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Operator: Good afternoon, and welcome to the ADMA Biologics Third Quarter 2025 Financial Results and Business Update Conference Call on Wednesday, November 5 2025. [Operator Instructions] Please be advised that this call is being recorded at the company's request and will be available on the company's website approximately 2 hours following the end of the call. At this time, I would like to introduce the company. Please go ahead. Unknown Executive: Welcome, everyone, and thank you for joining us this afternoon to discuss ADMA Biologics' financial results for the third quarter of 2025 and recent corporate updates. I'm joined today by Adam Grossman, President and Chief Executive Officer; and Brad Tade, Chief Financial Officer and Treasurer. During today's call, Adam will provide some introductory comments and provide an update on corporate progress, and then Brad will provide an overview of the company's third quarter 2025 financial results. Finally, Adam will then provide some brief summary remarks before opening up the call for questions. Earlier today, we issued a press release detailing the third quarter 2025 financial results and summarized certain achievements and recent corporate updates. The release is available on our website at www.admabiologics.com. Before we begin our formal comments, I'll remind you that we will be making forward-looking assertions during today's call that represent the company's intentions, expectations or beliefs concerning future events, which constitute forward-looking statements for the purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. All forward-looking statements are subject to factors, risks and uncertainties such as those detailed in today's press release announcing this call and in our filings with the SEC, which may cause actual results to differ materially from the results expressed or implied by such statements. In addition, any forward-looking statements represent our views only as of the date of this call and should not be relied upon as representing our views as of any subsequent date. We specifically disclaim any obligations to update any such statements, except as required by federal securities laws. We refer you to the disclosure notice section in our earnings release we issued today in the Risk Factors section in our SEC filings and our quarterly report on Form 10-Q for the quarter ended September 30, 2025, for a discussion of important factors that could cause actual results to differ materially from these forward-looking statements. Please note that the discussion on today's call includes certain non-GAAP financial measures, including adjusted EBITDA and adjusted net income. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP metric is available in our earnings release. With that, I would now like to turn the call over to Adam Grossman. Adam, go ahead. Adam Grossman: Good afternoon, everyone. ADMA delivered another record quarter of sequential and year-over-year growth, underscoring the strength of our business model and disciplined execution. We delivered total revenue of $134.2 million, representing a 10% quarter-over-quarter increase and 12% growth year-over-year. GAAP net income reached $36.4 million, up 6% quarter-over-quarter and 1% year-over-year, and adjusted EBITDA grew to $58.7 million, representing 16% quarter-over-quarter growth and a 29% increase year-over-year. These results demonstrate the durability of our growth engine and the expanding leverage in our fully integrated U.S. domiciled business model. Our performance continues to be led by ASCENIV, our differentiated and patent-protected specialty IG exclusively targeting complex immunodeficient patients. ASCENIV delivered record utilization this quarter, driven by strong prescriber adoption and sustained patient demand. 2026 payer negotiations are progressing positively and are expected to further expand coverage, improving access and accelerating growth. For select payers where restrictions previously existed, we anticipate improved ASCENIV reimbursement access beginning next year. Equally important, a retrospective cohort analysis in an investigator-initiated study of primary immunodeficiency patients demonstrated statistically significant reduction in infection rates following transition from standard immunoglobulin therapy to ASCENIV. Patients experienced 2.1 infections per year while receiving prior lines of standard IG therapy compared with 0.9 infections per year on ASCENIV, representing a reduction of greater than 50% with a p-value considerably inside of 0.05. These findings suggest that ASCENIV provides enhanced protection against infections in real-world clinical practice. Data validation and extended analyses are ongoing. ADMA plans to submit these results for peer-reviewed publication in the near term with additional findings planned to be submitted at the Clinical Immunology Society 2026 Annual Meeting. Operationally, the FDA's lot release of our first yield enhanced production batches represents a major inflection point. This process innovation is expected to improve per batch output by 20% or more, driving sustained gross margin expansion beginning in the fourth quarter of 2025 and continuing through 2026 and beyond. Regulatory release of these batches was achieved in the ordinary course, positioning us to realize our first full year of yield enhancement production in the entirety of 2026. In addition to strengthening our commercial operating model, we continue to invest in innovation and pipeline advancement. Our SG-001 program is progressing as planned, and we recently submitted a CNPV voucher application to the FDA. If approved, this voucher could meaningfully accelerate further regulatory review timelines, giving us a clear advantage as we move into registrational clinical development. SG-001 remains a meaningful long-term opportunity with the potential to address significant unmet medical needs in patients vulnerable to Streptococcus pneumonia infection. Preclinical data for SG-001 demonstrated broad serotype-specific antibody activity, encompassing a wider range of pneumococcal serotypes than those targeted by any currently available pneumococcal vaccine, underscoring the potential for SG-001 to provide enhanced protective coverage. We view this program as a natural extension of our core competencies in hyperimmune IG development and manufacturing and as a potential key value driver for ADMA's next phase of growth. Although SG-001 is excluded from our $1.1 billion or more fiscal year 2029 revenue guidance, we believe approval could occur within this time frame. And if successful, we believe the new product could rapidly scale to peak revenues following potential commercial launch. We believe SG-001 represents a potential $300 million to $500 million in annual high-margin revenue opportunity with IP protection through at least 2037. Turning to capital deployment. Our approach remains disciplined and strategic, focusing on creating stockholder value. Following our successful JPMorgan-led debt refinancing earlier this year, ADMA maintains an undrawn $225 million revolving credit facility, providing flexibility to fund growth and stockholder value initiatives. We continue to repurchase ADMA shares under our authorized program, funded organically to date through free cash flow and maintain a strong capital position to potentially reinvest in high-return initiatives that enhance stockholder value. Looking forward, our focus remains clear: expand ASCENIV access and utilization, scale yield enhanced production and product mix shift, drive continued margin expansion, advance our capital-efficient pipeline and return capital to stockholders through share repurchases. We believe these priorities will collectively position us to achieve more than $1.1 billion or more in annual revenue in 2029 with a clear line of sight to durable earnings growth. With that, I'll now turn the call over to Brad to review our third quarter financials in more detail. Brad Tade: Thank you, Adam. Our third quarter results highlight ADMA's consistent execution and expanding profitability. Total revenue for the quarter was $134.2 million, up 10% from the second quarter and an increase of 12% year-over-year. Gross margins expanded to approximately 56.3% compared to 49.8% last year, driven by ASCENIV's growing mix and early yield enhancement benefits. Excluding the plasma sale of $13.8 million during the quarter, product level gross margins reached 63.7% during the third quarter of 2025. GAAP net income totaled $36.4 million compared to $35.9 million in the prior year period, while adjusted EBITDA increased to $58.7 million, representing 16% growth quarter-over-quarter and 29% year-over-year, reflecting continued operating leverage and cost efficiencies. Year-over-year, net income growth was tempered by a higher effective tax rate and temporary competitive dynamics in the standard IVIG markets, mainly impacting BIVIGAM. Enabled by the company's outperforming third-party plasma suppliers, ADMA opportunistically completed a sale of approximately $13.8 million of normal source plasma on the spot market at a negative margin contribution to optimize working capital and go-forward cash flow. These factors are short term. Post quarter, standard IVIG market conditions are stabilizing and record ASCENIV demand continues to drive margin expansion. ADMA ended the quarter with a strong balance sheet and liquidity position. Third quarter cash reflected approximately $23 million in share repurchases settled during the period, planned inventory build and a $12.6 million facility expansion investment. Working capital dynamics are expected to normalize in the coming quarters, supporting accelerated cash growth through 2026. We maintain a strong balance sheet with an undrawn $225 million revolver, providing ample flexibility for growth. Turning to our outlook. ADMA's full year 2025 and 2026 financial outlook reflects continued ASCENIV demand strength, yield enhancement production efficiencies and disciplined operational execution. For 2025, total revenue is now expected to be $510 million, up from prior guidance of more than $500 million. 2025 adjusted net income is modestly adjusted to $158 million due to a higher effective tax rate. Fiscal year 2025 adjusted EBITDA guidance remains expected to be $235 million. These forecasted annualized 2025 results position the company strongly to end the year on a high note and enter 2026 from a position of strength. For 2026, total revenue is now expected to be at least $630 million, up from $625 million or more previously. Adjusted net income has increased to more than $255 million, up from $245 million previously, and adjusted EBITDA is raised to more than $355 million, up from $340 million or more from previous guidance. The increased 2026 adjusted net income guidance now considers a full corporate tax rate for fiscal year 2026. Looking longer term, ADMA expects fiscal year 2029 total annual revenue to exceed $1.1 billion, supported by yield enhancement efficiencies, expanding ASCENIV demand and continued gross margin gains. Potential contributions from SG-001 and capacity expansion are excluded from this outlook and represent meaningful upside to ADMA's long-term earnings power. Following its JPMorgan-led refinancing, ADMA maintains a strong balance sheet with an undrawn $225 million revolver and forecasted robust cash generation. Share repurchases continue to be funded organically, reflecting disciplined capital allocation and long-term shareholder value focus. With that, I'll turn the call back to Adam for closing remarks. Adam Grossman: Thank you, Brad. Before we open the call for questions, I wanted to take a step back and reflect on how far we've come and where we're heading. Just 3 years ago, ADMA was at the early stages of its commercial expansion. Today, we're generating record revenue and profitability, achieving best-in-class gross margins with substantial expansion forecasted from here and setting the stage for what should be sustained earnings growth across the next decade while advancing a compelling new product cycle. Our yield enhancement milestone is a defining moment in that journey. It not only validates our technical capabilities but also positions us among the most efficient plasma fractionators in the industry. With FDA released yield enhanced production lots now flowing through our supply chain, we believe we are strongly positioned to finish 2025 on a high note and accelerate year-over-year growth rates in 2026 from a position of operational strength with line of sight expected meaningful cost savings, improved production mix throughput and the potential to add incremental manufacturing capacity without significant capital investment provides optimism for our future. On the commercial side, ASCENIV continues to outperform expectations and remains at the center of our growth story. We are witnessing both expanding utilization in existing accounts and growing interest from new treatment centers. As payer access improves in 2026, we expect adoption to accelerate further, supporting our expectations of strong double-digit revenue growth well into the back half of the decade. The combination of expanding coverage, real-world data validation and increased patient acceptance is creating durable, powerful momentum across ADMA's health care ecosystem. Looking further ahead, our R&D platform continues to progress. The SG-001 program is advancing on schedule, and we remain enthusiastic about its long-term potential. We believe we can advance this pipeline program directly into registrational trials following continued and successful preclinical development and potential ultimate IND submission. When combined with our manufacturing know-how and regulatory expertise, SG001 has the potential to expand ADMA's leading position in the specialty immunoglobulin space while adding meaningful high-margin revenue in the out years. Financially, ADMA has never been stronger. We are operating with a clean balance sheet, a fully funded growth plan and forecasted accelerating cash generation. Our capital allocation priorities are clear, reinvest for growth, maintain balance sheet flexibility and return capital to our stockholders through opportunistic share repurchases. This strategy reflects our confidence in the business and our commitment to building enduring value. In closing, I want to thank the entire ADMA team for another exceptional quarter. Your hard work, expertise and passion make all of this possible. To our investors and stakeholders, thank you for your continued confidence in our company and partnership as we execute against our mission to improve patient lives while creating durable stockholder value. With that, operator, please open up the call for questions. Operator: [Operator Instructions] Our first question comes from Anthony Petrone with Mizuho. Anthony Petrone: Maybe to start with the data. I want to congratulate you and the team there. 50 -- greater than 50% reduction in infections using ASCENIV versus standard IG therapy. You have a plan to publish those data, present next year at Clinical Immunology in April. Maybe a little bit on some of the constructs of what we should expect in the publication. What types of adverse events maybe were avoided with ASCENIV? Will there be cost-benefit analysis in those -- in that study publication? And then I'll have a couple of follow-ups. Adam Grossman: Thanks for the question, Anthony. So I was very pleased that our compliance group allowed us to talk about this data. So I can't give away too much, but we evaluated a robust patient cohort that was appropriately sized, and we were able to generate statistically significant data. Very, very proud of this. The data demonstrates a significant reduction in infections in these patients that are switching off of their standard IG and moving to ASCENIV. This is the real-world setting. These are complex PI patients that are switching. And again, we're just very pleased. I mean, 2.1 infections while they were on standard IVIG compared to less than 1 infection per year with a p-value of less than 0.05. We think that this is really just a very clear way of demonstrating what clinicians have been reporting to us and what we've been reporting as a company about the clear clinical differentiation that ASCENIV provides compared to standard IG and why these complex and refractive and comorbid PI patients seem to do better on ASCENIV. We expect that the data is going to reinforce prescriber confidence. It's going to strengthen payer coverage. Our negotiations with payers have progressed very nicely throughout 2025, and we're anticipating expanded access into 2026. So we're continuing to analyze this data. We plan for a peer-review publication, as you mentioned, early in 2026. And we expect this and other investigator-initiated studies that are ongoing to further validate ASCENIV's utility and really define the patient profile that we're targeting. In 2026, we really plan to ramp up medical education and publications. We plan to provide continued real-world outcomes data. And we think all this is going to bode well for ASCENIV's growth in 2026 and beyond. Anthony Petrone: All right. That's very helpful. The follow-up here would be, we've picked up from physicians that with data and this certainly -- with data indication -- indicating that you can get efficacy benefits with ASCENIV that perhaps there's a percent of the immunologists out there that would consider using ASCENIV sooner to treat some of these complex PI patients. So what do you think this data can do for demand into next year? And how should we be thinking about the growth curve once this data is digested and of course, your supply situation has improved. And I'll get back in queue. Again, congrats on the study. Adam Grossman: Thank you so much, Anthony. Look, we've seen record utilization of ASCENIV throughout the third quarter, and that has continued to be observed as we enter the fourth and are in the middle of the fourth quarter. This data is really just reinforcing everything that we've experienced. Payer negotiations, I mean, look, we still stand firm on our position that ASCENIV should not be used as a first-line therapy. We think that your question about, could this in the minds of prescribers be used earlier in the treatment cycle, possibly. We do see some private payers moving ASCENIV up where you don't have to fail as many step edits, there could be less. So we think that payer expansion is going to improve. And again, the more data that we can put and publish in the public domain, the better it's going to be to reinforce and maintain ASCENIV's strong position. We do expect strong double-digit growth. We do think that the data that we're putting out there, the patient testimonials, our medical education strategy and our enhanced publication strategy for next year is all going to work together to continue to drive utilization. Regarding the growth curve, I mean, look, we've, we've increased guidance for 2026 top line and earnings metrics. Very proud of where we are with yield enhancement with our first FDA released commercial batches of yield enhanced product now flowing through the supply chain. So we think that you're going to see continued accelerating utilization of ASCENIV continued growth of our IG portfolio throughout 2026 and beyond. Operator: Our next question comes from Kristen Kluska with Cantor Fitzgerald. Rick Miller: This is Rick Miller on for Kristen. We've got 2 here for you. You've been saying back half of this year, you're expecting an acceleration and then into next year. So is there any additional color you can give us on what you were seeing that sort of gave you the confidence around raising the revenue guidance? And then we'll have one more for you after that. Adam Grossman: I mean the confidence is that we see it in the redistribution data. I mean the product pull-through at record levels, exceeding internal expectations throughout the third quarter. Fourth quarter is no different. We feel very confident in ASCENIV's utility. I think the data that I was just speaking about, this is what physicians and patients are experiencing in the real-world setting. So we're making a good drug. We're making more of it than we ever have before. We had more product available in the third quarter than we have had historically, and we see it continuing to pull through at a rapid pace. So very encouraging. I mean, look, again, Rick, we've talked about, and I don't like to sound like a broken record, but the patients who are switching to ASCENIV are patients that are not thriving on their standard IG, and they're looking for alternatives. One thing I can say is that in the late summer, we started our first direct-to-patient medical education programs, and we think that those are starting to have a meaningful impact as well. The key is if you're an immune-compromised patient receiving IG and you just don't feel well, have a conversation with your doctor, talk to your nurse practitioners, advocate for yourself, you're your best advocate and see if ASCENIV is the right product for you to switch to. So all these factors combined are what's contributing. Our field team is working in unison. We've had some great hires throughout 2025. And we continue to just knock down doors and uncover new institutions that are starting their first patients. And it's everything that we've really described is that same institutions are now starting to add patients that they've identified in their queue, if you will. We've got more product available, and that's been the message throughout the third quarter that, look, we've got more product for you. You can start putting patients on therapy. And we see it in our supply chain that we've got the ability to ensure the continuity of care for these patients. So we're starting them. They're staying on therapy, and they're doing well. That's what contributes to this growth. And that's why in our fifth plus year or so from launch, we're forecasting very robust acceleration as we wind down 2025 and enter 2026. Brad Tade: Yes, exactly. Adam, just to expand on that. I mean, we're talking about the guidance that we just raised for 2026, and that represents 24% year-over-year growth on revenue. It represents 51% year-over-year growth on adjusted EBITDA and 61% year-over-year growth on adjusted net income. So exactly what Adam was saying is those are the things that are providing us confidence to raise that guidance, and we are feeling pretty good and strong about 2026. Rick Miller: Okay. And then maybe one more. After the FDA lot release for the yield enhanced product, are there any other gating factors here before we start to see the impact on 4Q? Adam Grossman: No. We're going to see this flow through. The majority of product sales in the fourth quarter, we think, will be from yield enhanced product. ASCENIV certainly, most of it, again, we think will be from yield enhance. But very excited about this. Again, it was something that was an unknown that we said probably will go off in the normal course, which it did. And we're very pleased. Dialogue with the agency has been good, and it's business as usual. So very excited for what the fourth quarter should bring in 2026. Operator: Our next question comes from Gary Nachman with Raymond James. Gary Nachman: Congrats on the progress. Just following up on that last point, with the FDA releasing the first lots of the yield enhanced batches, just give us a sense of how long that process takes? And will it now be a lot easier going forward for new batches, just how that all works? And then just also give us a sense of how much gross margin will expand in 4Q and into next year, what that cadence will look like, I guess, off the 63.7% in 3Q that was normalized? Adam Grossman: Sure. So FDA lot release, as we've said, can be as short as, call it, 2 to 3 weeks to as long as, call it, 6 to 8 weeks. There is no -- there was nothing different that occurred with the yield enhanced batches, Gary. It was just -- we just wanted to make sure that everything went through in the normal course, which it did. So we're receiving FDA lot releases routinely. No issues there, and we continue to have ample inventory and supply available of our IG product portfolio to meet the demands for the market. With respect to gross margins, I mean, we reported -- we reported this quarter that if you back out the plasma revenue, Brad, keep me honest here, product level gross margins were 63.7%. So we're feeling very good about product level gross margins. And we feel that it should continue to expand as we continue with ASCENIV mix shift from a revenue and a unit perspective. Our goal is, again, to get to using half the plant's capacity at least to make ASCENIV, if not more. And that's what's going to drive us to our out-year guidance for 2029 now. that is $1.1 billion or more in revenue. So we're feeling very positive about it. Everything is going very well from a lot release perspective. And the visibility with our third-party supply contracts is what's giving us this encouragement to get more patients on drug. We're making more ASCENIV. We're producing more batches than we originally planned for 2025, and that's going to ultimately give us more product to sell in 2026. Brad Tade: And Gary, just to expand on that, on the gross margin piece. mean as we get into 2026, we've always been saying that we're going to see margin expansion. And at 63.7% less the plasma sale, we're at the beginning -- I believe we're at the beginning of that, right? We're at the beginning of that margin expansion journey. The operations team is constantly looking for cost savings initiatives, and they're getting after it and they're getting after it hard. And as we continue to see this mix shift between BIVIGAM and ASCENIV, and we continue to see the yield enhancement lots roll out, if everything goes in our direction in 2026, we'll be potentially hitting the plus 70% gross margin line, and that's going to be very nice from a drop-through to net income and adjusted EBITDA. Gary Nachman: Okay. That's helpful. And then with the payer discussions that you're having to improve access next year, just talk a little bit more on that because you previously said that was in pretty good shape. So I just want to get a sense, do you have to give up any discounts or rebates to get more favorable access? And then how much of the HEOR data is actually a factor there? We're obviously very excited to see that data as well. So I'm curious if you started having discussions yet with the payers or that's still to come in terms of that new data? Adam Grossman: So we are always in active discussions with a number of different commercial payers, Gary. You couldn't see me smiling when you were asking your question, but I was smiling. I mean the payers certainly like their rebates. We're in active negotiations around this. We don't think that anything is going to be so significant that it's going to change our gross margin outlook or our product level margins significantly. But we all understand how it works. So the negotiations with the payers have actually been pretty positive over the last couple of months as we ended the third quarter and enter the fourth quarter. My field reimbursement and market access team is seeing some, I don't know if you can ever use the word acceleration in approvals with commercial payers, but appropriately defined use case patients are getting approvals. Some payers are working more rapidly with us than others, and we're trying to alleviate the bottlenecks across the entire commercial payer landscape. Again, the majority of ASCENIV especially, BIVIGAM as well is through Medicare, where it's a lot easier to get reimbursement more rapidly. But from a commercial payer perspective, which is about, call it, 40-ish, 45% of utilization, we're seeing movement from some payers who had us restricted. We're coming off restricted less, we're moving up from a step edit perspective. And I think as these negotiations transpire, if there's things to report, we'll certainly keep the street informed. But data, obviously, the more data helps. You asked about the outcomes data. The payers are seeing this in their own patient profiles. I mean they're seeing that these are patients that have cost their plans money. These are patients that do get hospitalized maybe once or twice per year, and they're staying out of the hospital. They're not getting as sick. We're reporting today that in this investigator-initiated study, we're seeing a significant reduction in infections. This is not a one-off. This is what payers are seeing. And all of this contributes into their decision to approve ASCENIV and approve a switch from standard IG to this product. So everything seems to be working well. Again, our field reimbursement team is doing a great job and our market access team is negotiating in a very collegial way with a number of different payers right now. And we wouldn't have put it in the prepared remarks or in the press release if we didn't feel confident that we were going to see improvements to our commercial payer profile. So we expect that to occur early in 2026, and we're very optimistic for the growth for the future. Gary Nachman: Okay. That's all very helpful. And then just last one, just a follow-up on an earlier question about, also using that data to expand the number of physicians or centers that are going to be using ASCENIV. So just want to confirm, are you still currently around 100 or so, whether it's physicians or centers that are using ASCENIV? And to get to your peak target for 2029 of greater than $1.1 billion, where does that need to go? Does it need to double? Could it -- you've talked about a 300 sort of target, I guess, ultimately? And how long do you think it will take before you get there? Adam Grossman: All good questions. Thank you, Gary. we do say that there are about 300 clinical immunologists that follow large groups of these primary immune-deficient patients. It's certainly greater than 100 prescribing docs now. I mean we've really seen rapid uptake throughout the summer of new docs saying, "You know what, I'm readyâ€. And the fact that our commercial team since the start of the third quarter has been out there saying that we've got more product, you can start your patients on therapy. I mean, people took us seriously. So that certainly helps, Gary, when you're dealing with a scarce raw material like we are with ASCENIV, less than 5% of these plasma donors have the antibody profile that we're looking for. But the clinician universe that we target, they're well aware of our partnerships with Grifols, Kedrion and others to access a wider group of collection centers to get more plasma. So folks have been listening to our messaging. They know that Grifols, Kedrion and others are reliable suppliers. And I think we've really been able to do a great job at building the confidence for the continuity of supply throughout 2025. And that's what's been encouraging for new docs to put patients on and existing prescribers to add more patients in their queue. Look, we're -- we increased 2025 revenue, I believe, right, from $500 million to $510 million. We feel confident about this. We feel good that our ability to supply product to the health care community is solid. And that's really what's helping to drive this, is the confidence of our commercial team, telling the prescribers that, look, we've got the product available. They're accelerating the accession of these patients, getting them on therapy, starting the payer conversations earlier. Our field reimbursement team has grown this year, and it will probably grow a little bit next year, but they're all working very, very hard to expedite new patient starts. And that's what's ultimately going to drive growth. You're asking me about the full year 2029 revenue. I mean, I feel good that -- we're in a good position, Gary, both from who the physicians are and where the patients are to hit $1.1 billion. We feel good about our ability to collect the raw material. I mean you've seen inventory step up. We're swapping out normal source plasma, replacing it with high titer plasma inventory to make more ASCENIV. We're elbows deep in the budget for 2026, and we're forecasting more ASCENIV production than we had in 2025, and that's ultimately going to drive increasing revenues in 2026 and 2027. So is there an opportunity to achieve the $1.1 billion earlier than 2029? I think it's possible. But at this point in time, we feel confident that we should hit this in 2029. And in normal ADMA fashion, if we can do it faster, we certainly will. Operator: We have a question from Anthony Petrone with Mizuho. Anthony Petrone: I was following up on the experience you're seeing with the new centers from earlier this year. You mentioned a 5% hit rate on collections at those new centers. I'm just wondering, as time goes on and perhaps with your partnerships either with Grifols or Kendrion, you train those sites to sort of have more proactive donor outreach, do you think that the donor -- the 5% RSV hit rate in those additional centers can improve over time? Adam Grossman: So the hit rate will always be the hit rate, but the amount of plasma that our third-party suppliers will collect of high titer, I think, will grow, Anthony. Look, the third-party suppliers have meaningfully outperformed, full stop. The team at ADMA that does our proprietary RSV screening assay and testing, they've got it under control. They've ramped up. I mean we invested time, money, effort, blood, sweat, tears to get to this point. And we feel really, really good about the supply chain continuity and the ability to rapidly identify these donors and collect that plasma from our third-party providers. As I mentioned, and I think folks can see in the contracts, I know that there are some terms that are redacted, but there are financial incentives for our third-party suppliers to hit our target collection goals. They all want their bonuses and by [dollar ], we want to pay their bonuses. So I think it's a very symbiotic relationship. I think it's going very, very well. And again, I cannot emphasize enough about how good the team has done here at ADMA, but our third-party suppliers have meaningfully outperformed. 2026 conversations with our third-party suppliers are going well. We feel like we're in a great position to collect more plasma than we did this year for next year. And that's ultimately going to give us confidence into '27, '28 and '29. So things are going very, very well from a plasma supply standpoint. We're building inventory. We've got the inventory we need to be successful. And we feel like we're in a great position to at least meet, if not exceed the upwardly revised guidance targets that we've set for 2026. Operator: Ladies and gentlemen, this will conclude our question-and-answer portion of the call. I'd like to turn it back over to Adam now for additional closing remarks. Adam Grossman: Thank you, everybody, for taking the time this afternoon. We really appreciate your continued support of ADMA Biologics. And if you have an ADMA Bio center or one of our third-party centers near you, please go donate plasma, save a life. And to the ADMA team that's listening, thank you for all you do. Let's crush it until the end of the year. Thanks, everybody. Have a good afternoon. Operator: Ladies and gentlemen, this does conclude the conference call for today. We appreciate your participation, and you may now disconnect.
Operator: Ladies and gentlemen, welcome to the Novonesis Interim Report for the First 9 Months of 2025 Conference Call. I'm Lorenzo, the Chorus Call operator. [Operator Instructions] And 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 Tobias Cornelius Björklund. Please go ahead. Tobias Björklund: Thank you, operator, and welcome, everyone, to the Novonesis conference call for the first 9 months of 2025. As mentioned, my name is Tobias Björklund. I'm heading up Investor Relations here at Novonesis. In this call, our CEO, Ester Baiget, and our CFO, Rainer Lehmann, will review our performance for the first 9 months of the year as well as the outlook for 2025. Attending today's call, we also have Tina Fano, EVP of Planetary Health Biosolutions; Henrik Joerck Nielsen, EVP of Human Health Biosolutions; Andrew Taylor, EVP of Food & Health Biosolutions; and Claus Crone Fuglsang, Chief Scientific Officer. The conference call will take about 45 minutes, including Q&A. Please change to the next slide. As usual, I would like to remind you that the information presented during the call is unaudited and that management may make forward-looking statements. These statements are based on current expectations and beliefs, and they involve risks and uncertainties that could cause actual results to differ materially from those described in any forward-looking statements. With that, I will now hand you over to our CEO, Ester. Ester, please. Ester Baiget: Thank you. Thank you, Tobias, and welcome, everyone. Thank you for joining us this morning. Please turn to Slide 3. Thank you. We continue to deliver on our promises, and on the back of a strong first half of 2025, we delivered organic sales growth of 8% in the first 9 months. The third quarter was stronger than expected, including some positive timing effect and grew by 6%. Growth was broad-based and mainly volume-driven as pricing contributed by around 1%, both in the first 9 months and in the quarter. The exit of certain countries impacted organic sales growth negatively by around 1 percentage point in the first 9 months and by around 2 percentage points in the third quarter. Emerging markets were particularly strong at 12% growth, driven by increased local presence and tailored solutions for different customer needs. We continue to invest in these markets to further drive growth and fulfill our strategic goals. Since late 2024, we have made significant investments in customer-facing activities with commercial resources in emerging markets growing at more than twice the rate of developed markets. Growth in developed markets reached 6% with solid performance in both Europe and North America. Sales synergies are well on track and contributed close to 1 percentage point with positive impact across the businesses. The integration of the Feed Enzyme Alliance acquisition, which closed on June this year, is progressing as planned, and we are already now seeing the benefits from a strong Biosolutions portfolio and being closer to customers. Performance since closing is in line with expectations. We launched 4 new Biosolutions in the quarter, bringing the year to 19 in total. As an example, in Food & Beverages, we have launched innovation that tapped into higher consumer demand for healthier and more nutritional products, including high-protein solutions. Another example of innovation, tapping into growing consumer demands includes high-performance solutions for quick and cold wash cycles in Household Care. The adjusted EBITDA margin for the first 9 months of the year was 37.3%, an increase of 1.3 percentage points compared to last year. The margin includes significant currency headwinds, showing the strong underlying operational performance, while also we continue to invest for growth. Central to our growth performance and strong performance is Novonesis' unique ability to deliver solutions that enhance productivity, enhance efficiency, quality, bring health benefits and sustainability for our customers and consumers. While our Biosolutions typically account for a small portion of our customers' costs of goods sold, they play a significant role in enabling value creation. Additionally, our well-diversified presence across industries and geographies provides resilience and strength to our overall performance. After strong 9 months performance, including favorable timing in the third quarter, we'll leave the bottom end of the range and now expect organic sales growth to be between 7% to 8%. This includes an indication of mid-single-digit organic sales growth for the fourth quarter. We expect the adjusted EBITDA margin to be at the lower end of the 37% to 38% range, continuing to absorb the significant currency headwind compared to the initial outlook for the year. I'm also pleased that the strong earnings translate into healthy cash generation. And with that -- with this, let us now look at the divisional performance in more detail. Let's start with Food & Health Biosolutions. If you could please turn to Slide #4. Thank you. The Food & Health BioSolutions division delivered 9% organic sales growth in the first 9 months of the year, and adjusted EBITDA margin was 35.6%, an increase of 30 basis points. In the quarter, organic sales growth was 6%, including the negative impact of around 5 percentage points from the exit of certain countries. For 2025, we expect this division to deliver organic sales growth within the same range as for the group with relatively stronger growth in human health. Please turn to Slide #5. Thank you. Food & Beverages delivered 8% organic sales growth in the first 9 months and 5% in the quarter, including the impact of exiting certain countries. Growth was mainly driven by volume, where pricing contributed positively and in line with group level. Growth in the first 9 months as well as for the third quarter was anchored across most categories with continued strong momentum in Dairy, including positive impact from timing. Performance was mainly driven by upselling and strong customer adoption of innovation. In Fresh Dairy, we continue to see increasing demand for our tailored solutions in the high protein space and in bioprotection, supported also by healthy underlying global demand for yogurt. Additionally, in Cheese, customer conversion contributed to growth. Baking, Meat and Plant-based solutions also saw strong growth mainly driven by innovation and increased penetration. The Beverage segment declined, impacted mainly by lower end market volumes. Synergies contributed to growth and in line with expectations, supported by cross-selling and increased commercial scale across Food & Beverages. On the innovation front, we launched 2 new products in the quarter, making it 10 in total for the first 9 months. Growth in 2025 in Food & Beverages is expected to be broad-based, including a positive impact from synergies. Please turn to Slide #6. Thank you. Human Health delivered 10% organic sales growth in the first 9 months of the year and 8% in the third quarter. Again, growth was mainly volume-driven and negatively impacted from the exit of certain countries. The release of deferred revenue contributed around 1 percentage point to the growth for both periods. In the first 9 months, the development was driven by a strong performance in both Dietary Supplements and Advanced Health & Nutrition. Synergies contributed positively to growth and in line with expectations. Dietary Supplements grew across regions, led by solid momentum in North America. Performance in Advanced Health & Nutrition was supported by Advanced Protein Solutions, as we continue to ramp up revenue with our anchor customer. Growth in Early Life Nutrition was led by HMO. In the third quarter, growth in Dietary Supplements was driven particularly by strong performance in North America across subcategories with Women's Health and the Healthcare Practitioner Channel as a strong contributors. In Advanced Health & Nutrition, the drivers for the third quarter were similar to those for the first 9 months. For 2025, growth in Human Health will be driven by a continued positive momentum in dietary supplements, supported by a positive impact from synergies and by Advanced Health & Nutrition, including the continued progress with our anchor customer. Deferred revenue is expected to contribute around 1 percentage point for the growth for the sales area. Please turn to Slide #7 for -- and let's look at Planetary Health. Thank you. Planetary Health Biosolutions delivered 8% organic sales growth in the first 9 months of the year. The adjusted EBITDA margin was 38.7%, an increase of 2 percentage points. In the third quarter, organic sales growth was 6%. For 2025, we expect this division to deliver organic sales growth around the low end of the group with relatively stronger growth in Agricultural, Energy & Tech. Please turn to Slide #8. Thank you. Household Care delivered 7% organic sales growth in the first 9 months of the year and 6% in the quarter. Growth was mainly volume driven and with positive contribution from price on par with the group level. Emerging markets contributed significantly to the strong performance, both in Laundry and Dish, supported by solid growth in the developed markets. Performance was driven by increased market penetration as well as innovation. Growth in the third quarter was positively impacted by timing, easing the impact of end market normalization in developed markets. On the innovation front, we launched 1 new product in the third quarter, Pristine Advance, as part of the Freshness platform. This launch targets consumers seeking energy-efficient, time-saving laundry solutions, as it delivers deep cleaning and fresh results even in quick and cold washing cycles. Key growth drivers for the year continue to be innovation, increased penetration, pricing as well as industry volume growth, where we see a normalization in developed markets through the second half of the year. Please turn to Slide #9 for Agriculture, Energy & Tech. Thank you. Agriculture, Energy & Tech delivered organic sales growth of 8% in the first 9 months and 7% in the third quarter. This was driven by a strong growth in energy and supported by tech and agricultural. Growth was driven mainly by volume, and pricing contributed positively, in line with the group. Growth in energy was led by Latin America and India, driven by increased ethanol production capacity and a strong growth in Europe. Growth in North America was also supportive, driven by greater adoption of innovation and growing ethanol production volumes supported by increasing exports. Additionally, a ramp-up in second-generation ethanol and penetration of Biodiesel Solutions also contributed positively across geographies. Growth in agricultural was driven by both animal and plant, while performance in Tech was led by increasing demand for solutions for biopharma production. Growth in the third quarter was driven by similar factors, as those for the first 9 months, including a strong performance in Energy, supported by Agriculture. For 2025, growth in Agriculture, Energy & Tech is expected across all industries, supported by a positive impact from synergies. Growth is expected to be led by Energy. And now, let me hand over to Rainer for a review on the financials and the outlook for 2025. Rainer, please? Rainer Lehmann: Thank you, Ester, and good morning, everyone, and welcome to today's call also from my side. Let's turn to Slide 10. Please note that for the year-on-year comparison figures presented today, we have used pro forma figures as our baseline comparison for year-to-date 9 months numbers. The corresponding IFRS-based figures are available in the statement released this morning. Q3 year-on-year figures are IFRS based and fully comparable. In the first 9 months, sales grew 8% organically and 7% in reported euro as currency provided a 3 percentage point headwind while M&A impacted development positively by 1 percentage point, driven by the Feed Enzyme Alliance acquisition we finalized in June. In the third quarter, sales grew by 6% organically and by 4% in euro. Currency headwinds continued to be significant and amount to 5%, but were offset partly by the 3% positive contribution from the Feed Enzyme Alliance acquisition, which was in line with expectations. Turning to our profitability. The adjusted gross margin was 58.9%. This is an improvement of 250 basis points year-on-year. Lower input costs, including the cost of energy as well as economies of scale and productivity improvements led to the strong development. Pricing and synergies also had a positive impact, while currencies impacted negatively. The adjusted EBITDA margin was 37.3%. This was 130 basis points higher than the first 9 months of last year and explained by scale, the improvement in gross margin and synergies, countered by strong negative currency effects as well as expected reinvestments to support growth. Please note that the divisional adjusted EBITDA margins for the quarter are slightly impacted by minor year-to-date adjustments, reflecting divisional performance. Needless to say, though, that both divisions continue to deliver strong profitability. We continue to invest in our business. And as Ester mentioned, we are further stepping up our commercial presence and customer-facing activities, particularly in emerging markets. Special items were around EUR 50 million and primarily consists of transaction costs related to the Feed Enzyme Alliance acquisition. It also includes integration expenses as well as some initial expenses for the new global ERP system related to the combination. The diluted adjusted earnings per share was EUR 1.19, an increase of 20% compared to first 9 months of last year. If we adjust for PPA amortization, the earnings per share were EUR 1.54, which also represents an increase of 20% compared to the year before. Operating cash flow amounted to EUR 193 million in the first 9 months, which is an increase of around EUR 90 million compared to last year. This was driven by the improvement in net profit, partly offset by an increase in net working capital, mainly from higher inventories and increased receivables resulting from a strong sales performance. Due to the still low CapEx activities, which we plan to ramp up in Q4, free cash flow before acquisitions increased by 16% to EUR 668 million for the first 9 months of the year compared to EUR 576 million last year. With this, let's now turn to Slide #11 to talk about the outlook. Please note that the outlook is also based on current levels of global trade tariffs and current foreign exchange rates. And as Ester mentioned, we're lifting the bottom end of the range of the organic sales growth outlook and now expect 7% to 8% for the full year, with an indication of mid-single-digit organic sales growth in the fourth quarter. This is a result of a strong first 9 months performance, including favorable timing in the third quarter. Growth will continue to be driven mainly by volumes and with a similar positive pricing impact of around 1% across both divisions. Sales synergies are still expected to contribute around 1 percentage point to the organic sales growth for the year. For the adjusted EBITDA margin, we expect to be at the lower end of the 37% to 38% range. This includes significant currency headwinds of around 1 percentage point compared to our initial expectations as our adjusted EBITDA is fully impacted by currency fluctuations. As a reminder, please note that we show the FX hedging gains and losses as part of the net financial items below the EBIT line, protecting our net profit. In conclusion, and based on the results from the first 9 months of the year, we're in a strong and confident position in our ability to achieve our full year outlook. With this, I will hand back to Ester for a wrap-up. Ester? Ester Baiget: Thank you. Thank you, Rainer. Could you please turn to Slide #12? Let me summarize our message here today. Novonesis' diverse portfolio of innovative biosolutions, broad market reach and unique scalable production setup continue to drive strong performance. With the results we're presenting here today, we show that we continue to deliver on our promises with the strength and the resilience of our business model. We continue to execute successfully on our strategic priorities, positioning ourselves firmly to deliver on our 2030 targets. And with that, we're now ready to open for Q&A. Lorenzo, if you could open the Q&A, please? Operator: [Operator Instructions] The first question comes from the line of Thomas Lind from Nordea. Thomas Lind Petersen: So 2 questions from my side. The first one is regarding pricing. At the CMD last year, you said that you were aiming for pricing up until 2030 of 1% to 2% annually. This year, it's 1%. But given the tariffs impacting your business, I would assume that you would take price to sort of offset some of the impact here. So maybe going into -- also to '26, is it fair to assume that 2% pricing in '26 is more likely than the 1%? And then the second question is just regarding your 19 new product launches here in '25, which is impressive. But still, it seems a little bit like a slowdown, at least when comparing obviously to the impressive 45 product launches last year, and then, just 4 here in Q3. I would assume that given the revenue synergies, we would see sort of a ramp-up in product launches or at least that's just my expectations. But yes, if you could put a few words on that, that would be great. Ester Baiget: Excellent. Thank you very much, Thomas, for these very good questions. Let me start with the comments and questions on pricing, and then, I'll pass it to also to Claus to bring further color on innovation. It is true. We're very pleased with our 8% growth year-to-date, robust growth, mainly volume growth and also from pricing. And this is a growth -- the quality of that growth year-to-date, it gives us a very high level of comfort. We grow across all geographies, across all segments, also with double-digit growth in emerging geographies. The 1% price, it is an area that we committed to. We see the impact translating down in the bottom line. And regarding your question on tariffs, it's important to mention that most of what we produce in -- that we sell in North America, it's produced in North America. And then where it's not, then we see also pricing as a driver of ensuring that it's a net neutral effect for the year, which we continue to stay committed to. Moving forward, we are in a really good place of comfort, mainly particularly on the volume growth, the underlying strength of our business model, where pricing will continue to be a driver of growth. And yes, on the 1% to 2% CAGR for the period on pricing that you indicated to for the strategic period. Then, regarding innovation, before I pass it to Claus, I would like to remind you that -- and please let's all remind us that the solutions that are less than 5 years old, they continue to contribute to whom we are with more than 25 -- more than 20% of our revenue is for new launches. And the quality that we bring in continues to be the driver of growth. We enable value growth for our customers through innovation, through solutions that they lead to higher yield, higher efficiencies, higher productivity, differentiated claims. And then I would invite you to look, yes, at the 19 year-to-date, but for sure, the continued contribution that innovation puts on the strength and the quality of our growth. Claus Fuglsang: Yes. Thank you, Ester. The 19 launches year-to-date is actually on plan and what we expected. We expect some acceleration here in Q4. It's not about hitting the same number as last year, but the impact, of course, it makes in the market in terms of sales growth and contribution to revenue. So we are pretty happy with the performance. As Ester said, we are well above the 20% of sales from new products. So thank you. Operator: The next question comes from the line of Thomas Wrigglesworth from Morgan Stanley. Thomas Wrigglesworth: Two from me, if I may. Firstly, on Household Care, could you break out the difference in performance between emerging markets and developed markets? Obviously, there's all the data we see in developed markets from your customers is obviously looks very volume negative. So it would be great to know the kind of split of growth between those 2. And secondly, on the Dairy performance, how much of the growth in Dairy do you think was a function of pull forwards? And associated with that, as you win a customer adoption, is there a kind of a preloading sale that takes place that means that growth becomes harder and harder because as adoption rates and penetration increases, you effectively have a high base, and there's less people to adopt in the future? So I'm just kind of trying to get a sense of where we are in that high protein adoption phase as you see it today. Ester Baiget: Thank you very much, Thomas. I will let Tina bring color on your question on Household Care, and then, Andrew on Dairy. Tina Fanø: Yes. Thank you so much, Thomas. So the performance in emerging markets is a key growth driver in Household Care. And it is a result of the strategy we have had for a number of years, where we have been investing in order, both on innovation and also on feet on the ground in order to cater for these markets. So Household Care is significantly outgrowing the developed markets in Household Care. In terms of their relative size, I assume you know the split between emerging markets and developed markets for the group, and Household Care is a bit more exposed than group to the emerging markets. Andrew Taylor: And then thank you. This is Andrew, and thank you. In terms of your questions on Dairy, a couple of things, so we did see some positive timing effects in Q3 as some of the ramp-ups from our customers, especially in North America, came a bit quicker than we had expected. And then, if you kind of take the second piece of the question, because they're clearly related on the loading, I would separate it into 2 types. So there's sort of the new innovations that you're driving across the Dairy value chain. So things, for example, solutions for high-protein yogurt, those tend to have a natural cycle, but there's many of them over time. With regards to productivity, and then, also DVS conversions, we've talked about before, those do have a bit of a loading, but none of them is big enough to really drive a huge preloading effect overall for the business. And the exciting part is we see a continued pipeline of those opportunities over time. Operator: The next question comes from the line of Georgina Fraser from Goldman Sachs. Georgina Iwamoto: One of them is a follow-up, if we could hear a little bit more about Dairy, and strength there is particularly impressive. And I'd love to hear a bit more about what you're seeing in emerging markets and the sustainability of those trends medium term. And then second question is on Beverages. So I think it's the only market that you're seeing that looks a bit weak. It's declining. Should we expect these trends to continue? Or do you have any product launches or customer wins up your sleeve? Ester Baiget: Thank you, Georgina. We feel also very pleased about where we are and particularly on starting to see the fruits of the seeds that we put in the past. We have been investing in emerging markets. We have been investing in innovation, and we see, reflected in the numbers, the translation of those investments into growth. And now, I'll pass it to Andrew. Andrew Taylor: Yes. Thank you, Ester. So taking those 2 things in turn. So with regard to emerging markets, the drivers there are a few things. One is just the fundamentally quicker underlying volume growth of emerging markets vis-a-vis domestic markets -- or sorry, developed markets. The second thing that I would call out specifically is we have been investing in emerging markets over the years. We are seeing the benefits of having local presence, being able to go more direct because that actually just leads to a quicker share as well as the overall market growth. And the third thing I'd highlight, which is a bit different, is there's parts of the Dairy market that are relatively newer in big parts of Asia. So for example, cheese in China. Cheese in China, we're seeing good growth in off a small base. But because we have leadership in that technology, we're able to be that partner of choice in China. So the combination of those 3 things is really what we're seeing. With regards to Beverages, I think everyone's seen there's challenges in the alcoholic beverage market across the piece. We are not immune to those volume challenges. We're working really hard, though, to actually drive better both penetration of the existing solutions, but launch the next generation of solutions. That, of course, takes time, but we're working really hard to continue to grow in Beverages. Operator: The next question comes from the line of Alex Sloane from Barclays. Alexander Sloane: The first one, actually, a follow-up on Dairy, in the first half, you talked about sort of new enzyme solutions to help maximize whey byproduct value streams for cheese customers. I mean, clearly, we're seeing we've very strong demand for whey right now given added protein formulation trends in food. So I'm assuming there's quite a lot of customer appetite on this. I appreciate it's pretty quite early days, but maybe, Andrew, you could talk to the traction you're having here and in terms of customer engagement and timing around this commercialization opportunity, it would be great. And you did flag some cheese conversion tailwinds in the U.S. So it would be great if you could remind me where you are in terms of kind of global conversion to DVS cultures in cheese, which I think has more headroom than yogurt. And then, if I could squeeze in 1 more for Rainer, just in terms of the cost outlook into '26, how is that looking on energy and sugar, please, based on the sort of hedging you have, assuming the latter, maybe some tailwind? Can that offset residual FX pressures that you might be facing on the margin side in the first half? Ester Baiget: Thank you, Alex. Those were 3 questions, the way I count them, but let's move ahead with that. Beautiful that you double-click on Dairy and the impressive results that we continue to outgrow the markets that we are present. And this is a simple formula. We enable value creation, value growth for our customers through yield, through productivity and also through differentiated claims on health, on high protein. And by staying very close with our customers, also in emerging geographies, I mean, we out -- in China, for example, we're growing in a declining market. That's the formula that's driving the growth. But I'll pass it to Andrew and Claus to build up on your first question, and then, Rainer afterwards. Andrew Taylor: Thank you. I'll take the first part of the question and then turn to Claus. So in terms of the whey solutions, I think the way that Ester put it is exactly how we see it, which is our customers are looking for increasing productivity and increasing valorization of some of the things that historically have been treated more as offtakes. So we have a lot of interest from our customers around the world on this. And this is where being that preferred partner is so important. They're only going to work -- the best customer is only going to work with 1 player on this, and we really have invested heavily over the years to be that 1 player. Maybe, Claus, you can talk a little bit about the status of the technology. Claus Fuglsang: Sure. It's still early days. While we do have technology that will modify solubility of proteins with this, whey is about protein and protein solubility and functionality, it's still early days. We see the customer pull and interest in collaboration on innovation, but we also expect that we will need to develop new solutions while we'll start, hopefully, getting traction on existing. Andrew Taylor: And then taking your second question before turning it back to Ester, we do see significant headroom still in the DVS conversions. That conversion rate is about 60% around the world. Obviously, higher in developed markets, lower in emerging markets, and that's where our direct presence in those markets is so important. Rainer Lehmann: So Alex, coming to the -- of course, I can't give you a guidance for 2026, right? We're all aware of that part. But if you think about it right now, we obviously benefited from quite some lower energy. I don't think this is going to go any lower, to be honest. So that gives you an indication there. And actually, we do not hedge raw materials on our normal production. So there, we basically are buying on the normal market, and we have to see how this develops, to be honest. And these are uncertain times. But, of course, also you've mentioned the FX, the U.S. dollar, which came down quite significantly and actually in the last days. Let's see how this -- it's quite a volatile environment, but we will be able with our also scale to actually counteract that. Claus Fuglsang: Maybe a quick comment. We can also -- that's the good thing about our technology, it's versatile, and we can actually change between certain types of raw materials. So it's not necessarily glucose. It can be other input costs in terms of carbon. Operator: The next question comes from the line of Lars Topholm from DNB Carnegie. Lars Topholm: Congrats with a very good quarter. Two questions from me, please. I wonder on Household Care, if you can comment on how coming bans on microplastics is affecting your business now? And maybe for now, this is mainly Europe, I guess. But also, how you see this as a potential driver for the U.S.? And then I wonder what the status is on HMO approval in China. Ester Baiget: Excellent questions, Lars. Tina and Henrik, please. Tina Fanø: Yes. So let me start with the Household Care. So in general, as you also know, Lars, and we've talked about a number of times, the -- one of the strategy in Household Care is, I would say, that 3 elements: differentiation, allowing new claims for our customers, it is a matter of replacing chemicals, and then, it's a matter of the investment in emerging markets. And you are hindering on #2 here with replacement of other ingredients. And a ban on microplastics is exactly talking to that tendency. So with our technology base, we are capable of replacing a number of compounds in the detergent matrix, including things leading to microplastics. And that is also one of the key growth driver we have seen, not only in developed markets, but in fact, also in emerging markets because there is a wish to go for more cleaner formulas, to go for quicker and faster, and at the same time, lower temperature washing. Lars Topholm: And Tina, in terms of penetration by those technologies, where are you on the curve? Is this in its infancy? Or are you already there? Or how should we think about this looking maybe 3 or 5 years ahead, please? Tina Fanø: It is in the early days. And it keeps evolving also, what it is we can replace. As you know, I have been in the industry for many years. And if you think about what we thought we could replace 20 years ago, this is completely different, so it is in its infancy. Henrik Nielsen: And your question on HMO in China. Good question. It's the largest market in the world on infant, as you know, and the most premiumized. Recently, we have seen now recipes approved, which is what everybody initially was waiting for with HMOs. So now HMOs can actually make their way into infant formula and into the market. We are the only player that has 5 HMOs approved in China. We are not yet in a recipe in the market, but we're working with all the leading players in China to get into products. It's difficult to say now when that will happen. But the good news is that the market is now open. Operator: The next question comes from the line of Nicola Tang from NBP (sic) [ BNP ] Paribas. Ming Tang: First, I was wondering if you would be able to quantify this impact from the pull forward of orders in Q3. I was just trying to have a better understanding of the underlying growth. And how do you actually know, particularly in Household, that it was a pull forward rather than just an indication of better demand? And do you have a view on current inventory levels for your customers across the wider business? I was wondering if there's any areas where customers might have built more safety stock given the tariff uncertainty. But equally, have customers actually reduced inventory too much, and so, we're having to pull forward orders as a result of that? And the second thing I wanted to ask about, I think now there's about 300 basis points difference in EBITDA margins between the 2 divisions on a year-to-date basis. I was wondering if you see any structural reasons why the Food & Beverages and Human Health profitability will be lower going forward? Or do you expect both divisions to hit your 39% target by 2030? Ester Baiget: Thank you very much, Nicola. We're really pleased on the performance that we had year-to-date with 8% growth. And yes, this is including some timing effects in Q3. And with that, we also aim to mid-single-digit growth for Q4. It's important to mention when we -- what we feel very pleased about is that we continue to deliver on our promises and what we said we would do. We said we would have a stronger first half than the second half, and that's where we are in. And also, we said, and we continue to say, we are very close to our customers, and we are there to enable that growth. We have been investing across the whole globe and particularly in emerging geographies on driving growth. And we see some timing effects from 1 quarter to the other. There has been in Dairy, maybe on some -- in cheese on the transformation being a little bit ahead from one quarter to the other, it's okay, we are very close to our customers and whenever that happen, also in emerging geographies, maybe a little bit faster than 1 quarter to other. We don't look for the quarter. We're here for the full year. And the lifting of the low end of the guidance and the comfort of how we're going to finish the year strong, including the impact of emerging -- of exiting certain countries, all in that together, leading to your second point of the dynamics in the market. We live in the same world that you live. But at the same time, we continue to see the strength of the drivers that trigger the underlying growth of our business. We enable value growth for our customers, and that's strong. That's today, and we feel very comfortable on -- we're not going to go into the guidance for next year, but we feel very confident on delivering on the strategic targets that we committed on the 6% to 9% growth until -- CAGR until 2030. Then the profitability of the business, strong and bold across all areas. And I will pass it to Rainer to build on that. Rainer Lehmann: So regarding the differential in the 2 divisions regarding profitability, yes, you basically answered -- your answer was in your question, right? Because it's clearly on the Human Health and HMO side. There we have a dilutive impact, that is known, that, of course, over time. And then with scale, we will improve the profitability. But let me remind you that really both divisions run in a very high profitability, especially compared also what else is out there. So yes, we're going to improve, it's going to improve and it's going to -- the gap is going to narrow, I would say. Operator: The next question comes from the line of Sebastian Bray from Berenberg. Sebastian Bray: Can I start with the financial items line? And what would be expected for '26, because the consensus seems to only have a modest step up in this? And my understanding is that there are EUR 20 million to EUR 30 million of FX hedging benefits, and you have the annualization of the EUR 1.3 billion of debt that was placed to purchase the DSM Feed Enzyme business stake. What level of financial items cost step-up would be reasonable in 2026? Could it go from, let's say, EUR 75 million all the way up to EUR 105 million, EUR 110 million? And my second question is on the bioenergy market. This seems to have been fine in Q3. It's not really commented upon in the release, but -- is anything changing there? Is, basically, Novonesis still taking market share of everybody? Is 2G ramp-up proceeding as expected? Any changes incrementally on what's expected as we move into 2026? Ester Baiget: Rainer will -- thank you, Sebastian, and Rainer will answer your first question, and then, Tina build on Bioenergy. Rainer Lehmann: So my answer is actually going to be only very limited because I'm not going to give you -- or can give a guidance for a specific 2026 on the financial items. We'll do that once we finish the year, and then, of course, publishing in February and then giving the outlook will, as we do always, give an indication of our finance line items. But generally, your line of thought goes, is in the right direction. Tina Fanø: And on Bioenergy, you are right on the market in Q3. And also, if you look in the beginning of the year, there is growth in the North American market. I assume that's the one you're referencing, Sebastian. But overall, in that industry, I think it's important to think about the diversification story we have talked about so many times. So it's the geographical diversification, which is helping us, both in the quarter and year-to-date. You have heard me talk about India as well as Latin America as key growth drivers. We have also talked about the feedstock diversification, where we -- and also both year-to-date and especially in the quarter, we see good growth from biomass or second-generation ethanol as well as biodiesel. So all of that is contributing to the growth. North America is a more -- it's a big part of our business, but it is a more slow in growing, where we are growing roughly in line with market. If you think about specific market developments, I would say -- the fundamentals remain the same. We do see both India and Brazil talking about higher blend rates for first-generation ethanol. 2G is also continuing to get online. You know we have plans both in Brazil, India and also in Europe. And biodiesel plants is also coming on. So the growth drivers remain intact, and they are all supporting the growth year-to-date. Operator: The next question comes from the line of Chetan Udeshi from JPMorgan. Chetan Udeshi: I had actually 2, both are related in a way. One of the things -- or one of the trends we've seen over the past year in the broader specialty chemical ingredient market is increasing competition from China, India, and whereas you guys are growing very, very fast in emerging markets, and I'm -- I mean, I'm sure based on what I've seen, there are regional players that you compete with in both India and China. So I'm just curious what sort of regional competitive dynamics do you see across your businesses because it's quite interesting that you're growing so fast in emerging markets where others are actually seeing much more competition. The second question related is -- we saw IFF announce a collaboration with BASF on the detergent enzymes and solutions side of things. Do you have a view on what that might mean in terms of competition for Novonesis in the Household Care market down the line? Ester Baiget: Thank you, Chetan. Very good questions. We're pleased on our growth in emerging geographies, and we see it as an outcome of self-help efforts that we have made in the past. And we also see it as a -- simply the outcome of the strength of our solutions and being close to our customers in a market, which is in demand of new answers. Our solutions enable higher yields and productivity, are also in emerging geographies and also differentiated claims for consumers that they are seeking for new answers. And we have been investing in the last years on more boots on the ground to be able to play and co-create with our customers, particularly in emerging geographies. Powder lab in India for Household Care or in Latin America or baking lab in Turkey or more capability for Dairy in China, these are self-help efforts that we have made that we see them reflected now in growth. We see -- of course, we live in the same world that you see, and we see other players in the industry. But the formula of success for our customers, it is listen, understand their needs and then provide them with bio-based solutions that enable them growth through high efficiencies, through bringing health claims, through bringing solutions that they would not be able to do without our products. And that's the model that we are investing combined with a robust global asset footprint that we supply reliably, and we are there with our customers to deliver that growth in a resilient and predictable way. And I'll pass it to Tina on Household Care. Tina Fanø: Yes, and I'll be relatively short, Chetan. As we talked about also in the question from Lars Topholm earlier, what we are doing, and let me focus in on that compared to what others are doing. So what we are doing is we invest in innovation. We invest in innovation with our customers, and that includes replacing chemicals. So we go in and replace polymers, we go in and replace brightness, microplastics and so forth. And that is one of our growth drivers in Household Care. That is the winning strategy as we see it. Ester Baiget: One last question, please. Operator: Our last question comes from the line of Soren Samsoe from SEB. Soren Samsoe: Congrats with the result. So first, on Dairy, just if you can indicate a bit more on how your growth is because it must be quite strong double digit given that you have almost 10% growth in Q3 and that brewing is negative. Then, also, given that milk prices are very low than we have historically seen, sometimes cheese manufacturers producing for inventory, is that giving you a temporary boost in Dairy at the moment? And then secondly, on sales and distribution costs, they're going up quite a lot, but maybe you can give us -- or quantify how much is up if you adjust for DSM? And also what it is that you're investing in commercially, that could be interesting? Ester Baiget: Thank you so much, Soren. Andrew, Rainer, please. Andrew Taylor: Yes. On Dairy, the exciting part is our growth is broad-based. So if you look across both geographies as well as the large applications of cheese or fresh dairy, we are seeing good growth in most places. That's really driven by a couple of things, one of which we talked about earlier, which is penetration essentially and underlying market growth, especially in the emerging markets. The second is some of the trends that we're seeing on things like high protein. And the third is, of course, the continued productivity. So we are -- remain excited about the growth coming in to the remainder part of this year and into the next several years. But, of course, that we're trying to drive that market penetration through new innovations we have with our customers on all those places and really position ourselves as the market leader. Rainer Lehmann: Soren, regarding the increase on the S&D cost sales ratio, of course, there is a part of DSM in there. We're not going to specify it directly. But keep in mind that really -- this is a result out of continuous investing in emerging markets, right? What we said we did in the past, and we are going to continue to do so throughout the strategy period. We give you an indication what the overall inorganic contribution is, and it's accretive to the overall EBITDA. So basically, there you also can back into what you think might be the impact on the operational expenses overall. It's not just S&D. Ester Baiget: Excellent. Excellent answer. Thank you very much all for your questions. We're closing the day and looking forward to continue to interact with you within the next days moving forward. Thank you so much.
