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Operator: Good day, ladies and gentlemen. Thank you for standing by, and welcome to the Health In Tech Third Quarter of 2025 Earnings Conference Call. [Operator Instructions] As a reminder, we are recording today's call. If you have any objections, you may disconnect at this time. Now I will turn the call over to Lori Babcock, Chief of Staff of the company. Ms. Babcock, please proceed. Lori Babcock: Thank you, operator, and hello, everyone. Welcome to the Health In Tech's Third Quarter of 2025 Earnings Conference Call. Joining us today are Mr. Tim Johnson, Chief Executive Officer; Mr. Dustin Plantholt, Chief AI and Marketing Officer; and Ms. Julia Qian, Chief Financial Officer. Full details of our results can be found in our earnings press release and in our related Form 10-Q to be filed with the SEC. These documents will be available on our Investor Relations website at healthintech.investorroom.com. As a reminder, today's call is being recorded, and a replay will be available on our IR website as well. Before we continue, please note that today's discussion includes forward-looking statements made pursuant to the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. These statements are based on information available as of today and involve risks, uncertainties and assumptions that could cause actual results to differ materially from those expressed or implied, including those discussed in our quarterly report on Form 10-Q for the period ended September 30, 2025, to be filed with the SEC. Please review the forward-looking and cautionary statements section at the end of our earnings release for various factors that could cause actual results to differ materially from forward-looking statements made during our call today. We undertake no obligation to update and expressly disclaim the obligation to update these forward-looking statements to reflect events or circumstances after the date of this call or to reflect new information of the occurrence of unanticipated events. We may also refer to certain financial measures not in accordance with generally accepted accounting principles, such as adjusted EBITDA for comparison purpose only. Our GAAP results and reconciliations of GAAP to non-GAAP measures can be found in our earnings press release. With that, I now turn the call over to our CEO, Mr. Tim Johnson. Tim? Tim Johnson: Thank you, and good afternoon, everyone. I appreciate you joining us today. I'm pleased to share our third quarter results which were well aligned with our expectations as we continue to invest in strategic channel partners and rapidly expand our distribution network. At a high level, we delivered another quarter of strong revenue growth. Revenue reached $8.5 million, up from 90% year-over-year, bringing the 9-month revenue to $25.8 million compared to $19.5 million for the full year of 2024. This momentum was driven by the continued expansion of our sales distribution network. The number of brokers TPAs and agencies grew to 849 partners, up 57% year-over-year. As more brokers and agencies adopt our eDIYBS platform, we're seeing more quotes bound and sold in real time. By the end of the third quarter, the number of billed enrolled employees reached 25,240, an increase of 7,654 employees year-over-year. The third quarter is typically a development and deployment period for us, a time to introduce new programs and features. Most notably, we completed beta testing and officially launched the large employer underwriting capability with our enhanced eDIYBS platform. This is a major milestone that scales our reached across the full employer spectrum, positioning Health In Tech as a true insurance marketplace for business of all sizes. The new capability enables brokers to generate fully bindable quotes for groups of 150 more employees and as little as 2 weeks compared to the industry norm of about 3 months. This advancement dramatically expands our addressable market and establishes Health In Tech among the few platforms serving both small and large employers seamlessly. Soon after the launch, we showcased this innovation at the SIIA National Conference in October 2025, one of the most influential events in the self-insurance industry. Our participation there helped accelerate national exposure and strengthen broker relationships, key catalysts for future growth. As we look to the fourth quarter and into Q1 2026, we're entering our peak enrollment period when employers review or switch their health care coverage. Recent market uncertainty and rising health care costs have created mixed timing patterns with some employers making early planned selections in late Q3, while others are delaying decisions into January. As a result, we delivered much better year-over-year growth in Q3 and anticipating sales volume shift from Q4 into Q1, but still expect healthy year-over-year overall growth. To help employers navigate cost volatility, we're testing a new program, offering a 3-year rate hold, a solution that provides predictable, stable pricing over a multiyear period. The program allows groups with 150 or more employees to lock in health care costs for 3 years through a fixed remittance model backed by an A-rated stop-loss carrier. It brings real time -- excuse me, real value to clients looking for cost, stability amid rising medical expenses, while also strengthening our relationships with brokers and TPAs. By providing cost certainty amid rising medical expenses, we're giving brokers and TPAs powerful retention tools and helping employers plan long term with greater confidence. We completed initial testing in October and plan to fully launch the program in the first quarter of 2026. We believe it represents an innovative concept for broader health care insurance market and we're optimistic about its reception as we enter 2026. Beyond underwriting innovation, we're setting our sights on one of the largest inefficiencies in U.S. health care claims processing, which consumes more than $300 billion annually in administrative costs and delays. This quarter, we announced a nonbinding letter of intent with AlphaTON Capital Corp. to co-develop HITChain, a blockchain-enabled platform designed to bring real-time visibility, accuracy and accountability to claims workflows across the ecosystem. Under this LOI, both companies plan to contribute distinct strength. Health In Tech brings domain expertise in insurance and health care data standards, established broker and carrier relationships, proven go-to-market channels and leadership in health technology design. AlphaTEC Capital contributes to blockchain development, expertise on the open network smart, contract architecture, cybersecurity, stable coin integration for secured payments and capital resources for enterprise scale deployment. Together with AlphaTON blockchain infrastructure and Brittany Kaiser's leadership in data ethics, we are building HITChain, a decentralized and verifiable claims system aimed at compression time lines, eliminating duplication, reduce cost and creating a transparent system of record for payers and providers alike. By combining insurance domain expertise with blockchain innovation, AlphaTON is positioned at the forefront of decentralized health care insurance technology infrastructure, a market opportunity of meaningful scale and long-term impact. Lastly, we're thrilled to share that Health In Tech will host the InsurTech Summit at Davos during the World Economic Forum week in January 2026. This event will convene global thought leaders to discuss AI technology and transformation of critical business sectors, including health care and insurance. With that, I will now turn it over to Dustin, who will walk through our latest marketing and partnership innovations in greater detail. Dustin? Dustin Plantholt: Thank you, Tim, and good afternoon, everyone. As Tim mentioned, we will take Health In Tech to the center of the global innovation stage by hosting our very first independent InsurTech Summit on January 20, 2026, during the week of the Annual World Economic Forum in Davos, Switzerland. It's interesting because the World Economic Forum, which is held each year in Davos, is really considered one of the world's most prestigious gatherings of global leaders across business, government, academia and civil society, and it serves as a powerful platform for shaping global, regional and industry agendas. And this year, Health In Tech will be among the organizations leading that dialogue. Our Summit will feature a curated lineup of panels on artificial intelligence, digital transformation in health care and blockchain-enabled system reform, all focused on redefining how technology can drive transparency, efficiency and equity across the $4.5 trillion health care economy. The first session we've announced, AI and institutional resistance, CEOs driving change in legacy sectors, brings together Time CEO, Jessica Sibley, alongside our very own CEO, Tim Johnson, for a dynamic discussion on how top executives are embedding AI within large traditional organizations. This dialogue will not be just about innovation. It's going to highlight the leadership mindset and operational courage required to modernize industries that have historically resisted change. Our second session, First Ladies: Backing Women Who Build will feature Lady Cherie Blair, founder of the Cherie Blair Foundation for women. The panel will spotlight global leaders advancing women's entrepreneurship, leadership and access to capital across the industries, exploring how innovation, education and technology can close gender gaps in business creation and economic opportunity. And this aligns perfectly with Health In Tech's broader mission of expanding access and inclusion through technology-driven ecosystems. Additional sessions focusing on other strategic themes will be announced in the next weeks and months ahead. Together, these sessions are going to elevate Health In Tech visibility among insurers, investors and yes, even policymakers, reinforcing our leadership in shaping conversations at the intersection of AI, health care and financial inclusion. For investors, Davos represents a strategic inflection point, amplifying our institutional reach, strengthening our brand presence on the world stage and showcasing how our technology and partnerships are modernizing the health care system here in the United States. As I've often said, legacy sectors like health care, finance and insurance are where AI meets its toughest test and delivers its greatest rewards. By leading these discussions, Health In Tech is demonstrating that responsible data-driven innovation can scale sustainably while earning trust from both partners and regulators. With that, I'll turn the call over to our Chief Financial Officer, Julia Qian, to walk you through the financial results in more detail. Julia? Julia Qian: Thanks, Dustin, and good afternoon, everyone. It's my pleasure to talk you through the financial results that underpin the strong operational achievement Tim just discussed. Our third quarter and the first 9 months of 2025 reflect continued execution across all the business fronts, from expansion of our sales distribution network to launch new platform features, while maintaining disciplined cost management and operational efficiency, revenue performance. For the third quarter, total revenue reached $8.5 million bringing year-to-year revenue growth to $25.8 million, presenting 132% of our full year 2024 total. Lease growth clearly demonstrate our accelerated momentum and the effectiveness of our strategy channel expansion through the broker TPA and agencies, combined with our strong customer acquisition activities. Profitability and operating leverage. Beyond the top line, our profitability matrix show significant operating leverage. Adjusted EBITDA for the quarter was $1 million, up 49% year-over-year. For the first 9 months, adjusted EBITDA reached $3.8 million or 167% of the full year 2024 total. This strong EBITDA performance demonstrate our ability to scale efficiency while maintaining the cost discipline. Pretax income for the quarter was $0.6 million, a 48% increase year-over-year. For the first 9 months, pretax income totaled $2.1 million or 2.4x of full year 2024. Importantly, pretax income present around 8% of the revenue. It's 135 basis points improved year-over-year, reflect our consistent balance between the resource allocation for growth and the bottom line profitability. Expenses management. On the expenses side, we continue to improve operating efficiencies with scale. Total operating expenses for the third quarter was $3.7 million, 55% of revenue, down from 68% in the same period last year. For the first 9 months, operating expenses represent 59% of revenue, an improvement of 12 basis points from 71% of the year ago. we continue to integrate AI-driven internal solution to enhance process automation and reduce administration burden. Break this further down. Sales and marketing expenses were $1 million or 11.3% of the revenue, essentially flat year-over-year. Our channel partner model continued to drive revenue growth without the need of a large in-house sales force. General administrative expense was $3.5 million consists of $1.3 million in operating cost, 14.9% of revenue and $2.2 million in admin cost, 25.8% of revenue. The higher admin costs reflects the expenses associated with being a public company including D&O insurance, Board compensation, Investor Relations and media outreach. So the research and the development expenses declined to 2.8% of revenue from 16% of the year ago. Our tech results have shifted from the preliminary project maintenance phase -- research phase to heavy development phase deployment. So thus the tech costs associated with the software development are capitalized. That's why you see the expenses reduced. Cash flow and the balance sheet. For the first 9 months, we generated $2.7 million of positive cash flow from operations. We invested $2.4 million in technology development and $0.1 million in the capital markets activity, resulting in net positive cash flow of $0.2 million. We ended the quarter with a solid $8 million in cash and cash equivalent. Our collaboration with AlphaTON Capital also provides additional capital leverage for the HITChain initiative. With AlphaTON investment contribution, we expect to build these transformative blockchain enabled first platform with minimum cash requirement from our end, which maximizing our capital efficiency. As we enter the fourth quarter, we are navigating a period of the market uncertainties related to rising health care costs and evolving regulation -- regulatory dynamics. Some employers accelerated their planned selection decision into late Q3, which contributed to a stronger-than-expected performance in the quarter, at the same time, other employers are shifting the purchase decision into January and early Q1 2026. Q4 is typically when we launch our major marketing broker initiatives and PR campaigns to build the momentum for the peak sales season, in line with the strategy, we intentionally reinvest a portion of our gross profit into the market expansion activity to support continued long-term growth. We anticipate Q4 revenue growth of around 50% year-over-year, which reflects a solid performance given lease timing shifts. For the full year 2025, we're expecting to deliver around 70% year-over-year revenue growth, reaching an estimated $32 million to $33 million in revenue. Importantly, full year net income growth is expected to be near 90%, outpacing the revenue growth on a percentage basis. As we're balancing disciplined profitability with purposeful reinvestment, given our market share is less than 0.01% of the market potential, the long-term growth runway remains very substantial. Our strategy is to thoughtfully redeploy a portion of earnings to skill distribution, drive product adoption and deepening our competitive position. As Tim mentioned, we began pilot test our 3-year rate hold program in late October, early November, this offering is very innovative and designed to provide possibilities for the employers and managed -- for them to manage the health care costs more effectively, this is very appealing to the companies with a large number of employees. We will share more details with you upon full launch in Q1 2026. In summary, the third quarter marked a pivotal point of the technology progress and the product innovation. The fourth quarter is focused on the market activities, program testing and our year-end sales campaignship with all -- which position us for accelerated momentum heading into 2026. We are laying the foundation for an AI-enabled multi-program health care insurance marketplace that we can serve our employees with all sizes and segment. I now turn it back to the operator for Q&A. Operator: [Operator Instructions] Our first question today is from Marla Marin with Zacks. Marla Marin: So -- this was obviously a strong quarter growth. I know you talked a little bit about some pull forward and maybe some timing differences versus general patterns in past years, but still, we're seeing very strong growth. You've been operating now for a very brief period in the large employer market. Is the response that you're seeing tracking along the lines that you had anticipated? And are there any things that you're seeing in that market that distinguish it from the small and medium market that you have traditionally looked at or focused on? Tim Johnson: Yes. Marla, thanks for the question. This is Tim. You're right. We really just got started. We haven't been able to see a trend yet because the process usually takes from -- for our brokers to get established and trained on the system to where they're starting to use it and an effective date is usually about, at a minimum at 60, it's usually 90 to 120 days out. So although the process has sped up and helped everybody, help our distribution sources get their proposals and their quotes faster, we haven't seen them start to really bind anything yet because they're quoting groups that are further out from when we started, if that makes sense. But we are seeing a lot more activity. We're seeing -- it started at about 2 quotes a day. Now, we're up to 5 quotes a day that our underwriters are able to get out. So a big improvement from where it was. Marla Marin: Okay. Understood. Okay. So switching gears a little bit. Your enrolled employees that metric, which is one that I look at from quarter-to-quarter, as I'm sure others do, it continues to increase. I think in the past, you've talked about there's a level of stickiness with that number, just because of the difficulties sometimes in switching to other, other coverage providers or other solutions. Can you give us any color on whether or not you think that is true? Julia Qian: Yes, that's -- Marla, it's Julia. I think that is a great question. That's why when we're looking at the 3-year rate hold program we're either further to enhance the retention, because with these uncertainties that when the business can have a product with a flat rate for the 3 years and really significantly change how the dynamic on the market. Yes, the health care product, insurance product itself, is already pretty sticky. And with the speed and the benefits we offer, that's how we see adding we're more products, make that even more sticky. Marla Marin: Okay. Got it. And then last question for me. The blockchain initiative, I think, is very interesting. As you continue to innovate in this space and you continue to use technology, to streamline processes and make things simpler for the customer base? In terms of blockchain right now, is there anyone else in the space that is using blockchain? Or will this be something that you're going to be relatively amongst the lead innovators? Julia Qian: I would let Tim to address that. Tim Johnson: Yes. Dustin, you can address that, if you want. That would be a good one for you. Dustin Plantholt: I would -- yes, I would love to. So it's interesting, the space of health care and now putting these records on chain, but doing it in a way that it still remains de-identified, so we don't have any compliance issues. We will really be the first at the scale that we will be launching the HITChain, bringing in an entire ecosystem, over the next 12, 24, 36 months, into HITChain. So it has not been done at that level ever because of all the moving pieces that are involved, and when we look at the problem -- the friction point, and Tim and I, our CEO, again, I discussed friction. The friction our providers feel, the friction that the hospital systems feel, even the friction at times the patients are feeling to be able to have a real-time ledger that they can track. So I'm excited over the next number of months, Mr. Tim Johnson will be rolling out some of the areas that we see Health In Tech being able to receive revenue opportunities and also strategic growth, not just in North America, our plan would be long term that HITChain would be a little bit of planned that we would become the #1 in the health care blockchain even at some point, tokenization. So I'll refer it back to Mr. Tim Johnson, our CEO, because I can't reveal too much. Tim Johnson: Yes. Marla, we -- this type of product has been tried and failed by other people with considerably larger recognition than we are. We have brought though a much broader base of people that understand the A to Z effect of this. Everybody at Health In Tech and AlphaTON, they have experience in every function that has started from when somebody goes to the doctor, to where that bill gets paid. And believe me, there are multiple entities in the middle of that, that have -- and transactions that have to take place. And by streamlining all that, as Dustin said, the decentralization of that where anybody can join this thing, it -- this blockchain that we're calling HITChain, it has not been done before in such a scale. It has been done by single hospitals, do it to manage their processes internally, but nothing where you decentralize it to the public like we are. Operator: The next question is from James Lieberman with American Trust Investment Services. James Lieberman: I want to congratulate you on the terrific year of execution and the vision that you're putting in place. And I wonder, can you share a little bit more about this 3-year lock program for health care. How do you manage to do that? Or is that your secret sauce and you'd rather not say at this thing? Tim Johnson: Yes. I guess, that -- it's -- because this is public, you're right. We really don't want others to know how we're going about it from an underwriting perspective. I will tell you, though, that there has been a year's worth of work with multiple different financial institutions, bankers, underwriters, insurance carriers, distribution sources in order for everybody to get comfortable with this. It has taken a lot of effort on everybody's part. And over a year now, we've been working on. So I apologize, I can't give you much more than that. But... James Lieberman: No, I think it's kind of extraordinary and I commend you that you've been able to bring all the players together to even present that vision. Congratulations. Julia Qian: Yes, Jim. You just turn to watching for the full launch news, then we will have more detail than the time we do our official full launch. And it's really, we combine the insurance sector expertise with carrier with various investment bank and funds. It's just a lot to put together, I would say, and you will find that there are renowned institution to join force to make this happen, and we're very excited, but we will have more details to share with everybody in Q1 full launch. Operator: The next question is from Allen Klee with Maxim Group. Allen Klee: It's really great to see your degree of innovation. Following up on the 3-year rate hold product, I think it could be really very powerful for employers to want -- there's some -- I'm actually -- it's kind of surprising that an insurance company would take that risk with given the challenges of -- and the changes that could happen with underwriting results. Was that maybe the hardest part to get over how an insurance company could get comfortable to take a 3-year risk? Tim Johnson: Yes, Allen, it was very challenging, but there's 2 sides to look at here. So what insurance carriers like to do is get profitable business and hold it. In this case, that's what we're trying to do is make it profitable by implementing these medical management programs, some very strategically targeted programs, where we're trying to manage every possible instances that can come up. So if somebody has diabetes, we have a program for that. If somebody has another condition, we have very specific programs that manage this because, Allen, what you find is that a carrier will pick somebody up for a year and try to implement these things, but 12 months isn't enough to make an impact. If something happens, they don't have enough time to say it happen 6 months into the program. They don't have enough time to really make an impact and try to manage that condition whatever it is, to get it back to where one where it probably is not -- maybe it's not a profitable program, but it could be over time, if you get enough time to get it under control. And that's what we sold our carriers on is the ability for us to manage those over time, better than what we're able to do today. Allen Klee: That makes a lot of sense. And then for the claims processing, who you're selling this? Who is your customer in this? Tim Johnson: Customers are large employers -- larger employers, 155 lives on their plan and greater. So like municipalities, for example, I use municipalities because they don't have a lot of money from their tax base, whatever that is, but they try to budget. Their budgeting money is very tight. And when we can give them a 3-year rate guarantee, municipalities and government entities love this type of product. Allen Klee: Right. Okay. And then for the -- I'm sorry, I didn't ask my question. I meant for the blockchain opportunity to manage claims processing, who are you selling that to? Tim Johnson: Well, that's going to be sold to everybody. If you've heard me speak in the past, Allen, everybody that touches health care, and which is from the hospitals to the patients, the employers, the brokers, the third-party administrators, the networks, everybody in, not to use the term or beat the term up, in the chain of events, everybody will participate in this. The program -- and again, I can't go into -- I don't know where my line is drawn, I've given too much information, but everybody that touches it, will benefit. There's a win-win in this for everybody. It will drive -- I have asked -- people have asked me the question, how is that going to drive health care costs down? Well, a large part of the health care cost is the administrative costs. And they're huge. As we talked about in this presentation, it was $300 billion. We're trying to cut that down dramatically. And we hope that, that savings reflects back in the term of health care expenses paid out over time. Dustin Plantholt: Yes. And I'd like to also kind of add to that, Tim, and great explanation. I think that for those that have ever experienced issues when it comes to claims, our -- the ideal kind of customer client that we see partnering with us are going to be insurance carriers, health plans, benefit administrators, companies that are processing potentially millions of claims a year or thousands or tens of thousands of claims. They're going to win with the chain because of fewer fraudulent claims, faster processing, fewer disputes, faster collection, less overhead expenses, meaning we're driving operationally their cost down and ultimately, happier providers, which means Health In Tech wins, those that are within the ecosystem wins. And I can't get everything. I don't want to get ahead of myself and -- but we have an enormous opportunity here, and we're hearing from large organizations around the world, including large hospital system that we are on to something. So I'm excited to go on this journey with all of you in the future. Julia Qian: Yes. Allen, once we work with AlphaTON turn to from nonbinding letter intent into the definitive agreement. At that point in time, we will be able to give an update in terms of the more detailed business model and all these above fronts and both Tim and Dustin mentioned about, it's just some of the very initial identified area we can benefit from. There are much more area where we continue to discuss and discover the benefit is not only just the transparency, the speed, remove the redundancy, especially, one clients get a process once, not multiple times, get to review the different people, different the organization, menu work back and forth, but also there is opportunity to think about how the money movement get paid, the payment part side of process. So there's really a lot of things we can do. The most benefit for us, for overall, is both parties contribute to their strengths, and that has really a minimum cash requirement from all, and we contribute our knowledge, and they have the funds, they have the technology and blockchain. Combine these with both parties, we're going to create something very unique and big and the benefit every participant on the chain. Dustin Plantholt: And Julia, I think it's good to note because we have mentioned it in press releases regarding AskTim, our AI-driven benefits counselor that also will be unveiled in 2026 with a little bit of under-the-hood in Davos on January 20, 2026. Allen Klee: You guys had mentioned in the last few months of some stuff that you're doing with pharmacy benefit management side to try to get lower drug costs. Any update on that? Tim Johnson: Julia? Julia Qian: Allen, I think we really do not have much more built out in terms of pharmacy benefit. And our focus on this year is enhance the system, produce the new program, new products. And while the PBM side of the opportunity has been evolving, this is very much to do with the market condition, and who we partner with. And just to present additional opportunity, whether for this year, and we entered into the November, when we look at really the enhanced eDIYBS and the 3-year rate hold and ended to the large size of the employer market is important for us. When we look into 2026, we might go back to check on what else we can build in terms of additional opportunities. Tim Johnson: Yes. The administration -- the current administration in the White House has -- you've recently heard the press release and the conference that they had, they're looking for serious solutions. So putting our time and energy into it, if the government is going to step in as much as they are and good for them. It could have been more of a waste of time. We thought our efforts would be better off focusing on the underwriting and claims piece that we just talked about. Allen Klee: Okay. One of the things that you guys had focused -- have focused on is your broker -- your partners and how that's been helping to drive sales. Basically, you're getting your distribution through your partners. And I think last quarter, one of the things that struck me is you were getting some of the larger insurance brokers also. So maybe if you could talk a little about your broker relationships, and how -- like for the big renewal season, how you go about the process of focusing on that? Dustin Plantholt: Yes, our -- we are growing our distribution sources because once they get -- see the system, it's so convenient, so easy to use that it's making their lives easier, so they can do -- they can make more sales, but the -- what we term as our Alpha house is the bigger brokerage firms around the country, products, just like what we talked about with the 3-year rate guarantee, they have -- some of them have only focused on larger groups, some of them do larger and smaller groups, but their primary focus is the larger group, and with bringing a program like this 3-year rate guarantee, rate stability program that we call it. That's what they're focused on. So they are more excited than ever to get access to some of these products that we're bringing for the larger segment, the group segment. Julia Qian: Yes, Allen, also, we very aggressively start to train the brokers. And with all the large broker agency, they have regional office. They have -- they intend to just have a pilot office so testing out and then, then they roll out to rest of the agencies in the different states. So to us, it's not only just the numbers, but once we start with 1 agency and our sales team really go down to the implementation of the training, we should be able to see these things getting wrap up, not only just the number, actually, 1 agency can have hundreds, thousands. The other agency handful, so not only the agencies, but also how can we deepening the relationship and our sales team has done a great job of being providing a training and looking at how the system, how easy system is. So we will see this continue accelerating our outreach. Additionally, the event we do in Davos, and led by Dustin and all other PR will continue to give us very good visibility in the market, attract more large agencies. Allen Klee: That's a good point. So the audience for the Davos conference, will be kind of bigger players in the insurance tech area. Julia Qian: That's right. Like before, I think when the agency with a certain size, they are looking for more of the peers, and where there is a significant event in the forum, they all can exchange their thoughts, and also it's a perfect venue for us to improve our visibility without burning a lot of marketing dollars. So we have been very disciplined in terms of the marketing and the PR, but we think this is a great opportunity for us. Operator: The next question is a follow-up -- excuse me -- pardon me. Seeing no more questions in the queue. Let me turn the call back to Mr. Johnson for closing remarks. Tim Johnson: Thank you, operator, and thank you all. I appreciate everyone joining the call today. If anyone has any follow-up questions, please do not hesitate to reach out to us. We appreciate your interest and look forward to keeping the dialogue open. Thanks, everyone. Operator: Thank you all again. This concludes the call. You may now disconnect.
Raymond Jones: Greetings everyone and welcome to our third quarter 2025 earnings conference call. This call is being conducted as audio. [Operator Instructions] As a reminder, we will make forward-looking statements regarding future events and potential financial performance during this call, which are subject to material risks and uncertainties that can cause actual results to differ materially from such statements. A summary of these risks may be found in the Risk Factors section in our Form 10-K filing with the SEC dated February 27, 2025, and our Form 10-Qs filed with the SEC dated May 12, 2025, August 11, 2025, and November 10, 2025. These forward-looking statements are based on assumptions that we believe to be reasonable as of today's date, November 10, 2025, and we have no obligation to update these statements as a result of new information or future events, except when required by law. Additionally, we will present both GAAP and non-GAAP financial measures on today's call. These non-GAAP measures are not intended to be considered in isolation from, a substitute for or superior to our GAAP results and should be read in conjunction with the company's consolidated financial statements prepared in accordance with GAAP. A description of these non-GAAP financial measures as well as a reconciliation to the nearest GAAP financial measures are included at the end of the company's earnings media release issued earlier today, which has been posted on the Investor Relations page of the company's website. We have posted an updated investor presentation on the Investor Relations page, which includes additional complementary graphics and data. Please note that it has been provided as an additional reference and that we will not be using the presentation as an exhibit during today's call. We will begin with an overview of results and a business update from our Chief Executive Officer, Lauren Antonoff, with a comment from our Co-Founder and Executive Chairman, Chris Hulls; then our Chief Financial Officer, Russell Burke, will walk through the Q3 2025 financials. Lauren will return with comments on our updated 2025 outlook before we open up the call for Q&A. [Operator Instructions] With that, I'll turn the call over to Lauren. Lauren Antonoff: Good afternoon to everyone joining from the U.S., and good morning to those of you tuning in from Australia. Thank you for joining our third quarter results call. Q3 2025 was another record quarter for Life360. We reached all-time highs in Paying Circles and global net subscription adds while continuing to advance our vision of becoming the go-to platform for everyday family life. These results reflect our outstanding product market fit, the strength of our freemium model and most importantly, the trust we built with millions of families who depend on Life360 every day to keep their families safe and manage the day-to-day chaos of family life. Our growth engine is fueled by the peace of mind that Life360 provides families who use our platform to stay connected to the people, pets and things they love. Our freemium model continues to drive delight and encourage upgrades to premium features such as unlimited place alerts that give families a heads up where mom leaves work or dad stops by their favorite sandwich shop. Our free offering is now even more valuable to families with the introduction of our new Pet Finder Network, which I'll come back to in a moment. Because of our outstanding value, the majority of our growth remains organic, driven by word of mouth and increasing brand awareness. This quarter, we continued to deliver innovative experiences like no-show alerts. We spotted a pattern where nervous parents continually check to see if their kid arrived and we decided to create a feature to reduce anxiety by flipping this experience on its head. Now we can alert parents when a loved one doesn't arrive on time at a designated location. No need to keep checking. It's one more way we're giving families peace of mind and making everyday family life better. We delivered no-show alerts just as kids were heading back to school, and we've seen outstanding engagement with over 1 million alerts configured to make sure that people arrive safely as expected. We also deepened our partnership with AccuWeather, the world's most accurate and widely used source of weather forecasts and warnings. Last quarter, this partnership delivered severe weather alerts to our members. In Q3, we took it a step further by extending these alerts to the entire circle, so every family member is notified when weather threatens someone they care about. This integration, as with our work with Uber, highlights how major brands are recognizing Life360 as a true platform, not just another location sharing app. We're creating monetizable experiences that drive far higher engagement than traditional ads and genuinely add value to our members' daily lives. Unlike banner ads that users simply tolerate, our AccuWeather experience shows why people choose Life360. It makes the platform more useful, relevant and uniquely positioned at the center of family life. We're also engaging members in creative ways like our Life360 Pays For campaign, which was designed to reinforce our mission of making everyday family life better and build brand affinity by helping families manage real-life costs from rent to gas to data plans. Our combination of product innovation and creative marketing with millions of views across the media spectrum continues to strengthen engagement across our platform. As a result, we added 3.7 million monthly active users in the third quarter, growing 19% year-over-year, bringing our total active users to nearly 92 million. Our total Paying Circles grew 23% year-over-year to 2.7 million, achieving a record 170,000 net new additions, boosted by focus in our marketing efforts and optimization in our funnel, resulting in better conversion from free to paid in the U.S. and international markets, especially within that first critical 30 days of use. While MAU growth is lower than the same period last year, it was led by our highest value user segments, reflecting an intentional shift in our marketing to focus paid media on users who are more likely to retain and convert. The strategy is working. Our 35- to 50-year-olds, which drive the majority of our monetization, reached record highs this quarter. The results speak for themselves with record growth in Paying Circles and strong brand awareness. At the same time, we continue to benefit from Life360's cultural relevance, which extends well beyond our core target audience. In recent weeks, we've been trending on TikTok because we created a product experience that hopped on the 67 meme. If you don't have teens, you might not know what that means, but millions of our younger members do. While we don't rely on Gen Z as primary converters, their enthusiasm fuels a powerful halo effect that keeps Life360 part of the broader cultural conversation. Just this week, one of our TikTok posts went viral with an astounding 2.2 million views. This visibility strengthens our brands with parents and families alike, proving that our position at the center of the digital zeitgeist is a real competitive advantage. Internationally, momentum remains strong. Paying Circles outside the U.S. grew 29% year-over-year with an 8% year-over-year ARPPC uplift driven by local pricing strategies and the continued success of premium tiers across the U.K., Canada, Australia and New Zealand. If these markets continue on the same trajectory as the U.S., and current trends suggest they will, there remains significant headroom for accelerated growth ahead. While we continue to experiment with our marketing levers, the results we've seen give us confidence that edgy creative, disciplined marketing investment and most importantly, a product that delights customers will continue to drive durable growth for many years to come. On top of growing our membership base, we're deeply committed to increasing the value we deliver to our members, including extending Life360's impact beyond the phone. Our connected devices play a critical role in expanding our reach and deepening engagement, giving families more ways to stay connected. We took a big step forward on this front as we launched Life360 Pet GPS, which brings to life our vision to connect families with the people, pets and things they love on one map and extends the peace of mind we're known for to furry family members. This is our first product designed specifically for pets, and it's now available in the United States, Canada, the U.K., Australia and New Zealand. We took a measured approach to our initial launch, and while it's too soon to provide forecast, early demand exceeded our initial expectations, selling it out in most regions within days. One in 3 pets becomes lost at some point during their lifetime, and family with pets represent a significant opportunity, covering nearly 70% of U.S. households. Young families tend to get their first pet before they have kids and certainly before the age that kids get their own phone. And pets don't head off to college, meaning that our Pet GPS makes subscriptions more valuable to families through all life stages. Our goal with pets goes far beyond selling devices. We have an opportunity to raise the bar for what it means to be a responsible pet parent. We're committed to driving awareness and education about how to keep pets safe. Pet owners have been led to believe that a microchip or Bluetooth tracker will help if their pet escapes. And I know from personal experiences that these solutions are outdated and woefully unsuited to the job. To make use of a microchip, someone needs to capture your pet and take it to a vet or a shelter. Not only does that count on extraordinary effort, but trying to catch a lost dog and put both the dog and the person in danger. Bluetooth trackers work great when your dog is at home on the couch, but they're ill suited for a dog on the run. The best way to get a dog home safely is to equip them with a GPS tracker that tracks your pet in real time, so you can close the distance quickly and bring them home safely. While Pet GPS is the best way to keep a pet safe, at Life360, we want to keep every pet safe, even those without a tracker. Our community-powered Pet Finder Network draws on our nearly 92 million members to help reunite lost pets with their families by sending a lost pet alert to members nearby. Pet GPS and our Pet Finder Network expand our relevance to even more households and reinforce our position as the go-to platform for everyday family safety. Families already trust Life360 to keep their loved ones connected and safe, and that trust gives us a strong foundation to lead in this growing category. Beyond subscriptions and hardware, we continue to advance our strategy to build high-margin complementary revenue streams. Q3 other revenue grew 82% year-over-year to $16.9 million with strong performance in advertising. We're still early in our advertising road map, but we're making progress building the full operating stack that will power long-term growth. Our place ads and uplift products are live and gaining traction, enabling brands to reach families in relevant real-world moments and measure the impact of their ad campaigns. At the same time, we're enhancing our programmatic partnerships and data integrations to improve targeting, delivery and performance. This phase is about building the right foundation, bringing together the people, technology and relationships that will allow us to efficiently and effectively scale. The momentum we're seeing fuels our confidence that advertising is on track to become a durable high-margin growth engine for Life360. To accelerate our vision, we've entered into an agreement to acquire Nativo, a best-in-class advertising technology company. Nativo brings full stack ad technology, a seasoned team and hundreds of advertiser and publisher relationships that will allow us to scale our ads business faster and more efficiently while maintaining the high editorial and privacy standards that define the Life360 promise. We expect this combination to accelerate our advertising road map, expand our offsite reach and position Life360 to deliver a unified ad platform that seamlessly connects our audience with broader publisher networks. It's a major step forward in creating a differentiated full-funnel solution for brands and agencies. And importantly, it advances our mission to grow advertising in a way that's consistent with our commitment to families. We look forward to welcoming the Nativo team to Life360 once the transaction closes. Before I conclude, I've asked Chris to share a few thoughts from his new role. So Chris, over to you. Chris Hulls: Thanks, Lauren. I'll keep it brief. The transition has gone incredibly smoothly, and it's great to see how well the company has executed while continuing to advance our long-term vision. If I had to sum up this quarter on one theme, it's that we're proving Life360 is not just an app, it's a platform that's always been at the heart of the 360 in our name. With the launch of our new device, people, pets and things are now fully integrated into the Life360 map. And we're the only player in the space with a complete family-focused hardware and software ecosystem, and it shows how far ahead we are of any direct competitor. The Nativo acquisition is another major milestone. We've long said that indirect revenue could one day rival subscriptions, and this deal accelerates that vision. Nativo isn't just about adding more ads. It's about enabling third parties to use our location intelligence in privacy-safe ways that improve their performance while preserving the experience of our free users who remain the foundation of our platform. And finally, it's great to see Life360 jumping on the 67 trend and going viral on TikTok again, this time organically from the team, which means in a very genuine way, I'm very happy I do not have to reprise my role as an influencer. I'm excited to continue supporting the team as Executive Chairman, and back to you, Lauren. Lauren Antonoff: Thanks, Chris. I'm incredibly proud of the team for delivering another outstanding quarter of balanced growth and disciplined execution. We continue to scale our core subscription business, expand our high-margin revenue streams and invest in new innovations that make everyday family life better. With momentum in our core business, the successful launch of Pet GPS and continued expansion in advertising with the addition of Nativo, we're confident in our trajectory as we enter the holiday season and head into 2026. So with that, I'll hand it over to Russell to walk through the financials and our continued progress on profitability. Russell Burke: Thanks, Lauren, and thank you all for joining the call today. As a reminder, the Q3 financials I'll be referencing are unaudited and denominated in U.S. dollars. We are very pleased to report another record quarter, reflecting continued strength in our core subscription business, accelerating momentum in advertising and data revenue and disciplined expense management. Q3 total revenue grew 34% year-on-year to $124.5 million with continued strong momentum. Subscription revenue increased 34% to $96.3 million, while core Life360 subscription revenue, which excludes stand-alone hardware subscriptions, rose 37%. The increase was driven by sustained global Paying Circle growth and ongoing improvements in conversion across both U.S. and international markets. Other revenue grew 82% year-on-year to $16.9 million, fueled by strong performance from our expanding advertising platform and partnerships. We continue to see advertiser demand scaling as expected, supported by new formats and higher engagement. Stand-alone hardware decreased 4% year-on-year to $11.3 million. Unit sales increased 15% year-on-year, driven by strength in online channels. Stand-alone hardware gross profit and margin were impacted by tariff-related costs. Absent those tariffs, both would have been positive. We view the tariff impact as manageable long term, and we took steps earlier in the year to largely mitigate it. Our focus remains on driving adoption, not short-term stand-alone hardware margin as devices continue to be an important funnel into our subscription ecosystem. Looking ahead, our Q4 outlook includes the impact of promotional launch pricing for Life360 Pets GPS across all markets. This pricing was strategic and time limited, focused on driving adoption and engagement within Paying Circles. Pet GPS operates exclusively with a paid Gold or Platinum membership, which delivers the near real-time GPS visibility and integrated safety experience families expect from Life360. We've structured device pricing to minimize friction and expand the pool of paying members, which aligns with our long-term strategy. This approach is fully reflected in our Q4 guidance and supports our goal of growing high-value subscribers rather than focusing on near-term device margins. We are still in the early stage of the Pet GPS launch, and we'll share more detail at year-end. Turning back to Q3 results. Annualized monthly revenue reached $446.7 million, up 33% year-on-year, underscoring the durability of our high-quality recurring revenue model. Gross profit increased 39% year-on-year to $97.1 million. Gross margin was 78% compared with 75% a year ago, reflecting mix shifts in the quarter. Operating expenses, excluding commissions, grew 20%, well below our revenue growth rate, demonstrating continued operating leverage. Year-over-year, you'll see a visible shift in marketing spend as we ramp campaigns ahead of our Pet GPS launch and key holiday promotions. These were planned investments that support long-term subscriber growth and product adoption. Breaking it down by expense line, R&D rose 12%, reflecting ongoing product innovation and scaling of our data and ad tech capabilities. Sales and marketing increased 27%, primarily driven by seasonal campaigns and commissions in line with subscription growth. G&A grew 31%, consistent with the overall pace of company expansion. We also continue to test purchase path variations to enhance conversion efficiency across platforms. Profitability continues to strengthen. Net income for the quarter was $9.8 million compared to $7 million in Q2 and $7.7 million in Q3 last year. Adjusted EBITDA rose 174% year-on-year to $24.5 million, representing a 20% margin, our 12th consecutive quarter of positive adjusted EBITDA and further progress towards our target of 35% plus. Turning to the balance sheet. We ended the quarter with $457.2 million in cash, cash equivalents and restricted cash. We remain in a strong position with strategic flexibility to pursue investment opportunities. Operating cash flow was positive for the 10th consecutive quarter at $26.4 million, up 319% year-over-year. In summary, Q3 demonstrated that Life360's growth engine remains strong and efficient with record revenue, expanding high-margin businesses, disciplined cost control and clear line of sight to increasing profitability. Before we move to guidance, I'd like to share some additional context on the exciting step forward for our advertising business. As Lauren mentioned, we entered into an agreement to acquire Nativo, a leading native advertising technology company for approximately $120 million in the combination of cash and stock and subject to customary closing conditions. This acquisition positions Life360 to compete at scale with a unified end-to-end advertising platform that expands our reach and will unlock meaningful revenue potential. The acquisition will be accretive to adjusted EBITDA from day 1 and reinforces our commitment to growing adjusted EBITDA margins through high-quality complementary revenue streams that deliver long-term shareholder value. Because the transaction is expected to close in early 2026, we do not anticipate any financial impact in 2025. Nativo currently generates roughly twice the level of advertising revenue that we expect to deliver this year with a different margin profile that reflects its position across the full ad tech value chain, spanning the demand side, customer data, measurement and supply side platforms, all of which carry -- typically carry lower gross margins than pure digital advertising. The company has approximately 125 employees or about 1/4 of Life360's current headcount and brings full stack technology, sales and operations capabilities that will accelerate our advertising road map significantly. We expect both revenue and cost synergies to begin ramping in 2026 with full realization by year-end. Importantly, the acquisition further supports our longer-term goal of achieving 35% adjusted EBITDA margins. With that, I'll hand it back to Lauren to review our updated outlook for the remainder of 2025. Lauren Antonoff: Thanks, Russell. As we look ahead, we remain confident in our ability to deliver consistent results through disciplined execution and our continued commitment to making everyday family life better for millions of families worldwide. With the launch of our new Pet GPS across key markets and continued momentum in our advertising business, we're extending our reach and deepening our engagement across the platform. With that foundation and the strength of our subscription model, we're focusing on finishing the year strong, and we're raising full year 2025 guidance as follows: We're increasing our consolidated revenue guidance from the previous range of $462 million to $482 million to a new range of $474 million to $485 million. We're raising subscription revenue guidance from the previous range of $363 million to $367 million to the new range of $366 million to $368 million. We're also raising the range of hardware revenue guidance from $42 million to $50 million to the new range of $46 million to $50 million. We expect full year gross margin on hardware to be negative single digits due to the impact of tariffs and the launch of Pet GPS. We're also raising the range of our other revenue guidance, which includes advertising and partnerships from the previous range of $57 million to $65 million to a new range of $62 million to $67 million. And finally, we're raising our guidance for adjusted EBITDA from the previous range of $72 million to $82 million to a new range of $82 million to $88 million. This concludes our prepared remarks, and now I'll turn the call over to RJ, who will manage the question-and-answer portion of our call. Raymond Jones: [Operator Instructions] With that, we'd like to open it up to Maria Ripps from Canaccord. Maria Ripps: I appreciate all the color on the Nativo acquisition. I guess do you expect the platform to maintain its existing advertiser base? And sort of how do you see the operating model evolving here sort of over time once you integrate the acquisition? Lauren Antonoff: So we definitely see the Nativo acquisition as additive. We continue to work on the base of both features and momentum that we have in Life360, and we expect that to accelerate with this technology that Nativo is bringing in, in addition to bringing the momentum in their business. Raymond Jones: Thanks, Maria. Next, we'd like to open it up to Lafitani Sotiriou with MST. Lafitani Sotiriou: Two quick questions or clarifications for me. I know it's only one question, but can I just clarify with the Nativo acquisition, Russell, you're sort of talking code a little bit around the revenue run rate. Can you just tell us roughly what the revenue run rate is of Nativo and roughly the cost base broadly for FY '25, so we've got a base to sort of include it going forward? And with the Pet GPS, can you talk to -- I know it's only early days, but can you talk to the conversion of the -- or the engagement of free users adopting the Pet GPS versus existing subscribers? Russell Burke: So taking those one at a time, Laf. We're not going to give a huge amount more detail. But I think we clearly said you've got a good sense of our advertising revenue for '25. Nativo is on a roughly twice that run rate. At the same time, they would have expected a -- without this acquisition to be in a small adjusted EBITDA positive situation next year, which once we add in the combination with Life360, we absolutely expect that to be, as I said, positive adjusted EBITDA accretive from day 1. So that would give you enough to come back to both the revenue run rate and the cost base. In terms of Pet GPS, the early phase was really focused on our existing members. So from the initial launch, it largely went to existing members and then has moved really targeted towards free members. So it's very early stages in terms of adoption at this point. And I think we'll be able to give you a lot more color at year-end. Lafitani Sotiriou: Can I clarify, are you talking about advertising, including all buckets in other revenue? Or are you calling out advertising as a component, excluding data income? Russell Burke: For the comparison piece, it's the advertising, excluding data. And I think as you know, that's approaching sort of 50% of other revenue at this point. Raymond Jones: Thanks, Laf. Next, we'd like to open up the line to Mark Mahaney from Evercore. Mark, are you on by chance? Mark Stephen Mahaney: Okay. Now, I am. Russell, you talked about margins long term getting -- moving from that 20% level to the 35% plus. What would be the biggest factors that would cause that margin to grow more quickly or more slowly? Is it -- should the rate -- or let me ask it this way, the rate of margin expansion that we've seen over the last year or 2, is that the way loosely to think about margin expansion going forwards? And then, Lauren, could I ask you, when you think about the product development road map from here, like what are your top priorities just in terms of new products that you want to offer to existing customers? Russell Burke: So Mark, on the first part, I think there's 2 major factors in terms of margin expansion. One is purely scale as we've demonstrated over the last couple of years, in particular. As we increase scale, we're really able to leverage operating costs quite effectively. So even just with that, we see a sort of a clear path to those adjusted EBITDA margins. On top of that, we are increasing the mix of higher-margin revenue within our total revenue base. So that contributes to that as well. Mark Stephen Mahaney: That advertising is the higher-margin businesses? Russell Burke: That's the biggest factor, yes. Lauren Antonoff: So speaking a little bit about our road map. The thing that we want to make sure that we do is not to dilute our focus too much. So we've introduced a lot of new experiences with things like our advertising business and now Pet GPS, and we want to make sure that we're taking the time to really nurture those ad capabilities, incorporate customer feedback. And we think there's a lot of opportunity on a lot of the new things we've started already. In addition, the thing that powers this business is our core app experience. And as we pointed out with our new map experience, we're continually investing in enriching and uplifting that core experience. And so while we have a lot of extensions to the business that we plan to do over time, our focus isn't primarily adding new products right now. It's making the things we have better. I'll say the one thing that we are starting to work on is specifically making our app a much better place to attract aging parents. And so we are starting to work on that. That's something we planned for a long time, and in 2026, we'll get a lot of our focus. Mark Stephen Mahaney: Lauren, would you expect the pet customers to be -- what percentage of those do you think would be your existing customers over the next couple of years and -- versus those that are just completely new to the platform that just have different needs, like people who have pets and don't have kids? Lauren Antonoff: Yes. Our focus certainly is on our members. I think that's where we have the most differentiated offering. And so that's where our focus is initially. My hope is that as we convince the world that every pet needs this kind of protection that, that starts to balance out. And over, I think, a much longer time horizon, we'll start to get more people from the outside, but it's not our focus right now. Raymond Jones: Thanks, Mark. I'd like to open up the line next to Eric Choi from Barrenjoey. Eric Choi: Just one quick follow-up on pets. You guys mentioned it's outperforming, and I just wanted to drill into that a little bit. Noticed you've taken off the discounts for some trackers. So I was just wondering, does that mean the average profitability per sub could be better than what you're expecting? We've also been kind of signing up various members of the team to pet trackers at different times and just comparing order numbers. And we've noticed that the rate of sales hasn't really slowed as well. So I just wonder, has the continued momentum being better than what you expected and it's not just a short-term issue here? And then just as part of the outperformance question, you've answered to everyone else. It seems like the majority of new pet tracker sales has been existing customers. Is that right? Or has that new -- I appreciate that new component might be small, but how has that performed versus your expectations as well? Russell Burke: Okay. There's a few questions in there, Eric. So we'll try and cover all of those. I think generally, as we've said, the Pet GPS launch performed much better than we expected at launch point. And the embrace by our existing members was very, very strong. And as we move forward, we -- that's sort of balancing between paid and existing members. And then we -- as Lauren said, we look to bring completely new people into the ecosystem as well. So I think the -- as -- we are also experimenting a little bit with pricing in a couple of territories, but we've largely taken the promotional price point away. So that's -- the pricing now in most territories is largely as we had planned it to be. It is still, as we've said in the past, a subsidization effectively on the actual hardware cost because the strategy here is to drive people into subscription. So that we trust will work effectively. We'll have a lot more color on that at year-end. Raymond Jones: Thanks, Eric. Next, we'd like to open the call to Mark Kelley from Stifel. Mark Kelley: I just want to go back to Nativo. I just want to understand, I guess, since it's a full stack offering, that business is already serving publishers on the SSP side, and then it looks like there's a self-serve platform kind of DSP business. So I guess, should we expect that advertising revenue for other publishers and also ads that the current buyer base is buying off of Life360, will that become part of your revenue? I'm just trying to understand -- I know you obviously probably bought for the technology, but just trying to understand better the mechanics of the revenue that it generates today. And then maybe kind of a quick follow-up. Is that revenue booked gross or net of the value of the ads? Russell Burke: Right. So Mark, the -- you're absolutely right. The exciting part of the acquisition for us is the fact that this is a full stack broad spectrum advertising platform that we'll be able to use to really accelerate our advertising road map. So that is the strategy behind the acquisition. You're absolutely correct. They have a solid existing business with a good range of publishers and a good range of advertising context and sales staff, all of which will help us really move our advertising business forward. So yes, we expect to continue that business. We expect to use that to enhance the Life360 business and enlarge it and accelerate it as we move forward. Raymond Jones: Thanks, Mark. Next, we'd like to open up to James Bales with Morgan Stanley. James Bales: I had a question on MAU growth. So in the past, I think Chris has described it as sort of North Star. Third quarter is typically the seasonally strongest part of the year. And this year, you had an ad campaign that you guys were really excited about. I guess I'd like to understand why it sort of slowed so significantly year-on-year and explain maybe those comments earlier about targeting consumers that are more likely to convert. Russell Burke: So I'll start with that, James, and Lauren might want to add a bit more color. I think there's a few pieces to that. In the past, we've also said that MAU growth can vary significantly from period to period, and we see that often. And in that respect, the comps from last year to this year are unusually difficult, if you like, because we had an exceptionally high MAU growth across international, in particular, last year across multiple territories. This year, it's still very strong, but it's -- we wouldn't expect that sort of exceptional growth to occur again. As well as that, you referred to the advertising campaign. We are very -- we were and are very excited about the moves that we're making in marketing. And there's two aspects to that. One is the fact that the creative is exciting, but also directed towards demand generation so that, as you mentioned, we're really targeting users at the top of the funnel that are more likely to convert. So the quality of people coming through the funnel and our conversion rates are very strong, as you can see with the record net Paying Circle adds. The other minor aspect for advertising is that we did launch a major campaign in Q2, which sort of really accelerated things for Q2 and possibly had a little bit of pull-forward impact from Q3. Raymond Jones: Thanks, James. Next question we'd like to hear from is from Chris Kuntarich from UBS. Chris from UBS, hopefully, you're there. Russell Burke: You there, Chris? Raymond Jones: Okay. We'll come back to Chris. Next, I'd like to open it up to Siraj Ahmed from Citi. Siraj Ahmed: Can you hear me okay? Russell Burke: We can. Siraj Ahmed: Just following up on that question from James on the MAUs, right? Lauren, you sort of mentioned you're focusing on higher intent members. But if I look at the stats that you've given on Slide 15, I think with -- Circles with families and teams has actually decreased a bit, and it looks like members per Paying Circles has also come down from 3.3 to 3.2. Just keen to understand what dynamics playing there if you're actually saying you're getting some of the higher intent MAUs in. And maybe just a quick one for Russell. Just in terms of the other revenue strength this quarter, can you just confirm that's actually been driven by ads and not your Placer partnership? And within ads, I think you had a partnership with Aura. Has that kicked in as well in this quarter? Russell Burke: Well, I'll start with the end piece of your question, and then Lauren can come back to the earlier piece. We -- in terms of -- sorry, what was the last part of your question again, Siraj? Siraj Ahmed: Was that -- so 2 things. On the ad -- on the other revenue, was that really driven by advertisements or the partnerships? And within ads, you had the Aura partnership that was meant to kick in from an ad perspective, right? Has that kicked in? Russell Burke: Yes, it has, although the major part of the Aura advertising revenue will flow through in Q4. And to the other part of your question, yes, the major growth in Q3 relates to advertising. There's a small element related to data and other revenue and partnerships, but it's primarily driven by advertising. Lauren Antonoff: And stepping back to this question of how we're focusing our advertisement. A lot of the focus this quarter was on that optimization, targeting those people who convert. And that's where we've seen this really great uplift in those people who convert in the first 30 days. That's what's helping to drive our outstanding conversions. But we're always playing around with those optimizations. Siraj Ahmed: And Lauren, just clarifying, so that members going down to 3.2, just is that just a function of you're getting younger couples -- younger families or something like that? Russell Burke: I mean it's a relatively small variance from 3.3 to 3.2. I think there's a number of factors that drive that, but it's more of the -- just the growth in the base that can drive those sort of minor variations. Lauren Antonoff: Yes. A lot of our circles start smaller and grow over time. And so when we have more new circles, those are smaller circles than bigger circles. So don't read too much into that, I would say. Raymond Jones: Thanks, Siraj. Next, we'd like to open it up to Rob Sanderson. Robert Sanderson: Yes. A couple -- I guess a couple of questions. First, just subscription guidance. You had a very strong Q3, a notable upside to consensus, but your midpoint for Q4 a little bit below. So just anything unusual about seasonality, Pet GPS, other factors like maybe Street is just sort of mismodeling, I'm not sure, but anything you could say about the subscription guidance? And I had a follow-up on Nativo as well. Just talk about the importance of the differentiation of just in-feed native content compared to other display networks. And I understand it's more of a technology buy, but also want to understand how you can leverage the existing business and the reach. You said the hundreds of publishing partners. Lauren also mentioned connecting to publisher networks. So are these direct deals or publisher networks? And is it relatively easy to scale up the supply side here, if you can generate... Lauren Antonoff: We're not going to remember all these questions. Russell Burke: Rob, let me take the first part of your question and then Lauren can provide a bit more color on the Nativo platform. There's nothing unusual in subscription. I think Q3 is typically our -- sort of metric-wise, our strongest seasonal period. So coming into Q4, we're seeing the same levels of strength. There's nothing particularly unusual in terms of subscription in Q4. I suspect it's probably just a modeling aspect of the mix of revenue. Robert Sanderson: Okay. And I'll repeat that, Lauren, on Nativo, differentiation of in-feed versus display, like why that's important to understand in terms of its positioning? And how can you leverage the existing business? You said hundreds of publisher partners, but also mentioned networks. So I'm curious whether it's direct deals or publishing networks. And then finally, like is it relatively easy to scale the supply side of this if you can bring the demand? Lauren Antonoff: So one of the things that was really exciting to us about Nativo is they focus on making ads that are relevant to consumers, and that helps brands and that also is good for the people who are seeing the ads and in particular, we're interested in families and what the impact is on Life360 families. So that was a real differentiator for us. Their business is pretty multifaceted. They have both direct and programmatic deals. We're interested in both sides of those and plan to continue to invest in those. And the scale of their publisher relationships is quite extensive and allows us to take a lot of the good information and information about our members and use that to deliver experiences across a wide range of publishers. Raymond Jones: Thanks, Rob. [Operator Instructions] Next, we'd like to open it up to Bob Chen from JPMorgan. Bob Chen: A quick one for me. And I think you touched on it earlier, Lauren. You mentioned one of the key product areas of focus for next year is making the app more user-friendly for elderly. Any comments on sort of time line on when we might see an elderly product come to market as well? Lauren Antonoff: Yes. So it depends what you mean by product. I think the first thing that we think about is today, many aging parents are using Life360, but not nearly as many as it could be if all the families in Life360 brought in their parents. And what we're looking at is what are those inhibitors, why do people not come as often as they might? How do people come to think of Life360 as a way to keep their parents safe just like it's a way to keep their kids safe. And what do we need to do differently to make this a great solution for those people. And so the work in that will continue, I think, in an ongoing basis throughout the year, and I would expect that you would be seeing some of that stuff by midyear and continuing to see that potentially even sooner and continuing to see that throughout the year. In terms of bringing sort of a stand-alone product offering with something like a hardware, we don't yet have a time line on that. But we are continuing to use all the resources that we have to solve family problems in a multifaceted way. Raymond Jones: Thanks, Bob. Next, we'd like to open up the line to Chris Kuntarich from UBS. One more time for Chris at UBS. Okay. We'll come back to Chris again. Next, we'd like to open up to Andrew Boone from Citizens. Andrew Boone: I wanted to go back and just hit on the Nativo again, just like everyone else. We talked about the opportunity of the subscription business being as big as kind of other at large. Lauren, can you just paint the 5-year picture for us of what does that kind of look like? What are you guys building on the advertising side? Like what's the opportunity in a multiyear context of what you guys can put together here and what that looks like? Lauren Antonoff: Yes. So what we envision for our advertising business is one where we can take all of the value and insights that we have about our members and use that to connect brands with a wide range of publishers on many platforms, so not just within the Life360 app, but in a multitude of apps in ways that are really relevant and with that, be able to deliver better performance on those ads that we also can measure through our measurement products like Uplift. And so that we have sort of this end-to-end solution where we have those insights, we help people target the right audiences. We deliver app experiences, both inside our app and outside our app that are more compelling and more relevant. And then we can measure the results of those for brands. So I hope that's helpful. Raymond Jones: Thanks, Andrew. Next, we'd like to open up the line to Wei-Weng Chen from RBC. Wei-Weng Chen: Yes, more Nativo questions from me as well. I guess, can you help quantify how much faster this acquisition allows you to move? Like how many years of development and how much cost has 360 avoided by making this acquisition? And then I guess you mentioned Nativo is about 2x your revenue. 360 has kind of built this revenue base over 12 months that Nativo has been around since 2010. So can you maybe speak to the growth rate of Nativo and how we should think about a forward blended growth rate for the advertising business? Russell Burke: So taking the last part of your question first, Wei. The 2x revenue is just to give you a sort of a concept of scale so that as we look at the combined businesses going forward. You're right, Nativo has been around since 2010. They built this business from scratch basically. So they were very much a pure start-up. So they've created the business that they're doing and created that quite successfully over a period of time. Again, the attraction for us here is the platform that they've built, the ad tech, the publisher relationships, the sales staff, the infrastructure that they've put together on creating this sort of full stack ad tech platform. So that's the piece that's exciting for us. We could debate in terms of how long it would have taken us to build and what that would have cost. But clearly, from our point of view, this accelerates our road map probably in the range of sort of 12 to 18 months. Raymond Jones: Next, Wei-Wei. I'd like to open up the line to Lindsay Bettiol from Goldman Sachs. Lindsay Bettiol: Yes. Okay. So I'm going to have a crack at the question that's been asked a couple of ways, just on the other revenue front. It looks like advertising accelerated like pretty meaningfully Q-on-Q. So I've got something like 60% growth. You've called out existing arrangements and an increased number of partners. Could you maybe like just delineate those 2 and talk to us a bit about whether it's an existing partner paying a lot more or it's like you've seen kind of meaningful growth in the new number of partners using advertising? Russell Burke: So I mean in terms of advertising, it's largely a ramp-up of the various things that we are doing. We've talked about the various products that we've launched in the last couple of quarters. There's probably no one significant piece that would accelerate that. And that's going to be sort of somewhat uneven. We also talked about the Aura partnership. And as I said earlier, the larger part of that advertising piece at least will flow through in Q4. So there's those pieces. And again, just to give you a sense of where that's at, as I said before, as we look at the full year, we expect advertising revenue to be coming up towards half of other revenue in total. Raymond Jones: Thanks, Lindsay. Next, we'd like to open up the line to Jennifer Xu from Jefferies. Jennifer Xu: I just have one question related to pet. So for pet, when you comment that it is currently focusing on existing members, can I understand that pet product is now expected to bring more conversion from free users to paid users rather than increasing MAU? And how long the conversion usually take and will be that period change shorter due to the launch of the pet? Lauren Antonoff: Yes. So our focus is certainly giving our existing free member base a reason to convert. One of the blessings and challenges of Life360 is that customers love us a lot and don't always feel like they need to pay for it. And so this is a great reason for people who love the product to have a real concrete visible reason to pay. It's really too early for us to extrapolate the timing and when in someone's life cycle are they going to discover that. But we certainly think it will apply to more members more often and earlier in their journey than in the past. Raymond Jones: Thanks, Jennifer. Next, we'd like to open up the line to Chris Smith from Ausbil. Chris Smith: Look, really pleasing to see the 20% growth in Paying Circles and even more so to see the pet trackers obviously sell out across your key regions. Obviously, not trying to get a timing question here. But can you please talk to how you're using -- you're going to use it as a conversion tool. Obviously, you've got 26 million nonpaying circles on the platform. So you could 10x the business just from the current levels if you actually just turn them to Paying Circles. But within that, could you maybe help us just understand, obviously, from a discount perspective, if you give away the hardware, you're losing the App store commission, it's gross margin dilutive, but it's EBITDA accretive at the bottom line. And how you're thinking about from that conversion perspective, the gating of that product release to then target those 26 million circles that aren't currently Paying Circles, of which, what, 13 million must have pets? Lauren Antonoff: Yes. So this is exactly the point is providing value to members that is inherently linked to subscriptions. The Pet GPS requires that LTE connection in order to be able to give your pets real-time location. People understand that reason and understand that as a reason to pay. As we learn more about the price sensitivity and as we have more volume of units in stock, we're certainly willing to lean in and deliver units at a lower cost if we find that, that helps us convert people faster. I think we're doing a lot of experiments to understand the price sensitivity and what allows us to scale the business and convince members to buy. Russell Burke: And Chris, as I think we've said before, that's -- there's a timing aspect to that. While it might be dilutive to stand-alone hardware margins, obviously, the intent here is to get people into high-margin subscription. And our intent and our expectation is that we'll be able to do that. It's just a matter of the timing of when that occurs and what that payback period becomes. Chris Smith: Great. And look personal anecdote, the pet tracker life cycle is probably 3 to 4 weeks and I couldn't be more pleased with mine. Lauren Antonoff: We're happy to hear that. Raymond Jones: Thanks, Chris. We'll open up the line to one more time for our final question. Unknown Analyst: It's been answered. All good. Lauren Antonoff: Okay. Great. Russell Burke: All right. Raymond Jones: Thank you. That concludes our call. Lauren Antonoff: Okay. Thank you, everybody, for joining us today. We appreciate it.
