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Operator: Good morning, and thank you for waiting. Welcome to Rumo's Third Quarter 2025 Earnings Presentation. [Operator Instructions] This presentation is being recorded and simultaneous translation is available by clicking on the interpretation button. [Operator Instructions] Before proceeding, we would like to reiterate that forward-looking statements are based on Rumo's Executive Board's beliefs and assumptions and information currently available to the company. These statements involve risks and uncertainties as they relate to future events and depend on circumstances that may or may not materialize. We recommend that you refer to the disclaimer on the second page of the presentation. Now I will turn the conference over to Mr. Felipe Saraiva, Rumo's Head of Investor Relations, to begin the presentation. Please go ahead, Mr. Saraiva. Felipe Saraiva: Good morning, everyone, and thank you for joining Rumo's Third Quarter 2025 Earnings Conference Call. Let's begin with the highlights on Page 3 of the presentation. We reached a new quarterly record for transported volume, 23.4 billion RTK, up 8% year-over-year. This performance was driven mainly by the Northern operation with the higher volumes in general cargo, especially hardwood pulp, bauxite and fuel. Our cash cost was another positive highlight this quarter. We continue to capture energy efficiency gains, reducing fuel consumption, the main component of our variable cost. In fixed costs and expenses, we recorded a nominal reduction of BRL 36 million, which combined with the volume growth translated into a 12% efficiency gain in our cost per unit. The combination of higher volumes and disciplined cost management allowed us to maintain a stable margin in a more competitive environment. Adjusted EBITDA reached BRL 2.3 billion, an increase of 5% year-over-year. We closed the quarter with BRL 1.5 billion in investments and net leverage of 1.9x. Moving to Page 4. Let's look at market share. Our market share this quarter reflects a more competitive grain logistics environment. We maintained a stable market share in Goiás and in the southern ports, while performance in Mato Grosso and the Port of Santos was lower than last year. On Page 5, I will share more details on the market dynamics in the Santos corridor, which is our core business. As a reminder, rail capacity is shared between Mato Grosso and Goiás working as communicating vessels. Grain exports from those markets increased compared to 2024, a year that was impacted by a crop shortfall in the Midwest of Brazil, but still remained slightly below 2023 levels. We transported 8.5 million tons with alternative corridors absorbing part of the difference versus the year of 2023. In the soybean complex, which includes soybean and meal, the market was stronger than usual this quarter, driven by the carryover volumes not exported in the first half of the year, and we captured that demand efficiently. For corn, despite a record crop in 2025, export volumes from Mato Grosso and Goiás were lower. Our performance reflected this more competitive landscape with some flow distribution across all of the logistic corridors, partially offset by growth in soybean complex, as I have mentioned. As you may see in the lower chart, our railway system remains the main logistics solution serving the Port of Santos. Moving to Page 6, we will review the operational indicators. Both the transit time and dwell time in Santos slightly increased during the quarter because of greater complexity of managing higher volumes in the system. In energy efficiency, we reduced unit fuel consumption by 2% with a solid performance across both the Northern and Southern operations. On Page 7, we will show operational results and volumes. We transported 23.4 billion RTK in the quarter, up 8% year-over-year. The Northern operation accounted for about 3/4 of this growth, mainly supported by higher general cargo volumes, particularly hardwood pulp, bauxite and fuel. In the agriculture portfolio, we transported more volumes of sugar and fertilizers. In the Southern operation, the main highlight was higher corn volumes, which had been impacted last year by crop shortfalls in the South. In general cargo, we continue to pursue new opportunities and optimize asset utilization of that system. Now on Page 8, we present revenues and tariff highlights. Net revenue amounted by BRL 3.8 billion, a 2% increase year-over-year. As we always say, the focus of our pricing strategy is on finding the right balance between volumes and tariffs to maximize the system profitability. This year export dynamics led to a stronger competition among logistic alternatives serving our key markets. In this context, we adjusted our commercial positioning in both operations to ensure competitiveness and attractiveness for the rail transportation. Moving to Page 9, we present the EBITDA. EBITDA grew 4%, reaching BRL 2.3 billion. Our efficiency in managing costs and expenses helped us maintain stable margins despite a more competitive environment. Additionally, we recorded a BRL 55 million in insurance recoveries related to the loss of profits in the Southern operation due to extreme weather events on May last year. On Page 10, we move to financial results and net income. The net financial result was a net expense of BRL 837 million, mainly reflecting higher net debt and interest rates. Despite the higher rates, we delivered adjusted net income of BRL 733 million, broadly in line with the last year figure. On Page 11, let's look at our net debt position. Net debt at the end of the quarter was BRL 14.9 billion, reflecting the quarter's cash generation. We closed the period with a healthy leverage of 1.9x. Our liquidity position remains very solid with BRL 7.2 billion in cash and a well-distributed debt maturity schedule with no major concentrations in the fiscal years of 2026 and 2027. On Page 12, we will present the investments in the quarter. We invested BRL 1.5 billion in the quarter, in line with our plan. Recurring CapEx was BRL 503 million, focused on asset maintenance and operational safety. In the Mato Grosso railway project, we invested BRL 575 million with the cash disbursements following the construction progress. Other expansion projects amounted by BRL 396 million with the focus of increasing capacity and modernizing the existing infrastructure. Now turning to the soybean market on Page 13. The next Brazilian soybean crop is expected to reach the all-time high level of 175 million tons in production. The state of Mato Grosso should account for roughly 51 million tons in production. And as we speak, the seeding is almost completed. Exports from the region are estimated at 32 million tons, pointing to a healthy logistics demand for the next season. On Page 14, I will present the corn market. The Brazilian corn crop is also expected to reach a record high level with an estimated production of 145 million tons in the next season. In Mato Grosso, production is forecasted at 59 million tons, driven by an expansion of roughly 400,000 hectares in planted area. Exports should remain stable around 25 million tons in the state of Mato Grosso. This concludes my presentation. Thank you, and we are glad to start the Q&A session. Operator: Joining us today are Mr. Pedro Palma; Mr. Guilherme Machado; and Mr. Felipe Saraiva. Before we begin the Q&A session, Mr. Pedro Palma would like to say a few words. Please go ahead, Mr. Palma. Pedro Palma: Good morning, everyone. This is Pedro Palma. Thank you for joining us in the earnings release for the third quarter. It's a pleasure to be here with you. Before we start the Q&A session, let me just summarize the quarter and how the company has been doing. Looking at how volumes have progressed, we're very happy to have gone over the 8 billion RTK volume at the company with major stake in the South and North operations making contributions to that increase. In the last few months, the South operation has been over 1.2 billion RTK, going back to very healthy and robust volume levels. And the North operation has been close to 7 billion RTK. That's a testament to our resilience, our ability to overcome challenges in the rail environment, which is becoming much more favorable, much more solid. And we have reached those volumes in the last quarter and the last few months despite a fiercer competition in the market, considering grains volumes, both in the North and South operations. As we said since the beginning of the year because of the carryover inventory of corn from '24 to '25, we also mentioned the delayed in volumes coming in, in terms of soybeans. And over the year, there's been a smoother, more linear export level. At the beginning of the year, we were still testing the market's pricing level to understand how we should position our own pricing levels. As of the second quarter, when it was clear to us what that new price level was going to be, we made the required adjustments to our pricing policy to make sure that we would have the required and suitable volumes to execute on our rail activities. And let me remind you, at very healthy margin levels. Our pricing journey has never been linear. Over the years, it's been through ups and downs. Let me remind you that in '22, '23 and '24, our prices went up by 60% in the grains market. And '25 has been a year of adjustments to pricing levels so that we can find the right level that will give us the right market share, the fair market share to ensure that we're growing and positioning ourselves competitively. So we've been doing that, and our rail operation has been responding accordingly with increasing volumes. Now let's take a look at the other portfolios, fertilizers, pulp, sugar, bauxite, they've all been growing at very consistent volumes, also increasing our system across volumes and margins and ensuring that our revenue is resilient and good diversification across all kinds of cargoes. Obviously, our main market is and will continue to be the grain market. Right now, as you can see in our market share charts shared by Saraiva, the corn market and corn exports from the Port of Santos has been less than historically, what has been putting additional pressure on our commercial structure. But these are circumstantial situations. We've dealt with them in the past, and we'll continue to deal with it by adjusting prices so as to ensure the best margin possible for our system. Obviously, price is a variable that is not under our control, but there are variables that are under control. One, capacity, and we have been proving that we have the capacity to operate as well as cost and fixed expenses discipline. As you can see, in an environment where volumes have been increasing, new operations have been coming and going up and running, we are healthy volume levels and increasing efficiency within the system. That's what a company such as ours has to do. Our improvements in -- our investments in improving assets and improving management has to, in the long run, be translated into structural -- lower structural unit costs so we can have healthy margins even in more volatile pricing situations. In the rail execution line, let me highlight our enhancement in safety, both rail safety and personal safety. In 2025, there's been a reduction in incident frequency, which is very closely related to the quality of management and discipline in execution. This is an ongoing journey. We will consistently continue to decrease frequency both in rail incidents and personal incidents. This is one of our values, and it's something we will continue to focus on increasingly more, but I am absolutely convinced that with our teams, both in the North and South operation, our organizational structure will make it even more robust and bring in even more quality in execution and a working environment that will continue to help us progress in reducing costs, increasing competitiveness and bringing in increasing more volumes to a safe system. And before we move on to the Q&A session, one last comment about our investments. As you've seen in Saraiva's presentation, our CapEx is in line with what we did last year. But more important than absolute figures, I just want to reassure you that we are keeping with our recurring CapEx, and we're doing the absolute necessary to have a robust and efficient operation. And our expansion CapEx is within the plan with the Mato Grosso rail works and requalifying also the Paulista Network and all the works at the Port of Santos to make sure that we are building the foundation for future growth and making sure that we are showing today the results that we will reach in the future. So in addition to CapEx, it all makes me confident that we are in line with our schedule and the figures that we had planned. Specifically for Mato Grosso rail next year, the BR-070 terminal will be going into operation. So this year, we have the first stage of this transformational and relevant project for the company and all the companies that we work with. So those are my opening remarks. And now we'll begin the Q&A session. Myself, Machado and Saraiva are here to take your questions. Thank you. Operator: [Operator Instructions] The first question is from Mr. Alberto Valerio from UBS. Alberto Valerio: The first question is what every investor wants to know. What is the company's pricing level? What can we expect for the next quarter, for next year? What is the competitive environment like? Do you think it's reached a sustainable level or not yet? Will there be further adjustments? And are you maintaining the guidance based on third quarter yields? If we see the same yields in the fourth quarter, things might be a bit challenging in terms of keeping the guidance. That's it for me. Pedro Palma: Thanks for the question. This is Pedro. Looking at the competitive scenario and based on my opening remarks, I think it's fair to say that the pricing scenario, especially considering the corn market will continue to be a bit more acid than we had planned. So looking at the current scenario in the fourth quarter to be objective, it is a bit more acid than it was in the third quarter. That said, I don't think that is material. Looking forward -- and let me touch on 2026. As Saraiva showed, the crop dynamics looks positive, different to 2025, where we went in without carryover inventory. And what we're seeing for 2026 will be a beginning of the year with higher volumes in the system, which should make the logistic pressure easier for next year. So I think the dynamics will be marginally better than we saw in 2025, thinking about the transition into 2026. Having said that, to be very transparent and objective, prices are not directly under our control. But what I do see is for 2026, we are beginning our commercial efforts for that journey at similar levels to what we have seen in the second quarter of 2025. And over time, as the market progresses, we will rebuild our pricing basis with more confidence in future prices and volumes. As for the guidance, obviously, we already have the numbers for the third quarter. There are challenges to execute on the fourth quarter volumes. The name of the game for us to conclude the year within the figures that we announced for the guidance will be totally related to executing on volumes, especially now in December and continuing to control costs and expenses. The challenge I see is that, honestly, there's still some uncertainty with regards to the volumes for exports, given that export volumes in December, sometimes clients prefer to execute them in January only based on international demand. So those volumes will have an impact on our numbers. But that said, we are confident that we will meet the guidance. We'll continue to work tirelessly to do so. I don't know if Gui would like to say anything, please feel free to jump in. Guilherme Lelis Machado: Yes. In terms of what we have been seeing in the fourth quarter, last Monday, we announced that October was an exceptional month for us. After May and August, it was our new record, and we'd have to repeat the same thing because our investments have been translated into absorbing capacity fluctuations in the market. November looks like will be a strong month in terms of volumes. As Pedro said, the uncertainty will be mainly concentrated in December. We imagine there will still be major volumes. If we have a healthy demand environment, especially considering the high product availability we have in land, rail will be ready to capture that demand, especially considering our performance in the third quarter and beginning of the fourth quarter. So our focus will be to continue executing sharply in terms of our operations, which is what has been happening and managing costs and expenses as we have been doing. So having said that, obviously, we should be delivering close to the midpoint of the guidance in terms of volumes. Our CapEx is solid and under control. And in terms of EBITDA, if we have a good risk balance in the fourth quarter, we should be able to meet the guidance close to the mid-low point and our efforts will all be towards executing on that at the end of the year. Operator: The next question is from Mr. [ Matteos Santana ] from Bradesco BBI. Unknown Analyst: Could you talk a bit more about corn? Looking at the figures, especially year-on-year in terms of exports, we see that volumes have been very low so far. So there wasn't a lot of corn transported in October. What do you expect for the fourth quarter? Do you think there will be more volumes? Or should we wait for the beginning of the year, January and February, where you'll be focusing more on corn exports? Pedro Palma: Matteos, this is Pedro. As I said in my previous answer, we do see a corn carryover -- a high carryover inventory for corn. Historically, the corn carryover inventory from 1 year to the next, let's just take a look at an example in Mato Grosso. It's about 5 million tonnes. If we look at a snapshot of today, in fact, if we look at October to November, there was a possibility of a 15 million tonne carryover inventory instead of 5 million. So there's an increase in the carryover inventory this crop year was 10 million tonnes. Now what will be exported additionally in December or what will only be exported at the beginning of next year. That's the question mark in the system. And it depends on international demand, and it also depends on the negotiations between producers and traders. So that's the uncertainty I mentioned and Gui mentioned with regards to December figures. How much of that corn will be available for export. What I can say is that we are fully able to transport whatever volume is available. As we have shown in previous months, we do have the capacity, and we are ready for higher volumes than we have transported in the last few months. So -- we're just waiting to see what those volumes will be. So even if we have higher volumes in December, the beginning of next year, in my opinion, we'll be seeing more corn to be transported than we saw in 2025 because the carryover inventory that we see right now by itself cannot be transported in December alone. Felipe Saraiva: Pedro, this is Felipe. In addition to the corn carryover inventory, soybean planting was early this crop year when compared to other crop year. So we'll have higher corn carryover inventories when we move into next year. So that volume might be transported depending on the international demand for that corn, but we'll also have an early soybean harvest because the soybean was planted earlier. So there should be a higher demand for logistics than we saw at the beginning of 2025 when soybean harvest was later. So biomass in general is looking more favorable in terms of logistics in Mato Grosso specifically. Operator: The next question is from Mr. Pedro Bruno from XP. Pedro Bruno: You mentioned your cost discipline. If I could touch on that, please, to understand, especially looking at SG&A plus fixed costs, the consolidated line. You gave us some numbers that don't really give us a lot of visibility. You talk about other operation costs, which I think is the more positive line in terms of how costs progress. It's maintenance, third-party services, security, facilities and others. There was a significant fluctuation, close to BRL 70 million year-on-year, depending on the window, but it looks like that line was highly efficient. But in general terms on fixed costs and SG&A, if you could give us a bit more color on what kind of initiatives we're talking about and what's been responsible for that efficiency? And if there is a trade-off among those initiatives or if there's something you had already planned on capturing. Guilherme Lelis Machado: Pedro, thanks for joining us, and thanks for the question. Yes. what we've been noticing in terms of reduction. And we started working on that since last year, and it's been translating into positive results this year. Throughout our journey and the company has had major projects and initiatives that have required an expansion of our structure. And we believe we have reached an adequate level. So from now on, we will be optimizing things and operating efficiently, always taking care of the company's operational leverage, which is what we do, maximize volume and decreasing unit costs. But what we have been doing is optimizing our structure our occupation, our capacity use because right now, we're at the right structure level. So we have been optimizing our personnel, simplifying processes and rationalizing company initiatives to prioritize those that create value and add to the company's core business. We have been managing inventory very efficiently and working on losses and compensation so that we can avoid losses. We don't want that to be a detractor to our overall structure. So there isn't one specific thing that's been leading to those gains, but -- there are several initiatives and many things the company has been doing that have helped us converge towards those efficient levels. So that's what we've been doing to optimize our cost and expenses this year. Operator: The next question is from Mr. Rogério Araúj from Bank of America. Rogério Araújo: My question is about your liability negotiation and the renewal of the South and West networks. Could you update us on those processes? What are the next steps? And we had the BRL 55 million loss of profit insurance proceeds. And I think the structure was also damaged due to force majeure because of the rains. Are you negotiating anything to that end in the South network? If you could give us more color on that, that would be very helpful. Guilherme Lelis Machado: This is -- Rogério. Thank you for the questions. I'll start by the end of your question. In terms of compensation for the South network claims, they should come to an end now. We recognize those in the second and third quarter. So that was all we had in terms of compensation. The team worked very closely to the insurance companies, and we were able to resolve those issues very swiftly within the regulation. In terms of other occurrences, we are complying with the regulation. There should be something else happened. We will announce that to the market, but there's nothing material to share at the moment. In terms of the South and West networks, there is no news for this half of the year. In the renewal and end of concession of the South network, let's remember that there was a working group with the company, the ministry and the regulatory agency. Those activities have been concluded. So we're not just waiting for the conclusions to be announced. In the South network, we do have the potential and the company is interested in continuing to operate it in a model that is financially feasible for us. Discussions will be ongoing with the stakeholders, and we'll be looking into different alternatives. And as things progress, we will be informing the market. There's nothing to announce for the time being, but this discussion should be taking place over the next few months. Let me remind you that the South network will be concluded in February 2027. So we still have a ways to go with these stakeholders. As for the West network, we do have an event in the short term, halfway through next year, June 2026. That's when the contract will come to an end. We've made it very clear so far in light of the fact that there has been no volumes transported in that operation. So there's no significant revenues or investments coming from there. So we should be giving that asset back to the government and then we'll assess the reconciliation in the assets and liability balance sheet for that operation. Discussions with the government are amicable. So now we just need to decide on the best design for that negotiation. We will let you know as things progress. Operator: The next question is from Mr. Daniel Gasparete from Itaú BBA. Daniel Gasparete: Touching on what Guilherme said about volume and unit cost. How are you coming to your tariffs for 2026, its competitiveness considering a scenario where things might be slower, given the pressure on the margin. What about the carryover of your tariffs from '25 to '26? I know you have the guidance, but if you could tell us a bit more on that dynamics. And also, how do fluctuations in tariffs affect your perception of CapEx investment projects and the projects for this year? Pedro Palma: Daniel, this is Pedro. Let me take your question. Well, let me start by the end to your point about our investment plans. Obviously, when we look at our CapEx execution and our expansion project, we need to calibrate those based on expectations of profit and the investments that are being made. I think the main point when we look at tariffs and when we look at the future interest rates, if we were to conduct a financial assessment of our investments, looking at our expansion plans, you have to have an expansion of volumes, competitiveness and pricing that you get from that structure. And often, investments can help you stabilize pricing. So pragmatically speaking, our journey in the rail system for both operations, especially in the North operation, pricing has never been linear because -- given any moment, when you go into any year and a specific year, there is an effect of the fluctuation of exports, crop failures. There are one-off circumstantial events that can change the pricing ratio within a semester, a year, a crop. But if we look at how our pricing has progressed over the years, you will see that pricing levels have been normalized and the tendency and our thesis that has been confirmed year over the year is that the world needs agricultural commodities and the best region to produce and export those is Brazil and the best region in Brazil for that starts in the Brazilian Midwest, and we want to be the best logistics company with the best structure with the lowest cost to be the best export solution. So to address a point that might not be exactly what you asked, but to give you more granularity, right now, we're fine-tuning our business plan for Stage 2 of our rail expansion project in Mato Grosso in light of the fact that we're moving towards concluding Stage 1. Next year, we will be delivering the BR-070 terminal as we had announced. So now coming into the new year, we'll be fine-tuning CapEx and what we expect from the next stages for the project in light of what's happening in terms of competition and what we expect looking forward. What I can share with you right now, this is not a decision that has been made because the Executive Board is still looking into things to then discuss it with the Board is that we're very constructive about how demand will grow in our markets and competitiveness and our structural profitability coming from investments that we can make. But obviously, we'll look into things stage by stage. We won't be making any dogmatic investments. Our investments are always based on an in-depth assessment of what the market has to offer in terms of demand, expected profitability and our ability to absorb those results and to seek fair share for our operations. Unknown Executive: Another important point is that throughout this journey and considering the tariff dynamics, we've had a very healthy journey after we went through that repositioning, like Pedro said during his presentation, that's taken place over the last few years. So obviously, in 2025, the level of our tariffs how we've traded our capacity. This is a very healthy level. There's been no value disruption. The company margins are still very solid and very healthy. In terms of investments, just to add to what Pedro said, we need to bear in mind that we are sensitive to the company's cash consumption. So all of our investment plans have to be assessed in light of cash generation. We're not going to put the company under any financial stress that is incompatible or that will take us to levels of debt that don't make sense. Also given that there's a persisting high level of interest rates. So we will be calibrating that as we look into market dynamics and making sure that we preserve the company's health. Daniel Gasparete: That was a very clear answer. If you could just touch on the first part of my question, which was about the carryover from '25 to '26 and maximizing volumes and minimizing unit costs. Do you think the trading cycle will be as slow as it was in '25? Unknown Executive: Yes, there will be a degree of carryover into '26 from '25, as I said in my answer to a different question. If we look at the baseline for '26, we're talking about similar pricing levels to the second half of '25. And carryover inventory volumes, good crops obviously put pressure on the system. But as we have shown in the past, we are totally able to increase prices if market opportunities arise. That's what we did from '22 to '24. We increased prices by more than 60% during that period, just as we repositioned it in the recent past in 2025 to make sure that we were capturing volumes as we have reiterated at very healthy margins, given that our pricing levels are very healthy going from '24 into '25. But to be objective, the baseline for '26 is what we had in the second half of '25. We'll have to wait for the market to operate and pressure levels. And in '26, we should be able to capture price recovery along the year. Operator: The next question is from Ms. Julia Rizzo from Morgan Stanley. Julia Rizzo: Can you hear me okay? I have a question about your tariffs, your competitive yield. I think you mentioned that in your institutional presentation in the third quarter, showing that the tariffs at the Rondonópolis terminal was very close to the market. You said it was the next best alternative and Rumo's nominal yield was 246 and the market was 244. What was that like in the third quarter? I just want to understand where the market is going and if what we're seeing now is a reflex if you have already reached market levels. What got my attention was the drop in tariffs and the loss of share. So my next question is what would be a fair or sustainable share for the company this year? We still have a quarter to go and good volumes to deliver, hopefully, and for next year. Unknown Executive: Julia, Thank you for the question. The company right now is operating considering alternative costs considering the regions we operate in Mato Grosso. Let me remind you that the rail volume captures volumes from across the state. And for each region of the state, alternative costs are different. Looking at the portfolio average, we're very close, slightly below the alternative costs to our clients. So looking at the price reduction we saw in the third quarter this year, there are two elements to it. First, price repositioning in the grains portfolio because we want to bring rail to a competitive level and to make sure that we are positioned as the best logistics solution to our clients and the effect of the mix in our portfolio with lower unit cost than the grains portfolio. So obviously, all of that leads to around 7% decrease in the tariffs this quarter. Now looking forward, we will continue to maintain rail as the best alternative to our clients. And that's the strategy we've been implementing for 2026. And market share is a consequence of that positioning and market dynamics. It's not a goal for the company. What the company is pursuing is to have a competitive tariff so as to make sure that we are using the rail system to full capacity. Now looking at the export market for Mato Grosso, we want to operate at about 40%, depending on the quarter, slightly below or slightly above, maybe close to 45%. That's the range we expect the market share to operate in. But again, to remind you, the market share is a result of exports and the rail operation. If the market is at a normal level, then we imagine that we'll be operating at about 40% in our grain portfolio in Mato Grosso. And as I said in my presentation, rail -- we'll be making sure that rail is the absolute best solution at the Port of Santos. We've been doing that at the Port of Santos and the Mato Grosso operation was just slightly below last year's, but very similar to 2023 when the market -- the export market was more similar to the current market. Julia Rizzo: Could you give me some reference in terms of reals per ton at the Rondonópolis terminal? Just so we have an idea of where the market is at and what the company is executing. Unknown Executive: We were very close, Julia. It's around BRL 230 per tonne in Rondonópolis. Some months, it's slightly above that. Some months, it's slightly below that. It's not linear. But right now, we're operating very close to competitive prices at that terminal. Operator: The next question is from Mr. Filipe Nielsen from Citi. Filipe Ferreira Nielsen: Most of my questions have been answered. If I could just touch on a point that hasn't been addressed yet. All those changes and discussions taking place at Cosan, Rumo's controlling company. There have been changes in the Board, management, new shareholders coming in. What have been the first conversations with the new shareholders and the controlling companies stance? Do you know what the strategy is going to be like and how strategies are thinking and how that fits with how you think, both in terms of pricing strategy and projects? Pedro Palma: Filipe, this is Pedro. Thank you for your question. Well, first point, we think it's very healthy that the controlling company be healthy, the Cosan Group be healthy. So with BTG coming in to Cosan's controlling share with Rubens. Rubens keeping the controlling stake in the structure is welcome news and very healthy for Rumo as well. Obviously, the 2 new shareholders have joined the company because they see value in Cosan Group and its portfolio, and they are bringing additional types of expertise, both BTG based on their historical experience and professionals. Their track record is amazing. And I'm absolutely certain that they will make huge contributions to the progress of the Cosan Group, and Rumo is no exception to that. Conversations have been very transparent. They're very incipient because the conclusion of that transaction, the election of the new members of the Board at Rumo only just happened at the end of last week. But what I can say is that preliminary discussions and conversations have been very positive. So we'll be discussing things together and working together on the next steps so that we have an increasingly better and more robust company. Talking specifically about Rumo, no one has any question about the rail asset in the logistic infrastructure and the role that Rumo can play in the markets it operates in. Everybody wants for this company to continue to grow and be better. So I'm sure Rumo's team, I can speak for myself and the whole team that everyone is very happy with the change in shareholders at the Cosan level. And with this new stage beginning now. Operator: This concludes the question-and-answer session. I would like to turn it over to Mr. Guilherme Machado for his closing remarks. Guilherme Lelis Machado: Well, thank you for joining us. And let me just conclude by saying a few things. I don't want to be repetitive and say the same things Pedro said in his opening presentation and everything we said during the Q&A session. The company has been delivering a very solid operational execution month after month. We have been attracting volumes to our operation after the beginning of the year when we realized and were able to swiftly adjust our commercial dynamics to recover the fair share and market share. This has been a very healthy and positive dynamics in our operation. And our projects will continue in line with what we've got planned for the year and delivering on the relevant projects for the company, such as the first stage of the Mato Grosso rail and all the other commitments to do with modernizing, creating capacity at the company, both at the Paulista Network and any other fronts we work on. Safety and operating efficiency are not only our priorities, but almost an obsession. And they have been translated into practical results. You've been able to see both in terms of incident frequency rate, as Pedro said, as well as capturing efficiencies, especially energy efficiencies as we have been sharing with you through our figures. The company's financial position is very solid, especially considering the high interest rates. We've been able to issue and restructure our debt very creatively, very efficiently. So our maturities are well balanced. The cost of capital is also very healthy. So having said all that, our focus for the end of the year will be on delivering results, and we have been making adjustments according to what the market presents us with. We're highly focused on delivering on our commitments. And we are aware that there will be higher risks in the fourth quarter. But in financial and operational terms, we know that the company is pretty ready to absorb those, but we are already looking into 2026, and we're paving the way towards positive execution, delivering value to the company and our shareholders. That is Rumo's objective, and that is how we have been facing challenges. We are fully dedicated to making sure that in 2025, we deliver a solid year. Thank you all for joining us, and we'll see you at the next earnings release call. Thank you. Operator: Rumo's Third Quarter 2025 conference call is now concluded. Thank you for joining us, and have a great day. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
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 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.
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.
