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Operator: Good afternoon, everyone, and welcome to Equatorial Group's earnings conference call for the third quarter 2025. Joining us today are the company's CEO, Mr. Augusto Miranda; Vice President, Mr. Leonardo Lucas; Regulations Director; Mr. Cristiano Logrado; Financial Strategy and Investor Relations Director, Ms. Tatiana Vasques; and Mr. Liu Aquino, President of Echoenergia, all of which will be available at the end of the presentation. Please note that a simultaneous translation too is available on the platform. To access it simply click on the interpretation button and choose your preferred language. This conference is being recorded and will be available at the company's Investor Relations website, ri.equatorialenergia.com.br along with the presentation shown today. [Operator Instructions] Before we begin, please be advised that any forward-looking statements made during this conference are based on the beliefs and assumptions of Equatorial Group's management and on information currently available. Such statements involve risks and uncertainties as they refer to future events that may or may not occur. Investors, analysts and members of the press should be aware that changes in the macroeconomic environment, industry conditions and other factors could cause actual results to differ materially from those expressions of such forward-looking statements. We will give the floor to Mr. Augusto Miranda, who will begin the presentation. You may proceed. Augusto da Paz Júnior: Well, good afternoon, everyone, and thank you for joining our earnings call. We had a very successful quarter on both the operational and financial fronts. In addition to important recognition that reflects the team's seriousness and commitments to our customers, employees and investors, Equatorial Pará was recognized as the best distributor in economic and financial management in Abradee award. Equatorial with the group appeared for the first time in The Great Place to Work ranking among the best 20 companies in the country. And we were once again elected by extel as the Most Honorable Company in the Utility segment in Latin America, ranking 7 of the 8 categories. On the operational front, we delivered strong results and energy distribution, which grew 2.6% in build and compensated market volume, maintaining a solid loss performance trend in the recent quarter. We achieved a contractual DEC target or CEEE-D which will be detailed later in the presentation. On the financial front, we delivered solid results with EBITDA of BRL 3.4 billion. We invested BRL 3 billion and still close the quarter with BRL 16 billion in cash, which means our short-term debt is 2.1x. Now the cash for the period was strengthened by an intense funding window, which totaled BRL 9.4 billion, extending average debt maturity from 5.5 to 5.8 years. It is important to highlight that part of the funding raised is intended for debt repayment approximately BRL 800 million. And during October and November, we also prepaid 2 additional BRL 2 additional billion. With this financial position, we ended the quarter with a net debt-to-EBITDA covenant of 3.3x. Regarding the group's value creation highlights, we closed the sale of the transmission segment. And as a result, announced one of the uses of the proceeds, the distribution of BRL 1.8 billion in interest on equity, equivalent to BRL 1.45 per share, which will be paid next Monday, November 17. The Federal Court of Accounts approved the renewal of the Equatorial Maranhão concession. We are now in the final stage of the process and pending ratification from the approval of the Ministry of Mines and Energy. I will now give the floor to Leo to speak about our economic and financial performance. Leonardo da Silva Lucas Tavares de Lima: Thank you, Augusto, and good afternoon, everyone. I will briefly discuss the group's economic and financial performance from a consolidated and adjusted perspective. In this quarter, we delivered margin growth of 4.5%, driven mainly by the solid performance of distribution segment, while EBITDA reflected the impact of consolidating SABESP equity method results. The quarterly outcome was achieved with a strong cost discipline with PMSO increasing only 0.7% quarter-on-quarter. Adjusted net income for the period increased 4.9% year-over-year reaching BRL 830 million. If we look at the group's debt position, the net debt-to-EBITDA ratio came in at 3.3x, impacted by the one-off reversal recorded at SABESP relating to the accounting in the third quarter '24 of the concession financial asset. It is worth noting that this quarter, we were very active in the debt capital markets, focusing on improving the debt profile, which extended the average maturity from 5.5 to 5.8 years in addition to reducing spreads. Finally, we highlight the investments made during the quarter, totaling BRL 3 billion, an increase of approximately BRL 600 million vis-a-vis the same period last year. This growth was driven by investments in Pará to [BRL 129 million] and CEEE-D with BRL 161 million both of which have tariff reviews scheduled in the near term. This quarter, we recorded a 206% increase in maintenance and renovation work. Let's go to Slide #7. On the slide, we present the consolidated performance of our electricity distributor, where we highlight the reduction during the quarter. To the left, very briefly, we present the consolidated performance of our energy distributors where we highlight the reduction of losses during the quarter, making the eighth consecutive quarter in which we consolidated losses below the regulatory benchmark. We highlight the consolidated growth in energy volumes across our concession. In this quarter, we recorded a collection rate of 99.2% and PECLD over ROB of only 1.02%, driven by the renegotiations carried out during the period and the new low-income tarif. In addition to the improvement in CEEEs indicators, which were still affected by distortions linked to the weather events in the second quarter '24. As Augusto highlighted, we achieved the contractual debt target for CEEE-D. And on a consolidated basis, we ended the quarter with all of the group's distributors within the regulatory limit for FEC. 4 of the 7 distributors meet the regulatory DEC limit. If we consider the contractual DEC thresholds, 5 of the 7 distributors would be below the DEC limit. We recorded gross margin growth of 5.7% in the distributors during the quarter, reflecting a higher POB tariff and a larger market volume in the period. If we adjust the distributed generation liability, recorded in the third quarter '24, the margin would have grown almost 8%. If we look at the adjusted PMSO for the distributors in the quarter, we had an increase of 4.6% slightly below inflation and a smaller variation of PMSO per consumer, which is only 1.8%. These dynamics resulted in a 8.1% increase in adjusted EBITDA for the Distribution segment. If we exclude the distributed generation liability in the third quarter '24, the increase would be 11.5%. We now go on to Slide #8. In this slide, we present an overview of the challenges that we've faced in Rio Grande do Sul and their impact on investment and service quality. When we acquired the concession, the historical record of weather events indicated an incidence of 2 to 3 events per year, but we were faced with the beginning of the concession with a significantly more challenging scenario. Due to the severity or high frequency of emergency situations, we have to postpone certain necessary investments for the distributor. We can clearly see on the chart that once we were able to operate in a concession fully, the results appeared quickly. When comparing the third quarter '25 with the third quarter '24, which was the first quarter after the state of calamity in Rio Grande do Sul, we show an impressive 9.1 hour reduction in the 12 months DEC during which we invested BRL 1.3 billion in that concession. In the third quarter '25, we reached the contractual debt target established for year-end. This outcome reinforces some of the pillars we have in the distribution segment. Among them are relentless pursuit and commitment to quality and our operations, besides our dedication to delivering improvements in operational performance and service quality that is truly lasting. We thank all of the teams for their herculean and tireless efforts over the past quarter in the search for these results, and we reaffirm our commitment to continue to improve across multiple fronts, energy with increasing higher quality for our customers every day. Very well. Let's go to Slide 10 to look at the other segments of the group. In the transmission segment, we completed the closing of the asset divestment transaction on October 31, concluding one of the most successful capital allocation cycles in the transmission sector in Brazil. We sold 8 transmission companies with a MOIC of 8.3x and an internal rate of return of more than 37% per year. The deal closed with an equity value BRL 6.4 billion, including the capital reduction carried out a few days before closing. The proceeds for the sale will be used for shareholder remuneration, debt reduction of the holding company and partial redemption of preferred shares at Equatorial D therefore contributing to lower CDI linked-financing costs. Moving to water and sanitation. The segment's results continue to reflect progress in hydrometer installation. This quarter, we reported EBITDA of BRL 2.2 million, up 68% vis-a-vis the same period last year. In the Renewables segment, we reported EBITDA of BRL 226 million, 8.1% lower, reflecting the effect of curtailment this quarter as a subsequent event. We highlight the approval of provisional measure of 1304, which still requires presidential sanction and establish important advances in this sector regarding the impacts of curtailment. I will now hand the call back to the operator for the question-and-answer session. Operator: [Operator Instructions] Our first question is from Luiza Candiota from Itaú BBA. Luiza Candiota: I have 2 questions. The first is more specific. If you could give us more color on the nonrecurring effects of this quarter, the amount draw attention, especially in the line item, other expenses and revenues, we have received several questions about this. So which were the main impacts here? The second question refers to the partial exercise of preferred shares. This raised a significant amount. I would like to understand the motivation underlying that decision and how does the company look upon this type of structure in preferred share going forward. If we consider the tax reform that is about to be approved. Augusto da Paz Júnior: Leo? Leonardo da Silva Lucas Tavares de Lima: Thank you, Luiza, for the question. Regarding the operational effects, it's important to underscore the following. This line item is connected to the investment dynamic and it has terrible volatility. I think it's also representative of our cash. If we look at the comparison with the second quarter '25. There were revenues in that line item. If compared with the third quarter '24, the expenses were close to 0, showing you that incredible volatility we have in that line item. Regarding the variation in other expenses for the period, this results mainly from nonrecurring events of the third quarter '24 that added up to BRL 130 million, BRL 95 million referring to the reversion of provision of our stock, especially in Goiás, Pará and Rio Grande do Sul. And the receivable of an indemnization that completes the difference. We also had a significant increase, as we mentioned in the presentation of 200% in work for maintenance and renovation this quarter, especially in Pará, Rio Grande do Sul and Goiás. All of the impacts, the deactivation of the residual value of assets with a growth of BRL 32 million in the quarter and the cost for the withdrawal of these obsolete assets. And finally, we had a nonrecurring effect in Pará of approximately BRL 50 million for the elimination of services worked from the past. This explains the variation. It truly is a line item with a great deal of volatility that concentrated on this quarter. Now as an interesting instrument, we have what you mentioned, we made a very interesting use of it. It is an instrument that doesn't allow you to use the market pool, especially at the moment of expansion. In the recent past, we went through several acquisitions, and it became very important during that period. At moment when we foster the sale or recycling of assets, we carry out this movement to disarm to do away with the support that we used in that period of acquisition. It's a tactical movement for that moment. We understand that we're making an appropriate use of this instrument. And it is a very interesting tool that might make more sense in the future in different circumstances. Operator: Our next question comes from Mr. Daniel Travitzky from Safra. Daniel Travitzky: You mentioned the sale of the transmission assets that could be used to remunerate shareholders. And yesterday, you announced a new program for share buyback I would like to better understand the company's mindset when it comes to dividends and shareholder remuneration going forward? That is the first question. The second question, if you could comment on the strategy that you're thinking of to participate in sanitation auctions in the coming year. If this continues to be a segment that is a focus for the company? And how do you foresee the opportunities that arise in 2026? Augusto da Paz Júnior: Thank you, Daniel, for your question. In fact, we carried out a very broad destination of the resources from our sales we kept a part to remunerate shareholders. Our buyback plan was coming to an end. And this is a very interesting instrument to have actively at any moment in time because we need to have shares in treasury to face the long-term incentive but also to have that option as we did in the past to carry out acquisitions or purchases of our shares and sell them or limit the shares we have, depending on the moment. We are going to have a year of a great deal of volatility, and it is at those moments that this option makes ever more tense. For that reason, when we saw that the plan was coming to an end, we start out the approval for a renewal exactly for the purposes that I mentioned for the options that I mentioned. Now regarding the sanitation auctions, penetration continues to be an important avenue of growth, a very broad avenue. We have always been very active looking at this seeking a certain angle to make important moves here. We intend to continue to be active in our search. And if we find attractive opportunities, competitive opportunities, we will move forward. Operator: Our next question comes from Mr. João Pedro Herrero from Santander. Joao Pedro Herrero: We saw that in Ministry the -- in September, I'm sorry, the Ministry opened up a consultation now to see the mindset of the company. Do you deem this to be a relevant opportunity? Second question, refers to the tariff in the North and Northeastern regions that the parcel has a higher amount vis-a-vis other regions. In other regions, is there space to implement this tariff and which is the cost benefit of doing this? Cristiano de Lima Logrado: This is Cristiano. Our view is the following the process of digitization has to be done very cautiously. And I think the minister was assertive at gauging this at 4% a year, and then we will think of a plan to do this. Why does it demand caution? It's not only about changing the meters we can put in smart meters and not change anything else. The possible benefits may be lost. There is a process of learning regarding the benefits that this will bring about. And we have to think about the regulation and the obligation of delivering bills. If we're carrying out remote reading, of course this will have a benefit. In that context, it represents a significant opportunity, but it will depend on additional elements that we have to work with alongside the ministry. Regarding the tariffs in the North and Northeast, most of the population in those states has a strong benefit full exemption in terms of kilowatt per month. So they're exempt from the tariffs basically if you look at the provisional measure 1304 that is about to be sanctioned. There are some elements that will increase the cost. They will increase the pro rata of CEEE-D and broaden the market. So we could accommodate an eventual growth therefore. So there are several elements present, and we cannot -- I analyze this in isolation when it comes to the provisional measure. Operator: Our next question comes from Mr. Raul Cavendish from XP. Raul Cavendish: My doubt is that debate on the 1304. We have debated the unfolding of this, especially from the viewpoint of curtailment. Now what is your view on these prices and the technical note on reclassifying consumers according to the white tariff? Now with these changes proposed, which would be your projection? Augusto da Paz Júnior: Leo will answer this question for Raul. Please, Leo. Leonardo da Silva Lucas Tavares de Lima: A very good question. The impacts of the 1304 are linked to the structural changes we observed in the system. We have less flexibility in the system. And of course, this demands a price signaling that is compatible with oversupply and over demand. This includes that white tariff we are attempting to show a more adequate price and more adequate incentive for the system so that it can self-regulate. In that sense, I think it is doing well. There is that issue of curtailment which does not fully resolve the curtailment problem in the provisional measure. But the idea is to deconcentrate the risk of curtailment that is very focused on centralized generation. So we think that there have been strides made in this direction. If you could further explore that idea of the white tariff, can this increase the addressable market for service rendering for wholesale retail market provision? Could this be a business segment that will gain relevance over time if that proposal is approved? Yes. Doubtlessly, the market trend is that the energy market will become a more flexible market, and the white tariff is simply a first step. Our expectation is that we will see evolution potentially in terms of prices. And in the model, the pricing model. When we look towards the future, this is the path that we expect. Operator: [Operator Instructions] The question-and-answer session ends here. We would like to return the floor to the executives for the company's closing remarks. Augusto da Paz Júnior: Well, thank you very much. Now to conclude, I would like to once again reinforce our commitment with a continuous value creation agenda we pursue for our investors. Through the delivery of consistent results across all segments in which we operate always guided by disciplined, financial management made possible by Equatorial's culture. I would like to congratulate the IR team for the results once again in the extel ranking and remind everybody, they are available to assist you with any questions after this call. Thank you for your interest in the company and for joining us. Operator: The conference ends here. We would like to thank all of you for your attendance. Have a very good afternoon.
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.
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: Thank you for standing by. My name is Jay, and I will be your conference operator today. At this time, I would like to welcome everyone to the M-tron Earnings Call for the Third Quarter of 2025. [Operator Instructions] I would now like to turn the conference over to Linda Biles, EVP of Finance. You may begin. Linda Biles: Good morning, everyone. Thank you for joining our 2025 M-tron Q3 earnings call. Please note that this call will be recorded, and we will make the recording available on our Investor Relations website, www.mtron.com shortly after the call. Yesterday afternoon, we released our earnings for the third fiscal quarter of 2025. Before getting underway, we are required to advise you that the following discussion should be taken in conjunction with our most recent financial statements and notes as contained within our 2024 10-K which was filed on March 27, 2025, with the SEC. This discussion may contain forward-looking statements within the meaning of 27A of the Securities Act of 1933 and Section 21E of the Securities and Exchange Act of 1934. These forward-looking statements contain known and unknown risks and uncertainties, which are detailed in our filings within the SEC. Although the company believes that the forward-looking statements are based upon reasonable assumptions regarding its business and future market conditions, there are no assurances that the company's actual results will not differ materially from any result expressed or implied by the company's forward-looking statements. The company undertakes no obligation to publicly update or revise any forward-looking statement, whether as the result of new information, future events or otherwise. Readers are cautioned that any forward-looking statements are not guarantees of future performance. With that, I will now turn the call over to our CEO, Cameron Pforr. Cameron Pforr: Thank you, Linda. Good morning, everyone. Thank you for attending our third quarter FY 2025 earnings call. We are pleased to discuss our strong results for the first 9 months of the fiscal year and our outlook going forward. As a reminder, M-tron designs and manufactures highly engineered RF solutions, including electronic components and subassemblies used to control the frequency and timing of signals and electronic circuits. We're a global company with 3 manufacturing sites in the United States and in India. The company's primary markets include aerospace and defense, commercial avionics, space and industrials. We're pleased to report that the company continued to perform well with continued strength in M-tron Q3 sales and backlog. Our revenues continue to be driven by defense-related orders. However, we did see some growth this quarter in other areas as well. With consistent operating performance, we have been able to continue to make strategic investments in research and development and continue to improve the market profile of the company and prime to pump for future growth. Yesterday, we reported the following Q3 2025 results. The total revenues for the third quarter was $14.2 million, which was a 7.2% increase over the $13.2 million for the third quarter in 2024. This increase was primarily due to strong growth in avionics, space and industrial product shipments. Gross margins for the third quarter were 44.3% compared with the elevated 47.8% gross margins in Q3 2024. The decrease was primarily due to product mix and also higher tariff-related costs, which we've discussed in the past. Net income for the quarter was $1.8 million or $0.63 per diluted share compared with $2.3 million or $0.81 per diluted share for the 3 months ended September 30, 2024. This decrease was primarily due to a large reversal of a deferred tax asset called for by the tax law changes in The Big Beautiful Bill. That was almost $1 million of expense or a little bit more than $1 million expense plus the P&L, the lower gross margins from the year prior and also slightly higher OpEx expenses consistent with our growth. Adjusted EBITDA was $3.2 million for the 3 months ended September 30, 2025, compared with $3.3 million for the prior year's September quarter. The slight decrease was primarily due to lower gross margins and a relatively small investment in SG&A. Backlog ended as of September 30, 2025, was $58.8 million, which was an increase of 48% from the $39.8 million for September 30, 2024, and was a 24.5% increase from the end of year December 31, 2024 figure of $47.2 million. The increase in backlog from December reflects robust demand across aerospace and defense programs, new program launches and a recent surge in avionics and space orders. On October 23, 2025, the company announced that the dividend of warrants that granted in April 2025, achieved its early trigger condition and is exercisable through 5:00 p.m. on December 11, 2025. 5 warrants are exercisable to purchase 1 common share of stock. The strike price is $47.50 per share, and the warrants have an oversubscription feature, which allows warrant holders who have exercised all of their warrants to potentially seek and acquire additional warrants if the offering is undersubscribed. Warrant holders are encouraged to review the warrant agreement in the FAQ page on our Investor Relations website, which is ir.mtron.com. We continue to execute on our strategy of continuing and moving into more program business, which now makes up the vast majority of our aerospace and defense revenue. We are involved in over 40 programs of record, and many of these programs are sole-source programs where we stand to reap many benefits as defense spending in the areas we support continue to grow. Just to give you a little bit of flavor for that. This year, we've had some big wins in EW and radar systems. And that's an area where we expect to double our revenue next year just reflecting those wins and some of the programs moving to higher rates of production. In addition, we've been asked to provide plans to dramatically increase our precision guided munitions production for certain programs as well as a new UAV program, which we're very excited about. We continue to innovate, as evidenced by the high rate of revenue from newly designed products. To give you an example of some of this innovation, we and other vendors in this space produce compensated oscillators, which are used in airframes with a great amount of vibration. So usually a helicopter or fighter aircraft. This compensation is done to reduce the drift of the timer. Traditionally, they were externally compensated and a typical size or a unit like this or a module like this was 16 inches by 16 inches. We've developed an internally compensated oscillator, which is a little bit more than 2 inches by 2 inches and performs the same function, and we're seeing dramatic demand for this line of products. This type of innovation was really what keeps M-tron at the fore of the industry. I'd like to thank our dedicated customers for their continued business and partnership and our loyal employees for supporting the company and its mission of serving the nation and its capability to defend freedom. M-tron plays a critical role in the sense of our nation by providing U.S. sourced highly engineered components from any U.S. and allied military programs and having a U.S.-based advanced manufacturing capabilities to support our joint forces is more important than ever. And before I open the floor to questions, I wanted to mention that we will be presenting at the IDEAS conference next week in Dallas, Texas, at the Sidoti Year End Virtual Investor Conference later in December and at the Oppenheimer Conference in February of 2026. Information for these events will be posted on our investor website, and I hope that many of you can join us for some of those presentations and meetings. Operator, can you please open up the line now and allow our first question? Operator: [Operator Instructions] Your first question comes from the line of Anja Soderstrom of Sidoti. Anja Soderstrom: Congrats on the appointment, Cameron. Cameron Pforr: Yes. Thank you, Anja. Anja Soderstrom: You noted the increased spend on research and development. Is there a specific area you are increasing it within? And can you talk a little bit about what you're doing there? Cameron Pforr: Yes. No, it's really bringing on board design engineers. We've been spending a lot of -- we're a filter and oscillator company, but every type of filter oscillator we build takes some different expertise levels of areas. So that's one area we're trying to hire. And this is really something that helps us drive the revenue because we're a very engineering-focused company, and our sales teams really get our engineers engaged very early with our customer prospects to work on a kind of a codeveloped solution. So it's really a hiring. Anja Soderstrom: Okay. And then also, you mentioned industrials have started to pick up for you. What are your sort of main programs there within Industrial? Cameron Pforr: Yes. I think the biggest area in the short term, that's an area that we've put in several markets. So test and measurement is one of the bigger ones, oil and gas, like downhole drilling, telecom also fits into that area. But what's been driving as recent was some test and measurement revenues. Anja Soderstrom: Okay. And then you also mentioned the recent search in Avionics. How are you seeing that trending in the fourth quarter? Cameron Pforr: Right. So I kind of mentioned on some earlier calls that we supply through several other primes, really all the Airbus and Boeing aircraft builds. And those are -- those companies have really started reengaging their backlogs are increasing really dramatically, and they're moving towards higher production rates. We did see orders from Boeing, for example, earlier in the year and maybe earlier than we expected, frankly, just kind of given the events there and the inventory we thought they had. And we did have a big order and a large contract for commercial aircraft earlier in the year, and we're starting to see orders against that contract. Anja Soderstrom: Okay. And then lastly, we've been talking about tariffs before. But what can you do there to sort of combat that? Cameron Pforr: Yes. That's a great question, and it's kind of an ever-moving target, as most of the people on the line probably figure now at this point in time. We really anticipate probably tariffs remaining in place for the next 3 years unless Supreme Court takes some action there. So maybe something we have to live at this point. It's costing us about 1% to 1.5% of revenue in terms of the impact on gross margins. There are a couple of things we're doing. So one is we're examining the materials that we order what has to be shipped into the country and what can be for certain parts we order can they be shipped directly with customers. So we are making some changes in that regard. We are actively working with our customers to enact a clause of the FAR, which allows us to get tariff relief for defense products that are specifically for U.S. forces that doesn't apply to shipments to other NATO countries. And we've also passed along some tariff charges, and we think that's fair and that's part of our contract. But we are, at this point in time, looking to incorporate tariff charges and much of our pricing for new orders. So that's just a reality. Anja Soderstrom: Okay. And like when would that become effective then? How much longer are we going to have this headwind? Cameron Pforr: Yes. No, we're -- on the FAR exemptions, that's really just starting to come into effect now just because the way the program is set up, you need to do it on the front end when you're ordering materials for a future shipment. And so for all inventory that we had in stock, we couldn't use that exemption. But for new orders we are putting that into effect. On pricing, that's something that we're having to factor into our pricing currently. Operator: With no -- Next question comes from the line of Otto Haeg of Farnam Street. Otto Haeg: Congrats on the appointment. A quick question on the Indiana Microelectronics partnership that you announced. Can you -- how the tunable products, if you will, and integrating their technology into or with MPTI, how do you see that working? What products are we talking about? Can you -- what can you tell us about that partnership? Cameron Pforr: Yes. We're actually very excited about it. It's a company we've known for a long time, and we've been keen to work with them in the past. We're glad we've come to agreement about how to do it, how to support each other. They're a really great design team. They've won some very interesting contracts, primarily with the military but other areas as well. And one of the issues, I think, for them was really how do they scale their business. So we've really formed a partnership where we'll work with them on the sales and marketing of their designs. And then also working with them once we procure an order on the manufacturability of the product. So when we go to the market, we provide a quote for someone, our engineers working with their engineers to make sure that we're going to be delivering can be manufactured effectively. And they make a number of tunable filters. They're really kind of software tunable and the processes is not too difficult. So we spent time with their team, really understanding that. We think that's something we can stand up pretty quickly without a lot of CapEx on either party side. And we've already actually had some sales wins. So we're excited about where that can go. Otto Haeg: Do you think this is something where these could turn into rather large orders over time, programs? Or is this going to be kind of smaller programs or smaller products, if you will, runs? Can you just elaborate on that a little bit? Cameron Pforr: Yes. I mean we're obviously very early in the relationship, but we actually think it can grow into some fairly large contracts. They have already made great headway with several customers of their own that would like to scale production. And we think that just with the size of our manufacturer rep sales force, we'll find a lot of other opportunities to work together. Otto Haeg: Excellent. One additional, if I can. Can you give us an update on Connectivity partners have -- it doesn't appear we've made any investments there? Or what's happening in terms of them raising capital? Any update on what's happening with Connectivity? Cameron Pforr: Yes. There's no investment on M-tron's part to date. I do know that they've been meeting with companies and identifying like targets, and so they're trying to really build up a backlog of opportunities to grow their fundraising marketing and just prepped in terms of standing up the firm, but no current news in terms of how it impacts us. Operator: With no further questions, that concludes our Q&A session. I'll now turn the conference back over to Mr. Pforr for closing remarks. Cameron Pforr: Okay. Well, thank you all for joining, and I appreciate the questions, Anja and Otto. Wishing everyone on the call, a great day, and I appreciate your interest in the firm. Operator: This concludes today's conference call. You may now disconnect.
Matthew Chesler: [Audio Gap] A U.S. based Investor Relations firm supporting Eran Yunger, TAT's Internal Head of Investor Relations. Hosting today's call is Igal Zamir, TAT's President and CEO; and Ehud Ben-Yair, TAT's CFO. Before getting started, we would like to draw your attention to the fact that certain matters discussed on this call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other provisions of the federal securities laws. These forward-looking statements are based on management's current expectations and are not guarantees of future performance. Actual results could differ materially from those expressed in or implied by these forward-looking statements. The forward-looking statements are made as of the date of this call, and except as required by law, TAT assumes no obligation to update or revise them. Investors are cautioned not to place undue reliance on these forward-looking statements. For a more detailed discussion of how these and other risks and uncertainties could cause TAT's actual results to differ materially from those indicated in these forward-looking statements, please see our annual report on Form 20-F and other filings we make with the SEC. The financial measures discussed today include non-GAAP measures. We believe investors focus on non-GAAP financial measures in comparing results between periods and among our peer companies that publish similar non-GAAP financial measures. Please see this morning's Form 6-K, our earnings release and the Investors section of our website for a reconciliation of non-GAAP financial measures to GAAP measures. Non-GAAP financial information should not be considered in isolation from as a substitute for or superior to GAAP financial information, but is included because management believes it provides meaningful information about the financial performance of our business and is useful to investors for informational and comparative purposes. The non-GAAP financial measures that we use have limitations and may differ from those used by other companies. And now with all that, I'd like to turn the call over to Igal. Igal Zamir: Good morning, everyone, and thank you for joining us for the TAT Technologies Third Quarter Earnings Call. I appreciate your interest and continued support as we review our performance and discuss our strategic direction moving forward. TAT continues to deliver organic growth that exceeds the broader MRO driven by intentional diversification and strategic positioning serving in-demand and often underserved areas of the commercial aviation industry. We delivered another solid quarter in Q3, highlighted by double-digit revenue growth, record EBITDA margin and increased cash generation. These results reflect disciplined execution, strong demand across our core business lines and importantly, the operational leverage we have worked hard to build into our business model. Incremental revenues is now flowing through the bottom line in a more meaningful way, representing a significant accomplishment and foundation upon which we can continue to build. Our consistent growth and expanding profitability demonstrate that our model is performing as intended, efficient, diversified and designed to capture value across multiple segments of the aviation market. The broader aviation market continues to benefit from a constructive operating environment. Fleet utilization remains high, aircraft retirements are occurring at a lower pace than past cycles and OEM deliveries constraints are extending the service life of existing aircraft. Together, these dynamics are driving sustained demand of maintenance, repairs and overall activities as well as components, parts, distribution and leasing. This backdrop reinforced the importance of our diversified MRO platform and flexibility -- the flexibility that we provide to both commercial and cargo operators. As I stated in previous calls, normal quarterly fluctuations are expected in MRO industry, especially since the substantial portion of our MRO activity involve discretionary maintenance. Airlines tend to shift work between months and quarters based on budget cycles, expected flight loads and other operational considerations. External factors occasionally influence intake timing as well, particularly in defense-related work, though these factors typically affect timing rather than underlying demand. For these reasons, we believe in a multi-quarter year-over-year view as best captured the strength and the momentum of our business. We believe that this perspective, supported by the year-to-date and trailing 12 months trend provide a clearer picture of the consistency of our growth, margin expansion and cash generation. Over the past several years, we've added capabilities, strengthened operation and diversified revenue stream. These strategic initiatives has positioned TAT to sustain performance and long-term value creation. In particular, we have expanded into several underserved MRO markets, adding in-demand capabilities. And looking ahead, potential inorganic growth through the acquisitions of accretive bolt-on capabilities will further expand this proven foundation. With an increasingly stronger balance sheet and the leadership bench in place, we are sharpening our focus on identifying strategic opportunities to accelerate our existing growth strategy. We have recently added experienced corporate development executives to help us evaluate strategic M&A activities, and we are continuing to broaden our governance structure. At last week's Annual and Special General Meeting, shareholders elected 3 new independent directors to the company, Sagit Manor, Eitan Oppenheim and Amir Harel, each bringing deep financial and corporate development experience from leading global companies. These appointments enhance our governance and leadership capabilities as we position TAT for its next phase of growth. With this context, I'll turn it over to our CFO, Ehud Ben-Yair, to talk -- to take us through the financial results in more details. Ehud Ben-Yair: Thank you, Igal, and good morning, everyone. I will review the key financial results, balance sheet highlights and cash flow performance for the third quarter and for the first 9 months of 2025. Third quarter revenue increased by 14% to $46.2 million, up from $40.5 million in the same period last year. For the first 9 months of the year, revenue was up more than 18%. This growth was fueled by strong demand across our core businesses line, along with market share gains. Even while delivering another quarter of double-digit revenue growth, we essentially maintained our backlog and LTA value at $520 million -- this robust backlog validates our belief in durable customer demand and reinforce our business strategy of expanding our addressable market by adding new capabilities. From the beginning of the year, the backlog grew by close to $100 million, representing a huge increase compared to the increase in the revenue, which is representing a strong signal to our capabilities to further grow our revenue line. Gross profit increased by 37%, and our gross margin expanded by 410 bps to 25.1% compared to 21% in the third quarter last year. This improvement reflects our ongoing effort to optimize cost structure, improve operational efficiencies and enhance product mix. Operating income reached to $5.2 million, up by 52.6% year-over-year, demonstrating the leverage in our model as volume growth translated to profitability. Our net income for the quarter was $4.8 million compared to $2.9 million a year ago. Taxes on income for the quarter were $800,000 versus minimal amount in the same period last year. The new U.S. tax legislation enacted under the One Big Beautiful Bill Act had only a modest effect on our results, while changes such as the restoration of 100% bonus depreciation and updates to the R&D expenses alerted certain deferred taxes positions. The overall impact of our effective tax was not significant. However, the main benefit of implementing the new Act is an increase in the carryforward losses that will enable us to deduct them through the first 3 quarters of 2026, preventing us from paying any taxes in the U.S. for additional 4 quarters. While prior to the new act, we were supposed to start paying taxes by the end of this year, by the end of 2025. Our net financial expenses are close to 0 this quarter, mainly due to a favorable exchange rate differences between the Israeli shekel and the U.S. dollar, which were offset by the ongoing interest on our long-term loans. And finally, adjusted EBITDA increased by 34% to $6.8 million, translating to an adjusted EBITDA margin of 14.6% a record adjusted EBITDA margin and a notable improvement from 12.4% margin in the same period last year. That continues to deliver operating leverage as a result of our disciplined expense management. Moving to the cash flow. Cash flow from operation in the quarter was $7.5 million, driven by improved profitability and working capital efficiency and disciplined cost management. For the first 9 months, cash flow from operation was $9.5 million, representing an EBITDA cash conversion of 51%. Turning into the balance sheet. We ended the quarter with $47.1 million in cash and $12.1 million in total debt, resulting in a low debt-to-EBITDA ratio of 0.5x. Shareholders' equity stood at $170.7 million, supporting a strong equity-to-asset ratio of 76%. I'm going now to discuss a little bit about the results by the key product segments. In our APU businesses, after a modest sequential decline from Q1 to Q2, we saw a surge in intake in the third quarter with revenue increased by 39% year-over-year and 27% on a sequential basis. On a year-to-date basis, APU revenue is up by 26% from last year, aligned with our expectation and market penetration plan. Heat exchanger revenue increased by 6% between Q3 '25 and Q3 of 2024 -- on a year-to-date basis, revenue grew by 14%. The increase in OEM is very stable and aligned with the industry growth, while MRO growth was a little bit slow in the last 2 quarters, but expected to increase in the coming following quarters. In the landing gear area, revenue more than doubled year-over-year and nearly doubled on a sequential basis, reflecting a surge in intake and operational ramp-up, validating our strategy of supporting this underserved market. As communicated in the past, the E170 cycles started, and we are well positioned with contracts that needs to be served in the next 3 years. And last, trading and Leasing. After a particularly strong second quarter, we're down both sequentially and year-over-year basis, reflecting normal quarterly volatility as we explained in the previous earnings call. On a year-to-date basis, trading and leasing revenue is up by 17%. In summary, TAT delivered another period of solid growth and improving profitability, supported by disciplined expense management and strong cash conversion. Our balance sheet remains a strategic asset, providing flexibility to invest in both organic and inorganic growth opportunity. And by this, I'm returning the call back to our CEO, Mr. Zamir. Igal Zamir: Thank you, Ehud. The broader aviation market continues to experience viability, but our diversification helped offset these dynamics. While we are not immune [Audio Gap] is our agility. We have built the ability to adjust capabilities and capacity resources in real time, ensuring that we meet customer needs and sustain operational efficiency even in a changing environment. That adaptability remains one of our competitive advantages. We plan to leverage our strong balance sheet to pursue acquisitions that expand our addressable market, deepen customer relationship and natural adjacencies to our platforms. Over the past 2 years, we significantly increased our long-term backlog. I expect this overall trend to continue as customers seek nimble partners to support their maintenance needs. RFPs activity has its own cadence with quarter-to-quarter volatility, much like our intake volume. But the overall trend is encouraging, and I continue to believe that we are well positioned to capture more market share. In summary, TAT continues to deliver performance that exceeds the industry and our operational discipline is driving greater earning power. Supply chain dynamic continue to require active management, and we have made significant progress in relationship to our inventory levels, helping to increase our cash generation capabilities, and I remain optimistic about the years ahead. Before opening the call for questions, I'd like to thank our employees for their professionalism and hard work. Their commitment continues to set the standard for the industry and sorry, and underpins everything we've achieved. I also like to welcome our new independent directors. Their additional reflect our broader efforts to strengthen and diversify our Board as we prepare for the next phase of our growth. Over time, we expect to further expand the Board with additional U.S.-based and industry-oriented expertise to complement our strategy. I would now like to open the call for questions. Matt? Ehud Ben-Yair: Matt, you are on mute? Matthew Chesler: Thank you. Thank you for telling me about that. And thank you, Igal, for those remarks. As you know, we're now going to open up to the Q&A session. We're going to be taking live questions as well as submitted questions as I know a number of you have been submitting them already. [Operator Instructions] Please go ahead and raise your hands. Jonathan Siegmann, would you like to raise your hand or would you like me to read your question? I'll go ahead and read Jonathan Siegmann's question from Stifel. Congrats on the strong quarter, strong results and strong cash. Last quarter, you explained how TATT was able to make use of the tariff-driven slowdown in MRO intake activity and switched to repair APU. Can you talk about how TAT was able to flex your operating platform to manage this quarter's change in demand. We were particularly surprised by the more than doubling in landing gear. How should we think about TAT's revenue capacity for landing gear MRO activity? Igal Zamir: I think that I would like to answer this question in a more broader perspective. As I stated every quarter, I remember starting to make the same statement since Q4 of last year and being very consistent about it. I don't know that we can look at TAT on the MRO portion of TAT business on a quarter-to-quarter basis. There are many, many variables and things are changing based on the factors that I stated earlier when I -- in my opening remarks. I don't think that we need to look at it year-over-year. The lending gear was -- the lending year increase was expected. We stated it in previous calls. We are getting into a new cycle of lending gear overall with expectation to substantial growth in revenue going into the coming few years. Nothing is new here. We saw it coming and it came. There may still be fluctuations between quarter, but the overall trend is very strong. And going back to the flexibility and how to adjust, and I think that I truly think that this is our biggest advantage as a player that is not a huge player like many of our competitors. It's our ability to shift focus and to shift employees and manpower from one area to the other as needed. There is fluctuation. And the question is what do you do when the intake is surprising you comparing to the plan, which happens quite often. And we became pretty good in diverting a workforce and making sure that we adjust fast and that we don't just accept things as they are. Last quarter, we've been asked about the APUs and what happened for those of you who attended, how come that last quarter was strong. And I said the same thing. I have no concerns whatsoever about the APU intake, and we see this quarter with a substantial increase in APU. So I think that when we look year-over-year and the growth in all the segments, it's very promising. It's encouraging, and we see a continuing trend moving forward, especially when we look at the backlog. There's another submitted question. Matthew Chesler: This one is from Ben Klieve with Benchmark. Congratulations on another outstanding quarter. You mentioned your increased interest in looking at underserved MRO opportunities. I understand that you cannot get specific about what these opportunities are, but can you please discuss the characteristics of these opportunities and discuss why you think they've been underserved historically? Igal Zamir: So I think that the industry is in overall, especially over the last few years, is going through a post-COVID crisis. And part shortages and big players that are struggling and ramping up and many -- as an outcome, there is a -- it represents a big opportunities for fast companies, fast-moving companies, I would say, more flexible that can get ready and demonstrate that they have the ability to adjust to the situation and provide great service. One of the things that we are really proud of as a company in the last 2 years is the dramatic improvement that we have made comparing to many of our competitors in our on-time delivery, availability of parts. We made major investments in inventory to make sure that we will have the right parts on time. And we are performing well as an outcome and the new capabilities that we added on the APU side when the market is struggling and when airlines around the world are suffering from lack of capacity and you have the capacity and you are ready and you can demonstrate performance, you gain momentum. When it comes to the acquisition, just the M&A activity, we are not just looking -- just to be clear, and I would maybe elaborate on this for 2 minutes. We are not -- we are looking in several verticals and not necessarily just on the MRO, but also on the OEM side. When it comes to MRO, though, we are looking to add value to our customers. I think that what we hear from airlines around the world is that one of the challenges that they are facing is with a relatively small supply chain management team, they need to manage hundreds and hundreds of vendors around the world. And everybody is looking to consolidate work and to grow to work with a larger vendor that can support them across more product lines. So our M&A strategy when it comes to MRO will be to look for companies that can add high-quality, meaningful MRO services that we can add to our portfolio and be more meaningful to our customers kind of a general answer to the question. Having said this, as I said before, we are also looking for acquisitions on the OEM side to expand our thermal system capabilities, expand into new segments of thermal systems where we are not active today and become a more meaningful player in the thermal system world. Matthew Chesler: I'm going to summarize a question around backlog that I received from a couple of investors. Thank you, Tal, and thank you, Yuval, for submitting them. Essentially, it's -- that the backlog declined by a few million sequentially from last quarter. Can you comment on that? Igal Zamir: Yes. I almost -- I don't want to -- basically, it's a nonissue. I think that if you look year-to-date, we are way above where we started the year. We showed a huge growth. We cannot -- you need to remember that we publish wins and add them to the backlog and LTA value only when we sign them. And we cannot -- there are several factors. We cannot control when the airlines are opening the RFPs. We cannot control when they determine who is the winning bidder. And in many cases, even after we win, we cannot control when our legal team and the airline legal team will eventually sign the contract so we can publish. So as I stated before, we are enjoying a very strong opportunity pipeline larger than ever in the past. And we will keep on announcing and adding to the LTA new wins as we get them. And we remain very optimistic about it. That's the only thing that I can say right now. In the last 3 months, we have -- we were not -- we didn't sign any win yet. So we saw a tiny reduction, but it's a nonissue. Matthew Chesler: Next, there is a question from Chen and a question from Othick that I think relates to your exposure to potential external disruptions. For example, how are your operations affected by the federal government shutdown that apparently just ended? Or is the grounding of some of the UPS and FedEx aircraft found the incident in Kentucky expected to affect any loads and schedules at your service centers? Igal Zamir: I think that everything can have a -- every one of these interruptions or disruptions can cause some short-term hiccups. But when you look at the overall trend, none of them represent -- obviously, unless something turns into a macro global issue or challenge, none of them should have any sustained impact on our growth patterns for the future. I don't see right now any -- there is no drama here or any big impact with the exception of short hiccups here and there. And again, that we can easily -- in reality, we are overcoming them because we have different product lines coming from different customers and a very large customer base and OEM versus MRO and other factors. So, so far, we haven't seen any major impact or concern that should be noted here. Matthew Chesler: Okay. I have a follow-up question from Ben Klieve at Benchmark that relates to the landing gear business, which is scaling and seeing some lumpiness. Do you expect that the lumpiness is going to decrease or perhaps even get more pronounced? Igal Zamir: I'm expecting it to stay as it is through the -- again, the volatility between the quarters, but the overall trend is very strong. Matthew Chesler: Okay, next… Igal Zamir: Maybe I can add to it. On the landing gear side, we are trying to be more proactive with our customers, and you always try to come up with a predetermined schedule of removals and when exactly they are going to park the aircraft to remove the gear and to replace. And looking at next year on paper, it looks great and very little volatility from my 10 years of experience at TAT, the plan is great until the year starts. And there are always changes and unexpected events. It can be that, I don't know, a catering truck hit a gear in another aircraft, and now they have to change there. I'm giving it as one example. But there are always changes in and surprises. So I'm expecting volatility, but the overall trend and looking at where we are in the plan for next year, we expect to continue and to grow very nicely. Matthew Chesler: The next question is from Michael Ciarmoli from Truist. Operator, can you assist in activating Michael? Operator: Yes. Matthew Chesler: Michael, I think if we can hear you. Michael Ciarmoli: Okay. Perfect. Nice results. Just on the margins, really nice margin performance. I mean it looks like at the operating level incremental is about 31%. I think you've kind of talked about the EBITDA margins, 15%. You're basically almost there. Can maybe we think about or can you share with us how you're thinking about further operating leverage as you get some more volumes? And maybe even -- do you think you can get some pricing to be additive as well? Igal Zamir: Yes. So for those of you who listened to the calls in the last 2.5 years, 3 years, I've been pretty consistent about saying that I believe that the best-in-class company in our line of business should be at the 15% EBITDA and above. And yes, Michael, as you stated, we are very -- we are getting there, mainly due to operational efficiencies initiatives that we had and things that we are doing. I'm happy to say that now that we are almost there, we still have a lot of opportunities and a lot of initiatives to continue and improve the margin moving forward. And I'm not even before increasing revenue or before increasing pricing. And it's a very high priority for us on our plans for next year to continue and improve our efficiency to remove waste and to become -- to reduce purchasing costs and to become more effective company. Some of it may be used to be more competitive in RFPs and some of it will result in increasing -- in further increasing the EBITDA. Regarding pricing, we typically -- we try to be very careful about not using it as just as a tool because we are in a very competitive landscape. And we have -- obviously, we have escalation -- price escalation built into our contracts, but they are tied into predetermined indexes and like labor and materials. So prices are -- traditionally, if I'm looking years back, they were increased year-over-year, but that's not something that we are using as a tool for margin. Michael Ciarmoli: Got it. Okay. Helpful. And then just if I may, you guys break out your percent of revenues by MRO and OEM. And it looks like if I look at the OE percentage, it was up year-over-year, maybe close to 3%. And I just wanted to know your products on the thermal side, where you've got 737 exposure, what are you seeing there now that Boeing has gotten the FAA approval to rate break higher? Is there any destocking? Do you see any inventory? Or do you think that side of your business starts to grow as we see the volumes increase on the MAX? Igal Zamir: Yes. I think that -- Michael, I think that specifically, if you talk about the MAX and our effect, there is a minimal impact, but not something that will have any dramatic impact on the future business one way or the other. I can say that if you look at overall aircraft production rate in our OEM business, our OEM -- obviously, our business is growing in a linear line together with the increase in production rates. So again, without going into any specific platform, if you look across the board, if you look at the book of orders and planned capacity for Boeing, Embraer, Textron and others, we are enjoying it. And we plan to -- hopefully, we will continue to enjoy it in the years to come because we see more -- we see an increase in NPOs. Matthew Chesler: The next question is a 2-parter from Richard Kay, who said, you generate strong cash flow, again, is that sustainable? And how would you characterize your balance sheet strength today? Igal Zamir: So I'll answer the first question about the cash flow and Ehud, if you may want to answer about the balance sheet. I think we spoke about it last quarter. We were in a very fast growth in a very unstable market with gigantic supply chain issues and other challenges with customers. And we wanted to make sure that we will be ready to the customers. So we made strategic decisions to dramatically increase inventories and a few other things to support our customers that were -- as they were struggling. And last quarter, I mentioned that we are in a very healthy situation today that we don't believe that we need to increase and we can turn more of the EBITDA into cash. Our collection is better. We don't need to continue increasing inventories. As long as we don't go into a new product line that will require a new line of inventory, spare inventories, we are now at a position that we can start moving the inventory faster and increase inventory turns rather than inventory -- overall inventory increases. From a CapEx perspective, we made substantial investments over the last 4 years and getting ready for the growth facilities, equipment and everything else that was required. And I think that we are moving more -- we are scaling back because we already -- we feel that we are ready with what we need for the next year or 2. And so the substantial investments are kind of behind us. There is always going to be a certain level of investment, mainly focused on 2 aspects, the maintenance, let's call it, maintenance CapEx and the second type is CapEx associated with continuing to improve our efficiency. And we are -- but all in all, we see a substantial reduction in CapEx needs, and this is also going to impact the cash. So again, cash may fluctuate mainly based on collections versus payments from quarter-to-quarter, but we do expect to continue and enjoy very strong cash flow. And Ehud, I wonder if you would like to address the balance sheet. Ehud Ben-Yair: Yes. [indiscernible] I'm expecting the balance sheet to continue or the equity ratio to balance sheet to continue to stay very high and very strong in the area of 70% to 75% in the coming quarters, given the profitability forecast and the capital -- the working capital needs that we're seeing. I must say that, however, as we indicated in the past that in case we'll execute an acquisition deal, part of financing of this deal will come from debt leverage, and this will change a little bit the ratios in the balance sheet. Matthew Chesler: We have a follow-up question from Michael Ciarmoli from Truist. Michael Ciarmoli: Okay. Perfect. Just a follow-up. I think last quarter, I mean, you had a really good landing year performance, assuming that the internal supply chain challenges and inefficiencies you've had are kind of totally resolved. And then just one more on the APUs. I wanted to know what you're seeing on penetrating the market for the 131. Igal Zamir: You are asking about the 131 specifically. We are currently -- we have several opportunities that we are trying to bid on. We haven't won any meaningful in the last -- so far, I would say we haven't won any meaningful RFP. The opportunities are out there. And we still have some learning curve. The demand is there. The RFPs are coming. And I believe that with time we start showing substantial growth there. We're just -- we are basically at the beginning, if you will, as we stated in the last few quarters. Matthew Chesler: We have an additional submitted question, which is asking about the supply chain and whether conditions and capacity utilization are improving or how are they trending? Igal Zamir: I would say it depends on the product lines. I believe that on the thermal components supply chain, where we purchase basically raw materials, supply chain pretty much stabilized to where it used to be pre-COVID. No major stories there. And APUs and landing gear still -- APUs is more reliable, but still very long lead times from the vendors. And on the landing gear is still unstable, both on the lead time and reliability of the vendors. So different phases. All in all, I can say across all product lines, the trend is very positive, but we are not there on the APUs and landing gear, the industry is not where it needs to be. Matthew Chesler: Here's a question from Ehun [indiscernible]. Asking about gross margins, can you -- I guess, I'm looking at the question, can you talk about the sort of the mix of gross margins across your businesses because he's observing that some of the gross margins, excluding leasing and trading did increase substantially over the quarter. And I'm just wondering what that mix looks like across the businesses? Igal Zamir: Ehun, would you like to address it? Ehud Ben-Yair: Guys, do you hear me? Yes. I'm sorry, my line is not so good. Could you please repeat the question, Matt? Matthew Chesler: Yes, the question would be just maybe a comment on how gross margins varies across the various business lines because there was an observation about the increase in gross margins this quarter, excluding leasing and trading. Ehud Ben-Yair: Yes. So obviously, what you saw -- and again, I don't want to make a long-term point on one quarter. We need to look at the trend of the couple of quarters in order to determine our mind what's going to be -- what is the right gross margin because product mix is playing on the level of each revenue within the segment is also determining the gross profit due to our operational leverage. But in general, I would say that in this segment, we see an improving -- we see a trend of improving in the gross margin. And then again, looking for the long term, we expect the margin in this segment to go up a little bit. And it is mainly due to all of the things that were mentioned during the pitch by Igal and me, where we have many plans of improving operational efficiencies. We are also leveraging our employees' utilization and also, again, having more work, more revenue on the same labor is improving by itself the gross margin. Igal Zamir: If you look at -- maybe just to add a few things. First of all, just to add to what Ehud said, looking at gross margin from quarter-to-quarter is almost impossible because even within the same product line within everything, if you compare apples-to-apples between the quarters, you have different customers with different margin. We need to remember that on the MRO side, there are lots of variations. On the OEM, once you have a deal and it's closed and you have the supply and you know the cost, it's pretty much stable gross margin. You know what to expect. When you receive an engine for an overall with hundreds of different parts that needs to be inspected, there is a huge variance between one engine to the other. Sometimes you get the engine and it's very easy and you replace few parts. And sometimes you get what we call a very heavy shop visit with many parts. And you need to remember that in many cases, our pricing to our customers are fixed customer -- fixed pricing. Basically, it's built on a statistical model over time. But sometimes you get -- all it takes is 2 engines or 3 engines with very heavy replacement and the margin this quarter is going to look less favorable. And the following quarter, you got some light engines and everything is going to look great. So it's very risky to -- or not the right approach in mind, mind, I would say, to compare quarter-to-quarter, but rather to look at the long-term trend. Matthew Chesler: The final question before we turn it back to Igal, for concluding remarks is from Robbie from [ Essex Fs Capital ], asking how should investors think about Q4 and 2026? Ehud Ben-Yair: So as I stated in the beginning, I'm going to talk only about 2026. We are very optimistic. The trend is strong. We have a very strong backlog, as you see in the numbers. We have a very large pipeline of opportunities in different stages, significant amount of potential business that we believe that we are going to -- some of it at least, a substantial portion of it we can secure. The market trend is continuing to be strong. Both OEM demand is growing and the MRO needs are there. So all in all, all the indicators are very positive, and we are continuing to increase our internal efficiency. So we remain very optimistic about the ability to continue to grow the business next year. I think this is the best answer that I can give right now. Matthew Chesler: Igal, now turning to you for concluding remarks. Igal Zamir: So just as final remarks. First of all, thank you for joining us today. The financial performance in the quarter further validates our business model and strategy. We are currently participating in multiple RFPs, as I said 2 minutes ago, and the growth opportunities we are pursuing giving us the confidence in long-term growth trajectory for TAT. On top of this, we believe these are -- there are opportunities to accelerate our growth and increase our scale through targeted and strategic M&A activities. And I continue to think we are better positioned than many others in the industry for long-term growth. And I'm increasingly confident in our future. So with that, I just want to thank everybody again for joining us today and happy to answer further questions via... Matthew Chesler: Thank you, everyone, for joining us today. You may now disconnect your lines. Igal Zamir: Thank you. Bye.
