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Operator: Good morning, and welcome to Aramark's Fourth Quarter and Full Year Fiscal 2025 Earnings Results Conference Call. My name is Kevin, and I'll be your operator for today's call. At this time, I'd like to inform you this conference is being recorded for rebroadcast. And that all participants are in a listen only mode. We will open the conference call for questions at the conclusion of the company's remarks. please proceed. I will now turn the call over to Felise Kissell, Senior Vice President, Investor Relations and Corporate Development. Ms. Kissell, please proceed. Felise Kissell: Thank you, and welcome to Aramark's earnings conference call and webcast. This morning, we will be hearing from our CEO, John Zillmer; as well as CFO, Jim Tarangelo. As always, there are accompanying slides for this call that can be viewed through the webcast and are also available on the IR website for easy access. Our notice regarding forward-looking statements is included in our press release. During this call, we will be making comments that are forward-looking. Actual results may differ materially from those expressed or implied as a result of various risks, uncertainties and important factors, including those discussed in the Risk Factors MD&A and other sections of our annual report on Form 10-K and SEC filings. We will be discussing certain non-GAAP financial measures. A reconciliation of these items to U.S. GAAP can be found in our press release and IR website. With that, I will now turn the call over to John. John Zillmer: Thanks, Felise, and thanks to all of you for joining us. On today's call, Jim and I will review our fourth quarter and full year results including the strategic, financial and operational milestones accomplished in fiscal '25. We've built upon our historically strong consistent performance and advanced a number of initiatives that position us well for the years ahead, which will be discussed in more detail. First and foremost, we take delivering on our commitments very seriously, and it's important to understand that as we onboard an unprecedented level of new business, we took the appropriate time to work closely with certain large clients in preparing for a seamless transition to Aramark becoming their new hospitality partner. In some cases, this led to a shift in the timing of new account openings, which impacted revenue in the fourth quarter. With many of these sites now up and running, we are well positioned for strong revenue performance in the quarters ahead. We are more resolved than ever to meet and even exceed the high yet very attainable bar we set for ourselves. This past year has represented many consequential firsts for the company, all of which contribute to the strong growth trajectory for the businesses, including annualized gross new wins of $1.6 billion, which is 12% higher than fiscal '24 and reflects the largest contract awarded in FSS U.S. history and the second largest globally. An industry-leading client retention rate of 96.3%, with many lines of business and countries in the portfolio above this retention level. All combined, resulting in net new of 5.6%. Over $1 billion of new purchasing spend added for a second consecutive year in our supply chain GPO network. And lastly, achieving a leverage ratio of 3.25x, a number we haven't seen since prior to when Aramark went private in 2007. Our new business pipeline across the organization is significant, including first-time outsourcing opportunities, and we are already off to another strong start at this early stage of the fiscal year. This includes adding Blue Origin, Pennsylvania's Eastern Public Schools, the Welsh Rugby Union as well as expanding our services for Airbus. I have great confidence in the company's continued ability to achieve net new of 4% to 5% of prior year revenue, with retention levels exceeding 95% in fiscal '26 and beyond. And when we over-deliver on this metric, we reward our teams appropriately, as was the case particularly in the fourth quarter, reflected in additional incentive-based compensation from net new business, an objective representing 40% of the company's incentive plan for leaders across the organization. Moving to our results in the quarter. Aramark's organic revenue increased 14%, largely from net new business and base business growth. Excluding the 53rd week, organic revenue was toward the higher end of our long-term growth model. FSS U.S. grew organic revenue 14% in the fourth quarter. Again, excluding the 53rd week, organic revenue was up mid-single digits, led by Workplace Experience and Refreshments continuing its pace of record net new business, Collegiate Hospitality with strong retention rates, meal plan optimization success, and benefiting from higher student enrollments, particularly from our portfolio of academic institutions in the popular South and Southeast. And Healthcare reporting its best performance in over 2 years. Our Healthcare+ business was recently named #1 in Best Places to Work by Modern Healthcare for our commitment to a people-first culture and operational excellence across the industry. While we are encouraged with our roster of high-performing teams as the MLB playoffs approached, the outcome was not what we anticipated with the majority of our teams ultimately falling out of playoff contention. We've now entered the NFL, NBA and NHL seasons where fan attendance has been strong to date. Leveraging our expertise in professional sports, Aramark's Collegiate Sports business is experiencing double-digit revenue growth with per capita rates up 14% year-over-year, driven by increased concession spending and expanded premium services. I also want to commend our employees in the Destinations business, who worked closely with the National Park Service to assist during and following the devastating Dragon Bravo fire in the Grand Canyons North Rim. We had been operating the historic Grand Canyon Lodge, which was severely damaged. While it's still early, we are supporting the recovery and rebuilding efforts in the region and are optimistic about what's ahead for their visitor experience at the North Rim. We continue to expand our enterprise-wide capabilities and collaboration, which resulted in our new multiyear agreement with the University of Pennsylvania Health System, the largest contract win ever in the U.S. from one of the most prestigious medical systems in the world. We are proud to put our understanding of sophisticated and complex health care systems to work in new settings. We will be providing patients in retail food, environmental services and patient transportation, alongside an integrated call center to support these operations at sites across a nearly 4,000-bed, 7 hospital system. Among our many technologies offered at Penn Medicine will be an AI-driven patient menu platform that configures patient meals based on diagnosis and dietary requirements, in addition to proven robotic applications for both environmental services and meal preparation. Our proprietary AIWX platform will be used to map staffing and other needs, as well as our Quick Eats micro markets and mobile ordering platforms. We look forward to launching operations early in calendar '26 and are working closely with Penn Medicine to identify other opportunities to further grow the partnership. Additional clients added to the U.S. portfolio in the fourth quarter included Chicago's DePaul University in Collegiate Hospitality, where we'll begin operating next semester. Discover, following the acquisition by Capital One, also a client, as well as expanding our hospitality services into top-tier law firms within Workplace Experience. Now on to International. Once again, International delivered consistent double-digit organic revenue growth increasing 14% in the fourth quarter, with approximately 3% growth coming from the 53rd week, led by substantial new business, high retention and strong base business growth. All geographic regions contributed to this performance, with particular strength in the U.K., Canada, Ireland, Spain and Latin America. Toward the end of the quarter, International experienced its highest revenue ever for a single 1-day event when the NFL's Pittsburgh Steelers played the Minnesota Vikings at Croke Park Stadium in Dublin, Ireland, all Aramark clients. We also just had great success at Olympic Stadium in Berlin, Germany with another NFL match-up as the league's fan base continues to quickly grow in Europe. International was awarded new clients in the fourth quarter across sectors and geographies. This included expanding our growing presence in the UEFA Champions League and Bundesliga with the addition of Bayern Leverkusen Football Club in Germany, the health care network of Hospital Italiano in Argentina, energy exploration and developer, ENAP, in Chile, and mining leader, IAMGOLD, in Canada. Looking forward, we expect International to maintain its strong business momentum, delivering on a growth agenda focused on culture, team, capabilities and process. Turning to global supply chain. Avendra International added another $1 billion of new purchasing spend in its GPO network this past fiscal year, primarily from travel and leisure, health care, senior living and education. The supply chain team is also leveraging enhanced technology capabilities to optimize client compliance and contract productivity. We're making the appropriate investments to build upon our strong analytics and client mobile chatbot platforms. These powerful tools put the answers our frontline clients need in the palm of their hand and continue to deliver back-end efficiencies in our supply chain operations. We are now deploying these solutions globally. We are expanding our international footprint and supply chain, and the Quantum acquisition has fit well into the portfolio, contributing accretive growth to both Europe and Latin America. Inflation levels have been as expected, and we currently estimate inflation around the 3% range heading into the new fiscal year as we continue to effectively manage the broader macro environment. Our teams are closely monitoring any changes in the marketplace and will leverage our extensive capabilities to support our clients. Before turning the call over to Jim, I want to reiterate that our teams across the company are hard at work and focused on accelerating performance, and we are already seeing success entering the new fiscal year in leveraging enterprise-wide capabilities, starting operations for a record number of new clients, maintaining our client retention momentum, optimizing global supply chain strategies and, lastly, pursuing substantial growth opportunities. Jim? James Tarangelo: Thanks, John, and good morning, everyone. We reported another year of commendable operational performance on both the top and bottom line, a testament to the capabilities of our business model. We are experiencing unprecedented levels of success in key leading indicators of performance, annualized gross new wins and client retention, which provide us the momentum to deliver our expected growth in fiscal '26 and even beyond. I want to now provide some insights into our fiscal '25 financial performance before reviewing our expectations for the upcoming fiscal year. As John reviewed, fourth quarter organic revenue was up 14%. The growth was driven by new business, high retention levels, increased base business and the benefit of the 53rd week which contributed approximately 7%, more than offsetting a shift in the timing of new account openings. For the full fiscal year, we reported revenue on a GAAP basis of $18.5 billion, up 6% compared to the prior year, with approximately 1% of foreign currency impact. Organic revenue grew 7% versus the prior year, again from net new business, base business and 2% from the 53rd week. And as you know, also reflects the company's portfolio exits in Facilities in the prior year. Adjusted operating income for the quarter was $289 million, and grew 6% on a constant currency basis, led by higher revenue levels, leveraging technology capabilities, particularly in supply chain, and above-unit cost discipline. The increase more than offset higher incentive-based compensation of $25 million recorded in the quarter associated with achieving record net new business. As a reminder, our growth-oriented model is structured with 40% of our incentive-based compensation tied to an annualized net new business metric. Throughout the fiscal year, we accrued this compensation based on expected performance. The Penn Medicine win in the fourth quarter, in particular, resulted in a maximum payout under the incentive plan for this metric. Additionally, we did have higher prescription claims in the quarter along with some new business start-up costs in Higher Ed and Collegiate Sports, areas of attractive growth for the company. Excluding these expense items in the quarter, AOI margin would have been higher by 70 basis points. The company has taken decisive actions to decrease future medical expenses related to elective lifestyle prescription, specifically GLP-1 coverage. For fiscal '25, AOI was $981 million, up 12% on a constant currency basis, which represented AOI margin expansion of nearly 25 basis points. This growth was led by our operating levers and the estimated contribution from the 53rd week of approximately 2%. Which more than offset the additional incentive-based compensation I just mentioned, affecting AOI growth by 3% or 20 basis points. Turning to the business segments. The U.S. reported AOI growth of 2% during the quarter. Growth was due to higher revenue levels, enhanced technology capabilities and effective cost management. AOI growth in the quarter more than offset the higher expenses associated with incentive-based compensation, medical and some new business start-up costs already mentioned. We also took the opportunity to make some strategic reinvestments within Destinations, which included property development, digital marketing optimization and other enhancements to drive the guest experience. To a lesser extent, we did feel some effect from our MLB teams falling out of playoff contention. The International segment experienced AOI growth of 31% during the fourth quarter and 21% for the full year, both on a constant currency basis. AOI margin for the year improved by more than 40 basis points. AOI growth and margin expansion was led by higher revenue, effective cost management and supply chain efficiencies. For the fourth quarter, adjusted EPS was $0.57, up 6% on a constant currency basis. For the full year, adjusted EPS was $1.82, an increase of almost 20% and on a constant currency basis. The additional incentive-based compensation impacted adjusted EPS by $0.07 in both the fourth quarter and full year. On a GAAP basis, Aramark reported consolidated operating income of $218 million and EPS of $0.33 in the fourth quarter. And for fiscal '25, operating income was $792 million and EPS was $1.22. This included severance charges from restructuring initiatives to further optimize operations as well as a noncash asset write-down in the fourth quarter associated with a minority interest investment made in the previous fiscal year. Moving to cash flow. Consistent with our normal seasonality of the business, the fourth quarter generated a significant cash inflow, which contributed to our strong cash flow for the full year. Net cash provided by operating activities in fiscal '25 was $921 million, and free cash flow was $454 million. Our free cash flow grew by more than 40% compared to the prior year period from higher cash from operations and favorable working capital, particularly from improved collections. Our cash flow performance and higher earnings resulted in our consolidated leverage ratio improving to 3.25x at the end of September, down from 3.4x a year ago and represent the company's lowest level in nearly 20 years. We closed the fiscal year with more than $2.4 billion of cash availability. This provides us with the continued flexibility to execute on our capital allocation priorities, which effectively optimizes investing in the business, reducing leverage below 3x and increasing the quarterly dividend, which was just increased by 14%, while repurchasing stock utilizing excess cash generation. I'll now wrap up with our outlook for fiscal '26. Based on our current expectations, we anticipate the following full year performance. Organic revenue of $19.45 billion to $19.85 billion, representing growth of 7% to 9%. AOI of $1.1 billion to $1.15 billion, an increase of 12% to 17%. Adjusted EPS in the range of $2.18 to $2.28, reflecting growth of 20% to 25%. And a leverage ratio below 3x. One point to keep in mind on the quarterly cadence for fiscal '26. There is a slight calendar shift from the 53rd week in fiscal '25, which has no effect on the full year fiscal '26 numbers, with more detail in the analyst modeling section of our earnings slides. In summary, we remain resolved in driving our strategies to capitalize on the significant growth opportunities for the business centered on strong revenue growth and through new business wins, high client retention rates and base business growth. At the same time, we expect to continue accelerating our profitability from our multiple operating levers, including differentiated supply chain capabilities and disciplined cost management, enhancing our efficiencies and scale across the business. With a resilient business model and a clear path forward, we are well positioned to deliver long-term value for our shareholders. We believe the future of the company is extremely bright, and we're energized about the opportunities ahead. Thank you for your time this morning. John? John Zillmer: Thank thank you, Jim. With fiscal '26 now underway, we look ahead with great confidence. Our efforts are centered on building a high-performing, sustainable business focused on providing exceptional hospitality services to our clients. I want to reiterate that we are committed to creating significant value for our shareholders and are taking the appropriate actions to realize this unwavering objective. And operator, we'll now open the call for questions. Operator: Thank you. We will now begin the question and answer session. If you have a question, please press star then 11 on your touch tone phone. If you're using a speakerphone, you may need to pick up the handset first before pressing the numbers. In order to accommodate participants in the question queue, please limit yourself to one question and one follow-up. Remove yourself from the queue, please press star 11. Our first question comes from Ian Zaffino with Oppenheimer. Ian Zaffino: Very impressive on the new win side. I mean, I guess this kind of just speaks to the culture of the company, retentions going up. And I guess this is just a culmination of a very kind of client-focused culture here. Glad you're taking the time to spend time with the clients to do so. But the question would be, when we're thinking about these new account openings, can you maybe just delve a little bit more into the shift in timing? Was this in particular sectors or areas? Do you think it will continue? Any economic related factors that you didn't mention? Or any kind of other color there would be helpful. John Zillmer: You bet. Yes. First of all, it was the calendar shift or the opening shift, if you will, really occurred in multiple businesses, Corrections, Workplace Experience and Healthcare, all had kind of late-breaking opportunities for openings, which were deferred into calendar -- into fiscal '26. Without going into specifics, the impact was significant in the quarter, but it was appropriate from a timing perspective to make sure that we could open effectively. And frankly, it was also appropriate for the timing of the client. It was really ultimately their decision with respect to the opening timing. So yes, it was significant. It's not typical. Generally, we -- when we sell accounts, we tend to open them in the year that we sell them. This was a result of a number of different opportunities, all of which were terrific for the company. And we're very excited about the overall results. As you know, we sold nearly $1 billion of new business -- of net new business this year, on a gross basis, $1.6 billion. So just a fantastic performance by the entire team delivering on the new business objectives, and with the retention rate exceeding 96.3%, just ends up being a great trajectory for '26. Ian Zaffino: Right. And since you mentioned new business, congratulations on this Penn deal, and this will bring me into my next question. Maybe you could talk about 2026 cadence here. Maybe talk about that UPenn contract, how that kind of ramps throughout the year. Do you have any other deals baked in to the guidance or how are you thinking about deals? And then also, just as you talk about cadence, just maybe day count, playoff lapping, which might mean maybe a better back half of the year. But any other color you can kind of give. John Zillmer: Sure. With respect to Penn specifically, Penn will begin -- we'll begin operating at Penn in February. That will be staged over the course of several months as we open up the operations in the individual locations over multiple cities and multiple institutions. So it is a very exciting process. As you know, much of it was self-operated, so we're converting self-op, we're converting some competitors' operations as well. So a very complex opening. So taking the time to do it effectively, I feel absolutely committed to delivering on the performance for Penn and, frankly, to taking the time to do it right for Aramark as well. So in typical fashion, we have significant new business expectations for next year as well, but really don't have any cadence, if you will, on those opportunities. Our pipeline is very robust and very strong. We've had very strong early successes. As I mentioned, the Welsh Rugby Union and others, DePaul University opening as well. So the cadence, I think, is going to be more normal next year than it happened this year. So all in all, very strong results, and we're very pleased. Operator: Our next question comes from Toni Kaplan with Morgan Stanley. Toni Kaplan: I wanted to start with a question on margins. Just wanted to understand with the new wins that you got this year, I know there's this cost dynamic where sometimes there is a ramp in higher costs when you ramp up on those contracts. And so I just wanted to understand the cost trajectory there. And then also, if you could talk about any AI initiatives or other efficiency initiatives that should contribute to '26 margins? James Tarangelo: Yes. So we've had really good progress right on margins. I mean, from 4.6% to 5.1% to 5.3% this year. And if you look at the midpoint of the guidance I think for next year, to be at about 5.7%. So sort of consistent 30 to 40 basis points of margin appreciation has been generated. So yes, we do have some -- obviously, with the large wins coming in next year, that will be associated with maybe some incremental start-up costs. But I think we're able to offset that with the continued productivity we're seeing in our supply chain, in particular, leveraging AI in supply chain and across other functional areas. And then continuing to scale our overhead. We have very good visibility with respect to our corporate costs and SG&A. We're able to take on this business really with not adding much in the way of new above-unit overhead costs. So I think we're fit for purpose and able to take this on and still continue to leverage the operating levers that have been working well for us over the past couple of years. John Zillmer: Yes. And Toni, I would just add, normalized opening costs are baked into our projection and into the guidance. So we don't anticipate opening costs impacting our guidance negatively next year. If we continue to see accelerating performance in terms of net new, that ramp does occur. But as Jim said, we're basically able to offset those cost increases through efficiency, through productivity, through SG&A leverage and through supply chain dynamics. So we're very comfortable with the continued margin accretion as we continue to grow the company. Toni Kaplan: Great. And then you mentioned the double-digit growth in Collegiate Sports, which is great. And just want to ask about the pipeline there and particularly how the progress is going with converting some of the education contracts, either sports to education as well or education to sports, et cetera, that would be great. John Zillmer: Sure, you bet. We have taken the opportunity. We do engage both the Collegiate Hospitality and the Sports & Entertainment teams collectively when we pursue those opportunities. As you'll remember, we added Arizona State's system this year. As we grew the relationship there, we added the sports. That's being run by our Sports & Entertainment team. And Oklahoma, that's being run by our Sports & Entertainment team. We are pursuing several large university athletic programs right now. They're currently underway and that we have engaged the S&E team on those opportunities. So we run them based on what we think the needs of the business are, particularly if there's alcohol involved. Our S&E team has extraordinary capabilities with respect to the delivery and the appropriate management of alcohol systems in university environments. And so we engage both sides of the organization to do it. And we are seeing significant opportunities for growth there and major institutions that are currently self-operated and looking for support and help and also some competitors who are currently out for bid as well. So it's a great marketplace and we intend to -- we're the #1 company in that space and we continue to be focus aggressively on pursuing growing it. Operator: Our next question comes from Leo Carrington with Citi. Leo Carrington: If I could ask a follow-up on that Penn Medicine deal. What's the implications in terms of the potential for further hospital groups to follow suit and consolidate and outsource their catering? What can you tell us about the rest of that subsector, if you like? And then secondly, on the B&I segment, the organic growth, even excluding the 53rd week, was quite a sharp acceleration. My understanding is this is the most consolidated segment. So can you elaborate on what is driving your market share growth here in terms of your capability? John Zillmer: Sure. I think both great questions. First of all, on the health care systems, yes, there are significant new opportunities that we're pursuing in health care for self-op conversion, large systems adopting strategies like Penn did to go ahead and find ways to become more effective and to reduce their overall cost of operation. And we're able to deliver very significant benefits to the institution as a result of both our supply chain capabilities as well as our systems that we're bringing to bear across their enterprise. And so the solutions that we offered to Penn are very, very transferable to other institutions, and we think the opportunity there is very large. So in this particular case, Penn is such a wonderful institution and has such a stellar reputation that we do believe other systems will follow their lead in terms of consolidation and systemization, and we're already pursuing new opportunities in that regard. With respect to B&I, Workplace Experience group, our team has just done a fantastic job growing that business, pursuing opportunities, competitive opportunities, and as you noted, continue to grow share across the organization. I think it's a function of both our capabilities, our different brand offerings, if you will, under the Workplace Experience umbrella, and frankly, just overall performance. Our team is delivering at a very high level. Our customers recognize that, our potential new clients recognize that. And so we've been able to grow that share in a number of niches where we haven't historically competed. So we're very excited. It's got -- it has great leadership, and we're very confident in its future growth opportunities as well. James Tarangelo: Yes. And John, I would just add that it also includes our refreshment services, coffee service and micro market, which is also growing very rapidly, very consistently. Both Workplace Experience, Refreshment Services, high levels of retention, high levels of net new as a result of the branding and success they've had with clients that John just mentioned. So we're seeing it from really all parts of that organization. Operator: Our next question comes from Andrew Steinerman with JPMorgan. Andrew Steinerman: It's Andrew. When you talk about base business growth, I'm pretty sure you're talking about both price increases and other base business growth like cross-selling. And so with that, in mind, could you just go through the organic revenue drivers between net new price increases and other base growth both in the fiscal '26 guide as well as '25 just completed? James Tarangelo: Yes, I'll take that. So yes, in terms of the components of growth for fiscal '25, the base business growth was consist of volume and price. And pricing generally has been at about 3%, and so base business sort of 3.5% in '25. Net new contribution, that's the in-year contribution, about 1.5%, and then the 53rd week added about 2%. That gets you to the 7% for fiscal '25. And in terms of the outlook for '26, we'd expect to gain about 3% to 4% base business growth, roughly 3% or so coming from price. And then again, given the strong levels of retention and record new, be in the 4% to 5% range on net new contribution in fiscal '26. And this is on an apples -- on a 52-week comparison to the prior year. That gets you to the guide of 7% to 9%. Operator: Our next question comes from Jaafar Mestari with BNP Paribas. Jaafar Mestari: I had just a follow-up on this net new business contribution in '26 in the year. Given where you ended at the end of '25 and given some of your KPIs in terms of new signings and retention being very much forward-looking, why is the outlook for '26 not a bit stronger in terms of the contribution in that year? The 5.6% wasn't reflected in '25 because of the timing of some of those signings and the ramp-up, should we now expect it to be reflected in '26 fully? James Tarangelo: Yes. So there's a couple. So as we -- so Penn Medicine, remember, it's an annualized number, and Penn Medicine, for example, the largest one, is starting early in the year and will ramp up throughout the course of fiscal '26. And then the Oakland A's is another large win that will have more of an impact into the following fiscal year. So that's why there's some -- there's always a bit of timing between the annualized and in-year realization of those revenue. Jaafar Mestari: That's clear. And then one follow-up on the margins. You're right, obviously, that the guidance in '26 will mean that the margin improvement year-over-year will be between 30 bps and 40 bps. But that's using as a starting point '25 with some of the items you flagged, including the exceptional sales team compensation in Q4. And so a similar question here, if we don't expect those to reoccur -- if they reoccur, fantastic, it's something you've signed a lot. But if we don't expect those to reoccur, shouldn't the margin in '26 normalize a touch for those and then grow 30 to 40 bps on a normalized basis? James Tarangelo: Yes. If you look at the range of outcomes, so I think if you sort of the low end and high end of the range, right, sort of 5.6% to 5.8%, and as I mentioned, 5.7% in the middle. So the range of outcomes is wider. So correct, those items, if you don't -- if they repeat, it's a good problem to have. But sort of, yes, if you normalize fiscal '25 and you're in the 5.4%, 5.5% neighborhood. The other factor is, given the large ramp-up of these accounts, there will be some additional start-up costs in '26 that is baked into the guidance. You can think about that as sort of maybe 10 basis points as part of that. Jaafar Mestari: It's baked in. And then just last point, very quickly. You've updated us on health care opportunities where you're saying you're still working on some material opportunities. Another area where you've been talking about some potential big wins to come was Corrections. Any update here? Is the decision-making process in that segment just very slow? John Zillmer: Yes. We actually had some significant Corrections new wins, some of which did actually get recorded as wins in the net new and are ramping up now. So we are continuing to pursue additional state systems and it continues to be one of our largest opportunities for self-op conversion. And so we think the pace of that business's growth will continue, both on the correctional feeding side as well as the commissary side of the business as well. So still a very significant total addressable market available to us to pursue and very confident in that team and its approach to the business and its ability to generate top line growth. Operator: Our next question comes from Neil Tyler with Rothschild and Co. Neil Tyler: I'm just interested in the restructuring measures that you've initiated in the International business. Can you talk a little bit about the thought process and maybe operational metrics that prompted you to initiate restructuring in a business that seems to be growing very healthily? And then secondly, perhaps when you're talking -- when you refer to the postponement or sort of slightly delayed startup of some of the operations, can you talk a little bit -- give us a little bit of a sort of context or description around what sort of factors need to be considered when you decide to slow down the start-up of operations in a contract? Maybe give us some anecdotal evidence or anecdotal sort of description of why that might be the case. John Zillmer: Yes. It's really more client-driven than it is Aramark-driven. Clients have time frames that they have -- that they're working under, and in particular, they're dealing with multiple constituents. One of those opportunities, for example, using Penn as an example of an account that we anticipated potentially opening earlier, they had to work through a number of different decision processes. They needed to inform their employees, they needed to work through union relationships. And so really, we tend to respond to our clients' needs and our customers' needs more than ours with respect to timing. And that was also very significantly evident in a couple of those correctional opportunities where decisions were deferred by states and in a couple of opportunities in the Workplace Experience group where we had a large client we were already serving that was making a decision to displace a competitor that was also a customer of theirs. So as I said, more often than not, these deferrals tend to be related to customer timing, not Aramark timing. And we just had a number of them occur that affected our fourth quarter this year. James Tarangelo: Yes. And on the restructuring in the International, again, the backdrop here, this -- the International group has had a long track record of success, multiple quarters, multiple years of up double-digit growth. So this is a business we're happy to invest where we need to, to make sure we're well positioned to achieve our financial targets and streamline the business a little bit. So it's geared toward streamlining some SG&A and optimizing some SG&A. As you know, it's fairly expensive to do that in certain parts of Europe. So that was a piece of it. Optimizing a little bit in mining in South America to position us for the coming year. And then there is a final piece that was related to some real estate consolidation as well, some of the bolt-on deals that we did presented an opportunity to bring those together more efficiently. Neil Tyler: Got it. And then just going back to the first question just so I have it clear in my mind. When we think about the slight growth shortfall relative to the sort of lower end of your guidance that occurred in the fourth quarter, is it fair to characterize the majority of that as being down to contract timing as opposed to sort of the comp effect of things like the MLB playoffs and the like? John Zillmer: Yes. I think that was certainly the most significant part of it. The MLB impact was secondary. The closure of the Grand Canyon was certainly secondary to that. So there are a couple of items. Rather than giving you a laundry list of every reason, the one that I would really focus on is that, opening deferral mechanism and timing of that. But the other 2 impact items were also part of that fourth quarter. Operator: Our next question comes from Jasper Bibb with Truist Securities. Jasper Bibb: I wanted to ask if you could give us a bit more detail on the organic run rate into fiscal '26, maybe using what organic growth looked like in October or September excluding the 53rd week? James Tarangelo: Yes. Thanks, Jasper. Yes, so the cadence in '26, so just a couple of points here, I said that the 53rd week will have an impact on the cadence, as I mentioned in my comments, on '26. So essentially, we have a strong operating week in higher ed and K-12, in particular. That sort of gets absorbed into fiscal '25 with that extra week. So with that, you could think about losing a few days in Q1 that will come back in Q2. So first half growth will be kind of consistent with our run rate. But I think the first quarter, think that sort of minus 3%, 3.5% versus the run rate that will be captured back in the second quarter. So that's the cadence I wanted to note. But we're exiting with good speed, good run rate here as we exited here in Q4, and good momentum as we expected in October and the outlook for Q1. So it's running according to track, but I just did want to note there's some timing of -- due to the 53rd week that will have no impact on the full year, just quarterly. Jasper Bibb: Maybe give us a bit more detail on the quarterly cadence of margin. I imagine with the contract ramps, you might be a little lower in the first half than is seasonally normal and stronger in the back half. Is that a fair interpretation? Or any other detail you can give us on what that will look like? James Tarangelo: Yes. I think that's fair. But again, the larger driver on the margins will be the same thing. It's the drop-through on the revenue in Q1 versus Q2. So the first half will look normal. But given less revenue in Q1, there will be a margin impact on Q1 as well, but it will even out in the -- for the full first half. Operator: Our next question comes from Andrew Wittmann with Baird. Andrew J. Wittmann: I think the last question is actually a really important question. And I understand that you commented on percentages here, Jim, for the revenue first quarter down 3% to 3.5%, bigger -- sounded like bigger impact to margins just because you don't get the fixed cost leverage. Did you want to -- did you want to be even more precise on that one? I think we can all do math, but did you want to give revenue and EBIT kind of numbers for 1Q? I just feel like it's a big enough change. And then I think as we -- given kind of the last couple of quarters how numbers have been kind of moving around a lot, it might be even better to give actual numbers for 1Q. I know that's a big ask, but I just think it's important here. James Tarangelo: Yes. Again, I think what I would just say there, if you think about the first half versus second half, and if you sort of again adjusting for the 53rd week, and I'll just give a sort of ballpark, if you're sort of running at sort of 7% to 8% in the first half, a little bit higher, in the second half, right, I mentioned about a 3% impact in Q1, you could think of that coming off of the 7% to 8% roughly, and then that will be captured back in Q2, just to give you a little bit of sense. But again, I don't want to be too specific, but that gives you a sense of some of the movements. Andrew J. Wittmann: Okay. And then, John, maybe have you comment a little bit more on the pipeline. Obviously, it's been robust. Can you give a little bit more there, kind of what you're seeing, how the size of the pipeline compares today versus maybe this time last year? I think that would be kind of helpful to just build some mental model for all of us around how the top line might unfold this year. John Zillmer: Yes. I would say the pipeline continues to be very robust. And at least as good as last year at this point. So we continually build on those pipeline of opportunities and we continue to add new markets and new niches that we're pursuing aggressively to go ahead and expand our total addressable market, adding sectors, in particular, if you think about Workplace Experience, really aggressively pursuing new opportunities in the legal world, if you will, in top-tier law firms. If you look in International, pursuing new mining initiatives, new remote camp initiatives. So we continue to build the pipeline with lots of new opportunities, and it continues to be very robust. So I would say there's really no fundamental change year-over-year other than we're continuing to invest in the growth of the enterprise. We expect it to continue. Very encouraged by the strong results this year. And also, again, encouraged by the very strong retention rate and the discipline inside the organization. And so all in all, I think it leads to fundamentally a very strong trajectory going into '26. And as Jim described, we'll have our seasonal kind of normal impacts on a quarter-to-quarter basis. But overall, I think our full year guidance is absolutely achievable and, yes, very comfortable with the ranges that we've talked about. Operator: Our next question comes from Shlomo Rosenbaum with Stifel. Shlomo Rosenbaum: Can you just talk -- just getting back a little bit more to those contracts that didn't start quite as expected in the fourth quarter. Can you just talk a little bit more about whether there were carry costs that were incurred as part of that? And for some of those contracts, does that continue into the first quarter in terms of impacting margin? Or just trying to have a better understanding as to the impact financially. And then frankly, the visibility that you have in terms of managing your business towards those things. And then I have a follow-up. John Zillmer: Yes. I would say, yes, there is a little bit of ramp-up in starting costs, particularly for those accounts that have already opened in the first quarter on the correction side and in some of those other businesses. So yes, we were preparing to open them and incurring costs in the fourth quarter in terms of the run rate opening costs, if you will. So there is some -- a little bit of an impact there that dribbles into the fourth quarter or into the first quarter, I would guess. But I wouldn't characterize it as overly significant. So I think all in all, the -- I would point you to 2 big items. Obviously, the medical costs last year were a significant impact on the total earnings of the company, both the medical claims cost as well as GLP-1s. And we have taken very decisive action with respect to the GLP-1 impact and which will go into effect in the -- in January and which will significantly reduce our costs year-over-year from that perspective. So if you look at the 2 big impact items in the quarter, there are medical costs and the higher incentive compensation. I'll take those higher incentive costs every year if I can achieve those kinds of numbers, and drive permanently the growth trajectory of this organization by outperforming on new growth, I'll do it every time. And I feel very good about that. And I love the fact that I've got to pay the people of this organization for delivering on those results. The GLP-1s, we've taken care of that; that won't be an issue. So if I really look at year-over-year, the earnings miss in the quarter, I would be focusing on those items as opposed to the other details in the business. That's really where the fundamental miss was. Shlomo Rosenbaum: Okay. And then one of the things when you started years ago and you and I talked about the focus on retention, and you've done -- you really moved the retention up significantly. And I was wondering, are we looking at retention right now as a steady state? Or hey, it was kind of unusually high, we're usually looking for like around the 95%, but we had some big contracts that really skewed those numbers? Or is the bar just moving higher because of the operational changes that you've made within the business in terms of getting ahead of some of those contracts, better servicing the contracts, better in [indiscernible]? As we sit here next year, are we going to talk about 96% plus again or we should think that, hey, annually, you want to expect 95% and, if you can outperform, you outperform? John Zillmer: Well, I think I would love to be sitting here next year talking about 96% or higher again. We have very high expectations for our people. We hold them accountable. And so it's our expectation that we're going to get better, not worse. Part of that is both performance, part of it is negotiation. Part of it is continuing to find ways to extend agreements with clients and customers proactively. So this is a process we are fully engaged in all the time. And so I would love to sit here and say next year, we'd love to hit 97%. I don't know if that's possible. But we're going to be striving to that and we're going to do the best that we possibly can. And so yes, 95% should be a floor. It should never be -- it should never fall below that. And frankly, we have high expectations that we can do better. And we're raising the bar for our people all the time. Operator: Our next question comes from Josh Chan with UBS. Joshua Chan: On that retention point, I know that some years, it's never easy, but some years, it's easier than others to retain business just because of the cadence of what comes up for renewals. Could you just like remind us what's happening in 2026 compared to '25 in terms of what of your contracts may be rebid or have to come up for renewal? John Zillmer: Yes. I would say it's pretty much a normal year, a normal expectation. Some of the businesses that have more cyclical contract renewals like K-12, like Corrections will have their normal cadence. And those are the ones that are really impacted and have different impact items -- or different cadences year-over-year. I would say, we're very well positioned this year from a retention perspective. Last year, going into the year, we had Arizona State was our largest Higher Education contract. It was going out for bid for the first time in over 20 years because the State of Arizona dictated that it needed to. We retained that business and grew it. So that was a very exciting result. But I would characterize '26 as kind of a normal year, really no high-impact items one way or the other. So we continue to be focused on delivering at a very high level from a retention perspective. Joshua Chan: And then I think, Jim, you talked a little bit about the impact in Q1 from the calendar shift. I guess does Q1 not also have the Major League Baseball dynamic as well? And maybe could you just kind of put a finer point on whether that will have a material impact also on the growth rate, just so that everybody can be baselining off of the right numbers? James Tarangelo: Josh, you're correct, there's less. You only had the Phillies advanced to less playoff games in '26 versus '25 Q1. But having said that, the overall strong retention and net new coming to the year should offset that. So I would say, more of a normal cadence aside from that. So a little downward pressure from playoffs, but offset by other areas of growth in the business. So the main factor I would say in Q1 is just simply the calendar shift. Operator: Our next question comes from Stephanie Moore with Jefferies. Stephanie Benjamin Moore: Maybe touching on a more of a higher-level question. I'd love to get your thoughts as you look at -- reflect back on fiscal '25 and you look towards fiscal '26. Just what you're seeing from an overall in-sourcing versus outsourcing trend, how '25 compared to maybe prior years? And then in the same vein, if you could touch on just the competitive landscape, especially given maybe some more changes with one of your competitors as of late. John Zillmer: Yes, I would say the level of first-time outsourcing continues to be in an elevated state. And in particular, for us this year, the single biggest impact item was the Penn contract and the fact that they were moving to first-time outsourcing in a number of those operations. But we continue to see elevated outsourcing in a number of the segments, in particular, Higher Education, particularly in their sports side and university athletic departments really seriously considering outsourcing as a strategic alternative, particularly as they cope with the realities of the NIL environment and their need for funding. So I continue to see a very, very strong marketplace, a very strong opportunity set, if you will, across a range of sectors. It's not limited to just one; it's in multiple sectors where that first-time outsourcing continues. And we're enjoying very significant success. As an organization, we have grown our share this year. We've had a very significant performance against self-op and against our competitors as well. And we just focus on those opportunities one at a time. We believe we focus on the strength of our operations and on our client relationships and we sell from a position of quality and consistency and program. And we've been very successful doing that against all elements of the market. So we're very pleased with our overall results, but we are striving to do better day in and day out, and we'll continue to compete aggressively on quality and capability and client relationship. And that's how we win. Operator: I'm not showing any further questions at this time. I'd like to turn the call back over to Mr. Zillmer for closing remarks. John Zillmer: So again, thank you all for your support of the organization. We're very pleased with the overall performance, most especially with the net new and with retention this year. Really very strong finish to the year. We're very excited about our prospects for 2026 and the future ahead for the company and for our shareholders. Thank you. Operator: Thank you for participating. This does conclude today's conference call. You may now disconnect, and have a wonderful day.
Operator: Hello, and welcome to Freightos' Q3 2025 Earnings Conference Call. A press release with detailed financial results was released earlier today and is available on the Investor Relations section of our website, freighters.com/investors. My name is Anat Earon-Heilborn, and I'm joined today by Dr. Zvi Schreiber, the CEO of Freightos; and Pablo Pinillos, CFO. Following the prepared remarks, we'll open the call for questions. We are sharing slides during the call and using video, so we recommend using Zoom on a computer rather than dialing in by phone. The slides as well as a recording of this earnings call will be available on our website shortly after the call. Please be aware that today's discussion contains forward-looking statements, which are subject to a number of risks and uncertainties. Actual results may differ materially due to various risk factors. Please refer to today's press release and our SEC filings for more information on risk factors and other factors, which could impact forward-looking statements. Copies of these reports are available online. In discussing the results of our operations, we'll be providing and referring to certain non-IFRS financial measures. You can find reconciliations to the most directly comparable IFRS financial measures along with additional information regarding those non-IFRS financial measures in the press release on our website at freightos.com/investors. The company undertakes no obligation to update any information discussed in this call at any time. Before we begin, I'd like to note our upcoming investor events. In December, Freightos will participate in the AGP Electric Vehicle and Transportation Conference and [indiscernible] year-end investor conference. In February, the company will participate in the Oppenheimer Emerging Growth Conference. Links to webcast when applicable and other event updates can be found on our website. Today's earnings call will begin with an overview of Q3 performance and overall progress by Zvi. Next, Pablo will present the financial results and the guidance for Q4 and full year 2025. We'll conclude with Q&A. Questions can be submitted in writing during the call by using the Q&A feature in Zoom. Zvi, please go ahead. Zvi Schreiber: Thanks, Anat, and welcome, everyone. And today, I'll cover 3 topics. I'll start with the quarter's highlights and what they mean. Next, I'll discuss the product and network progress that will power our next phase of growth. Lastly, I'll share how the digital transformation of ocean carriers is creating a significant midterm opportunity for Freightos, particularly as we expand our multimodal capabilities. First, let's start with the quarter. In Q3, we processed 429,000 transactions, up 27% year-on-year. It's our 23rd consecutive quarter of record transactions. Unique buyer users were about 20,600, and the number of carriers with more than 5 bookings from our platform during the quarter increased to 77%. Most major airlines are already connected to our platform. So new airline additions are often regional or niche airlines at this point. We're focused on expanding airline coverage in Asia and expect further global expansion as smaller carriers look to leverage our digital channel. These metrics tell a consistent, more buyers and more sellers are using Freightos more frequently, driving short-term revenue growth and long-term scalability of our business. This gives us both breadth and depth on the platform, more opportunities to monetize transactions and to deepen relationships with higher frequency users. Now, let's put this performance in context of the market. During Q3, air cargo volumes increased 4% compared to Q3 2024, reflecting growth in many markets, even as transpacific e-commerce volumes faced headwinds from tariffs and changes to U.S. import regulations. According to our Freightos' Index, FCX, average global air cargo rates decreased 6% compared to Q3 last year. The bigger picture in the freight market, given tariffs and macro uncertainty, is that of volatility and nervousness. Such conditions make speed, transparency and automation in logistics more important. When customers need to move faster and make decisions with less friction, they turn to digital platforms. This is helpful to our Platform segment, but the market nervousness is unhelpful for selling solutions. Now, let's discuss product and network progress. We're excited to highlight our strategic partnership with Visa and [indiscernible], announced by Visa a couple of weeks ago. This collaboration enables us to provide freight forwarders and importers and exporters with access to modern financing solutions through our platform. The partnership integrates Visa's global commercial solution expertise with transcard's payment orchestration technology, creating a more efficient payment experience for our users. The fact that a global leader like Visa has chosen to partner with Freightos demonstrates the significant potential they see in the $600 billion international freight markets and the role that we, Freightos, play in it. Next, we launched and commercially validated our new multimodal rate management and quoting SaaS product, WebCargo Rate & Quote ocean. In Q3, we completed a rollout at our first multinational freight forwarder customer and proved that the workflow quoting air and ocean in 1 product works well in practice. Unifying air and ocean quoting allows freight forwarders to give a superior service to their customers, the importers and exporters. But the real transition towards digital booking happens when that workflow is supported by bookable carrier inventory. For Ocean, that bookable inventory depends on carriers digitalizing more meaningfully, so we can connect them to our platform. I'll expand on that in a moment. A notable early adopter of this product, the new multimodal solution, is Nippon Express, a top 5 global freight forwarder. Nippon Express expanded its use of Freightos this quarter, moving from our own usage to a multimodal deployment across much of its global network. This expansion increased their annual commitment to Freightos by multiples. Given that 90% of goods are transported by ocean, we expect to see many more upsells from air to ocean. Other successes in our Solutions segment this quarter included a number of renewals and targeted scope expansions. For example, we closed an upsell of our terminals rates benchmarking capabilities to a global mining company, expanded Procure tendering functionality with a top 5 pharma company and extended our terminal data contracts with a major electronics customer. That said, we had anticipated even stronger solutions revenue growth than the 30% year-on-year we delivered this quarter. As we mentioned earlier in the year, due to tariffs and the current macro environment, enterprise SaaS deals have had longer sales cycles. So in the meantime, we're strengthening commercial execution. Michael recently joined Freightos as Chief Revenue Officer. Michael brings deep experience scaling digital logistics and enterprise sales, most recently as VP at Premion and previously as SVP of Sales for Intermodal at Project 44 and other B2B companies. He has a proven track record of building commercial relationships across carriers, forwarders and shippers, which will help us further scale multimodal adoption and our enterprise deployments. Michael will ensure Freightos has world-class sales and customer success capabilities with value-based selling to both enterprises and small and medium-sized businesses worldwide, optimizing our LTV to CAC ratio. Now, we talked about our updated software solution for quoting Ocean, but what about ocean booking transactions on our platform. This, of course, requires ocean carriers to make capacity pricing in booking, available digitally, through APIs. We discussed One Ocean Carrier integration success on our last call. And in Q3, we made progress with 2 more integrations, which we expect to go live in the coming quarters. Each integration brings more capacity into our system in an automated form, helping forwarders better source and decide on shipping options in real time. We're now among the first platforms receiving rates from several major global ocean carriers. And our launch of a next-generation ocean rate management solution is, of course, synergistic with our platform finally making progress integrating to ocean liners. With ocean representing approximately 3x the GBV of air cargo, the potential is significant, but we do expect adoption to follow a measured pace, as the conservative industry works through its transformation. We anticipate meaningful revenue contribution in the midterm, not in the immediate future as this transition continues to unfold. Of course, platform growth is not limited to new carriers. Once a carrier is launched on Freightos, we can continue to grow in different geographies. We can add more advanced services, like expanding from general air cargo to temperature control services, expanding from spot bookings or one-offs to handling bookings against negotiated contracts. So these are the operational and commercial priorities that drove our Q3 progress. Pablo will now walk through the financials and explain how these milestones translate into revenue, margin and cash. Pablo? Pablo Pinillos: Thank you, Zvi, and good morning, everyone. I will now go through how the quarter's operating progress translated to the P&L, cover cash and liquidity and then walk through our near-term outlook and priorities. Revenue for the quarter was $7.7 million, up 24% year-over-year. Platform revenue was $2.6 million, up 15% year-on-year, and Solutions revenue was $5.1 million, up 30% year-on-year. As Zvi we said, Solutions and Platforms support each other. The way solutions drive bookings is practical and proven. Our mission-critical SaaS solutions become embedded in a customer's day-to-day operations. Our customers centralized pricing and workflow on freighters and makes it far easier for them to go and then convert those quotes into bookings. Our data supports that dynamic, forwarders that adopt our tools tend to grow transaction volume materially over time. Looking to our cohort data, we see 3 to 4x growth in transaction volumes for cohorts over their initial 2 years using our platform. Put it simple, solutions creates the stickiness that enables more frequent platform bookings because we're still early in the industry's transition to platform model, solutions today represents the majority of our revenue. Over the long term, we target Platform revenue to scale faster and ultimately outpace solutions revenue. Now, let's take a closer look at Platform revenue. You will notice that platform transaction volume and GBV are growing faster than our platform revenue. This is purely due to our business mix. Take rates are not going down in any segment. Our WebCargo platform, which connects freight forwarders with carriers, consistently grows at a faster rate than Freightos.com, which serves importers and exporters. WebCargo operates mainly on a fixed fee model with a lower implied take rate compared to Freightos.com higher take rate structure. As the fastest-growing web cargo continues to outpace Freightos.com, the aggregate revenue platform naturally grows more slowly than transactions volume. Our carrier cohort analysis reinforced this, carriers run quickly after integration, producing a strong booking growth, but much of that early volume is under relatively low fixed fees. So it doesn't translate into proportional transaction revenue immediately. Gross margins were strong this quarter. On an IFRS basis, gross margin improved from 65% a year ago to 69.1% in Q3 this year. And our non-IFRS gross margin rose from 72.7% to 74.8%. That improvement reflects the inherent operating leverage in our model as we continue scaling. We are seeing benefits from automation efforts in customer services, which allow us to handle more transactions with our proportional increases in personnel or infrastructure costs. Looking ahead, restructuring our hosting agreements and infrastructure improvements represents our next significant opportunity to enhance margins. While we have made good progress optimizing our infrastructure costs, there is still more efficiencies to capture. Adjusted EBITDA improved to negative $2.6 million in Q3 2025 versus negative $2.8 million in Q3 last year. That improvement reflects revenue growth, a stronger gross margin and disciplined cost management. Those operational gains were, however, partially offset by continued currency impact, a stronger euro on cycle versus the U.S. dollar, reduced the gain in adjusted EBITDA compared to our operating performance. Our hedging program limited the impact on the cash, so the translation effect shows in the P&L more than in the cash balance. We closed the quarter with **$30.6 million in cash and short-term bank deposits**, a position that supports our continued measured investments in product and commercial execution, while we scale the business to breakeven. Looking ahead, we remain focused on the levers that will narrow losses and drive durable profitability. The overall plan remains the same, keep growing revenue and margins while keeping OpEx close to constant. Our new CRO is already laser focused on cost-efficient growth. With these concrete actions, we continue to plan to reach adjusted EBITDA breakeven in Q4 2026. For the fourth quarter of 2025, we anticipate continued year-on-year growth across transactions, GBV and revenue. Adjusted EBITDA will likely continue to be impacted by foreign exchange headwinds. This means that for the full year, we now expect a more modest year-on-year improvement in adjusted EBITDA than what we have projected at the beginning of the year. Despite successfully reducing our total cost by almost 5% this quarter and 3% year-to-date compared to our budget in a constant currency basis, exchange rate fluctuations have created an unfavorable impact that has significantly reduced these cost savings. A secondary factor relates to our revenue composition, while we remain on track to meet our revenue guidance despite a challenging year on the logistics industries, the mix between our revenue streams differs from our initial expectations. We are finishing the year with a slightly better performance of platform revenue relative to solutions revenue than what we had planned, which we attribute to the longer sales cycles, as Zvi has mentioned it earlier. Since solutions typically generate higher margins, this shift in mix has modestly impacted our overall profitability. Nevertheless, we are pleased that our cash spend remain on track throughout the year. We expect to end the year with cash and equivalents of approximately $27 million, reflecting on cash burn of about $10 million for 2025 compared with $15 million in 2024. We remain focused on the fundamentals, growing revenue while maintaining disciplined cost management and operational efficiency. Based on these fundamentals, we continue to expect reaching breakeven adjusted EBITDA by Q4 2026. Anat Earon-Heilborn: Our first question will come from the line of Jason Helfstein. Jason Helfstein: So when I look at the contribution margin, it's basically year-to-date, it doubled year-over-year, so clearly, you're seeing efficiency and the sales cycle. I think your OpEx, excluding sales and marketing, is up 9% against revenue up, I don't know, some 27% or 29%. And obviously, you called out the pressure of the FX. So you're doing everything you can do. I guess the question is, and you've now told us you're going to -- the plan is breakeven EBITDA by the end of next year. So I guess, is there anything you could do to grow faster organically or inorganically? And I guess, how much of the gating factor growth at this point is kind of the path to breakeven EBITDA and managing the cash balance? And then I have 1 quick follow-up. Zvi Schreiber: Yes. Thanks, Jason. Well, that was a complicated question. So I'm thinking where to start from. The -- look, it's a constant balance. I mean, even now as we finalize our budget for next year, it's a constant balance between growth and breakeven. And we very much want to grow and break even by the end of next year. And so it's a balance between them. For sure, yes, we're doing what we can. Thank you for calling out. We have done a lot of work on efficiency. In fact, if you look back a bit, we've grown in the last -- 2 years, I think revenue has grown 40-something percent and the team hasn't grown at all. So we're certainly becoming more productive the whole time. And beyond that, we are, of course, now with AI, there may be further opportunities for efficiency. So we've been doing that the sort of the hard way, and now, there may be other ways to become more efficient. And Pablo mentioned, we're already seeing some improvements in the customer support using AI. So we're going to continue pushing on that side as well. And then, it's just the balance between how much do you want to spend in sales and marketing to grow, but also to break even. And we'll -- we're finalizing a budget, which will allow us to grow as fast as we can without compromising the target of breakeven. Jason Helfstein: And then just to follow up. I mean, where do you feel like we are with kind of the tariffs volatility? Like are we at a point where now you feel like you're seeing kind of normal shipping volumes? And I don't say normal, like the volatility has slowed down. Like are their patterns now that makes sense? Or it still feels like the ecosystem is still working through the kind of week-to-week changes around certain products and certain tariffs, et cetera? And I don't know if you want to call out China specifically, but any color how it's impacting your kind of thinking, your forecasting of the business. Zvi Schreiber: Yes. It's a bit of both. I mean, certainly, there is not as much uncertainty as there was in April or something like that. But even so I just saw today a headline that President Trump canceled certain tariffs on food. And so it's still -- a, there's still some uncertainty, and you never know what you're going to -- what's going to happen tomorrow. And secondly, even if there's no uncertainty, the tariffs are higher, and that certainly creates some friction for imports to the United States. So in the market data, I presented actually that the overall global trade is up on the year, but trade with the U.S., if I'm not mistaken, was down a bit. So it's still an issue. The uncertainty is still an issue, the tariffs themselves still creates some friction, but it's not at the levels that it were and people are at least to some extent adjusting to the new normal. Like I said in my remarks, it affects us more. We don't feel it's affected. On the platform side, it can be good as well as bad because uncertainty drives the need for marketplaces and finding new opportunities to ship in different ways or from different sources. But solutions, yes, although things have somewhat stabilized, people are still -- freight forwarders, importers and exporters are still more nervous than they used to be to write big checks. We're now busy talking to customers about their plans for next year and getting a feel for whether things can get back to normal. But it was harder to get a big contract signed this year for sure, although we did several, but it was harder than expected, yes. Anat Earon-Heilborn: Next question from the line of George Sutton. George Sutton: I wondered if we could just talk about penetration. You mentioned a lot of the growth will come from -- at least on the air cargo side, from just growing your penetration with the carriers. Can we talk about where we stand in terms of penetration? Any sort of cohort type analysis that you could suggest? Zvi Schreiber: Yes. If you look at -- it sort of -- it varies quite a bit by geography. Our penetration in the European market from a supply perspective is very high. We've got virtually every airline in Europe turned on to the platform, at least for a lot of the capacity, not always for all their capacity. But in Europe, we have a very significant penetration. We have a very nice proportion of the freight forwarders in Europe. I don't know have exact numbers to hand. I don't know exact numbers at all because there isn't a very reliable list, but very significant in the U.S., we're growing nicely, but it's still smaller penetration. And in Asia, we reckon we're still sort of -- whether you look at supply or demand, we're still in the single digits of penetration. That's still a huge amount to do there. George Sutton: So I wondered if you could explain the Visa link and how that might impact your opportunity? And just give us a sense of how it was occurring prior to that or separate from that. Zvi Schreiber: George, you said Visa? George Sutton: Yes. Zvi Schreiber: Yes. Good. So 1 of our initiatives with airlines, both to add more value and to get -- to monetize more to get a better take rate with the airlines is handling payments. That's still a minority of the transactions, the vast majority of transactions on our platform or with airlines. And in most cases, the freight forwarder books on our platform and then pays through an off-line system. But we have a growing platform value add, where we handle the payments. And up to now, we've been doing that with other financial partners or through our own sort of bank accounts in certain cases, depending each country with its regulation, et cetera. Now, with Visa, obviously, we have a partner who's a worldwide name and who has credit lines and other sort of financial technology that we just don't have. So we definitely think that this will enhance our payment solution a lot, and we hope to see payments growing. And over time, really bringing up our average take rates with the airlines, which as you know is one of the issues is we have this fantastic amount of airline revenue being generated from our system. The monetization is still modest. Payments is definitely a way we increase that. and the partnership with Visa is a key way that we make our payments more attractive. George Sutton: Last question for Ocean [indiscernible] midterm growth opportunity, but maybe how you define midterm? Zvi Schreiber: George, you were pretty cut off there, but I think I got the question. George Sutton: I'm just curious how you're defining midterm growth relative to the ocean carriers. Zvi Schreiber: Okay. Yes, very good. That's what I thought you said. So how do I define midterm? Let's say only meaningfully contributing to revenue in 2028. Next year, I don't think Pablo is even going to budget at all for -- there'll be some, but I don't think there's -- it will be even in the budget, 2027. It will start growing. I think it's only in 2028 that we get significant revenue from that aspect. But, of course, just to remind you, and we've discussed this before, George, but once you become the leading platform, that can be a -- that can hold for decades. So this is a very strong long-term opportunity. Pablo Pinillos: Yes, to double down on what you just said, and we will provide guidance for 2026, whenever we provide, but we will probably won't assume revenue for oceans bookings in 2026 at all, and really, really, really probably a small 2027. Any significant will come in 2028, as you said. Zvi Schreiber: But on the solutions side, we did start to see -- I mentioned the deal with Nippon Express and a couple of others where I didn't give names, we will see a nice contribution from solutions to ocean in already in 2026. Anat Earon-Heilborn: Okay. I'm going to read a question from the chat. So as you've stated earlier that platform revenue will be driving the revenue in the future, what target do you have for the take rate by the end of 2026? Zvi Schreiber: Pablo, you want to take that or do you want me to comment? Pablo Pinillos: No, I can start. So we are finalizing the plan for next year. And of course, the -- we will be driving plan to increase the take rate. It will all depend, as we've been saying about the mix, the business mix and how the growth in the WebCargo platform versus the Freightos.com, and within that mix, what are the fasting growth carriers that will drive that mix. Right now, we are in the middle of addressing all of that, and -- but for sure, the take rate will not decline year-on-year, and we are expecting that to grow. Anat Earon-Heilborn: Next question is why is revenue growth slowing down in Q4 despite the addition of carriers and forwarders? How much do you expect FX headwind to affect the revenue? And if the FX stays at the same level as Q4, would it delay the timing of breakeven point? Pablo Pinillos: Let me take this, Zvi. So this, again, for us, is the slowdown in Q4 revenues is related to slower revenue -- solution revenues coming in that we have seen a slightly delayed in being able to close business. It's important to say as well that the -- most of our revenue in Solutions revenue is recurring with a small piece of nonrecurring revenue, and the decline of Q4 that we see is specifically related to a competition of one of development that finished in Q3 that when we did plan, we expected to -- that the Solutions revenue will overcome that decline. But so far, we are -- due to the delays, we are not able to foresee that in the future. And the second question is, if FX stays at the same level as Q4, it won't -- from our point of view, it doesn't mean that it will delay our breakeven in 2026. As a guiding principle, we're going to manage expenses as needed to breakeven in Q4 2026 even if the Solutions revenue, it doesn't accelerate in the future. Zvi Schreiber: And I think Pablo, the FX is mainly affecting us on the expense side, right? Our revenue is mostly dollars and less affected by FX. Pablo Pinillos: Yes. But if the FX maintains the same in a 12-month cycle, everything at the end compensates. Zvi Schreiber: Yes, because we'll budget for next year based on the exchange rates that we know now. And just to emphasize a point that Pablo made, the -- our solutions revenue is mostly recurring. And recurring revenue for solutions will be up, we believe, in Q4, not by as much as we hope for the reasons we discussed, but it will be up. And if you see a dip, it will be just, as Pablo said, because of a nonrecurring project, which has recently come to an end. Anat Earon-Heilborn: Okay. The next question, I think we answered part of it, but the second part -- of the first part, so you recently launched WebCargo Rate & Quote integrating Air and Ocean quoting into a single multi-model platform. What early traction have you seen with major forwarders? And how quickly do you expect Ocean to scale relative to Air in terms of transactions and platform revenue? So I think we answered to George about the second part, but maybe we can talk about the traction with forwarders? Zvi Schreiber: Yes. So I want to separate when it comes to Ocean, which is obviously a major part of how we grow in the next few years. I want to separate Platform and Solutions. Platform, as we said, we are connecting 1 by 1 to some very big ocean carriers, which is exciting progress, but we're not yet at critical mass. We're not expecting for at least a few months to see real volume on the platform side. But Solutions, we mentioned Nippon Express, we mentioned a couple of others. I can also mention that we've just started selling ocean to some of our small forwarders. And so we expect to see good traction on the Solutions side. With Ocean, we have -- the great thing is it's existing customers. So we have 4,000 freight forwarders roughly using our solution for air using our software for air. And so it's just going back to the same freight forwarders and saying now we've got a modern solution to ocean, you can do air and ocean in 1 platform in a beautiful modern software. And so we expect that to be a major part of how we grow solutions revenue next year. Anat Earon-Heilborn: Okay. Our next question is about revenue share with partners. If partners like Meg cap Aviation bring 13 carriers to Freightos platform, what would make a benefit from the partnership? Would get the revenue share from this partnership? Zvi Schreiber: It's not -- yes, interesting question. It's not really a revenue share scenario because they are resellers of the carriers. They're a general sales agent or whatever arrangement they have. So from our perspective, they're a carrier. They may be a virtual carrier, but we treat them as a carrier. They pay us a fee for bringing them a booking. And then, what's between them and the airline is between them and the airlines. So they're not a channel in that respect. They may be a reseller of the airline. But as far as we're concerned, they're a carrier or a virtual carrier. They're the ones selling the capacity on our platform. Anat Earon-Heilborn: Okay. Our last question, I believe. Could you please say how much proportion is recurring and nonrecurring among the solutions revenue? Zvi Schreiber: I don't think we give numbers, but Pablo, I think it's fair to say that a very big majority is recurring of our solutions revenue, right? Pablo Pinillos: Nonrecurring, it doesn't get up to 5%. Zvi Schreiber: Yes. We only mentioned it this quarter because there was a big part of the nonrecurring came to an end. And that's actually not -- it's not our business model to do nonrecurring. We do it sometimes because we have to help the customer -- if we need to help the customer with a project and help them adopt our software, we do it sometimes. And we had 1 big project, which just came to an end on the nonrecurring, but yes, as Pablo said, that's not our model. Our model is selling SaaS and data subscriptions, and it's almost all recurring. Anat Earon-Heilborn: Okay. That was the end of the questions. Thanks, everyone, for joining. Have a good day. Zvi Schreiber: Thanks. Pablo Pinillos: Thank you.