Bianca Fersini Mastelloni: Okay. Good afternoon or good morning to everyone, and welcome to El.En.'s Third Q 2025 Financial Results Conference Call. Today's call will be recorded, and there will be an opportunity for questions at the end of the call. With me on the call, Andrea Cangioli, El.En.'s CEO; and Enrico Romagnoli, El.En.'s Chief Financial Officer and Investor Relations Manager. Before we begin, please note that there are management remarks during the conference call regarding future expectations, plans, prospects and forward-looking statements. Certain statements in this call, including those addressing to the company beliefs, plans, objectives, estimates or expectations of possible future results or events are forward-looking statements. Forward-looking statements involve known or unknown risks, including general economic and business condition in the industry in assumptions of -- in which we operate. These statements may be affected if our assumptions turn out to be inaccurate. Consequently, no forward-looking statements can be guaranteed and actual future results, performance or achievements may vary materially from those expressed or implied by such forward-looking statements. The company undertakes no obligation to update the content or the forward-looking statements to reflect events or circumstances that may arise after the date hereof. At the end of the presentation, if you need to ask a question, please book your question on the chat of Bianca Fersini Mastelloni raise your virtual hand you will have the floor in order of request. But at this time, I want to give the floor to Andrea Cangioli. Please go, Andrea. Andrea Cangioli: Thank you very much, Bianca, for your introduction and for hosting us. And thank you to everybody for being with us in this call following the release of our financial report as of September 30, 2025. Enrico Romagnoli will be on this call with me, and I thank him for taking care of the details of our financial reporting that he will be sharing with you in a very short time. Our third quarter came out really strong, especially under the profitability profile, confirming the trend of this 2025, a brilliant performance in the medical sector and a softer one in the industrial business. The reported numbers say on the 9 months revenues were up 4.6% in medical and just shy of 2% in Industrial. And that consolidated EBIT was down 3.2% on the 9 months, but up 3.8% in the quarter, marking the EBIT recovery that hints and supports our guidance for this year-end. If we look a little deeper inside these numbers, we have grounds to be extremely pleased with the performance in the medical sector, also on the revenue line. In fact, this 2025 -- in this 2025, we're facing the inorganic effect of the exit of consolidation from March 1 of the Japanese subsidiary with us. Net of such effect, growth in medical would have been equal to 7.1% on the 9 months. Moreover, we're also facing the moving away of the historic and very significant customer Cynosure as our OEM contract for the supply of high-power alexandrite laser systems for hair removal is only formally in place after Cynosure merged with a South Korean company, Lutronic, that is now providing and that is going to provide to Cynosure such technology for their distribution net. By removing the negative effect of this circumstance and cumulatively with the removal of the without effect, sales growth would have exceeded 10% on the 9 months. This on the revenue side. The other pleasing news of this period is that the revenue increase is achieved with the increase of revenues in higher margins bearing sales segments and products with an overall beneficial effect to consolidated gross margins and overall profitability. Growth in system sales was mainly generated by systems for anti-aging treatments in which the innovative content of both the technology and the application is bearing higher margin on sales for us compared to the main and slowly declining revenue stream of the hair removal devices. I'm talking at first place of the Onda product. The revisiting of our flagship body contouring device, Onda based on the microwaves technology, a revisiting that expanded the intended use of the device to anti-aging face treatments. Based on this, Onda Pro is experiencing a second use with respect to the original launch of Onda with amazing acceptance also in the most advanced markets for innovation in the aesthetic application, namely the Far East markets like the Korean market, which are extremely developed and sophisticated in selecting the most innovative and effective devices. But as our group does not rely on the peak performance of single product devices, Onda Pro was not alone in driving revenues toward the anti-aging demand. I'll give you just a couple more examples of other successful products and related procedures. Nano and picosecond devices like the Discovery Pico by Quanta System and the TORO by DEKA are innovation leaders in the pigmented lesion, skin toning area that is traditionally prominent for treating the signs of aging facial skins. CO2 microablative procedure cool peel performed by DEKA's Tetra PRO is now the golden standard for facial rejuvenation and is encountering increasing worldwide success starting from the U.S. market. Another significant contribution to the performance was provided by the surgical business, especially in the urological application, which are the treatment of stones. [Foreign Language] so another significant contribution to the performance was provided by the surgical business, especially in the urological application, which are the treatment of stones and BPH, the benign hyperplasia of the prostate, a business that within the group is mainly pursued by the market leader, Quanta System, but also by Elexxion Surgical, the brand managed by our German sub, Asclepion. Revenue for laser systems in urology was up roughly 7.5% in the 9 months. The side business of consumable sterile optical fiber was also growing smoothly along with the increasing installed base and it now accounts for more than half of our post-sales revenues of the medical business. which means roughly EUR 10 million per quarter or 10% of the overall revenues of our medical business. Moreover, this piece of revenues is bearing gross margins that are in the upper segment of our products margin mix. And since operation expense in terms of sales and marketing and labor is less intensive than for system sales, the accretive impact on EBIT and EBIT margins is also significant as testified by the profitability of Quanta System that is the main factor in this business for us. In terms of expenses involved in this business, there is CapEx going on and coming up in Quanta System as Quanta System is starting the construction of a new larger semi-robotized clean room at Samarate facility dedicated to the production of sterile optical fibers to increase its production capacity for its medical devices. EBIT margin for the industrial division, I am providing you an -- excuse me, for the medical division, I'm providing you an unaudited figure is improving in 2024, 2025 on 2024 and was roughly 16.9% on the 9 months and around 19% in the third quarter. We were not able to achieve similar results for our industrial business. The only activity bearing margin similar to the medical business is the identification marking activity led by Lasit, which continues to perform well both in revenues and in profitability. The other businesses within our industrial world have not performed according to expectation, the expectation we had in our yearly planning, missing the revenue targets and therefore, lacking also in terms of profit generation. The most dimensionally significant business is the cutting business, which despite expectation and decent order bookings has been slowing down both in revenues and in profits in each quarter this year. Since order bookings came quite late in the year and delivery lead times for our sophisticated and often custom design systems are not easily compressible, as of September 30, we incurred in a major sales cutoff, meaning the inability to recognize revenues for several systems that had been physically delivered to customers but had not cleared the final testing procedure within the end of the month. To give you an idea of this adjustment, which, to a certain extent, physiologically always takes place at the end of each quarter, we're talking at the end of September of almost EUR 8 million versus less than EUR 1 million at the end of June. EUR 7 million worth 22% on the quarterly business revenue and 7% on the year-to-date revenues as of September. I am not stating that without this adjustment, everything would have been okay in this business segment as the market is very competitive, and we need a great effort to maintain our competitive position and win our sales. But of course, it would have looked different under several profiles. In fact, we are continuing to invest in what we feel is strategically meaningful for the market positioning of Cutlite in the sheet metal laser business, which can be summarized in 3 CapEx -- in 3 points that lead to CapEx or profit and loss outflows in 2025. The purchase of a plant to expand the versatile production capacity of Cutlite Penta that we closed in the first quarter of 2025. The P&L expenses involved in the launch of the European sales subsidiaries in order to get closer to the customers in the countries of Spain, Germany and Poland. The profit and loss expenses involved in the managing of Nexam, the company dedicated to automation system complementary to our laser cutting system, an addition to the product range that is highly strategical for the product offering, but that for the time being, is far from being EBIT accretive, though improving its EBIT result in the third quarter. For what concerns the other smaller businesses in the industrial world, the laser marking system for special application and for large surfaces provided by Ot-Las and also by the industrial division of El.En. very often in combined supplies with the mid-power CO2 laser sources in these businesses, the performance continued to be weak. We are identifying new application niches to recover in a year that has been hit by the negative cycle of the fashion world customers and also hit by the down trimming of the expectation in the motors for electrical vehicle segment. Cash generation has been outstanding in the quarter as we benefited from the onetime cash inflow stemming from the sale of the majority stake in Penta Laser Zhejiang, which on the net financial position was worth already factoring in the possible future price adjustments, roughly EUR 26.4 million. As I mentioned before, had we closed before, I mean, in previous conference calls we held, had we closed the deal 3 months earlier, the foreign exchange level with the Chinese yuan would have been much more favorable as it quickly deteriorated by 10% around and after the Liberation Day. Cash flows from operations amounted to roughly EUR 20 million, contributing to the EUR 47 million quarterly increase of the net financial position. Under this profile, it is worth to mention that the quarter highlighted a slight decrease in the overall net working capital and accounted for roughly EUR 3 million in capital expenditure that were offset in the effect on the net financial position by the release of EUR 3 million of long-term cash investment that cannot show up in the net financial position. By the way, the balance of such investments that are not accounted for within the net financial position since they are long-term assets was around EUR 11 million at the end of the third quarter of 2025. I give the floor to Enrico, and I will be back with more general remarks after his section. Enrico Romagnoli: Thank you, Andrea. Good morning, everybody. As usual, I'm going to comment the financials we released last week. As for the year-end and for the half yearly report, the quarterly report has been prepared in accordance with IFRS accounting standards, excluding the consolidation line-by-line of Chinese activities, both in 2025 and in 2024 due to the negotiation for the sale of the division in accordance with IFRS 5. The majority stake of the Chinese companies was sold on July 15. So since July 2025, Penta Laser Zhejiang is consolidated with the equity method for the residual stake of 19.3%. In the first 9 months 2025, the group recorded consolidated revenue for EUR 422 million, up 3.9% compared to the EUR 406 million and the medical sector up over 4.6% when the industrial up 1.9%. The gross margin was EUR 188.3 million, up 6.5% compared to the EUR 177 million of September 2024, with an impact on revenue of 44.6% improving the profitability of 1% compared with last year. It should be noted that in 2024, the group recorded proceeds for insurance and government reimbursement relating to the damages of the flood of November 2023 for an amount of EUR 1.9 million, 0.5% of the revenue. In 2025, Asclepion accounted EUR 1.3 million of R&D grants, 0.3 percentage point on the revenue. So excluding both of this nonrecurring income, the impact of gross margin on sales would have improved more than 1% in 2025, attributable to an improvement in the sales mix. Operating expenses increased in value and an impact on sales, mainly in G&A, R&D and IT costs and sales and marketing activities. Staff costs increased due to an increase in headcounts and in salaries. EBITDA positive at EUR 65.6 million. The result is in line with last year, even though the EBITDA margin in 2025 slightly decreased from 16.2% to 15.6%. Depreciation, amortization and provision amounted to EUR 10.6 million in 2025 compared to EUR 9 million in 2024. The main reason of the increase was the reversal of the provision for risk and charges in 2024 for EUR 1.6 million due to some legal disputes that were resolved more favorably than expected. Net of this amount, the overall cost aggregate is in line with the previous year. EBIT for the first 9 months was EUR 55 million compared to the EUR 56.9 million for the first 9 months of 2024. The margin on revenue was 13%, down from the 14% with a decrease over last year of 3.3%, having the delay registered on June. Financial Management recorded a loss of EUR 1.8 million. In the first 9 months, the interest income generated by liquidity was EUR 2.8 million, while the interest expenses on debt was EUR 1.3 million. Exchange rate difference has a strongly negative balance equal to EUR 2.4 million. But in addition, we have a onetime exchange rate loss recorded -- already recorded in Q1 for EUR 908,000 following the release of the currency conversion reserve resulting from the sale of the majority of with us. The contribution of associated company is negative for EUR 1 million, mainly due with us, minus EUR 0.5 million and Penta Laser Zhejiang, minus EUR 0.6 million. In other income last year was accounted the onetime income of EUR 5 million due to the write-off of liabilities related to the earn-out to pay to former minority Chinese shareholders in case of IPO of Penta Laser Zhejiang. So at the end, income before taxes showed a positive balance of EUR 52.2 million, lower than EUR 61.2 million at the end of September 2024. In the third quarter, as already mentioned by Andrea, the group had a strong performance and recording growth in both revenue and above all, operating profit, plus 3.8% versus Q3 2024 with a strong recovery compared to June when the delay in terms of EBIT compared to the first 6 months of 2024 was 7%. In the third quarter, the main segment that performed better than last year were aesthetic in medical sector and marking in the industrial sector. Looking into the cash flow, the group net financial position on September 2025 was positive for EUR 137 million, an increase by EUR 47.4 million in the third quarter from the EUR 90 million at the end of June 2025. In the 9 months, the increase was EUR 26.8 million, thanks to the cash flow generated by current activities and the proceeds received for the sale of the majority stake in Penta Laser Zhejiang for a net amount of EUR 26.4 million. The main reduction incurred in the period are dividend paid for EUR 19 million in Q2, CapEx for the 9 months of EUR 13 million, increase in net working capital of EUR 20 million. Furthermore, the group invested the liquidity in insurance policy, mid- long-term investment accounted in noncurrent assets. So we have additional liquidity of EUR 10.7 million on September 30. What concerns the revenue breakdown by business in the medical sector, system sales showed strong growth in all major segments. In the aesthetics segment, plus 4%, the very favorable trend for anti-aging and body contour application continued. Among surgical applications, plus 8%, urology, ENT and gynecology system continued to record significant growth in sales. Asa's performance in physiotherapy, plus 5% was also very satisfactory, thanks to the significant innovation in the range of products offered, a more effective coverage of international market, together with the relaunch of sales in Italy. Sales of consumable and aftersales service remained very satisfactory, driven by the sales of optical fiber for surgical application, more than 50% of the sale of the segment, which kept service revenue growth to 4% despite the loss for service contract revenue from the Japanese company with us, whose majority stake was sold in February 2025. In the industrial sector, the cutting segment, which no longer includes Chinese companies, maintained growth of 2%, thanks to the excellent sales result of the Brazilian subsidiaries, plus EUR 4 million of revenue in the first 9 months. Lasit also performed well in the market segment with the increased weight of its subsidiaries. In the Q3, we had a significant recovery in sales in the segment of large footwear marking application where Ot-Las operates. In the Laser sources segment, the slowdown was more evident and was primarily due to decline in revenues from system integrators for fashion application and electric motor windings. Sales for Industrial Service returned to show an increase of 6% as expected due to the progressive increase in the installed base. Geographically, the most positive note came from the Italian market with an extraordinary growth of 27% in medical. In the industrial sector, Italian turnover also recovered in the quarter, up 6% in the 9 months, thanks to the increased confidence among manufacturing market operators, supported by the return of tax policies to support investment. The performance in European market was very satisfactory, particularly in the German medical and professional aesthetics beauty sector and in the industrial sector, thanks to the progressive consolidation of the sales subsidiaries activities, particularly by Lasit. The negative sign appearing on sales in the rest of the world has different determinants depending on the sector. What concerns the medical, Andrea already mentioned the inorganic operation that affected the sector. The result is a good result because it was achieved net of the exit of Withus in February and the loss of the supplies to Cynosure due to the M&A that brought it closer to Lutronic. Net of this departure, turnover, therefore, increased significantly. The situation is completely different in the industrial sector, where our order intake in the American market, the most significant in the rest of the world was negatively impacted in the first month of the year by the image projected on the market by the potential acquisition by a Chinese entity. Andrea, please go ahead for what concern the guidance. Andrea Cangioli: Okay. In closing my prepared remarks, I would like to touch 3 more topics. The role of the industrial division, especially of the cutting division within the group, the use of our cash and finally, the 2025 guidance. As the performance of the industrial division markedly of the cutting division is weaker than the one of the rest of the group, I would like to share with you the strategy short term and midterm of the group with respect of this business area. We are very proud of the results and the dimensions achieved by our cutting business unit, but we are also aware -- but we are also aware that its business, especially after the CO2 laser sources have been ruled out of cutting by the fiber laser sources technology is not fully consistent anymore with the other businesses of the group. There is no market correlation and the technological correlation is very limited as well. Therefore, we are convinced that the Cutlite's Penta organization, people and business would benefit of strategically cooperating with organizations that are more consistent to Cutlite's business. Along this path, we moved towards a transaction that would have placed Cutlite within a larger organization, developing a specific growth strategy for Cutlite. I'm talking of the sale -- potential sales to the Chinese end. But when we were faced by the material risk under the new organization, that one of the most promising businesses of Cutlite, the U.S. business, was bearing the risk of being completely jeopardized, we decided that for protecting the organization itself, we would have not sold Cynosure -- Cutlite anymore. So the short-term strategy now that Cutlite is still within our consolidation perimeter is to manage the potential of Cutlite and to continue to invest in what we feel is needed for Cutlite to flourish. The longer-term strategy is to resume and pursue the design of finding a strategic partnership for Cutlite a partnership that would enhance its peculiarities, capabilities and potential, giving the best opportunity to Cutlite's organization to continue to flourish or better to improve its opportunities and chances to flourish on its market that are quite competitive. What is evident from our reporting is the amount of investment involved in supporting Cutlite's strategy. What we can additionally tell you about the larger picture isn't much at all for the moment, but we will update you as soon as we will have something meaningful to report. For what concerns the businesses of Lasit, Ot-Las and industrial division of the mother company, El.En., we are planning to continue to pursue such businesses within the group. Now the quite wide cash position we are holding today, which is beyond the ordinary operational needs of our companies, also considering potential expensive investment activities like the one I mentioned for the fiber optical -- sterile optical fibres manufacturing plant. As usual, capital expenditure and operational needs for our operations are first in the list for us as we believe that interesting growth rates can be achieved by further improving the operational performance of our own business units. In order to enhance our growth rate, especially in terms of profits, we are investigating a set of small M&A opportunities that could be accretive to the development of the business units involved, especially in the medical sector but also in the industrial sector, as we mentioned before. We could be closing soon one or more small deals across -- along this path. More complex deals that could fall under the label of transformational are now being more closely considered, though there is nothing for the time being to report about. The Board of Directors has not yet resolved about any onetime cash distribution to the shareholders in any form. Therefore, I'm not in the position to elaborate any comment about. Finally, the guidance. I can keep it simple here. We are targeting and planning to beat 2024, both in the revenues and in EBIT. As you know, we are on schedule for the revenue target. We are just a little bit behind for what concerns the EBIT target, but we are recovering and confident to be able to hit the EUR 23 million figure in EBIT in the fourth quarter of 2025. Thank you for your patience, and I believe we are ready for your questions. Bianca Fersini Mastelloni: Andrea, the first question in our list comes from Giovanni Selvetti of Berenberg. Giovanni Selvetti: Can you hear me well? Andrea Cangioli: Yes. Giovanni Selvetti: Well, I had two, but then let's just say that the final remarks added a few extra questions, but maybe I'll jump in the queue and ask more after. These are two regarding the medical division. The first one is on Asclepion that based on the press release seems to be doing much better in Q3. And as far as I remember, Asclepion was also mainly involved in hair removal, which was the area that was struggling the most. So I was wondering what's changed exactly also because if I can remember, in the first half, the cost of personnel was going up also in relation to Asclepion. The second one is about Quanta. If I look at your press release, you're saying that now optical fibers account for more than 50% of medical services. So if we assume, let's just say, a figure around 35%, that is, let's just say, more than 50%. If we had to double this capacity, do you see already demand to fill it? Or how much should we think before the excess capacity gets filled? And maybe the last one is on the Lasit, let's just say, part of the business that, again, based on what you're saying, we are talking about margins based on what the press release say strongly above last year. So I was wondering what kind of margins Lasit is now running at? Andrea Cangioli: Okay. So starting from Asclepion. Yes, there was a recovery. Yes, the recovery was also tied to a better performance in the hair removal in the third quarter. So I mean, this is a good line considering the hair removal segment. And yes, the impact of the cost of staff in Asclepion is quite significant. It was increasing a lot in the second -- in the first half. Since the result for the third half was extremely good in terms of revenues. Now the difference of the impact of staff cost between Asclepion and the rest of the group is smaller. Most important and what actually made turnaround in the quarter, the business of Asclepion is the increase in revenue, which is due to aesthetics, but also to its surgical line, which is performing very, very well. Quanta System and Fibers, we -- as of today, we do not feel we are limited or materially limited in the deliveries of fibers by our production capacity. But we feel that given the rhythm of new installation and of the absorption by the market of our optical fibers, we needed to expand the capacity in order not to incur in a sales limitation due to capacity in the future. So we are progressively increasing the volumes, and we are placing this very large investment in order to improve the production capacity, but we don't have an impellent need. It's, I mean, a strategic programming that will allow us to continue to increase the stream of revenue over the time smoothly. Finally, your third question was about Lasit. Lasit actually is improving. It's not improving its sales volume over the 9 months, especially due to a slow behavior of the Italian market, while we are doing very well, especially in Europe, where the subsidiary that Lasit set up on the territory are now starting to be really accretive to the business. I recall we have subsidiaries in Poland, the oldest one, in Spain, Germany, U.K. and France, the last one. So we have 5 subsidiaries. And quarter after quarter, they are becoming accretive to revenues and especially to profitability. In terms of profitability, we had an EBIT margin just shy of 8% after the first 9 months of 2024. After the first 9 months of 2025, we are exceeding 11% as EBIT margins. Those are unaudited financial results referring to the consolidated financial results of Lasit and its subsidiaries. Giovanni Selvetti: I'll jump in the queue and then I have some questions. Bianca Fersini Mastelloni: The second question comes from Andrea Bonfa of Banca Akros. Andrea Bonfa: I hope you can hear me. Very quickly, I mean, connecting to your last statement on M&A, potential M&A. So if I understood correctly, transformational deal are -- might be considered but unlikely for the time being, but some bolt-on acquisitions are definitely more possible. Is that possible for you to comment on which sector niches, technologies are you looking for? Andrea Cangioli: No. Andrea Bonfa: Or in which geographies eventually? Andrea Cangioli: I'm sorry, I said all I can say. Andrea Bonfa: Okay. Okay. Andrea Cangioli: It's nothing -- the answer wouldn't change. I mean we are -- we have several things on our pipeline related, as I said, both to medical and to industrial and they are both on the European territory and in the rest of the world. But I mean, in answering by this means, I don't -- I cannot give you any more detail. It wouldn't be fair. I can only tell you that we are examining several situations. Andrea Bonfa: Okay. And if I may, as far as the industrial business is concerned, I mean, within now, let's say, the recent input that you just mentioned, is the U.S. still a potential important market or now with the duties and your, let's say, smaller size is less so. And the third one is on the U.S. duties. How is the trading environment in U.S. now with this new duties environment, if it's possible? Also in relative terms because, I mean, maybe there are other countries now less competitive than Europe. Andrea Cangioli: First of all, the U.S. market for our industrial cutting systems is still very interesting and still the main market -- international market for our systems. We have suffered, as Enrico said explicitly and as I confirm, the image that was projected during the negotiation with the YOFC for the sale of the company. And we spent quite a lot of time in convincing our U.S. customers that we were not becoming Chinese. And also after the deal that was going to have Cutlite Penta fall under Chinese control was canceled. Still, we have our hard time in discussing with our U.S. partners and I mean, partners because we have distribution partners and making them fully comfortable that we will be able to provide them on the midterm, a sound and price attractive and technologically attractive Italian-made product. This is -- by the way, they are visiting us on Wednesday in order to clarify again this situation because based on this, we have had some sort of fluctuation in order bookings from the United States, notwithstanding our efforts, which include a massive deployment of technical service people in order to serve at top quality with top quality our systems installed in the United States and also a strong investment in terms of fares. We participated to the FABTECH, which is one of the most expensive fairs that you can approach on the industrial systems market. And so after this long speech, I would say that, yes, the U.S. market, it's still an opportunity. It's still an important opportunity. And it's not an issue of duties. Duties are impacting us in the industrial sector, but it's not duties that today caused a slowdown in sales to the United States in the industrial business. For what concerns the duty question on the medical system, of course, duties are there. They are quite impacted. But we have seen increasing interest in the last months from our U.S. customers in our products. This speaks about the fact that even though each and every of our customers in the United States will try to negotiate a deal in order to have us participate to the "undue extra cost driven by duties. " They are still looking for us because we are able to provide them the innovative content of products that allows them to make margin, notwithstanding the extra cost. And so basically, in this moment, we are -- I mean, at least for the first 10 months of the year, we are very pleased with what we have done in terms of revenues and what we have done also in terms of order bookings. Then, of course, -- we will have to see how the hot seasons on the U.S. market, which is the month of December, will roll out for our distributors to have a final judgment on the total effect of duties on our U.S. business. But so far, we have -- we can notice an overall positive reaction of the U.S. market on the duty situation. Bianca Fersini Mastelloni: Next question comes from Carlo Maritano of Intermonte. Carlo Maritano: Can you hear me? Andrea Cangioli: Yes. Carlo Maritano: I just have a couple of questions. The first one is on the European performance in the industrial cutting business in the third quarter. I see that there is a decline compared to last year. I was wondering if it is related to the EUR 9 million of revenue that shifted from the third quarter to the fourth quarter. And the second one is again on the industrial business, in this case, on Italy. So recently, the government changed again the incentives related to [indiscernible]. So I was wondering if you expect any kind of impact on your clients from this change or if the order book remains healthy and that you do not expect any kind of disruption. Andrea Cangioli: Thank you for these two questions. About the first one, the decline in the European revenues in industrial, you see it in the third quarter. It's something which is, let's say, local. It's not related to the cutoff, which is mainly an Italian issue. It's mainly an Italian issue because we don't -- it's tied to the means of delivery we have in Italy. And what we could say, it has been driven by a softer activity in Europe and by the slower activity of the subsidiaries, we should be able to overcome the situation over the rest of the year. For what concern the Italian laws, the Italian, I mean, funding situation, I didn't want to go in this detail. But of course, we are examining the effects of the cutoff that the Italian government put on Industry 5.0, and this might have some effect. I'm not able to quantify. It shouldn't be determinant, but it could be material. The good news is that it looks like that the new law for 2026 could be interesting for the investors. And so we might suffer a marginal correction. I mean, we have an order book, a book of orders, but some of them may not convert in sales due to the change in the approach by the Italian government as the monies for Industry 5.0 is finished, but we should be supported, hopefully, without the hesitation that took place in 2025, also in 2026 for a certain level of investments. Bianca Fersini Mastelloni: Andrea, we have one more question from Emmanuel De Figueiredo. I will read for him for problem of connection. The question is, why was medical so strong in Italy versus other markets? Andrea Cangioli: Of course, this stands out. It stands out. And because we did extremely well and because I believe we performed exceptionally well in the distribution of DEKA Renaissance in Italy, which is going to hit a record target, a record amount. We also had some sales in the professional beauty that increased its volume smoothly, and we are still experiencing very, very strong demand. Why is this happening? I believe the team that we have in Italy now provides to our end customers an unparalleled level of services. We have, I believe, 8 product managers, which are traveling all the time around Italy if they are not stable in a region because, of course, the main regions have product specialists, which are always providing support to our customers. So we not only, as we mentioned before, limit our activity in providing the laser box to our customers, but we are providing continuous training. We are providing very, very -- I wouldn't say cheap, but affordable service in order for them to take the maximum benefit of the lasers that we have sold them. And so since they are happy, since they make money with our lasers, they come back and buy. This 2025 is going to be a record year for Italy. And this is the only explanation I have on this point. Bianca Fersini Mastelloni: Thank you, Andrea. We have one more question from Andrea Bonfa of Banca Akros. Andrea Bonfa: Andrea, very quickly, in the numbers that you provided at the beginning of the conference call, the like-for-like figure, 7.9% without Cynosure and more than 10% without -- sorry, 7.9% without the Japanese subsidiary and over 10% without Cynosure is related to the medical division only or to the group. Andrea Cangioli: Medical division. What I was saying is that we are hitting in stable situation, the 10% revenue increase target after 9 months. This was the message I wanted to -- for the medical business. This is the message I wanted to give with these comments. Bianca Fersini Mastelloni: And we have no more questions registered in this moment. I would like... Andrea Cangioli: Giovanni Selvetti has said he wanted to ask more questions. Maybe we answered already, but I don't know. He said he wanted to. Bianca Fersini Mastelloni: yes, Giovanni. Go on. Giovanni Selvetti: Part of it was already answered, yes. I mean let's just put it this way. I don't want to ask too much information on M&A, right, also because you cannot give much. But it was more about whether the companies are more, let's just say, technological company that will add technology or company with actual sales, right? It's more about whether you're investing in technology or in market share. But I'm not sure if you can answer that. So... Andrea Cangioli: It's -- we have everything in our basket. So in our potential basket, there's something of any flavor. So you've got both. I don't know what and if we will close. Again, don't have too wide expectation on this. We're talking of small transaction, but we have both technological and sales solutions and sales opportunities. Bianca Fersini Mastelloni: Then at this time, we have no more questions. I would like to ask once again, if there are any further questions from investors still connected. No more questions. Then ladies and gentlemen, the conference is now over. If you have any inquiries in the future, please do not hesitate to contact Enrico Romagnoli, who will be happy to assist you. Thank you for attending this conference, for your participation, and we hope to have you all again next time. Goodbye, everybody. Andrea Cangioli: Bye-bye. Thank you, Bianca. Thank you everyone.
Operator: Ladies and gentlemen, welcome to Richemont Financial Year 2026 Interim Results Presentation. I am Sandra, your call operator. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it is my pleasure to hand over to Richemont. Please go ahead. Alessandra Girolami: Thank you, Sandra, and good morning, everyone. Thank you for joining us for Richemont's half year results presentation for the period ended 30th September 2025. Here with us today are Johann Rupert, Chairman; Nicolas Bos, CEO; Burkhart Grund, CFO; and James Fraser, Investor Relations Executive. We would like to remind you that the company announcement and results presentation can be downloaded from richemont.com, and that the replay of this audio webcast will be available on our website today at 3:00 p.m. Geneva time. Before we begin, please take note of our disclaimer regarding forward-looking statements in our ad hoc announcement and on Slide 2 of our presentation. Turning now to the presentation. Burkhart will begin by discussing key highlights and group sales. I will then provide further detail on the performance of our Maisons. And finally, Burkhart will take you through the financials and offer some concluding remarks. This presentation will then be followed by a Q&A session. Burkhart, over to you. Burkhart Grund: Thank you, Alessandra. Good morning to everyone, and thank you for joining us today. Richemont delivered solid results in the first half in a complex macroeconomic and geopolitical environment. Sales for the period reached EUR 10.6 billion, up by 10% at constant exchange rates and by 5% at actual exchange rates. Operating profit stood at EUR 2.4 billion, up by 7% compared to the prior year period or up by 24%, excluding the significantly adverse foreign exchange movements. Operating margin reached 22.2%, improving by 30 basis points. Profit from continuing operations at EUR 1.8 billion was 4% higher than the prior year period. Cash flow from operating activities amounted to EUR 1.9 billion. Finally, our net cash position remained very robust at EUR 6.5 billion after the EUR 1.9 billion dividend paid in September. Turning to our highlights, starting with the top line. The group posted double-digit growth at constant rates, led by continued success at Jewellery Maisons and sustained local demand across most regions. In the second quarter, in particular, the group and its Maisons experienced strong momentum with sales up by 14% at constant rates. In Q2, we saw higher sales across all business areas, including a remarkable 17% increase at the Jewellery Maisons. Sales at the Specialist Watchmakers were up 3%, posting their first quarter of growth in almost 2 years, while sales at other business area rose by 6%. In addition, all regions posted double-digit increases in Q2, including Asia Pacific, supported by a return to growth in China. In the period, the group showed its ability to maintain a robust financial position. Operating profit in the first half increased to EUR 2.4 billion, reflecting the positive contribution from the strong top line growth, combined with effective cost discipline. This was achieved despite external headwinds, including unfavorable FX movements, increasing raw material costs and to a lesser extent, the initial impact of additional U.S. duties. Consequently, the group maintained a solid net cash position at EUR 6.5 billion, an increase of EUR 0.4 billion over the prior year period. In this context, our Maisons continued to demonstrate agility while investing for the long term. Showing their persistent drive for creativity and product innovation, they introduced strong novelties with craftsmanship at their core. They further nurtured their brand equity through impactful yet disciplined communication spending. They continue to cultivate future growth prospects through strategic investments. This drove a higher share of our CapEx envelope towards internal boutiques and manufacturing capacities, primarily for the Jewellery Maisons. Let me now discuss the group sales performance in more detail, first by region and then by distribution channel. Unless otherwise stated, all comments refer to year-over-year changes at constant exchange rates. Most regions posted solid performances in the first half, benefiting from double-digit growth across all regions in Q2, led by strong local demand. Sales in the Americas maintained their momentum throughout the first half and posted 18% growth with strength across all business areas, all channels and all markets in the region. Of note, Jewellery Maisons and Specialist Watchmakers posted double-digit performances while several Fashion & Accessories Maisons showed encouraging signs. In Q2, the Americas region posted its seventh consecutive quarter of double-digit growth with sales up by 20%. The Americas made up 25% of group sales, up from 23% in the prior year period. Asia Pacific returned to growth in the first half, up by 5% compared to the prior year period, fueled by a 10% rise in the second quarter. Of note, sales in China, Hong Kong and Macau combined stabilized in the first half, a notable improvement to 7% growth in Q2, led by the Jewellery Maisons. The performance was solid elsewhere in Asia Pacific with notable double-digit growth in the South Korean and Australian markets. Sales in Asia Pacific made up 32% of group sales, down from 34% in the prior year period. Sales in Europe increased by 11%, driven by double-digit growth at the Jewellery Maisons and single-digit increases at the Specialist Watchmakers and other. All major markets in the region posted higher sales, notably in Italy. Growth was led by strong local demand in addition to a positive contribution from tourist spending, particularly from the American clientele. Overall, the performance in Q2 was consistent with that of Q1 at plus 11%. Sales in Europe represented 24% of group sales, a tad higher than the 23% in H1 '25. Japan ended the first half with sales down by 4% after returning to double-digit growth in the second quarter, led by an acceleration in local demand, particularly at Jewellery Maisons, where spending, while improving in Q2 declined in the first half, reflecting demanding comparatives and a stronger Japanese yen. Japan's contribution to group sales decreased slightly to 10% compared to 11% in the prior year period. Middle East and Africa posted the strongest regional growth for the period with sales up by 19%, slightly ahead of the Americas. The performance was led by the Jewellery Maisons with positive Specialist Watchmakers sales at constant rates. All markets were up with the United Arab Emirates being the key contributor. Sales in the region made up 9% of group sales, in line with the prior year period. The largest contributors to sales growth in value terms were the Americas and Europe, each adding over EUR 200 million in incremental sales, followed by the Middle East and Africa region with a contribution of over EUR 100 million. Combined with broadly stable sales in Asia Pacific and a limited decline in Japan, the group was able to generate over EUR 500 million of additional sales in the first half despite a significant negative impact from currency movements. Let us now turn to sales by distribution channel with growth expressed at constant exchange rates. Overall, the 3 channels experienced broadly similar performances in the first half, leading to a stable contribution from direct-to-client sales at 76%. Let's start with retail, which accounted for 70% of group sales, unchanged from the prior year period. Sales rose by 10%, driven by double-digit growth at the Jewellery Maisons and mid-single-digit growth at the other business area, while sales at the Specialist Watchmakers declined slightly. All regions, except Japan, posted solid performances, led by double-digit growth in the Americas and Middle East and Africa. Online retail at 6% of group sales grew by 7%. Strong performance at the Jewellery Maisons more than compensated for softness in the other business area. Sales at the Specialist Watchmakers were broadly stable in the period. All regions posted growth, led by Europe. And now moving to wholesale, which includes sales to external mono-brand franchise partners and third-party multi-brand retail partners, sales to agents and royalty income. Wholesale sales represented 24% of the group sales and were up by 9%, supported by growth at both the Jewellery Maisons and the other business area. By region, the strongest contribution came from the Americas, Europe and Middle East and Africa. Now back to you, Alessandra. Alessandra Girolami: Thank you, Burkhart. I will now review the business areas with all comparisons at actual rates unless otherwise specified. Let me start with the Jewellery Maisons, which include Buccellati, Cartier, Van Cleef & Arpels and Vhernier. Sales reached EUR 7.7 billion, an increase of 9% in the first half. At constant exchange rates, sales were up by 14%, with all regions posting double-digit growth, except for Japan, which was nearly flat. Q2 was particularly strong with sales up 17% at constant rates after a solid plus 11% in Q1. In the first half, sales grew across all distribution channels. The Jewellery Maisons generated an operating result of EUR 2.5 billion, up 9% versus the prior year period or up by 21% at constant exchange rates. Facing significant adverse currency movements, higher raw material costs and to a lesser extent, the initial impact of additional U.S. duties, the Jewellery Maisons implemented balanced price increases while aiming to maintain long-term value for clients. In parallel, they continue to invest in their network while managing their cost effectively as demonstrated by the level of communication expenses only slightly above the prior year levels. Coupled with strong top line momentum, this allowed the Jewellery Maisons to mitigate the unfavorable impact of external headwinds, resulting in a stable operating margin at 32.8%. Let's now look at the main developments over the past 6 months. Both jewelry and watch collections posted strong growth, fueled by the success of timeless lines, such as Opera Tulle and Macri at Buccellati, Clash, Panthère and Santos at Cartier and Alhambra, Perlée and Flora at Van Cleef & Arpels. Blending heritage with creative spirit, the Maisons pursued persistent innovation to foster desirability. Cartier launched its new branding campaign featuring the Panthère. And later in September, the Love Unlimited line, bringing a bold new look to the Love collection that was imagined over 50 years ago. Also in September, Van Cleef & Arpels displayed their artistic and craftsmanship savoir faire with the launch of their new Flowerlace jewelry collection. In the first half, high jewelry sales were supported by impactful and curated events in Europe and Asia for the En Equilibre collection at Cartier and l’Ile au Trésor collection at Van Cleef & Arpels, while Buccellati also hosted exclusive events in Italy. Vhernier has now celebrated an intense first full year within the group. The performance is very encouraging, and the integration is progressing as planned. Vhernier has now internalized several boutiques and refurbished one of its [ astodiers ] among other initiatives, thereby continuing to build a strong foundation for future growth. The Jewellery Maisons continue to upgrade and expand their network in strategic locations. Notable renovations, including Cartier's boutique on Collins Street in Melbourne, while key openings featured Buccellati at the Mall of the Emirates in Dubai and Van Cleef & Arpels in Goethestrasse in Frankfurt. Let's now turn to Specialist Watchmakers, where sales were down by 6% in the first half. At constant exchange rates, sales were down by 2% with a notable return to growth in Q2 at plus 3%. Regional performances continued to show contrasting trends. Double-digit growth in the Americas partly offset lower sales in Asia Pacific and Japan, 2 regions that combined account for over 50% of sales in the prior year period. Of note, all regions improved sequentially in the second quarter. By channel, retail and wholesale experienced slightly lower sales, while online retail was stable at constant rates. The operating results amounted to EUR 50 million, corresponding to an operating margin of 3.2%. Gross margin was impacted by the combination of unfavorable foreign exchange movements, of which the weaker U.S. dollar and the stronger Swiss franc, rising gold prices and an initial effect from higher U.S. duties. Ongoing cost discipline visible through a slight decrease in operating expenses partly mitigated the deleveraging impact of lower sales on the fixed operating cost structure. Reflecting their varied regional footprints, the Maisons experienced mixed trends. However, they maintained a 100% sell-in, sell-out ratio over 12 months, demonstrating disciplined inventory management. Novelties drawing on the Maisons' strong heritage and showcasing their craftsmanship contributed positively. The Lange & Söhne Odysseus Honeygold limited edition, for example, was fully allocated within 1 week of its launch. IWC introduced new references of the Ingenieur and Pilot's watches. Jaeger-LeCoultre released the Reverso Duoface Small Seconds and Piaget, its new jewelry watch collection, the Sixtie. Of note, Piaget has seen 5 of its creations nominated for the '25 Grand Prix d'Horlogerie de Geneve, which recognizes watchmaking excellence. 