Operator: Greetings, and welcome to the Pelthos Therapeutics Third Quarter 2025 Financial Results Conference Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Mike Moyer. Please go ahead. Mike Moyer: Good morning, everyone, and welcome to the Pelthos Therapeutics Third Quarter 2025 Financial Results Conference Call. Pelthos issued a press release today announcing its financial results for the three and nine months ended September 30, 2025. A copy can be found in the Investor Relations tab on the corporate website at www.pelthos.com. Before we begin, I'd like to remind you that during today's call, statements about the company's future expectations, plans and prospects are forward-looking statements. These forward-looking statements are based on management's current expectations. These statements are neither promises nor guarantees and involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from our current expectations expressed or implied by the forward-looking statements. Any such forward-looking statements may represent management's estimates as of the date of this conference call. While the company may elect to update such forward-looking statements at some point in the future, it disclaims any obligations to do so, even if subsequent events cause its views to change. As a reminder, this conference call is being recorded and will remain available for 90 days. I'd now like to turn the call over to Scott Plesha, Chief Executive Officer. Scott, you may now begin. Scott Plesha: Thank you, Mike. Good morning, and welcome, everyone, to today's call. We're delighted to be with you today and share with you our third quarter operating results and highlights. Joining me today are Frank Knuettel, our Chief Financial Officer; and Sai Rangarao, Pelthos Therapeutics Chief Commercial Officer. To start the third quarter of 2025 marked a significant advancement in Pelthos corporate development. In the beginning of the quarter, we successfully closed both our acquisition of the Pelthos business, at which time we commenced trading on the New York Stock Exchange and a $50 million PIPE with Ligand Pharmaceuticals, Murchinson Limited and other investors to support the launch of ZELSUVMI. Shortly thereafter, that launch occurred with the introduction in mid-July of ZELSUVMI, the company's first commercial product. ZELSUVMI is a novel topical nitric oxide releasing product indicated for the treatment of molluscum contagiosum or MC, in patients one year of age and older for up to 12 weeks. ZELSUVMI is an important advancement in the treatment of MC as it's the first and only FDA-approved therapy that can be applied by parents, patients or caregivers in the home or on the go. Additionally, we are pleased to follow up the launch of ZELSUVMI with the recently announced $18 million convertible notes financing and the acquisition of Xepi. This financing funded our acquisition of XEPI and will provide additional support for the launch of ZELSUVMI. We entered into the convertible financing agreement with Ligand, Murchinson and other investors, the same lead investors that invested in July PIPE. Frank will provide more details on the convert, but I want to note that our investors' continued support show their strong confidence in the successful launch and growth metrics of ZELSUVMI and our strategy to build a portfolio of topical treatments for cutaneous infections. Xepi is a novel FDA-approved topical treatment for Impetigo that addresses a critical unmet need in antibiotic-resistant skin infections caused by staff and strep infections and most commonly affecting children. We believe that ZELSUVMI and XEPI are highly complementary products with the diseases they treat mostly affecting children, and they are treated by the same health care providers. Importantly, this allows us to leverage our commercial infrastructure, including our sales force. We'll share more details on Xepi later, but for now, our focus is on the continued strong growth of ZELSUVMI. Frank will provide a more detailed look at the quarter's reported financials. But before we get into further detail about MC and ZELSUVMI's commercial launch progress, I would like to share a brief overview of our top line results. As of September 30, 2025, we had $14.2 million in cash on the books and $8 million in accounts receivable. On an operating basis, for the three months ended September 30, 2025, we generated $7.1 million in net product revenue, driven by strong initial demand for ZELSUVMI and an operating loss of $15.4 million. Our GAAP net loss was $16.2 million, representing $5.30 per basic and diluted common share. On an as-converted basis, reflecting the conversion of our Series A and Series C shares, this is a loss of $1.83 per share. In addition, Frank will break down the onetime and noncash items as well as other financial metrics included herein. But importantly, we currently expect that with ZELSUVMI's strong growth rate and a focus on responsible spending that we will achieve cash flow breakeven from operations before the end of 2026. Turning to the disease state. Molluscum contagiosum is a highly infectious condition caused by a poxvirus that primarily affects children one year of age or older with ICD-10 claims indicating that 75% to 80% of MC patients are 10 years of age or younger. Roughly 17 million people in the United States are affected by molluscum, and on average, there are 6 million new cases annually. The literature also reports that in a multi-child household, if one child contracts MC, 41% of the time, the other child or children will as well. While the disease is self-resolving, the mean time to resolution is approximately 13 months and can last up to 5 years. During that time, children are often ostercized and be forced to miss school or sporting events and cover their lesions with band or clothing. This leads to considerable child and parental anxiety, which is the primary driver for patients being seen by health care providers. ZELSUVMI is a topical treatment that is applied once a day at home, which represents an important shift in the treatment paradigm for MC due to the fact that it is the only FDA-approved molluscum treatment that can be administered at home or on the go by parents, caregivers and patients. Prior to the launch of ZELSUVMI, other topical treatments or destructive modalities would require patients to make multiple visits to a health care practitioner. These in-office treatment alternatives include curettage, cryotherapy and blistering agents that can sometimes be uncomfortable and painful, especially in the sensitive areas of the body that MC often presents. In this current treatment landscape, our launch of ZELSUVMI has gone very well and has exceeded our expectations in many key performance indicators. It's our continued vision that ZELSUVMI will revolutionize the treatment of MC, become the first-line treatment of choice, resulting in it becoming the clear market leader for the treatment of MC. Based on my interaction with key opinion leaders and other practitioners, I believe this will be driven by physician and parent caregivers preference for a safe and efficacious at-home prescription-based treatment solution. With our strong initial launch performance where the cost of the sales force was covered within nine weeks and now having an understanding of the uptake curve, we have made the strategic decision to expand our sales force. In our current sales force structure of 50 sales representatives, there are many large metropolitan areas in the country not covered. We believe that by adding 14 additional sales representatives in these markets, we can further accelerate the growth of ZELSUVMI. We expect these incremental team members to be hired, fully trained and in the field by mid-January. Finally, a note on manufacturing and our intellectual property portfolio. Unlike many smaller pharmaceutical companies, Pelthos owns and operates a purpose-built manufacturing facility for ZELSUVMI's active pharmaceutical ingredient known as API. ZELSUVMI is a nitric oxide releasing treatment based on the Nitricil platform technology we licensed from Ligand, and we are, we believe, the only company that has successfully reduced to practice the ability to reduce this gas to a topical gel. The know-how and trade secrets associated with our manufacturing process complement our patent protection, which currently runs to mid-2035. In addition, we have a patent term extension on file and may receive an extension of the patent life to Q3 2037. Based on our trade secrets and patent protection, we have a broad IP moat around our technology, which we believe provides us a lengthy runway to build ZELSUVMI's revenue. In closing, we are very pleased with the receptivity to ZELSUVMI to date and the $7.1 million in net product revenue generated during Q3. Sai and the commercial team are doing an outstanding job of educating our customers on the benefits of ZELSUVMI, which has led to a high number of prescribers and the strong prescription growth of ZELSUVMI. We remain fully committed to maintaining strict financial discipline, and we'll continue to evaluate and optimize our commercial strategy as we want to seize every opportunity to deliver sustainable long-term shareholder value for Pelthos shareholders. We feel strongly about the launch in these early days and continue mapping our strategy for the growth of ZELSUVMI in 2026 and beyond and the introduction of sales of Xepi commencing in late 2026. I'll now turn it over to Sai to provide more specifics on the results of the ZELSUVMI launch and key performance indicators. Sai Rangarao: Thank you, Scott. Good morning, everyone. I'm pleased to provide details on our Q3 launch and metrics. While we are still underway in the launch, our progress to date has gone better than expected. Shipments and prescriptions are running ahead of expectations with several HCP and patients sharing their positive experiences with ZELSUVMI. Digging into the shipment and prescription details, we shipped over 4,900 units to wholesalers and close to 3,000 units to pharmacies during the third quarter. 2,716 units were prescribed of ZELSUVMI written by 1,169 unique prescribers as reported in Symphony [Indiscernible] data. We carried this growth trend into Q4 with 2,189 units prescribed for the full month of October. That represents over a 41% increase in units prescribed from October over September. In fact, with 7 weeks remaining in this quarter, we have already had more prescriptions written this quarter than in all of Q3. Our growth continued strongly through the month of October with an all-time high of 516 units dispensed during the final week. With our wholesale acquisition cost, WAC for short for ZELSUVMI at $1,950 per unit, we had an annual gross revenue run rate of approximately $52 million during that last week. Importantly, we are closely and steadily managing our channel load to make sure there is ZELSUVMI available for patients and to minimize stockouts at the wholesaler level, led by our stellar market access and trade team. We ended the quarter with approximately 4 weeks of inventory on hand throughout the distribution system. We anticipate managing inventory on hand to the level of 3 to 4 weeks for future quarters. Digging into the payer landscape, our Q3 activity does not include any payer contracts, and we have experienced favorable prior authorization approvals. This is very healthy for a noncontracted drug, which is supported by the fact that our drug largely treats children, is the first and only at-home treatment option and is acute. Due to ZELSUVMI being an acute treatment, payers have limit to their overall cost exposure and therapeutic programs largely aimed at children have a better approval profile in general. While we have not initiated any commercial contracts, we have seen a number of favorable Medicaid wins with ZELSUVMI being added to Medicaid formularies in the states of New York, along with Texas and Alabama with no prior authorization form required. From a GTN perspective, we had very good GTNs during the third quarter. We anticipate exiting 2025 with GTNs slightly under 30%, While we expect that our GTNs will remain favorable, we do not expect to experience this level of GTNs over the long term. With that said, we still anticipate that our GTNs will still be well below other dermatological products in our experience. Specifically, our current GTNs largely revolve around distribution costs, Medicaid discounts, payer contracts and our co-pay card program. With the latter, it is our goal to pay down with the co-pay card program, so the prescription costs are 0 or close to 0 in almost all instances for the patient. This supports a strong patient onboarding experience through our ZELSUVMI GO patient onboarding program. Next, I would like to speak about our sales team and its geographical alignment, as Scott mentioned. We commenced the launch with 50 territory managers concentrating on the successful launch of ZELSUVMI. We opened these locations based on the ICD-10 data of most prevalent MC cases, but it's important to note that MC is an underreported indication largely because there has been no at-home FDA-approved product until ZELSUVMI. Now with the success of our launch, we are moving forward with the addition of territory managers in other prominent territories. This will result in an additional 14 territory managers joining Pelthos in opportunistic territories around the country, where ZELSUVMI is already being utilized. We expect to add these positions at the beginning of January and expect that this will provide further lift to our sales and growth rate. Finally, we continue to grow awareness for ZELSUVMI as the first and only at-home prescription treatment option for MC through various channels and venues. The awareness and stimulation to prescribe is occurring through the following tactical deployments. We launched highly engaging materials educating HCPs and patients on ZELSUVMI at the field level. We also launched national level and local level speaker programs, mostly virtual fitting into HCP schedules, providing education on ZELSUVMI. We deployed strong digital marketing awareness through social media, HCP platforms and digital advertising. We recently launched the moms against molluscum movement, an opportunity for moms, parents and caregivers to share their journeys, battling molluscum and finally having an impactful at-home treatment option like ZELSUVMI. Pelthos also had strong attendance and detailed engagement with hundreds of health care practitioners across the country at key congresses, exchanging scientific education and promotional communication about ZELSUVMI. We will continue to build off the great success of these tactics, and we'll be adding more to keep the momentum going. I'm very pleased with our performance and strong launch success to date, alongside a highly passionate and hard-working commercial team. And with that, I will now turn the call over to Frank to discuss our financials. Frank? Francis Knuettel: Thank you, Sai. Good morning, and thank you for joining us on today's call. As a precursor, we're going to focus on the results for the third quarter of 2025 as prior periods and year-to-date results do not reflect the current operations of Pelthos. With that said, we are delighted to report $7.1 million in net product revenues in our first full quarter of commercial operations. I'll discuss our channel inventory in a moment, but this reflects the strong initial sales of ZELSUVMI following the commercial launch in mid-July. For the quarter ended September 30, 2025, our cost of goods sold was $2.3 million, which includes expenses associated with manufacturing, the supply chain, quality assurance and other costs related to customer order fulfillment. A key item here for your consideration is that it also includes the fair value step-up of the inventory, both API and finished goods on hand at the time the merger was closed. Under the terms of the agreement, Pelthos was the acquiree, which necessitated a fair value determination of the inventory, resulting in a stepped-up basis for the value of our COGS. The normalized cost of goods is a fraction of the reported amount as set forth in the adjusted cost of goods table in the press release we issued this morning. We expect to run through the finished goods inventory by the middle of 2026, after which point, we will have a couple of quarters where there will be an impact from the fair value of the API in hand at the close of the merger. After that, we will be at our normalized cost of goods value. Similarly, we're also in the process of moving towards the expected long-term costs associated with our GTNs. Our Q3 GPN was 25.3%. And to make sure we're looking at this the same way, it means that 25.3% of our gross revenue was allocated to third-party distribution, Medicaid, co-pay cards and other similar fees. I want to stress, however, that we do not expect this to be our long-term equilibrium rate. For that, I expect that we will move to a GTN in the mid- to high 30% range by Q1 of 2026 with Q4 of 2025 expected to be between the 2. The bulk of our expenses during the quarter were for SG&A with low levels of expenses associated with R&D. We provided a table in the 10-Q that provides the detailed breakdown of our SG&A expenses, but at a high level, the bulk of the cash expenses can be attributed to personnel, marketing, professional services and royalties. Of the $19.6 million in SG&A, approximately $3.2 million are noncash charges associated with equity compensation expenses and depreciation. A further amount of approximately $1 million are onetime items associated with the merger, and we booked a royalty obligation of $1.2 million, resulting in a steady-state cash amount for operating expenses of $14.2 million for the quarter. This will go up slightly in 2026 with getting ZepPI ready to commercialize, the increase in the size of the sales team we recently discussed and of course, the royalty amount will grow in direct proportion to the growth in net revenues. This resulted in a net loss for the quarter ended September 30, 2025, in the amount of $16.2 million, equating to a net loss of $5.30 per basic and fully diluted common share. On an as-converted basis, reflecting the conversion of our Series A and Series C convertible preferred stock, we had a loss of $1.83 per share. On a non-GAAP basis, removing noncash and unusual items, we had a net loss of $9.6 million for the quarter. The largest adjustments are the a fore mentioned equity compensation expenses, noncash interest and the inventory basis step-up. The $9.6 million loss is $3.14 per basic and fully diluted common share and on an as-converted basis, reflecting the conversion of our Series A and Series C convertible preferred stock, we had a non-GAAP loss of $1.08 per share. Based on our revenue forecast, we expect the net loss to decline every quarter, and as Scott mentioned, expect to reach cash flow breakeven by the end of 2026. Our balance sheet at September 30 was strong with $14.2 million in cash and $8.0 million in accounts receivable. As of that date, we had no debt, but the recently announced convertible note financing strengthened further our balance sheet. A couple of the liability items I would like to specifically highlight. The $5.6 million in other short-term liabilities and the $26.2 million in other long-term liabilities are solely the result of the fair value assessment of the future royalty obligations. These are not general obligations and the amounts related thereto will be recognized with the payment of actual royalties resulting from actual net sales. The convertible note in addition to cash on hand and receivables provide substantial working capital and support for our expansion. To the extent we raise any additional capital over the short or midterm, we would endeavor to do so in a nondilutive manner. With respect to inventory and channel, our channel level at the end of the third quarter was approximately four weeks. Going forward, we expect de minimis variability in our net revenue related to changes in the inventory channel. Following up on our announcement last Friday, concurrent with the Xepi acquisition, we closed on an $18 million convertible notes financing with our existing lead investors. As previously mentioned, the financing will be used to acquire and relaunch Xepi, accelerate the commercialization of ZELSUVMI and for general working capital purposes. The notes will mature on November 6, 2027, unless redemption occurs earlier or converted into shares of Pelthos common stock in accordance with their terms. The notes pay interest at a rate of 8.5% per annum and will be convertible at an initial price of $34.44, which represented the five-day closing price average prior to the close on November 6th. In addition to interest, the investors will be entitled to a low single-digit royalty on the net sales of Xepi in the United States and certain milestone payments and royalties on ZELSUVMI's net sales in Japan. Ultimately, the convertible notes transaction demonstrates the ongoing confidence of our existing investors. And the additional capital from this transaction allows management to add a highly complementary product to our portfolio, strengthen the balance sheet and help support the growth of ZELSUVMUI. Regarding our capitalization, prior to the convertible financing, we had approximately 8.9 million shares of stock outstanding on an as-converted basis. This is comprised of approximately 3.1 million shares of common stock outstanding and 5.8 million shares of common stock underlying our Series A and Series C convertible preferred stock. The bulk of the preferred is in the Series A, which were the shares issued pursuant to the merger and PIPE closed on July 1st. Both of the Series A and Series C have fixed conversion prices with no down round protection, no special voting rights and no paying or accruing dividends. Were the convertible to convert to common stock at the initial price, we would issue a little over 500,000 shares, leaving us with approximately 9.4 million total shares of common stock outstanding on an as-converted basis. I will now turn it back over to Scott to discuss the rationale and expected synergies with respect to the Xepi acquisition, the legacy channel programs and our thoughts on the fourth quarter. Scott Plesha: Thank you, Frank. I would now like to spend a little time speaking about our recent Xepi acquisition and the legacy channel assets. As noted in the Xepi acquisition press release, we announced that we acquired the U.S. rights to market and sell Xepi. This acquisition adds a complementary dermatology product to the Pelthos portfolio anchored by ZELSUVMI. Xepi itself is a novel FDA-approved topical treatment for impetigo, which affects approximately 3 million people in the U.S. every year and is among the most common bacterial skin infections seen in pediatric offices. Under the terms of the acquisition agreement, Pelthos paid Biofrontera $3 million and Ferrer $1.2 million upfront with additional payments on the availability of commercial quantities of Xepi and the achievement of sales-based milestones. Pelthos will pay royalties on U.S. net sales of Xepi to Ferre, Ligand and the investors. Xepi is well positioned to address antimicrobial resistance in pediatric dermatology, and we believe it will provide physicians with an important alternative to first-line impetigo treatments. Offering another novel product to the pediatric and dermatology communities creates an increasingly favorable opportunity for Pelthos as it allows us to leverage our current commercial infrastructure to promote multiple innovative brands. Ultimately, we believe this is a fantastic acquisition and represents an excellent investment opportunity, marking an exciting new chapter in the Pelthos growth story. Finally, a short note on the legacy channel therapeutics programs. As background, the legacy channel programs are clinical stage drugs for the treatment of various types of pain through the modulation of NaV1.7 sodium chain. Specifically, we have one program for the systemic treatment of acute and chronic pain, one program for the treatment of eye pain and one program for the treatment of pre and postsurgical pain. These programs are not our focus, but they are important and valuable, and we are working on various funding options dedicated to one or more of these programs. Importantly, this means that whatever funding we obtain, it will not be from our available cash. More to come as we continue working on the strategy. Regarding our Q4 results and future expectations, I want to emphasize that we are in the early days of the launch and as such, need to have more data before providing detailed annual guidance. With that said, our performance to date during Q4 has been strong, and we're very pleased to report that our growth trajectory has continued. As Sai mentioned, based on the number of prescriptions during the last week of October and only 16 weeks into our launch, we are on approximately a $52 million annual gross revenue run rate. Further, we had an all-time high of units shipped to pharmacies the week ending November 7th, and we expect our efforts with HCPs, parents and caregivers and the expansion of the sales team will increase the growth rate we have experienced to date. With the strong sales trends we are seeing, we are currently projecting a significant increase in net revenue for the three months ending December 31, 2025, over the three months ending September 30, 2025. I want to thank you for joining us today to learn more about the Pelthos story, and I'll now turn the call over to the operator for any questions. Operator: [Operator Instructions] And our first question comes from Jeff Jones with Oppenheimer. Jeffrey Jones: Congrats on a fantastic start to your launch. And congrats on your first call as a public company as well. First question, I guess, you mentioned 1,169 unique prescribers at this stage. Can you comment on how many are writing multiple prescriptions? And then what portion of your target accounts does that cover? So with your current sales force, how many target accounts do you have and sort of what penetration are you looking at? Scott Plesha: Thanks, Jeff. I appreciate the compliments to begin with. And just, I guess, first starting out our coverage right now. We're covering about 8,000 targets with our current sales structure. We mentioned an expansion that will get us up to about 10,000 or so when all is said and done. And then as far as repeat prescribing, we gave you the unique numbers for the quarter. When we look at kind of where we are right now, probably a little bit more than half, 60% have written one script, but we've seen almost just under 500 write two or three. We have some as high as 22 to 27 range, actually three doctors in that range. So there's a wide range of prescriptions written by the HCPs. Jeffrey Jones: Okay. Appreciate that. With the upcoming holiday season with Thanksgiving, Christmas, how does that impact patient visits, prescriptions? How should we sort of think about that impact given, obviously, a really nice growth trend already in October? Scott Plesha: Yes. So I think it varies by holiday. But one of the things, like for example, over like Labor Day, we did kind of grow through that a bit that week. But we do think because this is an acute medication, you have to be in office to get a prescription. We're not as dependent upon refills here. This is about new patients coming on therapy. So I do think -- we do feel that the impact of the holidays, while we're growing, could soften it a little bit because of that... When offices aren't open, it's really difficult. We just don't see as many prescriptions. Jeffrey Jones: Sure, sure. Totally makes sense. Then the last question, as you just mentioned refills, the first the first set of tubes is for a 30-day coverage. Any color on how many patients are getting a refill? So is 1 patient typically 1 unit or 1.5, 2 otherwise? Scott Plesha: Yes. So I guess the first ground on it, everything here. When you prescribe it, it's indicated for up to 12 weeks of therapy. So if you get that initial unit, that should last up to 30 days if there are 40 lesions or less. And if they use it as directed. So if you look at it and somebody required to go to the full 12 weeks, we're probably looking at 3 units. We're seeing some prescriptions. It's a small percentage, but there are a number of prescriptions that are actually going out with more than 1 unit. So obviously, they wouldn't have a refill if that was the case. And then on the refill side, you also have to think about when you're looking at the numbers and kind of calculating, you have to go back 5 to 10 weeks really to look at like where we are now to understand what's eligible. We think we're probably in about the 1.2 range right now, give or take a little bit. And we do think that could track up over time. Yes. I'd say the other thing we're hearing that this is a good news thing is that anecdotally that the HCPs and patients have been quite happy with the efficacy they're seeing. The quickness at which they're seeing resolution, just the whole experience, I guess, has been very positive across the board pretty much of what we're hearing from HCPs. So that could affect our refill rate if they're seeing really good results. But ultimately, I think that's a great thing for patients and the brand. Operator: Our next question comes from James Molloy with Alliance Global Partners. James Molloy: Congratulations on an excellent launch. Could you just walk through -- I know you mentioned the overall -- the reps overall are profitable. Could you walk through how many the reps of the 50 are currently profitable and sort of the expectations for the additional 14, how quickly for them to cover their own costs? And clearly, it seems like the product is priced correctly. Do you think there's opportunity for taking price going forward? Scott Plesha: So I'll answer the price one first, Jim, and then I'll let Sai weigh in on the sales force and productivity. So right now, we mentioned this in our script, but we don't have any active commercial contracts. So we haven't been paying rebates. So typically, those plans, you'll have price protection clauses in there, and so we haven't. I think our goal is to be responsible on price going forward. I think we're priced at the right point right now, and we'll take responsible price increases going forward. At this point, we're not disclosing what that might look like, but it is something we can do. And without having the commercial contracts, if we do take price, and if you go above those commercial contracts, it impacts Medicaid. So that's what's good about not having the commercial contracts is it doesn't really impact the rebates at the Medicaid level. So anyways, we're going to be thoughtful about price going forward. And more to come on that, I guess. I'll pass it over to Sai. Sai Rangarao: Yes. Thanks, Scott. Thanks for the question. So when we think about our field force and the productivity analysis that we look at really on a daily to weekly basis, we're seeing some strong growth trajectory across the multitude of quarters that we have divided up around the country and the regions in specific. When we look back on the analysis week-over-week, obviously, there's performance metrics that we work towards to ensure that we're getting higher growth, higher trajectory at each territory level. As Scott mentioned in his prepared remarks, we are moving towards an expansion, which really tells us that the field force activity and the productivity at the territory level has been profitable for us going forward. So that's where we see our growth trajectory and our growth trends increasing over time based on our current footprint and the one that we intend to expand into. Scott Plesha: Yes. And Jim, I'll add. When we went into the market initially, we wanted to get in market, see the uptake, see what the market access landscape looked like. We have had really good growth across the sales force. And really, it's an opportunity here to add these 14 reps. I mean, there are large metropolitan areas we don't have reps in like Seattle, Portland, Las Vegas, Salt Lake, St. Louis, Kansas City, Memphis. So some pretty large cities that we don't have coverage. So this is an opportunity to now invest. And the way we look at this always is we had to earn the right to do that, to have that expansion, and we feel like we have a proof of concept now that it makes sense to kind of add incrementally going forward. James Molloy: Can you walk through, is there seasonality? I know you mentioned that you expect it to be a little softer when people aren't taking the office visits over the holidays. Is this sort of a back-to-school did you guys launch at a perfect time? And then would you look to sort of any thoughts on peak sales guidance? And then I have one last follow-up. Francis Knuettel: I'll take the question on seasonality. So when we look at the ICD-10 data, as Scott mentioned, that really tells us about the overall diagnosis of molluscum, there is no real kind of peak season or sort of valley that you might see over any of the quarters and in particular, any of the months. In pediatric sort of conditions, you might see a little bit more of an influx of prescription activity, like you mentioned, during back-to-school only because there's an influx right before that time frame of pediatric visits, et cetera. But from a seasonality perspective, the data does look pretty, I would say, standard and static from what we've seen as we built out our overall approach to commercialization. Scott Plesha: Yes. And I'll add a little bit and then answer your peak revenue question, Jim. But the other thing to think about is when patients contract this disease, it could take months for them to go into the office. So somebody could have really started 4 or 5 lesions could have popped up on a child back in July, but they didn't seek care at the time. So it may not be going into now. So our thought leaders are kind of split on whether there's seasonality or even regional differences. So we think it's pretty steady throughout the year. Absent when offices are closed, again, patients are not being seen and we're an acute medication. Regarding peak revenue, we've stated publicly in the past that we're looking at a base case of $175 million peak revenue in 2028. And we're not prepared to change that at this time. We, again, while we're happy with where we are and how we've gotten out of the gate, we want to get more data before we make any adjustments. I think that's the wise thing to do. James Molloy: That makes a lot of sense as well. Last question then, the Xepi acquisition, I think that makes a ton of sense. Can you walk -- are there any additional compounds you guys are seeing for potential acquisitions to bring in over the next 2 to 3 quarters to slip into the bag like Xepi? Scott Plesha: No, I appreciate that. Xepi is a highly complementary product to ZELSUVMI in that we don't have to change our sales force. It's calling on the same targets. Our targets see a lot of Impetigo. And even some of the KOLs did our studies for ZELSUVMI that did them for Xepi. So a lot of overlap and synergy there. We'll continue to look for the right opportunities. I'll also point to the fact that we do have the rights after post-merger, we have the rights, if we'd like to pursue external general words using our NitroCil platform. It's actually a like formulation to ZELSUVMI. So that's something we're evaluating. And the rest of the NitroCil platform still sits within Ligand. So we're evaluating it. There's a lot of work done by our predecessor company around NitroCil and different indications, and those are things we're evaluating as we speak here basically. Operator: And this now concludes our question-and-answer session. I would like to turn the floor back over to Scott Plesha for closing comments. Scott Plesha: Great. Thank you, operator. I want to reiterate that even though it's early days, Pelthos is well positioned to capitalize on a large addressable market with the first FDA-approved at-home therapy for MC. We've built a strong foundation for the growth of ZELSUVMI and with ZEPI, a second highly synergistic product in the bag by the end of 2026. We believe there are strong growth opportunities before us. Finally, I wanted to thank the Pelthos employees for all their hard work and dedication in supporting patients, caregivers and health care providers. Thank you again for joining the call, and we look forward to updating you on our continuing progress in the future. Have a great day. Operator: And ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines, and have a wonderful day.
Eric So: Good morning, and thank you for joining us. This is an important quarter for Cybin, one that sets the stage for an active year of milestones. In September, Doug Drysdale stepped down as Chief Executive Officer. On behalf of the Board and the company, I want to thank Doug for his contributions. As Co-Founder and Executive Chair, I stepped in as Interim CEO while maintaining continuity and momentum. The Board's search for a permanent CEO is underway. Through this transition, our priorities remain the same: patient-focused rigorous science, disciplined education as our execution and clear communication. We have tightened operational cadence and disclosure discipline, and we'll be adding targeted talent and scientific advisory board expertise to support late-stage execution and launch readiness. Our strategy starts where care happens in the clinic. What I mean by this is that we are designing therapy days that fit within existing schedules with short predictable sessions and a staff-light workflow that clinic teams can run without new infrastructure. From there, we focus -- our focus turns to maintaining wellness. Durability is built into the plan with an efficient retreatment approach that aims to reduce visit burden compared with today's multi-visit standards, so clinics can scale capacity and patients can plan their lives. Progress with regulators follows the same discipline. We move step by step anchored in data rather than speculation, and we'll communicate milestones as they are achieved. The capital plan matches that pace. Following our recent $175 million financing, we are focusing on advancing our programs towards major data readouts. With that context, let me turn to the quarter and the progress we've made. Before we proceed to the agenda, a brief overview of our pipeline. For those of you who are new to the Cybin story, we have 2 lead programs. CYB003, our proprietary deuterated psilocin analog is in Phase III studies for potential adjunctive treatment of major depressive disorder. And CYB004, our deuterated dimethyltryptamine or DMT program for the potential treatment of generalized anxiety disorder is in Phase II. Clinically, our Phase III CYB003 program, which is an a breakthrough therapy designation in major depressive disorder has continued to progress, including being granted additional clearances to commence EMBRACE, our second Phase III study in new geographies. In generalized anxiety disorder, the Phase II 004 study completed enrollment and remains on track for our first calendar quarter 2026 top line readout. Amir will share more details about both programs shortly. At the same time, we advanced preparations for scale, including manufacturing and commercial groundwork aligned to a practical clinic workflow. We also strengthened our capital position with the closing of a significant registered direct offering, which provides flexibility to execute through upcoming milestones with clear internal decision dates by program. Across both programs, we are deploying capital with discipline. We are prioritizing global site activation and conduct for EMBRACE and APPROACH, database lock and analysis for CYB004 and manufacturing readiness for CYB003. With that framework in mind, I'd like to turn the call over to our Chief Medical Officer, Amir Inamdar, to review our clinical and regulatory process. He'll begin with CYB003 in major depressive disorder, focusing on that study status, global footprint and how the design supports real-world clinic operations and durable outcomes. Dr. Inamdar will then review CYB004 in generalized anxiety disorder, including trial design, operational status following enrollment completion and the timing and scope of the next data update. Amir Inamdar: Thank you, Eric. Our Phase III PARADIGME program is moving forward as planned. Dosing is underway in approach across U.S. sites and participants have rolled over into extend to generate durability data once the double-blind period concludes. In parallel, EMBRACE has been cleared to commence in the United States, U.K., multiple countries in the European Union and Australia, giving us a truly global footprint. The study targets approximately 330 participants across about 60 clinical sites and is structured with 3 arms to evaluate 2 active doses against placebo in patients with depression whose symptoms remain inadequately controlled on background therapy. The primary endpoint is the change from baseline in MADRS total score at 6 weeks after the first dose. The design is built for clinical reality. CYB003 is intended to run as a predictable staff-light session that fits within existing clinic infrastructure. Prior clinical data showed sustained response and remission at 12 months after 2 16-milligram doses, and our extension work is aimed at translating that durability into an efficient retreatment approach that reduces visit burden compared with today's multi-visit standards. On the regulatory front, our posture remains conservative and specific. Near-term touch points focus on clean study conduct, global site activation and data quality reviews as we advance towards pivotal readouts. In anxiety, the work is tracking on schedule. We have completed enrollment in the randomized double-blind Phase II study of CYB004 and remain on track for top line data in the first calendar quarter of 2026. The study evaluates 2 intramuscular doses given 3 weeks apart with efficacy assessed at 6 and 12 weeks and optional follow-up out to 12 months. The design permits concomitant antidepressants or anxiolytics and allows comorbid depression, which helps the results reflect real clinical populations. Just as important, intramuscular administration supports short, predictable sessions that fit a standard clinic day, so sites can manage throughput with existing rooms and personnel. The protocol also captures information to guide an efficient treatment -- retreatment approach if patients need it. aligning durability with practical clinic operations. I will now turn the call back to Eric to discuss the platform and commercial readiness. Eric So: Thank you, Amir. Our focus is to make these therapies workable in the real world, not just on paper. Achieving that goal begins with dependable supply. With Thermo Fisher in place for both drug substance and capsule drug product in the United States, we have a manufacturing footprint size for Phase III and commercialization, which gives sites the predictability to plan therapy days within their existing 4 walls. From there, we extend into the clinic. Through our partnership with Osmind, we have access to a broad network of psychiatric practices, point-of-care software and real-world data, so clinics can map out our protocols onto the schedules they already run. Staggered starts, defined observation windows and clear rule definitions are intended to support predictable session scheduling within existing rooms and teams without requiring new infrastructure. Throughput only matters if the session itself is practical. CYB003 is designed to live inside a standard interventional psychiatry day, offering predictable timing for patients and staff. CYB004 delivered intramuscularly targets a briefing clinic experience that simplifies room turnover and staffing compared with all-day alternatives. The combination is intentional, one program suited to establish clinic rhythms, another built for speed and simplicity, both aiming to raise capacity without raising complexity. Durability is the other half of practicality. Phase II CYB003 data showed sustained response and remission at 12 months after just 2 doses. And our extension work is there to translate that durability into an efficient retreatment approach. The goal is fewer visits and more efficient planning for clinics and payers alike with clear criteria for when patients should return, how long a session should take and how that fits across a full clinic day. We're advancing this platform with a conservative regulatory posture and a disciplined capital plan. Underpinning it all is steady leadership. We manage the CEO transition in an orderly way. The permanent CEO search is active and our governance cadence and disclosure discipline keep the organization aligned as we execute towards the next 2 major data events. Before I turn the call over to Greg Cavers, our CFO, let me touch on our capital structure. Last month, we closed a registered direct offering with participation from prominent institutional health care investors. The structure paired common shares with prefunded warrants with a partial warrant, aligning capital to near-term objectives and giving us the flexibility to execute. As noted earlier, this was an important step for Cybin. The financing provides the resource to advance our ongoing Phase II and Phase III trials towards key data readouts. We have used a portion of the net proceeds from the financing to repay the outstanding convertible debentures to High Trail. For the avoidance of any doubt, this debt has been fully retired in full. We believe that participation from such high-quality institutions in the financing reflects confidence in our science, our programs and our ability to deliver. I'd like to take this opportunity to thank our new investors as well as existing shareholders and investors for their continued support of our mission. We could not be happier with the partners that came into this financing and all prior financings that drive our programs forward. Capital deployment is paced to measurable milestones. For CYB003, funds support global Phase III execution and manufacturing readiness, so sites have reliable supply and predictable therapy days. For CYB004, resources moved to database lock, protocol-specified analysis and operational lift to top line. Corporate use remains limited and targeted. The plan bridges us to the next 2 major data events while preserving flexibility. From the path, we will adjust with discipline and continue to communicate clearly about our progress and next steps. I will now hand it off to Greg Cavers, our CFO, to walk through our second quarter financial results. Greg Cavers: Thank you, Eric. During the quarter, cash-based operating expenses consisting of research, general and administrative costs totaled $28.5 million for the quarter ended September 30, 2025, compared to $18.2 million in the same period last year. Net loss was $33.7 million for the quarter ended September 30, 2025, compared to a net loss of $41.9 million in the same period last year. Cash flows used in operating activities were $34.5 million for the quarter ended September 30, 2025, again, compared to $19.1 million in the same period last year. Operating loss was $28.9 million and net loss for the quarter was $33.7 million or $1.39 per basic and diluted share based on a weighted average share count of 24.2 million shares. We ended the quarter with cash, cash equivalents and investments of $83.8 million. Subsequent to quarter end, we closed a financing of $175 million, which together with our quarter end balance provides flexibility to execute our plan. We continue to allocate capital to measurable milestones and corporate uses remain limited and targeted. Based on our current operating plan, we expect our cash resources to fund key data readouts in 2026 and fund operations into 2027. I will now hand it back over to Eric for closing remarks. Eric So: Thank you, Greg. In the quarters ahead, our focus is execution against measurable milestones across the business. For CYB003, we will continue dosing and approach and expand EMBRACE site activation across clear geographies, keeping study conduct and data quality at the center of the plan as we progress towards a Phase III top line in Q4 of 2026. For CYB004, the path runs through database lock protocol-specified analysis and preparation of a clear top line package in the first quarter of 2026. In parallel, we will advance commercial and manufacturing readiness, so sites have reliable supply and a practical clinic day model as data matures, and we will continue to pace investment to milestones. This forward plan also includes leadership. The CEO search is active and progressing, and we'll provide an update when there is news. Day-to-day execution remains stable under the current structure with operating cadence and disclosure discipline intact. Taken together, clinical progress, measured capital deployment, commercial preparation and leadership continuity position the company to navigate the next 2 data events and the steps that follow. To summarize, we have executed through a leadership transition, advanced our late-stage programs, strengthened the balance sheet and prepared for scale with a model built for clinical reality. The work ahead is clear: deliver clean data on time, maintain a conservative and specific regulatory posture and keep capital focused on milestones that move the programs forward. I want to thank all of our employees, investigators, investors, partners and most importantly, the patients and families who make this progress possible. We look forward to updating you as we meet our milestones. Operator, please open the phone line for questions.[ id="-1" name="Operator" /> [Operator Instructions] And we'll take our first question from Pete Stavropoulos with Cantor Fitzgerald. Sarah James: This is Sarah on for Pete. Two questions from us. One on the CYB004 and the other one on the 003 program. First off, around 004 and GAD, you completed enrollment in early September. Congratulations on that. And you have a readout on 1Q '26, where you enrolled a total of 36 patients. What would you like to see from this study that would give you confidence to move forward into P3s? Is it statistical significance on the primary endpoint? Is it directional data suggesting improvement sufficient? And then what can we expect to see in 1Q? Are you going to provide the 6-week data for the primary endpoint, HAM-A? Or will you provide efficacy data through 12 weeks? Amir Inamdar: I can take that one. Thank you, Sarah, for the question. And yes, we've completed enrollment in that study. As you probably know, it's a study with 2 arms, 1 low dose arm, which potentially is sub-psychedelic and a full threshold dose. We look at that as a sort of dose response type of study. We would love to see some separation between the 2. As you state there, directional data is what we are looking for, a trend in change or trend in separation between the 2 and also within subject differences in change from baseline, at least with the threshold dose. This is a proof-of-concept study, not necessarily designed as a fully powered study. But if we see a statistically significant difference, we'll be thrilled. But as you say, directional data, trend in improvement and a dose response between the 2 arms is what we are looking for. And we'll share this in first quarter. We will aim to share HAM-A data out through 12 [Technical Difficulty]. Sarah James: Awesome. And then one more question from me. The P2 CYB003 data suggests that 2 doses may keep patients in remission for up to a year commercially. And then taking into account the psychologic experience associated with psilocin, what do you see as the minimum durability threshold needed to compete with SPRAVATO? And how are you thinking about the trade-off between durability versus time spent in clinics from both a payer perspective reimbursement? [ id="-1" name="Operator" /> One moment please while we reconnect Dr. Amir. Amir Inamdar: Can you hear me now? Sorry, I'm back. [ id="-1" name="Operator" /> Yes, sir, loud and clear. Amir Inamdar: Apologies for that. Can you repeat the question? Sarah James: The P2 CYB003 data suggests that 2 doses may keep patients in remission for up to a year commercially and taking into account the psychedelic experience associated with psilocin, like what do you see as the minimum durability threshold needed to compete with SPRAVATO? Amir Inamdar: Yes. I mean when you look at the guidance that the agency provides for evaluation of these therapies, they want data up to 12 weeks, which is 3 months. We will be thrilled to see effects that are maintained out to 3 months. We are hoping for better. As you know, with our Phase II data, we showed durability out to a year. But based on what is the expectation of the agency, 12 weeks at a minimum would be great. [ id="-1" name="Operator" /> Our next question will come from Patrick Trucchio with H.C. Wainwright. Patrick Trucchio: Congrats on all the progress. I just wanted to get a clarification on the CYB004 program, just in terms of what we should expect as far as statistical powering and the definition of clinically meaningful HAM-A improvement? And then separately, I'm just wondering for CYB003, what operational milestones remain to complete enrollment in APPROACH and our site activations tracking to plan? Amir Inamdar: [Technical Difficulty] As I stated earlier, it's not a formally powered study. We would, however, be looking at an improvement from baseline within subject within the arms. A clinically meaningful effect would be somewhere around 4 to 5 points on the HAM-A. A trend to difference between the 2 arms would be important as well because we want to look at some dose response between the 2 arms. [Technical Difficulty] study in the sense that it's not a pivotal study, those statistical significance would be amazing. You had a question on CYB003 as well. CYB003 is tracking as to plan. So we remain on target to complete enrollment by mid of next year and deliver top line data by the end of next year. Patrick Trucchio: Great. And if I could, just a separate question on -- as these programs are advancing into later stage and are in late-stage development, I'm just wondering what has been your engagement with payers at this stage and CYB003 and CYB004 and as well with the product profile that's emerging for both of these compounds, how you would expect positioning of them in the market relative to what's already available in TRD with SPRAVATO, given that this is with CYB003, we're looking at MDD, CYB004 GAD. But I'm just wondering how you're thinking about this early payer engagement and as well the product profile positioning against both compounds available, but also those that are in development. George Tziras: Thanks for that, Patrick. I'll take this one. So I mean, as you might imagine, at this stage, it's a little bit early, but payer engagement, of course, has begun. Commenting further, I guess, on how that develops and how ultimately with SPRAVATO, you could compare to the commercial... [ id="-1" name="Operator" /> All right. One moment. It looks like he has disconnected. If anybody else wants to take this question, while we reconnect him. Amir Inamdar: So while George is dialing back in, so we have been doing some preliminary market research. But as George reiterated, it is a bit early for -- at least for CYB004. And both the programs, we see them fitting into what is emerging now as an interventional psychiatry paradigm, which really has been spearheaded with SPRAVATO, creating the infrastructure out there. We see these as intermittent treatments that will fit right into that model where patients come in for treatment on an intermittent basis, have the treatment in the clinic and then return for their additional dosing as and when necessary. The infrastructure is there. And we believe with the GAD for CYB004 and with adjunctive and inadequate responder for CYB003, those kind of address the spectrum of the most burdensome or most resource-intensive patients that you typically see in a psychiatry practice. [ id="-1" name="Operator" /> And George has reconnected. We'll go to the next question from Jim Molloy with Alliance Global Partners. Laura Suriel: This is Laura Suriel on for Jim Molly. So for the ongoing APPROACH trial, you mentioned how you're planning to have a total of 45 clinical trial sites within the U.S. So you may just provide a bit more detail on the criteria behind choosing these sites and the activation process involved and also as well as when you might think you have all 45 of these sites fully activated and onboard for the study? Amir Inamdar: Yes. So I can take that. So we are using a mixture of sites that are experienced in clinical trials and a smaller proportion of sites that are less experienced in psychiatry trials. We also have a mixture of sites that are experienced in conducting trials with psychedelics. And then there are other sites that we have included that are experienced in CNS trials in general, but not necessarily psychedelics. As you can imagine, with the number of clinical trials ongoing right now in psychedelics, there is, of course, competition for resources at sites, and we've been very careful in selecting sites that one either have a proven track record of delivering high-quality data or have the -- if they are not experienced in psychedelics, they have the necessary experience and expertise in the psychiatry space in general in other trials, and we are confident that they will deliver good quality data. You referred to the number of sites. Yes, we've got 45 sites selected for this study. Virtually all of them are onboarded by now. What's important is with the number of sites that we have activated, we still remain on track to deliver or complete enrollment by mid of next year with top line data by the end of the year. Laura Suriel: Great. And then also, I know the current focus right now is on the CYB003 and the 004 programs. But can you just provide a bit more color on the preclinical 005 program, maybe just on the status of the preclinical studies and any potential partnership opportunities that you may be in discussions with? Amir Inamdar: Yes. For CYB005, we are doing a number of preclinical profiling studies to characterize the receptor profile, the brain penetration as well as the primary and secondary pharmacodynamics with a range of compounds in that class, which we believe would be well suited to -- actually with some of the neuropsychiatric conditions where there is significant unmet need. So that work is ongoing. And when there is information to share with the market, we will do so. [ id="-1" name="Operator" /> Our next question will come from Eddie Hickman with Guggenheim. Eddie Hickman: Congrats on all the progress. Just 2 for me. How much visibility do you have into the blinded baseline patient characteristic data from the APPROACH study? And can you talk at all about how this patient population will differ from a TRD population as it relates to baseline? And secondly, what agreement do you have with the FDA related to the safety database for 003 and what you'll need to provide a regulatory filing? Is there a minimum number of retreatments per year needed in extend? Amir Inamdar: I missed the second one. Can you repeat the second question? [ id="-1" name="Operator" /> Dr. Amir, you're cutting in and out. connect Dr. Amir... Amir Inamdar: Can you hear me now? Eddie Hickman: Yes, I can hear you. Amir Inamdar: Sorry, do you mind Eddie repeating that question? Eddie Hickman: Yes. So I was asking the first question is how much visibility do you have into the blinded baseline patient characteristic data from the APPROACH study and how this population may differ from a TRD population? And then on the safety database, what you'll need in a regulatory filing, is there a minimum number of retreatments per year needed in the EXTEND trial? Amir Inamdar: Yes. Thank you. So the safety -- as the trial is ongoing, the data is blinded. We are performing checks as necessary or as possible with blinded data, which essentially are quality checks in a blinded manner. And since this is a pivotal trial, we are, of course, being very careful with the data. There are other checks built into the database, which ensures that there any flags with respect to data quality. They are raised to us immediately if there is a reason for concern. So far, we haven't had anything flagged in the database. So we are confident that the data quality is being maintained. In terms of how this is different from the TRD population. So this group of patients is earlier in the treatment cycle. So these are patients who are inadequately responding. And they may have failed 1 treatment or they may have failed 1 and been on their second treatment, but not adequately responding, but not fully failed. So they are not that 1/3 of the patient population that remains after multiple treatment trials. So it's about 2/3 of -- if you think of the depression population as a whole, this is the first 2/3 of those patients in the treatment cycle, whereas TRD would be the last 2/3 left after multiple treatment cycles. In terms of ends, the -- or safety database, the safety database really is a function of the frequency of administration. Given that this is an intermittent treatment, what we have discussed with the agency as part of our BTD discussions is that the data that we will provide to them, the numbers that we provide to them across the 3 studies would be sufficient to support an NDA. But of course, again, it depends on what we find out in the long-term extension study with respect to treatment frequency. [ id="-1" name="Operator" /> Our next question will come from Elemer Piros with Lucid Capital Partners. Elemer Piros: Yes. I just wanted to get maybe just one tiny detail on the loan repayment. If you could clarify how much was repaid and what was the prepayment penalty or the early repayment fees? Greg Cavers: Thank you. Yes, we repaid High Trail $20 million and the repayment fee ended up being 10%. Elemer Piros: 10%, so it wasn't a $50 million loan. Greg Cavers: The loan -- yes, the loan was structured as a convertible debt, and they had converted the other $30 million. Approximately. Elemer Piros: Converted the other. [ id="-1" name="Operator" /> Our next question will come from Sumant Kulkarni with Canaccord Genuity. Sumant Kulkarni: Nice to see the progress. I have 3. On CYB003, during your pivotal trial program, how important is it that patients remain compliant with their background antidepressant use? Amir Inamdar: Sorry, I was speaking on mute, Sumant, taking that question. The -- so for our patients in the APPROACH study and EMBRACE because this is adjunctive, the instructions to the patients and requirements in the protocol is that they remain on their background antidepressant medication. We do not expect them or advise them to come off their antidepressant medication during the treatment period. Sumant Kulkarni: Got it. And then on 004, do you see an eventual pivotal program involving an intramuscular route of delivery? And what are some of the key challenges of developing an oral formulation? And my last question is, what are some of the specific qualities that you believe are must-haves for an incoming CEO? Amir Inamdar: I can take the first 2. Eric can take the last one. So right now, yes, intramuscular is the route of administration that we plan to progress in Phase III. It's a very convenient form of administration, which also gives us what we need in terms of the plasma exposures and the acute experience, which cannot be achieved with something like oral. With oral, the elimination is pretty rapid. And DMP or CYB004 does not reach the plasma PK levels, the threshold that is necessary for a breakthrough experience, which, as we know, is necessary for therapeutic efficacy. That we are achieving with intramuscular. It's well tolerated. So that is what we are going to take into Phase III. George Tziras: And maybe I can also add, Amir, that the intramuscular route is one that as we are aware from our market research with the interventional psychiatry clinics is one that is also being used currently by interventional psychiatrists administering ketamine. And so that gives us some confidence that it is a route that will get -- will reach adoption in the market. Eric So: And with regards to your question regarding CEO qualities, I mean, obviously, we've been at it for only about 8 weeks right now. The Board is spearheading that process. And at the moment, we're looking for the qualities that this company and its shareholders deserve, a successful steward of capital that investors can feel confident in, someone that has executed in the past, bringing a novel drug to market ideally through commercialization, an individual that has transacted and dealt with big pharma in the past as well. These are all table stakes for us and the next individual that will be sitting in the chair. [ id="-1" name="Operator" /> At this time, there are no further questions in the queue. So I'd like to turn the call back over to Eric for any additional or closing remarks. Eric So: No further remarks. I just want to thank everybody for attending the call today. It's been a very exciting time for Cybin, and we look forward to delivering some fantastic updates for everybody in the future. Thank you all for your support. [ id="-1" name="Operator" /> Thank you, ladies and gentlemen. This does conclude today's program, and we appreciate your participation. You may disconnect at any time.