Marseille Nograles: Good afternoon, everyone, and thank you for joining us today. I'm Jinggay Nograles, Head of Investor Relations here at PLDT. And it's my pleasure to welcome you all to our 9-month financial and operating results briefing. Joining us today to share insights into PLDT's performance and strategic direction are PLDT's Chief Financial Officer, Mr. Danny Yu; PLDT's Chief Operating Officer, Mr. Butch Jimenez; PLDT Corporate Secretary, Marilyn Victorio-Aquino; PLDT Chief Legal Counsel, Attorney, Joan De Venecia-Fabul; Head of Consumer Business, Mr. John Palanca; Head of Enterprise Business, Mr. Blums Pineda; ePLDT President and CEO, Viboy Genuino as well as our OICs for Smart, Lloyd Manaloto and Ms. Marjorie Garrovillo. All right. So before we begin, I'd like to remind everyone that we will have a Q&A session after the presentation [Operator Instructions]. To start, I'd like to invite our Chief Financial Officer, Mr. Danny Yu, to walk us through PLDT's financial performance. Danny Yu: Good afternoon, everyone, and thank you for joining us today. Allow me to present PLDT's financial and operating highlights for the first 9 months of the year. Our service revenues net of interconnection cost reached PHP 145.9 billion, up 1% year-on-year, driven by steady demand across fiber, data and ICT. Cash OpEx, subsidies and provisions were down 2%, showing our focus on spending control and even as we support growth areas. EBITDA rose 3% to PHP 82.8 billion with margin steady at 52%, amidst higher revenues and lower OpEx. Telco core income came in at PHP 25.3 billion, down 5%, mainly due to higher depreciation and financing costs from network and IT investments. On the other hand, core income was stable at PHP 25.8 billion, supported by Maya's sustained profitability. Our share in Maya's core net income reached PHP 603 million for the period, a PHP 1.5 billion turnaround from last year's loss. Maya remained profitable for the third consecutive quarter, showing consistency that it solidifies its position as the country's leading fintech ecosystem. In summary, our 9-month results show a stable top line, resilient EBITDA and improving contribution from digital businesses. Consolidated service revenues reached PHP 145.9 billion, up 1% year-on-year. If we exclude legacy services, total revenues rose 3%, showing the continued expansion of our growth areas. Within these growth segments, fiber revenues grew 7%, reflecting solid demand for reliable connectivity. Mobile data and fixed wireless revenues were up 1%, with usage and 5G adoption continuing to rise. Please note that beginning this quarter, we will now include fixed wireless access, FWA, within our growth segments for our wireless business. The base numbers have been adjusted accordingly to provide like-for-like comparison and reflect organic growth. Fixed wireless growth is driven by the expanding 5G base and stronger network coverage. For enterprise, corporate data and ICT revenues grew 2%, returning to growth in the third quarter as government and public sector projects started to ramp up after election-related delays in the first half. ICT on its own grew 27%. Overall, the shift towards these growth areas, namely fiber, data, fixed wireless and ICT continues to offset the decline in legacy revenues. Focusing on the third quarter, I'd like to point out that all major business units delivered positive growth even with legacy drags showing recovery, especially for our mobile and enterprise groups. Consolidated service revenues rose 2% year-on-year to PHP 48.8 billion. Excluding legacy services, total revenues rose 4%. Wireless consumer revenues were up 1% with mobile data and fixed wireless delivering 3% growth year-on-year. Home revenues climbed 3%, while fiber revenues were up 6%. Enterprise, as mentioned earlier, is now back on its growth path, still a 2% increase year-on-year with corporate data and ICT up 5%, while ICT services on its own grew 51% year-on-year, as government projects begin pushing through. Overall, third quarter marked a broad-based recovery with improvements in both mobile and enterprise, reflecting steady execution and disciplined growth across the group. Now let's take a closer look at each of the business units. Home revenues grew 4% year-on-year to PHP 45.7 billion, driven mainly by continued fiber demand. Fiber revenues were up 7% to PHP 44.5 billion, now accounting for 97% of total home revenues. We added 265,000 net fiber subs year-to-date, up 67% versus last year. Total fiber base is now 8% higher year-on-year. On prepaid, we have selectively introduced prepaid fiber in appropriate growth markets, specifically targeting quality subs, who have a high probability of topping up regularly. In this way, we not only secure revenue growth but also sustainable profits in the long run. Prepaid sub count has grown 15x since end of 2024. ARPU held steady at PHP 1,470, the highest in the industry, driven by our value-based bundles such as video and gaming. Churn remained low at 1.9%, reflecting strong customer loyalty and consistent network quality. To further extend our reach, we have launched Air Fiber and Laser Internet providing fiber-like speeds in hard-to-reach areas at lower cost. This technology expands our coverage and improve service availability in underserved locations. Overall, Home continues to deliver solid growth, underpinned by fiber leadership, high ARPU and expanding access through new technologies. Let's now move on to Enterprise. Year-to-date revenues reached PHP 35.6 billion for the first 9 months, broadly steady year-on-year, while corporate data and ICT revenues rose 2% year-on-year to PHP 26.7 billion. Within this, ICT revenues grew 27% year-on-year, driven by strong demand for managed IT services up 115%, data center colocation up 25%, cybersecurity services up 12%. Importantly, the business unit returned to growth during the third quarter, reversing early year softness as delayed government projects pushed through. Enterprise revenue rose 5% versus the second quarter with corporate data and ICT up 7%, led by a 40% increase in ICT services. Corporate data and ICT now account for 75% of total enterprise revenues, reflecting our continued shift toward high-value services. PLDT also continues to strengthen its leadership in AI and data infra, positioning the group at the forefront of the country's digital transformation. We recently launched Pilipinas AI, the country's first sovereign AI platform hosted at VITRO Santa Rosa. This platform enables the enterprise to build and deploy AI models locally, giving businesses access to GPU-powered computing on demand. For our wireless business, revenues reached PHP 63.2 billion for the first 9 months, down slightly by PHP 0.3 billion versus last year due to legacy brands. Data revenues, which now include mobile data and fixed wireless rose 1% year-on-year to PHP 57.3 billion, accounting for 91% of total wireless revenues. For the third quarter alone, data revenues were up 3% year-on-year, reflecting steady demand and continued monetization discipline. Fixed wireless sustained strong momentum with revenues up 18% year-on-year as Smart leads the market by revenue share. If we remove fixed wireless, mobile data revenues rose 1% to PHP 56 billion. Performance was supported by stable data traffic growth, disciplined monetization, customer value management initiatives that help optimize spend and reduce marketing costs. 5G adoption continues to expand with the number of 5G devices up 39% year-on-year to 10.5 million, while data traffic rose 6% year-on-year to 4,393 petabytes. The share of 5G devices in the total base improved to 18%, driving higher data usage and improved customer experience. As we continue to innovate on the product side, we also stay focused on cost discipline across the group. Total cash OpEx, subsidies and provisions for the first 9 months of the year came in at PHP 63.1 billion, down PHP 1.1 billion or 2% versus last year. The biggest savings came from compensation and benefits down 7%, reflecting continued workforce optimization. Selling and promotions were also lower by 18%, driven by better campaign targeting and spend efficiency. Subsidies were also down by 25%, reflecting Smart's deliberate shift towards higher quality acquisition and tighter credit screening for postpaid device plans. On the other hand, repairs and maintenance rose 4% to PHP 23.6 billion, reflecting ongoing network expansion and site rollouts. Contract-specific services were up 25%, tied to the ramp-up of key enterprise and ICT projects. For the first 9 months of 2025, EBITDA reached PHP 82.8 billion, up 3% year-on-year with margin steady at 52%. This performance reflects the combined impact of a PHP 1 billion rise in revenues along a PHP 1.1 billion discipline for decline in operating costs. The 52% EBITDA margin has held firm, demonstrating our ability to defend profitability even in a very competitive environment. Telco core income reached PHP 25.3 billion, down 5% year-on-year, mainly due to higher depreciation and financing costs from network and infra investments. Core income was steady at PHP 25.8 billion, supported by continued earnings from Maya, whose consolidated core income hit PHP 1.6 billion year-to-date. Maya remained profitable for the third straight quarter, continuing to gain scale through higher transaction volumes, growing deposits and steady expansion in its lending and merchandise businesses. This quarter also includes PHP 2.6 billion in accelerated depreciation and noncash charge related to modernization of our core and IT systems and the retirement of legacy assets. Reported income stood at PHP 25.1 billion, lower year-on-year, mainly reflecting the absence of last year's higher ForEx and derivative gains as well as the accelerated depreciation booked this quarter. CapEx for the first 9 months stood at PHP 43 billion, down from PHP 52.3 billion for the same period last year. CapEx intensity improved to 27% from 33% a year ago, driven by lower spend on network and IT as major projects near completion. For the full year, 2025 CapEx guidance is lowered further to PHP 60 billion, lower than the original guidance of PHP 68 billion to PHP 73 billion. This is mainly due to more favorable pricing and terms. We continue to invest in new cell sites, LTE and 5G upgrades, home fiber ports, data center development and submarine cables. These projects will strengthen network quality and support the growth of enterprise and digital services. As at end of September, net debt stood at PHP 289 billion, translating to a net debt-to-EBITDA ratio of 2.61x, slightly higher than the prior quarter, but still within our target range. Our gross debt was at PHP 299 billion with 60% of maturities falling beyond 2030, providing a long runway and minimal near-term refinancing pressure. About 13% of total debt is U.S. dollar-denominated. With only 5% unhedged, keeping ForEx exposure very manageable. The average interest cost was 5.49%, up slightly from last year's 5.08% as lower rate maturities are refinanced. Our interest coverage ratio remains healthy at 3.37x, while our average debt maturity is 6.5 years. PLDT remains investment grade with ratings from S&P and Moody's. In terms of cash flow, we recorded PHP 1.1 billion in proceeds from tower sales and completed a PHP 20.5 billion final dividend payment for 2024 during the period. Incidentally, PLDT hit positive free cash flow as of September 2025, ahead of its forecasted 2026 target. Looking ahead, we are working towards reducing leverage to around 2.0x net-debt-to-EBITDA, which will be supported by our asset monetization program as well as lower CapEx. Now let me now discuss Maya, the Philippines all-in-one fintech platform powered by Maya Bank and Maya Philippines. It's a fully integrated platform that unites digital payments, savings and lending for both consumer and enterprises. Maya has created a powerful 2-sided network where more customers drive more transactions, generating richer insights, which enables higher cross-sell of products and ultimately, delivering scale and profitability. Maya continues to lead with strong performance across deposits, loans and payments. Maya remains the #1 merchant acquirer and card payment processor. It delivered PHP 532 million in net income in the third quarter, sustaining profitability while growing. Banking customers nearly doubled year-on-year to 9 million, while its cumulative borrower base grew 81% to 2.4 million. Deposit reached PHP 57 billion, up 59% year-on-year and total loans disbursed since its inception hit PHP 187 billion. Maya continues to onboard millions into the formal financial system, especially younger users and underserved segments. It continues to be the digital bank of choice for young customers across the country. Of the 9 million customers in just over 3 years, 84% comprise Gen Z and millennials and 76% are based outside of Metro Manila. Of the 2.4 million borrowers that Maya has given credit to, over half are first-time borrowers with no previous lending history. Maya's deposit base has grown to PHP 56.7 billion as of September, more than doubling from end of 2023. It disbursed PHP 36 billion in quarter 3 alone, bringing its total loan disbursement since launch to PHP 187 billion. The loan book now stands at PHP 27 billion with loan-to-deposit ratio at 48%. Net interest margin rose to 18.9% for the first 9 months, while maintaining a healthy portfolio with an NPL ratio of 6.3%. Maya continues to expand its fintech ecosystem through product innovation and strategic partnerships. Maya launched Maya Black, its premium credit card in quarter 3, receiving a very strong response from the customers. Around 40% of Maya Black cardholders are first-time credit users, underscoring Maya's role in democratizing credit access to Filipinos. Maya also launched an innovative personal loans product in the previous quarter that incentivize users to make periodical savings habit by offering higher rates. Maya is also leveraging its relationship with established businesses like Cebuana Lhuillier to expand credit to unbanked customers through over 3,500 branches and 25,000 agents nationwide. In summary, Maya's strong growth across payments, deposit lending reflect the power of a fully digital integrated ecosystem. PLDT continues to mark progress in its sustainability journey as manifested in its latest ESG ratings, which continue to register improvements as you will see on the slide. We continue to align with global best practices, and we have started to take part in global conversations. At the Climate Week in New York, PLDT and Smart represented the Philippines at the United Nations Global Compact Leaders' Summit, which we showcased a homegrown innovation that integrates localized mapping of natural hazards and remote monitoring of network facilities into a single visual dashboard. We were also featured in the Philippines 2025 Voluntary National Review presented by the Department of Development, highlighting the country's progress on sustainable development goals. Other highlights during the quarter includes a workshop with our supply chains where we cascaded our biodiversity policy, particularly in the context of network rollouts. Smart also secured a PHP 2 billion green loan with proceeds to be used to accelerate the rollout of our 5G network nationwide, which is more energy efficient. Now that concludes our prepared remarks for PLDT's 9 months results. We're now open for questions. Marseille Nograles: Thank you so much, Danny, for your insights. Before we open the floor to your questions, allow me to reintroduce our business leaders in the room. I'd like also to recognize our COO, Mr. Butch Jimenez; Aayush Jhunjhunwala of Maya. The CIO of Maya has also joined us as well. And just to remind everyone, those who are in the room with us are our Head of Consumer Business Home, Mr. John Palanca; our Head of our Enterprise business; Mr. Blums Pineda; ePLDT and Vitro President, Viboy Genuino; our OICs for Smart, Lloyd Manaloto and Marjorie Garrovillo. Of course, we have our CFO, Mr. Danny Yu; our Chief Legal Officer, Ms. Joan De Venecia-Fabul and our Corporate Secretary, Ms. Marilyn Victorio-Aquino. [Operator Instructions] The first question here is from Nicky Franco of Abacus Securities. This is for Maya. Given that Maya's lending was still strong in 3Q '25, what were the main drivers for the drop in net income for the period? Were there any one-offs that were attributed to this? Aayush, would you like to take that? Aayush Jhunjhunwala: Sure, Jinggay. Thanks for the question. So there are a couple of factors that resulted in a slight drop. One was the slight impact of the removal of gaming links, the effect of which started to come in the August of 2023 as per BSP's direction. And secondly, as Danny mentioned, we launched Maya Bank Black Credit card. And as I mentioned in the previous call as well that we had launched our personal loans. So as we scale these longer duration loans, they will continue to have some provision -- some excess provision impact in the near to medium term before the -- until the portfolio matures. So these are the 2 sort of main factors for that. Marseille Nograles: Thank you, Aayush. All right. It looks like we also have some questions here from Arthur Pineda of Citi. Arthur Pineda: Several questions, please. Firstly, with regard to the KPA and the IRRs, which have been released by -- and signed by the President, how do you see this impacting your profitability as well as your investment profile going forward? I'm just wondering, do you see the new revenue opportunities as outweighing the revenue risks with regard to upcoming competition? Second question I had is with regard to mobile. I mean we've seen this has been -- it has been trailing that of your competitor for the third straight quarter. What's driving this difference in performance? Is there any issue that the company needs to work out? And the third question is on enterprise. You mentioned an uptake in government projects earlier. I'm just wondering, are you seeing sustained uptake into the fourth quarter, given that we've seen a slowdown in the broader macro momentum and government spending? Marseille Nograles: Thank you, Arthur. Okay. We have 3 questions here. Perhaps we can take your first question -- your second question first, which is on wireless. It's been trailing for a while. Is there any difference in performance that you'd like to highlight? So Marjorie or Lloyd, would you like to take this question? Marjorie C. Garrovillo: All right. So for the wireless business, whilst we have been trailing behind Globe in actual revenue, when you actually review the growth rates, we could actually see that the Smart Wireless group has actually achieved a flattish growth rate for year-to-date 2025 versus Globe. It's actually more of a negative. Number two, the actual Q3 achievement versus last year, Smart is also ahead, right, versus Globe. Now what's interesting is that what we've actually managed to do is using tools like hyper targeting, we actually have been able to secure higher quality subs space so much so that our ARPUs for Smart have actually improved. So we're actually at a positive 2.5% on our ARPU for Smart versus Globe, for example, which is at negative 5.5%. We do believe that with tools like this and actually focusing on how we could generate more positive growth, we should be able to at least stabilize and actually sustain our mobile resilience. Lloyd Dennis R. Manaloto: Also, I'd like to add to the fact that if you look at fixed wireless -- for example, on wireless network rapidly growing, and this is driven by our investment in 5G and investment in 5G devices. So that's one area we're also focusing on as a total portfolio because we see the bigger growth in that. Marseille Nograles: Thank you, Marjorie. Thank you, Lloyd. Let's take your question on Enterprise next in terms of the sustained uptick in the fourth quarter. Blums, would you like to take that? Blums Pineda: Yes, sure. Thanks for the question, Arthur. So with PLDT Enterprise, yes, we are seeing the continued momentum, as we mentioned before, into the fourth quarter and also into early Q1. As you can imagine, some of the nature of the projects will probably result in some slippage of award dates, et cetera, which is quite normal. But we're seeing still that level of investment and activity. There's a lot of -- across both national government agencies and LGUs, continued demand here that we're serving on both the connectivity and the ICT side. Menardo Jimenez: Can I add to that? Marseille Nograles: Yes, of course. Menardo Jimenez: Just, I guess, a couple of insights on where the government is going to land in terms of sustaining their investments in digital connectivity. Of course, I can't speak for the government at this point in time. But generally, what we see is that they are going to continue their trust and their investments in being able to connect the Philippines digitally. I don't see that slowing down. And I think that after realizing that they've spent too much on flood control, they've started to sense that maybe they should start shifting some of that expense or that spend to other areas and digitizing or providing digital connectivity to various aspects of Philippine society is something that they are talking about prioritizing. So first, let's talk about data centers. The government or PBBM has already given the DICT an order for public sector data sovereignty. That becomes a big driver for the enterprise group in terms of possible revenues in the future, principally because we do have the biggest data center in the Philippines, and we are the only ones at this point in time that can provide GPU as a Service leading towards AI. Aside from that, the GIDA site investment or initiative of the government has just finished its bidding. PLDT, Globe has gotten its fair share of rolling out in GIDA sites. So that is going to add revenue for our company, at the same time, continue the investments of the government in connectivity. Now tomorrow, I will be presenting to the PSAC, the Private Sector Advisory Council, a couple of more initiatives to digitize state universities in the Philippines and the other one is health care centers in the Philippines. So it looks like they are realizing that we are far behind our Asian or ASEAN neighbors when it comes to digital connectivity, and it's one of the priorities that I think the President and the government is going to push forward in 2026 and beyond. So looking forward to a sustained investment of the government in connectivity. Marseille Nograles: Thank you, sir, Butch. The last question, which is on Konektadong Pinoy. Marilyn MAVA would you like to take this one? Marilyn Victorio-Aquino: Lot of opportunities. It's difficult to assess the opportunities right now because this is the first country where they are going to roll out the open access for all assets model. So we don't know in what shape or form it will -- it will basically be form in the Philippines. But aside from that, if there are new players that are with the vision and philosophy that allows them and are committed to invest in the Philippines, invest in new infrastructure that will complement and supplement our network, that is an opportunity that we can consider because it will strengthen our network together. And we may be able to improve the connectivity for the entire country and maybe that will help in the vision of the connecting Filipino to have more connectivity even in the GIDAs area and also improve the Internet connectivity in the entire country. But that requires -- but that is something that we can find an opportunity that we can explore and exploit and create new partnerships around that. But if it is pure access, it's hard to assess the opportunity right now because we don't know how it will be rolled out in the Philippines, the open access for all assets. Arthur Pineda: So no indications on the IRRs based on what's been signed by the President so far? Marilyn Victorio-Aquino: I'm sorry? Marseille Nograles: Indications on -- how we feel about the IRR? Marilyn Victorio-Aquino: Well, how we feel about the IRR. Mr. Pangilinan answered that earlier in the media briefing. Maybe Jinggay will read his answer. Marseille Nograles: Sure, sure. So he had a very -- he had a statement earlier that he shared with the media. So I'll just quote what he mentioned, and I'll share it with you, Arthur. So when he was asked about PLDT's overall view on the final IRR, he answered by turning the question around, right? Do we think that the law as written actually achieves what it's set out to do, cheaper Internet for all, wider coverage, more infrastructure because the law and its IRR right now do not impose any obligation on new entrants to build infrastructure. There's no requirement to start in geographically isolated or disadvantaged areas. And there is no service obligations to ensure coverage or quality. And if you recall, in the Ramos administration, there was a sound model under the service area scheme, where telcos were assigned specific regions and targets like reaching the number of households to be connected, right? And that created real infrastructure build-out at that time. And the Konektadong Pinoy law, on the other hand, does not have such provisions. So really, the question remains on whether it will truly deliver on its promises. So that was the statement shared by MVP earlier on the IRR. All right. We have another hand raised from Ranjan Sharma. Ranjan Sharma: My questions are related to the KPA as well. Can you help us understand what -- how the wholesale access pricing mechanism is going to be set? When you're being asked to open up your network, on what basis are wholesale access prices that you would be charging any access seekers? Is this completely on commercial terms? Is there a cost model associated with it? And the second question is on the spectrum. I think there's also spectrum management provisions as well, which includes clawback of underutilized spectrum. Can you help us understand how that might impact the industry as well? Marseille Nograles: Yes. In terms of the pricing, I don't think there has been any specific model that was shared in the IRR, right? The way it was drafted was that the incumbents are to submit our price list in the reference access offer and that will be reviewed by the regulators to determine if it is fair, reasonable and nondiscriminatory. So I think there's really no specifics at this time, Ranjan, on using any specific model. Marilyn Victorio-Aquino: Maybe I add to that. In fact, it is not clear to us because we already have open access, bilateral contractual commitments, right. We do open access on a contractual basis. But it's not clear to us, for example, whether or not the pricing that we have assumed based on voluntary contracts with counterparties will be the same price that will be approved by the regulator. And there is also a provision in the IRR, which says if it's a significant market player, then the regulator may scrutinize your pricing. And what that means is not clear to us, whether or not significant market players will be required to price down their offering compared to contractual commitments that they entered into before Konektadong Pinoy. It's not very clear to us. So on the spectrum underutilization, is that the question? Marseille Nograles: Spectrum management provisions, how we see this impacting our business? Marilyn Victorio-Aquino: Well, it will have an impact on the business, but please appreciate that right now, there is no standard for underutilization. It really depends on how you use the spectrum. If you use the spectrum as a macro site, the utilization might be different. If you use the spectrum to cover that basically blind spots or if you use it to have continuous trouble, the utilization would be different. And so the spectrum management policy is intended to, I think, come up with that. And hopefully, there will be a consultation with the stakeholders like us, who are using the spectrum. And hopefully, there will be a transition period if they set -- if they define, for example, underutilization as such, then the next day, they will start recording the spectrum that might not be fair because it's basically a totally new definition of underutilization, which we are unable to comply, if the next day, they will start recording. So that is what's not clear. But I think they will have a period from the effectivity of the IRR to come up with a spectrum management policy framework, but that's not very clear right now. Marseille Nograles: Okay. Looks like we have some questions here as well from [indiscernible]. So 2 questions on net debt. You mentioned that net-debt-to-EBITDA will be reduced to 2x, which year is this expected to be achieved? So that's the first question. Second question, net debt to EBITDA is increasing a lot faster than net profits. Where is the -- where in the business is that going into? Danny Yu: We continue to spend on IT network rollout and data center development. So that's where the EBITDA -- that's where the debt go to now. With respect to projection, I think it will be about 3 to 4 years from now going to the 2.0. But certainly, I think the positive news is that we finally achieved positive free cash flow as of September, ahead of our forecast in 2026. That's one good news. And we hope to sustain this with lower CapEx moving forward as well as with our monetization program. Marseille Nograles: And we also have a question related to that regarding our positive free cash flows, how confident are we that we can sustain this into 2026? Danny Yu: We're confident because we will have lower CapEx moving forward, again, as mentioned earlier, because of our asset monetization program. Marseille Nograles: And also, this is a common question that was sent to us earlier. Any updates on the current asset monetization programs, namely the data center stake sale as well as the copper sales? Danny Yu: On the data center, we're currently in talks with prospective investor, who intends to take around 49% of the business. At the same time, we're also exploring the possibility of doing a REIT listing for our data center, just in case the other falls true. Marseille Nograles: Thank you, Danny. All right. We have another question here from John Te of UBS. John Te: Two questions. First is on the fixed broadband net adds, quite strong, 95,000 compared to your run rate of 70,000 in the first half. So how much of this was prepaid? How much of this was postpaid? And what drove the acceleration there? Marseille Nograles: [indiscernible], would you mind taking this? Unknown Executive: So thank you for the question. Yes, we've actually been able to build up the install rates over the last quarter. We leased up not just our channels, but our installed team. So we're able to gather more. I can't -- all I can say is that in the third quarter, we've seen more than a threefold increase in the prepaid subscriptions. And we're doing this in a very different way. I think I mentioned in the previous quarter that while we are growing the pie to ensure that the ARPUs remain at the high level and not cannibalize postpaid, our acquisition of prepaid has been very targeted to areas where prepaid applies. So growing the pie from Tier A and Tier B municipalities to what is now probably Tier C and probably opportunities is very selective. So we will not be seeing the same volumes, but what we will be seeing are the quality subscribers who have the high propensity to top up. We -- as mentioned from the beginning of the year, we have grown more than 3x already, 3.3x to be exact. And once we're ready to release the figures, I think we have a sizable market -- rather subscriber base on prepaid, then we will do so. So at the moment, the majority of it is coming from our postpaid acquisitions. John Te: Okay. A quick follow-up on for -- maybe for Danny. On depreciation, there was PHP 2-plus billion charge in 9 months, but safe to assume that most of it came from the third quarter. And the related question on interest expense, given that debt really hasn't changed, but there was a spike on year-on-year interest expense. Would this mainly come from, I guess, leases for towers, et cetera? Danny Yu: I'll take the second question first. The reason for the increase in interest is mainly due to increase in the weighted average rate by around 49 basis points. That's one. The second reason for that is that also increase in the weighted loan average by around PHP 19 billion compared to the previous year. So that's for the second. What was the first question again? Marseille Nograles: Accelerated depreciation of PHP 2.6 billion... Danny Yu: It's mainly retirement of legacy assets as well as modernization of our IT and network core system and the accelerated depreciation is a fast-paced capital-intensive industry, and it's rapidly changing. So we have to continually review the economic life of these assets. John Te: And most of it occurred in the third quarter, right? Danny Yu: Yes, in the third quarter. I think we recorded that in July of this year. Marseille Nograles: Okay. So some questions that were sent in as well. This one is for Enterprise. You recently launched SmartSafe as well as Pilipinas AI. How do you see these contributing to your revenues moving forward? Unknown Executive: I'll tackle SmartSafe and I guess I have Vitro President of ePLDT and Vitro, Viboy Genuino will tackle the Pilipinas AI announcement. So on the SmartSafe, yes, we have actually been bringing this to customers already even in Q3, but we did a commercial launch just last week. Basically, with SmartSafe, this takes advantage of specific technology on the Smart network that makes it as secure for someone to have a transaction on a mobile app that's enabled for this so that they don't need an OTP. So it's a very seamless log on, but also just as secure as an OTP type motion. You bypass the risk of your OTP being intercepted, et cetera, which is very common nowadays. From a revenue standpoint, of course, this is a capability we need to work with other B2B companies that have app, so the banking, government apps, et cetera, for them to build this into -- very simple to do it -- for them to build it into the next release of their app. So that's a motion that's happening now. We're quite excited that we have several institutions with apps that are interested in this and looking to launch it as soon as possible. So we'll keep the team posted in terms of what that is. Turning over to Viboy. Victor Genuino: Yes. Thank you, Jinggay, for the question on Pilipinas AI. So yes, we launched this in the third quarter of this year. And the basic concept is to be able to offer a platform for enterprises to be able to run AI use cases. The main issue of enterprises now is that they want to run AI use cases or proof of concepts, but they don't know how to utilize it and how to build the infrastructure around it. They have to source for the GPUs. They need to talk to a staff provider. They need to talk to a data center. They need to provide the connectivity and the cybersecurity requirement. We're basically taking this pain point away from the customer and letting them run these different applications on a ASU model wherein they can run the POCs on an hourly, daily, weekly or a monthly view. And we've seen a lot of interest coming from enterprise customers, who really want to experiment and run AI use cases. So we're very happy to be able to offer this service to our customers. We're the first company in the Philippines to actually bring in NVIDIA H200 GPUs, the most advanced GPUs of NVIDIA currently, and we're seeing a lot of interest in it. Marseille Nograles: Thank you Viboy. This question is from [indiscernible]. And this question is for Danny. Noting that your debt levels have increased this year despite continuous lower CapEx guidance. Is this mainly for refinancing? Increased net debt despite lower CapEx guidance. So is the increased debt because of mostly refinancing? Or is there -- are there new... Danny Yu: Mostly refinancing. Yes, mostly refinancing. Marseille Nograles: All right. And from Tony Watson, any thoughts -- this is for Aayush. Any thoughts that you can share on a potential Maya IPO or spin-off? Aayush Jhunjhunwala: I think we'll stay clear of that. I think we are focused on driving the business and any IPO decisions, et cetera, will be led by the shareholders. But we, as management, are sort of fully focused on just executing and scaling our products. Marseille Nograles: Thank you, Aayush. Just doing a last scan for questions here. If there's any from the floor. Okay. It looks like there are no further questions. With that said, I'd like to thank everybody for your time today and joining us for our 9-month briefing. If you have any further questions that you'd like to send to us, please feel free to reach out to us via e-mail. And with that said, we look forward to presenting our full year results by February of next year. All right. Thank you, everyone. Have a good afternoon. Danny Yu: Thank you. Unknown Executive: Thank you. Aayush Jhunjhunwala: Thank you.
Operator: Welcome to the K&S Second Quarter 2025 Earnings Call. I will now hand over to Julia from K&S for some technical notes. Julia Bock: Ladies and gentlemen, also from my side, welcome to our call. We hope you've had the chance to review our posted slides as well as our Q3 documents available on our website. After the opening remarks by Christian, we will jump directly into the Q&A session. Some technical notes as always. Please refer to our disclaimer on Page 2 of the presentation. And then a note on data privacy. Please be aware that the Teams session will be recorded, webcasted and available as an audio replay on our home page afterwards. People who ask a question in the Teams session should be clear that they are switching on their camera and microphone, they agree to the recording and replay of video and audio sequences. Now I'd like to hand over to Christian, our CEO, for the opening remarks. Christian Faitz: Thank you, Julia, and welcome from my side as well. Starting with the quarter. Third quarter EBITDA was above the prior year quarter. Firstly, this was due to better prices in both customer segments. Last year's EBITDA was affected by a drawdown in inventories, which did not occur this year. This resulted in a positive EBITDA effect. Thirdly, our hedging brought us to a total positive FX effect, which was better than last year. Q3 free cash flow could also be increased from EUR 24 million to EUR 37 million. Regarding our full year guidance, we confirm the midpoint of our previous guidance range and now expect EBITDA to be between EUR 570 million and EUR 630 million. The expectation of a slightly positive free cash flow is confirmed as well. For the midpoint of the EBITDA guidance, we assume that the average price level currently achieved in all regions and for all product groups remains stable during the rest of the year. This would result in a full year ASP of EUR 330. Although we are highly committed regarding our potash deliveries until the end of the year, we still have some flexibility regarding the exact product mix. Furthermore, we assume normal winter weather, normal production as well as a U.S. dollar-euro exchange rate of $1.18 and a gas price at EUR 36 for 30% open position in Q4. We would reach the upper or lower end if these factors in combination develop in our favor or against us. I'm looking forward to answering your questions together with my colleagues, Jens and Julia. And I will now hand over to the operator to start the Q&A session. Operator: [Operator Instructions] And this brings to our first question from Christian. Christian Faitz: Christian Faitz here at Kepler Cheuvreux. Christian, Jens and Julia and team, congrats on the results in a difficult time, low season period. A couple of questions, please. So my first question would be your D&A in Q3 was significantly lower than in previous quarters. I assume this is in context of the impairment you took for Q2, correct? And which D&A level should we model in going forward? Christian Meyer: Yes. Christian, you're absolutely right. The lower D&A is based on the impairment that we had in Q2. So the base level now is much lower. So the current level that you could calculate for the other quarters. Christian Faitz: Okay. Great. And my second question is, any news regarding the progression in talks about the tailing pile coverings. Jens Keuthen: So we postponed the roundtable discussions and now went further in the smaller group with the local municipality and the citizens initiative. And the aim now is to focus on reliable measures which we can implement and also put in our procedural applications. And yes, now the discussions are ongoing, and we are still confident that we will find a solution. Christian Faitz: This is for Neuhof, I assume. Jens Keuthen: It is for Neuhof, yes. Christian Faitz: Okay. And last question, what is the current run rate of annual production in Bethune? And where do you see Bethune gearing up to by the end of '26 in terms of production? Christian Meyer: So in the current level, we expect a little bit more than 2.2 million. And in the next year, we have a big maintenance, and that's why we have a little bit more than this year, but not much more in the next year. But that's based on the long maintenance period. That's every 3 years. Julia Bock: And you know that we always ramp by 100,000 to 150,000 tonnes and next year will probably rather be a 100,000 tonnes year. Operator: Our next question comes from Sebastian. Sebastian Bray: Sebastian Bray from Berenberg Bank. I have two questions, please. The first is on the volume outlook for the group as a whole for '26. Q3, it looks as if the group quite wisely cut some of the more commoditized volumes and went more for specialty. But I'm thinking about implications for next year. We have, as you had mentioned earlier to Christian, a little bit of maintenance at Bethune. Is 7.4 million tonnes a reasonable baseline? Or are there any one-off effects? And how do you think of that is for agriculture? And how do you think about volume growth, if any, moving into '26? Because if we have some maintenance at Bethune, additional ramp-up of specialties at the MOP market, let's say, remains a bit more challenging, is there any volume growth at the group level in the year? Christian Meyer: Yes, Sebastian, what's very important is the final volume finally depends on the product mix. If we have some more specialties compared to MOP, than the volumes are a little bit lower. But from today's perspective, we expect a little bit more volumes for the next year. So growth of at least around about 100,000 tonnes. Sebastian Bray: That's helpful. And can I ask about the salt business. The pricing has been very helpful over the last few years I think it is safe to say. Are there any signs that the pricing for de-icing salt or salt-like products more broadly is starting to flatten out or in some places, decline or that's not the case? Christian Faitz: From today's perspective, not really. That finally depends on the weather conditions in the winter. If it's a pretty warm winter then it could be that's a little bit lower. But you should keep in mind that we are selling de-icing volumes over the whole year. So more than 1 million tonne is already sold. And so the rest finally depends on the weather conditions. If it's pretty cold, then the prices are better; if it's warm, then a little bit lower. But the general price level should be the same. Operator: Our next question comes from the line of Michael. Michael Schaefer: This is Mike Schaefer speaking from ODDO BHF. Two questions from my side. The first one is more on the general market conditions in the potash market. Initially, into '25, we discussed a lot about production curtailments in Russia and Belorussia. So obviously helping to bring potash prices up. But if we look into rail shipment statistics year-to-date October, we see that basically volumes are up 10%. So my question is, how do you see, let's say, the supply side from Russia? And how we should think about let's say, going into '26 from this source and what this is doing to the potash market environment in general in '26 from your perspective? This is my first question. Christian Meyer: Yes, with Belarus and Russia, they are back on the pre-war levels and increased their volumes a little bit. But the main or the most important answer is that there's the demand. And that regardless of these additional volumes, we saw increasing prices, for example, also for the cross-border deliveries to China. But also if you have a look to Brazil over the last 12 months, we have a much higher level in Brazil. And for the next year, we will see in the spring season when the demand comes from every region globally that we will see how tight the market is. So we expect still a good demand for next year. And if the supply -- we will see if the supply is able to fulfill this demand in the spring season. Michael Schaefer: Okay. Second question is more related to K&S specifically on the major building blocks for your cost items, major cost items in '26. So can you just remind us on how you -- you mentioned the EUR 36 price assumption for natural gas in the fourth quarter. So -- but how in general should we think about those energy costs and personnel, what to expect in '26 compared to '25? Christian Meyer: Yes. In total, we expect that the cost level will be more or less stable. With regard to the personnel cost, you should keep in mind that the bargaining agreement was in place since the second quarter of this year. So the next year, we have, in the first quarter, a higher level compared to this year, but the bargaining agreement will run until the end of the next year. So there will be no additional increases. And with gas, we already hedged around about 70% for our gas consumption, and that's a little bit below EUR 40 of the hedging position. Operator: Our next question comes from the line of Tristan. Tristan Lamotte: Tristan Lamotte, Deutsche Bank. I'm just wondering about Q4 and your ASP assumptions. I think you said EUR 330 for the full year, which implies quite a drop-off in Q4 versus Q3 even if you consider FX. So I was wondering if you could maybe talk through that. Christian Faitz: Yes. So what's very important, I mentioned that we expect stable market prices from the perspective of today. We are at a peak, for example, with the Brazilian prices. That's also a little bit weaker currently. And you should keep in mind that the FX effects compared to H1 will also be -- is included in our calculation. And the third thing that we have some seasonality with regard to the product mix. So mathematically, that results finally in this EUR 330 a tonne. Tristan Lamotte: And maybe second, I was wondering if you could maybe comment on where you think inventory levels are at the moment in potash in the different regions. Christian Meyer: Yes. In the different regions, we see more or less normal levels if you have a look to Europe, U.S. and Brazil. If we have a look to China, there, we see that the prices for cross-border deliveries increased and that the port stocks are below the strategic levels of 3 million. They are around about 2 million. And so at the end, there are normal levels in total, maybe in total, a little bit lower than the normal levels if you see the global market. Operator: [Operator Instructions] This brings us to the next question of Angelina. Angelina Glazova: I will have two. The first one is specifically on Brazil and the current market environment. Could you give us a bit more color as to what you're seeing on that market? Because we know that potash is relatively more affordable compared to other micronutrients right now and demand has generally been good from Brazil, but still the farmers have seen some challenges from the economic side, and their availability to credit has become more difficult. So have you seen any impact on your operations from that? And how are you expecting the situation to develop in terms of demand in Brazil due to this? Christian Meyer: Yes. Yes, you're absolutely right. The general conditions for the farmers are still good. And from our perspective, we optimize our regional mix. So we have some better netbacks in some other regions currently. So we don't bring too much volume to Brazil. But the volumes that we are finally export to Brazil, there, we look pretty close on the payments and that we secure or ensure our receivables. So from our perspective, we don't see a risk for us. And the general farmer conditions are pretty good. So at the end, that's more, yes, depending on different customers that we have a closer look, but in total, we don't see a risk for us. Angelina Glazova: Understood. And my second question is a bit of a follow-up to Sebastian's questions regarding volumes. So one of the things that we've seen, I think, over the course of the past few quarters, but particularly in Q3, is you're shifting to more higher margin product mix. And I just wanted to understand to what extent do you have further potential to ship your product mix that way? Is it mostly down? Or you still think that there is some addition you can make in terms of SOP or maybe more broadly in terms of premium products? Christian Meyer: Currently, we are very happy with the product mix, but there's not much room for more specialties currently. Operator: Our next question comes from the line of Lisa. Lisa Hortense De Neve: This is Lisa De Neve from Morgan Stanley. I have one question. Against your expectation for rising potash demand in 2026, as you just stated, and your comment that Chinese potash inventory is maybe slightly below their normal strategic levels and their domestic production in China being quite restricted. I mean what are your qualitative expectations for the timing of the Chinese potash contract negotiations? And to which extent do you see potential for the price to be settled higher year-on-year? Christian Meyer: What's very important to keep in mind the point I already addressed and you just also addressed, we are not part of the negotiations. That's very important to understand. For this year, everybody expect that it won't take too long that we see a Chinese contract compared to this year. So I can't imagine that we will see that in the summer or in the late spring, it should be earlier, but the rumor is in the market, but we are not at the table. Operator: And if there are no more questions, we will conclude the call. Christian Meyer: Okay. Yes. Thanks for your questions, and hope to see you on the road in the next weeks, and have a good day. Julia Bock: Thank you. Bye-bye. Christian Meyer: Bye. Jens Keuthen: Thank you. Bye-bye. Operator: This concludes today's call. Thank you, and have a great day.
Operator: Good morning, and good evening, ladies and gentlemen. Thank you for standing by for Yalla Group Limited's Third Quarter 2025 Earnings Conference Call. [Operator Instructions]. Today's conference call is being recorded. Now I will turn the call over to your speaker host today, Ms. Kerry Gao, IR Director of the company. Please go ahead, ma'am. Yuwei Gao: Hello, everyone, and welcome to Yalla's Third Quarter 2025 Earnings Conference Call. We issued our earnings press release earlier today, and it is now available on our IR website as well as on Newswire outlets. Before we continue, please note that the discussion today will contain forward-looking statements made under the safe harbor provision of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, our future results may be materially different from the views expressed today. Further information regarding these and other risks and uncertainties is included in our earnings press release and our annual report filed with the SEC. Yalla does not assume any obligation to update any forward-looking statements, except as required by law. Please also note that Yalla's earnings press release and this conference call include a discussion of unaudited GAAP financial information as well as unaudited non-GAAP financial measures. Yalla's press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited most directly comparable GAAP measures. Today, we hear from Mr. Tao Yang, our Chairman and Chief Executive Officer, who will provide an overview of our latest achievements and growth strategies. He will be followed by Mr. Saifi Ismail, the company's President, who will briefly review our recent business developments. Ms. Karen Hu, our Chief Financial Officer, will then provide additional details on the company's financial results and discuss our financial outlook. Following management's prepared remarks, we will open the call to questions. Mr. Jeff Xu, our Chief Operating Officer, will join the Q&A session. With that said, I would now like to turn the call over to our Chairman and Managing Executive Officer, Mr. Tao Yang. Please go ahead, sir. Tao Yang: Thank you, everyone, for joining our third quarter 2025 earnings conference call. We delivered another strong set of results in the third quarter of 2025. Our total revenue grew to USD 89.6 million, once again beating the high end of our guidance. Net margin came in at 45.4%, up 1.4 percentage points year-over-year, thanks to continued operational efficiency improvement and our commitment to high-quality growth. The Middle East digital economy continues to gain momentum in the third quarter. According to [ Newswires' ] latest report, the region's gaming market is expected to reach around USD 7.1 billion in 2025 with 75% year-over-year growth, the highest among all regions globally. The increases we are seeing in a number of our mobile users and their interest, including more diverse game content, reflecting MENA gaming markets vast potential. Our strategic direction positions us to capture the trend and foster a more mature, more robust digital entertainment ecosystem across the region. Meanwhile, we're also looking for opportunities to leverage our value and growing product portfolio to deliver more exceptional experience to MENA users. Our strategy in game pipeline currently serves as our primary market expansion driver. In the third quarter, we soft launched Turbo Match, a match-free title featuring car-modification, simulation, operations on Android. We were pleased to see the initial user acquisition and retention metrics meeting our expectations. With 2 years of cumulative experience in the match-3 genre, we are confident in our team's ability to create games that resonate within our targeted audience. Furthermore, we expect to launch our self-developed roguelike game, Boom Survivor, in late this month. Meanwhile, we continue to advance our game distribution initiatives, we are collaborating with the leading gaming studio on the distribution of [ newly focused ] SLG title. The hard-core title is well on track for year-end launch for the recent testing. We remain dedicated to providing MENA users with an ever growing selection of gaming and content tailored to MENA's local culture. For our future MENA hard-game collaboration, we will continue to leverage our existing gaming user value for precise targeting and efficient conversion to steadily deepen penetration of MENA mid-core and hard-core game markets. Moving on to our AI initiatives. We are proactively developing AI to fuel our growth, led by CMIS, our in-house developed multi-modal AI module. CMIS is now fully deployed across our product line, serving as the intelligent backbone of our content moderation and security, supported by our experienced R&D games and extensive ad language and visual data set. CMIS delivered regional -- leading accuracy in annualized impact and images and detecting inappropriate content. Another self-developed AI tool, our automated creative packing model has significantly improved advertising and user acquisition efficiency. Furthermore, our in-house AI event orchestration engine has doubled the frequency of modular in-app campaigns for our flagship products, including Yalla Ludo, driving the leap in operational efficiency. Together, these technological breakthroughs have elevated user experience and boosted in-app purchases, serving as a powerful driver for revenue growth. Next, an update on our USD 150 million shareholder return program, which we continue to execute sales with this plan. As of November 7, 2025, the company has repurchased a total of more than 7.7 million ADS or Class A ordinary shares totaling USD 51.9 million, achieving our full year 2025 repurchase commitment of USD 30 million, well ahead of schedule. As we mentioned on our last call, we will cancel all shares repurchased in 2025, and we have canceled a total of more than 6.2 million shares that as of August 11, the aggregate valued that remained available for purchase under the current share repurchase program with USD 48.6 million as of November 10. For next year, we expect to maintain a similar level of share repurchases as in 2025. We are on track to complete our current USD 150 million share repurchase program within the next year, at which point, we plan to launch a new program. As always, I want to emphasize that we will continue to play shareholder interest as the core of our capital allocation decisions and optimize our shareholder return strategy to generate long-term value for our shareholders. Last but not least, I'm happy to share that Yalla Group celebrated the fifth anniversary of its public listing at the end of September, capped by a bell-ringing ceremony at NYSE. This past five years have been an incredible journey, one of growth, learning, persistence and achievement. Yalla is now the largest MENA-based online social networking and a gaming company. We are proud of the leading position we've established in this dynamic market. But our journey is [ far from over ]. Looking ahead, we will remain dedicated to maximizing the synergy between our social and gaming ecosystem and enhancing our AI-fueled technological edge, bringing us ever closer to our vision of becoming a lot in the most popular platform, for online social networking and entertainment activities in MENA. Now I will turn this call over to our President, Saifi Ismail, for a closer look at our recent development. Saifi Ismail: Hello, everyone. Thanks for joining us today. Let's take a closer look at our third quarter operations and our product performance. First, I would like to share our operational highlights in the third quarter. We increased average MAUs by 8.1% year-over-year to 43.4 million. Following last quarter's user acquisition channel optimization, our user growth [ delivered ] us again as expected, supported by AI-powered upgrades and innovation across our product portfolio. Our flagship products saw a fresh wave of momentum with the introduction of new gaming modules, users can now play a variety of popular mini games directly within the Yalla platform, significantly boosting engagement and user stickiness. These innovative initiatives also served as a springboard for integrating more interactive entertainment features into our core products going forward. This quarter was also backed with engaging and precisely targeted online activities. A key operational strength for Yalla that demonstrates our keen user insights and content creativity. For example, our original event series, Yalla Ludo Carnival just completed its third consecutive quarterly run with record high revenue. Its thoughtfully crafted gameplay paired with stunning visuals, drove strong growth in in-game purchases and gifting activities. On Saudi National Day, Yalla launched the Yalla Season campaign, creating a [ richly ] immersive atmosphere online to resonate with the Riyadh Season, a major national festival developed under Saudi Arabia's Vision 2030. Meanwhile, thanks to a diverse lineup of in-game and chatroom events. 101 Okey Yalla delivered its highest quarterly revenue ever in the third quarter. Yalla innovation reach continues to extend well beyond our business. In honor of our contribution to the local tech industries development, we recently received our third award in the audio tech, media and entertainment category at Asian Business Review Magazine Middle East Technology Excellence Award 2025. These prestigious awards judged by a panel of esteemed regional industry leaders, recognized companies that drive innovation through transformative products. To sum up, I would reiterate what our CEO said. We are immensely proud of Yalla Group's achievements over the past years. Our deep cultural resonance with users in the MENA region and the resonance products innovation are the cornerstones of our sustained growth moving forward. We will remain committed to those values, honoring the trust our users and stakeholders place in us while fostering a driving mutually beneficial ecosystem. With that, I will now turn the call over to our CFO, Karen, who will discuss our key financial and operational results. Yang Hu: Thank you, Saifi, and hello, everyone. Thank you for joining us today. In the third quarter, we continued to pursue high-quality growth and profitability enhancement. Through our excellent execution of ongoing cost management and efficiency improvement initiatives, including AI development and application, our net income grew by 3.9% year-over-year to USD 40.7 million. And our net margin increased by 1.4 percentage points, supported by the solid performance and the fundamentals. We have strengthened our efforts to return value to stakeholders. As of November 7, we have returned a total of USD 51.9 million in 2025 to our shareholders through our share repurchase program. We will deepen our commitment to shareholder returns going forward, delivering sustainable long-term value to all stakeholders. Let's move on to our detailed financials for the third quarter of 2025. Our revenues were USD 89.6 million in the third quarter of 2025, a 0.8% increase from USD 88.9 million in the same period last year. The increase was primarily driven by our broadening user base and enhanced monetization capability. Turning to our costs and expenses. Our total cost and expenses were USD 55.9 million in the third quarter of 2025, a 1% decrease from USD 56.4 million in the same period last year. Our cost of revenue was USD 28.4 million in the third quarter of 2025, a 10.7% decrease from USD 31.8 million in the same period last year, primarily due to lower commission fees paid to third-party payment platform as a result of diversified payment channels and lower share-based compensation expenses recognized in the third quarter of 2025. Cost of revenues as a percentage of total revenue decreased to 31.7% in the third quarter of 2025 from 35.8% in the same period last year. Our selling and marketing expenses were USD 9.6 million in the third quarter of '25, a 30.3% increase from USD 7.4 million in the same period last year, primarily due to higher advertising and marketing promotion expenses attributable to our continued user acquisition efforts and expanding product portfolio. Selling and marketing expenses as a percentage of total revenue increased to 10.7% in the third quarter of 2025 to 8.3% in the same period last year. Our general and administrative expenses were USD 9.2 million in the third quarter of 2025, a 9% decrease from USD 10.1 million in the same period last year, primarily due to a decrease in incentive compensation and professional service fees. G&A expenses as a percentage of total revenue decreased to 10.3% in the third quarter of 2025 from 11.4% in the same period last year. Our technology and product development expenses were USD 8.6 million in the third quarter of 2025, a 21.4% increase from USD 7.1 million in the same period last year, primarily due to an increase in salaries and benefits for our technology and product development staff, driven by an increase in the headcount to support the development of new businesses and expansion of our portfolio. R&D development expenses as a percentage of total revenues increased to 9.6% in the third quarter of 2025 from 8% in the same period last year. As such, our operating income was USD 33.8 million in the third quarter of 2025, a 3.9% increase from USD 32.5 million in the same period last year. Interest income was USD 6.3 million in the third quarter of 2025 compared with USD 7.8 million in the same period last year. Investment income was USD 2.2 million in the third quarter of 2025 compared with USD 0.1 million in the same period last year, primarily due to increase in investments in wealth management products. Income tax expense was USD 1.6 million in the third quarter of 2025 compared with USD 1.3 million in the same period last year. As a result of foregoing, our net income was USD 40.7 million in the third quarter of 2025, a 3.9% increase from USD 39.2 million in the same period last year. And our non-GAAP net income in the third quarter of 2025 was USD 43.1 million, a 1.2% increase from USD 42.6 million in the same period last year. Moving to our liquidity and capital resources. Our cash position remains solid and healthy. As of September 30, 2025, we had cash and cash equivalents, restricted cash, term deposits and short-term investments of USD 739.5 million compared with USD 656.3 million as of December 31, 2024. We continue to retain value through our share repurchase program as of November 7, 2025. The company had cumulatively completed cash repurchases in the open market of 15,021,621 ADS represents Class A ordinary shares for an aggregate amount of approximately USD 101.4 million, since the inception of the current share repurchase program. The aggregate value that remained available for purchase under the current share repurchase program was USD 48.6 million as of November 7, 2025. In addition, the company decides to cancel all share repurchase in 2025. As of August 11, 2025, the company has canceled 6,230,299 ADS Class A ordinary shares. Moving to our outlook. For the fourth quarter of 2025, we expect our revenue to be between USD 78 million and USD 85 million. The above outlook is based on the current market conditions and reflects the company management's current and preliminary estimates of the market and operating conditions and customer demand, which are all subject to change. In the interest of time, please refer to our earnings press release for the further details on our third quarter 2025 financial results. This concludes our prepared remarks for today. Operator, we are now ready to take questions. Operator: [Operator Instructions] Your first question comes from Xueqing Zhang with CICC. Xueqing Zhang: Congratulations on another strong quarter. My question in regards on your game business. Can management brief us on the advancements in mid-core and hard-core games. Jianfeng Xu: Thank you for your question. During the quarter, we soft launched two match-3 titles as planned, marking a significant step forward in our mid- and hard-core gaming portfolio. Turbo Match stood out in multi-region test worldwide with the unique blend of car modification and simulation operations gameplay, achieving retention rates that met our criteria for product expansion. As a result, we decided to invest more resources to focus on Turbo Match in the next stage. Based on the test data, we're adding levels and diversifying size gameplay options, set stage for the next wave of large-scale using acquisition. Meanwhile, our localized product is expected to launch officially bigger this month or next. We have also recently completed a round of testing for our collaborative project, SLG. Given our high expectation for this title, we are working closely with the content provider to refine its gameplay, visuals and other details. We expect to launch it by the end of this year. It will take some time for this new product to generate meaningful revenue. For those expecting notable revenue impact from these new games, we see the second quarter of 2026 as a key inflection point. Operator: Your next question comes from Chloe Wei with CICC. Chloe Wei: This is Chloe Wei from CICC. So I have a follow-up question about game. So how should we think about the strategic role of our match game? And can we think of it as an indicator for your push into the new regions? That's it. Tao Yang: I'll take -- to answer this question. Match-3 games do have a broad global user base, making an ideal entry point for us to explore diversified regional markets. Our recent testing has shown that Match-3 titles are particularly well received in markets like Europe and North America. Given this positive user feedback, we certainly plan to increase marketing budgets for markets where performance is strong. Looking back at our growth journey, Yalla Parchis has been steadily performing for years in South America, providing us with valuable cross market experience. Additionally, the Yalla Ludo support 8 languages, reaching diverse countries worldwide. We are open to expanding our market boundaries as we explore product net MENA users may be interested. In that side, I want to emphasize that the Middle East remains our key strategic region. We will continue to deepen our engagement in key markets across MENA, while selectively expanding into new ones. Operator: Your next question comes from Lincoln Kong with Goldman Sachs. Lincoln Kong: I also like to follow up on the gaming business. So could management share our company's upcoming gaming strategy, including one of the choices around the content and the market? Jianfeng Xu: Lincoln, thanks for your in-depth question. The company has identified gaming as one important inner for our strategic priorities for future growth and established a clear dual-track strategy featuring self-developed titles and game distribution. For self-developed games, we are focusing on casual and mid-core gaming segments, such as Match-3 and board games. Our team has built substantial experience in the Match-3 category over the past 2 years. If our Match-3 titles show positive results in the coming months, we look forward to consistently deepen our presence in this segment. On the game distribution side, we're building a strategic partnership with leading global developers, leverage our strengths in product localization, user acquisition and local operations to bring more high-quality gaming content for the Middle East. We continue to explore game distribution opportunities to further enrich and accelerate our product pipeline. We believe that the dual track strategy will enable us to quickly build a competitive edge for mid- and hard-core games. Operator: Your next question comes from Sarah Hu with Haitong International. Unknown Analyst: So can you please get management's view on the quarter performance of our flagship products, Yalla and Yalla Ludo, as well as they're also going forward. Saifi Ismail: Thank you, Sarah Hu. During this quarter, both flagship titles achieved significant breakthroughs in product innovation and operational activities. For example, Yalla added an in-app minigame modules to enrich users' entertainment experience. Meanwhile, Yalla Ludo [indiscernible] 1 versus 1 mode, quickly become a hit with users, driving overall community engagement to a new high. Operationally, Yalla Ludo tournaments and Yalla's Riyad Season theme initiatives amplify the connection between our products and off-line entertainment scenarios in the Middle East. Looking ahead, we expect both mature products to remain stable in terms of business scale, and we will continue to pursue incremental growth by introducing new features and strengthening operational activities and initiatives. Operator: Your next question comes from Tianhao Liu with Citic. Tianhao Liu: I have two questions on your future plan. So firstly, I think Yalla has completed a sizable share repurchase this year. So could management outline the plans for future shareholder returns? And I have a quick follow-up question. Yang Hu: Okay. Thanks, Tianhao Liu. This is Karen. I will take this question. As we just discussed, we successfully completed the previously announced minimum full year 2025 repurchase commitment of USD 50 million. As of November 7, 2025, the company had repurchased over 7.7 million ADS for an aggregate amount of USD 51.9 million. Among that, over 6.2 million ordinary shares previous repurchases was canceled. And we will notify everyone once the remaining issues have been fully canceled. With this year's repurchase commitment achieved, the company continues to execute its share repurchase program based on market conditions. For next year, we expected to maintain a similar level of share repurchase as in 2025. We are on track to complete our USD 150 million share repurchase plan within the year of 2026 before we launch the new plan. The company remains committed to prioritizing shareholder interest in all capital allocation decisions, maximizing shareholder value through a consistently optimized return strategy. Tianhao Liu: That's very helpful. And could also -- the management also share your revenue and the profitability outlook for Q4 and 2026. Yang Hu: Okay. Given the revenue from new initiatives is expected to have a limited contribution in the fourth quarter and based on current business trends, we maintain our guidance that full year 2025 revenue will be broadly in line with 2024, or with low single-digit growth. We expect revenue from our new business initiatives to become more visible over the next 1 to 2 quarters. Regarding profitability, we expect our full year 2025 net margin to reach about 40%. Looking ahead to 2026, we expect R&D spending to follow a similar trend as in 2025, assuming broadly similar business conditions. On the market side, we will dynamically adjust our investments based on the performance of our new products. While maintaining a healthy financial position, we will continue to invest in innovative business initiatives to view the company's long-term growth and ensure stable profitability through refined operations. I hope I answer your questions. Operator: As there are no further questions now, I'd like to turn the call back over to management for closing remarks. Yuwei Gao: Thank you once again for joining us today. We look forward to speaking with you in the next quarter. If you have further questions, please feel free to contact Yalla's Investor Relations or Piacente Financial Communications. Both parties contact information is available in today's press release as well as on our company website. Thank you. Operator: This concludes the conference call. You may now disconnect your lines. Thank you.
