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Operator: Good morning, and welcome to Bitcoin Depot's third quarter 2025 Conference Call. My name is John, and I will be your operator today. Before this call, Bitcoin Depot issued its third quarter results in a press release. A copy will be furnished in a report on Form 8-K filed with the SEC and will be available in the Investor Relations section of the company's website. Joining us on today's call are Bitcoin Depot CEO, Brandon Mintz, and CFO, David Gray. Following their remarks, we will open the call for questions. Before we begin, Cody Slach from The Gateway Group will make a brief introductory statement. Mr. Slach, please proceed. Cody Slach: Thank you, operator. Good morning, everyone. Before management begins their formal remarks, we would like to remind everyone that some statements we make today may be considered forward-looking statements under Securities and involve a number of risks and uncertainties. As a result, we caution you that there are a few factors, many of which are beyond our control, which could cause actual results and events to differ materially from those described in the forward-looking statements. For more detailed risks, uncertainties, and assumptions relating to our forward-looking statements, please see the disclosures in our earnings release and public filings made with the Securities Exchange Commission. We disclaim any obligation or undertaking to update forward-looking statements to reflect circumstances or events that occur after the date forward-looking statements are made except as required by law. We also discuss non-GAAP financial metrics and encourage you to read our disclosures and the reconciliation tables to applicable GAAP measures in our earnings release carefully as you consider these metrics. We refer you to our filings with the SEC for detailed disclosures and descriptions of our business as well as uncertainties and other variable circumstances including but not limited to risks and uncertainties identified under the caption Risk Factors in our recent filings. You may get Bitcoin Depot's SEC filings for free by visiting the SEC website at www.sec.gov. I'd like to remind everyone that this call is being recorded and will be available for replay via a link in the Investor Relations section of Bitcoin Depot's website. A supplemental earnings presentation highlighting our performance has also been made available on our IR website. Now I will turn the call over to Bitcoin Depot's CEO, Brandon Mintz. Brandon? Brandon Mintz: Thanks, Cody, and good morning, everyone. Thank you for joining our third quarter 2025 earnings call. Bitcoin Depot delivered another strong quarter exceeding the preliminary results we announced in October. Our third quarter performance once again demonstrates the operating leverage in our business model, supported by continued kiosk expansion, higher transaction volumes, and disciplined cost management. As a result, we achieved meaningful revenue growth, a substantial increase in adjusted EBITDA, and further improvement in profitability and cash generation. Consumer demand remained quite strong in the third quarter, with median transaction size up 40% year over year to $350 and total transaction volume moving steadily higher to $162.5 million. Our kiosk growth and optimization plan continued to deliver the intended results, with Q3 gross profit up 40% year over year and adjusted EBITDA up 75% to $16.1 million. We ended Q3 with approximately 9,300 active machines and expect to see continued growth in kiosks for the remainder of the year. As for our BPM relocation strategy, today, 3,800 of our kiosks have been installed for less than one year. As these machines ramp up, we expect to drive further cash flow as our Bitcoin ATMs typically see payback periods of less than eight months regardless of Bitcoin price. Now turning to an update on our growth strategy. First, international expansion. We have now deployed over 260 kiosks to support our ongoing launch in Australia this year. Australia continues to emerge as a global hotspot for Bitcoin adoption, currently ranking third worldwide in total Bitcoin ATMs. While it's still early, we are encouraged by the retail partnerships and expansion opportunities we have identified so far. Beyond Australia, we just commenced operations in Hong Kong, as announced earlier this week, and continue to work through the regulatory process in other jurisdictions. Next is scaling our domestic footprint. We continue to deploy kiosks from the large inventory we secured last year. Once fully deployed, these units could bring our total active fleet to approximately 10,500 kiosks. This will enhance our reach and support further efficiencies across the business. Given the strength of our business and our improved balance sheet, strategic M&A is also an opportunity to scale domestically and internationally. In fact, in early October, we acquired the assets of National Bitcoin ATM, a prominent BPM operator across 27 states. The acquisition adds over 500 kiosks to our network, further solidifying our leadership as North America's largest Bitcoin ATM operator and accelerates our mission to provide accessible, secure, and convenient access to Bitcoin across communities nationwide. Turning to corporate and financial governance. We continue to make significant improvements. In early October, we announced the rollout of our new compliance standards that make Bitcoin Depot one of the only operators in the industry to require customer identification before transacting for any amount of money. This initiative applies to all new and existing customers, ensuring they benefit from the highest level of protection well beyond what is currently required by federal law. We also introduced additional protections for seniors, reinforcing our leadership in consumer protection and responsible access to digital assets. These steps reflect our belief that long-term growth in this industry depends on trust and accountability. While our enhanced compliance standards have had a modest effect on near-term transaction activity, the more meaningful headwind to our outlook stems from recent state regulations that imposed transaction size caps or fee caps across several states. We view both developments as constructive for the long-term health of the industry. As the largest and most compliant operator in North America, Bitcoin Depot is well-positioned to navigate this evolving regulatory environment. These changes are expected to weed out smaller, less compliant operators, further differentiate our business, and support continued growth and leadership in the market. Looking ahead, with over $70 million in cash and digital assets, we remain well-positioned to pursue growth opportunities and strengthen the crypto ATM market. We continue to focus on scaling efficiently, enhancing our compliance protocols, and using our strong balance sheet to pursue accretive acquisitions. Our team's execution, operational discipline, and financial strength position Bitcoin Depot to deliver sustained value for our customers, partners, and shareholders. With that, I will now turn it over to our CFO, David Gray, who will walk through our financial results in more detail. David? David Gray: Thanks, Brandon, and good morning, everyone. I'm pleased to share the financial highlights for our third quarter as follows. Revenue was $162.5 million, up 20% from 2024. This growth was driven primarily by increased kiosk deployment, higher median transaction sizes reflecting strong consumer demand, as well as the results of our kiosk redeployment efforts. Gross profit in 2025 increased 40% to $28.2 million compared to $20.2 million in 2024. Gross margin in the third quarter increased 250 basis points to 17.4% compared to 14.9% in the third quarter of last year. This margin increase was largely driven by leveraging the cost structure of our BTM networks against higher revenue. Total operating expenses were $18.3 million compared to $16.9 million in last year's third quarter, with the increase due to higher non-cash stock compensation expense and indirect taxes. GAAP net income for 2025 increased 139% to $5.5 million compared to $2.3 million for 2024. GAAP net income attributable to common shareholders increased to $5.5 million or $0.08 per share compared to a net loss of $900,000 or negative $0.05 per share in last year's third quarter. The increase was due to higher revenue and income from operations in 2025. Adjusted EBITDA, a non-GAAP measure, increased 75% to $16.1 million in 2025 compared to $9.2 million in the third quarter of last year. This increase was primarily due to revenue outperformance and margin expansion. Now turning to our balance sheet and cash flow. Cash, cash equivalents, and cryptocurrencies as of September 30, 2025, increased to $72.9 million compared to $31 million in 2024. We generated $33 million of cash from operating activities in the first nine months of 2025 compared to $17.3 million during the same period last year, an increase of over 90%. Subsequent to the third quarter end, we raised gross proceeds of $15 million in a registered direct offering. This additional liquidity was raised proactively to afford us the opportunity to be strategic with further M&A opportunities. Debt, which includes a term loan, finance leases, and profit share arrangements, was $70 million at quarter end compared to $60.9 million in 2024. Of the total debt balance, $25 million is our term loan, and $39 million is comprised of profit-sharing liabilities. As a reminder, these profit share arrangements entail an upfront lump sum payment to the company by our partners in exchange for a portion of future profits generated from a specified group of kiosks for a specified period of time. Because we continue to operate and typically retain title on the machines, we must account for these arrangements as debt under US GAAP. We currently do not anticipate further expansion of the profit share program going forward. Now turning to our outlook. We anticipate Q4 revenues to range between $112 to $115 million and adjusted EBITDA to be in the low single-digit millions. As Brandon highlighted, we expect fourth-quarter results to reflect the impact of typical seasonality, recently enacted state regulations, and to a lesser extent, our enhanced compliance standards. While these factors are expected to weigh modestly on near-term results, we believe they reinforce the integrity and sustainability of our business over the long term. As the largest and most compliant BTM operator in North America, Bitcoin Depot is uniquely positioned to lead the market through this evolving regulatory landscape and capture share as smaller, less compliant operators exit the market. We remain focused on operational excellence, maintaining strong profitability, and advancing our leadership position while continuing to invest in growth initiatives, compliance, and technology that will deliver durable shareholder value. With that, we are now happy to take your questions. Operator? Operator: Thank you. Ladies and gentlemen, we will now begin the question and answer session. At this time, I would like to remind everyone in order to ask a question, please press 1 on your telephone keypad. If you would like to withdraw your question, simply press 1 again. Your first question comes from the line of Harold Goetsch with B. Riley Securities. Please go ahead. Harold Goetsch: Hey. Good afternoon. Good morning, guys. Can you give us a bridge maybe to the components of the difference between the guidance today and maybe prior estimates on the street in terms of, like, how much of it is state regulation, what are the states that are involved, how much do you think this is seasonality? And how much of it is enhanced compliance standards? Like, what would you stack it up as contributors to the guidance? Because it looks to me like you're gonna have a quarter this one of the lowest revenue quarters you've had in three or four years. Scott Buchanan: Yeah. Hey, Hal. This is Scott Buchanan. Thanks for the question. Yeah. If you were gonna stack rank those, the biggest impact is definitely the state regulation. Because those, as you're aware, place limits on transaction sizes or fee limits. And so that's the biggest impact. The second biggest would be seasonality, as we always see Q4 being the lowest quarter. And that'll continue to be the case here. And then third would be the proactive compliance changes that we've made internally, that we announced a couple of weeks ago, with the collecting ID for every customer and enhanced protections for elder customers. I don't have, like, percentage breakdowns of how much I think each of those impact because it's not black and white, but that's definitely the order they would be in of how much impact there is to the volume. Harold Goetsch: Could you give us a feel for what states were kind of the biggest regulatory changes in the quarter and what others might be on tap if that's a major trend? Scott Buchanan: Yeah. So it's less, like, one specific state and more that there's been so many recently. So this year, there's been over 15 states that have enacted some sort of restrictions, whether on transaction sizes or fee caps. And like, six of those went into effect in Q3 into early and go into effect early Q4. And so a bunch of those came in in the past couple of months, and so that's where the bigger decline coming into Q4 is. And kinda like we saw with California, you see the biggest drop initially when you first implement these changes. And then as the rest of the space catches up and becomes compliant as well, then we see volume recover and come back a little bit. So we expect the steepest drop to happen initially. And then as it levels the playing field again and everyone's compliant with the new requirements in each state, I think volumes will recover a little bit in those states from that point. Harold Goetsch: Okay. And if I had a follow-up, what, you know, National Bitcoin ATM is is that deal closed. Right? Is is that how much is that gonna maybe contribute in in the fourth quarter? Scott Buchanan: Yeah. That deal is closed, and we still have to convert all the kiosks. So we buy them, and then we have to convert all the kiosks for our platform to fully get all of the revenue and profits. And so we're most of the way through that now, and it'll be fully completed by Q4. Harold Goetsch: But could you give us an idea of what kind of productivity they were having before you acquired them? Scott Buchanan: I don't have the exact numbers in front of me, but if you take their kiosks as a percentage of our kiosks, they're roughly in line with us in terms of volume per kiosk. Harold Goetsch: Okay. Thank you. Operator: Once again, if you would like to ask a question, please press 1 on your telephone keypad. Your next question comes from the line of Pat McCann with Noble Capital Markets. Please go ahead. Pat McCann: Hey, guys. Thanks for taking my questions. I wanted to piggyback on the question regarding the transaction limits in the states and whatnot. I guess what I'm wondering is, you know, back when that was an issue with California initially, you know, there was that problem of other operators not being compliant. So it was an uneven playing field. And, Scott, you kind of alluded to that, you know, as others become compliant in these recent states to enact regulations, the playing field will level, and that should help recovery of volumes. Is there anything to give you confidence that in these more recently enacted regulations that these states will be strict in enforcing those regulations so that your other competitors will eventually become compliant as you are? Brandon Mintz: Hey, Pat. It's Brandon. Great question. Yes. We've started to see the playing field level in some of the states that were early on in passing legislation. Once bills like this pass, it takes a state a little bit of time for the regulator to kind of evaluate the space and figure out if operators are complying and then figure out how to enforce the law if operators are not complying. Now that SB 401, which was the original bill that had transaction and fee caps that passed in California a couple of years ago, has been active for a while, we've started seeing some enforcement actions against smaller operators who are not complying. And that has helped level the playing field there, and there is now a large reduction of kiosks in California compared to the number of kiosks that were there a couple of years ago. So the remaining kiosks that we have in California are actually doing pretty good volumes today compared to, you know, a year or so ago, for example, when a lot of the operators that were not complying were still able to continue to operate. And so I think that enforcement action that's been happening in California amongst the noncompliant operators is sending a message probably across the entire country to all operators who maybe previously weren't complying with these laws in the states that have passed them that they need to. And it will further put pressure on them to either sell or shut down their businesses. Pat McCann: Thank you for that. And then my other question was regarding 2026. I was just wondering as we look ahead to that, if you could give an overview of what you expect the dynamics to be between your new kiosk deployment versus a redeployment or optimization of existing kiosks? Brandon Mintz: Well, we still do have a large number of kiosks in our inventory today. We still have over a thousand currently, so we do expect to have still a significant number of newer deployments, but at the same time, we do expect to have a significant number of relocations. Obviously, some of the states that have passed legislation this year, it's still just so early. And we don't know the full impact of it since some of the states were just passed a couple of months ago. But as Scott alluded to, we're typically seeing some recovery over time, and typically the worst impact is right after the legislation is passed, and then some competition may be reduced because of that, and then we may recover a bit. So I think you'll continue to see still a number of machines that are less than a year old, you know, in the thousands like you have been seeing. And it's hard to say exactly how much net new kiosks there will be because we don't know how many exactly we will relocate from states that have had legislation passed. But we anticipate for states that have had legislation passed, that we will relocate more machines from those states than states that have not had legislation passed. And I will say if you guys look back a few quarters ago, when we originally had that impact from the California SB401 bill pass, we had a downturn in our numbers temporarily, and then if you look at 2025, we've put out some very excellent beats against guidance and analyst expectations. So we're still confident moving forward that we can continue to optimize our fleet even though there may be temporary bumps in the road. There's still a lot of geography out there for us to deploy in that has not had a regulatory impact yet. And we're continuing to diversify with the international expansion as well. As you saw within the past day or so, we announced that we've entered Hong Kong. Actively working on other international jurisdictions as well that do not have any of these fee caps or transaction limits in place, and we're not seeing any activity brewing in the near future. So you'll continue to see in summary, the relocations, and we will do our best to focus on net new deployments, but hard to specify an exact number. Pat McCann: Thanks very much. Operator: Your next question comes from the line of Mike Colonnese with H.C. Wainwright. Mike Colonnese: First for me, is there any way you could size the market opportunity in Hong Kong as it relates to Bitcoin ATM deployments? And are there any interesting or major players there that are acquisition candidates for Bitcoin Depot? Brandon Mintz: Mike, thanks for the question. The Hong Kong market for the size country it is is kind of interesting because you have a handful of players that are in the 100 plus kiosk range. And even though the industry compared to the US is smaller, we see it as an exciting market to enter into. I wouldn't expect the Hong Kong market currently to grow to, you know, many thousands of kiosks just based on the size of the country. But we do see it as a good opportunity to diversify and build a decent-sized fleet of kiosks that could be meaningful to our overall revenue number and our bottom line. And the operators there potentially could be acquisition targets. Of course, we're open to having discussions with operators wherever we want to expand to, and we always focus on a two-pronged effort of organic expansion and having conversations about acquisitions, and it's all just about ROI and cost-benefit analysis to determine which way we move forward. Mike Colonnese: Got it. Thanks for that, Brandon. And any updates you can provide on your BitLicense with NYDFS? I know you guys seem to be getting closer and closer to that, especially with the more favorable regulatory backdrop in the United States. Just curious if you have any updates or spending any advancement on that front. Brandon Mintz: Right now, it does not seem very likely that it will happen anytime soon for us. We're still not aware of any Bitcoin ATM operator that has received a BitLicense. And I'm not sure of the state's appetite to allow any operator to operate a Bitcoin ATM company in the state based on how it's going today. Mike Colonnese: Thank you for taking my questions. Operator: At this time, this concludes our Q&A session. I would now like to turn the call back over to Brandon Mintz for closing remarks. Brandon Mintz: Thanks, everyone. We'll talk to you guys next quarter. Thank you for joining today for Bitcoin Depot's conference call. You may now disconnect your lines. Have a pleasant day, everyone.
Operator: Good day, and welcome to the MarineMax, Inc. Fiscal 2025 Fourth Quarter and Full Year Conference Call. Today's call is being recorded. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. I would now like to turn the call over to Scott Solomon of the company's Investor Relations firm, Sharon Merrill Advisors. Please go ahead, sir. Scott Solomon: Thank you, operator, and good morning, everyone. Hosting today's call are Brett McGill, MarineMax's Chief Executive Officer and President, and Mike McLamb, the company's Chief Financial Officer. Brett will begin the call by discussing MarineMax's operating performance and recent highlights, Mike will review the financial results and provide the company's fiscal 2026 financial guidance. Brett will make some concluding comments and then management will be happy to take your questions. The earnings release and supplemental presentation associated with today's announcement can be found at investor.marinemax.com. And with that, I'll turn the call over to Mike. Mike? Mike McLamb: Thank you, Scott. Good morning, everyone, and thank you for joining this call. I'd like to start by reminding you that certain of our comments are forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Any forward-looking statements speak only as of today. These statements involve risks and uncertainties that could cause actual results to differ materially from expectations. These risks include, but are not limited to, the impact of seasonality and weather, global economic conditions, and the level of consumer spending, the company's ability to capitalize on opportunities or grow its market share, and numerous other factors identified in the company's most recently filed 10-Ks and 10-Qs and other filings with the Securities and Exchange Commission. The company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events, or otherwise. On today's call, we will make comments referring to non-GAAP financial measures. We believe that the inclusion of these financial measures helps investors gain a meaningful understanding of the changes in the company's core operating results. These measures can also help investors who wish to make comparisons between MarineMax and other companies on both a GAAP and a non-GAAP basis. The reconciliation to non-GAAP financial measures GAAP measures is available in today's earnings release. With that, let me turn the call over to Brett. Brett? Brett McGill: Thank you, Mike. Good morning, everyone, and thank you for joining us today to discuss our fiscal fourth quarter and full year 2025 performance. Let me begin by recognizing our team's exceptional dedication throughout what has been a challenging year for the recreational boating industry. Elevated interest rates, persistent inflation, and the uncertainty stemming from the trade wars and geopolitical tensions have resulted in many consumers deferring their boat purchases. In the face of these headwinds, our team has remained focused on delivering world-class customer experiences that continue to set us apart as reflected in our industry-leading net Promoter Scores. Our full-year adjusted earnings and adjusted EBITDA were in line with the guidance we gave last quarter. For the fourth quarter, we achieved revenue of over $552 million with same-store sales growth of more than 2%. Despite significant pressure on new boat margins due to the sustained elevated inventory level across the retail industry, our gross margins expanded to 34.7%. Demonstrating the strength of our diversified business model and the benefits of our strategic focus on higher-margin businesses such as finance and insurance, parts and service, superyacht services, and marina operations, including IGY. These diversified revenue sources provide important balance and support our financial resilience through different macroeconomic and industry cycles. We also benefit from cross-selling opportunities between yacht deals, superyacht services, and marina operations, and we are regularly finding new ways to unlock synergies between each of these businesses and deliver greater value for our customers and our shareholders. There are many examples, including a 35-meter Yacht sale at the recent Fort Lauderdale International Boat Show, which resulted from touchpoints across all of these businesses. This is a great example of how we continue to see tangible results across yacht sales, charter bookings, and storage through these connected marketing and sales initiatives. We are confident that our integrated approach will continue to support retail yacht sales and strengthen the connection between superyacht services and marina operations. On the retail side, we continue to add customer service capabilities and strengthen our network. The launch of our flagship yacht sales and service center in Fort Myers, Florida is representative of MarineMax's focus on innovation and customer service. This facility spans more than 30,000 square feet and brings together sales, maintenance, storage, and on-water services in one convenient location in one of Florida's top yachting and boating markets. Locations like these, which combine world-class service and traditional retailing, enhance the customer experience and support efficient cross-selling of our products and services. As the industry's recognized technology leader, we set the standard for digital innovation in recreational marine services. And we are continuing to invest in technology to support customer growth and engagement. A great example is Boatyard, our subscription-based customer experience platform. Which streamlines service ordering, payment, invoicing, and estimating making the boating experience frictionless for both customers and dealers. Since its launch, Boatyard has been well received by the dealer community and has been recognized as one of the industry's most innovative companies on six occasions. Boatyard's active subscriber growth has increased by more than 160% over the past twelve months. And while still in its growth phase, this momentum validates our technology leadership and positions us well for continued expansion. In addition to Boatyard, we are harnessing the power of proprietary technology platforms like CustomerIQ, our business growth intelligence engine, CustomerIQ integrates artificial intelligence and automation to provide us with real-time insights enabling our sales teams to engage more efficiently and effectively with customers and drive conversions. We're in the process of rolling out CustomerIQ across all MarineMax businesses, including IGY and Financial Services. It's a step we believe will further amplify the technology's contribution to company-wide growth. Along with these investments in customer service, technology, and innovation, support long-term value creation, we are also taking steps to optimize our business to enhance operational efficiency. By eliminating underperforming brands and refining our product portfolio, we're aligning more closely with evolving customer demand and driving greater value. Combined with strategic store optimization, this brand and portfolio rationalization enhances operational efficiency and positions MarineMax for stronger returns when macroeconomic conditions normalize. Before I conclude my prepared remarks, I want to take a moment to update you on the success we had at Fort Lauderdale as well as a few other developments. MarineMax had a significant presence at the recent Fort Lauderdale International Boat Show. I am happy to report that the show was stronger than last year and several of our displays produced modern era records. Which along with great customer engagement is very encouraging. Collectively, we sold more boats at the show than any time post-COVID and generated a sizable increase in contracted versus last year. Across the show, we saw exciting developments in sustainable materials, autonomous features, and enhanced vessel connectivity from a wide range of OEMs. Innovative brands are advancing the industry and we are exceptionally proud to be partnering with many of these companies. I would add that our brand Cruisers Yachts launched several new models at the show, including a new 50 flybridge and the 38 VTR. Overall, cruisers set a post-COVID record show in terms of units and dollars. Last month, I had the privilege of joining senior executives from the world's largest marina organizations at the ICOMIA World Marinas Conference. It was a powerful opportunity to reinforce our role as a strategic voice in marine services. Shared perspectives, emerging global trends, and deepened relationships with key stakeholders across the industry. These platforms not only elevate our visibility but also ensure we remain at the forefront of shaping the future of marine experiences worldwide. To support our strategic initiatives and long-term positioning, we recently added two distinguished new members to our board of directors, Odilon Almeda and Dan Shiapa. Odilon and Dan each have proven track records in driving innovation and scaling complex global operations and we're confident that their expertise and fresh perspectives will yield immediate contributions to our board and company. Looking at the broader industry landscape, we are optimistic the sector is near or at an inflection point. While the industry is currently managing inventory normalization, and macroeconomic uncertainty. The underlying fundamentals for premium recreational boating remain exceptionally strong. Now let me turn the call over to Mike for our financial review. Mike? Mike McLamb: Thank you, Brett. I want to echo Brett's appreciation for our team's outstanding performance during this challenging period. Total revenue for the fourth quarter was over $552 million which was down modestly from last year due to the impact of our store rationalization efforts including the strategic closure of 10 stores since 2024. During the quarter, same-store sales increased over 2% driven by growth in used boat revenue, finance and insurance, parts and service, and contributions from superyacht services, and Marine operations, including IGY. In terms of units, they were down in the quarter as we continue to see a migration to higher average unit prices. Gross profit was over $191 million and our gross margin increased to 34.7%. The increase in gross margin as Brett noted reflects continued growth in our diversified higher-margin businesses and was achieved despite historically low boat margins due to the challenging retail environment. Selling, general and administrative expenses were over $177 million. The increase primarily reflects the greater contribution of service-related revenue which drives gross margin dollars, but does have a higher cost dynamic than retail store operations. Along with increases in targeted marketing investments incurred to maximize sales opportunities in a challenging environment as well as higher foreign currency translation costs. Due to a weaker dollar. Interest expense was down slightly year over year. The reported net loss in the quarter was just under $1 million or $0.04 per share which was the same as the adjusted loss per share. Adjusted EBITDA was $17.3 million in the quarter. For fiscal 2025, revenue was $2.31 billion reflecting a same-store sales decline of just over 2% due to the challenging industry environment while total revenue declined 5% given our strategic store and brand optimization efforts. Our full-year gross margin was 32.5%, down slightly from last year despite historically low boat margins across the industry. Our reported net loss per share was $1.43 with adjusted earnings per diluted share of $0.61. Adjusted EBITDA for the full year was about $110 million compared with the $160 million in the prior year. Our balance sheet remains strong with cash of more than $170 million despite buying back a significant amount of shares this year acquiring a great marina and retail operation in Shelter Bay in the Keys, as well as making regular investments in our business including the opening of IGY Savannah, the Stewart Marine expansion, and the opening of the expanded Fort Myers operation among other initiatives. Inventories decreased by nearly $40 million year over year. Reflecting our continued efforts to optimize inventory levels with our manufacturing partners. Our net debt to adjusted EBITDA ratio was about two times quarter end. Providing substantial financial flexibility. Based on current business conditions, recent industry registration data, retail trends, and other relevant factors we expect fiscal 2026 adjusted EBITDA to be in the range of $110 million to $125 million with adjusted net income in the range of $0.40 to $0.95 per diluted share. Our guidance assumes industry units for our fiscal year will be down slightly to up slightly depending on the various factors that have affected consumer demand. This implies same-store sales growth will be flattish to slight growth subject to mix. Retail margin pressure is expected to continue across the industry through the end of our fiscal second quarter which corresponds to the seasonally slower winter months. We expect industry inventory levels to be healthier in the second half of the fiscal year than the same period in fiscal 2025. Given the success of our higher-margin business expansion, we expect to be able to maintain our annual consolidated gross margins in the low 30s. Our guidance incorporates the currently announced interest rate cuts, and uses an annual effective tax rate of 26.5% with a share count of around 22.8 million shares. These projections exclude the potential impact of material acquisitions or other unforeseen developments, including changes in global economic conditions. When you think about 2026, keep in mind our revenue EPS, and EBITDA was tracking well for the first six months of 2025 through March. Despite the challenging environment. It wasn't until after Liberation Day that things grew much more challenging. As such, our front half comparisons overall are more difficult than the back half comparisons. Now let me comment on current trends. October finished with positive same-store sales growth, and Brett discussed the successes we had at the Fort Lauderdale Boat Show. In both cases, we are encouraged but we also recognize the undeniable softness that has persisted in the industry as evidenced by a soft September. Especially for fiberglass boat sales. But while we are encouraged, we are also balanced. Now let me turn the call back to Brett for closing comments. Brett? Brett McGill: Thank you, Mike. Although our fiscal 2026 outlook reflects a prudent approach in light of macroeconomic uncertainty and persistent industry headwinds, we remain confident in MarineMax's long-term strategy and growth opportunities. Our management team has guided the company through multiple challenging economic cycles, and we believe that the continued execution of our strategy will drive sustainable and profitable growth for our shareholders. Our diversification across higher-margin businesses, combined with our strong balance sheet, support our resiliency in the face of industry headwinds while also providing us with the flexibility to invest in growth and seize emerging opportunities. We will continue to focus on strategic initiatives and product innovation, digital engagement, and customer experience. Areas that are becoming increasingly valuable as buyers become more discerning. The recreational boating industry is approaching several potentially positive inflection points. Industry-wide, inventories are expected to more normalized levels over the coming quarters, which should provide margin relief. Additionally, interest rate cuts are generally positive for our consumer, and the further rate cuts that many expect to occur over the coming months should support improved customer demand. The fundamentals supporting recreational boating remain exceptionally strong. Interest in the boating lifestyle continues to accelerate. As evidenced by robust activity levels at our marinas, service centers, and at the recent Fort Lauderdale Boat Show. Premium consumers increasingly view boating not as a discretionary purchase but as an essential lifestyle. As macroeconomic conditions improve, our strategy positions us to emerge more resilient, more diversified, and uniquely poised to capture the long-term opportunities in the global recreational marine market. With that, Mike and I will be happy to take your questions. So operator, please open up the line for Q&A. Thank you. Operator: Ladies and gentlemen, we will now begin the question and answer session. If you would like to ask a question, please press star, and one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Ladies and gentlemen, in the interest of time, please limit yourself to one question. One moment, please, while we poll for questions. We take the first question from the line of James Hardiman from Citi. Please go ahead. James Hardiman: Hey. Good morning. Thanks for taking my questions. So obviously, the same-store sales number accelerated nicely from 3Q to 4Q. I was hoping you could help us out just splitting sort of how much of that was units versus ASPs and then I guess similar question on the month of October. I think you said positive same-store sales for October. Are you actually seeing, you know, unit acceleration, into the off-season? Thanks. Mike McLamb: Yeah. A great question, James. So, obviously, you guys follow the industry. The industry for the core categories that we're in has seen softness, double-digit declines in July, August, and September. Some categories, 25%, etcetera, from a unit perspective. So we typically outperform the industry. So our units for the quarter are down in the mid-single-digit range, which is better than the industry overall. So the difference from down mid-single-digit to up 2% is the increase in average unit selling price during the quarter. And then on the month of October, you gotta keep in mind the month of October last year, we were dealing with a hurricane in Florida. But our units were up in the month of October and we all did see a modest increase in average unit selling price. James Hardiman: That's really helpful. And then just very briefly, just wanted to dig into the rate environment. Obviously, we've gotten a couple of 25 basis point rate cuts. I think the ten-year is modestly lower than maybe the last time we spoke. Are you seeing that show up in terms of relief from your lenders and, you know, is that having any impact from a consumer perspective as they contemplate, you know, lower payments? Mike McLamb: Yes, James. Good I I think, you know, rates for the consumer, obviously, we're kinda dealing in a higher-end segment as we've always talked about. So, you know, monthly payment maybe isn't driving the need to just rush out and buy something. But I've said before, a lot of our customers are small business owners, you know, construction companies, etcetera. And, you know, when there's a rate environment that's more favorable for their business, they get a little more excited and optimistic about things and, you know, they come forward with a boat purchase. So I think both of those things are helping, but, consumer feeling better about the rate, I think, we see some of that, like even at Lauderdale, feeling better about that things are going to come down is, you know, given a positive news that they haven't had in a while. James Hardiman: Got it. That's helpful color. Thanks, guys. Mike McLamb: Thanks, James. Operator: We take the next question from the line of Mike Albanese from The Benchmark Company. Please go ahead. Mike Albanese: Hey. Good morning, guys. Thanks for taking my question. I just want to ask about gross margins. Obviously, jumped, I think, 34% in the quarter. You've been pretty consistent keeping them above 30% here in tough, you know, market. And, obviously, you know, some of that is mix, but it appears your adjacencies are holding up well. Could you just, you know, kinda tap into that a little bit deeper? And I'd love to kind of understand, you know, how much of that has been kind of strategic initiatives, cross-sell synergies, etcetera versus just sustainable demand within those segments? Thank you. Mike McLamb: I can comment. I'll take a first stab that, yeah. In the current environment, boat margins are the second lowest I've seen in twenty-seven years. They're not down as far as they were in the great financial crisis, but they're very low. They're, like, three to 350 basis points below normal. And so hopefully over time, we'll see some upside in boat margins as inventories normalize. But I do think our strategy of expanding in these higher-margin categories, whether it's the marinas, superyacht services, finance and insurance, service, parts, and accessories. A lot there's a lot of different higher-margin components that we've been expanding with. I think, really shines in an environment like this and helps us maintain elevated gross margins overall. It comes through in the quarter. And, Mike, when we set out with this strategy and we're very focused on it with these higher-margin business businesses and the growth we've had in those and the investments we've made in those businesses. It does show through. It shines. And you ask a question. Yeah. Those businesses, you know, have what's close to recurring type revenue as you can get. So you kinda rely on those types of things. Of course, you gotta manage the business. But we're continue to unlock different synergies, cross-selling, know, consumers feeling good about, you know, buying a larger yacht at a MarineMax, you know, Fort Myers location, let's say. Then feeling good about, wow. What if I wanna put that in charter with Fraser Yachts or whatever it might be so that they feel comfortable with that all the way up to, you know, where are they gonna put their boat when they get to The Caribbean through our IGY marina. So we're seeing a lot more of those synergies. And we'll continue to unlock those as well. Mike Albanese: Got it. Thank you, guys. Thank you, Mike. Operator: We take the next question from the line of Joseph Altobello from Raymond James. Please go ahead. Joseph Altobello: Hi, good morning. This is Martin on for Joe. Just wanna take a finer point onto the promotional drag in the quarter. Could you a little bit more color to what that headwind was and sort of what we can expect entering the New Year. Mike McLamb: Yeah. If I understand your question right, Martin, good question. So the I'd say this entire fiscal year, we've seen a very challenged environment because of elevated inventory levels. Really across the industry. Certainly true in the current quarter. I just commented a little while ago just how soft boat margins are. When we think about 2026 and in our guidance, we're not expecting much of a lift in boat margins. I think I commented in my prepared remarks that at least through the wintertime when there's a lot of dealers who are, you know, are feeling softer sales and increased pressure, when it comes to carrying costs, etcetera, I think the margin the pressure will still be there. It is thought that later on in the year when you get into the summer selling season as inventories begin to normalize, that we could see some relief on the margin side. But obviously, it won't snap back overnight, but it will potentially begin to improve like in the summertime in the back half of our. Joseph Altobello: Thank you, Mark. Thank you. Operator: We take the next question from the line of Eric Wold from Texas Capital Securities. Please go ahead. Eric Wold: Thanks. Good morning. Mike, kind of looking at the guidance for fiscal 2026, I guess, your industry assumptions relative to your same-store sales. It looks like, I mean, unless I'm reading this wrong, it looks like you're expecting kinda more in line of performance with the industry versus kind of more of the outperformance that you've had before, especially given the mix towards, you know, higher-end premium boats. Am I reading that wrong? Are you are you trying to take a little more cautious view? On mix, or how should we think about kind of what's embedded in that guided in terms of, you know, relative performance to the industry? Mike McLamb: No. Eric, I think you're reading that right. I think the, you know, the first assumption is does the industry get the flattish units from negatives. That's one assumption that's in there. And then, obviously, what happens with mix from our perspective. But I think we're trying to be prudent in terms of our guidance figures because you're right. We typically do outperform what the industry does. But I think we're really trying to see let let's let's get through fiscal 2026. Let's see that the industry really does get back to, you know, first to zero instead of negative and then to slightly positive in the second half of the year. Eric Wold: Got it. And then just quickly, update us on where you are with, you know, rationalizing kinda operating expenses and in general and overhead and kinda what you expect, as you move through fiscal twenty-six? Mike McLamb: Well, I commented that we've, we have closed 10 stores now since last year and we've made other cost cuts and savings. There is a current drag that's going on within the business, which is just additional marketing spend, additional inventory maintenance spend, etcetera, really that the whole industry is having with the slower turns that we've had, which would improve. But in our 2026 guidance, we're not baking in any substantial, additional cost savings from what we're seeing in the current levels of 2025. Eric Wold: Got it. Thanks, Mike. Mike McLamb: Thanks, Eric. Eric Wold: Thank you, Eric. Operator: Thank you. We take the next question from the line of Anna Glaessgen from B. Riley Securities. Please go ahead. Anna Glaessgen: Hey. Good morning. Thanks for taking my question. I'd like to start on same-store sales cadence. On the one hand, it seems that we're assuming some sequential improvement as we get to the back half in terms of market performance. But then on the other hand, we have some sort of one-time lapse, like, you know, lapping the hurricane in Florida last year, which drove, you know, the easiest comp in one Q. So just trying to understand the puts and takes as we think about the shape of the year. Mike McLamb: No. It's a great question. You're right. I mean, the state of Florida was impacted by hurricanes. We were down negative 11% in the December quarter, then up 11 in March. So technically, we do have an easier comparison right now, which is why I said with October being up, it's up against storms. And then when you go out throughout the year, obviously, the quarter with Liberation Day, which is the June quarter, in theory, is another easy comp. We were down 9%. And then it sort of levels off in September. So you do gotta bake all it in from an assumption perspective. I think the point that I was trying to make in my prepared remarks is that when you look at our bottom line financial performance in the December and the March, we exceeded, you know, our thinking in the street and our guidance in those two quarters. From an EBITDA and from an earnings perspective. So when you're modeling out the whole year, factoring in the same-store sales questions that you're asking. We actually have an easier comparison from an earnings perspective in the back half of the year than the front half of the year. Anna Glaessgen: Got it. Thanks. And then turning back to the boat margin question, you know, understanding the seasonal aspects of maybe getting some improvement once we get through the March when we enter the retail selling season. But trying to understand kind of, like, the key drivers of improvement there. Is it getting through some of the aged inventory that maybe competitors feel? Is it improved market performance? Or is it really just, you know, that seasonal aspect that's impacting the first February of the year? Thanks. Mike McLamb: Yeah. And I'll comment. Yeah. I think that aged inventory, you know, getting rid of that, getting inventory levels down to a more, you know, manageable level and to kind of balancing the supply-demand side is fundamental to everything. The promotional activity is strong. You know, there's also, I think, a consumer sentiment. You know, boat prices have really increased over the last five years. So there's pressure on, you know, just a consumer feeling like they need a discount. Even if there's, you know, not an age inventory or too much inventory. So just gotta kinda lap through that and let customers, you know, get back to a more normal buying pattern. But inventory levels are definitely gonna help, get the margins squared away. Yeah. Industry levels. Yep. Anna Glaessgen: Great. Thanks, guys. Mike McLamb: Thanks, Anna. Operator: Thank you. Ladies and gentlemen, I will now hand the conference over to Mr. McGill for his closing comments. Brett McGill: Well, thank you, everybody, for joining us today, and look forward to keeping you updated on our next call. Have a great day. Operator: Thank you. Ladies and gentlemen, the conference of MarineMax, Inc. has now concluded. Thank you for your participation. You may now disconnect your lines.
Operator: Greetings, and welcome to Eagle Point Credit Company's Third Quarter 2025 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, as a reminder, this conference is being recorded. At this time, I will turn the conference over to Mr. Darren Dougherty from Protech Partners. Please go ahead. Darren Dougherty: Thank you, operator, and good morning. Welcome to Eagle Point Credit Company's earnings conference call for 2025. Speaking on the call today are Thomas Majewski, Chief Executive Officer, and Ken Inorio, Chief Financial Officer and Chief Operating Officer. Before we begin, I would like to remind everyone that the matters discussed on this call include forward-looking statements or projected financial information that involve risks and uncertainties that may cause the actual results to differ materially from such projections. For further information on factors that could impact the company and the statements and projections contained herein, please refer to the company's filings with the Securities and Exchange Commission. Each forward-looking statement or projection of financial information made during this call is based on the information available to us as of the date of this call. We disclaim any obligation to update our forward-looking statements unless required by law. Earlier today, we filed our third quarter 2025 financial statements and investor presentation with the Securities and Exchange Commission. These are also available in the Investor Relations section of the company's website eaglepointcreditcompany.com. A replay of this call will also be made available later today. I will now turn the call over to Thomas Majewski, Chief Executive Officer of Eagle Point Credit Company. Tom? Thomas Majewski: Thanks, Darren. And good morning, everyone. We're glad you've joined the call today. We were very active in managing our portfolio during the quarter, both through deployment into new investments and rotation and optimization of portfolio investments already on the ground. We deployed almost $200 million into new investments, taking advantage of attractive opportunities in both the primary and secondary markets. The CLO equity investments that we made during the quarter had a weighted average effective yield of 16.9%. Additionally, during the quarter, we proactively completed 16 refinancings and 11 resets which strengthened our CLO equity portfolio's earning power and helped partially offset the loan repricings that we faced throughout the year. Importantly, we still have a robust pipeline of additional resets and refinancings planned into 2026. Third quarter recurring cash flows came in at $77 million or 59¢ per share. This is a decrease from $85 million or 69¢ per share in the second quarter. During the quarter, the company generated net investment income less realized losses from investments of $0.16 per share, consisting of 24¢ of net investment income and offset by 8¢ of realized losses from sales on certain investments. The realized losses from investments were primarily driven by rotating some of our underperforming September, our NAV stood at $7 per share, which is down 4.2% from $7.31 per share as of June 30. For the third quarter, the company generated a GAAP return on equity of 1.6%. Our portfolio's weighted average remaining reinvestment period or WARP ended the quarter at 3.4 years, roughly 26% above the market average of 2.7 years. This is slightly higher than the 3.3 years as of June 30, and reflects our long-term strategy to seek to maximize our portfolio's WARP when the reset market is open. As I mentioned at the beginning of the call, we focused efforts during the quarter on portfolio rotation and optimization, which should ultimately enhance our cash flows and earning power going forward. Our position as a majority CLO equity holder in most cases gives us multiple levers to pull to unlock value for the company over time. As many of you know, the loan market has been facing pressure from loan repricings in recent quarters. We did see repricing activity slow down when the credit markets were spooked recently by the idiosyncratic bank of First Brands. However, 42% of loans are trading above par again and we may see repricing activity return. I'd also like to point out that ECC's exposure to First Brands was small, and the losses related to the name were well within our annual credit loss assumptions. In addition, we saw a pickup in LBO activity during September, which is healthy for the market overall and supportive of loan spreads. In other words, an increased supply of new issue loans should help mitigate spread compression pressure, which is ultimately a good thing for our cash flows and our NAV trajectory. During the quarter, we utilized our at-the-market program selectively issuing $26 million of common stock at a premium to NAV. We also issued approximately $13 million of our 7% series double a and b convertible perpetual preferred stock as part of our continuous public offering. We believe this is a highly attractive cost of capital for the company and presents a real competitive advantage for us. We are unaware of any other publicly traded entity focused primarily on investing in CLO equity that has such an attractive program. During the quarter, we paid 42¢ per share in cash distribution to our common shareholders across three monthly distributions of 14¢ per share. Earlier today, we declared regular monthly distributions of 14¢ per share for 2026. The company's board of directors considers numerous factors when setting the monthly distribution level, including cash flow generated from the company's investment portfolio, GAAP earnings, and the company's requirement to distribute substantially all of its taxable income. Before I hand the call off to Ken, I'd like to highlight Eagle Point Income Company, which also trades on the New York Stock Exchange under the symbol EIC. That entity principally invests in junior CLO debt securities. We'll be hosting EIC's investor call today at 11:30 AM Eastern and invite you to join us for that call as well. Ken will now provide details on our financial results. After his remarks, I'll share additional insights on the loan and CLO markets broadly. Thank you, Tom, and thanks, everyone, for joining our call today. Ken Inorio: For 2025, the company recorded net investment income less realized losses from investments of $21 million or 16¢ per share. Net investment income was 24¢ per share. This compares to NII less realized losses from investments of $0.16 per share in the last quarter and NII less realized losses of $0.23 per share in 2024. Additionally, for 2025, the company recorded losses from forward currency contracts of 1¢ per share. Including unrealized gains, the company recorded GAAP net income of $16 million or $0.12 per share for the quarter. This compares to a GAAP net income of $0.47 per share last quarter and 4¢ per share in 2024. The company's third quarter GAAP net income was comprised of investment income of $52 million and unrealized gains on investments and forward currency contracts of $4 million, partially offset by financing costs and operating expenses of $21 million, realized losses on investments of $10 million, distributions and amortization of costs on temporary equity of $6 million, and unrealized losses on certain liabilities held at fair value of $2 million, and realized losses from forward currency contracts of $1 million. As a reminder, temporary equity refers to our multiple series of perpetual preferred stock. In addition, the company recorded an other comprehensive loss of $2.5 million for the third quarter. The company's asset coverage ratios as of September 30 for preferred stock and debt calculated pursuant to Investment Company Act requirements were 239% and 529% respectively. These measures are above the statutory requirements of 200% and 300%. During the third quarter, we deployed nearly $200 million in gross capital into new investments. Our debt and preferred securities outstanding at quarter end totaled 42% of the company's total assets less current liabilities, above our target range of 27.5% to 37.5% when operating the company under normal market conditions. Consistent with our long-range financing strategy for the company, all of our financing remains fixed rate, and we have no maturities prior to April 2028. In addition, a significant portion of our preferred stock financing is perpetual with no set maturity date. So far in the current quarter through October 31, we've collected $70 million in recurring cash flows and expect additional collections throughout the balance of the quarter. Additionally, management's unaudited estimate of the company's NAV as of October month-end was between $6.69 and $6.79 per share. With that, I'll turn back to Tom for a look at market insights and closing thoughts. Thomas Majewski: Thanks, Ken. Stepping back to the market, loan fundamentals remain quite strong. The S&P UBS Leveraged Loan Index returned 1.6% for the third quarter and has continued to perform well through October, returning 30 basis points for the month. There were five leveraged loan defaults during the third quarter, and as of September 30, the trailing twelve-month default rate stood at 1.5%. This is up from 1.1% as of June 30 but well below the long-term average of 2.6%. The widely reported First Brands default drove most of the increase in the default rate, though its impact on the broader CLO market was actually minimal. First Brands accounted for only 30 basis points of our portfolio on a look-through basis, and we do not view it as a widespread indication of credit weakness. While the First Brand loan itself was large, it's important to remember that a good portion of that loan was held in BDCs, not CLOs. Our portfolio's look-through default exposure as of September 30 stood at 34 basis points, which is well below the broader market levels. With rates expected to fall further, we believe defaults should remain muted as loan issuers will have lower interest costs. In addition, corporate fundamentals across the loan market remain quite resilient with issuers generally continuing to grow revenue and EBITDA despite the effects of inflation, tariffs, and movements in interest rates over the past years. During the quarter, the market saw approximately 6.8% of the leveraged loan market or roughly 27% annualized prepaid at par. In general, loan issuers continue to be proactive in tackling their near-term maturities, and the maturity wall we have mentioned on prior calls continues to be pushed out. Unfortunately, while pushing out the maturity wall is good, many of these refinancings by borrowers have also included reducing the spread on loans leading to the spread compression that we've talked about over the past few quarters. On the CLO side, the market saw $53 billion of volume during the quarter, which was up slightly from $51 billion during the last quarter. Reset and refinancing activity for the third quarter was $69 billion and $36 billion respectively, and both of these measures represented significant increases on a quarter-over-quarter basis. Our portfolio metrics continue to stand out versus the market. As of quarter-end, triple C rated exposures within our CLO equity portfolio stood at 4.6%, which is lower than the broader market average of 4.8%. Similarly, only 2.7% of the loans in our CLOs were trading below eighty, and this compares to 3.4% across the market. Our weighted average junior OC cushion stood at 4.6%, well in excess of the market average of 3.7%. These are all important measures that underscore the quality of our CLO equity portfolio. And overall, we believe we have a higher quality portfolio than the market more broadly. The Fed's recent rate cuts have had limited direct impact on CLO equity, as our returns are largely driven by spreads not base rates. In many respects, lower rates can be constructive for the CLO equity asset class easing interest costs for loan issuers. It also helps increase LBO activity, which contributes to new loan supply and potentially wider loan spreads in the future. Looking ahead, we're excited about our near-term investment pipeline. Market conditions have continued to stabilize following the volatility earlier this year. Loan fundamentals remain resilient. If CLO debt spreads remain flat or continue to tighten, we expect to take action on over 20% of our portfolio and unlock refinancing upside in the coming months and quarters. To wrap up, we opportunistically deployed capital at attractive levels, executed resets and refinancings that strengthened the recurring cash flows on our portfolio, and maintained portfolio metrics that are favorable to the broader market. We are positioned with strong fundamentals, meaningful reinvestment optionality within our portfolio, and the flexibility to capitalize on opportunities as they arise. We thank you for your time and interest in Eagle Point Credit Company. Ken and I will now open the call to your questions. Operator? Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate you may press 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. And our first question will come from Gaurav Mehta with Alliance Global Partners. Gaurav Mehta: Thank you. Good morning. I want to ask you on your comments around portfolio resets and refi. I think you mentioned over 20% of your portfolio will be reset and refi. Just want to get some more color on the timeline for that and what would the impact be. Sure. Thank you. Thomas Majewski: Thank you for your question, Gaurav. As we laid out, we completed a significant number of refis and resets during the third quarter, so we were very proactive with our portfolio. And when we talk about our outlook for the future, we're anticipating another 20% of the portfolio makes sense to have some actions taken over the next one to two quarters generically. It's all market condition specific. The biggest thing I would draw your attention to in our investor deck is page 28 or 25 through 28 now where we lay out position by position every single CLO that we have. And what the, what the triple A's are. You'll see the weighted average AAA spread is 134 basis points over SOFR. Right now, generically, you should think of the market as one twenty to one twenty five. Some deals wider, some deals tighter. But and then start looking through the deals that have the highest AAA spreads, and those are gonna be the ones that we that we go after. Combination of triaging, and making an, you know, an educated decision. It's as much of an art as a science of which CLOs will get the biggest potency for us, whether or not we're doing a refi or reset, which ones have the most upside savings or the value in lengthening the reinvestment period. You can see over the course of the year, we've done, I think we're on pace for comfortably over 75 different corporate actions. So, a highly, highly proactive ownership program. And I would expect that to continue market conditions permitting. We may have even a few more slated for this year, and we'll kick off into next year. So I would expect a slow and not slow, but a consistent reduction in triple A costs across the CLO portfolio and lengthening or lengthening of the reinvestment periods of those that were resetting. That said, it is all market dependent, and there's been a period of time. If you look back to Q1, it was reset mania until March 1. And then we put pencils down because the market didn't cooperate proverbially. So there is always that market caveat, but we are working very hard, and we'll do everything, you know, within reason to to to keep the cost lower on the right side of our balance. And I would say no one in the market has done more than us is my belief. Gaurav Mehta: Thanks for that color. Second question, I want to ask you on your near-term investment opportunities. Can you provide some color on what you guys are seeing in the primary and secondary markets for senior equity? Thomas Majewski: Yeah. The market continues open and active right now. Primary market, we continue to see plenty of issuance opportunities. We have a number of loan accumulation facilities, which are kind of the precursor to creating CLOs. Some of those are ripe and ready to go into CLOs whether or not we issue any more this year, a little bit market dependent. As I'm sure you're aware, insurance companies are big buyers of a lot of the rate tranches, and they often have annual budgets to deploy. And they have a funny habit of deploying that budget before the end of the year. So sometimes you see things back up a little bit. In the last week or two. So we may get one or two new done this year. But certainly a robust pipeline into Q1 of next year. And then on the secondary side, you know, hundreds of millions of dollars CLO equity trades every single week. The market's not cheap today by any stretch. It's not you know, bond equity is not being given away. That said, there are still selective opportunities out there. We have both been buying and selling in the secondary market. One of the things we made reference to in our remarks was some rebalancing and lightening on a handful of collateral managers in positions where you know, perhaps we saw more more risk than upside. That said, we've also been deploying in the secondary market in investments where we see more paths for upside. So market is open and active right now. And we are an active participant in every segment of it. But we do remain very selective in the in the areas we're in in the investments we're making. Gaurav Mehta: Okay. Thank you. That's all I had. Thomas Majewski: Great. Thank you very much. Operator: And our next question comes from Mickey Schleien with Clear Street. Mickey Schleien: Good morning, Tom and Ken. I hope you're well. Tom, you mentioned the impact of First Brands on loan spreads. Could you characterize how trends and CLO loan asset spreads in October and maybe even, you know, through mid-November relative to September? Thomas Majewski: Let's see here. So loan spread compression has slowed somewhat. If a few weeks doesn't make a trend. I unfortunately, I wish I could say better there. You know, when we look across our portfolio, you know, this the you know, lots of people ask us about default rates and all that stuff. You know, the number one thing that I don't like right now and you've heard it from us in earnings here for a few quarters, is spread compression. And the weighted average spread on these loans is down I'm gonna say, circa 50 basis points, give or take, over the last year. That is not good. We're doing our part to tighten on the right side through our reset and proactive and refinancing program. An analogy I like to make to people, and this is an analogy, we've got well over a thousand loans and a little over a 100 CLOs. It's kinda picture a wall of sand coming at us on one side. That's the loans repricing. While our team is tossing boulders on the other side. It just things move at a different pace and sometimes a different activity. To your point, there's always a silver lining in clouds, and while, you know, First Brands is certainly not the credit market's finest moment, ironically, it was actually a repricing that they were working on that gave rise to figuring out the fraud, and their quality of earnings were my understanding is the quality of earnings report was getting prepared. And as part of that, some of the things going on at the holdco above the borrower became known. That has certainly put a chill on the repricing market. There are far fewer repricings right now than you'd expect 40% of the loan market trading above par. Regrettably, I'll say it's too soon to declare a victory, though. And, you know, we, you know, we wouldn't surprise me to see a little more pick back up, but it certainly has slowed since the First Brands news. By a non by a healthy margin. Mickey Schleien: Tom, you sort of segued into my next question, which is sort of the longer-term outlook for spreads. Loan spreads. When I look at page 19 of your presentation, you know, those spreads look like they're heading down to their long-term average, as you said, you know, we don't know for sure. Spreads, you know, can move up and down. Over long periods of time, but over the long run, looking at the supply and demand of capital in the loan market, you know, what is your outlook long-term for loan spreads? Thomas Majewski: That's a tough one. Yeah. And we show two averages here. We show the, you know, thirty-five-year average, give or take, and the ten-year average. Obviously, I like the ten-year average better than the thirty-five-year average. What I will say when you think about the pre-2007 average, you know, in the old, old days, and our good friend Peter Gleisstedt might get might I might be slightly off on this. He might know better. Loans had two two two spreads, two fifty and two seventy-five. Like, those are the two choices when you called the loan desk at Chemical or Manufacturers' Hanover a long time ago. Obviously, the market's gotten a lot more sophisticated. When loan spreads were two fifty back in 2006, and I remember as a CLO banker modeling, you know, two fifty, two forty spreads. That was back when AAAs were twenty-five and thirty basis points over. So the funding cost in the market was much, much lower. The loan market and CLO market, whether we like it or not, are inextricably linked. The CLO market, you know, owns about two-thirds of the loan market, even a little more right now. So while we are at the low on spreads over the last ten years at $3.47, I'd love to call a bottom. I can't quite call a bottom there. But when I think about the long-term average going back to the early nineteen nineties, that was influenced significantly by the availability of in those days, LIBOR plus 25 triple A's. When, you know, we're up. A 100 basis points away from that. So if I had to guess, we're closer to the bottom in the ten-year band than well, certainly than the top. You get one or two other credit things pop up. You know, frankly, you know, the way media cycles work, like, I'll use an example. Like, our friends at, you know, Citibank for a while, it felt like they could do nothing right. They had the mistake with the Revlon loan, then that, like, $27 trillion wire. You know, just everything that went wrong, you know, kind of seemed to get attention. My sense is the credit markets are gonna be that kinda get that focus from the media. You know, there was some headline I saw in Bloomberg about a loan in a, you know, in a BlackRock BDC that took a big write-down. Again, it's probably one loan in a portfolio of hundreds, but it got attention. The good news around that is it probably helped abate loan spreads and, you know, potentially even a path for widening. One of the pieces we did share is that M&A activity does seem like it's picking up, which is good. To the extent, you know, what's been going on is a lot of the same loans are just getting repriced and handed around and refinanced and repriced tighter. To the extent we see new names coming into the market, which it feels like we are with loan spreads lower. It makes M&A a little more easy. Could we see a little new supply which would help? So can't call a bottom. I'd love to. We are at the ten-year low if you look at this chart. Hopefully, that means there's some upside to go. Our focus from the media, the credit industry broadly, odd as that sounds, probably is a good fact at least to get on spread compression. Mickey Schleien: I appreciate that, Tom. It's pretty much in line with my thesis. Couple more questions if I can. On page 24, you show that your recurring cash flows dipped below the total of the distribution and your operating expenses. So I'd like to, you know, understand what drove that decline. And could you also walk us through what factors the board considered when you look at that decline in keeping the dividend stable? Thomas Majewski: Yes. We have a prepared answer for the latter one. But to the first one, you know, combination the principal thing, spread compression. Was a nontrivial factor there. I'm gonna say the weighted average spread fell at eight or so basis points. Eight basis points this quarter. So that's you know, it's while we're lowering our costs on the right side of the balance sheet with resets and refis, we're, you know, we didn't lower our weighted average eight basis points, unfortunately, quarter over quarter. So that's you know, that's the principal manifestation of it. That said, there are a and we do say this often, but there seems to be, as I was looking through it the other day, a disproportionate number of investments that haven't yet made their first payments in the portfolio. So that there are some green shoots. It's not as if everything is paying yet. And not that there's a problem with those investments, just a little bit of a delay. In getting in in in you know, when you make investments, sometimes it's six months before the cash flow turns on. So a little bit of that principal driver spread compression, a little bit offset by some reset activity that we do. Even the reset activity hurts cash flows in the first quarter because you gotta pay the bankers, the lawyers, the rating agencies, and that all comes out of your distribution. In the quarter you do that. So in many cases, the equity distribution comes down as for one period as a result of that activity. So those are some things going on there. In ECC, we did maintain the distribution at 14¢ a month. For the first quarter. The board considers any number of factors, all factors regarding both the outlook for company, the portfolio, the economy, taxable income are all drivers in there. You know, obviously, the board reviews these matters every single quarter. No one thing is a particular driver of the decision, but a collage of all the factors. Went into the board's decision. Mickey Schleien: I understand. One last question, Tom. You talked about borrowers taking advantage of tighter spreads and CLO managers and equity holders like yourselves. Also taking advantage of tighter spreads. To refinance. But if I'm not mistaken, your most expensive liability, the series F preferreds, will become callable soon. I might be wrong, but I think I'm right. Thomas Majewski: Yeah. Ken's smiling even when you say that just to on the comes to mind to me. Am I right on that, Ken? Ken Inorio: To tip our hand down. Yeah. It's hard for me to keep track of all of them, but I those are the most expensive. They're callable. Very soon. Under current conditions, does it make sense to refinance them? In other words, did Ken's smile just get broader? Thomas Majewski: And the banker smile might have gotten as well. No. I'm sure if they're listening. But yeah, no. As we look at the capital structure, and this is on page 10 of the deck, a very astute observation on your part. You know, interest rates have certainly come down a bunch. You know, we're above our target leverage limit. You know, target leverage guidelines, I should say, that we say we wanna run the company, and we're well within our statutory limits. And, you know, we talk about while we're doing it very slowly, right now because of where we are, you know, we've got that 7% perpetual preferred program that we issue through Eagle Point Securities the series double a, double b, you know, that I say this. This is a meaningful advantage. No other principally CLO equity-oriented vehicle has such a program. I love that program and, you know, could you see us opening up or doing something with the F five the board will make the decisions on the appropriate days. But the call date is 01/18/2026, and it wouldn't surprise me if Ken has a reminder in his calendar around that day. Mickey Schleien: Yeah. Me neither. Okay. I appreciate it. That's it for me this morning. I appreciate you taking my questions. Thomas Majewski: Thanks so much, Mickey. Operator: And we'll go next to Eric Zwick with Lucid Capital Markets. Eric Zwick: Hey, Eric. Good morning. Thomas Majewski: Good morning, Tommy. Eric Zwick: Hey. Good morning, Tom again. So wanted to my first question, maybe a bit of a follow-up on some of kind of the kind of broader topics you've been talking about. But in terms of, you know, you've mentioned there's quite a bit of opportunity still for some of the, you know, the borrowers, the asset side of the CLOs to refinance. You have opportunities remaining on, you