitigated some of those tariff impacts in Q2, where we earlier thought that we would see some headwinds, we were able to take some actions and mitigate some of that and flow that improvement through. And that's what you're seeing on that gross margin. We will continue to operate in that disciplined approach. But yes, to your point, we're going to continue to see tariff headwinds as we look into FY '27. We're not in a position yet to kind of give guidance on that. But yes, you will assume further pressure. Stefano Caroti: And our strong financial profile will also allow us to invest in capabilities we're building, whether it's innovation or apparel, or technology digital. John Kernan: Got it. And then the gross margin pressure you're guiding to in the back half of this year, it's safe to assume at least that magnitude carries into the first half of next year, I would assume. Steve Fasching: Yes, correct. If the tariffs stay in effect the way they currently are, yes, equivalent. Operator: Up next, we'll hear from Adrienne Yih from Barclays. Adrienne Yih-Tennant: This is probably for both of you, both Stefano and Steve. Can you talk about kind of the price actions that you have taken at both brands earlier in July? Earlier in back-to-school, it seemed like those price actions didn't have a lot of impact on the demand, but obviously, that was kind of in the back-to-school time period. Is there something that you've seen either sell-through in the channel at your own DTC or maybe on the products that actually had those price increases that has given you a little bit more concern about the consumer? And then, Steve, my follow-on is, how are you seeing -- it's a really good point on more points of wholesale distribution, right, because there's more places to buy the product. But how are you thinking about when we kind of see a more normalization in the DTC versus wholesale balancing? Stefano Caroti: Adrienne, on the pricing question, we have premium brands and premium brands have more elasticity than other brands. And we've been very selective and strategic in our price increases. And we have not seen any issues. Sell-through on key styles continues to be strong for both UGG and HOKA. No issues so far. Steve Fasching: And then on the wholesale question, it's a good one, and we appreciate you asking it. I think if you go back 1.5 years or 2 years ago, we talked about how we are in the marketplace significantly underpenetrated in wholesale in comparison to many of our peers. So many of our peers are selling in a lot more points of distribution, wholesale distribution, than we are. And we've talked about marketplace management for years now about how we do this. And this is how we lean into wholesale. And I know there's questions out there about, oh, their growth is coming through wholesale. Yes, we're putting more shoes on feet, right? And -- but we're doing it in a strategic long-term way, right? We're not chasing growth in a quarter or in a year, trying to blow out wholesale distribution just to show sales increases. This is how we're expanding our brand globally and sustaining longer-term growth over a longer period of time. Does it mean that we deliver slightly lower levels of growth rate in the current period as we continue to expand, but are able to sustain longer-term growth rates? Yes, that's what we're doing. And so last year was a big year of wholesale expansion. We are anniversarying some of that this year as well as some additional wholesale expansion this year, but that will begin to slow. It doesn't change our outlook on that balance that we talked about of getting to 50-50 wholesale to DTC. So we're still on that. You will begin to see wholesale growth slow a little bit and DTC again begin to pick up. But again, this is about taking opportunities, increasing demand in the marketplace, giving consumers more points to purchase product and overall leading to more shoes on feet. And that's what we're building. Stefano Caroti: Yes. And we operate an omnichannel model, and we have the ability to flex and react to consumer demand as needed. Operator: The next question is Samuel Poser from Williams Trading. Samuel Poser: I got a handful. Number one, you talked about the healthy order book in for spring. I assume that's for both UGG and HOKA. Can you define what that means, please? Stefano Caroti: Sam, we provide those details, but we are very happy with the order book that we have for spring/summer '26 and the early reaction to fall '26. Steve Fasching: Yes. And I think, Sam, it's fair to say that it's up, right? And that's why we're happy that we're seeing increases in order book. Samuel Poser: And can you talk a little bit -- I'm going to get into a little bit of weeds here. Can you talk a little bit about like how -- especially with the UGG brand, sort of in and out of back-to-school, how you saw both in your own DTC and within your wholesale partners, because you get sales reports, how you saw that business like peak in valley? And are you seeing any big differences between the peak like peaks and valleys versus last year? And I mean, because I'm really wondering what -- sorry, go ahead. Stefano Caroti: It's a good question, Sam. What we're experiencing, and this is probably due to the consumer uncertainty in the U.S., is deeper valleys and higher peaks. Back-to-school is strong, and we anticipate to have a strong holiday season. But September, October are typically not the strongest months in our space. Samuel Poser: And so that leads to -- are you -- is your guidance for the back half and I guess, particularly holiday, is it more about what you saw during back-to-school? Or is it more about sort of what's going on right now? Because given those peaks and valleys and given the fact that in your own DTC business, you'll do every day between Thanksgiving and Christmas, you'll do more business in a day than you basically do in a week, July through probably the beginning of October. I'm wondering how much of this is just real caution or my favorite saying. So I won't say that in front of everybody, guys, but you do live near the beach out there. And I'm just wondering how much of the -- because I mean, consumer seems to want your product. It seems to be -- and so the concern about the consumer it seems like whatever they're buying your stuff at full price. You're not getting margin pressure, you're not getting those things. So the fact is they're not buying Jo's Frye boot brand. They generally want UGG, and they're not buying Champion sneakers because they want HOKA. And so either they want your brand or they don't. And you talked about the elasticity you had in price, which tells me that you actually believe that the consumer is buying your stuff regardless. So why so much caution around this macro consumer like, oh my God, the consumer in the U.S. might be hurting, but they still seem to go to your brands, not to us. Steve Fasching: Yes. I think, Sam, on that, clearly, our guidance for the year, which is reflective of the next 6 months, is taking into consideration what we're currently seeing kind of right now. And so I think that's where the question is, right? It's not about question about how we think our brands are placed in the marketplace. We think we're, again, positioned better than most and in many cases, very well positioned. But we'll have to see how the consumer begins to show up. I think some of the economic signals are consumers are beginning to see higher prices. Inflation is starting to affect them more in the U.S. And so there is some caution on our part as we take that into consideration. And again, we don't want to just chase sales because we want to achieve a higher number. We're about building brands for the long term. And so we don't want to do something in the quarter that could be detrimental to us in the