Richard Tyson: All right then. Good morning, everyone, and welcome to the Oxford Instruments Half Year Results presentation. Thanks for joining us today. We provided an initial overview of the shape of the first half of the year in our first -- in our trading update a few weeks ago. Today, I'm going to begin with the key highlights of the period, and then, I'll hand over to Paul for the financial review before returning to the detail on our strategic progress with some pointers into the second half and beyond. There will also be an opportunity for questions at the end, both in the room and online. Since we last met in June, we have made another 6 months of good progress on our strategy to simplify the group, improve commercial execution and realign our regional presence, laying the foundations for future growth and margin expansion. At the same time, the team have had to contend with more significant disruption than anticipated in the trading environment as a result of the global tariff and trade volatility, coupled with funding challenges in academia. As the results show, the first few months of the year were challenging in our higher-margin Imaging & Analysis division, while we are working with our customers to align on a new trading landscape. By contrast, in Advanced Technologies, we've made great progress with 25% order growth coming from our compound semiconductor business, attracting increasing numbers of commercial customers focused on R&D and production. Across the group, our market-leading technology and expertise continues to position us for good growth in structural growth markets. So despite the disruption in Q1, we ended the half with positive orders and book-to-bill and the Q2 order momentum back to that of prior year. We're into the second half with a full order book to support another year of good growth in Advanced Technologies. And with demand improving in Imaging & Analysis, we expect to deliver a strong H2, broadly in line with last year. We're seeing a good return on our investments in technology with a number of new recent product launches, and I'll share more about those later. Cash conversion was moderate, in line with prior H1 periods for Oxford and reflects the trading conditions. We expect it to normalize to our target levels in H2 with strong free cash flow ahead. The balance sheet is strong with net cash at GBP 45 million and around GBP 57 million from the sale of NanoScience to come. Our share buyback program is well advanced with just over GBP 30 million has been returned to shareholders since June, and we'll be extending it by a further GBP 50 million to a total of GBP 100 million. Now, I'd like -- just like to zero in on the Q1, Q2 dynamics. And there were 2 main factors to keep in your mind. Firstly, tariffs and their impact on trading; and secondly, U.S. academic funding. Let me take you through the slide starting on the left-hand side. We had anticipated some softening of demand from the U.S. administration actions, but the impact turned out to be more extreme in Q1. As a major exporter, we've been managing multiple changes in the global tariff landscape since April 2. Customers have had to reevaluate their budgets and spending plans, while others have had to request additional funding over and above that allocated to support new purchases. Initially, we focused on working with customers to reprice the open order book to cover tariff and then moved on to active quotations and the opportunity pipeline. And as we indicated in June, we were able to protect margin and achieve recovery of new tariff costs, meaning our strong contribution margins have been successfully maintained. Q1 saw -- also saw the significant cuts proposed to academic funding by the White House. Shown here in billions of U.S. dollars, we show this in the chart in the middle, the gray bar, meaning a sizable reduction in funding was being digested by our customers in the U.S., leading to delays in purchases. As we move into Q2, the chart shows you the evolution of the proposals as they went through Congress. We're seeing a potential normalization of U.S. funding shown in the orange bar back to prior levels, both the National Institute of Health and the National Science Laboratory, starting to give customers more confidence their future funding will be intact and to start buying again. Our U.S. team has also been proactive in helping customers seek new funding sources and build up our commercial customer base. Moving back to tariffs. For some product lines, we have also worked quickly to relocate some assembly locations to help our opportunity and mitigate the tariffs. And then, with the retaliatory imposition of restrictions on rare earth supply impacting supply chains, our engineers have created new engineering solutions and helped to resource supply where possible. So despite many distractions and impacted demand patterns, the whole Oxford team have done an excellent job to overcome the headwinds and deal with the fluctuating demand challenges, culminating in the environment stabilizing through Q2. So with that, let me hand over to Paul for a deep dive into the numbers. Paul Fry: Thanks, Richard, and good morning. So moving to the first slide, I wanted to first highlight that all the information presented today is for continuing operations and excludes all revenues and expenses directly associated with our NanoScience business, which is now reported under discontinued operations. As Richard has already explained, despite the disruption to order intake in the first quarter, overall, orders have grown in the first half on a constant currency basis and flat on a reported basis. However, the profile of order intake over the first quarter has had a significant impact on revenue recognized in the period. Our Imaging & Analysis business runs on relatively short lead times, meaning the gap in orders has directly dropped through to revenue in the period. In our Advanced Technologies division, we've seen very strong order growth throughout the first half with a step change in Q4 of last year. Revenue is yet to pull through into -- revenue is yet to pull through as a result of short-term shipment delays and lead times in this division, but we are expecting strong revenue growth in H2. Both gross margin and overheads are in line with last year. And with a relatively fixed cost base in the business, changes in revenue quickly fall through to adjusted operating profit and OP margin, and we've seen this drop through in H1. Moving to revenue in more detail. The Imaging & Analysis division was most impacted by the order profile we saw in the first half. Whilst opportunities in the form of confirmed customer interest continued to rise in the first half, customers have taken longer to convert these to firm orders. In Advanced Technologies, order growth has been consistently strong since Q4 last year. But given some timing delays and lead times in the division, we are yet to see this growth pull through into revenue. However, the order book is full for the year, and we expect to see early teen revenue growth in the second half as we execute on this. Currency has continued to be a headwind in H1 versus the prior year with Sterling strengthening versus the U.S. dollar, but we've seen that trend reverse recently, and I'll touch on the impact of this later. Imaging & Analysis, so this slide gives you a snapshot of the profile of Imaging & Analysis in the first half. Here, you can see the uptick in both orders and revenue in Q2 versus a low Q1 with orders moving back in line with the prior year, but revenue still lagging this recovery. On the right, you can see order intake by end customer type, which shows a broad-based impact across both commercial and academic customers. U.S. academia has been quite resilient in terms of order intake, but revenue in the first half was heavily impacted, down nearly 25% on the prior period. The book-to-bill ratio for this division is above 1, and we expect I&A to trade in line with H2 last year. So far, Q3 is tracking in line with our expectations, but order intake for this quarter will be key, and we plan to update the market on progress in mid-January. On the next slide, you can see the same data cut for Advanced Technologies, where you can see the strong and more consistent order growth in both Q1 and Q2, building on a very strong Q4 from last year. Whilst revenue in Q2 was significantly higher than Q1, we are yet to see this growth pull through into revenue due to the timing delays and lead times I mentioned just now. On the right, you can see the significant growth in commercial customer orders, up 34%, and which made up more than half of the order intake in H1. This shift has been accompanied by increasing numbers of orders for larger multichambered systems, mainly from the U.S. and Europe-based customers. This has contributed to higher average selling prices, but also to longer lead times. Academia outside the U.S. has grown strongly in H1, mainly large systems for Quantum-related semiconductor applications in Europe. Again, as we execute on our full order book, we expect to see this translate into early teen revenue growth for the division in H2. So moving to adjusted operating profit. You can see the drop-through to operating profit from the H1 revenue gap. Gross margin was steady at 55% and overheads fell slightly. Given the relatively fixed nature of the cost base, incremental revenue converts to incremental operating profit at a very high margin, and we expect to see the strong operational leverage effect in H2. As I mentioned earlier, currency has continued to be a headwind in H1, impacting overall margin by around 100 basis points. For the full year, we're expecting I&A to move back into its target margin range and to see continued margin progression in Advanced Technologies. On the next slide, you can see the bridge to our statutory results. We've made no changes to the definition of adjusting items. And most of the nonrecurring or exceptional costs here relate to Belfast restructuring and the move of the semiconductor business to Severn Beach, including the sale of the Yatton site, all of which were ongoing at the beginning of the year. We expect all of these projects to have concluded by the end of this financial year. Discontinued operations is reported here on an after-tax basis and includes all transaction-related costs. Pre-tax discontinued operations made an adjusted loss of GBP 2.2 million in half 1. And then moving to cash flow. Clearly, the foreign operating profit in the first half was fed through directly into free cash flow generation, albeit an improvement of around GBP 7 million on the prior year. The working capital movement largely reflects the normal shape of H1 and is down on the same time last year. Inventories are higher than the year-end, mainly in preparation to execute on the second half order book. We expect working capital to be less of a drag in H2, and we expect cash conversion to return to over 80% for the year. As I mentioned back in June, I think it's worth underlying again the positive cash inflection we see coming next year. Capital expenditure this year is benefiting from proceeds from the Yatton sale in August with underlying CapEx at around GBP 5.5 million in H1. But following completion of Severn Beach, capital expenditure will be lower than recent years, normalizing at levels much closer to depreciation. Our restructuring programs will complete this year, meaning exceptional costs are not expected to be material next year. And following engagement with insurers ahead of policy buying, we now expect to make no further payments to the group's defined benefit pension fund in the remainder of this year or beyond. This means a GBP 4 million upside to guidance we gave for the FY '26 and a further GBP 4 million benefit in both FY '27 and FY '28. So a GBP 12 million improvement versus our previous expectations for the 3 years. These, combined with operational cash flow, will have a material effect on free cash flow next year. Our balance -- our cash balance is strong, ending the year -- ending the half, sorry, at GBP 45 million after investing GBP 25 million in the share buyback program and before the receipt of gross proceeds from the NanoScience sale expected to be around GBP 57 million. Which then leads me to reconfirm our capital allocation priorities, which have not changed since I presented them in June. Our first priority remains profitable growth, and this is where we will always seek to deploy capital first. We will continue to invest in opportunities to improve productivity to drive order growth and to develop new products. We're also committed to our dividend program, and given our cash balance, the confidence we have in future cash flows and our strong dividend cover, we've grown the interim dividend again up 6%. Beyond these 2 priorities, we will look to deploy capital either inorganically, where we see a compelling case to drive growth and returns or return to shareholders via share buybacks, again, where there is a compelling case to do so, which makes sense for our individual shareholders. We are continuing to look actively inorganic options, but with a disciplined approach to ensure any acquisition increases the value of the company. As I outlined on the last slide, we see cash flow generation to markedly improve as we move into FY '27. And so taking into consideration all these factors, we've announced this morning that the current share buyback program is to be extended by a further GBP 50 million to GBP 100 million, and further details of that will be announced in due course. And then finally, I wanted to summarize some guidance for the rest of this financial year. This has not changed since our October trading update. On a constant currency basis, we expect our Imaging & Analysis division to trade in line with H2 last year with margin improving in H2 as a result of approximately GBP 4 million of cost benefit, mainly from our Belfast-based business. And as I mentioned earlier, we expect Advanced Technologies to transition to early teens revenue growth in H2 with a significant drop-through benefit to operating profit. These Belfast savings and the operational leverage benefit from a growing semiconductor business give us confidence that we can grow operating profit in the second half on the prior year and finish the year broadly in line with last year, ignoring the impact of currency. Currency is a continued headwind in H2. And in the guidance here, we've assumed a U.S. dollar rate of 134 for the rest of the year, giving us a headwind for the full year of around GBP 5.5 million. The impact of changes in this rate will not -- in rates this year will not be very significant given we are largely hedged for the remainder of the year. But if sterling continues to weaken to the levels we've seen recently, certainly to $1.30 or below, we would not expect to see further FX headwind in next year's results. And with that, I'll hand back to Richard. Richard Tyson: Great. Thank you, Paul. So now, I'm going to walk you through some of our progress that we've made on our key strategic actions. This progress is giving us clear line of sight to margin improvement and future revenue growth. I'm going to start with Imaging & Analysis, the larger of our 2 divisions. The Imaging & Analysis division brings together all of our small-scale imaging, microscopy and camera product lines with similar customer bases and go-to-market strategies. It currently generates around 3/4 of the group revenue and the vast majority of the group's profit given its very good contribution margins with recent year -- recent full-year operating margin, operating in the range of 22% to 24%. I've already covered the first-half disruptions and our actions in response, and we're expecting a much stronger performance in the second half, supported by the self-help actions on cost and efficiency in Belfast and our usual improved H2 seasonality. So let's take a closer look at the 3 main markets in which we operate. In Materials Analysis, our products are ideal for analyzing the widest range of materials across multiple sectors. And although we started out in academia, we're attracting more commercial customers as companies seek to test properties of new materials and products and to carry out the quality test and failure analysis on those in production. With the constant demand for better and more sustainable materials, we anticipate a mid-single-digit growth over the medium term. We also support a strong and growing presence in the semiconductor market, where demand has been exceptionally strong in recent periods. We operate right across the life cycle, supporting customers at every stage from academic research to corporate R&D through to packaging, test and failure analysis. Significant long-term investments in security of supply and productivity are driving market opportunity for many years ahead. And our third key market in this division is Healthcare & Life Science. As you know, the global market has been subdued over the last couple of years following COVID with some customers overstocked. And although demand patterns have remained weak, they have been stable for a few periods now. And we're starting to see some early signs of improvement with book-to-bill now above 1. Order growth in the U.S. and China has returned, and we're making positive progress on rebuilding OEM relationships with another key order secured already in H2. As well as being well positioned in our main markets, we're also in a strong position geographically, globally diversified with good opportunity in all regions. In recent years, we shifted the weights of our markets with the U.S. increasing and China reducing, as we followed the best areas of opportunity for the business. At a group level, clearly, the short-term demand dynamic has been similar across all markets, but the medium-term opportunities in these 3 markets are exciting. And with the great products and technology we have in our portfolio, our competitive position, combined with our globally diverse business, we feel we are well placed to take advantage of the opportunities in the future. We've also been agile in responding to the immediate challenges. Given the changing trade and tariff circumstances in Q1, we took a number of specific actions to support customers and improve the resilience of the business. These included making adjustments to a few assembly lines. We accelerated a China for China project that was already underway to meet growing demand for locally produced products. Here, the plan was to produce Oxford Instruments detectors in China aligned with a number of our electron microscope partners who do the same. Our local team and supply partners successfully shipped our first products made in China for Chinese customers in the summer. And given the uncertain trading relationship between the U.S. and China and the proposed tariff levels, there was a risk to demand on our atomic force microscopes, which are made in California. This was likely to have a sizable impact on this product line. So we swiftly established assembly of AFM products at our WITec facility in Germany for European and Asian customers, a real achievement because we only started in April and the first products were shipped from Germany last week. Both of these initiatives should add to our competitive advantage as well as protecting and increasing market share. We're also now working on a further project to relocate some of our Nano indentation production from Zurich to High Wycombe during H2 to capitalize on our capabilities in this excellent facility. And as I touched on earlier, I'm also really proud of the U.S. team's response in such a volatile environment, bouncing back from the disruption in Q1, 11% order growth at the half year. That growth has been underpinned by commercial customers, notably in semiconductor, which we'll talk more about shortly. And they've also delivered 9% growth in service revenue, as we increase our focus on contract sales and improved utilization of our field service engineers. Given the historical performance of Andor in Belfast and the demand environment in Life Sciences, we spoke about this in June, the need to turn around the business performance. Over the summer, we took the unwelcome, but necessary decision to reduce the size of the workforce by 20%. And we will see the financial benefit of that flow into H2. In combination with other reductions, we expect to see around GBP 4 million worth of benefit in the second half. We've also continued with our operational program, which is delivering a 60% productivity uplift on our cameras work stream, reducing lead times and achieving GBP 4 million reduction in inventory, surpassing our GBP 2.5 million target. We've also reduced the backlog of customer repairs by 30% since January. All of that is helping us to rebuild our partnerships with OEMs. I'm pleased to say we've secured 2 new OEM positions and won back 1/3 since the start of the year by working closely to really understand the needs and deliver the product development that fits their requirement. Initial, but important steps forward. And we're working hard to reinforce the benefits of our leading technology with customers outlining the much stronger operational foundations we now have in place. And finally, the product line restructure we announced in June is complete, enabling us to focus on regaining market share and improving our margins. That is being helped by the launch of a new range of cameras, developed by the team in First Light Imaging that we acquired in 2024. This is just one of the important developments in the Imaging & Analysis new product lineup. Let's take a closer look at the examples of outputs of our technology investment, which is a key component of our organic growth strategy. New launches so far this year, including an extension to our atomic force microscope range, which is entering a new market segment, delivering our typical excellent standard of imaging at a more attractive price point for customers as well as being much simpler for the non-expert users to operate. We delivered this project in record time for OI, 9 months from start to finish. And the second one on the chart is a significantly updated benchtop Nuclear Magnetic Resonance instrument, which has enabled us to regain technology leadership in this space. This new model had an early success and was snapped up by GSK for one of its pharma production sites in the U.S. The third is that suite of new scientific cameras I just mentioned. And finally, a refresh of our Raman Microscope line, paired with a groundbreaking new spectrometer. Recognizing that our market-leading technology is and always will be key to our ongoing success, we are committed to a continued investment at our target level of 8% to 9% of revenue. Let's now turn to our Advanced Technologies division, where we've seen such strong order growth this year. Following the divestment of our NanoScience business, which in accounting terms in the results is held for sale, this division now mainly comprises our compound semiconductor business and Severn Beach here in the U.K., making large capital equipment for semiconductor development and fabrication. Though it does also include our much smaller components business, X-ray Technology in California. In this division, we focused on building the scale of Severn Beach, as we move from supporting academia to commercial customers, as they develop new chips and establish volume production activity. There is a big opportunity to improve margin as we improve efficiency and grow revenue to more than twice its current scale in the current facility. There is a second half weighting to revenue, fully covered by a strong order book, which will deliver improved margins. As you've already heard, Severn Beach has delivered excellent growth in orders over the half year, trading with strong momentum. So we'll take a look at what's driving that. The business is founded on 40 years plus of expertise in fabrication on compound semiconductor process development, positioning us really well to access the exciting growth potential in the compound semi market of between 10% to 20%. With the combination of our deep expertise and the significant investment we have made in our new facility at Severn Beach, we've positioned ourselves to target commercial customers developing next-generation technologies, including hyperscale data centers for AI and augmented reality devices. We're gaining traction, delivering 25% order growth in H1 and with a sixfold increase in orders from commercial production customers versus the first half of last year. That's supported by our world-class clean room, which is now fully operational, supporting growing number of customer samples and demonstrations. And this sampling forms an increasingly important part of the sales process, enabling us to work in partnership with commercial customers to develop and refine processes in our new clean room. We're also starting to see repeat orders from some of these larger customers, including Coherent, as they expand their data center presence in Europe and the U.S. As we grow our reach into commercial customers, we're also seeing more large systems and average order sizes increasing as well, as Paul mentioned. And as we grow the business, we're focused on doing so efficiently. The new facility is a great help with that, and we've seen a 12% uplift in labor efficiency so far this year. Our Operational Excellence program, which began in Belfast, is also now working at the facility to drive this forward further. And as I've already touched on, our growth is coming from key developments in technology, including AI and related developments in data center, power efficiency, quantum and augmented reality. We have focused our R&D investments in these areas of compound semiconductor technology, as we expect them to offer the strongest growth potential. Semiconductors are made up of many layers of materials. Our plasma equipment is used to etch that is to remove and deposit to add nanoscale layers of material to give the semiconductors their specific properties such as greater power efficiency or better optoelectronic properties. These so-called critical layer applications are where we have the most specialized technology, and we can, therefore, win orders from our target customers and command an improve value. The rapid progress in the AI ecosystem provides us with an exciting opportunity given our expertise in so many areas that are vital to its success. If I take you from left to right, we all know how important data centers are. Our equipment is used to fabricate the material required for the latest generation of optical laser transceivers and also gallium nitride devices, key to energy efficiency. Then there's also quantum technology development, too. Here, we're supporting a range of customers from leading academic institutions to start-ups and also some of the world's largest technology companies, as they take this technology from concept to reality. Finally, augmented reality is a further part of the future pathway for the AI ecosystem. And in a particularly nice example of our role, the team are playing in development of the technologies for tomorrow. In the diagram, you can see numerous different processes we are supporting the development of augmented reality glasses, which we have seen widely reported increase in investment in recent years, notably from the big U.S. technology players. We're excited about the potential for these areas and expect growth -- continued growth, as these rapidly advancing areas of technology continue. So despite the short-term disruption in H1, we have made good progress across both divisions, all meaning we remain confident, we are on track to our medium-term targets set out last year, which you can see on the right. Through swift and decisive action, we've protected our margin structure. As growth returns, we are well positioned for another step towards our 20% plus goal. In Imaging & Analysis, self-help cost and efficiency will support improvement in H2 and next year. And in Advanced Technologies, the success of the strategy is evidenced by more commercial customers and a strong order book, an opportunity pipeline supporting continued growth in revenue and margins. We're also continuing to invest significantly in the -- at the top end of our target range to maintain our technology leadership with new product launches directly from our R&D investment. Cash conversion is expected to return to target levels by the end of the year and net -- with the net proceeds of the sale from NanoScience will boost progress to our return on capital targets. And our balance sheet is strong. The capital allocation priorities mean we have already returned more than GBP 30 million to shareholders. With our forecast for strong future free cash flow, we have announced today a further GBP 50 million of share buybacks when the current program completes, taking the total program to GBP 100 million. So putting the short-term disruption earlier in this year behind us, I'm really pleased with the response from the team and actions on the building blocks to continued progress towards our targets. So to conclude, we go into the second half of the year with an improved position and good execution on strategic actions. I'm really proud of the way the teams have stepped up and found positive resolutions to unforeseen external headwinds, while we continue to make progress on our priorities. It is a challenging macro environment, but we've been navigating it with agility. That performance and the foundations we're building reinforce our confidence in the ability to deliver an improved performance in the second half. And with great people and fantastic technology, this is a good business, and it's improving well, as we put ourselves in the best position possible to deliver growth and the benefits of margin and improve value for our shareholders. Thanks very much for your attention. We'll now hand over to the room for Q&A and also online. If you're online, do post your question, and we can moderate that after we've dealt with the ones in the room. Thank you. Thomas Rands: Thomas Rands from Berenberg. Just 3 questions, if I may, please. First one is around Advanced Technologies and that very strong order momentum during Q1 and Q2. And you mentioned kind of momentum in Q3, any kind of extra color you can give on? Should we expect a similar sort of level of growth in Q3? Or is that maybe too much? And linked to that, you mentioned shipment delays. Can you just give us a bit more reasoning for what was internal or external kind of causes of that, please? I'll come on to the 2, if that makes it easy. Richard Tyson: Sure. Yes, no problem. So I mean, obviously, the order -- we're delighted with the order momentum in the first half. It's broad-based. There's no sort of one specific thing or customer or something like that that's driven it. It's across a range of customers, and it's been great. As I said, the pipeline continues to look really good and is building. So we're feeling good about the next sort of couple of years ahead as well for continued momentum in the business. And yes, there's reason to believe that Q3 could continue or certainly Q3, H2 could continue at least double-digit momentum. Do you want to pick up on the delayed piece? Paul Fry: Mainly customer readiness. There was one, which was just a logistical issue on our side, which is resolved, but it's mainly customer readiness just to receive the equipment and install it and so forth. So those are getting resolved during this half -- I think, it is quarter I should say. Thomas Rands: Small internal, but mainly external in place. Second one was just around capital allocation, and I guess, the increased share buyback. What is the M&A kind of pipeline looking like? And can you just remind us of kind of which key areas you're hoping to kind of find acquisitions? And then linked to that with the increase in the share buyback, which is kind of doubling great kind of number, was there any discussion at the Board to kind of have an even bigger than GBP 50 million? Or is that in time to come to that kind of balance between keeping your powder dry? Richard Tyson: Okay. Sure. So from the M&A perspective, the pipeline we're looking at remains interesting. The areas we've been focused on is really for I&A generally and expanding there, either their sort of reach principally into the U.S. and Europe and extending the sort of product and technology range we're able to offer to the similar customers. And in terms of the pipeline, part of the capital allocation discussion is we've kicked it pretty hard in the last few months, and we don't see any of the sort of key targets coming into sort of ability to transact in the near term, basically, Tom. So that plays into -- it's not a change in our view on M&A as a strategy and wanting to use it to support the group's development going forward, but in the near term, you look at the strong free cash flow, the strength in the balance sheet, and the Board's conclusion on that was it made sense to extend the program by the GBP 50 million. That broadly puts us -- if you think 12 to 18 months out, it's putting us back in a similar position in terms of M&A potential. So it's a sort of keeping optionality, I guess, over that time frame for the strategy. I think the other point is it's an active continual conversation effectively about the capital allocation balance. Thomas Rands: Good. And then just the third one, interesting to see where the kind of R&D and innovation is kind of going on Slide 19. Difficult to kind of for us as analysts to kind of gauge which one is exciting. Which of those kind of 4 kind of key products do you think has got the most potential from a revenue and profitability kind of point of view? Richard Tyson: Actually, I think that the sort of 4 that we put up there happen to be the ones that have come to market in the first half. They're all important moves in those product lines, I guess, to -- I wouldn't put any one of those as sort of head and shoulders above the rest. I think we've got some others coming in, in H2 that I think we're hoping might be sort of more comprehensive or significant. The imaging camera stuff is -- that's good. The First Light technology was a proper extension to our opportunity in camera imaging, and potentially, as we said on the chart, takes us into some newer spaces, and that did offer us the opportunity to secure a position with a new OEM. So that's in a development program. So we'll have to see how that moves forward, but that was certainly good. David Richard Farrell: David Farrell from Jefferies. Two questions from me. Firstly, if we think about Advanced Technologies, you referenced potentially doubling revenue with the existing facility you have. I think you've also talked about kind of better pricing in the order book. Can you just kind of talk about what needs to happen to get to the 10% to 12% operating margin target? Is that purely operational leverage? Or is there an assumption that the pricing is part of that progress? Richard Tyson: Sure. So there's a basic assumption that the mix sort of improves a bit over time, but nothing sort of major step up, David, and it's been doing that. So it's a continuation of what we've been achieving over the last few periods. And then, it's really all about ensuring we get the revenue growth and continuing the top line, which as we've shown is in really good shape. That will be another year of double-digit growth on top of the last 3. So I think the strategy has positioned us with a balance of opportunity across the different compounds. I mean, if one is down, others are still offering some great potential for us. So yes, I think it's really all mostly about the revenue growth and the leverage that comes from that. David Richard Farrell: And I think I'm right in saying [ Brooke ] had talked about signs of life in China last week. Maybe just get your views on what you're seeing in that market. Richard Tyson: So probably talk I&A for China, I think -- we mentioned, I think, in the release this morning the -- in general, a good data point was in the sort of life science and/or arena that we've seen the cameras return to some growth. So that was good in China. Overall, I think we need to do continuous certain actions like the product line that I mentioned, the sort of the entry-level detector. China for China is key to match it with our electron microscope partners. And that definitely gets the team excited out there, and there's an opportunity for selling that. So I think I'd sort of point to a few of those things, and overall dynamic for China is, as we said, we obviously made that deliberate reduction, but then, it's sort of stabilizing at the level that we've seen, and we're hoping for growth in there with I&A. Richard Paige: It's Richard Paige from Deutsche Numis. Three from me, please. Aligned to the former 2 questions on the AT business, the 25% order growth in the first half, can you give us just a bit of flavor? Because you've spoken about larger systems of price versus volume within that? And then on the pro forma numbers you've given, obviously, a couple of changes since October, I understand, on stranded costs, but can you just align us as to where we are and whether there's any opportunity post the NanoScience disposal of any more... Richard Tyson: Stranded costs... Richard Paige: To do that on stranded costs, yes, please. And then, obviously, it's only a month on since your trading update in October, but the second half bridge all important, could you just talk about visibility in the order book and timing of that, particularly given, obviously, the last month and a bit, we've been in a U.S. shutdown. Richard Tyson: Sure. Paul, how do you fancy doing the first 2, and I'll come back on the trade demand? Paul Fry: Yes. So... Richard Tyson: I mean, you talked a bit about the price-volume increasing. Paul Fry: Yes. I mean, certainly, order growth has been very strong. And, as I said, it's been both academia, as in Europe, in particular, as well as commercial systems. Both of those have led to -- have been around larger systems, more complex, multi-chamber, which has given us a higher ASP, but it does mean some longer lead times. But that's -- we don't think that's going to handicap us in terms of delivering a double-digit growth still in the second half in terms of revenue. On the pro forma, so yes, we've been stabilizing just in terms of what costs sit within the discontinued line versus sit within continuing operations. And so you probably saw some slight tweaks versus our -- what we set out in October. Hopefully, that will not move again now. Obviously, we've got the order to go through, but our auditors have had a look at those numbers so far. Stranded costs are where we expect them to be in terms of quantum, as we set out -- in fact, slightly less actually than we set out in June, so probably around 3.5% full year. And as we set out in June, we've got a line of sight on how to reduce those by at least half. Richard Tyson: So -- on trading, Rich? Yes. So I mean, basically, obviously, I&A is the key one where we said we need a Q3 order intake in line with Q2 momentum. So essentially, Q3 is running to expectations at the moment. So outlook forecasts are in line. P7 kind of moves as we'd anticipated going through the quarter. So yes, there's not a lot -- there's still another 2 sizable months to do, and P8 and P9 are sizeable months like they were in Q2, but the outlook is in line with that. So, hence, we're sort of moving along the way we need to, I guess, so far. The shutdown clearly has not been super helpful, as you can imagine, in the U.S. in period 7. And so there are a few specific orders where -- which we were expecting to land, and they've moved alongside not having somebody to place it basically. But I think we're -- that's obviously looking like it's normalizing, and we were expecting those in Q3. So we're -- we think that risk is obviously going away. Any more in the room? No? No more in the room. Any more online? Operator: Yes. We've got 1 question from Daniel Thornton from Shore Capital. Can you talk about the new product launches in I&A and whether these are going into industrial commercial labs as opposed to academia? Richard Tyson: Okay. Right. So well, the 4 that we talked about, what would we say about those? I guess -- so yes, it's a mix, actually. There is a few specific -- so Raman tends to be specifically academia, but not exclusively, but the majority of it, but actually, the other areas are targeted at more commercial customers in general that we mentioned this morning. The higher-end cameras are pretty high end and quite individual projects, but they're moving towards the commercial arena. Operator: No further questions from the webcast. So I'll just hand back to you, Richard, for closing remarks. Richard Tyson: Great. Well, thanks for coming along this morning. I appreciate the attention. And hopefully, we've managed to convey that we've been navigating a disrupted Q1 and a better Q2, so a difficult H1, but well positioned for a much improved H2, as well as making great progress on the strategic actions, which underpin our confidence in the medium-term targets. So thanks for listening this morning, and see you around. Okay.
Theodor Daniel: Good morning. Thank you, operator, and thank you all for joining us. Titanium continued to navigate a challenging freight market with discipline and focus for the period ending September 30, 2025. Despite persistent softness across the transportation sector, driven by trade tensions, geopolitical volatility and weaker consumer confidence, our third quarter performance underscores the momentum building across the business. Both our Truck Transportation and Logistics segments delivered positive operating income for the second consecutive quarter. This reflects the impact of the strategic actions we've taken over the past several quarters. On a consolidated basis, we generated $115.7 million of revenue and $8.9 million of EBITDA, supported by continued strength in our U.S. logistics platform and improved operating performance in Truck Transportation. In both segments, we remain disciplined on pricing, customer and industry mix, along with focus on cost efficiency. All of these are key elements of our approach during this prolonged period of market softness. Our Logistics segment, despite considerable headwinds, continued to perform well. Revenue increased 3.3% year-over-year to $62.9 million, driven primarily by continued organic volume growth of 19% across both our Canadian and U.S. brokerage operations. We did see some pricing pressure in transactional freight toward the latter part of the quarter, which tempered the full impact of the volume growth. Even so, underlying demand trends remained stable and our asset-light model continues to demonstrate its scalability and resilience. Our operational and sales teams are working hard to maintain market share and functional margins. During the quarter, we also formally opened our Dallas and Virginia Beach offices. Turning to Truck Transportation. Revenue came in at $53.8 million, down year-over-year as expected, given our deliberate exit from unprofitable lanes last year. EBITDA was $7.7 million with an EBITDA margin of 16.1%. This is now our most efficient trucking quarter in nearly 2 years, and it reflects the benefit of our efforts to streamline capacity and focus on sustainable freight. On the capital allocation front, we remain focused on building financial flexibility, we generated $9.5 million in operating cash flow, up from $7 million last year and ended the quarter with $20.7 million in cash. Importantly, we repaid $8.9 million in debt in the quarter, continuing our deleveraging priority. Our substantially modern fleet requires no rolling stock expenditures over the next year. This will result in below average CapEx for the next 12 months, allowing us to continue our debt reduction efforts. We're operating with discipline, staying focused on what we can control and positioning Titanium for the long term. And with that, I'll hand it over to our CFO, Alex, to walk through the financials in more detail. Alex, over to you. Kit Chun: Thanks, Pat, and good morning, everyone. Titanium continued to demonstrate operational discipline and resilience in Q3 despite ongoing macro headwinds. I'll walk through the consolidated numbers first and then touch on the segment performance. On a consolidated basis, the company generated revenue of $115.7 million compared with $118.4 million in the same period last year. EBITDA was $8.9 million with an EBITDA margin of 8.7%. While margins were modestly compressed year-over-year, the underlying performance reflects continued progress in operational efficiency, customer mix optimization and disciplined pricing across both segments. Logistics continued to be a key growth engine for the company. Revenue in this segment increased 3.3% year-over-year to $62.9 million, supported by steady U.S. volume growth and continued customer engagement across our brokerage network. EBITDA for the segment was $2.3 million, with an EBITDA margin of 4.2%. Similar to last quarter, margins were affected by ongoing geopolitical uncertainty and supply side cost pressures. Despite this, underlying demand trends remain stable and our asset-light model continues to demonstrate scalability, particularly in the U.S. where newer offices are strengthening relationships and gaining traction. In Truck Transportation, revenue for the quarter was $53.8 million, down from $58.1 million last year, reflecting our strategic exit of unprofitable lanes in 2024. EBITDA for the segment was $7.7 million, representing a margin of 16.1%. This marks the segment's third consecutive quarter of sequential profitability improvement. Disciplined pricing and continued efficiency gain across the fleet supported another quarter of positive operating income. Operating cash flow remained strong at $9.5 million, up from $7 million last year, highlighting improved cash conversion and working capital management. Net income from continuing operations per share was $0.01, a year-over-year improvement from a loss of $0.01 per share in Q3 2024. From a capital allocation standpoint, we remain committed to strengthening the balance sheet. We ended the quarter with $20.7 million in cash and repaid $8.9 million in loans and finance lease during the quarter. These actions contribute to further improvements in our leverage position and reinforces our focus on debt repayment. Overall, our capital-light growth strategy, combined with prudent cost management and operational discipline continues to position Titanium to navigate this cycle effectively. We remain focused on protecting margins, enhancing liquidity and supporting long-term shareholder value. With that, I'll pass the call over back to Ted. Theodor Daniel: Thank you, Alex. Overall, our performance this quarter reflects the strength of our operating model and the progress we've made in sharpening our disciplined execution across the business. While freight markets remain challenging and visibility continues to be limited, we are seeing early signs of stabilization in certain regions. As we continue to adapt to our current industry environment, we look forward to more productive market conditions. Titanium continues to operate with discipline, focusing on what we can control. The benefits of our refined operating model are becoming increasingly evident, reflected in positive operating income in both segments for the second consecutive quarter. Titanium continues to operate with a strong foundation and even more efficient cost structure and most importantly, a resilient platform. To conclude, I would like to reiterate that we remain confident in the fundamentals of the business and continue to be focused on operational execution, margin preservation and cash generation. We estimate revenue of $112 million to $117 million and EBITDA percent of 8.5% to 9.5% for the next quarter. As we look ahead, our priorities remain unchanged: protect margins, maintain balance sheet strength and continue executing with discipline across our network. We're not waiting for the market to recover. We are taking proactive steps to ensure that Titanium emerges stronger and better positioned for long-term sustainable growth. With that, I'll turn the call over back to the operator for questions.[ id="-1" name="Operator" /> And before we begin the question-and-answer session, I would like to remind everyone that certain statements made on this call today may be forward-looking. In that regard, please refer to the risk factors and cautionary provisions outlined in the press release issued by the company yesterday as well as the filings made by Titanium on SEDAR. [Operator Instructions] With that, our first question comes from the line of Gianluca Tucci with Haywood Securities. Gianluca Tucci: So it sounds like with the market the way it is that you've had to do some rejigging of routes to adapt to this market. Any color there, I think, would be helpful, Ted. And secondly, like when you think about your asset-based fleet size as it is today, are you comfortable like with the size for this market, these market conditions? Or is there some work to be done there, too? Theodor Daniel: I mean you've got really 2 questions, yes. The first one is kind of rebalancing the fleet given current market conditions. So I know Marilyn would like to answer that. Marilyn Daniel: Yes. I mean we are seeing more domestic work. Cross-border has softened. But we're well positioned with our U.S. fleet and Canadian fleet to sort of balance out the 2 marketplaces between Canada and the U.S. So kind of just -- we work on our domestic U.S. and our domestic Canadian. So that kind of helps us sort of balance off the typical cross-border freight that we were experiencing for many years. So a bit of a change there for sure. And then in terms of the size of the fleet, we're fine for the moment. I don't know, Ted, if you want to add anything else to that? Theodor Daniel: I think we're good. We have already rightsized to a certain degree last year, and we're managing what we have. So at this point in time, it's continue to just do the best we can and focus on profit. And just kind of go from there and see what happens in terms of the general North American economy over the next couple of quarters. Gianluca Tucci: Okay. That's helpful color. And then just secondly, how are you thinking about asset-light expansion in the face of the current environment in the near term, at least like is the cadence of a couple of offices incrementally per year still the game plan? Or how are you thinking about the brokerage piece of the business in light of the current situation out here? Theodor Daniel: So we believe that we're going to continue to grow in brokerage. It's going to be sure and steady at this point in time. Obviously, this is not an economy where I think people are -- it's not -- let's just say it's not a tailwinds economy. Certainly, I think in this industry, we're still experiencing headwinds. So we are going to -- we're definitely going to continue to focus on technology in the space, and we're going to continue to expand our existing offices and try and continue to gain market share. [ id="-1" name="Operator" /> And the next question comes from Michael Kypreos with Desjardins Securities. Michael Kypreos: I know it's still early days, but as the budget only came out last week, but do you have any early signs of maybe changes with customers in the Canadian market when it comes to, let's say, customers diversifying away from players that are perceived to be driver in? Marilyn Daniel: I can answer to that way too early for that kind of an effect to be known. Customers have talked about it over the years. It's not nothing completely new, but definitely a positive, positive for the industry, positive direction. The impact will be over time. We don't know all the details yet in terms of penalties, et cetera. We know it's a project and a source of attention for the government over the next 4 years with a good chunk of money allocated to it. How it all rolls out, the enforcement, the penalties and so on, I think we don't have any details on that yet, but it is definitely positive. From a customer perspective, they're going to have to see the effects of it first to have a real impact on the customer. Michael Kypreos: All right. Appreciate it. And maybe just on the Logistics segment, maybe just any additional details you could provide in terms of the margin compression despite the volume growth, maybe start-up inefficiency costs of the new locations? Or what are your expectations in terms of the fourth quarter? Theodor Daniel: I think it's just -- honestly, Mike, I think it's just pure pricing at this point in time. Again, it's still a market where you've got a lot of overcapacity. It is improving slowly but surely. Last year, everybody was hoping for the end of the freight recession, and it's just taken a lot longer. It is headed in the right direction, but I believe that a more balanced pricing environment is what's going to help with that. And again, the other thing is, of course, technology. We believe that there's more efficiency in the market from a technological perspective, which is something that we do invest in. We are very technologically focused from that perspective. Marilyn Daniel: And from a margin compression, there were some announcements in the quarter that affected carrier relations with brokers during the quarter with immigration and language law enforcement that came up. So there was a lot of disruption for a little bit. I think it's coming down, but that was definitely a peak in the end of the -- towards the end of the quarter, definitely had an effect. [ id="-1" name="Operator" /> [Operator Instructions] And we do have a follow-up question coming from the line of Gianluca Tucci with Haywood Securities. Gianluca Tucci: Perhaps a question for Alex. Just to confirm, it sounds like CapEx plans for '26 is pretty marginal at best at this point. Any color there, Alex, on the CapEx plans for next year? Kit Chun: Yes, for sure. Thanks, Gianluca. The CapEx plan for the next year, so all the way to Q3 2026 is going to be minimal, as you say. For the entire year for 2026, we -- like we said in the previous call, there will be some replacements for the Oakwood fleet. So it may go to the tune of $5 million to $10 million. It really depends on the market at the time. We may not need all $10 million. So it's now trending to the lower side, to be honest. And that's where we're going to be at for 2026, and there's no replacement for the Canadian crude. Gianluca Tucci: Okay. And then perhaps just one last follow-up for Ted. Ted, like when you size up the market today, are you continuing to see capacity exit the market? Or how is the supply side shaking out these days? Like is it still trending to being a smaller market? And is the pace that you're seeing of cuts on the capacity piece of things, like is it coming down aggressively or like modestly? How would you kind of stack up the lay the land right now in the transport market on the supply side? Theodor Daniel: So there are definitely indicators. So you're right, Gianluca, there's definitely indicators that are saying, "Hey, you know what, we are shrinking capacity." But I believe that it isn't happening as fast as we would have liked it. It's been a very, very prolonged freight recession, and it is happening but very, very, very slowly. Pricing pressure, you still see it in the RFQs. It's still a very competitive market from a pricing perspective. So I don't believe that it's, call it, as an industry, it's out of the woods. But at this point in time, it's headed in the right direction. Gianluca Tucci: Okay. Well, curious to greener days ahead, Ted. Theodor Daniel: We're slowly but surely getting there. [ id="-1" name="Operator" /> And the next question comes from Robert Murphy with Raymond James. Robert Murphy: So I just wanted to follow up kind of on the outlook here. You indicated some early signs of stabilization in certain regions. Just wondering if you could provide a bit more color here. Like are there certain end markets, geographies, in particular, where you're seeing this improvement, et cetera? Theodor Daniel: A little bit of improvement in the -- kind of call it the Northeast and the Midwest. That is probably along the lines to some degree of the whole issue of illegal drivers. And it's an interesting because you wouldn't have expected that region, but that seems to have more of the impact on pricing. But again, it's more kind of a little bit of everything, right? It's the fact that we're going to address, hopefully, over the next couple of years. I don't know what the budget has, but the driver they're addressing language laws in the U.S. There's issues with making sure that you've got compliant drivers and so on. So it's -- I think it's kind of a culmination of a whole bunch of different components. Do you have anything to add to that? Marilyn Daniel: No, I think you've covered it off. I mean it's -- certain regions that are happening, definitely in the U.S., you're starting to see a spark in certain areas, which is good. It's usually a good tail sign for us here in Canada. So it's -- there is some movement in the right direction. I think you will see carriers exit just at a pure exhaustion over this period. I think things will come together between regulations, costing, technology and all of those things to see sort of a better marketplace in the future. When is the question? Theodor Daniel: That's the crystal ball right there. Robert Murphy: Okay. Great. That's great color. And then just kind of shifting gears, I just had one follow-up here. Just on the trucking margin. Good to see some progression there sequentially the last couple of quarters. Just kind of looking into 4Q, and I know you guys provided the 4Q guide there, but just looking to 4Q and 2026, kind of how should we think of margins progressing on the trucking side? Kit Chun: Thanks, Robert. So margin for the trucking side, barring any market improvement, we're definitely trying to improve it as we streamline -- like we said in previous calls and last year as well, we are looking to only take on business that has sustainable rates, and that has been our focus for operations this year, and we continue to go that way. That's why our operational efficiency has improved. How far can we go? It's difficult to say given the current market conditions, but we are looking to improve that. Our expectation is that we are going to bring that up to potentially the 17% mark and hopefully beyond that. [ id="-1" name="Operator" /> [Operator Instructions] I'm showing no further questions at this time. I would like to turn it back to Titanium's President and CEO, Ted Daniel, for closing remarks. Theodor Daniel: Great. Thank you, operator, and thank you all for joining us. We appreciate your interest in our company. At this time, I'd also like to thank all of our team members, our staff for their hard work and dedication. I would also like to acknowledge and thank the hard work and dedication and attention to compliance and safety of all of our drivers. We look forward to providing an update on our progress and all of our priorities discussed today when we report our Q4 and full year 2025 results in March. If there are any further questions, please feel free to contact us. Thank you for joining us today on this call. [ id="-1" name="Operator" /> Thank you. And ladies and gentlemen, this now concludes today's conference call. Thank you all for joining. You may now disconnect.
Operator: Hello, everyone, and thank you for joining us today for the DCC interim presentation for the 6 months ended 30th of September 2025. My name is Sami, and I'll be coordinating your call today. [Operator Instructions] I'll now hand over to your host, Donal Murphy, Chief Executive of DCC, to begin. Please go ahead, Donal. Donal Murphy: Good morning, and welcome to DCC's interim results presentation for the 6 months ended the 30th of September 2025. Thank you all for joining us this morning on our webcast. I'm joined today by our Group CFO, Conor Murphy. Here's our standard disclaimer. Thankfully, I don't have to read it out. So this morning, I will outline the significant strategic progress we have made to build DCC into a simpler, stronger and more focused business since announcing our change in strategy this time last year. Conor will give you an update on the trading performance in the first half of the year, and we'll finish with our outlook statement and a summary before we open up the session for your questions. So let's get started with an overview of the significant strategic progress we have made over the last 12 months. On the 12th of November 2024, we announced a strategic plan to maximize shareholder value by focusing solely on our compelling opportunity in our energy business and simplifying the group's operations through portfolio actions. Over the last 12 months, we have made very significant progress to simplify the group with the majority of the planned changes now complete. More on this shortly. We announced in May that we intended to return up to GBP 800 million of the proceeds from the sale of DCC Healthcare to shareholders. We completed the initial on-market buyback of GBP 100 million in September, and we will shortly commence a tender offer for GBP 600 million of our equity. On the 21st of October, we announced that we had acquired 2 liquid gas businesses in Europe, a priority development area for the group. And last, we have to perform while transforming the group. I am pleased that our trading performance improved through the first half of the year after a difficult start in a challenging environment and that we are maintaining our guidance for the year as a whole. So let's look in a little bit more detail on our strategic progress over the past 12 months. The plan we announced last November to maximize shareholder value had 3 actions. Firstly, we said the group will now focus solely on our most compelling growth opportunity, our energy business. Secondly, we launched the process to sell DCC Healthcare. Thirdly, we said that within the next 18 to 24 months, we would review our strategic options for DCC Technology. We have made significant progress since last November. In September, we completed the sale of DCC Healthcare. In May, we commenced an initial GBP 100 million share buyback program, which we completed in September. We will shortly commence a tender offer, returning a further GBP 600 million of the proceeds to shareholders. On the 14th of July, we announced that we had reached agreement for the sale of DCC's Info Tech business in the U.K. and Ireland to AURELIUS, a globally active private equity investor. The business had revenues of approximately GBP 2 billion and represented approximately 1% of DCC's continuing profits in FY '25. We announced on November 3 that the sale completed. While the cash proceeds to DCC are not material, the business was responsible for about half of our intra-year working capital swing for the group. It was also the only business within the group availing of supply chain financing. The removal of both factors further strengthens DCC's financial position. The final component of DCC's Info Tech activities is a very small and unprofitable business in the Netherlands, which we will exit in the second half of the year. We have commenced the proprietary work for the sale of the remaining part of DCC Technology. This business is a global leader in the sales, marketing and distribution of specialist Pro AV, Pro Audio and related products and services. It is predominantly based in North America. We are on schedule with the integration plan we outlined last November. It is our intention to have reached agreement for the sale of our Specialist Technology business by the end of calendar 2026. To set DCC up for growth as a single sector energy business, we have made a number of leadership changes, both at Executive Director level and at management team level. The new DCC leadership team is fully in place, has extensive experience in the energy sector and the commercial agility and drive to build DCC into a global energy leader. DCC is a unique energy business, providing multi-energy solutions to our customers for 5 decades. We operate across solutions, energy products and energy services and mobility. We have built a strong capability in engineering-led decentralized energy solutions, particularly in our liquid gas business. Our ambition is to be a global leader in the sales, marketing and distribution of energy products and services, delivering high growth and high returns for our shareholders. We have a scalable growth opportunities across our sectors, particularly in liquid gas and energy services. Our strategy is to grow our customer base by being the provider of choice for secure, competitive and cleaner energy products and to sell more services to our energy customers, driving higher organic growth rates. How do we win? We leverage our strong market positions being typically #1 or #2 in most of our markets and with our deeply embedded customer relationships. Our aim is to be the best customer company in the energy sector. We are strong operators in the energy sector and have significant experience in consolidating fragmented energy markets. By delivering our strategy, we will drive organic growth of 3% to 4% and acquisition growth of 6% to 8% on average per annum to achieve our ambition of delivering double-digit growth in earnings. We aim to turn approximately 90% of our profits into cash and always to deliver returns on capital employed in the high teens. Looking ahead, demand for secure, cleaner, competitive energy is stronger than ever. Our commitment to carbon reduction is clear. We will continue to provide innovative offers to support our customers with the multi-energy solution capability we have built over the last 5 years in biofuels and energy services. Emissions reduction will be an output rather than a driver of our strategy. We still believe that energy systems are going to decentralize and move closer to the customer. That is where we win through our closeness to our customers, meeting them where they are at. Now to focus on the large capital return to shareholders. The sale of DCC Healthcare enabled us to return GBP 800 million of capital to shareholders. As I mentioned earlier, the process began in May with an on-market share buyback program of GBP 100 million. Following the completion of the sale of DCC Healthcare on September 9, we announced our intention to return GBP 600 million to shareholders shortly after these half year results via tender offer. The final GBP 100 million return will take place after the receipt of the unconditional deferred consideration within the next 24 months. The tender offer will commence shortly and will be completed by the end of calendar 2025. The strength of DCC's balance sheet and the cash-generative nature of our business provides significant capital for growth to deliver on our 2030 vision. In May, we outlined the exciting growth opportunities we have across our energy activities. In Energy Products, we have an opportunity to scale our liquid gas business in many remaining fragmented markets in Europe and in the U.S. This opportunity in liquid gas is a key part of our plan to reach GBP 830 million of operating profit by 2030, double our 2022 total. DCC has been in the liquid gas business since 1977. We've built leadership positions in 6 countries and established growth platforms in a further 3 markets. Overall, DCC is just 5% share of our total addressable market in Europe and the U.S. Yet in the markets where we already operate in Europe, we have built approximately 30% market share. In these consolidated European markets, our leadership positions drive higher returns. We drive higher returns by, for example, leveraging network effects, better routing and scheduling of our fleet and optimizing the depot infrastructure, reducing the cost to serve our customers and indeed the cost to acquire new customers. We are strong operators, so we often have opportunities to optimize margin management and drive synergies through procurement. We have a very loyal customer base with low churn rates. These relationships typically last more than 10 years. The infrastructure we install on our customer sites makes it costly for them to move to another supplier or energy type. Liquid gas is seen as a transition fuel in Europe. With its lower carbon characteristics, we are attracting new customers from other higher energy carbon energy sources, so who want to reduce their emissions. We have significant opportunities to scale our business by expanding into new fragmented markets and by further consolidating in our existing markets. This is a core competence of DCC. On the 21st of October, we announced that we have agreed to acquire FLAGA in Austria and a cylinder business in the U.K., both from UGI International. FLAGA founded in 1947, serves over 15,000 customers from its nationwide network in Austria across both bulk liquid gas, where average customer lifetime is more than 15 years and via a significant cylinder business. The acquisition extends DCC's leadership position in the Austrian energy market, where we already have a leading liquid fuels business and a growing presence in energy services. In the U.K., the acquisition of the UGI cylinder business is highly synergistic and further strengthens our liquid gas cylinder proposition in the market. I'll now hand you over to Conor, who will take you through the performance for the first 6 months of FY '26. Conor? Conor Murphy: Thanks, Donal, and good morning, everyone. This is my first results presentation since sitting into the CFO seat. I'm really excited to be here, and I'm focused on making sure that we continue to get our messages across in a simple and clear term, particularly as we transition the group to a single sector energy business. As Donal talked through, it has been probably the most significant 6 months of strategic progress that we have ever had in the group. In contrast, the 6 months to September is the seasonally less significant part of the year from a trading perspective, with the first half representing approximately 1/3 of our expected full year operating profits. Before I start, by way of reminder, the results from our former Healthcare business and Info Tech business in U.K. and Ireland are now classified as discontinued. What we have set out in this presentation comprises our continuing operations, which is our Energy business and the remaining part of DCC Technology. Prior year comparatives have been restated accordingly. In the 6 months to September 2025, our revenue was down from GBP 7.9 billion to GBP 7.4 billion on a continuing basis. I will go through the details of the declines when talking through Energy and Technology. At a high level, the main drivers were the fact that volumes were down in energy and that commodity pricing is also significantly lower year-on-year by approximately 15%, which impacts our revenues, but is not reflective of our underlying trading. Operating profit is down 5.4% on a reported basis and 5.3% on a constant currency organic basis. Again, I'll talk through the detail in a moment when walking through Energy and Technology. Our adjusted EPS is down 4.2%, which is lower than the decline in operating profit as a result of the lower finance costs in the first half. The lower finance costs are a result of lower interest rates generally, but also the lower average net debt that we had in the group over the 6 months. We are declaring a 5% increase in our interim dividend. The Board is conscious of the importance of our dividend to our shareholders, and the increase represents the confidence that we have in the business as we enter the seasonally more material second half of the financial year. Finally, our net debt at the end of September was just GBP 522 million, reflecting the proceeds from the disposal of Healthcare, as mentioned earlier. On a pro forma basis, this will be GBP 600 million higher once we complete the capital return by way of tender offer, which is expected to complete by the end of the calendar year. I won't delay on this divisional results slide. It sets out the split of our operating profit between Energy, which now accounts for 84% of the operating profit in the first half and technology, which accounted for 16%. Given the weighting of energy to the second half of the year, we expect that the full year weighting will be more like 88% energy and 12% technology. Focusing on our energy results for the 6 months ended 30 September 2025. In the full year results presentation in May, we presented energy in a more intuitive way and in the way that it is managed commercially. We split energy between our Solutions business, which itself splits between Energy Products and Energy Services and then our Mobility business. Overall, DCC operating profit was 5.2% behind the prior year and 5.9% on a constant currency basis. In our trading statement in July, we highlighted that the first quarter was in line with our expectations, although behind the prior year. We knew that the business had a tough set of comparative numbers in the first half of the prior year and particularly in the first quarter. It has been good to see that energy was slightly ahead of the prior year in the second quarter. Solutions operating profit declined by 10%, driven by Energy Products, while Mobility operating profit increased by 2.8%. I will now take each of these in turn. In Solutions, our Energy Products business accounted for 50% of profits in the first half, though it is a larger proportion of our profitability in the full year. Energy Products encompasses our liquid gas, liquid fuels, on-grid gas and power businesses. Energy Products volumes were 4.9% lower in the first half and operating profit was down by 12.8%. There were 3 main drivers of the decline. Firstly, our businesses experienced warm weather in the early part of the first quarter in France, U.K., Ireland and North America. This impacted on the volume demand in each of these markets. And while we maintained our market shares, profitability declined. Secondly, we disposed of our Hong Kong and Macau business in the prior year. The removal of that business impacted both volumes and profitability, accounting for 4 percentage points of the decline in the Energy Products business. Thirdly, we are seeing the impact on demand of a number of softer economies, particularly impacting commercial and industrial volumes. To give a little more color on this, Continental Europe was primarily impacted by warmer weather, mainly in France. The decline that we experienced in the U.K. and Ireland was driven by our natural gas and power business in Ireland after a very strong performance in the prior year, a significant factor in the tough comparatives that we faced overall. Performance in our liquid gas business in the Nordics was a little difficult, however, with lower demand from commercial and industrial customers. Finally, in Energy Products, our U.S.-based business performed ahead of the prior year despite warmer weather. We've had a number of cost initiatives in the business, driving better margins and operational efficiencies. The smaller part of Solutions is our Energy Services business, which grew its operating profit by 8.5%. The largest and most mature part of our business in Energy Services is our business based in France, and it again grew very strongly during the period, continuing to increase revenues and profits while making good progress in integrating acquisitions completed in the prior year. Although the market backdrop in Germany was difficult, our business there achieved good growth. Our energy service businesses in the U.K. experienced difficult market conditions with the poor economy impacting the willingness of commercial customers to invest. Our business in Ireland has continued to perform well. Our mobility business grew its operating profit by 2.8%, which was mostly organic. Volumes were behind the same period a year ago as we proactively manage margins across each of the regions in which we operate. The continuing trend towards electrification also impacts volumes, though this, of course, benefits our nonfuel revenues and margins. We stepped away from a number of lower-margin, higher-volume contracts, in particular, in Nordics and the U.K., giving the business a sharper focus. In addition to the fuels which we provide at our stations, we offer a range of nonfuel offerings at our service stations, including EV charging, car wash and convenience retail in a select number of sites. In the 6-month period, we developed these across our markets and in France and Luxembourg in particular. The larger part of our nonfuel services encompasses fleet services across fuel cards, telematics and digital truck offerings. We delivered strong organic growth across all of these areas, complemented by a modest contribution from acquisitions. Our nonfuel gross profit grew by 3.5% year-on-year as we expanded our customer offerings. In our full year results presentation, we set out this important slide, but we didn't dwell too much on it in May. I'm going to spend a little more time on it today as it provides much more granular detail on our Energy business and is helpful in telling the story of the first half. Firstly, to highlight the split of profits between Solutions and Mobility. In the full year, this was a 77% weighting of profits to Solutions and 23% to Mobility. It skews quite significantly towards mobility in the first half, which represented 41% of our operating profits. There's a lot more on-road driving done during the summer months across all the markets in which we operate retail networks. And conversely, our energy products businesses are comparatively quiet in the summer months given the commercial and residential weighting in those businesses, although energy demand does tend to be higher. I highlighted that our Energy products volumes were 4.9% behind in the first half, and I've talked about the main drivers of this decline. We set out in the table both the gross margin at a total level and on a pence per liter basis. The pence per liter decline is really a function of mix resulting from the shape of the volume decline. Firstly, the volumes lost from the disposal of the Hong Kong and Macau business were at relatively high margins and the warmer weather reduced domestic demand, thereby resulting in a lower pence per liter margin. Overheads are down in excess of the volume decline. However, the mix impact results in operating profits declining by 12.8%. In Energy Services, it was pleasing to see the revenues continue to grow, 14.3% ahead of the prior year and gross profit further ahead, achieving 16.3% growth. Operating profit grew by 8.5%, although being lower than gross profit growth. We've continued to invest in the businesses which we've acquired, particularly those that were owner-managed, and we've invested to upgrade their infrastructure and management capabilities into the PLC environment. Finally, in Mobility, similar to energy products, we experienced a 4.6% decline in volumes. We increased fuel gross margin per liter from 6.2p per liter to 6.6p per liter, highlighting the resilience of the mobility business model and our proactive margin management. This drove our fuel gross profit up by 2.3% year-on-year. At the same time, nonfuel gross profit decreased by 3.5% -- increased by 3.5%, which demonstrates the focus which we've had on developing and investing in this area of the business. All of this drove 2.8% growth in our operating profit. Moving on to DCC Technology. Revenues in DCC Technology declined by 2.7% in the first half of the year. And with a slight reduction in gross profit, this resulted in operating profit declining by 6.9%, which was a 2% decline on a constant currency basis, given the weighting to U.S. dollar profits that we have in our business. In our North American business, the Pro Specialist product business performed well, increasing our market share where we are the market leader. Our Lifestyle and consumer-focused products segment experienced weaker consumer demand and some stock availability issues impacting the performance of the business in certain categories. As you can imagine, this sector has been more difficult with tariffs leading to uncertainties and consumers somewhat reluctant to spend. The first quarter was the stronger quarter for the business as customers look to pull forward stock orders in advance of the impact of tariffs. Understandably, this led to a slower second quarter as customers work through this stock and as the impact of tariffs became clearer. Our smaller European business delivered growth, particularly in the Nordic region. As we announced on the 3rd of November, we've completed the disposal of DCC Technology's Info Tech business in the U.K. and Ireland to AURELIUS. We continue to prepare the remaining DCC Technology businesses for sale next year, and we've made good progress in the integration and operational efficiency program in North America. Our capital allocation framework. We had set out this framework at the time of our results presentation in May of this year. Given the strategic progress that we've made over the last 6 months, I think it's important to reiterate this framework to recommit to it and to put the progress that we have made in the context of this framework. We've allocated over GBP 70 million to capital expenditure, continuing to invest in our businesses and their organic development. The vast majority of this investment has been in energy. We are declaring a 5% increase in our interim dividend, underlining the strength of the business and our confidence in it. We've committed approximately GBP 60 million to acquisitions over the period, including most recently the acquisition of 2 liquid gas businesses in both Britain and Austria. Finally, we have returned GBP 100 million to shareholders by means of the on-market share buyback and we'll shortly be launching a GBP 600 million capital return by way of tender offer, all following on from the completion of the disposal of DCC Healthcare. And we've done all this while maintaining our strong balance sheet, which we remain committed to. And recently, we have had our investment-grade rating reaffirmed by credit rating agencies. With that, I'd like to hand back to Donal for a summary. Donal Murphy: Thanks, Conor. So just before we open up to Q&A. So what makes DCC unique? Global energy demand will grow. Customers need secure, cleaner and competitive solutions. We scale growth opportunities in new and existing markets, market-leading positions and long-term customer relationships. We're strong operators, and we have an agile, entrepreneurial and resilient business model founded on a strong balance sheet and cash generation, self-funded double-digit growth. And we're a highly experienced compounder, almost 400 acquisitions at high returns. I am confident that this will deliver sustainable, high returns and compounded growth for all our shareholders. So in summary, our outlook for FY '26. DCC continues to expect that the year ended 31st of March 2026 will be a year of good operating profit growth on a continuing basis, significant strategic progress and ongoing development activity. So in summary, we've made excellent strategic progress over the last 12 months, and most of our simplification project is behind us. We are in the process of making a material return of capital to you, our shareholders. And looking ahead, we have an excellent opportunity to grow our unique multi-energy business while delivering high returns for our shareholders. We are well on track to deliver our ambition to double profits by 2030 from 2022. And we are focused on the future, confident that we will build DCC into a global leader in the energy sector. Thank you all for listening, and we look forward to answering your questions. Operator: [Operator Instructions] Our first question comes from Rory McKenzie from UBS. Rory Mckenzie: Here. Two questions, please, on the new Energy divisions and the new KPIs. So firstly, on Energy Solutions products, can you help us understand what a sensible outlook is for H2 after volumes were down 5% year-over-year in H1. I think the margins pence per liter were also down quite a bit. It sounds like quite a lot of that pressure came in Q1 with the disposal and heating volumes. So how do we kind of read those trends as we go into the significantly bigger part of the year? And then secondly, in Solutions Services, I appreciate profits were up overall in H1. But if I assume most of the M&A was going into that segment, that would imply that organic profits were down about 8% year-over-year in H1. So can you also talk about where you are in terms of the integration of M&A in that division and what a kind of fair profit growth outlook should be from here? I know you're doing a lot around customer strategy and repositioning. So where are we with that? And what should we expect for H2? Donal Murphy: Thanks, Rory. And we'll start with just your first question. So when we look at the 2 big impacts in the first half of the year were weather and Hong Kong and Macau. Hong Kong and Macau is kind of easy to deal with. We only had it in the first quarter last year. So we have lapped the Hong Kong and Macau being within the group. And I say, it was a higher-margin activity. On the heating side, and we see this, like the March last year and into April was a very mild period. So we had weakness in our heating demand. That will bounce back in the second half of the year. So we're very confident that the activity that wasn't there in the first half will flow through in the second half. It is higher margin activity that will impact clearly or benefit the margins in the second half of the year. And that's why we're so confident in terms of reiterating our guidance for the year as a whole. So there's nothing really to read into the numbers in the first half of the year. On the services side, actually, there is modest organic growth in the first half of the year. The contributions from acquisitions were pretty small really. And overall, the business is growing very strongly in France and the markets outside of France, demand has been weaker. And that's, I think, been well publicized by many of our peers. I don't know, Conor, if there's anything you'd like to add to that. Conor Murphy: No, no. I think you've covered it well, Donal. I mean the -- as Donal said, the progress in the first half, we will see that maintained, if you like, in -- for the full year. So second half broadly flat, maybe a small bit of growth on the services side. Operator: Our next question comes from David Brockton from Deutsche Numis. David Brockton: And weather, I think you also called out weaker commercial volumes. Can you just sort of give us an update as to what your planning assumptions are for H2? Do you expect those commercial volumes to improve? Or do you expect growth elsewhere to offset it? And if so, where? And then the second question in relation to technology. from memory, you were looking to drive, I think it was GBP 20 million to GBP 30 million of profit improvements in that business before you sold it. Can you give an update on that, please? Donal Murphy: Sure. David, we missed the first part of your question didn't come through, but I think it was weather related and then it went into the commercial... David Brockton: Commercial volumes? Yes. Donal Murphy: Yes. Yes, the commercial volumes. Yes. Look, the -- again, there was nothing kind of overly dramatic in the commercial volumes, like the 2 or bigger impacts in the first half were the weather effect and Hong Kong and Macau. So there was a number of the that we were in a little bit up in Scandinavia, where some of our large commercial customers, their demand was a little bit weaker. We really don't see anything particular flowing through into the second half of the year. Energy business typically is very resilient regardless of what's happening in the energy cycle so -- or in the economic cycle, so people need their energy. You might have a little bit of softness as economic activity is down, but it tends to be around the edges. Conor Murphy: Around the edges. And I guess there's nothing -- the second half forecast we're not forecasting any major pickup from a commercial industrial perspective. So if there was a significant drop off, it would impact, but that's as is baked into the forecast. Donal Murphy: On technology, David, there was -- and there was probably 2 quarters or 2 different quarters in the first half of the year. We actually -- the business in North America performed well in the first quarter. There was probably a little bit of pull forward of business with concerns over tariffs it was weaker in the second quarter. So tariffs and the impact of tariffs had an impact on the business during the first half, but we had the flow-through of that activity in terms of integrating the 2 North American businesses together. So we're actually well on track to deliver on the -- and there's a big range between EUR 20 million and EUR 30 million, but we're certainly well on track to be on the mid side of that range at the moment and heading towards the side of that range. But the market is tough, and that is offsetting some of the benefit that we're seeing coming through from the integration activity. Operator: Our next question comes from James Bayliss from Berenberg. James Bayliss: Two for me, please. Within Energy's Mobility segment, you noted fuel gross margin uplift was in part driven by procurement initiatives, I think it was. How should we be thinking about the direction of travel from here on that side of things? Is there more to be done? And equally, was there a contribution within that gross margin uplift from mix shift within fuel type? And then my second question on capital allocation, admitted M&A in the period was about half of what it was in the prior year. Can you just provide some context around that? Is that the natural ebbs and flows of the pipeline? Or are there any considerations around market backdrop or indeed management's focus on the ongoing group simplification? Donal Murphy: Super. Thanks, James. And maybe just on the mobility side, and there was just -- I suppose just to remind everyone that a chart that we had in our results presentation last May showing the increase in margins over the last decade within the mobility business, it was a CAGR of 13%. So this business and the industry is good at growing margins year-on-year, and we see the benefit of that. There is a little bit of volume margin offsetting one another. So there's times in the year and there was in the first half of the year, particularly in France, where some of our competitors were very aggressive on the pricing side, and we chose not to play, impacted a little bit on our volume. But as you can see, the margin performance was good. The procurement activity is -- it's a good call out, James. And we are seeing significant change in the supply landscape on the energy side as refineries are changing hands, some of the integrated energy companies are pulling back in some of the markets. And as a customer-focused company with significant volume requirements, that's playing into our strength. So we have more opportunities on the supply side than we probably would have had in the past. And that is an opportunity, and it will be an opportunity for us going forward to drive margin improvement. We have -- as part of our simplification process, we have set up central procurement teams so that rather than looking at buying our products locally within each market, we're looking at opportunities to leverage the scale across the energy activities that we have. And we're a substantial buyer of product within the market with a very strong balance sheet. So we see procurement being an area of focus to drive profit margin improvement going forward. Conor, I don't know if there's anything you want to add. Conor Murphy: No. I guess working capital improvement as well. As Donal said, we've -- what the technical guys call the short that we have into the market, the demand that we have into the market is really important to those suppliers, and we will leverage that as best we can to make sure that we're giving our customers the best offer that we can and the best pricing that we can. Donal Murphy: Sorry, capital allocation. Yes, look, the -- in ways, it has been -- say this morning, it's been a quieter period for us on the acquisition side. And that is -- it's not -- we've not been distracted with the divestments. It's just M&A, and we've talked about this over many years, M&A ebbs and flows, and it doesn't come on a consistent basis. We have talked about and talked earlier just about the services area being a little bit more difficult. So we're probably a little bit more measured in terms of capital deployment in that area. But we are very focused on growing our liquid gas activities, in particular, on the product side. So the 2 acquisitions that we announced were very timely. We have a decent pipeline actually and a growing pipeline of opportunities at the moment. So we're certainly very confident that we will be deploying more capital in this financial year. Operator: Our next question comes from Christopher Bamberry from Peel Hunt. Christopher Bamberry: Three questions. In Energy Services, could you please explain the factors behind the lower growth in operating profit compared to gross profit in the first half? Secondly, in Mobility, you intentionally see some lower margin volumes in the Nordics and the U.K. What do you expect to be annualized impact from this and there's potentially some more sharpening of focus to come? And finally, in technology, has the shortage of certain lifestyle products been resolved? Donal Murphy: Okay. And Chris, just to take the first one on Energy Services, we have been -- so we bought quite a number of businesses, and we talked about that a little bit earlier. We're integrating businesses together. Some of that results in investment within the businesses. We -- and we're investing in terms of building our sales organization. And some of that is the business demand was very strong. There was plenty of orders coming to the businesses. We need to be much more proactive now within the business. So there's investment going into these businesses, which we always had planned to do post acquisition. So the big differential between the gross profit growth and the operating margin is really investments that we're making within the business. On the mobility volume side, again, as I said earlier, there is a little bit of margin volume that we play. So it is -- we don't really kind of try and call and say, well, actually, the volume -- that volume will bounce back or volume will be a bit higher in the second half of the year because there could be activities by competitors in markets, and we'll choose not to play on that. I think the lower-margin business that we talked about walking away from, that's done. There's not -- we don't have other business in that category. So it's really down to -- it's down to competitor activity in the markets. But we'd be very confident that we will deliver good organic profit growth within our mobility business for the year as a whole. And finally, just the lifestyle products piece. So again, particularly the uncertainty around tariffs and price points on those tariffs. So a lot of those products that we sell on the lifestyle side come in from China and other markets and are imported into the U.S. So the price of products went up pretty significantly with the tariffs that impacted on demand. That's probably washed its way through the market at the moment. But the consumer in the U.S. is probably not the healthiest at the moment. And that kind of weighs into the outlook for the year. Thanks, Chris. Operator: Our next question comes from Joe Brent from Panmure Liberum. Joe Brent: Three questions, if I may. Firstly, interested to hear your views on what the peer group is saying in solutions. Secondly, if memory serves, I think you were targeting double-digit EBIT growth in services given the first half and what you're saying, does that now appear a bit of a stretch? And then finally, on tariffs for the rest of technology, you've told us kind of where you're at in the first half and the Q1, Q2 split. Could you just give us a little bit more on your thoughts around pricing and consumer sentiment in the second half and how you see the second half playing out for the rest of technology? Donal Murphy: Joe, could you just repeat the start of your first question? Joe Brent: The first one is just your views on what the peer group are saying in solutions. Donal Murphy: Yes. Yes. Okay. Sorry. Look, and I think it's well publicized that, that whole services market is slow on the solutions? Conor Murphy: Services solutions. Donal Murphy: Services solutions. Yes. And Joe, like it is -- where we're seeing, as I say, in France, we have a particularly strong order book we've had going into this year. So we are -- we see the profits are fairly baked in for this year as a whole and actually into next year. In some of the other markets we're in, the demand has been weak for a while, and we're seeing that -- we're very much seeing that across the peer group. And just while we're on it like the peer group generally on the product side, you would see very much the same factors impacting. I think we have been outperforming any of our peers and growing our shares. Conor Murphy: On the double-digit services growth, Joe, like we won't see that in the second half. That's absolutely right. And -- but I think it is something that we are confident in over the medium and longer term. That's absolutely where the demand is going to go, where the business is going to go. When you think about the energy transition, our customers are going to transition into looking for more services, looking for solutions that give them power and energy that is more affordable and cleaner and more independent, and that's going to drive the growth in that area. So look, we're confident in the medium term. We always knew that there was going to be a certain amount of volatility in the shorter term in this business, but we're committed to growing a long-term business from there. Donal Murphy: And just on the tariffs and product demand side, I think like the bar changes or further changes within tariffs, we're a pass-through business. So the increase in the price of the products have been passed into the market at this stage. I suppose the question in terms of the next 2 months really in the -- particularly on the consumer product side is what will demand look like. And we've probably been conservative in our views on what we think the demand will be like in our guidance for the year as a whole. Operator: Our next question comes from Ken Rumph from Goodbody. Kenneth Rumph: Two questions. One is to go back to your expectations for the full year and products and kind of that needing to catch up and start growing in the second half and continue growing as it did in the first quarter. Your comments seem to be that sort of you'd suffered previously from a mild spring. I mean, would another mild spring throw you off course? Or would it merely be kind of just as it was before, and therefore, you expect growth? I mean to try and understand sort of why you were confident that you were going to see that second half growth to sort of recover what was lost in the first half? The second question is just a little bit more kind of technical in a sense, which is you've not given us a price for the tender offer today, which I confess I expected. What's the sort of timetable? We get it on a certain date and then there's a certain number of days for it then to proceed. You've said it's going to finish by the end of the calendar year. I assume that's not kind of Christmas. So what's -- when we do get a figure, what's the timetable? Donal Murphy: Okay. And Ken, just on the weather piece, like -- and been around this for a very long period of time. And you get ebbs and flows from a weather perspective. It is always more acute in the first half of the year because April is a significant heating month as you come out of the winter. And then as Conor said earlier, the rest of the summer, it's a lower level of impact. So your ability to catch up in the first half is very limited. But people buy like a typical average domestic customer will take 2 orders from us a year. The 2 orders will come in the second half of the year. And so you'll get the catch-up on the heating side. Clearly, if we got an extremely mild winter, that would have an impact on our profits for the year. We're not going to be immune from that. But all we can guide on is on the basis of normal weather conditions. The other side that impacted clearly in the first half was Hong Kong and Macau, and we have lapped that. So that is behind us. And finally, we had a very strong first half last year and actually a weaker second half. So the comparatives were tough in the first half, and they're a little bit more benign in the second half. So we're -- as I say, we're very confident in our outlook for the year. On the tender, Ken, there's really nothing more we can say than in the statement. It's clearly all pretty market-sensitive stuff. So all we can say is it will be completed by Christmas, and it will start shortly. And there will be an RNS clearly when the Board has made those decisions, and that will go out and it will detail the steps. There is quite a number of precedents out there. So there's places you can look to see the process. And anyway, it's probably all I can say on that at this stage, Ken. Thank you. Operator: Our next question comes from Annelies Vermeulen from Morgan Stanley. Annelies Vermeulen: I have 2, please. So firstly, just on the M&A pipeline. You've spoken in the past about the opportunity for liquid gas in North America. You've done 2 deals in Europe so far this year. So could you talk a little bit about that pipeline in the U.S.? Is that still interesting? Is there anything going on there in terms of the multiples or the opportunity set that means that we should see less M&A spend in the U.S. going forward? If you could comment on that? And then just coming back on the tech piece in North America, it sounds like there was some destocking in the second quarter. As the dust begins to settle from all these tariff discussions, are you reconsidering your supply chains at all? I know you've spoken about procurement in the energy business, but just wondering in technology, whether there's more to do there on the procurement side as well. Donal Murphy: Thanks, Annelies. The North America is and will remain a very important growth market for us. We have less than 2% of the propane market in the U.S. It's -- and maybe that's a slightly misleading number because these are they tend to be more local businesses. So there are states where we'd have double-digit market shares, and they would have similar characteristics to the more consolidated markets. We see in Europe where they have higher margin benefits, operating margin benefits through leveraging routing and scheduling and all the things I talked about earlier. But there's lots of states where we have very low market share. So we are very active in building our pipeline and talking to players within the market. We're very confident that we will deploy more capital into the U.S. market. But a bit like the conversation earlier, the way M&A comes along, we never force the pace and at least because if you try and force the pace, you overpay for assets. So -- but we certainly don't see anything in the characteristics of the market that would say that we are unlikely to be deploying capital over there. And over time, we'd like to deploy capital at scale into the U.S. market. On the procurement side, it's probably slightly different, at least because we distribute branded products. So we're really not the originator, if you like, of where the product comes from. So it's more down to the supply chain approach of the vendors that we work with. So the big AV vendors, we have seen some movement in where they produce the final assembled products, and that drives the market that we will import the product from. We do have quite an amount of our own branded products. So we do have an opportunity there to look at other markets. But it's not as easy to do that because you have manufacturing partners that you've been working with for many, many years. So our focus has really been much more on passing through the price increases into the market than ultimately looking to change where the product is manufactured. But we do -- as I say, we do think about all those things. Operator: We currently have no further questions. So I'd like to hand back to Donal for some closing remarks. Donal Murphy: Super. Well, look, just to thank everyone for joining us today. Thank you for your time. This has been a period of very significant strategic change for the group as we simplify the business to become a much more focused energy business. And we're very confident in our ability to build DCC and DCC Energy into a global leader in the energy sector. So I know we'll be meeting many of you over the coming week and indeed months, and we look forward to continuing our conversations. Thank you all very much, and see you soon. Bye.