Operator: Good morning, and welcome to the Alliance Laundry Third Quarter 2025 Earnings Conference Call. With us today are Mike Schoeb, Chief Executive Officer; Dean Nolden, Chief Financial Officer; and Bob Calver, Vice President of Investor Relations. [Operator Instructions] With that, it is my pleasure to turn the program over to Mr. Calver, Vice President of Investor Relations. Mr. Calver, please go ahead. Robert Calver: Thank you, operator, and good morning, everyone. Welcome to Alliance Laundry Systems Third Quarter 2025 Earnings Call. I'm joined today by Mike Schoeb, CEO; and Dean Nolden, CFO. Along with today's call, you can find our earnings press release and earnings presentation on our website at ir.alliancelaundry.com. A replay of this call will also be made available on our website. As a reminder, today's earnings release, presentation and statements made during this call include forward-looking statements under federal securities laws. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. Such risks and uncertainties include the factors set forth in the earnings release and in our filings with the Securities and Exchange Commission, including in the Risk Factors section of the prospectus from our initial public offering dated October 9, 2025. We assume no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Additionally, during today's call, we will discuss certain non-GAAP financial measures outlined in further detail at the beginning of our earnings presentation. We believe that these measures are important indicators of our operations as they exclude items that may not be indicative of our results from ongoing business operations. A reconciliation of these measures to the most directly comparable GAAP measure can be found in our earnings release, in our 8-K filed with the SEC and in the appendix to the slide presentation. Non-GAAP financial measures should be considered in addition to and not as a substitute for GAAP measures. I'll now turn the call over to Mike. Michael Schoeb: Thanks, Bob, and thank you all for joining. It's a pleasure to speak with you today on the company's first earnings call as a publicly traded company. Before I begin, I'd like to express my thanks and appreciation to the Alliance team, our end customers and distribution partners as well as our advisers and the investors who made this milestone possible. I'd also like to thank the research analysts who spend time getting to know our business, our culture, our products and our team. We look forward to continued dialogue, and we're excited about the future as we continue to expand our business and deliver what we believe are the highest quality machines and services available in the industry and create long-term value for our shareholders. For this first call as a public company, I will start with an overview of Alliance, the markets we serve and our differentiated strategy. We will then dive in our results. So starting with Slide 4, there are 4 things I believe you should consider for any investment, and this is my core message on today's call. So question number one, is the industry vibrant, growing and attractive? In a record of close to double-digit growth over the last decade would suggest it is, as Laundry is not a fab or a fashion, but it is essential to everyday life. Additionally, the industry has a unique characteristic of providing downside protection in difficult times. But this is what we saw during COVID where laundromats were deemed essential by governments almost worldwide and stay open versus most retail locations, which were shuttered and many that closed for good. The world is increasingly volatile. And every time there's a dip in the economy or bad news on the TV, those of us on the executive team look at each other and say, thank god for Laundry. That protection is combined with growth. We see in both emerging markets where the vended end market is in its early days as well as in mature markets where aging products need constant replacement and in the renewal happening in laundromats, where many of the old tired inventory is being replaced by clean, safe and friendly stores. According to market research in the U.S. alone, there are over 20,000 of these retail locations and is estimated to be a $6 billion market, serving essential need in communities across the country. The next question is industry structure and what are the market leaders -- or excuse me, who are the market leaders and do they have a sustainable advantage? Our scale versus the competitive set and our financial profile, give us the ability to invest at a higher level and simply do what others cannot afford to do. So I believe our advantage is both clear and sustainable. And the next question is, do you have a team that can execute with consistency and take advantage of the gift that we had provided to be a market leader in an incredible industry? Our long-term history of compelling performance through economic cycles would suggest we've got a very capable team. And the final question is, are there systemic tailwinds that provide an opportunity for the company to continue to put points on the board and grow profitably. For us, we see these tailwinds as being in their early innings and they are integral to our go-forward strategy, which I will touch on shortly. So as against this backdrop, Alliance is at the center of a resilient, essential industry defined by steady replacement demand, consistent aftermarket needs and stable growth across all macro cycles. On Slide 5, we are the #1 pure-play commercial laundry manufacturer in the world, more than twice the size of our next largest competitor. We are a true global business, serving customers in 150 countries, and we hold roughly 40% market share in North America. Our strong market leadership and financial results are built on a compelling value proposition for commercial laundry customers who are incredibly sophisticated and focused on total cost of ownership or TCO. Our offering is defined by a relentless focus on quality, reliability and durability, an industry-leading distribution network, comprehensive wraparound services and a commitment to excellence. Every day is laundry day. And it is essential for modern life as we know it today. Our large installed base means people around the world interact with our products millions of times a day. Our products get used hard every day in demanding applications are mechanical in nature, so they have a finite life with a steady replacement driven and predictable demand. We produce and deliver product via 5 prominent brands, including our Speed Queen brand, which was recognized by Consumer Reports as the most reliable appliance brand in the U.S. for 6 consecutive years. We have a strong financial profile with a revenue CAGR of about 10% from 2010 to 2024, a best-in-class adjusted EBITDA margin above 25% and strong free cash flows. Throughout our history as a private company, we have invested in our business to support durable growth, which significantly strengthened operations, enhanced capacity drove our innovation pipeline and created long-term potential. Alliance operates in a broad diversified set of end markets, geographies and product categories, which helps us drive execution and deliver long-term growth. In terms of revenue mix, about 3/4 of our sales come from North America, where we have balance across our 3 end markets. Now switching briefly to Slide 6 you will see the primary end markets we serve. And on-premise, we deliver best-in-class systems for hundreds of mission-critical applications that require tailored products, expertise and an extensive highly trained field service organization. This includes health care, hospitality and veterinary clinics as well as bespoke systems for industrial and commercial customers. If you are running one of these businesses, and your laundry equipment goes down, it is not a good day. So think about managing a hotel with several hundred rooms that require thousands of pounds of fresh clean linens every day. Normally, there is little redundancy of equipment in on-premise laundry room. So if a unit fails, you do not have a [indiscernible] of a room, and you do not have a business. That example can be taken across all these verticals in our vended end market, applications take payment of some type which is increasingly digital in nature. We equipped both retail store laundromats worldwide as well as communal laundry systems for apartments, condominiums, dormitories and other multi-housing facilities. Finally, our commercial in-home end market brings differentiated commercial quality washers and dryers into residential settings, offering the same durability, long life and performance trusted by our commercial customers. Consumers around the world are increasingly frustrated by competitive offerings, which are built for initial costs versus low total cost of ownership. On Slide 7, we illustrate our long history of performance through all economic cycles. Looking all the way back to 2006, Alliance has generated a steady cadence of growth as we've continued to scale our business, serve more customers across more markets and expand our capabilities and customer offerings. We look forward to building on the strong momentum and driving consistent growth long into the future as we execute on our strategy. Now on Slide 8, to touch briefly on additional investment highlights, which are both attractive and meaningful. First, as a pure play who only does laundry, we understand what our customers demand, and that is a compelling value based on low total cost of ownership. Price is always important. But what we hear most often is, please, do not cheapen the product, do not cut corners and do not sacrifice quality. Customers know it's a smart decision to buy a better product that lasts longer, is more reliable and cleans extremely well. We have a proven ability to create the highest quality products by leveraging our engineering expertise and rigorous testing and quality controls that ensure long-lasting durability and reliability. We have unmatched scale that is very difficult to replicate in this highly specialized and fragmented industry. Our premier aftermarket services and comprehensive wraparound capabilities are extremely important to support long-lived assets, and they provide us opportunities to win more market share. We also benefited from a robust global manufacturing and engineering footprint, a diversified go-to-market strategy and a well-established reputation of innovation and commercial laundry expertise. These attributes aren't just individual advantages, they are highly complementary and allow Alliance to generate significant recurring revenue streams, protect margin and create long-term value for our shareholders. On Slide 9, we are advancing a clear growth strategy focused on driving long-term sustainable performance. We start with our core strength, producing high-quality, reliable commercial laundry systems that drive repeat business and market share gains. When you provide strong value price is a byproduct and it is embedded in our go-to-market strategy. In on-premise laundry, we're serving a stable, heavily replacement-driven market while delivering leading TCO across many, many niche applications. Alliance has also established a leading position supporting the evolution of laundromats. Laundromat demand is driven by both existing store owners, retooling their stores with more efficient and technologically sophisticated products as well as new investors attracted to the fundamentals of the industry. It is recession resistant. It is an essential need. It has low labor requirements as it is primarily self-service by customers and low shrink, particularly as payment systems become more digital. Our products and services help commercially focused operators succeed backed by our wraparound services and digital platform. Digital and IoT connected equipment is a requirement for multisite and multistate operators. In North America, we're meeting rising demand for commercial quality products in the home, maintaining attractive margins and delivering the reliability customers expect from professional grade equipment. Internationally, we see significant vended market opportunities in underpenetrated regions leveraging our first-mover advantage to play a pivotal role in market development. Alliance is also committed to staying at the forefront of innovation to continue introducing industry-leading features that accelerate replacement cycles and increase digital penetration to drive recurring revenue. And as the only manufacturer in the industry with footprints in Asia, the U.S. and Europe, our local-for-local manufacturing strategy helps to insulate us significantly from tariffs as most of what we source, manufacture and sell stays in the respective region. We remain disciplined on operational improvements, including cost down initiatives, where we are extremely careful as well as plant and supply chain optimization. We are confident in our ability to successfully execute these strategic priorities and strengthen our market position. And I'd also like on Slide 10, to share some recent business highlights. As I mentioned, innovation is core to Alliance's DNA and a key long-term growth driver. We recently attended the Clean Show Conference, North America's largest exposition in our industry and exhibited new technologies. We launched a 25-pound stack -- or excuse me, 55-pound stack tumbler, the industry's largest, which allows for faster dry times, and we believe increased revenue. We also launched Scan-Pay-Wash, a cashless payment technology for laundromats that does not require an app download. This is the first for the industry and has been extremely well received. We also began shipping our Stax-X product, a good example of our local-for-local manufacturing and product development strategy as it was developed in Thailand for customers in that region. Stax-X was built for high throughput and the limited square footage available in small retail locations, and it offers full commercial grade washing and drying power in a space-efficient vertically stacked configuration. On the operational side, we acquired Metropolitan Laundry Machinery Sales in New York, deepening our coverage in a dense, high opportunity urban market and further enhancing our aftermarket and service capabilities. In October, we deployed over $500 million in IPO proceeds to pay down debt following our listing resulting in an IPO adjusted net leverage ratio of roughly 3.1x at quarter end. Dean will discuss our successful efforts and further strengthening our balance sheet and financial flexibility shortly. We look forward to building on the strong momentum we've achieved as we continue to focus on disciplined execution of our strategy. Dean will now go through our consolidated and segment performance. Dean Nolden: Thanks, Mike. Turning to Slide 11 and our financial performance. We provided our results for the 3 and 9 months ended September 30, 2025. I'll touch on the results for both periods, but focus mostly most of my remarks on the third quarter financial performance. We delivered strong results on a consolidated basis. We drove revenue of $438 million, up 14% year-over-year and year-to-date revenue of $1.27 billion, also up 14%. Growth this quarter was driven by solid volume gains and modest low to mid-single-digit price increases implemented to offset higher input costs, which were primarily tariff related. Volume growth was broad-based across all of our end markets in both of our reportable segments of North America and international, supported by the strength of our brands, the durability of our value proposition and the product and geographical diversification of our business. Year-to-date gross margin expanded by 70 basis points over last year, driven by higher volumes, manufacturing efficiencies and modest pricing actions. This performance reflects our core strategy of profitable growth, which is built on the superior total cost of ownership we offer to customers. Adjusted EBITDA was $111 million in Q3 and $330 million year-to-date, representing growth of 16% and 13%, respectively. For the quarter, adjusted EBITDA margin was 25.3%, up 40 basis points year-over-year and year-to-date margin was 25.9%, down modestly by 30 basis points due to investments we are making in products and systems as well as public company support costs. Net income for the quarter of $33 million was up from a loss of $6 million in the prior year. Third quarter adjusted net income was $48 million, up 47% versus the prior year quarter and year-to-date adjusted net income was $136 million, an increase of 9%. These results reflect strong top and bottom line performance with profitability amplified by a significant reduction in interest expense. This reduction was driven by our successful debt repricing to SOFR plus 2.25%. We also strengthened our balance sheet through a voluntary debt repayment of $135 million made in the third quarter, and we are benefiting from lower variable interest rates year-to-date. Subsequent to the end of the third quarter, with an additional term loan paydown of $525 million post IPO. Our IPO adjusted net leverage came in at 3.1x. We now begin our life as a public company with a stronger balance sheet and we'll continue to prioritize deleveraging to earnings growth and cash generation. Turning to Slide 12. At the regional level, our North America business continued to deliver strong results, driven by favorable end market fundamentals as we leveraged our scale, strong market position and manufacturing strategies. North America revenue in Q3 was $331 million, an increase of 14%, with our performance driven by robust growth across all 3 end markets. Volume and modest price increases accounted for approximately 2/3 and 1/3 of this increase, respectively. Year-to-date revenue was $952 million, up 16% year-over-year. Q3 adjusted EBITDA in North America grew to $95 million or 13% year-over-year, and our adjusted EBITDA margin of 29% was flat versus prior year, with results driven by increased volume and realization of manufacturing efficiencies, offset by investments in future growth initiatives. We experienced $3.5 million of tariff impact in the third quarter which was mostly offset by implemented pricing actions. Year-to-date adjusted EBITDA grew to $273 million or 14%. We continue to see strong demand from our vended customers in mature markets, coming from both our existing customer base through fleet refreshes as well as new entrants who are looking to access the attractive and resilient commercial laundry space. In the on-premise market, we also experienced strengthening demand, largely driven by the replacement cycle. We believe there are still significant opportunities ahead as new builds continue to come online and customers replace existing equipment with more efficient systems before their end of life. Finally, demand in our commercial in-home end market remained high as customers prioritize the durability, reliability and long life of our products. Turning to Slide 13. Our international business also contributed meaningfully to overall results this quarter. International revenue was $107 million, an increase of 12% with growth balanced across mature and developing markets. Volume, modest pricing and favorable foreign exchange movements each accounted for approximately 1/3 of the increase. International revenue was $322 million year-to-date, up 10% compared to the same period last year. International adjusted EBITDA rose to $26 million or 9% year-over-year, reflecting strong top line momentum, partially offset by product and customer mix. International adjusted EBITDA margins declined modestly in Q3 compared to the prior year-end. Adjusted EBITDA was $91 million year-to-date, a 15% increase compared to the same period last year. As you look across our international regions, our mature European markets and developing APAC and LATAM markets posted double-digit growth in the quarter. In Europe, our Speed Queen licensed store model continued to gain momentum and sales remained strong across our direct offices in France, Italy and Spain. APAC saw steady demand in Australia and New Zealand, along with our continued leadership in key markets like Thailand and expanding growth in newer markets like Indonesia, the Philippines and Vietnam. Latin America delivered improved results with robust growth in vended, more than offsetting a challenging prior year comparison in on-premise laundry. Our performance was underpinned by successfully completing major projects in Mexico, and proactive customer and portfolio optimization initiatives in Brazil. In the Middle East and Africa, we are navigating changes in project time lines in our largest market of Saudi Arabia, while capturing new opportunities with early laundromat adoption in select African markets. The underlying fundamentals of our international business remains strong, and we view it as a key to our consolidated sustainable profitable growth going forward. Turning to Slide 14 and our balance sheet. We significantly strengthened our leverage profile, enhancing our ability to continue to drive long-term value creation. As you can see on this slide, we first reduced our leverage organically by approximately 3/4 of a turn through September 30. We then used proceeds from our IPO in October to further reduce our IPO adjusted leverage to 3.1x. At the same time, we have favorably priced -- we have a favorably priced term loan post our repricings described earlier, and we have additional opportunity to further tighten our interest rate spread on our term loan in the future by another 25 basis points, as a result of our significant deleveraging supported by one non-trading upgrades by both major rating agencies. We are on our way towards that goal. As in October, we received a 1-notch credit rating upgrade from S&P to B+ with a positive outlook and an outlook upgrade from Moody's to positive, retaining for the time being, our B2 corporate rating. As a result of all these positive actions we've already taken, we will benefit from approximately $46 million in annualized interest savings at today's debt levels and we have increased our flexibility through the elimination of any mandatory principal payment requirements through the remaining life of our term loan facility. Turning to Slide 15. As we begin our next chapter as a public company, we will execute on a capital allocation strategy designed to maximize long-term shareholder value. Our primary focus will continue to be on deleveraging. With our strong free cash flow profile, we believe we will continue the trend of 0.5 turn to 1 full turn organic deleveraging per year. We will continue to invest in areas to improve our operations and products, launch new products, further expand our capacity and the value we provide to existing customers and ultimately win market share. We expect to continue these investments while maintaining our capital-efficient business model, with a focus on innovation and with CapEx spending targeting approximately 3% of net revenue. We will maintain a very disciplined approach to M&A. Our strategy is based on selectively pursuing opportunities that supplement our strong organic growth with accretive and value-creating acquisitions that expand our platform and capabilities. And finally, we will maintain flexibility to return capital to shareholders in the future when appropriate through share repurchases in the near term and considering a dividend policy over the longer term. In summary, we're very pleased with our financial performance in Q3 and the continued momentum in our business and our end markets. We currently intend to provide annual guidance beginning in 2026 when we report our Q4 results, but appreciate that you want to know how 2025 will end. We expect our Q4 growth versus prior year will moderate from year-to-date run rate to the mid-single-digit revenue growth, but 2025 will be an incredible year and mark our second consecutive year of low double-digit top and bottom line growth. In addition, we expect to incur a onetime noncash charge of approximately $16 million in the fourth quarter related to divesting of stock compensation resulting from our IPO, which we intend to add back for purposes of our adjusted net income and adjusted EBITDA metrics. Now I'll turn the call back to Mike. Michael Schoeb: Thanks, Dean. And let me end where I started, commercial laundry is an incredible, vibrant and growing industry in which we have earned a privileged position as a clear market leader with significant structural advantages. We have long demonstrated an ability to deliver a best-in-class financial profile, strong margins and solid growth and there are systemic tailwinds that we believe will propel continued profitable growth. In closing, I'm incredibly proud of our employees around the world, their dedication and expertise make these results possible. I'd also like to thank our distributors, partners and new shareholders for your continued confidence and support. With that, let's open the line for questions. Operator: [Operator Instructions] Our first question comes from Andrew Obin with Bank of America. Andrew Obin: Congratulations. Can we start -- many of your competitors are importing their product into the U.S. How have they responded to the incremental sections to 232 tariffs? What's the industry environment? Michael Schoeb: Yes, Andrew, this is Mike. We have seen one small Asian competitor increase price. I think for the full year, they've taken 16.5%, something like that. Outside of that, we have actually not seen anything so far. Again, we expect that to happen. I think as we talked about really pushing into 2026, but so far, really no activity of note. Andrew Obin: Interesting. And maybe you acquired a New York distributor in the quarter. Can you talk about the strategic and financial benefits from acquiring distributors? Michael Schoeb: Yes. So Andrew, this is the 16th acquisition we've done. We're vertically integrating in the United States. We are focused on more dense urban markets, not that we haven't been opportunistic at times, but we're really looking for markets that matter, management teams that we can back where we see opportunity for outsized growth. So we like it. It allows us to get much closer to the customer. And we will continue to do it. And we will be a partner when we see those opportunities and when that distributor principle is interested in speaking to us, we're always there for them. Operator: Our next question comes from Tomo Sano with JPMorgan. Tomohiko Sano: Congratulations from my side as well. So you achieved double-digit growth on the revenue. And how are you managing supply chain challenges and inventory levels, especially given ongoing global disruptions? And have you seen any improvement or new risks in logistics or components sourcing? Michael Schoeb: Yes. So I'll say on the supply side, we've really seen nothing, Tomo, that is meaningful. There are always blips and always unexpected surprises, but nothing that we don't carry enough inventory for or don't have alternate sources of supply. So we feel really good about it. We see no signs that there's going to be any change in that status. But we're ready. And as you know, we've got a very, very capable sourcing team that's out there. Tomohiko Sano: Follow-up on digitalization and service revenues. What progress have you made in expanding digital solutions and service-based revenue, such as Laundry IQ and SaaS offerings? How do you see the contributions of these business evolving, please? Michael Schoeb: Yes. So Tomo, we're focused on the long term. So we do generate revenue. I would say it's minimal at the moment. We're more focused on the analytics, the information that comes back to us as we get these connected machines. As you know, we've got several hundred thousand that are out there. I can't speak to our most recent launch of the Scan-Pay-Wash, already in the 90 days or so, it's been out there, there have been over 90,000 transactions. So all of these things are additive. All of them are meaningful. All of them are putting us into a position of continued strength, but we are early days. And again, we're more focused on the power and the information and the data that it allows us to capture to be able to get the true predictive analytics that really complement, again, that best-in-class product that's out there in the field. Operator: Our next question comes from Susan Maklari with Goldman Sachs. Susan Maklari: My first question is talking a bit about the consumer. Can you give us some more color on what you're seeing in the CIH segment of the business, especially given the headwinds and some of the slowdown that we've been hearing as it relates to housing and then just overall consumer activity within R&R and other elements of their spend? Michael Schoeb: Yes. So Susan, I would say, one is we have a very, very unique product. It is a commercial true professional grade product. So one is, it's a highly differentiated product, but also highly differentiated strategy where our go-to-market is through independent shops and demand is extraordinary. We see no change in that. And again, we've got -- if you wanted to order a product today, you'd be waiting in order to get delivery. So no change in status on that. Susan Maklari: Okay. That's good to hear. And then maybe turning to the balance sheet. Can you talk about the path to further deleverage as well as any other priorities for uses of cash as it relates to perhaps shareholder returns and other strategic initiatives? Dean Nolden: Yes, Susan. First, we're very proud of what we've done year-to-date in terms of our deleveraging, as you've seen in our presentation in our prepared remarks, so significantly improved our balance sheet through the first 3 quarters and as a result of the IPO. Our main priority, as we've communicated we'll continue to be deleveraging through our strong free cash flow through both EBITDA growth and cash generation. And because of that strong free cash flow profile, we have the flexibility to push on multiple levers of capital allocation to continue to invest in CapEx, R&D, new products and capacity and productivity. We're not giving any forward guidance on what we intend to do further from a use of cash perspective. But given that cash flow profile, we have the flexibility to return capital to shareholders through potential share repurchases in the medium term and then to consider dividends over the long term. Operator: Our next question comes from Mike Halloran with Baird. Michael Halloran: Congrats on the launch. First question here. Maybe some thoughts on the trajectory into the fourth quarter. I know Dean comments were towards the mid-single-digit growth rate in the fourth quarter. That is a decel from earlier this year, not terribly surprising based on conversations before, but maybe help understand the dynamic for why the growth is tracking where it is and how we should think about sequential dynamics as we move to the fourth quarter? Michael Schoeb: Yes. So Mike, remember, this is 2 years of consecutive double-digit growth. The industry grows around a 5% sort of CAGR. So it's really just reverting to a more normalized growth rate, number one. And number two, it's always about prior year comps. The fourth quarter is the strongest quarter of the year for us. So really a combination of that -- those 2 items. But no change in demand, no change in customer sentiment, no change in anything that we see in the market. And as you know, we're very, very active in the field, always sensing, always touching, always trying to understand the signals, and we see no change. Michael Halloran: And then follow-up is just maybe a similar conversation on the margins with a particular emphasis on how the international margins track as we move into the fourth quarter? Moving pieces behind how the international margins track 1H to 3Q? And just kind of calibrating where those should be both in the fourth quarter and as we exit the year, what the appropriate baseline is? Michael Schoeb: Yes. So maybe I'll just touch on it and make sure that Dean, if I don't cover it clearly. So in the quarter, obviously, we had customer mix. Obviously, larger customers have a little bit bigger discounts and then we had the launch of some new products, particularly the Stax-X where we wanted to field the early adoption of that product. So that's sort of a temporary launch period. As you know, one of the characteristics about us that is unique is our margin parity between the U.S. and international markets is awfully close. So we don't see any change in that. Again, sometimes there will be blips one way or the other, as you know, emerging markets can sometimes be a little more volatile. So we flashed to that in the Middle East. But again, no change, and we feel really good about it. And those factories in Thailand and in the Czech Republic, where the bulk of what they are selling are extremely well positioned from a cost perspective. So we see no change. Dean Nolden: And Mike, I would just add on a longer-term view than just the quarter, you can see that year-to-date international revenue grew 10% and EBITDA grew 15%. And we enjoyed over 100 basis point improvement in adjusted EBITDA margin in international closing that parity gap with North America. So we're very proud of the year-to-date results we've achieved in international. Operator: Our next question comes from Chris Snyder with Morgan Stanley. Christopher Snyder: I believe earlier you referenced that the competitors have yet to push incremental price on the back of 232, at least broadly speaking. Did you guys push incremental price in Q3? It seems like the price in the quarter was about 4%. So I'm just trying to figure out if there's like a step-up in Q4 if you get the full realization of that? Dean Nolden: Yes. We did -- thank you, Chris. We did announce price increases in Q3. And there are some smaller ones that take place in Q4. So we've had various price increases as the year has progressed, so we will continue to see benefit from those on an annualized or full quarter run rate going forward. So our price increases were meant to offset our cost increases primarily related to tariffs. And so we'll continue to see that benefit into Q4 and going forward. Christopher Snyder: I appreciate that. And I guess to follow up, it feels like the guide is implying almost no volumes in Q4. It feels like price alone could maybe be mid-singles. So I guess, is there a conservatism in that? I understand it's been a long period of really strong growth for you guys, but it does seem like a pretty sharp falloff in volumes. And I think maybe the bigger question is like what does that mean for volumes in '26? Dean Nolden: Good. We're -- Chris, thanks. We're looking forward to giving you 2026 guidance when we release our Q4 results. So we're very bullish on our industry, as Mike alluded to in his prepared remarks. And this return to a normalized run rate in Q4 is our current expectation, given where we sit in the quarter, middle of the quarter and our visibility to our customer demand and our factory production. I'll turn it over to Mike. Michael Schoeb: Yes. And look, I will say again, no change in signals. We are, by nature, somewhat conservative, right? We try to under promise and over deliver. I'm not setting expectations there at all. I'm just telling you that is our culture. But no change in signal, no change in demand. I'll repeat what I said earlier, it's a tough Q4 comp. The industry is still vibrant. It is growing. We do not see changes in terms of that. And as we give you guidance on '26, we look forward to confirming that outlook. Operator: Our next question comes from Ketan Mamtora with BMO Capital Markets. Ketan Mamtora: Congratulations. Maybe to start with and not to put too fine a line on sort of Q4, but are there any sort of nuances that we should be mindful of between North America and international, as you think about sort of what happens in Q4? Michael Schoeb: Not really. I mean it's -- I'm trying to think through your question because it's a good one. But nothing significant that I can tell you, we, again, would expect to change. Again, emerging markets sometimes get lumpy. So that happens. We've seen a little bit of that in our Middle East Africa business, which is less than 3% of revenue. So sometimes that happens, but I -- and it can vary from quarter-to-quarter, but the core the markets that really matter for us that are -- and hopefully, I'm not offending any of our customers in these other regions. But given our revenue percentage, right, it's really U.S., Europe and Asia for the most part. That's how I'd answer that. Ketan Mamtora: Got it. No, that's helpful. And then maybe one for Dean. As you think about deleveraging, where do you think sort of you want to get to in terms of a kind of more normalized level? Dean Nolden: Yes. Thanks for the question. And I think we'll be prepared to discuss that as we give guidance in first quarter of next year for 2026 and beyond. But I would emphasize, I guess, in what we said that this business has a very strong free cash flows and deleveraging will continue to be our #1 priority, and you've seen that in our balance sheet through the end of September. And we've historically deleveraged a half to a full turn per year organically, and we will continue to do that. So while we continue to invest in the business for growth, new product productivity, et cetera. So we have multiple levers at our disposal, and we'll continue to manage those and look forward to managing those to return value to our shareholders over the long term, but look forward to giving that guidance early next year. Operator: Our next question comes from Kyle Menges with Citigroup. Unknown Analyst: This is Randy on for Kyle. I guess just on the margin side, outside of volume and price, what are some of the other margin drivers we should be thinking about in 2026? I mean it'd be right to get some more color on the cost down and manufacturing efficiency initiatives that you guys have in place, and how we should be thinking about that contributing to margin going forward? Michael Schoeb: Yes. So maybe I can start and then Dean, you can add a little more color. So mix -- and if you -- maybe I'll refer you back to sort of Slide 9 when we talk about it, but mix is a really important part of our margin. And so the larger capacity product, right, more engineering content, less competitive pressure and just more value, frankly, that gets offered to the users of those larger products. So mix is a big part. That's meaningful. On the cost down side, look, there's always opportunity, but as we have stressed continually, quality is really the one thing that our customers care about. They talk to us about it all the time. So we do have cost down. There are opportunities. We've been pretty good at it. But we're very methodical, very careful, very slow because you have dynamic engineering and a product that is bouncing around, particularly in terms of a washer and there are always unexpected things that happen. You can't always get it certainly on a computer-aided design certainly in our laboratories, which we have extensive ones across the world. So we do a lot of field testing. And again, we're very, very cautious, but it's there. It's meaningful. We'll continue to do it. Incremental volumes are meaningful in terms of the contribution that they get to us. And then there is a lot of opportunity in these factories to optimize efficiency and those teams are working on them very diligently day after day. And it's a combination really of all those things. Unknown Analyst: Got it. That's helpful. And then just maybe a quick one on capital allocation. I mean, I know that your near-term priority is to you continue to deliver. But can you kind of frame what the M&A pipeline looks for you guys? It would be great to get some color on maybe the size of the acquisitions you've done in the past? And maybe some areas of your portfolio where you could continue to target, whether that might be more on the distribution side, the tax side or any other potential gaps you'd like to fill? Michael Schoeb: Yes. So maybe I'll start off. So you should think of us as very capable in terms of doing M&A. As we said, we've done 16 in the U.S. They are mainly smaller tuck-in businesses is part of the strategy, but it is not something that we need to have. So we're capable of growing at quite attractive rates and quite attractive margins. When we see opportunity, we will enter conversations. We have some of those ongoing, I'm not in a position to comment on them. And then we're always looking again on the manufacturing side, but there's not really anything that would be close or anything that we would be overly excited about, and let me emphasize that we need at the moment to continue to grow as we have in the past. Operator: And our final question comes from Damian Karas with UBS. Damian Karas: Congratulations on the IPO and your third quarter results. I have a follow-up question on price. You talked about some additional actions that you are taking in the fourth quarter. How much pricing benefit that maybe didn't flow through P&L this year, would you expect to carry over into 2026? And just kind of a hypothetical, if we were to see tariffs ease as a result of ongoing trade negotiations, would you expect that half of lower prices at all? Michael Schoeb: Yes. Go ahead, Dean. Dean Nolden: First, I would say, from a carryover perspective, again, I apologize, and we're looking forward to giving guidance in the first quarter for 2026, but we had various price increases throughout the year, some in the second quarter, some in the third and then some in the fourth. So you will see some benefit next year from carryover pricing actions into next year from a price and profitability standpoint. So now I'll turn it over to Mike. Michael Schoeb: And then from a price give back, we don't have a history of doing that. But we're always, as I stated earlier, sensing, talking, seeing -- and I think one of the strengths is -- for us is we are very nimble. We are very quick. If we sense anything, you will see us act. But there's not a history of doing that, and I wouldn't expect that to change. Damian Karas: Okay. That's helpful. And you talked a little bit earlier about in North America, some of that strength in the market is new entrants emerging. Curious if you have a sense for what proportion of this emerging customer base you're winning? Is that keeping up with your installed base share of the market? Or is that maybe an opportunity where you're outgrowing? Michael Schoeb: Yes. Good question. So if you think about the newer entrant coming in, is they're really looking to scale up faster. They are looking for a multisite or as I stated in my earlier comments, oftentimes, it's multistate. So what you must have to do that is you need a full digital suite to allow that operator to understand what's happening to be able to maximize revenue to be able to manage their costs and really get the intelligence. And as a matter of fact, we call our digital platform insights because it gives the operator insights on how to be more effective, how to be more efficient and when they adopt those technologies, the financial performance of those stores improves. So we think our value proposition is very strong. but particularly for the newer entrant, again, looking to scale, we believe we have, by far, the most comprehensive digital solution in the marketplace, and we are continuing to invest in that. We see a lot of opportunity for continued value. And so you'll see us strengthen that offering. Operator: This concludes today's question-and-answer session. I would now like to turn the call back over to Mike Schoeb for any additional or closing remarks. Michael Schoeb: Okay. Well, thank you very much. That concludes our meeting. I really, really appreciate everybody joining. Thank you for the questions, and we look forward to updating you on the next quarter. Thanks again. Operator: Thank you. That concludes today's third quarter 2025 Alliance Laundry Earnings Conference Call. You may now disconnect your lines at this time, and have a wonderful day.
Jeremy Frommer: Good afternoon, everybody. Thanks for joining. I'm going to get us started here in about a minute. So I figured if you don't come today's call without a question for me, I'm not 100% sure why you're here. You have to have thought of some question or some piece of knowledge you're trying to gain from joining an investor call like this. I try to think about these calls more as Q&A opportunities than there are opportunities for me to speak too much. I wrote down a few thoughts. Often, we talk about inflection points. If I look back over the last 10 years, I'm sure I've written many letter as a CEO and as a Chairman about an inflection point, and the truth is, is that in the micro cap in the small-cap world, the entire journey is defined by a series of inflection points because it's so much about survival in the beginning. It's not as much as people think, I have a great product. I have a great team. It's about how you deal with a lot of rough times getting something off the ground. And all entrepreneurs know this and all the best ones have gone through it. And shareholders in this space in the public markets, which let's not call them something that they're not. They are public markets, but they behave like private markets. First of all, any investor who invest is in the small-cap entrepreneurial world and is looking for short-term gain is in the wrong space. This is like the private equity market. It's 6- to 10-year holding period. And if it's a score, it's a big score. So this is really about in our world, it's really about surviving particularly when there is very little there's very little clear paths, it's a space filled with obstacles. Many of the shareholders on the call today are from an acquisition we did recently with FLYHT previously named [ Fluger ]. And really, when you look at that acquisition, that was a win-win for both sides, that's the kind of -- if you're a shareholder, and you're in a company, for instance, that's entrepreneurial-minded like [ Fluger ] was looking to IPO itself and along comes an opportunity for a company to purchase it that's on its way to that IPO. That's an inflection point. Now, when you're a shareholder in this space, you're looking for something real, something transformative, big score. And that 6- to 10-year waiting period has to be rewarded with the proverbial 10 bagger. But there really is a deeper truth that drives both companies and investors forward. And that is creating or in our case, recreating or being part of the future. And in an age of radical transparency, I thought we'd get right to the point of the call, which is the future. What do you want from it? And what do we want from it? You want to be able to have tradable liquid shares in a company that I hope you're invested in over time that will make the time invested with the value earned at the end of it. And so when I look at what I want, I want to be able to be rewarded for providing you with that opportunity. I would like to be able to run a company that competes in the public markets, makes money in the public markets and trades at a significant premium because of the quality of its team, its earnings, its product and its entire narrative. In our case, that narrative has changed recently. And that's because economic cycles change rapidly, not just that they change rapidly in terms of the scope of the change, but they change rapidly in terms of the time between business cycles today. Utilizing a publicly traded entity to buy or build private entities to create that arbitrage of value is something that people have chased for hundreds and hundreds of years of modern capitalism. I think that when we look at created and what it's gone through the past I would say, 6 months since the acquisition of FLYHT, it has been to set us up to deliver on that value. How we're going to deliver on that value is by racing for a listing on a national exchange. And I hope that when we get to the national exchange, rather than find the reward of management to be sellers. My goal is hopefully to have turned many of you into buyers. And with that, I would say, again, what you want, I understand. That's the role of the CEO. Many of you I have spoken to directly over the phone. Many people are uncomfortable with this kind of radical transparency that I practice. I don't know any other way of doing it. And so for me, I know what you want. I hope that you know what I want. And then you trust that you'll put your money into an investment that I will take seriously and work to create the return on that investment that you initially made in either my company or FLYHT. With that said, I don't want to discuss things that I've already put in the press release. I'd like to talk about any questions that you may have regarding the earnings regarding the revenues, regarding the uplifting regarding getting liquidity in the stock. Any questions that you have I'd love for you to just ask the question whether it's through the chat or raising your hand. And one of us will see it and answer your question. So who's going to ask the first question? Jeremy Frommer: Okay, I see 1 question. What's the question? Aya, do you have the ability to.... Unknown Executive: Yes. Here, I see Michael has raised his hand. Jeremy Frommer: Michael, how are you? Michael? Unknown Analyst: Can you hear me? Jeremy Frommer: Now I can hear you. Unknown Analyst: Yes. This is [ Steve Cohen ], Mike, are you there? Yes. I'll go first if its okay for Mike. Okay. So I'm Steve Cohen, and I missed the very first part. But is your goal to raise more money from the investors in order to get to the different offering. Is that your ultimate goal? Because I watch the stock and I watch the price and I've seen it come down. And I don't know if it's being delisted or not. But what's your goal for getting it on a different exchange? Jeremy Frommer: Thanks for the question. That's, again, as I said, it's what you guys want to hear is the plan for that. There's no plan for me to raise any capital in the near term. We have done all the raising we've needed to do. And we will now apply to a national exchange I don't like to say which exchange until we actually do it. But I mean, as a side note here, the very nature of the NASDAQ makes it more susceptible to the thing that I didn't understand when we first started trading on the NASDAQ. And remember, Steve, I've gone through this process before. The stock was up on the NASDAQ originally. Now I've been CEO throughout that period. And what I learned was if you think that you're going to get an underwriting done to get your stock up to a national exchange and avoid the toxicity that comes along with it, it's almost an impossible feat. So what we decided to do because to have raised enough cash over the last year, such that we've increased our net equity, we've increased our shareholder base. We've increased our market cap. And now we've increased our cash, we can apply to the exchange of our choice and not have to do a traditional underwriting. We're far from being delisted, man, we were delisted. We were kicked off the NASDAQ kicked down to the OTC kick down to the pink sheets. All because of a series of unfortunate events in a very difficult time in this environment, this small-cap entrepreneurial space. But far from being delisted, we're getting ready to apply to a national exchange and doing it in a way that others don't try to get it done. And I think that's one of the most important things that I'm trying to articulate that what we're going to attempt to do is list to a national exchange without a traditional underwriting without raising additional cash from here because we have already raised the cash. Any other questions around that or anything else, I'd love to answer, Steve. Did that answer that question for you? Unknown Analyst: Can you still hear me? Jeremy Frommer: I sure can. Unknown Analyst: So -- but doesn't -- like I don't -- how do you go from paying sheets to the NASDAQ? In other words, so we raised revenue. What are we going to do like -- I'm not familiar. Is it a new listing? Is it a public offering? Is it -- how do you get -- it's what? Jeremy Frommer: Well, I mean, it's an application. There's -- at both the New York and the NASDAQ, there's a listing group that is there to work with entrepreneurial, that's their job, getting entrepreneurial companies listed on the exchanges. You have to hit certain criteria. One of the toughest criteria that micro-cap and small-cap stocks face is hitting the net equity and maintaining the net equity threshold. And sure enough, that's why we lost our standing on the NASDAQ many years ago. And so we already today, because of a lot of hard work by a lot of good people. We've been able to rebuild our balance sheet such that we've got nearly $10 million in positive net equity. And so when we uplift to the exchange, we've already got the cash needed. And to do that, you need to have approximately, approximately -- whatever your burn is, you have to have approximately 15 months of that value in your coffers cash-wise. Then you have to have over 400 shareholders, of which we have. Then you have to have a minimum amount of shares in your float of 1 million shares. And then finally, you have to have a market cap of approximately $15 million of the float -- the float cannot include my shares or my partners' shares. That one is a little tougher to hit every $0.01 up is $0.01 closer to that number. But again, there are multiple -- it's like getting listed on a national exchange. It's like a Rubik's Cube. There's auditors, there's as I just articulated, there are qualifications, there are conversations that are subjective about your business model with the listing groups at the top of the exchange then you're signed an agent to look upon your company and turn you inside out and analyze you. They remember the -- like when we all look at reality of the space and the people who have invested in -- who have invested in our company when it's one of your first investments in sort of this small cap arena, I empathize. I particularly empathize with the horrible 2 or 3 years we've had. Believe me, it's done much more damage to me than you. But the truth is that in the end, the only way to a national exchange is through months and months of work and focus by an expert team. There's no kind of shortcuts. But if you make it and if you do it the way we're trying to do it then you're the 1 in a 1,000 shot and it really is a 1 in 1,000 shot, right? On the OTCQB alone, there's approximately 1,200 companies. Now that's where we are today on the OTCQB. On the New York Stock Exchange, I don't know, maybe 3,000, I just don't know these days, how many are on it. Of the CEOs on the OTCQB of the 1,200 I wouldn't be surprised if less than 10% are qualified to run a national exchange company. It's kind of like race car driving, right? Steve, it's like you can't get into a car that you can't drive. So like how we get up to the exchange man, I know like I, again, particularly for the investors who are in [ Fluger ] and had been looking for that IPO moment. The problem is, is that the world changed so significantly in this space when the capital markets dried up that if people didn't do the kind of deals we did in that moment to generate the type of net equity you need to qualify for an uplifting to a national exchange than your company is dead. And so after the OTCQB, there's about 10,000 stocks on the pink sheets of which there's probably only 10% of them -- well, less than that, I would say, probably like 1% of them, 2% of them who are qualified to get their company off the pink sheets up to the OTCQB. And then once you're on the New York, the ability to take your company, the first step everybody talks about is a $100 million company. And that's for another question. Let me answer some other questions, please. Unknown Executive: Andrew is raising his hand. Jeremy Frommer: Andrew, how long have you been invested in following my story? Andrew Qranah: Around 5 years. I actually -- I invested when it used to be about $3. And I never sold when it had like $10 or $9.80 and I've been stuck since then. By holding. Jeremy Frommer: I wish I -- you know what, I really wish all of you had been able to sell the prices like the amount, like I feel for you, particularly when I see names in our NOBO List, when you run a micro cap stock, people think it's just their impression of you is totally different than what it really is, although I'm sure there are a lot of guys out there who are just bad guys trying to manipulate the system. But when you're not, which I am not and you go through this journey and you see shareholders like you on for 5 years, it's like I was looking at the NOBO List earlier, and we have like 11,000 shareholders and a lot of them have only 200, 300, 500 shares. And so many of them are familiar to me, and I really -- that's why I get on the call. That's why I try to do it differently than everybody else. Like I -- why the hell else you guys that help us try to build a dream, right? So I appreciate that, Andrew. Andrew Qranah: We appreciate everything you've been doing. Now as you've seen a lot of my comments, I've always been and will always be worried about reverse split especially after the last one that hit us it kind of secreted us up really bad. How likely it is for us to have another one. And if we do have another one, what would it be? I know the last one was 500:1, I believe, if I'm not mistaken, what would it be? Jeremy Frommer: That was the survival reverse so to speak. It was either that or wind up in the gray markets, which would have been into everything. I often think about that. I have a few stocks that I invest in the space, like if I think it's interesting. And obviously, I'm always for some f****** reason, averaging down as opposed to averaging up. But particularly when it comes to a reverse split for survival, the only thing an investor really can do is either sell or double down. And I think that, that was a really tough moment for all of us and for all the shareholders. As far as the future, Andrew, look, right now, you have to trade to qualify for the New York, you have to trade for 20 trading days in a row, 30 calendar days above $3, all right? Now there are a lot of theories obviously about reverse splits. On the last reverse split when we got wiped. We had to do small financing. Today, we have to do no financing. So of reverse splits where you don't have to do a financing, you're going to be better off than the ones where you do a financing or a toxic structured product. The New York for some reason and the NASDAQ for its reasons and the other national exchanges have chosen to use static numbers as opposed to derivative variable numbers for their listing standards. What do I mean by that? The $3 number is a random number. It has no quantitative meaning no different than if it was $2.50, $4, $2. And so it's a randomly chosen number. No different than needing 400 shareholders. And remember, if you split 10:1 and you have 1,000 shareholders that prior to it had the qualified amount of round lot shares if you split too large, too heavy, you're going to reduce your round lot shareholders and then you're going to have to attract new shareholders to split. So you have to be able to balance the needs of all these things when deciding on a split. So what does all that mean in answer to your question. First, it means there isn't really a simple answer that you're looking for. If for some reason, the stock is still here, as we get closer to the moment of listing on the New York of the -- like the application where the gun goes off, and the 20-day count begins, I will reverse the stock if we are here, not because I want to reverse it, but I have no choice. Now look, we could sit and debate theories about whether or not between now and then the stock gets closer to $3. If it does, I'm less likely to split. Obviously, I'd love to see a self-fulfilling prophecy take place in the stock. It's not like -- it's not like it is an impossibility, it is just a lower probability. Now someone bought the stock trading at $0.50. Today, traded whatever, 20,000 shares. I didn't quite catch it before the call. But you're talking about, what, $10,000. So if one does the math, you could make an argument that it shouldn't be that difficult to create buying power that would take the stock to that $3 level. And again, I'm a believer that if it gets to 2, it gets to 3. That's just the nature of these type of trending stocks. But if it stays at $0.50, and we want to go to the New York, then sure we have no choice but to reverse -- but remember, that's not reversing so that we can stay on the NASDAQ or survive another day somewhere. It's reversing leaving a lot of cash on our balance sheet and a New York stock without any debt, like when we list in the New York, we won't have any debt, no more. No payables, a beautiful pure play with a fleet that we're building technology that's driving revenues at ridiculous growth rates these days, higher than I ever expected. So like the reversal come if it has to come, is the answer, Andrew. And I say everybody who fears it, what can I say? There's only one way up to the New York. You have to be over $3. And to stay on the OTCQB makes no sense. What say you, Andrew? Andrew Qranah: Okay. I mean that does answer my question. I appreciate it. Unknown Executive: Next, we have Leigh, who's had his hand raised. Jeremy Frommer: Sorry about taking so long, Leigh. Unknown Analyst: Yes. Just curious about what the proposed valuation looks like of that the Board is interested in... Jeremy Frommer: Good question. Unknown Analyst: For it going public. Obviously, there's been 7 million US raised from my last call with Mark. So taking into account capital, obviously, prerequisite for uplift. Proposed valuation. Just curious on structure. Jeremy Frommer: Yes. Look, on a comp basis, taking a look at our growth rate and our -- just looking at a discounted cash flow for our company, I can easily make an argument that its peers trade in the $150 million to $200 million market cap, like these kind of growing airlines that have what we have, which I think is a little bit of a secret sauce. I don't think you can triple revenues the way we have and lower operating costs without having a little bit of a sauce. But I think when we look at the company, we look to validate ourselves at about $150 million to $200 million. Now where it trades in the microcap space Leigh,. I don't -- I never have nor will I ever be convinced that a price of a stock on the OTCQB is indicative of anything but a bunch of moods people are in on a particular day and how algorithms behave in an era of rapid trading in this space by a few market makers. And so like getting the hell off of the OTCQB is when we'll know the truth of what the value is. But that's my perception of value from the deep analysis that I've done, and I could get pretty geeked out over it with you if you wanted to. Unknown Analyst: Well, sorry, so the $7 million that was obviously raised recently, at what valuation was that money raised at? Jeremy Frommer: Around 50 -- it was $0.50 could be higher. It depends sort of what price we up is that with a $0.50. Unknown Analyst: Okay. So you're proposing that you think you'll have a go-to-market structure of approximately 75 million shares outstanding. Is that correct? Jeremy Frommer: Depends obviously on the reverse, but you're not that far off. Unknown Analyst: Okay. And the comps that you're referring to that sit in that $150 million to $200 million mark, which ones are those by reference. Jeremy Frommer: I mean, you could look at a number of private ones, but I think taking a look at where FLYHT exclusive where some of the drone companies that are involved in the EV toll space that we work with. So like you have to look at sort of those type of businesses, you look where parts of the blade business have sold, there are a couple of interesting. I can't remember off the top of my head, the transportation ones that specialize in organ transplants that I think are very interesting I mean, there's multiple ways to look at it on a comp basis. That's the interesting thing about the company, like the tech alone how much is an Avinode and how much you're familiar with Avinode? Unknown Analyst: No, no. Jeremy Frommer: Avinode is like what I would consider the back-end system of the charter business. that most companies use. Avinode tech, my goodness, I don't really know how much they're worth off the top of my head, but it wouldn't surprise me if it's $0.5 billion to $1 billion. I mean, at least, I mean, the company develops. And then there's like other interesting tech platforms around the space. Remember, I'm not here to run an airline. That's one part of it. I'm here to build tech around the space. Any other questions? Unknown Executive: Yes. We have an anonymous attendee asked how much convertible debt is currently on the books. Jeremy Frommer: Well, there's -- the money that we've raised will convert on the uplift, which -- and that, as I've said, was priced at $0.50, which is all publicly disclosed. So my guess is that -- my guess, again, is that you'd have at the time of uplisting some, I guess, my structure or the plan is that you'd have 0 debt. That's when the previous individual was discussing is extrapolation of 75 million. That was -- there would be no convertible debt at that point. That assumes the 7 million and the $0.50 conversion. Does that help anonymous? Unknown Executive: I don't see any other questions. Jeremy Frommer: Wonderful. Well, I'm glad we had a chance to do this call. Anytime anybody does have a question, best way to do it is to join telling you just join the Slack channel that I often send out e-mails to join because that's where you really understand what's happening. I've chosen to take a very transparent path with everybody. And that is really the way to hear the journey firsthand. I'm not really into using the other social media platforms at this point. And I think that anybody who really has invested in the company can take the time to just join that slack and check in every so often. If you're not familiar with Slack, send our IR group a request, and we'll get you hooked up so that you can follow the story. Unknown Executive: I've also added the link to join our slack in the chat. Jeremy Frommer: Thank you so much, Aya. And thank you, everybody, for joining. Have a good night.