Operator: Good day, and thank you for standing by. Welcome to the Adaptive Biotechnologies Third Quarter Earnings 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 first speaker today, Karina Calzadilla, Head of Investor Relations. Please go ahead. Karina Calzadilla: Thank you, Jacinda, and good afternoon, everyone. I would like to welcome you to Adaptive Biotechnologies Third Quarter 2025 Earnings Conference Call. Earlier today, we issued a press release reporting Adaptive financial results for the third quarter of 2025. The press release is available at www.adaptivebiotech.com. We are conducting a live webcast of this call and will be referencing to a slide presentation that has been posted to the Investors section in our corporate website. During the call, management will make projections and other forward-looking statements within the meaning of federal securities laws regarding future events and the future financial performance of the company. These statements reflect management's current perspective of the business as of today. Actual results may differ materially from today's forward-looking statements, depending on a number of factors, which are set forth in our public filings with the SEC and listed also in this presentation. In addition, non-GAAP financial measures will be discussed during the call, and a reconciliation from non-GAAP to GAAP metrics can be found in our earnings release. Joining the call today are Chad Robins, our CEO and Co-Founder; and Kyle Piskel, our Chief Financial Officer. Additional members from management will be available for Q&A. With that, I'll turn the call over to Chad. Chad? Chad Robins: Thanks, Karina. Good afternoon, and thank you for joining us on our third quarter earnings call. I'm pleased to share another quarter of strong execution and accelerating momentum across the business. We delivered meaningful wins, sustained growth and further strengthened our financial position. Let's now turn to Slide 3 for a summary of this quarter's highlights. The MRD business delivered major profitability milestones. This quarter, adjusted EBITDA was $7 million, reflecting strong sequential growth. Also this quarter and ahead of plan, the MRD business became cash flow positive, a significant achievement that underscores the strength and scalability of our model. MRD revenue grew 52% year-over-year, driven by robust increases in clinical volume and ASP. This growth reflects expanding clinical utility and broader integration of MRD testing into patient care. Clinical validation continues to deepen. The NCCN guidelines were updated again this quarter, this time in CLL, incorporating MRD-guided treatment options, providing more specific direction on testing frequency and supporting clonoSEQ ID testing at diagnosis. Operationally, we're scaling efficiently. With clonoSEQ now running on the NovaSeq X Plus, we're realizing meaningful cost efficiencies and expanding gross margins. Total company sequencing gross margin improved 10 percentage points year-over-year to 66%, and our focus on operating discipline is paying off. Operating expenses remained stable sequentially, while cash burn continued to decline. Through the first 9 months of the year, we reduced cash burn by 51% versus last year, ending the quarter with a strong cash position of $217 million. Given this performance, we are again updating our full year guidance to reflect a higher MRD revenue range, lower operating expenses and a reduced annual cash burn. Kyle is going to cover the details shortly in his prepared remarks. Let's now turn to Slide 5 for a deeper look at the MRD business. clonoSEQ clinical revenue had impressive growth of 83% year-over-year and 18% quarter-over-quarter. We saw broad-based volume expansion across all reimbursed indications, delivering over 27,100 tests, up 38% versus prior year and up 7% sequentially. By indication, multi myeloma remained our largest contributor, accounting for 42% of U.S. clonoSEQ volume, followed by ALL at 32%, CLL at 10%, DLBCL at 9% and MCL at 5%. This volume growth continues to align with our strategic priorities. First, blood-based testing now represents 45% of volume, achieving our full year goal ahead of plan. And in multi myeloma, blood-based contribution reached 24%, up from 21% last year. Second, community-based testing represents 31% of total clonoSEQ volume with increasing contribution from Flatiron integrated accounts. Third, NHL testing expanded to 15% of total clonoSEQ volume, led by DLBCL and MCL sequential growth. Fourth, ordering HCPs grew 38% year-over-year to more than 4,100 with sequential growth of 9% in academic centers and 12% in community practices. And finally, we tested over 19,400 unique patients in the quarter, a 41% increase year-over-year and 8% sequentially. In addition to volume growth, we saw continued improvement in ASP with U.S. clonoSEQ ASP increasing to over $1,340 per test, reinforcing our confidence to achieve full year average ASP of $1,300 or higher. During the quarter, we achieved several policy wins, including our first large commercial payer coverage in DLBCL and 2 major payers in CLL, bringing our total CLL covered lives to over 260 million. We continue to improve cash collections and expand our reimbursement footprint with new payer contracts. Overall, all ASP metrics and contracting initiatives are trending in the right direction, positioning us well to reach our long-term ASP target of $1,700 to $1,800 per test. Let's now turn to Slide 6 to review progress on EMR integrations. Our EMR integration efforts continue to gain momentum across both academic and community settings. These integrations are a key driver of volume growth and support 2 other important strategic initiatives. The first is to build a scalable moat around clonoSEQ, protecting against new entrants and minimizing disruption from account turnover. And the second is to maximize clonoSEQ's usage across the care continuum by directly embedding into EMR-driven workflow, which translates into more tests per patient. Since last quarter, we've completed 11 integrations, 7 academic and 4 community with 6 of our top 10 accounts now integrated. Among accounts integrated with Flatiron last quarter, volume in these accounts grew 17% sequentially and now represent 24% of our community volume, up from 20% prelaunch. We're also leveraging integration to enable serial testing plans with many ordering providers at Flatiron integrated accounts selecting recurring testing at 3, 6 or 12-month intervals. Importantly, nearly 40% of our commercial tests this quarter came from integrated accounts, which contributes to -- which continues to outpace growth from nonintegrated accounts. Looking ahead, we plan to further expand our EMR footprint and expect continued acceleration from integrated accounts with fewer ordering discrepancies and deeper account retention. Let's turn to MRD Pharma on Slide 7. Our MRD Pharma business delivered a solid quarter with revenue up 11% year-over-year, including $6.5 million in milestone revenue. Multi myeloma remains the largest contributor to our biopharma portfolio at over 60% of our active trials, followed by CLL at 17% and ALL at 9%. We ended the quarter with a backlog of more than $200 million, reflecting strong partner demand and sustained program activity. clonoSEQ is most well established as an endpoint in multi myeloma, where the ODAC and CHMP votes reinforce its role in assessing treatment response and supporting accelerated approvals, particularly in the frontline setting. The momentum is now extending to other lymphoid cancers and driving diversification across our portfolio. Endpoint qualification efforts are underway in CLL and DLBCL, which are already translating into results. 2025 CLL bookings are more than twice what they were last year. Currently, the FDA is accepting MRD as an endpoint on a case-by-case basis in other lymphoid cancers. Of our 19 ongoing primary endpoint studies, 12 are in multi myeloma, 6 are in leukemia and 1 is in MCL. While recent agency news views on surrogate endpoints have introduced some uncertainty, we remain confident MRD will gain broader acceptance as an endpoint for accelerated approval in other lymphoid cancers. As the first and only FDA-cleared MRD assay, clonoSEQ holds a distinct and durable position to capture this market. In summary, MRD is a strong growth engine with multiple levers to increase penetration. Now let's turn to Immune Medicine on Slide 9. Our Immune Medicine business is executing across our 3 strategic priorities. First, we continue to generate large-scale, high-quality proprietary data to develop a digital TCR antigen prediction model. We're making good progress by using our data to train and improve the accuracy of our models. As we deploy these models, we see promising results in multiple immunology applications. One of these applications included the ability to select the best TCRs to use in cancer cell therapy products in partnership with Genentech. Earlier this quarter, we announced the conclusion of our partnership with Genentech following its internal portfolio prioritization. As a result, Adaptive is released from exclusivity and any further obligations related to this partnership. Importantly, the scientific and technical progress we've made along the way allowed us to significantly accelerate both our data generation and our AI/ML modeling capabilities across multiple use cases. We are deploying our knowledge and infrastructure that we built towards multiple high-value partnership opportunities. Second, for our T cell depletion antibody program, we are on track to establish a preclinical data package in our lead autoimmune indication. This quarter, we selected our lead antibody candidate. This key milestone is based on robust potency and other functional characterization data that we generated this year. We've also started planning for CMC tox work, which represents a key step towards IND-enabling studies for this lead T-cell depleting antibody in autoimmunity. As we continue to execute on these 2 focused R&D priorities, we remain financially disciplined and are on track to achieve our 2025 cash burn target between $25 million and $30 million. Now I'm going to pass it over to Kyle to walk through the financial results and updated full year guidance. Kyle? Kyle Piskel: Thanks, Chad. First, I will go over the financial results, including $33.7 million of noncash revenue recognized this quarter from the remaining amortization of payments previously received from Genentech. Total company revenue for the third quarter was $94 million, representing a 102% increase year-over-year. Total company adjusted EBITDA was $28 million compared to a loss of $14.3 million a year ago. Interest expense from our royalty financing agreement with OrbiMed was $3 million, which was $700,000 higher than interest income. Net income from the quarter was $9.5 million. Now and as shown on Slide 10, the revenue and adjusted EBITDA figures, which I will be discussing forward are presented excluding all noncash revenue from Genentech in all periods presented. Looking at this quarter's performance on Slide 10. MRD revenue grew 52% year-over-year to $56.8 million, with clinical and pharma contributing 67% and 33%, respectively. clonoSEQ test volume, including international, increased 38% versus last year to 27,111 tests delivered. U.S. ASP grew 28% to over $1,340, reflecting continued strength in cash collections and improved pricing through our various contracting initiatives. MRD Pharma revenue grew 11% year-over-year, inclusive of $6.5 million in milestones. Immune Medicine revenue from pharma and academic services was $3.4 million versus $5.5 million a year ago. Turning to gross margins and expenses. Total company gross margin, again, excluding Genentech revenue, was 70%. Sequencing gross margin, which excludes MRD milestones, was 66%, up from 56% a year ago. This improvement was driven by operating leverage in the lab from higher volumes, stronger pricing across both clinical and pharma and efficiency gains from the NovaSeq X implementation. Total operating expenses, including cost of revenue, was $83.7 million, up 6% year-over-year and flat sequentially. The year-over-year increase was primarily driven by higher SG&A expenses related to our expected EMR and reimbursement efforts and higher cost of revenue from volume growth, partially offset by lower R&D expenses. Turning to profitability. As shown on the segment reporting table at the bottom of the slide, the MRD business delivered positive adjusted EBITDA of $7 million compared to a deficit of $6.1 million a year ago. Immune Medicine adjusted EBITDA deficit, again, excluding the Genentech revenue, was $10 million versus $8.7 million in Q3 of last year. At the total company level, adjusted EBITDA, excluding Genentech, was a loss of $5.8 million compared to a $17.8 million loss a year ago. Total company net loss for the quarter was $24.2 million, again, excluding Genentech. Turning to our full year 2025 updated guidance on Slide 11. We are raising our full year MRD revenue guidance to a range of $202 million to $207 million, up from the prior range of $190 million to $200 million. This increase reflects stronger-than-expected clinical revenue performance in Q3 and higher MRD milestone revenue for the year. With sustained clinical volume momentum, we now expect to deliver approximately 104,000 tests for the year, exceeding our prior growth target of 35% over 2024. We also expect MRD milestone revenue between $18 million and $19 million, up from our previous $14 million to $15 million range. Overall, this outlook implies 39% to 42% total MRD revenue growth year-over-year and 38% to 42% growth for the MRD base business, which excludes milestones at the midpoint. We are also tightening and lowering the top end of our total company operating expense guidance, including cost of revenue to $335 million to $340 million from our previous range of $335 million to $345 million. We continue to expect roughly 69% of expenses from MRD, 23% from Immune Medicine and the remainder from unallocated corporate costs. Further, we are also narrowing and lowering our full year company cash burn guidance to $45 million to $50 million from the prior $45 million to $55 million range, driven primarily by higher MRD revenue. We expect approximately 15% cash burn from MRD, still anticipate $25 million to $30 million from Immune Medicine and the balance from unallocated corporate costs. It's encouraging to see the MRD business generate positive cash flows, achieve positive adjusted EBITDA on the base business, all while continuing meaningful top line growth. With that, I'll hand it back over to Chad. Chad Robins: Thanks, Kyle. Our results this year highlight the strength of our strategy and the discipline of our execution. MRD is now a profitable scaling business that is delivering consistent growth and margin expansion and Immune Medicine continues to advance key R&D programs and unlock new partnership opportunities for future growth. We're confident in our trajectory and are well positioned to finish the year strong with a solid foundation for long-term value creation. With that, I'd like to now turn the call back over to the operator and open it up for questions. Operator: [Operator Instructions] Our first question comes from Mark Massaro at BTIG. Mark Massaro: On the strong beat and raise. Just a question maybe to start. It looks like your MRD pharma business is becoming a little more recurring in nature than it was maybe a year ago, and it's actually starting to look linear, increasing about $1 million a quarter. I'm not expecting this to continue in a linear way. But can you just give us a sense of the $200 million you have in the backlog, how should we think about that backlog being released, say, over the next several quarters? Susan Bobulsky: Thanks for the question, Mark. Thanks, Chad. Thanks for the question, Mark. So I think first, I'd just say that we are pleased with the performance of the business, and we will reiterate our anticipated revenues for the year. We think that the ODAC, the CHMP decisions in multiple myeloma as well as our strong pipeline in NHL and CNR increased accelerated progress in leukemia this year, all point to a strong potential for 2026 and beyond. We do expect -- we haven't provided guidance next year, but we do expect continuing growth in a similar range to where we've been this year. And I think the backlog, which we will recognize generally over a 5 to 7-year time frame, it is a strong backlog going into the year. And our new bookings have also been quite strong, and we expect that to continue given the role of MRD potentially as an endpoint in additional indications beyond multiple myeloma in the coming years. Mark Massaro: Okay. That's helpful. It's great to see the 38% growth in MRD volume. I guess as -- I'm not asking for hard guidance on 2026 or anything. But based on the fact that you've got Epic integrations, not just Epic, but other EMR integrations, you've got blood increasing, you've got community penetration increasing. You're testing a lot of new patients. There are a lot of drivers that are working in your favor. Is there any reason to think that perhaps a 30% bar is something that you can perform against in 2026 in terms of MRD volume growth? Chad Robins: Mark, thanks for your question. As you mentioned, we're not going to specifically yet come out with 2026 guidance. I can just say all of the kind of underlying factors that you mentioned give us great confidence in the trajectory of the business in 2026 and beyond, and we will provide more specific guidance shortly. Operator: Our next question comes from Sabu Nambi at Guggenheim. Subbu Nambi: So again, in the spirit of just trying to model on clonoSEQ ASPs, can you help us think about next year? I know your long-term target is $1,800. But as we think about next year, it appears clonoSEQ is well on track to hit your target this year. How much should ASPs continue to lift from here? Kyle Piskel: Yes, [ Subu ], I appreciate the question. Look, I won't give a firm number yet on 2026. But what I can say is with the profile of the business and $1,340 in Q3, feel confident about the exit rate that we're going to exit the year at. With the momentum around coverage and not only CLL and what we're seeing in DLBCL as well, I think we're setting our foundation up fairly strong to go into 2026 to have meaningful growth in ASP. And that's where we think we are. And again, I reiterate that $1,700 to $1,800 long-range target, and we'll continue to grow for next year. Subbu Nambi: Perfect. And another one for me. Our mature EMR integrations remaining strong, what do those run rates look like? And if still accelerating for the more mature accounts, how long before some of them actually steady off? Susan Bobulsky: Sure. I can answer that question, Subu. Thanks for asking. As you've seen, our EMR integrations have continued to progress well and to drive growth across really accounts of all sizes, both academic and community. And I'll just take a moment to mention that we don't just see the benefit of growth acceleration, but also we're protecting existing business from competition, and we're increasingly finding ways to utilize tools built within the EMR to help us increase the consistency and the frequency of testing, which will have long-term value for our growth in those accounts over time. We do see that the more mature integrated accounts do continue to grow more quickly than non-integrated accounts. That can vary to some extent based on the size of the account. As you can imagine, more well-penetrated accounts can't sustain those significant accelerations that we see post integration long term, but we see a variety of benefits in those large accounts even if they go back to sort of more stable growth rates after some time. We see that the integration helps democratize ordering. So more HCPs can place orders that reduces the impact of staff turnover. We see reduced HCP workload, which sort of eases the effort we have to put in to maintain that business, and we see -- we're strengthening our competitive moats. So even in those largest accounts, this has long-term benefits. in general, to give you some statistics, when we look at our integrated account commercial volumes this quarter -- in Q3 versus Q2, we saw 9% quarter-over-quarter growth across the entirety of the group, whether they were mature or newer and non-integrated accounts grew 6%. So a 50% increase in the growth rate just looking across the entire group. That group is getting bigger and the number of mature accounts is getting bigger over time, but it's still relatively small. Most of our integrations are less than a year old. So we'll have more to say as this continues, but we are confident that this is a real trend and that it's something that we can continue to build on with some of those tools I mentioned that the EMR offers us to optimize testing. Subbu Nambi: Fantastic. And given we recently initiated in most of our checks, we felt the competition was nonexistent almost or there was no close competitor, maybe a distant second. So when you refer to competitive moat, could you shed light on what kind of tests truly compete with clonoSEQ? Susan Bobulsky: Sure, of course. So in many of our indications, what we're really competing against is sort of lack of testing or use of traditional methods for disease burden assessments that aren't really MRD. And in those cases, we're focused primarily on educating clinicians on the clinical data, the utility, the use cases and now increasingly the guidelines, which are strongly supportive of MRD adoption. There are technologies like you're aware of, like traditional and next-generation flow that are utilized in academic institutions in-house that we have to compete against in those settings. And our data strongly supports the advantage of clonoSEQ over both traditional and next-gen flow, and you'll see some data at ASH actually that will look at that on top of many existing data sets that will continue to be favorable to clonoSEQ. The one indication where we are seeing emerging competition is, of course, in [ diffuse large B-cell lymphoma. And competitors have entered the market. We anticipate we will continue to enter the market in the coming year. But the great news is that we're very confident in our position. We've established strong credibility. We have robust clinical experience. We've run more than 7,000 DLBCL tests in the past 12 months and had more than 900 HCPs order the test. So we're way ahead from a clinical -- from an established clinical base, and we have a number of other established advantages, commercial footprint, relationships our Medicare coverage and now our expanding commercial payer coverage, which we've just started to see really secure a foothold and the fact that we can offer universal testing for all lymphoid cancers. So even in a space where we may have more emerging competition, we do still believe we are well positioned to maintain our market-leading position. Operator: Our next question comes from Andrew Brackmann at William Blair. Andrew Brackmann: Chad, I think you called out recent guideline wins this year and even in Q3. Obviously, we saw those throughout the year. But have you seen those sorts of changes to the guidelines start to impact utilization already? Or is that still something on the come? And then I guess bigger picture here, just on the commercial front, how are those updates perhaps maybe changing the conversation that your team is having with these docs? Chad Robins: Yes. Maybe I'll start and just kind of -- because we have had an impressive list of guideline wins this year, maybe I'll cover them and then I'll turn it over to Susan to talk about kind of the impact that we're seeing from a clinical standpoint. So first, I mean, there's been several meaningful guideline updates in multi myeloma, the recommendation to obtain a clonality ID assessment was really strengthened this year. And this is key for clonoSEQ to help them to reduce the barriers to the initial ID testing. It's also relevant to our education and penetration of the community, which is obviously a key driver of our growth. Also in DLBCL MRD assessment was included in the NCCN and lymphoma guidelines for the very first time. We mentioned CLL in the prepared remarks, the first time that the guidelines include a recommendation for serial MRD assessment and specified a frequency of 3 to 6 months. And also provides additional reinforcement about NGS being an alternative to flow, which Susan just mentioned. So this is really just a great opportunity for us to educate on the data that emphasizes that clonoSEQ can detect disease that's missed by flow below a threshold of 10 to the 4. This is definitely starting. I just want to be clear, these guidelines came out this year. That's certainly a helpful call point to go in with a strong data presentation, but I'll turn it over to Susan to talk about how it's impacting the clinical uptake. Susan Bobulsky: Sure. Maybe I can just give you a couple of examples. So first of all, in multiple myeloma, we've been talking a lot about the [ MIDS ] data, which allows MRD-negative patients to potentially avoid a transplant. And in that setting, we can now, with the support of the guidelines, underscore the value of the ID test at diagnosis to make sure that no patient misses that opportunity. And that opportunity is particularly valued in the community setting where patients have to leave their local doctor to go get a transplant, neither the doctor nor the patient likes that. And so there's a lot of motivation and with the support of the guidelines to say that ID test is now -- there is a stronger recommendation around doing that, it ensures that more patients are accessible to this MIDS message that we're delivering. In CLL, where the guidelines were very recently updated. We're really just getting started, but we are exposing community doctors to some of the potential benefits of limited duration therapy, which many of them haven't experimented as much with yet, but we'll do more and more with the -- we expect upcoming approval of some of the combination regimens that are being referenced in the guidelines now. And so we can talk now about testing frequency in the context of a limited duration therapy in a much more specific way, which is what the community doctors really want. They want us to tell them when to test, who to test and the support of the guidelines just tremendously strengthens our ability to deliver that message. Andrew Brackmann: Susan, maybe a follow-up there. I think in an earlier question, you referenced tools in the EMR to increase the frequency of testing and getting that scheduled maybe. Just sort of practically, what are you referencing there? And I guess, how does that drive the increased utilization here? Susan Bobulsky: Sure. Yes. A couple of things that I'm referencing are things like treatment plans and order sets. So there are ways within Epic, let's say, that a clinician or a department can set up specific sets of actions that they want to take for a given type of patient at a given point in time. And we are now talking to clinicians in our integrated accounts increasingly about how clonoSEQ might be incorporated into order sets, how do guidelines, existing data, well vetted clinical trial designs support specific time points, where are there places where you might want to make decisions? Would you want to have the clonality ID incorporated into the diagnostic workup. All of those things can be facilitated by tools that are built into Epic. Additionally, there are tools that allow you to do essentially analytics and reporting on your patient population. And so for example, very easily and Epic you can pull up a list of all the patients who are within, let's say, 1 month of the end of a frontline induction regimen in DLBCL. And you can make sure that your staff has those patients on their radar to place a clonoSEQ order when they come in. So that kind of thing is incredibly powerful. And it's really where we're -- you're going to hear us talking a lot more in 2026 about those types of things because we're shifting from just get as many accounts integrated as possible. We'll continue to do that, but now we can also look at our integrated accounts and what are all the opportunities to use those tools. Operator: Our next question comes from Sebastian Sandler at JPMorgan. Sebastian Sandler: Congrats on the quarter. My first question is on community. I think that had another solid quarter. It seems to be continuing to accelerate. Can you just help us level set where we stand in penetration into the community, which is where most of the heme cancer patients are treated? And then do you have any color on whether the sequential increase in HCPs from these practices are coming from new accounts versus existing accounts? And I think you've kept your sales force headcount relatively stable. So I'm wondering if you have any plans to expand as you penetrate further into the community setting? And I have a follow-up. Susan Bobulsky: Sure. Thanks, Sebastian. Let me see if I can touch on all of those. So first of all, our community penetration, while we've made substantial headway and now have about 30% of our volume coming from community settings, we still are underpenetrated certainly relative to academic settings and have a very high ceiling in that space. We are taking, as you know, specific steps to drive growth in that setting, one of which is the recent integration with OncoEMR via Flatiron Health. And we've been really pleased with the results we've seen in the Flatiron accounts. I'll just briefly mention that we saw 17% quarter-over-quarter growth in Q3 in our Flatiron accounts. and we're only 1 quarter into our experience, but quite a lot of interest and opt into our serial testing offering in that interface, which we'll learn more about how we can pull those tests through in the coming months. But a lot of potential that I think we can build on with the option of serial test ordering in community settings. In terms of the HCPs, where are they coming from, we have a lot of white space in the community still. And so we are -- while it takes time to break into new accounts, we continue to see new HCPs in both new and existing accounts. In the existing accounts, integration is a big driver of bringing new HCPs on board because, again, it democratizes the ability to order. And the new accounts will continue to penetrate. There are Flatiron accounts that don't yet use clonoSEQ, and so that's a big area of focus, but outside of that segment as well. In terms of the sales force, we've looked at this carefully, and we are comfortable with the 65 reps that we have, of which about half are focused on the community setting. What I'd say is that this is the right number of reps based on what we can see in terms of potential in each territory, the number of accounts and HCPs each rep is calling on, the amount of windshield time that the reps have. We do look carefully at our alignment, and we will occasionally add a territory or collapse the territory when we see some specific opportunity. And over time, we will consider potentially new deployment strategies that could justify additional hiring, but we're not anticipating any significant expansion in the near term. Sebastian Sandler: Got it. Very helpful. And then my second question is on sequencing gross margins. So those had a nice step up. Can you give us a little more granularity on the individual drivers of that improvement? I think more of the uplift from the X transition was expected to fall more in 4Q, but I'm wondering if that benefit was accelerated and had an outsized impact in 3Q? And then any color on how we should think about sequencing gross margins exiting the year would be helpful. Kyle Piskel: Thanks, Sebastian. Yes, I appreciate the comment. Sequencing gross margin was 66%, and that was up from 64% in Q2. I'd say if you drill in a little deeper on the MRD business alone, it was up 3 percentage points and NovaSeq X contributed 2 percentage points of that. So certainly taking out the [ Lion's ] share of the improvement. We were only integrated starting at the end of July, so really 2 months of benefit. So expect it to continue. And in terms of guidance as it relates to exiting the year, we said 5 to 8 percentage points post launch, still reaffirming that. And I think we'll see a continued step-up, especially as the volume continues to grow exiting the year. Operator: Our next question comes from William Bonello at Craig-Hallum. William Bonello: I just want to circle back to the question that Andrew was asking about the EMR tools. Did I hear you right earlier in the call that you said with -- and I need to be clarified whether it was Epic or OncoEMR, but that a physician now has the ability to essentially put in an order that would cover multiple testing time periods upfront. And then if I did hear that right, maybe you can talk a little bit more about how that works, if that's available for all indications, can a practice customize? Are they -- you mentioned some time points, but I don't know if those are fixed order points or a doctor has flexibility around that? And then maybe what kind of lift do you think you might be able to get from that capability in terms of test per patient? Susan Bobulsky: Sure. I'd be happy to talk more about that, William. So the serial testing option is available to our Flatiron integrated accounts. So OncoEMR offers this as an option in their interface that we've taken advantage of. And what essentially happens is when you're placing an order, you have to select from a drop-down whether you'd like a single order or a serial cadence, which can vary from 1, 3, 6 or 12 months. And so it's as simple as selecting from the dropdown. And that is universal for all OncoEMR accounts that utilize their molecular precision NPI tool, which is what we use to provide integrated test ordering. It's across all indications. It isn't customizable in the sense that it looks the same for every practice, but it is up to the HCP what cadence they select. And so we do see variability depending on whether an HCP is going to do blood or bone marrow, depending on whether they're testing in DLBCL or CLL, et cetera. We haven't quantified the specific lift associated with this yet because, as I mentioned, we're only 3 months in, and most clinicians are selecting a 3 or 6 month cadence. And so we are just now getting to the point where we'll be able to start measuring, do we pull those orders through or do the physicians elect to delay or not send the sample. So -- but we are confident based on the early results that we will get incremental test growth from that offering, and we are looking at whether there are ways to extend it to other parts of our business beyond Flatiron. William Bonello: And so if a physician, for instance, selects a 3 month cadence, does that mean that for a period of time, every 3 months, another test is being ordered? I just want to make sure I understand that. Susan Bobulsky: Correct. I mean it's essentially that way, but what happens is it's like a placeholder order. So the order is scheduled into the patient's calendar within the EMR system. And then when that due date comes up, it will sort of pop up for the staff in the clinic and say this patient is due for another blood draw for a clonoSEQ test. The staff still have to take the action to make that blood draw happen before it comes to us and officially count as an order. So none of these orders are appearing in our order numbers. But if we pull them through, which we are actively working to do by putting in place reminders and field-based tactics to ensure that our clinicians are aware that these orders are coming due, we'll be able to -- we expect, pull some number of those through and be able to provide more consistent testing to patients over time. William Bonello: Okay. That's really helpful. And then just a completely different question for you guys. Where are we at in terms of blood today and uptick with blood as sort of a percent of what you're seeing? And what are your thoughts on that looking forward? Susan Bobulsky: Sure. So overall, we have now reached 45% of all MRD tests being performed in blood. And that was actually our goal for the year. So we're pleased to have achieved that a quarter early was to exit the year at 45% was our expectation. We are seeing increases in blood-based testing in both myeloma and ALL, which are sort of traditionally marrow-based tests. We now are at 37% of ALL tests in blood and 24% of multiple myeloma tests in blood. That's each up about 3 to 4 absolute percentage points from a year ago. And we also have increased contribution from our primarily blood-based indications, which include DLBCL, MCL and CLL. DLBCL, in particular, is driving some of the growth in blood-based testing because it's simply becoming a larger portion of our total test base. William Bonello: Sure. Okay. And then if I can, just one last question. You mentioned the national contract wins and just the way the bullet points were on the slide, I wasn't totally sure if you were saying those were related, if there were 2 distinct points, are the rate increases related to just DLBCL and CLL? Or are those across all modalities? And then secondly, did we see any benefit from that this quarter? Or is that all ahead of us? Chad Robins: Yes, I'll start and then, Kyle, feel free to jump on. First, there's a difference between kind of coverage and potentially rate increases, although those can sometimes be combined. What I mentioned in the prepared remarks is that we were -- we obtained coverage, our first commercial payer coverage in DLBCL and that for 2 CLL coverage policies, we obtained kind of further coverage. So those will hit -- those hit now and -- but then you'll see the impact come over time, not -- those wouldn't be reflected in this quarter. Kyle Piskel: Yes, that's right. And the contracting initiatives or wins we flagged were in effect in Q3. So some of that pull through in Q3. We still think there's some room to go just from an implementation perspective with some of those payers that we're still working some of the kinks through, but we'll get there on that front. Chad Robins: Just to give you a good example. Remember, we discussed a major payer win in terms of contracting kind of for Anthem last quarter and the implementation of -- actually probably 2 quarters ago and the implementation happened this quarter. So you do start seeing a lift in terms of your ASP from that. So there's a lag often between contracting and implementation and kind of the rate increase and/or the rate increase. William Bonello: Okay. That makes sense. And when I go back and look at it, I see it's sort of 2 distinct points, right? [ You get ] coverage policy from the 2 plus I am reading that right, though, that there were 3 national payer price increases, like you're saying those -- Kyle, you're saying [indiscernible] Chad Robins: Correct. Kyle Piskel: That was in effect in Q3. Operator: Our next question comes from David Westenberg at Piper Sandler. David Westenberg: So I want to maybe start with the contribution margin of MRD at this point. I mean I know you're maybe not going to give the exact number, but I'm just kind of thinking about how -- as we see growth in that, we see this move to cash flow breakeven and kind of our ability to kind of pace that. And then also, just given the fact that you do have a pretty solid competitive lead in MRD in blood at this point. How are you thinking about balancing investments in sales and marketing, et cetera, to really like push on that competitive advantage, maybe clinical studies or anything else there? Kyle Piskel: Yes. Thanks, David. On the contribution margin comment, certainly, we have control to be able to manage and pace the growth as long as we continue to see and expect to see the growth. Again, this quarter was a great accomplishment to see the cash flow positivity, which gives us some confidence going forward that the business will remain cash flow positive. That being said, we may choose to make some additional investments to press the gas and grow faster, either in volumes and/or in the reimbursement environment. So I think all of those things get combined give us a little bit of control. And as the volume continues to increase, we can decide whether or not we want to reinvest in the business and what areas we want to go after. Chad Robins: Maybe I'll add on to that and then Susan can as well. First, I think it's worth pointing out, even though we've had great growth, there's still a long way to go in penetration in order to fully capture this kind of large and expanding total addressable market opportunity. But particularly in terms of investments, we are continuing to invest in kind of blood-based testing, both in terms of assay improvements and in terms of clinical studies, in an addition to kind of blood-based testing, I think that's a key initiative for us overall is investing in clinical studies to continue to demonstrate the clinical utility of the assay as where a doctor can use our test to kind of improve patient care across the continuum, and we'll continue to make those investments. David Westenberg: Got it. Just real one quick one on the guide, and apologies, I've been jumping between 3 calls here. But is there any seasonality in the Q4 MRD number? I mean I think you've had sequential growth of, I think it was 10%, 10%, 7%. I realize you can't maintain that forever. But I think the guide would kind of imply that maybe the volumes or the ASPs might be a little bit lower than what you've gotten in the quarter-over-quarter. Just wanted to see if you can remind us on the seasonality there. And yes, I'll just stop there. Kyle Piskel: Yes. Yes. As it relates to guide, certainly something we are contemplating with respect to our guidance. Obviously, the volume growth has been phenomenal, and we expect it to continue to be phenomenal. But Q4 is one of the tougher periods with the amount of holidays and ordering. So I think that factored into some of our guide. But again, longer term and into '26, we think there's strong growth ahead of us. So there's a little bit of seasonality in that growth. It doesn't mean we can't beat it, but that is factored into our guide. David Westenberg: Got it. Maybe I'll just squeeze in one quick one. I might be at the end of the queue anyway. So just in terms of your thoughts on outside of multiple myeloma potential to see this as a primary -- or clonoSEQ as a primary endpoint, specifically written in is clonoSEQ or NGS clonality, et cetera? And how far away are we from that? I mean I'm guessing we're seeing a lot of speeding up of clinical trials and really seeing more promising drugs coming through the pipeline because of this. When can we see that advancement to other sorts of areas like CLL, ALL non-Hodgkin lymphoma, et cetera? Susan Bobulsky: Sure. As I think Chad mentioned earlier, we have -- there are active efforts ongoing for both CLL and DLBCL to establish a similar designation as the ODAC provided for myeloma for MRD as an accelerated endpoint for approval. The CLL effort is being led by a number -- a couple of KOLs and in partnership with a broad coalition of pharma partners. We are actually getting engaged in that effort as well directly. And what the leaders of that initiative have said to us is that it took 10 years for multiple myeloma. It will not take 10 years for CLL. That's because we now have a blueprint for what the FDA is looking for. Now that said, the FDA has evolved since the time of the ODAC vote, and so there are uncertainties around that. But the data collection is advancing rapidly. And I think all the participants are confident that current administration notwithstanding, we'll see those things come to fruition much faster than they did in multiple myeloma. And I think that other indications beyond CLL and DLBCL may have reason to explore this in the future as well. Chad Robins: And just one point in terms of quantifying this in terms of kind of bookings, our 2025 CLL bookings are more than twice what they were last year in the MRD pharma space. Operator: Our last question comes from Dan Brennan at TD. Daniel Brennan: Maybe just on DLBCL, I mean, the mix ticked up pretty nicely in the quarter. I know you may have addressed it a little bit, but just speak to a little bit what you're seeing there and how we might think about the opportunity there as we go into '26 in terms of the pace of progress. Susan Bobulsky: Sure. Thanks for the question, Dan. Yes, we are continuing to see a nice solid uptick in the contribution of DLBCL, rising from 6% a year ago -- 3 quarters ago to 9% this quarter. It's kind of poised to overtake CLL actually as the third largest indication probably in the next quarter or 2, although we'll certainly expect the CLL business to be buoyed by the recent guidelines update. In DLBCL, I think a couple of things contributing. Certainly, one is the noise around MRD in the space, which is not just coming from us. There is a large amount of data generation ongoing. There is a lot of interest from pharma companies and how they can utilize MRD-guided treatment to optimize outcomes in this disease state, which is curable for a subset of patients and hopefully for a growing number of patients, proportion of patients over time. So there are several companies that are currently advancing or considering trials that will include MRD-guided elements to them in the coming years. And that will -- in addition to the interest in the clinic as it is, that will contribute, I believe, to greater use cases for MRD in the clinic. Daniel Brennan: Great. And maybe just a follow-up. I know there's a few questions on margins. But just wondering as an early read, if we think about into '26 and the investments you're making, but yet the OpEx leverage path you're on, just can you remind us how we might think about the early look on OpEx leverage as we go into '26 and what are the key puts and takes? Kyle Piskel: Yes. I mean I think we will continue to see growth in investment areas like EMR. But at this point, we're not planning any major investments. That being said, we might change our mind. But at this point, I think we're going to continue to see meaningful leverage across the business and look at opportunities to take advantage of the position we're in, in the MRD business. Chad Robins: The other area that I mentioned earlier, Dan, continuing to invest in kind of data generation for clinical utility studies. But overall, we're looking to continue to get leverage out of the business. Daniel Brennan: Have you guys even -- like I forget, have you commented publicly at all about OpEx leverage for '26 in terms of where consensus is or no, not yet? Kyle Piskel: Not yet. Not yet. Operator: This concludes the question-and-answer session. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to Veolia 9 Months Key Figures Conference Call and Webcast with Estelle Brachlianoff, CEO; and Emmanuelle Menning, CFO. [Operator Instructions] This call is being recorded today, November 6, 2025. I would now like to turn the conference over to Estelle Brachlianoff. Please go ahead. Estelle Brachlianoff: Good morning, everyone, and thank you for joining us for this conference call to present Veolia's 9 months key figures, and I'm accompanied by Emmanuelle Menning, our CFO. I'm on Slide 4 for all the key takeaways. Our 9-month results are once again very good with strong underlying business trends and a favorable momentum going into the end of the year. Our 9 months performance in EBITDA terms was particularly strong internationally, where the group generates 80% of its revenue as well as for our Boosters, as I will explain in a few minutes. In a rather challenging environment, this sustained performance quarter-after-quarter is really a testimony to the choices we've made in GreenUp as well as the strength of our business model of resilience and growth. Veolia can rely on a successful combination of Stronghold and Booster activities added to a diversified portfolio, both by geography and customer as well as a continued attention to performance. Moreover, we're constantly looking to create value by pruning our portfolio and have completed EUR 2.3 billion of M&A since the beginning of the year in our Boosters, Water Technology and Hazardous Waste in particular, and outside Europe, following, as you know, the disposal of nonstrategic assets last year. I can, therefore, fully and strongly confirm our guidance for the year, and we should have a very strong Q4. I'm now on Page 5, where you see that our 9-month key figures are once again very strong. Revenue reached EUR 32 billion, up plus 3.2% excluding energy prices, which are essentially pass-through for us, as you know. EBITDA increased by a substantial plus 5.4% on a like-for-like basis, fully in line with our 5% to 6% guidance and shows a margin improvement of 50 basis points. This is thanks to our strong international performance as well as our recurring efficiency gains complemented by the last synergies coming from the Suez acquisition more than 3 years ago. Current EBIT was up plus 7.9%, demonstrating strong operating leverage. Net financial debt remains well under control at EUR 19.9 billion, even after EUR 2.3 billion of net financial acquisition closed in the 9 months. We are perfectly on our trajectory to less than 3x at year-end with the usual seasonality. Our solid 9-month performance and expectations for Q4 enables us to fully confirm our guidance. In this uncertain time, Veolia's results are sustainably progressing quarter-after-quarter as we have demonstrated over the last few years. And why is that so? I would like to highlight key features on Slide 6. And I will insist on our international exposure with 80% of our revenues growing faster than the rest of the group and with very good EBITDA performance as well. Even in France, which accounts for 20% only, our results are not sensitive to the political context. And this is structural as we hold no national contracts and no public money is involved. Moreover, ForEx does not impact our businesses or margin as we just saw in the last 9 months with plus 50 basis point margin. We do not have ForEx transaction exposure, only translation. In a way, no business impact. We are a multi-local group with very limited international trade. On Page 7, you see in figures our performance outside Europe, which really stands out and explains a great deal of our resilience and growth in the last 9 months. Indeed, our Rest of the world businesses are more profitable with an EBITDA margin already at 17% versus 15% on average for the group, and they are faster growing. In growth term, you can see the detailed performance in the 9 months, which has been enhanced in Q3 compared to the first half, plus 6.2% in North America, fueled by an accelerated growth of Hazardous Waste, plus 9%. In Africa and Middle East, plus 10.5%; in Latin America, plus 9.4% and plus 5% in Asia. As you know, our value creation and EPS growth come from 3 pillars: top line growth, performance and capital allocation. And I'm going to go through them one by one as always, to illustrate how they have each contributed to our performance in the 9 months, starting with growth of our Stronghold activities on Slide 8. We've registered a very solid revenue growth of our Strongholds. Let's start with Water operations. Revenue increased by plus 3.9%. We continue to benefit from good indexations and have achieved successful tariff renegotiation in Spain as well as rate cases approvals in our U.S. regulated operations, which protects our future earnings. We just opened our first upgrade control center in North America to foster operational excellence and leveraging data. Solid Waste revenue grew by plus 0.9% or 1.5% excluding energy prices despite sluggish macro. As we have detailed in our deep dive last June, we managed to largely disconnect our waste activities for macro, thanks to a varied portfolio of customers, good pricing and quality of service, and we favor bottom line over revenue as well. Revenue from District Heating Networks increased by plus 2.7%, excluding energy price, thanks to sustained heat tariff as well as some network expansion and a favorable weather impact in H1. Q3 is not a very significant quarter for this activity. On Slide 9, one good example of the dynamism for Water operation in Q3 is certainly the signing of its first hybrid municipal and industrial desalination in Chile in Valparaíso. As you know from our Oman event on desalination a few months ago, Veolia is the world leader in desalination technologies with 18% of the world's desalination facilities having been designed and built with Veolia, and we have big ambitions. I'm very proud of this win in Valparaíso after a very intensive competitive process as we will be able to provide the highest technical, environmental and social standards to Aguas Pacifico. Let's move to our Boosters performance on Slide 10, which have performed well. The EBITDA performance is even remarkable, confirming my choices in GreenUp. Water Technology to start with, as you know, is a mix of various business models as we detailed in our deep dive last year. As you may remember, 70% of our Water Tech activities are deemed recurring, corresponding to products, mobile units or chemicals. And I'm very happy to see this base having achieved a very good Q3 with 6.8% growth and 4.8% since the beginning of the year, testimony to our technologies and commercial power. On the other hand, projects were impacted in the quarter by the timing milestone delivery and a strong comparison base last year. Quarters are always very different in this activity, and I expect a normalized Q4. Overall, and combining those different business lines, Water Tech has been up only 2%, but EBITDA progressed with 10% organically, which is excellent. Hazardous Waste revenue increased by plus 5.5%, including tuck-ins and 4.4% organically. I would like to highlight, in particular, the very strong growth in the U.S., up plus 9% year-to-date and despite planned shutdown of [indiscernible] early in the year. We have started our new operation in Saudi in the Dubai complex, and only China is lagging behind in terms of price, but we start to see some rebound in volumes. In terms of EBITDA, 9 months performance was excellent with above 10% organic growth. In Bioenergy, revenue was up plus 21.3% excluding energy price and including our new targeted acquisition. If I go to organic growth, it was still plus 8.2%, which is very good. Some illustration of the high-tech part of Veolia on Slide 11. You can see on this slide 2 good examples of the dynamism for our Boosters in Q3. First, in Water Tech, after years in the making and technical design, we were awarded a $500 million project in Saudi Arabia for the Saudi Aramco Total Energy Consortium called SATORP. We will design, build and operate a new massive plant. We're talking 8.10 million cubic meters per annum, treating the super complex affluent of this petrochemical complex. We combine here our unique set of Water Technologies and Hazardous Waste know-how, not only to offer a solution to remove pollutants, but also to recycle water in this arid region. I'm also very proud to have signed a partnership with TotalEnergies to combine our expertise and technologies to develop innovative solutions for industries, methane measure and capture, low-carbon energy for desalination facilities, strategic metal recovery from waste, et cetera. Now let's dive into our second lever of value creation after growth, which is performance and efficiency. I'm now on Slide 13, which shows our 9 months performance. In terms of our yearly efficiency plan, we achieved EUR 295 million in gains, in line with our annual target of EUR 350 million. As you know, this is a recurring lever embedded in our operations and therefore, one we can count on for years to come, not to say forever. Efficiency gains of Veolia are not discretionary cost-cutting programs, of which you could question the continuity, but they come rather from a very diversified series of initiatives in our thousands of plant, which explains the recurring element of it. Worth noting, we have already registered EUR 5 million of additional synergies coming from the combination of our 2 business units in Water Technologies after the CDPQ minority buyout closed on June 30. In terms of cost synergies derived from the Suez merger, we have achieved EUR 73 million in 9 months for a cumulative total of EUR 508 million since day 1. This is in line with our objective of EUR 530 million by year-end, which, as you know, we've raised a year ago. I'm now on Slide 14, which details the third pillar of value creation, capital allocation and portfolio pruning. You will see a powerful 9 months in that respect with EUR 2.3 billion of acquisition completed almost entirely in Water Tech and Hazardous Waste and outside Europe. This is fully consistent with our GreenUp priorities. I must say the year-to-date enhanced growth outside Europe and plus 10% EBITDA increase in those 2 Boosters confirm that these are good investments to sustain future earnings growth. Detailing those investments first in Water Technologies with CDPQ's 30% stake for EUR 1.5 billion, which you know is an operation which will be accretive and ROCE enhancing, thanks to EUR 90 million cost synergy by 2027. In Hazardous Waste, we've signed 6 bolt-on acquisitions for a combined EV of EUR 400 million and good multiples, notably in the U.S. and Japan. Of course, we maintain our strict balance sheet discipline and our leverage will remain below 3x at year-end, allowing the group to retain strategic flexibility. Our strong 9-month results, of course, allow me to fully confirm our guidance for 2025, which is reminded on Slide 14. I wish to invite you as well to join us in Poland later in the month, where it will give some color about our district heating and decarbonizing energy activities. Finally, and as a conclusion, I wanted to remind you of our long-term guidance, fueled by our 3 levers of value creation and GreenUp priorities. It includes current net income growth of 10% per year on average over the period with dividend growing in line with current EPS and ROCE above 9% in 2027. As you remember from our yearly presentation, we decided to launch a share buyback plan from '25 to '27, size to neutralize the impact of the employee shareholding program. So that going forward, current EPS will grow in line with current net income growth. I now hand over to Emmanuelle, who will detail our 9 months key figures. Emmanuelle, the floor is yours. Emmanuelle Menning: Thank you, Estelle, and good morning, everyone. Veolia's results at the end of September are very solid with strong underlying business trends and a very favorable momentum, which I would like to detail. Indeed, if we look at our EBITDA performance, we see tailwinds. First, in our international operations, notably outside Europe, where the group generates 80% of its revenue with circa double-digit EBITDA growth and second, for our Boosters with EBITDA increased by more than 10% in the 9 months. In Q4, we expect this trend to continue, and we also expect improved performance in France as we will reap the benefits of our action plan, notably in French waste. Nine months results are fully in line with our annual guidance and are also a testimony to the strength of our business model of resilience and growth with a successful combination of Stronghold and Booster activities and a diversified international portfolio. With EUR 32 billion in revenue, we experienced a solid growth of 3.2%. The operating leverage as the good delivery of efficiencies and synergies were excellent. A solid organic EBITDA growth of 5.4% at EUR 5,080 million and a current EBIT growth of 7.9%. Net financial debt reached EUR 19.9 billion at the end of September, up from December '24 due to the seasonality of working capital variation and M&A activity, down compared to the end of June '25 due to the temporary favorable impact of the hybrid bond debt issuance of EUR 850 million, which will be reversed at the end of the year. We expect the leverage ratio to be below 3x at year-end after full seasonal working capital reversal in Q4. You can also see on the slide the detailed ForEx impact, which increased in Q3 due to the weakening of the U.S. and Australian dollars as well as the Argentinian and Chilean pesos. A few things are important regarding the ForEx impact for Veolia. First, our revenue is only about 40% generated in euro. But as a multi-local group with very limited international trade, ForEx does not impact our businesses or margin. Our revenues and costs are always in the same currencies in each of our countries. The increase in currency impact in '25 reflects the improved performance of our international activities. Our guidance at EBITDA level is at constant scope and ForEx. Finally, as you saw in previous year, the ForEx impact at EBITDA level is very much offset down the line to current net income. ForEx impact was minus EUR 68 million at EBITDA level and minus EUR 44 million at current EBIT level at the end of September. Using the ForEx exchange rate at the end of September '25, the full year impact at EBITDA would be around EUR 130 million minus, but it varies every day. Our full year guidance, which is at constant scope and ForEx is fully confirmed at EBITDA and current net income level. Moving to Slide 18, you can see the revenue evolution by geography. The main feature in Q3 was the enhancement of our growth outside Europe. I will detail it in a few minutes. I will start with Water Technologies. As Estelle recalls, 70% of our Water Tech activities are recurring corresponding to products, mobile units and chemicals. While 30% is volatile, these are the projects. In Q3, project revenue was impacted by the timing milestone delivery and a strong comparison base last year, while the 3 other business lines grew double digit. Excluding project, Q3 Water Tech revenue was up 6.8% in Q3 and 4.8% in the 9 months. This was reflected in the EBITDA level. Water Technology EBITDA increased by 10% in the 9 months, benefiting also from the efficiency and synergy delivery. As Estelle mentioned, we have already generated EUR 5 million of additional synergies coming from the buyout of WTS minority interest in Q2. Rest of the world performed very well in Q3. With revenue growth accelerating from 3.7% in H1 to plus 6.6% in Q3, driven by all geographies. Europe grew by 4.1% in the 9 months, fueled by resilient waste activity, a solid Q3 in water operation and excellent performance in Southern Europe, notably in Spain, up by 7%. Finally, France and Hazardous Waste Europe benefited from good hazardous waste performance, partially offset by low growth in solid waste and good water activity. Now let's take a look at our performance by business. Let's start with Water, representing 40% of our revenues and 50% of the group EBITDA. Water revenue was up 3.4%, fueled by the strong water operation, up 3.9%, while Water Technology was up by 2%. Water Operations benefited from good indexation with continued price increases in Europe and in the U.S., while indexation was back to 0 in France due to lower electricity prices. Volumes were on a very good trend, up close to 3% in Europe. As I just explained, the underlying growth of Water Technology, excluding the timing project delivery remained quite strong. Moving to Waste, representing 35% of our revenues. Waste activities grew by 1.8%, a steady pace despite an [ helpful ] margin. Waste growth was very comparable in Q3 to previous quarters. Starting with solid waste. It's a very local, systematically adapted to the reality of the geography with a well-balanced customer portfolio across countries, and it has been demonstrating its resilience through the quarters. In terms of volumes and commercial developments, performance was mixed, resilient volumes in the U.K. and in Germany. U.K. incineration activity was impacted by planned outages, but still down in France, although better in Q3. Activity continued to progress in the Rest of the world, notably in Latin America and in Hong Kong. Hazardous Waste grew by plus 4.4% in the 9 months, plus 5.5%, including tuck-ins, thanks to continued good pricing and plant performance with EBITDA up by more than 10% year-to-date, which is outstanding. Growth accelerated in the U.S., plus 9% in Q3, fueled by excellent incineration volumes and pricing, a slower quarter in Europe due to facility outages and lower recycled oil prices. Finally, moving on to energy, and I am on Slide 21. As you know, energy revenue is sensitive to energy prices, which were down as expected again in '25, but to a lesser extent than last year. The prices were on average almost stable compared to last year and electricity prices were down as expected. Excluding the energy price impact, growth was quite good, plus 4.5%, thanks to good volumes, helped by a colder winter and fueled by a strong activity in the booster energy efficiency and flexibility, up 8.3% with strong momentum in Belgium, Southern Europe and in the Middle East. The revenue bridge on Slide 22 explains the driver of our growth in the 9 months. Scope was negative at the end of September and reached minus EUR 327 million, mainly due to the impact of last year disposal, but as expected, was neutral in Q3. The impact will turn positive in Q4 as 2024 divestiture were all closed in Q3 last year. Negative ForEx impact increased in Q3, as I mentioned earlier. The impact of energy prices was as expected, divided by 2 compared to last year at minus EUR 501 million. Recycled prices were neutral. The weather effect amounts to plus EUR 169 million due to a colder winter at the beginning of the year in Europe. The contribution of commerce and volumes were comparable to last year, plus 1.3%, driven by sales momentum and resilient volumes. Finally, price effects were as expected, lower than in 2024 due to lower inflation and contributes plus 1.4% to top line growth. On Page 23, you have the EBITDA bridge detailing our organic growth of 5.4%, in line with the annual guidance between 5% and 6%. Scope was negative at the end of September and reached minus EUR 56 million. Negative ForEx impact increased in Q3 versus Q2, as mentioned earlier. The impact of energy was minus EUR 39 million, less than last year as expected, while recycled prices were slightly up plus EUR 13 million unchanged in Q3. The commerce/volumes/works effect was positive at plus EUR 77 million, in line with revenue impact. Pricing and efficiency gains of EUR 295 million generated plus 2.3% in additional EBITDA, hence, a very good retention rate of 38%. Worth noting, we have already registered in Q3 EUR 5 million of additional synergies coming from the combination of our 2 business units in Water Technology after the CDPQ minority buyout close on June 30. The synergies amount to EUR 73 million, notably in the Water Technology activities in the U.S. and in Hazardous Waste, leading to a cumulated amount of EUR 508 million, perfectly in line with our cumulated objective of EUR 530 million. The symbolic threshold of EUR 500 million has been exceeded. Going down to current EBIT, this slide illustrates perfectly the operating leverage of our business model, 3.2% revenue growth, 5.4% EBITDA growth and 7.9% EBIT increase. Current EBIT grew to EUR 2.7 billion at a faster pace than EBITDA. Renewal expenses of EUR 231 million were comparable to '24. Amortization and OFA were slightly lower than last year due to perimeter and slightly up at constant scope and ForEx. Industrial capital gains, provision and other were down due to the high provision reversal in '24 with the ending of operational risk. Joint ventures are slightly decreasing. Before concluding, I remind you on this slide of our share buyback program, which has been launched to offset the dilution of the employee shareholding program. Our strong 9 months results allow me to fully confirm our guidance for 2025, continued solid organic growth of revenue, excluding energy prices. For EBITDA, organic growth between 5% and 6% more than EUR 350 million of efficiency gains, more than EUR 530 million of cumulated synergy at the end of 2025, current net income up 9% at constant ForEx, leverage ratio below 3x. And as usual, our dividend will grow in line with our EPS. Thank you for your attention. Estelle Brachlianoff: Thank you, Emmanuelle. And now we are ready to answer your questions. Operator: [Operator Instructions] And your first question comes from the line with Bartek Kubicki with Bernstein. Bartlomiej Kubicki: If I may ask maybe 3 very short questions. First of all, on your FX, you gave a little bit of a guidance, what could be the FX impact on EBITDA in 2025, assuming the currency rates stay where they were at the 30th of September. I just wonder what would be the impact on net income? Because in FY '24 in the first half, the impact on net income was 0. But in the past, it used to be negative, when the impact on EBITDA was negative. So I wonder what is your view on this one at the end of FY '25? Second of all, if we -- about your share buybacks, I think there was a proposal to increase a taxation on share buybacks in France, an idea. And I wonder if this was applying to share buybacks on employee shares. What would you do if you had to pay additional taxes on share buybacks in France? Just a hypothetical example. And the last point would be on your Hazardous Waste margins because I guess, with 4.4% revenues increase and 10% EBITDA increase, we are looking at margin expansion. I just wonder whether this is a structural trend and you will see a margin expansion going forward from today's levels? Or do you think you have already reached levels which you find optimal in terms of EBITDA margins in Hazardous Waste? Estelle Brachlianoff: Thank you for your 3 questions. I will start and Emmanuelle will be able to comment further, of course. Regarding guidance on ForEx, on net result, just a few elements on that. First, I can fully confirm our guidance for the year, so which means 5% to 6% EBITDA at constant ForEx. And it's fair to say you've understood from the tone of this presentation this morning that I expect to be on the upper range of this range. Two, I can fully confirm as well the net result, which is 9% growth this year. I think this is a super important element. And as you know, I just wanted to highlight a few things on ForEx. ForEx for us is very different from in many different companies, I guess, because in a way, it has no impact on our business neither positive nor negative in a way. That's exactly why we guide at constant ForEx. It's because it's exactly what we have a look at. It's the direct consequence, of course, of our being super international with 80% of international business, plus it has no impact on margin as we've demonstrated in the 9 months with a plus 50 basis points. As Emmanuelle said, we are a multi-local company. So we have no transaction impact of