Operator: Good day, and thank you for standing by. Welcome to the NeurAxis, Inc. Third Quarter 2025 Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press 11 again. Please be advised today's conference is being recorded. I would now like to hand the conference over to your speaker today, Ben Shamsian, Investor Relations. Please go ahead. Ben Shamsian: Thank you. Good morning, everyone. And thank you for joining us for NeurAxis, Inc.'s Third Quarter 2025 Financial Results and corporate update conference call. Joining us on today's call is Brian Carrico, CEO of NeurAxis, Inc., and Timothy Robert Henrichs, CFO. At the conclusion of today's prepared remarks, we'll open the call to questions. If you are listening through the webcast, you can follow the operator's instructions to ask questions. If you are dialed into the call live, you can press star 11 button. Finally, I'd like to call your attention to customary safe harbor disclosures regarding forward-looking information. The conference call today will contain certain forward-looking statements, including statements regarding the goals, strategies, beliefs, expectations, and future potential operating results of NeurAxis, Inc. Although management believes these statements are reasonable based on estimates, assumptions, and projections as of today, these statements are not guarantees of future performance. Time-sensitive information may no longer be accurate at the time of any telephonic or webcast replay. Actual results may differ materially as a result of risks, uncertainties, and other factors including, but not limited to, the factors set forth in the company's filings with the SEC. NeurAxis, Inc. undertakes no obligation to update or revise any of these forward-looking statements. With that said, I would like to now turn the event over to Brian Carrico, Chief Executive Officer of NeurAxis, Inc. Brian, please proceed. Brian Carrico: Thank you, Ben. Good morning, and thank you for attending the third quarter 2025 Earnings Call. During today's call, I will highlight the continued execution of our commercialization strategy for IV Stem, our neuromodulation technology for both the pediatric and adult patient populations, and RED, our product for patients with evacuation disorders. The continued execution has set the stage for continued growth in the recent quarters and stronger growth expected in 2026 and beyond. We will recap Q3 and discuss the milestones and growth plans for 2026. Following my remarks, Timothy Robert Henrichs, our CFO, will review our financial results for 2025. We'll start with commercial execution and reimbursement progress. Our strategy remains laser-focused on expanding access through medical policy coverage and accelerating utilization of IV Stem as we approach the effective date of category one CPT code on 01/01/2026. While revenue growth has strengthened in recent quarters, providers are still treating only a fraction of the addressable market because national policy coverage and a permanent CPT code are not yet in place. Our top priority remains securing coverage under medical policy. Our internal prior authorization team continues to expand, helping hospitals reduce administrative burden and improve patient access. A critical step toward broader adoption. We believe we are making progress with payers. Many of the nation's largest insurers are now in active dialogue as they approach policy review dates at many points between now and through 2026. Our advocacy emphasized the urgent need for pediatric coverage in the clinical risks of the off-label drugs with FDA black box warnings. To strengthen our message, we've mobilized a coalition that includes formal letters of support from the academic society, direct correspondence from leading children's hospitals, and national key opinion leaders, detailed updates from NeurAxis, Inc. to the payers, including the guidelines, the favorable ECRI clinical evidence assessment, the favorable up-to-date recommendations, and several additional strategies, which we will not be disclosing. Based on expert opinion, we have the most comprehensive payer engagement effort in our industry. The tone has been constructive, and we're confident this multichannel approach will drive favorable policy considerations. That said, we expect policy changes and prior authorization improvements to unfold gradually, not overnight. I want to now focus on and highlight the catalyst for what we expect to be continued revenue growth in the coming quarters. Two elements remain key to IV Stem's success. Number one, insurance coverage for access. And number two, physician RVU compensation for adoption. We now have roughly 55 million covered lives and continue to see positive payer momentum supported by the clinical practice guidelines published earlier this year. Regarding commercial readiness for 2026, in addition to the two key elements just mentioned, the commercial execution team utilizing these two elements is equally important and the primary focus of our commercial strategy. As the new CPT code takes effect and coverage becomes more available, it is paramount for children's hospitals to have enough dedicated time slots each week to treat the patients in need. Our commercial organization is fully aligned for the 2026 transition. We've prioritized target children's hospitals based on their utilization potential and launched comprehensive education and outreach, including direct engagement with the 75 children's hospitals who previously ordered IV Stem, division chief meetings with detailed RVU and financial modeling, comprehensive partnership with NASA beginning with a CME accredited presentation on November 12, integrated marketing, highlights the positive reimbursement shift, field programs focused on the clinical and economic value of the new CPT code, and we are working closely with all stakeholders to ensure there are dedicated weekly time slots available for patient treatment with IV Stem. These coordinated efforts are cultivating awareness and positioning IV Stem for broad adoption once the new CPT code takes effect. Our forecast remains conservative, recognizing that initial revenue conversion may lag as hospitals refine workflows and navigate early payer hurdles. As I just mentioned, coming off another quarter of growth year over year with Q3 coming in at a 22% increase marking the fifth consecutive quarter of double-digit growth. As this is our fifth quarter of double-digit growth, we are pleased that this amount of growth is coming considering the organic growth from the small number of hospitals comfortable with the current category three CPT code. More importantly, we hit another milestone as the big picture comes into more focus. This milestone is the indication expansion to functional abdominal pain associated with IBS and functional dyspepsia with associated nausea symptoms in the adult population, significantly increasing our market opportunity. Regarding the category one CPT code, the new category one CPT code represents a true inflection point. Effective 01/01/2026, this will streamline coding and reimbursement, introduce work RVUs for providers, and should substantially lessen the no authorization required response barrier that currently limits access with the category three CPT code. The reason this new CPT code is so critical is that it brings a permanent code with RVUs, making it much easier for providers to bill a procedure. It will allow reimbursement amounts for transparency and consistency, and it will provide work RVUs which is how physician productivity is measured. One could easily argue, as I've mentioned before, that physicians in a children's hospital setting are treating patients for free because there is no current work RVU associated with the category three CPT code. This will no longer be the case come January 1. As mentioned earlier, the new category one CPT code was assigned by the American Medical Association CPT panel and will be effective for utilization on January 1. Furthermore, the RVUs and payment values are now finalized for 2026, and we are very pleased with these numbers. This brings me to our commercial plan for IV Stem in adults. The FDA indication that was just awarded. As we all know, the category one CPT code for IV Stem will translate to adults because it's the same physician work for the same device technology. What everyone may not know is that although we have FDA clearance for adults with IV Stem, it was based on extrapolation of adolescent data to adults. Thus, there is not a large study conducted in adult patients alone. So medical policy coverage is not immediately likely. This means there could be 2026 coverage and reimbursement issues for IV Stem in adults. None of this is a big surprise to us, and is why we have been and will be spending our focus on the pediatric side of the business. Having said all that, we are approaching the adult IV Stem market from three angles. First, we are in the final stages of signing a contract with a prestigious institution to do a randomized controlled trial in adults. Second, we have submitted for a federal supply schedule contract, also known as an SSS contract, for access into the Veterans Administration. We are cautiously optimistic we will have an SSS contract by early 2026 with IV Stem on that contract. This will enable a commercial path into the VA, which is responsible for nearly seven million active patients per year with a functional dyspepsia prevalence rate of 3%. We are dedicating sales resources to this endeavor and will expand as we get feedback and see results. Third, we are doing a limited market release on the private and commercial side for IV Stem to gauge the insurance acceptance of IV Stem in adults using the cat one code and ultimately gauge whether there is a cash pay market if insurance is not favorable. Turning to RED, our rectal expulsion device. RED allows for earlier, more targeted treatment decisions for patients with chronic constipation, a meaningful improvement for patients and providers. We are selling the device and continue to see good physician interest. But being a new technology means practice flow changes and physician habit changes. Furthermore, there is an existing category one CPT code and strong reimbursement, but we have learned that there will be a new CPT code effective January 1, which may or may not be positive for RED. So we expect to learn in detail what this means before January 1. To this point, RED in the private market is to be determined but we will be exploring RED in the VA due to the synergy of a sales force calling on adult gastroenterologists in that location. In summary, we're executing against the milestones that matter most. Payer coverage expansion, CPT code implementation, commercial readiness, and execution. As we move into 2026, the focus is clear: drive national medical policy coverage, maintain disciplined commercial execution, and achieve cash flow breakeven as adoption accelerates. Although we are far from satisfied, we're proud of the progress made this year to date and energized by the opportunities ahead. For our shareholders, our team, and the 1,000,000 patients who stand to benefit from our therapies. I will now turn the call over to our CFO, Timothy Robert Henrichs, to discuss the financials. Timothy Robert Henrichs: Thank you, Brian, and let me add my welcome to everyone joining us on this call. These financial results were included within our press release, which was issued earlier this morning and were also provided in more detail within our 10-Q that was filed yesterday. I will provide some additional detail in key areas such as our financial results and liquidity position as well as an outlook on certain areas. The 2025 marked the fifth straight quarter of double-digit revenue growth year over year, as Brian mentioned previously. We are proud of our achievements and market penetration in 2025. Especially since that double-digit revenue growth is not even reflective of the milestones we achieved this year. Namely the FDA indication expansion to functional abdominal pain and functional dyspepsia with associated nausea symptoms in both children and adults, IV Stem label expansion from 11 to 18 years of age to 18 to 21 years old, including an increase of devices per patient to four. The published Naspigan Academic Society guidelines, the new category one CPT code, work RVUs, and reimbursement values as well as the RED device. Our operational, regulatory, and clinical accomplishments coupled with our revenue growth, strong gross margins, and operating expense leverage are setting us up well for strong growth in 2026 when a category one CPT code becomes effective. With that, I'll go through the financial highlights in detail. Revenues in 2025 were $811,000, up 22% compared to $677,000 in 2024. Unit deliveries increased approximately 38% compared to the prior year due to volume growth from patients in the company's financial assistance program that provides discounts to those without insurance coverage. In fact, 2025 marked the sixth straight quarter of double-digit unit growth. And although our average selling price to these patients was lower, we are encouraged by the increase in the volume for the quarter because these transactions are expected to convert to full reimbursement at a higher gross margin once insurance coverage is obtained in the future. In fact, this growth does not come as a surprise to us, as we assembled a dedicated internal team to deliver for these specific patients as our mission is to treat everyone regardless of their income level or insurance coverage. Additionally, a smaller portion of the revenue growth in the quarter is due to the soft launch of the RED product line in 2025. Given the achievement of the recent milestones, we expect revenue growth to continue in the fourth quarter prior to the effective date of the new category one CPT code given the strong demand and acceptance on the part of healthcare providers and patients for our products. Gross margin in 2025 was 83.3% compared to 85.4% in 2024. Despite the double-digit growth in sales, the decline in our gross margin year over year was due to one, higher discounting on devices sold through the financial assistance program to patients with lower income levels, two, stronger unit growth in the lower margin financial assistance program compared to the full reimbursement program, and three, expired RED inventory charges as the soft launch ramped slower than expected. Despite the decline in our gross margin in the third quarter, we expect our gross margin to recover into 2026 when a new category one CPT code becomes effective on 01/01/2026, which we expect will transition currently discounted device sales to full reimbursement revenue with insurance coverage. Total operating expenses in the third quarter of 2025 were $2,800,000, an increase of 25% compared to $2,200,000 in 2024. We measure and manage our operating expenses in three distinct buckets: sales and marketing, research and development, and general and administrative. As we continue to grow at a double-digit pace, we realized that investors would benefit from a more transparent presentation of our sales and marketing and research and development costs as those are indicators of our future success. As a result, we reclassified $243,000 and $54,000 from general and administrative expenses into sales and marketing and research and development costs respectively, in 2024 to conform to current period presentation. Selling expenses in 2025 were $762,000, a 125% increase compared to $339,000 in 2024. The increase is due to sales commissions that are directly proportional to our higher sales volume, a temporary commission structure to facilitate growth and adoption in new states, and higher targeted advertising and marketing costs as we prepare for IV Stem's CPT category one code effective date on 01/01/2026. Research and development expenses in 2025 were $131,000, an increase of 4% compared to $126,000 in 2024. The increase is reflective of higher year-over-year spending on a medical research project. It is worth noting that our research and development expenditures are up 18% year to date in 2025 compared to 2024 due to our successful efforts in achieving FDA approvals for multiple indications including the first-ever clearances for functional abdominal pain and functional dyspepsia with associated nausea symptoms in both children and adults. The expansion of the IV Stem label to allow for a larger patient population beyond eleven to eighteen years of age to eighteen to twenty-one years of age, including an increase of devices per patient to four, and the RED device. We expect our research and development activities will continue to grow into 2026 and beyond as we identify incremental patients and markets that will benefit from our technologies. General and administrative expenses of $1,900,000 in 2025 were 7% higher than the $1,800,000 in 2024. This increase was due to the introduction of a long-term incentive plan in 2025 that did not exist in 2024, and third-party costs incurred to enhance the company's systems and its internal control environment, partially offset by the absence of certain one-time nonrecurring consulting and advisory costs incurred in 2024. Our operating loss in 2025 was $2,100,000, 27% higher compared to a $1,700,000 loss in 2024. And our net loss in 2025 was $2,100,000, 21% higher compared to $1,800,000 in 2024. Our higher gross profit from increased quarterly sales year over year was offset by the higher operating expenses that I just walked through. As it relates to liquidity, cash on hand as of 09/30/2025 was $4,400,000. And we improved our liquidity position in October 2025 by raising an incremental $2,800,000 through an at-the-market equity offering and the exercise of warrants. Lastly, our free cash flow in 2025 remained at our expected burn rate of $1,500,000. Increased cash collections from our growth were offset by our higher inventory purchases to prepare for the IV Stem CPT category one code effective date on 01/01/2026 and higher advertising spend that I previously mentioned. And with that, let me turn the call back over to Brian. Brian Carrico: Thank you, Tim. To summarize, while we have recently achieved several critical milestones, we are still in the very early stages of what we expect to be substantial top and bottom line growth over the coming quarters. Our continued execution of the commercial strategy highlighted by the assignment of a category one CPT code for PE and FS and the broadened 510(k) clearances is expected to drive the scale and growth. With that, operator, we'd be happy to take any questions. Operator: Thank you. As a reminder, to ask a question, please press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. You can also ask a question on the webcast by typing into the ask a question box. Please stand by while we compile the Q and A roster. And our first question comes from Chase Richard Knickerbocker at Craig Hallum. Your line is open. Chase Richard Knickerbocker: Good morning. Thanks for taking the questions. Congrats on the progress. Brian, I just wanted to start maybe on how you're tracking success and, you know, incentivizing your team ahead of kind of that expected volume inflection next year? Obviously, there's a lot of kind of prep work to prep the ground for that potential volume inflection with the CAT one code and hopefully national coverage at some point in the future here. Can you speak to kind of how you're incentivizing your commercial team to make sure those, you know, IV Stem days are getting set up and kind of prepping those accounts to handle more patients? Brian Carrico: Well, two answers for you. One, we have a strong commercial sales force. We have a sales force that has been here for five, six, eight, ten years. They know the technology extremely well. I will tell you that from an internal forecast, this team forecasted what appears to be our 2025 revenue that they're going to come in within $50,000 on the year, which speaks to how well they know the account and the stage of the account. I would tell you they're highly incentivized from a commission structure standpoint. And I would tell you that they are being extremely diligent from a prioritization standpoint. When I say that, I mean areas and states that have good insurance policy coverage. That will now have a category one CPT code. That takes highest priority. And then even accounts that have ordered previously in those states become the top priority because it's always easier to grow legs on an account with champions than it is to open a new account, which takes time regardless. So I don't know if that answers your question, Chase, but I would tell you that there's not a lot of noise. No one's off in the weeds. They're highly motivated from a financial standpoint and from the fact that they've been here as long as they have, and they know the accounts as well as they do. The demand has always been there. So these relationships, this is all coming to fruition. And look, everyone's going to learn to some degree in the first quarter together on how this category one code responds in areas with insurance coverage and in areas that don't have written insurance policy coverage. And the good news is as we implement the category one CPT code, which, of course, affects every physician and patient nationally, it will give Tim and I an opportunity to be more predictive with how we see revenue rolling out, and we'll do that. We do that from a macro standpoint and from a micro standpoint. We go through the commercial sales team has gone through for the last several years account by account, state by state, and put together a forecast for the upcoming quarters and year. And that hasn't changed, and I believe with this category one code rolling out, we'll be able to look at again, how the revenues respond in areas with or without insurance policy coverage. That will give us an opportunity to predict, I believe, better than we have. What revenue looks like going forward. But I do think that will take thirty, sixty, ninety, at least a quarter, if not two quarters. I think by mid-2026, we've got a really good handle on what's working, what's not, and how we can materialize and drive revenues in all areas based on the success where we are. Chase Richard Knickerbocker: Is there any way you can help us think about kind of that volume inflection that would be seen, you know, just from the CAT one CPT code alone even kind of before national payer coverage? Have you kind of started that, any of that forecasting exercise with your commercial team as far as kind of how you're thinking about Q1 and Q2 year if we just kind of get the CAT one code, you know, in isolation? Brian Carrico: Yeah. We have in areas where we have insurance policy coverage, if you saw our internal forecast, you would see a better adoption rate and more confidence in the projection in areas where there is insurance policy coverage or some insurance policy coverage because we know those children's hospitals will have insurance policy coverage and a category one code, whereas areas without policy coverage, the trial by fire will be, you know, there is some confidence from children's hospitals without policy coverage that they will still do decent and get some approvals, more approvals than they are now with a category one CPT code for multiple reasons. But that's, you know, we're not going to step out on that limb yet. We want to wait and see what the response is right now. Our focus from a forecast standpoint is absolutely being in those areas where there is insurance policy coverage and there will be a cat one code, which in our world is a perfect world. Chase Richard Knickerbocker: Got it. And then just last couple for me. Any update, Brian, you'd be willing to give us on kind of engagement with payers? Any sort of new thoughts there as far as we kind of track towards, you know, hopefully, payer coverage at some point in the future here. And then just second for Tim on the SG&A, just as far as if you could help us quantify any additional commercial investment that we'll be making ahead of that CAT one code and how that flows through to incremental SG&A growth as we look into Q1 and Q2? Brian Carrico: Yeah. On the payer coverage, I would just say that payers traditionally don't engage heavily with industry, and that's the same with us. They're responsive. We believe that they're fully aware of this, you know, the category one code, which we believe brings strong credibility. They're fully aware of equity and up-to-date. And the society's feelings on the technology and the society's feelings on the concern for the antidepressants and the drugs that are being given to the children before IV Stem and the need for IV Stem policy coverage. But, you know, there are some things I'm just not going to get into publicly right now. But, you know, I would just say I like our position. And we feel good about the comprehensive approach we're taking with these payers. And they are responsive, and, you know, in most, if not all policies that we currently have, we didn't know until they were announced publicly that we had policy coverage. So I don't expect that to change and don't expect to get some big heads up that we were receiving another policy coverage. Timothy Robert Henrichs: And, Chase, to follow-up on your question regarding the SG&A expenses, so two areas as we head into 2026 and beyond where I think we're gonna focus special attention. And we saw it here in the third quarter, is that our sales and marketing efforts first. Historically, our marketing efforts have been, you know, kind of general across the patient population. In the third quarter, we moved the ball a little bit and decided to change our strategy and specifically target payers because of what's at stake here. And we think it's a matter of when, not if, which you can see in the third quarter, obviously, our marketing expenses, you know, more than doubled quarter over quarter. And I'm not necessarily committing to doubling that every single quarter, but I think that once we start to see that increased insurance coverage from the change in our marketing effort, I do think we're gonna continue to see higher marketing costs as we go into 2026. Because that is a direct, in my opinion, direct link to our sales. So as long as the sales are there, which we believe they will be, we will continue our new and improved marketing efforts targeting payers. Secondly, on the other area is R&D. Brian mentioned particular with, you know, the adult population and IV Stem because we got that indication from the FDA. When we head into 2026, we're gonna have, you know, an additional randomized controlled study or trial as well as other costs because our market is expanding with the device. The beauty of the IV Stem device is it has many purposes, but, obviously, we continue to work with the FDA to get those approvals and when we do get that approved, it expands our market share. So as long as that continues to happen, which it has and we expect it will, we will continue to invest in R&D in the device in order to expand our market share. So I expect our R&D cost to increase when we head into 2026. From a G&A perspective, you know, generally speaking, as our sales grow, we will hire more sales reps. And then there'll be commission associated with that. But I, you know, really look at that as variable. If you will. It'll be direct relation to sales. And the rest of the G&A, albeit not necessarily all fixed, I think we've been holding that pretty steady and taking some cost out just behind the scenes. Obviously, not doing anything to harm the business, but just to do, you know, good financial discipline and negotiate and continue good contracts for the company at cheaper rates and better services. So that's how I would sum up how we're thinking about 2026 G&A expenses. Brian Carrico: And, Chase, I would add to that that based on the results of the category one CPT code in areas with insurance policy coverage and in areas without insurance policy coverage, we have some plans teed up and that's in our internal budget for 2026. My point is we'll be ready to pull the trigger regardless of what works and where. We're ready to do some things whether, albeit, add additional salespeople on the pediatric side, whether, albeit, add additional salespeople on the adult side, whether it's private or VA, whether it's additional targeted marketing to healthcare providers to make sure this is top of mind and used early and often. There are multiple levers we have teed up to pull, enter in the budget, and we'll pull those accordingly. Doing that before January 1 or even in January, I think, would be equivalent to shooting before you aim. We want to make sure that we understand exactly what's happening before we utilize resources. Chase Richard Knickerbocker: Helpful. Thank you, guys. Operator: Okay. Brian, we have some questions that have come in. Question on RED. It's not a priority right now, but how do you see the revenue ramp here in the early innings in terms of what do you need to do to further educate the doctors on this? Brian Carrico: Well, first off, this to some degree, competes with ARM, and ARM is well entrenched in the market. ARM reimburses very well. RED has a nice reimbursement right now. But as I mentioned in the call, RED changes not only physician practice habits, but it changes physician practice flow. And when you combine those two, it takes longer to get this up to the scale that we expected as fast or, I should say, as we wanted. And going into 2026, this is pretty straightforward. We've got to understand the CPT code reimbursement and the work involved in that CPT code, and we're waiting on some answers from the AMA and from societies, and we won't have that information, I believe, until mid-December. I do expect we'll have it by January 1. Look, it's a nice-to-have product. It's in the bag with the reps who are at that call point. That should also be the case in the VA going into 2026. But our focus without question is on IV Stem in the children's hospitals. Operator: Okay. Thank you. A question for you, Tim. Can you speak about the current cash balance and sort of where do you see that taking you here? Timothy Robert Henrichs: As I previously mentioned, we ended the quarter with $4,400,000. Then in October, we utilized the aftermarket offering and some warrants were exercised for an incremental $2,800,000. When we head into and in the third quarter, we were still in our run rate at $1,500,000 a quarter. Now in the fourth quarter, then as we head into next year, we have two, what I would call, nonstandard payments going into 2026. If you recall back in July, we reacquired the license from Massimo for our NSS Bridge device. There's a payment due at the end of this calendar year and then another payment next year. And then we settled a lawsuit in the first quarter and that will be paid out in 2026 as well. And so those are incremental payments when we move into 2026. But having said all of that, excluding that, our $1,500,000 burn rate is still intact in 2026, and I expect the current cash balance to last us well into 2026. And then what that does is that gives us a chance. Everything that Brian talked about with the category one CPT code, depending on how that ramps with IV Stem, if it ramps faster than what we expect, our cash and liquidity will last us longer. If it's slower, I would tell you as we look into 2026, we generally try to be conservative with our internal forecast. We feel pretty confident about that $1,500,000 run rate. So it could go even longer into 2026. I mean, it ramps even faster if we get one big insurance payer that could obviously change the game for us and really limit any additional equity raises that we may need. But as it stands right now, my current expectation is that the current cash position and our liquidity lasts us into 2026. Operator: Thank you. And as a reminder, if you have an audio question, please press 11. And at this point, there are no more questions in the queue. Therefore, I'd like to turn the call back over to Brian Carrico for closing remarks. Brian Carrico: Thank you, everyone, for joining the call today. If anyone wants to follow-up in the coming weeks and months, I'm generally available. And we look forward to communicating any additional successes in the coming months. And everyone have a nice rest of the fall and winter. Thank you. Operator: This concludes today's conference call. Thank you for participating and you may now disconnect.
Operator: To all sites on hold, appreciate your patience, and please continue to stand by. To all sites on hold, we appreciate your patience and please continue to stand by. Please standby. Your program is about to begin. If you require assistance throughout the event today, press 0. Good day, everyone, and welcome to today's Bain Capital Specialty Finance Third Quarter Ended 09/30/2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question and answer session. Please note, today's call will be recorded, and I will be standing by should you need any assistance. It is now my pleasure to turn the conference over to Katherine Schneider with Investor Relations. Please go ahead. Katherine Schneider: Thanks, Chloe. Good morning, everyone, and welcome to the Bain Capital Specialty Finance Third Quarter Ended 09/30/2025 Conference Call. Yesterday, after market close, we issued our earnings press release and investor presentation of our quarterly results, a copy of which is available on Bain Capital Specialty Finance's Investor Relations website. Following our remarks today, we will hold a question and answer session for analysts and investors. This call is being webcast, and a replay will be available on our website. This call and the webcast are property of Bain Capital Specialty Finance, and any unauthorized broadcast in any form is strictly prohibited. Any forward-looking statements made today do not guarantee future performance, and actual results may differ materially. These statements are based on current management expectations, include risks and uncertainties, which are identified in the risk factors section of our Form 10-Q that could cause actual results to differ materially from those indicated. Bain Capital Specialty Finance assumes no obligation to update any forward-looking statements at this time unless required to do so by law. Lastly, past performance does not guarantee future results. So with that, I'd like to turn the call over to our CEO, Michael Ewald. Michael Ewald: Thanks, Katherine, and good morning. Thank you all for joining us on our earnings call here today. Continuing the regular programming, we do want to take a moment just to recognize anyone on the call who has served or is serving in our armed services. We genuinely appreciate your service and want to recognize you today on Veterans Day. Thanks. I'm joined today by Mike Boyle, our President, and our Chief Financial Officer, Amit Joshi. As usual, in terms of the agenda for the call, I'll start with an overview of our third quarter results and then provide some thoughts on our performance, the current market environment, and our positioning. Thereafter, Mike and Amit will discuss our investment portfolio and financial results in greater detail, and we'll leave some time for questions at the end. Yesterday, after market close, we delivered another quarter of solid results for the third quarter ended September 30. Q3 net investment income per share was $0.45, representing an annualized yield on book value of 10.3% and exceeding our regular quarterly dividend by 7%. Q3 earnings per share were $0.29, reflecting an annualized return on book value of 6.6%. Our net asset value per share was $17.40, a decline of $0.16 per share from the prior quarter end. This modest decline in our NAV this quarter was primarily due to a markdown on one of our loans that was idiosyncratic driven, not reflective of any broader credit issues apparent across our broader portfolio. Subsequent to quarter end, our board declared a fourth quarter dividend equal to $0.42 per share and payable to record date holders as of 12/16/2025. The Board also declared an additional dividend of $0.03 per share for shareholders of record as of 12/16/2025. As we previously announced in February, this brings total dividends for the fourth quarter to $0.45 per share or a 10.3% annualized rate on ending book value as of September 30. During the third quarter, we saw new deal activity pick up across the middle market, driven by new LBO and M&A activity following greater clarity on tariffs and stability regarding economic indicators such as inflation and unemployment, both of which have remained elevated in the US but have not continued to accelerate. Against this backdrop, our private credit group continues to curate a strong pipeline of lending opportunities in the core middle market. Our depth of industry expertise and collaboration across Bain Capital's global platform enables us to identify attractive investment opportunities in more specialized industries. Furthermore, our sponsors continue to view us as true business partners and value our ability to provide flexible capital solutions that support the financing and growth needs of their portfolio companies. During Q3, BCSS gross originations were $340 million. We remain disciplined on terms and structure in our segment of the market, with a weighted average spread on originations to new companies of approximately 550 basis points and weighted average leverage of 4.5 times. The vast majority of these commitments were to first lien borrowers. Now to quickly address the credit market headlines in recent weeks, we do not have exposure to First Brands nor Tricolor. While these credit events have been broadly linked to the overall private credit market, they've occurred outside of the traditional direct lending segment. First Brands and Tricolor are large cap companies versus Bain Capital's private credit group's focus within the core middle market. We favor this segment of the market due to its attractive characteristics, including greater loan tranche control, reduced lender consensus risk, and the prevalence of covenanted structures that provide for stronger lender downside management. We believe the bankruptcies of First Brands and Tricolor are idiosyncratic and do not believe that they reflect broader stress in the private credit market. However, these recent credit events reinforce the importance of our rigorous investment due diligence process, which incorporates scrutiny of off-balance sheet liabilities, collateral integrity, sources of liquidity, and corporate governance. Our processes also include deploying third-party legal advisers to perform legal due diligence and seeking to ensure that our borrowers have reputable auditors and quality of earnings providers. Finally, we also negotiate strict documentation for our loans, which includes not just financial covenants, but also broad reporting and inspection rights, all of which ensure we stay well informed about our portfolio company's performance, trends, and asset quality. While these are not new elements of our investment process, these recent credit events further support our emphasis on robust due diligence on every transaction we underwrite. In fact, credit quality and fundamentals continue to be healthy across our portfolio. Investments on non-accrual represented just 1.5% and 0.7% at amortized cost and fair value, respectively, as of September 30. Non-accruals were relatively stable from the prior quarter end. Turning to our outlook on earnings and dividend coverage in light of market expectations for a lower interest rate environment ahead. First, as a reminder, when we increased our regular dividend level throughout 2022 and 2023, we set our dividend policy at an attractive level for shareholders of between 9-10%, and to a level that we believed could be earned throughout multiple market environments. Since then, we've been operating with meaningful net investment income dividend coverage, which has provided excess income that has been distributed to our shareholders via supplemental dividends and also increased retained earnings driving healthy spillover income equal to $1.46 per share or three times our regular dividend level. Our Q3 net investment income has come down relative to peak levels in prior periods largely due to the decrease in base rates but notably still exceeds our regular dividend level. In the current environment, we believe we can maintain our regular $0.42 per share dividend. The company has several earnings levers to potentially offset headwinds next year from a lower rate environment and our fixed rate debt maturities in 2026 beginning in March. These future growth levers include: higher earnings from select joint venture and ABL investments through the senior loan program SLP, and legacy corporate lending as our current dividend payout from those has been lower relative to their run rate earnings potential. Second, higher levels of prepayment-related income and other income as new M&A deal volumes increase. And finally, leveraging our private credit group platform's focus on the core middle market to drive attractive spreads on new investments. Also selectively invest in junior debt investments as our flexible capital in today's market environment can be a valuable tool for middle market borrowers. Taking all of this together with the solid credit performance that we have demonstrated over the years, we believe the company is well positioned to continue driving attractive results for our shareholders. Furthermore, we believe our current stock price valuation offers a compelling relative to our credit fundamentals. At BCSF's current market price as of yesterday's close, our dividend yield, inclusive of our regular and special dividend for Q4, represents a 13% annualized yield. We believe this is an attractive level for investors on both an absolute and relative value basis across the BDC sector. I will now turn the call over to Mike Boyle, our President, to walk through our investment portfolio in greater detail. Mike? Mike Boyle: Thank you, Michael, and good morning, everyone. I'll start with our investment activity for the third quarter and then provide an update in more detail on our portfolio. New investment fundings during the third quarter were $340 million into 101 portfolio companies, including $124 million in 14 new companies, $210 million into 86 existing companies, and $6 million into our SLP. Sales and repayment activity totaled approximately $296 million, resulting in net investment fundings of $44 million quarter over quarter. Our new investment fundings were comprised of 36% to new companies and 64% to existing portfolio companies. First lien senior secured loans continue to comprise the vast majority of our new investments, representing 89% of our new investment fundings. The remaining 11% was comprised of 3% into second lien loans, 1% in subordinated debt, 5% in preferred and common equity, and 2% in our investment vehicles. We remain selective in our underwriting approach and continue to favor middle market-sized companies within the core middle market. While the market environment remains competitive with spread compression continuing in the broader market, we believe Bain Capital remains well positioned to source new opportunities given our platform's breadth, scale, and longevity in the core middle market. As Michael Ewald highlighted earlier, the weighted average spread of our Q3 originations to new companies was approximately 550 basis points. We were also particularly active this quarter with providing add-on capital to existing portfolio companies, which resulted in a weighted average spread across all of our originations in the quarter of 610 basis points over base rates. Our new investments during the quarter continued to favor defensive sectors such as healthcare, pharmaceuticals, aerospace and defense, and wholesale. Turning to the investment portfolio, at the end of the third quarter, the size of our portfolio at fair value was approximately $2.5 billion across a highly diversified set of 195 portfolio companies operating across 31 different industries. Our portfolio primarily consists of investments in first lien senior secured loans, given our focus on downside management and investing at the top of capital structures. As of September 30, 64% of the investment portfolio at fair value was invested in first lien debt, 1% in second lien debt, 4% in subordinated debt, 6% in preferred equity, 9% in equity and other interests, and 16% across our joint ventures, including 9% in the ISLP and 7% in the SLP, both of which have underlying investments primarily consisting of first lien loans. As of 09/30/2025, the weighted average yield on the investment portfolio at amortized cost and fair value was 11.1% and 11.2%, respectively, as compared to 11.4% and 11.4%, respectively, as of 06/30/2025. The decrease in yields was primarily driven by a decrease in reference rates across our portfolio, as 93% of our debt investments bear interest at a floating rate. Moving on to portfolio credit quality trends, credit fundamentals remain healthy. Median net leverage across our borrowers is 4.7 times as of quarter end, down from 4.9 times as of the prior quarter end. Median EBITDA was $46 million, which was relatively unchanged from the prior quarter end. Watchlist investments as a percentage of our overall portfolio have remained stable quarter over quarter as indicated by our internal risk rating scale. These investments include our risk rating three and four investments, which comprised 5% of fair value. Our underlying portfolio companies within this category have also remained stable. We have not seen a large migration of any new names down the credit risk rating scale. Investments on non-accrual represented 1.5% and 0.7% of the total investment portfolio at amortized cost and fair value, respectively, as of September 30. This is compared to 1.7% and 0.6%, respectively, as of June 30. Turning it now to Amit, who will provide a more detailed financial review. Amit Joshi: Thank you, Mike, and good morning, everyone. I'll start the review of our third quarter results with our income statement. Total investment income was $67.2 million for the three months ended 09/30/2025 as compared to $71 million for the three months ended 06/30/2025. The decrease in investment income was primarily driven by a decrease in other income from lower activity levels during the quarter. The quality of our investment income continues to be high as the vast majority of our investment income is driven by contractual cash income across our investments. Interest income and dividend income represented 98% of our total investment income in Q3. Notably, the vast majority of our PIK income, which represents 11% of our total investment income in Q3, is derived from investments that were underwritten with PIK. Only a small portion of our PIK income is related to amended or restructured investments. Total expenses before taxes for the third quarter were $37.2 million as compared to $39.3 million in the second quarter. The decrease in expenses was driven by a lower incentive fee resulting from our three-year look-back on our incentive fee hurdle as well as lower interest and debt fee expenses. Net investment income for the quarter was $29.2 million or $0.45 per share as compared to $30.6 million or $0.47 per share for the prior quarter. During the three months ended 09/30/2025, the company had net realized and unrealized losses of $10.5 million. As Mike highlighted earlier, our net losses this quarter were primarily driven by one of our portfolio company investments and not broad-based across our portfolio. Net income for the three months ended 09/30/2025 was $18.7 million or $0.29 per share. Moving over to our balance sheet, as of September 30, our investment portfolio at fair value totaled $2.5 billion and total assets of $2.7 billion. Total net assets were $1.1 billion as of 09/30/2025. NAV per share was $17.40, a decrease of $0.16 per share from $17.56 at the end of the second quarter. As of September 30, approximately 60% of our outstanding debt was floating rate debt, and 40% was in fixed rate debt. For the three months ended 09/30/2025, the weighted average interest rate on our debt outstanding was 4.8%, as compared to 4.9% as of the prior quarter end. The weighted average maturity across our debt investment was approximately 3.4 years at 09/30/2025. At the end of Q3, our debt to equity ratio was 1.33 times as compared to 1.37 times from the end of Q2. Our net leverage ratio, representing principal debt outstanding less cash and unsettled trade, was 1.23 times at the end of Q3 as compared to 1.2 times at the end of Q2. Liquidity at quarter end was strong, totaling $570 million, including $457 million of undrawn capacity on our revolving credit facility, $86.8 million in cash and cash equivalents, including $26.2 million of restricted cash, and $26.5 million of unsettled trade, net of receivables and payables of investment. With that, I'll turn the call back over to Michael Ewald for closing remarks. Michael Ewald: Thanks, Amit. In closing, we are pleased to deliver another quarter of attractive net investment income and credit fundamentals across our middle market borrower portfolio. Bain Capital Credit brings over twenty-five years of experience investing in the middle market and has demonstrated solid credit quality with low losses and non-accrual rates since our inception. We remain committed to delivering value for our shareholders by providing attractive returns on equity and prudently managing our shareholders' capital. Chloe, please open the line for questions. Operator: Certainly. You may withdraw yourself from the queue at any time by pressing star 2. Again, that is star and 1. And we'll take our first question from Finian O'Shea with Wells Fargo Securities. Your line is open. Finian O'Shea: Hey, everyone. Good morning. Michael, can you talk about to what extent the push for more spreads, leverage, off-balance sheet leverage, etcetera, to what extent that brings on more risk, and the sort of change in, say, expected loss rate on the go forward? Thanks. Michael Ewald: Sure. So I do think running in line with our on-balance sheet leverage ratio between one and one and a quarter is what we continue to focus on doing. And so we don't have a particularly heavy reliance on off-balance sheet leverage. Both of our joint ventures do use leverage. The ISLP is levered about 0.8 times to one, and the SLP is levered slightly more than that but is a smaller position. So I think prudently managing to that on-balance sheet leverage ratio target is one thing that we do focus on, and I think that is a key part of the risk-return equation that we're doing for BCSF. In terms of loss rates going forward, I do think, as we've noted on the call, there are idiosyncratic losses that come across any portfolio. But the fact that we have a very diversified set of companies, almost 200 companies in BCSF, puts us in a position where any individual loss won't drive a meaningful impact on the overall performance of the BDC. So I think that focus on on-balance sheet leverage and then pairing that with diversification is a key part of why we're able to drive the risk-return that we have been delivering in BCSF. Finian O'Shea: That I think is helpful. I just want to follow-up on the aircraft. Looks like a little bit of a mark there this quarter. Correct me if I'm wrong. I'm just seeing what sort of going on if it's airplane values or whatnot. And then the aircraft high level given that's a strength differentiator for Bain. Is this something you could expand, say, in a good asset or 30% bucket friendly way into more of the portfolio or say lever those vehicles more, safely a comment on that. Thanks. Michael Ewald: Sure. So we did have a small write down on some of our aircraft this quarter. But, really, that's just looking to potential exit valuation of some of the aircraft that we do own, and not reflecting a meaningful change in our underwriting thesis there. We do think underwriting hard assets is an important part of what we do and a big differentiator for BCSF. We've done that in aviation. We've also done that through legacy corporate lending, which is an asset-based financial company that we've supported and grown. And so I do think we are out there finding interesting opportunities across the asset-backed market, and we'll continue to have that be a substantial part of the portfolio. I wouldn't expect meaningful growth from here, but I think some stability from that segment adds good diversification, and it's something we'll continue to find new investments in. Finian O'Shea: Okay. Thanks so much. Operator: Thank you, Finian. And once again for your questions, that is. We'll move next to Paul Johnson with KBW. Your line is open. Paul Johnson: Yes, good morning. Thanks for taking my questions. So NII earnings just without the look back would obviously be a little bit lower. It was about 3¢ this quarter. I understand. I mean, it looks like fee and dividend income is also a little bit lighter this quarter just quarter over quarter. But if I kind of do the math on just the incentive fee or essentially the full incentive fee coming back in, that's roughly, like, 60-70 basis points on ROE plus you have roughly about half of your debt stack that's going to have to reprice pretty significantly higher next year. So that's probably, you know, another, you know, call it 50 basis points or so of an ROE hurdle that's just kind of coming in from the incentive fee and refinancing. So I guess the things that you guys kind of identified in terms of what makes you confident about the earnings coverage of the dividend. I mean, do you think that that should be kind of able, I guess, to exceed those items? Amit Joshi: Yes. We do expect that as both Mike highlighted. I think we have different levers to pull from our perspective. And we have baked into account some of the points which you've highlighted about our debt coming for refinancing next year. Of course, we did issue a debt earlier this year. But we totally appreciate that they will be done at a different level, which will put some pressure. But as Mike highlighted earlier, the levers which we have should be able to keep us above our regular dividend in terms of meeting those thresholds. Along with that, as we highlighted, we do have decent cushion from a spillover income perspective too, which is healthy as well. So among all of that, we feel comfortable. Paul Johnson: Got it. Okay. And then, I guess, like, the financing within the joint ventures and the CLO, at this point, do you think there's any potential room to extract any improvement there at this point? Most of those financing arrangements are pretty tapped out. Amit Joshi: We are continuously having discussions with our banking partners. So to your point, I would say yes. As spreads on the asset side have continued to tighten, we have been managing our liabilities as well appropriately. So my short answer would be yes. We are continuously looking at them. As you highlighted, some of them do have lock-in periods from that perspective, but again, as we have continued to grow, we have been having active dialogues. So in some cases, we have already done that. Like, in one of our joint ventures, ISLP, we did refinance the debt at a much tighter spread. So that's, again, something which we'll continue to do as we continue to look at those portfolios. Paul Johnson: Got it. Thanks for that. And then last one for me was just the junior capital opportunities that you mentioned. Is that something that you're seeing now, or is that just something I guess, you know, because you've been able to do that in the past that that's just, I guess, one of the levers that's available if opportunities come through the funnel. Michael Ewald: Yeah. Thanks, Paul. Look, you know, the junior capital bit is part of the private credit group's calling card. It has been for over twenty-five years as well. So, you know, we've got a much larger platform, which has about $20 billion or so of AUM, of which BCSF is $2.5 billion of that. Across that entire platform. Again, junior capital is something that we've done for over twenty-five years, and that's something that we can lean into when appropriate, when there's a need for flexible capital. You know, we're cautious about just taking more risk for the sake of taking more risk. It's more that, in today's market where base rates, though coming down, have stayed elevated, does seem to be an interesting air pocket in some companies' capital structures where you can charge a little bit more without taking some undue risk. Unfortunately, sometimes that does come with PIK income. But it is something that we can find where we can find some pretty interesting opportunities and have done so and continue to do so. Paul Johnson: Okay. Thank you very much. That's all for me. Operator: Thanks, Paul. We'll pause another moment. And it does appear that there are no further questions at this time. I would now like to hand the call back to Michael Ewald for any additional or closing remarks. Michael Ewald: Thanks, Chloe, and thanks again, everyone, for your time and attention today. We certainly appreciate your continued support of BCSF, and look forward to speaking with you again soon. Thanks. Operator: This does conclude today's program. Thank you for your participation. You may disconnect at any time, and have a wonderful afternoon.
Operator: Ladies and gentlemen, good morning, and thank you for your patience. This call will begin shortly. Thank you for your patience, and this call will begin shortly. Greetings. And welcome to the ACCESS Newswire third quarter 2025 earnings conference call. At this time, all participants will follow the formal presentation. If anyone should require operator assistance during the conference today, and please note this conference is being recorded. I will now turn the conference over to your host, Kristin Iacovelli, Vice President of Webcasting. Kristin, the floor is yours. Kristin Iacovelli: Welcome to ACCESS Newswire's third quarter 2025 earnings conference call. My name is Kristin Iacovelli, and I lead the company's Webcast and Events division as the Vice President of Webcasting. I've been with ACCESS for nearly twenty years, including my time with an organization that became part of ACCESS through an acquisition about six years ago. It's been an incredible journey watching the company grow and evolve into what it is today. I'm excited for what's ahead and proud to continue helping some of the world's leading brands and newly public companies share their stories each quarter. But before we begin, I'd like to remind everyone that statements made in this conference call concerning future revenues, results from operations, financial position, market, economic conditions, product releases, partnerships, and any other statements that may be construed as predictions of future performance or events are forward-looking statements. These statements involve known and unknown risks and uncertainties that may cause actual results to differ materially from those expressed or implied by such statements. We will also discuss certain non-GAAP financial measures, which are provided for informational purposes and should be considered in addition to, not as a substitute for, GAAP results. With that said, I'll turn the call over to our Founder and Chief Executive Officer, Brian Balbirnie, and our Chief Financial Officer, Steve Knerr. Brian? Brian Balbirnie: Thank you, Kristin. It's fair to say you, as well as many of us here at ACCESS, have a significant amount of industry experience, but all the credit to you for leading for over twenty years what is probably 50,000 webcasts, with you and your team. Truly amazing. You are a rare breed, and I'm so very grateful for your customer-first passion and how you lead and mentor your team, specifically working over this past weekend for us with one of our new IPO customers who was doing their first earnings call today. Congratulations from me, America, and thank you. With that, good morning, everyone, and thank you for joining us today to review ACCESS Newswire's third quarter 2025 results. As always, Steve and I appreciate you taking the time to be with us today, specifically on this 106th Veterans Day. Our 8-K and 10-Q will follow tomorrow as the SEC is closed on this holiday. Our third quarter results reflect continued progress in our core business and ongoing execution against our strategic priorities. We delivered both sequential and year-over-year revenue growth, meaningful improvement in profitability, and strong operating discipline, all while continuing to invest in our product and platform enhancements that will drive our future growth. Revenue for the quarter came in at $5.7 million, up 2% sequentially and year-over-year from $5.6 million. Adjusted EBITDA increased to $933,000, representing 16% of revenue, up from $546,000 or 10% in the same quarter of last year. Our gross margins held steadily at 75%, consistent with prior year levels, and operating loss improved significantly to $184,000 compared to a loss of $604,000 in 2024. These results reflect the positive impact of our operational realignment earlier this year, our continued focus on cost control, and our accelerating shift to subscription-based revenue. Before I hand the call to Steve, I want to highlight a few metrics that show the health of our business. Prior quarter and year, total active customers grew to 12,445, up slightly from the previous quarter. Subscription customers increased to 972, representing modest sequential growth and continued retention strength. Average recurring revenue per subscribing customer also rose to $11,601, up 14% year-over-year, evidence that our value proposition is resonating and our upselling strategy is working. We're encouraged by the progress but equally focused on the road ahead, continuing to scale efficiently while driving innovation and expanding our share in the market. With that, I'll turn the call over to Steve to walk you through some of the financial results in more detail. Steve? Steve Knerr: Thank you, Brian, and good morning, everyone. Happy Veterans Day to all of our former members of the armed forces. We are extremely grateful for your service and all you've done for our country. As Brian mentioned, Q3 is another quarter of generating increased EBITDA and non-GAAP net income while increasing revenue and lowering operating expenses. I will now discuss some of the details which led to these results. Total revenue for 2025 was $5.7 million, an increase of $84,000 or 1.5% compared to $5.6 million in the same period of 2024. For the first nine months of 2025, total revenue was $16.8 million, a $411,000 or 2% decrease from $17.2 million in the same period of the prior year. The increase in revenue for the quarter was due to an increase in our core press release revenue of 7% due to an increase in volume. For the nine months ended September 30, 2025, press release revenue increased 1%. However, this was more than offset by declines in revenue from our pro webcasting and IR website solutions. We anticipate increases in core press release revenue will lead to higher revenue growth rates in the quarters ahead. Gross margin percentages have remained relatively flat for both the three and nine months ended 09/30/2025, as compared to the prior year, at 75-76%, respectively. Although we have experienced increased distribution costs as we continue to expand our distribution footprint, we have been able to offset this with efficiencies in our operations teams in order to build scale. Gross margin increased $40,000 or 1% and decreased $233,000 or 2% for the three and nine months ended 09/30/2025, respectively, as compared to the same periods of the prior year. Moving to operating loss, we posted an operating loss from continuing operations of $184,000 for 2025 and $1.1 million for the first nine months of 2025, compared to operating losses of $604,000 and $2 million during the same periods of 2024. The decrease in operating loss is a result of lower operating expenses, which decreased $380,000 or 8% and $1.1 million or 7% for the three and nine months ended 09/30/2025, respectively, as we remain committed to developing efficiencies and optimizing our teams. General and administrative expenses decreased $409,000 or 22% for 2025 compared to 2024 due to a reduction in bad debt expense, employee-related expenses, as well as savings from indirect costs associated with the compliance business. For the first nine months of 2025, general and administrative expenses decreased $185,000 or 3% compared to the first nine months of 2024. This is due to the same reasons I just noted, however, it was partially offset by a one-time benefit recorded in 2024 of approximately $340,000 due to the reversal of stock compensation related to the resignation of an executive officer. We will continue to seek opportunities to reduce G&A expenses and are currently negotiating a sublease on our corporate offices, which we anticipate could save us over $300,000 annually. Sales and marketing expenses increased $34,000 or 2% and decreased $924,000 or 16% for the three and nine months ended 09/30/2025 as compared to the same periods of 2024. The decrease for the nine-month period is due to lower headcount throughout the first six months of the year. However, as of the third quarter, the team has been built back to where it was a year ago. Product development expenses have remained consistent for the three and nine months ended 09/30/2025, as compared to the same periods of the prior year. Decreases in costs related to consultants were partially offset by declines in capitalized software. Brian will talk further about some product enhancements coming this quarter and the early part of next year. And as such, we will expect to begin to capitalize more product development expenses related to such enhancements. On a GAAP basis, we reported a loss from continuing operations of $45,000 or $0.01 per diluted share during 2025, compared to a net loss of $870,000 or $0.23 per diluted share during 2024. For the first nine months of 2025, net loss from continuing operations was $1 million or $0.27 per diluted share compared to a net loss of $2.3 million or $0.61 per diluted share in the first nine months of 2024. There was no activity for discontinued operations during 2025 compared to net income of $404,000 or $0.11 per diluted share during 2024. For the first nine months of 2025, net income from discontinued operations was almost $6 million or $1.53 per diluted share compared to $1.7 million or $0.45 per diluted share for the same period of 2024. The increase is primarily a result of the gain on the sale of the compliance business. Looking to some non-GAAP metrics, 2025 EBITDA was $537,000 or 9% of revenue compared to a loss of $212,000 or 4% of revenue for the third quarter of 2024. For the first nine months of 2025, EBITDA was $1 million or 6% of revenue, compared to $70,000 for the first nine months of 2024. Adjusted EBITDA increased to $933,000 or 16% of revenue for 2025 compared to $546,000 or 10% of revenue in 2024. For the first nine months of 2025, adjusted EBITDA more than doubled to $2.3 million or 14% of revenue compared to $961,000 or 6% of revenue for the first nine months of 2024. Non-GAAP net income for 2025 increased $573,000 to $760,000 or $0.20 per diluted share compared to $187,000 or $0.05 per diluted share in 2024. The first nine months of 2025 non-GAAP net income increased to $1.5 million or $0.39 per diluted share compared to a non-GAAP loss of $78,000 or $0.02 per diluted share during the first nine months of 2024. We ended the quarter with $3.3 million of cash on hand. However, this was negatively impacted by cash outflow from operating activities of $582,000 during 2025. This was primarily due to the payment of over $1.1 million in taxes, primarily related to the gain on the sale of the compliance business. Cash generated by operating activities was $1.5 million during 2024, where this includes cash generated from the compliance business. The first nine months of 2025 cash flow generated by operating activities was $300,000 compared to $2.3 million during the first nine months of 2024. Again, the year-to-date amount for 2025 includes over $1.5 million paid in taxes primarily related to the sale of the compliance business. Adjusted free cash flow was negative $418,000 for 2025, compared to $1.4 million for 2024. For the first nine months of 2025, it amounted to $799,000 compared to $1.9 million for the first nine months of 2024. I will now turn it back over to Brian who will provide some updates on the business, customers, subscriptions, and volumes, along with everything else we have planned for the remainder of the year. Brian? Brian Balbirnie: Thank you, Steve. Let me start by saying that the third quarter showed solid execution across the board. Our focus remains on strengthening the core, scaling recurring revenue, and driving product-led growth. But before I speak on our outlook for the remaining part of the year and into next year, I wanted to reflect on the last nine months and what we've done to put the business in the best place for the future. We rebranded the business in January, sold our legacy compliance business in February, thus reducing the debt by 83%, also reducing then our OpEx by 7%. We retooled our entire back-office systems and processes, increased our focus on a subscription-first approach to sales, also increased subscription business to approximately 50% of our revenue, and we've continued to innovate our technology application by introducing AI agents that analyze content in real-time to further our commitments to both misinformation and disinformation. As most of you know, we're a lean business, and in reflection, this is an amazing amount of work to accomplish in nine months, as well as continue to grow minimally and improve operating results. All that said, we know that growth is key to our long-term business, and we are poised to do this in 2026. Customer counts and subscriptions at the beginning of the year were guided to achieve 1,500, and I want to talk about that for a minute. When you consider that when we disposed of the compliance business, we did actually lose 300 subscription customers from that sale. So that puts us in a corrected guided number of approximately 1,200 for our communications go-forward business. Today, we ended Q3 with 972, and we know that this number is aggressive to hit the target. But so long as we see continued ARR improvement and enhanced retention, with overall growth, we're setting ourselves up next year for an explosive year both in ARR and strong subscriber numbers. Here's how we're going to get there. Both in our internal initiatives of what we call trade-up and trade-in over the last couple of quarters we've spoken about. First, trade-up. We have significantly planned product upgrades that include advancements to our monitoring and delivery that will include real-time results from over 30 social media platforms, dimensions, the value and sentiment, and the impact of your brands, as well as connectivity to one of the world's largest social media management platforms that allows users to schedule, publish, and analyze content across multiple social networks from a single dashboard. Combining this at year-end, and into our ACCESS PR platform, we will see a lift in our ARR and provide further value to our customers. Second is the trade-in. As we expand our product offerings, we will benefit from being able to attract a larger total addressable market as enterprise customers and scale-up brands are craving an all-in-one platform that delivers all the tools needed to tell, manage, and monitor their brand. Also, with the advancements of our hashtag kill the report strategy, we are going to be addressing one of the biggest issues in the PR market, and that's the distribution report. The industry is full of implied metrics and results that leave many brands wondering where the actual value is. We think it is time to open this up even more and put the data in the hands of the users by simple prompts that will alert you in real-time. From there, you can build a point-in-time report that delivers that executable document to you. So very soon, we will let the old school distribution report rest in peace. We have also been busy this past quarter building a vertical we believe can be a contributor to the long-term future of our business. Adding this in the third quarter, we call it the EDU program. A class curriculum component of our ACCESS PR platform, where students and academics can use our PR writing platform, media database, monitoring, and pitching tool in a class real-life simulation at no cost. Our Get Back to the Next Generation enhances the skill development with leading applications that will prepare them for the workforce, understand the storytelling process, and improve what ACCESS can do for them in their careers. We look forward to these students graduating and taking the ACCESS PR platform with them in their first career job. We were awarded something that we feel very special about, and it's called the Bateman's study. And I want to read a quote from this press release. "As one of the most rewarding and challenging programs PRSSA offers, the Bateman allows students to gain hands-on experience with real clients while sharpening their research, strategy, and execution skills," said Janine Garcia, chief programs officer at PRSA. So what we'll see is 100 colleges and thousands of students that will be challenging their undergraduate public relations students across the country to create comprehensive campaigns for a real-world client. Operator: Us. Brian Balbirnie: This year's participating teams will develop strategic and creative solutions designed to build awareness and engagement for ACCESS Newswire, with a focus on showcasing how the company continues to support and elevate the communications industry. We look forward to judging the competition and early next year announcing the winners and results of that program. Back to the remaining part of this year and looking forward, revenue trends and ARR growth, sequential revenue growth, and improved profitability show that our strategy is working. ARR continues to rise, and we expand our subscription base and enhance the average value per customer. We expect to see continued improvement throughout the rest of the year, driving new product releases and deeper customer engagement. Our ARR per employee, one of our key internal performance metrics, continues to trend upwards. Operational efficiencies, automation, and the divestiture of our compliance business have allowed us to generate more recurring revenue per full-time employee. This metric demonstrates the scalability of our model and positions us well to meet our long-term profitability goals. Subscriptions and platform expansion, we're on track with our goals of transitioning the business to a majority subscription model. The number of subscription customers increased again this quarter, and the average ARR per subscriber now exceeds $11,650, a strong indicator of product adoption and retention. Focus remains on customer stickiness, ensuring that as we grow, our customers stay with us longer and adopt more of our platform capabilities. We are also advancing our AI-driven automation initiatives that began earlier this year. Our internal editorial validation system is now fully deployed, saving approximately 5% of the editorial time per release. By the end of this year, we'll roll out our customer-facing version, which is expected to further reduce our editorial efforts by an additional 5% and enhance content quality and consistency. Additionally, we remain on track to launch key social media integrations with leading management platforms before the end of this year, expanding how customers can distribute and measure their news across channels in real-time. And lastly, like I just mentioned earlier, the hashtag killed the report is on track to offer a robust agentic agent AI-based real-time prompting and alerting system to our customers. So to summarize, we are executing against the plan and achieving measurable improvement each quarter. Our ARR per employee and per subscriber continues to rise. Our operational expenses remain well managed, supporting long-term margin expansion. And our innovation, particularly around automation and integrated reporting, will drive our future growth and differentiation. Looking ahead for the remaining part of the quarter and into next year, our focus is very clear. Continue expanding subscription revenue and recurring ARR, drive gross margin efficiency while maintaining quality, deliver new product capabilities that enhance the customer experience, preserve cost discipline while supporting our growth initiatives. We expect continued sequential improvement in both revenue and adjusted EBITDA in the fourth quarter. ACCESS is becoming a stronger, more predictable, and more profitable business. We have said we would do this, and we are. Now it's time to grow the top line in 2026 and beyond. With that, I'll turn the call over to the operator for the question and answer session. Operator: Thank you. At this time, we will be conducting our question and answer session. A confirmation tone will indicate your line is in the question queue. And you may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up this before pressing the star key. One moment please while we poll for questions. Thank you. Our first question is coming from Jacob Stephan with Lake Street Capital. Your line is live. Jacob Stephan: Hey. Good morning, guys. Congrats on a nice quarter here. First, to start off, I just want to get some additional color on, you know, the nice sequential growth we saw in subscription ARR. I think, you know, you guys had said that, you know, previously, contracts were coming on at, you know, about $14,000. That still the case, or has that changed at all? Brian Balbirnie: No. Yeah. I think the end of Q3, we were about $13,000 and change. So we're just slightly off Q2's numbers. But we're still trending in the right direction overall when we look at total ARR. Jacob Stephan: Okay. And so just to kind of contrast your comments here, I you know, you kind of said that 1,200 for, you know, subscription customers was an aggressive goal for this year. But did I hear you correct? That's where you expect to be next year at this point? Is that 1,219? Brian Balbirnie: Yeah. No. That's a good point. Right? And what we were talking about in our prepared remarks last year when we guided to the 1,500 number, as I said earlier, we were not giving way for the number of compliance subscriptions. And so we do retract those to kind of restate the numbers, it would ultimately look like about approximately 1,200 is what the target would be. We feel like we're going to be slightly short of that 1,200 number. Although, we feel like our retention and our average ARR is going to continue to climb. And so long as we see those numbers, we're not concerned about the business seeing that 1,200 number by the end of the year. But I'd expect that in the next year, this time next year, you're going to be well north of 1,500 to 1,600 subscription customers on our focus communications platform. So not 1,200, but higher than those numbers. Jacob Stephan: Okay. That's helpful. Then maybe just touching on gross margin a little bit, you know, it did come in below, you know, 75%. A little softer in the quarter then. I guess, we had anticipated. There anything one-time in the quarter that, you know, impacted that? Or maybe how do you think about it going forward? Steve Knerr: Yeah. I think, Jacob, we did deliver gross margins at 75% for Q3. And I think we'll see some expansion there. I think what's important to point out, and I think, Steve, called it out in some of his prepared remarks, is that we've incurred additional distribution costs and other infrastructure costs to scale our operations. Even with that, we've still been able to maintain our gross margin. And so evidence of our commitment to do that is what we've talked about in the last couple quarters. About using some internal AI automations to help our editors be more efficient. And we're saving that time there with them, which is also helping us. So I feel confident that gross margins are kind of at a bottom-end level about the 75%. And are going to climb next year. Obviously, what's important to that is scale. Right? And we see the industry making a lot of changes in ownership, the industry making a lot of changes in volume. LLMs are now coming out saying that PR and blog content are one of the most important things that companies can have so that they're indexed and thought about from AEO and GEO. Kind of perspectives of queries on LLMs and searches. So we expect to see growth in the news industry next year by volume. And so that our top line grows, we'll see gross margins also grow. But, yes, Q3 did end up at seventy-five. Jacob Stephan: Okay. Yeah. And I'm certainly not suggesting that, you know, 75% gross margins is, you know, short or not good, but yeah. Maybe just one last one for me then. As you kind of look at 2026 and, you know, how you think about the overall market, what I guess, maybe if you can group it into, you know, like, IPO candidates, maybe, you know, existing public companies, and maybe even, like, existing customers for add-on sales. How do you expect kind of the three buckets? Where do you expect the majority of the growth to come from? Brian Balbirnie: Yeah. And we're using these words externally as well as internally in our trade-up, trade-in, trade-up strategy. Yeah. And when we think about the trade-up, we're doing really good at large enterprise brands coming in, subscribing to part of our platform, and expanding quickly. And if I just look back over the last, call it, year, almost every one of them has come to us to buy an investor relations platform or an earnings call platform subscription or a PR platform, and it has bought the other two over the period. In my opening remarks, we talked about a company called Fermi America. They bought everything. They're a fantastic organization. It's just a new IPO. So we get our share of that space. And we're doing well there. And so the example of Fermi really is probably a trade-in. Right? They were looking at other options. They had Nasdaq subsidy, to be honest with you. They could've gone but they chose the best of breed, and that was us to deliver on what they're looking for. So we'll get a small percentage of the IPO market as we always have. We're continuing to get a larger percentage of the enterprise business, which is great for us. To be honest, the rebrand of our business this year has made that a tremendous success for us in winning those customers. But by vast majority, because we've kind of looked at the market longer term, we need to be fueling growth underneath to be able to drive both kind of these scale-up new brands as well as the enterprise brands. And so kind of agnostic ourselves about public and private, we really want to look at where are the bigger opportunities for us to scale customer growth and scale subscription growth. And we've got a lot of plans in the works for next year that we'll talk about in our year-end call. Some of the things that we've got done and signed that will be released in January that we'll wait till then to talk about. That's going to give us a significant opportunity for growth coming into next year and beyond. But we still feel confident that we're a viable option and a strong leader in the enterprise space and a strong leader in the IPO space. I think we probably had more net wins in our PR, IR platforms than anyone else in the market in this last quarter. So we feel good about that. Jacob Stephan: Awesome. Very helpful, guys. Nice work. Operator: Thanks, Jacob. Thank you. Once again, ladies and gentlemen, if you have any questions or comments, please indicate so now by pressing star 1 on your telephone keypad. Okay. We currently have no further questions in the queue at this time. One moment. Apologies. We do have had a late question come in from Luke Horton with Northland Capital Markets. Your line is live. Luke Horton: Yeah. Hey, guys. Sorry about that. I thought I was in the queue earlier, but congrats on the quarter. Brian, could you just talk a little bit about industry volumes across the press release industry, kind of how that trended for the quarter and then what you've seen so far here in October and into November? Brian Balbirnie: Yeah. That's a great question. And so this may take me a few minutes to answer. And so as I begin, you know, kind of the response to you, Luke, I'm going to pull something up. Because I want to be sure that I'm being very articulate for our audience and our shareholders to understand. For the better part of the last eight years, we have as a business, have gone from no percentage of market to 20% of market in news volumes. And when we used to obtain research independently in the market that a firm no longer does, it indicated that the industry was growing at about a 4 to 6% CAGR over the last five years absent of this year. And so when we looked back at the last two years, and this goes to kind of the four main news wires in the market, us being one of them. We saw the largest, I'm going to leave their names out of this just to be fair to them. The largest news provider dropped market share from 34% to 27% in this, you know, mid-2023 to, you know, Q3 2025. Another one dropped from 32 to 26. And in the same time, volumes in the market went from 8% to almost 20% for us. So we're seeing the industry slow down in their contribution to market share. And we're continuing to grow. And by estimates, when we look at the year-to-date, we're continuing to see the same trend. We grew a couple percent. Everybody shrunk a couple of percent. And so that is the historical viewpoint. And so that's good for us. If you're outpacing the industry, that's great. But to be fair, we've got to get outside of the industry to drive growth. Whereas we feel that the rest of the folks in our industry are not doing, they're doing the same thing over and over again, and we've got a clear strategy for next year on what we're going to do. To address that. And that's adding some of the components we talked about. The social change in the reporting metrics and being very dynamic in real-time. There. But lastly, the other part of it is I think the hope for the industry as a whole and will benefit significantly from this is what AI is doing to content that needs to be run through LLMs. And they're using it for brand credibility, they're using it for industry knowledge and research. And the two fundamental points that every LLM is saying is press releases and blog content are the two driving factors. So we spent a good amount of time in what the new SEO, PPC world is calling GEO and AEO. To index releases that are being contributed, and we're one of the top newswires now contributing content to these platforms for all of our customers. And so we think that's going to lead to more volume in the industry, but it also gives us the competitive advantage to push ahead faster than everybody because folks are going to rely upon us for that AI query content. So hopefully, Luke, that helps with a lot of data. Happy to unpack some of it if you'd like. Luke Horton: No. For sure. I appreciate the perspective there and kind of the background on how that's trended over the last couple of years. You guys did mention some cost savings with the sublease of a corporate office. Potentially a $300,000 a year in cost savings. Are there any more kind of cost synergies throughout the business? Or any more costs that you're kind of looking to right-size here now that you've sold the compliance business and rebranded under the ACCESS Newswire brand? Just how are you thinking about the cost structure now versus maybe a year ago? Brian Balbirnie: Yeah. I think we've done a really good job in the last six to nine months of pulling down the OpEx. As we said, we would the lease was never modeled into our assumptions of future cost savings because you just don't know what you don't know on commercial real estate. I think we're really there now to enter into the sublet here beginning in January. So you'll see that as this mentioned, the $300,000 in annual savings that will come over the next two years and at least end, I think, at the 2027. Give or take a month at the end there. We may see some other small and consequential savings to be fair. A lot of it coming from our infrastructure as it relates to the delivery of our applications. Consolidating into different platforms and cloud-based systems that we may see some benefactor. Our webcast platforms went through significant upgrades over the past quarter or so. It's also yielding some savings that we'll see. You know, I don't want to give a percentage for guidance, but I'd say you're probably going to see another, you know, $30,000 to $50,000 a quarter in additional savings. But I think, again, to us, it's such a nominal amount. I'd rather reinvest that for growth than message that we're going to continue to drive down OpEx. We've got to deliver on our platform. We have to deliver on a customer-first approach and continue to be that marquee provider for our customers. And although generating cash is a beautiful thing, we need to grow. And I think that's the most important thing for us. Luke Horton: Got it. Awesome. And then could you also just kind of talk about how has the marketing strategy changed since the sale of compliance and the rebranding either between just kind of the sales-led growth or product-led growth here? As of late, I guess. Brian Balbirnie: Yeah. It's a consolidated mess. And we struggled for a couple of years prior to rebranding being the public company company. And that's an honorable thing. We started our business there, and we'll never forget what Issuer Direct was able to afford us. To get to where we are today. But as we look at our client numbers, the majority of our customers for the better part of the last five years have been private enterprise. And it is difficult to go into them underlying contracts with Issuer Direct, and ACCESS Wire and Newswire and Direct Transfer and all these other names that we had we needed to slim down the business or, I guess, the basketball term is, you know, go small to get big. Right? And so we had to do this. We wanted to do this for a couple of years. A lot of our shareholders knew that. So today, our teams go to market as a consolidated business unit that's focused on communications, brand building, and storytelling, and monitoring under the ACCESS name. And it's a cleaner story to tell. It's an easier product solution to sell. It has not disrupted our public company customers. We haven't lost public company customers as a result of doing this. Our brand is stronger than ever. When we did market research before rebrand and post rebrand, we generate more traffic to our platforms. We generate more traffic to our customers' news articles. We generate more engagement than we ever have, and eighteen years prior to doing this. So the rebrand has been a very good thing for our business. It has matured us significantly and the external view of who we are. And what we do. Strategically, ACCESS Newswire is the name, and probably over the next year, people will know us as ACCESS. And that is going to be a deliberate attempt to what we're trying to accomplish here from our public relations and investor relations platform. So to be fair, we couldn't be happier about it. And continue to push the theme that our marketing department has come up with of, you know, we love you more and we're going to service our customers regardless of how much AI is in the industry. It's always a human touch, we're going to do that. Luke Horton: Got it. Awesome. Well, really appreciate it, Brian. Thanks for all the color there, and congrats on a nice quarter, guys. Brian Balbirnie: Thanks, Luke. Operator: Thank you. As we have no further questions in queue at this time, I would like to turn the call back over to Mr. Balbirnie for any closing remarks. Brian Balbirnie: Ali, thank you. Smashing job as always, sir. Thank you again to our shareholders and everyone else who joined the call today to listen to us talk about the progress we're making here in 2025 and where we're headed into the end of the year and into next year. We appreciate our shareholders, our partners, our customers, and their continued trust and support, and we look forward to updating you again next quarter. Have a good Veterans Day. Thank you, everybody. Operator: Thank you. Ladies and gentlemen, this does conclude today's call. You may disconnect your lines at this time, and we thank you for your participation. Thanks, Alan. See you.