Operator: Good day, and thank you for standing by. Welcome to the Third Quarter 2025 Legence Earnings Conference Call. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Son Vann. Please go ahead. Son Vann: Thank you, Daniel, and good morning, everyone. Welcome to Legence Third Quarter 2025 Earnings Call. With me today are Jeff Sprau, our Chief Executive Officer; Stephen Butz, Chief Financial Officer; and Steve Hansen, Chief Operating Officer. This morning, we issued 2 press releases, one covering our third quarter results and the other on our pending acquisition of the Bowers Group. There are also separate slide presentations that accompany each release. All materials can be found on the Investor Relations section of our company's website, wearelegence.com. Before we begin, I want to remind you that comments made during this call contain certain forward-looking statements and are subject to risks and uncertainties, including those identified in our risk factors contained in our SEC filings. Our actual results could differ materially, and we undertake no obligation to update any such forward-looking statements. During this call, we will refer to certain non-GAAP financial measures, which should not be considered in isolation from or as a substitute for measures prepared in accordance with generally accepted accounting principles. Please refer to our quarterly earnings presentation for reconciliations of these non-GAAP measures to the most directly comparable GAAP measures. With that, let me turn the call over to Jeff. Jeffrey Sprau: Thank you, Son, and thanks, everyone, for joining today's inaugural quarterly earnings call as a public company. First off, I want to thank everyone involved with our successful IPO and express my gratitude to our new shareholders that have put their trust in Legence. Today, we'll discuss our record third quarter performance as well as our announcement to acquire the Bowers Group. One of the premier mechanical contractors in the Northern Virginia, D.C. area. Now for some on this call who may not be familiar with Legence, I want to give a brief overview of who we are. Legence is a leading provider of engineering, installation and maintenance services for mission-critical systems in buildings. We offer the full suite of building services from engineering and consulting to the implementation and maintenance of these complex systems. In essence, we are a design builder with national scale. This is a key differentiator. Most companies in our industry are either an engineering firm or a company that focuses solely on installation. We're different in that we provide both capabilities on a national scale. We focus on mission-critical, technically demanding MEP or mechanical electrical and plumbing systems. For mechanical, think HVAC. Electrical is self-explanatory. On plumbing, this also includes high-purity process piping, which is critical to the semiconductor, biotech, pharma and food and beverage industries and now extremely important to data centers as they transition to liquid-to-chip cooling systems. Another differentiator is the markets we serve. We skew towards high-growth industries, specifically data centers and technology and life science and health care, which accounts for over half of our revenue mix. We also service more stable target-rich markets such as education, state and local government, mixed-use and a few other industries. By serving a diverse mix of customers, we're able to transfer technical knowledge between end markets. Take, for example, our success with data centers. We leveraged our decades-long expertise in the semiconductor space and applied those same concepts to our direct liquid-to-chip cooling systems for the data centers that are being built today. This knowledge sharing is critical to our ability to evolve with ever-changing technical demand of our customers and our end market diversification positions us well for long-term success. Turning now to our financial results, which Stephen will discuss in detail. From my perspective and with gratitude to our amazing employees, we had an incredible record-setting quarter with year-over-year revenue growth of 26% EBITDA growth of 39% and backlog growth of 29%. Even more impressive is that this growth is all organic. EBITDA margins improved by over 100 basis points, driven by strong project execution, particularly with our fabrication work. Our book-to-bill ratio, which is a good indicator of our outlook, was also very strong at 1.5x. In this morning's press release, we also provided our initial guidance for revenue and adjusted EBITDA through 2026. Stephen will talk more on our guidance. This outlook reflects the strong momentum in our business, driven by the solid growth in our backlog. Shifting to our announcement that we've entered into a definitive agreement to acquire Bowers. We're really excited about this agreement to acquire one of the premier mechanical contractors in the Northern Virginia, D.C. metro area with over 40 years of expertise in mechanical and plumbing solutions for complex building systems. This region is well known as data center alley, where the largest installed base of data center capacity in the world resides. And Bowers is one of the leading mechanical contractors for the data center and high-performance computing market. Their strong reputation for safe operations and operational excellence aligns perfectly with our values. The integration of our teams will foster collaboration and knowledge sharing, enabling us to drive growth and ultimately deliver value for our clients and our shareholders. Now this transaction is compelling for a number of reasons. With Bowers, we are adding at scale, high-quality mechanical capabilities in the Northern Virginia region, complementing our existing electrical capabilities in the area. Bowers is one of the most well-regarded mechanical contractors in the region, and we have firsthand knowledge of their expertise from the many projects that we've partnered on. Bowers has some 1,700 employees, most of whom are highly skilled unionized crafts people. Similar to Legence, Bowers has a strong commitment to training, development and retention of top talent. Their leadership consists of seasoned veterans having an average of over 20 years' experience at Bowers. I've gotten to know the leadership better over the past few months, and I couldn't be more impressed by both their knowledge and experience. We both share a common desire to deliver at the highest level and capitalize on the extraordinary growth opportunities in front of us. Their leadership team is staying on board with Legence, adding to our deep bench. As previously discussed, the Northern Virginia, D.C. area has the most data center capacity globally, and Bowers has been at the center of this build-out since its first data center project for Amazon way back in 1999. The outlook for new construction of data center capacity remains strong in the region. In addition, the retrofit market is a significant area of opportunity given the massive and aging installed base of data centers. Roughly 1/4 of Bowers' data center revenues are from retrofit projects. Bowers also brings over 370,000 square feet of fabrication capacity strategically located in the D.C. area. Bowers has historically used this capacity for their internal project delivery needs. We now have the opportunity to utilize this capacity to serve customers along the East Coast, Southeast and Midwest as demand for modular fabrication and liquid-to-chip solutions continues to grow, especially from data center customers. I'm also very excited about the tremendous cross-selling potential that comes with ours. As previously discussed, their mechanical expertise is a great complement to our existing electrical solution capabilities in this key Mid-Atlantic region. Gaining access to their extensive fabrication resources creates an opportunity to serve a broader range of customers in different regions. Furthermore, by offering our engineering and consulting solutions to their client base, we see exciting opportunities to drive revenue growth for both organizations. Outside of Bowers, on October 1, we closed on 2 attractive tuck-in acquisitions, one on the engineering side and the other on the installation side. AZPE is an Arizona-based engineering firm with customers in the data center and manufacturing space, among others. Legence has partnered with them on several projects previously, and we know them well. IMD is a Colorado-based mechanical contractor, primarily serving the health care, manufacturing and education end markets in the Mountain West region. This is a good geography for technically demanding buildings where we've been looking to expand for some time. It also gives us another strategic and centrally located area to potentially expand our fabrication capacity. Both companies also have interesting cross-sell potential with our existing brands and are a great cultural fit. With that, let me turn the call over to Stephen to discuss our quarterly results and provide more transaction details on Bowers. Stephen Butz: Thank you, Jeff, and good morning, everyone. I also want to echo Jeff's appreciation for everyone's efforts in making the IPO such a success as well as preparing the company for this initial reporting cycle as a public company. For the remainder of the call, I'll begin with a review of third quarter 2025 results in comparison to third quarter of 2024. Following my review of our historical results, I'll make some brief comments about our current outlook, discuss our balance sheet and the improvements we've made to our leverage and close out with additional commentary on the Bowers acquisition before opening up to Q&A. Please note that we posted separate presentations pertaining to our quarterly results as well as information on Bowers on our IR website. During the third quarter of 2025, we generated revenue of $708 million, an increase of $147 million or 26% from the year ago quarter. 100% of this increase was organic, with both segments generating solid growth. Breaking down revenue growth at the segment level, starting with Engineering and Consulting. Segment revenue increased by 9.5% to $212 million. Both service lines grew from prior year levels. Engineering and Design Services increased by 11.3%, driven by strong growth in Life Sciences and Healthcare as well as state and local government end markets. Program and project management services grew by 7.6% from higher demand, primarily with hospitality and entertainment clients, driven by work at NBC Studios, one of our newer clients. Moving to Installation and Maintenance. Segment revenue of $496 million increased by an extremely robust 35% versus the year ago quarter. Again, this growth was entirely organic. Installation and fabrication services accounted for the majority of the segment growth, increasing by 41%. Much of the increase was in the data center and technology market, both with installation work and fabrication of liquid-to-chip cooling systems for data centers in Northern Virginia, Arizona, Iowa, Ohio and Georgia. This service line also saw strong growth in life sciences and health care market as we're working on several large hospital installation jobs and a large fabrication project for a pharmaceutical client. Maintenance and services also grew at a healthy rate of 12.3%, mainly from our data centers and technology and life sciences and health care clients with the growth skewed towards service break fix activity versus preventative maintenance. Consolidated gross profit for the third quarter 2025 increased by 25% to $148 million. Consolidated gross margin slipped by a very modest 20 basis points to 20.9%, mainly due to the overall revenue mix shift toward the Installation and Maintenance segment, which carries a lower gross margin profile than our Engineering and Consulting segment. This was partially offset by higher Installation and Maintenance segment margins. Delving further into margins at the segment level. Third quarter 2025 Engineering and Consulting gross margins of 31.7% declined from year ago margins of 33%, driven by a slightly higher percentage of subcontractor expenses and a lower margin in our engineering and design service line. This was partially offset by a modest revenue mix shift toward the engineering and design service line, which carries a higher margin than program and project management. For the Installation and Maintenance segment, gross margin improved by 140 basis points during the third quarter versus the year ago levels to 16.3%. The Installation and Fabrication service line margins benefited from exceptional project execution, particularly with our fabrication work for data center and technology clients. Turning to SG&A expense. Third quarter 2025 SG&A totaled $85.9 million compared to $67.2 million in the year ago quarter. Included in the third quarter 2025 SG&A is approximately $14.7 million of stock-based compensation. While we incurred $18.6 million in stock-based compensation in total during the quarter, $4 million is recorded in cost of sales. The overwhelming majority of the stock-based compensation, in fact, $18.1 million of the $18.6 million is related to our legacy profit interest that are marked to market each quarter and will ultimately be paid for by Legence Parent 1 and 2 and will never be borne by Legence Corp. So while this is recorded as an expense on Legence Corp.'s consolidated results as the compensation will ultimately go to our employees, Legence Corp. Class A shareholders do not bear the burden of this expense. The remainder of the increase in SG&A was primarily driven by higher professional fees related to our IPO. When backing out the same adjustments that impact SG&A on our non-GAAP adjusted EBITDA schedule, adjusted SG&A for the quarter of $66.7 million increased by 11% from $59.9 million in the year ago quarter and declined to 9.4% of revenue from 10.7% in the year ago quarter. That gets us to adjusted EBITDA for the third quarter of $88.8 million, an increase of 39% from prior year levels. Adjusted EBITDA margin for the third quarter of 2025 was 12.5%, approximately 110 basis points higher than year ago levels as we were able to contain adjusted SG&A growth to a slower rate than our overall revenue growth. Depreciation and amortization totaled $27.5 million in the third quarter, down $1.2 million from the year ago quarter with the decline primarily stemming from the runoff of contract backlog and intangible assets from prior acquisitions. Interest expense of $28.2 million for the third quarter increased by $4.5 million from a year ago, primarily due to the higher average debt balance than the year ago period, though it does include about 0.5 month of lower interest costs as a result of our debt repayment with the IPO proceeds. Turning to income tax. Our third quarter 2025 tax provision was $4.1 million. Because pretax income at the consolidated level was fairly close to breakeven for the quarter, this makes for a quarterly effective tax rate that isn't overly meaningful. We may have a similar dynamic in the fourth quarter. Looking ahead to 2026, the effective tax rate is likely to be more in line with our state and federal statutory rate of approximately 30%. Cash taxes for 2026 are estimated to be in the mid-$20 million range. This is before any payment related to the tax receivable agreement, or TRA, which likely won't have any payment requirement until late 2027 at the earliest and only if tax savings are actually realized. Switching gears to backlog. At the end of the third quarter, our consolidated backlog and awards totaled $3.1 billion, up sharply by 29% from the year ago levels, and our consolidated book-to-bill ratio was a very robust 1.5x for the quarter, certainly another highlight. This book-to-bill was particularly strong given our record revenue in the third quarter. Total backlog came mainly -- growth came mainly in the Installation and Maintenance segment, which grew by 46% to $2.2 billion. Engineering and Consulting backlog grew modestly, though I should point out that third quarters are usually a seasonally high period for the Engineering and Consulting revenue. Not surprisingly, the data center and technology end market was the key driver in backlog and awards growth, but we also saw some healthy gains in life sciences and health care as well as state and local government clients. Turning now to our guidance. As you saw in our earnings release, we are establishing fourth quarter 2025 and full year 2026 guidance for consolidated revenue and adjusted EBITDA. This guidance is for standalone Legence and excludes the impact of our pending acquisition of Bowers. For the fourth quarter, we expect stand-alone revenue of between $600 million and $630 million and adjusted EBITDA of between $60 million and $65 million. This compares to fourth quarter 2024 revenue of $548 million and adjusted EBITDA of $57 million. Our fourth quarter guidance reflects the seasonality we typically experience during this time of year. For the full year 2026, we expect to generate stand-alone revenue of between $2.65 billion and $2.85 billion and adjusted EBITDA of between $295 million and $315 million. Our 2026 guidance reflects the strong growth that we've experienced in backlog, but also a general trend of elongation in that backlog and awards on the I&M side. Growth in 2026 revenue will likely be a bit more skewed to the Installation and Maintenance segment following the trend in backlog growth. Just a few other housekeeping items to help with your modeling. Interest expense for the fourth quarter is expected to be in the $15 million range, with full year 2026 in the low to mid-$50 million range. Depreciation and amortization for the fourth quarter is expected to be in the mid- to high $20 million range, with full year '26 D&A in the low $100 million range. In terms of CapEx, fourth quarter is expected to approximate $20 million with the full year 2026 estimated to total in the low to mid-$50 million range. Approximately 2/3 of the 2026 CapEx forecast is for expansion, part of which is related to spending previously planned for 2025. but that has slipped into 2026. Now moving to our balance sheet, liquidity position and leverage. As previously disclosed, we utilized our net IPO proceeds of $780 million entirely for debt reduction, which reduced our total gross debt outstanding by nearly 50% to $836 million at the end of September. Strong operating results, coupled with improvements in working capital, led to our cash balance increasing to $176 million at the end of September, up from $98 million at the end of June. Liquidity at quarter end also included approximately $85 million of availability under our revolving credit facility. In late October, we successfully amended our term loan and revolving credit facilities. For the term loan, we extended maturities by 3 years to December 2031 and reduced our interest rate by 25 basis points, which will save us approximately $2 million in annual interest expense based on current debt levels. For the revolver, we extended maturities by 4 years to September 2030, increased the commitment amount from $90 million to $200 million and aligned pricing to match the term loan. Given the debt reduction, strong cash position and improved operating results, our net leverage ratio declined meaningfully at the end of the third quarter to 2.4x compared to 6.2x at the end of June and 3x pro forma for the IPO, which we believe demonstrates our ability to quickly delever. Now I'd like to make a few comments on Bowers. Bowers generated approximately $767 million of revenue and $72 million of EBITDA over the last 12 months ended September 30, 2025. For the full year 2026, we expect Bowers to generate revenue of between $825 million and $875 million and EBITDA of between $75 million and $85 million. Now please keep in mind that closing is expected sometime during the first quarter of 2026. So there may be a stub period of their financial results that won't be included as part of our results for 2026. Our base case expectation is that we close on February 1. This would imply incremental revenues of $725 million to $775 million and EBITDA of $67 million to $75 million for Legence, given the partial year impact. Our guidance for Bower's contribution is underpinned by their extremely strong backlog and awards, which totaled approximately $1.3 billion at the end of the third quarter and really provides attractive revenue visibility. Now moving on to the transaction consideration. The purchase price is approximately $475 million, consisting of $325 million in cash, $100 million of Legence common stock or approximately 2.55 million Class A shares and $50 million in deferred consideration to be paid at the end of 2026. The deferred payment can be in either cash or stock at our discretion. Legence will fund the cash portion of the purchase price through a combination of cash on hand, borrowings under our revolving credit facility and an anticipated $150 million upsizing to our term loan facility, which is supported by a firm commitment from our agent bank. Based on this funding approach, our pro forma net leverage at September 30 is just under 2.9x, and that's below the 3x at June 30, pro forma for the application of the IPO proceeds to repay debt. Given our outlook, supported by our growing backlog, we believe we can bring net leverage back down to where we ended the third quarter of just under 2.5x fairly quickly. Now on to the impact of Bowers to our business mix, starting with revenue. All of Bowers's activity will fall within our Installation and Maintenance segment. Approximately 86% of the revenues are generated from the installation and fabrication service line, with the remaining 14% in maintenance and service. While we still remain fairly balanced between our 2 segments, adding Bowers to our I&M segment shifts our gross profit mix to 60% I&M and 40% E&C from 52% to 48% on a stand-alone basis today. Looking at revenue by end market, approximately 70% of Bowers's revenue is derived from data center and technology clients. The other large end market is life sciences and health care, which accounts for 13% of the revenue mix. Adding Bowers further increases our presence in high-growth industries with mission-critical facilities. Our pro forma revenue contribution from data center and technology increases to 47% from 39% and Life Sciences and Healthcare will still comprise 17%. Education will remain a meaningful contributor to Legence at approximately 15% of pro forma revenue. In terms of revenue by building type, as you would imagine, their current position in data center markets, they skew a bit more toward new buildings at 57% of revenue. Adding Bowers would increase our revenue percentage from new buildings to over 40% from 36% at 9/30. Now I'd like to make a few brief remarks on the acquisitions of IMD and AZPE, which closed on October 1. Combined, we estimate these companies will generate a little over $20 million in revenue in full year 2025 and approximately $3 million to $4 million in EBITDA. So of course, our financial results will only include the fourth quarter impact. Total consideration of $22 million with 21% of this consisting of equity provides an attractive value proposition for our shareholders. In closing, our third quarter results were exceptionally strong, marked by robust organic growth in revenue and adjusted EBITDA. We believe these results demonstrate our operational efficiency, ability to capitalize on growth opportunities in key markets and to quickly delever, strengthening financial flexibility. The results and the robust growth in backlog and awards established a solid foundation for continued progress. Our pending acquisition of Bowers will add a significant lever of growth, immediate scale to our capabilities in the Northern Virginia and D.C. metro area, an area with the largest concentration of data center capacity in the world. It also brings a meaningful expansion of fabrication capacity, enabling us to better serve clients in the Midwest, East Coast and Southeast regions. The structure of our consideration for Bowers, together with our recent expansion -- extension on our term loan and upsize of our revolver underscores our commitment to maintain a strong balance sheet and preserve financial flexibility for continued growth. That concludes my prepared remarks. So we will now open the call for questions. Operator? Operator: [Operator Instructions]. Our first question comes from Adam Bubes with Goldman Sachs. Adam Bubes: Congrats on your first quarter. I think it's clear M&A will be a part of the growth strategy. And so just wondering if you could speak to what leverage you're comfortable with on sort of like a 2- to 3-year time horizon? And any way to size the pipeline of M&A opportunities you're actively working on? Stephen Butz: Yes, I'll take the first part of that. We came out at the IPO, as we mentioned, at 3x on a net basis, and we look to maintain the leverage ratio below that level going forward. And longer term, target something in the low 2x range. And you can see we can pretty -- we're pretty quickly able to get there. We're comfortable taking that back up to the high 2x range pro forma for Bowers. I think we'll work that back down again quickly. And it will ebb and flow a bit with acquisition opportunities, but we'll likely remain in that sort of range. Jeffrey Sprau: Yes. In terms of the pipeline, Adam, it's really a different story by segment. Certainly, in the E&C segment, which is a national business, full of a very fragmented market, I think we'll -- we have a very active pipeline, and we'll continue to pursue those acquisitions that probably trend more towards the tuck-in type. Certainly, we're interested in businesses where the employee base is really technically savvy in the markets that we play in, that has capacity and are in -- that bring with them a customer background that we may not possess in a given geography. Now on the I&M side, that is much more opportunistic. And as we've discussed previously, we really focus on those cities in the U.S. that have a high concentration of these high-growth industries. And so it's a bit harder to predict. Now to be fair, we'll be spending the next several months integrating Bowers into our organization. So I would not anticipate another Bowers level acquisition in the near term. But we're always on the lookout for those parts of the country that, again, have a high concentration of our customer base, where adding scale can have a meaningful impact on our results. Adam Bubes: Terrific. And then it looks like data center and technology growth accelerated pretty sharply sequentially. I think it was 23% growth last quarter, now up over 60%. What drove that sharp acceleration? Is that a particular project or 2? And what's the level of data center and technology growth embedded in 2026 outlook? Steve Hansen: Yes. I'll take the backlog growth. Really, it's multiple projects in different geographies, a mixture of installation work from a ground-up data center builds and modular construction technical cooling systems that we're shipping around the country, the increase in the need for that type of work and the technical nature of it is really driving some of that increased backlog we're seeing. And I'll hand it to Stephen on this. Stephen Butz: Yes. In terms of our forecast, the data center and technology end market has grown for Legence over the last several years at a 30% CAGR. And our outlook remains pretty consistent with that. We think that it's going to continue to grow at that rate for some time. And that's, of course, offset by us to a degree and baked into our guidance with other markets growing generally more in the single-digit range. Operator: [Operator Instructions]. Our next question comes from Julien Dumoulin-Smith with Jefferies. Julien Dumoulin-Smith: Congrats on the inaugural call here. And as you know, we're always focused on cash, so I wanted to kick things off on that front. And I wanted to focus on this working capital tailwind that you guys are talking about here from these contract liabilities. Can you walk us through what you're seeing in terms of further willingness from customers here to accept higher down payments? It's a fascinating trend. Obviously, the sector is evolving, and it seems like some of the negotiating trends are certainly heading in your direction as a tailwind. And then more to the point, is there negotiating power for you here to protect further project economics in other manners, right? Clearly, working capital is one manifestation of those terms. I'd love to hear. Stephen Butz: Yes. Great question, Julien. As we've talked about before, working capital management is something that the company really puts an increased focus of emphasis on this year and an area where we wanted to improve. And you can see that manifest itself in the third quarter results. Certainly, part of that is just faster collections as well as better management of the payables timing, and you can see that. But also, as you point out, negotiation of contract terms, contract liabilities, and we've seen some improvement there. Now of course, it varies by the service that we're providing and the end markets, as you know. And typically, when we're custom fabricating items, we tend to get more payments -- higher payments upfront than in other instances. And so I think that's driving that to a degree. Julien Dumoulin-Smith: Got it. And then my next one is just as a follow-up to the last question, if I can. How do you think about just where you are in the life cycle of M&A and acquisitions to continue to announce these kinds of transactions? I know that was never necessarily promised as part of the IPO process here, but how would you frame that conversation and set a cadence? In contrast to the conversation on leverage, just how would you set an expectation around where you are in conversations with folks? Jeffrey Sprau: Yes. I would say our pipeline of targets remains active and robust. And at any given time, we have several discussions ongoing. Like I mentioned previously, it's a little easier to sort of understand, I guess, velocity on the E&C side because those are going to be smaller tuck-in type acquisitions. So I would continue -- I would expect those to continue. It's just hard to pick or to peg rather the impact, as you saw last quarter, we had one E&C and I&M. And then again, on the I&M side, those generally, unless they're a tuck-in to a local geography, those are just bigger and harder to call. But I do know that we're going to be focusing like a laser in terms of making sure that everything goes smoothly with the Bowers integration. And so I would not expect anything of that magnitude along those lines in the near term. Operator: Our next question comes from Sabahat Khan with RBC. Sabahat Khan: Just following up on some of the commentary around the mix between the 2 markets. Obviously, this one is adding a bit more to the sort of the implementation side, the Bowers acquisition. How do you just think about the evolution of the revenue mix kind of 1, 2, 3 years out? Is there sort of a management perspective on getting it back to maybe what -- where you were sort of pre-IPO? Or is it where the opportunities show up, you'll just kind of follow where the market is headed? Just some perspective on how the overall end market mix within revenue and EBITDA could evolve over the next 2-, 3-year period? Stephen Butz: Yes. Good question. While we'd like to maintain a reasonable balance there, it is going to ebb and flow with M&A opportunities, also the growth in different end markets. And we do see a shift next year, certainly, as we discussed, more towards the I&M segment. As Jeff mentioned, on the M&A side, we tend to see more opportunities on the more fragmented engineering industry, right? And so over time, we'll probably tend to do more acquisitions on that side, which could bring it back closer toward a 50-50. But then again, if we have an opportunity to acquire really a leading I&M firm in a target market, that can swing it back the other direction to a degree as Bowers has. But we really like both segments and both businesses and the integration that we're driving there, the cross-selling opportunities. the revenue synergy as we bring these businesses into the fold. And so we're not certainly not going to shy away from attractive opportunities in either segment. Jeffrey Sprau: Yes. We have -- that's all true, Stephen. We have extreme conviction in being a life cycle provider. And to be able to do that, you have to have scale. You have to have scale on the implementation side and you have to have scale on the engineering of our professional services side. And so you're right. We don't have a goal. It's got to be 50-50 or 60-40 or 62-38, but we want to have national scale in both because we believe it's a differentiator. We believe it's better for the customer, and we believe there's tremendous cross-sell capability that are great tailwinds, further tailwinds for our future growth. Sabahat Khan: Great. And then maybe just as a follow-up, a bit more on the margin side, I guess, similar to the mix question. And obviously, on a mix or from a mix perspective, this transaction probably a bit diluted. But I guess this was immediate scale that the market probably wasn't expecting. So can you maybe just talk about the operating leverage benefits from adding this much revenue? And then second part, maybe just some of the synergies opportunities that you might realize from Bowers over the next 1, 2 years, both revenue and cost. Stephen Butz: Sure. The -- on the -- I'll start with the synergy side. There are puts and takes on the cost synergy side. Typically, when we're acquiring the smaller private business, even though this is a little bit bigger than the others, but we're typically going to focus on increasing the focus on cybersecurity, improving the strengthening finance and HR compliance in those areas. And so typically an area where we'll spend a bit more, at least in those early years. And then, of course, there are some other cost synergies, but they tend to offset. And so really, the revenue synergy is what's driven more value uplift in our acquisition strategy historically. And that's really what we see with Bowers as well. Now over the longer term, we do expect to get more benefit as we drive integration in these businesses and get some -- so as we get into 2027, 2028, we expect to see a little bit more economies of scale, but you just don't see that in the short term. Operator: Our next question comes from Brian Brophy with Stifel. Brian Brophy: Congrats on the very nice start here. Just had a question on installation gross margins. It looks like they were a little bit higher than what folks were expecting. And certainly, they were higher than a year ago. You touched on strong execution in the release. But just curious, any more color on what's driving the gross margins on the installation side. Was there anything more onetime in there like closeouts in the quarter? Or how should we be thinking about the sustainability of the margins we saw in the third quarter? Steve Hansen: Yes. I mean continued focus on operational excellence is part of our goal. I do think there was a mixture of some closeout timing as well as the mix on the manufacturing fabrication service line that is coming with a little bit higher margins. So we feel like we can continue to leverage that as we continue to even to Stephen's point, in the future, take some operating leverage to help to expand margins on that side of the business. Operator: Our next question comes from Michael Dudas with Vertical Research Partners. Michael Dudas: Maybe for Stephen or Jeff, as you look at the backlog, which is a very strong growth and you put out your 2026 guidance, maybe you could share a little bit about what visibility you typically have 6 to 12 months out in the current backlog and the conversion rates to revenue the following year. And there's been any change in the end market? Obviously, data center has been helpful, but any other areas that as you look into 2026, may be a bit more additive to the maybe potential backlog growth or the mix of revenues that you put forth? Stephen Butz: Yes. We probably have a little higher visibility into 2026 than we have in past years at this point in the year. And so our forecast is a little bit more skewed toward projects that are in backlog versus what we refer to internally as like go get jobs that we're going to secure during the year. Today, I would estimate of our $3.1 billion in backlog that just a little bit less than $2 billion. So $1.8 billion to $1.9 billion of that will burn in 2026. Of course, a good portion will burn in the fourth quarter as well. And then some extends into 2027 and 2028. But today, have a little bit higher visibility into the next year than we historically have. And certainly more visibility into 2027 than we would have had in past years. And what was the other part of your question? Steve Hansen: Different markets... Stephen Butz: Yes. Again, tremendous growth in the data center and technology space. We've also had some nice wins in the pharmaceutical side, life sciences. Education is still going to remain a key contributor, but... Jeffrey Sprau: And I think we remain bullish on onshoring and reshoring from a manufacturing perspective, be it biotech, be it semiconductor. And then the fact that energy efficiency is a major -- has a major impact on our clients' operating expenses. And to the extent that we can go into a building of any type and reduce their energy consumption by 10%, 20%, 30%, 40%, I would expect that to continue to be a meaningful component of our -- both our backlog as well as our opportunity pipeline. Operator: Our next question comes from Greg Lewis with BTIG. Gregory Lewis: I had a first one around next year's guidance. As we look at, I guess, trying to back in an applied margin, any kind of color you can give us around what's driving that incremental expansion and then where you potentially see opportunities for upside around that guidance? Stephen Butz: Sure. I think there's always mix shifts by service line and end market that are going to be a big driver in our forecast. And so we see within installation and -- Installation and Maintenance, we do see within the Installation and Fabrication service line, selling more of our higher-margin services. While we are going to be working on the typical large installation jobs, we're also now fabricating modules that we can ship to rural areas of the country where we won't be working on the full installation or the full scope, but we tend to generate a higher margin on those sort of custom fabricated projects. And so that's increasing in proportion to that overall service line. And so that could drive some margin accretion in the installation and maintenance space. Now somewhat offsetting that is a mix shift, as we talked about toward that segment, which is lower margin than our Engineering and Consulting segment. And so all that's sort of baked into our expectations for next year. Gregory Lewis: Okay. But for overall, do we see any -- I mean, as pricing, it seems like all these -- some of your business lines are starting to gain momentum. How -- it seems like there should be an opportunity to push pricing maybe in the technology, maybe in the life sciences. Is that kind of -- is that? Steve Hansen: Yes. I think I mean we're always looking for opportunity to push pricing. We do have a very technical customer base that is savvy on price and they push back. So we are a long play with our clients. If you kind of look at the tenure of our clients and long decades-long relationships. We've built that through the years of trust and not overreaching on pricing. So -- but we will always push. We want to walk that fine line of not losing that client relationship. Operator: Our next question comes from Oliver Davies with Rothschild & Co. Redburn. Oliver Davies: Two from me. So firstly, you mentioned that some of the fabrication CapEx had slipped to 2026. So can you provide an update there and the demand you're seeing for fabrication alongside the kind of incremental growth you assume in 2026? And then secondly, I mean, obviously, the sort of more traditional end markets continue to be soft. So is there anything sequentially to call out there or any signs of improving backdrop that you're seeing? Steve Hansen: Yes. I'll start with the CapEx slip. We're continuing to build out several hundred square feet of facilities in operation. And though we're using the square footage, we've got the leases tied down and we're in those buildings, just permit issues with local entities have kind of pushed us back on that build. And so it's really the tooling side that's pushed on the CapEx. And we do see continued opportunities not only in the data center market for modular construction, but in our life science and pharma industry as well as semiconductor, we're seeing those opportunities and taking advantage. Jeffrey Sprau: And I'd say on the additional markets, probably the biotech life sciences space has been soft for the last couple of years. We're seeing some of our leading indicators would be the amount of proposals that we have submitted to clients or have been requested by clients, that is starting to tick up as lab space and R&D and office space gets absorbed. So we expect that to continue that upward trend over the next several quarters. Operator: Our next question comes from Craig Irwin with ROTH MKM. Craig Irwin: So I was hoping you could maybe give us a little bit more color on the cross-selling opportunity through the Bowers Group. You have strong E&C capabilities in the region. Is this something that you think could come together relatively quickly? How long would it take for you to get back to the regular mix from the rest of the business of roughly 25% overlap in there? Any color you could offer to help us unpack the synergies on the cross-selling there? Steve Hansen: Yes. We're excited about the opportunity with Bowers. In that region, as you know, we also have electrical capabilities. We have E&C capabilities in that region. So really our full suite of offerings. It's not overnight. We've got to go and chase down those client bases where we can offer that full package and get them on board, but it is going to be a focus as we integrate and Jeff touched on it several times, we've really got to -- we're going to bite off that integration and get them in the mix and then really work hard on how we can go approach the market and push that. So high on our target list, I'd love to give you a time line, but... Jeffrey Sprau: Well, and I'd piggyback on that, Steve. We have a nice head start in that both companies know each other and have known each other for decades. And so there are relationships and most importantly, trust that already exist. And that is a nice head start to sort of springload some results. Stephen Butz: And I'll just pile on to that while our integration plan, obviously, there's a lot of granular tasks that we're looking to accomplish. Part of that also is high level and going in and educating the employees at Target on all the different services that Legion can bring to bear. And so we will do and we'll undertake that fairly early on. But as Steve mentioned, it still takes some time for that to bear fruit. Craig Irwin: Understood. Then I wanted to follow up with a question on the fabrication expansion. So you did mention the adjustment on the tooling CapEx as you build out increased capacity into '26. Does Bowers bring anything substantially different that maybe changes the urgency or necessity of some of the investments that you're making? Are there new capabilities that were not in existence on the Legence side? And how important is this expansion that you're working on for improved capture and increased share of business with several of these Tier 1 customers that you're pursuing? Steve Hansen: Yes. Bowers brings a lot to the table. They bring both 370,000 square feet plus of fabrication capability. New capabilities, really, we have shared capabilities. They bring the same thing to the table. They've got a high background in process piping as well as hydronics and everything else that tie to this. And it allows us to leverage that geography, right? Currently, most of our fabrication is done in the West and Southwest of the country. And now we have an East Coast presence where we can go to our clients and expand that footprint and reduce cost and shipping and different things like that, that will give us synergies. So we still -- it's still important for us to build out that other square footage that we're already on because it is important for us to drive capacity and be able to show our clients that we can take that workload, so -- which is supported by our backlog. Operator: Our next question comes from Derek Soderberg with Cantor Fitzgerald. Derek Soderberg: Can you quantify any impact from larger job size in the third quarter results? And when you look at backlog, can you just talk about the trend you're seeing in job size, which end markets are influencing that at all? And then I've got a quick follow-up. Stephen Butz: Yes. I can't quantify the impact specifically from large jobs. So what I'll say is we have -- as we pointed out over time, we are seeing an increasing proportion of our revenue coming from larger jobs. That said, our average job size is probably still skewed a bit lower than some of the other public peers as we do a lot of maintenance and service, a lot of quick hitting small jobs, a lot of retrofits as opposed to new construction. Though the growth in the data center and technology end market, which tends to be more new facilities today at larger job sizes, that is having an impact. And that impact drove some of the growth in the quarter, certainly, was driven by that end market, new buildings, new jobs. So yes, we think that's going to continue. So over time, we're bullish about the retrofit market for data centers. There's a lot of data centers that are probably getting long in the tooth. And so we think that at some point, there's going to be a shift in focus toward renovation of those types of facilities. Steve Hansen: Well, and I'd add on the health care, semiconductor markets, life science markets, these larger projects, those are projects that will stay and continue once they're done and do recurring revenue work there that is on a smaller scale. Derek Soderberg: Got it. That's helpful. And then as my follow-up, it sounds like there might be some upside to 2026 with some of the synergies. But just to clarify, to what extent was any sort of synergy embedded in the full year '26 guidance? Or were they really just a continuation of the stand-alone businesses? Stephen Butz: Yes. Again, we don't see cost synergy in the short run. So over 2026, we'd expect the cost synergies to be offset by some incremental costs as we talked about. And revenue synergies, we're typically not going to model that in because it does take some time, as Steve mentioned, for that to bear fruit. Though we have historically generated a significant uplift over time from cross-selling. Operator: And we do have time for one more question. Our final question comes from Miguel Marques with Bernstein. Miguel Marques: Stepping in for Chad Dillard. First question for me just is your I&M margins were obviously up to 16.3% this quarter. You guys mentioned better project execution. But is there any additional color you guys can offer on like what levers you pulled exactly? And if at all, how much of this was driven by like better favorable end market mix or size of projects? Stephen Butz: Yes, a little bit of all of the above. I mean it definitely just, as we mentioned, exceptional project execution, late-stage projects that become visible that we're going to generate a higher margin on those jobs as well as favorable closeouts. And in terms of the top line, we also had some equipment purchases and things of that nature that were more expected to come in, in the fourth quarter that actually came in, in the third. So that provides a little benefit to the quarter as well. But that's all baked into our fourth quarter guidance. Miguel Marques: Understood. And then just second on Bowers. It obviously appears as though modular capacity played a big factor in your guys' interest. I think you guys are at 500,000 square feet today, scaling up pretty soon. Bowers is just under you guys. But for one, I guess, how much of a role did this play in your thinking and expanding on that? Could you offer any color on how big the modular business is for you today? How fast is it growing? And I guess what Bowers can add to that? Jeffrey Sprau: Yes. On the Bowers front, it's interesting. We started talking to Bowers back way back in 2020, so over 5 years ago. And we were always really interested in them based on their history, based on their culture, based on their end markets. I would tell you that we didn't know exactly what their footprint was from a fabrication perspective until we got into diligence. And that was a nice sort of frosting on the cake, so to speak, as opposed to being the initial driver. And I'll throw it to Steve or Stephen in terms of the size of our fab business in general. Stephen Butz: Yes. And we don't disclose that separately. It's part of our installation and fabrication service line. But if you were to look at where are we just doing fabrication only, it's in the low to mid-teens percentage of revenue of that overall service line, where previously a year ago, it would have been in the single digit percentages. So it's growing nicely. Operator: This concludes the question-and-answer session. I would now like to turn it back to Son Vann for closing remarks. Son Vann: Thank you, everyone, for attending our call. A recording will be available on our website in a few hours. We look forward to updating you again on our next earnings call. Thanks again, and have a great day. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Hello, and thank you for standing by. My name is Bella, and I will be your conference operator today. At this time, I would like to welcome everyone to SUNAtion Energy Third Quarter 2025 Financial Results Conference Call. [Operator Instructions] I would now like to turn the conference over to Devin Sullivan, Managing Director of Equity Group. You may begin. Devin Sullivan: Thank you, Bella. Thank you, everyone, for joining us today for SUNAtion's 2025 Third Quarter Financial Results Conference Call. Our speakers for today are Scott Maskin, Chief Executive Officer; and James Brennan, Chief Financial Officer. Mr. Maskin will open with prepared remarks followed by a question-and-answer session. Before we get started, I'd like to remind everyone that prospects of SUNAtion Energy are subject to uncertainties and risks. Remarks on today's call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Act of 1934. The company intends that such forward-looking statements be subject to the safe harbor provisions provided by the foregoing sections. These forward-looking statements are based largely on the expectations or forecasts of future events can be affected by inaccurate assumptions and are subject to various business risks and known and unknown uncertainties, a number of which are beyond the control of management. Therefore, actual results could differ materially from the forward-looking statements contained during this call. The company cannot predict or determine after the fact what factors would cause actual results to differ materially from those indicated by the forward-looking statements or other statements. Participants should consider statements that include the words believes, expects, anticipates, intends, estimates, plans, projects, should or other expressions that are predictions of or indicate future events or trends to be uncertain and forward-looking. We caution investors not to place undue reliance upon any such forward-looking statements. The company does not undertake to publicly update or revise forward-looking statements, whether because of new information, future events or otherwise. Additional information respecting factors that could materially affect the company and its operations are contained in the company's filings with the SEC, including its Form 10-K and in subsequent filings, which can be found on the SEC's website at www.sec.gov. With that, I'd now like to turn the call over to Scott Maskin, CEO of SUNAtion Energy. Scott, please go ahead. Scott Maskin: Thank you, Devin, and good morning, everybody. Happy Monday. Thank you all for joining me today. This is a call that I've truly been looking forward to for quite some time. Since Jim and I took the helm of SUNAtion about 18 months ago, it felt at times like steering through unpredictable conditions, keeping steady, staying focused and making sure everyone on the team understood where we were headed and why. Now I won't tell you things have calmed down. They absolutely have not. As we look ahead to 2026, there's still a lot of movement in the industry and uncertainty. But the difference is that we're no longer reacting, we're leading. We've got structure, direction and a team that's completely aligned on the mission. And this quarter represents a turning point. For the first time in a long while, our results, our work reflect the impact of our hard work, the discipline and the cultural rebuilding that's taken place inside this organization. If I had to sum up Q3 in one phrase, it's this. We delivered it on our promises. Sales rose, costs came down, margins improved and profitability strengthened. Our capital structure is squeaky clean, and our balance sheet is the strongest it's been in years. That didn't happen by chance. It took tough calls, long hours and people who refused to give up, but it proves what happens when we stay focused and we execute. While many in our industry have struggled to find direction, SUNAtion has moved forward, stronger, leaner and ready for what's next. Those of us who've been in solar for a while know the ride never really smooths out. The One Big Beautiful Bill and the upcoming sunset of Section 25D have created new challenges and new opportunities, and our team is handled both with focus and professionalism. The rush to complete residential installations before the end of 2025 has been intense, and our teams in New York and Hawaii have been extraordinary and really stepped up to the plate. These are 2 of the most expensive energy markets in the country, and our people have helped homeowners take control of both their power and their costs. Residential sales in those markets were up 54% year-over-year in Q3. I want to say that again. Residential sales in those markets were up 54% year-over-year in Q3. And we expect that momentum to continue right through the year-end. At the same time, we're not focused on this surge. We're preparing for what comes after. We've been developing new financing options and lease-to-own programs that will carry us not just in 2026, but far beyond, tried and true approaches that have been part of SUNAtion's success story for more than 2 decades. On the commercial side, we're continuing to see steady demand from institutions and municipalities across Long Island and downstate New York. High energy costs and the longer runway for federal tax credits have supported a solid project pipeline, and we're executing efficiently. Our advantage continues to be our diversification in our people, our markets and our services. And it's what gives us balance and stability moving forward. We stand unique by offering residential solar and storage, commercial solar, roofing and our ever-growing expanding service division. We intend to expand into the energy-efficient HVAC market and stand-alone roofing, while we've doubled down on our service and O&M side, helping both our long-term customers and those left without support when their original installers disappeared. We're also evaluating strategic M&A opportunities that make sense, ones that bring scale, efficiency or exposure to fast-growing sectors like AI, crypto and data centers. These are reshaping how power is used, and we're positioning SUNAtion to play a meaningful role in the future. Through all of this, one thing hasn't changed. We stay calm, focused and deliberate. Running a business much like happening a ship isn't about avoiding rough conditions. It's about knowing your course, trusting you crew and making steady progress no matter what's ahead. Every day, I'm driven by 3 things: our team who show up with great purpose, our customers who trust us to deliver on the promise of solar and of course, our shareholders whose patients and confidence were determined to reward. SUNAtion is stronger than it's been in a long time. We understand the challenges ahead, but we also see tremendous opportunity in front of us. We've built a company that can adapt, grow and lead through whatever comes next. And I'll close with this. God willing, the market will begin to acknowledge and reward our efforts, our resilience and the results that this incredible team has delivered for you in Q3. Thank you all for your time and trust and your continued confidence in SUNAtion. With that, I'll turn it over to our COO, CFO and my steady co-captain, Jim Brennan, who will take us through the numbers. Jim? James Brennan: Thank you, Scott, and good morning, everyone. I appreciate you joining us today and especially those on the West Coast that are joining us at 6:00 a.m. We are joined today by Kristin Hlavka, SUNAtion's Chief Accounting Officer and Corporate Treasurer; as well as Mitch Sommer, SUNAtion's Corporate Controller. We filed our 10-Q on November 7 and issued our earnings release on Monday, November 10. As we reflect on our performance for the third quarter, I am pleased to report that the actions that we have taken have delivered significant improvements throughout the business as we promised. We ended the third quarter in the strongest financial position in recent history through in-depth planning, disciplined execution and sharp focus on operational efficiencies by the regional leadership teams in both New York and Hawaii. We strengthened our balance sheet, expanded our margins and improved profitability. These much improved results our direct outcome of the hard work of the entire team and the commitment to deliver value to our shareholders in the midst of a rapidly evolving market environment. We are on track to report strong results in the current fourth quarter and have reiterated our 2025 full year financial guidance for higher total sales and a return to positive adjusted EBITDA as compared to full year 2024. On to the review of our Q3 2025 results. Total Q3 sales rose by 29% to $19 million from $14.7 million last year. Sales at SUNAtion in New York and Hawaii rose by 22% and 47%, respectively, with residential sales rising 54% and service sales increasing by 72%. This was driven by an accelerated pace of system installations prior to the expiration of the federal tax credits on December 31, 2025. Although commercial sales declined by $1.7 million, we expect continued stability in this sector as businesses and institutions such as churches and schools continue to take advantage of the longer runway that the One Big Beautiful Bill has offered. Inherently, the commercial sector is more complex and nuanced than residential. So these projects tend to take more time to develop and install. On a consolidated basis, overall kilowatts installed on residential projects increased by 52% in the third quarter of 2025. Revenue per installation increased by 25%. Consolidated gross margins improved to $7.2 million or 38% of sales from gross margin of $5.2 million or 35.6% of sales driven by higher residential margins. SUNAtion New York's gross margin improved to 40.7% from 37.9%, while Hawaii's gross margin increased to 32.1% from 29.5%. We continue to effectively manage costs throughout our organization, while total operating expenses rose $7.5 million from $6.8 million as a percentage of sales, the total operating expenses declined to 39.3% from 46.5%, and we expect the total operating expenses in 2025 to be lower than 2024. Interest expense in the third quarter of 2025 declined to $143,000 from a whopping $812,000 last year, reflecting the continuing benefits of paying off the expense of debt earlier this year. We continue to expect our annual interest expense to decline by approximately $2 million for 2025 as compared to 2024. We operated just below breakeven for the quarter with a net loss of approximately $393,000, which is a $2.9 million improvement from a net loss of $3.3 million in last year's third quarter. Taking all of this into account, Q3 adjusted EBITDA improved to a positive $898,000 from an adjusted EBITDA loss of $1 million in last year's third quarter. With respect to the balance sheet, cash and cash equivalents rose to $5.4 million on September 30, which is our largest or highest cash level since 2022. Our total debt decreased by over $11 million, falling to $7.9 million compared to $19.1 million at the end of 2024. This total debt included an earn-out consideration of $1 million. Other areas of improvement this year through September 30 include accounts payable improved $7.3 million from $8 million on December 31, 2024. Current liabilities improved to $19.0 million from $27.2 million on December 31, 2024. And lastly, shareholders' equity improved to $21.7 million from $8.5 million on December 31, 2024. Based on these Q3 results, solar projects pipeline and general business environment, we are reiterating our guidance for 2025 as follows: Total sales are expected to rise to between $65 million and $70 million, a projected increase of 14% or 23% from total sales of $56.9 million in 2024. Adjusted EBITDA is expected to improve to between $500,000 and $700,000 from an adjusted EBITDA loss in 2024. Before turning things back to Scott, I want to again thank the entire SUNAtion team, both in Hawaii and New York for their hard work and dedication. This process has not been easy. Over the past 6 months, our financial health has improved dramatically. Sales are up, costs are down, profits are higher and our financial position is strong. It's no secret that our industry is in a state of transition and that the challenges we all face are significant, but that's okay. We are embracing these challenges as an opportunity to redefine SUNAtion as a whole and the value we can deliver to our shareholders. The global demand for energy is accelerating, and SUNAtion has over 2 decades of experience in delivering clean, sustainable solar energy. As we look ahead to 2026, we will continue to address these opportunities from a renewed and we believe, sustainable position of financial strength. We are optimistic about our future and look forward to keeping you apprised of any news and progress. I want to thank you for your time, and we'll now turn things back to the most handsomest guy in solar, Scott Maskin. Scott Maskin: Thanks, Jim. We're taking calls now, guys. All right. Fire away. Operator: [Operator Instructions] Your first question comes from the line of Julien Dumoulin-Smith with Jefferies. Hannah Velásquez: Hannah Velásquez on for Julien. I had a quick question or rather, yes, just an update on 25D expiration. Curious to see what you all are seeing out there in the market in terms of any pull-forward effect? And then also any reactions to the advent or I suppose the introduction of this new concept prepaid lease plus loan bundle. I think you alluded to it on your call. But any additional detail you can provide there in terms of if it's viable as a replacement of 25D and if you would consider pursuing it? Scott Maskin: Sure. Thanks for the time today. So listen, 25D has certainly -- the sunset of that tax credit certainly has a meaningful impact especially in markets like New York and Hawaii with high cost of kilowatt hour. We've traditionally been loan markets. We have done some leasing. And there's been a lot of different tools that are out there. So what I would say is that we're driving to the end of the year, pull forward, yes, there's a ton of people that sat on the fence for a long time, they got off the fence. And they're just -- I mean, there's a lot of angry else out there that were on the fence for too long, and we just simply could not get them installed. I mean my teams in both states are running 6 days a week plus to get this work done. That being said, I believe that there are some significant advances in a lot of different financing tools other than just traditional leasing and loans. So I think a lot is going to evolve as more information comes out on FIAC. When I look at our markets, we could still make a d*** fine financial model for a loan and for owning it. So I don't think it's going to slow things. I think that we're in the in a trough right now of people that rush to move forward and then when they could and they're in pause mode. And then what's going to happen is we'll figure out ways to get them back on the fence through some of these other tools. I think they're all going to be viable. I think that people that are coming out with new and unique financing options are really making sure that their eyes are dotted and their Ts are crossed on the tax side of it. And that's been -- I'd say that's been slower than the anticipated process. Did that answer your question? Hannah Velásquez: Yes, that was perfect. And then maybe just as a follow-up there. So we're hearing with 25D expiring, you're having new entrants, I suppose, in the competitive market, maybe more so on the TPO side. But can you just double-click in terms of what you're seeing out there? Are you seeing new TPOs enter trying to take advantage of the shift towards the leasing market? I know Tesla also joined the space. And so just what are you seeing from a competitive perspective? Scott Maskin: When you mentioned the T word, never count Elon Musk out for anything. He's got the bag -- the sheet that he can upend this entire industry on a moment's notice. But I think that as somebody who's been involved for 20-some-odd years, I have seen so many players, financial players kind of circle and circle and they take advantage of opportunities when they're there and then some get smacked down and then they reinvent themselves and they come back. I mean this all boils down to capital and available capital and available tax equity, right? So my understanding in the market, raising capital in solar is difficult right now. It doesn't mean that it's nonexistent, but I think that there's going to be a little bit of a lull. People still want solar, but the players, they -- some of them rename themselves, some of them retreat and then come back. I mean, I'm mindful of how SunPower -- and I'll say that SunPower exited bankrupt and now they're coming back in as a player. So -- and acquiring companies and stuff. I look at some other companies that were in the LMI market that just couldn't get the capital and imploded, right? So it's just like a big -- it's kind of a big vortex, a big circle. But ultimately, everybody comes back to the top, the same players that are involved in the space are the same players that keep rising. They may rename themselves. And listen, we're going to go back. Again, all that needs to happen as the cost of energy continues to rise, it makes every decision even easier and more palatable. James Brennan: I would add to that, that some of the newer tools that are becoming available based on some of the financial wizards in this market, prepaid leases, synthetic cash, you name it, there's a lot of buzzwords circulating around. But I love it. As long as we have the ability to deliver to these customers some sort of approach that works for them, even though the recent stupidity in Washington got at 100% wrong, we are pivoting to continue to survive. There are -- as Scott mentioned, there are companies in the industry that won't. The reality is New York and Hawaii are not alone with expensive power. Some of the target acquisition markets that we're looking at have even more expensive power than Long Island, which is hard to believe. But those folks are predicting higher revenue this year than -- next year than 2025 because their math continues to work in a purchase to own market even in the absence of the 30% federal ITC. Hannah Velásquez: Okay. And if I could just have one more follow-up question. On that point, maybe on a consolidated basis, how are you thinking about market growth in 2026? I mean you hear the consultants all over the place, right, talking about a 10% decline, best-case scenario and then up to a 20% to 30% decline all in just given 25D expiring. And as like a secondary question there, what's the latest you're hearing on FIAC? James Brennan: So the first part of your question was about 2026 guidance, and I'm not prepared to give that today. We do predict a lower-than-normal Q1, although as I say those words, I was recently pleasantly surprised from the New York team that they've already booked nearly 100 deals for January, which was surprising given the new set of circumstances that we're dealing with. And -- but by the way, that's the normal cycle of our business. Q1 and Q2 are always low in both New York and Hawaii for different reasons. And then Q3 and Q4, just like this year in 2025, Q3 and Q4 were cranking so much so that we're having trouble keeping up with all the work. And so I suspect that a very similar model will follow in 2026 as well. And Scott, do you want to... Scott Maskin: Yes. Just on FIAC, it's still happening, right? Every day, there's a change. Every day somebody is coming out with different -- securing different equipment, different ABLs and stuff like that. I don't think that anybody can securely say this is where it's going to be on January 1. It's just the guidance is just -- it's too fuzzy. I think that we will adapt. We will find products and cash is king also. Those with strong balance sheets are going to be able to get equipment and others are going to implode. And I just want to touch on what Jim said. I have often and the thesis of SUNAtion has always been a regional company. When the analysts say 10% decline, 40% decline, 50%, it's really unfair because you look at some -- you look at California, who's just a gut punch after gut punch. But last year, they blew it out of the door, right? Like with the exit of NEM 3. But North Carolina is growing. Massachusetts is growing. So it's hyper-regional markets and hyper-regional. I've always said we're very -- we're exposed by utilities and state politics. So find me a state that is really pro-energy, find me a state that's going to see a growth of data centers and AI. And I'll show you a state that it's going to grow revenue base because of cost of power is going to be so high. Operator: At this time, I would like to turn the call back over to Devin Sullivan. Devin Sullivan: Thank you, Bella. We do have a couple of questions from SUNAtion stakeholders that I'd like to ask on their behalf. And the first one to the management team is, what is your long-term vision for SUNAtion following the passage of the One Big Beautiful Bill Act? Scott Maskin: Thanks, Devin. And to whoever that shareholder is, thank you. I think harping on the diversification of SUNAtion as one of our strengths, maybe it's our greatest strength. For my shareholders and for our company, we see a rush to the end of the year. We're figuring out a lot of things for 2026 and moving forward. But we see the commercial industry really growing. We see the service industry growing. Residential is going to figure itself out. We've been through these cycles before. So I'm not too -- there's a lot of confidence. Sometimes things like this are also a good gut check. Where can we be better? Where can we be more efficient? And take advantage of that thing. And that's not just with OpEx. That's not just with employees and stuff like that. I mean over time, you kind of float and you look at your software stack and you look at all kinds of things that you spend money on as you're growing, growing and growing. And sometimes it's a good exercise to retool and reshape the company so that you can come back. It's almost like going into the corner of a price line so that you can come out punching after somebody flashes water on you. So I'm not concerned, overly concerned about '26 and '27 because we're in a good spot for it. We have a lot of different revenue streams. There's a lot of different opportunities out there to add revenue to the company, to the listing, to SUNAtion as a whole that may be in the energy field, maybe not, right? So those are the things that give me a lot of confidence moving forward into 2026 and 2027. And at 62 years old, I need those pearls to keep me going. James Brennan: Devin, I would add to that answer that just for clarification, revenue diversification has been our strength for a long time. The companies that we've seen that have failed over time are ones that have a single source of revenue, and you can name them off the top of your head, I'm sure. In our case, we went out of our way to have 6 or 7, hopefully, even more sources of revenue. So we have a residential revenue stream, commercial service, roofing. We actually do electrical work for some of our solar customers. We have community solar. And in the future, hopefully, if the moons align, we'll add HVAC and some high-efficiency HVAC tools that and so on. So that -- because as Scott mentioned, we'll see in the future a time where another part of our revenue stream slows down. That's fine. That's part of the cycle that we all live through, but we'll have a backfill from other revenue streams. Just like in 2025, the commercial team had lower-than-expected revenue. But I doubt that will be the discussion in 2026 because there's a ton of work that those folks are cranking through right now. Devin Sullivan: And actually, Jim, that's a good segue into our final question is, can you -- how would you describe the market for commercial in 2026? Scott Maskin: Yes. So I'll start with that one. I see that we've -- in New York, we positioned ourselves very well with national developers. We've always taken the approach that it's great to originate your own work. But I make money when trucks roll. Our shareholders win when trucks roll and money comes in. So I don't really care who sells the job, but we're really good at executing on those things. Because of that diversification with the national developers, we're seeing a big inrush in schools, institutional type things. And we're really, really well suited to execute on that kind of stuff. I'm not saying that traditional rooftop solar on an industrial building is going to go away. But we have a very strong pipeline, and that's going to be a major focus for us moving forward because, listen, that's kind of where the sweet spot is in the industry right now also at least until through 2027. So that's -- there's nothing d*** the torpedo's is full speed ahead on that kind of stuff. James Brennan: Devin, I would just add to that, that because we do a lot of work for these large national developers, and we do a pretty d*** good job at delivering on those projects, we are now getting asked or actually, we've been throughout the year being asked to do work in other states. So we historically have had an acquisition view on growth into new markets. But this is an organic view just simply because the commercial team does a good job of delivering. And then the next thing you know that national developer wants us to go into a different state because they have another project. And so that will definitely be some growth into next year that we'll see on the commercial side. Devin Sullivan: Thank you, both. That is our final question. So I'll turn things back over to Scott for closing comments. Scott Maskin: Well, thanks for everybody that spent a beautiful sunny Monday morning with us. Customers are happy. They're making money today because the sun is out in New York and soon Hawaii. I want to wish everybody a happy holiday season. Let's not forget what's important as we move forward, revenue and shareholders and business is important, but family first, and that's how we treat our business. So I wanted to thank everybody time and the confidence. And man, am I looking forward to that end of year report, okay? So thanks, Devin. Thanks, team. Operator: All right, ladies and gentlemen, that concludes today's conference call. Thank you all for joining, and you may now disconnect. Everyone, have a great day.
Operator: Good morning, and welcome to the McGraw Hill, Inc., Fiscal Second Quarter 2026 Earnings Conference Call for the Quarter ended September 30, 2025. [Operator Instructions] As a reminder, today's call is being recorded, and a written transcript will be made available in the Events and Presentations section of the company's Investor Relations website. A webcast replay of today's call will also be made available on the company's Investor Relations website. Following the prepared remarks, we will open the call for questions. I would now like to turn the call over to your host, Danielle Kloeblen, Treasurer and Senior Vice President, Investor Relations. Please go ahead, Danielle. Danielle Kloeblen: Good morning, everyone. Welcome to McGraw-Hill's Fiscal Second Quarter 2026 Results. Joining me today are Simon Allen, Chairman, President and Chief Executive Officer; and Bob Sallmann, Executive Vice President and Chief Financial Officer. During this call, we will be making forward-looking statements about the company. These statements are based on our current expectations and the current economic environment. Forward-looking statements, estimates and projections are inherently subject to significant economic, competitive, regulatory and other uncertainties and contingencies, many of which are beyond the control of management. These forward-looking statements are also subject to the cautionary statement that is included in our earnings release and the investor presentation. These are further detailed in our 10-Q and other filings with the SEC. Important assumptions and factors that could cause actual results to differ materially from those in the forward-looking statements are specified in our earnings release issued today as well as in our SEC filings. We will also refer to certain non-GAAP measures today. We believe that these measures provide useful supplemental data that, while not a substitute for GAAP measures, allow for greater transparency in the review of our financial and operational performance. In the earnings press release and the appendix of the investor presentation as well as supplemental files on the Investor Relations website, you can find a definition of these non-GAAP measures and reconciliations to the most directly comparable GAAP measures. For those who listen to the recording of this call, we remind you that the remarks made herein are as of today, November 12, 2025, and have not been subsequently updated. With that, I'll turn the call over to our Chairman, President and Chief Executive Officer, Simon Allen. Simon Allen: Thank you, Danielle, and good morning, everyone. McGraw Hill continues to shape education through innovation and AI-driven technology that personalizes learning experiences at scale, driving deeper engagement and better outcomes. Fiscal second quarter results exceeded expectations, showcasing strength, resilience and the scale of our diverse portfolio, which serves the learning life cycle during the pivotal back-to-school season. This strength was underscored by fiscal Q2 revenue, which reached $669 million, our second best performance for this quarter in a decade despite a 2.8% year-over-year decline due to the anticipated smaller K-12 market. Reoccurring revenue grew 6.5% year-over-year to $422 million or 63% of total revenue, underscoring the strength of our subscription-based model. Digital revenue increased 7.6% year-over-year to $352 million, representing 53% of total revenue. In particular, our Higher Education business delivered exceptional results. Revenue expanded 14% year-over-year, while digital revenue grew 18.4% due to continued market share gains, Inclusive Access growth, enrollment favorability and realizing value-based pricing. Our trailing 12-month market share rose 160 basis points to 30% according to MPI data. The Evergreen content delivery model now available across more than 700 leading titles continues to resonate, reflected in a record high NPS score during the fall semester. The K-12 selling season met our expectations with continued solid performance despite the smaller market opportunity. Reoccurring revenue grew 3% year-over-year with share gains in Core Science, ELA and Math. Early momentum is building for ALEKS Adventure, our Supplemental Math offering for K3 students, positioning us for growth beyond the Core ahead of the major California Math opportunity in fiscal year 2027. We're already seeing positive early indicators for California Math with 2 large deals booked in fiscal year 2026. Our team also continued to deliver compelling profitability. Adjusted EBITDA reached $286 million in Q2, yielding a margin of 43%, up 60 basis points year-over-year. This reflects strong operating leverage and an expanding digital mix amid reinvestments that is enabling an exceptional pace of innovation. Our strategy, combined with our execution and forward visibility, gives us confidence to raise fiscal year 2026 guidance across the board, which Bob will detail shortly. At McGraw Hill, we focus on solutions that demonstrate proven efficacy. By integrating high-quality proprietary content with actionable student data and thoughtful pedagogy, we deliver meaningful learner outcomes. Having leveraged machine learning for over 2 decades, our AI philosophy centers on saving educators' time, strengthening student teacher relationships and personalizing learning. Our multilayered moat is built upon 3 elements. Firstly, our intellectual property. With 137 years of trusted content developed alongside our authors and more than 50 Nobel Laureates, our pedagogical-driven approach is held to the highest standards. Secondly, our proprietary data. We possess a deep understanding of the learning journey fueled by billions of student interactions across millions of digital users annually. Our solutions deliver structured learning progression through real-time insights and feedback built on evidence rather than prediction alone. And thirdly, our domain expertise. We have decades of experience helping educators and institutions integrate digital tools into curriculum. Our workforce, including former educators and technology experts, ensures solutions are grounded in pedagogy and structured learning methods that reflect classroom realities. Along with strong relationships, a trusted brand and a robust distribution network, this moat forms the foundation that allows us to deploy AI effectively across learning environments. While large language models serve as valuable information tools, education demands a structured learning progression supported by continuous student interaction and data to ensure true comprehension over memorization. Educators see us as a trusted partner, reflected in a recent survey we commissioned through Morning Consult with K-12 teachers and administrators ranking McGraw Hill as the education company using AI most effectively in its products. Helping teachers harness the power of AI to address specific student needs differentiates McGraw Hill from emerging AI-first entrants. Consider the student who is falling behind in math. Our AI-powered Supplemental solution, ALEKS, which spans K-12 through Higher Education, uses machine learning to pinpoint knowledge gaps and deliver targeted content. It helps improve pass rates by 20% according to a recent Clemson University case study. ALEKS Adventure is our recent addition for K3 Math, which is gaining traction. We are also optimistic about the global launch of ALEKS Calculus, unlocking $100 million in TAM. Now consider the fifth grade teacher struggling with administrative tasks and lesson plans. McGraw Hill Plus simplifies workloads and provides real-time insights into student proficiency, enabling targeted instruction. Available in math in 10 states with 2 more states coming online next fiscal year, we experienced a 67% increase in the number of districts that accessed McGraw Hill Plus this school year alone, along with rising utilization rates. ALEKS and McGraw Hill Plus are primed to expand in the multibillion-dollar Supplemental and Intervention market, where we hold only 5% share today. We remain very enthusiastic about Gen AI and continue embedding it into our solutions to enhance learning experiences and to support educators. AI Reader is a prime example of how we scaled a proven tool across our portfolio. Launched last spring, AI Reader encourages Higher Education students to actively engage with content until concepts are fully understood. 1 million students are engaging with the tool and 11 million learning interactions were generated in Q2 alone and accelerating. During back-to-school 2025, we expanded AI Reader, embedding the tool in 600-plus Connect titles as well as within our First Aid Forward solution for medical students. Additionally, we recently introduced 4 exciting new AI-powered solutions to enhance our portfolio. Firstly, Sharpen Advantage transforms our popular college student study app into an AI-powered enterprise solution focused on academic success through real-time faculty dashboards to track progress, address learning gaps and create personalized learning study experiences. Underpinned by our content, Sharpen Advantage offers a responsible alternative to generic chatbots institutions can trust, unlocking significant growth opportunities beyond our Core. Secondly, clinical reasoning leverages our evidence-based content and introduces virtual patient interactions to prepare medical students for real-world clinical care, positioning us for incremental digital growth. Thirdly, Writing Assistant provides real-time personalized feedback to students, fostering skill development through self-checking and self-correction. We recorded over 130,000 interactions across 877 unique school districts nationwide in October alone. Fourthly and finally, Teacher Assistant gives K-12 teachers instant planning support, reducing prep time. It's currently available for California Math with the nationwide rollout to follow. We believe our writing and teaching assistant capabilities will enhance market share and retention, particularly in the larger upcoming K-12 market opportunity. In closing, we believe that our momentum is undeniable. Our market share is growing, user engagement is accelerating and our reoccurring revenue mix is expanding. Our business remains resilient with no significant impact from tariffs or proposed federal education policy changes. As you know, the vast majority of funding comes at the state and local levels with an immaterial portion of K-12 budgets tied to course materials. Now I'll turn the call over to Bob to discuss our financial performance. Robert Sallmann: Thank you, Simon. Good morning, everyone. Our fiscal second quarter results demonstrate the strength, scale and diversity of our business. We are delivering on our financial priorities, which are disciplined execution, reinvestment to fuel growth and continued gross debt reduction. Now let's take a closer look at our fiscal Q2 financial performance. Total revenue reached $669 million, down 2.8% year-over-year due to the anticipated smaller K-12 market opportunity, which was largely offset by the strength in Higher Education. First half revenue declined just 0.5% to $1.2 billion. Reoccurring revenue increased 6.5% year-over-year to $422 million, representing 63% of our total revenue in the quarter, primarily driven by digital revenue growth of 7.6% to $352 million. Higher-margin digital contracts continue to enhance revenue quality and predictability. Our remaining performance obligation, or RPO, surpassed $1.9 billion at the end of the quarter, which provides valuable forward visibility. Gross profit margin increased nearly 150 basis points year-over-year to 79.2%, supported by efficient operations, favorable digital revenue mix and outperformance in Higher Education. Adjusted EBITDA was $286 million with a 43% margin, up 60 basis points year-over-year, driven by gross margin strength and disciplined expense management amid continued growth reinvestment. AI implementation is enhancing internal efficiency and customer experience, reducing K-12 order processing times by 27% and automating 25% of service checks while our AI-powered content creation tools delivered strong ROI, recouping its initial investment in a year with use cases expanding, which should unlock incremental margin expansion over time. Now let's dive into our business segments. In Q2, Higher Education revenue grew 14% year-over-year to $213 million in the quarter. On a year-to-date basis, revenue was $395 million, also up 14% year-over-year. Reoccurring revenue grew 13.8% to $162 million, while digital revenue expanded 18.4% to $186 million. This exceptional performance was led by market share gains of 160 basis points, reaching 30% on a trailing 12-month basis. Inclusive Access sales grew a notable 37% year-over-year. It represents over 50% of our Higher Education sales and has been adopted by nearly 2,000 campuses. The majority of Inclusive Access growth continues to come from existing customers adding new courses, demonstrating the effectiveness of cross-sell within accounts and significant expansion opportunities within the 82% of institutions served. This is supplemented by the annual onboarding of approximately 100 new universities into the program, which becomes more impactful to growth in the coming years. These new Inclusive Access relationships typically take at least 2 years to fully scale. In other words, based on recent performance, we expect the activations for accounts landed in fiscal year 2026 to increase by 15 to 20x by fiscal year 2028. This is key to supporting visibility into our future growth runway. And when combined with innovations such as Evergreen, we unlock more avenues to support retention and drive takeaway opportunities to enable incremental market share gains. This performance reflects our successful execution of investment initiatives in recent years. In addition, we captured benefits from healthy enrollment trends and value-based pricing realization. I am incredibly proud of the team's outstanding performance with their innovation and dedication yielding differentiated results. In K-12, revenue was $359 million in the quarter, down 11.2% year-over-year due to the anticipated smaller market opportunity and lapping of exceptional capture rates in the prior year. First half revenue was $630 million, down 7.3% versus prior year. Reoccurring revenue increased 2.8% to $216 million with RPO of $1.4 billion, supported by multiyear procurement cycles and upfront payments, which provide strong forward visibility and the foundation for our return to growth in K-12 in fiscal year 2027. We continue to outperform the market and retain our leadership position in Florida science. Our National Science program is driving share gains in other states, along with investments that have bolstered our go-to-market coverage, which reinforces our optimism moving forward. While the Supplemental and Intervention market is also smaller, our integration with the Core and early success with ALEKS Adventure is encouraging. Pilots generated strong momentum in South Carolina's Math adoption, showcasing share gains in the K5 market. It's worth reiterating, we anticipated the smaller market in fiscal year 2026 due to the predictable school purchasing cycles. Proposed federal education policy changes have had no material impact on our business as 90% of district revenue is funded by state and local budgets. We believe we are well positioned for fiscal year 2027 opportunities in California Math and Florida ELA, among others. And our nationwide Emerge! pilot is progressing well ahead of the large California ELA opportunity in fiscal year 2028. Global Professional revenue was $40 million in the quarter, relatively flat year-over-year, while reoccurring revenue grew 5.4% to $25 million. Strength in medical and engineering offset the exit of nonstrategic print with ongoing innovation such as the launch of clinical reasoning expected to drive incremental digital growth over time. Finally, International revenue decreased 8.8% year-over-year to $50 million in Q2, a relative improvement from the double-digit year-over-year decline in Q1. The decline in reoccurring revenue also narrowed sequentially year-over-year to 4.8%. Digital growth in select K-12 markets has partially offset softness in Canada and timing in Spain. Moving on to our balance sheet and cash flow. We ended Q2 with $463 million in cash and $913 million of liquidity with our revolving credit facility undrawn. Net leverage was 3.3x as of September 30. We generated $265 million in cash flow from operating activities in the quarter. Working capital was largely impacted by the K-12 market opportunity and prior year expense timing. In October, we prepaid $150 million in term loan principal following September's repricing that reduced our interest rate spread by 50 basis points. Year-to-date, we've prepaid $542 million in term loan debt, resulting in over $40 million in annualized cash interest savings. Our disciplined capital allocation strategy prioritizes reinvestment and debt reduction. We remain committed to a net leverage target of 2 to 2.5x and to strategic tuck-in M&A. We will pursue incremental debt reduction over the remainder of the fiscal year, leveraging cash flow from the business, which has been bolstered by cash tax savings from new tax legislation, and we'll remain opportunistic on the capital structure. Looking ahead, based on our strong first half performance, RPO visibility, sustained share gains and favorable enrollment trends, we are raising our full year guidance. We now anticipate total revenue for fiscal year 2026 in the range of $2.031 billion and $2.061 billion, reoccurring revenue ranging from $1.504 billion to $1.524 billion and adjusted EBITDA between $702 million and $722 million. Unlevered free cash flow is expected to slightly exceed the low end of the 50% to 100% adjusted EBITDA conversion range, while CapEx and product development as a percentage of revenue remains unchanged. Our Q2 tax provision was positively impacted by recent changes to federal tax policy and is expected to lower our fiscal year 2026 tax liability below the previous $30 million to $50 million range, both on a cash and GAAP basis. Finally, a few modeling items. We expect revenue seasonality trends in the back half of fiscal year 2026 to be relatively consistent with our historical average. Stock-based compensation expense is expected to be $1 million to $2 million in both the third and fourth quarters. Total interest savings are expected to be approximately $5 million in the second half of the fiscal year, and we expect approximately $6 million of debt extinguishment in Q3. For the fiscal year 2026, we expect our GAAP effective tax rate to be approximately 15% to 20% and our marginal non-GAAP cash income tax rate for the incremental changes to book income to be around 18%. We are proud of our performance and confident in our strategy. Higher Education's outperformance is notable, and we are well positioned for K-12 growth in fiscal year 2027 and beyond. Operator, let's open the call up for questions. Operator: [Operator Instructions] Your first question today comes from the line of Ryan MacDonald from Needham. Ryan MacDonald: On a great quarter. Simon, I wanted to start with Higher Ed. Clearly, an excellent performance within that segment of the business. Can you just kind of break down a little bit further for us sort of the mix of benefit from sort of enrollments? I think the data is showing about 2.4% enrollment growth for the current fall semester versus sort of execution and share gains? And then on the Inclusive Access component of that, impressive growth there. Can you just give us a sense of sort of the durability and runway for growth within Inclusive Access still? Simon Allen: Yes. Thank you, Ryan. It's good to hear from you, and thanks for a great question. And yes, we are incredibly pleased about our Higher Ed performance this quarter. I think 14% growth comes primarily in a big time way actually from taking market share. We've taken it from all our competitors. You mentioned the enrollment. I think enrollment is predicted right now. It's very early, but maybe 2%, 2.5%. We've grown massively more than that. And we're taking share from everybody. It's all around our execution. You've heard me say this so many times on these calls, but it really is true. The quality of our execution is why we win out. The product delivery, the fact that we understand what our customers need to see, how we can utilize AI and what we deliver and prove in a very efficacious way why we've done well. And then also our go-to-market teams are truly the best in the industry, in my view. And I think the performance justifies that comment when you look at, again, retention rates that are growing substantially through what we've done with our market share gains. All of the competitors that we're taking share from across every discipline on the college campus, we're seeing record NPS scores through this back-to-school period, and I think best of all, for us to now get to 30% market share. And if you remember, if you go back a decade, we were at barely 21%, 21.5%, Ryan. I mean it was way lower. We've grown now to 30%, 160 basis point growth year-on-year. And we're very proud of that. The last thing I'd say is that when we look at innovations like AI Reader, this is the product, if you remember, we launched a couple of quarters ago. And it's really proven a tremendous retention tool for us. We're seeing over -- it's actually -- I think we quoted 11 million interactions at the end of Q2. I can tell you through October, it's about 20 million now in terms of reader interactions. And we're just growing that month by month as students see the value and professors see the value of what that can give students to really help them in their class and help them succeed. So the last thing I'll say is, well, you mentioned Inclusive Access. Again, we've been telling our investors about that for the longest time. It's open to everybody. We recognize the value of it first. We continually grow every quarter our business through IA. It's a wonderful business model. And the land and expand that Bob talked about earlier is really true. This is where we're seeing the huge benefit of that. And I think when I look at the new solutions that we're creating with products like ALEKS Calculus, that's going to give us another $100 million in untapped TAM, what we've done with Sharpen and Sharpen Advantage as we look at building an institutional AI-driven product. We really are understanding what faculty want to see, how we can help them utilize AI for benefit and for absolute gain in student performance and outcomes. So let me -- Bob, let me pass on to you a bit because I know you love the Inclusive Access modeling when you look at the land and expand. So maybe you can help the final part of Ryan's question. Robert Sallmann: Sure thing. Thanks, Simon. Ryan, I also -- before I jump into that, I do want to highlight the National Student Clearinghouse data you quoted as preliminary, we've seen changes from that from our initial print to subsequent prints. So I just want to caution you that, that 2.4% you quoted is preliminary -- but within that, you should also note that the 2-year and community colleges has higher growth rates. We over-index there relative to the general market. So we're seeing enrollment slightly higher than that 2.4%, but it's worth noting that it is preliminary. And then jumping into the Inclusive Access model, we highlighted this, just the sustainability of that. We have added 100 new logos, new institutions annually. So clearly, there's a lot of runway for us to continue to land, but more impactful is that expansion. So as we land those institutions, we see 15 to 20x growth over the first couple of years. And then you'll get continuation of growth. So when we think about sustainability, lots of runway there. We're very excited about it, and we're looking forward to continuing to talk through that. Ryan MacDonald: Awesome. I really appreciate that. And maybe just a follow-up in terms of K-12. Kind of great to hear some of the commentary around California Math and in Florida as well. Can you just remind us what you're seeing with California Math and Florida ELA right now in terms of performance? And then how that -- or what sort of level of confidence that gives you as we go into, I think they call it year 1, but the second sort of tranche of that funding in fiscal '27? Simon Allen: Yes. Good question. And Ryan, apologies for the longest answer you've ever heard to Higher Ed. But thank you for bringing us into K-12, where we are equally excited about our potential. And you know and everyone knows that this year is a smaller year in K-12. What is really encouraging about FY '27 as we look ahead, and we're obviously not going to give any guidance just yet. We'll wait until the end of our fiscal year to do that. But what is really encouraging is the well-known fact of an additional $300 million