longer term. So to your point, yes, we're taking a little bit of caution in there. We don't know how the consumer is going to show up, but we do know if the consumer does show up, we're better positioned than most. Samuel Poser: And then lastly, Stefano, with HOKA, are you -- are there any lower profile max cushioning? Or are we going to see any evolution to lower-profile shoes out of HOKA? Stefano Caroti: Yes. You will see more lower-profile solutions going forward. Ready for spring, we have the new Solimar that's been very well received. The new transport on our lower profile tooling. We have the Speedgoat 2 in lifestyle that is resonating and it's a lower profile than what we had in the past. So you'll see a more vast array of products going forward. Operator: The next question is from Jonathan Komp from Baird. Jonathan Komp: I want to follow up on HOKA. Hoping that maybe you can be a little bit more specific when you think about changes to the product launch plans into 2026, just any more details on what we should expect broadly and then maybe for some of the key styles going forward, the big 3 in terms of cadence and plans? And then just bigger picture on HOKA, as you talk about having potential to add billions of revenue yet. Can you give somewhat of a buildup or some of the big buckets or growth opportunities that you see when you make that comment? Stefano Caroti: Yes. Let me start with the latter. So we're focusing on a handful of categories for HOKA. It's performance run a trail, it's hike, it's fitness, it's a lifestyle. And over time, you also see apparel. So those are the 5 key areas of growth for us. And we compete in a $0.5 trillion market, and there's plenty of upside for HOKA, both in the U.S. and internationally. As we continue to grow awareness and consideration, we should continue to grow our brand in a healthy way. As regarding product transitions, we have tightened inventory of key outgoing style as we prepare for the upcoming launches of Gaviota, Mach, Transport and Speedgoat. So you should see -- experience less noise in the marketplace as we have bought less and tight inventories. And in regards to cadence, you will see an update to our biggest franchise, the Clifton in fall '26. So Clifton and Bondi will no longer overlap. Jonathan Komp: Okay. That's helpful. Steve, one follow-up then on margin. It looks like the back half margin for operating margin pointed in the low 20% range. Historically, when the back half was in the low 20s, the full year margin was more in the high teens, below 20% on an annual basis. Is that the run rate for the business currently, as we think about annualizing some of the second-half pressures? Or how should we think about the back-half margin guide in relation to the current annual run rate that you're performing at? Steve Fasching: Yes. I think, John, just on that, as we look at the back half kind of this year in comparison to kind of last year, the declines that we're reflecting are really being driven by the tariffs, right? So in terms of how we're running the business, how we think about margins and the margin profile of the business, really, the change that you're seeing in the back half is tariff-driven. So that's what we expect, again, based on the tariffs as they're imposed today. Jonathan Komp: And just a follow-up, given the discussion about maintaining premium positioning, should we view that pressure and the unmitigated portion that you guided to for tariffs, is that more temporary? Or is that a permanent step down in the margin that you're willing to give up potentially? Steve Fasching: Yes. So the margin change that you're seeing between last year and this year is going to be driven by the tariffs. And then we'll see kind of if promotion changes, we do have an element of promotion assumed for the back half. So we'll see that. Again, the biggest driver being tariffs, that's the overall driver, but there is a level of promotion given the environment today. That will, again, to the earlier question. I think that John asked is that, that will also trickle into FY '27. Again, we haven't given any update on '27, but the first half will be pressured by that margin. But -- so there will be an overall headwind. We have done, I think, a very good job of mitigating that in Q2, and that's what you saw us deliver. We don't have the same levers necessarily going into the back half nor will we have those levers kind of going into. We were able to take advantage of inventory movements that now that the tariffs are fully into effect, you won't necessarily get -- you'll get that benefit into future periods. So -- but we'll continue to look. As we talked about some of our mitigation strategies, we'll again continue to review pricing. To an earlier question, we didn't really see much pushback on some of our price increases. So we'll always -- with a strong brand that's well positioned in the marketplace, we'll continue to evaluate levers that we have. But the way we're kind of currently looking at it, we still have headwinds in the back half that will continue into FY '27. Operator: And our final question today comes from Jay Sole from UBS. Jay Sole: Maybe, Stefano, first question for you. As you just think about calendar '25 for HOKA brand, do you see this year as a little bit of a transition year where you had sort of the accelerated life cycles of Bondi 8 and Clifton 9 and then you have this tariff situation where next year maybe is sort of not a transition year where you have a lot of newness and clean inventories in the marketplace and good brand momentum where you might see a different kind of momentum financially. And then I guess, Steve, the question for you is that I know this was asked on an earlier question, but the guidance before was, say, mid-teens for HOKA, assuming no tariffs. Now you're saying low teens for HOKA with tariffs. So if we had gone back to the beginning of the year and you would have given guidance for HOKA with tariffs, what would it have been? Or without giving you the exact would have been, would the guidance that you gave today have been in line with that? Would it have been better than that? Would it worse than that? Maybe if you could just frame that clearly for us, that would be super helpful. Steve Fasching: Yes. Sure, Jay. I'll start kind of with that question, then Stefano can kind of talk about a bit of the transition year of 2025. So to your point, if we look back, I think one way to answer your question is that how we've seen HOKA perform, especially with the product transitions, we're very encouraged by the year. So to the point where in a pre-tariff environment, we saw mid-teens and the fact now with a tariff imposed world in the back half, we're low teens. I'm very encouraged by that, right? Because what it shows is even in a tariff-imposed world, consumers are still showing up for our brand, probably a little bit better than what we may have thought at the beginning of the year. So I think that speaks to how well some of our updates are resonating with consumers in the U.S. and globally, too, and you're seeing that in the global numbers. So where the tariff is impacting a U.S. consumer, I think we've seen a good response. And then we've seen a very good response from an international perspective, which gives us a view into that non-tariff-imposed world of a consumer response. So having seen that be very positive is actually very positive on the brand because I do think tariffs are having an impact on the U.S. consumer. Stefano Caroti: Yes. And regarding the question on transition. Yes, it's -- '25 is a bit of a transition year. We probably have masked a few too many big product launches in the first half of the year, and we didn't space them out enough. There are a few learnings from us in the transition to the model. So I think it was a learning year for us. And hopefully, this will help going forward. Operator: Thank you, everyone. That does conclude our question-and-answer session. This does conclude our conference for today. We would like to thank you all for your participation. You may now disconnect.