Operator: Welcome to the Ampco-Pittsburgh Corporation Third Quarter 2025 Earnings Results Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Kim Knox, Corporate Secretary. Please go ahead. Kimberly Knox: Thank you, Gary, and good morning to everyone joining us on today's third quarter 2025 Conference Call. Joining me today are Brett McBrayer, our Chief Executive Officer; and Mike McAuley, Senior Vice President, Chief Financial Officer and Treasurer. Also joining us on the call today are Sam Lyon, President of Union Electric Steel Corporation; and Dave Anderson, President of Air and Liquid Systems Corporation. Before we begin, I would like to remind everyone that participants on this call may make statements or comments that are forward-looking and may include financial projections or other statements of the corporation's plans, objectives, expectations or intentions. These matters involve certain risks and uncertainties, many of which are outside of the corporation's control. The corporation's actual results may differ significantly from those projected or suggested in any forward-looking statements due to various risk factors, including those discussed in the corporation's most recently filed Form 10-K and subsequent filings with the Securities and Exchange Commission. We do not undertake any obligation to update or otherwise release publicly any revision to our forward-looking statements. A replay of this call will be posted on our website later today. To access the earnings release or webcast replay, please consult the Investors section of our website at ampcopgh.com. With that, I'd like to now turn the call over to Brett McBrayer, Ampco-Pittsburgh's CEO. Brett? J. McBrayer: Thank you, Kim. Good morning, and thank you for joining our call. This was a strong quarter for Ampco-Pittsburgh, both in our underlying financial performance and in the decisive strategic actions we've taken to transform the company. As reported in our press release, consolidated adjusted EBITDA for the third quarter was $9.2 million, up 35% from the prior year. This was driven by the best year-to-date results in our Air and Liquids segment's history. Our third quarter adjusted earnings per share of $0.04 are up $0.14 from the prior year. This strong underlying performance gives us a solid foundation, and we have taken major steps to quicken that momentum into 2026. After the quarter closed in October, we accelerate the exit from our U.K. facility. We are also nearing completion of our exit from a small steel distribution business, AUP. The impact from our U.K. exit alone is expected to improve full year adjusted EBITDA by $7 million to $8 million. These 2 actions remove our most significant operational drag and positions us for dramatically improved profitability as we move forward. For further details regarding our segment performance, I'll turn the call over to Sam Lyon, President of our Forged and Cast Engineered Products segment. Sam? Samuel Lyon: Thank you, Brett, and good morning. For the third quarter of 2025, FCEP's net sales were $71.5 million, $6.4 million lower than Q2 2025 and $4.3 million ahead of Q3 2024. We had our typical summer shutdowns of our European facilities in Q3. The Q3 revenue includes about $0.9 million in tariff pass-throughs. Segment adjusted EBITDA, which excludes the exit charges associated with the U.K. cash facility and the AUP steel distribution operations was $7.1 million higher than Q2 and $0.3 million better than Q3 of 2024. FEP demand and shipments have improved. Year-to-date, FEP revenue increased approximately 40% to $14.4 million compared to $10.2 million last year. We continue to raise prices on this product, improving margins as import barriers have increased. Looking at the roll market in North America, some customers temporarily postponed roll purchases due to tariff uncertainty and as a result, have lowered their existing roll inventory. This supports our view that a return to more normal roll ordering patterns is approaching as inventory levels deplete. Overall, tariffs are expected to have a neutral impact on roll demand in North America as our U.S. customers will benefit. Conversely, tariffs will negatively affect our Canadian and Mexican customers as their imports into the U.S. are affected. To date, we've passed all tariffs on to our customers. The tariff environment for our European imports remains a key focus. Our imports to the U.S. from Sweden now face tariffs between 15% and 27%, and products from Slovenia faced rates as high as 50%. The Castrol market in North America continues to exceed domestic capacity, so long-term demand for our European cast rolls should not be affected by these tariffs. We expect that the roll tariff effect will be temporary. In addition, our European customers have lean inventory. Any uptick in demand will require additional roll orders. Europe recently announced plans to modify its quota and tariff system for steel, which when implemented in July of 2026, will result in dramatically increased utilization of European mills. The quotas will reset to lower volumes and any steel imports above these quotas will be subject to a 50% tariff, up from 25% currently. This new system has the potential to be a significant tailwind for our roll business. Long-term fundamentals remain strong, construction spending, automotive production and can sheet demand are all expected to grow at mid-single-digit rates over the next 5 years. As formally disclosed, we have placed our U.K. Castrol plant into administration. The insolvency commenced on October 14, 2025, and is being managed by appointed administrators. This action accelerated our time line for closure. Our losses stopped as of October 14, much earlier than our original solvent wind-down plan, which had us operating through the first quarter of 2026. We now expect the U.K. facility to complete all work in process inventory and ship these orders by year-end 2025, minimizing disruption to our customers. As a result of the U.K. closure, our Sweden plant will run at a higher utilization rate in 2026, improving its profitability. To further improve the CEP segment, we have decided to wind down our small unprofitable and noncore alloys unlimited steel distribution facility. That exit will conclude by the end of November. The actions we took this quarter to address underperforming assets will deliver meaningful improvements in operating income and adjusted EBITDA for the segment. Brett, back to you. J. McBrayer: Thank you, Sam. David Anderson, President of Air and Liquid Systems will now cover his segment's results. David Anderson: Thank you, Brett. Good morning. 2025 continues to be a positive year for Air and Liquid. In Q3, revenue was 26% higher than prior year, while year-to-date revenue was nearly 7% above prior year. The Q3 revenue increase was driven by higher revenue in all product lines. while year-to-date revenue was higher due to increased revenue for pumps. Segment adjusted EBITDA in Q3 was $4.4 million versus $3.4 million in the prior year. The 31% increase versus prior year was driven by higher revenue and improved product mix. Year-to-date segment adjusted EBITDA of $12.1 million was the highest in Air and Liquid's history and a $3.1 million increase over prior year. We continue to see positive activity in the nuclear market for our heat exchange product line. Orders and shipments have already exceeded any prior full year. from restarting legacy plants to the new small modular reactors, nuclear power appears to be at the beginning of significant long-term market growth. Our engineering and manufacturing capabilities positions us well as this market continues to grow. There continues to be strong demand from the U.S. Navy, and we expect this demand to continue as the Navy moves forward with fleet expansion plans. The manufacturing equipment installed in 2024 has already increased manufacturing capacity for our pump product line, and there is more capacity expansion in process. In the weeks ahead, new manufacturing equipment from the Navy funding program is expected to arrive at our facility, and there will be more equipment arriving in 2026 from the same Navy program. This equipment, along with the equipment we installed in 2024 will position us to meet the expected growth in this market. Demand for custom air handlers remains strong. from upgrading existing facilities to increasing research and manufacturing capabilities in the United States. There continues to be tremendous demand in the pharmaceutical market for our custom air handling products. Tariffs continue to be a major subject in the last few months. The tariff on copper, which is a main component of our heat exchangers, has been in place for a few months now. We've been able to adjust our supply chain to avoid most of the tariff costs and are passing on any remaining tariff costs to our customers. While there may be some short-term fluctuations as the supply chain adjusts, in the long term, anything that results in increased manufacturing in the United States will increase demand for our products. In summary, demand for our products remain strong. 2025 will be the best year in Air and Liquid's history, and we are well positioned in markets that are showing significant long-term growth potential. J. McBrayer: Thank you, Dave. At this time, Mike McAuley, our Chief Financial Officer, will now share more details regarding our financial performance for the quarter. Michael McAuley: Thank you, Brett. As indicated in both our Form 10-Q and in our press release 8-K filed yesterday. While we have recorded charges totaling $3.1 million in the quarter relating to reducing our operational footprint for significant future projected earnings improvements, the underlying business has improved with significantly higher consolidated adjusted EBITDA and adjusted EPS in Q3 2025 than in the prior year, which is true for the year-to-date period as well and all while we have navigated some short-term disruptions from tariff policy in our customer base. In October, we issued a press release and filed a Form 8-K, which detailed the accelerated exit from our U.K. cast roll facility through a structured insolvency process. This removes that subsidiary's operating results from our consolidated results immediately from that date forward. This represents a departure from our previous plan to unwind it more gradually into early 2026. And stopping those losses sooner. In conjunction with that action, we will deconsolidate the U.K. subsidiary in Q4. And when we and we reported that we expect a significant noncash write-down as itemized in the report and again, in Note 2 to our Q3 Form 10-Q. The major benefits of this approach beyond sooner operating loss reduction is avoidance of significant cash plant closure costs. and an expectation for a material revolving credit facility borrowing reduction as distributions from the administrators from liquidation proceeds are remitted to the secured creditor which is expected by around mid-2026. To reiterate, we expect adjusted EBITDA to improve by $7 million to $8 million per full year post the U.K. deconsolidation, and that begins in early Q4 2025. Now back to Q3 results. Ampco's net sales for the third quarter of 2025 were $108 million, an increase of 12% compared to net sales for the third quarter of 2024. The increase was primarily driven by higher sales in all 3 divisions of Air and Liquid Processing. Higher net roll pricing and higher shipments of forged engineered products in the Forged and Cast Engineered Products segment, which more than offset softer roll shipment volumes during the quarter. As I mentioned, we recorded $3.1 million in noncash accelerated depreciation and other expenses in Q3 related to the exit of our U.K. cast roll business and our small Alloys Unlimited steel distribution business. These expenses are spread by the pertinent income statement line item in the consolidated P&L, but are summarized for you in Note 2 to our Q3 Form 10-Q and in the non-GAAP reconciliation table attached to the Q3 earnings press release. Referring to that non-GAAP reconciliation schedule, please note that consolidated adjusted EBITDA of $9.2 million for the third quarter of 2025 improved by $2.4 million versus prior year. This was driven by a few primary reasons. Higher pricing and surcharges net of changes in manufacturing costs in the Forged and Cast Engineered Products segment, higher shipment volumes of forged engineered products, which helped to partially mitigate the impact of lower mill roll shipment volumes, unfavorable manufacturing overhead absorption compared to the prior year quarter related to temporary plant shutdowns typically taken in Q3 of each year in the Forged and Cast Engineered Products segment and the higher shipment volumes and improved product mix experienced in the Air and Liquid Processing segment. 2025 year-to-date adjusted EBITDA of $26 million remains up versus prior year. Total selling and administrative expenses declined $0.6 million or 4% for Q3 2025 versus prior year due to employee -- lower employee-related costs, offset in part by professional fees associated with our efforts to exit the U.K. operations and higher sales commissions in both segments. Depreciation and amortization expense for the quarter and for the year-to-date are higher than prior year periods due to the accelerated depreciation portion of those exit charges associated with the U.K. and always [indiscernible] unlimited steel distribution business. Severance charges and loss on disposal of assets stem from the exit as well. And again, are part of those exit charges itemized in Note 2 in Form 10-Q and in the non-GAAP reconciliation table. Interest expense for the third quarter is approximately flat with prior year. The change in other expense income net was driven primarily by lower foreign exchange transaction losses, but also by lower pension income. Given the lower expected long-term asset returns, given the asset allocation changes we've made to protect a much higher funded status of our U.S. defined benefit plan. The income tax provision for 2025 is benefiting from a lower statutory tax rate than one of our foreign tax paying jurisdictions. As a result, net loss attributable to Ampco-Pittsburgh for the 3 months ended September 30, 2025, was $2.2 million or $0.11 per share, which includes $3.1 million or $0.15 per share for the exit charges. Referring to the non-GAAP reconciliation schedule attached to the earnings release, please note that adjusted earnings per share of $0.04 for Q3 2025 was up $0.14 from prior year and for the year-to-date period ended September 30, 2025, adjusted EPS of $0.03 was up 16% -- $0.16 per share, excuse me. So significant underlying improvement there. At September 30, 2025, the corporation's liquidity position included cash on hand of $15 million and undrawn availability on our revolving credit facility of $28.2 million. Operator, at this time, we would now like to open the line for questions. Operator: [Operator Instructions] Our first question is from David Wright with Henry Investment Trust. David Anderson: I couldn't let you go without anyone asking you questions because that's about the best report you've had in a long time, so congratulations. Two for Mike. On the U.K. closure and the question on the difference between bankruptcy filing in the U.S. and this filing in the U.K. You addressed the operating results and being absolved of them. Is the subsidiary's debt is the parent also absorbed that as a result of the filing? Michael McAuley: Yes. Yes. In fact, there's -- going along with that process. First of all, the insolvency is exclusively related to the subsidiary has nothing to do, doesn't affect any other subsidiary segment or the entire or Ampco-Pittsburgh. But that process is something we have been thinking about, but as we got into more investigations on it, it became more evident that it was the best answer for Ampco. It did accelerate our exit. And there is no material local debt other than the -- like the pension obligations, which are now -- we're part of that business and its other liabilities. But we didn't have direct debt. It never issued direct debt itself. But we had significant closure costs, which were liabilities that we expected to incur which were no longer going to incur, David. You can see those -- if you look back at what we've recorded earlier in the year as charges, for example, severance charge, something in the range of $7 million, that's going to be reversed as part of the Q4 deconsolidation. David Wright: So the secured debt is just secured against the U.K. assets? Michael McAuley: Secured debt? Are you talking about the corporation's revolving credit facility? David Wright: No, no, no. The debt that has to be liquidated, the debt that has to be paid off as the assets of the U.K. operation are liquidated. Michael McAuley: Yes. Those will primarily be accounts payable incurred accounts payable that hadn't been paid yet, any other liabilities that are on the balance sheet of that subsidiary, any liabilities which materialize as the real estate eventually gets liquidated, and any cost for the administration, any commissions for the sale of the assets. All be handled out of the remaining assets of the subsidiary, yes. David Wright: Okay. The other question for you, Mike, is you alluded to the pension plan. Are you doing an evaluation again this year -- the pension plan excuse me, the asbestos liability. Michael McAuley: Yes, we will. David Wright: Okay. So is that going to be an annual thing now? Michael McAuley: It has been in the last couple of years. We've migrated to an annual of that, David, and we're going to do it again in Q4. David Wright: Okay. And then one for Dave. It looks like your run rate based off the last quarter sales were $140 million annualized. And I know you undertook a capacity expansion. You talked about the demand from pharmaceutical companies continuing how much more can you put through the system? David Anderson: We can put significantly more through the system, David. And we're addressing that in multiple ways. The equipment coming in through the Navy funding program is state-of-the-art. So we're getting significant improvements in manufacturing efficiencies. We're also looking at other projects at our facilities to improve our utilization, improve our efficiencies. We still have a long runway. David Wright: And remind me on the nuclear plants, like where are you in the food chain, if they want to restart a plan or they want to build a new one. Are you early or late? David Anderson: We're usually early. Often, we have supplied the heat exchangers well in advance before they're opening the facility. We've already been to some of the ones that are reopening, and that was a while ago, we were up in Michigan to the first one. So we're early in the process. David Wright: Okay. All right. Great. Well, like I said, best quarter, you've reported in a long time and hope lots of people see it. Thanks very much. Operator: Your next question is from John Bair with Ascend Wealth Advisors. John Bair: I'll echo the congrats on a good quarter here. My question kind of cycles back to the discontinued operations. Do you anticipate getting any kind of monetization, I guess, from the liquidation of properties and so forth in those operations? Or will it all go to the trustee that's the receivership, I guess, that's settling that out. Michael McAuley: Yes. That's a good question. And actually, part of the answer to that is disclosed in the 8-K that we issued, so you can read more about it there. But I'll give -- the overview really is as the assets get liquidated, there's a priority of payments that the administrator will follow according to U.K. solvency law. And the secured creditors are settled first and the secured claims are principally the bank debt, those are the claims. Those are the charge holders for the on that legal entity. And so that would be our bank group. And so the liquidation proceeds would first go and be remitted to the bank group who would then reduce our outstanding asset-based loan balance, which is our revolving credit facility. So yes, we do expect. We had some projections from the administrator, and we've analyzed those, and we've included those in our assessment of the net charge we will record in Q4, and we'll net that charge down by an estimated proceeds amount, which is $8 million to $9 million expected in net proceeds through that process. Samuel Lyon: Just one comment, part of that -- this is Sam. The administrator, they have continued to run the plant. So anything that was not -- that had already been through the melting process. They're finishing those rules, turning them into finished goods and shipping them and monetizing that which ends up being part of the funds that will end up funneling back through. So it's a double benefit, number one, that generates more value and number two, it actually helps with our customers in the transition of closing the plant. John Bair: Okay. So just high altitude, you're looking at possibly somewhere in the $8 million, $9 million that could flow back to you after this is all closed out, right? Michael McAuley: Yes, in the form of reduced bank debt, yes. John Bair: Okay. Okay. Okay. And then following up on that then, my understanding is that you'd be supplying or hoping to supply existing customers that have been served by that facility from your other European operations. Is that right? Samuel Lyon: A portion of it, John, this is Sam again. The work rules, we will maximize the Sweden plant. So the utilization there will definitely increase significantly. And then there was one type of roll that we made that cannot be made in Sweden, some of them will be converted to forged rolls. There's very limited supply in the marketplace. So we'll see some of that come to the U.S. But there'll be an overall slight reduction in revenue, but obviously a big gain in profitability. John Bair: Okay. So the Sweden plant will be more efficient and more higher utilization? Is that a fair way to look at it? Samuel Lyon: That is a fair way to look at it, yes. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Brett McBrayer for any closing remarks. J. McBrayer: In closing, I want to share an important corporate update and then leave you with a final thought on our path forward. We recently announced that David Anderson will become our new CFO on January 1, 2026, while also continuing his duties as President of Air and Liquid Processing. Dave's prior CFO experience in both of our segments positions him uniquely well for this expanded role. Dave has a deep and tenured team at Air and Liquid Processing, which gives us full confidence in his ability to manage both responsibilities and drive strong performance across the organization. I also want to acknowledge and thank Mike McAuley for his significant contributions. Mike will continue working for me as a strategic adviser for the first half of 2026 to ensure a seamless transition. Finally, I want to thank our employees who are making the positive improvements you heard about today. Our message this quarter is clear. Our core business is improving, and we have taken the difficult but necessary steps to address our underperforming assets. By exiting the U.K. in our small steel distribution business, AUP we are removing the most significant drags on our profitability. We entered 2026 stronger, more focused and a more profitable company. I want to thank the Board of Directors and our shareholders for your continued support. Thank you for joining our call this morning. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Dear ladies and gentlemen, welcome to the Merck Investor and Analyst Conference Call on Third Quarter 2025. [Operator Instructions] Please note that at our customers' request, this conference will be recorded. I'm now handing over to Florian Schraeder, Head of Investor Relations, who will lead you through this conference. Please go ahead, sir. Florian Schraeder: Thank you so much, Smart Sarah, and a sincere welcome to everyone joining the Merck Q3 '25 Results Call. I'm Florian Schraeder, the Head of Investor Relations at Merck. I'm delighted to be here today with Belén Garijo, our Group CEO; and Helene von Roeder, our Group CFO. During the Q&A part of this call, we will also be joined by Kai Beckmann, CEO of Electronics and Deputy Chair of the Executive Board; Jean Charles Wirth, CEO of Life Science; and Danny Bar-Zohar, CEO of Healthcare. In the first few minutes, we will walk you through the key slides of our presentation. After that, we will be happy to take your questions. Now I will turn it over to Belen to get started. Belén Garijo López: Thank you, Florian. Good afternoon, and welcome, everybody, to our Q3 earnings call. I am now on Slide #5, starting with the highlights of this quarter. So as you have seen during the morning in Q3, we delivered solid organic growth across all 3 sectors. Organically, the group revenues increased by 5.2% and EBITDA pre went up by 8.8%. Life Science delivered the strongest organic sales growth at 6%, followed by our Healthcare and Electronics businesses, which both delivered solid organic growth of 5%. One key highlight of the quarter is the continuation of the strong performance of our Process Solutions business, which showed organic growth above 10% for the third consecutive quarter despite rising comparables. We saw a very strong order growth year-over-year and a book-to-bill ratio that is still comfortably above 1. In Science & Lab Solutions, we returned to organic growth, and that despite continued near-term headwinds. In Healthcare, organic growth was largely driven by the CM&E franchise, up 7% and solid N&I performance of 6%, driven by Mavenclad which reached double-digit growth in this quarter. Oncology showed moderate organic growth despite heavy competitive headwinds for Bavencio and rising competition for Erbitux in China from noncomparable biologics. Following the closing of the SpringWorks acquisition on July 1, this is the first quarter in which we are consolidating our rare disease franchise, which has contributed 4% portfolio growth for Healthcare and has performed well in line with our expectations. Moving into Electronics, we saw organic growth of 5%, driven by our semi-material business, and in this context, please note that Q3 includes 1 final month of Surface Solutions since we have now successfully divested as of July 31. Regarding full year 2025, we are now confirming and narrowing our absolute guidance ranges for net sales, EBITDA pre and EPS pre. We are maintaining the midpoints for net sales and EBITDA pre, while slightly increasing the midpoint for EPS pre. So turning to Slide 6 for an overview of our performance by business sector. Once again, organic sales growth in the third quarter was plus 5.2% and Life Science was the largest contributor with organic sales growth of almost 6%, driven once again by the stellar performance of Process Solutions. Healthcare grew 4.6% organically, driven by strong growth of our CM&E franchise alongside contribution from Mavenclad and Fertility, which has returned to growth, supported by Pergoveris. Electronics also showed the solid organic sales growth with Semi Materials up high single digits, while DS&S was down in the low teens range as was expected. Regarding our earnings, EBITDA pre amounted to EUR 1.69 billion, up plus 8.8% organically versus the same quarter of last year. The currencies had a negative effect across all sectors, while the portfolio effect was slightly positive driven by the contribution of SpringWorks. As flagged in our Q2 earnings call, EBITDA pre in Q3 was supported by the sale of a priority review voucher resulting in a gain of plus EUR 60 million in health care and legislative changes in South America, adding another EUR 59 million of income in [ CO ]. Our underlying EBITDA pre margin, excluding these 2 effects, was stable at around 29%, fully aligned with our expectation for the full year. And with this, let me hand it over to Helene for a more detailed review of our financials. Helene von Roeder: Thank you very much, Belen, and also a warm welcome from my side. And with that, I'm now on Slide 8, and we'll start with an overview of our key figures in the third quarter. Net sales increased by 1% to EUR 5.318 billion. Organic growth of EUR 273 million and a portfolio effect of EUR 34 million were largely offset by FX headwinds of minus EUR 256 million. EBITDA pre was up by 3.1% to EUR 1.669 billion with a margin of 31.4%, and that is up 70 basis points year-on-year. The group margin benefited from the sale of a priority review voucher and legislative changes in Latin America, which together contributed EUR 119 million supporting the margin by 220 basis points. EPS pre increased slightly by 0.9% to EUR 2.32 per share. The gains resulting from the aforementioned priority review voucher and legislative changes have supported EPS pre growth and overcompensate the higher interest related to the SpringWorks acquisition. Our operating cash flow increased moderately by 4.1% to EUR 1.518 billion. Net financial debt rose 29.8% to EUR 9.228 billion (sic) [ minus EUR 9.228 billion ], primarily reflecting financing for the SpringWorks acquisition via a U.S. dollar bond issuance. Our return to the U.S. dollar bond market after 10 years was highly successful and further diversified our fixed income investor base. We were over 4x oversubscribed and that enabled us around 25 basis points of pricing tension underlining the strong confidence from fixed income investors. Let me also briefly comment on our reported results. And with that, I'm now on Slide 9. EBIT was up by 11.3% year-on-year. The financial results declined significantly from minus EUR 54 million to minus EUR 99 million, and that is primarily due to higher interest costs from the U.S. dollar bond related to the SpringWorks acquisition. The year-to-date effective tax rate was 21.2%, and that is within our guidance range and reflects normal quarterly fluctuations throughout the year. Turning to EPS. Reported EPS was EUR 2.07, which is up 11.3% year-on-year and is on par with our EBIT growth. With that, let's move to the business sector review, and I'm beginning with Life Science on Slide 10. Life Science grew organically by plus 5.9% in Q3. Growth accelerated versus prior quarters with Process Solutions maintaining its momentum and Science & Lab Solutions returning to growth. As projected, Process Solutions continued its strong momentum with organic sales up by 10.3%. That is the third consecutive quarter of low teens growth despite increasing comps. Order intake remained strong in Q3 and the book-to-bill ratio stayed comfortably above 1. To further strengthen our Process Solutions downstream offering, we announced on October 15, the acquisition of JSR's Chromatography business. This adds advanced protein A chromatography capabilities, enhancing our ability to offer more efficient, scalable protein purification solutions that support accelerated biopharmaceutical production. Turning to Science & Lab Solutions. Sales grew by 2.5% organically despite continued headwinds from U.S. policy changes weighing on academic and government lab spending and still challenging market conditions in China. While the U.S. government shutdown had no impact in Q3, we do expect some effects to materialize in Q4. Life Science Services reported organic sales growth of 5.2% against the low comp, driven by our CDMO business, and that is notably bioconjugation for ADCs. As noted at our recent Capital Markets Day, Life Science intends to gradually increase R&D investment towards roughly 5% of sales over the midterm. And the R&D increase in Q3 is absolutely in line with this goal. EBITDA pre increased by 6.1% organically, with the margin up by 20 basis points year-over-year, reflecting operational leverage. I'm now on Slide 11 with an overview of the Healthcare business sector's performance. Healthcare delivered solid organic sales growth of 4.6% in Q3, about 1% of the growth resulted from a pull-in from Q4. For the first time this year, we consolidated our rare disease franchise contributing a plus 4 percentage point portfolio effect well in line with expectations. CM&E was once again the largest contributor of Healthcare's organic growth, delivering 7% organic growth with all therapeutic areas contributing. Fertility sales were up 2% organically, mainly driven by very strong growth of Pergoveris, up 37%. Meanwhile, we announced on October 15, a voluntary agreement with the U.S. government to accelerate the U.S. review time lines for Pergoveris and access to our IVF therapies via trumprx.gov. Our oncology franchise delivered 3% organic sales growth as Erbitux sales rose by 10.3%. Erbitux' performance was driven by strong growth in Latin America and Europe, more than offsetting tougher competition for noncomparable biologics in China where sales declined in the low teens. Our N&I business grew by 5.6% organically in Q3. Mavenclad delivered stellar organic growth of 20.4% supported by continued strong commercial execution. I want to briefly comment on the recent decision by the Court of Appeals for the Federal Circuit, which has affirmed the conclusion by the U.S. Patent Office that our 2 Mavenclad dosing regimen patents are invalid. We are disappointed by the ruling and intend to file a petition for rehearing or rehearing en banc. Belen will comment on implications later. Regarding our pipeline, longer-term results from Part 2 of the Phase III pimicotinib study were presented at ESMO, showing increasing ORR over time and ongoing improvements in key secondary endpoints. We intend to launch pimicotinib in 2026 in TGCT. On R&D spend, as mentioned in our Q2 earnings call and the Capital Markets Day, we are increasing our R&D ratio in H2. The key drivers are project ramp-up costs and a small effect from the SpringWorks acquisition. Our Q3 ratio of 20.9% is in line with our midterm ambition of around 20%. Overall, EBITDA pre amounted to EUR 818 million in Q3, which represents a margin of 37%. Please keep in mind that this includes the EUR 60 million gain from a sale of a priority review voucher and only a modest dilution from SpringWorks. Furthermore, please note that the margin in Healthcare tends to be lower in Q4 due to seasonality. Let us move to electronics on Slide 12. Organically, sales increased by 4.8% in Q3. Semiconductor Solutions sales were up in the high single-digit percentages organically overcompensating lower DS&S sales. In Semi Materials, AI and advanced nodes continue to drive growth. In addition, we see demand from mature nodes in Asia, where we have been able to gain market share with new qualifications. On business, the quarter was in line with our expectations. As we communicated in Q2, we expect a very muted year 2025. Considering the usual back-end loaded seasonality of DS&S, we're calling out Q4 '25 as the bottom. We're more constructive on the outlook for 3D NAND driven by [ eSSDs ]. This is consistent with the view Kai and his team shared at the Capital Market Day '25. Our Optronics business achieved moderate organic growth of 2.9%. Resilience in our offerings for liquid crystal and OLED drove organic growth complemented by a strong portfolio contribution from UnitySC. The EBITDA pre margin went up by 150 basis points year-on-year to 27%, mainly driven by the accretion from the divestment of Surface Solutions. We see gradual improvement of Electronics margins from here onwards. Before handing back to Belen, let me also briefly comment on our balance sheet and cash flow statement. Now as you can see on Slide 13, our balance sheet decreased by EUR 700 million compared with the end of December '24. Taking a closer look on the asset side. Cash and cash equivalents increased quarter-over-quarter, reflecting the U.S. dollar bond issuance and receipt of proceeds from the divestment of Surface Solutions. Inventories were stable, while receivables rose by EUR 300 million, following a quarter of strong focus on cash collection efforts. Intangible assets increased slightly by EUR 100 million due to goodwill created by the SpringWorks acquisition, partially offset by negative FX. Property, plant and equipment decreased slightly by EUR 200 million, which is mainly due to FX translational differences. And lastly, other assets were down by EUR 700 million, mainly due to the divestment of Surface Solutions and revaluation effects. On the liability side, financial debt increased by EUR 1.8 billion with the issuance of the U.S. dollar bonds. Pension provisions were slightly down, driven by actuarial gains. Payables decreased by EUR 100 million as we saw declines in current payables across all 3 sectors. And net equity decreased by EUR 1 billion as the increase in retained earnings was more than offset by FX differences, primarily reflecting a weakening U.S. dollar. In summary, our equity ratio declined from 58% at the end of December '24 to 57% at the end of Q3. Turning to cash flow on Slide 14. Operating cash flow increased to EUR 1.518 billion in Q3 '25, up from EUR 1.456 billion (sic) [ EUR 1.458 billion ] in Q3 of last year. Profit after tax rose driven primarily by the gain of the sale of a priority review voucher and changes in local legislation in Latin America. The EUR 166 million year-over-year delta in other assets and liabilities reflect variable compensation and tax adjustment. Other operating activities decreased by EUR 181 million year-over-year in Q3 '25, largely due to the neutralization of gains from the PRV voucher and the Surface Solutions divestment. Net cash used in investing activity reflects the SpringWorks acquisitions and the Surface Solutions divestment. CapEx on PPE was EUR 63 million lower, in line with the updated full year guidance of EUR 1.5 billion to EUR 1.7 billion, down from previously EUR 1.6 billion to EUR 1.8 billion. The change in financing cash flow is explained by the proceeds from the U.S. dollar bond issuance. Lastly, consistent with my comments at the Capital Markets Day, within CDMO, we are actively reviewing our mRNA and viral vector activities with potential financial implications in the next quarters. And with that, let me hand back to Belen for the outlook. Belén Garijo López: Thank you very much, Helene. Let's now move into taking a closer look at our full year guidance on Slide 16 before we open for Q&A. As you may have seen in the press release, we have sharpened our group sales guidance to a range of EUR 20.8 million to EUR 21.4 billion with an unchanged midpoint at EUR 21.1 billion. FX remains a strong headwind and has been refined to minus 5% to minus 3% from the earlier minus 5% to minus 2%. Our organic net sales growth guidance is now set at around 3%, staying within the previously communicated range. Turning to EBITDA pre, we have also kept the midpoint at EUR 6.1 billion and narrowed the absolute range to between EUR 6 billion and EUR 6.2 billion. Organic sales growth has been narrowed from previously plus 4% to plus 8% to now plus 5% to plus 7%. For EBITDA pre, we anticipate an FX between minus 6% and minus 4%, adjusted from the previous minus 6% to minus 3% and we have raised the midpoint of our EPS pre guidance by EUR 0.05, now guiding a range of EUR 8.20 to EUR 8.60. For some additional color, let's take a look at Slide 17. Consistent with our group-wide approach, we are narrowing our organic sales growth guidance to plus 4% to plus 5%, while reaffirming the midpoint at 4.5% for the full year. We're also maintaining the midpoint at 5% for EBITDA pre and narrowed the guidance to a corridor of plus 4% to plus 6%. In Healthcare, we anticipate organic sales growth of around 3% at the lower end of our previously communicated guidance range of plus 3% to plus 5%. This reflects the underlying year-to-date trends and some uncertainty for Q4 related to the recent Mavenclad news Helene referred to earlier. For organic EBITDA pre, the guidance has been updated to plus 9% to plus 11%, consistent with the adjustment to sales and within the corridor communicated in August. As portfolio effect, we now expect the SpringWorks to contribute EUR 180 million in sales, up from EUR 170 million previously guided and EBITDA pre of between 0 and minus EUR 20 million, which is significantly better than the prior minus EUR 70 million to minus EUR 90 million communicated before. For Electronics, we forecast organic sales development between minus 3% to minus 1%, tightened from the prior range of minus 5% to minus 1%. Organic EBITDA pre for electronics is now expected to be between minus 11% to minus 7%, compared to the earlier guidance of minus 15% to minus 7%. Now turning to 2026 in which, I am sure, you are expecting a bit more transparency. We recently provided you at our Capital Markets Day with an early indication of group sales and margin for 2026. You may now be wondering about the potential impact of the recent Mavenclad news regarding the upcoming loss of exclusivity in the U.S. To no surprise, this will impact the 2026 sales and earnings projections for Healthcare. To what extent it's going to be influenced by the phasing of U.S. generic launches and our ability to drive volume also outside of the U.S. and Danny can provide further information later during Q&A. Hence, we will closely monitor the developments in these respects means U.S. generic launches, an update due in Q4 with the full year guidance. In any case, you should assume for your modeling that Healthcare margins should remain north of 30%. Coming to the group, first of all, we see our early 2026 indication for the group during the Capital Markets Day for sales within the range we provided, trending to the lower end. When it comes to group margins, you can ensure that we stay laser focused to mitigate the potential impact of the Mavenclad erosion in the U.S. While acknowledging state cost mitigation measures, you could assume for 2026 a margin of around 28%. As mentioned, more to come at Q4 earnings when we will provide a full year guidance to all of you. And with that, Florian, over to you to lead us through the Q&A session for today. Florian Schraeder: Thank you, Belen and Helene, for leading us through the slides. Actually, there's one small amendment to what we have set and is on group level, the organic EBITDA growth, which has been narrowed from previously quarter 8 to now 5% to 7%, not the organic sales growth. With that, Sarah, I'm very happy to hand over to you to manage the Q&A part of the call. Operator: [Operator Instructions] Your first question today is from Matthew Weston from UBS. Matthew Weston: Two questions, if I can, please, both on pharma and on the guidance for 2025. Belen, you called out the SpringWorks change in guidance where we've seen a very sharp turnaround in profitability of what you expect from inorganic this year. I'd love to understand what's changed in your assessment of SpringWorks? Have you reduced costs? Have you had more revenue leverage? Because it looks like a very dramatic change in assumption. And then the second question is around the offset to that within guidance, which is a downgrade to the organic Healthcare growth. I'd love to understand if that's also associated with an assumption of Mavenclad U.S. generics entering on the 22nd of November, as you previously flagged in the release around the patent board decision? Or is it another part of the business which is performing less well? Belén Garijo López: Thank you, Matthew. Let me invite Danny to address the 2 questions for Healthcare. Danny Bar-Zohar: Thanks, Belen. Hello Matthew, thank you for the questions. So I'll address first the SpringWorks question around the margins for Q3. So it is rather technical. We have taken a conservative approach when we provided the first guidance. As you remember, the first guidance was provided several weeks only after closing. So we took a rather conservative approach for that in terms of cost. Now moving forward, as you could see, we have upgraded the guidance on the portfolio from EUR 170 million to EUR 180 million. So there is a gain there. And so we do expect sequential sales growth in Q4 for the SpringWorks Therapeutics compounds. We do expect an EBITDA pre loss in Q4, which will be a bit above Q3 due to the phasing of investments. But overall, you're absolutely right, most of the assumptions were conservative when it comes to the cost of SpringWorks marketing and sales and a little bit on R&D. When it comes to the EBITDA pre at the group level -- sorry, at the Healthcare level. So what did we communicate? We communicated an update to the top line of around 3% growth, instead of of the 3% to 5%. What are the drivers for that? First and foremost, as Belen said, when we look at the 9 months year-to-date, we see the trends on Erbitux. We see the trends on Gonal-f on Bavencio. Only this would bring us to the, I would say, the lower half of the previous guidance. Add to that, that in Q3 for Healthcare, the 4.6% growth is approximately 1% overstated. There is a pull-in from Q4. That's the second component. And then goes to the last one, which is the uncertainty regarding the effect of Mavenclad in Q4, and I'm sure that we will get questions around that later. So the guidance for the EBITDA for Healthcare, we upgraded it slightly and what it reflects are actually the downside on the updated sales, the 3% -- around 3% instead of 3.5%, the updated headwinds on FX. And on the upside, the pull-up of the portfolio effect when it comes to the SpringWorks. I hope that it gives you the bigger picture. Matthew Weston: Danny, perfect. If I could add one very quick follow-up. Can you tell us where the 1 percentage point to pull-in from 4Q was in terms of the product breakdown? Which drug should we look at? Danny Bar-Zohar: Yes. Thank you. That's a good one. In terms of regions, it was mainly in Middle East, Africa due to the tensions in the Middle East or the fluctuating tensions in the Middle East they -- there was a tendency to play safe and to stock a little bit ahead of time. So we are talking about mainly the CM&E and a little bit of Erbitux. Operator: The next question is from Richard Vosser, JPMorgan. Richard Vosser: One follow-up just on Mavenclad. Danny, I think Belen was saying, you would give some more color maybe about Mavenclad and the assumptions for '26 in terms of the growth, the generics coming in, et cetera, into the U.S. and growth ex U.S. Maybe you could give us some of that color, that would be great. And then secondly, on Electronics. it seems that Surface Solutions, as I think we all know, was a lower-margin business. So that should enhance the margins going forward. But also there's been the widening of growth, a little bit elements beyond maybe in Semi Materials outside of just traditional AI. So perhaps you could talk about the implications for growth -- for the gross margin of that and the margins going forward in the Electronics business. Danny Bar-Zohar: Okay. Richard, thank you for the Mavenclad question, and I think that, yes, it is appropriate to provide more color. So let's step one step -- let's take one step backwards. This quarter, sales of EUR 304 million, exceptional growth of 20%, and this 20% growth is driven pretty much equally between North America and Europe. Very strong commercial execution. Now when it comes to what's next, how should we think about it? First of all, Europe, which is approximately 1/3 of the revenue should continue growing in 2026. So this one is clear. When it comes to the U.S., we are definitely not in a position to speculate here. Technically, there is one single company with a tentative FDA approval for a generic version of Mavenclad and the earliest possible conversion of it to a full approval is the 22nd of November. Now the FDA guidance states that it generally assesses a request for a conversion from tentative approval to a final approval within 3 months. So we don't have the full clarity on where it is going to land. So the -- when it comes to 2026, so this is a little bit of premature. Why? Because the time of entry of a generic is still unknown. We can think about something about early 2026, and we don't know about other generics. There is no other generic that has an FDA tentative approval, but we know about other generics. It's in the public domain. We have a petition prepared for filing and also generics are generics and the game and the price play is not always expected. So obviously, what we told you at the Capital Markets Day when it comes to the top line, as Belen said, will need to be adapted and when it comes to the [ staged ] cost mitigation that Belen mentioned, so this is a U.S. play only, and it will depend a lot on the timing and on the phasing of who comes after the first generic. When the first generic is there, we can continue playing, and we should continue investing moderately. What's good in the U.S. is that once we see the dynamics, we can act very rapidly, so we will modulate the cost appropriately. Just one sentence to add. With this, repeating what Belen said, all of this negative impact on the top line that we expect for Healthcare in 2025. The costs will be managed and the margins will be managed to be north of 30%. Kai Beckmann: Second attempt. Richard, I'm taking the Semi question on the margin. Let me provide a bit more color on this one. So we made steady progress on the EBITDA margin in Q3 with 27% now and we've put the exceptional items that you have seen in Q2 '25 behind us. Still we aren't where we want to be in Electronics. The margins should be higher, but the biggest missing piece is the acceleration in volumes and our midterm target to the mid- to high-single-digit organic sales growth. So in Q3, we see support from the first 2 months where Surface is deconsolidated. On an annualized basis, we expect 100 basis points of margin accretion from the Surface Solutions divestment. We also see the continued benefit of operational leverage in Semi Materials and positive mix for materials for applications that serve AI and advanced nodes. And we did get some support from the release of some provisions in Q3 '25 as well. And it's worth remembering that biggest driver of lower margins are the investments we make in capacity for our local-for-local strategy, investments like the new Taiwan site are helping us to mitigate tariff operationally as well as gaining share via new qualifications. What we anticipate is exiting the year with margins in the high 20s with the guidance implying 26% to 27% EBITDA pre margin. So clearly, we have still work to do, but it's a clear sign of focus, Richard. Operator: We'll now take the next question. And this is from Shyam Kotadia from Goldman Sachs. Shyam Kotadia: I have one on the SpringWorks assets. So on a quarter-over-quarter basis, it appears Ogsiveo sales were broadly flat. So given your portfolio effect guide for Healthcare assumes EUR 180 million and you achieved EUR 85 million in 3Q, it implies EUR 95 million of sales for 4Q. I imagine the majority of this EUR 10 million uplift in 4Q may come from Gomekli, given its earlier in the launch and the recent growth momentum. So this would again imply Ogsiveo being relatively flat in 4Q. So I just wanted to, therefore, check what's driving this flat quarter-on-quarter revenue assumption for Ogsiveo? And are you anticipating a growth uplift there? That's the first question. And then Second question on SLS. So there was some positive phasing dynamics I saw in the release in the chemistry subdivision. So how much of that supported the low single-digit organic growth this quarter? And given it was a phasing impact, how should we think about 4Q for SLS? And also if you could quantify the potential impact from the government shutdown, that would be great. Danny Bar-Zohar: So regarding Ogsiveo, I'll give a little bit more color. So in the third quarter, sales came in at EUR 62 million, which is 38% up year-over-year, which is practically the strongest quarter since launch and the drug was launched exactly 2 years ago. So it's not a very fresh launch. We continue to see robust underlying demand with new patient adds and refills and also low discontinuations. Ogsiveo is the standard of care holding more than 70% share of first-line systemic new patient starts. So this is very significant for us. Why are we confident with Ogsiveo? We saw a drop in surgery rate from 70% prior to launch to 50% already 18 months after the launch in the U.S. We see a very high level of satisfaction amongst both patients and prescribers, 90% prescribers have the intent to prescribe again. The drug is in the NCCN guidelines, high level of refills above 90%, real-world data that suggests a very positive feedback from both physicians and patients. Long-term efficacy and safety data we published a couple of weeks ago, that indicates clear increase in response rates over time, sustained improvement in quality of life and a very consistent safety profile. So we are definitely, definitely excited about that. What we need to do is to continue to drive leadership as first-line systemic treatment of choice, continue to grow the systemic treatment market for desmoid tumors through physician and patient education. And then when it comes to the flattening that you suggested, we are changing practice here. And this is the first in disease in this indication, in this severe indication. And in some cases, you need to, I would say, do a lot of education in terms of mobilizing patients. As I indicated on the Capital Markets Day with Ogsiveo, we are moving now. And I guess that SpringWorks has moved into this phase just between signature and closing to the second phase of the launch. This is the phase where the bolus of patients waiting at the center of excellence for the first drug ever are already treated. And now the task on us is to mobilize those patients under, what we call, active surveillance into therapy and increase the number of new patients, increase the funnel. So I'm referring back to two other things that I said when we announced the deal. One, expect volatility. Second, we'll need to deepen penetration in the U.S. The potential of more than 20,000 diagnosed patients in the U.S. only is huge, and the vast majority are sort of stuck with symptoms, but no decision how to treat these, and these are the patients that we need to get. So we have this -- and this is exactly what I meant when I said at the closing depending on our efforts in the U.S. Now specifically, when it comes to Q3, chronic disease, we do see summer seasonality. And if one splits that 2 months, you clearly see the seasonality there. When it comes to Q4, you saw that overall, we topped the SpringWorks guidance a bit. It's for both compounds. We will not provide additional split. But I would not expect the dynamics also that you might have observed between Q3 and Q4 last year, which was, as communicated by SpringWorks, a result of increased stocking in anticipation for a price increase. So we will consciously control this. We will continue to see broadly consecutive growth, and we are super excited with the recent launch in Germany. We launched 3.5, 4 weeks ago, and I spoke with a commercial lead there. And I'm very, very content about the progress of both Ogsiveo and Gomekli. You're absolutely right about Gomekli, fantastic launch as it looks right now in the U.S., EUR 23 million, 73% growth quarter-over-quarter. Both adult and pediatric population, we feel very confident with this product. Jean Wirth: And Shyam, let me comment on SLS overall. So first of all, talking about Q3. Yes, we returned to positive organic growth in Q3 despite changing environment. When you peel the onion, biomonitoring from a portfolio point of view was a strong driver. Same is true for Chemistry and Lab Water as well. From a region point of view, Europe was the key driver. Now I would like to share also the fact that a few months ago, we launched an initiative around customer focus. What I mean and what we mean by customer focus. We have concentrated on enhancing our supply chain in SLS, particularly regarding inventory management and fill rates in order to improve the customer experience. And yes, we saw a nice and important benefit on chemistry, but this is a onetime effect. Moving forward, we are seeing some kind of sequential stabilization in academia, government and hospital, but the market remains volatile. And I will give you 2 concrete examples. One is China, where we continue to see China as a muted market linked to geopolitical situation, local competition and so forth. And the second key driver I would like to highlight looking forward or going forward is the U.S. government shutdown that caused some kind of uncertainty within the market, especially for academic government hospital customer segments. And we saw, let's say, a slowdown of our order intake per week in U.S. over the last few weeks. Good news is the shutdown should be now behind us, but it's true that it has impacted the first weeks of Q4. Operator: The next question is from Charles Pitman-King, Barclays. Charles Pitman: Just a first question please on the kind of thinking about the Fertility business. Just thinking about the kind of [indiscernible] performance in the quarter versus consensus a little bit weaker, but also just thinking a little bit more broadly next year, now that you've signed your MFN agreement with the U.S. administration to improve access to your Fertility business, what sort of dilution should we really be expecting to be reflected in FY '26? Or do you expect that to be offset by volume rises due to the improved access? And just wondering if you can confirm this is expected to eliminate the rest of your portfolio tariff risk as a result of the agreement, just given that happened about a couple of hours after the end of your CMD? And then just a second question. I'm not sure I have missed it earlier, apologize I had to join late. But can you just talk a little bit more -- can you just confirm what the driver of the lower dilution seen from the SpringWorks acquisition was for the third quarter and why you're now only expecting EUR 10 million for the year? Is it just the better-than-expected sales seen for Ogsiveo and Gomekli you were just referencing? Danny Bar-Zohar: Yes. Thanks. I'll take that. I'll start from the second one because it has the potential to be shorter. So the driver -- the key driver of the lower dilution of SpringWorks in Q3, we moved it from a midpoint of minus 70 to a midpoint of minus 10 is mainly a very conservative approach that we took just a few weeks after we closed the deal in terms of commercial and R&D spend. So we are releasing a little bit of this conservative approach when it comes to spend, some of it will phase to Q4, but overall that's the key reason for this lower dilution. I hope that it helps. So when it comes to Fertility, the third quarter was at EUR 360 million as a franchise, 2% up organically. And we pretty much anticipated that. It's the first quarter this year that returns to growth. The previous 2 ones were flattish to minus low single digit. By region, yes, a double-digit decline in North America due to mainly almost exclusively Gonal-f price erosion as we flagged in the last couple of quarters. And this decline in North America was more than offset by growth across all other regions. First, Europe, then Asia Pacific, Middle East, Latin America. When it comes to the brands, high single-digit decline in Gonal-f and this is driven, as we said, in North America by negative price effects and in the U.S. and in China as it has been the situation in the last 2 quarters. I would call them still temporary market softness in China in a rather competitive environment with local biologics and local hMGs. But these were largely offset by double-digit growth, 36%, 37 almost percent growth of Pergoveris across all regions, and it's a very differentiated profile that this drug offers and all other fertility products grew moderately. So this is what we have in terms of the status quo. Now for 2026, we are anticipating low single-digit growth as near-term headwinds, Gonal-f price erosion and also a little bit of the muted market growth in China will be more than offset by the continued strong growth of Pergoveris. We expect the launch of Pergoveris in China in the first half of 2026, which is very important for us. And as you mentioned, we are working towards a launch of Pergoveris in the U.S. in the second half of 2026 under the Commissioner's National Priority Review Voucher Program. Now this is, I would say, a breaking news immediately after the Capital Markets Day with the private public deal that we have with the White House and we intend to file Pergoveris to the U.S. FDA in the next couple of weeks after the shutdown is over. And we hope to have, I would say, if approved, with a broad label, a significant upside in the U.S. and globally. Now in the midterm, I expect Fertility to grow, as we said at the Capital Markets Day mid-single digits. And the key growth drivers for Fertility are, first of all, a growing market fueled by the increased need for IVF combined with improving access in many areas, Asia Pacific and Europe and also reimbursement and market share gains of Pergoveris and we also intend to launch Pergoveris Pen to replace the vial in several markets. So this is likely to give us an additional boost. There are risks, further penetration by biosimilars, and most of the risks are on Gonal-f in China and in Europe, but we are very confident with this forecast. When it comes to the tariffs. So the second part of this agreement with the White House, the first part was on [ DTC ] for Gonal-f and for Pergoveris. The second part was a letter of intent with the Ministry of Commerce, where the aim actually once we finalize this conversation is to exclude a pharmaceutical product and ingredients from the Section 232 tariffs. So we are in negotiations with a very good intent in order to relief us from the pharmaceutical tariffs moving forward. Operator: Now I'll take the next question. This is from Peter Verdult, BNP Paribas Exane. Peter Verdult: Danny, just can we come back to Fertility, just in the context of how much of a medium to long-term underappreciated value driver is the deal that you've done with the U.S. So I heard all the comments you made with respect to the previous question, but could you perhaps be helpful in baseline for us as we exit 2025, the run rate of Pergoveris. And I think most people on the call would think that Fertility might be a sort of mid-single-digit growth franchise. So I don't want you to repeat all the dynamics that you've just said. But I do want to ask, when you think about that government deal and the volume opportunity, and the fact that you're not yet in China and Japan with Pergoveris. Do you, as a management team, think about Fertility as a mid-single-digit growth? Or do you start to think about upside to that. So baseline on Pergoveris and the medium- to long-term outlook for Fertility. Danny Bar-Zohar: Thank you, Peter, for this question, and I will clarify, you're absolutely right. So what we expect for the full year this year for Fertility is flattish organic sales growth. You saw the effects -- the very muted effects in the first 2 quarters, returning to growth, getting our heads above the water in the next couple of quarters. So this is what you should expect for this year. Now for Gonal-f, I would say expect the pressure. We broadly think that it's going to be stable midterm outlook for Gonal-f. On one hand, we see the drivers that I mentioned before. On the other hand, we'll see the biosimilars, the price pressure and also to some extent, some extent, partial cannibalization by Pergoveris. Now when it comes to the U.S. deal, you need to think about it like this. There are 2 channels where we commercialize Gonal-f. There is the private channel, which is a cash-paying channel, and there is managed care through PBM, okay? The deal with the White House relates to the private one. So this discount or rebate that we are providing around 83% brings, generally speaking, the price to the private channel at the same range that is currently on the public one. So I would continue given that we are still -- we still have contracts with managed care channels, I do expect continued erosion in the next year and then eventually in outer years, not in 2026, we will start seeing, I would say, a stabilization. But this should be largely offset by Pergoveris, which is, in my opinion, and not just in my opinion, key opinion leaders, patients, a huge innovation in each and every market that we have Pergoveris. Both Pergoveris and Gonal-f are doing better. So this makes us very excited about the potential of this drug. And of course, we confirm the mid-single digit for Fertility in general. I don't think that we are at the stage to change it either up or down. We need to see how it [indiscernible]. Operator: And the next question is from Oliver Metzger, ODDO BHF. Oliver Metzger: So the first one is on Healthcare. It's more about the strategic nature. So the recent news regarding Mavenclad and the loss of exclusivity, how has this, say, earlier happening or changed your view on the MS business as a whole? Second question, in your qualitative comments on SLS, you described some higher demand coming from early biotech. Do you consider this as a sustainable turn to be better? Or would you rate this still as a quarterly volatility. Danny Bar-Zohar: So regarding Mavenclad loss of exclusivity and the impact on the multiple sclerosis franchise. So as I said before, the loss of exclusivity, yes, it came 10 months, 11 months earlier than expected in the U.S. In Europe, the end of regulatory exclusivity is in August 2027. And after that, we have SPCs per country. So the situation in Europe is well known, and we expect Europe or ex U.S. to continue to grow when it comes to Mavenclad. Now in the U.S., as I said at the beginning and as was mentioned a couple of times, we will need to manage this decline properly, and we have all the plans and all the capabilities to do that and to respond as fast as possible. Now longer term in multiple sclerosis, you know exactly what is the situation of our pipeline when it comes to multiple sclerosis. We don't have additional products in this field. So what we are going to do, and I mentioned that at the Capital Markets Day when it comes to Mavenclad, it just came a little bit earlier. We will manage the Mavenclad decline for cash, which means having a profitable decline. I hope that it gives you more color on that. Jean Wirth: Jean-Charles speaking. So to answer to your question related to SLS, we confirm that we are seeing some positive green shoots from pharma company impacted Science & Lab Solution moving forward. However, I want to repeat what I said about China. We have seen some quite muted demand in China on short term. Nevertheless, China remains a very important strategic pillar for Life Science in general. And a few weeks ago, in this context, we announced a new go-to-market transformation. We are making good progress. We just nominated 24 hours ago, the new head of of China. And again, it highlights the fact that China for us remains very, very important. And last but not least, I also would like to repeat again that we are seeing some impact coming from the U.S. shutdown on our academic customer in North America. Operator: We'll now take the next question. And this is from Florent Cespedes, Bernstein. Florent Cespedes: Two quick ones, please. First on pharma for Danny on the pipeline, could you maybe share with us which are the key milestones that we should anticipate for 2026 in terms of clinical trial readouts? And my second question for Kai. Electronics, DS&S, why do you anticipate stabilization in 2026 for this business? Danny Bar-Zohar: Florent, thanks. I'll take the first one. Key milestones. First, you should expect initiations, Phase III trial initiations for precemtabart tocentecan, the ADC, in colorectal cancer third line. As I mentioned and also David mentioned at the Capital Markets Day, we are in active discussions when it comes to partnering because of the size of -- potential size of this program also in the second line and the first line. You should expect data release in 2026, initial data release from the pan tumor trial. For that compound, we are testing it in pancreatic, in gastric and in lung cancer in a basket study. So that's for [ Pareto ] you should expect enpatoran entering Phase III trial in lupus rash. We completed the interactions with the regulators, very fruitful interactions. And these are the big ticket items, the myasthenia gravis with cladribine is enrolling patients, the Phase III, and of course, super important. It's not a trial. It's a drug in registration. We are expecting the launch of pimicotinib in China and also in the United States. In China, it's currently under review. In the U.S., it's going to be submitted in the next few days. We had the shutdown thing, but it's going to be released. We are going to also to get into a decision -- data-based decision on the PARP1 selective. Kai Beckmann: Florent, let me take the DS&S question. So let me take it from where we started in Q2 with our messaging. In Q2 '25, we envisioned a drop of sales of EUR 200 million to EUR 300 million. That was the organic sales downside that we have mentioned in Q2. Now that we are 3 months further, we can confirm that slightly more than EUR 200 million, which was our optimistic case. So that's where we are ranging. So the downside is largely projects and related equipment, and we have seasonality in the large capital equipment and protect business and a lot of revenue here is booked at the year-end. You can see that since we bought Versum, Q4 was often seasonally the highest sales quarter of the year. And as we have seen now EUR 100 million downside in the first 9 months of the year, that means counterseasonal downside now of another EUR 100 million in Q4 '25 to get to the slightly more than EUR 200 million, I just mentioned. So we are calling Q4 '24 now as the bottom for DS&S and that's why when you do the math on the Electronics guidance, expect Q4 '24, it's our lowest sales quarter of the year. And if you take the guidance, midpoint down around 7% organically and around EUR 200 million down considering the divestment of Surface as well. So that's the bridge for Electronics and specifically for DS&S. And looking at our order pipeline and a very low base of projects, we expect stabilization for 2026. Operator: The last question today is from Simon Baker from Rothschild. Simon Baker: Two, if I may, please. Firstly, going back to Pergoveris in the U.S. Danny, you said you will be filing in the next couple of weeks now that shutdown has been resolved. Given the 1- to 2-month review period of these national priority vouchers, can you explain what else needs to be done in order to get to a second half rather than the first half launch in the U.S.? And then a question on SpringWorks and just in terms of phasing of the integration costs, it looks like more was taken in Q3 than we were perhaps expecting. So I just wonder if you could give us some idea of the phasing and cadence of SpringWorks related costs on acquisition and integration. Danny Bar-Zohar: Thanks. So when it comes to Pergoveris, so this, I call it, an exercise with the Commissioner's National Priority Review Voucher is new to us and is also new to the FDA. So on that, we are in -- despite even the shutdown, we are in active discussions with that particular division, and we are preparing the file. So we have what we need to do when it comes to preparation of the file. The file needs to be prepared based on data that was submitted to the EU regulators. As you know, there were no trials in the United States on Pergoveris, and there is work that needs to be done on that regard. And then we need to get this reviewed. It's up to 60 days, it's, I would say, one of the -- it's a leading assumption by the FDA, but we need to see how it goes because still the drug was not tested in the United States. But I also want to make sure that we have the right label for this drug and prepare for this launch. So yes, theoretically, you can see that at the very end of H1 2026, we'll update you as we go because we are relatively early in this process. When it comes to SpringWorks integration, we actually have a positive update on integration and transaction costs, which we now expect at approximately EUR 250 million in total versus the EUR 260 million that we communicated previously, EUR 300 million originally. And in detail, we confirm our assumption for the integration cost of EUR 200 million and have slightly lowered our assumption for the transaction costs to around EUR 50 million, the previous assumption was at EUR 60 million, due to some lower legal costs. I hope that gives more clarity. Operator: I will now hand the conference back to Florian Schraeder for closing comments. Florian Schraeder: Thank you, Sarah, and thank you, everyone, for your continued interest in Merck. With this, we closed the Merck Q3 '25 results call, and we look forward to meeting many of you in our upcoming roadshows. Thank you, and goodbye. Operator: Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.
Operator: Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Generali Group 9 Month 2025 Results Presentation. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Fabio Cleva, Head of Investor and Rating Agency Relations. Please go ahead, sir. Fabio Cleva: Hello, everyone, and thank you for joining our call. Here with us today, we have the Group General Manager, Marco Sesana, the CEO of Insurance, Giulio Terzariol; and the Group CFO, Cristiano Borean. Before opening for the Q&A. Let me hand it over to Marco and Cristiano for some opening remarks. Marco Sesana: Hello, everyone, and good morning, and thanks for being with us today. So today, this set of results confirm the Lifetime Partner 27 driving excellence plan is starting on a very strong footing, thanks to, in particular, to the excellent performance of our P&C business. implementation of the strategy and of its work stream is the key focus of the entire group. One of the most relevant changes that we made in this strategic plan is reinforcing the role of the center in orchestrating more organically strategic business initiatives. Each management -- each group management committee member is sponsoring one of the planned strategic initiatives with the key head office function working in close cooperation with our business unit. We are reaping the benefits of being a group. As part of this approach, the whole GMC is very focused in sharing best practices and scaling up local initiatives. I could list many exciting developments I've seen over the past 9 months as part of this interaction, but let me just highlight 3 that I found particularly compelling. First, sophisticated Nat Cat modeling in major countries such as Italy, France and Czech Republic. So we developed a machine learning model for wind storm, severe convective storm combining internal claims data with external weather data through machine learning systems. And this approach will be soon be scaled to other countries. Second, claims automation in Austria. A great example of automation and speed of automated health claims reimbursement, which have now reached 56% of automation for invoice processing, and pharmacy invoices are settled in just 18 seconds. And finally, our group Geospatial platform. This provides advanced geospatial capabilities for underwriting purposes. This is already live in Italy, France, Spain and across the world in our global corporate and commercial business with further expansion in other business units planned for 2026. When I see this initiative on the ground, delivering tangible results, I'm very confident in our journey of delivering excellence. So let's now focus on our 9 months results. P&C continues to show positive momentum in terms of both top line up over 7% and margin expansion with the undiscounted combined ratio improving by over 2 percentage points compared to last year. At the beginning of the year, we told you that we were very confident about our development, thanks to the combination of larger volume coming through and sharp portfolio repricing in an environment where frequency is declining and claims inflation is under control. As you can see, we are very much on the right track to achieve our undiscounted combined ratio target well ahead of schedule. The top management team is thinking strategically about cycle management to ensure a continued improvement in the combined ratio, supported by our historical and reinforced technical excellence and to make today's underwriting margin resilient in the future. You can see this in the discipline we apply to underwriting. You can see this in our country-specific pricing approach and you will increasingly see this in the benefit we expect to generate across the P&C value chain from new digitalization and automation. In this quarter, as Cristiano will later explain, you can also see this in an even more conservative approach to initial loss peaks and clearly even more visible in the prior year development. What we see is an insurance sector that has been disciplined and continues to be disciplined. I want to reassure you that as part of the sector, Generali will be a force of discipline as the cycle progresses. Our P&C top line is continuing to grow and is mostly driven by the price effect, which we measure as the improvement of the average annual premium for the retail and SME segment. This pricing effect remained very significant at 9 months at plus 6.4% for motor and plus 5.2% for non-motor retail and SME. Looking at the technical margin. We achieved continued improvement in the average earned premium in comparison with that of the risk premium resulting from the combination of claim frequency and claim severity. In Motor, which represents around 1/3 of our P&C portfolio, the average earned premium increase for our top 10 market exceeded 10% at 9 months while the risk premium rose around 1%, thanks to decreasing claims frequency in most of the countries, coupled with well-contained claims inflation. In non-motor, the industrial KPIs point to a movement in the current year attritional loss ratio of around 1.2 percentage points very much spread across the majority of the business unit. At 9 months '25, the non-motor combined ratio is at 91.4%. These dynamics are at the core of a significant improvement in our P&C profitability and will continue to drive the improvement in the combined ratio. I thought it was helpful to provide you this context, and we are happy to help you bridge the P&C industrial KPI with our reported combined ratio in the Q&A. Now moving to Life. Let me remind you of our target together between EUR 25 billion and EUR 30 billion of cumulative Life net inflow in our Lifetime Partner 27 plan. We have exceeded EUR 10 billion at 9 months with a very good result for Protection & Health with EUR 3.7 billion and hybrid and unit-linked with EUR 4.7 billion. The improvement in the Life net inflow is a function of both the effectiveness of our distribution and the evolution of our product offering. Life net inflow also improved, thanks to the reduction of surrenders. Just to give you a sense, surrenders at 9 months compared to the same period of last year, were down by almost EUR 2.6 billion in Italy and by over EUR 500 million in France, consistent with our previous comments on the improvement in lapses. In the first quarter call, we gave you a new business margin guidance for the remainder of the year between 5.25% and 5.75%. In the second quarter, we had 5.64 new business margin. And in this quarter, we recorded a 5.74 new business margin. This demonstrates we have done quite well, not only in terms of volume but also in terms of margin. You will have noticed that at 9 months, the growth of new business value has also turned positive year-on-year. In addition to volume and marginality, let me also confirm the underwriting discipline of this new business with some key data points on the quality. Over 73% of our new production has no guarantees compared to 66.4% in the same period of last year. The share of new production coming from capitalized products is close to 85%. So to summarize, we continue to have a strong net flows with improving margin and confirming our underwriting discipline to ensure long-term resilience of our in-force book also thanks to the ongoing quality of the new business. Now moving investment portfolio. As you know, we have an allocation to private market, there is more limited that one of our main peers is around 18%. We do see value in a diversified portfolio. And therefore, we continue to aim at increasing our allocation to alternatives in a disciplined way. Our portfolio of alternative is balanced with strong safeguard to ensure it meets our strict criteria. When you look at the private debt portfolio of around EUR 19 billion, almost half of it is in real estate debt and infrastructure debt, both having a high-grade credit quality. Around 3/4 of our private debt portfolio is secured by collateral and our exposure to single borrowers is very limited. The allocation to direct lending, which has been the focus of the market recently is around half of our private credit portfolio and is therefore less than 3% of our general account. Also, the vast majority sit in Life portfolio with policyholder participation and very low guarantees. Only 23% of our private debt portfolio is in the U.S. And thanks to our strict investment guideline, we have had hardly any exposure to credits, which have been in the news recently. Given this strong framework, we are very comfortable with our portfolio. We continue to believe that there is value in gradually diversifying our government bond exposure into credit as I explained to our Investor Day in January. Our strategic asset allocation move is also well informed by the trends we are seeing in the government debt market, where there were also some downgrades recently. So to summarize, a very strong start of our strategic plan, coupled with the prudence we are exercising across the board, provide us with confidence that this trajectory will be maintained and will prove its resilience to a volatile external context. Thank you for your attention. And let me now hand over to Cristiano. Cristiano Borean: Thank you, Marco, and hello, everyone. Let me provide you some additional color on our financial performance as well as some indications about the direction of travel in the fourth quarter. Let me start with P&C. As Marco described, the business performance has been very good and we are working to make sure that the strong margins you see in the current attritional combined ratio today will continue to improve in the future. In the last couple of years, the insurance industry and Generali have had a severe Nat Cat experience. Our 2023 and 2024 Nat Cat impact before insurance were well above the expected yearly losses. As you have seen, historically, the second and the third quarters are the most relevant in the terms of Nat Cat seasonality in our portfolio. So far, 2025 has been quite benign and well below our ex ante 2.8 percentage points Nat Cat budget. In light of this, we thought it appropriate to exercise an even stronger prudence on our reserving, always within the range of reasonable best estimate. This translated in a much lower prior year development as well as even more prudential -- prudent initial loss peaks for both the attritional and the Nat Cat component. Therefore, we further strengthened our balance sheet, making Generali very resilient in future years. Together with the accelerated trajectory observed in our P&C performance compared to the plan. This approach increases our confidence to exceed the Lifetime Partner 27 driving excellence key financial target. There is an old saying in financial markets. The income statement is your past, the balance sheet is your future. Having a balance sheet with a low debt solid solvency, high quality of capital and reserving makes me very comfortable that Generali is well positioned to prove its resilience. The fourth quarter Nat Cat experience has been benign so far, too. If this continues until the end of the year, in the fourth quarter, you should expect a prior year development pattern similar to this quarter. This would imply a full year 2025 P&C operating results of around EUR 3.6 billion. A more dynamic interplay between Nat Cat and prior year development is in our mind, the sensible thing to do when managing the business for the long term. Therefore, looking ahead in 2026 and beyond, we will calibrate our prior year development dynamically, always within the boundaries of the best estimate approach. I hope this clarifies the very low prior year development contribution this quarter and provide you a perspective on our thought process, which will always prioritize long-term sustainability of results versus short-term impacts from volatile components. This approach also enhances earnings predictability and mitigate P&L volatility. Let me now move briefly to the Life business. When looking at the 9 months 2025 results compared to last year, the 1.8 percentage point growth of the operating result should be read as a 4 percentage points of growth after accounting for the stricter discipline on cost allocation from nonoperating to operating result for around EUR 30 million. And excluding the lower investment income from Argentina. As of the end of September 2025, the group enjoyed strong new business volumes and positive economic variances, both supporting our CSM development. This was only partially offset by some operating variances in the region of EUR 200 million due to a tax regulation change in Germany affecting health business profit sharing and some model refinements. Looking ahead, as I've mentioned to you previously, during the fourth quarter, we performed the full annual review of all actuarial assumptions on longevity, morbidity, lapses, expenses as well as model refinements. The discussion on these are ongoing and will be finalized by year-end. Just to give you an indication, I would expect negative operating variances for less than 1% of our reported Life system stock. Moving to nonoperating results. Let me anticipate to you that we expect additional restructuring charges in the fourth quarter, and we may also see some impairments on real estate portfolio. This will be partially compensated by a lower tax rate as we have some positive tax one-off expected in the fourth quarter. When you take all these one-off effects into account, I think that with the information available as of today, an adjusted net result projection for year-end '25 of around EUR 4.25 billion would probably be a good ballpark. Moving to our capital position. The group solvency ratio remains solid at 214%, thanks to our healthy normalized capital generation and already fully embedded the EUR 500 million share buyback program. Looking ahead, let me share with you some of the key factors that we expect to impact our solvency in the fourth quarter. In addition to the standard review of the actuarial model assumption, First, the acquisition of MGG is expected to have a minus 2 percentage point of solvency impact. Furthermore, as we stated in our half year presentation, and should already known that in the fourth quarter, there will be a temporary effect related to the loss of the internal model application for Spain as part of the Liberty integration, which is a reverse merger, as we said with an impact of around minus 4 percentage points. This is expected to revert in 2027 being completely temporary. In the fourth quarter, you should also factor in noneconomic variances of around minus 1% or minus 2 percentage points impact on solvency, mainly stemming from the ongoing implementation of the SAA optimization, which Marco was referring. In addition, the rating downgrade of the Republic of France that occurred in October is expected to reduce our group solvency ratio by almost 1 percentage point. Regarding subordinated debt movements, the EUR 500 million redemption in November will be offset by 500-ish million issuance of our inaugural restricted Tier 1 bond. Before closing, let me summarize. We manage the business for the long term with a focus on sustainable value creation for our investors, also reflected in an EPS that is growing 16% year-on-year. The Lifetime Partner 27 driving excellence plan has started very well and the whole management team is focused on building on this momentum with a clear objective to do our best to exceed all our key financial targets. Thank you for your attention. Operator: [Operator Instructions] The first question is from David Barma, Bank of America. David Barma: Firstly, on P&C, could you come back, please, on the average gap between written premium growth and loss trends? I'm not quite sure I got the numbers that you gave in the opening remarks, Marco, and if you could highlight the main country drivers within that, it would be great. And then staying on P&C, on the expense side and particularly on the administration expenses. Could you give some color on how that developed in the quarter and whether you expect some of the measures that Marco, you discussed in the intro to already benefit the expense ratio in 2026, please? And then lastly, on the Life business. So sales were obviously really strong and the mix too, you're getting close to your 2027 new business margin target already. Are expenses, the main piece missing to get you to bridge that to 6%? Cristiano Borean: Thank you very much, David. The first question, of course, is for Marco. The second one is for Giulio, and the third one is for Cristiano. Marco Sesana: I go back to what I said during the speech. So what I mentioned was the growth of nonmotor average premium at 7%. And the growth of the risk premium was at 1%. So let me just give a word to clarify what we mean when we say when we give these measures. So we are measuring in motor, what we see coming through as the average premium of the single risk, right? So that's the -- that's what we see showing up and we measure the risk that we have in the portfolio. So when we give these 2 measures, what is important is to see that there is a margin gap between how much the risk is growing and how much the average earned premium is growing. In this case, 6% is very significant in terms of spread and in terms of margin. That means that in the portfolio that we have in the different business unit, there is an underlying potential to deliver more improvement in the loss ratio. So where do we see this? I would say we can go into the different details. But I would say that this is very spread across the top geographies. In some cases, it's more I would say, it's more pronounced. In other cases, it's less pronounced, but I hardly see any cases where we are not in this situation. So I could mention 2 geographies that I think are interesting. One is Germany because we focus -- like in the last 3 years, we really focused during this call in showing how much we were repricing the portfolio and the effort done by the German business unit is really significant, which, by the way, I want to thank the colleague for this. So we have done 3 consecutive years of double-digit price increase and I think the results are showing up, and we do see a significant improvement in the portfolio. The other geographies, clearly, Italy, which is going really well in terms of repricing versus the increase in risk. And also there, we see a margin into the portfolio that is really significant. So if you want, then we can go on more detail. But this is the picture that we see for motor. And I think this is what I mentioned. And I think it's a really positive news for the future. Giulio Terzariol: Thank you, David. On the question regarding the expenses. Maybe let's start from the expense ratio. The expense ratio for the 9 months is going up 50 basis points. Here, we need to keep in mind that we have the impact of the purchase price allocation coming from the Liberty acquisition and also that we made some reclassification of expenses from nonoperating to operating. So if you adjust the expense ratio basically the expense for these impacts. The expense ratio is flat. Now to your question about the admin expense ratio, we are measuring the GEX ratio, which is basically the component of the expense ratio, which are not commissioned or incentive and that number is going down by 50 basis points. So that's an improvement. We don't see the same improvement in the expense ratio because of a little bit of mix, but also there is some conservative provisioning from the business units. So moving forward, we'd like to see clearly a better alignment between the improvement of the admin expense ratio. And also the end of the year anyway, we are going to report also the admin expense ratio so that you can see the development of the KPI. And then clearly, we are going to provide you also some more transparency about the movement or the other line items going into there. But from an efficiency point of view, we are definitely improving, there's going to be also a driver of improvement as we think about 2026 and 2027. Cristiano Borean: David, regarding the Life sales and the driver. I would say, at the first 9 months already, higher growth compared to the acquisition cost is impacting 16 basis points onto this improvement. But the further way to project forward should embed also the focus on our protection business, which is something running at almost double-digit present value new business margin, and this is supporting a much better marginality. And this together with product features where you can even simply improve the features adding extra value not only managing on the part of the cost is driving it. But we are already on that trajectory. There will be also an extra focus on this topic, but it will not be the only driver to get there. Operator: The next question is from Michael Huttner, Berenberg. Michael Huttner: I just had 2. One is on the solvency, there are so many negative numbers. I came away with the conclusion, which I didn't add them up, but clearly, it will be down quite a bit. So let's say it's down 10 points. I mean, just rounding it. And I just wanted to hear, can you remind us are there any positive offsets? So clearly, operating capital generation, probably 5 points a quarter. And then I have no idea maybe you can say whether some of this resiliency or prudency you're building in, whether that's in the -- included in the operating capital ratio or not? And then, of course, the Solvency II review. So just a little bit would be lovely. Then on cash, I always like cash in here. Everything is doing so nicely, I'm just wondering whether Switzerland is returning your EUR 400 million now. And then the final one is on net inflows, which is an outstanding number, even [ Poste ] doesn't have such a good number. I just wonder whether you can talk a little bit about what's driving this and what it could mean for earnings growth going forward? Because clearly, this isn't in earnings, it's in OCG, but not in earnings. Fabio Cleva: Thank you very much, Michael. The first question on the solvency movements and the one on the Switzerland remittance are for Cristiano while the one on net inflows is for Giulio. Cristiano Borean: So first of all, I think I start from a point. What happened already is the Spain from October 1, 2025, has lost temporary I already said, up to 2027, the internal model eligibility. It is a 4 percentage point solvency group impact, which was already signaled at half year so it's not new. And I see also the projection by all of you for the year-end are pretty much embedding all what I already said. I think the 2 points of MGG were already signaled also in the press release is something known. I don't -- I think the only point, which I repeat in 2027, Spain will reverse this 4 points. Probably the downgrade of France, which is slightly less than 1 percentage point is something not in. But this has already happened. And if I just look at November 10 solvency ratio, which was the last updated number, we are basically 210%, and this is already embedding both the MGG acquisition, both the France downgrade and the 4 points of Spain. Clearly, what I was highlighting is you need to take 1 to 2 points on the SAA for the asset allocation improvement for the year to come. So it's not a huge number, and I think you are perfectly in line, and I think given the November is giving you. Let me speak a little bit about the Solvency II also review going forward. And one of the things which I think it is relevant for the Solvency II review, as we always said, is that we were between the 10 to 15 percentage points of benefit. I would say that the latest version of the delegated act, which has been approved and still needs in any case, a discussion with the college of supervisors on very minor topic, which has some uncertainty bring us I would say, on the top end of this range of the 10% to 15%, which is, I would say, positive also to allow us implementing our EPS accretion investment. Speaking about cash for Switzerland. For Switzerland, we both are extremely focused, you and me and not only you and me and many people in our company on this, I can confirm you that in the plan, we are going to start seeing a repatriation of excess capital, including remittances and capital support done, it will be gradual. And I think you should see this more coming in the end of the plan from 2027 onwards. There will be some positive 2026 potential expectations supporting our cash flow, but it is a gradual process. The company is fully focused now to increase the business results, and that will be further supportive out of this. Giulio Terzariol: No. Thank you, Michael. Your question about the net inflows. Yes. Actually, the development is pretty good, and it's better compared to our plan because we were not planning to cross the EUR 10 billion threshold this year. But now, as you see in the 9 months, we're already about EUR 10 billion, so you can imagine also that we are going to have positive inflows in the last quarter. From a composition and inflows point of view, we see basically growth across all the different lines of business. From a geographical point of view, I can tell you, Italy is up EUR 1.3 billion, EUR 1.4 billion compared to last year. What we see in Italy actually is not so much the premium up. It's more than the surrender down significantly. In France, we are about EUR 300 million better. Also here, we have a similar situation. So from a premium point of view, we are relatively flat, but surrender much down. And in Germany, we're also up here, we have growth in premium and less surrender. So we see a similar dynamic in the different markets. If you look at the last quarter also, there was a good dynamic on the inflows. So quarter-over-quarter, you can see also that the present value in the business premium in the third quarter was ahead compared to last year. So we went from negative growth in present value new business premium to positive growth. Also the new business value is going into positive number. So really working in the right direction. From a profit point of view, you know the concept of the tab of Cristiano that if you feel the tab, you're going to get more profit. So basically, this is going -- this is reflecting anyway in a better composition between the release of the CSM and what can be the increase of the CSM due to new business also how the lapses are going down. Remember that last year, we had negative variation, negative experience variances due to lapses and this year, the negative variances due to lapses are nonexistent. So that's a positive that translates into better CSM release eventually. Michael Huttner: Just one thing. I love the explanation. France, what was the figure? You said something lower 300 or 900? Giulio Terzariol: France is about EUR 300 million plus of inflows, EUR 300 million plus of the inflows coming from hybrid and unit-linked products. That's what we say basically in France and protection is also a nice contributor. Operator: The next question is from Iain Pearce of BNP Paribas. Iain Pearce: Just one for me. I think in the introductory remarks, you mentioned some benefits from frequency, I was just wondering if you could elaborate what you're seeing on frequency sort of if you're seeing some different trends by market and also if you are viewing this as a long-term lower frequency trend or if there's anything abnormal in what you're seeing in frequency at the moment. Fabio Cleva: Thank you very much, Iain. The question, of course, is for Marco. Marco Sesana: So let's start with the general picture. We do see the decrease in frequency very broad in the different markets. So we -- I couldn't pick one single market that is an outlier. So this is really showing off in every single market. So whether this is a trend that we are going to see in the future, it's a different question. So let me elaborate. So I do think that we are going to see this again in the future, but let me explain you why. So we have 2 set of drivers, I would say. So the first is frequency is historically coming down in every market. So we are seeing a long-term trend of decreasing frequency in all the Western European markets. And I would say it's also Eastern European market. So it's consistent. And so therefore, I think this is going to happen in the future. There is a second driver, which I think is really important to mention because sometimes we always think that frequency is an external factor, but we have worked a lot on the quality of the portfolio. We have worked a lot on a few initiatives. One is loss prevention. So we are trying to put on the ground tools to make sure that we evaluate correctly every single risk that we take. The second one is pruning. So we have cleaned the portfolio from all the tail part of the portfolio that were unprofitable or as a prediction would look unprofitable. So this is something that we have driven that we think is going to give us benefit in the future in terms of frequency. And so when we think about frequency, you should always think a long-term trend, but also the type of active work that we have been doing over the past month in the quality. By the way, if you want a proof point of this, you could look at the trend of the man-made losses that really came down in the last quarter, thanks to all the initiatives we have done. That's it. Iain Pearce: If I could just quickly follow up. Do you have a view of how much the combined ratio is benefited at 9 months from lower frequency versus your expectations? Marco Sesana: So I would say in terms of industrial KPIs. So as we said, it's always -- there is always a link between the industrial KPI and the financial KPI. But clearly, then we -- you need to look at the different prudence that has been taken and everything, probably in the risk premium that we have, this has been the main factor of benefit that we see in the risk premium. Operator: The next question is from William Hawkins of KBW. William Hawkins: I've got 3 questions. I hope I can be brief. Thank you already, Cristiano, for what you said about the conservatism in your loss picks. I get the idea of what you're saying. I'm still not quite clear in the 9 months attritional combined ratio, how much -- how many percentage points of conservatism was there in that pick? Because before PYD, obviously, that ratio improved. It just would have improved more if you haven't been prudent. So I'm not quite sure the percentage point drag from the prudence. Secondly, please, now that you're very clear that you're managing your combined ratio, I think it is a reasonable question to ask, therefore, how many -- how much is it expected to improve per year because you're clearly managing so as you said, it will improve per year? And I don't know if we're talking 20, 50 or unlikely 100 basis points? And adjunct to that, how are we ever going to know when the underlying environment is making that improvement less sustainable because it's great that you're now managing the number, but I'm not quite clear how I'm going to know when you're losing the capacity to manage the number in the future. And then thirdly, please, the -- you've already talked a lot about the great Life new business results. I'm still not quite clear the thing that stands out to me is the present value of new business premiums seemed seasonally very, very strong in the third quarter. Normally, everyone is on holiday so that number dips 10% or even 20%. This time, it only dipped about 5% from the second quarter. And that can't be anything to do with surrenders because it's PVNBP. So what was the explanation for that? And is this the new normal? Is 3Q now going to be a lot stronger than it's been in the past few years? Or should we go back to seasonal dips in the future? Fabio Cleva: Thank you very much, William. The first question on the conservative business is for Cristiano. The second one is for Giulio, while the third one on the levy business again for Cristiano. Cristiano Borean: Thank you, William. So clearly, as we didn't exactly mathematically disclose the conservativeness of the prior year, but you can reverse back it yourself in any case. I try to answer with a different angle. The industrial development that Marco is seeing has an improvement, which is 0.4 percentage points better than the one you see in the accounts, which is a way to try to second guess your question, I think, to help you extracting at this point. I go to the second one, Giulio. Giulio Terzariol: Thank you, William. Your question about the improvement in the combined ratio, first of all, from a price environment point of view, we think that next year, clearly, the gap between the price change and what we call the risk premium is going to narrow but is not going to vanish completely. So we might still have a little bit of room in Motor, potentially also in Motor, where we see also that the frequency tends to go lower, which is a consequence also of the action they were taking. So we might still have a benefit there, which is not going to be as strong, clearly, as what we are seeing right now. But let's say, there is still a little bit of way to go. Then the other improvement should come over time from the initiative that we have on the claims side. You remember, we discussed that also in January that we have initiative on the efficiency and the effectiveness in claims. And here, we have all the work we do on the network's theory, on anti-fraud, all these kind of elements. Price sophistication might help also to get more granular on some pricing. And then one driver moving forward of improvement in the combined ratio, that's going to be definitely something where we need to focus is the space ratio. So we go back to the improvement of the expense ratio that we are already seeing from an admin point of view, and we want this improvement to continue in the next years and reflect also in the total expense ratio that you see. So it's a combination of still some way to go some additional -- I think also about, by the way, the work that we are doing in Switzerland, Switzerland is, at the moment, having a combined ratio of 100% is not going to be the future. So also, we're going to have some improvement on some turnaround, some improvement coming from claims initiative than the expense ratio. So let's say that's our journey to improve our marginality, which is already very strong, is not finished. Cristiano Borean: Just to clarify, I was speaking about the basis, not the delta, the basis before the 2 in order that you get that we increase this basis to answer to your first question. The question on the PVNBP. First of all, the third quarter is still compared to other quarters. I know that in the third, as you said, people should stay on vacation on the summer component. But I would say still weaker than the previous quarter. I've seen 3 major drivers of improvement, which are geographically aligned in especially France, where you had a very strong third quarter, and I think it is related to the very positive and stable return you can get from the saving component of our hybrid products, and that was clearly also linked not attractive anymore [ levy ] return given to the, let's say, low afferent to retail. On top of this, we had a small kickup from a new distribution agreement, which is opening up in Portugal with our postal partner Bank CTT. Together with the strong growth, which you've seen our basically all over the board and it's not generally specific, but we are seeing in both Hong Kong and Mainland China, which is a kind of market trend. Operator: The next question is from Farooq Hanif at JPMorgan. Farooq Hanif: First question, you kind of partially answered that, but you gave the average premium versus risk premium numbers for full year -- sorry, for 9 months, what is it in 3Q? We are already seeing a closing? That's my first question. Secondly, given everything that's gone in Italy, are you willing or able to talk about the bancassurance opportunity for you now in your Life business? You've been very quiet about that. Obviously, stuff happened -- stuff could have happened and didn't happen, just wondering whatever you feel like you can say about that? And the last question on nonoperating. So you're indicating a slightly higher restructuring cost, which will limit your adjusted net result. But I remember back at the CMD, you talked about how the nonoperating kind of holding expenses line is too high and will come down over time. How should we think about that going forward? Because it's obviously a big component of your adjusted net result. And I think we don't -- all of us especially me, spent a lot of time thinking about it. Fabio Cleva: Thank you very much, Farooq. The first question is for Marco. The second is for Giulio while the third one is for Cristiano. Marco Sesana: Yes. So let me say that, yes, we have disclosed the number for the 9 months. What we see in the third quarter is broadly in line with what we see in the 9 months. Clearly, again, we could go in much bigger detail on the different geographies. So there are some specific. So for example, when we -- I can tell you about Germany, where you have renewal of the portfolio that is clearly in the first part of the year, the third quarter looks a little bit how can I say, weaker in terms of development, and that is fine. So historically, that is the case. So I would say we tend to give the 9 months result because we think over the year are more stable and are more indicative of the different development so that's about it. So Italy is still very strong. Probably in France, we had to do some pruning. So the average premium, it's probably weaker, but overall in line with the development of the year. So I couldn't spot in the third quarter, anything that is like normal or it's diverging from the trend that we have shown on the 9 months. Giulio Terzariol: So your question about bancassurance. First of all, as you know, we are very proud of our footprint from a tight agency point of view. So that's clearly the bread and butter, but this does not mean that we don't do bancassurance. So we have a few cases Cristiano was just referring to the new agreement in Portugal. We have a joint venture now in India with the bank. So we are going to push bancassurance also in India, we have a successful relationship with bancassurance in Spain, and you should not forget Banca Generali, which is also a bancassurance relationship. And clearly, if there are other opportunities in Italy, we're going to look at that. So there is -- our belief is if you have a business model centered around bancassurance that can be a little bit tricky. But if bancassurance is clearly selectively use it can enhance the franchise value and also the scaled operations. So from that point of view, if we find the right partner, we are very happy to engage with these business partners. Cristiano Borean: So going to the nonoperating part. First of all, I confirm you that by year-end 2025 versus year-end 2024, EUR 80 million of nonoperating costs will be -- there has been already 60 because it's pretty linear throughout the year, evenly split between Life and P&C will be booked in the operating and have already been booked into operating result from the nonoperating like it was last year. So -- and this is done and is going already to reduce the expected project, the nonoperating charge going forward from the next years. In this quarter specifically, there has been one effect, and as Giulio was referring to Portugal, I'm referring back to India where probably you read, we set up a joint venture with our partner, and the cost of this setup was having a one-off charge related also to set up the marketing effect of around EUR 60 million, which is clearly related to a specific business development. Having said that, speaking about the restructuring costs. And by the way, this is a PV take. So it's one for now and not anymore what I was referring in India because it's taking the full charge projected in PV. So with regards to the restructuring charges, we are in a year where we have already exploited Germany restructuring, which will allow to better improve the GEX ratio, general expenses ratio for the future years and allow the improvement and digitalization of the company with the relative efficiencies. On top of that, we are in the process of implementing the Liberty integration, and we are in advance towards that. So that's why we can see something more in the fourth quarter, together with other countries where we are accelerating potential restructuring. That's why I was mentioning the fourth quarter with further restructuring charges, clearly, these will be counterbalanced by a much better tax rate because of some one-offs. So I would say there are 2 kind of form of one-offs, but the first one is forward-looking projecting the restructuring acceleration to have a better trajectory, and I confirm you that the nonoperating charges are materially going down for the next year. Operator: The next question is a follow-up from Michael Huttner, Berenberg. Michael Huttner: It's -- so here is my difficulty or my challenge. So your earnings are -- I look at your consensus sheets and look at what you're saying it's like it's the same number, right? Or I mean, there are small variances but it's -- there's a lot of accuracy here. But listening to you guys, it's like you're bubbling with excitement and stuff. And for me, the difference is, I think with Giulio you were trying to explain to remind me of is there's a difference between IFRS, which is CSM, which is incredibly slow. You have to fill the bathtub and wait for ages for the tap -- the water to come out. And then local GAAP, which is not IFRS. Now the reason I ask this is always cash. So is there more upside potentially in the cash than we're seeing in these numbers at the moment? Fabio Cleva: So Michael, of course, this question is for Cristiano. Cristiano Borean: So Michael, let me say, related to the CSM bathtub point that you were mentioning, not necessarily a higher life production materializes in a better CSM versus a local GAAP because, as you know -- sorry, a better local GAAP versus CSM because CSM sometimes has a revenue recognition and this revenue recognition is a pro rata temporary, sometimes in the new approach, you forget about the acquisition cost when you do many business and you have them immediately to be paid on the cash side. So clearly, on the CSM, this is amortized for the revenue recognition. This is called contractual service margin because you amortize it for the time of the service you give to the client. So the point is the CSM is a present value, while the local GAAP takes into account of the actual amount that you are usually paying. So it's a slightly more prudent in the Life. What -- so there is a gap usually negative between the service -- contractor service margin result and cash in a growing business. Clearly, if you are just making a company to run off, which is not the case of Generali, you can have the opposite but that is a different business model, especially for other integrators or run offers, let's call them. But what regards the cash element, the positive trend should come, in my opinion, you should read it from the acceleration of the P&C trajectory versus what we were projecting in the plan. And that because one thing I always report to the Board is the exactly almost equivalence between finance expenses discounting at this level, these 2 noncash item of the operating results, P&C, P&L, are canceling each other. So the results you are seeing is cash. That will be a better driver together with the improvement on some, let's say, cash trap as our favorite Switzerland topic. Operator: [Operator Instructions] We do have a follow-up question from Michael Huttner, Berenberg. Michael Huttner: Really sorry, it's a tiny question. In the past, you've always mentioned Argentina as a kind of negative adjustment as it were. And I think this morning, I don't think -- I'm not sure you mentioned it in your introductory remarks but when I was speaking to your wonderful IR, really wonderful IR. They did mention, and it sounds like Argentina is now turning to be a positive. Is there something there? Cristiano Borean: Michael, I think in the third quarter, you observed a fluctuation. There was a positive contribution from, I think you are referring to the P&C component for Argentina. And instead of having a negative delta in the investment result, you had a small EUR 7 million positive in this quarter. Be mindful that Argentina is extremely, let's say, volatile in nature because of the way it does not follow the basic financial textbook rules but we know last year. First of all, when you manage Argentina P&C business, you have basically, in your investments, all inflation-linked because you need to be able to carry up -- catch up with the cost of your liabilities. And so the investment are mainly inflation linked in that environment. Last year, we had a huge spike of inflation, huge -- materially huge. I'm talking about something in the order of 200%. And that was getting to a point where the exchange rate was not following the international official party. So we were having massive positive contribution of inflation-linked component in the investment result without having a deep equivalent depreciation that basic finance should tell you should be followed. That's why we had this push up, okay? When you look at this topic into isolation and you isolate investment results versus the other part of the P&C, you can get things which could be completely offsetting, but you are seeing a very huge number on one side and on the other. If I take the P&C operating result at 9 months of Argentina, it's EUR 14 million. So I hope this helps for you to better understand. But last year was a very, very peculiar year because of that effect. By the way, the movement of the excess capital from Life in Argentina in the fourth quarter '24 that we made is affecting us in the Life investment operating result EUR 39 million this year on a like-for-like basis. So it was not an immaterial effect due to this, let's say, paradox or nonrational movement between inflation and FX rate. Operator: The next question is from Elena Perini, Intesa Sanpaolo. Elena Perini: Yes. I've got only one actually. Considering that you are improving your P&C trajectory, and you mentioned that some further cash can come from this improvement. Are you going to use part of it to make other, I don't know, bolt-on acquisitions to strengthen your presence in some markets? And then can you elaborate a bit on what could be the potential targets? Fabio Cleva: Thank you very much, Elena. Giulio, would you like to take one? Giulio Terzariol: First of all, really the good thing is to add the capital, to add the liquidity from an M&A point of view, I'll just tell you, right now we don't see much in the pipeline. So from that point of view, clearly, we can find a good target. We would definitely look into that. As you know, our preference is to do acquisition where we can realize cost synergies. We can strengthen the franchise. Tell you, Liberty is a great example of an acquisition where we can really create value. As of now as of the moment, I tell you there is not really much happening. On the question between then, clearly, every time we do an M&A, we are measuring the M&A against the buyback. And when we say we are measuring the M&A against the buyback, it's not just a comparison of the IRR because, as you know, the IRR can be very dependent on the terminal value but that's really about the EPS accretion that we get 3 or 4 years, let's say, 4 or 5 down the road. So if we find anything which is interesting, we're going to go for that, making sure that we can create real value. But at the moment, there is not much. Operator: There are no more questions registered at this time. Fabio Cleva: So thank you very much for dialing into today's call. Should you need any follow-up, please feel free to reach out to Investor Relations. Have a nice day. Bye-bye. Operator: Ladies and gentlemen, thank you for joining. The conference is now over, and you may disconnect your telephones.