TAM in that market. It's roughly 10% more in '27 than '26. And as you say, that's driven by California Math. It's also driven by Florida ELA and Texas Math. There are a bunch of different opportunities coming out for FY '27. Where we are encouraged is that we've already had good successes in California at the very earlier stages. And it's all about the suitability of our product. We have to make sure that as we create our material, we understand completely the state standards required. We make sure our pedagogical delivery of our products just fits at the right learning age range that is there. And then, of course, we're supplementing all of our Core material with McGraw Hill and of course, ALEKS that you know very well. So we're very, very bullish indeed about next year. Bob, do you have anything to add on specifically on California or Texas, for Ryan? Robert Sallmann: Yes. I think the one thing that we are excited about is being able to supplement in Supplemental/Intervention and having bundled solutions as we enter into that market. So again, as we think about that portion of our business, which represents about 15% of the K-12 revenue, we really see a nice opportunity to bundle those offerings as we walk into those opportunities next year. Operator: Your next question comes from the line of Henry Hayden from Rothschild. Henry Hayden: We've seen kind of lots of concern across the sector around AI disintermediation, and we were hoping just to get some incremental color on how you would describe the competitive moats around the business or kind of in other words, what uniquely differentiates McGraw Hill's capabilities from Gen AI native new entrants? Simon Allen: Henry, thank you for the question. And just lovely to hear a familiar accent. And it's a good question because -- when you think of the issue around AI, I think there's been an enormous amount that's been underappreciated. We're just not yet recognized about McGraw Hill and our abilities to really make a difference and see AI as a massive real tailwind for our business. And we're only in -- of course, this is our second quarter earnings call, so it's new to everybody. But my hope is over the coming quarters, people recognize the real value and strength that AI gives to our business. And again, the tailwind that we're seeing, and we're seeing it across the entire part of our entire structure. When you think about what we're doing in Higher Education, we've talked a great deal about our products around AI Reader. We've talked a lot about what we've done with Sharpen Advantage, when you think about the institutional opportunity. We've talked about the ability for clinical reasoning in our medical business. And that is a significant upside for when you think about potential students learning and what they need to understand when they're going through their medical programs. And then there's ALEKS, and you've known for years that we've worked with ALEKS for now well -- really over 2 decades. And when you think about the ability for machine learning now to focus on Generative AI delivery for our Adventure for K5 as well now at the other end for ALEKS Calculus, all of these factors give us a substantial confidence. And we're seeing that in our customer reactions. We're seeing it in our financial performance, as you've heard. We're seeing it from our customers saying to us, we are using Sharpen and it is helping our students. We are seeing a massive increase in student learning and spending time on your great platform with AI Reader. Medical students are benefiting from clinical reasoning. So these are functional, efficacious products that we deliver. And because of our moat, Henry, we've got the strength of our 137 years, the trusted position that we have in the education community and really the reliability that we provide our customers with that level of trust. And they want to work with us and they want to understand how we can enhance the materials the way they teach through AI integration. So again, a long answer, but it's important to me and to all of us that I think the world at large understands just how beneficial this is for McGraw Hill because we can absolutely improve learning outcomes the way we've integrated AI. Henry Hayden: Yes. It's very helpful. And then just as a follow-up to that, we've heard from some of your peers around kind of the increased cost to store and leverage data, which has been made AI ready. How would you think about the margin outlook as data becomes a more substantial part of your offering? Simon Allen: Good question. We're beginning to measure compute cost right now. In fact, we've done that for a while. Bob, I'll pass that one over to you if you've got some additional. I know we don't exactly give too much detail, but we do have an answer, I think, to Henry. Robert Sallmann: Yes. And Henry, as we think about AI, we ultimately see this as margin expansion over time. When we've talked about the use of Scribe, which reduces our cost in certain use cases by 60% and time to market by 50%, we're able to reduce our overall cost to build product. So as we think about that cost to serve AI, we're able to offset that by driving cost reductions in our product and platform development. So we ultimately see this as margin expansion over time. Operator: Your next question comes from the line of Stephen Sheldon from William Blair. Stephen Sheldon: Nice results here. Maybe I wanted to dig in a little bit more on the K-12 side. I guess, can you just provide some more color on underlying trends there and specifically how newer product traction is progressing relative to expectations as we think about ALEKS Adventure, MH Plus other things. And then just as we think about the benefit of some of these newer products, I know some are incremental revenue opportunities, but how much could they help you as you pursue some of these larger Core contracts? How much could these new product capabilities and bundling help with positioning to win those large contracts? Simon Allen: Yes, it's a good question. I'll kick off and then Bob, I'll pass to you as well to add any information that I've forgotten. But what I would say, Stephen, is that the -- and you mentioned a couple of them. The products that are making the big difference, ALEKS Adventure will give us new growth going forward. It's already beginning. It's been out about a year, give or take. McGraw Hill Plus, we've extended. It's been in 10 states. We've extended it and we're about to get into 2 more. Each one of those show substantial increase in teacher intervention and teacher activity. And the reason is that it's giving such a great level of data and detail on the student performance that teachers find very helpful. But a key part of your question is what does this do to the Core? Because you know that we're a very, very successful player in Core. The market opportunity is much bigger next year. But it isn't just that for us, the Supplemental/Intervention space where it's really 15% of our business, but we have less -- around 5% market share. That's where the real opportunity for growth comes. It's really building on the Core successes that we've enjoyed, building on with ALEKS with our Math Core adoptions, building on the ELA adoptions with Actively Learn and Achieve3000. These are the tools and then all of them integrating McGraw Hill Plus. These are the tools that give us great confidence for growth going forward to enable the market share growth to continue. Bob, you may have something else to say to that as well. Robert Sallmann: Yes. Let me add a little bit more color. So we have talked about in our prior quarter, winning in 8 of 9 markets. And so we've demonstrated that and what we're suggesting is that you'll see that over the next several years. And so what that means is while we're winning, we provide forward visibility in the next several years. These are multiyear contracts. One of the things I'll highlight is if you exclude the 3 large states, particularly Florida and Texas, where we had strong performance last year, if we exclude that and look at the remainder of the districts that we operate in, we're expanding share. We grew 200 bps. So we're winning at a greater rate. So we're winning across the market. A couple of other things that excites us. We've talked about being in 10 states for McGraw Hill Plus. Let me double-click on that and provide you some more insights as we talked about being in 10 states growing into 12, what does that really mean for our K-12 business? Again, McGraw Hill Plus is going to allow us to be very sticky over time. And so we look at it and 25% of our teachers using our Core Math products, Reveal, now have access to McGraw Hill Plus. That's nearly a 50% increase year-over-year. We've seen 4x increase in the unique users in McGraw Hill Plus year-over-year. And now we're serving over 10% districts have access to McGraw Hill Plus. So again, the importance of that is really driving that stickiness and retention over time. And then ultimately, the other big innovation we're driving is our new ELA product, Emerge! that will be coming into market, again, addressing California ELA in 2028. So again, really well positioned. The business performed and met our expectations in the period. We're really excited about how it positions us for a return to growth. Stephen Sheldon: Very helpful and good to hear. And then just as a follow-up, as we think about incremental spending plans, I guess, just given what you've seen so far this year, have your priorities changed at all where you're pushing the pedal more in certain areas of the business than others, especially as we think about product development and sales capacity across different segments. I guess just at a high level, where are you pushing the investment pedal more? Robert Sallmann: Yes. So first, let me -- at a high level, we're not going to be changing sort of the level of investment. We've highlighted that it's been 8% to 9% of our revenue. We'll continue to be at that level. Now of course, we reevaluate and redeploy where we're putting our dollars. And given some of the efficiencies that we are driving in product development, it's allowing us to accelerate the pace of investment in other areas such as some of the AI tools that we've recently released. Simon mentioned the 4 new products we brought to market. Again, the pace in which we're releasing things is allowing us to bring new products to market. But most critically, I just want to remind you that we do believe that all of this innovation will still allow us to continue to expand our margin. Operator: Your next question comes from the line of Steve Koenig from Macquarie Group. Steven Koenig: And I'll offer my congratulations as well on a really good quarter. First question would be, in thinking about your outlook for the second half, maybe preface this question by asking, how did you all do kind of relative to your internal expectations in the quarter? And in terms of raising that full year guide, how much of that is related to the Q2 performance? And how much of it is related to your outlook for the back half? And any changes in your method or assumptions on your guidance? Robert Sallmann: Sure. I'll take this one, Simon. With respect to our guide in the quarter, first, noting that Q2 is the most significant quarter for our business, it provides us visibility into both enrollments, share gains and otherwise. And most importantly, in our K-12 business, it provides us the RPO that gives us that clear visibility to the rest of the year. So when we put together our guide, I'll walk you through some of the BUs that how we're thinking about it, but it's also important to note that we've narrowed the guide from prior quarter to current, meaning the revenue guide we had from high to low $60 million range, we've now narrowed that to $30 million. And then on the reoccurring and EBITDA, we were at $40 million in the prior guide. We've taken that down and narrowed our guidance to $20 million. And again, that is driven by the fact that we've moved through that seasonally important Q2 and now have greater visibility. With respect to the portions of the business that met expectations, I would say that K-12 was certainly in line with our expectations. We noted that we were having share gains. Our products are well positioned. We anticipated some of those share gains that we delivered and the overall market size being smaller is coming to in line with expectations. Where we performed slightly better, and I'll highlight that would be in Higher Education. Obviously, the share gains, we're very pleased with the continued share gains and the magnitude of those share gains and enrollment was slightly higher. And again, we talked about it on Ryan's first question about what the Clearinghouse is providing. We see it slightly above that, which is providing us a little bit of a tailwind. When I walk through for the full year, I think it's important to recognize that we have seasonality in our business. So first half being seasonally important, second half is smaller. That will then translate into a lower EBITDA margin on the lower revenue base. And then ultimately, I also think it's important to recognize that, that seasonality from first half to second half will also present itself more like fiscal year 2024 than fiscal year 2025. And it's important that I highlight that so your modeling considerations thinking about Q3 and Q4 phasing as 2025 had an outsized performance in K-12. So really anchor yourself back to 2024. And I think then as we think about that overall guide, we are very pleased with how we positioned the business and it's built on the success that we've had in forward visibility. Steven Koenig: Terrific. And if I may get in one follow-up, maybe building on the earlier question about internal investment, maybe expanding that to ask for your color more generally on your thinking on capital allocation here moving forward? Robert Sallmann: Yes. Sure. The first place that we always invest in is our organic investments. Those will always provide us with the greatest ROI. And then we remain very committed to delevering and our target of 2 to 2.5x, and that's demonstrated our commitment to this by the $150 million we paid down in October. Based on cash flow and where we see the business, there will remain an opportunity for us to further delever in the remainder of the year. We also balance that with tuck-in M&A., and the funnel today is very full. We're looking at smaller opportunities that we consider make versus buy, expanding the addressable market. We look at these opportunities. And so we think that there's a chance for us to continue to explore that, but nothing transformational at this point is in the funnel. Operator: Your next question comes from the line of George Tong from Goldman Sachs. Keen Fai Tong: You highlighted a strong capture rate performance in K-12 so far this adoption cycle. Can you share what capture rates are so far this year and how they compare to last year at the same time? Robert Sallmann: Yes. George, we're not going to provide visibility exactly on what those capture rates are. As you recall, that's coming off of our internal sales force data. But I will highlight when we look at that market, it's 200 bps higher than prior year, which is in line with our expectations. Keen Fai Tong: Got it. That's helpful. And then you talked about strong visibility into the K-12 TAM years in advance. Based on what you see today, how much do you see the K-12 TAM growing in 2027? Robert Sallmann: Yes. So that -- we've highlighted that the overall market is $300 million that we see as growing. And again, we're really well positioned as we think about the largest opportunity being that California Math. We're excited about the opportunity for us. Simon, I'm not sure if there's anything else you want to add on that. Simon Allen: No, just exactly. And we've mentioned this earlier on, George, that the extent of the market growth next year is very encouraging for us. And you've seen it in prior years where the TAM is at a much higher level, we've done very well. And of course, we would expect to have the same level of growth and performance in the out years. And FY '26, as we've communicated very clearly, has always been a low year and you look at the '27, '28. And as you look forward, you can see the opportunity then, and we're excited about that looking ahead. Operator: Your next question comes from the line of Marvin Fong from BTIG. Marvin Fong: Congratulations as well on a great quarter. First question, I'd just like to follow up again on that enrollment data that we all are looking at. And I would like to attack it from the subject matter standpoint since that seems to be the other major change. Can you just talk about your -- do you over-index, under-index in subject matters like health and business are seeing strength, computer science a bit lower for understandable reasons. But anything in the subject matter trends that are beneficial to you? Robert Sallmann: Yes. It's a great insightful question. We certainly see that we have those disciplines that we see the highest growth rates, that is very favorable to us, business and other curriculum and science-related subject matter. So it does play out favorably to us. And again, I think that bodes well for how we're seeing our enrollment slightly higher than that 2.4% as advertised as a headline for undergraduate growth. Simon, I know you had something to add. Simon Allen: Yes, let me add a little bit to that because it's a good question, Marvin. We -- one of the big benefits, and I've been operating in, as you know, the Higher Ed sector for that will be 40 years in August. And the reason that we do so well is that we cover everywhere. So you look at the business economics disciplines, you look at the sciences, you look at math, you look at the humanities, social sciences, all of these areas, we're seeing growth across everything. And when you look at the tools that we create, AI Reader covers every single discipline, every title, every subject. You think about what we've done with Sharpen, we focus on every single subject again. And that's why it's the breadth and the scale that we have that give us so many advantages, particularly compared to some of the smaller start-up type companies. And that breadth of coverage is really -- it means that we're seeing very strong double-digit growth across all of those subject areas. Some are higher than others. But when we look ahead, it's the scale and the breadth of product that we have that gives us such a strong advantage. Marvin Fong: Fantastic. And a follow-up question, if I may. On international, we don't talk about it as much, but the trends are improving. You called out Spain as well as Canada, some moving parts there. Could you just kind of discuss what you're seeing there? And how should we be thinking about trends both in the back half and maybe even next year? Simon Allen: Yes. And it's a good one. I mean when you look at, as Bob indicated earlier, the decline, we expected to decline this year. And I think in areas like Spain, where we've got a good K-12 business, it has a similar cycle coincidentally this year to the U.S. So that's clearly a lower year for us in Spain. That's timing purely. Things will change next year. When I look at what's happening in Canada, we benefited from the enrollment surge in Canada over the last few years. And now, of course, enrollments in Canada have significantly reduced. But what I look at there more than anything is our market share growth. It's [Technical Difficulty] if the overall market is in decline, but how are we doing? And this is what makes me very happy because Canada, our share, we've grown over 3.5% this year. We're looking at about a 27%, 27.5% market share position in Canada. It was barely 15% in 2019 before COVID. So you're seeing really good growth in share, again, where the opportunity is for excellent product and great go-to-market. We succeed, and we've done that very well in Canada. We've also seen the upside in Latin America. We continue to do well there with our School and Higher Ed business. And also the GCC market in the Middle East is very, very strong for us. So it's a good position that we're in. We're looking forward to continuing growth as we go forward. And I think it's important that we focus on those markets where we know growth can occur. Operator: Your next question comes from the line of Toni Kaplan from Morgan Stanley. Toni Kaplan: I wanted to ask another question on Higher Ed. Really strong performance this quarter there. You talked about the share gains getting to 30%. And obviously, this is off the back of Evergreen being launched. And I imagine that, that is helping contribute to that stronger retention and perhaps salespeople being able to focus more on new business. And so I was wondering if the success you're seeing is related to that platform shift or if there are other -- is there anything content-wise or otherwise that is contributing to that as well? Just wanted to understand the sustainability essentially of the Higher Ed share gains? Simon Allen: That's a very insightful question, Toni. Thank you. I would say it's across the board is the reason that we're doing very, very well in Higher Ed. Yes, Evergreen, and that's unique to us, as you know, that we launched about a year ago. Now it's over 600 titles. We're seeing tremendous retention with that and faculty are just appreciating the ability to be kept completely up to date as they're thinking about their courses. And it's also new products that we launch. It's products that we're looking at with ALEKS Calculus, which is a tremendous additional TAM opportunity for us in Higher Education. What we've done with Sharpen at the consumer level, but then particularly now Sharpen Advantage at the institutional level gives us a great deal of excitement. Then there are new content. Of course, we always look at our authors in higher education, and we commission new content and new material. That's something we're very, very proud of. We have various new courses and titles that we launch and we release through our Connect platform. It's very, very significant. And I think the sustainability for us is proven by the last number of years of our growth in Higher Ed, up now, as you say, to that 30% market share. And we feel extremely bullish about our potential in Higher Ed, and we appreciate the question. Actually, it's a very good way to pose it. Toni Kaplan: Great. And then wanted to ask about pricing. Typically, I think you're getting more of your growth through share gains, maybe some from enrollment, et cetera, and price has been less of a factor. And so I think last quarter, you mentioned you were taking price increases at a higher rate than originally planned. I was hoping you could talk about if that's still the case and if you're seeing pushback from customers to that or with your new content and platforms, maybe they're not pushing back because of the value add that you're providing. And so I wanted to understand the pricing dynamics going forward? Robert Sallmann: Sure. Thanks, Toni. Yes, from a pricing dynamic, as we've mentioned before, we apply a value-based pricing model. You highlighted some of the value adds that we've been putting in place. We have not been seeing any pushback around our pricing. The price realization has been inflationary levels, which is now in line with what we planned for in the quarter. So we're realizing the price that we planned. Operator: Your next question comes from the line of Jeff Meuler from Baird. Jeffrey Meuler: How are you viewing the mix of K-12 opportunities in 2027 by state and subject? I guess, for you, do they play to your strength to an increasing degree at all? Simon Allen: Bob, I'll let you run into the detail there. But I mean, state by state, as you know, Jeff, we've got substantial opportunity as we look at FY '27. I don't know if we want to get within California, we've talked about that. We've talked about Texas and Florida ELA. Bob, I don't know if you want to get into any more detail. It may be a bit early as we think about that. I know you want to give guidance there as we get to the end of the fiscal year, but you may have comments to make? Robert Sallmann: No. And I think we -- in our prepared remarks, we highlighted the fact that we're preparing for the larger opportunities in ELA in '28 and then in '27 being Math. So we're well positioned to play to our strengths as we think about the market opportunities in the next several years. And again, from a subject mix, strengths reside in ELA and Math and our new Emerge! products. So we're well positioned, and I think that will benefit us over the next several years, that overall mix in the K-12 market. Jeffrey Meuler: Got it. And then lots of good AI anecdotes and how it's positively impacting your business and you continue to take share. On the emerging AI-first entrants that you mentioned, Simon, where are you predominantly seeing them? Is it more on the Supplemental or Intervention side? Or are they starting to come into the RFP process for Core curriculum or not? Simon Allen: Good one. I would say it's coming at the -- more at the RFP, yes, but I think increasingly, as we talk to teachers and we talk to school districts, that they understand the added value that we can provide through our Supplemental/Interventional tools. Some of them, though, are now requiring that they want that continuity. If they're using Reveal Math, let's look at a math tool that captures those students that may be underperforming. So of course, we have ALEKS. When we look at our ELA business with Emerge! that we just launched. And as we think about '27, '28 and beyond, that's when teachers are saying, "Well, listen, we need writing tools and writing instruction tools to aid in our ability to assess students." Then we provide what we've just launched with Writing Assistant. And I think it's now becoming an opportunity for us to really extend our potential with that growth by providing complete solutions, not just in the Core, but also in Supplemental. Operator: Your next question comes from the line of Faiza Alwy from Deutsche Bank. Faiza Alwy: A follow-up on the Higher Education segment. There are some concerns around future enrollment trends as we look ahead over the next, call it, 3 years because of what's been called the demographic cliff. And you alluded to just the fact that you've seen higher enrollment relative to what we might be hearing from the industry. So hoping you could expand a bit more around that, just taking a step back around where you have higher exposure and how you're thinking about just outside of the market share gains, how you're thinking about enrollment as we look ahead and how that might impact your business, whether you think there's opportunity for greater pricing in the future? Or just any color there would be helpful. Simon Allen: That's a good question, Faiza. And I know we're running low on time, but I'll start, Bob, and if there's any more you want to add. I would say, Faiza, that there is always pricing opportunity, of course. The enrollment issue is -- and I think the demographic cliff is somewhat overstated as it relates to our business because the average age of our student customer is in the mid- to late 20s. When you look at the amount of business we have at the community college level, those students are often very often in their 30s and 40s. So I would say we're less concerned about enrollment issues in that way. The key element for us is this TAM expansion in the products that we are now offering and the solutions that we provide. So we see growth that way. We don't see enrollment decline being a big issue for us because of the expansion and the market share opportunities that we've seen. And our ability to really serve customers, particularly with AI, that's what they genuinely need and they need our help. So we're seeing very strong growth. That will continue going forward. We need to keep innovating with new products, new solutions to enhance the TAM that we operate within. Robert Sallmann: And bottom line is we'll continue to grow regardless of enrollment. I think that's an important takeaway. Faiza Alwy: Understood. And then just a follow-up on the K-12 segment. You alluded to market share gains in that segment. And just to put a finer point on that, are you really referencing market share gains in Supplemental and Intervention? Or are you seeing market share gains in the Core relative to more established players? Robert Sallmann: My comment on the 200 basis points was largely around the Core. And keep in mind that, that represents 85% of our business. But we are seeing gains in Supplemental/Intervention, particularly as you think how we connect to the Core. And again, I just want to reiterate how well that positions us as we move into California Math into next year. Operator: Your next question comes from the line of Jeff Silber from BMO Capital Markets. Jeffrey Silber: I know it's late. I'll just ask one. I know you're not talking about fiscal '27 yet, but generally, what are you hearing about state budgets going into next year? Simon Allen: Jeff, it's a good question. And we're happy to run over. It's lovely to have so many questions. But we're hearing good things about state budgets. We're not concerned about decline. As you know, when you look at the budgeting process in K-12, it's very much a local and state-run activity. When you think about the overall percentage that -- of any budget, education budget that's given over to courseware and course materials, it's probably less than 1%. It's a tiny fraction of the overall number. So we're not seeing any concern around budgeting for next year and the years forward. And that's one of the reasons, one of the many that gives us so much confidence. Operator: Your next question comes from the line of Josh Chan from UBS. Joshua Chan: I'll keep it to one as well due to the time. I guess, could you talk about the runway that you see in Inclusive Access in Higher Ed and then kind of how that and share gains may both contribute to your kind of ongoing growth kind of beyond this year? Simon Allen: Yes. It's a great question. Bob, you go right ahead. You love Inclusive Access. It's become your favorite... Robert Sallmann: I do. I know we all do. Yes. And again, just that runway is significant for us in terms of Inclusive Access. And obviously, we're very impressed with the growth that we experienced in the quarter. But more importantly is that dynamic where we're adding 100 institutions per year, we're at 2,000. You can see long runway to continue to add over the years, more and more institutions and then that several year path where we continue to grow. So it is sustainable. It's going to continue to grow, long runway there, and we're excited about Inclusive Access. Operator: Your next question comes from the line of David Karnovsky from JPMorgan. David Karnovsky: Maybe just one on K-12. I think there's been some investor concern recently about federal funding and what impact that might have to the procurement process for Core or Supplemental. So maybe just can you speak to what you saw in the recent selling season or what you're hearing from districts on this? Robert Sallmann: Yes. The one thing I'll highlight is that we're not seeing any widespread delays or any changes in purchasing patterns. It's been consistent with our expectations. And I just want to highlight that we walked into the year with our expectation of share gain in overall market size, and it's played out as we've seen. So there are always pockets where districts are being cautious and controlled in their spend. That's no change, but we're not seeing anything widespread that would indicate that federal funding is an issue at the district level. Operator: And that concludes our question-and-answer session. I will now turn the call back over to Simon Allen for some final closing remarks. Simon Allen: Thank you, Rob, and thank you, everyone, for dialing in and bearing with us and allowing us to go over the hour. We do appreciate the questions. It makes our lives much more enjoyable. And I hope you get a sense from myself and from Bob and Danielle, whom you all speak to regularly, just how enthusiastic we are about our performance and how optimistic we are. It's a pleasure to beat and raise, and it's a lovely feeling to look at our performance and our market share growth across the businesses. And we really do feel very, very good about upcoming conversations with you. Thank you for your attention always, and thank you for your interest in McGraw Hill. We deeply appreciate your commitment to us, and we look forward to serving you and particularly our customers going forward. So thank you for dialing in, and we look forward to talking to you again in a few months. Bye-bye. Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Hello, and thank you for standing by. My name is Tiffany, and I will be your conference operator today. At this time, I would like to welcome everyone to the WaterBridge Third Quarter 2025 Earnings Call. [Operator Instructions] I would now like to turn the call over to Mae Herrington, Director of Investor Relations. Mae, please go ahead. Mae Herrington: Good morning, everyone, and thank you for joining the WaterBridge Third Quarter 2025 Earnings Call. I'm joined today by our CEO, Jason Long; our COO, Michael Chop Reitz; and our CFO, Scott McNeely. Before we begin, I'd like to remind you that in this call and the related presentation, we will make certain forward-looking statements regarding our current beliefs, plans and expectations, which are not guarantees of future performance and which are subject to a number of known and unknown risks and uncertainties that could cause actual results to differ materially from results and events contemplated by such forward-looking statements. You are cautioned not to place undue reliance on forward-looking statements. Please refer to the risk factors and other cautionary statements included in our filings with the SEC. I would also like to point out that our investor presentation and today's conference call will contain discussions of certain non-GAAP financial measures, which we believe are useful in evaluating our performance. These supplemental measures should not be considered in isolation or as a substitute for financial measures prepared in accordance with GAAP. Reconciliations to the most directly comparable GAAP measures are included in our earnings release and the appendix of today's accompanying presentation. Prior to the closing of WaterBridge's initial public offering on September 18, 2025, WaterBridge completed the successful combination of its legacy entities, WaterBridge Equity Finance LLC, WaterBridge NDB Operating LLC and Desert Environmental LLC. Third quarter key operational metrics discussed today are presented on a combined basis and financial results discussed today are presented on a pro forma basis in accordance with Article 11 of Regulation S-X, assuming the combination and the IPO had occurred on January 1, 2024, with the exception of cash flow statement items, which are presented at the standalone entity level in accordance with SEC guidelines. I'll now turn the call over to our Chief Executive Officer, Jason Long. Jason Long: Thanks, Mae, and thank you, everyone, for joining us this morning for our first quarterly earnings call as a public company. We are proud to have brought WaterBridge to the public markets in September, listing on the NYSE and NYSE Texas and the largest energy sector IPO since 2019. We look forward to capitalizing on our momentum with a proven business strategy, a strong balance sheet and an unparalleled infrastructure that is well positioned to meet the ever-growing needs of current and future customers. The market's belief in our business model and enthusiasm for our listing was demonstrated with an upsized offering that was significantly oversubscribed and priced at the high end of the range. As this is our first earnings call, I'll spend a few minutes providing an overview of our business model before turning over to our COO, Michael Chop Reitz, to discuss our competitive advantages and why we believe WaterBridge is well positioned to create significant shareholder value in the near and long term. WaterBridge is a leading integrated pure-play water infrastructure company with operations primarily in the Delaware Basin, the most prolific oil and natural gas basin in North America. Our infrastructure network is comprised of approximately 2,500 miles of pipeline and nearly 200 produced water handling facilities capable of handling more than 4.5 million barrels per day of produced water. Produced water handling is critical to enabling oil and gas development in the Delaware Basin. Every barrel of oil brought to the surface is accompanied by multiple barrels of produced water. And without efficient, reliable and environmentally responsible systems to gather, treat, transport and dispose of the water, production simply cannot continue. The scale of the Delaware Basin makes this challenge even more complex, enormous volumes, long distances, evolving regulatory considerations and the need for continuous operational uptime. Effective produced water infrastructure not only keeps oil and gas wells flowing, but also protects freshwater resources, reduces truck traffic and emissions and enables E&P operators to plan, invest and grow with confidence. It is one of the quiet but essential backbones of the nation's energy economy. Today, produced water handling comprises approximately 90% of our revenue derived from fixed fee contracts for the transportation, treatment handling and disposal of produced water. Our Water Solutions business, which includes fees received from sales of brackish water, recycled and produced water and our waste management business, which receives fees from disposal of industry waste, provide the remainder of our revenue. I'd like to conclude by saying that we're excited to bring this company to the public markets and begin the next chapter in our evolution. This step allows us to broaden our partnerships and align with public equity investors who share our long-term vision and commitment to disciplined growth. As the importance of produced water infrastructure continues to expand alongside development in the Delaware Basin, we believe we are exceptionally well positioned to drive value through scale, reliability and innovation. I'd like to now hand it over to Chop to talk through some of those advantages in a bit more detail. Michael Reitz: Thanks, Jason, and thank you all for joining us today. As Jason mentioned, we see several key advantages for our business over the long term. First, our infrastructure and produced water solutions are best-in-class with substantial scale, strategic location, high operational efficiency and fit-for-purpose measurement and monitoring capabilities. Second, our access to underutilized pore space supports new and continued produced water handling capacity, which we believe is key to supporting the expected future growth of produced water in the Delaware Basin. We have secured significant access to pore space through our relationship with LandBridge, an active land management company with more than 300,000 mostly contiguous acres in the Stateline region of the Northern Delaware Basin and a 64,000 acre AMI with Texas Pacific Land. Our relationships with LandBridge and TPL provide contractually agreed upon access to economic properly managed pore space as well as access to surface acreage for the continued build-out of our strategically located infrastructure network. Third, we provide industry-leading flow assurance. Our infrastructure network has built-in operational redundancies to provide customers with uninterrupted water management solutions. Combined with our access to real-time monitoring through our best-in-class control room and proprietary forecast management software wave, we are able to provide reliable flow assurance, which is a critical priority for our E&P customers. Fourth, we prioritize long-term relationships with a diversified customer base that includes some of the largest and most active producers in the Delaware Basin. Our fixed fee contracts typically span 10 to 15 years with acreage dedications or minimum volume commitments in certain cases and annual fee escalators tied to the CPI or similar inflation index for substantially all the contracts. Our customer base is diversified with no customer representing more than about 17% of revenue. This insulates us from volatility tied to individual customer activity levels and provides us with broad visibility into future activity levels, which allows us to forecast our business with a high degree of confidence. And finally, WaterBridge is committed to responsibly managing produced water. We work collaboratively with E&P customers as well as the Texas Railroad Commission, providing feedback as well as pressure and seismic data to contribute to constructive solutions for responsible long-term produced water management. Beyond supporting energy production, we are also actively exploring opportunities to expand our operations to serve customers across a wide range of industries, including water needs for data center cooling and beneficial reuse of produced water. Now turning to our activities this quarter beyond the IPO. We continued our commercial momentum, bringing the previously announced bpx Kraken project online at the beginning of the third quarter. This project features a 10-year minimum volume commitment from bpx and supports sustainable water solutions for their long-term development plans in the Stateline region of the Delaware Basin. The project is constructed to include the initial produced water handling capacity of approximately 400,000 barrels per day with the ability to increase that capacity to approximately 600,000 barrels per day. We also announced our final investment decision for the first phase of the Speedway pipeline project, which will connect oil and gas developments in the Northern Delaware Basin to out-of-basin pore space owned by LandBridge in the Central Basin Platform. This transformational project garnered strong industry demand from both new and existing customers, demonstrating the need for reliable out-of-basin solutions for growing New Mexico volumes. Construction is underway, and we expect an in-service date mid-2026. Before I turn things over to Scott, I just want to reiterate that we're excited to begin this journey as a public company, and we're looking forward to growing and creating sustainable value for our new public shareholders. Now I'll turn the call over to Scott to take you through some of our financial results in more detail. Scott McNeely: Thanks, Chop, and good morning, everyone. We're pleased to deliver a strong first public quarter. Combined produced water handling volumes for the quarter were 2.5 million barrels per day, representing quarter-over-quarter growth of 7%. Sequential volume growth was driven by new volumes coming online on our bpx Kraken infrastructure and continued organic growth across our existing contract portfolio. Pro forma revenue for the third quarter increased to $205.5 million, up 8% compared to last quarter, driven mainly by the previously discussed increase in volumes as well as by increased rates in the period. Pro forma net loss was $18.7 million for the third quarter and pro forma adjusted EBITDA was $105.7 million, with pro forma adjusted EBITDA margin of 51%. Regarding capital structure, we received net proceeds of approximately $673 million from our IPO, which were used to strengthen our balance sheet and position us for future growth. We ended the quarter with total liquidity of $547 million, including cash and cash equivalents of $347 million and $200 million of undrawn legacy revolving credit facility. As of September 30, we had approximately $1.73 billion of borrowings outstanding associated with our legacy entities. Since the end of the third quarter, we streamlined and optimized our balance sheet through an inaugural $1.425 billion senior notes offering that closed in early October, increased our liquidity -- increasing our liquidity and decreasing our annual interest and amortization expense burdens. Concurrent with the senior notes offering, we put in place a new revolving credit agreement, replacing $200 million in legacy undrawn senior secured credit facilities with a new undrawn $500 million senior secured revolving credit facility maturing in September of 2030. Our disciplined approach to our capital allocation framework is designed to balance our top priorities, which are: first, to build out our water infrastructure network and commercial relationships. This includes organic growth, which we have been able to achieve at very attractive multiples as well as highly accretive acquisitions and expansion opportunities. Second, to maintain a conservative balance sheet to ensure maximum financial flexibility over time with a long-term leverage target of less than 3x. And finally, to potentially return capital to shareholders, which could include dividends as well as opportunistic share repurchases in the future. A quick note on guidance before we take your questions. We anticipate providing 2026 guidance concurrent with our fourth quarter and full year 2025 earnings call. To conclude, we're pleased to report a strong first public quarter. With the expansion of our network, including the opening of the bpx Kraken pipeline and the advancement of our Speedway pipeline project, we are well positioned to support the growing demand for water handling in the Delaware Basin. Our business is underpinned by high-quality assets, strong contracts and customer relationships, attractive operating margins and predictable cash flows, which allow us to continue driving profitable growth and creating long-term value for our shareholders. Operator, we'd now like to open up the line for questions. Operator: [Operator Instructions] Your first question comes from the line of Theresa Chen with Barclays. Theresa Chen: Would you be able to provide some color on the level of demand you're seeing for Speedway for additional phases at this point? If you were to upsize the project, what would the magnitude be? And how much more CapEx would that require considering it would likely be pump work rather than looping? And what kind of build multiple would additional phases see? Michael Reitz: Yes. Thanks, Theresa. I can take the first part of that question. We're seeing a lot of demand for the Speedway project. We were oversubscribed on the first phase, which can get that capacity up to 500,000 barrels a day. The additional line, we can add an additional 500,000 barrels a day, and we're working with customers currently on what the final route for that will be. So I can't really speak to an exact CapEx number, but we do think it will be less than the initial CapEx for Speedway Phase 1. Jason Long: Yes. And Chop, if you were to think through the build multiple there, it's probably 3 or 4x conservatively speaking, with upside? Michael Reitz: Yes, that's right. Theresa Chen: Great. And maybe just zooming out a bit, looking at the broader basin and the forward trajectory for growth, can you provide some color on your view on the macro backdrop over the near to medium term, given the volatility we've seen in the forward price outlook, what have recent conversations been like with your producer customers? Have you seen any shifts in tone or concrete plans impacting demand for WaterBridge's services? Scott McNeely: Yes, Theresa, I'll take that one. I would say we're in a fortunate position with the bulk of our growth expected to come out of the Stateline in New Mexico to be much more insulated than the rest of the Lower 48. A couple of points I'd hit is first, and just to make sure we can level set on this, the expectations we set forward with investors and with you all during the IPO process was already very much calibrated for the current commodity price environment. So as it relates to go-forward expectations, [ no, call it ] meaningful shifts just based on more recent news. But second, you think through the growth expectations we are expecting to see over the next several years, it's important to keep in mind that the vast majority of that is going to be underpinned by minimum volume commitment backed contracts that are both coming online and ratcheting up over the next several years. And so there's a lot of certainty there that certainly helps provide some cushion relative to some of the concerns some other companies have voiced over. But I would say lastly, the real benefit of kind of water here, again, particularly in New Mexico, is it is critical to enable production. You're seeing water volumes grow at meaningful rates, and you're seeing the demand for our services grow even above those water growth rates as a byproduct of, one, recycling no longer having the ability to absorb the bulk of produced water growth in New Mexico; and two, so much of that legacy capacity along the Stateline starting to decline as a result of pore pressure issues. And so despite kind of the macro backdrop and despite a lot of the chatter, I think we're incredibly well positioned not just to deliver on the growth that we set forward during the IPO process but [ outdeliver ]. Operator: Your next question comes from the line of Eli Jossen with JPMorgan. Elias Jossen: Just wanted to start on the competitive landscape. I know we've seen a little bit of change there, but obviously, you guys have some of the best acreage on the Stateline. So I just want to get a sense of how discussions have gone with producer customers, more opportunities that you guys are seeing and what that landscape looks like right now? Scott McNeely: Yes. No, thanks for the question, Eli. No, I mean it's -- I would say, commercially, we've got an abundance of traction, obviously, wrapping up Kraken earlier this year, FIDing Speedway, also getting the Devon contract announced alongside their second quarter earnings earlier this year. So we've seen an abundance of success. And like I mentioned in response to Theresa's question, the demand is still very much there, and there are a number of producers really looking for those kinds of long-term large-scale flow assurance solutions, particularly for growth that's expected to come out of New Mexico. And so certainly, there are certainly others that are in discussions with a lot of these producers. But ultimately, in discussions with E&Ps, there are really 4 things that they're looking for. They want to make sure they're partnering with, one, prudent operators with experience; two, a company with the balance sheet and the ability to scale and grow alongside them; three, assets at scale today to be able to support large-scale development campaigns that we're seeing; and four, access that differentiated pore space that provides the maximum flow assurance with the least amount of risk. And typically, as we work through those 4 items, we typically come ahead of our peers as we kind of think through competing for business. Elias Jossen: That's awesome color. Maybe just on the contract rate outlook. I mean, I know we're seeing what I would expect sort of rates move up, especially on these large projects that you're announcing. But can you just talk about what the sort of new contracting and portfolio rollover looks like compared to the base business, how the rates, particularly in the Delaware compare and kind of the outlook there? Scott McNeely: Yes. I mean we're fortunate where we've seen a meaningful increase in rates in some of these more deals -- more recent deals that we've been able to wrap up. Part of that is a byproduct of underwriting just larger capital programs. And I think part of that is also a recognition that premium derisked flow assurance is worth a higher price than the rock bottom pricing that E&Ps were chasing 5-plus years ago. And so it's certainly going to continue to accrue to our advantage. And while we have, I would say, no material near-term contractual walls or kind of renewals that we're working through, as we see bpx Kraken come online, we see Speedway come online, we see Devon come online as well as a lot of these other opportunities that we're working through, you're going to see the average unit level revenue and operating margin on a per barrel basis increase across our company. Operator: Your next question comes from the line of Derrick Whitfield with Texas Capital. Derrick Whitfield: For my first question, I wanted to focus on the 1918 surface acquisition LandBridge announced earlier -- or closed and announced that earlier today. But specifically, to what degree could the pore space value of that asset on the East side be driven by WaterBridge versus industry? And over what period as you think through water disposal dynamics in the basin? Scott McNeely: Yes, it's a great question. As we mentioned earlier in discussing 1918 from LandBridge's perspective, I'll just repeat, I think a key point, which was this is an acquisition that, again, was designed to unlock new surface, to unlock new pore space contiguous to LandBridge's East Stateline Ranch, not just as a benefit to WaterBridge, but really to the industry and all the other players looking for access to pore space. Now as we kind of think through this through the lens of WaterBridge, there's clearly option value there for WaterBridge to access that surface and that pore space in the future if there's a commercial justification for that. And it's -- geographically speaking, it's close to some offsetting WaterBridge infrastructure. So we could access that pore space from WaterBridge's perspective at a fair economic -- on a fairly economic basis there. But as it sits today, no near-term plans for WaterBridge to construct infrastructure on 1918. Derrick Whitfield: Great. And then for my follow-up, I wanted to touch on just the beneficial reuse case and the opportunity you guys see. If I think about your prepared comments on beneficial reuse for both data centers and other industries, how large of a lift would that be for your organization? And could you operate that business with similar margins as it were tied to produced water disposal? Scott McNeely: Yes, I'll take this one as well, Derrick. This is an opportunity that we're very, very excited about. I mean, as we and others have spoke to, West Texas is certainly blowing up as it relates to its attractiveness for both power and for digital infrastructure. And as we all know, one of the real advantages is the access to water as it relates to cooling that. And it's not just that brackish water in the ground, but it's also the potential to redeploy produced water that's treated and used for cooling rather than being disposed of. So this is something that we're actively looking at. We're actively in conversations with counterparties on today from WaterBridge's perspective. We would certainly pursue or explore treating that ourselves as well as options with partnering with third parties. And ultimately, we would go with, I think, with what makes the most sense for both our business relative to the margins and the incremental lift in any capital requirements as well as weighing that with the demands of the customer. And so it hasn't been, call it, formally set as it relates to our approach on how to tackle that yet. But I think what's important to take away is, one, we're trying to be very thoughtful about the ultimate approach there; and two, regardless of that's done in-house or if that's done via partnership, we would expect a meaningful economic uplift for WaterBridge. Operator: Your next question comes from the line of Kevin MacCurdy with Pickering Energy Partners. Kevin MacCurdy: For my first question, I wanted to ask about the volumes on the Kraken side. How much of the initial 400,000 barrels a day is filled up currently? And what does that ramp look like over the next few quarters? And anything you could provide on the time line for Phase 2, which is the additional build-out of 200,000 barrels a day? Michael Reitz: Yes. Thanks for that question. So the initial capacity is probably taken about -- from a pipeline standpoint, about 50% to 60% by bpx depending on their development cadence. And we will -- we do expect that to increase materially over the next several years as those MVCs ratchet up. The additional 200,000 barrels a day that can be added to that system will not be added immediately. We will add that when the commercial need is justified. Kevin MacCurdy: Great. Appreciate that. And then as a second question, I wonder -- I mean, you kind of have a slide on this in your deck, but I wonder if maybe big picture, you can explain some of the big regulatory reforms that have happened in Texas as far as permitting and how you think that might be a tailwind or how WaterBridge is well set up for that? And then just do you have any view on how the regulatory environment could change for both Texas and New Mexico into the future? Michael Reitz: Yes, I'll take that one as well. So we've got a great relationship with the Railroad Commission as well as industry and working through a lot of these new permitting guidelines and practices. What you'll see is the way that WaterBridge has typically approached permitting is very similar to the way that the Railroad Commission is now guiding people to approach permitting. So we really haven't had -- it hasn't affected us negatively mainly because of our approach to spreading out our injection facilities and how we view the subsurface. So yes, we think that it's not going to affect us while it could affect others if they didn't have that access to vast amounts of undeveloped pore space like we do through LandBridge. And then just speaking to New Mexico, I really can't speak to that. It's a very volatile regulatory environment, as you may be aware, but Texas is favorable. And again, we have a great relationship with them. I don't see anything drastic happening there, though. Operator: Your next question comes from the line of Praneeth Satish with Wells Fargo. Praneeth Satish: Maybe just to elaborate on kind of the data center opportunity here. Like if we were to try to come up with a TAM, I mean, I assume the cost to treat water is going to be quite high, maybe supporting a tariff of over maybe $2 a barrel. Is that reasonable? And then maybe if you could just give us a sense of how many data centers are around your footprint that you could service? How would you get the water to these data centers? And any types of kind of rule of thumbs of how we should think about how much water is needed per gigawatt of capacity? And finally, just what's a realistic time line to see some of these deals get FID-ed? Scott McNeely: Praneeth, thanks for joining. Thanks for the question. Yes, it's a fantastic way to look at, and there's obviously still quite a bit that's moving around in the landscape in West Texas. I would say both the quantity of water that is used for a single, call it, 1 gigawatt facility plus power as well as the number of those that will ultimately be in West Texas is a bit of a moving target, although I would say clearly, we expect the demand to be very robust, and that's not just driven off of the successful commercial progress that LandBridge is making, but zooming out, it's really the progress that the broader industry is making in West Texas attracting those kinds of opportunities. We have heard different figures as it relates to the amount of water that's needed for a 1 gigawatt opportunity. That could be 100,000 to several hundred thousand barrels a day, and the range could be potentially even wider than that, just depending on the technology that's used. As you kind of alluded to, the ultimate rate that would be needed is going to vary depending on the amount of water as well as the level of treatment that's needed. So it's very challenging to say that the opportunity set today could represent hundreds of millions of dollars of EBITDA potential for us at WaterBridge because it's a fairly wide goalpost at the moment. But I think what's exciting is very few players out there have the infrastructure of scale, the expertise with water or the quantity of water, the kind of concentrations that we have to be able to deliver this type of solution. And I think as a result of that, we put ourselves in a very advantageous position as it relates to these kinds of discussions. And when appropriate and as we continue to make progress, we'll certainly circle back and share more of those details. Praneeth Satish: Got you. That's helpful. And then maybe shifting gears, if you could just talk about kind of your approach to securing MVCs for Speedway Phase 2. Will you aim for a similar level of commitments as Phase 1? And then how do you think about balancing MVCs versus overall returns? I know that you're saying the build multiple is very attractive already at 3 to 4x. But could it get even more attractive if you reduce the MVC requirements there? Just trying to think about that trade-off. Scott McNeely: Yes. No, it's a great flag, and it's a great way to think through the balance between underwriting a project with MVCs versus leaving ourselves some upside. When we think through the MVC volumes relative to the size, call it, the potential capacity of the system for Speedway, call it, 3 years in, you're looking, call it, 60% to 65% MVC driven, so -- relative to its capacity. So clearly, some ability to go out and capture incremental volumes that depending on the market at the time, could be at a meaningfully higher rate than those MVCs. And so the way we kind of balance it from our side is we take a look at a number of factors, including the customer concentration on the project, the scale of the project, call it the macro landscape, but call it the ability to kind of commercialize the asset with other E&Ps kind of in and around that area on the same set of assets. And we weigh all of those. And ultimately, we decide to scale the project and scale the MVCs to ensure we're providing effectively an asymmetric risk profile where our downside is protected, but there's as much upside as we can possibly capture. Operator: That concludes our question-and-answer session. I will now turn the call back over to Scott McNeely for closing remarks. Scott McNeely: Yes. Thanks again for joining us today on our first WaterBridge earnings call. To echo both Jason and Chop's comments, we're very excited about the success of the IPO and the ability to bring this company to the market and partner with like-minded investors who are excited about the growth of water infrastructure in West Texas and New Mexico alongside what is a very thriving oil and gas industry. And so we look forward to staying synced up. We are very much focused on transparency. So we ask if there are any questions, please feel free to reach out, and we'll get back to you as soon as we can. Otherwise, we look forward to touching base with you all with year-end results. Thank you. Operator: Ladies and gentlemen, this concludes today's call. Thank you all for joining. You may now disconnect.
Robin Martin: Hi, everyone, and thanks for joining this Valeura Energy webcast where we'll talk about our Q3 2025 results. We're recording the event today, November 17, 2025, and we'll make a replay available on our website and on our YouTube channel within the next day or so. My name is Robin Martin, I'm the Vice President of Investor Relations and Communications for Valeura. Joining me on this call are Dr. Sean Guest, our CEO; Yacine Ben-Meriem, our CFO; and Dr. Greg Kulawski, our COO. Running order for today's event, we will start with some prepared remarks tied to slides that you should see on your screen now. They're also available on our website, and then we'll proceed into a Q&A session. I'll guide us through that part of the call. [Operator Instructions] Before we get going, I will just draw your attention to our disclaimers and advisory slide and ask that you pay in particular attention to the forward-looking statements disclaimers here. So with that, I will hand the floor over to Sean. Go ahead, please. W. Guest: Hi, Robin, thank you very much. And thank you, everyone, for joining us here today. If you could just go to the next slide, Robin. So I'll start to kind of give a bit of an intro on how we look back at the previous quarter and really actually what's gone on in the past couple of years and then also looking forward. Greg will then talk to you about he Wassana project and some of our recent execution and then Yacine will summarize some of the financial highlights before I kind of bring it back and really talk about what we've seen recently in performance, share price and what we kind of see going forward in the company. So starting with it, if we look at growth. Now one of the things we announced this year was we did a large-scale farming with PTTEP, the national oil company of Thailand. In addition to that, what we've seen is we kicked off earlier this year the Wassana oilfield full field development, and those are 2 projects that are really focused on the sustainability and the long-term growth of the company in Thailand. And we're very excited about both of those, and I'll go into a little more detail on them. Financially, the good news is you would have seen in the press release that actually compared to a year ago or compared to last quarter, really, all of our operating financial metrics are up, which is very pleasing to us, especially with strong margins even at the current oil prices. And that's allowed that balance sheet to also continue to strengthen, which improves really our ability to fund opportunities and to look at other M&A opportunities. Now when you look at execution within the company, we reiterated a couple of months ago our guidance is intact. We did point at that time, too, that we expected the production to be at the lower end of guidance. However, if you've seen in the current release that the current production with the drilling that we've done has actually increased out a lot. So that production so far in November is actually higher than any of the quarterly averages we had in 2025 to date. And importantly, a lot of this is coming from our Nong Yao field, which is most profitable. Now we've also seen that OpEx is heading towards the lower end of our guidance, which, therefore, we're really delivering on that cost per barrel basis. And the final thing just to emphasize is, as we've taken over these assets, we've actually been able to, year-on-year, reduce the emissions intensity from the assets, and that's continuing this year. We could be targeting as much as a 30% decrease in emission intensity since we took over from a year ago. Just before I hit the last 2 points, I really want to point out that those first bits really point to what we see as an extremely successful country entry into Thailand. We managed to get a couple of good deals, but then we've built on that with execution of assets, delivering on the production, delivering on the reserve growth. And finally, as we pointed to there, the longer-term growth opportunities that we're seeing with the farm-in and the redevelopment of PTTEP that aren't just looking at 5 years, but are looking at 5, 10, 15 years or more. And then as we look forward, well, we did sign 2 deals in Q3, the PTTEP deal that we -- that I'll talk about in more detail. But also, we signed a deal to farm someone in at our Turkish acreage, which, while it is not a focus for us now is still a very high-value opportunity, and I'll talk just a bit about that at the end. But what I can tell you, and we talk about this quite a bit, but we remain very focused on transformational opportunities. There's a good suite that we now see coming to market, and we're actually very involved in those now. And then finally, the last one on value. Well, while we've come up a lot since a year ago, the recent kind of downturn with oil price and then the decrease that we've seen, actually, we see it as a very good time to look to buy into the company because even though share price has been coming down, the business has been delivering. Okay. Next slide, please, Robin. So I'm just going to talk about the PTTEP farm-in before I hand over to Greg. Now we announced this back in July where we'd actually farmed in with PTTEP who are the national oil company and the largest oil and gas producer in Thailand. Now this has significantly increased our acreage position and set us up very well for the future. But one of the questions we've got since really doing this deal was, why did PTTEP want Valeura to farm-in? They obviously are very large companies, significant production and cash flow and can have a capital budget going forward in kind of the tens of billions. But what really their CEO has said and what we're seeing continually being reiterated is they believe they're the natural gas operator in Thailand, and with the work that they've seen us do and our operations, they believe we're the natural oil operator here. And they see that, that combination together is a way of maximizing the value and the way forward on these blocks. So we'll earn a 40% interest in there. And what we like is it's bringing diversity. It's bringing gas opportunities to us, but it's also bringing this opportunity to have medium and longer-term growth through these blocks that can really step aside into the future. The other important thing to note is that these blocks really abut right up against the major producing gas fields in Thailand as well as some of our oil assets. And these type of tiebacks are really the highest economic returns you can look at in our industry. All of the main producing facilities, the pipelines, those are all in place and you're just tying back into those. So your CapEx per barrel, your OpEx per barrel tends to be extremely good and very high returns. Again, on the entry cost, we really came in for pretty well like [ ground ] floor. But the important thing I want to note, too, is that while the deal is not closed, and we do expect it to close immediately or in the near term, I did meet with PTTEP and the regulator last week and all the paperwork, everything is progressing. But while we're still waiting for that to close, both teams are already working together, both commercially and technically on driving forward the work in this block. So that in 2025, we've already seen all of the committed seismic data acquired, approximately 1,200 square kilometers as well as we've seen 4 exploration wells drilled with discoveries in those. And the important thing with that is there's existing discoveries already here, and the team is already working on the development planning to try and look for some FIDs in 2026 to take these forward. Next slide, Robin. And I really wanted to zoom in a bit on the G3 block and the more southern block because this is one that really emphasizes those immediate development opportunities, particularly in the gas, but I'll also speak to the oil opportunities that we see that can be tied back to our field. So when you look at the block immediately to the east of our block is actually the Bongkot Gas Field, and it runs all along the boundary there. And that field is producing just under 1 Bcf a day. So extremely large, a lot of gas coming out of there. Now in the middle, there is an existing 3D seismic area with a number of discoveries. And this is where a new discovery has already actually happened this year. And that's where the team are starting to work on progressing this towards an FID in '26, whether it's for 1 new gas platform or 2, but there's that opportunity here of proven gas immediately next to a producing gas field. So the team we have put in place -- they actually filed the production area application and work is going ahead on the technical work and commercial work to progress this in 2026. And and we really hope to have much more technical details on this as we head into early next year. But that's really the immediate work that can come, and therefore, we can see an exploration block going from exploration to cash flow within a few years. There is new seismic being acquired in the south, over more gas discoveries down there, which could follow at a later date. But then when you look up around our Nong Yao field, which is in the north, our most profitable oil field, we've identified an oil fairway that we think exists from the Nong Yao field up to an undeveloped field called Ubon in the north. Now while new seismic has now been acquired over that, and we expect to next year work to process that, work that into a suite of drilling prospects, the team already have 3D seismic from our block that extends in there and we have a suite of opportunities immediately to the east of the Nong Yao field. First, there's a number of prospects that actually are drillable from the Nong Yao-A platform could be immediately tied in once you drill those. And then the other one that's even very interesting is we have just to the north of that, we have identified on the 3D, a very good exploration prospect that could be tied back to the platform to even increase production. So it's just reiterating with this block that what we see is immediate tieback opportunities of very high value, but then you can continue to explore and develop these, add in more platforms and really get it what we might call a string of pearls here. And that exists for both the oil and the gas. So again, very exciting opportunity for us, and we really hope to be able to speak more on this quantitatively once you get this closed and progressed to FID in 2026. So at that time, I'll hand over to Greg to talk a bit about the Wassana development. Grzegorz Kulawski: Thank you, Sean, and hello, everyone. So let me continue with the growth updates. And really, I want to talk a little bit more about the Wassana field, which is our key organic growth opportunity in the operated assets. This is a project where we have taken an FID in May of this year on redevelopment, which involves installing a new central processing facility over the main part of the field, which you see marked in the red circle on the right. And so this central project has got very strong economics as we have shared before. And we'll see production out into 2043. And this production, just from the main field, is reflected in the reserves in the Wassana field, which now stands at post FID at 20.5 million barrels 2P. But the development concept also envisages satellite times, and we already have provisions in the design to be able to do so with risers in the main facility. So we've got these 2 areas with resources in the north and in the south of this license. Now in the north, we already have sufficient volume of resources and sufficient level of appraisal to really start satellite development. In the south, we've got some contingent resources already discovered, but we also see further upside potential with prospective resources. And that's why we are planning some exploration journey to capture those upsides in the south. And I guess what's important is that because this is a field which is operated by us and 100% owned by Valeura, it means that we've got quite a lot of optionality on the driving the optimum timing for FID and then bringing those North and South satellites onstream. If we go then to the next one, Robin, please? So just a brief update on project delivery, which is going very well. We are well on track for first oil in Q2 of 2027. And we've got now very high confidence on being able to deliver this project on or below budget. The main EPC contract is fixed price and is proceeding very well with other variations. All of the main equipment orders has now also been issued. And so there is relatively small amount that -- of scope that can be priced and the cost variation. So again, very, very high confidence on delivering the budget. And overall, we are, in aggregate, about 35% complete on this project. So going really well. If we then switch to the next slide, Robin. And moving on to the ongoing well delivery and production delivery, the most notable area of rig activity in Q3 has been our drilling campaign in Nong Yao field, which has gone really well. So we have finished the quarter at just under 12,000 barrels per day, equity production, having brought successfully a number of wells in the campaign. So we drilled 10 wells in total on Nong Yao in the quarter. Since then, the rig has moved across to the Jasmine fields where we are drilling now, and we have actually brought the drill some wells onstream in Jasmine. And so as a result of all of the activity, November to date, we are at 24,500, or maybe a little bit higher, barrels per day production. So going very well, and that's why we have reconfirmed our overall production guidance for the year, which will be coming within the guidance, albeit slightly towards the lower end. Now I think with that, let me hand over, Yacine, to you. Yacine Ben-Meriem: Thank you very much. Hi, everyone. Thank you for joining us today. As Sean mentioned earlier on in his opening, this is one quarter where effectively, from a financial operational metrics or perspective, everything seems to be on the green side. So allow me first to walk you some of the key highlights. And as usual, we'll start from an operational perspective, where we are seeing quite a good momentum, be it on the production side or even the cost side. So starting with the production, as you can see on the screen in front of you, we recorded around just shy of 23,000 barrels a day equivalent day in Q3. That's up 3% versus the same quarter in 2024 and 7% versus the last quarter. This uplift in production is predominantly driven by Nong Yao, the campaign -- the infill campaign drilling that we did this quarter in Nong Yao. And as a reminder for everyone, Nong Yao is our biggest and most profitable field. Not only did we see improvement as well in the production, but also importantly, in the lifting was, as you can see, it's up 14% and 22%, double-digit versus last quarter and the same quarter last year. This is just a reflection of better optimization and scheduling really of the lifting. And it allows us as well to kind of eat into some of the inventory, which is something that we keep track on. Although as a reminder, production and lifting do tend to move. Sometimes there is a gap between the two. Now moving on to the real -- in terms of pricing environment. Obviously, we are in a price environment that is quite different from the same period last year where oil price, Brent and our realized spreads were really hovering around the $80. For this quarter, we had a realized price of $72.1 which is significantly, which is up compared to last quarter of $67.9. I think what I'd like to draw your attention really here is the premium that we get to -- for our crude compared to historical numbers. And what we've been really pleased this quarter is that really that expansion in our premium versus Brent, whereas in the last quarter, we recorded just shy of $1. In this quarter, we recorded $2.5. Now talking now -- moving on to the cost. And I think this is one of those graphs that we really like to look at internally. And it just gives you an indication as to how our cost control kind of translate into financials ultimately. So this quarter, as Sean mentioned I think, earlier on, our OpEx per barrel have come down quite significantly, not just from last quarter, but the same quarter last year. So now we are just at $24.8. This is really a reflection of an ongoing effort throughout the organization in terms of trying to chip out cost at any pocket, and be it on a temporary basis or more structural in nature, based on ongoing exercise that we keep doing across the organization. So how does this translate in terms of financials? Robin next slide, please? So with higher production, improvement in prices and better control, as you can see, we've seen a significant improvement in terms of our financials, be it on the EBITDAX level or most importantly for us, I guess, adjusted cash flow from operations. I think notwithstanding the increase itself, I think what we're really quite pleased where there's really the margins, the improvement in margins. So looking at the EBITDAX, that's more than 400 bps point increase and more than 100 bps point increase compared to the last period. And on adjusted cash flow from operation, I think this is really where the numbers comes into play where you see an improvement in margins from 35% -- and it's a continuous improvement quarter-to-quarter where we go from 36% last year to 39% this year and now we just shy of that 50%. So for every dollar that we sent -- that we received, effectively, we're generating $0.5 from our cash flow from operations, which we then can spend on CapEx and importantly, strengthen the balance sheet and effectively for M&A ultimately. And how does this translate in terms of cash? So as you can see, our cash positions have -- both cash position and adjusted net working capital have almost doubled compared to last year. That's a 60%, and it's almost a 70% improvement from last year. And as we continue with generating cash from the business, considering it's a highly cash generative, we can see this balance increasing and giving us that solid fortress balance sheet that will enable us to not only invest in our business, but also to seek highly accretive and transformational deals, as Sean mentioned earlier on. Next slide, please, Robin. So how did we end up with the cash flow from operations? I think the key point I'd like to highlight here is that during this quarter, we've had some -- we recorded some SRBs, and that's really related to Thai III regimes. And as far as the corporate tax, this is really related to the -- some subsidiaries that are outside of Thailand. But within Thailand, we haven't recorded any PITA, as you might imagine, because of the tax consolidation that we've done. Next slide, please, Robin. So as I mentioned, with the strong cash flow from operation, we are able to invest in our business, first and foremost. And as you can see, during this quarter, we invested around $52 million, of which close to $16 million was within the Wassana redevelopment that Greg was alluding to earlier on, was talking about earlier on. On top of that, we did some spend a little bit on exploration, but this is really studies, no drilling at all. And we also recorded $3 million in other income and interest. Now with the change in working capital, our Performa for this quarter would have been $252 million. However, we've also spent money on NCIB and also putting the deposit for G1 and G3 during the -- when we signed the deal. And also, we've paid some small corporate tax payment again due to outside subsidiary, outside of Thailand and Singapore. So we end up with a quarter again with $248 million. Again, it's all about strengthening the balance sheet and allowing us to deploy that capital as we go forward. And I guess with that, I'll hand back to Sean. W. Guest: Okay. Thanks, Yacine. I just want to really reiterate and emphasize again how we look at capital allocation in the company. And the first thing with the assets that we acquired, so the 4 key assets. We talked about maintaining those net 20,000 to 25,000 barrel a day out to the 2030s. You can see the projects like Wassana and that, that we've been undertaking that are really pushing that out and extending that. We're also looking at exploration spend. Now again, we'll discuss more as we get into next year on how G1 and G3 funding come in there. But it's a good time to really emphasize that the gas developments are significantly less expensive than the oil or the cost for platforms that are much less. But that's really our first really event. We're looking for maintaining the production from the assets to deliver that cash flow as we then look to expand into other areas. After that, it really is value accretive M&A. We still see an extremely good environment out here in the region with the number of deals that are starting to come to the market to very few operators and really, there's quite a shallow buyer's pool. We've made those points before and we've talked to people about this. But I can honestly say that we are seeing a change now and that we're actually very actively involved in some transformational activities, which we hope we'll be able to talk about more as we get into Q1 next year. But the other point to really emphasize is we've said, the promise we made in '24 when it came to returns was if we, as a company, went through 2024 and we're getting to the latter half of the year, and we were building cash and we were not seeing the opportunities in the near term, we would put in place some sort of share buyback or return to shareholders. If you put that in place, we've had that in place during the past year, and we've actually reduced the share count in a mild amount as well as taking out a number of dilutives. But the thing we've said to people and say, we asked this, this year is that as we go through 2025, as long as we are still delivering the cash flow, and we have a very strong balance sheet capable of M&A, if we got to the latter half of the year, then we would also look for ways to return more of that money. Well, with the deals we currently see, we do not expect to see that we would be doing any large return money to shareholders. There's a line of sight on some good opportunities that we're very actively involved in. And that remains our primary focus is delivering growth. Okay. Next slide, Robin. And I just want to really look back as we come near the end here, the past year. Now obviously, when you compare share price back to a year ago, we're still up over 50% in that time, which is great. But the disappointing thing is that we've seen the slide in recent months. So we had good strong delivery as we really got up to that PTTEP farm-in, which jumped this up. But since that time, yes, there's been some pressure on the oil price, but in actual fact, our assets have still been delivering. This is a period where we've delivered on the production growth, and which we've delivered on the free cash flow as well as if you look at other news, like being ranked the #1 growing company in Canada. And I'd like to keep emphasizing, that's not in the energy industry, that's across all industries, and we announced that Turkey joint venture farm-in where we'll see some activity there to try and realize some of that loose tie-up side. So to us, this has been a bit of a frustrating time as I'm sure it has been for some of our shareholders, but we continue to deliver on execution, and we hope that in the end that's the right thing that we continue to see the share price turn there. So in many ways, it opens up a good buying opportunity, especially as we start to look at the coming months, where we see some catalysts could be coming in new business. I think people are really looking for us to be able to close that G1/G3 deal. We see no risk in that at all, but we do appreciate that until those are solidified that the market can sometimes be nervous about them. And then as we get into the first half of the year, start to really quantify a bit about going towards an FID on those gas developments. And as we've had for the past couple of years, we expect a good reserve number when we actually release those numbers in February. So a good suite of opportunities even before you consider that we actually have some activity going on in Turkey at this time. So just before I move off that, maybe just a time to talk a bit about that Turkey farm, that Turkey farm-in. Now we heavily changed our shareholder base. There will be a lot of people actually who are shareholders now who aren't really aware of what happened there. To summarize it quite a bit, there is a significant amount of gas in deep in the Turkey unconventional gas, very tight. We've identified through the drilling, through 3D seismic, there's tens of TCF there. But during the work we did with our previous partner, we had not demonstrated a commercial flow. Even though we've done 12 separate flows, we've flowed wells for up to 3 months. So the gas will flow from the ground. But recently, now we've had a new partner come in, who's going to look at retesting the well. And based on that, we'll actually go forward to look and drill a well. And the partner we have is extremely good partner. We've dealt with them before as a partner. They're extremely well-funded private company. They are the most active company in fracking and flowing in Turkey, and they're also very well connected and been working in Turkey for years. So what we're trying to say to our shareholders is, look, we are not putting our capital into that at this time. It's not taking the focus of your management team. But we have a blue sky opportunity there that while it still has risk on it, if we're able to prove commercial flow of gas from that opportunity, it's a very big upside for our shareholders. So still a lot of risk on that, but it's nice to see some work progressing there that could open that up. So finally, just reiterating, as we move to the next slide, Robin, we see actually it is a good time to come in based on the recent slide in share price. Again, we trade very well relative to our peers. We're -- really, we have a lot of upside potential still available to us, both from our NAV as well as our analyst consensus. So again, a good time to buy in. So Robin, just the last slide. So just reiterating again, we really see that we've done the country entry into Thailand. We have a solid business unit there that's now delivering not only on the execution of the assets they have, but also looking at growth. We do see other opportunities within Thailand, but I can also tell you that the executive, we're very much focused now on looking at how we can take what we've done in Thailand, that successful opportunity, that growth that we've got there and look at where do we apply that next, where is that next transformational deal. And that's what's ongoing at this point in time. So again, a good quarter, a good growth we've seen relative to last year and to the previous quarter, and we look forward to carrying that on to the year-end. So with that, I'll hand over to Robin for the Q&A period, and thank everyone for joining us. Robin Martin: Thanks very much, Sean. [Operator Instructions] So while we wait for more of those to come in, we do have a couple of typed questions here. First, on reserves. You mentioned we should expect a good reserves report at the end of the year. Can you give us a directional expectation for what that actually means at year-end 2025? Grzegorz Kulawski: Well, look, so I think we have talked previously about the process by which whenever we drill new development wells, we typically also target appraisal targets within these campaigns. We've done it this year just as we did in previous years. Some of it has been in Nong Yao, some of it has been in other fields. I mean, again, I would be probably careful with the hazarding numbers before we conclude all of the audits, especially given the movement in the prices. But I would say that, again, we've had on the operational side some additional volumes. And of course, we've had the significant additions from Wassana FID, which you already are aware of. Robin Martin: Thanks for that, Greg. We've got a live question now from David Round. W. Guest: Yes, David, just a reminder that -- yes, there you go. David Round: Got it. Yes, sort of. First question, just you've gone back to drill at Jasmine. I'm just wondering, does that program differ much from the one at the start of the year? Should we be thinking about kind of similar outcomes in terms of things like production? And I think in the past, I think you've talked about potential constraints bringing on new wells. Is that a problem at Jasmine at all? Grzegorz Kulawski: Well, so I think we are planning these campaigns in a way that optimizing both the capture of the subsurface resource and the targets that we continue to see in the future well inventory as well as the capacity and slot availability in the production facility to be able to bring them into production, right? So I think -- I mean we've been drilling kind of year-round cycling through all of our fields. So we have had that campaign, as we said earlier in the year. In Jasmine, we are now back. I would say it's actually going very well in Jasmine so far, that's part of the production we've been seeing in November. So yes, I would say it's so far so good in the Jasmine campaign. David Round: Okay. And you talked about cycling there. I suppose, obviously, Nong Yao has been great. As you -- as we kind of think about the next sort of set of drilling post Jasmine, I mean will you be ready to go back to Nong Yao once the Jasmine program finishes? Or would you be willing to go back and drill up Manora or should we be thinking maybe that's the time for a pause in the program? Grzegorz Kulawski: Yes. So for next year, I mean I guess we will provide a more precise guidance early in the year for the annual plan. But in short, yes, we will be looking to go to Manora for probably a shorter campaign after Jasmine, and thereafter, we will be back in Nong Yao again with a significant campaign there. David Round: Okay, Greg. And sorry, a quick final one, just on Wassana, while I've got you. Given the softer commodity prices we've seen recently, are you seeing anything positive in terms of reduction in rig rates? And I understand you haven't locked those in yet, correct me if I'm wrong. If you haven't, at what point might you look to lock those costs in? Grzegorz Kulawski: Yes. It's a good observation, David. We have seen softening in the rig market. At the moment, the rig we have is committed through to August of next year. And so we are actively now going to be looking at the market to try and capture the opportunity associated with this softening rig rates. Robin Martin: Very good. We'll move over to a typed question now. With PTTEP being the operator of the new licenses, G1 and G3, and their focus being primarily on gas, will Valeura still get a fair opportunity to pursue oil-focused drilling on these blocks, for example, the Nong Yao Northeast extension? W. Guest: Yes, very, very much so. And the first thing, just to emphasize with PTTEP is, when it comes to the gas development and exploration, we are extremely happy to have them as the operator. They are doing -- they're installing new platforms and drilling continuously. It was 11 rigs out there. So they really are the lowest cost operator you have around here. And we noticed that when we took the trip out to the Wassana yard that's building the Wassana platform last week, there is a suite of PTTEP gas platforms sitting there, half constructed, fully constructed, all ready to go. They are installing these things continually. So it's like a conveyor belt that they're doing there. So that's really the way that you get the highest efficiency in both your contracting and delivery. So very pleased for them to be our operator in the gas. Now on the oil, like we emphasized, they're looking for us to do -- to bring the oil opportunities here and work it out. We're kind of sharing the load there on the work. But what I can tell you is with the work that we've done even around Nong Yao, there's a lot of enthusiasm for their management is to bring that forward, show those opportunities, show that we can accelerate it. While the volumes are smaller for them, there's still very good economic opportunities that are development of Thailand's assets, which are very much in line with what PTTEP, as the NOC is trying to achieve. And the other thing is the agreements we have with them also allow that if they look at an oil opportunity and say, look at that's too small for us to consider, we still have the ability to move forward on those. Robin Martin: Thanks for that, Sean. While we're on G1, G3, another couple of questions. What's the typical size of a platform for gas development in that area in production, Mboed. W. Guest: Yes, the average was about 10 million BOEs. Grzegorz Kulawski: Yes. So about the, say, 60 million would be kind of a discrete additional one of these tie-in development. Yes, so that's the 10,000 BOE per day equivalent in that range. W. Guest: Yes. So they will vary depending on also how many wells you have on them, but kind of that range of 30, 60, that sort of range where you start lower and work it up. But yes, that's kind of the size of production that you're looking for. But then again, the thing to emphasize to people, and again, I'll bring it back to our visit to the yard last week is that this is one of the most active areas in the world for the installation of these platforms. Like we were talking with the yard last week and saying, where in the world do you have these facilities being built? And the only thing we could really come up with was around Saudi Arabia and the drilling that they're doing offshore. It's this continual number of platforms being installed. So I can tell you that PTTEP doesn't look at it and say, well, we're going to install 2 platforms here. They look at it, we're going to install 2, and then when are the next 2 and when are the next 2. How do we get these things daisy-chain together? And that's how you really build up the volume of production and you build up that longer-term future for the company. Robin Martin: Very good. Yacine, you've been resting your voice. So let's move to a tax-related question. Could you please remind us of the origin of the tax consolidation or the -- I suspect the question means, the tax loss carryforwards? And also, what's your expectation for when Valeura will need to start paying taxes? Yacine Ben-Meriem: Okay. So in terms of history, so when we did the deal with KrisEnergy, KrisEnergy's piece came with tax losses around USD 400 million. And when we did the acquisitions with Mubadala, which was cash-generative portfolio, we put them together. And by putting them together, we have access to the $400 million of tax losses. Now worth highlighting that these tax losses are ring-fenced on the Thai III regime. So they apply effectively to Wassana, Nong Yao and Manora. Jasmine is outside this scope, so Jasmine, we will pay taxes on it. And to your second question, Robin, honestly, all question of what oil price are you assuming. I think at the softer oil price like we see today, we're probably going to be talking -- I think what we think is around like 2 -- so around 3 years till we consume all of these taxes, tax losses. However, at a higher oil price, obviously, that period -- that window will get shorter. Robin Martin: Okay, very good. While we're talking about cash payments, just switching back to G1/G3, and the question is, what do you anticipate would be your cash payment for G1/G3 at the time of FID? So I'm assuming this question means anticipated 40% of the total spend up to that point, what would that cash outlay look like for us? W. Guest: Yes. We don't have the final numbers on that now. We're still working them up. But to give an idea like we see the platform is probably about 1/3 the cost, 1/4 to 1/3 the cost of our oil platform on Wassana. And then again, remembering that we're at a 40% level of those, right? So again, the Wassana redevelopment, the whole new field there, that is a central processing platform, oil development, high-power requirements, those are quite expensive. Gas tieback platforms tend to be quite cheap. So yes, we're working about 1/4 to 1/3 of the cost, but we'll have details on that again once we have the numbers next year, early next year. Robin Martin: Okay. Very good. [Operator Instructions] I've got one more question here. On M&A, it appears the majors are returning to Southeast Asia, at least a little bit in Indonesia and Malaysia perhaps. What does this mean for competition in the region? W. Guest: Yes, very good question because it's a good observation. It is happening. We saw a lot of the retreat companies, particularly someone like [ Total ] who are really almost completely left production in Asia. And now they've come back with a vengeance into Malaysia. But what I can say is the assets that those guys are looking for are extremely different to the ones that we are. And we still see the cases of -- if you're doing 50,000 barrels a day, that sort of level, it is not material for these guys. They need to be looking at gas and they need to be looking at big gas. That's what's drawing them back into the region, not modest levels of oil production. You can see when Chevron closed their deal to acquire Hess, almost immediately, they sold some of Hess' acreage in the joint development area, and we continue to watch to see what else will come now that Chevron have that deal closed. Robin Martin: Okay. Very good. We have no further questions that have come in. I'll remind the audience that if anything does come to mind in the interim, feel free to reach out to us at any time. Our website and contact details are all available on the slide in front of you -- pardon me, available on our website. So please do feel free to reach out. We're happy to take questions at any time. So with that, I'll hand over to you, Sean, to wrap up. W. Guest: Yes. And from my side, I'll just say I'd really like to thank everyone for joining us here again today, for following the company and your support as we move forward. We still see going into '26, it's going to be an exciting time with lots of new catalysts coming. So thank you very much. Robin Martin: Thanks, everyone. That concludes our call for today.