know, the liability side. Just from quarter to quarter, you know, one may outweigh the other, but over the long term, you know, that the kind of the changes should be offsetting, so to speak, your arbitrage opportunity remains the same. Is that the right way to think about it? Thomas Majewski: Generically, yes. Over the long term, and given period, it widens or tightens. You know, the days loans are widening are usually the days CLO debt is widening. Know, that's kind of a you know, a bad fact. The good news is CLO debt is longer than loan debt. And yeah, we things these things move in cycles. Credit spreads tighten. Credit spreads widen back and forth. The good part about loans being shorter term than CLO debt is when things get choppy in the credit markets, you see if you look back historically, and we have the data going back to 2014 on our website, you'll see there's periods of time where the portfolio spread on the underlying loans increases and sometimes increases quite handsomely. The triple A's we're locking in today can be around for twelve years if we need them. So your statement is absolutely correct. When you look over the long term these things have a nice habit of balancing out. And some of it is just due to the CLO market and loan market again are so intertwined. There are periods. And if you were to listen to our calls in 2018, I'm the recordings are gone, but the transcripts are still around. We might have lamented the same thing of spread compression beating us up. And then when it went the other way, and we had the triple A's, you know, locked in place and you know, from January 2020 to the January '21 was a great period. Not a straight line, but a great destination. So over time, these things should all balance out. They rarely feel like they balance out on any given day. Eric Zwick: Got it. That's helpful. And you anticipated that the second part of the question there with your answer, so I won't go on there. Just in terms of, you know, funding activity going forward, you know, it's certainly been a rerating of not only your stock, but the other, you CLO funds that are traded out there. Trading now at a discount to NAV. How does that, you know, change your thoughts about potentially shifting to a share buyback, you know, kind of strategy as opposed to using the ATM? Thomas Majewski: Yep. And, certainly, yeah, so we look at things over a long term. You know, in the vast majority of the decade plus we've been public, the you know, ECC, we've been fortunate, and investors have been demanding the stock such that it's traded at a handsome premium. To NAV. Right now, it has been at a discount as I think have all of the or so substantially, certainly all of the major CLO equity funds. It's a little bit frustrating why that, you know, why that is. There's you know, it could be any number of reasons. The BDC index is down a bunch over the last kinda six days as well. You know, frankly, BDCs, in my opinion, are more levered to interest rates than we are and that they have floating rate loans where the floaters are falling. And they have fixed rate debt which is gonna have to be refinanced wider. So, you know, any number of things. And then overlay, you know, the credit news in the world doesn't help matters. The impact on the major CLO equity funds, ours including, is frustrating. We do make long-term decisions about these things. And our, you know, our management style that Ken and I bring to the table as well as the advice and direction from our board. Very much long-term focused. We won't make hair-trigger decisions around any stuff. That said, I will say all things are, you know, up for consideration at the company, and we'll continue to be. But we think about these things very much on a long-term basis. Eric Zwick: And last one for me, just looking at the, you know, the decline in NAV. Curious if you could kind of frame how much of that is related to changes in kind of market pricing and spreads versus maybe, you know, return of capital, you know, how much of that, you know, could potentially be recaptured if there are changes in the market. Thomas Majewski: Yeah. I have the exact yeah, I don't have the exact split. I'll say the vast we did have some realized losses from repositioning. By and large, those prices were already factored into the NAV. So that's more of just a reclass from unrealized to realized, not our favorite, but not a big NAV impact. And then, you know, the NII was less than, you know, unfortunately, nontrivially less than the cash distributions paid. So I don't have the exact components, but I'm gonna judgmentally say right now, and we can check the numbers later, the largest component of the NAV move in the quarter was the excess of distributions over NII and Ken is nodding. Yes. K. With a yes. That's I'm right, which is good. We're directionally right. It was the myriad of factors that go in there. But the biggest factor, in my opinion, on the NAV move, frankly, was the distribution relative to NII. Eric Zwick: And then I guess my follow-up to that would be in I know Mickey kind of already asked about the dividend a little bit, but I guess maybe what levers or what would need to happen, you know, in the market, or what can you do to potentially get the NII back above the dividend? Thomas Majewski: Yeah. You know, all things are, you know, considered at all times. You know, continuing to rotate the portfolio into higher earning investments. Is something we've been doing a lot of. We haven't used the word rotation, too much lately. Or in a while, but we have used it recently here. In terms of working on a couple of positions that have, you know, not bad, but have underperformed our expectations. And are rerotating into things that we think have some higher earnings potential. I think Mickey was kind enough to suggest we call the apps. And maybe replacing 8% financing with 7% financing. That might, you know, that might have a nice ring to it. Obviously, we'll make the decision on that day based on market conditions. And continuing to optimize, you know, every aspect of our portfolio. At the end of the day, I'm just looking at some numbers here. Bear with me one second. Rotation. Yep. So here to there. So the things we of a selection of things we exited, had a look like, in about an 11% effective yield. And this is the you know, the 20 plus percent effective yield on things that we were putting into the ground during the past quarter. So it's rotating out of some things that were, you know, for whatever reason, either late in life. I'm looking at a 2015 vintage CLO. That just you know, that's one of the larger sales largest sales we had. One of the sales we had, not the largest necessarily. But looking at a nine and a half percent yield, but the weighted average effective yield on the things we sold was 11. And the weighted average, of the things that of a handful of investments that were some of that kind of rotation offsets that have to handle in front of them. So doing everything we can to get more earnings into the box is part of it. We can do that through resets and refis. As well as buying and selling CLO securities. We can also do it by optimizing the right side of our balance sheet. I am mindful of where we are on the leverage ratio. We're, you know, we're comfortably on sides with all the limits, but we are operating outside our target band as well. We do like to be within the target band most of the time, so that's something in the equation. But, you know, it's very much a collage. And very much things that we think about on a long-term basis. We don't know, while we do these calls every quarter, you know, we think about where we wanna be over multiple years, not just are we gonna say on the next quarterly call. Eric Zwick: But we like to have good things on the next quarterly call, of course. Not to dismiss it either. Thomas Majewski: Of course. Thanks for taking my questions today. Eric Zwick: Yep. Thank you very much, Eric. Very thoughtful questions. Operator: And we'll go next to Christopher Nolan with Ladenburg Thalmann. Christopher Nolan: Hey, guys. How are you doing? Tom, on your comments on the twelve-month trailing default rate, I presume that's for industry. And is that First Brands at all? I know First Brands is small, but I'm trying to get an understanding why the trailing default rate starts creeping up the way it is. Thomas Majewski: If yeah. It picked up to that's that's market-wide. It's not really I mean, our default exposure is relatively low. That said, you know, CLO managers have a funny habit of selling things a day before they default to keep their optical default rates low as well. So know, there's any number of factors. That go into that. The pickup in defaults, I think we said there were five defaults during the quarter. First Brands was a roughly $5 billion loan. So that's one of the biggest fees we've had in a long time. So that's the principal driver on a quarter-over-quarter basis. The good news you know, as I that that or the I don't good news, at least for us, I'm in the CLO market. A lot of that loan was held in BDCs. And it was not a CLO only loan by any stretch. It was think that's SOFR plus 500 loan. Which met the met the requirements to get into a lot of BDCs. So our exposure to it was quite low. You know, we model significant amount of reserves for losses. Obviously, we like not to use them. But and this this was well within our tolerable band that we know we're always gonna have a few problems every year. So for us, it was fine. But the overall pickup, which I think we're, like, one thirty or something, 1.3% trailing twelve months, still well less than the long-term average, but you know, if we were talking six months ago, I think that was a double-digit basis point number. So trending up a bit, but driven by, you know, First Brands at 50 basis points, of a $1.5 trillion or $5 billion of a $1.5 trillion market. That one can move the percentage quite a bit. Christopher Nolan: And excuse the what might be a dumb question, but in the case of fraud, let's first who's responsible for vetting that fraud before the CLO's packaged and sold? Thomas Majewski: Let's see. So an investment bank underwrote the loan and placed it. And then institutional money managers who manage the CLOs reviewed the loan and push buy. And we review those institutional money managers to determine that they have, you know, processes they have the right people in place and processes in place. So it's, you know, the chain is somewhere in there. And auditors audit things and tell you what's going on and, you know, that's, you know, the that's kind of the, you know, the broad things that go on in a system like that. One of the interesting things about First Brands, as best I'm aware, and is a lot of the things that were of that are raising questions for sure today. And if you read the headlines and the bankruptcy court docket, a lot of things going on were going on at a holding company. Above the operating company where this $5 billion senior secured loan was. Doesn't make it right or wrong. Obviously, it's still wrong what happened. But it seemed like there were, you know, move money moving up and down from holdco to opco. Our loan at Opco is where that $5 billion loan was facing. The subsidiary of Holdco. It seems like they were getting advances from Holdco, best I'm aware based on factoring some receivables. But it sounds like they may have been, you know, multiple factored. The company had something like a billion dollars of EBITDA a year ago. I might mine might be slightly off on that, but directionally accurate, I believe. And, you know, on the surface, like, you know, $5 billion of debt against a billion of EBITDA, that's, you know, that's not low, but that's not absurdly high either. In the credit market. That said, and while they talk about brands and First Brands, you know, things they made, you know, or generic, you know, aftermarket auto parts, with limited exception. Do you know what brand windshield wipers you have on your car? You know what I mean? It's not like you think about, like, a J. Crew, which went bankrupt many years ago. J. Crew still exists. The brand is valuable. And, you know, and that, you know, people, oh, I buy my stuff at J. Crew. My son likes to get his stuff there. He thinks he looks cool. A lot of the products, I think Fram is one of the brands that First Brands. Maybe some people have some loyalty to that for oil filters and things like that. But there's not a lot of you know, the biggest challenge that I see is a lot of those parts, while they're essential to the operation of your automobile, if you're a kind of person purchasing at a, you know, at an aftermarket shop, are you gonna buy one versus the other? Who knows? And if these guys are not able to produce and get product to the stores, someone else will, and they lose their shelf space. So when we look at the ultimate recovery on First Brands, which is still quite uncertain in my opinion, some CLOs still own it, we've got this dynamic of okay. Let's say they were at a billion of EBITDA a year ago. That doesn't mean they're gonna be at a billion of EBITDA next year. I would certainly take the under on that. They did get some additional funding on their DIP facility released but it sounded like cash was extremely tight there. For a while. So my sense is it probably continues in some way, shape, or form, but it's probably a much smaller company. The ultimate recovery for the creditors, you know, the jury's still out. Doesn't look great, but not but I think a lot of it will be how quickly they can get back into business and if they're a $700 million EBITDA company, versus a $300 million EBITDA company, and I'm just pulling those numbers out of the air, could be very, very different outcomes for the creditors that remain. Christopher Nolan: Great. That's great color. Thank you. Thomas Majewski: Welcome. Thank you. Operator: And we have time for one final question, and that will come from Timothy D'Agostino with B. Riley Securities. Timothy D'Agostino: Hey, Tim. How are you? Thanks for taking the question. Good. How are you? Great. Thanks for taking the question. Joining a little bit late here, I apologize if I'm reiterating anything. But in the press release, you mentioned that your common stock issuance via your ATM was issued at a premium to NAV. Was just wondering if you could quantify how much accretion to NAV that created. Ken Inorio: Yeah. Sure. It was a few pennies. We have it in the press release. I would say 2 to 3¢ accretion. Timothy D'Agostino: Okay. Great. And then just one another quick question. In the third quarter, you did 11 resets in 16 refinances. I was wondering if you could provide an update quarter to date of how many you've done for the fourth quarter. Thomas Majewski: I don't think we we don't publish that number. And that sometimes it's episodic earlier versus late. We do give the cash flow collected because most of it comes in and out in the first month of the quarter. We haven't published it per se, so if you wanted to figure it out, what I'd probably see we do list every investment we have. If you look on Bloomberg, you can see which of those have been reset. I recognize that that would take a little bit of time. So we don't we don't publish the stats around that. Just because at this midpoint in the here we are exactly roughly at the midpoint of the quarter. It may not be indicative of the total volume. So I can assure you we've continued with them and we will continue with them. But we don't we don't share a mid-quarter stat on that. Timothy D'Agostino: Okay. Great. Thank you so much. Yeah. Those are the two quick ones for me. Thomas Majewski: Thank you very much. Operator: And this now concludes our question and answer session. I would like to turn the floor back over to Thomas Majewski for closing comments. Thomas Majewski: Great. Thank you very much, everyone, for joining the call today. We really appreciate your attention and frankly, the very thoughtful questions from all the analysts. Ken and I are around for the balance of the day. If people have further questions, we're happy to continue the discussion. Thank you very much for your time and interest in Eagle Point Credit Company. Operator: Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines, have a great day.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to Sunrise Realty Trust 2025Q3 earnings call. Please be advised that today's conference is being recorded. I would like now to turn the conference over to Gabriel A. Katz, Chief Legal Officer. Please go ahead. Gabriel A. Katz: Good morning, and thank you all for joining Sunrise Realty Trust Earnings Call for the Quarter Ended September 30, 2025. I'm joined this morning by Leonard Mark Tannenbaum, our Executive Chairman, Brian Sedrish, our Chief Executive Officer, and Brandon Hetzel, our Chief Financial Officer. Before we begin, I would like to note that this call is being recorded. Replay information is included in our 10/07/2025 press release and is posted on the Investor Relations portion of our website at sunriserialtytrust.com, along with our third quarter 2025 earnings release and investor presentation. Today's conference call includes forward-looking statements and projections that reflect the company's current views with respect to, among other things, market developments, our investment pipeline, anticipated portfolio yield, and financial performance and projections in 2025 and beyond. These statements are subject to inherent uncertainties in predicting future results. Please refer to Sunrise Realty Trust's most recent periodic filings with the SEC, including our quarterly report on Form 10-Q filed earlier this morning for certain conditions and factors that could cause actual results to differ materially from these forward-looking statements and projections. During today's conference call, management will refer to non-GAAP financial measures including distributable earnings. Please see our third quarter earnings release uploaded to our website for reconciliations of the non-GAAP financial measures with the most directly comparable GAAP measures. The format for today's call is as follows: Len will provide a general business and capital markets overview. Next, Brian will cover our view on the state of the commercial real estate lending markets, discuss our existing portfolio, and provide an outlook for our investment pipeline. Then Brandon will provide an update on our financial position. After that, we'll open the lines for Q&A. With that, I will now turn the call over to our Executive Chairman, Leonard Mark Tannenbaum. Leonard Mark Tannenbaum: Thank you, Gabe. Good morning, and welcome to our third quarter 2025 earnings conference call. The quarter ended 09/30/2025, SUNS generated distributable earnings of $0.31 per share of common stock which covered our dividend of $0.30. Before Brian walks through our pipeline and portfolio, I want to take a moment to highlight what really sets SUNS apart from other commercial mortgage REITs. At SUNS, our investment focus is clear. We originate transitional loans to properties primarily in the Southern United States. This is a region we know well, and that local expertise allows us to generate attractive risk-adjusted returns through disciplined underwriting and thoughtful structuring. As of 09/30/2025, our leverage was approximately 0.4 times. That should increase as our existing loan commitments continue to fund. This is substantially below our targeted leverage of one to one and a half times. The peer average, however, is substantially higher than our target. As our long-term goal is to achieve an investment-grade rating from the top agencies in the next three to five years. Now turning to the portfolio, our weighted average loan to cost at closing is only 56%. This conservative positioning has led to our strong credit performance. Additionally, our new vintage portfolio with no loans made before January 2024 has also contributed to our strong portfolio performance. About 95% of our loans are floating rate, with an average SOFR floor across the portfolio of about 4%. SOFR has now dropped below 4%, and is anticipated to go lower. Given the SOFR floors in place across our loan book and our credit line's much lower floor and approximately 2.6% have the potential to earn additional income through the expansion in SUNS' net interest margin. As the company's largest shareholder, I believe SUNS presents a terrific risk-adjusted return at a lower effective tax rate. My confidence in our company is why I've continued to make frequent share purchases since our first day of trading. In my view, SUNS today offers a compelling entry point and a meaningful discount to book value with stable dividend coverage and clear earnings and dividend growth potential. We've also built a team that's built for success. Our eight-person dedicated real estate team within the larger Tannenbaum Capital Group platform gives us this disciplined underwriting, deep local market knowledge, and a differentiated focus on transitional commercial real estate projects across the Southern U.S. With that, I'll turn it over to Brian to discuss the market environment and walk through our portfolio in more detail. Brian Sedrish: Thank you, Len, and good morning, everyone. Before turning to our current portfolio and pipeline, I wanted to take a minute to discuss what we are seeing generally in the real estate market. We have seen a notable pickup in activity over the past quarter. As financing requests have increased meaningfully relative to the first half of the year. We believe this is a result of borrowers gaining greater confidence that short-term interest rates are on a path of gradual decline. This renewed sense of interest rate stability is encouraging more sponsors to come off the sidelines and actively engage in capital planning, whether it be refinancings or new projects. The increase in activity is not limited to refinancing opportunities, as we are also seeing a rise in financing requests tied to new acquisitions. The bid-ask spread between buyers and sellers continues to narrow, and that is helping to increase transaction volume. We are well-positioned to finance new acquisition business plans where the basis has effectively been reset to levels that better align with current rent growth and for-sale housing assumptions. We are also seeing traditional commercial banks gradually reenter the market, primarily focusing on lower leverage lending. While their activity remains selective, they are playing an important role as back leverage providers for many of the transactions that we have been targeting. We view that as a healthy development indicative of improving liquidity in the broader CRE financing ecosystem. That said, the depth of the commercial real estate market remains out of balance. There remains a meaningful gap between primary and secondary markets, across property types and at different stages of an asset's life cycle, from construction through to stabilization. Most of the new financing activity is concentrated in the bridge lending space, primarily within multifamily and industrial properties. These are assets that have largely completed their improvement plans and are moving towards stabilization. As a reminder, at SUNS, we primarily focus on transitional real estate projects that have yet to reach stabilization or near stabilization. Our focus remains on this segment as we believe this part of the market still provides the strongest risk-adjusted returns. TCG's real estate pipeline primarily comprises loans to transitional assets backed by highly qualified sponsors that require a more structured solution, whereby our team can capitalize on its expertise in prestabilization business plans and complex deal structures. We believe that these unique core competencies allow us to capture the most attractive opportunities emerging in this current market environment. Turning to our active pipeline, we have continued to see improvements in both the quantity and quality of deals sourced. As of today, the TCG real estate platform has two signed nonbinding term sheets in documentation totaling approximately $170 million. We expect funds to be allocated a portion of these investments. Turning to the portfolio, our originations for the quarter ended 09/30/2025 partly reflected the slower market dynamics, which has picked up since quarter end. Specifically, in Q3, the TC real estate platform originated a $60 million senior secured loan for a two-tower condominium development in the Brickell neighborhood of Miami, Florida, of which SUNS committed $35 million. Over the period, SUNS funded $33 million of new and existing loans. As of 09/30/2025, the SUNS portfolio had $367 million of commitments with $253 million funded. Subsequent to quarter end, SUNS successfully closed on $56 million of loan commitments, which include approximately $26 million in a financing package comprised of two senior loans for collection suites and industrial for-sale development, including two projects located in Doral and West Palm Beach, Florida, and a $30 million loan in a senior bridge loan for the refinancing of a seven-story Class A retail property in the Galleria section of Houston, Texas. I remain highly confident in the opportunities set ahead, and I look forward to capitalizing on the many attractive opportunities currently in front of us. With that, I will now turn the call over to Brandon Hetzel, our Chief Financial Officer. Brandon Hetzel: Thank you, Brian. For the quarter ended 09/30/2025, we generated net interest income of $6.1 million and distributable earnings of $4.12 million or $0.31 per basic weighted average common share, and had GAAP net income of $4.05 million or $0.30 per basic weighted average common share. We believe that providing distributable earnings is helpful to shareholders in assessing the overall performance of SUNS business. Distributable earnings represent net income computed in accordance with GAAP excluding noncash items such as stock compensation expense, unrealized gains or losses, and the provision for current expected credit losses, also known as CECL. For the quarter ended 09/30/2025, the Board of Directors declared a $0.30 dividend per share outstanding. The dividend was paid on 10/15/2025, to shareholders of record as of 09/30/2025. We ended the 2025 with $367 million of current commitments and $253 million of principal outstanding spread across 13 loans. As of 11/03/2025, our portfolio consisted of $421.1 million of current commitments and $295.2 million of principal outstanding across 16 loans with a weighted average portfolio yield to maturity of approximately 11.8%. I'd also like to note that as of 09/30/2025, our CECL reserve was approximately $400,000 or 17 basis points for our loans at carrying value. As of 09/30/2025, we had total assets of $258.8 million and our total shareholder equity was $184.6 million with a book value of $13.76 per share. With that, I will now turn it back over to the operator to start the Q&A. Operator: Thank you. Star one one on your telephone and wait for your name to be announced. And to withdraw your question, please press 11 again. And our first question will come from Timothy D'Agostino with B. Riley Securities. Your line is now open. Timothy D'Agostino: Hi. Thank you. Good morning, and congrats on the quarter. Just getting into the pipeline a little bit. In the investor deck, you had mentioned the pipeline assets are broadening your presence across the Southern United States. I was just wondering what new geographies within the Southern US you're seeing in that pipeline. Brian Sedrish: Sure. Thanks for the questions, Brian. We are staying true to our focus of primarily the Southern U.S. I mean, that has not changed. Florida, Texas, of course, we are currently looking at. We have one signed in the Carolinas. In this case, specifically North Carolina. Georgia, Tennessee, those really remain the primary markets that we're seeing a preponderance of our deals. And then sporadically, as we've said, if there are interesting deals that we believe represent good risk-adjusted returns, we'll look at those, as well. Timothy D'Agostino: Okay. Great. And then I guess within the geographies you just mentioned, are there any that stand out as the most attractive in terms of investment? Brian Sedrish: Not particularly different than what we have historically been looking at. We still are seeing really interesting pockets in the state of Texas. There are certainly some interesting deals still within Florida. It's obviously asset class dependent. You have to worry about oversaturation. So just like anything, you have to be cognizant of the particular on-the-ground dynamics. The Carolinas still remain interesting. Tennessee, we're looking at a bunch of deals right now. Those are continuing to be the areas that we're focusing on, and we're seeing enough deal flow to really enable us to continue to stay focused on those areas. Timothy D'Agostino: Okay. Great. Thank you so much, and congrats again on the quarter. Brian Sedrish: Thank you. Operator: And our next question comes from Jade Rahmani with KBW. Your line is open. Jade Rahmani: How are things going on the debt side of the business strategy? I know you have been focused on further syndication, bank participation, and the repo line. As well as plans for a bond issuance. Leonard Mark Tannenbaum: Okay. Start with the easy one. We're not going for a repo line for sure. We really are differentiated from the other mortgage REITs in that we don't want to do these four-time leverage deals. And repos. We think that's how you get in trouble. We're instead going more after the latter financial model of getting an investment-grade rating over time, not levering over one to one and a half times. From a bank perspective, it's really great. There's a lot of interest in banks. Think Jeff Bacuzzi, who leads our DCM desk, is doing a good job educating these banks as they come in one by one. And they have very positive experiences. But because our portfolio is really strong. So I think so far, so good. With expanding our bank lines at that two seventy-five over SOFR level. So I think that's the way we're gonna continue finance. I did say in the last call that I was gonna look to do a I don't know, either preferred or unsecured offering. We're still working on it. We're watching the tape today as read after read has started to print perpetual preferreds. And they're actually being absorbed by the market. So we are watching that market. We do intend to be there this quarter or next quarter. But, you know, you do have to have the market open. So I think that is gonna be a good Okay. A good enhancer. Jade Rahmani: Where do you think the cost of the preferred would be? Leonard Mark Tannenbaum: I mean, you're seeing them at the at a Right? You see a $7.07 eights today, from one read. Eight got done. Pine got one done at eight. So it seems like that's the number. I really don't wanna price much higher than that. Because, I wanna make sure we get a good net interest margin over time. So we'll wait for the right price if we have to. Jade Rahmani: Okay. And you prefer to do that than to take up leverage through warehouse line? Leonard Mark Tannenbaum: Absolutely. I really I have no desire to do repo. I no desire to do warehouse. In this product. This product, you know, I own 25% of the product. We wanna protect our investors downside by not over levering it. So we oh, we, by the way, may not be preferred. It could be debt. I like I really liked our unsecured debt too. You know, five and six and seven year unsecured, it could be a baby bond, it could be a preferred. There's a lot of variety of things that we could do that we could lever appropriately and not get not get into trouble in the downturn. Jade Rahmani: Thanks. It's been an interesting cycle. We have not really seen you know, I would say, high volatility and sort of violent pressure on the repo side as what we saw in the financial crisis. We've seen managed deleveraging from several of the mortgage REITs that have major credit issues, but it's been, you know, a lot more stable on credit lines or bank you know, warehouse lines are an area that banks definitely seem to be looking to be more active. Could you please comment on the portfolio underlying performance and any trends in the underlying deals? That you're seeing thus far? You know, I know these are construction deals, so completion is probably the the biggest hurdle. But if you could, you know, give a comment on as to how the largest deals are trending. Brian Sedrish: Sure. Yes, Jade, I'll take it. It's Brian. Our portfolio now is performing as really as expected. I mean, of course, in any of these deals, there are always things that pop up that need to be addressed. Borrower calls us and says, know, they'd like to do something because they think it's more value add or maybe there's a two-week delay here or there. But that's just ordinary course. The underlying construction activity and progression has been going well on all the loans that we have. And then on the top line, in terms of if it's presales on condos or whether it's lease-up, they've all been, they've all been moving along as expected. There's nothing particularly exciting about the progress, which is what we love. Slow, steady, expected. And that's that's what we're continuing to see. There's actually been a bit of a pickup recently on a couple of our for-sale projects, just resulting from, I think, just a view of more migration down this particular case to South Florida. I expect that will continue in light of some of the political environment. But other than that, everything's pretty normal course. Jade Rahmani: Thanks very much for taking the questions. Brian Sedrish: Sure. Thanks a lot. Operator: I am showing no further questions in the queue at this time. I would now like to turn the call back over to Brian for closing remarks. Brian Sedrish: Great. Well, thank you everybody for joining. We are excited about the upcoming quarters and the prospects and the pickup of momentum. We look forward to talking to you again in the coming quarters. Operator: This concludes today's conference call. Thank you for participating and you may now disconnect.
Operator: Thank you for standing by, and welcome to the Suburban Propane Partners Fourth Quarter and Fiscal Year End Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. Thank you. I'd now like to turn the call over to Davin D'Ambrosio, Vice President and Treasurer. You may begin. Davin D'Ambrosio: Thank you, Rob. Good morning, everyone. Thank you for joining us this morning for our fiscal 2025 fourth quarter and full year earnings conference call. I'm here with Michael A. Stivala, our President and Chief Executive Officer, Michael A. Kuglin, Chief Financial Officer, and Alex Centeno, our Senior Vice President of Operations. This morning, we will review our fiscal 2025 fourth quarter and full year financial results, along with our current outlook for the business. Once we have concluded our prepared remarks, we will open the session for questions. Our conference call contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, relating to the partnership's future business expectations and predictions and financial condition and results of operations. These forward-looking statements involve certain risks and uncertainties. We have listed some of the important factors that could cause actual results to differ materially from those discussed in such forward-looking statements, which are referred to as cautionary statements in our earnings press release, which can be viewed on our website at suburbanpropane.com. While subsequent written and oral forward-looking statements attributable to the partnership or persons acting on its behalf are expressly qualified in their entirety by such cautionary statements, our annual report on Form 10-K for the fiscal year ended September 27, 2025, which contains additional disclosure regarding forward-looking statements and risk factors, will be filed on or about November 26. Once filed, copies will be obtained by contacting the partnership or the SEC. Certain non-GAAP measures will be discussed on this call. We have provided a description of those measures, as well as a discussion of why we believe this information to be useful, in our Form 8-Ks, which was furnished to the SEC this morning. Form 8-Ks will be available through a link in the Investor Relations section of our website. At this time, I will turn the call over to Michael A. Stivala for some opening remarks. Mike? Michael A. Stivala: Thanks, Davin, and thank you all for joining us today. Fiscal 2025 was another outstanding year for Suburban Propane Partners, L.P. In our core propane business, propane demand was strong as a result of a sustained period of more normal winter weather in the heart of our footprint from mid-December through February, the most critical months for heat-related demand, as well as strong demand in our Southeast operations in the aftermath of Hurricanes Helene and Milton in the first fiscal quarter. And incremental volumes from our acquisition of a well-run propane business in our Southwest territory, which we closed in November 2024. I am extremely proud of how our field personnel at every level worked tirelessly to meet the surge in demand when our customers needed us most, while also opportunistically taking on new business when some of our competitors were unable to keep up. This was a real testament to the preparation by our operations teams and the flexibility of our operating model to ramp up when demand dictates. And with safety as our highest priority, what's even more impressive is how our employees performed during a prolonged stretch of very high activity levels and some harsh operating conditions while not compromising on our highest standards for safety. As a result, propane volumes for fiscal 2025 increased nearly 6% compared to the prior year. Strong volumes, combined with effective margin management during a rising commodity price environment and good expense discipline, contributed to a $28 million or 11.2% increase in adjusted EBITDA compared to the prior year. In addition to the higher earnings, we had a number of key accomplishments in fiscal 2025 in support of our long-term strategic growth initiatives. Just to highlight a few, we acquired and integrated a well-run propane business in strategic markets in New Mexico and Arizona for a total consideration of approximately $53 million. Subsequent to the end of fiscal 2025, just in October 2025, we further invested in the growth of our core propane business with the acquisition of two high-quality businesses in attractive markets in California for a total consideration of $24 million. We created a dedicated sales and business development team focused on specific propane verticals that are less weather-sensitive and present opportunities for growth as the advantages of propane become a bigger part of the conversation. These verticals include opportunities in material handling, agriculture, power generation, and over-the-road vehicles. We continue to identify and pursue new market expansion opportunities to establish and extend our presence in certain attractive markets. We secured an incremental supply of renewable propane and exceeded 2 million gallons of renewable propane sales focused primarily in the California market, coupled with expansion into the Florida and Virginia markets to meet customer demand for a renewable alternative. We entered into a multiyear partnership with NASCAR and Speedway Motorsports, making Suburban Propane the official propane partner of NASCAR and Speedway Motorsports, reflecting the reliability of our national presence and demonstrating the power and versatility of propane at one of America's top spectator sports. In our RNG operations, we continue to implement several operational improvements at our Stanfield, Arizona facility to stabilize and grow RNG production, enhance safety protocols, modify feedstock intake practices, and improve our overall plant efficiency to strengthen the long-term performance and returns of the facility, while also advancing the capital projects at our Columbus, Ohio, and Upstate New York facilities, both of which are expected to come online in 2026. We also expanded our RNG management team with dedicated safety, construction, and compliance personnel to bring more expertise in-house. And focusing on our balance sheet, we launched an at-the-market equity program to sell up to $100 million of newly issued common units, raising $23.5 million in net proceeds from the sale of 1.3 million common units at attractive prices during fiscal 2025. Proceeds from the ATM program are being used to support our ongoing pursuit of opportunistic growth and to accelerate debt reduction. During the year, using excess cash flows and proceeds from the ATM program, we deployed nearly $53 million for propane acquisitions, over $25 million for our growth projects in the RNG business, and reduced our overall debt by nearly $2 million. With the increased earnings and slightly lower outstanding debt, we ended fiscal 2025 with a leverage ratio of 4.29 times, a significant improvement from 4.76 times at the end of the prior year. In addition to the strong operating and financial performance during fiscal 2025, we embarked on a multiyear technology modernization initiative that will simplify the way we operate, consolidate our systems platform, and improve the tools we use to serve our customers, delivering a better experience for both our employees and our customers. This initiative will not change our personalized hyper-local business model that sets Suburban Propane apart as best-in-class operators within the propane industry. So fiscal 2025 was a very successful year for Suburban Propane, both in terms of our financial performance and from executing on our long-term strategic growth plans, while remaining patient and disciplined to maintain financial flexibility through a strong balance sheet. A little later, I will provide some closing remarks. However, at this point, I will turn the call over to Michael A. Kuglin, who will discuss our full year and fourth quarter results in more detail. Mike? Michael A. Kuglin: Thanks, Mike, and good morning, everyone. I will start by focusing on our full year results, then give some color to the fourth quarter at the end of my remarks. To be consistent with previous reporting, I am excluding the impact of unrealized noncash mark-to-market adjustments on our commodity hedges, which resulted in an unrealized gain of $2.4 million in fiscal 2025 compared to an unrealized loss of $14.6 million in the prior year, along with certain other noncash items we have identified in the reconciliation of net income to adjusted EBITDA in the press release. Including these items, net income for fiscal 2025 was $128.4 million or $1.97 per common unit compared to $107.7 million or $1.68 per common unit in the prior year. Adjusted EBITDA for fiscal 2025 was $278 million, an increase of $28 million or 11.2% compared to the prior year. Retail propane gallons sold in fiscal 2025 were 400.5 million gallons, an increase of 5.9% compared to the prior year. The volume increase was driven by sustained widespread cold temperatures during the most critical months for heat-related demand, increased demand for backup power generation, and other applications in the aftermath of Hurricanes Helene and Milton, continued growth in our counter-seasonal national accounts business, and incremental volumes from our recent propane acquisitions. With respect to the weather, average temperatures for fiscal 2025 were 9% warmer than normal and 4% cooler than the prior year. During January and February, average temperatures were comparable to normal and 13% colder than the same period last year. From a commodity perspective, average wholesale propane prices for fiscal 2025 were 79¢ per gallon, basis month billed, which was 5.8% higher than the prior year. According to the most recent report from the Energy Information Administration, US propane inventories at the end of last week were at 106 million barrels, which was 6% higher than a year ago and 13% higher than historical averages for this time of year. Given the strength in inventories, wholesale propane prices have trended down from the end of the fiscal year and are currently in the 60¢ range, compared to the 80¢ range at the same time last year. Excluding the impact of the mark-to-market adjustments on our commodity hedges that I mentioned earlier, total gross margin of $866.4 million in fiscal 2025 increased $46.8 million or 5.7% compared to the prior year, primarily due to higher propane volumes sold and higher propane unit margins. Excluding the impact of the unrealized mark-to-market adjustments, propane unit margins for fiscal 2025 increased 2¢ per gallon or 1%, with margin expansion experienced across all customer categories. In our RNG operations, average daily RNG injection for the fiscal year was approximately 13% lower compared to the prior year, primarily due to downtime experienced during several operational improvement projects designed to enhance future RNG production, as well as multiple power outages and extremely cold ambient air temperatures in the Arizona area during the winter that impacted anaerobic digestion. While we remain focused on executing controllable operational improvements, revenues at the Stanfield facility continue to face headwinds from lower prices for both California LCFS credits and federal D3 RINs. California LCFS credit prices remain depressed relative to historical levels, though average prices for fiscal 2025 increased 2.5% compared to the prior year. We are encouraged to see the finalization of amendments to the LCFS program implemented by CARB, made effective as of July 1, 2025, with accelerated carbon reduction targets aimed to create a better balance in the LCFS credit bank. Since the amendments were finalized in June 2025, LCFS credit prices have increased over 30%. Conversely, average federal D3 RIN prices for fiscal 2025 decreased 25% compared to the prior year. With respect to expenses, combined operating and G&A expenses increased $23.7 million or 4.2% compared to the prior year. The increase was primarily due to higher payroll and benefit-related expenses, overtime, and other variable operating costs to support increased activities associated with incremental customer demand, as well as higher variable compensation expense associated with the increase in earnings and costs related to the technology initiative that Mike mentioned earlier. Net interest expense of $76.3 million for fiscal 2025 increased $1.7 million compared to the prior year, due to higher average outstanding borrowings under our revolving credit facility, partially offset by lower benchmark interest rates. Total capital spending for fiscal 2025 of $72 million was $12.5 million higher than the prior year, primarily due to advancing construction efforts at our RNG facilities in Columbus, Ohio, and Upstate New York. For fiscal 2026, capital spending for our propane operations is expected to be consistent with historical levels, which is between $40 million and $45 million, and CapEx for the RNG projects is expected to range between $30 million to $50 million, with the spending concentrated in the first half of the fiscal year. We expect the capital spending at our RNG facility in Upstate New York to qualify for investment tax credits under the Inflation Reduction Act at a rate of 30%, which equates to a range of $7 million to $9 million in tax credits that could be earned and monetized on the assets placed into service. Turning to our results for the fourth quarter of 2025, consistent with the seasonality of our business, we typically report a net loss in the fourth quarter. With that said, excluding the effects of certain noncash items in both years, we reported a net loss of $35.7 million for the fourth quarter, or 54¢ per common unit, which is flat compared to the prior year. Adjusted EBITDA for the fourth quarter was $700,000, which was also essentially flat compared to the prior year. Retail propane gallons sold during the fourth quarter increased 1.8% compared to the prior year. Total gross margin increased $5.3 million or 4% compared to the prior year, primarily due to higher volumes sold and higher unit margins. Combined operating and G&A expenses increased $5.8 million or 4.5%, primarily due to higher volume-related variable operating costs, higher variable compensation, and costs related to our technology initiative. Excluded from adjusted EBITDA for the fourth quarter of 2025 is an impairment charge of approximately $6 million to fully write down the carrying value of our investment in an early-stage energy technology company, as well as income with the reversal of the earn-out reserve associated with the RNG acquisition. The earn-out was contingent upon the acquired assets achieving certain EBITDA thresholds over a certain period. During the fourth quarter, we determined that the contingent consideration would not be earned. These noncash items were reported within OtherNet's statement of operations. Turning to our balance sheet, during the fiscal year, we utilized a combination of cash flows from operating activities and net proceeds of $23.5 million from the issuance of common units under the ATM program to fund a propane acquisition for a total consideration of $53 million, growth capital expenditures of $25.5 million for advancing construction activities at our RNG production facilities, and repayment of outstanding borrowings under our revolving credit facility of $1.8 million. With the improvement in earnings and debt reduction, the consolidated leverage ratio for fiscal 2025 improved to 4.29 times. We have more than ample borrowing capacity under our revolver to support the completion of our planned capital expansion projects, as well as our ongoing strategic growth initiatives. As we continue to focus on the execution of our long-term strategic goals, we also stay focused on maintaining a strong balance sheet. With that, I will turn it back to Mike. Michael A. Stivala: Thanks, Mike. As announced in our October 23 press release, our Board of Supervisors declared our quarterly distribution of $0.325 per common unit in respect of the fourth quarter of 2025. That equates to an annualized rate of $1.30 per common unit. The quarterly distribution was paid yesterday, November 12, due to the Federal Reserve closing on the eleventh for Veterans Day, to our unitholders of record as of November 4. Our distribution coverage continues to remain healthy, at 2.13 times for the trailing twelve months ended September 2025. I also want to take a moment to thank and honor our great American veterans for their service, including so many that are part of the Suburban Propane family, as we just passed Veterans Day. So just a few closing remarks regarding our long-term strategy. Our long-term strategic growth plan remains to foster the growth of our core propane business while making strategic investments in lower carbon renewable energy alternatives through our Suburban Renewable Energy subsidiary, leveraging our core competencies in safety, customer service, and logistics, especially in the localized energy distribution markets. The energy evolution is a long journey, one that requires a pragmatic and balanced approach to identifying and fostering energy solutions that can lower greenhouse gas emissions and our country's overall carbon footprint. It requires solutions that can deliver energy that is reliable, affordable, and sustainable. We have definitely seen a shift in the conversation that is benefiting propane by recognizing propane's versatile, affordable, on-demand nature and its clean qualities as an immediate and long-term solution to helping lower the carbon footprint. We are very well positioned to take advantage of this growing respect for propane given our operational and financial strength and stability. We are also maintaining our focus on innovation to ensure that Suburban Propane continues to be regarded as a trusted local distributor of energy for decades to come. That innovation includes our advancements in delivering renewable propane and renewable natural gas as direct drop-in replacements for their traditional energy equivalents. The energy evolution is in the early innings. The investments we have made have been very measured and focused on long-term growth and sustainability. It is great to see a more pragmatic approach toward the energy evolution and also great to see a supportive regulatory and policy framework that contemplates a more deliberate and inclusive environment to drive down emissions over time and with an all-of-the-above philosophy for energy solutions. We are very excited to be starting a new heating season, and our people and platform are very well prepared to handle whatever this year's weather dictates. With that, I want to thank our more than 3,300 employees for helping make fiscal 2025 another successful year for Suburban Propane and for their unwavering commitment to safety for our customers, our employees, and the communities we serve. And as always, I hope you and your families remain safe and healthy, and I wish everyone a very happy holiday season. We appreciate your support. We would now like to open the call up for questions. And, Rob, if you could help us with that. Operator: Thank you. We will now begin the question and answer session. We will pause for just a moment to compile the questions. And, again, if you would like to ask a question, please press. And we have no questions. I will now turn the call back over to Michael A. Stivala for some final closing comments. Michael A. Stivala: Great. Thank you, Rob. I think we have said enough. We are excited about the new year, and we look forward to talking to everybody after our first quarter in February. And please have a safe and happy holiday season. Thank you. Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Good day, and welcome to the American Shared Hospital Services Third Quarter 2025 Earnings Conference Call. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Kirin M. Smith from PCG Advisory. Please go ahead. Kirin M. Smith: Thank you, operator. And thank you everyone for joining us today. American Shared Hospital Services' third quarter 2025 earnings press release was issued today before the market opened. If you need a copy, it can be accessed on the company's website at www.as.com under the Investors tab. Before turning the call over to management, I would like to make the following remarks concerning forward-looking statements. Please note that various remarks that may be made on this conference call about future expectations, plans, and prospects for the company constitute forward-looking statements for the purposes of Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may vary materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in the company's filings with the SEC, including the company's quarterly report on Form 10-Q for the three-month period ended June 30, 2025, and the annual report on Form 10-K for the year ended December 31, 2024. The company assumes no obligation to update the information contained in this conference call. Before I turn the call over to management, I'd like to remind everyone about our Q&A policy where we provide each participant the time to ask one question and one follow-up. As always, we are happy to take additional questions offline at any time. With that, I'd now like to turn the call over to Raymond C. Stachowiak, Executive Chairman. Ray, please go ahead. Raymond C. Stachowiak: Thank you, Kirin, and good afternoon, everyone. Thanks for joining us today for our third quarter 2025 earnings call. I'll begin with some opening remarks, then turn the call over to Gary Delanois, our CEO, for additional details, followed by Scott Frech, our CFO, for a financial review of our third quarter and first nine months of 2025 results. Following our prepared remarks, we'll open the call for questions. I'm pleased to report third quarter and September 2025 revenue increases, respectively, which were primarily driven by increased direct patient care services revenue as our new physicians in Rhode Island start to ramp up. I'm also happy that we continue to realize improved margins and we remain diligent and focused on operational efficiencies. We are continuing to see the benefit from our transition from a medical equipment leasing focus to a more patient-centric service model, providing clear benefits. I'm happy to see our diversified model is working, and we look forward to the remainder of 2025 and 2026. We remain focused on building long-term shareholder value and a continuation of our historical trend of consecutive years of significant revenue growth and improved margins. As with many small growth businesses, there will be normal fluctuations quarter over quarter. But over the medium to longer term, we're primed to continue our long-term track record. As we continue to execute on our strategic initiatives and upcoming milestones, I believe this will positively benefit our long-term investors. We have set the course for long-term outperformance as we execute on our growth strategy and work towards building significant shareholder value. Now I'll hand the call over to Gary and Scott, who will walk you through our overall business, quarterly and year-to-date financial results, and our business development pipeline that provides for exciting strategic growth opportunities. With that, Gary, please proceed. Gary Delanois: Thanks, Ray. And good afternoon, everyone. This is an exciting time for the company, and I am very enthused by our near and longer-term growth opportunities. Our business growth strategy is solid, and I'm excited as we continue to execute our business plan. For this past quarter, we saw a 2.5% year-over-year revenue growth, and year-to-date revenues are up 5.6% from last year at this time. I am pleased to share we saw significant growth from our new radiation therapy treatment center in Puebla, Mexico, which showed a 263% annual revenue growth. It was also great to see an almost 17% year-over-year increase in 56% of our total revenue for the third quarter. I am also very happy to report that our gross margins increased almost 16%, and our operating loss narrowed with a 92% improvement as we remain focused on operational efficiencies. As we continue to execute on revenue growth initiatives, we also remain focused on improving profitability. Our third quarter 2025 adjusted EBITDA came in at $1.9 million compared to $1.3 million in 2024, a 42% increase. We remain diligent in controlling our costs and are primed for growth as treatment volumes, particularly in Rhode Island, continue to increase. We continue to capitalize on operating efficiencies and growing the business. And while we do expect to see continuing quarterly improvement in treatment volumes, I am energized by the growth we have been seeing in overall business and with our business development initiatives that we have in motion. I'm also excited about the benefits from our acquisition of the three Rhode Island cancer treatment centers and our newer one in Puebla, Mexico. At the Rhode Island centers, our new radiation oncologists are seeing new patient consultations at our three centers where volumes have recovered back to historical levels, and we expect to see additional growth in the fourth quarter. Having the right team in place is a critical element for growing our market share to propel future growth. I remain confident that we will see steady growth in treatment volumes through continued physician engagement with the healthcare community and particularly with our health system joint venture partners, Care New England and Prospect CharterCare. We also remain focused on further optimizing our equipment leasing segment by working closely with our health system customers to increase greater community awareness among referring physicians to drive increased utilization of their Gamma Knife systems, which is recognized as the gold standard for stereotactic radiosurgery. Our international business segment represents another large growth opportunity. We expect continued momentum. We have the only Gamma Knife centers in Peru and Ecuador. At our third international center in Puebla, Mexico, we are treating cancer patients for a full range of cancer diagnoses with the most advanced radiation therapy treatment capabilities available in our catchment area. We're also excited about the opening of our fourth international center, a Gamma Knife Center in Guadalajara, Mexico, where we expect to start treating patients and generating revenue in 2026. This will be the only ESPRIT Gamma Knife in a country of 130 million people and not only provides a major benefit to patients in Mexico, it also clearly represents an untapped growth engine for us. Over the months and years ahead, we expect stronger international growth from additional treatment volume in Ecuador, strong volume from our newly upgraded center in Peru, and our two new centers in Guadalajara and Puebla, Mexico. We also continue to expand our footprint in Rhode Island beyond our three existing radiation therapy treatment centers, which were our first direct patient care cancer treatment centers in the U.S. As we have discussed, we were granted a Certificate of Need (CON) to construct and operate a fourth radiation therapy center in Bristol, Rhode Island, where permitting is underway. And we also officially obtained a CON this past December to construct and operate the first proton beam radiation therapy center in the state of Rhode Island, where we are making progress on securing land and starting the permitting process. These two new facilities represent major growth opportunities for the company, and we look forward to providing additional updates as they progress. In closing, we are extremely confident in our overall business plan. We are positioned to weather short-term fluctuations, and we remain focused on current operations and new business developments. I have great confidence in the strategies we have in place, our management team, and the prospects for long-term growth. And lastly, our solid track record of long-term revenue growth and improved margins, together with our balance sheet, gives me great confidence that we will accomplish these initiatives in the coming years. And with that, I'll turn the call over to Scott Frech, our CFO, for a financial review. Scott Frech: Thank you, Gary, and good afternoon, everyone. I'll start with an overview of our third quarter results, followed by the year-to-date nine months results, and then we'll open the call for Q&A. For the third quarter ended September 30, 2025, total revenue increased 2.5% to $7.2 million compared to $7 million in Q3 2024. For Q3 2025, revenue from our Direct Patient Services segment increased 9.4% to $4 million compared to Q3 2024. This growth is primarily driven by increased procedures at the new facility in Puebla, Mexico, where we launched operations last year. Although off of a small base, revenues grew by 263%. Clearly, we're off to a great start there, and it also exemplifies the powerful growth these centers represent. Revenue from the medical equipment leasing segment decreased to $3.1 million from $3.3 million in Q3 2024 due to lower proton beam radiation therapy (PBRT) volumes. Revenue from PBRT increased 16% year over year to $2.1 million for Q3 2025, and the number of Gamma Knife procedures in Q3 2025 was 231, up from 218 in Q3 2024. Revenue from proton beam radiation therapy (PBRT) increased to $2.1 million in Q3 2025, a 10.8% increase from 2024. Total proton therapy fractions for 2025 were 1,150, an 8.1% decrease from 2024. This decrease was primarily due to normal cyclical fluctuations. Revenue from linear accelerator (LINAC) systems was up 15.9% from Q2 2025 to $2.9 million for Q3 2025 and up 51.2% compared to 2024 due to the launch of operations in Puebla, Mexico, and being fully staffed with radiation oncologists in our Rhode Island operations. Our gross margins for Q3 2025 improved to 22.1%, with an increase of 60% year over year to $1.6 million, primarily due to higher treatment volumes. Q3 2025 operating income dramatically improved to a loss of $344,000 compared to a loss of $889,000 in 2024. Net losses attributable to American Shared Hospital Services for Q3 2025 improved significantly to $55,000 or $0.00 per diluted share compared to a net loss of $207,000 in Q3 2024 or $0.03 per share. Adjusted EBITDA, our non-GAAP financial measure, increased 41% to $1.9 million for Q3 2025 compared to $1.4 million in Q3 2024. And now I'll review our nine-month results. For the first nine months of 2025, total revenue increased 5.6% to $20.4 million compared to $19.3 million in the first nine months of 2024. Revenue from our Direct Patient Care Services segment increased 36.5% year over year to $10.7 million for the first nine months of 2025 compared to $7.8 million in the first nine months of 2024. This significant growth is primarily driven by revenues from Rhode Island Radiation Therapy operations and the new operations in Puebla, Mexico, in 2024. Revenue from the equipment leasing segment decreased to $9.7 million from $11.5 million in the first nine months of 2024. Gamma Knife revenue declined 4.2% to $6.8 million for the first nine months of 2025 compared to $7.1 million in the first nine months of 2024. The number of Gamma Knife procedures in the first nine months of 2025 was 703, compared to 831 procedures in the first nine months of 2024. This decline was primarily due to the expiration of three customer contracts since 2024 and lower PBRT volumes. Revenue from PBRT decreased 23% to $5.7 million in the first nine months of 2025 compared to $7.4 million in the first nine months of 2024. Total proton therapy fractions for Q3 2025 were 3,095, an 18% decrease from 3,764 fractions in the first nine months of 2024. This decline was primarily due to normal cyclical fluctuations. Revenue from the linear accelerator (LINAC) systems was $9.7 million for the first nine months of 2025 compared to $4.8 million in the first nine months of 2024 due to the acquisition of the Rhode Island Radiation Therapy operations and the launch of operations in Central Mexico. Our gross margins for the first nine months of 2025 improved 20.4% to $4.2 million compared to $6 million in the first nine months of 2024. This decline in gross margin reflects lower volumes and increased operating costs driven by the shift to direct patient services, which have lower margins compared to the leasing segment. For the first nine months of 2025, operating loss was $2.2 million compared to a loss of $975,000 in the first nine months of 2024. Net loss attributable to American Shared Hospital Services for the first nine months of 2025 was $922,000 or $0.14 per diluted share compared to net income of $3.5 million or $0.54 per diluted share in the first nine months of 2024. This was primarily due to the $3.9 million bargain purchase gain generated from the Rhode Island acquisition and net income earned from Rhode Island facilities acquired. Adjusted EBITDA, our non-GAAP financial measure, was $4.6 million for the first nine months of 2025 compared to $5.1 million in the first nine months of 2024. Now we'll look at our balance sheet. We ended Q3 2025 with a strong financial position supported by our solid balance sheet. As of September 30, 2025, cash and cash equivalents, including restricted cash, stood at $5.1 million compared with $11 million at December 31, 2024. This decline includes $7.5 million spent on capital expenditures for Peru, Bristol, Rhode Island, and North Westchester locations. Shareholders' equity, excluding non-controlling interests, was $24.6 million or $3.78 per outstanding share compared to $25.2 million or $3.92 per outstanding share at December 31, 2024. Fully diluted weighted average common shares outstanding were 6,856,000 for Q3 2025 and 6,482,000 for Q3 2024. This concludes the formal part of our presentation. Thank you again for joining us today. We look forward to updating you on our progress in the quarters ahead. We'd now like to turn the call back to the operator to open it up for questions. Operator: We will now begin the question and answer session. Our first question comes from Tony Kamin with Eastwood Partners. Please go ahead. Tony Kamin: Thank you. Ray and Gary, congratulations. It's really encouraging to see the execution and the sort of integration of Rhode Island really starting to work in, as you've said, Ray, with kind of the long-term vision you've had. You can now start to see it really where it's going to go. And also, I guess, with your pipeline seeming so strong with real projects, and I would guess even more projects or more early-stage stuff you haven't talked about. I would imagine the pipeline is strong. So the company is doing well. My question is that the shareholders are not doing well. And I think the simplest way to sort of illustrate that and my concern is if I annualize, again, just to make it simple, the EBITDA this quarter, it's about $8 million. You came in this morning with a $13 million market cap, and that's about 1.5 times EBITDA to market cap, whereas I would think a company like this would trade much more likely conservatively at a six maybe up to a 12 multiple. And even if you look at the low end of that at a six multiple of EBITDA to market cap, the shares would be over eight. And unfortunately, they're still in the very low twos. So my question is, now that you've got the company going and I know you've been wanting to focus on that, isn't it now time and in the interest of all shareholders and all constituencies of the company to do a little bit more in terms of investor outreach, going to conferences, etcetera? And my last sort of comment on that is, would you, I know Ray, you've bought a lot of stock. It would be nice to see the rest of the Board members make some significant purchases to demonstrate their alignment with the shareholders and their belief in the company. I think a lot of the long-term shareholders really believe in the company, and we want to see that stock start to reflect what seems to be an incredibly undervalued situation. Raymond C. Stachowiak: Thank you. Ray, you want to go ahead and start on that? Gary Delanois: Yeah. Sure. So, Tony, thanks for joining us again today. I appreciate your question as well. You do have to recognize we do have some debt in there when you talk about an $8 per share valuation. You do have some debt. So, you know, we've attended some investor conferences, and with your opinion here, we probably should be doing more. It's duly noted. I think management has been so focused on cost efficiencies, operational efficiencies, you know, they're doing the blocking and tackling. We'd like to see our results speak for themselves. But sometimes that doesn't take place without a bullhorn at the investor conferences, so to speak. So, Tony, very duly noted. Operator: Great. Thank you. Our next question comes from Anthony Marches, private investor. Please go ahead. Anthony Marches: Yes. Hi, good morning, guys. Again, good results. Ray or anybody else, I'd love to hear your opinion as to why we're trading at a fifty-two-week low when everything that you're talking about the future, even today's results seem to be all positive. There seems to be a significant disconnect between the market and what you guys are saying. So I'm trying to understand what's your opinion as to why that's the case? Why is it that people don't want to, I don't want to use the word acknowledge, but why don't people want to take into account what you've been doing relative to the market valuation? Raymond C. Stachowiak: Yes, I think a lot of it has to do with we're so thinly traded and we've got such little exposure, and it kind of goes back to Tony's first question about increasing that exposure. And, Kirin, I might ask you for your thoughts and opinions on this matter as our Investor Relations firm. We've tried a few things here and there. And what I'm hearing very loud and clear here is, we ought to be doing more outreach. Kirin M. Smith: Yes. Thanks, Ray. And, yeah, I echo those comments as well, Tony. I think getting the story out there, telling it more often definitely increases the exposure for the overall company. I also echo Ray's comments. Getting the fundamentals down straight sometimes takes several quarters in a row. If you note, the last three quarters in a row have shown sequential improvement, so it does take a little time for that to get on the radar. Management's had their heads down nicely, focused on the operations of the business. And I think now is a good time for them to get out there and increase that exposure as well. Operator: This concludes our question and answer session. I would like to turn the conference back over to Gary Delanois for any closing remarks. Gary Delanois: Thank you, operator, and thank you, Tony and Anthony, for your questions. We'll reflect on them, and thank you. And thank you all for joining us today. We are at a key point in time as we execute on our growth strategy. With large business development opportunities in our pipeline, we have the right team and the foundation in place and are acutely focused on building strong momentum as our growth strategy takes hold for the long term. We look forward to updating you on our progress as we drive further top-line growth, profitability, and long-term success. As always, if you have any questions, please don't hesitate to reach out to us. And thank you for being here today and have a great one. Kirin M. Smith: Thank you, operator. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good morning. My name is Martin Fernandez, and I will be your operator today. At this time, I would like to welcome you all to the Imunon Third Quarter Financial Results Conference call. All lines have been placed on mute to prevent any background noise. Following the speaker's prepared remarks, there'll be a question-and-answer session. You may press star and one on your phone to ask a question at that time. Please keep in mind, if you're using a speakerphone, you must release your mute function to allow the signal to reach our equipment. Again, that's star and one to ask a question during the Q&A session. I would now like to turn the call over to Peter Vozzo from ICR Healthcare, Investor Relations Representative for Imunon. Please go ahead. Peter Vozzo: Thank you, Myron. Good morning, everyone, and welcome to Imunon's Third Quarter 2025 Financial Results and Business Update Conference call. During today's call, management will be making forward-looking statements regarding Imunon's expectations and projections about future events. In general, forward-looking statements can be identified by the words such as expects, anticipates, believes, or other similar expressions. These statements are based on current expectations and are subject to a number of risks and uncertainties, including those set forth in the company's periodic filings with the Securities and Exchange Commission. No forward-looking statements can be guaranteed, and actual results may differ materially from such statements. I also caution that the content of this conference call is accurate only as of the date of this live broadcast, November 13th, 2025. Imunon undertakes no obligation to revise or update comments made during this call except as required by law. Peter Vozzo: With that said, I would like to turn the call over to Dr. Stacy Lindborg, Imunon's President and Chief Executive Officer. Stacy. Stacy Lindborg: Thank an you, Peter, and good morning, everyone. Joining me on the call this morning is Dr. Douglas Faller, our Chief Medical Officer, and Ms. Kim Graper, our Interim Chief Financial Officer, who will be reviewing our financial results for the third quarter of 2025. Mr. Michael Tardugno, the Executive Chairman of our board, and Dr. Khursheed Anwer, our Chief Scientific Officer, are also on the line and will be available for Q&A. We continue to make meaningful progress with our proprietary IL-12 immunotherapy, IMNN-001, through the OVATION 3 pivotal phase III trial for newly diagnosed advanced ovarian cancer. The urgency of this program remains front and center to our efforts to create value for shareholders and to address the unmet need of ovarian cancer, which continues to claim far too many lives as the standard of care in the frontline setting has not advanced in over 30 years. Stacy Lindborg: Our OVATION II study demonstrated the first-ever overall survival benefit in a critical FDA endpoint in our randomized frontline trial. We are now laser-focused on confirming those unprecedented results in a well-regarded, rigorous phase III trial. Three days ago, we hosted a highly successful R&D day in New York City at the Harvard Club, featuring renowned ovarian cancer opinion leaders, clinicians, statistical experts, alongside members of our leadership team. The event underscored the transformative potential of IMNN-001 for women with newly diagnosed advanced ovarian cancer. The investment community and those interested in advances in ovarian cancer treatment and women's health more broadly heard directly from investigators about the unmet need in this disease affecting globally 300,000 new cases each year and claiming the lives of 13,000 women each year in the U.S. alone. Stacy Lindborg: This is why IMNN-001's potential to deliver a 13-month median overall survival benefit in phase II, with a hazard ratio as low as 0.42 in PARP-maintained patients, represents a potential paradigm shift. We have just come off a powerful series of presentations at the world's leading oncology and scientific forums, including ASCO, SITC, ESMO, the AACR Ovarian Cancer Special Conference focused on advancements in ovarian cancer, and finally, IGCS. The momentum is undeniable. OVATION 3 enrollment is surging ahead of plan, and this one-to-one randomized trial is evaluating IMNN-001 plus the standard of care, neoadjuvant and adjuvant chemotherapy with interval debulking surgery versus standard of care alone in women who have treatment-naive advanced ovarian cancer. In July, we initiated a 500-patient all-comers trial of women with advanced ovarian cancer, which has the flexibility to prioritize a 250-patient HRD-positive subgroup. Stacy Lindborg: This would enable us to realize a 40% cost savings with this prioritized group. The study design employs interim analyses for early efficacy stopping rules demonstrating trial success with power above 95% on the clinically meaningful primary endpoint of overall survival. As was discussed at R&D day, this analysis is accelerated over a traditional trial, which would only read out the overall survival at the end of the study. Success with these interim analyses is expected to deliver full approval, not accelerated approval. Key updates since our last call that I'll just quickly tick through. First, the site activation status of Ovation III. We have been deliberate and consistent with our cash management responsibilities, which applies to our decisions around site activation. Four sites were initially activated in the U.S., and we expect this to double before year's end with four additional sites well-progressed in startup activities. Stacy Lindborg: Returning investigators from OVATION 2 are being joined by additional top-tier centers, many of which are proactively reaching out to Imunon following the recent publication of the OVATION 2 study results in the Journal of Gynecologic Oncology, which was published on the same day as the 2025 ASCO platform presentation. We also have inquiries about the trial from interested sites at other recent conferences. Furthermore, while we have moderated the activation of sites in 2025 to reflect our current cash position, we are preparing for a site activation surge. To this end, we have accelerated the engagement of a global CRO to identify new study centers for startup in the new year, and we estimate we will have all sites in the new trial activated before the end of 2026. Next, I'll comment on enrollment velocity. Stacy Lindborg: You know, the first patient in OVATION 3 was randomized and treated in July of this year, and we have seen strong investigator enthusiasm for the trial, which has surpassed our internal enrollment target set for the end of 2025, with nine patients randomized by the end of October. I think you can all appreciate how important it is to have strong momentum at the start of the trial, and we have started this trial with an impressive pace. Moving to regulatory and design validation, the FDA has endorsed overall survival as a single study registration endpoint, and based on precedent and European regulations, we expect OVATION 3 to meet regulatory expectations for approval in Europe. During our R&D day, Dr. Stacy Lindborg: Giorgio Poloni, PhD in statistics with the company Berry Consultants, a highly regarded statistical consulting firm, highlighted this adaptive event-driven study design, a technique that is well-aligned with precedented FDA approvals in oncology via interim analysis of overall survival. He also highlighted the robust statistical foundation of our phase III trial with conservative power estimates, yielding high estimates of probability of success of this trial. Let me just pause, and if you did not have the opportunity to join our symposia live, I would encourage you to look on our website, the imunon.com website, in the Investor tab and under Scientific Presentations to watch it. We provide details of the power assumptions, and it is remarkable to hear directly from these experts that were on the faculty that day. Lastly, new translational data and our MRD study. We had Dr. Stacy Lindborg: Amir Jazari from MD Anderson Cancer Center presenting at our R&D day. He's the lead PI for the ongoing phase II minimal residual disease, or MRD study, being conducted in collaboration with the Breakthrough Cancer Foundation. Dr. Jazari spoke to data collected so far in the trial, demonstrating IMNN-001's preferential uptake by peritoneal macrophages, including profound tumor microenvironment remodeling. Patients achieved complete pathological responses with durable intratumoral IL-12 and interferon gamma expression, all with negligible systemic exposure and excellent tolerability, even as IMNN-001 in this trial is being administered with bevacizumab, and treatment has continued in maintenance settings. Additional biomarker data, which was presented at CITSI last week by Dr. Faller, further confirmed T-cell and macrophage infiltration and immune activation that's predictive of superior prognosis. Dr. Stacy Lindborg: Primal Thacker from Washington University emphasized during the R&D day that IMNN-001 is able to turn what are immunologically cold ovarian tumors hot by engaging both innate and adaptive immunity, renewing the promise of immunotherapy in this devastating disease. These mechanistic insights, paired with unprecedented survival signal, have fueled investigator commitments to accelerate enrollment. We estimate full enrollment in OVATION 3 will occur by late 2028, and I'll note that this can be accelerated with financing. I'll now turn over the call to Dr. Douglas Faller for some clinical commentary and comments. Douglas? Douglas Faller: Thank you, Stacy. As Stacy noted, our R&D day on Monday in New York really crystallized the excitement we are seeing within the gynecologic oncology community regarding IMNN-001 and OVATION 3. Dr. Thacker's and Dr. Jazari's presentations, followed by the rich discussion during the Q&A portion of events, underscores the clinical importance of the data collected and reported in both OVATION 2 and in the MRD study in women treated with IMNN-001. Excuse me. As Stacy mentioned, over the last three months, we've been invited to present our OVATION 3 trial and the emerging translational data from OVATION 2 at four prestigious international scientific and clinical congresses. These include the ESMO 2025 in Berlin, the International Gynecologic Cancer Society meeting in Cape Town, the AACR Special Conference on Ovarian Cancer in Denver, and the Society for Immunological Therapy of Cancer CITSI International meeting in 2025 in Washington, D.C. Douglas Faller: These global forums gave us the opportunity to interact with both scientists and clinicians. After our presentations, a number of clinical investigators, impressed by our novel therapy and the patient benefit realized in OVATION 2, approached me asking if their hospital could participate in the OVATION 3 trial. Similarly, scientists intrigued by the demonstration in patients that IMNN-001 turns immunologically cold tumors into hot tumors with anti-tumor activity asked about the possibility of collaborating with us. Interestingly, at the CITSI meeting several days ago, several participants noted the renewed interest in harnessing the powerful anti-tumor effects of interleukin-12, as evidenced by at least 15 interleukin-12 related presentations. However, they also noted that with the exception of ours, these presentations were focused on their early attempts to formulate or deliver interleukin-12 so as to avoid the well-known systemic toxicities. These attempts include intratumoral injection, which is not a long-term strategy. Douglas Faller: All of these efforts were preclinical or early phase I. In contrast, Imunon, as you know, has a pivotal phase III registrational trial, OVATION 3, actively recruiting. This OVATION 3 trial has been fully leveraging the excitement of IL-12 as a cancer therapeutic and the remarkable OVATION 2 clinical outcomes. As Stacy mentioned, study startup, as defined by protocol approval, to patient enrollment was achieved in 15 weeks, nearly half of what is typically seen as the industry standard for phase III trials. As we engage with our first set of study centers, we continue to see great interest and enthusiasm from our investigators, with the early sites so far activated far exceeding monthly estimates of the number of patients enrolled per site per month. OVATION 3 is still in its early stages, but we're observing clean safety run-in data from the first patients. Douglas Faller: Meanwhile, the ongoing phase II MRD study, as Stacy mentioned, continues to reinforce IMNN-001's favorable profile, giving us real-time confidence as we scale the pivotal trial. Following a recent MRD study DSMB meeting, we're pleased to share that the benefit-risk profile of IMNN-001 has been further strengthened in this MRD study and mirrors what we have seen in OVATION 2: no dose-limiting toxicities, no discontinuations due to IMNN-001, and no elevations in immune-related adverse events. Furthermore, preliminary clinical data presented by Dr. Jazari at R&D day highlights a high probability of progression-free survival on the IMNN-001 arm, a lower MRD positivity rate, and a lower percentage of biopsies positive during second look in the MRD patients. Douglas Faller: Lastly, the MRD study's demonstration of the feasibility and safety of combining Imunon with bevacizumab and the preliminary view into the idea of IMNN-001 as maintenance positions IMNN-001 uniquely for future trials and possible label extensions that could contribute even further to the fight against this terrible cancer. Back to you, Stacy. Stacy Lindborg: Thanks, Douglas. Before turning to our financial update, I'd like to offer and really further highlight progress in advancing our MRD trial and share an update. First, notably, the Breakthrough Cancer Foundation selected this trial for funding from hundreds of competing proposals, which is a very strong endorsement that echoes Dr. Jazari's remarks at our R&D day of the importance of frontline therapy as the best opportunity to achieve a cure for ovarian cancer. Based on the preliminary clinical data from the trial that Douglas just reviewed, we are thrilled with the consistency of IMNN-001's effect compared to our OVATION 2 clinical results. We've made great progress in the enrollment of the MRD trial, with three patients being randomized and treated in the month of October, resulting in a total of 25 patients randomized to date. Stacy Lindborg: Based on this progress, in September, we reviewed the MRD study and confirmed that its core objectives, which include those that we have internally for the IMNN-001 development plan and Breakthrough Cancer Foundation's goals as well, these core objectives can be fully met with a smaller cohort of patients. Accordingly, we decided to cap enrollment at 30 patients in the intent-to-treat population, a milestone that we expect to reach in the first half of 2026. We will be thrilled to close out this trial and capture its full learnings, enabling us to channel our resources into the pivotal OVATION 3 phase III trial. In fact, I'll mention that we've already begun conversations with this success in mind. We've started conversations with MRD investigators about transitioning their sites to OVATION 3 at that time, a move that would further accelerate enrollment in our registration trial. Stacy Lindborg: I'll note that we've received positive reactions to these inquiries. Turning to our financial strategy, we continue to navigate a challenging biotech capital markets environment with discipline and foresight. Our multi-pronged approach, combining the potential for non-dilutive partnerships with prudent equity raises, opportunistic use of our ATM facility, remains on plan, and we've made significant progress. Shareholder dilution is a valid concern, and we share it. That's why every financing decision is a stress test against our commitment to preserve value while actively working to fully fund this pivotal program. We have ongoing reviews for potential partnerships with Theraplast and interest expressed by pharmaceutical companies on PlaCCine from a recent scientific meeting, but nothing that is imminent. These kinds of partnerships take time to build, and I look forward to providing more detail if we advance these discussions to terms. Stacy Lindborg: On the equity side, we've raised $4.5 million during the third quarter through warrant exercises and targeted ATM usage. Monthly cash burn is now approximately $1.25-$1.5 million, reflecting streamlined G&A expenses, renegotiated facility leases, and a laser focus on advancing IMNN-001 milestones. Furthermore, operating expenses for nine months ended September 30 between 2025 compared to 2024 is 31% lower, which includes a 44% decrease in R&D expenses and a 52% decrease in CMC expenses. Mind you, this is all while manufacturing product for phase III, conducting CMC development work in preparation for reduced cost of products sold in the commercial landscape, and accelerating site patient activation. With cash through mid-Q1 2026 and multiple near-term catalysts such as enrollment momentum, regular presentations at medical and scientific congresses, and the potential for partnership progress, we are well poised to extend our runway further, ideally through value-enhancing non-dilutive transactions. Stacy Lindborg: A few other updates of note: the NASDAQ compliance matter is closed. We achieved the dollar minimum bid price requirement on August 9th. We sustained shareholder equity above the $2.5 million confirmed on August 22nd. In fact, we're far above this. This matter was also formally closed by NASDAQ on September 3rd, 2025, and I'm delighted to report that, as reported in the current NQ, we are at $4.1 million in the shareholder equity threshold. Now I'll turn over to Kim Graper for our review of the third quarter 2025 results. Kim Graper: Thank you, Stacy. Detail of Imunon's third quarter 2025 financial results are included in the press release we issued this morning and in our Form 10-Q, which we filed before the market opened this morning. As of September 30, 2025, cash and cash equivalents were $5.3 million. During the third quarter, the company received approximately $4.5 million of net proceeds from the exercise of warrants and sales under our ATM equity facility. The ATM facility carries a nominal 3% fee with no warrants. We project that this cash balance extends our operating runway into mid-quarter, first quarter of 2026. R&D expenses were $1.9 million for Q3 2025, down from $3.3 million in the same period last year, primarily due to completion of the OVATION 2 study and lower costs associated with the phase I PlaCCine DNA vaccine trial and development costs for the PlaCCine DNA vaccine technology platform. Kim Graper: G&A expenses were $1.6 million in Q3 2025, down from $1.7 million in the same period last year due to lower employee-related legal and travel expenses. Net loss for Q3 2025 was $3.4 million, or $1.16 per share, compared to $4.8 million, or $3.76 per share in the third quarter of 2024. Please note that all shares and per-share amounts have been adjusted to reflect a 15-for-1 reverse stock split of our common stock, which we effected on July 25th, 2025, and the 15% stock dividend we have declared in the quarter. With that, the financial review, I'll turn the call back to Stacy. Stacy Lindborg: Thank you, Kim. Before we open the line for questions, I want to reflect on the questions we received through the webcast, the live webcast at Monday's symposia. I was able to work the majority of these questions into my prepared remarks, with the exception of one question that I'd like to address as we kick off our Q&A. This question came from David Bouth through our tool, and I'll read the question. It looks like macrophages are the primary cell type that takes up IMNN-001, but how long do these cells continue to produce IL-12 based on the presence of IMNN-001? Is there some type of feedback mechanism that IMNN-001 produces to prolong the production of IL-12 in these cells after IMNN-001 is metabolized, or is there an IMNN-001 plasmid that encodes IL-12 long-lasting? It's a very great question. Stacy Lindborg: I apologize, David, we did not see it and were not able to address it day of the meeting, but I would like Khursheed to offer comments to this question. Khursheed Anwer: Sure, Stacy. Yeah, it's a good question, of course. The unformulated plasmid, which is administered into the peritoneal cavity, typically clears, I would say, within 24 hours and may last a little longer if it is formulated with a delivery system such as that in IMNN-001, where the nanocomplexes have a protective effect on the DNA. However, once the plasmid is taken up by the cells of the peritoneal cavity, such as macrophages or other immune cells or epithelial cells, it is internalized into the cell nucleus and can stay much longer, giving rise to long-lasting, up to several days, the levels of gene product, which is IL-12 in the case of IMNN-001. Yes, it is indeed the plasmid inside the cell that lasts longer, giving rise to the pharmacokinetic that we have seen with IMNN-001 of IL-12 and interferon gamma production. Stacy Lindborg: Thanks, Khursheed. I appreciate that. Operator, with that, please open the call for questions. Operator: Thank you. We will now begin the question-and-answer session. To join the question queue, you may press star and then one on your telephone keypad. You will hear a tone acknowledging your request. If you're using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star and then two. We'll pause for a moment as the callers join the queue. We have the first question from the line of David Bouth from Zacks. Please go ahead. David Bouth: Hey, good morning, everyone. Stacy, I appreciate you answering that question that I had the other day. Sorry, I wasn't able to ask it in person there. Thank you for that response there. I wanted to start, actually clear something up to make sure I understood. You had mentioned that positive results in one of the interim efficacy in looking at the interim analysis would lead to a full approval, you think. Is that a full approval for all ovarian cancer patients, or would it be just for the HRD population? Stacy Lindborg: Yeah, you're clarifying that. I think that when we were talking about the ability to accelerate the analyses through the use of an internal interim analysis, I wanted to make sure that people understood that that was the acceleration of getting to results. If we are successful and we meet the statistical thresholds that are outlined and agreed to by the FDA, we would expect full approval in the group that we're testing. The trial is continuing in an all-comers population, then at the end of the trial, that would allow a broader label indication. I think it is really important to understand we're really reflecting the devastation of this disease and the need, as we saw. We know that we're also making rather conservative assumptions, power assumptions. Stacy Lindborg: It is very possible, like Giorgio spoke to, the likelihood of being successful at one of the two interim analyses. We want that urgency to be very clear. We want to be able to move forward rapidly with a BLA filing based on that data, and then to be able to allow for the product to be approved in that indication and accessible to patients. It would allow the trial to continue to the end and to have to then potentially expand to the all-comers population. Operator: Okay, thanks. That makes sense. Kind of keeping along the same theme, what P-value, or can you say what P-value needs to be hit at either the first or second interim analysis in order to be able to stop the trial if it's efficacious? Stacy Lindborg: Yeah, unfortunately, it's a little more complicated than just a raw P-value, and this is where Giorgio did a really great job of really highlighting the simulation results. They set complex operating characteristics that ultimately are needing to take into account kind of an information fraction of where you are in the trial and therefore appropriately control type 1 error rate. The logistics of it are very well documented, and there was a very large report that was submitted to the FDA that these simulations really documented proper control of type 1 error rate, and then all of the operating characteristics that the FDA would be keen to understand. It's not just a fixed P-value, and if you are interested in more, we can have perhaps another conversation on it. It's very well laid out based on where this would occur. Stacy Lindborg: Because when in the point of the trial, when the 50th HRD event, which is the trigger for the first interim, would occur, that's not a fixed point in time. It's an unknown that will evolve, and then that will affect these thresholds. Operator: Okay. Yeah, understood. Lastly, I believe it was Dr. Hazard had talked about pain management for when IMNN-001 is administered and kind of how that pain management has evolved, basically, with her experience with the drug. I'm just curious, is there a set protocol for that pain management at all the different clinical sites, or is it kind of up to the clinician's discretion? Stacy Lindborg: That is a really great question. Douglas, do you want to take that? Douglas Faller: Be happy to. Thank you for asking the question because, obviously, patient comfort is critical for us and for the ability of patients to get the drug. In patients who have ovarian cancer in the peritoneal space, they are often quite tender because of the inflammation that is there before the drugs start to work. Infusing anything into the space can cause discomfort for patients. This happened in some patients in OVATION II, and the physicians, in combination with Imunon, decided that rather than waiting for this to occur, we could prophylactically treat patients, give them some analgesia prior to the infusions, prior to even the first infusion. If there were going to be any discomfort, this would alleviate it. If it turns out it is not necessary later on, that could be stopped for individual patients. It has been quite useful, quite successful. Douglas Faller: We're not seeing this was this, and it's, to answer your question more fully, this is part of the protocol. This is mandated for all patients. This was also incorporated into the MRD study, and we have data from Dr. Jaziri's sites that he's managing that this has been very successful. They've not had problems with any sort of abdominal discomfort in patients. In Ovation III, we've not seen that either. The prophylaxis for potential discomfort with the infusion seems to be working very well. Operator: Okay, great. I appreciate that, and thanks for taking the question. Douglas Faller: Thank you. We have the next question on the line of James Malloy from Alliance Global Partners. Please go ahead. James Malloy: Good morning. Thank you very much for taking my questions. I had a question for Dr. Faller. One of the things you talked about on the R&D day was about the durability response in sort of speaking to the mechanism of action of triggering the immune system and some of the IL-12 expression in the fluid and tissues. Can you walk us through that a little bit, please? Douglas Faller: Very happy to. Please stop me if I'm telling you something you already know and it's not appropriate to your question. The problem with IL-12 delivered systemically, as you know, has been it's simply not tolerable. It's too potent. Like IL-2, you can't give it at high enough doses systemically, let's say intravenously, because of its, it's hard to call it toxicity. Let's call it adverse events. I don't call it toxicity because it is actually the intended activity of the cytokine. Patients have, just like IL-2, patients with third space, a lot of fluid outside of the vascular system, low blood pressures, fevers, etc. That's prevented IL-12, excuse me, and IL-2 from being used effectively. Here, we're delivering the drug where the tumor is, into the intraperitoneal space. That's where the ovarian cancer has spread in all the patients that we're treating. Douglas Faller: As Khursheed mentioned earlier, this is a gene therapy. The plasmid gets taken up by the tumor cells and also by the tumor microenvironment cells, the stromal cells, and express IL-12. IL-12 then induces interferon gamma and TNF alpha, two incredibly potent immune effectors that stimulate both the adaptive and the innate immune systems. The IL-12 levels in the peritoneal fluid we've reported in Ovation I and Ovation II go up by several logs. There's a tremendous amount of IL-12 and its downstream effector cytokines expressed in the intraperitoneal fluid and in the tissues, as you would expect, in the peritoneum. However, in Ovation I and in Ovation II, we've monitored IL-12 levels systemically, and we don't see increases in IL-12 systemically, no more than twofold. This is the basis for the remarkable safety we have. Douglas Faller: We're not seeing the kind of immune adverse events that everyone else who tries to deliver the drug systemically has seen. We're not seeing any cytokine release syndrome kind of events, which completely goes along with the fact that we're not elevating cytokines, IL-12 or its effectors, systemically. It's just where the tumor is in the intraperitoneal space. The durability, Khursheed already addressed the amount of time that the plasmid is expressed. We can see IL-12 levels in the peritoneal fluid for at least a week after a single injection, and we give the drug weekly, at least during the time that the patient's getting chemotherapy. The durability of responses, when I was pointing to the slides, was just showing that we give the drug during the chemotherapy, which is six cycles essentially, plus interval debulking surgery at the beginning of treatment for the patients. Douglas Faller: Yet we're seeing effects years later. We're seeing the curve separate. We're seeing a benefit for survival in patients. This is long after we've stopped giving the drug. This is consistent with what you would like to see, what you'd expect to see from an effective immune therapy. Once you've educated the immune system to kill the tumor, it should persist. You should not necessarily have to keep stimulating, although in the MRD study, we are exploring maintenance therapy to see if that would add additional benefit. James Malloy: Great. Thank you for that. One of the things that Stacy had mentioned, I think, as well as talking about the OVATION 3 meeting, the regulatory approval for the EU, any details on that process? Maybe also, I know you mentioned, Stacy, that obviously you are constrained by the amount of cash you have to run the trial. If you had more cash, you could run it quicker. If you had unlimited funds, how quickly could you run this trial? Douglas Faller: Stacy, maybe I could address, if you do not mind, the regulatory issues, and then you could talk about the financial ones. Stacy Lindborg: Please, go ahead. Douglas Faller: Okay. The issues in Europe are twofold, as I'm sure you know. One is getting the trial, excuse me, is getting the drug approved by the EMA. Equally important is getting payers to actually agree to support use of the drug in Europe. What payers want to see in cancer is survival. PFS is not something that traditionally, in my experience, payers are willing to pay for. Our endpoint is overall survival. We've already ticked the box that the payers would want to see. The study is designed in a way that should be completely acceptable to the EMA. I've had a lot of experience in dealing with the EMA and many other regulatory agencies outside of the U.S. We could open studies in Europe. Douglas Faller: It's not necessary for European approval, but let me turn it over to Stacy now with respect to what we'd like to do with adequate funding. Stacy Lindborg: Yeah, it's an interesting question. I can tell you that when you think about some of the remarks that Douglas provided that really characterize how quickly we're moving, I can promise you we're going to be very focused on advancing this trial and taking advantage of every opportunity that we can. We've done a number of different kind of internal forecasts. As I shared before, right now, our estimate is that we'll be able to fully enroll this trial in about three years. We have done a forecast that is as quick as two years. I think that is something that we put plans behind to consider how we would achieve it, and we believe that it is possible. Beyond that, I really wouldn't want to go too much further. There are ways that you could actually pull it in even further. Stacy Lindborg: I think it gives you an idea of the way that we're looking at this and ensuring that we will be ready and able to accelerate very quickly some of these proactive approaches with the CRO that we're working with that, interestingly enough and importantly, do not change the overall price that we expect to pay, including even pay the CRO. We're just advancing activities so that we'll be poised and we can actually see the site activations when we want them, rather than waiting to engage them at that time. Those are some of the operational strategies. James Malloy: Thank you very much for taking the questions. Stacy Lindborg: Awesome. Thank you. Douglas Faller: Thank you. We have the next question from the line of Emily Bodnar from H.C. Wainwright. Please go ahead. Stacy Lindborg: Hi. Thanks for taking the questions. First one, I'm curious if you're planning to share an update from the OVATION 2 trial, particularly the PARP inhibitor-treated patients in terms of median OS since in the last update. It was not reached yet. If so, when you might expect to do that? Second question, how many sites for the OVATION 3 trial are you expecting to be sites that were part of OVATION 2? Are those the sites that you're kind of targeting initially? Thank you. Stacy Lindborg: Yeah. Emily, thanks for both of those questions. Let me take a stab at both, and then if there are other points, Douglas, you could maybe add on. In terms of OVATION 2, in our protocol, we stated that we would monitor overall survival. We designated the period of time that we would continue to monitor it. It really puts us in a place where we're starting to wind down sites. We expect by the end of the year that we'll have the data fully refreshed and the sites that will be closing. I think at the end of the day, when you look at this trial, we know that the data that we've collected, even going to the very first interim across the all-comers, the median was observed in both treatment arms. We know the data was mature for very robust conclusions. Stacy Lindborg: I think I would say we shouldn't expect, nor would the medical community expect to see significant changes to these results. We will likely have this process really finalizing towards the end of the year and early next year. Douglas, I don't know if you have any kind of—you already commented on the reflection of how long we're seeing this effect past the treatment period. When we ultimately look at the size of separation, and at R&D day, we looked at some of the graphs that have come out of these recent immune checkpoint inhibitors where you see really no separation. Tell me your reflection as a clinician on the time periods when we were observing and did these two readouts. Really, were these appropriate in terms of when you would be expecting the separation, the phase of the curve to really be well-estimated? Douglas Faller: Certainly. You have actually already spoken to it, Stacy, that in Ovation II, the primary endpoint is median, well, a secondary endpoint was median survival in the entire population. That is when our initial readout, we achieved that information. In trials in cancer, once you have gotten median survival in your primary population, longer observations yield less and less information, I think. Curves with fewer patients on them start to become less informative. We are very pleased to be seeing the effects over time that we have seen. I think that the concept of using this drug in the neoadjuvant setting really was a remarkably smart choice early on in its development. This became of great interest at ASCO. Using immunologically active drugs in the neoadjuvant setting where there is still tumor there allows the immune system to be educated in the setting of the tumor. Douglas Faller: Using it later in an adjuvant setting when there's little or no tumor there, drugs even like checkpoint inhibitors, as was being realized at ASCO, are much less effective. I don't have anything beyond that to say, Stacy. Stacy Lindborg: Thank you. Emily, your second question was about the sites from Ovation II and maybe even I do not know if you were getting at the overlap or the total number in Ovation III, but we will have great overlap in Ovation II and Ovation III. Not surprisingly, we started with sites that were very strong enrollers, very enthusiastic about the trial. We see that certainly extending to many other sites from Ovation II. We will have new sites simply because we are planning to have up to 50 sites. We will ultimately look at the number of sites that we need to really stay with our forecast and keep enrollment going. We will plan accordingly. We have flexibility in the way the protocol is written that we can go higher if we decide we want to do so. Stacy Lindborg: It's a careful, you have to carefully manage not bringing in too many sites, really keeping your sites that are performing extremely well. The enthusiasm of these early sites, and I would say really the sites from Ovation II, not only from their knowledge of the product. You heard Dr. Thacker at R&D day actually comment on the fact that she's been working on IMNN-001 for almost a decade. She was involved in Ovation I. Ovation II now is, again, the study PI for Ovation III. Their confidence and conviction in what's happening in these women, which of course they see when they're doing surgery, they observe as they're meeting with them for years after enrollment in the trial. It's palpable, right? It's incredibly clear. They believe very much that the potential for this product to be transformative to care is great. Stacy Lindborg: It's really wonderful to see these clinicians that are also offering up to meet with new sites. They're very willing to share operational updates as well as really talk about data and what they've observed in patients over time. It really is kind of the best of both worlds. Stacy Lindborg: Thanks for taking the questions. Stacy Lindborg: Thank you, Emily. Douglas Faller: Thank you. Ladies and gentlemen, that concludes the question-and-answer session for today. I will now turn the call back over to Dr. Lindborg for closing remarks. Stacy Lindborg: Thank you. And thanks to everybody for joining the call. With OVATION 3 enrolling ahead of plan, we've talked about the compelling clinical and translational data from R&D day and also recent conferences, including SITC just last week. And active partnership discussions, Imunon is poised for multiple value-inflecting milestones. We remain diligent in stewarding the resources you provided, as I hope you're able to see very clearly in the queue, and are steadfast in our mission to redefine ovarian cancer treatment and deliver lasting shareholder value. So thank you all for your support and look forward to meeting again at the next quarterly earnings. Douglas Faller: Thank you. Ladies and gentlemen, that concludes today's conference. Thank you for participating, and you may now disconnect your lines.
Operator: Thank you for standing by, ladies and gentlemen. Welcome to the EuroDry Limited Conference Call on the Third Quarter twenty twenty five Financial Results. We have with us today Mr. Aristides Piras, Chairman and Chief Executive Officer and Mr. Tazos Aslidis, Chief Financial Officer of the company. At this time, all participants are in a listen only mode. There will be a presentation followed by a question and answer session. I must advise you that this conference is being recorded today. Please be reminded that the company announced its results with a press release that has been publicly distributed Before passing the floor over to Mr. Pittas, I would like to remind everyone that in today's presentation and conference call, EuroDry will be making forward looking statements. These statements within the meaning of the federal securities laws. Matters discussed may be forward looking statements, which are based on current management expectations that involve risks and uncertainties that may result in such expectations not being realized. I kindly draw your attention to Slide number two of the webcast presentation has the full forward looking statement and the same statement was also included in the press release. Please take a moment to go through the whole statement and read it. And now I would like to turn the floor over to Mr. Pizzas. Please go ahead, sir. Aristides Pittas: Good morning, ladies and gentlemen, and thank you all for joining us today for our scheduled conference call. Together with me is Mr. Tatius Aslivis, our Chief Financial The purpose of today's call is to discuss our financial results for the three and nine month period ended 09/30/2025. Please turn to Slide three of the presentation. Our financial highlights are shown here. For the 2025, we report total net revenues of $14,400,000 and the net loss attributable to controlling shareholders of $700,000 or $0.24 loss per basic and diluted share. Adjusted net loss attributable to Controlli shareholders for the quarter was $600,000 or $0.23 loss per basic and diluted share. Adjusted EBITDA for the quarter was $4,100,000 Please refer to the press release for the reconciliation of adjusted net loss and adjusted EBITDA. Our CFO, Patmos, go over our financial highlights in more detail later on in presentation. Our work today will have purchased about 135,000 shares of our common stock in the open market for a total of $5,300,000 under our $10,000,000 share repurchase plan, which we announced in August 2022. Our Board of Directors has approved an extension of the program for an additional year. We intend to continue executing a processes up to the originally approved amount of $10,000,000 at a disciplined rate. Taking into account the company's liquidity needs, and relatively small free flow. Please turn to Slide four to view our recent On 10/21/2025, we delivered motor vessel LNVP to have new owners and unaffiliated third party. The EVP was one of our oldest ships and the longer held vessel in our fleet. She was sold for $8,500,000 On the chartering plant, our fixtures during the third quarter were predominantly short term. Several of our vessels are currently employed under time charters ranging between a month to a little over three months. conditions improve. Allowing us to position our vessels to the advantageously as well While the Red Sea disruption disruptions continue to influence route decisions and freight premiums, their impact on drybulk charter rates has largely stabilized. Towards the end of the quarter, seasonal patterns began to reassess themselves and the market showed signs of recovery which still continue. The specifics of the charter is fixed during the period, are outlined in the accompanying presentation. Most notable are often due to the length of the charter is the motor vessel, the administrator, which secured an extension of its index linked charter at 115% of the average Baltic ship from end time charter index. Until at least November 2020. Six, During this quarter, motor vessel Santa Cruz completed a special survey and dry dock over a period of thirty five days. Slide five shows Eurodrive's current fleet, which consists of 11 vessels with an average age of approximately ten point eight years and the total carrying capacity of about seven sixty seven thousand deadweight tons. In addition, we have two Ultramax vessels of the construction each with a capacity of 63,100 tons scheduled for delivery in the 2027. Upon delivery, our fleet will expand to 13 vessels with a total carrying capacity of just under 900,000 deadweight tons. Now please turn to Slide six for a visual update on our current fleet employment. As of 09/30/2025, our fixed rate coverage for the remainder of the year stands at approximately 5%. Based on existing time charter agreements. This figure excludes vessels operating under index linked charters which, while subject to market fluctuations, still have secured employment. We currently have four vessels the Maria, Goodheart, Molyboslak and Jani Peters trading on index linked charters with durations ranging till March 2026 at least November 2026. Turning to Slide eight, we will go over the general market highlights for the third quarter ended 09/30/2025 and up until recently. Panama export rates rose steadily through the 2020. Five. Increasing from an average of about $14,100 per day to approximately $14,950 per day by corporate rent. Reflecting a slight increase. As of November 7, spot rates for Panamax vessels increased further and now stands at around $15,500 day. Now, one year tax time charter rates are a bit lower than the spot rate and Clarksons gives the standard Panamax one UTC rate at $15,125 per day. During the third quarter, the Baltic Dry Index and the Baltic Panamax Index recorded year over year increases of approximately 614% respectively reflecting a slight market slightly better market compared to the same period last year. This recent recovery in the Super range was supported by stronger than expected demand from minor bulks robust grain trade flows and the marginal tightening in vessel supply driven by longer volume distances and regional trade disruptions. Please now turn to Slide nine. According to the IMF's October 25 projections, global growth is expected to ease slightly from 3.3% in 2024 to 3.2% in 2025 and three point one percent in 2026. With advanced economies growing around 1.5%. And emerging markets and developing economies just above 4%. Persistent trade tensions and ongoing policy abandoning investment and trade activity And as tariffs work the way, through supply chains and onto consumers. The IMS predicts a gradual, but not too severe global growth deceleration. Global inflation is projected to moderate worldwide though unevenly across regions, remaining above target in The United States where risks attempted to the upside and most subdued elsewhere. U. S. Growth is projected at 2% in 2025 and two point one percent in 2026. The modest upgrade revision from earlier forecast reflecting smaller than expected effects from tariffs and more favorable financial conditions. In late October, the Federal Reserve load lowered the target range for the Federal Funds rate by 25 basis points to 3.775% to 4%. Chair Powell has not ruled out a possibility of an additional rate cut at the December meeting. The overall outlook remains fragile with downside risks stemming from persistent uncertainty potential protectionist measures and ongoing labor constraints. Among emerging markets, India is growing the and is forecast to expand by 6.6% in 2025 and six point two percent in 2026. Supported by robust domestic investment resilient agricultural output and the vital services The ZM5 economies are also expected to post solid growth of around 4.2% in 2025 and four point one percent in 2026. Underpinned by the healthy regional rate and the continued industrial activity. China's economic outlook is projected to continue well at a decelerating pace. These challenges include the widening gap between supply weak domestic demand. As well as ongoing trade tensions with The U. S. Including the new tariffs on Chinese goods export controls and restrictions on high-tech exports. China's growth is consequently expected to moderate to 4.8% in 2025 and four point four percent in 2026. Despite domestic headwinds, Chinese economy is being supported by strong export performance to regions like Southeast Asia and the EU And the still resilient manufacturing sector. Turning to the drybulk sector to see how the global growth affects the demand for drybulk Clarkson Research now projects drybulk trade demand growth at just 1.4% in 2025 two point one percent in 2026 and one point eight percent in 2027. Indicating a stronger trajectory than previously estimated growth. The recovery supported by steady output in Asia continued demand from iron ore bags and improving agricultural and coal trade flows. Please turn to Slide 10 to review the current state of the order book in the drybulk sector. As of November 2025, the order book stands at approximately 10.9% of the existing fleet. Longer higher than the 7% recorded in 2021, it remains amongst the lowest levels in history. For context, the order book accounted for 8% of the fleet in 2008 and nearly 30% in 2004. Fourteen. Current ordering activity remains limited due to shipyard capacity constraints high new building costs and uncertainties surrounding future fuel technologies and environmental regulations. Turning to Slide 11, let us now look into the supply fundamentals in a little bit more detail. As of November 2025, the total drybulk fleet comprises roughly 14,150 vessels. According to Clarkson's latest estimates, new deliveries as a percentage of the existing fleet are projected at 3.7% for 2025, 4.2% for 2026 and three point four percent for 2027. With actual fleet growth expected to be slightly lower due to slippage and demolition activity. The fleet age profile shows that about 10.6 of the global fleet is over twenty years old. Representing a pool of potential scrapping candidates particularly if market conditions worsen and environmental requirements tighten further. Overall, fleet renewal remains balanced amongst the various vessel size. The majority of vessels are concentrated in the ten to fourteen year old range while still most vessels built around that time were not ECO ships. Therefore, the number of ECO vessels available in the market is still a minority amongst the existing fleet. Please turn to Slide twelve, where we summarize our outlook for the drybulk market. The drybulk carrier market spreads at notably junior sales courses with average time charter rates for Sucom and Panamax vessels increasing by roughly 13% quarter on quarter. Reflecting improved demand trends. Across several key commodities. The Red Sea attacks earlier in the summer disrupted Canal transit further. And tightened vessels supply further supporting trade Demand for larger vessel classes remains while smaller segments also recorded strong gains adding to the overall positive event. We Looking ahead to the remainder of 2025, market conditions still remain uncertain. Shaped by the recent Geopolitic geopolitical and policy developments. In October 2025, as we all know, The U. S. And China escalated its the trade dispute introducing reciprocal port fees on each other's vessels. Which added complexity to shipping operations. However, following the meeting between President Trump and Xi, last month, both sides signaled a temporary de escalation and port fees postponed. Meanwhile, the ceasefire between Israel and Hamas has also drawn attention to potential leasing of Red Sea disruptions. For now, shipping companies are still adopting the cautious wait and see stance and no immediate changes in routing patterns have been experienced. In 2026, the market still faces challenges around trade growth and protection pattern of trade. Adjustment. However, Chinese demand from both and iron ore will remain a key driver while global infrastructure spending should continue to support industrial Materials trade. Strong harvest in The U. S, Brazil and Russia are also expected to sustain robust grain exports for the Sukhovix Panamax Also expected is a rebound in corn trade and steady minor bulk demand. However, the potential normalization of Red Sea traffic could result in lower ton mile demand as routes resorted again. On the supply side, ordering activity remains limited due to shipyard capacity constraints in continued uncertainty about fuel technologies. Especially after the recent IMO decision to postpone the adoption of of its proposed environmental friendly new routes ship owners are confused on what type of ships to order. The order book to fleet ratio currently near historical launches I said before, provides a solid backdrop for the charter rate and casualty should demand strengthen. Although there is a clear industry shift towards alternative fuels, the pace of transition is likely to be slower than anticipated. Constrained by technical challenges, economic consideration and ongoing delays in the IMOs next net zero framework. Azerbition related measures such as the EXI, CII, EU ETS, UME, UMAD Times. Are fully implemented apparent supply could tighten further through increased scrapping and slower vessel speeds. By 2027, the drybulk market is expected to enter the rebalancing phase with new deliveries declining and scrapping activity picking up leading to a more balanced supply demand environment. Let's turn to Slide 13. As of 11/07/2025, the one year time charter rate for Panamax vessels stood at $15,125 per day remaining modestly above the twenty year historical median of $13,375 per day. As of the 2025, the market for ten year old Panamax bulk carriers remains firm. In fact, we have seen an approximately 10% increase over the low seen in Q2 which represented the lowest point since mid-twenty twenty three. Current asset value stands at approximately $26,000,000 which are well above the historical median of $15,500,000 and the ten year average of 18,000,000 Underscoring continued resilience in second revenue building orders. And also the disposal of one of our we are in a position to continue modernizing our fleet and preparing ourselves for the next bull run which will as usually, perhaps suddenly and possibly when least expected. Let me now pass the floor over to our CFO, Tassos Ostovidis, to go over our financial highlights in more detail. Tassos Aslidis: Thank you very much, Aristin. This Good morning from me as well, ladies and gentlemen. Over the next four slides, I will give you an overview of our net Aristides Pittas: financial highlights Tassos Aslidis: for existing vessels financial and also the disposal of one of our we are in a position to continue modernizing our fleet and preparing ourselves for the next bull run which will as usually, first suddenly and possibly when least expected. Let me pass the floor over to our CFO, Patrice Ostlidis, to go over them. Our financial highlights in more detail. Thank you very much, Aratindis. Good morning from me as well, ladies and gentlemen. Over the next four slides, I will give you an overview of our financial highlights for the third quarter and nine months of 2025. And compare them to the same periods of last year. For that, turn to slide 15. For the 2025, we reported net revenues of 14,400,000.0 representing a 2.2% decrease over total net revenues of $14,700,000 during the third quarter last year which is primarily the result of the decrease decreased average number of vessels we operated and relatively lower market compared to the same period of last year. Details and other financing costs including interest income, for the 2025, amounted to 1,600,000.0 compared to $1,900,000 for the same period of 2024. Interest expense third quarter of this year were lower primarily due to partly offset by the increased average amount of debt that we sell. Adjusted EBITDA for the 2025 was 4,100,000.0 compared to $05,000,000 achieved during the 2024. Basic and diluted loss per share attributable to the the controlling shareholders for the 2025 was $0.24 calculated on approximately $2,800,000 base diluted weighted average number of shares outstanding compared to loss per share of $1.53 probably to about the same number of basic and diluted weighted average number of personal savings for the third quarter of last year. Excluding the effect from the loss attributable to controlling shareholders, for the quarter of the unrealized loss on derivatives The adjusted loss for the third quarter of this year would have been $0.23 per share based to diluted compared to an adjusted loss of $1.42 per share basically diluted for the same period third quarter twenty four. Let's now look at the numbers for the corresponding nine month period. Ended September 30, 2025 and convert them to the same period the nine months of 2024. For the first nine months of 2025, we reported total net revenues of 34,900,000.0 representing a 25% decrease over total net revenue to 46,600,000.0 that we said during the first Operator: And the decrease and the offset partly for the increased level of debt we gave. Adjusted EBITDA for the first nine months of 2025 was five compared to $7,600,000 during the first month month of 2024. Again, excluding the effect on the net loss attributable to the controlling shareholders for the first nine months. Of the year. Of the unrealized loss on the EBITDA and the net gain on sale of a vessel the adjusted loss for the nine months period ended 09/30/2025 would have been $3.39 per share, basically diluted compared to adjusted loss for the nine months ended 09/30/2024. Please move now to Slide 16. To review our fleet performance. We'll start our review by looking at our fleet utilization rates for the third quarter and nine month period of 2025 and convert them to the same period of last year. During the 2025, our commensurate utilization rate was 100% while our operational utilization rate was 99.3% compared to 100% commercial and 98.5% operational in the corresponding period of 2024. On others, we own and operated 12 vessels in the first nine in the first three months in the third quarter, sorry. Of 2025 earnings and other time charter equivalent rate of $13,232 a day compared to 13 vessels in the same period the 2024 and another $13,105 per vessel per day. Our total daily operating expense including management fees general and administrative expenses but excluding buybacks and costs, were $7,013 per vessel per day in during the third quarter twenty twenty five compared to $6,851 per vessel per day for the same period of last year. The new charter down is stable, We can see the cash flow breakeven level. Which also take into account in addition to the above expenses, for the entire growth and expenses interest expenses and loan repayments. Thus, for the 2025, our daily cash flow breakeven level was $12,200,182 dollars per vessel per day compared to $15,145 per vessel per day for the first quarter of last year. Reviewing out the same figures for the nine month period, and comparing to the same period of last year We said commercial utilization rate about 99.6% and operational acquisition rate of 99.2% for the first nine months of this year compared to 99.9 commercial and 98.7% operational for the same period of last year. On average, we operated 12.3 vessels during the first nine months and then another trade of $10,210 compared to operating 13 vessels during the same period of last year, earning on others $13,639 per vessel per day. Fuel analysis further down for operating expenses, Our operating expenses including management fees and G and A expenses, excluding the operating costs were $7,285 per vessel per day in the first nine months of this year compared to $6,927 for the same period of last year. And if we include on this figure, the interest expense the loan repayment and the direct working expense, our total cash flow breakeven level for the first nine months of 2025 would be $12,071 as compared to $13,789 per vessel per day for the same period of 2024. Let's now move to slide 17. To give you some highlights regarding our debt. And our forward cash flow breakeven. As of 09/30/2025, UroGiles debt stood at 97,900,000.0 with an average margin of about 2.05%. Assuming a three month short rate of 3.84% cost of our senior debt is approximately 5.9%. The repayment schedule of our debt you can see on the top right chart of this slide which shows total debt repayments of $13,100,000 in 2025, 10.3 of which have already been made. And if on the top of that, include interest expenses and loan As of September 30, 2025, cash and other assets in our balance sheet stood at approximately $18,800,000 while we said advances for newbuildings amounted to about 7,200,000.0 In addition, on the asset side, we have the book value of our vessels which was about 176,000,000 resulting in total book value of our assets of roughly $2.00 2,000,000 On the liability side, total bank debt as I mentioned in the previous slide stood at 97,900,000.0 which is roughly 48.4% of the book value for our assets We have other liabilities of 5,200,000.0 representing about point 6% of our This result in the book value for shareholders' equity of almost 9,000,000 translating into a net book value per share of $31.8 Based on our own estimates, though, the market value for our fleet is higher than the respective book value We estimate it to be about $214,000,000 as compared to $176 as I mentioned earlier. Approximately $38,000,000 above the book value. In plan, the net asset value of our fleet on a per share basis to be in excess of $44 If we compare this to the recent trading days of our sales, which is around $13 per share. It becomes evident one more time that there is significant potential upside potential for share appreciation should market conditions improve or other capital costs but discount to level. And with this, statement, I would like to pass the floor back to our teams to continue our call. Thank you, Basos. Let us now open up the floor for any questions you may have. Thank you. We will now be conducting Aristides Pittas: Thank conducting a question and answer Our first question comes from the line of Hans Baldahl with NOBLE Capital Markets. Please proceed with your question. Hello. Operator: The market fundamentals Tassos Aslidis: are looking more promising for 2026, and we've seen the rates push up And I know you mentioned a breakeven rate of 12,000 Can you talk about your threshold for shifting from the short term index linked exposure in possibly securing some longer term coverage Are there specific rates you're looking for Operator: Yes. We will reach to longer term coverage if we see numbers between around 16,000, 15,000, 16,000, 17,000, that's that's the area where we will be concentrating to Tassos Aslidis: to get some exposure hedged. Operator: Through time charters or FFAs Tassos Aslidis: Okay. And is that across the board or is that average between the Kamsarmax, Panamax Supramax, Operator: It's another let's say, what I just told you. Obviously, our Elder Panamax es earn less So we might fix something at a little bit lower rate. The younger cancer MAXs and Tassos Aslidis: the Supra and Ultramaxes. Operator: They are probably around the same these days. Tassos Aslidis: Okay. Tassos Aslidis: And I see the Exterini is looking for employment Do you have a time line of when you expect that vessel to start start up again? Operator: The Irini was sold Tassos Aslidis: Not the Ectorini. Ekaterini. Operator: Yes, the Catarini was fixed a couple of days ago. So we didn't make it here in the presentation. For trip via South America back to the Far East. So about ninety to one hundred days at the level which is about $16.5100 dollars a day. Tassos Aslidis: Okay, understood. My last question is the near term debt. I know with the Arini sale and the refinancing step your liquidity improved recently. But you still have the $12,200,000 in current debt. Do you have any plans to improve the near term liquidity? Operator: Yes. Our liquidity has improved significantly because we did a couple of things. We they're not reflected in the numbers for the nine months, but because they kept in or are about to get in. We're refinancing Janus Pitas which will release about $4,500,000 We have sold Tirini, which will release about $6,500,000 I think. After we paid couple of million of debt that was there. And we have also it's in the press release arranged to finance the pre delivery installments Tassos Aslidis: payments for our newbuildings. Operator: One, which has already been paid by the new the debt we arranged So, I think we have improved significantly our liquidity The difference by end of the year is plus $15,000,000 after this test that we did. That we took. Aristides Pittas: Okay. Tassos Aslidis: Thank you very much. That's everything for me. Operator: Our next question comes from the line of Poe Fratt Alliance Global Partners. Please proceed with your question. Operator: Yes. Good afternoon, Aristides. Good afternoon, Tassos. Aristides Pittas: Just wanted to follow-up on the newbuild financing Tassos Aslidis: Tasos, did you say that you're going to draw down the first one of the two newbuild facilities in the fourth quarter Operator: Yes. So we've already done that. The second these new buildings had the second payment that that was to be made this year. For one of them that the payment was due, we already made that We already took a loan and the payment was made using that loan. The other payment is still coming up. And we have another loan with a different bank I think it's in the press release. And which will bring you forward that payment as well. Tassos Aslidis: So, I'm trying to to figure out when you're going to show the incremental debt on the the balance sheet. Because the new bill payments, as I understand it, they're call it, 60% of the total cost of the new builds, and those aren't due until mid-'twenty seven. So can you just sort of give me an idea of what Operator: the incremental debt looks like in 'twenty seven? And Tassos Aslidis: 'twenty six and 'twenty seven? Passes? Operator: I mean, by the end of by the delivery of these vessels, we would have drawn approximately $53,000,000 debt to finance the two new buildings. Dollars 26,000,000 and 26,900,000.0 I think is the numbers. So that's by the delivery of the vessels. And if we draw debt to finance pre delivery installments, we'll show obviously in our balance sheet. Yes. Okay. Just to clarify that. Tassos Aslidis: And then, Aristides, can you talk about the market a little bit? I'm trying to reconcile the one, the sudden increase in rates on the Alexandros P and Christos K in sort of the August, September time frame. And can you just highlight the reasons you think that the rates went from Alexander's P went from $6,000 to 28,000 And then Christos went from call it, the low teens to 28%. And then can you give me an idea of sort of the rate outlook for both of those into the rest of the fourth quarter? And into the early twenty twenty six timeframe? Operator: Beautiful. The market, the overall market is slightly improving as is shown also by the various indices. However, the indices are comprised of various different voyages. The voyages from the Far East to the Atlantic generally, are low paying voyages. The voyages from the Atlantic to the Far East are high paying voyages. So if you secure a trip like the Ecuadorini, Which Starts From The Far East, goes to South America, and returns to the Far East, then you will get the average rate, which today is around $16,005 that we fixed. But in the two cases that we're talking, we're talking about the first two voyages were positioning voyages to places where you can get higher rates to go back out. And that is why you see those big differences in the earnings. Is it clear? Aristides Pittas: Yes. I guess the next Tassos Aslidis: sort of question would be then they'll have to probably reposition for the rest of the fourth quarter. So we should look at a lower rate for the rest of the quarter. Is that fair? Operator: Aristides, on those two things? I think on average, you should be looking at average charter rates. So the way we run our models at least we take those assumptions into in account and we run our models for three, six months or a year or whatever. So, we generally use vein decks to reflect what we think will be happening, because it's very difficult to decide exactly how to value every ship. But yes, if a vessel is in the Far East, is in China, it will have a cost to go to a place where it will be able to command higher for us. Freight rates. Clearly, it depends on the type of the next picture. If it's within the Paris, it will be closer to the average. If it's back and forth in the Atlantic, Again, for the average. If it's go to the Atlantic, it will be lower the lower rate that I previously mentioned because then you get a better rate to go to the Pacific So, wherever the cutoff falls from the end of the quarter, but so taking the average is probably safe bet. Tassos Aslidis: Yes. Okay. Fair enough. And then when I just want to clarify that the 115% of the BSI-fifty eight Is that number on Page eight so that the four that you have on the index right now or earning 115% of right now, it looks like sixteen point six hundred and twenty five Is that correct? Operator: Yes. It takes the BS Tassos Aslidis: Index Operator: and multiply it by 1.6 to get what we have paid for these four vessels as we say. Tassos Aslidis: Okay. And on your your chart that shows your employment on Page I think it's page six, You don't have any dry docks on through the middle of 'twenty six. Will there be any dry docks over the next nine months? Or could you just highlight what your dry docking schedule might look like in the Operator: Yes. There is a dry dock of Vixenya that is going to happen very soon. Other than that, I don't think we have something else within the next six months to nine months. We only have one of our dock within 2026, I can't remember which ship it is. And it's towards the second half of this. For the whole year, there is just one write off. Have explained now and one in 2026. Tassos Aslidis: Okay. And then typically, I guess, you talked about your fleet renewal business or program. And it was more in the context of lower rates. And making that decision of doing a dry dock on a twenty year old plus asset versus selling it And can you just highlight when the dry docks might occur on the Starlight and the Blessed Buck, which you're still two of the oldest Panamaxes you have out there. The Santa Cruz was done in the third quarter, so I'm assuming you're going to keep it for a while. Operator: Yes. I think less luck and starlight are super drives your in. 2027, I think second quarter. Aristides Pittas: Mr. Pettus, it appears we have no further questions at this time. I'd like to turn the floor back over to you for closing comments. Tassos Aslidis: Thank you. We will Operator: thank everybody for participating in today's call. And we will be back to you in the New Year with the results of the full year. Thank you. Thanks everybody for attending. Aristides Pittas: Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.
Operator: Greetings, and welcome to the Great Elm Group Fiscal 2026 First Quarter Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Adam Yates, Managing Director. Thank you. You may begin. Adam Yates: Good morning, everyone. Thank you for joining us for Great Elm Group's Fiscal 2026 First Quarter Earnings Conference Call. As a reminder, this conference call is being recorded on Thursday, November 13, 2025. If you would like to be added to our distribution list, you can e-mail geginvestorrelations@greatelmcap.com or you can sign up for alerts directly on our website, www.greatelmgroup.com. The slide presentation accompanying today's conference call and webcast can be found on our website under Events and Presentations. A link to the webcast is also available on our website as well as in the press release that was disseminated to announce the quarterly results. Today's conference call includes forward-looking statements, and we ask that you refer to Great Elm Group's filings with the SEC for important factors that could cause actual results to differ materially from these statements. Great Elm Group does not undertake to update its forward-looking statements unless required by law. In addition, during today's call, management will refer to certain non-GAAP financial measures. Reconciliations to the most comparable financial measures are included in our earnings release. To obtain copies of our SEC filings, please visit Great Elm Group's website under Financial Information and select SEC filings. Today's comments do not constitute an offer to sell or a solicitation of an offer to buy interest in any investment vehicle managed by Great Elm or its affiliates. Any such offer, solicitation will only be made pursuant to the applicable offering documents for such investment vehicle. On the call today, we have Jason Reese, CEO; Adam Kleinman, President and General Counsel; Nicole Milz, COO; and Keri Davis, CFO. I will now turn the call over to Jason Reese, CEO. Jason Reese: Good morning, and thank you for joining us today. Great Elm made significant progress across our strategic initiatives in the fiscal first quarter, building on the momentum from our record year in fiscal '25. During the quarter, we advanced our goals to expand our platform, grow assets under management and enhance our profitability. Notably, we raised nearly $250 million of debt and equity capital across our credit and real estate platforms through both private investments from strategic partners and public raises through GECC's at-the-market equity program and a new baby bond. Fee-paying assets under management grew 9% year-over-year to approximately $594 million or 10% on a pro forma basis to approximately $601 million. As I have reviewed on prior calls, in July, we established a transformative partnership with Kennedy Lewis Investment Management, which invested in both GEG and Monomoy REIT, committing up to $150 million in leverageable capital to Monomoy REIT to accelerate our real estate platform expansion and purchasing 1.3 million shares of GEG common stock. This partnership is a true catalyst for growth, bringing not only capital but also deep institutional expertise in scaling real estate platforms. As part of this partnership, Lloyd Nathan joined the Board of GEG and Ludwig Schrittenloher joined the Board of Monomoy REIT. In August, Woodstead Value Fund purchased 4 million newly issued shares of GEG common stock at $2.25 per share, raising approximately $9 million in equity capital. Alongside the investment, Booker Smith joined our Board to help advance and expand our key verticals. Great Elm also issued 10-year warrants to Woodstead for an additional 2 million shares of GEG common stock, 1 million struck at $3.50 and 1 million at $5, further aligning their interest with those of all shareholders. Great Elm Real Estate Ventures continued to ramp during the quarter. Monomoy BTS sold its second build-to-suit development property in Canton, Mississippi for over $7 million, generating a gain of over $0.5 million. Construction on the third BTS property is nearing completion with a robust pipeline of development opportunities behind it. Monomoy Construction Services completed its second full quarter since inception, contributing approximately $700,000 in revenue. With construction capabilities fully integrated in-house, we can offer tenants comprehensive turnkey solutions, capture more value through the property life cycle and execute on our growing project pipeline. At Monomoy CRE, investment management and property management fees increased 12% over the prior year period, driven by the growth in fee-paying AUM and growing rental income. The REIT deployed over $13 million to acquire 7 new properties at attractive cap rates and acquired a land parcel adjacent to an existing asset to accommodate a tenant expansion under a new 10-year lease. This transaction demonstrates our ability to meet tenants' needs while enhancing portfolio value. In our alternative credit business, GECC delivered a strong quarter in terms of capital formation and balance sheet optimization. GECC raised approximately $28 million in equity proceeds, including a $15 million private placement and a $13 million through its at-the-market equity program. In August, GECC doubled the borrowing capacity under its revolver to $50 million from $25 million, reducing the revolver interest rate by 50 basis points and has the ability to further expand the facility to $90 million under certain circumstances. In September, GECC refinanced its highest cost debt, the $40 million of 8.75% notes due in September '28 with a $57.5 million of 7.75% notes due in December '30, reducing annual cash interest expense by 100 basis points and extending its debt maturity profile. GECC's operating results for the quarter were impacted by First Brands, which traded down sharply in late September before filing for bankruptcy at the end of the quarter. GECC held exposure to First Brands through syndicated loans. Consequently, NAV was negatively affected and GECC placed its First Brands investments on nonaccrual at the end of September. Despite this operating setback, the capital initiatives executed in the quarter leave GECC in a position of strength with a strong balance sheet, ample deployable cash and capacity to invest in income-generating opportunities in the coming quarters. Meanwhile, our Great Elm private credit strategy continued with strong performance, returning 15.2% net calendar year-to-date through September 30. Since inception, we have made income distributions exceeding 15% of original invested capital to investors in the strategy, highlighting disciplined deployment and a focus on value preservation. Outside of our core business, our CoreWeave-related investment remains a significant success story. We have already received over 100% of our initial $5 million investment in distributions to date, and we continue to see meaningful upside potential despite recent volatility in CoreWeave stock price that contributed to unrealized losses in this investment and GEG's net loss for the quarter. Shifting back to Great Elm. Our balance sheet also remains solid, ending the quarter with approximately $53.5 million in cash, providing us with ample flexibility to support our growth initiatives and take advantage of attractive opportunities as they arise. In July, our Board expanded our stock repurchase program by $5 million to $25 million in total. Through November 11, we have repurchased 5.6 million shares for $10.9 million at an average price of $1.93 per share, leaving $14.1 million in remaining program capacity. These repurchases reflect our continued confidence in the company's long-term value and are a highly accretive use of capital. As we move through fiscal '26, we remain focused on growing fee-paying AUM, scaling our credit and real estate platforms and translating our strategic progress into sustained financial performance as we seek to create enduring value for our shareholders. With that, I'll hand it over to Keri. Keri Davis: Thank you, Jason. I will provide a brief overview of the quarter and of course, welcome all of you to review our filings in greater detail or reach out to our team with any questions. Fiscal first quarter revenue was $10.8 million compared to $4 million for the prior year period. The increase was primarily driven by $7.4 million in revenue recognized from the sale of our second Monomoy BTS build-to-suit property. AUM and fee paying AUM totaled approximately $785 million and $594 million, respectively, with fee paying AUM up 9% from the prior year quarter end. On a pro forma basis, AUM and fee-paying AUM totaled approximately $792 million and $601 million, up 7% and 10% from the prior year period, respectively. These figures incorporate the pro forma impact of GECC financing activities. We reported a net loss of $7.9 million for the quarter versus net income of $3 million a year ago, primarily due to unrealized losses on GEG's investments in GECC common stock and our CoreWeave-related related investment. Adjusted EBITDA for the quarter was a loss of $0.5 million compared to a gain of $1.3 million in the prior year period. As of September 30, 2025, we held approximately $53.5 million of cash on our balance sheet to deploy across our growing alternative asset management platform. Please refer to Slide 6 for a summary of our financial position and book value per share of approximately $2.30. This concludes my financial review of the quarter. With that, we will turn the call over to the operator to open for questions. Operator: [Operator Instructions] We have a question from Nat Stewart of N.A.S. Capital. Unknown Analyst: I've been following Great Elm Group for quite a while, and I'm pretty interested in the evolution the business has had lately. I was just trying to figure out kind of where you are in the growth picture. And obviously, with the asset management businesses, if you manage to keep the fixed costs at least relatively flat and grow AUM and revenue, it's going to create a lot of earnings growth. So I was just curious what you guys think about your current overhead and expense structure and kind of like just as a -- from a financial point of view, like where are you on this growth trajectory in terms of growing the REIT, growing the BDC, other opportunities? Kind of what clues can you give us about where you see this going and when we're going to really see some operating leverage kick in? Jason Reese: Thanks, Nat. It's Jason Reese. I think best to say, we have spent a lot of time and effort building all the back office infrastructure. As you know, as you stated, this business is a high fixed cost and then low marginal cost going forward. I think we have the bulk of our fixed costs in place, and now the strategy is all about growing. As I think you've seen this past quarter, we made a major growth move on the real estate side. We're now putting that capital to work as we look to raise additional capital for the REIT. And on the BDC, kind of the same thing. We've done quite a bit of capital raising over the last 15 months. We hope to accelerate that. We do not think we need to come anywhere near growing the costs that we have in the past. So we think we're in a great spot going forward to leverage. Unknown Analyst: Okay. Just like a little follow-up question. Obviously, there's a lot of public information on the BDC. The strategy there looks very good with that setback you had this quarter. I know I listened to that call, they talked about they need to diversify and maybe reduce some of the position sizes, which makes a lot of sense. On the Monomoy REIT side, I could be wrong, perhaps I just am not seeing it, but I'd be interested in just learning more about that business. Like it doesn't seem to have a lot of a public-facing information about it. Am I just missing it or not seeing it? Or is that kind of -- how do we learn more about that and what's going on there? Just a little more in-depth understanding of that. Jason Reese: Well, let me give you a minute or 2, but I'd be happy to get on a call separately with you and get Chris [ Massey ], who is the head of that business on the call. But it is a private REIT. So there's not a lot of public information about it. But it focuses on the industrial outside storage space. The REIT has been operating for approximately 11 years. We have over 150 million -- 150 buildings that are -- we own in that REIT and growing. A lot of our focus is on the equipment rental space. Our largest tenant in this space is United Rentals, which the second largest tenant is Sunbelt Rentals in that space. And we've taken the time to build. We're not just an asset manager there. We have built our BTS business or build-to-suit where we're building our own properties for -- that will then go in the REIT or get sold to third parties, but for servicing the tenants. And we've also -- if you remember, in January, we purchased a construction business that we were using from the outside, so that we brought all of that in-house to have the capabilities to do everything from kind of cradle to grave with properties. We think it's a great business. We think it could be a public vehicle at some point in time. We're probably not quite at the scale I would want it to be before we took it public. But that is a possibility in the future. At that point, there would be the ultimate disclosure about it, obviously. But I'd be happy, Nat, if you want to e-mail me after the call, to set up a separate call and go in depth with you on Monomoy, if you'd like to know more. Unknown Analyst: Okay. Yes. Is that -- what -- if I just e-mail the IR, will that -- IR e-mail, will that get through? Jason Reese: It will get through... Operator: At this time, there are no further questions. And I would like to turn the floor back over to Jason Reese for closing remarks. Jason Reese: Thank you again for joining us today. We remain confident in the strategic direction of our business. We continue to raise significant capital, advance our credit and real estate platforms and strengthen our balance sheet. We are committed to executing on our growth strategy, scaling fee-paying assets under management and delivering sustained value for our shareholders over time. We look forward to keeping you updated on our progress. Thank you for your time and continued support. Operator: That concludes today's conference. Thank you for joining us. You may now disconnect your lines.