2025 also marks the 270th anniversary of Vacheron Constantin celebrated through worldwide events and new launches. Worth noting is the creation of La Quête du Temps, a mechanical marvel 7 years in the making and currently displayed at the Louvre, showcasing the Maisons' ability to combine history, craftsmanship and engineering. In parallel, while the overall number of stores was largely stable in the first half, the Maisons continue to enhance their network. Notable examples, including IWC's new booking in Taichung, Taiwan, Vacheron Constantin strategic relocation in Seoul, and Jaeger-LeCoultre's major renovation at the Kuala Lumpur Pavilion. Let's move to the other business area, comprising the Fashion & Accessories Maisons, Watchfinder & Co., and the group's watch component manufacturing and real estate activities. Overall sales were down by 1% at actual exchange rates, but rose by 2% at constant exchange rates. Regionally, Europe was the main contributor to growth and trends in the Americas were encouraging. By channel, sales in both retail and wholesale increased slightly. Growth at constant rates was driven by a double-digit rise at Watchfinder and modest growth at the Fashion & Accessories Maisons. Trends improved sequentially across all regions in Q2, leading to a 6% increase in sales at constant rates. Overall, the other business area reported an operating loss of EUR 42 million. Fashion & Accessories Maisons posted a EUR 33 million loss, improving at constant rates, thanks to controlled operating expenses while continuing to invest in the desirability of the Maisons. Turning now to Maisons' highlights. Alaïa saw its sales grow by double digits, fueled by sustained success and brand heat of its icons such as La Ballerine and Le Teckel. It is also worth highlighting the continued solid performance at Peter Millar, thanks to its lifestyle positioning and success in its crown crafted collection. Chloé saw improved momentum led by ready-to-wear, confirming that its strategy to reconnect with its roots is resonating well with clients. Overall, ready-to-wear across the Maisons achieved double-digit growth in the first half, fueled by a sustained focus on creativity. Montblanc made progress on its transformation program, comprising a greater focus on writing instruments and leather goods categories in direct-to-client channels while streamlining its wholesale network. Gianvito Rossi has been increasingly recognized as a leading global luxury female footwear brand, underscored by the enthusiastic reception of its latest golden edge fashion collection. The Maisons continue to enhance their distribution networks over the period. Openings, including Chloé in Saint Tropez, Peter Millar expanding to San Diego and Columbus, and Watchfinder, launching its first U.S. internal boutique in Soho, New York City. This concludes the review of the first half performance of each business area. Burkhart, over to you. Burkhart Grund: Thank you, Alessandra, and well done on the pronunciation of Goethestrasse. Alessandra Girolami: Thank you, Burkhart. Burkhart Grund: Let me walk you through the rest of the P&L, starting with gross profit. Gross profit increased by 2% to EUR 6.9 billion and represented 65.3% of sales, a decrease of 190 basis points compared to the prior year period. This is the result of several moving parts, which have evolved considerably in the past 6 months. Starting with our production costs that were affected by rising raw material prices, particularly that of gold and to a lesser extent this period, higher U.S. duties. With a time lag between production and effective sale, our inventory levels acted as a partial natural hedge in a period of rising material costs. Compensating for the higher production costs, we benefited from positive impacts related to pricing and favorable sales mix. This was not sufficient, however, to compensate for the material adverse currency movements of a negative 180 basis points we faced in the first half, notably driven by a weaker U.S. dollar and Chinese renminbi, next to a strong Swiss franc, one of our main manufacturing currencies. Before we move on to the rest of the P&L, let me add a few words on U.S. duties. In the first half, the impact of increased U.S. tariff rates was limited to some EUR 50 million, thanks to our proactive inventory management since April and due to the phasing of the implementation of different tariff rates, starting with 10%, then 15% for Europe-made products, followed by 39% in August for Swiss-made products. With this phasing in mind, we anticipate a greater unfavorable impact in the second half, particularly if the 39% tariffs on Swiss origin products are maintained. Based on the current levels of our U.S. inventories and planned shipments, we estimate the full adverse impact of the increased U.S. tariff rates to be around EUR 0.3 billion for the full current fiscal year. Let us now look at net operating expenses, which were stable compared to the prior year period in value and increased by just 3% at constant exchange rates. Operating expenses stood at 43.1% of sales, down 220 basis points, driving positive flow-through from higher sales. Selling and distribution expenses were up by 3% or by 6% at constant exchange rates. The rise in cost was primarily related to continued retail store network expansion as well as salary increases. As a percentage of sales, selling and distribution expenses were down 70 basis points. Communication expenses decreased by 4% or 2% at constant rates, reflecting the Maisons' efficiency in allocating the resources and to a lesser degree, some impact from the phasing of specific events from 1 year to the next. As a percentage of sales, communication spend was 8.2% down -- sorry, 8.2%, down 80 basis points and below our typical range of 9% to 10%. Administrative and other expenses decreased by 2% at both actual and constant rates amounted to 9.2% of sales, down 70 basis points, reflecting lower valuation adjustments and fewer nonrecurring costs than observed in the prior year period. This resulted in an operating profit of EUR 2.4 billion, up by 7% at actual exchange rates and by 24% at constant exchange rates. Overall, the strong sales growth contribution and the effective cost control mitigated the impact of external headwinds in the first half, namely of unfavorable foreign exchange movements, the sharp increase in the price of gold and to a lesser degree, additional U.S. duties. As a consequence, operating margin remained robust at 22.2%, a 30 basis point improvement versus the prior year period. Let us now review the rest of the P&L items below the operating profit line, starting with finance costs. Net finance costs reduced slightly to EUR 158 million for the first half, down from EUR 173 million in the prior year period. This EUR 15 million improvement is mainly comprised of the following items. On the one hand, higher net FX losses on monetary items for EUR 162 million, primarily due to a weak U.S. dollar in addition to the impact of lower fair value adjustments for EUR 129 million. The latter relates to the group's investments in externally managed bond funds and money market funds. On the other hand, more than compensating those 2 items were the EUR 326 million increase in net gains on FX hedging activities. Turning to discontinued operations, which consists of YNAP until the completion of its sale on -- at the end of April of this year. Profit for the period stood at EUR 17 million. As a reminder, last year's results included a EUR 1.2 billion noncash write-down related to the transaction. Figures presented here are the estimated final closing adjustments related to the disposal, our 33% stake in LuxExperience being now recorded as an equity accounted investment. Let's now review the profit for the period. Profit from continuing operations stood at EUR 1.8 billion, 4% higher than prior year period. This included the rise in operating profit and the improvement of net finance costs that I've just described. The evolution of the share of equity accounted results was down EUR 34 million, primarily reflecting lower gains than in the prior year period on equity-accounted businesses and to a lesser degree, the result of our stake in LuxExperience, which was included for the first time. The group's effective tax rate for the first half stood at 19.5%, in line with our expectations for the full year, absent any special unforeseen items occurring in the second half. Finally, profit for the period was EUR 1.8 billion, up from EUR 0.5 billion in the prior year period that included a EUR 1.2 billion noncash write-down from discontinued operations. Cash flow generated from operating activities came in at EUR 1.9 billion, an increase of EUR 600 million compared to the prior year period, driven by higher operating profit and lower working capital requirements. Indeed, inventories rose, but less than in the prior year period, notably as the Jewellery Maisons experienced strong sales growth. Specialist Watchmakers also demonstrated effective production management, contributing to controlled inventory levels. To a lesser extent, higher cash inflows from foreign exchange derivatives also contributed to the reduction of working capital needs. Let us now turn to our gross capital expenditure, which amounted to EUR 0.4 billion and represented 3.6% of group sales. Our CapEx was broadly in line with the prior year period. A higher share was allocated to distribution and manufacturing. Investments in our distribution network dedicated to renovations, relocations and openings of directly operated stores represented 55% of gross capital expenditure, a share 8 percentage points higher than the prior year period. The share of manufacturing spend increased to 30% of overall CapEx compared to 24% in the prior year period. The investment mostly related to the Jewellery Maisons. Other investments represented 15% of CapEx, down compared to the prior year period, the decrease mainly reflecting the completion of several noncommercial Maisons projects. Let us now turn to free cash flow. At EUR 1 billion, free cash flow was about EUR 0.8 billion higher than in the prior year period. The increase primarily reflected the EUR 0.6 billion benefit from cash flow from operating activities that I described earlier, in addition to the nonrecurrence of last year's real estate acquisitions in London. Our balance sheet remained solid. Shareholders' equity accounted for 54% of total assets. Net cash amounted to EUR 6.5 billion at the end of September, down EUR 1.7 billion compared to the end of March 2025. This decrease is more than explained by the EUR 1.9 billion dividend cash outflow in September that reflected an ordinary dividend of CHF 3 per A share, which was approved by shareholders at the latest AGM. Before turning over to the Q&A, I would like to offer some concluding remarks. Richemont delivered solid results in the first half in a complex macroeconomic and geopolitical context. Our sales growth, largely fueled by sustained local demand in most regions speaks to the strength of our Maisons' positioning built with consistency over time. And we will continue to nurture their brand equity and cultivate their potential through investing in quality locations and manufacturing capacities. While we continue to navigate uncertain times and face demanding comparatives, we maintain the course and remain focused on leading the group with the same discipline as in the past. We have full confidence in our talented team's dedication to continue to enchant our clients with craftsmanship and creativity at the core to deliver sustainable value creation for our stakeholders. Now this concludes our presentation. Thank you for your attention, and I will now hand back over to Alessandra. Anne-Laure Jamain: Thank you, Burkhart. We now start the Q&A session. [Operator Instructions] Operator: [Operator Instructions] The first question comes from Ed Aubin from Morgan Stanley. Edouard Aubin: So Ed Aubin from Morgan Stanley. So first of all, congratulations, obviously, for the strong set of results. And Mr. Rupert, congratulations for the opening of the [ former ] Cartier building in Paris. I think it's really stunning. And I guess, for your support of the art world. So just going back to the question. So Burkhart, on the exit rate and kind of the start of Q3, which I know you don't really like to comment about. But yes, if you could comment in terms of how things have been trending over the past few weeks. You're going to be facing a much higher, much more difficult comparison basis for the quarter ending December, particularly in the U.S. So are you already seeing some slowdown on the back of that and so on. So that would be question number one. And then question number two, on the gross margin, which was down 190 basis points. Burkhart, if you could just -- I know you've helpfully provided a profit bridge, but on the input cost inflation and particularly related to gold, if you could provide a little bit of color because ahead of the results, people were struggling a bit with the modeling. And related to that, you helpfully given some tariff -- quantified the tariff headwind for H2, which I guess is EUR 250 million. The consensus is currently assuming a lower rate of decline for the gross margin, only 150 basis points in H2. Does that seem realistic given that the tariff impact should be substantially higher in H2 versus H1? Burkhart Grund: Yes. Good morning. Let me -- okay, let me try to help you within the limits of what we usually do, right? I mean, forward-looking and looking at Q3 sales, you know that we will not give you that color because there is too much uncertainty going forward. What I can point out is and remember that we had a very strong third quarter last year, a growth of 10%. And I think we're confident again in the long-term prospect of the Maisons, but we cannot, at this stage, give you any indication of how we're trading. The performance across the second quarter was pretty uniform with a bit of slightly higher growth in the month of September, but that has something to do also with past year's comparison. So really nothing much to add to that. Now the gross margin, I think we have been giving some indications. Let me try to be helpful. So overall, we have a 190 basis point drop in the gross margin in the first half, out of which 170 basis points really are linked to the FX impact, so the translation effect. And it's a mixed bag between obviously weaker dollar and dollar-linked currencies, but also for example, the renminbi, to a much lower extent, the Japanese yen this year and some other currencies such as the Korean won, for example, combined with the relative strengthening of the Swiss franc, which you know is one of our major manufacturing currencies. The other drivers in the first half are about 20 basis points negative, all combined, right? The biggest downward pressure on the gross margin came from gold, which is about north of 2 percentage points. And as we pointed out, for the time being, a very minor impact from U.S. tariffs around EUR 50 million plus, which, as you know, is linked to, let's say, the inventory cycle. It sits in inventory today and will then when we sell the inventory, be recycled into the cost of goods line later. The stock revaluation and price increases for the time being roughly compensate for these negative impacts. That's why the overall decline of the gross margin not linked to FX is about 20 basis points in the first half. Now on tariffs, we will not speculate about that. We know the current rates. And answering your question, actually, your question is answered through what you put on the table saying, is that realistic to estimate that gross margin will be weaker -- with a weaker drop in the second half if we have a disproportionate impact of tariffs. So I think the answer lies in the question there. Operator: The next question comes from Antoine Belge from BNP Paribas. Antoine Belge: Yes. It's Antoine Belge at BNP Paribas. So 2 questions. First of all, can you talk a bit about China, Chinese, Greater China. I know it's a bit complicated. So in Q2, I think Greater China was up 7%. My understanding is actually Hong Kong and Macau were quite strong. So -- but so was Mainland China locally a bit positive. And what about the Mainland Chinese cluster, if you take into account maybe the impact of tourism? And more generally, what's your view on China, there is improvement, just easy comps? Are you seeing some macro impacts, better consumer confidence? And my second question is a bit of a follow-up on the topic of gross margin. So I understand that there will be some headwinds that are going to be greater in H2, but you passed quite a hefty price increases, I think, in September. So could you quantify those? I mean, according to our estimates in September globally for Jewellery Maisons, it was around a high single digit coming on top of around 3%. So I'm slightly surprised by the comment that the gross margin would be declining more than they did in H1 because there should be at least, in my opinion, more impact from pricing. So am I getting something wrong here? Nicolas Bos: Nicolas Bos here. I will answer your -- try to answer your first question although everybody would love to have a final view on China and its evolution. We've definitely seen an improvement, particularly in the last quarter, definitely on the region, what we refer to as Greater China. As you mentioned very well, it was driven by an improvement of business in Hong Kong and Macau, both touristic, so Mainland Chinese traveling to Hong Kong and Macau and also domestic clientele, particularly in Hong Kong. All in all, we see -- I don't know if it's a stabilization, but we are back to a positive performance for the region, including slightly positive in Mainland China on the very end of the period and clearly driven by the Jewellery Maisons. In general, we've seen some repatriation of purchasing, notably from Japan to Hong Kong for our Mainland Chinese clients. But it seems -- and it will be difficult to predict the future, but it seems that we are now at a more stable level of purchasing from our Japanese -- or Chinese clients, sorry. What we see at large, but maybe it's a wider discussion is that there is an evolution of consumption in China connected probably to the economic situation, but also to an evolution in taste where we see Chinese clients becoming much more demanding, discerning and differentiating when it comes to their choice of brands and collection. That affects positively the Jewellery Maisons. We still see on some of the watch Maisons a more challenging situation. And what we foresee, if we're able to foresee anything is that it's really a market that is reaching another new level of sophistication and of quality of demand, very much at par with what we see in the rest of the world. And that has an impact really brand by brand, category by category, collection by collection. But all in all, it seems to be quite stabilizing. Burkhart Grund: And Antoine, just picking up on your second question. Listen, we're not going to guide on any gross margin in the second half because we have uncertainty and volatility on currencies, on gold, et cetera. What we have pulled out or pointed out is that at current rates, we will have a disproportionate impact of tariffs in the second half. As for the first half, we have been shielded by inventory holdings and, let's say, proactive inventory management. So that's really all I can say on this topic. Antoine Belge: But maybe on the price increases, I mean, could you maybe confirm that what was taken in September at high single-digit overall global number for Jewellery Maisons, is that what happened? Nicolas Bos: Well, we had some -- as you noticed, we had some price increases because we discussed it before that we want to maintain price increases as limited as possible because for us, keeping the affordability of certain collections and the attractiveness of the Maisons is really what comes first. But regardless, we had to implement some price increases. There were some in May, low single digit. There were some in September, particularly for Cartier, quite limited on a worldwide basis to try to reflect some of the increase in the price of gold, notably. But then including also some specific local adaptation, we need to keep in mind that the dollar has depreciated 8% in 1 year. So we need also to maintain kind of fair international pricing and reflect the evolution of exchange rates. So that came on top of the slight international price increase. So we haven't seen a true impact, let's say, in desirability of traffic in the stores, meaning by that, that we didn't necessarily notice a specific spike of purchasing before the price increase nor decrease afterwards. We believe it's because it was quite reasonable and the desirability of the collection comes really first. So we'll see in the second half how that unfolds. Operator: The next question comes from Thomas Chauvet from Citi. Thomas Chauvet: A couple of questions, please. The first one, a follow-up on pricing and maybe your pricing philosophy. Nicolas, you said you're trying to maintain affordability and to try to limit price increase because obviously, you can't cut prices once you've increased them. So you're very careful. Nevertheless, do you think the consumer, not just in China but globally is also starting to buy jewelry a bit differently than in the past for other reasons than the beauty of the Cartier, Van Cleef design or the emotional value that you talked about before or simply gifting purposes or the big events of life, but also as a commodity investment? So very strategically to invest has more than as more than a store value, but maybe even an investment in an unprecedented rising gold and precious metal market. So -- and how would you react to that? Because we've seen some of your Chinese luxury competitors, if I can call them competitors. We know the way they operate, [ La Portugieser ], they increase prices by 20% today, tomorrow, mechanically, they'll reduce prices because gold prices have decreased. I know that's not how Richemont operates, but we're in a very different gold market now. So curious to hear your thoughts. And secondly, perhaps also for you, Nicolas or for Mr. Rupert. It's been over a year that Nicolas, you've been appointed as group CEO. Are there any areas where that you've identified where the group or perhaps the individual business areas, divisions could do differently, could evolve, could be a bit more efficient? Obviously, there's been huge cost efficiency in the first half, as we know. Could you share some high-level thoughts on your also perhaps portfolio review, particularly within Specialist Watchmakers and Fashion & Accessories? Are there any obvious brands that may need financial or strategic support or brands that you think maybe might prove challenging to turn around? I'm thinking perhaps Dunhill, Montblanc or Roger Dubuis. Nicolas Bos: Thank you very much for your questions. I think that would require probably a few hours to answer. But starting with the first one, I mean, the pricing philosophy has not changed. We really believe in what we call fair pricing, which is that the price of any of the creation should reflect its interest [ rate ] value. And of course, we need also to take into account variations in the price of raw materials and exchange rates. I have to correct what you said, it does happen that we decrease prices, and it has happened in the past because that fair pricing policy includes that as well. So it has happened. It's true, it's not something easy to implement, but it does happened. And on the very high end, high jewelry, exceptional watches, we do actually adjust prices up or down on a monthly basis from a European pricing that we translate into local currencies. So we have fluctuations that can go up and down. Of course, the primary focus is to limit the increases to make sure that the fair pricing is still there and the attractiveness of the collections is maintained. So we will continue to look at that. We really truly believe that our clients have a really precise understanding and assessment of value. And unlike what we sometimes hear is not because a piece is expensive and a client or collector has significant resources that elasticity is endless and that the price doesn't matter on the opposite. So we are very attentive to that, and we will continue to do so. I don't know if that answers your question. On the second part, maybe Johann will want to say something. But what I can say is that -- and we talked about it before, Richemont is very much about long term and continuity. And then I came after more than 30 years already in the group. So not here to make any form of revolution. I think that's not expected at all. We've seen a period where we had very, very unexpected and strong phenomena during COVID -- after COVID that actually led to a very, very strong ups and downs in performance across the board. And we were seeing also global purchasing trends in Asia, in America and Europe. What we see in the last period, clearly in the last year, 1.5 years is that we come back to a much more differentiated performance by brand, by category, by collection, by geography, in a way, back to what we used to see before that whole period and the pre-COVID and COVID period. So what I'm very, very attentive to with all of my colleagues is to make sure that we maintain or sometimes bring back all of our Maisons to really their core identity, their core expertise that they all have a very, very distinctive offer and complementary offer. We don't see today a global phenomena where everybody does well or everybody is challenged anymore. And my belief and our belief at Richemont is that each and every brand is much stronger when they are occupying their respective territories. And of course, the territory of expression of Panerai is different from Lange and the one of Jaeger-LeCoultre already different from Vacheron Constantin. Same for the Jewellery Maisons or the Fashion & Accessories Maisons. So this is the primary focus to make sure that they are all really playing in their specific respective field. And then taking with Burkhart and the team and all my colleagues, a very differentiated approach. Some of them are very successful, mature international brands. Some of them require still some more support because they are in development phase. Some of them are in redevelopment in some areas. You were mentioning Dunhill with this new, and I must say, fantastic designer, Simon Holloway. We also talk about Montblanc, where we do a lot of work with Giorgio Sarne, the new CEO and the team to see how Montblanc can revolve around the auto writing and the expertise in laser. And you've seen with renewed communications and identity where we try to bring back Montblanc in a way to its core expertise. So this is very much the kind of long-term work, but nothing at the end of the day, different from the previous decades, I believe. Operator: The next question comes from Erwan Rambourg from HSBC. Erwan Rambourg: Congratulations on such a standout performance. If I could just make a comment, you're sounding very low volume-wise. So -- and I don't think I'm the only one suffering from this. So if you don't mind speaking slightly louder. I'll keep it to 2 questions as asked. So one on Van Cleef. We've had pushback from people who are bearish talking about the Alhambra dependence, ubiquity, potential fatigue. Obviously, you're probably fed up with this, Nicolas, since you've probably heard these comments when you were running that brand. But I'm wondering if you could talk about maybe relative performance within Jewellery Maisons. I suspect, Buccellati is booming from a low base, but can you sort of compare and contrast what you're seeing from Van Cleef relative to what you're seeing at Cartier, please? And then second question on Cartier. Obviously, a management change there as well with now Louis being in the seat replacing Cyrille. I'm wondering, if you could talk maybe about -- I know there's no revolution going on, but maybe what the areas of focus can be and what has changed? I think people looking at the group from outside will possibly think that there's greater SG&A discipline at Cartier, that would maybe be a bit simplistic. But what would you call out in terms of maybe the 2, 3 focus points for Louis in running Cartier? And if I can cheekily add another very small question related to Cartier, Love Unlimited seems to be a pretty resounding success. Should we consider this as permanent or more in animation on the range? Nicolas Bos: Thank you very much. It's a lot of questions. And of course, we don't discuss so much performance and results by Maisons. Of course, on the Van Cleef & Arpels side, I need to answer. I don't feel any fatigue about Alhambra. So we have been seeing quite a few of them for 25 years. And I believe that most of our clients and stakeholders share the same view. So to have an icon is a blessing. So it's very often referred to as kind of liabilities. Is there a risk attached to it. At the end of the day, it's a blessing. I mean, the brands that do have iconic clients, in jewelry, in watches, in ready-to-wear or accessories are usually the ones that are very successful in the long-term if they manage to maintain the desirability and the creativity around these iconic lines. So Alhambra is, I can talk about Alhambra for some time, but I'm not going to. But it's -- to me, an extraordinary collection that's been here for more than 50 years and has offered over this more than 5 decades, almost endless opportunities for creativity with sizes, colors, styles. And that will continue, and we see that there is renewal within that collection, and that's widely appreciated. Needless to say, Van Cleef & Arpels like other Maisons is working on other collections. We've seen collections like Perlee. We were talking a bit earlier in the presentation about Flowerlace and Floral collection, some of the watch collections also at Van Cleef & Arpels that established themselves around Poetic Complications. So Alhambra is not the only collection far from that, but it's true that it's probably the most recognizable and iconic one, and it's something that we will continue to develop and protect. At Cartier, the same. Cartier is blessed with having several very iconic collection. Love is definitely one of them, created pretty much in the same period, Alhambra '68 and Love in '69. And Love Unlimited is actually a very important development within that universe of the Love collection. It's not the way I see it with the team and animation. It's really a new expression within Love. Love is a bangle bracelet. And for the first time, it has become so-called and articulated. And I believe personally, and I like jewelry, as you know, it's a fantastic piece and fantastic collection even with my Van Cleef shares, I've been quite -- I have to say and to acknowledge it's really a fantastic collection. And we've seen the response among existing clients of the Love collection or new clients actually entering the world of Cartier. And it's so far, a very, very positive response. So we'll see how it goes. But we believe it's here to stay for the long-term, and the team is already working on the further development around Love Unlimited. As for Louis and Cartier, I think Louis is doing a very good job. The transition with Cyrille is going on extremely smoothly and I pay tribute to both of them. Cyrille is still very involved with some activities at Cartier, if you think of the women's pavilion and all the philanthropic and artistic activities of Cartier. And they work really hand-in-hand with the current team. Once again, Cartier has the other Maisons is evolving and adapting to this new environment. I mean, there is always a new environment and typically the slowdown in China, which was a very, very strong market and still a very strong market for Cartier, something that the team is really addressing now and to see how we can make sure that Cartier will be ready for the next phase of the luxury industry in China. We've seen the strength of Cartier in America and the United States, which is quite impressive over the period. And they're also working there, renovating and improving the retail network and operations. So yes, he has a lot on his plate, but it's very much once again question of continuity with the previous management and the whole history of Cartier, and I'm quite confident it will continue to be very successful. Erwan Rambourg: Very useful. Best of luck. Nicolas Bos: Thank you very much. Operator: The next question comes from Jon Cox from Kepler. Jon Cox: It's Jon Cox with Kepler here. A couple of questions for you. The first one, just on the -- you had a very tight grip on costs, including on the CapEx side of things in the first half of the year. It's clearly an unprecedented environment, potentially maybe looking a bit better with China and Hong Kong coming back. Just wondering how we should think about the costs going forward in terms of you guys have a fantastic track record when things get a bit more difficult. You tend to look very closely at costs and cash flow and that sort of stuff. Is it more about maybe relaxing a little bit more? Or has the... Johann Rupert: Sorry, Jon -- it's Johann here, Jon. What makes you think that it's during tight times that we look at cash flow and cash. Jon Cox: I know you tell all the time, Johann. Johann Rupert: I just want to [indiscernible] your leg. Jon Cox: Because Nicolas is adding a bit more on the cost side maybe than you have historically done. That's the sort of gist of the question. Johann Rupert: No, no. No, then ask it directly. I think you've got to look at Burkhart as the gentleman that's managed to keep the costs under control through COVID up till now. Burkhart Grund: Yes, Jon, and we're not going to give you any guidance going forward, but we intend to confirm the reputation that you just cited and mentioned by keeping focused on that. But remember, this is not a cost-saving initiative that is disconnected from what our Maisons need to grow. And we will always continue to invest where we need to invest to make our -- prepare our Maisons for the future with the right level of resources that they need. So we would never suppress activities that will impact the future readiness, so to say, of the Maisons. We have done during COVID, have deployed an approach that have been executed by all the Maisons with a high level of responsibility and auto responsibility of how to make through a very challenging time. And the same approach is what the Maisons are driving today that they are aware of the external factors, and they know best what resources they need to deploy for the future of the Maisons. And I think this is built into the philosophy of our management teams in the Maisons and in the businesses. Jon Cox: Okay. And then maybe just as a bit of an add. You mentioned a potential EUR 300 million charge if the existing 39% tariff is maintained. If that tariff sort of goes back to 15% next week or in the next couple of days, should we just think it will be 6 weeks' worth of EUR 300 million costs? And just as an add, Johann, you're on the call. I saw your comments earlier to the media saying this misunderstanding between the Swiss and the U.S. could be resolved in the next day or 2. Any further comment on that at all? Johann Rupert: Yes. [indiscernible] those of us, Jon, that were on the call, I -- it was selective. You know what subeditors do. It could be today, but I say the comprehensive agreement would probably take up to February. But I have absolutely no idea. It's in the hands of third parties. So I'm not predicting anything. It was selective editing. Burkhart Grund: Yes. And Jon, based on what we know, which is the current rates, we expect for the full year roughly EUR 300 million impact. Again, after a good EUR 50 million in the first half, where, again, I pointed out that we're pretty much shielded in time from -- through our inventory. But that obviously, once we sell the inventory, we recycle it into the income statement, and that's where we expect overall at current rates, again, current rates, a total cost of about EUR 300 million for the full year. Jon Cox: Okay. I'm just going to throw in a cheeky one. Trade receivables have gone up a lot in that half compared to a year ago, certainly a couple of hundred million. Is this any sort of indication you guys are looking forward to a good Christmas period? Burkhart Grund: I'll answer that question right away, Jon. I just want to add one more thing on tariffs. Let's not forget that the biggest impact of tariffs comes from the tariffs -- the European tariffs, which is, as you know, 15% because we produce a significant amount of jewelry, fashion and accessory items and one watch brand as well in the European Union or inside the European Union. So that impact will stay. Here, the same logic applies. What has been in inventory will be recycled into the income statement, and that is where the biggest part of our sourcing actually comes from, right? So let's not equate just tariff impact with Swiss tariff impact. Second question, we have wholesale debt of around EUR 600 million, wholesale debt, meaning receivables, which are highly current. So this has -- is really on the back of the wholesale channel performance. We have pointed out that retail and wholesale are roughly growing at the same rate, which means that we also have a healthy recovery of sell-in, again, strictly controlled, which is watches, but which is also linked to the very strong performance of our ready-to-wear lines. And I would say this is pretty current. Our inventory -- our receivable days are quite low, talking about 40 days on average. So this is more, I would say, the expression of a healthy business in wholesale today, and I would not interpret that as pointing to the future. Jon Cox: Great. Well done on the figures. Well deserved. Burkhart Grund: Thank you. Operator: The next question comes from Luca Solca from Bernstein. Luca Solca: Luca Solca from Bernstein. Looking at the U.S., I wonder how you're thinking about American demand and whether there could be a reason to think that because of the stock market, because the crypto American consumers are very strong? Or is there also an element of consumers wanting potentially to avoid price increases and buying ahead of those price increases on the back of the tariffs that have been introduced? And how you separate which is which. I wonder if just myself thinking about the possible contribution from demand being brought forward or if that is not really a point that you would see from your retail activity in America. And congratulations, Johann, for apparently sounding the right tone with President Trump seeing the picture of you and Ponte and Dufour and a few others in the overall office with President Trump was clearly refreshing. If that goes through, I think you should be seen as a Swiss hero, but well done. On another point, and that would be my second question. There's a lot of talk about the K-shaped society coming forward. Artificial intelligence applications could possibly make wealth and income polarization and inequality even greater. You have a very broad range of prices to take care of the very rich and the middle class, and you stated that you're very careful to maintain accessibility for all consumers. Are you seeing in the way you're selling, and I'm referring to the different price points at which you sell that this K-shaped reality is indeed appearing and that you have the highest demand growth at the 2 extremes of your offer? Johann Rupert: Luca, as usual, Johann here, a very perceptive question. Plural, but please don't think that I had much to do with whatever the eventual outcome between Darren and Washington is. The -- like you, I'm really concerned, if I could put it like this, about the possible unintended consequences of the AI economy. We know that there will be winners. And -- but perhaps it's easier to spot the losers than the winners 5 years ends. Now -- and the hollowing out and polarization, I would say, especially in the United States, the biggest visible effect that I've seen is a hollowing out of the middle class. If you look at the malls and if you look at -- and I hesitate to mention names of companies. But if you speak to mall owners, they will tell you that Costco and Cartier are still doing very well. It's in the middle that the hollowing out has occurred. And this was clearly reflected in the anger displayed by the voters in the last presidential election. There is a hollowing out of the middle class. That's more evident if you look at where they're spending their money. Clearly, and I won't and worried about this in 2015. Societies cannot live with that massive differential between rich and poor. The problem is that in the new economy, and it's before AI, it's a winner takes all economy. In the past, the bricklayer who made 80 bricks an hour earned x, but if you did 120 or 100, you were paid more, but the person who laid 20% less still had an income. Today, if you write software that's 20% less effective, you get 0. And especially when you have an economy and an intellectual property-based economy where you can increase production at 0 marginal cost. It's a winner takes all economy. And if you look at, let's say, the top 10 companies in the United States and you look at their percentage of capital allocated and how it's circular amongst them, one does get a problem that how concentrated is this capital allocation and the wealth generation. I think I read somewhere that NVIDIA has created in the last year, 1.5 years, 100 billionaires amongst the staff. Now good luck to that. It does indicate that in 5 years' time and if you start looking at the differential between winners and losers because of AI, I think we're going to have more polarization. I suspect that we're going to have abundance. The real question is how is that abundance shared. That will be the real question, any case. Nicolas Bos: Luca, Nicolas here to continue on your first question. We haven't seen so much movement and variations of trends and sales linked to the timing of price increases. So there might be, to your point, some kind of global feeling that you might as well, particularly in the U.S. these days, buy before additional price increase or tariff impact materialize. It's clearly something that's in the air. But we didn't feel a massive impact of that. And over the last 6 to 9 months. We've had different price increases in the respective brands at different timings, but we haven't seen spikes or downs that we could see sometimes before that we used to see, as you know, for instance, in Japan, where a few years ago, if you are planning a price increase, you knew that the month before would be phenomenal and the month after will be really down. We didn't see any of that -- at that level in the U.S. So there is definitely that feeling, but I think it's not so important. And we feel that in a way, if I may, we have clients that -- and collectors that if they can afford and they have a good reason to buy and they want to enjoy it's the right moment. They don't know what the future is made of. So they say we might as well enjoy now and make that purchase because who knows how it's going to go. So this is pretty much what we hear. And so far, it's very much down to the desirability of the brands and the collections and the perceived wealth or actual wealth of the buyers and the clients. And we are discussing a bit earlier today with Burkhart. It's true that we see in a few countries, clients, collectors that are buying much more from their wealth's and their assets or their perceived wealth's and the stock exchange does play a role, of course, into that more than by -- according to their income and the variations of their income. And that's pretty much the case in the U.S. these days. Burkhart Grund: And Luca, if I just want to add one thing. If it were a quarterly spike, we would probably come to a different conclusion, but this is 7 quarters in a row with double-digit growth. So this is probably reshooting a bit that argument. Luca Solca: Absolute Absolutely. I understand the point on American demand. That is very reassuring. Thank you, Burkhart and Nicolas. I also think -- and thank you, Johann, for your explanations that artificial intelligence is proposing monumental questions to politics and society. So we'll see how that is taken care of. Operator: The next question comes from Patrik Schwendimann from Zürcher Kantonalbank. Patrik Schwendimann: Congrats for these outstanding numbers. And thank you, Johann, especially for your support for Switzerland. If the gold price stays where it is currently, how much more pressure on the gross margin do you expect for H2 and also for next year? And how much more price increase would you need? That's my first question. And second question, again, on China, the Chinese luxury consumption has improved recently. How sustainable do you think is this? I mean we've just seen this morning real estate market is still down. Burkhart Grund: Patrik, I really don't want to speculate. So can't really and won't really answer that question. I mean, gold pressure or gold price increase, we've seen it. Maisons have, I think, adjusted to it quite well in the first half, trying to find the right balance between limited price increases, efficiency gains, strong inventory management and strong cost management. And I think the way the mix has come out is quite favorable. And we will continue to apply that approach by our Maisons. And going into the numbers gain, how much would you need it would reduce the quality of the mix in a way. I mean it's not price increases to offset as a singular item, but we're working on many more items of the mix. And I can only confirm that this will be the policy and the approach going forward. But I would refrain with the high volatility that we have and the many moving pieces to -- and I know you have to feed your models, and I don't blame you for that at all. But it's a bit more complicated to actually run these businesses than just applying a simple model. Patrik Schwendimann: But just the recent price development, I would assume that the pressure is increasing, right, because you have a time lag. Burkhart Grund: Well, we have a time lag. Yes, that's the mechanics of it. And price increases also have a time lag because, as you know, most of them were applied pre-summer, during summer and after summer, so a bit later in the first half than from April 1. So that also has a time lag, or a stronger impact later in the year. Patrik Schwendimann: Okay. Nicolas Bos: And Patrik, if I may add, Nicolas here, to that, impossible to predict the volatility of the gold price. As you know, in others -- one of the specificities of jewelry is that gold, which is for many people, an investment vehicle, for us is a working material. So it has always been the case, will always be the case. So we have to see the fluctuations of the gold price and that they impact our cost of goods and our margins. On the other hand, as we discussed before, the desirability of gold and its investment value also, we believe, impact positively the attractiveness of jewelry. Of course, we prefer, and we will welcome your support in advising clients to buy gold under the form of jewelry instead of under purely a financial form because then they get the best of both worlds. But apart from that, we can only react afterwards. As for China, we believe that -- first of all, we've seen a stabilization of our sales. Is it going to last that we've seen the bottom of it? We never know and we cannot predict, but it seems to be stabilizing, both in Mainland China and in general, sales to Mainland Chinese, whether domestic sales or touristic, although we've seen some movements and, for instance, repatriation of sales from Japan to Hong Kong in the last quarter quite significantly. What we see is the strength of certain brands remains extremely, extremely important and that the desirability of certain lines, certain collection and probably the most iconic, the most historic the lines, the more attractive they are these days. We've seen that continue to strengthen. So we are very -- I wouldn't say optimistic, but -- yes, to some extent about China. It's a very, very sophisticated culture. Obviously, there is high purchasing power. It's impossible to predict how it's going to evolve quarter-by-quarter. But we continue