Operator: Good day, and thank you for standing by. Welcome to the Solesence, Inc. Common Stock third quarter 2025 Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. To participate, you will need to press star 11 on your telephone. You will then hear a message advising your hand is raised. To withdraw your question, simply press star 11 again. We ask that you please keep your questions to one and requeue if needed. Please note this conference is being recorded. During this call, management will make statements that include forward-looking statements within the meaning of the federal securities laws which are pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995. This conference call may contain statements to reflect the company's current beliefs and a number of important factors could cause actual results for future periods to differ materially from those stated on this call. These important factors include, without limitation, a decision of the customer to cancel purchase order or supplies, agreement demand for any of the company's personal care ingredients, advanced materials, and formulated products, changes in development and distribution relationships, the impact of competitive products and technology, possible disruption in commercial activities occasioned by public health issues, terrorist activity, and armed conflict, and other risks indicated in the company's filings with the Securities and Exchange Commission. Except as required by federal securities laws, the company undertakes no obligation to update or revise these forward-looking statements to reflect new events, uncertainties, and other contingencies. I now hand the conference over to Kevin Carrington, President and Chief Executive Officer. Please go ahead, sir. Kevin Carrington: Thank you, operator. And thank you to all of our investors, teammates, and friends joining us today. We have a lot to cover, so we appreciate your time, patience, and attention. Today is a meaningful moment in the history of Solesence, Inc. Common Stock. This is my first opportunity to speak with you since stepping into the role of President and Chief Executive Officer. I am truly honored to take on this responsibility and energized by the incredible talent of our team, and the strong opportunities ahead to continue growing profitably with our brand partners. It is also a significant moment for another reason. Today marks Jess Jankowski's final earnings call as a member of the Solesence leadership team. Many of you know that Jess and I began this journey together in 2012 when he brought me in to help chart a new path forward. The conversations we had during that interview process about the business from a materials company into a product-focused organization became the foundation of what Solesence, Inc. Common Stock is today. Jess has been an exceptional partner to me and to all of us, working tirelessly to ensure we had the financial strength to grow, innovate, and establish ourselves as a leader in beauty innovation. With that, I'd like to turn it over to Jess for a few remarks. Jess? Jess Jankowski: Thanks, Kevin. Since this will be my final earnings call, I'd like to briefly touch on my time at Solesence, Inc. Common Stock and why now is the right time for Kevin to lead the company going forward. Over the past decade, Solesence, Inc. Common Stock has pioneered the skin health and mineral-based beauty industry, establishing more than 90 globally issued patents across four technology platforms. By collaborating with our brand partners, the use of mineral-based active ingredients in beauty products has become more widespread. Now we're seeing more and more brands infuse their products with SPF technology. We've grown at a CAGR of greater than 7x as compared to our addressable market in the skincare, color cosmetics, and sun care cosmetics areas. We have won eight awards for product and technology innovation so far and are sure to win more. Now we're the industry leader in this space. As I pass the torch to Kevin, we believe we can expand on this position for several reasons. First, the complexity and difficult logistics that go into creating these types of products mean that our industry has substantial barriers to entry that limit the number of potential competitors. Second, we possess a unique mix of expertise, best-in-class technology, and manufacturing capabilities that very few can match. Third, Solesence, Inc. Common Stock will maintain the same relentless commitment to scientific excellence and innovation that has always driven us. As I've reflected on my time here, I couldn't be more gratified by what we've accomplished. The transformation of Solesence, Inc. Common Stock is a testament to the hard work and dedication of our team. I'm grateful for having the opportunity to work alongside so many talented individuals. It has been no less than a privilege. This includes Kevin, with whom I've worked closely for over a decade. With his extensive industry experience, deep expertise, and vision, I'm confident that he is the right person to lead Solesence, Inc. Common Stock into this next exciting era of growth. I'll now pass the call to Kevin, who will provide a summary of the quarter as well as the vision and outlook for the company. Kevin? Kevin Carrington: Thank you, Jess, for your partnership. And, again, congratulations. Turning now to our work today. I've been honored to be in leadership positions with Solesence, Inc. Common Stock for over a decade, including leading the founding and development of our core consumer beauty, health, and wellness business, which has grown into the company we are today. While that journey and the accomplishments Jess covered have all been important achievements, and we should feel rewarded, our entire organization knows we have much work ahead of us. As evidenced by our third quarter results, 2025 represents the first quarter in almost two years where we did not have a year-over-year revenue increase. Admittedly, Q3 2024 was a record quarter for our company in both revenue and profitability and represented the level of profitability and performance we expect. So the comparison was going to be difficult. However, we remain confident in our ability both on a near-term and a longer-term basis to continue to grow at a multiple of the industry's growth rate and remain highly profitable while doing so. Our confidence is reinforced by the growth plans of our strategic brand partners. Without exception, each of them is expecting to outperform the market in the same manner as they have over the previous two years. Our products are important drivers for these companies' revenues, typically representing 30 to 60% of their business volume. So their success is our success. These brands are winning in the key retail segments where consumers want to buy beauty products, specifically at specialty beauty retailers and through TikTok and Amazon. Revenue growth combined with best-in-class profitability comes from the combination of the changes we've made in our leadership and our organization's structure. We believe three factors have hindered our ability to generate growth. These are, one, product design, two, labor efficiency, and three, inventory control. I'll now touch on each of these areas in greater detail and how we addressed them in our recent changes. First, product design is related to having exacting specifications, not just in terms of what the product is made from, but also how it will be manufactured and how it will perform. For the Solesence, Inc. Common Stock business, this is more complex because unlike many other beauty products, the products produced by Solesence, Inc. Common Stock are considered over-the-counter drug products. They must meet product performance criteria similar to what is required of prescription drug products while ensuring that the product delivers a joyful experience such that the consumer will buy it again and again. We must be able to make it consistently at a high volume at a cost that's 20% or less of the retail value. Our ability to deliver on these criteria gives us a sustainable competitive advantage, which protects our business position and is a critical factor in achieving profitability standards we expect. Every day, on millions of units annually, we meet this standard. However, when we have underperformed in this area, it was a significant factor in our results. We reorganized the team responsible for ensuring product integrity during the end of Q2 and all of Q3, creating a newly unified group accountable for product design, from the initiation of product concept all the way to product shipment. This unified group, the innovation and product integrity group, is a combination of the R&D and quality departments. Through the unification of this group under one leader, we have already seen improvements in both clarity of product requirements and control to ensure that products are made right the first time. The new leader, Yona Divorce Act, who is just appointed as Vice President of Innovation and Product Integrity, is also being recognized by the renowned Cosmetic Executive Women's Group, or CEW as they are more commonly known, as a 2025 Innovator Honoree. This honor reflects not just our confidence in Yoana's ability to help us drive more profitable growth, but also the industry's awareness of her exceptional capabilities. Moving on to the next area of improvement, labor efficiency. This issue has long impacted our direct profit performance. To be clear, this is not just direct labor, but also is impacted by our maintenance and engineering efforts that drive both uptime and throughput. As some of you know, we began investments in this area almost two years ago. These investments have included automating our processes and implementing overall equipment effectiveness, or OEE, which is a key metric for managing our manufacturing processes. While these investments initially enabled a significant improvement in capacity, it was only during Q3 that we started to see the positive impact on labor efficiency. Those improvements enabled our company to reorganize its operating schedule, virtually eliminating overtime expenses while maintaining improved operating capacity and flexibility. These improvements were reflected in a reduction of the average labor per unit by close to 25% on a year-over-year basis and an increase in our OEE performance by 10 percentage points. We further strengthened this area by reorganizing the reporting structure, which was partly enabled by consolidating our three facilities down to two. The consolidation alone will yield a mid-six-figure reduction in annual operating costs. We further expect that the labor efficiency savings will contribute to a similar high six-figure to low seven-figure reduction in direct labor expense on an annual basis as we move forward. Finally, and perhaps most impactful, is our inventory control. The change in scope and scale of our customer base has brought a change in the scope and scale of both the number of raw materials and components that we purchase and the number of products that we produce. To put it in perspective, just six years ago, we generated 80% of our revenue, $8 million, from 40 products built around a dozen raw materials. In fact, 60% of our revenue resulted from just five products built around three raw materials. Fast forward to today, 80% of our revenue, approximately $50 million, is generated by over 300 products and well over 1,500 different raw materials and components. It's easy to see how this change, when not effectively managed, can negatively impact our ability to realize the full profit potential of our company. I'll now briefly describe how some of the initial changes that have been put in place will help drive profitable growth. The change we made in manufacturing leadership now allows the most senior leaders in operations to be focused on addressing our supply chain challenges. Some of the first work that has occurred here is to increase material surveillance and control, resulting in almost daily tracking of variances that could occur through materials handling, consumption of materials and batch making, or spillage and waste. By increasing surveillance, we're now able to capture the significant issues that can contribute to negative income and put in more impactful corrective action. There is still much more to be done, but I'm confident in the ability of our team whose leadership is now comprised of people with direct experience in the beauty and personal care industry. They come from organizations that are some of the largest and best operated in the business. I'll now turn the call over to Laura, who will provide a recap of our financial performance. Laura? Laura: Thank you, Kevin. Good morning, everyone. I'm pleased to be joining you on today's call. Revenue for the third quarter was $14.5 million, a decrease of 14% year-over-year amidst a general softening in the industry reflecting the shift in consumer behaviors. As Kevin mentioned earlier, last year's third quarter was a record quarter, creating a challenging comparable as our customers adjusted their inventory levels as compared to the third quarter of 2024. In the third quarter, our shift in open orders, which represent the total value of customer orders that we've either already shipped or are still awaiting fulfillment in 2025, is currently $64 million compared to $34 million in the third quarter of last year and $60 million in 2025. Gross profit in the third quarter was $3.4 million compared to $6.1 million in 2024. Gross margin was 23% compared to 36% for the same period last year. The decrease was related to manufacturing operating inefficiencies and facilities improvements. Operating expenses in the third quarter totaled $4.2 million compared to $2.9 million in 2024. The increase is due to increased employee-related costs, legal costs, allowance for credit loss, severance costs, and costs related to our uplifting to Nasdaq in 2025. During the third quarter, other income included an adjusted payment of $1.2 million relating to funds received from the US Department of the Treasury under the employee retention credit program, along with approximately $300,000 in interest received related to the delayed payment. The ERC is a refundable payroll tax credit made available under the CARES Act and subsequent legislation. Interest income included interest paid relating to this amount of about $200,000 in the third quarter of 2025. The ERC payments and related interest did not apply to 2024. Solesence, Inc. Common Stock reported a net loss of $1.1 million compared to net income of $3 million in 2024. Adjusted EBITDA for the quarter was a loss of $435,000 compared to adjusted EBITDA of $3.6 million for the third quarter of last year. As Kevin noted, we made significant improvements to our business operations that will enable us to grow and deliver the highest quality products to our brand partners more efficiently and from a greater cost position. That concludes our opening remarks. Operator, you may open the call for questions. Operator: Thank you. And as a reminder, to ask a question, simply press 11 to get in the queue and wait for your name to be announced. To withdraw your question, press 11 again. One moment for our first question. And it comes from the line of Wayne Rohn. Please go ahead. Wayne Rohn: Congratulations, Jess. I hope your retirement goes well. I probably butt into you at Wrigley Field. But good luck, Kooga. Wayne. Oh, yeah. You won't butt into me at Wrigley Field. I'm very disappointed. This was supposed to be a better year. Are we making the same mistakes over and over and over again? And where do we get some optimism for the sales part bothers me a lot. What's the matter with that? And just mistakes we've made is not very comforting, and I'd like your response, Kevin. Kevin Carrington: Good morning, Wayne. You might bump into me at Wrigley Field, by the way. But thank you for your question. And we do take all of these very seriously. So let's start with the first question, which was are we making some of the mistakes? Same mistakes over and over? I can tell you, Wayne, that there are some areas that we have had a longer time to repair. Which is why we made some of the changes that we've made to the organization over the last quarter. So specifically around inventory management, that is an area that has taken us more time than we would like to repair. But with the changes that we've made, we're confident that we're on the right path to fixing that issue. Your other question was related to the revenue. And what's going on there. I think first, let's make sure we're clear, and we didn't talk about it. In our prepared remarks. But on a full-year basis, we're up $10 million over the prior year. So the trend for growth is strong. One of the things that has changed and is really related in part to consumer sentiment and our brand partners' desire to be conservative relative to their inventory levels is that they're not giving us the same lead time that they have in the past. And they're not stocking inventories at the same level that they had last year. So that had a material impact on a year-over-year basis between what we saw in 2024 in terms of revenue and what we saw in 2025. Rest assured again that we have and continue to expect to grow at the top line. So that is something that we're confident in. The final point is to make sure we're clear that, yes, we are taking the profit growth very seriously. It is an important part of the planning that we've done. And the adjustments that we've made in terms of structure, and the changes that we've made in terms of some of the other processes that we mentioned during our prepared remarks. Wayne Rohn: Thank you. And how come you waited so long to put out the third quarter? Because normally, you do first week. You know, get Kevin Carrington: Another good question, Wayne. You've got a new leadership team that wanted to make sure we did it right the first time. Wayne Rohn: Is the goal to me. Alright. Kevin Carrington: I'm sorry. Wayne Rohn: I said, there you go. That's a good idea. Thank you. So Kevin Carrington: that's it. That was the reason. Wayne Rohn: Thank you. And let's do look for do we have possibilities of greater sales reports? Kevin Carrington: For the fourth quarter this year. Our expectation on a full-year basis is that we will see an improvement over the prior year. So, yes, I think that in total, you'll see a positive revenue versus 2024. So we are staying on that trend, Wayne. So yes. Wayne Rohn: Thank you. Operator: Thank you. Our next question comes from the line of Ronald Richards. Please proceed. Ronald Richards: Can you hear me? Operator: Yes, sir. We can hear you. Please proceed. Hi, Ron. Hi. Ronald Richards: You know, I got a few questions. But I guess I'll start off with a really simple one. You know? It was a really simple mistake that led to your big lawsuit a couple of years ago. In a contract. Where there was one little sentence that somebody missed. Then this last quarter or two quarters ago, you had this $2 million error because of a screw-up on a new order. And this quarter, you know, it's really really simple. And you might think it isn't meaningful, but the announcement for this conference call referred to Central Daylight Time and Eastern Daylight Time. You know, all these things have a common point to them. Just the simple things, details are over. Is this gonna improve? Or are we gonna continue having a series of simple mistakes that cause the problems we're having? Kevin Carrington: Thanks, Ron, for the question. First, your first statement related to the lawsuit, I'm presuming you're referencing the BASF lawsuit. You know, we'll agree to disagree on that. That wasn't really driven by a contractual mistake or error. In fact, it was a decision. Let's just put it this way. The simplest way for us to put it is just commercial points of difference. And we did settle that in an amicable way with BASF and that has been an important part of quite honestly, our ability to continue to set scale the Solesence, Inc. Common Stock business. On the other two points, well taken. We certainly know that the details matter. It's an important part of our business. It's one of the things that we mentioned in our prepared remarks around product design. And making sure that we have the exacting specifications clearly understood and stated. So thank you for that comment. We are taking those things to heart, and it is an important part of what we're doing to improve the profit performance of the company. Operator: Our next question comes from the line of Stefano Bollis. Please proceed. Stefano Bollis: Hello. Good morning, and congratulations, Kevin, for your new role. And thanks to Jess for having sailed the vessel during all these years up to this point. And what is going? Gonna Okay. My question is, the gross margin for this quarter is this the fact that it's not around or slightly above the 30% Is this because of this reorganization work that you mentioned initially? Or was there something else? Kevin Carrington: Yeah. Your question related to gross margin is just to be clear, Stefano, and hopefully, you can respond to this. You're asking is the cause of the lower gross margin, is that what you're referring to? Stefano Bollis: Yeah. Kevin Carrington: Okay. Yes. Yeah. So in part, the lower gross margins were related to the expenses with the consolidation that weren't able to be capitalized. But they were also related to the transition that we mentioned. So we have good performance on a year-over-year basis at the direct labor level. Where we actually decrease direct labor pretty significantly on a per-unit basis. And in total. But we are, as that transition was occurring to the newer structures, still had higher indirect expenses. That we are addressing as we go forward. So that was one of the big drags on the indirect or, excuse me, on the gross margin. And I think, you know, Laura had mentioned some of the benefits of the changes that we're making. Laura, would you wanna comment at all on us? Laura: You know, in obviously, the short time I have been with the company, we have taken seriously the indirect cost and I feel very confident that we are making the changes and having the discussions that are necessary to improve our overall indirect costs. And I expect to see that improvement within the next few quarters. And actually sooner than that. Kevin Carrington: Thank you. Operator: Our next question comes from the line of Tony Rubin. Please proceed. Tony Rubin: Hi, good morning. This is a couple of questions. But following up on the first gentleman's question who asked about your sales and margin forecasting, you just said sales will be up in 2025. They're through the first three quarters already up $10 million, and as we're basically halfway through Q4, can you shed any light on what sales for the fourth quarter will look like? And what margins will look like as well as give us an outlook in some general sense as to 2026. Kevin Carrington: Good morning, Tony. So, yes, you're correct. The sales are up $10 million on a nine-month basis. As Laura indicated on a shift in open, and you remember that metric that we've been using, we're projecting around $64 million for the year, essentially. Which would put us up roughly $12 million on a full-year basis versus the prior year. We are working through the changes that we mentioned, and so we're very confident in improving the direct margin levels on a continuing basis. That work is well in hand and is yielding the results that we expected. The indirect margins or, excuse me, indirect costs, I should say, that are contributing to the gross profit level are going to be, as Laura mentioned, work over the next couple of quarters to improve that. So, as we improve that over the next couple of quarters, we'd expect the margins to normalize back to levels that we have seen say, a year ago. This quarter. So do anticipate doing that as we go through the next couple of quarters or so. In terms of a projection on 2026, we are because of the uncertainty that we're seeing from the marketplace and consumer sentiment, we're going to refrain from giving too much guidance there. Except to say that two things. One, we know that in general, most consumer markets are slowing down, and beauty is no exception to that. It is slowing. However, we're still confident that our growth rate will be a multiple of the industry's growth rate. So, we'll refrain from saying too much more than that at this point. Over the next coming weeks. We do plan on presenting our first investor presentation, Tony. And then that will give more guidance in terms of our expectations, not just for '26, but for the next few years beyond that. As well? Operator: Our next question comes from Stefano Bollis. Please proceed. Stefano Bollis: On indirect cost. So just for future modeling, the level the run rate of the SG&A expenses is it going to stay on this $3 million that we have seen in the last two quarters? Or this is due to those one-off impacts that you mentioned, the uplisting and some credit losses allowances and so on. Kevin Carrington: Yeah. Could you repeat your question? We had a hard time hearing you at the beginning of your question. Stefano Bollis: Okay. The question is on the expected run rate of the SG&A expenses that from historical levels were at $2 million or below $2 million. And right. Last and this quarter, they are $3 million. Is this the new level or there was a lot of components that are one-off? Kevin Carrington: Yeah. I would say for planning purposes, we're operating in that zone on a going forward basis. I think that some additions to our leadership team are part of that, obviously. To help strengthen the organization and to improve our overall performance. We've obviously added Laura. We've also added a VP of HR. There's been some other support functions added in there as well. And, you know, generally, for the business as we're operating right now, we have a little higher legal fees than we've had historically. But it is something that we've given the nature of our business, we've gotta at least plan for that over the next few quarters. Jess Jankowski: There was also, Stefano, though, a significant hit for me. There was a $400,000. You have to take the expenses for severance at one time. So that will not repeat going forward. So you know, right there, that's 15% of that total is not coming back. And we also think that generally speaking, we are gonna have all of our doubtful accounts run through SG&A, not COGS. So we believe we are gonna have better experience in that going forward. So that's gonna mitigate some of the investments we're making on the other side. To do that. Operator: Our next question comes from Tony Rubin. Please proceed. Tony Rubin: Yeah. Hello. I just wanted to follow-up to your quest or to your response, Kevin, on margins. You indicated that you thought margins would get back to a level of a year ago. What is your expected or target 2026 margins? And given all these spends on capital, efficiency, measures, etcetera, etcetera, you still I think, no matter what number you say, are gonna be short of your COVID-era margins where you were you know, in that 40% range. And is that something that we will ever see again? As you mentioned, the company is in your words, or to paraphrase, a leader in making these you know, complex formulations that the market does want. And just kind of as a side follow-up, I guess, I'm trying to cram a lot in here. You mentioned that you will grow at multiples of the industry, but that the industry is growing is softening. And if you could clarify what exactly that means because that's it's pretty difficult to parse. That. Yep. So Thank you. I'm gonna Kevin Carrington: Thank you. Thank you, Tony. There were three very important there. And we'll try and make sure we answer them all. And I will say, to the team that's managing this call, if we fall short please let Tony requeue so I can answer that third question. But let's start at the top. On the margins. So our guidance at this point Tony, we're gonna refrain from giving too much guidance on 2026. We will be prepared to provide further guidance soon. But we absolutely expect that our goal is 30% is really the floor for our guidance. Not the ceiling. And so just that's that's all we're gonna be prepared to say today. At least on 2026. In terms of COVID-era margins, you know, one of the things we talked a lot about as a leadership team was what is the margins that we anticipate achieving. We view ourselves as a technology leader as you mentioned, and quite honestly, the investments that we make in IT that has translated into our growth reinforce that. All of the different patents that are unique in terms of a company our size and operating in such a focused market as we do in part of the in terms of being able to represent us as a technology company. So we expect to achieve margins in that 40 plus percent range. That is an objective for our business. We know that that won't be something we can do overnight. But at the very top of that list, we are doing a much better job at driving direct margin performance and, ultimately, with some improvements at the indirect level, we'll be able to improve overall gross margins as well. And I think the third question I'm looking at Laura. Don't remember. So Laura: Don't remember the third week. Kevin Carrington: So, Tony, if you can read that for us? Yeah. Requeue and repeat, that would be helpful. Thank you. Operator: Tony, your line is open. Tony Rubin: I think you gave a flavor of what I was asking. Unfor I would hope for more specificity, and I would hope 30% would be considered a disaster, not even a floor. You know, with respect to that. I do applaud the company having an investor presentation presumably to get some institutional shareholdings and to articulate the story. As I'm sure you're aware, the stock has plunged in recent weeks, which, as I'm sure everybody on this call the management team especially is not happy with. So the ability to provide more clarity going forward certainly would be appreciated. And, frankly, the company has excelled at R&D has been good, degraded sales, but has continually failed in operation. So any measures that can really fix those issues and could instill confidence in the community I'm sure would be rewarded in spades and you know, to the benefit of all. So you know, good luck and godspeed, and thank you. Thank you, Tony. I think his last question that we all forgot was about the multiple of the market relative to how our growth was gonna be. Jess Jankowski: Yes. Thank you. Glad somebody's paying attention here. Kevin Carrington: Well, Jess, you could always have a job. It helped me not to answer so much. But thank you, Tony, for your comments. And you know, I do think that we will take that praise well that we've been excellent at R&D and good to great on the sales and marketing sides of the organization. We also accept the criticism that the company needs to improve in operations. And that's really a reflection of a lot of the changes that we've made and announced. It's also reflected in the type of recruiting that we've done over the last year and a half. In terms of bringing in really excellent people from top organizations that have been in the beauty and personal care industry. And understand what it takes to translate the products that we design into finished goods that are meeting or exceeding our profit expectations. In terms of the going forward and what's happening in the industry, so, generally, the industry is slowing down. I will say that one of the good parts of our focus is that the SPF-infused beauty areas where we operate are continuing to be strong. And they are growing faster generally than the industry. Our benefit has been over the past few years is that along with the growth of SPF-infused beauty, consumers' preference in that space has tended and trended toward mineral-based SPF-infused beauty. You combine that consumer preference with the growth in the industry, that means that generally, mineral-based SPF-infused beauty is gaining share against other types of approaches to providing SPF. That said, you then further, as you have already mentioned, Tony, our leadership around technology and enabling that technology, quite honestly, enables us to have preferential aesthetics in terms of transparency on skin, the lightness of the textures, the fullness of coverage when required or transfer skin-like appearance that our products can deliver all our preferences. And so that has helped us through having some great brand partners to really be able to grow at a multiple of the industry and we continue to expect through our investments in those brand partners to sustain that growth rate. Operator: Our next question is from Ronald Richards. Please proceed. Ronald Richards: I wanted to follow-up with my first question. I didn't really understand this ERC payment. Was that in this Q3, or was that in last year's Q3? I thought that you said it was in this year's Q3. Without that payment, would the financials have been $1.3 million worse? Laura: Hi, Ron. Thank you for your question. The ERC payment was in this quarter of 2025. You are correct. Ronald Richards: Man, that doesn't sound good. The total bottom line here. Laura: It would have impacted, obviously, our bottom line for the third quarter. And ladies and gentlemen, this concludes our Q&A session. I will pass back to Kevin Carrington for concluding remarks. Kevin Carrington: Thank you, Carmen. Back in 2019 when the consumer products business was less than $2 million, that was the first time that our company used the phrase the future of sun care is the future of beauty. Looking forward, we believe that remains true. Consider that Sun Care is expected to be one of the fastest-growing segments in beauty over the next five years. Further, Mirror, we observed that the ongoing transition of daytime products to incorporate UV protection as a key benefit enabling longevity. Health, and wellness. Because of these market dynamics, our technological and product leadership and commitment to driving improvements in operations that will yield significantly improved profitability. We remain confident and committed to delivering best-in-class performance not just to consumers, but also to our shareholders. In the coming weeks, we will release our first investor presentation. This will help each of you further understand our confidence in our future and the returns that our business can deliver to our investors. Like longevity and health, our process to deliver these results is a journey. We appreciate all of you who will remain on this journey with us. As we believe like the prior five years, the next five years will yield dynamic returns for all our investors. Thank you, and have a great day. And happy holiday season to all of you. Operator: And ladies and gentlemen, this concludes our conference. Thank you for participating. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to the Natural Gas Services Group, Inc. Quarter 3 Earnings Call. [Operator Instructions] I would now like to turn the call over to Ms. Anna Delgado. Please begin. Anna Delgado: Thank you, Luke, and good morning, everyone. Before we begin, I would like to remind you that during the course of this conference call, the company will be making forward-looking statements within the meaning of federal securities laws. Investors are cautioned that forward-looking statements are not guarantees of future performance and that actual results or developments may differ materially from those projected in forward-looking statements. Finally, the company can give no assurance that such forward-looking statements will prove to be correct. Natural Gas Services Group disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Accordingly, you should not place undue reliance on forward-looking statements. These and other risks are described in yesterday's earnings press release and in our filings with the SEC, including our Form 10-Q for the period ended September 30, 2025, and our Form 8-Ks. These documents can be found in the Investors section of our website located at www.ngsgi.com. Should one or more of these risks materialize or should underlying assumptions prove incorrect, actual results may vary materially. In addition, our discussion today will reference certain non-GAAP financial measures, including EBITDA, adjusted EBITDA and adjusted gross margin, among others. For a reconciliation of these non-GAAP financial measures to the most directly comparable measures under GAAP, please see yesterday's earnings release. I will now turn the call over to Justin Jacobs, Chief Executive Officer. Justin? Justin Jacobs: Thank you, Anna, and good morning, everyone. Thank you for joining our Q3 earnings call. Joining me today is Ian Eckert, our Chief Financial Officer. NGS delivered record results again in the third quarter, extending our momentum and reinforcing the value we provide our customers through high unit run time and great service. These results were achieved through the dedication of our people. I want to start by thanking the entire NGS team. Once again, I want to pay special thanks to our exceptional field service technicians who are the backbone of NGS. Ultimately, they are the reason that customers, both existing and new, are increasingly looking to Natural Gas Services to provide their compression needs. Starting with third quarter performance, we delivered a record quarter across several key metrics, including total rented horsepower, horsepower utilization, adjusted EBITDA and earnings per share. This performance was driven by strong field service execution and excellent technology-enabled uptime. We continue to take market share in large horsepower compression, reflected by the 27,000 horsepower increase in the quarter. All new sets were large horsepower under long-term contract and roughly half were large horsepower electric units. I'd also like to call out the disclosure in our 10-Q regarding Devon Energy. which now represents more than 10% of year-to-date revenue. Devon is a long-time customer that we have had significant amount of horsepower sets over the past year. We are proud to partner with them and look forward to delivering on their needs for years to come. We delivered third quarter adjusted EBITDA of $20.8 million, up approximately 15% year-over-year and 6% sequentially. These results allow us to raise full year 2025 adjusted EBITDA guidance to $78 million to $81 million from the prior $76 million to $80 million range. Additionally, we paid out NGS' inaugural quarterly dividend of $0.10 per share, another important step in enhancing shareholder returns. Our compelling performance, durable operating cash flows and confidence in the 2026 outlook make it possible to increase our fourth quarter dividend by 10% to $0.11 per share or an annualized $0.44 per share. While investors should not expect a dividend increase every quarter, the Board wanted to communicate its clear understanding of the importance of a continuous and growing dividend. These shareholder distributions do not preclude continued high levels of growth. NGS maintains the best leverage position among its public compression peers, giving us the flexibility to fund both growth and shareholder returns. Our competitive position continues to improve through technology leadership and service excellence. As we discussed on previous calls, when comparing to year-end 2024 horsepower, we expected to add approximately 90,000 horsepower over the course of 2025 and early 2026. The significant addition of new electric and gas units in the third quarter keep us on track for that number. Looking at 2026, we already have a significant number of new large horsepower units under contract. This is a mix of both gas and electric units. Additionally, our opportunity pipeline remains quite active for 2026 sets, driven by both existing and new customers. This indicates strong continued demand for compression. While it is still early, based on visibility we have today, we would provide an initial expectation for 2026 growth CapEx of $50 million to $70 million. I'll provide more color in the guidance section of this call. Turning to the broader market. We have delivered strong and sustainable results through September year-to-date, despite persistent volatility and global macroeconomic uncertainty. Regardless of whether these conditions persist, we remain confident in our ability to deliver improved performance because our business is tied to existing production where demand for compression continues to grow. Our customers in oil production currently have a heavy focus on production efficiency, reliability and emissions performance. These are all areas where NGS is advantaged. Furthermore, rising electricity demand and LNG infrastructure build-out create durable compression-intensive growth opportunities. AI and data center expansion, both domestically and internationally, further drive natural gas production and compression needs. Overall, we are optimistic. Compression is essential to delivering production throughput and our fleet, technology and service position NGS to deliver value to both customers and shareholders. I'll move next to our growth and value drivers. First, fleet optimization. We continue to optimize our fleet assets as reflected in continued improvement in rental revenue per horsepower performance. We finished the quarter at $27.08 per horsepower per month, a 1.7% sequential increase driven by new unit sets and price capture through contract renewals. Beyond price and mix, the next leg of optimization comes from data. We are more deeply integrating operational performance from our units and broader operations directly into our enterprise systems, so that commercial and operational decisions are made faster and with more precision. Customers increasingly recognize this as a differentiator. The ability to drive uptime and gas flow through data analytics has become a real competitive advantage for NGS. These investments have tangible payoffs, lower maintenance cost per unit hour, higher customer retention and improved fleet performance. On asset utilization, we have consistently improved working capital efficiency and continue to pursue targeted optimization initiatives. The income tax receivable has been improved by the joint committee on taxation, and we are awaiting payment processing once the federal government shutdown ends. Prior to the beginning of the shutdown, my expectation was that we were going to announce receipt of this receivable on this call. Regarding real estate monetization, we will provide greater transparency on these efforts in the coming quarters. As I've said before, we are not real estate investors. Our goal is to convert nonproductive assets into productive horsepower in the field. These noncash asset monetization efforts provide additional capital to support fleet expansion as reflected in this quarter's additions and our commitment to add significantly more horsepower. Momentum is building with both existing and prospective customers. As I now repeat on these calls, we are clearly taking market share organically. One simple way to quantify this is to look at our growth capital to EBITDA ratio. For NGS, our growth CapEx is for new units under long-term contracts. When you compare our growth CapEx to EBITDA, we were materially higher than each of our publicly traded competitors in 2023, 2024 and now again in 2025. I'm highly confident this trend will continue in 2026. I believe our market share gains are driven by our service, our unit technology and our lower leverage. With that, I'll turn the call over to Ian to review detailed financial and operating results before returning for closing comments on guidance. Ian Eckert: Thank you, Justin, and good morning to those joining us. As Justin emphasized, we delivered a very strong quarter, reflecting significant new fleet additions that position NGS well to continue delivering shareholder value. To recap the third quarter, total rental revenue grew 11.1% year-over-year and 4.9% sequentially to $41.5 million. This growth reflects the 27,000 rented horsepower increase during the quarter. Rental adjusted gross margin was $25.5 million, up $2.6 million year-over-year and $1.5 million sequentially. The rental adjusted gross margin percentage was 61.5%, an improvement of 19 basis points year-over-year and 75 basis points sequentially, reflecting sustained pricing discipline, large horsepower fleet additions and lower maintenance parts consumption. Adjusted EBITDA for the quarter was $20.8 million, up $2.7 million year-over-year and $1.2 million sequentially. Net income was $5.8 million or $0.46 per diluted share, up $800,000 year-over-year and $600,000 sequentially. Rented horsepower ended the quarter at approximately $526,000 compared to $475,000 a year ago and $499,000 in the second quarter of 2025. That's an 11% increase year-over-year and 5% sequentially. Fleet utilization reached a record 84.1%, up 204 basis points year-over-year and 45 basis points sequentially, with essentially all large horsepower equipment fully utilized. Operating cash flow for the quarter was $16.8 million, supported by continued improvement in accounts receivable with quarter end DSO of 28 days. Capital expenditures totaled $41.9 million, including $39.1 million of growth CapEx and $2.8 million maintenance. Sequentially, growth CapEx increased $17 million as fabrication ramped up to deliver new unit sets. We ended the quarter with $208 million outstanding on our upsized revolver and $163 million in available liquidity. Our leverage ratio was 2.5x, up modestly from 2.31x in the second quarter and remains the lowest among our public compression peers by a significant margin. Regarding capital returns, our approach remains disciplined and balanced, focused on delivering a growing dividend over time. While investors should not expect dividend increases every quarter, the decision to raise the fourth quarter dividend by 10% to $0.11 per share underscores confidence in the durability of our operating cash flow. Speaking of outlook, I'll now hand it back to Justin to discuss guidance. Justin Jacobs: Thank you, Ian. Looking ahead, based on our year-to-date performance and a strong second half deployment schedule, we are raising full year 2025 adjusted EBITDA guidance to $78 million to $81 million. This is a 2% increase at the midpoint from our previous guidance. We expect 2025 growth CapEx of $95 million to $110 million, a modest tightening of the range due to improved visibility on payment timing with no impact on total horsepower additions. Looking beyond this year, our preliminary expectation is that 2026 growth CapEx will be $50 million to $70 million. While it is still early, we wanted to communicate to our investors that 2026 will be another year of organic growth for NGS. I have a very high degree of confidence in the low end of that range. How far we go in or above that range will be determined as much by timing as customer needs. As I noted earlier on the call, new unit quote activity for 2026 remains significant for both existing and new customers. I would also comment that regardless of where we are in the range, we expect to materially outpace our publicly traded competitors when comparing growth CapEx to EBITDA. Further, we are starting to see 2027 RFPs and the amount of horsepower indicates continued growth into the future. Our 2025 maintenance CapEx remains $11 million to $14 million, and our ROIC target is unchanged. In closing, we delivered multiple company records in the third quarter. This momentum reflects technology and service-enabled share gains with our customers along with operational and capital efficiency. NGS is set up for strong performance for the remainder of this year, next year and beyond. We are materially increasing the size of our fleet through strategic investments in large horsepower compression, including electric motor drives with what we believe is industry-leading technology and service. Luke, we're now ready to open the call for questions. Operator: [Operator Instructions] And our first question comes from Selman Akyol with Stifel. Selman Akyol: Congratulations on the nice results. I just want to start off, I guess, in -- on '26 and sort of the outlook there. Can you just talk about how those conversations are going with customers? Do they seem to be more hesitant in this environment? Are they waiting longer? And then also, we've heard or seen that getting new units is approaching 60 weeks. And I'm curious if you're seeing that the same thing in the supply chain. And then if you are, then how do you get additional units from here for '26? Justin Jacobs: Sure. Thanks for joining, Selman. So on -- so 2 parts there. First, just I'll address generally kind of customer activity. And from the RFPs or I should say, from the units that we have contracted already from the activity we're seeing in '26 and '27, we're not seeing hesitancy. So I think generally, as we look at that, we take that as encouraging that in certainly with lower oil prices, I think there was some concern around that. But we're seeing a broad range of interest in what we've already signed and in potential, it's a little difficult for me to judge how much of that is -- how much of that might be to some of the market share gains versus just stronger activity than I think some people may have expected. So it's a little difficult for me to necessarily differentiate between those 2. I suspect it's a mix of both. But we're encouraged what we're seeing in terms of demand, including for gas lift in the Permian. On the new unit fabrication lead times, there are a range of different lead times for different units. What I would say as we look at 2026 and particularly the back half of the year for some of the different types of potential new contract wins, we get, we will be able to fill some of those. Now there will be some timing concerns if it's new units in the first half of the year, that's going to be challenging, not necessarily impossible, but challenging. But it's really kind of the second half of the year where we think there are certain types of units where we'll be able to meet customer demand. Selman Akyol: Got it. And then just one other quick one for me. Opportunities for margin improvement from here? Justin Jacobs: I think in the near term, the kind of low 60s number that we have hit for the last number of quarters now is still consistent with what we see in the near term over the more going further -- a little further out, mix shift to large horsepower will certainly continue to pull margins up. And then in terms of optimization of our business, I think it's still too early for us to give any specific guidance around that. Operator: Our next question comes from Tate Sullivan with Maxim Group. Tate Sullivan: In terms of the end market uses for the larger natural gas compressors, is it still the majority of the demand for gas lift in the Permian? And can you reconcile that with your comments about growing demand for data center natural gas load? Justin Jacobs: Sure. Thanks for joining, Tate. So the -- while not all of our new unit demand is gas lift in the Permian, it's certainly the significant majority of it. And as I said, we're still seeing a good amount of activity around that in terms of existing contracts and potential new sets. On the compression needs for data centers, AI, LNG that really creates incremental opportunity for us as we are primarily in gas lift applications today, same basic equipment. So it keeps tightness in the market for the large horsepower and is an area where we hope to be able to grow in the future. Tate Sullivan: Are your compressors now large enough to be placed on pipeline, for example, for pipeline extensions to dedicated natural gas plants? Justin Jacobs: Yes. Yes, they are. Those are typically north of 1,000 horsepower, 1,600 horsepower units, 2,500 horsepower units, and that's where a lot of our new unit sets are. Tate Sullivan: So do you already have existing units placed for natural gas pipeline compression purposes? Justin Jacobs: We do not have midstream applications today. Tate Sullivan: But that's an opportunity. Okay, understood. Operator: Our next question comes from Rob Brown with Lake Street Capital Markets. Robert Brown: On your '26 outlook or CapEx outlook, you said confidence in the low end of the range, but sort of what's the ins and outs on getting that or growing that number? Is it really just timing of contract win or just a sense of what can move that around? Justin Jacobs: I think it's that. I mean it's still early. We're in November now. And as I said in response to one of the earlier questions, we certainly still have some opportunities in the second half of the year for new unit sets. And so that's something that we'll be able to give, I think, better clarity around on the next quarter call, but we just wanted to indicate to our investors that we're going to have significant growth again next year and a very large portion of that is already contracted. And as we engage with customers over the coming couple of months to finalize 2026, our hope is to push that number up. Robert Brown: Okay. Great. And then you had good market share gains, I guess. What's your sense on that? How can that -- or what's the sense on whether that can continue? And do you need to continue to penetrate new customers? Or is it really a share gain at your existing base? Justin Jacobs: I think it's a mix of both. I have been -- obviously, we had the disclosure, as we mentioned earlier, is in the queue of a new 10% customer. We've been setting a lot of equipment with Devon have been very, very pleased with that relationship and look forward to performing on even larger amounts of horsepower with them going forward. As I look at 2026 and then even beyond that, I think we have an expectation, we're going to continue to grow with our existing customers, and we're certainly seeing opportunities with some new customers that could be potentially quite large, but still early there. We have to go out and get some of those wins. Operator: [Operator Instructions] Our next question comes from Nate Pendleton with the Texas Capital. Nate Pendleton: Congrats on the strong quarter. Justin Jacobs: Thanks, Nate. Nate Pendleton: Can you talk about your decision to increase the dividend here given the strong outlook you're messaging for future growth potential? And maybe how you balance that increasing return of capital goal with the growth opportunities ahead of you? Justin Jacobs: Sure. I think it is a balance as we look out to the -- further out into the future of eventually getting to a defined capital allocation framework where we've got a certain amount of EBITDA and whatever term you want to use, getting down distributable cash flow and how we allocate that out. The -- obviously, we had the initial or inaugural dividend last quarter. And just to reiterate, I do not want to create the expectation that there will be an increase every quarter. With that being said, considering the performance of the business and our outlook, we did want to signal to investors that we hear the message loud and clear of a continuous and growing dividend. As we said in our prepared remarks, this is not going to impact in any way our ability to continue to grow from just a dollar perspective. It's not going to impact that, but we thought it was a good way of showing that we're going to be increasing dividend and return of capital to shareholders, while still growing the business at a materially higher rate than our public competitors. Nate Pendleton: Got it. And then maybe going back to Devon. Specifically, how was NGS able to make inroads there? And how did that relationship develop? Justin Jacobs: It's been a long-time relationship. If you go back, I'm not sure how many years, but quite a few years ago, they were a disclosed customer. So they've been a long-time customer. And it was, I think, a great example for us of what some of the technology that we have on our units that are proprietary to us led to a significant expansion of our relationship with an existing customer. And as they understood some of the capabilities of our units and some of the data that they would be able to get off of that. That was the primary driver on top of a reputation from a service perspective to deliver their needs and what is a mission-critical service for them. And so it really boiled down to the 2 simple things or maybe 3 simple things of long-time existing customer gets an understanding of some of the current capabilities we have and the run time that we've delivered for our customers, including for Devon that allowed the significant expansion of that relationship. Nate Pendleton: Great. Congrats again. Justin Jacobs: Thanks, Nate. Operator: [Operator Instructions] Our last question so far comes from Jim Rollyson, Raymond James. James Rollyson: And again, congrats on another solid quarter. Justin, just kind of following up on that. So you mentioned how Devon expanded from a customer into [indiscernible] there. Maybe just a little bit of color on new customer opportunities. Is word kind of spreading about what your technology and service quality is doing for Oxy and Devon to drive new potential customers to the door? Or how are you setting up to get new customers? I'm curious. Justin Jacobs: I think it's an ongoing effort. I think I believe that we are seeing success there. In terms of public quantification, Devon is -- that's something we're able to point to. In terms of conversations with both existing customers that maybe are much smaller customers where we have just a smaller customer. It is really having multiple conversations and then doing demonstrations and showing in the field of this is how the technology works. These are the benefits that our customers get out of that and really getting into the operational and engineering teams at these customers, both existing and then looking to do it with new customers as well. And that's certainly a process, but I'm encouraged by the reaction that we get from these customers when they really start to see the benefits that they will get out from a service performance perspective and data perspective. And so I think it's ongoing, and there are a couple of positive indicators, but something we have to keep working on. James Rollyson: For sure. I appreciate that. And maybe just back up on the CapEx. If I go back 2023, you guys had a very heavy CapEx year, delivered a lot of new units and you kind of took '24 to maybe absorb some of that, get it all make sure operations are running the way you wanted to and then you lean back in this year. And so I guess, as I think about the $50 million to $70 million kind of starting point for CapEx, do we think about '26 maybe as kind of a '24 type of year, and then things continue to build for '27 potentially ramping back up if the macro still kind of cooperates. Is that a good way to think about it? Justin Jacobs: I think generally, we looked at 2026 and say it's in -- looks like it will be generally in line with 2024. I mean, as you go back to 2023, it's a bit of an outlier year in terms of the numbers. It's quite a huge number. But 2025, you're looking midpoint kind of the low hundreds. Some of that is driven by particularly large customer wins, which may not repeat year-to-year, although we're still setting activity. And so we're encouraged by 2026, the opportunities that we see and then 2027, starting to see the RFPs for that for customers that are, I think, kind of ahead of the curve or maybe on the curve of where they should be from an ordering perspective. And those are significant potential horsepower wins. And so we're encouraged as we look forward that we're going to continue to grow at a significant rate organically. And as I kind of look at the market broadly, see that we're capturing market share. James Rollyson: Awesome. Look forward to that growth. Justin Jacobs: Thanks very much, Jim. Appreciate it. Operator: Thank you very much. And with that, we have no other questions. Justin Jacobs: Excellent. Well, thank you, Luke. Thank you to everyone for joining the call this morning. We appreciate the time, the interest, and we look forward to continuing to report strong results for our investors. And so we'll see you again on the next quarter's call. Thank you for your time. Operator: Thank you, everyone. And this concludes today's conference call. Thank you for attending.