Operator: Good day, and thank you for standing by. Welcome to Better Collective Q3 2025 Presentation. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Better Collective VP, Investor Relations and Communications, Mikkel Munch Jacobsgaard. Please go ahead. Mikkel Jacobsgaard: Thank you very much, and good morning, and welcome to Better Collective's Q3 webcast. My name is, as you just heard, Mikkel Munch Jacobsgaard, and I'm the Vice President of IR and Corporate Communications here at Better Collective. I'm joined today by our Co-Founder and Co-CEO, Jesper Sogaard; and CFO, Flemming Pedersen, who will provide today's business update in connection with our Q3 report that was disclosed yesterday. Please follow me to the next slide. We ask you to pay attention to this slide where we display our disclaimer regarding any forward-looking statements in today's webcast. Please turn to the next slide as I hand over the word to Jesper for the third quarter highlights. Jesper Søgaard: Thanks a lot, Mikkel. Good morning, all, and thank you for joining today's webcast. Let's dive into the Q3 highlights, and please follow me to the next slide. Overall, we are happy to show good underlying growth in Q3 when normalizing for the sports win margin. During especially September, the Sportsbook saw player-friendly results, which dampened revenue and earnings by EUR 10 million when comparing to the same period last year. Group revenue reached EUR 78 million and EBITDA came in at EUR 21 million. I'm very satisfied with this performance despite the low sports win margin, which is an external factor we cannot control and also that normalizes over time. In Brazil, we continue to see good activity levels in line with recent quarters with revenue above our expectations. Although the market remains affected by the ongoing regulatory transition, dampening our ability to send new customers to our partners. In North America, revenue share more than doubled compared to last year, further strengthening our base of recurring revenue in the region. Our new KPI, the value of deposits reached EUR 726 million, up 2% year-over-year. Considering the continued regulatory transition in Brazil, this stable development is a strong achievement and confirms the solid quality of our underlying player databases. On the cost side, group costs continued to trend down, reflecting the successful execution of our cost efficiency programs. Finally, we maintain our financial guidance for the year and continue our share buyback, which we announced with the Q2 report. Please turn to the next slide. On this slide, you can see the main factors influencing our revenue performance in the third quarter. First, the sports win margin reached a record low in Q3, impacting revenue negatively by EUR 10 million. Secondly, the ongoing regulatory transition in Brazil continued to weigh on performance, contributing with EUR 4 million negative impact, although this is better than expected. Thirdly, we had an FX headwind of EUR 2 million. On the positive side, the North American revenue share doubled, showing EUR 4 million of growth. Furthermore, we saw underlying growth in the business of EUR 9 million. This was particularly within Paid Media, Sports Media and our talent-led media. Altogether, this brought us to a Q3 revenue of EUR 78 million. Please turn to the next slide where we look at the development in EBITDA. EBITDA was largely flat with key components being the revenue-related effects just discussed accounted for a EUR 3 million negative impact, where the sports win margin had full negative effect. Last year's cost reductions included temporary one-off items such as variable pay reversals, which created a EUR 6 million positive effect last year. We also continued to invest in growth, particularly within Paid Media, where higher activity levels led to EUR 2 million in additional costs. Lastly, our cost efficiency program launched in October last year delivered EUR 8 million in cost reductions. Altogether, this brought us to a Q3 EBITDA of EUR 21 million. Please turn to the next slide. Following Q3, our 2025 and 2027 financial targets remain unchanged and are shown here. We remain confident in delivering on our 2025 guidance with Q4 expected to be our largest quarter of the year, consistent with prior years. The quarter will be supported by a higher top line in the busy sports season and continued cost discipline as demonstrated in Q3. Please turn to the next slide. In September, we reached one of the most defining milestones in Better Collective's history with the launch of Playbook, our new AI-powered betting solution. Playbook marks the beginning of a new chapter for Better Collective as we expand beyond customer acquisition to also include user retention and long-term engagement. This is a vision my co-founder, Christian and I have shared since founding the company to empower fans with smarter, more personal and more intuitive ways to engage with sports and betting. By using AI to understand intent and context at scale, Playbook transform fan engagement into real-time data-driven experiences. This allows fans to seamlessly make bets directly from the communities and platforms where they already spend time, whether that's on X, in messaging apps or across our own media brands. Our partnership with X in the U.S. positions us exactly where sports conversations naturally happen, giving us access to unmatched scale, data and first-party insights. Within just a few weeks, Playbook has already generated millions of bets placed and shown exponential growth, clearly validating both the product and the vision behind it. Ultimately, for me, Playbook represents the next evolution of Better Collective, transforming how we connect with fans, deepening engagement and creating lasting value for users, partners and shareholders alike. Since launching Playbook in September, we have seen exceptional and rapidly accelerating growth. This measures when a user is directed to a sportsbook after choosing a bet slip suggestion. Very encouragingly, almost all of these clicks result in bets being placed, which clearly demonstrates the strong user intent and conversion rates of the product innovation. We are very pleased that only a few weeks after launch, Playbook has already generated millions of bets placed with our partners, a very encouraging start for what we see as a long-term growth driver for Better Collective. Please turn to the next slide and let Flemming take us through the financial performance for the quarter. Flemming Pedersen: Thank you, Jesper, and good morning to you all. Please follow me to the next slide as we dive into the financials. As Jesper mentioned earlier, the result ended in a 4% revenue decline to EUR 78 million. However, when we normalize the sports win margin impact, which hits both revenue and EBITDA, the picture changes and on a normalized basis, we would have seen organic growth. As Jesper mentioned, we do see fluctuating sports win margins from time to time, and it is something we cannot influence and it is just dependent on sports results, which in this quarter and in September, in particular, have been in players' favor. Let's turn to the next slide. A key strategic focus for us continues to be the expansion of our recurring revenue base, which provides a solid and predictable foundation for the business and represents significant unrealized value over time. Year-over-year, recurring revenue declined by around 5% to EUR 50 million. This was primarily driven by the lower revenue share, reflecting the unfavorable sports win margin in the quarter as well as the ongoing regulatory transition in Brazil, where the market was reset by 1st of January following the new market regulation. Importantly, we continue to send new customers on revenue share agreements. In this quarter, the ratio was more than 80% of NDCs sent to partners operating on revenue share terms. A significant portion of this revenue is still unrecognized and will materialize over time, further strengthening our long-term earnings potential. In the last 12 months, we have generated EUR 160 million in revenue share income. Please turn to the next slide. Continuing on recurring revenue, let's take a look at our North American revenue share development. Back in Q3 2022, we began shifting our U.S. business model towards revenue share agreements, gradually moving away from CPA agreements to the extent possible. During 2023, parts of our revenue share agreements included upfront components, which temporarily boosted our reported revenue share income to levels similar to what we are seeing today. However, that structure is now almost fully transitioned to pure-play revenue share. Today, the revenue share we generate in the U.S. mainly comes from pure-play revenue share and only a small degree upfront payments. This entails a significant improvement in the quality of earnings as it means that the revenue we recognize is fully recurring and directly tied to player performance over time, providing more stability, predictability and long-term earnings potential. Due to the nature of the U.S. market where players are often incentivized by large bonuses, it has taken quite some time to get here. But we knew this when we started, and now we are seeing the returns coming. As you can see on this slide, revenue share income in North America doubled compared to last year. We expect this steady buildup to continue, further strengthening the foundation for our recurring revenue base. Please follow me to the next slide. Let me then turn the focus to our cost base. Our cost base reached its peak in mid-2024 at EUR 70 million per quarter. In Q3 2025, costs were 18% lower compared to that peak, now standing at EUR 57 million. This reflects a leaner and more efficient operating structure that positions us well to the future growth. We have communicated a lot about this in previous quarters. And while we are still focused on optimizing the business, we feel that we are in a good place now with the right organizational structure in place for the coming years. Included in the costs during the past quarters are also investments in new business initiatives such as the growth investments in paid media, the development and launch of Playbook as well as a number of new other initiatives. Please turn to the next slide. EBITDA before special items was largely flat year-over-year, resulting in a margin of 27%. However, when we normalize for record low sports win margin, the underlying performance is strong and the result of the business ability to drive new business across platforms and the disciplined cost management. As a reminder, a negative sports win margin impacts both revenue and EBITDA with equal impact. Please turn to the next slide. Take a look at our free cash flow development. Starting from Q3 year-over-year, EBITDA before special items of EUR 65 million. We saw a positive change in net working capital of EUR 7 million. Net financial expenses and tax payments each amounted to EUR 13 million, so EUR 26 million in total. In addition, we had EUR 14 million in other investments where the major part is related to our media partnerships. Altogether, this brings us to a free cash flow of EUR 32 million year-over-year, fully in line with our expectations and supporting our full year free cash flow guidance of EUR 55 million to EUR 75 million. Not shown on this slide, but worth mentioning is that our operational cash flow before special items was very strong, ending in a cash conversion of 168%, which reflects a healthy underlying cash generation from our core business. Lastly, regarding financing, in September, we entered into a new 3-year committed bank facility of EUR 319 million with an additional EUR 80 million accordion option. This facility strengthens our financial flexibility and supports our ability to execute on strategic priorities. We are very happy with this strong backing from our main banks. Please turn to the next slide. Over the past year, we have seen a decline in NDCs largely driven by the slow dropdown in Brazil, where welcome bonuses remain prohibited. However, as we mentioned in our previous webcast, while NDCs continue to be an important metric, the value of deposits provides a more meaningful view of the actual performance of our revenue share databases. As shown on this slide, the value of deposits has continued to grow consistently over time, underlining the health and quality of our recurring revenue base. Even more important to highlight, the value of deposits grew year-over-year, which is a solid achievement considering the ongoing regulatory transition in Brazil. A key driver of growth in the U.S. market characterized by significant higher player values compared to other markets as well as the Brazilian growth in past years. Please turn to the next slide and I hand the word back to Jesper for the key takeaways of today. Jesper Søgaard: Thank you, Flemming. And please turn to the next page. Before we close, let me summarize the key takeaways from the third quarter. Group revenue came in at EUR 78 million and EBITDA at EUR 21 million, both impacted by the record low sports win margin. Despite that, the underlying business showed solid growth across core markets and businesses. Brazil remained active, though still affected by the ongoing regulatory transition, while North America revenue share more than doubled compared to last year, further strengthening our recurring revenue base. Our new KPI, the value of deposits reached EUR 726 million, up 2% year-over-year, confirming both the quality and stability of our player database. Group costs continue to trend down, reflecting the ongoing execution of our cost efficiency program. During the quarter, we launched Playbook, which is a significant milestone for our company. Finally, we maintain our financial guidance for the year and initiated a new EUR 20 million share buyback program, bringing the total share buyback programs launched this year to EUR 40 million. All in all, we are entering the final quarter of 2025 with a leaner structure, a stronger recurring base and positive momentum heading into 2026. Thank you for your attention. Let's move on to the Q&A. Operator: [Operator Instructions] We will take our first question, and the question comes from the line of Hjalmar Ahlberg from Redeye. Hjalmar Ahlberg: Maybe to start a few questions on the Playbook product there. What do you see in terms of operator feedback this far and maybe some comments on how they potentially can pay for this product in terms of the retention you provide? Jesper Søgaard: Well, thanks, Hjalmar. First off, we -- I think what really matters and where this start is that there's great user adoption, like we are really pleased with how the sports betters are utilizing this product and basically are able to place bets more conveniently. And then on our partner side, we are seeing good feedback. And basically, I'm pleased with how they also engage with this product. I think when you consider the current sort of quality of Playbook is that it makes it super convenient to place a fairly complex bet, say you want to put on a bet on a single game with many different parts of that single game parlay. That's very cumbersome to actually place within a sportsbook app, and especially if you have seen on X, where we have partnered, some experts sharing their bet slip with, let's say, 10 different picks, it will take you a lot of time to place that, so we really create convenience about placing that particular bet. And for the sportsbooks, these single-game parlays or multi-game parlays are quite attractive due to the margin profile of such tickets. Obviously, they have higher odds and basically are more like a lottery ticket, but that also leads to an attractive margin profile for the sportsbooks. And we really facilitate a higher number of such bets flowing through to the sportsbooks, so it's -- it has been well received. And yes, we are well aligned with the sportsbooks on this product. Hjalmar Ahlberg: I'm just curious about this product. I mean, how long have you been working on the development of the product? And also, interesting to hear if you have any -- I mean, in terms of product development, are you looking to do more in terms of products that are focused on retention compared to acquisition? Jesper Søgaard: Yes. So, this is actually a product evolution, which started with our quick slip integrations that we did and then basically applying AI as the big unlock here, which allows for that context recognition and matching on the sportsbook side. And no doubt, we are really excited about this product, and I'm so impressed by our product organization who've done a great, great job of delivering this product in a short period of time, ready for the start of the NFL. And we'll continue to invest in this product and develop it, and ultimately, it's about creating convenience for the sports punters and help them place the bets they want to place, but also in the future, place the kind of bets they probably had not considered and could be inspired by our product. So, we're investing a lot into this product and definitely see still a lot to be done in developing the full vision of Playbook. Hjalmar Ahlberg: And also on North America... Flemming Pedersen: No, I think just to be fair, you also asked the question to monetizing, Hjalmar. And I think you can say -- we actually you can say went slow in the beginning, but we have been surprisingly -- positively surprised, I would say, about both the adoption, but also the partner engagement. So, we are already seeing, you can say, that product monetizing. Still, it's in the early phase, of course. And as Jesper said, it's focused on user adoption. But I can say, from my chair, we are quite pleased with that already. Hjalmar Ahlberg: Sounds good. And also, good to see some really strong revenue share income in North America. I just wanted to hear if you can maybe elaborate a bit. I mean if you compare North America, if I understand it correctly compared to Europe, it's maybe not always the same length or lifetime permission contract. How do you think that will evolve over time? I mean, do you think that will -- I guess it is still a long time before that make an impact. But yes, if you can comment anything how we should view that compared to Europe, for example, if you understand my question. Flemming Pedersen: Yes. I think for revenue share in the U.S., as I also mentioned, it has taken us a long time where we have been sort of not seeing a lot of revenue from all our investments we have made in revenue -- sending revenue share players, if you like. Because of the nature of the market where bonuses are so big in comparison to other markets, so it takes a long time before the player becomes profitable. But now we are seeing that, you can say, coming into the positive territory, and of course, that's very pleasing to see and also the player values that we have we assessed in the beginning, we are also happy with what we are seeing eventually. Hjalmar Ahlberg: Got it. And a final question, just on the costs there. I mean you see continued good progress on cost savings. And it also looked like the staff cost was down quite a bit compared to Q2 this year sequentially and also the number of employees, Is that something temporary in Q3? Or is it more like costs that will remain even going into Q4? Flemming Pedersen: Yes, I think it is, you can say, a reflection of the cost efficiency program we have been running. So, I think that's just, you can say, the new base basically. Operator: We will take our next question. Your next question comes from the line of Edward James from Cantor Fitzgerald. Edward James: Great. It's just primarily on guidance, and I'd be interested if you could just unpack what is baked into both the low end and the high end of guidance for fiscal 2025, both on revenue and for EBITDA margins and just to understand that bridge because obviously, the guidance is unchanged, but it leaves quite a wide range of outcomes for the single quarter of Q4. So, any comments there would be appreciated. Flemming Pedersen: Yes. Flemming here. You can say the guidance will basically be that we perform as expected in what is our biggest quarter by seasonality. If you look at the Q4 last year, it's sort of more or less in line with that with some bit of growth. So, we are pretty confident on that. Of course, there is also, you can say, to the higher end, sports win fluctuations. Now we have seen a very low sports win margin in September. So, you can say within that range, there's, of course, also the win margin fluctuations. So, I think that's the comments I can make to that. Operator: [Operator Instructions] Your next question comes from the line of Poul Jessen from Danske Bank. Poul Jessen: Yes. I have 2 questions. Coming back to the Playbook, could you put a little more color on how it works if a client go on to accept a suggestion for multi-bet and that is then placed at non-par at a sportsbook where you have no agreement, it's still put on. But what is then your intention to showcase in the future that you will generate traffic and then make a deal? And then secondly, if he has no -- if he's not a registered player at a sportsbook then you will see revenue from those new players maybe in 2 years. Is that the way we should understand? Jesper Søgaard: Poul, thanks for the questions. Yes, so there are actually different monetization models in place. And like starting with the last one, we obviously have sort of the normal affiliate deals in place with our partners. So, if we send a new customer to them, that player is being tracked to us. And then we also have sort of more retention-based models, where it's based on volume, and where we can also make money from players that we have not sent in the past. But of course, there are different models in place, and we work with several sportsbooks on this. So, there are basically different models in place. But I think overall, we are quite pleased with sort of the ways we can monetize this product and also basically just gaining a lot of very attractive and interesting data insights on this particular audience. Poul Jessen: Okay. And the second question is about the prediction markets. That has been putting a lot of pressure on the betting companies during October and into November. So how do you look at it? Are you totally neutral, so you don't care if it's one or the other who wins that game? You're just happy that it will create more competition and therefore, improve your value. But are you having a partnership across the full space? That's question number one. And then the second is on Flutter yesterday, saying that they're going to launch prediction-based betting nationwide in December. Yes, if you could put some views on that. Jesper Søgaard: Yes. Yes, sure. I can do that, Poul. And I think it is, of course, a very big theme right now, the prediction markets, and clearly, a win-win for us. At a high level, prediction markets are gaining traction in the U.S. because they give a real-time view of what people actually think will happen, not what polls or headlines suggest. They let people express their expectations in a transparent way. And this isn't a new territory for us. I can say personally, I've been betting with Betfair for more than 20 years, and Betfair has been a customer of ours. So, we are very used to the European side of our business, to the prediction markets where you have betting exchanges. From a U.S. sports industry perspective, the growing attention around prediction markets underlines a very strong underlying demand for bet-type products. As these platforms become more visible, they can help push momentum for broader regulation of online sports betting in more states. And I have probably one particular state in mind, like California, being the single biggest opportunity in the U.S., and that would be very positive for the whole ecosystem, including us, if we were to see any progress there. And as I said, for Better Collective, this is clearly a win-win. We already work with the key players in prediction markets and monetize traffic in States where online sports betting is still not regulated. And if prediction markets help accelerate the regulation of online sports betting, we benefit from that as well. So, regardless of which way the market develops, we are in a strong strategic position to capture value on both sides. And also alluding to Flutter that you mentioned, they are also signaling increased spending related to this ecosystem. And I think books have been speaking to increased spending related to this ecosystem. And obviously, I do believe suppliers will benefit from that. Poul Jessen: And in the prediction part, is that revenue share as well? Jesper Søgaard: Well, in general, we have affiliate models in place, and the way we monetize this is not something we specifically comment on. Poul Jessen: And then the final one, just a clarification about the headwind of EUR 10 million in revenue share. Is it fair to assume that more or less all of that is coming from Europe and the rest of the world, as the U.S. was already very low last year? Flemming Pedersen: Yes. Flemming here. Thanks, Poul. It's basically on both sides of the Atlantic, if I can put it that way, that we have seen headwinds. And also, to be transparent, you can say on a normalized win margin, you can say we would have seen a EUR 7 million decline. So actually, we had some tailwind in the previous year's Q3. Hence, why the year-on-year comparison is a bit bigger. But yes, it was basically both in the U.S. and the rest of the world. Poul Jessen: But if you only had EUR 4 million in the U.S. last year, then there is a limit on how much you could lose over. Flemming Pedersen: Yes. But you can say it is growing, and more and more partners are coming into positive territory, hence, where we see the impact. You don't see the impact on a partner where you are in negative revenue share territory. So that's sort of the shift. But I think going forward, we will include the win margin comments. We have only done that when we have seen some sorts of exceptional moves. So, to put a bit more color on that. Operator: There seems to be no further questions from the phone lines. I would like to hand back for any webcast questions. Mikkel Jacobsgaard: We have a few online here. So, if we start with one here, I guess, for you, Jesper. What is the reason for the NDC trend? And last quarter, you reported a split for the NDCs in Brazil and the rest of the world. Why is that not shown this quarter? Jesper Søgaard: Yes. First off, like we don't intend to show that every quarter. But I think the main message from that was the impact of Brazil and no sign-up bonuses, and we are seeing a similar picture in Q3. And then obviously, also last year with Cap America and the Euros, also NDC drivers. So, I think more or less, it's as expected in Q3, what we are seeing from NDCs. Mikkel Jacobsgaard: Thank you. And then we are getting a few questions that I'll bundle into one in terms of what the expectations are for sports win margin heading into Q4, and what normally also happens when you have such a low sports win margin in one quarter? Flemming Pedersen: Yes, I can take that. Normally, we forecast sports win margin on a historical basis, and that's also the case for Q4. So, no extraordinary, you can say, in that for the full year forecast. Mikkel Jacobsgaard: Thank you. Then we have a bunch of questions related to the Playbook that I think have already been answered earlier on in the call in terms of monetization and partners and so on. So, I think we'll leave it at that. But we do have a question on the guidance as well. Also, I think that was also answered. I think Ed asked us that question from Cantor in terms of Q4 and what our guidance expectations were. Then there is a question related to prediction markets, more specifically in terms of new depositing customers, whether that's something that we're seeing already now, and at what levels? Jesper Søgaard: Yes, we can confirm that we are sending NDCs also to prediction markets. Mikkel Jacobsgaard: Then there's a question related to our NDCs and the mix between revenue share and CPA, and that was around 80% for this quarter. So, I'll take that one. There's also a question, I guess, for you, Flemming, related to cost savings. We are being congratulated on the work. And it seems like the question is about whether staff costs will stay where they are or if we have more expectations for those going forward? Any expectations for those? Flemming Pedersen: Yes. I think we have sort of also, in connection with Q2, stated that now we have sort of ended our cost efficiency program. So now we sort of see a normalized level of cost, and that is also what we have built into our future guidance. Mikkel Jacobsgaard: Thank you. Then we have a question, I guess, for you again, Jesper, turning back to prediction markets and whether we expect both to work with prediction market platforms and sportsbooks on, and to work with prediction markets. Jesper Søgaard: Yes. I think right now, it's quite clear that the entire market is being embraced by all participants, both in sports betting and also more on the financial side. And as I alluded to earlier in -- sorry, it’s a bit lengthy reply to Poul's question about prediction markets is that it's essentially a win-win for us as we can work with all of them. When you look at the audiences we have across our big brands in the U.S., this is like key audience for these products. And we also have a significant audience from all states in the U.S. on our platforms. Mikkel Jacobsgaard: Thank you. There are no further questions online. So, thank you very much for showing interest in Better Collective. Have a nice day. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. I am Gellie, Chorus Call operator. Welcome, and thank you for joining the OTE conference call and live webcast to present and discuss the third quarter and 9 months 2025 financial results. [Operator Instructions] The conference is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Kostas Nebis, CEO of OTE Group; Mr. Babis Mazarakis, Chief Financial Officer; and Mr. Panayiotis Gabrielides, Chief Marketing Officer, Consumer segment, OTE Group. Mr. Nebis, you may proceed. Kostas Nebis: Thank you, and good morning or good afternoon, everyone, and thank you for joining us today to review our third quarter results. I would like to start with our recent exit from the Romanian market. We are very pleased to have successfully completed a key milestone that will lead to a substantial improvement in our annual cash flow and enhance shareholder value. In line with our commitment, we have adjusted our shareholder remuneration following the completion of this transaction by distributing an extraordinary dividend. Before reviewing the quarterly performance, I would also like to highlight a recent agreement to expand the ultrafast broadband coverage in the remaining lots of rural and semirural areas across Greece through a subsidized projects covering a further 480,000 homes and businesses. This will further solidify our leadership in the market by connecting even more people to fiber speed networks. This initiative underscores OTE's commitment to providing to as many households and businesses as possible, the fastest, broadest and most reliable gigabit connectivity services, driving Greece digitization and transformation going forward. Turning to our quarterly performance now. I would like to stress above all the acceleration of the recovery in our fixed retail service revenues that is supporting our overall growth in both revenues and profitability. The performance of our fixed retail services is accelerating, building on last quarter's momentum. This growth was driven by the increasing adoption of FTTH services, supported by the growing demand, voucher initiatives and our expanding network availability. We continue to lead with Greece's largest fiber network and further enhance our offerings to the customer premises. Our FTTH footprint is growing significantly, enabling more connections as we continue to record strong customer additions. The newly adopted regulatory framework for stop selling FTTC in FTTH already connected buildings will further boost the transition to fiber connection, further accelerating the monetization of our fiber network investments and offer improved services to the end users. At the same time, our fixed wireless access solution powered by 5G stand-alone technology is gaining significant traction, effectively bridging Gigabit connectivity gaps, contributing to positive broadband net adds in a traditionally weak performing quarter. In our TV segment, we are seeing the positive impact of strengthened antipiracy measures and anticipate additional support from the abolition of the special tax at the beginning of next year, making our Pay-TV propositions even more affordable to the end users. Our TV business continues its robust growth and strong customer acquisitions. Building on our leading FTTH network, rising fixed wireless access adoption and strong TV performance, we remain focused on enhancing customer value. In line with this, we have deepened our convergent services strategy by partnering up with one of the major energy providers to enhance further the value offered to our retail customers. In the Mobile segment, we continue our strong growth driven by our network leadership and attractive commercial offerings. The successful transition from prepaid to postpaid plans, the optimization of our prepaid portfolio and the increasing adoption of larger bundles and 5G devices penetration, altogether contribute to our solid performance. The recent CPI adjustments, which were mild after many years of experiencing much higher inflationary pressures on our cost drivers were combined with additional customer benefits and we contribute to some extent in our future growth. We remain at the forefront of the market as the operator of Greece's only commercially available 5G stand-alone network, and the reliability and resilience of our network continue to reinforce our long-term trajectory. We have also recently introduced the Magenta AI portfolio services, aiming to democratize AI access in the Greek market. By integrating the power of AI, we are delivering great value, further strengthening our commitment to innovation and customer satisfaction, partnering up with a number of global leaders in AI innovation, leveraging the partnerships of the Telekom Group. Our ICT business continued its strong momentum with another quarter of double-digit growth, highlighting our pivot at role in advancing the digitization of diverse sectors, supporting the digital transformation and businesses and the public sector organizations across Greece. To highlight, our recent contribution with advanced digital services and innovative educational tools in the educational sector, bringing all stakeholders closer to the gigabit society. In addition, our international ICT business is also growing, including projects for several European agencies. We remain focused on our operating and production model transformation, aiming to build a digital-first organization by actively deploying digital and AI tools. We have already enhanced areas like predictive network maintenance and customer care with AI role in customer interactions steadily growing, boosting efficiencies and delivering further value. Before finishing this review, I would also like to briefly mention that we have undertaken the initiative to provide free of charge high-speed connections to around 600 schools in remote areas of Greece, leveraging our FWA technology, opening up access to the digital world and offering equal opportunities to digitization for all students in Greece. Our strong performance relies on our strategic directions. The strength of our integrated services portfolio provides tangible benefits and helps us confidently navigate competitive challenges while driving our future growth ambitions. Looking ahead, we remain confident in our ability to lead the market, capitalize on new opportunities and consistently deliver on our commitments to our shareholders, customers and partners. Babis, on to you. Charalampos Mazarakis: Thank you, Kostas, and welcome to everyone on the call from me as well. As Kostas already pointed out, the completion of our exit from the Romanian market marks a significant milestone. From a financial perspective, this transaction strengthens our free cash flow on a sustainable base. We have adjusted our shareholder remuneration and will proceed with an extraordinary dividend distribution of around EUR 40 million or EUR 0.10 per share in the next month. Now turning to our quarterly figures. In Greece, we achieved a robust 5% increase in revenue, reflecting continued strength across our Mobile, TV, broadband and ICT segments, which more than offset the expected headwinds in areas such as national wholesale. EBITDA rose by 2%, keeping us firmly on track for our full year objectives. Retail fixed service revenues accelerated the growth this quarter to 1.3%. Our TV segment delivered another strong quarter with revenues increasing by nearly 17%, maintaining a solid double-digit growth trajectory. Our customer base expanded by 6.7%, almost matching the net additions reported in the same period last year despite this being the second year of our content sharing agreements. While we expect the anniversary effect from last year's Q4 price adjustments to impact year-on-year growth comparisons, our outlook for this segment remains positive. The adoption of antipiracy legislation this year, together with the removal of the 10% special tax on Pay-TV, which will be effective January 1, 2026 are paving the way to further encourage the take-up of legitimate platforms and reinforce our strong position in the market. Our broadband segment delivered a strong performance this quarter, achieving positive net customer additions despite the third quarter typically being seasonally the softer. We recorded [ 1,800 net profit additions ], driven primarily by the momentum in our fixed wireless access, FWA offering, which now serves 33,000 subscribers. Turning to our FTTH services. There, we delivered another strong quarter, recording 38,000 net additions and bringing our total FTTH customer to 509,000. Our retail FTTH customers now represent 22% of our total broadband base, up from 15% in the same period last year. This robust growth, coupled with sustained wholesale demand of our infrastructure is driving increased network utilization and monetization. Utilization level has risen to 33%, reflecting both the ongoing demand for our FTTH network and the strength of our wholesale partnerships. In addition, under the new regulation in place, we have now started to stop offering non-FTTH services in buildings already connected with FTTH. This change serves as a key driver for customer upgrades and accelerate the transition to fiber to the home products. Now turning to our mobile operations. Their service revenues increased by 2.7%, sustaining the solid momentum. Our postpaid maintains its strong growth trajectory with the customer base expanded by 6.4%, primarily driven by ongoing pre-to-post migrations. Starting from December this year, we will implement a CPI-linked increase in monthly fees for our mobile customers. The adjustment is modest, 2.6%, averaging less than EUR 0.5 and will apply to roughly 2 million postpaid customers and will support the continued growth of mobile service revenues in the coming quarters. Our network leadership continues to serve as a key competitive differentiation. 5G coverage now exceeds 99% of the population while 5G+ coverage has expanded to more than 75%. Data usage maintains its strong upward trajectory, with average monthly consumption per user reaching 20.5 gigabytes per month, representing a 29% year-over-year increase. In our wholesale segment, revenues increased by 4.2% in the quarter, but that was primarily driven by higher volumes in the low margin international traffic, which helped offset in revenue terms only the decline in national wholesale revenues. Here, I would like to say that the international wholesale contributed approximately EUR 81 million in the quarter. However, we expect this revenue stream, international wholesale revenues, of course, to decline in the coming quarters as certain activities will be phased out. Specifically, we anticipate that approximately EUR 150 million in revenues will be removed from our records in the fourth -- at the end of the fourth quarter of this year and the small amount impacting the first quarter of 2026. The termination of certain agreements where OTE acts as transit carrier will have minimal, if [indiscernible] impact on profitability. Our national wholesale agreements on the other hand, continued to deliver solid volumes with 31,000 lines added to our network in the third quarter and 93,000 net additions year-to-date. On the other revenue streams, our system solution businesses via core of our ICT segment continued its robust growth, delivering almost 38% increase in the quarter. This strong performance builds on the momentum established in previous periods, and we anticipate this positive trend will persist throughout the remaining of this year. The solid results in ICT helped to partially mitigate the decline in handset revenues, which decreased by 15%, primarily due to phase out of certain 0 margin activities there as well. Total operating expenses, excluding depreciation, amortization and one-off items increased by EUR 34.3 million in the quarter, broadly in line with our revenue growth. The increase was mainly primarily attributable to higher costs directly associated with top line expansion, particularly increased third-party fees within our operating expenses, which reflect the strong momentum in our ICT segment, as we discussed before. Additionally, we continue to incur certain operating expenses related to the growing adoption of fiber to the home, notably associated with the final phase of the connection of the customer. We remain, of course, firmly committed to cost discipline across all other several areas with continued savings most evident in personnel expenses, supported by the ongoing benefits from our [ X programs. ] As a result, adjusted EBITDA after leases increased by 2% in the quarter, maintaining the same positive trend as in the previous quarter. Our EBITDA margin reached 41%, representing a decrease of 120 basis points year-over-year, primarily reflecting a higher proportion of lower margin revenue streams. Overall, as we now approach the year-end, our performance reinforces our confidence in achieving our full year EBITDA target and guidance. Now let's take a look at the CapEx and cash flow. First of all, CapEx was up 8.2% in the first 9 months, reaching EUR 437 million, largely reflecting continued rollout of fiber to the home and the expansion of our fixed wireless access infrastructure. Our full year CapEx guidance now stands at approximately EUR 600 million after stripping off the Romanian business. I would like to clarify that the acquisition of the [ repeat ] concession will not alter our CapEx guidance. We now anticipate that we will be covering nearly 3.5 million homes by 2030 as we continue our fiber to home rollout for a couple of more years and therefore, maintain the current levels of approximately EUR 600 million CapEx per annum. Finally, free cash flow after leasing from continuing operations reached EUR 108 million in the quarter, up from EUR 100 million in the same period last year. The improvement was mainly driven by the higher EBITDA in the quarter. Income tax outflows and the working capital figures have been affected by different set limits amounts between these lines related to payments and receivables from the public sector. Today, we updated our guidance for free cash flow to EUR 530 million, up from EUR 460 million due to the disposal of the Romanian business. The revised guidance now reflects exclusively our Greek operations. At this point, we conclude the presentation. And operator, we're now available to provide any further clarification. Operator: [Operator Instructions] The first question is from the line of [indiscernible] Andreas with EuroBank Equities. Unknown Analyst: I have 3 questions from my side. The first question is regarding your updated guidance of free cash flow. You're currently guiding of free cash flow of EUR 530 million for 2025, which seems to be the new basis for your recurring Greek free cash flow generation. Could you tell us what is the read-through for the free cash flow from your recent agreement to acquire TERNA FIBER as you maybe have already mentioned that, that there will be no negative implications from this transaction. This is my first question. My second question, which is also related to the free cash flow is regarding your usage of EUR 120 million cash tax savings related to the Romanian disposal, particularly to the extent to which this will be used to enhance -- this will be used to enhance your cash return or as a firepower for spectrum in 2027? And my last 1 is on mobile. Lately, market participants have been rolling out inflation-linked adjustments to mobile contracts, which on our understanding, marks the first coordinating pricing move since 2022. Could you comment on that and then the magnitude of the pricing and whether this has been consistent across all the operators? Thank you very much. Charalampos Mazarakis: For the questions. And let's start with the updated guidance. As it was clear, and you pointed out, this EUR 530 million, reflecting the organic, let's say, delivery of the Greek operations for this year. So regarding your question about what is the recurring base, this is the starting of this year, of course. To the extent that we expand the business in next year, this organic is also expected to enhance in the coming years. Regarding the TERNA FIBER, there are 2 things there. The CapEx and the acquisition of this company. As we already guided, there is no impact in the cash flow from these acquisitions since it has been done in a symbolic amount. And regarding the CapEx, I have to say that the CapEx envelope, as we alluded to, is not going to increase versus what we have communicated also in the past that this will be the EUR 600 million we guided approximately is the flow -- is the ceiling actually for the coming years, including also the UFBB rollout, which will be rolled out for the next 3 years. And there is also an internal reshuffling of funds from other activities [ that one ] without, of course, impacting the strategic rollout to accommodate all of our infrastructure investment. On the free cash flow regarding the tax break, the tax benefit of selling the Romanian business will be positive the cash item for 2026. And as I think also you mentioned, part of it or all of it or to the extent that this is required, we found the upcoming spectrum auctions, for which the timing is not exactly clear yet and the process is not open yet. So the organic cash flow would continue to be part of our shareholder remuneration. And the cash item being one-off items, I think it's wise in order to maintain a smooth trajectory of our operational, let's say organic shareholder remuneration to match any other one-off hit that we may have, which in this case is the spectrum. Kostas Nebis: Yes. As far as your question around mobile, first of all, I'm not sure I understood what you mean by coordinated. But anyway, I would only comment on what we have actually done recently or announced to do recently. Just to give you a bit of historical information, we have started updating our contracts about 2 years ago, providing for this indexation clause. This is the practice that we see in quite a lot of European countries. So after having updated all our contracts and renewed our customers, we decided to apply the indexation clause, which is as per last year's inflation. This is the 2.6% that Babis also referred to. This is what we announced for our customers. We try to do it as fairly as possible by providing extra value to our customers. It is true that we have suffered out of inflationary cost pressure for a number of years, have adjusted nothing. And now we are doing that -- we are talking about less than EUR 1, which is going to be backed up with extra value to our customers, gigabytes in order to make it as smooth as possible. And this is it. Unknown Analyst: Okay. My question is regarding if this inflation-linked adjustments has been followed and also from other operators. And if there are changes to these adjustments between the operators, differences, I mean. Charalampos Mazarakis: I cannot -- I do not know whether [ we have had any recent changes, ] to be honest with you. [ This is not something that I have picked up ]. Operator: The next question is from the line of Kaparis Efstathios with Axia Ventures. Efstathios Kaparis: Congrats on a solid quarter. I've got 2 questions, if I may. So the higher amortization this quarter, what does it relate to? Is it a one-off? Or will it continue in the following quarters? And also on the FTTH rollout. Traditionally, Q4 is a stronger rollout quarter. Would we potentially exceed the 2.1 million target by the end of the year? Do you see an acceleration as you build up know-how on the rollout? Kostas Nebis: Let me start with the question about the FTTH rollout. The answer is no. We do not expect to close the 2.1 million household. That was target since the beginning of the year. So we are more or less running in line with the plan. What we see being accelerated is the customer take-up. And this was the result to a certain extent or to a great extent, I would say, of the new regulation that allows us to stop selling FTTC in FTTH connected buildings. We have seen, first of all, a very strong quarter, which normally the summer months are not performing extremely well as most of the people are taking their summer holidays. We saw a more or less similar quarter in terms of net ads during Q3. And on top of that, what we have seen is a record high net add in both October, but also the pace of November is following the same logic. So what we can confirm is an acceleration in the FTTH net ads. And yes, landing as far as the FTTH rollout is concerned, more or less spot on the 2.1 million households that we're aiming for. Charalampos Mazarakis: Also regarding the depreciation and amortization, this is seasonalization of Q3. As you may have seen, the D&A at the end of the 9 months year-to-date is flat versus a year ago. Operator: The next question is from the line of Rakicevic Sofija with Goldman Sachs. Sofija Rakicevic: So I would just follow up on a question on mobile. When it comes to CPI linkage, I'm just wondering if you have quantified the benefits from it on the top line growth over the next year or 2. And did you say earlier that this will also include some other services as well. I just wanted to check on that. And do you think that mobile could continue to grow in the range of like 2% to 2.5% into 2026? And my second question is on TERNA acquisition. So you have clarified the expected CapEx spend, but I was wondering if you can comment on the rationale of this acquisition. And also, what is the demand for fiber in those areas actually look like? And yes, the last question is how likely in your view is that the new entrants will manage to bundle telecom services with its energy offering. Kostas Nebis: Okay. Let me start with the first question on mobile. First of all, just to say the record straight, mobile has been growing by these levels of 2.5% to 3% for quite some quarters now. The delivery behind -- the levers behind the mobile growth are more than just the CPI. So we have been moving customers, prepaid customers to postpaid. We still have slightly less than 60% of our base on prepaid tariffs moving into higher value postpaid tariffs. This is the biggest driver of our portfolio growth. The second thing is we still have a lot of customers who are not in unlimited mobile data by shifting them to buy more for more initiatives. This is also fueling our growth. The CPI is just a small on top that will contribute to a certain extent, I would say, a small extent into our total growth trajectory going forward. So yes, we expect to see similar trends in the coming months and moving into 2026. But predominantly on the back of pre to post and more for more postpaid customer development. With regards to the effect of the CPI, I think that Babis has already indicated, we are talking about something less than EUR 0.5 -- slightly less than EUR 0.5 and we are talking about 2 million customers. I would like to repeat for 1 more time that this less than EUR 0.5 price adjustment comes with extra gigabytes in order to make it fair towards our customers. Now going to your question about UFBB. I think it is important to highlight the strategic rationale of this initiative. We are talking about roughly 0.5 million households in semi-rural and rural parts of the country in the networks where we have the lion's share of market share, I mean, this is standard for all incumbents. And we also have -- we are also serving 100% out of our copper -- our wholesale customers, meaning both Vodafone and Nova. So there is a lot of value generated out of these networks. We estimated at around EUR 100 million. So us being in a position to preserve this value, first of all. And second, I'll present also a big part of it as a margin as we will not be [ buying ] from someone else, makes this investment a very, very important one. On top of that, what we expect is that since we will be moving customers from copper to fiber space, we will be in a position to also generate some ARPU upside out of this customer migration. And at the end of the day, adding up this nearly 0.5 million to be already committed the FTTH plan, we will end up at 3.5 million households in total at the end of our FTTH rollout plan, which is slightly more than 70% of the country. Now, I mean, on your last question, I mean, I cannot comment about what our competitors intend to do. I mean, this is something that you should be asking them. Operator: The next question is from the line of [ Colas Vasilis ] with [ Padala ] Securities. Unknown Analyst: I have 1 question about group's growth. The growth in adjusted EBITDA after leases has ticked to 2% while EU peers are running with growth rates above 4%. When do you think the growth will be higher following the government initiatives for accelerated FTTH takeup and stronger contribution from TV and Mobile as well? Kostas Nebis: Thanks for the question. We are also anxious to see this 2% stepping higher. I mean, just to remind everybody that we have to reflect a bit on the history. So we started off in 2023, we started off 2023, we landed at 1.2%. EBITDA growth, which moved up to 1.6% in 2024. Now we are just about to close the 2%, and we have provided an outlook of 2%. I mean, to be honest with you, looking into the underlying trends across a number of different fronts, both fixed and mobile as well as ICT, including Pay-TV, for sure, this is making us more optimistic looking into the future and in particular, looking into 2026. Operator: The next question is from the line of Karidis John with Deutsche Bank. John Karidis: I have 2 questions, please. So first of all, the experience across Europe is that when a late entrant comes in with very aggressive prices, it's sort of the second and the third players that blink first. And because they blink, they sort of rope incumbent into a bad situation. So I'd be very grateful if you could explain or share with us how you see the level of competition, particularly from the likes of Nova and Vodafone and how they're reacting to PPC. I note what you said about us asking them, but I just sort of wonder from your perspective, do you feel that these guys are close to sort of blinking? And then secondly, I'm aware that of the 2 other operators that have been around for quite some time, one of them is not rolling out FTTH fast enough. Unfortunately, that's in areas -- sort of key areas where you have quite a lot of customers. And I just sort of wonder at what point do you sort of act in order to save these customers from going elsewhere given that you can't actually migrate them to FTTH as part of the collective wholesale agreement you have with Nova and Vodafone? Kostas Nebis: Thanks for the question, John. First of all, the fact that we have a couple of technologies available, both FTTH, including our infrastructure as well as our wholesale partner infrastructure, but also fixed wireless access is giving us optionality and what we are going to do is to make the most of both technologies in order to accommodate our customers' needs. This is on the second part of your question. So the first part of your question, I mean, I think that I have already presented our strategy. We are pursuing an FMC strategy. So we are trying to provide extra value to our customers by combining a number of different services as compared to just having 1 broadband-only product. This is what is holding us extremely strongly in the market, defending our base but also growing value. We are providing fixed voice, broadband, Pay-TV services on top of that mobile. We have also introduced an extra element through our partnership with [ Metlen ]. We are also providing extra value through a number of different verticals, be it on the delivery, be it on the insurance. So we feel that we have a very compelling proposition that is keeping our customers satisfied, providing a lot of value, hence, being in a position to defend our customer base, but also you can tell from our performance, our momentum going forward. This is what differentiates us in the market has been differentiating us for quite some time now, and we are trying to further strengthen that going forward. John Karidis: I don't know, if I may, sort of follow-ups, if you want to comment at all, but a bunch of clients are simply sort of taking the retail price of the latest entrant and adding it in the retail prices of our Mobile and Pay-TV and they're still coming out with some that's less than the bundle that COSMOTE offers, and that's sort of a cause of concern for them. And then the second thing is, I just sort of wonder, I think regarding my second question, do you feel that you can -- FWA is a good enough alternative in the middle of Athens, potentially sort of where the parliament is and the customers that you have around there. I mean, FWA is good enough for that, too, you think? Kostas Nebis: FWA for us, it's more of a bridge technology. So it is used in order for us to buy time until we manage to roll out FTTH or either us or a wholesale partners. This is how we have been using it. And based on what we have seen so far, I mean, we have more than 40,000 customers on fixed wireless access in less than a year's time, with very impressive NPS, these customers are very happy. So if it works well as a bridging technology, I'm not recommending a fixed wireless access to be used instead of FTTH. But it is helping us to bridge the timing gap until FTTH is available either in our networks or in other networks that our wholesale partners will be building. Operator: [Operator Instructions] Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to management for any closing comments. Thank you. Kostas Nebis: Thanks a lot for your attention, your questions and your interest in OTE, and we are looking forward to our next discussion, which is in February for our fourth quarter as well as the full year results. Until then, have a nice day. Operator: Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for calling, and have a good evening.