to invest in our presence in China in the quality of our presence in the development of the visibility and desirability of our brands, retail network, exhibitions, activities. And we believe it's going to remain a very, very important market, although we're probably not going to see the type of growth that obviously we've seen during a few years before. Operator: The next question comes from Atiyyah Vawda from Avior. Atiyyah Vawda: I have 2 questions. The first one is on the Specialist Watchmakers store network. I noticed that the number of stores have been reduced by 14 during the period. Can you give us a bit more color on what that related to? And then the second comment is on the jewelry business. From a strategic perspective, how easy is it to launch maybe platinum versions of the products, for example, in the Love range or in the others from a manufacturing perspective, but also from the ability of the brand to actually have platinum versions of the current products? Nicolas Bos: Thank you very much. Maybe I would start with the second part, which is a bit more technical, and thank you for that. It's true that platinum that somehow decreased or almost disappeared in the jewelry [indiscernible] category a decade ago is becoming, again, a very interesting material to work with. But availability is still limited, and the workability is very different from the gold. So for instance, you are talking about the gold bracelet or if I'm talking about certain other collections, there are a lot of motives that you can create in gold that are very, very difficult to create in platinum is much harder material to work, and it's also a much heavier material. So it's less adapted to certain lines. So -- but you're right, there is a thinking behind that. And there are lines that are -- that always existing in platinum, but were a bit less visible and that become quite interesting and attractive again. But it's not going to replace gold anytime in the future for sure. It's going to complement at most. And we see that also in the watchmaking, some beautiful opportunities for platinum versions of some iron watches. Burkhart Grund: Yes. Let me just circle back on the Specialist Watchmaker network. Now just a bit of context between internal, meaning directly operated stores and external stores or franchise stores at the Specialist Watchmakers. We're talking about a good 920 stores. So 14 is a slight downward adjustment, which is primarily or a bit more than half is driven by some closures or adjustments on the franchise store network and some very few internal stores that we have closed. It's not in one market. There is a bit in China, but there's a bit in outside of China as well. I'd say, overall, it's pretty much what we do every year. We review the -- or the Maisons review their store network and adjust when they see the need. And this is not something very major that has happened here. Operator: Next question comes from James Grzinic from Jefferies. James Grzinic: I just had 2 quick questions. The first one, Burkhart, you talked to reduced building inventory at the end of half 1, if you compare it to last year, given that strong growth in jewelry sales in Q2. Can I just check that if demand were to grow as strongly in the peak quarter as it did in half 1, your machine really could feed that demand? That's the first question. And secondly, can you perhaps more generally talk to what the customer response has been to those meaningful Cartier price rises through mid-September. Any markets where there's been more resistance than others or vice versa? Nicolas Bos: James, Nicolas here. On the second question, we mentioned before that we haven't seen real significant trends around the price increases. So maybe a very, very case-by-case basis, some slight acceleration before the price increase and slight deceleration after. But even on a monthly basis, it pretty much averages. So we didn't see any noticeable movement there. Burkhart Grund: On the inventory, let me kick off and then Nicolas will complement. Just look at -- let's look at the numbers. First of all, there's about a EUR 600 million increase in inventory. A good half of that, so a bit more than EUR 300 million is linked to either FX, meaning valuation or revaluation of inventories due to the higher input costs, notably gold. So that automatically revalues or increases the value of our inventory. The other half is increased inventory per se. And the split there is between the biggest part of that in really underlying inventory increase is work in progress, meaning in the production or manufacturing process today and a smaller part is finished goods. So this is really just the number side. And when you see the inventory coverage, it's gone from close to 20 months to about 18. So that's really the financial frame of it, so to say. You know that we have been investing over the last years in -- primarily in additional capacity for jewelry making. And you've seen as well in the first half of the year that a bigger part, a bigger share of the CapEx went not just into distribution, but also into manufacturing, and that manufacturing was concentrated in the Jewellery Maisons. So we have been focusing over the last years already also because we've had shortage in lines to rebuild the inventory holdings to the right level and have had good success in it, but this is an ongoing process that we continue to complete. Does that cover, Nicolas, or do you have? Nicolas Bos: No, very much so then we could go more in detail, but it's very much the investment in production workshops that you will find for the Jewellery Maisons at Cartier and Van Cleef & Arpels and Buccellati and also at Vhernier and Valenza recently. So we are definitely -- we are very -- we are being cautious. We don't want to build overcapacity, obviously, but we want to make sure that we are ready for the future. And if trends continue to be positive, we can answer to them. With limitations that will remain, availability of craftsmanship for handmade jewelry remains an issue. And then it's a very lengthy process that we tackle of identifying young talent, training them, being involved with the schools and so on. But this is more a 3-, 5-, 8-year journey to train craftsmen. But it's been an ongoing process for years and years. So we're quite confident that we will probably continue to see some scarcity and some shortage on some collections, but that's the nature of the activity. But all in all, our capacity to supply will follow the demand, the way we look at it. James Grzinic: That's great. Thank you, Nicolas. So to paraphrase you, if top line turns out to be demand would support double digit in peak trade, you'll be able to feed that basically given your production capability now and notwithstanding the inventory balance at the end of September. And I presume you are satisfied with price elasticity since those price rises at Cartier in September that will allow you to continue to, I think, that -- use that fine balance of value, affordability, et cetera, et cetera? Burkhart Grund: James, are you trying to find out if you should buy now Christmas present or later? James Grzinic: I already had. So I'm kind of assess that. Burkhart Grund: Okay. So rest assured, that's fine. Operator: The next question comes from Chris Huang from UBS. Chris Huang: Chris Huang from UBS. Congratulations on the results, and I will stick to 2 questions. My first one, sorry, Burkhart, just to come back on the commentary you made on September faster than the quarter. I assume that's a group level comment. So could you perhaps please talk specifically about the Jewellery Maisons as you had newness from Love Unlimited at the end of the quarter, and that should be quite mix accretive. So just wondering if you can touch on the cadence of Jewellery Maisons to help us think about the momentum ahead. The other question I have is a clarification on pricing. Nicolas, you mentioned the pricing you did in September. So thank you for that. But just to clarify, what's the incremental contribution from pricing in Q2, specifically versus Q1 for the division? I'm just trying to understand within that 6 percentage point sequential acceleration, how much of that actually came from pricing? Was it more of a low single digit or mid-single-digit contribution, please? Burkhart Grund: Chris, I'm not sure if we can be really helpful on these questions. They're very, very short-term oriented. I understand where you're coming from, but commenting on a single month and then by -- with a high level of granularity by Maisons is not something that we recommend to do because it can lead to conclusions that are do not reflect the reality of our business. Our business is always be it by year, be it by quarter, cyclical and has as much to do with the current trends as well as the comp base of the prior year. And this is the way I would leave it today. I would not endeavor to go further. Sorry for not being more helpful than that. Chris Huang: No worries, understood. Operator: We will now take the last question from Carole Madjo from Barclays. Carole Madjo: Carole Madjo from Barclays. Two questions, please. The first one, can you share a bit more color on the state of the watch market? Do you feel like the market has finally stabilized, I guess, mostly in China and that the positive growth you are able to deliver in Q2 can be sustained? That's the first question. And then number two, just to come back on communication costs, which was lower in H1. Are you still happy with the ratio of around 10% of sales for the full year, which is what you have been doing over the past few years? I know you talked about some phasing effect. So are there any particular events worth flagging that you will do in H2 to push top line as again, you will be facing tougher comps? Nicolas Bos: Nicolas here, on the watch market, I mean, we would love to be able to predict how that market is going to evolve. What we've seen definitely in the recent period is a stabilization for most of our Maisons. They come from very, very different situations, the respective weight of the geographies. For instance, some of the Maisons were extremely successful in Asia and in China in the past. And of course, the slowdown in China did hurt them more than the ones that had more of an American or European footprint. So we see all the Maisons pretty much coming back to a more healthy and better balanced situation. As I mentioned before, also very much refocusing and focusing on their core collection, core identities and delivering a strong and clear message to the -- their collectors and their stakeholders. So we are seeing some positive impact of all this. How it's going to evolve in the future is difficult to predict. We see, for sure, a more and more differentiated watch market, where it's much more difficult to see a global trend even at the scale or the level of one country or one price category. And if you see, for instance, the success of Cartier watches in the past period, be it in sale or even in attractiveness and buzz around the Cartier collection, it's extremely high and shows also an evolution or kind of coming back in terms of taste towards smaller shaped watches that had a bit disappeared for a period. So we very much have individual and singular trend Maison by Maison, and we try to very much follow them on a very granular level. Difficult to say how it's going to evolve. For sure, what we see, and we see that also through the activities of Watchfinder, which is the secondhand watch business that we own. Burkhart Grund: Pre-loved. Nicolas Bos: Pre-loved, sorry, Mr. Chair. Pre-loved watches. We see for sure that the speculative bubble on watches that followed the COVID period has burst and is gone now, and we are back to a much more, let's say, rational and a bit more predictable consumer behavior when it comes to whether pre-loved or first love watches. Johann Rupert: If I may just make a final observation. These successes at, for instance, Cartier, it's not turn on, turn off. It takes years to develop. And I really would like to pay homage to not only obviously Louis, but Cyrille and what they have prepared. And what you are witnessing is really the power of Cartier. There are only so many Maisons in the world that have the power and the reach and the influence and the trust of consumers across all continents that if they have good products, these products sell and sell at scale. So I mean, this comes from Alain Perrin says, Cartier is a machine, and you are seeing the results of decades of work, really decades. And I'd like to pay homage to all of those people. That's why when you have something very, very good like the new Love's range, it can sell, and it can sell at scale. Alessandra Girolami: Thank you very much. This will now conclude the call. Please do not hesitate, of course, if you have any further questions, and talk to you soon. Thank you. Burkhart Grund: Thank you very much. Nicolas Bos: Thank you. Burkhart Grund: Thank you.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Israel Discount Bank Third Quarter 2025 Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded, November 17, 2025. If you have not yet done so, please access the presentation on the bank's website, investors.discountbank.co.il. I would like to remind everyone that forward-looking statements for respected company's business, financial condition and results of its operations are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated. Such forward-looking statements include, but are not limited to product demand, pricing, market acceptance, changing economic conditions, risks in product and technology development and the effect of the company's accounting policies as well as certain other risk factors, which are detailed from time to time in the company's filings with the various securities authorities. I would like to move first to Mr. Morris Dorfman, Executive Vice President, Head, Strategic and Finance. Mr. Dorfman, would you like to begin? Morris Dorfman: Yes. Thank you. Thank you all for joining us today. I extend my warm welcome to this investor call. Starting with Slide 2. Discount Group delivered strong Q3 results with net income of ILS 1.13 billion and ROE of 13.7%. Adjusted net income for one-offs amounted to ILS 1.25 billion, representing an ROE of 15.1%. Banking operations in Israel, comprising of Discount Bank and Mercantile recorded ILS 890 million and an ROE of 14.3%. Discount's cost efficiency ratio was 44% in Q3, while the cost-income ratio in the banking activity in Israel was slightly lower at 42.6%. Total credit in the group grew by 3.4%, accompanied by a solid credit quality metrics, while net interest income, NII, remained flat Q-o-Q. In light of these results, the Board decided to pay out 50% of Q3 net income. Moving to Slide 3. Despite 2 challenging years, Discount Bank has consistently shown double-digit ROE of 14% and stable net income. These figures exhibit the strength of bank and the resilience of the Israeli economy. At Slide 4. On the left side, 2025 GDP is now expected to grow by 2.5%. That said, Bank of Israel expects 2026 GDP to rebound notably with GDP growth at 4.7%. On the right-hand side, the job market remained resilient throughout this time, maintaining a healthy unemployment rate of 3.4%. On Slide 5, we summarized our credit portfolio growth and structure. In the third quarter, it's continuing its strong growth across most segments with a 3.4% growth rate quarter-on-quarter and 8.9% year-over-year. The corporate segment continued to show notable strength as credit grew by 5.6% quarter-on-quarter and 17.4% year-over-year. SME credit grew 1.6% and 4.6%, respectively, while household credit grew a healthy 4.3% Q-on-Q and mortgage grew by 2.2% Q-on-Q and 7.8% year-over-year. Operator: Mr. Dorfman, we can hear you. Morris Dorfman: Switching to Slide 6. This slide represents our credit portfolio quality. A stable economic environment is reflected in the consistent NPL ratio of 0.70%. The allowance ratio stands at 1.3% of total credit with a strong coverage ratio of 191%. On the right-hand side, credit loss expenses climbed to 28 basis points in the third quarter. The observed increase in provision is mainly due to 2 isolated corporate incidents made at Mercantile Bank amounting to approximately ILS 50 million. Excluding the Mercantile provisions, collective provisions amounted to almost 90% of all Q3 provisions, reflecting Discount's conservative stance on our credit portfolio. However, a 9-month year-over-year comparison revealed a decline in overall provisions as prior quarters exhibited comparatively lower provision levels. Moving to Slide 7 to discuss revenues. Total revenues increased by 0.9% Q-on-Q, while fee income grew by 2.5% Q-on-Q and 10.9% year-on-year, mainly from fees and commissions from financing activities. Net interest income, NII, slightly decreased by 0.2%, while CPI contribution remained stable. Ongoing pressure on lending and deposit margins is persistently eroding the bank's net interest margin. At the right-hand side, the income from regular financing activities decreased by 1.1% Q-on-Q despite a 3.4% expansion on our loan portfolio. Finance income declined primarily driven by the narrowing of credit and deposit margins. I apologize I had a problem with the line. I will move to Slide 8 to discuss expenses and cost-income ratio. Before we delve into this quarter figures, let's briefly review the bank's journey over the past decade, marked by significant improvement in its efficiency ratio from 67% to 52% post COVID and further reduction to 45 percentage following the divestiture of CAL. While they have come a far away, we think we can still improve our cost efficiency notably in coming years as we mentioned in our strategic plan announced earlier this year. Moving to Slide 9. Total expenses decreased by 3.8% quarter-on-quarter and by 1.2% year-over-year and the cost income improved to 44%. Salary expenses dropped 6% this quarter as we continue to maintain expense discipline. As previously communicated in the last quarter's report, the recently concluded wage agreement is expected to provide enhanced operational flexibility for management. Maintenance and depreciation expenses and other expenses are stable with changes mostly attributed to nonrecurring items. Moving now to Slide 10, you can observe our ample liquidity and diversified deposit base. On the left, you can see that 48% of our deposits are from our retail segment. On the right-hand side, our Tier 1 capital ratio stands at 10.47%, well above the 9.2% Bank of Israel requirements. Our liquidity ratios are well above the regulatory requirements, presenting a solid LCR of 1.7% and NSFR of 11.6%. Moving to Slide 13. I will briefly touch on our main subsidiaries, starting with Mercantile Bank that present a net income of ILS 234 million and ROE of 15.8%. The cost-income ratio stands at 37.5%. Mercantile grew its loan book by 7.6% year-over-year by a well-balanced portfolio. CAL is writing a net loss of ILS 88 million. The loss in the third quarter is attributed to the expenses related to the VAT assessment ruling, totaling ILS 137 million net and an increase in the Santam stock option provision of ILS 75 million after tax impact. As the VAT ruling loss recognized in the consolidated report in the previous quarter, CAL profit contribution amounted to ILS 40 million in this quarter. IDB New York Bank reported a net income of $24 million and ROE of 7%. The bank grew its loan book by 12.9% year-over-year and deposit by 30.9% year-over-year. To summarize my overview on Slide 12, I would like to emphasize the main takeaways from this quarter results. First, we delivered solid results with net income of ILS 1.13 billion and ROE of 13.7%. Second, our cost-income ratio dropped to 44%. Credit continues to grow at a healthy rate of 3.4% quarter-on-quarter and 8.9% year-over-year. Core Tier 1 equity remained stable at 10.5%, which allow further expansion next year, stable asset quality metrics with NPL ratio of 0.7%. The CAL sale is likely to boost our 2026 ROE by 1.2%, while stressing the Tier 1 ratio by 0.6%. And lastly, given our continued strong performance and the confidence we have in ongoing profitability, we announced a dividend payout of 50% of net income, reflecting a gross dividend yield of 5%. With this, I finish and would like to open to Q&A. Operator: [Operator Instructions] The first question is from Priya Rathod of Jefferies. Priya Rathod: I just have 2 questions, please. The first is on AUM, specifically for your small businesses section. There was a notable jump in AUMs quarter-on-quarter. Would you be able to give a bit more color on what is actually driving that AUM number, but then also what's driving the increase in the third quarter? The second question is on mortgages. Again, it was a really solid quarter in terms of growth in volumes, but how should we be looking at that number in the context of the sector data, particularly like the declining of new home sales? So I guess my questions are like what drove the higher mortgage volumes this quarter? And then how should we think about volumes going forward? Morris Dorfman: I didn't get your first question, but I will answer about the mortgages question, and then maybe if you can repeat the first one. So what's happening with mortgage as you understand, the real estate sector in Israel is at the moment, it's not moving too much. But most of the mortgages that have been sold this quarter -- the last quarter are one of the houses that were bought 2 years ago. there's this model in Israel when you pay 20% in advance and 80% just when the house is finished. So most of the people that bought houses about 2, 3 years ago, they took mortgages this year. So what you see now is the movement of money of the houses that we bought a couple of years ago. But I didn't hear your question -- the first question, I didn't understand the question. Priya Rathod: Yes. So the first question was on assets under management, AUM, particularly in the small business segment. There was quite a notable jump in AUMs quarter-on-quarter. I just wanted to ask what was -- what actually drives the AUM number and what drove the increase quarter-on-quarter? Morris Dorfman: Well, it's -- we don't see something special about the small businesses. It's part of our strategy, so we really focus on that. I can't say there's something unique in that. It's just our focus on this sector, if I got your questions right. Operator: The next question is from Chris Reimer of Barclays. Chris Reimer: Sorry if this was asked already, but how do you see dividends going forward in relation to the Bank of Israel announcement on the easing of restrictions for dividends? Morris Dorfman: Sure. So we -- of course, we had a discussion about it in our Board, and our thoughts and our decision is to be consistent in the way we pay dividends. So we thought it's better to keep the same level of dividend and not changing it every quarter. Therefore, we've chosen to pay 50%, and we plan to do it, of course, to keep the same in the future. Chris Reimer: Got it. And regarding expenses, aside from the divestment of CAL, do you see room for cost efficiencies in other areas? Morris Dorfman: Yes, of course, we -- well, as you know, it's part of our strategy to improve our efficiencies. So we're doing it both in bank and there's addition in -- Mercantile also working on that. And we're also examining what can be done together, Discount with Mercantile. And of course, also in IDB New York, there's also -- there's a new management team and they're working on new strategies, which will emphasize efficiency. Operator: [Operator Instructions] There are no further questions at this time. Thank you. This concludes the Israel Discount Bank Third Quarter 2025 Results Conference Call. Thank you for your participation. You may go ahead and disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to the Verrica Pharmaceuticals' Third Quarter 2025 Corporate Update Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I will now turn the call over to our host, Kevin Gardner of Lifesci Advisors. You may begin your conference. Kevin Gardner: Thank you, operator. Hello, everyone, and welcome to Verrica Pharmaceuticals Third Quarter 2025 Corporate Update Conference Call. With me on the line this morning are Jayson Rieger, President and Chief Executive Officer; Noah Rosenberg, Chief Medical Officer; John Kirby, Interim Chief Financial Officer; and David Zawitz, Chief Operating Officer. As a reminder, during today's call, management will make forward-looking statements. These forward-looking statements are based on the company's current expectations and involve inherent risks and uncertainties. Verrica's actual results and the timing of events could differ materially from those anticipated in such forward-looking statements. Please see Verrica's SEC filings for important risk factors. Verrica cautions you not to place undue reliance on forward-looking statements and undertakes no duty or obligation to update any forward-looking statements as a result of new information, future events or changes in expectations. In addition, during today's call, management will discuss certain non-GAAP financial measures. These non-GAAP financial measures are in addition to and not a substitute for or superior to measures of financial performance prepared in accordance with GAAP. There are a number of limitations related to the use of these non-GAAP financial measures compared to their closest GAAP equivalents. The earnings release that the company issued Friday includes GAAP to non-GAAP reconciliations for these measures and is also available on the Investor Relations section of Verrica's website. I'll now turn the call over to Verrica's President and CEO, Jayson Rieger. Jayson Rieger: Thank you, Kevin, and good morning, everyone. Thank you for joining us for our third quarter 2025 corporate update call. In the third quarter, Verrica achieved multiple commercial, corporate, scientific and regulatory milestones, providing a strong foundation for future growth in YCANTH as well as significant upside potential for our late-stage pipeline. Throughout the past year, we've advanced our clinical programs in two of the highest unmet needs in dermatology for future development. We are excited to embark on the first of these programs our global Phase III clinical program of YCANTH or VP-102 in common warts. This is with our Japanese development partner, Torii Pharmaceutical and is expected starting -- to be starting later this year with first patients targeted for dosing in December. Also, as I'll discuss in more detail later on in this call, we've received clear and positive feedback from the FDA about the Phase III development program for our oncology asset, VP-315, for basal cell carcinoma, the most common form of skin cancer. Even while advancing these two programs to Phase III readiness, we've reduced our spending by about half in the past year, while more than doubling dispensed units of our commercial product, YCANTH for molluscum contagiosum. I couldn't be more proud of our team's simultaneous achievement of these goals, and we are excited to see what's ahead for Verrica in 2025 and beyond. In the third quarter, we continue to see growth in the adoption of YCANTH by health care providers in the U.S., with quarter-over-quarter growth in dispensed applicator units of about 5%, compared to last year, dispensed applicator units increased to 37,642 for the 9 months ended September 30, 2025, a 120% increase over that same month in 2024. This year-over-year growth reflects the progress of our commercial strategy to expand distribution through the pharmacy channel and the concerted effort to expand beyond dermatology into pediatric and primary care offices. While the incremental growth in pull-through was softer in Q3 versus the prior quarter, we powered through seasonality and competitive headwinds to help providers treat more patients with what we view to be is the best-in-class therapy for molluscum. The growth and adoption of YCANTH for molluscum serves as the foundation for our strategy of establishing YCANTH as a valuable tool for treating multiple types of skin lesions as the same clinicians familiar with YCANTH will also be those who treat common warts if that is approved as an expanded indication. Through our amended agreement with Torii, we have received $18 million in cash milestones payments in 2025, of which $10 million was received in the third quarter upon the approval of YCANTH for molluscum in Japan. Torii continues to be an outstanding and highly collaborative partner to Verrica, and this additional non-dilutive capital has helped our cash position and supported our YCANTH activities in the United States. The financial arrangement for the global Phase III program in common warts, where by Verrica and Torii split the cost of the program with the first $40 million funded by Torii has unlocked the development of this key indication with first patient dosed in the United States expected by the end of the year. It's also important to note that Verrica retains exclusive global rights to YCANTH outside of Japan. The recent approval of YCANTH in Japan for molluscum is the first of what we hope to and expect will be multiple approvals across the major pharmaceutical markets, including the European Union. We recently received a significant regulatory milestone towards YCANTH approval for molluscum in the EU. Feedback from the European Medicines Agency on October 20 indicated that no further Phase III clinical studies would be needed to proceed with the filing of a Marketing Authorization Application for YCANTH as a treatment for molluscum, and we anticipate the filing could occur as early as the fourth quarter of 2026. The feedback was based on compelling efficacy from the well-controlled Phase III studies successfully conducted in both the United States and Japan. Europe represents a large and underserved market for patients who at present have no approved therapy for the treatment of molluscum as well as a large commercial expansion opportunity for Verrica. While we've been optimizing our cost structure and building the foundation for YCANTH as a best-in-class therapy for molluscum in common warts, our clinical teams have been developing VP-315, or ruxotemitide, our novel oncolytic peptide immunotherapy as one of the most exciting late-stage assets in oncology. We recently announced new data from our Phase II study evaluating VP-315 for basal cell carcinoma at the Society of Immunotherapy of Cancer, or SITC, at their 40th Annual Meeting. The presentation revealed supportive immunologic mechanistic data that helps explain why VP-315 shrinks treated basal cell carcinomas in many patients as evidenced by a 97% objective response rate and an 86% reduction in overall tumor size. We also observed a potential abscopal-like effect in non-treated lesions, which strongly suggests immune system engagement. We are also excited to announce that we reached alignment with the FDA on an efficient Phase III study design. We couldn't be more excited about VP-315 and its prospects to potentially become standard of care for the most common form of skin cancer. We believe the tremendous promise of these pipeline assets may present robust partnering opportunities to advance these programs through development and commercialization as well as bring in meaningful non-dilutive capital. and we are currently exploring these opportunities wherever they present themselves. I'd like to provide a more detailed update now on our commercial activities for YCANTH. During the third quarter, YCANTH dispensed applicator unit reached a total of 14,093, which represents approximately 5% sequential growth over the prior quarter. Not surprisingly, we experienced some seasonality in August. As in-office treatment, times of the year where there are generally fewer visits for doctors, largely driven, we believe, by scheduled vacations by both providers and patients and fewer sick child visits will have an impact on our volumes. I believe the seasonality did modestly impact our volumes in August. But as we enter the back-to-school season in September, we saw a return to the previous levels of pull-through which is consistent with the expected product utilization patterns for this indication and patient population. We also saw that momentum continue into the beginning of the fourth quarter. Turning to reimbursement. As noted on our last conference call, the substantial investments we have made in our commercial copay assistance program continues to give providers a consistent path for treating their patients with YCANTH. As a reminder, our copay assistance program allows all eligible patients with commercial insurance to pay just $25 per YCANTH treatment for up to two applicators, which provides physicians with comfort knowing that their patients will find affordable access to YCANTH. As previously indicated, our commitment to patient affordability and ease of access to YCANTH for health care providers had an incremental impact on our gross to net and by extension, revenue for the quarter. We view this investment as the best way to get YCANTH in the hands of providers to use as their frontline treatment for molluscum and to minimize concern for clinicians whether the prescription will be filled for their patients. One new development on the commercial front that we are excited to share is YCANTH Rx. Our new non-dispensing pharmacy that we expect to launch in the fourth quarter of 2025. YCANTH Rx will give prescribers a single place to write all YCANTH prescriptions and will assist with benefits investigations, processing any prior authorizations and enrollment in our copay program. Prescriptions written to YCANTH Rx will then be routed to a dispensing pharmacy in our pharmacy network that is contracted with the patient's insurance plan. We believe YCANTH Rx can improve speed to therapy for patients by navigating the prior authorization process with fewer delays. Prescribers will also enjoy this simplified, seamless experience that will reduce the paperwork burden on their offices and let them spend more time doing what they do best, treating patients. I'm also pleased to note that recent expansion of our sales force, which will continue into the next year. Our total sales force has risen to 45 sales reps this quarter, and we plan on increasing it to 50 in 2026. For the third consecutive quarter, YCANTH inventory remained at normalized levels with YCANTH applicator units shipped to distributors continuing to closely track underlying market demand of dispensed applicator units. I will now provide an update on our pipeline programs. Regarding our common warts program, as I mentioned earlier, we remain on track to enroll our first patient in the Phase III program in the U.S. in the fourth quarter. We provide updates on estimated timing of completion of the program and estimated availability of top line data as those items become clearer in the future. Moving to our novel oncolytic peptide, VP-315, which is being developed for basal cell carcinoma. As we have previously discussed, BCC is one of the most common skin cancer indications with over 3.6 million cases per year, representing a potential multibillion-dollar opportunity. As I mentioned, last week, we presented an oral presentation and a poster on VP-315 at the SITC 40th Annual Meeting. The new data presented at SITC underscores VP-315 potential to redefine how basal cell carcinoma is treated. We are particularly encouraged by the immunologic profile we're seeing with VP-315, which supports our view that this local short-term therapy not only destroys tumors directly but also stimulates a potent local immune response. The histological assessment in non-injected lesions suggests a potential abscopal-like effect. These data help explain the mechanism for the clinical safety and efficacy data previously reported and support the development of VP-315 as a potential non-surgical immunotherapy option for patients with BCC and further reinforces our confidence in VP-315's ability to address significant unmet need in dermatologic oncology. As this data release has prompted significant inquiries into the VP-315 program and the nature of our Phase III development plan, we are also pleased to share feedback with respect to our end of Phase II meeting with the FDA and our plans to advance the asset. In the meeting, the FDA confirmed alignment with our plans for the Phase III program to encompass two placebo-controlled Phase III studies with approximately 100 subjects each and a primary endpoint of complete clearance as assessed at week 14. Based on the FDA feedback, we expect these studies will be adequate to support an NDA filing with long-term follow-up studies to be conducted as post-approval commitment. We are extremely pleased with this collaborative and thoughtful discussion with the FDA, which provides us with an efficient path to making VP-315 available for patients with BCC. We are continuing our preparatory activities for the BCC program and are exploring new funding opportunities, which may include strategic non-dilutive partnerships for both the development as well as post-approval commercialization. As we finalize our preparation for Phase III with CROs and clinical site investigators, we will provide additional details on costs, timing and other key aspects of this exciting oncology program. As we approach the new year, we believe our company remains well positioned to realize strong organic growth as YCANTH continues to establish itself as the leading therapy for the treatment of molluscum. We are also excited about the value creation surrounding YCANTH's potential label expansion into common warts, the potential for expansion of YCANTH for molluscum around the world and the nearly universal positive feedback we are receiving for VP-315 for basal cell carcinoma. I'll now turn the call over to our Interim Chief Financial Officer, John Kirby. John Kirby: Thanks, Jayson. I'll now take a few minutes to summarize our financial results for the quarter ended September 30, 2025. For the third quarter of 2025, we reported total revenue of $14.3 million compared to total negative revenue of $1.8 million in the third quarter of 2024. Total revenue for the third quarter of 2025 primarily consisted of $10.7 million of Torii milestone and collaboration revenue and net YCANTH revenue of $3.6 million, compared to $84,000 in collaboration revenue from Torii and negative $1.9 million of net YCANTH revenue in the third quarter of 2024. Net YCANTH revenue in the third quarter of 2025 reflects shipments to our distribution partners, offset by standard gross to net adjustments, including actual or anticipated product returns, off-invoice discounts, distribution fees, rebates and copay assistant program expenses. Recall that in the third quarter of 2024, negative net YCANTH revenue was due to an increase in our returns reserve for estimated returns from certain distributors and no revenues from ex-factory sales. This year, as Jayson mentioned earlier, net YCANTH revenue represents orders from our distribution partners to meet demand from their customers. Gross product margins for the third quarter of 2025 were 79.1% and cost of product revenue was $0.8 million, including $0.4 million of obsolete inventory costs. Research and development expenses of $2.2 million in the third quarter of 2025, increased by $0.1 million when excluding the impact of stock-based compensation, which is in line with the third quarter of 2024. Selling, general and administrative expenses of $9.4 million in the third quarter of 2025 decrease compared to the third quarter of 2024 by $5.8 million, excluding the impact of stock-based compensation, driven primarily by the implementation of our more focused commercial strategy for YCANTH, including decreases in compensation, benefits and travel due to reduced sales force of $3.5 million, decreased commercial costs of $1.2 million and decreased marketing and sponsorship costs of $0.8 million. Before I discuss net income and net loss per share, I will note that on July 24, we effected a reverse stock split at a ratio of 1 for 10 shares of our common stock. As a result, every 10 shares of our issued and outstanding common stock were automatically combined into 1 share. The 2025 and 2024 per share amounts I will note reflect the impact of the reverse stock split. GAAP net loss was $0.2 million or $0.03 per share for the third quarter of 2025, compared to a GAAP net loss of $22.9 million or $4.88 per share for the third quarter of 2024. On a non-GAAP basis, which excludes stock-based compensation, non-cash interest expense and change in fair value of embedded derivatives, the third quarter of 2025 net income was $1.2 million or $0.13 per share, compared to a net loss of $20.2 million or $4.30 per share for the third quarter of 2024. And finally, as of September 30, 2025, Verrica had aggregate cash and cash equivalents of $21.1 million. As Jayson mentioned earlier, we received a total of $18 million in cash milestone payments from Torii during 2025. In consideration of the $10 million minimum liquidity covenant in our debt facility, on a GAAP basis, our cash balance as of September 30, 2025, funds operations into the late fourth quarter. We will continue to apply discretion in our uses of cash and explore opportunities to further bolster the strength of our balance sheet while still advancing our commercial and clinical development efforts. I'll now turn the call back over to Jayson for closing remarks. Jayson Rieger: Thanks, John. Since my appointment as CEO, just over 1 year ago, I'm incredibly proud to report that Verrica has plotted a course to build a foundation in our commercial stage asset, YCANTH and further advance our pipeline of potential products for two of the largest unmet needs in dermatology. The Verrica team is always focused on delivering best-in-class therapies, and I can say that with confidence that we are fully executing on this strategy, and doing so utilizing a highly efficient operating model that prioritizes growth while prudently allocating capital resources to the growth. We will enter 2026 with significant accomplishments across all facets of our business in 2025 that I believe will lay the foundation for continued growth and success. With that, we'd be happy to take any questions. Operator? Operator: [Operator Instructions] We'll take our first question from Stacy Ku with TD Cowen. Stacy Ku: And great to hear about the stepwise sales for expansion in YCANTH patient hub. But first, can you further speak to the YCANTH demand that you're seeing in Q4. And then second, maybe go into more detail on the competitive headwinds. What kind of detailing are you seeing? And what has been the prescriber feedback on Zelsuvmi and maybe the efficacy that you're seeing when it comes to the competitor. Jayson Rieger: Sure. Thanks, Stacy. Nice to talk to you again. In terms of Q4, as we indicated earlier, the momentum we saw rounding up September, we've seen continue into this quarter. In terms of the competitive landscape, we continue to view the largest competitor to the treatment of molluscum as being watch and wait, and converting doctor behavior from simply watch and wait or referral to actual treatment. The Zelsuvmi launch is, in our view, a positive for the marketplace as there's now shared voice talking about the need to treat and the ability to treat molluscum, and we're still excited about the prospects of YCANTH as being a best-in-class option for those patients with most patients seeing their disease addressed in as few as one to two treatment. Operator: Our next question comes from Dennis Ding with Jefferies. Yuchen Ding: I have two. Number one, just on the recent sales force expansion, I'm just curious when you expect productivity to fully ramp? And is 2026 sort of the right way to think about it? And then number two, on EU, I appreciate the guidance around filing in Q4 '26, but that's still in 12 months despite no additional clinical trials, et cetera, required. So just curious, why do you need the 12 months? And is that a situation where you could find a partner first before filing? Jayson Rieger: Sure. No problem. So in regards to your first question, sales productivity, yes, it typically takes a few months for any rep to be up to speed. So we would expect that many of our reps that we've hired recently to be hitting the ground running and being quite productive in the early part of next year. In terms of the EU, there are some mechanical things that relate to filing in the EU that require sequential steps in time. One of those, in particular, is around securing the pediatric waiver, even though our drug is already been completed in pediatric patients, we have to go through the process of securing that waiver in the EU, and that adds a few months to the beginning of the time line. We're doing everything we can to expedite the process, but there are a number of sequential steps in Europe that require you to go through step 1 before you go to step 2, and we're continuing to do all those things actually right now. And also in terms of your question about partnership. In terms of that general run rate, that would provide us to fund a commercial plan ourselves or work with a partner and give us sort of that time line to prepare for commercial launch. So we don't believe it's going to adversely impact the time line to commercial. Operator: We will move next with Serge Belanger with Needham & Company. John Todaro: This is John on for Serge today. So first on YCANTH Rx, I guess it's kind of getting ramped up in the next month or so. Curious what some of your feedback has been from KOLs that you've spoken to that kind of led you to instilling this mechanism and how it could start -- could kind of kick start further dispensed applicator growth moving forward? And then back on the expansion of the sales force, just curious if this -- the goal here is kind of an expansion in the breadth of your current call points or more so an increase in depth in prescribing from your current prescribers? Jayson Rieger: Sure. Thanks. So we're very excited about the YCANTH Rx. The feedback has been, in general, we've worked very hard over the past year to continue to simplify the process for clinicians and their patients. And we believe a single point of referral for writing these prescriptions to a non-dispensing pharmacy will make that continue to be easier for the clinicians. And make it easier for their patients. So there'll be one stop shop that has familiarity with the commercial payers, the contracts, the insurance for the patients and also to facilitate expeditious ways to get that fulfilled for the patients. And the general feedback we've seen so far is it's been very positive. But it's still at early stages, and we'll continue to explore and share details as that rolls out. In terms of the breadth and call point, I would say it's still a bit of both. The -- we're seeing greater demand. And given that we're expanding into both the pediatric primary care, in addition to our core business in dermatology, this allows our reps to spend more time calling on the existing customers, but also to expand in some of their call points and high-value opportunities in the commercial space. What we see, as I mentioned earlier, in terms of the largest competitor being doing nothing or watch and wait, this means there's lots of clinician targets out there for which there is no deciling of data, and we just need to engage with them through conferences, through trade shows and through social media and marketing efforts as well as simply knocking on the doors in the old-fashioned way. So we're excited about that opportunity. There's plenty of targets for our reps, and I think that we'll start to see that traction going into this year. Operator: [Operator Instructions] We'll move next with Brian Kemp with Brookline Capital Markets. Brian Kemp Dolliver: Can you hear me all right? Jayson Rieger: A little bit. Brian Kemp Dolliver: Okay. A couple of questions for me, how should we think about seasonality impact in Q4 sales? And another one is on YCANTH Rx. Do we have any benchmark from a similar pharmacy model and a similar kind of indication? And what kind of KPI will you be tracking to measure on YCANTH Rx success in the first 6 to 12 months? Jayson Rieger: Can you please repeat the first part of the first question. It was static, I didn't hear it. Brian Kemp Dolliver: All right. So my first question was, how should we think about seasonality impact in Q4 sales? Jayson Rieger: Okay. No problem. So in terms of Q4, we would expect some of the traditional slowdown you could see in November, December based on vacations and holiday times and sort of the calendar in general. But we expect that, that momentum will continue into the first part of next year for prescriptions, especially as we believe that molluscum is often a secondary diagnosis for patients. And as we get into cold and flu season, we expect there'll be more doctor visits and could be more diagnosis of molluscum going forward. In terms of the NDP, at this point, we're not giving any expectations or metrics at the moment, but you would expect that we would follow all the core metrics of time to fill, the number of scripts that are fulfilled, et cetera. And as we get more data on that, we'll continue to evolve and monitor that process. But those are the expectations of a typical NDP. Operator: And this will conclude our Q&A session. I will now turn the call back to CEO, Jayson Rieger. Jayson Rieger: Thank you, operator. I'd like to thank all of you for joining us this morning, and we look forward to providing updates on our progress in 2026. Have a nice day. Operator: Thank you. And this does conclude today's program. Thank you for your participation. You may disconnect at any time.
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.]
