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Unknown Executive: Good morning, ladies and gentlemen, and welcome to today's earnings call of the PVA TePla AG following the publication of the figures for the first -- for the third quarter of 2025 and the first 9 months. In a second, CEO, Jalin Ketter; and CFO, Markus Groß will present our results. And after the presentation, as usual, you will have the opportunity to ask your questions in a Q&A session. And having said this, Ms. Ketter, the stage is yours. Jalin Ketter: Thanks, Sebastian, and also good morning from my side to our earnings call of the third quarter. Before we start with the presentation, let me give you some general remarks. The economic situation around us is still challenging, and it was getting even worse in the third quarter as, yes, it materialized in our operational business at the end of the third quarter. But we also see a very positive development in our order book and a very good start into the fourth quarter. And what makes me even more positive for that long-term development, we see the first R&D projects that are starting to contribute to our order book with, yes, contracts from battery development projects that we started during the year 2023 and 2024 and 2025. Yes. So let's have a look to the third quarter. We ended the third quarter with a revenue volume of EUR 55.8 million in revenue. This is significantly lower than we expected before, and we are also not satisfied with that development. That low revenue volume is not related to internal delays in the processing of orders. It's an external effect, which is caused by external reasons such as global trade-related uncertainties, which came to delays in the operational timing at our customer site. And it is a temporary situation that we are in. So we did not see any cancellations, and we also don't expect any cancellations in that regard. Let me give you some examples on that. So there have been customers which are having longer authorization processes to get the systems on site and to make all that approvals for transportation. There have been customers which have decided to bring the system into a different facility than it was planned before. So we had to reschedule everything, transportation and installation. And we also had customers which having delays in their own infrastructure. So building was not ready to move in the system yet. But let me explain a little bit more what does that mean when we look ahead for the next quarter. So we already planned a very busy fourth quarter. That's something that you already realized in the last call. So end of the year was already scheduled as very busy with installations and transportations on our projects. So resources for these projects already have been assigned and delays that we are now having from the third quarter, which are having a higher volume of transportation and installation bringing to the fourth quarter again will also most likely delay orders in processing from the fourth quarter to 2026. And with the reduction of our guidance to EUR 235 million to EUR 255 million, we also did cover potential further delays that are caused by similar external reasons at our customer site. With the CMD that we hold 6 weeks ago, we gave you an insight in our future growth potentials on the long run. And there are no changes to our view on that presentation that we gave to you. This already reflects partly in our increasing order intake, which, as I already mentioned at the very beginning, projects which are building the foundation of that future growth in the metrology business with new customers that we developed out of Asia for automated systems. But also in the Material Solutions area, where now the first R&D projects are starting to contribute. So new battery solutions that are coming to the market over the next years are produced partly with our systems, and these are production lines which are starting to ramp up now. And with that general view, I hand over to Markus to give you a deep dive to the financials. Carl Groß: Thank you, Jalin. Good morning, and a warm welcome from my side. So let's directly dive into our financials and start with the group revenue. Q3 and the year-to-date figures are below our expectations, especially for Q3 and around 11% below the comparison periods. Q3 with EUR 55.8 million is impacted by the trade-related uncertainties Jalin just mentioned, which have effects on the operational timing and shifting projects from Q3 to Q4. So many of the projects we have originally anticipated for or planned for Q3 are now realized in Q4. And this year pattern is through several projects across markets and product groups. The project completions and the situation are expected to normalize during the first half of 2026. And it's very important to us to -- and we can't stress this enough. There are no delay-related cancellations. The delays we're seeing are a couple of weeks. It's not that projects are paused indefinitely, and we're waiting for go ahead. It's just shifting from one quarter to the other. And on the opposite, several customers have placed additional orders despite having delayed projects in the meantime. So that's absolutely nothing we are currently worrying about that delays are turning into cancellations. Looking at our product groups, we can see that metrology is still a strong contributor to our revenues with almost EUR 72 million and Materials Solutions with EUR 104 million. Regional-wise, Europe and Asia are our most important markets and North America with 13% is our third biggest market. And when we're looking at the order intake on the next slide, we'll see that there is growth potential coming just from the order book for the upcoming months. Order intake is something where we are very happy about the development, almost EUR 33 million in Q3. That's our strongest quarter since the third quarter of 2023. And here, the order intake is driven from demand in both segments and product groups in all entities. So we're very happy here. The book-to-bill ratio in Q3 is with 1.3, something we haven't seen in a long time. And year-to-date with almost EUR 177 million, the book-to-bill ratio is also larger than 1. Looking at the product groups, metrology is still a strong driver for us, and we will see on the next slide, how this has developed over the last 12 months. But also, we're seeing an increasing demand coming from material solutions, which makes us very happy at the current stage here. Looking at the regional split, we can see that Asia and Europe are contributing by approximately 40% and North America with 20% in comparison to the revenues of 13% we have seen on the previous slide. That's why we're expecting here future growth coming from the order book. Yes, the last 12 months, looking at our product groups here, we can see a strong double-digit order growth of 20% per quarter. And in Materials Solutions, the uptick started with Q1 2025, going from 21% in the half, approximately to EUR 21.5 million to EUR 25 million and now in Q3 with almost EUR 42 million. And the drivers here are coming from the synthesis for silicon carbide systems and high-tech anode materials are also here involved. In metrology, it's more a pattern of steps. So we are seeing EUR 30 million in Q3, then Q4 '24 and Q1 '25 with a little bit more than EUR 21 million. And now in Q2 and Q3, it's above EUR 30 million. So very happy with this development here. Looking at the segments individually, we can see that here, in Semiconductor Systems, the revenue is impacted in Q3 by these timing effects and is 18% below the previous year. And the 9 months figures was EUR 115 million, up 15% below the previous year. On the EBITDA, we see a temporary effect in Q3 due to the lower revenue volume and high expenses in R&D and sales for future growth, strategic investments. And we are seeing here a high degree of fixed costs. So this is why we see this strong impact on the EBITDA and its margin for Q3. Year-to-date, it's more or less in line with the guidance despite the missing volume in Q3. So this is more or less what we anticipated for the 9 months figures without the effect coming from the operational timing effect. The order intake is something we are very happy about. So it's the best quarter in semiconductor systems since the first quarter of 2023. Metrology was a strong driver during the whole year. And now with Synthesis, we are seeing additional uptick in the third quarter. In the Industrial Systems segment, the Q3 revenues are more or less in line with what we have seen in 2024 and the 9 months figures are a bit below the previous year. This is especially caused by the lower intakes in 2024 and the long-term running projects we are having in the Industrial Systems segment. At the EBITDA and EBITDA margin levels, we are seeing here a reduction on a quarterly basis of EUR 1 million, which is also the same for the 9 months figures that we're here in preparation for future growth, investing in our sales infrastructure, which is increasing the overheads by approximately EUR 700,000 at the year-to-date level. The order intake is stable at EUR 20 million per quarter, more or less, and the demand is here coming from the energy and aerospace sector, but also in Q3, high performance materials, the already mentioned anode materials. Looking at the group profit, we can see that the gross profit margin has reduced from 30.8% down to 29.4%. The main reasons here being the weaker sales and the lower volume causes your lower capacity utilization, which is taking its toll. But also, we've seen on the previous slides that semiconductor systems is below the comparison quarter and Industrial Systems is more or less at the same level or a little bit higher. And this means we are seeing here a shift in the product mix in Q3, which will not be continued, but it's the picture we are seeing here currently in Q3. And due to this change in the mix, we are losing a little bit of gross margin. But on the year-to-date 9-months figures, we remain at a solid level of 32%. The EBITDA on the -- in Q3 and year-to-date are both impacted by the increased overheads for the strategic investments in sales and R&D, we already announced together with our guidance, and we are following through. So let me also take a moment to reflect on the lower cash balance at the end of the quarter with approximately EUR 13 million. The position here is impacted by the timing of customer payments, which had been received in October. We're talking about larger payments. And for Q4, so far, we're expecting strong inflows, which are also supported by a continued order intake momentum. So we're here seeing a timing effect in the cash position, which has already been reverted in the October of year -- in the last month. In terms of CapEx, we remain disciplined and are broadly in line with what we have spent in the prior year until the year's end then. And we're actively managing our CapEx project and the same goes, obviously for our OpEx. Looking at our updated guidance, we are now expecting revenues between EUR 235 million and EUR 255 million and an EBITDA between EUR 25 million to EUR 30 million. This is due to the multiple times now mentioned project timing shifts operational-wise. And for '26, we're expecting a gradual recovery in growth versus '25. And earlier than usual, we will release our official guidance for '26 together with the preliminary figures for the year '25 latest early February '26. So for a strategic update and the outlook, I'm handing back over to Jalin. Jalin Ketter: Thanks, Markus. In this section, we now also included an update to our organizational development that we will give you on a regular base. Today, I brought you 3 samples on efficiency. So let's start with a view on our production line and what we changed there and what developments are there. You know that we are running several production lines from different facilities. These are also including service and installation teams, which are used for single products to make the installation and to do the service. And what we have done and started in 2025 is to increase our flexibility for these people. So we cross-trained the people who are responsible for that single systems to be able to support different products that we are providing to the market. So for example, this is something that is happening in a higher amount on the Material Solutions side. The people from the Material Solutions side are now also supporting metrology systems in the field, and that helped us already with the qualification on our new customers in Asia to be able to support that product in the field as they are having a lot of know-how on the technical side in general, and now they are also educated in the Metrology business. And additional trainings also have been set up for technical and operational development to bring the people to a higher level of education and also -- which also supports the changes that we are at the moment doing in our production line. We, for example, introduced a new shop floor management that is happening every morning in the production line. The availability of our materials have been significantly increased to reduce the time that our products are running through the production line. So there are new processes behind and new concepts, how we are producing our system. And the use of the facility also changed somehow to really use that in the most efficient way, having the right systems in the right production lines running with the right concept. So this is done because on the one hand side, we want to reduce the time that our products are running through the production line. On the other hand side, we are seeing a positive impact on the long run in our margin development with that, changes that we are doing now. And additionally to that, we started a project to more standardize and modularize our products. This is something that we already have done on the metrology side with the systems in a high automation that we are providing to the market now. And we laid that concept out also for the material solution systems now. So there will be changes that we will see over the next years as well on that side. And yes, due to our high position of silicon carbide activities in our order intake that -- sorry, I missed to do the rest of the slide, sorry for that. So let's go also to some other activities that we did next to the production line. In China, we streamlined our operations with consolidating -- transferring our location of Xian to also the office in Beijing that we are running there. In previous times, we had 2 offices and the office in Xian was just responsible for one product line. So it's going in the same direction like what we have done on the production side to really use our resources most efficient also to generate one PVA for the Chinese market and present ourselves in the right way on the market. So this is bringing us efficiency on the cost structure side, but also in how we are developing the market for us. And the last point I would like to mention in terms of the organizational development is on the metrology side. With the Capital Markets Day, we also explained that on the metrology side, something very important is that we are ramping up our production line in a format to support a higher volume and to hire -- to professionalize our processes in the production line. In the beginning of the year, we acquired desconpro and did a vertical integration with this company, which was a former supplier. And the integration process is done now. So our teams are working very closely together, interfaces are cleared and the workflow is running very well. Additionally to that, we increased our clean room capacity in 200 square meters to have the right facility also available for a higher volume of automated systems. And this gives us -- lays the foundation for a doubling of our production capacity on the automated metrology side in the future. So we are prepared to go for that for that through the market development. So let's come now to some insights in the market. You saw that we had a higher portion of silicon carbide activities in our books in the order intake for Q3. So I would like to take the opportunity to give you some idea about our view on the market trends that we are seeing coming up additionally to the business activities that we are seeing in silicon carbide before. So what we saw now in our books is related to the already existing activities, which are going mostly in the energy and e-mobility market. And this is also what you can find in the normal reports that you -- that are available on the market. Additional topic that came more and more in the discussion is the defense sector. So applications were silicon -- based on silicon carbide are very important for that sector, for example, for radar technology, where this is used, and this is something where we see a potential increase in activities additionally to the already established products. There are also 2 new topics that we identified or that are also already in discussion on the market. One is transparent silicon carbide, which then will be used, for example, for VR glasses. So some new developments on the use of how digitalization is changing for us, all of us in the future. And there is a use in advanced packaging as well for interposer materials, so in building cooling structures in that part and power supply for artificial intelligence data centers. And with the products that we are at the moment having in design and our R&D road map, we are covering all of these trends. So for example, for all of these applications, there will be a trend into a 300-millimeter process. So diameters are going up in silicon carbide, and we will introduce our 300-millimeter system into the market in 2026 and present that to customers. So we are prepared for these new applications with a change of our system technology to support that. And additionally to that, we see a strong trend for the sovereignty of supply chain. So especially coming with the applications in the defense sector and the presence of the material and the discussions about, in general, sovereignty of the supply chains in Europe are increasing step by step. Yes. So when you look back overall -- we all look back on what has happened in 2025, then we see a very strong development on the organizational site already within PVA. So we brought people together to get them introduced to our way forward. Our engagement index on employees is more than 70%. So everyone is with us on that road. We started to be more active in the market and changed or started to change sales concepts to present our products at customer site, reviewing the markets, bringing our products in connections with the markets, and we started to also streamline our organization with consolidations of facilities, improvement of facilities. And this is something that we will continuously work on also in 2026 to further lay the foundation of that future growth. So a lot has happened in 2025 already, and we are very motivated to continue with that process. And yes, that's all for now. Thanks, and we are happy to take your questions now. Unknown Executive: All right. Thank you, Jalin and Markus, and we will now move to the Q&A portion of this call. And we want to make sure that we are able to answer as many questions as possible from as many people as possible. And it's why we kindly ask you to, sorry, limit yourself to maybe 3 questions per person, if that's possible, that would be really great. And first up, we have Marisa Keskes. Unknown Analyst: Actually, I have 3. And the first is, can you specify if the equipment that have been delayed are related to metrology or silicon crystal growing system or the other material solution system? The second question is, can you provide an update regarding the ongoing qualification process for the metrology? And the third question, if you can quantify how much are the order received from -- for the silicon carbide growing system? And is it coming from new customer or already existing customer? And if the shipment is expected for '26 or beyond? Carl Groß: So here, the delays we're seeing, it's across all product groups and customers. So there is no clear pattern because all our customers are managing the global situation. And so it's not specific to a product group or a customer group. Jalin Ketter: And on the qualification side in metrology, we are making a lot of progress. So already orders from that qualification processes are taking part in our order book, which are coming from Asia, especially from Taiwan, we have a good volume already in our books, and we introduced additional systems at other countries already to R&D centers to go on that qualification stage for the 24/7 lines. Silicon carbide systems are related to applications that are already present in the market. We, of course, cannot disclose on single customers. So activities which are behind that are supporting already existing technologies. Carl Groß: But the revenue can be expected for '26. Unknown Executive: Michael Kuhn, please. Michael Kuhn: I'll also stick to 3. Firstly, on metrology, there was no further growth in order intake sequentially. So we're in the low 30s now. Is that kind of a near-term run rate? Or should we expect that number to grow sequentially as we move into 2026? Jalin Ketter: So metrology business has had a significant increase over the last quarters. And we are now on a level which is already significantly higher. I think I already mentioned that in one of our last calls. So we expect that, that hockey stick is getting a little bit more flat over that short-term time frame until it's getting to a more significant increase again. So like expectation for the next quarters is more a slight growth rather than a significant growth. Michael Kuhn: Understood. Then into the fourth quarter, you mentioned continuously strong order momentum and also you received further prepayments based on that. Is that also driven, let's say, by a broad base of customers and product groups? Or would you point out a specific area of strength you're seeing right now? Jalin Ketter: And so what we see as a starting point into Q4 is a very broad base of customers that are placing their orders. So we started very positively into the first quarter, and our pipeline also tells us that we can close with a very positive fourth quarter. There are projects which are more semiconductor related that we are seeing at the moment. Michael Kuhn: Okay, semi-driven. And then lastly, and that is a kind of broader question. So you expect a gradual recovery into 2026. And I guess that refers to sales and your bottom line. You mentioned more and more R&D projects contributing to the top line new areas in SiC, but battery as well. If you would have to make like an early projection, how significant will those new product groups contribute? And what kind of mix should we expect into next year? And what would be the, let's say, very rough implications for profitability? Obviously, you're not guiding yet. Jalin Ketter: So the R&D projects are in a starting point to contribute, especially on the battery side. So we stepped into several R&D projects with new system developments that are used for that advanced anode materials with customers. And we are at the moment in an area where customers are having qualifying production lines for that. And we see the first orders, which are now coming not only from the qualifying production lines anymore, which are coming from increasing activities into a steady business. This is something where we will see a step-by-step development coming -- contributing to our book. So we expect already business activities in 2026, but also ahead of 2026 as this is a long-term development in the market, especially in Europe, which we see to generate a step forward in battery technology compared to what we are seeing in the actual availability of batteries. So a significant step to improve that technology. And on the silicon carbide side, we will start to introduce our new systems in 2026. Most likely, the contribution of our activities will start end of 2026, beginning of 2027. Unknown Executive: Okay. Thank you. All right. Hartmut Moers is next. Hartmut Moers: Can you hear me? Carl Groß: Yes. Hartmut Moers: Perfect. So I would like to follow up on that silicon carbide. If I understood you correctly, you were saying that the increase in order intake was relating to customer relationships that were already there. So I would guess that you have quite a good insight into their thinking about future orders. So can we regard that order intake in Q3 on the silicon carbide side as something that was -- not saying a one-off, but how should I say, extraordinary and then we wait a couple of quarters and then the next order comes? Or is it more something that we should see now on a regular basis or quarter-by-quarter? That would be my first question. Jalin Ketter: We are seeing silicon carbide activities already continuously in our books. So as I said, this is related to applications that are already existing in the market, what has had a higher portion now. And what we also see that our activities on the metrology side for silicon carbide are starting to bring activities to our discussions as well. We just recently introduced qualified metrology systems for inspection of silicon carbide, pools and wafers, stress measurement and pool inspection. And this is something where we also have a lot of discussions and traffic with customers to introduce our systems in their facilities. So silicon carbide for us is not only anymore crystal growing. It's happening on different areas of that value chain, and this is starting to show up in our books already. Hartmut Moers: Okay. But the predominant part of the, let's say, additional order intake that you got in the third quarter was still related to the traditional silicon carbon side. It's not just -- it's not already the metrology side, it's more the crystal growing side, right? Jalin Ketter: The dominant part is coming from -- so this is technology and crystal growth, yes. Hartmut Moers: Okay. And my second point would be with regard to your statements in relation to [ 2006 ] (sic) 2026. Shall we take from this that the delays that you are facing in Q3 and that translate into Q4 and obviously, from Q4 into Q1 2026, that the start of 2026, i.e., Q1 and probably also Q2 will still be affected before growth is picking up in the second half of the year. Is that how we shall read this guidance? Carl Groß: No. So I mean we're -- on the operational side, we expect that orders have already shifted from Q3 to Q4 and from Q4 into '26, and we expect that the situation will normalize during the first half of '26. But that's a gradual process there. And here and -- but the long-term growth drivers are intact for '26. Hartmut Moers: Okay. So you're saying Q2 should be less affected than Q1 2026 and Q3 and Q4 2026 should not be affected by those delays anymore, right? Jalin Ketter: We are having -- it's a problem on customer side that we are handling this and delays that are happening on customer side. So this is most relevant for orders that have been placed in our books before the political situation and that area was increasing even more than it has done before. So we are expecting also that orders that have been placed already in that more strong situation are not affected anymore by this kind of delays on customer side. So it will run out of the book step by step that there is a kind of delay that is caused by the projects and how customers are running them and how they are doing their decision on facilities. Unknown Executive: All right. Thank you. Gustav Froberg is next. Gustav Froberg: I have a couple also. I'll start with one on orders. Could you please just give a little bit more color and granularity on how your order patterns were throughout Q3 and maybe also how they've developed into the first half of the fourth quarter? And in the context of that, maybe you can also tell us a little bit about the status of the customer ramp-up that you are seeing on the metrology side. Are customers in an early stage of ramping up? Are they well underway? Like how saturated are your machines with your new or existing customers today? Jalin Ketter: So order intake on the third quarter was running month by month very positive. So there is not something that was more present. There was no month which was more present than another one. It was very stable development over that time. And in the Q4, we already started on a similar level than we saw before. The ramp-up on customer side in the metrology is in a very early stage, and we see a demand all over that customer base, including also existing customers that we already developed over the last years. Gustav Froberg: Great. And then a question on order intake coming from Asia. You very nicely gave us a pie chart of order intake by region. Could you give us a little bit more granularity on the region there, which countries are bigger and smaller within that pie? And do you expect that mix of countries from an order perspective to change over the course of 2026? Jalin Ketter: Yes. So the order intake on the regional level in Asia, yes, let's say, coming to become more dominant in countries where we are having semiconductor-related activities. And this is something that we will see more increasing also over the year 2026 that Asia is becoming more dominant in countries where also bigger semiconductor customers are sitting. I think that gives a little bit color on your questions and where you wanted to go for that. Gustav Froberg: Great. Yes, it does indeed. Last one from me. Just on the sequential nature of metrology, just a follow-up from a previous question. You said you're at a level where you feel like this is a new normal for a couple of quarters now, the sort of EUR 30 million run rate. Is that the right way to interpret it? Or should we still expect some degree of sequential growth in metrology orders, albeit obviously not doubling every quarter? Jalin Ketter: Yes. As I said, that's -- it's now on a base where we see a more slight growth over the next time rather than significant increases on the short run. Unknown Executive: All right. Thank you. Constantin Hesse is next. Constantin Hesse: All right. I've got 3 questions. Let's start with order intake, just following up on what Gustav said. I'm just wondering, look, I understand short-term metrology order, we are at this level now, and you don't expect any major changes from this level in the coming quarters. But just to understand, right, because we do want to understand, you do have this EUR 500 million target in '28. So in terms of the next stage of more accelerated growth in metrology, when would you anticipate that to happen? And what visibility do you currently have that, that will happen? That's the first question. Jalin Ketter: Yes. We are seeing -- so that's something that's laying on customer side and the extension of their production capacities that they are planning to cover that higher volume of production capacity in chip production as well. So for us, it's on the one hand side, the number of customers that we are qualifying ourselves for, which is also on our side and which we are developing very positive with. So one major player in the semiconductor area also already is qualified. The second one is already using or starting to use system to qualify in 24/7 levels. So we were positive of that development as well, different country. And we also have discussions with additional players, which are a little bit smaller than the ones that we were talking about. And on that side, we are involved in the discussions about ramp-up plans, of course. And these ramp-up plans show us that there will be a higher activity starting from more end of 2026, beginning of '27, where they are moving in more capacity. Constantin Hesse: Okay. So basically, visibility for that is relatively low. But in terms of timing, you'd expect end of '26 to see a bigger pickup. Understood. And then maybe just on sales and P&L. I mean, just trying to figure out these delays, right? I mean the answer was that it's all related to customer decisions. Those are customer delays. I guess we understand all that. But what I'm trying to figure out now is, if I look at consensus, right, consensus has EUR 300 million in revenues next year. That's 20% growth. So what I'm trying to figure out is, if I look at the qualitative wording that you used for '26, it sounds more conservative, much more conservative. It sounds like you expect a gradual recovery in the P&L in '26. So what I'm trying to figure out is how -- what are the confidence levels that these delays that happened in Q3 will actually be realized in 2026? And I guess that will also obviously give you a boost, right, on top of the underlying growth that you're seeing. So just trying to figure out the dynamics of how you -- how -- on top of the underlying growth, when all these delays should start to come in? Because I understood those delays were going into the first half of '26. So second question. Carl Groß: Yes, we are very confident that all these delays we're seeing coming from Q4 will be resolved in the first half of '26. And then we will, late January, early February, release our official guidance for '26. Constantin Hesse: Okay. But on top of these delays, you do still expect underlying growth, correct? Jalin Ketter: As said, the delays are contributing to 2026 and the official guidance will be announced at the beginning of the year. Constantin Hesse: Okay. Understood. And then just on the margin development, just trying to figure out here in terms of your OpEx investments. I mean, clearly, you are investing in order to support the growth profile of the company. So just to understand the building blocks leaving '25 going into '26, how we should think about these profitability building blocks into next year? Carl Groß: Yes. So we're -- the ramp-up in sales is more or less on the level we're expecting looking at the current -- what we're seeing for '26. There will be some increases in the sales. But in general, we are at the level where we want to go for the future growth for now. Constantin Hesse: I meant the -- in terms of margin development. So in terms of the potential headwinds into next year or tailwinds. So if -- with next year, you expect an improvement in revenue and then in terms of the additional cost investments, so do you expect to start seeing an absorption of fixed costs already next year? Or should we expect continued basically headwinds on the profitability next year of additional investments? Carl Groß: Okay. No, we already said, yes, we're expecting growth in comparison to '25, and with the building blocks set, the margins will improve there. Unknown Executive: All right. Thank you. Bastian Brach, please. Bastian Brach: Can you hear me? Unknown Executive: Yes. Bastian Brach: So I keep it short because most of my questions have already been answered, but one remains on the North American market and especially the order intake there, which was quite positive compared to previous like sales split. Is there any measure you would point out which contributed to this good order intake? Was it like early signs that your increased support or increased sales activities like bear fruit? Or was there any market you would point out which did exceptionally well? Or was it like what based? Jalin Ketter: Yes. So this is already a sign or a result on higher activity on our side, yes, developing the market. We significantly increased our sales activities being present in the market. And yes, system technology is something which is important for the U.S. market, especially in the area of aerospace, but also semiconductor applications where systems are used. And this is also the areas where we see contribution to the order book now coming from, on the one hand side, also the business that we acquired in France, which is mostly related to the aerospace industry. So synthesis technologies for coating of silicon carbide on turbine blades, for example, but also on graphite materials for the semiconductor industry is strong development and joining technologies on the side of our normal Material Solutions business also is something which is very important for us in this market. So nice development and first signs of our activities that we increased in that market. Bastian Brach: Okay. So you would expect that to continue that the North American order intake would be at this level as a split overall or even higher in the future quarters and years, right? Jalin Ketter: Yes, of course, that's our aim to significantly increase the North American business. Unknown Executive: All right. So we still have a couple of minutes left. Are there any additional questions that you may want to ask? Okay. If that's not the case, then thank you very much for joining us today. And yes, have a good day.
Operator: Welcome to the Sanara MedTech Third Quarter of 2025 Earnings Conference Call. Please note that this conference call is being recorded, and a replay will be available on the Investor Relations page of the company's website shortly. The company issued its earnings release earlier today. Before we begin, I would like to remind everyone that certain statements on today's call include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. For more information about the risks and uncertainties involving forward-looking statements and factors that could cause actual results to differ materially from those projected or implied by forward-looking statements, please see the risk factors set forth in the company's most recent annual report on Form 10-K as supplemented by the risk factors in the company's most recent quarterly reports on Form 10-Q. This call will also include references to certain non-GAAP financial measures. Reconciliations of these non-GAAP measures to the most comparable measures calculated and presented in accordance with GAAP are available in the earnings release available on the Investor Relations section of our website. Today's call will include remarks from Seth Yon, President and Chief Executive Officer; and Elizabeth Taylor, Chief Financial Officer. I would now like to turn the call over to Mr. Yon. Please go ahead. Seth Yon: Thanks, operator, and welcome, everyone, to our third quarter of 2025 earnings call. Let me outline the agenda for today's call. As the recently appointed President and CEO, I'll begin with a brief introduction and provide some opening thoughts on Sanara MedTech. I'll then discuss the announcement we made yesterday regarding Tissue Health Plus. Following this discussion, I'll review our net revenue performance, commercial progress and select operational highlights in the third quarter. Elizabeth will then cover our quarterly financial results in further detail. Following her remarks, I'll share some additional thoughts on our near- and long-term strategic priorities before we open the call for questions. With this agenda as our backdrop, I'd like to take a moment to introduce myself and provide some context on my background with the company. I joined Sanara in March of 2018 as one of our first regional sales managers. Over the next 7 years, I served in a variety of leadership roles on our commercial team, including as National Sales Director, Vice President and President of Commercial and most recently as our President and Chief Commercial Officer. While developing our commercial strategy and leading our sales organization, I've gained a comprehensive view of our business operations, our customer relationships and how our products perform in clinical settings. I was appointed President and CEO effective September 15. I appreciate the level of confidence placed in me by the Board and look forward to building on the foundation established around Nixon's leadership as we pursue the opportunities ahead of us. There are numerous factors that motivated me to lead Sanara MedTech, but let me start with three fundamental aspects of our business that speak to our unique positioning in the surgical market. First, our technologies are both differentiated and effective in addressing real clinical needs in the surgical operating room. Our portfolio is built around 2 key products, CellerateRX and BIASURGE, which have established their utility in clinical practice, helping to improve patient outcomes while reducing overall cost to the health care system. Through my experience leading Sanara's commercial team, I've observed firsthand the benefits of adopting these key products across hundreds of cases as well as their impact on surgical outcomes. Second, Sanara's go-to-market strategy and commercial distribution model have demonstrated their effectiveness over the better part of a decade and enabled us to rapidly grow our key products. We've secured over 4,000 healthcare facility approvals, identified surgeons who would benefit from their use and established a network of regional sales managers and distributors to engage, educate and address the needs of these surgeons. This has enabled us to develop a track record of strong growth in recent years, while positioning us to achieve significant operating leverage as well. Third, Sanara has established an [ impressive ] team with the expertise necessary to achieve our mission of improving clinical outcomes and reducing health care expenditures in the surgical market. I'm proud of the level of talent we've been able to attract in recent years. Though we've made impressive progress, I believe we have opportunities to continue evolving as an organization. I'm confident in our team's ability to achieve the next stage of sustainable growth and development as we continue to expand our share of the large untapped market opportunity that products address. Now I'd like to address the announcement we made yesterday regarding Tissue Health Plus and provide some additional context on this important strategic decision. I'll begin with some background for those less familiar. In parallel with developing and establishing THP, Sanara has been focused over the last 2 years on identifying and engaging with potential strategic and financial part to invest in and assist in the execution of this business. At the beginning of the third quarter, we initiated a formal process of evaluating strategic alternatives for THP, which we announced on our second quarter call in August. We engaged an external strategic adviser to assist in this process as we explored a range of options with the goal of maximizing shareholder value. Together with our external strategic adviser, we performed a market check and explored a range of strategic alternatives during the third quarter. This formal process ultimately did not result in finding a partner to assume significant responsibility for this investment or surface a viable option to monetize our THP asset. After concluding this process, our management team and Board of Directors determined that the most appropriate course of action was to cease operations of THP, which we announced via press release yesterday after market close. Let me walk you through the rationale behind this decision. While our THP team achieved significant progress in developing this platform over recent years, the next stage of bringing THP for commercialization and achieving the scale necessary for THP to be accretive to our adjusted EBITDA would have required considerable investment over a multiple year period. Ultimately, this decision allows us to enhance our operational efficiency and focus our resources on our core Surgical business. We believe this focus will enable Sanara to capitalize on our greatest opportunities and deliver sustained long-term growth and value creation over time. After reaching this decision, we acted promptly to discontinue THP and have made considerable progress in winding down its operation in recent months. We expect process to be substantially completed by the end of 2025. From an accounting and financial reporting perspective, we have classified the operations of THP, which were previously reported as the THP segment, as discontinued operations for the 3 and 9 months ended September 30, 2025 and 2024. Elizabeth will discuss the financial implications of this decision further. However, I want to emphasize that we continue to anticipate total cash investment related to THP will range from $5.5 million to $6.5 million in the second half of 2025. This is consistent with the expectation we shared on our last earnings call in August. We also continue to anticipate no material cash spend in THP after 2025. In summary, this strategic realignment of our business is designed to enhance Sanara's ability to capitalize on our strengths, capabilities and opportunities in the surgical market while facilitating a leaner and more efficient organization. After careful consideration, both the Board of Directors and management believes it represents an important proactive step forward for the long-term benefit of Sanara MedTech and our stakeholders. Now let's review our third quarter net revenue performance. In the third quarter, our surgical team achieved net revenue of $26.3 million, representing growth of 22% year-over-year. Our net revenue growth was driven almost exclusively by our sales of soft tissue repair products. Soft tissue repair product sales increased 24% year-over-year to $23.4 million, led by strong sales of our key products, CellerateRX Surgical and BIASURGE. Importantly, we complemented our net revenue performance with year-over-year improvements in our gross margins and demonstrated significant operating leverage. As a result, we achieved notable year-over-year improvements in our profitability profile with a $1 million improvement in net income from continuing operations and a $2.3 million improvement in adjusted EBITDA on net revenue growth of $4.7 million. Lastly, we generated $2.2 million of net cash from operating activities in the third quarter. All in all, we were pleased with our third quarter financial performance, the focus and dedication of our team and the level of demand for our surgical products in the market. With respect to the key drivers of our net revenue growth, our performance in the third quarter reflects on our commercial team's strong execution across the following three key initiatives: one, developing our relationships with independent distributors; two, selling into new healthcare facilities; and three, penetrating the existing healthcare facilities we serve. I'll now take a minute to touch on each of these three initiatives related to our commercial strategy, beginning with our efforts to develop our independent distributor network. Our team has made considerable progress in identifying and partnering with new independent distributors in key geographies across the U.S. Specifically, during the last 12 months ended September 30, we expanded our network from more than 300 contracted distributors to more than 400. In tandem, we have increasingly focused on onboarding our recently contracted distributors and training their reps to position them for success in selling our products. Truly believe partnering with our distributors for shared long-term growth versus simply contracting with them is a core component of our approach that we believe differentiates Sanara. Philosophy will continue to guide our approach as we focus on optimizing our relationships with existing distributors while expanding our network selectively going forward. Turning to our second commercial initiative, our team continued to leverage our network of distributor partners, whose reps possess strong local relationships across the U.S., to begin selling into new healthcare facilities where our products have been contracted or approved. As a result, we significantly expanded our base of healthcare facility customers over the last 12 months. Specifically, our products were sold into more than 1,400 health care facilities during the trailing 12 months ended September 30 compared to more than 1,200 facilities in the prior-year period. As a reminder, our products are approved or contracted for sale in over 4,000 facilities, so we see considerable runway for future expansion on this front. And in terms of our third commercial initiative, across the more than 1,400 healthcare facilities we currently serve, our penetration of these facilities remains very low. This represents one of our most significant opportunities for future growth. With this in mind, we are focused on increasing the number of surgeons using our products within the existing healthcare facilities by targeting practitioners, both within and outside of our traditional specialties of spine and orthopedics. Our team continued to deliver impressive progress on this front, significantly expanding the number of surgeon users on a year-over-year basis in the third quarter. Lastly, we remain pleased with the performance of BIASURGE in the third quarter and the progress made during its second year of commercialization. Our team continues to facilitate its future growth by securing new facility approvals and introducing it to our existing CellerateRX customers. Turning to our other operational highlights. In addition to executing our commercial plan and navigating the path forward regarding THP, we continue to make progress in expanding our portfolio of clinical evidence and advancing our new product initiatives. With respect to clinical evidence, we are focused on demonstrating the clinical efficacy and cost effectiveness of our key products across a variety of surgical procedures, including some of the most challenging cases. To this end, we are pleased to see the publication of two studies in peer-reviewed medical journals that are worth highlighting this quarter. Both publications discussed retrospective case series, which examined the use of CellerateRX in challenging procedures. The first was published in the Journal of Foot and Ankle Surgery, the official publication of the American College of Foot and Ankle Surgeons. It was focused on the use of CellerateRX in treating high-risk patients with multiple comorbidities. These patients underwent complex orthopedic and plastic reconstructive surgery to preserve their limbs. The researchers concluded that CellerateRX demonstrated significant value in assisting these complex procedures, helping to support the healing of soft tissue in extremely compromised patients. The second was published in the Annals of Case Reports, an open-access multidisciplinary journal. It was focused on the use of CellerateRX in treating surgical wounds following [ lobectomy ] procedures, which tend to involve high complication rates. Based on the findings, the researcher concluded that CellerateRX may serve as a valuable adjunct in enhancing postoperative wound healing for [ lobectomy ] patients. Our expanding portfolio of clinical evidence continues to demonstrate the value our key products bring to the treatment of some of the most challenging surgical wounds, helping us to educate the medical community and raise awareness of their benefits. With respect to our new product initiatives, I'm pleased to report continued progress under our strategic partnership with Biomimetic Innovations Limited, or BMI. By way of background, we have an exclusive U.S. license and distribution agreement with BMI for OsStic as well as an adjunctive fixation technology. OsStic is an innovative and differentiated product designed to enhance the repair process for periarticular fractures. While not currently cleared for sale in the U.S., it's been granted Breakthrough Device designation by the FDA. Throughout 2025, BMI has been focused on advancing through a series of key product development, clinical and regulatory milestones structured in our agreement. After achieving the first of these milestones during the second quarter, they have made significant progress in recent months. As of September 30, they have completed all of our agreed-upon milestones. Based on the recent pace of progress, we continue to anticipate U.S. commercial launch in the first quarter of 2027. We look forward to leveraging our sales and distribution team to help address the more than 100,000 periarticular fractures that occur annually in the U.S. Elizabeth will now review our third quarter financial performance in greater detail. Elizabeth Taylor: Thanks, Seth. I will begin by reiterating that the operations of THP, which were previously reported as the THP segment, have been classified as discontinued operations for the 3 and 9 months ended September 30, 2025 and 2024. As such, unless otherwise noted, all commentary that follows relates to our Surgical business on a continuing operations basis. In our 8-K filed with the SEC today, we have included tables detailing the historical results of our operations on a quarterly basis by business for our Surgical and THP businesses in 2025, 2024 and 2023. These materials are also available on the Events section of our investor website, next to the webcast link for today's earnings call. Given that Seth covered our net revenue results for the quarter, I'll begin with gross profit. All percentage changes referenced throughout my remarks compared to prior-year period unless otherwise specified. Third quarter gross profit increased $4.8 million or 24% to $24.5 million. Gross margin increased approximately 200 basis points to 93% of net revenue, driven primarily by increased sales of soft tissue repair products. Third quarter operating expenses increased $2.6 million or 14% to $21.5 million. The change in operating expenses was driven by a $2.5 million or 14% increase in selling, general and administrative expenses and to a lesser extent, a $200,000 or 31% increase in research and development expenses. The $2.5 million increase in SG&A was driven primarily by a $1.4 million increase in compensation and contract services and an $800,000 increase in direct sales and marketing expenses. Operating income for the third quarter increased $2.2 million or 278% to $2.9 million. Other expense for the third quarter was $2.1 million compared to $1 million of expense last year. The increase in other expense was primarily due to higher interest expense and fees related to our CRG term loan as well as higher share of losses related to equity method investments. Net income from continuing operations for the third quarter was $800,000 or $0.09 per diluted share compared to a net loss from continuing operations of $200,000 or $0.02 per diluted share last year. Adjusted EBITDA for the third quarter of 2025 increased $2.3 million to $4.9 million. Turning to the balance sheet, as of September 30, 2025, we had $14.9 million of cash, $45.1 million of long-term debt and $12.25 million of available borrowing capacity, which is accessible through December 31, 2025. This compares to $15.9 million of cash, $30.7 million of long-term debt and $24.5 million of available borrowing capacity as of December 31, 2024. Lastly, a few considerations to bear in mind for the remainder of the year. We remain focused on driving strong net revenue growth for the full year 2025, coupled with improvements in our profitability on a continuing operations basis. With respect to our net revenue over the balance of the year, as a reminder, our net revenue in the fourth quarter of 2024 grew 49% year-over-year. This exceptional performance benefited in part from increased demand for BIASURGE following the disruption caused by Hurricane Helene last fall, which caused industry shortages of IV fluids and saline solutions. As we have shared previously, of the $26.3 million of net revenue generated in the fourth quarter of 2024, we believe approximately $1.8 million was attributable to this unique dynamic. Excluding this $1.8 million headwind, we expect our revenue in the fourth quarter of 2025 will increase in the high single digits to low teens on a year-over-year basis compared to strong year-over-year growth in the fourth quarter of 2024. With respect to anticipated cash utilization, as Seth mentioned, we continue to expect the total cash investment related to THP will range from $5.5 million to $6.5 million in the second half of 2025. Specifically, our total cash investment in THP was $4 million in the third quarter of 2025, implying approximately $1.5 million to $2.5 million of cash investment in the fourth quarter as we continue to wind down THP. We continue to anticipate no material cash spend in THP after 2025. Lastly, we continue to expect that tariffs will not materially impact our results of operations in 2025. With that, I will now turn it back to Seth for closing remarks. Seth Yon: Thanks, Elizabeth. Stepping back, over the trailing 12 months ended September 30, 2025, our Surgical business has generated nearly $102 million of net revenue, representing growth of 31% over prior-year period. In the third quarter of 2025 alone, we generated higher net revenue than over the entirety of 2021. Our ability to achieve the significant commercial scale in a relatively short time speaks to the strength of our key surgical products, our go-to-market strategy and our team. It also represents a validation of our large addressable opportunity we continue to pursue in the surgical market. With clarity on THP, we are moving forward with a leaner organization and a renewed commitment to building on the progress made in our Surgical business. As we close out 2025, our team is focused on executing our commercial plan, including the three initiatives I outlined earlier, while improving our efficiency and investing prudently and strategically in our Surgical business. Longer term, we are focused on supporting the future development and evolution of our surgical business by improving our systems and processes, deepening our competitive moat and enhancing our commercial strategy. Through these efforts, we will position Sanara to continue driving strong sustainable growth, both in 2025 and over the coming years, as we progress to our next phase as an organization. I'd like to close by congratulating the entire Sanara MedTech team on the progress made this past quarter, which is a testament to our collective vision, grit and execution. Thank you as well to our shareholders and customers for their support and to those on today's call for their interest in Sanara MedTech. With that, operator, you may now open the call for questions. Operator: [Operator Instructions] Your first question is coming from Ross Osborn with Cantor Fitzgerald. Ross Osborn: Congrats on the progress. So starting off, could you spend some more time on some of your initiatives in driving further penetration within existing facilities? How do your conversations go with new physicians? What are people excited about? What do they have more questions about? Seth Yon: Ross, it's Seth. Yes, a couple of things to answer that. So we've done a lot at the street level with the sales force, both on our W-2 side plus our distributor side to expand into new specialties. But in addition to that, both our R&D team and our clinical team as well have worked really hard on both scientific, clinical and even economic evidence that supports the value that our products provide. So it's really a culmination of all those things to continue to expand into new users and also into new facilities at the same time. So we've talked a lot about this in the past. We've grown considerably in the number of facilities, but we know we've got a lot of room to grow there as well. And same is true with our distributor network and surgeon base as well. So we like the formula that we have. We'll continue to take that and replicate that where we can and then get creative as we go into 2026 and beyond. Ross Osborn: Okay. Great. Then when thinking about operating profitability, are there areas outside of THP where we should expect cash savings? Or should we begin to expect leverage on sales and marketing going forward? Elizabeth Taylor: I think we've kept our headcount and sales flat with 40 reps and 400 distributors, and it's evidence that the model is working, and you're seeing the operating leverage on the EBITDA line. We're focused on sustainable and profitable growth and -- the balance of which we're going to invest in our product portfolio and growing the top line going forward. And like all medtech companies, we need to invest in our current product portfolio and from an IP perspective, invest there as well. So we see leverage in our sales channel, and we'll continue to invest and no longer be spending some of our cash flow in the THP segment. Operator: Your next question is coming from Daniel Journey with Unrivaled Investing. [Operator Instructions] Daniel Journey: A little disappointed with the THP result, but thanks for coming to that conclusion, trying to rationally manage your capital. So based on your outlook for the next quarter, you mentioned that excluding onetime benefits from last year, growth is going to be high single digits, low teens. Is that the right sort of expectation for this business going forward? Are you still -- because it is a significant sort of deceleration from where you've been. And so I'm curious on how you think about the cadence that you're expecting, your internal threshold that you're expecting. And the same thing along with the margins, where I noticed your EBITDA margin was effectively flat sequentially. And so I'm curious, do you have any sort of benchmark or target? So that way, investors can understand, okay, this is a 10% grower? Is this a 20% grower? And what's the sort of operating margin that you should -- we should be thinking about long term, ballpark? Seth Yon: Daniel, thanks for the question. We'll kind of divide and conquer on this, if you don't mind. So I'll take part of the question. I'll let Elizabeth do the same. As far as Q4 performance and looking at that, as Elizabeth had mentioned, we grew 49% in Q4 of 2024. If you take out that adjusted $1.8 million, it's still about 38%, which obviously was just a very, very significant growth quarter for us. And even inside that 38%, when you think about the $1.8 million that we grew as a result of the saline shortage, that was solely on just new accounts. So we had other growth as well coming from BIASURGE in existing accounts as well. That's not captured in that $1.8 million. So we know we had a really significant number. We still believe in a very strong quarter this coming quarter as well. And again, I don't think that the expectation going into the fourth quarter should be concerning to anybody. We still feel very confident in our ability to perform at a high level going into the new year, given the opportunities that we have and the number of facilities that we have approved, the distributor partnerships that we have currently in place and those where we'll expand. And again, there's great opportunity to continue to reach more surgeons. So we remain very confident as we go into the new year and how we'll perform. I'll let Elizabeth answer the EBITDA question as well. Elizabeth Taylor: Great. Thank you. If you look at our trailing 12 months EBITDA, last year, it was $6.6 million and this year, $16.4 million. So with a revenue growth of 31%. So you're seeing operating leverage in that. And it's a testament to Seth having built out a really strong sales force, and he's been able to increase sales with a flat headcount for the last 2 years. Will the business require additional headcount? Yes, at some point. But the point is that you're seeing -- we sort of built and then are growing from what we built. So we feel strongly about our performance and feel good about it. Daniel Journey: Got it. So is there a sense that there is a lot of room still to expand margins, though? Elizabeth Taylor: Yes, I believe we feel good about where the business is going and what we've shown in the past. We don't give forward-looking guidance. So... Operator: And before we take any additional audio questions in our queue, we have a question coming from the webcast. The question is, it is my understanding a strategic partner was always expected to be required to bring to the market. Is this correct? With this in mind, why was a strategic partner not considered as an integral part before the costs were incurred? Seth Yon: Sure. Looking back over the last 18 to 24 months or so, I think it was the beginning of March, if I remember correctly, of 2024, that THP really started to pursue some form of strategic partner and thought that we could do that along the way. Again, the team had done a nice job of developing that software. And our hopes with that, coupled with some of the beta sites that we're also in would start to encourage that activity. And again, unfortunately, that didn't happen, and that put us in a position going into the third quarter and certainly into the end of the year that we needed to make that decision. We did that with confidence, both at the Board level on the managerial group as well. Going into the future, we knew that those resources needed to be put back into the surgical space, and that was a decision that we made back into September as we went forward. Operator: Your next question from the audio lines is coming from Yi Chen with H.C. Wainwright. Yi Chen: Now that the THP is going to be discontinued, could you comment on the trend of total operating expenses? Should we project to see a meaningful decrease in operating expenses? Elizabeth Taylor: Thanks for the question. We don't give forward-looking guidance, but I would remind everyone that we have put a supplemental disclosure on our website that examines the Surgical business as a stand-alone business historically. And I think you'll -- using that information can see good trends in that business and be able to model it from there. Operator: There appear to be no further questions in queue. I would now like to turn it back to Seth Yon for his closing remarks. Seth Yon: Like to say again, congratulations to the entire Sanara MedTech team and all our distributors as well for an excellent quarter, really a testament again to the vision and the grit and ultimately delivering on our go-to-market plan. In addition, again, just thank you to all of our shareholders and our customers that see value in us as a company and our technologies as well, and for those joining maybe the call for the very first time as well. Thank you for your time, and have a great day. Operator: Thank you, everyone. This does conclude today's conference call. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.