ForEx. It's really like we are paid in dollars, we pay our cost in dollars and same applies to euros and so on and so forth. Just want to highlight that before Emmanuelle comments on the specifics of your question. Emmanuelle Menning: Yes, you're absolutely right, Estelle. Regarding ForEx, it's the direct translation of our being 80% international and 40% outside Europe, which is growing faster. I will not come back on the fact that we are only translation impact and no transaction impact. We expect, as I mentioned, the impact at the end of 2025 at EBIT level to be around EUR 130 million -- EBITDA, taking into account the 9 months results and the closing rate at the end of September. Estelle Brachlianoff: Although it's fair to say it varies every day, as we've seen with the political situation in the U.S. meant suddenly, the dollars went up again. So I'm not so sure we expect if we were to do that calculation with the same range as end of September, which would be now the fair comment, right? Emmanuelle Menning: Absolutely. And we haven't changed our range. You know that ForEx impact at current net income level is largely attenuated. Usually, EUR 100 million at EBITDA level translates into EUR 20 million at C&I level. Estelle Brachlianoff: Your second question on share buyback, even in the -- I mean, as you have said and implied, the fiscal debate is not over yet in France like far from. Even if we were in the -- what was imagined in the last few weeks were to be voted, which is, I must say, unlikely for the majority of it, but nevertheless, even if the share buyback that we have launched would not be concerned. Actually, there is an exception in this fiscal turmoil, which is share buyback associated with employee shareholders. So we would not be impacted in any way, shape or form even if that were to be voted. And just to rehighlight that French political situation does not have any impact on our results at Veolia, not only because we're only 20% in France, but even in France, we are very local as opposed to national. We don't have national contracts. We don't have like debt -- public debt is not involved. We are really multi-local as well. Just want to highlight that again. In terms of your third question on Hazardous Waste, the margin expansion is structural. And we've highlighted that in the deep dive we've done last June. I think it was with a big ambition, in Hazardous Waste to raise the margin, the EBIT and the ROCE by plus 50% by the end of the plan, thanks to the progressive opening of the various facilities we have. We are on the way of building, which are good profitable margins apart from the ramping up of those, which could be temporary for a few months, just like not fully yet delivering the full speed. Yes, I don't expect any specific thing. It's really structural. It's a mix of like availability of our plants, plus pricing, good pricing plus good volume and increase in the industrial base in some key sectors such as micro e. This is what is structurally behind this increase in margin. Just to give you a specific figure, which was highlighted by Emmanuelle, but I want to emphasize again on. In the U.S.A. alone in Hazardous Waste, we've grown our revenue plus, plus 9% in Q3, which is even at a higher rate than the first half. So it's really sustained we don't see anything but a sustained, if not even better Q3 than the first half. So that's why I'm very confident for a very good Q4 for Veolia and a very good year. That's why I mentioned the upper end for EBITDA at constant ForEx. Operator: And your next question comes from the line of Arthur Sitbon with Bernstein (sic) [ Morgan Stanley ]. Arthur Sitbon: Can you hear me? Estelle Brachlianoff: Yes. Arthur Sitbon: It's Arthur Sitbon from Morgan Stanley. So the first one is actually on your EBIT. I've noticed that your industrial capital gains, I mean, the line of capital gains net of impairments, et cetera, is significantly lower than last year, which I suspect suggests the quality of your EBIT -- the underlying quality of your earnings in 9 months is relatively good. I was wondering, is it just a timing effect and we're going to end the year with a similar level of capital gains than last year? Or should we expect basically you to deliver on your net income guidance with a bit less gains than last year, which could be a message on the underlying quality of earnings? That's the first question. The second question, you talked already a little bit about taxes in France. I -- and as you mentioned, we don't know what will be implemented at the end of the day. But I just wanted you, if possible, to give us some information on that potential tax that would change the way -- essentially, that amendment that would change the way the corporate tax is calculated in France and will align it on your share of revenues generated in France, not PBT. I was wondering if there is a significant discrepancy between your exposure at revenue level and PBT level in France? And if you could help us understand a bit that. Estelle Brachlianoff: So capital gains and the quality of earnings, Emmanuelle. Emmanuelle Menning: Yes. Thank you, Arthur, for your comments on the quality of results, which is really good at the end of the 9 months and that we are confirming. And to be short on your question, we confirm that at the end of the year, the amount will be decreasing compared to last year, confirming the quality of our results. In terms of your second question on tax in France, the short answer is we don't expect any negative impact nor positive on the potential corporate tax that you mentioned because there is an addendum, which makes it that we would not be concerned. And we could go through the list of the various tax which we imagine in France. And for some, the answer would be, again, in conditional terms, no impact. For others, it may be EUR 5 million, EUR 10 million max. So we're really talking about things which are absolutely not significant at Veolia's group level. And as I remind you, France is 20% of our revenue, but less of our earnings. So there is no big impact of all this in our group's results. Operator: And the next question comes from the line of Olly Jeffery with Deutsche Bank. Olly Jeffery: So 2 questions for me, more kind of general beyond the results today. So the first one is just on the efficiency program that you guys have and have every year. Is there some part of the efficiency program that happens every year that you might be able to consider to be almost efficiency that could be considered as underlying growth that might be, for example, you're sharing in the benefits of efficiency targets on specific contracts. I know often this is seen a straight out cost cutting, but is there some elements of cost cutting, which actually perhaps people view as that, but you might consider internally as being more genuine growth. I'd just be interested to hear your views on that. And then secondly, there's been discussions from some investors recently about the opportunity you might have with regard to data centers, water cooling, et cetera, in the U.S. Is that something that you see as a potential growth opportunity out this decade? And if so, what are the areas where that you feel that you can operate within that and potentially might be able to see the most growth? Estelle Brachlianoff: Thank you. Do you want to take the first question, Emmanuelle, on efficiency? Emmanuelle Menning: With pleasure. So regarding efficiency program, you're absolutely right, Olly. It's fueling our underlying growth, and it will continue to fuel our underlying growth. Very happy about what we have been able to achieve in terms of efficiency for the 9 months. The element which is important also and that you have in mind is that in Q4, it will be also pushed by the results that will come, especially in France as we will reap the benefits of all the measures that we have implemented in the 9 months. So very sustainable trend completely linked with our businesses and which will fuel the underlying growth. Estelle Brachlianoff: So basically, you can count on them forever with Veolia. For the reason I mentioned in my speech, which is it's not a big cost cutting as in one-off laying off people typically. We're talking about thousands of plants, each of them having a constant way of having a look at how they could be more performing and efficient, which is very different. Therefore, you can count on them forever. In terms of data center, you're exactly right. We are building an offer on data center, which I think is very, very promising. We already have quite a few contracts actually across the globe in Europe as well as in the U.S. so far and in Australia as well, it's fair to say. And it's a way to have Veolia combining the data center needs and boom with still the access to resource and sustainable element of it. Meaning what we offer is not only reduce carbon footprint by recouping the heat as well as being even water positive as in replenishing resource. As you know, data centers consume a lot of water to be cooled down. And we have implemented a few offers there with a few customers already, and we aim at doing more of that. So yes, you're right, growth opportunity for Veolia certainly. And I count on it to fuel not only the GreenUp plan, but the next few years with a lot of assets is going to be here, I think, for a very long time. Operator: And the next question comes from the line of Juan Rodriguez with Kepler Cheuvreux. Juan Rodriguez: I have one, if I may. It's kind of a follow-up. If I'm correct, you signaled that you expect to be on the upper part of the guidance for the year. Can you please give us more clarity, as we currently see, you're in the middle part of the range? So you expect probably a strong Q4 with cost efficiencies, volume recovery? Is it both? And can you give us a first look of what has been the operational performance so far in the quarter were already at the beginning of November? Estelle Brachlianoff: Emmanuelle? Emmanuelle Menning: Yes, with pleasure. So as mentioned by Estelle, we expect a very strong Q4 and to be at the upper range. Regarding revenue, we expect -- we have some moving parts regarding, of course, the weather, but we expect a growth which is similar to what we have seen in the 9 months. And regarding EBITDA, it will be, of course, pushed by the generation of synergy from Water Tech, the performance that we will have in France, recovery -- thanks to the action plan which has been launched, which are the 2 main reasons. And as you may have seen, the October in terms of heating generation has been positive. So that's the main reason for us to be very optimistic regarding Q4. Estelle Brachlianoff: And as we -- I will comment on the Q3 was more on the plus side and then minus side in terms of trend compared to H1 as well. Everything we've seen internationally in the U.S. has this way, just to give a few examples, and we have figures in the slides, but Q3 was more on the up than the down compared to H1. So we are into a very good momentum into Q4. Operator: And the next question comes from the line of [ Mark Abe ] with Citi. Unknown Analyst: The first one I've got is on the Water Tech business. I think at the first half, you gave a number of EUR 2 billion of bookings. Can we get an updated figure of backlog at 9 months as of now? And also remind me how that converts -- how that backlog converts into revenue? And if there's any sort of large projects with definitive timing that we can think about? And then just a second one quickly on the recyclate pricing. I think at 9 months, you've seen it relatively flat, slightly positive. We saw in the U.S. Waste Management profit war, they're seeing low lower recyclate pricing. Can you just talk to if there's any kind of read across or impact for Veolia there, please? Estelle Brachlianoff: Okay. So on Water Tech, we always hesitate to give always the backlog because backlog is only on the project bit of our activity, which is roughly 30% of it. And the backlog was not very relevant in Q3, but we expect quite a few bookings in Q4. So we'll give you the over end. So it doesn't translate directly because of the proportion of projects versus more recurring things. So roughly -- and you can have a look at our deep dive on Water Tech, where we explained the full detail of that. Basically, we have 30%, which is project based, which is very linked with backlog, say, and 70%, which is more recurring. We're talking here about products, typically membrane. We're talking about services, mobile unit. We're talking about chemical products as well. And this 70%, which is more relevant to be compared quarter-on-quarter, has grown by 6.8% in Q3, year-to-date, plus 4.8%. So we are very happy about this bit. And you have the ups and downs of the project, which is that plus a very high comparison base of last year. So we expect quite a few bookings in Q4, and it starts well, it's fair to say. In terms of the recyclate pricing, I will have Emmanuelle answering, but no read across from American dry waste company. We are not in dry waste in the U.S. We are not concerned by recycling prices, which is a quite different logic from the European one, it's fair to say. But on recyclate price trends, Emmanuelle? Emmanuelle Menning: Yes. On recyclate price, you have seen the impact at the end of the 9 months, which is plus EUR 13 million at EBITDA level, we don't expect a significant impact at the end of the full year. You know that we have implemented with Estelle a huge transformation and deep transformation of our Waste business, meaning that everywhere we can, we are in a back-to-back construct. So if you want a figure for the end of the year, it's non-material. So we had a little bit of plus at 1 month, a little bit of minus the month following. So nothing very specific. And in other geographies which are concerned mainly on dry waste, we're talking Germany, France, U.K., Australia. With that, you have an 80-20 type of flow for our business. Operator: And the next question comes from the line of Philippe Ourpatian with ODDO BHF. Philippe Ourpatian: I have just one simple question is concerning your free cash flow. I mean there is no mention about where you were at the end of 9 months this year. And as you confirm, I would say, a very strong Q4 and your net debt-to-EBITDA below 3. I do suppose that the reversal on Q4 will be maybe stronger than expected. Could you just give some figure concerning the end of 9 months in order to help us to better understand how it will move concerning the working capital and some other, I would say, items, which could be your CapEx and some cash in coming from, I don't know where. But please just -- that's going to be very helpful. Emmanuelle Menning: Bonjour, Philippe. With pleasure to speak on free cash flow. You're absolutely right. The amount of free cash flow at the end of the 9 months is quite similar to what we had last year. We had a strong Q3. You remember that in Q1, we had some few timing effect and specific effects linked to Flint cash-out, scope entries and adjusting scheme Water France royalty payments. And we fully confirm that we expect the usual reversal in Q4. You know that we are very committed to free cash flow generation, which is fueling our growth and to pay our dividend. We have -- we are mobilizing the organization to invoice faster, to collect faster. We have a few projects regarding [ ERP and ER ] also to have optimized processes. So fully confirming for the year-end, the usual guidance and the debt below 3x. We'll have the reversal in Q4 with strong EBITDA growth fueled by our international activities, French recovery and the Boosters, discipline on CapEx and working capital reversal. Estelle Brachlianoff: So the usual seasonality. Operator: And I'm showing no further questions at this time. I would like to turn it back to Estelle Brachlianoff for closing remarks. Estelle Brachlianoff: Thank you very much. You understood. We are very confident, very happy about the 9-month result, very, very confident for the rest of the year and very happy that the priority we've been given in GreenUp as even being more technological oriented, more international are bearing fruits in our results as they support the growth of our earnings and will so in the next few years. Thank you very much. Operator: Thank you. And ladies and gentlemen, this concludes today's conference call. Thank you all for joining. You may now disconnect.
Operator: Hello, and welcome to the Commerzbank AG Conference Call regarding the third quarter results of 2025. Please note that this call is being transmitted as well as recorded by audio webcast and will subsequently be made available for replay in the Internet. [Operator Instructions] The floor will be opened for questions following Bettina Orlopp's and Carsten Schmitt's presentation. Let me now turn the floor over to our CEO, Bettina Orlopp. Bettina Orlopp: Good morning, everyone, and welcome to our earnings call. Our growth story in Commerzbank continues, and we have achieved the best 9 months operating result in the history of Commerzbank. This strong momentum also drives our outlook. With increased expectations for net interest income, we are very confident to deliver on our targets in 2025. I will present to you the financial overview after 9 months of this year and the key strategic topics before Carsten will walk you through the financial performance of the third quarter. Let me start with our view on the last 12 months. It was a special journey that we embarked on. Based on an exceptionally good team spirit, we created a very strong momentum for Commerzbank. We developed our momentum strategy with ambitious targets for 2028, 50% cost-income ratio, 15% return on tangible equity and 100% payout each year. In this process, the extremely high commitment of everybody involved was as important as the bare numbers and targets. And this has translated into strong focus on delivery. The success is impressive. 13% loan growth in Corporate Clients, 8% growth in fee income and a 11% increase in total revenues are proof of the strength of our Team Yellow. This is, however, only possible because we have a strong and robust business model that meets the needs of our clients. We further strengthened our client franchise and are proud of the deep relationships -- deep client relationships, I have to say, that are underpinned by many awards we have won. The very good performance and positive prospects have also driven our share price, which has almost doubled in the last 12 months. Based on our team spirit, our well-established client relationships and with some support from macro developments, I see a lot of further potential to be lifted. Our focus on shareholder value will also be further strengthened by the employee share program, which has started in October and aims to make every employee a shareholder of Commerzbank. Now let us have a look -- a closer look at the 9 months financial performance of this year. The material growth in fee income and around EUR 500 million higher revenues in mBank, including less burdens from the provisions of FX loans have led to the record operating result after 9 months. Together with high cost discipline, this growth is reflected in the cost-income ratio of 56%, which is exactly where we wanted to be on the path towards increasing efficiency going forward. In terms of return on tangible equity, we have achieved 10% after 9 months when excluding the restructuring charges. The double-digit return level is our new baseline for growth from 2026 onwards and demonstrates the significantly increased strength of Commerzbank. The high revenue growth of 11% is based on our significantly increased fee income. But equally important is a very successful management of net interest income in an environment of significantly lower rates compared to last year. The decrease of just 1% in NII provides us with lots of confidence for the next quarters. At the divisional level, the somewhat lower net fair value result in Corporate Clients has been broadly offset by the strong fee income in PSBC, and the group overall benefited from the strong trajectory in mBank. So the first 9 months have been very successfully -- successful financially. And this also applies to the implementation of our strategy. Let me highlight five areas in which we have made significant progress. First, on customer focus. Since last month, the new client coverage model in PSBC Germany is live. Key elements are personal one-on-one relationships for affluent clients and more time for high-quality advice in wealth management. Second, on growth. Based on our deep client relationships in Corporate Clients, we are the leading go-to bank. This has led to significant capital accretive loan growth of 13% in the last 12 months. Carsten will further elaborate on this. Important to note is that this growth is thanks to strong ties with our clients rather than any pricing concessions. Third, on AI. We already reported on use cases such as fraud detection and AI-assisted documentation for advisory calls with Corporate Clients. One of the latest applications is the AI enhancement of our KYC processes. Fourth, on costs. The implementation of the restructuring program is fully on track. The latest milestones have been the successful completion of all negotiations with the workers' representatives and the offering of part-time early retirements to a selective group of people. The acceptance rate of almost 50% is very high. And fifth, on capital. In Q3, we have successfully completed our first SRT of the year. The EUR 3 billion notional and EUR 1.6 billion RWA relief came at low cost in the area of 1% of RWA. This is very capital efficient. And in placing the first loss, we also achieved some risk mitigation. We plan for further SRTs in the weeks to come. All these achievements and the financial performance contribute to the confidence of the regulators into Commerzbank. This is reflected in our improved SREP results with a 10 basis points relief in Pillar 2 requirement. Looking into the next years, our regular planning update has confirmed our strategy. A few topics of special strategic importance have been identified and addressed. First, we stay focused on our growth path and pay special attention to the German stimulus package. This is a meaningful additional catalyst for our financial performance. Second, AI is one of the most important drivers to transform our bank and ensure increasing efficiency levels. What we have seen so far is just the beginning, and we will further invest heavily into AI. One example is the support of our staff in the advisory center. Live transcription of calls, proposals for client solutions and support for outbound calls will contribute to increasing efficiency and client satisfaction. And third, we strive to optimize the deployment of capital above 13.5%. Besides capital return by means of dividends and share buybacks, this includes the exploration of further organic growth opportunities as well as inorganic options such as bolt-on acquisitions. In an ongoing screening, all options must meet our investment criteria in terms of business fit and value accretion. Now back to macro and the German stimulus. The German investment package for defense and infrastructure, combined with legislative changes such as taxation relief and depreciation rules will significantly support our growth ambitions. Within our GDP forecast of 1.2% for 2026, we expect a considerable fiscal stimulus of 0.8% of GDP. The recently weaker German economic data do not contradict the expectation that a more expansionary fiscal policy will boost the economy. The budget for 2025 and the law on the extrabudgetary fund only came into force at the beginning of October. Hence, the positive impact will only be visible in future economic data. Furthermore, the federal government has shifted a considerable amount of investment spending from the core budget to the extrabudgetary fund in the budget for 2026. This increases the federal government's financial leeway and it can quickly increase other expenditures. This will help the economy in 2026 and 2027, even if the extra spending is partially directed at consumption instead of investments. The halving of the ECB deposit rates to 2.0% also points to higher economic growth. The positive view into 2026, however, still needs to translate into higher economic activity of corporates and especially the German Mittelstand. In this regard, the highest business expectations since 2022 according to the [ ifo] survey are positive. So sentiment has improved, the Mittelstand still remains cautious when it comes to investments in Germany. Bureaucracy energy prices and shortage of skilled workers still weigh on the business prospects of many corporates. Government-induced reforms to tackle these issues are important to unfold the huge potential of the stimulus package. Now let's move on with our own capital return program. We are very well on track and plan for a steady increase in capital return. Our currently active EUR 1 billion buyback program for 2025 is progressing well, and we have applied for a second tranche of up to EUR 600 million. Once we have a clear view on the full year results, we will decide on how much we will propose as dividend for 2025 and what the exact size of the second share buyback will be. Both steadily increasing dividends and the flexible use of buybacks will remain integral parts of the capital return program. Returning 100% of net profit after AT1 translates into attractive capital return yields of 8%, increasing to 11% over the next years. This is a key element of our strategy and our equity story. Let me now conclude with our outlook for 2025. Based on the strong performance after 9 months, we raised our outlook for net interest income from EUR 8 billion to EUR 8.2 billion. Furthermore, we improved our expectation for the risk result to below EUR 850 million. We stick to our cost-income ratio target of 57% and our target for the net result of EUR 2.5 billion, which translates into EUR 2.9 billion when excluding the restructuring charges. And we consider this to be the floor of our full year expectations. And we maintain our expectations for the CET1 ratio of at least 14.5% at the end of this year. Looking at 2026, our view is also very positive. The strong NII trajectory and the macro tailwind from the German stimulus forms significant support for our momentum strategy. With the presentation of our full year results next February, we will provide the full view on our outlook for 2026. Now let me hand over to Carsten for the financial performance of the third quarter. Over to you, Carsten. Carsten Schmitt: Thank you, Bettina, and good morning, everyone. It is my pleasure to present the results of the quarter. Let's start with a brief overview. Based on strong revenue growth, the operating result is up 18% compared to Q3 last year. The net result is lower, but only due to a one-off tax effect from DTAs driven by the reduction of the German corporate tax rate from 2028. Net RoTE thus came in at 7.8% for the quarter. For the whole financial year, we are on track to reach our RoTE target despite the tax effect; thanks to the good underlying performance of the business. The CET1 ratio of 14.7% is 18 basis points higher than in Q2 and fully in line with our target of at least 14.5% by year-end. I will now go through the details, starting with revenues. In the quarter, we achieved a 7% increase in revenues compared to last year. Net interest income is holding up very well, being on the same level as Q3 last year despite significantly lower ECB rates. In net commission income, we have maintained our momentum with income growth in line with our target of around 7% year-on-year. While opposing effects are largely canceling out, the net fair value result is marginally negative due to a minus EUR 34 million valuation effect from our holding in eToro. Other income, excluding FX loan provisions, mainly stems from a positive hedge result. Now [Technical Difficulty] in more detail. All customer segments grew their business year-on-year with mBank additionally benefiting from a one-off from the cards business. Corporate Clients generated good revenues in the generally slower summer quarter. Trade Finance has increased revenues despite the ongoing weakness in exports, and Capital Markets had a very healthy syndication business. The biggest increase came from Lending, where fee income linked to loan origination was significantly higher, in line with volume growth. Green Energy was especially strong. Private and Small-Business Customers in Germany continued to grow the fees from Securities business, both from securities volumes and transactions compared to last year. In Payments, the higher account fees that were introduced at the end of Q2 are starting to contribute. We have finished the first round of reach out to customers with a good acceptance rate. It has also resulted in customers increasing volumes. Asset Management benefited from higher transaction fees at Commerz Real and growth with wealth management products. With our ongoing initiatives, we have maintained momentum and are on track to reach our growth target for the year. Let's move on to interest income. We again had some headwinds from rates. In Q3, ECB rates were on average 25 basis points and Polish rates 50 basis points lower than in Q2. Nevertheless, net interest income is nearly on the same level as in Q3 last year. This clearly demonstrates the resilience of our business model. In Corporate Clients, net interest income is up compared with Q2 and Q3 last year. Lower funding costs for trading positions and higher income from the lending business were the main drivers. The lower funding costs linked to lower ECB rates are, however, partly offset in net fair value of trading book positions. In PSBC Germany, net interest income is up year-on-year and on the same level as in Q2. The effect of lower ECB rates and our investment in promotional offers for new deposits were offset by increased contributions from the replication portfolios and mortgages. In mBank, the lower NII results mainly from the cut in policy rates. The effect has been offset by higher net fair value from derivatives. In Others & Consolidation, NII is also lower, mainly due to rate cuts. Again, there is a positive offset in the net fair value result from derivatives. Looking at volumes, we had a very strong quarter. Corporate Clients has continued to grow the loan business with all customer groups. The loan volume is now up 13% year-on-year. The deposit volumes have been stable. PSBC Germany has maintained stable site deposit volumes and increased call money by almost EUR 8 billion with the promotional offers in July. This strong inflow has led to an expected uptick in the average deposit beta to 42%. In the mortgage business, the volume of new contracts has increased further, indicating a recovery in demand as house prices have stabilized and interest rates have reached a steady level. The outstanding volume is somewhat lower due to seasonally higher early repayments. On the next slide, I will give you more details on the loan growth in Corporate Clients. As mentioned, Corporate Clients is well ahead of its 8% annual growth target and achieved this growth based on our diversified franchise. This franchise extends to customers worldwide who have a connection to Germany. It also includes the foreign activities of German companies. As expected, with the sluggish German economy, there has been only moderate growth with corporates in Germany. In contrast, demand from the public sector has picked up over the last quarters. Another area of growth has been green infrastructure, both inside and outside of Germany. We have steadily grown the portfolio over the last years. We expect this to continue despite the changes in the political environment, given the economic attractiveness of the projects we are involved in. Also, demand outside of Germany has been healthy. Around 80% of the growth has been equally spread across Europe and the U.S. and the rest came from Asia. The new business has been diversified by sector with the largest demand from energy, chemicals and consumption. Finally, in line with our Momentum strategy, we expanded our relationship with Institutionals, especially financial institutions in emerging markets in loan and trade finance products. All this business has been generated at attractive risk-adjusted margins as we maintain our focus on the RWA efficiency of our client relationships. Looking into 2026, we expect demand in Germany to pick up as the extra spending by the German government should start stimulating the economy. The significant growth we have seen in renewable energy and in financing for the electricity grid as well as guarantees for the defense projects are first halving us. We are, therefore, confident that we will maintain our profitable growth trajectory. This brings me to the next slide with the outlook for NII. On the back of the successful loan growth and deposit management of the last quarters, we again raised our NII outlook from EUR 8 billion to around EUR 8.2 billion for the year. We believe that we have reached the trough in interest income in the second half of this year. For Q4, we do not expect significant deviations of the main drivers and net interest income should therefore be on the same level as in Q3. We anticipate an ongoing increase in contributions from the replication portfolio, offset by slightly higher deposit beta and continued volume growth. The contribution from mBank will be somewhat lower due to the expected rates development in Poland. 2025 proves that our business model is holding up well even during a rate cut cycle with ECB rates on average around 1.5% lower than in 2024. While lower rates have reduced NII in 2025, we also had a positive effect in the net fair value of around EUR 300 million. For 2026, we expect ECB rates to remain at the current level. We, therefore, do not anticipate the contribution of positions that are rate sensitive to ECB interest rates to change significantly, neither in interest income nor in the fair value result. With an expected EUR 2 billion NII in the fourth quarter, we, therefore, start with a baseline of EUR 8 billion NII for 2026. From this starting point, the main drivers of net interest income in 2026 will be rising contributions from the replication portfolios and continued growth, partially offset by headwinds from the beta and rate cuts in Poland. In total, these drivers should contribute approximately EUR 400 million, resulting in an expected net interest income of around EUR 8.4 billion. This is a good basis to reach our profitability target for 2026 and subsequent years. Now to costs on Slide 19. We have continued to manage our operating expenses in accordance with our target cost-income ratio of 57% for 2025. The main driver of costs, excluding mBank, has been personnel expenses. Half of the increase is attributable to planned increases and half to valuation effects of a higher share price on equity-based compensation. Additionally, in H1, we had impaired intangibles of EUR 65 million of Aquila Capital, which is reflected in the cost line. mBank has, as planned, a higher cost increase from significant investments in business growth. Additionally, compulsory contributions were higher. For Q4, we expect higher costs than in Q3 as there will be some seasonal effects, further growth in mBank and higher personnel costs as we continue to ramp up shoring and sourcing centers to transfer further tasks currently done in Germany. After booking the momentum restructuring expenses in Germany in the first half of 2025, we booked the majority of the provisions for staff reductions at our international locations in Q3. In Q4, we expect an additional booking of less than EUR 20 million. The next slide covers the risk result. The risk result came in at EUR 215 million. This is fully in line with our expectations. The portfolio continues to be resilient. And while the -- while we expect a somewhat higher risk result in the longer fourth quarter, we are very confident that we will end up below EUR 850 million given the good performance so far. As this has been a topic recently, we have added a slide on our NBFI portfolio in the appendix. This portfolio mainly reflects our well-established Institutionals business in Corporate Clients, which we are very comfortable with. Our exposure to private credit is not noteworthy. We have no direct exposure to U.S. private credit markets. This concludes the view on the key line items. I've already covered the main drivers of the excellent operating results and will therefore focus on the tax rate. With 36%, the tax rate was well outside our normal range of 25% to 30%. This is primarily due to a change in the German tax law. From 2028, the corporate tax rate will be reduced in 1% steps from 15% to 10% in 2032. While this will be positive long term, it reduces the current value of future tax credits. We, therefore, had to reflect this in the DTAs that we hold and is a one-off event. In case the proposed tax increases in Poland come into law, we will have an opposite effect in Q4 with a write-up of Polish DTAs. Overall, we expect the 2025 tax rate to be rather in the upper half of our expected range of 25% to 30%. The next slides cover the results of the operating segments, starting with Corporate Clients. As already mentioned, Corporate Clients had a good performance in the quarter, increasing the operating result by 15% year-on-year. Revenues benefited from the strong loan growth and the good Capital Markets business. This is most visible in International Corporates with 14% higher revenues and the strongest loan growth. In Mittelstand and Institutionals, the business has also performed well. However, the effect of lower rates on deposits could not be fully compensated. And finally, the risk result has remained well contained, supporting the operating result. PSBC Germany has also improved its operating results, both year-on-year and quarter-on-quarter. As mentioned, the main revenue drivers have been the Securities business, the new account fees as well as some contribution from loans and deposits. In Private Customers, the investment and promotional offers had the expected impact in Q3 and will start to pay off in 2026. Asset Management held revenues on the level of Q2 in the rather slower summer months. mBank has maintained its profitability nearly at the record level of Q2. As expected, provisions for FX loans have been lower than in the previous quarter, and we expect Q4 to be the last quarter of sizable provisions. In September, mBank published its new strategy until 2030. mBank targets continued growth with the ambition to reach a 10% market share in Poland. With this growth and a target cost-income ratio below 35% before banking tax, mBank will materially contribute to the financials of the group. For 2026, mBank aims to start paying a dividend. This will ultimately benefit Commerzbank shareholders as it supports our capacity to distribute capital. Others & Consolidation reported an operating loss of EUR 53 million in the quarter, nearly on the same level as Q3 last year. Year-to-date, the operating result is plus EUR 66 million, in line with our expectation of a more or less neutral result for the full year. Revenues are slightly higher than Q3 last year with lower NII compensated by the fair value result. Compared to Q2, there has been some additional valuation effects. Most noteworthy has been our stake in eToro. In Q2, we booked a gain of EUR 63 million following the IPO, while we needed to book a valuation loss of EUR 34 million in Q3 as the share price fell during the quarter. We will also see some effects in Q4 depending on share price performance. On the next slide, I will cover the RWA and capital development. The CET1 ratio stood at 14.7% at the end of the quarter, up 18 basis points from Q2. There were two main drivers. Risk-weighted assets are lower as RWA from loan growth were more than offset by an SRT issuance and model effects. We plan to issue further SRTs in Q4, optimizing the return from the loan book of corporate clients. At the same time, capital has increased as the deductions from Prudential Valuation were lower due to decreased market volatility after spiking up in spring of this year. In line with our distribution target of 100%, we have not included the quarterly profit for the calculation of the CET1 ratio. In total, we have already dedicated EUR 2.1 billion for distribution to shareholders in the first 9 months of the year. The MDA has gone up from 10.2% in Q2 to 10.4%. The reason is the introduction of a countercyclical buffer in Poland. A similar impact is expected in Q3 next year when the Polish countercyclical buffer is increased further. Finally, we have received the SREP letter from the ECB. Our 2026 capital requirements were lowered by 10 basis points. For us, this is a recognition of our solid business model and our increased resilience in recent years. As we must hold only part of the regulatory capital requirements as CET1, the MDA will be reduced by around 6 basis points effective from January. The outlook for 2025. As already mentioned, we have improved our outlook for NII from EUR 8 billion to EUR 8.2 billion and for the risk result from around EUR 850 million to below EUR 850 million. We confirm all other targets. We continue to expect growth of the net commission income of around 7% compared to last year, a cost-income ratio of 57%, a net result of around EUR 2.5 billion, and a CET1 ratio of at least 14.5%. We will provide our outlook for 2026 alongside the full year results in February. We clearly see upside of NII -- on NII compared to our original plan that we published in February and expect support from an improving macro environment. Thank you very much for your attention. Bettina and I are now looking forward to taking your questions. Operator: [Operator Instructions] The first question at this point comes from Benjamin Goy, Deutsche Bank. Benjamin Goy: Two questions, please, on net interest income. The first, thanks for Slide 17, the breakdown on the Corporate Clients growth, but maybe you can speak a bit more about your growth expectations for corporates in Germany and when this is going to inflect, whether it's early '26 or a bit later? And then secondly, you also mentioned that your '26 NII is likely impacted by higher deposit beta, which you consistently -- I think, conservatively assumed. So just wondering what increase you have expected? And how much was actually the comdirect campaign in July increasing the deposit beta last quarter? Bettina Orlopp: Thank you, Benjamin. So I mean, what is the outlook for corporates in Germany? You see that the growth is also already now in Germany when it comes to public institutions and also partly Green Infrastructure. But the majority we expect for 2026, one factor will be clearly the stimulus package of the German government. But then also given the improving business sentiment, which we see, there should be also more activity, specifically from Mittelstand clients for Germany. And there is apparently also the Made for Germany initiative, which means to have significant investments in Germany in the coming years. And on NII 2026, I hand over to Carsten. Carsten Schmitt: Yes. Thanks, Benjamin. Let me start with the increase in the deposit volume that we've seen in the third quarter. As you asked for it, so in July, we increased our deposit volume by around EUR 8 billion from the offers that we had out via comdirect. This led to an increase in the beta. On the personal customer side, we expected this, which is why you also see the beta coming up in Q3 to 42%. We've now said that we expect a slight increase into Q4, which is not stemming from the personal customer business, but rather from the Corporate Clients side. Given the generally lower rate environment at the moment, it becomes harder to actually fully transmit the rate cuts into the client business. And hence, you have a structural increase of the beta from that side. So for the full year, we are still expecting an average beta of around the 40% mark we indicated beginning of the year, potentially minimally higher. And for '26, as you asked for the development towards the EUR 8.4 billion NII, for '26, we expect that the current rate environment actually will come with the same strain on the corporate client beta. On the personal customer side, as mentioned, we expect this to come down again in Q4 and then manage it as we go in the quarters of next year. Operator: The next question comes from Tarik El Mejjad, Bank of America. Tarik El Mejjad: Just a couple, please. On cost savings, can you update us a bit on the progress on the different initiatives you've launched with your CMD earlier this year and how you're confident to deliver especially the trajectory on that? And second one on the capital. So if I understand well, by year-end, we will have a better view on the mix between the cash and buyback. So you say paying 100%, is it possible to pay more than 100% if you are above 14.5% CET1? Because we know that it will be EUR 1.6 billion or so of buyback, and then the components on the cash, given where you trade, could that be higher to lead you more than 100% from this year? Because I think that now what we need to look at is the 14.5% CET1. Bettina Orlopp: So Tarik, thank you for your questions. On cost savings, we make very good progress. First, when it comes to the restructuring program itself and the headcount reductions, we concluded all necessary negotiations with the workers' council, and we have already announced all structural changes, and we are in the process of implementing them. And we also started with one instrument, which is kind of a part-time retirement program, which has a benefit that people stay on for the next 1 to 3 years, so you can really manage transition and then they will go in the passive retirement phase. And we had a very high acceptance rate higher than we expected with 50% of the people we address that to. And then all other social instruments are also now available. And therefore, we are very much developing according to plan. When it comes to the necessary measures, when it comes to efficiency, streamlining, AI showing, we are also showing exactly the progress we expect. We are delivering AI use cases day by day. One can really say there's a lot of speed in that. And also the sharing activities are ongoing. We have already hired a number of people in Sofia, in KL for the different teams. So all well underway and on track. When it comes to capital, actually, I mean, we are paying more than 100% because we have the benefit that we can exclude the restructuring costs from our payout ratio. So if you take really the net result after restructuring costs, we will pay out more than 100% this year. But we will stick with 100% net income after AT1 before restructuring costs because that is exactly what we aligned also with the regulator as a basis for our share buyback requests. But the clear mix between dividend and share buybacks, we will finally decide. When we see the results, it's clear that we want to show a very attractive dividend as well. We now had EUR 0.30, EUR 0.65. And apparently, we want to have a further increase also given that share price has nicely improved over the last months, and it will be very attractive, and it will be a very attractive mix. And as said, the EUR 1 billion share buyback program is currently underway. The next one we have just applied for and then the rest, we will update in February. Operator: The next question comes from Jeremy Sigee, BNP Paribas Exane. Jeremy Sigee: Two questions, both on capital, please. Firstly, is there anything specific coming in Q4 that would bring the 14.7% down to 14.5%? Or does the sort of greater than 14.5% mean actually it could stay at 14.7%? So anything specific you're expecting in Q4? And then the second question I had was on your Slide 6, when you talked about sort of future strategy elements, topics of special strategic importance for the coming quarters, you mentioned optimizing deployment of capital above 13.5% target. Are there any new ideas that you have in mind or any new areas of focus? Or are you just reflecting something that's already a core plank of your strategy? Bettina Orlopp: Thank you, Jeremy. I mean on capital, we always know that a 0.1% up and down can also be just reflected by currency changes, FX changes and stuff like that. But overall, we expect more growth to come in Q4, and that will have an impact. There will be also more SRTs to come, but that's the whole story around that. When it comes to future capital deployment, I mean, we're thinking about investments all the time. The whole discussion around AI, specifically Agentic AI is accelerating. So we definitely also think to invest more into it to accelerate certain things. And then we explore -- as we have said beforehand, we explore different M&A opportunities to make sure that we can strengthen our business model. But the problem is they have to meet very strict criteria because we have very clear targets out there when it comes to 2028. So it needs to be value accretive and supporting our growth ambitions, but also our profitability ambitions for the years to come. Operator: The next question comes from Kian Abouhossein, JPMorgan. Kian Abouhossein: The first one is related to loan growth in the Corporate Clients where you have given very helpful details on Slide 17. Can you talk about the asset spread margin environment in the different areas? And what are you doing differently versus peers, which is driving this very strong growth rate that we are seeing? And the second question is on PSBC deposits, where we've seen also very strong growth. And should we be looking for more flattish growth going forward? How should we look around deposit growth in PSBC? And in this context, you mentioned that the structural hedge could grow from EUR 147 billion, which was flat. Wondering how should we think about the deposit growth and in conversion, the structural hedge? Is there any guidance you can give us? Bettina Orlopp: Let me start off with the PSBC deposit growth. I mean, the deposit growth has been very much supported by the attacker products, which we have seen in July. We now have stopped them. But overall, when you look in our plans, that has not changed. We plan for an average deposit growth of approximately 2%, and that is also very much coming by what our clients do, but also we definitely want to grow with our client base. And for the rest, I hand over to Carsten. Carsten Schmitt: Yes. Maybe to then also add to your question regarding the structural hedge position. We have an unchanged position regarding the replication portfolio coming from Q2 to Q3. And as you know from the slides, we have EUR 147 billion currently in this portfolio. Given the changed deposit structure that we're having now or size of the portfolio, we will, of course, look at potentially increasing this. So this is something we'll decide during Q4 and then update you on it. I would also like to remind you that we have in total EUR 200 billion plus in deposits that we can model and always sort of remain a distance to what we actually have in the model. So there is room to look at that, and we will do this during Q4. Then on your first question regarding loan growth on Corporate Clients and the margin development, I would like to pull this into two directions a bit. First and foremost, you've seen that we saw a healthy loan growth, especially on the International side. We grow the portfolio on that end, as mentioned, has good margins. The business is contributing. So we are actually seeing a healthy increase. And it is mainly coming, quite frankly, Kian, from our point of view, coming from the deep relationships we have with our customers and the international presence that we are offering with our outlets internationally. So that basically allows us to accompany them whenever there's financing needs coming up. And looking a bit more into the domestic part and the growth, especially when it comes to the public sector, to the municipalities, we interpret this as the first pickup of the infrastructure packages that also have been announced by the government. This business is a fantastic business when it comes to the risk position of the book. It, of course, also comes at slightly lower margins. But I would also like to say that in this space, municipalities -- or not necessarily only the municipalities, but also municipalities [ operates ] like suppliers, et cetera. And those usually from a margin perspective, go a bit more into the Mittelstand territory. So hence, growth in the book at good margins and rather accreting to the RWA efficiency of the book. Operator: The next question then comes from Borja Ramirez with Citi. Borja Ramirez Segura: I have two, these are on the NII. Firstly, I would like to ask on 2026, could you disclose the deposit beta that you are assuming? Because I think there was some comment on corporate deposit beta rising maybe because of higher -- of lower margins. But then also the retail deposit beta, I think maybe that's maybe improving as your attacker products are repriced at lower rates. So that would be my first question. And then my second question would be if you could kindly provide a bit more color on the moving parts in the 2026 NII. For example, I think there is -- I think you guided for EUR 300 million of benefit from the replication portfolio in 2026. In NII, I have slightly higher EUR 400 million because you [indiscernible] and also you increased the portfolio. So if you could kind of add more details there, please? Carsten Schmitt: Borja, thank you very much for the questions. Let me start with the first one on the deposit beta. Again, I would like to start with 2025. You've seen that we came sort of from a low level, which was steadily increasing over the year as expected. Q3 is now a bit higher coming in mostly because of the attacker products we had out in July. And as mentioned, we expect actually the private customer beta to come down again in Q4. So the main driver for the slightly higher beta that we expect for the end of the year comes from the Corporate Client business. All in, the beta, as mentioned earlier, will remain actually at a level of 40%, maybe 40.5% for the year as we expected. And running into '26, the beta from an expectation perspective will likely be driven by the Corporate Client side, where we see basically an unchanged beta landscape compared to Q4. You mentioned briefly sort of the impact from our attacker products on the personal customer side. I would like to make the point, the deposits that we actually got in beginning of July are term deposits. And while that always has a short-term impact on the beta, the longer-term benefit of actually having these deposits in the bank actually will be contributing in '26. Then the second question on the EUR 400 million increase of NII in '26. We will expect for '26 a pretty much unchanged at least ECB rate environment. So expect this to be flattish. The replication portfolio actually will be the driver with the investments and the position we have in the replication portfolio, we do see the stabilization effect. And as you've also seen in the last quarters, we continuously actually increase the average return out of that portfolio. So that will be the main driver. And then, of course, we will see growth effects and a slight negative coming from mBank given the Polish rate environment and expected a slightly higher beta next year. But that's the main drivers for the EUR 400 million so that we will see a positive development from EUR 8.2 billion, sorry, to EUR 8.4 billion next year. Operator: Okay. Then I think the next question comes from Tobias Lukesch, Kepler Cheuvreux. Tobias Lukesch: Also quickly touching on the NII again and the outlook for '26. You guided for this EUR 8.4 billion. I was just wondering what the net fair value expectation is in your old strategy at the CMD at EUR 0.5 billion, but you also had EUR 0.4 billion for '25, which is now still confirmed at EUR 0.3 billion. So I was just wondering if this still holds up and what your total view on this combined revenue contribution is. And secondly, basically on the cost side. So if I understand your guidance correctly now for '25, you have this EUR 200 million more in NII. At the same time, a EUR 70 million tax effect leaves us with EUR 140 million, which is more or less eaten up by higher costs. On the share price, I mean, one could hope it, but it's rather unrealistic to see the same compensation potentially for next year. So I was just wondering like what you see in terms of like this kind of cost development, how it will come back and how you will steer that basically into the future? Carsten Schmitt: Yes. Thank you very much, Tobias. Starting with the NII for '26, and you referred to specifically regarding the net fair value. So for '25, so for this year, we have a net fair value contribution, which is linked as we always refer to it to the NII to the degree of EUR 300 million. This is a change coming out of last year. So the reason why we listed this explicitly when going into the year and guiding for the NII was that in the rate declining environment, we wanted to also express it's not only the NII, but also partially contribution from derivatives that help us on the NII side. Now going into '26, we are guiding the NII for EUR 8.4 billion, but we expect a flat rate environment and hence, also no significant movements on the net fair value result stemming from the NII position. Hence, EUR 8.4 billion and at the moment, flat, so no additional contribution from the net fair value for '26. Then towards your second question regarding the cost side. I think you went through that quite nicely. We have some effects that you listed, which we also mentioned in the speeches regarding our '25 development. When we look at the operational, let's say, cost level and development that we're seeing in the bank, we're seeing a very disciplined way the bank is managing its costs at the moment. So looking into '26, we are basically very confident that we are running with the level that we have guided in the Capital Markets Day. As you know, we're steering for cost-income ratio. 56% is the target that we set for next year. And at this point, we hold clearly towards that 56%. Tobias Lukesch: If I may, again on this net fair value. I'm a little bit puzzled, to be honest, because with the CMD, you guided for EUR 8 billion NII in '26 and EUR 0.5 billion net fair value, which makes EUR 8.5 billion. If I understand you correctly, now you're guiding for a combined EUR 8.4 billion only for next year. And also again, on the '25, I don't get this unchanged EUR 0.3 billion net fair value result. I mean we're at a negative minus EUR 60 million, if I'm not wrong. And that would indicate a kind of EUR 350 million contribution in Q4. So how is that to read and to square? Carsten Schmitt: Yes. I think that's a super fair question. So first of all, Tobias, on '26, to be absolutely clear, we have EUR 8.4 billion expected NII and unchanged net fair value expectation of EUR 0.5 billion. So that stands. I was referring mainly to the net fair value we expect from the NII side. So for '26, no change in the net fair value guidance to be absolutely clear here. Then coming back to '25, the net fair value, in essence, is made up of multiple positions. One position is the net fair value, which we have from interest rate-related positions. That is the EUR 300 million that we mentioned. These are included as one portion of the net fair value, and they hold. We see them at the moment in the books. And given the current rate environment, we don't expect them to change towards the end. What's also included in net fair value is then the positions from our Capital Markets business, that is contributing to it. And the third position, which is contributing to net fair value is general valuation effects. And those have to be seen in combination with the other income. And if you combine those positions, so the net fair value that we have as a run rate at the moment, the other income and if you exclude from that the FX mortgage provisions which we hold for mBank, then you actually end up with a value around the EUR 250 million mark for '25. And hence, we stand with that guidance. Operator: The next question comes from Riccardo Rovere, Mediobanca. Riccardo Rovere: Again, on NII. If you look at the loan book, EUR 263 billion at the end of the 9 months is -- this is the average, is 2.5% higher than the average since the start of the year. And then in 2025 -- '26, you're going to have a support from the fiscal boost in Germany, 1.2% in GDP. This is real, then you add 2 percentage points from inflation. So the loan book will continue probably to grow in Germany. I don't know if it's 3.5% or something like that is reasonable or not. And then you have Poland, which is supposed to grow more than that, while your NII is supposed to grow 2%. So you are implicitly plugging in a fairly decent, I would guess, margin compression. While the rates are supposed to be stable, at least in Europe, but Europe is 70% to 75% of your business and Poland is 25%, 30%. So given that in 2025, your NII guidance went from 7.8% to 8%, then 8.2%. I'm just wondering whether the approach you have in the 9 months '25 when you set the 8.4% is with some caution, some prudence as you have constantly done throughout 2025. This is the first question. The second question I have is on the call money, core deposits in PSBC. As I understand, the promotional offer was in July, if I understood it correctly. So that means that the impact on NII should more or less be fully visible in this set of numbers. More than that, why are you gathering this -- why you're doing this promotional offer still? And then the other question I have is on the medium- to long-term funding, the amount has gone up dramatically over the past -- since the start of the year is almost, if I'm not mistaken, kind of EUR 20 billion or so, kind of EUR 18.5 billion in debt securities. It went from EUR 45 billion, something like that EUR 53 billion to more than EUR 70 billion. What is -- why has this gone up so much? And what is the spread that you get? Because the feeling I have is that then you invest in debt securities on the asset side. And I was curious to know what kind of debt securities this amount of money is invested in. That's just to have an idea. Bettina Orlopp: Yes. Thank you, Riccardo, for your questions. And specifically the first one, as you know, we like this wording of floor. And yes, we are always conservative, and you know that. So when it comes to next year, what are the driving factors? So first of all, we plan for another 8% loan growth in Corporate Clients. That's for sure, and that will be also supported by everything we see in the moment when it comes to the stimulus package. And I think we have proven nicely that we are able to organize that given the 13%, which we have shown year-to-date. However, what you need to keep in mind is two things. One is clearly Poland, which will also see nice growth on the loan side, but we will -- we expect a further decrease in interest rate levels there that will have a negative impact. And what Carsten said before on the deposit beta that you need to take the fourth quarter basically as something which will also drive then the full year 2026, and that will be a slightly higher deposit beta on [Technical Difficulty] which we have seen for this year. That is at least our assumption, and that is also the assumption which we have embedded in our plans back at the Capital Markets Day. If you look in this document, we always spoke about 41% for this year. Now it's 40% most likely, which would then go up to 44% until 2028. And that's just a reflection. It's lower than we thought, but there is still some increase in the deposit beta. When it comes to the -- so yes, you can say that the EUR 8.4 billion is clearly, again, a floor number and nothing else. And when it comes to the call money, we have that in July. We stopped the program actually after 3 weeks because we had so much inflow. But most of this money runs until January, February. And in the moment, we do only have our normal offers out there and nothing specific. And on funding, I hand over to Carsten. Carsten Schmitt: Yes. On the funding side, Riccardo, we had planned -- in terms of debt instruments, we had planned for around EUR 10 billion-plus for the full year, and we're currently standing at around EUR 11 billion in terms of funding. In terms of the spread across different instruments, we actually had a wide variety in the market this year from AT1 to AT2 issuances, et cetera. So basically, we had the full spread and made use of the market environment to do our regular sort of refunding activities. So actually, the funding plan is pretty much in line with our plan. We extended it a bit in Q4 effectively to make use of the current market environment. And also, I should say, looking a bit back into the first half of the year, we know that the markets are not always there when you want them to be there. So we basically looked a bit into stabilizing the funding position, but pretty much in line with the plan, maybe a bit on the upside. Also, given the current market environment and the spreads that we are seeing -- attractive spreads for the re-issuances, so generally, you can expect that we improved our funding cost position overall in the book throughout this year. And given that we hold the margins actually on the asset side steady, this will be contributing to our business plan. Riccardo Rovere: Very clear. Just maybe a quick follow-up. On the loan growth in PSBC Germany, the book is fairly stable at EUR 125 billion. Do you expect that the easing by the ECB is going to have an impact at some point in 2026 here? Bettina Orlopp: You mean on the private client side? Riccardo Rovere: Yes, exactly. On the retail side in Germany. Bettina Orlopp: Yes. I mean what we currently see is already much more activity again. So the mortgage activity has increased. Basically, it's back to the levels which we have seen pre-COVID. And there's just a time effect in there because people start a mortgage, but then until they really take the money, it takes a while because its most of the time, just paced in construction. So yes, we expect a loan growth for next year also on the PSBC side. Operator: The next question comes from Anke Reingen, RBC. Anke Reingen: There's two areas, please. The first is just coming back on the very strong corporate loan growth in Q3. Some of this seems to be a bit more short term in nature as in Working Capital and Trade Finance. And given Q4 is normally seasonally a bit weaker, I just wanted to confirm that you expect there shouldn't really be a reversal in Q4 from these levels. And then secondly, you talked at the beginning about your wealth management initiatives. And I just -- I'm sorry, I'm not -- can't really fully remember, but what you mentioned, is this incremental to your plan? And maybe can you just sort of give us an indication of how much it currently contributes to your revenues and what you sort of like size as an opportunity? Bettina Orlopp: First, we do not expect any reversal on the loan growth for the fourth quarter. And second, on wealth management, I mean, this is a core element of our Momentum strategy. So it's fully embedded in the plans. It's -- I mean, one of the factors which should drive our net commission income, the 8% or 7%, the 8%, which we have seen year-to-date, but also the 7% we expect for the years to come. And what we have now done is we basically intensified the coverage of clients. So there are more relationship managers to cover these groups of clients. We have wealth management centers. We also have new locations. We opened a number of new locations in Germany this year, and they will be a significant driver for the net commission income growth. We do not really say how much percentage-wise it is. Operator: The next question comes from Máté Nemes, UBS. Mate Nemes: I have two of them, please. The first one would be a follow-up on deposits, specifically the strong call money inflows. Can you talk about the retention rates that you've observed on such attacker products once the high interest period ends in the past 1 to 2 years? Would love to know what is your experience on that front, how sticky those new funds are? The second question would be on the risk result or risk costs and specifically your guidance. So in the first 9 months, you had EUR 515 million in risk results. And clearly, you revised your guidance down for the full year to below EUR 850 million. I'm just wondering what prevents you from being more specific on the full year risk results. It seems like there is an awful lot of room between the current result and the upper end of the guidance. Would you expect anything sort of inorganic in the fourth quarter, any model changes? Why not, let's say, a somewhat more precise lower guidance? Bettina Orlopp: Well, thank you. Yes, on the call money, the inflows and now you're asking what do we expect. I mean we can only speak for the past programs because the attacker products, which we have laid out in July are running, as I said, until January, February. So we will only see in the new year how sticky it is. You really have to differentiate between the two client groups, Commerzbank clients and comdirect clients. Commerzbank clients actually, whatever we get there is more sticky than on the comdirect side. And at the comdirect side, we also have more of these, I call them, interest rate hoppers. But still, we have been pleasantly surprised by the stickiness of how many clients still also keep their money with us. That is also due to the fact that most of the time, we also couple that with really client onboarding. We have a very attractive brokerage offering at the comdirect side, and that is clearly something which we combine also with new clients. So overall, so far, we have been rather pleasantly surprised on how much call money stays with us after the attacker products. But the risk result, I mean, totally clear, we see it the same. However, it's a long quarter, and this is why we, as always, stay a little bit cautious. We do not see anything specific. We do not expect anything specific, but it is a long quarter, which runs until February. So we're just leaving a space. There are not specific model changes planned or something like that. I mean there's always a time there are model updates, but nothing specific here. And that's also very confident. I mean, we wouldn't have changed it to below EUR 850 million if we would not believe that it comes lower than the EUR 850 million, which we originally laid out. But how much in total, we really will see in February when the quarter ends. So I think we are at the end of this call. Thank you very much for your questions. We are looking forward to further discussions with you and wish you now a great and sunny day. Thank you.