Laurie Shepard Goodroe: Good morning to all, and thank you for joining this earnings call for the third quarter of 2025. Financial statements were posted with market authorities early this morning, and all materials can be found on our corporate website. Please refer to the disclaimer in this presentation and note that this call is being recorded. Today, we are joined by our Chief Executive Officer, Gloria Ortiz; and Chief Financial Officer, Jacobo Diaz. Gloria Portero: Thank you, Laurie. Good morning to all, and welcome to this third quarter 2025 results presentation. Since we last met in July, many things have happened. The tariff conflict between the European Union and the United States has been resolved. The Israel Gaza conflict seems for now to have reached its end. We learned the results of the BBVA Sabadell takeover bid last Thursday and interest rates have bottomed as the European Central Bank has ended rate cuts with inflation aligned with its targets. Additionally, the EBA stress tests were published on August 1, in which Bankinter is again the listed bank in Spain as well as in the Eurozone with the lowest capital depletion in the hypothetical case of a very adverse economic scenario. We continue to navigate an uncertain and volatile environment. And despite this, I would like to highlight that this quarter's results remain satisfactory following the trend of the previous quarter with very relevant growth and activity across all business and geographies. The third quarter has been another quarter with strong commercial activity translating into a post-tax result of EUR 812 million, 11% above the same period last year. These results are also accompanied by solid management ratios in terms of asset quality, efficiency, profitability and solvency. As reflected in the figures, we continue to report improving results in which, as usual, balanced and diversified growth is key. Credit and loans as well as retail deposits grew 5% with off-balance sheet balances up 20% year-on-year. Net interest income has continued to improve in the quarter. In the second quarter, we reported a contraction of 5% that has been reduced to 3.5% in September. In fact, in quarterly terms, it is the second quarter that we have grown over the previous quarter, reaching levels of the third quarter of 2024. This is thanks to the resilience of the customer margin, which remains at 2.7% this year. On the other hand, fees and commissions continue to perform exceptionally well, maintaining a growth rate of 10.6% despite the fact that each quarter, the comparison with the previous year is more demanding. All this growth has been achieved while keeping our risk appetite intact, which is reflected in the NPL ratio that stands at 2.05%, improving previous quarter ratio as well as the one reported 12 months ago, which was 17 basis points higher. Another key to our business model is efficiency, which stands at 36%, the best cost-to-income ratio in the sector. Diversified growth, asset quality and efficiency are the pillars on which the profitability of our business is based, maintaining a ROTE above 19%. As a result of intense commercial activity, we once again present strong diversified growth in business volumes this period. If we add credit and loans, retail deposits and off-balance sheet volumes, the volumes managed amount to EUR 234 billion at the end of September and grew by EUR 19 billion year-on-year. This is a remarkable growth rate of 9%. Going into detail, lending reached EUR 83 billion at the end of the quarter, which is EUR 5 billion more than in September 2024. Retail deposits closed the quarter at EUR 85 billion, a figure EUR 4 billion higher than in the same period of the previous year. And finally, we added EUR 11 billion to the off-balance sheet business, which stands at EUR 66 billion, showing a strong growth of 20% year-on-year. This year, we have seen a noticeable increase in new client acquisition, particularly through our digital channels. The integration of talent and technology from EVO Banco over the summer has assisted to further strengthen our digital strategy for the group. All geographies are growing at good pace. Spain, which accounts to 87% of business volumes grows 7%, while Portugal with 11% contribution to volumes grows by 12% and Ireland also stands out with 20% growth. New credit production also continues with improving trends as a result of the increased commercial activity. 16% in new mortgages, 6% growth in new business lending and a 3% drop in consumer credit due to the fact that we continue to reduce exposure to riskier segments. On Page 7, for the past 12 months, we have seen increasingly positive trends in sector growth across the geographies in which we operate with close to 3% market growth in Spain, 7% in Portugal and 2% in Ireland. In each of these markets, we continue to gain market share in each of our business lines. In our core markets, Spain, the retail banking loan book increased by 3.4%, 30 bps above the market and our business banking book outperformed by 180 bps, reaching a 4.3% growth rate. With both Bankinter Portugal and Ireland in expansion, we continue to gain significant market share, further diversifying our asset portfolio. Portugal grew 11%, 450 bps above the sector and Ireland, an exceptional 20% growth rate, well above market growth rates in both countries. In terms of revenues, there is a very notable performance of core revenues. This is the sum of net interest income and net fees and commissions, which has reached similar levels to those in the previous year. In quarterly terms, core revenues reached EUR 762 million, the largest in the series. And in fact, they are already growing both compared to the previous quarter by 1.3% and compared to the same quarter of 2024 by 2%. This sustained solid performance quarter after quarter of fees and commissions growing at 10.6% compensates for over 90% of net interest income compression in the year due to the negative impact from the reduction of yield curves. Net interest income fell on a cumulative basis, 3.5%. But in quarterly terms, the upward trend continues. We are already 3% above the last quarter of the previous year and 5% more than in the first quarter, and we also grew 1% over the previous quarter. Going now to the next page. I would like to talk about productivity. We have a scalable and efficient business that is reflected in productivity improvements. The volume of customers managed per employee expands year after year, while the cost per million euros of volumes managed decreases year-on-year. This is thanks to the investments made in technology and in particular, in artificial intelligence projects that are oriented to the improvement of personal activity, commercial efficiency, which relies mainly on algorithms, but also process efficiency and the improvement of the customer experience and the development also of new products. Bankinter culture of applying targeted innovation across products, services and processes continues to deliver measurable results, reinforcing our strategic positioning and driving ongoing improvements in operational scalability. I will now hand over to Jacobo, who will provide you with more additional detail and insights into our financial and commercial results. Jacobo Díaz: Thank you very much, Gloria. Good morning, everybody. We are pleased to share once again another quarter growth and increased revenues and profitability. In operating income, we have grown by 4.7%, thanks to increased volumes, continued strong fee growth and effective margin