Martin Pibworth: Good morning, everyone, and thank you for joining us today as we set out our transformational fully funded investment plan to deliver high-quality capital and earnings growth. As I give my first presentation as Chief Executive, I am delighted to say that before us lies the most exciting period of growth I have seen in my near 3 decades at SSE. And by leaning into the U.K. networks opportunity, we are underlining our position as a top-tier European energy player. Over the course of the next 30 minutes, we will outline how we have been ramping up delivery of game-changing infrastructure, provide a brief update on our financial performance. and finally, lay out the detail behind a bold new plan that faces into the paradigm shift underway in our sector. Before I hand over to our Chief Financial Officer, Barry O'regan, to run through our results for the half year, I want to briefly set the context for how our integrated strategy optimizes growth and creates long-term sustainable value. SSE's position at the heart of the energy transition in our core U.K. and island markets has created a once-in-a-generation opportunity for the group to significantly increase our investments in homegrown, secure and clean energy infrastructure. We have great options across networks, renewables and flexibility, but within that, the single biggest opportunity is in transmission, and that's our focus this morning. Under this plan, we will be investing GBP 33 billion, of which 80% will be in networks growing the regulatory asset base by a compound annual growth rate of around 25% to 2030 and positioning SSE as one of the fastest-growing electricity network companies in the world. This will drive increased levels of high-quality index-linked earnings with clear visibility to achieve between 225p to 250p earnings per share by 2030 after adjusting for the equity placing we have announced today. We are also able to extend our sustainable and progressive dividend policy over the same period. And it is important to emphasize that this is a fully funded plan with a firm commitment to maintaining a strong balance sheet. Around 90% of this will be self-funded through strong operational cash flows or by steady increases in our levels of net debt and hybrid capital. The remaining 10% will be achieved through a combination of today's equity placing as well as targeted disposals. This is a hugely exciting investment plan, which will deliver significant long-term value creation over the course of this decade and beyond. Our confidence is underpinned by SSE's track record of delivery. The roll call of SSE-built additions to the energy system in recent years is impressive and includes the delivery of complex projects like the Shetland HVDC connection, Viking Wind Farm, Seagreen, the Northeast 400 kV scheme, Slough Multifuel and KB2, and the relentless delivery continues with the headway we have made on construction and planning milestones over the past 6 months. In Networks, construction is now well underway on 4 of the 11 major transmission projects with all major consents submitted and supply chain secured for the remainder. In Renewables, we are making strong progress on our 2.5 gigawatt construction program, including Dogger Bank, where 88 out of 95 turbines are now installed with the projects remaining on track with the guidance we issued over a year ago. In addition, Yellow River is fully commissioned and Berwick Bank is consented and on track for participation in upcoming auction rounds. And Flexibility completes the picture as we progress construction on 2 vital new thermal generation projects in Ireland. As we'll set out today, networks are the growing core of our investment plans, but they continue to be complemented by selective and disciplined growth projects across our other businesses. And of course, it is critical that in making this progress, we put our people first. Everything we will talk about today is underpinned by the hard work and dedication of our employees and contract partners. So keeping them safe and well will always be SSE's primary concern. It is, therefore, pleasing to report continued strength in our safety performance through a period of increased construction activity over the past 6 months. And with investment set to accelerate, it will be critical to maintain our focus on looking after those who work for and on behalf of SSE. I'll now hand over to Barry for an overview of performance in the first half of the year before we turn to our exciting plans for the next 5-year period. Barry O'regan: Thank you, Martin, and good morning, everyone. I'm sure you'll be keen to see further detail of our new investment plan. However, it is important to briefly cover financial performance in the first half and our reaffirmed outlook. The GBP 655 million adjusted operating profit delivered by the group over the past 6 months was in line with usual seasonal averages and, therefore, keeps us on track to deliver on our full year expectations. The first half saw a step change in transmission investment and earnings. So it's worth pausing to highlight the continued evolution of the latter. Around 2/3 of earnings were generated by regulated networks, an increase relative to the comparative period and in line with the continued upweighting of investment in that area. The increase in high-quality regulated earnings is a trend that is set to continue as we deliver on our investment program. Turning to the bottom line. The group delivered adjusted EPS of 36.1p, in line with our expectations for the period. In our combined networks businesses, adjusted operating profit fell by GBP 84 million over the first 6 months. Profits almost doubled for transmission, driven by the continued increase in investment as we make substantial progress on our large capital projects. Turning to Distribution. Profits were lower as expected given the nonrecurring inflation adjustment in the prior period, with operational performance remaining strong. Overall, we continue to be pleased with the underlying financial and strategic performance achieved by our regulated businesses, which sets them up well for their future growth. In SSE Renewables, strong progress continues to be made on Dogger Bank construction, and we were delighted to announce full completion of Yellow River in October. Whilst increased capacity largely offset unfavorable weather conditions, the 20% decrease in hedge prices that we flagged in May meant that adjusted operating profits have reduced this period. With the usual seasonality, meaning that over 2/3 of operating profit for this business is generated in the second half of the year, we remain confident that earnings will be higher on a year-on-year basis. Turning to flexibility. Adjusted operating profits have fallen since the previous period. This movement was mainly due to the customers business, where a bad debt release in the comparative period is combined with lower volumes in the first half. We expect a greater proportion of profits to be recognized in the second half for this business. Below the line, net finance charges were stable, reflecting a combination of capitalization effects and use of hybrid debt with coupons expected to increase in FY '27. Our tax rate continues to decline with the full expensing capital allowances available on our increasing investment program. As you know, our dividend policy is to deliver 5% to 10% growth across the year. And as set out in May, our planned approach means that we today declare an interim dividend of 21.4p, being 1/3 of our FY '25 dividend. Turning now to the financial outlook for FY '26 and FY '27. We are pleased to reconfirm the detailed segmental guidance we gave in May. With half year results within the normal ranges of seasonality, we see the strong performance noted today continuing through the key winter months, subject to the usual variables around weather, market conditions and plant availability. And consistent with the approach in prior years, we will provide specific EPS guidance later in the financial year. Looking further ahead, the strategic execution that Martin highlighted earlier means we remain confident in delivering against our FY '27 earnings projection. With the first half financial performance now covered, I'll pass you back to Martin for more detail on our transformational investment plans. Martin Pibworth: Thank you, Barry. It's important to set the scene for why a huge acceleration of investments in infrastructure will be needed in any realistic energy transition scenario. Regardless of shifting political priorities, electrification of the global economy is unstoppable and accelerating. As you can see from the slide, there is a dramatic ramping up of electricity demand from 2030 out to 2050. That is a staggering amount of growth for the system to accommodate, particularly against the backdrop of an aging gas generation fleet, nuclear closures and a reliance on imports from jurisdictions going through similar uncertain transitions. It is also worth emphasizing that the surge in energy demand is unlikely to be smooth or linear. We will need a system that can accommodate uncertainty. These projections have a number of important implications. First, the need for a much more strategic centralized approach to system planning to ensure the right infrastructure is built in the right places at the right time. We are seeing this materialize through the Clean Power Plan, the development of the Strategic Spatial Energy Plan, which will follow and ambitious planning reform. Second, it requires a clear focus on the cost of capital and crowding investments in electricity infrastructure because this is what will deliver in the long-term interest of customers. This was a key factor in the government's welcome decision to rule out zonal pricing in the summer and remains the driving force behind policy and regulatory decisions that are adding momentum to our strategy for value-enhancing growth. Meeting the needs of an electrifying economy requires 4 things: rapid expansion and reinforcement of the transmission network, strategic local distribution upgrades and modernization, a doubling or even tripling of homegrown energy generation supply and a greater focus on storage and flexibility to keep it all in balance. All of these drivers underline the multi-decade organic growth opportunity in front of SSE's carefully selected business mix. The need to alleviate system constraints and rewire Scotland underpins the huge projects, Transmission has well underway. This is investment that the grid needs today, and it will lay the foundation for development of smart grids and a digital economy in the future. In distribution, the next price control will mark a shift in pace as we deliver increasingly strategic plans that accelerate electrification for consumers. Across renewables, which remain the cheapest form of new generation, we have a premium pipeline of options and significant delivery expertise. The North Sea leads the world in offshore wind and the capability we have developed through projects like Dogger Bank and Seagreen gives us an enviable platform for future growth. And finally, our Flexibility capabilities give us resilience against unexpected market developments in an increasingly electrified world. Thermal plants will be rewarded in all transition scenarios, whether providing grid stability or security of supply, and it is complemented by a customers' business that is meeting the demands of a digitalized world focused on AI and data center growth. With supportive policy frameworks and the expertise to deliver, SSE has unique access to the multi-decade organic growth opportunity in these core markets. We briefly touched upon some of these numbers in an earlier slide, but it is worth walking through what this once-in-a-generation opportunity means. The GBP 33 billion investment plan presented today is a trebling of the investment we delivered across the previous 5 years. This investment brings with it industry-leading capital growth with our combined networks RAV set to triple to around GBP 40 billion by the end of the decade, a 25% compound annual growth rate. Disciplined further investment in renewables is likely to add a further 1.5 gigawatts of projects, combining with the 2.5 gigawatts already under construction to take installed capacity to around 9 gigawatts by 2030. This is growth that will create significant value for the group across the life of the plan and the longer term. It will underpin an increase in adjusted EPS to between 225p and 250p by FY '30 after accounting for today's proposed placing. When compared to last year's FY '25 EPS base, which remains unchanged of 160.9p, this is compound annual growth rate of between 7% to 9%. This accelerated investment is underpinned by secure U.K. government regulatory frameworks, and it will unlock growth across the wider economy and support thousands of jobs over the course of the plan. Turning to Transmission. Ofgem's strategic approach to regulation has provided unprecedented and welcome visibility on investment to 2030. While we continue to engage constructively with Ofgem ahead of the final determination on RIIO-T3 next month, the vast majority of the transformational CapEx plan we announced today has its origin in the ASTI and LOTI programs. Between the agreed ASTI and LOTI regimes and business-as-usual programs, we see SSEN Transmission investment increasing to around GBP 22 billion across the period, net of the share from our supportive investment partner. This will deliver a 30% CAGR in the Transmission asset base, making it one of the fastest-growing electricity networks in the world, with earnings increasing at an even faster rate over the plan. And as I will come on to over the next few slides, with the high degree of visibility we have over the CapEx plan and with all major consents submitted, we are making sure that the business and the supply chain are well positioned to deliver. The ASTI and LOTI projects are required in every realistic energy scenario. They are well advanced with mature designs, optimized configurations and a supply chain ready to deliver. Around 90% of our investment in Transmission will be spent on these projects and business-as-usual investments and it reflects the supply chain inflation we have seen over the past few years. These projects will connect homegrown renewable energy and transport the power produced to areas of increasing demand across the country. And they offer clear value for money for consumers by reducing current constraint costs, establishing a foundation for security of supply and reducing our national dependence on volatile energy markets. This high degree of visibility means that the transmission story today is all about safely and efficiently converting the lines on this map into critical national infrastructure, and this is happening at pace. As I said earlier, 4 of the 11 ASTI and LOTI projects are already in construction and all major consent applications have been submitted. All supply chain frameworks that we need have been secured, and we are working with our partners on their delivery capacity and manufacturing quality. This isn't a desktop exercise. This is securing key equipment. This is inspection of manufacturing facilities. This is accelerated innovation and support of the supply chain. It is heavy recruitment ahead of need, vast training programs and deep community engagement, and this is all well underway. With our own resource in the transmission business increasing fivefold in the past 5 years, we are putting everything in place to deliver most of these projects by 2030 ahead of the next phase of projects that will surely follow. This is an exciting moment for SSE, for Scotland and for the U.K., but we are acutely aware that local communities have a major stake in these projects. Having conducted what we believe to be the largest public consultation exercise Scotland has ever seen, we continue to engage with all parties and adapt our plans where we can. We are also investing in housing and community benefit funding that will have a lasting positive impact on the North of Scotland. Ultimately, these vital projects are in our license conditions, and they will be delivered. The need is there, the supply chain is there and consenting is progressing. They will make a huge difference to our energy system as constraints are eased and more homegrown clean energy is connected, providing a tangible economic payback for consumers. Distribution upgrades are more localized, but they are much greater in number and hugely exciting in their own right. In its early consultations on the upcoming price control, Ofgem agrees. The regulator points to significant growth in electricity demand driven by the advance of technologies like electric vehicles, heat pumps and digital industries. Distribution southern license area has enormous strategic potential as it unlocks data center growth in the M4 corridor, while the northern network will connect increasing Scottish renewables capacity with local communities. We, alongside the system operator, are already creating the plans and Ofgem is working on the frameworks to move from a just-in-time network to a well-planned strategic one. At the same time, the government is legislating for local area energy plans to create a bottom-up vision of local needs. We see this business as consistently delivering around 10% RAV CAGR through ED3 alongside high-quality index-linked earnings. And it promises to drive growth for the group well into the 2030s and 2040s as we bring electrification to the doorstep. Renewables will be the foundation of the future global electricity system. SSE has a premium pipeline and world-class teams to deliver clean North Sea energy, which will power European economies for decades to come. In the course of our 2030 plan, we will complete major projects like Dogger Bank, which are backed by long-term, high-quality and index-linked CfD contracts. This reflects and is indeed a direct consequence of our demonstrable track record of driving value through selective capital allocation in premium projects. We also have further options in offshore wind and additionally, a significant pipeline onshore. Our plan outlined today includes around GBP 2 billion of uncommitted CapEx with which to bring forward further investments. But let me be absolutely clear. SSE will continue to maintain the strict capital discipline that has served us so well in the past and prioritize value over volume. Any investment we sanction will have a clear route to value creation with adequate contingency for execution risk, deep consideration of supply chain capabilities and will be delivered through our established models such as via partnership and project finance in offshore wind. But we must not lose sight of the longer-term opportunities here. The U.K. and Ireland will need a strong and diverse renewables base to meet their energy goals, and there is no doubt SSE will be a major part of that. I'll now pass you back to Barry for more on the visibility on earnings and value creation this plan gives us and how we are funding it. Barry O'regan: Thank you, Martin. As we have outlined today, it is crystal clear that the right strategy at this point in the energy transition is to pivot the group further into the transformational networks opportunity. And Martin has just outlined not only the strategic importance of this investment, but also the high degree of visibility we have, our confidence in delivery and the market-leading capital growth it brings. Over the next few slides, I will cover the clear visibility this strategic plan provides of value creation and earnings growth through the rest of the decade and beyond. Today's investment plan marks a significant evolution of capital allocation from the preceding 5 years. What has historically been a 50-50 investment split between networks and markets now becomes 80-20, upweighted in favor of networks. And this upweighting provides the group with a significant enhancement in earnings visibility. By FY '30, we expect that around 80% of earnings will be index-linked through either the stable regulatory framework provided by networks or from our energy businesses, where CfD, ROC, REFIT arrangements and a rising capacity mechanism provide a clear line of sight over future earnings. This is a material step-up from our position today, offering investors significant earnings stability and protection as we materially grow the business over the course of the decade. At the same time, we will retain 20% of value upside potential, mainly through flexible services, which also provides the group with resilience against unexpected market events. And with 80% of investments targeted towards networks, it should come as no surprise that the majority of expected earnings and asset base growth will come from those businesses. Whilst negotiations over T3 remain constructive and ongoing, we expect the rapid regulatory asset growth in those businesses will deliver RAV of around GBP 40 billion by FY '30, and this will provide a firm underpin to the step-up in long-term earnings. And while more moderate earnings growth is expected in Renewables and Flexibility, these businesses continue to provide the group with value upside potential, as I have mentioned. It is important that as we pivot and grow, we retain a sharp eye on commerciality and efficiency. And that is why we are also committing to driving up-weighted annual recurring cost efficiencies across the group of around GBP 200 million by FY '28. This is an investment plan that has discipline and efficiency at its core, that offers visibility of value creation and, therefore, provides us with the confidence to target adjusted earnings per share of between 225p and 250p by FY '30 after accounting for today's placing. This is equivalent to a 7% to 9% CAGR from the FY '25 baseline that we reported in May. That visibility of growth enables the extension of our sustainable and progressive dividend policy with dividend per share continuing to increase by between 5% to 10% per year to FY '30. This fully funded plan opens the door to an unprecedented investment opportunity that will change the group's shape, size and overall trajectory. It also has a commitment to a strong balance sheet at its heart, reinforcing our commitment to existing investment-grade credit ratings whilst leaving ample headroom for further earnings growth well into the next decade. With GBP 33 billion of investment and GBP 6 billion of other cash requirements such as dividend and interest payments, we expect the group will have a total cash requirement of around GBP 39 billion, which will be met via a combination of primarily self-funded sources. Around GBP 21 billion is expected to come from strong operational cash flows during the period, with a further GBP 14 billion from increasing net debt and hybrid capital issued in a steady way throughout the plan. This expected debt increase is smaller than our threefold increase in regulated assets. And when combined with the growth in earnings, means we remain below 4.5x net debt to EBITDA throughout the course of the plan. Around GBP 2 billion is expected to come from targeted asset rotations across the range of premium assets in our portfolio. These disposals will be timed to meet our investment needs towards the end of the 5-year plan with assets selected to maximize value. And for the remainder, an equity placing of GBP 2 billion will support the significant increase in investments announced today. We don't take issuing equity lightly, as you can see from the extent to which this plan is self-funded, but it's absolutely the right thing to do to unlock this exciting plan, grow the business and deliver attractive returns for our shareholders. I'll now quickly step through the structure of the proposed non-preemptive equity placing to certain eligible institutional investors, which launched this morning at 7:00 a.m. The intention is to raise gross proceeds of GBP 2 billion through an accelerated book build, which represents approximately 10% of the current issued share capital. Concurrently, we have a separate retail offer in the U.K. through RetailBook. The proceeds we expect to raise today will enable us to deliver a plan that is the foundation for long-lasting and sustainable growth of the highest quality. We have an exciting opportunity in front of us, and the plan we have announced today represents a pivotal moment in SSE's evolution. I'll now hand to Martin to close. Martin Pibworth: Thanks, Barry. We are building on the strength of a business that sits at the very heart of the energy transition. Our balanced portfolio of capabilities, assets and businesses offers investors resilience against inflationary movements and market volatility. With supportive policy frameworks and delivery expertise, SSE has a strategic growth opportunity that will create sustainable value for both shareholders and society for decades to come. We now look forward to working with investors, governments, regulators, communities, suppliers and consumers to help build a homegrown energy system that is independent of volatile international markets, more affordable for customers and better for the environment. To conclude, this is a defining moment for SSE. We have an ambitious plan that leans further into one of the world's fastest-growing electricity networks, underlying our status as a top-tier European energy player. And it offers a clear, well-defined funding route that balances the need for financial strength and earnings growth. Rapid capital growth in our businesses as we grasp this once-in-a-generation opportunity, and it offers long-term value creation with clear visibility over earnings growth and a sustainable and progressive dividend policy. This is a hugely exciting opportunity, and we are getting on with delivering it. Thanks for your time this morning. We will now move to Q&A. And if I can ask that we please keep it to no more than 2 questions each so that we can get to everyone in the time we have. Thank you. I'll now pass over to the operator. Operator: [Operator Instructions] And your first question today comes from the line of Robert Pulleyn from Morgan Stanley. Robert Pulleyn: Yes, rob Pulleyn from Morgan Stanley. First of all, congratulations on a very well put together plan, very exciting times and great to see that earnings profile. I'll stick to 2 questions. I'm sure there's lots. So firstly, if we could talk about the asset rotation, GBP 2 billion as part of your funding package. The footnotes seem to imply it will come from renewables. But is that explicitly the case? And is any stake sale in electricity distribution ruled out or included in the guidance? And secondly, given today's double news around data centers across Europe, may I ask, should SSE monetize any of its legacy power plant sites with grid connections for data centers as we are now seeing elsewhere, not just in the U.S. but also U.K. and in Europe? Barry O'regan: Yes. Rob, thanks for the question. I'll look at the disposal question. So yes, the GBP 2 billion disposals, how I'd look at that is over 25% of that will come from our noncore assets, primarily our Slough waste energy plant, which is the only one we've left. And then we also have a stake in the network -- telecoms fiber company, and we also have a loan note. So in reality, those will all probably take place in the earlier part of the plan. The remaining 75% of disposals will be towards the back end of the plan. It could come from any of our business units. Ultimately, we will decide closer to the time what makes sense strategically and financially for ourselves at the time. Martin Pibworth: And then thanks, Rob. To your other questions, I mean, data center is obviously a fascinating question. Obviously, we saw the news this morning. I mean the opportunity for data centers and the AI trend, I think, affect us across a number of businesses. I mean, firstly, there's obviously the constructive reality of increasing demand for our generation businesses. There's also the flow-through to distribution, where we mentioned in the presentation we've just given, we would expect an increase in demand in particularly our southern network and for distribution to have obviously a key role to play in delivering that demand. For the customers business, they're also very well engaged with tech players in terms of CPPA possibilities. And of course, that also applies to renewables and the ability to get generation projects across the line there. Specifically on thermal, we have always said that we think our sites offer very good value in terms of redevelopment and playing into transition trends. And just as a reminder, already on our sites, we have previous thermal sites and these are mostly coal sites. We have built batteries. We have built multi-fuel. We provided emergency generation in Ireland for the Irish government, and we are also in the process of building an HVO plant at Tarbert. So that kind of underlines the value we've all seen. And of course, the data center angle possibly adds to that going forward. Operator: Your next question comes from the line of Mark Freshney from UBS. Mark Freshney: I have 2. Firstly, on the 6 overhead line planning consents that you're due to get middle of next year. I mean you're very impassioned about, Martin, about the conversations you've been having with the community and why these assets are essential. But you are dependent upon something that's very much outside of your control. What is it that gives you confidence that this time, it will only take 52 weeks rather than 2.5 years? And just secondly, regarding the renewables business, I mean, I think there are some big capital commitments for Dogger, et cetera. it seems to me that you -- I can't remember a time when you've actually reduced spend so much in that business. And is it fair to assume that there's envelope in there for Berwick Bank and maybe a couple of other no-brainers, but you really are pivoting capital away from that business? Martin Pibworth: Thanks, Mark. Let's deal with the transmission confidence and planning, firstly. I mean, just to reemphasize some points here. Our confidence in the transmission ability to deliver is, firstly, we have had a strategically minded regulator that has given us enough notice to build capabilities. So we referenced a fivefold increase in our resourcing. It is worth pointing out as well that, that resourcing comes -- some of that comes from the North Sea oil and gas, so we get the expertise from that. But also we've managed to pivot some of our renewables expertise, project managers, project directors, engineers, et cetera, into that business. That's a high-quality resource business. We've also, because of the strategic mindset of the regulator, been able to build supply chain frameworks and contract the supply chain, Tier 1 supply chain partners that we know very well. So we think we're well set up from that perspective. Then it comes down to the planning. That bit is less in our control. But maybe a couple of things. Firstly, you referenced the Scottish government and their 52-week commitments for overhead line planning, consenting. We see that as backed on the ground by a trebling of resourcing they've put into the consenting units, which will ultimately define and decide some of those decisions. So we see that as a positive. And then just on the numbers, in the last -- just over the last few months, we've had 2 substations and 2 overhead lines consented. Right now, we have 2 out of 5 of our marine consents and 2 expected soon. We have 5 out of 8 of our overhead line consents, and there's 3 of those in the 12-month process we just talked about. And 13 out of 21 substations consented, including Netherton, which is a major one. So that is the basis for our confidence. We have the ability to logistically get everything ready on the ground with people and supply chain. We think we've got the backing of the Scottish government that understands the transition need and the economic importance of us delivering this infrastructure in a timely way. Barry O'regan: Yes. And look, just on the renewables CapEx, we've got about GBP 4.5 billion in for renewables CapEx, Mark. over GBP 2 billion of that is currently unallocated, and we will only take that forward clearly if the projects, as Martin said earlier on, meet our hurdle rates and our discipline. That obviously also allows for Berwick Bank. We've done rigorous stress testing of various possible scenarios and Berwick Bank will be part of that. Obviously, that's a multistage project. And obviously, the timing is to be confirmed and equity ownership stakes, et cetera, has to be decided in the future, but that's all part of the scenario analysis we've done. Operator: We will now go to our next question. And the question comes from the line of Dominic Nash from Barclays. Dominic Nash: Congratulations, Martin, on your first results as CEO. I think it's a fair to say that you're setting a high hurdle for future presentations. So congratulations. Two questions from me, please. Firstly, could you give us some color on the wiggle room and the uncertainty around that GBP 33 billion sort of investment program to 2030? Because clearly, RIIO-T3 we will get probably what, the first week of December or so. And then secondly, on the renewables where you earmarked the GBP 5 billion or GBP 4.5 billion, clearly, we've got uncertainty over AR7 and maybe AR8. So I'd be interested to know why your confidence is set at GBP 33 billion and realistically, could the CapEx numbers go up from there? Secondly, on the 4.5x net debt EBITDA sort of guidance that you'll be within that limit by 2030, I think that's unchanged from the current net debt-EBITDA number. Could you give us some color again on -- I think the S&P report recently, which was discussing about how you treat JV net debt and whether or not your net debt-EBITDA numbers will need to sort of reflect kind of I think they call it orphan debt in your JVs? Martin Pibworth: Yes. Maybe just a couple of headline comments while Barry gets the numbers. I mean, we've said and very strongly the CapEx plan and funding options have been stress tested against a range of possible scenarios. And obviously, that is important. I mean just on the specifics of AR7, clearly, we're in an auction process, so we wouldn't say too much about that apart from just to remind investors that we have always and consistently taken a very strong capital disciplined approach to investment. That applies to Dogger Bank, which is why today, we're obviously announcing on Dogger Bank that we're still on track with exactly what we said a year ago. Obviously, that's a year later than we originally planned when we took FID, but we're still in line to beat our hurdle rate on that. And that's because of the risk-managed way we approach that. You'd expect us to apply all of the learnings from Dogger Bank, but all of that same investment philosophy to future renewable investments, including Berwick Bank, including Coire Glas and other onshore wind prospects. Barry O'regan: Yes. And then, on the GBP 33 billion, so I think the easiest way to think about it is GBP 20 billion of that is for the 11 mega projects in Transmission. So the 3 -- lastly, the ADAS 3 projects in the baseline CapEx. So as Martin said, 4 of them are already in construction, a real clear line of sight over to consenting and, obviously, much firmer grip now on the supply chain costs as well. So real clear certainty over that. 20% of the CapEx is for the remaining networks part, so it's primarily distribution. And obviously, we're seeing a much more strategic approach from the regulator as we go towards T3. So we expect a ramp-up in CapEx as we go to the end of the plan. And then 20% is for the energy businesses. And over half of that is -- about half of that is in construction at the moment. So whether that's the Dogger banks or some onshore and battery projects and about GBP 3 billion is uncommitted. And GBP 2 billion we have allocated for Renewables, GBP 1 million in the Flexible, but obviously, that's quite fungible. And as I said earlier on, that will only be for projects that meet our strict hurdle rates. And that's all part of the scenario analysis that we've done and the stress testing we've done, which allows for those renewables projects you mentioned earlier on. Then in terms of the balance sheet, so yes, so we'll be below 4.5x net debt to EBITDA throughout the plan and at the end of the plan. And in reality, we could go slightly above that as well and still be within existing credit ratings. In terms of S&P, yes, our understanding is that they will be temporarily putting on the project finance debt for assets in construction only. So -- and they're the only agency doing that. So for us, that will mean Dogger Bank B and C will go on to the balance sheet, but they will come off again in the next 2 years, but those projects clearly come off at the back end of the -- once they're into operations. And then obviously, look, Berwick Bank is further out. Clearly, we've allowed for that in our scenario analysis. Again, a lot of those projects are back ended. It depends on the phasing of those projects, what equity stakes we hold in that as well. So we won't need to change our 4.5x net debt to EBITDA for that. That's all allowed for in the scenario analysis we've done. We've shared the plan with S&P. I'm not expecting any surprises there. Operator: Your next question comes from the line of Harry Wyburd from BNP Paribas. Harry Wyburd: So 2 for me, please. So the first is, I think when we've discussed equity needs in the past, you've talked about awaiting news RIIO-T3 result and AR7. Have you had any discussions with Ofgem recently around returns, but also around fast money that made you more confident to go ahead with this big plan now, which I guess many of us are thinking you might do after once you have some certainty. So was there a trigger here where you felt like you had better visibility? And then the second, it's on the thread of Rob's questions on data center sites, but actually a different angle on this. And if you think about how data center demand is likely to play out in Europe versus the U.S.? I mean, volumetrically, we've got tons and tons of new wind and solar capacity being added in Europe relatively much more than in the U.S. Volumetrically, I think the picture looks a little bit different. But in terms of peaks, maybe it doesn't. And I wondered what are you thinking in terms of capacity payments and the levels that capacity payments could potentially get to in a squeezed scenario for peak demand from data centers. Do you think the level of capacity payments that are clearing in the recent auctions are the sustainable level? Or do you think there could be upside to those over time if you start to get real squeezes on the peak demand side? Martin Pibworth: Okay. Thanks, Harry. Firstly, on the question about Ofgem and T3 engagement, and I think it's a kind of why now question. I mean we said back in the summer that we expected a lot of news flow through 2025. And that news flow included zonal pricing and a decision on that, which, I mean, obviously, that's one of the key themes, investor themes earlier in the summer. And obviously, we referenced in our presentation that we were delighted that the government listened to industry and listened to investors like us and ruled out and took zonal off the table. We obviously had the draft determinations important. I'll come back to that in a second. And then we've also had the SSMC for ED3, where we saw a regulatory tone, which continue to be strategic and forward-thinking and progressive. And so from a policy perspective, that felt all quite good. Then on the ground, we've already referenced the progress we're making on consenting and indeed construction for transmission. And when we put all of that together, we thought now was the right time to come out with an exciting plan and show shareholders our thinking. Just in terms of Ofgem discussions, of course, since that draft determination was published, we have been in good constructive discussions with Ofgem over the last 4 or 5 months. You'll recall the 3 themes, the 3 major themes that we were particularly interested in was the capitalization rate, the cost of equity and incentives and also the totex, the gap between our view of totex and theirs in that draft. Look, all I'd say is we've had good constructive conversations with the regulator, we think is -- understands the need to make networks investable and again reflect on the SSMC tone for that as clear evidence of that. Then to your capacity mechanism question, this is -- firstly, I'd agree with you on the demand point. I think I've consistently played down some people's attempts to extrapolate a U.S. demand trend for the U.K. and Europe. I've always been much more careful about that. We are clearly starting to see constructive demand growth. And obviously, in the background, the government and NESO understand the need for capacity mechanism reform if they require new build peak thermal to accommodate that. So those reform processes are going underway -- are underway. Obviously, you do have an example here. In Ireland, you've seen capacity mechanism prices, I think, up to certainly over EUR 175 per kilowatt as Ireland has had to contract for that same peak capacity to look after the nonlinear demand increases they've seen in that jurisdiction. So there is an example there of how the capacity mechanism has had to step in at a higher price. What I've consistently said about the capacity mechanism is for new build, given the rises in CapEx that are ongoing for CCGTs, we think the cap will have to be reviewed. And for existing plants, just because of the age of it, and again, we referenced it in our presentation and the need to get spares in an inventory and make sure engineering capability and reliability are absolutely guaranteed. We expect capacity mechanism payments to have to at least stay where they are to accommodate those kind of needs. Effectively, the line I've used is before, it is difficult to be bearish on the capacity mechanism for its current price of around GBP 60 per kilowatt. Operator: Your next question comes from the line of Pavan Mahbubani from JPMorgan. Pavan Mahbubani: Echoing congratulations on the launch of the strategic update. I have 2 questions on returns, please. So firstly, in Electricity Networks following up from an earlier question, should we take the confidence with which you've launched this strategic update as a confident message to the market that you now think you will achieve the 9% to 10% nominal returns in T3 that you indicated were a requirement to increase your investment there? That's my first question. And my second question on a related theme in terms of renewables returns. Can you give us a reminder, you talk about your strict investment criteria, but particularly for offshore wind and for Berwick Bank. How should we be thinking about the key metrics you'll be looking at? Can you remind us what your IRR target would be for that sort of project, whether unlevered or levered? Martin Pibworth: Yes. So just to reiterate on the transmission question, look, again, to repeat, we are in constructive discussions with Ofgem. We don't know what's going to be in their final draft, which I believe is still expected to be the 4th of December. But we feel like we have been dealing with a strategically minded regulator who understands the need for this once-in-a-generation investment requirement to be investable. But we'll see what the final draft determination say -- sorry, the final determination say, I should say. Barry O'regan: Yes, Pavan, look, on the offshore wind, our return expectations are the same as what we laid out in the summer, where we increased to an equity return of greater than 12%, and it is greater than 12%. And that also allows for the fact that in the underlying modeling we do, we obviously built in the lessons learned and the experiences we have from Seagreen and Dogger Bank. So we're quite comfortable in terms of the contingencies and the float within the programs there as well. But overall, greater than 12% equity returns. Operator: Your next question comes from the line of Peter Bisztyga from Bank of America. Peter Bisztyga: Two questions from me, please. So firstly, I was wondering if you could bridge a little bit the GBP 20 billion net CapEx plan in Transmission with your business plan. So how much of the kind of further future projects in your business plan have been excluded? Is there any kind of cost inflation in the ASTI and LOTI part versus that business plan? And is there any sort of upside risk to that GBP 22 billion CapEx if some of those future projects come through? And could that sort of pressure your balance sheet? So that's kind of question number one. And then on your 225p to 250p guidance, just interested in some of the assumptions behind that. So for example, does it have that GBP 2 billion of unallocated CapEx in renewables spent fully unproductive? Or are you assuming some sort of return already on that in your time frame? And are you using the gross determinations sort of assumptions for your ED3? And I guess, ED3 -- or are you using something different in terms of where you expect the allowances for those businesses to end up? Barry O'regan: Thank you, Peter. So look, I'll take those ones. In terms of the business plan, obviously, it was done over 12 months ago. And obviously, there's a couple of pieces here. One, they're on different basis. So this is obviously a 5-year plan to March 30. That was a 5-year plan to March 31. That also included OpEx and, obviously, Ontario Teachers part share in there as well. Of the uncertainty CapEx that we laid out in that business plan was GBP 9.4 billion. We have 10% of that in our current GBP 22 billion. So our GBP 22 billion is very clear. GBP 20 billion is for the LOTI, the ASTI and the baseline CapEx. And then you have the GBP 2 billion, which is for your new connections and part of that uncertainty mechanism going forward. In terms of the assumptions behind the 225p to 250p, obviously, look, as Martin said earlier on, we had the draft determination. We had the benefit of 4 months discussions with Ofgem. We believe we've made sensible assumptions in the plan there. In terms of other assumptions we made through the plan, we've made quite sensible assumptions. We've assumed inflation comes down to around 2%. We've assumed baseload power prices for merchant prices at the back end of the decade on average in the high GBP 60 area. Assumed cost of new debt 5% to 5%. So all quite sensible assumptions. And on the question of the unallocated renewables, yes, the bulk of that will be on earning towards the back end of the plan. Peter Bisztyga: Got it. And sorry, just on the CapEx in transmission, do you see kind of any upside risk from those further future projects coming through that you haven't included in your plan? Barry O'regan: No, we believe we've got a very robust CapEx plan with the visibility we have over the LOTI, in the ASTI, in the supply chain and our view on the uncertainty mechanism and what we've taken in there with a very robust plan. Operator: Your next question comes from the line of Deepa Venkateswaran from Bernstein. Deepa, is your line muted? Due to no response, I will go to the next question. And your question comes from the line of Ajay Patel from Goldman Sachs. Ajay Patel: Congratulations on the presentation. I have 2 questions, please. First is leverage. I'm trying to think about this picture by the time we get to 2030 and thinking, well, okay, more of the business, there will be less exposure to merchant. There will be a higher-quality business with more regulated proportion to it. And I'm just wondering, this 4.5x net debt to EBITDA that you're keeping below the plan, is there scope that, that threshold increases, giving you the opportunity to invest more at the end of the plan? And if that's the case, how does disposals fit into this? If you saw that improvement in that threshold, would that be then -- would you need these disposals, I guess, would be the question. And then the second part was on the international renewables business. Given the reduced aspiration on the renewables side, does it make sense to have an international renewables business? What's the merits of having a business of this scale? I just wondered if you could revisit that for us, that would be quite helpful. Barry O'regan: Yes. Ajay, yes, so look, on the leverage, as you said, yes, less than 4.5x net debt to EBITDA to the plan, keep us in line with our current credit ratings. Obviously, the investing 80% of our CapEx in networks is going to mean a big shift in our earnings and our earnings quality would probably go from networks being about 40% of our earnings to over 60% of our earnings by the back end of the plan. But clearly, that's their conversations for a different day with the agencies as that CapEx starts to get delivered and that earnings quality comes through. If that does free up more capacity, clearly, yes, we will look at the disposals and what we would do with that capacity at the time. And the way the beauty of doing the equity today allows us to push those disposals towards the end of the plan and give us more flexibility and optionality around that. Martin Pibworth: And just on international renewables, I think, Ajay, we've consistently said that the vast majority of our time, effort, resources and focus is on our U.K. plan and our Irish plan. And given obviously what we've laid out today, that will continue to be very much the truth of it. We do still have development options, particularly in the Southern Europe geography where, obviously, we bought the SGRE pipeline several years ago, and we've got onshore wind that we can still develop and bring through. So that remains kind of part of the plan. But absolutely, the majority -- the vast majority of the focus of Barry and I and the group is on delivering this once-in-a-generation organic opportunity in our home markets. Ajay Patel: And sorry, can I have one follow-up just on that. When you weigh up the disposals, I know that 75% towards the end of the plan, and you haven't been specific if it's renewables or networks. But 3 years ago, you could sell network assets at real good valuations, you still can now. But -- and the aim was to reinvest it in renewables where you're making sizable premiums above cost of capital. And the emphasis has changed in this strategy, and I applaud it. But I'm just thinking if I'm looking at that GBP 2 billion bucket of disposals, what's the merit of selling down on renewable assets versus selling down on networks at this juncture? Barry O'regan: Yes. So look, I suppose the key thing is no decision has been made. It could come from many of our businesses. Ultimately, we believe the distribution is a really attractive business, and we believe there's really good growth to come there in the next few years, and we certainly like to capture that. And all we're saying is that we have time to make that decision on what's the right thing for us to do strategically and financially, but we don't need to make that decision now. That's further down the road. Operator: As we are approaching the hour, we will now take our final question for today. And your final question comes from the line of James Brand from Deutsche Bank. James Brand: Congratulations from me as well. Obviously, from the share price correction as well, investors are taking it extremely positively. So congrats. I'll stick with the 2 questions. The first one is on Berwick Bank. Can I just clarify that it's not included in the plan? Certainly doesn't kind of look like it is. I guess, in theory, it could be kind of an initial tranche. And if it does go ahead, does that have any implication -- so if you want a CfD, for instance, in AR7, would that have any implications for funding in the current plan? Or is it the case given that obviously, it would take quite a while to get to the point of commissioning and also your model where you raise equity typically towards quite close to commissioning? Would it actually be falling outside the plan and if you want a CfD? That's the first question. And then the second question is on the GBP 200 million of annual efficiencies targeted by full year 2028. That's a bit better than the GBP 100 million you had in the old plan. And I guess from a starting point where you've already delivered some of those efficiencies. I was wondering whether you could give some details on where those efficiencies are coming from? Barry O'regan: Yes, happy. I'll take Berwick Bank. So look, yes, so we've done quite a lot of scenario analysis and stress testing of the plan. And yes, we've made allowance for Berwick Bank in that part of that stress testing. I said earlier on, we have GBP 3 billion of uncommitted CapEx. Berwick is a multistage project, which obviously, we still don't know what stages the projects may win contracts at, what the timing for those are, ultimately, what equity stakes we hold on to. And clearly, any funding will be towards the back end of the plan. So that's all allowed for in that, and that's part of the scenario analysis we've done. Martin Pibworth: And just on the efficiency program, James, look, we said very clearly that we thought well, we don't take issuing equity lightly, and we thought that we had to make sure we've done as much in the business to make sure that it was efficiently run, and we're concentrated and focused on the key prospects and opportunities that looked ahead. We've spent a year going through a review. We slightly rescoped some areas as a consequence. I mentioned earlier, we've actually been fortunate enough to redeploy some high-class renewable resource into transmission to help with that investment program. And of course, investors would expect us to be running an efficient business, and we've been very focused on delivering that, and that's reflected in the number that we shared with you today. Operator: Thank you I will now hand the call back to management for closing remarks. Martin Pibworth: Well, look, thank you for your questions. And also thank you, Sharon, as the operator, for helping us run this session. It has been a pleasure to outline today the transformative growth opportunity we see ahead of us. And I hope that you share our sense of excitement for the years to come. Thanks again to Sharon for, our operator, facilitating the Q&A, and thanks to everyone for joining us today. I look forward to meeting with many of you to talk more over the coming days. Thanks again.
Unknown Executive: Good morning, ladies and gentlemen, and welcome to today's earnings call of the PVA TePla AG following the publication of the figures for the first -- for the third quarter of 2025 and the first 9 months. In a second, CEO, Jalin Ketter; and CFO, Markus Groß will present our results. And after the presentation, as usual, you will have the opportunity to ask your questions in a Q&A session. And having said this, Ms. Ketter, the stage is yours. Jalin Ketter: Thanks, Sebastian, and also good morning from my side to our earnings call of the third quarter. Before we start with the presentation, let me give you some general remarks. The economic situation around us is still challenging, and it was getting even worse in the third quarter as, yes, it materialized in our operational business at the end of the third quarter. But we also see a very positive development in our order book and a very good start into the fourth quarter. And what makes me even more positive for that long-term development, we see the first R&D projects that are starting to contribute to our order book with, yes, contracts from battery development projects that we started during the year 2023 and 2024 and 2025. Yes. So let's have a look to the third quarter. We ended the third quarter with a revenue volume of EUR 55.8 million in revenue. This is significantly lower than we expected before, and we are also not satisfied with that development. That low revenue volume is not related to internal delays in the processing of orders. It's an external effect, which is caused by external reasons such as global trade-related uncertainties, which came to delays in the operational timing at our customer site. And it is a temporary situation that we are in. So we did not see any cancellations, and we also don't expect any cancellations in that regard. Let me give you some examples on that. So there have been customers which are having longer authorization processes to get the systems on site and to make all that approvals for transportation. There have been customers which have decided to bring the system into a different facility than it was planned before. So we had to reschedule everything, transportation and installation. And we also had customers which having delays in their own infrastructure. So building was not ready to move in the system yet. But let me explain a little bit more what does that mean when we look ahead for the next quarter. So we already planned a very busy fourth quarter. That's something that you already realized in the last call. So end of the year was already scheduled as very busy with installations and transportations on our projects. So resources for these projects already have been assigned and delays that we are now having from the third quarter, which are having a higher volume of transportation and installation bringing to the fourth quarter again will also most likely delay orders in processing from the fourth quarter to 2026. And with the reduction of our guidance to EUR 235 million to EUR 255 million, we also did cover potential further delays that are caused by similar external reasons at our customer site. With the CMD that we hold 6 weeks ago, we gave you an insight in our future growth potentials on the long run. And there are no changes to our view on that presentation that we gave to you. This already reflects partly in our increasing order intake, which, as I already mentioned at the very beginning, projects which are building the foundation of that future growth in the metrology business with new customers that we developed out of Asia for automated systems. But also in the Material Solutions area, where now the first R&D projects are starting to contribute. So new battery solutions that are coming to the market over the next years are produced partly with our systems, and these are production lines which are starting to ramp up now. And with that general view, I hand over to Markus to give you a deep dive to the financials. Carl Groß: Thank you, Jalin. Good morning, and a warm welcome from my side. So let's directly dive into our financials and start with the group revenue. Q3 and the year-to-date figures are below our expectations, especially for Q3 and around 11% below the comparison periods. Q3 with EUR 55.8 million is impacted by the trade-related uncertainties Jalin just mentioned, which have effects on the operational timing and shifting projects from Q3 to Q4. So many of the projects we have originally anticipated for or planned for Q3 are now realized in Q4. And this year pattern is through several projects across markets and product groups. The project completions and the situation are expected to normalize during the first half of 2026. And it's very important to us to -- and we can't stress this enough. There are no delay-related cancellations. The delays we're seeing are a couple of weeks. It's not that projects are paused indefinitely, and we're waiting for go ahead. It's just shifting from one quarter to the other. And on the opposite, several customers have placed additional orders despite having delayed projects in the meantime. So that's absolutely nothing we are currently worrying about that delays are turning into cancellations. Looking at our product groups, we can see that metrology is still a strong contributor to our revenues with almost EUR 72 million and Materials Solutions with EUR 104 million. Regional-wise, Europe and Asia are our most important markets and North America with 13% is our third biggest market. And when we're looking at the order intake on the next slide, we'll see that there is growth potential coming just from the order book for the upcoming months. Order intake is something where we are very happy about the development, almost EUR 33 million in Q3. That's our strongest quarter since the third quarter of 2023. And here, the order intake is driven from demand in both segments and product groups in all entities. So we're very happy here. The book-to-bill ratio in Q3 is with 1.3, something we haven't seen in a long time. And year-to-date with almost EUR 177 million, the book-to-bill ratio is also larger than 1. Looking at the product groups, metrology is still a strong driver for us, and we will see on the next slide, how this has developed over the last 12 months. But also, we're seeing an increasing demand coming from material solutions, which makes us very happy at the current stage here. Looking at the regional split, we can see that Asia and Europe are contributing by approximately 40% and North America with 20% in comparison to the revenues of 13% we have seen on the previous slide. That's why we're expecting here future growth coming from the order book. Yes, the last 12 months, looking at our product groups here, we can see a strong double-digit order growth of 20% per quarter. And in Materials Solutions, the uptick started with Q1 2025, going from 21% in the half, approximately to EUR 21.5 million to EUR 25 million and now in Q3 with almost EUR 42 million. And the drivers here are coming from the synthesis for silicon carbide systems and high-tech anode materials are also here involved. In metrology, it's more a pattern of steps. So we are seeing EUR 30 million in Q3, then Q4 '24 and Q1 '25 with a little bit more than EUR 21 million. And now in Q2 and Q3, it's above EUR 30 million. So very happy with this development here. Looking at the segments individually, we can see that here, in Semiconductor Systems, the revenue is impacted in Q3 by these timing effects and is 18% below the previous year. And the 9 months figures was EUR 115 million, up 15% below the previous year. On the EBITDA, we see a temporary effect in Q3 due to the lower revenue volume and high expenses in R&D and sales for future growth, strategic investments. And we are seeing here a high degree of fixed costs. So this is why we see this strong impact on the EBITDA and its margin for Q3. Year-to-date, it's more or less in line with the guidance despite the missing volume in Q3. So this is more or less what we anticipated for the 9 months figures without the effect coming from the operational timing effect. The order intake is something we are very happy about. So it's the best quarter in semiconductor systems since the first quarter of 2023. Metrology was a strong driver during the whole year. And now with Synthesis, we are seeing additional uptick in the third quarter. In the Industrial Systems segment, the Q3 revenues are more or less in line with what we have seen in 2024 and the 9 months figures are a bit below the previous year. This is especially caused by the lower intakes in 2024 and the long-term running projects we are having in the Industrial Systems segment. At the EBITDA and EBITDA margin levels, we are seeing here a reduction on a quarterly basis of EUR 1 million, which is also the same for the 9 months figures that we're here in preparation for future growth, investing in our sales infrastructure, which is increasing the overheads by approximately EUR 700,000 at the year-to-date level. The order intake is stable at EUR 20 million per quarter, more or less, and the demand is here coming from the energy and aerospace sector, but also in Q3, high performance materials, the already mentioned anode materials. Looking at the group profit, we can see that the gross profit margin has reduced from 30.8% down to 29.4%. The main reasons here being the weaker sales and the lower volume causes your lower capacity utilization, which is taking its toll. But also, we've seen on the previous slides that semiconductor systems is below the comparison quarter and Industrial Systems is more or less at the same level or a little bit higher. And this means we are seeing here a shift in the product mix in Q3, which will not be continued, but it's the picture we are seeing here currently in Q3. And due to this change in the mix, we are losing a little bit of gross margin. But on the year-to-date 9-months figures, we remain at a solid level of 32%. The EBITDA on the -- in Q3 and year-to-date are both impacted by the increased overheads for the strategic investments in sales and R&D, we already announced together with our guidance, and we are following through. So let me also take a moment to reflect on the lower cash balance at the end of the quarter with approximately EUR 13 million. The position here is impacted by the timing of customer payments, which had been received in October. We're talking about larger payments. And for Q4, so far, we're expecting strong inflows, which are also supported by a continued order intake momentum. So we're here seeing a timing effect in the cash position, which has already been reverted in the October of year -- in the last month. In terms of CapEx, we remain disciplined and are broadly in line with what we have spent in the prior year until the year's end then. And we're actively managing our CapEx project and the same goes, obviously for our OpEx. Looking at our updated guidance, we are now expecting revenues between EUR 235 million and EUR 255 million and an EBITDA between EUR 25 million to EUR 30 million. This is due to the multiple times now mentioned project timing shifts operational-wise. And for '26, we're expecting a gradual recovery in growth versus '25. And earlier than usual, we will release our official guidance for '26 together with the preliminary figures for the year '25 latest early February '26. So for a strategic update and the outlook, I'm handing back over to Jalin. Jalin Ketter: Thanks, Markus. In this section, we now also included an update to our organizational development that we will give you on a regular base. Today, I brought you 3 samples on efficiency. So let's start with a view on our production line and what we changed there and what developments are there. You know that we are running several production lines from different facilities. These are also including service and installation teams, which are used for single products to make the installation and to do the service. And what we have done and started in 2025 is to increase our flexibility for these people. So we cross-trained the people who are responsible for that single systems to be able to support different products that we are providing to the market. So for example, this is something that is happening in a higher amount on the Material Solutions side. The people from the Material Solutions side are now also supporting metrology systems in the field, and that helped us already with the qualification on our new customers in Asia to be able to support that product in the field as they are having a lot of know-how on the technical side in general, and now they are also educated in the Metrology business. And additional trainings also have been set up for technical and operational development to bring the people to a higher level of education and also -- which also supports the changes that we are at the moment doing in our production line. We, for example, introduced a new shop floor management that is happening every morning in the production line. The availability of our materials have been significantly increased to reduce the time that our products are running through the production line. So there are new processes behind and new concepts, how we are producing our system. And the use of the facility also changed somehow to really use that in the most efficient way, having the right systems in the right production lines running with the right concept. So this is done because on the one hand side, we want to reduce the time that our products are running through the production line. On the other hand side, we are seeing a positive impact on the long run in our margin development with that, changes that we are doing now. And additionally to that, we started a project to more standardize and modularize our products. This is something that we already have done on the metrology side with the systems in a high automation that we are providing to the market now. And we laid that concept out also for the material solution systems now. So there will be changes that we will see over the next years as well on that side. And yes, due to our high position of silicon carbide activities in our order intake that -- sorry, I missed to do the rest of the slide, sorry for that. So let's go also to some other activities that we did next to the production line. In China, we streamlined our operations with consolidating -- transferring our location of Xian to also the office in Beijing that we are running there. In previous times, we had 2 offices and the office in Xian was just responsible for one product line. So it's going in the same direction like what we have done on the production side to really use our resources most efficient also to generate one PVA for the Chinese market and present ourselves in the right way on the market. So this is bringing us efficiency on the cost structure side, but also in how we are developing the market for us. And the last point I would like to mention in terms of the organizational development is on the metrology side. With the Capital Markets Day, we also explained that on the metrology side, something very important is that we are ramping up our production line in a format to support a higher volume and to hire -- to professionalize our processes in the production line. In the beginning of the year, we acquired desconpro and did a vertical integration with this company, which was a former supplier. And the integration process is done now. So our teams are working very closely together, interfaces are cleared and the workflow is running very well. Additionally to that, we increased our clean room capacity in 200 square meters to have the right facility also available for a higher volume of automated systems. And this gives us -- lays the foundation for a doubling of our production capacity on the automated metrology side in the future. So we are prepared to go for that for that through the market development. So let's come now to some insights in the market. You saw that we had a higher portion of silicon carbide activities in our books in the order intake for Q3. So I would like to take the opportunity to give you some idea about our view on the market trends that we are seeing coming up additionally to the business activities that we are seeing in silicon carbide before. So what we saw now in our books is related to the already existing activities, which are going mostly in the energy and e-mobility market. And this is also what you can find in the normal reports that you -- that are available on the market. Additional topic that came more and more in the discussion is the defense sector. So applications were silicon -- based on silicon carbide are very important for that sector, for example, for radar technology, where this is used, and this is something where we see a potential increase in activities additionally to the already established products. There are also 2 new topics that we identified or that are also already in discussion on the market. One is transparent silicon carbide, which then will be used, for example, for VR glasses. So some new developments on the use of how digitalization is changing for us, all of us in the future. And there is a use in advanced packaging as well for interposer materials, so in building cooling structures in that part and power supply for artificial intelligence data centers. And with the products that we are at the moment having in design and our R&D road map, we are covering all of these trends. So for example, for all of these applications, there will be a trend into a 300-millimeter process. So diameters are going up in silicon carbide, and we will introduce our 300-millimeter system into the market in 2026 and present that to customers. So we are prepared for these new applications with a change of our system technology to support that. And additionally to that, we see a strong trend for the sovereignty of supply chain. So especially coming with the applications in the defense sector and the presence of the material and the discussions about, in general, sovereignty of the supply chains in Europe are increasing step by step. Yes. So when you look back overall -- we all look back on what has happened in 2025, then we see a very strong development on the organizational site already within PVA. So we brought people together to get them introduced to our way forward. Our engagement index on employees is more than 70%. So everyone is with us on that road. We started to be more active in the market and changed or started to change sales concepts to present our products at customer site, reviewing the markets, bringing our products in connections with the markets, and we started to also streamline our organization with consolidations of facilities, improvement of facilities. And this is something that we will continuously work on also in 2026 to further lay the foundation of that future growth. So a lot has happened in 2025 already, and we are very motivated to continue with that process. And yes, that's all for now. Thanks, and we are happy to take your questions now. Unknown Executive: All right. Thank you, Jalin and Markus, and we will now move to the Q&A portion of this call. And we want to make sure that we are able to answer as many questions as possible from as many people as possible. And it's why we kindly ask you to, sorry, limit yourself to maybe 3 questions per person, if that's possible, that would be really great. And first up, we have Marisa Keskes. Unknown Analyst: Actually, I have 3. And the first is, can you specify if the equipment that have been delayed are related to metrology or silicon crystal growing system or the other material solution system? The second question is, can you provide an update regarding the ongoing qualification process for the metrology? And the third question, if you can quantify how much are the order received from -- for the silicon carbide growing system? And is it coming from new customer or already existing customer? And if the shipment is expected for '26 or beyond? Carl Groß: So here, the delays we're seeing, it's across all product groups and customers. So there is no clear pattern because all our customers are managing the global situation. And so it's not specific to a product group or a customer group. Jalin Ketter: And on the qualification side in metrology, we are making a lot of progress. So already orders from that qualification processes are taking part in our order book, which are coming from Asia, especially from Taiwan, we have a good volume already in our books, and we introduced additional systems at other countries already to R&D centers to go on that qualification stage for the 24/7 lines. Silicon carbide systems are related to applications that are already present in the market. We, of course, cannot disclose on single customers. So activities which are behind that are supporting already existing technologies. Carl Groß: But the revenue can be expected for '26. Unknown Executive: Michael Kuhn, please. Michael Kuhn: I'll also stick to 3. Firstly, on metrology, there was no further growth in order intake sequentially. So we're in the low 30s now. Is that kind of a near-term run rate? Or should we expect that number to grow sequentially as we move into 2026? Jalin Ketter: So metrology business has had a significant increase over the last quarters. And we are now on a level which is already significantly higher. I think I already mentioned that in one of our last calls. So we expect that, that hockey stick is getting a little bit more flat over that short-term time frame until it's getting to a more significant increase again. So like expectation for the next quarters is more a slight growth rather than a significant growth. Michael Kuhn: Understood. Then into the fourth quarter, you mentioned continuously strong order momentum and also you received further prepayments based on that. Is that also driven, let's say, by a broad base of customers and product groups? Or would you point out a specific area of strength you're seeing right now? Jalin Ketter: And so what we see as a starting point into Q4 is a very broad base of customers that are placing their orders. So we started very positively into the first quarter, and our pipeline also tells us that we can close with a very positive fourth quarter. There are projects which are more semiconductor related that we are seeing at the moment. Michael Kuhn: Okay, semi-driven. And then lastly, and that is a kind of broader question. So you expect a gradual recovery into 2026. And I guess that refers to sales and your bottom line. You mentioned more and more R&D projects contributing to the top line new areas in SiC, but battery as well. If you would have to make like an early projection, how significant will those new product groups contribute? And what kind of mix should we expect into next year? And what would be the, let's say, very rough implications for profitability? Obviously, you're not guiding yet. Jalin Ketter: So the R&D projects are in a starting point to contribute, especially on the battery side. So we stepped into several R&D projects with new system developments that are used for that advanced anode materials with customers. And we are at the moment in an area where customers are having qualifying production lines for that. And we see the first orders, which are now coming not only from the qualifying production lines anymore, which are coming from increasing activities into a steady business. This is something where we will see a step-by-step development coming -- contributing to our book. So we expect already business activities in 2026, but also ahead of 2026 as this is a long-term development in the market, especially in Europe, which we see to generate a step forward in battery technology compared to what we are seeing in the actual availability of batteries. So a significant step to improve that technology. And on the silicon carbide side, we will start to introduce our new systems in 2026. Most likely, the contribution of our activities will start end of 2026, beginning of 2027. Unknown Executive: Okay. Thank you. All right. Hartmut Moers is next. Hartmut Moers: Can you hear me? Carl Groß: Yes. Hartmut Moers: Perfect. So I would like to follow up on that silicon carbide. If I understood you correctly, you were saying that the increase in order intake was relating to customer relationships that were already there. So I would guess that you have quite a good insight into their thinking about future orders. So can we regard that order intake in Q3 on the silicon carbide side as something that was -- not saying a one-off, but how should I say, extraordinary and then we wait a couple of quarters and then the next order comes? Or is it more something that we should see now on a regular basis or quarter-by-quarter? That would be my first question. Jalin Ketter: We are seeing silicon carbide activities already continuously in our books. So as I said, this is related to applications that are already existing in the market, what has had a higher portion now. And what we also see that our activities on the metrology side for silicon carbide are starting to bring activities to our discussions as well. We just recently introduced qualified metrology systems for inspection of silicon carbide, pools and wafers, stress measurement and pool inspection. And this is something where we also have a lot of discussions and traffic with customers to introduce our systems in their facilities. So silicon carbide for us is not only anymore crystal growing. It's happening on different areas of that value chain, and this is starting to show up in our books already. Hartmut Moers: Okay. But the predominant part of the, let's say, additional order intake that you got in the third quarter was still related to the traditional silicon carbon side. It's not just -- it's not already the metrology side, it's more the crystal growing side, right? Jalin Ketter: The dominant part is coming from -- so this is technology and crystal growth, yes. Hartmut Moers: Okay. And my second point would be with regard to your statements in relation to [ 2006 ] (sic) 2026. Shall we take from this that the delays that you are facing in Q3 and that translate into Q4 and obviously, from Q4 into Q1 2026, that the start of 2026, i.e., Q1 and probably also Q2 will still be affected before growth is picking up in the second half of the year. Is that how we shall read this guidance? Carl Groß: No. So I mean we're -- on the operational side, we expect that orders have already shifted from Q3 to Q4 and from Q4 into '26, and we expect that the situation will normalize during the first half of '26. But that's a gradual process there. And here and -- but the long-term growth drivers are intact for '26. Hartmut Moers: Okay. So you're saying Q2 should be less affected than Q1 2026 and Q3 and Q4 2026 should not be affected by those delays anymore, right? Jalin Ketter: We are having -- it's a problem on customer side that we are handling this and delays that are happening on customer side. So this is most relevant for orders that have been placed in our books before the political situation and that area was increasing even more than it has done before. So we are expecting also that orders that have been placed already in that more strong situation are not affected anymore by this kind of delays on customer side. So it will run out of the book step by step that there is a kind of delay that is caused by the projects and how customers are running them and how they are doing their decision on facilities. Unknown Executive: All right. Thank you. Gustav Froberg is next. Gustav Froberg: I have a couple also. I'll start with one on orders. Could you please just give a little bit more color and granularity on how your order patterns were throughout Q3 and maybe also how they've developed into the first half of the fourth quarter? And in the context of that, maybe you can also tell us a little bit about the status of the customer ramp-up that you are seeing on the metrology side. Are customers in an early stage of ramping up? Are they well underway? Like how saturated are your machines with your new or existing customers today? Jalin Ketter: So order intake on the third quarter was running month by month very positive. So there is not something that was more present. There was no month which was more present than another one. It was very stable development over that time. And in the Q4, we already started on a similar level than we saw before. The ramp-up on customer side in the metrology is in a very early stage, and we see a demand all over that customer base, including also existing customers that we already developed over the last years. Gustav Froberg: Great. And then a question on order intake coming from Asia. You very nicely gave us a pie chart of order intake by region. Could you give us a little bit more granularity on the region there, which countries are bigger and smaller within that pie? And do you expect that mix of countries from an order perspective to change over the course of 2026? Jalin Ketter: Yes. So the order intake on the regional level in Asia, yes, let's say, coming to become more dominant in countries where we are having semiconductor-related activities. And this is something that we will see more increasing also over the year 2026 that Asia is becoming more dominant in countries where also bigger semiconductor customers are sitting. I think that gives a little bit color on your questions and where you wanted to go for that. Gustav Froberg: Great. Yes, it does indeed. Last one from me. Just on the sequential nature of metrology, just a follow-up from a previous question. You said you're at a level where you feel like this is a new normal for a couple of quarters now, the sort of EUR 30 million run rate. Is that the right way to interpret it? Or should we still expect some degree of sequential growth in metrology orders, albeit obviously not doubling every quarter? Jalin Ketter: Yes. As I said, that's -- it's now on a base where we see a more slight growth over the next time rather than significant increases on the short run. Unknown Executive: All right. Thank you. Constantin Hesse is next. Constantin Hesse: All right. I've got 3 questions. Let's start with order intake, just following up on what Gustav said. I'm just wondering, look, I understand short-term metrology order, we are at this level now, and you don't expect any major changes from this level in the coming quarters. But just to understand, right, because we do want to understand, you do have this EUR 500 million target in '28. So in terms of the next stage of more accelerated growth in metrology, when would you anticipate that to happen? And what visibility do you currently have that, that will happen? That's the first question. Jalin Ketter: Yes. We are seeing -- so that's something that's laying on customer side and the extension of their production capacities that they are planning to cover that higher volume of production capacity in chip production as well. So for us, it's on the one hand side, the number of customers that we are qualifying ourselves for, which is also on our side and which we are developing very positive with. So one major player in the semiconductor area also already is qualified. The second one is already using or starting to use system to qualify in 24/7 levels. So we were positive of that development as well, different country. And we also have discussions with additional players, which are a little bit smaller than the ones that we were talking about. And on that side, we are involved in the discussions about ramp-up plans, of course. And these ramp-up plans show us that there will be a higher activity starting from more end of 2026, beginning of '27, where they are moving in more capacity. Constantin Hesse: Okay. So basically, visibility for that is relatively low. But in terms of timing, you'd expect end of '26 to see a bigger pickup. Understood. And then maybe just on sales and P&L. I mean, just trying to figure out these delays, right? I mean the answer was that it's all related to customer decisions. Those are customer delays. I guess we understand all that. But what I'm trying to figure out now is, if I look at consensus, right, consensus has EUR 300 million in revenues next year. That's 20% growth. So what I'm trying to figure out is, if I look at the qualitative wording that you used for '26, it sounds more conservative, much more conservative. It sounds like you expect a gradual recovery in the P&L in '26. So what I'm trying to figure out is how -- what are the confidence levels that these delays that happened in Q3 will actually be realized in 2026? And I guess that will also obviously give you a boost, right, on top of the underlying growth that you're seeing. So just trying to figure out the dynamics of how you -- how -- on top of the underlying growth, when all these delays should start to come in? Because I understood those delays were going into the first half of '26. So second question. Carl Groß: Yes, we are very confident that all these delays we're seeing coming from Q4 will be resolved in the first half of '26. And then we will, late January, early February, release our official guidance for '26. Constantin Hesse: Okay. But on top of these delays, you do still expect underlying growth, correct? Jalin Ketter: As said, the delays are contributing to 2026 and the official guidance will be announced at the beginning of the year. Constantin Hesse: Okay. Understood. And then just on the margin development, just trying to figure out here in terms of your OpEx investments. I mean, clearly, you are investing in order to support the growth profile of the company. So just to understand the building blocks leaving '25 going into '26, how we should think about these profitability building blocks into next year? Carl Groß: Yes. So we're -- the ramp-up in sales is more or less on the level we're expecting looking at the current -- what we're seeing for '26. There will be some increases in the sales. But in general, we are at the level where we want to go for the future growth for now. Constantin Hesse: I meant the -- in terms of margin development. So in terms of the potential headwinds into next year or tailwinds. So if -- with next year, you expect an improvement in revenue and then in terms of the additional cost investments, so do you expect to start seeing an absorption of fixed costs already next year? Or should we expect continued basically headwinds on the profitability next year of additional investments? Carl Groß: Okay. No, we already said, yes, we're expecting growth in comparison to '25, and with the building blocks set, the margins will improve there. Unknown Executive: All right. Thank you. Bastian Brach, please. Bastian Brach: Can you hear me? Unknown Executive: Yes. Bastian Brach: So I keep it short because most of my questions have already been answered, but one remains on the North American market and especially the order intake there, which was quite positive compared to previous like sales split. Is there any measure you would point out which contributed to this good order intake? Was it like early signs that your increased support or increased sales activities like bear fruit? Or was there any market you would point out which did exceptionally well? Or was it like what based? Jalin Ketter: Yes. So this is already a sign or a result on higher activity on our side, yes, developing the market. We significantly increased our sales activities being present in the market. And yes, system technology is something which is important for the U.S. market, especially in the area of aerospace, but also semiconductor applications where systems are used. And this is also the areas where we see contribution to the order book now coming from, on the one hand side, also the business that we acquired in France, which is mostly related to the aerospace industry. So synthesis technologies for coating of silicon carbide on turbine blades, for example, but also on graphite materials for the semiconductor industry is strong development and joining technologies on the side of our normal Material Solutions business also is something which is very important for us in this market. So nice development and first signs of our activities that we increased in that market. Bastian Brach: Okay. So you would expect that to continue that the North American order intake would be at this level as a split overall or even higher in the future quarters and years, right? Jalin Ketter: Yes, of course, that's our aim to significantly increase the North American business. Unknown Executive: All right. So we still have a couple of minutes left. Are there any additional questions that you may want to ask? Okay. If that's not the case, then thank you very much for joining us today. And yes, have a good day.