Operator: Good morning, ladies and gentlemen, and welcome to Veolia 9 Months Key Figures Conference Call and Webcast with Estelle Brachlianoff, CEO; and Emmanuelle Menning, CFO. [Operator Instructions] This call is being recorded today, November 6, 2025. I would now like to turn the conference over to Estelle Brachlianoff. Please go ahead. Estelle Brachlianoff: Good morning, everyone, and thank you for joining us for this conference call to present Veolia's 9 months key figures, and I'm accompanied by Emmanuelle Menning, our CFO. I'm on Slide 4 for all the key takeaways. Our 9-month results are once again very good with strong underlying business trends and a favorable momentum going into the end of the year. Our 9 months performance in EBITDA terms was particularly strong internationally, where the group generates 80% of its revenue as well as for our Boosters, as I will explain in a few minutes. In a rather challenging environment, this sustained performance quarter-after-quarter is really a testimony to the choices we've made in GreenUp as well as the strength of our business model of resilience and growth. Veolia can rely on a successful combination of Stronghold and Booster activities added to a diversified portfolio, both by geography and customer as well as a continued attention to performance. Moreover, we're constantly looking to create value by pruning our portfolio and have completed EUR 2.3 billion of M&A since the beginning of the year in our Boosters, Water Technology and Hazardous Waste in particular, and outside Europe, following, as you know, the disposal of nonstrategic assets last year. I can, therefore, fully and strongly confirm our guidance for the year, and we should have a very strong Q4. I'm now on Page 5, where you see that our 9-month key figures are once again very strong. Revenue reached EUR 32 billion, up plus 3.2% excluding energy prices, which are essentially pass-through for us, as you know. EBITDA increased by a substantial plus 5.4% on a like-for-like basis, fully in line with our 5% to 6% guidance and shows a margin improvement of 50 basis points. This is thanks to our strong international performance as well as our recurring efficiency gains complemented by the last synergies coming from the Suez acquisition more than 3 years ago. Current EBIT was up plus 7.9%, demonstrating strong operating leverage. Net financial debt remains well under control at EUR 19.9 billion, even after EUR 2.3 billion of net financial acquisition closed in the 9 months. We are perfectly on our trajectory to less than 3x at year-end with the usual seasonality. Our solid 9-month performance and expectations for Q4 enables us to fully confirm our guidance. In this uncertain time, Veolia's results are sustainably progressing quarter-after-quarter as we have demonstrated over the last few years. And why is that so? I would like to highlight key features on Slide 6. And I will insist on our international exposure with 80% of our revenues growing faster than the rest of the group and with very good EBITDA performance as well. Even in France, which accounts for 20% only, our results are not sensitive to the political context. And this is structural as we hold no national contracts and no public money is involved. Moreover, ForEx does not impact our businesses or margin as we just saw in the last 9 months with plus 50 basis point margin. We do not have ForEx transaction exposure, only translation. In a way, no business impact. We are a multi-local group with very limited international trade. On Page 7, you see in figures our performance outside Europe, which really stands out and explains a great deal of our resilience and growth in the last 9 months. Indeed, our Rest of the world businesses are more profitable with an EBITDA margin already at 17% versus 15% on average for the group, and they are faster growing. In growth term, you can see the detailed performance in the 9 months, which has been enhanced in Q3 compared to the first half, plus 6.2% in North America, fueled by an accelerated growth of Hazardous Waste, plus 9%. In Africa and Middle East, plus 10.5%; in Latin America, plus 9.4% and plus 5% in Asia. As you know, our value creation and EPS growth come from 3 pillars: top line growth, performance and capital allocation. And I'm going to go through them one by one as always, to illustrate how they have each contributed to our performance in the 9 months, starting with growth of our Stronghold activities on Slide 8. We've registered a very solid revenue growth of our Strongholds. Let's start with Water operations. Revenue increased by plus 3.9%. We continue to benefit from good indexations and have achieved successful tariff renegotiation in Spain as well as rate cases approvals in our U.S. regulated operations, which protects our future earnings. We just opened our first upgrade control center in North America to foster operational excellence and leveraging data. Solid Waste revenue grew by plus 0.9% or 1.5% excluding energy prices despite sluggish macro. As we have detailed in our deep dive last June, we managed to largely disconnect our waste activities for macro, thanks to a varied portfolio of customers, good pricing and quality of service, and we favor bottom line over revenue as well. Revenue from District Heating Networks increased by plus 2.7%, excluding energy price, thanks to sustained heat tariff as well as some network expansion and a favorable weather impact in H1. Q3 is not a very significant quarter for this activity. On Slide 9, one good example of the dynamism for Water operation in Q3 is certainly the signing of its first hybrid municipal and industrial desalination in Chile in Valparaíso. As you know from our Oman event on desalination a few months ago, Veolia is the world leader in desalination technologies with 18% of the world's desalination facilities having been designed and built with Veolia, and we have big ambitions. I'm very proud of this win in Valparaíso after a very intensive competitive process as we will be able to provide the highest technical, environmental and social standards to Aguas Pacifico. Let's move to our Boosters performance on Slide 10, which have performed well. The EBITDA performance is even remarkable, confirming my choices in GreenUp. Water Technology to start with, as you know, is a mix of various business models as we detailed in our deep dive last year. As you may remember, 70% of our Water Tech activities are deemed recurring, corresponding to products, mobile units or chemicals. And I'm very happy to see this base having achieved a very good Q3 with 6.8% growth and 4.8% since the beginning of the year, testimony to our technologies and commercial power. On the other hand, projects were impacted in the quarter by the timing milestone delivery and a strong comparison base last year. Quarters are always very different in this activity, and I expect a normalized Q4. Overall, and combining those different business lines, Water Tech has been up only 2%, but EBITDA progressed with 10% organically, which is excellent. Hazardous Waste revenue increased by plus 5.5%, including tuck-ins and 4.4% organically. I would like to highlight, in particular, the very strong growth in the U.S., up plus 9% year-to-date and despite planned shutdown of [indiscernible] early in the year. We have started our new operation in Saudi in the Dubai complex, and only China is lagging behind in terms of price, but we start to see some rebound in volumes. In terms of EBITDA, 9 months performance was excellent with above 10% organic growth. In Bioenergy, revenue was up plus 21.3% excluding energy price and including our new targeted acquisition. If I go to organic growth, it was still plus 8.2%, which is very good. Some illustration of the high-tech part of Veolia on Slide 11. You can see on this slide 2 good examples of the dynamism for our Boosters in Q3. First, in Water Tech, after years in the making and technical design, we were awarded a $500 million project in Saudi Arabia for the Saudi Aramco Total Energy Consortium called SATORP. We will design, build and operate a new massive plant. We're talking 8.10 million cubic meters per annum, treating the super complex affluent of this petrochemical complex. We combine here our unique set of Water Technologies and Hazardous Waste know-how, not only to offer a solution to remove pollutants, but also to recycle water in this arid region. I'm also very proud to have signed a partnership with TotalEnergies to combine our expertise and technologies to develop innovative solutions for industries, methane measure and capture, low-carbon energy for desalination facilities, strategic metal recovery from waste, et cetera. Now let's dive into our second lever of value creation after growth, which is performance and efficiency. I'm now on Slide 13, which shows our 9 months performance. In terms of our yearly efficiency plan, we achieved EUR 295 million in gains, in line with our annual target of EUR 350 million. As you know, this is a recurring lever embedded in our operations and therefore, one we can count on for years to come, not to say forever. Efficiency gains of Veolia are not discretionary cost-cutting programs, of which you could question the continuity, but they come rather from a very diversified series of initiatives in our thousands of plant, which explains the recurring element of it. Worth noting, we have already registered EUR 5 million of additional synergies coming from the combination of our 2 business units in Water Technologies after the CDPQ minority buyout closed on June 30. In terms of cost synergies derived from the Suez merger, we have achieved EUR 73 million in 9 months for a cumulative total of EUR 508 million since day 1. This is in line with our objective of EUR 530 million by year-end, which, as you know, we've raised a year ago. I'm now on Slide 14, which details the third pillar of value creation, capital allocation and portfolio pruning. You will see a powerful 9 months in that respect with EUR 2.3 billion of acquisition completed almost entirely in Water Tech and Hazardous Waste and outside Europe. This is fully consistent with our GreenUp priorities. I must say the year-to-date enhanced growth outside Europe and plus 10% EBITDA increase in those 2 Boosters confirm that these are good investments to sustain future earnings growth. Detailing those investments first in Water Technologies with CDPQ's 30% stake for EUR 1.5 billion, which you know is an operation which will be accretive and ROCE enhancing, thanks to EUR 90 million cost synergy by 2027. In Hazardous Waste, we've signed 6 bolt-on acquisitions for a combined EV of EUR 400 million and good multiples, notably in the U.S. and Japan. Of course, we maintain our strict balance sheet discipline and our leverage will remain below 3x at year-end, allowing the group to retain strategic flexibility. Our strong 9-month results, of course, allow me to fully confirm our guidance for 2025, which is reminded on Slide 14. I wish to invite you as well to join us in Poland later in the month, where it will give some color about our district heating and decarbonizing energy activities. Finally, and as a conclusion, I wanted to remind you of our long-term guidance, fueled by our 3 levers of value creation and GreenUp priorities. It includes current net income growth of 10% per year on average over the period with dividend growing in line with current EPS and ROCE above 9% in 2027. As you remember from our yearly presentation, we decided to launch a share buyback plan from '25 to '27, size to neutralize the impact of the employee shareholding program. So that going forward, current EPS will grow in line with current net income growth. I now hand over to Emmanuelle, who will detail our 9 months key figures. Emmanuelle, the floor is yours. Emmanuelle Menning: Thank you, Estelle, and good morning, everyone. Veolia's results at the end of September are very solid with strong underlying business trends and a very favorable momentum, which I would like to detail. Indeed, if we look at our EBITDA performance, we see tailwinds. First, in our international operations, notably outside Europe, where the group generates 80% of its revenue with circa double-digit EBITDA growth and second, for our Boosters with EBITDA increased by more than 10% in the 9 months. In Q4, we expect this trend to continue, and we also expect improved performance in France as we will reap the benefits of our action plan, notably in French waste. Nine months results are fully in line with our annual guidance and are also a testimony to the strength of our business model of resilience and growth with a successful combination of Stronghold and Booster activities and a diversified international portfolio. With EUR 32 billion in revenue, we experienced a solid growth of 3.2%. The operating leverage as the good delivery of efficiencies and synergies were excellent. A solid organic EBITDA growth of 5.4% at EUR 5,080 million and a current EBIT growth of 7.9%. Net financial debt reached EUR 19.9 billion at the end of September, up from December '24 due to the seasonality of working capital variation and M&A activity, down compared to the end of June '25 due to the temporary favorable impact of the hybrid bond debt issuance of EUR 850 million, which will be reversed at the end of the year. We expect the leverage ratio to be below 3x at year-end after full seasonal working capital reversal in Q4. You can also see on the slide the detailed ForEx impact, which increased in Q3 due to the weakening of the U.S. and Australian dollars as well as the Argentinian and Chilean pesos. A few things are important regarding the ForEx impact for Veolia. First, our revenue is only about 40% generated in euro. But as a multi-local group with very limited international trade, ForEx does not impact our businesses or margin. Our revenues and costs are always in the same currencies in each of our countries. The increase in currency impact in '25 reflects the improved performance of our international activities. Our guidance at EBITDA level is at constant scope and ForEx. Finally, as you saw in previous year, the ForEx impact at EBITDA level is very much offset down the line to current net income. ForEx impact was minus EUR 68 million at EBITDA level and minus EUR 44 million at current EBIT level at the end of September. Using the ForEx exchange rate at the end of September '25, the full year impact at EBITDA would be around EUR 130 million minus, but it varies every day. Our full year guidance, which is at constant scope and ForEx is fully confirmed at EBITDA and current net income level. Moving to Slide 18, you can see the revenue evolution by geography. The main feature in Q3 was the enhancement of our growth outside Europe. I will detail it in a few minutes. I will start with Water Technologies. As Estelle recalls, 70% of our Water Tech activities are recurring corresponding to products, mobile units and chemicals. While 30% is volatile, these are the projects. In Q3, project revenue was impacted by the timing milestone delivery and a strong comparison base last year, while the 3 other business lines grew double digit. Excluding project, Q3 Water Tech revenue was up 6.8% in Q3 and 4.8% in the 9 months. This was reflected in the EBITDA level. Water Technology EBITDA increased by 10% in the 9 months, benefiting also from the efficiency and synergy delivery. As Estelle mentioned, we have already generated EUR 5 million of additional synergies coming from the buyout of WTS minority interest in Q2. Rest of the world performed very well in Q3. With revenue growth accelerating from 3.7% in H1 to plus 6.6% in Q3, driven by all geographies. Europe grew by 4.1% in the 9 months, fueled by resilient waste activity, a solid Q3 in water operation and excellent performance in Southern Europe, notably in Spain, up by 7%. Finally, France and Hazardous Waste Europe benefited from good hazardous waste performance, partially offset by low growth in solid waste and good water activity. Now let's take a look at our performance by business. Let's start with Water, representing 40% of our revenues and 50% of the group EBITDA. Water revenue was up 3.4%, fueled by the strong water operation, up 3.9%, while Water Technology was up by 2%. Water Operations benefited from good indexation with continued price increases in Europe and in the U.S., while indexation was back to 0 in France due to lower electricity prices. Volumes were on a very good trend, up close to 3% in Europe. As I just explained, the underlying growth of Water Technology, excluding the timing project delivery remained quite strong. Moving to Waste, representing 35% of our revenues. Waste activities grew by 1.8%, a steady pace despite an [ helpful ] margin. Waste growth was very comparable in Q3 to previous quarters. Starting with solid waste. It's a very local, systematically adapted to the reality of the geography with a well-balanced customer portfolio across countries, and it has been demonstrating its resilience through the quarters. In terms of volumes and commercial developments, performance was mixed, resilient volumes in the U.K. and in Germany. U.K. incineration activity was impacted by planned outages, but still down in France, although better in Q3. Activity continued to progress in the Rest of the world, notably in Latin America and in Hong Kong. Hazardous Waste grew by plus 4.4% in the 9 months, plus 5.5%, including tuck-ins, thanks to continued good pricing and plant performance with EBITDA up by more than 10% year-to-date, which is outstanding. Growth accelerated in the U.S., plus 9% in Q3, fueled by excellent incineration volumes and pricing, a slower quarter in Europe due to facility outages and lower recycled oil prices. Finally, moving on to energy, and I am on Slide 21. As you know, energy revenue is sensitive to energy prices, which were down as expected again in '25, but to a lesser extent than last year. The prices were on average almost stable compared to last year and electricity prices were down as expected. Excluding the energy price impact, growth was quite good, plus 4.5%, thanks to good volumes, helped by a colder winter and fueled by a strong activity in the booster energy efficiency and flexibility, up 8.3% with strong momentum in Belgium, Southern Europe and in the Middle East. The revenue bridge on Slide 22 explains the driver of our growth in the 9 months. Scope was negative at the end of September and reached minus EUR 327 million, mainly due to the impact of last year disposal, but as expected, was neutral in Q3. The impact will turn positive in Q4 as 2024 divestiture were all closed in Q3 last year. Negative ForEx impact increased in Q3, as I mentioned earlier. The impact of energy prices was as expected, divided by 2 compared to last year at minus EUR 501 million. Recycled prices were neutral. The weather effect amounts to plus EUR 169 million due to a colder winter at the beginning of the year in Europe. The contribution of commerce and volumes were comparable to last year, plus 1.3%, driven by sales momentum and resilient volumes. Finally, price effects were as expected, lower than in 2024 due to lower inflation and contributes plus 1.4% to top line growth. On Page 23, you have the EBITDA bridge detailing our organic growth of 5.4%, in line with the annual guidance between 5% and 6%. Scope was negative at the end of September and reached minus EUR 56 million. Negative ForEx impact increased in Q3 versus Q2, as mentioned earlier. The impact of energy was minus EUR 39 million, less than last year as expected, while recycled prices were slightly up plus EUR 13 million unchanged in Q3. The commerce/volumes/works effect was positive at plus EUR 77 million, in line with revenue impact. Pricing and efficiency gains of EUR 295 million generated plus 2.3% in additional EBITDA, hence, a very good retention rate of 38%. Worth noting, we have already registered in Q3 EUR 5 million of additional synergies coming from the combination of our 2 business units in Water Technology after the CDPQ minority buyout close on June 30. The synergies amount to EUR 73 million, notably in the Water Technology activities in the U.S. and in Hazardous Waste, leading to a cumulated amount of EUR 508 million, perfectly in line with our cumulated objective of EUR 530 million. The symbolic threshold of EUR 500 million has been exceeded. Going down to current EBIT, this slide illustrates perfectly the operating leverage of our business model, 3.2% revenue growth, 5.4% EBITDA growth and 7.9% EBIT increase. Current EBIT grew to EUR 2.7 billion at a faster pace than EBITDA. Renewal expenses of EUR 231 million were comparable to '24. Amortization and OFA were slightly lower than last year due to perimeter and slightly up at constant scope and ForEx. Industrial capital gains, provision and other were down due to the high provision reversal in '24 with the ending of operational risk. Joint ventures are slightly decreasing. Before concluding, I remind you on this slide of our share buyback program, which has been launched to offset the dilution of the employee shareholding program. Our strong 9 months results allow me to fully confirm our guidance for 2025, continued solid organic growth of revenue, excluding energy prices. For EBITDA, organic growth between 5% and 6% more than EUR 350 million of efficiency gains, more than EUR 530 million of cumulated synergy at the end of 2025, current net income up 9% at constant ForEx, leverage ratio below 3x. And as usual, our dividend will grow in line with our EPS. Thank you for your attention. Estelle Brachlianoff: Thank you, Emmanuelle. And now we are ready to answer your questions. Operator: [Operator Instructions] And your first question comes from the line with Bartek Kubicki with Bernstein. Bartlomiej Kubicki: If I may ask maybe 3 very short questions. First of all, on your FX, you gave a little bit of a guidance, what could be the FX impact on EBITDA in 2025, assuming the currency rates stay where they were at the 30th of September. I just wonder what would be the impact on net income? Because in FY '24 in the first half, the impact on net income was 0. But in the past, it used to be negative, when the impact on EBITDA was negative. So I wonder what is your view on this one at the end of FY '25? Second of all, if we -- about your share buybacks, I think there was a proposal to increase a taxation on share buybacks in France, an idea. And I wonder if this was applying to share buybacks on employee shares. What would you do if you had to pay additional taxes on share buybacks in France? Just a hypothetical example. And the last point would be on your Hazardous Waste margins because I guess, with 4.4% revenues increase and 10% EBITDA increase, we are looking at margin expansion. I just wonder whether this is a structural trend and you will see a margin expansion going forward from today's levels? Or do you think you have already reached levels which you find optimal in terms of EBITDA margins in Hazardous Waste? Estelle Brachlianoff: Thank you for your 3 questions. I will start and Emmanuelle will be able to comment further, of course. Regarding guidance on ForEx, on net result, just a few elements on that. First, I can fully confirm our guidance for the year, so which means 5% to 6% EBITDA at constant ForEx. And it's fair to say you've understood from the tone of this presentation this morning that I expect to be on the upper range of this range. Two, I can fully confirm as well the net result, which is 9% growth this year. I think this is a super important element. And as you know, I just wanted to highlight a few things on ForEx. ForEx for us is very different from in many different companies, I guess, because in a way, it has no impact on our business neither positive nor negative in a way. That's exactly why we guide at constant ForEx. It's because it's exactly what we have a look at. It's the direct consequence, of course, of our being super international with 80% of international business, plus it has no impact on margin as we've demonstrated in the 9 months with a plus 50 basis points. As Emmanuelle said, we are a multi-local company. So we have no transaction impact of ForEx. It's really like we are paid in dollars, we pay our cost in dollars and same applies to euros and so on and so forth. Just want to highlight that before Emmanuelle comments on the specifics of your question. Emmanuelle Menning: Yes, you're absolutely right, Estelle. Regarding ForEx, it's the direct translation of our being 80% international and 40% outside Europe, which is growing faster. I will not come back on the fact that we are only translation impact and no transaction impact. We expect, as I mentioned, the impact at the end of 2025 at EBIT level to be around EUR 130 million -- EBITDA, taking into account the 9 months results and the closing rate at the end of September. Estelle Brachlianoff: Although it's fair to say it varies every day, as we've seen with the political situation in the U.S. meant suddenly, the dollars went up again. So I'm not so sure we expect if we were to do that calculation with the same range as end of September, which would be now the fair comment, right? Emmanuelle Menning: Absolutely. And we haven't changed our range. You know that ForEx impact at current net income level is largely attenuated. Usually, EUR 100 million at EBITDA level translates into EUR 20 million at C&I level. Estelle Brachlianoff: Your second question on share buyback, even in the -- I mean, as you have said and implied, the fiscal debate is not over yet in France like far from. Even if we were in the -- what was imagined in the last few weeks were to be voted, which is, I must say, unlikely for the majority of it, but nevertheless, even if the share buyback that we have launched would not be concerned. Actually, there is an exception in this fiscal turmoil, which is share buyback associated with employee shareholders. So we would not be impacted in any way, shape or form even if that were to be voted. And just to rehighlight that French political situation does not have any impact on our results at Veolia, not only because we're only 20% in France, but even in France, we are very local as opposed to national. We don't have national contracts. We don't have like debt -- public debt is not involved. We are really multi-local as well. Just want to highlight that again. In terms of your third question on Hazardous Waste, the margin expansion is structural. And we've highlighted that in the deep dive we've done last June. I think it was with a big ambition, in Hazardous Waste to raise the margin, the EBIT and the ROCE by plus 50% by the end of the plan, thanks to the progressive opening of the various facilities we have. We are on the way of building, which are good profitable margins apart from the ramping up of those, which could be temporary for a few months, just like not fully yet delivering the full speed. Yes, I don't expect any specific thing. It's really structural. It's a mix of like availability of our plants, plus pricing, good pricing plus good volume and increase in the industrial base in some key sectors such as micro e. This is what is structurally behind this increase in margin. Just to give you a specific figure, which was highlighted by Emmanuelle, but I want to emphasize again on. In the U.S.A. alone in Hazardous Waste, we've grown our revenue plus, plus 9% in Q3, which is even at a higher rate than the first half. So it's really sustained we don't see anything but a sustained, if not even better Q3 than the first half. So that's why I'm very confident for a very good Q4 for Veolia and a very good year. That's why I mentioned the upper end for EBITDA at constant ForEx. Operator: And your next question comes from the line of Arthur Sitbon with Bernstein (sic) [ Morgan Stanley ]. Arthur Sitbon: Can you hear me? Estelle Brachlianoff: Yes. Arthur Sitbon: It's Arthur Sitbon from Morgan Stanley. So the first one is actually on your EBIT. I've noticed that your industrial capital gains, I mean, the line of capital gains net of impairments, et cetera, is significantly lower than last year, which I suspect suggests the quality of your EBIT -- the underlying quality of your earnings in 9 months is relatively good. I was wondering, is it just a timing effect and we're going to end the year with a similar level of capital gains than last year? Or should we expect basically you to deliver on your net income guidance with a bit less gains than last year, which could be a message on the underlying quality of earnings? That's the first question. The second question, you talked already a little bit about taxes in France. I -- and as you mentioned, we don't know what will be implemented at the end of the day. But I just wanted you, if possible, to give us some information on that potential tax that would change the way -- essentially, that amendment that would change the way the corporate tax is calculated in France and will align it on your share of revenues generated in France, not PBT. I was wondering if there is a significant discrepancy between your exposure at revenue level and PBT level in France? And if you could help us understand a bit that. Estelle Brachlianoff: So capital gains and the quality of earnings, Emmanuelle. Emmanuelle Menning: Yes. Thank you, Arthur, for your comments on the quality of results, which is really good at the end of the 9 months and that we are confirming. And to be short on your question, we confirm that at the end of the year, the amount will be decreasing compared to last year, confirming the quality of our results. In terms of your second question on tax in France, the short answer is we don't expect any negative impact nor positive on the potential corporate tax that you mentioned because there is an addendum, which makes it that we would not be concerned. And we could go through the list of the various tax which we imagine in France. And for some, the answer would be, again, in conditional terms, no impact. For others, it may be EUR 5 million, EUR 10 million max. So we're really talking about things which are absolutely not significant at Veolia's group level. And as I remind you, France is 20% of our revenue, but less of our earnings. So there is no big impact of all this in our group's results. Operator: And the next question comes from the line of Olly Jeffery with Deutsche Bank. Olly Jeffery: So 2 questions for me, more kind of general beyond the results today. So the first one is just on the efficiency program that you guys have and have every year. Is there some part of the efficiency program that happens every year that you might be able to consider to be almost efficiency that could be considered as underlying growth that might be, for example, you're sharing in the benefits of efficiency targets on specific contracts. I know often this is seen a straight out cost cutting, but is there some elements of cost cutting, which actually perhaps people view as that, but you might consider internally as being more genuine growth. I'd just be interested to hear your views on that. And then secondly, there's been discussions from some investors recently about the opportunity you might have with regard to data centers, water cooling, et cetera, in the U.S. Is that something that you see as a potential growth opportunity out this decade? And if so, what are the areas where that you feel that you can operate within that and potentially might be able to see the most growth? Estelle Brachlianoff: Thank you. Do you want to take the first question, Emmanuelle, on efficiency? Emmanuelle Menning: With pleasure. So regarding efficiency program, you're absolutely right, Olly. It's fueling our underlying growth, and it will continue to fuel our underlying growth. Very happy about what we have been able to achieve in terms of efficiency for the 9 months. The element which is important also and that you have in mind is that in Q4, it will be also pushed by the results that will come, especially in France as we will reap the benefits of all the measures that we have implemented in the 9 months. So very sustainable trend completely linked with our businesses and which will fuel the underlying growth. Estelle Brachlianoff: So basically, you can count on them forever with Veolia. For the reason I mentioned in my speech, which is it's not a big cost cutting as in one-off laying off people typically. We're talking about thousands of plants, each of them having a constant way of having a look at how they could be more performing and efficient, which is very different. Therefore, you can count on them forever. In terms of data center, you're exactly right. We are building an offer on data center, which I think is very, very promising. We already have quite a few contracts actually across the globe in Europe as well as in the U.S. so far and in Australia as well, it's fair to say. And it's a way to have Veolia combining the data center needs and boom with still the access to resource and sustainable element of it. Meaning what we offer is not only reduce carbon footprint by recouping the heat as well as being even water positive as in replenishing resource. As you know, data centers consume a lot of water to be cooled down. And we have implemented a few offers there with a few customers already, and we aim at doing more of that. So yes, you're right, growth opportunity for Veolia certainly. And I count on it to fuel not only the GreenUp plan, but the next few years with a lot of assets is going to be here, I think, for a very long time. Operator: And the next question comes from the line of Juan Rodriguez with Kepler Cheuvreux. Juan Rodriguez: I have one, if I may. It's kind of a follow-up. If I'm correct, you signaled that you expect to be on the upper part of the guidance for the year. Can you please give us more clarity, as we currently see, you're in the middle part of the range? So you expect probably a strong Q4 with cost efficiencies, volume recovery? Is it both? And can you give us a first look of what has been the operational performance so far in the quarter were already at the beginning of November? Estelle Brachlianoff: Emmanuelle? Emmanuelle Menning: Yes, with pleasure. So as mentioned by Estelle, we expect a very strong Q4 and to be at the upper range. Regarding revenue, we expect -- we have some moving parts regarding, of course, the weather, but we expect a growth which is similar to what we have seen in the 9 months. And regarding EBITDA, it will be, of course, pushed by the generation of synergy from Water Tech, the performance that we will have in France, recovery -- thanks to the action plan which has been launched, which are the 2 main reasons. And as you may have seen, the October in terms of heating generation has been positive. So that's the main reason for us to be very optimistic regarding Q4. Estelle Brachlianoff: And as we -- I will comment on the Q3 was more on the plus side and then minus side in terms of trend compared to H1 as well. Everything we've seen internationally in the U.S. has this way, just to give a few examples, and we have figures in the slides, but Q3 was more on the up than the down compared to H1. So we are into a very good momentum into Q4. Operator: And the next question comes from the line of [ Mark Abe ] with Citi. Unknown Analyst: The first one I've got is on the Water Tech business. I think at the first half, you gave a number of EUR 2 billion of bookings. Can we get an updated figure of backlog at 9 months as of now? And also remind me how that converts -- how that backlog converts into revenue? And if there's any sort of large projects with definitive timing that we can think about? And then just a second one quickly on the recyclate pricing. I think at 9 months, you've seen it relatively flat, slightly positive. We saw in the U.S. Waste Management profit war, they're seeing low lower recyclate pricing. Can you just talk to if there's any kind of read across or impact for Veolia there, please? Estelle Brachlianoff: Okay. So on Water Tech, we always hesitate to give always the backlog because backlog is only on the project bit of our activity, which is roughly 30% of it. And the backlog was not very relevant in Q3, but we expect quite a few bookings in Q4. So we'll give you the over end. So it doesn't translate directly because of the proportion of projects versus more recurring things. So roughly -- and you can have a look at our deep dive on Water Tech, where we explained the full detail of that. Basically, we have 30%, which is project based, which is very linked with backlog, say, and 70%, which is more recurring. We're talking here about products, typically membrane. We're talking about services, mobile unit. We're talking about chemical products as well. And this 70%, which is more relevant to be compared quarter-on-quarter, has grown by 6.8% in Q3, year-to-date, plus 4.8%. So we are very happy about this bit. And you have the ups and downs of the project, which is that plus a very high comparison base of last year. So we expect quite a few bookings in Q4, and it starts well, it's fair to say. In terms of the recyclate pricing, I will have Emmanuelle answering, but no read across from American dry waste company. We are not in dry waste in the U.S. We are not concerned by recycling prices, which is a quite different logic from the European one, it's fair to say. But on recyclate price trends, Emmanuelle? Emmanuelle Menning: Yes. On recyclate price, you have seen the impact at the end of the 9 months, which is plus EUR 13 million at EBITDA level, we don't expect a significant impact at the end of the full year. You know that we have implemented with Estelle a huge transformation and deep transformation of our Waste business, meaning that everywhere we can, we are in a back-to-back construct. So if you want a figure for the end of the year, it's non-material. So we had a little bit of plus at 1 month, a little bit of minus the month following. So nothing very specific. And in other geographies which are concerned mainly on dry waste, we're talking Germany, France, U.K., Australia. With that, you have an 80-20 type of flow for our business. Operator: And the next question comes from the line of Philippe Ourpatian with ODDO BHF. Philippe Ourpatian: I have just one simple question is concerning your free cash flow. I mean there is no mention about where you were at the end of 9 months this year. And as you confirm, I would say, a very strong Q4 and your net debt-to-EBITDA below 3. I do suppose that the reversal on Q4 will be maybe stronger than expected. Could you just give some figure concerning the end of 9 months in order to help us to better understand how it will move concerning the working capital and some other, I would say, items, which could be your CapEx and some cash in coming from, I don't know where. But please just -- that's going to be very helpful. Emmanuelle Menning: Bonjour, Philippe. With pleasure to speak on free cash flow. You're absolutely right. The amount of free cash flow at the end of the 9 months is quite similar to what we had last year. We had a strong Q3. You remember that in Q1, we had some few timing effect and specific effects linked to Flint cash-out, scope entries and adjusting scheme Water France royalty payments. And we fully confirm that we expect the usual reversal in Q4. You know that we are very committed to free cash flow generation, which is fueling our growth and to pay our dividend. We have -- we are mobilizing the organization to invoice faster, to collect faster. We have a few projects regarding [ ERP and ER ] also to have optimized processes. So fully confirming for the year-end, the usual guidance and the debt below 3x. We'll have the reversal in Q4 with strong EBITDA growth fueled by our international activities, French recovery and the Boosters, discipline on CapEx and working capital reversal. Estelle Brachlianoff: So the usual seasonality. Operator: And I'm showing no further questions at this time. I would like to turn it back to Estelle Brachlianoff for closing remarks. Estelle Brachlianoff: Thank you very much. You understood. We are very confident, very happy about the 9-month result, very, very confident for the rest of the year and very happy that the priority we've been given in GreenUp as even being more technological oriented, more international are bearing fruits in our results as they support the growth of our earnings and will so in the next few years. Thank you very much. Operator: Thank you. And ladies and gentlemen, this concludes today's conference call. Thank you all for joining. You may now disconnect.
Operator: Hello. Welcome to the IMCD 2025 First 9 Months Results Conference Call hosted by Marcus Jordan, CEO; and Hans Kooijmans. [Operator Instructions] I would now like to give the floor to Marcus Jordan. Mr. Jordan, please go ahead. Marcus Jordan: Thank you very much, Elba. Good morning to you all, and a warm welcome. I'm Marcus Jordan, and I'm here today with our CFO, Hans Kooijmans for the 2025 first 9 months results, which we published in a press release earlier this morning. The first 9 months of 2025 were generally characterized by challenging market conditions as a result of continued macroeconomic uncertainty, particularly around tariffs across all regions. This resulted in softer demand across a number of markets, limited order visibility and just-in-time deliveries. Moving on to the first 9 months numbers. You will find a summary of our financial results on Slide 4, whereby considering these continued challenging macroeconomic conditions, I am pleased with our gross profit growth in the first 9 months, which is up 5% on a constant currency basis to EUR 927 million. This increase is driven by a combination of organic performance, successful acquisitions and resilient gross profit margins. EBITA also increased by 1% on a constant currency basis to 340 -- sorry, EUR 394 million. And our cash flow of EUR 284 million was a bit lower compared with the first 9 months of 2024, driven by a combination of a slightly lower EBITA and a modest increase in working capital investments. As we mentioned in the half year call, we are actively working on reducing our inventory amount back to historical levels, but I also want to stress how important it is that during these uncertain times, we have inventory in place to fulfill the demands of our customers. If we now look at M&A, we announced 4 acquisitions in the first half of 2025. And in Q3, we were very happy to add another 2. In August, we announced the acquisition of Tillmanns in Italy, which operates across a broad way markets, including coatings and construction, food and nutrition and water treatment. Tillmanns have 78 people and had a revenue of EUR 143 million in 2024. I'm very proud of this acquisition as we've become a real powerhouse for our partners, teams and suppliers in Italy. In October, we also announced the acquisition of Dang Yong FT in South Korea, a company active in beauty and personal care with 14 people and EUR 34 million in revenue. We strengthened our position in South Korea, which, as you know, is one of the most innovative and largest Beauty & Personal Care markets in the world. On a full year basis, these 6 acquisitions will add around EUR 340 million revenue and 185 employees based on their last full year numbers before acquisition. Looking at our business segments. We have seen pharmaceuticals, food and nutrition, having the most solid performance in the first 9 months and our Beauty & Personal Care and Industrial segments being generally soft in demand across the 3 regions. Related to demand, we get a lot of questions around Chinese competition in our various markets. And during this year, it is fair to say that we have seen more competition from China. And whilst we are somewhat protected from this due to our specialty focused portfolio, we have seen some pricing pressure, primarily on the semi specialty components of our portfolio and especially in the APAC and LatAm countries. It is important to highlight that competition from China is nothing new to us. And we -- and as we have done throughout the history of IMCD, we regularly review the portfolio we have in all countries and markets to ensure we are for the longer term competitive and where necessary, adapt our portfolio accordingly, again, with the long-term growth of the company in mind. To summarize, despite the ongoing uncertainties in global trade and tariffs, our business model has shown resilience during the first 9 months of the year. We are further intensifying our efforts to drive cost effectiveness and commercial excellence throughout the company and ensuring that we have the right people and the right positions for the future. We are in the process of further strengthening our sales organization, both those on the road and inside sales specialists. At the same time, we're taking advantage of our digital initiatives to optimize other areas of the business. Overall, this will result in a reduction in the number of FTEs going forward. We are well positioned for the future through our adaptable specialty-focused portfolio, geographic and market diversity combined with advanced digital and supply chain capabilities, and we remain confident in the strength and long-term outlook of our asset-light business model. I would now like to hand over to our CFO, Hans Kooijmans who will give you an update on the numbers. Hans Kooijmans: Thank you, Marcus, and good morning, ladies and gentlemen. And I will, as usual, briefly summarize IMCD's results for the first 9 months before we go to Q&A. And I would like to start on Page 7 of the presentation. On this page, you can see ForEx adjusted revenue and gross profit both increased with, respectively, 6% and 5% compared to last year. Despite the challenging conditions, Marcus just mentioned, we still achieved a modest level of organic gross profit growth, along with a 4% increase as a result of the first time inclusion of acquired businesses. Gross profit in percentage of revenue slightly decreased to 25.2%. And about half of this 0.2% decrease is the result of the negative impact from acquisitions, acquisitions with, on average, a lower gross profit margin than group average. Furthermore, we saw the usual fluctuations in our product mix, currency impacts and changes in local market conditions. Then ForEx adjusted operating EBITA, which increased 1% to EUR 394 million. And this increase resulted from an organic decline of 3% that was more than compensated by the positive impact of the first time inclusion of the acquisitions. The reported EBITA and conversion margin both decreased. And this is mainly the result of gross profit growth that could not fully compensate inflation driven on cost growth. When you look at the cost growth, the year-to-date organic own cost growth came down to just below 4%. And compared to September 2024, the number of full-time employees normalized for the impact of acquisitions slightly decreased. ForEx adjusted net result on the next line, that decreased 9%. And in our trading update, we usually don't break down this difference in detail. However, it's fair to assume the main factors are similar to what you saw in our half year results, lower reported EBITDA and higher finance costs as the main drivers. And these higher finance costs in year-to-date 2025 are mainly the result of a bit more ForEx losses and lower gains from fair value adjustments of deferred considerations. Further, we reported and will report additional cost related to one-off adjustments to the organization. And these additional cost items are partly compensated by lower tax cost. At year-end, you could expect higher than usual additional costs related to one-off adjustments to the organizations. You know and we told you before that we are always cost conscious and prudent with our cost structure. However, as indicated also by Marcus, current market conditions, but also opportunities as a result of our digital investments allow us to reduce our fixed cost base and adjust the organization to changes in market conditions. Then on free cash flow, we reported cash conversion margin of 71%, which is slightly lower than the same period of last year. As mentioned in our previous call, we took additional measures to reduce our working capital investment, why we are careful to carry sufficient stock to fulfill our customer requirements. In our previous call, when we discussed the end of June figures, we reported that our working capital days were 6 days higher than the same period of last year. End of September, we were able to reduce this gap to 3 days. And we feel confident that we will report at year-end, a cash conversion ratio somewhere around high 80% or a low 90% number. Then on the next page, Slide 8, you will find a summary of a few key figures split into the various regional operating segments. When looking at top line and gross profit, we were able to grow organic as you can see in all 3 regions despite these difficult market conditions. We also had quite some currency headwinds when translating local results into the euro, most significant in APAC and the Americas. This currency translation impact is easy to quantify and report it as a separate line, but more complicated is calculating the operational impact of these currency fluctuations. It's obvious that these currency fluctuations had a negative impact in regions where it's common to quote in dollars and invoice in local currency. Therefore, it's fair to assume that these currency fluctuations this year negatively impacted our results in LatAm, APAC and a few EMEA countries. On the bottom of this slide, you will find EBITA margin conversion margin per segment, and we report a negative development in 3 of the 4 segments. And the only positive exception is Holdings where the cost in percentage of revenue ratio slightly improved due to lower holding cost. EMEA reports the biggest EBITDA and conversion of deviation compared to last year. And as mentioned in previous call, you should keep in mind that the majority of the global business group costs are reported in the EMEA region. And this then automatically leads to, in general, higher cost base. The biggest swings in results during the year were reported in the Americas and Asia Pacific. The America and APAC reported, respectively, a positive 21% and 7% organic EBITA growth in the first quarter, which turned into a minus 4% and minus 3% year-to-date September. Marcus gave you already a bit of color on the background. On Page 9, a summary of IMCD's free cash flow. The absolute amount of free cash flow was EUR 16 million lower than last year, and the cash conversion ratio was 71%. And lower EBITDA, a slightly higher working capital investment were the main drivers of the difference compared to last year. As mentioned before, we are confident that we will report at year-end a cash conversion ratio somewhere around the high 80% or low 90% number. Page 10, update on net debt and leverage. By net debt at the end of September was close to EUR 1.5 billion, slightly lower than end of September last year and EUR 228 million higher than the end of December. The year-to-date increase of our net debt position was, amongst others, impacted by a combination of on the one hand, positive operating cash flows, combined with cash outflows of EUR 281 million as a result of acquisitions and EUR 127 million dividend payment. Our reported leverage ratio, including the full year impact of acquisitions done was 2.6x EBITDA, which is similar to the leverage based on the definitions in our loan documentation. And then last but not least, on Page 12, you will find our outlook for 2025, and I assume everybody has already read the text in the press release. Therefore, I don't want to repeat it again loud. And I would like to hand over to Elba, the operator, to open the lines for Q&A. Operator: [Operator Instructions] Our first question comes from Annelies Vermeulen from Morgan Stanley. Annelies Vermeulen: I have 2 questions, please. So firstly, could you talk a little bit about how pricing has developed over the quarter? We had talked earlier in the year about stabilization, but I'm just wondering now how the combination of tariff-driven inflation and some of the increased competition you mentioned is driving pricing and how that has trended relative to your expectations? And then secondly, just on the competition from Chinese suppliers. We -- I think we spoke about this at the half year. So could you talk a little bit about how that has developed during Q3? Have you seen that competition step up, particularly as tariff noise has increased? And do you expect that to continue for the foreseeable future? And in that context, you mentioned keeping the portfolio under review. And so are there any structural changes that you're considering if you assume that, that competitive pressure will continue? Marcus Jordan: Annelies, thank you very much for the questions. I think in terms of pricing, what we can say there is that we haven't seen any real significant change during the quarter. We've seen, I would say, a little bit more normal pricing behavior where for some product lines, we've seen small increases. But also related to your second question, we have continued to see pricing pressure in certain areas and business lines on the semi specialty side from China. So I would say nothing, I would say, changed significantly since the last quarter. And then moving on to competition from China. Again, I wouldn't say that we've seen a very significant increase in the third quarter versus what we've seen in the past. I think generally, we have seen more competition this year than last. But I think also important to stress, as I mentioned, Chinese competition is nothing new. And I think then related to the structural change and how we review the portfolio. I think important to mention that we've had Asia sourcing offices in place in India and China for more than 20 years. Historically, those were very much focused on some of the product lines that actually were predominantly manufactured there. Pharmaceutical actives is a good example. But as you can imagine, we also use those sourcing offices sometimes to look at what are the white spots that we've got, particularly in countries that we're maybe freshly entering into. And so we do keep a very close eye on what is happening within the, let's say, China manufacturers looking at our portfolio. Still remaining very loyal to those long-term partners that we have and always been, I think, looking at the long-term growth of the company, making sure that we don't do knee-jerk reactions for what could be short-term market conditions. But again, I think the beauty of our business model is we've got a very agile product portfolio. We can adapt where we need to. But again, let's be cautious and make sure that we're doing that with a very long-term view. Operator: The next question comes from Matthew Yates from the Bank of America. Matthew Yates: I'd really like just to continue on the theme of that competitive pressure really. Looking at your Asian performance, it would be helpful to unpack that a little bit. I mean flattish top line feels respectable in light of the tariff uncertainty that the world is operating in, but then the 13% decline organically in EBITA suggest some competitive pressure or investment that you're making to drive future growth, I don't know. But when -- Marcus, when you talk about portfolio review, that to me, just sounds like walking away from business and accepting that there are product lines that are no longer profitable for IMCD to operate in. Is that fair? If so, how much of the portfolio are we talking and is there anything else you can do to sort of reinforce the business model and the pricing pressure you have in light of these challenges, I appreciate you're saying there's nothing new, but equally, at the same time, it does feel like it's intensifying or accelerating. Marcus Jordan: Okay. Matthew. Maybe if I speak a bit about the first point first and the Asia Pacific numbers. And I think the standout there, Matthew, is related to India. where we do see, I would say, quite a softness from a performance perspective during the third quarter. And if we dig a little bit deeper into that, I think that we can talk then the most, I would say, the largest effect is related to pharma. So I think we all saw the pharmaceutical tariff discussions, which took place during the third quarter that, of course, I would say, in general, quite some uncertainty. There was a big pharmaceutical exhibition in Frankfurt called CPHI last week. We had the opportunity there to speak to a broad range of our own suppliers and customers. I think everybody saw the same trend of that softness in the third quarter, but pretty much everybody is also speaking confidently that, that will be turned back to some kind of normality during Q1. So I think that this is a short-term thing. I think with regards to then walking away from certain business, that's definitely not the case. I think, firstly, if you look again at those long-term supplier relationships, which we have, also important to state that with the partners that we have, a lot of those partners also have assets in China. So they're able to also keep competitive. When we talk about reviewing the portfolio, again, this is nothing new. We constantly country by country, look at what are the white spots that we've got, how can we strengthen the business, how can we strengthen the portfolio but also looking at which, again, nothing new is are there pieces of business or particular product ranges where we can't be competitive. And typically then, that business has already deteriorated or is very small. So it's more a case of looking at how do we boost the business and grow the business again for the future rather than walking away from business that we have. Operator: The next question comes from Suhasini Varanasi from Goldman Sachs. Suhasini Varanasi: Just a couple for me, please. Can you maybe discuss how conversations with your customers are progressing? Are you seeing any signs of volume stability on a sequential basis at this point? And any color on the order book would also be helpful. And if you think about the gross margins in this quarter, it has deteriorated quite significantly versus the first half trends. You mentioned half of it was M&A. But the rest, is that basically the price pressure that you saw effectively? Marcus Jordan: Firstly, I would say, on the customers and kind of the volume stability or outlook, whatever, I would say that there's no change, unfortunately, in terms of the visibility that we have. So still, a very volatile order book, I would say, minimal forecasting, a lot of just-in-time deliveries. So I would say unfortunately, no general improvement there. And on the gross margin percentage, I think Hans kind of already covered that where I would say that there's nothing exceptional there. A little bit of dilution from the M&A impact, maybe product mix to a certain extent. But I would say nothing material. Operator: The next question comes from David Kerstens from Jefferies. David Kerstens: I've got 2 questions, please. First of all, on the stable organic revenues in the third quarter, that seems like a good performance against a substantially tougher comparative. I was wondering, can you highlight maybe some product market combinations where you see this improvement sequentially relative to the second quarter? Then the second question is on the balance sheet with leverage going up to 2.6x EBITDA and the Tillmanns acquisition not yet closed how do you see that leverage ratio develop into the fourth quarter towards the year-end and after the closing of Tillmanns? And does that still leave you with sufficient headroom for further M&A going into 2026? Or would you temporarily allow higher leverage given the short-term unfavorable market conditions? Marcus Jordan: I think with regards to the stable organic growth, I think behind the scenes, there's obviously an awful lot of work going into making that happen. I think if there's a market which has maybe stood out from a stability perspective, it's the food and nutrition space. I wouldn't say that there's a significant change between the quarters. But out of the different market segments, that's the most stable and robust that we've seen for this year. And then on the M&A and leverage, Hans? Hans Kooijmans: David, Hans here. On the leverage, I don't want to predict the leverage number for year-end, and you're right, I still need to pay. And I also need to close Tillmanns that we expect to do in the last part of this quarter if we get all the formalities done. If and when that happens, yes, leverage will move around that 2.6 number. I expect, so sufficient room to do further M&A. Typically, working capital will come down towards year-end, what we indicated as a cash conversion ratio should lead to an additional cash inflow. So I'm not concerned at all about our firepower. Operator: The next question comes from Nicole Manion from UBS. Nicole Manion: Just one question from me, please. Can you elaborate a bit on your comments around the cost base and particularly FTEs? Obviously, there seems to be a nod to the volatility of the environment at the moment. But you've also linked, I think, to ongoing digital initiatives, which might suggest it's a bit of a longer-term project. I'm not sure if you can share any more details here or whether this is something you're looking at across regions, what's in scope? Yes, any sort of color would be helpful. Marcus Jordan: Great. Thank you, Nicole. Yes, as I mentioned, it's not something new, but it's fair to say that we are intensifying our efforts to really drive that cost effectiveness. But also making sure that we're delivering premium customer service. And as we've spoken about before, the expectations of customers that they are evolving this omnichannel way of working. And for us, that means very critically, making sure that we've got very highly skilled technical development resource on the road, visiting those customers face to face, but also having very highly qualified inside salespeople so that regardless of the way that the customer wants to interact, they've got immediate contact, and we're able to react in a very timely and effective and efficient way. So what we're doing is really looking at making sure that we've got the right people in the right positions to really, again, be the leader from that sales excellence perspective to drive the long-term growth but also using the digital tools that we're very proud of, basically to optimize other areas of the business. And I think if you look at just one example, but through the use of AI and different topics, things like the marketing side, the way that we're able to handle that and to drive that in a more efficient way, I think that's a good example. So again, it's not something new to us, but it's fair to say that we are intensifying the focus there, also because of the pretty challenging market conditions that we face. But again, I think what is important is looking for the long-term growth. Operator: The next question comes from [ David Simmons ] from BNP Paribas. Unknown Analyst: So just coming back on the gross profit. So you mentioned some impact perhaps from M&A and maybe some impact from mix. I'm just curious, given that you're trying to bring down inventory and you've done a better job on free cash flow conversion in the third quarter, is there any inventory effect on gross profit margins at all? And then maybe a little bit of a sort of outlook question, again on gross profit margins. Do you expect the sort of -- I mean we didn't really see any pressure on gross profit margins in the first half or flat year-on-year, but they're down 90 bps in Q3. Would you expect that to reverse in the quarters ahead? Or is that sort of new level based on different mix and the different -- and new M&A you've done for the next few quarters? Hans Kooijmans: David, I answer, I understand your question. And if you look historically at IMCD's numbers, there is always quite some volatility in the margin percentage between the quarters, and there is no exception in this year. And it's often driven by slightly changes in the product mix, M&A having, in this case, a bit of a negative impact on the overall margin percentage, for sure here and there on the more commoditized products. There was a bit of pricing pressure. That played a bit of a role, but that also already happened in the previous quarter. At the end of the day, it is not so much about permanently increasing your margin percentage. It's more about growing the absolute amount. So the focus of our salespeople is always linked to having an absolute amount of margin target and not the percentage target. And if this is the new normal, I don't think so, but let's see what the future will bring. Operator: The next question comes from Eric Wilmer from Kempen. Eric Wilmer: I got 1 question. Does the ongoing demand pressure and competitive pressure as European manufacturers have any implications for the level of outsourcing that they work with? Some manufacturers, I think, including today have announced new incremental cost savings measures? So could this actually be perhaps another source of outsourcing. And does the growing Chinese presence gives you leverage towards your existing suppliers potentially for a larger share of wallet? Marcus Jordan: Thank you, Eric. I mean, this very much depends on a supplier-by-supplier basis. But as I think we've spoken before, the general trend is to outsource a greater percentage. And I think that as our suppliers go through these tough market conditions, I mean, we do hear about quite some redundancies and headcount reductions that they're making. And they really then, I think, value us even more as their outsource sales and marketing partner. So yes, I think it's fair to say that in general, there are greater opportunities when there is more market uncertainty, but it differs supplier by supplier. But we're in continual discussion with not only our existing suppliers, but also potential new ones to look at how can we further expand the relationships, both geographically and across more product lines. Operator: [Operator Instructions] The next question comes from Carl Raynsford from Berenberg. Carl Raynsford: Just 2 from me, please. I just wanted to ask about your comments around food and nutrition being the most stable end market segment this year. Previously, pharma was seen as a -- I'll paraphrase this, by far the best performing segment, judging by comments from yourselves and peers in the first half. But it feels that there's been a significant slowdown in Q3 based on your comments sort of more around food and nutrition now. Is that a fair assumption? And then the second question, I just wanted to focus on the comment around decreasing FTEs over time again. Presumably, you mean decreasing the absolute number even as revenue increases. This business has always been about relationships and sales and high service levels and the AI opportunity in theory was useful for cross-selling. So could you discuss why you think you can maintain the same levels of sales and relationships alongside an increase in cross-selling and at the same time decrease the number of FTEs and able to be on the road, use omnichannel ways of working and the same service levels really? Or just considering your answer to Nicole's question earlier, is it more on the marketing side, you're considering that. Marcus Jordan: Firstly, on the first question related to food and nutrition and pharma. As I mentioned before, we did see in Q3 a bit of a softening in the pharma market, but predominantly in the India space because of the tariff conversations. So because of that and also the feedback that we had at CPHI last week, that was the reason for my comments of not including pharma in that. But I mean, overall, pharma, when you look at it across the year, it's still performing well versus last year. But as I said, a bit of a softening in the third quarter, but we expect that to come back relatively short term. In terms of the service levels, I think it's really important, again, to reiterate that, if anything, we're further investing in the commercial organization and infrastructure. So when you look at the FTE reduction, that's definitely not reducing the people out on the road. It's not the people that are interacting with customers or suppliers. It's really looking at how can we bring better efficiency through the digital tools and more of those, let's say, support functions. Hopefully, that helps. Carl Raynsford: That does, indeed. Very reassuring. Operator: The last question comes from Stefano Toffano from ABN AMBRO ODDO. Stefano Toffano: Yes. And Hans, 2 questions remaining for me. And apologies if the first one is already answered, but I missed it. Regarding the Americas, can you maybe provide a little bit of just some highlights, some light on what you are seeing there in terms of end markets and also the consumer, how the consumer is behaving. And the second question is more of a general question. I mean you obviously throughout the years have seen quite some cycles. Is there anything different in this cycle compared to the past cycles where you say, well, this might be here to stay. This will continue to have an impact or is it just one of those cycles where you say, give it or take or whatever 1, 2 years, we will definitely go back to a normal environment? Marcus Jordan: Thank you, Stefano. I think with regards to the Americas question, I think the standout there, if you look at, let's say, more soft performance, I think the 2 countries maybe that we mentioned, and it's for different reasons. I think the U.S., in general, from the demand side, consumer confidence, we see that as being soft at present. And then Brazil is one of the countries when we speak about Chinese competition and maybe greater competition in that semi specialty space in APAC and LatAm. I would say, within the LatAm region, Brazil definitely is one of the countries which has been the most affected there. And then coming on to the cycle difference, I do think that this is very different to what we've experienced in the past because we're not going through a normal kind of market cycle. I think that there are these kind of shock waves that come in through things like the tariff discussions, where we're kind of getting back to a more normal kind of market cycle as we were coming through the end of last year and the beginning of Q1 and you saw the performance, I would say, more normalizing. But then the shock wave of tariffs and then the uncertainty around it, also with the continually changing messages about what is the tariff percentage, but also what are the products included in the categories within the tariffs. So I think that we just need some kind of clarity and stability on those kind of topics. And then hopefully, we'll get back to a more normal type of market cycle. Operator: With that, due to time constraints, I will give the word back over to Mr. Marcus for any closing remarks. Marcus Jordan: Great. Thank you. And on behalf of Hans and I, a big thank you all for joining the call this morning and for your questions, and we wish you all a very good day. Thank you very much.