Barbara Seidlová: Hello, everyone, and welcome at CEZ Group Financial Results Conference Call for 9 months of 2025. It's my pleasure to welcome Martin Novak, Chief Financial Officer; and Ludek Horn, the Head of Trading, who will be going through the presentation and be available for the questions. I'm now handing over to Martin to start the presentation. Martin Novák: Thank you . Good afternoon, good morning. So I will quickly go through our presentation, and then we can jump to Q&A session. So if you look at Slide 3, our total financial results, our EBITDA is about 3% higher than in the same period of last year. We achieved CZK 103.2 billion. Our net income is 7% lower, CZK 21.5 billion and adjusted net income that is a base for paying dividend is CZK 22.2 billion. Our net operating cash flow is down by 40%. This is mainly due to very strong net operating cash flow in 2024 when we were still receiving back some cash from margining from previous years. And then we had 11% higher CapEx spending that reached CZK 38.7 billion. Important slide on Slide #4, you can actually see main causes of year-over-year change in EBITDA. 3% or CZK 2.9 billion, as I already said. We have a few negative effects and a few positive effects. The negative effect is actually the strong -- by far, the strongest -- it's actually a decline in power prices. Our average achieved price for 2025 is estimated at EUR 121 to EUR 124 per megawatt hour versus something above EUR 130 in 2024. So this effect of kind of EUR 10 per megawatt hour causes CZK 10.5 billion decline on generation facilities. Another negative effect is actually lower generation volumes of hydro plants due to mild winter and not enough snow in 2025. On the other hand, positive is actually impact of fuel cycle extension and the increased capacity at the Dukovany nuclear power plant, which is CZK 3.5 billion positive and other effects, mainly higher fixed expenses of CZK 200 million. Trading activities are down by CZK 3 billion. We have low prop trading margins by CZK 2.6 billion compared to previous period. And that's -- those are actually negative effects in trading and generating. Mining is somewhat down as well due to lower coal sales volumes and lower price of coal. Positive is actually coming from 3 main factors. One is actually just distribution, meaning power distribution, which is helping us with CZK 4.6 billion. We have higher allowed revenue, thanks to growing investments in distribution assets in the past, which is CZK 2.1 billion. Then we have so-called correction factors, CZK 1.3 billion, both from 2 years before, meaning 2023 and also something that we will be handing over back in 2027, but positive effect on 2025 is CZK 1.3 billion. GasNet, important acquisition of 2024. GasNet is a Czech distribution of gas, natural gas which we actually started to consolidate as of September 1, 2024, meaning it was not in our numbers for 8 months in 2024, only the 9th month. And actually, in 2025, it is in our numbers as a full year. So that's why there is such a huge variance of CZK 7.4 billion. Sales segment is also doing better, CZK 4.3 billion improvement, mainly due to lower cost of commodity acquisition, impact of sales of undelivered commodity of CEZ Prodej when they actually had to sell some undelivered commodity in 2024 at a lower price compared to current year when they delivered it to end customers. And also proceeds from litigation with the Railway Administration that actually brought us last year CZK 1.3 billion. It didn't this year. So overall sales segment improvement is CZK 4.3 billion, and it gets us to CZK 103.2 billion. Year-on-year change in net income. By far, the most important change is actually in the depreciation and amortization line. You can see pretty significant increase in depreciation and amortization. It has a few reasons. One of them is actually consolidating GasNet that we did not consolidate last year almost at all, and it is CZK 6.7 billion higher depreciation. We also started to depreciate or accelerate depreciation of our lignite assets that are being depreciated much faster in 2025, '26 and of course, slower towards the end of 2030, basically coping hours of production, which is an allotment under accounting, IFRS accounting when you can see the end of the asset and uneven power generation. We started this type of depreciation as of October 1, 2024. So this accelerated depreciation is not in a comparable period of '24 at all because now we are comparing only 9 months. So the difference is actually net difference of CZK 5.6 billion of accelerated depreciation on coal assets. Those are the main variations. Then, of course, we have higher interest income expenses, mainly due to actually lower interest received as the interest rates go down and deposits that we have are -- bear lower interest than in the past. And that's basically it. There is lower income tax due to lower pretax profit. And finally, we get to net income of CZK 21.5 billion and CZK 22.2 billion is adjusted net income. On the next slide, you can see volumetric data, which I will skip. And we'll go to Slide 7, which is the financial outlook. We are keeping our EBITDA outlook at CZK 132 billion to CZK 137 billion. We are narrowing actually the range of our estimate for adjusted net income that was CZK 26 billion to CZK 30 billion. Now it is CZK 26 billion to CZK 28 billion. We are coming closer to the end of the year, so we are able to narrow down this range. You can see selected assumptions on power prices and carbon credits and also on the level of windfall tax, which is now estimated at CZK 31 billion to CZK 34 billion. Important milestone in our acquisition -- the territory of acquisitions, we acquired gas distribution operator on the south of the country. This is the -- it's called gas distribution, and it's actually dark green color on the chart. So now we control entire area of the Czech Republic gas distribution with the exception of Capital City of Prague that is controlled by municipal company. So this was an important add-on to our assets. We acquired actually gas distribution through GasNet. So we are not 100% owners. It makes sense to do that through the entity that already owns vast majority of gas distribution in the country. The transaction should be closed during the first quarter after all the antimonopoly decisions are made and approvals are received. It's relatively smaller compared to what we actually already own. EBITDA is about CZK 800 million, net income about CZK 100 million, no debt. So a very interesting company into our portfolio. Now let's switch to Generation Mining segment. It's important to see actually how our Generation and Mining did. I already made a few comments on that on the EBITDA slide at the beginning of the presentation. It's important to note that actually, as I said, power prices despite some positives like, for example, operating -- positive operating effects on Temelin power plant, mainly fuel cycle extensions and so on are still not high enough to beat the decline in power prices. So decline in power prices on our zero emission generating facilities on nuclear facilities is about 3% or declining EBITDA, which is mainly caused by declining power prices. On renewables, it's more significant is 26% down mainly due to insufficient water conditions in 2025, the beginning of this year. Emission generating facilities generated, as you will see later on, almost the same and will generate almost the same amount of electricity. However, EBITDA is down by 61% or CZK 6 billion, mainly due to, again, decline in power prices and narrowing margins in coal-fired power plants. Trading at CZK 1.6 billion of net income, which is 65% down compared to previous year. Entire Generation segment is -- and Mining in total is actually down 17%, reaching CZK 64.8 billion EBITDA. When you look at nuclear and renewable generation on Slide 11, you can see actually charts comparing first 9 months and also estimate for full year '25. We should be achieving pretty much highest level of our nuclear generation, close to 32 terawatt hours, mainly due to fuel cycle extension that is now longer than it used to be in the past. So there are years -- which is this year when we will be running nuclear units without interruption during that year, which is the case for Temelín power plant this year. And so that's an increase of -- planned increase of 7% year-on-year. Decline in renewables of 13% that I already commented on and total number to be achieved 35.1%. Electricity generation from coal is on Slide 12, pretty much in line with last year with one exception, which is steep decline in Poland. As many of you know, the first or second week in February 2025, we disposed -- finally disposed our Polish coal assets. And that's why there is no more EBITDA coming and generation, of course, in terawatt hours coming from those assets. That's why there is such a significant decline. There will be a decline on -- a little decline actually on the natural gas and a little decline on coal generation in Czech Republic, which will be about 2% lower. However, in EBITDA numbers, as you could see, it was about 60% decline. One of the most important slides is actually our hedging on Page 13. You can see 2026 average achieved price of EUR 94 so far declining to EUR 72 in 2029, but we are only 5% sold or secured for 2029. So it's a pretty material number. Same for carbon credits on the right side of the chart. And at the bottom, you can see the percentage of power sold, which means there will be significant decline in average sales price because average sales price for this year is estimated between EUR 121 and EUR 124 per megawatt hour, which is something like EUR 30 decline year-on-year, which is pretty significant and will definitely be seen in our sales numbers and EBITDA numbers next year. Distribution and Sales segment is doing rather well. Actually, Distribution segment is up by 75%, mainly due to gas assets that contributed CZK 8.1 billion for first 9 months versus CZK 700 million, which was a number for September 2024 because it was consolidated as of September. So CZK 7.4 billion improvement. And then on actually distribution, electricity distribution, our number is 30% better than it was last year, but CZK 1.3 billion are those correction factors as I discussed from year minus 2 and year plus 2 in total, about CZK 1.3 billion difference compared to last year. The details of Distribution segment are then listed on the slide. Another important factor is -- the most important factor, above correction factors is actually higher allowed revenue, thanks to growing investment base in distribution assets. Year-on-year development of electricity and gas distribution, electricity distribution on CEZ Distribuce territory is up by 1% in total, basically a little change. Residential customers are somewhat higher, but this is mainly due to climate. When you actually adjust for climate, it is a decrease of 0.2%. And calendar, if you adjust it for a number of days, it's decreased by -- it's increased by 0.3%. So pretty much steady distribution numbers. Gas distribution increased by 9%. Climate-adjusted consumption only by 1%. So it is colder winter '25 than '24. Sales and EBITDA -- sales segment EBITDA in total, actually CZK 10.7 billion, which is 67% improvement. You can see the details in CEZ Prodej, which is Czech retail business, 84% improvement and then ESCO companies in various countries. A few -- there were a few positive effects influencing CEZ Prodej, our retail business, one of the most important half of the difference actually -- most of the difference actually, full difference is lower cost of commodity acquisitions and lower cost of deviation, thanks to the market stabilization after it was deregulated. So that's the main chart here. On Page 18, we have volume of electricity and gas sold and number of customers. So electricity sales went up by 1%, gas by 16%. Number of customers is basically steady. We lost a little in electricity being dominant player and gained 5% actually in gas business. So in total number of customers is pretty much not changing. Their customers are much less involved in changing supplier than they were before the crisis when many of the smaller companies or even large companies went bankrupt and they had to switch to different suppliers under a fairly stressful conditions, I would say. Revenues from sales of energy services, meaning ESCO. ESCO activities are actually 8% down, but we expect them to be pretty much in line with last year or only 2% down, mainly because we had a few kind of big significant projects last year -- that were invoiced last year that did not repeat themselves now. However, organic growth is fairly reasonable, and that's why there is -- we are able to make up actually on a full year basis. And that's all for the presentation. And now I think we are ready to take questions. Martin Novák: [Operator Instructions] So the first question comes from Emanuele Oggioni. Emanuele Oggioni: The first one is on the distribution EBITDA guidance for 2025. We have seen another increase after the increase in the guidance in H1 for this business unit. So basically, from the beginning of the year, the change would have been between CZK 7 billion and CZK 9 billion. Now it's between CZK 12 billion and CZK 13 billion, so more than 50% compared with the start of the year. So probably you explained this in Slide 30. So if you could add more color on the Slide 30 and this incrementally positive distribution factor is repeatable or not in '26? And what is your expectation on '26 about this business unit as you exceeded the guidance, the original guidance to a large extent in '25. So the question is not only an explanation on '25 based on Slide 30, but also about the outlook on 2026. This is the first question. The second is on the guidance on sales, EBITDA sales. Also in this case, there is an increase -- there was an increase 2 times in a row. And also in this case, the question is if the positive drivers, the positive moving parts, which lead to this increase are also valid and visible for 2026. So we can expect structurally higher profitability after a stronger-than-expected profitability in '25 also in 2026. And the third and last question by my side for the time being is on the generation business is on the development of the data center market in Czech Republic and also in Central Europe because you are related -- that the power prices is related also to the power price of Germany. So the question is if -- what is the situation as regards to development, the projects of data centers in Central Europe and obviously, in your country. And this could change in your opinion in the midterm, obviously, not in the short term, not in the next quarter or next year, but could change something embedded to sustain the electricity prices in Central Europe, thanks to the development of data centers. Martin Novák: Distribution, as you rightly noted, there is a significant increase in distribution segment, and it's mainly due to acquisition of GasNet, which is actually natural gas distribution on the Slide 30, which is in appendices just because it was basically we did not consolidate. We did not own GasNet first 8 months of 2024. So that's why there is such a huge move. In electricity distribution, it is improvement of CZK 4 billion to CZK 5 billion compared to last year. Half of it is investments, CapEx actually increased asset base from last year's actually of investment and the rest are correction factors that 1 year go in your favor, next year, they go against you. Now actually, we have a positive effect of CZK 1.3 billion, out of which half will have to be returned in 2027. So in 2027, there will be a negative impact of something like half of this CZK 1.3 billion of this amount. So it is -- but generally, I would say that the regulatory framework, especially due to our CapEx is favorable. We would not expect other than those correction factors to decrease our profitability in power distribution in the future. However, it is a regulated business. So you don't have much space for any significant increases of EBITDA either. Gas distribution is very similar. Again, you can make certain changes, you can make certain improvements in the business. But again, it will not be -- you are not able to double the number other than through acquisitions. So of course, acquisition of gas distribution, which is actually the company that we acquired and that will be put into our numbers as of next year will bring another CZK 1 billion, close to CZK 1 billion of EBITDA next year. Sales segment. Sales segment is very strong this year. I would say that this is a really coincidence of the market conditions. Normally, we did not have that high EBITDA in the past, as you can see compared to previous year. And that's why actually for first 9 months, actually, especially so I would think that profitability might be lower in the future coming back to normal, I would say. But by how much it is, of course, difficult to predict. You can see that actually now we are 84% higher on retail which is probably something that will be hard to repeat in the future as well. And generation data centers, there is some discussion, but we really didn't see much real, real kind of projects in the region so far, especially when you compare it to other geographic locations like U.S. power price is much higher here in Europe than in the U.S. So it's difficult to compete -- we had a few contacts with potential investors, but so far, didn't really work out. And I don't know of many new kind of huge projects in this region that will really come to final decision. So let's see how it goes. But as you said, we are tied to German price plus you have distribution tariffs. So the power is not that cheap and power is actually the commodity that you need for data centers. So maybe in the future, there are some discussions. For example, if you have new nuclear units, you would be supplying data centers directly from them. But so far, we are not there yet. We have our own data center. We are planning one more. They are all within parameters of our power plants. So they are connected directly to the power plant, taking power from the plant, not from the distribution grid, but that's for our own use. So that's it. Barbara Seidlová: We can take the next question from Oleg Galbur. Oleg Galbur: I have several actually. And let me start with a question regarding your full year guidance for the nuclear electricity generation of 31.9 terawatts, which implies quite a high utilization, both for the fourth quarter, so almost 90%, but also for the full year, 85%. So what I'm trying to understand is what should we expect going forward on the annual basis? Should, for example, this 85% be like a new normal? Or how do you comment on that? And then a similar question on the guidance for electricity generation from coal, the 14 terawatt hours guidance implies an increase in coal generation to almost 4 terawatts in the fourth quarter. And if this is really the case, how is such an increase justified by the low, if not even negative level of coal spark spreads? And lastly, according to my calculation, the proprietary trading was negative in the third quarter and significantly lower, obviously, in comparison to the first half results. So maybe you could provide a bit more details on what has caused this result in the third quarter and perhaps also shed some light on the expectations for the fourth quarter or for the full year, again, on the trading results. Martin Novák: Okay. So thank you for questions. Close to 32 terawatt hours, 31.9 terawatt hours is something that we will be hopefully seeing from time to time. The reason is that we moved actually from 12 months refueling cycle, which means that every reactor was at least for a few days shutdown for refueling every single year to 16- or even 18-month cycles for Dukovany and Temelín. This means that utilization oscillates between 80% and 85%, depending on how many outages fall into a given year. And utilization in Q4 will be high because there is no outage actually in Temelín planned. And it was actually -- there was actually outage of 8 weeks in 2024 -- in Q4 2024 in Temelín second unit. In 2026, both Temelín units will be -- will have planned outage, and therefore, nuclear utilization will be lower compared to 2025. It will be around 80%. So we would expect our power generation roughly of 30 terawatt hours. And then in 2027, again, there will be no outages. So it would be close to 32 terawatt hours. So our utilization now will be kind of oscillating between 30 and 32 depending which years will be hit by refueling and which years will be run without any interruption and any refueling. Second question, coal spark spread is actually not negative compared -- because we are hedging the power. So we actually sold power at those EUR 121 to EUR 124 per megawatt hour, while carbon credits were at a level of EUR 90, maybe at the time when we were selling it, so actually, the spread was very positive. And it's also important to note that our power plants are making most of the power and also heat because all of them are heat plants in Q1 and Q4. So Q4 is kind of a very important quarter because it's winter, it's October, November, December are usually very cold month. And that's why lignite plants are running at full speed at that season. So it's a seasonal business. The hedging or the trading results so far for first 9 months of 2025, prop trading made CZK 1.6 billion. In this segment, we are not only showing prop trading as such, but also revaluation of derivatives. Estimate till the end of the year is that they would make something like CZK 1 billion to CZK 2 billion more. So the trading could achieve CZK 2.6 billion to CZK 3.6 billion of results. Clearly, it is less than it was in the past. But on the other hand, we are back to volatility we were used to in the past, I mean, in the -- before the energy crisis in 2021 to '23 where volatility was easily EUR 500 per day. Today, it's definitely not that. It is -- the market has stabilized. And with volatility of a few euro cents per day, it's very hard to make a profit of CZK 20 billion as it was in the past. So I would say we are back to normal. Normally or usually, our trading was making something between CZK 1 billion and CZK 2 billion annually as a standard result in a standard environment. So that's it for me. Thank you. Barbara Seidlová: We can take the next question from Anna Webb. Anna Webb: Anna Webb from UBS. Hopefully, you can hear me okay. Just one question for me on the gas distribution acquisition. I was just wondering if you see kind of any synergies now controlling almost all of the gas distribution in Czechia, kind of above and beyond just the contribution from gas distribution. I mean I'm aware it's quite a modest contribution from that business you bought from E.ON, but just wondering if you see kind of synergies and cost savings for the overall gas distribution business -- as in gas distribution in Czechia, including GasNet, now you've got that kind of majority of the business. And obviously, you've now had GasNet for a year and how you see that evolving would be great. Martin Novák: Yes. Clearly, we do. And that's the reason why actually the gas distribution was acquired by GasNet and not by us directly. It makes sense to consolidate all gas distribution assets under one company. So we would expect to have synergies from technical management of the assets, all the call centers, all the financial systems, but it's too early to say how much it will be. Gas distribution is not that sizable company, as you pointed out rightly. So there would be some synergies, but now it's too early to say. And probably given the size of our overall business, they will not be very material. Barbara Seidlová: We can take the next question from Piotr Dzieciolowski. Piotr Dzieciolowski: I have 2 questions, please. First one, I wanted to ask you because there were some headlines about your total CapEx until the end of the decade. Do you think -- so the question around it would be where do you think your leverage will end up at the end of the decade? And do you think you will need to revisit the dividend policy in light of this high CapEx requirement? And the second follow-up, I have, like if you -- assuming the takeover story has some legs and the government goes ahead with it and it imposes the objective on the company to do a buyback, how much of this CapEx, the total CapEx envelope is flexible that you would not need to do it? And is it a reasonable scenario to assume that you could cut a certain amount, like 1/3 of this CapEx, if there was a need to do it to facilitate some other objectives? Martin Novák: Okay. So first question, our CapEx is [ above ] CZK 400 billion to be spent until the end of this decade. We are aiming at our target ratio of 3.5x net debt to EBITDA by then. And we should be able to make it with the projection of power prices that we are now seeing, actually, on the power exchange and also paying the dividend in the range of 60% to 80% of our adjusted net income that we are usually sticking closer to 80% rather to 60%. So all those things kind of fit the puzzle and we should have no issues to do any changes. Regarding share buyback, we don't comment at all on this topic. It was mentioned in actually proposition of the government -- of the kind of what government proposes, but it's preliminary. It has not been approved by the government, actually future government. So until it is more stable document, we are kind of not commenting on political announcements at all. Piotr Dzieciolowski: And a quick follow-up, just a technical follow-up on this 3.5x net debt. We are talking here about the financial net debt. So we would have to assume that the nuclear provisions come on top, right? Barbara Seidlová: Yes. Martin Novák: Yes. Barbara Seidlová: Okay. Next question from Jan Raška, please. Jan Raska: I have one question about once again, gas distribution company. You indicate annual EBITDA almost CZK 1 billion. As you said, GasNet was realized this acquisition. So it means 55% effective ownership share. But I understand correctly that you will fully consolidate EBITDA of gas distribution to CEZ EBITDA. Martin Novák: Yes, that's how we will normally do under accounting rules. And then actually in adjusted net income, we are actually taking out the minority share of net income that is attributable to 45% shareholders. Jan Raska: So CZK 1 billion to EBITDA and then correction at... Martin Novák: [indiscernible] Barbara Seidlová: Okay. We can take the next question from [indiscernible]. Unknown Analyst: I just had one question more on the political side in the Czech Republic. Specifically, if you had any comments about any kind of political -- potential political interference or nationalization, for example, there were a few headlines. So any update on that? Martin Novák: I already answered that we actually don't comment on any political pronouncements until they actually reach our doors, which has not happened. So that's all we can say. Barbara Seidlová: And we have a follow-up question from Oleg Galbur. Oleg Galbur: Yes. Two shorts, first of all, on the CapEx, could you please tell us what level of CapEx in the Generation segment should we expect for the full year? And maybe you can also remind us what would be the expectations for the full year CapEx at the group level? And secondly, on the acquisition of the gas distribution company in the third quarter, could you disclose the price or the multiples that you paid? Anything that would be very useful. And more of a general question. So you mentioned in your presentation that the -- due to the declining power prices, you expect also a negative impact on your EBITDA. Probably the lower generation in the coal assets due to a gradual phasing out that will also have a negative impact in the medium term. So my question is, what is the strategy or what are the measures that you are considering taking in order to at least partially offset the impact of this development on the generation business earnings? Martin Novák: So first, thank you for the questions. So first of all, CapEx. Full year CapEx is now estimated at CZK 60 billion, out of which power generation would be close to CZK 34 billion. Then mining, close to CZK 2 billion, distribution about CZK 19 billion, sales about CZK 6 billion. So this is around CZK 60 billion in total. So it's less than originally anticipated. So far, we spent close to CZK 39 billion. Usually, fourth quarter is pretty strong in spending CapEx. So we assume that we will be able to do that. Price for gas distribution is not announced. We agreed with the buyer -- with the seller that it will not be announced until we close the transaction next year, and then it will be properly reported. And third question was on. Barbara Seidlová: What can we do to offset the decline in generation. Martin Novák: Decline in generation. Well, we will be, of course, offset it through future projects and entirety of our business, but how we will actually deal with coal assets, we will definitely decline power generation. It will be run for following few years in kind of winter/summer mode of operations. So winter, it will be running, providing also heat as an interesting byproduct. In summer, it will be running much less. And towards the end of decade, those power plants will very likely be decommissioned together with coal mining activities. And generally, as a group, of course, we are concentrating more on services like ESCO activities, which will be growing distribution assets, for example, through acquisition of gas distribution and growing our distribution EBITDA and of course, replacing coal heat plants with gas plants and all the renewables and all those projects. Oleg Galbur: Okay. I was asking the third question, also in light of your comments earlier today in the press conference, at least this is what Bloomberg is writing that although you expect the lower prices to negatively impact EBITDA, you are quoted here saying that -- but on the other hand, some other acquisitions could take place, so things may look different. So I was also expecting maybe some more comments on this statement, if it's possible. Martin Novák: Yes, I think it's probably what we can say now, but that's what it is. Barbara Seidlová: Okay. Now we can take a question from Bram Buring from Wood & Co. Bram Buring: Two questions, please. The first, I guess -- well, the second, but related to the previous comment, acquisitions in distribution assets, you're kind of full up in the Czech Republic, if I'm not mistaken. Are you potentially interested in acquiring abroad? That would be the first question. And the second question, again, you've already sort of touched on it, but I'm thinking about coal generation for 2026. Will the margins allow you to produce what are we -- should we be looking for closer to 10 or closer to 6 for 2026 in the coal generation? Martin Novák: So you are right in the gas distribution, I don't think we can get more in the Czech Republic. On the other hand, we are not looking at foreign gas distributions. I think we already kind of divested actually power distribution companies abroad in a few Balkan countries. And gas distribution is interesting for us for a few reasons. First, it's in our home country where we have the same regulator for power and gas. So we are able to actually bundle the negotiations together. We also have a side effect of building a fleet of CCGTs and gas-powered heat plants where having an access to gas grid definitely helps in terms of gas connection. This is something we would not necessarily do abroad. So we are not looking abroad at gas distribution. And then power plants, it's really hard to say what will be power generation of power plants now. I think we'll announce it actually in our March press conference where we'll be announcing what will be our EBITDA expectations and power generation and so on. So it's March information. Barbara Seidlová: We can take the next follow-up question from Jan Raška. Jan Raska: No, no. No question. Barbara Seidlová: Okay. So then [indiscernible]. Unknown Analyst: My question is regarding the energy price curve. Do you think that the current curve may be too low? For example, if we assume that CO2 prices would rise, even if we assume that gas prices will be lower in a few years. So what are your expectation on the future electricity prices? Ludek Horn: Okay. I will take the answer from a trading perspective. We expect that gas prices will go down, as you mentioned, in midterm future, connected with, let's say, oversupply of U.S. LNG and so on and so on. But it's hard to say how it will be converted in electricity prices in Europe because the plants -- coal plants and gas plants are, let's say, not marginal plants as it was before so often. So maybe even with higher CO2 price, we will have on average lower electricity price. So there are different scenarios how it could look like, but it's hard to say how it finally will be. Barbara Seidlová: Okay. We can take the next question from fixed -- from a telephone line, starting with +33. Arthur Sitbon: Yes. This is Arthur Sitbon from Morgan Stanley. Yes. Apologies, the raise hand was not working on Teams. So yes, my question was about the outlook, well, beyond 2025. I imagine it's a bit too early to give precise guidance for 2026 net income, but you did share -- you did make some comments. You made some comments around the fact that in distribution, distribution EBITDA is currently higher than its normalized level. You also flagged the fact that realized power price should come down on the Power Generation segment in 2026. But on the other hand, I know there is the removal of the windfall tax. So I was thinking overall, well, first, are we missing any key moving parts in EBITDA and in profit for 2026? And second, I see consensus a significant growth in net income in 2026 versus 2025. I don't know if you can be very precise, but is a significant pickup in net income in 2026, something that you're comfortable with? Martin Novák: So you are right. You actually named it all. I think it is significant decline in power prices. I think one of the most significant declines we have ever seen in the history, EUR 30 per megawatt hour year-on-year is quite a lot. Then we will have lower generation on nuclear plants because this will be -- 2026 will be the year when we will be actually refueling Temelín power plant. Then correction factors in distribution, yes, probably lower sales results because of kind of getting back to normal on the sales side. And against it as a big positive is windfall tax to be discontinued that this year in 2025 will hit our P&L, it's CZK 31 billion to CZK 34 billion. However, I cannot really comment on 2026 numbers yet because they are not out yet, and they will be in March. But I saw some of the estimates of net income for next year. And I think they are kind of not taking into consideration those negative factors as much as they should. So that's all I can say. Barbara Seidlová: Okay. It seems it was the last question. Therefore, let me conclude this call. But as always, Investor Relations is always available if some further clarifications are needed. Thank you very much, and goodbye. Martin Novák: Goodbye. Ludek Horn: Bye-bye.
Operator: Good morning, ladies and gentlemen, and thank you for joining us today. Welcome to Natura's Third Quarter 2025 Earnings Call. [Operator Instructions] Joining us today are Mr. Joao Paulo Ferreira, our CEO; and Silvia Vilas Boas, our CFO. The presentation we'll be referring to during today's call is already available on our Investor Relations website. I'll now hand things over to Mr. Joao Paulo Ferreira. Mr. Ferreira, you may proceed, sir. João Paulo Brotto Ferreira: Good morning, everyone. I'd like to start today's call by acknowledging our weak performance this quarter. The results were disappointing, falling short of expectations, both in sales and profitability, even though part of the challenges we faced were deliberate and planned. The main challenges we faced this quarter were: first, G&A. The drop in revenue put pressure on our margins. And while selling expenses were down, total G&A spending stayed above last year's level, driven by the structural investments we have been making. We decided to keep these strategic investments moving forward, including the new consultant network online store as the benefits expected in 2026 are significant. The second challenge was the macroeconomic slowdown, especially in Brazil, where consumer spending was hit harder than we had anticipated. We are not satisfied with our revenue performance in the region. The adjustments we made to our portfolio weren't enough to capture emerging demand trends, largely because the Avon brand wasn't yet ready to respond. That brand could have benefited from the current scenario. And speaking of Avon, I'd like to mention the third challenge. We've continued to see revenue decline for the brand, driven by a slow pace of innovation and new product launches. In the meantime, while we are preparing for its relaunch in the first half of 2026. Finally, challenge #4, they have to do with the final impacts of Wave 2, especially in Argentina. This quarter, the main operational challenges came from Argentina as the major commercial changes affected consultants coming from the Avon network more than we had anticipated. This led to a real drop in revenue in the country made worse by the unfavorable FX movements. Mexico also saw a decline in revenue, though it continued to show steady month-over-month improvements. Finally, in Brazil, the closure of the Interlagos plant caused temporary disruptions in Avon product availability, impacting sales. Despite these challenges, we are confident we'll see progress in the coming quarters. Our business in Mexico is already showing signs of recovery, and Argentina is on track to stabilize by early 2026. In addition, we're moving ahead with structural efficiency initiatives made possible by the post Wave 2 simplifications and harmonization. As a result, we reaffirm our commitment to expanding recurring EBITDA margin in full year or fiscal year '25 versus a full fiscal year 2024, which should translate into stronger profitability as early as Q4 2025. Lastly, our corporate streamlining efforts advanced with the sale of Avon Central America and Dominican Republic and the signing of the agreement of the sale of Avon International. Starting in 2026, once the transformation cycle is complete, our focus will shift towards sustainable growth and delivering returns to our shareholders. I'll now hand things over to Ms. Silvia Vilas Boas, who will walk you through the details of our financial performance for the quarter. Silvia Vilas Boas: Thank you, JP. Good morning, everyone, and thank you for coming. Before going into the detailed financial results, I'd like to emphasize 2 essential points that JP has already mentioned. First, this quarter has disappointed and frustrated our expectations. Later on, I'll give you more details about it, why? Second, the point regarding corporate simplifications. They are extremely relevant to the company, but they do end up making the comparability of our financial statements very difficult. For that reason, we have included a pro forma in the earnings release to facilitate the analysis. In this presentation as well as in the release and the supporting Excel available in the Investor Relations website, we have already provided adjusted and comparable basis. This means that we show the numbers for 2024 and 2025 already excluding Avon International and Avon CARD. In addition, we consider the results reported by the holding company, both in 2024 as well as in the first half of 2025. Only the third quarter of this year already fully reflects the results of Natura Cosmetics after the merger of the holding on July 1. We know that these adjustments have been recurrent and make the analysis more challenging. But as I said, they are important steps in simplifying and they're close to the end. With the conclusion of Wave 2, we're only missing now the sale of Avon International in Russia. Another important point, as agreed this quarter, the release contains a new disclosure of information we presented during Natura Day. This includes the opening of the operational income statement for Brazil and Hispana in addition to other indicators that will facilitate the understanding of the business and the monitoring of the execution of strategy. After analyzing the new openings, we rely on your feedback to continue evolving. Now let's move on to Slide #5 to detail our revenue performance in Brazil. In the third quarter, Brazil, in the consolidated period, had a revenue drop of 3.7% year-over-year. When we look at the brands, Natura Brazil posted a flat revenue versus the same period last year, but it's important to note the sharp slowdown from the low double-digit growth we recorded in Q2 this year in the Natura brand. This movement mainly reflects the slowdown in consumption that affected the region from June onwards, as we have mentioned before, impacting our performance. Avon Brazil recorded a drop of 17.3% in the quarter. This result was influenced by 3 main factors: the adverse macroeconomic scenario impacting purchasing power, the absence of recent innovations in portfolio, a point we have reiterated as the brand prepares for the relaunch scheduled for the first half of 2026, which will bring a renewed portfolio aligned with the new positioning. And due to temporary operational impacts resulting from the closure of the Interlagos plant completed in October. All production was migrated to Cajamar, which impacted the availability of products. Our inventories are in the process of being rebalanced to reverse the last operational impact, which impacted the Avon brand in Brazil. The Home & Style category fell 9%, in line with Q1 '25, but below Q2 '25, which had been driven by an optimistic campaign in the opportunistic campaign in the category. Regarding the channel's performance, it's important to emphasize the reduction in the number of consultants and their productivity is concentrated in the less productive consultants who are more sensitive to credit restrictions. The most productive consultants continue to grow year-over-year. Finally, regarding the non-VD channels, both the digital channel and the retail channel continue to grow at a healthy pace, but still with low penetration in total revenue, emphasizing the role as important levers for the future growth. Moving on now to Slide #6, which details Brazil's profitability. We can see in the left column of the chart that we went from a recurring EBITDA margin of 23.1% in Q3 '24 to 16.2% in this third quarter. The decline is mainly explained by the deleveraging of G&A impacted by the market slowdown and the maintenance of strategic investments. These investments include the project of new integrated planning, which we mentioned frequently on Natura Day, very important project, which will allow from greater demand accuracy to inventory efficiency. Digitization tools to improve the journey, both for customers as well as consultants and investments in innovation, which includes the relaunch of the Avon brand, which will take place in the first half of '26, which brings us exactly to JP's point. These investments that were already underway are fundamental levers to support growth and results from 2026 on. And therefore, we made the decision not to stop these projects. It's worth mentioning that the initial setup and cost for these projects are concentrated in our main market, which is Brazil, impacting G&A. These very same projects will subsequently be implemented in Hispana at a substantially lower cost than in Brazil. In addition, we had a drop in gross margin of 300 bps year-over-year, as shown in the second column on the slide. This margin, however, remains at a healthy level, and the drop is mostly explained by the strong basis for comparison. As evidence that this gross margin is healthy, figures for the first half of 2025 in Brazil showed a gross margin at levels close to this quarter, but with an EBITDA margin around 21%, reflecting a greater expense efficiency in a period of strong revenue growth. However, we are displeased with this quarter's results, and we need to make our company simpler and more efficient. The sharp slowdown we have experienced has made it even more urgent to anticipate structural actions to reduce expenses, which will lead us to less dependency on the macro scenario and a more agile and efficient organization. Now moving on to Slide #7. Let's analyze Hispana's performance. The region posted a revenue drop of 3.9% in constant currency and 24.9% in BRL. Excluding Argentina, the drop in constant currency was 1.6%, which measures the impact we had in the region due to integration made in July. The Natura brand in the region grew 12.3% in constant currency, but showed a drop of 12.2% in BRL, greatly impacted by the adjustment of hyperinflation. In addition, Wave 2 and general slowdown in consumption in the country brought more pressure to revenue. However, when we look at the performance of Hispana, excluding Argentina, we see the Natura brand growing in high single digits in constant currency. This represents an acceleration when compared to the low digits we had presented in the second quarter of '25. This acceleration is explained by Mexico's performance, which showed sequential operational improvements each month in Q3 until revenue stabilization year-on-year in September. Other countries maintained the good performance presented in the first half of the year. Moving on to the Avon brand. Revenue fell 27.2% in constant currency and 41.9% in BRL, also impacted by hyper and Natura impacted by the integration in Argentina in July and slowdown in consumption in the country. In addition, Avon has also been pressured by the total migration of the physical magazine to hard cover to digital distribution. This, which happened in June impacted the third quarter of '25. Although to a lesser extent than Natura, Avon showed a sign of recovery in performance, excluding Argentina, reducing its decline in the quarter to 15.4% in constant currency versus 20.5% decline recorded in Q2 '25. Finally, the Home & Style category also had strong impact from integration in Argentina and continues to be under pressure by the integration in Mexico, but it's more relevant. The category recorded a drop of 35.9% in constant currency, 48.7%, BRL. The channel's decline after Wave 2, along with the trade adjustments in the integration process led to this sharp decline. Now moving on to Slide #8. In terms of profitability, Hispana presented an EBITDA margin of 4.5% in the third quarter of this year, implying a drop of 100 bps year-over-year, as shown in the chart. This performance is the result of opposing forces. The gross margin benefited from the accounting effect of hyperinflation in Argentina, which, on the other hand, significantly pressured our revenue as we detailed in the previous slide. In addition, the start of capturing efficiencies unlocked in our expenses in the region's integration process was still preliminary and not enough to offset the drop in revenue, leading to a deleveraging of SG&A. Looking specifically at G&A in this quarter, there was an impact from expenses with terminations. It is important to note that they are not included in the transformation costs as they're not related to the Wave 2 process, although they also aim at organizational efficiency for the company. Excluding this impact, general and admin expenses at Hispana would have shown a similar drop to revenue, even with part of these expenses linked to the BRL, which appreciated against Hispanic currencies during the period. Finally, it's worth noting that excluding Argentina, the EBITDA margin improved year-on-year, reflecting the recovery in revenue in Mexico and good performance of the more mature integrated countries. Moving now to Slide #9. Now we're going to look at our results in a consolidated way. We see revenue declining 3.8% in constant currency and 13.1% in BRL, reflecting the slowdown in Brazil, temporary challenges of Wave 2 in Hispana as well as the appreciation of BRL against Hispanic currencies and strong impact of hyperinflation accounting on our Argentina revenue. In terms of profitability, we presented a drop of 350 bps year-over-year on a consolidated basis or 360 bps when we look only at the Latam operation. The 10 bps difference between the 2 performances is explained by corporate expenses, which we previously called holding expenses, which decreased 27.7% year-on-year and therefore, accounted for 60 bps for the consolidated revenue versus 70 bps in Q3 '24. Looking at Latam's profitability here, once again, the G&A issue stands out, which explains all the variation in the EBITDA margin year-over-year and forces the urgency of concluding the setups of our restructuring investments and taking structural actions to unlock efficiencies throughout the organization. Now moving on to quarter's total net income on Slide #10. Our last line was once again impacted by noncash and nonrecurring accounting effects related to our discontinued operations, which are available for sale. This quarter, we recorded a loss of BRL 1.8 billion. This figure mainly reflects the impairment of BRL 2.8 billion in the book value of Avon International, excluding Russia. This loss was partially offset by a gain of BRL 1 billion due to the maintenance of Avon's trademarking and the rights in Latin America as detailed in the material fact dated September 18. It is important to note that the impairment of BRL 2.8 billion is explained by the intention to sell the operation for [ GBP 1 ] and its book value, as shown in the second quarter was BRL 2.8 billion. Regarding net income from continued operations, we posted a loss of BRL 119 million in the third quarter. This represents a worsening when compared to the profit of BRL 301 million recorded in the same period last year. This change is the result of revenues and profitability under pressure. As I have already commented, a worsening of the financial results explained by the unfavorable effect of the exchange rate hedge of our debts in dollars. However, these effects were partially offset by lower tax expenses given the reduction of our EBT in the quarter. In Slide 11, we look at our firm cash flow the 9 months of 2025, it totaled BRL 301 million, which represents a reduction of BRL 81 million when compared to the same period of the previous year. This reduction was driven by 2 main factors. First, operational worsening of results, which, however, was almost entirely offset by the tax line. And second, the deterioration of our working capital, which worsened by BRL 37 million. Analyzing the working capital dynamics, we see a significant improvement in receivables, reflecting the tighter credit we have implemented. This, however, is offset by the worsening in the line of payments and other assets and liabilities. Finally, it's worth noting that our inventory line worsened by BRL 65 million year-on-year, explained by revenue that was lower than expected in this third quarter. Regarding free cash flow, the year-on-year worsening was BRL 172 million. This difference is explained by the BRL 81 million reduction in the firm's cash flow. And the remainder is mostly attributed to currency effects on our cash position. Moving on to Slide 12. My last slide, the one on indebtedness. In this quarter, our net debt was practically stable, BRL 4 billion which reflects the firm's cash flow -- neutral cash flow. In the quarter, the payment of debt interest around BRL 90 million. However, our leverage goes from 2.18x in the second quarter of '25 to 2.53x this quarter. Why is this happening mainly due to the deterioration of EBITDA reported in this quarter in the year-on-year comparison. Finally, it's worth remembering that EBITDA for the fourth quarter of 2024, which is used in the calculation basis for EBITDA for the last 12 months, had a negative impact of BRL 564 million from these strategic projects previously led by the holding, mainly related to Chapter 11 of API. So excluding this effect, the net debt EBITDA metric would be 1.87x in the third quarter of 2025. This is our adjusted leverage number. By the end of the year, we expect to end the 12-month period within our optimal capital structure position between [ 1 and 1.0x ] leverage. Before giving the floor back to JP, I want to highlight that the continued recovery in Mexico, the gradual improvement in Argentina's performance and the capture of benefits from the tactical reductions that we implemented in the third quarter will be the factors that will make it possible to an improvement in margin already in the fourth quarter. And finally, the expansion of the recurring EBITDA margin for the whole of '25 versus fiscal year '24, which reiterates our commitment, which we made to the market at the beginning of the year. I give the floor to JP and then I'll turn -- come back for the questions-and-answer session. João Paulo Brotto Ferreira: Thank you, Silvia. Before we move on to the Q&A session. I'd like to wrap up the presentation with my closing remarks. As to 2025, I'd like to echo Silvia's comments and reaffirm the expansion of our recurring EBITDA margin for the year. I'd also like to reiterate that this was the last year we reported transformation costs and adjusted EBITDA. We remain confident that we are well positioned to deliver on the ambitions outlined at Natura Day starting next year. Mainly strengthening and expanding our leadership in Brazil and Argentina, driven by the modernization of our direct selling model, strengthening our business in Mexico, accelerating our growth in D2C channels and in the hair care category, reigniting the Avon brand, implementing a more agile business model designed to capture the new strategic opportunities I just mentioned. And finally, realizing the returns from the structural investments we discussed today driven -- or driving gains in efficiency, profitability and cash conversion. That concludes my remarks. Thank you very much. We will now move on to the Q&A session. We'll now begin the Q&A session. Operator: [Operator Instructions] Danni Eiger, sell side analyst from XP, asks the first question. Danniela Eiger: I'm just going to ask this one. We see a very challenging macro context, especially in Brazil, but you also mentioned Argentina. And we see other players going through similar situations, that it seems there's not a lot of room to handle all of that. And it looks like that you've taken the initiative to move in terms of expenses efficiency a bit more tactical, but evolving into structural adjustments. Actually, I'd like to explore what else can be done? So first, in terms of structural initiatives, if you can provide some order of magnitude in the key areas would be nice. And when the structural project will be concluded. And on the other hand, what else can be done? I don't remember if it who -- which of the 2 of you mentioned the adjustment on the offers that was not enough. JP, I think you were the one who mentioned. Are you looking at other possible adjustments in portfolio or pricing or somehow in your product offer for a more challenging reality for a longer challenging time? I think Avon is being rebuilt sort of say, but in Natura itself, what are you still looking in terms of opportunities? And also in terms of credit, you talk about credit restriction, it makes sense given the default contact at more elevated levels. Maybe you could use Emana Pay, maybe a bit -- overall the leaders kind of fostering Emana Pay. And if you have some kind of flexibility of using that as a driver or others that I haven't thought about what's in your hand to deal with a more challenging scenario besides expenses. João Paulo Brotto Ferreira: Let me start by addressing your question about the revenue consumption and then Silvia will field the question about expenses adjustments. Well, we do not foresee any major changes in consumption. We don't detect any trends that will shift the current scenario. Well, having said that, there's always something we can do the first lever credit. We used to be more restrictive as far as credit goes. That's why delinquency is under control, that will impact the work that our consultants do. But in reality, credits, payments and collection we have in our pay system are top quality. So once you migrate the portfolio to the pay gradually, we'll be able to provide credit more efficiently. That's why we're speeding up the migration. The portfolio to the pay, which in turn, will improve the efficiency of our consultants, and there's more. There are regional opportunities. The consumption behavior we have in the Northeast and in the state of Rio Grande do Sul, and we are monitoring that management at the micro level, at the regional level to determine what's more interesting in each one of these markets and then adjusting the portfolio. And the categories that are more profitable at this time of the year, and we are focusing on those segments. Well, having said that, Avon could be a very important lever for this -- at this point in time, but the portfolio is not appropriate unfortunately. In summary, yes, we can make adjustments to try to boost capture at this point in time, especially in Brazil, as well as in Argentina. Over to you now, Silvia. Silvia Vilas Boas: Danni, thank you for the question. Let me address G&A that was the problem we had in profitability. I'd like to give you more color. As to what we've done so far and what we will still do. Well, this G&A level is not going to be the standard level for the company. This is key. Well, having said that, the book value of G&A dropped quarter-on-quarter. As a percentage of the revenue, we don't see that progress. The slowdown in Brazil was above what we expected. Here's what we started to do when we detected that slowdown. We reviewed our portfolio to shutdown projects that would start this year, we froze all vacancies. We cut on discretionary expenses but that was not enough. That's why we are taking structural measures that are relevant to simplify the organization even further. These measures will bring benefits as of 2026. When we look at G&A in Brazil, we see important impact on projects. As I said and JP said, we decided not to stop. These are projects that had already been going on and they are very important to enable future growth and future returns as of 2026 and they still impact G&A. One of them is integrated planning. We've talked about this project on our Investors Day. It's a complete review that will bring benefits. Efficiency gains in inventory, a very important project that is supposed to -- that we expect to conclude later this year. Other projects related to the digitalization of the consultants journey and the customer's journey, it's also a very important project because the consultant digitalization will allow us to promote direct sales, the non-VD channels and finally, innovation. Innovation impacted G&A this quarter. These are important investments especially when we consider the new Avon portfolio. The kickoff will take place in the first half of 2026. Well, in Minas Gerais, our G&A level has been high. We've had that nominal improvement when compared to Q3 and Q2. We expect to capture additional benefits based on the technical measures that were implemented in Q4 and that urgency to make those structural changes so that we can be prepared for the market. Danniela Eiger: Let me just ask you a follow-up as far as pricing. Do you consider reviewing prices because of those giftable category? There's a tough competition for pricing, not only comparing cosmetics and cosmetics, but maybe jewelry, chocolates, now considering about the seasonality, is there room to maybe make some price adjustments? João Paulo Brotto Ferreira: We always look at the price dynamic comparing the market overall competition. As you said, competition is not always in the same category, but we try to make adjustments and we will make some adjustments, but they are marginal ones, even though they're absolutely relevant. Operator: Our question comes from Luiz Guanais from BTG. Luiz Guanais: It's Luiz, here. I think 2 questions on my side segueing piggybacking on the previous answer, JP, if you could further explore the top down scenario in the market in different segments where Natura does business. How do you see the trend for the end of the year and early next year, if there's any sign, even if it's a small sign for some inflection in categories, consumer categories? And the second question also segueing to Danni's question is how much room we have for price forwarding or -- thinking about next year, if we could expect some room for price increase for the categories that you do business in? João Paulo Brotto Ferreira: Well, let me address the market. The market has been slowing down throughout the year, and it's been growing a little lower inflation. The market used to be growing well above inflation rates. And basically, the main driver is the price. Volumes are flat, slightly negative in the beauty category, the more discretionary categories. These are important categories for us. We haven't seen any major inflection signs. I think the slowdown has been halted. That's the impression we get. But these categories are very elastic to available income and prices. So we have to keep on monitoring what will happen to available income. The government is planning to boost income especially for next year and that -- if that happens, that will be helpful. We'll have to wait and see. We've always tried to adjust prices to work on our margins. And we don't see any problems in doing that, especially when you have a leading brand like we do. We have to determine what the price adjustments are not only list prices, but also through innovation. Our pipeline is very strong for next year, a very innovative one for that matter. So I'm confident we'll be able to implement habits to recover margins through prices as well. Operator: The next question comes from Ruben Couto from Santander. Ruben Couto: Can you elaborate on your expectations on your consultants network. I think there's the journey effect of those less productive consultants in Hispana, is at a different stage in Wave 2? What can you expect from your consultants base, not only at year's end, but also for next year? Are you trying to increase the number of consultants maybe by benefiting from the macro situation in Brazil, the macroeconomics, but do you remain focused on productivity? There's no room for boosting the number of consultants to offset that slowdown. João Paulo Brotto Ferreira: Yes, there is room for growth in the number of consultants. The number was indeed affected by the churn of small consultants, which was also affected by credit restrictions. We see a lot of room to restructure our number of consultants in Hispana as well as Brazil. This is one of the growth vectors for the coming years, for sure. Operator: Our next question is from Rodrigo Gastim, analyst for Itaú BBA. Rodrigo Gastim: Major question that remain for me was what, in your opinion, was this diagnostics for a gross margin in Brazil. JP made a few comments in the beginning, but I would like to explore. We see the macro slowed down, but the growth of the quarter was a bit below the market growth. You mentioned it yourself that you were displeased with the results JP. Question is, if you could go back in time 3 months, would there have been something you could have done differently in terms of revenue. How much in terms of gross margin? I would like explore and understand that a bit more. But now on the micro side, the initiatives for revenue and gross margin were this combo fall short on the third quarter? And the second question in line with the first one. When you look at Brazil margin, the year-over-year drop when you look at a more stable operation in top line in terms of -- with a more stabilized macro condition. What is the ambition in terms of profitability for Brazil, looking at EBITDA margin? Those are the 2 questions. João Paulo Brotto Ferreira: You know we want to defend our leadership and even expand our market share. Year-to-date, the Natura brand has been performing well despite being under our expectations even in Q3 but we keep on working to get to that goal. We won't be able to expand share this year for the Avon brand. In the short term, the levers I mentioned before, could have been moved even more substantially to bring in even more revenue, mostly credit we've been speeding up that migration to pay, which will give us more credit alternatives. If we were to -- if we had moved more quickly, we'd be able to adjust the activity in the channel. And assortment by region, as I said, they have different effects . But looking back I think we could have done little bit better. Silvia will address profitability. Silvia Vilas Boas: Rodrigo, thank you for your question. Let me start with gross margins in Brazil. Gross margin was down when compared to last year. Q3 2024 was very strong, but the gross margin was healthy for Brazil despite this drop when compared to last year. What do I mean? It's healthy. When you look at the first half of the year, our gross margins were at the same level and profitability was around 21% in Brazil. That margin can yield good profitability for Brazil. Looking ahead as far as profitability goes, this is what we said during Investors Day. Profitability has always been strong in Brazil, and we are going to keep delivering on those track record. There are no reasons for the contrary. When we look at 2026, despite all the efficiencies of the structural transitions, you'll be completing the projects this year will allow us to have additional gains in that sense. Rodrigo Gastim: That was very clear, Silvia. Let me just double check on it. Let me make sure I understand it. Margins for Brazil last year, you have a strong comparable basis. If you could explain why? What pushed that margin up last year when compared to Q3 and revenue was used for operational leverage. What would be a reasonable level for Brazil, just to make sure I understand that right? Silvia Vilas Boas: Rodrigo, when we look at Q3 last year, the impact was very favorable because of FX movements in a business that had been growing extensively in categories that had higher contribution margins. Operator: Vinicius Strano from UBS asks the next question. Vinicius Strano: I have 2 questions. Let me focus on to Natura Brazil. What are the categories that are impacted the most? To better understand what the mix importance is down the road. Looking at Avon now, how are you going to invest in to revitalize the brand? What type of repositioning is? What are the main KPIs are expected results or any expected deliveries, that would lead you to discontinue the brand in the long run. And the last question, it's about Avon International. What's the visibility we have in terms of cash evolution? Do you expect closing it for early next year with no need for additional cash inflows? João Paulo Brotto Ferreira: The market has been shrinking basically in all its categories, mildly, slightly in the beauty categories. So makeup, facial products and perfumes, it's not a big difference, but daily use segments and beauty segment have been shrinking considering that beauty slightly a bit higher contraction and our business has a bit more items of beauty rather than daily use. In terms of Avon, I can't reveal all the details of the relaunch of Avon, but I can confirm there's a lot of room in the market where this brand really fits in a very well-defined audience. But to that end, the brand has to be repositioned and the portfolio has to be redesigned. I unfortunately cannot share any more details. But of course, we expect to start growing again. The profitability has improved significantly after integration. So the Avon brand has positive contribution margin in all of the reports after Wave 2. So we want to go back to growing even more profitably. If that does not happen, we'll assess possible scenarios at the right time. Okay. So Silvia, Avon International? Silvia Vilas Boas: Vinicius, Avon International, the plan moves forward as planned. The expectation is to conclude the sale in the first quarter of '26. Now regarding the cash situation, the Avon International team is executing the plan and capturing benefits from the restructuring movements of the first quarter. So there's no expectation of additional cash inflow for Avon International. Operator: Our next question is from João Pedro, Citibank analyst. João, I have sent you a comment so that you can open your microphone. Our next question comes from [ Luiz Guanais ], Goldman Sachs analyst. Irma Sgarz: I have 2 more quick questions. Based on the comments of the release, it looks like you see room for greater growth in Mexico. Obviously, there's a whole issue on recovery after Wave 2. But in terms of market share, do you see that maybe there, there's greater room than in other markets. If you could go into detail a bit more, which categories and how you intend to grab this market share in Mexico and especially? And if you could just explain a bit more what you're thinking in terms of innovation, which was a topic that you highlighted significantly in Natura Day, June, July, I guess. If you could speak to how you are protecting this area, shielding this area during this moment where you're seeking greater efficiencies throughout the organization as a whole. João Paulo Brotto Ferreira: Well, yes, it's true. Mexico is the geography in which we have the largest market share upside because we are the most under-indexed when compared to other countries. There's a very direct and simple driver that starts now, and that's the Natura penetration on the inherited direct sales channel from Avon, a very large channel compared to what we had. And now we have direct access with the Natura brand. So the brand can now go to many more households. That can be translated into an important productivity gain. And on top of that, there is investment to make the brand even more known in that region, just like it is in other countries. And once there's more awareness, we can invest in the brand, and that's a virtuous cycle. And finally, direct sales is not that important in the country. That's why we are expanding our online as well as the store chain using franchises even. So there's a lot of room for growth in the coming years. As to innovation, mostly products that can be innovation, can be commercialization or digitalization, but I would like to focus on product innovation. We have analyzed our pipeline for launches in the coming 3 years. It's been very well defined for '26 and '27, we're very positive about these products, and there's room for some minor changes in 2028 portfolio. And we reviewed the entire innovation pipeline, focusing on those items that can bring in more revenue. And we want to make sure that these high-return launches receive all the necessary resources so that they can perform well. Irma Sgarz: So it's only fair to conclude that you are focused on fewer SKUs and rather focusing on those that can generate more impact, right? So you're focusing on those products? João Paulo Brotto Ferreira: Yes, that's right. Yes, you are correct. We're focusing on high-return launches and reducing the total number of launches. Operator: Alexandre Namioka from Morgan Stanley asks the next question. Alexandre Namioka: Let me just follow up on Avon. The one to the last slide you mentioned the resumption of the Avon brand as of 2026. Back on the Investors Day, I had the impression you were not that confident about this new relaunch of the brand. What makes you more confident now? Do you believe that these structural investments will be enough? Or do you have to invest in marketing even more maybe to reignite that brand as of next year? João Paulo Brotto Ferreira: Alexandre, we have a team working on this launch and in the weekly reviews we have for this project, I see greater and greater enthusiasm. The work that's being done is innovative and even refreshing to say. It is a highly promising path, and I'm stoked. It's fair to say that we have not been able, have not managed to do this up until now. The -- so this confidence does not come from extrapolating concrete results. It's fair for us to wait for this to come into reality, but I am very enthusiastic about it. The necessary investments are the regular business investments, but allocated in a completely different way they are today. So the necessary resources are not excessive. They're in line with the size of the business. But in our opinion, they'll be much more efficient and much more productive. In this case, different than in other topics, we'll have to wait and see if our enthusiasm will come to fruition. Operator: Our next question is João Pedro, Citi analyst. Joao Pedro Soares: Can you hear me now? João Paulo Brotto Ferreira: Yes, loud and clear. Joao Pedro Soares: I do apologize for the tech issue. JP, the point is when I look at the company's top line in Brazil, it looks -- it doesn't look mismatched or disaligned with the Investor Day proposal back to Alexandre's question. The Natura brand apparently gaining market share and Avon is truly reflecting our investments. But when we look below these lines, we see a misalignment or seemingly disalignment between costs and expenses. I'd like to explore and exploit a bit more to understand when you are back to investing in the Avon brand, this will suffer a penalty. There should be some increase in the R&D expenses. There's a phasing seasonality in expenses, which is somewhat challenging to understand. So how do you see this better alignment of the cost and expense structure to reflect the strategy that you yourselves have designed to focus more on the Natura brand. Is that point clear, I hope. And the cash conversion for next year, whether EBITDA or some other operating metric for us to understand the sustainable level of cash conversion for the Latam operation. Silvia Vilas Boas: João, thank you for your question. And you're right, our income state is not balanced due to that G&A impact. As I said, it has to do with different drivers, be it them from Wave 2 or the fact that we are concluding the project this year that will only yield results next year or the deleveraging. I'm certain that G&A level will be significantly lower next year than the one we had this year. They may come from the capture of the results of the projects or the benefits of this organizational simplification. G&A is misaligned, and we expect it will go back to the right level as of next year. On top of that, in profitability, there are some opportunities to be captured in selling coming from the combination of Mexico and Argentina businesses as well as from other countries. Marketing, as you said, we're not considering investing more in marketing than what the business can absorb. JP mentioned or talked about Avon specifically. Investments will be gradual once we see progress in those plans implemented in 2026. Profitability, of course, we want to expand profitability in 2026 when compared to 2025, just like we've done in the past 3 years. On to cash conversion. On the Investors Day, I showed you that we had above 50% cash conversion in 2024. Historically, before those acquisitions, the company had above 60%. With the end of that transformation cycle and the simplification cycle, we're going back to having a company that is very similar to the company we had before the acquisitions. That is to say we expect to go back to the same cash conversion level we had before. Operator: This concludes the Q&A session. Natura's third quarter 2025 earnings call is now concluded. The Investor Relations team remains available to address any additional questions. Thank you. Have a great day. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Jan Keppeler: Thank you, Sandra, and welcome, everyone, to our 9 months 2025 financial results conference call. With me today are, as always, Marcus Wolfinger, CEO of Stratec as well as our new CFO, Tanja Bucherl. Be aware that this conference is being webcast live, and you can download this presentation either from the webcast or from our website. And of course, following the presentation, we will have a question-and-answer session as usual. Finally, please allow me to draw your attention to the safe harbor statement, which we have on Page 3 of that presentation. And with this, it's now my pleasure to hand over to Marcus. Marcus Wolfinger: Yes. Thanks, Jan. Good morning in the United States, and good afternoon in Europe. Before we start, ladies and gentlemen, I'm truly excited to welcome Tanja Bucherl, our new CFO. From minute 1 on, it was clear that she brings not only a super strong financial background, but also the energy and team spirit that defines who we are. With her expertise, she will play a key role in future strengthening our financial stability and setting the course for future growth. We are thrilled to have her on board. Welcome, Tanja. A big thank you goes out to Oliver Albrecht, our Interim CFO until last week, who very professionally bridged the gap until Tanja joins the senior management team. So with no further ado, let's dive into the agenda. I'll try to walk you through the first 9 months at a glance. Then Tanja will give you the financial review and some further financial details, followed by the outlook and focus and the two of us then will try to answer your questions thereafter. We had a positive sales growth despite supply chain interruptions, which already kicked in, in Q3, not material, but already very visible. What we definitely see is a stabilization in the market. Like during the past two or three crisis, we had, say, the dot-com crisis after -- financial crisis and after that COVID, certainly, only a few months after this kind of hits we took in this industry, it was very visible that the end of the crisis is in sight. In this very case, I would like to remind you that after COVID, we had the supply crisis and then certainly geopolitics and war and the tail end of COVID. So as a matter of fact, I think it's a well-accepted fact that this crisis took longer. If we are looking into those signals between the lines sent by end customer by our customers, I think we really dipped out at this moment in time, and I think the worst is over. I only returned back from the United States, where we met key customers. And I already mentioned that a couple of times that particularly after Q4 last year, they started to grow again. And please allow me to remind you that in our industry, us as an enabler. We build infrastructure from the perspective of our customer. This is CapEx. They place the instruments. They use the consumables as soon as they, let's say, bring new tests on instruments, they can actually grow with the fleet, they already placed years and months ago, whereas we are coming at the very tail end of things, which means only if the market grows to the extent that our customers are investing into their own growth, into their own future, growth for Stratec comes in. And I think this is actually the inflection point where this is coming back. So we see that the testing volume stabilizes. It was already very stable. And if you look into the statements made by the quarter reports of our customers, you definitely see that they are very positive in terms of testing volume despite geopolitics. And some of them, particularly in immunoassay and some other areas like in complex sample prep, the growth already came back, but it actually could not yet offset the declined volume after COVID-19 with molecular tests where the saturation took place during COVID-19. And after that, everybody took advantage of those instruments, which were launched and placed during COVID-19 and haven't been forced to buy new ones. We see that the discussion started into the investment of new platforms, into keeping those platforms young. But on the other side, even for those instruments, which are, in the meantime, worn down after COVID-19 and the years thereafter, that our customers are openly starting to discuss that even those instruments will have to be replaced. So I think we are really through to growth. We had a fairly good margin development. However, the margin development held back by the product mix. So at this moment in time, a little bit unfavorable. Our products with high gross margin are still weaker. Those ones with the weaker gross margin are stronger, as always [indiscernible]. And then certainly, particularly towards the year end, we have a number of development activities, which will be accounted, which will then drive the margin. That's factored in -- into our guidance and into our financial guidance, and I'll touch base on that. On the other side, I think like everyone, the headwinds we experienced in H1 got a little bit better, but are still material. All that is leading to the margin as is. We have confirmed our margin guidance, but I think it's important to again reiterate that as last year, 2024, we could make the statement at this point that we will probably end up at the upper edge of the guidance given. And actually last year, we even exceeded this. I think this year has to be understood that this is closer to the lower end of the guidance. We made material progress in the development of partnerships. Actually, we got a new customer in with finalizing development work, which was actually done mostly in-house and the transfer is ongoing. So we got a new partner. We see a significant upturn in development activities and in talks. Still highly fragmented. I think it's unrealistic to expect that -- such development work where the partner commits from the very get-go to a $40 million development investment and a $200 million downstream procurement commitment. I think this is some limitations at this point. Things are getting more fragmented. However, our business model fits that very well. And we definitely see that the demand not only in system development goes up, this affects product life cycle management, which is very margin heavy and certainly, instrumentation picks up as well. I think it is worth mentioning that in the budget round, we are finalizing these days, we see a development resource allocation of 105% across the group. And I think this nicely mimics what's going on. I think demand for development activities coming back and development activities is the leading indicator for downstream manufacturing activities, and this is where we make the money. So as already mentioned, lower end of 2025 margin guidance confirmed despite a lower sales outlook. I think it's a good signal that we had these issues with the magnet. I don't want to go too deep into details. We have almost sorted out the supply issue. So we just need to catch up. We'll certainly not catch up entirely by the end of the year, but I think we are showing good trajectories with the measures established. Talking about efficiencies and measures established, I think the fact that we had to slightly cut the top end of our top line guidance and still can maintain margin. I think this shows the efficiency measures are really tangible, are really showing efficiency. And I think this is a good point to start from growth here again. And I think we'll talk about growth as soon as we show our guidance for 2026, which will not happen here. That only happens when we talk about full year's results. So that gets me to the point where I would like to hand over to Tanja. Tanja Bucherl: Thank you very much, Marcus. Good day, everyone. Also from my side, a warm welcome. My name is Tanja Bucherl. As you have heard, as of November 1, I joined Stratec as the new Group CFO. And I can tell you already after my first week that this is a company with a really great potential and a remarkable team spirit. So I'm really looking forward to actively shaping our continued development and supporting the next steps on our path of a sustainable growth. But with that, let me now take you through our financial performance for the first 9 months of 2025. As you can see on the chart, the sales increased by 2.5% at a constant exchange rate. It's reaching to EUR 175.6 million versus EUR 173 million in the prior year period. As you also know, we had a very positive momentum in the first half year. The sales in the third quarter declined by 3.4% at a constant exchange rate. It was mainly impacted by the already mentioned supply chain disruptions as well as, let's call it, a softer momentum in the Service parts and Consumable business. But more to that later on in my presentation. Let's have a look to the adjusted EBIT margin. So for the first 9 months, we stand at 7.3% versus the 8.8% in the prior year. Also, as a consequence and driven by the temporarily increased tax rate in the third quarter and despite an improved financial result, our adjusted net income for the first 9 months decreased by 15.8% year-over-year to the EUR 7.1 million that you can see also on that chart. This leads also to a corresponding adjusted earnings per share of EUR 0.58. But maybe let me take also a note here regarding the outlook. So we expect a significantly improved earnings dynamic in the fourth quarter. And given the implied regional mix, a notable better tax rate in the final quarter of the year 2025. And as a result, the full year tax rate should be significantly below the 26.5% that we showed in our report for the first 9 months. Coming now to the adjustments with a closer look in our adjusted EBIT and adjusted net profit. There is not too much to say on that slide because nothing unusual in the adjustments for the first 9 months happened. For the period, we adjusted EUR 2.3 million in the PPA amortization as well as EUR 1.7 million in other adjustments. They are mainly attributable to the so-called one-off, and its advisory expenses that we have already recognized in the first half year of 2025. Therefore, we are going straight to the next page, the sales. We will have now a bit more deep dive on our sales development. In the first 9 months, the sales increased by 2.5% year-over-year at a constant currency to the already mentioned EUR 175.6 million. This was mainly driven by a double-digit increase in the development and in the service sales. And thanks to the ongoing high development activities and large numbers of active customer projects we are having. The system sales was more or less flat year-over-year. The ramp-up curves of the newly launched systems continued to be flatter than actually expected. Already mentioned supply chain disruptions, they impacted us negatively already in Q3, causing especially some delivery shortfalls in the immunoassay franchise, and this was hitting us actually a lot in the Q3, but we are looking for coming back in the next quarters or in the Q1 next year 2026. In Molecular Systems, we observed a promising and actually ongoing stabilization in customer orders following demand disruptions that the industry faced after the post pandemic. The service parts and consumables, last but not least, for the 9 months of 2025, they were slightly down year-over-year as volatile global trade restrictions, as you all know, led to some logistics optimizations at our customers. And therefore, we actually have seen order volatility, especially in Q3 2025. Coming from the sales now to the earnings. Closer look now to the adjusted EBIT and our EBIT margin on that slide. you see that the adjusted EBIT margin declined by 150 basis points year-over-year to 7.3%. I told you already, this is mainly due to the decrease in the gross margin from 27.4% last year to 25.8% in the first 9 months. Yes, the decline results from the still, let me call it, less unfavorable product mix in the System business, and a reduced share of our high-margin service parts and consumable sales in Q3 as well for sure also the unfavorable FX rate environment that we are in compared to last year. However, a good sign also here, the progress was made in the functional cost areas. So we have done, we have started early our homework. So we are confirming the strict cost discipline and also initiated efficiency measures to have the countermeasures in place for all of these negative environments that we are facing currently. Coming now to the cash flow and our net debt development. So the operating cash flow remained negative for the first 9 months, mainly due to high tax cash out that we have recognized in the first half year and as well reduced trade payables compared to last year. However, the operating cash flow improved in Q3 and amounted to positive EUR 4.4 million. As of September 30, also the investment ratio continues to be slightly below our initial budget. And for the full year, we expect a total investment in tangible and intangible assets to remain slightly below the predicted range of 8% to 10% of sales. Our leverage, you see as well here on that chart, means the ratio of net debt at the EBITDA LTM is currently at 2.4, up from 1.9 at the end of the fiscal year 2024, but it is still on a very solid level. Last but not least, I would like to highlight the successful closing of a EUR 125 million syndicated loan during the third quarter. This facility replaces the bridge financing related to the Natech Plastics acquisition back in 2023. And I'm really, really happy with that move because with that transaction, we were able to further optimize our financing structure. And at the same time, it is providing us the sufficient flexibility to support our future development. And therefore, I really would like to take the opportunity to thank all of the Stratec colleagues that were involved in that process and especially also my predecessor, Oliver Albrecht. This brings us also to the end of my part of the presentation. For the full year outlook 2025, I will hand over back to my colleague, Marc. Marcus Wolfinger: Thank you. Financial guidance, we already touched base several times already during the presentation. So as mentioned, we confirm to go flat top line. So we are expecting approximately to match previous year's top line figures on a constant currency basis. Adjusted EBIT margin, we have forecasted at the beginning of the year financial guidance between 10% and 12% after 13% last year. We confirm that we will match the guidance, but clearly mentioned that we'll most likely end up towards the lower end of this guidance. In order to achieve that, we are certainly tracking a number of KPIs very closely, as Tanja already mentioned. So there is a high earnings contribution of high-margin development and service sales expected in the fourth quarter in order to achieve it and certainly better scaling effects by the utilization under the System business and upcoming supply chain interruptions is really that we are keeping a very close monitor on that. Again, as Tanja, already mentioned, we will most likely end up a little bit south of the investments intangible and intangible assets, so even better than expected, which was already good after last year's 7.1% most likely end up like in between the 7.1% and the 8%, so better than expected. Let me try to walk you through our activities over, let's say, the next 3 quarters and give you an outlook. So as already mentioned, we are maintaining cost discipline. I think we found the ideal balance over the past 2.5, 3 years to, on the one hand side, make sure that everybody understands that we are really looking into the details and are trying to be super disciplined, but still not saving costs for the sake of saving costs, but still being very potential oriented, invest where investment makes sense and still be disciplined. And I think that's the right thing to do. We didn't oversave. We see a lot of companies who oversave and now are really struggling. We didn't do that. Let me remind you that just one example, looking into development activities, it doesn't make too much sense to cut into activities, which will lead to growth and earnings in 2, 3, 4 years from now, particularly considering that we have existing agreements with our customers. So we want to make sure that we are delivering on milestones. So we continued a nice investment policy into future, into our colleagues, into the education and training of our colleagues. So we are very proud that we didn't only try hardly to find this very narrow balance. I think we managed that fairly well. Then we want to execute on the deal pipeline. That was actually an area where we focused a lot over the past 6 months. A lot of things are ongoing. We mentioned that from a couple of times though. From here and then, we did new feasibility work. We brought a couple of new things on board, which a couple of them will replace our own instruments in -- after the development, like just as an example, we do the LIAISON XL 2.0 for DiaSorin, where we do the predecessor. We do the successor instrument for other instruments we have in the field. So we are very proud that our customers are coming back. And on the other hand side, we really managed to bring new customers or new programs within existing customers on board. So this is not just saving legacy. This is actually investing into growth and the likelihood that growth returns is getting closer and closer. And again, allow me to remind you that during the discussions at the tail end of COVID-19, we were very keen on the fact that during COVID-19 and right after, we launched a number of new platforms, and we thought that we could offset the dip. I think it was everyone very clear that particularly the molecular market will dip after COVID-19. And we said we can most likely offset this dip with the three instruments which were launched during COVID-19 or thereafter. Unfortunately, the growth rate and the ramp-up curve is and used to be slightly flatter than expected. We can report that one of those instruments is starting to show nice traction, and we are expecting the same thing to happen with the other two instruments. Then certainly, we continue to grow our footprint in selected markets like in areas where we believe that we find this, again, narrow balance between not doing the Spearhead, Spearhead Technology, but being the second one. So when markets are starting to get more mature, like in high-sensitivity immunoassays, where we were together with our partners, the first one here where we have nice development programs ongoing. Same applies for advanced imaging and cell & gene therapy where we have started to try to build our footprint as well. Then certainly, we want to manage our well-filled M&A pipeline, as always. And allow me to remind you, this is very binary. We continue to look into opportunities. At this moment in time, we have a handful of opportunities, nothing super concrete. It's the full spread. We are typically looking into technologies. We are looking into markets, and we are looking into geographies. Again, it has to be understood that probably the next decade in this industry will be dominated by local-for-local. So we'll definitely have to do more in the United States. We'll definitely have to do more in China and continue to have high investment in activities in Europe. Local-for-local is probably the thing in order to overcome geopolitics and other activities, which are limiting abilities to do business with goods across the continent these days. Then I already mentioned the localization, very important, certainly cash flow in order to make sure that we can do investments. We want to continue to improve our cash flow dynamics. Here, we already achieved good results over the last quarters and over the last years. However, there is still room for improvement and getting closer from a cash flow perspective, more closer to the earnings situation. I think that's the actual goal here. And definitely, we have to put a strong focus on inventory management for you who continue to have these discussions with us at this moment in time, still our inventory levels is too high. We still have a number of products where the products are very young. We have high inventories, low run rates. So -- although we nicely work down inventory levels already in 2025, we continue to sit on an elevated level of inventories. For those products which have high turnover rates, obviously, the inventory levels are highly optimized. So without a solid recovery of the market in those areas where we are really sitting on a high inventory level, it will definitely continue to be a challenge to materially reduce the inventory levels. But if we think about where we used to be in the past and offset that by last time buys we had to do on the procurement side, I think there is still a room of EUR 20 million to EUR 30 million on inventory level, which could be reduced over the next couple of years, and that will certainly lead to the equivalent cash release. So this gets me to the end of the focus. And now I would like to hand back the word to Sandra, who will explain us how to do Q&A. Thank you so far. Operator: [Operator Instructions]. Our first question comes from Jan Koch from Deutsche Bank. Jan Koch: I would like to take them one by one. The first one is on your guidance for 2025. Is there any risk that development sales that you plan to recognize in Q4 will only be booked in Q1 2026? Marcus Wolfinger: Yes, thank you for the question. As always, this is forward-looking. So there is always a certain risk associated, but I would really see this as minor. So obviously, we know that in this tight situation that we have to monitor things very closely and that we are in continuous communication, not only with the project -- with the internal project teams and the internal project management, but they certainly keep communication up with their counterparts within the customers if approvals are required. So we are definitely very confident that this is not going to get an issue. However, this is forward-looking. Things can happen, although we don't expect. And again, allow me to remind you that certainly things continue to be extremely back-end loaded. So I think you see what has to be achieved top line and bottom line-wise in the third quarter. We have already asked the teams, the manufacturing teams and the associated development teams to work like between Christmas and New Year. So allow me to, first of all, thank them again and secondly, make that very clear that this is super back-end loaded, therefore, inherently risky, although I don't see any risk to fail. Jan Koch: Okay. Great. And then secondly, your largest customer is in the process of being acquired by private equity. Do you believe that this could have any kind of implications on your business? Marcus Wolfinger: No, Jan, thank you for bringing that up. So we shouldn't get that into a situation where we are talking about gut feeling and things like that. I think on a professional level. And actually, I only returned back from this very customer on a -- I was there on a scheduled trip, but certainly this was one of the topics we discussed. So they made it very clear that their communication with private equity is about growth. We have ongoing programs where we are a supplier, a key supplier supplying with our products, our products, which bear our own IP. So the risk of walking away is very, very small. We have ongoing development programs where we are not only a contributor in terms of development work, we are a contributor in terms of know-how and finalizing things and getting things done and getting things done right. So I think the level of contribution we have within this customer is key. And I think that private equity invested in this company to return the company into higher growth rates to take advantage of the synergy, which exists here and there in order to focus on what makes them strong. And I think if we see the position of, in this very case, the Panther instrument, although an instrument being in the market for a couple of years, still the gold standard, still the instrument, which provides the benchmarking for every competitor to Hologic and on the other side, with a quality which is unprecedented. So if we put that all together, I think our position within this company is very, very strong. I think they understand our contribution to their future success. So I'm not worried about that. Jan Koch: Understood. And then finally, you mentioned in the press release that you recently initiated a partnership for well-established high throughput product in the molecular diagnostics area. What does that exactly mean? Are you going to produce in that system for the customer or develop the next generation? And how big is the installed base is? And when do you expect to receive the first revenue? And what is the potential for you here going forward? Marcus Wolfinger: Yes. Please forgive me, it's way too early to talk about that, particularly those elements where you are trying to get your hands around is actually something which is still under discussion. So definitely, it requires a lot of development work. The tail end manufacturing is very lucrative. It's one of the bigger ones. It's most likely one of the biggest programs, which has been outsourced over the past years. So we are very proud to get in touch with this partner. But I think it's important to understand that this is just the initiation. This is everything else, but in a status where we can disclose details about duration of development work, when this extension will go to the market and how big the manufacturing volume might be. So I think it is important to -- for us, it was important to show internally and externally that the momentum comes back on the one hand side, but definitely with the activities ongoing, the big chunk of manufacturing will only be 3, 4, 5 years downstream. Operator: And next question comes from Oliver Reinberg from Kepler Cheuvreux. Oliver Reinberg: Three questions also from my side. First, I just wanted to come back also to Jan's question on Q4. I mean you need basically EUR 20 million incremental sales. So can you just unpack that a bit in terms of providing some kind of color how much of that is development, how much is equipment just to get a better feeling for that? And along these kind of lines, when you have this kind of volatility now in terms of consumables, in terms of timing disruptions from tariffs, I mean is it not also a risk factor when there's now the kind of Supreme Court challenging the kind of whole tariff setup that people just say like we're going to pause and see if there will be chances to order excluding any kind of tariffs? That would be question number one, please. Marcus Wolfinger: Tanja, can you answer the first part, like breakdown of revenues expected for Q4 because I don't have it in front of me. Tanja Bucherl: So -- yes, sure. The biggest chunk comes from the systems actually followed with the development service, yes. So those are the two main pillars for the increase in Q4. Marcus Wolfinger: And Oliver, obviously, we were trying to kind of look into the relevant -- risk exposure of the relevant positions. So actually, when we updated the guidance certainly -- this was only after when we looked several times and went through each business, each program, each contributor and we're actually trying to find out if there is any residual risk, and that was actually already factored in. So I think the answer should be no. With those supply chain interruptions, as mentioned before, we cannot say it's all over, but those elements, which are affected in the meantime, we have access to those products, respectively, they are in transfer. Obviously, it needs some time to get them through the supply chain and to get them in. So there is a likelihood that we can slightly recover. Please don't expect that to happen and please don't factor it in, leave it as we gave the guidance. However, I think the message should be that this was a temporary interruption and that we have sorted out the issue. And kindly allow me to remind you that this actually happened entirely unexpected. So obviously, we saw with the discussion about rare earth that some of our products are affected and we found alternative sources of workarounds. This very magnet we are now talking about is actually a magnet where the specification actually don't foresee the usage of rare earth in the magnet. They got -- contamination got in. And the contamination is exactly of the threshold when the export rules are kicking in for rare earth. So the contamination is 0.1%. And that actually led to the fact that we couldn't get those magnets out of China. That was really kind of a surprise to us. We reacted immediately. So people from procurement, our Head of Procurement was actually in China during that time, and a big thank you to her. She sorted that out very nicely. And I think we are back on track. However, things like that can always come up, and I think these kind of issues are here to stay for the next couple of years. We have to deal with them. We have to factor those things in when talking about supply chains and lead times and guidance. So certainly, we have to learn from that, but particularly talking about Q4, Oliver, even with the Supreme Court activities regarding tariffs, we -- those things which have to be supplied by the end of the year, we already have our hands on or they are in Europe and our suppliers have their hands on. So I don't expect anything from this side. Oliver Reinberg: Okay. Understood. And second question, obviously, there's a lot of weakness in the industry from China. Can you just remind us what exposure you have to China? I mean I guess it's all indirectly, but how much is that? And do you see that the demand for the systems that are being used in China is also further incrementally deteriorating? Marcus Wolfinger: I think it's extremely complicated to describe that. I think if you talk to our customers, they are definitely trying to maneuver around statements regarding China. Our exposure, so first of all, we don't have any material substantial customer in China. We have a couple of important customers in Asia, but definitely our top 10 customers are sitting either in Europe or the United States. Then we can see literally only two behavior pattern within our customers. Some of them are actively trying to reduce their exposure in China. Some of them are actually trying to see this as a chance and are trying to certainly on an as high as possible risk-free approach to take advantage of that there is demand for certain products of our customers, and we are supporting exactly that. So if they need products made in China, we definitely help them to manufacture, in our case, assemble those products in China. So do assembly, final assembly and final testing according to Chinese rules in order to support their activities. However, we are trying to reduce our exposure. So top line exposure is neglectable. Looking into our customers, we see a couple of our customers, which entertain nice sales in China. I think with this indirect exposure, we are south of 5% of revenues. When I say indirect, we are selling to our customers and our customers are selling products into China. There are limitations. So if, say, Chinese suppliers -- sorry, Chinese customers want to include our customers into tenders, that's a huge effort for them. That's why that doesn't happen that often anymore. So there are secondary markets, which are served by some of our customers. That's why their exposure is fairly minor. We have to see that particularly with our Hematology business, we are seeing strong competition out of China, particularly in those areas where commodities are concerned, systems of lower complexities are concerned, definitely, the competition out of China is getting stronger and stronger, particularly when pricing plays a material role. However, that actually shows how important our strategy, and execution in our strategy is that, as mentioned before, we definitely want to develop and supply spearhead technologies, not spearhead, spearhead. This has to be handled by the research organization. But as soon as this initial dust settles, we want to be there. We want to be the immediate follow. We have nice technologies. These days, we have huge investments into things which are concerning workflow, things which are concerning safety and security in providing the results, development in IoT, cybersecurity. So everything which concerns haptics, ease of use, safety of the instrument. This is where investments in the Western world and in Europe are actually taking place. And here, we feel it's excellently positioned. Oliver Reinberg: Super. And last question, if I may, just on the molecular diagnostic market. I mean what kind of signs of recovery do you see? And can you just remind us where are you in terms of equipment sales compared to, let's say, the kind of pre-pandemic baseline? Marcus Wolfinger: Yes, Oliver. Let me answer the second question first. We have -- we are in a very special situation. The main contributor to our molecular franchise are mainly three instruments. With DiaSorin, we are in a generation change. With BD, we are in a ramp-up situation. And only with Hologic, we have something where we really have comparable pre-COVID data. And I think I'm not telling you any secret here because the data points are disclosed that Hologic is about on a run rate, which represents between 1/2 and 2/3 depends on the relevant instrument between half and 2/3 of pre-COVID level, but picking up, and that's a nice thing. What we definitely see as a behavior pattern across all our customers is that they are trying to [ prelaunch ] the product life cycle. And I don't -- do not necessarily mean that we develop an instrument in year 1 through 5 and then launch it and then we sell it from year 5 through year 20. What I mean is that when an instrument gets sold to the end customer or placed in an end customer lab, and it runs there for 4 years, 5 years, 6 years and so on, there is a moment in time where the instrument gets worn down and typically gets replaced. And during the last 2 years, we definitely saw that our customers were trying to [ prelaunch ] those life cycles in the laboratory with the relevant instrument to the extent possible. But as mentioned, this is a means to an end. You can only do that so and so long, and we definitely see that these discussions, which are actually reflecting the fact that typically an instrument of a certain age causes higher service costs and that probably the amortization of a newly placed instrument is actually positively offsetting the service costs. So I think that the decision-making processes and the ongoing discussions are actually showing that our customers are at this point where they say, okay, we take this instrument out and we place a new one and that's exactly when the growth comes back. So I'm actually particularly within some customers expecting even a catch-up effect here. Operator: [Operator Instructions] The next question comes from Michael Heider from Berenberg Bank. Michael Heider: I have a couple of questions, less detailed questions here. So when I start with the sales development in your Systems business in the third quarter. You actually said -- I mean there obviously were supply issues, and I believe that was on the immunoassay side. I think you have said that. And yet your sales were flat versus previous year. So is my assumption correct that this shortfall then was made up by the molecular systems side? Or is there something else that has been growing? Marcus Wolfinger: Affirmative, molecular and to a certain degree, immunohematology as well. So affirmative. Michael Heider: Okay. And then on the margin side, yes, we have seen a lower margin in the third quarter versus the previous year due to a negative mix and also due to the negative mix in the instruments business, but also due to the lower share of consumable sales. Yet again, here, your quarter-on-quarter margin has improved. And I would assume now because you're only talking about the Lower Consumer business now in the third quarter that the mix overall in the second quarter must have been better, the product mix, yet your margin is higher in the third quarter. So is this all a result of your cost-saving measures? Or what is the story behind that here? Marcus Wolfinger: Yes, efficiency measures are coming in nicely. So certainly, this is a lot about product mix and scalability. And Michael allow me to say that the forecasting our Consumables and particularly Maintenance parts and Spare parts business is way more complicated than complicating Instrumentation business. So certainly, on the instrumentation and high-volume consumables, certainly, we have established forecast systems, and we should know where we end up over the next 3 months, 6 months, 9 months. On the consumables and maintenance part side, that's a little bit different. What we definitely saw with tariffs kicking in that there was a change in behavior pattern of our customers. Actually, we had a deep analysis about the behavior and some of the business was actually already pulled in, in the first 6 months, which led to fairly well-established results then. We actually -- at this moment in time, we typically got the last orders of the year, particularly for consumables and spare parts, and that was actually weaker than we forecasted initially. It's factored in our amended guidance, but it was weaker than expected. So not only that the business is more short term and therefore, doesn't allow for high predictabilities and high transparency, even the change in behavior patterns came on top here. So deriving something from the past doesn't make too much sense. Like margin drivers in Q3, definitely slight recovery in the Molecular business, some development programs ongoing. So it's actually across the border. And certainly, in some areas, the better economies of scale are helping us very much as well, and so we have performed price increases. We are trying to apply discipline in terms of procurement activities. So all-in-all, I think things are lining up nicely. However, we are not really satisfied. I think as soon as scalability and the right product mix comes back, we can easily get closer to our historical margin. However, I want to make sure that even when I say that I believe the market comes back and the momentum comes back, that all sounds very bullish. I want to make sure that you understand that particularly timing is super unpredictable. So I think that if we finalize our budget cycle and if we are coming out with our new guidance that we will already show this slightly positive momentum, but definitely, 2026 will not be this year of the great relief. What I wanted to get across is that I think there is a chain of things, which have to happen. So the positive mood of our customers, the return of the number of their sales when they get new tests on the instruments when they are actually continue to grow. I think in immunoassay, they grew all the time. But in molecular growth comes back, in sample prep growth comes back, in proteomics growth comes back. So all-in-all, a super nice lineup here. However, this has to go through this pipelines of development activities, market launch, regulatory will take some time. I wanted to get across that we believe that we are through the worst. That's the thing we want to get across. Michael Heider: Okay. And then another question on the supply issue. Do you think that there will be a structural change to your supply situation? I mean are you considering maybe in more times to have a dual supply or supply that is more diversified? And this then, in turn, will maybe result in a more costly supply side for you? Or what is the reaction to the situation? And also in that context, how did your customer react to this? I mean are they obviously not thinking about cancellations, you're expecting to just deliver the instruments then a little bit later. But I mean, what was the reaction on that side? Marcus Wolfinger: Yes, Michael, thanks for bringing it up. Actually, a complex question requiring a complex answer. So first of all -- and please allow me to get to that point first. So definitely, whenever possible, we already have dual sources for suppliers. But there are certain things where either economically dual sourcing makes no sense at all or where it actually provides risk. So that certainly, there are some key suppliers which have their own IP, which would mean trying to find a second source would actually mean that most likely the source material would not be compatible, which means you would have to branch from day 1, which is extremely risky from a regulatory perspective and should be avoided from our customers. So I think, obviously, trying to derisk supply chain is one of the core challenges, which means when, where and how to source. So definitely -- and that's something we are trying to get our customers on board is that in some areas, we can only address that properly by going into high inventory levels by highly risky and single source parts. We already reacted over the past 15 years towards that, that we are trying to particularly develop the complex materials ourselves, so which means that we can easily move manufacturing from A to B to C if we don't get our hands on things and that we control those suppliers at the very tail end, which have their own IP. However, there will be materials, just think about microcontrollers. You cannot just walk away from a microcontroller supply and you see the issues [ VW ] has these days. I think this is certainly something no one actually expected. But I think we will have to accept that we are living in a world that supply chain interruptions like this can happen that in a globalized world where raw materials are sent 10x back and forth between Asia and only -- if one step gets interrupted, the entire supply chain gets interrupted. I think this is something -- these are problems which came to stay and probably in a deglobalized world, they will still stay for longer than everyone expects. And the result of that, like particularly sourcing more locally and manufacturing local-for-local will definitely have an impact on pricing. So I think this is an assessment each of our customers have to take either to accept that they will have to live with supply chain interruptions on the one hand side or something we can handle for them, but they definitely will find its input to the price tag attached to the instruments and attached to spare parts. However, I think we are not the only one facing that problem. I think this will actually pop through the surface in a couple of industries over the next years. I hope that helps. Michael Heider: Okay. And then last question here really on your inventory situation and operating cash flow for the full year. What do you think you can achieve in the full year on the operating cash flow side? And a detailed question here on the inventory because you mentioned that you have higher inventories in one particular area where it requires an upturn in the end demand -- end market demand. Are we talking about molecular here? Or is this something else? Marcus Wolfinger: It's allocated in our Molecular business, right? And it's particularly affected by the lower-than-expected or flatter than expected ramp-up curve. Definitely, that is our biggest [indiscernible] as mentioned, and we stick to that guidance at the very beginning of the year said that we will most likely manage to reduce our inventories by the end of the year in the area of EUR 5 million to EUR 10 million. And I think we are on a good track here. And that actually leads to the equivalent cash release coming from inventory levels. Operator: Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Jan Keppeler for any closing remarks. Jan Keppeler: Thank you all. That concludes the conference call. Thank you, and goodbye.