Sachiko Nakane: Now that is time. I would like to begin the ORIX Corporation's second quarter financial results briefing for fiscal year ending in March 2026. Thank you for joining us. I'll be the facilitator. I'm from IR, Sustainability Promotion Department. My name is Nakane. We have 2 speakers today. We have a Director, Representative Executive Officer, President and COO, Hidetake Takahashi as well as our Operating Officer, Head of IR, Kazuki Yamamoto. First half will be presented by Takahashi. Second half by Yamamoto then we'll have a Q&A session. We are planning to have 60 minutes for this briefing session. Takahashi-san? Hidetake Takahashi: Thank you very much for taking your time out of your busy schedule to attend the ORIX Group's financial results briefing today. I'm Hidetake Takahashi, ORIX Group's COO. I'll explain the key initiative as the business progress toward achieving the long-term vision announced in May this year, which is making impacts through alternative investments and operation and business solutions as well as management indicators of 15% ROE and JPY 1 trillion in net profit for the fiscal year ending March 2035. And following this, Kazuki Yamamoto, who is in charge of Management Planning and IR, will explain the second quarter financial results for the fiscal year ending March 2026. If you could please refer to the Page 3. There are 5 points that I'd like to convey today. First, I'd like to discuss the revision to our earnings forecast. Our first half, all 3 categories, finance, operation and investment performed well and capital recycling is also progressing smoothly. As a result, we decided to raise net profit forecast from the previous JPY 380 billion to JPY 440 billion. We also revised the full year dividend forecast per share from JPY 132.13 based on a net profit of JPY 380 billion to JPY 153.67. And in addition, as we look forward to proceed with optimizing our portfolio and capital structure and considering the completion of the sale of Greenko announced yesterday, we have decided to increase the amount of our share buyback program from JPY 1 billion to JPY 150 billion, (sic) JPY 100 billion to JPY 150 billion and Kazuki Yamamoto will explain in more details shortly. The second point is the establishment of a PE fund together with the Qatar Investment Authority, which was announced yesterday. ORIX is strengthening our asset management function to help us achieve the long-term vision. As a milestone, we aim to achieve 11% ROE and JPY 100 trillion in AUM by the fiscal year ending in March 2028. Since the establishment of a PE Investment segment in 2012, we have executed over 30 investment in Japan and all utilizing our own balance sheet. We have reached an agreement with Qatar Investment Authority to establish a fund aiming at investing in Japanese companies. For the first time, we will incorporate the third-party funds into this business. Through this fund, which has a total scale of USD 2.5 billion, we will expand our investment, including those in a large-scale project. ORIX will contribute 60% and QIA, Qatar Investment Authority, 40%. The main investment target will be business section type deals, privatization of listed companies and carve-outs with an expected investment size of JPY 30 billion or larger in EV project. We will intend to continue strengthening our asset management function, including our business segments. The third point is our future business expansion with Hilco Global. In September, we acquired a U.S. company, Hilco, a subsidiary. Hilco provides services globally such as evaluation and disposal of mobile assets like inventory and equipment, intangible assets like IP and trademarks and ABL asset-backed lending. ORIX USA will position Hilco as a platform for creation of ABL investment fund, strengthening its origination capability and expand private credit business. Similar to the domestic PE fund mentioned earlier, this is a strategic investment to aid expansion of our asset management business. And further, Hilco's asset evaluation services are a countercyclical business. In an uncertain economic environment, we believe we have acquired a fee-based business at a good time. Hilco's evaluation capability, asset disposal expertise will be utilized in assessing risk as we expand credit globally. The fourth point, Osaka IR project, integrated resort. We aim to open the IR in Osaka City around the fall of 2030 and construction began in April of this year. In September, some changes were made in existing plan. Primarily, these involve higher costs after taking inflation into account from currently JPY 1.27 trillion to approximately JPY 1.51 trillion. After carefully reviewing business income and expenditure plan, we believe that the higher cost will not significantly impact the project profitability. The Osaka-Kansai Expo concluded successfully in October. We were able to confirm growing inbound demand in the Osaka, Kansai area with many foreign tourists visiting -- in Osaka, which is also a birth space of ORIX. In the Kansai area, we are engaged in the development and operation of our sales office with offer financial -- which offer financial services, Kansai 3 airports and Umekita project and [indiscernible]. We also operate the business such as hotels and inns, we will maximize synergies by adding Osaka IR to these resources. Finally, my final point is portfolio optimization. As I discussed in May, the most important measures to achieve our ROE target are disciplined portfolio management and sophisticated risk management and new business creation, those 3 points. We have begun utilizing a dashboard to visualize the status of our business portfolio in finer detail and are progressing with our portfolio optimization. We have sold all of -- all or partial shares in Greenko Energy, ORIX Credit and Ormat and Nissay Leasing, Canara Robeco and other businesses. We will continue to review our portfolio based on our 4 criteria: growth potential, capital efficiency and impact on credit rating and group synergies. We will continue to revisit our portfolio. And furthermore, in July, ORIX Bank paid a dividend of JPY 30 billion to ORIX Group. We will also optimize the capital scale of other group companies, not just the bank. As of the end of September 2025, the AUM became JPY 88 trillion, bringing us one step closer to the medium-term target of JPY 100 trillion. We will also continue to proceed with the transition to an asset-light portfolio. Out of the plan that we disclosed in the mid- to long-term corporate value enhancement is in ROE in order to further improve the efficiency of the capital use. And all the measures that I mentioned that we carried out in the last 6 months is a good sign that we are making the right stride toward achieving a midterm business plan. We will continue to work toward achieving a midterm business plan and to achieve the long-term vision through various tactics and measures. That's all from me. Next, Yamamoto will explain about the most recent financial results. Kazuki Yamamoto: Please go to the Page 5 of the presentation material. First, I would like to talk about the first half results and an upgrade -- update to our full year forecast. Net income for the first half was JPY 271.1 billion, a record high for the first half year and an increase of JPY 88.2 billion, up 48% compared to the same period last year. At first half, we achieved a healthy 71. -- initial full year net income forecast and ROE reached an annualized figure of 12.7%. This is a result of a contribution from gains of sales and valuation gains from a large exit deals such as Greenko Energy. As explained by our President, our forecast reflects that our efforts to enhance profitability through portfolio optimization and beginning to bear results. And we raised our full year profit forecast upward -- as our COO, Takahashi explained, and full year profit forecast is JPY 440 billion, expanded the share buyback program to JPY 150 billion. Our full year ROE is forecasted at 10.3%, an increase of 1.3 percentage point compared to the same period last year. Second point is the 3 categories: earning and capital recycling. First half, all 3 categories, finance, operation and investment booked profit growth year-on-year and ROE improved. And even excluding a gain on the sales of Greenko, first half ROE was healthy at around 10%, exceeding the previous full fiscal year ending in the March 2025 level that was 8.8%. The third point is shareholder returns. In line with the upward revision of net income forecast, should ORIX achieve a full fiscal year net income target of JPY 440 billion. DPS forecast will increase from JPY 132.13 to JPY 153.67. The share buyback program also expanded from JPY 100 billion to JPY 150 billion. At the end of October, JPY 78 billion has already been repurchased, representing 78 progress rate toward our previous JPY 100 billion. Page 6. Here, I'll explain the details of revision of our earnings forecast and expansion of shareholder returns mentioned earlier. Based on the stellar performance in the first half and the current business environment, we have revised our forecast and second half earnings, especially -- specifically, we raised the pretax profit forecast from JPY 540 billion to JPY 640 billion, net income forecast from JPY 380 billion to JPY 440 billion. This represents an increase of JPY 100 billion and JPY 60 billion, respectively, on increase. As a result, we forecast a full year EPS of JPY 394. ROE will improve to 10.3%. Outlined earlier, we raised our full year dividend forecast accordingly, expanded share buyback program. Total shareholder return should reach JPY 320.7 billion. Total payout ratio expected to rise from 65% to 73%. While improving ROE and maintaining a healthy D/E ratio, ORIX also aims to expand AUM. As our COO, Takahashi mentioned, total group AUM reached JPY 88 trillion at the end of first half. Addition to growth in the traditional asset AUM such as Robeco, which has performed very well, ORIX aims to expand its AUM in an asset-light fashion and that's not overly reliant on our balance sheet. Please go to Page 7. And also, we newly announced a joint PE fund with QIA. The page shows the first half results for the 3 categories and for both previous year and this year and segment profit, pretax profit, net income shown at the bottom. Pretax profit for the first half was JPY 391.5 billion, an increase of JPY 134.5 billion compared to the same period last year. Like the net income, it reached a record high. We implemented capital recycling, not only in the investment category, which achieved a large exit, but also in finance and operation category. All 3 categories achieved a profit growth year-on-year. This page shows the first half results for previous current year, 3 categories: investment on top to bottom. And the dark blue represents finance. Our profit increased 8% year-on-year, JPY 99.6 billion, progress rate of 55% versus full year target. Gross investment income was strong in the Insurance segment. Asia, Australia saw steady increase in financial income from leases and loans. In addition, as a part of portfolio optimization, contribution from the sales of ORIX Asset Management and Loan Services Corporation, Nissay Lease shares also contributed to the profit gain. Next, the light blue part represents operation. Profit increased by 9% year-on-year to JPY 114.9 billion with a progress rate of 48% versus our forecast, which we raised by JPY 10 billion. Business driven by inbound tourism demand such as Kansai Airports and real estate operation at Inns and hotels continue to perform well. Strong used car market helped auto business with Rentec capture the demand for Windows 11 replacement PCs. Both businesses saw growth increased profit. Environment and Energy Segment, the gain on the sales of Zeeklite, which operates the waste and final disposal side also losses profit. The pink represents investment. Profit was up sharply, 117% year-on-year to JPY 194.9 billion. The sales of Hotel Universal Port VITA in the first quarter and Greenko in the second quarter as well as a gain from the sales of shares of NYSE-listed renewable energy company, Ormat contributed to this increase. In addition, performance of domestic PE investments such as Toshiba was strong, leading to higher profit contribution. As a result, segment profit, pretax profit and net income all increased by 42%, 52% and 48%, respectively. Next, please look at Page 8. Now on this page, I explain ROE, shareholders' equity for each of the 3 categories. You see on the right, at the end of previous year, shareholders' equity was JPY 4.1 trillion, while annualized ROE was 8.8%. For first half this year, these figures were JPY 4.4 trillion and JPY 12.7 trillion, respectively. Please look at the graph on the right. The dark blue ROE of finance improved from 8.3% at the end of the previous period to 8.5%. The allocated capital finance is JPY 1.8 trillion. Now light blue ROE in the operation category improved from 13.5% to 14% due to the sale of subsidiaries and other factors. Allocated capital here is JPY 1.3 trillion. And then pink ROE in the investment category rose significantly from 7.4% to 16.6% due to sales of Greenko and hotels, allocated capital is JPY 1.6 trillion. The total allocated capital for 3 categories is JPY 4.7 trillion, which is slightly different from shareholders' equity amount of JPY 4.4 trillion on a consolidated BS. As explained last time, this is because of the allocated capital is a management accounting figure. Next page shows ROA and asset for the 3 categories. With the start of portfolio optimization, total asset ROA improved by 1.03% from the end of previous period to 3.15%. The ROA for the investment category improved significantly for the reason that I just outlined. ROA for the both finance, operation category also improved in first half. This page shows the progress of capital recycling. In the first half, we recorded a capital gains of JPY 157.1 billion. We had cash inflows from sales amounting JPY 500 billion. Major asset sales included Greenko Energy, that was a cash in of JPY 178.9 billion, capital gain JPY 95 billion. And Hotel Universal Port VITA, cash in about JPY 34 billion, capital gain JPY 21.9 billion. We also sold ORIX Asset Management and Loan Services Group and Nissay Lease in the Corporate Finance Business segment too, and Zeeklite in Environment and Energy segment too. In all 3 categories of finance, operation, investment, we flexibly recycled capital to optimize our portfolio while balancing new investment. Cash outflows from new investments amounted to JPY 470 billion. The main new investments made in the first half were Hilco Global, JPY 776 million and convertible bonds for the next-generation energy company, AM Green. Hilco Global is a leading asset appraisal company in the United States and a platform for asset-based lending. Additionally, we made a PE investment in specialty capsule toy retailer, LULUARQ as well as new purchases of aircraft where prices are favorable and new investments in logistics. We also made additional investments in Osaka Integrated Resort project as planned. We continue to have a promising investment pipeline for the future and will carefully select projects. For the year, fiscal year '26, we forecast realization and new investments of between JPY 600 billion to JPY 800 billion. By flexibly recycling capital in all 3 categories in a well-balanced manner, we will, as Mr. Takahashi explained, work to optimize our portfolio. Page 11 is about our financial strategy. This shows the important balance sheet items and the breakdown on the left and the key indicators from the perspective of financial soundness on the right. In the table on the left, you can see the total assets increased by JPY 738 billion compared to the end of FY '25, with half of about JPY 600 billion amount, excluding FX effects due to the U.S.-related factors. The remainder was primarily caused by asset growth in the Insurance segment, which saw strong sales of single premium whole life insurance, JPY 131.4 billion and at ORIX Bank, which increased the new execution of the real estate investment loans, JPY 109 billion. Next, short-term and long-term debt deposit increased by JPY 416.9 billion, mainly due to higher deposit at ORIX Bank and issuance of the corporate bond. We continue to diversify our funding methods and currencies and have realized competitive funding cost levels through this and maintaining a stable ratio of the long-term debt. Insurance contract liabilities and policyholder reserves decreased by JPY 223.2 billion, mainly due to the lower liabilities from the higher discount rate for insurance contract liabilities. This was offset by the increase in single premium insurance policyholder accounts. Of the JPY 351.9 billion increase in shareholder equity in the row below, JPY 223.2 billion is due to the lower insurance contract liabilities and policyholder accounts explained earlier. Other factors contributed to the increase of the shareholders' equity are mainly net income. Debt-to-equity ratio was steady at 1.5x. Looking to the graph at the right, we maintained the capital utilization rate at an appropriate level in the 90% range as a result of the capital recycling in the first half. This has helped us sustain an A-level credit ratings at global agencies. While yen funding rates are gradually increasing, including those for the bank group deposits, our overseas currency-based funding costs, mostly U.S. dollars remain in downtrend. We are working to reduce our cost of capital by keeping competitive A-level credit ratings and by utilized diversified funding source. Pages 12 and 13 are segment summaries. Please refer to the slides from the Pages 16 and onwards for details. Links to supplementary financial materials and the integrated report are included in these slides for your reference. First, segment profits for the Corporate Financial Services and Maintenance Leasing segment increased by JPY 13.1 billion or 29% to JPY 58.6 billion. Corporate Financial Services posted significant growth, thanks to the sale of ORIX Asset Management and Loan Services Corporation and Nissay Lease in Q2. Growth in various fee revenues was also positive. The Auto business continued to enjoy robust used car sales, achieving a record high profit for the first half. Rentec profit grew on higher rentals from ICT equipment inventories fueled by demand for Windows 11 PC replacement. Although asset for Auto and Rentec increased due to new executions in car leasing and PC rentals, the sale of ORIX Asset Management and Loan Services Corporation reduced the total segment assets by JPY 29.2 billion versus the previous year, totaling JPY 1,855.3 billion. Second, the Real Estate segment's profit decreased by JPY 1.3 billion, 3% year-on-year to JPY 49.1 billion. The RE Investment and Facilities Operation units saw significant increase in profits from hotel and inn operations in addition to the sale of the Universal Port VITA. However, profits were down slightly year-on-year due to the previous year's gain from the sale of Hundred Circus. Meanwhile, the profits at Daikyo units increased on the sale of rental apartments, properties and other factors. Real Estate segment assets remained flat compared to the end of previous fiscal year. In addition, in response to the expanding investor demand, we increased asset size of our first equipment -- equity commitment type real estate value-add fund established in January this year from JPY 100 billion to JPY 120 billion. Please refer to Page 18 of the Real Estate. The third is PE Investment and Concession. Segment profit increased by JPY 9.7 billion or 21% year-on-year to JPY 56.7 billion. PE Investment unit enjoyed steady performance of the investees such as Toshiba and DHC, resulting in higher profits even after considering the previous year's gain. Regarding the domestic PE fund information with the Qatar Investment Authority mentioned by Takahashi, you'll find the details on Page 20. The Concession unit saw a significant increase in profits, as Kansai Airports continue to perform well. Please refer to Page 45 for related data, such as passenger numbers. The segment assets for PE Investment and Concession increased by JPY 31.9 billion versus the end of fiscal year '25, totaling JPY 1.548 trillion. The main reason was the new investment in LULUARQ and increased profit contribution from the investees, leading to an increase in equity method. Fourth, Environment and Energy segment profit increased by JPY 117.3 billion year-on-year to JPY 119.7 billion. Profit was bolstered by sale of Greenko Energy, which resulted in gains on sale and valuation gains as well as gains from the sale of shares of Ormat. Additionally, the domestic electricity retail business enjoyed both higher sales volume and unit price. Segment asset decreased by JPY 38.8 billion from the previous year-end to JPY 977.4 billion because of the progress in capital recycling. The fifth is Insurance segment profit increased by JPY 10 billion or 24% to JPY 50.9 billion. Continuing the recent trend, asset income rose sharply on growth in investment assets in effort to diversify portfolio management. In terms of business, both the single premium wholesale life insurance Moonshot and revamped income protection insurance Keep Up launched this June are selling well. Insurance segment assets increased by JPY 131.4 billion versus end of FY '25 to JPY 3,140.6 billion. Sixth, the Banking and Credit segment profit decreased by JPY 600 million or 5% year-on-year to JPY 12.5 billion. Amid rising interest rates, while deposit procurement costs are increasing, the asset management yield is also improving. The main reason for the decrease versus the first half FY '25 is the recording of the losses from the sale of public and corporate bonds in Q2 to improve bond portfolio quality. Banking and Credit segment assets increased by JPY 109 billion versus the end of FY '25 to JPY 3,253.6 billion. Both investment real estate loans and the merchant banking business saw increase in new executions. As explained in Q1, ORIX Bank paid parent group a dividend of JPY 30 billion in July to optimize in capital size. Seventh, the Aircraft and Ships segment profit decreased by JPY 10.1 billion or 31% year-on-year to JPY 22 billion. Aircraft leasing profit for the first half was roughly in line with the previous year. But with lease rates remaining high, the number of owned aircraft increased and the business climate as a whole is positive. Avolon profit rose year-on-year, partly due to the contributions from Castlelake, which was acquired in January this year. Profits in ships unit was lower year-on-year on the absence of higher charter fees from certain contracts last year, reflecting the impact of marine shipping prices. Segment assets increased by JPY 24.1 billion versus the end of FY '25 to JPY 1,256.1 billion, owing to aircraft purchases. Segment number 8, is ORIX USA. ORIX USA segment profit decreased by JPY 18.1 billion year-on-year, resulting in a loss of JPY 1.8 billion. Compared to the same period last year, the main reasons for the substantial profit decline were absence of reversals of the provisions recorded in last year, a decrease in capital gains and the booking of credit cost and impairment in the first half this year. The credit losses and impairments stem from the real estate financing originated during the period of monetary easing during the pandemic and legacy assets from before that. The extended period of the elevated interest rate inflation and uncertain economic conditions in the U.S. negatively impacted these assets. More recently, based on our disciplined investment policy, we have conservatively chosen deals, and thus have no exposure to the First Brands Group or Tricolor Holdings. Please see Pages 30, 31 and 32 in this presentation for more details. Excluding the Hilco Global segment assets in U.S. dollars shrunk from JPY 12.2 billion at the end of March '23 to JPY 11.3 billion at the end of September 2025. With the addition of -- this is a decline of 7.4% in the past 2.5 years. With the addition of Hilco as a subsidiary, we will review the ORIX USA business portfolio and continue to responsibly manage the portfolio while controlling asset risk -- asset size. Uncertainty persists in the operating environment for ORIX USA. And we are conservatively reviewing our full fiscal year forecast for ORIX USA compared to the initial plan. Next is ORIX Europe. Segment profit increased by JPY 1.3 billion or 6% year-on-year to JPY 22.1 billion. Net fund inflows grew, thanks to the favorable global capital markets and AUM rose to a record high of EUR 425 billion. This resulted in higher profits even after adjusting for performance fees booked in the same period last year. ORIX Europe assets were flat year-on-year, excluding the currency impacts. Finally, Asia and Australia. Segment profit increased by JPY 600 million or 3% year-on-year to JPY 19.7 billion. In Greater China, profit contributions from investees decreased versus the same period last year. We maintained a constrained investment stance and reduced our exposure to -- in both leases and investments. Meanwhile, the financial income increased in countries such as Singapore, India and Australia, resulting in higher profits. Segment assets increased by JPY 15.5 billion versus the end of fiscal year '25 to JPY 1,741.1 billion. The main reason was the FX impact, but the breakdown shows a decrease in assets in Greater China region, while there was an increase in Australia and India. And that concludes each segment explanation. Next is Page 14. Finally, regarding the shareholder returns and enhancing corporate value, we added JPY 50 billion to JPY 100 billion share buyback program announced in May for the new total of JPY 150 billion. Regarding the dividends, the full year DPS forecast was raised from the previous JPY 132.13 to JPY 153.67, 39% increase over our full year net income target. Compared to FY '25 a DPS, we expect an increase of JPY 33.66 per share or 28%. Since announcing the 3-year plan and long-term vision in May, CEO, Inoue and COO, Takahashi have been engaged in a direct dialogue with institutional investors, both in Japan and overseas. We also plan to provide access to outside directors. And we are providing opportunities to have a direct dialogue from the outside director and the investors. We continue to enhance the corporate value by increasing opportunities for direct dialogue with the market regarding our most important management KPI, ROE improvement. EPS growth, which is also important and capital cost are also key areas of discussion. This concludes my remarks. Thank you for your attention. Sachiko Nakane: Now we'd like to move on to the Q&A session. [Operator Instructions] First, from SMBC Nikko Securities, Muraki Masao. Masao Muraki: Muraki from SMBC Nikko. This is a bit off from results, content briefing material, but I would like to hear more about joint investment with QIA. What led you to this joint PE establishment because in the past, you have been covering everything on your own 100% and the asset was JPY 1 trillion. And do you think for the future, domestic PE, you're going to run off the existing one and balance sheet will reduce? And the 60% holding of this new PE that you're establishing with the QIA, it will be on the addition -- net additions on the BS, right? ROE or -- do you think this will allow you to invest more in a large project. But what kind of impact would this have to the total balance? Hidetake Takahashi: This is Takahashi speaking. Masao-san, let me answer, take this one. How we came about to establish a joint PE, as I explained in yesterday's announcement, almost about 2 years, we've been negotiating with QIA. We've always been in contact, having a dialogue with various sovereign fund and QIA was especially interested in investing in Japan. So in which field we can collaborate. We've been discussing that way. And we thought that the domestic PE investments is probably where we can jointly approach. So investment criteria policies, we've discussed quite a bit. And this includes a right fit to -- we have the right chemistry. That is how we came about this agreement to establish the PE. And regarding the running off of existing portfolio and to focus on the fund with QIA, that is not the case. As we mentioned in the press release. Our fundamental approach is enterprise value in the market cap of JPY 30 billion or mid-cap larger items, we will leverage this joint fund with QIA. And this JPY 2.5 billion -- JPY 370 billion, that's unlevered base. So 1x or 2x, we will be financing. In the newspaper, I know it says that with the borrowing, we will be able to have this JPY 1 trillion investment capacity, but we don't know whether we'll get there. But anything that is below JPY 30 billion for market cap in investment, that's something that we will continue to handle within the balance sheet. The balance on the balance sheet is -- we do have JPY 2.5 billion, 60% is what we are committing. So I don't think we will see a significant bloating of the asset balance, but we aim to maintain the balance of the current JPY 1 trillion going forward. So far, we had a majority share. So we had a controlling share so that our target companies, we would try to keep it in consolidated accounting so that we can get benefit from profit. But for this fund, we would apply the fund accounting so then incorporate the fair market value. So the way we would incorporate the profit into our business will be different from the one that we are financing fully on our own. Masao Muraki: I understand. Is this part of your ROE enhancement effort? Hidetake Takahashi: Yes, that too, plus goodwill and also recognition of intangible asset will be different, too. And also, there will be an impact on the credit rating, too. That will be eased too, I think. In the last 10 years, we've been building up a track record in the private equity area. That's one thing. And reflecting the market trend and the movement, what we are seeing more and more good quality pipeline in front of us that's building up. So incorporating that in all into our balance sheet, adding them up would impact us in various different areas. So at this timing, we wanted to leverage our third-party funds to shift to leverage third parties funds to try to capture larger, better quality deals. It would be a benefit in our long-term growth. That's our strategy. Operator: Next from JPMorgan Securities, Sato-san. Koki Sato: This is Sato speaking from JPMorgan. About ROE target and your commitment to that and also net assets, the balance between the 2, I'd like to confirm one thing. Now the JPY 50 billion increase in buyback, I think there are different reasons. But the net profit increase, most of it will be used for the shareholder return, I understand. But at the same time, there is a big impact of the interest rate. So about this insurance with the change of the discount rate, about JPY 200 billion in the 6 months, I think that the profit has expanded. So in comparison to the medium-term business plan, the JPY 20 billion or higher needs to be enhanced so that you can achieve the ROE target. And depending on the macro environment, noncash or cash in without that, there could be some higher risks. So in that sense, in achieving the ROE in order to maintain the probability of achieving that, what kind of initiatives are you thinking of taking? Sachiko Nakane: Thank you for your questions. Yamamoto will respond to your question. Kazuki Yamamoto: As you pointed out correctly, for this fiscal year, the interest rate higher and the discount rate, discount and also the insurance account, the net asset increase was a little more than JPY 200 billion. And achieving the 11% ROE, of course, that the numerator will not naturally increase. So we have to take some measures or initiatives that will be necessary. So U.S. accounting and Japanese accounting, there is some gap. So with the shareholders and ORIX, we are trying to consider the various initiatives to be taken. So in achieving the targets of the medium term in the final year, we will be taking initiatives. As for the interest rate, I think we have come to an end of the cycle and this would stabilize. So this increase is not going to continue from now on. So in other words, if the interest rate comes down, the denominator will be less. So that is something that will be possible to -- make it possible to reach the ROE that we want to achieve. So we would like to monitor that closely and communicate to you. But that's something that we will be doing in the future, but the impact of this in achieving the ROE, yes, we do understand that possibilities. Sachiko Nakane: Next Daiwa Securities, Watanabe-san. Kazuki Watanabe: This is Watanabe from Daiwa. This year's lending forecast and next year's profit forecast. You said that there will be a reduction -- reduced provision for the Bank and the U.S. business. If you have any trend outlook for the second half. For this fiscal year, you will be generating quite a significant profit. What's your outlook for the next year? Is it going to be challenging? Are you going to go with your current cruising speed? What's your thought on the next year? Kazuki Yamamoto: Regarding ORIX Bank, regarding our debt portfolio, liability portfolio. And this is a reversal of what I mentioned about liability insurance. And various portfolio that we are maintaining for the better liquidity together with the interest rate hike, there will be more and more incurred losses. And as much as we can within the profit because we have a profit momentum, we will actively reshuffle the portfolio and recorded some losses from the sale. And this year's credit loss burden in ORIX USA, as I before mentioned, so far, in the fourth quarter, we usually check -- do the checkup of all our assets. But we are doing more flexible risk management. So we have decided to book the loss to some extent in the second quarter, too. If you could go to Page 32, ORIX USA pretax profit, additional information there as well. For portfolio, as I mentioned, because of the interest rate in the dollar would be plateaued and inflation and equity real estate business-related impact, we are recording capital gain. We are losing opportunity to record capital gain, sorry. And before COVID, we had a real estate legacy asset of the credit loss. That is now materialized. So going forward, what would happen is real estate for multifamily condominium performance. Interest rate hike and insurance premium increase will impact the rent. And I believe that we will need to closely monitor property management and appropriate asset monitoring, too. So those potential risk, we are quite clear at ORIX USA side. So we don't foresee this kind of situation will continue. So at least by the end of this second half or at the latest in the beginning -- within the first half of next year, we will resolve. We will conclude our countermeasures. And going forward, I'd like to have Takahashi to explain. Hidetake Takahashi: And the second question about the next year's forecast, let me give some brief thinking about the next year. Usually, the income gains, for example, on the real estate or private equities exit, those gain from sales, we have been recording pretty much on every fiscal year, it's a recurring gain from sales. But the kind of gains from sales like divestments as Greenko that is almost like a one-off profit. So this proceeds that we received is a reason that we were able to do a share buyback in addition -- additional share buyback. And another reason is we averaged out the EPS, and we are intending to continue to increase EPS in a linear fashion. If there is some surplus in capital, and we would use it for that. And going forward, in the next year, we'll continue to aim to realize sustainable profit growth. So the sales from a gain, especially something in this scale of almost like a one-off would be volatile. And sometimes we do, sometimes we don't. And when we have surplus, we will leverage a buyback to continue to increase our EPS linearly. I'm not sure I'm answering your questions, but it's not that we are aiming to generate a certain amount of profit every single year. That's a bit different far from our actual business practices in reality. Sachiko Nakane: Next Mizuho Securities, Sakamaki-san. Naruhiko Sakamaki: Sakamaki speaking from Mizuho. I'd like to ask some questions on the forecast for the second half. On Page 10, capital recycling forecast. So for this fiscal year, JPY 200 billion or higher for capital gain. So compared with the past range, there could be some upside. So in the second half, the segment profit is only JPY 200 billion. So how should we understand this balance between the 2? If you can explain it? Unknown Executive: Yes. Thank you. On Page 10, this JPY 200 billion. If I may talk about this further. As you know, usually, our capital gain is about JPY 100 billion. That's the normalized level. So Greenko part, JPY 995 billion is added. So it's JPY 200 billion. So that is on track. And the real estate market is very solid and private equity portfolio, the performance, as we mentioned, is good. So if there is good opportunities, we will invest and also realize in a very flexible manner. In the second half, if you deduct that, the pretax income or revenue level, I think that's what you are referring to. We did not specify the first half and second half, but some of them were already realized in the first half. So there could be some differences. So capital gain -- about the capital gain, this is -- this can be considered as the income or the profit in other areas. I hope that answers your question. Sachiko Nakane: From Nomura Securities, Sasaki-san. Futoshi Sasaki: This is Sasaki from Nomura Securities. I have a question about your performance. This year's second half pretax profit forecast, the level is quite a bit declining versus the first half. So it looks like a JPY 250 billion pretax profit. This is along the line of your base profit, but you also are going to record some capital gain as well, right? I was wondering, perhaps you have some significant impairment loss or some kind of a negative factor that you're forecasting for the first half. Is my understanding correct? And regarding next year's business plan, I'm sure you're in the midst of discussion right now. If you can share as much as you can about the next year's plan, please. Sachiko Nakane: So the first question will be answered by Yamamoto. Kazuki Yamamoto: Regarding the first point, you're right, the base profit first half, I mentioned was quite brisk. Within our base profit, we have the profit from the company that we have invested. So that is contributing like Toshiba is performing quite well, that we have invested. And for the second half, we have set that to the regular cruising speed, not buoyant. So for the second half, we are expecting certain base profit plus some capital gain. It is not that we are expecting some one-off significant loss. Hidetake Takahashi: Let me add to that. This is a bit of details, but as Yamamoto mentioned, Toshiba's performance is quite good now. And divestment of Toshiba material is recorded in Toshiba's performance. And KIOXIA's share price is quite well. So they sold a part of KIOXIA shares. So base profit -- our size base profit and our gain from sales -- and also the income from equity method affiliate are all recorded under base profit. So what I mentioned is that there are various onetime gains that we experienced from the equity method affiliate. And those happen in the first half, and that's not necessarily a recurring income that we can continue to expect in the second half. So that's the reason. And you asked me about the second -- next year plans. Actually, we will start this discussion from next -- beginning of next year. What we are sharing right now to the market is ROE of 11%. And by [ FY '20 ] ending in March, -- but of course, we are creating bottom-up plans up to 3 years into the future. What we'll be discussing going forward is what went well, what didn't go well for the past year and make a rolling update to what we have established in the last March and this year's March too our MTP. We are not expecting any downward change to our initial plan. I'm sure next year will be quite positive, but the detail will be discussed from the segment leaders of each divisions. That's all. Futoshi Sasaki: May I add one more thing, please? Hidetake Takahashi: Yes. Futoshi Sasaki: You mentioned that next year's profit can be volatile. I got the nuance in your wording. This year, 10% ROE, you need to grow the profit at a certain level. Otherwise, I don't think ROE can go up to the 10% levels. Is that okay to say that it can be volatile? Unknown Executive: You have a point. Needless to say, we need to continuously grow. Otherwise, we will never get to 11% ROE. We're not there yet. So of course, we need a profit growth to get there. And with the current portfolio, what can be sold at what price is something that -- some of it where we have a higher probability where we are already in the negotiation process, then we can factor in, but others are just pie in the sky. So of course, we need to make a right decision at the right timing being considered appropriate capital recycling to maximize our gains from sales. As I mentioned, this fiscal year, the proceeds from Greenko is, I would say, a bit extraordinary. So what we've been discussing going forward internally is compared to this year, how much base profit that we can increase. And on top, how much gains from sales of asset we can expect. Ultimately, we would like to achieve the ROE target by 2025 that we have. That's our grand plan. Sachiko Nakane: Next from BofA Securities, Tsujino-san. Natsumu Tsujino: Some detailed question about Environment and Energy. If you look at the quarterly number, JPY 117 billion segment profit. The Greenko sales, gain on sales is JPY 95 billion. So the gain on securities, Ormat sales gain on sales is included, I think. But we don't know how much that is. So that means it is said that for JPY 15 billion, but the equity method, this is JPY 83 billion. So Ormat gains on sales and also if you deduct the JPY 95 billion, you are in red in terms of segment profit. So in Environment and Energy segment, excluding the gains of sales of those 2, what is happening? Was there any kind of impairment? And if so, what was it? And what about the impairment risk of others in coming months and years? Sachiko Nakane: Takahashi-san will respond. Hidetake Takahashi: Sorry, this is Takahashi responding. If I may talk about the details, the renewable energy in Japan, especially the mega solar that is already operating, and we operate that. So we are getting a stable profit. And also, we are in the Energy Business in the previous year, Hibikinada and Soma, there was our impairment loss, and that led to the lower depreciation and amortization and maintaining the sales volume included and this part was profitable. And in Environment and Energy, the major one is Elawan, and Elawan concerning that, it is breakeven or just slightly in red. So a lower interest rate and also the ones that we are developing projects and also the program has started. So in terms of business, we are in the recovery phase. Also on the Environment side, the ORIX Environment is a circular economy company, and they are generating stable profit. So ORIX [indiscernible] or resource recycling, which is engaged in the interim processing, and they are going through the rebuilding or replacement phase. So we expect some red deficit. And in actual performance, they are in red. So it's a mixed performance, but we are not seeing the signs of the major impairment loss. I do not recognize that. Natsumu Tsujino: Okay. So a way of thinking, if you calculate this, you are in red, as I said. So is that correct understanding? Hidetake Takahashi: Yes. We do not recognize this as a major deficit. It's really close to the breakeven level. It's a very small deficit. Natsumu Tsujino: I see. But if you calculate the [ JPY 117 billion ] minus JPY 98 billion, sorry, the loss of JPY 8.2 billion or so, you're talking about Q2? Hidetake Takahashi: Okay. So Q2, as you said, yes, that's a correct calculation. But Ormat, it depends on what kind of number that you would include in Ormat. But we did not recognize that in Q2 only. But I think if you look at the bigger picture, it will be almost breakeven. Sachiko Nakane: Now we are reaching the closing time. So we would like to take one last question from Morgan Stanley, MUFG Securities, Takemura-san. Atsuro Takemura: I'm Takemura from Morgan Stanley, MUFG. I have a question about some numbers. You have made a revision to the lending forecast. Page 7, bottom right, in financial, it's remaining 180.0 so no change. Were there any changes under -- regarding the business profit, an increase of JPY 10 billion. What's the reason for investment, GreenKo of JPY 95 billion addition plus JPY 80 billion. So I would like to know why you are postponing some of it, the reason for that, which is the best way you can, please share. Regarding ORIX USA, I understand that you have a revised performance forecast. So how that impacts this overall segment, please? Kazuki Yamamoto: What you explained toward the end is very much a reason for that for finance and life insurance included, we did quite well in asset management. We have management income in the bank, we also recorded a loss of our debt liabilities. And in order to improve the portfolio quality and the credit-related business, we have conservatively recorded some new losses too. And those are what's impacting this finance business. For business, many of the operating units are quite brisk. But in ORIX USA real estate origination, the fee environment, competitors -- competitive landscape, we are having quite a difficult situation. So that's impacting our profit. Regarding investment, the third point, you are right regarding JPY 95 billion addition from Greenko's divestment, doesn't mean that we put some of the sales plan for the sales to the later date at all. We did have certain uncertainty in the fair value part about the future gain from the sales that ORIX USA is doing in the PE business. As Takahashi-san pointed out, regarding ORIX USA, we have more conservative outlook because of intransparency. Sachiko Nakane: Thank you very much. We would like to conclude the Q&A session. Now we'd like to have our last remarks from Takahashi. Hidetake Takahashi: As I said at the outset, there are a mixture in terms of the business performance between the segment. The businesses are diversified. And also in May, we announced the strategy. We are executing that steadily in the first half. Relatively speaking, I think we kept good results. But we would like to stay focused, and we took notes of what you pointed out, and we will continue to take initiatives. And we consider those target numbers are not easy numbers and also in the medium-term plan and the long-term vision, the numbers that we are committed to, we would like to make sure to try to achieve those targets. And I hope you would continue to support us. Thank you very much. Sachiko Nakane: With that, we'd like to conclude today's conference, the briefing on the second quarter results. And thank you very much for your participation. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Martin Pibworth: Good morning, everyone, and thank you for joining us today as we set out our transformational fully funded investment plan to deliver high-quality capital and earnings growth. As I give my first presentation as Chief Executive, I am delighted to say that before us lies the most exciting period of growth I have seen in my near 3 decades at SSE. And by leaning into the U.K. networks opportunity, we are underlining our position as a top-tier European energy player. Over the course of the next 30 minutes, we will outline how we have been ramping up delivery of game-changing infrastructure, provide a brief update on our financial performance. and finally, lay out the detail behind a bold new plan that faces into the paradigm shift underway in our sector. Before I hand over to our Chief Financial Officer, Barry O'regan, to run through our results for the half year, I want to briefly set the context for how our integrated strategy optimizes growth and creates long-term sustainable value. SSE's position at the heart of the energy transition in our core U.K. and island markets has created a once-in-a-generation opportunity for the group to significantly increase our investments in homegrown, secure and clean energy infrastructure. We have great options across networks, renewables and flexibility, but within that, the single biggest opportunity is in transmission, and that's our focus this morning. Under this plan, we will be investing GBP 33 billion, of which 80% will be in networks growing the regulatory asset base by a compound annual growth rate of around 25% to 2030 and positioning SSE as one of the fastest-growing electricity network companies in the world. This will drive increased levels of high-quality index-linked earnings with clear visibility to achieve between 225p to 250p earnings per share by 2030 after adjusting for the equity placing we have announced today. We are also able to extend our sustainable and progressive dividend policy over the same period. And it is important to emphasize that this is a fully funded plan with a firm commitment to maintaining a strong balance sheet. Around 90% of this will be self-funded through strong operational cash flows or by steady increases in our levels of net debt and hybrid capital. The remaining 10% will be achieved through a combination of today's equity placing as well as targeted disposals. This is a hugely exciting investment plan, which will deliver significant long-term value creation over the course of this decade and beyond. Our confidence is underpinned by SSE's track record of delivery. The roll call of SSE-built additions to the energy system in recent years is impressive and includes the delivery of complex projects like the Shetland HVDC connection, Viking Wind Farm, Seagreen, the Northeast 400 kV scheme, Slough Multifuel and KB2, and the relentless delivery continues with the headway we have made on construction and planning milestones over the past 6 months. In Networks, construction is now well underway on 4 of the 11 major transmission projects with all major consents submitted and supply chain secured for the remainder. In Renewables, we are making strong progress on our 2.5 gigawatt construction program, including Dogger Bank, where 88 out of 95 turbines are now installed with the projects remaining on track with the guidance we issued over a year ago. In addition, Yellow River is fully commissioned and Berwick Bank is consented and on track for participation in upcoming auction rounds. And Flexibility completes the picture as we progress construction on 2 vital new thermal generation projects in Ireland. As we'll set out today, networks are the growing core of our investment plans, but they continue to be complemented by selective and disciplined growth projects across our other businesses. And of course, it is critical that in making this progress, we put our people first. Everything we will talk about today is underpinned by the hard work and dedication of our employees and contract partners. So keeping them safe and well will always be SSE's primary concern. It is, therefore, pleasing to report continued strength in our safety performance through a period of increased construction activity over the past 6 months. And with investment set to accelerate, it will be critical to maintain our focus on looking after those who work for and on behalf of SSE. I'll now hand over to Barry for an overview of performance in the first half of the year before we turn to our exciting plans for the next 5-year period. Barry O'regan: Thank you, Martin, and good morning, everyone. I'm sure you'll be keen to see further detail of our new investment plan. However, it is important to briefly cover financial performance in the first half and our reaffirmed outlook. The GBP 655 million adjusted operating profit delivered by the group over the past 6 months was in line with usual seasonal averages and, therefore, keeps us on track to deliver on our full year expectations. The first half saw a step change in transmission investment and earnings. So it's worth pausing to highlight the continued evolution of the latter. Around 2/3 of earnings were generated by regulated networks, an increase relative to the comparative period and in line with the continued upweighting of investment in that area. The increase in high-quality regulated earnings is a trend that is set to continue as we deliver on our investment program. Turning to the bottom line. The group delivered adjusted EPS of 36.1p, in line with our expectations for the period. In our combined networks businesses, adjusted operating profit fell by GBP 84 million over the first 6 months. Profits almost doubled for transmission, driven by the continued increase in investment as we make substantial progress on our large capital projects. Turning to Distribution. Profits were lower as expected given the nonrecurring inflation adjustment in the prior period, with operational performance remaining strong. Overall, we continue to be pleased with the underlying financial and strategic performance achieved by our regulated businesses, which sets them up well for their future growth. In SSE Renewables, strong progress continues to be made on Dogger Bank construction, and we were delighted to announce full completion of Yellow River in October. Whilst increased capacity largely offset unfavorable weather conditions, the 20% decrease in hedge prices that we flagged in May meant that adjusted operating profits have reduced this period. With the usual seasonality, meaning that over 2/3 of operating profit for this business is generated in the second half of the year, we remain confident that earnings will be higher on a year-on-year basis. Turning to flexibility. Adjusted operating profits have fallen since the previous period. This movement was mainly due to the customers business, where a bad debt release in the comparative period is combined with lower volumes in the first half. We expect a greater proportion of profits to be recognized in the second half for this business. Below the line, net finance charges were stable, reflecting a combination of capitalization effects and use of hybrid debt with coupons expected to increase in FY '27. Our tax rate continues to decline with the full expensing capital allowances available on our increasing investment program. As you know, our dividend policy is to deliver 5% to 10% growth across the year. And as set out in May, our planned approach means that we today declare an interim dividend of 21.4p, being 1/3 of our FY '25 dividend. Turning now to the financial outlook for FY '26 and FY '27. We are pleased to reconfirm the detailed segmental guidance we gave in May. With half year results within the normal ranges of seasonality, we see the strong performance noted today continuing through the key winter months, subject to the usual variables around weather, market conditions and plant availability. And consistent with the approach in prior years, we will provide specific EPS guidance later in the financial year. Looking further ahead, the strategic execution that Martin highlighted earlier means we remain confident in delivering against our FY '27 earnings projection. With the first half financial performance now covered, I'll pass you back to Martin for more detail on our transformational investment plans. Martin Pibworth: Thank you, Barry. It's important to set the scene for why a huge acceleration of investments in infrastructure will be needed in any realistic energy transition scenario. Regardless of shifting political priorities, electrification of the global economy is unstoppable and accelerating. As you can see from the slide, there is a dramatic ramping up of electricity demand from 2030 out to 2050. That is a staggering amount of growth for the system to accommodate, particularly against the backdrop of an aging gas generation fleet, nuclear closures and a reliance on imports from jurisdictions going through similar uncertain transitions. It is also worth emphasizing that the surge in energy demand is unlikely to be smooth or linear. We will need a system that can accommodate uncertainty. These projections have a number of important implications. First, the need for a much more strategic centralized approach to system planning to ensure the right infrastructure is built in the right places at the right time. We are seeing this materialize through the Clean Power Plan, the development of the Strategic Spatial Energy Plan, which will follow and ambitious planning reform. Second, it requires a clear focus on the cost of capital and crowding investments in electricity infrastructure because this is what will deliver in the long-term interest of customers. This was a key factor in the government's welcome decision to rule out zonal pricing in the summer and remains the driving force behind policy and regulatory decisions that are adding momentum to our strategy for value-enhancing growth. Meeting the needs of an electrifying economy requires 4 things: rapid expansion and reinforcement of the transmission network, strategic local distribution upgrades and modernization, a doubling or even tripling of homegrown energy generation supply and a greater focus on storage and flexibility to keep it all in balance. All of these drivers underline the multi-decade organic growth opportunity in front of SSE's carefully selected business mix. The need to alleviate system constraints and rewire Scotland underpins the huge projects, Transmission has well underway. This is investment that the grid needs today, and it will lay the foundation for development of smart grids and a digital economy in the future. In distribution, the next price control will mark a shift in pace as we deliver increasingly strategic plans that accelerate electrification for consumers. Across renewables, which remain the cheapest form of new generation, we have a premium pipeline of options and significant delivery expertise. The North Sea leads the world in offshore wind and the capability we have developed through projects like Dogger Bank and Seagreen gives us an enviable platform for future growth. And finally, our Flexibility capabilities give us resilience against unexpected market developments in an increasingly electrified world. Thermal plants will be rewarded in all transition scenarios, whether providing grid stability or security of supply, and it is complemented by a customers' business that is meeting the demands of a digitalized world focused on AI and data center growth. With supportive policy frameworks and the expertise to deliver, SSE has unique access to the multi-decade organic growth opportunity in these core markets. We briefly touched upon some of these numbers in an earlier slide, but it is worth walking through what this once-in-a-generation opportunity means. The GBP 33 billion investment plan presented today is a trebling of the investment we delivered across the previous 5 years. This investment brings with it industry-leading capital growth with our combined networks RAV set to triple to around GBP 40 billion by the end of the decade, a 25% compound annual growth rate. Disciplined further investment in renewables is likely to add a further 1.5 gigawatts of projects, combining with the 2.5 gigawatts already under construction to take installed capacity to around 9 gigawatts by 2030. This is growth that will create significant value for the group across the life of the plan and the longer term. It will underpin an increase in adjusted EPS to between 225p and 250p by FY '30 after accounting for today's proposed placing. When compared to last year's FY '25 EPS base, which remains unchanged of 160.9p, this is compound annual growth rate of between 7% to 9%. This accelerated investment is underpinned by secure U.K. government regulatory frameworks, and it will unlock growth across the wider economy and support thousands of jobs over the course of the plan. Turning to Transmission. Ofgem's strategic approach to regulation has provided unprecedented and welcome visibility on investment to 2030. While we continue to engage constructively with Ofgem ahead of the final determination on RIIO-T3 next month, the vast majority of the transformational CapEx plan we announced today has its origin in the ASTI and LOTI programs. Between the agreed ASTI and LOTI regimes and business-as-usual programs, we see SSEN Transmission investment increasing to around GBP 22 billion across the period, net of the share from our supportive investment partner. This will deliver a 30% CAGR in the Transmission asset base, making it one of the fastest-growing electricity networks in the world, with earnings increasing at an even faster rate over the plan. And as I will come on to over the next few slides, with the high degree of visibility we have over the CapEx plan and with all major consents submitted, we are making sure that the business and the supply chain are well positioned to deliver. The ASTI and LOTI projects are required in every realistic energy scenario. They are well advanced with mature designs, optimized configurations and a supply chain ready to deliver. Around 90% of our investment in Transmission will be spent on these projects and business-as-usual investments and it reflects the supply chain inflation we have seen over the past few years. These projects will connect homegrown renewable energy and transport the power produced to areas of increasing demand across the country. And they offer clear value for money for consumers by reducing current constraint costs, establishing a foundation for security of supply and reducing our national dependence on volatile energy markets. This high degree of visibility means that the transmission story today is all about safely and efficiently converting the lines on this map into critical national infrastructure, and this is happening at pace. As I said earlier, 4 of the 11 ASTI and LOTI projects are already in construction and all major consent applications have been submitted. All supply chain frameworks that we need have been secured, and we are working with our partners on their delivery capacity and manufacturing quality. This isn't a desktop exercise. This is securing key equipment. This is inspection of manufacturing facilities. This is accelerated innovation and support of the supply chain. It is heavy recruitment ahead of need, vast training programs and deep community engagement, and this is all well underway. With our own resource in the transmission business increasing fivefold in the past 5 years, we are putting everything in place to deliver most of these projects by 2030 ahead of the next phase of projects that will surely follow. This is an exciting moment for SSE, for Scotland and for the U.K., but we are acutely aware that local communities have a major stake in these projects. Having conducted what we believe to be the largest public consultation exercise Scotland has ever seen, we continue to engage with all parties and adapt our plans where we can. We are also investing in housing and community benefit funding that will have a lasting positive impact on the North of Scotland. Ultimately, these vital projects are in our license conditions, and they will be delivered. The need is there, the supply chain is there and consenting is progressing. They will make a huge difference to our energy system as constraints are eased and more homegrown clean energy is connected, providing a tangible economic payback for consumers. Distribution upgrades are more localized, but they are much greater in number and hugely exciting in their own right. In its early consultations on the upcoming price control, Ofgem agrees. The regulator points to significant growth in electricity demand driven by the advance of technologies like electric vehicles, heat pumps and digital industries. Distribution southern license area has enormous strategic potential as it unlocks data center growth in the M4 corridor, while the northern network will connect increasing Scottish renewables capacity with local communities. We, alongside the system operator, are already creating the plans and Ofgem is working on the frameworks to move from a just-in-time network to a well-planned strategic one. At the same time, the government is legislating for local area energy plans to create a bottom-up vision of local needs. We see this business as consistently delivering around 10% RAV CAGR through ED3 alongside high-quality index-linked earnings. And it promises to drive growth for the group well into the 2030s and 2040s as we bring electrification to the doorstep. Renewables will be the foundation of the future global electricity system. SSE has a premium pipeline and world-class teams to deliver clean North Sea energy, which will power European economies for decades to come. In the course of our 2030 plan, we will complete major projects like Dogger Bank, which are backed by long-term, high-quality and index-linked CfD contracts. This reflects and is indeed a direct consequence of our demonstrable track record of driving value through selective capital allocation in premium projects. We also have further options in offshore wind and additionally, a significant pipeline onshore. Our plan outlined today includes around GBP 2 billion of uncommitted CapEx with which to bring forward further investments. But let me be absolutely clear. SSE will continue to maintain the strict capital discipline that has served us so well in the past and prioritize value over volume. Any investment we sanction will have a clear route to value creation with adequate contingency for execution risk, deep consideration of supply chain capabilities and will be delivered through our established models such as via partnership and project finance in offshore wind. But we must not lose sight of the longer-term opportunities here. The U.K. and Ireland will need a strong and diverse renewables base to meet their energy goals, and there is no doubt SSE will be a major part of that. I'll now pass you back to Barry for more on the visibility on earnings and value creation this plan gives us and how we are funding it. Barry O'regan: Thank you, Martin. As we have outlined today, it is crystal clear that the right strategy at this point in the energy transition is to pivot the group further into the transformational networks opportunity. And Martin has just outlined not only the strategic importance of this investment, but also the high degree of visibility we have, our confidence in delivery and the market-leading capital growth it brings. Over the next few slides, I will cover the clear visibility this strategic plan provides of value creation and earnings growth through the rest of the decade and beyond. Today's investment plan marks a significant evolution of capital allocation from the preceding 5 years. What has historically been a 50-50 investment split between networks and markets now becomes 80-20, upweighted in favor of networks. And this upweighting provides the group with a significant enhancement in earnings visibility. By FY '30, we expect that around 80% of earnings will be index-linked through either the stable regulatory framework provided by networks or from our energy businesses, where CfD, ROC, REFIT arrangements and a rising capacity mechanism provide a clear line of sight over future earnings. This is a material step-up from our position today, offering investors significant earnings stability and protection as we materially grow the business over the course of the decade. At the same time, we will retain 20% of value upside potential, mainly through flexible services, which also provides the group with resilience against unexpected market events. And with 80% of investments targeted towards networks, it should come as no surprise that the majority of expected earnings and asset base growth will come from those businesses. Whilst negotiations over T3 remain constructive and ongoing, we expect the rapid regulatory asset growth in those businesses will deliver RAV of around GBP 40 billion by FY '30, and this will provide a firm underpin to the step-up in long-term earnings. And while more moderate earnings growth is expected in Renewables and Flexibility, these businesses continue to provide the group with value upside potential, as I have mentioned. It is important that as we pivot and grow, we retain a sharp eye on commerciality and efficiency. And that is why we are also committing to driving up-weighted annual recurring cost efficiencies across the group of around GBP 200 million by FY '28. This is an investment plan that has discipline and efficiency at its core, that offers visibility of value creation and, therefore, provides us with the confidence to target adjusted earnings per share of between 225p and 250p by FY '30 after accounting for today's placing. This is equivalent to a 7% to 9% CAGR from the FY '25 baseline that we reported in May. That visibility of growth enables the extension of our sustainable and progressive dividend policy with dividend per share continuing to increase by between 5% to 10% per year to FY '30. This fully funded plan opens the door to an unprecedented investment opportunity that will change the group's shape, size and overall trajectory. It also has a commitment to a strong balance sheet at its heart, reinforcing our commitment to existing investment-grade credit ratings whilst leaving ample headroom for further earnings growth well into the next decade. With GBP 33 billion of investment and GBP 6 billion of other cash requirements such as dividend and interest payments, we expect the group will have a total cash requirement of around GBP 39 billion, which will be met via a combination of primarily self-funded sources. Around GBP 21 billion is expected to come from strong operational cash flows during the period, with a further GBP 14 billion from increasing net debt and hybrid capital issued in a steady way throughout the plan. This expected debt increase is smaller than our threefold increase in regulated assets. And when combined with the growth in earnings, means we remain below 4.5x net debt to EBITDA throughout the course of the plan. Around GBP 2 billion is expected to come from targeted asset rotations across the range of premium assets in our portfolio. These disposals will be timed to meet our investment needs towards the end of the 5-year plan with assets selected to maximize value. And for the remainder, an equity placing of GBP 2 billion will support the significant increase in investments announced today. We don't take issuing equity lightly, as you can see from the extent to which this plan is self-funded, but it's absolutely the right thing to do to unlock this exciting plan, grow the business and deliver attractive returns for our shareholders. I'll now quickly step through the structure of the proposed non-preemptive equity placing to certain eligible institutional investors, which launched this morning at 7:00 a.m. The intention is to raise gross proceeds of GBP 2 billion through an accelerated book build, which represents approximately 10% of the current issued share capital. Concurrently, we have a separate retail offer in the U.K. through RetailBook. The proceeds we expect to raise today will enable us to deliver a plan that is the foundation for long-lasting and sustainable growth of the highest quality. We have an exciting opportunity in front of us, and the plan we have announced today represents a pivotal moment in SSE's evolution. I'll now hand to Martin to close. Martin Pibworth: Thanks, Barry. We are building on the strength of a business that sits at the very heart of the energy transition. Our balanced portfolio of capabilities, assets and businesses offers investors resilience against inflationary movements and market volatility. With supportive policy frameworks and delivery expertise, SSE has a strategic growth opportunity that will create sustainable value for both shareholders and society for decades to come. We now look forward to working with investors, governments, regulators, communities, suppliers and consumers to help build a homegrown energy system that is independent of volatile international markets, more affordable for customers and better for the environment. To conclude, this is a defining moment for SSE. We have an ambitious plan that leans further into one of the world's fastest-growing electricity networks, underlying our status as a top-tier European energy player. And it offers a clear, well-defined funding route that balances the need for financial strength and earnings growth. Rapid capital growth in our businesses as we grasp this once-in-a-generation opportunity, and it offers long-term value creation with clear visibility over earnings growth and a sustainable and progressive dividend policy. This is a hugely exciting opportunity, and we are getting on with delivering it. Thanks for your time this morning. We will now move to Q&A. And if I can ask that we please keep it to no more than 2 questions each so that we can get to everyone in the time we have. Thank you. I'll now pass over to the operator. Operator: [Operator Instructions] And your first question today comes from the line of Robert Pulleyn from Morgan Stanley. Robert Pulleyn: Yes, rob Pulleyn from Morgan Stanley. First of all, congratulations on a very well put together plan, very exciting times and great to see that earnings profile. I'll stick to 2 questions. I'm sure there's lots. So firstly, if we could talk about the asset rotation, GBP 2 billion as part of your funding package. The footnotes seem to imply it will come from renewables. But is that explicitly the case? And is any stake sale in electricity distribution ruled out or included in the guidance? And secondly, given today's double news around data centers across Europe, may I ask, should SSE monetize any of its legacy power plant sites with grid connections for data centers as we are now seeing elsewhere, not just in the U.S. but also U.K. and in Europe? Barry O'regan: Yes. Rob, thanks for the question. I'll look at the disposal question. So yes, the GBP 2 billion disposals, how I'd look at that is over 25% of that will come from our noncore assets, primarily our Slough waste energy plant, which is the only one we've left. And then we also have a stake in the network -- telecoms fiber company, and we also have a loan note. So in reality, those will all probably take place in the earlier part of the plan. The remaining 75% of disposals will be towards the back end of the plan. It could come from any of our business units. Ultimately, we will decide closer to the time what makes sense strategically and financially for ourselves at the time. Martin Pibworth: And then thanks, Rob. To your other questions, I mean, data center is obviously a fascinating question. Obviously, we saw the news this morning. I mean the opportunity for data centers and the AI trend, I think, affect us across a number of businesses. I mean, firstly, there's obviously the constructive reality of increasing demand for our generation businesses. There's also the flow-through to distribution, where we mentioned in the presentation we've just given, we would expect an increase in demand in particularly our southern network and for distribution to have obviously a key role to play in delivering that demand. For the customers business, they're also very well engaged with tech players in terms of CPPA possibilities. And of course, that also applies to renewables and the ability to get generation projects across the line there. Specifically on thermal, we have always said that we think our sites offer very good value in terms of redevelopment and playing into transition trends. And just as a reminder, already on our sites, we have previous thermal sites and these are mostly coal sites. We have built batteries. We have built multi-fuel. We provided emergency generation in Ireland for the Irish government, and we are also in the process of building an HVO plant at Tarbert. So that kind of underlines the value we've all seen. And of course, the data center angle possibly adds to that going forward. Operator: Your next question comes from the line of Mark Freshney from UBS. Mark Freshney: I have 2. Firstly, on the 6 overhead line planning consents that you're due to get middle of next year. I mean you're very impassioned about, Martin, about the conversations you've been having with the community and why these assets are essential. But you are dependent upon something that's very much outside of your control. What is it that gives you confidence that this time, it will only take 52 weeks rather than 2.5 years? And just secondly, regarding the renewables business, I mean, I think there are some big capital commitments for Dogger, et cetera. it seems to me that you -- I can't remember a time when you've actually reduced spend so much in that business. And is it fair to assume that there's envelope in there for Berwick Bank and maybe a couple of other no-brainers, but you really are pivoting capital away from that business? Martin Pibworth: Thanks, Mark. Let's deal with the transmission confidence and planning, firstly. I mean, just to reemphasize some points here. Our confidence in the transmission ability to deliver is, firstly, we have had a strategically minded regulator that has given us enough notice to build capabilities. So we referenced a fivefold increase in our resourcing. It is worth pointing out as well that, that resourcing comes -- some of that comes from the North Sea oil and gas, so we get the expertise from that. But also we've managed to pivot some of our renewables expertise, project managers, project directors, engineers, et cetera, into that business. That's a high-quality resource business. We've also, because of the strategic mindset of the regulator, been able to build supply chain frameworks and contract the supply chain, Tier 1 supply chain partners that we know very well. So we think we're well set up from that perspective. Then it comes down to the planning. That bit is less in our control. But maybe a couple of things. Firstly, you referenced the Scottish government and their 52-week commitments for overhead line planning, consenting. We see that as backed on the ground by a trebling of resourcing they've put into the consenting units, which will ultimately define and decide some of those decisions. So we see that as a positive. And then just on the numbers, in the last -- just over the last few months, we've had 2 substations and 2 overhead lines consented. Right now, we have 2 out of 5 of our marine consents and 2 expected soon. We have 5 out of 8 of our overhead line consents, and there's 3 of those in the 12-month process we just talked about. And 13 out of 21 substations consented, including Netherton, which is a major one. So that is the basis for our confidence. We have the ability to logistically get everything ready on the ground with people and supply chain. We think we've got the backing of the Scottish government that understands the transition need and the economic importance of us delivering this infrastructure in a timely way. Barry O'regan: Yes. And look, just on the renewables CapEx, we've got about GBP 4.5 billion in for renewables CapEx, Mark. over GBP 2 billion of that is currently unallocated, and we will only take that forward clearly if the projects, as Martin said earlier on, meet our hurdle rates and our discipline. That obviously also allows for Berwick Bank. We've done rigorous stress testing of various possible scenarios and Berwick Bank will be part of that. Obviously, that's a multistage project. And obviously, the timing is to be confirmed and equity ownership stakes, et cetera, has to be decided in the future, but that's all part of the scenario analysis we've done. Operator: We will now go to our next question. And the question comes from the line of Dominic Nash from Barclays. Dominic Nash: Congratulations, Martin, on your first results as CEO. I think it's a fair to say that you're setting a high hurdle for future presentations. So congratulations. Two questions from me, please. Firstly, could you give us some color on the wiggle room and the uncertainty around that GBP 33 billion sort of investment program to 2030? Because clearly, RIIO-T3 we will get probably what, the first week of December or so. And then secondly, on the renewables where you earmarked the GBP 5 billion or GBP 4.5 billion, clearly, we've got uncertainty over AR7 and maybe AR8. So I'd be interested to know why your confidence is set at GBP 33 billion and realistically, could the CapEx numbers go up from there? Secondly, on the 4.5x net debt EBITDA sort of guidance that you'll be within that limit by 2030, I think that's unchanged from the current net debt-EBITDA number. Could you give us some color again on -- I think the S&P report recently, which was discussing about how you treat JV net debt and whether or not your net debt-EBITDA numbers will need to sort of reflect kind of I think they call it orphan debt in your JVs? Martin Pibworth: Yes. Maybe just a couple of headline comments while Barry gets the numbers. I mean, we've said and very strongly the CapEx plan and funding options have been stress tested against a range of possible scenarios. And obviously, that is important. I mean just on the specifics of AR7, clearly, we're in an auction process, so we wouldn't say too much about that apart from just to remind investors that we have always and consistently taken a very strong capital disciplined approach to investment. That applies to Dogger Bank, which is why today, we're obviously announcing on Dogger Bank that we're still on track with exactly what we said a year ago. Obviously, that's a year later than we originally planned when we took FID, but we're still in line to beat our hurdle rate on that. And that's because of the risk-managed way we approach that. You'd expect us to apply all of the learnings from Dogger Bank, but all of that same investment philosophy to future renewable investments, including Berwick Bank, including Coire Glas and other onshore wind prospects. Barry O'regan: Yes. And then, on the GBP 33 billion, so I think the easiest way to think about it is GBP 20 billion of that is for the 11 mega projects in Transmission. So the 3 -- lastly, the ADAS 3 projects in the baseline CapEx. So as Martin said, 4 of them are already in construction, a real clear line of sight over to consenting and, obviously, much firmer grip now on the supply chain costs as well. So real clear certainty over that. 20% of the CapEx is for the remaining networks part, so it's primarily distribution. And obviously, we're seeing a much more strategic approach from the regulator as we go towards T3. So we expect a ramp-up in CapEx as we go to the end of the plan. And then 20% is for the energy businesses. And over half of that is -- about half of that is in construction at the moment. So whether that's the Dogger banks or some onshore and battery projects and about GBP 3 billion is uncommitted. And GBP 2 billion we have allocated for Renewables, GBP 1 million in the Flexible, but obviously, that's quite fungible. And as I said earlier on, that will only be for projects that meet our strict hurdle rates. And that's all part of the scenario analysis that we've done and the stress testing we've done, which allows for those renewables projects you mentioned earlier on. Then in terms of the balance sheet, so yes, so we'll be below 4.5x net debt to EBITDA throughout the plan and at the end of the plan. And in reality, we could go slightly above that as well and still be within existing credit ratings. In terms of S&P, yes, our understanding is that they will be temporarily putting on the project finance debt for assets in construction only. So -- and they're the only agency doing that. So for us, that will mean Dogger Bank B and C will go on to the balance sheet, but they will come off again in the next 2 years, but those projects clearly come off at the back end of the -- once they're into operations. And then obviously, look, Berwick Bank is further out. Clearly, we've allowed for that in our scenario analysis. Again, a lot of those projects are back ended. It depends on the phasing of those projects, what equity stakes we hold in that as well. So we won't need to change our 4.5x net debt to EBITDA for that. That's all allowed for in the scenario analysis we've done. We've shared the plan with S&P. I'm not expecting any surprises there. Operator: Your next question comes from the line of Harry Wyburd from BNP Paribas. Harry Wyburd: So 2 for me, please. So the first is, I think when we've discussed equity needs in the past, you've talked about awaiting news RIIO-T3 result and AR7. Have you had any discussions with Ofgem recently around returns, but also around fast money that made you more confident to go ahead with this big plan now, which I guess many of us are thinking you might do after once you have some certainty. So was there a trigger here where you felt like you had better visibility? And then the second, it's on the thread of Rob's questions on data center sites, but actually a different angle on this. And if you think about how data center demand is likely to play out in Europe versus the U.S.? I mean, volumetrically, we've got tons and tons of new wind and solar capacity being added in Europe relatively much more than in the U.S. Volumetrically, I think the picture looks a little bit different. But in terms of peaks, maybe it doesn't. And I wondered what are you thinking in terms of capacity payments and the levels that capacity payments could potentially get to in a squeezed scenario for peak demand from data centers. Do you think the level of capacity payments that are clearing in the recent auctions are the sustainable level? Or do you think there could be upside to those over time if you start to get real squeezes on the peak demand side? Martin Pibworth: Okay. Thanks, Harry. Firstly, on the question about Ofgem and T3 engagement, and I think it's a kind of why now question. I mean we said back in the summer that we expected a lot of news flow through 2025. And that news flow included zonal pricing and a decision on that, which, I mean, obviously, that's one of the key themes, investor themes earlier in the summer. And obviously, we referenced in our presentation that we were delighted that the government listened to industry and listened to investors like us and ruled out and took zonal off the table. We obviously had the draft determinations important. I'll come back to that in a second. And then we've also had the SSMC for ED3, where we saw a regulatory tone, which continue to be strategic and forward-thinking and progressive. And so from a policy perspective, that felt all quite good. Then on the ground, we've already referenced the progress we're making on consenting and indeed construction for transmission. And when we put all of that together, we thought now was the right time to come out with an exciting plan and show shareholders our thinking. Just in terms of Ofgem discussions, of course, since that draft determination was published, we have been in good constructive discussions with Ofgem over the last 4 or 5 months. You'll recall the 3 themes, the 3 major themes that we were particularly interested in was the capitalization rate, the cost of equity and incentives and also the totex, the gap between our view of totex and theirs in that draft. Look, all I'd say is we've had good constructive conversations with the regulator, we think is -- understands the need to make networks investable and again reflect on the SSMC tone for that as clear evidence of that. Then to your capacity mechanism question, this is -- firstly, I'd agree with you on the demand point. I think I've consistently played down some people's attempts to extrapolate a U.S. demand trend for the U.K. and Europe. I've always been much more careful about that. We are clearly starting to see constructive demand growth. And obviously, in the background, the government and NESO understand the need for capacity mechanism reform if they require new build peak thermal to accommodate that. So those reform processes are going underway -- are underway. Obviously, you do have an example here. In Ireland, you've seen capacity mechanism prices, I think, up to certainly over EUR 175 per kilowatt as Ireland has had to contract for that same peak capacity to look after the nonlinear demand increases they've seen in that jurisdiction. So there is an example there of how the capacity mechanism has had to step in at a higher price. What I've consistently said about the capacity mechanism is for new build, given the rises in CapEx that are ongoing for CCGTs, we think the cap will have to be reviewed. And for existing plants, just because of the age of it, and again, we referenced it in our presentation and the need to get spares in an inventory and make sure engineering capability and reliability are absolutely guaranteed. We expect capacity mechanism payments to have to at least stay where they are to accommodate those kind of needs. Effectively, the line I've used is before, it is difficult to be bearish on the capacity mechanism for its current price of around GBP 60 per kilowatt. Operator: Your next question comes from the line of Pavan Mahbubani from JPMorgan. Pavan Mahbubani: Echoing congratulations on the launch of the strategic update. I have 2 questions on returns, please. So firstly, in Electricity Networks following up from an earlier question, should we take the confidence with which you've launched this strategic update as a confident message to the market that you now think you will achieve the 9% to 10% nominal returns in T3 that you indicated were a requirement to increase your investment there? That's my first question. And my second question on a related theme in terms of renewables returns. Can you give us a reminder, you talk about your strict investment criteria, but particularly for offshore wind and for Berwick Bank. How should we be thinking about the key metrics you'll be looking at? Can you remind us what your IRR target would be for that sort of project, whether unlevered or levered? Martin Pibworth: Yes. So just to reiterate on the transmission question, look, again, to repeat, we are in constructive discussions with Ofgem. We don't know what's going to be in their final draft, which I believe is still expected to be the 4th of December. But we feel like we have been dealing with a strategically minded regulator who understands the need for this once-in-a-generation investment requirement to be investable. But we'll see what the final draft determination say -- sorry, the final determination say, I should say. Barry O'regan: Yes, Pavan, look, on the offshore wind, our return expectations are the same as what we laid out in the summer, where we increased to an equity return of greater than 12%, and it is greater than 12%. And that also allows for the fact that in the underlying modeling we do, we obviously built in the lessons learned and the experiences we have from Seagreen and Dogger Bank. So we're quite comfortable in terms of the contingencies and the float within the programs there as well. But overall, greater than 12% equity returns. Operator: Your next question comes from the line of Peter Bisztyga from Bank of America. Peter Bisztyga: Two questions from me, please. So firstly, I was wondering if you could bridge a little bit the GBP 20 billion net CapEx plan in Transmission with your business plan. So how much of the kind of further future projects in your business plan have been excluded? Is there any kind of cost inflation in the ASTI and LOTI part versus that business plan? And is there any sort of upside risk to that GBP 22 billion CapEx if some of those future projects come through? And could that sort of pressure your balance sheet? So that's kind of question number one. And then on your 225p to 250p guidance, just interested in some of the assumptions behind that. So for example, does it have that GBP 2 billion of unallocated CapEx in renewables spent fully unproductive? Or are you assuming some sort of return already on that in your time frame? And are you using the gross determinations sort of assumptions for your ED3? And I guess, ED3 -- or are you using something different in terms of where you expect the allowances for those businesses to end up? Barry O'regan: Thank you, Peter. So look, I'll take those ones. In terms of the business plan, obviously, it was done over 12 months ago. And obviously, there's a couple of pieces here. One, they're on different basis. So this is obviously a 5-year plan to March 30. That was a 5-year plan to March 31. That also included OpEx and, obviously, Ontario Teachers part share in there as well. Of the uncertainty CapEx that we laid out in that business plan was GBP 9.4 billion. We have 10% of that in our current GBP 22 billion. So our GBP 22 billion is very clear. GBP 20 billion is for the LOTI, the ASTI and the baseline CapEx. And then you have the GBP 2 billion, which is for your new connections and part of that uncertainty mechanism going forward. In terms of the assumptions behind the 225p to 250p, obviously, look, as Martin said earlier on, we had the draft determination. We had the benefit of 4 months discussions with Ofgem. We believe we've made sensible assumptions in the plan there. In terms of other assumptions we made through the plan, we've made quite sensible assumptions. We've assumed inflation comes down to around 2%. We've assumed baseload power prices for merchant prices at the back end of the decade on average in the high GBP 60 area. Assumed cost of new debt 5% to 5%. So all quite sensible assumptions. And on the question of the unallocated renewables, yes, the bulk of that will be on earning towards the back end of the plan. Peter Bisztyga: Got it. And sorry, just on the CapEx in transmission, do you see kind of any upside risk from those further future projects coming through that you haven't included in your plan? Barry O'regan: No, we believe we've got a very robust CapEx plan with the visibility we have over the LOTI, in the ASTI, in the supply chain and our view on the uncertainty mechanism and what we've taken in there with a very robust plan. Operator: Your next question comes from the line of Deepa Venkateswaran from Bernstein. Deepa, is your line muted? Due to no response, I will go to the next question. And your question comes from the line of Ajay Patel from Goldman Sachs. Ajay Patel: Congratulations on the presentation. I have 2 questions, please. First is leverage. I'm trying to think about this picture by the time we get to 2030 and thinking, well, okay, more of the business, there will be less exposure to merchant. There will be a higher-quality business with more regulated proportion to it. And I'm just wondering, this 4.5x net debt to EBITDA that you're keeping below the plan, is there scope that, that threshold increases, giving you the opportunity to invest more at the end of the plan? And if that's the case, how does disposals fit into this? If you saw that improvement in that threshold, would that be then -- would you need these disposals, I guess, would be the question. And then the second part was on the international renewables business. Given the reduced aspiration on the renewables side, does it make sense to have an international renewables business? What's the merits of having a business of this scale? I just wondered if you could revisit that for us, that would be quite helpful. Barry O'regan: Yes. Ajay, yes, so look, on the leverage, as you said, yes, less than 4.5x net debt to EBITDA to the plan, keep us in line with our current credit ratings. Obviously, the investing 80% of our CapEx in networks is going to mean a big shift in our earnings and our earnings quality would probably go from networks being about 40% of our earnings to over 60% of our earnings by the back end of the plan. But clearly, that's their conversations for a different day with the agencies as that CapEx starts to get delivered and that earnings quality comes through. If that does free up more capacity, clearly, yes, we will look at the disposals and what we would do with that capacity at the time. And the way the beauty of doing the equity today allows us to push those disposals towards the end of the plan and give us more flexibility and optionality around that. Martin Pibworth: And just on international renewables, I think, Ajay, we've consistently said that the vast majority of our time, effort, resources and focus is on our U.K. plan and our Irish plan. And given obviously what we've laid out today, that will continue to be very much the truth of it. We do still have development options, particularly in the Southern Europe geography where, obviously, we bought the SGRE pipeline several years ago, and we've got onshore wind that we can still develop and bring through. So that remains kind of part of the plan. But absolutely, the majority -- the vast majority of the focus of Barry and I and the group is on delivering this once-in-a-generation organic opportunity in our home markets. Ajay Patel: And sorry, can I have one follow-up just on that. When you weigh up the disposals, I know that 75% towards the end of the plan, and you haven't been specific if it's renewables or networks. But 3 years ago, you could sell network assets at real good valuations, you still can now. But -- and the aim was to reinvest it in renewables where you're making sizable premiums above cost of capital. And the emphasis has changed in this strategy, and I applaud it. But I'm just thinking if I'm looking at that GBP 2 billion bucket of disposals, what's the merit of selling down on renewable assets versus selling down on networks at this juncture? Barry O'regan: Yes. So look, I suppose the key thing is no decision has been made. It could come from many of our businesses. Ultimately, we believe the distribution is a really attractive business, and we believe there's really good growth to come there in the next few years, and we certainly like to capture that. And all we're saying is that we have time to make that decision on what's the right thing for us to do strategically and financially, but we don't need to make that decision now. That's further down the road. Operator: As we are approaching the hour, we will now take our final question for today. And your final question comes from the line of James Brand from Deutsche Bank. James Brand: Congratulations from me as well. Obviously, from the share price correction as well, investors are taking it extremely positively. So congrats. I'll stick with the 2 questions. The first one is on Berwick Bank. Can I just clarify that it's not included in the plan? Certainly doesn't kind of look like it is. I guess, in theory, it could be kind of an initial tranche. And if it does go ahead, does that have any implication -- so if you want a CfD, for instance, in AR7, would that have any implications for funding in the current plan? Or is it the case given that obviously, it would take quite a while to get to the point of commissioning and also your model where you raise equity typically towards quite close to commissioning? Would it actually be falling outside the plan and if you want a CfD? That's the first question. And then the second question is on the GBP 200 million of annual efficiencies targeted by full year 2028. That's a bit better than the GBP 100 million you had in the old plan. And I guess from a starting point where you've already delivered some of those efficiencies. I was wondering whether you could give some details on where those efficiencies are coming from? Barry O'regan: Yes, happy. I'll take Berwick Bank. So look, yes, so we've done quite a lot of scenario analysis and stress testing of the plan. And yes, we've made allowance for Berwick Bank in that part of that stress testing. I said earlier on, we have GBP 3 billion of uncommitted CapEx. Berwick is a multistage project, which obviously, we still don't know what stages the projects may win contracts at, what the timing for those are, ultimately, what equity stakes we hold on to. And clearly, any funding will be towards the back end of the plan. So that's all allowed for in that, and that's part of the scenario analysis we've done. Martin Pibworth: And just on the efficiency program, James, look, we said very clearly that we thought well, we don't take issuing equity lightly, and we thought that we had to make sure we've done as much in the business to make sure that it was efficiently run, and we're concentrated and focused on the key prospects and opportunities that looked ahead. We've spent a year going through a review. We slightly rescoped some areas as a consequence. I mentioned earlier, we've actually been fortunate enough to redeploy some high-class renewable resource into transmission to help with that investment program. And of course, investors would expect us to be running an efficient business, and we've been very focused on delivering that, and that's reflected in the number that we shared with you today. Operator: Thank you I will now hand the call back to management for closing remarks. Martin Pibworth: Well, look, thank you for your questions. And also thank you, Sharon, as the operator, for helping us run this session. It has been a pleasure to outline today the transformative growth opportunity we see ahead of us. And I hope that you share our sense of excitement for the years to come. Thanks again to Sharon for, our operator, facilitating the Q&A, and thanks to everyone for joining us today. I look forward to meeting with many of you to talk more over the coming days. Thanks again.