Operator: Good afternoon, and welcome to Safehold's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, today's conference call is being recorded. At this time, for opening remarks and introductions, I would like to turn the conference over to Pearse Hoffmann, Senior Vice President, Head of Corporate Finance. Please go ahead, sir. Pearse Hoffmann: Good afternoon, everyone. Thank you for joining us today for Safehold's earnings call. On the call today, we have Jay Sugarman, Chairman and Chief Executive Officer; Brett Asnas, Chief Financial Officer; and Tim Doherty, Chief Investment Officer. This afternoon, we plan to walk through a presentation that details our third quarter 2025 results. The presentation can be found on our website at safeholdinc.com by clicking on the Investors link. There will be a replay of this conference call beginning at 8:00 p.m. Eastern Time today. The dial-in for the replay is (877) 481-4010 with a confirmation code of 53142. [Operator Instructions] Before I turn the call over to Jay, I'd like to remind everyone that statements in this earnings call, which are not historical facts may be forward-looking. Our actual results may differ materially from these forward-looking statements and the risk factors that could cause these differences are detailed in our SEC reports. Safehold disclaims any intent or obligation to update these forward-looking statements, except as expressly required by law. Now with that, I'd like to turn it over to Chairman and CEO, Jay Sugarman. Jay? Jay Sugarman: Thanks, Pearse, and thanks to all of you for joining us today. We saw steady activity in our ground lease business in the third quarter with the recent decline in rates and a somewhat less steep yield curve, helping to provide a more constructive backdrop. This was offset by deals needing longer time frames to close. And as a result, we expect more will likely close in the fourth quarter or first quarter of next year. The drop in rates has also helped boost the NAV of the existing portfolio and drive more activity in real estate markets more generally. In terms of sectors, our modern ground lease continues to help customers trying to meet affordable housing needs in heavily populated markets throughout the country. And while deal sizes are smaller, we like the repeat customer dynamics we are seeing in this area, and we are investing resources accordingly. Giving customers products that enable them to move quickly and adjust to market conditions remains a focus, and we will continue to innovate with ways to provide speed, certainty and flexibility around our core ground lease solution. One-Stop Capital solutions, custom pricing solutions and other enhancements will continue to expand the ground lease market for new and existing relationships. And it's important that we find ways to generate attractive asset level returns for us while also meeting our customers' evolving needs. All right. Let's turn it over to Brett to review the quarter. Brett? Brett Asnas: Thank you, Jay, and good afternoon, everyone. Let's begin on Slide 2. During the third quarter, we originated 4 multifamily ground leases for $42 million. In the fourth quarter to date, we have originated an additional 4 multifamily ground leases for $34 million. These combined 8 assets are all within our affordable housing subsegment and located in the Los Angeles and San Diego markets with credit metrics in line with portfolio targets and a weighted average economic yield of 7.3%. Six of these transactions were with a new customer added to our program, while the other 2 were with an existing customer who has now originated a total of 7 transactions with us since inception. We have additional LOIs signed with both customers for deals expected to close through year-end and into 2026. We're pleased to see growing product adoption and repeat business in this sector as we expect it to be a meaningful growth channel for Safehold. At quarter end, the total portfolio was $7 billion and UCA was estimated at $9.1 billion. GLTV was 52% and rent coverage was 3.4x. We ended the quarter with approximately $1.1 billion of liquidity, which is further supported by the potential available capacity in our joint venture. Slide 3 provides a snapshot of our portfolio growth. In the third quarter, we funded a total of $58 million, including $33 million of ground lease fundings on new originations that have a 7.4% economic yield, $15 million of ground lease fundings on pre-existing commitments that have a 7.5% economic yield and $10 million of existing leasehold loans that earn interest at an approximate rate of SOFR plus 499 basis points. At quarter end, our ground lease portfolio had 155 assets, including 92 multifamily properties and has grown 21x by both book value and estimated unrealized capital appreciation since our IPO. In total, the unrealized capital appreciation portfolio is comprised of approximately 37 million square feet of institutional quality commercial real estate, consisting of approximately 21,500 multifamily units, 12.6 million square feet of office, over 5,000 hotel keys and 2 million square feet of life science and other property types. Continuing on Slide 4, let me detail our quarterly earnings results. For the third quarter, GAAP revenue was $96.2 million, net income was $29.3 million and earnings per share was $0.41. The increase in GAAP earnings year-over-year was primarily due to a nonrecurring $6.8 million noncash general provision taken 1 year ago. Excluding nonrecurring items, Q3 earnings per share increased $0.04 year-over-year or approximately 12%, primarily driven by new investment activity. On Slide 5, we detail our portfolio's yields. For GAAP earnings, the portfolio currently earns a 3.8% cash yield, up slightly from last quarter due to organic growth, higher yields on new investments and a fair market value reset on one of our ground leases. Our annualized yield earns 5.4% and includes noncash adjustments within rent, depreciation and amortization, which is primarily from accounting methodology on IPO assets, but excludes all future contractual variable rent, such as fair market value resets, percentage rent or CPI-based escalators, which are all significant economic drivers. On an economic basis, the portfolio generates a 5.9% economic yield, which is an IRR-based calculation that conforms with how we've underwritten these investments. This economic yield has additional upside, including periodic CPI look backs, which we have in 81% of our ground leases. Using the Federal Reserve's current long-term breakeven inflation rate of 2.25%, the 5.9% economic yield increases to a 6.0% inflation-adjusted yield. That 6.0% inflation adjusted yield then increases to 7.5% after layering in an estimate for unrealized capital appreciation using Safehold's 84% ownership interest in CARET at its most recent $2 billion valuation. We believe unrealized capital appreciation in our assets to be a significant source of value for the company that remains largely unrecognized by the market today. Turning to Slide 6. We highlight the diversification of our portfolio by location and underlying property type. Our top 10 markets by gross book value are called out on the right, representing approximately 65% of the portfolio. We include key metrics such as rent coverage and GLTV for each of these markets, and we have additional detail at the bottom of the page by region and property type. Portfolio GLTV, which is based on annual asset appraisals from CBRE, remained flat quarter-over-quarter at 52%. Portfolio rent coverage declined very slightly quarter-over-quarter from rounding up to 3.5x previously to now rounding down to 3.4x. Lastly, on Slide 7, we provide an overview of our capital structure. At quarter end, we had approximately $4.8 billion of debt comprised of $2.2 billion of unsecured notes, $1.5 billion of nonrecourse secured debt, $881 million drawn on our unsecured revolver and $270 million of our pro rata share of debt on ground leases, which we own in joint ventures. Our weighted average debt maturity is approximately 19 years, and we have no maturities due until 2027. At quarter end, we had approximately $1.1 billion of cash and credit facility availability. We are rated A3 stable outlook by Moody's, A- stable outlook by Fitch and BBB+ positive outlook by S&P. We have benefited from an active hedging strategy and remain well hedged on our limited floating rate borrowings. Of the $881 million revolver balance outstanding, $500 million is swapped to fixed SOFR at 3% through April 2028. We received swap payments on a current cash basis each month. And for the third quarter, that produced cash interest savings of approximately $1.7 million that flowed through the P&L. We also have $250 million of long-term treasury locks at a weighted average rate of approximately 4.0% and current gain position of approximately $29 million, which is currently recognized on the balance sheet, but not the P&L. We are levered 2.0x on a total debt-to-equity basis. The effective interest rate on permanent debt is 4.2%, and the portfolio's cash interest rate on permanent debt is 3.8%. So to conclude, we're encouraged by good traction in the affordable sector, which we believe will help buoy origination volume while other sectors work their way back into the pipeline, and we have a strong balance sheet and liquidity position that we'll look to take advantage of to be more offensive with our customers. And with that, let me turn it back to Jay. Jay Sugarman: Thanks, Brett. I mentioned earlier our focus on finding ways to meet our customers' needs. Of course, it's also important for our customers to live up to their obligations. So let me provide a brief update on the Park Hotel master lease. We recently sent this tenant a lease termination notice for all 5 hotels governed by the master lease, and we'll be pursuing all our contractual rights under the lease. We believe the tenant has breached the master lease covenants and has not upheld their contractual obligations under the lease, which includes specific maintenance and operating standards. Because this is now active litigation, we are limited in what else we can say publicly. As I'm sure you understand, we can't provide assurance that we will prevail in litigation or that the future financial impacts will be positive. Okay. With that, let's go ahead and open it up for questions. Operator: [Operator Instructions] The first question comes from Ronald Kamdem with Morgan Stanley. Ronald Kamdem: Great. Just 2 quick ones for me. Just starting with the originations, I think all multifamily looks like all on the West Coast, if I'm looking at this correctly. I did notice the rent coverage ticked down a little bit. I don't know sort of if you could talk through that. And maybe just while you're on that, just talk about sort of the appetite and the potential for more of these sort of affordable housing deals. Timothy Doherty: Ron, it's Tim Doherty. Yes, you see that the assets were out in California on the affordable side, as Brett and Jay both mentioned, we're seeing great traction there in that space. On the affordable side, the team is doing a great job of expanding that throughout the country, which I think we'll see results in the quarters ahead. Right now, we've seen the great results on some of these sponsors we have, repeat sponsors in California. As for coverage, as you probably have seen in our transactions on development in particular, not only this is our underwriting, and we take a haircut to actually our underwriting to show what that coverage is. So if you actually took the sponsors' cash flows, those coverages are in line with our metrics, if not even a little bit above. If you take our underwriting without the haircut, it's probably more in line. So we're pretty conservative on the development deals since those are a little bit more time to get to stabilization. We just want to be able to show those as conservatively as possible. But in terms of the -- your question on transactions and deal flow, look, we're seeing great momentum. I think you're seeing that with the closings here even post quarter end. We're seeing great momentum even going forward with more transactions under LOI currently. Ronald Kamdem: Great. That's really helpful. And then my second one was just -- I appreciate you can't comment on anything on the Park Hotel. Any color on just timing on how long these usually take to be resolved high level? Jay Sugarman: Ron, it's Jay. Yes. I think it's unfortunate when things end up in litigation, we try pretty hard to find the solutions where both sides can win. But when we can't, obviously, we need to enforce our contractual rights to protect shareholder value. And these things don't happen overnight. That's why we typically would try to avoid it. But in this case, we think it's the right thing to do for shareholder value protection, and it will play it out. It's going to take a little bit of time. Operator: The next question comes from Anthony Paolone with JPMorgan. Anthony Paolone: Just trying to understand more just on Park Hotel, understanding the sensitivity. But what exactly did you claim was brief? I assume they're still paying rent? Or was there some change there? Jay Sugarman: It's not a rent issue, Anthony. It's a standard of care and maintenance. I can't really go into it, but we think the contract is clear and just couldn't find an agreement on that. Anthony Paolone: Okay. And then just more broadly on your deal pipeline and so forth. As we see like office, industrial and other types of transactions start to come back to the market, are you seeing more of that? And would you do more of those types of transactions if those opportunities come around? Timothy Doherty: Anthony, it's Tim. Yes, definitely. We're actually -- we track front of the funnel all the way through, of course, to closing. And when we look quarter-over-quarter, the opportunities we're seeing, it's pretty well diversified now and spreading out into the hospitality, retail, office side in addition to the traction you're seeing on the affordable space, conventional multifamily construction and recapitalization that's been there. So we're seeing opportunities there. And when the right ones come up, we're right on top of them. We think that as you're seeing from some of the other announcements in this quarter, the transaction flow has definitely increased. I think what Jay mentioned with the yield curve not as steep is starting to release some transactions, which is great for the market. And it just takes time to work those deals through the system and for us to start to close on some of those. Operator: The next question comes from Kenneth Lee with RBC Capital Markets. Kenneth Lee: I think you mentioned that some of the economic yields ranged up to 7.5% on some of the more recent deals there. Wondering if you have any expectations for economic yields going forward? I know that in the past, you talked about long-term bonds plus anywhere from 75 to 85 basis points. Any change there? And more importantly, as potentially short-term rates move around, do you expect any kind of indirect impact to economic yields going forward? Timothy Doherty: Sure, Kenneth. Those yields, look, it depends on the timing of these closings, right? We're based off the 30-year treasury. So over the quarter, it was a variable rate there higher in the beginning towards the end. So those closing on those closings happened earlier, some of them happened towards the end and then the ones that closed earlier this month -- or sorry, last month now. What we expect is, yes, there's that spread to the long-term bond, but also we expect now where treasuries are high 6s, low 7s is pretty consistent right now with where the treasury seems to be at. So -- and the deals that were in our pipeline are in that range. Kenneth Lee: Got you. And one follow-up, if I may. You touched upon within the prepared remarks, seeing some extended time frames, it sounds like to close some of the deals going to fourth quarter or even the first quarter. Any particular factors driving the extended out time frames? Timothy Doherty: The extended time frame, a lot of these deals are development deals. So those do take a little bit more time to close. I think in the portable space, a lot of those are development deals. Most of those are development deals on the conventional side, we closed a few in that space versus a recap that could take 4 weeks to 8 weeks to close. So nothing abnormal in the market for those to take a little bit more time, but we're seeing good momentum on that front and pretty consistent deal flow and LOIs being signed. Operator: The next question comes from Harsh Hemnani with Green Street. Harsh Hemnani: Maybe just a clarification. Did I hear correctly that for the Park litigation, it's against all 5 of the hotels in the master lease? Or is it just against the 2 that they plan on not renewing? And then second part is, what's the sort of near-term financial impact of this? Is Park going to continue to pay rent during the period of time the legal battle goes on in the background? Or is there going to be some near-term impact from that? Jay Sugarman: Harsh, yes, the litigation is around all 5 hotels, not just the -- and we're obviously working to find a way to continue the hotel's operations as smoothly as possible. So I don't have any more detail I can share on that, but that's certainly our goal. Harsh Hemnani: Okay. So I guess, is the goal here to try to treat the master lease as a package, all or nothing? Jay Sugarman: Yes, it is a master lease and the provisions are backed by a corporate entity. So we certainly treat it as a master lease. Harsh Hemnani: Got it. Okay. Last one for me. I guess, maybe higher level on the transaction side. As you mentioned, sort of broader real estate transaction activities are broadly in line with, call it, pre-'21 levels. And at the same time, rates haven't necessarily gone back to what it was in '21 and '22, but we've stabilized. Volatility has come down. We're in the low 4s almost consistently. Did those bigger check size transactions start to come back? Are you seeing more of those? Or is it still smaller check size multifamily? Timothy Doherty: I would agree with you on the consistency part. I think that is driving some of the market now. Everyone has a lot more visibility. So transactions are getting done. On the size, the affordable deals tend to be on the smaller side. You saw all the deals that have closed -- all the deals that closed in the third quarter, deals that closed quarter-to-date were affordable. They're on the smaller side. These are actually, I'd say, on the smaller side of those even. The larger transactions, you're seeing a lot of the trades now starting to happen on the larger deals. Our pipeline has some larger transactions in it than these affordable deals. But multifamily transactions on the conventional side tend to be somewhere between $40 million of total value to $85-ish million of value. So 1/3 of those, you can kind of figure out what our ground leases are typically sized. And then office and hospitality tend to be a little bit bigger asset size in those. But again, not much different from what you've seen in the past from quarters past where you were mentioning 2021. Operator: The next question is from Rich Anderson with Cantor Fitzgerald. Rich Anderson: Have you stated what this sort of forward pipeline, it looks like in dollar terms? You mentioned activity got pushed out, but I don't believe you sort of put a number on what the pipeline looks like on a go-forward basis, if you were willing to share. Timothy Doherty: Yes. I guess we wouldn't share the exact number, but I guess to give you an idea of what we have today under LOI that will close in the coming quarters, I would say it's over -- about over 15 deals and over $300 million of transactions that will, again, close in the coming quarters, and it's a mix between the affordable transactions and conventional multifamily. Rich Anderson: Okay. Great. And as far as -- I'm not going to ask specifically about Park, I understand you can't talk about that. But just to be clear, a lease termination successfully completed means reversion rights and you get the keys that's one possible outcome, speaking generally about how this works. Is that correct? Jay Sugarman: That's correct, Chris. Operator: The next question comes from Ravi Vaidya with Mizuho. Ravi Vaidya: Just wanted to ask another follow-up on the Park Hotel litigation here. Does this impact your potential interest in maybe pursuing hotel originations going forward? And is there any additional corporate costs that we should be considering for the model, more G&A, legal fees or any other onetimers as should we think about Q4 and '26? Jay Sugarman: Yes, I'll take the first part, and maybe Brett can take the second part. Look, this is an anomalous outcome. It's not what we expected. This is a master lease form that we didn't create 30 years ago when it was put in place. And I don't think it impacts our view on any part of the ground lease ecosystem that we're working in. So we'll get through it. And I don't think you should think of this as an indicator of anything or a precedent for anything. Brett Asnas: Yes. And on the on the economic side or for the P&L, obviously, as Jay mentioned, it's too early to tell where this will head. Obviously, we wanted to make this decision on behalf of our shareholders and make sure that we protect value. So I think over the coming quarter, we'll have better visibility and can certainly update you in the market as to what that looks like. But for the time being, we feel like we're in a good spot in terms of the consistency of what we've been making. And then moving forward, as Jay mentioned, with the termination, any costs associated with that, et cetera, we'll be able to give the market better visibility. It just -- it's pretty early and premature at the moment. Ravi Vaidya: Got it. I appreciate the color there. Just one more. How do you guys think about the recent New York City Mayor win yesterday and the impact surrounding rent stabilization and maybe broadly how this could impact affordable housing. You guys have done a lot of deals with affordable housing and just wanted to see how this type of news and this type of language impacts underwriting those deals. Jay Sugarman: Look, I think we fundamentally follow supply and demand wherever it goes. And obviously, if you reduce the incentives to create supply, you're going to choke off supply, which is in many cases, just leads to even tighter market conditions. We're seeing that more generally across the market. Those areas that didn't have supply are starting to recover, and there's not a lot of supply in the pipeline. And you see what happens, rent start to move. So I'm not sure how the administration is thinking about that, but it's certainly our belief that the way to keep rents down is to have supply meet demand. So I'm not sure exactly how this is all going to play out, to be honest. We believe we have a solution for the affordable housing problems in this country that's very powerful. We'd like to deploy it in more places. I will tell you a lot of the friction costs are created by government regulations that we would just assume help solve the problems quicker, faster and better, but we're kind of being held back a little bit by the nature of government regulations in that area. So we're hopeful that people recognize this is a problem that ground leases can be a major part of the solution and creating new supply is long term, in my mind, a better solution for most municipalities than trying to arbitrarily decide where rent should be. That just sounds like a tough long-term economic solution. Operator: The next question comes from John Petersen with Jefferies. Jonathan Petersen: Can you remind us how much of your multifamily portfolio is affordable housing today? I know it's 41% of gross book value. And then do you guys have a long-term target or cap of where you'd want that number to be as a percent of your portfolio? Timothy Doherty: John, we'll get back to you on some more definitive number, but it's a pretty low number now. We just -- the business really just began 18 months ago or so with the team being dedicated to it and getting deals closed after being I would call the lab to learn more about the space prior to that. So the team is -- as you can see, has great momentum going forward. In terms of where we like it to be, look, we're growing a massive portfolio here. So the number on how large it could be in dollars, we're striving to make it very large, I guess, I would say without throwing a number out there. On a percentage, you can see over time, different asset classes are active at different times. So to say what percentage of the portfolio would be pretty difficult. But you're seeing that the housing sector of our portfolio, that's why we label it under all and multifamily is a majority of the assets that we've closed on the books to date, and we see that trend continuing in terms of the ratio of housing as a part of our portfolio. Jonathan Petersen: And outside of California, I guess, which states do you think are most likely to see some of these affordable originations next? Timothy Doherty: Well, the capital by the government is allocated by the size of the state. So California being the largest is the one that allocates the most. It's actually the most efficient system, at least in our opinion. So we're seeing great traction there as that system works quite well. And look, I think the expansion there is into the larger states. So a lot of those are in the Sun Belt and coastal. You see a lot there. So our team is working on all of them. As time goes on, I think in the coming quarters and year, you'll see us penetrate those markets as well. Operator: Up next is Chris Muller with Citizens Capital Markets. Christopher Muller: So I guess following up on that prior line of questioning. Is any of your New York City multifamily exposure to rent stabilized units? And if so, how would a rent freeze even play out given your contractual CPI escalators? Would that burden just solely fall in the sponsors? Jay Sugarman: We haven't really cracked the New York nut yet, and that you're asking one of the questions that we would have to grapple with. The goal, as always, is to put ourselves in a very safe position where we don't have to worry too much about the last dollar risk or even the middle of the capital stack. So that's what we love about the business is the safety and the predictability about it. we have not seen that opportunity present itself across the New York market. But look, there's got to be a solution. We think additional supply is going to be needed. And ultimately, we don't want to play in the equity part of that solution. We want to play in the land part of that solution, which we think goes a long way to helping stretch the subsidy dollars that are available. This is a big opportunity for efficiency to come to the fore, and we think ground leases are -- can be a big part of that. Christopher Muller: Got it. And then I guess changing gears a little bit. The 30-year treasury rate increased from a recent low of 4.55% to current 4.75%-ish. There was a similar 20 basis point drop in rates during the third quarter. So my question is how sensitive is your guys' pipeline to these types of moves? Do you see a material change in demand from those 2 examples? And then just a follow-up on that is what level of the 30-year do you think would really get things moving for your business? Timothy Doherty: Yes, it's a similar event that occurred last year, right, where the treasury dipped down somewhere around September, October time frame, and it came back up in November. So it's sort of deja vu a little bit the last couple of days what happened there. And you saw the increase in -- just in terms of the market chatter of deals when the rates were going down, a lot of deals trying to close at the exact moment. I think a lot of people knowing that where rates are trending is in this higher level for longer. So when it does dip down, people want to transact quickly. So when it was there, it was -- the flow really in terms of the chatter because deals can't close in days, it can take weeks and months was heavier. So I think we're testing this last year and now this year where the 10-year dips closer to 4% and the 30-year dips below 4.50%. You start to see a lot more transactions where it really flows. We don't know. We haven't seen it as a whole market, right, where acquisition flow really picks up. We paid a lot of attention to that side of the market, not just recapitalizations. People have to refinance their debt. It's really the acquisition flow that shows you the market is fully healed. And -- but when those rates were hitting those levels, you started to see a lot more talk about sales and acquisitions. Jay Sugarman: I mean this is a longer-term perspective, when we started this business in 2017, we said the sweet spot is sort of 3% to 5%. We've been at the lows. We've seen the highs. If you wanted a true middle of the road, I think 4% on the 30-year is a great place for both sides to feel good about. I think this is as much about psychology as anything else. When the market thinks rates are topping and headed back down, it's harder to want to lock in 99-year capital if you have that belief. We think we've got some flexibility in terms of when customers can lock rates that could be a useful tool for them to maybe open that door a little wider for them to make a good decision, both in the near term and the long term. So it's one of the things we're watching very carefully. I think Tim said, uncertainty is the worst thing of all. And when markets don't know which direction things are headed, that tends to put a freeze on things. What we're hoping for is a little more stability in '26, a little bit lower rates, a little bit less steep yield curve. Those are all positive factors for us. Operator: We have a follow-up coming from Rich Anderson with Cantor Fitzgerald. Rich Anderson: I felt like I short changed myself. So I'm going to ask Jay you a question that I want you to sort of get your take on a common criticism, I guess, of ground leases. For everything that's good about them, as you close in at the -- to the end of the lease term, you can argue that the incentive of a leasehold owner is lessened to maintain a level of capital investment because they see sort of the end of the road in terms of the lease. And one thing or two, well, two will happen there. The lease will expire, they'll get the keys back or they'll renew the lease and have to pay a bigger rent to you. So what's the -- what do you -- how do you take this as a sign of the criticism of ground leases that the closer you get to the end of it, the less incentivized your customer is to invest because they see the writing on the wall coming. I'm just curious how you would respond to that. Jay Sugarman: Yes. I think the fallacy in all that for me, Rich, is we're always looking for solutions that can create value. So the market tells you what things are worth. And if somebody wants an extension, it's pretty easy to price the value of that. And that's certainly -- if you like the assets you're running, that's always going to be a good solution. And I think the markets will reward longer-term ground lease solutions for that leaseholder with a value increase that goes a long way to creating a business deal between the landowner and the building owner that can extend for a new 99 years. So that's what we think in most cases is a very likely solution is extensions. Good operators who are doing a good job and meeting the contractual terms of their leases, there's a lot of places to create win-win solutions. So we're very careful in terms of our standard agreement has maintenance standards. But this is more about just doing smart business. We want to create long-term customers. And we think we have lots of solutions at the end that will work for them. So again, as I said, I'm not sure the current condition we're in is a precedent in any way. We've seen plenty of other situations not end like this. So I still feel pretty confident that the economics of continuing to run a good property will always trump sort of that dynamic you mentioned. Rich Anderson: Or if it -- but if it's not a good property, they'll be willing to walk and go through something like this. That's the point. I hear you. But if they've fallen out of love with whatever they are running, perhaps that's -- but anyway, we could talk about another time. Operator: Mr. Hoffmann, we have no further questions. Pearse Hoffmann: Thanks, everybody, for joining us today. If there are any additional questions on the release, please feel free to contact me directly. Operator, would you please give the conference call replay instructions once again? Thank you. Operator: Absolutely. Thank you. There will be a replay of this conference call beginning at 8:00 p.m. Eastern Time today. The dial-in for the replay is (877) 481-4010 with the confirmation code of 53142. This concludes today's call, and you may disconnect your lines at this time. Thank you for your participation.
Operator: Dear ladies and gentlemen, welcome to the Uniper Analyst and Investor Conference Call for the first 9 months of fiscal year 2025. At our request, this conference will be recorded. [Operator Instructions]. I now hand you over to the Executive Vice President, Group Finance, and Investor Relations, Sebastian Veit, who will start the meeting today. Please go ahead. Sebastian Veit: Thank you, operator, and good morning, everyone. Welcome to the Uniper Interim Results Call for the first 9 months of fiscal year 2025. Next to me on today's call are Michael Lewis, our Chief Executive Officer; and Christian Barr, our new Chief Financial Officer. I'm glad that both are with us today, and a special warm welcome to Christian joining us for his first results presentation as Uniper's new Chief Financial Officer. Today, Michael will start with a summary of the company highlights, and Christian will guide you through the financial performance for the first 9 months 2025. And as usual, there will be a Q&A session after the presentation. Now let me hand you over to Michael Lewis, please. Michael Lewis: Thank you, Sebastian, and a very good morning to everyone, and thank you for tuning in to Uniper's 9 months results call for 2025. And we're very pleased to report a solid set of results in a challenging market environment, and we can confirm our outlook for the full year. But before we get into the numbers, I'd like to give you an update on our leadership team. And with me today for the very first time is Christian Barr, who I cordially welcome here as our new Chief Financial Officer, and this is, in fact, his fourth working day. And Christian joined as CFO on November 1. I've known Christian for quite some time as we were former colleagues at E.ON and we successfully worked together at E.ON U.K., where Christian served as the CFO when I was the CEO, and we successfully managed the U.K. transformation on the acquisition of npower. And Christian has a distinguished track record in financial management within the energy sector. And this experience, coupled with his transformation expertise, make him an invaluable addition to our management team. So, again, I repeat, a very warm welcome, Christian. And alongside Christian's appointment, we've also reorganized our management Board to focus more effectively on our strategic transformation, and effective from November 1, a new division has been established combining the roles of Chief People and Transformation Officer. This new area is led by a long-standing, highly experienced colleague, Fabienne Twelemann. Fabienne has held key roles over the past years in the CEO area of Uniper in leading our communications and government relations function during the energy crisis as well as heading successfully our Human Resources function over the past year. And she's widely recognized across Uniper for her leadership skills and her ability to drive change, and I'm delighted that she's now part of Uniper's Management Board. In addition, Uniper has extended the contracts of Holger Kreetz, our Chief Operating Officer; and Carsten Poppinga, our Chief Commercial Officer, for a further 5 years through to February 2031, and both Carsten and Holger are playing pivotal roles in Uniper's strategic transformation. And Carsten is, among other things, focused on building a diverse and risk-balanced gas and LNG portfolio following our successful litigation against Gazprom and our cancellation of those contracts. And Holger is delivering the transformation of our power plant portfolio. And their continued presence on the Management Board will provide the continuity and stability needed to successfully execute our strategic transformation. And in this context, I'd also like to express my sincere thanks to Jutta Donges as former Chief Financial Officer for her extraordinary commitment and outstanding contribution over the past years. Her performance was absolutely decisive for Uniper's stabilization and the successful repositioning of the group. And on behalf of the entire Management Board and all employees, I would like to wish Jutta every success in her new role and in her personal future. And with this, let's now turn to our 9 months highlights on Slide 4. As you can see, our operating business performed solidly in the first 9 months of this year. The positive earnings momentum from the second quarter continued into the third quarter. Group adjusted EBITDA amounted to EUR 641 million, and group adjusted net income reached EUR 268 million. As anticipated, these figures are below the exceptionally strong results of the prior year period, but they are in line with expectations. Also, our financial position remains in very good shape even after the full payment of the EUR 2.6 billion of contractual recovery claims of the Federal Republic of Germany in March 2025, and the group's net cash position reached EUR 3.3 billion at the end of September. Looking ahead, we're on track to deliver our full year earnings outlook. We expect adjusted EBITDA to range between EUR 1 billion and EUR 1.3 billion, and adjusted net income is expected to come in between EUR 350 million and EUR 550 million. And Christian will provide a more detailed explanation of the financial drivers in a moment. So our transformation journey continues. On the financing side, we've extended our toolkit. Only recently, we published our Green Finance framework, which will form the basis for green bond issuance in the future. A decision for issuance is not planned at the moment, but this Green Finance framework and our debt issuance program together form a strong debt financing tool set, securing a range of options for future funding. In addition, we've also been able to further reduce the KfW credit line from EUR 5 billion to EUR 1 billion as of October 1. Coming to our strategic transformation. So far, we've invested EUR 610 million this year, with the majority of this investment going into our Flexible Generation and Green Generation segments, and we continue to focus on the execution of our strategy. For instance, a number of financial decisions in the renewables business are still expected this year. Furthermore, we fulfilled almost all the necessary remedy measures and obligations agreed between the German government and the EU Commission as part of the state aid approval. And we've announced the sale of the 1.1 gigawatt German coal-fired power plant, Datteln 4, and this transaction is still subject to the usual regulatory approvals. And also since the last call, we've announced the sale of the district heating business in Germany, which successfully closed a few days ago. So we've made great progress in that area. But let's now take a closer look at the 9 months results. And Christian, over to you. Christian Barr: Yes. Thanks, Mike, for your kind introduction, and a warm welcome to all of you. It's a privilege to join Uniper as the Chief Financial Officer, and my special thanks go to my predecessor, Jutta Donges, whose exceptional dedication and excellent work has laid a strong foundation for Uniper's next step. In a professional and smooth handover process, Jutta was handing over to me a critical sphere of responsibility for Uniper's success, which is supported by a highly qualified and superbly coordinated team. I look forward to working with our talented teams to drive Uniper's transformation and create long-term value. I bring with me sector expertise and experience from various senior financial leadership roles within the E.ON Group. And over the years, I gained extensive expertise in the commodity business and a deep understanding of all parts of the energy value chain from the supply energy down to its consumption. And as he said, I worked closely and successfully together with Mike Lewis as CFO of E.ON U.K. until 2023. While I followed Uniper's developments with interest over the past years, it was also great to meet again many colleagues I still know from our joint E.ON times. So the start during the first days was very positive in any respect. With Uniper's strong asset base and a clear decarbonization strategy, I am convinced that we are well positioned to play an essential part in Europe's energy transition. And my key priorities are twofold: First, continue safeguarding Uniper's strong financial position; and second, support the strategy execution while maintaining rigorous investment discipline. I'm grateful for the trust placed in me by the Supervisory Board and Mike Lewis. I look forward to working closely with my fellow Board members and the wider Uniper team to deliver sustainable value. And now I'm pleased to present the Uniper numbers of the first 9 months of 2025 in more detail. Headline. Results for the 9 months of the 2025 financial year have been published in an ad hoc release on 24th of October, as we did in previous quarters of this year. The outlook of the whole year 2025 has been confirmed. In the period under review, Uniper generated an adjusted EBITDA of EUR 640 million. The group's adjusted net income came in at EUR 268 million. We achieved these results against the backdrop of a decline in Uniper's gas sales and lower electricity generation volume. The latter was also driven by portfolio changes, decommissioning of plants and outages. Margins from forward hedging transactions have normalized in this market environment. Further figures are detailed on subsequent slides. Coming from an elevated level, greener commodities recorded a sizable drop in adjusted EBITDA contribution to Uniper's group results. After 9 months of the 2025 financial year, the segmental adjusted EBITDA was still negative at minus EUR 196 million. However, since Q2, a turnaround is clearly visible with profit contribution of around EUR 300 million in the summer season. Overall, the reduction in earnings is primarily linked to the concession of favorable margins from prior years. Key influences on earnings include challenges resulting from previous portfolio optimization measures and the end of gains associated with alternative Russian gas supply hedging. One bright spot was the significant increase in earnings contributions from the U.S. LNG business, which benefited from earlier favorable forward sales. Flexible Generation. Earnings declined by more than 50% to EUR 459 million in the 9 months of the 2025 financial year, reflecting the current market environment and a reduced fossil fuel portfolio. But the result remains satisfactory. A decrease in margins after the end of elevated clean dark and spark spreads observed until mid-2024 was smoothened by some offsetting effects, including additional earnings resulting from the settlement of contractual disputes. Green Generation achieved an adjusted EBITDA of EUR 540 million in the 9 months, which marks double-digit earnings decline compared to last year. Segment earnings were particularly affected by the extended downtime of the Oskarshamn 3 nuclear power plant. This power plant has been back online since November 2. The Nordic power market were well supplied due to high precipitation and above-average hydro reserve levels. In our hedge slide in the appendix of today's investor and analyst presentation, one can track that hedge prices show a decline of EUR 5 per megawatt hour for 2025 versus 2024. Lower realized prices and lower nuclear output were partly mitigated by higher hydro power sales volumes. The German hydro business saw slightly lower earnings. Pump storage power plants delivered lower earnings contributions. However, this was largely offset by strong forward sales for merchant volumes from our run-of-river plants who locked prices more than doubled. Looking to the forward years, including 2027, hedge prices for our Nordic and German business remained steady for the future years. Hedge prices for our Nordic and German fleet stayed steady from last quarter at about high EUR 80s to low EUR 90s per megawatt hour in Germany and about EUR 38 per megawatt hour in the Nordic. The next slide shows adjusted EBITDA reconciled to adjusted net income. Uniper's adjusted net income has been supported this year by lower depreciation and amortization and a continued significant positive economic interest result. Depreciation and amortization declined by about 10%, reflecting asset disposals and plant shutdowns as well as impairment charges on property, plant and equipment recognized, which resulted in a lower asset base. Economic interest remained in a clear positive territory, supported by the group's high net cash position ending up at EUR 3.3 billion as of end of September 2025. The operating tax rate was 26.2%. Turning to Slide 9, the focus is on the operating cash flow. Uniper recorded a negative operating cash flow of EUR 281 million in the first 9 months of the 2025 financial year. As you can see on this slide, Uniper's operating cash flow is strongly influenced by payment obligations to the Federal Republic of Germany settled in March 2025. Excluding this, Uniper's operating cash flow would have been a positive EUR 2.3 billion, supported by reduced inventory levels and strong cash in from receivables. Gas storage facilities were 80% -- 84% full at the end of September 2025 due to Uniper's own and customer bookings. This is around 10 terawatt hours below the previous year's level, which saw a record fill rate of 95%. Now over to Slide 10 and Uniper's financial position. At the end of September 2025, economic net cash stood at EUR 3.3 billion, which was virtually unchanged from the middle year level and only slightly below the balances at the end of the 2024 financial year. This very strong cash position was achieved despite of Uniper's fulfillment of the payment obligation to the German government, which was settled in full in March 2025, and an increase of CapEx. Cash investments reached EUR 610 million, up 60% year-on-year, reflecting progress in initiating growth projects and higher maintenance spending. These numbers bring us closer to the total investment of about EUR 1 billion budgeted for the full year 2025. Capital expenditure on maintenance focused on higher expenditure for flexible generation in the U.K. and Germany. Primary investments to accelerate our transition efforts were directed towards renewables, such as the development of a wind farm in Scotland and for restoring the 160-megawatt pump storage facility in Happurg in Bavaria. Divestment proceeds of EUR 345 million in total resulted mostly from the sale of the Hungarian CCGT power plant, Gönyu. Other items included changes in pensions and asset retirement obligations as well as consolidation effects. In the current financial year 2025, Uniper further developed its financial base on the debt side for short-term financing requirements and for the medium- to long-term financing of future projects. This includes the extension of Uniper's EUR 3 billion revolving credit facility to 2028, which provides Uniper with additional liquidity for varying needs in a day-to-day business. At the same time, the existing KfW credit line, which runs until 2026 and has not been drawn down, was reduced ahead of schedule from EUR 5 billion to EUR 1 billion from October 2025. The existing debt issuance program with a volume of EUR 2 billion was extended on a revolving basis for another year. Uniper just came up with its first Green Finance framework. This framework has been reviewed by Standard & Poor's Global confirming that we follow market standards. Uniper can issue green bonds for EU taxonomy aligned green projects on this basis in the future. And this brings me to the final slide with Uniper's outlook for the full year 2025. In summary, the normalization in power markets amid less favorable commodity prices has continued. Uniper is on track with its outlook, which shows that our business model is solid and, for the most part, delivers predictable results. The outlook for the full year 2025 is confirmed both for the group's adjusted EBITDA and adjusted net income. With a strong asset base and a clear decarbonization strategy, we are convinced that we are well positioned to play a decisive role in Europe's energy transition. This concludes our presentation for today, and I will hand it over back to you, Sebastian, to kick off the Q&A session. Sebastian Veit: Thank you, Mike and Christian, and we can now start the Q&A session. Operator, I'm handing it over to you, please. Operator: [Operator Instructions] Our first question comes from the line of Anna Webb. Anna Webb: Anna Webb from UBS. Firstly, can I ask a question on the renewables pipeline. if you could give any more detail on what is under construction, how much you have kind of ready to build and how the kind of pipeline is progressing there? And also more generally, any comments you can give on the kind of market conditions for renewables, where you see as most attractive geographies and also technologies, that would be great. And then secondly, if you can give any commentary around the German government stake in Uniper. I mean, I know it's difficult for you to comment, but any kind of public statements from the German government on timing, on what might be the route to reduce their stake and the latest discussions there. Any detail would be really helpful. Michael Lewis: Thanks, Anna, for the questions, I should say. Maybe I'll pick up the second question first. The position hasn't changed since the federal government announced the 2-track approach last year. That's to say potential re-IPO and potential M&A sale. That is still the position. There's been no update. What is also still the position is that the EU requirements to sell down to 25% plus 1 share by the end of 2028 are still valid. So there's no real update beyond that, that I can give you. Let's come on to the renewable situation. At the moment, we have 280 megawatts of projects which have been approved for build, i.e., they've been through our final investment decision. That's 7 projects in the U.K., Germany and Hungary. Six of those are solar projects and one of those is a wind project. And we have another 400 megawatts which are preparing for financial investment decision across those markets. Now I don't want to comment specifically on the commercial details of any of those projects. We are finding that our pipeline is developing in a satisfactory way. We are in a position to invest significant amounts, and we are building up the portfolio, as I've just announced, and we will continue to do so. I think the key challenge is always how potential incentive systems might change in the different countries. And of course, beyond the fixed price period, how wholesale prices are developing, and we keep a very close look on that at all times to ensure that all of our projects meet our hurdle rate. Operator: [Operator Instructions] As there are no further questions, I will return the conference back to the management. Sebastian Veit: Thank you. Dear analysts and investors, thanks for listening in for today's call. We're looking very much forward to our next call for the full year results on 2025 in next March. Have a good remaining of the day, and see you soon and hear you soon. Thank you very much. Operator: Ladies and gentlemen, thank you for your attendance. This call has been concluded.