management. We continue to rebalance operating costs more evenly over quarters with a year-on-year increase declining each quarter to end the year within our guidance. Cost of risk and related provisions declined by 10% compared to the prior year, reflecting a continued positive trend in risk management. Net profit rose 11% to EUR 812 million, gaining momentum to well surpass our initial goal of EUR 1 billion in 2025. Let's move on to review additional details about each line in the following slides. So after the trough in the first quarter of this year, we continue to deliver quarter-on-quarter improvements in net interest income, now recovering levels of the third quarter of last year, reporting EUR 566 million, a 1% increase quarter-on-quarter. Asset yields continued to contract this quarter at 3.49%, down 22 basis points. This quarter reflects a typical low seasonality period where corporate banking activity is relatively lower compared to retail banking activity, which has influenced a bit of a mix change leading to a higher weight of repricing more in line with retail durations than the shorter corporate durations. Given these dynamics and a stable outlook for Euribor 12 months rates, we believe average quarterly asset yields should drop marginally in Q4 to reach stability in the first half of 2026. Average customer margin for the year remained resilient at our 270 basis points, continuing to demonstrate our ability to effectively manage margins. With cost of deposits now at 84 basis points, a material 14 basis points decrease from last quarter, we are optimistic to reach levels around 75 basis points by the end of the year. Our NIM also remains resilient, a direct result of the effective balance sheet management. After sharing the details of the NII results, we wanted to talk about the excellent results we have been seeing quarter-on-quarter related to our digital account strategy that we initiated last year as part of the new digital organization. This growing digital site account deposits in yellow in the graph on the left have aided in reducing and replacing typical long-term deposits with more granular and flexible shorter duration deposits. Between both digital site accounts and private banking or corporate treasury accounts, we now have a significant proportion of our deposits with less than a 3-month duration. This is less than half of the average duration of the term deposits. Not only does this provide us greater agility to adjust deposit rates in line with market rates, but it also has a great source of increased customer activity, either transactional or through AUMs activity, driving additional fee volumes with a scalable operational model at a marginal lower servicing cost base. As you can see on the chart on the right, we have increased our average deposit spread over the past 4 quarters, reaching now close to 130 basis points. We believe these deposit spreads levels are likely to remain quite resilient, possibly with some upside for the coming years given the favorable rate environment as well as a more flexible deposit structure and our deposit gathering capability from our excellent existing and new customer base. Bear in mind that 50% of new customers are acquired through our 100% digital channels. Fees continued to deliver sequential increases quarter-on-quarter even during the seasonally low summer months with an increase of 11% on a year-on-year basis, reaching EUR 196 million this quarter, up 2% on a quarter-on-quarter basis. This continued quarterly growth momentum is mainly attributable to the strong volume growth in fund management and brokerage services that we detail later in the presentation. We are quite optimistic to continue to maintain this growth momentum going forward, given our strong focus and strategy on affluent customer base and increasing flows from on-balance to off-balance sheet activity and customer-centric operating model. It is also quite remarkable the performance of these business lines delivering improved results, notably in the equity method and dividend lines, up 29% on a year-on-year basis. The diversification of sources of revenue is well represented here given our diversified business investment over the past years in areas like our insurance JV partnership, our JV in Portugal with Sonae to deliver consumer finance products as well as our successful strategy with the Bankinter investment franchise, delivering alternative investment vehicles, allowing our customers to invest in real assets. This business line will continue to develop and deliver increased results over the coming years, providing upside risk in nontraditional revenue lines. Regarding cost, we continue to reduce seasonality and balance our expenses over the year, increasing 3% when comparing average 25 quarterly cost to those in 2024. Although cost volumes may increase in Q4, they will be lower on a year-on-year basis when comparing to Q4 of 2024. cost-to-income ratio remains at an exceptionally low level of 36%, and will remain committed to maintaining positive operating jaws in the future. On Page 17, loan loss provisions continue to show improvements versus last year with a cost of risk of 33 basis points. Other provisions also remained under control and performing well at a stable 8 basis points with no signs of deterioration in the market of our portfolio and with a well-managed risk management across the bank, we are optimistic to maintain current levels for the coming quarters. Next page. Net profit achieved record levels once again, reaching EUR 812 million, an exceptional increase of 11% year-to-date. Credit quality, credit and asset quality indicators continue to improve with the group NPL ratio dropping to 2.05%, down 17 basis points from last year. Spain down to 2.3%, Portugal at 1.4% and Ireland at 0.3%, all well below sector average. Moving into capital. As Gloria mentioned, we are very pleased with our EBA's stress test results this quarter, resulting once again in the lowest level of capital depletion among all Spanish and Eurozone listed bank. Even under a severe economic adverse scenario, the potential capital depletion would only be 55 basis points. The prudent risk profile of our activity is differential. This has been a strong quarter for capital generation with the CET1 ratio at 12.94%, with a seasonal mix shift from corporate lending to increased retail lending, therefore, reducing RWA growth this quarter, which we review with the reverse in the following quarter with larger loan growth and density consumption and the annual operational risk capital consumption recorded in the fourth quarter. As we continue to invest in technology and strategic projects, we have also seen an increase in intangibles this quarter due to the software-based solution under deployment, for example, with the new banking IT platform for Ireland or the Portuguese digital transformation program. Moving into Page 22. Commercial activity and trends remain strong with customer volumes up 7% in Spain, 12% in Portugal and 20% in Ireland. Each region contributing at increased levels to the gross operating income of the bank. On Page 23, loan growth, again, strong, up 4% year-on-year, growing both in retail as well as business lending. Retail deposits continued to demonstrate solid growth, increasing by 4% with also strong performance in Wealth Management, reflecting a 19% increase in assets under management, contributing to fee income increases of 11%. Profit before tax, up 6%, reflecting solid contribution for our core Spanish business. On Portugal, continued exceptional performance in lending activity across both business segments, up 11%, strong deposit gathering up 5% as well as increased wealth management and brokerage balances rising 23% on a year-on-year basis. Moving into Ireland. Commercial momentum continues