Bianca Fersini Mastelloni: Okay. Good afternoon or good morning to everyone, and welcome to El.En.'s Third Q 2025 Financial Results Conference Call. Today's call will be recorded, and there will be an opportunity for questions at the end of the call. With me on the call, Andrea Cangioli, El.En.'s CEO; and Enrico Romagnoli, El.En.'s Chief Financial Officer and Investor Relations Manager. Before we begin, please note that there are management remarks during the conference call regarding future expectations, plans, prospects and forward-looking statements. Certain statements in this call, including those addressing to the company beliefs, plans, objectives, estimates or expectations of possible future results or events are forward-looking statements. Forward-looking statements involve known or unknown risks, including general economic and business condition in the industry in assumptions of -- in which we operate. These statements may be affected if our assumptions turn out to be inaccurate. Consequently, no forward-looking statements can be guaranteed and actual future results, performance or achievements may vary materially from those expressed or implied by such forward-looking statements. The company undertakes no obligation to update the content or the forward-looking statements to reflect events or circumstances that may arise after the date hereof. At the end of the presentation, if you need to ask a question, please book your question on the chat of Bianca Fersini Mastelloni raise your virtual hand you will have the floor in order of request. But at this time, I want to give the floor to Andrea Cangioli. Please go, Andrea. Andrea Cangioli: Thank you very much, Bianca, for your introduction and for hosting us. And thank you to everybody for being with us in this call following the release of our financial report as of September 30, 2025. Enrico Romagnoli will be on this call with me, and I thank him for taking care of the details of our financial reporting that he will be sharing with you in a very short time. Our third quarter came out really strong, especially under the profitability profile, confirming the trend of this 2025, a brilliant performance in the medical sector and a softer one in the industrial business. The reported numbers say on the 9 months revenues were up 4.6% in medical and just shy of 2% in Industrial. And that consolidated EBIT was down 3.2% on the 9 months, but up 3.8% in the quarter, marking the EBIT recovery that hints and supports our guidance for this year-end. If we look a little deeper inside these numbers, we have grounds to be extremely pleased with the performance in the medical sector, also on the revenue line. In fact, this 2025 -- in this 2025, we're facing the inorganic effect of the exit of consolidation from March 1 of the Japanese subsidiary with us. Net of such effect, growth in medical would have been equal to 7.1% on the 9 months. Moreover, we're also facing the moving away of the historic and very significant customer Cynosure as our OEM contract for the supply of high-power alexandrite laser systems for hair removal is only formally in place after Cynosure merged with a South Korean company, Lutronic, that is now providing and that is going to provide to Cynosure such technology for their distribution net. By removing the negative effect of this circumstance and cumulatively with the removal of the without effect, sales growth would have exceeded 10% on the 9 months. This on the revenue side. The other pleasing news of this period is that the revenue increase is achieved with the increase of revenues in higher margins bearing sales segments and products with an overall beneficial effect to consolidated gross margins and overall profitability. Growth in system sales was mainly generated by systems for anti-aging treatments in which the innovative content of both the technology and the application is bearing higher margin on sales for us compared to the main and slowly declining revenue stream of the hair removal devices. I'm talking at first place of the Onda product. The revisiting of our flagship body contouring device, Onda based on the microwaves technology, a revisiting that expanded the intended use of the device to anti-aging face treatments. Based on this, Onda Pro is experiencing a second use with respect to the original launch of Onda with amazing acceptance also in the most advanced markets for innovation in the aesthetic application, namely the Far East markets like the Korean market, which are extremely developed and sophisticated in selecting the most innovative and effective devices. But as our group does not rely on the peak performance of single product devices, Onda Pro was not alone in driving revenues toward the anti-aging demand. I'll give you just a couple more examples of other successful products and related procedures. Nano and picosecond devices like the Discovery Pico by Quanta System and the TORO by DEKA are innovation leaders in the pigmented lesion, skin toning area that is traditionally prominent for treating the signs of aging facial skins. CO2 microablative procedure cool peel performed by DEKA's Tetra PRO is now the golden standard for facial rejuvenation and is encountering increasing worldwide success starting from the U.S. market. Another significant contribution to the performance was provided by the surgical business, especially in the urological application, which are the treatment of stones. [Foreign Language] so another significant contribution to the performance was provided by the surgical business, especially in the urological application, which are the treatment of stones and BPH, the benign hyperplasia of the prostate, a business that within the group is mainly pursued by the market leader, Quanta System, but also by Elexxion Surgical, the brand managed by our German sub, Asclepion. Revenue for laser systems in urology was up roughly 7.5% in the 9 months. The side business of consumable sterile optical fiber was also growing smoothly along with the increasing installed base and it now accounts for more than half of our post-sales revenues of the medical business. which means roughly EUR 10 million per quarter or 10% of the overall revenues of our medical business. Moreover, this piece of revenues is bearing gross margins that are in the upper segment of our products margin mix. And since operation expense in terms of sales and marketing and labor is less intensive than for system sales, the accretive impact on EBIT and EBIT margins is also significant as testified by the profitability of Quanta System that is the main factor in this business for us. In terms of expenses involved in this business, there is CapEx going on and coming up in Quanta System as Quanta System is starting the construction of a new larger semi-robotized clean room at Samarate facility dedicated to the production of sterile optical fibers to increase its production capacity for its medical devices. EBIT margin for the industrial division, I am providing you an -- excuse me, for the medical division, I'm providing you an unaudited figure is improving in 2024, 2025 on 2024 and was roughly 16.9% on the 9 months and around 19% in the third quarter. We were not able to achieve similar results for our industrial business. The only activity bearing margin similar to the medical business is the identification marking activity led by Lasit, which continues to perform well both in revenues and in profitability. The other businesses within our industrial world have not performed according to expectation, the expectation we had in our yearly planning, missing the revenue targets and therefore, lacking also in terms of profit generation. The most dimensionally significant business is the cutting business, which despite expectation and decent order bookings has been slowing down both in revenues and in profits in each quarter this year. Since order bookings came quite late in the year and delivery lead times for our sophisticated and often custom design systems are not easily compressible, as of September 30, we incurred in a major sales cutoff, meaning the inability to recognize revenues for several systems that had been physically delivered to customers but had not cleared the final testing procedure within the end of the month. To give you an idea of this adjustment, which, to a certain extent, physiologically always takes place at the end of each quarter, we're talking at the end of September of almost EUR 8 million versus less than EUR 1 million at the end of June. EUR 7 million worth 22% on the quarterly business revenue and 7% on the year-to-date revenues as of September. I am not stating that without this adjustment, everything would have been okay in this business segment as the market is very competitive, and we need a great effort to maintain our competitive position and win our sales. But of course, it would have looked different under several profiles. In fact, we are continuing to invest in what we feel is strategically meaningful for the market positioning of Cutlite in the sheet metal laser business, which can be summarized in 3 CapEx -- in 3 points that lead to CapEx or profit and loss outflows in 2025. The purchase of a plant to expand the versatile production capacity of Cutlite Penta that we closed in the first quarter of 2025. The P&L expenses involved in the launch of the European sales subsidiaries in order to get closer to the customers in the countries of Spain, Germany and Poland. The profit and loss expenses involved in the managing of Nexam, the company dedicated to automation system complementary to our laser cutting system, an addition to the product range that is highly strategical for the product offering, but that for the time being, is far from being EBIT accretive, though improving its EBIT result in the third quarter. For what concerns the other smaller businesses in the industrial world, the laser marking system for special application and for large surfaces provided by Ot-Las and also by the industrial division of El.En. very often in combined supplies with the mid-power CO2 laser sources in these businesses, the performance continued to be weak. We are identifying new application niches to recover in a year that has been hit by the negative cycle of the fashion world customers and also hit by the down trimming of the expectation in the motors for electrical vehicle segment. Cash generation has been outstanding in the quarter as we benefited from the onetime cash inflow stemming from the sale of the majority stake in Penta Laser Zhejiang, which on the net financial position was worth already factoring in the possible future price adjustments, roughly EUR 26.4 million. As I mentioned before, had we closed before, I mean, in previous conference calls we held, had we closed the deal 3 months earlier, the foreign exchange level with the Chinese yuan would have been much more favorable as it quickly deteriorated by 10% around and after the Liberation Day. Cash flows from operations amounted to roughly EUR 20 million, contributing to the EUR 47 million quarterly increase of the net financial position. Under this profile, it is worth to mention that the quarter highlighted a slight decrease in the overall net working capital and accounted for roughly EUR 3 million in capital expenditure that were offset in the effect on the net financial position by the release of EUR 3 million of long-term cash investment that cannot show up in the net financial position. By the way, the balance of such investments that are not accounted for within the net financial position since they are long-term assets was around EUR 11 million at the end of the third quarter of 2025. I give the floor to Enrico, and I will be back with more general remarks after his section. Enrico Romagnoli: Thank you, Andrea. Good morning, everybody. As usual, I'm going to comment the financials we released last week. As for the year-end and for the half yearly report, the quarterly report has been prepared in accordance with IFRS accounting standards, excluding the consolidation line-by-line of Chinese activities, both in 2025 and in 2024 due to the negotiation for the sale of the division in accordance with IFRS 5. The majority stake of the Chinese companies was sold on July 15. So since July 2025, Penta Laser Zhejiang is consolidated with the equity method for the residual stake of 19.3%. In the first 9 months 2025, the group recorded consolidated revenue for EUR 422 million, up 3.9% compared to the EUR 406 million and the medical sector up over 4.6% when the industrial up 1.9%. The gross margin was EUR 188.3 million, up 6.5% compared to the EUR 177 million of September 2024, with an impact on revenue of 44.6% improving the profitability of 1% compared with last year. It should be noted that in 2024, the group recorded proceeds for insurance and government reimbursement relating to the damages of the flood of November 2023 for an amount of EUR 1.9 million, 0.5% of the revenue. In 2025, Asclepion accounted EUR 1.3 million of R&D grants, 0.3 percentage point on the revenue. So excluding both of this nonrecurring income, the impact of gross margin on sales would have improved more than 1% in 2025, attributable to an improvement in the sales mix. Operating expenses increased in value and an impact on sales, mainly in G&A, R&D and IT costs and sales and marketing activities. Staff costs increased due to an increase in headcounts and in salaries. EBITDA positive at EUR 65.6 million. The result is in line with last year, even though the EBITDA margin in 2025 slightly decreased from 16.2% to 15.6%. Depreciation, amortization and provision amounted to EUR 10.6 million in 2025 compared to EUR 9 million in 2024. The main reason of the increase was the reversal of the provision for risk and charges in 2024 for EUR 1.6 million due to some legal disputes that were resolved more favorably than expected. Net of this amount, the overall cost aggregate is in line with the previous year. EBIT for the first 9 months was EUR 55 million compared to the EUR 56.9 million for the first 9 months of 2024. The margin on revenue was 13%, down from the 14% with a decrease over last year of 3.3%, having the delay registered on June. Financial Management recorded a loss of EUR 1.8 million. In the first 9 months, the interest income generated by liquidity was EUR 2.8 million, while the interest expenses on debt was EUR 1.3 million. Exchange rate difference has a strongly negative balance equal to EUR 2.4 million. But in addition, we have a onetime exchange rate loss recorded -- already recorded in Q1 for EUR 908,000 following the release of the currency conversion reserve resulting from the sale of the majority of with us. The contribution of associated company is negative for EUR 1 million, mainly due with us, minus EUR 0.5 million and Penta Laser Zhejiang, minus EUR 0.6 million. In other income last year was accounted the onetime income of EUR 5 million due to the write-off of liabilities related to the earn-out to pay to former minority Chinese shareholders in case of IPO of Penta Laser Zhejiang. So at the end, income before taxes showed a positive balance of EUR 52.2 million, lower than EUR 61.2 million at the end of September 2024. In the third quarter, as already mentioned by Andrea, the group had a strong performance and recording growth in both revenue and above all, operating profit, plus 3.8% versus Q3 2024 with a strong recovery compared to June when the delay in terms of EBIT compared to the first 6 months of 2024 was 7%. In the third quarter, the main segment that performed better than last year were aesthetic in medical sector and marking in the industrial sector. Looking into the cash flow, the group net financial position on September 2025 was positive for EUR 137 million, an increase by EUR 47.4 million in the third quarter from the EUR 90 million at the end of June 2025. In the 9 months, the increase was EUR 26.8 million, thanks to the cash flow generated by current activities and the proceeds received for the sale of the majority stake in Penta Laser Zhejiang for a net amount of EUR 26.4 million. The main reduction incurred in the period are dividend paid for EUR 19 million in Q2, CapEx for the 9 months of EUR 13 million, increase in net working capital of EUR 20 million. Furthermore, the group invested the liquidity in insurance policy, mid- long-term investment accounted in noncurrent assets. So we have additional liquidity of EUR 10.7 million on September 30. What concerns the revenue breakdown by business in the medical sector, system sales showed strong growth in all major segments. In the aesthetics segment, plus 4%, the very favorable trend for anti-aging and body contour application continued. Among surgical applications, plus 8%, urology, ENT and gynecology system continued to record significant growth in sales. Asa's performance in physiotherapy, plus 5% was also very satisfactory, thanks to the significant innovation in the range of products offered, a more effective coverage of international market, together with the relaunch of sales in Italy. Sales of consumable and aftersales service remained very satisfactory, driven by the sales of optical fiber for surgical application, more than 50% of the sale of the segment, which kept service revenue growth to 4% despite the loss for service contract revenue from the Japanese company with us, whose majority stake was sold in February 2025. In the industrial sector, the cutting segment, which no longer includes Chinese companies, maintained growth of 2%, thanks to the excellent sales result of the Brazilian subsidiaries, plus EUR 4 million of revenue in the first 9 months. Lasit also performed well in the market segment with the increased weight of its subsidiaries. In the Q3, we had a significant recovery in sales in the segment of large footwear marking application where Ot-Las operates. In the Laser sources segment, the slowdown was more evident and was primarily due to decline in revenues from system integrators for fashion application and electric motor windings. Sales for Industrial Service returned to show an increase of 6% as expected due to the progressive increase in the installed base. Geographically, the most positive note came from the Italian market with an extraordinary growth of 27% in medical. In the industrial sector, Italian turnover also recovered in the quarter, up 6% in the 9 months, thanks to the increased confidence among manufacturing market operators, supported by the return of tax policies to support investment. The performance in European market was very satisfactory, particularly in the German medical and professional aesthetics beauty sector and in the industrial sector, thanks to the progressive consolidation of the sales subsidiaries activities, particularly by Lasit. The negative sign appearing on sales in the rest of the world has different determinants depending on the sector. What concerns the medical, Andrea already mentioned the inorganic operation that affected the sector. The result is a good result because it was achieved net of the exit of Withus in February and the loss of the supplies to Cynosure due to the M&A that brought it closer to Lutronic. Net of this departure, turnover, therefore, increased significantly. The situation is completely different in the industrial sector, where our order intake in the American market, the most significant in the rest of the world was negatively impacted in the first month of the year by the image projected on the market by the potential acquisition by a Chinese entity. Andrea, please go ahead for what concern the guidance. Andrea Cangioli: Okay. In closing my prepared remarks, I would like to touch 3 more topics. The role of the industrial division, especially of the cutting division within the group, the use of our cash and finally, the 2025 guidance. As the performance of the industrial division markedly of the cutting division is weaker than the one of the rest of the group, I would like to share with you the strategy short term and midterm of the group with respect of this business area. We are very proud of the results and the dimensions achieved by our cutting business unit, but we are also aware -- but we are also aware that its business, especially after the CO2 laser sources have been ruled out of cutting by the fiber laser sources technology is not fully consistent anymore with the other businesses of the group. There is no market correlation and the technological correlation is very limited as well. Therefore, we are convinced that the Cutlite's Penta organization, people and business would benefit of strategically cooperating with organizations that are more consistent to Cutlite's business. Along this path, we moved towards a transaction that would have placed Cutlite within a larger organization, developing a specific growth strategy for Cutlite. I'm talking of the sale -- potential sales to the Chinese end. But when we were faced by the material risk under the new organization, that one of the most promising businesses of Cutlite, the U.S. business, was bearing the risk of being completely jeopardized, we decided that for protecting the organization itself, we would have not sold Cynosure -- Cutlite anymore. So the short-term strategy now that Cutlite is still within our consolidation perimeter is to manage the potential of Cutlite and to continue to invest in what we feel is needed for Cutlite to flourish. The longer-term strategy is to resume and pursue the design of finding a strategic partnership for Cutlite a partnership that would enhance its peculiarities, capabilities and potential, giving the best opportunity to Cutlite's organization to continue to flourish or better to improve its opportunities and chances to flourish on its market that are quite competitive. What is evident from our reporting is the amount of investment involved in supporting Cutlite's strategy. What we can additionally tell you about the larger picture isn't much at all for the moment, but we will update you as soon as we will have something meaningful to report. For what concerns the businesses of Lasit, Ot-Las and industrial division of the mother company, El.En., we are planning to continue to pursue such businesses within the group. Now the quite wide cash position we are holding today, which is beyond the ordinary operational needs of our companies, also considering potential expensive investment activities like the one I mentioned for the fiber optical -- sterile optical fibres manufacturing plant. As usual, capital expenditure and operational needs for our operations are first in the list for us as we believe that interesting growth rates can be achieved by further improving the operational performance of our own business units. In order to enhance our growth rate, especially in terms of profits, we are investigating a set of small M&A opportunities that could be accretive to the development of the business units involved, especially in the medical sector but also in the industrial sector, as we mentioned before. We could be closing soon one or more small deals across -- along this path. More complex deals that could fall under the label of transformational are now being more closely considered, though there is nothing for the time being to report about. The Board of Directors has not yet resolved about any onetime cash distribution to the shareholders in any form. Therefore, I'm not in the position to elaborate any comment about. Finally, the guidance. I can keep it simple here. We are targeting and planning to beat 2024, both in the revenues and in EBIT. As you know, we are on schedule for the revenue target. We are just a little bit behind for what concerns the EBIT target, but we are recovering and confident to be able to hit the EUR 23 million figure in EBIT in the fourth quarter of 2025. Thank you for your patience, and I believe we are ready for your questions. Bianca Fersini Mastelloni: Andrea, the first question in our list comes from Giovanni Selvetti of Berenberg. Giovanni Selvetti: Can you hear me well? Andrea Cangioli: Yes. Giovanni Selvetti: Well, I had two, but then let's just say that the final remarks added a few extra questions, but maybe I'll jump in the queue and ask more after. These are two regarding the medical division. The first one is on Asclepion that based on the press release seems to be doing much better in Q3. And as far as I remember, Asclepion was also mainly involved in hair removal, which was the area that was struggling the most. So I was wondering what's changed exactly also because if I can remember, in the first half, the cost of personnel was going up also in relation to Asclepion. The second one is about Quanta. If I look at your press release, you're saying that now optical fibers account for more than 50% of medical services. So if we assume, let's just say, a figure around 35%, that is, let's just say, more than 50%. If we had to double this capacity, do you see already demand to fill it? Or how much should we think before the excess capacity gets filled? And maybe the last one is on the Lasit, let's just say, part of the business that, again, based on what you're saying, we are talking about margins based on what the press release say strongly above last year. So I was wondering what kind of margins Lasit is now running at? Andrea Cangioli: Okay. So starting from Asclepion. Yes, there was a recovery. Yes, the recovery was also tied to a better performance in the hair removal in the third quarter. So I mean, this is a good line considering the hair removal segment. And yes, the impact of the cost of staff in Asclepion is quite significant. It was increasing a lot in the second -- in the first half. Since the result for the third half was extremely good in terms of revenues. Now the difference of the impact of staff cost between Asclepion and the rest of the group is smaller. Most important and what actually made turnaround in the quarter, the business of Asclepion is the increase in revenue, which is due to aesthetics, but also to its surgical line, which is performing very, very well. Quanta System and Fibers, we -- as of today, we do not feel we are limited or materially limited in the deliveries of fibers by our production capacity. But we feel that given the rhythm of new installation and of the absorption by the market of our optical fibers, we needed to expand the capacity in order not to incur in a sales limitation due to capacity in the future. So we are progressively increasing the volumes, and we are placing this very large investment in order to improve the production capacity, but we don't have an impellent need. It's, I mean, a strategic programming that will allow us to continue to increase the stream of revenue over the time smoothly. Finally, your third question was about Lasit. Lasit actually is improving. It's not improving its sales volume over the 9 months, especially due to a slow behavior of the Italian market, while we are doing very well, especially in Europe, where the subsidiary that Lasit set up on the territory are now starting to be really accretive to the business. I recall we have subsidiaries in Poland, the oldest one, in Spain, Germany, U.K. and France, the last one. So we have 5 subsidiaries. And quarter after quarter, they are becoming accretive to revenues and especially to profitability. In terms of profitability, we had an EBIT margin just shy of 8% after the first 9 months of 2024. After the first 9 months of 2025, we are exceeding 11% as EBIT margins. Those are unaudited financial results referring to the consolidated financial results of Lasit and its subsidiaries. Giovanni Selvetti: I'll jump in the queue and then I have some questions. Bianca Fersini Mastelloni: The second question comes from Andrea Bonfa of Banca Akros. Andrea Bonfa: I hope you can hear me. Very quickly, I mean, connecting to your last statement on M&A, potential M&A. So if I understood correctly, transformational deal are -- might be considered but unlikely for the time being, but some bolt-on acquisitions are definitely more possible. Is that possible for you to comment on which sector niches, technologies are you looking for? Andrea Cangioli: No. Andrea Bonfa: Or in which geographies eventually? Andrea Cangioli: I'm sorry, I said all I can say. Andrea Bonfa: Okay. Okay. Andrea Cangioli: It's nothing -- the answer wouldn't change. I mean we are -- we have several things on our pipeline related, as I said, both to medical and to industrial and they are both on the European territory and in the rest of the world. But I mean, in answering by this means, I don't -- I cannot give you any more detail. It wouldn't be fair. I can only tell you that we are examining several situations. Andrea Bonfa: Okay. And if I may, as far as the industrial business is concerned, I mean, within now, let's say, the recent input that you just mentioned, is the U.S. still a potential important market or now with the duties and your, let's say, smaller size is less so. And the third one is on the U.S. duties. How is the trading environment in U.S. now with this new duties environment, if it's possible? Also in relative terms because, I mean, maybe there are other countries now less competitive than Europe. Andrea Cangioli: First of all, the U.S. market for our industrial cutting systems is still very interesting and still the main market -- international market for our systems. We have suffered, as Enrico said explicitly and as I confirm, the image that was projected during the negotiation with the YOFC for the sale of the company. And we spent quite a lot of time in convincing our U.S. customers that we were not becoming Chinese. And also after the deal that was going to have Cutlite Penta fall under Chinese control was canceled. Still, we have our hard time in discussing with our U.S. partners and I mean, partners because we have distribution partners and making them fully comfortable that we will be able to provide them on the midterm, a sound and price attractive and technologically attractive Italian-made product. This is -- by the way, they are visiting us on Wednesday in order to clarify again this situation because based on this, we have had some sort of fluctuation in order bookings from the United States, notwithstanding our efforts, which include a massive deployment of technical service people in order to serve at top quality with top quality our systems installed in the United States and also a strong investment in terms of fares. We participated to the FABTECH, which is one of the most expensive fairs that you can approach on the industrial systems market. And so after this long speech, I would say that, yes, the U.S. market, it's still an opportunity. It's still an important opportunity. And it's not an issue of duties. Duties are impacting us in the industrial sector, but it's not duties that today caused a slowdown in sales to the United States in the industrial business. For what concerns the duty question on the medical system, of course, duties are there. They are quite impacted. But we have seen increasing interest in the last months from our U.S. customers in our products. This speaks about the fact that even though each and every of our customers in the United States will try to negotiate a deal in order to have us participate to the "undue extra cost driven by duties. " They are still looking for us because we are able to provide them the innovative content of products that allows them to make margin, notwithstanding the extra cost. And so basically, in this moment, we are -- I mean, at least for the first 10 months of the year, we are very pleased with what we have done in terms of revenues and what we have done also in terms of order bookings. Then, of course, -- we will have to see how the hot seasons on the U.S. market, which is the month of December, will roll out for our distributors to have a final judgment on the total effect of duties on our U.S. business. But so far, we have -- we can notice an overall positive reaction of the U.S. market on the duty situation. Bianca Fersini Mastelloni: Next question comes from Carlo Maritano of Intermonte. Carlo Maritano: Can you hear me? Andrea Cangioli: Yes. Carlo Maritano: I just have a couple of questions. The first one is on the European performance in the industrial cutting business in the third quarter. I see that there is a decline compared to last year. I was wondering if it is related to the EUR 9 million of revenue that shifted from the third quarter to the fourth quarter. And the second one is again on the industrial business, in this case, on Italy. So recently, the government changed again the incentives related to [indiscernible]. So I was wondering if you expect any kind of impact on your clients from this change or if the order book remains healthy and that you do not expect any kind of disruption. Andrea Cangioli: Thank you for these two questions. About the first one, the decline in the European revenues in industrial, you see it in the third quarter. It's something which is, let's say, local. It's not related to the cutoff, which is mainly an Italian issue. It's mainly an Italian issue because we don't -- it's tied to the means of delivery we have in Italy. And what we could say, it has been driven by a softer activity in Europe and by the slower activity of the subsidiaries, we should be able to overcome the situation over the rest of the year. For what concern the Italian laws, the Italian, I mean, funding situation, I didn't want to go in this detail. But of course, we are examining the effects of the cutoff that the Italian government put on Industry 5.0, and this might have some effect. I'm not able to quantify. It shouldn't be determinant, but it could be material. The good news is that it looks like that the new law for 2026 could be interesting for the investors. And so we might suffer a marginal correction. I mean, we have an order book, a book of orders, but some of them may not convert in sales due to the change in the approach by the Italian government as the monies for Industry 5.0 is finished, but we should be supported, hopefully, without the hesitation that took place in 2025, also in 2026 for a certain level of investments. Bianca Fersini Mastelloni: Andrea, we have one more question from Emmanuel De Figueiredo. I will read for him for problem of connection. The question is, why was medical so strong in Italy versus other markets? Andrea Cangioli: Of course, this stands out. It stands out. And because we did extremely well and because I believe we performed exceptionally well in the distribution of DEKA Renaissance in Italy, which is going to hit a record target, a record amount. We also had some sales in the professional beauty that increased its volume smoothly, and we are still experiencing very, very strong demand. Why is this happening? I believe the team that we have in Italy now provides to our end customers an unparalleled level of services. We have, I believe, 8 product managers, which are traveling all the time around Italy if they are not stable in a region because, of course, the main regions have product specialists, which are always providing support to our customers. So we not only, as we mentioned before, limit our activity in providing the laser box to our customers, but we are providing continuous training. We are providing very, very -- I wouldn't say cheap, but affordable service in order for them to take the maximum benefit of the lasers that we have sold them. And so since they are happy, since they make money with our lasers, they come back and buy. This 2025 is going to be a record year for Italy. And this is the only explanation I have on this point. Bianca Fersini Mastelloni: Thank you, Andrea. We have one more question from Andrea Bonfa of Banca Akros. Andrea Bonfa: Andrea, very quickly, in the numbers that you provided at the beginning of the conference call, the like-for-like figure, 7.9% without Cynosure and more than 10% without -- sorry, 7.9% without the Japanese subsidiary and over 10% without Cynosure is related to the medical division only or to the group. Andrea Cangioli: Medical division. What I was saying is that we are hitting in stable situation, the 10% revenue increase target after 9 months. This was the message I wanted to -- for the medical business. This is the message I wanted to give with these comments. Bianca Fersini Mastelloni: And we have no more questions registered in this moment. I would like... Andrea Cangioli: Giovanni Selvetti has said he wanted to ask more questions. Maybe we answered already, but I don't know. He said he wanted to. Bianca Fersini Mastelloni: yes, Giovanni. Go on. Giovanni Selvetti: Part of it was already answered, yes. I mean let's just put it this way. I don't want to ask too much information on M&A, right, also because you cannot give much. But it was more about whether the companies are more, let's just say, technological company that will add technology or company with actual sales, right? It's more about whether you're investing in technology or in market share. But I'm not sure if you can answer that. So... Andrea Cangioli: It's -- we have everything in our basket. So in our potential basket, there's something of any flavor. So you've got both. I don't know what and if we will close. Again, don't have too wide expectation on this. We're talking of small transaction, but we have both technological and sales solutions and sales opportunities. Bianca Fersini Mastelloni: Then at this time, we have no more questions. I would like to ask once again, if there are any further questions from investors still connected. No more questions. Then ladies and gentlemen, the conference is now over. If you have any inquiries in the future, please do not hesitate to contact Enrico Romagnoli, who will be happy to assist you. Thank you for attending this conference, for your participation, and we hope to have you all again next time. Goodbye, everybody. Andrea Cangioli: Bye-bye. Thank you, Bianca. Thank you everyone.
Operator: Good morning, ladies and gentlemen, and welcome to the Elite Pharmaceuticals Second Quarter of Fiscal Year 2026 Conference Call. [Operator Instructions] Before management begins speaking, the conference has the following statement. Elite would like to remind the listeners that remarks made during this call may contain forward-looking statements that involve risks and uncertainties that are subject to change at any time, including, but not limited to, statement about Elite's expectations regarding forward operating results. Forward-looking statements are made pursuant to the safe harbor provisions of the federal securities laws and represent management's current expectations. Actual results may differ materially. Elite disclaims any obligation to update or revise its forward-looking statements, except as required by law. More complete information regarding forward-looking statements, risks and uncertainties can be found in the reports Elite files with the SEC, which is available on Elite's website at elitepharma.com under the Investor Relations section. Elite encourages you to review these documents carefully. With that covered, it is now my pleasure to turn the floor over to your host, Mr. Nasrat Hakim, President and Chief Executive Officer of Elite Pharmaceuticals. Sir, the floor is yours. Nasrat Hakim: Thank you, Matthew, and good morning, ladies and gentlemen, and thank you for joining us today. My name is Nasrat Hakim. I am Elite's Chairman and CEO, and this is our earnings call. Our CFO, Carter Ward, will give you a summary of the company's financials, after which I'll give you an update and answer some of the questions you've submitted to Dianne. Carter, you are on. Carter Ward: Thank you, Nasrat, and good morning, everybody. We filed our 10-Q last Friday. It was for the quarter ended September 30, 2025. That is the second quarter of our fiscal year ending March 31, 2026. And the 10-Q is available. If you haven't seen it yet, it's available at elitepharma.com under our Investor Relations section. So please take a look if you haven't already done so. As always, I'm going to go over the financials, provide some context, some color to the financial statements, and we received a bunch of questions since Friday over the weekend. Thank you very much for sending those questions. I always appreciate that as well. So I'll do my best to answer those questions as I go through my presentation. Let me start with the P&L. Our total revenues for the quarter September 2025 quarter was $36.3 million, and that's compared to $18.8 million for the September 2024 quarter. That's a $17.5 million or 92% increase. And then total revenues for the 6 months ended September 2025 were $76.5 million. You can compare that to $37.7 million for the 6 months ended September 2024. That's a $38.8 million increase or 103% increase. So the revenue rate has more than doubled over last year. Also note that our revenues for the entire fiscal year -- entire last fiscal year 2025 were $84 million. So in the first 6 months of this fiscal year, we are almost as much as the full 12 months of last year. And last year was a good year. Last year actually was our best ever. So I think pretty soon, I'll be saying that last year was our second best ever year. The increase is attributed to 2 main factors. These are the same factors that I mentioned in our last call back in August. First, the Elite label has become well established in our niche markets. The 2024 fiscal year, we're in 2026 fiscal year. The 2024 fiscal year is when we launched our Elite label, we were unknown then. That initial launch included our generic Adderall and a few other products. Now we've been in the market for those products for 2.5 years. We're a known entity. The product lines from that initial launch, they have a secure and growing market share and revenue streams. So Elite continues to distinguish ourselves as a reliable supplier of quality product. That's one of the -- that's contributed to our growth in revenues. The second main factor is the Lisdexamfetamine product line. That's Lisdexamfetamine is generic to Vyvanse. It's a very large market with high demand. That was not part of the initial launch from 2 years ago. And it was also not launched until the last quarter of last fiscal year. So that's earlier this year, March 2025 quarter, earlier this calendar year. So that's why Lisdex is not reflected in year-on-year numbers. September is the second quarter of our fiscal year. Lisdex wasn't launched until the middle of the fourth quarter of the last year. So this September quarter is only the third quarter of substantial commercial operations. So keep that in mind when comparing September '25 with September '24. 2025 has Lisdex, 2024 does not. So that's a big difference, a huge difference. Moving down the P&L, we had a gross profit of $14.1 million, compare that to $8.2 million for the September 2024 quarter. That's $5 million or 72% increase. Gross profit for the 6 months ended September of 2025 this year was $41.3 million. You can compare that to $16.7 million for the 6 months ended last September 2024. It's a $24.6 million increase or 148%, well more than double. So now I received a few questions on revenues, margins, quota and direct versus indirect sales. So I'll address all of those here because they're all very much related. So a few shareholders noticed that revenues were down from the June quarter, and they wanted to know if it was quota related. Well, the short answer is whenever you're selling controlled substances like generic Vyvanse and generic Adderall quota is always a factor, although what I'm going to say is probably not what the shareholder had in mind when he was saying the question. So -- but with regards to the September quarter, as compared to the June quarter, we've noticed an increase in quota for generic Vyvanse, which served to increase supply in the market. We also got quota. Result was that we increased our volumes, but we sold at lower prices as compared to prior periods. I mentioned this a few times in our last call in August, there's more than 10 suppliers that we compete with for generic Vyvanse and that creates downward pressure on prices. Whenever you increase supply, there's a downward pressure on your prices. This is typical generic business model with higher prices at first and they eventually stabilize. And that's what's happened with the generic Adderall, which we've been selling for years, and a similar track is being followed by the generic Vyvanse, which is still a relatively new product for us. We've seen stabilized price levels for quite a while now, but generic pharma is a very competitive business. So don't ever forget that. We don't. With regards to direct and indirect sales, let me first explain the difference between them. First of all, direct sales or when we sell directly to a pharmaceutical chain and that customer handles the complex supply chain logistics, ensuring that their retail locations are properly stocked. The logistics are complex. There is a high infrastructure investment that's required by the customer. Few customers do this, makes sense for them, but many do not. Indirect sales are when we sell to a customer, but this complex supply chain is handled by a third-party wholesaler such as the big 3, we call it Cardinal, McKesson or Cencora, everybody knows those names. The wholesaler has the infrastructure and the expertise to handle these complex and sophisticated supply chain requirements. quite a bit of investment is required to do that. And there's much greater volume and market share available through the indirect sales model, but at lower margins since the wholesaler, they charge for their services. So the takeaway here is that in order to achieve larger market share within a more stable and reliable business model, you will almost always end up with an indirect sales bias in your revenue streams. The customer wants not just a reliable supplier, which Elite is, we are definitely that, but they also have a complex supply chain that requires the resources and expertise of these large third-party wholesalers. So this is just how the generic market works in the U.S. And also, when you first stock up a new product with a wholesaler, like we did with Lisdex this quarter, there's onetime stocking fees that they charge you. And that results in higher COGS, cost of sales and lower margins. So that happened with Lisdex, and it is also a contributing factor to the lower margins as compared to the prior quarter, but those are onetime stocking fees. So we're past that now. Moving down the P&L. Our operating profits for the quarter ended September 30, 2025, were $8.2 million. You compare that to $4.7 million for the September 2024 quarter. It's a $4.7 million or 136% increase. The operating profits for the 6 months ended September of this year were $29.9 million, and you can compare that to $7.3 million for the 6 months ended September 30, 2024. Last year, that's a $22.5 million or 307% increase, both very substantial. Now to the cash flow statement. Operating cash flow for the 6 months ended September of 2025 this year was $19.9 million as compared to operating cash flow of $4.6 million for the 6 months ended last year, September 2024. That's a $15.3 million increase, 333% increase in operating cash flow. On to the balance sheet, which continues to strengthen. Working capital as of September 30 this year was $75 million. You can compare that to $46 million as of the beginning of this fiscal year, March 2025. That's a $29 million or 63% increase. I always like to drill a little further into the working capital, and you see the current assets increased from $58 million to $86 million, while current liabilities decreased from $11.8 million to $10.7 million. So current assets continue to increase with current liabilities decreasing. Assets gone up $28 million. liabilities have dropped by $1 million. This is not something we see that often, and it's happened several quarters in a row for us now. It's a very positive trend. But just know that liabilities can't decrease forever as you grow, just your accounts payable and things like that also grow. That's just how it works. So eventually, liability is going to hit some -- it's going to hit a floor at some point in time as we continue to grow. So they'll hit a floor as far as dollar value and go up in dollar value. But the thing to keep in mind, what's most important is the ratio between the assets and the liabilities. So as long as the growth in the current assets is greater than the growth in the current liabilities, that's what we want to see happen. That's the trend that's been always happening, and we expect that to continue, and our balance sheet will strengthen as that continues. The reduction in liabilities is not just limited to current liabilities. When I talk about working capital, I'm just talking about current liabilities, but we also have noncurrent liabilities. They are also reducing. So if you exclude the derivatives, the noncurrent liabilities were $5.2 million in September of this year. You can compare that to $5.6 million in June of 2025 and $5.8 million at March of 2025, beginning of the fiscal year. So we went from $5.8 million down to $5.2 million. The takeaway here is that Elite has low debt. And it's not just low debt, it's debt that continues to decrease while working capital increases. Both of these are hallmarks of a strong balance sheet, and we certainly have that. I got a few more questions over the weekend. going to add to my presentation here, and I'll like to address now. One of the questions was, please explain why the R&D expenses have declined. They were $1.4 million this year, September 25 for the quarter versus $2 million for the September 2024 quarter. Just know that R&D costs, they don't flow in a straight line, and they really depend on what we're doing at any point in time. Last year, 2024, we were in the final stages of getting the Lisdexamfetamine approval. There were more resources expended, more activities going on last year as compared to the most recent quarter, and we see how well that worked out when we launched the Lisdexamfetamine in January of 2025. So really, we're just talking about a timing difference here. R&D continues as always. It's just something that it's not a flat line type of expense. Some quarters will be more than others, especially when we are in the final stages of approval for a major product. Another question was discuss the increase in G&A, general and administrative costs. The G&A cost for September of this year -- this quarter, September 2025 was $4 million and against $2.3 million for September 2024. G&A cost for last quarter, the June 2025 quarter was also $3.4 million. So this quarter, we're even more than the June quarter. So the answer lies in 2 areas. First, sales administration and secondly, compliance. or let me talk about sales administration. With a business that has more than doubled in size, the back-end side of the business has become not just larger, but more complex. We're processing more purchase orders, more shipments, returns, collections, managing quotas, forecasts, et cetera, all of those types of back-end activities. That requires increased resources, both in-house and third party. We have third-party people that help us as well in this area, and that has costs. On the compliance side, rapid growth of Elite also creates complexities that require increased resources, and this is part of the G&A cost. We have registrations in all 50 states in Puerto Rico in order to do business there. And many, many of those states also require separate tax filings. So we have to comply with that as well. That takes consultants and in-house and third-party resources. We have to hire people in-house, plus there's a lot of consultants and subject matter experts in those areas, which are quite specific and specialized. And so the cost of compliance has risen with the size of the business. Another question is, what is the current headcount at Elite? Well, we have 65 employees currently. It's really amazing though, when you look at our results and our performance, having only 65 employees is quite remarkable. Last question. Inventory has fallen since last quarter. Does that signal a decrease in future demand? Very good question. The inventory was $19.4 million on June of this year, 2025. It's down $18.2 million in September 2025. That's a $1.2 million decrease. There is no signal here. This is more really just some timing differences. We have an arbitrary cutoff date, September 30. There are shipments that may have just been delivered to customers at that date, and we have a bunch of raw materials that are on the way, but not yet received. So the inventory goes down on the finished goods and the inventory not yet coming up on the raw material side of things, it's all just business as usual. It's really the ebbs and flows, nothing other than timing at the quarter date and no real signal there. So to sum up the financials, we had strong revenues, more than $36 million for the quarter. We have 6 months revenue of $76 million. Elite continues to perform well in the market. Margins are down due to generic market competition, but the balance sheet is strengthening. Cash flow is solid. Working capital is increasing and debt is decreasing. A really good trends and metrics. So halfway through our 2026 fiscal year, we are well on our pace for our best year ever. Our next quarterly report is due in February 2026, and I look forward to speaking with everybody then. Now I'd like to introduce our Chairman and CEO, Mr. Nasrat Hakim. Nasrat Hakim: Thank you, Carter. It was another good quarter for Elite. Generic Vyvanse, generic Adderall, both IR and ER and Elite's new product launches all contributed to Elite's substantial growth compared to the previous year. Lisdexamfetamine, which is generic Vyvanse, a central nervous system stimulus used for the treatment of ADHD was launched early this year. And we have maintained an 8% market share according to our internal data. IQVIA have not caught up yet with our internal sales and marketing. We are at about 8% market shares. Lisdex is a big reason for why positive quarter and the previous quarter comparing to the previous quarter of the same year are so far apart. Last year, we would not have Lisdex and this year, we do. And that is an testament to our continuous growth. Comparing this quarter's sales of Lisdex to the previous quarter, we picked up volume as the market volume grew and the brand to generic conversion continues. And I could see that trend still goes on for a little while longer. Lisdex volume grew 6% this quarter compared to last quarter according to IQVIA. Price competition, though, did increase. And as Carter indicated, that's what led to the situation we're in. excellent financials, but doesn't compare to last quarter due to the factors that Carter just explained, and we talked about in the last actually meeting as well in August. When comparing our second quarter fiscal year to the most recent quarter, we see reduced revenues and profits from Lisdex. This is to be expected as we discussed. This is nothing to worry about. We expected this phenomenon. We expect this coming quarter to be as solid and things stabilize by now. For now, though, as I stated, the pricing for the next quarter should be steady, and we expect the generic market to continue to grow as the brand to generic conversion and as doctors start to prescribe it more because now it costs less as insurance companies start to accept it more. IQVIA shows Elite a market share of amphetamine IR averaging 19%. Compared to last quarter, actually, Elite even grew our volume of sales, maintaining very attractive margins. So in IR, we're a very small company compared to the competition, but we command 19% of amphetamine IR. For amphetamine ER, our market share is about 12% according to IQVIA. Elite target continues to have attractive margins. We're not selling at any prices. Kirko is looking for attractive margins and selling exclusively under our Elite label. Isladepine and trimipramine are smaller market, but each with only one other competitor. Each has a strong market share percentage-wise, and these products have high margins. Loxapine and phendimetrazine are also small markets with 2 competitors and good margins. For phendimetrazine, we command 30% of the market share. Naltrexone and phentermine are now being sold exclusively under the Elite label. Precision dose license for those products ended in September. Phentermine and naltrexone markets both have competitors that command about 90% of this market. We will target building sales under the Elite label for both, and we're doing very well already for naltrexone very well. Elite recently launched Oxy/APAP, Percocet, Hydro-APAP, NORCO, generic APAP with Codeine and Methotrexate. Each market has 2 to 4 primary competitors. Elite currently has a minor but growing share for each of these products. We are not aggressively pursuing these because they are high volume and low-profit products, and we do not want to prioritize them over the 3 main products I just spoke about, Lisdex, Amphetamine IR, Amphetamine ER. So we're staying in the market. We're continuing to get shares that suits our manufacturing needs and sales and marketing needs. And when we have larger capacity, we can be more aggressive with these products. We have a couple of in-process launches. We received approval for Ropinirole ER that we plan to launch in Q2 most likely. We're going to prepare for the launch in Q1. We'll end up launching end of Q1, early Q2. In addition we have methadone, a generic product that's already approved that we are planning on launching once we can prioritize it accordingly. Our partner, Dexcel in Israel launched Amphetamine IR. There is only one other competitor in Israel, and we expect this to be an attractive market. Good potential for other business opportunities with them. In our development pipeline, we continue to progress. We have right now pending under review after FDA review, Oxy ER, which is the generic for OxyContin. This is a Paragraph IV filing, and the patent lawsuit is on a stay right now. We have submitted our answer. We are waiting for Purdue and the court what to do next. This is as far as Elite is concerned. We're not talking about the lawsuit that was just settled with the Sackler family for $7-plus billion and now the states most likely will own Purdue. We're talking about the lawsuit as a Paragraph IV for Elite filed product. We responded to the courts. We wait for to see what Purdue and the court want to do, and we'll update you accordingly. We previously announced a successful BE study for an undisclosed anticoagulant generic. We expect to submit an ANDA for this product most likely in Q1 of next year. The brand has an unexpired patent listed in the Orange Book. And so commercialization of this generic product requires that we address the and expired patent. We'll determine our approach for this patent closer to the time of filing. We will definitely have to notify them, of course. We have other generic products in the pipeline that we'll update you on and announce once a material event occurs. As Carter indicated and I said at every single conference call, R&D continues to be a priority. Regarding merger and acquisition and uplisting, Elite continues to actively pursue M&A and other alternatives such as uplisting. M&A is our primary focus. As I indicated before, I gave the team until the end of the year to show me that this is a viable option. Well, it is looking like it is. We have had a company unsolicited asked to visit the site. The President and the -- of the U.S. division and the Global Head of Manufacturing requested a site visit, we granted it. We accommodated them, and that is concluded. Our consultant presented us with a list of companies that they approach. Several showed interest in M&A with Elite. I expect at least one of them to visit this year. Our primary focus is M&A for the foreseeable future. I get a lot of questions about that. We are focused on M&A. If we determine that that's not working, we'll consider other alternatives. To sum it up, Elite is executing its strategy of developing and filing new ANDAs, growing sales, supporting working capital growth, maintaining a strong cash position and Elite's stock price reflects the company's growth. Elite maintains a strong reputation of a dependable supplier. And that's going to help us tremendously when we launch new products because they see and have seen what we can do with controlled substances. We never overpromised. We've always delivered, and we established credibility. So now everything else that we launch in the future, we have already established a good reputation for companies to be with us on it. Lisdex is expected to continue as a key product for Elite with attractive margins. Amphetamine IR is a mature market, and we expect to defend our strong market share. For Amphetamine ER, we are targeting additional volume while maintaining pricing as our previous partner, Presco phases out. They still have some product that they're still selling. Elite has a history of robust growth for several years in a row now. I'm not going to recite the numbers from $7.5 million till today, where we're going to way go over $100 million this coming year. We're 2/3 of the way through, 75% of the way through. That is a huge achievement from $7.5 million to almost $75 million now in 2 quarters only. Elite is positioned as an attractive midsized generic pharmaceutical company with consistent profits, steady growth and a low debt. Our stock price remains strong, and we continue to evaluate M&A and other options. All right. Let's go to Q&A. Before that, let me say a word regarding Q&A. If you ask intelligent relevant questions, we will do our best to accommodate you. Buffoonery questions and comments will be ignored. Nasrat Hakim: All right. Please provide an update on the pipeline and the status of the various drugs in the pipeline. Do you anticipate additional ANDAs to be filed by the end of this year or half of 2026? Are we still on target for the Q1 submission to the FDA of the $27 billion drug? That's the anticoagulant blood thinner. Is the anticoagulant product still planned to be filed in the first quarter of 2026? The answer is yes. And because there are a lot of questions of interest about this group of subjects, so let me combine them all together and start with R&D. Commercialization is the final stage of R&D, okay? So everything we have in the market at one time was an R&D product. Whether you buy it, acquire it, build it in-house, it's now the end stage of R&D. We have a very solid portfolio that you have seen how it took us from $7.5 million to where we are today. We have a couple of small products that are approved but have not launched yet, okay? So first, you have the products in the market, then you have the products that you're going to send to the market. Then we have OxyContin ER, which is under review by FDA. So now you have the pipeline populated by something the FDA is reviewing that's going to become in the market. Then we have the anticoagulant that test the and will be filed next year. It will be filed next year, Q1 or Q2, most likely Q1. And in addition to all of that, we also have generic formulations that are going to go into clinical trials, and that's what Carter was talking about. Sometimes the cost is very high because you have things that are happening at the same time and sometimes you're preparing for them. So sometimes the R&D cost is much higher than others because certain events have taken place. So the next step we had, we're going to go into clinical trials. Clinical trials cost a lot of money. And we have others that are in the early stage that have not reached the point of clinical trials. We are fully populated from early stage to clinical trials to already past clinical trials to already filed with FDA to already approved to already in the market. It doesn't get better than that. We are on solid grounds. Next set of questions is List ex capsules by Elite are doing very well. Is there any chance Elite will expand its product line to include Lisdex chewable tablets in the near future? Does Elite have the capability to manufacture chewable tablets? Okay, not today, but it's very easy to modify our equipment to do that. That is an excellent question, by the way, an excellent comment. I explored it before, and we decided to stick with Lisdex because it was where all the money and most of the money is. I will go back and take another look at this because we were actually looking at that at one time because not too many people are in it, but Lisdex is too huge for us to ignore the actual product and go after a little niche. It's something to take -- go back and revisit. Would there be any consideration to breaking off SequestOx into a separate subsidiary of Elite to potentially be sold off as a stand-alone. I don't think so. It would not add a lot of value. When are methadone and [indiscernible] launches planned? And honestly, I've already given the answer in my presentation, but I'll give you a more accurate answer. As soon as operations and sales and marketing make them priority. We have a lot of other priorities that are bringing more money. These products are in there. We're ready to launch them as soon as we get green light that operations think they can fit them in without impacting our main products and sales and marketing says people are screaming out for them. Is Elite considering purchasing any additional ANDAs like we did when we repurchased the stuff from Nordstrom? That's a very good question, actually, yes. This is one way for us to enhance the pipeline, and I'm always on the lookout. And it's not really an easy task to find the right fit for your company. And there are other ways to also do that, that I will not discuss today, but maybe we'll talk about in the future. It's a very good question. DEA quota. Could you please also speak about the increased quota for Lists as of September 25. Does Elite expect to capture some of the increased quota? If so, how much? We saw 2 articles involving the increase in quota for Adderall and Vyvanse in September and October by the DEA. Did Elite benefit from these quota increases? Yes. Does Elite expect to receive more quota given the recent limit increases on both Vyvanse and Adderall by the DEA? Or has Elite already received more? We have. So just to answer them all together, yes, that is true. The DEA relaxed their quota requirements. We received our allocated portion what we requested of our full quota this year without any issues. for all 3 products. That's the good news. The not so good news is that they are doing this with everybody else. So now everybody else has got them. I like it better when they were tight because we were experts at navigating through the DEA. I'll digress for a second and give you a real-life example of something that happened. We were looking for sales and marketing group to buy before we hired Kirko and about the time we were with Lannett. And we found a company in Florida that had the sales and marketing portion and they lost their products. So this is great, great fit. We have products one thing when I met with them, the product they could not sell was amphetamine. And when they said this was Adderall and they couldn't sell it, I immediately walked away and we hired Kirko. So one company went bankrupt because they could not get the quota to sell for Adderall and other company became a superstar because of the same issue. It's knowing how to navigate around regulatory agencies and your relationship in the industry. Question on legal, meaning SequestOx. Any update on the patent litigation for SequestOx? And then concerning generic OxyContin -- sorry, OxyER, SequestOx. Concerning generic OxyContin, on [ 9 2 25, ] Purdue filed a cross motion to extend the 30-day -- 30-month stay. When would that stay expire, if not extended, okay? So as to the first part, any update on patent litigation for Oxy ER, the answer is we really responded to the court, okay? We await Purdue and the court's decision, what are they going to do next? Is the court going to say, no, proceed with discovery? Are they going to narrow it? Whatever happens, we will hear about it. And once we do, we'll make it public. I don't know what will happen with the [indiscernible] stay. Now that the court ruled just a couple of days ago that the Sackler family is no longer in charge, they accepted the settlement for $7-point-some billion. Now the government is going to take charge of Purdue, and they're going to be in charge of OxyContin. Are they going to open the door for all the generic companies to get in? Or are they going to insist on 3Month stay? I don't know. This is an uncharted territory. I've never seen the government take over a company before in the pharmaceuticals. So we'll see what they're going to do. If they do away with it, then everybody gets in. If they don't, we'll all have to wait 3 months. Potential sale of the company. All right. Questions on potential sale of the company. On the merger and acquisition front, was the company valuation done? Listen, yes, any consulting firm task to selling a company will do evaluation to establish a range for many reasons, including knowing who to approach to buy the company. They need to know who has the balance sheet to buy the company without looking at the company and seeing what you're worth, they cannot do that. This is one of many reasons. But they never tell you you're worth X. It's always a range, you worth between X and Y. Has the M&A firm identified potential buyers? Yes, several. Has Elite received any offers to sell the company? We are not at that stage yet. What is the current impact of SequestOx technology and IP on ELTP's valuation as it pertains to the potential sale of ELTP? It doesn't really contribute that much because we are being evaluated on our profits and revenues, okay? This will be the sexy stuff. The fact that we have low debt is a huge thing. The fact that we have the our technology. these are extra factors. But the main driver is how much profit do you have and how much revenues, what's your pipeline and what's your R&D status. 20 years ago, 15 years ago, 10 years ago, our technology [indiscernible] was really sexy. Today, it's not as sexy. Can you share any information on valuation done on the lead by a third party? No. That is counterproductive. So again, if somebody and the company does, they'll say your company is worth between X and Y. If I make that public, I am doing you and the company this service because somebody who signed to buy us that uses different model will immediately revert to the model that produces the least amount of money and they start negotiating from the lowest number down. This information is confidential for a reason. We keep it confidential because we don't want anybody to know because there are multiple ways of calculating the value of a company. If you calculate it on a [ PE ] of 20, okay, you will get a different number than going EBITDA times 12. And both of them are valid ways to evaluate the company. there are other factors that come into that. So no, we cannot share that. Is uplifting the more likely scenario now? No. We are preparing for all contingencies. M&A is still in the lead. A question about the facilities. Can you please give us an update on retrofitting the old packaging space with the new manufacturing suit? Has any manufacturing space been designated for a pilot scale manufacturing suite? We already have a pilot scale facility in building 165, so we don't need to do that, okay? The space for the old packaging line will be utilized for encapsulators, among other things. But to that end, the new packaging line and the old packaging line in the new facility are working out very well. Packaging and sales and marketing are the 2 parts of the business that I am comfortable they'll serve us for years to come from the standpoint of expansion, okay? The packaging line is fully functional, sufficient for our needs and ready to support us for years to come. That was the last question. That concludes our conference call for today. We'll talk to you again in February. Thank you all, and thank you, Matthew. Operator: Thank you. Everyone, this concludes today's event. You may disconnect at this time, and have a wonderful day. Thank you for your participation.