Operator: Dear ladies and gentlemen, welcome to the Uniper Analyst and Investor Conference Call for the first 9 months of fiscal year 2025. At our request, this conference will be recorded. [Operator Instructions]. I now hand you over to the Executive Vice President, Group Finance, and Investor Relations, Sebastian Veit, who will start the meeting today. Please go ahead. Sebastian Veit: Thank you, operator, and good morning, everyone. Welcome to the Uniper Interim Results Call for the first 9 months of fiscal year 2025. Next to me on today's call are Michael Lewis, our Chief Executive Officer; and Christian Barr, our new Chief Financial Officer. I'm glad that both are with us today, and a special warm welcome to Christian joining us for his first results presentation as Uniper's new Chief Financial Officer. Today, Michael will start with a summary of the company highlights, and Christian will guide you through the financial performance for the first 9 months 2025. And as usual, there will be a Q&A session after the presentation. Now let me hand you over to Michael Lewis, please. Michael Lewis: Thank you, Sebastian, and a very good morning to everyone, and thank you for tuning in to Uniper's 9 months results call for 2025. And we're very pleased to report a solid set of results in a challenging market environment, and we can confirm our outlook for the full year. But before we get into the numbers, I'd like to give you an update on our leadership team. And with me today for the very first time is Christian Barr, who I cordially welcome here as our new Chief Financial Officer, and this is, in fact, his fourth working day. And Christian joined as CFO on November 1. I've known Christian for quite some time as we were former colleagues at E.ON and we successfully worked together at E.ON U.K., where Christian served as the CFO when I was the CEO, and we successfully managed the U.K. transformation on the acquisition of npower. And Christian has a distinguished track record in financial management within the energy sector. And this experience, coupled with his transformation expertise, make him an invaluable addition to our management team. So, again, I repeat, a very warm welcome, Christian. And alongside Christian's appointment, we've also reorganized our management Board to focus more effectively on our strategic transformation, and effective from November 1, a new division has been established combining the roles of Chief People and Transformation Officer. This new area is led by a long-standing, highly experienced colleague, Fabienne Twelemann. Fabienne has held key roles over the past years in the CEO area of Uniper in leading our communications and government relations function during the energy crisis as well as heading successfully our Human Resources function over the past year. And she's widely recognized across Uniper for her leadership skills and her ability to drive change, and I'm delighted that she's now part of Uniper's Management Board. In addition, Uniper has extended the contracts of Holger Kreetz, our Chief Operating Officer; and Carsten Poppinga, our Chief Commercial Officer, for a further 5 years through to February 2031, and both Carsten and Holger are playing pivotal roles in Uniper's strategic transformation. And Carsten is, among other things, focused on building a diverse and risk-balanced gas and LNG portfolio following our successful litigation against Gazprom and our cancellation of those contracts. And Holger is delivering the transformation of our power plant portfolio. And their continued presence on the Management Board will provide the continuity and stability needed to successfully execute our strategic transformation. And in this context, I'd also like to express my sincere thanks to Jutta Donges as former Chief Financial Officer for her extraordinary commitment and outstanding contribution over the past years. Her performance was absolutely decisive for Uniper's stabilization and the successful repositioning of the group. And on behalf of the entire Management Board and all employees, I would like to wish Jutta every success in her new role and in her personal future. And with this, let's now turn to our 9 months highlights on Slide 4. As you can see, our operating business performed solidly in the first 9 months of this year. The positive earnings momentum from the second quarter continued into the third quarter. Group adjusted EBITDA amounted to EUR 641 million, and group adjusted net income reached EUR 268 million. As anticipated, these figures are below the exceptionally strong results of the prior year period, but they are in line with expectations. Also, our financial position remains in very good shape even after the full payment of the EUR 2.6 billion of contractual recovery claims of the Federal Republic of Germany in March 2025, and the group's net cash position reached EUR 3.3 billion at the end of September. Looking ahead, we're on track to deliver our full year earnings outlook. We expect adjusted EBITDA to range between EUR 1 billion and EUR 1.3 billion, and adjusted net income is expected to come in between EUR 350 million and EUR 550 million. And Christian will provide a more detailed explanation of the financial drivers in a moment. So our transformation journey continues. On the financing side, we've extended our toolkit. Only recently, we published our Green Finance framework, which will form the basis for green bond issuance in the future. A decision for issuance is not planned at the moment, but this Green Finance framework and our debt issuance program together form a strong debt financing tool set, securing a range of options for future funding. In addition, we've also been able to further reduce the KfW credit line from EUR 5 billion to EUR 1 billion as of October 1. Coming to our strategic transformation. So far, we've invested EUR 610 million this year, with the majority of this investment going into our Flexible Generation and Green Generation segments, and we continue to focus on the execution of our strategy. For instance, a number of financial decisions in the renewables business are still expected this year. Furthermore, we fulfilled almost all the necessary remedy measures and obligations agreed between the German government and the EU Commission as part of the state aid approval. And we've announced the sale of the 1.1 gigawatt German coal-fired power plant, Datteln 4, and this transaction is still subject to the usual regulatory approvals. And also since the last call, we've announced the sale of the district heating business in Germany, which successfully closed a few days ago. So we've made great progress in that area. But let's now take a closer look at the 9 months results. And Christian, over to you. Christian Barr: Yes. Thanks, Mike, for your kind introduction, and a warm welcome to all of you. It's a privilege to join Uniper as the Chief Financial Officer, and my special thanks go to my predecessor, Jutta Donges, whose exceptional dedication and excellent work has laid a strong foundation for Uniper's next step. In a professional and smooth handover process, Jutta was handing over to me a critical sphere of responsibility for Uniper's success, which is supported by a highly qualified and superbly coordinated team. I look forward to working with our talented teams to drive Uniper's transformation and create long-term value. I bring with me sector expertise and experience from various senior financial leadership roles within the E.ON Group. And over the years, I gained extensive expertise in the commodity business and a deep understanding of all parts of the energy value chain from the supply energy down to its consumption. And as he said, I worked closely and successfully together with Mike Lewis as CFO of E.ON U.K. until 2023. While I followed Uniper's developments with interest over the past years, it was also great to meet again many colleagues I still know from our joint E.ON times. So the start during the first days was very positive in any respect. With Uniper's strong asset base and a clear decarbonization strategy, I am convinced that we are well positioned to play an essential part in Europe's energy transition. And my key priorities are twofold: First, continue safeguarding Uniper's strong financial position; and second, support the strategy execution while maintaining rigorous investment discipline. I'm grateful for the trust placed in me by the Supervisory Board and Mike Lewis. I look forward to working closely with my fellow Board members and the wider Uniper team to deliver sustainable value. And now I'm pleased to present the Uniper numbers of the first 9 months of 2025 in more detail. Headline. Results for the 9 months of the 2025 financial year have been published in an ad hoc release on 24th of October, as we did in previous quarters of this year. The outlook of the whole year 2025 has been confirmed. In the period under review, Uniper generated an adjusted EBITDA of EUR 640 million. The group's adjusted net income came in at EUR 268 million. We achieved these results against the backdrop of a decline in Uniper's gas sales and lower electricity generation volume. The latter was also driven by portfolio changes, decommissioning of plants and outages. Margins from forward hedging transactions have normalized in this market environment. Further figures are detailed on subsequent slides. Coming from an elevated level, greener commodities recorded a sizable drop in adjusted EBITDA contribution to Uniper's group results. After 9 months of the 2025 financial year, the segmental adjusted EBITDA was still negative at minus EUR 196 million. However, since Q2, a turnaround is clearly visible with profit contribution of around EUR 300 million in the summer season. Overall, the reduction in earnings is primarily linked to the concession of favorable margins from prior years. Key influences on earnings include challenges resulting from previous portfolio optimization measures and the end of gains associated with alternative Russian gas supply hedging. One bright spot was the significant increase in earnings contributions from the U.S. LNG business, which benefited from earlier favorable forward sales. Flexible Generation. Earnings declined by more than 50% to EUR 459 million in the 9 months of the 2025 financial year, reflecting the current market environment and a reduced fossil fuel portfolio. But the result remains satisfactory. A decrease in margins after the end of elevated clean dark and spark spreads observed until mid-2024 was smoothened by some offsetting effects, including additional earnings resulting from the settlement of contractual disputes. Green Generation achieved an adjusted EBITDA of EUR 540 million in the 9 months, which marks double-digit earnings decline compared to last year. Segment earnings were particularly affected by the extended downtime of the Oskarshamn 3 nuclear power plant. This power plant has been back online since November 2. The Nordic power market were well supplied due to high precipitation and above-average hydro reserve levels. In our hedge slide in the appendix of today's investor and analyst presentation, one can track that hedge prices show a decline of EUR 5 per megawatt hour for 2025 versus 2024. Lower realized prices and lower nuclear output were partly mitigated by higher hydro power sales volumes. The German hydro business saw slightly lower earnings. Pump storage power plants delivered lower earnings contributions. However, this was largely offset by strong forward sales for merchant volumes from our run-of-river plants who locked prices more than doubled. Looking to the forward years, including 2027, hedge prices for our Nordic and German business remained steady for the future years. Hedge prices for our Nordic and German fleet stayed steady from last quarter at about high EUR 80s to low EUR 90s per megawatt hour in Germany and about EUR 38 per megawatt hour in the Nordic. The next slide shows adjusted EBITDA reconciled to adjusted net income. Uniper's adjusted net income has been supported this year by lower depreciation and amortization and a continued significant positive economic interest result. Depreciation and amortization declined by about 10%, reflecting asset disposals and plant shutdowns as well as impairment charges on property, plant and equipment recognized, which resulted in a lower asset base. Economic interest remained in a clear positive territory, supported by the group's high net cash position ending up at EUR 3.3 billion as of end of September 2025. The operating tax rate was 26.2%. Turning to Slide 9, the focus is on the operating cash flow. Uniper recorded a negative operating cash flow of EUR 281 million in the first 9 months of the 2025 financial year. As you can see on this slide, Uniper's operating cash flow is strongly influenced by payment obligations to the Federal Republic of Germany settled in March 2025. Excluding this, Uniper's operating cash flow would have been a positive EUR 2.3 billion, supported by reduced inventory levels and strong cash in from receivables. Gas storage facilities were 80% -- 84% full at the end of September 2025 due to Uniper's own and customer bookings. This is around 10 terawatt hours below the previous year's level, which saw a record fill rate of 95%. Now over to Slide 10 and Uniper's financial position. At the end of September 2025, economic net cash stood at EUR 3.3 billion, which was virtually unchanged from the middle year level and only slightly below the balances at the end of the 2024 financial year. This very strong cash position was achieved despite of Uniper's fulfillment of the payment obligation to the German government, which was settled in full in March 2025, and an increase of CapEx. Cash investments reached EUR 610 million, up 60% year-on-year, reflecting progress in initiating growth projects and higher maintenance spending. These numbers bring us closer to the total investment of about EUR 1 billion budgeted for the full year 2025. Capital expenditure on maintenance focused on higher expenditure for flexible generation in the U.K. and Germany. Primary investments to accelerate our transition efforts were directed towards renewables, such as the development of a wind farm in Scotland and for restoring the 160-megawatt pump storage facility in Happurg in Bavaria. Divestment proceeds of EUR 345 million in total resulted mostly from the sale of the Hungarian CCGT power plant, Gönyu. Other items included changes in pensions and asset retirement obligations as well as consolidation effects. In the current financial year 2025, Uniper further developed its financial base on the debt side for short-term financing requirements and for the medium- to long-term financing of future projects. This includes the extension of Uniper's EUR 3 billion revolving credit facility to 2028, which provides Uniper with additional liquidity for varying needs in a day-to-day business. At the same time, the existing KfW credit line, which runs until 2026 and has not been drawn down, was reduced ahead of schedule from EUR 5 billion to EUR 1 billion from October 2025. The existing debt issuance program with a volume of EUR 2 billion was extended on a revolving basis for another year. Uniper just came up with its first Green Finance framework. This framework has been reviewed by Standard & Poor's Global confirming that we follow market standards. Uniper can issue green bonds for EU taxonomy aligned green projects on this basis in the future. And this brings me to the final slide with Uniper's outlook for the full year 2025. In summary, the normalization in power markets amid less favorable commodity prices has continued. Uniper is on track with its outlook, which shows that our business model is solid and, for the most part, delivers predictable results. The outlook for the full year 2025 is confirmed both for the group's adjusted EBITDA and adjusted net income. With a strong asset base and a clear decarbonization strategy, we are convinced that we are well positioned to play a decisive role in Europe's energy transition. This concludes our presentation for today, and I will hand it over back to you, Sebastian, to kick off the Q&A session. Sebastian Veit: Thank you, Mike and Christian, and we can now start the Q&A session. Operator, I'm handing it over to you, please. Operator: [Operator Instructions] Our first question comes from the line of Anna Webb. Anna Webb: Anna Webb from UBS. Firstly, can I ask a question on the renewables pipeline. if you could give any more detail on what is under construction, how much you have kind of ready to build and how the kind of pipeline is progressing there? And also more generally, any comments you can give on the kind of market conditions for renewables, where you see as most attractive geographies and also technologies, that would be great. And then secondly, if you can give any commentary around the German government stake in Uniper. I mean, I know it's difficult for you to comment, but any kind of public statements from the German government on timing, on what might be the route to reduce their stake and the latest discussions there. Any detail would be really helpful. Michael Lewis: Thanks, Anna, for the questions, I should say. Maybe I'll pick up the second question first. The position hasn't changed since the federal government announced the 2-track approach last year. That's to say potential re-IPO and potential M&A sale. That is still the position. There's been no update. What is also still the position is that the EU requirements to sell down to 25% plus 1 share by the end of 2028 are still valid. So there's no real update beyond that, that I can give you. Let's come on to the renewable situation. At the moment, we have 280 megawatts of projects which have been approved for build, i.e., they've been through our final investment decision. That's 7 projects in the U.K., Germany and Hungary. Six of those are solar projects and one of those is a wind project. And we have another 400 megawatts which are preparing for financial investment decision across those markets. Now I don't want to comment specifically on the commercial details of any of those projects. We are finding that our pipeline is developing in a satisfactory way. We are in a position to invest significant amounts, and we are building up the portfolio, as I've just announced, and we will continue to do so. I think the key challenge is always how potential incentive systems might change in the different countries. And of course, beyond the fixed price period, how wholesale prices are developing, and we keep a very close look on that at all times to ensure that all of our projects meet our hurdle rate. Operator: [Operator Instructions] As there are no further questions, I will return the conference back to the management. Sebastian Veit: Thank you. Dear analysts and investors, thanks for listening in for today's call. We're looking very much forward to our next call for the full year results on 2025 in next March. Have a good remaining of the day, and see you soon and hear you soon. Thank you very much. Operator: Ladies and gentlemen, thank you for your attendance. This call has been concluded.
Operator: Hello, ladies and gentlemen, and thank you for standing by. Welcome to RD Saude's Third Quarter of 2025 Earnings Call. The slide deck can be found at the company's Investor Relations website at ri.rdsaude.com.br. This conference replay will also be made available later at the website. [Operator Instructions] Before we begin, we would like to inform you that forward-looking statements are being made under the safe harbor of the Securities Litigation Reform Act of 1996. Forward-looking statements are based on the company's management's beliefs and assumptions as well as on information currently available to the company. Forward-looking statements do not guarantee performance. They involve risks, uncertainties and assumptions as they refer to future events and therefore, depend on circumstances that may or may not occur. Investors should understand that overall economic conditions, the industry's conditions and other operating factors may affect the company's future results and lead to results that differ materially from those expressed in such forward-looking statements. Today with us are Mr. Renato Raduan, CEO; and Flavio Correa, Head of Investor Relations and Corporate Affairs. I'd like to turn the conference over to Mr. Raduan. You may proceed. Renato Raduan: Good morning, everybody, and welcome to our third quarter 2025 earnings call. It is an honor to join you this morning to give you more details of our numbers and help you interpret them. And Flavio, first of all, good morning to you. Flavio de Correia: Hello. Good morning, Renato. Renato Raduan: Flavio will be here to address your questions and give you more details as well. Well, first of all, I'd like to apologize because our release was published a little bit later than expected. So sorry for that. And now let's talk about the third quarter's results. Before talking about the highlights, I need to tell you that we are very happy about this quarter. I remember that in the fourth quarter last year and the first quarter this year, I was transparent and humble and said to you that the results were lower than our expectations. And I told you that we are going to turn the key in the second quarter. And now I have to tell you that we have solid results and we are very proud of that. There are 3 factors that led us to solid results in the third quarter. First of all, we went back to the sales top line level. We were at a 12% growth and we told you at the time that we needed to go back to 14%. Right, Flavio? And now we are at 15.5% in the core business, the retail business. So that is the first factor that we are very happy about in the third quarter. And the second factor is the management of expenses. I believe that the market was positively surprised when we adjusted the costs in the second quarter, but people were afraid that the costs would go up again in the third quarter, but we managed to keep the same levels as the second quarter. We have a very healthy level of expenses in the third quarter and we need to be proud of that as well. And the third factor, the most impressive one is a 7.5% EBITDA margin in the consolidated results. If you look at the track record for a third quarter, it should be about 6.9% to 7%. Last year, it had been 7.5% exceptionally due to nonrecurring one-off events. And if you were to exclude them, it would have been 6.9% to 7%. So the top line grew, costs were under control and the structural EBITDA margin came to 7.5%, which is very solid, very consistent. And now I'd like to delve deeper into the results. First, operational results. We finished the quarter with 3,453 units, 88 openings and 6 closures. Over the past 12 months, the expansion is at about 330 openings. But more important than that is quality. Our IRR is very healthy in the new stores. So this is one of the drivers that is keeping us moving ahead. And now we are almost at the level of 3,500 units in operation. We reached 51 million active customers, 25% of the Brazilian population in the last 12 months. And we had 111 million tickets in the quarter. And again, we're not proud of the number of tickets itself, but rather the quality of the service according to the customers themselves. You can see that the NPS is 91 and that's the customer saying that we are providing a great service quality. And we had gross revenue of BRL 12 billion this quarter, a consolidated growth rate of 12.7%. And I'm going to give you more details about that on another slide. We shouldn't just look at the weighted average of retail and non-retail businesses. The 2 stories are different. And I think that the main story behind this is the 15.5% growth in retail, very solid result with almost a 5 percentage point real gain in mature same-store sales. We had a record-breaking market share with 16.8%, almost 17%. Over the last 12 months, it was one of the biggest number that we had with almost 80 bps in only 12 months. And as for digital, we got a BRL 3 billion revenue. If you annualize that, it would be BRL 12 billion in digital revenue with a 62% increase in the digital business with a penetration of 27%. I'm going to give you more details about that later. Our EBITDA was BRL 909 million, almost BRL 1 billion, in line with the growth in sales of 12.5%. The EBITDA was stable. The EBITDA margin was stable at 7.5%. But we should remember that last year, we had one-off events. And in retail alone, it was 7.9%. Our adjusted net income came to BRL 402 million with a 3.3% margin, 2 percentage points -- 0.2 percentage points higher than last quarter and a free cash flow of BRL 648 million. Now let me give you more details about our revenue. The consolidated number shouldn't be interpreted on its own. We need to break it down into the 2 stories here. First, retail with a growth of 15.5% and a drop in revenue of 17% in 4Bio. And what explains this drop is the fact that we had a pendulum effect. We wanted to grow at any cost in the beginning, but then we told you that we wanted to balance things out. And now I think that we got a little too conservative in terms of growing sales to protect profitability. But half of that drop is not even related to that. It is related to the laboratory that we used in the state of Sao Paulo for distribution through the distribution center in Sao Paulo. And the lab decided to supply products to the state of Sao Paulo through the state of Espirito Santo. And we don't have a distribution center there and that accounts for half this drop. And that happened in the middle of the second quarter. We had that effect in the second quarter, but now it hit us fully in the third quarter. And now we are signing a contract with a distribution center in the state of Espirito Santo to keep the supply coming to Sao Paulo, but also to use it for the other lines of 4Bio. We already have an action plan in course to address that, signing a contract this week with a new distribution center and also because we need to balance things out. And another factor here is the growth of 15.5%. I believe that we had some important wins here. If we look at last year, we had an increase year-on-year, but also quarter-on-quarter from the first quarter to the second and to the second to the third. We were stable for 3 consecutive quarters with BRL 10 billion. And of course, in the first quarter, we have a negative calendar effect. And revenue had become stagnant for 3 quarters. But now we can see that there was an increase since the first quarter of this year. And when we look at where this growth came for, of course, GLP-1 drugs factored in here, but not only that, we grew in HPC at 10.9%, which is a normal level. We did not need to invest more than we were already investing in the second quarter. For HPC, we continued the same level of investment and the results are now better, almost at 11%. And last year, it had been 6% and 8%. We wanted to go back to double digit numbers. And now here it is. And generics. Generics are not related to GLP-1. It grew by almost 20%, thanks to competitiveness and prices, but also it is related to the loss of a few patents. And when a patent expires, it benefits the generics, but it has a negative impact on the brand name medications. And our own brand products grew by 21%, which is very solid. And GLP-1, to be very transparent, is beneficial to us. It helps us. But again, we earned it. Throughout our history, we positioned ourselves as the best store to serve the high-income segment because we always invested in a good experience inside our stores. Some years ago, I remember that people asked us about the fact that we were so high income that we wouldn't be able to cater to the lower income segments as if it were a bad thing. But I believe that we found our way of catering to the lower income communities as well without losing that differentiating factor that puts us in a good position in the high-income segment. And now we are reaping the benefits of that. We are going to see a very high market share in GLP-1 drugs. And we earned it, thanks to everything that we did in the past. So this is a very solid sales level, much higher than the past. And that took us to an increase of 7.8% in mature stores. There's a calendar effect here. This is a record-breaking growth in mature stores. You can see here that we grew by 7.8%, almost 5% above inflation, much more solid than the growth posted in the previous quarters. It's a very solid growth. And that takes us to an impressive level of BRL 1.2 million per mature store. And we have just about 1,700 mature stores that are selling more than BRL 1 million. So this is a very solid growth trend. And the last month in the quarter was better than the first, which points to growth as well. When we go into the digital channel, we see 42% growth in our digital channels, getting to a penetration of 26.7%. There is also a point here with the penetration and sales of GLP-1, which is offering more attractive prices in digital channel. But even without this effect, all categories have grown at least 30% in digital channels and have got improved penetration. GLP-1 analogs has improved our penetration numbers, but all categories have grown at least 30% in digital channels, extremely robust. Of the BRL 3 billion, 80% of it was from the app, which is a major strength of us and 97% of our deliveries are provided within 60 minutes. So convenience to our customers, which is really a landmark. Customers are happier with our experience with an [ NPS ] in the app and also delivery, but we have 6 million digital customers. Of the 50 million customers, 30 million bought in the quarter, 6 million bought through digital channels and they represent 41% of our sales. Online sales, 26.7%, but digital customers who buy online, they amount to 41% of our sales. This is a very important strength. When you have nearly 40% of your sales of customers who are used to our app, who are operating in the digital channels, they really benefit from that 60-minute delivery period, while having customers migrating to other competitors would be hard because they would have to have an excellent offer, really value proposition to make them migrate. So these are digital customers who are very well served by us. Another important achievement in the quarter was the share, 16.8% with 18 bps of growth and we have gained share in all regions. Highlighted Sao Paulo here, it stands out. We've got 120 bps, highest rate of growth. Southeast 70, Center West Midwest, 140 in the South, 20 in the Northeast and in the North, 60. Consolidated North, Northeast about 30 bps. In Sao Paulo, there has been an increased growth because we expanded the opening of pharmacies in Sao Paulo. In the Northeast, let me find it here, it used to be 22 and then it went down. So this is part of our expansion strategy, but we have gained share in all regions. Another point that I would like to make out of the chart is the 30% sell-in, sell-out share. We have 30% of share in Sao Paulo with Droga Raia and Drogasil. The second most relevant network in Sao Paulo would have 16%, 18% share. So there are 2 networks in Sao Paulo getting to 50% of market share. In addition to that, there are some small players in different areas, but this is a highly consolidated market. It's quite hard for new incumbents, even for those that are already in the market with a relevant share with this kind of level of consolidation and strong brands, I would say that I don't believe competitors can benefit from any expansion of growth. State of Sao Paulo amounts to 30% of the medication market. And the market is quite hostile to small players or new incumbents. And this is the kind of consolidation that we see in this region, but not in others yet. Said that, I would like to hand it over to Flavio, who is going to talk about profitability and then I'll be back. Flavio de Correia: Thank you, Raduan. Now going into details about the financial results, let's go into gross profit. It was BRL 3.3 billion, 27.4% margin. Year-over-year, we are talking about margin dilution of 20 bps. But last year, 27.6% included the benefits of CMS of tax of 20 bps. If we exclude that tax benefit, we are talking about stable margins year-over-year. And this is absolutely important. In 2025, we've had some tailwinds and headwinds concerning dilution because of GLP-1 analogs, which were more prevalent in the market and because of competition in HPC, which was really offset by other efforts and other initiatives so much so that we got to the gross profit in the half year, similar to that of the third quarter, which is something offline because of the effect before the CMED price adjustment. So we really should celebrate getting to such high gross profit. Now talking about expenses. Selling expenses was 17.3% in the quarter. Year-over-year, we are talking about worsening of 20 bps year-over-year. But last year, we had also emphasized in our meeting that our headcount was higher and we hadn't really captured the expenses with the new headcount because they had joined the team later in the year. We are talking about expenses normalized by the team that we had at that time in terms of personnel would be 17.5%. Comparing 17.5% with this year, we are talking about a normalized dilution of 20 bps, which is really important. The expansion of headcount, we are talking about 16.5 people per store as of 15.9. It was 0.6 headcount per store, which really provides better quality of service and also work and engagement of our teams in the stores. This is really important. Now analyzing G&A and this is the main achievement we have to celebrate, something that we have started capturing the second quarter and coming stronger in the third quarter. There was no rebound effect here. The SG&A in the quarter was BRL 310 million, which is less than the number that we had last year, which was BRL 323 million. There was a significant dilution here of 40 bps year-over-year, going from 3% to 2.6%. There is a stability of this level quarter-over-quarter because of some specific pressures related with tax provisions and other things which are expected in the operation. Our expectation is to keep on improving our performance in this indicator. Now going into EBITDA, which is a sum up of all the other elements. In a [ plan ] comparison year-over-year, we are talking about stability of EBITDA margin of 7.5% in this quarter, getting to BRL 909 million. But if we exclude offset elements, 20 bps of ICMS tax and the 40 bps of personnel expenses, it would take us to a 7.5% performance as opposed to normalized values of 6.9% last year. Major achievement. This specific quarter is the best third quarter we've reached in terms of percentage EBITDA in our track record since the COVID time. Major achievement. Operationally speaking, in our cash cycle, there was a decrease in our inventory levels and an improvement in cash cycle of 3 days. Now below the P&L, we have financial expenses, which was 1.6% in the quarter over last year, which was 1.3%. This increase is due to the increase in interest rate comparing those 2 periods. So this is the best explanation for this number. It gets us to effective tax rate of 0.4% and this is a result of what we observed here at 4Bio. This rate, if we normalize it by the default number, we would get to 18%, which is exactly what we would expect as recurrent tax rate for the future, at least for the short and mid-term. And it takes us to BRL 402 million in adjusted net income or 20 bps increase year-over-year. Once again, we are not considering normalization of the basis comparing last year in terms of headcount and tax, but still very good result. And finally, this is free cash flow of BRL 558 million, very much aligned with what we expected, similar to what we used to have last year. Our net debt went down from 3.9 in the second quarter to 3.4 in the third quarter with an improvement in leverage levels getting to 1.1x EBITDA over our debt. And back to you, Raduan. Renato Raduan: Well, we've decided to have more time for your questions during this call. But here, let me just emphasize our confidence in the quarter. In the first quarter of my management trying to explain what had happened, I had never thought that we would get to such a strong quarter. I knew that we had strategy to improve. I believe that the results would be better because I know of the strength and the quality of our management team. But in the first quarter this year, I wouldn't anticipate such fast recovery and I'm so glad to celebrate that. It reinforces a number of our strengths. Yes, there had been a few financial and nonoperational deviations for 2 consecutive quarters, but we have really resumed our operational and financial strategy as a whole and performance. We have now the mature pharmacies performing quite well, we are going to have an over share in GLP-1 agonist. It's here to stay. That's going to be part of our structure. But it also evolves HPC, something that we were all concerned about, also acceleration of generic medication. So I believe we've really resumed our operations to very good levels. At the same time, despite that, we've been strengthening other elements of our operations. We've seen the amazing numbers of our omnichannel, which we've grown 62%. And in addition, we offer a very good digital journey, 97% of deliveries made within 1 year. It's difficult to come up with a value proposition better than that if you don't have a good distribution and solid operations such as we do. We have also shown that we can have an efficient management. We've managed cost without impacting deliveries, without impacting services or the corporate deliveries to pharmacies and the distribution center. We've proved that we can have very good operational management. Losses are starting to decrease and we can see a downward trend, which is something that has impacted our gross profit. And while we were fast tracking and adjusting our operations, we have reached over 25% IRR, over 25% in all regions of the country. And we're still working on this wide distribution and logistics of our operations. It's important to have presence and also to be located at the right spots or the right cities. It's not only improving operations and believe that's going to optimize sales forever. You have to be placed at the right spots to sell more. Otherwise, you are just going to be limited to the potential of that specific venue. If you combine efficient operation and the best points of sale, then we can improve our operation. Our company has very robust financial health. We have very robust results. We are improving our inventory levels, cash cycle, controlled leverage, which gives us the possibility of keep on investing where we believe we are going to make a difference. And on top of that, we try to be as transparent as possible with all of you. We are not here to sugar coat things and sell a scenario that is more favorable than it actually is. And when things are not so good, it is also our role to help people see what we see and that is added to all of the differentiating factors that we built over the course of decades with the right team and our execution capacity. And that is part of a perennial company, a company that is here to stay and all of that is built over decades and decades of hard work. It is also impressive to see our ability to adapt fast. Maybe this year was the first year where we had to adjust things so quickly. And we managed to do it and the results of the third quarter bear witness to that. And the market is going to continue to grow because the population is aging and also GLP-1 drugs and other medications that will come make the landscape for us very optimistic. We believe that there is a good trend that is leading us to the end of the year. And with that, we would like to start the Q&A session. We'll try to address as many questions as possible. Thank you very much. Just before we move to the Q&A session, there is one thing I always tell investors about. We were talking about how the entry point in 2025 was so tough with a lot of pressure on HPC and some other lines that were pulling our results down. And our ability to react, as you said, was so important for us to go back to a stable level. And that is going to be our proxy for 2026, '27 and from then onwards. This is a very important position in the retail pharmaceutical market in Brazil. It is a very solid thesis as well when we think about how the population is aging. Now let's start the Q&A session. Operator: The first question comes from Luiz Guanais with BTG Pactual. Luiz Guanais: I have 2 questions on my side, both about GLP-1 drugs. Raduan, if you could give us more color about the weight of GLP-1 drugs in your sales in comparison with the previous quarters? We can see that the number is increasing. It is getting to a high single digit or a low double digit. So that's the first question. And the second question about GLP-1. I'd like to know the effect of them on your working capital. Are you planning an aggressive policy to installment payments -- related to installment payment on those drugs? Renato Raduan: Please, Guanais, go ahead. Luiz Guanais: The second question is about working capital. If you can give us more color about the effect of the growth of GLP-1 drugs on your working capital? And if you plan to offer installment payment in this category since starting next year, we are going to see generics coming in this segment as well? Renato Raduan: Well, the first question about penetration of GLP-1 drugs, your numbers seem correct to me. In the third quarter, we stood at a high single digit, not a low double digit. And in the past, it was 5%. Now we are higher than that. And if you think about the potential of this molecule when we have a limited inventory, which didn't happen yet, I believe that we are going to move to double digit results. But in the third quarter, we were not there yet. But there's a huge potential. And obviously, when we see the generic GLP-1 drugs coming, the average price will go down, but access will increase. I think this will eventually become a category on its own. Just like OTC, HPC, we are also going to have the GLP-1 category. That's how big the potential is. And about your second question, we offer different payment methods for these drugs. In some cases, we offer a 6-installment payment method for customers. And by doing that, we can improve access. Part of the population cannot pay all of that upfront in 1 single installment. But of course, we need to be responsible. We shouldn't just generate that demand and have problems in the future because of that. But good news is part of the industry is helping us fund that payment installments because they want to increase access as well. And also, that puts pressure on receivables. But on the other hand, we are managing the inventory very well. We decreased our inventory significantly. We have been doing that throughout the year. And we see more room to do that, to continue doing that. It was a technical movement, a scientific movement even integrating departments and the impact on the cash cycle as a whole should not be that great because we have been decreasing the inventory coverage at the same time. Flavio de Correia: Just to add another point to this answer about the potential, the growth potential of this category, we're talking about 1 million consumers of GLP-1 drugs in Brazil per month. Out of the 215 million in our population, 1 million people are the target audience for that product. And as the access increases, I'm sure that we'll be able to capture more of that. And we should remember that we have a very high market share in this category of about 1/3, which is very positive. Operator: Now the second question comes from Joseph Giordano with JPMorgan. Joseph Giordano: I'd like to talk more about working capital. Over the past 2 or 3 quarters, we have seen an increase, an improvement and Raduan talked about the coverage of inventory. But I'd like to know more about the logistics. What have you been doing in terms of allocating inventory in the different stores in the different neighborhoods? I'd like to know if there is more room to improve that side of the business. And also about 4Bio, we saw a 17% decrease in your revenue in that segment. And you said that part of that is related to one specific contract. My question is, when you open the distribution center in the state of Espirito Santo, should we expect 4Bio to go back to its previous sales levels? So after the contract is signed, the financial loss would be lower. Is that correct? Renato Raduan: About the first question about cash cycle, well, last year, considering the operating challenges that we had, they included logistics issues in some specific distribution centers, which led us to take a closer look at what was happening and also to improve our policies and inventory allocation. And we realized that part of the problem with the DCs was an excess inventory, a buildup at some point in time for specific reasons. And again, we had to be very humble to understand exactly what we needed to do to improve inventory management as a whole in procurement and also regular supply to distribution centers or the pharmacies themselves. And we started that very strong movement led by Marcello, our COO, and he started to take care of the supply procurement and operation departments, bringing everybody together on the same commitment of reducing that inventory. Now we have an inventory coverage that is 6 to 7 days lower than in the past with the same disruption level that we had. It's actually lower than the past 4 to 5 years. So we are actually improving the service to our customers with available inventory, but a lower inventory as a whole, which makes our operations easier. We are not going to have so many problems with expiration of medications and losses entailed by that. So I think that our management did a great job and I'd like to take this opportunity to thank them for that. And there's still more to be done. I believe that there are other levers that are very clear for us to improve the cash cycle, which is very important when the interest rate is at 15%. So we are going to see the benefits of that on our financial expenses, too. Now 4Bio, indeed, the DC in Espirito Santo is going to help us. We are signing the contract and we are going to resume supply to the lab in the state of Sao Paulo and that is going to decrease the drop in sales and that should take place relatively fast. 4Bio is a solid business. It continues to make money and the projection for revenue is more than BRL 3 billion per year. Now that we are adjusting things, now that we are not so conservative in terms of protecting our profitability at all costs and after the operation resumes from the state of Espirito Santo, I feel certain that we are going to exceed BRL 3 billion in annual revenues. Even without that DC, the third quarter had a better performance than the second quarter because of that balance movement. And 4Bio continues to be a good business with an annual revenue in excess of BRL 3 billion. We restructured our operations, we divested in some other businesses and it was not the case with 4Bio. We decided to continue with it. And we just need to adjust things to go back to the levels that we expect to have. Flavio de Correia: And, Raduan, if we look at the gross margin in the company that is fed by 4Bio, of course, but other categories as well, I think the market gets a bit anxious about our gross margin throughout the year. If we look at the potential dilution of our gross margin due to GLP-1 drugs and due to 4Bio as well, if you do the math, you are going to see that the sales are growing at about 12.5% and the gross profit is increasing by the same rate, 12.5%. So despite the headwinds, we are still growing. Despite the potential dilutions, we are still growing. And if we have any additional performance that we can capture, we are going to distribute even more value. So I think the results are very positive across the board when it comes to profitability. Operator: And now the next question comes from Mauricio Cepeda with Morgan Stanley. Mauricio Cepeda: I have 2 questions too. First, about GLP-1 and the expiration of patents. Raduan said a few things that are in line with our thoughts about the competitive landscape after the expiration of the patents. You said that there is low availability right now, but we also know that the national laboratories are going to start producing those drugs under licenses. So in your perspective, do you think that with the low availability, the semaglutide price will continue to be high, at least in the beginning or maybe that won't be the case? Maybe the competition will be very aggressive. And the players for similars and the pure generics, do you think that they are going to offer you more discounts than other players than what we see in the small molecule market? And the second question is, you mentioned in your release that the market is going generic because it took advantage of the recent patent expirations and that helped you grow, especially in the prescription lines. But now looking forward, we can see that there's less opportunity in the generic space with the exception of semaglutide, but we can see less opportunities of losses of patents. But do you continue to be confident in the contribution of generics and how much can it exceed the contribution of brand name medications? Because we can see that there are molecules that are very competitive. Some manufacturers have a huge capacity. So do you think that the unit contribution from generics will still be significant in comparison with the brand name medications? Renato Raduan: I'm going to go with the first one. But I don't know the answer for sure. I know what everybody knows about theory. The more competitors you have in the market, the more the prices get readjusted and then price setters have to get readjusted. Mounjaro in the market, for example, has taken to readjustment of the other molecules in the market so that they wouldn't lose their share. The more players in the market, as generics or as brand names, the tendency is to have readjustment of the reference brands. But that repositioning of prices, which brings down the average ticket of the molecule because of generics or licensed products, in our opinion, it will be compensated by the increased access. Another important thing is that there seems to be semaglutide as is and liraglutide and then there would be generics coming in, that will be it. No, the industry is still investing in innovation. So Mounjaro and all the product brands, the pharma industry is developing new products, reducing side effects, et cetera. So much more than having one single product with a reference product, generic and similar product, there are going to be other molecules coming into the market with different price points and those who can afford will end up buying the most advanced drugs and the others will keep on buying the already existing ones. We've already had 2 experience. There was the MS generic. We bought it. It's sold. MS could not replace the levels and now there is a licensed product by Europharma, which is available in the pharmacies. But it all depends on medical prescriptions. Those products are not interchangeable. It's not simple, simply to replace the prescription. We have to work -- the doctors have to prescribe it. In the short term, I don't think the average prices will go down. But eventually, as there are more products, more generic and licensed products, the prices will come down. But as a market, I believe there is still room for growth because of access. Flavio de Correia: And I think the most challenging one is the word that you are using for having the market go all generic, right? The Brazilian population consumes about -- 1 million Brazilians buy GLP analogs every month. But we talk about 30% of the population having obesity. It would mean 30 million people who would fancy using the product in addition to the cosmetic aspects of the use of the drug. I would say the market still has a huge possibility of growth. If the prices come down, we would have an increased demand. And generic medications, whenever a product expires its patent, there is an increase in gross margin when we start selling the generic. We have to find the balance point. But in terms of cash, we are going to be able to generate more gross profit when the patent is expired and when we start offering new launches. For other molecules and generics, we still have very healthy gross margin, similarly to our expected levels by having the highest market share. We are the main client of the generic manufacturers. We have a very transparent open process. It's an auction of molecules as we call it. We have it every year, once a year or more frequently to know who are the ones interested in having a higher presence in our stores. And the pharma industries offer the best conditions for these molecules so that they can be more represented on our shelves. Very well transparent process. The pharma industry is aware of that. And we have maintained very healthy, safe margins because of our network of over 3,500 stores. So very healthy margins. Mauricio Cepeda: That's great. I just have a quick complementation. What about the unit prices? The prices are lower. So is it still significant? Unknown Executive: I think it's very solid and significant. This is not something that we see as a concern for our profitability for the future. In our round of discussions, we have had quite many to identify challenges and emphasize our strategies. This has never been considered a topic of relevance. Operator: Let me now invite Irma Sgarz with Goldman Sachs. Irma Sgarz: I would like to go back to gross margin. Could you please tell us more about what you've seen in terms of gross margin, excluding GLP-1 effects and 4Bio? I would like to understand really the need to keep on investing in prices and the progress that you have had in the loss of products. I would also like to know more about how we can understand the behavior of gross margin, discounting mix effects and what we can anticipate for 2026 for the fourth quarter and also Black Friday? It's a kind of promotional campaign that you haven't joined previously. And what about this year? Have you had anything in mind? Do you have anything in mind I mean? Renato Raduan: First question, the most difficult one, right, this equation and this fine-tuning. If we exclude 4Bio, I think we have good news, as we pointed out. From the second to the third quarter, we've maintained our stable gross margin at corporate sales despite GLP-1 pressures. The second quarter has higher gross margin because of the pre-price increase. The third quarter, despite that, we navigated quite well and we had almost 40 bps of negative pressure because of GLP-1. But there were some other effects that contributed to our improvement. They had had a difference over last year, our distribution center in [ Goias ], where we are consolidating the loads to improve the service in our regional operations. It also impacts our gross margin and tax effects, price management. We are still very competitive in HPC with the same level of competitiveness. But in other categories, online and offline, we've been very carefully adjusting prices product by product to have pricing efficiency gains. We haven't invested more in the third quarter than the second quarter because of competitiveness. And still, we had better performance. I haven't told you, but the performance of HPC was nearly 11% over the basis of last year that had increased 10%. We still haven't come across the low basis of HPC, which starts in the fourth quarter. The third quarter last year, HPC growth was 10%. This year is 10.9%. As of the next quarter, we probably are going to find lower levels. Yes, there are pressures on our margins. HPC, we are operating at a stable margin, but offering more promotions than we used to and we probably will maintain it. But I believe our team is finding offsets to really maintain healthy margins. Concerning Black Friday, we have told you very candidly that we were not as aggressive as we should have. And that was part of why HPC didn't grow last year. Of course, we are much better prepared for this year's Black Friday campaign. Our team has been working with it since August with the industry, with suppliers. So we are highly optimistic and confident that the Black Friday this year is going to be much better than last year. We are very optimistic for the fourth quarter, not because of the upward trend of the third quarter, but because we know the Black Friday is going to be much better than last year. Operator: Let's go now into our next question. We have now Vinicius Strano with UBS. Vinicius Strano: One about selling expenses. How can we understand the future of selling expenses? What about personnel in your stores? And something else about hiring, do you still think there are investments to be made to work on selling expenses? And in terms of inventory levels, what results from the higher turnover of sales of GLP-1? And how much of the inventory optimization has resulted from other strategies so that we can get to a normalized cash cycle? Renato Raduan: Going to your first question. Selling expenses, as Flavio pointed out, we had a lot of suppression in the third quarter last year. We were understaffed as we stated and we have come up with an appropriate headcount, 16.5, to reduce the work overload of our own staff and to improve the quality of services. And it was an investment that made sense. Part of the recovery of sales, self-service and recovery of losses resulted from the fact that we have larger teams in our pharmacies. What hasn't been reflected yet, but it's going into the fourth quarter, is the fact that we are going to have that package of benefits for distribution center personnel and pharmacist personnel so that we can improve our employee value proposition so that we can have them more engaged, happier, reducing staff turnover. We are launching a benefit, a package of benefit. We have heard our own people, managers, pharmacists, service operators, distribution center operators to know what would be the most relevant things for them so that they would be more satisfied and engaged. We wouldn't invest in something that would make no sense to them. So we listened to their request and the packet of benefit is going into effect as of October 1. I cannot tell you exactly how much was invested, but we believe it's something that's going to be diluted within our financial results. I still believe in the fourth quarter, we will have lower selling expenses than the quarter last year, of course, this is not guidance, despite all the improvements and also the improvement on our package of benefits. Once again, this is all going to be part of financial performances, which are equally good. In terms of inventories, your question is quite good. Part of the reduction of cycle, say nearly 40% of the cycle reduction resulted from GLP-1, which has very high turnover. The sales turnover is quite high, but there is 60% of the inventory reduction which has nothing to do with GLP-1. It's related to our structural work that had been done by the team, which is really improving our structure as a whole. And we believe there is more to come. These are the 2 points. GLP-1, 40% of inventory improvement. The other non-GLP-1, 60% reduction. Operator: The next question comes from Danniela Eiger with XP. Danniela Eiger: I have a few follow-up questions. The first one is about HPC. You were talking about competitiveness and I think that we can see that in our track record, you are more and more competitive and you're getting closer to the marketplaces, but the price comes at a premium still. I'd like to know what your end game is when it comes to competitiveness. Do you believe you will have to stabilize the prices for some products? We can see that you are very aggressive in some categories. So I'd like to know more about your perspective about the HPC pricing dynamic and also if you believe that you are at a sustainable or maybe comfortable level. And still about HPC, I have a question about Black Friday. You said that the performance will be better, but how much better? At the same time, we can see a very intense competition among the marketplaces. So I think that marketing will be more expensive. So is your strategy focusing on the same customers with your own data pushes? If you could give us more color on your strategy, that would be great. And a question about GLP-1. You said that you have not reached double digit numbers in that category. And you also said that the limited supply is a constraint, but we can already see a higher availability in the fourth quarter with higher doses, which also have higher tickets. So maybe in the fourth quarter, we are going to get there in the double digit numbers. I believe that there will be an improvement. And in the previous call, you talked about the higher doses that you would receive. So I'd like to know more about that as well. And very briefly, I'd just like to know more about the DC for 4Bio. When do you expect it to open in the state of Espirito Santo? Renato Raduan: Well, first, about the relative price. We know that we don't have the same prices as the horizontal marketplaces and we don't think we have to. Many customers, many surveys have told us that we have strengths that the marketplaces don't have. They have the price, but we have guarantee when it comes to the origin of the products. And customers know that in some products, that's very important. The customers, when they don't know the origin of certain products in marketplaces, they buy from us and they are willing to pay more for that. And also, we have 60-minute shipping times, which no marketplace can offer. So we have other advantages, which allow us to have a premium price. But of course, it shouldn't be that much higher. As you said, we are getting closer to their prices. And from the second to the third quarter, we saw performance going back to double digits. And we believe that that is sufficient to sustain a healthy performance. If we put together the lower price, a price that is closer to the marketplaces prices and our benefits, the benefits that we offer that they can't, we believe that that is sufficient to sustain the performance. And of course, if we feel that we need to invest more on that at some point, we are. You asked a very good question about the bloody war that will probably happen between the marketplaces during Black Friday. In the past, we had some similar wars, for example, free shipping. But what we can tell you is that we have an ambition to grow in sales. We are going to do more things than we did last year. We have a target with some industries that we want to reach and those targets are much higher than last year with a negotiated margin. So we are going to do our bit better than we did last year, but competition will tell what the end of the story will be. But we are confident that Black Friday will be better for us despite the red ocean in Black Friday. And the next question was about GLP-1, about the doses, right? Yes. In the third quarter, as I said, we did not reach double digit numbers in that category. I think that will happen, but I can't tell you if it's going to happen in the fourth quarter. I think it's going to happen even before the generics come or the licensed medications come. Once we have a full month with availability for all doses and all products, I believe that we are going to exceed double digits. But I don't know when it's going to happen because it depends on the industry, but I am optimistic about the increase in penetration in this category. And the 4Bio DCs, well, they are smaller. They have 1,000 square meters in area and they require little automation. This week, we are going to sign the contract. It has been negotiated already. We already know the location. And I was talking to the 4Bio CEO this morning because I knew you were going to ask that question. And he told me that we are going to sign the contract this week. And after it is signed, it is very easy to get it running because there's little automation. We just need to have the inventory there. And another point that I would like to add about HPC. I believe last year, the competition against the marketplaces, it was stabilized because now we can show that we have benefits to offer. I believe that we, in 6 months, were able to digest a headwind of 5 points in the speed of growth of this category. And we also are supported by the industry so that we can have a stronger footprint in this category. Our growth thesis for HPC is very much based on that partnership. A partnership brings benefits and exclusive assortment that customers can't find anywhere else. And we are omnichannel, which is critical for us. We have the beauty consultants inside the pharmacies. So all of those attributes are extremely important in this competition against the digital marketplaces. We don't think we are lagging behind at all. Operator: Next question comes from Leandro Bastos with Citi. Leandro Bastos: I have 2 questions. The first one is about expenses. You said that you are going to offer more benefits to the employees. And I'd like to know more about your 5.2 journey. Are you going to implement it? We can see some competitors in the state of Sao Paulo running on this new mode of operation. So if you can talk more about that, that would be great. And the second question is about the tax benefits. I believe that you had it in 3 states. So I'd like to know more about that. And what is the potential that you see in this arena? Renato Raduan: Can you just please repeat the second question because the audio was a bit choppy? Leandro Bastos: Sure. Is it better now? It's about the investment tax benefit. You recognized the benefits in 3 states and I'd like to know a little bit more about that. Renato Raduan: I'm going to answer the first question and Flavio is going to answer the second question. Yes, we are going to convert the pharmacies to the 5.2 mode of operation. And there is one thing related to this is the working hours. The working hours add up to 44 hours per week. When people started working from home during the pandemic, the working hours remained the same. And the 5.2 is the same with 44 hours per week, but the employee has 2 options. They can either come 6 days a week and rest for 1 day only with little time for personal -- their personal lives or they will come for 5 days, working a little bit longer each day. And the benefit on that daily effort is resting for 2 days instead of 1. And again, we decided to listen to our people to understand if that's what they wanted. In some states, we have 30% to 40% of our pharmacists working according to that model. And last year, we converted all of our pharmacists to that model. And still this year, we converted the supervisors as well. And we are in a transition phase right now. We had to listen to our employees to understand what was relevant to them. And on average, they decided to have the 5 days per week and to rest. And we actually had a vote to understand the collective preference and 75% of the employees preferred that model of working 5 days a week. So we are already converting the working hours to that model and we had to adapt and understand what time they should get there and what time they should leave so as to not impact customer service. And things are going well. I think our employees are happier because of that. And that's why we are doing it. We're doing it for them. For us, it doesn't make that much of a difference because the 44 hours won't change, but we are doing what our employees want to be happier to have more free time to spend with their families. And of course, it doesn't apply to everybody. Managers work in a different way. There are many particulars involved, but we are moving forward on this. About the tax benefits, nothing changed when it comes to taxes. This quarter, we are using the same interpretation that we had in the previous quarters when it comes to tax subsidies and the differential tax in BRL 70 million affecting our results positively is a specific case from 2022. We had some court decisions favorable to us being passed in the previous weeks. We were able to revert those numbers. Eugenio used to say that we are one of the very few companies that actually report on a lower revenue than it is in reality. We usually don't report those numbers that come from subsidies. We are considering that these numbers came from the past and we are not including them in our numbers for this quarter. But yes, we had BRL 70 million coming from the subsidies. Operator: Now next question, Robert Ford with Bank of America. Robert Ford: Congratulations on your excellent results. What's the impact of Ultra Farma issues in your market share? And how can we understand Ultra Farma from now on? In addition to working with 4Bio suppliers, are there any other benefits that we have to consider about the distribution center in Espirito Santo? Renato Raduan: Well, thank you. Thank you for your comments and for celebrating our results. We haven't really measured the Ultra Farma effect and all the events that they've been involved in. But our market share in the state of Sao Paulo had been in place even before Ultra Farma issues. We've been growing very positively in the state of Sao Paulo much before the problems they have had. The expansion of our new stores with very high IRR, mature stores. So we don't account for any growth resulting from Ultra Farma's issues because we've been growing like that very steadily for a while. Espirito Santo's distribution center, we are going with a team there tomorrow to officially open our own distribution center of RD, fully automated and we would like to show you in future interactions, highly automated, very modern with robots, with less manual intervention in one single box, there might be a much higher productivity and lower operational cost. If it opens, of course, it's going to enable also a revisitation of current -- current DC and future ones. 4Bio distribution center is different. It's going to serve the pharmacies in Espirito Santo, part of the state of Rio de Janeiro, especially closer to the frontier of the state. So the distribution center is really important there. We open about 330 to 350 pharmacies every year. We inevitably have to build one new distribution center every year so that we can keep up with our expansion. This is in Espirito Santos and there are others that are going to be opened in upcoming periods in different states so that we can keep up with our logistic challenges. Operator: Now Rodrigo Gastim with Itau BBA. Rodrigo Gastim: I have 2 questions. First, going back to GLP. You've mentioned the expectations of market expansion once patents expire. But what about the economics aspect after GLP expiration? I know it's hard to draw any conclusions yet. But what would you have in terms of gains? We know, yes, the generics bring different margins. But in terms of economics, what would be your best guess about future margins? A second topic, in the opening remarks, you said in the first quarter, you didn't expect to be so well positioned now in the second half of the year. And my question is, what has happened that surprised you? Could you please share with us the 2, 3 points that have positively surprised you in the past 6 months for taking us to that better position today? These are my 2 questions. Renato Raduan: I'm going to give you my suggestion, but I don't think it's going to be any better than yours or anyone else's. We've been trying to analyze all data. We have a Board member who is a physician and we ask about perspective. Today, we are reading a McKenzie study to get more references. But there is a consensus that once there is an increased access through generic, the demand will at least have a three or fourfold increase over the current demand of not 2024, but there should be a threefold increase over the references this year with an average price that would be cut by half. It doesn't mean that our profitability is going to cut by half because they're going to sell more generic and so on. But all in all, we believe that the gross margin in cash generated by it in the total balance will be positive and better because of the multiplication of access. We don't have the precise number, but we understand that total cash generated from GLP-1 will be higher despite lower prices, despite lower margins because of the expansion of access. Once again, this is my best guess, but the time will tell. This is what we've been learning and we talk a lot with the pharma industry to hear from them their perspective, but this is my best guess. Now your second point, we have to be extra careful because very few people trust the company so much as I do. I've been in the company for 13 years. I know it quite well because of all the positions that I have taken. I know the strengths, culture, the stores, logistics, expansion, qualification of the team, which has been really improved in the past 5 years, digital transformation. So all the things I've seen in the past 13 years have really assured me of the potential the company has for the future. So when I say that in the first quarter and second quarter, I did not expect that much of results, not because I didn't trust the company or the team. No, I strongly believe in all of us. But it was a great increase, BRL 10 billion to BRL 12.2 billion to structured EBITDA of 7.5% when the structured EBITDA for the quarter was 7%. You used to say we are priced to perfection. When we had a price to perfection, our EBITDA in the third quarter was 7%. Now it's 7.5% EBITDA with 50 bps over the previous situation of priced to perfection. So I think the intensity and the speed of growth have been marked. And I think that despite our strengths, the pride of our history, our company has very candidly understand that sometimes for 2 or 3 quarters, we can get off track. Maybe we haven't operated as much as we could. But we've recognized our mistake, humbly decided to make quick adjustments in cost structure, corporate structure, making the right investment allocations. And we've had made wrong investments, we wouldn't have had returns. It was a joint work of leadership, the support of the Board, our head office team and operations team really also by our site. And this is why we've reached so good results in the third quarter. I think it's a result of our management capabilities and our assets. 2 or 3 deviated quarters are not going to really derail us. They do not ensure permanently good results and the numbers of the fourth quarter and first quarter of the year did show that. But we had assets. We focused our energy, our best efforts, reinvested in value proposition, reinvested in propositions to our own staff. And as a consequence, we've reached good results. Operator: Tales Granello with Safra. Tales Granello: I have a question concerning SG&A and your growth on the online channel, especially because of GLP-1 sales. In the quarter, it was 2.6 and that level of expenses will keep on be at this level. But don't you expect to reinvest in digital as you did last year? Concerning the losses over income, the 10 bps that you had year-over-year and quarter-over-quarter, is it resulting from a reduction of staff? Or do you have better inventory management and right assortment? What has impacted that? Renato Raduan: Excellent questions. The first one is really important. I would like to make a clarification. Reduction and restructuring of the company to operate lightly and more efficiently has not reduced our capacity to deliver. In the past 6 months, we have had the highest level of deliveries and releases in the digital channel despite the restructure. And why? For a number of reasons. First, the team has become more mature, more seasoned, therefore, can work better. We've been working with generative AI to generate code and that has meant improved productivity and efficiency. As a team, we've brought together digital operations and direct business areas, developing things that can really make a difference to our customers. This is an important question because we can make it clear that our corporate improvement had nothing to do or was not at the cost of impacting deliverables and also customer deliveries. Our NPS in the app is better than we used to have. Our NPS of delivery is better than we used to have. And we have a recurrence level, 66% of our customers. So 2/3 of the customers are recurring clients. They like the journey, so they come back. We keep on investing in building our future, our ambidexterity. We have to be efficient in both channels and it requires investing in the future and we are being extra careful. We are going to keep on investing in digital channel, supporting the operation, but it doesn't mean that we have to go to a G&A of 2.8 or 2.9 or go back to the 3 point level. Concerning losses, I think we have to combine a number of things. Some reductions of tests in stores, some specific actions to avoid shoplifting, also the products that got expired and we then have to get rid of and we've reduced that number of expirations. There is no silver bullet, I have to say. This is the combination of a number of small actions. And when built together, they produce better results. And we are very confident that we can keep on reducing that. It was not just one action. It's a combination of a number of small actions. Operator: We now are going to hear from Ruben Couto with Santander for the last question of our Q&A. Ruben Couto: I've just -- you have online, you have Black Friday. I would like to hear your expectation, not for the fourth quarter, but for 2026. Do you think that's going to be additional investment source? Please tell us more about that. Renato Raduan: Well, I'll start and Flavio can complement. I believe it's going well. It's growing more than we expected. It's growing more than the core revenues as expected. And the growth will be double digit for a long, long time and [ Fabi ] and her team have been doing a great job and they have been making progress according to expectations. We do have a good problem, though. If you look at our first slide, our EBITDA in the quarter was BRL 909 million, almost BRL 1 billion. In order for you to do something that is going to move the needle in a mass of BRL 1 billion in revenue, it has to be something extremely significant. But it is a good problem to have. But we should remember that the business has always almost BRL 3.5 billion or BRL 4 billion per year. Any additional revenue stream will help us. We continue to be very optimistic about this business. And any additional penny will help both on the revenue side and on the cost reduction side. And Black Friday is going to be a good opportunity for us to leverage the push. It is a very good moment for us to get to a new level there. We have a different experience with some ads and we now have different interpretations on the impact of those ads and they are going to help us capture that share. Just to wrap up, I believe that we are using AI more and more in our activities and that is helping us gain scale and depth in our deliveries. Fabi is leading that initiative together with a number of other departments in our company. The ads are dealt with the entire business side of the company, bringing more value proposition than just ads alone. And with that, we are capturing an ROI much above the average in other companies or other service providers. So I believe we are going to have some tailwinds that will help us grow in this activity even further. Operator: That concludes the Q&A session for today. And now I'd like to turn the conference over to the executives for his -- for their closing remarks. Renato Raduan: Well, let me check if I have a slide about that here. I'd like to invite you to the RD Saude Day. It is going to take place on December 1. It is going to take place here in the headquarters from 2:30 to 6:00 p.m. You will have the chance to meet all the executives, not just me and Flavio. So you're all invited. It will be a pleasure to have you here and talk to you some more about our strategies and everything we have been doing to build an even brighter future. So save the date and we hope to see you all here. Some closing remarks. First, I'll repeat the obvious. Thank you. Thank you to everybody in our company. This result was extremely solid, as we said. And I am not the one responsible for that. Everybody, the 70,000 people working in this company are responsible for that. 70,000 people working according to our culture, providing the best service to our customers in the pharmacies, in the head office, in our distribution centers, they are the ones that worked hard to deliver such great results in the third quarter, exceeding our expectations. I think it exceeded your expectations as well. If you expected such a strong result in the third quarter, maybe that's because you regained the trust that you had in us. And we continue to be extremely confident and optimistic about the results in the fourth quarter and 2026 and from then on. And again, I'll keep my commitment of being as transparent as possible in hardship and also in happy moments. I will always be here talking candidly to you without sugar coating the results, but rather speaking my mind. And I continue to believe that the best is still to come. This company has been around for over 100 years. We have a lot to be proud of, but I am certain that what future holds for us is even better. We had strengths, we have strengths that are difficult to replicate, a brand that was built over the course of 120 years with credibility, trust and a culture that is easily recognized by customers that cannot be built overnight. And we are in the best locations in every neighborhood and that it cannot be replicated overnight. Not everybody can do that. The digital capability that we invested so much in, many players don't have the financial capacity to do the same. The 70,000 people that work with us already have our culture and they are growing in their careers. The managers used to work as pharmacists, the regional directors, the operation directors, they all started their careers here and that is very difficult to replicate too. International companies try to do that here in Brazil. They were not successful. Other pharmacy chains tried to do the same. They were not successful. So the marketplaces won't easily succeed either. There are players that indeed have very strong assets. And if we keep working on our strengths and if we continue to have a sharp focus on doing what's relevant for customers and our employees, protecting the execution in the present and also looking at the future with the right speed, if we put all of that together, our assets and the capacity that our team has makes me truly believe that the best is yet to come and that we are going to celebrate many happy moments in our earnings calls and we will be able to make our society even healthier. So thank you very much for your trust in us, for your interest in our results and see you in the RD Saude Day or the next earnings calls. Thank you. Operator: Thank you very much for joining us this morning. This concludes RD Saude's earnings call for today. Have a good one. [Statements in English on this transcript were spoken by an interpreter present on the live call]