Operator: Welcome to the NICE conference call discussing third quarter 2025 results, and thank you all for holding. [Operator Instructions] As a reminder, this conference is being recorded, November 13, 2025. I would now like to turn this call over to Mr. Ryan Gilligan, VP, Investor Relations at NICE. Please go ahead. Ryan Gilligan: Thank you, operator. I'm incredibly excited to join NICE as the company's new Vice President of Investor Relations, and I look forward to working closely with all of you in the investment community. With me on today's call are Scott Russell, Chief Executive Officer; and Beth Gaspich, Chief Financial Officer. Before we start, I would like to point out that some of the statements made on this call will constitute forward-looking statements. In accordance with the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, please be advised that the company's actual results could differ materially from these forward-looking statements. Additional information regarding the factors that could cause actual results or performance of the company to differ materially is contained in the section entitled Risk Factors in Item 3 of the company's 2024 annual report on Form 20-F as filed with the Securities and Exchange Commission on March 19, 2025. During today's call, we will present a more detailed discussion of third quarter 2025 results and the company's guidance for full year 2025. You can find our press release as well as PDFs of our financial results on NICE's Investor Relations website. Following our comments, there will be an opportunity for questions. Let me remind you that unless otherwise noted on this call, we will be commenting on our adjusted results of operations, which differ in certain respects from generally accepted accounting principles as reflected mainly in accounting for share-based compensation, amortization of acquired intangible assets, acquisition-related expenses, amortization of discount on debt and loss from extinguishment of debt and the tax effect of the non-GAAP adjustments. The differences between the non-GAAP adjusted results and the equivalent GAAP figures are detailed in today's press release. The information and some of our comments discussed on this call may contain forward-looking statements that are subject to risks, uncertainties and assumptions. I will now turn the call over to Scott. Scott Russell: Thank you, Ryan, and we are thrilled to welcome you on board and have you join our team. Good morning, and welcome, everyone. Well, let me start by saying the renewed strategy that we laid out for NICE at the beginning of the year is now producing clear tangible results, reflected in both our financial performance and our growing market position. We're seeing great momentum across our entire business, setting a solid foundation for sustained growth. We're pleased to report another strong quarter underlined by exceptional cloud and AI bookings, stemming from the continued expansion and execution of our AI-first strategy, our international expansion and our robust go-to-market performance. This quarter reinforced the strength of our AI solutions, driving real transformation for our customers with exceptional cloud bookings, driving a cloud backlog increase of 15% year-over-year and with our AI capabilities included in every new 7-figure CX deal. In Q3, total revenue was $732 million at the high end of our guidance range, with cloud revenue reaching $563 million, up 13% year-over-year. Our cloud revenue growth was primarily driven by our AI and self-service offerings, whose ARR accelerated to 49%, driven by sustained organic momentum and the contribution from NICE Cognigy, which closed in early September. This demand for our AI offering is reflected in strong bookings for Autopilot and Copilot deals more than tripling in Q3. We also achieved a higher win rate against our key CX competitors, underscoring the growing customer appetite of our AI-powered and domain-rich solutions. Furthermore, it reinforces our conviction that we operate in a vibrant growing market where organizations are showing robust demand for accelerating their AI transformation using our offerings. We at NICE perceive AI not only as a catalyst for our groundbreaking innovation, but more importantly, as a fundamental force for reinventing how business, technology and humans interact in each of our markets. In the world of customer experience, our leading CX AI platform, CXone, is using purpose-built AI to reshape customer journeys in exciting new ways. Our AI-powered orchestration allows us to perfectly blend human and AI agents, creating seamlessness in the end-to-end experiences that go well beyond the contact center, delivering automated workflows that move from accurately identified customer intent all the way to organizational fulfillment and resolution. We're also seeing increased demand for our leading NICE Cognigy conversational and agentic AI solutions, available for implementation on any technology environment, allowing companies to design, run and optimize AI agents quickly and simply with little to no code requirements and with specific CX-built functionality and vertical know-how. There's tremendous added value that we're seeing for the powerful combination of CXone and NICE Cognigy together. Our ownership of the point of engagement awards us a distinct understanding of customer intent, sentiment, preference and context across literally billions of engagements. This distinct AI-ready foundational data then forms the basis for automated creation of smart agentic AI, turning this data into CX-built workflow intelligence. The symbiosis of CX engagement data dynamically informing AI agent conversations and actions, all happening as a part of a single unified platform is at the core of our differentiation and what sets us apart in our markets. Our innovation road map is already well ahead with many NICE Cognigy integration capabilities already completed and many more underway. NICE Cognigy drives further growth of the CXone platform and CXone accelerates the NICE Cognigy expansion in our customer base, particularly in the enterprise segment. Combining sophisticated agentic AI with engagement-based data also enables us to change the paradigm of customer engagement from a reactive to a proactive framework identifying business-initiated intents that can utilize human or AI agents to reach out to consumers, increasing sales, reducing effort, improving loyalty and trust. Our CX AI solutions are resonating with organizations of all sizes and verticals as evidenced by some of our key deals in the quarter. In Q3, one of the leading global auto manufacturers chose CXone to transform their customer experiences as part of an 8-figure ACV deal, underscoring NICE's continued leadership in the cloud contact center transformation and reinforcing the completeness of our CX AI platform. Their decision reflects the growing enterprise shift away from fragmented legacy systems towards a unified cloud and AI platform that enables modernization, agility and superior customer engagement. In another substantial Q3 deal, AI to cruises chose NICE Cognigy for their FAQ automation initiative, creating accurate dynamic responses to customer requests. Our integration with their existing environment allowed AI to cruises to capitalize on their existing data and workflows while modernizing the overall customer engagement experience. Our AI solutions are also generating strong upsell momentum. Consumer Cellular, an existing NICE customer added AI agent augmentation using our Copilot solution in a 7-digit ACV deal, enabling real-time proactive triggering of agent guidance, injection of knowledge and conversational suggestions and improving the ongoing customer engagement. Q3 also saw continued momentum in our international business as an increasing number of organizations across the globe look to NICE for their CX transformation. DWP, U.K.'s Department of Work and Pensions, extended their CX sovereign cloud initiative with NICE's self-service solutions in another 7-digit ACV deal, modernizing citizen engagement through automation and digital self-service. They chose NICE for our compliance with sovereign cloud standards, proven public sector standards, platform scalability and our ability to execute on their AI and digital transformation road map. Our overall strong Q3 performance is further proof that our strategy is hitting the mark and that we're delivering across all our key focus areas. Our commitment to leading the AI revolution in all our markets and specifically in CX with CXone and our NICE Cognigy solutions. The emphasis on developing our ecosystem and strategic partnerships to scale our impact, leverage our collaboration with major technology and GSI partners and with many more to come. Our international expansion and cloud adoption acceleration in global markets and of course, maintaining our financial strength with both operational rigor and industry-leading profitability while thoughtfully deploying capital through acquisitions and share repurchases. This is the perfect opportunity to remind everyone that our Capital Markets Day is coming up in just a few days on Monday, 17th of November in New York City. The event will feature presentations from our executive management team covering in more detail our long-term strategy and the future of the CX market, our CX innovation road map with NICE Cognigy and our financial overview, including midterm outlook. If you've not registered yet and you'd like to attend, please contact our Investor Relations team at ir@nice.com. We look forward to seeing you all in person at this event. And with that, I will now turn the call over to Beth. Beth Gaspich: Thank you, Scott. I'm pleased to share another quarter of strong financial execution underscored by robust cloud revenue growth and continued positive momentum from our AI and self-service business. Our acquisition of Cognigy, the global leader in AI-driven customer service solutions closed in early September, earlier than originally anticipated, and Cognigy's performance is included in our third quarter financial results. Total revenue of $732 million came in at the high end of our guidance range, increasing 6% year-over-year for the third quarter. Cloud revenue increased 13% year-over-year, contributing $563 million, representing a record 77% of our total revenue. Excluding Cognigy, cloud revenue increased 12% year-over-year, in line with our expectations. Our cloud revenue growth in the third quarter continued to be driven by the strong performance of our CX AI and self-service ARR, which totaled $268 million in Q3, increasing 49% year-over-year and 43% year-over-year, excluding Cognigy. This key growth driver in our business continues to expand and next-generation CX AI now represents 12% of our overall cloud revenue. Our fast-growing CX AI is expected to becoming more meaningful in the coming years, especially with the addition of Cognigy, which we expect will further augment our AI and self-service growth trajectory. Our cloud NRR for the trailing 12 months of Q3 was 109%, reflecting continued strength in customer loyalty and expansion activity as we scale across a larger base. Our NRR is reported on a last 12 months basis and naturally lags current trends as demonstrated by our consistent cloud revenue growth year-to-date and the strong 15% year-over-year growth in our cloud backlog, as highlighted by Scott, we're seeing positive underlying indicators that our healthy NRR can inflect upward over the next few quarters. Our on-premises business performed in line with expectations as services revenue of $139 million represented 19% of total revenue and product revenue of $30 million represented the remaining 4% of total revenue. From a geographic breakdown, the Americas region, which represented 84% of revenue in Q3 increased 5% year-over-year with double-digit cloud revenue growth and strong product revenue, which was partially offset by a decrease in services-related revenue as our customers continue to migrate their maintenance to our cloud. Our international business demonstrated strong revenue growth in the third quarter as our cloud business continues to drive momentum with our continued success of large enterprise scale wins in the international markets. Our international revenue contribution increased from last year, and we expect this trend to continue. EMEA revenue increased 7% year-over-year and APAC revenue increased 19% year-over-year. Together, our international revenue increased 11% year-over-year. Our international markets represent one of our most compelling growth opportunities. These regions remain relatively underpenetrated in terms of cloud adoption, creating a significant runway for expansion. We're seeing tangible traction with large enterprise wins in both EMEA and APAC now going live and contributing to our revenue results. Our ongoing investments in sovereign cloud infrastructure are proving instrumental in securing these opportunities, offering local compliance, data residency and trust advantages that customers increasingly prioritize. In addition, Cognigy's strong presence and brand recognition in EMEA, coupled with their growing presence in the Americas, further enhance our reach in the region, serving as a powerful catalyst for growth and enabling cross-selling of our complementary AI and self-service solutions. Turning to our business segments. Customer engagement revenue, which represented 84% of our total revenue in the quarter was $613 million, increasing 6% year-over-year, driven by the continued strength of our CXone AI cloud platform across all geographies, which more than offset the continued transition from our on-prem business. Revenues from financial crime and compliance, which represented 16% of our total revenue in Q3 and totaled $119 million increased 7% year-over-year. This was due primarily to strong cloud and product revenue growth. Moving to profitability. Our total gross margin was 69.9% compared to 71.7% last year, reflecting our deliberate investments to scale international operations and to continue to expand our global cloud footprint where we are already seeing dividends as highlighted in our strong international revenue growth. Our operating income in Q3 increased 5% year-over-year to $231 million, and our operating margin totaled 31.5%. The impact of Cognigy on our profitability was immaterial on our gross margin and operating margin in the third quarter. Looking forward to the fourth quarter and beyond, we expect no significant impact to the gross margin from Cognigy. However, we do expect dilution to the operating margin, which we previously communicated and is factored into our updated guidance that I'll touch on in a moment. Earnings per share for the third quarter were $3.18, a 10% increase compared to last year. Our cash flow from operations in Q3 was $191 million, up 20% year-over-year, underscoring strong operational execution and profitability. During the quarter, we deployed significant capital to advance our strategic priorities, repurchasing $41 million of shares, fully repaying $460 million of outstanding debt and funding the acquisition of Cognigy. We ended the quarter debt-free with total cash and short-term investments of $456 million, demonstrating both the strength of our balance sheet and our capacity to invest decisively in durable, profitable growth and create long-term shareholder value. In summary, we delivered another quarter of strong execution, driven by sustained cloud growth, accelerating AI and self-service adoption and disciplined financial management. Our recent momentum, together with Cognigy now part of our portfolio and a debt-free balance sheet, we are entering the next phase of growth from a position of exceptional financial and operational strength focused on driving innovation, scale and long-term shareholder value. We're excited to share more financial details at our upcoming Capital Markets Day, including a 2026 and midterm outlook. Now I'll close with our guidance for total revenue and non-GAAP EPS for the full year 2025. Our updated guidance includes the expected results of Cognigy from the date of acquisition through year-end. We are increasing our full year 2025 total revenue guidance, which is now expected to be in the range of $2.932 billion to $2.946 billion, which represents a year-over-year increase of 7% at the midpoint. We are increasing our expected year-over-year cloud revenue growth to be in the range of 12% to 13% for the full year. Previously, we shared an expected year-over-year increase of 50 basis points to our operating margin. Our expectation for our organic operating margin, excluding the impact of Cognigy, remains unchanged. As a result of the acquisition of Cognigy, we now expect our operating margin to slightly contract. Previously, we shared an expected year-over-year growth in non-GAAP earnings per share of 12% at the midpoint. Our expectations for our organic non-GAAP earnings per share, excluding the impact of Cognigy, remain unchanged. As a result of the acquisition of Cognigy, we now expect the full year 2025 non-GAAP fully diluted earnings per share to be in the range of $12.18 to $12.32, which represents an increase of 10% at the midpoint. I will now turn the call over to the operator for questions. Operator? Operator: [Operator Instructions] Your first question comes from the line of Siti Panigrahi with Mizuho. Sitikantha Panigrahi: I just wanted to ask about Cognigy. You closed in September. So what's your expectation of Q4 revenue contribution from Cognigy? And specifically, how are you planning to position Cognigy in terms of go-to-market? And any changes to the partnership they have with other CCaaS vendors? Beth Gaspich: Yes. Thank you, Siti, for the question. So I'll start off with the financial aspect of the question. First, we are very pleased that we were able to close the acquisition of Cognigy earlier than originally anticipated. We originally anticipated a Q4 close, and we were very excited that we received the regulatory approvals earlier than originally anticipated. What it means for our revenue contribution is that in the third quarter, it contributed roughly about 50 basis points to our cloud revenue growth from the inclusion of Cognigy. And what we've anticipated and that's included in our updated guidance for the full year is that it should include an increase about 150 basis point impact and increase to our cloud revenue growth during the fourth quarter. So those are the assumptions we've made on the financial inclusion and as a result of the Cognigy acquisition. Scott Russell: And on the go-to-market side -- thanks, Beth. On the go-to-market, it is really clear that Cognigy is a world-class leading conversational agentic AI platform. And they are actively and we will expand and grow going after all of the CX market, whether NICE is the underlying CCaaS platform or not, but more importantly, going after that market because we know those companies who are running on other platforms don't have an integrated solution. They need an AI platform and the Cognigy solution is ready-made and we will go after that market. So we're excited about the potential that brings. And you can be assured that the Cognigy team are very excited to have the power of NICE behind them as we go pursue that. Sitikantha Panigrahi: And Scott, just a quick follow-up to that. We keep hearing from a lot of customers who are not yet in cloud or CCaaS. They use Cognigy for AI. Do you see this is an opportunity now for you to even accelerate or reach out to those customers and move them to cloud as well? Scott Russell: Yes, for sure. I mean if you think about it, we have 3 growth vectors for our Cognigy business that we're really excited about. First, a customer that is in the cloud that have already done the CCaaS migration, but they're looking to do their AI transformation, Cognigy is the market leader. They are fantastic at being able to provide that automation, that customer service experience. And so secondly, is the nice installed base and the tremendous opportunity in the enterprise customer base that we have, bringing Cognigy into that installed base. And then third, to your point, is we are the only company that has the combined world-leading AI platform and the world-leading CCaaS platform that we combine together. And if they want to start with their on-premise, they want to start with AI transformation, they lead the way with NICE Cognigy. If they want to do their cloud migration on CXone, they start there. But either way, we can give them the end-to-end journey on a unified platform. So it does give us real optionality for our customers in terms of their transformation journey from their on-prem. And that's obviously very exciting. Sitikantha Panigrahi: Great and look forward to hearing more on Monday. Scott Russell: Look forward to it. Operator: Your next question comes from the line of Patrick Walravens with Citizens. Patrick Walravens: Great. Congratulations to you guys on all the momentum in the business. It's great to see. So Scott, with Cognigy, as you're getting deeper into all these sales cycles, can I ask if you're seeing Sierra? And I bring it, I'm sure you're getting this question a lot, but for anyone who doesn't know, they just raised $350 million in September at a $10 billion valuation. So it would be great to hear your thoughts in terms of what the competition looks like. Scott Russell: Yes. Great question. So let me first say, the growth and the expansion of AI in the CX market is clearly evident. And we've been talking about this for a period of time. But when the introduction of new players, it's a validation of the attractiveness of the growth potential that this market brings. And I guess you can see our move of acquiring a proven market leader. Cognigy is a proven market leader in conversational and agentic AI. They're already there. They're proven with some of the world's leading brands, and it's a testament of our leadership and our ability to capitalize on the opportunity. And just as a reminder and why we feel really strongly about our competitive positioning, Cognigy was specifically targeted because of its enterprise scale. It is already delivering at the enterprise, the top end of what organizations need of scale. It's easy to adopt. There's no words like forward deployed engineers by our Cognigy team. We don't need services surrounding. It's easy to adopt, and it's proven customer value that we can scale with both CXone and non-CXone customers. So yes, we see new entrants in the market. It's a validation of the potential that market brings, but it also gives us renewed confidence about our ability to lead on an AI-only play, a CCaaS and then the combination of the 2 together. And I think we'll be able to share much more details, Patrick, in our Capital Markets Day on Monday, where we can really showcase that capability. Operator: Your next question comes from the line of Elizabeth Porter with Morgan Stanley. Elizabeth Elliott: Now that we're a few months out from the renewed and expanded RingCentral partnership, are there any changes that you're seeing in pipeline velocity or average deal size through this channel? And understanding we're probably going to get a little bit more next week, but any context for how we should think about this as an incremental driver to fiscal '26 bookings? Scott Russell: Yes. Look, it's a great question. So first of all, Vlad and I and our teams have been in really tight collaboration with the renewed partnership. We've got an updated go-to-market. We've got the real potential to have an expansion. I'll give you 2 key levers. One is RingCentral were already an existing partner of Cognigy and a proven scalable partner of Cognigy. So not only in the combined installed base that we have with RingCentral together, but as their go-to-market, as their agentic and conversational AI platform supporting their solutions, it is a great collaboration. We're doubling down on that super. And then secondly, as you rightly point out, with our renewed partnership commitment, we're able to give confidence to our customers across all segments around combining world-leading UCaaS platform with the best-in-class CCaaS and now agentic AI platform as a unified offering. So yes, identified leads, clear go-to-market momentum and collaboration between our 2 go-to-market organizations means that we do expect renewed growth, and I know that the RingCentral team feel the same way. Operator: Your next question comes from the line of Samad Samana with Jefferies. Samad Samana: Maybe one, just Beth as a housekeeping question. If I think about the guidance increase for the year, was any of that on the cloud side an organic increase as well? Or was it largely due to Cognigy? And then I have a follow-up. Beth Gaspich: Yes. Thank you. We have maintained our expectation of 12% growth in the cloud, excluding Cognigy for the course of 2025. So that is remaining unchanged. And so the increase that you're seeing in the range in the midpoint -- up to the 12.5% midpoint is predominantly coming from the inclusion of Cognigy. Samad Samana: Great. And then maybe just zooming out from that very specific question, Scott, and I don't want to front run the Capital Markets Day on Monday, where I'm sure you'll dig into this in detail. But as you think about the early days of Cognigy being folded in, and what they brought in the NICE team. How are you thinking about the joint go-to-market effort right now? What have the early observations been? Is it better together? And are customers appreciating that better together story? Or is it still today CXone and Cognite maybe going a bit separately, but you'll fill that in over time? Scott Russell: Yes. Thanks, Samad. So a couple of observations. First of all, I was really pleased, and I talked about our cloud backlog growth and the growth of it. NICE Cognigy has already been an injection of positivity to our backlog. It's -- as a stand-alone business that has a really great pipeline that has a really great brand and recognition in the market. It has not been diluted. In fact, it's been enhanced. So that's exciting because it means the acknowledgment of the market that a leading conversational AI platform in its own right, competing head-to-head with competitors in that space, they stand really, really strong. We obviously have been really active in making sure that the NICE teams are fully up to speed. So it was quite advantageous actually. We didn't expect the closing to happen in September. But because it did, we were able to get ahead of the enablement of our go-to-market, the large coverage we have, including our partners. Don't forget, our partners play a huge part of our go-to-market execution. And so through September, we really ramped that up, which means we're able to hit the ground running in Q4 and as we lead into '26, with the NICE team being really equipped about leading those conversations on the AI and the automation play that Cognigy brings. So those 2 are really good -- and the resonance that we're getting from the NICE customer base is also really strong. But the third part that I guess I want to just reiterate what I replied before to Patrick or Elizabeth when we're just talking about is there is a large -- it might have been Saudi actually. There's a large amount of market, both internationally and in the U.S., which are evaluating their transformation journey where they've got an on-prem suite, fragmented solutions and they're trying to figure out what's my transformation road map. And what it's meant for us is instead of saying you've got to do your CCaaS move to the cloud first and then do your AI, they love the optionality, "hey, I might lead with my AI, get some real productivity and automation savings that will drive through", but then the unified platform gives us that potential to have even higher. We've already increased our win rates, but we're looking at even higher win rates as a result of NICE Cognigy. So look, Samad, I guess it's -- you're right, we will share more on Monday, but we do expect that the benefits that we had planned for and expected through the acquisition, the early indicators are really positive, and that forms a big part of our growth potential not only in Q4 but 2026 and beyond. Beth Gaspich: And one additional point that I would add to what Scott just said as well is when we think about the cloud backlog, of course, we're excited about the momentum Cognigy is bringing and what that means for us. But when we looked at the cloud backlog at the end of the third quarter, it's important to highlight that the growth, excluding Cognigy, also was increasing to 13%. So when we look ahead to our expectations stepping into 2026, we see the positive sign there of the ability to inflect and see further growth in the cloud revenue, which is exactly what we'd like to see and we expect to see going forward. Scott Russell: Yes. We got the organic, the inorganic and then the better together, so really positive effect. Operator: Your next question comes from the line of Tyler M. Radke with Citi. Tyler Radke: So Scott, I think you talked about 15% cloud backlog growth. I know it's not a stat we get every quarter, but certainly 15% is higher than where you're getting -- where we're seeing cloud revenue. So could you just talk about, is there any Cognigy impact there or anything on duration? Or is that a good read for where perhaps cloud revenue growth could go going forward, perhaps into next year? Beth Gaspich: Yes. So Tyler, I'll take that question, and it's actually what I was trying to clarify after Scott made his comments in the prior question from Samad. With the cloud backlog that we referenced, so the 15% year-over-year growth, we did have inclusion of Cognigy. If you exclude the backlog of Cognigy, we had cloud growth of 13% year-over-year. So the 13% year-over-year backlog growth compares to our 12% growth expectation this year. So of course, that builds a lot of confidence for us as we look forward into 2026 in our ability to further accelerate our growth. Scott Russell: Which we'll share more details on Monday. Tyler Radke: Yes. Okay. So no duration impact, but 13% is what we should be thinking about. Okay. Perfect. And then just on the margin side, I mean, I know there's some moving pieces with the international expansion and bringing on Cognigy. But maybe just help us understand, are there additional sort of investments you're making that should pressure margins on a go-forward basis? Obviously, we can kind of see where margins are with the first full quarter of Cognigy here in Q4. But should we expect kind of additional pressure, additional kind of costs that are going to lead revenue, whether that's international expansion or AI beyond Q4? Beth Gaspich: Yes. So it's a great question, Tyler. And we'll talk a lot more deeply about this specifically on Monday as well as we start to talk more around what you should expect to see in 2026 and the midterm outlook, '27, '28. But in general, I think what you should expect is that this is an area of investment for us. When we think about this area, we've had great success internationally. And often, that requires some sovereign cloud infrastructure. So you're building that infrastructure, putting it in place internationally ahead of the impact of the positive accretion that you get from natural growth in the cloud. So we still haven't seen all of the benefit from the great business we've been signing internationally that will continue to drive leverage in that margin. But in the short term, we are going to continue to make those investments. We see tremendous opportunities internationally. We've been very successful there. And so yes, you should expect that you'll see in the near term a slight pressure that you're seeing during the course of Q4, and we'll talk more again about expectations for 2026 and beyond on this coming Monday. Operator: Your next question comes from the line of Jim Fish with Piper Sandler. James Fish: Appreciate the color on Cognigy and breaking it out. Beth, 50 basis -- I'm sorry, 1.5% impact for Q4 gets you to about $8 million. But some quick math after that would kind of point to a big ramp to get to that $85 million ARR exiting next year. I guess, how do you get there? And how should we think about the impact to expansion rate from here just because if you kind of look at that 111% last quarter that you had on cloud net retention rate, now we're talking 109%. You have the ability to cross-sell this into the base, but it did imply a fairly decent drop sequentially. So it's really 2 questions, and I'll be quiet. And it's essentially that how do you get to that big ramp? And secondly, what's going on with net retention rate? And how can Cognigy kind of fill that hole? Beth Gaspich: Yes. Thank you, Jim. I'll try to break it down. Let's start with the $85 million because it's really important that we clarify that, first of all. The $85 million, we expect as our exit ARR for Cognigy at the end of December 2026 as we exit the year. That means that's the run rate coming out of the year. It does not mean that it represents the revenue contribution we expect from Cognigy during the course of 2026. So of course, the revenue is going to be distributed and ramping up through the course of that year. And so that is the exit point. So that's the first thing that I would clarify there. I think that as you think about Q4 and what we're predicting for the fourth quarter, in particular, first, I would say it's a little bit of early days with this acquisition. So we are factoring that into our expectation in the near term, but we have already seen the positive momentum that's really exciting even out of the gate from the Cognigy business. So we do expect to see that inflection continuing to happen throughout the course of 2026. And so I think that's built into everything that I've described. Scott Russell: Maybe let me just quickly add, Jim. I just want to reiterate our expectation of our -- of the exit 2026 ARR at the $85 million, we feel very comfortable that that's on track. The early indicators, as Beth mentioned, is very positive. That's not only on the revenue that you're seeing that you mentioned in Q4, but the momentum around backlog, bookings, pipeline that then generates into revenue or more importantly, into ARR by the end of next year. Operator: Your next question comes from the line of Arjun Bhatia with William Blair & Company. Willow Miller: I'm Willow Miller on for Arjun Bhatia. Can we get an update on LiveVox? Are you seeing stability in the business after seeing some elevated churn earlier this year? Beth Gaspich: Yes. Thank you for the question. I think it's -- first of all, you'll see that our cloud revenue growth during the quarter achieved exactly as expected. We achieved the 12%. And of course, LiveVox is a part of that. So really, what it emphasizes is that the core of our cloud business is growing even better than what you see externally. With respect to LiveVox, in particular, it has a positive outlook, and it's actually forecasting ongoing growth in cloud revenue. So all good and healthy signs that we're seeing in that part of the business. Operator: Your next question comes from the line of Michael Funk with Bank of America. Michael Funk: Beth, earlier in the prepared remarks, you mentioned the NRR trends. And I think you commented some expectation or hope of positive inflection in NRR. So can you just talk through the NRR trends intra-quarter? I know your metric is a trailing 12 month. And then related, can you talk about your pipeline, the strength of the pipeline and quality of pipeline and overall feedback you're hearing from customers about their appetite for spending? Beth Gaspich: Yes. Thank you for the quarter -- I'm sorry, for the comment or the question. So for NRR, in particular, I did highlight in my comments, and it's important to highlight that NRR is not in-quarter specifically. That is looking at the trailing 12 months and of course, reflects some of the change that we saw in our cloud growth that was happening during 2024. When you look at the current impact in quarter of the NRR, we see exactly what we would expect, which is stabilization that's consistent with the 12% growth that you've seen throughout the course of this year. And we talked about the ability to positively see that inflect in a positive manner looking ahead. And of course, we're looking at cloud backlog, but some other trends that we see as well that give that positive confidence in the growth and great cross-sell and upsell efforts we have with our existing installed base. Scott Russell: Yes. Maybe I'll cover the pipeline question. So Michael, the pipeline is strong. And you can probably tell the sentiment that I'm sharing, it's based on not only execution of what we see and what we've experienced in Q3 and our execution against the strategy, but it's also based on what we're seeing in the market. I think the first thing that I will say is there is lots of questions about AI in the market, and I understand why that potentially is the case. That is not true for CX. In CX, the proven benefits that you -- with a world-class AI platform that drives automation, great experiences, reduced cost, increased loyalty, ability to be able to drive upsell and sales and benefits for your customers, we can prove that with real customer references today. So the demand of that to be able to improve customer experiences as an AI transformation initiative in the -- we -- it's positive momentum. Whereas in other parts of AI, you can question, you don't question it here. But I would also add our growth drivers, and we'll talk more about this on Monday, but if you think about the growth drivers that we have, we've clearly got still a significant market on the jump balls of on-prem to cloud. We're improving our win rates. We see increased pipeline, very good. Our international expansion on the back of the investments, we see a lot more on the international side. We see that in our pipeline. And of course, I'm very optimistic on all the things that I talked before about NICE Cognigy inside of our business, whether it be the net new market where NICE doesn't have a role today, where we're going after that, the installed base where we're going after that and then an accelerated opportunity on those jump ball scenarios. A lot of that pipeline, we haven't even put into -- we're in the early days of bringing that into our business. So I guess it's not only on the current pipeline that we see that is strong and the buying sentiment, but the potential that we have now that we've got the complete end-to-end capability. So yes, it is borne from the trends being in our favor, which we were predicting, but it's good to see that it's coming to life. Operator: Your next question comes from the line of atharine Trebnick with Rosenblatt Securities. Catharine Trebnick: I have one for Scott. Most of your Cognigy customers are using speech to text to LLM and back to speech. OpenAI and others have recently released direct real-time voice APIs. And are you seeing competition from these APIs? And why or why not? Sorry, that was more technical, but I had to ask... Scott Russell: No, no, no, very happy to answer the question, Catharine. Look, I think we've got to just pause a little bit and look at this market for the reality it is. Anyone can create a bot, anyone. I can do it myself in 10 minutes. But creating an AI agent, whether it's teach -- text to speech, speech to text and all the other capabilities, but creating an AI agent that delivers superior customer experience, exceptional customer experience, advanced from what a human does today. That takes a whole lot more than creating a bot with some simple capabilities. And so we actually don't see the LLM providers as competition in this space. In fact, we see them as partners within our ecosystems. Their models are really good. They're general purpose, they've got an expanded capability, but with NICE and in particular, with our Cognigy, we provide the contextual CX-specific AI built, that's built on rich customer interaction data. It's built on the knowledge of what that data is, the sentiments, the context as well as the intents -- and that contextual knowledge, together with the guardrails, together with the regulations, together with the knowledge and the standards inside the enterprise, integrating those also with the legacy systems that you need to connect to, to make sure that you're delivering according to the standards that an enterprise needs. No simple bot does that. You need a complete platform. And so I guess we see the goodness of the demand because what happens is a customer often says, "Oh, I'll try to build it myself on this, on -- whether it would be OpenAI or Anthropic or other platforms, fantastic. But as soon as they see the reality of you need much more richness to be able to deliver a great consumer experience with that AI agent, it quickly comes straight to us, and we're able to leverage that. So we leverage the large language models. They're super. They're really important, but also the complementary of what we bring with the contextual intelligence means that it actually drives demand for us in a really positive way. So I love the question because we get it a lot, but it immediately then translates to validation of why the domain-specific capabilities that we have are really critical when you're in delivering to your consumers because no one is going to introduce inferior customer experience to their customers, no one. Operator: Your next question comes from the line of Tavy Rosner with Barclays. Tavy Rosner: Most of my questions have been asked. I just wanted to touch on Actimize for a second. What's the competitive dynamic? It does feel like more players are trying to disrupt the market. Is there -- do you feel anything on your end? Scott Russell: Look, I guess I would say a couple of things. Obviously, we've put a lot of emphasis around the CX business. And it's obviously an exciting inflection point in the CX market with the AI potential momentum, everything that we've talked about. And we're clearly proactively positioning our leadership in that and winning, which is why we've emphasized that so heavily. But we have got a really strong business in Actimize. It's the market leader. There continues to be high demand. The regulatory environment around the standards and the expectations around compliance and avoiding financial crime and compliance continues to be a really important aspect for financial institutions. So that business is in a really positive place. It's got a lot of cloud potential and momentum still to come. But the thing I love about the Actimize business, candidly, it is the retention rates and the -- it's -- we don't lose a customer because once it's implemented, it just provides an ongoing value and model that resonates to the largest financial institutions on the planet. So that industry definitely benefits from continued focus on compliance and financial crime, and that is a driver for us. And yes, we're positive about the outlook of that business. Operator: That concludes our question-and-answer session. I will now turn the call back over to Scott Russell for closing remarks. Scott Russell: Thank you. Look, so first of all, I appreciate the time for everyone today. As you can clearly see, we're excited. We're excited about our ability to be able to execute on the strategy that we laid out, the renewed strategy that I've talked about on many times on these calls and seeing the results. And frankly, the expectations is Q3 is a part of a proof point of a long journey in front of us to really lead and win in this market and be excited about it. We're also excited to be with you next Monday to join us. I think it's really important that you can understand and see really the NICE Cognigy platform, how it then benefits with the CXone platform and how bringing the 2 together, the 1 plus 1 equals way more than 2, it's 5, it's 10 and the potential that brings, but also from Beth and I, the updated strategy, the midterm outlook and how that plays out. So I appreciate the time and look forward to seeing you all on Monday. Operator: Ladies and gentlemen, this concludes today's call. Thank you all for joining. You may now disconnect.