with mortgage loan growth up 23% as well as consumer finance loan growth by 11%. We have also launched our fully digital time deposit in the Irish market with an attractive value proposition that will surely grow deposit volumes over the coming quarters. Profit before tax contribution reached EUR 34 million with strong sequential increases in NII each quarter, up 16%. Moving into corporate and SME banking. Business lending continued to deliver strong performance even with a seasonally low quarter in terms of new loans. Customer lending increased by 5%, well above sector loan growth. International business segment continues to be a key growth catalyst contributing to 1/3 of new credit production with a growth rate at 9% year-on-year. Page 27, Retail Banking asset and deposit trends remain strong with increased new client acquisition driving core salary account balances up by 7%. New mortgage origination up 16% year-on-year with solid market share of new production in Portugal, Spain and Ireland at 6%. Our mortgage back book continues to grow by a strong 5% year-on-year, outperforming sector growth in every region. Regarding Wealth Management, our high-quality customer base typically brings annual net inflows between EUR 5 billion to EUR 7 billion into the bank. However, this year, we have already surpassed this historical range and now reset our ambition to achieve between EUR 8 billion to EUR 10 billion of net new money every year. When taking into consideration the market effect as well, incremental wealth of our customers increased by EUR 20 million or a 16% increase on a year-on-year basis. Moving into off-balance sheet volumes. We continue to grow in assets under management and assets under custody, reaching now EUR 150 billion with assets under management advisory or customer direct execution services in brokerage. Since our differentiation strategy centers around the client and how they prefer to interact with the bank rather than a product strategy, we indistinctively offer Bankinter products as well as third-party products to retain independence in terms of customer advisory services. With a full range of products as well as various servicing models based on customers' preference, we are able to consistently grow these off-balance sheet volumes, a key driver of continued fee growth quarter after quarter. And finally, let me recap our ambitions and targets. Given our solid third quarter financial results, a strong commercial momentum and volume growth trends and with a stable outlook for Euribor 12 months over the coming year around 220%, we remain optimistic in terms of future growth potential. In terms of our specific ambitions for this current year, loan volumes are expected to continue to grow at mid-single-digit rate, similar than deposits with assets under management commercial activity following the same strong performance than previous quarters. As market conditions become more favorable, we are committed to maintaining 2025 average customer margins around 270 basis points to support robust profitability that surpasses our cost of capital. In essence, we will not compromise margin integrity. Regarding NII, we anticipate that the final phase of retail repricing will take place mostly in Q4 and with much lower impact in the beginning of '26. Consequently, while some pressure on asset yields is expected to persist, it should moderate as our corporate portfolio has now been fully repriced in Q3. On the deposit side, we will continue to reduce and manage costs in a balanced manner to support ongoing customer and deposit growth, particularly in the digital site accounts. As a result, we expect a more modest reduction in deposit costs in Q4 compared to Q3 between the range of 5 to 10 basis points. Given these dynamics and our current commercial strategy, NII in Q4 will keep growing quarter-on-quarter again and growing year-on-year again, which may result anyway in a slight slippage in our flattish NII guidance in 2025 that will be compensated by a stronger fee growth. With upside risk in fees, we increased our targets of high single-digit growth target to reach now double-digit growth in fees. With respect to cost management, we continue to allocate and balance cost volumes over the quarters and remain on target for 2025 full year annual cost to grow mid-single digit. We also remain committed to delivering positive operating jaws in 2025, gross revenues above cost. As credit quality continues to improve, we are revising our targets with the expectation of cost of risk to fall below 35 basis points for the entire year. Although we do not provide guidance for the following year until the results presentation in January, we must say that as of today, with the current macro outlook for Spain, Portugal and Ireland, there is no reason why we should not expect similar levels of growth in our loan book as well as resilient client margin in our levels of cost of risk. Efficiency will also remain at the top of our agenda to ensure sustainable levels of return on equity in 2026 and so on. And capital levels are expected to stay strong in coming quarters despite profitable growth expectation. I believe that this has been another high-quality set of results with no surprises, one-offs or extraordinary items, quite predictable that make us feel to be on track to achieve another excellent year in 2026. Gloria, back to you for any closing comments. Gloria Portero: Thank you, Jacobo. Well, as you can see, the results of these first 9 months of the year have once again beaten records of previous years with an 11% growth in net profit, and all this is accompanied by an excellent level of operational efficiency and asset quality, both ratios improving compared to the previous year. All this allows us to continue improving returns on capital, which stands at 18.2%, 30 bps better than in 2024 and continues generating value for our shareholders, both in terms of dividend distribution and the book value of shares. To close the presentation of results for the first 9 months of the year, I would like to highlight that we are once again presenting solid results because of the recurring activity with our customers and the execution of a consistent long-term growth strategy. We are growing steadily in all the businesses and geographies in which we operate, keeping our risk appetite intact, even improving the risk profile of the loan portfolio as reflected in the NPL ratio and the increase in the coverage of the nonperforming loan portfolio. We continue to invest in projects and initiatives that allow us to keep pace with business growth. And despite this, we improved efficiency. All this results delivering a sustained return on the capital of the business, well above the cost of capital. For my part, this is all. Thank you again very much for your attention, and I will pass now on to Laurie. Laurie Shepard Goodroe: Thank you very much, Gloria. Thank you, Jacobo. Let's now move on to the live Q&A session, please. [Operator Instructions] Our first caller is Francisco Riquel from Alantra. Francisco Riquel Correa: My first question is about the fast growth in digital accounts. It's 4x bigger year-on-year. So I wonder if you can comment on the cost of these digital accounts compared to your total cost of deposits and the alternative of time deposits where you are switching. And I wonder if you can also elaborate on the commercial experience with these online customers and cross-selling ratios. You are not exceeding your traditional mid-single-digit growth in loans and deposits. You are growing faster in AUMs, but I wonder if this is coming from these online clients or from your traditional affluent and high net worth clients. And then my second question is about loan growth in Spain, which has slowed down year-on-year a bit, particularly in higher-margin