Operator: Good morning, everyone, and welcome to the Kopin Corporation's Third Quarter 2025 Earnings Call. Please note that this event is being recorded. At this time, I would like to turn the conference call over to Brian Prenoveau, Investor Relations for Kopin. Please go ahead. Paul Baker: Thank you, and good morning, everyone. Before we get started, I'd like to remind everyone that during today's call, taking place on November 12, 2025, we will be making forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements are based on the company's current expectations, projections, beliefs and estimates and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those forward-looking statements. Potential risks include, but are not limited to, demand for our products, operating results of our subsidiaries, market conditions and other factors discussed in our most recent annual report on Form 10-K and other documents filed with the Securities and Exchange Commission. Although the company believes that the assumptions underlying these statements are reasonable, any of them can be proven inaccurate, and there can be no assurances that the results will be realized. The company undertakes no obligation to update the forward-looking statements made during today's call. In addition, references may be made to certain non-generally accepted accounting principles or non-GAAP measures, for which you should refer to the appropriate disclaimers and reconciliations in the company's SEC filings and press releases. Kopin Corporation's Chief Executive Officer, Michael Murray, will begin today's call with an overview of Kopin's progress within the company's strategy. Following Michael, Kopin's CFO, Erich Manz, will review the company's third quarter 2025 financial results. I would now like to turn the conference over to Michael Murray. Michael, please go ahead. Glenn Mattson: Thank you, Brian. Good morning to everyone, and welcome to our third quarter earnings call. Firstly, thank you to all the men and women of our armed services and those of our allies for your service. We deeply, deeply appreciate it. It's been an exceptionally busy quarter at Kopin, and we believe some of the best and most exciting opportunities still lay ahead of us. We're happy to be joined by Erich Manz, our new CFO, who officially started on September 2, it's been a baptism by fire for Erich. But we're excited he's on board. Erich joins us from Allegro MicroSystems, where he has spent the last 27 years in various financial and accounting and leadership roles. We're excited to have Erich on board as we believe these are truly transformational times for Kopin. I'll let Erich provide more on his background prior to discussing third quarter financials. Kopin is in a completely, completely different position today than it was even recently as our second quarter 2025 earnings call. Since that time, we have entered into strategic partnerships with well-known, well-respected and global organizations like Ondas Holdings, Unusual Machines and our friends at Theon International. We have won several new multimillion-dollar research, development and production awards and further solidified our balance sheet also. Theon International is a critical relationship for Kopin as they develop and manufacture cutting-edge night vision and thermal imaging systems for defense and security applications with a global footprint. Theon started its operations in 1997 and today occupies a leading role in this sector, thanks to its international presence. Theon's production of night vision and thermal imaging systems aligns perfectly with our microdisplays and optical technologies. And I was fortunate enough to be able to speak and introduce Kopin to their investor base in Greece last week. Increased defense budgets and the need for enhanced situational awareness in nighttime and daytime operations, border security and counterterrorism missions are primary drivers of significant growth expectations, especially in Europe, Southeast Asia and NATO countries alike. Governments worldwide are investing in modernization efforts and advance night and daytime vision technologies. Innovations such as thermal imaging, augmented reality, data overlays, digital night vision and the use of high-resolution sensors are improving performance, durability and cost effectiveness, thus, expanding applications, demand and serviceable available markets. Kopin and Theon together can take advantage of those needs. Turning to Unusual Machines who manufactures and sells drones and components by brands like Fatshark, the leader in first-person viewer drone controls, ultra-low-latency video goggles for drone pilots as well. They also retail small acrobatic FPV drones and equipment directly to consumers through their curated Rotor Riot e-commerce store, through subsidiaries, American Robotics, Airobototics, Apeiro Motion, Ondas, offers the Optimus System, the first U.S. FAA-certified small UAS for automated aerial security and data capture, the Iron Drone Raider and autonomous counter-UAS platform and Apeiro's advanced ground robotics and tethered UAV systems, supported by innovative navigation and communications technologies. Again, our microdisplay products and technologies are well aligned to pair with the growing drone UAV market and their collective strategic investment into Kopin brings confidence in our ability to create value for them with them. Just last week, it was reported that the U.S. Army aims to buy at least 1 million drones in the next 2 or 3 years and could acquire anywhere from 0.5 million drones to millions of them annually, compared to approximately 50,000 annually today. It was estimated that Russia and Ukraine each build 4 million drones annually. China can and will likely produce 8 million drones annually. The ratio between drones and first-person viewers is roughly 4:1 as we understand it. The first person drone market is growing very quickly. This was a small niche market just a few years ago. As recently as last year, it was estimated to be a total market of under $300 million. By 2030, it's estimated that the first person drone market could be as much as $1.2 billion, representing an annual -- compound annual growth rate of around 31%. Suffice to say, we believe we can begin meaningful acceleration growth over the next several years as the only manufacturer in the world of four different types of microdisplays that can provide sovereign sourced displays for the U.S. and NATO defense requirements. Our technologies and desire to provide application-specific optical solutions means we can meaningfully capture more orders and demand for some of the fastest-growing industries in defense and we are partnering with global players in these respective fields. Through the U.S. Department of Defense, we are excited about several opportunities to supply new or existing programs across the military. Our current opportunity pipeline of factored opportunities we are pursuing just surpassed $1 billion. As we continue to supply the current thermal weapon sights, aviation, heads-up displays and advancing our new aftermarket upgrade capabilities with our FLYHT certified monochrome MicroLED, which we just announced. We are also dedicating more focus on armored vehicle applications as well with the advancement of tank and armored vehicle programs as they are now becoming more clearly defined. The largest of these opportunities is clearly the extension of the IBAS program, which is now referred to as Soldier Borne Mission Command or SBMC. This is the $22 billion Army program that was recently taken over by Anduril. SBMC is an all-encompassing program that has software, hardware and networking elements. As warfare evolves and increases in complexity, having tools that deliver the right information quickly and intuitively becomes increasingly urgent. The U.S. Army selected two prime contractors to provide early demonstrable hardware in 2026, followed by a second phase of demonstrations and production selection awards in 2027. Along with prime selections, we expect wins for critical technology acquisition areas as well, where Kopin fits into to follow a similar path. As a reminder, Kopin was recently awarded a $15.4 million color microLED award through the industrial-based Analysis and Sustainment Act which will allow for Kopin to design, develop and manufacture a sovereign built, color microLED developed by the Army, for the Army, for applications like SBMC, daytime AR applications and several weapon-sight platforms offering Kopin an additional $1 billion serviceable available market just for the United States alone. Furthermore, we have negotiated an $8 million research and development order for a similar product for Theon International and the European markets as part of our strategic investment as well. Given the long-term nature of many of our existing programs and the contract wins so far in 2025, our current pipeline is very strong, and our confidence to hit our revenue and profitability goals in '27 and '28 are quite high. As a reminder, several of our programs have congressional budget demands through 2030 and several of the program contracts we have are indefinite demand or indefinite quantity, or IDIQs which allows for even greater revenue demands than we currently have on order. Increasing geopolitical tensions mean defense spending is unlikely to decrease and the way wars are fought is evolving. Soldiers in the field are tasked with needing more information sooner to assess level, threats and how to make the best decisions for themselves and their teams. How our products and technologies can help to make soldiers and the soldiers of our allies safer, meaning more men and women in uniform will make it home. This is our ethos. This is what we focus on. Obviously, we have market tailwinds that can propel us to significant growth over the next several years and maybe even decades. I'm also proud of how we positioned ourselves to take advantage of those trade wins and tailwinds. Kopin has almost completely transformed as a company from when I first started just three years ago. We have a clear and focused strategy, a new management team and Board of Directors. Quality issues in our manufacturing facility have largely been fixed, and we have some of the highest quality scores in our history and very strong relationships with our current customers, and we are actively attracting new customers as well. Our website and logo have been updated and modernized. Our capital structure today is in far better shape than it was even just 3 months ago. We have the partnerships and capital to invest aggressively in our people, our technologies and capabilities to significantly ramp growth and production capacity. Further, we've received a lower-than-expected final judgment in our legacy lawsuit in Colorado. Recently, we posted the cash bond required for our federal appeal of the case, which we continue to believe has the potential to further and significantly reduce that liability even more greatly once the case is heard. There have been some trying times over the last few years, but I'm more excited about our outlook today than I ever have been since I joined. We are a completely different company today, and I would argue, a far better and sustainable one that offers significant growth potential, and I believe we're on the cusp of big changes at Kopin in the not-too-distant future. Overall, I'm just incredibly proud of the team for navigating an environment with so much change over a short period of time. Indeed, they have executed on everything I've asked them to do. There have been a lot of distractions as well, but our team have kept focused on controlling what we can control without letting these distractions impact our company's mission direction and potential. I'll now turn the call over to our CFO, Erich Manz, to review our results from the third quarter in further detail. Erich? Erich Manz: Thanks, Michael. I want to begin by thanking Kopin's Board of Directors, Michael Murray and members of our management team for the opportunity to step into this role at such a pivotal time and for their support in making these first weeks both productive and inspiring. In my short time here, it's been exciting to see how much progress is already underway, confirming the strength of Kopin's direction and the solid foundation in place for future growth. It's clear that Kopin is advancing on multiple fronts, strategically, operationally and financially, and I'm excited to contribute to that continued success. We solidified and stabilized our balance sheet through strong backing of our strategic investors, providing the financial flexibility and stability to execute our growth plans with confidence. At the same time, we're maintaining a disciplined focus on the P&L, driving top line growth while continuing to strengthen our path towards profitability. Our new partnership in Europe expands our access to key markets and positions us for continued growth globally. And with recent design wins from U.S. military, we're strengthening our domestic footprint and reinforcing Kopin's reputation as a trusted defense technology partner. Looking ahead, I'm encouraged by the alignment across our teams and our focus on executing the financial and strategic priorities that will drive long-term value for our shareholders. With that, let's turn to our financial results for the quarter. Total revenues from Q3 2025 were $12 million versus $13.3 million for the prior year. Product revenues for the third quarter ended September 27, 2025, were $10.7 million compared to $10.9 million in the third quarter of 2024. The decrease was primarily due to a decrease in revenues from products used in pilot helmets and training and simulation, which was partially offset by an increase in sales from products used in thermal weapon sights. In the third quarter of 2025, funded research and development revenues decreased to $1.2 million from $2.3 million in Q3 2024, primarily due to the timing of completed projects and a focus on programs moved to production. Cost of product revenue for the third quarter of 2025 was $8.4 million or 79% of net product revenues, compared with $8.3 million or 76% of net product revenues for the third quarter of 2024. The increase was due to higher cost to manufacturer training and simulation products and 3D AOI products, which are partially offset by improved efficiency in making products for thermal weapon sights. R&D expenses for the third quarter of 2025 were $2.5 million, a decrease of $0.1 million from the same quarter last year. The decrease is primarily due to decreased spending on U.S. defense programs and programs previously in development are transitioning into production. SG&A expenses were $1.6 million in the third quarter of 2025 compared to $5.2 million in the third quarter of 2024. SG&A decreased due to a decrease in accrued legal expenses, partially offset by an increase in noncash stock compensation. Turning to the bottom line. Net income for the third quarter of 2025 was $4.1 million or $0.02 per share compared with a net loss of $3.5 million or $0.03 per share for the third quarter of 2024. It should be noted that Q3 2025 net income included a $5.1 million add-back for a reduction in litigation accruals. Net cash used in operating activities was $7.7 million in the first 9 months of 2025. Our balance sheet and cash position is as strong as ever post Q3. We ended the third quarter with $26.5 million in cash, which is not significantly different than the prior quarter. However, subsequent to the quarter end, although we posted a $23 million bond for an appealable lawsuit, we were able to raise $41 million with several strategic and institutional investors and completed a $15 million transaction with an individual strategic investor, which significantly improved our overall cash position. As a result, at the end of Q3, with this funding in place, the company was able to remove any significant doubt regarding the ability to operate as a global concern. Listeners should review our Form 10-Q for the quarter ended September 27, 2025, for any possible adjustments and additional disclosures. And with that, I'll turn the call back over to Michael for closing remarks, and we'll take your questions. Michael Murray: Thanks very much, Erich. Our products and technology can be applied to a variety of industries across the landscape. But we have chosen to focus on the areas we think will have the highest demand and growth opportunities and provide the clearest path to profitability. With our market-leading strategic partners, we are in a great position to take advantage of their growth and accelerate our own. The geopolitical landscape and increasing tensions mean that more defense departments around the world are looking at their budgets and capabilities and assessing where they need to invest. Much of the time, it's pointing towards better vision and data to get to soldiers to make better decisions and safer decisions, Kopin can be a major solution to some of those challenges. We believe we are at an exciting inflection point for the company. There's no doubt that our future is continuously growing and becoming brighter every day. With that, operator, we'll open up the call to any questions. Operator: [Operator Instructions] We'll take our first question from George Gianarikas with Canaccord Genuity. George Gianarikas: Welcome, Erich. I'd like to start maybe on something you didn't talk about this time is neural display. Maybe any developments there, any progress you've made in that product? Michael Murray: Yes, absolutely. So at AUSA, we demonstrated a first-person viewer, bidirectional, human in the loop microdisplay, which we call neural display that controlled a drone application with your eye. Imagine, if you will, a soldier on the battlefield with a daytime hub like our DayVAS solution or DarkWAVE solution being able to still fire their weapon while looking through a daytime or nighttime AR application and controlling a drone and moving that drone just with their eyes and never taking their eyes off the battlefield. And that is a critical technology area for the United States government. Neural display is demonstrable. We will be investing in it over the course of the next few years. And we will have a road map that has neural display coming right behind our color microLED development that we're embarking upon now. Thanks, George. George Gianarikas: And maybe just as a follow-up, just some blocking and tackling as a follow-up. In terms of just how we should think about your quarterly OpEx, particularly with Blue Radios seemingly behind you, can you sort of help us understand what the spending should look like over the next several quarters? Erich Manz: I don't think the spending is going to be much different than what we've seen. We know we have some headwinds there in the OpEx area, but we will be growing into that. That's the objective. Operator: Our next question comes from Jaeson Schmidt with Lake Street. Jaeson Schmidt: Michael, it obviously sounds like you're seeing some really nice momentum and expanding pipeline. I know you noted a pretty significant number as far as what is in that potential pipeline and acknowledging sort of these IDIQ contracts could make it a little difficult. But how should we think about probably kind of 1- or 2-year out pipeline or backlog? And can you help us kind of size some of these near-term opportunities? Michael Murray: So as we sit here today, Kopin has roughly 80% of the backlog required to hit our plan for 2026. We see visibility on our three major programs until 2027 to 2030. And those programs are thermal weapon sight programs, our aviation helmet programs and one other program that is actually on the medical side. So those three programs, we have very strong visibility, at least for the next 2 years, Jaeson. The task for Kopin right now is to build upon those programs, also intercept whatever the next generation programs will be. As an example, in our aviation head-worn application, as you know, we have an LCD product, we have an OLED product and a microLED product, I can say that. So we're building upon that foundation. We do think those programs have life until 2027 at least, but we're not resting on them alone. We need more programs like them that will continue for the next decade. And we think there are several like Soldier Borne Mission Command, like our DarkWAVE product, like the DayVAS product and several of the first-person viewer products that we're developing right now that will carry us through, I'd say, the next 2 to 3 years of growth. So we're very confident in our backlog. We're also very confident in some of the new programs that we're working on. I hope that's helpful. Jaeson Schmidt: Yes, that's really helpful. And then just as a follow-up, curious if you could update us on sort of the Kopin One initiatives and automation and where those initiatives are? And if kind of Q4 will be sort of the end of all those being implemented? Michael Murray: Great question. I'm remiss in updating you. So Kopin One, I would say, is fully integrated at this point. Everyone is under the Kopin umbrella. So that's number one. And our HR team has done a fantastic job with that transition as it is a cultural one. So that would be number one. Number two, just to touch on our fab-lite model. I haven't briefed on that in several quarters. But as you know, we embarked on a fab-lite strategy, which is sourcing the best wafers and deposition technologies worldwide and focusing on U.S. DoD and NATO applications, specifically. And that transition has been a great one. We're almost fully complete, and I expect to be complete by the end of this year. From an automation perspective, we have put in our first wave of automation back in June. It is now operational. It is working. We're seeing efficiencies and quality increases with that. The second phase does go in, in December this year, and we're hopeful that, that will add OpEx savings as well throughout the course of next year and add throughput capability to the fab. So we're not planning on any material changes in headcount. It's the ability for us to have higher throughput of the fab for next year, and we're fairly confident that's going to go well. Operator: Our next question comes from Glenn Mattson with Ladenburg Thalmann. Glenn Mattson: Congrats on the results. Could you just dive into the pilot, the aviation heads-up display issue that came up this quarter, just as is it a onetime timing thing? Or just a little background on that. Michael Murray: I'm not sure, Glenn. Can you explain that a little bit more? There was no issue. Glenn Mattson: In the press release, I think you guys highlighted that the pilot headsets was one of the reasons why military was down year-over-year, so just curious about that. Michael Murray: Yes. I see the question. So no, that was just a manufacturing to demand push from this quarter to next, just a timing issue. Glenn Mattson: Okay. Yes. And I'm not sure you kind of touched on the SG&A, but it was down significantly sequentially. I know the lawsuit expenses came out. Is this the run rate? Or was there some onetime items that caused it to be lower this quarter? Erich Manz: Yes. No, thank you. No, it was not going to be the new run rate. The cost there from an SG&A perspective will go back to a more normalized trend. There were onetime events, the litigation move of $5.1 million, and we had other legal fee expenses. The accruals for those came down as well fairly significantly. Michael Murray: One other thing on OpEx, I think this goes to potentially George's question. But from an appeal standpoint, we are not expecting a run rate like we've seen on legal expenses. This is a onetime and I stress, onetime expense, which we're already incurring, which we expect to be around $500,000 of expense to appeal the judgment in Colorado. So we expect our SG&A to hold at a more normalized level throughout 2026 where you're kind of seeing it now in that range. So I hope that provides better color. Glenn Mattson: Yes. And then, Michael, curious, I think there's -- well, maybe you said it before, but just being medical being such a big aspect of your kind of confidence for the next 2 years out, could you -- is that HD Medical partnership? Or is there something else going on there that you could help explain? Michael Murray: Yes. So first things first, HM DMD is growing. They are creating more of a pipeline of their own. It's now public knowledge that they have signed an agreement with Carl Zeiss, who I understand is one of the world's leaders in that specific field of advanced surgical vision systems. And we're also working with HM DMD on potential other products in the medical market, which we're not talking about just yet. But we do believe that there's more of a portfolio of medical products. And one of the other things, just from a growth standpoint, Glenn, we do see -- and I mentioned this in my prepared remarks, we do see increased inbound requests for armored vehicle weapon sights and armored vehicle head-mounted systems across the globe. And we're working on several projects globally in armored vehicle projects, which we're also excited to see have come back into focus. Operator: We will move next with Jonathan Siegmann with Stifel. Jonathan Siegmann: So a lot of good news you announced in Europe. As investors, we're going to have a view of revenues that you disaggregate from Europe as well as I presume a new equity, a minority interest line. Can you just maybe talk level set how we should think about the pace of improvement? Just what is the capacity in Europe or just anything about how the improvement there will develop would be great? Michael Murray: Absolutely. It's exciting and great question. Thanks, Jon. We have 0 revenue, roughly speaking, in Europe in defense today. And we already have agreements for $8 million of development with Theon for a color microLED for Europe, Southeast Asia and NATO, one. Two, we expect orders for our DarkWAVE strategy in Europe. We've been competing on several bids together with Theon. And we are hopeful for research and development contract for DarkWAVE to be developed with Theon for their end markets, which they enjoy a significant market share in Europe and specifically with NATO countries. So we think we're going to expand our European business exceptionally quickly in 2026. But the real revenue growth rate starts in '27 and '28, where you'll see tens of millions of revenue in 2027 and 2028 in Europe. So starting from 0, we'll be in the single high millions for next year of revenue from research and development and production, followed by tens of millions of revenue in '27 and '28. Jonathan Siegmann: That's great. That's great. And we'll see orders from Europe? Or is that going to be not needle movers in 2026? Michael Murray: We will definitely see orders from Europe potentially in Q4 of this year. I have a high degree of confidence in that. Jonathan Siegmann: Good luck with the rest of the year. Operator: [Operator Instructions] We will move next with Christian Schwab with Craig Hallum. Christian Schwab: I just wanted to follow up on the U.S. Army SBMC program. It wasn't cystal clear on what I heard, sorry. But I think you talked about seeing a $1 billion opportunity TAM with the U.S. Army alone is that program coupled with the new expanded number of drone opportunities or units that the U.S. army wants to procure on a yearly basis. That seems significantly bigger than I guess we were previously thinking. Can you expand upon when material revenue from both of those initiatives would begin to hit? I know you kind of talked about the end of '26 maybe program awards and ramps in revenue in '27 and '28, but it's a substantial number. I'm just wondering when we should be thinking that could move to revenue? Michael Murray: Sure. So let me take the first part. The pipeline of opportunities we have currently, 40% of it, roughly speaking, is Soldier Borne Mission Command and programs around Soldier Borne Mission Command. I can't go into too much detail around that. But that would be the production Soldier Borne Mission Command opportunity level. It's about 40% of that $1 billion. The rest of the $1 billion opportunity pipeline that we have is a combination of armored vehicle programs, advanced night vision goggle programs as well as thermal weapon sight programs or next-generation thermal weapon sight programs. So that's the mix of that $1 billion. Of course, there's medical in there, too, but it's much smaller. So I hope that gives you a sense of the scale of opportunities that we're looking at. With regard to Soldier Board Mission Command specifically, to remind folks, there are two prime contractors competing. One is Anduril Meta. The other is Rivet, which is a Palantir based or not based but funded company. And below that, there were two selections for critical technology acquisition areas. Kopin was one of those selections to develop a sovereign-based, color microLED technology here in the United States for programs like Soldier Borne Mission Command, next-generation thermal weapon sights and goggles and that technology development is the $15.4 million contract award that we received already. We're expecting to receive further investments from the U.S. Army to develop this technology in 2026. I've already mentioned that would be in several tens of thousands or pardon me, several tens of millions of dollars of investment in 2026 or production in 2027 and our goal is to have our device be designed into Soldier Borne Mission Command applications for production in 2027. But our goal and our task is to create a demonstrable color MicroLED for that to happen. And yes, there is another competitor, as I've mentioned previously, that also received an award. They have not gone public, so we're not going to mention them, but that's how we get to production in Soldier Borne Mission Command. And that production color microLED is being designed by the Army with Kopin for the Army specifically in Soldier Borne Mission Command type applications. I hope that clarifies things for you. And again, welcome, Christian. I do want to take a point to welcome Jon at Stifel and Christian at Craig-Hallum. Welcome to our analyst team. Operator: Thank you. And this will conclude our Q&A session. I will now turn the call over to CEO, Michael Murray, for closing remarks. Michael Murray: Thank you, operator. I hope you all leave the call today with the impression that this is a new day, a new Kopin and a new opportunity for the company. Whether the application is a thermal weapon sight, a head-mounted display or a high refresh display in armored vehicles, the goal is the same, to provide our allies and our troops, the ability to see their adversary before they are seen. If we're able to do that, our troops will come home first and safely. Providing the same technology to surgeons worldwide will also save lives. And this is a responsibility that we take very seriously for those reasons. And we have partnered with Tier 1 defense and medical contractors and that's why we are the sole source provider of microdisplays for several programs of record within the Department of Defense and worldwide leading medical device manufacturers as well. Again, thank you for your time today, and thank you for your investment in Kopin. Have a great day. Operator: Thank you. And this does conclude today's program. Thank you for your participation. You may disconnect at any time.
Operator: Good day, and thank you for standing by. Welcome to the Scandinavian Tobacco Group Q3 Results 2025 Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Torben Sand, Head of Investor Relations. Please go ahead. Torben Sand: Thank you, and welcome to our webcast for the third quarter and first 9 months 2025 results. My name is, as said, Torben Sand, and I'm leading the Investor Relations and External Communications. And I'm, as usual, joined by our CEO, Niels Frederiksen; and our CFO, Marianne Rorslev Bock. Please turn to Slide #3 for today's agenda. Niels will kick off the presentation by giving you a brief overview of the highlights of the quarter, followed by an update on our strategy rolling towards 2025 as well as an update on developments in our core product categories. Then Marianne will take over and give you an update on the financial performance in our 3 reporting divisions, followed by an overview of key financial developments for the group, including an update on cash flow and leverage. Niels will conclude the presentation by giving you an update to our expectations for the full year 2025. After the preprepared presentation, we will conduct a Q&A session where we will be more than pleased to take any questions you might have. Again, before we start, I ask you to pay special attention to our disclaimer on forward-looking statements, which you can -- which can be found in the end of this slide deck. I will now leave the word to our CEO, Niels Frederiksen. Please turn to Slide #5. Niels Frederiksen: Thank you, Torben, and welcome to the call. The results in the third quarter continued to improve compared to the previous quarters. And overall, the financial performance, including the development in the beginning of the fourth quarter, supports the expectations for the full year we communicated in August. First, the comparisons to same quarter last year are for the first time in more than a year, what I will call more clean comparisons. On the third quarter, it is more than 1 year since we acquired Mac Baren, and it's more than 1 year since the distribution of ZYN nicotine pouches in the U.S. was discontinued. Reported net sales were 3% lower than last year, but measured in constant currencies, organic growth was slightly positive by 0.3%. Both handmade cigars and nicotine pouches delivered growth in the quarter, whereas machine-rolled cigars and smoking tobacco declined. In a moment, I'll talk more to the drivers behind the development in each product category. The EBITDA margin was 22%, a decline compared to the same quarter last year, but an improvement versus the first and second quarter of this year. Compared with last year, the lower margin is primarily a result of changes in product and market mix and investments in our market positions in both machine-rolled cigars and our online business. The free cash flow before acquisitions developed as expected and is on track to reach our expectation of DKK 800 million to DKK 1 billion for the full year. The return on invested capital of 8.3% remains impacted by the operational results and a high level of special costs. Please turn to Slide #6. We are approaching the end of the current 5-year strategy rolling towards 2025. And in just 8 days on the 20th November, we will launch an updated strategy where we will host a virtual capital market event. More details to be found on the investor website. Now let me give a brief update on the progress we made with our existing strategy. The integration of Mac Baren is progressing according to plan with the U.S. business now up and running in a new structure. We've streamlined all acquired online sales channels into one single platform, pipes and cigars, and we are reducing the geographic footprint for the nicotine pouch brand, Ace, and Gritt. Overall, the integration is progressing well, and we are on track to deliver almost DKK 150 million in synergies from the integration and to improve the group return on invested capital when the integration is fully completed in 2027. This quarter, all of our 3 growth enablers delivered double-digit growth. I'll talk more to each of the growth enablers when I turn to the update on our product categories in a moment. However, I would just like to mention that during the fourth quarter are opening another 2 new cigar superstores in the U.S., bringing the total to 15 by the end of the year. Combined, the growth enablers accounted for 11% of group net sales in the quarter compared with 9% for the full year of 2024. Further, we continue to invest in the future through increasing spending on improving our market share positions in machine-rolled cigars and the implementation of the ERP system [ SAP S/4HANA ]. The ERP implementation is progressing well with the inclusion of our European factories during the first half of the year and in September by the rollout to all our European sales operations. However, the rollout does create ongoing operational issues and have affected our machine rolled markets -- sorry and have affected our machine-rolled cigar market share negatively in the quarter. We expect to be on top of these problems towards the end of 2025, and we are moving more resources to ensure that what we have implemented is stable and functioning as intended. Now please turn 2 slides to Slide #8. Let me now turn the focus to a more detailed update on the performance by product categories. And later, Marianne will talk to the commercial reporting by divisions. In the slide, we have outlined the net sales distribution by product category and by divisions to give you an overview of the structure in our announcements. Measured by product categories, nicotine pouches now constitute 5% of group net sales compared with 4% in the second quarter. Machine-rolled cigars and smoking tobacco comprised slightly more than 48% of group net sales and handmade cigars, 37%. Sales of accessories, bar sales, which is not directly linked to a product category -- sorry, and others, which are not directly linked to a product category is included in other and account for 10% of group net sales. Please turn one slide to #9. The market for handmade cigars in the U.S. continues to contract, but the decline rate appears to have stabilized. For our 4 different business streams all have achieved positive organic growth during the quarter, resulting in an organic net sales growth for the category of almost 6%. For the 9 months period, organic net sales were broadly unchanged. Firstly, the sales of handmade cigars to U.S. wholesalers and distributors, what we call our business-to-business market recovered in the third quarter and delivered a low single-digit growth. Secondly, our online sales of handmade cigars were up in the quarter for the first time during the year. And thirdly, sales in our retail stores continue to increase, driven by new store openings, but more recently also a slight positive same-store sales development. Finally, sales to our international markets increased for the first time during the year as the impact of lower shipments to Asian markets, as expected, was temporary. International sales delivered double-digit growth. So please now turn to Slide #10. Based on the preliminary data, the total market for machine-rolled cigars in Europe in our 7 key markets is estimated to have decreased by 0.6% during the third quarter, whereby the total market decline in the first 9 months of the year is estimated to be down by close to 1%. The quarterly data has improved for the category during the past 2 quarters. However, let me remind you that the data can deviate somewhat quarter-by-quarter on the underlying trends. And currently, we remain uncertain whether this is only a temporary or a sustainable improvement. Our base scenario of 2% to 3% general volume decline rate for machine-rolled cigars is maintained. Measured by our market share, we experienced a setback during the third quarter despite our initiatives and investments to recover market shares. The setback was primarily driven by continued delivery issues following our large Wave 2 go-live for SAP earlier in the year, impacting especially our performance in Belgium and Netherlands, but also other European markets. Our market share index for the third quarter was 26.2% compared with 27.9% for the full year 2024. We continue to invest in strengthening our positions further as stronger market share positions are crucial to delivering long-term value in the category. For the 9-month period, our market share index was 26.9% based on the preliminary data. Machine-rolled cigars and smoking tobacco, respectively, delivered 4% and 5% negative organic growth in the quarter. With that, please turn to the next slide. Moving on to next-generation products, which comprises our nicotine pouch business. The third quarter year-on-year performance for our nicotine pouch business is no longer impacted by the discontinued ZYN business. In that sense, the headline development better reflects the underlying development of the business. During the third quarter, the business delivered 23% organic net sales growth with the XQS brand delivering 75% growth. For the 9-month period, XQS delivered 45% growth. The growth rate for the category continues to be impacted by the streamlining of the nicotine pouch portfolio we took over from Mac Baren, where we have reduced the geographic footprint for the brands Ace, and Gritt. However, for the XQS brand, which we consider our nicotine power brand, volumes and market shares continue to improve. In Sweden, the brand has now exceeded 13% of the total market. And in the U.K., we continue to slowly improve our position. With this, I will now leave the [ word ] to Marianne for more details on the divisional performance. Please turn 2 slides to Slide #13. Marianne Bock: Thank you, Niels. We will now turn the attention to the financial performance of our 3 commercial divisions, beginning with an overview of Europe Branded. Reported net sales for the third quarter declined by 2%, reaching DKK 829 million, while organic net sales fell by 3%. For the first 9 months, organic net sales growth was also negative, down by 3%. During the quarter, nicotine pouches, driven by the brand XQS continued to achieve double-digit growth, while handmade cigars and machine-rolled cigars and smoking tobacco categories experienced declines compared to the previous year. EBITDA before special items remained nearly unchanged at DKK 190 million compared to DKK 189 million in the same period last year. The EBITDA margin increased to 22.9%, up from 22.3% in the third quarter of '24. This marks the first margin improvement for the division in over a year. For the first 9 months of the year, the margin was 19.5% compared to 21.3% last year. The margin development during the third quarter, despite continued investments to regain market shares reflects changes in the market mix compared to the same quarter last year. However, the ongoing expansion of our nicotine pouch business continues to place downward pressure on the division's [ margin ]. With this, please turn to Slide 14, where I will address the performance in North America Branded and Rest of the World. During the quarter, reported net sales for this division declined by 4%, primarily due to exchange rate fluctuations, especially the weakening of the U.S. dollar. As a result, organic net sales were slightly positive for the quarter compared to a 4% decrease over the first 9 months. The main drivers influencing organic growth this quarter were high single-digit growth in handmade cigars, while machine-rolled cigars and smoking tobacco experienced a low single-digit negative growth. EBITDA before special items declined by 12% to DKK 265 million with an EBITDA margin of 33% compared to 36.1% in the third quarter of last year. The change was primarily driven by a shift in sales mix with decreases in high-margin businesses such as smoking tobacco and increases in sales in handmade cigars. For the first 9 months, the margin was 31.5%, down from 34.5% last year. I'll now turn the attention to the financial performance in our North America Online and Retail division. Please turn to Slide #15. Reported net sales for the third quarter declined by 3%, primarily due to fluctuations in the U.S. dollar. However, organic net sales showed a positive growth of 4%. Organic sales increased in both our online and our retail distribution channels. Although competitive pressure remains high in the online segment, our pricing strategies are gradually improving the channel's market share. In retail, we are seeing benefits from the recent opening of new stores over the past year as well as higher same-store sales. EBITDA before special items declined to DKK 100 million, resulting in EBITDA margin of 13.7% compared to 14.6% in the previous year. The decline in EBITDA margin reflects the higher level of promotional activities. I will now move to an update of group financial performance. Please turn to Slide #16. Reported net sales for the third quarter decreased by 3% compared to the previous year, primarily due to exchange rate fluctuations, which accounted for more than 3% impact. Organic net sales showed a modest increase of 0.3% compared to a 4% decline over the first 9 months of the year. The discontinued distribution of ZYN negatively impacted organic growth by approximately 2% during the 9-month period. Earlier, we provided a detailed breakdown of net sales performance by the product category and by division. So I'll now focus the developments in selected parts of the profit and loss and cash flow statements. Special costs were DKK 41 million in the quarter, primarily due to our implementation of new technologies like the SAP. The expenses were DKK 31 million of this implementation. Additionally, special costs related to reorganization and the integration of Mac Baren amounted to DKK 10 million. For the first 9 months, special costs were DKK 146 million. Net profit for the third quarter was DKK 227 million with adjusted earnings per share, excluding special items of DKK 3.4. For the first 9 months, adjusted earnings per share were DKK 8.2. The free cash flow before acquisitions was positive at DKK 173 million with no impact from changes in working capital. Over the 9-month period, the free cash flow was DKK 448 million with a negative impact of DKK 197 million from working capital. The cash flow development supports our expectations of free cash flow before acquisitions of more than DKK 800 million for the full year. Before moving to the next slide, I'd like to comment on the 10% decline in reported EBITDA for the first 9 months as illustrated in the chart next to the financial data. If we exclude negative impact from the discontinued ZYN contract and the impact from the weakening U.S. dollar, where a 10% decrease in the U.S. dollar reduces our EBITDA by 2.5%, then the decline in the operational results would have been less pronounced. We estimate that the underlying decline would have been closer to 6%. Now please turn to Slide #17. The EBITDA margin before special items was 22% for the quarter compared to 23.4% in the same quarter of '24. For the 9-month period, the margin was 19.9%. The reduction in the margin during the quarter was primarily due to a combination of changes in product and market mix as well as continued investments in regaining market shares from machine-rolled cigars in key European markets. At divisional level, the margin decline was mainly due to lower margins in both online and retail and North America Branded & Rest of the World, where while Europe Branded saw a slight improvement. Now please turn 1 slide to Slide #18. During the third quarter, the interest-bearing debt increased -- decreased by approximately DKK 100 million to DKK 5.6 billion, primarily due to a positive cash flow generation during the quarter. As a result of the slightly lower net debt and a modest decrease in EBITDA for the 12-month period, the leverage ratio remained unchanged at 2.9x compared with the second quarter. At the end of 2024, the leverage ratio was 2.6x. Based on our cash flow projections for the remainder of 2025, we expect the leverage ratio to decline during the fourth quarter, though it will still be above our target of 2.5x. I will now hand the presentation back to Niels. Please turn 2 slides to Slide #20. Niels Frederiksen: Thank you, Marianne. The financial performance during the first 9 months of the year and in October supports the expectations for the full year 2025, which were communicated in May and confirmed in August. Our base scenario, as we discussed following our second quarter results in August remains unchanged. The decline rate in the consumption of handmade cigars has stabilized and volumes of machine-rolled cigars in Europe decreased by a low single-digit percentage, albeit with variations from market to market. The uncertainty related to the U.S. consumer sentiment, down trading and retailer decisions on inventory across our product categories remain a risk to our full year expectations. However, as we are 3 months closer to the year-end, we narrowed the ranges for net sales, EBITDA margin and EPS. And as the U.S. dollar have not changed to a higher level, we narrowed the expectation to reported net sales for 2025 to be in the range of DKK 9.1 billion to DKK 9.2 billion from DKK 9.1 billion to DKK 9.5 billion previously. The financial development during the third quarter and in the beginning of the fourth quarter was as expected. But as we communicated in August, the reported net sales would end in the lower end of the range based on constant exchange rates for the remainder of the year. And the updated range for reported net sales reflects that the U.S. dollar has remained almost unchanged since then. The range for the full year EBITDA margin is also narrowed to be in the range of 19.5% to 20.5% from previously 18% to 22%, reflecting the higher level of visibility for the rest of the year. Free cash flow expectation is maintained in the range of DKK 800 million to DKK 1 billion. The cash flow generation will be stronger in the fourth quarter of the year as a result of the operational performance and as cash tied in inventories and trade receivables will normalize. Now this concludes our presentation for today, and I'll now hand the word back to the operator, and we are ready to take questions. Operator: [Operator Instructions] We will now take the first question from the line of Niklas Ekman from DNB Carnegie. Niklas Ekman: Can I start with a question about the full year guidance? Because if -- correct me if I'm wrong, but this seems to imply expectations of an organic sales growth of at least 2% in Q4 and at the same time, the margin guidance seems to be quite cautious, implying a margin contraction of at least 2 percentage points or up to 6 percentage points in Q4. So can you elaborate a little bit on this? This seems to suggest that you are investing a lot in regaining sales in Q4? Or is there anything else here in phasing or timing effects that we're missing? Marianne Bock: Thank you, Niklas. So yes, we are expecting net sales growth also in the fourth quarter as we did show a slight growth in the third quarter. So on the EBITDA margin, where we narrowed the range to sort of the mid of the previous range, we believe that is a realistic range for EBITDA margin. We are opening 4 new stores in -- or 2 new stores in the fourth quarter of this year, and they will come with additional costs without having the same level of net sales attached to it. So I believe we will be within this guidance range. Niklas Ekman: Okay. Very clear. Can I also ask about nicotine pouch products with the strong success you've seen now in Sweden, in particular, and in Europe and some relaxed regulation in the U.S. market, what are your thoughts on introducing XQS in the U.S. market? Niels Frederiksen: Yes. Thanks for that question, Nicklas. I think we have previously explained that we actually do not own the XQS trademark in the U.S. When we acquired XQS a few years back, we acquired all trademark rights with the exception of the U.S. So our focus on nicotine pouches is Europe. Niklas Ekman: Okay. Very clear. Sorry if I missed that. Can I also ask about, in handmade cigars and I think the rollout to -- the international rollout of handmade cigars, I think this has been enabled partly because of significant Cuban issues, Cuban supply issues. Are those still intact? Are you still seeing a clear shortage of Cuban cigars in the European and Asian markets? And is that still providing a big opportunity for you to roll out your products instead of your Cuban competitors? Or can you just describe the market dynamic if there have been any changes in the past year? Niels Frederiksen: You can say that the supply of Cuban cigars has been somewhat normalized over the past 6 months. And also, you can say the organization that promotes Cuban cigars have also supplemented the portfolio with non-cuban cigars made out of the Caribbean. So overall, you can see that the organization is, let's say, normalizing their market approach. So we still believe that the long-term trend of non-cuban cigars gaining market share over Cuban cigars will support also our performance outside the U.S. But I think it's also important to remember that even though we are very pleased with the growth we are seeing on the international markets, the U.S. market is by far the more dominant market for us and more important one to succeed in. Niklas Ekman: Very clear. And can you -- ahead of the CMD here next week, do you have any indication of what kind of topics you are aiming to bring up here and not least in light of the pretty sharp margin decline that we've seen over the past 4 years. Is this going to be a key topic at the CMD? Niels Frederiksen: I think that what we can say today, Niklas, is that we will keep our powder dry until we get to the Capital Markets Day, and then we will try to outline how we will bring the company forward. Operator: [Operator Instructions] We will now take the next question from the line of Damian McNeela from Deutsche Numis. Damian McNeela: The first question is on European machine-rolled cigars and your loss of market share there. I appreciate that some of that is down to SAP issues. But can you just provide a little bit more color on whether you're seeing a stabilized market share in markets that haven't been impacted by SAP and what your sort of plan is going forward to recover market share, is the first one. The second one is, can you talk about what's behind the acceleration in growth in your XQS brand in Sweden in the third quarter? What are the market dynamics that are sort of particularly helping that brand there? And then just one last one on investment, I know sort of new store openings require further investment, but it sort of feels from reading the results and listening to the commentary this morning that overall levels of investment seem to be stepping up. And I was wondering whether this is more temporary in relation to specific market dynamics and store openings. Or is this something that we should start to factor in into our margin sort of thoughts for the outer years, please? Niels Frederiksen: Yes. Thank you, Damian. Let me start by saying that it is, of course, super frustrating for us that we have, let's say, again, for different reasons now, supply issues into the European machine-rolled cigar market and -- and we are confident that these will be resolved in the course of the fourth quarter and being resolved as we speak. So once that is said, I think what we feel is the efforts we are doing on market share recovery when we have inventory is working. And some of -- the 2 key markets that we are focusing on is France and Spain. And in Spain, where we have been less affected by inventory availability, we also see nice market share progression. In France where the opposite is the case, that is part of what is holding us back. And then we have some very specific issues in the Benelux that we also need to resolve. So this is also why you can say that even though we are not helping ourselves in this particular case, we are confident that once we have inventory availability stabilized, we should see market share progressing from -- unfortunately, from a lower level. But that is kind of where we are right now. It's a high priority for us because our machine-rolled cigar business is still a very profitable business and it's still a business where we are the market leader. If I move on to the XQS question, I think it's maybe more important to focus on the 9 months growth rate of 45% as we still have some quarterly fluctuations on growth rates. So you should not factor the 75% growth in the third quarter into our new growth rate. There is no doubt that Sweden is still the driver. The market is growing, and we are growing and we are successfully growing by providing consumers with let's say, with flavor experiences that they appreciate. And again, you have a very mature market in Sweden, and we are very strong in what you can consider the non-Mint flavored segment. And of course, you can say that the major segment in all these nicotine pouch markets is Mint, and this is also one of the growth opportunities we see for our nicotine pouch brand over time. We have our strength in the flavor. We would also like to be better in the Mint area. On the new store openings, this is not a new investment level. This is just the practicality of when we open new stores, they tend to draw higher on the cost side in the first 3 months as we get these shops going. But on a full year basis, all our shops are profitable 1 year into a launch and beginning to contribute nicely. Marianne Bock: And maybe, Damian, Marianne here. Let me add also. So when we look at investments, we also will have investments from the ongoing Mac Baren integration. But we are also very occupied about our leverage level. And thereby, we will be very disciplined on investments for the coming year. Operator: There are no further questions at this time. I would now like to turn the conference back to Torben Sand for closing remarks. Thank you. There are no further questions. Torben Sand: Sorry, sorry, I was on mute here. We have one question from the webcast that I would like to share. And the one part is on smoking tobacco, which was down in the quarter compared to growth in the past 5 quarters. So maybe if you can comment on the respective geographic performance in the U.S. and Europe within this category and what the prospects are going forward? The second question is also around little cigars, specifically in the U.K. where crushball flavored cigarillos have performed very well in the past years. I noticed that STG have increased the offering in this segment. So how is this performance going? And what's the plan to regain market share in the U.K.? I'll leave that for Niels. Niels Frederiksen: Yes. Thank you for that question. Let me start by saying that year-to-date, the smoking tobacco is growing. And it is true that the third quarter represented a decline. But when you look at it year-to-date, smoking tobacco is growing. And remember, smoking tobacco is a combination of fine cut tobacco offerings and pipe tobacco. So we are very pleased with our combined position in this. When you look at Europe, most of the growth in smoking tobacco is driven by Germany, where we have, over a number of years, successfully grown our Break brand to now have, if I recall, around 7% or 8% of that market and is continuing to grow. We also have a nicely growing business in other parts of that smoking tobacco. Pipe tobacco is a little bit of a mixed picture in the sense that this market is fundamentally declining. But in the early parts of the year, we did see quite high sales in the U.K. -- sorry, in the U.S., where we merged our activities between Scandinavian Tobacco Group and Mac Baren. And therefore, we have seen sales of this product front-loaded in the first 6 months, and we expect a little less sales in the last 6 months of the year. But overall, we expect this category to deliver growth for 2025. When you look at the U.K., it's correct. We have an offering of little cigars with crushballs as a flavor. And this is a market that is growing. I should also be fair to say that we have a very small position in this market that is dominated by other larger [ cigarette ] companies, but our position is growing, and we are quite pleased with the performance we are seeing. Torben Sand: Okay. And I think that from our side then concludes. There's no further questions from the website. And thank you very much all for listening in. I'll just again remind you of our upcoming Capital Markets event on the 20th, and you will find registration details both in the quarterly statement we have sent out, but also on the website. Thank you very much. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Sachiko Nakane: Now that is time. I would like to begin the ORIX Corporation's second quarter financial results briefing for fiscal year ending in March 2026. Thank you for joining us. I'll be the facilitator. I'm from IR, Sustainability Promotion Department. My name is Nakane. We have 2 speakers today. We have a Director, Representative Executive Officer, President and COO, Hidetake Takahashi as well as our Operating Officer, Head of IR, Kazuki Yamamoto. First half will be presented by Takahashi. Second half by Yamamoto then we'll have a Q&A session. We are planning to have 60 minutes for this briefing session. Takahashi-san? Hidetake Takahashi: Thank you very much for taking your time out of your busy schedule to attend the ORIX Group's financial results briefing today. I'm Hidetake Takahashi, ORIX Group's COO. I'll explain the key initiative as the business progress toward achieving the long-term vision announced in May this year, which is making impacts through alternative investments and operation and business solutions as well as management indicators of 15% ROE and JPY 1 trillion in net profit for the fiscal year ending March 2035. And following this, Kazuki Yamamoto, who is in charge of Management Planning and IR, will explain the second quarter financial results for the fiscal year ending March 2026. If you could please refer to the Page 3. There are 5 points that I'd like to convey today. First, I'd like to discuss the revision to our earnings forecast. Our first half, all 3 categories, finance, operation and investment performed well and capital recycling is also progressing smoothly. As a result, we decided to raise net profit forecast from the previous JPY 380 billion to JPY 440 billion. We also revised the full year dividend forecast per share from JPY 132.13 based on a net profit of JPY 380 billion to JPY 153.67. And in addition, as we look forward to proceed with optimizing our portfolio and capital structure and considering the completion of the sale of Greenko announced yesterday, we have decided to increase the amount of our share buyback program from JPY 1 billion to JPY 150 billion, (sic) JPY 100 billion to JPY 150 billion and Kazuki Yamamoto will explain in more details shortly. The second point is the establishment of a PE fund together with the Qatar Investment Authority, which was announced yesterday. ORIX is strengthening our asset management function to help us achieve the long-term vision. As a milestone, we aim to achieve 11% ROE and JPY 100 trillion in AUM by the fiscal year ending in March 2028. Since the establishment of a PE Investment segment in 2012, we have executed over 30 investment in Japan and all utilizing our own balance sheet. We have reached an agreement with Qatar Investment Authority to establish a fund aiming at investing in Japanese companies. For the first time, we will incorporate the third-party funds into this business. Through this fund, which has a total scale of USD 2.5 billion, we will expand our investment, including those in a large-scale project. ORIX will contribute 60% and QIA, Qatar Investment Authority, 40%. The main investment target will be business section type deals, privatization of listed companies and carve-outs with an expected investment size of JPY 30 billion or larger in EV project. We will intend to continue strengthening our asset management function, including our business segments. The third point is our future business expansion with Hilco Global. In September, we acquired a U.S. company, Hilco, a subsidiary. Hilco provides services globally such as evaluation and disposal of mobile assets like inventory and equipment, intangible assets like IP and trademarks and ABL asset-backed lending. ORIX USA will position Hilco as a platform for creation of ABL investment fund, strengthening its origination capability and expand private credit business. Similar to the domestic PE fund mentioned earlier, this is a strategic investment to aid expansion of our asset management business. And further, Hilco's asset evaluation services are a countercyclical business. In an uncertain economic environment, we believe we have acquired a fee-based business at a good time. Hilco's evaluation capability, asset disposal expertise will be utilized in assessing risk as we expand credit globally. The fourth point, Osaka IR project, integrated resort. We aim to open the IR in Osaka City around the fall of 2030 and construction began in April of this year. In September, some changes were made in existing plan. Primarily, these involve higher costs after taking inflation into account from currently JPY 1.27 trillion to approximately JPY 1.51 trillion. After carefully reviewing business income and expenditure plan, we believe that the higher cost will not significantly impact the project profitability. The Osaka-Kansai Expo concluded successfully in October. We were able to confirm growing inbound demand in the Osaka, Kansai area with many foreign tourists visiting -- in Osaka, which is also a birth space of ORIX. In the Kansai area, we are engaged in the development and operation of our sales office with offer financial -- which offer financial services, Kansai 3 airports and Umekita project and [indiscernible]. We also operate the business such as hotels and inns, we will maximize synergies by adding Osaka IR to these resources. Finally, my final point is portfolio optimization. As I discussed in May, the most important measures to achieve our ROE target are disciplined portfolio management and sophisticated risk management and new business creation, those 3 points. We have begun utilizing a dashboard to visualize the status of our business portfolio in finer detail and are progressing with our portfolio optimization. We have sold all of -- all or partial shares in Greenko Energy, ORIX Credit and Ormat and Nissay Leasing, Canara Robeco and other businesses. We will continue to review our portfolio based on our 4 criteria: growth potential, capital efficiency and impact on credit rating and group synergies. We will continue to revisit our portfolio. And furthermore, in July, ORIX Bank paid a dividend of JPY 30 billion to ORIX Group. We will also optimize the capital scale of other group companies, not just the bank. As of the end of September 2025, the AUM became JPY 88 trillion, bringing us one step closer to the medium-term target of JPY 100 trillion. We will also continue to proceed with the transition to an asset-light portfolio. Out of the plan that we disclosed in the mid- to long-term corporate value enhancement is in ROE in order to further improve the efficiency of the capital use. And all the measures that I mentioned that we carried out in the last 6 months is a good sign that we are making the right stride toward achieving a midterm business plan. We will continue to work toward achieving a midterm business plan and to achieve the long-term vision through various tactics and measures. That's all from me. Next, Yamamoto will explain about the most recent financial results. Kazuki Yamamoto: Please go to the Page 5 of the presentation material. First, I would like to talk about the first half results and an upgrade -- update to our full year forecast. Net income for the first half was JPY 271.1 billion, a record high for the first half year and an increase of JPY 88.2 billion, up 48% compared to the same period last year. At first half, we achieved a healthy 71. -- initial full year net income forecast and ROE reached an annualized figure of 12.7%. This is a result of a contribution from gains of sales and valuation gains from a large exit deals such as Greenko Energy. As explained by our President, our forecast reflects that our efforts to enhance profitability through portfolio optimization and beginning to bear results. And we raised our full year profit forecast upward -- as our COO, Takahashi explained, and full year profit forecast is JPY 440 billion, expanded the share buyback program to JPY 150 billion. Our full year ROE is forecasted at 10.3%, an increase of 1.3 percentage point compared to the same period last year. Second point is the 3 categories: earning and capital recycling. First half, all 3 categories, finance, operation and investment booked profit growth year-on-year and ROE improved. And even excluding a gain on the sales of Greenko, first half ROE was healthy at around 10%, exceeding the previous full fiscal year ending in the March 2025 level that was 8.8%. The third point is shareholder returns. In line with the upward revision of net income forecast, should ORIX achieve a full fiscal year net income target of JPY 440 billion. DPS forecast will increase from JPY 132.13 to JPY 153.67. The share buyback program also expanded from JPY 100 billion to JPY 150 billion. At the end of October, JPY 78 billion has already been repurchased, representing 78 progress rate toward our previous JPY 100 billion. Page 6. Here, I'll explain the details of revision of our earnings forecast and expansion of shareholder returns mentioned earlier. Based on the stellar performance in the first half and the current business environment, we have revised our forecast and second half earnings, especially -- specifically, we raised the pretax profit forecast from JPY 540 billion to JPY 640 billion, net income forecast from JPY 380 billion to JPY 440 billion. This represents an increase of JPY 100 billion and JPY 60 billion, respectively, on increase. As a result, we forecast a full year EPS of JPY 394. ROE will improve to 10.3%. Outlined earlier, we raised our full year dividend forecast accordingly, expanded share buyback program. Total shareholder return should reach JPY 320.7 billion. Total payout ratio expected to rise from 65% to 73%. While improving ROE and maintaining a healthy D/E ratio, ORIX also aims to expand AUM. As our COO, Takahashi mentioned, total group AUM reached JPY 88 trillion at the end of first half. Addition to growth in the traditional asset AUM such as Robeco, which has performed very well, ORIX aims to expand its AUM in an asset-light fashion and that's not overly reliant on our balance sheet. Please go to Page 7. And also, we newly announced a joint PE fund with QIA. The page shows the first half results for the 3 categories and for both previous year and this year and segment profit, pretax profit, net income shown at the bottom. Pretax profit for the first half was JPY 391.5 billion, an increase of JPY 134.5 billion compared to the same period last year. Like the net income, it reached a record high. We implemented capital recycling, not only in the investment category, which achieved a large exit, but also in finance and operation category. All 3 categories achieved a profit growth year-on-year. This page shows the first half results for previous current year, 3 categories: investment on top to bottom. And the dark blue represents finance. Our profit increased 8% year-on-year, JPY 99.6 billion, progress rate of 55% versus full year target. Gross investment income was strong in the Insurance segment. Asia, Australia saw steady increase in financial income from leases and loans. In addition, as a part of portfolio optimization, contribution from the sales of ORIX Asset Management and Loan Services Corporation, Nissay Lease shares also contributed to the profit gain. Next, the light blue part represents operation. Profit increased by 9% year-on-year to JPY 114.9 billion with a progress rate of 48% versus our forecast, which we raised by JPY 10 billion. Business driven by inbound tourism demand such as Kansai Airports and real estate operation at Inns and hotels continue to perform well. Strong used car market helped auto business with Rentec capture the demand for Windows 11 replacement PCs. Both businesses saw growth increased profit. Environment and Energy Segment, the gain on the sales of Zeeklite, which operates the waste and final disposal side also losses profit. The pink represents investment. Profit was up sharply, 117% year-on-year to JPY 194.9 billion. The sales of Hotel Universal Port VITA in the first quarter and Greenko in the second quarter as well as a gain from the sales of shares of NYSE-listed renewable energy company, Ormat contributed to this increase. In addition, performance of domestic PE investments such as Toshiba was strong, leading to higher profit contribution. As a result, segment profit, pretax profit and net income all increased by 42%, 52% and 48%, respectively. Next, please look at Page 8. Now on this page, I explain ROE, shareholders' equity for each of the 3 categories. You see on the right, at the end of previous year, shareholders' equity was JPY 4.1 trillion, while annualized ROE was 8.8%. For first half this year, these figures were JPY 4.4 trillion and JPY 12.7 trillion, respectively. Please look at the graph on the right. The dark blue ROE of finance improved from 8.3% at the end of the previous period to 8.5%. The allocated capital finance is JPY 1.8 trillion. Now light blue ROE in the operation category improved from 13.5% to 14% due to the sale of subsidiaries and other factors. Allocated capital here is JPY 1.3 trillion. And then pink ROE in the investment category rose significantly from 7.4% to 16.6% due to sales of Greenko and hotels, allocated capital is JPY 1.6 trillion. The total allocated capital for 3 categories is JPY 4.7 trillion, which is slightly different from shareholders' equity amount of JPY 4.4 trillion on a consolidated BS. As explained last time, this is because of the allocated capital is a management accounting figure. Next page shows ROA and asset for the 3 categories. With the start of portfolio optimization, total asset ROA improved by 1.03% from the end of previous period to 3.15%. The ROA for the investment category improved significantly for the reason that I just outlined. ROA for the both finance, operation category also improved in first half. This page shows the progress of capital recycling. In the first half, we recorded a capital gains of JPY 157.1 billion. We had cash inflows from sales amounting JPY 500 billion. Major asset sales included Greenko Energy, that was a cash in of JPY 178.9 billion, capital gain JPY 95 billion. And Hotel Universal Port VITA, cash in about JPY 34 billion, capital gain JPY 21.9 billion. We also sold ORIX Asset Management and Loan Services Group and Nissay Lease in the Corporate Finance Business segment too, and Zeeklite in Environment and Energy segment too. In all 3 categories of finance, operation, investment, we flexibly recycled capital to optimize our portfolio while balancing new investment. Cash outflows from new investments amounted to JPY 470 billion. The main new investments made in the first half were Hilco Global, JPY 776 million and convertible bonds for the next-generation energy company, AM Green. Hilco Global is a leading asset appraisal company in the United States and a platform for asset-based lending. Additionally, we made a PE investment in specialty capsule toy retailer, LULUARQ as well as new purchases of aircraft where prices are favorable and new investments in logistics. We also made additional investments in Osaka Integrated Resort project as planned. We continue to have a promising investment pipeline for the future and will carefully select projects. For the year, fiscal year '26, we forecast realization and new investments of between JPY 600 billion to JPY 800 billion. By flexibly recycling capital in all 3 categories in a well-balanced manner, we will, as Mr. Takahashi explained, work to optimize our portfolio. Page 11 is about our financial strategy. This shows the important balance sheet items and the breakdown on the left and the key indicators from the perspective of financial soundness on the right. In the table on the left, you can see the total assets increased by JPY 738 billion compared to the end of FY '25, with half of about JPY 600 billion amount, excluding FX effects due to the U.S.