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: Good morning, everyone. Welcome to the Pollard Banknote Limited Third Quarter 2025 Results Conference Call. Listeners are reminded that certain matters discussed in today's conference call or answers that may be given to questions asked could constitute forward-looking statements that are subject to risks and uncertainties related to Pollard's future financial or business performance. Certain material factors or assumptions are applied in making forward-looking statements, and actual results may differ materially from those expressed or implied in such statements. The risk factors that may affect the results are detailed in Pollard's annual information form and other periodic filings and registration statements, and you can access these documents at SEDAR+ database found at sedarplus.ca. I'd like to remind everyone that this conference call is being recorded today, Thursday, November 13, 2025. And I would like to introduce Mr. Doug Pollard, Co-Chief Executive Officer of Pollard Banknote Limited. Please go ahead, sir. Douglas Pollard: Thank you very much, operator, and thank you, everyone, for joining us. As Jaden said, I'm Doug Pollard. I'm joined on the call today by John Pollard, the other Co-CEO; and also Rob Rose, the Chief Financial Officer. We released our third quarter 2025 results yesterday. A reminder, you can access our news releases as well as our financial statements and MD&A on our website at poardbanknote.com and also on SEDAR+. Today, we'll start out with prepared remarks from me highlighting our 2025 third quarter operating achievements and overall business update, and John will then follow up discussing our, I think, quite strong third quarter results. And then as usual, we'll open it up to questions. The third quarter was truly a transformational quarter for Pollard Banknote with a number of very noteworthy contract wins in a highly competitive marketplace. covering a number of our different product offerings and product and solution offerings, and I'll address each of these in detail shortly. And at the same time, we did generate very strong financial results, which reflect the strength of our business across a number of different business lines. On September 12, the Loterie Nationale, the National Lottery of Belgium, announced the intent to award a contract to us to deliver and operate a next-generation gaming platform. That contract was officially awarded on October 8. This is really a monumental achievement for our team on a number of levels. It shows our commitment to provide an innovative omnichannel approach to the lottery industry, and it shows that, that is being recognized as, in fact, the future of the industry where lotteries are going to want to go. The Belgium lottery is a large, recognized and respected leader in the international lottery space, and this contract covers all of their technology ecosystem, including an Omnichannel Central Gaming System, which covers both retail and iLottery sales, the Player Account Management, or PAM, including the wallet. The Game Aggregation Bridge to deliver diverse game content from leading game providers in one unified player experience, an Instant Ticket Management System to optimize warehousing, inventory control and Instant Ticket Distribution for that important category and an integrated marketing engagement platform to deliver personalized data-driven experiences at every player touch point to help that lottery responsibly drive their sales. This -- it's important to note that this is a 12-year contract, and it was won in a competitive RFP process and the contract is valued at approximately CAD 289 million, and it's not insignificant that we replaced a long-time incumbent provider. Our teams between the lottery and us are already working extensively together as we begin this long-term collaboration with the lottery. So far, it's going very well. I'm very pleased with the way we've kicked it off. I'd just highlight this is really a game-changing win for our organization. We are truly honored for the trust that the Belgium lottery has placed with Pollard. And as we've done with other accounts, we look forward to delivering this on time and delivering on everything we've promised. In addition, on September 25, the California State Lottery named Pollard Banknote as their new primary contractor for their instant ticket products and related services, which they call scratchers. This new primary contract starts December 1, 2025. It has a 6-year term followed by an option to renew for up to an additional 6 years and has an estimated value over the entire 12 years of CAD 375 million. Now we had already been a long-time secondary provider of scratchers tickets to the California lottery. And with this new primary relationship, we'll now be increasing that to providing approximately 70% of the lottery's instant ticket games. Now replacing a long-time incumbent ticket supplier for one of the largest sellers of instant tickets in the world, those kinds of changes do not happen frequently in our industry. And we are very proud of that change because it really reflects the value of the long-time existing relationship that we've developed and it shows the importance of the innovative and creative solutions that we've been offering to lotteries that they want to work with us. So truly a massive win for our team. We look forward to helping California Lottery continue to be a leader in this space. Speaking of instant tickets, which is a core part of our portfolio. It's nice to see that overall demand for instant tickets remains positive. Retail sales growth has come back to the low single-digit range, still driven by higher selling price points, but also some other getting into new retail channels. Higher selling price points, I should note, also mean a much greater likelihood for us of higher value features being added. And as a result, that delivers higher average selling prices for Pollard Banknote. And in that space, one of our most important is Scratch FX, and 2025 is on pace to record annual sales of this very popular proprietary holographic ticket process. Scratch FX jumps out of retail and it has historically generated significant sales increases for the lotteries that far outweigh the incremental cost of the product in the future. Demand for our other products and solutions remain solid, including charitable gaming, printed products and, of course, digital eTabs and ancillary products and solutions such as retail point of sales and dispensers, demand for those products also remains robust as lotteries and charitable gaming operators look for new ways to grow revenue. Our Kansas iLottery solution continues to meet all of our expectations, including -- it was quite notable that during the quarter in August and September, we had the large $1 billion-plus Powerball jackpot run, and our solution handled that without any issues. In conjunction with the lotteries, we're now starting to institute a number -- sorry, in conjunction with the Kansas Lottery, we are now starting to institute a number of our planned road map initiatives that are going to move towards the phase of accelerating revenue growth and doing things like improving the website access, some improved targeted digital marketing and player acquisition tactics and enhancing some of the game features that we offer that will make the games more attractive. I remind you that Kansas does remain a critical calling card and reference point for our state-of-the-art Catalyst platform, and it is absolutely serving that with anyone who checked into the Kansas Lottery. Hand-in-hand with our platform solution is our expanding eInstant game content, which we're developing in our in-house game studio. It's not enough just to have a great platform. You also need exciting game content for success in the digital world. We provide that through our own platform in Kansas, but also through other third-party iLottery operations. Our games are now live in 9 jurisdictions around the world, and that is growing rapidly. You should note that Pollard Banknote has always been a strong creator of lottery game content. And so it's a very small step for us to now be bringing our decades of experience to more digital media in addition to our print and other channels. I'd always like to remind people that lotteries remain very engaged in discussions with us about adding to or updating their iLottery technology and offerings. And we remind you that the RFP and sales process for the iLottery process and really all lottery products, but especially iLottery, that, that is a very long cycle. I can assure you we are highly engaged in that cycle and at the forefront of those discussions in a number of jurisdictions. During the quarter, from an NPI perspective, our NeoPollard Interactive joint venture announced the award of a 2-year extension to continue to operate the iLottery for the North Carolina Lottery. That extends that contract to June 2028, and it highlights the confidence that the North Carolina Lottery has in our joint venture operation. NPI continues to generate meaningful results and cash flow. And with a number of long-term contracts and extensions already on the books, NPI will be doing so for a number of years. It's been autumn in the lottery world, and that means conferences. And I wanted to highlight how excited we were about our recent involvement in 2 of the more prominent conferences. September saw both the European Lottery Congress and trade show held in Bern, Switzerland. And the big North American conference is Nashville or North American Association of State and Provincial Lotteries that took place. Ontario Lottery hosted that in Niagara Falls. We were very present in those conferences. We showcased a number of exciting new innovative products and solutions, such as our successful Easypack pouches for printed instant tickets. And one of the products that generated the most buzz was our unique [Easyserve] self-service lottery product, which dovetails seamlessly with the overall retailers move towards self-service, which we know is coming, and we want to find a way to get instant tickets really seamlessly into those self-service lanes. So we enjoyed significant engagement with lotteries in both of those conferences. Their enthusiasm with our road map and our creativity is clearly evident. And it really shows, in my opinion, the high regard that lotteries have for Pollard Banknote and it's where we really enhance and build those relationships that lead to the significant wins that we had this quarter with lotteries like Belgium and California. So an exciting quarter for us. And I'm going to now turn it over to my brother, John Pollard, to highlight the first quarter results. John Pollard: Thank you, Doug. So during our third quarter, we achieved traditional GAAP sales of $156.3 million. This is a new quarterly record compares to $153.2 million for the quarter ended September 30 last year, 2024. We like to talk about our combined sales, which then also includes our proportionate share of our NeoPollard joint venture revenue. And when we look at combined sales, we reached $187.3 million in the quarter, also a new record, and that compares to $180.4 million in the same quarter last year. Higher charitable gaming volumes increased sales by $2.8 million in the third quarter compared to 2024. This was predominantly the result of the acquisition of CJ Ven Pacific Gaming. And in addition, the higher average selling price of charitable game printed products increased sales by a further $0.6 million. These increases were partially offset by a decrease in charitable eTab revenue of $1.1 million compared to 2024, which is primarily due to the impact from regulatory changes in our Minnesota market that began on January 1, 2025. I should say that we did have a decline due to those regulatory changes, but we've been steadily improving those results throughout the year since that time. Lower instant ticket averages selling price in 2025 decreased sales by $2.1 million as compared to 2024, mainly a result of customer mix. And in addition, a slight decrease in instant ticket sales volume for the third quarter of 2025 further decreased sales by $0.3 million. Higher sales of ancillary lottery products and services increased revenue in the third quarter of 2025 by $0.5 million compared to 2024. This growth was primarily due to increased digital sales, including, of course, our iLottery start-up in Kansas and higher distribution-related sales. This was partially offset -- sorry, partially offsetting [lease] increases was a decrease in sales of licensed products in the quarter, which is a product category which can be kind of lumpy. The weakening of the Canadian dollar compared to the U.S. dollar and euro compared to the same period in 2024 resulted in an increase in sales of approximately $2.2 million as well. Our gross profit decreased to $28.1 million, which would be 18.0% of sales in the third quarter of 2025 from $31.4 million, which would be 20.5% of sales in the third quarter of 2024. This decrease of $3.3 million in gross profit -- and the decrease in gross profit percentage were primarily a result in the start-up losses on our Kansas iLottery operation and also slightly lower eTAB sales margins due to the previously mentioned regulatory changes in Minnesota. And these 2 factors pretty much exactly account for the shortfall in the margin from last year. Administration expenses were $19.2 million in the third quarter of 2025 compared to the $17.0 million in the third quarter of 2024, and the increase of $2.2 million was largely the result of our ERP implementation-related costs and the addition of Pacific Gaming administration costs in the quarter. During the quarter, we also initiated the implementation phase of our new ERP system for our lottery and corporate operations. Selling expenses increased to $6.5 million in the third quarter of 2025 from $5.9 million in the third quarter of last year. This increase of $0.6 million was primarily due to the addition of Ven and Pacific Gaming and their selling expenses. Sequentially, the $6.5 million is consistent with the same $6.5 million of selling expenses that we had in the second quarter of this year. Pollard shared income from our NeoPollard iLottery joint venture increased to $15.3 million in the third quarter of this year compared to $13.6 million in the third quarter of last year. This $1.7 million increase was primarily due to just continued strong e-instant sales growth in both North Carolina and Virginia, 2 jurisdictions that continue to perform really strongly for us. We also saw some increased draw game sales in the quarter because of the impact of the Powerball jackpot run that we saw in later August and early September. But those gains that I just mentioned there now were partly offset by the expiry of the New Hampshire contract, which expired right at the end of last quarter, the beginning of this quarter. So our adjusted EBITDA decreased slightly to $32.0 million in the third quarter of this year compared to $33.3 million in the third quarter of last year. And the primary reasons for this $1.3 million decrease were a decrease in gross profit, net of amortization depreciation, which was $1.4 million. That was largely due to the result of our iLottery start-up costs that I just mentioned on Kansas and the lower eTAB margins that I just talked about as well. Further reducing our adjusted EBITDA were the increase in administrative expenses, net of our ERP implementation costs of $1.1 million and increase in selling expenses of $0.6 million. Then partially offsetting those decreases, of course, was the increase in our NeoPollard joint venture income of $1.7 million and an increase in realized foreign exchange gain of $0.2 million. Interest expense increased slightly to $2.9 million in this quarter compared to $2.7 million in the third quarter of last year as a result of an increase in our average long-term debt outstanding compared to last year due to the acquisitions that we completed and a higher investment in noncash working capital. This was partly offset by lower interest rates in the third quarter of this year. Net income, finally, getting to it, decreased by $10.3 million in this quarter compared to $18.2 million in the third quarter of last year. So the primary reasons for this $7.9 million decrease was the decrease in gross profit of $3.3 million, again, principally the result of the Kansas Lottery start-up costs and the lower retail margins. Further reducing net income were the decrease in net foreign exchange gain of $2.3 million, the increase in administration expense of $2.2 million, primarily sorry, the result of our ERP implementation costs, increase in income tax expense of $0.7 million, increase in selling expenses of $0.6 million and the decrease in other income of $0.3 million and an increase in interest expense of $0.2 million. And partially offsetting those decreases in income was the NeoPollard joint venture increase in income of $1.7 million. So net income per share, basic and diluted, decreased to $0.38 and $0.37 per share, respectively, in the third quarter of this year from $0.67 and $0.66 per share, respectively, in the third quarter of 2024. Just in regard to the international trade environment, obviously, there remains uncertainty regarding the nature, extent and duration of various protectionist trade measures, including tariffs that may have been -- and may be enacted within North America. We continue to believe that the current structure of our business, including extensive manufacturing facilities located in both Canada and the U.S. will ensure there is no material impact on our operations and financial results. We have the ability to produce almost all of our products that we sell in our U.S. market in our U.S. manufacturing facilities. And similarly, we have capacity to service almost all of our Canadian customers from our domestic Canadian capacity. So we'll be continuing to monitor those developments and assess any additional short- and long-term measures that might need to be taken to mitigate any other negative impacts, but we continue to be pleased with how that's working out for us. So it's been a good year generally for our instant ticket business as we've seen strong volumes and higher average selling prices that Doug talked about. And we're looking for this trend to continue as we move into 2026, particularly, of course, as we bring on the additional volumes from our new California instant ticket contract that we're very excited about. And at the same time, we're investing in new initiatives to improve our manufacturing efficiencies in instant tickets. The other things that we're really looking forward to coming up in the new year, of course, our Belgium contract, super exciting to us. We'll see a positive results from that in 2026 as we bring on revenues from that contract beginning right away next year. And of course, with our Kansas iLottery operations, we continue to have sales growth there, and we'll continue to see improvements in our margins on the Kansas iLottery business as well. We haven't talked too much about charitable gaming. But we made a lot of investments in charitable gaming last year to improve our product offering with our new ICON cabinets and lots of investment in new game content. We're starting to see the fruits of that, and we've got lots of also new jurisdictions that are looking at expanding into eTABs in 2026 that we're working with, and we expect to see some of those go live as well. So the outlook for our charitable gaming market, in particular, eTABs looks strong as well. So that's the end of the prepared part of our discussions. And operator, we'd be happy to entertain any questions at this time. Operator: Your first question comes from Jim Byrne from Acumen Capital. Jim Byrne: Maybe just looking at gross margins, I guess we heard a lot about repricing the contracts over the last couple of years. I guess I would have expected to see more of a positive impact on the gross margin side. Actually, 2025 has been down from 2024, and I understand Kansas has been a drag on that. But have there been other kind of moving parts that you haven't seen improve that profitability on the instant side? And should we expect that improvement to happen in 2026? Robert Rose: Jim, it's Rob Rose here. So as we pointed out, there are some new headwinds on our gross margin that we haven't really had in the past. All of the repricing that we've done has been baked in. There's not new repricing coming on board. We've got that all in our numbers sort of in this year. But then you always sort of look at the mix and the proprietary stuff that we can sell. So if you really account for the Kansas iLottery and the eTABs, our margin did increase on a year-over-year basis. And particularly when you think of last year, of course, was Q3, which is always a very strong quarter as well. But certainly, when you look at it sequentially, we continue to see improved margins in the underlying instant ticket that gets a little bit hidden with some of these new ventures that we're starting up and investing in. But for certain, as we go through 2026, particularly as John mentioned, in terms of bringing on the California volume, we'll continue to see that margin improve. And we'll just have to make sure we highlight sort of the other things that are impacting our overall gross margin. But of course, those negative headwinds will also be improving because the Kansas iLottery will continue to improve and reduce their loss as we move toward profitability. And we continue, as John pointed out, really work on that eTAB game content. And John mentioned that the regulatory changes in Minnesota impacted us negatively. Of course, they impacted the whole market. It wasn't just us. It was our competitors as well. They really changed the market. And now we're adapting to that and bringing on the game content that works within the regulatory structure that will really help to regain that gross margin. So really, we've got 3 positive trends that are underway as we speak. And going forward to 2026, you'll see that margin improve. Jim Byrne: Okay. That's helpful. And then just on the G&A side, you mentioned the ERP implementation. Those costs were a little higher than we expected. So is that all done? Should G&A kind of trend back to more normal levels? Robert Rose: I like your comment, Jim, is the ERP all done -- ERP implementations do take a long period of time. So we literally just started that really at the end of June. We've been planning for it for a while, but it's really kicked in. So no, it's not done. You'll see that impact our numbers through 2026. And it's fairly compressed because we want to do this quickly and get into the new system. So you'll continue to see that over the next couple of quarters. More it will be done in the first half of the year. You'll see that trail off a little bit in terms of the expenditures as we start to implement it actually go live towards the end of 2026, beginning of 2027. Jim Byrne: Okay. That's perfect. And then maybe just lastly on NPI. You mentioned the big jackpot run for Powerball into September. Mega Million just kind of picked that appears lately, approaching $1 billion. Are you seeing that momentum from the Mega Millions here into the fourth quarter? Douglas Pollard: Hi Jim, it's Doug here. We haven't seen as much of what they traditionally call jackpot fever yet from that Mega Millions jackpot. And I would say there's kind of 2 things that we're monitoring. You never know exactly why, right? The first is it came -- the previous Powerball jackpot that happened at the end of October, beginning of September was the first $1 billion jackpot that we had in a while. In fact, that was one of the drags on Kansas. You need those large jackpots to recruit players, and we were counting on getting one much earlier in our tenure of Kansas iLottery. So it was welcome when it finally did come. And so to now have this Mega Million jackpot coming a couple of months later, it's a little harder. It doesn't generate as much traction. People talk about there being jackpot fatigue. It's really not as much jackpot fatigue as it is media fatigue, right? It's just not as much of a story in the media. So that's hurting it. The other thing I would say is there have been some changes made to the matrix of Mega Millions and the price point where they moved that up to a $5 price point and made some changes to it. I don't know that those have been universally received positively by players. And so how much of that is affecting some of their uptake of it. But we are very close to a threshold level of $1 billion, and you may well see a little more activity. So I hope that we'll see that now start to pick up. And it's interesting, Powerball is such a strong brand. It's just chugging along right behind them. It's now already up to nearly $500 million, I think. So the short answer to your question, I hope that gives you a little more context. The shorter answer is it hasn't generated as much momentum as the last jackpot nor would I have expected it to do so. But I think we're going to start to see some of that impact as we cross that $1 billion threshold. Operator: Next question comes from Robert Young from Canaccord. Robert Young: The first one, the California win, congratulations, obviously there. But does that competitive takeaway shake up the space meaningfully enough that Pollard moves up a level and is thought more as a primary vendor? Or would you say that, that's the way that Pollard has been viewed for a long time? And then how do you think about capacity given California is quite large, and this may open up other opportunities? Douglas Pollard: You want me start with the first half of that. Look, there's no question, the California lottery is 40 years old, and they have had one primary provider for that whole 40-year term. And so for us to take that away, that generated a lot of notice in the lottery industry, no question. That was really nice momentum to have going into what I call the conference season, and people definitely took notice of that. Now did it change people's perceptions? I think you have to see that as an ongoing contribution to changing that perception. I hate the expression, but I use it anyway. I think Pollard has been punching above our weight for a number of years. And so when you go to these large conferences where everyone is together, they really -- for a while, we've gotten profile there that's roughly equivalent to Scientific Games and now Brightstar what was IGT. And so I think that we've kind of been seen at that level for a while, but wins in California and Belgium, I might add, kind of help cement that, that we really are at that top level. And we've invested in that for a number of years, right? We've been a top-level platinum sponsor of the World Lottery Association, for example. That was a tough bite for us a few years back. But you can see it's now starting to pay dividends. And so when we we've been saying we've got this stuff. But when we back it up with wins, I think that really has been helping. So California [ended] up itself doesn't change things dramatically, but it contributes to that long-term trend that we're really excited about. The second half of your question was about the capacity. And I don't know, John, do you want to address your perspective on that? John Pollard: Yes. Capacity-wise, it will be no problem for us. We -- as people noted in our results the last year or 2, our instant ticket volumes have been a little bit lower than they had been prior because we've been turning away lower-margin work as we've talked about for a couple of years now that we weren't able to make margin on. A lot of that was the French National Lottery work, which was a major customer of ours that we hadn't been able to reprice at a level that we were happy with. So our actual physical volumes have been a little bit lower. And these new California volumes will fundamentally only replace some of that lower French volume. So we'll easily be able to handle those volumes within our current capacity, which is why we're also hopeful that it will have a very positive financial impact, obviously, because our incremental costs to produce them should be quite controlled. Robert Young: Okay. That's very helpful. And then just a couple more. On the Belgium win, as you noted, it's online and offline hybrid contract. And so I was curious if you could help us understand the competitive space around iLottery vendors. How many of your competitors can offer a platform that can span those 2 worlds? And how important is that when you're going into RFI and RFP with that relative to the competitors? Douglas Pollard: Well, let me just say that some of the traditional competitors like Brightstar and Scientific Games and Intralot can do both. Some of the sort of newer offerings like Aristocrat Interactive, which was NeoGames, they are iLottery only. And others like All In and others, I'm not sure exactly where they would say they'd be there and where they are -- it's a little more of a continuum as opposed to a black and white. The competitive landscape in that space, however, is what Belgium showed was -- I think Belgium has deep technical expertise, so they could really engage with us and really understand what we had. And what they wanted to have was the responsiveness that newer agile technology gives them. And with some of the more legacy offerings, if I could say that, it's just slower, and it's harder to do some of the things they wanted to do. So for example, one of the things they might -- they really like to have is the ability to going forward, plug in any terminals they want at retail and not be stuck with one terminal, the same terminal at every retailer. And our solution can accommodate that. I always say to lotteries, I'm not speaking to Belgium, but in general, that I could envision a high-volume gas station and C-store is going to have a traditional lottery retail terminal for a while. But there might be some other locations that are more of a pop-up location, and they want to be able to just plug in an iPad and take orders. And our system has that kind of flexibility. So for lotteries that really see how technology is going to support their future, our technology does that. Now that comes with some degree of risk, right? I mean they've been -- this is similar to California. The Belgium lottery has been working with the incumbent technology for a long time. So it's a change. So that's still not easy to accommodate and accomplish. So it was a lot of work to do, and I wouldn't suggest that there's a whole bunch of lotteries that are about to flip. But those who dig into it and are really thinking about their future and their technology, they do appreciate the agility that comes with our solution. And we're quite excited to put this in place and make it a calling card. And frankly, so is the Belgium lottery. They want to show this off and show that this is the way to go. So it's a nice formula. Robert Rose: I just -- I can't help adding it's John Pollard here. The reason we're pretty excited about the last few months in this past quarter is not so much our financial results, which were good, but these kind of somewhat transformative wins. And so in our space, we've, for decades, had 2 major competitors, what used to be called GTECH then became IGT and now Brightstar. And Brightstar for ever have been the dominant player in central gaming systems and draw games with a 70% likely world market share. And our other main competitor was Scientific Games, who for decades has been the dominant supplier of instant ticket systems with a 70% world market share of instant tickets. And so what we've seen in the last few months is we've won contracts from both of those major competitors in Belgium and California of some of their biggest, longest-standing customers. And that is a big step that doesn't happen very often. We've obviously always been in the instant ticket business for a long time, but Brightstar has been a multibillion-dollar part of our lottery industry and central systems. That because of the omnichannel nature of our Catalyst system puts us in there. We're not just an iLottery competitor. We're a full central system competitor. So those are both very significant wins for Pollard Banknote. John Pollard: I mean just a couple more. I think earlier, Rob, I think you said that the biggest impact on gross margins was the Kansas ramp and the [e-pull] tabs headwind in Minnesota. I wanted to make sure I heard that correct. And then in the release suggested that profitability in Kansas could turn positive in the next few quarters because of some initiatives underway. And I was just trying to get maybe a little more precision around your thoughts on where Kansas -- that headwind dissipates. Robert Rose: Sure. So Rob, you did hear me correctly. Those are the 2 main factors on the gross margin headwinds. And certainly, we've talked specifically about moving towards profitability in Kansas iLottery. We've got a number of initiatives as we had anticipated now in our road map to really generate some additional sales. The Kansas lottery, correctly so, went off sort of what we would call a soft launch or a conservative launch, right? These are new things for these states, and they want to be careful of how it's perceived by the people in their jurisdiction. And that was -- and we agree with that. So we've been going very slowly. All along, we knew there was levers to pull to get back up to sort of more standard or more traditional gameplay and different factors that you see in a more mature iLottery. So we're undertaking those initiatives now. So we'll certainly start to move towards the profitability. I'm not going to specify in terms of exactly when we're going to turn into profitability, but you'll see the losses decrease over the next number of quarters. And then it just comes down to, as Doug said, a little bit more in terms of the jackpot play and the other factors. But it will take a little while, but we're certainly going to be moving in the right direction. John Pollard: So it's John. I will say in that September jackpot run in Powerball, we did see a significant increase in our play in Kansas and signed up players, and we've maintained a big chunk of that play going in post September. So we saw exactly what we'd expect to see with that jackpot in September and move to a higher level for sure based on that. Robert Young: And last question would just be on the ASP in the quarter you just reported. I normally would have thought of ASP being strong for holiday sell-in. And sorry if I missed it, but if you could just help me understand why ASP was a headwind, not a tailwind in the quarter, and then I'll pass the line. Robert Rose: Sorry, Rob, it's Rob again. So again, we had a very strong average selling price in this quarter as expected for exactly the reason you've talked about. We do a higher level of proprietary work, and we've obviously baked in all of our repricings now. The challenge is, and I hate to say this, but last year, of course, Q3, we have that same factor. So we had a very strong Q3 last year as well. So when you look at the ASP year-over-year, it's down a little bit, but really just a change in the mix component. But when you look sequentially, obviously, our average selling price is significantly higher this quarter compared to Q1 and Q2. So that trend is going to continue, and we're going to keep some of that trend going forward that we wouldn't have seen before in things like the fourth quarter or even in the earlier part of the year next year. Operator: Next question comes from David McFadgen from Cormark. David McFadgen: Yes. So a couple of questions. So when I look at the revenue, it was up slightly, but when you back out Michigan, it was still up slightly. So -- but the instant ticket volumes were flat, selling price was down. So I think at least relative to my expectations, and I think other people, they were expecting more revenue out of the instant ticket side of the business, because charitable gaming was up as well. So I don't know, what's your kind of outlook on volumes for the year and average selling prices to get to higher revenues on the instant ticket side? John Pollard: It's John. I mean the looking at the instant ticket market takes a bit of a sort of historical perspective. We saw a big jump in instant ticket volumes back to COVID. I hate to go back there now that's going back 3 years ago now. We saw a really big jump. And then volumes were flat coming out of that for a year or 2. So instant ticket volumes have been flat the last couple of years. But again, glass half full, we've maintained that COVID jump. And we're just seeing now in the last few months, a return, as Doug noted in his comments, to some modest growth in sort of low single digits. So I think we're getting back on a long-term trend of seeing instant ticket growth. If you sort of look at the trend of instant ticket sales for the industry over the last number of years and you sort of flatten out the COVID bump, you'll really see the long-term trend returning to that hopefully low to medium single digits growth in instant tickets. But it's been a little bit flattish the last couple of years. We had a bit of a tough comparison to our Q3 last year. And of course, our volumes because we were more selective last year or so in turning away lower margin work, no doubt, our own volumes have been a little bit under pressure on instant tickets. We've more than made up for that an increase in average selling price coming from our repricing and our -- as Doug talked about, the move to the higher price points in the industry where there's more $10 and $20 tickets versus $2 and $5 tickets is that we're selling more premium options like Scratch FX. So the good part of our instant ticket business last couple of years, the really good part has been that average selling price increase. The volume part has been a little more challenged. We were -- however, sequentially quite a bit stronger in the third quarter of this year versus the first 2 quarters. So I think there's a good trend within the year. And particularly with California coming on, we expect to see that volume trend going up. So it's kind of a -- it's a nuanced [dairy] our scratch ticket business to try to look at the last couple of years for sure. But the bottom line is it's still a really strong part of the lottery business. Sales are growing again in instant tickets in the industry. And we've just won the biggest contract in our lives. And so we're pretty bullish about that outlook. We expect our average selling price to continue growing slightly even going forward, even though the repricing cycle is mostly done because we're going to continue selling more options. One of the reasons California chose us is because they love our physical products and the options and the interesting things we offer. They specifically called that out of instant tickets. We have a variety of cool options, our Flip Scratch tickets, we get into all kinds of examples that our competitors don't offer. We're going to be selling those options to California. So it's still a really important good part of our business that we expect growing revenues from. But it's been a little nuanced the last couple of years for sure. So sorry for that long answer. David McFadgen: No, no, that's helpful. I was just wondering, do you think that the instant ticket side of the business is being negatively impacted at all by the growth of iLottery, so it could result in some sort of structural change in the industry or no? John Pollard: No, not. Doug, you can probably talk to that better than me. Douglas Pollard: I would definitively say no. There has been no evidence of that in any lottery. If you look over the last 12 years, we've been doing this in the U.S., let's focus on that where the biggest market is for instant tickets. The lotteries that have introduced iLottery have had faster growth of retail sales than non-iLottery states, okay? So there just isn't that evidence of it. And in fact, if you look at some of the kind of analytical data that you see out there, you see we know that omnichannel players, i.e., those players that play both retail and online are the most valuable, right? No surprise there. So a lot of that is you are taking retail players, and they are incrementally buying some tickets online. But the key is the flip side of that, and there are still players that when you survey them, their first purchase of lottery was made online, and then they have become an omnichannel player that buys at retail as well. And that's what's behind the numbers. And so it's just -- and then the last thing I'd say on that, David, is it's just a fundamentally different purchase. So iLottery is just so easy, right? When -- and that's in a different context. Think about it that you're going to look up and you're going to say, okay, Mega Millions is drawing on us at Friday night and the Jack buys $980, I forgot to buy it. Oh, yes, I just go on to my phone and I can buy that. That's really easy, okay? But also buying a scratch ticket at retail is really easy. You go in, put down your $10, they hand you a ticket, you get it back, you scratch it, you win, you hand it back to them, they give you $50 cash. Real nice, easy transaction. In fact, it's easier to buy scratch at retail than it is online arguably. So it's just a very different transaction. And for that reason, we haven't seen the kind of cannibalization that you're talking about in your question. So I'm confident that it is still good for the business overall and that our strategy of focusing on that this new digital space, while at the same time, not falling out of love with our core retail business is the right one for us as Pollard Banknote. And frankly, it's the right one for the lottery industry. David McFadgen: Okay. All right. So just a question on margins. So you talked about this on the call. So if you look at the EBITDA margin, you back out MPI, you back out Michigan, focused on the rest of the business, the margin is down. So you called out a couple of things that are driving that. So I guess it's Kansas would be the biggest factor in that, that it's running an EBITDA loss right now because you say ticket margins, EBITDA margins are up, charitable is up, right? So it would be primarily Kansas then, I guess? John Pollard: Well, if you're talking about EBITDA margin, which is distinct from gross margin, obviously, a different measure. So when we were talking on the call about gross margin, the 2 factors that entirely account for that in gross margin were primarily the Kansas iLottery start-up costs and secondarily, the lower eTAB margins due to the regulatory change in Minnesota, which we're steadily addressing and is getting better every quarter throughout this year. But on an EBITDA margin level, we do have a third sort of factor coming in there, which is our selling admin expenses are up as well from last year, which obviously would impact our EBITDA margins because we're aggressively growing our business, we're investing a lot of time and energy and money in our digital space, not just iLottery platforms with iLottery content and our eTABs. We put a lot of effort in the eTABS market, even though we're not really seeing the benefit of that yet in 2025 because we're doing a lot of [led] work on new jurisdictions and new products that will be hopefully launching in 2026. So we -- our selling and admin costs are up not insignificantly year-over-year. That's just because we're growing the scope of our business a lot and investing a lot in the future, and we expect to see the significant payoff of those, but we're not yet, right? So 2025 is being dragged down by all that investment. But look, the Belgium thing, the Belgium win, that's why it's so huge because it really says, yes, what we're doing here is not just been validated by the Kansas win, but our second major win. And so as well, the -- we'll expect to see that investment in SG&A get the payoff for that as we start to get profits from these investments we made. And as well, we did 2 acquisitions over the last year with Pacific Gaming and CJ Ven, and that's added somewhat to our selling and admin costs as well, which, by the way, both those investments have gone really nicely. We didn't really talk about them because they're smaller, but fit in really seamlessly well to our charitable gaming group. So there's -- that's my fuller answer on the sort of EBITDA margin question. David McFadgen: Okay. No, that's helpful. So when do you expect Kansas to be EBITDA positive? John Pollard: I think Rob Rose just tried to stick handle that question a little bit. It's hard to say for sure. As I said, we made significant improvement in the September jackpot run. We've moved to a significantly higher level of revenue in Kansas. We talked about some of the initiatives that we're taking with improved game content, website and that. And so it's hard to say for sure. We should see meaningful progress in the next couple of quarters as we get through on that, but it's hard to say for sure. But it's steadily improving, and there's no reason we won't bring it up to the levels that we're seeing in some of our joint venture customers. It's just a matter of how many quarters it takes, but we're seeing steady progress. Operator: There are no further questions at this time. I will now turn the call over to Doug Pollard. Please continue. Douglas Pollard: Okay. Thank you very much, operator. We talked about some of the game-changing milestones that we achieved during the third quarter, which confirms to us that our strategy is the correct strategy for our organization. Full credit goes to the 2,600 team members of Pollard Banknote working around the world. And I can just tell you that John and I are immensely proud of what our team is achieving every day. We talked about some of those specific projects like California and Belgium and Kansas, but those are just a sampling. We've got all kinds of examples of that from around the world in the lottery space, in our charitable gaming space and eTABs in lots of areas. Those folks that we've got in our team are out there tirelessly providing the innovative solutions that lotteries and charities require to be successful and putting us in a great position. So thank you to our team. The recent achievements that we've made are just the beginning of us reaping the benefits from the substantial investments we've made in recent years across our businesses, including innovative game technologies, exciting game content and of course, creative retail solutions. We are extremely excited about the opportunities that lie before us, and we look forward to more successes in future quarters. So thank you for joining us this morning. We look forward to updating you after year-end in March of next year. And in the meantime, have a great rest of your day. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
Reese McNeel: Hello, and welcome, everyone, to this Q3 presentation for Prosafe. I'm Reese McNeel, and I'm the CEO, and thank you for joining the presentation today. I would like to start the presentation today by just giving a little bit of a highlight of Prosafe again, reminding people who we are. Prosafe, we are the largest operator of offshore accommodation rigs. We currently have 5 accommodation rigs. We've been in this business for over 30 years, and we're one of the leading operators worldwide, headquartered in Norway, but with offices, as I'm speaking from here today in Rio and operations in the U.K. and Australia. Talk a little bit, I'd like to spend a bit of extra time during this Q3 presentation to talk a little bit about what we have been up to the last couple of quarters and particularly the last quarter. Prosafe has been through quite a transformation. We've got a new management team in place, and we've been really refocusing and repositioning the business. So I'll spend a little bit of extra time on that during this presentation. So as mentioned, we got a high-end fleet. All modern units that we currently have are contracted to 2027. We have a very leading position in Brazil. We got backlog extending into 2030, very strong market fundamentals. I will spend a bit more time on that during this presentation, particularly talking about what's happening on the tender side. We're driving -- we've set ourselves an ambitious goal to be the most efficient operator in the accommodation segment. And at the same time, we're exploring strategic and M&A opportunities, and I'll talk a little bit about why that is the case and why we are looking into that. Jumping back just slightly to Q3 and how we did during the Q3 specifically. I'm very proud to say that this was a quarter where we actually had all 5 of our units working during the quarter and 100% utilization in September. We got to go several years back since we actually had that. So I'm very proud to be here and to be able to say that all 5 of our units are working. But a good safety performance, 99% to 100% uptime during the quarter. And very happy to say that we are well on the way to getting Safe Boreas onto her gangway connection in Australia. She's on a standby rate from 1st of September, and we're now expecting her to be gangway down between the 10th and the 15th of December in Australia. Also Safe Caledonia, those who have been following us will see that she did have 2 of the 10 weeks -- sorry, 2 of the 12 weeks of options called. So we have 10 weeks of options remaining. I will say that we are very optimistic that several of those options will be called in the very short time and really impressed with how Safe Caledonia has been delivering for Ithaca. To the financials, a very good result this quarter as well, $12.8 million in EBITDA. I'll say that's before reorganization costs. I'll come on to some of the cost initiatives we've been doing, but in particular, part of that is restructuring the organization, and we did have approximately $1.5 million of one-off reorganization costs in the quarter. We completed the recapitalization in the quarter. I'll talk a little bit more about that to establish a sustainable cap stack. And we currently have a solid liquidity position at over $83 million. Looking a little bit ahead, we're still on track with our guidance at $35 million to $40 million, which we've communicated several months ago. I think the market is very strong. I'll spend quite a bit of time on that in this presentation in this quarter. And again, we're looking into more strategic opportunities. The refinancing, we talked about, I think, in the last quarter, but again, a highlight here for us. We have significantly reduced the debt on our balance sheet. We've gone from net interest-bearing debt of $400 million down to $200 million. Approximately, that's cutting almost the debt load in half. And in addition, we've obviously, through that exercise, gained extra liquidity. And I can say that we have a sustainable capital structure now in place with liquidity to get us through to meet these working capital and CapEx needs, which we have coming at us. So it's very pleased again that we were able to close this refinancing exercise early in Q3. The management team and the strategy. This is very important for me. We have been through a difficult time in Prosafe, but we are coming out. We're seeing the back end. I think we're very well positioned. If you look at the position in the market, we did in the past 12 months, extend the safe notice on a substantially better contract than she was before. So we are capturing the market potential that is there. We have gone from $6 million EBITDA to $28 million annual EBITDA on the notice contract. And I think what we see, and I hope I can demonstrate a bit of that in the slides to come, is that this market is actually very tight. There's a very high utilization. I think we will continue to see high day rates and potentially even increasing day rates going forward. At the same time, coming out of the restructuring, we got a new management team on board. We got a new Board. I think we're very focused on what we have outlined strategically, reducing the cost base, becoming the most efficient operator and really leveraging particularly our position in Brazil. And part of this initiative is obviously to reduce not only operating costs, but also our general administrative costs. And we've set ourselves an ambitious target of reducing that by greater than 15%. As I commented on, we have had some one-offs this quarter, and I think that's part of driving that. I think we already are on a good path to reach that 19% number on a run rate basis and in 2026. Little bit on the new management team. Very happy to say that we've got a very experienced team, very experienced Board, very interactive Board with Carey Lowe on board, who was at Valaris as the COO. We've got Monique, who's the Deputy CFO in Constellation with a really strong Brazil experience. We've got also some banking experience and some good experience with Knut from TechnipFMC. And on our side, you got myself, who've been with the company for 3 years. I was the CFO. I'm very pleased to step into the CEO position. And alongside me, I have Ryan, who's been with the company for 20 years. I think Ryan is Mr. Floatel, if I can say that he knows this market in and out. And Claudio is a long-term employee, I think is very focused together with myself and driving efficiency and supporting our Brazil business going forward. The fleet. During the last year, we have actually trimmed back the fleet. We sold the Concordia and we also sold the Scandinavia. So I think if we look at our fleet now, we are very much consolidated around the high-end fleet. We have the Safe Caledonia, which is working for Ithaca. She is a more unit. But with her as side, we are very focused now on DP3 high-end units. And if you just look at them and where they're able to operate, we operate in the harshest, most difficult environments, whether it's in Norway or down here in Brazil. I'll say that I was on board, for example, the Caledonia a few weeks ago. 15 odd wins, quite a lot of swell. The performance of these units is very impressive. And even in Brazil with high swell, DP3 units, follow target mode on a moored, on a turret moored unit with [indiscernible], we are able to hold position. So we have very high and high-performing assets. And those assets, as I mentioned, are largely booked. We have backlog into 2030 with the recent notice extension at a much higher rate. And we have the Safe Zephyrus, Safe Eurus and Safe Boreas all working and all booked out during 2026. So we're very happy about that backlog picture, and we have an eagle-eye focus, particularly going into '26 of extending the Zephyrus and Eurus. I'd like a little bit in this presentation to, as I mentioned, to go a little bit more in depth on the market and what is happening in this market because it makes me very excited. I think it's a very exciting market and a very exciting time that we find ourselves in. As we know, there has been some discussions about the oil price, the oil price has been down, some discussions about operators pulling back on exploration spend. I would like to say that Prosafe and in particular, the accommodation sector, we are very much a Brownfield maintenance-driven business. If you look at our operations, where we're earning our revenue, approximately 80% of that is coming from maintenance and operations of installed installations. So we are much more focused on what has already been installed, maintaining what's already been installed than we are on hookups, commissioning new projects. So I think that reduces our exposure to the short-term volatility. And I'll come back to that, our correlation is much more to the age and number of installations rather than sort of new developments. And I think that positions us in a very positive place in the market despite the short-term fluctuations. Looking at the global market of accommodation, we define the accommodation fleet as 31 units. These are the units, high-end units at the top, and we have some lower-end units. I think some of our competitors, they define the market a little bit more narrow. We define the market as those players who we see participating in tenders or participating in RFIs, RFQs where we are also participating. So this is the sort of in-scope competitive fleet and how we see it today. It's a relatively limited 31 units. One thing I will say is that this market is quite fragmented. We are the largest player in this market. If you look through, we have several one asset owners. And despite there being sort of a significant increase in the number of units, we've also seen a number of -- an increase in the number of owners. And we feel that ourselves as the largest player with the sort of market position that we have and the strength of our operations that we should be well positioned to be able to consolidate some of this market. We know that these units for some of our competitors are noncore. And therefore, we think there is a positive opportunity here when it comes to consolidation and M&A. There's a lot of SG&A floating around this marketplace, and we think that, that can be -- we can create a much more efficient marketplace for all participants. When we look at that market and these 31 units, where are they? Where are these units? Where are these units working? Brazil. Brazil is the main focus of the accommodation market today. It's approximately 50% of all active units. If you look there, we've got 13 units currently in South America at the moment, they're actually all in Brazil. By far, this market has shifted. It used to historically be a bit of a North Sea market. It has shifted. It's now very much so a Brazilian driven marketplace. And on the back of that Brazil demand, we see that -- which has increased, I'll come on to that in my next slide. This Brazil demand is driving us to all-time highs in across the accommodation segment. So if we look at the contracted demand at the moment is at a 10-year high. That means that we haven't seen this much demand in the last 10 years. You got to go back to sort of the last cycle before you can see this higher demand. And we see utilization rates getting up to 90%, particularly on the high-end units. And I think when you see utilization going above 80% into 90%, that's when we really tend to see historically, and we see it now, good increases in day rates going forward. And this, I would like to highlight is on top of the fact that there has been an increase in the supply. So the supply has been absorbed and utilization remains at a 10-year high and at approximately 90% for the high-end units. So a very positive market dynamic for us. What is driving that? As I mentioned, a key driver to this is Brazil and a key driver to this is not necessarily the installations or new developments, which is the installed base of FPSOs in Brazil. There are 67 floating production units in Brazil. There's a forecast that's going to go up to over 80. When we are working in Brazil, what we see is that after approximately 2 years of new installation, they are getting serviced by an accommodation unit. It's a quite harsh environment. Some of the players here, Equinor, others, they mentioned to us that the corrosiveness of the environment in Brazil is 2x to 3x what they see in the North Sea. So the maintenance demand is very high, and these very high-end FPSOs producing 180,000 to 200,000 barrels a day. They require more extensive maintenance, more beds and it's in a relatively difficult met ocean environment, and that's where the demand for high-end accommodation units is really picking up. And you see that on the graph on the right. This is a graph that shows from 2024 peaking up into 2026, we see a substantial increase in the actual demand for units in Brazil. And this is what is sort of being that -- as I mentioned, with this being 50% of the market, this is driving the utilization and driving the rates much higher. We, as Prosafe, I think it's very fair to say we have seen this trend for a couple of years out. We strategically positioned the Safe Zephyrus down here a couple of years ago, and we are proactively taking initiatives to align our organization to this growing market and be best positioned to capitalize on this. So we've taken some actions even recently. We've closed -- recently closed our Stavanger office. We have an office in Oslo. We're also closing our Singapore office, and we're moving many of our core functions to Brazil to align ourselves with this growing market and also to be much more cost efficient in serving this market here where we do see the most opportunities going forward. What does that really mean for us? When we say that the market is increasing, Brazil is a big demand driver. How are we going to actually capitalize on that and drive improved earnings, improved EBITDA shareholder value? I think the key to this is we have 2 units, the Safe Eurus and Safe Zephyrus. I think they're both very well positioned with contracts rolling over in '27. They're very well positioned to capitalize on this increase. We see the trend. You can see it in the charts here. Again, notice from 75 to 140 a day. When we see that there's additional tenders coming, not only from Petrobras, what we see historically from Petrobras is that they are out retendering or negotiating extending contracts approximately a year before units roll off of existing contracts. For us, these contracts, Eurus rolling off in April, Zephyrus rolling off in September of '27. So that means that realistically, we think that Petrobras is going to be in the market. There's going to be concrete discussions, tenders, negotiations really starting here in the first half of '26. And I think not only do we see demand from Petrobras down in Brazil, but we also see an increase in demand from others. Recent RFI from MODEC for multiyear accommodation job. We see also Karoon, Brava, SBM, Yinson, many of the other players here, PRIO, all now using accommodation services in Brazil. So it's not only a Petrobras game, but it's also a growing market, again, driven by the need to support this installed FPSO base, which is increasing. Now when you look a little bit further over the horizon, you have to say that the real planned FPSOs, the number of FPSOs that are sort of in planning, I'm not talking about the number of installed or existing FPSOs, but those which are planned in the future, again, where is this demand coming from? What you see is that future planned FPSOs, actually, it's the rest of the world that's dominating looking over the horizon. And here, we are talking about Guyana, potentially Suriname, Namibia, again, locations with a met ocean condition or environment relatively similar to Brazil. And I think what we're going to see is that the combination of Brazil with a high installed base and new additional FPSOs coming into this market in new markets, which, again, they're already planned. I think we're going to see a very solid base upon which we should see rates increasing. There are actually tenders out in these markets as well. Recent tender now from SBM for work in West Africa, and there's currently several units working in West Africa. So -- and one unit almost consistently working in Guyana. So this is actually happening and coming to fruition. And we see the similar day rate trend, particularly looking at the rest of the world that we've seen in Brazil, maybe not such a steep curve, but still steadily increasing also in these markets. So we're going to wrap up on the market side, I think we're very optimistic and positive on the market, driven in large part by installed base and increasing number of FPSOs in Brazil and a supply, which is relatively limited at 31. So we're very positive that we will continue to see market rates, and we are very well positioned as Prosafe to capture that. Little bit on our operations and what we've been doing, particularly in the quarter and looking a little bit ahead. Again, in the quarter, very good utilization, 86%. As I mentioned, all the units operating at a certain point in this quarter, which is the first time many years. Looking a little bit ahead, I think this quarter is also going to be very good, very high utilization expected, 88%. And as I mentioned, expecting shortly to have a full day rate on the Safe Boreas in Australia and expecting also to know a little bit more on the South Safe Caledonia options, which cross fingers, we should see more of those options called and increasing utilization also in Q1 '26. Backlog, I think this very much ties into what we're talking about in the market. We're seeing utilization at 10-year highs. We're actually seeing our backlog. We've got to go quite a way back. We got to go all the way back to 2017 to see the backlog level that we have now. So we are very focused on expanding that backlog, particularly as, again, re-contracting on the Eurus and Zephyrus, but it's good to see that actually it's not only that the market is highly utilized, but we're seeing the backlog coming through. Caledonia, I'd like to highlight there. Again, these 10 weeks of options. I think we're quite optimistic that we will see some additional options called going forward. And with the performance that Caledonia has had on that field, we are optimistic that we'll also be able to find work for her in 2027 in particular. A little bit on the financials for the quarter. Income, $42 million, I think very solid income in the quarter. I think some of that is actually -- is reflective of the fact that Boreas is on hire on the standby rate. So we do start to allocate the mobilization fee, which we have received. So that's a positive impact on our income. And we also have now a significant portion of reimbursables coming through, the reimbursables for the Boreas heavy lift contract and other reimbursables largely related to the contract for Boreas with Shell down in Australia. Income statement. The one thing to highlight on the income statement from my side for this quarter is the financial gain related to the refinancing. I think that has taken us again from being a little bit undercapitalized to having sufficient capital in the balance sheet to go forward. So in the balance sheet, again, cash position, $83 million, solid position coming out of the restructuring and a significant decrease in our net interest-bearing debt, again, having that position from where we were the previous quarter. Very important for me and very much on my mind, cash flow. If we look at the cash flow in the quarter, it was, of course, heavily impacted by the restructuring. We got some new money in. We had to pay, of course, or we closed out some of the refinancing costs or costs associated with the refinancing. So there are some impacts in the cash flow from that. But I think when we look at EBITDA, CapEx and net working capital, very much driven this quarter by the mobilizations. So we have invested a significant amount of working capital into Safe Boreas and in preparation for the Safe Zephyrus SPS, which should start here in a couple of weeks' time. So major working capital movements and CapEx are associated with these projects. Good cash position at the end of the quarter, $83 million. And if we look a little bit ahead, I do think that we're in a decent cash and liquidity position for the coming quarters. Looking a little bit at where we are as far as potential. As I mentioned, we see a significant increase in rates. We've seen rates go from $8 million run rate to $28 million run rate. If we take those sort of run rate EBITDAs per vessel, and we mark-to-market the contracts which are coming up and we take into account the cost-saving initiatives which we are driving today, we see that there's an EBITDA uplift potential from where we are today at $35 million to $40 million to $90 million to $100 million looking out in a couple of years. So significant potential in driving the rates up and also that would lead to a significant reduction in our net interest-bearing debt position. So I think we're in a good position again to capitalize on this increase and to see a significant improvement in earnings and a significant decrease in our leverage and a strong value creation for all of our stakeholders and our shareholders. This is also supported by the rig values. If you look sort of where we are EV-wise, it's significantly lower than the broker values in the market and also, of course, significantly lower than the replacement cost on these vessels. So I think as we see the market pick up, utilization pick up, rates pick up, EBITDA pick up, I very much expect that the valuation here will increase significantly and come much more in line with broker values. I'd like to just wrap up a little bit with a couple of slides on where we are in the outlook and what some of our strategic objectives are. On the outlook, we reiterate our guidance, $35 million to $40 million. We do expect Boreas to be on hire -- full day rate on hire. She's on hire on the standby. We expect it to be full day rate sometime between the 10th and the 15th of December. We're expecting Safe Caledonia to stay working a little bit longer. We got options extended into mid-December, very much expecting that this will take us a little bit further. And looking a little bit into 2026, I think we're going to have Safe notice on a new contract into 2026. And also, we're going to have, I think, a good utilization from the rest of the fleet with Safe Zephyrus having completed her SPS, Safe Boreas on a full contract. So I think we've got a good outlook looking into 2026 as well. I would like to talk first before I come to sort of my strategic priorities, I'd like to reiterate a bit again what we're very focused on is sort of a new Board, a new management team. I think we've achieved a lot. We've got an uptick in the rates and uptick in the EBITDA run rate, particularly on notice. We're actually delivering on that. I think we have taken some tough cost reduction measures, reducing both senior management and the organization, realigning the organization to the Brazil market where we see a really strong potential. We have also a cost focus now on improving our operational OpEx. We've got long contracts in Brazil. We can actually really focus on driving cost efficiency in our operations. I think we're doing some of that. We got key projects kicked off in procurement, key projects kicked off in sort of some of our maintenance and inventory management. So I think we are very much focusing on becoming this most efficient operator. When we look out, key focus, key priorities, continuing to execute on what we've been doing, safe operation, high uptime, get the backlog, as we talked about at higher rates with the reset of the Eurus and Zephyrus coming, focus on keeping our capital structure, it's all about good execution on the projects that we have coming. A final key priority for us is continuing to pursue strategic opportunities and M&A and what we continue to see as a very fragmented market. I would like to highlight that we intend to go on a non-deal roadshow in the coming weeks where we look forward to presenting the recapitalized and reenergized Prosafe to many of you. With that, I would like to thank you very much for participating in this presentation, and I will be back very shortly with the Q&A. Reese McNeel: Welcome back. I have a couple of questions here. So let's get started. The questions are from Braga at Clarksons Securities. And Braga is asking if I can give a little more color on Safe Caledonia and what is the expected outcome of the unit as it rolls off its current contract? I think as I mentioned previously, we are very positive that the vessel will continue working. We're expecting additional options to be called. And I think that she will be working into early 2026 with Ithaca. Beyond that, our expectation is that 2027 will be quite positive for her. We see an improving market and opportunities in 2027. We're still looking after opportunities in '26, but I think the most likely outcome is that once you rolls off the current contract, we will probably be looking at a contract in 2027. I don't see that I have any more questions. So with that, I'd like to thank everyone very much and look forward to seeing you all again either on the upcoming non-deal roadshow or at the next quarterly presentation. Thank you very much.
Operator: Good afternoon, ladies and gentlemen, and welcome to the MLP SE conference call regarding the publication of the results for the third quarter 2025 and first 9 months 2025. [Operator Instructions] Let me now turn the floor over to your host, Pascal Locher. Unknown Executive: Thank you very much, and welcome to MLP's conference call to our results for the third quarter and the first 9 months of 2025. With me today is our CFO, Reinhard Loose. He will guide you through the presentation. And of course, we are happy to take your questions after the presentation. So please go ahead, Reinhard. Reinhard Loose: Thank you, Pascal, and good afternoon, ladies and gentlemen. First of all, please allow me to present the key message for the first 9 months of the financial year 2025. MLP remains firmly and vigorously on its good course. Even one-off effects, which need to be processed at times as it is the case this year, do not change this. We provided information on this last Friday. Within the MLP Group, we benefit more than ever from our broad and strategically interlinked positioning, which provides additional stability and at the same time, generates sustainable growth year after year. During the first 9 months of this year, we were able to achieve new highs in total revenue despite a persistently difficult macroeconomic environment. This is a remarkable achievement by our team, not least because, as I already reported at the half year stage, we have not experienced and are still not experiencing any tailwind in parts of our markets. Businesses and consumers alike are unsettled. The U.S. President's so-called Liberation Day in particular, with the drastic tariffs shook the capital markets in April and still has an impact today. However, the lack of political decisions, the ongoing economic downturn and not least recent rising unemployment are also cause for concern. Despite operating in such a difficult environment, the MLP Group still succeeded in setting new highs in key figures for future business development. This applies to both the assets under management of EUR 64.2 billion and the managed non-life insurance premium volume of EUR 794 million. In terms of earnings before interest and taxes, EBIT, the MLP Group stands at EUR 61.1 million after 9 months in 2025, which is below the previous year's record high figure of EUR 66.4 million. In the third quarter of '25, we achieved EUR 18.3 million and thus, even slightly exceeded the very strong prior year quarter. One thing is particularly noteworthy about this development, our well-established and very successful consulting business, namely the intensive support we provide to our clients. We are their preferred dialogue partner for all financial matters. A closer look at the previous year's comparative figure makes this particularly clear. Q3 EBIT 2024 includes significantly larger EBIT contributions from performance-based compensation at FERI and from the interest rate business of MLP Banking. This shows the enormous growth and substance that we have already achieved in the MLP Group in recent years. As already reported, we have adjusted our EBIT forecast for the current year. This was due to changed expectations regarding the level of performance-based compensation in wealth management and the real estate development business. In addition, we are seeing a weaker than originally expected old-age provision business. As previously announced, we also intend to focus the business of our group company, Deutschland.Immobilien, and thereby making it less susceptible to risk. We will benefit from this very soon, just like from our extensive IT investments, which I talked about at the half year point. The IT investments are focused particularly on artificial intelligence, which is increasingly being integrated into our consulting services, for example, in the preparation of client meetings by our consultants. And last but not least, we'll further strengthen our position in the corporate client business, among other things, through innovative and digital companies that we have established within the MLP Group in a targeted manner and whose development we are actively advancing. This means we are following our proven path to success. We have increased our EBIT midterm planning for 2028 to between EUR 140 million and EUR 155 million. On our way there, the current year is above all a year of transition, a year in which we have invested and focused. Regardless of the necessary responses to changing markets, our business model is so robust that we have set ourselves even more ambitious yet realistic targets for 2028. The fact that we are implementing this increase in our targets at this particular point in time once again underpins how sustainably we have positioned the MLP Group for this path. You can find an overview of revenue development on Slide 4 of the presentation. In the first 9 months of 2025, MLP increased the total revenue to a new high of around EUR 773 million. The share of recurring revenue was almost 70% at the end of '24, highlighting the great and sustainable stability of our business model. We earn recurring revenue from the continuous high-quality service provided to our existing clients throughout the MLP Group, above all the Property & Casualty and Wealth competence fields. The remaining share of sales revenue generated from our new business, particularly in the Life & Health competence field. In the first 9 months of '25, the group grew particularly strongly in the Property & Casualty competence fields with an increase of 7%. Compared to the same period of the previous year, MLP was able to significantly increase the managed non-life insurance premium volume. MLP also achieved growth in the Life & Health competence field with an increase of 4%, driven primarily by the health insurance business included in this figure and to a lesser extent, by the old-age provision business. After the first 9 months of the year, the Wealth competence field recorded a slight decline in revenue of minus 2%, primarily as a result of significantly lower performance-based compensation. This requires new record levels to be achieved in the underlying concepts even after market-related setbacks. Without the performance-based compensation, the Wealth competence field would also have recorded growth with the corresponding figure standing at 4%. While we recorded lower interest income as expected due to the declining interest rates, we were able to achieve double-digit growth rates in real estate brokerage and loans and mortgages. This is yet another example of the strength of our business model, which is based on multiple pillars. Finally, a brief look at the Others competence field. As expected, revenue was slightly lower here due to the plan that strictly implemented reduction of market and business-related risks in the real estate development business. I've addressed this repeatedly during the previous quarters. And with the step announced last Friday at Deutschland.Immobilien, we now intend to end real estate project development, for which we ourselves are also responsible for construction and thus make our real estate business less risky. We will, therefore, no longer initiate such projects. Only the existing projects will be carried out by us to completion. The growing and continuing trust in our consulting services displayed by our clients is also reflected in the key figures. They are extremely important for future revenue development. It is therefore all the more pleasing that we were able to increase assets under management to a new high of EUR 64.2 billion. To the best of our knowledge, this makes us the second largest bank independent asset manager in Germany today. Let's take a quick look at our other key figure. We were also able to increase the managed non-life insurance premium volume to another record high of EUR 794 million. As of the 30th of September, the MLP Group's consultants served 597,400 family clients. The gross number of newly acquired family clients was 15,500. We also supported a further 27,800 corporate and institutional clients in the MLP Group. The number of consultants rose to 2,121 during the course of the year, primarily as a result of our successful trainee program. This program, which is very attractive for young professionals, equips employed junior consultants at MLP with the skills they need to succeed as self-employed consultants. Indeed, 495 trainees had already joined the program by the end of September '25 since its launch in mid-'23. You can find in the bridged version of the current income statement on Slide 8. In the first 9 months of '25, the MLP Group recorded EBIT of EUR 61.1 million, which, as already communicated, was below the exceptional strong figure from the same period last year, but significantly above the average of the past 5 years with average figures EUR 47.6 million. If you now take a brief look at the right-hand section of the slide, you will see key performance indicators that underpin our strong balance sheet. Our shareholders' equity amounts to EUR 577 million. The regulatory core capital ratio was at 17.9% as of the 30th of September, which remains significantly above the requirements of the regulatory authorities. The liquidity coverage ratio or LCR for short, serves as a benchmark for short-term liquidity and stress scenarios and is therefore an indicator of resilience. At 1,124%, it is also well above the 100% minimum required by regulatory authorities. Let me come back to our recently revised EBIT forecast of EUR 90 million to EUR 100 million for the whole year before possible one-off effects resulting from focusing of the real estate business in terms of EBIT. However, these effects should not exceed EUR 12 million and might also even have an impact on EBIT of the financial year '25. We are more convinced than ever that we will continue our operational business success. In the current financial year, we expect sales revenue to slightly increase in the Property & Casualty competence field in particular. In the Wealth competence field, we continue to expect revenues in '25 to remain at the previous year's high level, though we remain cautious in view of the volatility of the capital markets. Of course, it also cannot be ruled out that there may be positive capital markets developments from which we would benefit directly in the Wealth competence field. In line with developments in the first 9 months, we are now anticipating stable revenue in the Life & Health competence field, having previously expected a slight increase in revenue. Within this competence field, we continue to expect a slight increase in revenue from health insurance and expect now stable revenue from old-age provision. Irrespective of this, we are keeping a very close eye on our costs. As already mentioned, we have slightly increased our midterm planning for the end of '28. The corridor now ranges from EUR 140 million to EUR 105 million -- EUR 155 million, sorry. Previously, it was EUR 140 million to EUR 150 million. We continue to expect total revenue of EUR 1.3 billion to EUR 1.4 billion. Performance-based compensation at FERI, which can only be planned and influenced to a limited extent, has once again been considered cautiously and therefore, only included to a limited extent in the increased planning. We have left unchanged from the previous planning. In this context, I had already referred to the enormous substance of our operating business, which we have continuously built up over the past few years. This is also reflected in our planning for continued significant growth in key figures, namely the managed non-life insurance premium volume and the assets under management. The expanding asset under management, FERI has significant further potential as an asset manager, underpinning by highly professional and modern investment research. In the area of alternative assets, with over EUR 18 billion under management, FERI already maintains one of the largest expert teams in Germany. The strategic development of potential and consulting family clients, the targeted expansion of the corporate client business and the multi-asset approach for institutional clients should lead to growth in all competence fields. The planned significant increase in earnings is also supported by our digitalization strategy with a particular focus on AI applications, which are expected to drive ongoing efficiency gains and further improve client support. Our development of AI service agent continues at full speed. At the final stage, we'll offer clients 24/7 [ visibility ] and complete processing of simple matters. An AI system, which makes the sometimes time-consuming preparation for client appointments significantly easier for our consultants has already reached the practical testing phase. For example, the AI can extract the relevant data for financial consulting from documents uploaded by clients and sought and stored in the right place in our systems to directly support the consultants. These new technologies are used throughout the MLP Group in a very targeted manner, but also always responsibly. Ladies and gentlemen, allow me now to move on to the summary. Firstly, our strategically developed positioning is proving itself more than ever, especially in phases without a tailwind from the market and also when it is necessary to deal with one-off effects, which can occur from time to time. Secondly, artificial intelligence as part of our digital strategy is already an additional efficiency and growth factor today and will remain so well into the future. We'll also remain vigorously active in this field. Thirdly, our increased midterm planning for the end of 2028 underlines our sustainable growth path. In the coming years, we will benefit from the fact that we have now focused our real estate business and at the same time, made strategic investments. Many thanks for your time and your interest. I'm now happy to take any questions. Operator: [Operator Instructions] The first question at the moment comes from Henry Wendisch, NuWays. Henry Wendisch: Thank you, Reinhard, for the presentation. A couple of questions from my side. Let's go with the obvious one I always ask is the net inflows and the performance fee metrics that we have seen in Q3 for our modeling. And then on the same topic, more or less regarding the guidance cut, you said was a mix of 3 things. One is a lower expectation of performance fees and of course, the real estate development that is not turning out the way it might have been looked like at the start of the year. And what is sort of a little bit of a surprise for me is the weaker old-age expectation now. Could you give us maybe a little bit of a split? So which of these 3 developments was the biggest one or to what extent? And then directly a follow-up on that, why has sort of your old-age provision business outlook for Q4? It's very, very important for the fourth quarter. So why has your outlook a little bit changed there? I've seen you launched a new product, the portfolio [ Venter ]. So what is sort of the -- how can we think of this new outlook of yours in the old-age space? And then I think the very positive highlight here is the underlying profitability. It was a very strong gain. And also sales, if you include performance fees, you grew by 5% on a Q3 basis. So that looks very good. And I think the biggest improvement we've seen in profitability was in banking. Could you shed some more light on what has happened there? I've seen a positive effect in the so-called the [indiscernible]. Maybe that's something that's behind this, but I don't really understand yet what is the real driver here, the banking business underlying profitability. So even if you include the net interest income, which has declined, of course, as well, the profitability is still very -- on a very good level there in banking. So what's going on there? Reinhard Loose: Henry, thanks for your questions. And I start with the, let's say, easy one to answer the net inflows. The net inflows for the whole group for the -- let's say, the gross inflow for the whole year was EUR 4.2 billion, and the gross outflow for the whole year was also EUR 4.2 billion. And then we have overall performance of EUR 1.2 billion. Obviously, mixed in different areas. Your next question will be where does it come from? We had outflow of a bigger customer with a consulting mandate in -- with extremely low margin, but with some interesting assets under management. And therefore, the -- in the area of the company sector there was relatively weak for the whole year. This was more or less explanation a little bit to the net inflows. The performance fees for the whole year was EUR 4.8 million. And I think this leads to your question then for the underlying business. And I just would like to compare for everyone here on the call, the performance fee for the first 9 months in '24 was EUR 26.8 million. That means we have EUR 22 million less performance fees in 9 months and only in [ license ], only EUR 5 million less profit finally that underlines that the rest of the business in general was quite okay, I think just to underline this. The guidance cut, yes, performance fee real estate is clear. Old-age provision, old-age provision, we will have a very strong last quarter, but perhaps not as strong as we expected. That's clear. And what's the reason for that? We see, let's say, very, very good activities in the wealth management area. And we know that our consultants are obviously only have 24 hours a day. And at the moment, they invest more time in wealth management than in old-age provision. And therefore, we have a little bit mixed feelings about this. On one side, we are extremely happy what's going on in the wealth management area, especially, let's say, in the area of private -- of the private consultants. The inflows are extremely good there, but this has then the result that they have less time to consult their customers in old-age provision. And that was the reason why we were a little more cautious there. But again, there will be a strong quarter, but perhaps less strong than we would have expected in the beginning. On the other side, we will see better results, I think, in the wealth management area in the last quarter in the private clients business. And therefore, as you also said, the underlying profitability was quite good. One reason for this profitability, of course, was the banking sector. There you also see as an outcome, what I just mentioned, the inflows in this area. We have, in the first 9 months, more than EUR 1 billion net inflow in the private customer sector in the banking with obviously the best margins in the wealth management in the whole group. And therefore, this supports the banking business and in the risk -- the [indiscernible] risk sector. We were relatively cautious concerning risks last year. And therefore, the comparison last year to this year is that we are good provided in the risk sector already from last year onwards, and therefore, we had to do less this year. That was the reason why the risk figure in comparison to last year is quite good. And I hope, Henry, I have answered all your questions with that. Henry Wendisch: Yes. Just one follow-up on the banking. So does this imply that this elevated margin is going to stay there at these levels? Or do you see an effect coming back in Q4 maybe and also into 2026? Reinhard Loose: As always, it's depending a little bit on the development in the market. But for '25, now 13th of November, we don't expect declining margins in the banking sector [indiscernible]. Operator: The next question comes from Jochen Schmitt, Metzler. Jochen Schmitt: I have 3 questions, please. Firstly, what's your new expectation for performance fees for the full year? Secondly, excluding any exit costs, do you expect a negative EBIT from property development in Q4? And thirdly, the EBIT range of your new guidance, may that implicitly be read as sort of headroom for the Financial Consulting segment for which Q4 is seasonally the strongest quarter for full year EBIT, but which may be somewhat volatile. These are my questions. Reinhard Loose: Mr. Schmitt, the performance fee in our original plan, we expected a low double-digit figure for performance fee. I just reported that we have until now EUR 4.8 million performance fee for the first 9 months. I would expect something like a lower EUR 1 million number to add on this EUR 4.8 million, but we will be definitely somewhere between EUR 5 million and EUR 8 million, I would say, just to give some numbers there. On the property and the real estate sector, that's a good question. The question was if we expect a negative result in the last quarter in the real estate segment, I would altogether expect a negative figure there. Yes. And then the EBIT -- I think I lost the last question. Can you please repeat the last question again? Jochen Schmitt: Yes, sure. I mean you have implicitly left a range of EUR 10 million in your new outlook for the full year, but this also refers to the fourth quarter. And what may bring you to the lower or to the upper end? Is it finally the performance of the Financial Consulting segment? That's my question. Reinhard Loose: Obviously -- thanks. Obviously, the area of performance fee left leaves some volatility for the last quarter. We are quite happy with all the other segments at the moment. And therefore, let's say, to reach the upper area, I think we should see -- we have to see no negative or let's say, some positive effects, not perhaps positive result, but at least some positive effects in the real estate segment and some perhaps a little tailwind on performance fees that would help us to come to the upper area of this range. Operator: So at the moment, there seem to be no further questions. [Operator Instructions] So as there are no further questions at this point, I'd like to hand it back to you, Mr. Locher. Unknown Executive: Okay. So if there are no further questions, I would like to thank you for taking part in our conference call. And of course, you can reach us if any further questions arrive later. I wish you a good afternoon. Thank you, and goodbye.