Operator: Good day and thank you for standing by. Welcome to the 3i Group plc Half Year Results Presentation Webcast. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand over to the Chief Executive of 3i Group plc Simon Borrows, to open the presentation. Please go ahead. Simon Borrows: Good morning. Welcome to 3i's interim results presentation. This was another good half for 3i. We delivered a total return of 13% and that gives us a net asset value per share at the end of September of GBP 28.57 compared to GBP 22.61 at the interims last year. That's after the payment of 42.5p per share second dividend and a 78p per share gain on foreign exchange translation. We ended the half with a gross investment return of 14% from private equity and 9% from infrastructure. Private equity delivered another good return with 98% of the portfolio by value, growing earnings in the 12 months to the end of June 2025. Action continued to deliver a very good performance, and we saw good growth from the broader consumer portfolio. We secured 2 good realizations in the first half as well as a significant capital restructuring and distribution from Action in October. Our private equity portfolio is defensively positioned, and is generally trading resiliently. The challenges we see for a limited number of assets are reflected in their valuations. We remain cautious about the general macro environment and continue to be careful in evaluating new investment opportunities. Earnings growth across our top 20 private equity portfolio has been good. Companies making up some 86% of the portfolio value have been growing earnings by more than 10% over the last 12 months. We have only 4, mostly smaller companies where earnings have declined over this period. We saw earnings momentum drive positive portfolio value moves in the half, and there were no notable write-downs in this period. Action has continued to expand and grow. In the first 9 months of the year, net sales were up 17.4% and operating EBITDA up 16.3% to GBP 1.563 billion. Like-for-like sales to the end of September were up 6.3%. Once again, the volume of transactions has been the prime driver of like-for-like growth across Actions estate. LTM operating profit at the end of P9 grew to EUR 2.3 billion. P10 was a challenging month. That's due in part to last year's very high like-for-like growth. And perhaps this year's unusually mild and very un-Christmasy weather. Net sales to the end of October stood at EUR 12.54 billion, year-to-date like-for-likes to the end of P10 were 5.7%, reflecting the high growth hurdle from last year and the continuing softening consumer environment in France, in particular, Upturn including last week, we've added 272 new stores. We're now on track to add approximately 380 new stores by the end of the year. That will be a 13% increase in store numbers over the calendar year. We now have 180 stores in Italy and 90 stores in Spain as well as 8 in Switzerland and 5 in Romania. These 2 new countries have started very well. We do believe Action's like-for-like sales of 5.7% are well ahead of many European retailers, a number of whom are experiencing negative nonfood like-for-likes. And that performance by action is very impressive when you set it against Actions cumulative 56% growth in like-for-likes. Over the previous 4 years, Action's low prices and mix of necessities and surprising products continues to attract a growing volume of transactions in all 14 countries where we operate. The French like-for-likes are positive to the end of P10, but they are some way below the rest of the group. France accounts for about 1/3 of like-for-like sales. That means that the non-French network is delivering like-for-likes of almost 8%. So France is a challenge, but we are well set for a big sales season to come with a strong Christmas assortment, good availability from the supply chain and some very competitive prices. 3i acquired a further 2.2% stake in Action in September from GIC. We settled that transaction by the issuance of 19.9 million shares and took our holding up to 60% of Action at the end of the first half. Action completed another financing in October, raising EUR 1.6 billion in the U.S. and European debt markets. Once again, demand for Actions debt was strong. Over 2/3 of that new debt was fixed at an all-in euro cost of under 4.6%, and pro forma leverage stood at 3x at the end of October. Action also took the opportunity to undertake EUR 3.1 billion of leverage-neutral repricing and extension of part of its current debt package, that delivered a further interest cost savings of EUR 14 million on top of the EUR 33 million we've achieved previously. We used GBP 755 million of our GBP 944 million distribution to increase our stake in Action further to 62.3%. That left us with net proceeds of GBP 189 million from the share redemption. And I'd like to end this section on Action by commenting on Action's March CMD guidance. Firstly, this year's store opening program is going well. And as I said a minute ago, we now expect to open approximately 380 new stores. That's an increase over the March guidance we gave you. It is also worth highlighting that trading from these new stores, which are not in the like-for-like numbers has been ahead of our expectations so far this year. On like-for-likes, while most countries in our store network are broadly in line or ahead of plan, the market in France, our largest store network is clearly challenging. We've seen a meaningful step down since the second week in September, which continued through P10. Food inflation is very challenging for those on low and average incomes, and the savings rate is at an all-time high in France, reflecting those with more cash having concerns with the political situation. So there is a risk that France pulls us below the 6.1% like-for-like guidance for the year. But frankly, it's too early to tell. On EBITDA margin, the sales mix is supportive. We've had good higher-margin category performance over the first 3 quarters and good trading from new stores. But the final outcome as with like-for-likes will be determined by trading in the last period given its very high level of sales and very high level of margin. Okay, I'd now like to move on to Royal Sanders, our second long-term hold asset. Royal Sanders is having another strong trading year. They've delivered good organic growth and excellent cash flow so far this year. Our private equity portfolio, ex Action and Royal Sanders was valued at GBP 4.7 billion at the end of September. The portfolio is invested in broadly equal parts across our 4 sectors. And as I said earlier, we're seeing good overall momentum in the private equity portfolio despite anemic growth in Europe and the challenges of the U.S. tariff policy. We certainly have more than our fair share of companies which are still able to grow in this tricky environment. And we secured 2 good realizations with healthy uplifts over their marks and returns well in excess of our 2x target. The Infra team is also producing a good performance with some excellent returns from their portfolio and a good level of fee income. On that note, I'll hand over to James who can fill you in on more detail. James Hatchley: Thank you, Simon, and good morning, everyone. Our total return on equity for the half year was 13%. Again, that demonstrates the ability embedded in our portfolio to deliver consistent compounding returns year after year. You can see the details here. The increase in NAV was principally driven by value growth of 250p per share. During the half, foreign exchange movements were positive, driven by the depreciation of the pound against the euro. That gave us a positive contribution of 78p the dividend payment in the half-reduced NAV by 43p. That meant we closed the half with an NAV per share of GBP 28.57. You can see the components of the 250p per share or GBP 2.5 billion of value growth here. As Simon said, Action continued its growth trajectory with the contribution of GBP 2.1 billion in the half. The PE performance increases of GBP 219 million, significantly outweighed the performance decreases of GBP 43 million. And that was despite a challenging macroeconomic background in many of our core markets. Royal Sanders and Audley were the standout contributors to the GBP 219 million increase. There were no material detractors in the half. As part of the valuation process, we took 4 multiples down, but the combined impact was relatively modest to GBP 24 million. The quoted investment portfolio had a good half. with a positive contribution of GBP 139 million. That came from the combination of increases in both the 3iN and Basic-Fit share prices. The uplift to imminent sale of GBP 25 million relates to the premium we received on the sale of MAIT. The portfolio ended the period with a value of GBP 29.3 billion. We continue to apply our valuation process consistently and markets have been broadly supportive over the period. So starting with Action, we continue to value Action on a post-discount multiple of 18.5x LTM run rate EBITDA of EUR 2.5 billion. As at 30th of September, that gave us an enterprise value for Action of EUR 46.9 billion. The value on the 3i balance sheet, which takes into account our increased shareholding level, as of 30th of September of 60% was GBP 21.5 billion. If we look back a year to September 2024, when Action was valued as an EV of EUR 38.2 billion and compare that EV to the outturn for the LTM run rate EBITDA this September, you arrive at a forward multiple of 15.1x. These are then the multiples we consider when comparing action to the peer group. These are the usual 2 charts we present this time covering the period from September 2024 to September 2025. Whilst there have been some movements within the peer group. We continue to see that the average multiple is stable. So we remain comfortable that Action with its strong operational KPIs should trade at a premium to the average. The other important point to note is that there have been 2 third-party trades in Action's equity since our last year-end, one in September with GIC and one in October with a broader group of LPs. In that second case, there were both buyers and sellers among the LP group. Both transactions were completed at valuations corresponding to the -- to Actions June NAV, which reflected the 18.5% multiple we use today. Let's now have a look at the valuation multiples of the rest of the portfolio compared to the peer sets. This chart shows the valuation multiples for our PE assets in dark blue and the average of the multiples from the relevant valuation peer sets in light blue. The red arrows highlight assets for which the multiple was actually reduced in the half. In each case, these decreases reflect company or market-specific factors in combination with an assessment of proximity to exit. The weighted average multiple ex-Action is 13.1x, which for a portfolio aiming to double value over a 4- to 6-year time period, we think is fair. During the period, we secured the sale of MPM and MAIT, those transactions reinforce the integrity of our valuation policy. We gave the detail behind these transactions at the recent CMD presentation, so I won't go over that again. It is, however, worth noting that both assets were sold at good premiums that opening book values. In MPM case has commanded an 18% premium and to MAIT a 34% premium. Whilst this has been a consistent feature of nearly all 3i exits over time, I think it is particularly impressive when you consider that these transactions were executed against what remains a alleging environment for exits. So turning back to the business line performance for the half year. Our private equity portfolio generated a gross investment return of 14% for the half. The gross investment return was GBP 3.2 billion. Of that GBP 3.2 billion, GBP 805 million was the positive impact of FX. The cash realization of GBP 391 million was mainly from the sale of MPM. Investment of GBP 732 million included our purchase of an additional 2.2% of Action in the period. The overall PE portfolio value ended the period at GBP 27.1 billion. In terms of the leverage position, we show that on the next slide. As of 30th of September, there was very little change from the position of the full year. For completeness, I've added a couple of extra bars setting out the pro forma leverage position, including the action refinancing, which took place in October. The maturity profile continues to be very well managed. I'd also like to remind you of our overall approach to leverage across the portfolio. Our debt team covered this in detail a couple of years ago in the PE CMD in September 2023. We favor a prudent approach to leverage assessed on a company-by-company basis. Action remains one of the largest names in the syndicated leveraged loan market in Europe, and today, Action now has a meaningful presence in the low market in the U.S. Its debt is well syndicated with over 150 leveraged loan investors. For the PE portfolio, ex Action, we value a diverse mix of lender types, but we're always focused on simple senior-only financing structures with over 2/3 of overall lending provided by relationship banks. Just to be clear, today, we have no external subordinated debt or unitranche lending in the portfolio. So on to Infrastructure. It was a better result for the Infrastructure segment in the period. That improvement was largely driven by the performance of the 3iN share price, which increased by 14% over the period. The underlying 3iN Infrastructure portfolio as a whole is doing well, and TCR is a standout performer. Despite some continued weakness in the freight market, Scandlines also continued to deliver a robust performance. Including Scandlines, our infrastructure portfolio is valued at GBP 2.2 billion, and it produces a very useful cash income contribution, as you can see on the next slide. Overall cash income totaled GBP 87 million, and we ended the period with a small GBP 12 million cash operating loss. Our expectation remains for a cash operating profit for the year. So now let's take a look at the balance sheet. The group's approach remains one of conservative capital management with net debt of GBP 772 million and gearing of 3%. We remain well within our trend lines. A slightly larger RCF gives us liquidity of over GBP 1.6 billion at the end of the period. As of 11th of November 2025, the group's cash balance was GBP 777 million. Before we leave the balance sheet completely, I thought I'd give you a quick update on the net exposure by currency and the hedging position. In the 6 months to September 2025, we experienced a currency tailwind of GBP 802 million. That principally reflects the 4% depreciation of sterling against the euro during the period. Hedging has reduced this gain by GBP 31 million, resulting in a net gain after hedging of GBP 771 million in the half. That GBP 771 million compares to a net currency loss of GBP 466 million in the same period last year. As you know, sterling has continued to weaken. And you can see the updated sensitivities net of our hedging program at the bottom of the slide in the banner. So finally, let's turn to the dividend. Here, you can see our dividend policy. In line with that policy, we will pay our first FY '26 dividend of 36.5p per share in early January. That 36.5p per share, is half of last year's full year dividend total. Now before we get into Q&A, I will hand back to Simon. Simon Borrows: Thank you, James. As I said right at the start, this was another good first half for 3i, and we're expecting a second half of more good progress. Action and Royal Sanders are 2 long-term hold investments are both trading well, and they remain focused on their long-term growth plans. Actions expansion is ahead of plan this year and most retailers I know would give their eyeteeth for 5.7% like-for-likes in these markets. Let me put the very recent like-for-like numbers in some perspective on this next slide. We've seen very strong like-for-like over the last 4 years. This is a compounding measure and results like that are bound to moderate as Action store base grows. Nonetheless, we remain convinced a strong retailer should be capable of compounding like-for-likes at 5% over time in a low inflation environment. But as you can see here, the like-for-like performance has been completely eclipsed by new store growth at Action. In fact, we estimate the net store growth will amount to 13% this year. This is the largest driver of Action's growth and is likely to remain that way for many years to come. While like-for-likes are a good measure of the health or pulse of a retailer, are you winning share? The ability to roll out a format unchanged across multiple countries is the holy grail of retail. And that's the real power of the Action format who successfully opened in 14 countries to date. Ultimately, the ability to do that supports decades of substantial growth as ALDI, Lidl and IKEA have demonstrated over the last 50 years. So when we model Action's development over time, we use these basic assumptions. 10% store growth per year, 5% like-for-likes, high free cash conversion and a nudge to the EBITDA margin every so often. These 4 elements are all you need to confirm the enormous potential of Action. Action's extraordinary growth over the last 5 years has been a key contributor to 3i's compounding returns. And we are confident that Action will continue to support strong returns for 3i as a result of its customer focus, white space potential and remarkable store payback periods. With that, we will now close the presentation, and we'll open the lines for questions. Thank you. Operator: [Operator Instructions] We will now take the first question from the line of Manjari Dhar from RBC. Manjari Dhar: I just have 3, all on Action, if I may. My first question is just on the seasonal performance. I suppose, given the softer seasonal start you've seen I just wondered about how you're thinking about the ability to sell through seasonal ranges for the remainder of this period and how you feel about the likelihood that Action might have to clear some of that product at lower margins later on? And then my second and third question are both on France. So I just wondered if you could give some color on margin mix by country and maybe how the French margins compared to group average? And then finally, I just wondered, given the challenging backdrop of France and the fact that France is such a significant part of Action's sales exposure, does that change the way that the Action thinks about distribution of future store openings near term or sort of do you think that maybe you might shift those openings away from France now? Simon Borrows: Thanks, Manjari. I think on the seasonal performance, I mean it when I say it's simply too early to tell. We really can't tell how much people are holding back from these more seasonal Christmas categories because they've literally got no money or because it's the weather or because it's something else. But these -- you often get Christmases where trading can be pretty back-end loaded. So we need to wait and see, frankly. In terms of seasonal write-downs, we have a very modest history of this. We've got a great set of products for Christmas, and I would be surprised if it means anything significant in terms of seasonal write-downs. . In terms of the France margin mix, it sort of reflects a lot of features. There is a good level of FMCG purchasing that goes on in France, which takes the margin in one particular direction. But we have some of our -- many of our biggest, highest volume stores in France, which trade at very strong margins given the sales leverage and sales densities those stores achieve. And they're almost unmatched anywhere else. But we do see more of those sorts of store contributions cropping up in some other urban centers in other countries, as well as in the Swiss stores, which are very much ahead of that. So it's a curious mix, France, but the margin is still a very healthy margin in terms of store EBITDAs, et cetera. In terms of the store expansion, we were still set on opening 1,200 stores in France. It's a remarkable business for us, and we believe it will continue to be so. we are still, in our view, taking share even at the current like-for-like level. And we've been voted France's favorite retailer for the last 3 years on the trot, so the customers clearly like us. Operator: We will now take the next question from the line of Haley Tam from UBS. Haley Tam: Could I ask one on Action or a couple of Action, please? So to start with, just to clarify on the like-for-like slowdown in October, which was clearly focused in France. Can we just confirm whether like-for-like was negative in France in October and perhaps help us to understand what the particular challenge was for you in France? Because I think we've heard from some other retailers that consumer confidence and political uncertainty clearly had an impact on higher value spend, but there's been more resilience in staples. So just trying to understand why your experiences differed. Second question, just in terms of the increased stake in Action, which is now 62% approximately. Could you give us any update on the split of the remaining 38% in terms of what portion might be LPs versus other GPs and how long on average or the spread of duration of investment that there is in the other 38%. And then if I can just ask a final question actually. In terms of very clear comments you've given about 2025 on Slide 13. Thank you. And Simon as well, thank you for your longer-term comments towards the end of the call. I just want to clarify, again, then, therefore, there is no change in your medium-term ambitions for Action. Simon Borrows: Thanks, Haley. Let me talk about our French like-for-likes in October. They were indeed negative, and that's why the group was at a low single-digit positive number. As I said, they are about 1/3 of the like-for-like sales basket of stores. I think the 2 previous P10s in France have both been 13% and 13%. So these were very significant sales levels to be on top of and unlike previous October, we saw very little buying of the seasonal products focused on Christmas. So they had really quite a lean year, and that's made all the difference. We haven't seen as big a difference in other categories. But that's where we really saw the difference. And having seen lighter baskets at certain periods of the month prepay checks and things like that in prior months, as we've talked about before, we saw lighter baskets in all weeks in France. So that was another defining moment. And we've seen that since the second week in September. So they are the reasons for that, I would say. Our knowledge is that some of the domestic discounters have got very significant negative like-for-likes throughout the year. and some of the supermarkets despite food inflation have negative like-for-likes as well. So we don't think this is necessarily at odds with what's going on in the rest of the market. In terms of the stake, so the other 38%, broadly speaking, 13% is held by Hellman & Friedman and the balance by the LPs with some smaller stakes held by management. And then the last question was our ambition, et cetera. There's no change to the ambition at all. The white space ambition is as big as it's ever been and is only likely to get bigger over time, the more we see how strongly the stores are received in new markets. Operator: Our next question comes from the line of Gregory Simpson from BNP Paribas. Gregory Simpson: Again, a few questions on Action from my side. Firstly, on the 380 new store target, can you give some color about how this is mixing by country, Spain, Italy versus Eastern Europe? Second question is on gross margin. It was just over 40% last year. How has that trended this year? And can you give some color on what you're seeing in the supply chain in terms of pricing from China and outlook into next year? And then finally, just any update on Action U.S. thought process, time line? Simon Borrows: Thanks, Gregory. The 380 new store target, I -- the country which is having the most new stores opened is Italy, there's a good number of new stores in Southern Europe generally. There are a good number opening in Poland, in Germany and in France, so it's the usual crowd. It's the 5 big markets and then there's a consistent number of other stores occurring in the smaller markets as well. But the big opening number, along with our new DC is in Italy this year, which is trading very strongly indeed. Gross margin is slightly above 40.0%, it's slightly higher than that because we have actually had very good category sales in the higher-margin categories this year. So that has moved that across a bit. In terms of pricing from China, we've bought very well this year, in particular, relative to previous years, but that stock is going to be coming into the stores next year rather than this year. And we've got nothing to add to Action in U.S., but I know management is going to speak about that at the CMD in March. Operator: We will now take the next question from the line of Andrew Lowe from Citi. Andrew Lowe: Just stepping away from France. It's been about 3 months, I think, since Lidl opened its non-food, sort of Home & Living store, sort of test concept in South Germany. I wondered if you could talk a little bit about that and sort of what you've seen in terms of any change of consumer behavior around those stores and just what you think they may be doing there, trying to defend against you guys. And then the sort of second question is just a clarification. I know that you said that we need to wait until March to hear more on the U.S. But could you just clarify, do you have any employees in the U.S. at the moment? That would be great. Simon Borrows: Sure. Thanks, Andrew. I mean on the Lidl store, we're obviously aware it's opened. We've visited it. It is reflecting much of the private label categories, if you like, it is only 1 store. We obviously have over 600 in Germany. So I don't know whether they're going to continue to roll it out. It's really not clear to us. So I can't really add any great insights to it. But I don't think it raises any major issues for us at the moment. I'm pretty sure that we have employees in the U.S. carrying out our research. As you know, we're doing a research project there. And we're sort of -- we're dipping into various pools of capability when we assess the market. So there will be a range of people that are working on that project. Andrew Lowe: Great. That's really helpful. And then just maybe on that latter point, just to clarify. So there are sort of employees rather than like consultants that you might be using? Simon Borrows: Yes. But whether they've got their house there at the moment or anything like that, I don't have that detail, Andrew, but we certainly have people on the ground consistently doing some work on the market, as we would in any new market. . Operator: Our next question comes from the line of Jeremy Kincaid from Van Lanschot Kempen. Jeremy Kincaid: I just have one more on France. Obviously, France has gone through political unrest in the past. And maybe 2018 or 2019, is a nice parallel with the yellow vest movement. So I was just wondering if you could share what's the like-for-like sales growth for Action was like during that period? Is the current political situation worse or not quite as bad as that? And the second part is how long does it usually take for your like-for-like sales to improve when the political situation stabilizes? Simon Borrows: Jeremy. We certainly had difficulties during the yellow vest periods. And in some ways, logistically, it was more of a challenge because we had a number of our DCs barricaded and we were not able to supply stores. So in individual regions, we saw a very material drop off in sales as a result of that set of disturbances that lasted for several months. So -- and we saw a little bit of that in September with some of the general strikes that were called. I would say this is slightly different. This is clearly a -- we're seeing a ratchet up of a problem that's been in France for some time. We talked about this going back some months, which is people there are very highly taxed at all levels, and they don't have much spending money. And it is affecting a large part of the population. And when you put high food inflation into that mix and high services inflation and various other things. I think it is leading to people being careful. Now how quickly that's turned around because of a different government or a different leader? Who knows. But it's still a very big market for us. We sort of represent the market now with 900 stores, and we believe it will come back. We've seen this sort of thing before. We had similar instance of this in the late teens where we had some very low like-for-like periods. So it's nothing that you don't encounter from time to time in retail, and we'll just grind our way through it, and I'm sure we'll come out a bit at some point. But when that will be, I'm not sure. Operator: Our next question comes from the line of Christopher Brown from JPMorgan. Christopher Brown: Yes, just a couple of quick questions. So in France, just wondering whether the new stores there that you've opened over the last 12 months or so, were they faring any better in terms of like-for-likes? Simon Borrows: Yes. As we said, the general category of store openings has been very positive. I don't -- we've opened about, I would say, getting on for 40 stores in France to date. I don't have the detail of that. I've only seen the aggregated numbers, Chris. Christopher Brown: Okay. And just moving on away from Action on to realizations. I mean a lot of your private equity competitors are talking up the sort of realization environment. And clearly, you've had a couple of really good realizations. Can you say a little bit more about what might be in the pipeline on realization front over the next 12 months or so? Simon Borrows: Yes. I mean, we would certainly expect to be bringing some other companies to the market on sort of 12-month time scale. I think in terms of the broader environment, I don't know which markets people are talking out. But it has still been a generally very quiet and bitty period for realizations, particularly in Europe. There have been some mega deals done in various places, which maybe skew some of the statistics. But in general, it's pretty subdued. I think the banks are receiving more mandates towards the end of this year for stuff to happen next year, and some of them have received stuff from us. So there is going to be a pickup I would expect, but I think it's much more about next year than about this year in reality. Operator: Thank you. We have no further questions on the line. So I will now hand over to Silvia Santoro, 3i Group Investor Relations Director to address any questions submitted online via the webcast page. Silvia Santoro: And first of all, there's a question on a clarification on France. Could any of the weakness be attributable to maturity? And can you evidence that perhaps with performance in other mature markets? Simon Borrows: The best comparison to make is with the Netherlands, where the store estate really dates back to the early 1990s. And we're seeing very good like-for-likes there this year in line with -- broadly in line with the group average, I would suggest. So we don't believe age is the issue. We believe it's to do with the macro in France. Silvia Santoro: And another question is what needs to happen over the next few months for you to hit your like-for-like guidance? And how would that compare to prior years? Simon Borrows: I haven't done the detailed math. But if we were around budget or slightly better, we'd be pretty much in line with guidance. So we're not looking at anything truly exceptional, but there does need to be a focus on some Christmas purchasing in France, in particular, to turn this around. Silvia Santoro: The next question is, can we extrapolate the improved store growth for March 2026 into March 2027, i.e., can you grow store openings by another 30 stores to open 410 stores. I think they mean probably calendar year '26. Simon Borrows: I think I don't want to steal anyone else's thunder, but the intention is obviously to open more stores next year on top of this year's number. And that doesn't sound completely crazy to me, but I'll leave that for the management to talk about. Silvia Santoro: Can you provide any update on the trading seen so far in November? Simon Borrows: We don't have -- we're not giving out that update. P10 is pretty, pretty darn recent. So we're not going to go further than we've gone already. Silvia Santoro: Can you expand on the traction you are seeing in Switzerland and Romania? Simon Borrows: Yes. I mean in Switzerland, where we now have 8 stores, we're seeing very high sales per store. So it looks very encouraging and perhaps reflects how expensive that market is and how attractive Actions prices are in that market? And in Romania, likewise, we now have a couple of stores and people have been buying way ahead of our expectations in those stores. Silvia Santoro: How much more of Action is there to buy? And over what time period might you be able to buy it? Simon Borrows: Well, we don't own 38%, so that might be one number out there. But we only get opportunities now and then to buy more equity we have an ongoing appetite to do that, and we have the resources to do that. So we will take advantage of it. But it's very hard to predict when others will want or will need to realize their position in Action. Silvia Santoro: Are you taking any specific measure in France to improve like-for-like or do you think it's entirely macro related and nothing needs to be done? Simon Borrows: I think we're making sure that the availability is very good that the whole supply chain is working in a very slick manner, and we are rechecking all our pricing to make sure they're as sharp and as competitive as possible. So we're doing all the things that you would expect as we move into our biggest sales season of the year. And it's really the next 6 or 7 weeks, which really makes the outcome or not in that market given the year we've had to date. Silvia Santoro: What gives you conviction in the 5% like-for-like in the medium term? Can you give color in terms of the different levers, example, basket size, frequency, geographies, et cetera? Simon Borrows: We've studied other great retailers and some of those retailers that sit above us in the valuation charts have decade runs of like-for-likes, which are in excess of 5%. So we've made a study of that, and we feel confident that we can emulate what those people have achieved over a very long-time scales. Silvia Santoro: Can you share some color on the EBITDA multiple at which the additional action shares were published -- were purchased from GIC and other LPs? Simon Borrows: As James said, it was purchased at the June valuation. Silvia Santoro: Please, can you talk about how you think about allocating capital to Action versus investing in existing portfolio or new assets? Simon Borrows: We are not short of capital. So we look at new investments and we look at investments into situations where we already have an ownership position and Action is one of those positions. They always have the benefit of us having a deep and real understanding of the performance under our ownership. So they are pretty straightforward judgments to make. And as I said before, we see very long-term compounding coming out of Action, and that is a particular attraction that you find particularly difficult to find. So that is always near the top of our priority list. Silvia Santoro: On the U.S., could you give a general comment on how you view the competitive landscape, especially against stores like Walmart, Amazon, Costco, that are very entrenched and dynamic? Simon Borrows: I mean it's a very competitive place. It has, by comparison with France, at the moment, it has very high levels of disposable income. So shopping dollars are much, much bigger. There are all sorts of formats there, but there are no formats quite like Action, interestingly enough, Dollar stores are quite distinct from Action. Costco is obviously very distinct from Action. Walmart is very distinct from Action. So there are some very strong businesses there. There are some less strong businesses there, but there's actually nothing there that's quite like Action. Silvia Santoro: You have spoken to your relative performance versus strange supermarkets. The Carrefour traded broadly in line with your recent like-for-like performance in France. Should we now think about the French business trading in line with the market from here? Simon Borrows: I don't think we trade like supermarkets. I think supermarkets have been beneficiaries of inflation. Broadly, our store is slightly cheaper this year overall than it was previously. So we don't really benefit from inflation in that way, and we have some much higher margin categories than many of the food categories in our stores. So I would expect us to be able to trade above the supermarkets, but I'm not sure when this persistent food inflation is really going to come to an end. I guess people have to eat first, and that's something that's affecting the French market. Silvia Santoro: There don't seem to be any further questions from the webcast. Operator, back to you. Operator: There are no further questions on the telephone line. Please continue. Simon Borrows: Okay. Well, let me just wrap up. We appreciate the interest, and we appreciate all the questions. Thank you for joining today. Have a good day. . Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Ladies and gentlemen, welcome to the Aareal Bank 9 Months 2025 Investor and Analyst Conference Call. I'm the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Jurgen Junginger. Please go ahead, sir. Jürgen Junginger: Good morning, everybody. I'm pleased to welcome you to our today's conference call. The agenda covers our results for the first 9 months of 2025 together with an outlook for the full year. I'm joined by our CEO, Dr. Christian Ricken; and our CFO, Andy Halford. They will take you through our presentation, which will be followed by a question-and-answer session. Now I'm pleased to hand over to Christian. Christian Ricken: Yes. Many thanks, Jurgen. Good morning to everyone, and thank you all for attending today's call. I'm very pleased to present our results for the first 9 months of 2025. The good developments we reported for the first half continued in the third quarter. Adjusted operating profit for the first 9 months of 2025 is up by 15% compared to the same period last year. Therefore, we are confirming the outlook for 2025. The economic and geopolitical environment remains challenging, but as always, we are, of course, taking a very conservative approach to risk. I would like to highlight some key features in the good results we are reporting today. Net interest income is stabilizing and in line with expectations, reflecting lower market interest rates, while loan impairment charges are markedly down on last year's first 9 months. In addition, admin expenses benefit from the ongoing tight controls that we have put in place. In the Structured Property Financing segment, we recorded good margins and conservative loan-to-value ratios on newly acquired business. Overall, we achieved EUR 8.5 billion of new business in the first 9 months of the year, which is substantially ahead of the same period in 2024. Our capital and liquidity ratios are very robust, and the 2025 funding plan has already been executed. We also strengthened housing industry deposits, which reached an average of EUR 14.2 billion in the third quarter. I will now hand over to Andy, who will provide further details on the results for the first 9 months of 2025. Andy, over to you. Andrew Halford: Thank you, Christian. Turning to Slide 5. Aareal continued its good progress throughout the first 9 months of 2025, as Christian has just referred to. Whilst net interest income is down by 13% to EUR 691 million, this is entirely as we expected. I'll say a bit more about net interest income when we turn to the next slide. Loan impairment charges are down by 34% to EUR 190 million. This is a significant decrease when compared to 2024's first 9 months and reflects the work we have done and continue to do in carefully managing the loan portfolio. The cost measures, which we have put in place have led to a reduction of 8% in adjusted administrative expenses, which are down to EUR 229 million for the 9-month period. The other components line includes a EUR 20 million positive one-off from Q2, which came from the successful restructuring of a former legacy nonperforming loan. So overall, adjusted operating profit of EUR 306 million is up by 15% over the same period last year. The effective tax rate for the 9-month period was 27%. AT1 costs are up by EUR 8 million compared to the first 9 months of 2024, but most of this increase is because our new AT1 issue overlapped with the previous AT1 for about 3 months. Taken together, the adjusted return on equity was 8% compared to 7.6% in the first 9 months of last year. In addition, our robust CET1 ratio fully phased increased to 15.5% at the end of September from 15.2% at the end of last year. Now let's take a look at Slide 6 and at the key profit and loss account elements. Net interest income, as I mentioned, is down by 13%. This is in line with expectations and reflects a significant decline in most European interest rates compared with the first 9 months of 2024. There are 2 other important contributing factors, namely the interest effects of proactively strengthening our Tier 2 and senior non-preferred funding positions over the last 12 months. And secondly, foreign exchange rates with the euro strengthening against other currencies, notably the dollar in the second and third quarters of 2025. In the second chart on this slide, we've shown the stepped effects on the net interest income of the main factors driving change between this year's first 9 months and the comparable period in 2024. An increase in our loan book margins added around EUR 16 million, whilst the effect of lower interest rates in our Banking & Digital Solutions segment reduced net interest income by EUR 23 million. Returns on treasury assets declined as a consequence of lower market interest rates and led to a reduction of EUR 68 million, whilst the strengthening of subordinated funding, which I've just mentioned, explains a further EUR 18 million reduction. Turning to admin expenses on Slide 7. They continue to be tightly controlled, and we are benefiting from the efficiency measures that we have put in place. Our adjusted administrative expenses are down 8%. This excludes one-off charges of EUR 25 million in the first 9 months compared to EUR 5 million in the same period in 2024. Our cost-income ratio for the first 9 months of 2025 was 32%. Let's now turn to risk provisioning. The loan impairment charge is down 34% to EUR 190 million. Impairment charges on non-U.S. portfolio are running significantly below long-term averages. Provisions on the U.S. office portfolio continue to be the majority of the charge. Management overlays stood at EUR 14 million at the end of September compared to EUR 17 million at the end of June. The remaining management overlay relates to the U.S. office market. I'd now like to hand back to Christian, who will talk about business developments in more detail. Christian Ricken: Yes. Thank you, Andy. Now let's turn to new business on Slide 9. We achieved a strong EUR 8.5 billion of new business in the first 9 months, and we are well on our way to meeting our outlook of EUR 9 billion to EUR 10 billion of new business this year. Looking at the geographical distribution of new business in the first 9 months of 2025. 3/4, 74% was in Europe; 22% in North America, which includes Canada; and 4% in the Asia Pacific region. Around 1/4 of the North American new business originates from Canada. As planned, we reduced activity in the U.S., concentrating on premium assets and long-standing trusted partners. Our strategy on asset classes has also evolved. Hotel finance continues to be our largest area of new business; however, we are currently taking a more selective approach to new office financings while maintaining our increasing conservative financing of logistics and retail properties. The average loan-to-value ratio for newly acquired business in the first 9 months was a conservative 56%, which provides a comfortable risk buffer. Margins were also good, averaging 245 basis points. These figures continue to demonstrate that we are actively identifying attractive market opportunities. Let's now turn to the next slide, which shows our current portfolio. The portfolio, as shown on Slide 10, totaled EUR 32.9 billion at the end of September, which is down when expressed in euros; however, a EUR 1.3 billion reduction, clearly more than the net decrease is explained by foreign exchange rate movements. As you can see from the 2 pie charts at the bottom of the slide, we are still broadly diversified both by region and property type. We continue to have a clear focus on properties in the major metropolitan areas. We are not financing new construction and have exposure of only around 9% in Germany and no exposure at all to Russia, China or the Middle East. Green loans stood at EUR 9.5 billion at the end of September. The next slide tracks 2 key performance indicators for our performing portfolio, loan-to-value and yield on debt. Our conservative approach is reflected in the indicators shown on this slide, which are both at very healthy levels. The average loan-to-value ratio for our overall performing portfolio stands at very respectable 56%. At 61%, the loan-to-value ratio for the office asset class continues to improve. I also like to highlight the development of yield on debt, i.e., the ratio of a property's net income to the amount of the loan. This is a key indicator for assessing a property's profitability relative to the financing structure. Yield on debt for the entire performing portfolio is now at 9.8%, up from 9.6% at the end of 2024. Hotels, shopping centers and logistics properties have particularly good yield on debt ratios. The ratio for offices is currently a little lower, but has improved over the last 9 months. Residential with a yield on debt of around 8% is also in a satisfactory position. Let's now turn to nonperforming loans on Slide 12. Our nonperforming loans stand at EUR 1.25 billion. This is down compared to the balance at the end of June and compared to the balance at the end of last year. The coverage ratio remains at 28%. We are continuing very active management of nonperforming loans. The U.S. office market remains challenging and continues to represent around 2/3 of total nonperforming loans. Other asset classes and geographies are operating normally. The nonperforming exposure ratio according to the EBA's methodology stands at 3.5%. Let's now turn to our Banking and Digital Solutions segment on Slide 13, where business with clients from the housing and energy industries have been very encouraging. First Financial Software, our joint venture with Aareon is also successfully attracting new clients. The average deposit volume further strengthened to EUR 14.2 billion in the third quarter. Rental deposits and maintenance reserves have increased yet again, confirming 2 particularly granular and sticky components of the deposit structure. To remind you, deposits come from around 4,000 clients managing more than 9 million units. BDS net interest income for the first 9 months of the year is down 11%, driven by lower market interest rates. We expect net interest income to be around current levels for the rest of the year or better looking at deposit volume development. Now let me hand over to Andy for an update on our funding, liquidity and capital positions. Andrew Halford: Thank you, Christian. Slide 15 shows our broadly diversified funding mix, solid liquidity ratios and capital markets activity. Following a very active funding program, we have executed our full year funding plan and liability terms have been successfully extended. Deposits now total around EUR 18 billion, representing around 45% of our total funding volume. The largest part comes from the housing industry and an additional EUR 3.2 billion is from retail deposits via platforms like [ Horizon. ] These retail deposits have an initial term of at least 2 years. Our liquidity ratios are solid with the net stable funding ratio at 121% at the end of September and average liquidity coverage ratio at 237% for the third quarter. We are also pleased to report that Fitch recently upgraded our outlook to Positive from Stable, whilst affirming its senior preferred rating at BBB+. As I said, our full year funding plan has been executed. We increased our AT1 capital by approximately EUR 100 million by replacing the former outstanding EUR 300 million issue with a new issue of USD 425 million earlier in the year, and we issued EUR 100 million of Tier 2 capital. In addition, we placed Pfandbrief equivalent to around EUR 2.1 billion in total. This included both euro and Swedish krona issues. This was Aareal's first Swedish currency issue since 2006. Next, let's look at our treasury portfolio, which is shown on Slide 16. The treasury portfolio stood at EUR 9.6 billion at the end of September, up from EUR 8.2 billion at the end of 2024. In terms of asset classes, the portfolio comprises public sector borrowers, covered bonds and a very small portion of bank bonds. It, therefore, has a strong liquidity profile. High credit quality requirements are reflected in the ratings breakdown. 100% of the portfolio has an investment-grade rating with 89% having a rating of AA or higher. Asset swap purchases ensure that there is low interest rate risk exposure. The portfolio is almost exclusively in euros and has a well-balanced maturity profile. Turning now to capital on Slide 17. First of all, I'd like to reemphasize that last quarter, we moved from phase-in numbers in the charts on this slide to fully phased Basel IV figures. Now looking at our ratios, they continue to be strong. Our CET1 ratio was up at the end of September and stood at 15.5% on a Basel IV fully phased basis. The increase over the first 9 months of this year is mainly driven by a decrease in risk-weighted assets from the lower lending portfolio caused by foreign exchange rate movements. Both the Tier 1 and total capital ratios were further supported by additions to AT1 and Tier 2 capital during the first 9 months of the year, as I have just mentioned. Our capital ratios are significantly above SREP requirements. Positively, the Pillar 2 requirement for 2026 has been reduced by 25 basis points. And our leverage ratio of 7.1% at the end of September is also well above regulatory requirements. The results of most recent ECB stress test were published in August and demonstrate the strength of our balance sheet. After the end of the third quarter, active management of our balance sheet has been extended to include our first significant risk transfer transaction. Investors have assumed a portion of the credit risk attached to a high-quality EUR 2 billion portfolio of European commercial real estate loans in return for a risk premium. This transaction has strengthened our capital efficiency and freed up equity, which we can invest in attractive new business. We were delighted that the offer was oversubscribed and that we were able to implement the SRT and introduce this efficient tool to our bank management. Now I'll hand back to Christian for an update on our outlook for the year. Christian Ricken: Thank you, Andy. Now let's turn to the 2025 outlook. Our results for the first 9 months of the year are in line with expectations and, therefore, we are confirming the 2025 outlook. We recognize the uncertainties evident in the economic and geopolitical environment and remain vigilant. So let me summarize our outlook. In the Structured Property Financing segment, we aim to expand our credit portfolio to between EUR 34 million and EUR 35 million. Recognizing foreign exchange movements over the course of the year, this might translate to EUR 33 billion and EUR 34 billion. We are targeting between EUR 9 billion and EUR 10 billion of new business. In the Banking and Digital Solutions segment, our conservative estimate of deposits continues to be between EUR 13 billion and EUR 14 billion on an annual average. All in all, we are targeting an adjusted operating profit of between EUR 375 million to EUR 425 million for 2025, excluding expected one-off charges of around EUR 25 million. I would like to thank you all very much for your attention, and Andy and I are now very happy to answer all questions you might have. Thank you very much. Operator: [Operator Instructions] We have a question from Sharada Patel, Citi. Sharada Patel: I have 2. So firstly, on the NPLs this quarter, obviously, they've come down both in the U.S. and Europe. Can you give us some color on what those sort of individual files look like? And then a second more kind of broader question. I see that the new business has picked up in terms of your exposure to the U.S. So what's the appetite to grow in the U.S. like? Obviously, it's well flagged, but a competitor of yours is selling or trying to sort of exit the U.S. business. What would Aareal's perspective on that be? And what's the appetite to grow there? Andrew Halford: Yes. So let me just pick up on the NPLs. As you've seen from the slides, we've got a further reduction in the overall NPL values during the quarter. It's been a big area of focus, as you know, over the last several quarters, and we are pleased to see the overall trend on that coming down further. So we're now at about EUR 1.25 billion. We continue to lean into that. And as quickly as we can economically resolve some of those situations, we will do so. Majority of the nonperforming loans, the vast majority of the nonperforming loans are in the U.S. and particularly in the U.S. office space. So a lot of the workout activity is actually happening in that area. And I think it's sort of worthy of note that actually, if you look at the rest of the world outside of the U.S., the nonperforming loan levels are very, very low and the provisioning, hence, very, very low as well. So the key for us really is working down the U.S. office, particularly, which has come down quite significantly over the last 12 months, and we are continuing to focus heavily on further improving that over the coming quarters. Christian Ricken: Yes. Thank you, Andy. On the U.S., I can only repeat what I said last quarter. So we remain committed to the U.S., but we are significantly more selective as far as new business is concerned, which will result in a recalibration, let's say, of the portfolio size, but also in the portfolio composition as far as asset classes are concerned. So we have a USP in hotel financing, as I have said, maybe that is also then the focus of new business in the U.S. going forward. So no exit is being planned, but new business will be done in a much more selective fashion. Sharada Patel: And would that sort of new business growth be obviously -- clearly, the prime focus is organic, but would you be open to inorganic growth in the U.S.? Christian Ricken: Inorganic growth in the U.S., no. Operator: [Operator Instructions] We have a question from Corinne Cunningham, Autonomous. Corinne Cunningham: Just on the new business side again, can you comment on what you're doing, if anything, in data center lending and maybe describe to us some of the sort of underwriting thought processes there? And then a couple of technical ones. Your Pillar 2 reduced by 25 bps. Are there any other changes to the SREP this time around? And then on the SRT that you were able to undertake, what has -- what pro forma impact does that had on RWAs and capital ratios? And then just a quick follow-up on the U.S. asset quality. I think, not sure, if it was yourself or your competitor was talking about more weakness on the West Coast coming through. Are you able to say anything about the geographic trends on asset quality in the U.S.? Christian Ricken: Yes. Thank you very much. I would take the first and the last one, and then you may comment on the SREP and the SRT impact. Data center, yes, is a new asset class. We have done our first transaction. I think we published the respective press release. So data center financing here in Germany. It's a new and exciting asset class. That's a positive. And there's much more to come in terms of volume, which is also positive. On the other hand, not everybody is jumping on it as it is new and interesting, and the development and construction phases are much shorter than with other property classes. Yes, but given the competition, you have to have a close look on the margin side still. So that's why we have done 1 transaction so far, and we may do more of it, but it may not become a major new asset class in the coming years, but a nice addition. That's how I would phrase it. Then on asset quality in the U.S., yes. So I think that's a common narrative that you have more weakness on the West Coast as compared to the East Coast. If you look at the office sector, for example, in New York, there is a clear and a continuing tendency of people moving back into the offices, which is less pronounced at the West Coast. And also the economic dynamics are taking more place in the, let's say, Sun Belt areas, where you have more business supportive governments, regional governments as compared to the West Coast. So -- and then that is telling you something that the U.S. market is extremely fragmented in terms of regional attractiveness of property class attractiveness. So you really have to have trophy assets in major metropolitan areas with a good economic momentum. And that is the, let's say, art of also selecting new business. And that also, of course, refers to hotel financing and other asset classes. So yes, so it's not 1 market. It's a lot of different markets, which have the currency, the language and the legal system in common, but you have to understand the regional markets and you have to be very selective. On SREP and SRT, please, Andy? Andrew Halford: Yes. I mean, the answer to those, I think, fairly straightforward. There's no particular changes on capital requirement other than the SREP one. If there were, we would have read them out. So that's the primary one. The SRT, we would expect the transaction was booked in Q4. So obviously, the impact will be in Q4 numbers, not in Q3 numbers, but we'd expect roughly EUR 0.5 billion, maybe a fraction over reduction in the RWAs. If you work the math through, that probably gives us 40, 50 basis points uplift on the CET1, something in that range. Corinne Cunningham: Are you able to actually say something on the margin that you're achieving on the data centers in Germany or in general? Christian Ricken: Yes. As I said, margins are tighter than in other asset classes, but we have our very stringent risk return requirements. So we are doing also these transactions selectively if our risk return requirements measured in RAROC are being met. And that is not the case for each and every transaction, and we would not enter into low-margin new business only because it's a new and fancy asset class. Operator: This was the last question. I would like to turn the conference back over to Mr. Junginger for any closing remarks. Jürgen Junginger: Thank you a lot for joining this morning. As always, the IR team is happy to take up follow-up calls if you have further questions. So have a good day, and thank you again for listening. Operator: Ladies and gentlemen, the conference is now over. 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Operator: Ladies and gentlemen, thank you for standing by. Welcome to JD Logistics Third Quarter 2025 Results Conference Call. [Operator Instructions] I'd like to turn the call to Mr. Sean, Head of IR team at JD Logistics. Sean Shibiao Zhang: Thank you, operator. Good day, ladies and gentlemen. Welcome to our third quarter 2025 results conference call. Joining us today are our Executive Director and CEO as well as the CFO. Before we start, we'd like to remind you that today's discussion may contain forward-looking statements, which involve a number of risks and uncertainties. Actual results and outcomes may differ materially from those mentioned in today's announcement and in this discussion. The company does not undertake any obligation to update this forward-looking information, except as required by law. During today's call, management will discuss certain non-IFRS financial measures for comparison purposes only. For a definition of the non-IFRS financial measures and the reconciliation of IFRS to non-IFRS financial results, please refer to the announcement of financial information and business highlights for the third months ended September 30, 2025, issued earlier today. For today's call, management will read the prepared remarks in Chinese and will only be accepting questions in Chinese during the question-and-answer session. A third-party interpreter will provide simultaneous interpretation in English on a separate line for the duration of the call. Please note that English translation is for convenience purposes only. In the case of any discrepancy, management statements in the original language will prepare. I would like to turn the call over to Mr. Hu Wei. Please go ahead, sir. Wei Hu: Thank you, Mr. I'm so happy to meet you here. This is the third quarter of the 2025 earnings call meeting. In the third quarter, with the effect of proactive macro policies, China's economy maintained a steady and progressive trend as a critical enabler of the national economic circle, modern Logistics continued to facilitate the efficient flow of production factors, strengthening the economy's resilience. During the quarter, JD Logistics continued to strengthen its capacities in service experience and delivery partners, consistently expanding product portfolio and solidify the service competitiveness, improving customer experience and satisfaction and achieving high-quality related revenue growth. In the third quarter of 2025, JDL achieved a total revenue of RMB 55.1 billion, an increase of 24.1% year-over-year in terms of profit. Our non-IFRS net profit was RMB 2.02 billion with a profit margin of 3.4%. We are committed to building our long-term capacity and competitiveness, making targeted investments in areas such as international business expansion and timeless capacity improvement to enhance our operational strength and lay the foundation for long-term business growth. Revenue from integrated supply chain ISC customers reached RMB 13.1 billion in the third quarter increased by 45.8% year-over-year with both internal and external ISC customers sustaining solid double-digit growth. This included RMB 8.9 billion in the revenue from external ISC customers. Leveraging our extensive network coverage, extensive warehousing operations and management experience and accumulated ISC capacities, we continued to strengthen our leading position in China supply chain market, achieving growth in both the number and average revenue per customer APR of our external ISC customers. We provide industry-specific ISC solutions and service products for customers in fast-moving consumer goods, home appliances, home furniture, safety, apparel, automotive and fresh products and other industries. In the face of the ever-changing business environment and market landscape, we remain focused on experience, cost and efficiency, enhancing our industry-specific service capacities. We delivered products and solutions tailored to customer-specific industry logistics and operational pain points, helping them improve operational efficiency, reduce operating costs and optimize customer experience. In home appliance industry, we continued to expand our ISC solutions end-to-end process coverage. By leveraging digital capacities to integrate end-to-end information flow, we enabled efficient coordination in all aspects of operations, helping brand customers reduce cost and enhance efficiency. For instance, in the third quarter of 2025, a cooperation with a well-known home appliance brand customer extended upstream to the process from the customers' factory to their warehouse. Through our consolidated distribution model, we optimized the transportation routes and efficiently reduced the transit frequency during inbound to warehouse transportation, helping the customer to reduce logistic costs. Meanwhile, we leveraged our digital supply chain system to provide destination warehouse with real-time visibility of in-transit information. This enables them to range uploading zones and allocate manpower in advance, significantly improving inbound efficiency and shortening order fulfillment time. Going forward, we will continue to deepen our presence in the ISC space, capitalizing on our advantages in digital technology, network coverage and operational management. We will replicate and scale the successful experience with this brand to more customers, committed to build the most efficient ISC solution through the entire process. The steady development of our ISC business is underpinned by our continuously improving network infrastructure. As of the end of September 2025, our warehouse network covered nearly all countries and districts in China, consisting of over 1,600 self-operated warehouses and over 2,000 third-party warehouse owner-operated cloud warehouses under our open warehouse platform. Our warehouse network has an aggregate gross floor area of more than 34 million square meters, including warehouse space managed through the open warehouse platform. We have enhanced the breadth of our coverage and enriched our service offerings through further expansion into lower-tier regions and continued optimization of our warehouse network. During this quarter, guided by our cooperational philosophy of placing products as close as possible to customers, reducing handling frequency and minimizing fulfillment distance, we accelerated warehouse network development and verification of the service capacities in lower-tier cities since official commencement of JDL's Kafka warehouse in April 2025, both local customer experiences and local efficiency have improved significantly in the third quarter. The warehouse contributions to our operational efficiencies continue to grow, supported by our ongoing enhancements in warehousing operating efficiency and regional distribution capacities. Core areas now enjoying a 2-1-1 time delivery service, while surrounding remote areas have achieved steady next-day delivery. This quickly improved local customers' shopping experience, widespread positive feedback meanwhile, we strengthened our capacities in bulking item logistics building, JDL, delivery installation, assembly return, while steadily strengthening our leadership in China's ISC market while also expanding our overseas footprint, leveraging years of accumulated warehousing operation expertise and world-leading ISC capacities. As we replicate and scale these capacities in overseas market, we are providing more Chinese brands, overseas customers and for e-commerce platforms with high-quality efficient and comprehensive ISC services. Based on long-term in-depth cooperation with auto customers in China's auto spare parts supply chain sectors and the strategic advantages of our overseas warehouse in the Middle East. In the third quarter, a leading new NGB brand chose to further strategic partners with us to jointly expand into the Eastern market. we planned and now operated a spare parts warehouse in Dubai's Jebel Ali Free Zone, providing end-to-end logistics services from container acceptance, customer clearance, quality inspection and other processing to packaging and outbound logistics. This shortened customer spare parts distribution circle, improved inventory turnover efficiency and strengthened the aftersale network across Middle East, South Africa. At present, JDL has established multiple overseas warehouses in the Middle East and continue to enhance its automation and digital operation capacities, delivering global ISC solutions for several other companies and enabling them to achieve a more efficient and sustainable growth in international markets. As part of our overseas warehouse expansion, we accelerated our global smart supply chain network. and actively expand our overseas warehouse footprint bycelerating progress towards our goal of doubling the gross area of our overseas warehouse by the end of 2025, a target we're fully confident in achieving. In Q3, our revenue from other customers, including express and freight delivery services reached RMB 24.9 billion with a 5.1% year-over-year growth, we have consistently adhered to the high core development strategy, focus on expansion of the high-value businesses while enhancing timeless service capacity and product diversity, laying a solid foundation for the long-term sustainable growth of our business. In our express delivery sector, we continue to enhance our delivery timeless capacity and product competitiveness with a focus on expanding our high-turn, high-value, services. For instance, we expanded our high-tensile delivery capacity, which previously centered on categories such as lychee and hairy crab into high-value scenarios into production zones. This expansion has effectively improved the service quality and delivery efficiency, driving the growth of high timeliest delivery business. Additionally, we continue to strengthen our cooperation and penetration with leading brand merchants on mainstream platforms. For instance, in the third quarter, we started multiple channel cooperation with several well-known sportswear brands, achieving a notable increase in business share, while driving revenue growth in our high delivery services, we also helped the brand customers gain greater platform traffic through high-quality logistics services, creating value for our customers. In the last mile fulfillment process, we continue to optimize our service models and strengthen operational capacities. Recently, we acquired wholly owned subsidiaries of JD Group specializing in local on-demand delivery, which has already established a mature operating system in the sector and demonstrated the strong commercial potential and growth prospects. Looking ahead, we expect the integration of this business to further enrich JDL's product portfolio, complement our last-mile delivery network and enhance fulfillment graphic operational efficiency and overall user experience. Through our business development process, we have adhered to our core value first. JDL remains dedicated to offering premium services such as delivery, on-demand pickup and delivery and return exchange continuously enhancing the quality of our express delivery services. With such professional and reliable services, we have earned a trust and preference of our customers and consumers as well as recognition from national authorities. In August 2025, in the Logistics 2025 report released by the globally authority brand valuation consultancy, Brand Finance, JDL was rated as the strongest Logistics brand 2025 worldwide. Our ranking in the most valuable logistics brands listed in year-over-year, demonstrating our strong international competitiveness and brand influence. Regarding the freight delivery business, with the consolidation with Teton Logistics and [ King Freight, ] we ranked among the top tier in China in terms of cargo volume and revenue share of freight delivery services. We've now established a freight delivery product portfolio covering various timeliest levels and diversified service scenarios, allowing us to precisely match our customers' differentiated needs regarding timeliest requirements, service standards and other aspects. In terms of air freight, we continue to expand our international cargo route network. In the third quarter, we launched a new all type of fly route direct in Shenzhen Bao International Airport to Singapore, Chongqing Airport, further strengthening our air transportation connectivity with the Asia Pacific region. We constantly prioritize technical innovation through ongoing investment in automation equipment, AI and other applications. We have deeply integrated digital intelligent technologies into every stage of the logistics value chain, driving the comprehensive application of AI plus robots across end-to-end logistics chain, including warehousing, storing transportation and delivery. We recently self-developed series robots of [ W pack, ] which are highly suited to our operational scenarios. For example, in the warehouse operations, we are accelerating the deployment of the [ 2 line intelligent ] warehouse solution with both the number of deployed devices and the cities covered increasing further this quarter. And in addition, we have deployed [indiscernible] shadow for bulky item storage and boost to person scenarios, the [indiscernible] intelligent robotic arm and automatic towards for order picking, storing and packaging as well as f drone and dual unmanned vehicle for collections between industrial parks and delivery stations by continuously expanding automation coverage across both processes and logistic value chain we will enhance operational efficiency and provide customers with reliable high-performance supply chain support. Going forward, we will continue to promote the adoption of automation equipment and AI test driving efficiency upgrades across our end-to-end logistics value chain that will support middle and long-term profitability. Meanwhile, we will remain committed to promoting the tech upgrading of the industry, bringing efficient supply chain services to more regions worldwide, and we will improving the social value. Thank you. And we have just announced a new announcement. For my personal reasons, I will take new positions under JD Group. I will no longer be the CEO for the next session. Over the last few years, I collaborated and grow together with JDL, making contribution to customers and consumers. I worked with JDL team for years. I feel so happy and I'm so moved. I want to express my gratitude to the stakeholders and all the Board members. And next, Mr. Wang Zhenhui will take the role as the CEO. Mr. Wang has been working with different companies as well as public companies for years, and he has the business insight as well as the business vision. Mr. Wang has a very solid foundation experiences in the logistics sector. I believe that with his guidance and with his wisdom, JDL will further make contributions to stakeholders and Board members. I'm going to welcome Mr. Wang to say a few words. Zhenhui Wang: Thank you, Mr. Hu Wei, Dear investors, dear analysts, good to see you. My name is Wang Zhenhui. I'm so happy and honored to take this chance, and I will soon take the job as the CEO of JDL. I want to thank Mr. Hu Wei for your contribution. In the upcoming days and months and years, I will lead the team centrally on the cost efficiency and the core competitiveness, making new progress, not only for the company, but also for the but also for the entire side. Now let's welcome Mr. Wu Hao to give you the overview of the financial performance. Hao Wu: Thank you, Mr. Hu. Thank you, Mr. Wang. Hello, this is Wu Hao, the CFO of JDL. I'm pleased to present JDL's financial performance of the third quarter 2025. In the third quarter of 2025, China's macro economy remained stable with continued improvement, demonstrating strong resilience and vitality. Supported by our ever strengthening products and service capacities, JDL achieved accelerated revenue growth by continuously improving timeless and customer experience and further enriching our solution and product portfolio. In the third quarter of 2025, our revenue reached RMB 55.08 billion with a year-over-year of 24.1%. In terms of the profitability, IFRS profit was RMB 1.96 billion, non-IFRS profit with a margin of 3.2%. Non-IFRS profit was RMB 2.02 billion with a margin of 3.7%. Since the beginning, this year, we continue to make strategic investments to strengthen our long-term industrial competitiveness and actively expand business growth opportunities, further solidify our market competitiveness strength. Current investment phase remains consistent with our operational plan. Looking ahead, as business volume increases entering the peak season, we expect economies of scale and improved resource utilization to support profitability improvement. Let's look at the segmented business lines. Our revenue from ISC customers totaled RMB 13.13 billion in the third quarter with year-over-year increase of 45.8% among them. ISC revenue from JD Group amounted to RMB 21.20 billion, up 65.8% year-over-year, mainly due to the incremental revenue generated by our full-time riders participating in JD Food delivery as well as from the growth in the JD Retail. Revenue from external ISC customers was RMB 8.93 billion, up 13.5% year-over-year. The number of external ISC customers amounted to around 67,000, up 12.7% year-over-year, continuing the trend of double-digit growth over several consecutive quarters. While serving more customers, we also deepened and broadened our engagement with existing customers. In the third quarter, our average revenue per customer for external ISC reached RMB 134,000, up 0.7% year-over-year, extending the year-over-year growth from the previous quarter. This growth was primarily driven by our extensive comprehensive warehouse network and mature operational capacity. By continuously upgrading our supply chain products and services, including extending the service supply chain, broadening geographic coverage and deepening omnichannel integration online and offline, we strengthened partnerships with leading customers industries such as apparel, FMCG and auto, helping them improve market competitiveness while optimizing operational costs and efficiency. In the third quarter of 2025, our revenue from other customers, primarily including express and freight delivery services was RMB 24.95 billion, up by 21% year-over-year. For express delivery services, we continue to alleviate customer experience satisfaction focused on the expansion of high-value segments. In the freight sector, we ranked among the top tier in China in terms of cargo volume and revenue scale, supported by our diverse freight delivery services that cover multiple timeliest levels and service scenarios. Moving on to cost and profitability. In the third quarter, our gross profit margin was 9.1%. We continue strengthening our capacities in key strategic areas, including enhancing delivery, improving customer experiences and expanding our international business to drive JDL's long-term high [indiscernible] growth. Next, let's turn to the major parts of the cost and revenue. First, employee benefit expenses were RMB 21.82 billion in the third quarter, up 49.8% year-over-year. This was primarily due to the addition of full-time food delivery riders compared with the same period of last year as well as the year-over-year increase in the number of operational employees in the delivery and warehouse operations. The number of operational employees grew from approximately 640,000 at the end of the third quarter last year to 440,000 at the end of the third quarter of last year. while remaining relatively stable quarter-over-quarter since the beginning of this year, we've added our own employees to key operational processes such as last-mile delivery and warehousing aimed at upgrading our product and services and alleviating customer experience. The key indicators such as on-time delivery rate and customer satisfaction improved. In the third quarter, employee benefit expenses accounted for 39.6% of total revenue, up 6.8%. Second, our outsourcing cost was RMB 16.97 billion in the third quarter, up 13% year-over-year. Our outsourcing costs accounted for 13.8% of total revenue. With a year-over-year decrease of 3.0 percentage points, we optimized outsourcing costs, which are primarily transportation related by applying algorithm-based transportation deployment systems and optimizing the structure of transportation resources, such as increasing the proportion of the self-owned vehicles. Third, our total rental cost was RMB 3.20 billion in the third quarter, up 2.5% year-over-year. We continue to promote site integration and optimize network structure, improving the utilization efficiency in our sites. Our total rental cost accounted for 5.8% of total revenue in the third quarter, down by 1.2 percentage points. Apart from the major costs mentioned above, our ongoing business expansion has resulted in improved economies of scale, driving down our depreciation and amortization costs as a percentage of total revenue by 0.2%. Meanwhile, due to the growth of services such as nation and maintenance, other costs as a percentage of total revenue increased by 0.3 percentage points. In terms of expenses, our operating expenses in the quarter were RMB 3.70 billion, up 15.9% year-over-year, accounting for 6.7% of total revenue with a year-over-year decrease of 0.4 percentage points. This improvement was driven by our consistent enhancement in refined management and cost control capacity. Among them, sales and marketing expenses increased by 13.5% year-over-year to RMB 1.58 billion, accounting for 2.9% of total revenue, down 0.3 percentage points year-over-year. Sales and marketing expenses accounted for 4.7% of revenue for external customers, up 0.3 percentage points. We maintained monetary investments in sales and marketing personnel to drive business growth. In the third quarter, our R&D expenses were RMB 1.06 billion, up 15.9% year-over-year and accounting for 1.9% of total revenue, down 0.1 percentage points. We have allocated our R&D resources to strengthen our end-to-end automation, digital and intelligent capacities. including ongoing operation of AI algorithms and automated equipment in diverse logistics process. For example, we consistently upgrading our large language model, power digital intelligent solutions, improving the coverage of warehouse equipment and scaling up the regular operation of online delivery vehicles to drive further cost savings and efficiency improvements in diverse logistics scenarios, including planning, warehousing, storing, transportation, delivery and customer service. Our general and administrative expenses were RMB 1.02 billion, up 23.6% year-over-year, accounting for 19% of total revenue, remaining largely flat year-over-year. In terms of profit, please also consider our non-IFRS measures, which we believe may better reflect our core operations. Both non-IFRS profit and non-IFRS EBITDA excludes items that we believe are not indicative of our core operating performance to help investors and other users of financial information better understand and evaluate our core operating results. In the third quarter of 2025, our non-IFRS profit was RMB 2.02 billion, down 21.5% year-over-year. Non-IFRS profit margin was 3.7%. Non-IFRS EBITDA for the third quarter was RMB 5.32 billion, a decrease of 7.1% year-over-year with a non-IFRS EBITDA margin of 9.7%. We also continue to monitor our cash reserves and cash flow to maintain a healthy capital position to support business development and meet our operational needs. In the third quarter, excluding lease related payments, we recorded a free cash flow of RMB 0.59 billion, consisting of operating cash flow of RMB 4.71 billion and capital expenditure of RMB 1.95 billion, primarily for investment in automation equipment and self-owned vehicles. We continue to improve operational efficiency and capacity through efficient resource allocation. Before we wrap up, I would like to express my heartfelt thanks to our shareholders for their enduring support and the trust in the JD Logistics. Looking ahead, we remain committed to balance improvement with stable profitability and high-quality growth. We will continue to cultivate our ISC solutions, enrich our product portfolio, optimize customer experience and further strengthen core competitive barriers to promote healthy and sustainable business growth. Meanwhile, we will sustain our investment in automation as well as digital and intelligence technologies optimized network structure, innovate operational models and deepen refined management. We aim to improve the efficiency of the entire logistics process, achieve long-term and sustainable structural cost reductions and create greater value for our shareholders. Thank you. That concludes my prepared remarks. Now let's begin the Q&A session. Sean Shibiao Zhang: Thank you, Mr. Wu Hao. This concludes our prepared remarks. We'd like now to open the call to your questions. Operator, we are going to start the Q&A session, and we are going to receive the questions only in Mandarin. Now let's get into the Q&A session. Operator: [Operator Instructions] [indiscernible] please raise your question. Unknown Analyst: I have 2 questions. In view of the automation, the 5-year automation plan, I want to listen to your comments on the capital investment efficiency and the cost. This is the first question. The next is a full-time rider. We have the full-time riders, and we have outsourced the riders. I want to check with you about the orders. How many orders are you accepting per day? You are not the largest operator. How could you use up the network to make innovation to be the top operator of the food delivery? Unknown Executive: Thank you, [indiscernible], for the question. Over the last few years, JDL has accumulated a lot of the automation technologies and experiences. Most of the automation equipment are well used at a large scale and they are easy to use, they are user-friendly ever since 2025 in more than 20 provinces and cities, and we have already prepared our auto robots. In terms of the unmanned vehicles, we began applications in Guangdong, Jiangsu, Beijing, around 20 cities and provinces, thousands of the unmanned vehicles were put into place for the purpose of docking, collection and pickup. In the future, for the AI Super Brain together with launch robots, they will be deeply integrated to ensure the full chain of sorting, transportation and delivery. In terms of investments, automation and robots. And the outcomes will be collected. According to outcomes, we will promote the large-scale application of the robot in the long run. We will manage the cost, and we will find a balance between investment and return because that is the basis for the long-term optimization. So have some confidence in us by investing into automation sector, we are going to further improve our long-term and middle-term revenue. For specific investment pace, I will follow different industry, different category. We will check the real-life data. We will update our investments and our CapEx plan will be updated as well. It will be very close to our drop that we will go and check what happens, and we will gradually upgrade our investment year-by-year. With more technologies being invested, I believe that it will cut down the logistic cost for the entire society, driving the primary growth for the company. Question 2 is about the full-time riders. Around June, JDL made the announcement to hire full-time delivery. In Q3, we saw a very positive growing momentum. the revenue was boosted. The full-time driver team was quite stable, very consistent with us. This is a big advantage. We have a standardized training system. We have a refined operations, and we're improving the promised delivery. We are improving the timeless as well as the user experience. We made the announcement and we are going to integrate our driving forces. We are going to cover the full-time scenarios, especially for the last-mile delivery services. We're improving and boosting the capacity dramatically. In terms of utilizing the resources, in the long term, I believe there's a lot of robust complementary movements. During the e-commerce festival, the Photon riders could help us to make up the logistics gap. On the other way around, the man could also work together with the delivery man to meet up the requirements from the food delivery. Now the 2 teams are highly complementary, and we could have them work together in 10 of the core cities, the mutual supplementary efforts were made to boost up orders. I want to make a quick notice, the introduction of the Photon riders could improve our service delivery capacities to our customers, we are not only providing food services, but for other products, we are providing services to some luxury brands and 3C products. For instance, we could help them to deliver the luxury goods or 3C products as quickly as possible. That is how we are going to enrich our matrix of the delivery, and that is one of the core capacities for us in the future. By providing or improving the services to ensure timely delivery, we can get into the intra-city faster delivery services. Operator: Next question from Citibank, [indiscernible]. Unknown Analyst: I have a question about the overseas market. You're expanding your footprint. I want to listen to your opinion about your plans and about the implementations of the overseas market. Unknown Executive: Thank you for the question. For the overseas market, the international business is about capacity building. We want to have an entire global network by the end of 2025. The growth area will be doubled by the end. the floor areas for one site, and we want to improve the terminal to terminal capacities, such as the routes, such as cross-border timeliness as well as the speed to clear the customs. We want to make the entire journey more smooth. A, we want to reduce the cost of compliance for our customers, the automation capacities, the efficiency will be boosted all for the purpose of reducing the cost, and we want to expand the network of delivery. Those are the progresses. Still, I believe international market, overseas market are on capacity building because capacity will drive for long-term growth, we will meet up the requirements of the customers. carry out the accurate investment, optimizing our network operation and the localized delivery capacities. In the long term, we do more we scale it up the mature supply chain will be duplicated in overseas market while staying different, such as the health product integrated service, we will also build up the network in overseas market. All in all, we want to offer long-term sustainable value. Operator: Next one. [indiscernible] from Jefferies. Unknown Analyst: My question is about the number of ISC customers and ARPA. Can you share with us more about which segment is your core sector because you want to dive into the value creation and you also focus on numbers of the customers. And I'd like to invite you to share with us the capacity and human resource. Unknown Executive: Thank you, Jefferies -- thank you, Thomas from Jeffrey, the question. Over the last few years, in the ISC customer number and ARPA, we have our -- we have the room for improvement, of course. The numbers and ARPA are 2 important topics. For one thing, we have to improve the numbers and we have to offer them the best products. We can cover more clients. Some of the customers are not using the ISC services. So that is one direction. We will hedge for that in terms of ARPA. We have some key accounts. We also have some small accounts to store the improvement. For the key accounts, we have the PM, the project manager, the account manager to go deeper to find more opportunities. Generally speaking, I believe I can -- we can continue the existing path to further improve the profits, the numbers and the ARPA. Yes, of course, you are going to see fluctuations in the ARPA due to the seasonal reasons or due to the natural transition from a single client to ISC client. But in the long run, I believe the numbers will be further optimized. In 2026, still I'm not in the right time to make the forecast. I believe that in 2026, the revenue will further be optimized. I also wish that starting from Q4 of last year, the investment has begun to yield results. And in the long run, more results can be seen. Thank you. Operator: Due to time constraint, that concludes today's Q&A session. At this time, I will now turn the conference back to Madam Sean Zhang for additional or closing remarks. Sean Shibiao Zhang: Thank you again once again for joining us today. If you have more questions or further questions, please contact our IR team directly. Thank you.