Operator: Good morning, ladies and gentlemen, and welcome to the NRx Pharmaceuticals' Q3 2025 Earnings Conference Call. [Operator Instructions] This call is being recorded on Monday, November 17, 2025. I would now like to turn the conference over to Matthew Duffy, Chief Business Officer. Please go ahead. Matthew Duffy: Thank you, Joelle, and welcome, everyone. Before we proceed with the call, I would like to remind everyone that certain statements made during this call are forward-looking statements under U.S. federal securities laws. These statements are subject to risks and uncertainties that could cause actual results to differ materially from historical experience or present expectations. Additional information concerning factors that could cause actual results to differ statements made on this call is contained in our periodic reports filed with the SEC. The forward-looking statements made during this call speak only as of the date hereof, and the company undertakes no obligation to update or revise forward-looking statements. Information presented on this call is contained in the press release issued this morning and in the company's Form 10-Q, which may be accessed from the Investors page of the NRx Pharmaceuticals, Inc. website. Joining me on the call today are Dr. Jonathan Javitt, our Founder, Chairman and CEO; and Michael Abrams, our Chief Financial Officer. We'll provide an overview of our company's progress as reported in today's 10-Q, following which Mike will give a review of the company's financials and results. Following their prepared results, we'll address investor questions. Jonathan as having a couple of technical issues this morning, so I'll start us off. Since the beginning of the third quarter, NRx has made transformative progress in developing our business. We have advanced each of our programs with drug approvals applications in process for KETAFREE, NRX-100 and NRX-101. It also expanded our NRX-101 pipeline and closed on multiple acquisition targets for a network of interventional psychiatric clinics HOPE Therapeutics. In conjunction with closing our first clinics, we now are now generating revenue and on a path to a highly promising company. The point of our call today is not 3 weeks of revenue from a single clinic just a few hundred thousand dollars that hit our third quarter income statement. Rather, it's the revolutionary and generational shift that we see in the treatment of severe depression and PTSD today, along with the potential to use the same technologies to treat traumatic brain injury, autism spectrum disorder, Parkinson's and even cognitive decline in coming years. This past quarter has been a watershed moment in that generational shift from our perspective. Lastly, a group of highly respected scientists presented real-world data showing an 87% treatment response and 72% remission from severe depression following a single day of treatment with a newly developed TMS for transcranial magnetic stimulation and a low dose of D-cycloserine or DCS. Note that the active ingredient in NRX-101 is also DCS. This allocation comes on the heels of a well-controlled clinical trial in which DCS was shown to more than double the effect of conventional TMS in treating both depression and suicidality. Rather than rely on this call, we urge you to read the underlying science, referenced on our website on the Publications page. As we announced last week, our company HOPE Therapeutics is the first one to deploy this ONE-D protocol in Florida in partnership with Ampa Health and we're actively partnering with its established clinics and seeking to open new clinics in Florida and nationwide. The scientists involved in that trial will be the first to say that there is not the only TMS machine capable of affecting a 1-day Theta-burst protocol. However, no drug other than DCS so far has demonstrated the augmentation of TMS in the literature. Accordingly, this quarter's results should be viewed as seeing the first green shoots come out of the ground, not as an indication of whether these shoots will ultimately be a bush or a giant tree. We anticipate that our growing enterprise will be far easier to discern by our next conference call. As you know, we have been working with DCS since our founding in 2015, and our Co-Founder, Dr. Daniel Javed, began research with this class of compounds in 1987. NRx holds rights to more than 70 patents around the world that relate to the use of DCS in treating depression, PTSD and other life-changing brain disorders. We have extensive experience in the formulation and stabilization of this highly challenging and unstable molecule. A breakthrough therapy designation IND opened with the FDA and manufactured drug in our warehouse that is actively being deployed in an expanded access protocol to enable doctors to replicate last week's dramatic ONE-D findings. Although a raft of compounding pharmacies are offering DCS for sale in response to these dramatic scientific results, we will be releasing chromatography and other foundational science demonstrating the need for manufacturing controls that are essential for preventing rapid degradation of DCS and the formation of various impurities, controls and techniques. We have devised over nearly 10 years of active preclinical and clinical development. The reason to be excited about combining DCS, which is a highly neuroplastic drug along with TMS, which is also a neuroplastic therapy, is not the simple notion that 2 neuroplastic treatments may be better than 1 as in one plus one equals to two. Rather, the scientific legacy of leaders in the field increasingly proves the drugs such as DCS, make the brain cells far more receptive to TMS and other neuroplastic therapies, akin to fertilize in the field as you plant the seeds. For those who are new to this conversation, neuroplasticity is the process by which brain cells are constantly growing new connections to other brain cells. In a digital computer, transitors are always turning on and off under the control of software but the circuits stay the same. In the brain, those transistors are neurons, polarized and depolarizes, the cellular equivalent turning on and off, but also constantly form new connections and prune those connections to other cells. That's called neuroplasticity. Over the past 20 years, we have come to understand that the loss of neuroplasticity in different parts of the brain is at the root of depression, PTSD, autism spectrum disorder and other conditions that I've mentioned. And Dr. Javitt's 45 year medical and scientific career, predominantly focused on the visual access of the brain, the last time he was involved in technological change that this profound was introduction of the first anti-VEGF drug to treat macular degeneration that led to a whole generation of injectable eye drugs that forever changed the potential for people to preserve their site in the face of previously hopeless and blinding conditions. In our view, we are witnessing a similar tectonic split shift in the neuroplastic drugs, devices and digital therapeutics are being combined to transform the treatment of severe depression of PTSD today and the brain diseases that affect more than a billion people on the planet tomorrow. The dose publishing this science are correct, it is likely that oral antidepressant drugs with their life-threatening complications, their effects on disfiguring weight gain and sexual dysfunction, their propensity to cause suicidal ideation and their dismal 30% success rate may lose their places first-line treatment for those with life-threatening brain diseases. More importantly, this generational shift in our understanding will finally cause us to abandon the notion of brain diseases that result in behavioral symptoms such as discretion and anxiety are biologically different for brain diseases that cause Parkinson's or cognitive dysfunction and that the patients who suffered these supposedly behavioral health problems are somehow less deserving of medical care than those who suffer from other neurological or CNS diseases. One reason we founded HOPE Therapeutics was to have the ability to directly engage the payer community in this changing paradigm. That brings us to corporate and financial results achieved in the past quarter and the objectives we think are meaningful over the coming quarters. Our quarterly report reflects only the first 3 weeks of revenue from our first 2 clinics. By year-end, we anticipate growing from 2 clinics to 6 or more clinics within our current orbit, and we expect these revenues to demonstrate strong growth over the coming quarters as we integrate the clinics, help grow them and add to their numbers. Most importantly, the historic revenue is based on ketamine treatment sessions and traditional TMS treatment sessions that are generally reimbursed at less than $500 a session. Much of our future growth is likely to be focused on day and shrug shorter short-term multi-modality treatments with rapid clinical results that are already reimbursed by payers at higher levels. To give you just one of many real-life illustrations of why this is economically viable, considering the situation of a highly trained essential first responder, who is suffering from depression and PTSD. In many cases, antidepressants are incompatible with a return to duty. For many frontline roles, this is a disqualification. Hence, the desire of the patient and the family for relief from a debilitating and life-threatening new addition aligns with the urgent need of military, law enforcement, emergency services and other organizations to maintain their force readiness. The financial and other resources -- financial and other resource costs of replacing frontline personnel is astronomical. While medical insurance decisions are often made by the executives who many Americans view as not caring enough about the individual, health insurance payment policies are increasingly dictated by the employers who pay the premiums and who care deeply about their ability to maintain a workforce in whom they have invested. Often the decision makers at that level are the military leaders, police and fire commissioners and others who have come up through the ranks and we think about their people first. When Dr. Javitt presented last month at Fort Belvoir to a room containing generals, admiral and elected officials. He sat with a senior adviser to the Secretary of the Veteran Affairs Administration who reminded of the public statements from the VA that stopping veteran suicide is in their -- is their top priority. We hope to release a video of that briefing to you in the coming weeks. Our balance sheet is considerably stronger than it was at the end of the second quarter, owing in part to the support of long-term health care specialist investors who joined us during the third quarter and purchased common stock with no warrant overhang, no pricing provisions and no convertible debt feature. At this point, NRx has secured operating capital that is anticipated to be sufficient to fund drug development operations through 2026. Additionally, as just noted, we expect to continue to add revenue from the clinical operations and believe it is likely that we will see revenue from sales of ketamine under an ANDA in mid-2026. As you can see from our balance sheet, and as Mike Abrams will be discussing in greater detail later, we are well positioned to achieve numerous milestones on both sides of our business with existing cash. Our goal in doing so is to substantially enhance shareholder value while advancing our mission of bringing HOPE to life. Now let's review each program, starting with our preservative free ketamine -- which was previously required a toxic preservative, which is benzethonium chloride to maintain stability and sterility. Our stability data remains on track for a 3-year room temperature shelf life. We're pursuing 2 parallel approval processes, a generic pathway and an innovative pathway using 2 different formulations to prevent price confusion. As you saw in August, FDA ruled that those 2 formulations create 2 different drug identities. The first pathway is a new drug application or NDA for NRX-100 in suicidal ideation for patients with depression, including bipolar depression. The second is an abbreviated new drug application or ANDA to make KETAFREE available for ketamine's existing generic indications. NDA preparation is nearly complete, and we anticipate transmitting the entire submission in the coming weeks. The key development is that we are adding more than 60,000 patient encounters of real-world efficacy data, which demonstrates statistically significant advantages of intravenous ketamine over nasal S-ketamine. Combined with the data from U.S. and European trials in more than 1,000 patient participants, we believe this to be a compelling case for efficacy. This will be an important step forward for both the company and for patients suffering from suicidal depression. There's currently no medication approved for treating suicidal ideation and the SPRAVATO label clearly states that it has not been shown to be effective for reducing suicidality. The only current alternative is for patients with suicidal ideation is ECT or electroconvulsive therapy. As you know, the PCORI trial, which is posted on our website, demonstrated a 30% incidence of memory loss with ECT and none with IV ketamine. And what we feel is a strong validation the FDA granted to us and expand Fast Track designation in August to now include all patients with suicidal ideation and depression, including bipolar depression. Suicidality is a massive problem in the U.S. The fact -- in fact, the CDC estimates that nearly 13 million Americans seriously consider suicide each year, and this leads to an American dying from suicide every 11 minutes. Our leadership team was invited to Fort Belvoir last month where we presented to senior military and veterans affairs leaders and will be repeating the briefing at VA headquarters and Nellis Air Force base to the Air Force leadership. As Secretary Collins has said publicly stopping veterans suicide is his top priority. In June, the FDA created the commissioner's national priority voucher program that affords substantially faster review times of 1 to 2 months versus the standard 10- to 12-month review, enhanced communication throughout the review process and creates potential for accelerated approval of NRX-100. Commissioner Macri has publicly stated the safe and effective drugs to prevent suicide are a top priority for him. More importantly, after some publicly reported personnel changes, the FDA centers for drugs now as a leader has been long-term proponent of accelerated approval for life-saving drugs that meet an unmet medical need. To receive a CNPV, a product must meet at least one of the following criteria: address the U.S. public health crisis, address a large unmet medical need, deliver more innovative cures for the American people, reassure key strategic drugs to the U.S. or reduce health care costs. NRx meets all of these criteria. In Q3, we filed an abbreviated new drug application for ketamine with priority review requested. We call this product KETAFREE. After meeting with the FDA in August of 2025, we've refiled the ANDA following FDA notification of the suitability position for NRx's proposed strength of KETAFREE. Last week, we received a communication from FDA, noting no significant deficiencies in the revised KETAFREE filing, and we believe the filing is on track for second quarter PDUFA date or generic -- that's a generic drug equivalent of a PDUFA date. The company has additionally submitted a citizen petition seeking to have benzethonium chloride, a toxic preservative included in all currently approved ketamine products for antiquated reasons, removed from all presentations of ketamine. This preservative is the subject of a detailed toxicology report we have published, which details the concerns that led FDA to ban BZT from topical antiseptics and hand cleansers. Notably, benzethonium chloride does not categorized by FDA as GRAS or generally recognized as safe. This report has been submitted to the FDA in support of our citizen petition. As a preservative-free formulation ketamine is an important invention, we have filed a patent application with the U.S. patent in the Tradmark office to protect our intellectual properties surrounding this product. The existing generic market for ketamine has been projected at approximately $750 million. And we believe KETAFREE made in the U.S. and often without any toxic preservatives offers patients and clinicians a superior option. We'll continue to work diligently with the FDA to move our application forward as rapidly as possible and provide a safer version of this critical product to the American public. Our program around NRX-101, our oral combination of D-cycloserine and lurasidone took an extremely positive and unanticipated direction as outlined in the opening. As you know, we received breakthrough therapy designation for this drug in the treatment of suicidal bipolar depression and continue to advance that agenda. Our manufacturing data is on file with stability trending towards 5 years, and we have 1 million doses in the warehouse. There are more than 7 million patients suffering from bipolar depression in the U.S., and many of these are at risk of akathisia, a terrible side effect caused by serotonin active or SSRI drugs that is closely related to suicide. These patients are a tremendous risk of self harm. We have demonstrated statistically significant superiority of NRX-101 over lurasidone to this current standard of care in reducing suicidality and akathisia in 2 well-controlled trials. Both NRX-101 and lurasidone are potent antidepressants and one of those trials also demonstrated superiority in reducing depression. Remember that we are comparing to a known effective drug, not placebo. Because of the huge unmet need, we are optimistic that FDA will be receptive to an application for accelerated approval in the 600,000 patients who suffer from suicidal ideation in bipolar depression, despite treatment with a currently approved medication. A few days ago, a new Director of the FDA Center for drugs was appointed who pioneered the accelerated approval pathway and has been a staunch to advocate for early approval of medicines for life-threatening conditions for which there is no currently available therapy. Last week, we saw a publication of the exciting and unanticipated finding that low-dose D-cycloserine, again, the active ingredient in NRX-101, when combined with a ONE-D protocol of TMS. Recently, there's been exceptional interest in the use of DCS, the active component to enhance the efficacy in the treatment of depression. D-cycloserine, like ketamine, blocks the NMDA receptor and enhances neuroplasticity. Recently published real-world data provides confirmatory evidence seen in a prior randomized controlled trial that low-dose DCS more than doubles the antidepressant effect and anti-suicidal effect of TMS. Unfortunately, DCS alone is contraindicated in patients with depression, which may impact willingness of patients and practitioners to use this new protocol. Importantly, NRX-101 while including DSCS in its formulation, does not carry this contraindication. As the addition lurasidone blocks the effect of the NMDA inhibition in one key side effect. This creates a significant need for development of NRX-101 for the use of -- in conjunction with TMS to treat depression, PTSD and other disorders. We have more than 25,000 manufactured doses of NRX-101 at the appropriate strength on hand and launched a nationwide expanded access program to enable physicians to access this medication at no charge to the patient under expanded access and federal right to try laws. A confirmatory Phase 3 trial of NRX-101 to augment the effects of TMS is planned for early 2026. The market estimate for this newly validated indication for NRX-101 is in excess of $1 billion. On September 8, 2025, HOPE Therapeutics initiated revenue generation upon closing of its acquisition of Dura Medical clinics located in Naples and Fort Myers, Florida. HOPE subsequently added Cohen and associates in Sarasota, Florida, another revenue-generating EBITDA-positive clinic to the HOPE network. Dr. Rebecca Cohen, Founder of Cohen and associates has been appointed as HOPE's Medical Director. Last week, HOPE was the first organization in Florida to launch 1-day TMS treatment for severe depression and ONE-D protocol using the Ampa TMS device. The ONE-D protocol has been reported in the peer-reviewed literature to achieve 87% response and 72% remission from severe depression at 6 weeks. Following a single day of TMS treatment combined with D-cycloserine, focus in the process of adding 3 more facilities this year and is in an active discussion with numerous acquisition opportunities around the country. With our significant advances in the third quarter and a committed investor base, we believe we are better positioned than ever in our history to build shareholder value and to address the national crisis of suicide. We will do everything in our power to continue bringing HOPE to life. With that, I'll turn it over to Michael Abrams, our CFO, to review our financial results for the third quarter. Mike? Michael Abrams: Thank you, Matt. For the 3 months ended September 30, 2025, the company reported a loss of operations of $4 million versus a loss from operations of $3 million for the comparable quarter in 2024, the difference is primarily attributable to $800,000 of additional research and development expenses to support our FDA initiatives for NRX-100 and NRX-101, including the previously discussed and submission for preservative-free IV ketamine, and $400,000 of additional general and administrative expense which included our efforts to close, operate and identify clinic acquisition targets for HOPE. As of September 30, 2025, NRx Pharmaceuticals had approximately $7.1 million in cash and cash equivalents Including approximately $3.1 million from a subscription receivable for which the company received the cash in early October, total cash as of September 30, 2025, would have been $10.3 million. For the third quarter ended September 30, 2025, the company reported revenue for the first time in its history, driven by the acquisition of Dura Medical, which closed September 8. While revenue of approximately $240,000 was relatively modest, it reflects 22 days of the full quarter in a single clinic group. Management anticipates the ability to include results for the full period for during and future quarters closing anticipated additional acquisitions and organic growth of previously acquired clinics will drive meaningful revenue growth in the fourth quarter and through 2026. Transactions where we acquire a noncontrolling interest are expected to improve our overall financial position, but not directly increase revenue. Finally, we remain in active discussions with several additional potential acquisition candidates and while no assurances can be given that we will close any or all of such opportunities, together, they represent total revenue of more than $20 million on an annual basis. The company believes that its current cash position will support operations at least through the second quarter of 2026 as well as provide sufficient capital to expected regulatory inflection points and complete potential additional select acquisition opportunities to expand the growing footprint of HOPE clinics. Our singular focus remains advancing our primary drug development initiatives and planned clinic acquisitions to build long-term value for our shareholders. With that... Jonathan Javitt: Thank you, Mike, and thank you guys for sparing my voice this morning. I look forward to taking questions. Matthew Duffy: Operator, I believe we can begin to take questions. Operator: [Operator Instructions] Your first question comes from Tom Shrader with BTIG. Thomas Shrader: I have a couple of questions on this remarkable DCS result with TMS. Historically, is it clear that DCS is much better than Ketamine in this position? Is this truly unique to the drug? Or is it a general combination effect. And then can you give us a sense of how you would use 101 in this procedure? I assume it's not a hard co-formulation that your 101 is simply available. But how cumbersome is it to add a drug, your DCS -- and can you get paid for it? Just some logistics. I know you have a lot of drug. It looks like it's exciting. Can you guys run us through the steps to actually use it? Jonathan Javitt: Those are great questions. And a lot of this work, the basic science work has been done and published by Dr. Josh Brown at Harvard McLean with a number of others supporting the science. The most important thing to recognize is that DCS has to be used at a non NMDA antagonist dose. And I know this is a little more science than we sometimes do on a conference call. But in this case, it's critical. DCS is what's called a mixed agonist antagonist, unlike ketamine, unlike [indiscernible] unlike all of the NMDA drugs that blocks the NMDA channel, DCS affects a side unit of NMDA called the glycine site and at low doses, it's actually an NMDA agonist, but much more importantly, it's a highly neuroplastic drug. There's evidence that ketamine plus TMS actually decreases the effectiveness of TMS, there are even people who believe that ketamine shouldn't be used in conjunction with electroshock therapy because it may decrease the effectiveness of electroshock therapy. So all of the work that's been done is at low doses of D-cycloserine, 150, 175-milligram dose and it just happens that when we formulated NRX-101, that was one of the strengths that we made. That's why we have it in the warehouse. In fact, it was not made to be the main strength of NRX-101, it was manufactured to be a potential step-down strength in our clinical trial. So far, nobody else has identified a different neuroplastic drug that works in combination with TMS, the way D-cycloserine does. Do me a favor and repeat the second part of your question where you were asking... Thomas Shrader: Just the procedure to use your drug because it's in the works at the FDA, what would be -- how hard is it to just for somebody to get your drug if they want to add it to TMS in your clinic or anywhere else? Jonathan Javitt: Well, we have an expanded access protocol for DCS under the laws than required to be made available for expanded access. So if somebody writes to us, we're happy to provide it for this purpose as long as they provide us with the data of what happened. ClinicalTrials.gov has been a little backed up because of the government shutdown. But as ClinicalTrials.gov catches up, you'll see those expanded access protocols for DCS and TMS showing up online. Operator: Your next question comes from Patrick Trucchio with H.C. Wainwright. Patrick Trucchio: NRX-100 and suicidal depression, the FDA has identified no significant deficiencies to date. I'm wondering, first, what feedback have you received on the accelerated approval strategy. Secondly, do you still anticipate a year-end PDUFA decision? And separately, when do you anticipate learning if the CNPV is granted and what impact that could have on the PDUFA? Jonathan Javitt: Well, as we've said, we're in the CNPV process, and therefore, the NDA under Fast Track designation for NRX-101 has not been filed in its totality yet. We've said that several times, we're expecting to be heard about the CNPV this year. And the main advances with that NDA are that we now have access to the real-world data that we believe massively augment the filing that we will make under accelerated approval once we learn whether we're doing it under CNPV or not, where we're expecting not only to file the original clinical trials that we've told people about, but more than 60,000 patients worth of real-world data as well that we believe provide a solid case for accelerated approval. Patrick Trucchio: Right. And with the Citizen Petition now filed to remove benzethonium chloride, can you discuss how this regulatory action could reshape the market for IV ketamine and how you would ensure adequate domestic supply if the FDA moves to ban this preservative-containing formulations? Jonathan Javitt: Yes. This is actually the first ketamine that's packaged in what's called a Blow-Fill-Seal presentation where instead of a glass bottle. The machinery takes a drop of polyester resin heats it up, blows it into a container, fills it and puts it out at the back of the assembly line completely packaged and ready to ship. It takes your production capacity from a couple of hundred thousand bottles a month to 1 million or more bottles a month per assembly line, and therefore, if we had to, we could supply every vial that's required for ketamine in the United States at that kind of manufacturing capacity. Everything else that's coming in for ketamine is glass vials. Patrick Trucchio: Right. And just one maybe on HOPE. The ONE-D protocol combines TMS and DCS and it shows a rapid onset of antidepression effects. I'm just wondering how you'll be positioning HOPE to become an early adopter in data generator for that combined treatment pathways? And as well just separately, assuming the approval of NRX-100 and NRX-101, how will you integrate those treatments into the HOPE care model once they're approved, assuming they are approved? Jonathan Javitt: Well, those are 2 fantastic questions. And the ONE-D protocol is legal under the medical device laws. The coil that was used was manufactured by a company called Ampa, which has some very exciting technology not only in terms of their pioneering of the ONE-D protocol, but in terms of having built the first portable TMS one that can be taken to nursing homes, extended living facilities, you could even do it in a firehouse because it fits in 2 Pelican cases. We announced last week that we partnered with Ampa that we are the first site in Florida to be doing the ONE-D protocol, so it's readily deployable. Now it's not specific only to that machine, but all of the ONE-D results so far that have been reported have been reported on that machine. Operator: [Operator Instructions] Your next question comes from Ed Woo with Ascendiant Capital. Edward Woo: Yes. Congratulations on all the progress. As NRX-100 and 101 have potential approval dates relative within the next year, hopefully, or much sooner than that? Have we talked about your clinical or commercialization strategy for both? Jonathan Javitt: Ed I'd like to listen to that question again. Edward Woo: Sure. Have you talked about your commercial strategy? Will you need to have a sales force to market NRX-100 and 101 when you get approval? Jonathan Javitt: Well, they're very different drugs and they will need different strategies. So NRX-100, we're talking about a drug that can only be deployed in a clinic setting by a physician who and we anticipate that there will be a REMS of some sort in the same way that there's a REMS for SPRAVATO. So the NRX-100 project, the preservative-free ketamine project is very much something that a company of our size can undertake. You talking about much more of what's called a medical science liaison function than a sales function because physicians who are treating with ketamine in their office, know that they want to do that and what they need is medical liaison support. It's not traditional pharmaceutical detailing. NRX-101 we're seeking an indication where we want to treat people with severe bipolar depression who have suicidal ideation despite having been treated with best available therapy. So if you take a look at the people who are currently prescribing drugs like lurasidone to treat bipolar depression, there are approximately 1,600 doctors like that in the United States. Many physicians don't want to be treating suicidal bipolar patients. So that's actually a sales force also that a company like ours could build, we anticipate it's a requirement of about 50 salespeople. We've talked to larger commercial partners in the past about NRX-101, and it's possible that we would partner with a larger commercial partner. But bottom line, NRX-100 is within our launch capabilities. NRX-101 is still within our launch capabilities, but we know that there is significant interest from larger partners. Operator: There are no further questions at this time. I will now turn the call over to Matthew Duffy for closing remarks. Matthew Duffy: Thank you, everyone, for joining us this morning. We're extremely excited about the path ahead with 3 potential drug approvals in the subsidiary targeting multiple profitable metal health clinics as well as our new indication with NRX-101. This concludes the NRx Pharmaceuticals Third Quarter 2025 Results Conference Call. Thank you all for participating. Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.
Operator: Good day and welcome to the VerifyMe Third Quarter 2025 Financial Results Conference call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Jennifer Cola, CFO. Please go ahead. Jennifer Cola: Good morning, everyone, and thank you for joining us today for our Third Quarter 2025 Earnings Call Presentation. On the call today, I'm joined by Adam Stedham, CEO and President, who will give an operations and strategic update, and I will provide a financial update. Following our management presentation, we will have a Q&A session. I'd like you to bring your attention to the note on forward-looking statements on Slide 3. Today's presentation and the answers to questions include forward-looking statements. It should be understood that actual results could materially differ from those projected due to a number of factors, including those described under the forward-looking statements and risk factors captions in the company's annual report on Form 10-K and quarterly reports on Form 10-Q. I will now turn the call over to Adam Stedham to discuss the company strategy. Adam Stedham: Thank you, Jen. I'm pleased with the success of our operating model combined with our sales and marketing plans in the third quarter. I do realize the third quarter revenue was down due to previously announced contract losses and changes associated with the transition from our previous Proactive shipping partner. That statement is a common theme in our last several earnings calls, and I think it's good for us to review the past year to put our enthusiasm about the future into context. During Q1 of 2025, the company's revenue was down versus the previous year, and our gross margin was 33%. The revenue and gross margin were significantly impacted by the insourcing decision of our previous exclusive shipping partner. During the second quarter of 2025, PeriShip revenue decreased approximately 14% versus the second quarter the previous year, and the major contributing factor was the previously announced customer losses from 2024. However, the gross margin had improved to 35% in the second quarter versus 33% in the first quarter. During the third quarter of the year, revenue was down only approximately 7% from the prior year because of our sales and marketing efforts. Although these efforts were successful, they have only partially offset the previously announced contract changes and changes by our previous shipping partner. Our gross margin continues to improve, our operating costs continue to reduce, and our adjusted EBITDA has improved. We are in the midst of a transition to our new Proactive shipping partner. We anticipate this will have a material impact on Q4 2025 and Q1 2026 revenues, and at this point, we're not in a position to provide guidance for 2026, but we do expect to provide that guidance during our next earnings call. We believe our new shipping partner relationship positions the company in a far better position long term, but we need a bit more time to define the opportunity and provide appropriate guidance. I look forward to calls in which we can report that our efforts are providing quarterly growth rather than only offsetting the impact of changes related to our shipping partner. As for our balance sheet, we continue to have plenty of cash to fund our organic and strategic growth strategies. We've received our first quarterly interest payment from our short-term note with Zen Credit in November and continue to believe this deployment of capital is very positive for shareholders. At this point, I'll turn the call over to Jen, our CFO, for more specific financial details of the third quarter. Jennifer Cola: Thank you, Adam. Our third quarter revenue was $5.0 million versus the prior year of $5.4 million, a decrease of $0.4 million. This decrease was primarily due to $0.8 million of previously disclosed discontinued services with two Proactive customers, partially offset by increased revenues from new and existing customers within our Precision Logistics segment. Gross profit increased by $0.2 million to $2.1 million in Q3 2025 compared to $1.9 million in Q3 2024. As a percentage of revenue, gross margin increased to 41% in Q3 2025 from 35% in Q3 2024. This increase was primarily attributable to improvements in negotiated rates with a primary supplier during Q2 2025, which was reflected during the full third quarter of 2025. This is our third consecutive quarter of improved gross profit. While we expect Q4 2025 and Q1 2026 revenue to decrease compared to prior year as a result of transitioning our Proactive services to a new shipping supplier, we expect our gross margin as a percentage of revenue to remain consistent with our current performance. As previously disclosed, in September 2025, we were notified by our primary Proactive shipping supplier that it would no longer provide shipping services in support of our Proactive services. As a result, we accelerated our efforts to implement services with an additional supplier, and we completed an analysis of the goodwill and intangible assets associated with our PeriShip business. Based on our analysis, we determined an impairment had occurred and recognized a one-time non-cash impairment expense of $3.9 million during Q3 2025. This compares to a one-time non-cash impairment expense of $1.9 million related to our Authentication business in Q3 2024. This $3.9 million impairment charge includes a reduction in carrying value of certain goodwill and intangible assets in our PeriShip business, as well as the accelerated amortization of certain supplier-specific technology development projects that will no longer be utilized. Excluding this impairment, our operating expenses were $1.7 million in Q3 2025 compared to $2.5 million in Q3 2024. This decrease in operating expense is primarily related to the divestiture of our Trust Codes business during December 2024 and cost-cutting measures in our Precision Logistics segment. Our net loss for the quarter, including the $3.9 million one-time non-cash impairment expense, was $3.4 million, or a net loss of $0.26 per diluted share in Q3 2025, compared to a net loss of $2.9 million, or $0.23 per diluted share in Q3 2024. Excluding impairment, our operating income for the quarter was $0.5 million in Q3 2025 compared to an operating loss of $0.2 million in Q3 2024. Our adjusted EBITDA improved to $0.8 million in Q3 2025 compared to $0.2 million in Q3 2024 as a result of our continued efforts to improve gross margins, reduce operating expenses, and develop operational efficiencies. On the last slide is our balance sheet as of September 30, 2025. Our cash balance as of September 30, 2025, was $4.0 million. On August 8, we entered into a $2.0 million short-term promissory note in exchange for regular interest payments at an improved interest rate. We received our first quarterly interest payment in November. Also, as previously described, we recognized an impairment of goodwill and intangible assets of $3.9 million. During Q3 2025, we generated $0.2 million of cash from operations compared to $0 in Q3 2024. We expect to use a portion of our available cash to fund our operations in Q4 2025 as we continue to transition customers from our previous Proactive shipping provider to our new Proactive shipping provider, but we expect to remain cash flow positive for the full year of 2025. We also continue to have $1 million available under our line of credit, and we have no borrowings outstanding. With that, I'd like to turn the call back over to Adam. Adam Stedham: Thank you, Jen. So we've covered several items during the call, and I'd like to summarize our situation prior to opening the call for questions and answers. The company has a strong balance sheet with no bank debt. We have deployed some of our capital to improve the rate of return, and we feel confident we have the ability to pursue both an organic and strategic growth strategy. We're in the middle of a transition from our previous Proactive shipping partner to our new Proactive shipping partner. We believe the new relationship provides a substantially better platform for sustained organic growth over the long term. We anticipate experiencing a transitional revenue impact associated with the effort and the timing of customer transitions, but the company continues to believe we will be cash flow positive in both 2025 and 2026. At this point, we'll open the call up for questions and answers. Operator: [Operator Instructions] Our first question comes from Michael with Barrington Research. Please go ahead. Michael Petusky: I was wondering if you guys would be willing to sort of size up the Proactive business that sort of came to completion at the end of September. I mean, how much did that contribute to the third quarter revenue, if you wouldn't mind? Adam Stedham: I'm not sure I completely understand what you're asking, but are you saying what was the.... Michael Petusky: What was the revenue contribution? Yes, what was the revenue contribution of the Proactive business that's no longer, going forward, no longer going to be part of the mix? Adam Stedham: No, so we don't have that in a way that we can present it for guidance. The reason is, this isn't a cliff type of conversation. It's a sliding scale. If I said what percentage of the customers have signed up one day or today, that wouldn't be a proper assessment of how many had signed up on November 1 versus how many will have signed up on October 1 or December 1. We continue to transition customers on an ongoing basis. I will say that we had approximately 7-10 days of shipping time in the third quarter that were negatively impacted by the transition. If you go back and look at the date of our discontinuing of our previous shipping partner relationship, that happened towards the end of the third quarter of the -- third month of the quarter, around September 24. Michael Petusky: Okay. So Adam, I just want to make sure I'm, I guess, processing this correctly. Are you essentially saying, "Hey, we expect to transition all the customers that were associated with the business that came to an end at the end of September or towards the end of September onto the new shipping partner?" Adam Stedham: No, we can't say that we expected to transition all of our customers. Some of our customers will never transition over to the new partner, and we have other customers that the new partner has brought that are going to come through that. There is going to be some offset. The challenge we face right now is a timing conversation. The peak season -- if you look at the overall shipping industry, the overall shipping industry is capacity-constrained during the peak season, Christmas shipping season. There are a percentage of customers that we have who are concerned about shipping or changing right before the peak season. We're doing everything we can to help them transition, to get over those concerns. Many of them have gotten over those concerns. Some are still having and have ongoing conversations. Others are saying, "We want to stay with you and we'll switch, but we're going to do it after the Christmas shipping season." Right now, it's a very dynamic situation, and we're in the midst of all those changes, so it's very difficult for us to predict what will happen in Q4 and Q1. We do believe that the loyalty we have with our customer base has been very positive. The feelings of our ability to transition everyone over or transition a meaningful percentage over and then have other customers come on board from the assistance of our new shipping partner, we feel very good about that. Over nine months, over the next three to six months, it's really a dynamic situation, and we're not in a position to give guidance on that. Michael Petusky: Adam, just from a modeling perspective for your investors, for analysts, I mean, would you guys be willing to share what the revenue contribution last year's Q4 from the FedEx business that left on September 24, what that revenue contribution was in last year's Q4? I really think, honestly, for investors, for analysts, I think that's an important piece. Adam Stedham: All of our Proactive customers went through FedEx last year. None of our Proactive customers are going through FedEx this year. They are transitioning to our new shipping partner. Are you saying exactly what percentage of customers are currently shipping with us now that were not shipping with us in Q4 last year? That is not a number that we have or we are prepared to give. Keep in mind, we have added customers since Q4 of last year, so there has been a turnover. It is not really a comparison that we can do. Michael Petusky: Right. No, no. Adam, I understand that. All I'm interested in, and I suspect more people than just me are interested in this, is the revenue contribution from that business in Q4 of last year. I mean, is that a figure you guys can share or no? Adam Stedham: Are you asking what percentage of our Q4 revenue last year was Proactive? Michael Petusky: Yes, connected to the business that ended on September 24, yes. Adam Stedham: Keep in mind, let's revisit what Proactive is. We have a shipping partner relationship with a major shipping partner. We have contracts with all of those companies ourselves. They do not end through that ship; they do not flow through that shipping partner. The premium flows through that shipping partner. That's not impacted by what we're doing. The Proactive, all of these customers that we have our contracts with ourselves, who historically are used to processes and systems to where their packages ship with our previous partner, now have the opportunity to shift and ship with our current partner. It's not as if our shipping partner canceled these contracts. The contracts were with the companies. The question is, are they willing to move their shipping over to our new partner? The percentage of that is not something we can accurately predict for Q4. That is why we're saying we can model more effectively during our next earnings call, but we can't accurately predict it for this quarter. It's a dynamic situation right now. That is where we're at. Michael Petusky: In terms of the cash on the balance sheet and the fact that you guys are generating some positive cash flow, I mean, where are you in the process in terms of potential M&A? Are there assets where there are actually discussions happening, or is that more likely to happen after sort of you get a little farther down the road with the new shipping partner and get farther into the next year? Adam Stedham: No, no. The timing of any of these things is very difficult, if not impossible, to predict. There have been significant ongoing conversations. I mean, you'll see some elevated legal costs. You'll see some elevated costs in the business that reflect meaningful ongoing conversations related to those types of activities. Michael Petusky: Are there any hurdles for those assets that you're considering in terms of cash flows or profitability, or is every case a little different? Or are there certain things that you will not sort of bend on in terms of what you're looking for in a potential acquisition? Adam Stedham: If it was a bolt-on acquisition, it has to be virtually immediately accretive due to synergies. Otherwise, I wouldn't do it. If it's a transformative acquisition, which I think would be desirable given the subscale nature of the company, something more transformative would be desirable to help address our subscale size. Then it's more difficult to model that out. It really ties to what's the overall value of the transformation as a whole. Michael Petusky: Okay, great. Last one real quick for Jen, and I'll let other people ask questions. In terms of that OPEX improvement, which to me seems great, how much of that, approximately $800,000, was associated with Trust Codes, and how much it was just sort of pure you guys doing a better job in terms of your managing the OPEX? Jennifer Cola: Sorry, just pulling up my file here. So we had about $500,000 of operating expense associated with Trust Codes in Q3 of 2024. Operator: [Operator Instructions] This concludes our question-and-answer session. I would like to turn the conference back over to Adam Stedham, CEO, for any closing remarks. Adam Stedham: Thank you. I appreciate everybody joining the call today. Once again, we are in a transition. It's just been a really positive experience working with our new shipping partner. The commitment that our partner has to the small- and medium-sized customer and to the customer that requires a cold chain strategy is very deep and very strong. We are very pleased that we fit into that committed strategy they have. We think that positions us very well long-term. We are in the midst of a transition from our previous Proactive shipping partner. That relationship was a couple of decades old. Those transitions always have a couple of bumps, and we're working through those diligently. We do feel that our sales and operating model has consistently, quarter over quarter, been able to provide new customers, organic growth in terms of new customers, frequently or typically offset by reductions due to changes that were outside of our control. They have continued to, quarter over quarter, provide additional gross margin percentage and reduced operating costs and improved efficiencies. We feel that the underlying business is moving in the right direction, and our partnership relationship has substantially moved in the right direction. We look forward to our next call when we'll update everyone on the transition and where we are and give specific guidance for 2026. Thank you. Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
Jun Togawa: Good evening, investors, shareholders and rating agencies. I am Togawa, Group CFO. Thank you very much for joining MUFG's online conference call today despite the late hour. Please look at the material titled Financial Highlights under JGAAP for the first half of the fiscal year ending March 31, 2026. Let me first explain our Q2 financial results, followed by revised FY '25 performance targets and shareholder return measures. Let me start from the income statement summary. Please turn to Page 8. First, the figures for the first half of FY '24 on the far left column of the table include the impact of the change in the equity method accounting date at Krungsri in Thailand. So the far right column shows the actual year-over-year change, adjusting this impact. All explanations on this page will be based on adjusted year-on-year comparisons. Line 1, gross profits increased by JPY 189.3 billion year-on-year. Line 2 and below shows the breakdown of gross profits. Net interest income increased, thanks to the impact of rising yen interest rates, improving lending spreads and benefits from last year's bond portfolio rebalancing. In addition, net fees and commissions expanded significantly, primarily due to growth in various fee revenues from domestic and overseas solution services and effects of acquisitions. Next, Line 6, G&A expenses increased by JPY 127.9 billion year-on-year due to the impact of inflation and acquisitions, as well as strategic expense allocation, mainly in Retail and Digital business group. Expense ratio was flat year-on-year at 56.1%. As a result, Line 8, net operating profits increased by JPY 61.3 billion year-on-year. Next, Line 9, credit costs decreased by JPY 65.7 billion year-on-year. I will explain the reasons for this later. Line 10, net gains and losses on equity securities decreased by JPY 235.3 billion, due to the gain on sale of large equity holdings last year, which is in line with our projection at the beginning of FY '25. Line 12, equity in earnings of equity method investees increased significantly year-on-year, mainly due to the extremely strong performance of Morgan Stanley. As a result, Line 16, profits attributable to owners of parent was JPY 1,292.9 billion. Although gain on sale of equity holdings decreased year-on-year, we were able to achieve steady growth in net operating profits and equity accounted earnings, which demonstrates the strength of our core business and also recorded onetime gains related to investments and organizational restructuring, resulting in a record high first half profit. Our progress toward initial full year target of JPY 2 trillion stands at a high level of 64.6%. Performance by business group is shown on Pages 9 through 12. I will not go into detail, but customer segment NOP is growing steadily with the exception of retail and digital, where strategic expenditures were made and Global Commercial Banking, which was affected by the economic slowdown in Asia. All business groups achieved an increase in net income. Please turn to Page 14 on balance sheet summary. The diagram on the left shows the overview. Loans shown in the top left increased by approximately JPY 1.8 trillion from the end of FY '24. Excluding government loans, it increased both in Japan and overseas by approximately JPY 4 trillion. Page 15 shows the status of domestic loans. The graph on the bottom right shows the trend in domestic corporate lending spreads. Spreads for large corporates in red line is rising, thanks to the accumulation of large, highly profitable loans. Along with SMEs in orange, profit improvement measures have been successful, and the upward trend is continuing. Next, Page 16 shows the status of overseas loans. The bottom right graph shows the trend in overseas lending spreads. The Americas has settled somewhat as the replacement of low-profit assets with high profit assets has run its course, but we continue to work on improving profitability in each region and maintain the gradual recovery trend. Meanwhile, GCIB has seen a significant increase in fee income as their O&D measures are progressing, and we are working to improve capital efficiency on both fronts. Please turn to Page 17 on asset quality. The NPL ratio shown by the line graph on the left continues to remain at a low level. The bottom right graph shows the breakdown of year-on-year changes in total credit costs, while there was an increase in large loan loss provisions overseas last year on the bank nonconsolidated basis, the sale was completed this fiscal year, resulting in a reversal. There were also multiple significant reversals in Japan, resulting in a significant decrease in credit costs. Credit costs also decreased at our overseas subsidiaries due to the effect of stricter screening criteria for new credit transactions in Asian partner banks. Taking the current situation into account, we kept our full year outlook for credit costs unchanged. Please turn to Page 18 on investment securities, including equities and government bonds. I will explain the unrealized gains and losses in the upper left table. Line 3, unrealized gains on domestic equity securities increased by JPY 0.36 trillion compared to the end of March 2025, due to rising stock prices despite progress in reducing equity holdings. In addition, unrealized gains and losses on domestic bonds reflecting hedging positions showing in the upper half of the lower left graph is controlled at a low level of just under JPY 0.3 trillion and unrealized gains and losses on foreign bonds in the bottom half are slightly positive. Given the scale of our balance sheet and income statement, we think we are in an extremely healthy state with reasonable degree of flexibility. Regarding the reduction of equity holdings on the right, the cumulative sales during the current MTBP were JPY 339 billion on an acquisition cost basis, which is about half of the JPY 700 billion target. The agreed amount has reached nearly 80% of the target, and we are making steady progress toward achieving this target. Page 20 shows capital adequacy. The CET1 ratio, excluding unrealized gains on the finalized and fully implemented Basel III basis fell 30 basis points from the end of March to 10.5% at the upper end of our target range due to growth investments and increase in loans, as well as yen appreciation versus end of March. Towards the end of the fiscal year, we expect risk-weighted assets to continue to accumulate and the yen to appreciate based on the financial indicators, I will come back later. Therefore, we expect the ratio to remain around the midpoint of the target range. Capital allocation results are shown on the lower right. We will continue to manage capital with an eye on balancing shareholder returns and growth investments. Please go back to Page 3. Let me turn to our FY '25 financial targets and shareholder returns. As shown on the left, given the continued strong performance of NOP, particularly in the customer segment and increased income from equity method investee, we revised up our net income target by JPY 100 billion from initial target to JPY 2.1 trillion. Turning to shareholder returns on the right. We continue to aim for a dividend payout ratio of approximately 40%. And in line with the upward revision of profit target, our annual dividend forecast for FY '25 was revised up to JPY 74, up JPY 10 from the previous year and JPY 4 from initial forecast. Regarding share repurchase, a resolution was approved today to acquire an additional JPY 250 billion in the second half of the year, bringing the total amount for the full year to JPY 500 billion. As discussed in May, this is due to take into account total shareholder return over the past few years. We also announced today the cancellation of 200 million treasury shares. We aim to achieve our mid- to long-term ROE target and we will work to provide shareholder returns while taking the optimal balance with growth investments into account. Turning to progress of 3 pillars of MTBP. Please turn to Page 4. First pillar is expand and refine growth strategies as shown on the left. Each of the seven strategies for seasoning growth is on track, resulting in an increase in NOP of approximately JPY 150 billion compared to FY '23. In particular, in the domestic retail business, a new service brand, EMUTO, was announced in June this year. The credit card reward programs and group-wide campaigns launched in conjunction with EMUTO generated strong response, leading to increased transactions for each group company. We will continue to demonstrate the collective strength of the group and aim to expand our services, including digital banking. Please turn to Page 5. Second pillar, social and environmental progress is shown on the left. Sustainable finance has steadily built up a track record even with different vectors at play globally. A white paper will be published again this year to communicate our view on contributing to accelerating transition. On the right is our third pillar, transformation and innovation. Under the current midterm plan to maximize MUFG's potential, we are working as a group to pursue new business initiatives, invest in human capital and strengthen our foundations in areas such as AI and data in addition to continuing cultural reform. Corporate transformation using AI is a particular urgent priority. And by combining this with agile management, we are working to transform into an AI-native company. The number of AI use cases has reached 116, and the aim is to increase to over 250 cases by FY '26. Current estimates suggest that the cumulative benefits over the 3 years of the current MTBP is approximately JPY 30 billion. The launch of a new strategic partnership with OpenAI is expected to accelerate use of AI across the company and to collaborate on various services, primarily in the retail sector such as digital banking. Moving on to Page 6. Let me take you through our path to achieving mid- to long-term ROE target of 12%, which has been a popular question since our announcement in May. We assume that the policy rate will rise to around 1%, while the sale of equity holdings will come to an end and capital gains will seize. After solidifying the goals of the growth strategy of the current MTBP, as explained on Page 4, we will pursue both organic growth by refining existing areas, both domestically and overseas and inorganic growth by focusing on the areas described in the slide, thereby making steady progress towards an ROE of 12%. Mr. Kamezawa will share his thoughts on this point at the investor meeting on the 18th. Page 7, my last slide. Last month, in October, we celebrated our 20th anniversary as MUFG. Looking back over the past 20 years, thanks to the understanding and support of our stakeholders, including our investors, we have taken on many challenges, gone through three major transitions and achieved growth sometimes despite headwinds. MUFG will continue to push ourselves forward and guided by our purpose of committed to empowering a brighter future, we will aim to further increase our corporate value even in a rapidly changing external environment. Your continued understanding and support is very much appreciated. That is all for me. Operator: Let me introduce the first questioner, Mr. Takamiya of Nomura Securities. Ken Takamiya: This is Takamiya from Nomura Securities. I have two questions. On the upward revision of your guidance and the 12% ROE target. I would like to hear your thoughts on the upward revision from two perspectives. First, I wonder if the assumptions are too conservative considering the current levels of the Nikkei stock average and the dollar-yen exchange rate. Second, the revision of JPY 100 billion from JPY 2 trillion to JPY 2.1 trillion is not small, but it is a somewhat small revision to your bottom line profit. What was the aim and your thoughts on this small revision? This is my question on your guidance. My second question is on your ROE target. On Page 6, you explained verbally the general direction you are heading, including assumptions like interest rate of around 1% and no gain on sale from reducing your equity holdings. But I think this is the first time you have clarified this in writing. Regarding the mid- to long-term ROE target of 12%, I want to know if there were any changes in your thinking and the management's perspective, reflecting the changes in the environment or tailwinds. Jun Togawa: Thank you, Takamiya-san. Regarding the upward revision, our initial guidance was JPY 2 trillion based on the assumption that the decrease in net gains and losses on equity securities and the absence of reversal of large loan loss provisions will be offset by continued growth in customer segment NOP, improvement in treasury interest income benefiting from last year's bond portfolio rebalance and a rebound from the loss due to bond portfolio rebalance in FY '24. Decrease in gains and losses on equity securities, absence of reversal of large loan loss provisions, treasury interest income improvement and rebound from last year's bond portfolio rebalance are in line with our initial forecast. Meanwhile, progress in the first half exceeded expectations, thanks to better-than-planned customer segment NOP, lower credit costs, upside in Morgan Stanley equity accounted earnings and onetime gains not factored in our initial forecast. I will explain our assumptions for the second half later, but we forecast strong yen toward the end of the fiscal year, slower treasury sales in the second half as trading gains were weighted to the first half, credit costs in line with our initial forecast, though the full year will depend on the impact of tariffs and an increase in strategic expense allocation, including retail and also included certain financial measures for FY '26, resulting in a guidance of JPY 2.1 trillion. There was internal discussion about whether a 5% revision was really necessary, but we decided to do so with the aim of disclosing our forecast appropriately at each point in time since the first half of last year. We may not have done this in the past, but that is our line of thinking. Regarding the assumptions, the yen assumption against the dollar is quite strong given the current level. But depending on interest rate trends, it is not unreasonable for the yen to be in the mid-JPY 140s by the end of the fiscal year. The share price of around JPY 43,000 may also seem conservative, but the impact of share prices on our earnings is not significant. So this was not the reason for the conservative profit target. As for future upside, we expect further growth in the customer segment and decline in credit costs, which is again subject to tariffs and also an upside in FX that you mentioned. Whether there has been a change in our view on the 12% target, we originally began the discussions to set the 12% target by trying to see how much we can increase our profit under the assumptions that Japan's policy interest rate will be around 1% and that we have no gain on sale of equity holdings, which I strongly insisted. Since investors asked questions based on different assumptions such as including gain on sale of equity holdings, we made that clear. We are fleshing out the details to achieve this as we speak. One change in our thinking, both in terms of inorganic investment and the use of capital, as I may have mentioned before, is that we are now discussing potential investments internally based on whether or not they contribute to achieving 12% ROE. Operator: Next, Mr. Nakamura of BofA Securities, please. Shinichiro Nakamura: This is Nakamura from BofA Securities. I also have two questions. First, let me confirm the full year CET1 ratio forecast on Page 20 again. It doesn't seem like it will approach the middle of the range. So if you could share with us your view on the level and the breakdown to the extent possible. There was an article in Bloomberg about your inorganic investments, and you denied that the information came from you. Could you elaborate on this, if possible? Sorry for asking too much. That is my first question. My second question is on credit cost. In the first half, there was a reversal on the bank nonconsolidated basis. So if you achieve your target in the second half, this is a reasonable level. So my question is on the current situation of private credit in the U.S. Although MUFG has not directly mentioned it, we are seeing large-scale loans to Oracle's data center investment, among others, which is widening credit spreads as a result. What are your thoughts on this increasing concentration of risk? Thank you. Jun Togawa: First, regarding the outlook for CET1 ratio toward the end of FY '25, the end of March '26, approximately 80 basis points up in the second half from the accumulation of net income based on the revised performance targets, 65 basis points down due to shareholder returns, including dividends and share buybacks, as I explained earlier, around 30 basis points down from the planned increase in risk assets. And with Morgan Stanley's accumulated profit from its extremely strong performance, et cetera, we expect the ratio to be somewhere between 10% and 10.5%. Regarding the private credit market, MUFG actually does not have a significant exposure. We have some exposure to companies that have been mentioned in the media. But as you saw earlier, our NPL ratio is declining. So I do not think we have a significant exposure. That said, the private credit market is extremely strong now. So we need to keep a close eye on the recent increase in volatility. I think the risk of lending to data centers depends on the project. We have extensive knowledge on project finance. So it is important to carefully select projects, taking into account factors like sources of cash flow and technical conditions, such as proper installation of high-voltage cables. Regarding the first question on inorganic investment, sorry, I skipped that. But actually, I have no comment. We continue to consider opportunities in three areas, namely AMIS, Digital and U.S. Asia. Operator: Next, Mr. Matsuno from Mizuho Securities. Maoki Matsuno: Matsuno from Mizuho Securities. I have two questions. First question is on Page 3. Upward revision of financial targets for FY '25. Can you give a more detailed breakdown? The graph on the bottom left shows a breakdown into customer segment, equity method investees and review on financial indicators. Can you give a breakdown of each of them? For example, weaker yen than the beginning of the year, would that be included in review on financial indicators or the equity market value? Can you give some color on the factors affecting changes in net income? My second question is on the operational policy of Global Markets in the second half. In the first half of the year, it looks like you did well by drastically reducing yen bonds and super long-term bonds and making profits on foreign bonds. Is there anything you can speak about the operations of Global Markets in the second half of the year? Those are my two questions. Jun Togawa: So starting with Page 3, your question on major factors affecting changes in full year targets. Earlier, I said the customer segment is expected to continue making steady progress in the second half of the year and is expected to exceed the initial plan by around JPY 30 billion for the full year. Regarding equity and earnings of equity method investees, I must admit it is difficult to say how much is coming from Morgan Stanley, but a certain amount is factored in. There are also some one-offs. Please look at the footnote on Page 8. Step-up gains from acquiring shares of JACCS, one-off gains from acquisition of Tidlor as a subsidiary and gains related to liquidation of local subsidiaries, a part of them were not factored in, accounting for approximately JPY 40 billion. The revision of financial indicators is expected to have an impact of approximately JPY 30 billion, mainly due to the weak yen. Stock price outlook was revised up, but gain on sales of equity holdings has been hedged for stocks scheduled for sale at the beginning of the fiscal year. So impact of sales of equity holdings is minimal. Although there will be partial impact on earnings due to an increase in AUM in the asset management and investor services, the impact of the revision of stock price assumptions is not that big. The impact is primarily from ForEx, and the total adds up to JPY 100 billion. For Global Markets, you are right. In Q1, reducing the balance of super long-term JGBs, partially offsetting with redemption gains on bear fund and gains on sale of foreign bonds, that's for the first half of the year. Regarding yen bond management from the second half onwards, our policy of gradually building up our yen bond positions, while monitoring the rise in Japan's policy rate remains unchanged. Short-term JGBs decreased as the BOJ's growth-oriented lending support operation is gradually coming to an end and need for short-term JGBs as collateral has decreased. The balance of short-term government bonds has fallen significantly. As for foreign bonds, the balance of long-term bonds appears to be increasing, while duration is decreasing and some might feel this doesn't sit well. This is due to categorizing mortgage bonds with long statutory maturities as long term. But overall duration shortened to 4 years. Operator: Next is Mr. Matsuda from Daiwa Securities. Ken Matsuda: Matsuda from Daiwa Securities. I also have two questions. Regarding net fees and commissions. Net fees and commissions in the first half of the year was very strong for both domestic and nondomestic. Is this trend in the first half a temporary phenomenon? Or including the current pipeline, can we expect further growth going forward? That is my first question. Second question is on CET1 ratio on Page 20. The impact of exchange rates was cited as a factor in the decline in the CET1 ratio in the first half of the year. It worsened by 40 basis points, but the yen did not appreciate significantly between the end of March and the end of September. Then why deteriorate by 40 basis points? Was it due to the Thai baht? What was the impact in the first half? If the weak yen environment continues, can we expect the CET1 ratio to improve further? These are my two questions. Jun Togawa: Thank you for your questions. Fee revenues, fee income partially include impact of acquisitions. Acquisition of WealthNavi, MPMS acquired by our Trust Bank and NICOS acquiring Zenhoren has resulted in a total acquisition effect of about JPY 48 billion. Apart from that, GCIB, in particular, is further promoting O&D initiatives, so fee income will grow. Domestically, fees related to loans such as MBOs and LBOs are growing. Solution-related fees are also growing. So we can expect continued growth in this area. In addition, AUM in asset management is growing steadily, and IS has also issued a press release stating that outsourcing operations have quickly achieved the MTBP target. These areas are growing steadily. So I believe we can continue to grow. Regarding CET1 ratio for the first half of the year, impact of U.S. MUA is large, as I might have said in May. The dollar-yen exchange rate from December to June saw the yen appreciate by about JPY 14. We took some hedging measures, but were implemented after April or May and hence, this impact. Regarding impact of the weak yen on CET1 ratio, it will depend on the trends in the dollar yen and Thai baht, but the weak yen will have a certain effect in lifting the CET1 ratio. That's all for me. Operator: Next is Mr. Yano, JPMorgan. Takahiro Yano: I also have two questions. One is a detailed question, a follow-up to Mr. Matsuno's question. Regarding the revised target for this fiscal year, you referred to the waterfall chart on the lower left, but I'd like to confirm referring to the table above. NOP is up JPY 50 billion. Credit costs haven't changed and ordinary profits increased by JPY 150 billion. I assume this is coming from increase in ownership interest, stock-related and other factors accounting for JPY 100 billion. I'd like to know the breakdown. This is my first question. The second question is a high-level question. Today, there was a headline in the news quoting CEO, Mr. Kamezawa about achieving top -- global top-tier ROE and corporate value. I assume this is along the same lines of what has he has been saying. But just to be sure, can we take this as a hint that the current ROE target of 12% will change? Is there no need to read too much into it? I would like to know what you mean by achieving global top-tier ROE, if there is anything we should know of. Jun Togawa: Thank you for the questions. Should I explain both NOP and ordinary profit? Well, if you could elaborate on the variance, if there is anything that is tricky in NOP. Okay. Within NOP, JPY 25 billion is from ForEx, assuming the yen to be about JPY 5 stronger. The rebound from treasury trading gains was concentrated in the first half, as I said, and the difference between first half and second half is about JPY 130 billion. Then there is increase in expenses, expense incurred in EMUTO, IT costs, AI, cyber-related impact from certain inflation-related costs, base wage increase, among others. All in all, about JPY 100 billion in expense increase. We are also considering a certain level of structural improvements for next fiscal year as profits are also strong. Averaging them all out, we expected an upside of about JPY 50 billion in NOP. Regarding ordinary profit, there is a one-off step-up gain from an increase in our ownership interest. This accounted for about JPY 100 billion in the first half. Some of it was not accounted for in the plan, as I said earlier. Combined with Morgan Stanley's profit increase, ordinary profit was revised up by JPY 150 billion. To your second question, I appreciate the expectations you have on us, but we will first focus on achieving 12%. Mr. Kamezawa spoke in that context. Thank you. Operator: It seems there are no further questions, so we will conclude the Q&A session. Finally, Mr. Togawa would like to say a few words. Togawa-san, please. Jun Togawa: Thank you very much for joining us today despite the late hour and on a day where many companies are announcing their results. Thank you for your diverse questions and comments. Today, I mainly explain the progress made in Q2 of FY 2025, and President Kamezawa will provide a more detailed explanation, including his own thoughts at the investor briefing on the 18th. We look forward to your participation. We would appreciate your continued understanding and further support. Thank you very much for joining us today. Operator: This concludes the online conference call on financial highlights for the first half of FY '25 of Mitsubishi UFJ Financial Group. Thank you very much for participating today. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Operator: Good morning, everyone, and thank you for waiting. Welcome to Cosan's Third Quarter 2025 Earnings Release Conference Call. [Operator Instructions] The conference call is being recorded and will be available on the company's IR website at cosan.com.br. [Operator Instructions] Please note that the information contained in this presentation and in statements that may be made during the conference call regarding Cosan's business prospects, projections and operating and financial goals are based on beliefs and assumptions of the company's Executive Board as well as information currently available. Forward-looking considerations are not a guarantee of performance as they involve risks, uncertainties and assumptions and refer to future events that depend on circumstances that may or may not materialize. Investors should bear in mind that overall economic circumstances market conditions as well as other operating factors may affect Cosan's future performance and lead to results that differ materially from those expressed in such forward-looking statements. I will now turn it over to Mr. Rodrigo Araujo. Rodrigo Alves: Hi, everyone. Welcome to our earnings call of the third quarter of 2925. Here, we have the disclaimers about future projections and future assumptions with respect to the company's results. Next slide, please. So looking at the financial highlights of the third quarter of 25, you can see that we had an EBITDA under management of BRL 7.4 billion that's about BRL 1 billion less than 2024 and mostly impacted by the results of Moove, Radar and Raizen that we're going to detail later on. We also had given the lower EBITDA and the higher financial expenses, we had a lower net income in the period, negative BRL 1.2 billion. Our net debt was relatively stable in the quarter, slightly higher than Q2 '25. We had a quarter with lower dividends received. Of course, we have a concentration of dividends in the beginning and end of the year. So that's reflected in dividends for Q3. And in that sense, we also have our debt service coverage ratio of 1x. And this is, of course, one of the main reasons why the company needed to improve and enhance its capital structure and did the transactions that we announced recently. And in terms of safety, we continue to have positive metrics, low metrics in terms of incidents. Of course, there's an increase compared to Q2 '25, but still highly efficient ratios. And we continue, of course, to have safety as a priority for the company and continue our journey of improving safety over time. Next slide, please. In terms of operational performance for Q3 '25, we had in the case of Rumo, we had largest -- an increase in the transported volumes but also a reduction in the average tariffs that resulted in an increase in EBITDA of 4%. The company has been repositioning itself over the course of the year to improve its competitiveness in the Brazilian logistics market. In the case of Compass, we had higher distributed volumes in the quarter, also an increase in the participation of the residential segment that has healthier margins and it's quite accretive for the company as well. We continue to see the increase in the volumes sold by Edge in the unregulated market in Brazil. So we saw a growth of 6% of Compass EBITDA in the quarter. In Moove, something that we've been talking about. We already see the company having stable volumes compared to '24. When we compare to the second quarter of 25, there was a 13% increase in the volumes sold. So the company is gaining back its track in terms of volume, even though the EBITDA was 7% lower, and we are working on eliminating the logistics and tax inefficiencies of the new production settlements settings for the company after the fire in the Rio de Janeiro plant. We continue with the CapEx of the reconstruction of the plant. And in terms of insurance, the company has already received until October roughly BRL 500 million of proceeds in insurance. In the case of Radar, we had the sale of properties that impacted positively the results in 2024 that didn't occur in '25. So that's the main reason for the difference year versus year, and we will have the land appreciation review in the fourth quarter. We expect increase in the value of the portfolio given the current market environment. Finally, in Raizen, we have an increase in the pace of harvesting that was favored by weather conditions. So the sugarcane crushing increased in the quarter, even though we had lower sugar prices that affected EBITDA. And we also have an overall lower volume given the drought and fires that affected the company's production for this year. In the fuel distribution segment, we see a very healthy environment. We see operations of the federal police in Brazil and the crackdown of irregular players that's translating into higher margins and healthier margins. So we have quite relevant margins in the fuel distribution segment in Raizen. Next slide, please. In terms of liability management, you can see that, as I mentioned, gross debt relatively stable, net debt slightly higher, interest coverage about 1x. And in terms of the amortization schedule, we continue to have a duration of roughly 6 years with an average cost of CDI plus 90 bps. So no relevant change in terms of the debt structure of the company. And finally, when we look at the cash position through the quarter, we have no relevant events in terms of liability management. We only have the dividends received and interest payments in the quarter. So those were the only events that happened this quarter compared to the second quarter. So that's the main reason for the changes in the cash balance. So next slide, please. So thank you for participating in our earnings call of the third quarter of 2025, and we continue with the remaining of our earnings call. Thank you. Thank you for joining. Operator: [Operator Instructions] Before we begin the Q&A session, Mr. Marcelo Martins would like to say a few words. Please go ahead, Mr. Martins. Marcelo Martins: Good morning, everyone. Thank you for joining us at our earnings release conference call. And before we move on to the Q&A session, I'd just like to make a few comments because this is a key time for the company. I'd like to talk about what Cosan is going through right now. Since there's been a change in management at Cosan, more specifically when Nelson stepped down as a CEO and went to Raizen and I joined as a CEO, roughly 12 months have gone by. So a year after that change, and that's when we first started discussing our objective to improve Cosan's capital structure very objectively, and we discussed different alternatives. We've always made it clear that we wanted to as efficiently and constructly as possible, preserve the portfolio and look for an encompassing solution that would be definitive and to provide a positive perspective for the business and for Cosan. All of you who have taken part in conversations with us, with me here at Cosan or at other events will know that we've always made it clear that our first option was to potentially divest from some assets, but we also wanted to preserve the quality and integrity of our portfolio to continue to be a compelling company for future investments. And that's precisely what we did. We looked at what Brazil was going through, what the market was going through and came to the conclusion that the best option was to find relevant shareholders that could make significant contributions to the future of the company at an investment size that would also make sense. So in our pursuit, we identified a few potential investors, and I am completely confident that we ended up with the best investors possible for the future of this company. We were able to not only increase capitalization significantly, so reducing the company's issues substantially. So even if we still have a residual divestment balance so that we can reduce Cosan's debt to 0 or close to 0 in the near future, which is another commitment I've made to investors. We looked for a relevant transaction with the contribution of these new shareholders as the main factor and also some subscriptions to this new public offering that ended last week. I'm very happy to say, and I can speak for myself, for Cosan and Rubens as a controlling shareholder of Cosan that we are extremely happy to have highly valuable shareholders who have huge credibility in the market. They're very successful. They're fantastic risk managers, portfolio managers. They are very familiar with the infrastructure sector and considering our portfolio right now, they will make amazing contributions to the future of this company. So before anything else, I wanted to thank Boston and their commitment the level of involvement they've shown to the process and the fact that we were able to conclude this transaction. So looking forward, very excited and fully confident in the future of this company. That said, we know that as of now and over the next few months, probably the next year, we will be focusing entirely on integrating the new shareholders with a shareholder getting to know the companies in depth. You know the level of contribution they'll be making and what we expect as well at the Board at Cosan and the invested companies. The objective is to fully engage this group of shareholders, looking at future investments, that should bring the company's debt to 0 or close to 0. We also want to make it very clear that we do have divestment priorities, but this plan will be executed at the right pace so that we can really create value without any pressure to sell assets at any price. That is not going to happen, has not happened and will not happen, especially now that we are in a much more comfortable position when it comes to capital structure. So we will be focusing on our portfolio on identifying the priorities at Cosan looking forward and divesting so that we can execute our plan as efficiently as possible. And we're going to look at growth options down the line once we know the way forward, then we'll be able to look at assets that will become part of this portfolio in the future because, obviously, we want to unlock value and to use the levers we've always used in the past, but which hasn't been possible for the time being, given that we'll be focusing on rebalancing our capital structure. That's the main change now. We have a completely open horizon whilst a while back, there was quite a high level of uncertainty. So that was basically what I had to say. These are just my opening remarks, and we can now begin the Q&A session so that Rodrigo and I can answer any questions you might have about our results. Operator: We will now begin the Q&A session with Mr. Marcelo Martins, Mr. Rodrigo Araujo, and Ms. Camila Amorim. [Operator Instructions] Our first question is from Gabriel Barra from Citi. Gabriel Coelho Barra: My first point based on what Marcelo said is about supply. What was the allocation rationale in terms of supply and the outcome? I know Marcelo touched on it, but if you could provide us with a bit more detail, it would be really interesting to hear about that. And second question, also touching on what Marcelo said is after this capitalization, the company is a bit more comfortable and can now think about restructuring the portfolio, selling assets. If we could talk specifically about Raizen, even if the company is in a more comfortable position now with a better capital structure, Raizen has been burning cash and you've changed the perspective of the second offering to strengthen the subsidiary company's capital structure. So could you tell us about Cosan's strategy considering the subsidiary companies? Will there be a third entrant? What are the options on the table? Could you tell us about that? So those are my 2 questions. Rodrigo Alves: Thanks Barra. I'll start with your first question, and Marcelo can answer your second question. About the offering, this transaction was big enough to be relevant for the company's capital structure and for new partners to come in with expertise in infrastructure in Brazil with a long-term strategy and an amazing plan with the new partners. And that can be seen in the stats of the offering. The first offering was 10x the demand. The second offering was also significant. So we had 2 very successful offerings. And an interesting challenge in terms of allocation. For the first offering, we kept what we said to the market when we announced the offering, so we prioritized existing shareholders. The first offering had one non-shareholder that was long term strategic and was allocated. The rest were all part of the company's existing base. The second offering was a priority offering but we went beyond that and gave allocation priority to the existing shareholder base. 2/3 of the offering was allocated to the existing base. So we've really prioritized the company's long-term shareholders who've been with the company a long time, believing in our recovery journey. So in summary, we had 2 successful offerings where we kept what we had said that we were going to prioritize our existing shareholders. I'll turn it over to Marcelo so he can talk about our capital structure. Marcelo Martins: Well, Gabriel, adding to what Rodrigo said, we were very happy with the level of interest and demand for our first and second offering, which is a clear testament to the fact that the market is betting on the future of the company as well as knowing that this was the best solution possible considering the different alternatives and that we were committed to the market to resolve our capital structure this year. That's why it was so important to deliver on all these elements within 2025. As for Raizen, yes, we do understand solutions for the company's capital structure are required urgently. And I just want to say that I'm very happy with what the company's management has been delivering. And considering all of our expectations concerning what was to be delivered, I'd say management has complied with what we had expected for this year, 100%. Despite the challenging scenario, deliveries have been very positive. And a lot of points were addressed during the call on Friday. We know that this is the best way possible and it will be very positive for the portfolio and for the companies in the future. But obviously, capital structure challenges remain our conversations with Shell have progressed considerably. On a number of aspects that can be potential solutions or solution, we have made progress, although we haven't yet come to a conclusion about the way forward. I'd say that in our conversations with them, the clearest direction compared -- is much clearer than we had a few years -- weeks ago, but we haven't come to a final conclusion yet to announce to the market. We have been working hard on it. This is a massive priority for me and Cosan's team. After Cosan's capitalization we know that we need to focus on that, and we'll continue to work on it with a sense of urgency and closely with Shell so that we can come to a conclusion. I can't share with anything with you for the time being because we're still working on it. We haven't come to consensus on their side or on our side. So no conclusions yet. What we did do recently during the second offering was to announce that we might be using proceeds from that offering to capitalized companies, broadly speaking, and Raizen is included in that. So that remains, obviously. We have already disclosed that because we think that's a key consideration when it comes to Cosan. And depending on the solution, if it's a broad solution with a positive effect, we will definitely consider that capitalization. As I said, we haven't decided on the terms yet. And in fact, the structure to be pursued so that we can continue to deleverage the company hasn't been decided on yet. But our commitment to get to the right solution and to potentially making a capital contribution remains as we had said previously. Operator: The next question is from Isabella Simonato from Bank of America. Isabella Simonato: You touched on many different points, including the new shareholders and Raizen's process. And on Friday, during the call, you also announced several Board changes to the directors. I would imagine that comes from a shareholders' agreement that was signed. But if we could also talk about the context of the changes in directors, which at the end of the day also had an impact on Raizen at a crucial time, as we all know, when they're working on the balance sheet. So if you could provide us with more color about that, that would be very helpful. Marcelo Martins: Well, yes, those changes to the Board are a consequence of the new partners coming in. We had agreed that those changes would take place. And obviously, totally in line with the new partner's contributions to the company. Not only were we expecting those changes, but we also believe that they are extremely positive to the future of the company. Another point, which I didn't mention during my opening remarks, but I will now, before I address the financial changes is that we have been making significant changes at Cosan to streamline the team and to streamline the company itself. We believe that in line with Cosan's future and the contributions the company will have to make to its portfolio, it is important to streamline the holding company and to generate more efficiencies, which is something we've been thinking about for a while and now is the time to do it. I think that streamlining process will be very accretive in terms of value to Cosan. Streamlining the holding company and reducing expenses will also be a huge contribution in addition, obviously, to the capital increase. So that's how we're going to proceed. As for the changes in CFOs. Now that Rodrigo is leaving and with the objective of bringing in people from inside the company who have the knowledge and who can run this area with in-depth knowledge of the portfolio and the process, it had to be somebody from the company. Bergman has been with us a long time, 14 years, I think. He's been through many companies in the group. He has a lot of experience within the group. So he's highly qualified to take on the job. And since the holding company is focusing on the portfolio, the partnership with the new partners and focusing on the portfolio more constructively, it was key to bring in someone, if I may use a word in English that could hit the ground running. So he is somebody who is going to come in and hit the ground running and continue to manage things as we expect them to be managed now that Rodrigo is leaving. And somebody who is going to come into Rafa's place to make the right contributions, who had experienced enough to run such a complex company as Raizen. Hence, Lorival is now taking Rafa's place. What I wanted to say is that during the 2 years, Rodrigo spent with us, he made massive contributions even though it wasn't a long time, he was extremely active. He had a huge role to play and made exceptional contributions to the company. When we said we were going to sell our stake at Vale and with the current capitalization, that means we move BRL 20 billion in the Brazilian capital market in 12 months. That's a historical milestone for any company in Brazil, especially considering current times. So I really want to thank Rodrigo for his contribution, and I wish him the greatest of successes in his next professional stage. Isabella Simonato: Excellent. Marcelo, if I can have a follow-up question, please. Looking at the shareholders' agreement, it's clear that the new shareholders can join the Board, and it's slightly different at Raizen. Rubens -- and will be more in charge of the JV and the JV decisions. Did you make that decision? Did Shell have an opinion? And also, congratulations, Rodrigo, on the last 2 years. And I wish you success on your next stage. Marcelo Martins: These are actually, our new shareholders' agreement will keep the same terms as the pre-existing shareholders agreement. And these were the terms for Raizen already. So what we agreed with the new partners is that we wouldn't change anything. We would keep the same terms. There was no reason to change it, and that is our agreement with Shell. That's why Raizen was the exception. We have kept the appointment of the Board members in line with the shareholders agreement that is in force. As Rodrigo leaves, we're going to replace him at Raizen. We have an idea of who's going to do that, and we should be doing that soon. I just wanted to make that clear. And obviously, it won't be anyone appointed by the new partners for the reason I have just given you. Operator: The next question is from Thiago Duarte, BTG. Thiago Duarte: Good morning, everyone. Marcelo, Rodrigo pleasure to talk to you. If we can go back to Marcelo's opening remarks about the role the holding company has to play in this new context. Historically, Cosan has been going through different formats as a holding company, diversification, then simplification, eliminating holding companies along the way. In the last few years, there's been a significant investment cycle at the holding company and the subsidiary companies. And now with the offering, things are much more tangible. You're talking about a significant simplification with new partners coming in the controlling shareholders group, not only in terms of reducing expenses, but also bringing down the company's debt to 0. So given that context, once this process is concluded or is on the right track, a significant part of it has already been done. What will be the role that Cosan as the holdco will have to play in the future? And I also have a second question. Considering the funds that you raised and considering that a major part of it, if not all, will be used to reduce the holdco's debt, as you said. My question is what part of that debt would you be tackling? Do you think it will be the cost of debt or the maturity, the duration? What kind of an impact will that have on your liability and liquidity? Rodrigo Alves: I'll start with your second question, Thiago, and then I'll turn it over to Marcelo to talk about the holding company. Yes, you're right in terms of how the funds will be used. Substantially, they will be used to pay for the debt, we had already announced that during the offerings. In terms of priorities, there is a cost packing order to be tackled because the duration is compatible. And there's a lot that can go into call in the short term. And the trade-off will end up being positive between a high cost, but also a duration contribution. In terms of the duration itself, I think there is a first stage where there will be a reduction but once the company's credit improves, we'll have more opportunity for tactical operations in the long term. We don't have anything maturing by 2028. So in terms of that kind of pressure there isn't any. And a really good duration for the holding company's horizon. So we'll be focusing on costs, but naturally, there will be an opportunity for a part of the debt, which is callable in the short term to have a positive impact on the duration as well. I'll turn it over to Marcelo so he can answer your first question about the holding company. Marcelo Martins: Well, Thiago the last time Cosan had a capital increase before this one, obviously, was in 2007. So that was roughly 18 years ago. And that capital increase took place before we started diversifying our portfolio because the first acquisition of sugar and ethanol took place in 2008 when we acquired Esso Brasileira de Petróleo. So in practice, all the financing of these acquisitions of the companies in the portfolio took place in the last 17 years, which means that if we had leveraged the company in time because, obviously, that capital increase was crucial for that acquisition, but not enough to build up a portfolio that leveraging took place gradually over time. And it wasn't efficient because it's -- this is a pure holding company. Up to the point where the macro scenario changed, interest rates, skyrocketed and that coincided with the recurring leveraging of our stake at Vale. So we started going in a direction to where to resolve the company's capital structure, either would have to make a significant sale in the portfolio or have a capital increase somehow, which is what we did. So the holding company played a role in the last 17, 18 years that has changed. It doesn't make any sense continuing to use Cosan as a leveraging tool for future growth. First, because it's been clear to us for a while, especially our experience with Vale that we shouldn't develop any other verticals using Cosan's resources. So future investments will be made through the controlled companies when that makes sense again when the time is right. So there's no sense in continuing to leverage Cosan over time. It doesn't make financial sense. It's fiscally inefficient. So the holding company, regardless of our active participation in portfolio management, the holding company will no longer be a vehicle for future investments. We need to consider creating efficiencies and streamlining it over time, and that is our objective for now. Now what will happen once we get to a size that makes sense and the leverage that makes sense, then we'll discuss it again. But right now, we want to create efficiencies and streamline it. Operator: The next question is from Matheus Enfeldt from UBS. Matheus Enfeldt: My first question is based on what Marcelo said about timing. I know it's hard to say, but there's a lot of news about Cosan being in a hurry to resolve investments, to reduce the company's balance sheet in the very short term, which diverges from what you said, Marcelo which is that you now have the time to do it gradually. So I'd like to hear about that timing difference. When do you think we'll be able to see new decisions about the company's portfolio? And also in terms of timing, the message about Raizen sounded very different to my ears in the sense that Raizen doesn't need capital immediately, that it's in no rush, that it can perhaps wait for 2 or 3 years. Whereas what you said, Marcelo, is that they want to resolve it in the short term. So could a potential solution for Raizen happen in the next 6 months? Or do you think it will be over the next 2 or 3 years? So that's my first question. Second question is about Moove. We haven't talked about Moove yet. I'd like to hear more about the company's results. You had quite a solid result. How much of that came from operations? How much of that is a result of insurance proceeds or tax credits? I'd just like to hear about what's recurring and how the operational business is running? Rodrigo Alves: Thanks for the questions. I'll start with your question about Moove and Marcelo can talk about the company's balance sheet and timing. Let me just recap what we showed during the presentation. In terms of volume, the company is well covered. If you compare it to the same period last year, you can see that there's been significant volumes recovery, the reconstruction CapEx. Obviously, the dismantling and reconstruction of the Rio de Janeiro plant is ongoing. And given the volume solution, the company is focusing on eliminating tax and logistics complications in the setup, which transfer interstate products, a return of ICMS credits. The logistics is much more complex than if it was centralized in a single asset. So the company is working on that so that it can land on a new production setup. It's not just about the real plan, part of what was going to be done that will be done to the facilities that we've been acquiring over time, especially in Sao Paulo. So the company is on track to position itself competitively. And given everything that happened, that's quite remarkable. In terms of the insurance proceeds, yes, there was a considerable recognition in the second quarter, another BRL 200 million in the third quarter. But the main thing than the accounting recognition was what we expected that would happen, which is significant cash coming in, BRL 300 million in the second quarter, in October another BRL 200 million, which we have announced and that reiterates our confidence in the process. And we are confident that the company will recover. And again, the Rio de Janeiro plant reconstruction CapEx, as I said, part of the insurance was associated to property. So we expect that Rio's plant CapEx will also be covered and realized over time. I think that's it. And I'll turn it over to Marcelo. Marcelo Martins: Matheus, let me make it very clear so that there is no doubt. Our sense of urgency at Raizen is obviously much more along the lines of 6 months than 2 years. There's no question about that. As we continue to talk and define a strategy with Shell, not only will we announce that, we will also start executing on it as soon as possible. And there is definitely a sense of urgency. No, we do not think that we can wait for 2 years before we find a solution for Raizen's capital structure. The point is that it has been delivering significantly but that's part of the equation. The sense of urgency is there. As for the portfolio, what I said was there is no need for any fire sale of assets. In other words, we will do what's best to solve the company's indebtedness and the portfolio's prospects without burning assets. That doesn't mean there is no sense of urgency, but it's changed with the capitalization. So we have resolved a major part of the capital structure. And the rest will be done, delivered and announced will be executed in a time frame that makes sense, in a schedule that makes sense, for the price that makes sense and the right mood in a coordinated and organized fashion. We don't want to give anybody the impression that we're rushing around trying to sell assets. We didn't do it in the past when we needed to raise funds. So obviously, we're not going to do it now, considering that a major part of that solution has been found. Operator: The next question is from Monique Greco from Itaú. Monique Greco: I have a couple of questions. If you could provide us with more detail about some of the things you've already touched on. First question is if you can comment on the streamlining measures at the holdco level. Have you mapped them? Have you started implementing them? Do you have a time frame in mind to get to the streamlined level you would like? I heard that you are hoping to cut annual expenses by half at the holdco level. My second question is about the divestment agenda. Could you comment on the order and the pipeline? What would make a sense focusing on first? Rodrigo Alves: Thank you, Monique, and thank you for the questions. Well, with regard to implementing measures, as Marcelo said, we have mapped a process to streamline the structure at the holdco level, partly decentralizing some the rules, which is something we had already been doing. Now looking forward, we want to bring the holdco to a level that is strictly necessary. So we'll be focusing on what will remain in the portfolio. For next year, considering this personnel streamline, we should be saving about BRL 30 million for next year. That 50% reduction entails a few other initiatives. As you know, our prospectus announced that we are looking into the company's ADR because of its relevant annual cost. It's over BRL 10 million when we consider all the associated costs. So that's something we're considering, and other things as the physical space as well as other expenses based on what the company has been doing and will take place over time. So without giving you a time frame, we believe that it is very doable to bring -- to cut down on costs by half. As Marcelo said that is key in terms of capturing the value of the deal we announced. So it is in our interest to implement those measures as quickly as possible so that we can capture them also as soon as possible. And Marcelo will tell you about our divestment agenda. Marcelo Martins: As we've been saying to the market, Monique, divestments should take place following the order of capital allocation priority within the portfolio. And obviously, considering that we should start with Radar. So if you look at our portfolio and the level of priority of the business is looking forward, I think Radar is possibly the company where we might consider thinking selling a more considerable share. The rest will come as a consequence of that first step, obviously, depending on the size of the divestment, then we can allocate it to the other businesses as we consider a combination of value, size of the business and the future strategy for investment in those businesses. That's why it's the asset that makes the most sense to start with at the moment. Operator: The next question is from Regis Cardoso from XP. Regis Cardoso: Good morning, Marcelo, Rodrigo. Congratulations on the offering. Your exit will surprise, Rodrigo, but it will leave an important legacy. Marcelo you just talked about Radar, would it make sense to sell more assets or a stake in the company itself? And if you could talk about Rumo, would it make sense to sell a stake? Is there a minimum stakehold and needs to have to remain as a controlling shareholder? And the same applies to Moove, I would imagine that in time, a decision to raise funds at Moove would depend on resuming production. And I don't know if there's anything else on your radar in terms of when it would be possible to normalize things. Marcelo Martins: Well, first of all, with regards to Radar, it's a combination of factors. We can continue to sell properties that are part of the portfolio or sell a part of Cosan's stake. Obviously, there is a trade-off between speed and what makes the most sense in terms of adding value. So we'll look into that to make a decision on the best way forward. We know that, that is compelling to many investors. We have an exceptional portfolio, one of the best portfolios in Brazil. Its size is considerable and a performance track record that is also exceptional. So those are all very positive factors when we consider a significant divestment in that business. As for the other businesses, and I can speak for all other businesses, they are considered very relevant to the portfolio with the potential to create huge value, all of them without exception. If we are effectively going to consider selling a stake in some of them, more diluted stake in more than one of them or if we're going to concentrate it more in one rather than the others, will depend on, first, understanding our strategy looking forward as well as potential buyers and opportunities that may arise. Always, always bearing in mind that value is key. We have built this portfolio over time. We've made considerable progress in terms of growth investments. And obviously, we will make divestments that make sense for the right price depending on the demand, but also obviously considering what is key to the portfolio as a priority. Regis Cardoso: May I ask a follow-up question, please? What about capitalization at Raizen? Is there a maximum amount that you'd be willing to contribute? Marcelo Martins: Well, that is under discussion, but in the context of the offering, I think we've made it clear where that amount would be, right? Where that value would be. We're currently discussing that. I mean it will depend on how our conversations with Shell goes. It depends on what they will be willing to do. It depends on many other factors. But on our side, let's remember all of our statements, the first offering, the second offering and the context. So it will be within those thresholds that we announced to the market. Operator: This concludes the Q&A session. I will now turn it over to Mr. Marcelo Martins for his closing remarks. Marcelo Martins: Well, thank you again for joining us. And this has been a very exciting journey. Our objective is to resolve Cosan's capital structure and more broadly speaking, all the group's companies. We are extremely happy with where we've got to and very excited with the prospects for the group, its portfolio and a clear notion that we will be able to create significant value, again, as we have done in the past. So we want to stop just resolving the company's capital structure and start building again. But until we do so, that's what we'll be focusing on. Construction will come after that. Once again, I want to thank Rodrigo and the whole team for their huge effort, the professionalism, everyone at Cosan, even through tough times when we're talking about cutting down on our personnel, as we know, their level of commitment and professionalism is unique. We are undoubtedly one of the best companies in terms of its people. I want to thank my own team. I want to work -- to thank everyone who works for the companies in the portfolio, and thank you for joining us. Thank you. Operator: Cosan's Third Quarter 2025 Earnings Release Video Conference Call is now concluded. For further questions, please contact the Investor Relations department. Thank you so much for joining us, and have a great afternoon. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Hendrik du Toit: Good morning, ladies and gentlemen. Welcome to the Ninety One interim results presentation for the half year to 30 September 2025. I will highlight the key numbers before moving to the business review. Kim McFarland, our Finance Director, will then present the financial review. I will then update you on recent developments and conclude before we take questions. Those of you participating through the webcast can submit questions during the presentations via the chat function at the bottom of your screen. Assets under management rose more than 19% over the past year. Flows turned around strongly. We recorded net inflows of GBP 4.3 billion for this half year, resulting in adjusted earnings per share growing by 15%. This net inflow number consists of GBP 2.4 billion of organic inflows and GBP 1.9 billion that came from the Sanlam U.K. transaction. The dividend per share increased to 6p per share and operating margins expanded to 32.1%. Staff shareholding grew to 32.7%. The people of Ninety One are fully aligned with all our other shareholders. I'm delighted to report that our business is growing again, in terms of revenues, earnings and assets under management. This is supported by investment returns and a significant turnaround in net inflows. We are sticking to our core strategy and investing in our existing growth drivers, while selectively backing new growth initiatives across our ecosystem. Investment performance remains competitive. The Sanlam relationship is delivering, and Ninety One is poised for further growth. We always show the long-term track record of Ninety One to remind everyone that we are about growth over time and not growth all the time. The business has been built over many years in a patient and predominantly organic way. Markets have been supportive of late, but we are clear that sustaining growth over time takes focus, rigorous execution, discipline and belief. We remain committed to our people-centric, capital-light and technology and AI-enabled business model. Market conditions have improved over the reporting period. The panic that followed Liberation Day is now history, and animal spirits are back supporting overall equity market levels. More interestingly, we are observing a new openness to diversification of institutional portfolios, which includes interest in emerging markets. This interest seems to be driven by the desire to diversify geographically as well as a recovery in relative returns. Given the high concentration levels in indices, we are also witnessing a renewed interest in active strategies. A little over 1 year ago, I reported to you in a world in which active long-only and emerging markets across the capital structure would deeply out of favor. Therefore, Ninety One was experiencing a third consecutive year of hostile business conditions. I'm delighted to report that these conditions have improved substantially over the past year. Despite the strong performance from emerging markets and the rise in financial asset prices generally, we are some way off historic levels of demand at this stage. As mentioned at the end of the previous reporting period, our industry continues to be extremely competitive. Clients are setting high standards and continue to be price sensitive. Fee pressure remains a challenge. It goes without saying that Ninety One is exposed to market levels and how financial assets are priced. A sharp decline in markets will affect revenue generation and new business volumes. More generally, the Internet era is being replaced by the AI era. This touches every industry, including our own. At Ninety One, we are embracing this and look forward to reporting progress in more detail in due course. In summary, conditions have improved, while competition remains relentless in this industry. Equity markets have done well over the past 3 years with headline indices close to doubling. Over the past 6 months, our clients continued to benefit from strong performance. Emerging markets in general have outperformed developed markets and the strength in South Africa further contributed to our assets under management and driving these through the threshold of GBP 150 billion and $200 million, respectively. In fixed income, we have also seen positive returns, even though developed market bonds have had a tough time. Ironically, this is where most of the inflows in our industry have been over the past few years. Emerging market bonds are doing much better, and we expect demand to grow in this space. This is an area in which Ninety One is one of the market leaders. Since our listing, investors showed little interest in emerging markets. We're now seeing a decline in the active outflows in equities and an improvement in the environment for specifically active equities. For the second half year in a row, we're seeing positive active fixed income inflows. But as you can see, we are still well below the long-term demand levels for emerging markets. Judged by recent client engagements, we expect demand to pick up in due course. This assumes a world in which risk assets remain attractive. The outflows that have been with us from 2022 have started to reverse in the second half of the 2025 financial year, and inflows have now accelerated into the first half of the 2026 financial year. In addition, we have added GBP 1.9 billion of Sanlam U.K. assets with the completion of the acquisition of Sanlam U.K. We also benefited from the strongest year since 2020 in terms of market and portfolio growth. We are mindful of the fact that markets do not usually go up in a straight line, and we remain vigilant on the cost front. These slides show organic net flows, excluding the Sanlam take on. We had substantial equity inflows largely in our competitive global equity offerings, and positive flow in all asset classes, except multi-asset. This related to our own performance and general client demand. We have addressed the situation by bringing in new leadership and renewed focus on the multi-asset part of our business. The majority of our client groups were positive for the half year given the pipeline. And given the pipeline, I'm hopeful that U.K. will show positive results for the full year and that South Africa will return to positive net flows for the second half as well. Investment performance has been solid over the period, and we can compete in the areas where we need to compete for net inflows. As always, a few strategies have done outstandingly well while there are also laggards. Overall, we have a competitive offering, which has the potential to generate ongoing net inflows and meet the high standards of our clients. I now hand over to Kim McFarland, our Finance Director, to take you through the financial results. Thanks, Kim. Kim McFarland: Thank you, Hendrik. I'm here to present a set of strong financial results for the period ended 30 September 2025. I would like to highlight that our core operating business has again produced a solid outcome. Management fees and adjusted operating expenses both increased by 3%, resulting in the core business recurring results increasing by 2% on the prior period to GBP 82 million. Management fees were at GBP 290.7 million. This is as a result of the increase in average AUM from GBP 126.7 billion to GBP 139.7 billion, alongside a decline in the average management fee rate to 41.5 bps. More on this later, but worth noting that the increased closing AUM positions Ninety One's revenues well for the next 6 months. Adjusted operating expenses of GBP 208.7 million includes the interest expense on the lease liabilities for our office premises and the full bonus accruals. It does exclude nonoperating costs. The business produced an adjusted operating profit of GBP 98.8 million, up 12% from the prior period. This increase is predominantly as a result of higher performance fees of GBP 4 million. Other income is negligible and there's mainly a number of fair value adjustments on seed investments. There were FX losses as a result of the stronger GBP to USD in the period. So the adjusted operating profit margin increased from 30.5% to 32.1%. And at the finals for 2025, we reported an adjusted operating profit margin of 31.2%. So let me explain further the decline in the average management fee rate. This is calculated as a monthly average and over the 6-month period has shown a slow decline. However, there was a market fall at the end of H1 2026, which we have analyzed. During the period, daily average AUM upon which the management fees are generated, consistently lagged monthly average AUM upon which the average management fee rate is calculated due to the manner in which markets moved markedly during the period. And this effectively overstated the average management fee rate decline by an estimate 0.8 bps. Calculated on a daily averaging basis, the actual daily average rate is closer to 42.3 bps. So closer to a fall in 1 bp over the 6-month period, which is higher than our historic guidance. There were further factors that are impacted on the fee rate in the period, which were a significant AUM increase in lower-than-average fee rate clients. The Sanlam U.K. take on being an example, although this impact was small. However, the take on of large mandates at lower-than-average fee rates has and will have a material impact on our management fee rate, an AUM decrease for higher than average fee rate clients. The U.K. OEIC being an example, and this would have had an estimate 0.5 bp negative impact. And at the same time, there were some downward fee adjustments for existing clients who generally compensated with additional assets. Ninety One's profit before tax after considering the list of nonoperating adjustments, adjusting net -- adjusted net interest income, the small share scheme, net expense, corporate-related professional fees and now the amortization of the intangible asset as a result of the U.K. Sanlam transaction increased by 10% to GBP 102.2 million. At the interim, the share scheme is generally a net expense. And this is largely reflecting the amortization impact from prior year credits where staff bonuses were allocated to Ninety One shares. At the year-end, we have a better understanding of the share scheme and the allocation of annual staff bonuses to Ninety One shares. Remember, we fully expensed the bonus payments within adjusted operating expenses, irrespective of how settled. IFRS requires the amortization of bonus-related share awards over 4 years, which is then included in the share scheme expense. The effective tax rate for the year was 25%, down from 26.3% in the prior period, and this was driven by higher earnings in lower tax jurisdictions. And in the prior period, there were a larger number of nondeductible expenses. So the above factors resulted in a profit after tax of GBP 76.7 million, up 11% from the prior period. And our adjusted EPS shows a 15% increase to 8.4p, more than the increase of adjusted operating profit of 12% due to the lower effective tax rate on the adjusted operating profit and a lower number of ordinary shares for the calculation of adjusted EPS. So this analysis summarizes the absolute movement in adjusted operating profit from H1 2025 to H1 2026. It clearly shows that management fees, performance fees and other income increased. These increases were partially offset by the increase in employee remuneration, but noting business expenses were actually lower by GBP 2.7 million than the prior period. This is the analysis of the movement in adjusted operating expenses. Adjusted operating expenses increased by 3% to GBP 208.7 million. Employee remuneration represented 64% of the total expense base. In the prior period, it was 62%, and increased by GBP 9.5 million to GBP 134.1 million. This was driven by an increase in fixed remuneration consistent with the increase in head count and annual inflation increases as well as an increase in variable remuneration in line with increased adjusted operating profit. Over 50% of employee remuneration remains variable and the resulting compensation ratio was 43.6%, up from 42.9% in the prior period. Business expenses decreased by 3% to GBP 74.6 million. We began to analyze the cost changes, at a high level, we've broken this down -- the movement down as follows: inflation-linked increases of GBP 1.4 million for those costs that are impacted by inflation. FX-linked impact was negative GBP 2 million. And there's been a pickup in technology spend of GBP 1.7 million, with other costs then decreasing by GBP 2.8 million. Technology now is the largest business expense. Previously, it was third-party administration. Looking ahead, we're expecting business expenses to be impacted by inflation, ongoing technology spend and the move into the new offices in Cape Town planned for January 2026. Post the Sanlam integration in South Africa, there will be a cost impact, which will be predominantly headcount driven. So increases to employee remuneration as well as the resulting general operating costs. This is showing the business expenses and total expenses as a percentage of average AUM in basis points over a 5.5-year period. The adjusted operating profit margin over the period is also reflected here. Irrespective of the movement in AUM, business expenses have marginally decreased over the period, even noting the continual investments in our core technology system. Total expenses as a percentage of average AUM hav,e, in fact, declined aided by the growth in the denominator. The adjusted operating profit margin has remained in the range of 31% to 35%, reflecting ongoing cost management with the underlying AUM growth. Ninety One's qualifying capital was GBP 316.3 million at the end of September 2025. In line with our dividend policy, the Board has proposed an interim dividend of 6p, this is an increase of 11%. After this dividend payment, there will be an estimated capital surplus of GBP 155.3 million. This will result in a capital coverage of 245%. During the period, we continued with our buybacks, and this resulted in another return of capital of GBP 20.4 million and a reduction of 14.1 million shares. We did, however, issued GBP 13.7 million of plc shares for the U.K. Sanlam transaction in the period. In line with our capital-light model, since listing over 5.5 years ago, we have returned close to 60% of our initial market capitalization to shareholders. So a few updates regarding the Sanlam transaction. All regulatory approvals have now been secured. The U.K. transaction completed on the 16th of June 2025, with the result of GBP 1.9 billion of AUM on boarded and Ninety One plc issuing 13.7 million shares. It's planned for the SA transaction to be completed by the end of the financial year, which results in expected total onboarded AUM of circa GBP 17 billion and revenue in line with what we previously reported. An additional 112 million shares will be issued when the SA transaction closes. Now reviewing the position for H1 2026. The adjusted EPS and operating margin were accretive. There was a slight dilution on the average fee rate, which I mentioned earlier. And also, as previously mentioned, we will be waiting the shares issued to Sanlam for the determination of the adjusted EPS for the interim and then for the final 2026 results. For the interest, this looks as follows. So shares in issue, excluding Sanlam U.K. is GBP 882.7 million, weighting of shares issued for the Sanlam U.K. is 13.7 million times by 107, the days since the transaction in the period, divided by 183, so the days in the total period, which gives you 8 million shares. So shares in issue for adjusted EPS calculation is 890.7 million. The actual number of shares and issue at end of September 2025 was 896.4 million. The intangible assets arising on the balance sheet for the Sanlam transaction will be amortized over 15 years. To note, this is tax deductible in the U.K. but not in South Africa. And so on that final technical point, I will now hand you back to Hendrik. Hendrik du Toit: Thank you, Kim. At Ninety One, we think long term and our commitment to our strategic pillars do not preclude us from constant improvement and development of our firm. Over the period, we've continued to invest in talent. We've broadened the top leadership team and evolved accountability throughout our firm. We ensured that our 3 core opportunities international public markets, Southern Africa and private markets are adequately resourced to compete effectively as market-facing units, supported by our 3 pillars of investments, client group and operations. And so as we go into the second half of the year, we have formed a dedicated international public markets team, which can focus on the commercial opportunity for a recovery in demand for active investment management especially in international and emerging market strategies. We have a focused and strong Southern African team to take a market-leading business to an entirely new level. Finally, we've reinforced our private markets team with fresh talent and additional senior leadership and asked them to accelerate progress in this growth market. We are backing new growth opportunities out of the recently established Ninety One Foundry. These include in-region presence and partnerships in key emerging markets, allowing us to become domestic competitors in certain regions and deepen our investment insight in these fast-evolving markets. For example, we opened 2 offices in the Middle East in the previous reporting period. We have now put additional resources in, and we are building an on-the-ground domestic business in the Kingdom of Saudi Arabia, which includes a strong investment presence. In Asia, we're developing an exciting joint venture with a Singapore-based alternative investment firm with deep experience and relationships in the region and in particularly China. This will strengthen our investment capabilities in the region as well as positioning us to compete more effectively for capital flowing out of the region. We have established a digital finance unit with dedicated leadership to provide clients in certain markets with a far better experience than they traditionally have received from asset management firms. We've committed substantial resources to AI-related innovation which we will update you on further at the end of the year. I must stress that these developments are fully expensed through the cost line and are not consuming significant additional capital. Over the reporting period, we've made meaningful progress on the technology front, which includes a major systems migration. Now that this has been fully completed, significant resources have been freed up for further enhancements and innovation. These are the additional 3 areas of growth we're pursuing, which we believe will impact the way we run our business in years to come. What we're really trying to do is from strong foundations, build the active investment manager of the future. To become the active manager of the future, AI is key. At Ninety One, we approach AI on 3 levels: advocate, equip and use. So this is how we rate ourselves. We see quite high levels of adoption, we see reasonable levels of experimentation given the widely available AI tools to all our staff members, sort of 6 out of 10. Then our people have embraced it, and we are working hard to get our proprietary data organized for the effective deployment of AI across the firm. The proof of the pudding is in the transformational impact of AI. We have much to do on this front. The business is stronger than it was in the previous reporting period, supported by better business conditions and recovering demand. We plan to improve and modernize our business through disciplined investments in and adjacent to our core activities and markets. Emerging markets and the search for diversification are coming back into favor, which supports us. Active investing has a role to play in this world particularly within emerging markets and in the global equity opportunity set. The strategic clarity and simplicity of our business model enables us to seize the opportunity with pace and strength. In short, we see renewed opportunity for growth. Thank you very much. We can now move on to Q&A. We will take questions in the room first, and then will watch -- then we'll take questions from webcast viewers. [Operator Instructions] I think Angeliki, you had the hand up right in the beginning, so. Angeliki Bairaktari: This is Angeliki Bairaktari from JPMorgan. So your flows were much stronger than the previous semester, GBP 2.4 billion. And we -- you say in your presentation that you feel that active is back. Can you perhaps give us a little bit more color with regards to where you see that strength coming from I think you had APAC, Middle East and also equities. But if you can just give us a little bit more color on the pipeline that you're seeing for the next 6 to 12 months where you see the strength coming from? And that's my first question. And then maybe on the management fee margin outlook. There's a lot of moving parts there, relative to my expectations, the management fee margin followed more. I think we still have some dilutive impact to come from Sanlam once the further AUM gets onboarded on the platform. So how should we think about the run rate, management fee rate for next year perhaps? Hendrik du Toit: I think you've asked the real questions that we all need answers for. So I can give you color on what we see rather than a prediction, Angeliki. So firstly, the -- if I can go to the flow or the pipeline that we see. Firstly, the result is again emphasizing the strength of our diversity. We source capital from the same kind of client but in different regions around the world. They have slightly different perceptions on risk and on willingness to take risk at a point in time. And that's why we've seen equity up weightings from large clients in Asia. And that's really where we've seen it. In the rest of the world, particularly North America, where we've delivered some positive, we are seeing a significant search activity or investigating activity's about how to diversify's their portfolios. That flood's gate has not yet opened. We expect that given the sense that markets normalize over time, and we've come out of a long period of underperformance for the rest of the world relative to the U.S. And we know these things go into 10, 15-year cycles. There's a very good paper on our website about dollar cycles and dollar cycles and international investments seem to be highly correlated. You can go and read that. So -- but what we have seen in the last 6 months picking up from the previous 6 months, not the year ago, but the preceding half year is an intensity or intensification of client and search a client engagement and, call it, presearch engagement. What, of course, can change the flow picture is whether we, in this very competitive world win in the very final stage. I mean an example in the last 6 months, and it really hurts me to say it. But after eliminating all competitors, we came second for a sort of close to $5 billion mandate, one client that would have made this figure look a lot better. And so we are driven, and I think you should understand it Ninety One deals in the upper end of the institutional market. Small numbers of clients make a big difference. The fee on that depends on where they're already engaging with that client at scale, and therefore, the client gets a better deal and we price persistency as well. So clients that are persistent, and this is not price cutting, but clients that are persistent have proven themselves to be persistent over time, get a better deal than those who rent your capacity. And so sometimes, we would not do a deal, which we could do and create great inflows to make all of you happy because we know this client is a capacity renter. And they'll come for 3 years and then cause a problem for us when they go out again, whereas others deserve the respect of a value-for-money deal plus scale benefit. So it's very, very difficult to predict where we are. I think we still, with our underlying guidance of market fee pressure is around -- and I still think it's around the 1 where we are is 50% of our growth typically when we're in growth cycles is upweighting from existing clients, 50% is new. If those existing clients are the big ones, your fee goes lower, if they come from general market, mutual fund market, et cetera, your fees are a bit better. But I think over time, Ninety One is moving towards and increasingly institutional. So the breakdown in the addendum to the slide pack, the appendix where we show institutional versus adviser actually, we are trending towards a much more institutional business. And even in South Africa, where we have a strong advisory business, those advisory firms are getting bigger and bigger and behaving more like institutional multi-manager. So I think -- we're going through that lowering a fee process but hiring of what increasing of volume and therefore, increase operating margin but not necessarily on a fee basis. So I think the 1% we guide to is still the underlying fee compression in our industry. We might as of late, be hit by something a little more or less, but it depends. And it also depends on the growth of the alternatives business because that is a still and where I see the real fee pressure in our industry is actually on the alternatives business. I don't think the 2 and 20 models are going to hold because if clients look at their fee budgets, this is where. So what they're currently doing, just an interesting thing in private equity, private credit, et cetera. They pay the full fee, but then they do a deal on the side to co-invest for nothing. So what is the real effective fee of providing those services and your capabilities to a client for free. So I think about -- it would be a really interesting work -- a piece of work for you to do when you look at that side. So I think that's where the fee pressure is more than in ours, but we are preparing for a world where we have to be at least 1 basis point more efficient every year. And I can't tell you whether we're going to be at 40. Right now, I'll -- Kim, I think you've got the answer. We're running at a slightly higher fee level, maybe you can add here for me, then actually the number shown there. Kim McFarland: Yes. Well, I kind of explained that in my sort of daily -- I think I did that on the call this morning actually as well on the sort of daily, monthly factor. But I think you're sort of -- you're asking the question about looking ahead. And Hendrik is right, we are seeing pressure on the fees, both. You've got the standard 1 bp a year that we advise on. But when you're looking at both new mandates, but actually more so existing client mandates that are coming on board at lower rates and then giving us the asset to compensate. So hence, we're seeing the pickup in the AUM, but they are often negotiating at lower fee rates. So this is why we're definitely seeing more fee pressure. Hendrik du Toit: But for us, it is -- the value lies in embedding those relationships for the long term. And if you can do that, you have a higher-quality business. But what we're not doing is price-cutting to win volume. We don't going out there saying, "Hey, we're cheap". But this -- and I still believe, this market will settle down when nominal interest rates are on the rise again because actually, it's hard for a treasurer or someone to sign a check, when he earns it out of interest, it's easier. So I think there's a -- there is a link, which one day will prove statistically, but we can't give you an exact number now. The next step on the pipeline, we're seeing substantial opportunities against scale ones, so there won't be fee level enhancing ones, they'll probably be roughly where we are for the rest of the year that we should convert. What we don't know is where the unexpected redemptions or changes in strategy can happen with the client. And that's the problem when you deal with these large clients. They get a new CIO, they get staff changes and a new strategy comes in, you're being seen as okay, but not necessarily central to the strategy. So -- but I'm fairly comfortable that the visibility of the pipeline is better than it's been in recent reporting periods. Jonas Dohlen: Jonas Dohlen here from Deutsche Bank. Just one follow-up. Yes, just one follow-up on the fee margin. I was just wondering if that guidance now includes the Sanlam or if that's still on kind of the legacy assets on that 1 basis point... Hendrik du Toit: Sanlam is lower because it's a $20 billion deal. So it's lower, and it's largely fixed income assets. Jonas Dohlen: Yes. But on a group level, you expect 1 basis point... Hendrik du Toit: Yes, on an organic basis. So there's an organic basis and then there's the Sanlam transaction. And what I'm saying, the 1 basis point is the market pressure. If we were to ex Sanlam or if we were to get a big up weighting from a sovereign wealth fund where we already have a premium deal because they've got billions and billions with us, it's probably going to be below that fee level. If we win 500 million mandate chunks, it will be at or around or above that fee level. You see. So that's why I'm saying the market -- the institutional market pressure is roughly 100 basis -- or 100 basis points per year. The -- sorry, 1 basis point per year excuse me. 1 basis point per year. But the -- for us, Sanlam is a separate transaction and then obviously hugely accretive from a profitability point of view, and it depends then what kind of flow we get. Jonas Dohlen: Great. And then just on the tax rate as well. I think you mentioned... Hendrik du Toit: I don't understand... Jonas Dohlen: 25%. Kim McFarland: 25%. Correct. Jonas Dohlen: Being a reasonable number to go forward. I'm just wondering how to kind of square that circle. I mean you have a higher tax rate in South Africa, and that amortization part not being tax deductible as well? Kim McFarland: But we have tax in many other jurisdictions as well. So it's linking up the 2 of it. And -- you're right. When I'm looking at it, I'm looking for the next 6 months and the South African impact is only -- it's going to be in the results for a couple of months next year. I think looking ahead with the nondeductibility of the amortization piece, it will tick up a bit. Hendrik du Toit: Piers, you'll come back in new uniform. Piers Brown: Yes. Indeed, yes, it's Piers Brown from Investec. Hendrik du Toit: Very good. Piers Brown: So very happy about that. I might be greedy and actually, go for 3 questions. So the first one, yes, just back on to the fee rate conversations. So I guess, if you look at this from the perspective of the operating margin, you're -- I mean you printed 32%, which looks very good for the first half. If I take out the performance fees, you -- which I know is a slightly dubious calculation, but it looks like you're maybe sub-30%. But the question would be just on the fee rate outlook, do you think 30% is still the level you can protect? Hendrik du Toit: I think you have to compensate higher average assets under management, that compensates a bit because remember, the markets had a run close to the end, there was Liberation Day down than up. So your average AUM doesn't reflect your actual AUM. And you've got to look at where the sterling is strong or weak, which then deflates a big cost base. So I'm more comfortable than you. But you are right, there's -- the core revenues have not grown as much as they should have. So we don't run to a target actually. And therefore, it's not something we monitor daily. But I'm not at this stage, I'm comfortable that we're going to come back to you with a 25% operating margin, put it that way. Kim McFarland: I think that's too right. I think you've also got to recognize the fact that we're taking on the Sanlam assets, as I said, next year at a low cost. Hendrik du Toit: And I would remind everybody, we've bought I know we call the GBP 1.9 billion acquired growth, but we bought back those shares already. So if you think about it, it's just a mandate win, the big one is going to take a bit longer, but if we can do that, if we have the cash flows, then you know what, it's actually akin to an organic transaction. Piers Brown: Okay. Second one is just on the composition of flows. And sort of relating this into Sanlam, but I mean you've had GBP 1.3 billion of Africa outflows, offset by very strong inflows in Asia Pac. Is there anything in the Africa performance, which is maybe impacted by clients reallocating in advance of Sanlam or... Hendrik du Toit: No, no, it's not Sanlam. It's the -- South Africa is actually a very competitive market, and it's very transparent. When you know exactly what each competitor is doing and your cousin or your kid works at the competitor, you literally know what goes on. And so we had some performance pressure in 1 or 2 strategies, which didn't get -- the market goes quickly, moves quickly against you. We've had the back end of the so-called 2-pot system, which means money was released out of the pension system, where if you're a large provider, you have to suffer that. That is now gone. So that structural bit has left. And then, of course, there was the back end of the internationalization of the SA equity or SA investment market because the exchange controls were relaxed for international opportunities opened up for retirement funds. The Minister gave a big -- a few years -- 2 years ago, a big -- there was a big change in the -- what they call Regulation 28. And that means they could invest more. So there was a structural flow abroad. Typically, to new competitors rather than to someone already has a high wallet share with a client because it just makes sense for those clients. And actually, international passive was a big winner there where we don't compete. So I think those 2 forces are over, think on our investment side, we have all intends -- we intend to be very competitive, and we have recovered quite a lot in terms of competitiveness. So I think on all 3 factors, we're stronger in the second half than the first, but it is one of those markets where if you have a big share and you're not absolutely on top of it, the competitors come after you and we've got some very good competitors in that market. Piers Brown: Okay. Perfect. And just maybe a last one on capital. So 245% capital coverage ratio. I think you've sort of indicated 200% in the past is where you'd like to be. It doesn't feel like there's an awful lot of need for seed capital for some of the new initiatives. So the obvious question is, would you look to move closer to the [ 200% ]? Kim McFarland: We will -- I mean, as you noted, we've continued with buybacks in the actual period. We will continue to look for opportunities to use additional seed capital for buybacks when we're comfortable with the price, and obviously in agreement with the Board. Hendrik du Toit: If pricing is reasonable, we think reducing the denominator is always better than just paying out the cash. But we must look at where the market goes. And who knows, there may be opportunities. Any other questions? Investing definitely add value for money, you'll get your dividend. Varuni, are there any of online questions. Varuni Dharma: Yes. There are a few. First one is from Brian Thomas at Laurium Capital. Are you able to comment on the buyback program that was suspended during the half? Are there any metrics that you take into account in determining when you buy back stock that we should be mindful of? Hendrik du Toit: Before we answer that, there's -- Kim just reminds me, there is one thing in the Africa side. There was a 1 single client sort of -- and many clients pay out and eventually but reallocated away from us as well. So you should sort of have the impact of that number. And that's why I'm quite confident that it can turn around. Sorry, on the buyback, yes, we carefully -- we carefully look at value and value in the context of the industry and the context of what we see ahead because the one downside with buying back is if you overpay for your own stock. And therefore, it's always a consideration and a discussion with the Board. It's not an automatic buyback process. And -- but our industry has been so extremely -- I actually had benefit of last week in Paris when I went to watch the Rugby and I have to remind, I know the French listeners, it was a wonderful moment for South Africa and Paris. But in spite of referee against us, we're still -- but I actually went to watch the Rugby with someone who used to be one of the top financial analysts in the market about 25 years ago -- 20 years ago. And he's gone to private equity. He hadn't looked at valuations of asset managers. He was -- it's a bit like talking to someone who fell asleep 25 years ago because he was completely mind boggled by the relative valuation of asset managers against other financial firms particularly wealth today because in his time, it was exactly the opposite. We were the 20 multiple shops and the others were single digit. So I think broad -- and that reminded me again, that these cash flows, quality cash flows are still, in my opinion, or at least in our opinion, fairly cheap, which is why we have also been acquiring stock slowly and as a management team because we think the market is not appreciating the quality of the cash flows we generate. And so even though they don't -- may not grow as much organically there could be -- and there has been a re-rating of late. Now if the re-rating is too much, we will obviously step away. But our industry is still structurally very cheap compared to other cash flows of similar quality. I mean just close your eyes, 30%-plus operating margins is that's tech. Okay, what do you pay for tech? Palantir last when I looked at 185 PE multiple. So it's very different. And it's in that context that we think rather than in short 1 month, 1 week, 1 quarter valuation cycles. But there is a proper process, which Kim can talk to you about when she reports it again. Do you want to add something, Kim? Kim McFarland: Yes, that's fine. Hendrik du Toit: Any other questions? Varuni Dharma: Yes. Next question, Murray Winckler from Laurium again. Congratulations on returning to net inflows for the business. Headcount increased by 8%, which seems high. What should we expect going forward? Hendrik du Toit: Murray, well to done to you, by the way. You're one of those guys stealing business. We will have to come take it back. Just I mean that is one of the big questions. Can we get to a bigger -- a real efficiency for our business? That's about the digitization and the technology investment. But we should also remember that there was some preparation for -- although we're not taking on many people from Sanlam, there's a significant preparation for taking on a book of that size that -- and then there's also the improvement of our communication with end clients, which we had to invest in to make sure it's there. And again, technology over time will make that a lot easier but it was really important, and we've had challenges on -- with South Africa being on the gray list. We've had real challenges on dealing with our international funds into South Africa and our service capability had to just be much sharper, much better equipped to deal with it. And then we've also been building the private markets business, which is much more -- actually much more human intensive than certain public markets investment businesses. And that's about the reasons. I don't know Kim, are there any other ones that you pick up and you want to... Kim McFarland: I think that's right. I think the pickup in a lot of op staff on the IP platform in South Africa. Likewise, on the Sanlam. A lot of them are actually long-term contractors at this stage because I see it as a temporary thing. So I think the sort of more permanent headcount growth has been in private markets and within the actual business. So I think the question is what are we thinking about it looking forward? I'm not seeing an 8%. I wouldn't be looking at an 8% increase in headcount going forward, I think, would be my answer. Hendrik du Toit: And I think with a better use of technology, we could run the same quality service, leaner, that includes client acquisition, client service, investment processes, but it's very important to do these things very slowly over time. I'm not as bold as the big banks that say that they will run -- I mean, 2 of the big bank CEOs in Global Bank CEOs confirmed to me that they'll double their business over the next 5 years with the same staff levels. That has to be seen whether that's going to realize, but those are ambitious goals. I think we should have similar goals, but it's early stage saying it because the promise and the layer of technology is always there and then the delivery is slightly behind. And we've -- those of us who have worked in the markets a long time have realized that. But definitely don't budget for a 8% staff increase, Murray. That's not going to happen. Varuni Dharma: Next question from Jaime Gomes, Laurium Capital. Can you please explain the expected total onboarded AUM from Sanlam remaining the same as what it was this time last year, circa GBP 17 billion. Has the book experienced some outflows given the strong market performance over the last 12 months? Hendrik du Toit: The book is roughly -- it's the same number. There might be a little benefit rand to sterling exchange. So it might be a little more in sterling. But remember, it's a very fixed income, heavy book. There are also -- there could be a few wins associated as well, but we first got to deliver them. So we're very comfortable that the numbers will reflect what we told the market at least. Varuni Dharma: Next question from Hubert Lam. Can you give us an update on the alternatives business and new initiatives, including private credit? And he has a second question, which is, how should we think about further investments you need to make in AI and tech and what that means for your cost base? Hendrik du Toit: Hubert, nice to get a question from you. I know you have another meeting, so you're not here in person. I would say that my simple answer is private markets are hard. And I'm so glad we didn't buy an overpriced boutique to grow, which then doesn't grow, okay? Because the top guys dominate they've got such a strangle hold. And so that's my one point. I think we found niches which we can live in and defend and grow. And what we have actually done is put some of our -- to make sure they get the full support of the firm, put some of our top leadership very close to the private markets guys and they support them to get through and we build it around and particularly around our emerging markets positioning. Now what we know is the emerging markets haven't had huge flows as such. We think there will be appetite and there will be appetite coming. We modest net inflow have been consistently in that space. But we are building through our cost line, and it's fully reflected in our cost line, we are building capability to be actually -- to be fully competitive in our various areas. And I think our focus is private credit. And private credit and transition credit, and that is very clear, and we have built a market name and position there. So we would expect accelerating flows to follow. But those businesses take -- will take a while to impact -- to truly impact on the bigger Ninety One bottom line. If you model us, model us largely as a long-only business, long-only active business because that's still very dominant in terms of revenues and flows. Kim McFarland: Cost. Hendrik du Toit: And yes, but private market is costly to build. It's high fee, but costly, whereas public markets could be done very efficiently with slightly lower fee, and that's the sort of trade-off between the businesses. But we do see the merger. And so the partnership we announced in the joint venture we announced with in -- with the Singapore based, which we are about to announce because we'll probably -- will probably sign in the next few days, and that's why we haven't been long on detail because anything still -- things have to be -- until they're fully signed, you don't want to talk too much. But there, we have -- we're talking to a business which does long short and crossover between public and private. Now I think these universes are getting closer, and one just has to make sure you understand what happens to the other side of the liquidity fence rather than just staying in the curated even if you want to be a very good long-only business staying in the highly curated screen-based long-only part of life. You've actually got to get -- understand what entrepreneurs are doing and what's happening in the ever longer pre-IPO pipeline because we do know a lot more happens on that side of the fence now from venture right through to growth. And I think that's important for us. But as these things emerge, who knows what product constructs will look like, who knows what client appetite will look like. Clients today are still very organized in boxes between the so-called alternatives units, which is now quite frankly, mainstream and active long only, which is becoming increasingly alternative and passive. So they've got their different boxes. But as they start looking at the total portfolio approach, who knows how they are going to buy and that's what we need to be prepared for. Kim McFarland: And I think the question on uptick in technology spend or AI spend, which was the other one, I think Hendrik mentioned the fact that our big technology replatforming exercise did complete early this year. So those costs are now -- and the ongoing cost of that are actually largely built into our figures. AI has largely been a part of our operating cost line. So the gain, how you should think about it is really a continuation of what our cost base is right now. Hendrik du Toit: Yes. And we absorb in what is available or what can be bought. We don't go to bleeding edge development. The big thing is getting your data organized. And I mean it's been with -- that data story has been with me ever since I've been in this firm. Everyone said we have to organize our data better. But you can get so much more value if you are properly digitized as digital middle business models are showing, it is not trivial and that easy. But as a midsized business, if we can't get it right, nobody can get it right. So -- but we're spending resource and effort on it to make sure we can extract maximum value given the enhancements of the available tools. And they are genuinely moving very fast. And I think 5 years from now, we will be in an entirely different world, and we need to be ready for it. Any other questions, Varuni? Varuni Dharma: Yes, a couple. We have a couple of questions on buybacks. The first one from James Slabbert from Standard Bank. There was a slide on the existing capital stack in the business, would it be aggressive to model for annual buybacks far in excess of earnings remaining after the payout of dividends. I think you've touched on that. But -- so by modeling for buybacks in excess of earnings. And then whilst we're on buybacks, a question from Keenon Choonoo from Investec. Is there a preference between Ninety One Limited or PLCs when considering buybacks? Kim McFarland: So we look at both the plc and the limited lines as far as buybacks are concerned. In fact, we look at even PLCs on the JSE line when we look at buybacks. So we look at all three because there sometimes is a variation in price. So we look at all 3 -- effectively 3 lines, although there's obviously 2 shares to answer that question. As far as buybacks to ceding earnings, we look at buybacks from a capital position. So we -- it comes back to the question asked earlier by peers, you aim for a 200% capital position. We're in excess of that. So I'm rather looking at my capital position, understanding, yes, is there any seed? Is there any regulatory requirements. As you mentioned, there's not an awful lot of that at the moment, but we take that into consideration and at the same time, then look at opportunities for buyback based on surplus capital that we're holding on the balance sheet. Hendrik du Toit: Yes. But we -- what we don't do is this is a highly operationally leveraged business. It will only be an extreme that we will leverage the business. You remember, this is what sticks out asset managers. They go on leverage and then they get the fall in assets under management. They get outflows and the debt stays the same and the equity gets wiped out. So we will be very, very careful to ever go beyond what we can do out of our ongoing earnings or surplus capital. Some other industries, people get very brave. I think, yes, this is probably one of the reasons why we haven't bought the firm from the market yet, okay, because you don't leverage these businesses. . Varuni Dharma: Another question from James Slabbert for clarity on the 1 basis point fee margin compression. Would you apply that to the current fee rates that H1 2026 or the FY '25, so the year-end? Hendrik du Toit: I think we've already done this year, we've already done it. I mean we doubled it. So we think we could have a -- we're not 100% sure, but we could have a far lower decline in the second half, just given what's happened in flow dynamics, excluding the Sanlam. But -- and it's really a gut feel here. But that 100 basis points feels like the underlying trend in the market, not necessarily ours. And James, I wish we can't even forecast it to our Board where we're going to be -- it's very -- you've got a very hard job at doing that. I don't know whether Kim can give you any more wisdom except to say the trend is not up. Kim McFarland: Well, I think you're right. I think you're going to look at the most recent fee rate. And if it's in the half year, so you're taking half or 0.5 based on the most recent fee rate, but then you have to take into consideration, as we mentioned, the Sanlam assets coming on board, which will have a further impact and should we take on any large new mandates in the period. If we see those flows, there's likely to be further fee erosion, hopefully not, but there's likelihood. Hendrik du Toit: You see -- especially when you do the relationship deals, with a large insurance company or something like that. And they are genuinely sensitive because it hits their profit, but they can give you assurance about commitment, timing, i.e., embedded value or present value of the deal, that's different from when you get in the normal distributed pension market OCIOs most -- many of them are in -- or multi managers are different because you're not going to compete on price there at all. So it depends where the flow comes from. What we haven't seen, and I think that's the bit you should understand. We haven't seen the sort of -- I've hinted that there are opportunities to grow. But the good times aren't back yet. When you get into the good times and clients want to deploy fast and -- they just want to get the money out there. Then price sensitivity tends to take a backseat. At the moment, they have lots of time to deploy. They're thinking multiyear. They're not chasing markets. I think if you get up severe underperformance or you get -- and I don't think we're going to see it immediately, but if you get a big correction in the dollar, then that changes life. And that's the positive for us. But I don't want you to model that. Varuni Dharma: Last question from Herman [ Van Veltsa]. Do new clients favor fixed fees? Or do they tend to opt for performance fees? Hendrik du Toit: Herman, nice to hear from you again. Another old campaign. I wish clients wanted to give more performance fees because the way you could resolve this constant fee bickering and say, come on, pay us afterwards, pay us properly. But Interestingly, clients have typically been burned by performance fees because they end up paying more. And so they're reluctant to do that. They're also reluctant to go to the -- I mean, in mutual funds, where it's quite prevalent in South Africa, it's not actually encouraged in the rest of the world. ETFs are very difficult. You can't really do -- it's difficult to do, whereas institutional owners don't want to go and pay the big check and ask their Board to pay a large check to a manager unless it's in the alternative bucket. Now again, if those buckets fade and different kind of people contract with us, we could possibly push more performance fees. We think it's a way to align well, although buy-side analysts or sell-side analysts would say it's lower quality of earnings. But I think we could make more profit. They're very happy to do that when they buy Millennium or Citadel. But for some reason, there is a reluctance in our space because that's just what it is. So we would be quite open because we know, over time, 80% of our offerings beat the benchmark. So it's in our favor. But -- it's not the reality today. So I wouldn't model for much bigger performance fee component in our business. I'd roughly keep it similar, noting that a period of good performance, we will own more performance fees. Thank you very much. Thank you very much, and I'll see you after second half, and I hope the positive -- the positive hence, have realized, but it's up to the market. Thank you. Kim McFarland: Thank you. Hendrik du Toit: Thank you very much, guys.