Hannes Wittig: Good afternoon, and welcome to Deutsche Telekom's Third Quarter 2025 Conference Call. With me today are our CEO, Tim Hottges; and our CFO, Christian Illek. As usual, Tim will first go through his highlights for the year-to-date, followed by Christian, who will talk about the quarterly performance and our group financials in more detail, and then we have time for Q&A. Before I hand over to Tim, please pay attention to our usual disclaimer, which you'll find in the presentation. And please also note that this conference will be recorded and uploaded to the Internet. And now it's my pleasure to hand over to Tim. Timotheus Höttges: Thank you, Hannes, and welcome to our results call for the first 9 months. Amidst various headwinds, we continue to deliver consistent, reliable growth. As usual, I will start with the year-to-date view for the group before Christian will dive into the details of the quarter. In the first 9 months of 2025, we delivered 3.7% of organic service revenue growth, 4.4% organic EBITDA and 6.8% growth in free cash flow and 9.5% growth in adjusted earnings per share. With these results, we remain on track for the midterm targets of last year's Capital Market Day. Also today, we raised our guidance to reflect T-Mobile's guidance increase. Despite a weaker than usual quarter in Germany, we talked about that last time, we keep our full year DT ex U.S. guidance unchanged, thanks to the good developments in other areas. We made progress with our strategic agenda in the U.S. with our successful acquisitions in Germany with a record fiber build, new collaborations and Europe's first industrial AI cloud across the Atlantic with significant progress in AI-driven digitization and our disciplined financial execution was recognized by Moody's with a credit rating upgrade to A3. Last not least, the Board of Management is proposing a dividend increase of 11% to EUR 1 per share for 2025. In addition, we plan to buy back EUR 2 billion worth of our own shares in 2026 together amounting to a shareholder return of nearly EUR 7 billion. As you can see on the next page, all our segments are contributing to our EBITDA growth. T-Systems leads the table with 11.7% year-to-date EBITDA growth. DT ex U.S. grew by 2.9% in the first 9 months. Moving on to our networks, where we continue to extend our leadership. In the last 12 months, we passed 3.6 million additional European homes with FTTH. We now nearly reached 23 million homes, of which nearly 12 million is coming from Germany. In the U.S., our joint ventures are delivering as expected, and we now have 934,000 fiber customers. Our mobile networks are leading across the footprint, and we are confident to maintain this leadership in all our markets. Let me now dive a bit deeper into a German fiber plan. We made some encouraging progress this year. And I know this is a big question mark for you what we are doing here and how are we reacting on the developments. First, we passed a record numbers of homes year-to-date, plus 17%. We connected more homes than ever before, plus 9%. And we achieved this with lower total CapEx, resulting from fiber CapEx savings, minus 9%. We achieved the savings through a variety of measures, AI-powered digitization, I talked about that, process industrialization, more shallow digging and better purchasing. This slide here is to illustrate that our fiber build has become much more efficient. This is a very important building stone for our strategy going forward. Another important building stone going forward is the tax benefited grant, which the German government developed over their accelerated depreciation model. We plan to reinvest this benefit into higher CapEx and thereby step up our fiber build-out without any changes in our DT ex U.S. free cash flow outlook as stated at last year's Capital Markets Day. So what do I mean by stepping up? First, we maintain our 2.5 million homes passed run rate. That's very important. We will increase the share of rural homes and the SDUs in the mix. And further, we will accelerate at homes connected with regard to the MDUs. So we are changing the way how we are building out fiber in our German footprint according to the current developments which we are seeing and the adoption rates of these fibers. With our new fiber strategy, we plan to strengthen our German broadband performance in the medium to longer term, both in terms of value and in connected volumes. Based on the efficiency improvements, we have already seen and the tax relief granted us that we can deliver a more effective fiber build, increase our fiber CapEx in the coming years, while -- and this is very important, confirming our stated free cash flow outlook of EUR 3.6 billion in 2025 and EUR 3.7 billion to EUR 3.9 billion in '27. At last year's Capital Markets Day, we talked a lot about how AI is accelerating our digital transformation. Throughout the year, we have shown a lot of examples of our AI initiatives. On Page 8, you can see that we have made further progress on all initiatives this quarter. We are seeing multiple strong use cases delivering tangible results. And this across the whole value chain of our companies in all our markets. I'm just coming back from a 5-day trip to Israel, where I have worked with our partners, with our ecosystem down there, how we can integrate their initiatives into our further digitization efforts. And I can tell you the agent model is offering us big time new opportunities, which we haven't considered yet. At the Capital Markets Day for DT ex U.S., we estimated the financial benefits of around EUR 800 million in cost savings by 2027. Based on the progress already made, we are very confident in delivering this target and even see more potential, more upside here. Last week, we launched Europe's first industrial AI cloud together with NVIDIA with a combined investment of EUR 1 billion. This is Europe's largest AI factory to date, by the way, opening up in the first quarter next year already. We also remain in the running for one of Europe's planned AI gigafactories, and we should talk about that later in the Q&A. Our customer growth continues on both sides of the Atlantic. Our mobile customer growth remained very strong with another record quarter in the U.S. And in broadband, we had a steady performance in Europe, while we suffered another small customer loss in Germany. Moving on to ESG. Despite rising data usage, outside of the U.S., we were able to slightly lower our energy consumptions in the first 9 months. Our ESG commitment has been rewarded with various awards such as the NetFed Sustainability Award and the award for Corporate Engagement for our initiative against online hate. Let's now move on to our guidance update on the next page. Our guidance remains based on last year's average of a foreign exchange ratio of $1.08. And as always, in the sum of the guidance for DT ex U.S. and for T-Mobile US adjusted by the U.S. GAAP IFRS bridge. T-Mobile once more raised its guidance for customer and financial growth, and we are passing this on in the group guidance today. T-Mobile raised its '25 EBITDA guidance by $300 million at the midpoint and its free cash flow guidance by $100 million at the midpoint. T-Mobile's new guidance now also includes the expected contribution from the recently completed acquisition of Metronet and UScellular. Our 2025 DT ex U.S. EBITDA guidance remains unchanged at $15 billion EBITDA and $3.6 billion free cash flow. With that, let me now hand it over to Christian for a deeper dive into the third quarter. Christian Illek: Thanks, Tim, and hello, everyone. So as usual, I'm going to provide you with an overview on the segment performance in the third quarter and then present some selected group financials. And as usual, let's start with the U.S. who have reported their numbers already on October 23. And you know that those numbers include a 2-month contribution from UScellular. Still the numbers, I think, are really impressive. You've seen according to U.S. GAAP, a service revenue growth of 9.1%. If we're taking a look at the postpaid service revenues, they even grow at close to 12%, and this is coming from volume as well as ARPA growth and the core EBITDA grew at 5.6%. Where is this all coming from? Take a look at the growth numbers on customers, and I think they are record-breaking. The postpaid net additions were 2.3 million, which was significantly higher than the consensus, which was 1.6 million. The postpaid account growth was almost 400,000, which is the highest number ever. The postpaid phone net adds were 1 million, which was also 150,000 higher than consensus and the best quarter since 10 years. And finally, the broadband net adds, which also include fiber, grew at 560,000. So I think what you've seen is a stunning customer result in the third quarter. The churn rate actually grew slightly vis-a-vis the previous years. But bear in mind, it was the lowest one among the 3 MNOs, which we have in the U.S. And the ARPA is now expected to grow at 2% vis-a-vis 1.5% in the previous quarter. So based on these very strong results, T-Mobile once again raised its net add customer guidance. They now intend to get to 7.2 million to 7.4 million postpaid net adds, which is up more than 1 million at the midpoint relative to the last guidance. And the phone net add guidance has been increased to 3.3 million, which is also up by roughly 300,000 at the midpoint. So a very, very strong third quarter. And now we're getting to Germany, a segment where we have to report some different figures, I would say. So if you take a look at the Q3 financials, you see there were impacted by prior year comps, but also by our cost phasing. And I indicated this already in the Q2 call that we have the double whammy coming from the wage increase, which obviously hit the EBITDA growth. So if you take a look at the headline growth in Germany, it's actually declined by 1.8%. And there are 2 factors which are responsible for this. In '24, you had the one-off revenues from the European Championships TV rights. And secondly, we have another, I would say, lower revenue contribution from third-party equipment sales, which are all low margin. We're taking a look at the EBITDA growth, which is slightly above 0. You can say it's stable and it's the lowest since many, many years. This is coming from a very low contribution from service revenue where we're getting into and the double whammy from the wage cost headwinds. You know that we increased the first wage increase in October '24. And then we had the EUR 190 one-off payment starting from August, and they both collapsed together in the third quarter, impacting the EBITDA quite significantly. Both of those quarters, the service revenues, especially the comp factor, but also the wage increases will roll over in the fourth quarter. So for the fourth quarter, we expect an EBITDA growth of above 2%, of at least 2%, above 2%, 2% to 2.5% of -- it's definitely above 2% to reiterate this for this community. Also, if we basically fast forward into 2026, bear in mind that we're not only facing headwinds from the wage cost increases, which are rolling over. We're also facing headwinds from the higher energy costs in '25. Both of them will obviously roll over in the next year and will help to support a better EBITDA result than the '25 EBITDA result. On top, we have launched an additional cost savings program, which is targeting only non-personnel costs, which will also support the EBITDA growth in Germany in the year '26. Let's move over to service revenues. And you see it on the right-hand side, the service revenue growth in the third quarter '25 was really low at 0.4%. It was all driven or largely driven by the negative contribution from the fixed line business. And there are 2 major explanations for this. One is the comp from Q3 '24, which was largely driven by B2B business. You see that we have a very strong growth in the third quarter of the previous years. That obviously has an impact on the year-on-year growth for this year. And the second one is we have to actually acknowledge that the German economy is weak right now. And we're seeing this in the number of insolvencies in the German market. So I think this is also something which is impacting us in a negative way. Secondly, the service revenue is impacted by the lower volume trends, which we're seeing in broadband, but also in wholesale. And this basically collapses to that negative growth in fixed line of negative 0.3% in this previous quarter in Q3. For Q4, we have a pretty high confidence that we're going to have a meaningful trend improvement. And for mobile service revenues, we absolutely remain consistent with the guidance which we have given, which is 2% to 2.5%. Let's move over to the broadband revenues. And you see that the retail broadband revenues obviously have come down. Also, the wholesale revenues have come down, and this is pretty much driven by negative volume impacts. What you see is that the ARPA-up strategy, so the more-for-more strategy is working. The ARPA growth in the consumer space grew by 3.6% in the previous quarter. So upselling is working and has to contribute a large part of the broadband growth. Despite the volume pressure, you see us discipline on pricing. We maintain our promotional period at 3 months. You know that we have taken this down since April. It was coming from 6 months. We have increased front book prices for single play between EUR 2.5 to EUR 3 a month. We also, in October, have increased the broadband front book prices by EUR 1. So we are playing the value game. We're playing the long game. We're not fighting for every incremental volume, and we hope that the market will stabilize in that sense. On wholesale revenues, what you can see is there's a significant step down relative to the previous quarters. We are basically flat as we guided it to be at the Capital Markets Day, but we do not expect any significant deterioration in the upcoming quarter. Let's move over to the fixed line KPIs. And you see that the monetization works upper right-hand side, 54% of our customer base on our customers with at least 100 megabits per second. And you see this continuous trend happening since quite a bit. And what you also see is that we're still not mitigating the negative broadband net adds. We're remaining at that 20% to 25% trend. And to be honest, we don't expect a significant improvement short term despite the fact that we're working on quite a significant amount of measures, which is digital retention management, extension of our distribution and more localized pricing. But what is important is obviously, since the market is slowing down and since we are facing ongoing pressures from the overbuilder that we have readjusted our build-out strategy on fiber. We're not only spending more on fiber. We're shifting the mix towards more rural areas and SDUs because we know that the connection rate is coming in much faster than it is with the MDUs. And we're stepping up the initial connections of MDUs. Even if we don't have a customer, at least a home is prepared and we have a connection there so that we can actually act on customer demand fast. So -- and you see that -- and I think that is kind of for me the bright spot in the quarterly numbers on the customer numbers that the fiber strategy is working off. We added another 155,000 fiber customers. This is the best quarter which we ever had. That remains the key focus area, and you know that we have given a commitment for '27 to add 1 million fiber customers over the course of the full year. Let's move over to the mobile commercials. And you see we're back as we indicated in the last call, we know that we have elevated competition quite a bit, but our commercials actually remain strong. You know that in the second quarter, we lost a very large customers. We said we will return back to the, let's say, usual run rate, which is somewhere in between EUR 250 million to EUR 330 million. And you see us now coming in at EUR 314 million. And this is also driven by a lower churn rate, which has been reduced from 0.9% to 0.8%. So that is pretty much it on Germany. So not a very good result on Q3, but a much better outlook for the fourth quarter. Let's move over to Europe. Europe has provided another excellent quarter, 31 quarters with consistent EBITDA growth. If we just take a look on an organic perspective, which is the lower part of the chart, you see that overall revenues grew by 2.2%, service revenues by 3.3%, and EBITDA has grown by 4.6%. You see that there is a sequential slowdown in the EBITDA growth, and this is obviously coming from the progressive rollover of inflation-driven price increases in some of the European markets. Moving over to the commercials in Europe. I think what you see is overall very good results across all categories. I think one has to highlight that the mobile net add is actually being impacted by negative cleanup ahead of the Romanian disposal of 60,000. If you would basically exclude this, there would be close to 190,000 of customer growth in the mobile space. And you see also steady and strong performance in broadband and TV and in fixed mobile convergence. Moving over to T-Systems. And T-Systems continues to be on a positive track. I'm really happy with the performance of T-Systems. Last 12 months order book is up close to 4%. The organic revenue is up by 3%. It's the middle column. If you take a look where it's coming from, T-Systems is actually benefiting from the AI-driven digital solutions, and we're talking quite a bit about AI, but also from the sovereign cloud services, which we're providing that supported this growth. And they had a very stunning organic revenue growth of close to 23% in the previous quarter in Q3, gets us to a year-to-date EBITDA growth of close to 12%. And this is coming not only from top line growth, but also from cost efficiencies. But bear in mind, this is a project-driven business. So there's quite a bit of volatility in there. But I'm completely confident that they're going to make and beat their commitments they have given at the Capital Markets Day. So that basically concludes my operational review, and we are moving over to the reported financials. I think, first and foremost, I think we have to acknowledge that we're negatively impacted by a weaker dollar. Last year, the dollar was at $1.10. This year, it's at $1.17. So it's a depreciation of $0.07. That impacts the reported figures. It's partly mitigated by the contribution from T-Mobile's M&A activities. And you see also that there is some phasing. But bottom line, I don't want to go through all the details here. I would say we're broadly on track with all of the targets. and you're going to see us confirming the CMD targets later on as well. Moving over to the usual Q-over-Q annual comparison of free cash flow and net profit, and I'll keep it short. You see there's a reduction of 9% in the free cash flow. This is very much driven by 2 factors. One is the weaker dollar, which impacts us with negative EUR 500 million and a stronger CapEx volume. And you know that we, in the previous quarters, have reported kind of CapEx, which was below the average what you would expect in a given quarter, and there is a catch-up, which you can see here. And if you take a look at the year-to-date numbers, they grew at close to 7%. So this is very much in line with the increased free cash flow guidance Tim was talking about earlier on. Same holds true for the adjusted net profit. It grew by 14%, but very much driven by the financial result and despite a headwind from a weaker dollar. Moving to the next page, which is leverage. So the overall, the leverage has increased by EUR 5 billion. Everything was driven and more than driven by M&A activities, which was obviously UScellular and Metronet. And you see the impact of EUR 8 billion. Nothing of the other contributions to the net debt are a surprise. You see us moving within the corridor, which we indicated, we're below 2.75, including leases. Excluding leases, we are 2.23, sorry for that. And I think that also led to the decision of Moody's to basically give us an upgrade in our rating. So I can only encourage the other rating agencies to take a closer look at our balance sheet and our financial discipline. So finally, on the last page, the key takeaways, we're confirming our midterm adjusted EPS target, which is around EUR 2.5 by the end of '27. Tim was talking about the consistent reliable growth despite some headwinds which we are seeing in Germany. But other than that, I think all the other segments are performing well. We have confirmed our targets which we have given ourselves in the ex U.S. business, and we have increased the guidance in the U.S. business, and we confirm our midterm CMD guidance. The flywheel works. We're working on our -- expanding our network leadership on both sides of the Atlantic. That drives customer growth as we've talked about this. And we have a massive initiative running on AI in order to not only drive efficiency but also top line growth. So I think this is something where you basically should remind us on every quarterly call, this is kind of what we call a drumbeat when it comes to AI. We are reinvesting, and we weren't clear about this in the last quarterly call, we are reinvesting the German tax relief into CapEx and into adjusted fiber rollout strategies. We remain comfortable with our comfort zone in the leverage. And obviously, I think we have proposed an attractive shareholder remuneration package with an 11% dividend increase to EUR 1 and an up to EUR 2 billion share buyback program for the upcoming year. With that, I hand it over to Hannes. Hannes Wittig: Okay. And now we can start with the Q&A part. [Operator Instructions] I think we start with Andrew Lee at Goldman Sachs. Andrew Lee: I had 2 questions. Two questions, one on capital allocation and one on the U.S. Just in terms of the capital allocation, you're obviously giving an 11% dividend growth guide for 2026. So I don't want to mean that and reloading on the EUR 2 billion buyback. But if we look at what that leaves -- where that leaves you in terms of your net debt to EBITDA for next year, even if we take out the positive effects on -- or the reductive effects of FX on net debt, you seem to be leaving yourself with more balance sheet flexibility into 2026 than you did a year ago. Could you just take us through why is that? What is the strategic flexibility that you need into 2026 that's maybe a greater pull on your balance sheet than last year and where that's coming from? And then just secondly, on the U.S., clearly, that's been, along with Germany, a kind of major source of concern in terms of the sustainability of growth from investors. And that seems to have narrowed down into a major concern around your Verizon competitive intensity. The question is just pretty broad and straightforward. What's your take on the degree of change that we've seen in terms of imminent competitive threat in the U.S. market and risk to your to derailing the TMUS growth story? Christian Illek: So let me start with the capital allocation question. Andrew, we actually have a slightly different view. If the weaker dollar is rolling over, so to give you the calculation right now on the leverage ratio, the EBITDA is calculated at 1.13 and the debt is calculated at 1.17. If you basically adjust both of them for the same rate, which will happen over time, we are 2.72. This is one. Second is, look, there's always projects coming up, which you don't know. And so for example, take a look at the Gigafactory, which we didn't have on the radar screen. And therefore, I want to have some flexibility. Thirdly, I think if you take a look at the shareholder remuneration program, which we have articulated yesterday, it's an 11% dividend increase. It's the highest dividend ever in the history of this company. And the EUR 2 billion share buybacks, if you assume that the EPS is around over the next 24 months at [ EUR 2.25 ], [ EUR 2.30 ], gets you an 8% yield on that share buyback program. But we feel comfortable with the volume, and we don't want to, let's say, be super volatile on this one. We want to be consistent. So it's a combination of, first of all, we're not as optimistic on the leverage ratio as your calculation is. Second one, it's prudent. And thirdly, I think it's still an attractive program. Look, we are basically distributing EUR 6.8 billion next year, which is quite a significant number, at least from our point of view. Andrew Lee: Just a quick follow-up on that, Christian. So the TMUS buyback is done, decisions are made on a seemingly quarterly basis. The DT buyback decision is currently on an annual basis. Can you see a time where that's made more flexibly, i.e., on a half yearly basis or quarterly? Or do you still expect to announce buybacks on an annual basis? Christian Illek: Both are being decided on an annual basis, but the programs are more flexible in the U.S. So we can course correct on the program. So for example, you know that we stopped the share buyback in the U.S. for quite a bit because we had a leadership change. And therefore, we have adjusted the share buyback program now for the remainder of the year. So the U.S. has more flexibility because we always have this freeze period or this grace period of 90 days. So we have to file 90 days before we actually can execute. So we have less flexibility on the ex U.S. side. but both programs are being decided on an annual basis. Timotheus Höttges: Andrew, I do not want to tell you a fairy tale in investor call, but it's a little bit, let's say, the second question like the hedgehog and the rabbit. And if you look back, the U.S. market has always been very competitive. It is recently very much focusing on device promotions, and that is, let's say, where it's going. And we were a share taker in this environment over the next. Now what we seen this quarter, it was that we were attracting more customers to us, and we had lower churn than before, which is resulting in a much better performance. We did that at the same time with a significant increase on our EBITDA growth with 6%, so which is giving us the opportunity to invest into the infrastructure and our network leadership has improved as well. Now it is not only about, let's say, subsidization or the money which you put into the market. It has a lot to do about, let's say, how good you are perceived from a brand, how good your network is improving compared to the others. It is about, let's say, how you enter into the smaller markets or the rural areas, how you're attracting business customers or even the broadband customer numbers is quite encouraging. We will probably see 1 million next quarter already. So this is all, let's say, growth, which is not coming only from price competition, but as well from quality and investments which we have taken before. Now coming back to the hedgehoc, I think we have heard about, let's say, the new announcement from Dan Schulman, which I know for years about what he is doing. And he has laid out his plans about that Verizon's ambition is to win back shares and moving away reasons to churn and focusing on customer centricity to grow his cash flow and his leadership over the next years. Now this sounds very reasonable to me. But the hedgehog is on a path already. So he is already running in another direction. So I think they are all well at this point. But I think what Srini and what the team is doing is this way of finding a new digital customer experience the way of serving customers in a new kind of Un-carrier way. This way of surprising customers with new propositions, this is what we are about. It's not about, let's say, that this is wrong what these guys are announcing. But customers are looking on other things as well and what is new with their brands. And I can tell you, I'm very encouraged about -- for instance, the efforts with regard to digitization. It's an outstanding achievement that 80% of the upgrades are done digitally within 1 year. So it shows to me even that the skills are within this company to reinvent the way how they're performing. They have cost potentials which they can reinvest. We have a super network leadership, which we have strengthened these days. All of this is coming together. So we are used to competitive environments. I don't think it's only about money. It has a lot to do with propositions which we have played out very well in the last years. And we stay -- remain focused on a thoughtful balance of commercial and financial growth in the U.S. market. Hannes Wittig: Okay. Thanks, Andrew. Thanks, Tim, and Christian. And move on to Ottavio at Bernstein, please. Ottavio Adorisio: Two questions. The first is on the domestic business. You highlighted the good performance on the ARPA. The 3.7% is welcome because that's compensated for your negative net adds. Today, you're somewhat guiding for a continuation of negative net adds, and therefore, the ARPU increase will be very crucial going forward. During the call, you attributed the main drivers to the upselling, not just the price increases. So your upselling will be very key for your growth. So my question is, how fast you can increase that upselling because it's still running significantly lower than you project for 2027 for around 1 million. You go into rural. So the question is there, how much the increase because you said that rural would be a better take-up rates. So someone would expect that the overall take-up of fiber vis-a-vis the overall base will increase. So that should be good for ARPA. And also you can update on the plans by the German Digital Ministry to weaken the landlord ability to stop in-house fiber rollout. Last quarter, you were very vocal. And I don't know if it's still a discussion or any decisions been made because that I think will be crucial for you to improve the upselling and therefore, of course, to improve the ARPA trends going forward. The second question, it's going back to the capital allocation strategy. But this time, I would like to do a bit more with numbers. You -- in the CMD, you're talking about a precise number, the EUR 15 billion surplus. I follow the logic. And at that time, you basically were thinking of unchanged gearing. And Christian, you've been very clear on the fact that 2.64 is misleading because you have to put the debt and the EBITDA on the same currency. That's fine. So if you do, you ended up effectively around the same gearing that you expect to go, 2.75. So therefore, last year, you allocated around EUR 4 billion for additional shares into TMUS and the EUR 2 billion buyback of last year was already included. So the additional EUR 2 billion that you announced today will be against the surplus. So effectively, you used up around EUR 6 billion roughly or EUR 6.5 billion of the surplus. So my question is, there is still around EUR 8 billion left there. Now is the intention to see TMUS share price relatively low for you to go for more shares in TMUS rather than the buyback considering for last year? Or it's still undecided what are you going to do next? Christian Illek: Ottavio, complex questions, to be honest. So first of all, on the ARPA increase, I think if you basically go back into the previous quarterly reviews, you basically see a linear increase of customers adding faster lines. So obviously, we're working on better monetization, especially when it comes to fiber because as we're moving into SDUs, obviously, we can monetize that fiber much faster also if we connect on the MDUs, that should give a contribution. The second one is obviously related to the price increases, which have recently been introduced, right? So you don't see any impacts on them right now. And obviously, we expect a net-net positive effect, which will drive also the revenue. And on the volume trends, look, I'm a finance guy. I'm a little bit conservative, let me put it this way. As long as I don't have line of sight, I don't want to promise you anything other than what you've seen in the previous quarters. And therefore, we don't predict anything as long as we have good evidence that the volume trend is actually moving in the right direction. And it's not too far away, to be honest, right? Just -- let's assume it's 15,000 more, then you're getting closer to the 3%. Right now, I think the 3% to 4% broadband growth is not being achieved right now. But I think on a CAGR basis, we have no indication or at least we believe this is still an achievable target. So this is the combination on how things are evolving. I don't know whether our signals to the markets like on single play on broadband will be received by others in -- let me put it this way, in the right manner. So that could help to basically go for a little bit of market repair. We will see whether it's going to happen. But that is kind of the basis we're working on. And the biggest lever for us is churn management, right? If we get the churn management on our broadband base, just a notch down, that will immediately turn quite a bit on the volume. So this is kind of the equation. I can't give you a mathematical equation, but this is the equation on the levers we're working on. Timotheus Höttges: Look, let me add update on the plans with German Digital Ministry. Yes, it is -- and I was, by the way, not vocal last week. I was vocal this morning already again in the press. It cannot be that we are paying the bill of building a fiber network, not only on the Level 4, but even -- sorry, Level 3, but even Level 4 in the houses. That we pay tons of money for connecting the country into the next-generation infrastructure and that then the landlords are sitting there and asking for a revenue share or asking for an installation fee for the apartments. If Germany really wants to get digitized, they have to support the environment. And by the way, the German Digital Ministry is already on our side. He had put a paper [indiscernible] into the discussion, which is clearly enabling and accelerating the build-out in the multi-dwelling units, which is the main part of it. So to be honest, I cannot tell you when they're coming to decision. I have the feeling that the German government is under a lot of pressure and taking a lot of decisions every single day. Next week, on Tuesday, there is the digitization Summit with Chancellor Scholz and with Macron and a lot of, let's say, other players. I promise you, I will address this topic there again. And I have the feeling that there is a big understanding. The problem here is that Vodafone is trying to defend their position in the houses with their coax, which is nothing else than copper, and this is not fiber. But I think more and more people tend to understand that, that they are not investing into the next-generation fiber, that they're just trying to defend their position here. And I make sure that we will, by the way, with the other fiber investors in Germany fight for this initiatives. Let me make a general comment at the end because Christian laid it out. Guys, since the last quarter, 3 months, we have worked intensively, intensively on reshaping the way what we are doing with the fiber rollout. And we have laid it out in the presentation today that the CapEx per connection has gone down. We expect further reductions being possible. Second, that we are now changing the rollout areas. Thirdly, that we are building more fiber, multi-dwelling units, homes connected and more homes connected with regards to the SDUs, so in the rural areas and single households because we see here a higher acceptance rates. Thirdly, to stop that the altnets are eating our cake. Fourthly, we have a total new go-to-market with regard to additionally to the ranges, we have now enabled our sales organization, our retail organization to meet people at their homes. Fourthly, we have allocated additional people to this one. On top of that, we have a new churn program, as Christian laid it out, and so on and so on. So we were very unhappy and we are unhappy with negative net adds. This is not acceptable. And therefore, I can promise you that there is a big program up and running within the financial commitments which we have given to improve the situation here in Germany. Christian Illek: So on the capital allocation, let me try to answer that question, at least partly. So first of all, we want to keep the flexibility. So if you take a look what I said earlier on, the share buyback program, which we decided or which we consulted with the Supervisory Board and obviously then decided on later, as a Board, will give us an 8% return, which is obviously a pretty good return relative to other means. Secondly, what we have not decided yet, we want to keep that flexibility for good reasons on whether we should basically continue with the share buyback program beyond the EUR 2 billion we have just announced or basically put everything into the T-Mobile US shareholding. Look, none of us in the summertime would have estimated that the share is going down to $203, right? None of us. So I think this flexibility is prudent to have and obviously, it has to be taken into account for. And the third one is, if you take a look at the current run rate, we indicated 4% to 6% EBITDA growth, we're around [ 4.4% ]. So we're not at the midpoint. So that -- obviously, that surplus is also coming down. And therefore, we take it -- let me put it this way, 1 year for another and explain why we're doing what we're doing instead of giving you a midterm outlook, what we're planning to do with the surplus. Hannes Wittig: Thanks, Christian. Thanks, Tim. And next, we move, I think, to Robert Grindle at Deutsche Bank. Robert Grindle: Sorry, no video, it's usual WebEx versus the issue here. Two questions on the increased attention to fiber in rural areas and stopping the altnets, eating your cake as you say, Tim. Are you thinking more greenfield sites here or looking to defend in areas already under threat from the competitor build? And secondly, you acquired a call option over 10 million TMUS shares owned by SoftBank last month. Is there an ongoing cost to that? Have you thought about buying out the residual stake? Hannes Wittig: It's both, is the answer. There is greenfield. I mean, basically, we're looking at areas which are most likely to be overbuilt and then we build there. That's kind of a big part of this change in mix. And if it involves overbuild of an existing plant where we feel that we have an attractive interest business case, then it will involve overbuild. Timotheus Höttges: With regards to the SoftBank question, at the beginning of October, SoftBank granted DT 10 million call options in TMUS that can be exercised at market price until -- and now listen April 2029. This is a very, very long-term option. And you know that we have a very good partnership with these guys, which has worked even without buying them out. So there is no read across to our target TMUS stake. What I can tell you, this is more a sign of the partnership, which we have built for a much longer-lasting relationship. So that said, as stated at the Capital Markets Day, TMUS stake increased remain one of the preferred uses of any surplus capital alongside M&A and DT level share buybacks. And therefore, there's nothing to say. The only thing is I think there's no need to make any kind of short-term speculation on activities here. Operator: Great. And with that, I think we move to Paul Sidney at Berenberg. Paul Sidney: I had 2. Firstly, we've seen more and more European telcos announcing their AI initiatives, talking about data centers, et cetera, yourselves, you're partnering with NVIDIA going live in Q1 next year. So I was just wondering, is it possible to put some numbers around this opportunity? I'm not looking for specifics, but just in terms of what the opportunity could be for Deutsche and perhaps the industry? And then secondly, you're one of the last European telcos to report. And on our calculation, European service revenue growth has worsened versus Q2. I was just wondering, what do you think yourselves and your peers need to do in Germany and the rest of Europe to maintain healthy service revenue growth and keep it in positive territory. We talk about value over volume playing a value game, prices are going up. But a lot of this stuff just doesn't really seem to stick. And I just wonder, it would be great to get your views on what you think the industry needs to do or change. Christian Illek: Okay. So I think, first of all, there is no single answer for each country. I think you have to take each country, country by country. And let me start with the largest one. Look, the indication, Paul, which we have given to the market is we would appreciate market repair in broadband, right? And we're doing this both on single play, where obviously, we don't have a lot of competition, to be honest. But also in broadband, and we have to see whether actually the other guys are following this direction, yes or no. We don't know. We cannot influence this. But I think in a slow growth market like the broadband market in Germany, that is the only way that you either upsell or that you have market repair on the overall market. And I think as the market growth rates, especially in broadband are coming down, it's not true for every Eastern European market, by the way. I think I would clearly favor value over volume. In mobile, it's a different answer. You've seen the net adds from our 2 competitors, negative 1 and plus [ 157 ]. Our segmentation is working, the conjunction of B2B vis-a-vis B2C and the separation between, let's say, single households, which are predominantly addressed by Congstar and family plans, which are predominantly addressed by the first brand, it's working out just fine. And this is why we're growing where the others are not growing. So therefore, I think we don't see any necessity right now to basically change that proven model, especially given the fact that we have our network optimization program, Nemo, which gives us the capacity to actually fuel those future demands. So I think you have to answer this country by country. And to be honest, I wouldn't be in the position to give you an answer in every European country. But overall, I think it's only working if the market, let's say, environment is also reacting in a rational manner. Because what you're seeing in many markets is that GDP growth is much faster than, for example, mobile service revenue growth. And I think that shouldn't be -- given the importance of that service, which we're providing, that shouldn't be the case. So we have to work on and especially market leaders have to work on repairing the market and actually getting the right value from the service. And then it's all about value-added services, especially in the B2B space, right? It's, for example, adding security on top. Security is a massive issue across the Board, especially for smaller companies because they don't have the capabilities to basically have an own staff, which is dealing with that security by adding IoT services on top, where we're seeing quite a significant volume impact here. So these are the things where I would say in our core business, I was just talking about mobile and fixed, how you basically put additional and adjacent services on top. Tim? Timotheus Höttges: I'd like to address your AI question. Look, by the way, the first one is you mentioned that telcos are going into AI on Giga in AI initiatives. Yes, that's true. But then you mentioned NVIDIA as an example, which is data center capabilities. In this case, I would say no, because Deutsche Telekom is the trailblazer here in this industry. I don't know whether others are following, but we are the early mover in this environment. There's not a single other telco who had made a commitment or partnership with NVIDIA committing 10,000 GPUs being available from first quarter 2026 for the industries here in Europe already. So let me talk about the AI Gigafactory for the first step. I think this is where we are unique. Maybe Telecom Italia is a little bit comparable here because they have this governmental commitment that all the data is moving into their inference centers, data center infrastructure. But no GPUs so far as I know it. We have now the partnership with NVIDIA, where we started with 10,000 GPUs. And I think Jensen and NVIDIA selected it very wisely because they are going to the industrial core of Europe, which sits in Germany. They're going to us and with us with the biggest market access to business customers. We can offer a sovereign solution, network infrastructures, the [indiscernible] 400 giga -- connectivity coming from us. The data center infrastructure is something which we know already because we are running 186 data centers across the globe. I'll go into that in a second again. The sovereign cloud, which we are offering already is now almost a decade in the market. So well known to a lot of, let's say, classified services. Our partnership with SAP on the BTP side is enabling the customers with their applications to go into this ecosystem. And NVIDIA is providing their latest Maxwell chips into this industrial environment in Germany. So I think this is a great opportunity now for us to see how the Industry 4.0 is becoming real in automation and digitization here. For us, this is a kind of good learning case. for the next step, which is the AI Gigafactory. Together with our partner, Brookfield, we have submitted a consortium bid for this Europe's planned AI Gigafactories. The size of the location is expected to be around 100,000 GPUs. We expect any investments here together with them off balance. But nevertheless, the distribution and the go-to-market will be facilitated by our T-Systems arm. So therefore, this is a big opportunity for us even to participate in this new high compute and digital ecosystem. We call it physical AI or we call it, let's say, participating in this environment of robots and the Industry 2.0, however you want to call it. Look, we do that step by step. We do that with strong partners. So it's not that we are going alone here and in a big risk. And this is a big opportunity. Now you can judge what you get for 10,000 GPUs on the market price today for revenues that would give you an indication about how much money we earn with that. We have a deal with NVIDIA that almost 50% is getting invested from them, 50% from us, and we have a revenue share model established so that we are cautious with regard to all the upfront investments here. But I think this is a unique proposition, which gives us as well credibility for the second step, which is the Gigafactory. On top of that, by the way, Maincubes, and sometimes we always forget that, Maincubes is with over 200 megawatts of capacity in operations or in development in Frankfurt, in Berlin. And GreenScale, it's another subsidiary of Deutsche Telekom and is with 170-megawatt project in Ireland and a 300-megawatt project in Norway on its way. So it's -- this is something where I think Deutsche Telekom is building on their infrastructure experience, something new where we have a lot of, let's say, competencies already scaling it up. And we only scale with commitments from customers. That's the good thing in this industry. It's not that we have to build a mobile network first, and then we will see whether we get customers. So we will learn on the run. So I think, yes, that's an opportunity for T-Systems business. Yes, we want to do that as cash cautious and CapEx cautious as well for our business frontline. And -- but nevertheless, we want to -- under the frame of building sovereignty for Germany, we want to scale that here in our industrial environment. Hannes Wittig: Thanks, Tim. To be clear, Maincubes and GreenScale are held through DTCP, right? And thanks for the questions. And we move on with James at New Street, please. James Ratzer: So actually, the first question I'd like to ask is to follow on precisely, Tim, from what you're actually just talking about that. I'm excited to learn more about the kind of NVIDIA project because the financial analyst would like to just go a bit further on the numbers from what you said just now. So I think the initial project with NVIDIA, you said it's about EUR 1 billion, of which maybe now Deutsche Telekom is going to be putting in 50% of that. But you said you could scale up with Brookfield now to 100,000 GPUs. Could we take that as saying that if that's successful, that becomes a EUR 5 billion investment we see from Deutsche Telekom? I would therefore love to just also understand a little bit more about some of the specifics about how you see the return on capital on that project. And then the second question I had, maybe one for Christian. But Christian, in one of your answers earlier, you seem to link the EUR 15 billion of surplus capital that could be used to the EBITDA growth of 4% to 6% range. So I suppose the question is, if actually EBITDA ends up being at the lower end of that range of 4% growth, what does that imply for the EUR 15 billion of surplus capital? And is there actually a commitment that all that money would be spent somehow by the end of 2027? Christian Illek: Do you want to start? Timotheus Höttges: Look -- by the way, I'd like to start with the first question. Again, these are 2 separate projects. The first project is 10,000 GPUs. It's going to be a data center being based in Munich. It is using an existing facility, which we have renovated. It's 3, 4 floors under the city. It is using 100% renewable energy and cooling from water, which is available. This 10,000 GPUs is something which we have in our planning, in our financial envelope, which we have laid out. No additional funding or concerns which you should have with regard to the envelope which we have laid out. The -- this project is now the first step. And that is, by the way, 100% on balance because this is a project which we run out of the system. The project #2 is the planning and the preparation for the AI Gigafactory, which is a European RFQ for 6 data centers across Europe, where the EU is committing to a certain utilization of their public domain data on this -- in this environment. In this case, we are planning an off-balance solution. In this case, we are not planning automatically, let's say, a high ownership on the infrastructure investments because we have said that we are going to take Brookfield as a partner into this ecosystem who is taking, let's say, a significant portion of the investments. We might even consider other partners who are building this infrastructure. It is too early to give you now the financial construction about how that is taking place, but the infrastructure will be built off balance. And it will be supported with public sector money or utilization, which is helping that. We are now in the selection of the real estate. We are in selection of where we are building it. We are in the selection about how this consortia would look like. There's an application, which is taking place in January. Then there is the decision from theEuropean Commission who is taking the offer. And then we will see whether we are successful or not. Until then, we will decide on -- the financials is something which we then have to release at a later stage, but not -- it's too early now. Let's focus on the Munich side first then. Christian Illek: So James, without declaring the detailed numbers, what is our planning assumption. Obviously, you can assume that we haven't built on the low end nor on the upper end on the EBITDA corridor. But there are several factors which are basically impacting the surplus. The second one is obviously our adjusted EPS because that impacts our dividends and the adjusted EPS is very much driven and impacted by the U.S. dollar. At the time where we have given the Capital Markets Day, we said we don't see any auction in the U.S. in the foreseeable future after the One beautiful Bill Act. Obviously, there will be spectrum made available in the U.S. You see there's quite a bit of activity also on the satellite side from SpaceX. So these were things which can also be used for that surplus. So -- and in that given chart, which I presented, I said it's predominantly meant to be used for either share increases or buybacks on the DT side -- share increase on the U.S. side or buybacks on the DT side, but we also want to have strategic flexibility in terms of assumptions are changing. And especially when it comes to U.S. spectrum, I think I would say we don't see a spectrum auction up until end of '27, I would be less optimistic that this is going to happen given what we know right now. So therefore, this is how we want to use the surplus, and this is why we are wake in how we want to use the proceeds. Hannes Wittig: Thanks, Christian. And with that, we move on to Polo at UBS, please. Polo Tang: I've got 2 questions. The first question is Rodrigo Diehl has taken over as CEO of Germany. But can you comment on how the strategy for the German unit is evolving? And what are Rodrigo's priorities? You've obviously already flagged a change in terms of the German fiber strategy, but what else is changing in the German unit? Second question is actually just on Starlink. So investors have had a number of questions on how Starlink will impact both broadband and the mobile markets in both Europe and the U.S. So I'm just interested in your perspective. Do you see Starlink as complementary? Or do you expect Starlink to take share? Timotheus Höttges: Look, I'd like to start with Rodrigo. And I told you that we're going to see a reinnovation of our team within Deutsche Telekom over the next years, and that is taking up here. And I have to say I'm very, very happy how the first weeks with the new team is. Being at Srini now in the U.S. with all his experience and his track record in Europe and Germany, plus his insights into fiber, being at Rodrigo now in Germany, taking over the lead. He's, by the way, hiring a new B2C head, who is there, the former Congstar manager, which we have seen. And then we have Abdu, who is the new CTO in the group, another young man with a lot of experience running or being in charge for the infrastructure and the network before. And we have a new CIO in the group, KD, who is coming from India with all his experience about using AI for software development and accelerating this business. There are a lot of people who are now trying to build their own legacy, and that is definitely something which is very encouraging. What we have talked or discussed today about the new direction with regard to fiber is definitely Rodrigo's work. He has intensively spent the first weeks on looking what is working, what's not working, how can we improve the homes connected, how can we improve the take-up rates on the numbers. I do not want to repeat all the initiatives which we are driving here these days. So that was, I think, a tough start for him. He's as well focusing on B2B and the capabilities of stepping up in new services beyond connectivity because traditionally, this market is somewhat competitive on the pricing side on the connectivity. And the third thing is he's very much focusing on culture in the organization. So the way of becoming more uncorporate, this element about becoming more collaborative across the teams. And the third one, digitizing the efforts, digitizing the organization, using AI, modernizing the way of how we're doing things, learning from the U.S., by the way, in this regard. This is something which he's driving actively at that point in time. So I think these are already 4 big initiatives, which is on. So we will bring him up into one of the investors call next year to get to know him, but I gave him some relief to work first on the operations and on his team before he's coming here and committing. But what you see, what we are announcing today is already his work. With regard to Starlink, to be honest, we can now highly speculate about what's going on there and what is Starlink doing and where is he going to. The first thing what I want to say is that Starlink -- and for us, very much relevant is the direct-to-sell connectivity. And this is definitely a very attractive complement to our wireless service. Because in the U.S., in large parts of the country, there are no mobile infrastructure, there are no emergency calls possible. And for this service, Starlink entirely makes sense. That is why we made that deal and why we're collaborating with them on the Gen 1. They are using our spectrum in this regard. So that is then possible that you have an immediate connectivity in these areas. I think that's very important to know that this has to play on the same bands as the bands which you're having in the phone. Otherwise, you have a very complicated switch and a complete registration service. The second is Starlink has now stepped up by buying Dish EchoStar spectrum. So for Gen 2, my understanding is this will not be deployed before '28, '29 with new satellites. With this, they might have a different position to play because they have more spectrum. But we should not forget that satellite providers are fighting with some technical issues as well. The first one is that there are limitations with regard to the capacity. Look, we have today 350 megahertz of spectrum, while these guys are coming with 40, 50 megahertz of spectrum. Second, they have latency issues. Thirdly, they have disruption caused by weather or line of sight issues compared to the networks. And in the cities where you have this dense traffic, it's very hard to substitute our services. So I see that as a very logical adjacency for telecommunication operators. We are very interested to further collaborate with Starlink as we did in the past. In Europe, the situation is -- and by the way, whatever we are talking about is very much U.S. because the spectrum which he has now is very much American spectrum. It's less of really globally used spectrum. The one which globally is available from EchoStar is for renewal in 2027, at least for a lot of European markets. So there are regulatory discussions coming up. With regard to the rest, European, I think the homes in Europe are much better served by terrestical services than in the U.S. So the substitution risks to a fiber line from satellite, I don't see that. It is only for houses which are really, let's say, rural, unconnected. In this case, a Starlink might make sense. But if you have a fiber or a 5G coverage at your house, I don't see a big risk on this one. On top of that, spectrum for Europe is limited in this regard as well. So it's not that they can have unlimited spectrum for satellite. So I would say the market potential in the U.S. is in this very uncovered areas. It is an adjacency to communication, mobile communication services. And in Europe, I really see that as a niche play. Hannes Wittig: Okay. Thanks, Tim. And now we move on to Josh at BNP -- Exane BNP Paribas. Joshua Mills: The first was just on the updated fiber strategy and the second on fiber CapEx. So on the fiber strategy, it looks like you're playing a mixture of offense in the MDU areas and defending more in the rural areas. Is that a fair characterization of how this new strategy has evolved? And perhaps to help us think about the impact of this. Could you maybe give us a bit of a steer on what your market share in MDU areas is, what your market share in some of the rural areas you're now targeting is and how that compares to your nationwide broadband market share would be very helpful. And then secondly, on the fiber CapEx, I know you haven't quantified this explicitly, but I think you were due to receive a tax benefit of about EUR 0.5 billion over the next 3 years from these fiscal rule changes. Is that the right proxy for how we should think about the increased fiber CapEx? Would you go above that tax saving envelope as it were to do more fiber if you needed to? And beyond 2027, should we now be thinking of EUR 100 million, EUR 200 million higher German CapEx as a fair run rate? Or is this really just a pull forward of more expensive homes that you would have gotten to later in the decade anyway? Christian Illek: I start with the second question. And I will never call this a pull forward if the build-out is not ready by 2030. So what kind of pull forward are we looking for then? So I would say an indication of around EUR 200 million a year is, I think, a good indication. So I would use this as a proxy. We haven't finalized our planning session yet completely nor have we discussed it internally. But I think that is -- so the EUR 500 million, maybe EUR 550 million, something around EUR 200 million is the right indication for an annual, let's say, increase of the envelope. But it's not going to be a pull forward because that program is running for so long that I wouldn't call this a pull forward. Hannes Wittig: On the other hand, tax benefit from the accelerated depreciation comes to an end in 2028, the -- from 2028, the corporation tax rate in Germany will come down progressively by 5 percentage points, which is also then resulting in a tax relief -- in progressive tax relief. So if you -- therefore, there is a longer time line for this equation that we have outlined today, although we have basically been specific on the next 3 years. Christian Illek: Since we're playing ping pong here, I think we're hopeful that this accelerated depreciation will be extended, especially if you see that the money which you basically get is being reinvested into Germany, and we can prove that. And I think that's a good argument to basically make this like the immediate expensing in the U.S. a more permanent vehicle or tool. Timotheus Höttges: Look, the answer to your first question is, you're right. In the rural areas, we have to defend our position. If you look that they are very stable and gaining market share from us where we are not covering. In these areas, we have traditionally high market shares, and we want to stop that bleeding by building out in these rural areas. And in the MDUs, we have a lot of MDUs where we have homes passed, but we have no homes connected. If you ask me about, let's say, the market share in MDU areas, it's traditionally very low because this is Vodafone area and the cable area. So therefore, we have their opportunity to grow market share. And if you ask me about, let's say, where can we invest in this area, I would call the mix would be with this additional money 50-50 in MDUs connected and in rural areas as well. So it's not -- I've just looked up the numbers here, so it's around 50-50, if that helps you. So I think that is the new allocation of the additional money. What we urgently need is definitely this kind of getting access to the apartments and to the houses. That's definitely something which -- where we need the political support. Otherwise, these investments are very difficult to monetize. But anyhow, we should give you an update about all the details when implemented. I do not want to release all details here because that from a competitive angle is as well something relevant for us that we have a little bit surprise factor as well. Hannes Wittig: Okay. With that, we move on to -- thanks, Josh. We move on to Carl at Citi, please. Carl Murdock-Smith: Two questions, please. Firstly, in Germany, on the wholesale access revenues, what drove the slowdown in Q3 or recognizing that your CMD guidance was stable? Maybe the better question is why was the wholesale access revenue growing faster than anticipated in the first half? And then secondly, I was wondering if you can talk a bit about T-Systems, both the growing disparity between public sector and corporate revenue growth rates and also EBITDA growth. I'm used to talking about margin dilution in enterprise telecoms divisions. So can you talk a bit to the margin growth you're seeing there? Year-to-date, margins have improved by 100 basis points. Is that just phasing? Or are we seeing a structural shift in T-Systems margins going forward? Timotheus Höttges: Look, on the wholesale side, our capital markets guidance was for stable wholesale access revenues for the period of 2023 to '27. That is what we always have said. So far, we have outperformed the guidance. But now we're seeing volume losses overcompensating ARPA growth in these areas. And that is mainly coming from the weakness of our competitors in the broadband area. So it's a little bit, let's say, the indirect impact of the development of the retail broadband situation here in Germany. In the third quarter ' 25, our wholesale access revenues were essentially stable. So we are expecting somewhat a similar picture for the next quarter. And here, we are focusing on monetizing our fiber footprint with our partners as well. So what we are doing for us should be, let's say, accessible and available for our wholesale partners as well. So Telefonica or Hansenet or alike. And we are discussing now how they can improve their fiber utilization as well. But so far, I think -- I know that we are in line with our expectations here. Christian Illek: So Carl, let me try to give you an answer. I'm not sure whether I'm satisfying or whether you're going to be satisfied with the answer. Look, first of all, we have a mix of different businesses within T-Systems. So you have infrastructure-like business like the cloud services business or the road charging business, which is obviously very much depending on the capacity utilization of a given infrastructure. The second one is digital solutions, which is predominantly driven by utilization and rate card performance, right? How good is your pricing lever you're providing to your customers, completely different businesses. The third one is the team around Ferri is laser-focused on efficiencies. So he's probably one of the hardest guys when it comes to cost reduction because he knows that his margins are razer sharp and thin. So therefore, he has to prepare also for quarters where things are not happening the way how he wants to see it. And the fourth topic is the nature of projects. Look, first of all, it's the mix I was talking about, whether it's infrastructure-led or more digital solutions led. Obviously, digital solutions coming in with lower margins relative to the infrastructure. The second one is, do you have a lot of A-deals, which are very large deals? Or do you have a contribution from smaller deals who usually have a better profitability. This is why I was causing (sic) [ cautioning ] you don't read too much into that 23% EBITDA increase because there's volatility coming from different angles, and you don't know how the business mix is going to look like in the upcoming quarters. And therefore, it's much, much harder to predict relative to the infrastructure business, which we're running outside T-Systems. But what I'm seeing is, look, we're coming from negative cash contribution from T-Systems, and we are now in positive territory. The operating free cash flow is actually growing. And I think this is where I'm saying as a finance guy, I don't expect you to give me 10% of the overall pie on EBITDA, right? But I want to see a continuous trend improvement so that we don't have to discuss T-Systems as a financial, let's say, challenge. And they are helping us in kind of pull-through by selling other businesses because they're solving complex issues, especially with the public sector. For example, remember the COVID app, which was basically being built between T-Systems and SAP that helps you in those sectors. So this is kind of a pull-through effect, I would say, you're going to have from the infrastructure business. So this is why I'm happy, but I can't give you kind of an equation whether it's accretive or dilutive because it depends on the mix of the business, which is coming in every quarter and that changes. Hannes Wittig: Okay. Thank you, and thanks, everyone, for the Q&A, which is now coming to an end. I think Tim would like to make a few closing remarks, and then I take back from you. Timotheus Höttges: Thank you for the questions. Look, my summary of this quarter and even looking for the end of the year is, this is -- everything is well on track with regards to the overall capital markets targets. We had this concern about the German broadband market. We have a great plan now worked out, which is in execution. We have a good team, which is now pushing for that one, young fresh leaders here. On top of that, we are able to increase our dividend to EUR 1, which is another commitment. It is the highest dividend ever paid in the history of Deutsche Telekom. And on top of that, we are committing to the share buyback, which was highly and well received from the market environment. All the acquisitions are well on track. No kind of negative surprise. The opposite is the case. For instance, with UScellular, we have a very good development as lighting out one issue. And we have cleaned up the portfolio again because after a long, long painful period, Romania is out of the portfolio, which is now -- which has now resolved as well. And then the Deutsche Telekom is quickly taking the opportunity of the sovereignty discussion here in Europe, where we see big opportunities. There is definitely the AI factory, which I want to mention here. We were able to develop this whole concept to implementation, ready to use within 6 months, 10,000 GPUs. That is the biggest GPU in Europe at one single place. And on top of that, it's increasing the capacity of GPUs in Germany by 50% in one single step. And I can tell you, this is giving us huge credibility, not only in the public environment, but as well for business use. And we are going in the defense sector, both on the T-Systems side and as well on the DT Capital Partners side, which is helping. And the last thing which I want to mention is expect more from us with regard to AI and the AI implementation. Great ideas in the organization, agent models enabling new opportunities here for us, which we are evaluating a strong momentum here in our company, good use cases and success cases as well from the U.S. now swapping over here to Germany and other markets. So next year, it's going to be an AI year. And that is something which is helping us to not only increase our customer retention, but as well our efficiencies here, which is well on track. So I'm overall very happy with the situation here. We will do everything to improve the financials, not doing the stupid and ridiculous things here, and we like to thank you for your trust. And have a nice day, guys. Christian Illek: Thank you, guys. Hannes Wittig: Thank you. And now just if you would like to ask further questions, please contact the IR department. And we look forward to hearing from you again and see you soon. Thank you very much. Bye-bye.