corporates from 6% in Q2 to 4% in Q3. The sector has not. They're still growing by 3% in lower margin retail mortgages. So I wonder if you can comment on competition dynamics and update in terms of loan growth and also in the loan yield, where do you see the trough of this interest rate cycle? Jacobo Díaz: Regarding the loan growth, I think we had another, I think, good quarter comparing year-on-year in terms of the loan book. As I mentioned, the seasonality of the third quarter is -- I mean, typical in Spain, it has a negative seasonality. And the corporate banking activity has been lower as we normally expect. So we do not have any sign of slowing down in that perspective. It's just a matter of seasonality. In fact, we keep expecting similar levels of growth at the end of the year compared to, I don't know, previous quarters. So basically, we do not expect any changes. You mentioned competition. Of course, there is competition in the corporate banking as well in the mortgage activity, but this has been always the case. So there's nothing special to highlight. I would say that the loan growth will continue to show strong results. And regarding the digital accounts, definitely, digital accounts have been a quite relevant strategic commercial move for us in the past months and quarters. So we are delivering excellent results. We are capturing quite large volumes of deposits. We are cross-selling, of course, as you can imagine, plenty of different types of products. I wouldn't say that the largest volumes of AUMs are coming from the new digital accounts because it takes some time to transform and to cross-sell this type of accounts. But definitely, we are quite happy. You were mentioning about the cost. The thing is that these digital accounts have a quite short duration and for us is -- we have the agility and the capacity to change prices within a quarter. So for us, from a commercial strategy, we're quite happy. Gloria Portero: I will add 2 things. I mean the average cost of the digital accounts at present is around 1.6%. Actually, as Jacobo has said, the duration is around 2 months. So -- and we manage centrally, which is different to when it's products that are managed by the branch network, we manage centrally new prices. So it is quite easy and fast to reduce the cost. But on top of this, what I want to mention is that what we have been doing is a substitution effect. So basically, these deposits have been substituting higher tickets from enterprises and corporates. And there has been a reduction in the cost because we have been substituting higher costlier deposits. As Jacobo has said, I mean, looking forward, we expect the cost of funds to retail funds to continue reducing next quarter -- sorry, this quarter and in the order of 5 to 10 bps depending on where the Euribor stands. With respect to competition, here, yes, we have been growing quite nicely in mortgages in Spain so far. But I have to say that the competition is starting to be a little bit irrational, particularly in fixed rate mortgages of long term like 30 years. So you can expect us to be a little bit less active in that segment, although we think that we will continue to grow. Laurie Shepard Goodroe: Let's move on to our next question. Our next question comes from Borja Ramirez from Citi. Borja Ramirez Segura: I have 2. Firstly is on the NII, if I were to base the Q4 NII of this year and multiply by 4 and add the loan growth, would this make sense from a technical point of view to -- for estimating the 2026 NII? Or would there be any other moving parts? And then my second question would be in Ireland. I think you -- according to press, you launched a deposit of 2.6% rate, if I am correct. I would like to ask if you could provide some details on the growth strategy in Ireland in deposits. Gloria Portero: Regarding Ireland, I mean, what we are doing is just a test for the moment. So it's a friends and family. We are offering this deposit only to our clients and only a certain amount. I mean, initially, we are talking about EUR 50 million. So this is like a welcome deposit, and it's not going to have any impact at all in this year NII, and I don't think in next year either because we are controlling, as you can imagine, the growth in these deposits. With regard to NII, multiplying by 4. Well, it's a little simplistic. It could be near it could be near if Euribor rates stay completely stable around the year. It will be probably better than that than the mere multiplication by 4. Jacobo Díaz: Yes. I think our assumptions are we keep, as we mentioned, estimating that the average -- the client margin for coming quarters should be around 270 basis points and that we will continue to grow in similar -- the similar path that we've been growing in the past quarters. So that will be the main assumptions that you should take into consideration. As Gloria was mentioning, it's not just multiplying by 4. We definitely think it could be a little bit higher than that. Laurie Shepard Goodroe: Our next question comes from Ignacio Ulargui from BNP Paribas. Ignacio Ulargui: Just wanted to get a bit of a sense on the capital performance of the quarter, what you just -- Jacobo flagged about reverting the effect of the mix in the quarter in the coming quarters. I mean still 12.9% looks to me like a very high level. Is there any chance that the bank considers changing the 50% payout ratio with the current trend of capital? Second one is on costs. You said in the guidance, if I hear correctly, mid-single-digit growth. Should we expect a slightly more acceleration given the good performance of revenues that you front out a bit of cost for '26 in the fourth quarter beyond the natural seasonality that you have been trying to smooth this year? Or that would be -- or you're going to be very focused in keeping the costs on that limit to avoid slippage in '25? Jacobo Díaz: Ignacio, regarding the capital performance, as I mentioned, we present a quite strong capital ratio this quarter. And I did mention that there is some seasonality impact in this figure. So for the fourth quarter, we do expect a growth or much larger capital consumption from the growth, especially from the corporate banking activity that tends to be quite strong at the end of the year and of course, growth in the retail business and in other geographies as we have done. And additionally, I mentioned that there are some special recordings in the fourth quarter from capital consumption as the operational risk is fully recorded in the fourth quarter. So we do expect a figure probably lower than this one that we have shared today with you, although the results for the fourth quarter are going to be, again, very, very strong. To this means are we -- do we have in mind changing our dividend policy? I would say not for the time being. But of course, if we will see these trends in coming quarters, of course, we will -- we might think about doing whatever in terms of keeping our capital ratio in levels where we feel comfortable. Gloria Portero: Ignacio, with regard to cost, I mean, we are very comfortable with the low mid-single-digit growth, and we will stick to this. I mean we don't see any reason why we cannot meet our target. Laurie Shepard Goodroe: Our next question comes from Carlos Peixoto from CaixaBank BPI. Carlos Peixoto: Carlos Peixoto from CaixaBank here. A couple of follow-up questions actually as well. So mostly on NII. So if I understood correctly, you're expecting to see some pressure on asset yields coming through still in the fourth quarter through the repricing mechanism. Then you mentioned deposit costs maintaining roughly the spread to Euribor. And I guess that some volume growth, as you mentioned, fourth quarter tends to be much stronger. So putting all of this together, do you see enough support for NII in the