Operator: Hello, ladies and gentlemen. Thank you for standing by for the Third Quarter 2025 Earnings Conference Call for XPeng Inc. [Operator Instructions] Today's conference call is being recorded. I will now turn the call over to your host, Mr. Alex Xie, Head of Investor Relations and Capital Markets of the company. Please go ahead, Alex. Alex Xie: Thank you. Hello, everyone, and welcome to XPeng's Third Quarter 2025 Earnings Conference Call. Our financial and operating results were issued by Newswire services earlier today and available online. You can also view the earnings press release by visiting the IR section of our website at ir.xiaopeng.com. Participants on today's call from management team will include Co-Founder, Chairman and CEO, Mr. He Xiaopeng; Vice Chairman and President, Dr. Brian Gu; Vice President of Corporate Finance and VW Projects, Mr. Charles Zhang; Vice President of Finance and Accounting, Mr. James Wu; and myself. Management will begin with prepared remarks, and the call will conclude with a Q&A session. A webcast replay of this conference call will be available on the IR section of our website. Before we continue, please note that today's discussion will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company's results may be materially different from the views expressed today. Further information regarding these and other risks and uncertainties is included in the relevant public filings of the company as filed with the U.S. Securities and Exchange Commission. The company does not assume any obligation to update any forward-looking statements, except as required under applicable law. Please also note that XPeng's earnings press release and this conference call include the disclosure of unaudited GAAP financial measures as well as unaudited non-GAAP financial measures. XPeng's earnings press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited GAAP measures. I will now turn the call over to our Co-Founder, Chairman and CEO, Mr. He Xiaopeng. Please go ahead. He Xiaopeng: [Interpreted] Hello, everyone. In Q3 2025, XPeng reported record sales -- record results in key operating metrics with new highs in deliveries, revenue, gross margin and cash reserves. Vehicle deliveries for the quarter totaled 116,007 units, a 149% increase year-over-year. The all-new XPeng P7 launched recently quickly became one of the top 3 BEV sedans priced between RMB 200,000 to RMB 300,000 boosting monthly deliveries to over 40,000 units starting in September. Additionally, the company's gross margin exceeded 20% for the first time in Q3, and we reduced our net loss further. Our goal is to achieve breakeven for the company in the fourth quarter. These continuous operational improvements strengthen our focus on physical AI R&D, supporting the targeted mass production of our VLA 2.0 model, Robotaxi and humanoid robot in 2026. As AI models advance and become increasingly integrated with real-world data, machines are slowly gaining the ability to interact, communicate, transform and create within our physical environment. This development is reshaping the future of mobility and daily life. Over the past 11 years, XPeng has dedicated itself to building full stack technologies in-house evolving from software-defined vehicles to the emerging realm of physical AI. We understand that vehicles and humanoid robot, the 2 primarily applications of physical AI, share a homogeneous physical world model, SoCs and infrastructure, allowing for rapid iteration and evolution. Excitingly, new capabilities are continuously emerging from our physical AI technology stack. Over the next decade, my goal is to make XPeng a leading global company in embodied intelligence. Focused on physical AI applications, we're developing an extensive portfolio of technologies, products and supporting business ecosystem. Besides providing AI-powered vehicles to consumers worldwide, we aim to deploy pre-installed mass-produced Robotaxi on a large scale and achieve the mass production of humanoid robots. We believe that an open and dynamic ecosystem is crucial to unlocking the full potential of physical AI for humanity. To achieve this, we plan to open source our physical world model, launch Robotaxi services in partnership with mobility platforms and relieve our humanoid robot SDK. This approach will expand the physical AI application ecosystem through collaborations with business and technology partners and accelerate the value creation process. I'm also glad to report that as we introduce the one vehicle, dual energy product cycle for AI vehicles, we'll expand our scale and increase our NEV market share through a wider product range. On November 6, we launched presales for the XPeng X9 Super Extended-Range EV, an industry frontrunner in extended-range vehicles equipped with a 5C rate high-capacity LFP battery and a total range of up to 1,602 kilometers. It is the world's first large 7 seater to offer the longest range, highest AI computing power, smallest turning radius and most efficient space utilization in its category. We see super extended-range EVs as crucial for accelerating the shift from ICE vehicles to NEVs. Since presales began for the X9 Super EREV, we've experienced unprecedented interest, especially in northern regions and inland cities of China, attracting many customers who previously hesitated to switch to BEV models. To date, preorders for this model are nearly 3x higher than the presale of the previous X9. On a like-for-like basis, the X9 Super EREV will officially launch on November 20 with deliveries starting immediately afterwards. I anticipate reaching a new delivery record in December. We plan to introduce 3 super extended-range products in Q1 2026 focusing on alleviating key challenges for our EREV users by offering long, pure electric range and quicker 5C supercharging, thereby capturing more of the EREV market. We have put in more R&D expenses in 2025. As a result in 2026, we'll also launch 4 new one vehicle, dual energy models, including our first product launch in some key market segments. These innovative products will help us establish a presence in these markets and build leading products like the MONA M03. I'm confident that the 7 one vehicle, dual energy models with super extended-range technology debuting next year will greatly increase our total addressable market or TAM and provide significant sales growth opportunities. On the global business front, we maintained strong sales growth and established a solid foundation for long-term expansion through our localized approach. In September 2025, our monthly overseas deliveries exceeded 5,000 units for the first time, a 79% increase year-over-year. During the third quarter, we grew our global presence with 56 new overseas stores, expanding our sales and service network to 52 countries and regions worldwide. Additionally, our first European localized production facility at Magna plant in Graz, Austria, officially commenced operations with the initial batch of XPeng G6 and G9 rolling off the line. Simultaneously, XPeng's R&D center in Munich, Germany, officially began functioning, helping us better understand overseas customer needs and accelerate technological advancement and product launches. In 2026, we plan to introduce 3 new overseas models, including popular mid- to small SUVs that meet the diverse preferences of global consumers. Our strong focus on investing in AI large models, computing infrastructure and data set is driving the continuous emergence of advanced capabilities from our physical world model. Our upcoming VLA 2.0 model, which has 10x more parameters than its predecessors will substantially enhance safety and user experience in intelligent driving. From my own recent driving experience during very complicated and complex road conditions, we experienced very impressive and unparalleled driving experience from the intelligent VLA model. So starting from late December, we will initiate a co-creation program with our early adopters. In the early quarter of 2026, we aim to deploy the VLA 2.0 model across the entire Ultra lineup. I see the mass production of VLA 2.0 as a major breakthrough in physical AI models, offering a significant generational leap in user experience and attracting more people to choose XPeng for its leading intelligent driving technology. Going forward, XPeng will open source it's VLA 2.0 model to global commercial partners, aiming to provide industry-leading advanced driver assistance experience to a wider audience. Volkswagen will be the initial launch customer for the VLA 2.0 model. Additionally, XPeng's Turing AI SoC has earned a formal sourcing designation from Volkswagen with codeveloped vehicles expected to start mass production early next year. Revenue from licensing our technology to external partnerships will be reinvested into our R&D, mainly to support iteration and upgrades of the Turing SoC and VLA models. This fosters a positive cycle of innovation and commercialization. We invite more automakers and Tier 1 manufacturers to collaborate with us on the Turing SoC and VLA 2.0, working together to promote the adoption of advanced intelligent technologies in both Chinese and global markets. Traditionally, end-to-end models were able to maybe reach advanced Level 2 at its best; however, the rise of physical world model is speeding up the arrival of true autonomous driving. I believe that only pre-installed mass-produced Robotaxis with a strong ability to generalize can achieve widespread adoption and create a sustainable business model. In 2026, XPeng plans to launch 3 Robotaxi models. Our technology stack for Robotaxi does not depend on high-definition maps or LiDAR. This approach enables us to address current industry's challenges, including high cost, operational limitations and poor generalization, allowing for an efficient and scalable deployment worldwide. We intend to begin pilot operations of XPeng Robotaxi in China in 2026, continuously improving both software and hardware of Robotaxi while building an operational ecosystem. I believe that a collaborative ecosystem where all industry stakeholders' benefit is key to scaling rapidly. Therefore, we plan to open our SDK to our partners, and Amap will be the first ecosystem partner for XPeng Robotaxi. We also invite more companies in the mobility sector to explore Robotaxi collaboration opportunities with us. Our humanoid robots adopt a technology road map driven by physical world model. With full support from our vehicle and powertrain R&D teams, we unveiled our next-generation IRON robot at the latest XPeng Tech Day. The IRON's human-like posture and agile gait surprised and deeply moved many XPeng fans and also highlighted the great commercial potential of humanoid robots. Currently, IRON demonstrates only a very small fraction of its capabilities. In Q2 2026, we plan to achieve full capability integration through cross-domain innovation aiming for performance and user experience for far surpass current market offerings. Our target is to begin mass production of advanced humanoid robots by the end of 2026. Once produced, IRON will be first deployed in commercial scenarios, providing services like tour guiding, retail assistance and patrols. By the end of next year, I hope IRON will be working alongside us at XPeng stores, campuses and factories as our new team members. Additionally, XPeng Robotics will open its SDK to global developers, inviting partners from various industries to collaborate on secondary development. This will enable IRON to be trained and to evolve across diverse and long-tail real-world well scenarios, unlocking broader application possibilities. From a long-term perspective, I believe the market potential for humanoid robots will exceed that of automobiles. Once a new generation of robots reaches the inflection point just as China's EV industry did with electrification, we expect explosive growth ahead. I envision that by 2030, XPeng robots could sell over 1 million units annually. With the launch of our one vehicle, dual energy product cycle, I expect total deliveries in the fourth quarter to reach between 125,000 and 132,000 units reflecting a year-over-year growth of 36.6% to 44.3%. We project fourth quarter revenue to be roughly between RMB 21.5 billion to RMB 23 billion, up 33.5% to 42.8% from the previous year. XPeng's AI-driven vehicle business is in the early stages of rapid expansion in terms of scale and market shares, while Robotaxi and humanoid robot programs are swiftly moving forward and towards mass production. I'm confident that XPeng will establish itself as a leader in physical AI, both in China and globally, delivering greater value for our customers and shareholders worldwide. Thank you, everyone. With that, I'll now turn the call over to our VP of Finance, Mr. James, who will discuss our financial performance for the third quarter of 2025. Jiaming Wu: Thank you, Xiaopeng. Now let me provide a brief overview of our financial results for the third quarter of 2025. I'll reference RMB only in my discussion today, unless otherwise stated. Our total revenues were RMB 20.38 billion for the third quarter of 2025, an increase of 101.8% year-over-year and an increase of 11.5% quarter-over-quarter. Revenues from vehicle sales were RMB 18.05 billion for the third quarter of 2025, an increase of 105.3% year-over-year and an increase of 6.9% quarter-over-quarter. The year-over-year and quarter-over-quarter increases were mainly attributable to higher deliveries from newly launched vehicle models. Revenues from services and others were RMB 2.33 billion for the third quarter of 2025, representing an increase of 78.1% year-over-year and an increase of 67.3% quarter-over-quarter. The year-over-year and quarter-over-quarter increases were primarily attributable to the increased revenues from after sales services and technical R&D services rendered to the Volkswagen Group due to the successful achievement of certain key milestones in the current quarter. Gross margin was 20.1% for the third quarter of 2025, compared with 15.3% for the same period of 2024 and 17.3% for the second quarter of 2025. Vehicle margin was 13.1% for the third quarter of 2025, compared with 8.6% for the same period of 2024 and 14.3% for the second quarter of 2025. The year-over-year increase was primarily attributable to the ongoing cost reduction, while the quarter-over-quarter decrease was due to targeted promotion to clear outgoing inventory during product transition. R&D expenses were RMB 2.43 billion for the third quarter of 2025, representing an increase of 48.7% year-over-year and an increase of 10.1% quarter-over-quarter. The year-over-year and quarter-over-quarter increases were mainly due to higher expenses related to the development of new vehicle models and technologies, as the company expanded its product portfolio to support future growth. SG&A expenses were RMB 2.49 billion for the third quarter of 2025, representing an increase of 52.6% year-over-year and an increase of 15% quarter-over-quarter. The year-over-year and quarter-over-quarter increases were primarily due to higher commission to the franchised stores, driven by higher sales volume as well as higher marketing and advertising expenses. As a result of the foregoing loss from operations was RMB 0.75 billion for the third quarter of 2025, compared with RMB 1.85 billion year-over-year and RMB 0.93 billion quarter-over-quarter. Net loss was RMB 0.38 billion for the third quarter of 2025 compared with RMB 1.81 billion year-over-year and RMB 0.48 billion quarter-over-quarter. As of September 30, 2025, our company had cash and cash equivalents, restricted cash, short-term investments and time deposits in total of RMB 48.33 billion. To be mindful of the length of the earnings call, I will encourage listeners to refer to our earnings press release for more details on our third quarter 2025 financial results. This concludes our prepared remarks. We'll now open the call to questions. Operator, please go ahead. Operator: [Operator Instructions] For the benefit of all participants on today's call, if you wish to ask your question to management in Chinese, please immediately repeat your question in English. [Operator Instructions]The first question today comes from Tim Hsiao with Morgan Stanley. Tim Hsiao: [Foreign Language] So my first question is about the physical AI because in the past, the competitive advantages of other companies were reflected in several aspects like cost, brand and channels. Just wondering if the management could elaborate a bit more about what aspects XPeng's long-term competitive advantage in physical AI will be demonstrated? And how will the company continuously enhance its strength in these areas? That's my first question. He Xiaopeng: [Interpreted] I think this is definitely a big question. The traditional way for automakers to make money is completely different from the new physical AI model generated kind of business format. They come from different DNAs. Traditionally, older traditional automakers focus on their own positioning and also about how they target their user segments and then everything boils down to their integration of Tier 1 suppliers and all the other different parts of the supply chain. However, when it comes to a physical AI-generated model, the definition is different. We determine what the -- we -- everything boils down to the definition of the future tech. It involves full-stack technology capability and also custom integration. For example, the launch of our IRON robot is a great example of that. So that's why different DNA is going to generate different products and different growth momentum. In the future, I believe that cars will be a new format of robotics, and it's going to actually come to the real life in the coming 5 to 10 years as the next generation of robotics in our life. So traditionally, the integration of supply chain is completely different from what we are looking at right now, which is the physical AI technology integration across different domains and involves software, hardware and infrastructure upgrades, which will lead to a completely new set of products. As a result, traditionally, software were only a small percentage of traditional car development, whereas right now, it takes up a large part of new product development. And I believe that when you look at our future developments, we are actually going to see more and more physical AI components in the future for car development over 50%, and we are going to see that very, very soon. Thank you. Tim Hsiao: [Foreign Language] My second question is about revenue from the collaboration with Volkswagen. So first of all, congratulations on the project wins of Turing chips at Volkswagen. So may I know from which quarters the related revenue will start to kick in? And how should we think about the trend of the revenue contribution from the collaboration with Volkswagen in December quarter and the full year 2026? That's my second question. Charles Zhang: Tim, this is Charles. So in Q3, we delivered a few key development milestones on time. So you probably have seen that the revenue from the technology collaboration increased significantly quarter-over-quarter. And we continue to see that there are a few key development milestones to be delivered in Q4. So we believe that the revenue from technical collaboration in Q4 will be expected at a comparable level we see in Q3 2025. And then regarding your question on the Turing SoC. Yes, we were -- our Turing SoC was selected by Volkswagen for the 2 B class vehicles we're jointly developing. And we have already started to supply the Turing SoC to some of the -- our partners, the preproduction and verification vehicles. So therefore, the revenue -- we would expect that the revenue from Turing SoC will start to be recognized in Q4 and probably in the small amount. But however, as our jointly developed vehicle SOP from early next year, and we would expect the revenue from the Turing SoC will ramp up with the sales volume of the 2 vehicles we jointly developed. In terms of the revenue from the technical collaboration in 2026, and we expect that as long as we can deliver the key milestones that are scheduled in 2026, we would expect that the revenue -- the technical -- the revenue from the technical collaboration for the full year 2026 would be comparable to that of the revenue we recognized in 2025. So I think looking back, we have demonstrated that we can -- well, we delivered the revenue from commercialization of our technology for 7 consecutive quarters. And I think we believe that there are still opportunities we would like to explore to commercialize our technology and also as our CEO, Xiaopeng, mentioned, and we will reinvest such revenue from the licensing or technical collaboration back into our R&D. Thank you, Tim. Operator: Next question comes from Nick Lai with JPMorgan. Y.C. Lai: [Foreign Language] My first question is -- my 2 questions is actually related to humanoid robot strategy and ambition in the longer term. At a recent Technology Day, XPeng demonstrated our first humanoid robot IRON which worked really like human. And can you talk about our technology road map and compare with the comparable peers? And where is our competitive advantage comparing with the peers in the medium and longer term? That's my first question. He Xiaopeng: [Interpreted] Thank you. Because there are so many robotics companies in the market, to be honest, the technological and product development road map and strategy of XPeng's robotics is moving forward as we expect, according to our own plan. We have paid really little attention to any other differences in the robotics industry to other companies before we launch our own products. Now when we look at XPeng, for example, our product philosophy is highly theoretical. You can actually -- well, it's highly human-like. That is the goal of developing our own humanoid robot. What's interesting about our product is that we realize that when we incorporate muscles and very bionic skin on to our robots, we actually attracted a lot of people to dare to hug him. And this is very, very exciting because traditional robots really were not that attractive and appealing for human beings to give them a hug. In addition to that, we also would like to mention that in the future, I believe that across many aspects of lifeline work, we are going to see more and more robots that is working alongside us. So for the current generation of XPeng robots, last time that we launched it, it was actually the seventh generation, and we are going to begin mass production of the eighth generation of our humanoid robots. In fact, when we look at some of the available robotics in the market, I believe that a lot of them are between generation 3 and 5, which is mainly being driven by joints and all the operation of different hardware. And when you look at the operation of hardware and software, you can see that the available products in the market look very similar in the way that they walk and they move. And these kind of robots, I believe, are very, very hard or difficult to commercialize in the end. So in the future generations of our robot, we actually have been thinking about what kind of technological route we should be used, and we have fully integrated actually hardware and software driven by integrated AI. So this time, you can see that the robot that we showed to the market is based on our full-stack R&D capability and cross-domain integration. I believe that XPeng Motors has many advantages when it comes to our robotics and humanoid robot development. For example, our physical AI resources have a synergy effect with our AI cars. For example, we actually are considering may be producing higher than car grade performance for our humanoid robots. And also our thinking logic on how to conduct business and mass production of our humanoid robot is largely driven by our knowledge and industry know-how in the EV industry. For example, when we build the future sales and marketing layout and globalization, there's a lot of synergistic effects that we can enjoy from the existing layout with our car sales. Also I believe when it comes to the future robotics development, some company will still -- some of the players will come from auto-making industry. And I believe that XPeng will definitely have a first-mover advantage in this regard because of the data, the SoCs and the capability that we have. Thank you. Y.C. Lai: [Foreign Language] My second question is also related to humanoid robot long-term strategy and operations. And from here to commercialization, what are the key critical milestones that we should be mindful? And from now towards the end of '26, can you remind us what the capacity and expected scale of our human robot operations? And also in terms of use case, by, say, 2030, you mentioned that 2030 we target to deliver 1 million units, can you also talk about the use case in the longer term? He Xiaopeng: [Interpreted] Thank you. To be honest, IRON's mass production is probably the most challenging kind of vehicle or products I've ever worked on at XPeng Motors, if I have to make the comparison between mass-producing IRONs and other cars because there's still a lot of challenges. For example, our ultimate goal is for it to be easily trained with human language so that it can really help us in various ways, and there's a lot of room for improvement there when it comes to capability integration. For example, if this robot can walk or run in various safe postures that requires a lot of integration of capability as well. For example, it needs to have all the joints embedded in management and also full coupling of different wiring, et cetera. Also, if we need to allow it to have more generalized kind of dexterous hand movements, well, it will also require a lot of hand-based VLA, which we believe by beginning of next year will be integrated. We also need to allow it to have that kind of communication and language-based communication capability between the robot and humans. So that also will come from, for example, a lot of VLM and VLT, which is the small brain and large brain kind of modeling capability. But what I'm really excited to share here is that we will start entering the 1.0 stage of our new generation of mass-produced models next month. I believe that in the next 10 months, we'll be able to actually promote the robot development in an orderly manner during mass production. And I think that's the first part of my answer. Thank you. I think the ramp-up in robot production capacity is much simpler compared to cars. However, the commercialization of robots is indeed very, very challenging. It requires us to look for really new heights of technology and ultimately achieving more capabilities. Therefore, we hope to initially implement in several commercial scenarios included tour guiding, shopping or retail assistance, et cetera. In 2026, we hope that we actually can see a lot of our own robots working alongside us at our XPeng stores, campuses for the first stage of field testing. At the same time, we are also opening our SDK to more of our partners so that our partners can easily and simply buy our robots and train them for commercialization purposes. If your question is about future possibilities of scenario application, I think it's going to be even more than you think. For example, for commercialized robots, maybe you can switch their arms and allow them to go into the industrial production scenarios. And when will the robots go into our household setting? I think maybe 5 years' time, we still have a big chance of achieving that. And I hope that through opening our SDK, we can allow more kind of partners to help us tackle those diverse and long-tail scenarios of application so that we can all enjoy a better robotic future and build a better ecosystem. Thank you. Operator: The next question comes from Ming from Bank of America. Ming-Hsun Lee: [Foreign Language] Why does XPeng choose to launch Robotaxi service in 2026? Could you share your technology inflection point or how fast you lower your cost? And compared to other Robotaxi companies in China, what is XPeng's technology path or business model? What is your advantages? He Xiaopeng: [Interpreted] Thank you, Ming, for your question. I think that within our R&D strategy, there are 2 key aspects, which are full-stack self-development and also cross-domain integration. I believe that in 2026, we will be actually seeing a collection of inflection points within our own development system. For example, we are going to be able to launch our current models into the Robotaxi configuration of fleets, which, by that time, we believe that the inflection point will arrive. At the same time, our VRM models will continue to offer new capabilities for our future vehicles to be more robotic-like. In addition to that, our current second-generation VLA can actually train our intelligent driving Ultra cars and also in the future, maybe also train our mass version of cars using the same kind of large model, too. In other words, we have our cross-domain capability based on our robotic development, which really can solve a lot of Robotaxi current limitations, for example, the high cost of production and also the limitation of the mobility destinations. For example, current Robotaxi now cannot really handle very complicated and complex road conditions and also in residential areas that has a lot of unpredicted scenarios and also a lot of them currently require LiDAR for their perception capability and so on. So in 2026, we hope that by commercializing fully shared L4 capability in our Robotaxi. We actually can have the dual development of the driverless L4 model together with an assisted driving L4 model. With the launch of both method or road map in the future, I think very soon, it will be proven that XPeng has actually a better commercial logic thinking compared to other Robotaxi companies and that will give us a great competitive advantage. Thank you. Ming-Hsun Lee: [Foreign Language] So how does the management team think about the commercialization of your Robotaxi business? Especially in the future, what is your planned milestone, for example, like in terms of the number of fleet? Or when will you plan to roll out in different cities or overseas market? And also currently, you already have a cooperation with Gaode, Amap, and could you elaborate more about your cooperation? And in the future, do we expand -- do you plan to cooperate with small partners like other ride-hailing companies? He Xiaopeng: [Interpreted] Thank you. Actually, next year, XPeng is going to launch 3 different types of Robotaxi models at different price points to support different mobility purposes and demands. In the next phase of development, I believe, with the premise of regulatory approval, our priority is to really get everything running smoothly, when it comes to the whole technological and operation and business model. So in that scenario, we hope to work with more and more business partner in the ecosystem. For example, Amap will be a great partner. They are going to give us more development support when it comes to traffic and also payment and operation and services, et cetera. That really set us apart from a lot of the autonomous driving OEMs. And I believe that in the future, for different countries and regions and different steps of development, we are going to actually launch more partnership with different service providers across different lanes. And for XPeng, what we need to do is that we are building our toolbox really well, and we're opening up our interface capability so that we can work more with our ecosystem partners in the future across different countries and cities. And so once we really get everything up and running commercially in different environments, we can then quickly build our ecosystem. This is one of our considerations. Thank you. Operator: The next question comes from Tina Hou with Goldman Sachs. Tina Hou: [Foreign Language] Let me translate my first question. So first, I would like to understand, over the next 1 to 3 years, do we have a rough revenue estimate or breakdown for our new businesses, including Robotaxi, humanoid robot as well as eVTOL? Gui Hongdi: Tina, it's Brian. First of all, I would say that for these future development areas, we do not provide any numerical guidance at the moment. Clearly, all those 3 areas, we anticipate volume, scale level production and operations in the next 12 months. For example, the Land Aircraft Carrier from our flying car company is aimed to be delivered to end customers before the end of next year, will be in volume, also scale, which I would say, in the thousands of range. But the other 2, for example, the humanoid robot as well as autonomous driving Robotaxi, as we just discussed earlier, next year will be actually a year we'll see a lot of operational testing as well as scaling up process to make them ready for large quantity production and use. So I would say the contribution from next year will probably be limited. But I think the volume we'll expect to ramp up rapidly once the model and the stability of these products is proven in the use, consumer end as well as application end. So the long-term goal of having 1 million per year humanoid robots sort of sales by 2030 is our long-term goal. And that is something that we have good confidence given we see the quick ramp-up in terms of technology as well as multiple application areas in home, in offices, in factory settings. So with all these future areas, we believe the potential is immense. So at this moment, unfortunately, I cannot give you the exact breakdown as well as precise cost estimates because these are still, I would say, evolving. But I think the overall trend is very exciting for us. Tina Hou: [Foreign Language] So my second question is regarding our passenger vehicles. So wondering if we can get more details on the new models, their segment as well as price segment, both in the domestic market as well as overseas and also do we have a volume target for 2026? Charles Zhang: Tina, it's Charles here. I think we believe that one chassis, dual powertrain vehicles present very attractive opportunities. It is also one of our strategic initiatives to expand the volume and the TAM of our -- each of our vehicles. So I think on November 20, we are launching the X9 with pricing, that will be our first, we call it the Super EREV product to be launched. And then you probably also have noticed that we have -- we already have 3 existing vehicles, Super Electric model, already registered with regulators, and we plan to launch those 3 products in early 2026. As Xiaopeng also mentioned that we have 4 vehicles -- 4 new vehicles when we launch, it will be equipped with both BEV as well as EREV powertrain options. And those 4 new vehicles are positioned in the different various segment -- various pricing segments we're in. And we believe that, that will continue to enhance our product portfolio in each of the price segments we're targeting. So in terms of the growth into next year, and we believe that the huge -- the one chassis, dual powertrain vehicle models, the 7 models will significantly drive our growth next year. And also another growth driver we have seen is that the international market will continue to be a major growth driver for us. With our current products available in the international market, we have already hit 5,000 per month for September and also October, the 2 consecutive months already. And of the 7 new vehicles we're launching next year, 3 of them -- at least 3 of them will go to international market. And so we are confident that the international market volume will continue to be a very important growth driver for us into 2026. Operator: The next question comes from Pingyue Wu with Citic. Pingyue Wu: [Foreign Language] I have 2 questions. And my first question is about the new EREV model. And what do we think about the growth potential of our new EREV models in 2026? And my second question is about the humanoid robots. And how do we think about the fuel economy of the humanoid robots since we have implemented some new technologies, for example, the solid-state batteries and et cetera. And in terms of the affordability, will IRON robot be affordable for family, say, like RMB 200,000 or even less? He Xiaopeng: [Interpreted] First of all, regarding the first question, I think what's interesting that we discover from the sales figures that we gather from -- since the launch of X9 was that the targeted customers and also the actual users of BEV and EREV are quite different. So we believe that we can expect to actually see several times of quarter-over-quarter growth when the new version of X9 actually get delivered, and actually different customer groups, when they purchase BEV versus EREV, they are using the cars across different scenarios as well. And specifically, what I want to share is that, obviously, BEV and EREV users in different sizes or scale of cars are also different. In larger vehicles, the percentage of EREV adoption is higher, whereas for Class A vehicles, especially smaller passenger vehicles, BEV ratio is actually higher. So I think we'll have to wait for more numbers to show maybe by Q4 and also Q1 next year before we actually can give you a more concrete answer. Thank you. And the second part of your question, regarding the pricing affordability of robotics, I think, first of all, the pricing logic is very different between cars and robots. When we look at the BOM cost of our Gen 6 and Gen 7 robots, they remain very high last year. But by first half of this year, when we were preparing for true mass production, we actually have enough reasons for us to actually believe the future retail sales price of the robotics -- of the robots can be very similar to car prices. And the second point that I want to mention here is that the traditional way of pricing a car is weight-based. It involves how many kind of iron and lithium and all kinds of elements included and components included in making a car, whereas robots, it's very different because the percentage of software in a robot is over 50% since day 1, whereas the number is only 10% to 20% for a lot of cars. In other ways, you have to put in a lot of cost to train the software and the model, and you need to have the overall capability to do a lot of integration and also domain controller as well. For example, you need to be able to combine all 4 SoCs into a super domain controller so that you can make them as light as possible and as affordable as possible. And these remain very challenging for many industry players. In other words, we really have high hopes for our future when it comes to robotics development. Hopefully, we are going to -- we expect to handle a limited amount of SKU integration, not as many SKU as when you're making a car. And we also will try our best to make the pricing of robots as affordable as possible. So it really can truly help and empower thousands of households in the future. Thank you. Operator: The next question comes from Xiaoyi Lei with Jefferies. Xiaoyi Lei: [Foreign Language] I have just one question. Could you please provide an update on the progress of our overseas localized production for next year? And additionally, how do we plan to leverage our smart driving capabilities to drive the sales growth in international markets? Gui Hongdi: It's Brian, again. Just to address your question on overseas plan for next year. You're right, we actually initiated our local production this half -- second half of this year with first factory in Indonesia and also the -- another factory production facility with partnership with Magna in Austria. Those, I think, is slowly ramping up the capacity. So we anticipate the volume for next year's production in these 2 plants will continue to rise and support our overall sort of overseas growth. I think in the Europe, we are looking at the tens of thousands in terms of numbers of vehicle locally produced there. And in Indonesia, I think probably a smaller, but also a sizable number, high thousands is something that we want to achieve. Looking beyond those 2 plants, we continue to look at additional opportunities to have local capabilities in other markets as well as building local supply chain capabilities to support the localization in these key regions. So we will be increasing our local content, increasing our local stores materials and also looking for further localization strategy to be implemented. So that's something I think is ongoing. I think it's a must do for a company has global ambitions. Looking at the global product sales next year, I think, as Charles mentioned, we're looking for higher growth in the international markets compared to our domestic market. We're also looking for higher contribution economically from those markets. So I would say in the next year or the year beyond, we're looking at a faster growing, higher profit contribution for our international businesses. Operator: Since there are no further questions, I'd like to turn the call back over to the company for any closing remarks. Alex Xie: Thank you once again for joining us today. If you have further questions, please feel free to contact XPeng's Investor Relations through the contact information provided on our website or the Piacente Financial Communications. Operator: This concludes today's conference call. You may now disconnect your lines. Thank you. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]
Jun Togawa: Good evening, investors, shareholders and rating agencies. I am Togawa, Group CFO. Thank you very much for joining MUFG's online conference call today despite the late hour. Please look at the material titled Financial Highlights under JGAAP for the first half of the fiscal year ending March 31, 2026. Let me first explain our Q2 financial results, followed by revised FY '25 performance targets and shareholder return measures. Let me start from the income statement summary. Please turn to Page 8. First, the figures for the first half of FY '24 on the far left column of the table include the impact of the change in the equity method accounting date at Krungsri in Thailand. So the far right column shows the actual year-over-year change, adjusting this impact. All explanations on this page will be based on adjusted year-on-year comparisons. Line 1, gross profits increased by JPY 189.3 billion year-on-year. Line 2 and below shows the breakdown of gross profits. Net interest income increased, thanks to the impact of rising yen interest rates, improving lending spreads and benefits from last year's bond portfolio rebalancing. In addition, net fees and commissions expanded significantly, primarily due to growth in various fee revenues from domestic and overseas solution services and effects of acquisitions. Next, Line 6, G&A expenses increased by JPY 127.9 billion year-on-year due to the impact of inflation and acquisitions, as well as strategic expense allocation, mainly in Retail and Digital business group. Expense ratio was flat year-on-year at 56.1%. As a result, Line 8, net operating profits increased by JPY 61.3 billion year-on-year. Next, Line 9, credit costs decreased by JPY 65.7 billion year-on-year. I will explain the reasons for this later. Line 10, net gains and losses on equity securities decreased by JPY 235.3 billion, due to the gain on sale of large equity holdings last year, which is in line with our projection at the beginning of FY '25. Line 12, equity in earnings of equity method investees increased significantly year-on-year, mainly due to the extremely strong performance of Morgan Stanley. As a result, Line 16, profits attributable to owners of parent was JPY 1,292.9 billion. Although gain on sale of equity holdings decreased year-on-year, we were able to achieve steady growth in net operating profits and equity accounted earnings, which demonstrates the strength of our core business and also recorded onetime gains related to investments and organizational restructuring, resulting in a record high first half profit. Our progress toward initial full year target of JPY 2 trillion stands at a high level of 64.6%. Performance by business group is shown on Pages 9 through 12. I will not go into detail, but customer segment NOP is growing steadily with the exception of retail and digital, where strategic expenditures were made and Global Commercial Banking, which was affected by the economic slowdown in Asia. All business groups achieved an increase in net income. Please turn to Page 14 on balance sheet summary. The diagram on the left shows the overview. Loans shown in the top left increased by approximately JPY 1.8 trillion from the end of FY '24. Excluding government loans, it increased both in Japan and overseas by approximately JPY 4 trillion. Page 15 shows the status of domestic loans. The graph on the bottom right shows the trend in domestic corporate lending spreads. Spreads for large corporates in red line is rising, thanks to the accumulation of large, highly profitable loans. Along with SMEs in orange, profit improvement measures have been successful, and the upward trend is continuing. Next, Page 16 shows the status of overseas loans. The bottom right graph shows the trend in overseas lending spreads. The Americas has settled somewhat as the replacement of low-profit assets with high profit assets has run its course, but we continue to work on improving profitability in each region and maintain the gradual recovery trend. Meanwhile, GCIB has seen a significant increase in fee income as their O&D measures are progressing, and we are working to improve capital efficiency on both fronts. Please turn to Page 17 on asset quality. The NPL ratio shown by the line graph on the left continues to remain at a low level. The bottom right graph shows the breakdown of year-on-year changes in total credit costs, while there was an increase in large loan loss provisions overseas last year on the bank nonconsolidated basis, the sale was completed this fiscal year, resulting in a reversal. There were also multiple significant reversals in Japan, resulting in a significant decrease in credit costs. Credit costs also decreased at our overseas subsidiaries due to the effect of stricter screening criteria for new credit transactions in Asian partner banks. Taking the current situation into account, we kept our full year outlook for credit costs unchanged. Please turn to Page 18 on investment securities, including equities and government bonds. I will explain the unrealized gains and losses in the upper left table. Line 3, unrealized gains on domestic equity securities increased by JPY 0.36 trillion compared to the end of March 2025, due to rising stock prices despite progress in reducing equity holdings. In addition, unrealized gains and losses on domestic bonds reflecting hedging positions showing in the upper half of the lower left graph is controlled at a low level of just under JPY 0.3 trillion and unrealized gains and losses on foreign bonds in the bottom half are slightly positive. Given the scale of our balance sheet and income statement, we think we are in an extremely healthy state with reasonable degree of flexibility. Regarding the reduction of equity holdings on the right, the cumulative sales during the current MTBP were JPY 339 billion on an acquisition cost basis, which is about half of the JPY 700 billion target. The agreed amount has reached nearly 80% of the target, and we are making steady progress toward achieving this target. Page 20 shows capital adequacy. The CET1 ratio, excluding unrealized gains on the finalized and fully implemented Basel III basis fell 30 basis points from the end of March to 10.5% at the upper end of our target range due to growth investments and increase in loans, as well as yen appreciation versus end of March. Towards the end of the fiscal year, we expect risk-weighted assets to continue to accumulate and the yen to appreciate based on the financial indicators, I will come back later. Therefore, we expect the ratio to remain around the midpoint of the target range. Capital allocation results are shown on the lower right. We will continue to manage capital with an eye on balancing shareholder returns and growth investments. Please go back to Page 3. Let me turn to our FY '25 financial targets and shareholder returns. As shown on the left, given the continued strong performance of NOP, particularly in the customer segment and increased income from equity method investee, we revised up our net income target by JPY 100 billion from initial target to JPY 2.1 trillion. Turning to shareholder returns on the right. We continue to aim for a dividend payout ratio of approximately 40%. And in line with the upward revision of profit target, our annual dividend forecast for FY '25 was revised up to JPY 74, up JPY 10 from the previous year and JPY 4 from initial forecast. Regarding share repurchase, a resolution was approved today to acquire an additional JPY 250 billion in the second half of the year, bringing the total amount for the full year to JPY 500 billion. As discussed in May, this is due to take into account total shareholder return over the past few years. We also announced today the cancellation of 200 million treasury shares. We aim to achieve our mid- to long-term ROE target and we will work to provide shareholder returns while taking the optimal balance with growth investments into account. Turning to progress of 3 pillars of MTBP. Please turn to Page 4. First pillar is expand and refine growth strategies as shown on the left. Each of the seven strategies for seasoning growth is on track, resulting in an increase in NOP of approximately JPY 150 billion compared to FY '23. In particular, in the domestic retail business, a new service brand, EMUTO, was announced in June this year. The credit card reward programs and group-wide campaigns launched in conjunction with EMUTO generated strong response, leading to increased transactions for each group company. We will continue to demonstrate the collective strength of the group and aim to expand our services, including digital banking. Please turn to Page 5. Second pillar, social and environmental progress is shown on the left. Sustainable finance has steadily built up a track record even with different vectors at play globally. A white paper will be published again this year to communicate our view on contributing to accelerating transition. On the right is our third pillar, transformation and innovation. Under the current midterm plan to maximize MUFG's potential, we are working as a group to pursue new business initiatives, invest in human capital and strengthen our foundations in areas such as AI and data in addition to continuing cultural reform. Corporate transformation using AI is a particular urgent priority. And by combining this with agile management, we are working to transform into an AI-native company. The number of AI use cases has reached 116, and the aim is to increase to over 250 cases by FY '26. Current estimates suggest that the cumulative benefits over the 3 years of the current MTBP is approximately JPY 30 billion. The launch of a new strategic partnership with OpenAI is expected to accelerate use of AI across the company and to collaborate on various services, primarily in the retail sector such as digital banking. Moving on to Page 6. Let me take you through our path to achieving mid- to long-term ROE target of 12%, which has been a popular question since our announcement in May. We assume that the policy rate will rise to around 1%, while the sale of equity holdings will come to an end and capital gains will seize. After solidifying the goals of the growth strategy of the current MTBP, as explained on Page 4, we will pursue both organic growth by refining existing areas, both domestically and overseas and inorganic growth by focusing on the areas described in the slide, thereby making steady progress towards an ROE of 12%. Mr. Kamezawa will share his thoughts on this point at the investor meeting on the 18th. Page 7, my last slide. Last month, in October, we celebrated our 20th anniversary as MUFG. Looking back over the past 20 years, thanks to the understanding and support of our stakeholders, including our investors, we have taken on many challenges, gone through three major transitions and achieved growth sometimes despite headwinds. MUFG will continue to push ourselves forward and guided by our purpose of committed to empowering a brighter future, we will aim to further increase our corporate value even in a rapidly changing external environment. Your continued understanding and support is very much appreciated. That is all for me. Operator: Let me introduce the first questioner, Mr. Takamiya of Nomura Securities. Ken Takamiya: This is Takamiya from Nomura Securities. I have two questions. On the upward revision of your guidance and the 12% ROE target. I would like to hear your thoughts on the upward revision from two perspectives. First, I wonder if the assumptions are too conservative considering the current levels of the Nikkei stock average and the dollar-yen exchange rate. Second, the revision of JPY 100 billion from JPY 2 trillion to JPY 2.1 trillion is not small, but it is a somewhat small revision to your bottom line profit. What was the aim and your thoughts on this small revision? This is my question on your guidance. My second question is on your ROE target. On Page 6, you explained verbally the general direction you are heading, including assumptions like interest rate of around 1% and no gain on sale from reducing your equity holdings. But I think this is the first time you have clarified this in writing. Regarding the mid- to long-term ROE target of 12%, I want to know if there were any changes in your thinking and the management's perspective, reflecting the changes in the environment or tailwinds. Jun Togawa: Thank you, Takamiya-san. Regarding the upward revision, our initial guidance was JPY 2 trillion based on the assumption that the decrease in net gains and losses on equity securities and the absence of reversal of large loan loss provisions will be offset by continued growth in customer segment NOP, improvement in treasury interest income benefiting from last year's bond portfolio rebalance and a rebound from the loss due to bond portfolio rebalance in FY '24. Decrease in gains and losses on equity securities, absence of reversal of large loan loss provisions, treasury interest income improvement and rebound from last year's bond portfolio rebalance are in line with our initial forecast. Meanwhile, progress in the first half exceeded expectations, thanks to better-than-planned customer segment NOP, lower credit costs, upside in Morgan Stanley equity accounted earnings and onetime gains not factored in our initial forecast. I will explain our assumptions for the second half later, but we forecast strong yen toward the end of the fiscal year, slower treasury sales in the second half as trading gains were weighted to the first half, credit costs in line with our initial forecast, though the full year will depend on the impact of tariffs and an increase in strategic expense allocation, including retail and also included certain financial measures for FY '26, resulting in a guidance of JPY 2.1 trillion. There was internal discussion about whether a 5% revision was really necessary, but we decided to do so with the aim of disclosing our forecast appropriately at each point in time since the first half of last year. We may not have done this in the past, but that is our line of thinking. Regarding the assumptions, the yen assumption against the dollar is quite strong given the current level. But depending on interest rate trends, it is not unreasonable for the yen to be in the mid-JPY 140s by the end of the fiscal year. The share price of around JPY 43,000 may also seem conservative, but the impact of share prices on our earnings is not significant. So this was not the reason for the conservative profit target. As for future upside, we expect further growth in the customer segment and decline in credit costs, which is again subject to tariffs and also an upside in FX that you mentioned. Whether there has been a change in our view on the 12% target, we originally began the discussions to set the 12% target by trying to see how much we can increase our profit under the assumptions that Japan's policy interest rate will be around 1% and that we have no gain on sale of equity holdings, which I strongly insisted. Since investors asked questions based on different assumptions such as including gain on sale of equity holdings, we made that clear. We are fleshing out the details to achieve this as we speak. One change in our thinking, both in terms of inorganic investment and the use of capital, as I may have mentioned before, is that we are now discussing potential investments internally based on whether or not they contribute to achieving 12% ROE. Operator: Next, Mr. Nakamura of BofA Securities, please. Shinichiro Nakamura: This is Nakamura from BofA Securities. I also have two questions. First, let me confirm the full year CET1 ratio forecast on Page 20 again. It doesn't seem like it will approach the middle of the range. So if you could share with us your view on the level and the breakdown to the extent possible. There was an article in Bloomberg about your inorganic investments, and you denied that the information came from you. Could you elaborate on this, if possible? Sorry for asking too much. That is my first question. My second question is on credit cost. In the first half, there was a reversal on the bank nonconsolidated basis. So if you achieve your target in the second half, this is a reasonable level. So my question is on the current situation of private credit in the U.S. Although MUFG has not directly mentioned it, we are seeing large-scale loans to Oracle's data center investment, among others, which is widening credit spreads as a result. What are your thoughts on this increasing concentration of risk? Thank you. Jun Togawa: First, regarding the outlook for CET1 ratio toward the end of FY '25, the end of March '26, approximately 80 basis points up in the second half from the accumulation of net income based on the revised performance targets, 65 basis points down due to shareholder returns, including dividends and share buybacks, as I explained earlier, around 30 basis points down from the planned increase in risk assets. And with Morgan Stanley's accumulated profit from its extremely strong performance, et cetera, we expect the ratio to be somewhere between 10% and 10.5%. Regarding the private credit market, MUFG actually does not have a significant exposure. We have some exposure to companies that have been mentioned in the media. But as you saw earlier, our NPL ratio is declining. So I do not think we have a significant exposure. That said, the private credit market is extremely strong now. So we need to keep a close eye on the recent increase in volatility. I think the risk of lending to data centers depends on the project. We have extensive knowledge on project finance. So it is important to carefully select projects, taking into account factors like sources of cash flow and technical conditions, such as proper installation of high-voltage cables. Regarding the first question on inorganic investment, sorry, I skipped that. But actually, I have no comment. We continue to consider opportunities in three areas, namely AMIS, Digital and U.S. Asia. Operator: Next, Mr. Matsuno from Mizuho Securities. Maoki Matsuno: Matsuno from Mizuho Securities. I have two questions. First question is on Page 3. Upward revision of financial targets for FY '25. Can you give a more detailed breakdown? The graph on the bottom left shows a breakdown into customer segment, equity method investees and review on financial indicators. Can you give a breakdown of each of them? For example, weaker yen than the beginning of the year, would that be included in review on financial indicators or the equity market value? Can you give some color on the factors affecting changes in net income? My second question is on the operational policy of Global Markets in the second half. In the first half of the year, it looks like you did well by drastically reducing yen bonds and super long-term bonds and making profits on foreign bonds. Is there anything you can speak about the operations of Global Markets in the second half of the year? Those are my two questions. Jun Togawa: So starting with Page 3, your question on major factors affecting changes in full year targets. Earlier, I said the customer segment is expected to continue making steady progress in the second half of the year and is expected to exceed the initial plan by around JPY 30 billion for the full year. Regarding equity and earnings of equity method investees, I must admit it is difficult to say how much is coming from Morgan Stanley, but a certain amount is factored in. There are also some one-offs. Please look at the footnote on Page 8. Step-up gains from acquiring shares of JACCS, one-off gains from acquisition of Tidlor as a subsidiary and gains related to liquidation of local subsidiaries, a part of them were not factored in, accounting for approximately JPY 40 billion. The revision of financial indicators is expected to have an impact of approximately JPY 30 billion, mainly due to the weak yen. Stock price outlook was revised up, but gain on sales of equity holdings has been hedged for stocks scheduled for sale at the beginning of the fiscal year. So impact of sales of equity holdings is minimal. Although there will be partial impact on earnings due to an increase in AUM in the asset management and investor services, the impact of the revision of stock price assumptions is not that big. The impact is primarily from ForEx, and the total adds up to JPY 100 billion. For Global Markets, you are right. In Q1, reducing the balance of super long-term JGBs, partially offsetting with redemption gains on bear fund and gains on sale of foreign bonds, that's for the first half of the year. Regarding yen bond management from the second half onwards, our policy of gradually building up our yen bond positions, while monitoring the rise in Japan's policy rate remains unchanged. Short-term JGBs decreased as the BOJ's growth-oriented lending support operation is gradually coming to an end and need for short-term JGBs as collateral has decreased. The balance of short-term government bonds has fallen significantly. As for foreign bonds, the balance of long-term bonds appears to be increasing, while duration is decreasing and some might feel this doesn't sit well. This is due to categorizing mortgage bonds with long statutory maturities as long term. But overall duration shortened to 4 years. Operator: Next is Mr. Matsuda from Daiwa Securities. Ken Matsuda: Matsuda from Daiwa Securities. I also have two questions. Regarding net fees and commissions. Net fees and commissions in the first half of the year was very strong for both domestic and nondomestic. Is this trend in the first half a temporary phenomenon? Or including the current pipeline, can we expect further growth going forward? That is my first question. Second question is on CET1 ratio on Page 20. The impact of exchange rates was cited as a factor in the decline in the CET1 ratio in the first half of the year. It worsened by 40 basis points, but the yen did not appreciate significantly between the end of March and the end of September. Then why deteriorate by 40 basis points? Was it due to the Thai baht? What was the impact in the first half? If the weak yen environment continues, can we expect the CET1 ratio to improve further? These are my two questions. Jun Togawa: Thank you for your questions. Fee revenues, fee income partially include impact of acquisitions. Acquisition of WealthNavi, MPMS acquired by our Trust Bank and NICOS acquiring Zenhoren has resulted in a total acquisition effect of about JPY 48 billion. Apart from that, GCIB, in particular, is further promoting O&D initiatives, so fee income will grow. Domestically, fees related to loans such as MBOs and LBOs are growing. Solution-related fees are also growing. So we can expect continued growth in this area. In addition, AUM in asset management is growing steadily, and IS has also issued a press release stating that outsourcing operations have quickly achieved the MTBP target. These areas are growing steadily. So I believe we can continue to grow. Regarding CET1 ratio for the first half of the year, impact of U.S. MUA is large, as I might have said in May. The dollar-yen exchange rate from December to June saw the yen appreciate by about JPY 14. We took some hedging measures, but were implemented after April or May and hence, this impact. Regarding impact of the weak yen on CET1 ratio, it will depend on the trends in the dollar yen and Thai baht, but the weak yen will have a certain effect in lifting the CET1 ratio. That's all for me. Operator: Next is Mr. Yano, JPMorgan. Takahiro Yano: I also have two questions. One is a detailed question, a follow-up to Mr. Matsuno's question. Regarding the revised target for this fiscal year, you referred to the waterfall chart on the lower left, but I'd like to confirm referring to the table above. NOP is up JPY 50 billion. Credit costs haven't changed and ordinary profits increased by JPY 150 billion. I assume this is coming from increase in ownership interest, stock-related and other factors accounting for JPY 100 billion. I'd like to know the breakdown. This is my first question. The second question is a high-level question. Today, there was a headline in the news quoting CEO, Mr. Kamezawa about achieving top -- global top-tier ROE and corporate value. I assume this is along the same lines of what has he has been saying. But just to be sure, can we take this as a hint that the current ROE target of 12% will change? Is there no need to read too much into it? I would like to know what you mean by achieving global top-tier ROE, if there is anything we should know of. Jun Togawa: Thank you for the questions. Should I explain both NOP and ordinary profit? Well, if you could elaborate on the variance, if there is anything that is tricky in NOP. Okay. Within NOP, JPY 25 billion is from ForEx, assuming the yen to be about JPY 5 stronger. The rebound from treasury trading gains was concentrated in the first half, as I said, and the difference between first half and second half is about JPY 130 billion. Then there is increase in expenses, expense incurred in EMUTO, IT costs, AI, cyber-related impact from certain inflation-related costs, base wage increase, among others. All in all, about JPY 100 billion in expense increase. We are also considering a certain level of structural improvements for next fiscal year as profits are also strong. Averaging them all out, we expected an upside of about JPY 50 billion in NOP. Regarding ordinary profit, there is a one-off step-up gain from an increase in our ownership interest. This accounted for about JPY 100 billion in the first half. Some of it was not accounted for in the plan, as I said earlier. Combined with Morgan Stanley's profit increase, ordinary profit was revised up by JPY 150 billion. To your second question, I appreciate the expectations you have on us, but we will first focus on achieving 12%. Mr. Kamezawa spoke in that context. Thank you. Operator: It seems there are no further questions, so we will conclude the Q&A session. Finally, Mr. Togawa would like to say a few words. Togawa-san, please. Jun Togawa: Thank you very much for joining us today despite the late hour and on a day where many companies are announcing their results. Thank you for your diverse questions and comments. Today, I mainly explain the progress made in Q2 of FY 2025, and President Kamezawa will provide a more detailed explanation, including his own thoughts at the investor briefing on the 18th. We look forward to your participation. We would appreciate your continued understanding and further support. Thank you very much for joining us today. Operator: This concludes the online conference call on financial highlights for the first half of FY '25 of Mitsubishi UFJ Financial Group. Thank you very much for participating today. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Operator: Good morning, and welcome to Datavault AI's Third Quarter Conference Call. With us today are Nathaniel Bradley, CEO; and Brett Moyer, CFO. This call will contain forward-looking statements, which reflect management's current judgment, including certain of our expectations regarding fiscal year 2025 and 2026 financial performance. However, they are subject to risks and uncertainties that could cause actual results to differ materially. Risk factors that could cause actual results to differ materially -- I do not have rest of the scripture, I do apologize. It's now my pleasure to turn the call over to management. Please proceed. Nathaniel Bradley: Yes, I am Nathaniel Bradley here. Thank you very much, everyone, for joining the call today. We put together a brief presentation. There's obviously the safe harbor there. So look, we had an incredible Q3. Our results really speak for themselves. Again, this is kind of loading both the performance of WiSA from a more scalable to a more scalable, more nimble business model around the WiSA technologies in our Acoustic division. And really a surge in our ADIO technology revenues and also the beginning of what becomes in our fourth quarter, an explosion around our flagship Datavault, our kind of pride and joy. The Datavault platform had incredible performance in our Q4, but Q3 was really a loading of that performance. And thanks to Jeff Jones and some of the key players on our team that we are able to marshal the technological resources and the integrations necessary to scale our systems globally. We're now in position with the Datavault platform here Q4. So aggressive revenue guidance for 2026. Really the highlight of this call is that based on the performance of Datavault and what we can see both in the WiSA, in the ADIO technology lines and our Acoustic divisions that we're going to aggressively advance our guidance. We're going to increase from a $50 million guidance in 2026 to a full $200 million minimum for next year. And that's just leading into that a process that's underway in terms of tokenizing real-world assets all over the world and some of the progress that we've made with our Acoustic division in the WiSA technology where we've really honed in that technology and see a very scalable future that includes robotics and includes using WiSA in signage and in other areas to deliver data over sound. And so we have a very scalable model moving forward that we're very excited about and very pleased to announce that we've increased our guidance quite substantially to $200 million by the end of 2026. And that's a process underway. It's hard to gauge in the fourth quarter how we're going to work through a lot of that growth and recognition and all the issues around our revenues in Q4. We do know that it's coming in droves, and we're managing that as a team. And so strategic investment in the financial flexibility, really, this was all triggered by the $150 million strategic equity that we received. This is a lifeblood of capital that unlocks our company inside the scale of our customers' operations. So we're expanding globally our footprint, and we've got a presence now in Zurich, in London, Taiwan, Japan, Korea, Hong Kong. And we really believe that, that footprint will support a scalable growth on a global basis. When you look at that forecast, it's really predicated on the strategic partnerships. We're very proud of Platinum partners of IBM. Of course, our NYIAX partners that have given us access to the NASDAQ Financial Framework, which is very special and Scilex, which will lead a biotech innovation using our technology that was kind of foundational to their investment in us, but also central to how we've marshaled some of our forces to meet their design and development needs and beginning, in fact, today, a force is rising there in biotech between Scilex and Datavault where we're developing an exchange that will be very special in biotech, in scientific research. So Burke Products also should be mentioned just giving us chops with the federal government and our ability to contract with the federal government. We have a sensor technology and an inaudible tone technology and a semiconductor product that Burke Products is working with our team, in particular, Sonia Choi and others on our team to develop. We have, of course, the RWA tokenization and our ability to tokenize really begins with our ability to really understand the attribution of many types of elements and resources. We're really specialized in understanding very deeply particular resources. We've just done an announcement in geothermal, but we'll be doing a great number of announcements in this area. And we've really specialized in tokenizing things that are very valuable all over the world. And so we're really excited about our RWA positioning. Our preeminent patent position and technology is really getting recognized on a global basis, and we're really excited about that. We have innovative technology and our partnership with IBM can't be overstated. It's really special what we have there in terms of engineering and sales throughput. We also have global execution through our headquarters now in Philadelphia and the locations that I mentioned, we're able to expand. If you look at really the patented technology that we have that's quite special, it's enhanced with partnerships and scalability, multibillion-dollar corporations that have put a stack together on our behalf that really is second to none. We've talked a lot about CLEAR and IBM, but Fiserv now and Houlihan Lokey coming to our aid in areas where we needed help around international attribution, around RWA, everything from sovereignty to governance to the underlying assets, and how they're treated. We have developed an American political exchange that we intend to launch into the midterm elections in November this coming 2026 November. And we have an international elements exchange that we've developed that's been central to our revenue and interesting from a standpoint of capturing an international attention and very strong use cases here in the United States, given the passage of the GENIUS Act and the passage of CLARITY Act, where we're able to see now the financial governance models that will allow us to have a New York-based exchange operation. We also have the information data exchange, which is the -- our ability to exchange information at a level where we believe companies can turn data into cash. And we're going to have a specialized biotech exchange with Scilex that will add to this cadre of exchanges, but these will be tokenomic exchanges that use a myriad of blockchain and AI tools for both yield management and product attribution. We, of course, can tokenize on any blockchain. We are agnostic to chain, but can select the proper chain for any initiative across these exchanges. And we're excited about that platform, of course. The -- just to give you kind of the use case around one of our exchanges, the Elements Exchange, which has a bit of a hot hand in terms of answering the call on a global basis. The International Elements Exchange allows for farming, mining, banking and manufacturing organizations to tokenize and realize a value. Again, our technology does really three things. It is a refinery that allows you to refine your data assets and identify them to objectify them. We have a Datavault where you can value your assets and you can use our agents that we've developed that are AI agents that are designed to score and value your data assets. And then when you are able to score and value them, the last piece is to exchange them. And of course, we have our exchanges. This Elements Exchange is focused on the elements of Earth and all of the products of Earth that are under earth in terms of being mined or that are forthcoming in crops or other manufacturing outputs, even geothermal as we announced today, where you have an energy output of earth. Our Elements Exchange will have a myriad of elements, it's a number of them. We have a focus around our Elements Exchange and how we make money on that exchange is our use of these elements to create objects that are traded on our exchange. We're focused on right now revenue drivers including commodities, agricultural and soft commodities, that's sugar and cotton. Commodities include gold and rare earth, pharma and genomics and biotech, our partnership with Scilex, our partnership with Brookhaven National Laboratory. We are focused around tokenizing, valuing and refining these objects and producing a revenues around these objects that is received on every tick of the trade on these exchanges. We operate exactly like the New York Stock Exchange or the NASDAQ. We are able to uplist companies' assets in the form of token, and we can trade them in between buyers and sellers in a brokered exchange that is secure and using world-class infrastructure, as I discussed. So we have the ability to do this in real estate as well. We have large RWA products in real estate, corporate data, including data in situations of banking, insurance and accounting, Tort law, a number of interesting data sets that are valuable and can be traded on our exchanges. We also have, of course, our NIL Exchange. And our international NIL Exchange will be making an enormous announcement about its rebranding, and we've targeted a corporation that has identified us and we've identified them, and we're going to make a big step forward and a big announcement in the near future around our sports NIL Exchange. We have also our focus around, of course, developing our quantum computing and high-performance computing capability. This is in combination, of course, with IBM, but it's also targeted around our London and New York and Hong Kong operations and also looking at using that technology infrastructure team and resource around our exchange resources as well as our ability to use that technology to optimize the output and the performance of our own company. We are focused on, of course, VerifyU, our credentialing technology, DVHolo, our ability to turn data into experience and to monetize experience on our exchanges. Our ability to use our NIL exchange with an enormous global brand recognized around the world across all professional sports and collegiate sports. And our ability to focus on our digital twin capability through our Twinstitute, our acquisition of API Media and our consolidation of CSI in the event space, our ability to have data from events to look at events around the world as creating data in their [ wake ] that is more valuable potentially than tickets themselves and the ability to optimize those events through data, the sales of merchandise, the development of connections to fans and the continuation of the revenue streams for our customers that engage our Acoustic division. ADIO which is data over sound; WiSA, which is the ability to control sound in high-definition and spatial environments and to broadcast wirelessly as synchronization that will have extreme value in robotics and into the future. We have, of course, the Sumerian crypto anchors and our ability to map the real world and bring data from adamant objects from real things to know when a file in a physical world is opened, to know when a statute is moved. Our Sumerian anchors are breakthrough technologies. We have, of course, our pipeline that's driven us to increase our guidance from $50 million to $200 million next year. This is driven by gold, diamonds, tin, Winsor Ruby deal we have in Africa. We just announced this morning a geothermal deal worth $8 million in tokenization that we believe we can recognize in our fourth quarter. We will then engage in a 5% revenue stream around geothermal energy, which we're excited to be a part of the Battery of America. We also have, of course, the contract discussions and projects that are underway in aluminum, titanium, tungsten, silver, copper, oil, natural gas, Boron, real estate. We have a number of opportunities around our X Club, which is an international Asian-focused club around XRP and our move forward there is exciting around these elements. We have our acquisition of API Media that's going to bring us into some high-powered activations and big-time events. The Kentucky Derby, PGA Tour. These are all events that we're excited to be part of, and we're part of it because of API Media. We have new leadership. We have new corporate governance and quality in our management because of that acquisition, and we're so excited to have that team on board with us in Philadelphia and New Jersey. We -- from here, have a guidance and updated our strategic guidance, is really around our launch of these exchanges. That's how we're going to drive revenue. That's how we're going to meet these expanded goals. It's difficult. It's not easy, but we didn't want a low bar for our team or for our management moving forward. We see this giant opportunity, and we've increased guidance accordingly. There's a lot of wood to chop, a lot of work to do. We're doing it. Scalable licensing models is our focus. We've upgraded our financial outlook, as I discussed, RWA and tokenomics, a world leader in that space with patents to prove it, underlying intellectual property that continues to grow, a big shout out to that team, Josh Paugh and now Jacob on that team that are developing patent resources for us on a daily basis including the opportunity to license the WiSA technologies on a scalable and global basis moving forward with partners that are second to none. So that sums up really our presentation today or my prepared remarks. We really appreciate the time and interest in our company. We're excited about what the future has to offer and happy holidays to everyone, and we give thanks to our shareholders and everybody involved in our company, moving and driving this forward. Thank you very much. Operator: [Operator Instructions] Our first question today is coming from Ken Londoner from Endicott Partners. Ken Londoner: That was a comprehensive update. Can you give us some detail on the scope of contracts you're talking about regarding the tokenization of real-world assets? You mentioned quite a few, but what are sort of the big focuses for you going forward? Nathaniel Bradley: So really, the strategy there is driven by the quality of the assets that are being tokenized, gold, diamonds, silver. We're big believers in copper. Copper will have -- it's a conductive metal, of course. And as we rebuild around the world and build new infrastructure around the world, including data centers, copper, we believe, has a lot of value as do many other elements. We're kind of an open ear around the world. The cool thing is we've been invited to governors' mansions. We've been invited into really the governments of international countries and places that we're excited to go and listen and find where the most valuable assets reside and how we can help move those assets. We did open out of Zurich, the opportunity to have a Swiss exchange, and we're working through all the legalities and proper modalities for that. And we're not quick to work through all of that. We're careful to work through all of that. And once we do, we will launch there internationally here in the U.S., really from our Philadelphia headquarters. We intend to have these token exchanges all expand. So to answer your question quite succinctly, we're following the money. We're listening to our customers and following the most valuable assets, proprietors in those assets that are most valuable that we could -- our team would focus on tokenizing assets that we could tokenize this year and recognize revenue for this year and also then move into volume on our exchanges where we have revenue generated on every tick of the trade as do our clients. So we're focused on RWA that is most valuable. I think the announcement today with geothermal, if you look at our priorities, we've started there with one of our big priorities, geothermal. Operator: Next question today is coming from Jack Vander Aarde from Maxim Group. Jack Vander Aarde: Okay. Great. I appreciate the update. You covered quite a lot of ground there. Where do I start? The guidance is jumped off the page to me. So revenue guidance raised in 2025 to over $30 million and $200 million plus revenue for 2026. So maybe, Nate, I mean, this is really leveled up here, I mean, clearly. So maybe help us understand what's sort of locked in that 2026 guidance versus how much is kind of are you working towards locking in? Just so we have a sense of maybe stress testing that a little bit. Nathaniel Bradley: So look, I had to arm wrestle with many on my financial team, Brett Moyer, who deserves a lot of credit for unlocking this value in the first place. But the concept here is to really underpromise and overdeliver. I don't look at that 200 number and feel intimidated. I want my team to feel inspired and to be fired up about a mission that we jointly have together. But I also -- so I didn't want to have a low bar where we are simply overperforming by a function of living. I wanted us to have a goal as a team in our public guidance is obviously our public guidance. Internally, we aim high. And as a leader, we would aspire to be much greater than that number. Our competitors have numbers that are much greater, but they were much older and much more, I would say, bloated and stuck in their way. We have a very nimble AI strategy. We have the #1 partner in the world in IBM around our development, around our technology and the development of quantum systems, which are in near term, a concern for every operation that has any technological reach. So to stress test, the fourth quarter is to understand that this is our first go around. We're working with our auditors. We're working with sophisticated systems around the world. There are revenue recognition and other things to consider that we simply need to understand. So the fourth quarter is likely the steepest climb. It has a lot to do with our technological resources, putting a lot of pressure on that Georgia Development Center that we've begun to develop. We will be expanding that development to meet the demand of this international demand for tokenomics. We also have our new facility in Philadelphia, where we're bringing a team that worked disparately or worked from a Philadelphia location that was private, but many from their homes and from locations that were disparate, bringing our team together, there's a common coffee pot focus that I think when we bring our team together, these numbers start to be quite achievable. And I hope to readjust guidance because we don't want to have a situation where it's easy to achieve what we intend to achieve. We are rookie in terms of our first year on the NASDAQ as data evolves. We have exceptional pedigree technology from WiSA and a tenure on the NASDAQ that shows in our volume and the respect that we're getting worldwide. We're also garnering a number of government -- and you can see today very important projects that impact our world. So I want to thank you for your early guidance for seeing this so early and for having the strength to come out and call us at $3. And as we shoot past that guidance, I hope people recognize your prowess. And we appreciate you following our company for so long. Jack Vander Aarde: Great. No, and I appreciate that. Let's -- there's so much to queue on here, Nate. I just want to understand it and also make sure I'm also setting the expectations appropriately. So -- and if Brett's there as well, maybe that would be helpful, too. On the gross margin line, so if we just look kind of going forward, these are, I imagine, high-margin licensing agreements right now on paper. And I've yet to see it play out within the tokenization on your guys' income statement. So that's going to be a forward-looking thing. Can you just help maybe, help us -- help investors understand what are we going to look like on the gross margin line as these revenues would seem to be pretty large, especially relative to historical levels. I'll... Nathaniel Bradley: Yes, I'll let Brett answer that. But what I would tell you is that we do a great deal of work. If you look at the refinement of data, you might make 20 points on your best day on refinement. You're not looking to get your customer really into these large contracts of CapEx expenditure where you end up in these kind of slow-moving board-level type decisions. Instead, we have a low-cost approach to that. We like to refine on our customers' premises and give them a data refinery and essentially a vending machine for their data. The ability to buy and sell data from our Datavault on the exchange is our aim. So when you get to the exchange and our SaaS has traditional SaaS margins, which are great. But our exchange has exceptional margins, and those can flirt with upper 80s on the exchange. So it's Refinery Vault exchange. And as you walk through that -- those tires, I think you have varying degree of margin in the business. And then, of course, our Acoustic division takes on the more traditional cost of goods versus price of product type analysis. But Brett, with that, I'll turn it to you. Brett Moyer: Yes. So Jack, if you -- I think Nate framed it actually, right? So when you look at the businesses we're acquiring or have acquired, right, CSI, API and ultimately NYIAX, that creates probably the opportunity to do $35 million to $50 million next year. And that's going to be more traditional margins in the, call it, 35% to 45% range. But when you move to -- if you go back and look at the deals we've announced, they all have a component of licensing. So I would expect the rest of the revenue to be weighted higher to the $60 million range, right? So I think when you blend it all out, you're going to be in a 55%, 60% margin across the company. Jack Vander Aarde: Fantastic. Okay. Those are excellent margins. And then can I get an update there's so many moving parts here, obviously, because you guys are on fire. How do we -- how do I think about the balance sheet? So -- because the third quarter, it doesn't really do a justice, I don't believe. So we have a huge Bitcoin investment, it sounds like coming in from Scilex. There's been a lot more acquisitions that have closed subsequent to the quarter. So there's debt, there's fiat cash. Maybe if we could just boil it down, do we have a rough sense of what cash is and what the state of that investment is from Scilex? Brett Moyer: From Scilex? Yes, Nate, do you want me to answer this? Nathaniel Bradley: Yes, yes please. Jack Vander Aarde: Scilex, my apologies. Brett Moyer: All right. So let's take the investment from Scilex because that's $150 million. We got aid in just at the end of the close of the quarter, but that investment is locked down and documented. The only thing between us and having that on the balance sheet is the shareholder vote on November 24. We -- that is an Annual Shareholder Meeting. So we will have quorum, and we have voting agreements prior that we had signed at the time of signing the Scilex deal that amount to, I believe, more than 40 million yes votes. So we're highly confident that the majority of the votes cast will be -- will approve the increase authorized so we can close that $150 million on November 24 or 25, right? So when you think about the balance sheet, that's triggered -- that deal triggered a couple of reactions on the balance sheet. A, it means by the end of the year, you have $130 million plus of liquid assets, maybe $125 million because we're buying API. It also meant that the convertible debt that we had in Q3 triggered out and is off our balance sheet for good. So the only debt on the balance sheet currently is debt associated with the strategic acquisitions of CSI and Datavault Holdings now known as EOS Technologies. So I think you get to a pretty powerful and strong balance sheet as we report out the K at the end of the year. Jack Vander Aarde: Excellent. That's very helpful. Just one more follow-up to that. With the Bitcoin investment, let's say the shareholder vote is approved, so all $150 worth of Bitcoin is now in your possession. Are you going to be -- does that mean your -- how much of that is going to be kept in the form of Bitcoin versus how much of that is out the door to fund some of this stuff? Brett Moyer: Well, look, I think there's -- I think it's real important for investors to understand that when we took the 150 -- when we signed that financing deal, there are no treasury restrictions around it. So from management's perspective, Nate in my mind, that $150 million is the same as cash, except it has a little bit more volatility than cash, right? But fundamentally, we look at it as cash, so we don't look at having any pressure for multiple years to have to raise cash, raise any money for the company which is fundamentally changing, right, our platform... Jack Vander Aarde: Yes. So for all effective purposes, it's both working capital or it's an investment. It's kind of whatever you need it to be when it's in the door. Brett Moyer: Exactly. Operator: Our next question today is coming from Peter [ Ruggieri ] from a private investor. Unknown Attendee: I'm going to tell you a little bit about myself. I got involved originally as an investor in Sorrento, which owns Scilex, which owns Semnur. They're involved with Celularity, piece of Aardvark [indiscernible] involved, now Semnur or Scilex has put $150 million into Datavault which is new to me. And I have a lot of questions because with all this -- with like IPMC and a precision medicine globally with Robert Hariri with Celularity, you're running a whole platform globally with increasing medicine AI. It's a big thing. And I'm just astounded by the revenue guidance, by the way. I'm wondering what's the revenue contract backlog right now? Nathaniel Bradley: It's significant. It's one of the hardest things to get through and particularly internationally, just in terms of getting the company's chops up for that. And our Philadelphia headquarters is going to address legal and governance and many other things. Also, these exchanges are not simple in their constructs from a governance standpoint. And we have a very kind of governance-first model that served us very well. We get to be the iTunes in the space as opposed to the Napsters, if you will. So I'm excited about that. I think your question is regarding to the biotech space and Scilex investment or interest in us. Scilex is wildly accretive to our strategy. We had announced previously digital twinning and digital twins as a marketplace that we were interested in developing technology around and we have. And its really data into experience, data into hologram, data into model, data into experiential models where management teams don't struggle to understand the challenges or the data related to the challenges around them. They're able to actually experience that data and see the pathways before them more clearly. And that's kind of at the center of the Datavault which is experience around and that experience includes valuation and score because it had to be sustainable. So valuation and score. And one of the things that is common across these threads, but very specific in the biotech space is our work with the Brookhaven National Laboratory, which I believe Scilex was studied and saw our progress there and read our cooperative research and advancement agreement drafts that are now being considered at Brookhaven. We have the great privilege of working with supercomputers there in a supercomputer environment of people that we've come to trust and in fact, love that we are able to develop a system between our federal laboratories, our allies, so BAE over -- just over the pond and some of the collaborators we have here in the United States, whether it's General Dynamics, Raytheon or Boeing, our ability to take information and have rather than stovepipes and everybody not share their marbles that everybody can collaborate on a global basis for the advancement of technologies across a myriad of spaces, none more important, none more probably well-funded than biotech. And Scilex is a leader in that, the people there and the leaders, Dr. Henry Ji, certainly financially Stephen Ma, who's become a mentor to me. These are incredible people who have a great grasp over biotech science and biotech technologies. And we're proud to have that investment that allows us to build that platform and so much more. We're a platform of platforms. We're exchange of exchanges, the ability to launch exchange after exchange, our biotech exchange, which will have a great name. I know the name, I can't say it, but the biotech exchange will be a very special attribute. So to the size question about -- part of your question about size and why is this space so hot or why did we increase our guidance? It's only partially for the real-world asset of biotech that's in our guidance. And I think it's an explosive piece that maybe makes us to re-guide. But the biotech piece is incredibly exciting and has attribution and use case and utility across every medical science, oncology and heart, acute, post-acute. When you look at the healthcare space, it is not a market, it's the market. Everyone will engage with it at some point. And many of us on a daily basis, many more on acute management basis are spending hundreds of thousands of dollars per annum to address our health. And the kind of compound nature of that makes it not only an international crisis, but something that needs technology to address. And we're happy and proud to be part of the solution of creation of digital twins. And you could see scanning the human body and having a digital twin could aid you, just like it aids management in experiencing their data decisions. When you see your digital twin, it has the same effect. And healthcare is very exceptional. It's very well-funded, but also in crisis. So it's a unique combination. We're happy to be part of the solution. Operator: [Operator Instructions] Our next question is coming from [ Tyrell Pruitt, ] a private investor. We reached end of our question-and-answer session. Ladies and gentlemen, this call contains forward-looking statements, which reflect management's current judgment, including certain of our expectations regarding fiscal year 2025 and 2026 financial performance. However, they are subject to risks and uncertainties that could cause actual results to differ materially. Risk factors that could cause our actual results to differ materially from our projections and forecasts are discussed in detail in our periodic filings with the SEC. That does conclude today's teleconference and webcast. We thank you for your participation today.