Operator: Thank you for standing by, and welcome to the Xero Limited 2026 Interim Results Conference Call. I am joined by Xero's Chief Executive Officer, Sukhinder Singh Cassidy; and Chief Financial Officer, Claire Bramley. [Operator Instructions] I would now like to hand the call over to Sukhinder Singh Cassidy, Chief Executive Officer of Xero. Please go ahead. Sukhinder Cassidy: Good morning from Sydney, Australia. Thank you for joining our investor briefing today covering Xero's financial and operating results for the half year ending September 30, 2025. I'm Sukhinder Singh Cassidy and I'm with Claire Bramley, our CFO. Our first agenda item is the summary of Xero's performance for the half year. I'll then pass to Claire to cover our financial results in more detail before I finish with strategic priorities and Xero's outlook. After that, we'll move to Q&A. So moving to a summary of our results on Slide 5. We are very pleased with our H1 fiscal '26-year results, which clearly demonstrates our sustained revenue momentum and execution against our strategy. We continue to achieve strong revenue growth across our 3x3 portfolio. This, along with another meaningful increase in profitability, enabled us to again deliver above the Rule of 40, demonstrating strong cash generation. I'm going to touch on the key metrics here, and Claire will cover them in detail later in the presentation. Operating revenue grew 20% year-on-year to reach $1.194 billion or 18% in constant currency. This strong growth comes despite a tough prior period comparison. Adjusted EBITDA was $351 million or up 12% year-over-year. Finally, our solid operating results and strong cash generation resulted in a Rule of 40 outcome of 44.5%, an increase of 0.6 percentage points year-over-year. I'll now spend a few minutes outlining the regional contributions to revenue growth. We saw each of our largest markets, Australia, the U.K. and the U.S., make a strong contribution. ANZ remains a core component of our portfolio and continues to deliver robust quality growth off a large base. You can see the sustained performance reflected in our results. We delivered 17% revenue growth year-over-year. This was the result of continued subscriber and ARPU expansion with subscribers up 7% and ARPU growing 12% year-over-year. Australia continues to drive strong revenue growth, up 19%. Subscribers were up 9% year-over-year. Australia is making good progress in a highly penetrated market, continuing to add new features to support ARPU expansion while delivering solid subscriber growth off an already large base. Its GTM playbook is evolving to progress new customer mix. But as we've said before, moving the back book of existing customers is a longer-term opportunity. New Zealand delivered quality growth in what is our most deeply penetrated market. Revenue grew by 8%, with net subscribers up 4% year-over-year. This is a positive result and ahead of economic growth in this mature market. Overall, the performance of ANZ reflects the strength of our core market relationships and our ability to drive growth through strong execution and a focus on customer value. Turning our focus now to the International segment, which covers the U.K., North America and our Rest of World markets. I want to note that this segment is fundamental to our future scale and is executing strongly against our strategic priorities. International revenue grew by 24% year-over-year. Looking at the individual markets. In the U.K., we delivered a robust performance with 25% revenue growth. Subscriber growth remained strong at 13%. We saw early indications of tailwinds related to HMRC's regulatory changes flowing through. We anticipate the majority of the market benefit will come over the next few periods. We are excited as this will support subscriber growth, but we would remind you that there is a negative impact on ARPU as smaller businesses adopt our lower-priced compliance offerings. North America continues its momentum, delivering 21% revenue growth despite the headwind of no revenue from Xerocon this half. Adjusting for this, growth was 26%, a great result. Subscribers grew 15%, a good outcome in what is typically a seasonally weaker half. I will talk about our Melio acquisition shortly, but keep in mind that the deal immediately provides a step change in the scale of our U.S. business and we're really excited about its ability to accelerate growth in the U.S. Finally, our Rest of World markets grew revenue by 22% with subscriber growth of 11%. In summary, strong execution in the International segment is building a solid foundation for sustainable, high-quality growth in these markets. This slide brings the key financial outcomes together, showing how we are successfully balancing growth and profitability, while delivering above Rule of 40 outcomes. We're consistently delivering EBITDA and free cash flow growth, which is contributing to strong cash flow generation. The free cash flow margin reached 26.9%, which you can see on the middle chart. Adding this to revenue growth, where we use the 18% constant currency metric, resulted in our Rule of 40 outcomes increasing another percentage point to reach 45%. We are very pleased with this result, which demonstrates our ability to deliver sustained revenue growth supported by disciplined investment to grow profitability while at the same time adding value for our customers. Before I hand to Claire, I want to briefly acknowledge the completion of the Melio acquisition in October. We're incredibly excited to bring our 2 businesses together, and I'll discuss this in more detail later in the presentation. Now I'll hand over to Claire to walk us through the financial results. Claire Bramley: Thank you, Sukhinder, and good morning, everyone. It's a pleasure to be here to present our financial results for the first half of fiscal '26. We have delivered another strong half. As Sukhinder said, our results show sustained revenue momentum across our portfolio of businesses and the effective execution of our strategy, allowing us to deliver another above Rule of 40 outcome of 44.5%. Starting with revenue. We have a large recurring revenue base spread across a global portfolio, which enables us to consistently deliver strong top line growth. Despite the tougher prior period comparison, we maintained strong revenue growth this half of 20% year-over-year. Subscriber growth was 10% to reach just shy of 4.6 million subscribers at the end of the period. ARPU growth was 15% on a reported basis, noting that our ARPU disclosures are based on the end-of-period foreign exchange rates. On a constant currency basis, ARPU growth was 8%. The continued balanced growth in both subscribers and ARPU drives our AMRR, which I'll talk about on the next slide. AMRR reached $2.7 billion. This represents a 26% year-over-year growth or 19% in constant currency. AMRR, like ARPU is calculated using end-of-period foreign exchange rates. The AMRR exit rate sets a strong foundation for growth. The short-term discounts and hedging are excluded from this number and will impact how this translates into full year '26 revenue. We saw both impact our revenue growth in the first half relative to AMRR growth. We are continuing to deliver very healthy gross profit, with gross profit margins of 88.5%. The slight reduction year-over-year reflects our continued investment in our customer experience. Now let's look more closely at the drivers of our 10% ARPU growth in the first half, which you can see on Slide 12. Price changes reflect amortization of the significant value we have added to Xero from new features and capability improvements. Price increases typically happen in the first half of the year by our Australia, New Zealand and U.K. regions. So we expect pricing to contribute more significantly to ARPU during this period. The specific price changes across our plans reflect a more strategic and segmented approach. This is evidenced by our decision to hold prices flat on all lower end Ignite plans in each of these markets. Moving to product mix. We are seeing positive results from our go-to-market strategy with new customer mix incrementally improving in the U.K. and the U.S. as our targeted sales motions become embedded. In Australia, there have been some headwinds as we added payroll back into our lower tier plans. This has seen some customer shift towards these plans. While overall, we have made progress on our new customer mix, as Sukhinder mentioned, back book progress remains an opportunity in the longer term. Across all regions, we are continuing to evolve our direct go-to-market channel to support our focus on mix. We are successfully targeting higher-value customers through applying short-term promotional discounts and deepening our lead generation through avenues such as partnership and affiliate marketing. Finally, platform revenue growth continued to drive ARPU expansion, largely due to strong payments progress. So let's turn to that. It is worth reminding you the payments contribution in the first half was entirely from our existing accounts receivable offering as the Melio acquisition did not complete until October. We continue to see excellent momentum with payments revenue growing 40% year-on-year, mainly from continued strong TPV growth of 35%. This revenue have been generated across our 3x3 and reinforces our confidence in the value of providing integrated payments and accounting to SMBs. Employees paid through Xero Payroll increased 5% year-on-year. This lower growth rate reflects the deep penetration and large existing customer base we have in Australia. We are looking forward to the opportunity to start driving payroll penetration in new untapped markets, such as in the U.S., where our embedded offering with Gusto goes live in December. Now let's look at customer retention. MRR churn was 1.09%. This remains below our long-term pre-pandemic average of 1.15%. The slight increase from the last half, in part reflects our decision to incrementally allocate investment to the direct channel as well as target growth in our International segment. As we've noted before, while these segments have structurally higher churn, they also typically attract higher ARPU customers, which aligns with our strategy to optimize the total value of each subscriber. Our focus on the value of a subscriber is shown in our LTV, which expanded to $19.56 billion with LTV per subscriber increasing to $4,261. With regards to our acquisition metrics, customer acquisition cost per gross add was $757, with a healthy and efficient payback of 15.2 months. The increase in CAC aligned with our strategic focus on attracting higher value subscribers to drive mix rather than just focusing on volume. We are investing in data-driven tools and building our internal capabilities across digital performance marketing to drive our direct channel. We are also continuing to leverage our partner-facing teams to better support our accounting and bookkeeping customers. This resulted in an LTV to CAC ratio of 5.6, slightly down from the prior period, driven mainly by the ANZ region, which remains at an industry-leading ratio of 10.7. Let's move to our operating expenses. The OpEx ratio, excluding acquisition costs, was 72.8% in the half. We have revised our fiscal '26 outlook and now expect the full year ratio to be around 70.5%. Within this, we've added Melio, adjusted for currency and importantly, realized some efficiency benefits while continuing to fund investments for growth. Our capital allocation framework remains disciplined and returns based, which in turn aims to deliver improvements in efficiency, as you can see through our revenue per FTE, which increased 16% year-on-year. As we realize this efficiency, we are able to decide the proportion that we reinvest in line with opportunities we see and our Rule of X approach. Now let's turn to the key investment areas for the half. Sales and marketing costs were 31.7% of revenue, a reduction of 0.3 percentage points year-on-year. This reflects disciplined investment in digital performance marketing as we continue to strengthen our internal capabilities. Product design and development costs grew 18% year-on-year, equal to 28.2% of revenue. Gross product spend, which includes capitalized costs grew 24%, equal to 34.6% of revenue. This reflects our continued focus on product velocity, including hiring domain experts to support our new AI capabilities. Our capitalization rate was higher at 47.4%. This was driven by more developer time being spent on releasing new products and features, many of which we announced at Xerocon Brisbane. General and administration costs were 12.9% of revenue, an increase of 2.4 percentage points. As we flagged at our fiscal '25 results, this increase was expected and is primarily due to higher executive personnel costs associated with the accounting treatment of option and sign-on equity grants announced last year. The majority of these noncash costs are not expected to recur in fiscal '27. Moving down to the bottom line. Our sustained revenue growth and disciplined capital allocation delivered an adjusted EBITDA of $351 million for the half, a 12% increase year-on-year. Our adjusted EBITDA margin was 29.4%, down 2 percentage points, driven by the nonrecurring G&A expenses and investment in sales and marketing previously mentioned. Adjusted EBITDA, excluding total share-based payments, improved by 0.8 percentage points to 38.8%, demonstrating the continued positive operating leverage in the business. Our profitability and discipline translated into strong free cash flow. We generated $321 million of free cash flow in the half. This represents a free cash flow margin of 26.9%, a significant step up from 21% in H1 of fiscal '25. The high-quality recurring nature of our business continues to deliver very strong cash realization from customers. Our payments to suppliers and employees grew only by 10%. This lower cash outflow relative to OpEx growth was partly due to the timing of some vendor payments as well as the higher proportion of noncash share-based payments. We saw a $25 million increase in net interest received, reflecting the higher cash balances held prior to completion of the Melio acquisition. This benefit is temporary as we have now completed the transaction. Finally, there was a limited impact from tax payments in H1 as we depleted prior year tax prepayments. We will enter a more normal New Zealand corporate tax payment rhythm in the coming periods, which will impact future cash tax payments. It's worth keeping these factors in mind as we head into the second half. Our strong cash generation further strengthens the balance sheet. We ended the half with a net cash position of $3.2 billion, supported by the net funds raised for the Melio acquisition. Following the completion of the Melio acquisition, our pro forma balance sheet shows a net debt position of approximately $0.5 billion with a pro forma net debt-to-EBITDA of approximately 0.9x. This reflects our commitment to maintaining a strong balance sheet while also creating a clear pathway of meaningful deleveraging. It also ensures we retain flexibility to continue pursuing our build, partner and buy approach to capabilities. It is important to note that the shift to a net debt position will increase interest costs and reduce interest received in the second half of fiscal '26. This change in our balance sheet position will create a headwind to our Rule of 40 performance in the second half of the fiscal year compared to the first half. With regard to the completion of the Melio acquisition, Slide 21 outlines the consolidated go-forward business showing Melio included on a pro forma basis for the first half of fiscal '26 compared to the same period last year. The disclosure here is intended to help with the understanding of the combined business on a like-for-like basis. We won't be providing separate performance metrics for Melio going forward. Its revenue contribution will form part of the new U.S. region, of which you can find more details in the appendix. In the first half of fiscal '26, underlying Melio revenue growth reached 68%, driven by the addition of around 7,000 new customers since the second half of fiscal '25 and by an increased usage per customer. Together, they delivered an 18% lift in underlying TPV. This strong growth will support the scaling of our U.S. business, as shown in pro forma revenue growth of 53% year-over-year. Turning to profitability. Pro forma EBITDA reflects Melio's current scale and maturity. I'll walk through a few of the key drivers of this result and why we remain confident in the scale opportunity and the returns it can generate over time. Melio's gross margin has been broadly consistent with fiscal '25. That's mainly due to the timing of product-led syndication additions. We are clear on the drivers to expand margin going forward through leveraging scale, syndication, payment mix and subscription growth. Operating expense growth reflected a planned investment in sales and marketing to support this growth opportunity. We expect to see scale benefits come through as Melio continues its rapid growth. There are also 2 future considerations not included in the pro forma that I want to call out. First, it doesn't reflect the shift to a net debt position or the noncash amortization of acquired intangibles we highlighted at completion. Second, the accounting treatment of Melio's management earnout and incentive plans will add about $10 million in operating expenses in the second half of fiscal '26, which isn't reflected here. The pro forma Rule of 40 came in at 39.8%, a really solid outcome. While it does face some headwinds from the shift to net debt, we remain very confident in our ability to deliver against fiscal '28 Rule of 40 and revenue growth aspirations. To close, the first half has been another strong period of execution for Xero. We're delivering high-quality revenue growth, strong cash generation and remain well positioned to keep investing with a disciplined Rule of X framework to capture the significant opportunity ahead. Thank you for your time. I'll now hand back to Sukhinder. Sukhinder Cassidy: Thanks, Claire. I'll now talk to our FY '25 to '27 strategy and update you on a few recent news we've made. As you know, our vision and purpose are constant at Xero. Successfully delivering against these is key to achieving our aspiration, which I'll cover in a few moments. Our winning on purpose strategy, which you saw us lay on Investor Day in February 2024, has 4 key pillars: win the 3x3; build a winning GTM playbook for Xero's next chapter; win the future, which is about focus best on innovation; and lastly, unleash Xero and Xeros to Win. These 4 pillars are underpinned by our disciplined capital allocation framework for investment. This tightly aligns with our strategy, our Rule of 40 aspirations and our build, partner or buy approach to pursue organic or inorganic opportunities. We're making great progress executing against our strategy with focus and purpose to deliver tangible value for our customers. We've made a number of moves in the last 6 months, which we highlight on Slide 24. There are 3 key moves here that I want to spend some time on. Firstly, we continued our strong product delivery momentum through working hard to build product ourselves, but also through partnerships and our acquisition of Melio, which I'll discuss shortly. We've made significant progress this half in delivering important product features to help customers across our 3 largest markets, Australia, the U.K. and the U.S., to complete the 3 most important jobs to be done, accounting, payroll and payments. A few of the key product highlights rolling out are Analytics Powered by Syft across U.S., U.K. and Australia as well as launching our new customer homepage currently in beta to give customers an insight rich view of their business performance. In addition, we're announcing today the beta launch of our embedded payroll solution through our partnership with Gusto to provide U.S. payroll capabilities. Secondly, we implemented a series of changes to strengthen our go-to-market playbook. Our core focus has been increasing the sophistication of our sales motion to improve mix. As Claire noted, we've made encouraging progress on this, especially in the front book, and we're intensifying our efforts on the back book for existing customers. Thirdly, we're allocating capital for long term as we look to win the future through strategic investments in AI and mobile. We're really excited about the next evolution of JAX, our AI financial superagent. I'll spend some more time on this in the next few slides, but I'll call out one key highlight, which is our decision to partner with OpenAI to bring search capabilities for financial information inside the Xero product. We also continue to improve the mobile onboarding process and make mobile payments easier by rolling out tap to pay and adding mobile bill upload and simple invoice template setup. And we're also enabling our people to move faster for customers and do the best work of their lives, so we can unleash Xero and Xeros to Win. We're empowering all Xeros with AI education and tools to automate repetitive tasks, increase internal efficiencies and drive better value for our customers. We now have over 70% of engineers using AI in their daily workflows and nearly 50% of customer support responses are drafted by AI. Alongside this, we continue to invest in our purpose and performance-based culture with improved employee development opportunities for all Xeros. So you can see our investment is disciplined and aligned to our strategy. Coming back to our investment in AI. On the next slide, I'll talk to this in a little more detail. As a leading global SaaS business that has long been powered by machine learning and traditional AI, Xero continues to see AI and generative AI specifically as a significant opportunity to innovate and invest, all with the goal of unlocking significant value for our customers. At Xerocon Brisbane in September, we were thrilled to announce the evolution of our AI financial superagent, JAX, Just Ask Xero. JAX is built on Xero's AI agentic platform, which orchestrates multiple specialized subagents across Xero. Our vision is simple, to reimagine financial management using AI to help small businesses and their advisers work smarter together. This vision is supported by 4 unique pillars. The first is reimagined experiences. We're leveraging AI to reimagine the Xero experience. The goal is to have JAX help our customers interact with Xero seamlessly across multiple touchpoints from xero.com and mobile to tools such as e-mail and messaging. We've already begun leveraging this strategy with the beta launch of our new homepage. It has JAX embedded in a customizable insight-rich design, quickly showing users what to focus on so they can take action sooner. The second pillar is automated actions and workflows. JAX is designed to save our customers' time by automating routine tasks and workflows such as invoice creation and automatic bank reconciliation. We launched the beta for automatic bank rec in October, which tackles one of the most common and time-consuming jobs on Xero. Users retain full visibility and control via the new reconciled page. This single view allows users to see and understand JAX's reasoning, easily make corrections and manage supporting documents. The third pillar is actionable insights. JAX unlocks advanced financial insight for our customers by combining data from their own business with information from connected apps. This also allows them to explore their data and dig deeper into their finances. JAX also brings them answers from beyond their business, incorporating real-time external data from across the web on topics like market trends, thanks to our collaboration with OpenAI. The fourth and perhaps most important pillar is to be a trusted partner. JAX is built on a foundation of security, privacy and decades of accounting expertise, offering a trusted partnership to our customers. Its accuracy is superior to AI, relies solely on large language models. This ensures greater reliability and confidence in the output. So to summarize, we told you at our last result, we have an ambitious AI agenda in FY '26, and you can see we're pursuing this and adding customer value at pace. We have strong confidence in the value of this technology. Our key focus for now is helping customers engage and realize that value. This will in turn further inform our approach to monetization. I'm excited to dive into the next steps for integrating Melio, but first, let's quickly recap the powerful rationale behind this acquisition. It's what fuels our confidence in the significant value creation opportunity ahead. First, there's a critical customer need in a large and growing market. SMBs and their ABs watch their accounting and payments together. It creates efficiencies, improves their cash flow and importantly, saves them time. And this is reflected in the significant TAM for U.S. SMB payments. Secondly, the combination is a powerful strategic fit for Xero. Acquiring Melio aligns with our 3x3 strategy and gives us a step function change in our U.S. product proposition, scale and monetization opportunity. Third, this is a best-in-class asset. Melio has a world-class team and platform. Many of you have already met Matan. The quality he and his team bring to Xero is significant, and this is demonstrated in the exceptional growth and strength of the Melio offering. Fourth, and most importantly, together, Xero and Melio is a compelling value creation story. These are 2 complementary platforms that can drive significant scale together. Melio's growth trajectory in U.S. penetration uplifts our scale in the U.S. business from day 1 with much improved unit economics and a larger and stickier ARPU. As this business continues to scale at pace and is powered by Xero's growth engine, we have strong confidence in meeting our aspirations and capturing a very attractive value creation opportunity, and we are moving quickly to accelerate growth and capture this value. We are very pleased to announce our first key integration milestone, the launch of Melio bill pay inside of Xero, which is now scheduled for December 2025. This will immediately enrich our U.S. offering, providing small businesses with a seamless and powerful bill payment solution directly within the Xero platform. It will give Xero customers access to Melio's payment functionality to help them save time and optimize cash flow, including multiple ways to pay and visibility on payment times. Our ability to move at pace on this integration is a testament to Melio's platform and the efforts of both the Xero and Melio teams to drive towards realizing the value of the acquisition. In addition to this, we're moving quickly to leverage Melio's GTM capability and reach to drive Melio's stand-alone growth and cross-sell opportunity to xero.com. I'd now like to move to our FY '26 outlook. As Claire said, we have lowered our OpEx guidance and now expect total operating expenses as a percentage of revenue to be around 70.5% in FY '26. As we have previously explained, there were some nonrecurring elements in this, and we expect the ratio to be lower in H2 than H1. This ratio now includes Melio but excludes the impact of transaction costs. Incorporating Melio provided a small benefit with other drivers, including improved efficiencies contributing the majority of the reduction. Of course, in addition to this, we continue to pursue our aspirations which we updated when we announced the Melio acquisition. We expect the combined business to significantly accelerate U.S. revenue growth and give us the opportunity to more than double Xero's FY '25 group revenue base in FY '28, and this is before synergies. And we continue to anchor on our Rule of 40 aspirations and deliver a balance of both growth and profitability at the group level. This revenue growth outcome is anticipated to support the achievement of greater than Rule of 40 outcomes for the group in FY '28 with the dilutive impact in the interim as we continue to invest in Melio and as business scales. Our operations are strong and they are credible, and we're really excited about achieving these. I'd now like to wrap up. There are 3 key themes from today's presentation, sustained strong revenue growth across our 3x3 portfolio, continuing to deliver a greater than Rule of 40 outcome with strong cash generation and the successful execution of our strategy, securing key wins across our 3 core priorities. This momentum is consistently enhancing the value we deliver to our customers as we continue our journey to become a world-class SaaS leader. Before I conclude, I would like to acknowledge our teams around the world. And I really want to thank them again for their hard work as we continue to do all we can to support our customers and partners. That concludes our presentation. I'll now pass over to the moderator for your questions. Operator: [Operator Instructions] The first question today comes from Eric Choi from Barrenjoey. Eric Choi: Could I just do 2. Sorry, it sounds a bit of a long-winded one, but just the share price is down today, and I think it's because there's an implied accounting EBIT downgrade versus consensus. Just wanted to expect at an operational EBITDA hit and actually maybe an even top line upgrade. And so if you just bear with me on the logic, like if I look at your revenues and AMRR of the base business, it actually implies second half revenue growth is accelerating versus the first half, which consensus didn't have. And then Melio grew 68% on an underlying basis, and so market growth of Melio was below this as well. So revenues are clearly ahead. And then on cost, and if we just take accounting D&A out of it for a second, you've actually lowered your core cost to sales, which offsets growth in the kind of Melio's gross margins holding flat. So at that EBITDA level, it actually doesn't need to move much. But then at this accounting EBIT level, which incorporates D&A, sell side, including myself we're kind at bad modeling amortization and purchase price amortization and all these other things. So just that D&A ends up being high and therefore, you've got an accounting EBIT business. So I guess the overall question is, operationally, it's actually doing in line to better, but you've just got this accounting EBIT miss. Is that right? Claire Bramley: Eric, this is Claire. So yes, thanks for your question and laying that rule out. I think the first thing I would say is we're really pleased with the strong execution that we've seen in H1. And to your point, really strong top line growth coming from the Xero standalone business and then a lot of momentum as we move into the second half. So you're absolutely right. You can use that AMRR as a kind of foundation for that momentum that we see as we exit the first half, and then that really strong Melio growth that we reported, put those together for the second half. We're really excited about the growth opportunity, not just for the second half but also in the medium to longer term. So I think that's really important to note, and gives us a lot of opportunity. From a cost standpoint, yes, I'll just double-click into the reduction in the OpEx ratio guidance that I gave. I just want to know, we have included Melio into that, but Melio does have a very limited impact. And also from a CapEx standpoint, we were anticipating in H1 that the CapEx rate would be higher. That is always aligned when we do like a Xerocon event. We published, as Sukhinder suggested, in our prepared remarks, we've been publishing a lot of new product features and great product velocity. So that was factored into our overall original outlook for OpEx. So as you think about that reduction, that's actually coming -- little is coming from Melio. None of that improvement is coming from capitalization, and it's actually coming from other areas, the key factor being operational efficiencies but also revenue. So this should be a strong improvement from an overall EBITDA. I'd stand to your point, in terms of rolling through that D&A. But I think it is really important that we are anticipating those capitalization rate to reduce in H2 and so that this improvement that we're seeing is really coming from underlying operational efficiencies, some currency and very limited impact from Melio. Eric Choi: Can I just do a quick follow-up, and I realize you never go into exact numbers, but just to kind of say future variance, just a rough framework for how we should all think about FY '27. I guess if you use your cost to sales guidance for FY '26, it's pretty easy to get to an EBIT number. And if you add some D&A back, you're kind of in the $740 million to $750 million EBITDA range for FY '26. And then you've told us that $45 million comp impact falls out next year. And then obviously, you get operating leverage on any revenue growth that you deliver as well. I mean it seems like a fairly obvious question, but FY '27 EBITDA would still have to be in the 800s. Just high level, have I missed anything there? Claire Bramley: No. I think as you think about the EBITDA, clearly, as you said, I'm not going to be giving an outlook statement for fiscal '27. But I think what I would do is kind of double down on the fact that we are continuously focused on that overall acceleration of revenue growth and remaining high revenue growth, and we see a huge opportunity with Melio. If you add that into the fact that we are continually focused on efficiency, you've seen great, I think, historical track record in the last couple of years of Xero, reducing its overall OpEx ratio. And then I've done that, again, adjustments today with lower OpEx ratio. And I think the advantage of that is that we're investing. We're continuing to invest in profitable growth, but also doing it in a very efficient way. And I think if you think about scale, you think about the excellent gross margin, I mean, we're above 88% on Xero underlying gross margin and you think about that OpEx efficiency ratio moving forward, a lot of good indications in terms of the opportunity ahead. Operator: The next question comes from Bob Chen from JPMorgan. Bob Chen: Just a quick one on the churn. Obviously, it's ticked up a bit. And I think your comments earlier is that, that has been driven by that focus on business edition. I mean when we think about subscriber growth from here because of that shift towards focusing on business edition, you get that sort of high change, could we naturally expect your incremental subscribe from you just to be a little bit lower, but with better ARPU outcomes? Sukhinder Cassidy: Thanks for the question, Bob. It's Sukhinder. So a couple of things. First of all, I think that, as we've noted, churn is still below historic pre-pandemic levels, and we feel good about kind of where churn sits overall. I think a couple of factors are obviously driving that, that are ones to think about. While we don't break out the difference between the direct channel and the partner channel, we have said that direct is really performing. And that and the nature of that channel is that it does have higher churn. Performance marketing will bring more to the top of the funnel and more will churn out. In that, historically, our partner channel has lower churn and direct as we allocate to it, has higher ARPU, higher lifetime value, but also churn. So there's a mathematical reality. So that's the way I would think about it. I also just think we continue to feel very good about our overall balance on quality of subscribers and quantity of subscribers. If you note, that is a very explicit shift that we made in the strategy on Investor Day. It was coupled with our long idle removal. And it really speaks to, like we're always going to be keeping an eye on the quality of the sub and obviously, continue to want to build share and look at overall absolute subscriber numbers. So I'd say we feel very good about the overall trend, where churn level sits and recognizing that the direct channel will drive both a higher LTV customer but also higher churn mathematically. Bob Chen: Great. And just a quick follow-up to that. We've obviously seen ARPU increase significantly over the last few years. Has that also played into that sort of churn number as well? Sukhinder Cassidy: In what regard? I mean I think the business edition is, again, driven disproportionately by our direct channel, and that already has a higher ARPU. So again, I'd say it's a mathematical outcome more than anything else. But I think when we talk about churn, it's not really about ARPU. It's about having a big performance funnel where you're inviting a lot of prospects into the product. And then you will see an increase when you do that, have that do paid motion for direct customers, you tend to see higher churn in the first 90 days as an example. As more people -- lookie-loo is not quite the right example, but they're really just trying the product. Like I said, I think it's more a function of that than ARPU specifically. Operator: The next question comes from Garry Sherriff from Royal Bank of Canada. Garry Sherriff: Just focusing on North America. The revenue missed market estimates, and it sounds like it's mainly Canada being weak and also cycling Xerocon revenue. I mean is there anything else we're missing there in North America? I mean was discounting higher than usual? Or is it just pretty much all Xerocon revenue that you're cycling? Sukhinder Cassidy: Sure. I think there are 3 things. First of all, you are right, if you back out Xerocon, the underlying growth you feel very good about and then if you back out Canada, you get to something north of 33% -- about 33% growth in the U.S. And so I think it's a function of Xerocon. Canada remains subdued. I think we continue to say that. Now you will have seen in this -- and in the last 30 days, there's been an announcement that open banking may finally be coming to Canada. We await that as a good positive, maybe momentum driver in the market. But to date, I'd say the move to cloud has been really suffering from lack of open banking. And the other piece is, remember, H1 is seasonally a weaker half for the business, for the North America business, given when taxes get filed. So I would note that we felt particularly good given it's a weaker seasonal half. And when you look at that U.S. growth, it's, as I said, back out Xerocon, U.S. alone is about 30%. Garry Sherriff: Got it. Okay. And just a final one on Melio. Just wanted to clarify the numbers that you've reported. Does that include the Intuit subs that are to be exited? I just wanted to try and understand whether that was the case? And if so or if they're still in there, can you maybe just remind us how many need to be exited and when that's expected? Because I'm just trying to get an organic like-for-like growth for Melio. Maybe you already reported. I'm just not clear myself. Claire Bramley: Yes, no worries, Garry. I would point you to the disclosures in our Investor Relations. We have given it to you on an underlying basis. So as you look at that kind of the new pro forma numbers we've given for H1 of '26, you can see that, that on an underlying basis, that is increasing. So we have adjusted for the -- for that kind of syndication partner exiting. And I think even on that underlying basis, you can see some really strong growth, both year-over-year and half -- over half both in the number of customers, in the TPV per customers, in the take rate. And I think we also mentioned that underlying revenue growth of 68% is clearly really, really strong. Operator: The next question comes from Kane Hannan from Goldman Sachs. Kane Hannan: One simple one. Just the comment in there around the combined business significantly accelerating U.S. revenue growth. Is that relative to the 49% pro forma number that you've done? Or is it more the 33% Xero stand-alone U.S. growth that you did in half? Claire Bramley: Yes. I think if you look at the additional disclosures because you now see U.S. broken out separately and you see that in our appendix slide. So like you can see that the Melio growth in the first half is more than double our fixed Xero growth. And from a scale and volume standpoint, it's actually 4x. So yes, that kind of more than doubled you can see that just as we've disclosed those pro forma numbers in H1. And all of our announcement came for -- to make a finer point on it. When we said significantly accelerate, remember, we were comparing to Xero stand-alone at the point of announcement, right? So... Kane Hannan: Yes, that's helpful. And then just the comments on Melio's GP margin sort of being flat. They're calling out the drivers extension being firmly in place. I mean does that mean you should be thinking about margin expansion in the second half? Also what are we waiting for, looking for, for that GP margin to start to tick up if the drivers are in place? Claire Bramley: Yes, I think there's multiple things to think about when you think about gross margin for Melio. You've got the benefit of scale and the additional margin dollars that come through. And clearly, when you've got a growth rate at 68%, there's a big opportunity there. And then there would be areas with regards to the margin expansion. We are anticipating in the kind of short term, there to be a little bit of noise on the rate. But what we're pointing to is that we really do see those opportunities to expand both from a volume scale standpoint and a margin expansion over the medium to longer term, which gives us that confidence in hitting the aspirations that we laid out and getting above the Rule of 40 on a combined business in fiscal '28. Sukhinder Cassidy: Yes. One other thing, Kane, I think, to Claire point, remember that there is margin take rates, and we talked about in this half, Melio having higher take rate products, improve like mix type of payments. So obviously, payment mix on melio.com is driver. Let's also remember though that a lot of GP driver is syndication. And syndication, this is where Claire says there will be noise. When partners come online, your syndication line also has a gross profit and attractive gross profit. So part of it is what you do on melio.com. Part of it is the puts and takes of partners deploying. And remember, Melio does not entirely control when partners deploy. This is why we have a lot of confidence over the medium term and the guidance -- not the guidance, the aspiration that we gave for '28, but I would remind you that partner syndication timing is not entirely Melio's control. So this could create noise within a quarter or a half, certainly. Operator: The next question comes from Roger Samuel from Jefferies. Roger Samuel: I've got 2 questions. First one, just on ANZ. I understand that you to invest more into the direct channel, but the LTV to CAC ratio is coming down. I mean 10.7x is still a very good number, but it's coming off 14. And do you think that it's becoming harder to attract new subscribers into the base? And where do you expect the LTV to CAC ratio to land? Sukhinder Cassidy: Sure. Well, first of all, I think, Roger, you hit the key point. 10.7 is still a very attractive number. And I think it's fair to say when you're in a market that's very saturated, where you have high brand awareness, on a marginal basis, the next customer may be more expensive than last one. On an absolute basis, it's still attractive to go get them. And that's exactly what you see in our numbers. So we always need to make a call. Unlike look, on a marginal basis, would we rather pay this for the next customer, not get it, and our choice continues to be, we're going to be very mathematical. And if there is another subscriber to go get on an absolute basis, we're going to go after it, and we continue to see that opportunity. Now over time, I'm not going to give you an LTV number today. But as you know, we've also included that over time, we see the to further penetrate this market with more mix. We also see the opportunity to drive more attach of payments and other products. We just announced BGL and Workpapers. So we're going to continue to also drive I'd say, more penetration of different products for ABs and SBs through this business that over time, we hope continues to accrete to LTV. Roger Samuel: Okay. And maybe a follow-up question on Melio. So if I back out Xero stand-alone looks like Melio incurred losses of about $56 million in the first half '26 on a pro forma basis, that's lower than minus 60% in the PCP. So I suppose the question is, when do you expect Melio to be breakeven? I mean if you look at the guidance which is yet to reach a Rule of 40, you're pretty close to that Rule of 40 already as a combined business, plus or minus the adjustments to interest expense and earn-outs. So yes, just wondering when you can expect Melio to -- Melio business to be breakeven? Claire Bramley: Yes, I'll take that. So first of all, to your point, we did have a great combined Rule of 40 result in the first half. But as I mentioned in my prepared remarks, there are some future impacts that will negatively impact that as we move forward. However, we -- I think all of these numbers just give us that confidence in the profit opportunity that we see ahead in the Xero and Melio combined business. I think we're not going to give an exact date in the sense of when does Melio become profitable. I think we're months into owning them. We are extremely happy with the performance that they had in H1. The integration of the business into Xero, whether it's the getting that go-to-market, those go-to-market opportunities running, whether it's the product announcements and the Melio on Xero coming out in December, there's so much progress being made, which just gives us that extra confidence to deliver on those aspirations. And I think I'd come back to the fact that we are very optimistic about the opportunity from a profitability standpoint that we get from both the scale but also that margin expansion, but it's over time. Operator: The next question comes from Rohan Sundram from MST Financial. Rohan Sundram: One for me. On the operating environment, how are you seeing the state of demand from SMBs at the moment? And how would you compare it to 6 months ago and whether there's been any changes or improvement? Sukhinder Cassidy: Thank you for the question. First of all, I'd say we see continued good demand, strong demand for the Xero product. And I think when we look out to indicators like XSBI, which as you know is our data set, we just published Australia and New Zealand results as well as -- and what we saw in both markets as well as the U.K. is Australia showing nice signs of recovery, New Zealand showing some signs of recovery, U.K. holding steady. And then in the U.S., we haven't published our next generation of XSBI yet, but we look to the NFIB Optimism Index, which stays at sort of all-time highs despite, I would say, that optimism index also showing a lot of uncertainty. So from what we can tell on the macro, there is some signs that Australia and New Zealand sentiment is getting better among SBs when we look at their real-time sales data in XSBI. U.S. optimism remains strong despite uncertainty and, as I said, U.K. holding steady. Operator: The next question comes from Nick Basile from CLSA. Nicholas Basile: Just a first question on Melio. I just want to clarify, I think one of the points Sukhinder made around integration. Can you talk to, I guess, what your expectations were on that. I think you mentioned bill pay was coming in December. Was that 2025 or next year? And then just in general, how you're thinking about Melio's performance in recent months relative to your longer-term targets to double revenue? I guess just one confirmation that you feel that the business is on track to help support that goal? Sukhinder Cassidy: Sure. Well, first of all, we feel very good about the integration. As you can imagine, I would say, the integration of Melio bill pay into Xero actually gives us more functionality than we currently have with the partner that we're exiting, and it was done faster than anticipated. So I would say we feel really good about the integration. And I think that's a testament actually to Melio's platform. It is very easily integratable. And obviously, our teams started planning for this summer. So I think that we're really happy to get out a richer product functionality in both workflows and bill pay into the Xero product this soon. So that's December of this year, less than 30 days away. Number 2, I think when we look at Melio, what we've said is Melio performed in H1 in line with our expectations. And so we're really pleased about that. Claire Bramley: Yes. I think I'll just double down on our confidence in meeting those longer-term aspirations. I think the performance that we've seen in the first half and the momentum that we've got going in the second half and beyond just gives us even more confidence in being able to be more than double our fiscal '25 revenue in fiscal '28, excluding synergies and back above the Rule of 40 by fiscal '28. Nicholas Basile: Yes. No, that's very clear. I think from my perspective, December 2025 sounds like you're ahead of schedule. That's why I got that clarification. The second question. On operating leverage in the core business kind of if you think about it, whilst we still can, excluding Melio. The guidance feels like the ability to provide lower OpEx to sales, as you called out, is being driven by some degree of operating leverage or cost efficiencies in the core business. Can you just help unpack that in a little bit more detail? And again, as that '26 guidance kind of relates to the '28 sort of 3-year glide path to maintaining Rule of 40 whilst you're embedding Melio, which is currently loss-making? Claire Bramley: Yes, absolutely. So that 70.5% new OpEx ratio is incorporating Melio. I'll just remind people that Melio does have a slightly different P&L to our Xero core business in the sense of the margin and the OpEx ratios are slightly different. So there's a slight benefit but it is limited from incorporating Melio into that 70.5%. The key factor I would highlight of that reduction is those operational efficiencies. And it was good to be able to drop those benefits through to the bottom line. And I think it's something that I -- we're really focused on here at Xero, and you've seen it in our historical trends is continuing to drive operational efficiencies at the same time as we're investing back into growth. And I think you can see that in our H1 results and the momentum as we go into H2, strong revenue performance, strong operational efficiencies at the same time as continued investment. And that's a philosophy now we're executing against that, and we'll continue to focus on that as we move forward. Nicholas Basile: And sorry to make you clarify, but just when we're talking about operational efficiencies, should we be thinking more about product development side, sales and marketing or sort of equal mix of both or G&A? What sort of buckets are we seeing that benefit from? Sukhinder Cassidy: Sure. So I think there are 2 things, this is Sukhinder, driving the operational efficiency. First of all, I think while it will show through in all those ratios. Number 1, I'd say headcount discipline, speaking frankly, like just being clear on the allocation of capital when we sort of -- when we think about fixed costs, our fixed cost base, we want to be clear that like when we add to our fixed cost base, that we believe it's adding in places that drive revenue leverage, right? So if we're going to add FTEs to product, we want to know that there's a clear line of return to building products that will -- that customers will value. So I'd say it's about being very kind of, I'd say, while we are -- we'll continue to grow our cost base, it's the allocation of our fixed cost dollars to the things that drive real value for customers. That is like a very clear way that we think about driving increases in our cost base. Number 2 is, it's very, very early days for AI internally, but I would say we are encouraging productivity usage by our employees to really get more work done through all of these tools and capabilities. And so I'd say we're really pleased, if you look at some of the numbers we reported. I would say Xero's adoption of AI, whether that's in P&T or sales and marketing, where they're creating more assets using AI or the average Xero who's using things like Gemini, and I'd say, improve their mastery of their work and save time. I'd say that is like -- it'd be hard to put a percentage on it, but I'd say that's another operational efficiency push we have here. And all those things drive through, we think, improved revenue per FTE, right? So that is a core metric that we use as a guide internally for like how are we creating operating leverage. So we want to come -- always come back to like what's the use of those efficiencies. For us, it's the ability to reinvest in the highest revenue growth opportunities and customer value opportunities. But that's sort of where the efficiencies are coming from, if you like that way. Operator: The next question comes from Siraj Ahmed from Citigroup. Siraj Ahmed: Can you hear me okay? Sukhinder Cassidy: Yes, we can hear you fine. Claire Bramley: Yes, yes. Siraj Ahmed: First one on Melio. Sukhinder, just to comment on [Technical Difficulty] something that's slowing there from that whole rollout of CashFlow Central? And the second part on Melio, I mean, can you give us a view on annualized revenue at the end of the half, just to look at second half revenue and whether some of the CashFlow Central revenues is coming through in the second half, right? Sukhinder Cassidy: So Siraj, you broke up for quite a while there. I think you were asking about CashFlow Central and Fiserv rollout. Is that correct? Siraj Ahmed: Yes. So just -- sorry, my network is not great. Just in terms of -- you sort of said syndicate partners are not within your control, just wondering whether something slowed with Fiserv [Technical Difficulty]? Sukhinder Cassidy: Because you're breaking up again, I'm going to take my best guess at answering this question. And obviously, we can follow up offline if we don't get it right here. I would say that we are -- we continue to be very excited about CashFlow Central and Fiserv, and so are they. I think if you look at even their own commentary on the importance of this product, it is in their encouragement of their own customers to roll out and adopt, it's quite strong. All I noted is its timing, right? On any partnership, it's always about the timing of those rollouts. So that was my point more on short-term noise. When somebody said, well, what are we waiting for? You could be waiting for a partner to deploy when it comes to within a half or within a quarter. That was my only commentary. But I think we continue to feel very excited about CashFlow Central, so does Fiserv, and I think they see it as a very important part of their stack. Operator: The next question comes from Paul Mason from Evans & Partners. Paul Mason: I had maybe a follow-on to Siraj's question there. Just are you able to provide any color on sort of how many banks Fiserv has been able to convert across so far was my follow-up. And then I was hoping you guys could comment a bit on thoughts around AI monetization, whether you've sort of settled on potentially using tiering or add-on or just embedding it in the core price over time as to how you monetize, that would be great. Sukhinder Cassidy: Got it. Why don't I start with the AI question and we'll come back to the other. So I think on AI, I think what we've noted is we are not monetizing AI this year explicitly. I think we think the pricing model is still early. We're seeing others take a combination of approaches. Some are doing consumption-based, some are doing tiered. I don't think we have landed, Paul, yet on what model we will use this year. For us, it's all about rolling out those key features like auto bank rec and getting utilization. But I don't think we have landed on a model yet. I think we'll have to find, I think, the cornerstone between simplicity and also the opportunity to make sure that the model of pricing reflects the value delivered, and this is going to be the balance. So right now, I think on Fiserv, Fiserv has talked publicly. So I think what we can talk about is what they've talked about with 96 partners signed up since 2023 and 20 implementations underway. So those are Fiserv's own numbers, and that's all we're allowed to disclose. Operator: The next question comes from Andrew Gillies from Macquarie. Andrew Gillies: Can you hear me? Sukhinder Cassidy: Yes, we can hear you. Andrew Gillies: I was just hoping you could expand on the commentary on improving mix, particularly in the back book. You mentioned some traction on the front book. And I think in the deck, there was some commentary around more sophisticated sales motions. Like what are the opportunities there in the back book? And how can you address those? Sukhinder Cassidy: Sure. Great question. So I think as we noted when we were at Investor Day, I don't know, about 18 months ago, the first thing we needed to do, and I think we've made good progress there, is get our sales teams to also be incented to drive value, not just volume. And the first moves have really been about improving the mix between PE and BE, business edition, in the front book, and we feel quite good about those. I think that the sales teams have made noticeable inroads. I think you can see it read through even in ARPU. You can see some mix shift in ARPU. And I think that -- and that's both a combination of our direct business as well as movements in the front book on the partner channel. I think the back book is a longer move because you've got only 4.5 million customers now. And so even if you move an increment to them, to move the entire ARPU stack is quite hard. And what you're really doing is learning new motions, and you're learning new motions with new features. So when we say it's more complex, we're giving our sales teams training on Syft. Syft just rolled out in all of our products. So now our sales teams are learning the different Syft features available at different levels of plans. And a reminder, then you need to go to your back book and figure out which of their customer cohorts are even eligible for the right candidate. So you're now looking at a combination -- I mean these are very specific motions, right, about sales teams knowing the products, but also cohorting your back book to even identify who's eligible for upgrade. So this is why we say it's a set of sophisticated motions. It's both data, it's orchestration, it's sales education, it's sales incentives. These are the kind -- and that's just on Syft, then you think about payments. In the U.S., you think about Melio. So when we say sophisticated motions in back book, we mean it's often a combination of segmentation, orchestration, digital marketing, physical marketing, sales training, sales education, sales incentives. Now you get hopefully, a picture of why we say the back book is a set of more sophisticated motions and orchestrations that unlocks over time. So I don't think you're going to see some dramatic one-half shift in ARPU, it's going to look more like steady motion and unlocking cohorts of customers who are eligible and the right targets for some of these products. Andrew Gillies: Perfect. And then just a quick follow-up to that. I mean we've spoken about improving back book mix. But if I think about the significance of the Melio launch in December, you've got the Gusto beta going live soon. It seems like delivery is coming forward. The extent of churn to reduce as you get complementary software products being sold to the same customer. Like have you done any internal modeling on like the impacts to LTV or how you should think about the economics and how maybe we should start thinking about that? Sukhinder Cassidy: We've done the modeling, yes. I think we -- this is what gives us comfort in providing the overall aspiration. If you recall, and I think you hit the nail on the head, when we think about Gusto plus payments plus accounting together in one stack, a, you have the opportunity to play from an ARPU. And in the U.S., which actually has the smallest back book, right, just by virtue of its size, you're playing as much to win the next customer as sell through the back book. And so yes, I mean, our ability and confidence to give the aspiration statements we did was built on revenue synergies in both better front book acquisition with more to play for on ARPU plus Melio stand-alone business, plus some penetration of the back book. But as we said before, in the U.S. specifically, it's probably far more of a front book opportunity just given the size of the back book is not that big. Operator: The next question comes from Lucy Huang from UBS. Lucy Huang: I've got 2 questions. Sorry, another one on Melio. You guys mentioned that Melio bill pay will be available from December 2025. And I think Andrew just mentioned Gusto integration is on the way as well with the beta version. How should we think about -- is there going to be a change in go-to-market strategy with Melio in the U.S. come end of this year? Should we think there'll be a bit more brand marketing to sell that there is extra functionality? Or are you still going to focus on performance marketing in the short term? Sukhinder Cassidy: Sure. Well, first job, as you noted, is get that bill pay product and Gusto product out and we noted Gusto's beta. So our first job is like get customers on the product, make sure they're happy with it. That is the job of this year. As we think about the go-to-market motion, I think we have optionality on brands, but let's also just talk before we talk about the optionality on brand to talk about the integration of our GTM teams. One of the things we're excited about is we do have more sophisticated GTM motions than the Melio team. We have a bigger team. And I think part of the improvement in performance is our ability to obviously performance market, not just xero.com but also melio.com, improve the performance marketing there, and bring our muscles there. We have a very good performance marketing team, which alongside theirs, we think, can improve even exposure of performance marketing to their brand. Number 2, we've got our AB sales force also able to introduce Xero plus Melio, but also Melio. If the customer only wants Melio, that is another synergy opportunity. So I'd note, first and foremost, the integration opportunities in performance marketing and in the AB channel are not to be overlooked. Those are first yield opportunities. And then I think if you've looked at the OpEx guidance for this year, we're happy that we're able to realize more efficiency in the core because it gives us the optionality to think about what to do on brand, right? We talked a lot about that, hey, we'd like to be able to reinvest to growth areas. We've talked about brand being an opportunity for '27 that we're looking at. And I think if you put those 2 together, we're excited. Lucy Huang: And then just one last one for me. I think you mentioned -- made a comment around having to include payroll into Australia into the lower end plans, and we saw a bit of spinning down from customers. Just wondering whether that is going to change? Or how are you thinking about product mix being a bigger driver of ARPU growth moving forward? Or should we see product mix being a more slower and steady contribution over the next few years compared to, say, the last 2? Sukhinder Cassidy: Yes, it's a great question. So first of all, I think you were right to note the very deliberate decision to reinclude payroll and our lower plans. That was really a reflection of us taking in customer feedback and basically saying, okay, let's make sure we're doing what's right for the customer. So we reversed that decision. So that would have led this year, obviously, to a bit of pressure on ARPU in Australia as more people then went back to those plans. So that's kind of a short-term effect. I think the way to think about ARPU long term in Australia is, I'd say, very steady as she goes, when it comes to improving front book attach. But remember, Australia has a big back book. So this is a place where it will be very much those sophisticated motions we talked about across both Syft and payments in Australia, leading to sort of consistent, kind of steady ARPU improvement. And then, of course, every year, what we decide to do on price is a big factor in ARPU in any given year. This year, we made a very deliberate choice. In addition to adding payroll back, this year, we did not take up the price on our bottom-most SKUs in Australia. So that's pretty notable in this year's ARPU, right, for Australia. It did not include a price rise on the bottom 2 SKUs. Lucy Huang: Yes. And so in terms of ARPU growth in Australia for this year without the bottom plan price rises, like where would the growth come from? Sukhinder Cassidy: Yes, we did make -- as we said, ARPU is a factor of a mix of items in any given market. This year, ARPU would be a mix of the plans that did get price rises in Australia, front book and back book, any mix improvements. It would be a function of payments attach. Remember, we have a big invoicing business. where we are attaching payments also to invoice volume. And that business grew last year -- this year, it grew 30%. I don't have the numbers handy. Somebody remind me what it grew. It is more like... Claire Bramley: 35%. Sukhinder Cassidy: 35%, sorry, guys. I was just grappling with the numbers in the deck, among all the numbers we have. So remember, we also have payments attach of our invoicing payments in that number. So those are all the contributors that are -- and then we have currency effect, obviously, at the group level, also creating some ARPU movement. Operator: The next question comes from Sriharsh Singh from Bank of America. Sriharsh Singh: I've got 2 questions. One, can we -- just following up on Xero and Melio integration time lines. And wondering how long would it take you to integrate the Xero accounting solution into CashFlow Central product suite? And do you need a full integration on that to realize the real full benefits of cross-sell and syndication network? And just on that time line, I'm wondering if the CashFlow Central integration could happen faster than the Syft Analytics integration, which you've just done and rolled out? And second question, the latest round of pricing increases was really interesting. You kept pricing flat for the lower-end subscription plans. However, the higher-end plans have gone up by 11% to 15% in Australia at least. So should we expect more of that? And what do you need to grow with the higher-end customers? Do you need some M&A there? Or do you think you have a product which can allow you to grow with the top of the funnel customers? Sukhinder Cassidy: Okay. I think there were 3 questions in there. So let me take them in hand. First of all, I want to take the Melio integration question. You might have noted in the half that Xero announced its first embedded accounting deal with Bluevine in the U.S. This is the first time we are embedding our accounting stack in someone else. And we talked on the Melio announcement about the opportunity to also, if appropriate, embed Xero in the Melio stack. Now keep in mind, that was, we said, upside to the plan. We didn't say that. We said that's something we're going to do, but we didn't factor into our numbers because we needed to figure out which of Melio's customers would want embedded accounting. Some of them might just want bill pay. Some of them might be happy to do a referral deal and some of them might want to have accounting in their stack. So we always talked about that as experimental and upside, and that's the same way we've talked about the Bluevine deal that we just announced. We're really excited to get it out and see what it does. But I would say we factored it into our financials. So that's -- I'd say, we'll see where that goes, and we're excited to innovate and try. Number 2, on Australia, as you said, you noted that we were more granular in our pricing moves. I think you can expect us to be more granular. At any point in time when we do pricing, I think we have moved in the last several years from like a one-size-fits-all price rise to very much by segment, by market, looking at the features we've launched our competitive placement in market, and we like that. I mean I think the customer deserves that granularity. So we made granular decisions and I think we feel like we always want to be looking at kind of a positioning range of different segments and SKUs in market against the alternatives and for the value we've delivered. And that leads to Point 3, which I think is about you noted that we did a double-digit price rise on our higher end. Look, when you look at the value we deliver at Xero compared to the size of that customer and willingness to pay and the type of features and delivery, I mean, think about the fact that we have now multiple levels of Syft functionality across our plans. I mean these are products that if you were to buy them stand-alone, would be expensive in their own right, a lot of the functionality that we're now incorporating into our higher-end plans. So I think willingness to pay always factors into how we price as well as the product feature delivery, which I think leads to your last point B, is there more to do in the higher end? Yes. I think there certainly is. We see customers who are on our top SKUs, and we have relatively low penetration of our top SKUs even in a place like Australia with a lot of room to deliver more features and functionality. They ask us for things like transaction limits or permissions or multi-entity reporting. By the way, multi-entity reporting is in within Syft, multi-entity consolidation. There's a long list of features that I think are still opportunities for Xero to go drive higher penetration in -- of those top higher-end customers and our higher-end SKUs. Operator: Thank you. That does conclude the Q&A session. I'll hand the conference back to Sukhinder for closing remarks. Sukhinder Cassidy: Of course. Thank you again to everyone who joined today's call. We appreciate the time and the support and of course, look forward to connecting again soon. Operator: Thank you for joining the Xero Limited 2026 Interim Results Conference Call. If you have any further questions, please contact the Xero Investor Relations team. If you are a media representative, please reach out to the Xero's Corporate Communications team.