-related factors. The remainder was primarily caused by asset growth in the Insurance segment, which saw strong sales of single premium whole life insurance, JPY 131.4 billion and at ORIX Bank, which increased the new execution of the real estate investment loans, JPY 109 billion. Next, short-term and long-term debt deposit increased by JPY 416.9 billion, mainly due to higher deposit at ORIX Bank and issuance of the corporate bond. We continue to diversify our funding methods and currencies and have realized competitive funding cost levels through this and maintaining a stable ratio of the long-term debt. Insurance contract liabilities and policyholder reserves decreased by JPY 223.2 billion, mainly due to the lower liabilities from the higher discount rate for insurance contract liabilities. This was offset by the increase in single premium insurance policyholder accounts. Of the JPY 351.9 billion increase in shareholder equity in the row below, JPY 223.2 billion is due to the lower insurance contract liabilities and policyholder accounts explained earlier. Other factors contributed to the increase of the shareholders' equity are mainly net income. Debt-to-equity ratio was steady at 1.5x. Looking to the graph at the right, we maintained the capital utilization rate at an appropriate level in the 90% range as a result of the capital recycling in the first half. This has helped us sustain an A-level credit ratings at global agencies. While yen funding rates are gradually increasing, including those for the bank group deposits, our overseas currency-based funding costs, mostly U.S. dollars remain in downtrend. We are working to reduce our cost of capital by keeping competitive A-level credit ratings and by utilized diversified funding source. Pages 12 and 13 are segment summaries. Please refer to the slides from the Pages 16 and onwards for details. Links to supplementary financial materials and the integrated report are included in these slides for your reference. First, segment profits for the Corporate Financial Services and Maintenance Leasing segment increased by JPY 13.1 billion or 29% to JPY 58.6 billion. Corporate Financial Services posted significant growth, thanks to the sale of ORIX Asset Management and Loan Services Corporation and Nissay Lease in Q2. Growth in various fee revenues was also positive. The Auto business continued to enjoy robust used car sales, achieving a record high profit for the first half. Rentec profit grew on higher rentals from ICT equipment inventories fueled by demand for Windows 11 PC replacement. Although asset for Auto and Rentec increased due to new executions in car leasing and PC rentals, the sale of ORIX Asset Management and Loan Services Corporation reduced the total segment assets by JPY 29.2 billion versus the previous year, totaling JPY 1,855.3 billion. Second, the Real Estate segment's profit decreased by JPY 1.3 billion, 3% year-on-year to JPY 49.1 billion. The RE Investment and Facilities Operation units saw significant increase in profits from hotel and inn operations in addition to the sale of the Universal Port VITA. However, profits were down slightly year-on-year due to the previous year's gain from the sale of Hundred Circus. Meanwhile, the profits at Daikyo units increased on the sale of rental apartments, properties and other factors. Real Estate segment assets remained flat compared to the end of previous fiscal year. In addition, in response to the expanding investor demand, we increased asset size of our first equipment -- equity commitment type real estate value-add fund established in January this year from JPY 100 billion to JPY 120 billion. Please refer to Page 18 of the Real Estate. The third is PE Investment and Concession. Segment profit increased by JPY 9.7 billion or 21% year-on-year to JPY 56.7 billion. PE Investment unit enjoyed steady performance of the investees such as Toshiba and DHC, resulting in higher profits even after considering the previous year's gain. Regarding the domestic PE fund information with the Qatar Investment Authority mentioned by Takahashi, you'll find the details on Page 20. The Concession unit saw a significant increase in profits, as Kansai Airports continue to perform well. Please refer to Page 45 for related data, such as passenger numbers. The segment assets for PE Investment and Concession increased by JPY 31.9 billion versus the end of fiscal year '25, totaling JPY 1.548 trillion. The main reason was the new investment in LULUARQ and increased profit contribution from the investees, leading to an increase in equity method. Fourth, Environment and Energy segment profit increased by JPY 117.3 billion year-on-year to JPY 119.7 billion. Profit was bolstered by sale of Greenko Energy, which resulted in gains on sale and valuation gains as well as gains from the sale of shares of Ormat. Additionally, the domestic electricity retail business enjoyed both higher sales volume and unit price. Segment asset decreased by JPY 38.8 billion from the previous year-end to JPY 977.4 billion because of the progress in capital recycling. The fifth is Insurance segment profit increased by JPY 10 billion or 24% to JPY 50.9 billion. Continuing the recent trend, asset income rose sharply on growth in investment assets in effort to diversify portfolio management. In terms of business, both the single premium wholesale life insurance Moonshot and revamped income protection insurance Keep Up launched this June are selling well. Insurance segment assets increased by JPY 131.4 billion versus end of FY '25 to JPY 3,140.6 billion. Sixth, the Banking and Credit segment profit decreased by JPY 600 million or 5% year-on-year to JPY 12.5 billion. Amid rising interest rates, while deposit procurement costs are increasing, the asset management yield is also improving. The main reason for the decrease versus the first half FY '25 is the recording of the losses from the sale of public and corporate bonds in Q2 to improve bond portfolio quality. Banking and Credit segment assets increased by JPY 109 billion versus the end of FY '25 to JPY 3,253.6 billion. Both investment real estate loans and the merchant banking business saw increase in new executions. As explained in Q1, ORIX Bank paid parent group a dividend of JPY 30 billion in July to optimize in capital size. Seventh, the Aircraft and Ships segment profit decreased by JPY 10.1 billion or 31% year-on-year to JPY 22 billion. Aircraft leasing profit for the first half was roughly in line with the previous year. But with lease rates remaining high, the number of owned aircraft increased and the business climate as a whole is positive. Avolon profit rose year-on-year, partly due to the contributions from Castlelake, which was acquired in January this year. Profits in ships unit was lower year-on-year on the absence of higher charter fees from certain contracts last year, reflecting the impact of marine shipping prices. Segment assets increased by JPY 24.1 billion versus the end of FY '25 to JPY 1,256.1 billion, owing to aircraft purchases. Segment number 8, is ORIX USA. ORIX USA segment profit decreased by JPY 18.1 billion year-on-year, resulting in a loss of JPY 1.8 billion. Compared to the same period last year, the main reasons for the substantial profit decline were absence of reversals of the provisions recorded in last year, a decrease in capital gains and the booking of credit cost and impairment in the first half this year. The credit losses and impairments stem from the real estate financing originated during the period of monetary easing during the pandemic and legacy assets from before that. The extended period of the elevated interest rate inflation and uncertain economic conditions in the U.S. negatively impacted these assets. More recently, based on our disciplined investment policy, we have conservatively chosen deals, and thus have no exposure to the First Brands Group or Tricolor Holdings. Please see Pages 30, 31 and 32 in this presentation for more details. Excluding the Hilco Global segment assets in U.S. dollars shrunk from JPY 12.2 billion at the end of March '23 to JPY 11.3 billion at the end of September 2025. With the addition of -- this is a decline of 7.4% in the past 2.5 years. With the addition of Hilco as a subsidiary, we will review the ORIX USA business portfolio and continue to responsibly manage the portfolio while controlling asset risk -- asset size. Uncertainty persists in the operating environment for ORIX USA. And we are conservatively reviewing our full fiscal year forecast for ORIX USA compared to the initial plan. Next is ORIX Europe. Segment profit increased by JPY 1.3 billion or 6% year-on-year to JPY 22.1 billion. Net fund inflows grew, thanks to the favorable global capital markets and AUM rose to a record high of EUR 425 billion. This resulted in higher profits even after adjusting for performance fees booked in the same period last year. ORIX Europe assets were flat year-on-year, excluding the currency impacts. Finally, Asia and Australia. Segment profit increased by JPY 600 million or 3% year-on-year to JPY 19.7 billion. In Greater China, profit contributions from investees decreased versus the same period last year. We maintained a constrained investment stance and reduced our exposure to -- in both leases and investments. Meanwhile, the financial income increased in countries such as Singapore, India and Australia, resulting in higher profits. Segment assets increased by JPY 15.5 billion versus the end of fiscal year '25 to JPY 1,741.1 billion. The main reason was the FX impact, but the breakdown shows a decrease in assets in Greater China region, while there was an increase in Australia and India. And that concludes each segment explanation. Next is Page 14. Finally, regarding the shareholder returns and enhancing corporate value, we added JPY 50 billion to JPY 100 billion share buyback program announced in May for the new total of JPY 150 billion. Regarding the dividends, the full year DPS forecast was raised from the previous JPY 132.13 to JPY 153.67, 39% increase over our full year net income target. Compared to FY '25 a DPS, we expect an increase of JPY 33.66 per share or 28%. Since announcing the 3-year plan and long-term vision in May, CEO, Inoue and COO, Takahashi have been engaged in a direct dialogue with institutional investors, both in Japan and overseas. We also plan to provide access to outside directors. And we are providing opportunities to have a direct dialogue from the outside director and the investors. We continue to enhance the corporate value by increasing opportunities for direct dialogue with the market regarding our most important management KPI, ROE improvement. EPS growth, which is also important and capital cost are also key areas of discussion. This concludes my remarks. Thank you for your attention. Sachiko Nakane: Now we'd like to move on to the Q&A session. [Operator Instructions] First, from SMBC Nikko Securities, Muraki Masao. Masao Muraki: Muraki from SMBC Nikko. This is a bit off from results, content briefing material, but I would like to hear more about joint investment with QIA. What led you to this joint PE establishment because in the past, you have been covering everything on your own 100% and the asset was JPY 1 trillion. And do you think for the future, domestic PE, you're going to run off the existing one and balance sheet will reduce? And the 60% holding of this new PE that you're establishing with the QIA, it will be on the addition -- net additions on the BS, right? ROE or -- do you think this will allow you to invest more in a large project. But what kind of impact would this have to the total balance? Hidetake Takahashi: This is Takahashi speaking. Masao-san, let me answer, take this one. How we came about to establish a joint PE, as I explained in yesterday's announcement, almost about 2 years, we've been negotiating with QIA. We've always been in contact, having a dialogue with various sovereign fund and QIA was especially interested in investing in Japan. So in which field we can collaborate. We've been discussing that way. And we thought that the domestic PE investments is probably where we can jointly approach. So investment criteria policies, we've discussed quite a bit. And this includes a right fit to -- we have the right chemistry. That is how we came about this agreement to establish the PE. And regarding the running off of existing portfolio and to focus on the fund with QIA, that is not the case. As we mentioned in the press release. Our fundamental approach is enterprise value in the market cap of JPY 30 billion or mid-cap larger items, we will leverage this joint fund with QIA. And this JPY 2.5 billion -- JPY 370 billion, that's unlevered base. So 1x or 2x, we will be financing. In the newspaper, I know it says that with the borrowing, we will be able to have this JPY 1 trillion investment capacity, but we don't know whether we'll get there. But anything that is below JPY 30 billion for market cap in investment, that's something that we will continue to handle within the balance sheet. The balance on the balance sheet is -- we do have JPY 2.5 billion, 60% is what we are committing. So I don't think we will see a significant bloating of the asset balance, but we aim to maintain the balance of the current JPY 1 trillion going forward. So far, we had a majority share. So we had a controlling share so that our target companies, we would try to keep it in consolidated accounting so that we can get benefit from profit. But for this fund, we would apply the fund accounting so then incorporate the fair market value. So the way we would incorporate the profit into our business will be different from the one that we are financing fully on our own. Masao Muraki: I understand. Is this part of your ROE enhancement effort? Hidetake Takahashi: Yes, that too, plus goodwill and also recognition of intangible asset will be different, too. And also, there will be an impact on the credit rating, too. That will be eased too, I think. In the last 10 years, we've been building up a track record in the private equity area. That's one thing. And reflecting the market trend and the movement, what we are seeing more and more good quality pipeline in front of us that's building up. So incorporating that in all into our balance sheet, adding them up would impact us in various different areas. So at this timing, we wanted to leverage our third-party funds to shift to leverage third parties funds to try to capture larger, better quality deals. It would be a benefit in our long-term growth. That's our strategy. Operator: Next from JPMorgan Securities, Sato-san. Koki Sato: This is Sato speaking from JPMorgan. About ROE target and your commitment to that and also net assets, the balance between the 2, I'd like to confirm one thing. Now the JPY 50 billion increase in buyback, I think there are different reasons. But the net profit increase, most of it will be used for the shareholder return, I understand. But at the same time, there is a big impact of the interest rate. So about this insurance with the change of the discount rate, about JPY 200 billion in the 6 months, I think that the profit has expanded. So in comparison to the medium-term business plan, the JPY 20 billion or higher needs to be enhanced so that you can achieve the ROE target. And depending on the macro environment, noncash or cash in without that, there could be some higher risks. So in that sense, in achieving the ROE in order to maintain the probability of achieving that, what kind of initiatives are you thinking of taking? Sachiko Nakane: Thank you for your questions. Yamamoto will respond to your question. Kazuki Yamamoto: As you pointed out correctly, for this fiscal year, the interest rate higher and the discount rate, discount and also the insurance account, the net asset increase was a little more than JPY 200 billion. And achieving the 11% ROE, of course, that the numerator will not naturally increase. So we have to take some measures or initiatives that will be necessary. So U.S. accounting and Japanese accounting, there is some gap. So with the shareholders and ORIX, we are trying to consider the various initiatives to be taken. So in achieving the targets of the medium term in the final year, we will be taking initiatives. As for the interest rate, I think we have come to an end of the cycle and this would stabilize. So this increase is not going to continue from now on. So in other words, if the interest rate comes down, the denominator will be less. So that is something that will be possible to -- make it possible to reach the ROE that we want to achieve. So we would like to monitor that closely and communicate to you. But that's something that we will be doing in the future, but the impact of this in achieving the ROE, yes, we do understand that possibilities. Sachiko Nakane: Next Daiwa Securities, Watanabe-san. Kazuki Watanabe: This is Watanabe from Daiwa. This year's lending forecast and next year's profit forecast. You said that there will be a reduction -- reduced provision for the Bank and the U.S. business. If you have any trend outlook for the second half. For this fiscal year, you will be generating quite a significant profit. What's your outlook for the next year? Is it going to be challenging? Are you going to go with your current cruising speed? What's your thought on the next year? Kazuki Yamamoto: Regarding ORIX Bank, regarding our debt portfolio, liability portfolio. And this is a reversal of what I mentioned about liability insurance. And various portfolio that we are maintaining for the better liquidity together with the interest rate hike, there will be more and more incurred losses. And as much as we can within the profit because we have a profit momentum, we will actively reshuffle the portfolio and recorded some losses from the sale. And this year's credit loss burden in ORIX USA, as I before mentioned, so far, in the fourth quarter, we usually check -- do the checkup of all our assets. But we are doing more flexible risk management. So we have decided to book the loss to some extent in the second quarter, too. If you could go to Page 32, ORIX USA pretax profit, additional information there as well. For portfolio, as I mentioned, because of the interest rate in the dollar would be plateaued and inflation and equity real estate business-related impact, we are recording capital gain. We are losing opportunity to record capital gain, sorry. And before COVID, we had a real estate legacy asset of the credit loss. That is now materialized. So going forward, what would happen is real estate for multifamily condominium performance. Interest rate hike and insurance premium increase will impact the rent. And I believe that we will need to closely monitor property management and appropriate asset monitoring, too. So those potential risk, we are quite clear at ORIX USA side. So we don't foresee this kind of situation will continue. So at least by the end of this second half or at the latest in the beginning -- within the first half of next year, we will resolve. We will conclude our countermeasures. And going forward, I'd like to have Takahashi to explain. Hidetake Takahashi: And the second question about the next year's forecast, let me give some brief thinking about the next year. Usually, the income gains, for example, on the real estate or private equities exit, those gain from sales, we have been recording pretty much on every fiscal year, it's a recurring gain from sales. But the kind of gains from sales like divestments as Greenko that is almost like a one-off profit. So this proceeds that we received is a reason that we were able to do a share buyback in addition -- additional share buyback. And another reason is we averaged out the EPS, and we are intending to continue to increase EPS in a linear fashion. If there is some surplus in capital, and we would use it for that. And going forward, in the next year, we'll continue to aim to realize sustainable profit growth. So the sales from a gain, especially something in this scale of almost like a one-off would be volatile. And sometimes we do, sometimes we don't. And when we have surplus, we will leverage a buyback to continue to increase our EPS linearly. I'm not sure I'm answering your questions, but it's not that we are aiming to generate a certain amount of profit every single year. That's a bit different far from our actual business practices in reality. Sachiko Nakane: Next Mizuho Securities, Sakamaki-san. Naruhiko Sakamaki: Sakamaki speaking from Mizuho. I'd like to ask some questions on the forecast for the second half. On Page 10, capital recycling forecast. So for this fiscal year, JPY 200 billion or higher for capital gain. So compared with the past range, there could be some upside. So in the second half, the segment profit is only JPY 200 billion. So how should we understand this balance between the 2? If you can explain it? Unknown Executive: Yes. Thank you. On Page 10, this JPY 200 billion. If I may talk about this further. As you know, usually, our capital gain is about JPY 100 billion. That's the normalized level. So Greenko part, JPY 995 billion is added. So it's JPY 200 billion. So that is on track. And the real estate market is very solid and private equity portfolio, the performance, as we mentioned, is good. So if there is good opportunities, we will invest and also realize in a very flexible manner. In the second half, if you deduct that, the pretax income or revenue level, I think that's what you are referring to. We did not specify the first half and second half, but some of them were already realized in the first half. So there could be some differences. So capital gain -- about the capital gain, this is -- this can be considered as the income or the profit in other areas. I hope that answers your question. Sachiko Nakane: From Nomura Securities, Sasaki-san. Futoshi Sasaki: This is Sasaki from Nomura Securities. I have a question about your performance. This year's second half pretax profit forecast, the level is quite a bit declining versus the first half. So it looks like a JPY 250 billion pretax profit. This is along the line of your base profit, but you also are going to record some capital gain as well, right? I was wondering, perhaps you have some significant impairment loss or some kind of a negative factor that you're forecasting for the first half. Is my understanding correct? And regarding next year's business plan, I'm sure you're in the midst of discussion right now. If you can share as much as you can about the next year's plan, please. Sachiko Nakane: So the first question will be answered by Yamamoto. Kazuki Yamamoto: Regarding the first point, you're right, the base profit first half, I mentioned was quite brisk. Within our base profit, we have the profit from the company that we have invested. So that is contributing like Toshiba is performing quite well, that we have invested. And for the second half, we have set that to the regular cruising speed, not buoyant. So for the second half, we are expecting certain base profit plus some capital gain. It is not that we are expecting some one-off significant loss. Hidetake Takahashi: Let me add to that. This is a bit of details, but as Yamamoto mentioned, Toshiba's performance is quite good now. And divestment of Toshiba material is recorded in Toshiba's performance. And KIOXIA's share price is quite well. So they sold a part of KIOXIA shares. So base profit -- our size base profit and our gain from sales -- and also the income from equity method affiliate are all recorded under base profit. So what I mentioned is that there are various onetime gains that we experienced from the equity method affiliate. And those happen in the first half, and that's not necessarily a recurring income that we can continue to expect in the second half. So that's the reason. And you asked me about the second -- next year plans. Actually, we will start this discussion from next -- beginning of next year. What we are sharing right now to the market is ROE of 11%. And by [ FY '20 ] ending in March, -- but of course, we are creating bottom-up plans up to 3 years into the future. What we'll be discussing going forward is what went well, what didn't go well for the past year and make a rolling update to what we have established in the last March and this year's March too our MTP. We are not expecting any downward change to our initial plan. I'm sure next year will be quite positive, but the detail will be discussed from the segment leaders of each divisions. That's all. Futoshi Sasaki: May I add one more thing, please? Hidetake Takahashi: Yes. Futoshi Sasaki: You mentioned that next year's profit can be volatile. I got the nuance in your wording. This year, 10% ROE, you need to grow the profit at a certain level. Otherwise, I don't think ROE can go up to the 10% levels. Is that okay to say that it can be volatile? Unknown Executive: You have a point. Needless to say, we need to continuously grow. Otherwise, we will never get to 11% ROE. We're not there yet. So of course, we need a profit growth to get there. And with the current portfolio, what can be sold at what price is something that -- some of it where we have a higher probability where we are already in the negotiation process, then we can factor in, but others are just pie in the sky. So of course, we need to make a right decision at the right timing being considered appropriate capital recycling to maximize our gains from sales. As I mentioned, this fiscal year, the proceeds from Greenko is, I would say, a bit extraordinary. So what we've been discussing going forward internally is compared to this year, how much base profit that we can increase. And on top, how much gains from sales of asset we can expect. Ultimately, we would like to achieve the ROE target by 2025 that we have. That's our grand plan. Sachiko Nakane: Next from BofA Securities, Tsujino-san. Natsumu Tsujino: Some detailed question about Environment and Energy. If you look at the quarterly number, JPY 117 billion segment profit. The Greenko sales, gain on sales is JPY 95 billion. So the gain on securities, Ormat sales gain on sales is included, I think. But we don't know how much that is. So that means it is said that for JPY 15 billion, but the equity method, this is JPY 83 billion. So Ormat gains on sales and also if you deduct the JPY 95 billion, you are in red in terms of segment profit. So in Environment and Energy segment, excluding the gains of sales of those 2, what is happening? Was there any kind of impairment? And if so, what was it? And what about the impairment risk of others in coming months and years? Sachiko Nakane: Takahashi-san will respond. Hidetake Takahashi: Sorry, this is Takahashi responding. If I may talk about the details, the renewable energy in Japan, especially the mega solar that is already operating, and we operate that. So we are getting a stable profit. And also, we are in the Energy Business in the previous year, Hibikinada and Soma, there was our impairment loss, and that led to the lower depreciation and amortization and maintaining the sales volume included and this part was profitable. And in Environment and Energy, the major one is Elawan, and Elawan concerning that, it is breakeven or just slightly in red. So a lower interest rate and also the ones that we are developing projects and also the program has started. So in terms of business, we are in the recovery phase. Also on the Environment side, the ORIX Environment is a circular economy company, and they are generating stable profit. So ORIX [indiscernible] or resource recycling, which is engaged in the interim processing, and they are going through the rebuilding or replacement phase. So we expect some red deficit. And in actual performance, they are in red. So it's a mixed performance, but we are not seeing the signs of the major impairment loss. I do not recognize that. Natsumu Tsujino: Okay. So a way of thinking, if you calculate this, you are in red, as I said. So is that correct understanding? Hidetake Takahashi: Yes. We do not recognize this as a major deficit. It's really close to the breakeven level. It's a very small deficit. Natsumu Tsujino: I see. But if you calculate the [ JPY 117 billion ] minus JPY 98 billion, sorry, the loss of JPY 8.2 billion or so, you're talking about Q2? Hidetake Takahashi: Okay. So Q2, as you said, yes, that's a correct calculation. But Ormat, it depends on what kind of number that you would include in Ormat. But we did not recognize that in Q2 only. But I think if you look at the bigger picture, it will be almost breakeven. Sachiko Nakane: Now we are reaching the closing time. So we would like to take one last question from Morgan Stanley, MUFG Securities, Takemura-san. Atsuro Takemura: I'm Takemura from Morgan Stanley, MUFG. I have a question about some numbers. You have made a revision to the lending forecast. Page 7, bottom right, in financial, it's remaining 180.0 so no change. Were there any changes under -- regarding the business profit, an increase of JPY 10 billion. What's the reason for investment, GreenKo of JPY 95 billion addition plus JPY 80 billion. So I would like to know why you are postponing some of it, the reason for that, which is the best way you can, please share. Regarding ORIX USA, I understand that you have a revised performance forecast. So how that impacts this overall segment, please? Kazuki Yamamoto: What you explained toward the end is very much a reason for that for finance and life insurance included, we did quite well in asset management. We have management income in the bank, we also recorded a loss of our debt liabilities. And in order to improve the portfolio quality and the credit-related business, we have conservatively recorded some new losses too. And those are what's impacting this finance business. For business, many of the operating units are quite brisk. But in ORIX USA real estate origination, the fee environment, competitors -- competitive landscape, we are having quite a difficult situation. So that's impacting our profit. Regarding investment, the third point, you are right regarding JPY 95 billion addition from Greenko's divestment, doesn't mean that we put some of the sales plan for the sales to the later date at all. We did have certain uncertainty in the fair value part about the future gain from the sales that ORIX USA is doing in the PE business. As Takahashi-san pointed out, regarding ORIX USA, we have more conservative outlook because of intransparency. Sachiko Nakane: Thank you very much. We would like to conclude the Q&A session. Now we'd like to have our last remarks from Takahashi. Hidetake Takahashi: As I said at the outset, there are a mixture in terms of the business performance between the segment. The businesses are diversified. And also in May, we announced the strategy. We are executing that steadily in the first half. Relatively speaking, I think we kept good results. But we would like to stay focused, and we took notes of what you pointed out, and we will continue to take initiatives. And we consider those target numbers are not easy numbers and also in the medium-term plan and the long-term vision, the numbers that we are committed to, we would like to make sure to try to achieve those targets. And I hope you would continue to support us. Thank you very much. Sachiko Nakane: With that, we'd like to conclude today's conference, the briefing on the second quarter results. And thank you very much for your participation. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Iris Eveleigh: Hello, everyone, and welcome to our 9 months 2025 results call. Thank you for taking the time to join us today. I am here with our CFO, Nadia Jakobi, who will give you an update on our financials. As with every occasion, we will leave enough room at the end for your questions. With that, over to you, Nadia. Nadia Jakobi: Thank you, Iris, and a warm welcome to all of you from my side as well. Before I turn to our financials, I would like first to touch upon the latest regulatory developments in Germany. The German regulator has announced the start of the final consultation process concerning the framework concept with a committee of representatives from regional regulatory authorities. Compared to its draft proposals published in the summer, the regulator has introduced amendments to certain items, most of which affect smaller network operators. The main aspect for us is that the regulator intends to maintain the 7-year average approach for determining the cost of debt on the existing asset base without annual adjustments. This fails to consider that maturing debt must be refinanced at current market rates. The proposed higher weighting of years with higher investment is a step in the right direction, but it does not solve the problem as the average would still be below current market rates. Consequently, the current draft of the framework does not fairly reflect grid operators' financing cost. Allowing for an annual adjustment would have ensured a more appropriate reflection of actual market developments for both customers and grid operators. The proposals are still in draft format, and so far, we have only seen a brief BNetzA release. However, the regulator has indicated that the current version is close to final and plans to keep its year-end target for finalizing the framework and the methodology on capital returns and efficiency benchmarking. However, the final values for return on capital will only be determined much later in the process between 2026 and 2028 as was the case for former regulatory periods. Given the status and recent announcement of the regulator, specifically for the cost of debt treatment, the uncertainties regarding RP5 are greater than we had expected by now. We would have expected to be able to narrow down the ranges for capital remuneration further. As we have always said, ultimately, the RP5 proposals as a whole must be sufficiently attractive to promote investments. In his latest announcement, the regulator stated that the new Nest proposals will increase the revenue cap by 1.4% or EUR 1.3 billion for power DSOs during the next regulatory period. The regulator must now move from words to actions as we do not see the necessary increase of the regulators' returns so far in the publications. In view of the enormous investment needed for a successful energy transition, we, however, remain confident that the final result will deliver the outcome needed. But we would have expected to have more clarity already at this first stage of the process to invest further investments in detail. We will continue to advocate for an internationally competitive market-based regulatory framework that supports a successful energy transition in Germany. At the same time, we remain committed to our value creation promise and will only invest provided regulatory returns create value for our shareholders. I'm sure we will continue this topic in our Q&A, but let me now turn to our financial results for the first 9 months. There are 3 key messages I want to highlight. First, in the first 9 months of the year, we achieved an adjusted EBITDA of EUR 7.4 billion and an adjusted net income of EUR 2.3 billion. This represents a year-over-year increase of 10% and 4%, respectively. Based on our full year guidance, that means that we have achieved roughly 76% of our adjusted EBITDA and 78% of adjusted net income at group level. Second, our investment-driven earnings growth and strong operational execution remain the key driver of our sustainable growth. Our planned investments have developed well with a year-over-year increase of 8% at group level. The main share comes from our Energy Networks business. This shows that our long-term procurement strategy, including our highly skilled workforce, enables us to successfully execute our networks investment plan. And third, based on our 9 months economic net debt outturn, we expect our debt factor to come in at around 4.5x economic net debt to adjusted EBITDA for the full year 2025. Our balance sheet continues to provide a strong foundation for our investment plans. Let us now move on to the details of our 9 months year-over-year adjusted EBITDA development. The increase in EBITDA was largely driven by our Energy Networks business, reflecting accelerated investments in our regulated asset base across our regions. We continue to see a substantial contribution to our earnings growth coming from value-neutral timing effects. In Germany, the positive timing effects were driven by increased volumes and lower redispatch expenses, primarily during the first half of this year. In Southeastern Europe, we continue to see additional network loss recoveries and volume effects. We don't expect significant impacts from value-neutral timing effect in Q4 2025. Turning now to our Energy Infrastructure Solutions business. EBITDA growth was driven by higher volumes due to normalized operations and weather compared to last year. On top, we saw business growth from new projects coming online and increased smart metering installations in the U.K. Our Energy Retail business delivered in line with our expectations. The usual operational year-over-year development in Germany is masked by phasing effects from true-ups for volume and price assumptions and by restructuring provisions in connection with our efficiency programs. However, the decline is partially balanced by temporary price effects from earlier this year. As already communicated in our H1 call, the earnings development in the U.K. continued as anticipated and is already fully reflected in our guidance. In our U.K. B2C customer segment, we continue to see customers switching from SVT tariffs to fixed-term tariffs. In our U.K. B2B business, contracts from previous years continued to roll off. Our 9 months 2025 adjusted net income came in at around EUR 2.3 billion. The conversion of the operational growth into the bottom line came in as expected. We observed slightly higher depreciation costs, driven by increased digital investments with shorter useful lives. Interest costs rose due to the higher coupons compared to maturing debt as well as higher debt levels relative to prior years. In addition, the positive value-neutral timing effects mainly came from our Southeastern Europe network business, which has a higher minority interest. Let us now move on to our economic net debt development. The execution of our investment program remains strong. In our Energy Networks business, we saw a 15% increase in year-over-year investments. Our group CapEx fill rate now stands at around 60%, which is in line with our typical 9 months level. Our economic net debt improved by roughly EUR 2 billion in the third quarter. The main driver was a strong seasonal operational cash flow. In addition, there was a positive structural effect of around EUR 700 million coming from the deconsolidation of one of our regional utilities participation in Germany NEW AG at the end of September 2025. In the third quarter, we also benefited from a tailwind in pension obligations, which decreased by a mid-triple-digit million euro amount, mainly due to the rising interest rates between the end of Q2 and Q3. We have also continued to streamline our portfolio as part of our discretionary EUR 2 billion disposal program. Most recently, we announced that we have signed an agreement to divest our Gas Networks business in Czechia. This step enables us to continue pursuing our ambitious growth and investment goals. In summary, our robust E&D trajectory continues to support our confidence in maintaining strong balance sheet flexibility to finance our ongoing investment program. At year-end, we expect our debt factor to come in at around 4.5x economic net debt to adjusted EBITDA based on the current interest rate environment. Finally, I would like to conclude today's presentation with my key takeaways and outlook. First, we have delivered strong 9 months group results and are well on track with our investment ramp-up. Our strong balance sheet provides a solid foundation for continued organic growth. Second, on our outlook. Our 9-month performance supports our 2025 earnings expectations. In our Energy Networks segment, we continue to expect to reach the upper end of the guidance range, driven by value-neutral timing effects. This also positions us at the upper end of our group EBITDA guidance range for the full year 2025. For our adjusted net income, we still expect to land comfortably within our guidance range. With that, we fully confirm our full year 2025 guidance and 2028 outlook, including our dividend policy. With that, back to you, Iris, for the Q&A. Iris Eveleigh: Thank you, Nadia. And with that, we will start our Q&A session. [Operator Instructions] And we will start today's call with a question from Harry Wyburd from Exane. Harry Wyburd: So I'll keep my regulation too. So firstly, can I just dig into some of the comments you made on regulation. So noted on the point on cost of debt allowances and your disappointment with that, but you also mentioned that you're confident you will achieve in the end, an agreement that works for you. And you also mentioned you are confident that you are -- or more confident that you'll get the consultation documents by the end of this year. Can you just tell us what a good outcome would look like in those documents you're expecting by the end of the year? It sounds like you're less optimistic about cost of debt allowances. What else could offset that potentially? And what is your latest thinking on where you think operating cost allowances will come out because a few of your criticisms of the regulation were centered on cost allowances. And then the second one is on consensus for next year. Given that next year, you will no longer be reporting timing effects in your headline earnings. Are you comfortable with the current consensus for next year, which I think stands at around EUR 1.08. If you could give us a flavor of how you're feeling on that, that would be very useful. Nadia Jakobi: Harry, thanks for the questions. I think on the question on outlook 2026, we give the outlook for 2026 at our full year results for 2025. And I will now not give any glimpse into our 2026 numbers. But just, of course, we are, of course, following the consensus always very carefully. So coming to the first question. So first of all, the regulator has announced that he sees the draft as largely final, and he keeps the year-end time line for the framework for cost of capital and efficiency. Compared to the summer draft, the regulator added amendments and improvements, but those were mainly affecting the smaller DSOs. You might have seen that the simplified that -- also the DSO and the simplified procedure can now get the OpEx factor. For us, as you highlighted, the key negative point that we have seen so far that the 7-year average without dynamic adjustment is still kept. And honestly, also the weighted average that has now been introduced is not helping that much because we have been also ramping up our investments faster than the industry because we got our ducks in the row on supply chain at a faster pace to enable the energy transition. And as you know, we are sort of connecting 80% of all onshore wind, for example. That's why we have been ramping up far faster than some of the smaller competitors. So the latest statement on this cost of debt rather confirms a bit of unease that we have highlighted in our H1 call. But we, of course, continue to advocate for competitive and market-based regulatory framework. So I don't see that there will be now massive changes compared on this cost of debt discussion until the end of the year. But of course, the overall regulatory package must be attractive enough to encourage further investments. So if you ask me, the problem is, at this point in time, we only have seen the press statements of the regulator. In the press statements, the regulator has clearly articulated that he sees that the revenues will structurally increase by 1.4%. But however, we haven't seen that now in the publications. And also, we don't have the final draft in our hands. That's why it's now very difficult for me to sort of point you to the 1, 2, 3 positives in the publications, which might come until the end of the year because I currently don't have more information than is publicly available. On operating cost allowance, maybe just one word. Of course, operating cost allowances, that was always clear that everything that is -- in regard to efficiency benchmarking and operating cost allowances, that was always clear that this will only come at a later point in time in the regulatory period. Iris Eveleigh: We move then on to the next question. The next question comes from Deepa from Bernstein. Deepa Venkateswaran: So I think my question is actually continuing on the theme of regulation, but maybe a bit more specific, Nadia, based on your best understanding from your regulatory team. So the new period starts in 2029. So are we talking about like a weighted average cost of debt from -- averaging period from '21 to '28. That number is calculated. It's then fixed and just applied for all the -- I think it's going to be only one RAB, right? So for the opening RAB, new investments, et cetera? Or is there at least going to be some level of dynamism for the new CapEx that's added on from 2029 onwards? So that's my first question. Second question is a bit related. Obviously, when you will be presenting your full year results in '26, you're going to give us guidance for '26, but there's also an expectation that maybe you will roll your plan forward and give us some updates on CapEx. So my question really is, do you think you and the Board will have enough certainty about the investment conditions by Feb '26 that will allow you to make a decision on whether to keep the CapEx numbers as they are or use some of that headroom in your balance sheet? Yes. So those are the two questions. Nadia Jakobi: So Deepa, you're touching upon some very relevant points. So we -- so first of all, to clarify the second part of your first question, it is very clear from the current proposals that for the new investments that start from 2027, there will be this dynamic adjustment in the cost of debt that we already have in this fourth regulatory period. So that's something which is continued and it's also then working that we get our actual financing cost reimbursed. Then when it comes to the currently existing asset base, like you highlighted, it is a 7-year average, and this is then fixed and not dynamically annually adjusted for the maturing debt. And what we don't know at this point in time is what years are part of the time series. And that is, of course, very relevant because, as you know, at the beginning of the '20s, we still had this very low interest rate years, and it is very fundamental, which years are being part of this 7-year average. And that is something we don't know, and it is also not clear if we know at the end of the year. And this also applies, for example, for the risk-free rate that is for the new investments as part of the cost of equity determination. We also don't know which years will be included in that calculation and some of the other elements that are part of the cost of equity for sort of the new investments. So that then also leads me to the second part of your question. As we highlighted, we would have expected to have more clarity around the methodology at this point in time to be able to narrow down the corridor of potential outcomes. I think that is what I've been also saying the last couple of quarters that the methodology and that methodology, of course, includes also what kind of years are included, et cetera, would help us to narrow down the corridor of potential outcomes. And what I know right now, that has become less likely at this point in time. So when it now comes to what we will do in our full year, the regulator has clearly articulated and signaled that we will have higher revenues, but we haven't seen it yet. So that's why we will first now wait for the proposals to come. Currently, that's a closed shop exercise within the regulatory authorities and the regional authorities. And once we have now then assessed the final proposals, we will then make up our base case, and we will update you accordingly. But for now, it's too early to comment on our full year communication. Iris Eveleigh: With that, we get to the next question, which comes from Peter Bisztyga from BofA. Peter Bisztyga: So sorry to kind of labor the point on regulation. But what I'm sort of hearing is that the cost of debt aspect isn't adequate and it's probably not going to change very much. You've been sort of clear that you want 8% plus ROE. And if you look at the methodology to date, I don't think there's a chance that you're going to get anywhere near that. Dispatch costs are still included in the efficiency benchmarking. So there's a whole list of stuff that you've been quite explicit about the fact that you don't like. And the revenue increase, the sort of 1%, whatever it is, just isn't very much in the grand scheme of things. So how can this get anywhere near to being a sort of sufficient overall package based on what you have said are your kind of minimum requirements? So that's my main question. And then maybe just one -- just on a slightly different topic. Your customer numbers in Germany and the U.K. In Germany, you sort of lost quite a few in the first half, but it seems to have now stabilized. And in the U.K., you're sort of losing a few -- 100,000 or so customers this quarter despite, I think, sort of quite aggressive pricing. So I just wondered if you could comment on what dynamics you're seeing in those 2 retail markets, please? Nadia Jakobi: Yes. So let me start with the first part of the question. So maybe starting with the last comment. The revenue increase of 1.4% is only the structural elements, which would lead to this 1.4%. All the market-related elements, i.e., sort of higher interest rates, both affecting sort of cost of debt and cost of equity and of course, all the increase about sort of more investments, that is not included in this 1.4%. But it is just sort of structurally making it more attractive that is included in that. Second part, the determination of the new regulatory period, which starts in 2029 has always had like 4 years. So '25, '26, '27, '28. So what we are now saying in this first part, what we see up in 2025 and what we would have hoped for to get clarity in this first year and the one-off of the next regulatory period, this is disappointing from what we have known right now. But of course, we will have 3 more years with all the individual determinations to come. And with all the investment needs actually building up, we are still confident that the regulator will see the need for investment and will also then improve on that. To highlight one topic you have now set around cost of debt, we discussed that. As a positive, which is currently not clarified at all is the OpEx factor. This has been just laid out without making it any more concrete, which should clearly be a positive. You mentioned the redispatch cost. We haven't so far seen anything and also no communication on how the efficiency framework and the benchmarking is going to work. And there, we also still see clearly the potential for improvements. However, so far, we haven't seen it in any of the publications. And so -- as I said in my speech, the regulator now just after he had his words that there will be structural improvements, we will also now see that is actually the actions are also coming. And customer numbers. So customer numbers, yes. So I think we covered the drop in customer numbers in the first half of the year. And we highlighted in the last call that we are targeting around 47 million customers for our overall customer base, and that is absolutely unchanged. We are pursuing value over volume strategy. So clearly, it's not only the customer numbers, but also the value per customer is what is relevant for us. So we are absolutely sort of keeping to our guidance for the energy retail business for 2025 with a target range of EUR 1.6 billion to EUR 1.8 billion, and that is fully confirmed. And we have been also saying, I think if you remember, as part of our Q1 call that some of the customer acquisition campaigns will be rather tilted to the back end of the year and some of that, you are also now seeing in the market. Iris Eveleigh: With that, we go on to Piotr from Citi. Piotr Dzieciolowski: I have two questions, please. So the first one on this EUR 5 billion to EUR 10 billion extra CapEx headroom that you previously discussed. So assuming the German regulator doesn't provide you the required package, is it possible that you redirect this potentially into other markets? Essentially, what I'm trying to get is, shall we think about this EUR 5 billion to EUR 10 billion that is more likely or not that it will come and be spent somewhere within your structure into different regions? So that's question number one. And the second question I have on the supply margins outlook into the next year. What is the procurement prices of a commodity component doing on your books? Is it -- should the customers expect declining prices or flat prices? And what that -- does it have any implication on the supply margin you can generate? Nadia Jakobi: Yes. So on this EUR 5 billion to EUR 10 billion headroom that we have. And I think if you remember, Leo, I think, gave some highlights about where we're investing in our international networks business in the H1 call. And there is very clearly also a need to grow in other regions because particularly also in some of the other regions we are operating in, we see a higher economic growth than we actually see in Germany. And there's quite a lot of connection requests also for industrial customers. I would just point you to some of the examples that Leo has given as part of his speech in H1. So there is clearly the need for growth also in our international and European businesses. Second point, in Germany, there is this clear investment need. We're also already -- at this moment, our demands and needs for investment by far exceed what we can actually include in our plan. And that's why we are saying, as I already highlighted to the question of Peter, that we say because the investment needs are there that eventually we will get a good framework in Germany. So I guess, as you indicated, this EUR 5 billion to EUR 10 billion in headroom clearly earmarked for organic growth in our business. Second question was regarding the supply margins. Yes, procurement strategy is, of course, more commercially sensitive topic that I will not now share with the whole investor community. I guess, what you know that some of the prices in the U.K., the procurement strategy can be very easily followed by the price cap regulation. So I would point you to that. And in Germany, except from the commodity element, you, of course, know that we have seen quite some reductions in network grid fees with the subsidization of the German government of the TSO grid fees by EUR 6.5 billion, which will now also feed through into the tariffs and the same applies to the cancellation of some gas levy. But I guess that would be what I can sort of share with you on this point. So clearly, some elements where affordability concerns -- where we will see that some of the affordability concern will be dampened, particularly in our biggest market, largest market, Germany. Iris Eveleigh: And then we have another question from Louis Boujard from ODDO. Louis Boujard: Maybe two on my side. Maybe the first one would be regarding the timing actually for the new investment plan that you expected. We understand that indeed, the debt factor is not at the level that you wanted, that there is some uncertainty still in the OpEx and in the framework that is currently under discussion. What does that mean if you're not able by February to update and to increase your CapEx plan? Does that mean that it's going to be over? Or does it mean that eventually there is other milestones that you could foresee in the future in the next quarters after February on which we could rely on in order to have a better visibility and better grip regarding the potential upside into the CapEx plan? And also as a side comment on this question, do you, at the same time, see potential for additional investments in digitalization, smart meters, et cetera, that would enable you eventually to grab additional returns on the networks without relying too much into the regulatory framework? That would be -- sorry, the first question, a bit long. Second one would be much shorter. On the Retail segment, our EBITDA declined by 18% on the 9 months. Well, we know that there is some normalization effect, but could you eventually elaborate on a geographical standpoint, what would be and if any corrective measures might be needed in certain geographies on which eventually the drop is a bit larger than what you could have anticipated previously? Nadia Jakobi: Okay. So let me come first to your first question. So additional smart meter investments is always a good idea. So particularly, we are investing in smart meters in the U.K. and Germany. And I think we have been the ones who've been always fulfilling their targets. In Germany, we have reached a 20% increase. But of course, smart meter investments is something which we can do, but is not, of course, in any size equivalent to the RAB investments that we do. When it comes to the timing, I would need to say that we don't want to speculate now. We have so far only got sort of what was uploaded onto the website of BNetzA and one interview of Handelsblatt of Mr. Muller. We have this clear announcement that we will see increases or improvements to the regulatory on top of the market-driven improvements. And that's why I don't want to speculate now what we will do. We will first make up our mind what we will do for the full year 2025 announcements. So when it comes to the Q2, so the retail business, yes, you're right. As I've been highlighting, we are sort of EUR 300 million below last year in 9 months. We achieved EUR 1.4 billion, and we are sort of following the normal seasonal pattern and are on track for our full year guidance. Q3 stand-alone EBITDA was EUR 120 million. That was down from last year. That was mainly due to phasing. We actually put in some cost provisions for restructuring and some normalization effects across the markets. So we have been really seeing only now some shifts between Q3 and Q4. Overall, the H2 results are very much in line with what we have been also seeing in former H2s because you need to bear in mind that H1 usually is the stronger of the 2 halves of the year for us. Yes. I think particularly Germany is a bit hard to interpret because last year, we had the positive true-ups from the reconciliation between actual and planned consumption in Q3. Now we will rather see some true-ups in Q4. And we are really managing also the overall -- we are managing the results in the retail business on a full year basis and not so much on a quarter-by-quarter basis. Iris Eveleigh: And with that, we come already to our last question for today, which comes from Ahmed from Jefferies. Ahmed Farman: Nadia, it sounds like from your comments that there is still quite a bit of a gap on key parameters, regulatory parameters between E.ON's position and whatever visibility that you get from the regulator. But then you've also referenced that you think in the end, you sort of feel that there will be the 2 sites will sort of come together. Could you just talk a little bit about the process? So if we get the consultation documents by year-end, and there is still a substantial gap between E.ON's position and what it sees as a regulatory proposal, what recourse measures do you have? Are you able to challenge it? Is there a way to sort of take it to an appeal? And how long could that process be? So I just want to understand a little bit more how do we -- what could be the process from there onwards? That's my number one question. And sorry, my second question is, could you give us some sense of how significant the changes could be to the cost outperformance methodology? Because my understanding is that is quite an important element in terms of when we think about sort of the German regulation. Nadia Jakobi: So Ahmed, as I highlighted earlier, at this point in time, we have only sort of the announcements from the regulator about the draft proposals that has been sent to the final consultation of the committee of regional regulators. And we don't have that yet. So for us, sort of the first step would be that we assess these publications once we have made them available. And then once we have fully analyzed that, we will assess our options. And as always, we also assess potential legal options that we have. But we will, of course, only do that once we have the information in place. And as the regulator has highlighted, they deem that these drafts are largely final and that they will keep the year-end time line for the framework. So we are pretty sure that we will have them in the next couple of weeks. The final decisions on the cost of debt and cost of equity are expected between 2026 and 2028, as I highlighted, and the efficiency values for RP5 power will be defined in 2028. So you're right. To summarize it again, you're right regarding the gap to our position versus the regulator. But keep in mind, it's now the framework and determination will only happen over the next 2 to 3 years. Yes. Ahmed Farman: Very clear. Nadia Jakobi: And then the second question, when it comes to outperformance, it is an incentive regulation that we have and it's a potential for outperformance. I highlighted it earlier, and there's now a new element that is also coming in. So we have got the benchmarking and sort of the efficiency values that we get is also very clearly determining what kind of outperformance that we have. That is something which we will all know at a very later point in the process. Then the OpEx adjustment factor, we cannot really tell. I guess, on the OpEx adjustment factor, I would hope that we get some more clarification in 2026. There was a bit more push down the line. Sort of even -- currently, we don't even know what the methodology about that is. But okay, what the OpEx factor will actually mean for us, we would also only know at the back end before we actually get into the regulatory period. I guess that's all I can say on the outperformance right now. Of course, there's always a link between outperformance, OpEx factor and all the other return elements. And as we say, for us, the overall package regarding all elements is actually what counts. In this regulatory period that we are currently in, we managed to achieve a value creation spread of 150 to 200 basis points over all our Energy Networks businesses. And also our German business is living up to this value creation spread. And that's, of course, our ambition that -- and our goal to also achieve this value creation spread in the future. Iris Eveleigh: And with that, we come to the end of our 9 months results call. Thank you very much, everyone. And if there are any follow-up questions or you would like to go into more details on the one or the other point, the IR team is happy to take your questions later. Thank you very much for dialing in and speak soon. Bye-bye, everyone. Nadia Jakobi: Bye-bye. Thank you.
Daniel Thorsson: Okay. Good morning all, and good evening, Jessica. It's Daniel Thorsson here from ABG, who will host this morning's conference call with BTS and the CEO, Jessica Skon. So very much welcome for all joining. Analysts have joined through a separate link, so you should be able to ask questions verbally in the Q&A session. I will open up for that in the end. But just saying welcome to Jessica, and feel free to go ahead and present the Q3 report. Thank you very much. Jessica Parisi: Super. Thank you very much, Daniel. Hello, BTS investors. Welcome to the Q3 report from BTS. We're not happy with the quarter. It was a tough quarter. At the group level, we grew 3%, but we had a profit decline of negative 16% if you adjust for foreign currency exchanges and negative 25% if you include the currency effect. So let's walk you through and kind of demystify what's behind the profit drop in the third quarter. There's really 2 big reasons. Number one is something I'm going to tell you about in North America and number two is negative currency effect. So North America, you can see the decline of SEK 10.3 million in the third quarter. One big reason for this, 65% behind North America's drop has to do with one particular customer engagement sold through our APG channel of a more traditional BTS product. And the reason why this was particularly painful is because it's kind of a pure license play, which means the value drops, the vast majority drops to the bottom line compared to our other services. And when you compare this license revenue through the APG channel in this quarter compared to a year ago, it had a significant impact on the profit. If you look at the impact of the weak dollar, it's about 28% behind North America's profit drop. If we look at BTS Other markets, it's really 2 things. One is we decided to increase our marketing investments. So we had a lot of client events and dinners and roundtables in the third quarter compared to a year ago. And then, of course, it's also the adverse currency impacts, which makes up 50% of the decline in BTS Other markets profit. And BTS Europe had a plus. They performed well. They increased their profit in the third quarter. They continue to do well. Still a tough market in Europe, but they've been performing quite strongly, and we do see some slowed growth happening or happening right now in the fourth quarter. So bottom line is the poor results and profit in the third quarter despite a 3% growth is because of the negative effect in currency and also the one client deal through the APG channel, but because it's a high license deal compared to a year ago, had a disproportionate impact on the profit. If we go to North America, our biggest market, which to remind you, we are in turnaround mode. We're 1 quarter in. We've changed the leadership team and put a lot of efforts into turning this market around. We see the turnaround still as on track. And on track for us means we shared with you last time that we expected to get back to growth in the first half of 2026. A couple of highlights to talk about BTS North America, that Phase 1 of our AI efficiency has been moved into full effect. The benefits of this in the third quarter is the underlying cost for BTS North America have been reduced by 2% and our revenue employee is up by 10% in the core business. We have also added more sellers into the third quarter. We have much higher win rates. I'm very proud of this. Just to give you a sense, at the lowest point in North America this year towards the end of the first quarter, our win rates were mid- to high 20%, which is pretty unacceptable. We are back up to our sweet spot of 61% win rates across all deals in the third quarter and 71% win rates across deals over SEK 500,000. We've also won some really new great strategic clients, both some of the new tech hypergrowth companies as well as in other industries. If you look at the profit performance of what I'd call [NAMS] organic profit outside of the APG channel and the profit that's sold through the channel, the profit was stable in the third quarter, even though the revenue was soft. So we're feeling good about that. Our Executive Coaching business continues to grow. It's very successful. That was from the Boda acquisition a couple of years ago. And then Sounding Board, the scaled coaching acquisition from the first quarter turned to profit in the third quarter as well. They're performing on plan. The integration is going well, and we continue to win very big end-to-end global coaching deals, which was the whole idea behind the acquisition. So yes, I mean, bottom line in BTS North America, we're still in the turnaround. No quick hit win 1 quarter in. Historically, when we have to turn around parts of the business, it typically takes 3 quarters. And right now, we feel like everything we're seeing in terms of top of the funnel activities and win rates and presence in the market, we believe that we'll be back to growth in the first half of 2026. BTS Europe continued to grow in the third quarter after a super strong start to the year, and they have a healthy margin. The demand is gradually slowing down to more kind of typical rates that you would see from a BTS business. And in the fourth quarter, we do think that the revenue is actually going to soften a bit. That said, they have a really strong pipeline. Their win rates are super competitive and high. Their activities were, I think, up 60% in the third quarter compared to Q3 a year ago. And so we feel pretty strong about Europe's 2026 start to the year. APG, which is the channel in BTS North America, which is getting a lot of attention in this quarter report. They continue to decline, slow market for them, reduced project scopes and the cancellation of licenses across some of their client base. As I mentioned to you, when BTS can sell our standard products through that channel, and typically, that's like a standard simulation that the clients will facilitate themselves, that's pure profit for BTS North America's business. And one of the things we've done, just given APG's decline over the last quarters plus the pain that we felt in the third quarter, we took some fast action. I shifted the APG's reporting structure to me since I'm in the North America market, and I can drive faster synergies and energy there again. And then we've bolstered the plan and how we're going to support APG through 2 of our major practice areas. If we look at BTS Other markets, we had I would say, more kind of macroeconomic impacts, specifically in Southeast Asia and specifically in Thailand, which contributed to slower growth than we were expecting in the third quarter, and we continue to see it being soft in the fourth quarter as well. Balancing to that though, however, in the third quarter and in the fourth quarter is strength in the Middle East business. We also expect the fourth quarter to be strong in our Spain business, Latin America and so forth. And as we mentioned, BTS Other markets did a lot of client events and dinners. They were very successful, very well received. They generated a lot of leads, and those will start to pay off in the first quarter. From an AI perspective, I'm really proud of this. Our AI services are continuing to grow at kind of hyper speed. Our bookings of AI-related adoption services have now reached 10.3 million year-to-date, which is up [482%] from the same period last year. Our Verity platform, which is part of the Wonderway acquisition a couple of years ago, bookings has now reached $4 million, which is 15x bigger than the same period last year and 33% growth from the second quarter. We are having a lot of fun right now in terms of meeting with clients and partnering with them, specifically on what we call bottoms-up kind of Grassroots AI innovation. So what we're seeing is a lot of companies are placing their kind of typical ways of looking at digital transformation, top-down AI bets, but we believe there's a lot of value to be unlocked bottoms up, and that value proposition is resonating very well in the third quarter. Specifically, we've also had some -- we had a really big breakthrough in the third quarter, which is going to have implications on our talent and organizational model moving forward. I mentioned to you in the last couple of quarters that our global simulation team had been experimenting with different AI tools. And we started to go live with our clients in the third quarter. That continued to rapidly expand around the world. And just actually in the last couple of weeks, we kind of hit the -- I don't know if it's the final breakthrough, but it's a big breakthrough across our most complex simulation platform. So we have officially completely redesigned or retrofitted how we build simulations across our practices. And this has strategic implications for how many people we have in our operations teams, how many people we're going to put on the client project teams, the economics for our clients. I announced this breakthrough to 90 of our existing [Technical Difficulty]in BTS North America, and they were absolutely thrilled to hear about the values for them. And so we're now moving from, I would call it, breakthrough AI value experimentation and innovation to scaling this new way of working globally. And we will start to see material P&L gains already in the first quarter. From an automation update, part of the reason why we made the Sounding Board acquisition in the first quarter was they have great tech platform, which would allow us to scale. So our movement of existing workloads over to their platform is on track. And we are continuing to do that through the first quarter. So additional savings in OpEx will be coming beginning in the second quarter of 2026. So for those of you who have been with us for a long time, you're very used to seeing the slide that we are used to average growth of 12% CAGR since 2001 and an average profit growth of 15% per year. It has been a tough year, specifically for one reason, that's BTS North America's core business, which is why we did the leadership change in early June, and that turnaround is on plan and progressing well. It's going to get a little tougher before we get back to the growth, but the plan is in the first half of the year, it's looking good. So given although we see clear signs of the operational improvements, and we have strong markets in Europe and most of the world, we do foresee revenue decline in BTS North America in the fourth quarter. So that fourth quarter dip, combined with continued currency headwinds is the 2 major reasons behind why we are lowering our outlook to be significantly worse than what we said previously. And with that, I'm sure there's clarifying questions and comments. So I'm all yours. Daniel Thorsson: Excellent. Wonderful, Jessica. I have a couple of questions in the beginning here, but I also tell the other analysts who have joined, just raise your hand, and I'll let you ask questions to Jessica as well, of course. First, a question on Europe here, somewhat softer demand into Q4 despite the strong year so far. Is there any particular market or sector behind the slowing trend in the fall or more the customer pipeline you are sitting on? Jessica Parisi: There's not a particular sector behind it, and it's not a particular office. Our London team's pipeline is a little bit softer than the others. But no, it's more that they had a really strong first half. And when we look at their full year performance, it's still going to be really good with great margins and growth and all of that. And to also kind of balance the softening in the fourth quarter, we do not believe that, that's going to carry over into 2026. The pipeline and the deals and the work that we have line of sight on already in the first quarter shows strong growth. So it's more like a softer end to a really big year for Europe. Daniel Thorsson: Okay. That's clear. And then on the U.S. market, some positive words on the U.S. tech sector here in the report. We can all follow the huge AI investments, of course. Is this what partly drives demand for you as well that the tech sector in general is more willing to do investments? Or are there any other drivers behind this comment? Jessica Parisi: No, it's a mixed [bag] with tech. We can already start to see kind of the new hyperscalers compared to the older tech who are still trying to compete for the growth rates that they've been used to. So in some cases, for example, we have one of our larger software clients who has just gone through a major reorg. And with that, we expect their spend with us in the fourth quarter to be down quite a lot. At the same time, we've just brought in new software tech clients that are more on the hyperscale side, and we expect that to ramp really quickly. So it's a mixed bag. Daniel Thorsson: I see. I see. In general, in the market, do you see any noticeable price pressure or price competition in some markets for like general management consulting services today? Jessica Parisi: Not really. I mean not so significantly. There is less interest in paying for content license which for us has never been a very big part of our business, but it's something that is affecting the training industry as a whole and any competitors who mainly have a content-first play. Our pricing compared to traditional consulting firms, especially on the AI implementation side is very affordable. So we are not seeing any pricing pressure there. We are not seeing pricing pressure on our new AI platforms and technology. One of the breakthroughs with all of the simulation redesign work we've been doing is we'll be able to build simulations faster. And so I do think we're going to see a shift in our client revenue perhaps less upfront because we can do it more quickly, but faster to deploy, right? And with the faster deploy, we will see the license and usage fees hitting quicker than normal. Daniel Thorsson: Yes, I see. That's clear. And then a clarifying question here on the guidance for 2025. You also include that revenue will decline as well as EBITDA. Is it also significantly worse on revenue? Or how should we think about that addition? Jessica Parisi: So no, we made a mistake and then we've already fixed it, and we'll be sending it. We were only relating to the earnings. It was a miss type. So top line for the full year, we still expect actually growth at the group level, just low single-digits growth. And yes, that was our mistake. So I'm sorry about that. Daniel Thorsson: No problem. That's very clear. Let's see if any of the other analysts would like to ask a question, we'll see how the format works here if they can raise their hand or just unmute. Let's see if Oscar or Johan, for example. Otherwise, we have a few from the chat. I'll take one for the chat, just try to shout out any of the other analysts. They seem to be joined correctly here at least. But we have a couple of questions from the chat Jessica. And then the first one on license sales. Can you elaborate on the dynamics within license sales? Is it related to smaller deal size or fewer deals in total as well? Do you think that you are losing some deals to competitors and why? And you also say that the lower license sales in Q3 was only temporary. Can you elaborate on that? Jessica Parisi: Yes. The particular license deal that was extra painful to us that was sold through the channel, that was really just to one customer, and it was for one of our standard training simulations [Audio Gap] before is still relevant in terms of clients not wanting to pay content license. So if we have any old content license deals out there, we don't have much, but those would be at risk. Now the growth of the Verity platform, the BTS simulation usage, some of our other AI platform offerings, that growth, that subscription growth will outweigh any decline in content license or product license revenue. But in Q3, it was just that one simple product through one customer. Daniel Thorsson: I see. That's clear. On one-offs, are there any one-offs in this quarter in Q3? And yes, what was the underlying EBITDA in that case? I think that you had like SEK 5 million in Q1 and SEK 14 million in Q2, if I remind correctly here, anything in Q3? Jessica Parisi: Probably just a tiny little bit of extra severance, but not much. Daniel Thorsson: No, exactly. You don't state anything in the report. And on the cost savings program, what's the status of this cost savings program? How much of the cost savings were realized in Q3? Jessica Parisi: Nearly all of them. Yes. So we'll get 100% live on them in Q4, but the majority were realized in North America in the third quarter. What's interesting is what we're going to do for this next phase now that we've had the final breakthrough in using new technology across all of our simulations. And we are very busy right now working through those implications. So -- but it really -- we just hit the next level of breakthrough just a week ago, and the teams are moving fast. But this will have implications across consultant teams, our digital enablement teams, operations, project managers. So I can't -- I don't have enough clarity right now to share with all of you what to expect, but we are working on it very quickly. Daniel Thorsson: I see. A linked question to that, in terms of number of employees going into 2026, do you expect this number to grow in '26? Or should we see top line growth coming from increased sales per employee rather? Jessica Parisi: Yes. We will bring in a few people here or there, probably revenue generators, but the total number of BTS employees will shrink in 2026. So we will have revenue per employee improvement, not just from what we've already done this year, but from a second wave as well. Daniel Thorsson: Okay. That's clear. And then also a question here. In Q4 '24, you mentioned that 2 large clients canceled their annual events, which affected revenues by negatively $2 million. Are those clients back with their annual events in Q4 '25 now? Jessica Parisi: No. They're not back. And one of them is also most likely going to be behind another major drop in the fourth quarter. So we're working on it right now. But yes, yes, that's -- one of them is why North America is going to have a tough time in the fourth quarter. That said, I can give a little more context. That's one of the tech companies that's gone through a major reorg, and have really changed their budgeting approaches, and they're not doing another big event in the first quarter this year. The number of large company sales kickoffs and events that we are doing, however, is up across North America, but the average revenue spend is down. So the team is really busy. The deal sizes are slightly smaller than they were last year. And that's -- I think that's just a reflection of clients want to do something still, but they're spending less. Daniel Thorsson: I see. A couple of written questions here from Johan Sunden. When during Q3 did the important licensing deal in North America fell away? And what is the risk that more important clients do the same going forward? Jessica Parisi: Yes. The third quarter, we found out about it in the last few weeks of the third quarter. We don't have that many other product license deals like that in the system. We have -- we don't have risk of that happening again in the fourth quarter. So I mean, yes, it's not something that's so frequent across our revenue base. And it's also the delta from Q3 last year with APG that made it particularly painful. Yes. So I don't see it as a particularly acute problem compared to the other things we're trying to do to get back to growth. Daniel Thorsson: I see. I see. And then a second question from Johan here. How was sales and marketing costs in Q3 isolated to the other markets business? I guess the question is how large share of sales and marketing are related to other markets roughly? Jessica Parisi: From a total sales and marketing spend? Daniel Thorsson: I guess so. Johan Sundén: Maybe I can clarify. More like how isolated the step-up in sales and marketing cost is for Q3 and if there will be a similar kind of step-up in Q4 and... Jessica Parisi: Yes, yes. No, isolated to Q3. Johan Sundén: Perfect. But you said that there was some [dealers] now in Q4 as well, right? Jessica Parisi: The Q3 is where most of the world did their increase in marketing events. I've been busy in North America in Q4 doing the dinners, but the expenses in most of the world that we're referring to was in the third quarter. Johan Sundén: Yes. Perfect. Yes, my final question is more like the AI breakthrough that you highlighted just during the presentation. Just curious to hear your some initial thoughts on kind of impact on unit economics. How has kind of feedback been from clients? Any worries that there will be fee pressures? And just curious to understand how the value created will be distributed. Jessica Parisi: I'll share with you exactly as I can see it at this moment. And it's wild how fast things are changing. And you all know this and you hear it probably from all your clients. But I just to give you a sense, like, I've been waiting for the team to figure out if we can do this across our biggest [SIMs]. And I got a phone call last week saying that Microsoft just released some new feature. And that feature is kind of the final missing piece, but no one could have dreamed that, that feature would have come out a week ago, right? It's just kind of the world we're living in right now. Client feedback is coming in 3 different ways. One is we're able to demo in our sales meetings a real [SIM], what we mean, a simulation of their business. And that demo is blowing their minds. Like they cannot believe that we're able to kind of visualize what they're expressing in their strategy in such a quick way. So it is helping us move deals forward faster and have really high win rates. So that's a good sign. Fee pressure has not hit us yet, and we are working through our -- updating our pricing guidelines around use cases because what I shared with 90 of our customers and many of them who have known us well, we're nodding the whole time. Yes, we can build these a lot faster and still have high fidelity. But for some instances, they'll choose not to do it faster because sometimes we get paid just to have the working sessions with their executive teams and align everybody through the process of modeling and simulating. Other times, the whole point is to get a simulation on as fast as possible. So when speed is of the essence, yes, the upfront build will be reduced. if it's a small simulation, just -- I mean, it might be reduced from SEK 100,000 to SEK 50,000 or something like that to build it. But the benefit for us is that we'll go straight into licensing. And usually, what clients have always wanted to do is get more usage out of it as opposed to have some of their budget going towards the upfront build. So we will reduce some of the upfront fees, but I don't -- it hasn't happened yet, and we'll see kind of deal-by-deal, but how we shift that. On the other hand, getting the subscription and the usage and prioritizing that over the customization, I think, is better economics for the firm and allows us to deliver more value faster. Look, from an internal perspective, there's 2 major changes. Before this, when we would build the simulations, we would basically first model it in excel with some other software, and then we would move it back and forth between the Mumbai team and they would build a different version of it or an updated skin or something would go back and forth. That whole step is gone. So now the team is just coding or vibe coding and do stuff right in front of the client together with the client. There is no need to go back and forth with other teams. We'll go from 7-person team to 2-person teams in terms of the design. So it's a pretty big implication. Daniel Thorsson: Good. We have a few written questions from Oscar Ronnkvist, SEB as well. First one, did any of the pushed out revenues in Q2 become realized in Q3 in North America? Jessica Parisi: It's interesting, yes. And the win rates are growing, and we're celebrating all of those as well. So it hasn't been a -- Q3 in North America did not feel like, oh, thank goodness, all that stuff materialized from Q2. It's been a balanced feeling of the work that got pushed plus the new client and logos that have been coming in. So I don't have the exact percentage of revenue in the third quarter that was from the push. I can get back to you if you'd like. Daniel Thorsson: Fair enough. The other question, I think it's related to Johan's question first on increased investments in other markets in the quarter and how temporary they are. But Oscar's question here is, can we assume an increased margin ahead in other markets because of lower investments? Jessica Parisi: Yes. Yes. Yes, you should in the fourth quarter, both better margins and revenue growth. Daniel Thorsson: Yes. Okay. Fair. And then we have another question from the chat as well. License sales were down last year in Q4, 33% year-over-year. So you should meet quite low comps this year in Q4. Do you think license sales will be lower year-over-year again here in Q4? Or could they recover a bit? Jessica Parisi: There's one deal that we've been doing every year in the fourth quarter that I do not think we are going to do again. And that deal is about $3 million in revenue. And it's not that we're losing the client. It's just that they cannot make the economics work right now given the cost pressures that they're under. So we're going to evolve from that way of working with them to scoping each individual project now for time and materials and subscription and all of that individually. So yes, if you think about that, even though that's a different partnering model, if you think of that as license, you're going to see one more drop in the fourth quarter from that particular client. Daniel Thorsson: Okay. That's very clear. I'm trying to scroll through the chat here. I don't think there are any further questions actually, and we got questions from all analysts, I could see join the call and some of the audience. So thank you very much, Jessica, for the presentation, and have a good night sleep, and we will talk later today, Swedish time and tomorrow for you. Jessica Parisi: Super. Thank you. Daniel Thorsson: Thank you very much all for joining. Jessica Parisi: Bye-bye.