Margherita Della Valle: Good morning, everyone, and thank you for joining us today. Before moving to Q&A, I will briefly provide an update on our transformation progress and financial performance. I want to specifically talk you through our operational execution in the first half in Germany and the U.K. In Germany, our turnaround continues. And in the U.K., we are now driving the integration of Vodafone and Three, both of which remain top priorities. But first, a quick recap on our position as a group. As you know, over the past 2.5 years, we have changed both where we operate and how we operate. In the last 6 months, we have completed the reshaping of the group that I announced in May '23. We have completed the merger of Vodafone and Three in the U.K. and the acquisition of Telekom Romania's assets. All of Vodafone's operations are now in a strong position, at scale in all our markets. And importantly, all these markets have sustainable structures. Our capital structure has also been reset with appropriate investment levels, a stronger balance sheet and over EUR 5 billion returned to shareholders via buybacks and dividends over the last 18 months, with a further EUR 1 billion of buybacks to come over the next 6 months. But most importantly, we have also delivered a step change in our operational transformation. Whilst we still have more to do in our drive to operational excellence, we have boosted customer satisfaction, we have simplified our operations and powered growth beyond traditional connectivity by expanding our digital and financial services. Now, mentioning growth leads me on well to our financial results. We performed well in the first half, in line with our expectations. Our group service revenue growth has accelerated to 5.8% in Q2, supported by growth across Europe and Africa. On the profitability front, group EBITDAaL grew by 6.8% in the first half, with nearly all our markets posting EBITDAaL growth. With this solid performance across the group and a positive outlook, we have confirmed today that we now expect to close the year at the upper end of the growth guidance that we set out in May. Alongside solid financial results, we have also made good operational progress in Germany and the U.K. Our 2 largest markets have different starting points and different competitive landscapes, but both markets are demonstrating the impact of our strategic priorities, customer, simplicity and growth. Taking it to market in turn. Germany is the largest telecom market in Europe, and we operate at scale across both mobile and fixed. In mobile, our 5G stand-alone network covers over 90% of the population, and now, serves over 40 million customers, including 1&1 as well as almost 60 million IoT SIMs. And on fixed broadband, we can offer gigabit connectivity to 3 out of 4 German households, more than any other operator in the country. Our gigabit broadband reach has indeed continued to expand during the quarter. We are now marketing OXG fiber to 1 million homes. Our brand is strong, and customer satisfaction in Germany has stepped up in the last 2 years. We have simplified customer journeys. We have introduced GenAI in customer care across chatbots and agent assistance. And our improvements across all call center KPIs are being recognized by independent testers. And in terms of growth, we have followed a disciplined execution focused on value. We have introduced new propositions in mobile, driving differentiation and upselling, and we have continued to increase front book ARPUs in fixed. We also continue to expand our capabilities to satisfy the growing demand for digital services. Just 2 weeks ago, we announced the acquisition of an established cloud service specialist, active across Germany and Europe. Looking at Germany as a whole, we are well positioned to drive structural growth, as we have the right assets and the right team in place, a team that is fully focused on becoming the market leader in customer experience, a one-stop shop provider for fixed, mobile and TV and a trusted B2B partner of choice. And now, on to the U.K., we are the largest mobile operator in the country, serving almost 30 million mobile customers, and we are also the fastest-growing broadband provider, with the largest gigabit footprint of any operator just like in Germany, as we are able to sell fiber to about 22 million U.K. households. Vodafone U.K. is already the market leader in customer satisfaction, and we are now extending our customer experience standards to Three customers. And all of our customers are set to benefit from our GBP 11 billion network investment, as we build the best-in-class 5G network for the U.K. We have made a very fast start. Independent tests are already confirming noticeably better speeds and coverage in less than 6 months. In terms of growth, as you know, we have good commercial momentum in the U.K., which is now being supported by our cross-selling opportunities, with Vodafone broadband offers now open to Three customers and FWA open to Vodafone customers. And our multi-brand approach is proving effective in making the most of the market demand opportunities. The combination of these revenue synergies with our GBP 700 million cost and CapEx synergies gives us a strong growth trajectory in the U.K. We will leverage our unique assets in the market to extend our customer experience leadership, monetize our improved mobile network quality and continue to drive fixed service growth. And this is just our 2 largest markets. We hold leadership positions across our African markets, where yesterday, the team reported another strong set of results, in line with their medium-term double-digit EBITDAaL growth guidance. We are excited about the future in Africa, as it combines structural opportunities across all our services, from core connectivity to financial services to B2B. Coming back to group in closing, our objectives continue to be the same, to improve our customer experience across our markets, further simplify our business and deliver sustainable cash flow growth in FY '26 and beyond. The turnaround of Germany, the U.K. integration and our strong positions in growing markets across Europe and Africa, all give me confidence in our growth outlook. With the reshaping of the group behind us, now is the right time to deliver on our ambition to grow our dividend over time. We announced today that we are moving to a progressive dividend policy. And now Luka and I are looking forward to your questions. Operator: [Operator Instructions] The first question this morning comes from Maurice Patrick at Barclays. Maurice Patrick: If I could ask a little bit about the EBITDA run rate for the second half and also next year, so you've delivered 6.8% organic year-on-year growth, you tightened the guidance towards the upper end of the range. I think if I look at the full-year guidance, it implies 4%, 5% growth for the full year. So your guidance, even at the high end, seems to imply a slowdown versus the first half, despite Germany probably having easier comps. As you exit the MDU drag, maybe you could help us understand some of the EBITDA sort of levers in second half. I know you called out higher SAC in the U.K., for example. And it's probably a bit early to talk about FY '27, but if you could give us some indications of some of those building blocks, that would be very helpful. Margherita Della Valle: Sure. Luka, all over to you. Luka Mucic: Excellent. Well, first of all, of course, we are very, very pleased with our performance in H1 on the EBITDA front. This was really a combination of very strong emerging markets growth, in the U.K., doing very well. And then Germany, improving as well over the last year, given that the MDU impact is now dissipating and we had a benefit of wholesale. If you look forward to the second half, yes, our outlook at the high end of the range implies a slowdown. And there are 3 factors that I would call out for that. On the positive front, we absolutely expect Germany to continue to improve in H2 because then we have 0 MDU impact, and we will reach the full run rate of our wholesale migration of 1&1 this quarter. So from Q4, we will then be at full run rate, just standing at around EUR 11 million. So we're almost done with the migration there. So this will help, of course. But on the flip side, first of all, we continue to expect that our emerging markets' growth contribution will trend down given that inflation moderates. You have seen some of that already in the first half year. I think that trend can be expected to continue. And also the U.K., which had a very good first half, we'll see a slowdown in EBITDA growth, first, because -- I know I've talked about that already on the last earnings, but there should be a slowdown in topline growth, in particular, in Q3, as we are facing very tough compares in particular in our B2B business, where we had a positive one-off last year, which should then sequentially increase and improve going into Q4 and beyond into FY '27, but it will dampen the performance. We also had some phasing impact in the strong performance in the first half year in the sense that the marketing expenses that are planned for this fiscal year in the U.K. are more back-end loaded to the second half year. So if you pair that up with the emerging market slowdown, that's driving the expectations. Now, FY '27 is in particular, for me, very far out. Obviously, I'm sure Margherita and Pilar will be back to give you a precise outlook going into FY '27. From my perspective, perhaps just some high level puts and takes. First of all, we would expect the U.K. to be a very positive contributor and have a strong EBITDA performance based on the fact that we expect, for the first time, more sizable synergies from the merger coming together for this year, that was really basically no contribution from synergies, but it will start to step up in the next year. And in Germany, we will face puts and takes, obviously, in the first half, the benefit from the MDUs being fully out of the numbers, and in Q1, still a ramp-up effect from the wholesale migrations. But then for the remainder of the year, they will be out of the numbers in terms of year-over-year help. So then, we will have to see what the market conditions do to see what that means for the German performance. And then, also in FY '27, I would continue to see a year-over-year challenge from an emerging markets growth perspective. On the positive note, I think what we are seeing is that the mix in our EBITDA contribution continues to shift back more favorably to Europe now in the balance between emerging markets and Europe, and that obviously drives also good predictability, which should be a net positive. Operator: The next question this morning comes from Akhil Dattani at JPMorgan. Akhil Dattani: I've got a question around Germany, just to unpack a bit of what you mentioned, Margherita, around the turnaround initiatives that you've taken so far, and how we see the fruits of that bearing into the numbers. You talked just to a lot of different things that you've done in Germany. But if we look at the moment and we strip out the MDU effect and the 1&1 impact, the German revenue trends are still declining 2% to 3%. So I'd love to understand what you think it takes in the timeline to see the underlying momentum starting to improve. And then, if we layer on to that, the scale effect of 1&1, how should we think about the H2 outlook for Germany for revenue and EBITDA? Margherita Della Valle: I will maybe ask Luka to take the last part of your question on 1&1, and then, I'll talk to the actions that we are taking. We seem to have a mic to fix, apologies for the... Luka Mucic: I hope I was still able to be heard in my first answer. Operator: Yes, you were. Please go ahead, Luka. Margherita Della Valle: 1&1 first. Luka Mucic: Okay. Sure. So first of all, in terms of our expectations for Germany overall, we certainly expect that Germany will continue to grow in the second half year. The wholesale support will obviously be a factor, in that I would also expect that towards the end of the year, our B2B performance will start to move upwards because we had very good success of contracting new digital services business that always takes a while to come into the numbers, but that should be helping also the year-end performance there. In terms of the impact that it has had, I really prefer always to talk about wholesale as a whole because in conjunction with the 1&1 win, so to say, we had also then a subsequent loss of another smaller MVNO, Lyca, which went the other way around. If you make the math out of those, the contribution of both in the quarter was just above EUR 80 million as a whole. And then, in the second half year, we would expect that the contribution from 1&1 will also be around EUR 100 million. In Q4, we are lapping then the loss of Lyca. So those are kind of the puts and takes to take into account in terms of wholesale momentum. Yes. Margherita Della Valle: In terms of underlying performance, so if we exclude wholesale, Akhil, you are absolutely right, it's broadly stable. And if I look at the second half of the year, you shouldn't expect to see big step-ups quarter-on-quarter. But over time, the actions I was referring to in my introduction, which are all speaking to the long-term health of the business, will actually support our topline performance. It's a bit early to talk about '27, as Luka was mentioning before because, I mean, also in Germany, we will obviously have to see what the environment will be, both from a macro and from a competitive perspective. But whilst we should expect the headwind in TV to continue, and equally, we don't have full control of the dynamics in mobile, the topline will benefit from these actions. And let me maybe bring this to life a little bit. So first of all, we have talked about customer experience improving. With customer experience improving, we are seeing churn reducing. It's coming through in our numbers. Clearly, the customer experience is improving because of the investments in our networks, because the changes to our approach to customer service. Overall, net-net, the NPS is going up. We are continuing to beat record levels for us in fixed and stepping up in mobile. In some subsegments, we are now actually leading in the market. Clearly, there is more to do, but all this is playing in our numbers to churn. I talk to the work we are doing on ARPU and supporting value in the market. We're really focused there on all what is in our control, and this is going to, again, help us. In fixed, you will have seen, for example, us gradually moving up front book ARPU in the last 6 months. The last moves were only 3 weeks ago, and we are seeing the benefits of that in mobile. We have upselling. And finally, actually, Luka mentioned B2B. B2B is perhaps one of our biggest growth opportunities in Germany. We are investing in digital services. Again, you've heard the Skaylink acquisition. It's growing double digit. We see this as supporting growth going forward. So all this, as a package, is really the result of the actions we have taken supporting our long-term health of the business as we go into FY '27. Operator: The next question this morning comes from Carl Murdock-Smith at Citigroup. Carl Murdock-Smith: That's great. I wanted to ask about the U.K. You touched in the presentation on making a fast start on integration. Can you provide a bit more color on your early actions and synergy delivery? And also comments on in what ways the commercial performance in Q2 and revenue has been a bit better than the decline you had suggested we could expect when you spoke at last quarter's results. Margherita Della Valle: Maybe, again, I will let Luka start with the outperformance on the revenue front, and then, I will pick up on the integration. Luka Mucic: Yes, happy to. I mean, normally, CFOs don't like surprises, but in this case, I will make an exception because, indeed, we saw obviously coming into the merger a combination of a slowdown in Three that we have discussed at our last earnings call, plus we had the underlying challenge in our own business, so to say, before the merger with the B2B managed services terminations that we had to fight against. So that was underpinning, I would say, a cautious stance. Also, if you take into account that the team, of course, was to be very busy on all of the integration steps. But I have to say -- the teams together and driving for very, very positive actions in terms of rolling out our base management practices to Three, making early wins on the network quality and improvement front with the sharing of spectrum and now increasingly the activation of MOCN, which obviously is positive, in particular, also helping performance on the Three network. So in that sense, we have seen a combination of improving churn trends, very good consumer performance, in particular, in home broadband, which I think had the biggest net adds jump in the quarter that we have ever seen in Q2 in the U.K. Then also initial cross-selling benefits and successes. FWA was a very positive story for us. And that in combination has outweighed the underlying decline in B2B legacy managed services to an extent that, frankly, was a bit better than what we would have expected. So very positive. I should perhaps add as a last point that the good actual current commercial trading performance was not only in consumer, but we had actually also a good performance in B2B, not enough, of course, to change the trends from the managed services side for this year, but of course, encouraging if we move further beyond that. Margherita Della Valle: Just a bit more color on the actions, I'd say and reiterate, as Luka said, the team is doing a really great job. I think we are progressing at a pace that has not seen before in U.K. telcos in terms of bringing the 2 companies together. Just to give you a sense, we're only a few months in, and we are already completing the integration of the third levels in the organization. And on networks and on other operations, what are the things we are seeing? On the network front, we talked in Q1 about higher speeds for Three customers, the whole customer base of Three, because of how we are using the spectrum together. I'd say Q2 was all about rolling out our multi-operator core network to allow customers to use seamlessly both networks. You may remember me saying that we had a target of 8,000 sites upgraded for MOCN by year-end. Well, actually, it will be, I think, by tomorrow, is the latest. We will get there this week. And this obviously talks to the reduction of not spots for our base. You know that we are targeting a surface of 10x the size of London. And it's actually really visible today. You don't need to take my word for it. Opensignal has already published the report, saying it's noticeable and measurable. I can't wait to tell you more about this in the coming quarters, as we will also see the customer reactions. But it's a very strong pace. Operationally, beyond the networks and the teams coming together, what is also coming together really well now is what I would call our multi-brand strategy. We now have a single team, for example, in consumer, managing across all our brands. And these brands allow us to cover all market needs, and do this in a consistent, coherent ways is quite powerful. And then, as Luka mentioned, we have been opening cross-selling. So that's obviously supporting our commercial momentum. We were already the market leader in growth in broadband. We are now offering our broadband offers to the whole Three base and the FWA offers to the Vodafone base. As you can see, almost -- the first things we are excited about at the moment are the revenue synergies, and this come, of course, on top of the GBP 700 million cost and CapEx synergies that are, of course, part of our business case. So good momentum in the U.K., and you will see this continuing ahead of us. Operator: The next question comes from Polo Tang at UBS. Polo Tang: It's a question on Germany. So there are proposed changes to legislation that will make it easier for operators such as Deutsche Telekom to access MDUs and deploy fiber. So what's your view on the impact of these potential changes? And can you also talk to the economics for the OXG fiber JV? From memory, it's about EUR 7 billion of CapEx to build a footprint to 7 million homes. But can you remind us what the equity injections that are required for the JV? And how should we think about the wholesale costs that the German unit has to pay to OXG JV longer term? Margherita Della Valle: Thank you, Polo. I think I will take both sides of your questions, maybe starting from the draft Telco Act, which is being discussed in Germany. And there are a lot of measures as part of this that are all geared towards simplifying and accelerating high-speed network builds in Germany, for example, by simplifying permits processes. And this is actually really good. It's good for the fiber build-out. It's good for the 5G build-out. So I think the government is really pushing in the right direction in the country. Now, as part of all the discussions going on, there are some elements, and you referred into the in-building wiring debate that we feel are unnecessary, and we're openly sharing our -- what I would call, our real-life insights on what's happening on the fiber building. And I think it's very clear to everyone that the bottleneck in fiber building in Germany has nothing to do with housing association and has more to do with other factors such as construction capacity limits. But beyond that, today, these are discussions. There is no draft law to really comment upon. But just to take your point, even if all the discussions that are going on were translating into law, for the reasons I've just described, actually, the impact is going to be just a marginal, maybe acceleration of the fiber building towards the housing associations. And that will benefit all players in the market, including OXG. It's unclear whether this discussion will ever become a draft law, and it's unclear at this point when this draft law will become law. But assuming it happens, if it happens at some point in 2026, you need to keep in mind, and I'm going to the next part of your question, that by then, OXG will be already marketing anyway to millions of customers in the housing associations. So, standing back, I don't see this as a major impact on whatever speculation is going on, definitely. And the other point I would say is that actually, if you take all the discussions that are going on in Germany across the Telco Act and across the copper switch off, again, I think it's moving in the right direction overall, and it will be supportive for telecoms overall. You asked about OXG economics, I think. And so on the equity injections, these are very small. I mean, obviously, Luka could add any detail. But I think we said this when we were setting up the JV because of the, I would call it, self-financing over time. It's really at the margin in terms of equity requirements, very, very small. On the front of the wholesale costs and revenues, depending on which side of the equation you look at, I think -- I know that there has been some work going on, on trying to, from an analytics perspective, get to this calculation. I think it's really important that you keep in mind that it's a very -- let me say, there are 3 nuances to the calculations that maybe are worth sharing, and IR can help you sort of bringing them to life more precisely than I can do in a call. The first point is that there is no commitment or obligation whatsoever for Vodafone cable customers to be migrated to fiber into OXG. That just is not there. The second aspect is that 20% of the OXG footprint will be actually outside the cable areas. And then, finally, obviously, penetration into the OXG households will build over time. So it will be during the 6 years of rollout, which are exactly planned, as you were describing, but it will also obviously continue to build after that. So all this is very gradual, and I think brings to, I would say, a different conclusion than some of the calculations we have seen, but I would let really the IR team to help you out on where to go. I would just say that we are really happy with the progress now with OXG. You know that the first year, 1.5 years, obviously, were challenging to set things up. But we have now already built to 350,000 households. We are opening the -- we have opened the sales to 1 million households. We have connected the first customers. We have also opened wholesale, 1&1 and a regional operator are already connected. And 3 million households are already, let's say, committed in the construction orders. We have more than 30 construction partners. I mean, it's a big building site across many, many cities in Germany, and we now look forward to see this coming through in our numbers. Luka Mucic: Just very quickly on the equity. So in 3 years, the equity contribution and injection was just above EUR 70 million. So it's really to underscore the point for Margherita, very, very small. Operator: The next question this morning comes from Emmet Kelly at Morgan Stanley. Emmet Kelly: My question, yet again this quarter, is on Vodafone Turkey. On my numbers, it represents, I think, almost half of the organic EBITDA growth that we've seen since last year. I guess, most notable is the EBITDA margin uptick at your Turkish business. So could you talk a little bit about the topline trends you're seeing there and expect to see? And on your cost management program, if you could say a few words on that. Luka Mucic: Perhaps I can take this because indeed -- I mean, Türkiye has been a tremendous success story in the last couple of years, not only in terms of the financial success, which has been clearly there, just to give you some absolute numbers, which are perhaps not so easily visible, just in the last 2 years, they have increased both EBITDA as well as cash flow back close to EUR 300 million each, which for the size of the business is obviously a tremendous improvement, and that's in hard currency, so not in local currency. And while that growth, of course, inevitably, as we had already indicated, has started to come down because of the lowering in inflation. It's still significantly outperforming inflation. And in absolute terms in euros, it has still been in mid-teens on the service revenue front in the last quarter and was more than 20% up in hard currency for the half year. So where is this coming from? It's coming from a set of unique capabilities. Yes, the team has always been very prudent and forward-looking and leaning into the inflation environment by managing costs very successfully, but there is more to it from my perspective. Türkiye is probably among the best digital capabilities that we have across the group. They have a very high proportion of digital sales. They have a very agile base management model, like a very targeted micro-segment-related calls to provide them access to targeted upsell offerings, post-to-post migrations. So the team has really built a machine there around a set of digital capabilities that are very unique and that we are partially exporting also to other countries, such as the loyalty app, for example, the happy app that we're now also rolling out in other countries. So it's not only a story of cost-cutting and riding an inflation wave, not at all, it's actually based on a very proven and successful management model. And while I've shared before that, as we think forward, certainly, the inflationary trends will continue to recede, and therefore, growth may come down. I think they have been increasing also their relative competitive position in the market. And I think that based on the strength of the management team will certainly continue. Margherita Della Valle: If I can just build on that, Emmet, for a second, looking at the group as a whole, we are extremely proud of Turkey, but I need to say, we're equally happy about all our countries. We regularly publish in our reports the service revenue growth ex-Turkey given the hyperinflation environment, and you have seen this growing to 3% in the quarter. And this is a reflection of the strength of the portfolio. We have Africa, of course, also growing strongly, double-digit EBITDA growth, which is in line with our upgraded guidance there. And then, overall, taking on the opportunities in the U.K. that we have just described, and the turnaround in Germany, where we have now turned the corner with the topline, but obviously are looking forward to the profitability improvement, all these taken in aggregate is, I would say, where we wanted to be through the group transformation. And it's the reason why you hear us talking about an outlook of midterm free cash flow growth. Yes, every part of the group is contributing. Operator: The next question this morning comes from Joshua Mills at BNP Paribas Exane. Joshua Mills: I wanted to come back to the U.K. market and focus on your FWA proposition in particular. So following the Three U.K. merger, you had a very strong spectrum position. You mentioned in your comments earlier that you're happy with how the FWA business is developing. Could you give us a bit more detail about the net adds on that business? And what your longer-term ambition with FWA might be? How you balance that against the desire to grow on the fixed broadband base as well? And just one short clarification, when you have your FWA customers, are they included in your broadband numbers or your mobile customer numbers? Luka Mucic: Yes. Margherita Della Valle: Yes. I'll start from -- I'll cover it all in one go. The net adds are in mobile because that's the supporting technology. And if I'm not mistaken, it's 17,000 in the quarter. They have accelerated, but let me talk to you about how we look at FWA more broadly. It's obviously a great opportunity for us to leverage, what I would describe, as our overall asset superiority in the market. We have -- I was talking earlier, the largest fiber footprint available to our customers with 22 million households, but obviously, fiber in the U.K., is not everywhere yet, whilst we will be offering FWA to all the population in the U.K., thanks to the capabilities that we have today. And we see it as an opportunity because it allows us to bridge the time until fiber comes and maybe cover areas also where fiber may not come at all in the most rural areas. If fiber comes, it's great to get our customers first on FWA, and then, moving them on as the time progresses. So we really see it as an opportunity in the market. As I said before, it's now open to everybody, whether they are in Three brands, or I would say, ex-Three brands, ex-Vodafone brands, and we look forward to see this support our growth. Operator: Now to the next question from David Wright at Bank of America Merrill Lynch. David, we cannot currently hear you. David Wright: Sorry. I'm on the -- I do apologize and apologize for no video or lower -- maybe not a bad thing. But just a technical question, I suspect, just for yourself, Luka, super straightforward. In the first half, adjusted EBITDAaL common functions was maybe a little surprisingly negative. It shows minus EUR 14 million. It's been running a fairly consistent clip of EUR 22 million, EUR 23 million in the last couple of halves. So just any explanation there and just how we should think about that full year number and maybe even into 2027? That's it from me. Margherita Della Valle: It reminds me of the old days because when I was CFO that it was a recurring question, ultimately. It's actually quite structural. Maybe you want to go to that? Luka Mucic: Yes. Exactly. So if I go back in the history, to Margherita's days, before I arrived, I think, historically, common functions EBITDA was actually always negative. And then, in the last 2 years, it turned positive as a result of some of the M&A activity that was going on, which created one-time effects. And last year, it was also helped through a quite sizable central provision release, and that is obviously creating headwinds in the year-over-year. But structurally, from a go-forward perspective, should actually expect common functions EBITDA to rather be negative than neutral to positive. And the reason for that is just simply that the help from kind of the M&A transition to also above the line EBITDA recognition essentially is dissipating. Margherita Della Valle: Just to come back to why it's been structurally negative. It's a very simple thing, David. It's because -- you know that our shared operations' costs are paid for in the markets, but that's not the case for what we call corporate services. So just the HQ cost, I mean, if I take ourselves and the IR team supporting this core, right? This stay at the central EBITDA level, which is a cost, but don't see this as big movements. David Wright: Okay. Can I take that H1 number and just double it for the full year? Is that reasonable just to get a proxy? Margherita Della Valle: Well, it's an area that, again, because we are talking about small numbers, can have variations. So I think we wouldn't be very specific at that level of detail, to be honest. Operator: The next question this morning comes from James Ratzer at New Street Research. James Ratzer: So we haven't yet had a question on the dividend, I think. So it would be great just to get a kind of updated kind of thinking on cash return for kind of next year and beyond. Because I think in the past, you've set out you had a kind of ambition to grow the dividend and to be progressive. You've now been more quantitative. But just for this year, I think, you've just set out the 2.5% for this year, but really kind of not beyond FY '26. I mean, it looks to me like leverage is going to end up right at the bottom end of your 2.25x to 2.75x guidance. So, going beyond FY '26, how are you then thinking about what progressive dividend could look like and potential scope for any share buybacks going into next year? Margherita Della Valle: Sure, James. I have to take this one in this round given that this is going to be the last call from Luka. Let me give you a little bit the broader picture now how we think about returns as you're saying. So first of all, we have given you good visibility on one component, which is dividends. We are talking about a progressive dividend policy, which means that we expect growth year after year going forward. The first year is expected to be 2.5%. So we've been quite detailed. Of course, we will have to assess this every year from now on. Why progressive dividend policy? It's simply because you have heard us say, when we reshaped the group, and we rightsized the dividend according to the new shape, we were very clear from the beginning that our ambition was to grow the dividend over time. In this half year, we have completed the reshaping with the U.K. And so the time is now. You know that we have an outlook supportive in terms of midterm free cash flow growth. So it was appropriate to bring the ambition into reality. As far as buybacks, clearly, these are also a component of our toolbox for shareholder returns. We are EUR 3 billion in the EUR 4 billion that we had communicated at the time of the various transactions. And starting today, the penultimate tranche, so in the next 6 months, we will be busy on delivering another EUR 1 billion. Beyond that, we will have to assess our position. We will assess our position depending on -- and I think you are spot on, depending on where we will be as a company, where the market environment will be at that point. And we will clearly assess it through the lens of our capital allocation policy that you were referring to earlier, which I think is very well known. So, full visibility on the dividend decisions on the buyback when the time is right. Operator: The next question this morning comes from Paul Sidney at Berenberg. Paul Sidney: I just had a question around the Skaylink acquisition. We've seen a lot of excitement in the sector around data centers, AI, cloud services, cybersecurity, you name it, obviously, Deutsche Telekom, announcing a pretty high-profile partnership with NVIDIA to build a data center and Telecom Italia having a recent event, looking at their AI capabilities. So just a very broad question about is this really a material revenue driver for your business looking forward? And could we expect more similar acquisitions to Skaylink in some of your other geographies? Margherita Della Valle: Sure. Paul, let me try and give you a bit of an overview on how I look at this. So first of all, digital services are now over 1/4 of our B2B revenues. So it starts to become quite material. And it's going really well. We continue to use the word double-digit. It's basically double-digit everywhere. It's double-digit in Germany. And overall, I think there is a lot of potential for us to grow in B2B in these domains. And that's why we have, even before the acquisition of Skaylink, continued to invest. I mean, 2 years ago, for those of you who remember, I was talking about, again, for the long-term health of the business, stepping up the investment in B2B in these areas, and it's all been about building capabilities to essentially respond to the demand of our customers. Now, in terms of all the points that you have raised, I think it's really important for us to assess where there is demand, where this demand is best served by Vodafone as opposed to other areas, and where there are also good returns. We certainly see big opportunities to continue to grow on IoT. We could go on and talk for hours about IoT. We see equally very good growth for us already today in cloud, where Skaylink operates. Cloud is a big contributor to our double-digit growth, and also, security with cyber in mind. We also think that our, I would say, most biggest opportunity segment-wise are in the SME space on all these services, so middle-sized company. Why? Because these are the companies that are used to buy technology from Vodafone. We have been serving connectivity to them. We have strong partnership. They look at us to help them. In these days, for example, sovereign cloud is a super big topic of conversations. We are well placed to help them with that. The more you go in the value chain, especially in Europe towards things like gigafactories and other areas, I think you will see us sort of prioritizing in a very clear way because in some areas, the economics are still to be proven, the capacity utilization needs to be proven, and therefore, we are very rigorous in the way we go about the opportunity to serve the demands by starting to address the areas which really, for us, are low-hanging fruits. And to your question, yes, there will be more activity in this space in terms of building capabilities, and sometimes, this may continue to involve small bolt-on M&A. Operator: We have time for one last question this morning to allow all participants to observe the 2-minute silence at 11:00 a.m. for Remembrance Day here in the U.K. This last question comes from Robert Grindle at Deutsche Numis. Robert Grindle: Great to see your stock get its mojo back. I hope that translates to Italy and Germany, especially before Luka moves on. Margherita, the footprints reshaped, you've merged the U.K., not to mention all the operational stuff. This was a large entrée. So what do you look forward to spending more time on with your new CFO colleague? We have the capital allocation question. You addressed that. More capabilities in digital seem to be underway. Do you see any footprint infill need? Any more consolidation opportunity? And conversely, do you see that the Vodafone balance sheet needs further simplification? Margherita Della Valle: As you indicated, we are really pleased to have, I call it, completed the building site after the last couple of years and get the group we wanted and see our position today being at scale with strong brands in all the markets in which we operate, and these markets being markets where we have sustainable structure. This is all the foundations we needed for good growth. Looking forward, there is obviously much more to go for, but you should expect that not to make the headlines through M&A. You should expect that to be our continued execution of our transformation. And really, all we need today to make the most of our growth opportunities, be it in Germany, be it in the U.K., be it in Africa, is disciplined execution, focused on operational excellence to make the most of what we have. And I mentioned earlier, customer simplicity and growth. Our priorities have not changed. Our opportunities have not changed. It's great that today, we are in a completely different position on customer experience, but lead and colead in 11 out of 15 markets is not enough. So my #1 priority will continue to be to push on that. Group simplification, we have made lots of inroads. I mean, we are completing this year the, for example, roles reduction that we talked about to simplify the group when we announced the strategy. But there is always more to do, and we have the opportunity to become much more simpler. I mean, one of the slides, by the way, in our PowerPoint today is about AI because there is a lot to go for to make us faster, more agile. And then, you mentioned B2B. And it's been a feature of this call, which I really appreciate because I believe it's a strong opportunity for us. If you think about it, we have a really strong competitive position there. We are trusted by businesses and governments across Europe and Africa. And so it's a fantastic growth opportunity. In all the areas we operate in, we have strong demand for our services. So it's about really bringing -- accelerating the growth in the years ahead now, and it's in our hands. Robert Grindle: Great to hear. Good luck, Luka. Luka Mucic: Thank you. Margherita Della Valle: Thank you. We're on time. Operator: This concludes the Q&A session. And I would now like to hand it back to Margherita for any closing remarks. Margherita Della Valle: I would really like to take the opportunity to thank Luka, last call. Luka has been great support on -- well, all the things we've talked about in this call. And thank you for your time, as always, today, and look forward to see you all in the next quarters. Thank you.
Operator: Good day, and welcome to Westport's Q3 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, Mr. Ashley Nuell, Vice President of Investor Relations. Please go ahead. Ashley Nuell: Good morning, everyone. Welcome to Westport Fuel Systems conference call regarding its third quarter 2025 financial and operational results. This call is being held to coincide with the press release containing Westport's financial results that was issued yesterday after markets closed. On today's call, speaking on behalf of Westport will be Chief Operating -- or Chief Executive Officer and Director, Dan Sceli; and Chief Financial Officer, Elizabeth Owens. Attendance on this call is open to the public, but questions will be restricted to the analyst and an institutional investor community. You are reminded that certain statements made on this call and our responses to certain questions may constitute forward-looking statements within the meaning of U.S. and applicable Canadian securities laws. And as such, forward-looking statements are made based on our current expectations and involve certain risks and uncertainties. With that, I'll turn the call over to you, Dan. Daniel Sceli: Thank you, Ashley, and good morning, everyone. To start, I want to welcome Elizabeth Owens to her first conference call following her appointment as CFO at Westport. We are thrilled to have her at the helm. And for her first CFO conference call, I'm happy to have Elizabeth run through some financial details first, and then I'll cover some of our business and strategy updates afterwards. Over to you, Elizabeth. Elizabeth Owens: Thank you, Dan. First, I want to say thank you for welcoming me to my first conference call as CFO of Westport. It's an honor to serve shareholders in this new capacity. Now getting into the details of our Q3 results. Westport reported revenue of $1.6 million for the quarter. Our reported revenue this quarter reflects the expected decline from the $4.9 million reported in the same quarter of last year based on some changes I'll address in a moment. On an upward trend, however, it was great to see Cespira increased its revenue by 19% over the same period last year to $19.3 million in the quarter. As you know, our heavy-duty segment was utilized to capture revenue generated by a transitional service agreement, or TSA, in place to facilitate the transition of Cespira to a stand-alone organization. As intended, the TSA concluded in the second quarter of this year, and we, therefore, did not record any revenue related to it this quarter. Revenue this quarter was representative of our continuing High-Pressure Controls & Systems segment, which produced $1.6 million in comparison to $1.8 million in the same quarter last year. Our adjusted EBITDA for the quarter was negative $5.9 million as compared to the negative $0.8 million reported for the same quarter of last year. The change was primarily driven by lower gross profit related to the divestiture of the light-duty business, partially offset by lower operating expenditures. Our net loss from continuing operations included some extraneous items. The net loss from continuing operations of $10.4 million for the quarter is compared to a net loss from continuing operations of $6 million for the same quarter last year. This was primarily the result of an increase in operating expenditures in research and development and SG&A, a decrease in profit of $0.2 million compared to the prior year and a negative impact from a swing in foreign exchange impact by $3 million. Further on this topic, for the 3 months ended September 30, 2025, we recognized foreign exchange losses of $1.3 million as compared to a foreign exchange gain of $1.7 million for the 3 months ended September 30, 2024. The loss recognized in the current period primarily relates to unrealized foreign exchange losses resulting from the translation of previous U.S. dollar-denominated debt in our Canadian legal entities. Additionally, this quarter, we incurred onetime costs of approximately $1 million for severance and restructuring. Looking ahead, we expect more cost reductions on a relative basis in the near future as we adjust to become a smaller organization after the divestiture of the light-duty segment. Looking at our specific business units, High-Pressure Control Systems -- High-Pressure Controls & Systems revenue for Q3 of 2025 was $1.6 million, a slight decrease over Q3 of 2024. As Dan mentioned, we are in the process of moving these production lines in the facility in Italy that was part of the divestiture of the light-duty business to sites in Canada and China. Prior to the move, our team worked to increase inventories to ensure our customers experience minimal impact from the move. Construction at these facilities is ongoing through the fourth quarter with the majority of the capital spending to be wrapped up by the end of this year. The facilities in China as well as our Canadian site are anticipated to be producing initial product late this year. Gross profit for this business was largely unchanged, increasing slightly as a percent of revenue was driven by the higher margin with respect to engineering services revenue. Moving on to Cespira. It generated $19.3 million in Q3 2025, up 19% from the same period last year, driven by higher volumes. Gross profit was negative $1.1 million for Q3 2025 as compared to negative $0.2 million in Q3 2024. Gross profit continues to be negative as Cespira needs higher volumes to achieve a positive margin on a per unit basis for its systems sold. Regarding liquidity, as of September 30, 2025, our cash and cash equivalents totaled $33.1 million with only the EDC term loan remaining and reflects a significant increase in cash from the sale of our light-duty business. Net cash used in operating activities from continuing operations was $4.5 million, a significant improvement over $11.7 million used in operations in the same quarter last year. The improvement is primarily a result of decreases in working capital partially offset by an increase in operating losses. Proceeds from the sale of the Light-Duty business drove improvements in net cash provided by investing activities of continuing operations. We recorded $14.5 million in Q3 2025 as compared to $9.4 million in Q3 2024. Capital contributions to the Cespira joint venture of $11 million were also made in the quarter. As a reminder, in Q4 2024, we received proceeds of $9.6 million from the sale of shares to Volvo related to the formation of the Cespira joint venture and on the sale of our investment in Weichai Westport Inc. Net cash used in financing activities of continuing operations was $1 million compared to $4.4 million in Q3 2024. Our outstanding debt currently sits at $3.9 million with a maturity date of September 2026. To date, in 2025, we have reduced our debt and have strengthened our balance sheet and helped to reduce the complexity of our corporate structure. Our business is focused on the right markets for us, and we are continually looking at ways to streamline our operations. With that, I will pass the call back to Dan. Daniel Sceli: Thank you, Elizabeth. As our CFO noted, our third quarter results reflect the continued execution of the transformation we began earlier this year, anchored by our commitment to sharpen Westport's focus, strengthen our financial foundation and position the company for growth. The successful completion of the Light-Duty segment divestiture marked an important milestone in simplifying our business and concentrating on our core heavy-duty and alternative fuel systems. Operationally, our third quarter performance highlights the early benefits of our disciplined approach. While revenue declined as an expected outcome to the Light-Duty divestiture, we achieved a stronger gross margin of 31% in Q3 2025 compared to 14% in Q3 2024, driven by higher margin engineering services revenue, and we demonstrated tighter cost management year-to-date versus the prior year. As noted by Elizabeth, adjusted EBITDA results were impacted by the Light-Duty divestiture, partly offset by decreased operating expenditures, providing a more efficient and focused underlying business. We also remain disciplined in strengthening our balance sheet, ending the quarter with $33.1 million in cash and less than $4 million in debt while keeping cost efficiency and operational agility at the forefront. This solid financial position enables us to execute our strategic priorities and engage more proactively with OEM and fleet partners who are increasingly seeking affordable, low-carbon solutions. The Cespira joint venture continues to play a central role in Westport's growth strategy during the quarter. Deliveries increased year-over-year, supported by aftermarket sales growth as supply chain constraints continue to ease. This progress reinforces our belief that Cespira provides a scalable, high-impact platform to accelerate the adoption of the HPDI systems in the key markets worldwide. We continue to make progress on Westport's strategic transformation. Westport is taking the necessary steps to execute on a new focused and integrated competitive strategy. The divestiture strengthened our balance sheet and provided liquidity to begin to fund our growth through new system and related market expansions, including North America and our recently announced CNG solution when combined with the on-engine HPDI fuel system. We are in the process of evolving a new, more focused Westport that we can support and drive into more sustainable transportation industry. We recognize that we're operating within an evolving macroeconomic environment, which is enabling us to capitalize on renewed market momentum, especially as it relates to the use of natural gas as a transport fuel in the North American market. CNG has gained acceptance as an alternative to diesel fuel for long-haul trucking in North America, driven by its affordability and abundant supply. Westport's innovative and proprietary CNG solution hope to set a new standard for high-efficiency performance while delivering superior economics. As I mentioned last quarter, Westport will be focused on the following key drivers. On-engine, Cespira is pursuing strategic market expansion via technological leadership in heavy-duty transportation and truck OEMs. Off-engine, high-pressure controls and systems complement the energy transition regardless of the powertrain and a variety of financial initiatives. Westport's goal for Cespira is to deliver demonstrated volume growth over the coming year, driven by expanding into new geographies and adding new OEM customers. Cespira is seeing success here, delivering revenue growth of almost 20% in the third quarter and recently adding a second OEM customer in the form of a customer truck trial with a leading OEM utilizing Cespira's-HPDI components. The trial will include several hundred sets of key components and is designed to assess the [Technical Difficulty] is also expected to form the basis upon which the OEM will decide whether to make a further investment toward commercializing the system. Regarding our High-Pressure Controls & Systems business, we are currently developing components that are critical to performance and reliability. As a reminder, we are selling into 3 primary markets: China, Europe and North America. Following the close of the Light-Duty transaction, we have focused on moving our manufacturing to Canada and China. Both facilities are in the final stages before start of production, and we anticipate both to be online at the end of the year. The global truck market continues to expand and is expected to reach 1.95 million units in 2025. The long-haul truck market has historically struggled to decarbonize. Fleets around the world are focused beyond just reducing emissions and now prioritizing the total cost of ownership, natural gas is affordable, infrastructure is ample, and RNG production is growing at a fast pace. We are ideally positioned for this. What sets Westport apart from our competitors is our ability. We have solutions that can meet growing demand, delivering a total cost of ownership that is compelling to customers. We are optimistic about the company's future as well as that of Cespira. We have strengthened our balance sheet through the sale of our light-duty business and made a strategic return to our roots by developing innovative new technology to transform the Heavy-Duty market. In addition to new growth opportunities, we are making difficult economic decisions to enhance future shareholder value through planned reductions of 60% in CapEx and 15% in SG&A in 2026. Regardless of the unknowns or uncertainties ahead, we are paving our own path in the transportation industry that we believe will truly make a difference. Thank you to everyone who joined the call today. Your continued support is important to us. We continue to move through 2025 with purpose to create value for our shareholders. Thank you again. Operator: [Operator Instructions] And our first question will come from the line of Eric Stine with Craig Hallum. Eric Stine: Just wondering, can we start on the new OEM development with Cespira. I mean, just if you could provide a little more detail there? I know that, that OEM needs to go through a number of steps to make the decision about moving towards the development agreement and then beyond that, a commercial agreement. But what are kind of the signposts that we should look for over -- whether it's over 2026 and beyond? And how do you kind of envision this playing out as Volvo obviously wants more OEMs than just their use of HPDI? Daniel Sceli: Yes, absolutely. And I'll just remind everybody listening that in this industry, the OEMs are very, very protective of their commercial strategies. And so we are completely unable to talk about the who and any specifics and that's not going to change, unfortunately. We'd love to be able to talk about it, but that's the business we're in. This is a typical development, not unlike what we went through with Volvo originally, trialing the technology on trucks. The development programs going forward, to be more [indiscernible] we're almost 10,000 trucks in 31 countries. But it is a development cycle that will follow their standard path in the industry. And -- so we think we're going to start to get some feedback from that OEM probably mid-'25. And we'll be talking about it at that point, I hope that we're in a position to communicate that we're moving to the next phase. Eric Stine: Got it. And yes, that's what I was getting at. Is this typical, but also because you've got Volvo in the market, is it something that potentially is shorter than what you've seen in the past? And it sounds like, yes. Okay. Maybe sticking with the joint venture, any -- I mean, any thoughts on additional OEMs? And again, I know that the nature of this business is you can't give details, names, et cetera, but just maybe what that pipeline looks like. And I also know that Volvo is looking at growth with their HPDI truck in other markets? I think you mentioned India, South America last quarter. So maybe an update on that as well. Daniel Sceli: Sure. Well, we continue we continue to talk to all the OEMs about HPDI through Cespira. And clearly, volume is the key to getting this business to the place where we all want it to be. We've got the interest of many OEMs. I think we're at a point where we don't have to prove the technology anymore. And simply, when does the timing fit for the OEM in terms of their specific markets and their business cases. So the technology is proven, the performance is proven and Volvo continues to expand its reach where they want these trucks. I did mention India and South America. Those are beachheads that are being opened up. And we expect continued volume increases, at least that's what we're hoping for. One of the big tickets will be in Europe, the legislative changes to the system. And biogas being credited for the emissions standards in Europe is a really big deal that we're hoping will come in the next year. Operator: One moment for our next question. And that will come from the line of Rob Brown with Lake Street Capital Markets. Robert Brown: On the Cespira joint venture, you made a capital contribution in the quarter. Does that sort of set you for a while? Or what's the capital needs over the next sort of 12 months there? Daniel Sceli: Yes. So I think we've talked about this a number of times over the last at least 18 months here. There was -- there's always been a 3-year build-out setting this business up to be completely stand-alone. So the joint venture was always structured to have about a 3-year build-in of capital contributions to get it set to stand-alone. And obviously, we're in year 2 of that now. So yes, there's additional capital will be needed next year. Robert Brown: Okay. I guess -- and then on the High-Pressure Controls business, when do you expect to have that fully -- the manufacturing fully moved out of Italy and under your operations? Daniel Sceli: Sure. Well, it's all out of Italy now completely. We're in the process now of installing the equipment in both our Cambridge site and our Chinese plant site [Changzhou] and expect to have both those facilities up and running by year-end. . Robert Brown: Okay. Great. And will you have a, I guess, lower revenue run rate during that period? Or do you have a stock that can carry through? Daniel Sceli: No, it will be a bit lower revenue. And I mean there is some stock, but there's -- it will be a bit lower revenue. And then I mean the underlying theme here is that we want further -- the Chinese market is the biggest market for hydrogen components today. And it was very important for us to manufacture it locally for a couple of reasons. One, geopolitically, it's just a lot easier to make it there and for that market than it is to ship it in from Europe. Two, cost, right? We can be a lot more competitive out of a Chinese plant. And then of course, the North American market is starting to turn on natural gases, as we've talked about. It's a pendulum swing that we're very excited about. And we want to be in a position to take advantage of that market from a Canadian site. Operator: Our next question will come from the line of Chris Dendrinos with RBC Capital Markets. Christopher Dendrinos: I wanted to ask on the CNG solution announcement here. I think it was last week at this point. What's the timing look like for potential deployment there? And does your partners, Cespira, need to, I guess, move trucks over to the United States? Or I guess, how does that sort of, I guess, time line look for potential development? Daniel Sceli: Yes, sure. The intention isn't for trucks to come from Europe to North America at all. We're developing a CNG solution that is what we call the off-engine side of the thing. The on-engine, the Cespira's HPDI on-engine stuff is fully developed and ready to go. And so what this CNG strategy in North America will do for Cespira is bring additional volume. What it does for Westport, the -- what we call the back of cab system, the storage system for CNG combined with our high-pressure controls and our AFS engine control system is -- it's a full package that can be deployed into North America. The initial steps are going to be demonstration fleets. We're going to have trucks built with the CNG systems that fleets are going to run and trial. And certainly, our anticipation is that they'll be screaming for commercialization. Once we're through the demonstrations and have it proven out, we'll be working with the OEM to build out a commercialization plan. Again, the on-engine side is fully developed with HPDI. It's just a matter now of certifying a back of cap and doing the EPA certification, which is just simply miles on trucks. Christopher Dendrinos: Got it. And then maybe just shifting gears a little bit to the engineering revenue that you all recognized in the quarter. I mean, is that sort of an ongoing, I guess, revenue stream? Or was this sort of a onetime, I guess, recognition this quarter? Daniel Sceli: Well, yes. So in our High-Pressure Controls business, we are paid for a lot of development work for the hydrogen systems from our OEM customers. And so that's an ongoing thing. And we'll be spending R&D money over the next 3 years and the customer pays for it at start of production. So we have a bit of a run here of cash out for R&D before we get the customers' payment to cover it. But it's an ongoing part of this business. These are very complex components that the customers, the OEMs look to us to develop the technology for them. Operator: I'm showing no further questions in the queue at this time. I would now like to turn the call back over to Mr. Dan Sceli for any closing remarks. Daniel Sceli: Thank you. Well, it's a pleasure always to share our story with our investors and the market. Thank you for your participation, and have a great day. Operator: This concludes today's program. Thank you all for participating. You may now disconnect.