fourth quarter to do materially better than in the third Q? And as you mentioned in the call, to see some -- well, basically that you won't be reaching the stable NII guidance, but I was just wondering whether we could be talking about a small single-digit decline in NII or closer to mid-single digit. Jacobo Díaz: Carlos, we did mention that the cost of deposit in the -- we are expecting next quarter to continue to decline, probably at a lower speed that we saw in previous quarter. And we mentioned somewhere between 5 to 10 basis points decline in the coming quarter. But we also -- we mentioned that we are -- we have come to a much lower speed of loan yield repricing, and we do expect some sort of stabilization or a slight reduction in the fourth quarter. That will mean that we do expect client margin to recover, and we are quite strong optimistic in terms of we will have a good -- at the end of the day, a good final quarter. But indeed, like you mentioned that -- and I did mention there might be a slight or minimum slippage in the overall flattish guidance. But again, it's going to be much more than compensated with fees. So we are good -- I mean, we are quite well optimistic about what's going to happen in the fourth quarter. So there is full repricing in corporate that has already been achieved in the third quarter. Euribor 12 months is behaving quite well around 220. There is a little bit more repricing from the mortgage book in the fourth quarter to come. But again, there is a strong seasonality that we believe will make a good fourth quarter to end up the year. As I mentioned, the fourth quarter is going to be again higher than the third quarter and much higher than the same quarter 1 year ago. So we think we are optimistic about the fourth quarter of this year. And of course, the coming quarters in 2026. We think this 270 client margin is something that we -- is definitely our ambition, and we are definitely managing everything in order to achieve that figure. Laurie Shepard Goodroe: Our next question comes from Ignacio Cerezo from UBS. Ignacio Cerezo Olmos: I've got one on the international credit book, which is around 30%, 35% of the total corporate lending book and seems to be growing much faster basically than domestic. So if you can give us some information, some color basically of what is in there and what is the reason is growing faster and what kind of sustainability you see on that? And kind of related to this more on a system basis, from a mortgage growth point of view in Spain, obviously, housing prices going up very fast. It doesn't feel that the shortfall of housing is going to be corrected anytime soon. I mean, is there any risk that the demand actually ends up drying up faster because of, I mean, problems of affordability, I mean, difficulties from people to access housing, et cetera. Do you think actually the pickup of mortgage growth we are seeing in the last year or so has less or there's a risk actually that drives up into the next, say, 6 to 12 months? Gloria Portero: Ignacio, with regard to mortgages, we don't see changes in demand in the very -- in the short term, so this year or next year. It is true what you're saying that prices go up and up and that there could start to be -- particularly in medium salaries, there could be problems of affordability. There are measures like the ICO lines where we are being active. Obviously, we have a little bit more than our market share that basically are trying to tackle this problem because they cover up to 100% of the value of the property. So what we are seeing in mortgages rather is what I've mentioned, which is a competition that is not being very reasonable with regard to long-term fixed rates. And basically, we are not going to enter that war, particularly in those clients. Well, in our clients, we might do because if we know how profitable their relationship with them is okay, but it won't be a measure to acquire new clients definitely. I think that's for mortgages. Jacobo Díaz: Ignacio, I'll take your question on international credit book. I think basically, our corporate banking Spanish clients are much more international than they used to be. They're much more focused on going abroad. And we do provide a quite large menu of products and services with a good technology, et cetera. So we are developing more technology, more, I don't know, supply chain management products, working capital facilities, endorsements, et cetera. So since we have increased our range of products and services to this type of clients, then the volume of activity and the loans and off-balance sheet items are keep growing and growing. So this is some sort of sustainable. This is something that we do expect to keep growing at the same -- at similar levels. So no one-offs in here is quite recurrent. And this is for us a quite relevant source of revenues, in terms of NII, in terms of fees, and it's a quite profitable business. Laurie Shepard Goodroe: Our next question comes from Alvaro Serrano from Morgan Stanley. Alvaro de Tejada: I just wanted to follow up on the loan growth. I take the seasonality and one thing, I just was curious, I wanted to double-click on your comments around derisking and the consumer book being down, I think you said 3% quarter-on-quarter. Where are you derisking? What kind of product, what region? And is it a one-off thing? And what should we be looking for in consumer going forward from here in terms of volume growth? And then the second sort of follow-up question to the broader discussion in the call is, how do you think the pricing dynamics in the mortgage, in particular, is going to evolve over the next few quarters? Are you seeing the market being less bad? If it stays as competitive as it is, what's the end game for you in the mortgage market in Spain? Gloria Portero: Alvaro, with regard to the portfolios where we are derisking, it is mainly open market consumer credit in Spain. So we are basically reducing our exposure and reducing also the new production and being more selective. That is on one hand. This portfolio anyway is not very significant in our overall book. And we continue to grow in consumer credit, but in our own clients in Spain and also in Portugal and in open markets, both in Ireland and in Portugal with Universo, the JV we have with Sonae. With regard to mortgages, well, for the moment, we are not seeing any changes in the pricing dynamics. But hopefully, we will be getting to prices where we have some margin with respect to the swap curve. But for the moment, that is not the case. That is why I was mentioning that we will probably decelerate growth, not so much in mortgages with our clients, but rather in the acquisition of new clients with mortgages. Laurie Shepard Goodroe: Our next question comes from Maks Mishyn from JB Capital. Maksym Mishyn: Two questions from me, please. The first one is on your Wealth Management business. Press reported several hirings you did. What kind of AUM growth should we think of for Bankinter in the medium term? And does this mean that fees are also likely to grow above the mid-single digits we have seen historically? And the second question is on capital, a follow-up on what the comfortable level is for you? And if the growth is not there, how can we think of deploying this capital? Jacobo Díaz: Maks, I mean, definitely, the current levels of growth in the Wealth Management business is something that we believe are sustainable. Of course, there are market effects that are not controlled. And this is something we cannot control, neither estimate. But the capacity to keep bringing net new money to the bank, as we've mentioned in the call, is becoming higher and higher. So now our estimation has increased from EUR 5 billion to EUR 7 billion every year to EUR 8 billion to EUR 10 billion every year. And that, of