Operator: Good morning, and welcome to Rockwell Medical's Third Quarter 2025 Results Conference Call and Webcast. Please note, this event is being recorded. At this time, I would like to turn the conference call over to Heather Hunter, Chief Operating Officer at Rockwell Medical. Heather, please go ahead. Heather Hunter: Good morning, and thank you for joining us for this update on Rockwell Medical. Joining me on today's conference call are Dr. Mark Strobeck, Rockwell Medical's President and Chief Executive Officer; and Jesse Neri, Rockwell Medical's Chief Financial Officer. Before we begin, I would like to remind you that this conference call will contain forward-looking statements about Rockwell Medical within the meaning of the federal securities laws, including, but not limited to, the types of statements identified as forward-looking in our annual report on Form 10-K and our subsequent periodic reports filed with the SEC. These statements are subject to risks and uncertainties that could cause actual results to differ. Please note that these forward-looking statements reflect our opinions and expectations only as of today. Except as required by law, we specifically disclaim any obligation to update or revise these forward-looking statements in light of new information or future events. Factors that could cause actual results or outcomes to differ materially from those expressed in or implied by such forward-looking statements are discussed in greater detail in our periodic reports filed with the SEC. Rockwell Medical's quarterly report on Form 10-Q for the 3 months ended September 30, 2025, was filed prior to this call and provides a full analysis of the company's business strategy as well as the company's third quarter 2025 results. The reconciliation of non-GAAP measures we discuss on today's call can also be found in today's press release. Our Form 10-Q and other reports filed with the SEC, along with today's press release, our updated investor presentation and a replay of today's conference call and webcast can be found on Rockwell Medical's website under the Investors section. Now I would like to turn the conference call over to Rockwell Medical's President and CEO, Dr. Mark Strobeck. Mark Strobeck: Thank you, Heather. Good morning, and thank you for joining us today for Rockwell Medical's Third Quarter 2025 Earnings Conference Call and Webcast. As we approach the end of the year, I want to provide you with an update on what has truly been a year of resilience, transformation and growth for Rockwell. We are effectively managing the transition of our largest customer away from us while securing our base business through multiyear contracts, rightsizing our organization to enhance operational efficiency and adding new customers, all while continuing to meet strong customer demand with high-quality products supported by exceptional customer service. I am proud to say that we have made substantial progress. We continue to fundamentally strengthen our contract portfolio with over 80% of our customers operating under long-term agreements. This provides stability and revenue visibility that positions us well for the future. We continue to optimize our organizational structure to align with our current scale while maintaining our operational excellence and customer service standards. This rightsizing effort has been executed thoughtfully, ensuring we retain the capabilities and capacity needed to serve our customers and capitalize on growth opportunities as they emerge. And most importantly, we have demonstrated our ability to successfully manage through this transition period while maintaining our market position and building momentum for future growth. The strategic decisions we made earlier in the year are now translating into tangible results, and we remain confident in our ability to achieve our full year guidance targets. Looking at our third quarter financial performance, I am pleased to report several key achievements that demonstrate our continued progress through this year of transition. Most notably, we are pleased to report that we were profitable on an adjusted EBITDA basis for the third quarter. This continues to track in line with our full year guidance range. The trajectory we are seeing gives us confidence in our ability to achieve sustainable profitability as we move forward with our strengthened contract portfolio and further optimize cost structure. While our net sales of $15.9 million reflected the expected impact from our largest customers' transition, our adjusted gross margin performance remained consistent and well within the range -- well within our guidance range of 16% to 18%. This growing stability in our margin profile even during a period of customer transition speaks to the quality of our customer base and the value proposition we deliver in the hemodialysis concentrates market. We continue to make meaningful progress with both new and existing customers. Our pipeline has the potential to be transformational for Rockwell Medical. These discussions span various customer segments and geographic markets. And while we maintain our characteristically conservative approach to guidance, the breadth and quality of these opportunities reinforce our optimism about the company's growth trajectory in '26 and beyond. During the third quarter, we signed several new long-term product purchasing agreements with university medical centers, kidney centers and hospital systems. One agreement worth highlighting is the -- is with a single dialysis center located in Southern Florida. This is a 3-year commitment with the option to renew for 2 additional 1-year periods that has the potential to generate approximately $1 million in annualized net sales for the company. During the third quarter, we also expanded our product purchase segment agreement with the largest provider of dialysis and skilled nursing facilities in the United States. The agreement will be in effect for 3 years with the option to renew for 1 additional year and includes supply and purchasing minimums for our liquid and dry acid and bicarbonate concentrates, including our bicarbonate cartridge, which, as a reminder, officially launched earlier this year. Discussions with our formerly largest customer are still ongoing. We continue to supply them through the third quarter and expect to supply them through the end of the year. As a reminder, this customer originally planned to complete their transition to a new supplier in the middle of this year. However, due to a Class 1 recall of this -- by this new supplier and other unforeseen circumstances, the customer continues to rely on Rockwell Medical for a portion of its hemodialysis concentrate supply. We believe that this speaks to both the quality of our products and the operational challenges inherent in switching suppliers for mission-critical dialysis treatments. It's worth noting that this large customer represented 12% of our net sales in the third quarter of 2025, demonstrating that while this relationship remains meaningful to our business, our successful diversification efforts have significantly reduced our dependence on any single customer. We believe that this reduced concentration risk, combined with our strengthened contract portfolio across our broadened customer base positions us well regardless of how our discussions with the largest customer ultimately end up. We will continue to approach these discussions with the same professionalism and customer-centric focus that have characterized our long-standing relationship with this large customer while maintaining our disciplined approach to guidance and ensuring that any future commitments align with our strategic objectives and operational capabilities. Now I'll turn the call over to Jesse to review our third quarter 2025 financial results in further detail. Jesse Neri: Thanks, Mark. Good morning, everyone. Our focus in 2025 has been to adjust our cost structure to align with the changes to our customer base. While improving efficiency is an ongoing exercise, we have made progress over the last 2 quarters in restructuring the size of our operations and expect those efforts to be substantially completed by the end of this year. We measure our progress in this area by focusing on 3 key metrics: gross margin, adjusted EBITDA and cash. We believe adjusted EBITDA is a good proxy for profitability because we remove noncash items, nonoperating items, restructuring costs and other items that are not part of the concentrates business. Since there have been so many changes over the past year, we believe the most meaningful comparison is against the previous quarter instead of the prior year. I will now review our financial results for the 3 and 9 months ended September 30, 2025, in greater detail. Net sales for the third quarter were $15.9 million, which were in line with net sales for the second quarter and represent a 44% decrease over net sales of $28.3 million for the same period in 2024. The decrease in net sales was driven by the transition of our largest customer to another supplier. Net sales for the 9 months ended September 30, 2025, were $50.9 million, which represents a 34% decrease over net sales of $76.8 million for the same period in 2024. Gross profit for the third quarter was $2.3 million, which was in line with the gross profit for the second quarter and represents a 64% decrease over $6.2 million for the same period in 2024. Gross profit for the 9 months ended September 30 was $7.8 million, which represents a 44% decrease over $13.9 million for the same period in 2024. Gross margin for the third quarter 2025 was 14%, down from 16% in Q2 2025 and 22% for Q2 2024. Excluding restructuring costs, gross margin was 18% in Q3 2025, an improvement over the first and second quarters of 2025. Gross margin for the 9 months ended September 30, 2025, was 15%, which represents a decrease from 18% for the same period in 2024. Gross margin in 2025 was 17%, excluding restructuring expenses. Net loss for the third quarter of 2025 was $1.8 million, which was consistent with the first and second quarters of 2025, but was down compared to net income of $1.7 million for the same period in 2024. Net loss for the 9 months ended September 30, 2025, was $4.8 million compared to a net income of $300,000 for the same period in 2024. Adjusted EBITDA for Q3 2025 was $50,000, which represents an improvement over adjusted EBITDA of negative $200,000 in Q2 2025 and a negative $400,000 in Q1 of 2025. Adjusted EBITDA for the 9 months ended September 30, 2025, was a negative $600,000 compared with a positive adjusted EBITDA of $3.7 million for the same period in 2024. While this represents a significant year-over-year decline, the trajectory shows meaningful improvement when compared to the first half performance, indicating that our strategic initiatives and new customer relationships are beginning to generate positive momentum for our financial results. Cash, cash equivalents and investments available for sale at September 30, 2025, was $23.7 million, an increase from $18.4 million at the end of Q2. The increase in cash was primarily driven by the issuance of common stock in connection with our ATM facility, partially offset by cash paid in connection with the Evoqua asset acquisition. The increased cash position offers us the opportunity to continue to preserve, pursue business development opportunities and further invest in infrastructure enhancements and modernization. Now we'll turn the call back over to Mark. Mark Strobeck: Thank you, Jesse. Operator, please open the phone lines for any questions. Operator: [Operator Instructions] Our first question comes from Ram Selvaraju from H.C. Wainwright. Raghuram Selvaraju: Firstly, I was wondering if you could give us some additional color on when you expect the situation with your former largest customer to be fully resolved, if you anticipate a final decision to be taken before the end of this year or if you anticipate continuing to provide services to this customer into 2026? Mark Strobeck: Yes. Thanks, Ram. We expect that to resolve this quarter. We are currently in a contract discussion with them, and we expect to be able to discuss that shortly. Raghuram Selvaraju: Okay. And then with respect to 2026, can you give us a sense of when you believe you might be in a position to provide forward revenue guidance for the full year 2026? And also, I wondered if you could elaborate on what types of business development activities you might look to undertake given your current balance sheet strength? Mark Strobeck: Yes. Yes. So typically, we provide 2026 guidance early in the year. So we expect to continue to do that. So our anticipation is that as we release our fourth quarter earnings, we'll be able to provide visibility into the company's performance in 2026. As far as business development activities, we continue to be very active in that. There are -- now that we have a strong cash balance that we are now employing as growth capital, we are currently in discussions with multiple companies around acquisitions of their business and customer base. And assuming those continue to progress, we'll be able to announce shortly what the impact of those will be. Raghuram Selvaraju: Okay. And then lastly, could you just talk a little bit about what you see as the key prospects near and medium term for the bicarbonate disposables business? Mark Strobeck: Yes. So with the introduction of our bicarbonate cartridge with earlier in the year and now with our first large customer now beginning to access that particular product, we think that there's an opportunity to grow significantly beyond that. That's a much higher-margin product opportunity for us. And it's been a significant effort to put that in place in relatively short order, have that ready to go, having it, again, with the quality standards that we expect for all of our products leaving our organization. It's taken us some time to put all of that in place, but we are now in a position, I think, to maximize that. And we expect more and more of our customer -- existing customer base to begin to start purchasing that product from us. Operator: Our next question comes from Nick Sherwood from Maxim Group. Nicholas Sherwood: My first question is, how are you balancing some of this organizational restructuring while also ensuring you're making proper investments in the business? I mean you just mentioned potential acquisitions, but is there anything more internal that you're focusing on? Are you making new hires? Or is kind of a lot of that investment based on some of these potential acquisitions you mentioned? Mark Strobeck: Yes. So it's -- as you can imagine, it's been a sort of a tricky algorithm for us to work through, which is decreasing certain obviously, products and the single largest customer moving away from us while simultaneously adding new customers and making sure that we continue to supply product to our existing customer base with the quality standards and with the service that we've provided previously. What that has essentially amounted to is a titration of resources within our organization, shifting of priorities, shifting of some of those resources to focus more on growth opportunities in those areas and winding down some of the activities and sort of operations in areas that are no longer going to be supported by our organization. So it's been a balance, and the team has done an incredibly good job of managing that difficult sort of titration exercise. And as Jesse pointed out in his section, we're beginning to start to see the fruits of that. And we expect more -- to see more of that here in the fourth quarter coming up and through '26. Nicholas Sherwood: Understood. I appreciate the detail. And my second question is, where do you see the most kind of room to run with improving your gross margin? Is it material costs? Is it labor costs? Are there sort of efficiencies that you can develop in your distribution system where you can kind of get more product on fewer shipments? Or is it packaging? Can you kind of just thinking about 2026, what are some of those early targets you're looking at that can make the biggest impact in improving margins? Jesse Neri: So I think in the immediate term, labor cost is certainly an area where we can become more efficient. So I think that's number one. But over the long term, we definitely see upside in reducing our materials costs and distribution as well. Nicholas Sherwood: Okay. So labor and then some of the materials aspect of that. And then my third and final question is there's -- on the adjusted EBITDA reconciliation, there is a facility closure. Can you kind of just give a little bit of background to what was happening there and kind of just any detail you can provide? Mark Strobeck: Yes. So we have -- one of our facilities we've now trimmed. Again, in part because it was -- the lease for that facility was coming up. We were able to consolidate our manufacturing activities into our existing facilities. And so we were able to essentially wind that down and begin to start to offload that expense. So that's what you're going to begin to see here in the third quarter and then more specifically in the fourth quarter. Nicholas Sherwood: Okay. So we should see maybe a little bit of a similar impact on the operating expenses in the fourth quarter as well as compared to the third quarter? Jesse Neri: That's correct. Operator: Our last question comes from Anthony Vendetti from Maxim Group. Anthony Vendetti: Sure. So Mark, I was wondering if you could give us an update on 2 things, one is the West Coast expansion and then just an update on the home dialysis business. Mark Strobeck: Yes. Yes. So the West Coast continues to be an area of opportunity for us. We are expanding our customer base now into the West Coast. We expect to have -- we hope to have an announcement here shortly related to sort of further customers that we are acquiring in that area that's going to be an area of focus for us in '26, which will be how to maximize the opportunity there for Rockwell, whether that comes through continued customer acquisition or that comes through setting up a small facility in the West. I think we're now beginning to build a critical mass of customers out there that likely warrants that. As we've said previously, we've taken the approach of not building something hoping folks would come, but waiting until we have a significant customer base out there to warrant the presence of a facility. And I think based on our assessment now and certainly through the fourth quarter, we're likely in a position of where we will contemplate that. So we believe that's a significant area of growth for us. Your second question -- so at home, we continue to be a very large supplier to that market. As you know, we supply one of the largest at-home hemodialysis providers in the United States. Our new product configuration, which I think is more amenable for at-home use has begun to start to take off. Again, that is a higher-margin product opportunity for us. And we believe we'll continue to see that growth through the end of the year and into 2026 as more of the at-home users begin to convert to that product configuration. We think that there's a -- that will have a place within the overall hemodialysis market. And those organizations that are working in there and using our product, I think, are establishing that. So we continue to be excited about the prospects there, but are well positioned to support that market as it continues to develop. Anthony Vendetti: Okay. And maybe just a final question. Just to get an understanding of the magnitude, what percent right now of your business is at-home? Mark Strobeck: So right now, it's a small percentage, probably single-digit percentage at this point. And it's our anticipation that, that will continue to grow. We think the overall at-home market is probably going to be about 10% to 15% here in the near term in the overall hemodialysis market. Operator: There are no further questions. I will now turn the call back over to Dr. Strobeck. Mark Strobeck: Thank you for joining us today for an update on Rockwell Medical, and we look forward to providing you with more updates in the next quarter. Operator: This concludes today's call. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to Aristocrat Full Year 2025 Results Briefing Webcast and Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I'd now like to hand the conference over to your first speaker today, Mr. Trevor Croker, Chief Executive Officer and Managing Director of Aristocrat. Thank you. Please go ahead. Trevor Croker: Good morning, and welcome to Aristocrat's financial results presentation for the full year to 30 September 2025. My name is Trevor Croker, Chief Executive Officer and Managing Director of Aristocrat. Joining me today is Sally Denby, our Chief Financial Officer. Sally will step through the highlights of the results and provide an update on our strategy. Sally will then discuss our group financial results and balance sheet, after which I'll run through the operational performance and outlook. All figures are in reported currency, unless otherwise stated. FY '24 was restated to exclude Plarium at the last result. Please note the usual disclaimer statement on the back of the deck. Turning now to Slide 2. Aristocrat delivered on our second half performance commitments and achieved another strong full year result with double-digit growth across all key metrics. This illustrates the quality of Aristocrat's portfolio and our ability to continually grow through different environments whilst investing for the future. This was a period of positive change at Aristocrat as the business aligned its enterprise portfolio to refreshed priorities while maintaining an approach that has delivered consistent operational performance and superior profit growth over a sustained period. Along with our strategy, we completed the divestiture of Plarium during the year, generating a significant gain on sale and subsequent to year-end, we divested Big Fish Games. From FY '26 onwards, our mobile operations will be focused purely on social casino. Our 3 complementary business segments are now united by a common core of great gaming content and technology with each offering exciting growth prospects. During the year, the group also invested significantly in technology and product strategies while taking foundational steps that will set up Aristocrat Interactive to accelerate performance, and allow us to fully leverage our content, scale and capabilities over the coming years. Group revenues grew 11% over the period, while segment profit grew 12%, benefiting from strong organic growth the inclusion of NeoGames for the full 12 months and FX translation. Aristocrat Gaming delivered strong performance driven by an outstanding second half outright sales across all market segments, with significant share gains in North America and ANZ where our ship share recovered to over 50%. Gaming Operations delivered installed base growth and continued market share gains, with a sequential improvement in fee per day in the second half. Product Madness delivered impressive performance with continued share gains, profit and margin growth, reflecting focused investment in user acquisition, high-performing content and effective execution of our direct-to-consumer strategy. Interactive benefited from double-digit organic growth in content and iLottery, including from the NeoPollard Joint Venture. Group NPATA grew 12% or 9% on a constant currency basis with EPSA growth even stronger at 15% over the year. Looking forward, we continue to see momentum in our business. We expect to deliver NPATA growth over the full year to 30 September 2026 on a constant currency basis. Performance is expected to be phased towards the second half of the year. I'll now turn to our strategy. Slide 4 recaps our approach to delivering superior long-term sustainable profit growth, which we've shared many times. We start by investing and innovating to create the world's greatest gaming portfolios across key markets at scale. We have committed to high levels of D&D investment to support content development and growth with an increasing focus on returns from high-performing products. This includes investment in outstanding creative talent and technology to improve both the speed and efficiency with which we can deploy content across multiple priority markets, cabinets and channels. The establishment of Interactive provides scope for our studios to innovate across channels and expand their distribution opportunities. Aristocrat takes a rigorous proactive approach to growing and defending our intellectual property and ensuring fair competition on a level playing field. The litigation against Light & Wonder continues to progress in both the U.S. and Australia. We are pleased with the U.S. Court's recent decision to extend discovery and require Light & Wonder to provide access to game maps for certain of its hold and spin games. Next, we focus on growing and distributing our leading content aiming to take share wherever we compete including an existing and new adjacent markets. Interactive is now a full solution provider for online RMG with an expanded portfolio across iLottery, content and platforms. We are investing to become a scaled global player in this important adjacency and to position the interactive business to accelerate its growth consistent with our stated target of achieving USD 1 billion of revenue by FY '29. Aristocrat also invests in differentiating enablers. These include long-term customer partnerships and commercialization capabilities and a compliance culture that is underpinned by our commitment to a sustainable and vibrant industry. While our priorities and focus areas evolve over time, our fundamental approach to generating growth remains consistent and continues to deliver strong results with considerable opportunities ahead. Over the 5-year period since 2020, group revenues and segment profits have grown at a CAGR of 9% and 19%, respectively, reflecting share gains and operating leverage across all key segments. NPATA has grown at 27% CAGR. This was underpinned by market share gains in gaming operations installed base from 34% to 43% and steady share gains in North American outright sales from 23% to 31%. This strong financial performance has been delivered through diverse conditions, demonstrating the resilience of the group and reflecting the high proportion of recurring revenues that we generate. Consistent delivery has also allowed us to maintain investment and fully fund our organic growth and invest behind inorganic growth priorities while delivering ongoing returns to shareholders. Over the same 5-year period, we've returned over $4.3 billion of capital to shareholders through dividends and on-market share buybacks. Turning to Slide 6. We continue to advance our sustainability agenda over the year by driving improvements and further lifting maturity across our most important priorities. This slide shares a few highlights. Empowering Safer Play, or ESP, remains our most important sustainability matter, directly supporting our ability to deliver financial results over the long term to benefit our people, our customers and shareholders. Over the course of the financial year, we made significant progress against our 6 medium-term strategic ESP goals, which were initiated and shared publicly in 2024. Other highlights during the reporting period include comprehensive preparations for the mandatory climate reporting and the integration of NeoGames operations into our sustainability program with a focus on safer play standards and processes. Upholding high governance standards and strong compliance with gaming and other regulations also remains a fundamental commitment at Aristocrat. Robust and effective gaming regulation is critical to maintaining strong property and consumer protection standards. This enables the industry to remain vibrant, welcome in the community and able to deliver benefits to all stakeholders over the long term. Full details will be shared in Aristocrat's FY '25 sustainability disclosures, which will be published on the 2nd of December 2025. I'll now hand over to Sally, who will take us through a summary of the group's results. Sally Denby: Good morning, everyone. I'm starting on Slide 8, our group results summary. As Trevor mentioned, Aristocrat delivered NPATA of $1.6 billion over the year, an increase of 12%. On a fully diluted basis, EPSA increased 15% to $2.47 reflecting solid operational performance and accretion from our share buyback program. Revenue increased 11% to $6.3 billion and 8% in constant currency. Aristocrat Gaming delivered a strong second half with robust outright sales, unit pricing and market share increases in both the U.S. and ANZ. Gaming operations recorded solid growth in the installed base, with a sequential improvement in fee per day in the second half of the year in line with our guidance. Revenue growth was further assisted by continued market share gains in social casino, organic growth in Interactive and the inclusion of NeoGames for the full 12-month period. EBITDA was 16% higher than the PCP, reflecting margin expansion from favorable mix and improved operating leverage. Benefits from effective cost initiatives taken in FY '24 also supported the results. Ongoing cost management continues to provide capacity for strategic reinvestment with well-established discipline across the group. I would like to call out some other items further down the P&L. Firstly, we recorded a $28 million gain on the sale of [ Berkshire ] Integration Center in the U.S. through corporate costs. Legal costs increased by $33 million compared to FY '24, which includes legal costs associated with taking proactive steps to defend Aristocrat's intellectual property, including $21 million in relation to the ongoing litigation against Light & Wonder. Interest income decreased by $34 million compared to the PCP, primarily due to lower average cash balances following the NeoGames acquisition and continued share buybacks over the course of the year. Interest expense for the period includes a one-off item of $9 million relating to a tax matter. Excluding this matter, underlying interest expense was in line with the top end of previous guidance of 6% to 7% of U.S. dollar borrowings. The effective tax rate for the year was 28% compared to 27% in the PCP. As we outlined in May, the increase reflects changes in the regional earnings mix and acquisition-related transitional changes, which are expected to moderate over time. Our approach to significant items is consistent with previous years with M&A-related gains and losses recorded below the NPATA line. Finally, the directors have authorized an unfranked final dividend of $0.49 per share for the half year ended 30th of September 2025, representing a payout ratio of 37.4%. The full year dividend of $0.93 per share represents an increase of 19% over FY '24. Slide 9 provides a snapshot of the drivers of NPATA growth over the reporting period. NPATA was driven by strong organic growth and share gains in both Gaming and Product Madness and the addition of NeoGames and Interactive, further supported by favorable FX. This was partially offset by increased investment in D&D and lower interest income. Turning now to cash flows on Slide 10. Strong cash flow generation was achieved over the period, reflecting continued operating momentum. CapEx was driven by investment to support continued growth in the North America gaming operations installed base, partly offset by the proceeds on the sale of properties previously flagged. Acquisition and divestments reflected the sale of Plarium, offset by some small strategic technology investments. Aristocrat completed its $1.85 billion on-market share buyback program during the first half of the year and announced a new $750 million program running through to March 2026, of which we have executed $584 million to date. In total, $1.4 billion have been returned to shareholders through share buybacks and dividends over the full year, whilst the business has continued to invest for growth. Aristocrat allocates capital to support our long-term growth strategy and deliver shareholder returns. In particular, the business achieves organic growth through consistent, strong and disciplined D&D, UA and CapEx investment, whilst actively pursuing strategic M&A opportunities in a disciplined and consistent manner. Post year-end, we completed the acquisition of Awager, an exciting adjacent opportunity in line with our growth strategy. Aristocrat invested $800 million in D&D during the year to further strengthen our product and technology portfolios and lay the foundations for scaling in online RMG. This represented 12.7% of revenues compared to 13.4% for FY '24. Aristocrat manages its balance sheet through cycles of investment. And during the first half of the year, we deployed a portion of the proceeds from the sale of Plarium to retire debt. We continue to target a leverage ratio of 1 to 2x net debt to EBITDA over the medium term. However, taking into account the consistent levels of cash generation, our leverage will not fall within this range without material M&A. I would now like to focus on our investments to drive organic growth laid out on Slide 12. Total organic investment is generally tracked around 25% to 27% of group revenues with the potential to flex this where required in response to business needs and opportunities. High levels of CapEx in 2024 reflected the exceptional growth of our gaming operations installed base as well as the investment in the commissioning of our Las Vegas integration center in the prior year. This has normalized in the reporting period. UA spend increased to support strong business momentum while also reflecting our continued focus on efficiency and return on marketing spend. Increased D&D largely reflects the inclusion of NeoGames for the full period. Slide 13 provides a more detailed view of D&D. As part of our wider review of D&D expense, interactive operating costs of around AUD 35 million, previously incorrectly included in D&D were reclassified to segment profit during the period. Adjusting for this, second half '25 D&D would have been 13.2% within our 12.5% to 13.5% guidance range. The net impact to the group P&L from this change was neutral. In Interactive, we continue to invest a significant proportion of revenues in iGaming content, Class II mobile and the New Hampshire Lottery. We maintained D&D investment levels in Product Madness with a small step-up in gaming to support content development. As discussed for the past 2 results, the growing proportion of D&D investment relates to enterprise technology managed across the entire portfolio. Additionally, as we have consolidated responsibility for D&D under our group product and technology functions, we are now managing spend at an enterprise level rather than across channels. From the first half of fiscal '26, we will no longer disclose D&D by division. Instead, we will be aligning D&D reporting to the way Aristocrat now manages this important investment in 2 discrete buckets for products and technology. Over the medium term, we continue to expect D&D investment to land within a range of 11% to 12% of revenue as scale benefits are realized. However, our approach to D&D guidance is changing. We will no longer be guiding to D&D as a percentage of revenue, shifting instead to provide a growth expectation, reflecting our evolving business and maturing approach to D&D as we move through investment cycles. We are targeting D&D at mid-single-digit growth next year on a constant currency basis. I'll now hand back to Trevor to step through operational performance. Trevor Croker: Thanks, Sally. Turning first to the Aristocrat Gaming business on Slide 15. Revenue and profit increased 9% and 7%, respectively, in reported currency, driven by outstanding performance and strong share gains in North American and Australian outright sales in the second half of the year, along with continued share gains in our North American gaming operations business. Innovations in both games and hardware contributed to this success with titles such as Phoenix Link, Spooky Link, House of the Dragon and Buffalo Ultimate Stampede being well received in the U.S., while Thunder Empire and Cashman drove penetration in Australia. In North America, our game performance continues to run at 1.4x floor average, maintaining a healthy gap to our major competitors. The Baron cabinet was welcomed enthusiastically by customers around the globe. Dragon Link continued to perform well in its eighth year with particularly strong demand in Asia under a hybrid commercial model. North American revenues and profits were up 5% and 3%, respectively. Gaming operations revenue growth was driven by a 6% increase in the installed base over the prior year. We achieved sequential improvement of 2% in our market-leading fee per day in the second half, driven by effective portfolio execution and support of GGR growth. We added almost 4,100 units over the year, further extending our market-leading share to around 43%. North American outright sales exhibited clear revenue leadership given the combination of strong average selling price, or ASP, and ship share of around 31%. Outright sales units increased 18% in the second half, driven primarily by the Baron Portrait cabinet, which was released in April. Demand was further supported by the success of games like Spooky Link, which achieved the fastest ramp-up of any outright game sales product in Aristocrat's history and has taken the top 3 spots on Eilers core games leaderboard for the past 3 months. ASP increased by 1% and remains at leading levels overall. Adjacencies increased 29% over the PCP and represented 26% of total unit sales, driven by continued expansion in Georgia COAM, Historical Horse Racing and Quebec VLT markets. North America's margins of 57.8% decreased by 110 basis points, reflecting the mix effect of the exceptionally strong outright sales performance. As we move into FY '26, we don't anticipate a material impact from tariffs. Rest of World revenues and profits increased 11% and 9%, respectively, driven by a strong rebound in both ANZ and Asia. We previously flagged the timing of the highly anticipated release of the Baron Cabinet in ANZ halfway through the year. The Baron scaled quickly with strong customer demand and effective commercialization along with a host of game innovations, including Thunder Empire and Cashman, our ship share in Australia rebounded to 52% in the second half with unit sales more than doubling and ASP increasing by 8%. Rest of World performance, excluding ANZ was also weighted to the second half due to higher opening and expansion activity in Asia with a strong uplift in recurring revenue units. Turning to Product Madness on Slide 16. The business delivered strong performance in a transformational year with refreshed leadership and more effective integration into the enterprise. The benefits of our mobile operations being focused on social casino have been evident this year. Product Madness continued to take share in a contracting market through investment in new content, effective player engagement, live ops and features. Social casino bookings increased 5%, driven by growth in our evergreen franchises, including Lightning Link, Cashman Casino and Heart of Vegas compared to a social slot market decline of 9%. We are confident in our market position and our ability to grow into the future. Segment profit was up an impressive 12%. Margins improved 380 basis points, driven by a continued focus on efficiency, increased off-platform revenues and disciplined UA investment. We continue to drive D2C revenue growth by offering better value to players and actively promoting these through various channels. D2C represented 16% of social casino revenues for the full year, up from 7% in the PCP and was over 18% in the second half. We believe there is more scope to steadily grow D2C over the next few years. Product Madness was an early adopter of AI and automation and in progress in this area accelerated in FY '25 as the business shifted to more dynamic and personalized player experiences. We are using AI effectively to automate solutions to expand live ops development and using generative AI for scaling asset production and quality improvements. Turning to Interactive. The FY '25 results reflected the inclusion of NeoGames for the full period versus 5 months in FY '24. Revenue increased 7% on a pro forma basis, including the iLottery JV. Profits increased with margins improving 260 basis points for the full year. Excluding the previously referenced reclassification, which represents a full year adjustment of USD 23 million, Interactive's FY '25 profit margin would have been around 35%, with higher profit margins in the second half compared to the first half. iLottery delivered strong performance with new contract wins and improving metrics across existing contracts. On a pro forma basis, including our share of the JV, revenue growth was 14%, with strong contributions from North Carolina and Virginia. Content revenues grew 15% on a pro forma basis, reflecting strong growth from our larger aggregation customers and numerous content launches with major operators in the U.S. and Canada. The consolidation of our remote game server technology over the year allowed us to roll out content across more markets simultaneously, including increasingly complex mechanics and features such as progressives and daily free games. iCasino U.S. market share increased from around 2% in March 2025 to 3.5% in September 2025 and benefit from top-performing games such as Mo Mummy Mighty Pyramid and Bao Zhu Zhao Fu. Platforms continued to expand across the U.S. and ANZ markets, supported by installation expansion and software sales. While significant work lies ahead to realize Interactive's full potential, we are making important and encouraging progress and have full confidence in our plans. I'd like to share a few notable call-outs. In iLottery, we were recently awarded the contract for the Massachusetts iLottery, beginning July 2026. And the Michigan iLottery on an exclusive basis also from July 2026. We will be investing behind these great long-term opportunities. In content, we'll be bringing more of our leading land-based content to digital in the coming year including the iconic Lightning Link and expanding our market access through entering the remaining 2 U.S. states with Delaware and Connecticut having recently launched. And in platforms, we'll be rolling out our mobile Class II product with the Chickasaw Nation at the WinStar World Casino later this month. Turning now to outlook on Slide 19. Aristocrat expects to deliver NPATA growth over the full year to 30 September 2026 on a constant currency basis, reflecting continued revenue and market share growth from Aristocrat Gaming supported by resilient underlying GGR growth in key markets. continued market share growth from product managers with an increasing contribution from D2C, accelerating performance at Aristocrat Interactive towards our FY '29, USD 1 billion revenue target through further scaling of content and investing in iLottery to support broader market access in North America and Europe. In summary, the group has delivered a strong result for the financial year 2025 with robust fundamentals, investment and execution driving continued market share gains and operating momentum. Going forward, we remain committed to our capital management strategy and executing our on-market share buyback program. We continue to position Aristocrat from an organizational capability and financial perspective to actively pursue strategic M&A opportunities in a disciplined and consistent manner to accelerate our growth strategy. Today, Aristocrat is proud to have a global team of approximately 7,400 talented individuals. I want to extend my sincere gratitude to each and every one of our employees for their dedication, passion and hard work throughout this period. With that, I'll conclude the formal part of the presentation and hand it back to the moderator to open the floor for questions. Operator: [Operator Instructions] We will now take our first question from the line of Adrian Lemme from Citi. Adrian? Adrian Lemme: Orally. I was interested in your view, Trevor, on the gaming -- North American gaming ops market. So I think last year, it grew by 800 units or about 5%, and you took most of it. This year, you've grown by 4,100 units, and you've grown your market share again. So is it that the market has slowed down? And what are your expectations for the next 12 months on the market outlook, please? Trevor Croker: Yes. Thanks, Adrian. I appreciate the question. As you rightfully said, in '24 the market grew and we drove the majority of that growth. And I'd position the result this year again the same context as the market grew and we drove the majority of market growth. Market share for the top 5 were up about 1 percentage point year-over-year to 42.3% of share. I think what we've seen and what we're seeing now is that -- but certainly, there's been better GGR momentum across the market, so a much more supportive model from a GGR perspective. On a new openings basis, it's about the same -- a new opening expansion is about the same expected in '26 as it was in '25, and we expect to be successful in taking a greater share of those. And then we continue to improve our performance on the floor, both with new games like Phoenix Link, but more recently, Buffalo Mega Stampede which is a succession game to Buffalo Ultimate Stampede, Cash Express Legend, Millioni$er and then ultimately MONOPOLY in the second half of next year. So my view on where the market sits, it's around about the same size. I think Eilers are quoting it's around 15% of the install -- of the total installed base in North America. We feel confident that our expectations into '26 are consistent with what we've said in the past, which is between 4,000 and 5,000 units of incremental opportunity for Aristocrat, and we feel well positioned with the portfolio. We also have a good line of sight on how to manage fee per day, and we feel comfortable that that's a growth opportunity for us in '26. Operator: We will now take our next question from the line of Justin Barratt from CLSA. Justin Barratt: Look, I just wanted to get you to comment a little bit more on Product Madness. Clearly, a very strong result. I was particularly interested in your ability to take or drive revenue growth in a declining market. Can you talk about how you're seeing that overall market, your ability to take share? And then obviously, it sounds like, Trevor, you're confident in gaining more penetration in the DTC platform as well. Trevor Croker: Yes. Thanks, Justin. Look, PM has been a great story for us this year. And I think it goes to the single threadedness of our social casino focus now where we are focused on that portfolio, and that's about monetizing the content that we make in land-based and building good Live Ops and effective UA around that. The PM business has done an excellent job in the year. And I think where they have positioned themselves to be able to take share in a declining market, but also to set the standard around things like Live Ops, new game innovation. NFL was not a big contributor to the year. So it's not in there, and NFL is showing some good early signs. We'll continue to monitor that as we launch. So on a go-forward basis, I think if you look at the evergreen portfolio of apps, they are very robust apps. They've got good content flows and innovation coming out of the gaming content that we make across the group. And then on the DTC, yes, you're right. I think the team has done a great job going from 7% this time last year to 16% this year and 18% in the last quarter is great. And we do believe that both from a regulatory -- a market point of view with the change in some of the operating models with the platforms that we have the ability to continue to expand on that. So I know that the team is very focused on that, and I think that we are in well positioned to improve that percentage and to continue to grow and to take share in Social Casino. Justin Barratt: Yes, fantastic. Okay. And then I just wanted to follow up on Adrian's question. I guess, the weakness in your net adds or installed, I guess, the net adds number came in the second half. I was just wondering if you could provide any more specific commentary around the second half exactly. And then, I guess, over the last few years, you have absolutely spoken to that sort of 4,000 to 5,000 net adds number, and you've reiterated that again for FY '26. But I guess just given the ongoing penetration of premium leased into the North American market, how long do you think you can maintain that sort of 4,000 to 5,000 net adds for. Trevor Croker: Yes. So back around -- back to the first part of that question, which was really around a bit of extra depth around the second half. I mean we carried strong installed base from Play Hub for Phoenix Link in the first half, and that continued in the second half. We then built on that with Buffalo Ultimate Stampede, Millioni$er and House of the Dragon. Those were MSP installs in the business. Also, we've got a portfolio of games coming out for the rest of FY '26, including Lightning Link 10-year store, Buffalo Mega Stampede, which has only really just been released in the last month, it's doing 3.9x floor. Spooky Link Grand, which is a gaming operations extension of the Spooky Link franchise, which is doing exceptionally well. Plus, as I said, Phoenix Link momentum and pipeline there and Cash Express Legend plus a couple of other games. So I guess where I see our portfolio is that the market was quite volatile in the first half from a GGR perspective. If that normalized in the second half, we were able to continue to work on our momentum of installs. And also, we talk about net installs. So we were able to refresh some of the underperforming portfolio as well and improve that. As far as going forward, as I said, I think 4 to 5 in '26 -- between 4,000 and 5,000 in '26 is a good number for Aristocrat. There are about the same number of new openings and expansions. Obviously, MONOPOLY is a great opportunity for us in the '26 calendar year, which we're excited by as another incremental add to the portfolio. So I feel comfortable that we will get our rightful share and take share again in gaming operations in FY '26. Operator: We will now take the next question from the line of Annabel Li from Goldman Sachs. Annabel Li: Just one on D&D, which you flagged will increase in the mid-single digits next year. Maybe could you talk about where you're prioritizing that incremental investment? Sally Denby: Annabel, thanks for the question. It's Sally here. I think as we've said before, we are currently in an investment cycle as we continue to scale up the Interactive business and really a heavy focus on the investment in technology, which will enable us to efficiently port content across the 3 distribution channels now. So that remains our focus going forward. And we're increasingly managing the D&D portfolio on an enterprise basis, which goes to the point that we've made today about changing how we think about it with our focus on fundamentally managing the cost base and as we said, managing that year-on-year increase within the mid-single-digit range. Operator: We will now take our next question from Matt Ryan from Baron Joey. Matthew Ryan: Just hoping with the participation yield, if you could give us some color on the second half. I think 6 months ago, you talked in quite a lot of detail actually around the mix between sort of coin in promotions, MSP and the different drivers. So just any color you could provide on those types of things and what sort of drove your second half performance? And I guess, leading into that, when you might see that yield start to converge on what overall GGR growth looks like moving forward? Trevor Croker: Yes. Thanks, Matt. It broke up a few times. I think you're talking about gaming not just fee per day. So a couple of levers in there. So we talked about GGR being an impact in the first half, affecting, as you know, because we've got effectively 2/3 of the portfolio participation. So GGR was relatively not volatile, but unpredictable in the first half. We've seen GGR be more supportive in the second half. So that's been a positive contributor to our fee per day performance. At the same time, we've been -- we've seen more favorable on our performance on our participation games. So things like Buffalo Ultimate Stampede as I mentioned earlier, House of Dragons and Millioni$er and also increased average fee per day on Phoenix Link. So we have taken the promotional aspects and roll those back over the period as well. And we did say at the half that those were some of the contributing factors, but we have taken those into control. And also, we continue to focus on churning the underperforming games out of the portfolio. So we continue -- as we said, we would get sequential improvement. We believe that the portfolio continues to give us the right to expect improvement again into next -- into 2026 and the GGR momentum that we've seen in the early part of the year suggests that at this point in time. Matthew Ryan: And just for the outright sales, obviously, a very strong period. Just interested in your thoughts on I guess, how much of that was driven by the pent-up demand for the Baron cabinet. I guess, I'm just trying to think about, obviously, moving forward, you've got a lot of pretty solid releases coming out, just your ability to sustain that level of sales growth? Trevor Croker: Yes. Maybe it's best if we break it down by region. So there was pent-up demand in Australia because we didn't launch it until the second half. And at the half, we were talking about the fact that it was only just launching in Australia as we were talking to you in May. So we've just gone live in New South Wales. We're going live in Queensland, about to go live in Victoria. That said, that Baron cabinet has been well accepted by our Australian cabinet, the customers, but also supported by a strong portfolio of games, which have actually helped support the installed base and see both the cabinet and the games be released and also see the overall game performance of Aristocrat's portfolio improve. As we said, 52% ship share at the end of the half is a very strong result. n North America, we already had Baron Upright in the marketplace, and it was performing well. We then moved to Baron Portrait in April, and we saw an acceleration both from the games like Spooky Link that were on that platform, improve the performance of the platform, but also allow for us to gain greater distribution. I wouldn't have called that pent-up demand because we'd already launched Baron there, and that was really driven by game cycles and new hardware configuration. So strong results there. As far as Baron goes from the rest of the market point of view, it's due for EMEA this year and also into Asia this year being FY '26. And so we see that games coming through on that portfolio into those markets as opportunity. I felt that the gaming -- the full sales numbers for North America and Australia were a real credit to our team. It was the great commercialization, working with our customers, content, hardware and a portfolio of games that we really have a floor average now of about 1.4x. Our nearest competitor is 1 to a 40% premium on our floor performance. And I think that ultimately helps our customers decide where to place their capital and where to -- whose games to place. So think the team did a great job on that basis. Operator: Our next question comes from Sriharsh from Bank of America. Sriharsh Singh: Two quick questions from my side. One on ANZ, very strong performance, 52% ship share in second half. Can you talk about the ANZ pipeline and talk about how sustainable this 52% share is? Was there a little bit of a one-off element from the Baron launch at the start of the second half? Or do you think the pipeline should support 50% kind of a ship share in ANZ. The second question I have is on the North America outright sale market. So very strong performance in the second half again. Could you talk a little bit about the opportunity to lift ship share in North America to maybe close to 30% because your ship share or flow share in premium gaming ops is over 40%. So maybe you can narrow the gap there with strong content that is coming online. And lastly, on online content share, 74 new games launched in 2025. When I look at some of the digital-only suppliers, they're launching 250 to 300 games a year, a few of them. Is that the aspiration over the next 1 to 2 years? Or would you follow a slightly different strategy in online slots. Trevor Croker: Thanks, Sriharsh. Great way to get 3 questions into 2. Well done. I appreciate it. So firstly, from the ANZ perspective, 52% share, as I said just earlier, I think there was an element of pent-up demand from the hardware coming out with the Australian team. But there was also other initiatives like MarsX that the team are working on as well. So those MarsX continued to be released during the year, which was Cash Express luxury line and also the Dragon Link 90,000 jackpots. So continue to see those products being released. So my view is that we haven't finished penetration of Mars in the Australian marketplace, and we've got a portfolio of games, which were released at AGE that were seen to be a highly -- high-performing series of games. Heaven & Earth, which was launched in mid-October is performing very well. It's got strong demand to support that. So we expect to continue to be able to run in that sort of range of share in the Australian marketplace from both a content point of view and also from a hardware point of view. So I feel confident around that. Around the comment around North America, I think you're talking outright sales, was that correct? Sriharsh Singh: Yes, because the ship share [indiscernible]. Trevor Croker: Yes. We finished the half at about 31.2% -- sorry, finished the year at 31.2%, which is the first time that Aristocrat has shipped more than any manufacturer in North America. So of the top 5 manufacturers, we had the highest shipments of game sales products in North America, and that's the first time we've achieved that. So on a year-over-year basis, we were 5.5% up on the previous year, and the market was actually flat. I do believe that the team again is executing very well there. There's an element of adjacencies in there. But if you look at the core business, strong growth from a gaming operations point of view, and our ASP is largely held as well. So from a wallet share point of view, well over 31% from that perspective. Will we continue to lift it, again, coming back to performance. When you look at Spooky Link to the top 3 games in the outright sales list from an Eilers perspective, great place start and another portfolio of games. We're very happy with our response from operators at the G2E this year and felt that it was a great indicator to remain confident about our pipeline in '26 for game sales and for -- sorry, for gaming operations. Your final question on online, you're correct. We launched 74 games. We made 92 games. We have had challenges in getting games into the market as it's more complex release process. I think it's fair to say that we're not targeting a 250, 300 game release. We are more interested in the quality of games. And if you look at our share, which has doubled from March this year to September or effectively doubled and that has really been driven by fewer games but higher quality. And we believe that high-quality land-based content will resonate and be more attractive to our operators and will actually be more attractive to the players. So our objective is to release high-quality land content into that market. And I think the proof is in the pudding in what we've been able to do with Product Madness over the last decade as we've taken land-based content and now the #1 social slot share in the social casino market. So I believe that it's -- it's under our expectations to publish 74. We did say 90. We have made more than that number, and we'll look to be able to publish that noting we did go into Delaware and Connecticut after the end of the financial period. So we still have 2 more states to enter in North America as well. Operator: Our next question comes from David Fabris from Macquarie. David Fabris: If we stick with Interactive, can we just confirm that the technology integration is fully completed there, and there's nothing holding you back in that business. And then as part of that question, I appreciate you spoke about the quantum of game launches just now. But maybe can we talk about when some of the higher-performing games are coming out, Maybe some Scott Olive's games? Because I would assume that would support a significant step-up in market share? Trevor Croker: Yes, sure. Thanks, David. Yes, when you're involved in technology, you're always investing to upgrade your technology, and we referenced the point that we continue to invest in product and technology, and that investment is across the organization and getting the streamlining of our ability to make games and distribute it across multiple channels. The fact that we're continuing to increase invest in technology will continue. When you think about each iLottery contract that we achieve is a new opportunity to invest and to drive strong long-term returns for the group. So we will continue to invest in technology, and that will benefit across the group, but it also does create the opportunity, particularly in the iLottery -- sorry, in the Interactive business to support our longer-term growth aspirations. So we're not fully completed. And I think every time we see a new opportunity, we will take the opportunity to invest for growth as we have with adjacencies in our gaming business. and the way that we've added adjacencies to continue to drive growth from our organic investment in the organization. On the games release basis, we will be bringing Lightning Link to the market in FY '26. It is currently planned to be coming out in the calendar year of 2026. So it will be up middle of next year. That will be our first, if you like, iconic land-based game -- not first, but it's our biggest iconic land-based game to come to that market. There are a pipeline of games that come in behind that as well, and we'll continue to build those out. And that's where -- back to my earlier point, it's about the quality of games that will be released in Interactive as opposed to the quantity of games that will be released. And we also feel that that's a good way to work with our partners, particularly the land-based operators with the digital footprint to be able to offer games from their land floor, the retail floor into the online environment as well. David Fabris: Yes. I guess my question is, why is there a 6-month delay in launching Lightning Link? Why can't you go today? Why do you have to wait to mid-2026? Trevor Croker: The games -- just the same as when you make a game for Queensland and you take it to New South Wales. It's under different regulations, different structure. The game has to be made. Therefore, that's part of the investment in technology is to streamline that over time. And the games have a different game, different play. It's not the same memory structure. It's not the same size game. You have to take out graphics, you have to take out various aspects to it to make it applicable and playable on a mobile device. So it is a reconfiguration of a game, and it's the same that would happen with anyone that's moving games from social iGaming or from iGaming -- from gaming to get to an iGaming environment. So that's over the last couple of years is to streamline that with GDKs and tools for our teams at a more efficient way. David Fabris: Got it. Understood. And can I just ask a question about how the business is utilizing AI, I guess, in particular, within D&D I'm wondering that if you're getting some efficiencies and gains in there, whether the growth of D&D may slow in outer years or whether we should be extrapolating that mid-single-digit growth rate beyond FY '26. Trevor Croker: Look, we've tried to help guide to the mid-single-digit growth rate because if you look at that, that's actually a more applicable way to think about the way that we've invested behind D&D across the group now. We've structured the organization where product and technology is a group solution and that we make these solutions across the organization and then we plan to commercialize it in various structures. We've also now put in place the portfolio planning to do that as well. As far as AI goes, we're working on it in a number of areas. We mentioned where we are in Product Madness with art and art generation also with live ops. In the digital -- in the technology piece, it's around quality. It's also around how do we test our quality on a real-time basis to reduce quality and time to make games and also around porting of games so how we move games from market to market. So we are using these tools. They're proprietary within our organization, and we continue to focus on that. And we see it as a way to continue to evolve our game porting and game efficiency. It will not take away from the creativity of games. It will not take away from how we make a game, but it will help us to be more efficient in the way that we move games across our portfolio. Operator: [Operator Instructions] Our next question comes from Andre Fromyhr from UBS. Andre Fromyhr: Just, I guess, coming back to the couple of questions we've had on gaming ops and the outlook. More specifically, I was interested in the role that MONOPOLY will play in that over the next 12 months. So you launched at G2E, but if I understand correctly, you can't be putting that on floors until the new calendar year. So what's been the reception so far? Are you getting indications from operators that already have MONOPOLY licensed content on their floors about swapping over to the Aristocrat product? t? Trevor Croker: Yes. Thanks, Andre. So we released it for showing it at G2E. So that was the MONOPOLY Big Board Bucks, which is our first game in the Class III MONOPOLY portfolio. We actually can't start placing that until the new calendar year under the contract with Hasbro. So we are continuing to build momentum around the brand. We had excellent feedback from G2E from customers who came back many times to look at the product and share it with their teams. There's also a Class II version, which will come out shortly after that. And then there'll be other games that will roll out in FY '26 as well. So we are in the transition period at this point in time. The contract with the current licensee expires at the end of this calendar year. And then from next calendar year, we can continue -- we can start placing it. So our feedback at this point in time from operators is that they are excited by the product. They thought it was a very innovative way to bring contemporary maps to a really relevant gaming floor theme, and they thought that the way it was integrated was a great experience. So we're very happy with the way MONOPOLY has been shown at the show and excited by what it will do in 2026. Andre Fromyhr: Could you give us any sense of scale of the role that MONOPOLY would play in your net installs for next year? Trevor Croker: Not at this stage. We know what the installed base roughly is out there at the moment, which I won't say because it's not our installed base, but we see it as an opportunity to replace that installed base over the '26 period and also to be incremental to our existing installed base given that we don't have a card-based -- sorry, a games-based theme in our portfolio of gaming operations. So we have many other themes. We don't have a games-based theme, and this is one that existed in the gaming market for a number of years. Operator: Our next question comes from Liam Robertson from Jarden. Liam Robertson: Just first thing on me on gaming ops. I'm just keen to understand how you look to balance fee per day growth with net install growth. I'm just conscious, obviously, it was a tale of 2 halves for fee per day, and then it was essentially the opposite for net installs with a softer second half. Trevor Croker: Yes. Thanks, Liam. Look, I think the way you got to look at this is that there's an element of GGR, which influences fee per day because around 2/3 of the portfolio is on a participation model. So GGR will have some impact on that for the whole industry from that perspective. The way that we improve fee per day is through mix. So better MSPs, higher-performing games, different mix within the portfolio. And so that's an important way of doing it. And the other part is taking control of our commercial terms, which we did in the second half. So I feel that our fee per day improvement is good. As I said, it was supported by a couple of those metrics, and we are taking proactive steps in rebuilding the portfolio, particularly around the MSP and also enhancing the execution of our gaming ops as well. Liam Robertson: Maybe just in terms of, I guess, taking control of your commercial terms, any impact there in terms of the softer second half net installs? Trevor Croker: No, nothing at all. Nothing at all. We were still able to place -- still able to work with our customers and increase our installed base, particularly in new openings. It didn't impact that at all. Liam Robertson: Okay. Great. And then just maybe secondly on capital management. Obviously, net debt to EBITDA only 0.2x 80% through the buyback. To me, it looks like you've got close to $4 billion of headroom to the midpoint of your gearing range on an FY '26 basis. I mean I'm conscious of your comment of not getting back there without material M&A. But is there any reason we shouldn't be thinking about further buybacks alongside M&A moving forward? Trevor Croker: Yes. I think -- thanks for the question. Our capital allocation strategy has actually got buybacks and well embedded in there now. We've been doing buybacks for a couple of years. And we've been clear that that's part of our ongoing strategy. So you can absolutely expect us to continue to do buybacks. And we obviously announced a new program back in February. We're 77% of the way through executing on that. So yes, it's absolutely part of our ongoing strategy to help manage our balance sheet and obviously return to shareholders. I mean, this year, we returned a total $1.4 billion across buybacks and dividends, and it's certainly our intent to keep that momentum going forward. Operator: Our next question comes from Kai Erman from Jefferies. Kai Erman: Obviously, you had a pretty decent earnings due to the second half this year. And Trevor, I think you made a comment earlier you expect that into '26 as well. I'd just be keen to kind of see where you're seeing that divisionally and what the specific drivers of that are? Trevor Croker: Yes. Thanks, Kai. I mean if you look at our historical profile, we've generally been weighted to the second half as a rule. So it's not an unusual profile for us to be normally weighted to the second half. Largely, that comes off the back of games in gaming operations going into the installed base post G2E and obviously, game releases in the first quarter, second quarter of the year. So it's not unusual for us to be skewed to the second half. Some of those second half opportunities will also be because of the Interactive business as we see 2 lotteries coming online in July being Michigan and Massachusetts. So there will be some momentum from that perspective. But it's not an unusual profile to us to be phased in the second half of the year on the way that games are released. Post G2E -- games are placed post G2E and then momentum with the seasonality of the industry as well. Kai Erman: All right. And then just a follow-up. I guess in North American outright sales looked quite strong when you consider the adjacency mix. Taking out the adjacencies, what are you sort of seeing the pricing trends there? Do you sort of expect a sustainable pricing increase throughout FY '26 as well? Trevor Croker: I wouldn't say sustainable pricing increase. But first of all, I appreciate the fact that you recognize that the negative draw on adjacencies from an ASP point of view. I would put that down to hardware being the new Baron Portrait cabinet and also high-performing games like Spooky Link where high-performing games support a premium price and the new hardware has been very well received. It's not a case of pricing up because we can. It's about a value solution for our customers and high-performing games on new hardware, which is working is a great return for our customers. Operator: Our next question comes from the line of Rohan Sundram from MST Financial. Rohan Sundram: I'll ask just one Trevor or Craig, actually, on the land-based side of things, how would you rate your forward visibility at this point in time? And just how would you describe the overall state of slots CapEx at the moment from customers? Trevor Croker: Yes. Thanks, Rohan. Look, I think we're very happy with the visibility of the market at this point in time. Performance of our portfolio is strong. Hardware configurations are very good and the ability to see both new openings and expansions, which we anticipate is going to be around about the same size as '25 and '26. We've got line of sight to those, and we feel very competitive around our ability to take a good share of those new openings and expansions. So a visibility point of view, I think where we were at the half, there was still a lot of volatility in the market, uncertainty around tax changes, regime -- the regime tax changes and other changes in the market, and that has settled down now. And I think operators have been willing to invest in game placement, and we were able to take advantage of that through the second half. So I feel confident about our visibility. I feel confident about our momentum into this year. And October, as I said, I feel good from what I'm seeing in October that '26 is in good shape. Operator: Our next question comes from Sam Bradshaw from Evans & Partners. Sam Bradshaw: Just wondering how you're seeing current M&A opportunities and which segments you'd be most interested in? Trevor Croker: Yes. Thanks, Sam. Appreciate the conversation. A couple of points here. We're still working on integrating NeoGames. We've done a lot of work there, and we reorganized the product and tech side of things as we spoke about a number of times now. And Neo is very much part of the Aristocrat Group, and we're continuing to leverage that opportunity. I would point to a couple of small tuck-ins that we've done, which to me are about building the investments for the future. One of those was [ MGS Big Boss ] which is really around creating connectivity, real-time connectivity between gaming machines and the operators to allow direct marketing, et cetera. And the second one was Awager, which is a streaming business -- very small streaming business that is starting to emerge in the North American and Canadian markets. We closed that on the 5th of November. So there are just a couple of small bolt-ons that continue to enhance our strategy. As you know, we use M&A to accelerate our growth, not to replace organic growth and share taking. As far as the future goes, we feel pretty well placed with our gaming portfolio of assets at this point in time and see that we can continue to take share rather than buy share through acquisition in the gaming space. Social casino and online, as you know, we've streamlined our portfolio. Our portfolio of social casino assets continue to be strong with NFL being the latest new app, but continuing to leverage the Evergreen is critical there. And then we would look at areas in Interactive space as well that would be attractive, but would have to accelerate our Interactive position. So we continue to participate in the markets and monitor those things that are strategically aligned to our objectives and remain disciplined around what is appropriate for our company. And as we said, we're building -- we have built the capability to do this, and we've built the financial structures to support it as well. Sam Bradshaw: Great. If I've got time to squeeze in a follow-up. Can I just ask whether you plan on entering charitable gaming, either organically or via M&A? Trevor Croker: We look at all of those things, Sam, to be honest with you. We continue to look at all markets and where we're focusing at the moment is on what we've got in front of us and leveraging the scale of the organization, but we look at all markets. Operator: I'm showing no further questions. Thank you all very much for your questions. I'll now turn the conference back to Trevor for his closing comments. Trevor Croker: Thanks, operator. Aristocrat continues to deliver strong performance in line with our strategy of maintaining a diversified gaming portfolio that capitalizes on our market-leading content and capabilities. Our ongoing commitment to invest in talent, technology innovation underpins our confidence in capturing the many opportunities that lie ahead. And again, this year, we've taken market share in every market in which we participated, feeling confident going into '26 as well. Should you have any further questions or queries, please feel free to contact our Investor Relations team. I'll now bring the formal proceedings to a close. And on behalf of the entire Aristocrat team, thank you for your continued interest and support, and we wish you all a pleasant day. Thank you. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect your lines.