Operator: Greetings. Welcome to the NextNRG Third Quarter 2025 Earnings Results Conference Call. [Operator Instructions]. Please note, this conference is being recorded. I would now like to turn the conference over to Sharon Cohen, Investor Relations. Thank you. You may begin. Sharon Cohen: Thank you, and good morning, everyone. Joining us today are Michael Farkas, our Chief Executive Officer and Executive Chairman; Joel Kleiner, our Chief Financial Officer. Before we begin, I would like to remind you that certain statements on this call are forward-looking in nature and subject to risks and uncertainties. These statements are based on current expectations and assumptions and involve risks that could cause actual results to differ materially. Please refer to our filings with the SEC, including our most recent Form 10-K and our Form 10-Q for the quarter ended September 30, 2025, for a discussion of these risks. With that, I'll now turn the call over to Michael. Michael Farkas: Thank you, Sharon, and welcome, everyone, to our third quarter earnings call. This quarter represents a significant step in NextNRG's journey as we continue advancing towards our vision. Our results clearly demonstrate that our strategy is working. Revenue is growing, margins are expanding, and our mobile fueling and energy infrastructure initiatives are driving strong measurable results across the business, making this our strongest financial performance to date. The results speak for themselves, and they set the stage for continued growth in operational excellence. I'd like to thank all of you for your confidence and take this opportunity to provide an overview of NextNRG. We're more than an energy company, we're a full-spectrum energy partner from generation and storage optimization and fueling, we give businesses the tools to be efficient, independent and the future ready. Our ecosystem combines power generation,, advanced batteries, wireless EV charging and on-demand mobile fueling to deliver energy wherever it's needed, smarter and faster than ever. We're not just following the energy transition, we're leading it. The momentum we've built continues. And as you'll hear today, the investments in our past initiatives are now delivering tangible results. Last quarter, I discussed our investments in expanding the fleet by 99 trucks and entering 10 new markets. You'll recall it was anchored in the strategic thesis than building operational density around our strongest customers will allow us to: one, optimize routes; two, enhance driving efficiency; three expand margins; and four, extend market presence of the sales of our largest customers. I'm proud to share that we are delivering on that vision, achieving our highest revenues and showing as margins days, marking the best performance in the company's history. In addition to the above, we have added 11 new markets for Miles, Florida. As we've grown and are increasing gallons delivered, we've been able to unlock volume-based supplier discounts, increasing profit margins from 8% to 11% and driving a 232% year-over-year revenue increase. Moving on to our emerging technologies, particularly our smart microgrid and battery storage solutions. We previously reported that we were working on various projects, including the California health care facilities, and I'm happy to report that we have just signed 2 power purchase agreements also known as PPAs, whereby we effectively replaced the traditional utility provider, supplying these locations with their full energy needs. Our systems are addressing a vital need, ensuring facilities remain efficient, compliant and operational around the clock. Most notably, these PPAs provide for 28 years of contractional profitable revenue to the company via energy sales, creating long-term revenue visibility. We continue to advance our Energy Division's pipeline driving meaningful progress across multiple fronts. As NextNRG evolves, our strategy is to be increasingly focused on high-demand sectors where reliability and resilience are nonnegotiable, particularly health care, assisted living and large-scale commercial facilities that require continuous mission-critical power. This approach has unified the company around a more focused sales approach within a massive TAM. Our active pipeline currently stands at over a dozen projects with several more qualified leads progressing through the pipeline. As time progresses and the market learns about NextNRG, we're watching our integrated energy ecosystem coming to life. As an example, we've been approached by solar installers who have deployed solar power generation solutions whose clients now require battery storage and/or charging solutions and the technology to optimize their energy generation, storage and usage. NextNRG is being asked to complete the energy ecosystem into a single intelligent platform. This growing interest validates our approach and reinforces the competitive advantage of our integrated energy model. As interest in our platform grows, we're strengthening relationships across the value team, expanding partnerships in solar hardware and battery storage to deliver cutting-edge technology at highly competitive pricing. These collaborations enhance our offering and position, NextNRG as a trusted full-service energy partner. Next, our much anticipated bidirectional wireless on charging initiative continues to advance. This quarter, we continued to make meaningful progress in the development framework and are moving closer to the launch of our first demonstration of this game-changing technology. While still in the planning and design phase, the groundwork that's being laid now positions us to move efficiently the execution as we refine partnerships and tech integration. We hope to provide a material update in the coming weeks. Looking ahead into 2026 and beyond, we find ourselves excited for the future a time when global and domestic energy demands are reaching unprecedented levels. I recently attended a conference where business and political is going to be, including President Trump and Eric Schmidt, the former Google CEO. They underscored the urgent need to expand our nation's capacity and energy generation and storage and distribution. We specifically mentioned the growing trend for developers of data centers and other energy-intensive sites to develop on-site fully integrated smart groups to ensure power reliability. The message was clear. Our current infrastructure cannot keep pace with the accelerating demand. In fact, following this conference, I was invited to an intimate dinner Eric Schmidt's home with a group of leading business executives in America. And as I discussed what NextNRG was building, the focus quickly came on nation's need for power generation, storage and distribution. To quote Eric, "We will run out of power before we run out of capital to invest in AI infrastructure," underscoring the urgency to generate power. NextNRG is uniquely positioned to help address that challenge. Our integrated approach spending generation, storage, distribution and fueling places us at the forefront of providing the critical energy solutions needed to power the next era of growth. Our strategy remains focused on expanding, scaling and optimizing. We are deepening our presence in key markets with mobile fuel delivery, advancing opportunities in renewable distributed infrastructure and strengthening partnerships that accelerate technology deployment while improving operating efficiency and margin performance. While our near-term focus is on disciplined execution, our long-term vision remains steadfast to create a fully connected energy ecosystem that produce today's fueling needs with tomorrow's clean intelligent infrastructure. As CEO, my goal is consistently to transparently articulate our current performance while also paving a clear picture of our commitment to disciplined growth and to deliver on our commitments. I am proud that all the things we laid out in last quarter's call, we have delivered I hope to do the same next quarter, consistent and reliable leadership. With that, I'll turn it over to our CFO, Joel Kleiner, for the financial review. Joel Kleiner: Thank you, Michael. Turning to the financials. Q3 was another quarter of outstanding growth with revenue of $22.9 million, up 232% year-over-year from $6.9 million in Q3 of 2024 and up $19.7 million in Q2 2025. To put that in perspective, our total revenue for the full year of 2024 was $27.8 million. So we're approaching nearly a full year's worth of revenue in just 1 quarter. Gross profit margins also continued to expand, increasing from 8% in Q2 to 11% in Q3. Not only did we grow revenue, but we also successfully lowered our cost of goods sold demonstrating that while growing top line revenue, we are also simultaneously improving our operational efficiencies. On the expense side, our loss from operation came in at $9 million, which includes a $5.6 million noncash stock-based compensation charge. As you recall, we introduced this program last quarter as a strategy to attract and retain top talent. And as expected, this quarter's charge is significantly lower in Q2 -- and then Q2. Excluding this item, our operating loss was $3.4 million, down from $5.2 million in Q2, reflecting our continued focus on disciplined cost management and operational efficiency as we move closer to profitability and positive cash flows. Cash used in operations for the first 9 months of 2025 was $14.1 million. Because of this figure reflects quarter end working capital timing, including inventory and prepaid expenses continuing just before quarter flows as well as Q2 invoices being paid in Q3, the reported number overstates our underlying burn rate. On a normalized basis, our year-to-date operating burn is closer to $11 million. We ended the quarter with roughly $650,000 in cash which similarly reflects those working capital timing dynamics. Since quarter end, we have taken deliberate steps to strengthening liquidity. We completed the refinancing of our truck fleet and continue to streamline our debt profile, converting portions of our debt to equity and reducing the overall complexity in the capital structure. These actions provide greater financial flexibility as we manage the business. Operationally, Q3 delivered solid progress. Revenue increased our energy pipeline continue to expand, and we began advancing several opportunities towards deployment as we scale revenue, expand margins and enhance operational efficiency, the underlying trend in our cash usage is moving in the right direction. While we still have work to do ahead of us, the trajectory of our business combined with the strength of our platform and the early validation we are seeing across both fueling and energy infrastructure position us well for continued momentum in the quarters to come. Thank you. Back to you, Michael. Michael Farkas: Thank you, Joel. It's been a fantastic quarter for NextNRG. On our last call, we outlined a series of goals that we sought to achieve and I'm proud to say that we've executed on every single one of them. Our operational performance, project pipeline and financial results all reflect the disciplined growth and momentum we've been building for us. Looking ahead, we're excited to be in a unique position, both in time and in capability to help drive the future of energy across the nation and ultimately on a global scale. On our -- our savings for structure continues to spend, our pipeline is growing and profit potential continues to strengthen each passing quarter. And on a personal note, as many of you may know, I spent much of my career pioning advancements in EV charging. I'm pleased to share that I'm no longer under any noncompete restrictions, which opens the door for NextNRG to participate fully in all forms of EV charging, both wired and wireless, and to pursue high-value, high-margin energy assets that align with our long-term vision. We're just getting started, and the opportunity ahead has never been greater. Thank you all for your continued confidence and support. Operator, we can now move on to the questions. Operator: Thank you so much. I understand there are some e-mail questions, Sharon. So I'd like to hand the call back over to you for the Q&A portion. Sharon Cohen: Thank you. Yes. I've gathered some submitted questions, and then we'll now direct them to you, Michael. The first question relates to our energy division. Can you give us more detail on the kinds of projects currently in your energy infrastructure pipeline? What types of facilities are engaging with you? And what solutions are they looking for? Michael Farkas: Absolutely. Our pipeline today includes projects for municipalities as well as a large range of commercial facilities. These opportunities span everything from literally layering new components over existing infrastructure to full green build-out, greenfield build-outs. It could really depending upon the need of the facility. These customers are typically asking for 3 core components. One is on-site power generation, basically to reduce dependence on the grid and improve overall reliability. Number 2 is advanced battery storage. This is to ensure continuity of power, especially during peak demand or outages. And then we're looking at the -- our smart microgrid control system. It's really -- it's optimizing how energy is produced, stored and consumed in the all time. Many of these facilities are operating with aging equipment and insufficient backup systems. So they're looking us to design modern methodologies and integrated solutions that meet both operational requirements and regulatory standards. We're also seeing a growing wave of commercial operators who have solar installed but now needs storage and intelligent controls. And they want a unified platform that ties everything together in one simple place to be able to follow everything. They also want a single partner to complete that ecosystem. You can't have different components, different people all over the place. It's not a sound system. And that's exactly what our energy platform does. It allows the integration of all the stuff. So these are not exploratory or one-off engagements. They're well-defined high-value infrastructure deployments that directly address the reliability gaps that are out there today. Next question. Operator: Sharon, can you check if you self-muted, please? Sharon Cohen: Yes. Sorry about that. Our next question relates to the margins reported. Michael, the company delivered the strongest margins in company history this quarter. How sustainable is this improvement? What are the main drivers of further margin expansion? Michael Farkas: Joel, you want to grab that? Joel Kleiner: Sure. As we -- thank you, Sharon. Can you repeat the question? Sharon Cohen: Yes, absolutely. How sustainable is this improvement in the margins? And what are the main drivers of further margin expansion? Joel Kleiner: Our margin expansion this quarter is absolutely sustainable because it's tied directly to structural changes in the business. As we build density around our anchor customers, we're optimizing our routes, improving driver efficiency. So reducing one of the greatest components of cost of goods sold, which is the actual driver expense. And the other side is increasing our gallons delivered which we have a great contract with where we're finally unlocking volume-based discounting. Both of those lower our per unit cost. These improvements are not a onetime thing as we're continuously working towards better utilization, improve scheduling and continued vendor site advantages. We expect these to continue to grow as we continue expanding our business. Sharon Cohen: Well said, Joel. Thank you. Our next question asks to discuss the conference that you attended Michael where leaders emphasize their urgent need for more power generation and infrastructure. How does this environment impact NextNRG? Michael Farkas: The message from the event and then the follow-on dinner was very, very clear. Energy demand, especially type AI, data centers, electrification is growing faster than the grid can support. When Eric Schmidt said that we will run out of town before we run out of capital, it underscores the scale of the opportunity. NextNRG is positioned exactly where the market is heading on-site power generation, storage and smart distribution, all integrated into a single platform. As developers, operators and corporations increasingly look for reliable, scalable, off-grade or grid-enhancing solutions, the demand for smart microgrids and infrastructure only intensifies. We're aligned with that, and we're already seeing the benefits in the pipeline for customers who need these kind of services. Sharon Cohen: And our final question is about operating losses. You've made progress reducing your operating loss this quarter, where you're still running at a multimillion dollar loss. Can you lay out a clear time line or framework for when investors can expect sustainable positive cash flow? Michael Farkas: Absolutely. The improvement this quarter was driven by both scale and tighter cost discipline. Revenue grew materially massively margins expanded and our underlying operating loss improved from Q2 to Q3. The path to positive cash flow is tied to 3 things: continued revenue growth, which we're seeing, further margin expansion as operational eventually increases and maintaining disciplined SG&A spend as we scale. The remaining hurdle is simply timing. As more new markets mature and as supply discounts continue to strengthen, the economics improved quarter-by-quarter. We're not guiding to a specific date today, but the trend is clear. Our losses are narrowing. Our margins are expanding, and each quarter brings us closer to sustained positive cash flow. The fundamentals are moving in the right direction and the model scales efficiently as we continue growing. Thank you. Operator: Thank you so much, ladies and gentlemen. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time.
Operator: Ladies and gentlemen, good day, and welcome to the Yatsen Holding Limited Third Quarter 2025 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Ms. Irene Lyu, Vice President, Head of Strategic Investment and Capital Markets. Please go ahead. Irene Lyu: Thank you, operator. Please note that discussion today will contain forward-looking statements relating to the company's future performance, and our intent to qualify for the safe harbor and liability as established by The U.S. Private Securities Litigation Reform Act. Such statements are not guarantees of future performance and are subject to certain risks and uncertainties, assumptions, and other factors. Some of these risks are beyond the company's control and could cause actual results to differ materially from those mentioned in today's press release and this discussion. A general discussion of the risk factors that could affect Yatsen Holding Limited's business and financial results is included in certain filings of the company with the Securities Exchange Commission. The company does not undertake any obligation to update its forward-looking information except as required by law. During today's call, management will also discuss certain non-GAAP financial measures for comparison purposes. Please see the earnings release issued earlier today for a definition of non-GAAP financial measures and a reconciliation of GAAP to non-GAAP financial results. Joining us today on the call from Yatsen Holding Limited's senior management are Mr. Jinfeng Huang, our Founder, Chairman, and CEO, and Mr. Donghao Yang, our CFO and Director. Management will begin with their prepared remarks, and the call will conclude with a Q&A session. As a reminder, this conference is being recorded. In addition, a webcast replay of this conference call will be available on Yatsen Holding Limited's Investor Relations website at ir.yatsenglobal.com. I will now turn the call over to Mr. Jinfeng Huang. Please go ahead, sir. Jinfeng Huang: Hello, everyone. Thank you for joining our third quarter 2025 earnings call. The beauty market in China continues to show signs of recovery in the third quarter, particularly in the skincare category, which remained robust and supported overall industry growth. Amid this improving backdrop, we remain focused on executing our long-term strategy to build a competitive, resilient brand portfolio anchored in R&D and innovation. Through disciplined execution, we delivered our fourth consecutive quarter of revenue growth, with total net revenues increasing by 47.5% year over year and exceeding the high end of our guidance. Our momentum continues to be driven by strong growth from skincare and sustained performance of our hero product engine, rather than short-term promotions. Our skincare brands grew by 83.2% year over year and reached 49.2% of total revenue, making another step forward in our category upgrade strategy and reinforcing our transformation toward a more sustainable, margin-accretive portfolio. Meanwhile, our net loss narrowed meaningfully as a result of the improved gross margin, optimized operating efficiency, and a more disciplined resource allocation. Net loss margin improved significantly from 17.9% in the prior year period to 7% this quarter, demonstrating the continued progress in our profitability trajectory. These results reflect the strength of our brand as well as our commitment to distinct execution. Looking ahead, our priority is to continue progressing toward profitability in a disciplined and sustainable way. We expect further improvement to be driven by a higher skincare mix, ongoing gross margin optimization, and greater marketing efficiency. While we will continue to invest in innovation and hero products, we remain disciplined in balancing growth with profitability. Now let me share some brand and product highlights during this quarter. Galani delivered strong momentum and remained one of the fastest-growing premium skincare brands. The brand's PO series continued to perform well, with the number one VC Serum and the number two AVA serums ranking among the top-selling serums across major e-commerce platforms. The newly introduced number three VB7, launched in mid-September to further build up the brand's ABC cellular level skincare framework, quickly became one of the brand's best-selling items on Douyin. We are also seeing encouraging signs of regimen adoption, with more consumers purchasing multiple products within the series, supporting stronger customer lifetime value. Doctor Wu recorded healthy growth during the quarter, supported by strong performance from its core categories. In September, Doctor Wu unveiled its first anti-aging product in the UK, leveraging decades of clinical expertise in skin renewal. The newly launched TDI N Serum gained strong traction across e-commerce platforms, driven by its innovative formula featuring a high concentration of active ingredients and a patent penetration technology, underscoring the brand's ability to build trust through clinically validated innovation. In China, Doctor Wu continued to lead the mandelic acid category across online platforms. In addition, Doctor Wu presented its research at the ninth Annual Academic Conferences of the Dermatology Committee of the Chinese Non-Government Medical Institution Association, further demonstrating the brand's commitment to clinically grounded innovation and strengthening its leadership in renewal-focused skincare. Our flagship brand, Fabulare, also continued to make progress following the successful launch of the Translucent Blurring Setting Powder and BioPhase Essence Foundation. The brand focused on streamlining its core product assortment, improving hero product quality, and enhancing overall product experience under the makeup unification concept. Several of these hero products delivered performance above expectations, driving Perfect Diary's base makeup category to exceed 40% of the total sales and supporting a more sustainable and distinct recovery. In the third quarter, COVID-19 also excelled in new channel performance and achieved the number one ranking among makeup brands on WeChat video channel, reflecting the brand's strengthened competitiveness and growing consumer IND and innovation have consistently served as the cornerstone of our product development and brand building. We are committed to advancing scientific research to strengthen our long-term competitiveness. During the quarter, we participated in the IFCC Congress for the fourth consecutive year. This time, 11 of our papers were shortlisted by the IFCC, covering topics from molecular mechanism, clinical translation to AI algorithm, and emotion skincare. This work highlights our full chain capabilities, from fundamental science to technology translation and clinical validation, and it directly supports future hero highlights across our brands. As we finish the third quarter, we are pleased to see continued progress in both growth and operational improvement. We remain confident that our strategic focus on R&D, together with disciplined execution and a sharper resource allocation, will enable us to deliver sustainable long-term growth. At the same time, we will remain highly disciplined in capital allocation, prioritizing investments that strengthen our core brands and innovation capabilities while creating long-term value for shareholders. Thank you. I will now turn the call to Donghao Yang. Donghao Yang: Thank you, Jinfeng, and hello, everyone. Before I get started, I would like to clarify that all financial numbers presented today are in RMB amounts, and all percentage changes refer to year-over-year changes unless otherwise noted. Total net revenues for the 2025 increased by 47.5% to RMB 998.4 million from RMB 677 million for the prior year period. The increase was primarily due to an 83.2% year-over-year increase in net revenues from skincare brands combined with a 25.2% year-over-year increase in revenues from color cosmetics brands. Gross profit for the 2025 increased by 51.9% to RMB 780.5 million from RMB 513.8 million for the prior year period. Gross margin for the 2025 increased to 78.2% from 75.9% for the prior year period. The increase was primarily driven by an increase in sales of higher gross margin products. Total operating expenses for the 2025 increased by 31.9% to RMB 864.1 million from RMB 655.2 million for the prior year period. As a percentage of total net revenues, total operating expenses for the 2025 were 86.5% as compared with 96.8% for the prior year period. Fulfillment expenses for the 2025 were RMB 61.8 million as compared with RMB 50.4 million for the prior year period. As a percentage of total net revenues, fulfillment expenses for the 2025 decreased to 6.2% from 7% for the prior year period. The decrease was primarily driven by fulfillment costs optimization coupled with the leveraging effect of higher total net revenues in the 2025. Selling and marketing expenses for the 2025 were RMB 682.3 million as compared with RMB 494.4 million for the prior year period. As a percentage of total net revenues, selling and marketing expenses for the 2025 decreased to 68.3% from 73% for the prior year period. The third quarter included a portion of our planned upfront investments for the Double Eleven shopping season. These investments typically elevate selling and marketing ratios in the short term but support revenue acceleration and stronger brand equity in the fourth quarter and beyond. Excluding these seasonal effects, we continue to see improving marketing efficiency driven by a higher skincare mix and more disciplined spending across channels. General and administrative expenses for the 2025 were RMB 80.2 million as compared with RMB 85 million for the prior year period. As a percentage of total net revenues, general and administrative expenses for the 2025 decreased to 8% from 12.6% for the prior year period. The decrease was primarily driven by lower share-based compensation expenses coupled with the deleveraging effect of higher total net revenues in the 2025. Research and development expenses for the 2025 were RMB 39.8 million as compared with RMB 25 million for the prior year period. As a percentage of total net revenues, research and development expenses for the 2025 increased to 4% from 3.7% for the prior year period. The increase was primarily driven by higher payroll expenses resulting from a rise in research and development headcount. Loss from operations for the 2025 was RMB 83 million as compared with RMB 141.3 million for the prior year period. Operating loss margin was 8.4% as compared with 20.9% for the prior year period. Non-GAAP loss from operations for the 2025 was RMB 60.6 million as compared with RMB 98.5 million for the prior year period. Non-GAAP operating loss margin was 6.1%, as compared with 14.5% for the prior year period. Net loss for the 2025 was RMB 70.4 million as compared with RMB 121.1 million for the prior year period. Net loss margin was 7%, as compared with 17.9% for the prior year period. Net loss attributable to Yatsen Holding Limited's ordinary shareholders per diluted ADS for the 2025 was RMB 0.7 as compared with RMB 2.2 for the prior year period. Non-GAAP net loss for the 2025 was RMB 51.5 million as compared with RMB 76 million for the prior year period. Non-GAAP net loss margin was 5.2% as compared with 11.3% for the prior year period. Non-GAAP net loss attributable to Yatsen Holding Limited's ordinary shareholders per diluted ADS for the 2025 was RMB 0.5 as compared with RMB 0.77 for the prior year period. As of September 30, 2025, the company had cash, restricted cash, and short-term investments of RMB 1.1 billion as compared with RMB 1 billion as of December 31, 2024. Net cash used in operating activities for the 2025 was RMB 126.8 million as compared with RMB 175.9 million for the prior year period. The operating cash flow was primarily due to working capital movement, including inventory positioning and receivables timing ahead of Double Eleven. These are seasonal and planned effects. We expect operating cash flow to improve as these improved investments convert into revenue in the fourth quarter and as we continue to optimize inventory efficiency and marketing ROI. Looking at our business outlook for the 2025, we expect our total net revenues to be between RMB 1.32 billion and RMB 1.49 billion, representing a year-over-year increase of approximately 15% to 30%. These forecasts reflect our current and preliminary views on the market and operational conditions, which are subject to change. With that, I would now like to open the call to Q&A. Operator, Operator: Thank you. We will now begin the question and answer session. To ask a question, begin the question session. And if you would like to withdraw your question, please press star then 2. For the benefit of all participants on today's call, if you wish to ask your question, please immediately repeat your question in English. And our first question will come from Maggie Huang with CICC. Please go ahead. Maggie Huang: Thank you for taking my question. This is Maggie Huang from CICC. Firstly, congratulations on beating our revenue guidance. I have two questions. My first question is about our performance during the Double Eleven festival. Is that in line with our expectations? And have we observed any change in the competition from foreign high-end brands? And my second question is, how do we expect the profitability of the fourth quarter and the next year? That's my questions. Thank you. Donghao Yang: Well, I think first of all, the Double Eleven performance for the whole company in general is in line with our expectations. And of course, some of the brands are exceeding our expectations. So having said that, I think we are very happy to observe some of not only the existing hero SKUs are doing well, but some of the newly launched products have gained very strong momentum during the Double Eleven Shopping Festival, which will contribute to further growth potentials in coming quarters. Those products we already mentioned in the earnings call. Going back to your question about the challenges and also competition coming from the foreign high-end brands, we did observe a very big challenge and also competition. For the past Double Eleven Shopping Festival, some of the high-end brands are struggling with very big O2O price up the hero product. We did see that with our R&D supporting some of our new product launches, those products are still gaining very strong momentum. Looking forward, I think the competition during the Double Eleven Shopping Festival will load some of the pantry for some of the foreign high-end brands, which means it will hurt their long-term growth. So having said that, I'm happy to see that our high-end brands are still keeping a very strong momentum by balancing the price promotion. And also, we are focusing on promoting some of the new SKUs. So going back to the Q4, I think we are on the right track to reach profitability. And that's our long-term goal. And then we are seeing the balance of growth and also the right track for profitability. Maggie Huang: Okay, got it. It's very clear. Thank you very much. And I have no more questions. Donghao Yang: Thank you. Operator: Next question will come from Lucia Zhang with CP Securities. Please go ahead. Lucia Zhang: Thank you for taking my question. This is Lucia Zhang from CP Securities. I also have two questions. The first one is we can see that the skincare business of the company has achieved rapid growth this year. So from which efforts should we make efforts to sustain the growth maybe in the last quarter and next year? And the second question is about profitability. So in which aspects will the company make efforts to continuously improve their profitability? Thank you. Jinfeng Huang: Well, so going back to the fundamental drivers for our skincare business, I think the number one thing is about the R&D. The beauty market has always been driven by further and better innovation. So we are very happy to see that, yeah, with our R&D growth engine, we can launch a very strong pipeline this year and also for the coming years as well. The second thing we can think of is with our expansion for our skincare portfolio, including the benefit expansion and also product line expansion, we see further link sales for our product portfolios, which can help us to drive further marketing ROI. The third thing is our skincare brand. I think overall, for the three major skincare brands, we still have a pretty far potential to reach their optimized revenue level. So during this process, as we continue to drive brand awareness and also continuously drive the customer base, we still have the potential to grow our existing skincare brand. And last but not least, I think for us, we focus on launching some new products on some of the key channels. And then in the future, we will expand into other channels and also drive a better channel mix. So with that, I think that will contribute to the sustainable driver for the allocation. Going back to your questions about how can we continuously improve, I think as we said many times before, I think the product mix optimization and the channel mix optimization can help us drive the gross margin and also the further ROI on the marketing expenses. The second one is as we focus more on the customer CIM and also the product link sales, this will help us to further drive better ROI on the marketing expenses. The third thing is very important. For some of our brands, those brands are reaching what we call the optimized threshold. And in the future, as the brands like the revenue scale grow up, we will see further leverage on the true branding expenses ROI. So those are some of the things we see as very important to drive continuous improvement for profitability. Lucia Zhang: Thank you. That's really helpful and clear. Operator: The next question will come from Jennifer Wong with Hightower Securities. Please go ahead. Jennifer Wong: Hi. This is Jennifer Wong from Hightower Securities. So congratulations on the company's great performances. Could you please introduce just give us some colors on expected expenses of the company in the future? And maybe could you please share how do you view the increasingly fierce competition in the online channel? Thank you for your answers. Donghao Yang: Bob, can you help me to clarify what you mean by expenses? Jennifer Wong: Like, general expenses, operating expenses, etcetera, just generally speaking. Donghao Yang: Okay. Well, if you look at our financial statements, I see we see pretty stable G&A expenses in the past quarters. But having said that, I think moving forward, as the scale of our total revenue grows, I think we will see some operational leverage on the general and administrative expenses. We will continue to invest in some of what we think short-term wise, we will categorize as expenses, but we see it more like an investment, including R&D, and also for branding dollars to really build up the brand equity. Those are some of the areas that we focus on. And what sorry. What was your second question? Jennifer Wong: Oh, that's how do you view the ongoing sales competition on the online channel? How do you think our company is going to face such kind of situation? Thank you for your answers. Donghao Yang: I think as we said before, when we are looking at the beauty market, there are so many players, and then one of the reasons that we can continuously and also accelerate our growth is mainly driven by some of the investments we have devoted to R&D in the past few years and also our continuous commitment to brand building. So we did something right before why we are getting the growth today. So if we are looking at the competition, as long as we continue to focus on what we have done right, and then we will see more and more robust product lineup and better innovation is coming. And we will see the higher brand awareness so that we can get some more operational and also brand building optimization. And also, we will see some of the operational efficiency improving by our product mix and the channel mix optimization. And we will see some organization growth, but we focus on the cornerstones of our product innovation, customer focus, CIM, and etcetera. So as long as we focus on doing the right thing, we think in the future, we will achieve the long-term sustainable growth result. Thank you. Jennifer Wong: Thank you for your kind response. We're very looking forward to seeing the company's rapid growth. Donghao Yang: Appreciate it. Thank you. Operator: And this concludes our question and answer session. I would like to turn the conference back over to management for any additional or closing comments. Please go ahead. Irene Lyu: Thank you once again for joining us today. If you have any further questions, please feel free to contact us at Yatsen Holding Limited directly. Our contact information for IR in both China and the U.S. can be found in today's press release. Thank you and have a great day. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Hello, everyone. My name is Sophie, and I will be your conference operator today. At this time, I would like to welcome everyone to Meren's Third Quarter 2025 Results Presentation. [Operator Instructions]. This event is being recorded, and the recording will be available for playback on the company's website. I will now pass the meeting on to Mr. Shahin Amini, Meren's Head of Investor Relations. Please go ahead, Mr. Amini. Shahin Amini: Thank you, operator. Hello, everyone, and thank you for joining us for Meren's Third Quarter 2025 Results Presentation. I am joined today by Roger Tucker, our President and Chief Executive Officer; Aldo Perracini, our Chief Financial Officer; Oliver Quinn, our Chief Commercial and Operating Officer. We will begin with prepared remarks and then open the floor for questions. Before we start, I would like to remind everyone that this presentation contains forward-looking statements. These are based on current assumptions and expectations and involve risks and uncertainties that may cause actual results to differ materially. You can find a full discussion of these risks in our regulatory filings that are available in SEDAR+ and on our website. Also, all dollar amounts in this presentation on U.S. dollars unless otherwise stated. With that, I will now hand over to Roger. Roger, we are ready for you. Please go ahead. Roger Tucker: I am pleased to present another strong quarter with continuing delivery on shareholder returns and delivery. The completion of the prime amalgamation marked a step change for Meren, and we have now honored our enhanced dividend policy with the declaration of the fourth quarterly distribution of $25 million, taking the total payout for 2025 to $100 million. So together with our share buybacks year-to-date, we have delivered meaningful shareholder capital returns of approximately $109 million. We have also materially reduced our outstanding RBL debt amount to underpin a stronger, more agile company that is built to deliver long-term returns and withstand market volatility. These deliverables reiterate the quality of production assets in Nigeria and the company's financial strength and our disciplined capital management. Maintaining a strong balance sheet continues to be one of our top priorities. Overall, it's been a resilient quarter and we've delivered on we set out to do, reinforcing our financial position and our commitment to creating long-term value for our shareholders. I'm also pleased to report that we have completed the integration of Prime and the combined organization is working very well and seamlessly under the Meren banner. I will now hand over for Aldo to give a more detailed commentary on the quarter's performance. Aldo Perracini: Thanks, Roger. Now turning to our production performance. In the third quarter, we delivered production of 31,100 barrels of oil equivalent per day on a working interest basis and 35,600 barrels per day on an entitlement basis. This brings us to a working interest of 31,800 barrels of oil equivalent per day and 36,300 barrels of oil equivalent on an entitlement basis for the first 9 months of the year, both of which sit within our 2025 guidance, which remains unchanged from the second quarter. Performance remained steady quarter-on-quarter, supported by strong contributions from the newly commissioned Egina wells and a successful well intervention on an Akpo well. These gains helped offset temporary impacts on plant and maintenance activity. With the Akpo and Egina drilling campaign now on pause, work is focused on integrating for the seismic and well data to define and mature the next set of infield targets. Turning on to the next slide. In the third quarter, Meren completed 3 oil liftings for around 3 million barrels at a realized all-in sales price of $70.8 per barrel. Year-to-date, we have completed 9 liftings of around 9 million barrels at an average owing sales price of $74.9 per barrel, which compares favorably to the Dated Brent at an average of $70.9 per barrel. We have 3 cargoes scheduled for the first quarter of 2025. Two of these are hedged at $64.6 per barrel with 1 cargo unhedged that will be sold at spot. For 2026, we have hedged 2.6 million barrels of oil at an average Dated Brent of $62.4 per barrel. The sales achieved in the first 9 months, combined with our hedging strategy for the remainder of the year, creates a prudent balance between risk management and market exposure, reducing volatility risk while preserving potential upside. This approach ensures we remain well positioned to generate solid cash flows through to the end of the year regardless of market fluctuations. Moving on to the financials. For Q3, we delivered an EBITDAX of $120 million, bringing total EBITDAX year-to-date to $368 million. Cash flow from operations before working capital came in at $66 million for the quarter with reported CapEx of $22 million, largely driven by the web intervention in Akpo. Free cash flow before debt service and shareholder distributions was $126 million. Overall, for the first 9 months, free cash flow before debt service and shareholder return stands at $229 million. We are on track to meet our management guidance as revised in Q2, and our full year guidance ranges are unchanged. Let's now turn to cash flows for the period. We closed the quarter with a cash balance of about $177 million compared to an opening balance of $267 million at the end of Q2. We achieved about $66 million in cash flow from operations before working capital adjustments and interest and had positive working capital movement of $81 million, most of which about $63 million was due to trade receivables driven by the timing of cargo liftings and receipt of sale proceeds between the second and the third quarters. Our major cash outlays were RBL repayments, dealing distributions and capital expenditures. In line with our approach to disciplined balance sheet management we proactively paid down our RPO balance by $18 million, bringing our total debt to $360 million. This has been paid down further post quarter, which I will touch on shortly. In line with our new payout policy, we made our third dividend payment of $25 million, bringing dividend distributions to $75 million year-to-date. And as Roger had mentioned, we are pleased to have announced our fourth dividend distribution of $25 million to be paid next month. Through disciplined cash management, we have materially reduced our debt interest expenses strengthen the balance sheet and establish a solid platform for sustainable growth and value creation. Moving on to the next slide. Deleveraging the business has been a priority for us since assuming Primes are beyond facility following the amalgamation. The balance was $750 million at completion. We have looked to approach this proactively and in a disciplined manner. At the end of Q3, our RBL balance stood at $360 million, reflecting $390 million in repayments since taking this facility on, contributing towards a meaningful reduction in interest costs. Post quarter, we paid down $430 million, bringing total repayments to $420 million year-to-date. At the end of the quarter, we had a net debt of $183 million and a net debt-to-EBITDA ratio of 0.4x, well below our onetime ceiling for the year, demonstrating our strong credit profile. We will continue to optimize our capital allocation strategy, strengthening Meren's financial profile and positioning us to deliver value for shareholders. I will now hand over to Oliver to take you through our business outlook. Oliver Quinn: Thanks, Aldo. Turning to Slide 10 on Nigeria. Following the break in the Akpo and Egina drilling campaign in Q3, work is underway to restart the campaign. The current drilling break has provided time to fully interpret the latest 4D seismic data and identify several future infill drilling opportunities. Operationally, progress is being made to secure a deepwater rig to drill the Akpo Far East nearfield prospect, followed by further development wells on both Akpo and Egina in late 2026. Akpo Far East is an infrastructure-led exploration opportunity with an unrisked best estimate of greater than 150 million barrels of gross oil equivalent. If successful, it will deliver a short-cycle, high-return investment, leveraging existing Akpo facilities and potentially adding significant near-term production and reserves. Turning to the Preowei development. Project optimization work continues with recent seismic data indicating an increase in recoverable resources and likely better connectivity in the reservoir that may lead to a reduction in the development well count. This optimization exercise is continuing and will conclude through 2026. At Agbami, interpretation of recent 4D seismic is ongoing alongside rig and long lead item contracting in preparation for a 2027 infill drilling campaign. In addition to the infill drilling an appraisal well is planned