Operator: Good morning, ladies and gentlemen, and welcome to today's Legrand 2025 9 Months Results Conference Call. For your information, this conference is being recorded. [Operator Instructions] At this time, I would like to hand the call over to CEO, Mr. Benoît Coquart and CFO, Mr. Franck Lemery. Please go ahead, sir. Benoît Coquart: Thank you very much. Good morning, everybody. Franck Lemery, Ronan Marc and myself are happy to welcome you to the Legrand 2025 9 Months Results Conference Call and Webcast. Please note that as usual, this call is recorded. We have published today our press release, financial statements and a slide show to which we will refer. I begin on Page 4 with the 3 key highlights of this release. First, Legrand delivered robust sales growth and very solid margins over 9 months. Second, we are sustaining a strong acquisition momentum and, third, our 2025 full year target rate in July are confirmed. So moving to Page 6. I will start with an overview of sales. Over 9 months, excluding FX, our sales grew by plus 14.5%. This includes an organic growth of plus 8.2%, driven by an outstanding performance in data centers of well above plus 30%. This also includes a positive scope effect of plus 5.8%. And based on acquisitions announced and their likely date of consolidation, the full year impact of scope changes should be around plus 5%. For exchange rates, the effect was a negative minus 2.2% in the first 9 months of 2025. And based on the rates of the month of October, it would be around minus 3% for the full year. On Page 7, you will find the key takeaways per geography on a like-for-like basis. In Europe, in a market that remains overall contrasted, sales were up plus 1.5% over the first 9 months of 2025. In North and Central America, sales were up a strong plus 18%, driven by an outstanding performance of data center offerings. Finally, in the Rest of the World, sales increased by plus 2.5% with growth in Asia Pacific and the Middle East, partially offset by a retreat in South America and Africa. Overall, at group level, as expected, most of the organic growth is coming from data centers that represent 25% of our sales at the end of September, while our sales in residential and other nonresidential buildings are flattish with residential slightly down. These were the main comments I wanted to share on sales. I will now hand over to Franck for more color on our financial performance. Franck Lemery: Thank you, Benoît , and good morning to all of you. I will start on Page 8 with adjusted operating margin. At September end, we recorded a solid adjusted operating margin of 20.7% after acquisition. This represents 20 bps of increase year-on-year, including 10 bps on organic improvement and 10 bps favorable impact coming from acquisitions. The group's profitability over the first 9 months demonstrates the strength of our strategic model and the solid capacity for execution and adaptation, notably, amid evolving global trade policies. Going now to Page 9. The net profit stood at EUR 892 million, representing 12.8% of our sales. The increase coming from operating profit is partially offset by the impact of financial results and a modest rise in corporate income tax. The free cash flow came to EUR 871 million, growing plus 16.3% over the same period of last year. This concludes our key financial topics I wanted to share with you this morning. And I'm now handing over back to Benoît . Benoît Coquart: Thank you, Franck. We are now moving to Page 11, detailing our recent acquisitions. Since Jan, we have announced 7 acquisitions, all in buoyant markets tied to the energy and digital transition for a total acquired annualized sales of approximately EUR 500 million. It includes Avtron, Page 12, a very promising leader in North America and a highly strategic acquisition. First, Avtron strengthens our presence in growing data centers, gray space and energy transition in North America. Second, financial metrics are robust, close to $350 million of sales with high profitability. Third, the transaction is fully compliant with our usual financial criteria of value accretive deals. By the way, I'm happy to confirm that we have just closed the deal a couple of days back. These transactions illustrate our ability and expertise in continuously strengthening our leadership in buoyant fields of activity. To conclude this section on Page 14, we confirm the 2025 full year targets we raised in July '25, building on the achievements we've just mentioned. And taking into account the first 9 months of 2025 results, we target for the full year sales growth organic and through acquisitions, excluding currency effects of between plus 10% and plus 12%. This includes expected organic growth of plus 5% to plus 7% and growth from acquisitions of approximately plus 5%. And adjusted operating margin after acquisitions of 20.5% to 21% of sales. And at least 100% CSR achievement rate for the first year of the 2025-2027 road map. Those were the key topics of this release. I suggest we now switch to Q&A. Operator: [Operator Instructions] We will now take the first question from the line of Daniela Costa from Goldman Sachs. Daniela Costa: I have 3 questions, but they are quick. But the first one is in terms of looking at your guidance and given what you've done already in the first 9 months, the -- I guess, if you take the midpoint of the organic sales growth, you're expecting a flat Q4, which implies -- seems to imply sequentially even more deceleration than what a tough comp means. Can you talk through what would be the things that would get you to that level and why? The other 2 questions are quicker are just where was data center growth and what was your pricing and tariff headwinds? Benoît Coquart: Okay. Daniela, I will take the 3 questions. I will start actually by the data center growth because it explains a lot about our performance in 2025. So as I told you, over the first 9 months of the year, we grew well above 30% in data center. For the full year, we are somehow raising our guidance target for data center growth. We expect now that we should grow in data centers by about 30% in 2025 full year. As you remember that we started the year hinting that we would grow from 10% to 20%. Then we narrowed that and we increased it 3 months back by saying that we should grow 20% to 25%. And we now believe that given what orders in hand and so on and so forth, that we should grow 30%, which is a good performance because at the end, it would imply that over 2 years compounded, we would have grown 50% in data centers, 50%, 5-0. Plus 15, 1-5 in 2024, plus 30, 3-0 in 2025. So plus 50%, which, by the way, is pretty in line with what our listed peer has released because I trust is also at about plus 50% of what we are. So it's a very good performance, probably slightly above what the data center market growth is doing. And we believe that nice growth will continue into 2026. Now the fact is that we have a demanding basis for comparison. You remember that in 2024, we started the year very flattish in data center in Q1. And then we did plus 10%, plus 20%, plus 30%. In other words, in H2 2024, we had a plus 25% growth with an even higher Q4. So the visible deceleration, if I may say, is purely visible. We are at about plus 50% over 2 years. We're going to be close to plus 50% in Q4. But we have to acknowledge the fact that the basis for comparison in H2 and especially in Q4 is demanding for data center. So that's the story of this year as far as data center is concerned, very sustained growth all over the year, no deceleration, but a demanding basis for comparison. So it explains clearly the perceived deceleration that you are mentioning. Now if you look beside data center as a total of our sales, year-to-date, over 2 years, we are at plus 7%. And the midpoint of Q4 would imply 2 years plus 6%. Now it's not forbidden to think that we could do better than the midpoint. But again, the whole visible deceleration, if I may say, is coming from a base for comparison, not from a weaker data center business. As far as the building piece is concerned because I remind you that, of course, 25% of our sales is growing fast, but we also have 75% of our sales made in buildings. It is pretty flattish. As I said in my introduction with commercial being slightly better than resi, mostly because resi is very down in China and a little bit down in the U.S. But overall, it remains pretty flattish, and we don't expect it to recover in Q4. So to make a long story short, the story of 2025 is going to be a very strong sustained growth in data centers of about 30% and somehow quite a flattish building business with probably non-resi, a little bit better than resi. As far as pricing is concerned, which was your last question, we have a selling price over the first 9 months of the year of plus 1%. And for the full year, we will continue to do a bit of pricing. So for the full year, our pricing should be at about plus 1.5%. So if you look on a quarter-by-quarter basis, you will basically have Q1 pretty flat, Q2 plus 1%, Q3 plus 2%, Q4 plus 4%. This is more or less, let's say, with rounded numbers, the pattern of pricing. So our strategy has been, since the beginning of the year, to do progressive pricing, not too aggressive because, of course, we want to keep our competitive positioning. We are doing it to compensate the impact of tariff. I can share another number, which is interesting. Our purchase price are up by about plus 4% over the first 9 months of the year, entirely due to tariff. Yes, Q4 is -- sorry, plus 3%. Franck is mentioning. So pricing, again, 0 in Q1, plus 1% in Q2, plus 2% in Q3, plus 3% in Q4. And the net of all that, let's say, over 12 months is approximately plus 1.5% over the full year. Does it answer your question, Daniela? Sorry, I was a bit long, but I thought it was interesting to give you as much granularity as possible. Daniela Costa: Perfect -- just on the Q3 data center growth, I got the full year at 50%, but I'm not sure maybe I got lost. Benoît Coquart: Well, it's -- for the first 9 months, it's well above 30%. So it remains above 30% in Q3, and it will be about 30% for the full year. Operator: We will now take the next question from the line of Gael de-Bray from Deutsche Bank. Gael de-Bray: I have a couple of questions, please. The first one on pricing. It appears that the 1.5% price increase for the full year is a bit lower than what you had suggested previously. So do you think the price negotiations have changed versus a couple of quarters ago? I mean, have they become any harder? Or is it still the same environment, especially in the U.S. where data center customers are paying for the speed of delivery? So that's question number one. Benoît Coquart: Well, yes, you are true. When we released our 6 months number, we said that we would be close to 2%. Now we are more, let's say, guiding for 1.5%. The key difference is coming from tariff actually. So it's not that we have more difficulties to pass on price increases. But 3 months back, we told you that the tariff impact on a yearly basis should be somewhere between USD 140 million and USD 180 million on a full year basis. We now believe that it's going to be between $110 million and $130 million. So less negative impact, if I may say, coming from tariff. Well, I'm not sure I have to explain why. It's a very fluid situation. Things are moving almost from one week to another. So total impact, USD 110 million to USD 130 million; of which, let's say, $70 million to $80 million are already in the 9-month numbers. So we still have a bit to come in the last quarter. Hence, less need to do pricing. Now if I take one step back, I can confirm that the pricing environment hasn't changed. Our customers are always looking carefully at the price increases. They want to make good deals, whether in data centers or elsewhere. This hasn't changed. But at the same time, we keep our ability to do a bit of pricing because we have many other topics in which to play. Availability, as you rightly mentioned, reliability of our solutions, quality of our aftersales service and so on and so forth. So no change in pricing environment, but a little bit less impact from tariff. Gael de-Bray: Okay. Understood. And then the second question is on the incremental margin. I'm just curious as to kind of the outlook for incremental margins. I mean, in Q3, the margin was flat. But if revenues are looking better, let's say, in the course of 2026 in the European residential market, can we assume that we will also see much higher incremental margins with support from a better mix? Benoît Coquart: Well, guys, you are becoming greedy. We have a long-term guidance, which is 20%. For the fifth year in a row, we'll be above this guidance because we are shooting for 20.5% to 21% EBIT margin, which we believe is a pretty healthy level of margin. For '26, let's discuss that in February, if you don't mind. What I can confirm during this call is that, as you know, we raised our margin target in July, and we are confirming that we will be between 20.5% and 21%. And by the way, we are right in between over the first 9 months of the year with this 20.7% margin. For the '26 topic, let's discuss that in February. Gael de-Bray: And is there any reason to think that the usual negative margin seasonality in Q4 will not apply? Benoît Coquart: Well, again, you know our targets. So we have a year too margin, which is between 19.9% and 21.8%. If you look at what we did over the past 5 or 6 years, we've done both. So there's no reason to believe why our guidance margin wouldn't be met. So we were comfortable of the fact that we will be between 20.5% and 21%. Now if you want me to give you a bit more color on what happened in 9 months, it's a very, very clear story. As you could see in the numbers, we have a margin which is up 20 bps, right, at 20.7%, with a bit of evolution coming from acquisitions. So without acquisitions, our margin would be up 10%. Well, it would be up -- sorry, not 10%, 10 bps. It would be up 30 bps if we take out the other expenses, as you know, because you know Legrand well, you know that our EBIT margin is after one-off exceptional and so on. So it's plus 30 bps, of which minus 40 bps from gross margin, plus 70 bps from leverage on SG&A, all those numbers being like-for-like. So minus 40 bps gross margin, it's the fact that our pricing is not fully compensating in margin inflation, which was expected and plus 70 bps on SG&A is leverage coming from the growth. So it's a pretty clear-cut story. And I confirm that our P&L is well under control and that we will land where we said we would land. Gael de-Bray: Okay. Do I have time for just one more question. Benoît Coquart: Well, a quick one, Gael, because you have a couple of colleagues that are queuing. Gael de-Bray: Yes. So a very quick one. I mean, Eaton and Schneider have made big moves into liquid cooling recently. And I know you have, well, some kind of an offering here in rear door heat exchangers. I'm just wondering if you can increase the scale of that business so that it can really compete against the likes of Schneider, Eaton and Vertiv? Benoît Coquart: Well, it's increasing fast. And the growth rates are pretty impressive on this business, even though it's a small one. Of course, we are always looking at opportunities to expand our portfolio and to grow faster. So if we find good opportunities for additional customer catch for capacity expansion or even for M&A, why not? Now it is a fact that in this business, specifically this one, the price of the assets have gone up very significantly. And you know that, at Legrand, we are not found of deals where you have a return on invested capital of 2% or 3%. So yes, we will -- so we are growing fast already from a small base. We look at opportunities to expand. But of course, we will do it with our traditional value-accretive approach. And by the way, it's worth mentioning that even though we are less exposed to cooling than Vertiv, overall, those were the numbers I was mentioning a little bit earlier. Over 1 year and 2 years, we are growing as fast as Vertiv. So we don't need to be much bigger in liquid cooling in order to sustain very, very rapid growth. Operator: [Operator Instructions] We will now take the next question from George Featherstone from Barclays. George Featherstone: So I just wanted to start with a bit of a follow-up on the fourth quarter implied guidance. Because given your message on pricing up 3% in the quarter, it sort of implies that you're expecting volumes to come down based on your full year guidance. So what would be the reason for that? That would be the first question, please. Benoît Coquart: Well, it depends where you put yourself in the guidance. If you are in the mid, yes; if you are up, no. Well, again, I don't want to spend too much time on that. It's purely basis for comparison. To give you the numbers, Q4 was up by more than 6% last year. First 9 months were down about 1% last year. So there's a significant basis for comparison, which we highlighted already 3 months back and which we are highlighting again today. No change in trend. I really -- I cannot say it louder than that. No change in trends as far as data center is concerned. No change in trend, neither actually positive nor negative when it comes to the building side. So it's purely basis for comparison. It was factored in our initial guidance back in February. It was factored in our upgraded guidance back in July, and it is factored in the fact that we are confirming the guidance today. George Featherstone: Okay. And then maybe just on the data center business. You've been quite helpful in the past, giving us some color on backlog and visibility you have. Is there any color you can give on that again? And then maybe on the orders for the quarter, just sort of growth rates so we can frame that? Benoît Coquart: No, no, it's a fair question. Well, the KPIs are pretty well positive. We have a book-to-bill in Q3, which is still above 1% -- sorry 1, by 1%. We have a backlog which is above USD 1 billion. So no worries at all when it comes to, let's say, the leading indicator of our data center business. We have a good inflow of orders. We are looking with great interest at all the investments, which have been announced by the big guys and which says a lot about the potential business in '26 and '27. So again, I read a few notes this morning saying that our sales are a bit disappointing, but I want to say clear and loud that we are extremely confident on the fact that we're going to grow nicely of data center business in 2025, again, by about plus 30% and that this trend should continue going into 2026. No worries at all of the fact that this business would slow down. It will not. George Featherstone: Okay. Just maybe if I could just press you a little bit more on that. Some of your peers have talked to order growth in the third quarter of over 65%, 70% year-over-year. And the more exposure you have to white space and areas like cooling, the stronger that number is. Can you give us some context where your orders year-over-year landed relative to those peers? Benoît Coquart: Well, yes, the comparison is a bit difficult from one player to another because either you are on product families where you have shortage, in which case, orders are placed sometimes a year or 2 in advance, right? Or you are on business families where you don't have shortage because the companies have managed to increase capacity in the right pace, in which case, the orders do not need to be placed a year or 2 in advance. So I'm not sure it is relevant to compare the order growth of the company X to the order growth of the company Y. What matter is really the book-to-bill, number one. And at the end, what matters is the actual sales. And again, we've been consistently telling you for 5 years now that our sales growth in data centers were, at worst, comparable to what our peers were releasing and quite often better. And again, looking at what we're going to do in '25 and what we did in '24, this is exactly what we are demonstrating. So there's no worry at all. Again, on the data center front, we have very good inflow of orders from all customers. There's no customers missing, if I may say, from all geographies. It's not solely a U.S. stuff, but we have a good inflow of orders coming in Southeast Asia, in Western Europe, in Eastern Europe, in Africa and so on and so forth. And we are confident on the fact that this business is going to continue to perform very well in the quarters to come. Operator: We will now take the next question from the line of Jonathan Mounsey from BNP Paribas Exane. Jonathan Mounsey: I just want to really understand how the business mix, maybe pricing power ultimately is evolving. I mean, we all know that I think you've delivered price rises every year, at least going back to the '90s. And this pricing power has obviously protected margins in many environments. But I'm just wondering now over the long term going forward, you have 1/4 data centers. It seems to me the business model, the go-to-market is not the traditional construction building go-to-market via distributors selling to electricians. Instead, you're competing for tenders into hyperscalers, et cetera. I'm just wondering what that means for the through-cycle pricing power. It seems to me that while things are great today, and I'm not calling the end to that, at some point when volume growth maybe slows or industry capacity catches up with the growth, is this really altering the through-cycle pricing power of your group to be -- to have an increasing proportion of it dominated by data centers? Benoît Coquart: Well, I don't believe that our pricing power came from the fact that we are selling or building stuff through distributors. The pricing power is coming from the fact that price matters a lot for our customers, contractors, whether big or small, but it's not the #1 criteria. The #1 criteria is, let's say, 3 or 4 first criteria is, are the products reliable? Will I have to come back on site to fix a quality issue? Are the products available very easily? Can I save time when installing the product and so on and so forth. And the same applies to data center customers. I can tell you that the Amazon, Google, Microsoft of the world are very price sensitive. They've always been very price sensitive. But on top of price or even before pricing, they want to make sure to have the product on time. They want to make sure that once the product is installed, things will work because any service interruption is a loss of money. They want to make sure that if there is an issue, somebody will fix it quickly on site within a few hours and so on and so forth. And of course, they want to have all that in a cost competitive way. So in other words, I don't believe that the fact that we are doing 25% of our sales in data center change anything when it comes to our pricing power. And going forward, I'm confident on our ability to pass on small price increases year-on-year, providing, of course, we are doing things well when it comes to product quality, service and so on and so forth. So no, I don't believe it will change anything as far as pricing is concerned. And actually, if you look at the past couple of years, we've not done a lot more pricing nor a lot less pricing in data centers than in building. So the pricing pattern has been more or less similar. Jonathan Mounsey: Okay. Just as a follow-up, thinking about the inherent lumpiness of data centers. I mean we can see that consensus maybe struggle somewhat to forecast the growth rate, at least on a quarterly basis as we see this quarter. I'm just trying to think -- maybe you give us some color on the largest customers and projects. I mean, after all the growth we've seen over the last 12 months, what's the kind of typical mix in terms of hyperscalers, say, or the top 5 projects that you sell into? I mean, do they represent a considerable amount of the data centers exposure? And how fast does that sort of mix evolve? In a couple of quarters, could it look radically different? Just trying to understand what the sales mix looks like on those 2 axes and, therefore, maybe better understand how the sales bridge works for data centers. Do you basically just track data center CapEx? Or is our revenues at least on a quarterly basis, often quite concentrated around, say, a few big projects and customers? Benoît Coquart: Well, we'll give you probably a bit more color in February because, of course, we are performing this kind of analysis, but not necessarily on a quarter-by-quarter basis. Now to be a bit candid, the difficulty to forecast is your difficulty to forecast, not our difficulty to forecast. Because from the very beginning of the year, we highlighted the basis for comparison, number one. And number two, again, I'm saying it clear and loud, and I cannot be clearer and louder, but a plus 30% growth in data center in 2025, following a plus 15% growth in 2024 is very good performance, slightly above the market and completely consistent with what the only other peer releasing its numbers, i.e., Vertiv has announced. Midterm, we are -- we said in July that we expected the market to grow in the low teens. I don't know if it's going to be 10%, 12% or 14% throughout 2030. So we've been very clear on the numbers. We've been very clear on the basis for comparison. Now to be a bit more precise, the performance in the first 9 months of the year is not coming from 1 single customer nor from 1 or 2 big projects that would have been game changers as far as performance is concerned. So it's, of course, pulled a lot by hyperscalers because those are the guys spending the most money, but it's not the only one. Colocation is growing nicely. We are also active on other type of customers. We also have some business going through distributors to data center guys, especially aftermarket or smaller type of data centers. The growth is about the same in the 3 geographies: North America, Europe and Rest of the World. Of course, data centers represented the first 9 months of the year, 40% of our sales in North and Central America. So the total impact on our global performance is much higher in North and Central America than elsewhere. But as far as the growth is concerned, it's pretty the same between the 3 zones. So again, it's nothing special to mention except that the market has been growing nicely, and we will grow by a great plus 30%. And going forward, we expect some growth to continue. And we will try to give you more color in February where we will have more detailed analysis by type of customers and so on and so forth. Operator: We will now take the next question from the line of Alasdair Leslie from Bernstein. Alasdair Leslie: Just a sort of follow-up questions really. Sorry, I don't want to re-litigate this too much, but I know you say no change in data center trends quarter-on-quarter. But can we just kind of definitively rule out any kind of mix impacts in the quarter in terms of project deliveries? I know it's lumpy. So maybe last quarter, we just kind of had a lot of larger orders, just the kind of mix impacts or any capacity issues, capacity constraints, execution issues in Q3? Just so we're absolutely clear, there's no [indiscernible] in trends... Benoît Coquart: You're trying to understand whether there was a problem in Q3 or there will be a problem in Q4 in data center. The answer, again, read on my leaps, if you could. The answer is no. Everything is going very fine. The business is great. We have very strong sales, very strong orders, and we're going to grow 30%. Now you may have included in your model a growth of 40% or 50%, but we've never guided for that. Our previous guidance for data center was 20% to 25%, and we are even upgrading this guidance, telling you that it won't be -- 2025, it will be closer to 30%. So there's nothing specific happening except that, again, I can only remind you the pattern of last year, 0, plus 10%, plus 20%, plus 30% when it comes to our data center sales quarter-by-quarter in 2024. So it's purely entirely basis for comparison. Things are going very nicely in the data center business. Alasdair Leslie: Fantastic. Thanks for confirming that. And I guess just a follow-up question. I think you've got 12 months visibility from your backlog. That obviously stretches now, I guess, across most of 2026. So I guess, are you seeing indications in that pipeline that maybe deployment growth could be even higher in '26 than 2025? Benoît Coquart: Well, be careful. I'm not sure I would call that visibility. Yes, indeed, our backlog is mostly over a year. It doesn't extend much beyond 1 year. Now we've always been very careful in mechanically extrapolating a backlog into sales for many good reasons because backlog orders can be pushed, that can be canceled, they can be doubled down actually. So I wouldn't go as far as extending the backlog -- I mean, mechanically, let's say, converting the backlog into sales. When it comes to our 2026 guidance, both for total sales and for its 2 components, i.e., building and data center, we will do that in February. We are releasing our 9 months numbers. It's a bit too early to give you a guidance for '26. Operator: We will now take the next question from the line of Phil Buller from JPMorgan. Philip Buller: Can I ask why you've chosen not to narrow the range at this point in the year? It sounds like you're very confident about landing above the midpoint of the data center outlook in Q4. You sound very confident about -- it sounds like actually you just upgraded the data center outlook underlying for H2. So I'm struggling to understand what end markets has led you to keep the lower end of the range unchanged? And the follow-up to that is, I know it's a bit early to talk about 2026, of course, I was hoping you could offer your current thoughts on what you're seeing on the EU resi end market and the U.S. office market going forward? Are there signs of green shoots? Or have you seen anything this quarter that has made you more or less positive on the outlook for those 2 key markets? Benoît Coquart: Well, it's not Legrand practice to narrow the range in November, and we still have a quarter to go. We still have 75% of our sales in the building where we have absolutely zero visibility. So we decided to keep the guidance as it is. I'm not sure it would have helped a lot the market to narrow the guidance. So we talk a lot about data center because it's the most exciting piece of the business today. It's growing fast and so on and so forth. But don't forget that on 75% of our business, we have no visibility. As far as the building is concerned, I cannot, of course, comment on '26. I can do the same comment as 3 months back. We see some positive signs. I can give you an example, France, for example. If you look at the building permits in France, there has been a sequential improvement quarter-on-quarter for the past 4 quarters. And if you look at the last 12 months ending September, it's up mid-single digit, which is a good signal, and we like to see that. And it's consistent with the fact that 2025 will be the third year in a row of market going down. Now of course, when will it translate in our sales, this is always the same question mark. We are quite late in the cycle, and we love to see those early signs of improvement, but we prefer, of course, to see them flowing into our P&L. So -- and the same would apply for the commercial building in the market. We see also positive signs. You all have seen, especially you, some iconic building being built and opened in the U.S., which we love to see. Those are signs that the market is not bad and that some investors are starting to come back. But again, those are early signs, not yet flowing into our P&L. As far as guidance on '26 is concerned, of course, we'll discuss that in February when we release our full year numbers. Operator: We will now take the next question from the line of Max Yates from Morgan Stanley. Max Yates: I just wanted to ask around prebuying. And I guess you've continued to talk about prices rising into the fourth quarter. And I guess I just want to understand your sort of level of confidence around whether you have seen in perhaps your kind of non-data center business, any prebuying from your distributors? And to what extent can you actually have good visibility on this? Is it an easy thing to check? Or is it really sort of something qualitatively that you have conversations with your distributors about, particularly in the U.S., obviously, where the price rises are most significant? Benoît Coquart: No, it's quite difficult to measure because we don't have 2 distributors. We have a lot of them. And -- but -- so it's more based on conversations we have with them rather than a solid fully reliable KPI that we would track. Based on our conversation, we don't believe there's been any prebuy. So no prebuy. The reason being that -- or no significant prebuy, let's say. The reason being that it's super complicated to estimate what the impact of the tariff is going to be. See what happened with China, 100% additional tariff, then negotiations, it was canceled. So my feeling is that our distributors are not playing this game of prebuying. All the more as they have the ability to pass on price increases pretty quickly to the market. So I think no significant prebuy. No significant other, let's say, technical impact in 2025. So the number of days is not really playing significantly. We haven't seen any inventory building or destocking from our distributors in a given geography, no significant. So I don't believe that any of those technical factors, if I may say, has played on the performance. Max Yates: Okay. And maybe just a very quick clarification. When you were talking about your data center business for next year, I wasn't sure if I heard you say we're going to grow 30% in 2025. And that is a good expectation for next year in '26. Did I hear you say that or not? Benoît Coquart: No, no. I didn't say that at all. Good that you asked the question. No, I -- so sorry to guys, if I wasn't clear. I said, we grew significantly higher than plus 30% over the first 9 months of the year. We're going to grow 30% in 2025 for the full year. For 2026, we don't know yet, and we will give you a guidance in February 2026. And for the market throughout 2030, we still expect to grow mid-teens. Of course, I'm not guiding for a plus 30% in 2026 in data centers. Good that you asked that question. Operator: We will now take the next question from the line of Ben Uglow from Oxcap. Benedict Uglow: On -- within North America, and obviously, I'm trying to back out the portion of non-data centers. Is it correct to think that your underlying growth rate outside the data center business is year-over-year down mid-single digit or more. And it does look as though that, that's worse than the preceding quarter. I may have gotten the wrong end of the stick and these, day I say, these mini models don't really work. But I did want to understand your take on what the underlying trend, year-over-year growth trend is in the non-data center portion in North America. And if there is a change, is that due to residential or office or what's going on there? Benoît Coquart: Yes. Well, no, actually, if you look at the first 9 months of the year, in North America, the residential is down. The nonresidential is slightly up. And given the relative size of each of the 2, overall, it's probably about flat. Flat plus, if I may say, because we have a bigger exposure to non-resi and resi in the U.S. So -- which implies, of course, that the data center is growing nicely. Benedict Uglow: Yes. I guess my question is, sequentially, is there any divergence -- i.e., between 2Q and 3Q, and I apologize for being unbelievably short term, but is there any change in that trend? Or would you say it's the same? Benoît Coquart: No, it's about the same. No significant change in trend. Now of course, the numbers can slightly change one way or the other, but we're not seeing any significant change in trend between H1 and Q3. Benedict Uglow: Understood. And then my follow-up is just on North America, in terms of the operating margin, could you give us a sort of sense or a flavor of the margins that come into your data center backlog versus what your, let's call it, traditional business has been? How potentially accretive or non-accretive to the divisional margin could that be? Benoît Coquart: Well, I don't want to be too specific on North America or the rest of the -- so let me take this question at the group level. There's no significant difference between our data center business margin and our non-data center business. So of course, let's say, the geography of the profitability could be a bit different. In other words, you can have a lower gross margin, lower SG&A. But the net of that is that we have approximately the same profitability between data center and building. This is at group level. There's no reason to believe that it's different at a geographical level. Operator: We will now take the next question from the line of Eric Lemarie from CIC Market Solutions. Eric Lemarié: I've got a first one on data center in the U.S. and on market shares. Could you tell us if Legrand still hold leadership position in the U.S. in busbar and in PDU for data centers? Or did you observe any change in market shares in data centers? Benoît Coquart: Well, we tend to assess our market shares on a yearly basis more than on a quarterly basis. But yes, I can confirm without any doubt that we are leaders in both busway and PDUs as well as a few other product families actually. So to maybe one step back, our market shares in the product families in which we operate have been pretty healthy. When we look at our growth rate compared to the market growth rate, I can confirm that we are doing pretty well. I don't want to be too specific on a number of product families. But yes, to answer your question, yes, we remain by far leaders in those 2 product families. Eric Lemarié: And maybe if I can follow-up one still on data centers. If I'm not wrong, Legrand doesn't seem to be listed as an NVIDIA partner in the website of NVIDIA. And I was wondering if I was wrong or any thought why actually you are not listed? Benoît Coquart: Well, actually, you have -- a lot of people are releasing press releases about the partnership with NVIDIA. A lot are queuing to apply for being NVIDIA partners. We love NVIDIA. We work very, very well with NVIDIA. But we are maybe -- we have a different commercial approach. So we like partnerships. We like working together. We like developing concepts. We like selling products. We are a bit less obsessed by saying that clear and loud to the market. Operator: We will now take the next question from the line of Benjamin Heelan from Bank of America. Benjamin Heelan: I just wanted to ask a question on pricing again, and thank you for the phasing of pricing through the year. Is there a way to disaggregate how you're seeing pricing in data center and your data center exposure versus the rest of the business? And the reason I ask is because some of the competitors in Europe have talked about deflation in certain parts of the market. And also across the data center infrastructure kind of wider piece, you are seeing some very, very strong pricing trends in certain areas of that. So just interested in terms of how you're seeing your pricing in data center and how we should think about that medium term? Do you have pricing power? Do you think you can see good pricing there medium term? Benoît Coquart: No, we haven't seen anything of specific pricing pressure, neither in Europe nor elsewhere on data center. Again, referring to what I was saying a bit earlier in this call, data center customers are price sensitive, but it hasn't changed. They were already price sensitive a year or 2 back, and they remain price sensitive. But it does not, let's say, hamper our ability to do price increase because, again, price is not the only criteria in the customers' mind. Now be careful because there was huge price increases apparently in some spaces in the U.S., especially in gray space in the U.S. because of a lack of products. Like transformers or stuff like that. So when people were ordering products, it could take as much as a year or 2 before they got delivered. And apparently, a number of players have increased significantly their price. But we are not in a great place in the U.S. As far as our products are concerned, the lead time has always been pretty reasonable, 8 weeks, 10 weeks, 12 weeks. And we've always had a reasonable price increases. And we believe that because we are reasonable and doing it carefully, we believe that we keep our ability to do further price increase in the years to come. So no significant changes in trends when it comes to pricing vis-a-vis neither data center customers nor building customers. Operator: We will now take the final question from the line of Nick Housden from RBC Capital Markets. Nicholas Housden: Just a quick one. I was wondering if you could just give us an update on how your energy transition segment is performing? Any growth rates, regional commentary, some commentary in terms of product lines, just anything, that would be great. Benoît Coquart: Yes. It's indeed a good question because the call has been much focused on data center, but the rest also matters. So as I said, for the first 9 months of the year, apart from data center, our sales are flat, and it means slightly up in the energy transition segment. Slightly down in what we call Essentials, so the traditional product families of Legrand and digital -- and sorry, smart home or digital lifestyle. So energy transition are slightly up. Well, of course, why only slightly up? Well, it's because a lot of those products are exposed to the building market. So when you have the residential market being very down in China, for example, whatever the quality of your products and whatever the strength of your market share, your sales are going down also. So that's what I can tell you, slightly up versus essentials and digital lifestyle, slightly down. Operator: I would like to turn the conference back to Benoît Coquart for closing remarks. Benoît Coquart: Well, thanks a lot for your time. I hope we answered all questions you had. If not, well, Ronan and the financial communication team are at your disposal for further clarification. Thanks a lot. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Ladies and gentlemen, welcome to the Zalando publication of the Q3 Results 2025 Conference Call. I'm Vicky, 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 Patrick Kofler, Director of IR. Please go ahead, sir. Patrick Kofler: Good morning, and welcome to our Q3 2025 earnings call. Today, I'm joined by our co-CEO and Interim CFO, David Schroder. David will kick it off with a business update before he walks you through the financial development of the quarter. Finally, David will discuss our outlook and will be available for questions afterwards. As usual, this call is being recorded. The live webcast as well as the replay of the call will be available on our Investor Relations web page later today. I will now hand it over to David. The floor is yours. David Schröder: Thanks, Patrick. Good morning, everyone, and thank you for joining today's call. We continue to execute on our ecosystem strategy at full force, and the third quarter demonstrates its effectiveness in capturing profitable growth across both of our B2C and B2B segments. Our strong Q3 results incorporate, for the first time, the fully consolidated financial results of ABOUT YOU effective July 11, the closing date of the transaction. Final step of the squeeze-out will -- which implies the delisting of ABOUT YOU will happen very soon. With our continued strong performance in the third quarter, we are well on track to achieve this year's combined guidance and to make further progress towards our midterm targets for 2028. Let me now walk you through the 5 key highlights of the third quarter on Page 2. Number one, we are pleased to report strong financial performance in Q3 2025, demonstrating our resilience in what still is a dynamic geopolitical and macroeconomic landscape. We achieved 6.7% year-on-year pro forma GMV growth, with an even stronger pro forma revenue growth of 7.5%, on top of a strong prior year baseline. Our profitability also remained solid with adjusted EBIT reaching EUR 96 million, slightly surpassing last year's figures despite negative impact from the inclusion of ABOUT YOU. Number two, in B2C, we continue to expand into lifestyle with a key focus on sports this year. Today, we announced an exciting new partnership with the German Football Federation, DFB. I'll come back to these very exciting developments in a moment. Number three, our B2B segment continued its double-digit growth trajectory. We are pleased to highlight several successful large-scale client go-lives and extensions, along with enterprise merchant wins for both ZEOS and SCAYLE. Further details on this will follow shortly. Number four, as already announced, we are equally excited to welcome Anna Dimitrova as new CFO to Zalando. She will officially start on January 1, 2026. Throughout her career, she's been responsible for all aspects of finance, including Capital Markets and Investor Relations. Her experience in fast-moving capital-intensive technology-driven sectors positions her perfectly to support Zalando's ecosystem strategy, and work with our teams to seize the exciting opportunities ahead. And number five, on the back of our strong year-to-date performance, we are confirming our combined guidance for full year 2025, including ABOUT YOU from the 11 July 2025 closing date onwards. Let me now elaborate on the progress of our B2C strategy as detailed on Slide 3. To briefly recap, with our ecosystem strategy, we are extending Zalando's reach and relevance beyond fashion into broader lifestyle areas, playing an even more important role in our customers' lives. This involves creating a distinct and engaging experience that positions us as the go-to destination for sports enthusiasts. Our strategy continues to yield positive results, demonstrated by sustained customer growth and double-digit GMV increases in our sports proposition last year and this year. Furthermore, we are strengthening our commitment to authentically integrate Zalando into sports culture through strategic partnerships. I'm just very excited to announce a significant stride in these efforts today, an extensive partnership with the German Football Federation. Until 2030, Zalando will be a main partner for the men's, women's and youth national teams. The new sponsorship agreement presents an unparalleled opportunity to significantly elevate Zalando standing as a leading football destination. Following the same playbook, we also made significant strides to boost Zalando's awareness and consideration as a running destination. We've entered partnerships with the Rotterdam Marathon, the Copenhagen Half Marathon, and Berlin Marathon, all with the aim of inspiring runners across Europe. Let's now turn to the latest developments in our B2B business. With our B2B business, ZEOS, we are building the operating system for fashion and lifestyle e-commerce in Europe, unlocking and accelerating digital business opportunities for brands and retailers. Building on our unique infrastructure and technology capabilities, we are now scaling and enhancing our offering with a particular focus on logistics and software. Regarding logistics, we already announced our large-scale strategic partnership with British retailer, NEXT, last November. This collaboration has successfully launched in September this year in 21 markets on next.com and additional European marketplace businesses. We are pleased to announce that British retailer, Marks & Spencer, has expanded its collaboration with ZEOS as well. Having already utilized ZEOS for its marketplace business, the partnership now covers fulfillment for the brand's entire Continental European e-commerce business to take full advantage of one single stock pool. With the acquisition of ABOUT YOU, we also complemented our software offering with SCAYLE, a leading enterprise digital commerce platform. This shop system allows us to better support the most important channel of our merchants with their own e-comm. After the initial go-live of the partnership, we are very thrilled to see the go-live of DEICHMANN on SCAYLE shop system in its key market, Germany. DEICHMANN is the market leader in European shoe retailing. We are equally happy to celebrate another key merchant win, namely Netto Marken-Discount, the German discount grocer. This partnership is a great example that SCAYLE is the perfect shop system for implementing modern retail concepts in different verticals, efficiently and at scale. This concludes our key business updates. Let's now take a look at our Q3 financials. In doing so, let me first focus on our group level figures on Page 5. All presented financial figures are as reported figures, including ABOUT YOU's results from the 11 July 2025, closing date onwards. Additionally, GMV and revenue growth are presented on a pro forma basis. For the corresponding prior year period, historical pro forma figures include ABOUT YOU's results from the 11th of July 2024 onward. In Q3, we sustained our profitable growth trajectory. GMV saw a reported growth of 21.6%, while reported revenue grew by 26.5%. This increase was primarily due to the inclusion of ABOUT YOU. Pro forma GMV grew by 6.7% and pro forma revenue increased even more by 7.5%, supported by strong performance of Zalando Marketing Services, ZEOS Fulfillment and SCAYLE, all of which contribute revenues but are not included in our GMV figures. Our focus on driving profitable growth is also reflected in our adjusted EBIT performance. On a reported basis, combined adjusted EBIT including ABOUT YOU, reached EUR 96 million, slightly surpassing last year's figure of EUR 93 million. On profitability, the inclusion of ABOUT YOU acted as a headwind and resulted in an adjusted EBIT margin of 3.2%, 0.7 percentage points below last year's level. Our combined Q3 results once again underscore our consistent progress in achieving profitable top line growth, while simultaneously facilitating investments that cultivate long-term value. Now let's examine the performance of our B2C segment in more detail on Page 6. In Q3, revenue grew by 27.9%, exceeding the GMV growth rate. The strong reported growth was predominantly driven by the inclusion of ABOUT YOU commerce business. Additionally, growth in Zalando B2C was supported by strategic growth investments, such as the Zalando launch in Portugal and the rollout of our upgraded Zalando Plus program. Plus now serves more than 13 million customers. Furthermore, we saw a successful start to the autumn/winter season and particularly strong growth in our lounge, sports and beauty categories. Continued strong growth in Zalando Marketing Services also contributed to B2C revenue growth. Adjusted EBIT declined to EUR 77 million, with the adjusted EBIT margin decreasing to 2.8% due to the inclusion of ABOUT YOU's Commerce business. Before we move on to our customer metrics, I want to briefly highlight something I'm incredibly excited about, the unmatched scale of our total combined customer base following the ABOUT YOU transaction. As you can see on Slide 7, teaming up with ABOUT YOU is a clear testament to our strong position as one of the leading multi-brand fashion and lifestyle groups across Europe. Together, we now serve a combined active customer base of more than 60 million customers. This supreme scale does not only showcase our strong standing in Europe, but further broadens our market reach and provides us with the opportunity to actively influence and shape the European fashion and lifestyle industry hand-in-hand with our more than 7,000 partnering brands. More than 5 million customers already take advantage of both the Zalando and ABOUT YOU platform. They exhibit a significantly higher spending compared to customers that only shop on either Zalando or ABOUT YOU. At the same time, the share of -- the high share of unique customers on both platforms is a clear testament to the appeal of our dual brand strategy, which we are going to leverage going forward to drive growth and to cover an even larger share of the EUR 450 billion European fashion and lifestyle market. Let's now move on to Page 8 and look at the remaining customer metrics of the combined group. With the inclusion, spending per customer held steady at around EUR 300. This was due to the increased spending from customers using both platforms, which compensated for the lower average spend of customers who use the ABOUT YOU platform less frequently. Let's now turn to Page 9 and take a closer look at our B2B segment performance. In Q3 2025, our B2B segment achieved combined revenues of EUR 277 million, marking a 15.6% increase year-over-year. The growth in our B2B segment was primarily fueled by ZEOS Fulfillment, which includes both Zalando Fulfillment Solutions and multichannel fulfillment. Additionally, the inclusion of SCAYLE supported revenue growth. Adjusted EBIT for the B2B segment reached EUR 20 million. The adjusted EBIT margin saw a strong increase of 4.3 percentage points, reaching 7.1%. This improvement was driven by efficiency gains in ZEOS Fulfillment and the inclusion of SCAYLE. Let's now move on to the group P&L on Page 10 and focus on the Q3 performance on the right-hand side of the table. With the change in reporting scope to include ABOUT YOU, all cost lines and the adjusted EBIT margin have been impacted. Group gross margin decreased year-over-year by 1.1 percentage point to 39.6%. More details to follow on the next slide in a moment. Fulfillment costs increased by 0.6 percentage points to 24.3% of revenue, and marketing costs rose to 9.3% of revenues, both primarily due to the consolidation of ABOUT YOU. Meanwhile, the consolidation positively affected admin costs, which improved by 0.6 percentage points. Overall, we delivered a lower adjusted EBIT margin of 3.2%. Now let's examine the gross profit development in more detail on Page 11. Our Q3 group gross profit was impacted by 3 main factors: factor number one, Zalando B2C negatively impacted the group gross margin by 0.7 percentage points. We saw negative impacts from active customer participation in commercial events, strong growth in our lounge business coming with a structurally lower gross margin and the planned revenue deferrals from our updated loyalty scheme. At the same time, we benefited from positive contributions of our partner business, including Zalando Marketing Services. Factor number two, the revenue contribution from ABOUT YOU's commerce business, which currently operates with lower gross margins and a lower partner business share, negatively impacted the group gross margin by 0.6 percentage points. And factor number three, B2B revenues positively impacted group gross margin by 0.2 percentage points. This was due to efficiency gains in ZEOS Fulfillment and the inclusion of SCAYLE as a high gross margin software business, both of which positively affected B2B gross margins. Looking ahead, we remain fully committed to our midterm group level gross margin target of around 40% by 2028. Turning now to Slide 12 for net working capital. Our net working capital continues to be negative in Q3 at minus EUR 141 million. Compared to last year, we see an increase of more than EUR 100 million. Inventories were higher, predominantly reflecting the inclusion of ABOUT YOU. Let's now take a look at Slide 13. As of the close of the first 9 months of 2025, our cash and cash equivalents stood strong at EUR 1.3 billion. This figure represents a decrease of EUR 1.3 billion from the EUR 2.6 billion recorded at the end of last year, primarily due to the paydown of convertible bonds and the consideration transferred for the ABOUT YOU acquisition. This concludes the financial performance review. Let's now move on to the outlook on Page 14. Today's strong Q3 results confirm that we are fully on track to achieve our combined guidance for the financial year 2025, as provided in August. Based on current trading and looking ahead at Cyber and Christmas peaks on the horizon, we anticipate a strong finish to the year, with mid-single-digit pro forma GMV growth in Q4. As a team, we are fully focused now on providing our customers with great experiences, and our partners with top-notch service during the upcoming peak season. For the upcoming year, our ambition remains clear. We will continue to deliver on our ecosystem strategy, accelerate growth and increase profit across both our B2C and B2B segments, fully in line with our midterm guidance. This will be supported by both accelerated growth of our platform business in B2C and further scaling of B2B, delivery of cost synergies enabled through the combination of Zalando and ABOUT YOU as well as continued cost efficiency measures. This concludes our presentation for today. Let's now open for Q&A. Operator: [Operator Instructions] First question from Adam Cochrane, Deutsche Bank. Adam Cochrane: The first question I got is on the basket size that you've reported, you've got the combined number. How has the sort of basket size progressed over the period? I know that as you're gaining new customers, they generally come in at a slightly lower average basket size. Is it possible to give us any sort of view on how the existing customer base basket size is evolving? And then obviously, you've got the new customers coming in. And then you've got the acquisition of ABOUT YOU as well. It's quite hard to get a picture of what's going on within the basket size. And then secondly, in terms of the B2B business, how is it evolving without the benefit of SCAYLE? And within SCAYLE, would you guys give any view on -- you've dropped in a few names there of clients. How much EBIT do these clients generate from the SCAYLE operation? Just so we get a flavor for talking about Netto as an example or DEICHMANN. I don't want them exactly, but how much EBIT do these clients generate for the group? David Schröder: Adam, thanks for your questions. I mean, looking at basket size development, I think the most important thing to understand, and as we've explained when we released our strategy, is that our key goal is really to increase GMV spend per customer, right? So our key focus is on the wallet of customers rather than the basket size of each individual purchase because ultimately, that's what we need to drive to drive customer lifetime value and to also obviously drive value of the business. That being said, obviously, we have taken measures over the past years, as you know, to improve our order economics also on individual orders, and that has led to an increase in average basket size actually both on Zalando and ABOUT YOU. And yes, that's also a trend that we actually expect to continue in the future. But as you know, what we are even more focused on at the moment, is to drive more frequency, frequency of engagement through our inspiration and entertainment efforts, but also frequency of shopping, especially through our loyalty program, Zalando Plus. And then on your second question regarding developments in B2B. I think I'm happy to confirm that even without including SCAYLE, our B2B business looks very strong, continues its double-digit growth trajectory that we've also talked about earlier this year, predominantly driven by ZEOS Fulfillment. And as we've also commented already in the presentation, the margin also without SCAYLE is up year-over-year in that business. And SCAYLE is contributing obviously even more revenue growth due to the first time inclusion on an as reported basis and then also obviously supports the margin due to the strong software gross margins, which then also leads me to the second point that you asked for. So if we look at SCAYLE specifically, obviously, it's a high gross margin software business, meaning that we -- if we add meaningful revenue which, in the case of large enterprise merchants can be right in the millions. There's also a strong drop-through of that revenue on to the bottom line. Operator: The next question is from William Woods, Bernstein. William Woods: The first one is just on, obviously, you're engaging in kind of more sponsorships with the German Football Association, et cetera. Do you think that this will become a larger portion of the business? And do you think the marketing spend might have to come up over the next couple of years? And the second one is similar to Adam's question, just on the active customer growth. Can you give some color on who you're acquiring either by gender, age category? And are you seeing similar retention rates? And then where do you think there's further room to go in terms of acquiring customers? David Schröder: Sure. Yes. So maybe taking a step back on sports in general, right? I mean, as you know, we -- as one pillar of our B2C strategy, we are definitely keen on expanding more into lifestyle areas beyond fashion. We see this as a key way to drive share of wallet and GMV per customer, as I also just explained on Adam's question. And especially the sports business is appealing there, right? Because sports, in a way, very nicely brings together style, culture and obviously, also performance. And we see that there's generally a high interest from our customers in that category, and that's why we also enjoyed significantly double-digit growth last year and also seeing strong growth this year. And for us, the sponsorships are now really an opportunity to, yes, further step up our game in sports and further raise awareness and consideration with customers to continue to grow that category very strongly. In terms of the implication that has on our marketing spend, I think what we rather see it as a reallocation of marketing spend within the marketing budget, so we don't intend to increase our marketing spend on a relative basis. I guess we've always said, over time, we rather aim to take it down in relative terms over time, and that is still very much true today. For us, it rather means, yes, we refocused some of our marketing spend on these big partnerships because we think they are an interesting new way to engage with customers, especially when it comes to these exciting new lifestyle propositions. And we've seen it work very well with the running sponsorships that we've done this year. So as we talked about in the presentation, several partnerships with key marathon events. And in the running category, we've seen even higher growth rates than in sports overall. So I think we have strong proof points that exactly this strategy is working, and we're now using the same playbook for football. Also ahead, obviously, of the large-scale events coming up next year with the World Cup in the U.S., Canada and Mexico. And then second question on active customer growth. I mean, we are very happy actually at both Zalando and ABOUT YOU to see this strong active customer growth continue. I think it shows us that we are far from reaching maturity levels anytime soon. I mean as we've talked about multiple times, the market is huge. Our market share, even combined, is still very small. And we continue to attract customers across all our markets, really, right? So even in more mature regions like DACH, still looking strong on new customer acquisition. It's also broad-based across age groups, across also the different propositions, which also provide us with a new angle obviously, to attract customers, right? So some customers now are also coming to us because of beauty, because of sports, because of kids, right? And I think that is very much explaining the strong traction that we are seeing on the active customer side. Operator: The next question from Georgina Johanan, JPMorgan. Georgina Johanan: I've got 2, please. The first one was just on the synergy guidance of EUR 100 million, I think. Just any updated thoughts on that from the early work that you've been able to do? And then secondly, I think just following on from, I think, Adam's question on SCAYLE, I think I'm right in saying that ABOUT YOU's guidance historically was for about EUR 25 million or so of EBITDA for their fiscal '25 from that business. It would just be really helpful even if it was on a one-off basis to understand the sort of level of depreciation that was going through SCAYLE, just so we could get a sense of that EBIT contribution, please? And then just sticking with SCAYLE, I know ABOUT YOU has talked about the potential for U.S. client wins. So just wanted to understand if that was something that you were still targeting under your ownership, please. David Schröder: Sure, Georgina. So on synergy guidance, I think nothing has changed since the last update. If anything, I guess, we are becoming more and more confident with every day that we are working together, that we'll be able to deliver on the synergies that we promised and might even find new ones along the way. I think one thing to still keep in mind, we already mentioned that several times in the past, is that the largest amount of synergies is obviously backloaded. So we'll mainly then hedge the outer years, 2028, 2029. But obviously, we are working hard to enable those synergies already with the actions that we are taking today and also next year. But yes, we'll be happy to provide further updates as we move along, most likely already then with our full year results in March next year. On SCAYLE, I think I'm afraid that I can't help you out on the specific details. You asked for what I can confirm, however, is that the strong gross margin and also EBIT contribution that SCAYLE has talked about in the past. It's also something that is obviously now driving our B2B business forward. As you can imagine, we've now reporting on a combined basis, we are also taking the same approach to capitalization that we are taking for Zalando overall. So no difference here in the treatment going forward. And with regards to the U.S. opportunity, indeed, this is potentially one of the biggest opportunities for additional SCAYLE momentum in the future. As you know and have seen, the momentum is very strong in Europe already. But obviously, the total addressable market could be significantly expanded if we gain a foothold in the U.S. And so it's a key priority for us as a group and for the SCAYLE team in particular. I'm definitely happy to report that there are several key discussions in, yes, what I would call close to final stages. So I would say, stay tuned for further updates to come in that regard. Operator: The next question from Sarah Roberts, Barclays. Sarah Roberts: Two from me, please. Firstly, digging into the B2C Zalando gross margin moving parts a little bit more. Could you walk us through the key moving parts of the B2C gross margin? We know there's some impact from partner program and ZMS, some headwinds from loyalty, but can you quantify these? And then how much of the pressure on gross margins reflect a more price-sensitive or promotional consumer? And then secondly, the M&S partnership for ZEOS looks like a strong win. Could you share a little bit more color on its potential contribution to B2B revenues? And give us a sense of when we might start to see those revenues coming through for B2B? David Schröder: Yes. So on B2C gross margin, I mean, the overall impact is something that you see very transparently, I guess, in the bridge that we provided. In terms of the quantitative impact of the different factors influencing, especially the Zalando B2C gross margin, I think I'm definitely happy to tell you how they rank, right, in terms of how much they influence the picture. The biggest impact definitely comes from the commercial activations that were very successful across our destinations in Q3, considering also that, that is seasonally a quarter very much driven by commercial activations with end of season sales, for example. Yes, second largest impact then came from the lounge business, showing very strong traction and I think also allowing us to have a strong offer for value-focused and value-conscious consumers in the current market environment. I think that's the key strength of the group that we can also cater to these needs, whereas our main destination, as you know, is more geared towards quality full price. And then the smallest impact, but that's one we already flagged to you same time last year, essentially came from the continued rollout -- successful rollout of the loyalty program, which saw a 30% increase in active memberships quarter-over-quarter. And then obviously, it's also reflected in our gross margin on the B2C level. These are the negative ones. I guess, on the positive side, obviously, we did -- as we commented, we did benefit from the higher gross margin of our partner business, especially also the continued double-digit growth of our Zalando Marketing Services. And yes, then coming to your question on the Marks & Spencer partnership, I mean, I'm personally super happy actually to see that after this landmark deal with NEXT, we are now seeing also strong interest from other brands and retailers to go for a similar setup, essentially trust us, not with just a part of their business, but go all in with the ZEOS solution, especially to leverage its full advantages across Continental Europe, where I would say our network is really one of a kind in fashion and lifestyle, and also is able to deliver superior performance in terms of customer service and cost efficiency at the same time. I think the deal here is further testament to that. And as you can imagine, we are also talking to some other clients for similar moves. And yes, we'll see that impact come through next year. As usual, there's a bit of integration and onboarding work that needs to happen, has also happened with NEXT, but as you can imagine, the more we do these kinds of rollouts, the better we get, the faster we get and the faster we can also scale our B2B business going forward. And so we expect it to also contribute to our growth acceleration next year. Operator: The next question from Frederick Wild, Jefferies. Frederick Wild: I'm afraid, I've got 3. So first of all, could you give us a bit more detail about current trading? Particularly, was it consistent across October and any trends there? Second, is the gross margin year-on-year move in Q3 a good guide for Q4? Because I was looking at the fact that ABOUT YOU seems to have structurally lower margins in Q3, so should we see some recovery in year-on-year gross margin in Q4? And then finally, I'd like to understand, please, what the partner program GMV mix was in the quarter, both for the combined group and for Zalando stand-alone? David Schröder: Sure. Yes. I mean on current trading, I think we see ourselves very much on track to hit our full year guidance. As we said, we expect, on a pro forma business -- basis, sorry, mid-single-digit growth in Q4. And that is very much supported by what we've seen so far. So we're not betting like on an acceleration in the -- what you could call second half of the quarter, but it's very much what we've also seen so far, and basically expecting that to continue throughout the remainder of the quarter. Now gross margin-wise, I think Q3 definitely can serve as a good indication for Q4 in the sense of the effects that we just talked about, right? The impact from the inclusion of ABOUT YOU, the impact from commercial activations, impact of a fast-growing launch, impact of loyalty program, accounting effects. I think all these are very much going to persist in Q4. And that's why I think that gives you a good indication for what to expect also next quarter. And then last but not least, I think looking at partner program performance in terms of GMV growth, we saw both retail and partner business grow almost equally strong in the third quarter. And so that also then implies that there's no bigger change in mix on the Zalando side. Keep in mind, obviously, that the partner share on the ABOUT YOU side is significantly smaller, but it's also accelerating as they are now driving the platform transition to a true marketplace model on the ABOUT YOU side. Operator: The next question is from Yashraj Rajani, UBS. Yashraj Rajani: I've got 2, please. So the first one is, how does your role as an aggregator change with the advent of Agentic AI, please? Like what are you doing to ensure that you are a beneficiary of AI traffic rather than being adversely impacted by agents directing customers to brand websites rather than your website? So that's the first one. The second one is -- you made a comment that you are far from maturity and still growing. Appreciate it's still quite early to comment on next year, but does that comment mean that you can potentially accelerate GMV growth next year? Or do you think that at this point, it's better to be conservative and potentially a mid-single-digit GMV growth for next year is a reasonable place to be, which is where consensus is? David Schröder: Sure, yes. Thanks for your questions. I mean, on agentic -- and I think that's very much in line with how you've seen Zalando act in the past, right? So when we see shifts in the industry, be it early on the shift from web to mobile, then later, obviously, also seeing other shifts in the industry towards more inspirational formats and so on, I think we've always had the ambition to lead that change and to also leverage these shifts as an opportunity to strengthen our business, to accelerate our growth and to, yes, obviously, also grow our share. And we think the same way about agentic, and that's also why we decided to really act early. You've seen that happen for example, through our targeted efforts to develop our very own Zalando system, which is an agentic interface on our own premises. We've, yes, I think learned a lot. We've also managed to roll it out and scale it over time. And we're obviously, looking at other use cases as well, I think especially important to consider that, yes, the opportunity in the end is also huge on the B2B side of the business as many brands and retailers are asking themselves these questions, how to grow their business and continue to engage with customers in an agentic environment, and I think SCAYLE can also obviously play a key role in enabling them for that future. And that's why, yes, we continue to embrace that opportunity and make sure that once again, similar to the shifts in the past, we come out strong and use it as a way to further strengthen our position in the industry without being naive, of course, right? So we also know there are potentially areas of this development that we need to have a careful eye on. But yes, I think the key focus is really on the opportunity that it creates for us. Regarding next year, and as also stressed during my outlook presentation, I think, yes, indeed, we are aiming to accelerate growth further next year. And so I think that's something you should expect from us. We definitely expect it from us, going forward, in line with really the midterm guidance that we have provided to you a while ago. Operator: The next question from Richard Chamberlain, RBC. Richard Chamberlain: Two also for me, please. I just had, first of all, a question about inventory. How are you feeling about the composition of your inventory at the moment? How fresh is the inventory overall? And then the second one is on the midterm gross margin target of 40%. Can you just remind me what the key drivers you think are for improvement to get to that level? Will that come from more buying and procurement? Or will that come more from improved full-price sales? David Schröder: Sure. So on inventory, I think we feel very good about our inventory position. I think it has enabled us to also have the right offer for customers. It has enabled a strong season start already in September and now continued good trading in the months thereafter. I think it's really important to realize, I made that comment earlier that the quantitative impact you see us report is mainly due to the inclusion of ABOUT YOU, right? And so if you -- yes, if you would essentially consider that impact and the remaining increase on the Zalando side is comparatively small and hence, very much in line also with the growth rates that we are driving at the moment. Now on the gross margin outlook. We are very much focused on gross margin, as you know, and we also are very committed to achieving the around 40% that we guided towards for 2028 as part of our midterm guidance. And the building blocks really remain the same, right? So on the B2C side, we see further opportunity to increase the retail margin, more full price sell-through. Also, obviously, thanks to economies of scale, better cost of goods and so on. I think the other key part, obviously, is that as we continue to increase the platform part of our business or the partner business and especially also Zalando Marketing Services, we add a lot of high gross margin revenue, which will also contribute to an increasing B2C gross profit margin over time. And then what obviously also contributes to the 40% outlook is the B2B business, which is growing strongly, but which comes with a structurally lower gross margin, though that obviously does not mean that it comes with a structurally lower adjusted EBIT margin, right? So on adjusted EBIT, as we've seen this quarter, actually B2B can be a very strong contributor and will definitely also be going forward. But yes, gross margin, especially on the logistics revenues, is obviously lower than on the retail side. Operator: The next question from Clement Genelot, Stifel. Clement Genelot: Only one from my side. So just as a follow-up on the agentic, as we have -- well I recently seen the multiplication of partnerships in the U.S. between OpenAI and online platforms. On your side, would you be open to the idea of striking similar partnership with OpenAI or other AI chatbots in Europe? David Schröder: Yes, definitely. I mean, I think we've been successful in the past when driving innovation with a combination of in-house efforts and then also partnerships. I think our -- the very initial development, for example, of our Zalando Assistant, also came about by leveraging OpenAI technology. But I think important for us as part of our strategy, and that's also what I meant earlier with we don't want to be naive, right, is that while we like these partnerships, we don't put all our eggs in one basket. So the approach we are generally taking is to be model agnostic. It's hard to say who will win in the end, right, and what model will be best for which use case. And therefore, we continue to experiment with different models, and we also build our tech stacks in a way that we can easily exchange models depending on who performs best at a given point in time. But I think, yes, this general approach of co-innovation with strong partners is one we will continue to leverage going forward. Operator: Next question from Mia Strauss, BNP Paribas. Mia Strauss: And maybe just -- I think you've talked about the commercial environment a bit. But how would you characterize the promotional environment at the moment before even heading into the key trading events? And then just secondly, can you just remind us of what is your marketing strategy on social media? So I think the point was touched on about redirecting to brands websites, but how do you bridge the gap to be redirected to Zalando's platform? David Schröder: Sure Mia. So in terms of the promotional environment, I think we've basically seen a continuation of what we already saw in the past quarters. No surprise, right, given the continued rather muted macro environment also in some of the key countries in Europe, for example, Germany consumers, in general, I would say, remain a bit more price conscious and value seeking. That's why we see strong responses to our commercial activations. That's also why, especially our lounge business is performing particularly well. And yes, obviously, we are taking that into account when we optimize our go-to-market strategies for the current environment. But for me, that's more tactics, right, where, obviously, we need to make sure that we always stay relevant for consumers and fulfill their needs in pursuit of long-term customer value accumulation. What it does mean is that we change on our general strategic direction, right? So we continue to see our role in the industry as a role that supports brands that also drives quality and is not overly focused on price. Now coming to your second question on engaging customers on social media. Obviously, we are very active on social channels, and it's also an important part of our content strategy, not just in terms of customer acquisition, but also -- yes, sometimes the first steps of an inspiration journey, obviously, start on social media. We do a lot on our own, but we also do joint campaigns with key partners through ZMS. However, I think it's important to understand that our primary goal is really to engage customers on our own premises. And that's why we typically construct these campaigns in a way where, yes, you might see your first hook on a social media app, but then we aim to move customers into a funnel where they then continue their inspiration journey on Zalando. And I think that's especially where new innovations like our Zalando feed experience, which we talked about in our half year report, in which we've now rolled out to a number of countries successfully, where these innovations can also help us further drive user engagement because they allow a much more immersive, much more content-rich experience than what we were able to offer before. And I think it also really blurs the lines a bit between the inspiration you can get on social media and what you see on Zalando. And yes, the first reactions from customers in terms of how much engagement they show in each visit, but also in terms of frequency of visits are very promising. And that's why we will continue on that path. So essentially considering ourselves our own best marketing platform, while obviously working also with social media outlets going forward. Operator: The next question is from Anne Critchlow, Berenberg. Anne Critchlow: I've got 2 questions, please. The first one is in terms of the seasonal promotions and commercial activations. Just wondering if there's been any shift from Q4 into Q3 this year in terms of the weighting? And also whether you think there's been a shift to the start of the autumn/winter season, particularly in the DACH region from Q3 into Q4, maybe from a weather perspective? And then the second one, please. Just in terms of the virtual fitting room, whether you're getting any different results, any developments there? Any other initiatives on size and fit? And also, if you could talk a little bit about the differences between the return rate between that Zalando and ABOUT YOU. David Schröder: Sure. I mean in terms of seasonal development, I think everything that we've seen so far points to a very normal seasonal pattern. Had a good start to the season, but also then the usual, I would say, timing and also performance of mid-season sale. And that's also why we expect similar trends to continue throughout the upcoming peaks. So nothing unusual, I would say, very much in line with what we've seen in the past. And then in terms of size and fit, it remains a key strategic topic for us, predominantly also because we think it differentiates us from other platforms to provide our customers with superior size and fit advice. We've seen very good responses in the past. And that's why we're doubling down on these investments. Virtual fitting room, I think, is working well. I think the key task here for us is to scale it to more products over time because it's really, yes, much harder to scale in a way than the pure data-driven size advice that we already offer for the bulk of our products. You need much more information about each single product than you need if you just try to match a size with a customer, but we are confident that, that will unlock the next level of size advice to improve the customer experience and to also further reduce size-related returns. When we look at return rates overall, and I think that's also to be expected given that we sell largely similar items on ABOUT YOU and Zalando. After all, if you look at same geo and similar items, I think the return rate is really not so different between the 2 platforms. Operator: The last question comes from Vandita Sood, Citi. Vandita Sood Chowdhary: I just have 2 quick ones. Firstly, could you give us an update on how the integration with ABOUT YOU is evolving and if you are expecting any sort of changes to the synergies that you guided to before, basically not being too significant this year? And also if there's any seasonality between the third quarter and the fourth quarter in that? And then secondly, I saw that you're now buying back some shares just for the employee program. Just wondered how you think about the timing of when you do these and how we should model it? David Schröder: Sure, Vandita. Thanks for your questions. I mean, on ABOUT YOU, as I said earlier, I think everything is working super well so far. Both teams are excited to team up. I think we've seen very good traction on now also executing against our ambitious plans to drive value strategically and financially, and so we are very confident to achieve the synergies we outlined to you in our half year call also with the ramp-up over the next few years. Obviously, much more impact to come in later years due to the nature of the synergies. And yes, as I also said earlier, I definitely see an opportunity to also identify additional sources of value creation over time, be it in the stand-alone business ABOUT YOU or also through synergies between our activities in B2C and B2B. So no changes. I think just more certainty and confidence that we'll deliver on what we shared. And then on the share buyback, I think that is really to be seen in light of what we also did in the past, right? So very regular procedure, a very similar amount as well, up to EUR 100 million to fund our existing share-based compensation programs. We expect these shares to be bought over the course of the fourth quarter. And as usual, you will also see the reporting of the share buyback on our website. Operator: This was the last question. I would like to turn the conference back over to you, gentlemen, for any closing remarks. David Schröder: Sure. Thank you very much. So yes, great questions, great discussion. Thanks for your interest, as always. Let me take this opportunity to wrap up with the key takeaways of today. As you can see, our ecosystem strategy and the integration of ABOUT YOU are progressing very well. In the first 9 months of 2025, we delivered strong growth and increased profitability, and we are fully on track to deliver on our combined guidance for 2025 and also on our midterm guidance beyond. So thanks, everyone, for joining today's call. Have a nice day. Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.