Iris Eveleigh: Hello, everyone, and welcome to our 9 months 2025 results call. Thank you for taking the time to join us today. I am here with our CFO, Nadia Jakobi, who will give you an update on our financials. As with every occasion, we will leave enough room at the end for your questions. With that, over to you, Nadia. Nadia Jakobi: Thank you, Iris, and a warm welcome to all of you from my side as well. Before I turn to our financials, I would like first to touch upon the latest regulatory developments in Germany. The German regulator has announced the start of the final consultation process concerning the framework concept with a committee of representatives from regional regulatory authorities. Compared to its draft proposals published in the summer, the regulator has introduced amendments to certain items, most of which affect smaller network operators. The main aspect for us is that the regulator intends to maintain the 7-year average approach for determining the cost of debt on the existing asset base without annual adjustments. This fails to consider that maturing debt must be refinanced at current market rates. The proposed higher weighting of years with higher investment is a step in the right direction, but it does not solve the problem as the average would still be below current market rates. Consequently, the current draft of the framework does not fairly reflect grid operators' financing cost. Allowing for an annual adjustment would have ensured a more appropriate reflection of actual market developments for both customers and grid operators. The proposals are still in draft format, and so far, we have only seen a brief BNetzA release. However, the regulator has indicated that the current version is close to final and plans to keep its year-end target for finalizing the framework and the methodology on capital returns and efficiency benchmarking. However, the final values for return on capital will only be determined much later in the process between 2026 and 2028 as was the case for former regulatory periods. Given the status and recent announcement of the regulator, specifically for the cost of debt treatment, the uncertainties regarding RP5 are greater than we had expected by now. We would have expected to be able to narrow down the ranges for capital remuneration further. As we have always said, ultimately, the RP5 proposals as a whole must be sufficiently attractive to promote investments. In his latest announcement, the regulator stated that the new Nest proposals will increase the revenue cap by 1.4% or EUR 1.3 billion for power DSOs during the next regulatory period. The regulator must now move from words to actions as we do not see the necessary increase of the regulators' returns so far in the publications. In view of the enormous investment needed for a successful energy transition, we, however, remain confident that the final result will deliver the outcome needed. But we would have expected to have more clarity already at this first stage of the process to invest further investments in detail. We will continue to advocate for an internationally competitive market-based regulatory framework that supports a successful energy transition in Germany. At the same time, we remain committed to our value creation promise and will only invest provided regulatory returns create value for our shareholders. I'm sure we will continue this topic in our Q&A, but let me now turn to our financial results for the first 9 months. There are 3 key messages I want to highlight. First, in the first 9 months of the year, we achieved an adjusted EBITDA of EUR 7.4 billion and an adjusted net income of EUR 2.3 billion. This represents a year-over-year increase of 10% and 4%, respectively. Based on our full year guidance, that means that we have achieved roughly 76% of our adjusted EBITDA and 78% of adjusted net income at group level. Second, our investment-driven earnings growth and strong operational execution remain the key driver of our sustainable growth. Our planned investments have developed well with a year-over-year increase of 8% at group level. The main share comes from our Energy Networks business. This shows that our long-term procurement strategy, including our highly skilled workforce, enables us to successfully execute our networks investment plan. And third, based on our 9 months economic net debt outturn, we expect our debt factor to come in at around 4.5x economic net debt to adjusted EBITDA for the full year 2025. Our balance sheet continues to provide a strong foundation for our investment plans. Let us now move on to the details of our 9 months year-over-year adjusted EBITDA development. The increase in EBITDA was largely driven by our Energy Networks business, reflecting accelerated investments in our regulated asset base across our regions. We continue to see a substantial contribution to our earnings growth coming from value-neutral timing effects. In Germany, the positive timing effects were driven by increased volumes and lower redispatch expenses, primarily during the first half of this year. In Southeastern Europe, we continue to see additional network loss recoveries and volume effects. We don't expect significant impacts from value-neutral timing effect in Q4 2025. Turning now to our Energy Infrastructure Solutions business. EBITDA growth was driven by higher volumes due to normalized operations and weather compared to last year. On top, we saw business growth from new projects coming online and increased smart metering installations in the U.K. Our Energy Retail business delivered in line with our expectations. The usual operational year-over-year development in Germany is masked by phasing effects from true-ups for volume and price assumptions and by restructuring provisions in connection with our efficiency programs. However, the decline is partially balanced by temporary price effects from earlier this year. As already communicated in our H1 call, the earnings development in the U.K. continued as anticipated and is already fully reflected in our guidance. In our U.K. B2C customer segment, we continue to see customers switching from SVT tariffs to fixed-term tariffs. In our U.K. B2B business, contracts from previous years continued to roll off. Our 9 months 2025 adjusted net income came in at around EUR 2.3 billion. The conversion of the operational growth into the bottom line came in as expected. We observed slightly higher depreciation costs, driven by increased digital investments with shorter useful lives. Interest costs rose due to the higher coupons compared to maturing debt as well as higher debt levels relative to prior years. In addition, the positive value-neutral timing effects mainly came from our Southeastern Europe network business, which has a higher minority interest. Let us now move on to our economic net debt development. The execution of our investment program remains strong. In our Energy Networks business, we saw a 15% increase in year-over-year investments. Our group CapEx fill rate now stands at around 60%, which is in line with our typical 9 months level. Our economic net debt improved by roughly EUR 2 billion in the third quarter. The main driver was a strong seasonal operational cash flow. In addition, there was a positive structural effect of around EUR 700 million coming from the deconsolidation of one of our regional utilities participation in Germany NEW AG at the end of September 2025. In the third quarter, we also benefited from a tailwind in pension obligations, which decreased by a mid-triple-digit million euro amount, mainly due to the rising interest rates between the end of Q2 and Q3. We have also continued to streamline our portfolio as part of our discretionary EUR 2 billion disposal program. Most recently, we announced that we have signed an agreement to divest our Gas Networks business in Czechia. This step enables us to continue pursuing our ambitious growth and investment goals. In summary, our robust E&D trajectory continues to support our confidence in maintaining strong balance sheet flexibility to finance our ongoing investment program. At year-end, we expect our debt factor to come in at around 4.5x economic net debt to adjusted EBITDA based on the current interest rate environment. Finally, I would like to conclude today's presentation with my key takeaways and outlook. First, we have delivered strong 9 months group results and are well on track with our investment ramp-up. Our strong balance sheet provides a solid foundation for continued organic growth. Second, on our outlook. Our 9-month performance supports our 2025 earnings expectations. In our Energy Networks segment, we continue to expect to reach the upper end of the guidance range, driven by value-neutral timing effects. This also positions us at the upper end of our group EBITDA guidance range for the full year 2025. For our adjusted net income, we still expect to land comfortably within our guidance range. With that, we fully confirm our full year 2025 guidance and 2028 outlook, including our dividend policy. With that, back to you, Iris, for the Q&A. Iris Eveleigh: Thank you, Nadia. And with that, we will start our Q&A session. [Operator Instructions] And we will start today's call with a question from Harry Wyburd from Exane. Harry Wyburd: So I'll keep my regulation too. So firstly, can I just dig into some of the comments you made on regulation. So noted on the point on cost of debt allowances and your disappointment with that, but you also mentioned that you're confident you will achieve in the end, an agreement that works for you. And you also mentioned you are confident that you are -- or more confident that you'll get the consultation documents by the end of this year. Can you just tell us what a good outcome would look like in those documents you're expecting by the end of the year? It sounds like you're less optimistic about cost of debt allowances. What else could offset that potentially? And what is your latest thinking on where you think operating cost allowances will come out because a few of your criticisms of the regulation were centered on cost allowances. And then the second one is on consensus for next year. Given that next year, you will no longer be reporting timing effects in your headline earnings. Are you comfortable with the current consensus for next year, which I think stands at around EUR 1.08. If you could give us a flavor of how you're feeling on that, that would be very useful. Nadia Jakobi: Harry, thanks for the questions. I think on the question on outlook 2026, we give the outlook for 2026 at our full year results for 2025. And I will now not give any glimpse into our 2026 numbers. But just, of course, we are, of course, following the consensus always very carefully. So coming to the first question. So first of all, the regulator has announced that he sees the draft as largely final, and he keeps the year-end time line for the framework for cost of capital and efficiency. Compared to the summer draft, the regulator added amendments and improvements, but those were mainly affecting the smaller DSOs. You might have seen that the simplified that -- also the DSO and the simplified procedure can now get the OpEx factor. For us, as you highlighted, the key negative point that we have seen so far that the 7-year average without dynamic adjustment is still kept. And honestly, also the weighted average that has now been introduced is not helping that much because we have been also ramping up our investments faster than the industry because we got our ducks in the row on supply chain at a faster pace to enable the energy transition. And as you know, we are sort of connecting 80% of all onshore wind, for example. That's why we have been ramping up far faster than some of the smaller competitors. So the latest statement on this cost of debt rather confirms a bit of unease that we have highlighted in our H1 call. But we, of course, continue to advocate for competitive and market-based regulatory framework. So I don't see that there will be now massive changes compared on this cost of debt discussion until the end of the year. But of course, the overall regulatory package must be attractive enough to encourage further investments. So if you ask me, the problem is, at this point in time, we only have seen the press statements of the regulator. In the press statements, the regulator has clearly articulated that he sees that the revenues will structurally increase by 1.4%. But however, we haven't seen that now in the publications. And also, we don't have the final draft in our hands. That's why it's now very difficult for me to sort of point you to the 1, 2, 3 positives in the publications, which might come until the end of the year because I currently don't have more information than is publicly available. On operating cost allowance, maybe just one word. Of course, operating cost allowances, that was always clear that everything that is -- in regard to efficiency benchmarking and operating cost allowances, that was always clear that this will only come at a later point in time in the regulatory period. Iris Eveleigh: We move then on to the next question. The next question comes from Deepa from Bernstein. Deepa Venkateswaran: So I think my question is actually continuing on the theme of regulation, but maybe a bit more specific, Nadia, based on your best understanding from your regulatory team. So the new period starts in 2029. So are we talking about like a weighted average cost of debt from -- averaging period from '21 to '28. That number is calculated. It's then fixed and just applied for all the -- I think it's going to be only one RAB, right? So for the opening RAB, new investments, et cetera? Or is there at least going to be some level of dynamism for the new CapEx that's added on from 2029 onwards? So that's my first question. Second question is a bit related. Obviously, when you will be presenting your full year results in '26, you're going to give us guidance for '26, but there's also an expectation that maybe you will roll your plan forward and give us some updates on CapEx. So my question really is, do you think you and the Board will have enough certainty about the investment conditions by Feb '26 that will allow you to make a decision on whether to keep the CapEx numbers as they are or use some of that headroom in your balance sheet? Yes. So those are the two questions. Nadia Jakobi: So Deepa, you're touching upon some very relevant points. So we -- so first of all, to clarify the second part of your first question, it is very clear from the current proposals that for the new investments that start from 2027, there will be this dynamic adjustment in the cost of debt that we already have in this fourth regulatory period. So that's something which is continued and it's also then working that we get our actual financing cost reimbursed. Then when it comes to the currently existing asset base, like you highlighted, it is a 7-year average, and this is then fixed and not dynamically annually adjusted for the maturing debt. And what we don't know at this point in time is what years are part of the time series. And that is, of course, very relevant because, as you know, at the beginning of the '20s, we still had this very low interest rate years, and it is very fundamental, which years are being part of this 7-year average. And that is something we don't know, and it is also not clear if we know at the end of the year. And this also applies, for example, for the risk-free rate that is for the new investments as part of the cost of equity determination. We also don't know which years will be included in that calculation and some of the other elements that are part of the cost of equity for sort of the new investments. So that then also leads me to the second part of your question. As we highlighted, we would have expected to have more clarity around the methodology at this point in time to be able to narrow down the corridor of potential outcomes. I think that is what I've been also saying the last couple of quarters that the methodology and that methodology, of course, includes also what kind of years are included, et cetera, would help us to narrow down the corridor of potential outcomes. And what I know right now, that has become less likely at this point in time. So when it now comes to what we will do in our full year, the regulator has clearly articulated and signaled that we will have higher revenues, but we haven't seen it yet. So that's why we will first now wait for the proposals to come. Currently, that's a closed shop exercise within the regulatory authorities and the regional authorities. And once we have now then assessed the final proposals, we will then make up our base case, and we will update you accordingly. But for now, it's too early to comment on our full year communication. Iris Eveleigh: With that, we get to the next question, which comes from Peter Bisztyga from BofA. Peter Bisztyga: So sorry to kind of labor the point on regulation. But what I'm sort of hearing is that the cost of debt aspect isn't adequate and it's probably not going to change very much. You've been sort of clear that you want 8% plus ROE. And if you look at the methodology to date, I don't think there's a chance that you're going to get anywhere near that. Dispatch costs are still included in the efficiency benchmarking. So there's a whole list of stuff that you've been quite explicit about the fact that you don't like. And the revenue increase, the sort of 1%, whatever it is, just isn't very much in the grand scheme of things. So how can this get anywhere near to being a sort of sufficient overall package based on what you have said are your kind of minimum requirements? So that's my main question. And then maybe just one -- just on a slightly different topic. Your customer numbers in Germany and the U.K. In Germany, you sort of lost quite a few in the first half, but it seems to have now stabilized. And in the U.K., you're sort of losing a few -- 100,000 or so customers this quarter despite, I think, sort of quite aggressive pricing. So I just wondered if you could comment on what dynamics you're seeing in those 2 retail markets, please? Nadia Jakobi: Yes. So let me start with the first part of the question. So maybe starting with the last comment. The revenue increase of 1.4% is only the structural elements, which would lead to this 1.4%. All the market-related elements, i.e., sort of higher interest rates, both affecting sort of cost of debt and cost of equity and of course, all the increase about sort of more investments, that is not included in this 1.4%. But it is just sort of structurally making it more attractive that is included in that. Second part, the determination of the new regulatory period, which starts in 2029 has always had like 4 years. So '25, '26, '27, '28. So what we are now saying in this first part, what we see up in 2025 and what we would have hoped for to get clarity in this first year and the one-off of the next regulatory period, this is disappointing from what we have known right now. But of course, we will have 3 more years with all the individual determinations to come. And with all the investment needs actually building up, we are still confident that the regulator will see the need for investment and will also then improve on that. To highlight one topic you have now set around cost of debt, we discussed that. As a positive, which is currently not clarified at all is the OpEx factor. This has been just laid out without making it any more concrete, which should clearly be a positive. You mentioned the redispatch cost. We haven't so far seen anything and also no communication on how the efficiency framework and the benchmarking is going to work. And there, we also still see clearly the potential for improvements. However, so far, we haven't seen it in any of the publications. And so -- as I said in my speech, the regulator now just after he had his words that there will be structural improvements, we will also now see that is actually the actions are also coming. And customer numbers. So customer numbers, yes. So I think we covered the drop in customer numbers in the first half of the year. And we highlighted in the last call that we are targeting around 47 million customers for our overall customer base, and that is absolutely unchanged. We are pursuing value over volume strategy. So clearly, it's not only the customer numbers, but also the value per customer is what is relevant for us. So we are absolutely sort of keeping to our guidance for the energy retail business for 2025 with a target range of EUR 1.6 billion to EUR 1.8 billion, and that is fully confirmed. And we have been also saying, I think if you remember, as part of our Q1 call that some of the customer acquisition campaigns will be rather tilted to the back end of the year and some of that, you are also now seeing in the market. Iris Eveleigh: With that, we go on to Piotr from Citi. Piotr Dzieciolowski: I have two questions, please. So the first one on this EUR 5 billion to EUR 10 billion extra CapEx headroom that you previously discussed. So assuming the German regulator doesn't provide you the required package, is it possible that you redirect this potentially into other markets? Essentially, what I'm trying to get is, shall we think about this EUR 5 billion to EUR 10 billion that is more likely or not that it will come and be spent somewhere within your structure into different regions? So that's question number one. And the second question I have on the supply margins outlook into the next year. What is the procurement prices of a commodity component doing on your books? Is it -- should the customers expect declining prices or flat prices? And what that -- does it have any implication on the supply margin you can generate? Nadia Jakobi: Yes. So on this EUR 5 billion to EUR 10 billion headroom that we have. And I think if you remember, Leo, I think, gave some highlights about where we're investing in our international networks business in the H1 call. And there is very clearly also a need to grow in other regions because particularly also in some of the other regions we are operating in, we see a higher economic growth than we actually see in Germany. And there's quite a lot of connection requests also for industrial customers. I would just point you to some of the examples that Leo has given as part of his speech in H1. So there is clearly the need for growth also in our international and European businesses. Second point, in Germany, there is this clear investment need. We're also already -- at this moment, our demands and needs for investment by far exceed what we can actually include in our plan. And that's why we are saying, as I already highlighted to the question of Peter, that we say because the investment needs are there that eventually we will get a good framework in Germany. So I guess, as you indicated, this EUR 5 billion to EUR 10 billion in headroom clearly earmarked for organic growth in our business. Second question was regarding the supply margins. Yes, procurement strategy is, of course, more commercially sensitive topic that I will not now share with the whole investor community. I guess, what you know that some of the prices in the U.K., the procurement strategy can be very easily followed by the price cap regulation. So I would point you to that. And in Germany, except from the commodity element, you, of course, know that we have seen quite some reductions in network grid fees with the subsidization of the German government of the TSO grid fees by EUR 6.5 billion, which will now also feed through into the tariffs and the same applies to the cancellation of some gas levy. But I guess that would be what I can sort of share with you on this point. So clearly, some elements where affordability concerns -- where we will see that some of the affordability concern will be dampened, particularly in our biggest market, largest market, Germany. Iris Eveleigh: And then we have another question from Louis Boujard from ODDO. Louis Boujard: Maybe two on my side. Maybe the first one would be regarding the timing actually for the new investment plan that you expected. We understand that indeed, the debt factor is not at the level that you wanted, that there is some uncertainty still in the OpEx and in the framework that is currently under discussion. What does that mean if you're not able by February to update and to increase your CapEx plan? Does that mean that it's going to be over? Or does it mean that eventually there is other milestones that you could foresee in the future in the next quarters after February on which we could rely on in order to have a better visibility and better grip regarding the potential upside into the CapEx plan? And also as a side comment on this question, do you, at the same time, see potential for additional investments in digitalization, smart meters, et cetera, that would enable you eventually to grab additional returns on the networks without relying too much into the regulatory framework? That would be -- sorry, the first question, a bit long. Second one would be much shorter. On the Retail segment, our EBITDA declined by 18% on the 9 months. Well, we know that there is some normalization effect, but could you eventually elaborate on a geographical standpoint, what would be and if any corrective measures might be needed in certain geographies on which eventually the drop is a bit larger than what you could have anticipated previously? Nadia Jakobi: Okay. So let me come first to your first question. So additional smart meter investments is always a good idea. So particularly, we are investing in smart meters in the U.K. and Germany. And I think we have been the ones who've been always fulfilling their targets. In Germany, we have reached a 20% increase. But of course, smart meter investments is something which we can do, but is not, of course, in any size equivalent to the RAB investments that we do. When it comes to the timing, I would need to say that we don't want to speculate now. We have so far only got sort of what was uploaded onto the website of BNetzA and one interview of Handelsblatt of Mr. Muller. We have this clear announcement that we will see increases or improvements to the regulatory on top of the market-driven improvements. And that's why I don't want to speculate now what we will do. We will first make up our mind what we will do for the full year 2025 announcements. So when it comes to the Q2, so the retail business, yes, you're right. As I've been highlighting, we are sort of EUR 300 million below last year in 9 months. We achieved EUR 1.4 billion, and we are sort of following the normal seasonal pattern and are on track for our full year guidance. Q3 stand-alone EBITDA was EUR 120 million. That was down from last year. That was mainly due to phasing. We actually put in some cost provisions for restructuring and some normalization effects across the markets. So we have been really seeing only now some shifts between Q3 and Q4. Overall, the H2 results are very much in line with what we have been also seeing in former H2s because you need to bear in mind that H1 usually is the stronger of the 2 halves of the year for us. Yes. I think particularly Germany is a bit hard to interpret because last year, we had the positive true-ups from the reconciliation between actual and planned consumption in Q3. Now we will rather see some true-ups in Q4. And we are really managing also the overall -- we are managing the results in the retail business on a full year basis and not so much on a quarter-by-quarter basis. Iris Eveleigh: And with that, we come already to our last question for today, which comes from Ahmed from Jefferies. Ahmed Farman: Nadia, it sounds like from your comments that there is still quite a bit of a gap on key parameters, regulatory parameters between E.ON's position and whatever visibility that you get from the regulator. But then you've also referenced that you think in the end, you sort of feel that there will be the 2 sites will sort of come together. Could you just talk a little bit about the process? So if we get the consultation documents by year-end, and there is still a substantial gap between E.ON's position and what it sees as a regulatory proposal, what recourse measures do you have? Are you able to challenge it? Is there a way to sort of take it to an appeal? And how long could that process be? So I just want to understand a little bit more how do we -- what could be the process from there onwards? That's my number one question. And sorry, my second question is, could you give us some sense of how significant the changes could be to the cost outperformance methodology? Because my understanding is that is quite an important element in terms of when we think about sort of the German regulation. Nadia Jakobi: So Ahmed, as I highlighted earlier, at this point in time, we have only sort of the announcements from the regulator about the draft proposals that has been sent to the final consultation of the committee of regional regulators. And we don't have that yet. So for us, sort of the first step would be that we assess these publications once we have made them available. And then once we have fully analyzed that, we will assess our options. And as always, we also assess potential legal options that we have. But we will, of course, only do that once we have the information in place. And as the regulator has highlighted, they deem that these drafts are largely final and that they will keep the year-end time line for the framework. So we are pretty sure that we will have them in the next couple of weeks. The final decisions on the cost of debt and cost of equity are expected between 2026 and 2028, as I highlighted, and the efficiency values for RP5 power will be defined in 2028. So you're right. To summarize it again, you're right regarding the gap to our position versus the regulator. But keep in mind, it's now the framework and determination will only happen over the next 2 to 3 years. Yes. Ahmed Farman: Very clear. Nadia Jakobi: And then the second question, when it comes to outperformance, it is an incentive regulation that we have and it's a potential for outperformance. I highlighted it earlier, and there's now a new element that is also coming in. So we have got the benchmarking and sort of the efficiency values that we get is also very clearly determining what kind of outperformance that we have. That is something which we will all know at a very later point in the process. Then the OpEx adjustment factor, we cannot really tell. I guess, on the OpEx adjustment factor, I would hope that we get some more clarification in 2026. There was a bit more push down the line. Sort of even -- currently, we don't even know what the methodology about that is. But okay, what the OpEx factor will actually mean for us, we would also only know at the back end before we actually get into the regulatory period. I guess that's all I can say on the outperformance right now. Of course, there's always a link between outperformance, OpEx factor and all the other return elements. And as we say, for us, the overall package regarding all elements is actually what counts. In this regulatory period that we are currently in, we managed to achieve a value creation spread of 150 to 200 basis points over all our Energy Networks businesses. And also our German business is living up to this value creation spread. And that's, of course, our ambition that -- and our goal to also achieve this value creation spread in the future. Iris Eveleigh: And with that, we come to the end of our 9 months results call. Thank you very much, everyone. And if there are any follow-up questions or you would like to go into more details on the one or the other point, the IR team is happy to take your questions later. Thank you very much for dialing in and speak soon. Bye-bye, everyone. Nadia Jakobi: Bye-bye. Thank you.
Operator: Good day, and welcome to our second quarter fiscal 2026 earnings conference call. Today's call is being recorded. [Operator Instructions] I'd now like to turn the call over to Tomas Grigera, Vice President, Corporate Treasurer. Tomas Grigera: Thank you, operator. Joining me today are Pieter Sikkel, our President and CEO; and Dustin Styons, our CFO. Before we begin discussing our financial results, I would like to cover a few points. You may hear statements during the course of this call that express belief, expectation or intention as well as those that are not historical fact. These statements are forward-looking and involve a number of risks and uncertainties that may cause actual events and results to differ materially from these forward-looking statements. These risks and uncertainties are described in detail, along with other risks and uncertainties in our filings with the SEC, including our most recent Form 10-K. We do not undertake to update any forward-looking statements made on this conference call to reflect any change in management's expectations or any change in assumptions or circumstances on which these statements are based. Included in our call today may be discussion of non-GAAP financial measures, including earnings before interest, taxes, depreciation and amortization, commonly referred to as EBITDA and adjusted EBITDA. and adjusted free cash flow metrics, which are not measures of results of operations under generally accepted accounting principles in the United States and should not be considered as an alternative to U.S. GAAP measurements. Reconciliations of these disclosures regarding these non-GAAP financial measures are included in the appendix accompanying this presentation, which is available on our website at www.pyxus.com. Commencing this quarter, we are also showing free cash flow adjusted for changes in working capital for relevant periods. We have included reconciliations of that non-GAAP measure in the appendix. Any replay, rebroadcast, transcript or other reproduction of this conference call other than the replay as provided by Pyxus International, has not been authorized and is strictly prohibited. Investors should be aware that any unauthorized reproduction of this conference call may not be an accurate reflection of its contents. Now I'll hand the call over to Pieter. J. Sikkel: Thanks, Tomas, and thank you, everyone, for joining. We are pleased to report solid second quarter results, continuing the company's track record of consistent execution and financial achievement and providing the momentum necessary to achieve another high-performing year. Our year-to-date performance, combined with improved near-term visibility enables us to increase our sales guidance to $2.4 billion to $2.6 billion and raise the lower end of our adjusted EBITDA guidance by $10 million to a new range of $215 million to $235 million. During the quarter, we delivered healthy sales results, strong gross profit per kilo and a higher gross margin percentage. And throughout the first half, we achieved earlier buying and processing in key markets. This acceleration supported our increased inventory position, consistent with larger crops and balanced customer demand, ensuring we are well prepared to fulfill customer orders during the second half of the fiscal year. Balanced demand is expected to persist in the near term. However, with another large crop projected next season, there is the potential for the market to shift towards oversupply. We are confident in our ability to excel in an evolving market environment with the scale and diversity of our global footprint and customer base serving as key differentiators. This enables us to maximize the value of larger crop volumes and deliver continued performance regardless of market dynamics. The first half of fiscal 2026 was a strong indicator of this ability. We successfully executed in the large crop environment by capturing mix-related opportunities that supported higher margins and returns, expanded third-party processing for our customers and improved fixed cost absorption across our operations. For the second half of fiscal 2026, we expect strong sales and cash generation as we ship inventory to meet demand. We will remain focused on optimizing our operating cycle times and accelerating the repayment of our seasonal credit lines to deliver credit profile improvement by our fiscal year-end. We also look forward to providing an update in the coming weeks on our refreshed global sustainability strategy. This update follows our achievement of various sustainability goals, such as our water and waste targets and reflects the results of a recent materiality assessment, which evaluates how our business affects people and the environment and how sustainability issues may influence our company's financial performance. We believe this strategic enhancement will drive further business integration, innovation, operational efficiency and alignment with key stakeholders as we work together to grow a better world. With that, I'll hand the call over to Dustin to discuss the quarter in more detail. Dustin Styons: I'll start by reiterating Pieter's comments. We achieved solid second quarter results, which contributed to our strong first half performance and positions the business to confidently deliver the balance of fiscal year 2026, in line with our raised guidance. Second quarter sales were $570.2 million, up $3.9 million versus last year, reflecting higher volumes at lower average sales prices. Gross margin improved to 15.4%, up from 13.3% in quarter 2 of fiscal year 2025, driven by improved returns on the current crop and increased third-party processing volumes. Year-to-date sales were $1.1 billion, down $122.2 million versus last year as accelerating shipments on the larger current crop have not yet fully offset lower carry-over sales from the prior year. Year-to-date, gross margins are 14.2% versus last year's 13.3%. This gain reflects improved product mix and is positively weighted by current crop sales in the second quarter. Second quarter operating income was up 41.5% or $13.7 million to $46.7 million versus the prior year. Adjusted EBITDA increased 23.6% or $10.5 million to $54.8 million versus last year. Year-over-year increases for the quarter were driven by higher volumes, stronger gross margin and relatively flat SG&A. Our year-to-date operating income was down $5.8 million to $67.7 million, and adjusted EBITDA was down $15.1 million to $84.2 million, primarily driven by the first quarter's lower carry-over sales from the prior year. Consistent with larger crops in South America and Africa, our working capital investment peaked in quarter 2. Inventory was up $160.6 million versus prior year to $1.14 billion, which positions us to execute shipments in the second half. Our seasonal lines were up $163.3 million versus last year to $908 million, which is consistent with our inventory position through quarter 2. Our operating cycle improved by 12 days, decreasing to 167 days compared to last year. Our liquidity remains strong with no outstanding borrowings on our $150 million ABL at the end of the quarter. Both our leverage of 6.54 turns and interest coverage of 1.48 turns are as expected and reflect the seasonal profile of the working capital investment needed for this year's larger crop. We expect second half sales and the release of working capital to support an accelerated paydown of seasonal lines, generating significant improvement in leverage. Our quarter 2 and year-to-date cash flows reflect concentrated and incremental first half purchasing. A rolling 12-month view best represents the timing of inventory seasonality and highlights our continued year-over-year improvements in free cash flow adjusted for changes in working capital, driven by our commercial strategy. We remain on track to deliver higher shipment volumes in the second half. Our third-party processing initiatives are capturing performance opportunities, and we continue to progress in price negotiations with key customers, improving visibility for the remainder of the year. This increased visibility supports our decision to raise full year sales guidance to $2.4 billion to $2.6 billion, up from the initial range of $2.3 billion to $2.5 billion. We are also tightening the bottom end of our adjusted EBITDA guidance to $215 million to $235 million, up from $205 million to $235 million, representing continued improvement versus prior year adjusted EBITDA of $208 million. I'll now hand the call back to Pieter. J. Sikkel: Thanks, Dustin. Our second quarter performance reflects disciplined delivery against our plan and positions us with the inventory necessary for a strong second half. With support from our experienced teams, robust global infrastructure and disciplined execution, we are confident in our ability to reach our improved sales and adjusted EBITDA guidance. This positions us for one of our strongest years on record, marking another year of growth. Looking ahead, we will remain focused on capturing opportunities for growth while maintaining an efficient operating cycle, strengthening liquidity and improving our credit profile. We expect a balanced market through the remainder of the fiscal year and the potential shift to oversupply next year as another large crop is anticipated. We see this shift as an opportunity to leverage our global farmer base and procurement and processing footprint to drive cost efficiency for the business and deliver value to our customers. These actions underscore our position as an industry leader and enable sustainable profitable growth well into the future. Operator, please open the line for questions. Operator: [Operator Instructions] Our first question comes from Oren Shaked with BTIG. Oren Shaked: So Pieter, you mentioned the potential shift to an oversupply position in the market. You talked about that a couple of times. It's obviously been a while since we've seen that. So how should we think about the business and the competitive environment? Should that come to pass in a few quarters from now? J. Sikkel: Oren, thanks very much for the question. And in short, we see that as an opportunity. If you look at -- historically at our business in years of oversupply, we've tended to perform at our best. And really, that's a reflection of the opportunity at that time to really improve cost. When you look on the demand side, it's very stable. But when you're looking in the oversupply situation, your base cost of raw material from farmers is appropriate for the quality of the tobacco that you're purchasing. The opportunity for additional third-party processing volumes exists, and you can see that reflected in the quarter 2 results of this year. And the cost structure through our very large-scale facilities around the globe comes down. So we've got better fixed cost absorption. So all in all, you end up with increased volumes, improved margins and lower -- through lower costs. So we prefer that situation, frankly, to the shortage of supply that we've seen in the recent past. Oren Shaked: All right. That's super helpful. And then, Dustin, you referenced higher shipment volumes in the second half. It was obviously nice to see that inflect positive on a year-over-year basis in fiscal 2Q. Were you referencing higher volumes in the second half versus the first half? Or were you referencing higher volumes year-over-year? Dustin Styons: I think when we look at the second half shipments on a volume basis, as we've indicated with the higher crops, larger crops this year, we would expect to see higher volumes on the back half as well as for the full year. Oren Shaked: Got it. Okay. So you should expect to see volume increase for the year as well. Okay. So that's helpful. So obviously, a lot of inventory left to be monetized. And clearly, with the increased guidance, it feels like the confidence level in being able to do that seems very high. Dustin Styons: I think you're thinking about that correctly. Operator: [Operator Instructions] And it appears there are no questions at this time. I'll now hand the call back to Mr. Grigera for closing remarks. Tomas Grigera: Thank you again for joining our fiscal year 2026 second quarter call. We look forward to sharing future updates with you following the third quarter of fiscal year 2026.
Operator: Good morning, and welcome to BiomX Third Quarter 2025 Financial Results and Program Update Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the call over to Marina Wolfson, Chief Financial Officer of BiomX. Please proceed. Marina Wolfson: Thank you, and welcome to the BiomX conference call to review the company's third quarter 2025 financial results and provide an update on our business and programs. Later today, we will file the quarterly report on Form 10-Q with the Securities and Exchange Commission. In addition, the press release became available at 7:30 a.m. Eastern Time today and can be found on our website on biomx.com. A replay of this call will also be available on the Investors section of our website. As we begin, I'd like to review the safe harbor provision. All statements on this call that are not factual historic statements may be deemed forward-looking statements. For instance, we're using forward-looking statements when we discuss on the conference call, the sufficiency of the company's cash, our pipeline, momentum and milestones, the design, recruitment aim, expected timing and interim and final results of our clinical trials, the timing of lifting of the FDA clinical hold, if at all, the magnitude of the FDA basis to impose a clinical hold and resumption of the BX004 clinical trial, expected feedback from the FDA and additional regulatory agencies and results thereof, the potential benefits of our product candidates, including the potential that they would become an off-the-shelf formulation intended for broad outpatient use in diabetic foot infection, the potential safety or efficacy of our product candidate, BX004, BX011 and BX211 and the potential market and partnering opportunities for our product candidates. In addition, past and current clinical results as well as compassionate use are not indicative and do not guarantee future success of our clinical trials. Except as required by law, we do not undertake to update forward-looking statements. The full safe harbor provision, including risks that could cause actual results to differ from these forward-looking statements are outlined in today's press release, which as noted earlier, is on our website. Joining me on the call this morning is BiomX's Chief Executive Officer, Jonathan Solomon, to whom I will now turn over the call. Jonathan Solomon: Thank you, Marina, and thank you all for joining BiomX Third Quarter 2025 update today. The third quarter of 2025 has been an important period for BiomX as we continue to advance our clinical programs and engage with regulatory authorities on the pathway forward for our phage therapy clinical pipeline. Starting with our lead program, BX004 for the treatment of cystic fibrosis patients with Pseudomonas aeruginosa infections. Throughout the quarter, the program made important progress while navigating some regulatory challenges. We began the quarter strongly with first patient dosing in our Phase IIb trial, a significant milestone in the development of this innovative phage therapy. As the trial progressed, we received notification in August that the FDA has placed a clinical hold on our U.S. trial sites. This hold relates solely to third-party nebulizer device used to deliver BX004, not to a drug candidate itself. Importantly, the FDA raised no concern about BX004 in their notification. So we see this as a technical challenge, but not a fundamental concern when it comes to our approach to our trial. We promptly submitted the requested nebulizer data and responded promptly to additional clarification requests and expect FDA feedback imminently. While this temporary pause affects our U.S. sites, we're optimistic about resuming enrollment soon. Since all components of the nebulizer are CE marked in Europe, our European trial continues uninterrupted and in full compliance with protocol requirements. Our European enrollment continues to progress according to plan. As reported just a few weeks ago, in October, we received written feedback from the FDA detailing the agency's understanding of the substantial unmet need for treatments targeting chronic Pseudomonas aeruginosa infection in CF patients even with existing CFTR, cystic fibrosis transmembrane conductance regulator modulators. As part of that feedback, the FDA outlined several potential development pathway for BX004, including specific approaches for our Phase III inclusion criteria to demonstrate therapeutic benefits. This constructive feedback was encouraging for us as it provided both valuable guidance on how the FDA sees development for our program while recognizing its relevance to an important medical need, which we see as a vote of confidence. Following our BX004 Phase IIb readout, we plan to incorporate the FDA's recommendation into our development strategy and look forward to further discussion at our end of Phase II meeting. As of today, we are still on track to report the data in Q1 2026, notwithstanding the halt, which we expect to hear feedback from the FDA imminently, as I noted. Let us now turn to an exciting development in our second program. In early November, we reported positive FDA feedback on our plan to target Staphylococcus aureus infection in diabetic and foot infections or DFI. This feedback supports our strategy to develop BX011, our next-generation fixed-phage cocktail designed specifically for this difficult-to-treat condition. BX011 represents a natural extension of our Phase II clinical success with BX211 in diabetic foot osteomyelitis, targeting the same Staphylococcus aureus pathogen, but in an earlier stage of disease where infection remains localized to the ulcer. The program advances toward an off-the-shelf formulation intended for broad outpatient use in diabetic foot infections while also offering dual-use potential as a rapidly deployable solution for treating combat-related wound infection as an approach well aligned with the priorities of the U.S. Defense Health Agency, or DHA, for future conflict environments. I want to take a minute to explain why we're targeting DFI initially. The DFI indication addresses a critical unmet medical need. Approximately 160,000 lower limb amputations occur in diabetic patients in the U.S. annually with 85% stemming from diabetic foot infection or osteomyelitis. Despite this urgent need, no new drugs have been approved for DFI in the U.S. in over 2 decades. Additionally, DFI patients represent a large addressable patient population with significant commercial opportunity with a regulatory pathway that's clearly supported by established FDA guidance. These factors make DFI a strategically compelling indication for our program to focus on while leveraging the strong clinical data we already have. The FDA provided detailed constructive guidance for BX011, outlining the clear potential pathway toward a BLA, Biologics License Application. Notably, no additional nonclinical studies were requested and their CMC comments are aligned with our established manufacturing approach. This feedback confirms our development plan harmonizes with current FDA guidance for DFI product development. BX011 will be applied topically and includes proprietary phage previously evaluated in our successful BX211 study. We plan to advance BX011 in coordination with ongoing discussion with the DHA and subject to securing necessary financial resources. Looking more broadly at the landscape, we're seeing strong momentum across the phage therapy field alongside rising global attention to antimicrobial resistance. We think this underscores the growing validation of phage-based approaches such as ours. This broader progress across the industry validates BiomX's precision phage therapy and strengthen our confidence as we look ahead for the upcoming BX004 Phase IIb readout. I'd like to now pass you to Marina to review our third quarter 2025 financial results. Marina Wolfson: Thank you, Jonathan. As a reminder, the financial information for the company's third quarter 2025 is available in the press release that we issued earlier today as well as in more detail in our Form 10-Q, which we will file later today. I will now proceed with the highlights of our third quarter financial results. Our cash balance and restricted cash as of September 30, 2025, were $8.1 million compared to $18 million as of December 31, 2024. The decrease was primarily due to net cash used in operating activities. BiomX estimates its cash, cash equivalents and restricted cash are sufficient to fund its operations into the first quarter of 2026. Research and development expenses net were $6.1 million for the third quarter of 2025 compared to $7.3 million for the third quarter of 2024. The decrease was primarily driven by reduced salary expenses due to workforce reduction, lower rent expenses following a right-of-use asset impairment in 2024 and decreased expenses related to the CF product candidate, primarily due to the significantly higher manufacturing costs that were incurred in 2024. Such decrease was partially offset by an increase in depreciation expenses attributable to an accelerated depreciation of leasehold improvements resulting from the modification of our office lease agreement in Israel as well as by decreased grant funding from the Medical Technology Enterprise Consortium under the DHA and the Israeli Innovation Authority. General and administrative expenses were $2.4 million for the third quarter of 2025 compared to $3.2 million for the third quarter of 2024. The decrease was primarily driven by reduced salary and share-based compensation expenses and lower legal and other professional service fees. The decrease was partially offset by an increase in depreciation expenses attributable to the accelerated depreciation of leasehold improvements resulting from the modification of our office lease agreement in Israel. Net loss was $9.2 million for the third quarter of 2025 compared to net income of $9.6 million for the third quarter of 2024. The decrease was mainly due to the change in the fair value of warrants issued as part of the company's March 2024 financing. Net cash used in operating activities for the 9 months ended September 30, 2025, was $22 million compared to $30.7 million for the same period in 2024. I'll now return the call to Jonathan for his closing remarks. Jonathan Solomon: Thanks, Marina. To summarize, our focus remains strongly on clinical and regulatory execution, advancing both BX004 and BX011 through key upcoming milestones. We anticipate feedback imminently on the BX004 clinical hold in the U.S., which could enable the resumption of enrollment in the near term. In parallel, encouraging FDA guidance has outlined a clear Phase III development pathways for BX004 and strengthened the regulatory and commercial opportunity for BX011, which will focus on diabetic for infection patients, large and commercially significant population. With increasing validation across the phage therapy space, BiomX looks forward to the upcoming BX004 trial readout in the coming months and the continued progress toward bringing precision phage therapies to patients in need. Thank you all for joining today's earnings call. And with that, we'd like to open up for questions. Operator: [Operator Instructions] Our first question comes from Joe Pantginis with H.C. Wainwright. Joseph Pantginis: So a few questions right now. You've got a lot of working parts, and it's really nice to see all the regulatory progress. So maybe I'll start with DFI. It's good we have the clarity on the potential path forward. So I have 2 questions there. With regard to the defense potential, is this something that you might look to do in parallel with your clinical program? Or is this has the potential to be independent development through defense? Jonathan Solomon: Quite chilly in New York this morning. So it's actually -- I think that's one of the really interesting aspects of the DHA, right? So they understand, unlike other agencies, that the best way to get a product approved is to support it first in a commercial indication. So they kind of say, look, if the fastest path to get the drug approved is diabetic foot infections, we'll actually support that, get the drug approved and then we can always kind of expand the indication later, right? So I think that's a very refreshing approach and very practical. So we had this conversation with them and kind of said, look, we're debating, we have data in diabetic foot osteo. We have data -- the endpoints, as we've discussed, are all about soft tissue. So there are diabetic foot infection endpoints. We're really excited about diabetic foot infection. Does it make sense for you guys? And they're like, yes, it's actually closer to combat wounds. But again, they kind of reiterate, we'll support whatever you think is the fastest path to get to approval, right? So that's their view. They will hopefully continue -- right, they supported with $40 million to date. Hopefully, they'll continue to support in a meaningful amount in the future. And that would be an approach which is diabetic foot infection. It's not like combat wounds. That would be something that we'll look to do together probably later. And it also, I think, bodes well for the discussion that we did have about the products because we said the existing work on BX211 was a personalized approach. We have a lot of experience with Staph aureus. We know how to do a broad cocktail and an off-the-shelf product, and that's what we think we'll move to BX011 using the phage that we used in the trial. They're like, yes, because we view that it's more likely that an off-the-shelf product makes sense for combat settings, right? But still, they want to see us pursue diabetic foot first, get the drug approved and then sort of expand it later. So I hope that helps clarify. Joseph Pantginis: No, it certainly does. And then my second question before I switch to my one for 004. So on DFI, are there any outstanding questions? It seems like you have pretty good clarity right now or very good clarity. But are there any outstanding questions that still need to be addressed with regard to potential design or inclusion criteria? Jonathan Solomon: There's some fine-tuning, but generally, right, as you kind of note, right, first, there was a guideline, which is very clear on DFI, right? So the guideline kind of states the endpoints. You can always tweak some of the composite endpoints, but there's pretty good understanding. The FDA was very clear. So we do know how the clinical study is going to look like. Of course, we're on consult with the DHA and make sure we're aligned. And that -- so I think that's kind of the next step. But in terms of regulatory feedback, we got all the feedback we want consistent with CMC aspects, which we know and feel very comfortable. And of course, the reassurance that there's no need to do animal safeties or some of the skin penetration, it's pretty straightforward. So we feel that it's aligned. I think the feedback was consistent. And I think now we look forward to kind of working together with the DHA to lay out the next study. Joseph Pantginis: Great. And then my question on 004. It's pretty intriguing to us regarding the FDA feedback right now. So I'm hoping you might be able to provide a little more color even though it's a bit early for this on next steps with regard to how you might enrich the population or optimize it as you put it. Jonathan Solomon: Sure. So I do think we're super appreciative of the feedback that came to the FDA, right? I think it's thoughtful. You could see as the number of participants just in the document that was provided by the FDA. And again, they understand it's a huge unmet need, right? We're seeing it in the clinical study, right? Patients want to go on the study. They know that getting one of these nasty Pseudomonas is a really bad outcome, right? And they're willing to do whatever they can to get rid of those Pseudomonas. And the FDA understands it, appreciates it. They understand the difficulties in the age of CFTR modulators. And I think that's where they're open, right, to say, hey, you could potentially enrich the patient population with -- I mean, we've talked about bronchiectasis being a really interesting indication. You could look at patients which are not taking CFTR modulators, patients who are exacerbating more and try to get the clinical signal there where it's easier and hopefully get a broader approval. So that's kind of the thinking around enrichment. And I think that's why we're so appreciative of the FDA kind of taking a step forward and understanding it is an unmet need, show us a clinical signal in an enriched population and potentially, right, we could think about a broader label. Operator: Our next question comes from Yale Jen with Laidlaw. Yale Jen: I'm just going to follow up what Joe has asked a little bit in more detail. The first one is for the 011 in DFI. Does the FDA felt that the current mix of phage was good? Or would you guys are thinking maybe tweaking that a little bit given that the setup was built up a little bit earlier? And then I have a follow-up. Jonathan Solomon: Sure. So I think specifically with Staph aureus, we feel very comfortable. It's one of these bacteria that very few numbers of phage get broad coverage, right? So I don't think we need a very extensive phage cocktail based on our experience. And we can use just a few phage that we used in the previous study, put together a product that moves forward. Generally, I will say the FDA has been very supportive in terms of phage cocktails, right? So we've seen -- we've experienced and other experienced that actually an update of the phage cocktails through clinical development without a problem, without needing to go back, without needing to do any safety studies. So we've shown -- we've had that experience of expanding BX004. As I said, other phage companies had the same experience that was reported publicly. So no, we don't anticipate any challenges there. I think we feel very comfortable both with the support from the regulatory agencies as well as our experience, specifically in Staph aureus and in cocktails in general. Yale Jen: Okay. Great. That's very helpful in terms of clarify that. Maybe one question on 004, actually, 2 of them. So the first one is the initial clinical hold, I understand that just for the nebulizer. And would you speculate why FDA feel they need to put at least temporarily put something in there? Was there any -- do you know what their mindset was? And then a follow up on the -- I have another follow-up. Jonathan Solomon: Sure. So obviously, it's a challenging situation, especially as this is like a very commonly used nebulizer that is CE marked in Europe. And we see that with the trial kind of proceeding well in Europe and recruitment kind of speeding up beyond our expectation and kind of catching up with our time line. Again, I don't know for sure. Our speculation is there has been some new set of requirements that were asked a few months ago, and that sort of just required additional data. So I think the concern just because there were some additional data required from the nebulizer of test that we provided and seem to be very technical and what we've seen and provided is all within scope. So we view it as very technical. Again, only about the nebulizer, no questions whatsoever about phage or BX004 specifically. So I think it's technical, right? We don't know for sure. And that's why we expect that imminently, hopefully, right, imminently, the hold will be lifted. Yale Jen: Okay. Great. And I think that's just a little bit -- I assume nuisance happened along the way. And then maybe the last question here is that given that you have a discussion with the FDA about the potential Phase III study. I know there's probably still a lot of moving parts there yet. But nevertheless, was there any sort of general idea in terms of the size of the study, duration of the treatment or any other color you can reveal? Jonathan Solomon: Sure. So I think we can't go too much into details as we're thinking, but we have a rough understanding of how does the Phase III -- of course, everything depends on the outcome of the Phase IIb. But it's an orphan indication. We know phage is safe. We've got all of the understanding. So hopefully, it's a shorter development path, right? It's an orphan indication, as I mentioned. So there are all the regulatory sort of path to try to get this thing moving. Again, I think here, we're benefiting so much from the help of the CF Foundation, is actively discussing with the agency as well as with us and supporting us in many ways. So I think it's a relatively well-defined and straightforward path, of course, pending good data. And you know what we're also seeing, and I'm sure you're feeling it as well, right, there's a lot of increased pharma interest in respiratory. We've seen some of the interesting transaction that happened in respiratory, and we're seeing that interest, right? So there is robust pharma interest in that indication, right? We talked about CF and NCFB with some of the recent success and approvals in that field. And also, I think as we're seeing, there's increased phage interest, right? There's success by us and others which is helping. So I think it's kind of converging to a lot of interest pending positive data in Phase IIb that there's a really interesting path forward. It could be in CF, it could be in NCFB, and it all depends on the setup, the financing and potential partnerships. Yale Jen: Okay. Great. That's very helpful. Again, congrats on all the progress and the best luck for you guys. Operator: That concludes today's question-and-answer session. I'd like to turn the call back to Jonathan Solomon for closing remarks. Jonathan Solomon: So I wanted to thank you all for joining us this morning. Wishing everyone happy holidays, and we look forward to reporting on our next developments. Thank you so much. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good day, and welcome to the CorMedix Third Quarter 2025 Earnings and Corporate Update Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Daniel Ferry of LifeSci Advisors. Please go ahead. Daniel Ferry: Thank you, operator. Good morning, and welcome to the CorMedix Third Quarter 2025 Earnings and Corporate Update Conference Call. Leading the call today is Joe Todisco, Chief Executive Officer of CorMedix; and he is joined by Liz Hurlburt, EVP and Chief Operating Officer; and Susan Blum, EVP and Chief Financial Officer. In addition, Beth Zelnick Kaufman, EVP and Chief Legal and Compliance Officer; and Dr. Matt David, EVP and Chief Business Officer, are on the line and will be available during the Q&A session. Before we begin, I would like to remind everyone that during the call, management may make what are known as forward-looking statements within the meaning set forth in the Private Securities Litigation Reform Act of 1995. These statements are statements other than statements of historical fact regarding management's expectations, beliefs, goals and plans about the company's prospects and future financial position. Actual results may differ materially from the estimates and projections on which these statements are based due to a variety of important factors, including the risks and uncertainties described in greater detail in CorMedix filings with the SEC, which are available free of charge at the SEC's website or upon request from CorMedix. CorMedix may not actually achieve the goals or plans described in these forward-looking statements, and investors should not place undue reliance on these statements. CorMedix does not intend to update these forward-looking statements except as required by law. During this call, the company will discuss certain non-GAAP measures of its performance. GAAP to non-GAAP financial reconciliations and supplemental financial information are provided in CorMedix earnings release and the current report on Form 8-K filed with the SEC. This information is available on the Investor Relations section of CorMedix website. At this time, it's now my pleasure to turn the call over to Joe Todisco, Chief Executive Officer of CorMedix. Joe, please go ahead. Joseph Todisco: Thank you, Dan. Good morning, everyone, and thank you for joining us on this call. This has been an exciting quarter in the evolution of CorMedix as we announced and closed the acquisition of Melinta Therapeutics in a combination of cash and stock transaction. This deal is transformational for CorMedix creating a diversified specialty pharmaceutical company with a broad portfolio of commercial and late-stage pipeline products. Integration of the legacy CorMedix and Melinta operations has progressed faster than originally expected. As we announced in October, we expect to capture approximately $30 million of the projected $35 million to $45 million of total synergies on a run rate basis before the end of 2025. I'm excited to announce today that as part of our integration, CorMedix, Inc. will be rebranding as CorMedix Therapeutics, and all employees will unify under this company name. We're also adopting a new logo to signify the go-forward organizational commitment to develop and commercialize novel therapies for the prevention and treatment of life-threatening conditions. This past quarter marks the most successful quarter from a financial perspective in company history, registering record levels for revenue of $104.3 million, net income of $108.6 million and adjusted EBITDA of $71.8 million. Our revenue performance was largely driven by faster-than-expected adoption by our DefenCath LDO customer, utilization growth from our existing customer base as well as partial quarter contribution from the Melinta portfolio assets. Based on the recent momentum, today, we are raising our pro forma combined full year revenue guidance from a minimum of $375 million to a range of $390 million to $410 million. In addition, we are increasing our previous guidance for pro forma fully synergized adjusted EBITDA for 2025 from a range of $165 million to $185 million to a new range of $220 million to $240 million. On the business development front, we also successfully closed our strategic minority investment in Talphera Inc. This small strategic investment gives us a foothold in a late-stage critical care product that is highly complementary to CorMedix' acute care portfolio. As part of the transaction, CorMedix has granted a right-of-first negotiation to acquire Talphera following the announcement of Phase III results, which we anticipate to be available in the first half of 2026. We will continue to evaluate Talphera in the coming months as their clinical trial progresses toward completion. With respect to DefenCath, we are very pleased overall with the utilization of DefenCath in the outpatient hemodialysis segment during our initial phase of TDAPA and we have now begun planning with customers for the post-TDAPA add-on periods, which we expect will begin in July of 2026. In line with our strategy to increase patient utilization of DefenCath during our post-TDAPA add-on periods, we'll be working over the coming months to finalize supply pricing with customers under existing contracts based upon the final post-TDAPA add-on framework as well as engaging in conversations with Medicare Advantage payers following the publication of our real-world evidence data later this year. Lastly, as CorMedix evolves, I think it's important for investors to begin focusing on important near- and medium-term catalysts and value drivers for the company beyond the hemodialysis sector. First and most importantly, the second quarter of 2026 is expected to bring top line data for the use of Rezzayo as prophylaxis of invasive fungal infections. We believe the total addressable market for immune compromised patients that are currently undergoing antifungal prophylaxis is more than $2 billion. The Phase III ReSPECT study is running head-to-head against the current standard of care, which is a combination of posaconazole, an antifungal, and Bactrim, an antibiotic, that also has antifungal activity. Posaconazole demonstrates severe drug-to-drug interactions with many medications the target patient population is currently taking, including immunosuppressive drugs like tacrolimas and cyclosporin as well as numerous therapeutics used in treating hematological malignancies such as leukemia, multiple myeloma or non-Hodgkin's lymphoma, all patient populations that may undergo bone and marrow transplantation as part of their therapy. For these patients, Rezzayo used as prophylaxis against these invasive fungal infections could represent a new standard of care that may allow patients to experience less drug-to-drug interactions, less frequent dosing and more flexibility in their setting of care for treatment. Our second near-term catalyst outside of hemodialysis is the expected expansion of DefenCath into the prevention of CLABSI for adult patients receiving total parenteral nutrition or TPN. Our most recent market research continues to highlight the critical unmet medical need and pervasively high bloodstream infection rates in this patient population. Prophylactic intervention is urgently needed for these vulnerable patients. We have previously guided to a total addressable market in this indication of up to $750 million and anticipate Phase III completion as early as the end of 2026 or beginning of 2027. I believe that CorMedix has done an exceptional job of maximizing the value of the initial TDAPA period afforded to DefenCath as a long-term strategy in hemodialysis for post-TDAPA periods and has redeployed cash flow into a pipeline that can position the company for long-term sustainable growth. I am excited about the future. I would now like to turn the call over to our Chief Operating Officer, Liz Hurlburt, to provide an update on clinical activities, operations and integration. Liz, please go ahead. Elizabeth Masson-Hurlburt: Thank you, Joe, and good morning. The combined clinical development and operation teams, along with field medical affairs have been working diligently on numerous clinical activities. As we shared in late September, enrollment for the global Phase III ReSPECT study evaluating Rezzayo for the prophylaxis of fungal infections in allogeneic bone marrow transplant patients has completed. This pivotal trial is being conducted by our global partner, Mundipharma, and the team has begun to progress the program in anticipation of study closeout. The team continues to work closely with investigators and clinical experts in the field to deepen our understanding of the evolving clinical practices and needs of these patients. We expect to announce top line results from the ReSPECT study in the second quarter of 2026. Turning to DefenCath. I'm pleased to share that the Phase III Nutri-Guard clinical study, which evaluates the reduction in central-line associated bloodstream infections or CLABSI for adult patients receiving total parental nutrition via a central venous catheter has garnered international interest. In the coming months, we will expand clinical study sites into Turkey to broaden the diversity of patients and potentially expedite enrollment time lines. At this time, we are still anticipating study completion by the end of 2026 or early 2027. Lastly, our real-world evidence study in collaboration with U.S. Renal Care has entered the second year of data collection. The team is currently conducting an analysis of the first year of data, and we anticipate sharing those interim results by the end of this year. This study is designed to demonstrate the real-world effects of the broad use of DefenCath in a real-world setting and examines not only the reduction in catheter-related bloodstream infections or CRBSI, but also reduction in costly infection-related hospitalizations. Secondary data points of missed treatment sessions, antibiotic utilization and TPA utilization are also being reviewed. Now turning to integration progress. I am heartened by the significant efforts of the teams to both integrate and optimize operations as a unified organization. We have made meaningful strides in merging the teams, identifying synergies and creatively preserving key elements of both legacy organizations. In addition to our new corporate branding as CorMedix Therapeutics, we have refined our mission, vision and values as a new organization and are excited to see our integrated teams work together to create a new culture and execute together on key objectives. Currently, all functional areas have fully integrated from a personnel standpoint, which includes clinical, medical affairs, technical operations, supply chain, finance, legal, quality, human resources and commercial. Systems integration is still underway and expected to complete in 2026 in line with our original estimates. The legacy contracted hospital sales team for DefenCath will conclude its service by the end of this year, and DefenCath promotion in the hospital setting will transition in January to the post-integration internal field organization. Beginning in early Q1 2026, our unified sales organization covering acute care clinics and hospitals will seamlessly support all promoted portfolio products, including both DefenCath and Rezzayo and will offer enhanced capabilities and customer support. The collective expertise of our team positions us to deliver comprehensive solutions to many challenges in the acute care space and ultimately with the goal of driving better patient outcomes. We are incredibly proud of the team and their hard work in moving this integration forward while continuing to focus on sales and patient access. I would now like to turn the call over to Susan to discuss the company's third quarter financial results and financial position. Susan? Susan Blum: Thanks, Liz, and good morning, everyone. We are pleased to report our third quarter financial results, reflecting continued commercial momentum and a path towards sustained profitability. Our results demonstrate solid growth across the business, including strong performance from DefenCath and growth in the legacy Melinta product portfolio. We closed the Melinta acquisition on August 29, 2025, and therefore, 1 month of its operations are included in our consolidated financial results for the third quarter. The company has filed its quarterly report on Form 10-Q for the quarter ended September 30, 2025. I encourage you to read the information contained in the report for a more complete discussion of our financial results. As Joe mentioned, for the third quarter, net revenue was $104.3 million, including the DefenCath sales of $88.8 million, representing a total net revenue increase of $77.5 million year-over-year. The remainder of revenue totaling approximately $15.5 million reflects the contribution from Melinta for the month of September, $12.8 million of which was driven by Melinta portfolio sales. Operating expenses for the third quarter were $42.6 million compared to $14.1 million for CorMedix on a stand-alone basis in the same quarter last year. The increase of $28.5 million over the prior period includes nonrecurring costs of $12.7 million associated with the transaction and integration as well as severance costs associated with the Melinta acquisition. Other increases in costs were driven by stock-based compensation, OpEx contribution from Melinta's business and increased investment in R&D associated with expanded indications for DefenCath, including the Phase III clinical study for prevention of CLABSI and TPN patients. While costs have increased in these areas this past quarter, they are aligned with our previously communicated expectations and support our strategic priority, which is to position the company for long-term sustainable growth. In addition, as Joe mentioned, we are working to quickly capture synergies associated with the Melinta acquisition with approximately $30 million of synergies on a run rate basis expected to be captured from actions taken prior to the end of the year. We expect to realize these synergies in the P&L beginning in the fourth quarter of 2025. Overall, for the third quarter of 2025, we achieved net income of $108.6 million or $1.26 per diluted share marking meaningful progress compared to the third quarter of 2024. During which period, we recognized a loss of $2.8 million and a net loss per diluted share of $0.05. A large driver of net income for the quarter was a substantial tax benefit of $59.7 million due primarily to the realization of deferred tax assets, equating to 100% of the CorMedix' historical net operating losses or NOLs. The recognition of this sizable tax benefit underscores our confidence in sustained future profitability, which will drive the utilization of our NOL carryforwards against taxable income, which equates to cash tax savings and tangible value for the company and for shareholders. Turning to non-GAAP measures. Adjusted EBITDA for the third quarter of 2025 was $71.8 million up from a loss of $2 million in the third quarter of 2024, reflecting the momentum of our operations over the past year. This non-GAAP measure provides additional insight into our core operating performance and profitability trends, highlights the underlying strength of our operations and excludes onetime acquisition-related costs, stock-based compensation and the tax benefit we realized this quarter. Please refer to our press release that we issued this morning for a reconciliation of this non-GAAP measure to GAAP net income. On the cash front, we raised gross proceeds of $150 million in a convertible debt offering and those proceeds together with cash on hand and $40 million in common stock issued to the seller were used to fund the acquisition of Melinta in August 2025. This financing strategy supported the transaction while maintaining what we believe to be a healthy liquidity position and flexibility for future growth investments. As a result, our cash