on the Ikija discovery, which in a success case will be tied back to the Agbami FPSO. Let's move to Slide 11 for an update on Namibia. Joint Venture continues to advance the Venus development, which remains on track for FID next year with first oil expected in 2030. The environmental and social impact assessment is continuing to progress, which is a key step towards regulatory approvals. The plan outlined includes 40 subsea wells tied back to an FPSO with a peak capacity of 160,000 barrels of oil per day and once online, Venus could produce for more than 20 years, generating significant and sustained cash flow for Meren. As we get closer to the final investment decision, there will be scope for us to report contingent resources and ultimately reserves as part of our annual Canadian NI 51-101 reporting process. On the exploration side, work continues to plan for drilling on several remaining prospects with Olympe remaining the key target and testing a different geological concept from Marula and with a significant potential resource base. And importantly, we retained full exposure to these high-impact opportunities with no upfront cost as all exploration and development spending is carried through to first commercial production. Moving to Slide 12 and staying in the Orange Basin. Let's turn to South Africa and Block 3B/4B. In September last year, we received an environmental authorization to drill up to 5 exploration wells. And whilst progress is being made to move through the legislative appeals process, this has now been temporarily suspended pending a Supreme Court judgment in relation to Block 5, 6 and 7. Despite this pause, the operator continues to prepare for drilling with the Nayla prospect remaining the likely first target and with sufficient potential in a success case to support stand-alone development. To remind you and important to note, the transaction completed with TotalEnergies and QatarEnergy last year will cover Meren's costs for 1 to 2 exploration wells, so there will be no demand on our capital as drilling commences. In summary, across the Orange Basin, we maintain a leading independent E&P position with exposure to multiple near-term development and exploration opportunities and all without any near-term capital requirements. Now turning to Equatorial Guinea on Slide 13. Meren holds 2 licenses offering differing opportunities. In board, Block EG-31 offers a compelling low-risk appraisal opportunity that could unlock a low CapEx, short-cycle brownfield LNG project with a cost of supply competitive with U.S. gas exports. The block lives and shallow water, close to the existing onshore EG LNG facility and contains several further gas prone prospects in areas where historic wells have proven the presence of gas. The second position, Block EG-18 is a deepwater exploration opportunity with billion barrel scale oil potential. Recent seismic reprocessing and technical evaluation has unlocked a large Cretaceous age basin floor fan system with several stacked prospects identified within the same play that has been actively pursued by several majors across the border in São Tomé. A farm-down process for both positions has attracted strong interest, and we are actively engaged in discussions with potential partners for both blocks with the aim of reaching a conclusion on the farm-out process by the end of this year. With the right partnerships in place, drilling activity could take place in late 2026 or 2027. I will now pass you back to Roger for his concluding comments. Roger Tucker: Thank you, Oliver. It's been a solid quarter for the company. We ended the period with a strong liquidity position and net debt to EBITDA of 0.4x and we have significantly reduced debt to optimize interest expenses, underscoring both the strength of our balance sheet and our disciplined approach to cash management. I'm pleased to have announced our fourth quarterly dividend, which will see the completion of our $100 million dividend plan, a clear reflection of our ongoing commitment to shareholders. Looking ahead, we see meaningful value across our portfolio with excellent catalysts in the pipeline, each providing strong long-term growth potential. Thank you. And with that, let's move to the Q&A. Operator: [Operator Instructions]. Our first question comes from Jeff Robertson with Water Tower Research. Jeffrey Robertson: However, can you give some insight into the production profile in 2026 in fields in Nigeria? And what you anticipate the lifting schedule might be for the first couple of quarters of the year? Roger Tucker: Yes. Jeff, thanks for the question. So as we go in to '26, we've got activity commencing again in the fields. We've got 3 wells, if you like, 3 infill well activities, Akpo and Egina. Now we've got an Akpo Far East exploration well, which is important and likely in the Ikija well over on Agbami, which is appraisal. So I think the key thing is on those wells, they'll be back end of the year. So we don't expect to see a meaningful production impact from them until early 2017. So they're important, but they're late in the year. So where that takes is we'll see some natural decline through the year. And I think we're currently working through the final work program and budget with the operators in the next couple of weeks here, but we do anticipate kind of seeing decline into the kind of high 20s in terms of production at working interest level before, again, that picking up again as we come through the end of the year and into '27. I think on the second part, the lifting schedule, I think we're anticipating around 10 cargoes it's a pretty evenly spaced throughout the year. I think you'll note this year, we've lifted all our cargoes for the calendar year as of November, so we don't have any in December. And then I think our next cargo is coming in 2 cargoes, I think in Q1 next year. Aldo Perracini: And just to remind everyone, we'll do our full year management guidance for 2026, early next year, potentially in sort of late January or February. So we'll have more detail on the outlook for the 2026 for our business. Jeffrey Robertson: And is it correct to think that the Akpo Far East prospect is -- if that's a success that can be handled by the existing field infrastructure without any significant capital upgrades? Roger Tucker: Yes, that's right. So it's kind of super interesting. It's only just single-digit kilometers east of Akpo in the facility. It's a large kind of target that could, for a first phase, come on within 18 months, 2 years tied back to the Akpo facility. So it's very reachable. The timing has really been around age and availability over Akpo. That's now with Akpo's natural decline there's time and space, if you like, could come together. And so yes, that will be tied back very, very quickly. Operator: Next question comes from David Round with Stifel. David Round: A couple for me guys. The break from drilling in Q3, are you able to elaborate how that break has helped improve your thinking around future targets? And then also just I guess, more generally, are you noticing any different approaches between the different operators you've got in Nigeria? And then the second one, separately, just on EG as a clarification. Are you looking at farming down those blocks individually or together? Aldo Perracini: Yes. David, thanks for the question. So look, a good point, you take a step back on actually on Egina and Akpo, which is where the drilling break occurred this year. So again, we said this a lot, but kind of world-class fields kind of textbook petroleum engineering with 4D seismic over them. So that allows us to shoot surveys at regular intervals, of course. And in those fields, in particular, we can see fluid movement, we can see oil, water, gas, and that allows us to kind of really hone in on the infill targets. So specific to the question, we took a drilling break in Q3. We've had new 4D come in over the deals and the reason then to have that break and go back kind of Q3 next year drilling has been to allow that new data to be incorporated. It looks very positive from us. So I think we'll see the 2 -- well, 2 targets on Egina, and one on Akpo, again, Q3, Q4 next year, and then we'd anticipate running into '27 that there'll be some more follow-on drilling on the back of that data. So yes, it's been useful. I mean there is obviously a short-term impact at these middle-age fields from not drilling, but I think it allows us to come back with a more focused kind of target campaign. Just to move to the EG question. So the simple answer is we see them as separate processes. Now they have run kind of on a time line in very close parallel almost on top of each other. So look, there are parties that are interested in both. There are parties that are interested in one or the other and again, we touched on it in the presentation, but they're very different in nature. So EG-31 is kind of gas brownfield LNG tie back through existing facilities, et cetera, 18 in the outboard multibillion barrel kind of oil target, so a kind of material kind of catalyst if that comes in. So yes, very different opportunities, and therefore, we run a parallel but separate process, if you like. David Round: Okay. Very clear. Just in terms of the operator's approach in Nigeria, any differences there? Or are they kind of getting on with things in a similar kind of fashion? Aldo Perracini: Yes. Look, good question. I didn't mean to skip over it. Yes, I think they're both very active, which from an operator perspective is what you look for, right? I mean the fields, as we know, they're heading to midlife, they're in that kind of natural decline. What they need is a bit of care and activity. And I think on both -- from both operators, that's what we're seeing. So we didn't talk about Agbami so much, but the plan is to come back. Chevron will drill kind of 6 infill production injector wells in 2027. So it's a pretty big campaign given the age of the field and kind of speaks to, a, their activity as an operator, which is very positive; and b, the nature of the resource base. I think Egina and Akpo, again, slightly different. We're seeing the same infield activity focus from TotalEnergies. There's lots of opportunities there to mature, but there's a wider set of tieback and kind of organic growth opportunities around those FPSOs as well. So we're seeing, obviously, the Preowei which is ongoing. But there are several other discovered resources within the license that we see TotalEnergies is taking quite an active view on at the moment. So yes, look, I think we're comfortable that they're both engaged and active, which again is a nonoperator, really important to see that. Operator: There are no further questions at this -- there are no further questions at this time. I will now hand back over to Shahin Amini to read through your written questions. Shahin Amini: Thank you very much, operator. We've got a number of questions submitted over the Q&A facility and a couple of questions who were e-mailed to us earlier today. So I'm actually going to start with an e-mail question from one of our long-standing shareholders in Sweden. And I'm going to put to Aldo, what are your expectations in the common quarters for further reductions in net debt? Aldo Perracini: Okay. Thank you, Shahin. In relation to debt reduction and the leverage in the balance sheet, I think we have done focus -- we focus a lot throughout 2025. You have seen the amount of reduction we did with the existing RBL as is natural in this kind of instruments, as we progress towards the maturity of the facility we get compressed by the loan life cover ratio, and therefore, we have to continue to make payments or we continue to have a reduction in our borrowing base, and that will continue to happen throughout 2026. So in terms of what we plan for the next year compared to 2025, I think the main difference is that we have already started the process to refinance our existing facility. And so far, we have been getting strong indications from the banking syndicate. And if we're able to achieve that target, which we expect for the beginning of 2026. We then should be in a position to keep our borrowing base higher for a longer period of time, which will give us additional liquidity for whatever reason. So organic growth, inorganic growth and et cetera. So that's the plan in relation to that as we get into 2026. Shahin Amini: Thank you, Aldo, and the same investor, a couple of follow-on questions. I'm actually going to address this myself because these questions are kind of detailed about our 2026 estimates and outlook. As I mentioned earlier, we will give a more detail -- well, we will give a detailed management guidance next year. And Oliver, I think it's fair to say that right now, the team are very busy with the JV partners in sort of setting the Board program on budgets for next year, correct? So there's still some what we need to get through before we ready to give the share management guidance. Oliver Quinn: That's right. We'll play that out through the end of the year. And as you said early next year, there will be a clear forward plan on production forward vision on that production. Shahin Amini: Okay. Very good. And going back to Aldo. This is a long-standing point of debate base. And that's -- the question is that as you're lowering net debt in 2026, what is your expectations or what is your outlook for one in terms of capital allocation and shareholder returns? Can you sustain the dividend? Aldo Perracini: Okay. Good question, and we get that question a lot. I think the sense in terms of capital allocation, again, the focus in 2025 was to reduce the RBL as we were not utilizing the whole liquidity we have available under that facility. And then we achieved significant interest expense reduction throughout the year, which I think it's an important way to generate equity value for our shareholders. Now when we look forward, I think we all -- the way we look through capital allocation and distributions, we look at mainly 4 things. First, we look at the short term or the cash generation coming from the Nigerian agent assets and then how short-term production behaves, that's the first bit. The second bit would be in relation to organic growth through the existing portfolio. As you know, in Nigeria, we fund organic growth with existing cash flow from operations. And outside of Nigeria, we fund organic growth through the carry arrangements which we have put in place with partners, for example, in Namibia with TotalEnergies' true impact. The third part that we look, we then look at the debt obligations. Again, as I mentioned, we would continue to have a reduction in the borrowing base through 2026. So to address that, we have restarted the refinancing exercise, which will give us additional liquidity to go through that. And then the fourth part, which is a little bit of our control or a lot of our control is the oil price movements, right? I think we are looking at oil price forecast for 2026, which are very -- and most of them on the bearish side, which we see also reflected on the forward curve. So we're going to take -- we're going to be very, very careful when we look at additional distributions in 2026 or elsewhere as we prepare for a year where we expect to have a lot of cash flow volatility given the oil price. So that's the mechanism. Those are the -- that's the process that we go through when evaluating dividend distribution. So when we go through all of that, as of this moment, we don't foresee any surprises into 2026. But again, keeping an eye on oil price, which should be the major variance. Shahin Amini: Thank you, Aldo. And there's a couple of questions on M&A. As always, we can't go into detail. So -- but perhaps from a more philosophical and high-level point of view, Roger, perhaps you want to -- first, how does Meren see M&A opportunities in the market and 2 specific jurisdictions have been mentioned, but 1 continent, South America and Nigeria in 2 different questions. How do we view opportunities? Roger Tucker: Thanks, Shahin. So we are looking at a whole series of opportunities. But as I've said before and as Oliver has said, we're in no rush. We have a balance sheet, which allows us the opportunity to wait and find the right opportunity. I think in the short term, it is likely if we do anything, it is likely to be within West Africa and we are reviewing a series of opportunities there. But all I can say at the moment is that we are in -- have the luxurious position of being able to wait until we find the exact right opportunity. So no rush. We are reviewing very, very carefully, and it will -- whatever we do will fit with our investment criteria. Shahin Amini: Thank you. That's really -- I don't have any other questions that we haven't already answered from the webcast. So I'm going to hand back to the operator to bring this presentation to a conclusion. Operator: This concludes today's call. Thank you very much for joining. You may now disconnect.
Operator: Good day, everyone, and welcome to today's Flexible Solutions International's Third Quarter 2025 Financials Conference Call. [Operator Instructions] Please note, this call is being recorded, and I will be standing by if you should need assistance. It is now my pleasure to turn the conference over to Dan O'Brien. Please go ahead, sir. Daniel O’Brien: Thank you, Paul. Good morning. I'm Dan O'Brien, the CEO of Flexible Solutions. Safe harbor provision. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. Certain of the statements contained herein, which are not historical facts, are forward-looking statements with respect to events, the occurrence of which involves risks and uncertainties. These forward-looking statements may be impacted either positively or negatively by various factors and information concerning the potential factors that could affect the company is detailed from time to time in the company's reports filed with the Securities and Exchange Commission. Welcome to the FSI conference call for Q3 2025. I'd like to discuss our company condition and our product lines first, along with what we think might occur in Q4 2025 and Q1 2026. I will comment on our financials in the second part of the speech. NanoChem division. NCS represents the majority of FSI's revenue. This division makes thermal polyaspartic acid, called TPA for short, a biodegradable polymer with many valuable uses. NCS also manufactures SUN 27 and N Savr 30, which are used to reduce nitrogen fertilizer loss from soil. In 2022, NCS started food-grade operations. TPA is used in agriculture to significantly increase crop yield. It acts by allowing the fertilizer to remain longer for the plants to use. TPA is a biodegradable way of treating oilfield water to prevent scale and to keep oil recovery pipes from clogging. TPA is also sold as a biodegradable ingredient in cleaning products and as a water treatment chemical. A special version of TPA is sold as a wine stability aid in our food division. SUN 27 and N Savr 30 are our nitrogen conservation products. Nitrogen is a critical fertilizer that can be lost through bacterial breakdown, evaporation and soil runoff. Food products. Our Illinois plant is FDA and SQF certified. We've commercialized 2 food products. The first was our wine additive based on polyaspartates that was developed in-house. In August, we announced our second major food grade contract of 2025 and our third overall. As noted in the news release, it's a 5-year contract with protection from tariffs and inflation, has a minimum revenue of $6.5 million per year and a maximum if the customer requests it of greater than $25 million per year. The August contract has reached full production. It's running 24 hours per day and it is now our second food grade product after the wine product. We're reviewing methods of increasing production quickly if the customer requests it. Production began in very late Q3 after all setup and new employee training was completed. The first shipment and first invoicing was in very early Q4. Revenue has already reached more than $1 million. Production will utilize equipment that we have been buying and installing over the last 2 years, but had no customer for. Therefore, very little CapEx will be needed to reach $13 million to $15 million per year in sales and mild CapEx in the $2 million to $3 million range to reach $25 million. In January, we announced another larger food grade contract. In order to achieve the objectives of that contract, there are certain actions that must be completed. For example, we need to install new specialized equipment capable of manufacturing the product. In addition, we needed to install a new clean room because our current clean rooms are not suitable for the processes. There have been CapEx and expenses associated with our efforts to earn the January contract business because our food grade improvements over the last 2.5 years did not anticipate this new product category. We estimated additional CapEx of about $4 million for equipment and plant improvements combined. Most of the CapEx and expenses have been deployed already and the remainder will be spent in Q4. We have substantial cash on hand in our U.S. subsidiaries and access to an LLC. There will be no finance -- equity financing needed. CapEx involving equipment and improvements requires lead time for delivery and installation time prior to testing, leading hopefully to purchase orders for production. These lead times are being reduced as much as we can control and our estimate of the earliest that production could begin is late Q4 or early 2026. After we're satisfied that we can manufacture the product at scale and assuming that we can still meet our customers' pricing expectations, we then hope to begin receiving purchase orders. As such, we believe that revenue could begin in Q4 and could reach significant levels by the start of 2026. Earning these orders and hopefully growing them to the estimated maximum revenues of $30 million plus $25 million per year is the critical goal for the next 4 to 6 quarters. We hope to execute this to the customers' absolute satisfaction and obtain all their business before taking on additional major projects. So this does not mean that we're not looking for more customers. We're already doing R&D work in certain areas. However, it does mean that several quarters are likely to elapse before other major customers are found. We would also like to be clear regarding margins in the Food division. In order to obtain such large contracts from a very low base and in order to negotiate tariff and inflation protection clauses, we have lower margins than we prefer. We hope to be in the 22% to 25% range before tax. Future customers will be selected in order to increase our average margins now that we have a base in place. ENP division. ENP represents most of our other revenue. ENP is focused on sales into the greenhouse, turf and golf markets. We experienced strong revenue in Q3, which we estimate will continue in Q4. First half 2026 will likely have higher revenue than first half '25, but followed by strong sales in the second half of 2026, leading to year-over-year growth. The Florida LLC investment. The LLC had a small loss in Q3. The company is focused on international agriculture sales into multiple countries. Its management has advised us that they estimate a return to growth in 2026, which should translate into increased revenue for FSI. International markets like the U.S. market are stressed. So we expect the growth rate to be low. Agricultural products in the United States remain under pressure. Crop prices are still not increasing at the rate of inflation and extreme uncertainty is present due to tariff changes. Growers are facing a conflict between rising costs and low crop prices, aggravated by political actions. In some cases, sales have been lost for the whole season. As a result, we saw weakness in Q3, which we expect to continue in Q4 and on into the start of 2026. Tariffs. The current tariff on all our imports of raw materials from China into the United States is between 30%, 58.5% depending on the material. We will be careful not to import materials unless destined for U.S. customers who are certain to purchase and are aware that increased tariffs will be added to their invoices. We've now managed our transition to Panama to perfection, and we've had to import some raw materials into the U.S. in Q3. Some of this tariff costs will be passed on to customers. Some will qualify for the rebate program and some reduced our Q3 margins. The Panama factory for international sales. We've nearly completed a duplicate agriculture and polymer factory in the country of Panama that will be capable of producing nearly all the products we sell to international customers. We estimate that the first production from this factory could begin in Q4 2025. All of the equipment has arrived. Raw material inventory is on hand. Leasehold improvements are complete and equipment installation is close to finish. The remaining hurdle is obtaining an occupancy permit from the Panamanian government, which could slow startup. CapEx and expenses to develop the new plant have been funded by cash flow and retained earnings. There will be no need for debt or equity financing. Once operational, nearly all our product for international sales will be made in Panama using raw materials sourced without the U.S. tariffs. There will also be shipping advantages. The new plant is 30 minutes from the port, inbound raw materials and outbound finished goods will not have to be shipped across the United States to and from Illinois. For our international customers, delivery times will be shortened by many days. Reduced shipping time and no exposure to U.S. tariffs on international sales could allow us to increase sales to existing customers and obtain new customers over the next 2 years. We're already providing quotes for potential Q1 delivery. Moving most agriculture and polymer production to Panama, free space at the Illinois plant so that food grade production in the United States can be optimized and expanded substantially as more U.S. customers are found. Shipping and inventory. Shipping prices are stable. Shipping times are reasonable on the routes we use. Raw material prices are stable, but they're increasing in line with inflation. Highlights of the financial results. Sales for the quarter were up 13% compared to the 2024 period, $10.56 million versus $9.31 million. Profits. Q3 recorded a loss of $503,000 or $0.04 a share compared to a gain of $612,000 or $0.05 a share in Q3 '24. Many costs incurred to prepare for the potential new revenue from the food grade contracts announced in January and August negatively affected Q3 profits because they're being expensed as they occur. Some costs for the Panama factory also being expensed quarter-by-quarter. This will continue in Q4 for Panama and Q4 for food products, but at a lower level. We've done our best to maintain profitability as we built the new factory and repurposed the existing one for the new revenue streams in food products. Unfortunately, we did not manage it in Q3, and we are uncertain about Q4, because we don't know exactly when Panama will start or when revenue from the August contract will exceed costs. In Q1 2026, we do expect profits to revert to past levels and increase as our food product revenue grows. Operating cash flow. This is a non-GAAP number useful to show our progress, especially with noncash items removed for clarity. For 9 months 2025, it was $4.26 million or $0.34 a share, down from $5.91 million or $0.47 a share in '24. Cash flow has been reduced by the same costs as noted for profits, and it's expected to rebound in Q1 '26. Long-term debt. We continue to pay down our long-term debt according to the terms of the loans. The loan we used to buy our ENP division was paid in full in June this year. Our 3-year note for equipment will be fully paid in December 2025. This will free up over $2 million in cash flow per year for other purposes. Working capital is adequate for all our purposes. We have lines of credit with Stock Yards Bank for the ENP and NCS subsidiaries. We're confident that we can execute our plans with our existing capital and without resorting to any equity actions. The text of this speech will be available as an 8-K filing on www.sec.gov by Wednesday, November 19. E-mail copies can be requested from Jason Bloom at jason@flexiblesolutions.com. Thank you. The floor is open for questions. And Paul, will you make that happen, please? Operator: [Operator Instructions] And we'll take our first question from Tim Clarkson of Van Clemens Capital. Timothy Clarkson: Great quarter. In terms of getting ready for the new business. Obviously, losses are never good. So I was wondering when you talk about the margins being somewhat lower than your traditional business, 22% to 25%, are those gross margins or net margins? Daniel O’Brien: Those would be our expectation for gross margin before tax. So... Timothy Clarkson: Okay. So what kind of a net number after everything you think you'll make on this business? Would it be more like 5% or 10% or 15%? Daniel O’Brien: Well, let's just take the bottom end, our 20% anticipated gross before tax. In Illinois, we pay roughly 31% tax rates. So 28 x 0.69 is around 14%. Timothy Clarkson: Okay. Well, those are still good margins. Now you mentioned on the first food additive product, the wine product, it's kind of a preservative. What's the functionality on these food products, if you can say? Daniel O’Brien: I'm actually not allowed to say by contract on either of the food contracts. The companies involved really want to keep their -- themselves secret. So I'm sorry about that [indiscernible] customer. Timothy Clarkson: Yes. Well, I'm guessing it would be either a preservative or a taste kind of a thing would probably be what it would impact. Now are these chemicals, brand-new chemicals? Or are these chemicals that you guys have some legacy with? Daniel O’Brien: We have no legacy, but the chemicals are not new to the industry. The -- we've been targeted as a supplier because of our quality and our willingness to work with the customers. So this is an existing technology, and there aren't going to be any like health concerns or areas of that worry. Timothy Clarkson: Did you have some personal relationships with these guys? Or how did the relationships actually develop? Daniel O’Brien: We develop personal relationships based on meetings. One of them, the one I can talk about openly was a meeting at a trade show. So we go about to tell people that our second name is solutions and do they have any problems. And eventually, we find people with a problem, either quality, cost, performance, location. And we solve their problem, and we give them a solution and we get a contract. Operator: And our next question comes from David Marsh of Singular Research. David Marsh: Just wanted to touch on the new contracts. I wasn't following you entirely. It sounded like you've begun realizing revenue on one, but there's a second one that you have not yet begun realizing revenue. You are anticipating recognizing revenue on that in the fourth quarter. Is that correct? Daniel O’Brien: Yes. Maybe this is a great chance to explain how the time frames make this a confusing situation. We obtained a contract in January that we are not going to be able to begin providing product and getting revenue for until late in Q4 because we have to install all the equipment in the clean room. Then we got a second contract in August that we actually had all the equipment and clean room for. So we were able to get the second contract running before the first one was ready to go. And that's why it's as confusing as it can be. Have I explained that adequately? David Marsh: Yes. No, that's very helpful. Are you expecting to be able to recognize revenue on that January contract in the fourth quarter, though? Or is it possibly going to slide into Q1 just with getting the clean room ready and everything? Daniel O’Brien: We think that Q4 is possible. We know that Q1 is for sure. It might even just be weird things like Christmas breaks that caused us to slide into Q1, but it is that close. So no guarantees for Q4, definite guarantees for revenue in Q1 '26. David Marsh: Got it. And are you providing any guidance for Q4 at this time? Or are you just going to hold off for now just because of the uncertainty around that second contract? Daniel O’Brien: Yes, Dave, we almost never provide guidance unless it's about a specific item because we've been wrong in both directions so many times when we did it in the past that we feel it's -- we're too small, too nimble for our own good. And we just can't give guidance that we feel is valid, so we don't give it. David Marsh: No, I understand. Let me ask one other question around the top line, if I could. When all 3 of the contracts, the January, the August contract and then the ongoing wine contract are running and hitting on all cylinders. What do you think that the run rate annual revenue for those 3 contracts is going to look like? Daniel O’Brien: When and if -- now let's say if because it's up to the customers. But if we get all the business from the customers that they believe they have to -- for us to earn, it's -- the total is between $50 million and $60 million and the time at which we would hit that run rate would be in 2027, not 2026. Operator: Our next question comes from Greg Hillman, an investor. Gregg Hillman: Yes, 2 things. Going back to one of your older products, WaterSavr. On your PowerPoint recently, you're talking about WaterSavr saving up to like 40% of evaporation for like reservoirs and lakes. And I thought in some of your prior information you put out, it was only like 20% savings. Did that product improve over time? Daniel O’Brien: No. 40% is the largest that's possible. It is a biodegradable product. It's typically in a set of good conditions, you'll see 40% evaporation control on day 1. Day 2, it's likely to drop into the 20s and day 3 into the 10 to 15 to 20% range and then taper off rather rapidly unless it's reused. So the PowerPoint shows the best available situation. The average situation might be in the 20% range. The greater problem with that product is how to sell it to people who, a, can't see it because it is an invisible transparent layer; and b, our in bureaucratic situations where continuous proof of function is needed. And if it's already on the reservoir and you've already tested it, but you can't keep track of it on a day-to-day basis, it's an extraordinarily hard sell. I often tell people, bring me a partner who has satellite technology to show the actual evaporation rate off all surfaces all the time, and that's how we will convince the governments of the world. Until then, we're definitely going to have difficulties selling to governments. We are successfully selling to oilfield companies who know how much water they have for things like fracking and where the water is worth -- they know how much the water is worth and they'll spend to save the evaporation. So it's a difficult problem and a difficult product. It's certainly why we've taken emphasis off of it. Gregg Hillman: Okay. And then switching to your 2 grade aspartic acid with these new contracts. Can any other substance do a similar function like, I don't know, acrylic acid or I don't know if acrylic acid is used for food at all, but some other product? Daniel O’Brien: There are alternative systems. One uses a cellulose filtration program. There's another one that uses acrylic acid columns, not to add the acrylic acid directly to the wine, but acrylic acid ionic columns. The problem with that and also the best alternative is chilling the wine all the way down to, I believe, minus 3 Celsius and holding it for several days. All of these methodologies are more expensive than using a polyaspartate solution. And as you guessed, a polyacrylic solution is not allowed for food in several countries. And in the wine industry because things get shipped everywhere, it's not approved for food in any country, it's not going to be used by winemakers. Gregg Hillman: Okay. Okay. That's fine. And then in your recent press release about you had a deal that you called off and you gave the terms of. I was wondering how much of your time have you been spending on that deal over the past 12 months? Daniel O’Brien: Well, it was a 5-year -- sorry, a 5-month process. I would say I put a couple of hours a day in, so did our operations manager. It never reached the stage of documentation and full due diligence. So we came to a dead end before the major amount of the work had been done. We did set up financing subject to due diligence. But again, these are things that didn't consume a large amount of my time or the corporate time. Sad it didn't go through. It was extremely synergistic, and we were -- until close to the end, we thought it was working. So yes, sad about that. Gregg Hillman: But you never inspected their books, right? Daniel O’Brien: Yes, I saw their financials. Gregg Hillman: Okay. You did. Okay, fine. And also in regard to future deals, like -- do you have a pipeline of future deals you're looking at? Or are you working with an investment banker? Daniel O’Brien: We do not have an investment banker under contract looking for deals. We would only consider deals that we found ourselves or that were accidentally referred to us. It's too hard with an investment banker. They want to get paid, so they find you all sorts of stuff, and then you have to just keep saying no. As to your question about pipeline, we are always looking. We don't have a pipeline at the moment, but that can change momentarily as well. And I really would not want to call it a pipeline even if it did change. Let's just say we take it each target singularly and move through it because it's got to get through some pretty severe screens before we even look at it. Operator: And our next question comes from William Gregozeski of Greenbridge Capital. William Gregozeski: Dan, I've got a couple of questions for you. In regard to the more onetime expenses you mentioned in the third quarter from Panama and the food products, can you give an idea of how much of an impact that was on the expense line in the third quarter? Daniel O’Brien: Bill, I really -- giving numbers like that over the phone is not how I'd like to do it, but I'd be happy to give you after talking to our controller, give you a reasonable number by e-mail. I could tell you 2 things. You'll notice that our agriculture -- traditional row crop agriculture was pretty weak in Q3, including weakness in the LLC out of Florida. What that did was it weakened our financials. And you'll notice that our ENP division did a great job. It sells into the part of the agriculture market that is still vibrant. The turf for people to send their kids to play soccer on or football, ornamentals to keep their houses looking great and golf courses so that the golf courses are green and wonderful. So agriculture has become bifurcated. We're interested in growing in the area that is vibrant, and we're not going to put large amounts of effort and capital into growing the areas that are not vibrant until the cycle comes around and row crop agriculture becomes important again. So that was -- that split between our ENP division, which we only show 65% of the profits from and our row crop division where we get 100% of the profits, but had weakness, that was a big effect on Q3. And just for the actual numbers, I'd really like to take that to an e-mail stream and get you things that are not just off the top of my head. Does that seem fair? William Gregozeski: Yes. Yes. No, that's totally fine. And then with the E&P and how strong that was, that was a heck of a quarter. And you mentioned expecting similar numbers in the fourth quarter. Is that kind of a trend that you guys are focusing on is this a good number for like a Q3? Because obviously, it's somewhat -- it's not stable every quarter, but is this kind of a good base going forward, do you think? Daniel O’Brien: I think that would be a good, strong Q3. Q4, we're working through the early buy from the customer base. And I don't think it's going to be a barn burner like Q3 was, but it's going to be quite strong. And I think that, that's the way to look at that division going forward. It's going to have a much stronger second half than first half, and that's because our customer base is transitioning to a much more early buy-oriented system. And there -- so if the customers are tilting their sales towards Q3 and Q4, it automatically tilts our sales towards Q3 and Q4. So rather than saying, hey, we're going to just keep doing these same numbers. I think what I would like to say to you is that second half is always going to be stronger than first half and that's when we will show our growth for the year. William Gregozeski: Okay. On the kind of the core NanoChem product lines or previous ones, excluding food, is there -- because that was down quite a bit in the third quarter. Is there any hope for -- you talked about ag quite a bit already, but is there any hope that oil or any other industrial application will show growth in '26? Or is this going to be just kind of a weaker segment for you guys until things turn around? Daniel O’Brien: It's going to be very interesting to discover whether we are more competitive and as a result of being in Panama. And if we are and our historic customer base recognizes that, we believe that it's possible that we'll get back to historic numbers in oil. It's a little difficult to tell. And I'd really like to get Panama operational and see not only whether the customers appreciate us and appreciate the quicker shipping and the better service that we can do out of Panama. But I'd also like to find out whether that is actually the best use of our Panamanian production while we're spooling up. It may be that other product lines in the agriculture world are more profitable and growth is easier to come by. So you've seen us for -- I guess, we've -- you've known me for 22 or 23 years now. We are pretty opportunistic. We go where we're appreciated, and we try not to continue down paths that are not working properly. So it's going to be up in the air until we know what the customer base thinks of our Panama changes. William Gregozeski: Okay. And last question I have is, can you talk a little bit about the reason on the Mendota facility sale and leaseback? And then if you'd ever move your E&P production to Peru or if that will just stay outside of Peru, and Peru will just focus on the food products? Daniel O’Brien: Okay. Well, the first part -- or the second part of the question is easy. Peru is going to be food products. It will expand in food products. It won't do anything other than food products except accidentally. Mendota, we sold it because it was not central. We got a leaseback for 60,000 roughly of the 240,000 square feet. We removed the risk of expensive repairs to buildings that we were -- hadn't been able to lease yet. We have a new landlord who's going to have that responsibility. And we now have a single spot where ENP can do all the business and grow as needed without us having to take on the responsibilities and risks of being a landlord. So that was a very specific choice in order to limit risk and allow us to use our available bandwidth for things that we think are going to work a lot better than being a landlord in Mendota. Operator: [Operator Instructions] And our next question comes from Manny Stoupakis of Geoinvestments (sic) [ Geoinvesting ]. Manny Stoupakis: I have a couple of want to get through. Can you first touch on how much were the onetime costs associated with the contract ramp in the Panama move in Q3? Daniel O’Brien: See, that's not a number that I have in my brain for a phone call, but we happily will -- and we're going to be doing it for Bill Gregozeski. We'll happily respond to an e-mail from that. I can tell you that it was responsible for a very large percentage of the loss, if not all of the loss. So it was very significant. And you can imagine that starting a brand-new factory and rebuilding another factory in a food grade quality, in fact, right up almost to drug grade quality. It's not cheap. It's amazing we've done as well as we have this year. I got to compliment my team. They've just done a fantastic job of making sure that we're not spending money on anything we don't need to. Manny Stoupakis: Okay. Fair enough. We'll follow up with that. And then regarding the 2 new contracts, the gross margins on the 2 new contracts, were you preferring to them both being at that same level? Or was that just for the one as far as being lower? The lower gross [ new ] contract? Pardon me? Daniel O’Brien: Both margins will be similar. Manny Stoupakis: Okay. All right. And then I guess, lastly, and I'm just curious, is there a possible data center angle for parts of your business? Daniel O’Brien: None whatsoever. Manny Stoupakis: None, whatsoever. Okay. I just thought maybe with the energy conservation side that's possible, but I just thought I would ask -- I appreciate you taking the question. Daniel O’Brien: No. But hey, that's something that if you want to help the company, data centers use energy, energy often needs water, water evaporates if it's left out in the open. We don't have any connections, but if someone gave us one, we'd follow it and see if we could turn it into money. Manny Stoupakis: All right. Well, we'll do that. My Geoinvesting will reach out to you and we'll talk on the side then. Operator: Our next question comes from Raymond Howe of CFP, Inc. Raymond Howe: My question has mostly been answered. It was about the 317 Mendota sale. What -- the 60,000 square feet that you are leasing back, what gets produced there? Daniel O’Brien: That produces all the ENP products that result in the ENP revenue that we show in the financials. So of the roughly -- I think it's roughly -- we're expecting somewhere around $13 million to $15 million this year out of ENP, that 60,000 feet produces those $13 million to $15 million. Raymond Howe: Got you. And so that portion of the business there and then food products in Peru, correct? Daniel O’Brien: Correct. Operator: Our next question comes from Greg Hillman, an investor. Gregg Hillman: Yes, Dan, just another follow-up on ENP. The products for the turf and the golf courses, are any of those products biological in nature that increase the -- basically that affect the anaerobic [Audio Gap] Daniel O’Brien: [Audio Gap] The abuses that it gets. Was that helpful? William Gregozeski: Yes, that's helpful. And just -- is any of the products being used on football fields like college or pro football fields? Daniel O’Brien: Yes, absolutely. Operator: And our next question comes from Manny Stoupakis of Geoinvestments (sic) [ Geoinvesting ]. Manny Stoupakis: Just had one follow-up question regarding the gross margins on the contracts. Where would you expect margins to be on new contracts moving forward? Daniel O’Brien: We don't have anybody lined up. We -- as I mentioned in my speech, we're looking for new customers. We'd be much happier in the 30% to 35% margin range. I don't know if we can get it, but that's where we're going to be. Manny Stoupakis: That's the target, okay. Operator: And it appears that we have no further questions at this time. I will now turn the program back to our presenter for any closing remarks. Daniel O’Brien: Thanks, Paul. Everybody, thank you. That was an interesting Q&A session. I enjoyed it very much. Looking forward to talking to you next year when we reconvene for the full year financials. Thanks again for taking time to listen today and talk to you next year. Bye now. Operator: Thank you. This does conclude today's Flexible Solutions International's Third Quarter 2025 Financials Conference Call. Thank you for your participation. You may disconnect at any time.