Operator: Ladies and gentlemen, good day, and welcome to the Tata Steel Analyst Call. Please note that this meeting is being recorded. [Operator Instructions] I would now like to hand the conference over to Ms. Samita Shah. Thank you, and over to you, ma'am. Samita Shah: Good afternoon, everyone, joining us in India and from the Far East, and good morning to all of you who are joining us from the West. On behalf of Tata Steel, welcome to this call to discuss our results for the second quarter of FY '26. We published our results yesterday, and there is also a detailed presentation on our website, which you can refer to if you haven't done already. As always, we will be guided -- this entire call will be governed by the disclosure clause on Page 2 of the presentation. To help you understand the results better, we have with us Mr. T.V. Narendran, CEO and Managing Director, Tata Steel; and Mr. Koushik Chatterjee, Executive Director and CFO, Tata Steel. They will make a few opening comments, and we will then open the floor for questions. Thank you again, and I will request Naren to make comments, please. Thachat Narendran: Thanks, Samita and hello, everyone. As Samita mentioned, I'll make a few comments and then hand over to Koushik and then we'll do the Q&A. The global dynamics continues to be shaped by tariffs, geopolitical tensions and elevated steel exports. And Chinese steel exports are expected to cross 100 million tonnes again this year, and this obviously has an impact on pricing across the world. And amidst this Tata Steel has delivered strong improvement quarter-on-quarter and year-on-year basis. I would now like to make a few comments on the performance in each geography. In India, crude steel production was up 8% quarter-on-quarter and 7% year-on-year at 5.65 million tonnes, largely driven by the ongoing ramp-up in Kalinganagar and the completion of the relining of the G Blast Furnace, which is down for almost 6 months. We continue to stay focused on driving sales even in a challenging environment, and we were able to ramp up the sales in line with our production ramp up without having to build inventory. In fact, we increased our domestic deliveries by 20% quarter-on-quarter, a testimony to the strength of our customer relationships and the marketing and sales network. While average hot-rolled coil spot prices were down about INR 2,300 per tonne quarter-on-quarter, we were able to limit the drop in our net realizations to about INR 1,700 per tonne. We were also able to offset this impact to higher volumes and the ongoing cost transformation, which has resulted in an improvement in the EBITDA margin by about 80 basis points to 25%. And some segmental highlights. The seasonal rains in the second quarter impacted construction activity across India, but we successfully grew Tata Tiscon volumes by about 27% quarter-on-quarter as our expanding channel network and digital platforms enabled us to leverage insights into customer behavior and cater to the evolving needs. Industrial Products & Projects deliveries grew by about 22% quarter-on-quarter aided by value-accretive segments such as engineering and ready-to-use solutions. In the U.K., our delivery stood at 0.6 million tonnes, marginally lower on a quarter-on-quarter basis, and we continue to work on transforming the business and the 3 million tonne -- building the 3 million tonne electric arc furnace in Port Talbot. In Netherlands, the liquid steel production and deliveries were broadly stable quarter-on-quarter at 1.7 million tonnes and 1.5 million tonnes, respectively. And our performance was aided by the continued improvement in controllable costs. In September, we signed a nonbinding letter of intent -- Joint Letter of Intent with the Dutch government on an integrated health measures and decarbonization project, and we are committed to working with all the stakeholders on resolving the outstanding points before proceeding towards an investment decision. I will now hand over to Koushik for his comments. Over to you, Koushik. Koushik Chatterjee: Thank you, Naren. Good morning, good afternoon or good evening to all those who have joined in. Before I talk about the results of the company, I would like to stress on what Naren mentioned that we should consider the backdrop of continuing global macroeconomic uncertainty, especially in the context of the trade, tariff, currency and the heightened exports from China, which, as you mentioned, has crossed 100 and are likely to cross 100, more towards 120 in the context of the financial results that has been delivered by the company in the first half. Let me now begin with some headline financial performance data for the first half ended 30th September 2025 of the current financial year. Our consolidated revenues for the half year was INR 1,11,867 crores and EBITDA was INR 16,585 crores at a consolidated EBITDA of INR 11,037 per tonne reflecting an EBITDA margin of about 15%. The EBITDA margin expanded by 280 basis points in the first half of this financial year, reflecting our continued focus on the India growth volumes, cost competitiveness and our focus on cash flows. Our global cost transformation program continues to deliver tangible results with around INR 5,450 crores achieved in the first half, as highlighted on Slide 13 of the presentation. This translates to about 94% compliance to our own H1 plan, and I will explain a bit of this further. Turning to the second quarter performance provided on Slide 23 of the presentation. Our consolidated revenues stood at about INR 58,689 crore, up 10% quarter-on-quarter, primarily driven by strong volume growth in India and continued improvement in the cost transformation program to the tune of about INR 1,300 per tonne. As a result, the EBITDA improved by about INR 1,000 per tonne quarter-on-quarter, and this marks an improvement for the second quarter in a row in a very difficult market. Expanding on the cost transformation program. As a company, we have delivered an improvement in costs of more than INR 2,561 crores during the quarter and are on track as planned across geographies. More specifically on -- in India, the cost transformation program achieved full compliance to our second quarter plan with leaner coal mix, optimization on the stores, repairs and maintenance expenses and operating KPIs, which delivered the transformation of about INR 1,036 crores for the quarter. In U.K., too, the cost transformation program was focused on reducing fixed cost in higher-end leasing, lower fuel charges and operating charges. In Netherlands, the program delivered about INR 1,059 crores for the quarter. We are on plan in all the operating areas, like optimization of supply chain, procurement and product mix, along with the other controllable costs. However, we are delayed on the people restructuring time line and the consequential benefits of the same in this year as the discussions with the Central Works Councils are still ongoing. Across geographies, we remain focused on execution of the cost transformation targets for the full year. Let me now provide an understanding of the India, Netherlands and the U.K. quarterly performance individually. Tata Steel stand-alone revenues for the quarter stood at INR 34,680 crores, and the EBITDA was about INR 8,394 crores, reflecting a quarter-on-quarter improvement in EBITDA margin of about 80 basis points to 24%. As Naren mentioned, our volumes are significantly higher in quarter 2 and this, along with improvement in costs, led to an uplift in the EBITDA margin. Our wholly owned subsidiary in the Neelachal Ispat Nigam Limited, also recorded about INR 260 crores of EBITDA for the quarter, up 17% quarter-on-quarter and reflecting an EBITDA margin of 20%. Let me now turn to the U.K. market and our performance. Firstly, I must say that amidst the growing trade protection across the world, U.K. remains a very vulnerable market as the import quotas of steel across several product grades are higher than the total consumption of the country, making it very open to cheap imports. In addition, the market demand has shrunk due to the weak economy, resulting in decline in domestic prices by more than GBP 150 per tonne since January '24. The U.K. demand for flat products has declined by about 33% since 2018, but the quotas have increased by about 20%. In 2025, on a year-to-date basis, U.K. imports are up by about 7% year-on-year, and this has continued to impact prices as well as the spot spreads. As a result of severe market pressure and despite significant cost takeout program, the Tata Steel U.K. EBITDA losses widened from GBP 41 million in the first quarter to GBP 66 million in the second quarter. As an industry in the U.K., we have brought the current policy disparity to the attention of the U.K. government and are engaged on the subject. Given the current market conditions, we are focusing on optimizing the fixed cost. They are down by about GBP 90 million compared to the second quarter of last year. But sequentially, we are marginally higher by about GBP 7 million due to the annual maintenance activities during the quarter. Moving to Netherlands performance. Revenues for the quarter were about EUR 1.5 billion on improved volumes but were partly offset by lower realizations. On the cost side, material costs increased by about EUR 75 million on a quarter-on-quarter basis, largely due to inventory drawdown in contrast to the buildup in the first quarter. This was largely offset by about EUR 72 million reduction in conversion costs, aided by lower employee benefit expenses and emission-related costs. We are also watching the policy development in the EU, especially on the EU steel plant 2.0 announced by the European Commission as it will have long-term ramification on the domestic steel industry in the U.K. in the future. During the half year, we generated about INR 10,000 crores of operating cash flows after interest, tax and working capital. Of this, we spent about INR 7,000 crores on capital expenditure and paid dividend for the financial year FY '25, about INR 4,490 crores. As a result, the gross debt was almost flat with a marginal increase of INR 842 crores versus end March, while the net debt stands at about INR 87,040 crores. The net debt witnessed increased versus last quarter as it also included cash utilized for the dividend paid of INR 4,490 crores. Our net debt to EBITDA stands at about 3x on a consolidated basis. As part of our strategic realignment following the planned surrender of the Sukinda mining lease, we are optimizing our ferrochrome processing footprint. In line with this, we have announced the proposed divestment of our ferro alloys plant in Jajpur and Orissa. The transaction is signed and is expected to be completed within the next 3 months, subject to regulatory and stakeholder approvals. We have often stressed about our focus on value-added portfolio and hence, as part of the growing the portfolio in India, we also executed yesterday, the share purchase agreement with BlueScope Steel Australia to acquire the balance 50% in Tata BlueScope Private Limited. The sale is subject to regulatory approvals, and we believe it will be value accretive that leverages the synergies with Tata Steel in multiple areas. As Naren mentioned, we have recently signed the nonbinding Joint Letter of Intent with the government of Netherlands and the province of North Holland concerning Tata Steel Netherlands decarbonization journey. This Joint Letter of Intent is an expression of mutual intent to explore a framework of transitioning to low CO2 production. I want to emphasize that this project will be designed and phased in a manner that is financially prudent. Both the government and the Tata Steel has conditions to fulfill, and we are working on each of them. There is no material spend in the immediate period, and we will talk more in details on the project cost, the financing structure and the project phasing closer to the binding agreement next year. We are also looking at prioritization, optimization and sequencing of the -- on the CapEx, such that it is affordable for all stakeholders. The final investment decision on the project will be taken next year after engineering preparedness, completion of the conditions, assessment of the regulatory clearances and the negotiations with the new government in the Netherlands on the tailor-made binding agreement. With this, I end my presentation and open the floor to the questions. Thank you. Operator: Thank you, sir. We will now begin with the question-and-answer session. [Operator Instructions] Your first question for today comes from Vibhav Zutshi of JPMorgan. Vibhav Zutshi: Congratulations on the strong results. The first question is basically on the European steel industry in the context of the October 7 protectionist measures and CBAM implementation. So some of the European steel players have talked about higher inquiries from new customers and a bit of a destocking cycle happening next year. So just wanted to get your thoughts on how you see utilization prices moving into the next year? And also that U.K. is probably not to be directly benefited from the protectionist policy, right? Yes. So just some thoughts on that. Thachat Narendran: Sure. Thanks. Yes, the announcements in Europe has helped the sentiment as far as we are concerned in Europe because what Europe is doing is to make sure that the quotas for steel imports are brought down by 50% and have an import duty of 50% on any volumes exceeding the quotas. So this is a positive move for the European steel industry. And in a sense, Europe is actually working hard to have a stronger, resilient steel industry in Europe to take care of Europe's strategic needs, particularly defense and in other areas. So this is part of the plan. So it's good from a Tata Steel Netherlands point of view. We have already started seeing it having a positive impact on the price discussions with customers for the annual contracts for next year. And certainly, as you said, imports have stopped coming in, in anticipation of this. And the restocking, et cetera, will lead to some positive impact for us in Netherlands particularly from Q4. Maybe Q3 already a bit too late, and we are still dealing with the hangover of the last 2 quarters. But Q4 onwards, we certainly see an improvement in Netherlands. And this also has a long-term impact because these actions are also going to come with melt and pour conditions. So if you want to participate in the European market, you have to make in Europe rather than make somewhere else and ship slabs to Europe to participate in the potential CBAM protected market in Europe. So there are multiple reasons why this is a positive move for Tata Steel Netherlands. As far as U.K. is concerned, like you said, U.K. is left out of this. In fact, our discussions with the U.K. government is that the U.K. government also needs to take some actions. Otherwise, U.K. will bear the brunt of material, which can't find markets in the U.S. and Europe. We've not made headway yet. The government is saying they are looking at it. But that's one of the reasons, as Koushik said, we have struggled with our performance in U.K. I think all that we were supposed to do ourselves, we've done. And the cost takeout plan, the fixed cost takeout plan, everything is as per plan. But the market has not moved as per plan, and we would need some support from the government to make that happen. So U.K. is negatively impacted by these actions. But if the U.K. government takes some action to not only help Tata Steel, but the U.K. government has also invested in steel production in the U.K. just now. So they also have another reason to make sure that the U.K. steel industry is supported a bit. Vibhav Zutshi: And just on U.K. then, would you reiterate the 4Q FY '26 guidance of EBITDA breakeven? Thachat Narendran: Yes. If there are no actions from the government just by our own actions, it will be difficult to get EBITDA breakeven by Q4. But if there is some action similar to what has been done in Europe, then, of course, we can move closer to that. Like I said, all the actions that we had planned we've taken. The cost takeout is as per plan, but the market needs to improve a bit for us to come to EBITDA breakeven, yes. Koushik, you want to add to that? Koushik Chatterjee: No, that's perfectly the answer. I think the spreads at this point of time makes it very difficult for any amount of positive EBITDA given the fact that the prices at which steel is currently trading in U.K. with the imports are very, very unsustainable at this point of time. So we certainly need policy intervention from a protection point of view. Thachat Narendran: I think, just to supplement what both of us said, if you generally see the U.S. prices traditionally have been about $100 higher than Europe, and Europe has been about $100 higher than, let's say, India. So that's been the ladder. Over the last year or so, U.S. prices are almost $200 higher than -- prices in Europe because of the actions taken in Europe -- in U.S. We expect the European prices to start moving towards the U.S. prices, may not match the U.S. prices, but the gap could come down as it is today because of the actions being taken by EU. But in U.K., the prices are moving the other way. It's coming closer and closer to prices in India, which is not sustainable for the steel industry in U.K. So that's why our appeal to the government, and they are also evaluating it from that point of view. Vibhav Zutshi: And just a second question on India. So on the Neelachal capacity expansion, any time lines with respect to the Board approval? Because earlier we are planning to get it by October. So any reason for the delay and the updated time lines? Thachat Narendran: The reason is largely related to environment clearances and all the clearances that we need to have because as per our current -- the way we work is we go to the Board after we've got all the approvals in place. But behind the scenes, the work is going on, on all the engineering and the planning and the detailing, all that is going on. So that happens. But the FID will be taken once we have the environment approvals, which we expect in the next few months. There are some forest clearance issues, environment clearance issues which we are going through. Koushik, do you want to add to that? Koushik Chatterjee: Yes. No, I just want to mention that we are pretty advanced in the environment clearance process. And as Naren mentioned, that we are progressing on it, and we will take it to the Board once we are in a position. The engineering work is also pretty advanced in many areas. And therefore, we are getting the investment case ready for the Board's review sometime soon. Operator: Next question is from Sumangal Nevatia of Kotak Securities. Sumangal Nevatia: Sir, my first question is if you could share our guidance on the cost and the prices, both for India and then Netherlands, U.K. separately for the coming quarter. And then generally, I just want to understand what's happening with regards to the safeguard duty. The provisional duty has expired, and we're yet to see the government notification. So just want to understand what is the latest year and what is our expectation? Thachat Narendran: Yes. So I'll give you some guidance on the cost, as in coke costs. And if Koushik wants to add on conversion, et cetera, he can do that. So if you really look at -- from a realization point of view, our guidance is Q3 for India will be about INR 1,500 lower than Q2. Q2 was about INR 1,500 lower than Q1. So we had guided INR 2,000, but we ended up at around INR 1,500, INR 1,600, right? In terms of coking coal prices, we are saying India consumption cost will be about $6 higher in Q3 than it was in Q2 because it's starting to turn the other way because coking coal has firmed up a little bit in the last few weeks. As far as Europe is concerned, Q3 guidance just now is about EUR 30 lower in Q3 compared to Q2, but we expect Q4 to be much better because of what I said earlier. Coking coal consumption costs in Netherlands will be down about EUR 5 to EUR 10, largely because they have more stocks in the system, and so they will be consuming what they bought earlier. As far as U.K. is concerned, prices are generally seen as a bit flattish, no real drop, but our concerns are the levels that it surprise us today rather than the trend of the prices, and that's what we are working with the government on. In terms of -- yes, what you're saying is right, the notification, I think, has expired in November, and we are waiting for advice from the government on that, on safeguard. We are working with them, and let's see where it takes us because the larger point is the steel industry in India is impacted by steel prices internationally and some of the imports which is coming in. I think if the industry has to continue to invest the way it is planning to, obviously, we need to see what is the support we can get from the government in India as is being done by other governments elsewhere. Sumangal Nevatia: So given the spot spreads in U.K., we are expecting the losses to widen. Is that the right understanding? And also Netherlands, given the pressure on prices, at least for third quarter, we are looking at some softer margins? Thachat Narendran: In U.K., maybe things shouldn't get worse, let me put it that way. We're trying to see how to improve. Q2 was worse than Q1, but it's not necessarily Q3 should be worse than Q2. We are still working some of that, and we're looking to see what help we can get. Netherlands, yes, maybe some margin compression, but we are again looking to see what we can do there to manage that. Because like I said, the coking coal prices are lower, they are also getting some benefit on electricity and some of the other costs are lower in Q3 compared to Q2. So they will get some benefit there. In India, while there is some margin compression, but India will have 0.5 million tonnes more volume in Q3 than in Q2. So we will have a volume upside in Q3 because of the Kalinganagar ramp-up. Sumangal Nevatia: Got it. Got it. Sir, my next question is on expansion. Now at India , I mean is it safe to assume 3, 3.5 years once we take the Board approval, so that time line in terms of Neelachal? And what is the peak level of volumes we can achieve in the existing capacity? So our -- I mean, question is coming from the background that maybe from FY '27 onwards, I think we will lack further room in terms of growth. So if you can explain that. And also with Netherlands, you said next year is the time line where -- I mean, we are looking to freeze all the discussions with the government. So FY '28 is the year when CapEx actually starts? And any CapEx intensity you can share there? Thachat Narendran: Yes. So I'll start and then Koushik can kind of continue. As far as the volumes are concerned, yes, Kalinganagar is currently running -- I mean, if I look last month, it's running at 7 million rate, and it can go up to 8 million. So that's a Kalinganagar thing. Neelachal is pretty much -- you can get another 200,000, 300,000 tonnes more once we have all the environment clearances because the existing volumes can go up a bit more. Today, we are limited by the EC levels. We have the Ludhiana plant coming up next year. So that's another 0.8 million tonnes. We are looking at debottlenecking some volumes in the Gamharia plant, which is Usha Martin plant to support our combi mill. And we are also looking at some debottlenecking further in Meramandali. So we will get some additional volumes from all these places in addition to the 0.8 million, which we will get out of Ludhiana. The time line that you said, yes, post-order approval, 3 to 4 years, certainly, we want to complete the Neelachal project before that and try and see if we can do it faster. What also you should keep in mind is the product mix is also getting richer. The cold rolling mill has just started ramping up in Kalinganagar, the galvanizing line, 1 of the 2 lines are coming, the other one will come in by December. We have a combi mill, which is a state-of-the-art long products, plant, 0.5 million tonnes, which has just got commissioned last quarter. So you will see multiple initiatives and then, of course, this BlueScope acquisition that Koushik talked about. All this will lead to a much richer product mix. So there will be -- I would -- there's a volume growth opportunity. As I mentioned, there is also an upside potential on getting a better, richer mix and better realizations. In terms of Netherlands, even if we sign by next year, it's not as if immediately you'll have to spend CapEx because you will take a couple of years to get all the planning permissions that are required to start the project. So it's a slightly more long drawn out journey, but Koushik can add more color to that and the other comments I made. Koushik Chatterjee: Yes. Sumangal, I think the 2 points. One is that as far as Netherlands is concerned, we will finalize the tailor-made agreement sometime next year and the FID will be next year. Then there is a permitting process. And post the permitting process, the major spends will start on the site, et cetera. So I don't see major cash out goes on Netherlands in the next couple of years even after the FID. I think the focus is clearly on NINL expansion. And once we get through, we should be site-ready when we get into the FID or almost in that kind of a position. And therefore, from there about 3, 3.5 years to get it done. We're also looking at -- to your question on existing assets. We are also looking at Tata Steel Meramandali where we look -- want to look at when there is a relining of a blast furnace there to look at expanding the volume, which includes putting up a finishing facility that will take the Kalinganagar 1.5 million tonne slabs to build up a thin slab caster. So there are, at least, if I were to say, 7.5 million tonnes of growth in consideration or in planning at different stages. When it is ready, we should be taking the Board approval to spend. And then some of these brownfield sites, especially in Meramandali, should have a shorter execution time than a greenfield site. So this is currently in the pipeline other than the fact that the -- what Naren mentioned, the Ludhiana will get commissioned, and we will also look at another EAF, either in the West or in the South, which is also under consideration. Operator: Next question is from Satyadeep Jain of AMBIT Capital. Satyadeep Jain: So I just wanted to start with U.K. We can understand that the CBAM in U.K. actually kicks in '27, so 1 year after the EU CBAM. Then in the context of current imports, what options, what is the process? Because from my understanding with Europe is that EU Parliament has to approve the report and findings of EU Commission, EU Council and EU Parliament, and the current safeguards expire in June '26 or so. When you look at U.K., what exactly is the process time line? Do they have to take the entire study and then the decision will be taken by Parliament? So the entire process, are we looking at some kind of support in '26 or not? And the cost savings that were there in the Rishi Sunak government on network tariffs and/or power cost being declined, has it already kicked in? So just wanted to understand Europe -- U.K. in general first. Thachat Narendran: Koushik? Koushik Chatterjee: Yes. So Satyadeep, 2 things. One is when you talked about the European part, the European steel action plan proposition that Naren talked about in terms of reduction of quota, tariffs beyond quota, et cetera, and melt and pour is going to kick in from June '26 because they are currently in the consultation process. Once the consultation is done, various stakeholders give their point of view if they have to change or modify et cetera, and then it starts from June. So that will kick in from June. As far as U.K. is concerned, at this point of time, the consultation process on CBAM hasn't started. It is in formulated position, but it has not yet started. They are scheduled to go live 1 year after the EU CBAM, which is '27, as you mentioned, but we have not seen that happening. And that is one of the conversations that we are having with the U.K. government. We are having conversations with the TRA, the Trade Regulatory Authority on the quotas. So U.K. is behind the curve as far as EU is concerned or competitive to EU is concerned as far as these initiatives are taken. So if it is '27, our plant and when in '27 is not yet determined. So we are actually trying to get an understanding as to when the consultation process will start, how much time it takes. It normally takes 6, 8 months, maybe a year. So we want to kick that up faster and to ensure that it is in time when our EAF comes. So compared to the policy announcement that happened last year, they are behind is the short answer. We'll see as to where this will progress in terms of time line. But to us, the more important priority here and now is actually the quotas the -- and then the CBAM. The CBAM discussion can happen in parallel. Satyadeep Jain: The quota also, given it needs to go through a formal study and then final decision will be taken by the U.K. Parliament or is it executive decision? So is there a realistic chance of this quota reduction in U.K. if it goes through in '26, or are we looking at maybe quota reduction also whatever it is in '27, 28? Koushik Chatterjee: No, no. So '27, '28 is simply very late. By which time, the U.K. government would have also lost a significant amount of money because of what they are managing in the steel industry in Scunthorpe. I think it is -- they are working on it and the assurance that we have got. The TRA has got all the data, that validation process is done. They -- I think they will have to recommend it from the Parliament and get ratified in the -- ratified -- sorry, recommend from the cabinet and ratified in the Parliament. That process in the U.K. is pretty fast. But I think the more important point is to get to that process. And that's what we are talking to the U.K. government about. Satyadeep Jain: Okay. Secondly, on Netherlands, on the -- in the Joint Letter of Intent, it is mentioned, I'm just checking on the wording of the Joint Letter of Intent. It has mentioned that there will be support of up to EUR 2 billion for Phase 1. But explicitly, it is also mentioned that there will be no tailor-made support for Phase 2 as things stand. So does it mean that government is making it very clear they will not support any expansion beyond Phase 1? And also this import quota that we are looking at, needs to be ratified by the parliament, there's a lot of opposition from downstream users in Europe. Hypothetically, if we see this go through and European steel prices converge with Europe with U.S., do you see some challenges? I just want to understand because Europe historically has been a very different market versus U.S., but with the opposition -- so 2-part question. One on the Joint Letter of Intent. And overall, some of it potentially getting diluted? Or is that not a risk this current import quota reduction that you're looking at? Koushik Chatterjee: So I would first talk about the -- the part on the Netherlands bid that you mentioned. The answer is yes. The -- this tailor-made agreement is specifically towards Phase 1 and our commitment to do the Phase 1. The Phase 2 is left to the company to decide as to when as far as timing the technology to be used and the project cost to be done, et cetera, which is one reason why they also want Tata Steel Netherlands to be significantly profitable to ensure that they can afford to do the Phase 2 whenever it is due. So that is how the understanding is, there is no commitment on funding and neither a commitment on when we have to do the Phase 2. So this is all discussion is on Phase 1. The circumstances and the policies may change in Phase 2 also. As far as the EU consultation is concerned, it is ongoing from the sense that we get, there are people who have been quieter or neutral. There are people who are supportive, and there are people who obviously have some views. So that's for the EU to proceed and then get a sense. Maybe Naren, you can add some comments on that. Thachat Narendran: I think what you're saying is right. There is a disadvantage if you're making stuff using steel and exporting out of Europe, then if you have a higher cost of steel, then you may have a disadvantage. The auto industry is one such sector. But I think everyone is also looking at building strategic autonomy in Europe, and that's where there is a consensus that the steel industry is important for Europe. So even in Netherlands, we get a lot of support from that fact. They are not asking us, why do you need a steel plant in Netherlands. It's more about what is it that can be done to have a strong steel company or a steel business. So I think the conversation has changed in the last 2 years, thanks to the Russia-Ukraine issue, the U.S. trade issues, et cetera, right? So the second thing is, as the European governments are putting money in the industry, they also have, in some sense, a skin in the game. So there is an interest from that point of view to not put money in the industry and then end up destroying the industry for whatever reasons, right? So I think these are the things which we think are supportive for the steel industry. I also think the supply side in Europe will get restructured because as more and more blast furnaces come up for relining, unless you have tied up with the government for a transition, it will be very difficult to justify blast furnace relining from most of the steel companies in Europe. So there will be some supply chain side restructuring as well in the next 10 years. Operator: [Operator Instructions] Next question is from Vikash Singh of ICICI Securities. Vikash Singh: Sir, just wanted to understand, if you look at the Slide 10 of your presentation, though we have given a guidance to 40 million tonnes, we have not given the time lines for the same. And also the flat products are also increasing and long is coming after that. I believe that the long is Neelachal, so which is the large portion of that flat product, which expansion we are expecting? And if you could give us the time line for that? Thachat Narendran: Yes. So let me put it this way. The sequence is not to do with the time. So as Koushik said, what we are most ready for is a Neelachal expansion. And then Neelachal expansion is a long products expansion. So the opportunities beyond Neelachal -- so Neelachal also, this is from 1 million to it will go to about 6 million tonnes. And from 6 million, it can go to about 10 million tonnes. That's the second phase of Neelachal expansion. Kalinganagar, as we complete 8 million, we can go to 13 million. That's the next phase. And from 13 million, we can go to 16 million. In Meramandali, we are first looking at taking it from the current level of 5 million to about 6.5 million, and then after that, go to 10 million. So in all these areas work is going on. And Meramandali we need to acquire some land, in Neelachal, we are waiting for the EC, et cetera, and Kalinganagar also a lot of work is going on in the background. So all these are at different stages of readiness. And as we mentioned earlier, we will now go to the Board only after we've got all the requisite approvals, and that's why we've kept the time lines a bit open. The second thing I want to say is we are also pacing our growth depending on the demand growth in India, the profitability and how to pace it, et cetera. And we are also looking at adding more and more downstream businesses. And that's why the BlueScope expansion and the combi mill expansion in Jamshedpur, and there are a few other proposals that we're looking at. So it's not just the volume growth. We are also looking at the value growth through investing more and more in downstream. So it will be a mix of both. We will -- the advantage we have is we can pace ourselves depending on the situation in India because between these 3 sites alone, you can -- as I gave you the numbers, you can -- and Jamshedpur, you can go to 45 million tonnes, right? So it's more a question of the appetite, the balance sheet, the demand requirements, the profitability of the industry and the priorities that we want to give. Vikash Singh: My second question pertains to Netherlands. So we remember that we had this carbon-free carbon credit, which are gradually going down. So just wanted to understand, as we're starting the -- running green at a later part and that would obviously would take some time, how should we look at our cost structure there in terms of the carbon credit reducing? Thachat Narendran: Koushik? Koushik Chatterjee: So I think we -- so the free allowances will come down, it has started to come down slowly. And we have mitigants. For example, we are using more scrap charge. Currently, we are at about 18%, 19%. Our target is to max out on scrap to ensure that we get to it. I would also like to mention that in Netherlands, our CO2 emission as last quarter, which I just got the number a couple of days back, is at around 1.6. So that's my kind of -- one of the lowest we had gone down to 1.59. This quarter -- last quarter, we were 1.6. And we're taking a lot of effort in reducing the CO2 also including usage of scrap as a percentage. And last quarter, we were not able to max out more because of some volume issues. We will go beyond 20. And once we get to more and more scrap, we will be able to reduce CO2. So as the natural reduction happens on free allowances, we want to also undertake internal decarb efforts to be there because there is a clear cost advantage to this. So -- and along with our cost transformation program on other cost areas, I think we will continue to work towards reducing the conversion cost in Netherlands, including CO2 energy, natural gas and other costs. So that's the trend and that's the basis on which we think that the expansion on the margins will happen to be 1 of the top 3 in Europe. It's not based on how the prices will come. When the prices comes due to the steel plant or the CBAM, et cetera, that will be on top of it. Operator: The next question is from Ritesh Shah of Investec. Ritesh Shah: A couple of questions. First, on Tata Steel U.K. So what is the exposure from a revenue mix that we have from U.K. to Europe? And how are we looking to derisk it hypothetically if there are delays on the U.K. government taking a stance? Koushik Chatterjee: So that's about 25% volume on the current basis. And that's the -- I was waiting who will ask that question, but that's the third lever of the negotiations with the government because in 2021, the EU and the U.K. have signed an agreement of no quotas and no tariffs between most of the grades except for some galvanized grades where there are specific quotas. But this new regulation that comes in as a steel plant will require the U.K. government to revise that understanding with the EU. So that's the third leg of engagement that we have requested the government to do it quickly, which they are cognizant of because that's important. And as politically, U.K. talks about the coalition of the willing, I think this is also something that they will be looking to work towards. And that's what our request is. Ritesh Shah: That helps. Sir, my second question is on Tata Steel Netherlands. I think we have laid out certain details with respect to citing EAF, initially on natural gas, subsequently on CCS, finally biomethane and/or hydrogen. So there are multiple permutations over here. We also indicate support up to EUR 2 billion. Possible to give some high-level thoughts on what could be the CapEx number because we know it is up to EUR 2 billion, but we don't know what the CapEx number is. So how are you looking at the cash flow math? You did indicate no major cash flows next 2 years. But from an ROCE standpoint, from a cash flow standpoint and from a capacity standpoint, how should we look at TSL? And if not for, say, support in Phase 2, would we still continue with our stance that we will maintain our volumes for Tata Steel Europe. I think that's something what we had guided earlier. So would we stand to it? Koushik Chatterjee: So Ritesh, if I may, since you wanted high level, I'll keep it high level. But I think the point when you talked about the different feeds of natural gas, hydrogen and biomethane, it is the switchability which we'll be building from natural gas to hydrogen to biomethane depending on the economics and the availability at scale of each of this. Natural gas is not a problem because Netherlands is kind of the hub for natural gas. And that's why we're building on it. Earlier when the EC was looking at these decarbonization projects, they were very insistent on hydrogen. And if you see some of our peers had gone ahead of us and the agreement that -- or the conditions that EC had given was purely on hydrogen, which is the reason why many of them have gone slow. So we actually did not want to go that hydrogen route because it's very uncertain on the availability as well as on the economics. So we were more focused on natural gas, and we have an optionality to auction for biomethane because after hydrogen, that is the one which is being proposed as the next best fuel. So in biomethane, we have the optionality for auctioning off this or tendering. And if it comes in at the right economics and availability, then this switchability will be looked at. It could also be more like a fungible on paper to buy it on a fungible basis as a hedge rather than on physical -- if the physical don't flow. So we have those optionalities to be tested out, but that is to be tested much later. It's not immediately on commissioning. It will be post 2035, et cetera. So I think that is the construct that we have as far as our understanding on the JLoI with the Dutch government as well as blessed by the EC. So what we are currently doing is what will be the CapEx and the engineering process is currently on. We have allocated a little bit more money to complete that process. That engineering will be known on CapEx somewhere around, say, May, June. That's my best estimate at this point of time. Because it's a complex process, it has 3 elements. It is the element on the health issues, which is the coverages, then it has the EAF and then it has the DRP. So there are 3 subparts to that process, within the integrated process. So that, I think, will be more fairer to talk about somewhere around in 6 months' time. By which case, the investment case will also be very clear and our understanding on the policy changes that we have asked for as a condition to the tailor-made agreement will also be clear, which is our network cost, electricity, the coal ban or usage, et cetera. So those policies will also be -- once the new government comes in, we will be able to engage more deeply because those are conditions for final FID. And there are some ask from them towards us, which we'll also -- we are working on with the local environmental agencies. Operator: The next question is from Rajesh Majumdar of B&K Securities. Rajesh Majumdar: Thanks for the opportunity. So I had a question on the cost takeout. You have already talked about INR 54 crore, INR 50 crores in the first half. How much of that has come from the Kalinganagar plant efficiencies? And how much more can be expected as we ramp up gradually to the full capacities with the value-added segments? Koushik Chatterjee: So actually, this is unrelated to capacity utilization because this is on the baseline. There is some element of capacity utilization, but largely the -- it is run in an integrated manner. For example, we run it as one program on, say, stores, spares and maintenance. So it is not just one side, but it is across the combination. And this combination is actually the power of this program because when our colleagues run it on, say, stores management across 4 sites, it's much more efficient than managing it across 4 individual sites than a consolidated basis right from procurement to usage, to usage pattern, to storage and inventory, et cetera. So it's very difficult to give a site wise, but it is more specific by theme-wise. For example, stores using leaner coal mix across, using energy efficiently. So those are the kind of themes we've run across sites. And that's why we organizationally also, we are consolidated to do that. Rajesh Majumdar: More specifically, sir, you earlier guided about, I think, INR 2,000, INR 2,500 kind of lower costs in Kalinganagar. So how much of that is achieved? And how much of that is likely to be achieved over the next few quarters? Koushik Chatterjee: So I think we said INR 2,500 because at that -- I don't think we said site wise, but we said Kalinganagar... Thachat Narendran: Koushik, I think we said at one time, as we fully ramp up Kalinganagar, there will be a benefit because obviously, it's a much more productive site. Koushik Chatterjee: It's volume effect. Thachat Narendran: Correct. That's the volume effect. Koushik Chatterjee: Yes. So that's a per tonne volume effect, which is -- which will happen by the time we exit this year, we should be able to get there. And that's our target on the volumes anyways. We had some slowness in the first quarter. But second quarter onwards, we have been able to increase our capacity utilization, and we'll continue to do so in Q3 and Q4. Rajesh Majumdar: Right, sir. And my second question was actually on your ferrochrome unit selloff. I mean we bought this unit just 3 years ago, and we earlier proposed a 50% expansion along with CPP, and we also have the chrome ore mines. But suddenly, you decided to sell this business. So what is the problem here? I mean if it is a small thing, then it was a small thing even 3 years ago when you acquired it, so, yes. Koushik Chatterjee: So I think the -- it was linked to our Sukinda resources. And if you really look at it strategically, if you have to continue -- if we were to continue Sukinda, one was this whole confusion that happened on the MDPA, et cetera, because Sukinda needs to -- needed underground mining to sustain itself because the resources on the way we were doing it was coming to an end. So if you look at the investments required for underground mining, the ferrochrome market, in general, globally and the way in which the duty tariff structures, et cetera, works, our call was to exit the mining and Sukinda because of the high underground CapEx. And once we took that decision, it was necessary to rebalance the sources of mining. We have 2 other mines, more specifically one more mine which is more useful. And that required us that we do not want to be just a converter without a mine. And that is the basis on which we then took a decision to get out of it. And the buyer is consolidating in that space, so it helps him also. Thachat Narendran: Basically, we wanted to limit our production to what we largely need for in-house consumption rather than be in the market because we are surrendering the Sukinda mine and the changes in the MDPA, et cetera, was not making this business as attractive as it was before. So it was more a rethink on this portfolio given the current context. Operator: The next question is from Prateek Singh of DAM Capital. Prateek Singh: The first question is on U.K. So given all the uncertainty and volatility that we are seeing in U.K. and Europe as well, so how confident are we of the level of profitability once the EAF comes in? Or to put it differently, what kind of EBITDA do we see as doable given the current environment, current pricing and current raw mat costs? That's the first question. Thachat Narendran: So if I were to start and then maybe Koushik can add. When we did the EAF, the larger point was we said the cost position of U.K. will improve by about GBP 150 per tonne, okay? Because we were taking out a lot of fixed costs, we were using locally available scrap instead of imported iron ore coal, et cetera, right? So which meant that in the longer-term steel pricing that we've seen in the past, the U.K. business should be EBITDA positive and should be able to stand on its own because an EAF run operation has much less requirement of support on maintenance and many other things because you don't have the sinter plant, the coke ovens and blast furnace and many other such facilities, okay? So that hypothesis stands. What we are seeing now is a very abnormal situation, which is coming out of what's happened in the U.S., what's happened in Europe now, what's happening in China. So we don't expect these things to stay on forever. We are -- internal cost side, we are on track to what we said we would achieve. But the external aspects, we expect actions to be taken, like Europe has already taken to protect the European industry. And as Koushik mentioned, the U.K. government is also bleeding because of their investments in the other steel plants in U.K. So we are expecting some resolution to this in the next few months. So it's a hypothetical situation. If today's situation continues forever. Of course, there's a challenge, but we don't expect today's situation in the market to continue forever. Prateek Singh: Sure. So just as a follow-up to this, so what kind of capacity does U.K. in particular needs? I mean, was there ever a discussion that maybe not put as big a capacity as we are planning and may be scaled down a bit given we don't need that much given how the environment is right now? Or we are okay with the current capacity that we announced for U.K.? Thachat Narendran: Yes. We are comfortable with the current capacity level. I think the issue which has happened in U.K. is the quotas have not been changed, even though the demand has shrunk over the last few years, unlike EU where the quotas have been changed and have been tightened further. So our submission to the U.K. government is they need to keep realigning quota, import quotas to what is the domestic consumption. And I think that's what we expect them to be doing. But otherwise, 3 million tonnes with maybe 10%, 15% exports is fine. And optimally, also that was the right capacity for us given the balance of plant and everything else. Yes, Koushik? Koushik Chatterjee: Yes. No, that's the same point. I think the -- there's nothing wrong with the capacity in the context of the demand. It's the issue of the imports that has come in. Also, the U.K. government subsequently in the last year, the new government came in, they were all focusing on infrastructure. And that infrastructure when it actually starts rolling will require a lot of steel, but that has not also happened. So I think there is a policy issue that the government needs to address, which is what is being worked on in terms of growth for the economy itself. But as far as the steel capacity is concerned, I don't think we could have done anything lower because we have a very tied in downstream network of our own, which uses the base-grade HRC or the quality of HRC for further value addition. So there is nothing wrong there. As Naren mentioned, we have taken out significant costs, and we continue to do so. This year also, there is continuing momentum on cost. But there has to be an uplift in the metal of our margin, so to speak, which is the -- what is the price at which you're buying the metal and what is the price at which you are settling the metal. So that metal over margin is an important thing. That has shrunk significantly, and that's purely because of the fact that cheaper imports are flooding the market. Operator: The next question is from Pallav Agarwal of Antique. Pallav Agarwal: Sir, firstly, congratulations on the good set of numbers and also on the cost transformation initiatives, broadly on track. So on the Ludhiana EAF, so what kind of profitability can we look at you compared to the stand-alone Indian operations? Obviously, it should be lower, but to what extent it would be lower? Thachat Narendran: Yes. So there are a couple of things happening with Ludhiana. Of course, like you said, the profitability will be lower typically an EAF kind of operation in the Indian context. I would say it's more an INR 5,000 to INR 7,000 EBITDA per tonne kind of thing. But you should look at it in the context also of you're getting almost 1 million tonnes for INR 3,000 crores or less, right? So that's the -- when you look at it from a different angle, that's the equation that we look at. What we're doing in Ludhiana to supplement the margins that would normally be available is to see how can we reduce cost because of the fact that you're getting scrapped from 200, 300-kilometer radius and you're selling steel in a 200, 300-kilometer radius, right? So a lot of the logistics costs that we incur when we make steel in Eastern India and ship it to Ludhiana or elsewhere is what we're trying to save. So there are a number of initiatives on the route to market, the logistics cost, the supply chain costs, et cetera, so that we maximize the revenue potential in that geography. And of course, pretty much all that is produced there is going to the retail market where our realizations are higher than it is in the project market. So there are a number of initiatives, but what I've described is the starting point and let's see how we can bridge the gap between a project like this versus the back end, which is more iron ore and coal based. But from a speed of execution, capital intensity, et cetera, there are a lot of advantages in this model. And we do believe that while Tata Steel can continue to grow based on iron ore and coal in Eastern India, and like I described earlier between the 3 sites we can go to -- or 4 sites, including Neelachal go to 45 million tonnes, North, West and South, we have an opportunity to grow in a capital -- a bit more capital light. You need just 100 acres of land to build the steel plant. You don't need 3,000 acres, you can do it much faster. So we will refine this model, Ludhiana is a first step. And as Koushik mentioned earlier, we are looking at opportunities to set up similar facilities, maybe even for a richer mix. This is for retail, but tomorrow's plants could be for alloy steels for automotive, et cetera, long products basically in the West and South. Pallav Agarwal: Sure, sir. Secondly, we used to highlight that probably on the pipe expansion part, so probably I think you were looking to expand from 1 million tonnes to 4 million tonnes. So I've not come across that in the recent presentation. So where are we on that initiative? Thachat Narendran: Sure. So basically, most of that growth would have come through assets that we would lease, even today in -- whether it's in long products or in pipes, et cetera, a lot of our capacity goes through assets that we lease, which means 100% of that capacity is committed to us. So today, I think the pipes business is heading towards 1.5 million tonnes which includes the pipe business that we acquired through Bhushan and plus all the leased out capacities. I think I'm not remembering the exact numbers, but maybe 40% to 50% would be our own and the rest would be leased out. So most of the growth will come through that. We've recently invested in a precision tube mill, which has added 100,000 tonnes of high-quality pipes in Jamshedpur. So wherever it's high-quality, specialized, like we have the large diameter pipes, API pipes all available from the Khopoli plant. Wherever it's high end, we will make the investments, wherever it's regular stuff where the value is more in our branding and distribution, we will lease out capacity. So that work is going on. And we are -- as our hot rolled coil capacity grows, we will continue to expand the pipe capacity, and the ambition is to get to 4 million. Maybe you can share more details, Samita, in the next pack or something. Samita Shah: Sure. And I just wanted to also add that for the EAF blast furnace sort of comparison because there are a lot of questions on that. The other sort of cost differential benefit will obviously be there when there are carbon taxes because EAFs emit significantly lower than blast furnace. So when India introduces carbon pricing, and we have seen over a period of time that will come through, then you will also have that benefit on an EAF operation. Thachat Narendran: I think typically, the difference is $100 between an EAF route of production and a blast furnace route without factoring the capital cost, I'm just saying the OpEx kind of thing. And as Samita says, as and when -- I mean, already there's a carbon cost which is coming in. And as that increases, that's why in Europe, et cetera, once the carbon prices go up, the economic case for EAF becomes stronger. So yes. Operator: The next question is from Ashish Jain of Macquarie. Ashish, we are unable to hear you. We request you to please send in your questions via chat or rejoin the queue. We will now move to our next question. The next question is from Amit Murarka of Axis Capital. Amit Murarka: On iron ore, like I wanted to get some thoughts on how are you kind of thinking about securing iron ore for Indian assets. I think in the last call, you did speak about it a bit. But could you also like help us understand, are you looking to get into some tie-ups with OMCs as well? Or it will be broadly merchant purchases? How are you thinking about it? Thachat Narendran: Yes. I think we -- as we said last time, obviously, we already have some iron ore. We have maybe about 500 million, 600 million tonnes of iron ore with us today, which is available beyond 2030 based on our existing mines, which we got through our acquisitions or through auctions. Second point I want to make is when we bid for the mines, it needs to make sense. There is no point bidding a price at which the cost of iron ore is so high that you'd rather buy it from the market. Third is what you're saying is right. It can't be all spot purchases. So we are already engaging with OMC and MDC, et cetera, to look at what could be the arrangements that we could have. OMCs is of particular importance to us because a lot of our sites and production and growth is happening in Orissa. Fourthly, we are also looking at various other options. Depending on what is the cost of iron ore in India, we already have a mine in Canada, for instance, which is very high quality iron ore, very low alumina iron ore. It's 63-plus FE, alumina of less than 0.5. So today, we sell from there into Europe, et cetera. And there are some challenges which we've dealt with over the years. We are getting a shipment into India to test out that material. Traditionally, India is not an attractive market, but if iron ore cost and prices continue to stay high, then all options are available. Import is also an option that we look at. But it's not necessary that we need to have 100% captive. I think we will do that if it makes economic sense. Otherwise, we will look at buying in the market. Even coking coal, at one time, Tata Steel had 100% captive today, we have 20% captive. 80% is what we buy from the market. So we will exercise that option. The other part is our ambition and our actions on going more and more downstream is to also help push us on the revenue side. So the revenue per tonne keeps going up as we progress towards 2030 so that the cost per tonne is less impacted by any increase in iron ore price or rather the margin is less impacted. Let me not put it, less cost per tonne, yes. Amit Murarka: Also, like is there any ballpark cost number that we can think of for your current captive iron ore mining? Or if you have done any calculations around it, what will be your cost of captive iron ore mining? Thachat Narendran: I'm not sure we are sharing that. Are we doing that, Samita? No? Yes? Because we have a full range from expensive to cheap one. So we also decided on what to produce more where. So I think -- I don't think we are sharing that publicly, yes, Samita, yes? Samita Shah: Don't actually comment on any specifics or any product or raw material details, but obviously significantly lower than market price. Operator: The next question is from Ashish Kejriwal of Nuvama. Ashish Kejriwal: My question is on account of domestic demand environment because see, for -- after so many months or years, we are seeing that our prices are much cheaper than the landed cost of imports despite the fact that safeguard duty is implemented. So actually -- and when we see overall demand environment or demand, you can say, volumes from JPC, it seems to be on the higher side, but actually, price is not getting that reflection. So my question is, are we seeing excess supply scenario or lower demand which is affecting our prices? And in light of that, when we have guided INR 1,500 price decline in Q3, are we factoring in that in December also, there is no price increase? That's my first question. Thachat Narendran: Yes. So it's not that demand is not there, demand is quite strong. India is the only country which is showing double-digit growth -- major countries showing double-digit growth in steel consumption. And I think given the focus on infrastructure building in India, I do expect the demand growth to be more than the GDP growth rate, which is what happens in most developing countries, including in China, when they were growing. So if the economy is going to grow at 6.5%, 7%, steel consumption growing at 10% is to me par for the course, right? So demand is not an issue. Obviously, supply side, as you know, when we add capacity, we add in big chunks, right? So we've added 5 million tonnes, JSW has added something. JSPL has added something. So you will go through years when a lot of new capacity is coming on stream at the same time. But I do believe in the medium to long term, it is not going to be easy to build lots of capacity very quickly in India, given the regulatory environment, the approvals that we need to take, the time which takes in India to build a steel plant, et cetera. So I expect there to be a better balance going forward and which should get reflected in the prices. The more specific question you had, yes, this is factoring in November, December. We've not factored in major price increase in December. We are saying that we operate close to November levels. If there's an increase, there's a potential upside to what I just guided. So -- but just now, we've been a bit conservative on this. Ashish Kejriwal: Sure. So effectively, you are saying October, November also, we have not seen any price increase. And in our assumption, we are not taking any price increase in December also. Thachat Narendran: As a seller of steel, we will always try to increase prices, but it's the market which decides whether they're willing to accept those prices. So we will always try to push and let's see where we end up. Ashish Kejriwal: Okay, understood. Secondly, we have acquired 50% stake in BlueScope and at value of something like INR 22 billion for the company, which is having net profit of INR 62 crores, INR 30 crores in the last 2 years. So rational-wise, I understand that we are going in the downstream, but the amount which we are paying is -- seems to be much, much higher if I look at on the profitability basis. So how can we explain that? Thachat Narendran: Koushik, do you want to? Koushik Chatterjee: Yes. So first of all, I think this JV has been making about 19% ROE for the -- over the -- since inception. Second is it is a combination of 2 parts. So one part is that we have -- this JV company had its own color coating, metal coating facilities. And then post Bhushan, as per the JV agreement, we had to ensure that the same that was there in Bhushan, facilities in Khopoli, et cetera, was also used by the JV, the substrate of which was passed on by Tata Steel. And that is the arrangement that we had with the JV and the JV partners, which is ourselves as well as BlueScope. And in some ways, there is a split in the profitability because of the transfer pricing, et cetera. So the -- you do not see the system profitability of this business. You just see, for that part of the business, only the downstream profitability, excluding the transfer price and the markups on the transfer price and so on. So I think it is important that -- and that's why -- and we were hindered in this segment because we were the first to come in, in 2005 to grow this business significantly, which is, I think, in our domain and leveraging the synergies and network of Tata Steel and enriching the product mix, also fungibility of the product mix between market segments and so on. And that is the basis on which we actually wanted to consolidate and BlueScope also in the strategic understanding wanted to, therefore, exit the business, which is what we have agreed upon. So if you look at it from an underlying EBITDA perspective, it is 7x, which from a value-added downstream perspective is what the numbers will effectively look at excluding the Khopoli and the ones which are leased because that brings down the performance of the company. So that is the basis which when post the acquisition, you will see it more on a system basis, and we will certainly explain the same to you. And you can see the numbers at that point of time. Operator: I would now like to hand the conference over to Ms. Samita Shah for the chat questions. Over to you, ma'am. Samita Shah: Thank you, Kanshuk. So we've answered, I think, a lot of the chat questions in the discussion so far, but I think there are a few which maybe we can touch upon. So firstly, I think there is some question on Thailand. Thailand EAF profitability, despite being an EAF operation is highly profitable? And can we expect that kind of profitability either in India or U.K. So maybe just want to give people a sense of Thailand duty structure, et cetera. Thachat Narendran: Yes. So there are 2, 3 things when you look at EAF profitability, 70% of the cost is scrapped, right? So the price at which scrap is available, et cetera, is a big impact. And about 15% of the cost is energy. So these are the 2 factors which drive EAF profitability apart from operating performance, et cetera. Thailand, what you're seeing an upsurge is because, if you recall, there was an earthquake in Thailand, I think it was in April or something like that. And there was this viral video, which went around of a tall building, which was -- which collapsed. And the conclusion at that time was that a lot of this is happening because of the poor quality of steel, which is used and the quality standards need to be looked at once again. And because if you use poor quality construction steel, you run the risk of this kind of a thing happening, particularly if there's an earthquake. So as a consequence, a lot of local production, which seemingly, were not meeting quality standards had to be closed. And Tata Steel Thailand is seen as one of the best quality producers of steel in Thailand, has a good name, we have the Tata Tiscon brand operating in Thailand as well. And they got the benefit of that. That's why you see much better performance than we've seen in the last few years. But having said that, they are still settling. Traditionally, it's been a profitable business. It's never required any support from India. It's always been cash positive, EBITDA positive. So it continues to be that way. And as the quality considerations become more and more important, we think that, that's positive for Tata Steel Thailand. Now whether that kind of profitability -- again, like I said, we are in a much better place on the cost curve in Europe post EAF than we were in the past because of the fact that you're not using imported ore and coal, you reduce your fixed cost by about GBP 400 million, and you're using locally available scrap, right? So certainly, we'll be in a much better cost position than we were before in U.K. and similarly, Ludhiana, compared to the iron ore base production in Jamshedpur, you'll be at a higher cost position, but we look at how do we make this model work, taking out costs beyond the production costs, like logistics costs, route-to-market costs and so on and so forth. So as Samita said, as and when carbon prices come up because the CO2 footprint of the Ludhiana plant is going to be 0.2 or 0.3 tonnes, CO2 per tonne of steel compared to Jamshedpur, which is the best in India at 2.1 or 2.2, and Netherlands, which is one of the best in the world at 1.6, as Koushik said, 1.6. So Ludhiana is going to be at 0.2, right? So because it will use green energy. So when you start looking at paying a premium for low carbon, low CO2 steels, that's when some of these businesses will make even more sense than it does today. Samita Shah: The next question, I think we have a few questions on cost transformation. So I'll just combine them for you, Koushik. So one is, are we on track? And what is the kind of number we're expecting for 3Q? And then there's a question about -- because of the delay in employee-related discussions in Netherlands, are you reducing your target for the year? Koushik Chatterjee: So that looks like an exam question, but I think it is important to mention that we -- our target is the same, and I mentioned when we started off this that it is an 18-months program. So the -- and obviously, the work that can be done is being pursued by -- across the geographies, across teams, across functions. So I think we will continue to maintain the secular basis on which we are -- we've gone through the first 2 quarters. The compliance in Netherlands is lower, as you can -- as I mentioned, because of the employee restructuring going slower than what we had planned. But that is a timing effect, and I'm very hopeful, and all of us are working with the CWC to ensure that we get to it. But the point is less about quarter-on-quarter. It is more about getting structurally fit. It is about getting the competitiveness in place so that we become all weather. And I also want to say that the target will also keep changing as far as the -- once you achieve it, there will be more where we want to build a pipeline of it, and we continue this as a journey. And Tata Steel India has always done that for about 20, 25 years. But this time around, we have taken more structural view because we have become multisite and our capacity have increased significantly. And that's why this is an important journey in the competitiveness of Tata Steel, and we have expanded to all our global sites also, most critically U.K. and Netherlands. So we are going to continue this journey. And I think it is not to be just taken as a quarterly target. It is more about ensuring that structurally, we are in a better place. Samita Shah: Yes. There are a few questions on TSN decarbonization, which again, I'm just going to combine. So essentially, I think the question is that given the political changes in Netherlands, do we expect the government to go through this commitment, which they've done, given, is 2030 a sacrosanct deadline? So some questions, I think, around the timing and maybe the probability of the government actually going through their push for decarbonization. Koushik Chatterjee: So yes, I think the -- if I look at the way we have build up our conversation with the government and across the political spectrum, it has been largely bipartisan in terms of across parties because it was a Parliament-mandated process to get through to the JLoI. And subsequently, when we were signing the JLoI, it had to go back to the parliament for placement and noting. So I think with the political parties being the same, and it is certainly the assumption that we are working in that the government will continue to work on it because it's of national importance, and it is something of a commitment. We do have a journey in terms of final negotiations on the binding tailor-made agreement. But I don't think we -- any of us have a doubt that the government will not stand behind what they have signed, the new government. We have to give the time for the new government to form. The election is just over. Unlike in India, it takes a little bit of time. And we must give that, and then we could sit down with them on the tailor-made agreement. In the meanwhile, both sides are anyway working at the back end on the conditions that needs to be fulfilled in terms of preparing for the new government when it comes, that we will have a very clear understanding of what needs to be done before we sign the tailor-made agreement. That's where it is. And that is also where the timing of the project and the feasibility and practicality of doing it within certain years will also be considered and due action taken because we have to take the practicality of changes in policy, in the permitting process, in the construction, the site work required and so on and so forth. So we will have a conversation on that subject also. And the -- I think the political world in Netherlands is fully aware of that. Samita Shah: Thank you. I think there are multiple questions on capacities of each of our downstream products or capacities. But I would just like to remind people that we don't really give guidance on individual product capacities. I think Naren mentioned a broad guidance and our overall growth path. So we will not take that. And then there is, I think, one broad question, Koushik, which you might like to address on our sort of leverage targets and how we are sort of balancing that? Or what is our approach towards leverage? Koushik Chatterjee: I was having -- wondering when would that question also, again, come in. But I think we are managing our balance sheet pretty well under the circumstances in the context of our operating cash flows, all geographies being focused on working capital and profitability. And we have -- I think this quarter, we had a significant amount of cash outgo on our dividend, which is an obligation that we are clearly focused to fulfill as part of servicing our investors. And I think it is important to mention that our net debt to EBITDA is at about 3, and even with the kind of spend that we have. So we will be in that -- I've already said that in the past that between 2.75 and 3 is where we would like to maintain ourselves on a more sustained basis. At times when there are significant market challenges or volatility in prices, which impacts the working capital because steel, coal, iron ore prices do change significantly, especially on the seaborne market, that's the time when we do get beyond that metric. But largely, 2.75 to 3 is what we would like to maintain. And if they're in a mid-cycle period, like this are a low mid-cycle period like this, in an up cycle, we are on a different platform. So we would keep the metrics like that. Any opportunity to deleverage, we'll continue to deleverage. And -- but we also look at where best to apply that capital. Apart from leverage is in short payback period projects or acquisitions like the BlueScope that we've done because that actually effectively will help in consolidating the margin and the footprint and helping a product mix to grow. So those are decisions that we do take and then look at what the leverage allows us to do. When we look at the NINL, we will certainly look at the phasing spend and how quickly we can get the cash to cash cycle up. And that's why Naren mentioned, that we want to go at a time when we are ready, site ready to start work so that we can compress the period as much as we can. So leverage is an important part and the entire -- not only financial strategy, but also in the business strategy and how do we actually run the business. Thanks. Samita Shah: Thank you. With that, I think we've answered all the questions. So thank you to everyone who's dialed in and look forward to connect with you again next quarter. Koushik Chatterjee: Thank you. Thachat Narendran: Thanks, everyone. Thanks.
Kaarlo Airaxin: [Foreign Language] Excellent. Well, Luis, please walk us through the Q3 and give us a glimpse on the future ahead. The floor is yours. Luis Gomes: Thank you very much. Just asking the slides. Thank you very much. If we go on to the next -- to the first slide. So we had a strong or reasonably strong third quarter for the year. Our net sales were slightly down on last year for the same quarter. But last year, we're coming back off a bad second quarter. So we had a bit of a spike in the third quarter. We usually expect this to be a quarter with slightly slower in relation to others because there are holidays, summer holidays, summer breaks for ourselves and for our suppliers and also for our customers. So we usually expect to be a slightly quieter quarter. But nevertheless, we maintained the positive EBITDA. And -- the thing that we were less happy about was the cash flow that was very negative, but we expected that to some extent because we had large prepayments on many projects that were now -- we were now paying suppliers, we were paying subcontractors. And that is part of the reality of our business that this goes up and down during this period. Our order backlog has also gone down mostly because we are now waiting for new orders that we have been working on for quite some time. So we have focused our sales force in addressing those big orders. We are waiting for them. They are later to be contracted than we wanted. They are still there. We are still working with them. We are still going through negotiations and discussions with the customers. Probably chief among those orders is Sterna that has been commented quite a lot. We are still waiting for that. And because of that, our order backlog is waiting for those large new orders to come on, but they are late. And of course, our sales force has been very focused on that. But overall, for the year, we are still ahead of last year. We are doing bigger net sales. We are still in positive EBITDA territory. So in general, things are going okay, good even. We have had to announce a reduction in our guidance. I'll get to that in a bit. But that reflects the later arrival of new orders. We can go on to the next slide, please. So as I said, for the year, we have a strong positive EBITDA ongoing. And a lot of this is coming from the -- on the back of our sales of data and services. Not only that is growing in terms of net sales, but we still maintain a very good profitability. And that is contributing very positively to the overall performance of the company and particularly for our positive EBITDA. And this is now the fifth quarter in a row that we have maintained positive EBITDA. And this is something that for us represents quite a positive outcome over the last few years after many years of very variable results. On to the next slide, please. So as I mentioned, we had to announce new guidance for the year, largely due to the fact that some one large new order Sterna is delayed, but also because we have an issue with one of our suppliers on the SKAO project. And those 2 things have reduced our guidance for net sales for the year because we have not been able to do as -- or to recognize as much revenue as we would expect. And we also do not believe that we can maintain a positive operational cash flow for the year, but we still maintain the guidance of a positive EBITDA. Now we have done several actions over the year to mitigate these. We have been waiting until -- the last quarter was the one -- the Q4 was the one where we expected this -- both Sterna to come on and also to have a big revenue recognition from this one project, SKAO project. So when we realized that, that was not happening that we could not meet that, that's when we provided the update. We have nevertheless taken some measures. So there are people that we have not increased our staff, for instance, in preparation for Sterna. We are delaying hiring people to meet the start of that project. We have also done -- we have trimmed our workforce across the Board throughout the different sites to become more efficient throughout the year. So we have taken a few measures to actually mitigate to some extent these delays that we are seeing. Going on to the next slide, please. So just to give an update on Sterna. This is a big European program. It's a big European project. It requires the agreement of different countries. It requires the agreement of different meteorological services around Europe. And what EUMETSAT, the organization that ultimately is the customer has told us is that in July, when they tried to actually secure the agreement of all these countries, 5 countries did not commit and one in particular, needs to commit because not only of budget, but also of their importance in the European meteorological sector that is France. So France, as many might know, has had some issues with the government, and there have been a [ refugee ] issues in the country. And this has all made it harder for the country to commit to the project. We believe still they are still interested. They have committed in the past, said that they would support it, but we have to wait. And what that has meant is that EUMETSAT could not actually give the go-ahead to the project. This doesn't mean that we are not working on it with a prime contractor with ISA, the European Space Agency that is responsible for the implementation of the Sterna project. So that is discussions, negotiations are ongoing. So there are many, many ongoing activities around Sterna, but the reality is that the project -- the award of contract is late. We expect it to have it in quarter 4 this year, and we are now expecting it in quarter 1 next year, subject, of course, to the EUMETSAT Council agreeing this that the project can go ahead. If we go on to the next slide, please. Other events. So the other big event that had an impact on our net sales for 2025 is the SKAO project. So this is a program that we are doing supplying equipment for telescopes, radio telescopes actually on the ground. And what happened there is that one supplier was selected by the customer. The customer said you have to work with this supplier. And there has been a technical disagreement between them in terms of performance about what they are delivering. So we are basically between these 2 parties. But we are -- we believe we are closing on the resolution. But what this has caused is that about SEK 30 million in revenue that we expected to recognize this year, we could not recognize. So that -- this has had a big impact on our net sales for the year. As I say, we are working with both parties to resolve the problem. So we are doing tests. We are doing simulations to show that things work. But this is an ongoing process that we are currently undertaking. So we expect to resolve it, but it's just taking longer than what was planned. And in view of all of these changes, we have actually -- and I know that I have mentioned that I will be presenting a long-term outlook for the company. But because of these changes and because of the changes like, for instance, Sterna has quite a big impact on our forward look. We have decided to delay that presentation that show of what -- where we are going just to let us to see how things happen, when they happen, what are the timings as they have quite a lot of impact on our workload. And so the way we go forward depends on that. At the same time, as I mentioned, we have been streamlining throughout this last year, our operations on missions and systems and products, sorry. As many of you will know, we have shown a reduced order intake, particularly on missions. So we have reduced the amount of staff that we have dedicated to that part of the business. But at the same time, we have had quite good news on our product side. So we had the first CubeCATs delivered earlier this year. So that's our laser communication system. So the first 2 have been delivered. And looking more towards our services side, things continue to grow, to expand and to be very successful. YMIR-1, our dedicated VDES test bed satellite has demonstrated link -- VDES link for the first time in orbit. We are now doing several tests and evaluations with potential customers. We are working with some coast guards. We are working with organizations that are trying to bring in VDES into their operational day-to-day setups. And so we are actually seeing quite a lot of demand for those services, and we see that as a very successful outcome for the last few months for the company. And in that vein, in our maritime intelligence side, we also announced recently that both Sedna-1 and Sedna-2 are now fully operational. So that's quite good for us for our -- particularly our ship tracking AIS business. That is something that having more data is an important part of our business and to grow that side of the business. So we are seeing quite a lot of success in our data and services business. And -- also product admissions, although we are in a right way right now in a bit of a waiting period, we still expect it to be very successful, and we have quite a very strong pipeline on that part of our business. We go to the next one, please. So looking ahead, what we expect to see in the next few months coming. We do expect our order backlog to recover in 2026. As I said, we have a strong pipeline, both on the data and services, but also on the products and missions that we are building. So we expect that recovery to happen. We have launched of VIREON-1 forecast for quarter 1, 2026. So that is something that our teams are focusing very much right now on, preparing the satellite for launch. And INFLECION Phase 2 is approaching. So we are now in contract discussions. We are now with proposals. So we are now just in that final point of securing that second phase with our customers. So that -- all these are quite a lot of -- this represents quite a lot of activity for our teams right now. And next one, please. I think -- the next one, please? Or is this the last -- so I believe this is -- it might be the last one. So this is where we are right now. And I'll open the floor for questions. Kaarlo Airaxin: Right. Thank you. Yes, exactly. I believe there was a last slide saying that this was the last slide. But we have received a lot of questions ahead of this broadcast, and I can see that people are using the live chat as well. But I'll just make a reflection here. And so this result was a bit of a mixed bag because the Q3 was down year-on-year, whereas the 9 month was up year-on-year. So what do you think that we in the market should be looking for? Shall we not focus so much on the quarterly and then see this as, let's say, a long-term business and perhaps look at the 6 months and 9 months? Luis Gomes: I usually say that my preference is to look at on a yearly basis. Of course, when we are just coming from restating our guidance or changing our guidance for the year, this might sound strange. But I still think that as a business, if you look at the types of projects we are working on, the types of deliveries we do for our customers, quarterly tends to be quite a narrow time frame. Things change quite dramatically in a quarter. So usually, I prefer to look at on a yearly basis. That's a more -- or a 12 months basis. That's a more accurate way of seeing how our business is doing. Of course, we are still -- if a quarter is the last quarter for some reason, some orders move to the next year, we have a big change. But yearly is a better time scale. Kaarlo Airaxin: Right. But then again, if you're listed on the market, the curse is the quarterly. So I will just throw in a couple of questions here. So margins in the segments, data and services fluctuated significantly between quarters. Why and how should we think about this as the constellation grows going forward? Luis Gomes: So data and services, there have been a few one-offs on our data and services that have improved dramatically our profitability. But it is still a strong profitable business. Our EBITDA there are still in the 36%, I believe. So there are events sometimes that increase that. On the other hand, we have also increased our sales force, for instance. We have grown our team that is actually on the ground, talking to customers, selling more services in preparation for the new satellites for the new constellations. So we expect to maintain a strong profitability and actually grow the profitability in the future. But it will vary, particularly now while we are building the business, that part of the business. Kaarlo Airaxin: And also, I'll just throw in another question that I just received here from the sideline, and that's a more general question. Would you be able to elaborate a little bit of orders from the defense side? Any comments, any updates? What can you tell us? Luis Gomes: We can't talk too much about what we are doing on defense right now. There are several conversations ongoing. It's an area of interest for us. We already do work, particularly on our ship tracking business. A lot of it already goes to the security, defense and security market. Many of our products end up in defense-related satellites, but we do have a few other conversations ongoing. We can't talk much about them right now, but I can assure you that there is quite a lot of interest from that side on our products and our missions and our technology. Kaarlo Airaxin: Okay. And I have a couple of questions here from EUMETSAT and Sterna. And just to recap here, if I understood you correctly here, it's the delay of the decision is very much out of your hand. So it's more of a European community problem where we have an internal problem in France. So it's not really connected to Sterna. That would be the right interpretation. Luis Gomes: Yes, it is. So these big programs usually require full agreement from all countries on EUMETSAT, unanimity. And sometimes that is not reach -- that cannot be reached. And that does create an issue. I believe this was the first time that in a program of this magnitude that was seen that happened. So it was a bit unexpected from everyone, but it's something that is outside our control. We can help by making sure that what we are offering is good and it is appealing, but we can't control politics at European level. Kaarlo Airaxin: No. Well, maybe they can't either. But -- and also, this is -- I'm just reading from one other question here. And I think that, that is also connected to Sterna and the contract. Despite the fact that there is no decision, can the contract still be negotiated ahead of any award? What is the process there? Luis Gomes: So the process is that we are discussing with the European Space Agency, they are with our prime. So our prime is OHB Sweden. So we are discussing with the prime, and they are discussing with the European Space Agency. So discussions -- the setup of the contract, the technical discussions are all ongoing. It's just that we don't have yet the go-ahead. But all the preparatory work is being done now. Kaarlo Airaxin: Okay. And I have some cash flow discussions here, but I'll just pop one up that I received ahead of this, and that's you've been given extended overdraft facility by the banks, I take it. What does that mean? What can we read into it? What would you like us to read into it? Luis Gomes: It means that the space business is very what we call lumpy. So you have large orders, you have -- sometimes you have to pay suppliers quite a lot of money in times when you need a certain amount of flexibility. At the same time, we are also investing in our own constellation during that period. So having that -- having those facilities gives us the flexibility to be able to manage our cash and not having to stop investing, for instance, because we have a big outflow to our subcontractors. So it allows us that flexibility. And that's what we have been trying to build is that flexibility into the business. That is naturally quite variable in terms of cash. Kaarlo Airaxin: So it gives you, let's say, a cushion to continue with operations and perhaps expand operations there. And maybe that, in a way, answered the next question, which is you're not able to have a positive cash flow from operations and the mechanics there. So basically, it's you -- would that be a quarterly situation that you would have a negative cash flow in one quarter and then you have a positive due to the lumpiness of the business? Luis Gomes: Yes, that's usually what happens. So quarters are very variable when it comes to cash. So we expect that our target for not this year probably, but for the years following is to continue to have annual positive operational cash flow. So that's something that we want. That's something that we have thought very hard for. But we are still very dependent on large programs coming in coming then payments to subcontractors. So it's very variable. And in that context, quarter-to-quarter, we'll still see some very big variations. Kaarlo Airaxin: And I would just read a couple of questions here from the chat as well. Although we have talked a little bit of data services net sales, can we expect the data services net sales to stabilize or grow quarter-to-quarter going forward? Or should we be more patient and perhaps look half year and 12 months? Luis Gomes: We expect -- in terms of sales, we expect it to start growing next year. I would expect with new satellites coming online, we have -- middle next year, I would expect it to start seeing an uptake of our data and services. But that's because new satellites are coming online, and that should also improve our profitability at the time. So I do expect it to grow probably on a quarter-to-quarter, but you'll see it more on an annual basis. Kaarlo Airaxin: And we have a technical question here. Well, more or less technical. So have you decided on the number of satellite in INFLECION yet? Luis Gomes: So the baseline continues to be 12, but we do have a few opportunities to grow that number. So we stick to 12 for the time being. That's our design target. There are options for more. Kaarlo Airaxin: Yes. So yes and no. 12, but it could be increased. Luis Gomes: Yes. It's something that we are still in Phase 2. We are entering Phase 2 of INFLECION. So this is when we will probably make the decision. Kaarlo Airaxin: Yes. Another way to -- well, or a segue to that question would be then, so you have decided on 12, but if there is an opportunity to increase that, you would be able to do that. Yes, all things considered. Luis Gomes: And also, even outside the INFLECION program, we have options to actually include. We could build more satellites, for instance. So we have been looking at that possibility. So there are opportunities even without INFLECION. But within INFLECION, yes, we could have more satellites if we decided that there was a market for them. Kaarlo Airaxin: Yes. And if we look at the order backlog, you have previously stated that you have a good visibility and this time, it has decreased and well, connecting that to the visibility, could you just walk us through why? And what can we expect in the future? Do you address that? Do you need to address that? Luis Gomes: So as I say, probably the big item has been Sterna on the order backlog. It is a huge thing. As I say, because we are in negotiations, we are in discussions, a lot of our sales force, a lot of our people that actually -- our sales and business development people have been involved in that. And we are focused on that work. It is the case that sometimes we have to focus on some of these bigger orders. And then if they don't come through, then we have a delay on our reduction on our order backlog. But nevertheless, the pipeline remains very strong. Kaarlo Airaxin: So more to come. And I'd just like to -- well, highlight because I observed that DNB Carnegie recently initiated the coverage of you with a fair value of 106, which is above today's print. And I don't really need you to comment on their target price. But if you don't mind, I would like you to comment on 1 or 2 of their assumptions, if that's okay with you. And in case of Sterna, they expect -- well, or mention initial order value of around EUR 5 million to EUR 6 million for the first 6 satellites while you as a company have previously communicated a total project value of around EUR 60 million. That doesn't necessarily mean a contradiction in terms because there's a difference between 5 and 6 satellites and you are mentioning 12. But could you elaborate a little bit on that? Luis Gomes: I would say that, that guidance is incorrect. So we stick by the total project is worth a lot more. It's worth more than EUR 60 million. So I think they underestimated quite badly the number. Kaarlo Airaxin: And in the report, they compare you to several international satellite operators. And when you look at the stock market, it's -- well, we're in the stock market, we like peer groups. Do you agree with their peer groups? And if anyone wants to know them, I refer them to the report because there's a number of peer groups. Are you comfortable with peering? Luis Gomes: In general, yes, I think they are representative of our sector, even if in some cases, they -- the mix of their business is a bit different from ours. But they represent different parts we operate in. And in that sense, yes, I'm satisfied with that. Kaarlo Airaxin: And they use key metrics would be EBITDA margins and sales. And yet again, not going into your internal key metrics, but for the market, that would be good metrics to look at, I take it. Luis Gomes: Yes. Kaarlo Airaxin: And in that case, would you expect -- would it be possible for you to reach some SEK 370 million, SEK 375 million in sales for the next years -- for the next year, I should say? Luis Gomes: Yes, I think so. I think that's a perfectly achievable number if we look at the kind of pipeline we've got right now. So yes, I'm fairly comfortable with that assumption. Kaarlo Airaxin: Yes. And then also, I received an interesting -- well, an interesting question for many companies listed in Sweden and reporting in Swedish krona. Do you expect the exchange rate difference to further impact Q4 and 2026? Luis Gomes: As always, you're asking me to guess the international markets that is something that is quite difficult. We try to hedge a lot of our debt on currency. We also operate a business that is very varied across different countries. So yes, we expect it to have an impact. But at the same time, we usually are fairly comfortable because as I say, we buy and sell in many different currencies, and we always -- we tend to hedge all of those. But when it comes to reporting, yes, we expect that to have an impact. Kaarlo Airaxin: And one of the key words there were many currencies. And forgive me my ignorance here, but would it be fair to say that particularly towards the Swedish krona, that would be more, let's say, a translation rather than a transaction, you buy and sell in euros or dollars, but you report in krona? Or should I look at it in another way? Luis Gomes: No, it's exactly that. So we tend to operate very much in euros, British pounds, in dollars. That is a lot of our operation maybe that's in those currencies. So it's more how we translate that into our reporting. Kaarlo Airaxin: All right. All right, Luis, thank you for that. Considering the time here, it was very educational. And there's a lot of questions out there. And any one of you who needs to have more information or granularity when it comes to the satellites and other programs, we would guide them towards yourself, and that will be your web page, I take it. Luis Gomes: Yes, that would be a great place to start. And if you want any more -- if you want to discuss anything, Håkan will be more than willing to actually direct you to the right people. Kaarlo Airaxin: Excellent. And Håkan, that would be the Head of IR. So with that, Luis, I thank you so much, and I wish you the best. Luis Gomes: Thank you very much.