Operator: Ladies and gentlemen, welcome to the analyst and investor presentation quarterly statement January to September 2025. I am Sandra, 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 Kaveh Rouhi, CFO. Please go ahead, sir. Kaveh Rouhi: Thank you, operator, and welcome, everyone. I very much appreciate that you are taking the time for this investor and analyst call on our 9 months 2025 results. This conference call is scheduled for up to 60 minutes and will be recorded. After my management presentation, I will be happy to answer your questions. Today's presentation is available on our Investor Relations website. The replay will also be available on this website shortly. Our agenda for today, first, I will give a review of our 9 months [indiscernible] our presence in the home segment in the U.S. is currently being evaluated. Excellent service will be our USP in the future, enabled by cost-efficient operations via our [ multi-shared ] service center in Poland. In general, it means that we will use our global footprint even stronger going forward while strategically focusing more on our core market -- on our core home market in Europe. In total, the program will mean a reduction of about 300 FTEs in Germany and another 50 in noncore markets, while building up about 200 FTEs, mainly in Poland and India. Now let's talk about large scale. Our large scale and project solutions continues to operate in a highly dynamic global market that is driven by a growing demand for grid stability solutions. SMA is a recognized expert and leader in this field, which puts us in an excellent position to seize this momentum. One example for the successful inauguration of the first utility-scale battery energy storage system with grid forming technology in continental Europe, in [indiscernible] Germany. We are proud to have delivered 7 medium voltage power stations with our Sunny Central Storage [ UP ] battery inverters and the SMA Power Plant Manager. Altenso also continues to grow and realize challenging projects, as you can see in our second example here. In September, Altenso commissioned a hydrogen plant conversion unit, Hydrogen Dune, a pioneering green hydrogen plant located on the coast of Namibia. The special feature here, this plant is the first ever to operate 100% off the grid and an intelligent energy management system coordinates the optimal time for hydrogen production. Large scale has delivered the first Sunny Central FLEX and a Power Plant Manager in the U.S. at the end of July, manifesting our position as a global player in this field. The Sunny Central FLEX is an innovative modular power plant solution that was just last year recognized by pv magazine with Top Innovation Award. The award recognizes the ability of the Sunny Central FLEX to facilitate the integration of PV, battery, and hydrogen applications into large-scale projects, making it possible to design, build, and adapt for new and exciting power plant use cases. Now let's turn to the last page, our guidance for 2025. As said several times, the market environment for HBS is still very difficult due to macroeconomic deterioration and the declining expansion rates in the residential and commercial sectors in most key markets. Thus 2025 sales are expected to be well below the previous year's level for this division. The large scale and project solutions division is planning sales slightly above the high level of the previous year. Group EBITDA and EBIT will be negatively impacted by lower sales and the resulting lower fixed cost integration in HBS as well as one-offs described earlier. Due to the significant further deterioration in Q3 of the anticipated sales performance for '25 and the following years in HBS, we had to lower our guidance range on September 1st to EUR 1.45 million to EUR 1.5 million for sales and minus EUR 80 million to minus EUR 30 million of EBITDA. Of the expected total one-offs of about EUR 250 million to EUR 265 million, EUR 45 million were recognized in Q2 and EUR 159 million in Q3. Please note that further provisions for restructuring measures will be added in Q4. Last but not least, a note on our upcoming events. Full year 2025 financial results will be published on March 26 next year, combined with an analyst and investor call. With this, I conclude the presentation. And of course, I'm happy to take your questions. Operator: [Operator Instructions] Our first question comes from Lasse Stueben from Berenberg. Lasse Stueben: Just a question on guidance for this year. In terms of revenues, it looks pretty conservative for the fourth quarter. So I'm just wondering how do we square that performance, particularly in large scale in what's usually a stronger Q4 than Q3? So I'm just wondering what the effects are there. And then the second question would be, you're profitable on EBIT in C&I in Q3. Is that something we should expect going forward as well? Or is there more one-offs that we should be expecting in Q4 and also maybe in 2026? Kaveh Rouhi: Thank you for the question, Lasse. Let's start with the Q4 revenue. So you're right, in the last 2 years, Q4 was always the strongest quarter in terms of revenues. This year, we don't expect that, to be honest. I think Q3 was very, very good. And hence, Q4 will be a bit lower. And that's why we were confident with the range that we kind of laid out, to answer that question. And it's depending on when the projects are commissioned, you always have the topic that if a large project at the end of December, is commissioned end of December, then it's in year, and if it floats to the next year, it can be a change of, let's say, EUR 20 million, EUR 30 million, EUR 40 million. That's why it's always a bit tricky to land, let's say, the large scale revenues exactly. But in general terms, Q4 will be a bit lower than Q3 and the numbers will add up. First question. Second question, I'm not sure I got it. I think you mentioned that C&I has a positive EBIT. I'm not so sure about that. Even including -- excluding one-offs, EBIT is negative of that division. So not sure if I got your question right. What if I've answered it? Lasse Stueben: Yes. I mean, if I look into the Q3 report this year and I go into EBIT, sort of in operating profit terms at least, you had, I think, EUR 10 million positive, unless I'm reading it wrong. Kaveh Rouhi: Yes. Let's double check. So we had -- I mean, as shown on Page 6 of the presentation, we had a minus EUR 322 million, thereof EUR 200 million one-offs and the other 100 -- minus EUR 112 million along the 9 months. So even operationally, they were loss-making. So maybe you have to check the report, how you read it. But no, they were not operationally profitable. Operator: The next question comes from Constantin Hesse from Jefferies. Constantin Hesse: All right. Just on my side, I'd like to start with order intake because clearly blowout quarter in Q4 in terms of large scale. What I -- I do apologize if you had commented on it because I was at a separate call because I have 2 results at the same time. So I would like to just understand, in terms of the momentum that you saw in large scale in Q3, how much of that was related to delays that you saw in Q2? And how should we think about this going forward? I mean, is this something that you think is sustainable? Or how should we think about the Q4 level of orders and into next year? Kaveh Rouhi: Thanks, Constantin, and glad you made it to the right call. On the Q3 order intakes, they were higher than what we expect in Q4, to start with that. We had a really good Q3. We had one spike in EMEA, but this will not -- which is a huge project. This will not come again in Q4. As I mentioned, U.S. is getting back to normal levels. I think that's important. And the rest will be good. So we think the order intake will be, yes, something -- at least more than EUR 300 million up to EUR 400 million, depending again on timing of the project. So hence, it will be lower than Q3, but it will be on a good level in Q4. Constantin Hesse: Is that group or is that large scale only? Kaveh Rouhi: Basically, that's the same these days, right? So that's -- because if you see at our order backlog of HBS, it's pretty much stable because what comes in, we basically convert to revenue. So how you want to read it, but this is mostly large scale. Constantin Hesse: So going into '26, this U.S. momentum, you expect that to continue. Yes. Kaveh Rouhi: Yes. Constantin Hesse: I mean, what -- I mean, just trying to figure out, what's the key driver here? Because if I look at the current outlook for U.S., it looks relatively -- I mean, it looks obviously less positive around permitting, there are some issues. In Europe, you clearly have a lot more competition. So what's driving this in both regions? Kaveh Rouhi: I think the market is there. Let's start with that. As you know, we are operating in batteries and in PV markets, right? It's nearly 50-50 in the regions. And we see that the market is there. We have the right products. We have a good market positioning. We have good sales. So I think we are not planning to gain market shares or strongly outperform competition. It's more around keeping the momentum. And with all the USPs we have, which is the grid forming capabilities, the lifetime of our products, the quality that we have out there, I think we can be proud of what the team is doing there. And so this is giving us confidence going forward. Constantin Hesse: You said something interesting. I think you said storage versus solar, it's 50-50 now. So is that the level of storage that you're getting in, in terms of order intake? Kaveh Rouhi: Yes. Yes, roughly. Constantin Hesse: Going into -- Kaveh, so one thing I'm going to ask again, same question that I asked in Q2. Around the building blocks, or should I rather say, how should we think about the development of the bottom line for HBS into next year? Because I think it's been relatively tough to get a clear cut view. I mean, if I add back the one-offs this year and I assume no growth, I'm assuming a loss of about EUR 100 million. But then you obviously have some savings initiatives in place. You said EUR 150 million to EUR 200 million into the end of '26. So if I look at a potential breakeven level for HBS, would that be below EUR 250 million or below EUR 300 million? How should we think about this potential new breakeven level? Kaveh Rouhi: Yes. Yes, that's a good one. I think we have -- we have lots of things in movement, right? And I talked about the value chain and all the adaptations that we make. And I think the breakeven that we need depends a bit, obviously, on the product mix and the margins of the product. So EUR 300 million sales can be very, very profitable. It can also be [indiscernible] with the same profitability of, let's say, EUR 350 million or EUR 360 million revenues, right? So depending on what you assume there in terms of product mix and profitability, the breakeven will never be below EUR 300 million. We will at least need a EUR 300 million to get to breakeven and also even higher depending on how much price deterioration and pressure remains in the market. So I would say, currently looking, and it's a wide range, I know that, forgive me for this, but it's between EUR 300 million to EUR 400 million actually. Constantin Hesse: Okay. EUR 300 million and EUR 400 million in order to -- okay, fine -- to get... Kaveh Rouhi: To get to breakeven. And we will not be breakeven next year, obviously not, because there's still much going on. Constantin Hesse: So -- and if I look at the profitability for large scale, you're probably going to close this year above 20%. Is that a level that you'd expect going forward? Or do you anticipate to start investing a bit more in R&D or whatever? And could there potentially be any headwinds on profitability there on the margin, right? Kaveh Rouhi: Yes, yes. I think there will be 2 trends that will impact the profitability going forward. The one trend is, as you just mentioned, we will need to invest a bit more into this business. We've been a bit prudent last year and also, let's say, until Q2 this year to basically keep the money together and to help with all the other topics. We will now spend more next year for large scale to increase our competitiveness, right? So this will impact profitability to a certain extent. And the other thing, and I know it's always a bit tricky, but it's the FX rates. So we see that expectations next year for the U.S. dollar and euro rate that they will impact our profitability as well. And as we produce in Germany mostly and export it to the U.S., we will get a hit. And then we will say, well, why don't you produce there? So if you do that there, we will have the tariffs and everything coming in. And then things are again more expensive and then you pass it on, so you have a similar effect. So we've done different scenarios. And overall, we will not be able to keep the 20%. Constantin Hesse: So we should be thinking about something right around high double digit, high-teens? Kaveh Rouhi: Yes. I mean, we're not talking about the EBIT margin for next year right now, right? So I think we will give the guidance for next year. It will be lower than 20%, but the group will be positive, so all good. Constantin Hesse: And then just lastly, just wondering if Florian said anything around large scale in the U.S. I mean, I think it's interesting to see what could potentially be a very bullish market for you, right? Because if we assume that FEOC comes out in a rather stringent way, that would, of course, potentially limit some gross business in the U.S. So are you seeing any increased interest, I guess, from U.S. developers for SMA? And then I'm not sure if you've seen that Nextracker, or now they're called Nextpower, they just launched a utility inverter as well. So just wondering if you had some feedback on that yet. Kaveh Rouhi: Yes. The last one just came in this morning. To be honest, I didn't have time to build an opinion myself, so I will not comment on that one. Sorry for that. When it comes to upsides due to the FEOC regulations in the U.S., I think it's fair to say that if you are in this regulated markets, you can have huge swings built on new incentives, tariffs in, tariffs out, protection here, new rules there. And then when you, let's say, build your business around that, you're very prone to be dependent on what actually happens in the end. And you can never be sure that the next guy or even the same guy changes the regulation again. And hence, we are kind of ignoring that. As long as it's not harming us, we are not planning with any upsides. But of course, we will welcome every customer that decides not to go ahead with Chinese and once a European and a premium German venture -- producer, and we will, of course, serve them, right? But for our planning, we are not considering that as a realistic case. It could be an upside, but that's not what we will put in our budget. Operator: The next question comes from Guido Hoymann from Metzler. Guido Hoymann: I've got 3 or 4 questions, and maybe we can go through them one by one. The first one would be, again, on large scale. Am I right, or maybe is that a reasonable assumption that the deadline for switching from the 5% safe harbor rule to the so-called physical work test, I think that was the 2nd of September? So that triggered a lot of prebuying there. So did you observe particularly high orders before that, early September? And how did the, yes, order development then -- yes, develop over the rest of the quarter in the U.S.? And do you think that given that there are other deadlines like July '26 for those projects, which passed this physical work test and then year-end '27 for those projects, which did not meet any deadlines. So do you expect all these deadlines to continue to trigger high demand in the U.S. until then in your large scale business? That would be the first one. Kaveh Rouhi: Okay. Let's do this one first. Hello, Guido. So the safe harbor rule. So no, we don't see an impact, to be honest, in our business. Neither has there been an increase or a decrease. As mentioned, our order intake was good, a little bit of catch-up because Q2 was very low. And we have lots of discussions with customers. And the question is how do they safe harbor. And they don't have to safe harbor buying inverters. They can also, as you said, do the safe harboring by the start of physical work. And hence, many of them are doing that, and we will -- we don't see a drop in our pipeline at a certain point going forward because they have now safe harbor and then there's nothing else after that. Plus, what's also important, let's not forget, these rules apply only for PV only, not for batteries, which is again half of the U.S. business. So it's basically a half of a half of our business that's impacted by those rules anyway. And hence, I think we are pretty prudent here with how we plan going forward. Guido Hoymann: And the second one would be on your status to increase the local content in the U.S. and to avoid or to reduce less tariffs. Can you maybe give me a brief update on the status there? Kaveh Rouhi: Sure. I think the short answer is we're on track. The longer answer would be that, as you know, the MVPS stations, which have the transformers included, they are going to be produced in the U.S. by end of this year, and the integration will start in January. And the whole integration and the ramp-up of the MVPS stations is scheduled for the second half. We do those 2 things with our partners, and they report they're well on track. Guido Hoymann: Then maybe also 2 quick ones. The restructuring costs you're planning for Q4, did you quantify them or can you do that, please? Kaveh Rouhi: Yes, sure. I think the biggest chunk of the still to be booked one-offs for Q4 is the amount of severance payments that we will need to put aside for the labor topics, and we estimate something between EUR 30 million and EUR 40 million. And that is roughly what we had put into the guidance. Guido Hoymann: And the last one, again, on HBS. Obviously, we're coming now a relatively small player. It is a highly price-sensitive segment. So do you see it to be viable or maybe to get an exit for this question? Do you want to focus on specific niches? EV charger, could be something else. Or do you still want to address? Or do you just want to, let's say, focus in a geographical perspective, but not in the range of products you're selling? Kaveh Rouhi: Yes. I think we do focus, but it doesn't mean that we will just sell one product. And I think I tried to lay it out, but let me recap a bit. So we will reduce the global footprint. And as I've learned, these -- the time since I'm with SMA that an inverter is not the same product depending on the countries that is operated due to grid regulations and all these kind of things, cable width, and whatnot. So the variety of our products will be lower because we will have less countries to serve. So here, we will reduce the amount of complexity, right? That's one topic. The second topic is that also the, let's say, the product variety in terms of how many different PV only we have, or hybrid inverters will also be reduced. But -- and this is very important for the core markets that we will target, we will make sure that we will deliver the full solution. And the full solution these days is in hybrid inverter together with batteries, together with energy management, and together with the right software. And so -- and an EV charger, of course, if you have a car. So what we make sure for the home market is we can give to these core markets a complete portfolio, but not having varieties of it in many regions, which will then [indiscernible] to serve. That's kind of making sense? Guido Hoymann: Yes. Okay. Very helpful. Operator: The next question comes from Jeff Osborne from TD Cowen. Jeffrey Osborne: Just a couple of questions on my side. I was wondering if you could articulate what the pricing changes were either sequentially or year-on-year. I think you had alluded to immense pricing pressure in your statement for the restructuring a few weeks ago. Kaveh Rouhi: Yes. I think that's a tough one, right, because it depends product by product. I know that's an easy answer. I think, if you just look at -- and we did the analysis just recently. When you look, what happened H1 '24 between this point of time and H1 '25 in the home market, especially, I think we see price declines between 5% to 15% on average. And of course, this hits your profitability if you can't be flexible with your production. So that's what we call immense in 1 year. Jeffrey Osborne: And I'm just curious, after the Chinese policy changed June 30, if things got worse in the third quarter as it relates to home and small commercial? Kaveh Rouhi: Not really, no. Jeffrey Osborne: Good to hear. And then I just wanted to understand the factory realignment with HBS. It sounds like the majority of the design work will be done in India and manufactured in Poland, if I heard you right. What was the trade-off of possibly using contract manufacturing in eastern Europe or other locations relative to leveraging your own facility, which I think historically made subassemblies and equipment for the utility scale product, if I'm not mistaken? Kaveh Rouhi: I think, for us, it's important that we own the product, that we own the development, and that the software where the heart of the product is compared to maybe 20 years ago where the hardware was a key differentiator. So we want to make sure that this is owned by us and owned by our own development. And we go to India where we have -- we already have established a hub, very good developers and a strong access to the local market, local universities. So that's, I think, the key driver here for the software part. And when it comes to assembly, obviously, there is -- yes, labor arbitrage is one topic. The flexibility is the second topic, and we have experience there. So I think, overall, the -- let's say, the Polish entity is used to do manufacturing, and hence, we will leverage that. Otherwise, it would be a waste of capabilities and good people. Jeffrey Osborne: Maybe just my last question is, if I heard you right, you're reevaluating the U.S. and Australia home market, but you have a sizable presence in the U.S. commercial market historically. I know you're working with Create Energy on the utility scale side. But what's your plans in defending market share as it relates to the commercial segment? It would seem you're poised to lose share given that Chint is likely booted out given FEOC. I think they're the market leader, you're #2 historically. Most of the commercial folks are going to want a U.S.-manufactured product. So do you have plans for manufacturing commercial inverters in America? Or are you willing to seed that market share? Kaveh Rouhi: I mean, currently, the setup is, as you said, we are for the commercial part, right? We produce in SMA in Kassel and we ship it over there. And we have no indications that this is going to deteriorate. When I talked about removing ourselves from potential U.S. and Australia, that's more the home part, not exactly the commercial. So no -- so yes, no concrete plans now to do a localization of that, but could come later. Operator: The next question comes from Peter Testa from One Investments. Peter Testa: I was wondering, on the large scale side, could you just give a sense as to whether the value-added margin is particularly different between battery and PV, whether you see a particular difference in value-add margin? I'll go one at a time. Stop there. Kaveh Rouhi: I mean, I'm not a technical guy, but to be honest, my understanding is in terms of production costs, they are pretty similar. And so I don't recall a big difference in the margins. Peter Testa: So margin mix isn't a factor. Okay. Fine. Kaveh Rouhi: Yes. Peter Testa: And then on the Chinese side in terms of competition, you said there had not been any particular difference in pricing at this stage, I guess, in the HBS part. Would you have any particular concerns about pricing in Europe and APAC, in particular, from the changes in Chinese market situation becoming exporter going forward? Or are you not seeing that? Kaveh Rouhi: No, I think, when we were at Intersolar, I heard a person from Sungrow saying that all the low-tier Chinese players are ruining the market with their pricing, right? And this was referring to China itself, which was, for me, an astonishing statement, to be honest, coming from Sungrow. So overall, I think the price pressure will mostly hit the Chinese market because it's big and they are cannibalizing themselves a lot. And I don't see an additional pressure on Europe due to that at this stage. Peter Testa: And you gave a number between EUR 300 million and EUR 400 million for breakeven on the HBS business revenue. Is that for 2026 or post all the restructuring? Kaveh Rouhi: No, that's post restructuring. That's post restructuring. So as I said, we will not be breakeven next year. Peter Testa: Yes. I'm just wondering what -- whether that sales level is after all the savings or midway? Kaveh Rouhi: No. Peter Testa: And then the last thing is just on -- with the write-offs that have happened in various different levels, both in projects, depreciation, also inventory. When you think about the impact of that on the 2026 profit, i.e., lower depreciation, lower amortization and maybe what happens to the written-off inventory, is there any sense on how that changes the, say, profit base just from the impact of all the write-offs? I don't mean by having no write-offs, I mean, the run rate. Kaveh Rouhi: Yes, yes. So no, it should not impact the run rate because the rules are we can only write off things that we're not going to use next year. So I can't plan now that we will have better margins because I'm going to use them again. So the write-offs are real write-offs. Obviously, we have still the material. We don't plan in the next years, so to say, to use it. However, we need to come up with a plan in terms of how to deal with this amount of materials. And then it might be that at one point, we find good solutions for that, and this could be an uplift, but it will be a onetime uplift and not a run rate [indiscernible]. Peter Testa: So you'd highlight that related to the inventory. But I guess you have lower depreciation, lower amortization because of the write-offs next year. Kaveh Rouhi: Yes, but it's not material in that sense. Peter Testa: Material? Fine. Okay. Operator: The next question comes from Constantin Hesse from Jefferies. Constantin Hesse: Kaveh, a quick follow-up. Just on cash, I mean, your balance sheet is looking quite good again. And I'm just wondering, is there any M&A potential here that you could be keen or focused on, be it a segment M&A, be it a regional M&A, anything interesting? Or is this even a focus potentially? Or will you just continue to focus on making sure that you continue building up the balance sheet? Kaveh Rouhi: No. I think, even if we had an M&A plan, we would not talk about it here, right, to be honest. Operator: [Operator Instructions] We have a follow-up question from Peter Testa from One Investments. Peter Testa: Just on the large scale side, could you talk a bit about 2 things on the backlog and the pipeline? On the backlog, if you look at phasing in terms of how that phases in time, the EUR 900 million -- EUR 902 million, how does that phase out in time by either quarter or years, just to give a sense? I'll ask about the pipeline. Kaveh Rouhi: Sure. So the -- it depends a bit where you have your backlog. So if you have projects in Europe, usually, they materialize up to 6 months -- around 6 months, I would say, 6 to 9 months, depending a bit. And if you have projects in the U.S., they can take up to 12 months because you have to produce here, bring it to Italy, ship it over, bring it then from the coast to the -- so it's usually the, let's say, transport times and it's the time that you need for supply for the MVPS station itself, the medium voltage part. So these are basically the 2 things that are hindering a faster turnaround. And hence, you have something between 6 to 12 months depending on the project. Peter Testa: And I guess, in Australia, it would be more like U.S.? Kaveh Rouhi: Exactly. Peter Testa: And then on the pipeline, can you give a sense, please, in terms of what you're seeing in project behavior -- tendering behavior, i.e., speed at which decisions are made, the speed at which permitting is granted? And just so we can kind of understand what you think about pipeline flow and what it means, therefore, for orders coming to delivery, arriving, and booking of revenue? Kaveh Rouhi: I think, in Q2, if you had asked me this, we were very -- yes, we were very cautiously looking at that because we saw that the turnaround times were a bit slower. I would say we have gone to normal levels. So when I remember our business discussions with the teams, nothing specific, to be honest. So it looks normal. Peter Testa: And the scale of the pipeline, any different geographic message? Kaveh Rouhi: No, all good. As I said, so I think we will end the year with a similar backlog as last year. That's at least what we expect now to happen in the next months. And we will go with a good backlog into next year. And the pipeline itself is on a similar level. So we are -- actually, I'm cautious here given the recent quarters, but I'm actually quite optimistic. So that looks good from our side. Operator: [Operator Instructions] Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Kaveh Rouhi for his closing remarks. Kaveh Rouhi: Yes. Thank you, everyone, again, for your interest. And of course, please do not hesitate to contact us in case you have any further questions. So goodbye, and have a great day. Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.
József Váradi: Welcome to this event. So this is reporting the first half results of fiscal '26. Could we move to the next slide, please? So I would say that we start seeing some sunshine and certainly good decisions for the future waiting to see the impacts coming through. So with regard to the sunshine, I think what the first half results demonstrate is that under circumstances when we are near efficient, actually, the business produces very strong results in terms of operating KPIs, in terms of financial output. We are still not fully efficient given the groundings of aircraft, some of the inherent inefficiencies in the system, but we did a lot better than in previous years. As a result, you can see a significant increase on capacity, passengers, revenue and profit. In terms of decisions made, we're seeing that we have affected the major challenges of the business for a structural reset. We have communicated the closing of Wizz Air Abu Dhabi that effectively has been happening. It is pretty much a done deal. Then we communicated that we would be seeking a reset with regard to the aircraft delivery stream with Airbus, that deal is now in place. It has been decided, and I think it's a good deal. It is appropriate to addressing a number of things. One is the deliverable growth rate of the business, taking some risks out of the profile of the setting, reducing the growth rate to around 10% to 12%. And let's not forget that 10% to 12% still makes Wizz Air the fastest-growing airline in Europe and which we are proud of. But it is a more manageable magnitude of growth than previously set. And very importantly, it takes into account the cycle of the Pratt & Whitney groundings and ungroundings because that created a significant hiccup to the fleet count of the airline, which we had to reset. Also, we addressed the XLR exposure. That program is descaled very significantly, I would even say that exited to a large extent, and now this is narrowed to the U.K. AOC. So the XLR is seen as a Wizz Air U.K. initiative no longer as a corporate initiative for the airline. Also, we have made commitments on aircraft finance. This is one of the significant differences to our competitors, and you will start seeing a more balanced way of financing our aircraft delivery program going forward. Now with regard to growth, I think this is important, and you have a prime interest in that. We are looking at capacity growth of around 10% to 12% to be delivered through the recovery of the GTF engines, the new aircraft delivery streams and the way we are managing capacity. Now what it really means is that we will still have some short-term challenges in front of us arising from capacity because effectively, the choice we have on hand is either being fully efficient and fully deployed capacity, but that would create an excessive growth rate, which would become highly dilutive to revenue production or carry on some inefficiencies on the fleet, but set the growth in accordance with what actually we can deliver. We opted for the second. So you're going to be seeing a moderated growth level from here on, but it will take a little time to suck up the inefficiency created. We have been shifting a lot of focus in terms of markets. We have been talking about this to Central and Eastern Europe. If you look at Central and Eastern Europe, it is now kind of bearing fruits in terms of market share. We are expecting our market share to be around 29% going into the first half of calendar '26. This is up from 25%. Of course, we have been adding significant capacity by opening new operating bases and also enhancing our incumbent footprint. With all this, we are expecting a stabilized, more resilient revenue production and a longer-term lower cost production of the business and also the strengthening of the balance sheet. Maybe with that kickoff, I would hand it over to Ian, and I will take it back after that. Ian Malin: Thank you, Jozsef. Next slide, please. Right. So in terms of H1, I would say that pleased with the outcome. And so we don't want to dwell on it too long, but at least we're here to report on it, so I'll talk about it, but then we want to make sure we look forward into H2 and beyond that. So revenue, up 9%, nominal off of 8.9% ASK growth. RASK was roughly flat year-on-year, EUR 0.0498. So a strong RASK production, flat load factor. So that was -- and yield was up around 0.9%. So ultimately, I think a good top line number, helped also by fuel. Fuel was down 2.1% despite the 8.9% volume increase, benefiting from the fuel efficiency and the fuel price and the impact of our hedging. EBITDA was nicely up 19% with a 29% EBITDA margin and operating profit was up 25% with a 13% EBIT margin. So across the board, I think a strong result. We did see some things below the line that eroded some of the net profit, even though we still generated a positive year-on-year net profit production. And none of this was unexpected. So we have the tax charge with regards to the deferred tax asset that we created last year and the unwind that happens as the aircraft start delivering into that entity in Malta, which we restructured and set up last year. Ultimately, I think where we're looking at is a satisfying result. And as Joe says, as we continue to build operational performance and operational resilience into the business, you can start to see the benefits of those flow through into the P&L. These are structural. These are things that we've invested a lot of time and effort into. And so last summer was a rather disruptive summer, and that's where you see the benefit coming into this year. You'll see less of that benefit in Q3 and Q4 just because we had better performance. But we can expect, as we're continuing to grow that operational performance to deliver a more robust cost position and ultimately, a more beneficial revenue environment because you'll start to deliver operational performance, which drives better revenue quality. So we're excited about the structural changes and the resilience coming into the business. So into the winter and into the cost base, if you could just go to the next slide, please, we will see transitional inefficiencies. Now on the cost side, I would say we're pleased with the results. The cost picture really improved in Q2. And you can see that, that was driven by fuel. So fuel was a tailwind there. The disruption costs, as I mentioned, the operational efficiencies generated roughly EUR 29 million of savings in terms of disruption costs. So that was helpful. We also managed to shed some of the structural wet lease costs. So we were down EUR 76 million in terms of wet lease costs. Still have -- we still do incur wet leases, but these are not structural. These are one-offs. And actually embedded within those wet leases is also some of the short-term engine leasing that we do in order to make sure that we can operate the fleet efficiently and reliably to be able to support that better on-time performance and the avoidance of disruption costs. We also managed to deliver strong results even with lower sale-leaseback volumes. You can see that we actually were EUR 27.5 million short on sale-leaseback gains year-on-year. So had we had that, that would have been an even better picture. So those were the tailwinds. We continue to see elements of cost creep through the business. And like I said, none of this is a surprise. So there's nothing new based upon what we were expecting at the full year when we said that this year was going to be a challenging cost year. This is just simply the translation of some of our actions into the results, which will then wash through and move on going forward. So you can see that, for example, airport and on-route are up. Actually, handling came down, but where the biggest pressure came from was on on-route, where we saw an increase in the tariffs year-on-year. And for example, places like Germany on recharges were up 29% year-on-year. So those really hard to unwind some of those. Maintenance is an area that we see a lot of cost pressure. But as we explained at the full year, there's a number of things happening there. So we are seeing the retirement of ceos now in that period. We think there were 9 ceos that went back. And so as you put those into return conditions, you have to incur incremental costs, not normal operating costs. And so you see some of that flow through. You also are seeing pressure in terms of the vendor base. So component support contracts are increasing. And so some of that is inflationary coming through the cost line. There is an element of Abu Dhabi wind-up costs coming through the entire cost structure. In terms of Abu Dhabi costs, we remain comfortable that there won't be an adverse impact on the full year to winding up Abu Dhabi. So while you will see cost increases across all the cost lines associated with the wind up, the benefit of not operating Abu Dhabi from September onwards will offset that so that it should be at least breakeven, if not maybe slightly better, but we'll know that when the entire business is wrapped up. We thank the team for all their efforts in terms of that operation as well as what's happening to shut that down. Distribution was up slightly, but that was consistent with the Q1 results in that we have a return to growth. And so as you do push more volume through the business, you are incurring more costs associated with that. And so that was expected. And like I said, there are -- there's a bunch of cost increases happening in the others line associated with the return to growth. So there's things like crew training, crew accommodation, recruitment, things like that. Abu Dhabi costs flow through that to some extent as well. And there was also a reduction, if not even an elimination in some limited cargo revenue that we had in prior year that we didn't have this year. So that's what explains the others line within the other cost and income line. I will ask to go to the next slide. Just quickly touching on Q2. So again, operating margin of 21.5%, 35% higher year-on-year. We saw less benefit on FX in the quarter versus prior year due to the now continued ramp-up of our overall lease liability hedging profile and risk management profile. And we saw a very strong disruption cost reduction, again. So most of that disruption improvement came through in the second quarter, and that's despite some of the challenges we have in Q2, such as the suspension of Israel operations, which resumed in August. We also had the overfly challenges around Iran, and then we had actually a lot of volatility around Abu Dhabi as we worked to come to the end of that operation at the end of August, early September, beginning of September. There were some tapering off of the operations there, and that caused some additional disruption and costs. So notwithstanding all those things, a very strong Q2 and something that we're proud of, but we're not going to rest there. So in terms of where we're going, we have obviously some guidance numbers that Joe will share at the end. And that puts us in a position where I think we're comfortable with where consensus is currently. And so we do expect there to be a higher cost position in Q3 and Q4. Like I said, nothing that's a surprise. And that's driven by a number of factors. If you look at things like the maintenance line, we're going to see older aircraft costing more to maintain. There's going to be continued retirement of ceos in that period, which drive the costs up. Depreciation is going to see some pressure because in H2, we should be 35 more neos this year versus last year H2, and that translates to roughly 20% fleet growth, whereby in that period, we should only be growing around 10% in terms of ASKs. And so our nominal depreciation will grow faster than our volume growth, and that is why you'll start to see some pressure on that. We also have in the second half a distortion when it comes to the year-on-year comparable in maintenance. In fiscal year '25, we had a one-off maintenance accrual release, which was rather material, close to EUR 80 million, and we're not going to see that again. And so that's why you see some of the cost pressure flowing through. But Joe will comment on why that is necessary and why the actions that we take and the costs that come with those actions set us up for not just the performance that we're delivering next year, but also the overall reprofiling of the business. I'll ask to go to the next slide, please. In terms of cash flow, I would say, consistent at the end of the day, consistent with what we've been seeing. So we ended the year right -- sorry, ended the half around EUR 2 billion in cash. And that puts us in a strong position going into the winter. We managed to generate a reduction in net leverage ratio, so down from 4 to 3.6. We maintain our target of 30% to 35% liquidity, actually made it to go up, which is good. And that's also in anticipation of our January bond repayment, which we plan on at this point, treating the same way we have the previous repayment. We are pleased with the Airbus developments and that comes with pros and cons. Obviously, as you defer aircraft, you generate fewer sale leaseback gains, but you also generate fewer lease liabilities as you defer CapEx, which means that, that should be benign in terms of leverage at the end of the day, but it also releases -- has a benefit of releasing PDP obligations as we now no longer need to fund the development of those aircraft. And as I'm sure some of you have noticed, we've managed to sell a few aircraft as part of a deal with one of our related party airlines, and that also takes further pressure off the CapEx side of things. But overall, nothing to be -- nothing jumping out in terms of this chart. And as we move into Christmas period into the Easter into March, we'll see that unfunded liability line start to build again as we've seen in prior periods. And so we're comfortable with the liquidity position of the company. We -- I will note that we rolled over our ETS facility. We had a EUR 279 million facility that rolled over like we did in the prior year. And due to the changing prices of the emissions credits, we were able to slightly upsize that. Next slide, please, and I'll hand the floor back over to Joe. József Váradi: Okay. Thank you. Well, this is, I guess, a very important chart that kind of gives you a picture on fleet growth and this translation into capacity growth. So you recall that we are having 334 aircraft on hand to be delivered, originally set for a stream ending in 2030. Now this is extended to 2033. So effectively, that affects a 91 aircraft reduction in the original delivery period and put that across into the extended period. Of the 91, 3 aircraft are sold outright and 88 are deferred into '31, '33 deliveries. Now what it does is it creates a more predictable picture for future growth. In terms of volume of growth, we are targeting around 10% to 12% annual growth. This is taking into account some of the issues of recent experience that given the -- some of the inefficiencies associated with the Pratt & Whitney groundings. We want to make sure that we are derisking the profile of the business, not only in terms of market footprint, but also in terms of challenges arising from growth. And we think that the 10% to 12% growth is a more derisked profile for the company than 15% originally targeted. And taking into account the Pratt & Whitney GTF cycle of grounding and ungrounding, you appreciate that the new fleet delivery program has to take that kind of a recovery cycle into account and recovery cost into account. So if you look at it in nominal terms, effectively short term, we don't take new aircraft deliveries representing 10% to 12% growth. It's a lot less than that because we are taking into account the recovery of the current grounded aircraft engines. We think that this is a fairly well outlined model mathematically to program the growth or deprogram the growth against a lower risk profile of execution. I'm very pleased with that. And it was a long negotiation. So you can imagine that this is very thorough, not only in terms of setting or resetting the delivery stream, but also in terms of protecting the commercial terms of the deal. Again, just for recalling it, this deal was actually put in place in 2017 in Dubai under very different supply chain circumstances, very different commercial and financial needs of the OEM. And obviously, that gives continuously a structural benefit for Wizz Air versus the rest of the market. But we're seeing that now it is not going to become a burden when it comes to executing the aircraft order. In 2029, effectively, we are becoming an all-neo operator. That's good because by the time, I think you should be reasonably expecting technological maturity coming through. By the time the GTF advantage will be delivered. I mean that's a significant technological step-up and an industrial step-up on durability and reliability on the engines. And the other important issue here is the XLR program, which is now taken down -- rescaled and allotted to Wizz Air U.K. no longer to the European AOCs. Next slide, please. So decisions have been made, are being made and now we are expecting the impacts coming through. So the critical decisions, as I said before, the closure of Abu Dhabi. You heard from Ian that we expect that decision to be executed against a fairly benign financial platform. So we are not expecting any adverse impact in the current financial year. As a result of that and as of the next financial year, we are expecting significant upsides coming through. Just discussed the Airbus order reset, again, this is very important for longer-term predictability of the business and also discussed the XLR program, which we effectively exited other than Wizz U.K. Now there are next to this ongoing work streams. Network improvement, churning the network for profit. That's probably the most important ongoing priority of the company. We are shifting capacity into Central and Eastern Europe against high brand awareness, against a very solid financial performance and against a backdrop of disproportionately higher GDP growth in that region relative to Western Europe. And we are already seeing some of the early results by opening new bases, deploying more aircraft, how quickly the market is picking up on Wizz Air. We are optimizing the technological platform. Maybe it's a small equation we have been discussing, but I think you should understand that when we are talking about the GTF or any new technology is the same for the CFM LEAP. There is a trade-off. And the trade-off is you get fuel burn benefit from heat in the core of the engine. So basically, the way fuel burn benefits are derived is through the higher temperature in the core of the engine. What it means is that higher temperature is more sensitive to durability of the core engine of the whole engine. So that may result in more maintenance costs. So this trade between fuel burn versus maintenance. So it's not like that you just get fuel burn as a gift. And of course, there is another element of technology improvement and that comes from the capital cost. It is simply more expensive than previous technologies. So please just understand this trade because when you look at ex-fuel cost and fuel cost, you're going to be seeing that, okay, we are delivering a lot of improvements on fuel cost, but not as much on ex-fuel cost. But there is a trade here. So what you see coming through the fuel cost, you're going to get some of it as a penalty on non-fuel cost. So you really have to look at the 2 combined. I mean, of course, we do the breakdown and we act on the breakdown. But intellectually, I think you need to integrate those 2 if you want to fully capture that. But we're seeing that the technological benefit is important because once the GTF is matured, the industry has no doubt that this is going to become the best engine available in the marketplace. It is kind of painful at the moment going through this cycle, but we are hopeful that one day, actually, we're going to be pacing the day when we decided to offer this engine. And unparking the aircraft, that's a critical priority for the company. We have been discussing this. We are targeting to on ground the entire fleet by the end of '27. We are working with Pratt & Whitney. We have an understanding. We have a deal with that regard that covers induction slots that covers spare engine purchases and that covers OEMs capacity in terms of parts and in terms of shops and engineering to support that recovery program. And this is aligned at the highest level at the company, not even at Pratt & Whitney level, but at Raytheon level over there. So a lot of ongoing issues happening, but I think all for the better. So next slide, please. I think Ian has started alluding to this that if you look at fiscal '26, it is almost like 2 halves for 1 year. So a somewhat shining first half and somewhat challenging second half. So in terms of capacity, we are looking at mid-single-digit seat capacity growth, somewhat less on ASK. You recall that we eliminated quite a number of long routes operated too hot and harsh. So that's why the ASK numbers are somewhat different from the seat numbers. So mid-single-digit capacity growth. This is in line with our ongoing growth ambitions of the company. Really, the option we had available to us here was we are growing 30% with efficiency in terms of unit cost. Or we are going 15% with efficiency for revenue, but with some compromise on unit cost. These were the 2 choices to make. And we opted for the second one because we think that we should be allotting capacity against demand in the marketplace as opposed to allotting capacity and trying to find demand for that capacity. But that will bear some kind of a challenge in terms of short-term cost to the unit cost to the business. Load factors, I think we are trending well on load factors. The performance is strengthening. We are expecting some upsides on load factors coming through. So with regard to RASK, again, I mean, we are too early into the winter to really make a firm position here, but we are expecting some pressure. I mean, 15% is still significant growth in the business. It's a lot ahead of the growth of other airlines. And this is the off-peak period, the kind of the weaker half of the financial year from a demand perspective. So we might be expecting some pressure on RASK capacity, although we are also seeing some good positive signs on that. So we shall see, but this is our kind of early indication. So how would that translate into CASK performance of the business? Obviously, fuel will continue to do well, given the current fuel price in the marketplace and given the transition to neo technology and the benefit of fuel burn coming through the GTF engines. Ex-fuel cost, will be temporary on the rise as a result of this kind of capacity inefficiency we carry in this period. But over time, this is going to be sucked up. If you look at fiscal '27 when we are taking down the new aircraft deliveries and contemplating some recoveries of GTF engines in that period, this kind of inefficiency is going to be sucked up. So all in, so it is a challenging first half -- sorry, second half, what we are into, although some of the good things, good decisions we carry through this period. And certainly, you're going to be seeing more benefits materializing in the next financial year. I think with that, I would turn it over to questions, please. Jaime Rowbotham: Jaime Rowbotham from Deutsche Bank. Two for me to kick off. Maybe first one for Jozsef. On-time performance was, I think, 60%-ish, up from 50%. So a good improvement, clearly helping your disruption costs, but that's still very low versus, I think, your pre-COVID standards and industry standards. So why is that? And where do you think you can get that to 1 year out, please? And then secondly, maybe for Ian, the situation you find yourself in, as you described on the cash flow bridge, saw the net CapEx positive EUR 190 million in H1. Now you've got the Airbus deal done. Is there more clarity you can give us on what the full-year equivalent of that number might look like? Or is it still very contingent on engine sale and leasebacks, et cetera? József Váradi: All right, maybe I'll start with on-time performance. So yes, it is a significant improvement. I think the difference is that we are just up against a very different supply chain context. ATC remains to be a challenge. It was less so this summer than in previous years. So we have to admit the progress what they have made, but that doesn't mean that they are virgin. So there are still lots of issues coming through ATC. Our performance relative to industry completion, we are the best airline in Europe. On-time performance, we are right in the middle of the pack. So is this good? Yes, relative to the industry's performance, I think it is good. Relative to our expectations and historical performance, we want to see improvement coming through. But I think we need to see more improvements coming through the supply chain as well. Now the issue what you have, and you probably appreciate this. So you are in the summer period when demand is almost unconstrained. The more compromises you make on your operating model, what compromises do you make? I mean you may compromise on sparing more capacity. So that will take down utilization. I mean you are running the airline at low utilization rate in the middle of the peak demand period. This is going to be defeating your financial performance. So you have to kind of strike the balance here and find that kind of a sweet spot that benefits your operating program against the revenue and demand upside of the business without really screwing it up completely operationally. And I think previous years in previous summers, we might have booked it overly for trying to get more commercial upsides from the business and on the mining operational resilience. So I think we put more efforts into the balance now that we're going to have commercial upside, but at the same time, we want to protect operational resilience as well. I mean that's how well we could have done, but we need to see some improvements in the supply chain, to be honest, to have significant upside here. But we are not underperforming versus the industry. Ian Malin: Thanks, Jamie. With regards to cash flow, so the Airbus news is new, right? We announced it this week. And we are in the process of trying to identify when the right time is to do a Capital Markets Day to walk you through the longer-term strategic direction on all these exciting topics, particularly with regards to aircraft financing, engine financing and things like that. As I mentioned earlier, we should be 35 A321neos in higher count this second half versus last second half. And then there's also going to be an element of engine sale leasebacks that happen in there. These are the contractual obligations that we have. So we're not doing anything above and beyond at this point other than upholding our contractual obligations. And so other than the 3 aircraft that were sold, I believe there's only 1 aircraft that was deferred out of fiscal year '26. So the Airbus impact is very limited to fiscal year '26 and in fact, fiscal year '27 because there's not much you can do. So that's why we're having to manage the capacity through, as Joe said, utilization and things like that, which come with its drawbacks, which we're very utilization focused. So we need to balance the revenue dilution with regards to the capacity, management. But in terms of the cash flow for the full year, so you will see cash flow benefits coming from the delivery of those aircraft. You will see cash flow benefits coming from the delivery of those engines because we still do a form of sale leaseback, whether it's an operating lease, where you get the upfront gains that go into the sale leaseback line or whether you do a JOLCO or a finance lease where you also do a sale leaseback where you don't get the same P&L impact. You get the cash benefit but a different P&L impact. Roughly 20% of our deliveries right now are being financed through a form of ownership like JOLCO or finance lease. That's effectively an ownership structure, even though there is a lease structure behind it. We plan on taking the next step, as we mentioned before, into looking at an acquisition-based -- more sort of conventional acquisition-based approach. We're running the numbers now based on the order book to optimize where we think the earnings profile we'll get to over the next -- over the rest of the decade, and that will then calculate how many incremental aircraft we need to buy, and then we'll look at the financing sources, whether it's a lease like a JOLCO or whether it's some sort of acquisition either with cash or some sort of other kinds of financing. That's part of the Capital Markets Day exercise. But what that will do and what these acquisitions do is take away sale leaseback gains, which are very chunky upfront and it will spread it out in line with the depreciation and interest costs you take over the life of the asset. And there's trade-offs to that. But ultimately, we've determined that over the long term, it is beneficial from a shareholder perspective, but it comes with a near-term impact, and that's what we're trying to balance is that we continue to do a bit of both to smooth out the earnings profile of the business ultimately towards something that's beneficial and giving a better shareholder return. Alexander Irving: Alex Irving from Bernstein. Two from me, please. First of all, on your revised CASK ex-guidance for the year. So full year results, you said up slightly. Now we're saying up mid-single digit. Can you help me understand how much of that is the mechanical impact of taking your expected capacity growth from 20% to 10%? And how much of that is, say, an underlying variance versus your prior expectations and planning? Second, you've launched a euro-based product recently. Is this sort of a no regret move that if it doesn't work, we can just sell the middle seat anyway? Or is there a real revenue opportunity that you're expecting to get from this? And if so, could you quantify that, please? Ian Malin: Sure. You want me to take the first one on the CASK? József Váradi: Yes, please. Ian Malin: So the answer is, as I said before, there's no surprises this year in terms of the CASK number. So it's really more a matter of the capacity impact, where we're basically growing half of what we expected. We had sized the business and budgeted the business for a bigger business and the business that involved Abu Dhabi and things like that, we've now changed it dramatically. But still trying to manage through these costs. And so there's nothing that's caused any sort of variation on that. We do need to maintain cost discipline, and that's our focus. But it goes -- as I mentioned earlier, there's distortions and all sorts of other things that are putting pressure on that. So there's no surprises on that front. József Váradi: So I think the middle seat is surely a revenue opportunity. I mean, at the moment, effectively, we don't get the middle seat occupied. So if you look at the numbers, it's almost like no one is paying for that. Now, we want people to pay for that. Harry Gowers: It's Harry Gowers from JPMorgan. First question, maybe just how to think about growth into next year in March 2027. I think you said or mentioned that obviously, the deferral of deliveries is quite back-end loaded. So how much you're expecting to grow next year? And anything you can say directionally on costs yet for March '27? Second question, with the Abu Dhabi exit, Vienna base closure as well, is this the end of quite major airport or market movements? Or do you have any more exits or big exits in the pipeline? And then last one, just on the medium-term growth. I mean, when you were negotiating down on the deliveries, how did you settle on like the 10% to 12% is the right number? So just kind of what's the thinking mathematically or strategically behind that? Why not 7% to 8%, for example? József Váradi: All right. So maybe I'll start with the last one, the 10% to 12%. So we always saw this business is structurally designed to deliver 15% growth at 15% margin. You remember that was sort of the model what we promoted. Now given all the issues and hiccups, we broke down on the delivery of the model, and we try to reinstate that model. But we're seeing that short term -- short-, medium-term, we need to ease the delivery of that model. So that's why we're seeing that addressing around 10% growth rate versus 15% is taking some of the risks out of the equation when it comes to capacity. Why not 7% or 8%? Because if you look at our focus markets, especially Central and Eastern Europe, Central Eastern Europe will demand more than that. So we have been modeling this. We have been looking at GDP growth expectations in the region and how that would translate over to airline demand and how we can translate it into our own capacity versus the competitive games we are into and our ambition to lead the market in -- continues to lead the market in Central East Europe. And we think that this is kind of the sweet spot. So the 10% to 12% is a bit of a sweet spot analysis from the perspective of demand in our core markets versus the deliverability of the program from an operational standpoint, how much financial distress we are putting on the system to ramp operations up against that target. With regard to Abu Dhabi, Vienna and others, I think the way I would see this is that while Abu Dhabi is a very structural decision, Vienna is less so. I think Vienna is seen as pretty much business as usual. Maybe the magnitude is reaching a bit higher than usually. But what happened in Austria, I mean, the Austrian government decided to put excessive taxes on the aviation system, effectively making Vienna prohibitive from a cost perspective for us certainly. But we are not the only guy acting. So clearly, this is not a Wizz Air issue. This is a bigger industry issue. But I would say that this is fairly exceptional in terms of magnitude. Now with regard to Vienna, I think what is easing the situation is the availability of Bratislava, which is pretty much next door. So this is kind of fairly easy. But churning the network for profit, I mean, that you should be expecting us to do on an ongoing basis. And of course, same thing goes for airport cost. So if an airport becomes excessively expensive, then we would be churning that capacity for lower cost execution. So I would say that these are ongoing priorities. But if you ask the question whether we have made the big decisions, I would say, yes, the rest would be pretty much refinement and business as usual. Do you want to take the growth? Ian Malin: Sure. So just on the growth side, right, like what we've done with the Airbus deal and what these other deals that we're looking at is give ourselves optionality at the end of the day. So we -- we're going to bring things down in the medium term, the 10% to 12%, but it doesn't mean that we're limited at 12%. We're still a growth stock. We're still a growth company. We're not afraid of growth. And we have 58 aircraft or so redelivering between fiscal year '27 and fiscal year '29. Most of those aircraft have extension options in them. And so if we see that there's more demand, we can exercise those extension options and capture that demand. So I want to make sure that we're not somehow thinking that we're constrained. We have optionality. That's what we've effectively negotiated for ourselves versus before we were committed to delivering -- deploying that growth. But in terms of fiscal year ' 27, I think it's still going to be a very challenging ASK and seat growth environment, closer to 20% still as we -- at least in the near term. And that's something that we're going to have to manage through in terms of the deployment of all that. It's -- it will probably end up having an impact on utilization. It will also force us to be more measured. But I think with the changes that we're doing around the network and the market share that we want to develop, it is, again, an investment. But I don't think it will have as adverse of an impact on costs as you might be thinking in terms of where you're going with this question. So looking at the cost side in fiscal year '27, we're not guiding. It's far too early to say. But I would say that the worst is behind us because we're still -- that growth will help us at the end of the day in terms of the costs. We think that the changes that we're making to the airport side, in particular, right, hard real changes will bring down the cost side of that. So I think that -- so looking at our cost structure, you'll see depreciation probably be the biggest benefit because we start to flush out some of these ceos if we don't extend them. And you're going to start to see -- you'll see maintenance still be one of the ones that see the most pressure because of the heightened activity associated with redelivering and the aging of the fleet. Everything else, I would not expect there to be any challenge in terms of bringing costs -- keeping costs flat or down, okay? So I think that overall, the cost creep is where we are now and you start to see improvement after that in fiscal year '27. József Váradi: I would just add one more perspective. I mean, none of our plans at the moment contemplate Ukraine. So Ukraine is kind of an outside chance for the business. If things turn in Ukraine, all of a sudden, discussion will be a change fairly fundamentally from our perspective. Because we would be looking at ourselves as a genuine kind of first mover to the Ukrainian market, and we would definitely go to market as a hometown airline for Ukraine. Don't forget that we were the largest non-Ukrainian airline in Ukraine prior to the Board with operating basis. So we would be looking at reinstating that presence. I mean, obviously, that would be through a transitionary period. But in terms of ambition, we would certainly go to Ukraine for market leadership. James Hollins: It's James Hollins from BNP Paribas. A couple of strategic ones, Jozsef. Maybe just run us through a bit more on the Western European strategy. Are we back to where we were when you listed 10 years ago? It's all about CEE? Obviously, Vienna was very specific on taxes. Or if it's easier, maybe sort of quantify how you're apportioning the 10% to 12% growth, how much is CEE, how much is Western Europe? Which leads us on to Abu Dhabi, which obviously you've closed as a base. Are you still going to fly quite a bit into Abu Dhabi? Was the demand actually there that you still see it as not a base, but somewhere you still want, so you still see enough demand? And then, Ian, I hate to be that person in the room, but maybe just help us on the other costs for the full year on sale and leasebacks and compensation, which we should be thinking about to get us or get you to around where consensus currently is? József Váradi: Okay. So with regard to CEE versus Western Europe, I mean, if I look at the picture today, what changed over 10 years is that we added Italy and London to our Central and Eastern European footprint. So it was more before. So we had Vienna, we had Abu Dhabi. You all understand the changes with that regard. But we are very upbeat on both London and Italy. As a matter of fact, looking into market shares next year, early next year, we're going to be the second airline in Italy. And that's quite an achievement given that we are a bit of a latecomer to the market. Nevertheless, if I take those 2 segments, we are still talking about like 70%-75% of the business being in Central and Eastern Europe, 25%-30% being in Western Europe. So with regard to focus, there is no change on focus. So focus will remain on Central and Eastern Europe. And you see that all these new base openings, adding aircraft on an ongoing basis to our key Central and Eastern European markets will just continue to fuel that strategy. And I don't think that you should be expecting much of a change with that regard. You may guide that we burned our fingers in Abu Dhabi, you're not going to do it again. Now with regard to flying to Abu Dhabi or the UAE, I think we maintain a few operations there. So where we think it makes commercial sense from a perspective of profitability, we continue to operate to Abu Dhabi. We continue to operate Dubai. We continue to operate Jeddah. That's a U.K. operation. We operate Marina in Saudi. So where it makes commercial sense, where we can make real money, we would continue to operate. But we are not planning on setting up basis or AOCs or anything like that. So I think we will remain somewhat opportunistic with that regard. Ian Malin: So in terms of H2 others performance, I would expect -- you could expect that to increase. So if we were at EUR 0.27 in unit cost benefit in this fiscal half, I would expect that to probably go up like 40%. So there's quite a lot of deliveries happening in that period. And until we inform you otherwise in terms of our financing strategy, our approach is to take advantage of the sale-leaseback market, we think that that's a very efficient way to translate the benefit of our purchase contract into shareholder return. And so there's no change there. That's simply part of how we approach this. Ruairi Cullinane: It's Ruairi Cullinane from RBC. Firstly, could you quantify the Abu Dhabi exit costs in the financial year? And secondly, it sounds like H2 RASK is perhaps resilient given the share of immature capacity and the capacity growth. Would you be able to talk about that at all, how that's performing across different markets or on new routes versus existing routes? Ian Malin: So I'll take the first one. On the exit costs, like I said, we don't expect there to be net a detriment in terms of exiting Abu Dhabi, both in terms of a P&L perspective, but also from a cash perspective due to the arrangements that we've concluded with the joint venture partner down there. But I can't specify exactly what those costs are or we're not in a position to. József Váradi: With regard to H2, RASK, I mean, we have been making a lot of new market investments in Central and Eastern Europe. I mean it still takes time to mature. It's a quicker and faster maturity curve than in Western Europe, let's say, but it still has to mature. So I think the RASK challenge in the current half of the financial year is mainly down to the maturity of new routes. But at the same time, you're going to take the benefit of that in next financial year. Andrew Lobbenberg: It's Andrew from Barclays. Can I ask around the fleet? Well done on getting down to 11 XLRs. That's a start. What do you do with [indiscernible] Europe, they're only with U.K., but I think you own with U.K., don't you? Then can I ask a question, I know you're not going to answer, but I'll ask anyway. What's going to be the financial impact of deferring the aircraft? What should we be thinking about the relation pricing? So how will that impact how we should be modeling the CapEx going forward? And then if I can be greedy and ask a third one, staying on fleet. You seem in a hurry to get rid of the ceos. But whilst you gave us a lot to the neos, the current fuel price, the maintenance burden against the fuel price makes ceos better aircraft than neos at this fuel price. And when you get rid of the ceo, you take a big penalty on the lease return costs. So why did you not go for more aggressive deferrals of new deliveries and keep hold of the ceos for longer? Ian Malin: I will point out, Joe, that Andrew did ask me the second question this morning directly, which I refused to answer. So just to... József Váradi: Okay. So you put the burden on me. All right. Okay. So let's go through this because I think these are all very important questions. I mean you probably -- I take the second question, which is going to be unanswered probably, but I just want to give perspective to that. You probably appreciate that when negotiations drag for 6 to 9 months, there is essentially one reason for that, and this is commercial. And what does commercial mean for aircraft procurement? This is pricing escalation, nothing more really. I mean that's the essence of the whole thing. So given that drag, that long-term settlement on that, you should be expecting that it is very favorable to Wizz Air. I cannot tell you more than that, but it is very favorable to Wizz Air. So I'm not sure I would be too much into CapEx with B2B that regard, just kind of take the linear line on what you are seeing at this point in time. So that's a good deal. So with regard to the XLRs, yes, I see the 11 is not going to be the final number, 11 is what we are taking deliveries of. But for a portion of that, we would be looking at market solutions. So we are not going to put 11 aircraft into Wizz Air U.K. It's going to be less than that. And we will see how we can kind of reconcile the gap with the market with that regard. But please don't ask more questions on this because I'm not going to be able to answer at this stage of the game because there are things happening in the background, but not yet at final closure. So there is still some kind of flexibility when it comes to the XLR matters. So ceo versus neo, that's a good question, Andrew. And I think the way to think about this, so that this is the way I think about this is that there is a distinct difference between the A320ceo and the A321ceo. So if you take the A321ceo versus the A321neo, given the current fuel price, you can argue that it's a wash. When you look at the economics of the 2 aircraft, it's pretty much a wash. So you have the fuel burn benefit on the neo, but that's offset by the higher capital cost and higher maintenance cost on the ceo. But this is something which can change. I mean, if fuel price comes down significantly, then the ceo start prevailing as an economic concept. If it goes back up again, then the neo becomes a better aircraft. But this is given the current maturity of the technology. The moment we get to advantage, we think the equation flips structurally. So there is no more debate on fuel price and who is better, which aircraft is better, ceo or neo, neo at that point will prevail. At the moment, you can argue that actually there is a way to compare the 2. And as we speak today, I would say that the economics of the 2 aircraft are pretty much the same. Now the A320ceo is a different animal. The A320ceo is 180 seats versus the 239 seats. So no way that we could come to the economics of the A321neo operation with an A320ceo. So if you take the redeliveries of aircraft, I think the right strategy for us is to preserve A321ceos as much as it makes sense, but still continue to get rid of the A320ceo. So we have no appetite for extending A320ceos. I think we will continue to evaluate the A321ceo versus the A321neo. So I don't know if that kind of gives you the answer, but I would definitely make a distinct difference within the ceo line between the A321 and the A320. Gerald Khoo: Gerald Khoo from Panmure Liberum. Can you talk a bit about how trading is going in the U.K.? Obviously, in base terms, you're losing at Gatwick. I think over the past 6-12 months, there have been some slots that have become available at those relatively slot-constrained airports. And I don't know whether it was an active decision on your part to not go for those slot opportunities or whether you lost out to new entrants. But what's your thoughts in terms of taking opportunities to put more aircraft into the London market, for example? József Váradi: Yes. Good question. And I think we have an increasingly nuanced view on how best to allocate capacity in London. So first of all, we remain very upbeat of the London market. We are very supportive of the growth and development of Wizz Air U.K. And Wizz Air U.K. is an ever-improving platform. So I mean we are seeing some very impressive financial improvements coming through the operation of the airline. So we remain highly committed and very supportive to the London market. Having said all of that, I think we have to look at differences between Luton and Gatwick. So the issues we are facing at Luton at the moment is capacity constrained structurally by passenger numbers. I mean that's a policy decision of the shareholders. And secondly, they have some short-term runway improvements that affect the short-term capacity we can put through the system in Luton. But I would say that in Luton, we are very interested in pretty much sucking up everything that becomes available. Gatwick, I think we have been overly focused on slots, as opposed to performance in the past. And we ended up operating also a slot portfolio that didn't make much sense from a commercial perspective. The slot portfolio became a burden as opposed to an opportunity on the business. Now certain parts of the slot portfolio are very favorable, not only operationally but also commercially. And we remain very committed to operate that portfolio. That's why we are rationalizing capacity allocation between the 2 airports. We focus on proper slots that translate into proper commercial opportunities at Gatwick, and we are pretty much sucking up everything at Luton, which becomes available. Conroy Gaynor: It's Conroy Gaynor from Bloomberg Intelligence. So I just want to touch on labor costs. Ian, you sort of alluded to the fact that maybe we shouldn't expect more cost creep in some of those type of items. And so the way I'm reading that is basically as you increase your capacity, you start to -- GTF issue starts to soften, there's some sort of productivity gain to be had that will offset things like wage inflation. Now -- but how do you -- given that there are so many moving parts, you're coming out of Abu Dhabi, putting capacity in different places, you're still going to have high capacity growth. How do you actually manage that transition and dynamic? József Váradi: Yes. So I think when it comes to labor cost, I would think of 2 fundamental issues. I would think of nominal inflationary pressure on pay. And I would think of productivity, how much productivity we are able to get out of the labor force what we have. Now if you look at the current situation, we are compromised on productivity. We are compromised because of the volatilities, the operational volatilities we are managing against the backdrop of the GTF groundings. I mean, simply, you cannot refine your model as such as we used to in the past that you really mathematically kind of figured out how to deliver the highest level of productivity against plannable foreseeable external factors. You are broken on that because we don't know how many engines we will have operationally available. So you have to have a slack. You have to have a slack with that regard. And also because you are losing engines and aircraft today, but you will recover tomorrow, you want to make sure that you actually have a crew, you have the pilot, also you have the cabin crew to operate that engine. So as a result of that, basically, our productivity has been somewhat dented versus where you would want to be ideally. Now with more predictability and more recovery of the GTF issues, the better we can plan on productivity and the more we can improve on productivity. So I think when it comes to labor cost, the improvements will come through productivity, not nominal inflationary resistance. Whatever the inflationary pressure is, whatever the market does, we have to do it. I mean we don't have a choice. I mean we pay according to market. If the market goes 3%, we go 3%. If the market goes 0%, we go 0%, if it's 10%, it's 10%. So we don't have much choice on that. But I think we have an opportunity to do better on productivity once we are putting more credibility and more predictability across the system when it comes to input issues like GTF and those sort of things. Operator: [Operator Instructions] The first question is from Jarrod Castle at UBS. Jarrod Castle: Three from me. Just want to get an idea, Jozsef, Ian, how you see capacity growth in the markets you're growing in over the next 2 to 3 years, if you exclude your capacity growth. So I guess, how do you see competition? Secondly, I don't think you answered it outright, but you've obviously sold 3 planes outright. It sounds like you might try sell some further 321 XLRs. But how many potentially could we see in terms of deliveries being recycled in outright sales? And then just lastly, on your net debt to EBITDA, nice to see the ratio falling. When do you think we could get back to 2x if you -- when you look at your kind of growth profile and budgeting? József Váradi: So with regard to the overall market growth and growth of competition, I think in Central and Eastern Europe, the fundamental question is not -- and I know that people like entertaining this tension in the market that to what extent do you think Wizz Air can grow in light of what the other guys are doing, et cetera. But that's not the question. The question is that you can assume reasonably that both of these carriers will continue to grow. But the question is what happens to the rest of the market. And you see very clear trends. So if you look at our market positions, as I said, now we are moving from 25% to 29% market share. The other guys are at 20%-21%. So basically, every second passenger flying in and out of Central and Eastern Europe is taking either us or the other guys, us more. And that number used to be like 30% a few years back. And I can tell you this number is going to be probably 60%, 70% in a few years down the line. So these 2 airlines will continue to take market shares in Central and Eastern Europe. And you're going to be seeing a lot of the incumbent national carriers or small-scale private carriers diminish in the marketplace. I think this is what you should be expecting. Will the overall market grow in Central and Eastern Europe? Definitely. I mean Central and Eastern Europe is a lot better place with that regard than Western Europe in terms of GDP development and standard of living is rising relatively higher in Central and Eastern Europe [indiscernible] economic convergence and standard conversions are taking place. And that will produce more discretionary spendings in those markets. So we think that is going to be increasing market demand, and that is going to be diminishing kind of small-scale competition in the marketplace. And I don't really care how much the other guy is growing because I think this is just going to affect more the rest of the marketplace. And to be honest that phenomenon has been the case over the last 10, 15 years. So there is nothing new here. You can go back to the history of Central and Eastern Europe. You can look at market share evolution. I mean this trend is not new. It's been happening and it's continued to unfold. So with regard to fleet, to what extent we would be pushing for more outright sales. I think I would consider this as a short-term phenomenon, not as a structural matter. So we don't have plans to sell the aircraft. I mean these aircraft are extremely well-priced aircraft, source of competitive advantage versus other airlines. We need to put that aircraft into work, and we need to make money on the aircraft by operating the aircraft, not by selling the aircraft. But as said, short term, we are under capacity pressure. So this is only a short-term phenomenon. And yes, I mean, you spotted that the XLR might be a candidate or some of the XLRs might be a candidate. And indeed, when we have news to spread, we will do that. But please don't look at outright aircraft dispossession as a strategy on a structural basis. This is only short term. Ian Malin: Yes. If I could just add to that. I mean, don't forget the inherent value of that order book and what it does for Wizz in terms of the company. That is something that we want to capture. We will capture. And we have different ways to translate that. And so that's not something that we want to impact. So that's still something that I think that the market doesn't quite properly give us credit for. In terms of your question, Jarrod, in terms of net debt, I'm not going to tell you when we're going to hit 2x. All I can tell you is that that's something that I'm extremely focused on. I think it's extremely good discipline in the business. We want to build a business that we want to work for, other people want to work for, you want to invest in. And to do so, we know that we need to bring the balance sheet into a certain condition. We see a path to get there. The #1 way to do so is to generate operating profits -- that will generate EBITDA. That will then help us offset the -- bring down the ratio, and that's our focus. So it's a target. It will be something that we talk about at the Capital Markets Day. It ties into our fleet plan. But ultimately, profitability is what will drive that ratio, and that's what we're focused on. Operator: The next question is from Stephen Furlong at Davy. Stephen Furlong: I was wondering, Jozsef, what's the North Star here? Would you think that FY '28 is the more normalized year? Or is it FY '29? And what would you see as the execution risks? I mean, is it the suppliers? Would you describe your relationship with your suppliers, meaning Airbus and particularly Pratt & Whitney, are they good now? I mean, obviously, the challenge of Pratt & Whitney has just been huge for the company. József Váradi: Look, I mean, it's a good question. I still think that the single biggest risk is around the supply chain, probably more around the OEM side than the immediate airline execution. I think they are improving. But at the same time, I mean, you kind of look at the bigger picture, you see that it is not only Pratt & Whitney customers that are out there with grounded aircraft, but CFM customers are also grounding aircraft. So this is not like one guy is broken and everyone else is doing great. Everyone is broken, if you want to put it that way. You can debate the magnitude of that, how bad is this guy versus the other one, but there are structural issues. I think there are structural issues with probably too quickly shortcutting technological developments. It was too much of a regulatory ease. So I'm pretty sure that the regulator will kind of toughen up with that regard. You can argue that the industrialization production have not been properly executed, and that will continue to pose risks to the operators, et cetera. So I don't think that this is going to turn any time quickly. I don't know how long this is going to take, but I personally -- what I would expect is that with the introduction of the advantage and kind of the rollout of that at industrial scale, probably we are still seeing a somewhat risky supply chain environment over the course of the next 2 to 3 years. And you recall when we started grounding at that time, everyone believed that all this powder metal issue is going to hit the industry for up to 18 months. Now this is more like a 5-year cycle. And now this is all compounded with kind of the childhood diseases coming through with premature technology. So this is going to take time. I think what it really means in the industry is that innovation will slow down. The investment cycle for OEMs will lengthen as a result of all these hiccups. I mean just look at how much money Pratt & Whitney has to spend on this recovery. I mean this is going to put burden on the recovery of the investment. So it will just extend that investment cycle. So I would say that long term, I'm confident that the supply chain is going to fix itself. OEMs will fix themselves. But short term, even I would say, maybe medium term, there are some risks associated with the operation of the OEMs. Operator: The next question is from Alex Paterson at Peel Hunt. Alexander Paterson: Two questions from me, please. Firstly, the GTF engine, what's your confidence that maintenance costs will be, what you think they will be? Have we actually had enough flying hours to establish, how these behave after the inspections? Is there a risk that actually it turns out to be a bit worse? And then just in terms of your RASK guidance for the second half, again, what's your degree of confidence that you can deploy the 35 deliveries, obviously, net of anything going back? And not -- because you're concentrating the deployments into Central Eastern Europe, Italy and London, is there a risk that actually you diluted a bit worse, a bit more than you're suggesting? József Váradi: Look, I mean, I will start with the second one first. All these aircraft have been deployed. So they are up for sale. Some of them have started operating. Some of them will start operating during the period. I think we, of course, still have uncertainty around how exactly revenue is going to play out. But I think we are fairly confident in what we are saying. So we are not optimistic in terms of the numbers or the perspective that we are presenting to you. Is there a potential upside to that? Maybe. But we're going to be on the kind of conservative realistic side of the equation. So I don't think you should be expecting a huge variability to our assumptions at this point in time. Ian Malin: If I could just also add to that, Alex. The number is not 35 deliveries in H2. That 35 is the year-on-year increase in number of neos at the end of Q4 this year versus Q4 last year. So just to make sure that it's that we're using the right data points. József Váradi: So with regard to the GTF, so the beauty, if there is such, in our case with regard to Pratt & Whitney is that we have a flight hour agreement. So effectively, we put the burden on Pratt & Whitney. Now of course, if there is no engine, there is no engine. So then you have to share the burden. But in terms of maintenance cost, the burden is on Pratt & Whitney. And that's a major difference between how CFM goes to market versus Pratt & Whitney goes to market. CFM doesn't stand behind the product. So basically, they say, look, we are 75% of the short-haul engine market, we have a very, very established market for purposes of engine maintenance, use the market for our own benefit. Pratt & Whitney is underwriting the performance of the engine. So effectively, we have outsourced the risks, the economic risk on engine maintenance. Now that sounds simple, and this is not as simple as that. But in essence, that's what it is. So if the maintenance costs on the engines turn to be higher than expected or assumed, the burden is going to be on Pratt & Whitney, not on us. But of course, we still need to have the engine available to us to operate and fly. Operator: And the final question is from Gabor Bukta at Concorde. Gabor Bukta: You may have heard that there are some rumors on the market that Lot may buy Smartwings, which has a significant exposure in the Czech Republic. And you may always see LOT as an efficient company like TAROM in Romania. And if such an acquisition were to happen, would you see any chance to increase your exposure in the Czech Republic? Or how would you look at this kind of transaction? József Váradi: I think it's a bad idea, but that's not my goal. Look, I mean, in my mind, LOT is an airline losing on the home ground and Smartwings have ever been losing in their homeland. So when you put those 2 together, I mean, what do you expect? I think the competitive environment in Poland is pretty tough for a national carrier. Maybe it's a little more benign in the Czech Republic that can change, especially given these dynamics. But look, I mean, this is really not our business. But I think strategically, probably both airlines will get weaker as a result of this because you are putting weaknesses together, not strengths together. All right. I think we are done. Well, ladies and gentlemen, thanks for coming. Thank you for your questions. I appreciate your interest. Thank you. Have a good day. Ian Malin: Thank you.