flow during the third quarter reflects the timing of these financing and acquisition activities, and we ended the quarter with cash, cash equivalents and short-term investments of $55.7 million. Looking ahead, we expect significant cash generation in the fourth quarter, driven by strong operational performance. We anticipate ending the year with approximately $100 million of cash and cash equivalents, supported by ongoing positive operating cash flow and working capital optimization. To drive this balance, we are guiding to fourth quarter net revenue in the range of $115 million to $135 million, reflecting continued momentum from DefenCath and a full quarter contribution from Melinta. And now I will turn the call back to Joe for closing remarks. Joe? Joseph Todisco: Thank you, Susan. The third quarter of 2025 marked a period of meaningful progress and disciplined execution. We advanced our strategic objectives, strengthened our financial foundation and delivered solid results while completing a transformative acquisition. The company now has a diversified product portfolio, multiple late-stage pipeline opportunities, financial flexibility and a diversified capital structure to support future growth. We remain confident in the outlook for the remainder of this year and the path to sustained growth and profitability. I'd now like the operator open up for questions. Operator: [Operator Instructions] Our first question comes from Les Sulewski with Truist. Leszek Sulewski: Congrats on the progress. First, on DefenCath, do you have a sense of inventory stocking versus utilization in 3Q and we understand you're not providing guidance for next year at this time. But how should we think about potential seasonality throughout the year? Or how ordering rates could impact quarterly revenue cadence? And then outside of additional cohort expansion, is 4Q implied guidance, I guess, a good representation of a normalized utilization patterns? And I have a follow-up. Joseph Todisco: Thanks, Les. I'll try and make sure I get all these right. So in terms of third quarter stocking, I think our smaller customers from what we've seen are holding on average about 2 to 3 weeks on hand. The LDO is somewhere between 3 to 4 weeks, and I think that's what we saw normalized. I'd say there was probably a couple of million dollars shipped at the cutover if you're trying to kind of back into third quarter versus fourth quarter DefenCath revenue and kind of where we're trending. So there was a couple of million dollars right on that cutoff that probably that ended up getting captured in Q3 that a day later is going to be in Q4. But for the most part, I wouldn't say there's a significant amount of stocking in Q3, just normal stocking that they hold on hand. The second question, I believe, was about quarter-to-quarter guidance and seasonality. The business, certainly we'll separate the DefenCath business from the Melinta business, doesn't have a historic seasonality in terms of times of the year where patients receive hemodialysis more than others. As we've been progressing over the last 2 years and we've added new customers, we've added new cohorts, we've continued to see, right, an increase in utilization and growth in overall revenue. Obviously, I think there's a lot of eyes focused on next year. I don't know at what point we're going to be ready to provide financial guidance for 2026. I think everyone is aware, just by the nature of TDAPA and the change that comes in July, there should be a little bit of front-endedness, right to the overall revenue, not necessarily utilization for the overall year, and we're still trying to figure out what the full year is going to look like. Now in the Melinta portfolio, again, they're not -- though a large number of them are anti-infectives, they're not cough/cold type products. So you wouldn't see that type of winter seasonality. I think the -- there's always a small amount of December stocking into January of all products. I don't know that it's going to be overly material to the business case, but we don't -- wouldn't expect to see significant seasonality there as well. In terms of cohort expansion, I do believe that there's still opportunities with all of the customers that -- I think that was -- that question is specific to DefenCath, that there's still an opportunity to grow with our existing customer base. And that's something that we are continuing to focus on over the coming months and even in the post-TDAPA period. A big part of our post-TDAPA strategy is the engagement with Medicare Advantage. We currently believe the overwhelming majority of the patients in which DefenCath is being used in the outpatient setting are Medicare fee-for-service patients. Medicare Advantage is now the largest cohort of patients and a big part of the opportunity for our future expansion post-TDAPA. And you had a follow-up, Les? Leszek Sulewski: I do. It is on TDAPA actually. So is the real-world evidence that mutually inclusive with agreements on final pricing around the post-TDAPA period. Can you provide maybe some sort of a sense of your inklings into the price negotiation period into -- heading into July on the TDAPA side? Joseph Todisco: Well, look, you have to separate, the real-world evidence in our view is going to be most applicable and useful with Medicare Advantage, right? Medicare Advantage is not bound by the post-TDAPA add-on. They have the flexibility to contract separately, right? That's the strategy we want to employ. We have very little market share right now of Medicare Advantage patients, and we think it's a compelling value proposition for the MA plan. Ultimately, they are the payer of those downstream costs, those hospitalizations that drive so much cost in the health care system. So we want to, obviously, with data, make the argument that investing in prevention, right, is going to save them a significant amount of value. On the traditional Medicare side, there's not much of an opportunity for negotiation, Les. It's really based on when the ESRD final rule publishes, what they ultimately determine is going to be the fee-for-service adjustment, and we'll work around that once it's published. Operator: And the next question comes from Jason Butler with Citizens. Jason Butler: Congrats on the quarter. Two for me, Joe. First one, you mentioned that the ordering from the LDO has been faster than you'd expected. How has the use been in terms of the number of patients and the type of patients that the LDO has been using the product in? And then secondly, when we think about the real-world data coming at the end of the year, can you just give us some color about what to expect in terms of the number of patients, the endpoints and how we assess the benefit here relative, for example, to the Phase III results, if that is at all relevant? Joseph Todisco: All right. Thanks, Jason. So -- yes. So the LDO, it wasn't just a matter of ordering, right, faster, right? The data we're getting from inventory on hand demonstrates that the utilization is also faster than what we expected in the ramp. And I know that we had guided previously that the expectation was to target an initial rollout of 6,000 patients. We don't have today an exact number of where we are. We believe we are significantly higher than 6,000 patients. And we're -- so we're pleased with the rollout, but we don't have the ability to give a patient number at this time. In terms of kind of the stratification, I don't know if you were asking about high risk or type of insurance. We don't have great visibility into that data. I think our expectation is that it's mostly fee-for-service patients at this time and that there's an opportunity with Medicare Advantage. On the real-world evidence question, I'm going to ask Liz to address. Elizabeth Masson-Hurlburt: Sure. Jason, so we are expecting the year 1 results to come out later this year. It's approximately 2,000 patients. So we're double what we had in our Phase III LOCK-IT study. And we expect that we're going to read out data on the reduction in actual CRBSI, reduction in hospitalizations due to CRBSI. There are some secondary endpoints we're looking at as well, missed treatment sessions, utilization of TPA and antibiotic utilization. And those are all being compared to the historic infection rates. So we should have that out sometime in the next 6 to 7 weeks. Operator: And the next question comes from Roanna Ruiz with Leerink Partners. Roanna Clarissa Ruiz: So a couple from me. First one is, given some of the trends you're seeing in DefenCath utilization so far, how should we think about the second half '26 revenues and pricing dynamics post TDAPA? And what are some of the pushes and pulls that could drive DefenCath revenues either higher or lower after this TDAPA period? Joseph Todisco: Thanks, Roanna. As I think I said to Les, we're not in a position to give a lot of clarity right now on that back part of '26. Obviously, we do know there's going to be price compression, right, because it's going to shift from the ASP method into the post-TDAPA add-on absent the passing of legislation that is currently pending before the Senate. But the pushes and pulls would be related to how CMS does the calculation for utilization. The method that they had proposed in the proposed rule, which we commented on would have created or will create a dynamic where the adjustment for Q3 and 4 of '26 is lower than the adjustment for '27. And if that's the framework, I think we're prepared to work around that. We're just waiting for a final determination in the final rule, which was expected a couple of weeks ago. I know the government shutdown has delayed quite a few things. We're expecting it to come any day now. And once we have that, we'll be able to finalize things with customers and just continue moving forward. Roanna Clarissa Ruiz: Got it. That's helpful. And another quick follow-up for me. I was curious, with your discussions with customers into the post-TDAPA period, what are some of the goals of these discussions? And what data are you bringing forward right now to help those discussions as well? Joseph Todisco: Well, look, I think the real-world evidence data is going to be critical, right? And that should be -- it's interim midpoint data available by the end of the year. And I think the ability to demonstrate the impact on the health care system is an important one. We've gotten anecdotal feedback from multiple customers that they've seen a noticeable difference, right, in their infection rates. I know that's not data, right? But it's -- if they are feeling it and visually seeing it, certainly that's a positive and something that we will want to build on. Operator: And the next question comes from Brandon Folkes with H.C. Wainwright. Brandon Folkes: Congrats on all the progress. Two from me maybe, just firstly, any color on how you're viewing the DefenCath inpatient opportunity? How is that progressing? And how do you expect that to progress in '26, just given the scale and relationships that Melinta brings in that setting? And then maybe secondly, just changing gears to Niyad. How are you thinking about that investment well in Talphera, but sort of Niyad as a product? It seems like a product you can sort of simply drop into your commercial infrastructure and drive pretty strong EBITDA accretion on day 1. Is that how you think about the product? Or do you think there's material investment required behind that opportunity should you execute on your option? Joseph Todisco: Thank you, Brandon. So look, on the inpatient side, I think we're continuing to -- over the course of this year, we've seen good progress. I'd say it's a drop in the bucket compared to the magnitude of what we've seen outpatient, but it has been good steady growth over the course of the year. As Liz mentioned in the script, starting next year, as we are migrating from the legacy contracted field team that was inpatient for CorMedix into the new combined field team post-Melinta integration, we'll be training that team in December on DefenCath. And in January, they'll begin promoting in the inpatient segment. So I do expect to continue to see lift there as a good opportunity for growth. As we talked a lot about over the last 2 years, while the inpatient volume might be lower, right? The pricing there is a little bit better and the revenue per patient higher, right? So it's a good profit opportunity, right, for DefenCath in the inpatient setting. On Niyad, obviously, we did the strategic investment because we like the product. We like the fit with us from a commercial infrastructure standpoint. We're going to continue to watch the clinical results and evaluate the opportunity. I don't know that I'm prepared to comment that no investment, right, would be required, Brandon, if we were to acquire the business. Obviously, there's an investment if we were to acquire Talphera. I imagine there's some amount of marketing expense related. But I think from a sales deployment standpoint, our current expectation is it fits very well with our existing call points. Operator: And the next question comes from Serge Belanger with Needham & Company. Serge Belanger: A couple for us, Joe. The first one, can you just give us an update on the pricing of DefenCath over the third quarter? And then on TDAPA, it sounds like the ESRD rule is going to determine the calculation for post period starting in July. Are you going to be able to provide guidance once the ESRD rule is published? And then secondly, are you aware of any legislation bills in Congress that could modify the TDAPA reimbursement? Joseph Todisco: All right. Thanks, Serge. In terms of specific pricing on DefenCath, obviously, we don't give that. We have guided historically that quarter-over-quarter, there is a slight erosion based on the structure of the agreements. We track -- typically, our ASP is a discount off -- our selling price is a discount off government ASP, which has kind of tracked down quarter-over-quarter, but volume has obviously grown significantly to more than offset the changes in price. So I think the TDAPA rule and the methodology will inform. We set agreements in place with all of our customers, right? And there were formulas laid out for how pricing needs to be determined. I think one of the things we're waiting to see is that dynamic whether or not CMS uses a methodology where the Q3 and Q4 of '26 will be lower than '27. And if that's the case, we may try to negotiate a blended price over a period of time. But that's really the only nuance that we're looking at. I don't -- again, I don't know that I would want to give any customer-specific pricing, but we should be able to talk a little bit more directionally in the early part of next year about what we're going to see for the back part of the year. And then lastly, in terms of the legislation, there is a bill that was proposed by Senator Booker, Marsha Blackburn, bipartisan bill that would make significant changes to TDAPA in terms of incentivizing innovation. I think most importantly, it would expand the ASP-based pricing period from 2 years to 3 years. It would make the post-TDAPA add-on permanent, but also have that add-on track drug utilization in terms of that we follow drug utilization. Right now, the methodology CMS uses, they bundleize based on market share of total dialysis, irrespective of whether drug is dispensed. The proposed methodology in the legislation would allocate that market share based on percentage of drug claims submitted over time. And I think that's certainly a better measure and hopeful that, that legislation can make its way into law in the early part of next year. I know the government shutdown has stalled quite a few things. But hopefully, the new Congress in early '26 can advance that forward. Operator: I'll now pass it to Dan Ferry for written questions from the audience. Daniel Ferry: Thank you, operator. Joe, we had quite a few here, but it looks like a lot of them were covered during the live Q&A. I do have one additional one, though that you might help us out with here. What do you think is misunderstood regarding the Melinta transaction? And why are investors not crediting the value of Melinta? Joseph Todisco: I mean, thanks, Dan. I just chuckled a little bit because as I was going through all of the analyst questions, it struck me we didn't get a single question on Rezzayo, on the potential impact, on how we're viewing Melinta, right? And I think there's obviously a lot of historic focus on DefenCath and for good reason, right? It's the largest revenue driver in the business currently. But when I look at what -- why we did the acquisition of Melinta, what it brings to the table, I certainly do think there's a lot of things that are not currently being appreciated, one of which is the stabilizing factor of the base business that was acquired from a risk mitigation standpoint, right? We got quite a few questions around what's going to happen in the back part of the year next year with DefenCath. And the Melinta base business gives us a good stable base of revenue from which we're able to take operating synergies and really entrench the business. Second, I think Rezzayo prophylaxis as a pipeline opportunity is certainly not being valued appropriately. This has the potential to be a larger peak sales product than even DefenCath, right? You've got a total addressable market over $2 billion. You've got a market segment that is already getting prophylactic antifungal therapy, right? These patients that are immune compromised. So it's not as if we have to change patterns. Similar to the launch of DefenCath, where nothing was being done prophylactically, we really had to change mindsets. This is a different situation where prophylactic action is already being taken and the standard of care has some deficiencies with it, right? The severe drug-drug interactions, I don't think should be discounted. The ability to shift to weekly dosing to perhaps increase convenience for the patients as well as a large amount of the dosing or administration would be in an outpatient hematology/oncology clinic setting, which is buy-and-bill reimbursement, right? So I think there's a lot of favorabilities and opportunity around Rezzayo prophylaxis as a future growth driver of the business as well as TPN, right? I think we're excited about the opportunity for TPN. We've just done some updated internal market research, right, that has confirmed how high the infection rates are in that patient population, how much the doctors are looking for an intervention. So I think we're excited about the future growth prospects for the business outside of hemodialysis. And I think that's -- those are important catalysts that I think investors need to start focusing on. Daniel Ferry: Excellent. Okay. Thank you, Joe. Operator, you may now close the call. Operator: This concludes our question-and-answer session. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good day, ladies and gentlemen, and I warmly welcome you to today's earnings call of the q.beyond AG following the publication of the Q3 figures of 2025. We are delighted to welcome CEO, Thies Rixen; and CFO, Nora Wolters, who will guide us through the presentation and the results in a moment. [Operator Instructions] And with that, I would like to hand over to you, Mr. Rixen. Thies Rixen: Yes. Thank you very much. Good afternoon to all of you. I'm happy -- Nora and myself are happy to present the Q3 numbers. Headline has returned to profitability, what we aim for this year, so positive net income for the group. And Q3 is first milestone to reach it. And our -- all what we see is that it will be also the case in Q4. We will present you the numbers right now and give you a little bit of an outlook what will happen until end of the year and how do we start or how do we manage next year. Nora has most of the workload concerning the figures. So I hand over to her, and Nora will present the figures of Q3. Nora Wolters: Thank you, Thies. Welcome from my side. As you can hear, my voice is not so strong as it normally is. I apologize for that. And so let's start with Q3. 2025 is a very special year for q.beyond. We focused action in a stagnant environment. And in this situation, we returned to profitability as we announced. So let's use a quote of Ralph Waldo, "those who know the destination will find the way." And this is our clear message we deliver. If you look to the key figures, it shows a significant improvement. Again, the EBITDA increases. We have a positive consolidated net income and an increased free cash flow as well. So we deliver and we are on track. How do we consider the current development? You see 2 sides of a coin. The confirmation of our strategy is seen in the figures. We see the increase of efficiency and resilience. Additionally, we took advantage of a tax windfall resulting from the Plusnet transaction. On the other side of the coin, we suffer from economic underperformance, and we are affected, for example, by the situation of the German small- and medium-sized enterprises who delays and stop tenders. Additionally, we do not see the EUR 1 billion package from the German government in any tender. So the weak economy affects us as well. You cannot always write into the slip stream. So q.beyond has a clear focus on profitability, and that is seen in our numbers. First of all, I'd like to start with the revenue. We have a resilient business model that is stabilized in a challenging environment as well. Concerning the revenue, we waived off low-margin revenue in the end of last year. So it is not a surprise for us because we planned more profitable revenue instead of an increase. Additionally, our data center is not selling in the same speed as we hoped. So there's a reluctance to make decisions among small- and medium-sized enterprises as well. On the other side, we noticed an increase of our order entry. In Q3, we almost had twice as high as the last quarter of 2024. Concerning the year-to-date, we have an increase of 8% concerning our order entry book. So it's a great basis for the next year. On this slide, you see the former quarters and the view of 2025. As you see, we always have a very strong last quarter. And this is what we expect for 2025 as well. We focus on consultancy and development services, and we noticed a strong demand on AI solutions, picking up noticeably and implementation of tools. For example, our private enterprise AI is already sold and increases in development. On the medium term, there will be use of technology as well along the entire value chain. So if you look, for example, as SAP, there's a prioritization of companies in the S/4 migration for the next 3 years. So we expect a strong Q4, which is important if you look at the guidance later. We report 2 segments, Consulting and Managed Service. I would like to start at first with Consulting. In this quarter, we doubled our earnings. The margin grew up, and you see a remarkable improvement in our earnings. The measurable upskilling in the last year of the q.beyond Academy and the systematic performance management is very visible in our improvement. Additionally, we had a lot of contract extension and won new customers. Our second segment is Managed Services. It is relative stable of margin despite of reduced revenue. As I mentioned before, we focus on high-margin business. So additionally, we invested in our portfolio q. and AI cases. So you see a lower margin in this quarter. On the other hand, we have the same situation in Consulting, an increasing booking of contracts. So we are based very well for the next year. 2024 has a clear goal for us, a positive consolidated net income. On the slide, you see the P&L with the most important positions. What is important to know, we consistently invest in AI, especially our private AI -- private enterprise AI and develop our portfolio q. We are proud first customers take place in the private enterprise AI. And so we make significant progress in AI and improvement for our customers and their benefits. Another positive effect we had is the tax windfall, which you see in the other operating result as well. Furthermore, I'd like to point out that we make at the moment many digitalization projects. As you may know, we invest in a new ERP system and in 2 other digitalization projects. This is an amount of more than EUR 1 billion that we invest in processes and improvement for the next years. Our last financial figure is the free cash flow. Traditionally, Q3 is a very weak quarter. In the whole year-to-date, the free cash flow is about EUR 3.6 million, so it's increasing as well. It has to be regarded that we had higher expenses for investment in digitalization this year and reduced liabilities as well. Our net liquidity is among EUR 41.3 million this year. So that means a lot of possibilities for us for share buybacks, dividends or M&A. At the moment, there's no final decision. We want to take advantage of all this possibility and we'll inform you of the next steps. So sustainable success comes from sticking the course in difficult times. We are very proud to confirm our guidance today. My message is very clear. As you see on the slide, all of our financial figures will be reached at the end of the year. The revenue will be at the lower end of the guidance and the EBITDA and the consolidated net income as expected. So it's a great message for you. We are on track, we deliver. And well, we are looking very positively for Q4. And with this message, I leave it to Thies. Thies Rixen: Yes. Thank you, Nora. So what's the plan for this year and also for next year? So we will -- point number one is profit over growth. This is the case, will be the case also for the future. Near and offshoring, we are now at 20% or will be at 20%. In the national delivery capacity, let's say, 30% is the near-term goal. On top of it, we will start -- we hired sales people for the Baltic market as for the Spanish market. So we expect the first revenues to come maybe this year, for sure next year. And we expect, let's say, an impact -- the first impact in Q3, Q4 concerning the top line next year. So automation is driven by AI. Nora mentioned it. So we invested this year in the foundation of it. So we're in a data hub, a new ERP system so that we can use AI because now we are -- end of the year, we will be fully digitalized. There, we invested on top of the EUR 1 million we invested in the foundation, we invested again in AI for us and also for customer -- for the customer platform and in competencies so that we have a share of the AI revenue next year. This is 3 and 4 -- number three and four. And number five is we also start to invest heavily in our portfolio upgrade, mainly for Managed Service, which we call internally q., so this means AI in every service. So tool chain -- AI tool chain in every service and on top of this, all what is security needed and all what is needed from the regulation for banks, insurance companies or others like this NIS or DORA -- in the DORA or NIS framework. So with that, we will be able to drive efficiency and also to win businesses. When we look at our order entry, we see 8% more than last year. Compared to last year, we are aiming for, let's say, EUR 180 million order entry this year, which will be for q. beyond a record figure. Our midterm goal remains unchanged. We will -- let's see where we end up this year, 7% to 8% EBITDA positive net income for the group and then we will aim for 10%. The new strategy 2028, we will release Q1 next year for the next 3 years over '26, '27, '28. And in this period, we try to reach 10%. With that, we'd like to close this conference call and happy to get your questions. Thank you very much. Operator: [Operator Instructions] And with that said, I can already see one question in our chat box. Let me read it out loud. Is the tax windfall profit of EUR 2.8 million in the EBITDA and the EBIT number included? If so, adjusted EBITDA and EBIT is much weaker, correct? Nora Wolters: Yes, it is. Thies Rixen: So what is included -- it's included. I'd like to take a broader picture. So we had several effects out of the Plusnet transaction in 2019. And you can't -- we all know that. It's in tax questions, it's not easy to say. So they are included. On the other hand, we have to cope with a weak economy and weak customer demand on plus we invested. We invested, as we said, in the AI foundation in AI cases and in the portfolio, which will help us in the future. So yes, there's a windfall. This is included in the numbers and it helps us in Q3, but all the investments we took will help us in Q4 and so on. So in Germany, we say, look, I can't translate it, but it's in business sometimes. It's on the right side of the corner, the impact. Operator: [Operator Instructions] We do have a risen hand as well. Mr. Nilsson. Fredrik Nilsson: I want to start with the future outlook here. I mean despite having perhaps a slightly softer quarter this time adjusted for that one-off, I mean, you sound quite optimistic about both next quarter and also looking into next year with the order book and so on. I mean do you think that is enough to show positive revenue growth despite the focus on profitability? Thies Rixen: Yes, we will show some growth. I mean we will -- I think the market -- there was a lot of reluctance in the last quarters. We all suffer from it. There are a lot of deals postponed. They cannot be postponed forever. So at some point in time, there will be investments and this will, let's say, drive our numbers. So -- and for next year, we will see growth. It will be not double digit, for sure, but there will be growth. And the market -- let's see where the market is heading. 3% to 5%, I think, is realistic. Let's see where we end up in the final numbers for next year. It's hard to say, to be honest. But we are not -- we have done this revenue cut this year where we cut it out, let's say, bad revenue. So this will not happen again. And on this foundation, this basis, we will grow the business next year. Fredrik Nilsson: Okay. Great. And also, I mean, taking off the one-off in this quarter, I mean, you need a quite substantial improvement in Q4 in order to reach your guidance, and you seem quite confident in reaching that. So could you perhaps elaborate a bit what underlying drivers that will take you there in addition to seasonality? Thies Rixen: Yes. It's -- every year the same structure. There will be several impacts. There are a lot of projects, which will be built where the work is already done, where we get the revenue and profit. This is one effect. Then there is a higher utilization overall, plus there are some license deal, especially in the SAP arena, where we -- if we close them, then we -- then this revenue equals profit. So this is, let's say, every year, this is the same rhythm. And this will help us as in last year or the year before to have much more better numbers than in the quarters before. Operator: [Operator Instructions] We have not received any further questions in the meantime. Are there any, please put them into our chat box or raise your hand. I think Mr. Rixen, Mrs. Wolters, everybody seems perfectly happy. There are no questions so far. And with that said, we just received a question. Was the investment of EUR 1 million done this quarter? Thies Rixen: Yes, there are 2 investments. There's one we did, which was included in the plan. This was the foundation. And then the other investments have been done in the quarter. And when we sum it up, it's another -- it's above EUR 1 million. So there's EUR 1 million over EUR 1 million. We never disclosed this. I think the whole is in the foundation, digitalization foundation and another has been done in the quarter. Operator: The same person has another question concerning that topic. Was this CapEx or OpEx? Thies Rixen: OpEx. Operator: Correct. Thies Rixen: And this is for the future. This is something where we will have the impacts -- the positive impacts in the future. It's mainly OpEx because we use our own consultants, our own technology specialists to build tool chains, processes. For example, the features for the AI platform, which we released was in Q2 April. So we optimized or we put some more features in it, and this will hopefully help us in the future. Operator: There are no further questions so far. [Operator Instructions] But I think there are no further questions. And I would say, therefore, we come to an end of today's earnings call. Thank you for your participation and your questions. If there are any further questions that arise at a later time, please do not hesitate to contact Investor Relations. A big thank you also to you, Mr. Rixen and Mrs. Wolters, for your presentation and for taking the time to answer the questions. We wish you all a good remaining week. Goodbye, and see you next time. Thies Rixen: Thank you. Goodbye. Nora Wolters: Bye.
Operator: Good morning, and welcome to the AB Dynamics plc Investor Presentation. [Operator Instructions] The company may not be in a position to answer every question it receives during the meeting itself. However, the company can review all questions submitted today and publish responses where it's appropriate to do so. Before we begin, I'd like to submit the following poll. I'd now like to hand you over to the management team. Sarah, Ed, good morning. Sarah Matthews-DeMers: Good morning. Welcome to the AB Dynamics 2025 Full Year Results Presentation. Thanks for joining us. I'm Sarah Matthews-DeMers, currently CFO, and from 1st of December, CEO. And I'm joined by Ed Haycock, our Director of Financial Reporting. I'll take you through the highlights before Ed takes you through the financial performance. I'll then provide an update on progress against our medium-term growth strategy and the outlook for next year. And then Ed and I will be happy to take questions afterwards. During the year, we made a strong start to delivering our medium-term growth plan, delivering operating profit and earnings per share growth of 15%, slightly ahead of upgraded expectations despite macroeconomic challenges in the second half of the year. Revenue increased by 3% with double-digit revenue growth in half 1, followed by a more challenging half 2 as timing of order intake was impacted by macroeconomic disruption. Encouragingly, customer activity improved towards the end of the year, and the group carries forward GBP 32 million of orders into FY '26, providing good trading momentum into the first half of the year. New product development continues at pace and in line with the technology road map for Testing Products in simulation markets. We received an order just prior to the year-end for the recently launched S3 Spin simulator, which has advanced capability for the growing road car market. Operating profit grew by 15%. Operating margin grew by 210 basis points to 20.3%, achieved through operational improvements and a richer mix of revenue, largely resulting from the timing of order intake and delivery. The operational improvements implemented in recent years have contributed to building a strong platform to support further growth. The benefit of the revenue mix is not expected to be repeated in FY '26. However, in the medium term, the Board is confident of achieving its sustainable margin target of greater than 20%. The group acquired Bolab, a niche supplier of electronics testing equipment in half 1. The integration is progressing as planned and performance is in line with expectations. Net cash at year-end was GBP 41.4 million after GBP 8.1 million of investment in acquisitions and other capital projects. Our strong operating cash generation and cash conversion of 106% supports further organic and inorganic investments. I'll now hand you over to Ed to take you through our financial performance. Ed Haycock: Thanks, Sarah. It's great to be able to present another set of strong financial results. I'll start by taking you through the group's performance, followed by a dive down into each of our three segments, and I'll finish by covering our key financial enablers for future growth. In FY '25, we are pleased to report strong financial performance, where we've continued our track record of delivering consistent revenue and profit growth, backed up by cash conversion. We have delivered significant operating margin expansion, resulting in 15% increase in operating profit to GBP 23.3 million, which represents a three-year compound annual growth rate of 19%. The effective tax rate reduced slightly to 18% due to a change in the geographic mix of profits. We expect this to trend back upwards in future years, in line with our medium-term guidance. EPS has increased by 15% to 80.3p, and we have proposed a 20% increase in the dividend, reflecting the Board's confidence in our financial position and prospects. Cash conversion of 106% and our three-year average cash conversion of 112% demonstrates that we are consistently able to turn these growing profits into cash. The order book at the year-end was GBP 32 million. This, combined with post year-end order intake and additional sources of recurring revenue, such as renewal of licenses, gives good visibility into FY '26. The 15% increase in operating profit was achieved through a combination of volume, sales, sales mix and operational improvements. The GBP 3.4 million increase in revenue dropped through to GBP 2 million increase in operating profit. Sales mix, which is impacted by the timing of order intake and delivery across our portfolio of products and services was favorable in FY '25, generating GBP 1.2 million increase to profit year-on-year. The net benefit of the operational improvements that we have continued to implement across the business has contributed to GBP 1.1 million increase in profit. The overheads increase of GBP 1.3 million includes the impact of the Bolab acquisition, inflation and increases to employers' national insurance contributions in half 2. Although the benefit of the revenue mix is not expected to be repeated in FY '26, the operational improvements have been embedded in the business and are expected to contribute to achieving our sustainable medium-term target margin of greater than 20%. Our cash conversion of 106% demonstrates a continuation of our track record of turning profits into cash despite the somewhat lumpy cash profile of our large simulator and SPMM contracts. We have achieved this by maintaining our focus on commercial contracting, inventory levels and ensuring a disciplined approach to cash management. We have reinvested this operating cash into the business with GBP 4.2 million invested in capital projects, including on new product development in line with our technology road map. The acquisition of Bolab for an initial GBP 3.9 million was funded through in-year cash generation. After returning cash to shareholders in the form of dividends, we had a significant net cash balance at the period end of GBP 41.4 million available to support strategic priorities. Moving on to the performance of each segment and starting with Testing Products, the group's largest segment. This includes driving robots and ADAS platforms, the large SPMM machines as well as Bolab's test equipment for electronic subsystems. Revenue increased by 7% with growth in robots and the contribution of Bolab offset by lower SPMM sales. The market drivers for Testing Products continue to support increased track testing activity levels with additional regulation and increased complexity of testing. The increase in margin was delivered through operational efficiencies in supplier quality and production layout together with the effect of revenue mix. In this segment, the timing benefit of revenue mix, which was driven by a higher proportion of high-margin robots and lower SPMM revenue is not expected to be repeated in FY '26. Testing Services includes our proving ground in California, on-road testing in China as well as powertrain and environmental testing in Michigan. Revenue increased by 8%, driven by strong growth in the U.S., where activity levels benefited from new regulatory requirements from the U.S. regulator, NHTSA. After a two-month delay for review by the incoming administration, these have now been confirmed with an implementation date of 2029. Strong customer relationships facilitated cross-selling of VTS' services to a major OEM to whom they were previously not able to gain access as well as initial sales being made to a number of new market entrants. A long-term Testing Services contract in China was renewed for delivery in FY '26 and beyond. Our Simulation segment includes our simulation software, rFpro, and driving simulators designed and manufactured by Ansible Motion. The decrease in revenue was driven by the timing of simulator order intake in the final quarter of the year, with macroeconomic disruption contributing to delays in customer order placement. Our range of driving simulators was expanded during the year with the launch of the S3 Spin, and we were pleased to receive the first order for this new product towards the end of FY '25. High-value simulator sales are individually material and revenue recognition continues to be impacted by the timing of order intake and delivery as does margin. The key enablers for the delivery of our growth plan include our great people with over 200 qualified engineers and technicians supported by an experienced team of professionals across sales, operations and finance. Having been with the group for just over a year now, I can personally attest to the breadth of industry knowledge and technical expertise among my colleagues. Our retention rate, which is circa 90%, is above industry averages, is testament to the investment that has been made in our people. Our cash conversion record, which we aim to continue at 100% through the cycle; our strong balance sheet, which gives us flexibility with GBP 40 million of cash and a GBP 20 million RCF facility. While we prefer to remain debt-free, our debt capacity at 2x EBITDA is now over GBP 50 million, which for the right acquisition, we could use for a short period and pay down from cash generation. And we will deploy this balance sheet in line with our capital allocation policy, which I'll cover on the next slide. Our capital allocation policy is unchanged, and we are pleased to demonstrate how this is supporting the year-on-year progression of the group's return on capital employed. Our first priority is to invest in organic R&D and CapEx, then M&A and finally, dividends. We have a disciplined approach to R&D and CapEx, assessing each potential project using structured financial and strategic criteria to ensure alignment with our medium-term growth plan. New product development is critical to our business to ensure our solutions meet the evolving technical requirements of our customers. Our technology road map for Testing Products is designed to address the opportunities of NCAP testing over the next five years based on the long-standing deep customer relationships we have with OEM R&D teams and service providers. Our road map covers both hardware improvements such as the speed and reliability of our ADAS platforms as well as software enhancements. Where appropriate, we will invest CapEx to increase production capacity, and we will complete our global ERP system rollout, having now embedded this in our core Testing Products business and driving margin improvement as a result. In M&A, we will continue to target profitable cash-generative businesses. Any transaction should be EPS accretive and meet or exceed our internal benchmarks on financial returns. Where this is not the case, we maintain a patient and disciplined approach to ensure we only invest when we can create long-term shareholder value. We have a progressive dividend policy, as shown by our track record of consistent double-digit dividend increases over the last 5 years. We will only consider returning capital to shareholders if we are holding surplus cash and acquisition multiples ever became unattractive. The graph on the right illustrates that we have deployed capital in a number of ways over the last 4 years in a disciplined manner and are now starting to see the benefits in the group's return on capital employed metric, which has increased to 20.2% in FY '25. I'll now hand over to Sarah to give an update on our growth strategy. Sarah Matthews-DeMers: Thanks, Ed. Having presented our medium-term growth ambition last November, I'm pleased to say we are on track to deliver in line with the plan. The graph demonstrates the compounding effects of delivering 10% organic revenue growth each year, expanding operating margins to 20% plus and investment in acquisitions, continuing our disciplined approach against well-defined acquisition criteria. This will deliver our medium-term aspiration of doubling revenue and tripling operating profit. I'm pleased to confirm that despite the change in CEO, you won't be surprised to hear there is no change to this ambition. I am fully committed to delivering the plan. In half 1 '25, we delivered an 11% increase in revenue, expanded our operating margin to 18.6% and completed the acquisition of Bolab. Half 2 was tougher following the macroeconomic uncertainty, which followed U.S.-led tariff changes and revenue growth slowed. However, through delivery of our continuing program of driving operational efficiency and cost control, aided by a positive mix impact, we delivered improvement in operating margin and operating profit slightly ahead of expectations. I'll give further detail on each of these elements in turn on the next slides. Our growth is supported by very long-term structural and regulatory growth drivers in four main areas: new vehicle models, new powertrains, consumer ratings and regulation. The first two relate to the wider automotive market and the third and fourth are linked to the rapid developments in safety technology for assisted and automated driving functions. and the increasing regulation and certification requirements in this area. During FY '25, our sales growth has been driven by industry advances in technology, the drive for efficiency by OEMs and increased complexity of testing. There are a number of well-publicized factors creating uncertainty in the automotive market. The impact of tariffs is causing disruption, but OEMs remain committed to R&D in order to remain competitive. In half 2, we saw the impact of many customers pausing to take stock and delaying procurement decisions while they determine how best to respond to tariff changes. The challenge to traditional automotive OEMs posed by the rise of new entrants is resulting in the need to innovate and develop faster, more cost-efficient methods of developing new models, giving rise to further opportunities for our simulation capabilities, which enable manufacturers to accelerate the efficiency and speed of development by allowing customers to test in a virtual environment. As the transition to EVs is occurring more slowly than originally forecast, there is renewed growth in hybrid platform development, and ICE vehicles are expected to be around for longer, supporting significant levels of activity in new platform development. The new U.S. regulation, FMVSS 127, mandating new requirements for automatic emergency braking that comes into force for cars sold into the U.S. from 2029 remains in place despite lobbying from the U.S. car industry and is beginning to drive development activity in the U.S. market. Combined with the extension of Euro NCAP testing to other vehicle categories, increases in the complexity of testing, safety regulation and the growth in active safety and autonomy provide tailwinds for growth. Our business is resilient against short-term market disruption, and our market drivers support double-digit revenue growth in the medium term and beyond. We are OEM agnostic in the sense that we supply to all major automotive OEMs with over 150 different customers, therefore, providing protection from downside risk from the current competitive environment between conventional manufacturers and Chinese EV makers. Our global diversified customer base and high-quality long-term customer relationships provide resilience. Our global footprint allows us to remain close to our customers and gives us flexibility in dynamic market conditions. We are powertrain agnostic. All new models need to be tested and certified, whether EV, hybrid or ICE, leaving us well placed whatever the mix between differing powertrains. We sell into R&D functions and the organizations independently conducting testing. We don't sell anything that goes into a production vehicle. Therefore, production volumes are not directly relevant to us. As OEMs seek to innovate and develop faster, more cost-efficient methods of developing new models, this will lead to a faster adoption of simulation and further opportunities for our simulation capabilities. In summary, all of these market drivers and our high-quality long-term customer relationships provide resilience against the challenging near-term dynamics in the automotive industry. and long term are moving in the right direction to support sustainable double-digit revenue growth across our business. Operating margin expansion will be achieved through delivering operational gearing as we scale the business. The investment we have put in means we have the capacity to deliver the next phase of growth without a corresponding step change in overheads. Simplifying the business, we are focusing on improving our supply chain, rationalizing the number and quality of suppliers to obtain discounts and improve quality and efficiency as well as rationalizing the number of product variations and combinations in the market. And standardizing our processes and procedures. We have already made many improvements in this area, but there is significant opportunity to streamline our manufacturing, improve design for manufacture and drive the benefits from our ERP system. In our main manufacturing facility in the U.K., we have delivered a net improvement of GBP 1.1 million through the implementation of a supplier quality management system and increasing quality testing at the subassembly level, leading to reduced rework and wastage. We have reduced direct labor input times through planning and layout improvements. And we have also rationalized the number of product configuration options. We have demonstrated a strong track record in delivering and implementing value-enhancing acquisitions, and this will continue to be an important area of focus for the group. Our pipeline includes a range of near-term opportunities and longer-term relationships. There are no changes to our well-defined strategic and financial criteria against which targets are screened. Importantly, we have the resources in place to execute transactions. The market is fragmented, consisting of a high number of small- to medium-sized businesses, which are filtered down into targeted approaches. These are usually off-market opportunities with vendors with whom we've built a relationship over a period of time, but are sometimes structured M&A transactions. We typically have several acquisition opportunities in various phases of the transaction process at any one time. We are looking for cash-generative businesses with high gross margins at reasonable multiples, which are EPS accretive and capable of achieving strong return on investment. Typically, targets will offer new products or service capabilities that can be sold through our existing international sales channels. In terms of geography, we're most likely to pursue opportunities in Europe and the U.S. while being mindful that given the current disruption, we will need to be comfortable that any business is resilient to changes in market conditions. During the year, we completed the acquisition of Bolab, which has been integrated into our testing products sector, opening opportunities for Bolab to access new sales channels. We continue to apply our highly disciplined and well-structured approach to deal execution, which led us to withdraw from a further transaction in the year. We are continuing to build relationships with a number of other targets. In summary, we have a promising pipeline and sufficient resources to take advantage of opportunities that arise. The group has made a strong start to delivering the medium-term growth plan, which we articulated in November 2024. Trading in the first half of FY '25 was strong with double-digit revenue and profit growth. Despite challenges in the second half caused by macroeconomic and political disruption, the group delivered full year profit growth of 15% and improved margin to 20.3% from a combination of operational improvements and revenue mix. Diluted EPS grew by 15%, and we have proposed a 20% increase in the dividend, reflecting the Board's confidence in the group's financial position and prospects. Our strong operating cash generation and cash conversion of 106% leaves us with GBP 40 million of cash, which supports further organic and inorganic investment. In terms of the outlook for FY '26, the group is OEM agnostic, powertrain agnostic and sells into automotive R&D functions, providing resilience against short-term industry headwinds. The group is also geographically diversified and supplies market-leading products, which are critical to our customers' future success. Encouragingly, underlying demand drivers remain strong and customer activity increased towards the end of FY '25. As a result, the group carries forward GBP 32 million of orders into FY '26, providing good trading momentum into the first half of the year. Whilst mindful that short-term macroeconomic disruption may continue into the first half of FY '26, the Board remains confident that the group will make further financial and strategic progress this year and expects to deliver FY '26 adjusted operating profit in line with current expectations with an expected bias towards the second half of the year. Future growth prospects remain supported by long-term structural and regulatory growth drivers in active safety, autonomous systems and the automation of vehicle applications, underpinning our medium-term financial objectives. To summarize our growth strategy and value creation plan, our ambition is to double revenue and triple operating profit over the medium term from our FY '24 baseline of GBP 20 million of profit through the compounding effect of 10% organic revenue growth, improving margins to 20% and beyond, converting these profits into cash with 100% cash conversion through the cycle and a self-funded acquisition spend of GBP 30 million to GBP 50 million per year. That concludes the presentation. We'll now go to questions. Operator: [Operator Instructions] I'd like to remind you that recording of this presentation along with a copy of the slides and the published Q&A can be accessed via investor dashboard. As you can see, we have received a number of questions throughout today's presentation. Can I please ask you to read out the questions and give responses where appropriate to do so, and I'll pick up from you at the end? Ed Haycock: Sure. So first question was a pre-submitted question. So no name with this one. The question is, the share price has been reducing daily for the last few months despite the financial results being in line with expectations. What actions are underway to boost investor confidence and reverse the recent trend? Do you want to take this one, Sarah? Sarah Matthews-DeMers: I'll take that one. So thanks. As you can see, we've been delivering our results. We've also set out the medium-term growth plan to demonstrate the opportunity for what the business can achieve. Unfortunately, redemptions do remain the biggest issue in mid-cap markets, which drives prices down. So we are setting out the opportunity to allow shareholders to be able to assess the opportunity for the business themselves. Ed Haycock: Next question is from [ Ivan ]. His question is, what was the operating margin, excluding the benefit of revenue mix? So in one of the slides, we showed the impact and we quantified that the benefit was GBP 1.2 million of operating profit. Broadly, that's around 100 basis points on the operating margin. The next question is from [ Paul ]. With cash rising and continued strong cash generation, how are you looking to balance reinvestment and product development, acquisitions and shareholder returns in your allocation strategy? Did you want to take that one, Sarah? Sarah Matthews-DeMers: Yes. So as we set out in our capital allocation policy, the first priority is always to invest in organic R&D because that is what gives us the best returns. And then following that, the next allocation that we look at is acquisitions. Again, that drives returns. We pay a relatively small dividend. So it's not stopping us investing in anything in the business that is driving returns. But I do think it is a good discipline to have that dividend payment and the fact that we're growing it each year helps to signal the Board's confidence in the returns going forward. Ed Haycock: We've had a question from [ Gerard ], which is, can you give some examples of how ERP investment improve performance. So yes, various examples of that, I guess. One area where we've seen a marked improvement is in procurement. So we've now got data to analyze on exactly how much we're spending across our supply chain, which we can use to then inform our commercial negotiations and negotiate discounts with our core suppliers. Equally, we're using it in planning and knowing exactly how much we need to order and when, which is driving out working capital efficiencies and ensuring we're sort of maintaining appropriate inventory levels. Sarah Matthews-DeMers: Great. Thank you for those questions. We'll pass back to Vini. Operator: Sarah, Ed, thank you for answering all those questions you've got from investors. And of course, the company can review all questions submitted today and we'll publish those responses on the Investor Meet Company platform. Just before redirecting investors to provide you with their feedback, which is particularly important to the company, Sarah, can I please just ask you for a few closing comments? Sarah Matthews-DeMers: Yes. I'd like to thank you all for joining us today. Operator: Sarah, Ed, thank you for updating investors today. Can I please ask investors not to close the session as you'll now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations? This may only take a few moments to complete, and I'm sure will be greatly valued by the company. On behalf of the management team of AB Dynamics plc, we'd like to thank you for attending today's presentation, and good morning to you all.
Operator: Greetings, and welcome to the Mastech Digital, Inc. Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jenna Lacey, Manager of Legal Affairs for Mastech Digital. Thank you. You may begin. Jennifer Lacey: Thank you, operator, and welcome to Mastech Digital's Third Quarter 2025 Conference Call. If you have not yet received a copy of our earnings announcement, it can be obtained from our website at www.mastechdigital.com. With me on the call today are Nirav Patel, Mastech Digital's Chief Executive Officer; and Kannan Sugantharaman, our Chief Financial and Operations Officer. I would like to remind everyone that statements made during this call that are not historical facts are forward-looking statements. These forward-looking statements include our financial growth and liquidity projections as well as statements about our plans, strategies, intentions and beliefs concerning the business, cash flows, costs and the markets in which we operate. Without limiting the foregoing, the words believes, anticipates, plans, expects and similar expressions are intended to identify certain forward-looking statements. These statements are based on information currently available to us, and we assume no obligation to update these statements as circumstances change. There are risks and uncertainties that could cause actual events to differ materially from those forward-looking statements, including those listed in the company's 2024 annual report on Form 10-K filed with the Securities and Exchange Commission and available on its website at www.sec.gov. Additionally, management has elected to provide certain non-GAAP financial measures to supplement our financial results presented on a GAAP basis. Specifically, we will provide non-GAAP net income and non-GAAP diluted earnings per share data, which we believe will provide greater transparency with respect to the key metrics used by management in operating the business. Reconciliations of these non-GAAP financial measures to their comparable GAAP measures are included in our earnings announcement, which can be obtained from our website at www.mastechdigital.com. As a reminder, we will not be providing guidance during this call nor will we provide guidance in any subsequent one-on-one meetings or calls. I will now turn the call over to Nirav for his comments. Nirav Patel: Thanks, Jenna. Good morning, everyone. We appreciate you joining us for our third quarter earnings call. Let me begin by reaffirming the priorities I have set as I began my tenure as CEO of Mastech Digital earlier this year. Our focus remains clear, delivering long-term sustainable growth, unlocking substantial value from our operating model and investing in building truly differentiated capabilities to win in the future. A few quarters ago, we initiated a comprehensive review of our long-term strategy. That process is now well underway, and we believe it will help us sharpen our priorities while aligning our structure and investments to accelerate our transformation agenda. Our aim is unchanged from my first remarks as CEO, to be the trusted partner that helps enterprises reimagine themselves and transition into AI-first organizations. The business environment continues to evolve as ongoing macroeconomic and geopolitical uncertainties drive a cautious demand environment. Even as interest in modernization and AI adoption continues to grow, we find customers continue to look for a more supportive market environment before accelerating their spend decisions. Amid ongoing market challenges, we remain focused on controlling what we can and positioning the company for long-term growth. To that end, I'm very pleased to announce the launch of our EDGE program, which stands for Efficiencies Driving Growth and Expansion, a structured transformation initiative aimed at optimizing our organization and operating model. EDGE focuses on driving higher revenue quality, process simplification and automation and disciplined spend management to unlock capacity for reinvestment in strategic growth areas. We have seen these actions already yield improved operational efficiency and sharper resource alignment. By channeling these gains into capability building and market expansion, we believe EDGE will strengthen our competitive position and fuel sustainable value creation as we become an AI-first organization ourselves. Kannan will discuss the EDGE program in greater detail in his remarks, but I'm excited by our early progress, and I'm confident that we have the right strategy in place to build upon our already strong foundation while unlocking new opportunities and maintaining Mastech Digital's position as a leading partner to Global 2000 enterprise customers that are transitioning into AI-first organizations. We look forward to providing further updates in the days ahead. We are also particularly proud of the progress we are making in attracting top leadership talent with established track records. These leaders bring distinguished expertise in their fields, and we are seeing that they are the right catalyst for our growth agenda. Just as important, we believe we are building the leadership foundation that company needs to scale to lead with sharper operating rigor, deeper domain and AI capabilities and a culture of accountability and customer impact. While the quarter's performance reflects a measured demand environment, a view of where the market has been, our focus remains firmly on the future. We believe the steps we are taking now will strengthen our base, make us more competitive and set us up for sustainable growth in the years ahead. Turning now to our segment results. In our IT Staffing Services segment, revenues during the quarter declined 4.4% year-over-year. Our continued focus on disciplined pricing and emphasis on higher-value engagements delivered Mastech's record gross margins of 24.8% and all-time high average bill rates for Mastech at $86.60, despite billable consultant headcount reducing by 11.6% year-over-year. While overall client activity continues to trend below prior year levels, this is consistent with broader market conditions. We believe our margin performance and improved bill rates underscore the effectiveness of our execution strategy and operational rigor in a measured demand environment. Our Data and Analytics Services segment revenues for the third quarter declined 15.8% year-over-year, reflecting a challenging comparison against strong results in the second half of 2024. New bookings activity during the quarter remained subdued at $6.1 million, which was a factor of P&L pressures at some of our key accounts and delayed decision-making. We continue to focus on leveraging our basket of offerings across our portfolio of customers. While near-term visibility remains limited, we continue to believe that long-term demand drivers underpinning this segment remain firmly intact. We are focused on aligning our delivery capabilities and go-to-market approach to capture growth opportunities as client spending patterns normalize. As I noted when I assumed this role, growth is only meaningful when it is sustainable and profitable. We aim to continue to drive efficiency, operate with accountability and ensure every investment and position we take creates lasting value for our customers, employees and shareholders. With that, I will hand it over to Kannan for a deeper dive into our financial performance during the third quarter. Kannan Sugantharaman: Thanks, Nirav. Good morning, everyone. I will now discuss our third quarter financial results. We delivered third quarter consolidated revenue of $48.5 million, a year-over-year decrease of 6.4% as compared to the prior year period. Our IT Staffing Services segment delivered revenue of $40.6 million during the third quarter or a 4.4% lower than the prior year period. As Nirav noted, our focus on revenue quality resulted in an all-time high bill rate for Mastech and Mastech record gross margins in this segment, though our billable consultant base declined by 124 consultants since the third quarter of 2024, 11.6% decline. Our Data and Analytics Services segment reported a revenue of $7.9 million during the third quarter, a decrease of 15.8% as compared to the prior year period. In addition, third quarter bookings totaled $6.1 million as compared to bookings of $11.1 million in the prior year period. Third quarter gross profit of $13.5 million was a decrease of 8.9% as compared to the prior year period. Gross margins declined by 70 basis points over the third quarter of 2024, largely driven by decreases in revenue in our Data and Analytics Services segment. As Nirav mentioned, during the third quarter, we launched the EDGE program, which stands for Efficiencies Driving Growth and Expansion, a structured transformation initiative aimed at optimizing our organization and operating model. Key components of this program include cost diagnostics, process simplification, operational excellence initiatives, vendor and contract rationalization, zero-based budgeting and performance-linked spend governance. Our Q1 initiative to transition the company's Finance & Accounting functions to India is part of this program as well. Together, these measures are intended to drive higher revenue quality, process simplification and automation and disciplined spend management to unlock capacity for investment in strategic growth areas. Early progress under EDGE has resulted and already resulted in greater operational efficiency and improved resource alignment across the organization. This is reflected in SG&A as a percentage of revenue of 26.1% during the third quarter of 2025, a 280 basis point decrease as compared to 28.9% during the fourth quarter of 2024 and non-GAAP operating margin of 8.7% during the third quarter of 2025, a 190 basis point increase as compared to 6.8% during the fourth quarter of 2024. Importantly, the efficiencies generated through EDGE are being redeployed to strengthen our leadership and talent base, expanded competencies and accelerate market growth initiatives. While we expect to realize short-term benefits from these efforts, our near-term objective is to reinvest these gains to strengthen our competitive position, getting ahead of emerging opportunities and driving sustainable value creation for our shareholders. Third quarter GAAP net income was $0.9 million or $0.08 per diluted share compared to a net income of $1.9 million, $0.16 per diluted share in the prior year period. As we had previously discussed, we expected to incur transition costs that would impact near-term reported financials. We incurred $2 million in severance and Finance & Accounting transition costs during the third quarter of 2025 with no comparable costs during the third quarter of 2024, which are reflected in the year-over-year decline in GAAP net income. Non-GAAP net income was $3.5 million or $0.29 per diluted share compared to $2.8 million or $0.23 per diluted share in the prior year period. SG&A expense items not included in non-GAAP financial measures net of tax benefits are detailed in our third quarter 2025 earnings release for all periods presented, which are available on our website. During the third quarter of 2025, our liquidity and overall financial position remained solid. On September 30, 2025, we had $32.7 million cash balances on hand, no bank debt outstanding and cash available of $20.8 million under our revolving credit facility. Our Days Sales Outstanding measurement on September 30, 2025, totaled 55 days, which is well within our target range and in line with our DSO measurement a year ago. Finally, during the third quarter, we repurchased approximately 192,000 shares of Mastech Digital common stock at an average price of $7.68 for a total investment of approximately $1.5 million. Of the shares repurchased in the third quarter, 138,500 shares were purchased in a block buy from a long-term investor and approximately 52,000 shares were repurchased under company's Rule 10b5-1 plan. At the end of third quarter, we had approximately 214,000 shares available from our Board authorized program for repurchases. We plan to remain opportunistic with our share repurchase program to return capital and drive value for our shareholders. Operator, this concludes our prepared remarks. We will now open the line for questions. Operator: [Operator Instructions] Our first question comes from the line of Lisa Thompson with Zacks Investment Research. Lisa Thompson: I have a few questions on things you said. First off, on the buyback since we were just talking about it, are you going to increase that because you're almost done with it? Kannan Sugantharaman: Lisa, this is Kannan here. Mastech Digital will continue its buyback efforts in Q4, including giving consideration to entering into another Rule 10b5-1 plan. We continue to look into opportunities, and we do plan to take appropriate action as need be. We still have 214,000 that is approved by the Board. So while the plan is active, we will do that, which is appropriate depending on what we feel at that point in time. But we largely believe that it is a program that will -- is worth continuing though Lisa. Lisa Thompson: Okay. Talking about consultants, you're getting more money per consultant. Is that a plan of yours to just kind of get high-paid people? Are the consultant numbers going to go up or down going forward? Do you have an idea? Kannan Sugantharaman: Let me address that in 2 ways. Of course, it is pretty indicative of the 2 things that drove record margins, right? One was, of course, the bill rate, the mix and the discipline. Our average bill rates did go up. It was 83.6% and today, it stands at 86.6%, about 4% more. The focus is towards driving higher-value accounts and work while our account mix continues to shift towards complex higher-skilled roles and our operational rigor remains in place. So the intention is to be at this point, doing higher-skilled roles and shift towards more complex work, especially in the data and the AI space. Lisa Thompson: So do you think the consultant number will be up at the end of this quarter? Kannan Sugantharaman: Yes. It was -- we closed at 947 billable consultants in the IT Staffing Services, which was down from 980 as of June 2025. Lisa Thompson: Right. And in Q4, is that going to go up? Kannan Sugantharaman: As of October, we are at 933 and that's the count that we are tracking to at this point in time, Lisa. Lisa Thompson: Okay. Great. And I was -- could you explain EDGE a little bit more? I mean I think we can all understand moving Accounting & Finance to India as a tangible activity. Can you talk about what other things you are doing? And then how much more savings can you squeeze out of the SG&A line? Kannan Sugantharaman: Let me explain the context of EDGE, Lisa, right? And our EDGE program, which is Efficiencies Driving Growth and Expansion is focused on, one, driving higher quality of revenue. We just spoke about that, process simplification and automation, and disciplined spend management where we unlock capacity to reinvest in our strategic growth areas. It has 2 tracks, right? One is the efficiency track to free up capacity and the other one is the growth track to reinvest. Our efficiency, we are focused on bottoms-up cost diagnostics, process simplification, operational excellence initiatives, vendor and contract rationalization, zero-based budgeting, spend governance that is linking itself to performance. And on growth, it is towards enhancing talent, competency build and market expansion. So we are seeing multiple layers playing a part in the transformation journey. And we are really hoping that all of these changes fill in seamlessly as we look to reinvest and reorient ourselves for growth, Lisa. Lisa Thompson: Okay. And how much more cost savings do you think you can get? Like what's your goal? Kannan Sugantharaman: Yes. So if you really look at our SG&A at this point in time, we do believe while we are at a space where it is much lower than what we had historically incurred, you will also see a fair bit of uptick in the investments that we are bringing to bear to reorient ourselves from a growth standpoint. So the idea of EDGE is largely acting ahead and making sure we have the dollars for that reinvestment and reorientation to happen. We believe that, that investment clip will start coming in from the first quarter of 2026, Lisa. Lisa Thompson: Great. Looks like you've made a lot of progress. Kannan Sugantharaman: Thank you, Lisa. Operator: Our next question comes from the line of Marc Riddick with Sidoti. Marc Riddick: So I wanted to sort of touch on with EDGE. Can you talk a little bit about maybe the timing as to the beginning of the plan maybe from the strategic process of putting it together and then the beginning of the implementation. Is that something that has -- that was taking place throughout the entire quarter? Or how should we think about the timing of how that layered in? Kannan Sugantharaman: You are referring to the EDGE program then? Marc Riddick: Yes. Kannan Sugantharaman: Yes. So yes, it was programmatic, right? And if you remember back in second quarter when Nirav did speak about the fact that we want to focus and develop our strategic intent and initiatives, we pretty much started thinking. And of course, the thinking on EDGE started in Q1 when we wanted to move Finance & Accounting into India, but that was one part of the overall program. But in Q2, we got a lot more focused on making sure that we do 2 things. While on one end, we are looking to reorient ourselves to growth and making sure we make higher investments that is required from meeting our strategy. The other end was to obviously optimize and use that as our source to reinvest back into our business. So yes. So that was the thinking. So it all started in Q2. The idea was to make sure that we keep this long-term. EDGE is not a short-term program. It is an ongoing program where we continue to be very mindful in the way we spend, bringing in the appropriate spend governance and operational rigor and making sure that we do our appropriate benchmarks as we start rationalizing on an ongoing basis. That was the thinking, Marc. Marc Riddick: Okay. Okay. Excellent. And then maybe you could talk a little bit about the -- with the Finance & Accounting transition expense and severance that was in 3Q. I know you don't guide, but I was sort of curious as to how we should think about what level we're looking at or additional levels of expense that would flow into the fourth quarter? Or is there sort of a timing mechanism we should be thinking about additional expenses there? Kannan Sugantharaman: Marc, we are sticking to the original timing that we had planned for and the cost will be in about the similar range as well. So we do not expect it to go beyond what has already been communicated and it's part of our 10-Q as well. And from a timing standpoint, we should largely be done by Q4. Marc Riddick: Okay. Okay. Great. And then maybe shifting gears over to the bill rate growth drivers. I was wondering, could you talk a little bit about the pricing dynamic that you're seeing? Certainly it is understandable as far as client demand levels from a macroeconomic standpoint. But maybe you could talk a little bit about sort of what you're seeing as far as year-over-year pricing trends and to what extent revenue mix shift is playing into the benefit of the bill rate? Kannan Sugantharaman: Right. And as I had stated, the average bill rate same time last year was 83.6%, Marc. And today, it stands at 86.6%, which is about 4% of an uplift. The focus over the last 2 quarters has been towards focusing on Data & Analytics, specifically high-value accounts and high-value work for that matter. And given that focus of ours, our account mix continues to shift towards more complex work, higher-skilled roles and pretty much putting that rigor in place. So that is going to be our focus going forward. Our focus is going to be largely on the quality of revenue that we want to drive and improve our margins. As you would see on the gross margin level, there is a fab uptick on the -- from an IT Staffing standpoint, and that will continue to be our rigor going forward, Marc. Marc Riddick: Okay. And then I guess last one for me. Can you talk a little bit about the -- you touched on some of the AI-driven efforts. And maybe you could talk a little bit about some of the drivers that are maybe gaining greater traction here in the near term vis-a-vis some of the other opportunities that you see in '26 and beyond? Just maybe sort of -- are there any particular puts and takes or maybe even differentiation in client vertical behavior that we should be aware of? Nirav Patel: Yes, sure. Marc, this is Nirav here, right? Let me answer that question. So first of all, look, I think directionally, it's very clear. The modernization efforts across many of our organizations are continuing to accelerate and push as much as they can given the softer market environment. I think -- but the client continues to be -- our client -- our existing customers continue to really have an exciting outlook in terms of where they want to really think about their modernization. From our standpoint, we think about our Data & Analytics Services business, right? It focuses on 3 priority areas where we think are very fundamental, which will demand a significant amount of our, what I call our capability building. One is data modernization. The clients continue to like think about getting their data ready for AI and how they can really lay what I call a strong data foundation for them to scale in the world of AI. So that's number one that priorities are very good. The second is their acceleration on data consolidation. I think that's another area that's happening because as enterprises work on bringing various ecosystems and platforms across various corporate environments together, I think that data consolidation efforts are continuing to also be a second priority where I think that area is building up very nicely. And the final thing I'm going to say is in AI transformation and innovations, where we have really started seeing early success with a few engagements in some of our health sciences clients. We want to continue to expand that from our historical base of MDM by making sure that we are shifting left to more and more of data engineering work and at the same time, trying to shift right to the data science work with our existing customers. So think about it that way that, that whole area of AI and where that continues to create a new dynamic and a new business model at our client locations is an effect that we will have to play into. And I think we feel pretty strong about how we have positioned ourselves between both of our talent business and our Data & Analytics Services business. And that partly is reflected in the fact that the talent environment also will see continued ongoing demand pickups from a high-value talent standpoint, which is the kind of work that is required for our clients as they think about transforming their organizations to AI-first organizations. Operator: Mr. Patel, it appears we have no further questions at this time. I'd like to turn the floor back over to you for closing comments. Nirav Patel: Thank you, operator. If there are no further questions, I would like to thank you all for joining our call today, and we look forward to sharing our fourth quarter 2025 results with you in February. Thank you. Operator: Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day..