Operator: Welcome to ABN AMRO's Q3 2025 Analyst and Investor Call. Please note, this call is being recorded. [Operator Instructions]. I will now hand the call over to speakers. Please go ahead. Marguerite Bérard-Andrieu: Good morning, and welcome to ABN AMRO's Q3 results presentation. I'm joined today by our CFO, Ferdinand Vaandrager; and our CRO, Serena Fioravanti. After our presentation, we will hold a Q&A session to address all your questions. Let me begin with the highlights of the third quarter on Slide 2 before moving to the announcement of our intention to acquire NIBC. The third quarter was another solid quarter for ABN AMRO. Net profit reached EUR 617 million with a return on equity of 9.5%. The inclusion of HAL contributed EUR 26 million to our results across all products we managed to grow this quarter. Our mortgage portfolio increased by EUR 2.1 billion and corporate loans grew by the same amount. Net new assets increased by EUR 4.3 billion. Cost discipline remains a priority with FTEs declining by 700 in Q3 and by almost 1,000 year-to-date, excluding HAL. Credit quality remained strong with EUR 49 million in net impairment releases reflecting recoveries and improved macroeconomic variables. Our CET1 ratio stands at 14.8%, and we finalized the EUR 250 million share buyback in September. We will review our capital position in Q4 to assess the potential for further capital returns. Now turning to our other announcement of the day. I'm very pleased to announce that we have reached an agreement to acquire NIBC. This acquisition is fully aligned with our strategy and presents a unique opportunity to reinforce our leading position in the Dutch retail market, and accelerate our personal and business banking strategy. NIBC is a well-run, primarily Dutch-focused entrepreneurial bank with a strong specialization in mortgage lending and savings products. It serves around 500,000 retail clients and around 175 corporate clients with a high-quality portfolio mortgage and very low arrears. NIBC will add around EUR 28 billion of mortgages, significantly increasing our scale in these markets, further cementing our leading position in the Dutch mortgage market. Around half of the mortgage portfolio will be off balance as NIBC has an attractive originate-to-manage franchise with long-dated mortgages. The acquisition also brings an attractive savings platform, serving 300,000 clients across the Netherlands, Germany and Belgium. The savings offer an interesting cross-sell opportunity with our investment platform, BUX. Given NIBC's domestic focus and the overlap of service providers, there is substantial potential for cost synergies with limited execution risk. This transaction is expected to deliver return on invested capital of around 18%, 1-8, and will improve our group's financial profile. The capital impact of approximately 70 basis points is anticipated at closing. The acquisition is, of course, subject to regulatory approvals and is expected to be completed during the second half of 2026. We look forward to welcoming NIBC's clients and colleagues and to the opportunities this acquisition will bring to us all. Now turning to our third quarter results. I will start with the Dutch economy. While the Dutch economy continues to perform well, supported by a strong fiscal position and low unemployment, the housing market remains robust, with pricing still rising, though at a lower pace than in the first half of the year. Employment continued to rise and is at a record high. The debt-to-GDP ratio of the Netherlands remains very healthy -- and that's a French person telling you that, it is significantly lower than other European countries. The Dutch elections results have been announced and coalition talks have begun. Ideally, the quick and stable formation process will allow the new government to start addressing important national issues, for example, the housing shortage or the nitrogen issue. Given this economic context on the next slide, I will discuss our results. We again showed a quarter with strong mortgage production growth, thanks to a robust housing market. Our mortgage portfolio grew by EUR 2.1 billion in Q3 with our market share in new production rising to 19%. We made some important amendments to our mortgage terms. We now automatically adjust risk premium after repayments, reviewing it monthly instead of only at the end of the fixed rate period. This led our mortgage products obtaining the top rating in the intermediary market, which accounts for nearly 75% of new volume. We observed an immediate increase in new volumes following this. Today, we also announced the rationalization of our mortgage brand line-up. Going forward, we will focus on our core labels, namely ABN AMRO and Florius and we will discontinue the Moneyou brand. This allows us to focus investments in our core labels, in technology and innovation to further improve our services. Moving to corporate loans, further organic growth and the inclusion of HAL resulted in EUR 2.1 billion loan growth this quarter. Loan growth was partially offset by the wind-down of asset-based finance. This quarter, we sold our U.K. lease portfolio. Moving to deposits. HAL added close to EUR 11 billion of client deposits. Within Wealth Management, we also have provided targeted offerings starting in Q2, which have resulted in net new assets of over EUR 4 billion this quarter. Given this positive developments in our lending and deposit franchises, let's now look more closely how these have supported our net interest income. Our net interest income increased to EUR 1.5 billion. HAL's inclusion contributed positively to NII by around EUR 34 million. The inflow of NHG mortgages and the adjustments we made in the mortgage terms I just mentioned before, led to slightly lower margins. However, the strong growth in our mortgage book offset this. Deposit margins declined partly related to targeted offerings within Wealth Management at reduced margins. Treasury results increased during Q3. However, the increase was a bit lower than initially expected. Based on last quarter's forward rates, the inflection point of replicating portfolio yield was expected at the beginning of next year. However, current interest rates have brought this timing forward this quarter, bringing the decline in the replicating yield to a standstill. In the coming quarters, we expect the deposit margins will start to become a tailwind. Looking ahead to next quarter and assuming a modest increase in treasury NII and stable deposit margins, we expect full year NII of at least EUR 6.3 billion, including HAL. Now turning to fees. Looking at our third quarter fee income, the fee contribution from HAL becomes evident, increasing overall fee income by around 10%. These excluding HAL, continued to increase, with fee income for the third quarter, reaching its highest level in the past 2 years. Personal and Business Banking fees increased mainly from higher seasonal payment transactions. Wealth Management fees was primarily thanks to higher advisory and mandated business volumes. Other income is volatile by nature and ended at EUR 28 million for Q3. The decline was caused by a number of factors, all having a negative impact on other income this quarter. Specifically, we booked lower equity participation results, lower other income within treasury and a negative fair value correction of past bookings related to some mortgages. Now moving to our operating expenses. We have further reduced expenses as we worked on rightsizing our cost base. This quarter, FTE showed a significant reduction of 700, half of which related to contractors in Group Functions. Since the beginning of the year, the number of contractors have declined by 1,100. To a limited extent, we onboarded external for their skills, which explains the small increase in internal FTEs over the same period. The Dutch Collective Labor Agreement increased wages by 3.75% on the 1st of July, leading to an increase this quarter in personnel expenses. Thanks to our ongoing cost discipline, our underlying cost base declined this quarter. At the beginning of the year, we projected our underlying costs excluding HAL to be between EUR 5.3 billion and EUR 5.4 billion, and we are confident now of ending at the lower end of this guidance. Including HAL, this now translates to a full year cost guidance between EUR 5.4 billion to EUR 5.5 billion. Now turning to our credit quality, which again remained very solid. Prudent risk management supports our strong financial results. We recorded impairment releases of EUR 49 million this quarter, mainly related to recoveries in corporate loans and improved macroeconomic variables. We saw some inflow into stage 3 for specific individual files, although, this was lower compared to the last few quarters and fully offset by releases. The total Stage 3 ratio decreased slightly to 2% and our coverage ratio was broadly stable for each of our lending projects. Given the impairments year-to-date, the cost of risk for 2025 will likely end around 0 for the full year. Now moving on to our capital position on the next slide. Our CET1 ratio remains stable at 14.8%, well above the regulatory requirements of 11.2%. The impact of the consolidation of HAL was offset by the quarterly contribution of our net profit. The total impact of HAL on our CET1 ratio as of Q3 is 40 basis points, 7 basis points of impact were already taken in Q2. The formal move of certain loan portfolios to the standardized approach had no impact on our capital ratio, while RWAs increased by EUR 1.6 billion. This was offset by lower capital deductions in our CET1 capital. During Q3, data quality improvements were realized around EUR 1 billion of RWA reductions, mainly from data improvements on real estate collateral. Further progress on data remediation is anticipated, for example, related to the SME support factor, which may result in further reductions in Q4. Looking ahead, as I mentioned, NIBC will impact our capital ratio by around 70 basis points at closing, expected in the course of next year. Our capital position remains robust, and our capital generation is strong. In Q4, we will review our capital outlook and incorporate all the relevant capital and RWA developments. Now to summarize our third quarter results. For 2025, we expect net interest income of at least EUR 6.3 billion and costs between EUR 5.4 billion and EUR 5.5 billion, both including HAL. We are delivering on our cost discipline, improving our data quality and sourcing and are delivering profitable growth in mortgages and deposits. The seamless integration of HAL and closing the acquisition of NIBC are important strategic milestones as we build scale in our core markets. Looking ahead, we are excited to invite you to our Capital Markets Day in just 2 weeks' time. There we will present our updated strategy and financial targets with a sharp focus on rightsizing our cost base, optimizing our capital allocation and unlocking profitable growth opportunities. We look forward to sharing our vision for the future and the next chapter in our journey with you. With that, I would like to ask the operator to open the call for Q&A. Thank you. Operator: [Operator Instructions] The next question comes from Giulia Miotto from Morgan Stanley. Giulia Miotto: I'll start with a question on NIBC. Why do you think that the execution risk here is low? Like, can you give us any, I don't know, qualitative comment on, for example, do you have the same systems or -- anything that can give us confidence on essentially achieving this quite significant synergies? That would be my first comment. And then secondly, I wanted to ask on the costs. The quarter was very good. Was a beat versus consensus expectations, excluding the one-off, the EUR 55 million. However, the exit rate is actually quite high. If I take the mid-range, if I take basically EUR 5.450 billion and then I remove the EUR 3.9 billion that you've done so far, underlying would be EUR 1.55 billion for Q4, which is more than what I would expect. And then it's quite a high run rate for '26. So how should we think about the exit rate and yes, on the cost side? Marguerite Bérard-Andrieu: Thank you very much for your questions. I will start with your first question on NIBC, and Ferdi will take your question on costs. So on NIBC, bear in mind that this is an asset we know very well. We operate in the same market, in the same businesses, mortgages, savings. So this is an asset we know very well indeed. And you're right, we have evident synergies. I'm going to give you just one. We use, for instance, for mortgages, the same service provider Stater. So this is an evident synergy just to flag this one. It is too early to share all the details, of course, of the target operating model. Bear in mind that the transaction will be only closed in the second half of 2026. But we are indeed confident that this is below execution risk transaction for us. Now Ferdi to the cost this quarter and looking forward? Ferdinand Vaandrager: Yes, Giulia, I think the most important message on cost is that underlying our costs are going down, evidenced by the FTE reductions year-to-date. And this offsets the more than offset the CLA increase. As Marguerite said already earlier, we will end at the low end of the guidance range, excluding Hauck Aufhäuser Lampe, but if you add the cost of Hauck Aufhäuser Lampe, we will add in the range of EUR 5.3 billion EUR 5.4 billion. If you look at the exit rate in Q4, we always have some prudency in our guidance, specifically for Q4 because, as usual, you can always expect some seasonal cost increases. Last year, that was around 4%. So that's what you need to take into account if you look at the exit rate in the guidance. Giulia Miotto: Okay. But so just to clarify on the Q4 costs. So it will probably be higher than an exit rate for '26. It sounds like because there is some in Q4... Ferdinand Vaandrager: There can always be, Giulia, that is the question underlying, we expect the cost trend to continue as we've seen in the previous quarters. But normally, there is some prudency of the seasonal cost increase you can see in Q4. Giulia Miotto: Understood. Ferdinand Vaandrager: The guidance is fairly clear between the EUR 5.4 billion and EUR 5.5 billion, including the cost of Hauck Aufhäuser Lampe. Operator: The next question comes from the Namita Samtani from Barclays. Namita Samtani: The first one on the NIBC deal, thanks to the EUR 100 million of first run rate cost synergies in 2029. But when you speak about further upside from revenue synergies what are you referring to? Are these funding synergies? And do you have a sense of quantum? And also the legal merger of ABN AMRO Hypotheken Groep into ABN AMRO. Is that included in the deal maths that you've given today? And my second question, on the replicating portfolio, is it still EUR 165 billion in size? And how should we think about the long end part of the replicating portfolio? Is it more mechanical, for example, just a very simple 5-year swap rolling mathematically or in fairly even tranches? It's just that replicating portfolio slide on Page 16, it confuses me a bit. And I can't understand when year-on-year, I'm going to see a benefit from the hedge. Is it in 2027? So any color there helpful. Marguerite Bérard-Andrieu: Thank you very much. I will take your question on NIBC, and Ferdi will take your question on the replicating portfolio. So yes, we see this transaction on NIBC as very accretive indeed because there are synergies in costs as well as in revenues. Just to give you a few highlights, we are adding 500,000 new retail clients to the ABN AMRO Group. These are clients that have -- that are mass affluent clients. So they fit very well our group. We think that we can bring more products and services to these clients. We also see, as I briefly mentioned an opportunity in using BUX to serve these clients. Bear in mind that NIBC have clients, of course, primarily in the Netherlands, but also in Belgium and Germany. So BUX can really help with that. And yes, in terms of synergies, there are also funding synergies, both on the revenue side as well, I would say, on the cost side, just to hint at a few of the positives we see in the transactions. Ferdinand Vaandrager: Yes, maybe come back and to add to that Marguerite. Indeed, we're prudent in our assessment. So the EUR 100 million is the post tax cost synergies. Of course, there can be some funding synergies. For example, we can over time, refinance the debt securities at the lower rates and also potential reduced LCR targets. But also on the other hand, you might also see some dis-synergies from deposit churn. So overall, if you look at the synergies, it's negligible in our assumption on the revenue and the funding synergy side. If your question on the replicating portfolio, yes, I can confirm the size is still around EUR 165 billion. As you have seen some terming in, that means that it has increased somewhat over the past 2 quarters, and it's also still there around 40% to 45% of the replicating portfolio reprices within 1 year, and the overall duration is around 3 years. If you look at the sensitivity slide in the presentation. It's now an update on a quarterly basis. So the starting point is slightly different from the previous quarters. And there, you can see that we have seen the inflection point already on the income side. But if you purely look at the sensitivity, it does not take into account any changes in volume, and it does not take into account any cost changes, i.e., changes in deposit pricing. So you should just look at as a sensitivity on the replicating income as an 'as is' situation. Marguerite Bérard-Andrieu: And forgive me because I realized I forgot to answer your question on the legal merger and of course, yes the transaction with NIBC is subject to all regulatory approvals. And that, of course, includes the legal merger. Let's say, we do not anticipate difficulties on that front. Operator: The next question comes from Tarik El Mejjad from BofA. Tarik El Mejjad: Just another question on NIBC and one on cost base. I mean I guess you share with us more detailed math on the deal with the synergy expected with some time frame because, I mean, clearly, usually, at least on my M&A model, I mean revenue synergies is not something I would push too much. And on the cost sounds quite punchy here, but I mean, Marguerite, you gave some indications of what kind of synergies. But yes, if you can share with us would be helpful. I mean this is very important for your capital allocation, I guess. And my question is what's next? Because I was more expecting a deal on the Wealth Management to be honest. And in Bloomberg, you mentioned that this is it in terms of deals to be announced. So is this now back to focus on restructuring the bank and costs? Or should we expect more potentially destructive deals to come? So that's number one. And number two, on just maybe a question for Ferdinand. On the cost guidance, EUR 5.4 billion, EUR 5.5 billion, is that excluding incidentals or it's all-in reported guidance? Marguerite Bérard-Andrieu: Thank you. Thank you very much for your questions. A couple of things. Yes, this deal is highly accretive. The 18% return on invested capital, we are very confident is achievable. And indeed, what we primarily factored, I mean why we factored in this model was primarily cost synergies. So if there are revenue synergies on top of it, it is an upside. But I agree with you, this is not a primary thing that we looked at in this deal. And looking forward, we will be sharing yes, more details on the target operating model, but that will come in due course. Just to clarify the answer I gave to Bloomberg. This was more an answer on saying, well, we're not going to call every morning to announce to announce a new M&A deal. So it's just that -- I think the question I got from Sarah there was like, is there something else coming out at the CMD? So no, in the next 2 weeks, don't expect any other announcement from us. And as far as our strategy is concerned, organic and inorganic, we will share everything in 2 weeks when you come to our Capital Markets Day. Ferdinand Vaandrager: Yes. Tarik, to come back to your question on the guidance. Initially, the guidance was equal to last year. We expect to end up at the lower end of that range. Hauck Aufhäuser Lampe adds between the EUR 130 million and EUR 140 million. So this translates in the updated guidance. And clearly, the updated guidance is excluding the incidentals as announced today. Operator: The next question comes from Benoit Petrarque from Kepler Cheuvreux. Benoit Petrarque: So just to come back on NIBC, sorry for that. Just again, the strategic rationale. Because it sounds like a very financially attractive deal and it seems that from a strategic point of view, that was the main reason behind this deal. I was also a bit expecting a bit more other type of deals, let's say. And maybe I missed it, but do you see kind of any franchise value in NIBC or you see just purely 100% as a financial attractive deal with 10% accretion by '29. Just wanted to clarify that because I also see a very low fee base at NIBC. And I was also expecting a bit more fee business as target. And I was also wondering if you could provide some timing on the EUR 140 million pretax synergies, whether we'll start to see some positive effect from that in '27 or that will be more back-end loaded? And just second question on NII. So your guidance of more than EUR 6.3 billion implies roughly EUR 50 million quarter-on-quarter on NII in Q4. And I was just wondering if you could provide the moving parts, deposit margin, lending margin, treasury income. What will drive this improvement in the fourth quarter? Marguerite Bérard-Andrieu: Thank you very much for your questions. So on NIBC, it is indeed both, a financially sound deal, an accretive deal and also a strategic deal. I think it's a good -- it's a good way of proving how we look at M&A. M&A strategy will always be disciplined and we will only pursue it if we find it shareholder accretive. It will be -- this is one of our criterion. You see it with this deal and the 18% of return on invested capital that it brings to the bank. This being said, we see a natural strategic fit with NIBC. It brings us scale in our domestic market in mortgages and in savings. The NIBC brand is a very good brand in the Netherlands. This is a brand that has been existing for 80 years. It has an entrepreneurial flavor. It appeals to the client base that's also slightly different from the clients we already have at ABN AMRO. So it is a great way for us to keep growing and strengthen our position in our domestic market. To your question of -- yes -- to full -- when we see the full benefit of the synergies we mentioned, we express it as 2029 just because as I said, we do expect the closing of the transaction to only happen in the second half of 2026. So we do expect a full benefit of the synergies to be there in 2029. But it does not all happen in the last year, of course. Ferdinand Vaandrager: Yes. And Benoit, maybe on your NII. Arguably you could say NII for this quarter is slightly lower, but I want to reiterate here that is mainly by our own decision. So it was a targeted wealth management campaign. And there, you see a very good NNA growth of almost EUR 4.3 billion. So now it's key that we start transferring that in valuable assets. Number two is an acceleration in the ABF wind down, specifically portfolio sale in the U.K., which is ahead of plan. And what Marguerite already said that is the implementation of what we call here [ARNA]. And that has clearly a positive impact on our position with the intermediaries. Also, if you look at our market share now up till 19%, so for Q4, we expect a modest improvement in the treasury results, as well as stable deposit margins. And if you look at the update on the sensitivity slide, what we discussed earlier, the inflection point of the replicating portfolio is already reached this quarter or, I should say, a start of Q4. So that brings the decline in the replicating yields to a standstill. But if you look at the sensitivity, the tailwinds will be very limited initially and will be more pronounced in the second half of next year. Operator: The next question comes from Benjamin Goy from Deutsche Bank. Benjamin Goy: Two questions, please. So first, on NIBC, again, which over the last 6, 7 years, has built up a significant off-balance sheet mortgage book. Just wondering your thoughts on that part of the business because you very much rely on balance sheet growth? And then secondly, you also call it a low execution risk. I'm just wondering, when you look at capital return going forward, do you basically take your current capital ratio minus 70%? Or would you include a buffer given the uncertainties and execution risk? Marguerite Bérard-Andrieu: Thank you very much. So on the -- on your question of the originate-to-manage portfolio that NIBC has and that represents roughly half its portfolio. We see, it as actually an interesting and value-added opportunity for ABN AMRO because it's not something we were doing already, and we see opportunities with that. So we welcome that addition in our business model. And I confirm that we've been thoroughly assessing the CET1 impact of these transactions that amounts to 70 basis points. And this takes into account a very prudent approach to the transaction, including all form of day 1 provisioning and so on that may be needed. So I would say, so it's a fully loaded 70 basis points. Operator: The next question comes from Chris Hallam from Goldman Sachs International. Chris Hallam: Just a couple of follow-ups. So first, just on funding synergies. Ferdi, I think you said those have been negligible, i.e. not particularly incremental to the 18%, but I'm just wondering how that works given their funding mix, which is much less skewed to deposit funding than your own and their own deposit funding cost, which is higher than yours. So just is this a reason why either you wouldn't fully change the funding mix or why you would expect to see a very high level of deposit attrition? And then second, I acknowledge we've got the CMD coming up very soon. But just looking specifically into 2026, as you're going through the year-end budgeting process, what are the key items you're focused on for the cost side of the business? Are there any specific items or challenges for ABN AMRO that we should consider for 2026 in particular? Both for ABN I guess, on the one side, but also for the industry more broadly? Marguerite Bérard-Andrieu: Ferdi, I will let you take this. Ferdinand Vaandrager: Yes, Chris, I'll start with the first one. So absolutely, there is a potential. But again, the argument here that we try to be prudent and specifically look at cost synergies. Of course, there can be some revenue synergies, but also the funding synergies here. It's too early to start communicating on the potential here, and some of the funding synergies, arguably will be further out also beyond the indicated 2029. But for sure, this provides potential on top of the indicated cost synergies. Marguerite Bérard-Andrieu: And on your question. Well, '26 happens to be the first year of our strategic plans. So I promise we will share everything on '26 as well as for the following years at our CMD in 2 weeks. This being said, I believe in discipline and I believe in saying what we do and doing what we say. We've been very clear from the beginning that rightsizing our cost base, steering on capital and pursuing profitable growth are all 3 like motives. And so 2026 will look like that. Operator: The next question comes from Farquhar Murray from Autonomous. Farquhar Murray: Just 2 questions, if I may. Firstly, more broadly on M&A. You now have kind of 2 integrations with HAL and NIBC. Do you think there's sufficient management room kind of bandwidth for another deal in the near term? And then maybe coming back a little bit to HAL actually, as an integration given it's come on board post closing. I just wondered if you could give us an update on how that business is performing as compared to the original expectations of that acquisition. In particular, I'm thinking about the cost synergy target of EUR 60 million there? Marguerite Bérard-Andrieu: Thank you very much. So I'll take your first question on bandwidth, and I will let Ferdi comment on the HAL integration. I think that was your second question. So do we have the bandwidth? Yes, we do. We are moving at pace. We have a very strong management team. I'm very happy with our Executive Board. And basically, Choy, who is in charge of Wealth is very much involved in the integration of HAL and making it a success. We have colleagues that have been very much involved in the due diligence regarding NIBC, and who will be, in due time, fully ready also to be there for the integration. So we're very confident that we have all it takes to make this integration a success. With M&A, you don't necessarily plan in advance, but we will know how to be opportunistic, if needs be, as I said, always with discipline and only if it's shareholder accretive. Ferdinand Vaandrager: Yes. Maybe just on Hauck Aufhäuser Lampe, as indicated earlier, cost synergies, year 3, EUR 60 million. Also, if we look at the first quarter after consolidation, we're confident that we're going to reach that. So no unexpected surprises in here. We've also said that we need around one-off cost of around EUR 90 million, 1/3 integration cost and 2/3 restructuring cost. We booked so far this year around EUR 8 million in integration costs. The integration is fully on track. So the legal merger between HAL AG and ABN AMRO is to be completed by the end of 2026, and that will really simplify the further integration. So the bottom line is here over results, of the results what we see now is in line with expectations, and we're very confident we're going to reach the EUR 60 million run rate synergies in year 3, which is 2028. Operator: The next question comes from Delphine Lee from JPMorgan. Delphine Lee: My first question is just going back to NIBC and just your thoughts about M&A in general. I mean just wanted to understand kind of what areas of priorities you would have? Would it -- I mean, because is the intention in the long run to continue to strengthen the position in the Netherlands? Or would it mean more to kind of diversify a little bit away from your mortgage book through private banking or corporate banking? Just trying to understand a little bit kind of where your focus is M&A-wise? And my second question is just in terms of excess capital and the usage, and how you allocate capital more generally speaking, is the intention over the long run to sort of manage it to kind of increase the payout? Do you still think there is room with the transaction further down the line? Just trying to think about how you manage your capital with buybacks and what we should expect? Marguerite Bérard-Andrieu: Thank you very much. You are anticipating on what we are going to share in 2 weeks. I will only reiterate that, we only consider M&A when it is disciplined, when it is shareholder-accretive. We think that adding scale in our home market is a smart, strategic move, and back to how acquisition that the bank recently completed and Ferdi was commenting on. This is also a strong strategic fit for us as we grow in wealth in Northwestern Europe, which is part of our strategy. But we will describe all of this at our CMD. In terms of our capital position and our capital usage. Again, this will be the topic of CMD in 2 weeks. But basically, in a nutshell, we will continue to optimize our RWA both in data and from steering more to come on that. The outcome of our capital assessment will be communicated with our Q4 results, including potential capital distributions. But we have a strong balance sheet and a strong capital position. And I think, yes, the rest will come. Bear with us for 2 more weeks. Operator: The next question comes from Juan Pablo Lopez Cobo from Santander. Juan Lopez Cobo: First one is regarding NIBC. Probably I missed some of the KPIs, but you mentioned that the deal is highly accretive. Regarding EPS accretion, if we assume, let's say, EUR 100 million net income coming from NIBC and the EUR 100 million synergies lower post tax. Is it fair to assume an EPS accretion of around 7% to 8%. Does it sound reasonable for you? That's my first question. My second question is regarding the deposits campaign. If you could share some color on this deposit campaign? Volume can we assume around EUR 3 billion, cost probably around 2% or slightly above 2%. And maybe duration, if I got you right, I don't know if we can assume the NII impact in this Q coming from the deposit campaign could be something around EUR 15 million, EUR 20 million. So it will be interesting to know to listen the duration and what percentage of these deposits you think will stay in the bank? Marguerite Bérard-Andrieu: Thank you. Thank you very much. I will let Ferdi answer both your questions. Maybe just a clarification because I'm not sure that we fully agreed on the figure. But when we mentioned cost synergies, it's EUR 100 million post tax. So basically, pretax, it's higher, just to clarify that point. Ferdi, I'll let you go into the EPS accretion. Ferdinand Vaandrager: No. I think if you look at the underlying, how you come to your calculation, fully synergized a profit of around EUR 200 million, indeed, you would come in 2029 to around 7% EPS accretion. And then again, if you look at the overall deposits, yes, we assume some outflow, but we expect it to be limited from the overall deposit campaign. And the most important part of the targeted deposit campaign is increased our net new assets. It had an impact on our on overall margins, but now it should really translate into valuable assets. So that is a transfer into either discretely portfolio management either in advisory or private markets. Marguerite Bérard-Andrieu: But usually, what we observe is that it takes usually 6 months for bankers to actually transform into more valuable assets. Operator: [Operator Instructions] The next question comes from Anke Reingen from RBC. Anke Reingen: It's just 2 number questions, please. Firstly, on the other income, that was quite big this quarter. And I just wonder, is it sort of like a run rate? I mean, a number of banks talked about NII and other income of their value result, like mix effect. Should we see that the Q3 other income could be a run rate going forward? And then on the deposit costs, is there sort of like a change in trend where in the past, we were talking about cuts and savings rates. We're now talking about some selective campaigns on higher deposits with a benefit to volume? Would you say the trend has changed here? Marguerite Bérard-Andrieu: Thanks. Ferdi, on these 2 questions. Ferdinand Vaandrager: No, let me start on other income. It was low this quarter at EUR 28 million. So also quarterly-on-quarter significantly down. And we explained that the main impact here is number one, equity participation. You're always dependent when the revaluation is done. And in Q2, we had a successful exit of the portfolio. ALM results is always volatile. And in this quarter, it always depends on your economic hedges and hedging effectiveness. But the main driver this quarter was lower fair value revaluations on the IFRS 17 and it was specifically related to one-off correction of past bookings in the March fiscal, and that impact was roughly EUR 30 million. So if you look for the coming years, other income is volatile by nature. It also includes XVAs, ALM results and private equity revaluations. But overall, excluding incidentals in the past years, it was around EUR 450 million. And if you would also exclude volatile items around the EUR 400 million. Then if you look at changes on pricing. No, the deposit campaign was very targeted at Wealth Management. So we really target the specific client group. And as said earlier already, we are willing to do that at very low margins because there, we see the opportunity to transfer that in valuable assets. So it's absolutely not a change broader how you should look at our prices. Operator: The next question comes from Jason Kalamboussis from ING. Jason Kalamboussis: I'm coming back to what Tarik mentioned. While the deal is good value for money strategically and from a higher level, it looks like it distracts to what I thought was a clearer focus on wealth management. So if you have any additional thoughts, welcome there. So moving on to wealth. Could you please provide the split year-to-date of the inflows in custody and the rest? And is it something that we could see provided on a quarterly basis? The second thing is on HAL. What are the -- how does the AUMs that you brought in split again into -- can you split out the custody and cash elements, if possible? And my third question is, is the reasonable assumption to -- when I'm looking at your AUM to assume that most of the custody and cash assets above 75% are in the Netherlands, that will be very useful. Marguerite Bérard-Andrieu: Thank you very much. I'll take your first question, and we'll let Ferdi answer the 2 others. In terms of strategy, we believe that it is a perfect strategic fit to actually keep growing and at scale in our home markets. We have the platform for that. We already have 5 million clients in the Netherlands, NIBC adds, roughly 500,000 new retail clients. We do believe in scale and in using our platform, both in mortgages and savings in the Netherlands. This being said, we also do believe that wealth management is an extremely good business of ABN AMRO. I mean we have a strong #1 position in the Netherlands with the market shares of the 35%. We have now a strong #3 position in Germany. We also are present in France and to lesser extent in Belgium. So we will share our strategy for 3 businesses at our CMD. But indeed, we do like very much the wealth management business. Ferdi on the 2 other questions? Ferdinand Vaandrager: Yes, Jason, number one is the split between custody. Overall, you should see that there's the difference between core net new assets and total net new assets of core net new assets. So overall, core and net new assets we had a very strong quarter. As discussed earlier, mainly reflecting the cash inflow from targeted offerings and indeed, the majority of this was wealth management in the Netherlands. Total NNA plus EUR 4.3 billion. So the custody is included in here for this quarter was plus EUR 1 billion more or less. If you look at the total custody within Wealth Management of course that was also a question, I think that is around the EUR 50 billion today. Then I also think, but I didn't hear you that well this, client asset inclusion of Hauck Aufhäuser Lampe. So in total, this was around EUR 26 billion and the split there was around EUR 23 billion in securities and EUR 4 billion in cash. The majority of that inclusion is in securities. Jason Kalamboussis: That's very useful. Just a quick follow-up. I mean, on the NIBC deal, what I'm a bit surprised is that the fee element is quite small. So you have less than 10% that's coming in fees. So that was a bit the sense of my question that, yes, I understand the scale. And also it's a good deal financially. But on the other hand, I would have thought that your focus would have been towards increasing the fee side within your income, whereas this goes a bit the other way. But again, If you have any comments, that would be great. Marguerite Bérard-Andrieu: I understand your question. As I said, it adds scale, which is, I think, a very positive strategic move, and it's also financially very accretive. So we saw it as 2 very good reasons to pursue this acquisition. Ferdinand Vaandrager: Yes, maybe to add there, it's also had the addition of the savings account to the BUX platform, that might provide at least investment propositions there where we are absolutely focusing on transferring NII into fees. Operator: There are no more questions at this time. I will now hand the word back to the speakers for any closing remarks. Marguerite Bérard-Andrieu: Well, I thank you very much all for your questions this morning, and we look forward to welcoming you at our Capital Markets Day on November 25. And for the time on, goodbye. And thanks again. Have a great day.
Operator: Ladies and gentlemen, welcome to Luckin Coffee's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's call is being recorded. Now I'd like to turn the call over to Ms. Nancy Song, Head of Investor Relations for Luckin Coffee. Nancy, please go ahead. Nancy Song: Thank you, and hello, everyone. Welcome to Luckin Coffee's Third Quarter 2025 Earnings Conference Call. We announced our financial results earlier today before the U.S. market opened. The earnings release is now available on our IR website and via Newswire services. Today, you will hear from Dr. Guo Jinyi, Co-Founder and CEO of Luckin Coffee, who will share a strategic overview of our business. Following that, Ms. An Jing, our CFO, will discuss our financial results in greater detail. Afterwards, we will open up the call for questions. During today's call, we will be making some forward-looking statements regarding future events and expectations. Any statements that are not historical facts including, but not limited to statements about our beliefs and expectations are forward-looking statements. These statements involve inherent risks and uncertainties. Further information regarding these and other risks is included in our filings with the SEC. In addition, for non-GAAP measures discussed today, the reconciliation information related to those measures can be found in our earnings press release. During today's call, Dr. Guo will speak in Chinese, and his comments will be translated into English. Now I'd like to turn the call over to Dr. Guo Jinyi, Co-Founder and CEO of Luckin Coffee. Dr. Guo, please go ahead. Jinyi Guo: [Interpreted] Hello, everyone. Welcome to today's earnings conference call. Thank you for your continuous interest in and support of Luckin Coffee. In the third quarter, our scale-driven strategy continued to yield strong results as we capitalized on the rapid expansion of China's freshly-brewed beverage market. Our revenue continued its solid momentum increasing by 50% year-over-year to around RMB 15.3 billion, while same-store sales growth in our self-operated stores further improved to 14.4%. During the quarter, as food delivery platforms intensified their subsidy campaigns, we saw the shift in volume share toward delivery continued at the current stage. Despite this temporary challenge, we maintained healthy profitability, achieving an operating profit of around RMB 1.8 billion. More importantly, in response to the rising demand in China coffee market, we accelerated our network expansion to strengthen store coverage and proactively secure whitespace locations for future growth. As of the third quarter end, our total store count surpassed 29,000, enabling us to effectively meet robust consumer demand. Our scale advantage drove record high new customer acquisition of 42 million, supporting a milestone achievement of over 100 million average monthly transaction customers. This scaled growth across both store front and the customer base have expanded Luckin's competitive edge and market share, placing us on a stronger footing for long-term sustainable growth. I will now share an update on our operations, and our CFO, An Jing, will present the financials later. This quarter, powered by Luckin's strong digital capabilities, we continue to enhance our core strengths across people, products and places, scaling our business at a faster pace and strengthening our market leadership. On the store front, we maintained industry-leading store growth, continuing to strengthen our presence across high-quality locations in high-tier cities while penetrating lower-tier markets. As a result, our store network continued to expand rapidly. By the end of the third quarter, Luckin's total store count reached 29,214, maintaining leadership in China's coffee market with growing customer reach and enhanced fulfillment capability. Domestically, we achieved 2,979 net openings, bringing our total store count in China to 29,096, including 18,809 self-operated stores and 10,287 partnership stores, which has now surpassed the 10,000 stores milestone as well. As coffee drinking habits continue to take hold and the consumer demand grow strongly, China's coffee market still offers much room for growth. Leveraging Luckin's strong brand influence and data-driven site selection capabilities, we can systematically and swiftly identify customer demand, enabling us to open high-quality stores efficiently and in convenient locations that closely align with customer demand. In the foreseeable future, we will maintain a competitive pace of expansion to fully capture the structural opportunities in China's coffee market. Internationally, we had 29 net openings this quarter, bringing our total overseas store count to 118, including 68 self-operated stores in Singapore, 5 self-operated stores in the U.S. and 45 franchise stores in Malaysia. As our first overseas market, Singapore has been steadily improving its performance and initially built a mature and efficient localized operating infrastructure. This has demonstrated the early signs that our digital business model is adaptable and replicable across diverse markets and set an impactful benchmark for our future expansion across the Asia Pacific region. Meanwhile, our U.S. business remains in the early stages of exploration with performance across various areas broadly in line with our expectations and overall consumer feedback being positive. We will continue to take a disciplined and steady approach, accumulating local market impact and enhancing our localized operational capabilities to lay the foundation for longer -- long-term sustainable growth. On the product front, we launched nearly 30 new freshly-brewed beverages and several snack items in the third quarter, continuously driving coffee innovation and shaping market trends. We also diversified our summer lineup with a wider selection of non-coffee options to enrich customer experience. In September, we partnered with our long-time brand ambassador, Tang Wei, to launch the Luckin drink from origin campaign, promoting a healthy lifestyle through high-quality locally-sourced ingredients and reinforcing our brand concept from the origin to you. For example, we launched Guanxi Honey Pomelo Latte, featuring famous Guanxi Honey Pomelo from Fujian province. We also selected Aksu apples from Xinjiang to upgrade our popular Apple C Americano and to launch our new Aksu Apple Latte. These products expanded our flavored coffee portfolio and received encouraging customer feedback. In addition, our Little Butter series surpassed 200 million cumulative cups sold in its first year on the market, underscoring our strong product innovation capabilities and ability to set category trends, which continues to strengthen Luckin's brand leadership. On the non-coffee side, leveraging our fresh coconut sourcing advantage. We introduced the popular Mango Pomelo Sago which sold over 12 million cups during the National Day Holiday, once again demonstrating our broad customer base and a strong market appeal. On the customer side, we remain aligned with diversified and use-driven consumption trends, capturing market buzz and evolving customer preferences through engaging an emotionally relevant market campaign. With these initiatives, we achieved impressive results in customer acquisition, engagement and purchase frequency during the quarter. For example, we partnered with a wide range of popular IPs such as hit movies, blockbuster games and classic animated series, effectively reaching a broader audience, strengthening brand influence and stimulating customer demand. Building on these efforts, we added over 42 million new transacting customers in the third quarter and achieved an average of over 110 million monthly transacting customers, both record highs. By quarter end, our cumulative transacting customer base surpassed 420 million, further strengthening our ability to cultivate a high-frequency loyal customer cohort, a key driver of our long-term high-quality growth. In addition, we remain committed to our sustainability strategy being a force for a brighter future and continue to fulfill our corporate social responsibility through charitable initiatives that support communities across our upstream supply chain. To mark Luckin Coffee's 8th anniversary, we partnered with the China Red Cross Foundation, Hao Fund, to launch the philanthropy campus health initiative, building multiple philanthropy heath centers in schools across Yunnan and Xinjiang. This program enhances campus health care infrastructure in coffee regions and other key sourcing regions, helping safeguard the healthy development of local youth. Moreover, as part of our ongoing focus on children's health in key origin region. We have sponsored the Angel Journey project for two consecutive years, funding screening and treatment for local children with congenital heart disease. Moving forward, we will continue to deepen our engagement in origin communities, giving back to society through charitable efforts to build a brighter future together. This year, built by food delivery platform subsidy campaigns, China's coffee industry has seen accelerated growth with consumer demand demonstrating strong elasticity. These trends further validate the enormous potential of China's coffee market. Amid this complex environment, we have remained focused on our established growth strategy, adjusting our operations dynamically to seize emerging opportunities. As a result, we achieved faster business growth and the market share gains in the third quarter, effectively meeting our strategic goals. At the same time, as temperature have dropped and the freshly-brewed beverage industry has entered its seasonal slowdown, we have observed food delivery platforms rapidly scaling back their subsidies, which are expected to become more targeted and refined going forward. In addition, international green coffee bean prices have remained elevated this year with no signs of moderation at the moment. These factors will introduce new dynamics and create headwinds for the industry and pose challenges to our fourth quarter or even next year's business development. In this evolving landscape, we will focus more on our long-term growth trajectory. We believe our continued strategic focus and enhanced operational excellence will enable us to weather short-term fluctuation and navigate various external environment. We will continue to strengthen our product and brand innovation, offering high-quality, affordable and convenient products that better meet diverse customer needs and support store performance. We will also leverage Luckin's robust digital capabilities and deep customer insights to enhance retention and repeat purchases, fully unlocking long-term consumption potential. Finally, we would like to extend our sincere gratitude to our customers, partners and investors for their continued trust and support of Luckin as well as to our 170,000 Luckin team members who stand with us through their dedication and hard work. Together, we will continue building a world-class coffee brand and making Luckin a part of everyone's daily life. As we move forward, we remain committed to long-term value creation for our customers, partners and shareholders. With that, I will now turn the call over to An Jing to go through our financial results in detail. Jing An: Thank you, Jinyi. Good day, everyone. Thank you for joining today's call. We delivered another strong quarter, underscoring our sustained momentum and competitive strength. With a continued focus on scale and operational excellence, we achieved record high in both customer acquisition and monthly transacting customers. This achievement further strengthened the foundation for our future store performance and long-term growth. Let's now look at our financial performance in detail. In the third quarter, total net revenues increased by 50% year-over-year to RMB 15.3 billion, primarily driven by a 48% year-over-year increase in GMV to RMB 17.3 billion. This accelerated growth reflected a strong performance across both self-operated and partnership stores, supported by our record monthly transacting customer count and the expanded store network to better market -- to better meet rising demand. Revenues in self-operated stores increased by 47% year-over-year to RMB 11.5 billion, mainly driven by stronger sales performance in our self-operated stores. Breaking down our product sales into three streams. Net revenues from freshly brewed drinks were RMB 10.6 billion, representing about 70% of the total net revenues. Net revenues from other products were RMB 622 million or roughly 4% of total net revenues. Net revenues from others were RMB 233 million or about 1% of total net revenues. Looking at product sales from the perspective of company-owned stores, revenue from self-operated stores increased by 48% year-over-year to RMB 11.1 billion. Same-store sales growth reached 14.4% for this quarter, driven by increased cost of sales and ASP, reflecting the shift in volume mix towards delivery. Store level operating profit grew 10% year-over-year to RMB 1.9 billion with self-operated store level operating margin of 17.5%. Revenues from partnership stores increased by 62% year-over-year to RMB 3.8 billion, accounting for 25% of total net revenues. This impressive growth was primarily driven by higher material sales, profit sharing from strong partnership store performance and increased delivery service fees resulting from a greater delivery volumes. Cost of materials as a percentage of total net revenues decreased to 36% from 39% in the same period of 2024, mainly due to our enhanced discipline supply chain advantages. In absolute terms, cost of materials increased by 41% year-over-year to RMB 5.5 billion, in line with our business expansion. Store rental and other operating costs as a percentage of the total net revenues decreased to 20% from 22% in the same period of 2024, mainly driven by improved operational efficiency and scale benefit from increased cup sales. In absolute terms, this cost increased by 36% year-over-year to RMB 3.1 billion, reflecting higher payroll costs tied to cup sales growth and increased rental costs from ongoing stock expansion. Delivery expenses increased by 211% year-over-year to RMB 2.9 billion due to a significant increase in delivery orders from food delivery platforms. As a result, delivery expenses as a percentage to total net revenues sharply rose to 19% from 9% in the same period of 2024. However, on an order basis, delivery expenses decreased year-over-year, reflecting improved efficiency at scale. Sales and marketing expenses as a percentage of the total net revenue decreased to 5% from 6% in the same period of 2024, mainly driven by enhanced operating efficiency and the leverage from accelerated revenue growth. In absolute terms, sales and marketing expenses increased by 28% year-over-year to RMB 751 million, mainly due to higher commission fees paid to food delivery platforms as a result of rising delivery volumes. General and administrative expenses as a percentage of total net revenue decreased to 5% from 6% in the same period of 2024, mainly driven by enhanced operating efficiency and leverage from accelerated revenue growth. In absolute terms, G&A expenses increased by 25% year-over-year to RMB 793 million, primarily due to increase in payroll expenses and share-based compensation, as well as greater investments in research and development. As a result, our GAAP operating profit increased by 13% year-over-year to RMB 1.8 billion. Operating margin was 11.6% compared to 15.5% in the prior year period, mainly impacted by a significant increase in delivery expenses. On s Non-GAAP basis, operating profit increased by 15% year-over-year to RMB 1.9 billion, with operating margin at 12.6%. Net profit was at RMB 1.28 billion with a net margin of 8.4% compared to RMB 1.31 billion and 12.9% in the prior year period, mainly due to a higher effective tax rate. On a non-GAAP basis, net profit was RMB 1.4 billion with a net margin at 9.3%. Finally, turning to our balance sheet and cash flow items. Our net operating cash inflow was around RMB 2.1 billion in the third quarter of 2025. As of September 30, 2025, we had RMB 9.3 billion in cash, including cash and cash equivalents, restricted cash, term deposits and short-term investments, compared to RMB 5.9 billion as of December 31, 2024. Our robust cash generation ability and a strong cash reserve enable us to flexibly adapt our business expansion pace to different market conditions letting us fully capitalize on emerging opportunities. In close, our solid third quarter results reaffirm our market leadership and the business resilience. We are particularly engaged by -- encouraged by the potential of our growing customer base, especially as we continue to expand loyal cohorts. This gives us greater confidence in capturing the vast opportunities in China's coffee market despite evolving external dynamics, while maintaining disciplined cost management and operational efficiency. With that, we will open the call for questions. Operator, please go ahead. Operator: [Operator Instructions] The first question comes from Ethan Wang with CLSA. Yushen Wang: [Foreign Language] So in terms of the delivery subsidy, we understand that it definitely helps our revenue to grow very strongly in this quarter and the last quarter as well, but it also has an impact -- a negative impact on our margin. I think CEO mentioned that going to fourth quarter the subsidy -- the external subsidy has faded a bit, but I'm just wondering, is it because of seasonal effect or there are some structural changes behind and going to next year, should we worry about the high base effect? Jinyi Guo: [Interpreted] Ethan, I will answer your question. So regarding the potential impact of the subsidy situation, we think it's important to see this issue through the nature of our coffee business. And also, we need to evaluate within the context of the broader industry trends as well as our own operational capabilities. So first, coffee is inherently a location-based and store-driven consumer products. So this means pickup will remain the primary consumption format over the long term, but delivery will serve us more as a supplemental channel at certain stages of -- as the market evolves. So there are two reasons for this. One is delivery fulfillment costs are disproportionately high compared to China's mainstream price range of fresh-brewed coffee. So delivery is highly sensitive to per cup pricing and its unit economics are less favorable. So the second is longer delivery times can compromise the immediacy and the coffee taste experience that consumers expect, so which makes it a less ideal consumption model. And our Luckin's pickup-oriented store format actually allows us to densely open stores across nearly all of the consumption scenarios. It makes us -- keep us as close to customers as possible. So this is actually the core advantage of Luckin and underpins our long-term growth. So we believe the coffee business will naturally return to a pickup-oriented model over time. Although this transition period will take a longer time to happen. Yes. So this year's large-scale subsidies have driven a significant surge in the overall order volumes on food delivery platforms. So next year, these platforms are expected to adopt a more refined and online-driven operational strategies and the promotion intensity likely to taper gradually as well. So under such an ROI-driven approach, platforms will likely prioritize partnerships with brands who demonstrate high order density, strong fulfillment efficiency and effective subsidy conversion. So with our extensive store network, efficient operations at the storefront, and our reliable fulfillment in structure, I believe Luckin remains a preferred partner for food delivery platforms. So at the same time, we also see that food delivery platforms, they offered substantial subsidies in the early stages of their campaigns which objectively fueled a sharp increase in our order volumes and the customer base, creating a relatively high comparison base. As platforms, they have already scaled back their subsidies and will shift towards a more refined approach next year. The industry's overall growth trajectory will differ from this year and our same-store sales growth next year will also face challenges and pressure. And as I mentioned earlier, in this evolving landscape, we believe that the only focusing on long-term development is the key to navigating external changes. This means we continuously strengthen our product and the brand competitiveness, unlock customers' consumption potential, which we see this as a core key driver of our long-term sustainable growth. Thank you, this is my answer to the question. Operator: Our next question comes from Sijie Lin of CICC. Sijie Lin: [Foreign Language] My question is about long-term development strategy. We have constantly faced and may continue to face external environmental changes, such as competitive landscape and delivery platform subsidies. So how will we balance different targets, including scale, same-store sales growth and profit? Jinyi Guo: [Interpreted] Thank you for your question. This is a very good question and it's always on top of our mind. We need to take a much longer-term perspective when evaluating the relationship among scale, same-store growth and our profitability. So considering the current stage of China's coffee industry and Luckin's own development trajectory. So China's coffee market is still in its early stages of development, and remains in a high-growth phase with vast market opportunities and the potential. So for us, it's very crucial to capture this historic opportunity and maximize the long-term benefits from these structural trends. So in particular, this year's -- the food delivery platform subsidies have further accelerated industry consolidation as well as increased market concentration. So as these subsidies gradually phase out, this trend is expected to continue as well. And against this backdrop, our strategic focus will remain on growth and market share. And we continue to -- we will continue to steadily expand our store footprint, building a high-quality and efficient store network to meet growing customer demand and pave the way for our long-term growth. So regarding the same-store growth, we'd like to emphasize that since the financial issue in 2020, maintaining a high store quality has always been the top priority in our expansion. So on one hand, new stores can leverage our mature operational framework to quickly ramp up and improve their performance. And on the other hand, we continue to improve customer loyalty and repeat purchases through continuous product innovation and brand innovation, driving steady and sustainable store performance. And as I mentioned earlier, taking into account the factors above, our same-store sales growth metric in the fourth quarter and even next year will face some short-term fluctuations and pressure. However, from a long-term perspective, more convenient store fulfillment and improved customer reach play a very positive and important role in fostering coffee drinking habits as well as naturally increasing consumption frequency among customers. So this, in turn, can provide market momentum for our continued improvement of our store performance over time. So regarding margins, in the short term, the notable higher mix of our delivery orders has put some pressure on our margins fully reflected in the decline of our third quarter operating margin compared to the previous quarter and the positive impact of our improved operational efficiency was actually completed -- completely offset by the significantly higher delivery expenses as a percentage of total revenues quarter-over-quarter. But we view this as a temporary and expected impact, reflecting both the current stage of industry development and our strategic execution process. And at the same time, as I mentioned earlier, international green coffee bean prices have remained elevated with no signs of moderation, which could also pose some challenges to our coffee bean cost next year, which can also affect margins. And in this environment, we will continue to optimize cost structures through refined operations, leveraging our digital capabilities to further enhance operational efficiency and strengthen our supply chain management. And as we scale, we will strive to maintain a healthy and sustainable profit profile. So based on above, in conclusion, business growth and market share expansion remains our strategic priorities at this stage. We will continue to ensure our store quality while driving product and brand innovation amid our robust expansion. And during this period of rapid growth, even if same-store performance showed some fluctuations, the overall trajectory remains within our expectations. And at the same time, we will strive to maintain healthy and sustainable profit levels and remain confident in our long-term profitability potential. Thank you. Operator: Our next question comes from Huayi Li with [indiscernible] Securities. Unknown Analyst: [Foreign Language] I'd like to ask about the company's capital market strategy. At Xiamen Entrepreneurs Day entrepreneurs conference a few days ago, Dr. Guo mentioned the company's intention to pursue a relisting on a major U.S. exchange. Could management please share an update on the current status of this initiative? Jinyi Guo: [Interpreted] Thank you for your questions. Luckin is headquartered in Xiamen, where we received holistic and tremendous support since our inception, especially after the financial issue in 2020, with Xiamen's continued support and the guidance, Luckin has consistently delivered a strong performance and achieved a successful turnaround. So regarding this question, as we mentioned before, we remain committed to the U.S. capital market, though we currently have no specific time line or schedule for us listing on the mainboard. Our top priority at current stage remains focusing on our strategy execution and business development. So offering our customers exceptional products and services, we aim to fully capture the long-term growth opportunities in China's coffee market and expand our market share, creating sustainable long-term value for our shareholders. Thank you. Operator: Due to time constraints, no further questions will be taken at this time. This concludes the question-and-answer session. I'd like to turn the call back to the management team for any closing remarks. Nancy Song: Thank you, everyone, for joining our call today. If you have any further questions, please feel free to contact our IR team. This concludes today's call. We look forward to speaking with you again next quarter. Thank you. Jinyi Guo: Thank you. [Foreign Language] Jing An: Thank you. Operator: The conference has ended. You may disconnect your line. Thank you. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]
Alexandra Schilt: Good morning, and thank you for joining Else Nutrition's 2025 Third Quarter Financial Results and Business Update Conference Call. On the call with us today is Hamutal Yitzhak, Chief Executive Officer of Else Nutrition. The company issued a press release on November 14, containing its 2025 third quarter financial results, which is also posted on the company's website. If you have any questions after the call or would like any additional information about the company, please contact Crescendo Communications at (212) 671-1020. The company's management will now provide prepared remarks reviewing the financial and operational results for the third quarter ended September 30, 2025. Before we get started, we would like to remind everyone that today's call will contain forward-looking statements that are based on current assumptions and subject to risks and uncertainties that could cause actual results to differ materially from those projected, and the company undertakes no obligation to update these statements, except as required by law. Information about these risks and uncertainties are included in the company's filings as well as periodic filings with regulators in Canada and the United States, which you can find on SEDAR and Else Nutrition's website. With that, we will now turn the call over to Hamutal Yitzhak, Chief Executive Officer. Please go ahead, Hamutal. Hamutal Yitzhak: Thank you, Alexandra, and good morning, everyone. The third quarter of 2025 represented a period of stabilization, focus and disciplined execution for Else Nutrition. We entered this quarter determined to build upon operational progress made earlier in the year, and I'm pleased to share that we delivered impressive results while continuing to position the company for sustainable profitable growth. The transformation we delivered is not subtle. It is meaningful, measurable and foundational to the future of this company. Let me begin with what matters most, the strength of our financial turnaround. In Q3, our gross margin surged to 34%, up from negative 9% a year ago and a negative 3.7% last quarter. This level of expansion reflects big structural improvements across manufacturing, supply chain and cost management. At the same time, we reduced operational expenses by 68% year-over-year, bringing them down to $1.15 million from $3.56 million. These reductions came from disciplined decision-making streamlined organizational processes and a firm commitment to focusing on value drivers. Perhaps most importantly, our monthly cash burn fell below $200,000, down from $1.15 million a year ago. That is one of the most significant improvements we've achieved as a company, and it speaks directly to the sustainability of our operations going forward. Revenue for the quarter was $1.66 million compared to $1.79 million in Q3 last year. And while revenue softened due to temporary out-of-stock issues, we saw no indication of weakened demand. In fact, demand for our powder plant-based nutrition portfolio and for our kids ready-to-drink products remain strong across both online and retail channels. These supply constraints were temporary, and we are already addressing them. We expect revenue to resume growth as inventories stabilize. These results give us confidence in our path towards cash flow breakeven between late 2026 and early '27. Behind these metrics is a tremendous amount of operational work. Throughout the quarter, our teams executed this with precision. We simplified the organization, strengthened forecasting and logistics, realigned roles and responsibilities and built more accountability across every part of the business. Else Nutrition is now operating as a leaner, more agile and far more efficient company than it was even 2 quarters ago. As we continue to reduce our manufacturing costs, both in the U.S. and in Europe, we believe that we can sustain our gross margin improvement through 2026 and beyond. As our financial and operational foundation strengthens, we are now in a better position to advance one of our largest long-term value drivers, our plant-based infant formula. The regulatory landscape in the U.S. is evolving in a way that strongly aligns with our mission and technology. The modernization of infant formula standards, including development tied to the financial year 2026 Agriculture Appropriations Bill and recommendations from the National Academies of Sciences, Engineering and Medicine signals a clear recognition of the need for innovation. We are preparing for the next clinical phase required to bring our infant formula to market. This process is rigorous, but we are committed to it. We believe that families deserve cleaner, dairy-free, scientifically sound infant nutrition and we intend to be a leader in shaping that category. At the same time, our strengthened financial position and operational momentum have accelerated interest from several international partners, including major global nutrition and food companies. We are in active discussions regarding commercial distribution, co-manufacturing and R&D collaborations. While these discussions are still early, they speak volumes about the credibility of our brand, the quality of our science and the potential scale of our product portfolio. Overall, Else Nutrition is becoming a stronger, more disciplined and more scalable company. We have stabilized the business, informed our cost structure, broadened our operational capacity and positioned the company for long-term sustainable growth. Looking ahead, our priorities are clear. We will continue expanding margins, driving operational efficiency, supporting clinical and regulatory progress, strengthening our commercial footprint and pursuing strategic partnerships that can accelerate scale globally. At this point, I'd like to address questions that came in from investors. Alexandra, please lead the Q&A session. Alexandra Schilt: Thank you, Hamutal. Our first question is, can you elaborate on your regulatory outlook heading into 2026? Hamutal Yitzhak: Sure. We remain encouraged by both legislative and scientific development. The U.S. market is moving towards modernized standards that better accommodate innovation and Else is well positioned to benefit. Our goal is to initiate the next phase of clinical trials in the near term, paving the way for plant-based and formula category. Alexandra Schilt: Thank you, Hamutal. Our next question is, how are you approaching partnerships and/or collaborations? Hamutal Yitzhak: Well, we continue to explore strategic partnerships that could expand global distribution, accelerate R&D and strengthen our operational footprint. These opportunities represent a validation of our IP and market positioning. Alexandra Schilt: Our next question is, can you explain the rationale and impact of Else Nutrition's recent 10-for-1 share consolidation? Hamutal Yitzhak: Of course, effective November 6, 2025, we implemented a 10-for-1 share consolidation to simplify our capital structure and support the continued viability of the company. All shareholder ownership remains fully proportionate, every 10 pre-consolidation shares now equal 1 post-consolidation share with no change to the total value of individual holdings. All outstanding options and warrants have been adjusted accordingly. This decision was not made lightly. After implementing extensive cost-saving measures and working to preserve the business, the consolidation became an essential part of our broader restructuring efforts. We appreciate investors' concern and remain committed to the company's long-term stability and strategy. Alexandra Schilt: Thank you, Hamutal. That does conclude the Q&A session. At this point, I'll turn it back over to you for closing remarks. Hamutal Yitzhak: Thank you, Alexandra. In closing, I want to thank our employees for their dedication and agility, our investors for their continued confidence and our consumers for believing in the Else's mission. We are building something meaningful, a new standard for clean, plant-based nutrition, and I am more confident than ever that Else Nutrition is on the right path to long-term success. We are excited about the road ahead, and we look forward to sharing further progress in the coming quarters. Thank you for joining us today and for your continued support. Operator: Thank you. Ladies and gentlemen, this concludes today's teleconference. Thank you for your participation. You may now disconnect your lines at this time, and have a wonderful day.