Operator: Hello. Welcome to the ASUS Quarter 3 2025 Online Investor Conference. Today's conference will be held by ASUS Computer Co-CEO, Samsung Hu, S.Y. Hsu, alongside CFO, Nick Wu. The conference will be divided into 2 parts. In the first part, CFO, Nick Wu, will start by outlining our quarter 3 financial results. Next, our 2 co-CEOs will go over the operational strategies and business outlooks. For the second part, we will be conducting a Q&A session. You are welcome to raise any questions you might have in the panel on the left side of the web page. Questions will be collected and answered. Let us start with the presentation from CFO, Mr. Nick Wu. Nick Wu: Good afternoon, everyone. First, I'd like to apologize because due to internal meeting delays, we've also had to delay the beginning of our earnings call today. I'm deeply sorry for this delay. Let us quickly enter the presentation proper. Starting from Page 5 of the PowerPoint. For Page 5, it shows the consolidated income statement for ASUS. For brand revenue, ASUS reached TWD 189.9 billion, which is a 21% year-over-year growth. This is, in fact, all-time high for the ASUS brand revenue in a given single quarter. The growth behind this driver was mainly consisted of enterprise-related segments such as servers and commercial PCs. For operating income, it was around TWD 8.4 billion and net income reached TWD 10.5 billion, translating to a quarterly EPS of TWD 14.2. Gross margin for the brand came to 12.9% and operating margin was 4.4%. Compared with quarter 2, we saw that gross margin had improved meaningfully. This is thanks in large part to a more stable operational environment, both in terms of tariffs and exchange rates stabilizing by quarter 3. At the same time, we also saw that product shipments and sales performance either met or even slightly exceeded our internal target, which is why we have been able to achieve such impressive results for quarter 3. Turning to Slide 6. It summarizes our nonoperating income items. In quarter 3, our interest income came to TWD 600 million with investment gains at TWD 1.06 billion, FX gains at TWD 1.2 billion and dividend income, TWD 960 million. So altogether, the total nonoperating income was TWD 3.7 billion. Turning to Slide 7. This shows the balance sheet. The points to note here would be the cash and cash equivalents, which stood at roughly TWD 62 billion at the end of quarter 3. Now given the record high revenue we have achieved this quarter, as mentioned before, we have also had to increase our working capital in terms of inventory, receivables and payables to support these larger operating scale. As a result, we are now seeing that the inventory turnover is now averaging at 98 days, and the cash conversion cycle would be around 102 days, both remaining stable compared to the previous quarter. Turning to Slide 8. We have the revenue mix. By business segment, we see that the Systems business unit accounted for 53% Open Platform, 45%; and IoT, 2%. In terms of breakdown by region, Asia accounted for 46%; Europe, 32%; and the Americas, 22%. Now turning to Slide 9, which covers our outlook for quarter 4 2025. Now it is important to point out that historically, quarter 4 is typically considered a flatter season. This is partly because our main product lines such as motherboards and graphics cards and our leading markets in Asia Pacific, they typically see that shipment will peak in quarter 3 and then flatten afterwards, which is to say that quarter 4 is typically a slower period compared to previous quarters. In addition, since quarter 2, we have seen factors such as tariffs and macroeconomic uncertainty leading to demand distortions. This has included early pull-ins as well as front-loaded spending, which may have weighed on the potential for quarter 4 in terms of consumer sentiment. From a product life cycle perspective, our core gaming product lines entered its new cycle in the first half of 2025, which is to say that at the same time, the AI PC life cycle is also likely to begin in the first half of 2026, resulting in quarter 4 becoming a sort of transitional phase between our 2 main product lines and their product life cycles. Considering these factors, we expect that quarter 4 PC shipments to decline 10% to 15% quarter-over-quarter, but remain roughly flat year-on-year. For components and servers, shipments may fall 5% to 10% quarter-on-quarter, but grow 40% to 50% year-on-year. Overall, ASUS expects to maintain strong annual growth momentum in quarter 4 as we continue to implement strategic and product initiatives to support continued growth going forward. And looking ahead, we expect that we will be able to capture growth opportunities from upcoming cycles in AI PCs, in the gaming market, in the commercial segment and servers. And so for the following product life cycles, we expect that we will be able to achieve further growth. This concludes our financial presentation. Now I'll hand it over to our co-CEOs to share ASUS' business outlook and strategic direction going forward. Thank you. Hsien-Yuen Hsu: Good afternoon, everyone, friends from the institutional investment community and the media. Thank you for joining the ASUS Quarter 3 2025 Earnings Call. I'm Co-CEO, S.Y. Hsu, and I will be sharing our strategies and outlook for the future. Now we saw that quarter 3 was a volatile market with many external headwinds. Nonetheless, our team's dedication and hard work was able to deliver another strong performance. In quarter 3 2025, ASUS brand revenue reached TWD 189.9 billion, which is up 21% year-over-year and a record high for a single quarter. I'd like to once again thank all our colleagues for their efforts and our customers for their continued trust and support. Looking ahead, ASUS' growth will be anchored by 3 pillars: the gaming market, the consumer market and the enterprise market, which, of course, includes the very fast-growing AI server business. As can be seen on this slide, the gaming market accounts for roughly 41% of our business for the consumer market, 29% and the enterprise market, 30%. We believe that this balanced mix supports both short-term growth and long-term diversification. We also see that all 3 segments delivered strong year-over-year growth with the enterprise business doubling from last year and gaming also posting positive annual growth. This gives us strong confidence in achieving full year revenue growth in 2025. It is also worth mentioning that while each product line is managed by a different business unit, these 3 pillars work synergistically to help ASUS strengthen its brand positioning while expanding our market share. Among them, gaming remains our most important business segment, enhancing our brand reputation and also yielding higher profitability on average, while the consumer market focuses on maintaining healthy margins while broadening overall market coverage. As for the enterprise segment, it is our fastest-growing segment and has been the key focus for our investments in recent years, driven by solid execution and robust demand for AI servers and edge computing solutions. We will continue to drive growth through innovation and customer commitments. In summary, ASUS will remain user-centric, leveraging our excellence in products, services and integrated solutions to deepen our presence in gaming, consumer and enterprise markets. We strive to be a trusted global technology partner that consistently creates value for customers, partners and shareholders. Next, let's talk about our AI product strategy. Our current strategy is ubiquitous AI incredible possibilities. ASUS is committed to building high-performance and reliable AI solutions in the ecosystem that supports industries rapidly adopt AI. We provide a full stack AI offering from cloud infrastructure to edge devices to end user applications allowing us to deliver on flexibility, speed, cost efficiency and resource integration, ensuring customers achieve maximum benefit across all possible use cases. Our AI lineup also span from large-scale AI servers to personal Copilot+ PCs and IoT edge devices, covering applications across creative workspaces, healthcare, industrial automation and everyday AI scenarios. I believe that this reflects on our determination to help enterprises and consumers deploy AI technologies quickly and effectively. Through our solid AI expertise and our broad product portfolio that bridges cloud, edge, software and physical AI, we believe we are building a complete AI ecosystem. And speaking of physical AI, it has been a hot topic in recent years. Now we are going to put forth the idea that the rapid advances in AI will drive significant growth in AI-empowered physical devices in the coming years. And ASUS was among the first companies to identify this trend early and began investing. For example, back in 2016, we launched the Zenbo Home Robot. And later in 2024, we announced our collaboration with Meta on developing smart glasses. Nonetheless, commercialization of these AI products will take time, and we will begin to share more details and updates in future sessions once we believe they are ready to be announced. Next slide. Here, we share a real-world example of how ASUS has applied AI internally and the tangible results it has produced. On our official e-commerce website, we launched a 24/7 AI-powered assistant. This AI assistant provides instant intelligence support and embodies our user-first philosophy. We believe that this will help enhance customer engagement while reducing overall operational costs and improving sales conversion. And since the implementation of this assistant, we have seen measurable outcomes such as increased personalized interactions. We have seen a sevenfold increase in product recommendation effectiveness and an 11-fold rise in order conversion. At the same time, automation reduced service and maintenance costs dramatically. Customer service cost per case dropped by 95% compared to human support. And overall, we're also seeing that page views have also increased sevenfold and user engagement time has risen eightfold. And so we will continue to expand this AI assistant to additional regional sites over the coming quarters to deliver even better service worldwide. Next slide. As the leader in gaming ecosystems and the world's #1 gaming brand, ASUS ROG continues to refine its products and cultivate a vibrant gaming community. Recently, ASUS partnered with Xbox to bring the console gaming experience seamlessly into the Windows handheld category, launching the ROG Xbox Ally. The product was named one of Time Magazine's best inventions of 2025 and has been widely praised by media outlets. Based on feedback from early and first-gen Ally users, we increased battery capacity, refined the form factor, enhanced cooling and revamped the user interface in collaboration with Xbox to bring the handheld experience closer to that of a dedicated console. The new model's powerful performance and smooth experience have earned rave reviews from consumers, medias and KOLs, achieving strong sales and further solidifying ROG's leadership in the premium gaming ecosystem. Beyond new products, we have deepened community engagement globally. At Gamescom in Cologne, we showcased the latest innovations and hosted on-site activities celebrating both handheld gaming and the 30th anniversary of ROG graphics cards. We saw that fans were thrilled by the creative exhibits and interactive experiences, both off-line and online, reinforcing ROG's player-first philosophy and our spirit of innovation. Throughout Gamescom, ROG has successfully reignited global excitement, strengthened emotional ties with gamers and highlighted our leadership in gaming innovation. Next slide. This year marks the 30th anniversary of ASUS' graphics card business. Since launching our first card in 1996, we have continually led advancements in GPU technology, selling over 130 million units worldwide, enough to circle the earth once. Each card embraces ASUS' passion for innovation and commitment to gamers around the globe. And to celebrate this feat, we have unveiled the ROG matrix GeForce RTX 1590 30th anniversary Limited edition at Gamescom in Cologne. The card features a record-breaking 2,730 megahertz boost clock. It showcases our engineering prowess and our deep collaboration with NVIDIA. Media and enthusiasts alike praised its design and performance. John Miller, NVIDIA's Global Head of GeForce Sales, joined us at Gamescom to commemorate our 30-year partnership, a relationship built on co-developing high-end GPUs, joint marketing and collaborative design and community efforts that strengthen both brands. We believe that this is the secret to our long-term success. We have co-developed these GPUs. We have developed joint marketing efforts, and that has allowed us to create integrated cooling solutions and host joint marketing events to help promote the brand and the card together. Some of the pictures you see on the slide capture our efforts effectively. And that concludes my presentation on the graphics cards business milestone. Now I'll hand it over to Samson for more details. Samson Hu: Okay. Thank you. Hello, everyone, and greetings to everyone. I am Co-CEO, Samson Hu, and I will be sharing key strategic directions for ASUS and the highlights of our quarter 3 performance. Let us begin with our core growth strategies. First, ASUS continues to maintain a strong leadership position in the consumer market. Both our consumer PCs and motherboards remain key contributors to the company's stable revenue and profitability. Second, in the gaming segment, we continue to dominate the market as the world's #1 gaming brand. Through our comprehensive product portfolio, continuous innovation and immersive user experiences alongside active community engagement, we have been able to further solidify our leadership position in the global gaming ecosystem. And as Co-CEO, Hsu mentioned earlier, we are aggressively expanding our enterprise business, including servers and commercial PCs, providing end-to-end integrated solutions that cover everything from commercial PCs to cloud-based AI servers and on-prem AI workstations supported by both hardware and software platforms. We are confident that this will become a major new growth engine for the company. Through these 3 pillars, we will enable ASUS to sustain steady growth and profitability while capturing the structural opportunities brought about by the AI era. Next slide. So now let us review the performance of each business group and our key strategic initiatives. Starting with the Systems business group we see that their performance in quarter 3 was quite solid. In the consumer PC segment, growth momentum came from rapid adoption of Copilot+ PCs, which saw over 80% quarter-on-quarter revenue growth. Copilot+ PCs now also account for over 25% of the non-gaming consumer notebook revenue. And this clearly underscores the leadership position and momentum that ASUS has been able to achieve in this emerging category. In gaming PCs, ASUS now holds over 30% market share in the high-end segment, maintaining our dominant position. Turning to commercial PCs. We continue to strengthen our product offerings and technology innovations while expanding our enterprise channel footprint. Shipments in quarter 3 grew more than 50% year-on-year, setting the stage for commercial computing and to become another key growth driver for ASUS in the coming years. Overall, we will continue to leverage our innovative products, complete solutions and our powerful brand image to keep advancing our leadership in the consumer, gaming and commercial market. Next slide. The open platform business group also delivered impressive results in quarter 3 with revenue up 50% to 60% quarter-on-quarter. Growth was driven primarily by the server and motherboard and graphics card businesses. Server revenue, in particular, more than doubled quarter-on-quarter, reflecting exceptional performances. ASUS was also among the first to launch the B300 and GB300 AI servers, showcasing our superior design capability and fast execution in early adoption. We also secured major orders from several global CSPs, significantly expanding our presence and competitiveness in the server market space. In the motherboards and graphics cards market, we continue to maintain our #1 global market share position. Graphics card revenue rose over 30% quarter-on-quarter with the RTX 50 series now making up over 80% of our product mix, driving market upgrades and delivering unparalleled gaming performance for gamers around the globe. Next, our monitor business also saw more than 20% quarter-on-quarter in terms of revenue growth. This was led by strong demand for high-end OLED gaming monitors, while we saw that shipments for this high-end market doubling. And this reinforces ASUS' leadership in both premium display and gaming markets. And additionally, gaming accessories, which is an integral part of the ROG ecosystem, achieved 20% quarter-on-quarter growth, demonstrating robust demand from our player community and the strength of the overall brand ecosystem. Next slide. Moving to the AIoT business group. Revenue grew 10% to 15% in quarter 3. And a key highlight for this group was the launch of the Ascent GX10 compact AI supercomputer, delivering petaFLOP level performances and marking ASUS' leadership in hybrid AI computer. As one of the first OEM partners to roll out NVIDIAs DGX Spark system, the GX10 provides a powerful and cost-effective local AI development and testing platform for customers requiring high-performance, low-latency on-prem solutions. And this product really embodies the vision that ASUS has of AI everywhere. And this really showcases our leading position. And also, I would like to point out that at the Taipei Automation Exhibition this year, ASUS IoT showcased its end-to-end AI hardware and software integration under the theme "AI Everywhere: Empowering Industries." We co-exhibited with 9 global partners, including close collaboration with Japan's industrial robotics leader, Epson. We also highlighted solutions for smart retail and smart cities, achieving dozens of tangible partnerships and commercial opportunities, proving ASUS' successful real-world AI ecosystem deployment. Last slide. Finally, I would like to share that ASUS has received multiple international recognitions for corporate excellence in quarter 3. For example, we were named one of Time Magazine's World Best Companies, one of Newsweek's most Trustworthy Companies and one of Forbes Best Employers recognition. And I believe that these honors reflect ASUS' strong brand reputation. Our continued innovation and people-first corporate culture affirms that our standing in the global market and among consumers worldwide is without question. Thank you. Operator: Thank you to our 2 co-CEOs and CFO. We will now open the floor for Q&A. [Operator Instructions] The first question comes from KGI Asia. Unknown Analyst: Given the recent surge in memory and solid-state drive prices, how is the company managing its inventory levels? And what impact might this have on gross margins? Also, will these cost increments be passed on to the consumers? Unknown Executive: Okay. I think this is a highly pointant issue in the entire PC industry right now. Fundamentally, it stems from a demand-supply imbalance. On the demand side, as many of you might know, the need for DRAM capacity in servers, particularly AI servers has risen sharply. And on the supply side, the major DRAM suppliers have not significantly expanded their production capacity over the past few years, and that's what's driving the current situation. And we began noticing this trend early in the year, including the tightening of DRAM supply and the upward price trajectory. And as a result, we started lengthening our component inventory cycle well in advance. In fact, by the end of, I believe, the third quarter, we had roughly 2 months of component inventory and close to 2 months of finished goods inventory and distributed among the retail channels. So around 4 months in total. And so this level of preparation means that the short-term impact, especially on quarter 4 operations should be quite limited. But we will continue to maintain close coordination with DRAM and NAND suppliers, and we'll continue to respond flexibly, including by further increasing inventory if needed. As for channel pricing, we will take into account the increased costs the situation of our retail channel partners and the end user demand. We will adjust both our product mix and, where appropriate, product pricing, if needed. But of course, this will all be a dynamic and highly flexible process. Operator: Thank you. And the next question comes from Morgan Stanley and several other institutional investors. Unknown Analyst: Could you share the proportion of AI server revenue in the third quarter and whether shipments of GB200 or GB300 are proceeding as planned. Unknown Executive: Okay. Let me address that. For those of you who have joined our previous earnings call, you may recall our earlier projections for AI servers, which was around 10% to 15% of our total revenue. However, given how strong the entire AI server market has spooned and how that demand has been very consistent, you can see that our AI server revenue in quarter 3 grew by over 100% year-on-year. And so as of now, AI servers actually account for close to 20% of ASUS' total revenue. And of that, over 80% is directly related to AI server products. But Again, we are still seeing that the GB300 and B300 shipments that many of you are concerned about is part -- is in a situation -- we're in a situation where we are among the first wave of suppliers. And so shipments to our customers already began in September. And so far, everything has gone quite smoothly. So looking ahead, we have set an aggressive internal target for continued growth in this area. Our base in the AI service market is still relatively small. So we see plenty of room for rapid expansion, and we'll continue to strengthen our presence in the market going forward. The next question also is from Morgan Stanley. Could you share the expected revenue contribution from the newly launched ROG Ally this quarter as well as your shipments and revenue outlook for this product line throughout 2026. I'll take this one. As many of you know, we introduced the first-generation ROG Ally 2 to 3 years ago as a market pioneer. And over the past couple of years, this new category, especially within the Windows ecosystem and creating this particular new category has proven itself to be highly successful. We believe that we have achieved our original goals in terms of premium positioning and creating a new growth driver in the gaming segment. And that's why we launched the third-generation ROG Ally last month. It featured deeper collaboration with Xbox. And so since its launch, we see that the market response for it has been extremely positive. And particularly, there has been an appetite for the premium higher-end models exceeding our expectations. In fact, these high-end variants are currently in short supply, and we are working closely with key component suppliers to ramp up production and fill the demand gap that currently exists. So our goal for the ROG Ally to remain a core pillar within the ASUS gaming portfolio while also driving tangible revenue and profit growth for the company. For this quarter, currently, we are expecting the sales contribution of the Ally to come in at around TWD 3 billion to TWD 5 billion. And given the strong demand for the high-end models, we are confident that quarterly revenue could move toward the TWD 4 billion to TWD 5 billion range going forward. Operator: Okay. The next question comes from JPMorgan. Unknown Analyst: Could we have the CEO share his outlook for the PC market in 2026 as well as ASUS' expectations for AI PC segments next year? Since AI PCs have been positioned as a key strategic focus for ASUS, could you also elaborate on your strategy and execution plans in this area? Unknown Executive: Okay. Well, in terms of the overall PC market, we expect that the total market volume in 2026 will be more or less flat if perhaps we think plus or minus 2% to 3%. And as for the question directed towards AI PCs, I think it's worth mentioning that there are actually a few predictions that we're making because right now, we have 2 different definitions under Microsoft stricter Copilot+ PC definition, it requires that the device has an MPU capable of 40 tops or more. And we estimate that such systems will account for about 8% to 10% of total shipments this year and should exceed 20% next year. But under a broader definition from Intel, where any PC equipped with an MPU qualifies as an AI PCs, then under that broader definition, the ratio is higher, close to 30% already this year and expect it to reach 50% to 60% next year. And initially, many in the market actually expected that AI PCs will be likely to trigger a major growth wave for the PC industry. But right now, we're seeing that adoption of AI-driven applications on PCs has been slower than anticipated. So the growth trajectory is on the moderate side of things, though it's worth mentioning that moving from 30% to 50% in a single year is still a healthy pace. For ASUS, AI PCs remain a top strategic priority. And based on cumulative data from quarter 1 to quarter 3 this year, ASUS holds over 25% share of the global AI PC market, meaning that we currently rank #1 in this segment. And having said that, -- we believe that the key to enabling AI PCs going forward is not just about hardware. The real differentiator and value add is in the software, how AI-empowered applications can deliver a fundamentally different user experience. That's why -- that's what's going to ultimately push the market forward. And it's certainly not something that ASUS can do alone, which is why we are working closely with upstream and downstream software partners and in some cases, bundling quality AI software within our systems. And -- so that's really what we're hoping to achieve. We're hoping that our in-house developed AI applications for AI PC lineups can further enhance the usability and appeal of the AI PCs and accelerate the growth of the overall AI PC market. Operator: The next question comes from East Spring. Unknown Analyst: Could you share the company's view on tariffs and their impact on profitability as well as your outlook for operating margin going forward? Unknown Executive: Okay. I'm going to take that question. In the third quarter, we have not only just achieved a record high in brand revenue, we've also made 2 improvements in what we view as strategically -- structurally positive changes in the long term. First, in terms of business mix, aside from our already strong consumer and gaming segments, we have successfully built up a third pillar in the enterprise market. This makes our overall business structure more balanced and resilient over time. And second, supported by our record high operating scale in quarter 3, our operating margin has already returned ahead of schedule to our target range of 4% to 5%, and we are very pleased to see this achievement achieved this early. As for the impact from tariffs, we see that most electronic products are still covered under the existing exemption rules. So the impact of U.S. import tariffs has so far been quite limited. We are continuing to monitor developments surrounding the Section 232 semiconductor tariffs to see how future decisions and enforcement may unfold. Having said that, given the current political and economic climate and with ongoing efforts from Taiwan's industry and government, we are cautiously optimistic that tariff pressure on Taiwanese companies should remain manageable in the grand scheme of things. And once short-term factors such as tariffs and currency fluctuations are absorbed, we expect ASUS to maintain a sustainable operating margin in the 4% to 5% range over the long term. Of course, this may naturally fluctuate within a reasonable band depending on product and market cycles. But on a multiyear basis, say, over 1- to 10-year time scale, we aim to consistently deliver an annual operating margin in the 4% to 5% range, which we consider to be reasonable. Operator: Okay. Now we have a question from TransGlobe Life Insurance. Unknown Analyst: The company just shared its shipment outlook for quarter 4. But if we look specifically at graphics cards and motherboards, what is the quarter-on-quarter target for that segment? Unknown Executive: Okay. Let me clarify that. In our earlier presentation, we discussed graphics cards together with AI server products, which may have caused some confusion since AI servers were growing much faster. So looking purely at stand-alone graphics cards, which seems to be what the question was about, we expect that quarter 4 shipments would be roughly flat quarter-on-quarter. And given the current market environment, we view that as a solid performance. Operator: The next question comes from TFB. Unknown Analyst: For ASUS's server products, which countries are your main shipment destinations? Are your clients mainly Tier 2 global CSPs? Also, do you have plans for additional investments or capacity expansion in the U.S. by 2026? Unknown Executive: Okay. I'll take that one. historically, most of our server customers have been second-tier CSPs or NCPs based in Southeast Asia. And this year, our strong server growth came from new orders from Tier 1 CSPs in Europe and the United States. Those orders are larger in scale, which explains the over 100% growth we achieved. As for U.S. production, that's definitely something that we are going to plan in response to policy requirements under the Trump administration. That is definitely for U.S. customers. Now we will be manufacturing servers locally in the U.S., but whether we will expand that capacity will depend on order volume. If customer demand continues to rise, we will adjust accordingly. But for now, it's too early to provide a definitive answer here and now. Unknown Executive: Now we have a question about GPUs. As with each new GPU generation, what's the market share that ASUS has achieved in the new RTX 50 Series graphics card? Unknown Executive: Okay. And as mentioned previously, ASUS works very closely with NVIDIA and that relationship has lasted for a very long amount of time, particularly for new product launches. That's something that ASUS takes very seriously and invest a lot of resource into in order to differentiate ourselves from other partners, which is why our market share has been shrunk following launches for each new GPU generation. For the newly released 50 Series graphics card, our latest market data shows ASUS holding over 30% share, maintaining our #1 position globally. This is also why our year-on-year graphics card revenue growth in quarter 3 exceeded 30%. Okay. The next question asks whether ASUS is seeing demand for AI inference servers on the enterprise side and what the shipment outlook and competitive strategy are for the new GX10 product mentioned earlier. And as we shared previously, the GX10 is a very high price to performance supercomputer with petaFLOP levels of computing power. For example, as many of you know, we are currently offering a configuration with 1 terabyte of memory priced at under USD 3,000. I think overall, this positions the GX10 as an exceptionally cost-effective system. Based on our current order visibility, most demand comes from organizations developing AI workloads locally. And so that would include entities like new start-ups, research labs at major tech companies, academic AI institutions as well as smart manufacturing vendors. So it's fair to say that the customer base for the unit is very diverse and quite broad. Given the current order momentum, we believe that annual shipments could reach several tens of thousands of units next year, anywhere from around 30,000 to 40,000 -- the number can really range. It may be as high up to 80,000 to 90,000 systems year-wide depending on market conditions. So that's our current preliminary outlook. Operator: Thank you. The next question comes from Nanshan Life Insurance and several other institutional investors. Unknown Analyst: You mentioned that graphics card shipments and motherboards for quarter 4 are expected to be roughly flat quarter-on-quarter, which implies that server shipments may decline sequentially. Could you explain the reasoning behind that and share your preliminary visibility or targets for the AI server shipments in 2026? Unknown Executive: I think it's fair to say that's very good and very detailed observation. Thank you. So right now, server sales are largely business to business. And every enterprise customer has its own deployment time line for an AI server center because building AI server infrastructure is complicated. It involves not just the installation of the server, but also data center readiness, power capacity and cooling systems. So our shipment schedule would vary depending heavily on whether each customer's environment is ready for delivery or not. As for 2026, the AI server market remains extremely strong. In fact, with the recent DRAM and memory shortages in the second half of this year, all of that is linked in part to the aggressive investment for AI servers from CSPs. The surge in high-bandwidth memory demand has taken up significant share of DRAM manufacturers production capacity, leading to tighter PC DRAM supply. And so with that in mind, we have set an aggressive internal growth target for AI servers in 2026, and we will continue to drive expansion in this segment. And given the company's current capabilities and track record historically, we are confident that we can deliver a strong performance in 2026. Operator: Thank you. After reviewing all the questions, it seems that we have covered most of the topics everyone is interested in. Since we are out of time, we will now conclude today's earnings call. Let us invite our 2 co-CEOs to share a few closing remarks. Unknown Executive: Okay. I think it's fair to say that this year has been a very turbulent year. Early on, there were tariff announcements from the Trump administration, followed by significant currency fluctuations in the second quarter. As a result, our various business units have all been operating under significant pressure. Fortunately, we delivered very strong results in the third quarter. In the past, ASUS was often viewed primarily as a consumer-focused company. However, over the past 2 years, we have made meaningful adjustments to the company. And you can now see that in quarter 3, our commercial business has grown significantly as a share of total revenue. And at the same time, AI servers remain one of our key focus areas, and we will continue to allocate more resources aggressively to both segments to sustain our momentum and live up to expectations from our shareholders. Okay. And thank you to our media friends and partners for joining us today and for your continued attention, feedback and support. Unknown Executive: As mentioned earlier, the impact of tariffs and exchange rate fluctuations on our operations has now been largely mitigated and brought under control. As we noted in previous briefings, ASUS has 2 major growth pillars in gaming and AI-related products, such as AI PCs and AI servers. As today's results show, we achieved outstanding performance in the third quarter, and we are confident that this momentum will carry over to the next year. For our commercial business line, it is something that we have been building for several years and also began showing strong results this year. And so this will remain another major growth driver for the company in the coming years. Looking ahead to 2026, as our CFO mentioned, we will be closely monitoring remaining tariff developments particularly the Section 232 semiconductor clause and the supply situation for key PC components, which may introduce some uncertainty. We will stay agile and resilient in responding to these changes while leveraging innovation and product leadership to expand our share in both consumer and AI gaming segments. Lastly, as a preview, at the upcoming CES early in January, ASUS will be unveiling a new lineup of products that will add fresh momentum to our 2026 growth. Thank you all once again for your participation and support today. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Operator: Ladies and gentlemen, welcome to the TAG Immobilien Publication of Interim Statement Q3 2025 Conference Call. I am George, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Mr. Martin Thiel, CFO. Please go ahead, sir. Martin Thiel: Yes. Many thanks, and good morning all, and a very warm welcome from our side. Many thanks for dialing in for our Q3 results. As always, let's start on Page #3 of the presentation, which shows a comprehensive overview about our results in the first 9 months and also gives a first outlook on the guidance for 2026. Let's start with the operational development first in the first 9 months of 2025. FFO I in the first 9 months of 2025 came in at roughly EUR 136 million compared to the previous year, that's a 4% increase. And that's important to point out that this increase was mainly driven by a higher EBITDA contribution from our rental business in Germany and in Poland, which increased by 6% year-on-year. Looking at the sales result in Poland, we had a result that was more or less on the previous year level, so a little bit reduced EUR 34 million was the sales result compared to EUR 38 million in the previous year. But as already stated in the previous conference calls, we expect that in the fourth quarter of this year, we will have a large number of apartments handed over. And as you know, as the result is realized when we hand over the apartments, we expect a quite strong increase in the fourth quarter 2025 for the sales result in Poland. But very positive, the development in the sales number. You see this on the right side, we sold in the first 9 months, 1,973 units in Poland that compares to 1,435 units in the 9-month period in the previous year and especially the third quarter was a very strong one. I will come back to this a little bit later. Looking at the LTV development, it's quite strongly down at 42.3%, also driven by a capital increase that we conducted in August 2025 already to partially finance the Resi4Rent acquisition, we issued 7% of the share capital, total net gross proceeds at EUR 186 million, but also the operational development was quite helpful in reducing the LTV. Of course, fair to look at a kind of pro forma LTV post the closing of the R4R acquisition. This pro forma LTV would stand at 46.1%, so even after the acquisition, the LTV is down compared to the beginning of the year and already very close to our LTV target of 45%. So in a normal course of business, we would expect that we quite quickly, perhaps in the first 1 or 2 quarters of 2026, already at the LTV target of 45%. Looking at the guidance, firstly, for 2025, we increased the FFO I guidance to EUR 174 million to EUR 179 million. If you look at the result that we have achieved in the first 9 months, that should be all on a good way. As always, we expect in the fourth quarter of a year, a little bit more maintenance in the German business, so therefore, perhaps the Q4 result in FFO I is a little bit weaker than in previous quarters or will be a little bit weaker, but clearly better results than expected in 2025 for the total year on a per share basis, taking into account the higher share count after the capital increase, FFO I guidance is then more or less unchanged. For 2026, we expect a quite strong increase. So the guidance range for 2026 is between EUR 187 million and EUR 197 million. It assumes a closing of the R4R portfolio at the beginning of the second quarter or at the end of the first quarter. I will come back to this a little bit later in more detail. So this is a quite strong growth that we predict in the FFO I, 9% in absolute amounts, 4% on a per share basis. Even stronger is the growth that we expect in the FFO II guidance. So firstly, we also increased a little bit the FFO II guidance for 2025 following the increased guidance in FFO I. But if you look at the results that we predict for the Polish sales business in 2026, where we expect nearly 50% growth, you see that the increase in FFO II that we expect for 2026 will be quite material. So the new guidance stands between EUR 279 million to EUR 295 million. That's an increase of 19% in absolute terms and still on a per share basis of 14%. As we already announced, we want to increase the payout ratio for our dividend for the first time for a dividend paid for the financial year 2026. So this is a dividend that is paid out then at the beginning of 2027. And the new payout ratio is set at 50% of FFO I compared to 40% of FFO I for the guidance for this year. And this translates into a quite strong growth in the dividend of nearly 30%. On Page 4, you'll find more details on the financial performance and the German portfolio. I don't want to discuss with you every figure, but perhaps interesting at the bottom of the page that we have begun also to acquire in Germany again. So yes, it's still a quite small number. So 367 units acquired until end of October 2025, but perhaps there's more to come in the next week. So we are finding opportunities, yes, on small sizes on one side. But if I look at the average acquisition multiple or a gross yield that we achieved around 10%, so these are really high-yielding assets, quite attractive portfolios, still vacancy rate in these portfolios, locations that we know very well in Eastern Germany. So we're happy that we acquired also some units in Germany. And yes, of course, we have to invest into these properties, but not massively. So therefore, we see opportunities in the German market as well, although clearly, as already mentioned in the previous calls, the main capital allocation is currently happening in Poland. Let's jump to Page #7 of the presentation, where you'll find more details on the FFO I development. I think I already mentioned the main highlights of increase by 4% year-on-year. Just as an explanation, if you look at the table, you'll find also one-offs that we eliminate. In this case, we're eliminating gains, in a negative number is EUR 1.9 million. So just as a background, you find also more details in the interim report. We’re eliminating subsidies that we received for modernization work. So therefore, we have, for the first time since longer ago also already one-offs that we eliminated here. Let's go to Page #8. Page #8 shows you the development of FFO II, which is based on FFO I plus the Polish sales business. As said, the third quarter was already a good one. So the adjusted net income from sales in Poland came in at EUR 17.6 million compared to EUR 11.6 million in the second quarter. And I think the first quarter was even lower. But once again, we expect now for the fourth quarter as a result of high handovers, a quite strong result. So therefore, we are very confident that we achieve our full year guidance for the sales result in Poland. Page #9 shows development of the EPRA [NTA/NAV] also on a per share basis. We still had a growth in the third quarter despite the capital increase conducted obviously below the NTA, but this impact was not meaningful. You see this on the chart. So the dilution effect on a per share basis was EUR 0.35, that means the net profit that we achieved during the first 9 months was far higher than this smaller dilution effect. You see that we had in the first half a positive impact on the NTA per share from the portfolio revaluation of EUR 0.69. If you remember the numbers, we had in Germany a value increase of 1.4% in the first half of 2025. If you ask us what is the expected valuation result for a second half 2025, I mean, obviously, as of today, we have not a precise number, but we expect that the value uplift in our German portfolio should be very similar to what we have seen in the first half. So something around 1.4% like in the first half of 2025 is that's a good estimate. And that's, yes, of course, on one side, still a small value increase, but important that we are now seeing the third valuation in a row in Germany where values are growing again. And that's, of course, helpful not only for the NTA, but should also support the LTV development at year-end 2025. Then I'm on Page #11 of the presentation that shows the maturity profile. And what I wanted to explain here is our quite strong cash position that we had at the end of the third quarter. So in total, the group had available nonrestricted cash of EUR 1.35 billion, which is, of course, for us, quite exceptional high. But out of this EUR 1.35 billion, roughly EUR 565 million is then designated for the purchase price payment of the Resi4Rent portfolio, which is still outstanding. And we have a larger maturity next year, which is the EUR 470 million convertible bonds maturing in August 2026. So we have the cash already in the balance sheet, and we will use part of our cash position to repay these convertible bonds. So a kind of normalized cash position after payment of the purchase price for the Resi4Rent portfolio and after the repayment of the convertibles is around EUR 300 million, EUR 350 million. And that's still a good cash position, but it's good to have it because we still want to grow and want to continue to grow, especially in the Polish rental portfolio and the cash will be, of course, the basis for this. Let's come to the German business, and I'm now on Page 13 of the presentation. Quite good development that kicked in, in vacancy reduction. So as always, in the first quarter of the year, we had a slight increase in vacancy, so we started the year at around 3.9%. Now here, we present also the vacancy rate from October, which is already down to 3.6%. And when we look in our business in the last days and weeks, how this develops, we clearly expect further vacancy reduction until year-end. So therefore, the German portfolio, which should perhaps not be a surprise, is still performing very well. Looking at the like-for-like rental growth in Germany, that was a little bit reduced compared to the previous year in the first 9 months. So 2.3% in the basis like-for-like rental growth and 2.6% in the like-for-like rental growth, including vacancy reduction. But as I said, firstly, we expect a stronger impact from vacancy reduction in the fourth quarter. And secondly, regarding the basis like-for-like rental growth, it's not a trend that this is going down in the future. So therefore, we should also see here an improvement in the fourth quarter of 2025. There's simply also kind of seasonality in there depending on certain rent increase you do in a quarter or do not in a quarter. It's clearly on an increasing path and the guidance for 2026, which I explained a little bit later, will also confirm this. Let's look at the Polish business, and I'm now on Page 15 of the presentation that summarizes the Resi4Rent acquisition. I mean, we have presented this back in August when we signed the contract, but perhaps some [indiscernible] that are necessary regarding the closing. As you perhaps know, with the press release after the signing in mid-August, we announced that we expect the closing to happen at the end of the third quarter or in the course of the fourth quarter 2025. And basically, there's just one main condition for the closing, which is the approval by the Polish antitrust authority. We have to accept that the Polish antitrust authority extended the process for looking at this project, this is something where we have not really a chance to accelerate this. So that's still all on a good way, so we expect the approval to happen, we expect the closing to happen. But as it is the first transaction of this kind in the Polish rental market, so there has not been an acquisition of this size before as it is basically the first time that the Polish antitrust authority needs to look at such an acquisition and at such a market, the Polish antitrust authority told us that they now want to conduct their own market research. So that means they will reach out to other landlords, they will do some investigations around customer behavior, and that should take some time. So therefore, as a base case, at the end of the first quarter 2026, beginning of the second quarter 2026, the approval and the closing of this transaction should happen. Let's look at Page #16. So after the acquisition closes of the Resi4Rent portfolio, we are almost at our strategic target that we announced some time ago. So close to 10,000 units will be the rental portfolio size at the end of 2026, but that does not mean that we are stopping now the growth in our Polish rental business. So we already have units under construction, and we want to start additional construction of around 2,300 units in the course of next year, so in the course of financial year 2026. And as construction takes roughly 2 years, we will finish them in the course of 2028. So that means we will continue to grow in the Polish rental sector even behind the acquisition of the Resi4Rent portfolio because we simply see the market is attractive. We have a great team and a good platform there. We have a good cash position, as already mentioned before. So a large part of this 2,300 units that we want to start to construct next year is basically already financed from the cash that we have on the balance sheet. And therefore, the further growth in the Polish rental sector is clearly a target for us. Page 17 shows the operational development of the Polish rental portfolio to keep it short, that's still very good and strong. So the vacancy in the units that have been on the market for more than 1 year is still at a low 2.4% and the like-for-like rental growth is still at a very good 3.4%. So that means rents in our Polish portfolio are still growing despite the really exceptional growth that we have seen in 2022 and 2023, and that gives us, of course, confidence for the further development of this portfolio. So that was the rental business in Poland. Then a quick look on Page #18 regarding the sales business and look especially at the sales results. So as already mentioned, the number of units sold in the first 9 months and especially in the third quarter of 2025 was higher than in the previous period or in the previous quarter, so we sold 815 units in the third quarter compared to 566 in the quarter before. And it means another quarter or another number of units sold in the fourth quarter like in the third quarter would bring us more or less exactly to a full year's guidance of 2,800 units. And we also see that the sales volume is increasing. So it's not only the pure number of units sold that is stronger, also the sales volume saw a quite strong increase. So if you add up the first quarter, first 3 quarters of 2025, we are at a sales volume of EUR 327 million that compares to EUR 261 million in the previous year. And we are very happy about this, that we simply observe still quite strong margins. So we're selling in Poland still at gross margins and expect also this to happen in 2026 above 30%. So sales prices remain on high levels, and that creates quite exceptional results in the Polish sales business today and in the next year. And that brings us more or less to the guidance for 2026, which is shown on Page #21. So firstly, a look on the FFO I guidance for 2026. As I said, an increase by 9% in absolute terms and by 4% on a per share basis. The range that we set for FFO I guidance is quite broad this year. So from EUR 187 million to EUR 197 million, so EUR 10 million and the reason for this is simply the estimate that we needed to do for the Resi4Rent closing. So the guidance assumes that the Resi4Rent closing is happening at the 31st of March, that would be exactly the midpoint of the guidance. So if it happens a little bit earlier, so more in the beginning of the first quarter, then we would be more at the upper end of the range. If we close more towards the end of the second quarter, then we would be more or less more at the lower end of the range. So therefore, the little bit broader range in the FFO I guidance. But again, still despite the little bit delayed closing, an increase 9% in absolute terms, 4% on a per share basis. Strong increase, as said from -- in the net income from sales in Poland that we expect. So nearly 50% increase as a result of higher handovers next year and as I said, high sales prices and good margins that we currently achieve in Poland and also the joint ventures that we have in Poland now since, I think, 3 years create for us a quite nice service income that also add up to this good development. On FFO 2, it's a quite strong increase, 19% in absolute terms, plus 14% on a per share basis. And as already mentioned at the beginning, you should also expect a quite strong increase in the dividend on a per share basis. So an increase that should add up to 30%. Page 22 of the presentation explains in more detail the development in the expected FFO I for 2025, which we also increased a little bit today and the expected FFO I for 2026. And as said, the Resi4Rent acquisition is not effective in for full year. You see this year that we assumed the closing for this purpose of the 31st of March 2026. So that's, of course, a main driver for the overall FFO I development, but also the existing German business and the existing Polish rental portfolio, which will grow as discussed strongly in the future contribute to this development. And finally, a look at Page 23, where you find the key assumptions, the underlying assumptions that we expect for our guidance for 2026. Of course, also the EBITDA in more or less all businesses are expected to increase, so quite strongly if we look at 2026 numbers. Just to mention 1 or 2 things. So firstly, we still expect further vacancy reduction in the German portfolio. So whatever we exactly achieve at year-end 2025 will not be the end of the development, so there is further potential in the portfolio. As you see, we expect that also the like-for-like rental growth in Germany should be better next year compared to this year. So perhaps not surprising trend that the rents in Germany are increasing. Rental growth in Poland should still be above 3%, so we still see growing rents there in Poland and not only rental business, but as mentioned, especially the sales business is running very well. So when we look into, for example, the sales number of the sold units that we expect next year, we expect that we sell around 2,900 units, and that should be even on the basis of a little bit higher prices. So the sales volume that we expect in Poland 2026 should be close to EUR 0.5 billion. That's it from my side and a quick overview about our 9-month results and the guidance for financial year 2026. Many thanks so far for listening. But now I'm, of course, very happy to take your questions. Operator: [Operator Instructions] Our first question comes from Marios Pastou with Bernstein. Marios Pastou: I've got 2 questions from my side. Firstly, on the FFO II for next year, I see that's being supported by quite a significant ramp-up in the level of target handovers. Are you able to mention how many of these handovers are already presold and fixed? And then secondly, on the delayed closing of the acquisition in Poland, is there any risk that they place additional requirements on the deal for it to close or that it potentially gets delayed beyond your expectations? Any further comments here will be helpful. Martin Thiel: Yes. To answer your first question, first, it's absolutely correct, so we expect quite strongly increased number of handovers next year. So as shown on Page 23, this number of units should be around 3,200 units, so including what we handover in joint ventures compared to 2,100 for this financial year. So that's, of course, the main driver of the increase. The presale ratio is quite high, so that should be today almost at around 80%. So we have very high visibility on our results for next year. And as you know, it's more only technical risk is that, as always, a larger part of the handover should be in the fourth quarter next year, and we need to hand it over until the 31st of the financial year to realize the profit in the balance sheet and the P&L. So if it's handed over on the 1st of January, then it would be next year. But economically, we have a quite high visibility on that result for 2026 already. And regarding the Resi4Rent closing, I mean, we're very confident that this closes and why are we? In fact, we are, yes, on the one side, after the acquisition, Poland's largest landlords with roughly 9,000 units, but if you look at the overall market, we are a very small part. So we have 1.2 million rental apartments roughly in Poland, out of which we own 9,000. So that means we are far away from dominating the market. We are far away from a situation where we can set prices. We are really price taker and we are competing really against a large number also of private landlords. So therefore, all the arguments on our side. But what we have to respect, as already mentioned, is that it takes time that the Polish antitrust authority basically says, well, this is the first transaction of this kind. We have never looked at the rental market before. We need to or we want to do our own market research. And this is something where we not have the influence on the timing. But the estimate that we've given, so something around 31st of March 2026 should be the best estimate that we have as of today. Marios Pastou: And then just sorry, as a slight follow-up to my first question. If you're now kind of looking at selling around 3,000 units or just below 3,000 units for next year, could we then think of around that level being a good kind of sales and handover assumption beyond 2026? Martin Thiel: Yes. Perhaps we are even a little bit more optimistic because we see a very good development in the Polish sales market. I mean, as you know, the overall fundamental data is quite excellent in this market. But now if interest rates are going down in Poland quite significantly, we see simply more buyers coming back to the market for more people, let's say, more affordable also again to buy apartments. So as of today, if you look after 2026, we're even more optimistic that this number is potentially also something we can increase. Operator: The next question comes from Andrew McCreath with Green Street. Andrew McCreath: Two questions from my side, please. Firstly, on capital allocation, how are you thinking about this with respect to both the build-to-rent and build-to-sell platforms in Poland? Are you seeing better relative returns in build-to-sell right now? And then my second question would be on the dividend. So announced back in August, your intention was to increase this to at least 50%. And today, of course, you've confirmed this. Does this decision to bump up to 50%, therefore, mean that you aren't seeing much in the way of further acquisition opportunities? And then also perhaps just a bit more color on why 50% given your pro forma LTV? Martin Thiel: Yes. thanks for the questions. Perhaps I'll start with the second one. So we are currently -- which is a little bit related to the first one. So we currently pay out or want to pay out 50% FFO I for the dividend for financial year 2026. That's correct. That means we are paying or we have the payout ratio defined in relation to FFO I. So that means we are keeping the full sales results in the balance sheet. And that simply helps us to grow and to grow more or less in two businesses, firstly, in the state business; and secondly, perhaps strategically even more important for us to grow in the rental business. So 50% FFO I is, in fact, as I say, a smaller part of the total cash flow that we generate here and that's how it should be. So with an increased payout ratio, we are not hurting our ability to grow and we are not hurting our LTV target. So that means in a kind of base case, so we construct apartments on our own, we don't need really additional equity. I mean the equity issuance that we did this year in August, that was clearly on the back of, let's say, exceptional acquisition like the Resi4Rent portfolio with EUR 565 million. But this dividend policy allows us really to grow. And regarding capital allocation, I mean, on TAG level, we are supporting quite significantly the growth of the rental business because here, you need or you cannot finance debt in full, it's very clear, so you need additional funds or kind of equity proportion for the construction of the apartments. Whereas in the sales business, this business is to a very large part, financed via customer prepayments. And the business, as you can see from the numbers, is generating a lot of cash surplus. So therefore, just to give you an additional comment, as of today, there's no single shareholder loan in our sales business, meaning in our subsidiary, ROBYG. This company is really funding the full growth on its own and is able to grow. So therefore, we are not shrinking or limiting the sales business. We're very happy if this business is growing as well, but it's doing this based on its own cash flows. Operator: The next question comes from John Wong with [indiscernible] Kempen. Unknown Analyst: Just on that Resi4Rent delay, when you're talking about that the antitrust authorities conducting their own market research, what do they consider as the market? And what's the risk that they consider institutional market in isolation? Martin Thiel: Exactly that's the purpose of the market research that the antitrust authority is conducting that they simply want based on their own research, an overview of how does this rental market in Poland look like? So how many landlords are on the market? Is there a differentiation between the landlords? Are there really different segments? Or is it one rental market? In the end, the view of the customer is the deciding one. So that's the purpose of this antitrust approval. So if the customer tenant is looking for an apartment, is there only one type of landlord he normally rents from? Or is it a broad market? And the second option is the case, right? So we know from customer service that, of course, most important for the choice of the customer is the price of the apartment, location of the apartment, standard of the apartment. So a decision is more or less never really based on from whom am I renting for and if you look at Internet platforms and you cannot even select offers based on who is renting out the apartments. But this is something that you can read currently in reports issued from [indiscernible]. In fact, the antitrust authority and we have to accept this says, okay, that's all good. We see this, but we have not investigated that on our own. So therefore, we have to accept that this takes them sometime weeks and therefore, the approval and the closing of the Resi4Rent transaction is postponed. Unknown Analyst: And just at the -- looking at the development start for build-to-rent, it's quite a significant step-up compared to what you historically have been -- have had under construction. At the same time, you said that there's scope for more units in the build-to-sell segment. So just trying to understand, are you growing your overheads? Or was the platform underutilized? And how should we think about the run rate of developments per annum for both segments? Martin Thiel: Yes, the platform is definitely able to do this. So an additional 2,300 units construction start in the rental business compares units under construction that we had in total, for example, when we have taken over ROBYG, was, I think for sales business, was between 6,000 and 7,000 always units, and it's not far away from that today. And yes, we have in 2022, 2023 after we also sold at that time with lower number of units reduced the number of employees, especially construction department, and we have increased this in the past month. But it was never a change in overhead or as already mentioned, we have never weakened our margins by doing that. So the platform has definitely the potential to do this. So we are not concerned that with this new construction start, we are, how should I say, overstretching the capability of the platform. Unknown Analyst: And just on run rate, how should we think about it in, say, '26, '27 in terms of new development starts? Martin Thiel: Yes. If you want an outlook for the rental business, firstly, we decided to give this year by year. But as we said, we want to grow further. So perhaps 2,300 units construction start is a little bit more the upper end on what could be a future run rate. So if you ask us for a base case, let's assume that perhaps around 1,500 units, perhaps a little bit more is a good estimate for something that we can start every year. And again, this number of units could be financed purely from the cash surplus that we get from the sales business, plus, of course, from the now really growing cash flow from the existing rental portfolio plus then some additional debt that we get back from TAG level without hurting the LTV target. That's for us important. We have a very visible growth opportunity based on cash flows that we produce in the portfolio already based on financing assumptions that are not aggressive, and we know that the LTV is not going up while we carry out this plan. Operator: Our next question comes from Thomas Neuhold with Kepler Cheuvreux. Thomas Neuhold: I have two. The first is on the Polish build-to-hold portfolio. If I compare Q3 figures with Q2 figures, obviously, you reduced the number of units, which you want to build quite significantly. I was just wondering, did you move units from build-to-hold to build-to-sell? Or did you just reduce the speed of the rollout after the acquisition you just did recently? That's the first question. Martin Thiel: Yes, indeed, with some projects, we beat it a little bit because although the cash position is quite good to be too aggressive to start construction with a lot of units. And then on top of that, the acquisition without having the financing in place, that could have been perhaps a little bit too, too aggressive. But now, more or less, the plan to grow the portfolio is still unchanged. It's a time shift of some months. But overall, it has not really changed. Perhaps it's a little bit more, as I said in the answer before, what we want to start in 2026 compared to what should be the run rate in the future, but the plan is clearly to grow the rental portfolio further. Thomas Neuhold: And my second question is on the 2024 FFO I guidance. If I do a simple math, that implies an FFO of EUR 39 million to EUR 43 million in Q4. You achieved EUR 45 million last year in Q4. So I was just wondering, you mentioned there's a certain seasonality and modernization spending. Is this seasonality stronger this year? Or is this just a conservative guidance? Martin Thiel: [indiscernible] obviously comfortable to be more on the lower end or more on the conservative side. But also to make clear that there should be a little bit more maintenance in the fourth quarter. So therefore, the range EUR 174 million to EUR 179 million makes us -- is really something that we absolutely believe in and it should not be – but not be aggressive. And so therefore, we think it's appropriate to set the guidance in this range. Operator: The next question comes from Sheetal Jaimalani with Deutsche Bank. Martin Thiel: Can you hear me? Thomas Neuhold: It's Thomas. Actually, one -- two questions on the German business. I mean you referred to attractive acquisition opportunities, and I think you mentioned yields of 10%. What would be the maximum amount you would allocate here? I mean, let's assume there would be an opportunity to acquire a large German portfolio. Martin Thiel: Yes, then we would also do more. But is this a very realistic case that in such years, you find large portfolios. And again, to be fair and to be fully open, the 10% growth yield is, of course, a little bit -- needs to be seen in relation to some additional modernization work that we need to spend. So after the modernization work, perhaps we are ending up at a sustainable growth yield to call it like this of perhaps 8%, which is still good. But the situation in the German acquisition market is that you find such opportunities, but more in the smaller sizes. If there would be something larger on the market, we are happy also to take this opportunity, always having in mind that we have good growth perspectives in Poland and you know our growth yields there, but we did not, how should I say, stop the acquisitions in Germany. We are not saying that we only want to acquire in a certain size, it's really dependent on the market. So if you ask me for a realistic estimate, yes, we will continue to acquire in the course of 2026. If we have a chance to buy something larger, happy to do it. But you should expect more something in the sizes of some 100 units per quarter. Thomas Neuhold: And the second one is on the Poland rental business. I mean, you plan to grow further through constructions. I mean, how about acquisition opportunities like we saw with your recent portfolio acquisition? Martin Thiel: That's definitely also in a future an option. Resi4Rent acquisition was, of course, regarding the size, exceptional. So a portfolio of 5,320 units in Poland is not on the market every quarter. But as already mentioned in the past, we are not the only larger landlord in Poland. If you look at other larger landlords, like Resi4Rent, for example, most of them have an investment horizon of perhaps 5 or 7 years. So in some cases, also private equity backed, they will exit at some point in time. And yes, we will definitely look at such portfolios and also happy to acquire in the future. If then the pricing fits, that's another question. But generally, we are very open to further acquisitions in the Polish rental market as well. Operator: Our next question comes from Celine Soo-Huynh with Barclays. Celine Huynh: Can I ask you two questions, please? The first one is about -- you raised the capital in August for the transaction closing now in end of March, best case. What are you planning to do with the cash until it gets deployed? So that would be my first question. And then my second question is, can you tell us what you have assumed regarding the rolling of the convertible bond maturing in August? And also if there is any scrip dividend assumption into your FFO I and II guidances? Martin Thiel: Firstly, you're correct, we raised the capital for the acquisition. So the capital increase plus the bond issuance already in August. This cash is currently on the balance sheet in our bank account. That's the reason why we have the strong cash position. We've already converted this into zloty because we need to pay the purchase price in zloty. So there's no foreign currency exchange risk into that. Good news is that currently, we get on deposits in zloty interest income of around 4%. So that reduces a little bit the earnings impact from the delayed closing. Better situation regarding cash for the Resi4Rent portfolio and for the convertible bonds maturing in August 2026, and we are simply repaying this convertible bond from the existing cash position. So as I mentioned, the cash position -- strong cash position that we currently have will be reduced in 2026 by, firstly, the purchase price payment of Resi4Rent and secondly, the repayment of the EUR 470 million convertible bonds in August. And after that, we still have a cash position of around EUR 350 million, which we then use for the further growth in the Polish rental portfolio. And then regarding the last question, we have based our guidance for financial year 2026 on the current number of shares outstanding. If we again opt for a scrip dividend will be decided in March, so we will give you a guidance with the full year figures. But if you look at the impact from the last -- from this year's scrip dividend, that would not change our per share guidance. So it's not that meaningful. Let us decide, please, in March where we stand there, if we say it makes sense to support a little bit the growth further by another scrip dividend or if we change back to a full cash dividend, that's not decided already. But again, the impact is not that material. Operator: The next question comes from Manuel Martin with ODDO. Manuel Martin: Two questions from my side, please. On the Polish business as it is growing continuously, have you thought about zloty hedging one day because for the time being, I think TAG is unhedged. Might it make sense to do that one day? And if yes, at which point? Martin Thiel: Firstly, perhaps to explain our financing structure in Poland. The Polish sales business is fully financed in zloty. So on the one side, of course, a main financing or main financing is coming from customer prepayments, which are obviously in zloty. Secondly, we have local bank loans also issued on the Warsaw Stock Exchange, some bonds in zloty. So that's fully financed in Polish zloty. Regarding the rental portfolio, it's financed in euro. In absolute terms, even after the Resi4Rent portfolio acquisition, I think the total debt, which is allocated then to the Polish rental portfolio is around 10% of our total debt. So that's not -- but it's still a manageable portion. For now, every zloty that is earned in Poland stays in zloty and is reinvested. This will change in some point of time. So at some point of time, the rental portfolio will be even more meaningful. That will be the point in time where we transfer cash from Poland to Germany, for example, to pay out a higher dividend for our shareholders. And at that time, which is perhaps not 2026, we will look into hedging strategies for this cash flow. But as we are a long-term investor in Poland, we don't need to hedge any equity portions or other things at one point in time right now, it's more about the future cash flows that we will then start to hedge in the future. Manuel Martin: And second question from my side. The potential value increase of the TAG portfolio in the second half of the year, this plus 1.4%, is this including CapEx measures? Or is it -- or is this what we might see as a value increase coming from the market? And do you have any view on that for the time being? Martin Thiel: Yes, this includes the CapEx impact like in the figures before, so the 1.4% that we had in H1, I think it was 0.9% in H2 last year is the like-for-like value increase so after CapEx measures. If you eliminate that, the pure valuation result that is in the P&L is a little bit lower. So it's not perhaps 1.4%, it's more 0.9% or 1.0%. So that's not a super huge impact, but it includes CapEx. Operator: The next question comes from Kai Klose with Berenberg. Kai Klose: Three quick questions, if I may. The first one is on Page 15 of the 9 months report. The impairment losses were in 9 months, EUR 3.5 million. So EUR 1.5 million in Q3, so a little bit higher. Is this mainly -- I assume it's mainly for the German portfolio, but maybe you could explain what is the reason for the slight increase Q-on-Q? Second question is on Page 17. We had quite a strong increase in other services for the joint venture in Poland. Could you remind us, is this now more or less completed? Or can we expect any more or significant contribution in Q4? And last question is on the government grant of EUR 3.4 million, this was EUR 1 million in H1. Could you also remind us what can we expect for full year and maybe beyond for this item? Martin Thiel: Thanks for the questions. First, to explain the volatility in impairment losses. Firstly, that's more or less purely from the German portfolio. We are always doing in the third quarter of a year an update, so compare what we have seen in the past 9 or 12 months in reality compared to our estimates, and therefore, there's always an adjustment. I think this year, it's a little bit up. Last year, if I remember well, it was a little bit down. So there's a slight volatility always in Q3. But overall, if you compare that on an annual basis, and this is also true for the definitely next year to come, there's overall not an increase in impairment losses in German portfolio. I mean, to the contrary, I think this number is getting a little bit better year-by-year. So that's more technical as we do this update every year at the end of the third quarter. The other services in Poland indeed contain the services that we do for the joint ventures in the sales business. What are we doing here? So we own normally 50% of the joint venture company, and we do, in addition, the full construction work, we're doing the full planning process. We're doing the sales. We are doing the customer service. And for all this, we get then fees. There's some volatility based on the number of apartments sold in the JV. So if we sell more in 1 quarter, obviously, the service fee is higher. But also here, perhaps it makes more sense to analyze that the full year figure -- so what we have already seen 2024 and what we will see in 2025 is perhaps a good estimate for the years to come. Perhaps to give a general flavor of the size of our joint venture business, we are selling all that -- in the sales business, I would say there's between 20% to 25% of the total sales business currently within JVs and the remaining part, so 75% to 80% is really for the [indiscernible] part. And regarding the government grants, that's difficult to predict because this is then coming once we really receive the approval from the government. This is mostly related to subsidies for modernization work. And as I explained during the presentation, if this happens, we are eliminating this from FFO I because as we are capitalizing the expenses, it makes no sense, although it would be, of course, some positive impact, but it makes no sense conceptually to include this grants or the subsidies in FFO I. So whenever it comes, we will eliminate this from FFO I. Kai Klose: And just a second question, where do I see the elimination in the FFO calculation? Martin Thiel: In the FFO bridge. So you'll find this in our interim report. And if you look in the presentation on Page 7, you also see this elimination. Operator: [Operator Instructions] Our next question comes from Simon Stippig with Warburg Research. Simon Stippig: First one would be on Page 5 of your presentation. You show the Polish portfolio overview and more precisely on the rental business, you show your gross asset value of EUR 700 million -- almost EUR 730 million. So in regard to that, my question would be what's your LTV on that portfolio, your gross debt? And I would also be interested in the debt split. So how much of the debt is, for example, in shareholder loans? Martin Thiel: Well, to give you the figures here on the Polish rental portfolio, we have bank financing of EUR 119 million and the remaining part is then shareholder loans. And we are deciding for shareholder loans because in the meanwhile, it is cheaper for us to issue on TAG level bonds and then to grant to our subsidiary in Poland, this proceeds of shareholder loans because the margins that we have in our bonds today are lower than the margins that we get from bank loans in Poland on the rental business. Just to give you the dimensions. So currently, a 5-year TAG bond is trading at a margin of around 120 basis points. That's more or less exactly the margin that we get from German banks. Perhaps German banks are a little bit cheaper, but difference is not that huge anymore. Polish bank loans would be margins of perhaps EUR 180 million to EUR 200 million. So therefore, we are financing that to a larger part for this economic reasons from group perspective by shareholder loans. And if we then grant the flows to the financing for the Polish rental portfolio via shareholder loans, as I explained or if we put in some equity into our subsidiary in Poland, that's more or less completely tax driven. So at the moment, I think we have roughly EUR 200 million of equity remaining part of shareholder loans and as I said, EUR 190 million of bank loans. Simon Stippig: And for 2026, you -- do you plan any net investments from Germany into Poland due to your ramp-up in the rental portfolio? Or you cross finance that only from your sales business in Poland? Martin Thiel: Yes, we use also part of the existing cash from that. So if I simplify this a little bit, what we have as cash position in the balance sheet as of today is enough to finance the construction work for the rental portfolio in 2026 and 2027. Simon Stippig: And last question would be in regard to FFO. I think it's Page 7. There you show on a quarterly comparison from Q2 to Q3 and also 9 months '25 to '24, you AFFO decreased materially. I think it's EUR 16 million on a 9-month period basis. And then obviously, you have higher modernization CapEx, but could you comment on that? What are you using it for? Is that a run rate for the future in regard to CapEx? That would be much appreciated. Martin Thiel: Well, I mean we are now on a level where modernization CapEx for basically energetic modernization of the buildings in Germany has reached a level that we expect it to continue in the future. So we have ramped that up more or less year-by-year. It's not a linear function. So also this CapEx has a kind of volatility depending if we start new projects or if we do it a little bit later or earlier. But we are now simply on a level that we basically already predicted when we published our decarbonization strategy back in 2021. So you should not expect, how should I say, a very strong growth in the years to come. Operator: Ladies and gentlemen, this was our last question. I would now like to turn the conference back over to Martin Thiel for any closing remarks. Martin Thiel: Yes. Again, many thanks for dialing in and for listening to our call. As always, if there are any questions left, please feel free to contact us. Happy to answer that any time. Have a good day, and hope to see you soon on conferences or at the latest in March next year for our full year results. Many thanks. Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.