A. Mobley: Well, good afternoon, everyone. My name is Scott Mobley, and I'm President and CEO of Noble Roman's. Also here with me is Paul Mobley, our Executive Chairman and CFO. Before we begin, I want to refer you to the safe harbor statement contained in the summary press release that came out Friday. This conference call will contain forward-looking statements and business assessments of the kind referred to in that statement. So those provisions applied to this conference call as well. Okay. Well, I assume all of you have studied the press release that went out Friday afternoon and that you've absorbed all of those details. Keep in mind that we're holding on releasing the 10-Q for the new auditors to finish with the delay at the moment being the evaluation of that warrant liability. That's sort of a black box calculation that has to do with warrant and derivative valuation modeling. And so that's a valuation firm specializing in those complex formularies. So we'll get the Q out just as soon as we can. In case you did miss the release or you need a refresher, here are a few of the highlights. Net income before taxes was $578,918 for the quarter versus $193,314 in 2024. And keep in mind that income before tax is an important metric because we have that $3.2 million deferred tax asset, which means, of course, that we'll not be paying income tax for quite some time. Total revenue was up 6.8% for the quarter versus last year. Same-store sales in the Craft Pizza & Pub were up 4.2%, and that's despite continuing concerns with consumer sentiment. Margins at the CPPs also increased 12.8% from 7.9% a year ago. The margin contribution from our convenience store program was up 14.8% over 2024 to about $1.1 million. And the margin rate for that segment increased to 73.4% from 65.2% chiefly because expenses in that segment remain relatively stable over a long period of time. A key data trend outlined in the press release is also worth repeating this time around today, and that relates to the trailing 12-month adjusted EBITDA at the year-end 2024, it was a little over $3 million, at the end of Q1 2025 is $3,135,000, at the end of Q2, it was $3,501,000. And now at the end of Q3, it is up to approximately $3,825,000. Our convenience store program continues to build on our backlog franchises sold but not yet open. Our current expectations call for about 27 additional new units during the entirety of the fourth quarter. Of course, that's always hard to predict with exactness as those time lines depend on a number of factors with the underlying convenience store business rather than with us. The psychology around some of the tariff negotiations, particularly with India, as well as the government shutdown had an impact on openings for a while, but things moving along very well at the moment. In fact, we have three brand new locations opening this week. Muncie, Indiana, Lawrence, Michigan, and Harrogate, Tennessee. Some of the same challenges impacted the Craft Pizza & Pubs, mostly as it relates to consumer spending and consumer sentiment. As I'm sure you heard a few days ago according to the recent University of Michigan survey, consumer sentiment has dropped to a 3-year low down 29.9% versus last year. We've had to maintain a value-oriented marketing approach most of the year particularly recently, which is obviously not our preference. For the same reasons, we've not taken a price increase this year. And I don't see doing so in the fourth quarter either. We'll see what the manufacturers have in store at the beginning of the year as far as price escalations, and we'll evaluate consumer sentiment at that time as well. For now, as was mentioned in the press release, we have two products waiting for introduction. One is another value-oriented play off our successful XL pizza launch, and the other is a premium-priced product, a spicy Buffalo Chicken Pizza. I see both running simultaneously at some point here soon with the 2XL party pizza being our primary value promotion and the Buffalo Chicken Pizza being passively marketed in-store and online to grease up margins. Finally, as we noted in the release, the refinancing efforts are proceeding with some accelerating and hopeful developments, but not yet anything we can announce or discuss, conversations and negotiations are ongoing. I know everyone would like to hear more on that, but that is really all we can say at the moment until such time as we have something definitive now. Okay. Well, with that brief review, we're concluding our introductory comments, and we'll now take your questions. A. Mobley: [Operator Instructions] Roger, go ahead. Unknown Analyst: Good afternoon. Very nice quarter. You can't really finance -- talk about the refinancing, but can you tell us how much still owned to Corbel? Paul Mobley: Approximately $6,000. A. Mobley: $6 million. Unknown Analyst: I'm sorry, how much? A. Mobley: $6 million approximately. Unknown Analyst: And you say in the press release that you opened an additional 9 more franchise units this year so far than you did last year, but what is the actual number opened? A. Mobley: No, that was actually saying that our backlog, Roger, had increased by 9. So we're anticipating opening about 57 to maybe 60 on the high end for the year with maybe, what, 14 more yet for the rest of the quarter. Paul Mobley: We've already 15 in this quarter. A. Mobley: Yes. We've already -- I don't know if you caught that, Roger, but we've opened 13 already this quarter. Unknown Analyst: Right. And can you update us with those franchise numbers. Can you tie that in and update us on the status of the Majors agreement to open 100 units and also have the been any more follow-up agreements for additional units with Majors? A. Mobley: We've not entered into any agreement to add to their development plan yet. I wouldn't foresee that happening for a while. We have been opening additional units. We opened a couple more for them here recently, and they're continuing to put more in the line, and they -- well, progression. So they're done here next year. Unknown Analyst: And last, can you comment on cheese and commodity prices? A. Mobley: Sure. So good news is cheese right now is about at the 10-year long-term average. So that's better than some of the high prices we had, especially through a lot of last year and into the first part of this year. How long that will last? I don't know, but we did just receive some -- forgot what it was, 22,500 pounds at a pretty good price. So that will carry us through for a good month. Other prices have been fluctuating up and down Meat prices obviously have not been favorable. It's impacted a couple of our different toppings but nothing extraordinary. There continues to be spot shortages with chicken products due to calling it the avian flu. And it's the avian flu that's actually been causing a lot of the beef pricing problems in addition to some of the tariffs. Mark, go ahead. Unknown Analyst: Congratulations on a great quarter. My question, it seems like you've done a really good job navigating the current environment. We've seen a lot of like fast casual kind of get hit. And I don't know, it seems as if the value promotion is -- I don't know how much that has affected it. And if so, it's kind of exciting, you're kind of adding on to that. But I guess with the numbers, it appears to not really -- we haven't seen the cost of goods for the month, but it doesn't really seem to be affecting that too badly. And just kind of add some color on that. Are you seeing add-on sales things like that? And how much of the XL is being purchased? A. Mobley: So we've taken kind of a double track on that. I try to -- I don't try, follow the numbers very closely every single day, and I try to parse out what we're seeing in terms of guest counts, average check add-ons. And our strategy, first of all, with the consumer sentiment, the way that it's been. Obviously, we have to be value-oriented not our preferred playing field, but that's the playing field we're on. So rather than trying to discount our existing products, we created a whole new product that we could offer at a value price and have a reason for offering it at that price, and that's sort of how the XL pizza evolved. But simultaneous with that, we've been running product specials that have higher margins. For example, I mentioned the Spicy Buffalo Chicken Pizza that we'll probably be launching here yet this quarter. Previously, we launched the Stuffed Crust Pizza. All of those are done at regular menu pricing. And most of those are being marketed on site at the restaurant passively. So as people come in, we're working on upselling to exciting products like that. So all that is to say that we try to bring in the value-oriented customer and at the same time, offer exciting new products that are premium priced for those that are willing to pay that price. Paul Mobley: Your question about cost of sales was 20.8% third quarter this year compared to 21.4% third quarter last year and 20.7% for the 9 months ended September 30 compared to 21.1% for the same 9 months last year. So we're ahead in cost of sales by a good half percent. Unknown Analyst: Yes. That's excellent considering the environment. How are you seeing same-store sales for the first, like, say, six weeks of Q4? A. Mobley: Well, Q4 started off with a little bit of a roller coaster here and there because of the -- oddly enough, the Charlie Kirk assassination had an impact for a few days on sales and then the government shutdown had an impact on sales here and there with various announcements. But then outside of those periods, we've had some good same-store sales increases. So if the market trends back now that the government is back open and all that pessimism is past us, then hopefully, I know Sunday we are up quite a lot. I don't have all the numbers handy here, but it's -- we're hoping for a return to normality here. Unknown Analyst: Okay. I know you can't really -- don't want to talk too much about refinancing. But just you're doing -- being very aggressive in paying down the debt. It just seems like even in the current terms, you'd almost have it paid off in 3 to 4 years if you wanted to. And we never have to hear the word refinance ever again. But with you -- I'm sure you'd be sorry to hear that. But is that kind of what you would prefer? Would you continue? It seems like you're able to handle that $91,000 payment, especially with over the last quarter fairly easily? Are you still looking to pay it off aggressively like that? A. Mobley: Well, if I never heard the term refi again, I would be very, very happy. But yes, our goal is to secure refinancing that obviously, we can continue to pay down on rapidly likely have been. Paul Mobley: We have those terms already signed until June of '26. A. Mobley: With our current finance. Paul Mobley: With our current loan. So we'll continue that. And we're doing that without losing any cash flow. We're gaining a little cash all the time. So that's -- we're handling that just fine, and we could continue to handle it. The situation is that Corbel, while they're happy and they go along with us and we have a good relationship with them. They have closed -- or they're trying to close out that fund that has financed us and we've agreed that we will continue to aggressively try to find an acceptable financing source to pay them off. But the bottom line is we have an agreement for their current deal until June '26, end of June '26. Unknown Analyst: Yes. And like I said, that's -- I think each quarter, you're knocking off like 5% of the principal. So just working -- right. Okay. Thank you very much. A. Mobley: All right. Any additional questions? I'll give it just a second here. All right. Well, I don't see any additional questions. So we'll go ahead and call it an afternoon. And we'll be back in touch very soon and talk to you then. Thanks very much for participating today.
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: 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.]
Operator: Good morning, everyone, and thank you for participating in today's conference call discuss Jones Soda financial results for the third quarter ended September 30, 2025. Before we begin, let me remind everyone that the company's safe harbor disclaimer. Certain portions of our comments today will concern future expectations, plans, prospects of the company that constitute forward-looking statements for the purpose of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. Forward-looking statements include all statements containing verbs such as aims, anticipates, estimates, expects, believes, intends, plans, predicts, will, may, continue, projects or targets and negatives of these words and similar words or expressions. Forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those indicated by the forward-looking statements. Factors that could affect our results include, among others, those that are discussed under the heading Risk Factors in our most recently filed reports with the SEC, including our annual report on Form 10-K, our quarterly reports on Form 10-Q and our current report on Form 8-K. In addition, this call includes discussions of certain non-GAAP financial measures, including adjusted EBITDA, most directly comparable GAAP measures, reconciliations for non-GAAP measures and are available in the earnings release and other documents posted on the company's website under Investor Relations. A telco replay will be available after the call through December 1, 2025, and a webcast replay of today's webinar will also be available for 1 year via the link provided in today's press release as well as on our company's website. Now I would like to turn the call over to Jones Sodas, CEO, Scott Harvey. Thank you. Sir, you may begin. Scott Harvey: Thanks, Jerry. Good morning, everyone, and thank you for joining our third quarter 2025 earnings call. As you recall, the first half of this year, we primarily focused on disciplined cash management and strengthening our supply chain. These initiatives have proven highly effective for Jones, we reduced our selling, general and administrative expenses, rightsized our portfolio and completed the divestiture of our Marijuana assets, of which position the company with a stronger financial foundation. In the third quarter, we built on these operational gains and achieve further meaningful improvements. We consolidated myJones in the e-commerce under a single fulfillment partner, reducing costs and increasing efficiencies. We centralized warehousing and logistics, optimizing freight routes and enabling multi-SKU load pairing. And lastly, we improved forecasting and inventory management, supported by supplier renegotiations and a shift to just-in-time inventory model. The improvements made through the first 3 quarters of 2025 has strengthened operational efficiencies and position the company to scale effectively as order volumes are expected to increase. Under prior management, Jones faced challenges in maintaining margins during periods of heightened demand and as many of the operational efficiencies limited scalability. By addressing these issues in myself and Brian's first years of management, the company is now equipped to handle higher order volumes without the drag of significant rising cost. These enhancements create a stronger foundation for sustained top line growth while preserving margins. Furthermore, making these fixes has allowed us to shift our focus towards growth. This quarter, we expanded our Club and DSD distribution network to increase reach and volume in our core soda business. We achieved record D2C channel performance through our Bethesda partnership, and we broadened our Zero Sugar portfolio, meeting growing consumer demand. These initiatives support our overarching goal of driving sustainable growth across the 3 key categories of core, modern and adult beverages. Our strategy is to pursue controlled and disciplined expansion with each one of these categories. One of our biggest takeaways from this quarter is the success from our strategic partner and socially rooted marketing campaigns. Initiatives like Crayola and Bethesda were huge excesses, leading to record-breaking D2C sales. Today, consumers engage with brands as a form of personal expression, not just consumption, social currency is beginning to increasingly define category leadership. Collaborations roots in culture, virality and nostalgia have proven more effective than typical product innovations. Products designed with visibility, collectibility and community interaction are the products that we see the most success in the future, and Jones is strategically aligned with this shift. We see this alignment exemplified by the success of our launches like fallout and Crayola. This reflects our team's ability to anticipate consumer demand and deliver products that truly resonate. Looking ahead, we expect to continue similar launches in the quarters ahead. One of these upcoming rocket bottle launch is forthcoming in this quarter. The iconic rocket bottle from the follow-up series goes on sales in Q4, followed by additional flavor launches in 2026, is expected to become a collector-driven product supporting premium pricing and recurring demand. Before passing the phone over to Brian to cover our third quarter financial results, I wanted to cover 2 recent developments. The first major factor is the recent U.S. government ruling tied to new hemp regulations affecting HD9 products. This language was passed last week and was folded into the legislation for reopening the government with no debate. We are closely tracking evolving interpretations of the law and validating all effective dates, including that, the provision is set to take effect 1 year from the Bill signing, and we expect clear interpretation within the next 60 days to understand precisely how these changes may be applied. Until the final guidance is issued, it remains business-as-usual for our operations, including producing high-quality products, our fans consistently seek out and rely on. This period also allows us to work closely with other organizations to advocate for responsible science-based regulation across the industry. At the same time, we're prepared to activate our contingency plan immediately should the regulatory environment require it. While the situation is disappointing, we remain confident in the long-term strength and potential growth of our adult beverage category. The second development I want to highlight is the anticipated growth within our Core Soda segment in the fourth quarter. Through our strategic partnerships with Bethesda and the Fallout series and targeted marketing initiatives, we have secured a substantial volume of purchase orders scheduled to ship throughout this month and into December. When combined with strong performance across other channels, this is expected to generate more than $8 million in fourth quarter revenue. This achievement underscores our team's ability to identify and execute new growth opportunities. As we continue to deliver on similar orders, we not only strengthen our financial profile, but begin to develop credibility and build brand equity in the industry. Establishing this credibility in growing the brand is so important to our long-term mission as it opens up the door for opportunities that were unattainable before. This is a huge win for Jones, and we expect to build upon this momentum in the coming quarters. With that, I'd like to pass the call over to Brian to talk more about our third quarter financials. Brian? Brian Meadows: Thank you, Scott, and good morning, everyone. Net revenue in the third quarter increased 15% to $4.5 million compared to $3.9 million in the year ago period. The increase in revenue was primarily driven by sustained growth in our HD9, direct-to-consumer and fountain products. Scott mentioned, we expect to see increased net revenue in the fourth quarter, driven by higher volumes in our core soda category into 2026 for our very successful fallout related product lines, that includes Sunset Sarsaparilla and the exclusive Fallout Vault-Tec packs through our Club Channel. As we stated in our news release, our fourth quarter gross sales guidance is $8 million, driven by these Fallout products. Gross profit increased by approximately $0.6 million or 76.7% to approximately $1.3 million compared to $0.7 million last year. Gross margin as a percentage of net revenue increased significantly to 28.9% from 18.8% in the prior quarter or an incremental 10.1 percentage points. The major improvements to gross margin were driven by lower trade spend, lower product costs as well as lower freight and warehousing charges. As mentioned last quarter, our team issued RFIs for our freight lanes to further optimize transportation. We've continued to rationalize our warehousing to reduce costs, resulting increase in gross margin reflects these initiatives, along with ongoing efforts to lower COGS. The company continues to look for opportunities to decrease the cost of goods sold with it's co-mans, co-manufacturers and our warehouse and providers. Total operating expenses decreased approximately 20% to $2.7 million in the third quarter compared to $3.4 million in the year ago period. Additionally, G&A costs declined by 8 percentage points to the share of revenue year-over-year, and we remain focused on identifying further cost reduction opportunities. What's important here is the cost cutting, Scott and I implemented early in the year is sustainable. We are looking to now focus on growing the top line and continue to make improvements to the gross profit margins. As our top line growth is expected to accelerate in the quarters ahead, our volumes will increase and that means we'll have opportunities to negotiate lower co-manufacturing fees, ingredient and packaging purchase costs. We'll also continue to focus to hold down SG&A costs to get to a lower percentage of net sales in the coming quarters. Net loss for the quarter was $1.4 million or negative $0.01 per share compared to a net loss of $2.6 million or $0.02 per share. The improvement in net income was driven by a combination of higher gross margin and lower operating expenses. Adjusted EBITDA improved 65% compared to prior year to negative $0.9 million compared to a negative $2.2 million in the previous period. Lastly, I wanted to touch briefly on our balance sheet as of September 30, 2025, the company had approximately $0.2 million in cash and $0.6 million in working capital. Early on in my tenure as CFO, I made the decision to move to a different line of credit facility. This is an extremely important move for Jones as it increased our credit facilities from $2 million on a small base of assets to borrow against to $5 million on a larger base of assets to borrow against. Scott and I needed some time to ride the Jones ship and the extra room and -- the credit line has just done just that. We have reduced costs significantly and cut the EBITDA loss down by over $2 million for the 9 months. Credit facility is also financially supported the buildup of inventory for the sales forecast for Q4 of $8 million. We'd like to thank our partner, Two Shoes Capital for believing in the Jones leadership team to complete the turnaround in our business in 2025. I'd also like to highlight that with the change in HD9 legislation, Scott and I will carefully manage for this development to keep our inventory levels in HD9 as low as possible and continue to derisk our exposure in the coming months. Scott highlighted previously, we see a number of market opportunities for Jones in its core business with the success of the follow-up products in Club, DSD and the direct-to-consumer channels. Additionally, we plan to focus on the untapped opportunities Spiked Jones to build the alternative adult segment, and lastly, look to drive volume for the modern soda category in 2026. With all this momentum in the fourth quarter, I extend to see this growth take shape while continuing to focus on operational discipline. Scott, over to you for the final remarks. Scott Harvey: Thanks, Brian. The future of Jones remained in driving growth across our key focus areas, which are core Soda, modern and our adult beverage. Within our core soda, we continue to expand and grow our distribution partners while launching exciting and socially relevant initiatives. In modern soda, we're excited about the growth we see in our marquee products, Pop Jones and Fiesta and remain bullish about the functional beverage category as a whole. As we continue to sign new distribution partners for these products, we are excited to further align offerings with consumers' behavior and preferences. In the adult beverages, although we expect HD9 to be a smaller part of the category due to U.S. regulation, we are excited about Spiked Jones sits, and we will continue to look for ways to increase our market share in the adult beverage category. To wrap up, Q3 was a great quarter for Jones Soda. We continue to make significant operational improvements that have strengthened our business model and position us for success. Additionally, we're beginning to see some momentum across the brand in our sales channel, supporting by meaningful orders that will help elevate the company, drive revenue and create more opportunities ahead. This is an exciting time for Jones, and we look forward to building this progress and delivering sustained top line growth, increased profitability and long-term value creation for our shareholders. Before moving to Q&A, I want to take a moment to thank our team. Their resilience, passion and belief in what we're building have been the backbone of this turnaround. I'm equally grateful to our partners and our customers for their continued commitment and support. With that, we'll wrap up the call by addressing some of the questions that have been submitted via the live webcast. Scott Harvey: First question, Brian, it's probably a great question for you to take. Can you provide cash holding guidance given the large amount of accounts payable on the balance sheet? Brian Meadows: As I mentioned earlier, we have a $5 million credit facility that we utilize as we need to draw it to build up inventory. So we expect to have adequate cash resources to roll out our Q4 sales plan and into 2026. Scott, back to you. . Scott Harvey: Great. Thanks, Brian. Second question, it's great that Jones is being innovative with new product development, is there any thought about broadening the distribution footprint through independent DSD network in new markets and making investments in chain account teams to help distribution and authorization of new products? Great question. Yes, I mean, the independents are who we're targeting as well as we're still going after some of the larger distribution networks that are out there. We find that they're great partners with us. They believe in the brand. They're willing to go back and reinvest in the brand as well in order to put the products on to the shelves. When you start taking a look at independent chains, independent account teams. Again, it's just -- it's additional dollars that we'd add on to the -- on to SG&A lines. It's something that we are talking about internally whether or not we focused it on a specific region of the country and see how well it does within there to see the growth that we get out of there, but it's definitely something that we are actually taking a look at internally and continue to have those ongoing conversations about. Third question. Brian, is probably one for you. Where do things stand with the S-1 filing, any potential uplift to J-BEV fundraising efforts than anything material come out of the gateway conference? Brian Meadows: Start with the Gateway Conference. You'll see Scott and I attending these type of events as become available and makes sense for Jones to attend. We thought it was a good use of our time to meet potential new investors who are familiar with the brand from a consumer perspective, but not as familiar with it as a public company. So we think we made some good connections there with potential investors, and you'll see us out there in the future. In terms of the S-1 filing is paused at this stage. We're focused on delivering a great fourth quarter for Jones shareholders, and we will revisit sometime in '26. Scott Harvey: Great. Next question for Pop Jones and Fiesta, have store counts increase held steady or decreased and how well is the sell-through this quarter? Yes. So we've actually expanded our Pop Jones this quarter. We actually were able to get into a few different convenience and -- not convenient stores, but other channels for growth in there. We picked up about 4.3% on Jones year-over-year on Pop Jones moving through there. We were able to get into [indiscernible], which we saw a 96% lift Pop Jones. So it is moving through there. Again, the field is super, super competitive in there within the whole modern soda category. But again, I think the brand differentiator is our flavor profile that we're able to bring in to the consumers as we start to roll out there as well. On the next question, on the last earnings call, it is anticipated -- you anticipate Q3 revenue will exceed Q1 and Q2. What didn't materialize that may have caused that shortfall. Brian? Brian Meadows: The area that I could think, Scott, would be HD9 came in later than expected, and that was due to some co-man issues that were being resolved during the quarter. But I think will -- as you heard from our sales guidance in Q4, that is going to be significantly higher than last year's Q4 numbers. Scott Harvey: Great. Was the Southeast Costco test for core Jones Soda to successful, what were the sellout rate did you observe? It didn't meet the threshold of what Costco was looking for. They have a specific threshold. As I would say, it didn't perform poorly, but it did not achieve that threshold. And I attribute a couple of things to that is that we were into the Southeast, brand is not a lot of notoriety in the Southeast. But in some cases and had some great sell-through in some of the clubs, but not so much in some of the other ones that we were able to get through. How do we feel about that going forward? We're still optimistic. And again, we'll be able to share some more thoughts as we continue through our next conference call. But we've gone back and we're still pitching Costco on a few different ideas. And of course, one rotation through there that may not be successful does not bought you out from getting in there again. So again, more to come on that, some stuff that you'll hear forthcoming. But that initial rotation, yes, it wasn't -- did not meet the threshold that they were actually looking for. Brian Meadows: I just add some question, so there was a news release that we put out in October. I'd like to drive attention to on our success with the fallout exclusive Vault-Tec pack that we ran through the Costco Northeast region. That one exceeded the sell-through hurdle, Scott, right? And we are -- as the news release indicated, we're working around the clock to deliver additional products. So as Scott mentioned, just because one particular region, one product didn't work, there are other opportunities that we're exceeding -- we're selling with Costco. Scott Harvey: With Costco. Brian Meadows: Yes. That rotation that we did for them up in the Northeast was very unique. I mean it caused a bunch of fury online as to where you're able to find the product. We've seen it up on eBay. So I mean, it actually was a huge success, and we were very excited about that opportunity as was Costco just based upon the sell-through rights that they achieved. Scott Harvey: Next question. You recently hired a new CMO. What strategic and creative shifts do you expect this to bring. I think what Eric brings to us is the ability to be able to look at our current channels that we want to continue to focus on. We keep talking about the same thing, whether it's core, modern or adult, and really try to understand the consumer base that's within each one of those categories. So Eric's job will be is how do we communicate and we look at it from like this perspective, like I call it the 3Es really. For each of those categories, we want to understand how do we educate our consumers, how do we entertain them and how we engage them. And that's part of the pillars that Eric will be able to run after. One, it's identifying who those consumers in there, whether we think that they are or not, we need to validate that through data, figure out how do we go back and connect with them via social media or in-store displays or TPRs that we may do. So it's really about -- what he will bring to this is really that strategic vision as to -- how do we get the brand out there, how the brand gets notarized in notoriety. And as we mentioned, even with the Fallout Vault-Tec that we did with Costco and some of the others and some of the D2C stuff that we do, it's about building brand impressions, meaning getting that Jones name out in front of people where it becomes a household name where people begin to recognize it when they walk down their aisle. So his job will be is to strategically put us in place on how do we execute the 3Es and then how do we connect with our consumers to drive value and incrementality of each one of those categories. And then staying on top of flavors and profiles and brands and what do we need to change within our categories or add when new flavors are on the horizon, how do we adapt to stay relevant within our existing channels that we run after. So great question. Next question was previous leadership proposed a refreshed brand direction in modernizing Jones, look, while keeping key classic elements. Does Jones company plan to continue evolving the brand to remain culturally relevant to avoid a appearing outdated on the shelf. And I think quick response to this would be, yes, I mean there's -- I think it's a yes and no question. One, because one people recognize is for pictures that are on the bottles, right? So that brings back nostalgia. It brings back relevancy. It gives us the opportunity to be able to connect with our customers from them submitting in -- submitting in pictures that could potentially be on the bottles as well. But then you look on the flip of that when you looked at the Pop Jones and the Spike Jones that they're a little bit different. They don't have the pictures on there. couple of reasons for those could be the fact that, hey, when we do long production months and changing them out, maybe less frequently. But again, Eric, who's joined as the CMO is taking a look at those of how one stay relevant but don't lose who we are going forward. So I think that there's a combination of both and we have to find that medium in between as to how do we stay relevant with today's look and feel by not also raising our 30-year heritage of the brand that made Jones, which is, "Hey, I'm putting my -- somebody's photo up on one of our bottles. If we're able to come up with a way that we're able to define it as we continually talk about internally is that, we have to have a label strategy and a flavor strategy. If we're able to figure out how do we -- how we bring those pictures in and get them on the cans and rotate them more quickly, it's definitely something that we will continue to look at on an ongoing basis. Next one is sort of ties into the same one. Why did Jones steer away from including customer photos on top Jones and the Fiesta Jones. I'd literally just -- I just touched into that. And again, it's about quantity of production runs, cost of production runs, how do the pictures portray onto a can versus a printed paper label. So again, it's something that we're looking at and Eric is spending some time on how do we bring that to life, if possible. Because, yes, it does -- it is meaningful for people to see that on there and it really relates back to who we are. Next question, previously mentioned discussions with Walmart. Has that conversation advance? And what is the opportunity or has that opportunity been paused for now? Great question. We did have that meeting with them. There were 30 different brands that did the presentation to the Walmart buyer, which included all the better-for-you carbonated beverage. What Walmart came back with is that, hey, they were looking for strong regional retailers that are delivering sales in there, and we were able to point out that through some of the existing chains that we're in, how well that our performance did. They talked about a potential test to be able to roll that out, and they had great feedback on the 5 flavors that we have produced for them. Where is it today? Well, unfortunately, the buyer that we were speaking to has moved on. So now we are a bit in that -- a pause as they onboard that new buyer. And once they're in there, then we'll continue to get up in front of them and follow up as far as where we were within that queue of that potential product launch that we have there. If HD9 gets shut downs, can Jones repurpose the 800-plus coolers that have been deployed to pivot to Spiked Jones? Absolutely. Yes. So as a matter of fact, I was just at the National Association, the Convenience Store Operators convention a couple of weeks ago, and we had the coolers on site. The good news about the coolers is that they're not HD9 branded, they're Jones branded. So there other than some window claims that are on there, they can definitely be repurposed, not only for modern or spiked or core. So they can be reutilized and those are internal conversations that we are talking about as well. Brian Meadows: Sorry, I was just going to add, a number of our distributors carry multiple Jones products as well. So we wouldn't have to redeploy in those cases. Scott Harvey: Yes. Great. Thanks, Brian. What about Pop Jones, no mention of this. I did touch on Pop Jones. And just as an example, we launched Pop Jones in this past quarter, all 5 SKUs into Meijer, Jewel, Fiesta Foods as well. So there is movement on there. We are going back and taking a look to try to see how we improve the economics on that product as well to get us more competitive that's in there and whether or not that again, it's looking at the ingredients. We're not going to play with flavor because people love flavor, but we will look at trying to improve the COGS to get us to a better value proposition in order for us to be able to compete with, like I said, at Costco or at Walmart with those 30 different other manufacturers that are out there that are competing for that same space. Last question would be exactly why was the fundraise and uplist pause. Brian, can you add any additional color to that? Brian Meadows: Yes. I would say the following. First of all, Scott and I are, as you can see from our dialogue today, I'm pretty excited about the fourth quarter. We think -- and I use the word to complete the turnaround this year. We think we're going to be a better spot if we -- the Board wanted to raise additional capital once we complete the year and demonstrate what Jones has accomplished in 2025. Secondly, the NASDAQ, for example, has increased its uplift capital raise requirements to $15 million from the original $5 million. So these are the 2 reasons. But again, we've got the credit facility to help finance the increase in inventory that we need to do for the fourth quarter. So we're in good shape, and we are excited to complete the year, Scott. Scott Harvey: Yes. Great. Next question. A year ago, we were hearing about exciting growth with Jones Fountain. You mentioned Fountain as being part of the profitability. What is happening with this. Well, we actually launched a segment into a particular customer so far. And there is great excitement around that as well as that we've got some big things that we're working on within the convenience channel of open heads within some of those convenience channels to be able to launch fountain. And with great excitement. And it can either be carbonated or noncarbonated products. So again, the teams are working diligently on that to be able to see if that's another way for us to edge our way into space and unoccupied heads within some of the convenience stores that were in there. So more to come on that one, but it is something that the team is exploring as we go through. Next question, how often can you capitalize on Fallout opportunities do similar opportunities in the future? Fallout series is that we have a 3-year commitment with Bethesda, based who represents Fallout. So we still -- we're only in year 1 of year 3. So we will continue to capitalize as much as we can with Fallout. The question is, is there other opportunities? And the answer is absolutely yes. And we are going down those exploratory issues now with some really exciting potentials coming forward. We looked at Crayola. We did Crayola this year, too. So you look for us probably doing something again for the for the back-to-school coming up in next year with the Crayola as well. And the teams are actively out there talking to other potentials, which are getting us excited in there because we have the flexibility to be able to adjust, adapt and create. And again, going along those same lines about educating people about our brand and entertaining them and engaging them. So I really see that is an ongoing opportunity for us to be able to engage in these licensed properties opportunities for us on an ongoing basis, whether it's in a store and a club or on our D2C side or on their D2C site as well. So I think that there's great optimistic outlook on those abilities for us to be able to partner with these licensed properties on an ongoing basis. Brian Meadows: Scott, could I get you to maybe talk about one other thing. We talked about Fallout, the amount of the viral nature of how explosive that went in social media and how it brought people's attention to the Jones brand again and all that attention. I think you used the words that would have cost an awful spot in terms of formal advertising. They get the Jones name out there like that. I wonder if you could touch on that and then how that has elevated the Jones brand again to the other potential partners that have noticed and taken notice of the whole phenomenon. Scott Harvey: Yes. Great question. So yes, I mean, we -- when Fallout -- when we rolled Fallout out, we did put some allocate dollars behind how are we going to market this to be able to drive some social media buzz around this. So there is 2 ways that we were actually able to accomplish this. One was that direct investment in there about going out and paying to engage consumers to look at our post and paying for that. And what we saw was a minimal investment drove millions of impressions of the posts that we were able to put out there. We worked with specific influencers that were in the Fallout space. So hey, we went and engaged one of them. We pay them a fee. They did it post and that post just through their following, just explode it. What that did for the brand as it brought us back to relevancy is, hey, it's a Jones product, partnering with Fallout was able -- were able to drive these impressions all across. Each one of these -- and again, if you follow us on Instagram, you've seen a lot of posts over the weekend where we were in Vegas out in the desert where the Fallout series in a saloon where it all actually takes place and it's in the actual series itself. We had a booth. We were engaging with consumers. We debuted the rocket bottle that we're going to sell here in we actually had a picture of the rocket bottle in the stars, the star of the show stand behind the bar, and that just exploded as well. So all of that is, again, it's helping the fallout series itself, but it's also about helping the brand itself by one, building impressions of us getting that name Jones out in front of consumers where they go, Fallout and Jones. And it will drive consumers to us. And we did see this when we rolled out the Sunset Sarsaparilla on our website. Astronomical amount of sales. Again, it was associated with a follow-up, but we're able to capitalize on those benefits of selling our product and getting our name out in front of consumers on a go-forward basis. Brian, I don't know if I missed any part of the question that you had. Brian Meadows: The only -- and I know you can't name names, but we certainly saw other interested brands come forward as a result, I think, of Fallout, yes. Scott Harvey: Yes. Yes. Two different things. One is that we've had other licensed properties contact us already as to, hey, saw what you did there? Could you probably help it out with that? And we've had some really exciting conversations over the last week about that. So more on that. but not only on that side, but it also came from our customers. We've had customers that we've gone to approach before that didn't -- weren't really interested in Jones but came back to us since we've done this follow-up and saying, "Hey, how can you help us with something like that on a go-forward basis where before they wouldn't entertain a conversation with us. Now we're actually getting inbound phone calls from potential either big box clubs or such that are interested in how do we help them develop products for them to be able to draw consumers into their space as well. Great. Those are all the questions that were submitted today. And hopefully, we were able to answer your questions and again, provide you some insight and how things that Brian and I are working on. We'd like to thank everyone again for taking the time to listen today. Again, I'd welcome further questions or we'd be happy to take one-on-one calls later this week or in the next again, and please direct any inquiries to jsda@gateway-grp.com. I'd be happy to address accordingly. And again, if I don't speak to you soon, I look forward to addressing you all again when we report our full year and fourth quarter results in March. Again, thanks again, everyone, have a great day. And operator, back to you. Operator: Thank you. Ladies and gentlemen, this concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.
Operator: Hello, and welcome to the Air Industries Group Third Quarter 2025 Earnings Conference Call. [Operator Instructions]. This call may contain forward-looking statements as defined in Section 27A of the Securities Act of 1933 as amended, including statements regarding, among other things, the company's business strategy and growth strategy. Expressions which identify forward-looking statements speak only as of the date the statement is made. These forward-looking statements are based largely on our company's expectations and are subject to a number of risks and uncertainties, some of which are beyond our control and cannot be predicted or quantified. Future developments and actual results could differ materially from those set forth and contemplated by or underlying the forward-looking statements. In light of these risks and uncertainties there can be no assurance that the forward-looking information will prove to be accurate. This call does not constitute an offer to purchase any securities nor a solicitation of a proxy, consent, authorization or agent designation with respect to a meeting of the company's shareholders. At this time, I would like to turn the call over to Lou Melluzzo, President and CEO. Please go ahead, sir. Luciano Melluzzo: Thank you, Donna. Good morning. Before we begin, I'd like to note that given the level of detail in our press release and Form 10-Q, we'll keep our prepared remarks brief. We will, of course, take a few questions at the end if anybody has them. Now on to the numbers. But before I turn the call over to Scott, I do want to let you know that on our consolidated balance sheet, we are reflecting all of our credit facility and subordinated debt as current. Our credit facility matures at the end of December of 2025, and our related party subordinated notes mature on July 1, 2026. At this time, I can't comment further other than to say that the company is actively engaged in a constructive discussion with all lenders regarding potential refinancing or extension of these obligations. I encourage you to refer to our Form 10-Q for more details on the status of these notes and related disclosures. With that, I'll turn the call over to Scott for the numbers. Scott? Scott Glassman: Thank you, Lou, and good morning, everyone. Our results for the third quarter of 2025 showed a meaningful improvement compared to both the first 2 quarters of this year and the third quarter of 2024. Net sales for the 3 months ended September 30, 2025, were $10.3 million. Gross profit was $2.3 million or 22.3% of sales. This is a strong improvement, reflecting the benefits of our cost reduction initiatives earlier this year. Our operating income came in at $316,000, our net loss for the quarter was just $44,000 or $0.01 per share compared to a loss of $404,000 in Q3 of 2024. Adjusted EBITDA for the 9 months ended September 30 was $2.7 million, up nearly 5% from the prior year. Let me touch briefly on the balance sheet. Our total debt has increased by approximately $2.4 million. Inventories increased by $5.6 million, reflecting our investment in work in process inventory and materials to support future deliveries. Accounts receivable has decreased by $2.1 million and accounts payable has increased by approximately $2 million. With that, I will turn the call back over to Lou. Luciano Melluzzo: Thanks, Scott. As you heard, our third quarter performance showed measurable improvements in profitability and operational discipline. While we remain focused on completing our ongoing lender discussions and finalizing the right capital structure for the future, we are confident in the strength of our core business. We continue to benefit from strong backlog levels and a healthy demand from both existing and new customers. Our focus remains squarely on execution, cost control and driving shareholder value. We look forward to a strong finish to fiscal 2025 and continued momentum into 2026. Thank you for your time and support. Donna, with that, I would like to open the line to questions and answers, if you may. Operator: [Operator Instructions] Mr. Melluzzo, we're showing no questions in queue at this time. I would like to turn the floor back over to you for closing comments. Luciano Melluzzo: Thank you, Donna. Thank you all for taking the time to be on the call today and for your continued interest in Air Industries Group. We look forward to updating you on the progress of our ongoing operations on the next call. Thank you all for joining. Donna, you may end the call. Operator: Thank you. Ladies and gentlemen, this concludes today's event. You may disconnect your lines at this time, and enjoy the rest of your day.