course, means that has an impact on fees. So definitely, we don't know exactly what's going to be the level of fees in -- the recurrent level of fees in the future, but we definitely think it's going to be quite strong and probably stronger that your -- I think you mentioned mid-single digit. So for us, again, the combination of our strategy in commercial activity has a full link in the Wealth Management activity and, of course, in fees. So... Gloria Portero: With respect to capital, I mean, we feel comfortable with a level in the -- between 12 40, 12 60, something that can give us room to continue growing and that doesn't restrict that growth. So this is more or less the average level where we are comfortable. Laurie Shepard Goodroe: Our next question comes from Pablo de la Torre from RBC Capital Markets. Pablo de la Torre Cuevas: Just a follow-up on Ireland on previous comments from Jacobo, you've mentioned the fixed-term deposit proposition in the country. But can you please remind us on the broader ambitions? And what are the next steps in the product road map in the country? And I guess in particular, you mentioned today your new higher ambition around net new money growth. So I was wondering if you were planning to start offering wealth products in Ireland next year. Maybe if I can squeeze in another follow-up on capital. Given your excess capital position and given also current valuation levels, can you just kind of update us on your appetite for inorganic growth from now? Jacobo Díaz: Pablo, regarding Ireland, definitely, the first phase is through the launch of the term deposit that we've mentioned before. Our next ambition is going to be the launch of current accounts at the beginning of 2026. And I think this is going to be the great moment of funding the growth that we are expecting in Ireland with deposits from local in Ireland. So we are targeting to fund whatever growth we have in the loan book in Ireland with the deposit book in Ireland as well. So this is the ambition, and this is the next step. We are not considering for the time being to move into the Wealth Management business in Ireland. I think we have plenty of things to capture and to target before that business. Gloria Portero: And with respect to inorganic growth, well, our appetite is very, very low. As you can imagine, we are an organic grower. We have always grown organically in the different businesses and geographies where we have the capabilities, and this is what we are doing in Ireland, and this is what we will continue to do in the future. Laurie Shepard Goodroe: Our next question comes from Britta Schmidt from Autonomous. Britta Schmidt: I have a follow-up on the consumer exposure, the open market consumer exposure in Spain that you talked about. Could you share with us the volume of that book and what the driver was for the derisking? I mean, have you seen a material change in the cost of risk there? And if so, why? And then on the -- you mentioned the operational risk impact in Q4. I mean, would it be reasonable to assume that it could be up to 20 basis points? Or do you expect something less than that? Gloria Portero: I will answer the consumer credit exposure. This is a very small book. It's like around EUR 1.3 billion. Not all of it is being derisking. The reason mainly here is not the cost of risk, it's an ROE question. So basically, we think there are better businesses where we can allocate our capital, and this is why we have decided to reduce our exposure in this book. Jacobo Díaz: Britta, regarding the operational risk, of course, we don't know the figure right now. As you know, the rules have also changed with Basel IV. So it's probably a little bit ambition for me to give you a good estimation. But it could be somewhere between 10% and 30%. So probably your 20% might be in the middle. Laurie Shepard Goodroe: Our next question comes from Hugo Cruz from KBW. Hugo Moniz Marques Da Cruz: I wanted to ask you about fee growth. If you could give a bit more guidance. I think before your guidance didn't assume any performance fees, which you had a lot of them in Q4. So the new guidance of double-digit growth year-on-year, does that include performance fees as well or not? And the second question on the cost of risk. You've improved your guidance a few times this year. The guidance for this year is below what you did in the previous 2 years. And then if we have a bit of slowdown in resi mortgages, does that mean the cost of risk next year could be higher than this year? Your thoughts on that would be very helpful. Jacobo Díaz: Hugo, regarding the fee growth, I think we -- as of today, we are already at the double-digit growth. So just basically, we do expect to continue growing at a similar path that we've done in the past quarters. We don't know yet if there's going to be any success fee. That's why we are not included -- we are not including success fees in those estimations because honestly, we don't know it yet. And regarding cost of risk, I think what we mentioned is that we are expecting to end the year with a cost of risk below 35 basis points. We are currently around 33 basis points as we shared in the presentation. We don't think that next year is going to be a higher figure. There is no reason why we should say that because what we're seeing is that there is quite stable situation. So we are very comfortable with the current situation of cost of risk. We are not perceiving any changes in the levels of delinquency, et cetera. And in fact, as Gloria was mentioning, we are reducing the exposure to some businesses with higher level of risk. So for the next year, we do not expect an increase in the estimation of cost of risk. Laurie Shepard Goodroe: Our next question comes from Fernando Gil de Santivañes from Intesa. Fernando Gil de Santivañes d´Ornellas: Two quick follow-ups, please. Regarding fees, I mean, there has been one transaction in Q3 regarding the renewables, similar to the one you did in the past, but you have not accounted it in Q3. Can you please guide us when this transaction and if there is any potential positive one-off coming in Q4? And is that included in the guidance? This is one. The second one is on costs. In the second quarter, you have the headcount down marginally, but down. Has this anything to do with the growth profile that you have been flagging during this call? Gloria Portero: I will answer the fees. Yes, this quarter, we have made a transaction, the sale of a portfolio of renewables. And we have not accounted for the success fees of this transaction so far because obviously, the contract has to -- how to say -- we have to close the contract exactly. So anyway, the fees that we're talking about are not material. It will be less than EUR 10 million or even a little bit less. So it is not something that is going to move the arrow. With respect to costs and the headcount, we are reducing the headcount in Spain, and we are doing that for several reasons. The first is that we are investing quite heavily in artificial intelligence, and this is allowing us not to replace the employees that go from the bank either voluntarily mainly. And I remind you that we have absorbed EVO Banco this year, and this means that we have 200 more employees Bankinter Spain, and that was enough to absorb the growth in -- needed in the headcount for the year. But anyway, I think that with respect to the headcount, you can expect the headcount in Spain to remain very stable next year or even to reduce a little bit because of all these investments we are making in artificial intelligence. Laurie Shepard Goodroe: Thank you. That ends our Q&A session. I would like to thank you on behalf of the entire Bankinter team, and Felipe and I will be there to support you for any questions post the webcast. Thank you all, and have a wonderful day.