Rolly Bustos: All right. To respect everybody's time, I think we will get going right away. So again, greetings, and welcome to all the shareholders and stakeholders for joining us today for the Draganfly 2025 Q3 Earnings Call. My name is Rolly Bustos, and I am the Internal Investor Relations representative here at Draganfly. We appreciate you joining us. As always, we'll start with our CEO and President, Cameron Chell, recapping the third quarter earnings highlights. Next will be a more detailed financial review with our CFO, Paul Sun. We will conclude, as always, by addressing the pre-submitted questions we have received. You are welcome to reach out to me any time at investor.relations@Draganfly.com, if you have further questions. I remind everyone that this presentation may include forward-looking information and statements. These statements are not guarantees of future performance or financial results and undue reliance should not be placed on them. Any future events or financial results may differ from what might be discussed here. The company's results and statements are accurate as of today, November 12, 2025. We're under no obligation to update or renew these statements outside of material press release disclosure going forward. The full forward-looking disclaimer can be found on the screen right now. So Cam, if you're ready, please go ahead. Cameron Chell: Sounds great. Thanks, Rolly. Really appreciate that. And thank you, everybody, for taking the time to be with us today. We really deeply appreciate your time and consideration. So maybe just to hit the highlights out of the gate. So our revenue for Q3 2025 was $2.155 million, an increase of 14.4% year-over-year, that includes $1.6 million of product sales and about $530,000 of services. Our gross profit was $420,000, and our cash balance as of the September 30, 2025, was just underneath $70 million. So maybe just to run through a few of the highlights for the quarter. In particular, these are the ones that we felt were certainly material and meaningful to the shareholder and our future revenues. So first of all, we are unveiling the Outrider Southern Border drone, which is a Multi-Mission Drone in a Live Operation at Cochise County. So we -- basically, that whole operation is where we've got the Southern border sheriffs, basically commissioned by a heavy rider or what we call an Outrider drone, which is a drone that we designed with the Southern border sheriffs to be able to address the very specific mission sets that are required along the southern border. This very unique drone, which has a large addressable border opportunity globally, not just along the southern border, is actually a drone that really uniquely positions itself to be doing pretty much anything a fixed wing surveillance aircraft can do with the versatility of a Heavy Lift multi-rotor drone. And we'll talk a little bit more, and I know there's some Q&A that came in around that as well. So that was a very significant win for us. And in fact, on Monday of next week, we are actually doing the inaugural missions with that drone going live and operational, so we're really excited about the 100 or so different government and international representatives that will be there, witnessing and participating in those missions along the border in Arizona. So we also significantly bolstered our military and defense capabilities with the appointment of both Victor Meyers and Keith Kimmel, both are incredibly accomplished war fighters that bring very, very strong, both educational and operational backgrounds to the table. They are heading up our military Board of advisers. They're operational within the business and are supporting our sales teams as well as our operational teams. So we're super thrilled to have brought them on board, and they're very well-known certainly within the community. We were approached and very pleased to put a deal together with Paladin AI, and so we are actually collaborating on a specific opportunity that was brought to us from a military customer, but in addition to that, we are putting together and incorporating their AI into our drone fleet. We have several AIs that are being incorporated into our drone fleet. We treat our AI kind of similar to payloads. And what that means is that because our entire systems are modular, whether it's a particular type of camera, a particular type of payload, a particular type of sensor or even a particular type of AI, all of our system, right from hardware through the software, through design, is all managed in a way that can all be modular. So if we've got a customer that's coming to us that has a particular workflow requirement that requires a specific AI over another, we can incorporate that into it. Paladin has done some fantastic work in the industry, especially in forming. And so we're really, really excited about the opportunity that we've been able to put together, that they've been able to put together with us and vice versa. And so we expect big things out of this relationship, and it does start off with a specific customer that we are working with. We also announced that Drone Nerds, who is the largest reseller in the United States, has taken on the Draganfly line. In particular, for public safety, but also for military as well. So we spent probably a year working with them, really helping ensure that we are positioned well within the customer base that they're going to. They're a very discerning organization, and we really fit well within their NDAA-compliant strategy. And it should be noted, and I think I'm speaking with all accuracy here, is that in terms of a manufacturer, not just in North America, but a manufacturer anywhere in the world that has a comprehensive lineup of NDAA-compliant drones, I think we can point to Draganfly as the leader, if not really the only NDAA-compliant manufacturer out there that has 5-plus drone systems that are all NDAA compliant. And those range right from small FPV drones that we're selling into the military right through to the Outrider drone, which is a hybrid dual diesel engine, 7-hour, 100-pound capacity drone. So Drone Nerds has got this capability now to be able to offer that entire product line, in particular, down to their public safety. So we're really thrilled to be -- have been selected by them and get to work with them. We also had a fantastic show at AUSA. And this is really meaningful for us. So AUSA is the Army Association Show, basically the big military show in the United States. We were able to display there with our partner, which is the next highlight there, Global Ordinance. So Global Ordinance is one of the largest, what's known as DLA primes out there, one of the largest suppliers of munitions and equipment into Ukraine, as an example, amongst many other things, multibillion-dollar organization. And so they featured our drones along with them and have now brought us into multiple opportunities that we're working side-by-side on. So this show was really a coming out show for Draganfly in terms of our capabilities and capacities, and we had just an overwhelming response. Now this was also highlighted by the fact that we had a very significant announcement with the U.S. Army, which we'll talk about in just 1 second. We also announced that Autonomy Labs, which is a fantastic and strong U.K. company, basically decided to standardize on our platform being the Heavy Lift, which is not the hybrid version, but the actual electric version to be able to lay out their mine clearing, what they call, carpet. And so this is another great example, at least in my opinion, of payload companies who are looking to capitalize on the drone market, but are looking for the right manufacturer and the right solution provider to actually build their payloads around. So one of the key components of our modularity and our full product line is the fact that a payload is only going to be as successful as a drone platform as it can fly on. So our -- core strategy of ours is to be able to cater to those channel partners, those payload companies, again, whether they're things like LED signs that we've done before, or whether they're mine clearing carpets, or whether they're particular camera systems or AI systems, the more of those that we can integrate into our drones, the bigger channel that we have that those payload providers are actually selling into as well. And that is a -- it's a key component. So Draganfly having been in the business for 25-plus years now, we have that experience to be able to integrate all those other payloads into it. And it takes a long time to get enough integrations to build some critical mass around somebody -- an end user, a customer going, "Hey, wait a minute, I need to run this payload not just on a small ISR drone, but I also need to put it in conjunction with a medium lift logistics drone. And so for them to be able to make an investment once into a particular payload, but use it across multiple use cases because they've got different size of drones that those payloads can fit on to, we're finding that as a significant strategic differentiator or accommodator, if you will, for the customers that we're dealing with in the market and our payload providers. So again, thrilled to have done this project with Autonomy Labs. We displayed with them over at the DESI show in London, and they've really knocked it out of the park in terms of the amount of orders that they were lining up and the amount of testing that they've got going on with multiple militaries around the world. We also demonstrated both our Flex FPV and our Commander 3 XL platform at the invitation-only U.S. Army T-Rex experimental showcase. We were there actually, as I mentioned, by invite. We were demonstrating the 3XL and the FPV and how they can work in conjunction with each other. Again, if you think about that Commander 3 XL, which is above my left shoulder here, you really do notice that flat bottom on it because that gives a huge surface area for different payloads and multiple sensor capabilities. And so if you would also think about FPVs that are underneath that platform, and so you've got the 3XL, which can carry FPVs to a particular location, maybe a GPS denied location because the 3XL can handle the type of sophistication and radios required to be able to fly in those environments, and then be able to deploy FPVs from close range. The next notable one to bring up is that we have now -- we're well into working with standing up 7 new plants in the United States. through our contract manufacturing arrangement. We are in the midst of tooling those plants right now. That is going to more than quadruple our capacity. And for any of those that don't know that we currently in our own plants, we've got about $100 million of capacity that is now just kind of coming online. It took us until about Q3 to get that fully built out. We are now starting to produce on those particular lines, in particular, for the U.S. Army order that we announced about 4 weeks ago now. And so -- but these 7 new plants coming online, based on demand that we've got coming through, will give us somewhere in the range of about 4x that capacity by the end of next year. The company that we selected to go with, it was an arduous process, but the group that we selected to go with, their real speciality is -- I mean, they're great contract manufacturing. They were very accommodating about the tooling and the training that we need to provide, but they are very, very good on global logistics and supply chain management. And that's super key to us, in particular, because of the type of army orders that we're now entertaining. We're also, I believe, very uniquely positioned as an organization to support not just NATO, but in particular, the Canadian government. So Canada has now announced that 5% of their GDP is going to be moving towards defense spending. That's literally billions of dollars of new spending in this coming year. And there's upwards of $2 billion in the next couple of years spent just on drone technology. Now because of the unfortunate tariff war, which is working out fantastic for Draganfly between Canada and the United States, Canada has a very explicified Canadian policy right now. And given the fact that we have manufacturing plants and strong routes from Canada, we're very well positioned there, and have several initiatives ongoing in order to address that market and are likely -- there might be 2 companies in the whole country of Canada that can address that market for the Canadian D&D., and in fact, the other company right now only has one particular type of drone and it's more of a helicopter that would address that. So we think we're incredibly well positioned up there and thrilled to be able to be a service to that nation. Not only to the nation of Canada, but because of our Canadian manufacturing, our opportunities in the Arctic, both with U.S., NORAD, Canada and the Arctic states of Sweden, Denmark, et cetera, really seem to be also burgeoning quite well. So again, I would love to say that was part of our strategy. It wasn't. It's more luck than anything, but we're super proud to be in that position, and we look forward to servicing those organizations and customers over the coming years. And then we did have a Fortune 50 telecom company start to buy our Heavy Lift Drones. Now their Heavy Lift Drone in this particular case is being used for communication support on post-natural disaster. And we've been very, very hopeful with this particular Fortune 50 telecommunication company to actually expand the relationship. So this is part of 2 big initiatives that are happening. First of all, they're moving away from the Chinese manufacturing, and they were very explicit about needing a really solid long-term partner that had NDAA-compliant drones and had the capability to serve them at scale. So this was an initial order, but it was a really important order for us. And in the event that we see more orders from this particular company, we see it as a signal from them that they're standardizing on our fleet. And of course, those order sizes get well into the hundreds. And when I say hundreds, again, I'm not talking about a small ISR drone. I'm talking about a very sizable 9-foot drone that has incredible capabilities, is standing up cell towers, has tethered components to it and such. So -- and then, of course, a very notable subsequent event from Q3, which was incredible for us as a company and as shareholders was that we announced an order for our FPVs from the U.S. Army. Now this particular order, though we have to remain shy on some of the details of it, I can tell you that the reason that we won this order, I think, is -- I'd like to say it's because we have a terrific FPV platform that does have some incredibly unique features, designed from our experience being boots on the ground in the Ukraine since 2022, but I think the other reason that we frankly won this is that this particular order isn't just about providing drones, it's actually providing supply chain and logistical support. We're actually training this particular section of the Army to actually be assembling and manufacturing our drones so that they can do modifications on the fly. And then we're actually supporting that and providing the logistics for the resupply of all those drones into those locations. So it's actually Draganfly manufacturing on U.S. Army location and presumably, hopefully, locations. So really, really significant. It took about 1.5 years, maybe plus in order to actually put this order together. And it is one of the reasons that about 2 years ago, a little less than 2 years ago, I guess, about 18 months ago, excuse me, is why we still -- we started building out our capacity. So over the last 2 years, we basically had to cap our sales. We had to rebuild a bunch of our capacity in order to meet the demand of this and the other particular similar orders that we anticipate coming down from this. So just a quick review. This is our drone platform. This view here does not include the Outrider drone, which actually goes live next Monday on the Arizona border. And that drone itself would look very similar to the drone that's on the far right side, the Heavy Lift Drone, other than the fact that it has combustion engines on it as well. It can come with a variant of either 1 or 2 engines. It has the capability to fly up to 7 hours and carry 100 pounds of payload. That particular drone will be doing everything from communications, mesh networking, surveillance, reconnaissance, actual interdiction, logistical resupply, medical emergency support and many, many other things. I mean it is truly a drone that fits just an incredible array of use cases. So the event next Monday has over 100 people coming from multiple countries, all pretty border-focused. And the word that we're getting now is that we called this drone the outrider, but most people are calling it the border drone now because it's a purpose-built border drone. The TAM on border and border surveillance for drones is literally globally in the hundreds of millions of dollars per year for this particular product line. So we have some pretty high hopes and certainly, early indications are that this is going to be a leading driver of sales for us, even next year, even though we hadn't planned on it being a big driver of sales until 2027. You can see the other drone line up there, which I think I've explained pretty well in past calls. The key thing here is that they're all interoperable, all the payloads fit across it. If we've done an integration on one drone, whether it's with an AI and yes, our Flex, even the FPV drone there has AI incorporated into it, whether we do it with that drone or all the way up to the Heavy Lift Drone or the commander -- excuse me, the Outrider drone, you're working with the same common operating environment, the same connections, the same buttons in the same places, flight characteristics and so on and so forth. So it's also of note that the old DGI payloads that were supported by DGI, also fit into this modularity. So if somebody's got an investment into a payload, they got FLIR cameras, or they got whatever it is, and they're having to get rid of their DGI fleet, but they do not want to lose their investment into their FLIR cameras or their other payloads, those payloads actually integrate right into what we're doing as well. So again, it's just some experience there that's helped us think through how do we progress our customers into a new full product line. I won't spend much time here. But basically, the military impact for what's happening in the small UAV market is incredible. We recently saw in the last couple of weeks, the U.S. government talking about getting well over 1 million drones. And I know one of the questions that came in is, do we think we're going to get our piece of that. And certainly, that's what we've been planning on for years and working toward, and we are one of the few companies in North America that have that capability or capacity to be able to meet that demand. So we're pretty excited about what's happening there. We do have some validation around the Army orders that we previously sold in Special Forces and now into the Army as well as the many other initiatives that we've got going on across the whole Department of War. At this point, what I'd like to do is, I'd like to turn it over to Paul Sun, our CFO, to run through our financial highlights. Paul? Paul Sun: Yes. Thanks, Cam. Thanks, everyone, for joining. Appreciate it. Yes, just taking you through these tables here. Revenue for the third quarter was $2.16 million, up 14.4% from $1.89 million in the third quarter of 2024. Third quarter revenue did comprise of the $1.62 million from product sales with the balance coming from drone services that Cam mentioned at the outset. Gross profit, $421,000 this quarter compared to $441,000 in Q3 of last year. This quarter did have a onetime noncash write-down of inventory of $43,000. And otherwise, gross profit would have been $464,000 gross profit for Q3 of 2024 would have been $617,000 if we took away the onetime inventory write-down of $176,000 from the same period last year. So taking these noncash items into account, gross margin would have been 21.5% this quarter versus 32.7% year-over-year. Total comprehensive loss for the quarter was $5.4 million, compared to a loss of $364,000 in the same quarter last year. This quarter did include noncash changes comprised of a fair value of derivative liability loss of $1.8 million, that $43,000 inventory write-down that I mentioned and a gain on a notes receivable of $35,000. So otherwise, it would have been a comprehensive loss of $3.6 million. The same period last time had a onetime noncash change in derivative liability of $3.6 million. The $176,000 inventory write-down that I mentioned, and then a gain on an impairment note of $8,000. So the comprehensive loss from last year would have been $3.8 million. So the decrease in loss is due to primarily foreign exchange gain and lower professional fees, offset by higher office and miscellaneous costs, wage costs and share-based payments. If we move to the next slide, please. Yes, we just went through the year-over-year changes. So here, I'll do a quarter-over-quarter between Q3 of this year and Q2 of this year. Revenue for Q3 '25 increased $41,000 to $2.16 million, up from the $2.12 million in Q2 of '25, an increase of 2% due to higher product sales. The gross margin for Q3 '25, again, was 19.5% compared to 23.9% for Q2 '25. Again, if we back out that onetime inventory write-down mentioned before for Q3, and the $10,000 write-down from Q2 '25, gross margin, again, would have been 21.5% for Q3 and 24.3% for Q2, with the difference being product mix during the quarters. Total comprehensive loss for Q3, again, was $5.4 million compared to $4.7 million for Q2 of '25. And again, please recall, we had that loss in fair value of derivative liability of the $1.8 million, the write-down of inventory of $43,000, and the gain on the note of $35,000, so the comprehensive loss would have been $3.6 million. If we adjust for the noncash items in Q2, which included a noncash gain of a derivative liability of $180,000, a write-down of $10,000 of inventory, and a gain on a note of $8,000 that loss would have been $4.6 million. So the quarter-over-quarter decrease in loss is primarily due to the foreign exchange gain and lower professional fees, offset by wage costs and share-based payments. Going to the next slide, please. Yes, so just kind of looking at some high-level balance sheet items here. You can see total assets increased from the $10.2 million at the end of '24 to $77 million, which is largely due to the increase in cash over the year. Working capital as at the end of September was $69 million versus $3.8 million at the end of December. However, if we ex out the fair value of derivative liability of $3 million, working capital would have been a surplus of $73 million this quarter and $6 million at the end of December last year. Doing the same analysis for the shareholders' equity at this quarter end would be $73 million versus the $70 million shown and $6.8 million at the end of December versus the $4.6 million shown here. And as you can see, we continue to have minimal debt. And our company's cash balance, as Cam mentioned at the outset, was $69.9 million at the end of September, compared to $6.3 million at the end of December. And with that, I'll pass it back to you, Cam. Cameron Chell: Great. Thanks, Paul. So what I'll do now, if it's all right with everybody, is I'll jump into some of the questions. There's 9 questions that came in. I'll certainly do my best to be timely and answer them as thoroughly as is reasonably and regulatorily possible. So the first one that we've got here is it says you seem to have more cash on hand now than ever, what are the scenarios or use cases for any potential future raise? So we'll be opportunistic about potential future raises. We -- I think, we've raised less cash certainly than our comparables out there, and we're cognizant of cash being a strategic advantage. That said, we're highly, highly sensitive to dilution and shareholder value. So basically, we've got $70 million cash on hand. We're burning about $1.5 million a month. Things are scaling in a great way. Pipelines are -- literally, I can't even say the numbers because they're really truly unbelievable. So there's not an acute need to raise cash. And we certainly, as a company that's been around for 27 years, we're able to -- we think we have very good visibility to EBITDA positive and cash flow positive over some time here. That said, there are some key acquisitions that we're interested in. They are, to be clear, not necessarily acquisitions around technology or a particular product. Our acquisitions, which I think is a bit different than our comps out there are very focused on the people. So -- we have the -- we're in a fortunate position to be able to build what we sell and integrate what we sell. We're highly engineering-focused and customer integration organization. So what's most important to us is having the right team and people to be able to do that. So there are some pretty cool acquisitions out there that do have some great products and tech that fit with what we're doing, but they're probably not at the size or scale that maybe we see some of the comps out there doing because really what we're interested in is culture and how those people fit in, how we better serve our customers, how that can scale, how that can add to the scalability of what our customers are asking for us right now because the scalability that's being asked of us is truly astronomical. So us is not about layering in more acquisitions, which can sometimes be more problems. We're really about layering in the right personalities, people and leadership and technical capability in order to meet the demand that's at hand right now. And of course, those customers who are making those demands and they -- and that's kind of really where the market is at right now, we want them to be incredibly confident with the people that we're bringing on. So that tends to be a bit of our acquisition focus, which I think is probably another one of the questions in here. So in terms of raises, if we needed to do a raise for an acquisition, we would consider that. If it was opportunistic in the market, everybody says when the cash is there and you're in growth phase, you kind of really want to make sure that you do not take it. But we're going to be -- we're definitely going to be prudent about that to the best of our ability. So the second question that came in is, can you expand on the press release about manufacturing and overseas military facilities? How large is the potential here in terms of revenue? Are the financial metrics of this much different than manufacturing is done in North America, and then shipped as a final product? So I'll speak to the extent that I can about this. So the manufacturing in overseas facilities is very specifically in military facilities where they're manufacturing a Draganfly product. And it's a little bit more of assembly than manufacturing. The prime driver here is that those facilities need to be able to modify and have capabilities that they don't need to go back through a procurement cycle in order to order some new capability on a drone. They need to be able to do those modifications and such themselves. So they need to be trained in how to manufacture, how to modify, how to repair, how to change the product within the concept of operations that might be changing in their tactical situation at that time. And so that's really the driving premise. And then the other part of that is, is an Army base ever going to be able to do that on scale? If you think about what's happening in places like the Ukraine right now, you have individual brigades that are using hundreds of thousands of drones per month. And so you're not going to get that kind of scale on an army base. So you need a partner that can actually still provide that scale into your theater of operations while you still have the capability to actually make the modifications or drive your technology or tactics forward. And so that's more of the type of relationship that's here, which is why it is so strategic and such a big deal. In terms of scale, all I can say is that there's a lot of brigades in the U.S. Department of War and in all the NATO and the 5 I countries. And when I was at AUSA, one of the big announcements from the Army was that every soldier is going to be trained on a drone, every single soldier. And the reason is that if you think about those FPVs right now, which are not -- they're just the tip of the iceberg of what's coming, and they tend to be the focus right now. But basically, every soldier has a grenade that can go 10 kilometers. Now that's -- I mean that's what they choose to use it for. So the scale is absolutely enormous. But then when you also look at what's happening on the logistics side, on the resupply side and all the rest of it, and they need that embedded manufacturing capability, which is what we're calling it a hybrid embedded manufacturing, I really am not at liberty to say what the sizes are, but you can figure out pretty quick that it's numbers that are just completely astronomical. So the U.S. has stated that they intend to order millions of drones. Do you think we'll be able to get a meaningful piece of that? I do. And it doesn't have to be a big percentage of it for it to be meaningful. And the ethos that Draganfly is, we want to make sure that every one of our customers, whether they're military, industrial, commercial, whatever the case is, our job is to help ensure that our customer is unbeatable, absolutely uncompetable. And so again, whether that's a military or an industrial customer, what we like to do is add value. So will we eventually be the biggest drone manufacturer in the world or something? I don't know, and that's actually not our goal. We want to be the best partner to our customers that make them uncompetable. So we really want to continue to be that high-value, highly sought-after organization that brings a lot of experience and a lot of consciousness to the table in terms of the products and the services that we're able to enable our customers with. So the short answer is, yes, I think we can get a piece of it, and we'll just keep working to do so. Canada has said that they want to purchase Canadian-made drones. Can we expect meaningful orders from Canada and the Department of Defense at some point? I believe so. I can't give you predictability or any deeper insight, but I think we are as well positioned by far as anybody in the world to be able to provide that very big budget. We don't often think of Canada as a military force. That said, it's about the seventh-largest economy in the world, and now you get 5% of that economy going into rearming and reimagining what they're doing. And a very meaningful part of that is going into drone technologies as is all military budgets now because we've moved from into an entire new phase, where everything is actually becoming about -- not just about automation, but about autonomy. And the leading edge of autonomy is, quite frankly, drones, whether it's controlling autonomy, being autonomous, being in airspace, managing aerospace, all of it, drones are the leading edge of that. And so even small military budgets now are meaningful because so much of that budget is being focused into this particular area. So is border security still the main focus for the company? Yes. I mean, if Cochise County and the Southern Sheriffs is any indication of where we've been fortunate enough, very blessed to be able to be positioning ourselves as a border management specialist, not just with our drones, but with our tactical solutions team to be able to understand the ConOps and integrate the understanding of the ConOps into functional equipment, yes, border management, border security is a huge, huge piece of what we're doing. And I do find that we're pretty uniquely positioned there because it is a particular specialty that isn't just about ISR. When you've got folks coming over that border, you've got search and rescue situations, you've got human trafficking, you've got weapons, you've got armed militias, you've got drugs coming in. So the variance of what's happening is so incredible that you need to have a specialized team that really understands how to work with our -- with the law enforcement professionals and the super great people along the border that are holding our economy and our people safe in order to be able to provide that service. So again, those tactical solutions that we provide, the integrated services that we have at a tactical level are really our strategic differentiator for building great product. Do we see consolidation with the drone industry? For sure. Yes, there's -- I think we're going to continue to see a great expansion. A lot of small companies, they're talking about 1 million drones. They're talking about easing procurement. They're talking, what's going to -- like -- this is not an easy business. You're talking about putting aircraft in the air. And so any way you slice it, a lot of people can order parts off Amazon and think they can build a drone. But when you're talking about building drones at these levels, with these mission-critical requirements and/or flying them over people or vehicles or that type of stuff, I mean, you're just dealing in an environment that most people do not understand. Then on top of that, trying to scale production, that's a whole other set of problems out there. So we think there's going to be a big rush of folks. There is a big rush of folks into the industry. We've seen it 7 or 8 times before over the last 25-plus years. There's going to be fallout from it, and there's going to be great talent available out there, and we're hopeful to pick up some of that talent because there are super talented people in lots of organizations that are working on these problems, including our comps out there. I think our comps are probably obvious names, they're going to do great. There's kind of like the 4 or 5 companies out there that have kind of made it through some very lean times, have some capacity capability now, have some experience. And they've got enough scars like we all have enough scars where we're going to muddle our way through and be able to solve these solutions or solve these problems at scale. And so I think the industry in general is starting to shape up quite nicely. There's also a couple of privates that will do well. But yes, there's going to be consolidation for sure as there always is. So can you give us an update on what your production capacity is and if you had planned to increase in 2026? Yes. So our #1 focus is our organic capacity, which is -- can do up to about $100 million. And that's what we really want to make sure that we're streaming that in '26. And then -- but we are bringing on more capacity in '26, and so it will expand far beyond that, but our focus is on our organic capability. We -- part of the reason that we've got outsourcing capability that we're bringing on stream is for some of our supply chain management and being able to provide from different parts of the countries and different parts of the borders to ensure that we've got efficiency around tariffs, efficiency around manufacturing, delivery, supply chain, et cetera. So again, pretty unique positioning in terms of North American manufacturing and being able to suffice all parts of North American and European, in particular, manufacturing. So again, it wasn't part of the master plan, but it sure worked out well for us. And it was maybe a little part of the master plan, but not all that much. So can you tell us what percentage of revenues would be military versus commercial? Do you expect military to be a major part of your revenue going forward? Yes. Right now, it's -- I'm going to say we've had our revenue capped here for the last couple of years, and that's certainly now about to change very quickly or is changing very quickly. And I would say that military is, let's call it, 30-ish percent of that. But that will be -- next year, it will be 90% just one single order dwarfs the numbers that we've done for the last 3 years. And there's multiple types of those orders that are falling into place. So it could be 99%. We could see our commercial or our public safety market go up 200% this year. And military sales will still be 90% just because the individual order sizes, and then the resupply and everything else is just so absolutely mind-boggling. So what do you feel differentiates Draganfly? Our integrated practices, our integrated tactical services. That is a big differentiator for us. So when we worked on the Cochise product, we spent months on the border on horseback, on ATV. We understand the communication points where the holes were. We got to learn where the cartels were, how they think, what they operate, what are their techniques, like all of that stuff. And then we sat with the sheriffs of the southern border, and we spent the time designing what is the capabilities that they need to meet. So whether that was that instance, whether it's some of our industrial clients, whether it was the opportunity that we created over the last -- was provided to us, excuse me, over the last 2 years with this latest Army contract, it was that same process. It didn't start with the product. It started with understanding the concept of operations, the use cases, and then -- and really kind of figuring out, okay, what can make your situation such that we can help make you uncompetable. And I think that's our differentiator. Now further to that, we've got 25 years of experience that allows us to have a full product line. So we can actually leverage that and be able to provide those types of products out there and services. So at the end of the day, it's our people. And I hate saying that because it sounds like such a typical answer, but that is how we utilize the incredible talent that we've got in the company in order for us to be differentiated. I do think the fact that we've got manufacturing not just like on 2 -- across 2 borders is a big differentiator as well because that Canadian market has turned into a monster opportunity. And so that's pretty unique as well. So -- and I think ultimately, what will carve out a durable market share for us over the next 3 years, from a strategic standpoint, we're all about creating blue ocean opportunities. So there are a number of companies, and there's a whole bunch more coming that are going after that kind of Mavic 3 replacement, small ISR drone, which is a lucrative market right now. But ultimately, that market, in our opinion, what we've seen over the years is that's a market that's going to continue to get chipped away at. There's multiple players going after it. Right now, they're $30,000. A year from now, there'll be $20,000. 18 months from now, they're going to be $4,000 drones again. And maybe the comps out there aren't going to agree with me on that. And then the risk is actually -- there are -- everybody thinks that DGI came in and dominated the market. Well, we have to remember that the North American market was being dominated by multiple foreign manufacturers, primarily out of Asia. And if it wasn't DGI, it was going to be one of them that basically took the rest of us out in North America. It's just that DGI was so good. They were able to dominate those players as well. Well, a lot of those players were from countries that can produce NDAA-compliant products. So if I were to make a prediction, in a number of years from now, we're going to see the Eastern Europeans, we're going to see the Southeast Asians, we're going to see them in that kind of small competitive ISR prosumer space, again, with NDAA product. Now we got kind of like a 3- to 5-year kind of window here where that isn't going to be the case, but it's also not been a reason where we've really kind of focused on that particular product line. If you look at the rest of the other 5 products that we've got, they kind of skip over that piece. Now we've got some strategic alliances and such in that area so that we can address it with our customers, but that's just not a piece of the market that we've seen North American manufacturers be overly successful with. Now the market is very different, and I could be completely wrong on it. But notwithstanding, when we take on a market like the border, we're building a border solution, and we think that we've created a very unique scenario where we've got an addressable TAM where it's going to be very tough for other folks to compete in there because of the job that we do, making our customers so uncompetable. And so whether it's that particular product or the embedded hybrid manufacturing product or any number of the others that we either have and/or will be announcing, we like to create blue ocean opportunities. So we've got these pockets or hides of burgeoning high-margin business that are very attuned and custom and ideal for the products that we make. And that's a multibillion-dollar sales funnel, certainly over the coming years. And so we don't necessarily have to be, hey, let's go build a typical drone and have to be the #1 or the #2 player. We're -- even though we're a small company right now, we are the #1 or #2 player in the markets that we are addressing, and they are large total addressable markets. So on that note, I am going to wrap up the call. Rolly, thank you so much for all the work that you do. I know that I get so much feedback from shareholders about how candid you are, how hard you work, you're 24/7. And I encourage anybody that if you've got questions or anything that you need help with to reach out to Rolly. He also has the rest of the organization standing behind him in order to be of greatest service that we can be to our shareholders, all of which none of this would be possible. And then finally, just to our team members and to our employees, you're the most important thing that we have going out there. And that ethos of helping make our customers completely uncompetable is the ethos that keeps -- certainly keeps my passion going, and I see you guys executing that every single day with customers in ways just going deeper for them than I've seen across many, many organizations I've been lucky enough to be a part of over the last 35, 40 years of entrepreneurship. So I couldn't be more proud. Thank you so much, everybody, for being here and reach out if you have any questions. Paul Sun: Thanks, everybody.
Operator: Good afternoon, everyone, and welcome to the POSaBIT Systems Corporation Third Quarter 2025 Earnings Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Oscar Dahl, Chief of Staff at POSaBIT Systems. Oscar, the floor is yours. Oscar Dahl: Thank you, operator. With me on this call are Ryan Hamlin, Chief Executive Officer; and Emily Egan, Senior Corporate Controller. I would like to begin the call by reading the safe harbor statement. This statement is made pursuant to the safe harbor for forward-looking statements described in the Private Securities Litigation Reform Act of 1995. All statements made on this call, with the exception of historical facts, may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Although the company believes that expectations and assumptions reflected in these forward-looking statements are reasonable, it makes no assurances that such expectations prove to have been correct. Actual results may differ materially from those expressed or implied in the forward-looking statements due to various risks and uncertainties. For a discussion of such risks and uncertainties, which could cause actual results to differ from those expressed or implied in the forward-looking statements, please see risk factors detailed in the company's annual report and subsequent filed reports as well as in other reports that the company files from time to time with SEDAR. Any forward-looking statements included in this call are made only at the date of this call. We do not undertake any obligation to update or supplement any forward-looking statements to reflect subsequent knowledge, events or circumstances. The company will also be citing adjusted EBITDA, adjusted revenue and adjusted gross profit in today's discussion. Adjusted revenue, adjusted gross profit and adjusted EBITDA are non-IFRS measures used by management that do not have any prescribed meaning by IFRS and may not be comparable to similar measures presented by other companies. The company defines adjusted revenue as gross revenue minus license support revenue plus actual licensing cash received as part of POSaBIT's licensing deals. The company defines adjusted gross profit as adjusted revenue less company cost of goods sold. The company defines adjusted EBITDA as net income or loss generated for the period as reported before interest, taxes, depreciation and amortization and further adjusted to remove changes in fair values and expected credit losses, foreign exchange gains and/or losses and impairments. The company believes these non-IFRS measures are useful metrics to evaluate its core operating performance and uses these measures to provide shareholders and others with supplemental measures of its operating performance. The company also believes that securities analysts, investors and other interested parties frequently use non-IFRS measures in the evaluation of companies, many of which present similar metrics when reporting their results. We caution that adjusted revenue, adjusted gross profit and adjusted EBITDA are not substitutes for gross revenue, gross profit or profit loss, respectively. Now I would like to turn the call over to Ryan Hamlin, Chief Executive Officer. Ryan, please proceed. Ryan Hamlin: Thank you, Oscar, and welcome, everyone. As a reminder, all the numbers that we'll be talking about today in the call are in U.S. dollars. Q3 was another great quarter for POSaBIT. We continued our focus on growing recurring SaaS revenue, which provides more predictability quarter-over-quarter and derisks our overall business. We also grew our cash on hand by nearly $0.5 million this quarter, all while still paying down our accounts payable by 41%, which represented about $400,000 in aged payables. The team is executing on all cylinders, and our customers are very happy. We look forward to continued growth this year and the years to come. Now let's jump into a few of the key highlights in case you missed the press release that just came out. We had our first nearly $1 million adjusted EBITDA quarter in the history of the company, coming in around $970,000, a growth of over $150,000 in adjusted gross profit, which resulted in an 87% adjusted gross profit margin versus 77% last quarter in Q2, again, another record for POSaBIT. Our recurring SaaS revenues increased 22% in Q3 versus Q2. This demonstrates the focus and success we have had on growing our point-of-sale and our e-com menu business. And lastly, as I mentioned, cash on hand grew quarter-over-quarter by nearly $0.5 million, ending at over $1.2 million. And we still, as I mentioned, paid down our payables by $400,000. I said this on the past calls, and I'll say it again, if you hear anything on this call, the theme is this, POSaBIT is profitable, we are growing, and we're continuing to put more and more cash in the bank. Now I want to update you on a couple of other key points that happened this quarter. Our focus certainly remains on growth around our main recurring revenue product lines, our point-of-sale and our e-com business. Both of these businesses have been very healthy and continue to grow, not only in our home state of Washington, but continued steady growth in Oregon, New Mexico and now new markets on the East Coast. We are running the same playbook that got us to 90% of all retail transactions in Washington State going through the POSaBIT POS. We continue to see the trend where more and more retailers are looking to one company to provide the majority of their software needs. The point of sale is the engine and the hub for all retailers. We're pleased to see our POS base add the new POSaBIT e-com menu, the POSaBIT loyalty program, online order management and much more. While many retailers take advantage of all of POSaBIT's all-in-one solution, we also provide up to 60 different companies that have integrated with POSaBIT. This choice is one of the key reasons so many of our retailers like POSaBIT. Now I'm going to turn it over to Emily Egan, our Senior Corporate Controller, to dive a little bit deeper into our Q3 numbers. Emily? Emily Egan: Thank you, Ryan. I'm going to share a review of the 3 months ended September 30, 2025, as compared to the same time period last year, 2024. Q3 total revenue was $2.3 million, down from $3.8 million third quarter last year. The decline was entirely expected and relates to the relationship change of legacy payment processing revenues as discussed in more detail over the last quarters. Meanwhile, our point-of-sale and e-com menus, as Ryan explained, continue to grow steadily. Our customers are happy. This shift is exactly what we've been targeting, a business that is smaller on the top line but significantly more profitable. Gross profit came in at $1.9 million, representing an 81% gross margin, up dramatically from 43% same period last year. This margin expansion reflects the positive impact of our processor transition and continued growth in our recurring software revenue. On the expense side, we maintained our focus on cost discipline. Operating expenses were $2.3 million, down 33% from Q3 of last year. This was primarily driven by lower professional fees, lower overall employee costs and continued reduction in share-based comp. All of this translates to record profitability for the quarter. Adjusted EBITDA, again, was $970,000, our highest ever and a major milestone for POSaBIT. While we reported a small net loss of $596,000, that represents a 70% improvement over last year and reflects strong underlying operating leverage. From a balance sheet perspective, cash on hand, as Ryan said, increased to $1.2 million. That's up from just about $1 million at the end of the year and $800,000 from last quarter, plus we reduced our aged payables by over $800,000 year-to-date, further strengthening our financial position. And our debt balance remained stable at about $4.5 million. As Ryan pointed out, Q3 was a continuation of the momentum we've built this year, improving profitability, expanding margins and adding cash to the balance sheet each quarter. Way to go team POSaBIT. With that, I'll hand it back to Ryan to wrap up the call. Ryan Hamlin: Thanks, Emily. I just want to share a couple more final thoughts before we wrap the call up and answer some of the investor questions that were sent in to us. I think you're seeing a trend here. POSaBIT is financially healthy, and we are growing. Our products are winning in the market, and our customers are loving what we're doing for them. We're now in a position where we can actually start to make a few more investments to drive new revenue opportunities. As we head into 2026, you'll hear more from us on some very exciting new product offerings that will expand our target market and grow our revenue. While we will invest, we'll do so very carefully and fiscally responsible. I'm really looking forward to coming back in early 2026 and announcing some of these very exciting new opportunities our team has been working on for the last many months. There are more good things coming for POSaBIT in 2026 and beyond. One more thing on our future. I know I've said a version of this time and time again, but it bears repeating. POSaBIT is set up for tremendous future success. The cannabis industry is still relatively in its infancy. We look at our competition and can honestly say that we are incredibly well positioned for the years to come, especially compared to the rest of the cannabis industry. Cannabis will someday become federally legal, banking regulations for cannabis providers will soften. All that is inevitable. And once it does, we plan on making our shareholders very, very happy. With that in mind, as always, thank you for being a loyal shareholder of POSaBIT. The stock price clearly does not reflect the true value POSaBIT has. Unfortunately, the small markets like the CSE make it difficult with day traders and very much low volume. The Board is committed to finding a solution. In the meantime, we will stay focused. We will continue to execute, and we'll keep generating a profit. And we trust that someday investors will once again realize the full potential of what POSaBIT really is. So thank you for your time today. I'm going to turn it back over to Oscar, who is going to ask some of the investor questions that came in. Oscar Dahl: All right. First question, Ryan. I have faith that the company can survive somewhat intact over the coming couple of years that things will work out quite well. Can you address any liquidity issues over the next year or so? If I recall correctly, the licensing deal, which has been bringing in decent cash, is expiring soon if it hasn't already. Ryan Hamlin: Yes. Thanks for sending that question in. And I'll just address the licensing deal upfront because you're right, we have a licensing deal that we licensed our POS, and it's been a great deal for us. We still have about another full year of what I'll call the larger payments coming in. But I want to make sure everyone understands, and investors understand that even when those larger payments and the licensing deals slow down and stop, there is an ongoing residual to perpetuity on the number of active terminals. So cash will continue to be generated from that deal even after some of the larger payments go away. So #1, the licensing deal has more time and residuals will continue. The other point that I always like to talk about liquidity is just look at our cash. I mean we just put $400,000 of cash growth into the bank quarter-over-quarter. And if you look at the $400,000, we paid, technically, our cash grew $800,000, right? So we're growing our cash, which is great. And then last, debt is going down. We're paying off our debt. So the 3 variables that I think are most important for liquidity are, is the cash going to continue to come in? Yes. Is POSaBIT growing in new opportunities? Yes. Are we putting cash away? Yes. And is the debt going down? Yes. So from a liquidity standpoint, I feel great about where the company is. Oscar Dahl: Cool. All right. Second question, how do you see a meaningful and continued return to gross profit dollar growth? Ryan Hamlin: Yes. So obviously, they sent this question in before the investors saw that we actually did grow gross profit dollar growth quarter-over-quarter. In fact, we grew over $150,000. So we are putting meaningful growth in our gross profit dollars. Again, like I just referenced, cash is increasing, and debt is going down. The other really important point, and we highlighted it in the press release, is that our existing SaaS-based products, our POS and our e-com business grew 22% quarter-over-quarter. So we're becoming much more predictable because we have a continuous stream of MRR and ARR coming in versus some of the volatility years ago we had where it was primarily payments revenue based. So we've made that transition successfully and now I can actually say the majority of our revenue is now coming from our MRR -- our SaaS business. Oscar Dahl: All right. And the final question, why did you stop posting new stories about POSaBIT around 2023? I've shared my enthusiasm with friends recently. And when they look at POSaBIT, it looks like the company has done nothing for 2 years. Ryan Hamlin: Yes. Well, we have been doing a lot over the last couple of years. But what we haven't done as much is post a bunch of PR and IR. And if we look back over the years, we have literally spent tens of thousands of dollars, if not 6 digits on IR and PR work, and it just doesn't pay off right now. It's frustrating because we would love to see the direct results if there was a lot. We pour a lot of money into PR and IR, and we see it reflected in the stock price, but that just didn't happen. So while we got healthy in nature to the prior question about liquidity, we looked at every expense, and this is one of the expenses we just felt like the ROI wasn't there. So we cut it back. Now does that mean we're not going to do it ever again. No, we will. And we'll start to do a little bit more, particularly on the IR side, we're speaking at conferences and a few more things over the next probably 6 to 12 months. But again, the top line message here is we got to be smart with our cash, and we just didn't see the return throwing a bunch of money at PR and IR right now. So I think that's it for questions. So I can turn it back over to the operator. Operator: Thank you very much. This does conclude today's conference. You may disconnect your phone lines at this time and have a wonderful day. We thank you for your participation.
Operator: Welcome to the Biofrontera Inc. Third Quarter 2025 Financial Results and Business Update Conference Call. [Operator Instructions]. Please note, this event is being recorded. I would now like to turn the conference over to Ben Shamsian with Lytham Partners Investor Relations. Please go ahead. Ben Shamsian: Thank you. Good morning, and welcome to Biofrontera Inc.'s Third Quarter Fiscal Year 2025 Financial Results and Business Update Conference Call. Please note that certain information discussed during today's call by management is covered under the safe harbor provisions of the Private Securities Litigation Reform Act. We caution listeners that Biofrontera's management will be making forward-looking statements and that actual results may differ materially from those stated or implied by these forward-looking statements due to the risks and uncertainties associated with the company's business. All risks and uncertainties are detailed and are qualified by the cautionary statements contained in Biofrontera's press releases and SEC filings. Also, this conference call contains time-sensitive information that is accurate only as of the date of the live broadcast, November 13, 2025. Biofrontera undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of the conference call, except as required by law. During today's call, there will be references to certain non-GAAP financial measures. Biofrontera believes these measures provide useful information for investors yet should not be considered as a substitute for GAAP nor should they be viewed as a substitute for operating results determined in accordance with GAAP. A reconciliation of non-GAAP to GAAP results is included in the press release we just issued yesterday. Please note, management will be referring -- will be referencing adjusted EBITDA, non-GAAP financial measure defined as net income or loss, excluding interest income and expense, income taxes, depreciation and amortization and certain other nonrecurring or noncash items. With that said, I would like to turn the call over to Hermann Luebbert, CEO, Chairman and Founder of Biofrontera. Hermann, please proceed. Hermann Lubbert: Yes. Thank you, Ben. And my thanks to everyone who is joining us this morning. Before I begin with my company update, I want to address our 2025 revenues until September 30. Our year-to-date revenues were approximately flat to the same period in 2024. This is a wonderful achievement as we have offered few buying opportunities in 2025, and we did not have the equivalent price increase that we had on October 1, 2024. A price increase presents buy-in opportunities to customers and lacking these opportunities, our revenues in the third quarter of this year were 22% lower than in Q3 last year. However, this is a transient effect, which has begun to normalize in recent weeks. And as a result, we anticipate strong revenue growth in the fourth quarter in 2025 and consequently throughout 2025. We remain on track to achieve our full year sales objectives. Fred Leffler, our CFO, will discuss the numbers in a few minutes in much more detail. Now with that said, I would like to focus on our recent achievements and upcoming catalysts for revenue and profitability growth. We continue to make great progress in advancing Biofrontera as a premier dermatology company. Our revamped sales approach centered on refined customer segmentation and more focused commercial strategy and data-driven sales execution has proven effective as shown by the stable revenues without the booster of a price increase. Both physicians and patients gain a deeper understanding of Ameluz PDT's clinical value and efficacy. The installed base of RhodoLED lamps continues to expand, supporting recurring high-margin sales of Ameluz gel for years to come. For those new to Biofrontera, the Ameluz PDT treatment currently has indication only for the treatment of actinic keratoses or AK on the face and scalp. AKs are precancerous skin lesions, which may progress to potentially fatal squamous cell carcinomas. Our therapy consists of the Ameluz gel in combination with photodynamic therapy or PDT using our RhodoLED lamps. As of now, we have approximately 750 RhodoLED lamps installed in dermatology offices. This expanding platform provides us with an incredible opportunity to meaningfully accelerate revenues once Ameluz is approved for more indications. Our clinical pipeline continues to advance and further strengthen the long-term potential of the Ameluz franchise. In the coming weeks, we will submit a new FDA application for Ameluz to treat superficial basal cell carcinoma. This represents an important expansion opportunity for Ameluz with commercialization expected in the fourth quarter 2026. We also completed patient enrollment in our Phase III trial evaluating Ameluz for actinic keratoses on the extremities, neck and trunk and in our Phase IIb trial for moderate to severe acne vulgaris. AKs are ultraviolet light-induced lesions. And while most occur in face and scalp, a significant number will also appear on other body parts that are frequently exposed to the sun. Adding the treatment of such lesions to our label, will add tremendous opportunity as physicians want to be able to treat AKs wherever they occur without worrying about reimbursement difficulties, which they may face if they treat outside of the FDA label. Acne vulgaris is a chronic inflammatory skin condition affecting the pilosebaceous unit, which results from a combination of factors. While it's a very common condition during adolescents, it is becoming increasingly common in adults and can persist even into the 40s and 50s. For patients under 40 years of age, acne is the most frequent reason to see a dermatologist. For those older than 40, actinic keratosis is the most frequent diagnosis in dermatology offices. Together, these indications highlight our ambition to grow the clinical and commercial potential of Ameluz across multiple high-value dermatologic indications. Earlier this year, we received patent approval for the new improved formulation of Ameluz, extending our patent protection through December 2043. Biofrontera is the only company that has organized FDA-controlled clinical studies for PDT and dermatology in the U.S. in recent years, and the extended patent life is relevant to recover the investment and profit from the resulting possibilities. We recently completed our transformational agreement with Biofrontera AG. By acquiring all U.S. rights, approvals and patents for Ameluz and RhodoLED, we now have full control over our most important assets from production to commercialization. This transaction is expected to significantly enhance our gross margins and strengthen our long-term profitability. The new royalty structure, 12% when U.S. Ameluz revenue is below $65 million per year and 15% when it exceeds that threshold, replaces the prior transfer pricing model of 25% to 35%, creating meaningful financial leverage as we continue to grow the Ameluz brand in the U.S. market. Already on June 1 last year, when we took over the responsibility for all clinical trials, we negotiated a reduced transfer price reflected in the cost of revenue for the first 6 months, which were about $2.6 million lower in the previous year, mostly due to the reduced transfer price, lower than in the previous year. Shifting now to the royalty model will not only dramatically decrease our cost of sales further, but also significantly delay the time of the payments. Transfer prices are due when we buy product, royalties become into effect after such products are sold into the market. As part of this transaction, we also secured an $11 million investment from well-established health care-focused institutional investors. Combined with the recent addition of the proceeds from the divestment of Xepi antibiotic cream, this capital positions us with a clear runway to sustained growth and profitability. We did complete the sale of our Xepi license last week, receiving $3 million at closing with the possibility of an additional $7 million as certain milestones are achieved. Xepi has been an inactive product for years due to manufacturing difficulties, and therefore, the divestment will not result in the loss of a portion of our sales. We believe the proceeds from this and the financing I mentioned a moment ago and of our continued commercial execution will bring us to cash flow breakeven for fiscal year 2026. I would like to thank our entire team for their continued dedication to execution and growth, which has enabled us to deliver the strong results Fred will talk about. At this time, I'm pleased to turn the call over to Fred to go through the financial details of the third quarter and first 9 months. Fred? Eugene Leffler: Thank you, Hermann, and it's great to be talking with everyone again. I'll start with our results for the 3 months ended September 30, 2025. Total revenues for the third quarter of 2025 were $7.0 million compared with $9.0 million for the third quarter of 2024. The 22% year-over-year sales decline in the third quarter reflects the temporary comparison effect as customers advanced purchases in the third quarter of 2024 ahead of the company's price increase that took effect on October 1, 2024. Total operating expenses were $13.3 million for the third quarter of 2025 compared with $14.0 million for the third quarter of 2024. Cost of revenues decreased by $2.8 million or 58% as compared to the 3 months ended September 30, 2024. This was primarily due to the reduced costs agreed upon with Biofrontera AG in relation to taking over clinical trial and other costs. Selling, general and administrative expenses were $10.4 million for the third quarter of 2025 compared with $8.4 million for the third quarter of 2024. The increase was primarily driven by increased legal costs due to patent claims, partially offset by $0.5 million in personnel savings, within both the direct sales team and the general administrative and administrative staff and a $0.3 million decrease in other miscellaneous general and administrative expenses. The net loss for the third quarter of 2025 was $6.6 million, compared to a net loss of $5.7 million for the prior year quarter. This increase in net loss is attributed to the higher legal costs, offset by a better gross margin. Adjusted EBITDA for the third quarter of 2025 was negative $6.0 million compared with negative $4.6 million for the third quarter of 2024. We look at our adjusted EBITDA and non-GAAP financial measure as a better indication of ongoing operations, and this measurement is defined as net income or loss, excluding interest income, expense, income taxes, depreciation and amortization and certain other nonrecurring or noncash items. Please refer to the table from our press release this morning, which presents a GAAP to non-GAAP reconciliation of adjusted EBITDA for 2025 and 2024. Now I will turn to our results for the 9 months ended September 30, 2025. Total revenues were $24.6 million for the first 9 months of 2025, compared with $24.8 million for the first 9 months of 2024. Total operating expenses were $40.5 million for the first 9 months of 2025 compared with $40.3 million for the same period in 2024. Increased legal expenses were offset by reduced operational costs. Cost of revenues decreased from the prior year to $8 million for the 9 months ended September 30, 2025, compared to $13.3 million for the same period last year due to the reduced transfer price agreement with Biofrontera AG in February of 2024 in relation to taking over clinical development costs. Selling, general and administrative expenses increased to $29.6 million compared to $25.6 million in the prior year. The increase was primarily attributable to increased legal expenses driven by patent claim-related legal costs. The increased legal expenses were partially offset by savings in personnel expenses of $1.1 million due to headcount fluctuations in our direct sales and administrative teams as well as a decrease of $0.4 million in expenses related to sales support functions and a decrease of $0.4 million in equity issuance costs. The net loss for the 9 months ended September 30, 2025, was $16.2 million compared to a loss of $16.4 million the prior year. Adjusted EBITDA for the same period was negative $15.7 million for the first 9 months compared with negative $13.9 million for the first 9 months of 2024. Turning to our balance sheet. As of September 30, 2025, the company had cash and cash equivalents of $3.4 million subsequent to quarter end, as Hermann mentioned, we further strengthened our liquidity position with additional cash inflows, including $2.5 million, representing the final tranche of the previously announced $11 million financing from AIGH and Rosalind and $3 million from the -- at the closing of our Xepi divestiture. These proceeds enhance our flexibility and provide additional resources to support continued growth and execution of our strategic initiatives. As we take over the manufacturing of Ameluz, we will have better control of the entire process and shorter lead times for the product. This puts us in a better operational and financial position, especially when it comes to inventory levels and working capital, add to which the restructuring deal now allows us to better address impacts of any potential tariffs. As of our latest shipment, Ameluz is still exempt from any reciprocal tariffs that have been discussed. As we announced in past releases and Hermann mentioned as well, the support of the $11 million investment has enabled us to get to this point. I want to thank everyone at Rosalind Advisors and AIGH Capital for their trust in us. The financial commitment and the support to expand our opportunities in making Ameluz and the lamps available for medical treatments. The first tranche that was on our balance sheet as a liability has been reclassed into permanent equity after the special shareholder meeting, which took place in September of this year. So with that overview of our business and recent financial performance, Hermann and I are ready to take questions from our covering analysts. Operator? Operator: [Operator Instructions]. And your first question today will come from Bruce Jackson with the Benchmark Company. Bruce Jackson: First, I wanted to ask, are you contemplating any price increases in the future? And if so, when? Hermann Lubbert: Yes, we are contemplating a price increase, and we are planning this before year-end. Bruce Jackson: Okay. And then a couple of additional questions on the new product pipeline. So you've completed enrollment in the trial for AK of the extremities. When do you think the data will be available? And what is the plan for submitting the data to the FDA? Hermann Lubbert: I think the data will be available probably in January. And to submit to the FDA, we are waiting for the results of a maximal-use pharmacokinetic study, which is [indiscernible] and we expect the results of that one about a month later than from the pivotal trial, so in February. So by the end of February, we should have everything that we need. And then putting all of that together into the dossier and fixing it all up for FDA submission will take some time. So we think that we'll be able to submit this to the FDA in Q2. Bruce Jackson: Okay. Okay. And then the -- a similar question for the acne trial. When will we see some data? And then what is the next step for that program from a regulatory standpoint? Hermann Lubbert: Well, the next step after that, so data will be pretty much in parallel with the data in the periphery, so also early next year. The next step then will be an end of Phase II meeting with the FDA. And then based on that, at the end of Phase II meeting and based on how the FDA positions themselves, we will plan the Phase III studies. Bruce Jackson: Okay. Okay. Got it. And then last question for me on the plan for breaking even. Should we think of it similar to the seasonality that we see on the income statement where the individual quarters in 2026 might bounce around between losses and gains and then the fourth quarter will be fairly large, resulting in a breakeven profit situation for the full year. So how we should be modeling that? Eugene Leffler: Bruce, yes, it's Fred here. Yes, that's exactly right. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Hermann Luebbert for any closing remarks. Hermann Lubbert: Yes. Thank you for the questions, and thanks, everybody, again, to all our shareholders and to the health care professionals and especially the patients that we are proud to serve, to help the company progress, and thank you for your time this morning and your interest in the company. Thank you. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.