Operator: Good morning, and welcome to NIQ's Third Quarter 2025 Earnings Conference Call. [Operator Instructions]. With that, I'd like to turn the call over to Will Lyons, Head of Investor Relations. Please go ahead. William Lyons: Thank you. Good morning, everyone, and welcome to NIQ's Third Quarter 2025 Earnings Call. Joining me today are CEO, Jim Peck; COO, Tracey Massey; and CFO, Mike Burwell. Following Jim and Mike's prepared remarks, Jim, Tracey and Mike will take your Q&A. As a reminder, our remarks today will include forward-looking statements. Actual results may differ materially from those contemplated by these forward-looking statements. Factors that could cause these results to differ materially are set forth in today's earnings press release. Any forward-looking statements that we make on this call are based on our assumptions as of today, and we undertake no obligation to update these statements as a result of new information or future events. Also, during this call, we will present both GAAP and certain non-GAAP financial measures. A reconciliation of non-GAAP to GAAP measures is included in today's earnings press release, which is available on our IR website, investors.nielseniq.com. A replay of this call will also be available on our IR site. And lastly, just a quick housekeeping item. Posted alongside our 10-Q and earnings release, you'll find a supplemental file that reflects recasted financials related to our post-IPO legal reorganization. This includes a noncash mark-to-market adjustment on the Nielsen Media warrant for all historical periods prior to Q3 2025, where the instrument has converted to equity treatment. And with that, I'll now hand the call to Jim. James Peck: Thanks, Will. Good morning, everyone, and thank you for joining us. I'm very pleased to report that our Q3 results beat expectations across the board, 5.8% organic constant currency revenue growth, 21% margins, up 300 basis points and $224 million of levered free cash flow, achieving most of our second half cash flow guidance in Q3 alone. We've raised our 2025 outlook, and we're heading into 2026 with momentum. Q3 is further proof that we are reaping the financial benefits of our multiyear transformation. In terms of revenue, EMEA and Americas grew 8.8% and 4.1%, respectively, on an organic constant currency basis, and APAC growth improved. Intelligence revenue grew 6.6% in organic constant currency. Intelligence subscription revenue, our version of ARR, also grew 6.6%. This was our sixth straight quarter of 5-plus percent organic constant currency growth and 6-plus percent Intelligence subscription growth. Activation revenue improved in the quarter, and our pipeline remains robust. On profitability, net loss and adjusted net loss improved while adjusted EBITDA of $223.7 million accelerated to 25% growth. We expanded adjusted EBITDA margin, and we're tracking to significant expansion in 2026. And with our strong Q3 performance, we now expect to be free cash flow breakeven on a levered basis for the full year 2025. The first step of what we expect will be a multiyear free cash flow inflection. As an important reminder, levered free cash flow in the first half of the year did not reflect the $100 million of annual interest savings we achieved as part of the IPO. Looking at high-level business performance. Aligned to our revenue growth algorithm, Q3 was driven by strong pricing as well as innovation cross-sell and upsell. In Intelligence, we're seeing continued strong adoption of our omnichannel measurement products such as eCommerce, consumer panel and full view measurement, which contribute nicely to our growth. We're also successfully executing our proven integration playbook at GfK. Tech and Durables revenue has grown year-to-date, and we're aiming to accelerate further in 2026. In Activation, our AI-first BASES, analytics and media products are growing rapidly, supporting 2025 revenue and bolstering momentum heading into 2026. Lastly, integrations of our Gastrograph AI and M-Trix acquisitions are going well, and we're penetrating new markets and converting new business. In short, it was a strong quarter. We're growing profitably and improving margin and free cash flow ahead of schedule. For the balance of my prepared remarks, I will address how AI is widening the moat around the NIQ ecosystem and improving our financial profile. We are not simply participating in the AI revolution in consumer data intelligence, we're leading it. Let me start by highlighting 3 key takeaways. First, AI widens the NIQ data moat. Today and into the future, AI models need the right data in scope, accuracy and depth. Our data assets are vast and hard to replicate, are enriched, are proprietary and span decades of consumer spend and behavior and are updated constantly. Second, we are rapidly embedding AI across our solutions portfolio. We're also evolving the NIQ user experience to enable client speed to insights and further enhance our revenue growth. And third, we believe we are in the first innings of capturing significant AI-driven operating efficiencies and margin expansion. On my first point, today's consumer brands and retailers face a daunting and expensive reality. Consumer behavior is changing rapidly and shopping data is exploding in volume and complexity. Identifying, collecting and analyzing this data across a rapidly growing number of channels and touch points is more challenging and costly than ever. As generative and agentic AI reshape this competitive landscape, CPGs and retailers seek real-time granular insights so they can act faster and compete smarter. General purpose AI models alone are insufficient to extract meaningful signals from messy unstructured data and not built to support high-stake decision-making. Try asking a general purpose LLM who sold the most chocolate during October 2025, and the result is incomplete, outdated and inaccurate. This is because the accurate data simply isn't available in the public domain. But we have this granular data at NIQ. Through Discover, clients can click into sales data by day, week, location, which specific candy bar at what price point, sold through which retailer, why the consumer bought, what else the consumer bought, everything and more about that transaction. In our ecosystem, we harness advanced technologies and draw on decades of industry leadership to amass the global superset of consumer shopping behavior data, which is continuously updated with first-party data. Our data covers every dimension that matters to clients, including geography, channel and category. We also believe our data is the most granular available anywhere down to the specific product SKU. This data moat is intentionally designed. Our data scale is vast, global and proprietary. Our harmonized data assets are extremely difficult and highly impractical to replicate. We ingest retail point-of-sale data from thousands of retail chains in over 90 markets and our robust industry reputation for data stewardship facilitates these exchanges. In traditional trade retail, our extensive network of field auditors and digitized collection methods enable us to cover consumer purchases with less technology for retailers in key developing markets, a feat unmatched by others. We also believe we have the most comprehensive digital commerce assets, offering the most detailed view of the digital marketplaces as well as the largest global e-receipt consumer panel. In fact, panels are a key area of focus and differentiation for us. We have collected decades of consumer shopping data from our panels, and we're investing to expand our panel footprint. By pairing the what the consumer bought from our leading measurement data with the why from our robust panel data, we are uniquely able to deliver clients a full view of consumer shopping behavior globally. In addition to the massive amounts of data we ingest, it's the rich data that we create that further enhances our moat. We generate a substantial layer of rich reference data and metadata, which includes tens of millions of product attributes, taxonomies, hierarchies and harmonized product information across the 220 million items in our database. This includes brand, category, size, ingredients, packaging type and more. Our rich layer of descriptive data enables NIQ to organize, analyze and pair products at a granular level, making it possible for clients to uncover trends, benchmark performance and make smarter decisions faster, which brings me to my second point, how our solutions drive clients' speed to insights and unlock new growth. NIQ data and insights power mission-critical client decisions across their enterprise, and our clients are leaning in. By Q3, users on our Discover platform grew 9%. Total data points consumed grew 29% and the average monthly data consumed grew 39% versus last year. As clients increasingly rely on our data and insights, we're leveraging AI to deliver deep value. For example, NexIQ is our proprietary AI engine, which we purpose trained on our 160 petabytes of global consumer and retail data. Unlike generic large language models, NexIQ understands the nuances of consumer shopping. This enables 10 to 12x faster data processing in general purpose LLMs and with near perfect categorization accuracy. NexIQ isn't just automation. It's NIQ Intelligence at scale, delivering real-time insights with unmatched precision and speed. Developed with partners like Microsoft, Snowflake, Google and Intel, NexIQ is also the backbone of our AI-powered product suite, driving innovation across Intelligence and Activation products. We're building tools to transform how our clients make decisions from predicting winning product concepts in minutes to generating automated KPI narratives. NexIQ's integration into our ecosystem ensures that every insight is grounded in the most granular harmonized data available, giving NIQ a defensible edge in the market. And from this strong foundation, we're rapidly evolving our AI solutions. For example, version 1 of our Gen AI Copilot, Ask Arthur, has accelerated speed to insights by 40% across our omnichannel measurement and consumer panel data. In 2026, we plan to launch Arthur version 2, an intelligence research hub with predictive signals and analytic storytelling that can chat, anticipate, act and summarize. Eventually, Arthur will be able to suggest NIQ products, data sets and analysis based on client needs, enhancing our Discover software into an AI-powered cross-sell and upsell engine. We're also driving AI innovation throughout our Activation suite. For example, Revenue Optimizer is our AI-driven analytics solution, helping clients optimize pricing and manage trade spend for maximum profit. Precision area uses AI data harmonization to segment countries into local markets by demographics and by retail data. This enables clients to find the needle in the haystack in terms of growth opportunities and investment optimization down to the granular neighborhood level. This year, we also launched 2 AI-first solutions, BASES AI Screener and Product Developer. These solutions seamlessly combine our leading global data assets with our advanced analytics offerings. With BASES AI, clients can now rapidly test, develop and commercialize products that consumers want to buy. We're driving expansion and seeing strong early client adoption. BASES AI Screener is now live in 11 markets across 129 product categories. Client feedback has been overwhelmingly positive, and we've added 18 large clients since launch. With BASES AI product developer, 31 clients, including our largest CPG clients to SMB, tested 500 product concepts in Q3 alone. Unilever reported a 65% reduction in product development time, stronger innovation success rates and accelerated speed to market, launching products up to 6 months sooner compared to traditional testing methods. And as showcased in our IPO roadshow, Brown-Forman use BASES AI to identify a winning Jack & Coke formulation, adapted for new markets and plan future line extensions. They reported a 350% sales increase, 2.5x sales velocity increase and repeat consumer purchases that nearly doubled. So AI is embedded broadly across our entire product suite, supporting revenue growth and innovation. We believe we're well positioned to capitalize further in 2026 and beyond. Lastly, on my third point, artificial intelligence is a key driver of operating efficiency and margin improvement at NIQ. It helped us deliver better-than-expected margin expansion in Q3 and year-to-date, and it's laying the groundwork for continued expansion in the years to come. For example, we're harnessing agentic AI to automate our entire data operations workflow from acquisitions to coding to delivery. We're finding that the combination of advanced AI and operational expertise boost efficiency, elevates data quality and accelerates our innovation. Clients benefit from our ability to bring products to market faster and to expand into new markets. On the customer support front, our globally launched NIQ service suite now delivers dynamic, personalized and contextual support powered by Gen AI. AI-driven support ticket routing and automated intelligence unlock faster resolutions and more seamless client experiences. Since launch, user engagement with Gen AI support tools has increased efficiency by over 40%. And our agentic customer success ecosystem is setting new standards for end-to-end client satisfaction. Across our corporate support functions, including HR, legal and finance, we're deploying advanced AI and automation to streamline operations, enhance compliance and unlock new efficiencies. In finance, AI-powered process automation has enabled us to standardize reporting, reduce transactional workloads and deliver real-time insights for executive decision-making. In HR, intelligent analytics are helping us optimize talent acquisition and workforce planning, while legal teams leverage AI for faster contract review and improved regulatory compliance. In summary, we believe AI is a strength for NIQ on all fronts. It's a differentiator and a profitable growth enabler. We use it to turn global omnichannel consumer complexity into competitive advantage. We turn client questions and needs into client value. As we close out 2025, we are excited about what's ahead in 2026. We'll continue to lead shaping and building the AI-powered future of consumer intelligence. With that, I'll turn it over to Mike to cover our financials. Michael Burwell: Thanks, Jim, and good morning, everyone. Q3 was another strong quarter. We exceeded expectations across the board and demonstrated a powerful free cash flow inflection, delivering most of our back half levered free cash flow guidance in Q3 alone. AI-powered automation is reducing manual effort and increasing efficiency across NIQ. This contributed to margin expansion in Q3 2025, and we expect it will be a margin driver in 2026 and beyond. We are raising our 2025 guidance. We believe this further demonstrates the mission-critical value we bring for clients and the embedded operating leverage in our business. Turning to our Q3 results. In Q3, organic constant currency revenue grew 5.8% to $1.1 billion, surpassing the top end of our August guidance. We saw particular strength in our EMEA segment with Intelligent Solutions driving renewals, value-based pricing, cross-sell, upsell and expansion into new verticals. On an organic constant currency basis, EMEA grew 8.8%. From a product perspective, total Intelligence revenue grew 6.6%. Annualized Intelligence subscription revenue also grew 6.6%, our sixth straight quarter of 6% plus growth. Annualized Intelligence subscription net dollar retention and gross dollar retention remained strong at 105% and 98%, respectively, reinforcing the strength in our revenue growth algorithm. As Jim mentioned, Q3 Activation revenue improved to year-over-year growth and our client pipeline remains robust. On expenses, total operating expenses increased $89.3 million or 8.9% on a year-over-year basis, driven primarily by a $50 million onetime stock-based compensation charge triggered by the IPO, which we previewed to analysts as part of our IPO process. This is the life-to-date catch-up related to pre-IPO equity awards. Other factors driving expenses included higher amortization driven by our Gastrograph AI and M-Trix acquisitions as well as fluctuations in foreign currency exchange rates. It's important to note that outside of these aforementioned factors, OpEx growth remains modest and well below revenue growth. Net loss and adjusted net loss improved $16.1 million and $47.6 million on a year-over-year basis, respectively. We accelerated adjusted EBITDA growth to 25%, delivering $223.7 million for the quarter. We expanded adjusted EBITDA margin by 300 basis points to 21.3%. Profitable organic revenue growth as well as ongoing GfK integration and AI-driven synergies remain key drivers this year. Importantly, we remain firmly on track towards our midterm margin target of mid-20% that we shared during our IPO roadshow. We expect 2026 will be another year of significant margin expansion as revenue growth flows through and we drive AI-powered efficiency across the business. Turning to free cash flow. We delivered $224.4 million of levered free cash flow, achieving most of our back half 2025 guidance in Q3 alone. This was driven by higher adjusted EBITDA, lower interest expense and significantly improved net working capital as we improved DSOs by 7 days compared to Q2, well ahead of schedule versus our August guidance. I'll also note that Q3 working capital benefited from a vendor payment that we accelerated in Q2 in exchange for more favorable contract terms moving forward. For a better-than-expected Q3, we're raising full year 2025 levered free cash flow guidance to breakeven. This is an exciting inflection point for our business as we continue to improve and progress towards our steady-state profile in the coming years, up $20 million from our previous guidance midpoint, full year breakeven implies a $225 million improvement versus 2024. It also implies $280 million of levered free cash flow in the second half of 2025, which is above the high end of our prior $245 million to $275 million range. As an important reminder, levered free cash flow in the first half of the year was burdened by our pre-IPO capital structure and did not reflect the $100 million of annual interest savings we achieved by deleveraging the balance sheet and repricing our debt. In fact, our strong Q3 performance triggered another interest rate spread step down, generating an additional $9 million of annual interest savings moving forward. Turning to our balance sheet. At the end of Q3, we had cash and cash equivalents of $446 million and $750 million of available capacity under our revolver for a total of $1.2 billion of available liquidity. On capital allocation, as I've mentioned before, as free cash flow ramps, debt repayment remains our top priority. At the same time, we continue to pursue accretive tuck-in acquisitions that complement our growth strategy. We are confident that our inflecting free cash flow and strong liquidity position enables us to simultaneously achieve our financial priorities. Now turning to our increased guidance. Based on our strong Q3 performance and favorable business dynamics, we're setting Q4 guidance ahead of what was implied at our August call. We now expect reported revenue growth of approximately 7% to 7.3%, organic constant currency revenue growth of approximately 5% to 5.3% and adjusted EBITDA growth of approximately 25% to 26%. This implies adjusted EBITDA margin nearing 25% or 360 basis points of expansion on a year-over-year basis. On free cash flow, we now expect to deliver positive $55 million to $60 million for the quarter. This implies that for the full year of 2025, we expect reported revenue growth of approximately 5.1% to 5.2%, organic constant currency revenue growth of approximately 5.5% to 5.6%, adjusted EBITDA growth of approximately 22% to 23%. This implies adjusted EBITDA margin nearing 22% or 300 basis points of expansion on a year-over-year basis. And our expectation for breakeven levered free cash flow is a $20 million improvement versus the midpoint of our previously stated range. I'll note that margin expansion has exceeded our expectations in recent quarters. We attribute this outperformance to AI-driven operating efficiencies, including as part of our ongoing GfK integration. Heading into 2026, we're actively identifying additional AI-driven operational efficiencies across the business. In summary, it was a strong Q3, and we're excited about what's ahead. We're focused on closing out a strong 2025. We're in the midst of finalizing our plans for 2026, which we expect to be another year of mid-single-digit growth, strong margin expansion and significantly increased free cash flow generation. We intend to provide more details on our Q4 and year-end earnings call tentatively scheduled for late February. Operator, we're ready to open the call for Q&A. Operator: [Operator Instructions] We'll take our first question from Alexander Hess at JPMorgan. Alexander EM Hess: NIQ exceeded its guidance at a time when many of your CPG clients have been paring back their expectations for their calendar years or fiscal years, at least those that we follow. Can you walk us through the general trajectory of your clients' wallet of trade, R&D, marketing, sort of that wallet that you're able to capture share of? And then what you guys are doing that's specifically increasing your share of wallet, which feels like sort of where you're at and what the trajectory is right now. James Peck: Yes, great question. It lets us explore a lot of questions that other folks might have. And I'll start off by saying, as you know, whether things are going really well or things aren't going so well for our clients, they really need our mission-critical services. So in good times, they need us more for innovation. Maybe in bad times, they need more to help them understand where they want to spend their money and where they're going to get the most bang for the buck, and that's holding true right now. And of course, we have a lot of new innovations that are part of our growth strategy that are increasing our share of our clients' wallet as they're on their own journey for growth. And so as you know, Tracey worked at one of the biggest manufacturers in the world, and I'm going to turn it over to her to give her perspective from kind of a client's perspective. Tracey Massey: Yes. Our clients are in different places. Some of them are really driving innovative solutions. So if you look at the market and performance of our clients, the ones that are winning that have the best innovation are the ones that are partnering with us -- with our BASES AI Screener, our BASES Product Developer. We're helping them get much quicker to market with their innovation with some of our new AI products, but also then we're able to help them with their innovation. If it's working, then where to double down, increase your advertising, increase your trade. If it's not working, where to pare back and where to move your money around. So whether you're growing or you're struggling, we're absolutely critical to them across all their decisions. If I look at our top customers, 8 of our top 14 customers are growing mid- to high single digits, some of them in double digit. Some of them are in -- are struggling a little bit more where they've had -- and we've talked about this before, where they've got internal changes like they've changed their CEO or they've got restructurings or they've got divestitures, they tend to double down internally for a few months and then they pick their heads back up. So we're seeing really good momentum with our clients as they get coming out of some of these internal changes, we expect to see even better performance from some of them that are picking their heads up now and looking at where they can drive innovation and growth. But what you have to remember with these CPG clients, the ones that are growing are the ones that are winning. So they're all looking for our help to maximize their growth performance. That's where they get the ROI from their spend with us. Operator: We'll move next to Manav Patnaik at Barclays. Manav Patnaik: Jim, I appreciate all the detail on the AI debate. I think that was really important and helpful. I just had a follow-up in terms of -- can you talk about the data acquisition that you get? And I guess the debate is how much of that data do you buy that somebody else can buy and how much you collect yourself? I know you alluded to adding your context around it, but I was just hoping you could address that where the data comes from, question. James Peck: Yes. So as you know, we get data from literally thousands and thousands and thousands and thousands of sources. And some of it, I'm not going to give you a percentage of anything actually. And part of the moat around our business, which I think is what you're really asking me is that to collect that amount of data is really quite improbable, I think, for someone to try and do that. the way we do it. But that's a chunk we get from retailers. And then we get another massive amount of data from going into a huge network of people going into stores in the traditional trade and actually having to, by the way, using AI-powered technology going in and understanding what's selling in India, what's selling in different parts of Latin America, what's selling in different parts of Asia Pac. And then on top of that, of course, we get -- we have some of the biggest consumer panels in the world, delivering us all their e-receipts, telling us who they are demographically. And we collect that massive amount of information every day, every second of every day and add it to our database. That data is often very messy. And so not only do we have to do the normal cleaning, we also have to put it in context with which each of our clients view their world. And that's part of what we call coding. So there's a ton of metadata that goes into making our database function properly and function properly with AI, by the way, for our clients. And so that is really the moat. And I think you're trying to get at, well, someone can just go buy data and they'll slap on ChatGPT and they're going to create something. That's just -- that's not going to happen. And I tried to give the example in my remarks. I was at Halloween, I was like, okay, let's see what's out there. Who is selling the most chocolate bars right now in the United States. And I won't say which clients came back on top. I could easily tell right away, this is what's happening real time with chocolate sales. This is what's happening this day, this week up to the month of Halloween or up to the day of Halloween. Here's what's happening in this region. Here's what's happening in the city. Here's what's happening in the store. Here's why they're winning. Somebody is discounting pricing, so they're selling more units, but their prices aren't as high as they normally are. And you can't get any of that kind of thing from anywhere where -- like that's somehow going to come through somebody throwing an AI tool on top of some public data, but you can go ahead and look it up yourself. Right now, you may be able -- if there's an annual report out there, you may be able to see someone's annual report at a very high level. But you're just not going to get to the level of granularity, even close that our clients need to run their business, and it's not going to be right. And I'm going to go off on this one for a little bit. If our clients make huge decisions based on what we do. And if we give them the wrong information, they can make decisions that will cost them millions and millions and millions of dollars. And so we also have the responsibility to make sure this stuff works right. And so we do a significant amount of testing to make sure that our AI tools sitting on top of this information and other analytic tools are providing the right answers. And while I've got this subject, if you think about it, we're sitting on all this data and what has been a constraint for any company like ours on providing more and more innovation is just enough access to capital or how much capital do we have to invest in all these new tools that we know we can build and that maybe others are building. With AI now, we have kind of a way to develop things much more cheaply and efficiently and we know what our clients want. And so we can spend all day long innovating. So I think what you're going to find is that we are the ones who have access to this information to actually build things and test them and get them in our clients' hands. And so it's just going to make our innovation engine run that much faster. And then I'll just conclude with that -- to do what we do, we have to have a lot -- data stewardship is very, very important. So making sure that we're doing the right things with the data that we're allowed to do. We -- it's not just a contract. It also has to be done technically. There are a lot of things we have to do to make sure that certain clients' data don't get in the hands of others that they don't want them. And so that's a big part of our ecosystem as well and just another moat around the business. Manav Patnaik: Got it. That's super helpful. And then just a follow-up, Mike. You talked a little bit about, I think you were planning for '26. I missed that part a bit, but just early thoughts into this momentum continuing into next year and how we should think about the kind of prior numbers we had? Michael Burwell: Yes. So I think the numbers that you've had are still makes sense, Manav. But look, when we announce at the end of February, we'll give you guidance in terms of looking what '26 is. But we're excited about the momentum that we're seeing, right, in terms of what's happening from a revenue standpoint and the launch of both of our AI activities in terms of what it's doing to drive revenue as well as what it's doing for us in terms of coding and margin improvements as well. So I'm excited to be able to give you more of that preview. I guess I just think we're continuing to move in that direction and momentum. And I guess I look forward to giving you that update when we get through Q4 and update you at year-end in terms of what we look like for '26. But nothing further at this point other than like where we're trending. Operator: We'll move next to Ashish Sabadra at RBC Capital Markets. Ashish Sabadra: Just wanted to focus on EMEA in particular, where we've seen some really material acceleration in growth. I was just wondering if you could drill down further and talk about what's really driving that robust growth in Europe in particular. Michael Burwell: Sure. When we look at Europe, we have continued -- and I'm sure Tracey will comment on it. Our Panel on Demand service offering is doing very, very well. It's being widely accepted and that people can look at Discover. And in Discover, they can get the overall market read, but they also then can look at consumer panel information so they get both what was sold and why it was sold. And it's really powerful to be able to bring that together, particularly as you look across the markets that represent EMEA. It's been very, very well received. But Tracey, maybe I don't know, you want to comment on that? Tracey Massey: Yes, sure. There's 2 big impacts in our EMEA region. Firstly, it's where our GfK acquisition was the biggest, the tech and durables part of our business. If you remember, we acquired that in 2023. It was a bit of a drag on our growth in 2024, and we've been able to turn that around this year. So that's a big part of their growth as that business, that large business turns around. But also, like Mike said, the consumer panel business, growing over 20% in EMEA, and that's really a result of this panel on demand. If you remember, when we divest -- when we took -- we bought -- we acquired the GfK business, we had to divest our panels in Europe, and we weren't allowed to compete against YouGov until Q4 of last year. So we've seen a massive acceleration once we've been able to compete in consumer panel. We've built our own panels and significantly increased the size. We've seen many, many takeaways in that part of the world as we've done that. And the main reason, like Mike said, is because we've got panel on demand. You can see measurement, which is our RMS solution, which tells you what happened. And you can see why it happened, which is our panel solution. You can see it in one place. If you don't buy -- we're the only people that can do it in one place. So I'll give you an example. One of our clients had some out of stocks on one of their chocolate products and they saw their sales go down. They were able to see that in our measurement business. And then when they looked at why that happened, not only did they find that their sales went down because they were out of stock, but when they came back in stock, customers have switched, they switched to other brands, and they've had an impact on penetration and loyalty. They can see all of that on one platform. You can't get that if you're with anybody else because you've got measurement in one platform, panel in another, and you've got to go in and out of systems and you've got to try and work out what's going on. We're winning a ton of business in EMEA, in particular, because we can put both in one place. And in particular, that panel business is really picking up a lot of our RMS clients getting more efficient, too, because if you can buy from one supplier, that's a cost saving. So not only are they getting better information and being more efficient internally, they're more efficient on their spend because they're moving the second part of that business, the panel business to us and having both together. Ashish Sabadra: That's great color. And then maybe just on the Activation side. Again, you've seen some improvement there in the third quarter, but fourth quarter tends to be the seasonally stronger quarter for Activation. I was just wondering the kind of visibility that you have for Activation revenue in the fourth quarter. Obviously, your fourth quarter guidance was really strong, but any incremental color on the Activation side? Tracey Massey: Yes, we see strong momentum for our Activation business quite often in Q4. Clients are trying to spend their budget. I know that sounds crazy, but they've got budget, they will spend it in the fourth quarter. They've been -- they know where their business is going. They know what they can and can't spend. So we have very good visibility into our pipeline, feeling good about that activation business. It picked up in growth in Q3, up against some very tough comps last year. We had a very strong Activation comps in Q2 and Q3 of last year, and we expect to see a good Q4 on that Activation side. Operator: We'll take our next question from Andrew Nicholas at William Blair. Thomas Roesch: This is Tom Roesch on for Andrew Nicholas. I was wondering if you could provide color on your pipeline in the fourth quarter and exit the year across Intelligence and Activation and just kind of the visibility you have into both as well. James Peck: Yes. This is Jim. So we obviously have a ton of visibility into our pipeline. I want to make sure I'm covering your question because we just talked about Activation, but both in Intelligence and Activation, we actively manage our pipeline every day, of course. And so it's very -- it's highly predictable to begin with, as you know. And so the variable part, which is I think what you're talking about, which would include new wins or new projects is very, very, very visible to us. I want to let you have a follow-up question though, because I don't know if there's something behind your question that you're trying to get at. Thomas Roesch: Yes. I want to maybe focus on like new wins. Are you seeing those come in during the fourth quarter like thus far? And kind of what are you projecting as you go into 2026? James Peck: So it's really more of the same where we are focusing on multiple things right now. So let's make sure we get all our various forms of price increases all set and ready to go in '26. Let's continue to make the big push on SA&I or what we call activation as the year is ending and our clients are just by their nature, spending their different parts of their budget. And so we need to get that closed and fulfilled, and we feel really good about that. And then, of course, just continuously as contracts come up with our clients looking for new wins and looking to penetrate with our different innovation projects or different new product capabilities. And so we feel like we have good -- the momentum there already, right? It's been building since last year, really, 2024, 2025, and we just see the same as we run into 2026. Thomas Roesch: And then for my follow-up, I was wondering if we could double-click on the SMB market and just kind of what the health of the end market is, especially given all the tariff noise? And then also if you have any color on the growth you saw in the quarter there? James Peck: Yes. I think we'll let Tracey talk to that. She manages that every second of every day. Tracey Massey: Yes. So on the SMB market for the smaller clients, we grew 20% in '24. We're growing 20% year-to-date in '25, very strong market for us. There's a big market out there that we've got opportunity to activate against. We're winning against our competition, taking business in that space and also creating lots of new clients. It's a high churn business. They go in and out of business. And many of them go from small to then become bigger clients as they grow their business. But we're very, very happy with that part of the business, like I say, double-digit growth. Operator: Next, we'll move to Jeff Meuler at Baird. Jeffrey Meuler: Can you comment on the sustainability or runway for growth in Panel on-demand just as you anniversary the relaunch in EMEA? And if you can comment on how adoption is going forward in other geographies or if they require more of a displacement sale. James Peck: Go ahead, Tracey. No, go ahead. Tracey Massey: It's a very -- we've got a lot of runway there. In terms of panel, we're not -- in terms of RMS retail measurement, we're the largest player; in terms of panel, we're not. So we have a long, long runway there and a lot of runway in many parts of the world. EMEA was very strong growth rate because we were restricted from actually having that competition for a while. Now that restriction is off, expect it to come down a little bit, but not a lot. There's a massive market out there. And like I say, nobody else can do both. So long, long runway and across the world. Jeffrey Meuler: Okay. And then on the AI-driven margin improvement narrative, I just want to see if we can better tie that to what we're seeing in margins on a geographic basis because if it was more AI-driven, I wouldn't expect the margin expansion to be so concentrated in EMEA, and I'd expect more in the Americas, if you can comment on that. But I think you were making a point that AI tools were helping with GfK synergies or something to that effect, if you could provide more perspective on that. James Peck: Yes. Let me just talk broadly about AI and then maybe, Mike or if you want to sweep in and talk about EMEA. So you don't have to look hard at our company to know that AI applies, we're a data company. So everything from collecting the information with -- for the people out in traditional trade, just helping them know where to go when they get in a store, helping them know what to look for, doing recognition, and it's just going to keep getting better and better and better at doing that. And so that's not only enabling efficiencies, but that's enabling better collection, right? And so that -- you're going to find that helps us in areas that are emerging markets. But AI also applies in how we code the data and how we prepare it to go online, and that's some of our biggest costs. And just like any other company, we are using AI to get more efficient in HR, to get more efficient in finance, to get more efficient in legal and all our support groups. And of course, we're using AI to get much more efficiency in our, let's call it, coding, so actually writing code, software code. So I -- you're seeing the beginning of that in our margin expansion. And as we run into next year, I think you're going to see even more -- if I could foreshadow that, you're going to see even more expansion as we've, I think, even in the last 6 months, had further epiphanies on how we can use AI to get more efficient in everything we do. So we're feeling very much on our front foot with understanding how to make it work, and we're -- every one of the people who report into me is becoming very, very -- or has become very, very AI proficient in how to lead it and then how to generate results from it. And so it's something we're focusing on quite a bit, and I think you're going to see it in our results, and you're already seeing it in our results. Michael Burwell: And maybe, Jim, just to add to your comments. When you think about the GfK business, and we've been focused on that integration, the largest piece of that historical business is in EMEA and a big part of margin improvement has been the integration that's been going on. So that's the driver of why you're seeing that margin being driven. And equally, just to repeat back what -- pile on what Jim said. And when you look at our operations and we're doing coding more efficiently and what that means for us in terms of margin and using AI to assist us in terms of coding as well as customer success, as we continue to become more and more AI-driven in our customer success support, all of those are becoming operating efficiencies that are flowing through in terms of margin. Operator: We'll move to our next question from Wahid Amin at Bank of America. Wahid Amin: In your prepared remarks, I think you mentioned strong pricing and up or cross-sell within the quarter. Is there anything in particular that contributed more in this quarter or region specific? I think last quarter was called out a bit, but any commentary there would be helpful. James Peck: Yes. So I'm going to repeat our revenue algorithm. And so the pricing just is consistent, right? And that roughly equates to about 2.5% of our growth. And then the new capabilities or what we call innovation contributes roughly 2.5%. And that's where you get your cross-sell, upsell balanced across those initiatives. I think you -- we would note that e-com and our consumer panels with Panel on Demand are especially strong and continue to contribute, but that -- those also have a long runway for growth. And then our SMB is, again, it's like a machine. It's a steady drumbeat of establishing new clients, more like with telephonic sales, if you know what I mean. And so we have more of a machine there. We know who all the new entrants into the market are. And so we're able to identify them, tell them how we can create value. We already know how we're creating value. And so that's just a steady drumbeat. And so that algorithm continues to march on and we'll continue to march on every month and every quarter. Wahid Amin: Got it. And then on the region-specific, Americas has sort of come down a bit on organic growth. I know it faces difficult comps. But is there anything you're seeing from a client perspective where you're a bit more confident on the go-forward basis of that region? Tracey Massey: Yes. So the biggest reason is the comp. So in Q3 last year, we grew 9% in the Americas. So the biggest reason for the slight deceleration is just that comp year-on-year. It's an easier comp in Q4. We're not seeing anything specific with related to clients. That part of the business is also very strong. I would say some of the launches happened a little bit later. So we recently launched our Panel on Demand in the U.S. later than we launched in Europe. So that big omni shopper panel, we moved to 500,000 consumers. That was only recently launched in the U.S. So I expect to see an acceleration as we go into Q4 and into next year as that product really takes hold and people see the benefit of that much larger panel because it's a massive difference you can get much more granular in your understanding of the consumer, where they live, what they're doing, then how bigger your panel is. So expect to see that continue, but nothing out of the ordinary, seeing good pickup of our new solutions on full view measurement, whether that be e-com or our Costco and Amazon Reads. We're starting to see some really nice momentum there and in particular, momentum on the activation side of the business with BASES Innovation AI Screener. Operator: We'll go next to Shlomo Rosenbaum at Stifel. Shlomo Rosenbaum: I just want to start out a little bit just getting a little bit more granular, if you could, on the status of the GfK integration. It looks like the top line growth is really moving in the right direction, which is frankly usually the hardest part. Could you talk a little bit about what's going on in terms of the operational side and margins? How much of the margin expansion is because you're outperforming the top line versus the efficiencies you were trying to get? And where are you operationally? There was just also like a comment about the integration driving a higher AR, DSO over there. Maybe you can kind of talk about that as well. And then I'll have a follow-up. Michael Burwell: Sure, Shlomo. Maybe I'll start off here. When you think about it from a revenue standpoint, you may remember when we talked about it at the IPO time frame, we said that the strategy was going to be rinse repeat similar to what we had done with NIQ. And we knew the playbook, and we were going to continue to execute it, and Tracey alluded to it in her comments and that's a playbook we've been running. We've gotten discipline around our service offering, discipline around our contracting process and making sure we're exceeding clients' expectations overall and making sure pricing is flowing through the same algorithm that Jim commented on when you think about it in terms of price, what we're doing in terms of end markets and what we're doing in cross-sell and upsell activities. That algorithm is in place and operating and driving top line for the legacy GfK business. And look, I look at it roughly a couple of hundred basis points in terms of being driven through that. When you look at it from the back office side, I really feel good as the back office is getting principally done. Ops is going to be complete through next year. And we're continuing to drive margin through that. So I think about half of that margin improvement that you're seeing from us is coming through the GfK integration. So the top line is obviously helping that, but we had anticipated that, and we're delivering it through the bottom line overall. So look, we're very pleased with where we are, what's going on and how that business is performing. And as I say, it was the same playbook we pulled out and executed and have been driving. Shlomo Rosenbaum: Okay. And before the next question I had is just to go through the sequential margin trends in the Americas and APAC, they were down a little bit. And is there a seasonal impact, a mix issue or anything else about that? And also, if you could just put a bow on the last answer, just to comment a little bit about that AR, DSO comment that was in the press release about GfK, what that was about? Michael Burwell: Sure. So when I look at the what's been happening on the GfK side, we're continuing to see that margin improvement flowing through. When we look at the DSO comment, we did see -- when we put the 2 systems together at the end of Q2, we had a little bit of a timing issue in terms of getting that cash collected, billed, collected, et cetera. Just as we integrated those systems, we were all over it, and you saw that improvement happen in Q3, and you really saw that improvement being driven through that DSO drive a reduction of 7 days that I commented on overall. The GfK is -- we're continuing to drop that bottom line. So maybe, Shlomo, go back just to make sure I covered your questions. Shlomo Rosenbaum: Yes. Just on that GfK one, there was just some kind of comment about DSO going up a little bit on GfK. That was the only thing I was just wondering if there's some lag that's still going on a bit. Michael Burwell: Yes, that was the Q2 and really not at all when only seeing working capital as you're seeing in the numbers really flow through in a very, very positive fashion. Shlomo Rosenbaum: Okay. Okay. So then we're fine on that. And then if you could just finish up on the sequential margin trends in the Americas and APAC and if it's seasonal mix or something else? Michael Burwell: So when you look at the APAC margins, we're continuing to invest in improved coverage. And that's really what's driving that side of the equation. I think we touched on EMEA. And when you think about North America, as Tracey said, you had a little bit tougher comps in terms of where that revenue was flowing. And then therefore, with our fixed cost base, you saw a little bit of impact on that as it relates to margins. But we look at it in aggregate and feel very good about where our margins are and continue to drive that 300 basis points improvement over the past -- versus the prior year and over 60 basis points improvement from Q2 to Q3, and we're going to continue to drive margin improvements going forward, kind of going back to Manav's comment -- question. Operator: We'll take our next question from Jeff Silber at BMO Capital Markets. Jeffrey Silber: I know it's late. I'll just ask one. I hate to nitpick here, but when looking at gross margins, you didn't have a lot of gross margin expansion on a year-over-year basis, and we've seen that play out in prior quarters. Was there anything specifically going on this past quarter in terms of mix or anything else? Michael Burwell: No, nothing specific. I mean we tend to manage the business really looking at EBITDA margins in terms of thinking about it in total, but there's nothing that I would call out or that was unusual, Jeff, to make sure to call out to you. Operator: And we'll move next to Jason Haas at Wells Fargo. Jason Haas: The fourth quarter guidance does imply a decel on an organic basis from 3Q to 4Q despite the compares getting easier. Your commentary sounds pretty positive on how the business is trending. So I was just curious if there's any factors to think about that could be driving that decel in 4Q? James Peck: Yes. So we're -- as you know, from the last quarter's guidance, right, we're -- and in my opening remarks, we are very confident in our growth algorithm, and we're really going to stick to that as we're kind of training the company and training ourselves to hit the targets that -- or beat the targets that we're giving out. So there's nothing systemic or something like that, that you're looking for that we can -- that you would associate with a slowdown. And as you know, we're fairly conservative here. And I think as a new company doing -- becoming public, that's the track record we just want to establish. We're managing a whole portfolio of geographies, a whole portfolio of new initiatives, a whole portfolio of renewals and takeaway. And so we feel like very comfortable in the range that we're in. And you can expect us to continue that pattern going forward. Jason Haas: Okay. That's great. That's very helpful. And then as a follow-up, -- in the prepared remarks, you did -- yes, just for the follow-up, I just wanted to ask about in the prepared remarks, there was a comment about you're expecting significant margin expansion next year. And I know you're not giving guidance for next year, but what was the thought behind putting that comment out there? Are you trying to say that there's not any sort of like onetime benefits in the margins this year, and therefore, this is the right run rate? Or like, yes, what was the genesis behind that comment? You can't like talk to next year, maybe you could just unpack like this year's margin, so we know what's onetime, what isn't? James Peck: All right. I'll let Mike unpack this year's margins. But of course, our comments are very deliberate when we say something like that. Between continued synergies that we're going to get from the GfK integration, which will manifest next year and continued just good operating efficiencies. We are going to see AI starting to contribute now, but it's going to continue to accelerate. And we're very confident in the things we've -- that we're doing, they're going to allow that to happen. And we'll be able to talk more about that, of course, next year when we're on the same call. Mike, do you want to talk about. Michael Burwell: Yes, Jim, I would just add to your comments. We have been talking about getting to mid-20s margins in the midterm is what we had talked about. And -- but we're -- we're continuing to see AI, as Jim said, really kick in. We know that GfK's synergies are driving 2/3 of that margin improvement and organic revenue growth, as we've talked about previously, 50 to 100 basis points improvement. So we are continuing to drive margin improvements, and we'll see that going forward. Operator: And that concludes our Q&A session. I will now turn the conference back over to Jim Peck for closing remarks. James Peck: Yes. So thanks, everyone, for joining us. We look forward to continuing our journey with you and with our clients, with all the people who work for NIQ who do such an amazing job and of course, with our investors, and we'll see you in February. Operator: And this concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Good afternoon, everyone, and welcome to Equatorial Group's earnings conference call for the third quarter 2025. Joining us today are the company's CEO, Mr. Augusto Miranda; Vice President, Mr. Leonardo Lucas; Regulations Director; Mr. Cristiano Logrado; Financial Strategy and Investor Relations Director, Ms. Tatiana Vasques; and Mr. Liu Aquino, President of Echoenergia, all of which will be available at the end of the presentation. Please note that a simultaneous translation too is available on the platform. To access it simply click on the interpretation button and choose your preferred language. This conference is being recorded and will be available at the company's Investor Relations website, ri.equatorialenergia.com.br along with the presentation shown today. [Operator Instructions] Before we begin, please be advised that any forward-looking statements made during this conference are based on the beliefs and assumptions of Equatorial Group's management and on information currently available. Such statements involve risks and uncertainties as they refer to future events that may or may not occur. Investors, analysts and members of the press should be aware that changes in the macroeconomic environment, industry conditions and other factors could cause actual results to differ materially from those expressions of such forward-looking statements. We will give the floor to Mr. Augusto Miranda, who will begin the presentation. You may proceed. Augusto da Paz Júnior: Well, good afternoon, everyone, and thank you for joining our earnings call. We had a very successful quarter on both the operational and financial fronts. In addition to important recognition that reflects the team's seriousness and commitments to our customers, employees and investors, Equatorial Pará was recognized as the best distributor in economic and financial management in Abradee award. Equatorial with the group appeared for the first time in The Great Place to Work ranking among the best 20 companies in the country. And we were once again elected by extel as the Most Honorable Company in the Utility segment in Latin America, ranking 7 of the 8 categories. On the operational front, we delivered strong results and energy distribution, which grew 2.6% in build and compensated market volume, maintaining a solid loss performance trend in the recent quarter. We achieved a contractual DEC target or CEEE-D which will be detailed later in the presentation. On the financial front, we delivered solid results with EBITDA of BRL 3.4 billion. We invested BRL 3 billion and still close the quarter with BRL 16 billion in cash, which means our short-term debt is 2.1x. Now the cash for the period was strengthened by an intense funding window, which totaled BRL 9.4 billion, extending average debt maturity from 5.5 to 5.8 years. It is important to highlight that part of the funding raised is intended for debt repayment approximately BRL 800 million. And during October and November, we also prepaid 2 additional BRL 2 additional billion. With this financial position, we ended the quarter with a net debt-to-EBITDA covenant of 3.3x. Regarding the group's value creation highlights, we closed the sale of the transmission segment. And as a result, announced one of the uses of the proceeds, the distribution of BRL 1.8 billion in interest on equity, equivalent to BRL 1.45 per share, which will be paid next Monday, November 17. The Federal Court of Accounts approved the renewal of the Equatorial Maranhão concession. We are now in the final stage of the process and pending ratification from the approval of the Ministry of Mines and Energy. I will now give the floor to Leo to speak about our economic and financial performance. Leonardo da Silva Lucas Tavares de Lima: Thank you, Augusto, and good afternoon, everyone. I will briefly discuss the group's economic and financial performance from a consolidated and adjusted perspective. In this quarter, we delivered margin growth of 4.5%, driven mainly by the solid performance of distribution segment, while EBITDA reflected the impact of consolidating SABESP equity method results. The quarterly outcome was achieved with a strong cost discipline with PMSO increasing only 0.7% quarter-on-quarter. Adjusted net income for the period increased 4.9% year-over-year reaching BRL 830 million. If we look at the group's debt position, the net debt-to-EBITDA ratio came in at 3.3x, impacted by the one-off reversal recorded at SABESP relating to the accounting in the third quarter '24 of the concession financial asset. It is worth noting that this quarter, we were very active in the debt capital markets, focusing on improving the debt profile, which extended the average maturity from 5.5 to 5.8 years in addition to reducing spreads. Finally, we highlight the investments made during the quarter, totaling BRL 3 billion, an increase of approximately BRL 600 million vis-a-vis the same period last year. This growth was driven by investments in Pará to [BRL 129 million] and CEEE-D with BRL 161 million both of which have tariff reviews scheduled in the near term. This quarter, we recorded a 206% increase in maintenance and renovation work. Let's go to Slide #7. On the slide, we present the consolidated performance of our electricity distributor, where we highlight the reduction during the quarter. To the left, very briefly, we present the consolidated performance of our energy distributors where we highlight the reduction of losses during the quarter, making the eighth consecutive quarter in which we consolidated losses below the regulatory benchmark. We highlight the consolidated growth in energy volumes across our concession. In this quarter, we recorded a collection rate of 99.2% and PECLD over ROB of only 1.02%, driven by the renegotiations carried out during the period and the new low-income tarif. In addition to the improvement in CEEEs indicators, which were still affected by distortions linked to the weather events in the second quarter '24. As Augusto highlighted, we achieved the contractual debt target for CEEE-D. And on a consolidated basis, we ended the quarter with all of the group's distributors within the regulatory limit for FEC. 4 of the 7 distributors meet the regulatory DEC limit. If we consider the contractual DEC thresholds, 5 of the 7 distributors would be below the DEC limit. We recorded gross margin growth of 5.7% in the distributors during the quarter, reflecting a higher POB tariff and a larger market volume in the period. If we adjust the distributed generation liability, recorded in the third quarter '24, the margin would have grown almost 8%. If we look at the adjusted PMSO for the distributors in the quarter, we had an increase of 4.6% slightly below inflation and a smaller variation of PMSO per consumer, which is only 1.8%. These dynamics resulted in a 8.1% increase in adjusted EBITDA for the Distribution segment. If we exclude the distributed generation liability in the third quarter '24, the increase would be 11.5%. We now go on to Slide #8. In this slide, we present an overview of the challenges that we've faced in Rio Grande do Sul and their impact on investment and service quality. When we acquired the concession, the historical record of weather events indicated an incidence of 2 to 3 events per year, but we were faced with the beginning of the concession with a significantly more challenging scenario. Due to the severity or high frequency of emergency situations, we have to postpone certain necessary investments for the distributor. We can clearly see on the chart that once we were able to operate in a concession fully, the results appeared quickly. When comparing the third quarter '25 with the third quarter '24, which was the first quarter after the state of calamity in Rio Grande do Sul, we show an impressive 9.1 hour reduction in the 12 months DEC during which we invested BRL 1.3 billion in that concession. In the third quarter '25, we reached the contractual debt target established for year-end. This outcome reinforces some of the pillars we have in the distribution segment. Among them are relentless pursuit and commitment to quality and our operations, besides our dedication to delivering improvements in operational performance and service quality that is truly lasting. We thank all of the teams for their herculean and tireless efforts over the past quarter in the search for these results, and we reaffirm our commitment to continue to improve across multiple fronts, energy with increasing higher quality for our customers every day. Very well. Let's go to Slide 10 to look at the other segments of the group. In the transmission segment, we completed the closing of the asset divestment transaction on October 31, concluding one of the most successful capital allocation cycles in the transmission sector in Brazil. We sold 8 transmission companies with a MOIC of 8.3x and an internal rate of return of more than 37% per year. The deal closed with an equity value BRL 6.4 billion, including the capital reduction carried out a few days before closing. The proceeds for the sale will be used for shareholder remuneration, debt reduction of the holding company and partial redemption of preferred shares at Equatorial D therefore contributing to lower CDI linked-financing costs. Moving to water and sanitation. The segment's results continue to reflect progress in hydrometer installation. This quarter, we reported EBITDA of BRL 2.2 million, up 68% vis-a-vis the same period last year. In the Renewables segment, we reported EBITDA of BRL 226 million, 8.1% lower, reflecting the effect of curtailment this quarter as a subsequent event. We highlight the approval of provisional measure of 1304, which still requires presidential sanction and establish important advances in this sector regarding the impacts of curtailment. I will now hand the call back to the operator for the question-and-answer session. Operator: [Operator Instructions] Our first question is from Luiza Candiota from Itaú BBA. Luiza Candiota: I have 2 questions. The first is more specific. If you could give us more color on the nonrecurring effects of this quarter, the amount draw attention, especially in the line item, other expenses and revenues, we have received several questions about this. So which were the main impacts here? The second question refers to the partial exercise of preferred shares. This raised a significant amount. I would like to understand the motivation underlying that decision and how does the company look upon this type of structure in preferred share going forward. If we consider the tax reform that is about to be approved. Augusto da Paz Júnior: Leo? Leonardo da Silva Lucas Tavares de Lima: Thank you, Luiza, for the question. Regarding the operational effects, it's important to underscore the following. This line item is connected to the investment dynamic and it has terrible volatility. I think it's also representative of our cash. If we look at the comparison with the second quarter '25. There were revenues in that line item. If compared with the third quarter '24, the expenses were close to 0, showing you that incredible volatility we have in that line item. Regarding the variation in other expenses for the period, this results mainly from nonrecurring events of the third quarter '24 that added up to BRL 130 million, BRL 95 million referring to the reversion of provision of our stock, especially in Goiás, Pará and Rio Grande do Sul. And the receivable of an indemnization that completes the difference. We also had a significant increase, as we mentioned in the presentation of 200% in work for maintenance and renovation this quarter, especially in Pará, Rio Grande do Sul and Goiás. All of the impacts, the deactivation of the residual value of assets with a growth of BRL 32 million in the quarter and the cost for the withdrawal of these obsolete assets. And finally, we had a nonrecurring effect in Pará of approximately BRL 50 million for the elimination of services worked from the past. This explains the variation. It truly is a line item with a great deal of volatility that concentrated on this quarter. Now as an interesting instrument, we have what you mentioned, we made a very interesting use of it. It is an instrument that doesn't allow you to use the market pool, especially at the moment of expansion. In the recent past, we went through several acquisitions, and it became very important during that period. At moment when we foster the sale or recycling of assets, we carry out this movement to disarm to do away with the support that we used in that period of acquisition. It's a tactical movement for that moment. We understand that we're making an appropriate use of this instrument. And it is a very interesting tool that might make more sense in the future in different circumstances. Operator: Our next question comes from Mr. Daniel Travitzky from Safra. Daniel Travitzky: You mentioned the sale of the transmission assets that could be used to remunerate shareholders. And yesterday, you announced a new program for share buyback I would like to better understand the company's mindset when it comes to dividends and shareholder remuneration going forward? That is the first question. The second question, if you could comment on the strategy that you're thinking of to participate in sanitation auctions in the coming year. If this continues to be a segment that is a focus for the company? And how do you foresee the opportunities that arise in 2026? Augusto da Paz Júnior: Thank you, Daniel, for your question. In fact, we carried out a very broad destination of the resources from our sales we kept a part to remunerate shareholders. Our buyback plan was coming to an end. And this is a very interesting instrument to have actively at any moment in time because we need to have shares in treasury to face the long-term incentive but also to have that option as we did in the past to carry out acquisitions or purchases of our shares and sell them or limit the shares we have, depending on the moment. We are going to have a year of a great deal of volatility, and it is at those moments that this option makes ever more tense. For that reason, when we saw that the plan was coming to an end, we start out the approval for a renewal exactly for the purposes that I mentioned for the options that I mentioned. Now regarding the sanitation auctions, penetration continues to be an important avenue of growth, a very broad avenue. We have always been very active looking at this seeking a certain angle to make important moves here. We intend to continue to be active in our search. And if we find attractive opportunities, competitive opportunities, we will move forward. Operator: Our next question comes from Mr. João Pedro Herrero from Santander. Joao Pedro Herrero: We saw that in Ministry the -- in September, I'm sorry, the Ministry opened up a consultation now to see the mindset of the company. Do you deem this to be a relevant opportunity? Second question, refers to the tariff in the North and Northeastern regions that the parcel has a higher amount vis-a-vis other regions. In other regions, is there space to implement this tariff and which is the cost benefit of doing this? Cristiano de Lima Logrado: This is Cristiano. Our view is the following the process of digitization has to be done very cautiously. And I think the minister was assertive at gauging this at 4% a year, and then we will think of a plan to do this. Why does it demand caution? It's not only about changing the meters we can put in smart meters and not change anything else. The possible benefits may be lost. There is a process of learning regarding the benefits that this will bring about. And we have to think about the regulation and the obligation of delivering bills. If we're carrying out remote reading, of course this will have a benefit. In that context, it represents a significant opportunity, but it will depend on additional elements that we have to work with alongside the ministry. Regarding the tariffs in the North and Northeast, most of the population in those states has a strong benefit full exemption in terms of kilowatt per month. So they're exempt from the tariffs basically if you look at the provisional measure 1304 that is about to be sanctioned. There are some elements that will increase the cost. They will increase the pro rata of CEEE-D and broaden the market. So we could accommodate an eventual growth therefore. So there are several elements present, and we cannot -- I analyze this in isolation when it comes to the provisional measure. Operator: Our next question comes from Mr. Raul Cavendish from XP. Raul Cavendish: My doubt is that debate on the 1304. We have debated the unfolding of this, especially from the viewpoint of curtailment. Now what is your view on these prices and the technical note on reclassifying consumers according to the white tariff? Now with these changes proposed, which would be your projection? Augusto da Paz Júnior: Leo will answer this question for Raul. Please, Leo. Leonardo da Silva Lucas Tavares de Lima: A very good question. The impacts of the 1304 are linked to the structural changes we observed in the system. We have less flexibility in the system. And of course, this demands a price signaling that is compatible with oversupply and over demand. This includes that white tariff we are attempting to show a more adequate price and more adequate incentive for the system so that it can self-regulate. In that sense, I think it is doing well. There is that issue of curtailment which does not fully resolve the curtailment problem in the provisional measure. But the idea is to deconcentrate the risk of curtailment that is very focused on centralized generation. So we think that there have been strides made in this direction. If you could further explore that idea of the white tariff, can this increase the addressable market for service rendering for wholesale retail market provision? Could this be a business segment that will gain relevance over time if that proposal is approved? Yes. Doubtlessly, the market trend is that the energy market will become a more flexible market, and the white tariff is simply a first step. Our expectation is that we will see evolution potentially in terms of prices. And in the model, the pricing model. When we look towards the future, this is the path that we expect. Operator: [Operator Instructions] The question-and-answer session ends here. We would like to return the floor to the executives for the company's closing remarks. Augusto da Paz Júnior: Well, thank you very much. Now to conclude, I would like to once again reinforce our commitment with a continuous value creation agenda we pursue for our investors. Through the delivery of consistent results across all segments in which we operate always guided by disciplined, financial management made possible by Equatorial's culture. I would like to congratulate the IR team for the results once again in the extel ranking and remind everybody, they are available to assist you with any questions after this call. Thank you for your interest in the company and for joining us. Operator: The conference ends here. We would like to thank all of you for your attendance. Have a very good afternoon.