Kurt Levens: Good morning, and welcome to the REC Silicon Third Quarter 2025 Results Presentation. My name is Kurt Levens. I'm the CEO; and with me is Jack Yun, our CFO. Today, we're going to give our usual highlights and updates as well as a financial review and then spend a few slides on our strategic direction as well as summarizing where we're at right now. Our restructuring efforts continue, and we will have an approximate 10% reduction in force in Q4 of this year. Our Moses Lake optionality costs are starting to stabilize near a lower run rate level. There are some incremental reductions that will continue, and we expect it to continue to lower quarter-over-quarter for the foreseeable future. There are still more opportunities in Butte for reduction in terms of our cost structure, and we are continuing to identify and actualize on those projects. Our markets are mixed right now, aggressive China supply in some segments and delays across new end user capacity continue. We finalized additional loans from Hanwha International and continue discussions on further short- and long-term financing options. Trade actions are still creating uncertainty as well as shifts in some of our silane gas markets. And in the quarter, the mandatory offer for shares was completed with Anchor AS assuming 60.2% ownership in REC Silicon. We're still operating in the range that we had indicated last time, and we expect Q4 to be similar from a volume perspective to potentially marginally better. There is some pickup in our non-silane silicon gases, primarily driven by our DCS, MCS offerings and the markets that they serve. PV outside of China continues to remain weak. PV cell production outside of China continues to remain weak. And utilization is low and new projects are being pushed out. Our EBITDA was negative $7.2 million. This is primarily driven by weak sales. In our Butte segment, our costs were mainly improved over the prior quarter as a result of the activities in the prior quarter being dominated by shutdown -- planned shutdown activities. Increase in silicon gas price is attributable to product mix, more higher value products relative to previous quarter and as a percent of our mix. And as I said before, in additional to the planned maintenance items, our input costs were also stable to declining for our Butte facility. Our cash balance at the end of the quarter was $10 million. Our cash flow increase was entirely driven by our borrowing proceeds. I think the important thing to note here is the amount of debt maturing in '26. We have begun discussions with entities regarding this, and we'll have more information as we go forward. Additionally, subsequent to the end of the quarter or since towards the end of the quarter, we secured a $7 million short-term loan with Anchor AS. So I think over the past year, we've had a large amount of challenges as a company. And I think that I've tried to keep us focused on the here and the now. We've talked a lot about opportunities, but I think our reality needs to still remain in how do we get from where we are now to the future state in small interval increments. Meaning what do we do this month? What do we do next month? What do we do the next quarter, for us to be able to get to that other side. Our reality is that we're in a very challenging situation. We have market softness, delays in key projects that we've been waiting on. We have aggressive competition, and we have policy turbulence. None of these things are things that we can control. But what we can control is how we respond and the amount of time we take to respond to these changing situations. We will continue to look for the correct way to respond to the changing situations while focusing on preserving our positions, increasing market share where we can and being there when these projects come into place and begin to operate. We've been working constantly towards a sustainable financial platform. Here's the -- we've said it in a number of different disclosures and a number of different times. And I want to say it again. We do not have sufficient cash to meet our debt service and other operating cash flow requirements for the coming year, even with the aggressive moves we've made in cost control and also increasing our focus on sales. We are going to continue to require additional financing beyond our existing facilities from Hanwha or from other sources of capital. We continue to discuss additional financing with Hanwha as well as evaluating a more comprehensive restructuring of our $420 million of term loans that mature next year. So this is a very serious situation for us, and it's one that we are -- along with the previous slide where I show the actions that we're taking that we're very focused on. As I mentioned in the overview, the completion of the mandatory offer was done and settled on 29 August 2025, with Anchor AS receiving a total shareholding of 60.2% in REC Silicon. During the quarter, the request for investigation process was dismissed by Norwegian District Court. And in the U.S., REC Silicon is complying with the court process for the subpoena. I want to reiterate again that in the U.S., what we are doing is responding to a subpoena for information. So in summary, we have markets that are affected by aggressive competition. We have trade policy uncertainties. We have demand that's being pushed out and delays in some of our key growth drivers. We've been very focused on cost discipline as well as trying to restructure our organization to make decision-making and actions more streamlined. In Q4, we think that we will once again be in somewhere in the same range as we have been here for the past few quarters, potentially slightly better. Our priority continues to look at how do we secure short- to midterm funding for our operations, how do we monetize noncore assets? And how do we continue to look at additional financing as well as more comprehensive restructuring. Thank you. And that concludes the presentation part of our results, and I'll take some questions. Unknown Executive: Okay. Moving on to questions that are being submitted. What noncore assets have been sold? And what future noncore assets are you looking to sell? And is there an approximate value associated with this? Kurt Levens: The noncore assets that we have sold are mainly minor property items that are no longer going to be needed for, or excessive inventory that are no longer going to be needed for operations, equipment, various other things. However, the majority of it is coming in our contemplated land disposal. We're not -- currently, we're involved in private discussions, and we're not currently disclosing what the value may be of any contemplated transaction. Unknown Executive: Are there any players that are currently delivering a commercial quantities of silane for silicon anode battery? Kurt Levens: At this time, outside of China, there is nobody who's delivering commercial quantities. All of the capacity outside of China is still being delivered to either started up -- being in the process of being started up or being delivered in -- to the pilot plants. Unknown Executive: Are you working with creating value from unused power access that you have in Moses Lake and Butte, as an example, by entering into an agreement with stakeholders with the silicon anode industry or data center industry? Kurt Levens: I'll just make it -- without going into specifics, I'll make a general comment that we are looking to leverage, again, both our land as well as access to any rights we might have or capacities we may have for any of our -- whether that's power or natural gas rights, whatever it may be. If we have it, we are naturally open to discussions, particularly with companies that would potentially want to be an offtaker of any of our materials. Unknown Executive: If data centers open near the Butte facility, how do you anticipate that will affect the electricity pricing in Butte? Kurt Levens: If it's the Moses Lake facility, is that -- did I hear that correctly? Unknown Executive: No, this question is stating there's -- data centers are considering building in the Butte area. Kurt Levens: Yes. I would imagine that we can expect that there could be some pressure on electricity prices, but we don't know that. What we have seen in general is that electricity prices in that particular region have been much more stable over the past year, particularly once we took off a large load. I think that, that our impression would be the market signal is such that it eased some of the pressure in the supply-demand picture there. But it's a market. So I don't know. I can only say that if there's going to be more consumers and there's no more production assets, then something is going to give at some point. But fortunately, I want to point out that on silane, electricity is a very small part of our cost stack. Unknown Executive: Is there any plan to sell either Butte facility or the Moses Lake facility or enter into any kind of mergers or joint venture agreements? Kurt Levens: At this time, we are not contemplating sale of any of our core operating assets or assets that we have set up in order to maintain optionality. As far as joint ventures or potential other agreements, there is nothing -- obviously, if we had something that we were in the middle of, we wouldn't necessarily disclose that until it is done. All I will say is that we are obviously open to any ideas which have the potential to create value for all of our shareholders. But an idea and a discussion is one thing, actualizing is an entirely different thing. Unknown Executive: Can you give an update on ongoing negotiations -- supply negotiations with battery anode manufacturers? Kurt Levens: All I can say is that we continue to have discussions with battery manufacturers. Say that to date, I would characterize it as the fact that they have some delays on their ends regarding their own challenges in the market space or their technologies or whatever it may be. So those are taking obviously longer. But outside of that, I'm not going to comment on specific negotiations with specific anode producers. Unknown Executive: There's been a large parcel of land in Moses Lake that's been on the market for a number of months. Is this area likely to be sold before the end of the year? Kurt Levens: A large parcel of land on the market for -- is this specific to REC Silicon or... Unknown Executive: Well, it says you have a large parcel of land... Kurt Levens: So as we stated, on the noncore assets that we're looking to dispose of is some land that we had procured for future expansion. And we are involved in discussions. I think that when we have more information as to that coming to fruition, we will disclose that. Unknown Executive: Have you heard or do you plan to sell the FBR reactors in Moses Lake? Kurt Levens: At this time, we have no plan to sell the FBR reactors in Moses Lake. I will say that if and when there's ever opportunities to somehow monetize on that, something with that, then we would probably discuss it and then that would be another opportunity. But nothing as of now. Unknown Executive: Do you have any plans to hold future presentations in Oslo? Kurt Levens: At this time, the next presentation that's contemplated is in February of 2026. And they have not made any decisions as to whether that will be in person or whether we will do it via the web. Unknown Executive: And others -- there's one more question here. You answered concerning the FBR reactors themselves. How about the patents related to the FBR reactors? Kurt Levens: Yes. I think we have stated that if there's opportunities to monetize, then, of course, we are open to discussing. Unknown Executive: That covers all the questions that have been submitted. Kurt Levens: Okay. All right. Well, thank you for your participation and questions, and we will see you next February.
Operator: [Operator Instructions] Good afternoon, everyone, and welcome to the Klaviyo Third Quarter Fiscal 2025 Earnings Conference Call. [Operator Instructions] Also, today's call is being recorded. With that, I would like to turn the call over to Andrew Zilli, Vice President of Investor Relations. Please go ahead, sir. Andrew Zilli: Good afternoon, and thanks for joining Klaviyo's Third Quarter 2025 Earnings Call. Our earnings press release, investor presentation, SEC filings and a replay of today's call can be found on our IR website at investors.klaviyo.com. With me on the call today are Andrew Bialecki, Co-Founder and CEO; and Amanda Whalen, CFO. As a reminder, our commentary today will include non-GAAP measures. Reconciliations to the most directly comparable GAAP measure can be found in today's earnings press release or earnings release supplemental materials, which can be found on our Investor Relations website. Additionally, some of our comments today contain forward-looking statements that are subject to risks, uncertainties and assumptions, which could change. Should any of these risks materialize or should our assumptions prove to be incorrect, actual company results could differ materially from these forward-looking statements. A description of these risks, uncertainties and assumptions and other factors that could affect our financial results are included in our SEC filings, including our most recent annual report on Form 10-K and subsequent quarterly reports on Form 10-Q. Except as required by law, we do not undertake any responsibility to update these forward-looking statements. With that, I'll now turn it over to Andrew. Andrew Bialecki: Thanks, Zilli, and thank you all for joining us today. We had an outstanding third quarter, delivering revenue of $311 million, up 32% year-over-year. These results demonstrate our ability to build products that create more engaging relationships between consumers and businesses, get those products in the hands of businesses around the world and build a high-growth software business at scale. We're now serving more than 183,000 customers in over 100 countries, including more than 6,000 enterprise and mid-market global brands like TailorMade, Mattel, Unilever and Reebok. A few highlights from the last quarter. We delivered another quarter of record net adds in our $50,000-plus ARR customer cohort. We grew revenue in EMEA and APAC by 43% and our Klaviyo service product line, which reached general availability 6 weeks ago, has the fastest adoption rate of any of our products, including text messaging. We're firing on all cylinders and see a lot of opportunity ahead, especially with the addition of Agentic AI to our products. On this note, I'd like to take a few minutes to explain how AI fits in with the products we're building and how it's helping our customers grow faster. The B2C CRM we offer is made up of 3 vertically integrated components: a highly scalable, fast database, restoring everything a business knows about its consumers and making that data available in real time, a set of applications and infrastructure to market, message and serve consumers across every channel and modality and an intelligence layer that finds opportunities to market or serve customers better and can automatically create, deliver and optimize those marketing and service experiences, leveraging the consumer data we have for real-time personalization. AI and LLMs have fundamentally changed and leveled up what is possible in real-time personalization, the intelligence layer and made the entire stack more effective at driving results for our customers. And we then share in that accelerating value creation with our customers. The more valuable we make each relationship between a business and an end consumer, the better for that business and the better for us. AI is improving this intelligence layer in 3 ways. First, it's making it faster and easier for our customers to leverage our integrated database and applications because AI can do the work businesses don't have the time or the bandwidth to do. We'll share a few examples of this in a minute. Second, AI is making the quality of the marketing and service experiences our customers are creating much better. This is a win-win for both businesses who see greater engagement and revenue and end consumers who get more relevant marketing and service experiences, thanks to AI integrated into our stack. Third, as a result of AI, we're able to make Klaviyo more available to more businesses on more platforms because they can interact with Klaviyo through natural language and new applications like ChatGPT. Let me give some examples of products we've delivered and real customer use cases for each of these elements. And many of these are a direct result of products and features we've built in the last few months and released at our largest customer and partner event of the year, Klaviyo Boston back in September. Let's start with making it faster and easier to do marketing and service. We've reimagined how marketing will happen in the Agentic AI era and launched an entirely new workflow for our customers to do marketing, and we're calling it marketing agent. This agent, which is a team of task-specific agents, can augment or do the work our customers don't have the time to do. Klaviyo customers have access to an always-on research, strategy, creative, execution and brand safety team powered by AI agents running in the background that will suggest and build complete marketing campaigns for businesses to then review, edit and run. We're progressively rolling out this new technology and experience to our customers, but we're already seeing customers adopting our recommended campaigns and executing them with minimal or no editing on behalf of our users. Now let's talk about making the quality of experiences better. We're already seeing the quality of campaigns our agent creates is surpassing what some businesses have time to create on their own. For example, a customer in the health industry using marketing agent saw a 41% better open rate and generated 24% higher average revenue for Klaviyo attributed value per campaign compared to campaigns they created on their own. Another customer saw a 50% better open rate compared to campaigns they create on their own and 40% lift on KAV per campaign. These results show the real revenue impact agents can have, and we're quite early in what agents are capable of. Today, agent is like adding a solid marketing intern to your team. We're developing its skills to be at the level of a marketer with over a decade of experience and instant memory of all previous marketing campaigns and results. This is a paradigm shift in how marketing will happen, where businesses and teams can lean on agents to augment their work, and we are leading and excited to accelerate. We hear from our customers and partners, while they love our products, they want to do more with them. And with Agentic AI, we're delivering this. Agentic AI is also improving where businesses can connect with consumers. Our investments in building messaging and deliverability infrastructure and applications that support rich experiences across channels and modalities are paying off. Our Customer Hub and customer agent products, which are both part of our Klaviyo service product line, which we made generally available last month, now allow businesses to use AI to chat and message with their consumers across the web, e-mail, text messaging and WhatsApp, and we plan to add more channels next year. This expansion of services is resulting in more consumer engagement and incremental sales for the businesses we serve. For example, by surfacing favorative products and tailored recommendations with Customer Hub, ThirdLove has driven more than $200,000 in incremental revenue so far this year and enables over 40,000 self-serve interactions that offloaded work from their support team, incredible results for ThirdLove. And finally, as a result of AI, we're able to make Klaviyo more available to more businesses on more platforms. The launch of our Model Context Protocol or MTP server allows companies to seamlessly integrate Klaviyo into AI clients and applications. We launched this a few months ago, built on top of our comprehensive and integrated data, marketing and service API infrastructure. And we are seeing a lot of engagement from customers who are using it on major AI platforms like ChatGPT and Cloud. This is transforming how our customers and partners use Klaviyo. For example, one of our agency partners built a reporting workflow using the Klaviyo MCP server to dramatically reduce the time their account managers needed to prepare for client updates. Instead of spending hours pulling data manually, they now have an AI application using our MCP server that reviews last month's performance, summarizes results and find campaigns that over underperform historical trends, diagnoses the probable causes and suggests next best actions. This saves them hours of manual work for each client relationship and allows them to spend more time leveling up their conversations with clients. Another partner's creative team is using our MCP server to review past campaigns and identify creative assets that are high performing and can be reused. They're then creating new campaigns with those assets and mapping specific creative to different consumer segments. This is not only saving an enormous amount of time, it's allowing them to do better marketing with their clients and produce better results. We're uniquely able to capitalize on these opportunities for a few reasons. First, vertical integration matters. And our bet on an architecture that allows for low latency coupling is paying off. The tight integration of our database and marketing, service and analytics applications allows for rich personalization by using profile data as context in real time and engagement and behavioral data from each application is automatically available to other applications. For example, product recommendations derived from marketing campaign engagement, service conversations and browsing behaviors are richer by using all available inputs and instantly available across all of our products. On top of that, our ability to measure and calculate attribution natively creates a closed-loop system AI can train on the outcomes of marketing campaigns and service experiences to improve its performance. And lastly, we have an incredible ecosystem of thousands of agencies, developers and system integrators who are building agents around our products and agents that extend functionality and improve customer results, like the example we mentioned a minute ago. Klaviyo Boston, the anchor event of our worldwide tour for customers and partners, put this on full display with over 1,400 attendees sharing how they're using our products and what they're building on top of them. As a result of all of the above, AI is providing tremendous tailwinds to our mission of bringing businesses and consumers closer together and huge opportunities for our growth. We're rapidly moving towards a world where every business will have access to the technology that can present their products and services in the best possible way, personalized to the individual consumer and available wherever consumers are and doing this autonomously through AI with human oversight and intervention where the business wants it, not because it's required. This is our vision for the B2C CRM and why we believe defining and delivering the customer experience will be autonomous, and we couldn't be more excited. I'd like to conclude by commenting on a few recent AI developments and why we see them as clear tailwinds for Klaviyo. Businesses win when the friction between a consumer finding them and buying from them is reduced. That's why we're very excited about Agentic commerce and various protocols that are being developed, such as the Agentic Commerce Protocol or ACP from OpenAI and the Agent Payments protocol, AP2 from Google. It drives additional sales in the short run and another consumer relationship businesses can build upon in the long run. One of our core metrics is the number of digital relationships that exist between businesses and consumers. And so any new channels that accelerate discovery bodes very positively for Klaviyo. Also, as brands prepare for the rise of GPT commerce, they need solutions for maintaining direct connection with their customers. Klaviyo protects that connection by unifying first-party data in the Klaviyo data platform, which allows brands to maintain visibility and turn engagement on agentic services into meaningful, measurable customer experiences across all channels. We also believe agentic commerce and commerce through natural language interfaces will become more common, and we're excited to integrate those protocols into our messaging infrastructure and marketing and customer agent products. We're offering consumers an alternative to browsing a website or a store and instead chatting or talking to an AI agent from a brand that can handle queries and transactions on its own across multiple channels. We're also excited to see more infrastructure built to create agents and agentic workflows where customers can use Klaviyo outside of our own user experience. While we'll provide customers with agents and algorithms within Klaviyo that are excellent at various aspects of marketing, service and analysis, we're also building Klaviyo as an open platform so other developers and companies can build agents that integrate into ours. We're successful when our customers are successful, and we're excited to expand our already large partner ecosystem to include more AI-first developers and builders. To our customers and partners, thank you for the trust and support. We're very excited about what we'll build together. And to Klaviyos around the world, thank you for your hard work and dedication to supporting our customers. We're still only 1% done on our mission to empower creators to own their destiny. We're excited to build, invest and lead and bring this AI-powered future to businesses of all sizes around the world. And with that, I'll turn it over to Amanda. Amanda Whalen: Thanks, Andrew. Q3 was another outstanding quarter for Klaviyo. Demand is strong across every growth engine. AI is amplifying our impact, and we are driving innovation for our customers as the definitive CRM for B2C businesses. Revenue grew 32% year-over-year to $311 million, reflecting robust demand from new customers and continued multiproduct expansion from our existing ones. International revenue growth accelerated for the sixth straight quarter. We had record net adds into our $50,000-plus customer cohort. NRR accelerated to 109% and adoption of our new service product is already outpacing what we saw from SMS at this same stage just 6 weeks after launch. The results are clear. Our growth engines are delivering and AI is a force multiplier. We're investing for high growth while maintaining strong unit economics. Non-GAAP operating margin this quarter was 14.5%, meaning our Rule of 40 performance was nearly 47%, our highest in 4 quarters. There are fewer than 10 public software companies who are growing more than 30%, over $1 billion in revenue run rate and achieving the Rule of 40. We're proud to be among that top-performing group. At our Investor Day, we outlined 3 engines driving Klaviyo's long-term growth: multiproduct expansion, international acceleration and mid-market and enterprise momentum, all fueled by AI, which creates tailwinds for our business and positions Klaviyo to be the platform of choice for brands everywhere. In Q3, each of these engines delivered meaningful progress, which underscores the power of our model. Starting with our multiproduct platform. The foundation of our growth is our large and growing customer base. In the third quarter, we added 7,000 new customers, bringing us to more than 183,000 customers, up 17% year-over-year. Companies are choosing Klaviyo as their B2C CRM because we help them grow their businesses by unifying their customer data, marketing, service and analytics applications and now by bringing Agentic AI into that same connected platform. And as we drive success for our customers, they in turn are growing their business with us. NRR rose to 109% in the third quarter, driven by e-mail expansion, strong text messaging cross-sell and momentum from newer products, including marketing analytics. At Klaviyo Boston in September, we accelerated innovation across the platform. In addition to the marketing and customer agents Andrew talked about, we enhanced Klaviyo marketing with new omnichannel capabilities and new channels, including WhatsApp. We also released to general availability our new product line, Klaviyo Service with Customer Hub, customer agent and help desk. Our product velocity is accelerating, thanks in part to internal AI efforts, and we're now deploying product updates 270 times a day and have over 50 AI models in production that are predicting customer behavior, surfacing insights and marketing analytics and helping personalize experiences across Klaviyo Marketing and Klaviyo Service. Our new Klaviyo service products are off to a fast start, increasing penetration faster than SMS did at the same point in its launch. Adoption is strong across all sizes of customers, from entrepreneurs all the way up to the mid-market and enterprise. In fact, last week, one of our customers, a large fashion business, signed a 7-figure renewal with us that included adding customer agent and customer hub across 6 of their portfolio brands. We view Klaviyo service as a long-term revenue engine with the potential to rival and exceed our marketing products as it scales. These launches further expand our multiproduct platform, making Klaviyo even more powerful for our customers. We consistently hear from customers about the importance of having one unified platform for engagement, and that's driving continued growth across the entire platform, including text messaging, WhatsApp and marketing analytics as well. Because our pricing model scales with the value we deliver, not with seats, our success grows directly alongside our customers. We price on a per profile, message and resolution basis, which lines up perfectly with the outcome-oriented business models AI is enabling. Today, more than half of our ARR comes from multiproduct customers, which is clear proof that customers want to have everything running off of one platform. This deepens our relationships with customers, improves retention and drives long-term growth. Turning now to international. Growth continues to accelerate. Revenue outside the Americas grew 43% year-over-year, our sixth consecutive quarter of faster international growth, with EMEA up 48% and gaining momentum from Q2. In Q3, we added 4 new languages to the platform, expanded text messaging coverage to 22 countries and introduced WhatsApp, which was a highly anticipated channel for our global customers. EMEA and APAC now represent more than 35% of total revenue, reflecting the strength of our international strategy. Our focused investments abroad are doing exactly what we intended. They're driving strong growth and expanding Klaviyo's global opportunity. Momentum in the mid-market and enterprise continues to build. We now serve 3,563 customers with over $50,000 in ARR. That's up 36% year-over-year, including a record 272 net adds this quarter. This was driven by a record number of new lands directly into the cohort. We're proud to welcome and expand with iconic mid-market and enterprise brands such as Bissell, Rhone, Books and Proper Hotels, brands that trust Klaviyo to deepen customer relationships and drive growth. Another global brand that exemplifies the power of what we're building is Meshki, an Australian-founded women's fashion brand now selling in over 190 countries. Meshki has embraced Klaviyo as its system of action, recently adding marketing analytics to power their omnichannel marketing. With Klaviyo, they're personalizing every touch point from product recommendations and campaigns to customer journeys and interactions, all powered by their own first-party data. Meshki also relies on Klaviyo as a central source of truth. As they scaled their U.S. presence, the team used Klaviyo to guide where to invest in infrastructure, shipping and local distribution, transforming customer data into operational decisions. It's a great example of what Klaviyo's B2C CRM is built to do, help brands grow faster and turn every interaction into long-term loyalty at global scale. Turning to the P&L. Non-GAAP gross margin was steady at 76%, in line with Q2 as benefits from scaling infrastructure balanced out the continued growth of text messaging. Importantly, non-GAAP gross profit growth accelerated, underscoring how we drive operating leverage as we scale. Non-GAAP operating expenses also saw broad-based leverage this quarter, improving 170 basis points year-over-year as a percentage of revenue, reflecting the power in our operating model and our ability to deliver strong growth while investing to capture an even larger AI-driven opportunity. Non-GAAP operating income for the quarter was $45 million with a 14.5% margin, up slightly year-over-year. This performance exceeded our guidance, driven by strong top line outperformance and disciplined execution. We generated $47 million in free cash flow for a 15% free cash flow margin, which was also up year-over-year. Turning now to guidance. We are entering the peak holiday season from a position of strength, supported by robust customer demand. For the fourth quarter, we are increasing our revenue expectations to $331 million to $335 million, representing 23% to 24% year-over-year growth. We expect fourth quarter non-GAAP operating income of $43.5 million to $46.5 million, representing a non-GAAP operating margin of 13% to 14%. As a reminder, we implemented profile enforcement earlier this year, which reduces seasonality in our Q4 and Q1 revenue, making quarter-on-quarter growth steadier over the course of the year. We do expect our fourth quarter non-GAAP gross margin to experience typical seasonal impact from increased text messaging volumes. Based on our strong third quarter and our momentum heading into Q4, we are raising revenue guidance for the full year by $18 million at the midpoint to $1.215 billion to $1.219 billion for year-over-year growth of 30%. We expect non-GAAP operating income of $161.8 million to $164.8 million, representing a non-GAAP operating margin of 13% to 14%. This will be another year of delivering results above Rule of 40. Rule of 40 is an important metric for us because it represents our commitment to strong growth with good unit economics. We will continue to invest to be the definitive CRM for B2C businesses, and we strive to deliver Rule of 40 as we do so. Looking ahead to 2026, we're confident in our growth trajectory and in the results we are seeing from our AI-powered growth engines. Based on that progress, we expect to deliver at least 21% to 22% revenue growth next year. Our core marketing products continue to deliver a strong foundation for growth. We expect to drive further adoption and expansion, particularly in mid-market, enterprise and international. And we're seeing meaningful early traction from our new AI-powered products. Our 2026 outlook currently assumes limited near-term revenue from these launches. That said, given the pace of adoption, the upside ahead of us is significant and creates clear long-term runway as these products scale. From a profitability standpoint, we expect to increase our 2026 non-GAAP operating margin by at least 1 percentage point from our updated 2025 guidance. To close, Q3 demonstrated Klaviyo's strength, high growth, strong unit economics and continued progress across our 3 growth engines: multiproduct expansion, international growth and mid-market and enterprise momentum. AI is accelerating our business. It is unlocking new possibilities for customers to use Klaviyo to connect with their consumers in smarter, more personalized ways. It amplifies our growth, and it strengthens our foundation for sustained leadership. We believe this is just the beginning. With our unique combination of first-party data, relentless product velocity and Agentic AI as a force multiplier, Klaviyo is positioned to be the definitive winner in the next era of consumer engagement. With that, we'll open up the call for questions. Operator? Operator: [Operator Instructions] And our first question comes from Derrick Wood from TD Cowen. James Wood: AB, this is for you. I guess, at your conference, Accenture talked about fatigue in the legacy MarTech market, and there's a lot of desire to change out legacy tech and leverage new AI tech. You talked about seeing a robust replatforming cycle over the next 2 years to 3 years. I know your new products in AI and CRM are still early. But now that you do have these agents in market, are your conversations or pipelines evolving more around replatforming and AI adoption? And I mean, do you see 2026 as a step function and these type of engagements? Or how do you view this cycle playing out? Andrew Bialecki: Yes, sure. So in the mid-market and enterprise segments, we're obviously seeing some really good numbers. We added the most 50,000-plus customers in this past quarter. And I think there's really -- there's 2 things going on that are forcing these conversations. So yes, I do see there's a real acceleration there for 2 reasons. The first is a traditional reason, which is what we're doing by combining the underlying data infrastructure with then the marketing service analysis, application stack and infrastructure, handling things like deliverability on the messaging side, creative design and on the service side, providing that real-time infrastructure can have conversations with consumers wherever they are. I think what's happening on top of that is then when you layer in agents and really here, we mean agents and agentic workflows, we're finding a lot of large enterprises say, look, there's opportunities I can't get to. I can't do this data analysis. There's creative and design that I wish could get checks by agents so we can do more of it. Can you help me find more opportunities to execute against those. And then obviously, on the customer service side, I think a lot of people look at customer service is not just a, hey, when customers have issues, how do I help them? But also how can I proactively give them guidance and look at that as a growth engine. So there was this traditional reason of like, look, my software isn't really talk to each other very well. And now you layer on what LLMs give us in terms of a better logic engine, a better -- smarter way to use the tech that we've built. I think this is the future of how CRM is going to work for consumer companies. It's going to be agentic at its core, which means that instead of the operators of that software having to decide, make every decision, drive the software all on its own, -- it's going to be done in part by agents. And I think increasingly, some of the work they can't get to or don't want to do is going to get handed off. And the fact that Klaviyo provides us like closed loop where, hey, it's not just that we store the data, hey, it's not just that we help you find the ideas and execute them. It's then we can then tell you what's working so you can use machine learning and AI to improve, to optimize over time. That's where this is all going. But I have those conversations with our enterprise customers today and then folks that we're talking to that are in our pipeline, they're very excited about this future. And I think we're in the driver's seat to go deliver for. Operator: Our next question today comes from Samad Samana from Jefferies. Samad Samana: So I wanted to stick on the AI theme. And I know that you guys talked about the Shopify relationship. But I was wondering if you could dig deeper into how the large platforms like OpenAI working more closely with Shopify and giving them access to maybe millions of consumers and how that ultimately benefits Klaviyo as you think about how those could potentially become -- empower the merchants that you're helping and become more profiles, especially given how embedded you are in the Shopify ecosystem. How are you thinking about that in particular? Andrew Bialecki: Yes, for sure. So let's talk -- let me touch on a little bit on the AI ecosystem. Klaviyo, since we started, has been very partner-oriented. We've looked at the ecosystem and how do we plug in, how do we work together to build a better experience for the businesses that we serve, ultimately drive better outcomes for them. So let me touch on a couple of things. First, let's talk about as it relates to commerce and acquiring and building more consumer relationships. Obviously, that's a big part of our business model is we want more businesses connected to more consumers. We think that's an asset that's very important to the businesses we serve. And obviously, that's one of our core monetization axes. So we look at things like the ability to do commerce through products like ChatGPT is great. It's a way for more consumers to find more businesses. It's a more streamlined experience. And ultimately, like we said in the prepared remarks, it results in this like medium- and long-term growth for them because they now have another connection to another consumer. In fact, we're so excited about the idea of like commerce through conversations through chat. It's something we're also working to embed inside of our customer agent. We look at the future, we think that every business is going to have its own customer agent, its own digital, like the best most knowledgeable person about your products, who has all the answers in real time 24/7. We want to build that technology. And obviously, once we answer a question, like, for instance, product [ recommendations ] built in, we want to let consumers then buy directly from that experience. I think in the future, you'll see these agents rather than browse a website, you could just chat with an agent provided by a business and then it could help you consummate that transaction. And the last thing I'll say is when we think about the platforms that are out there, both in terms of end users, like each of us using chat interfaces, we look at that as another way to interact with Klaviyo. We're very excited about that. In fact, we've already seen and we talked a little bit about in some of the remarks upfront, our customers, partners using some of these AI clients to interact with Klaviyo. It might be -- to date, it's been largely to do data analysis. But in the very near future, we think that's going to be actually designing marketing campaigns and getting going on that. And one of the things I talked to a lot of our customers about, they feel rate limited mostly by their time and how quickly they can scaffold and build and do marketing and service and analysis inside of Klaviyo. We think these new chatter base are a great way to speed up that loop, allow them to use more of Klaviyo. We benefit when businesses have more connections and also when they're doing more marketing, delivering more experiences to customers. And that's why we're going to build into those. And finally, I think it's early, but a lot of the platforms are now building out these agent builder type experiences. And we look at that, that's great. That's another way we imagine there's going to be workflows in the very near term where folks are building Klaviyo campaigns, optimizing them through some of these workflows and agents that they're building both inside of Klaviyo, but also outside of Klaviyo. And again, that's great. We think if businesses are able to do more marketing, build more customer experiences, understand who their customers are better, wherever they do that, that's valuable to them and that's valuable to us. Operator: The next question is Matt VanVliet from Cantor Fitzgerald. Matthew VanVliet: I wonder if you could help us think about the attachment of service already and the fact that it's tracking so far ahead of even some of your best products in history. Are these customers that are replacing something on kind of the legacy marketing stack? Were they doing things sort of haphazardly and this brings it all together? And then maybe more importantly, how is the new product like service helping the conversation of multiproduct expansion, knowing that you can bring it all on a single platform and have that single source of truth? Andrew Bialecki: Yes. I've been really impressed by what our product engineering teams have done for all 3 of our K service, Klaviyo service products in that product line. So let's talk through a little bit about each of them. And just so everybody knows, we put the general availability -- we released the general availability just over a month ago. So we're watching the tracking literally week over week. And like I said, the trajectory is awesome. In terms of what they're replacing or augmenting, let me take it product by product. So for our Customer Hub and customer agent products, those were finding a lot more greenfields. Our Customer Hub product now takes a lot of the personalization that you could do with Klaviyo and messaging on various session channels and now brings it directly into a business's website or even in the future, maybe even their mobile application. It gives consumers a way when they go visit website that the entire web experience is now personalized to them. It's generating incremental revenue, as we talked about. And so it's actually a fairly easy conversation with customers who say, look, we can take the same goodness that you've seen from us in messaging, you can now bring it to your website. It's accretive to your growth. Why wouldn't you do that? A lot of these businesses, they just -- there was no product there before. Integrated into Customer Hub is our customer agents. So if a consumer has a question and they want to chat, both to get help, but also critically to get advice. We're seeing some really amazing conversations inside of our dataset where consumers are coming and having long conversations about what products would be best, best fit for them and offering them recommendations. So really service is no longer this sort of like, hey, if you have an issue, talk to me, it's now more even presales -- and that's, again, that's a bit different. People weren't thinking that way before. So we're finding a lot of businesses wanting to add that in because, again, it becomes a revenue engine. It helps offload some of the support volume, but it's also a revenue engine for the business. And then the third product is we've also built a customer service help desk product, which also has AI natively integrated. So we have some great features in there, things where if a conversation happens with our AI agent, maybe does some tool calls to pull in product recommendations and associate information, that all gets passed back to whoever that support rep is that then decides that handles the conversation if it makes its way to a human. That's a really great integration, speeding up response times and resolution rates. That is a more traditional like first time small businesses, they might be the first time, but that's more we're replacing some of the customer service software that's out there that might just only have traditionally solved that like, hey, we help your support team manage the support workload. So I think it's -- we're very excited about the trajectory in the first 40 days. We're obviously talking a lot about the impact of artificial intelligence. I think one of the things we want people to take away is we're expanding where we can use and leverage AI to not just marketing, but also include what happens on your website and what happens in customer service and as part of our building out the entire consumer CRM as part of our strategy there. Operator: Siti Panigrahi from Mizuho is up next... Sitikantha Panigrahi: That's great. Congrats on a great quarter. And AB, thanks for all that commentary on AI. That's helpful. Amanda, I want to ask you about your '26 guidance of that 21% to 22% growth. So you have a lot of products announcement there and also there are pricing model changes as well. But what gives you that confidence for next year growth? What is embedded into that guidance? Amanda Whalen: Yes. And the way that I think about it is we are incredibly confident in our growth trajectory. And that preliminary '26 outlook that we gave is a strong baseline for growth next year with clear upside ahead. So we have just launched some very exciting new products in AI and expansion into new products and new service categories. We are very excited about the traction that we're seeing. As AB mentioned, you have service off to an even faster start than SMS was at this stage, but we're really early in the journey. And so at this point, we're not factoring significant revenue in there for next year. So there's even more upside to that number as those products continue to grow. And I think the other thing that gives us incredible confidence heading into next year is that our existing growth engines are really delivering. They have strong momentum as we head into the international or into next year. In international, we saw our sixth straight quarter of increasing revenue growth rates outside of the Americas, which shows that we are really growing and increasing that global opportunity that we have to build the business. In mid-market this quarter, we had a record high number of adds into the 50,000 customer cohort, which really shows what we talked about at Investor Day, which is that customers are pulling us up into that mid-market and enterprise space because as we just talked about earlier with AB, they want to replace those legacy tech stacks and have a more modern AI-driven way for interacting with their consumers. And then in multiproduct, over half of our ARR is coming today from customers who are multiproduct, which shows us that those customers really want to consolidate their platforms and they really want to consolidate their platforms with Klaviyo. So we have a huge opportunity ahead of us there with service. We think service could be as big, if not bigger, than our marketing products are today. And then, of course, AI accelerates all of that. AI makes it faster and easier for our customers to use the product. It opens up new surfaces and new places where we can generate demand and interactions with the product. And importantly, it drives even better results. You heard some of the examples that Andrew shared around marketing agent and the uplift that it's driving in open rates and in KAV or the revenue that our customers drive. So again, those products are early in market. We're already monetizing customer agent today. We're going to start pricing pilots for marketing agent in the next few months. And as they continue to grow and expand in adoption and usage, again, we see upside there. So bottom line is that what gives us confidence is that our growth engines are firing on all cylinders, and we're in the early innings of massive AI and multiproduct opportunities that are ahead of us. Operator: The next question is from Tyler Radke, Citi. Tyler Radke: A lot of great discussions around AI and Service Hub. I wanted to double-click on international, pretty impressive subsequent consecutive quarters of accelerating growth. Do you think that acceleration could continue going forward? And could you just help us understand like what we're going to -- what we should expect in terms of future unlocks in that? I know you talked about adding new languages to the platform, expanding text message capability, but sort of what inning of sort of those product unlocks are we? And any view on sort of the durability of that acceleration? Andrew Bialecki: That's great. I'll give you some commentary on some of the things we're doing, and I'll let Amanda speak to -- the numbers. But 43% year-on-year growth. We're very proud of that, and we believe that we can continue to have that grow at very high rates over the next several years. And let me give you a little color on why. What we found is we're still relatively early in working in both Europe, and I'd say Europe is even a little bit further ahead than where we are in Asia. There's a lot that we've done in the last 12 months, 24 months to get us ready for that. We've expanded our presence in Europe and in Asia and continue to do so, especially in like key markets. From a product side, we've done a lot of work. You did mentioned internationalization -- very proud of the work that we've done there, both for our products, but also then to just make the various channels that we're in more available. So having SMS now in so many languages obviously helps a lot. We just rolled out WhatsApp globally, and that's obviously very, very important in the European and Asian markets. And we have some more channels now that will be coming online following that, that are more region-specific. So it addresses more of the places that where consumers and businesses meet. And then finally, we're expanding our presence, not just for our customer teams and go-to-market teams, but also just our infrastructure. We already have infrastructure all the way around the world. We're setting up new data centers and planning those out in both Europe and in Asia. And I think that will also help, especially for some of our larger customers. So will overlap with some of our enterprise strategy. So just very excited. We've got a great set of customers. We're also expanding the weight of the partners that we have there in key markets. So I think we've got a long way to go. We're nowhere near saturated. Amanda Whalen: Yes. And in terms of what helps drive that consistency in growth going forward and our outlook in international, it's the product expansion that AB talked about. And it's also the progress that we have on the go-to-market side around building out all of the surround sound around those product innovations. It's getting the local partner network set up, both agency partners and the platform partners as well, great platform partners, not only Shopify, who we have an incredibly strong relationship with, but partners like PrestaShop in France and Shopware in Germany and then also continuing to build out the customer experience, including the website, the local customer case studies. And so all of that contributes to making this a really strong, consistent growth platform for us going forward. Operator: The next question comes from Rob Oliver from Baird. Robert Oliver: I think at the Analyst Day, you guys called out, I think it was over 600 legacy replacements in the last couple of years. And there's been a few questions, [ Garek's ], and one other that have tried to touch on, I think, this opportunity, which is, I think, so exciting for many of us, which is that this combination of service, marketing and commerce has actually been tried before and there's buying there. And so maybe you can talk about as we look into the next year and the next couple of years, the pipeline you have building right now, some of the customer examples you called out, the fashion brand, 7-figure renewal, how should we think about that opportunity increasing over that kind of 600 number over the last couple of years? Andrew Bialecki: Great. We don't have any numbers to share today, but the momentum is awesome. And similar to international, I think there's things we're doing now that have -- that we'll finish doing that will now bear even more fruit. So as an example, we've only recently spun off our Analyst Relations program. We're now starting to work with more SIs and global system integrators, which is introducing us to more large enterprises. I think, obviously, enterprise and international go hand in hand. We've already worked with a number of large multinationals, but that will get only better as we do some of the work that we talked about on the international side. And look, the bedrock of this for us is, I think, really the 2 things I said. The first is since the beginning, this idea of your data infrastructure should have a tight linkage to how you do marketing messaging, the infrastructure there and then now what we're doing with service, customers love the idea -- the enterprise actually love this idea of one database now with -- that's getting more intelligent via LLMs and AI that is then distributing that experience to all possible channels. This really, really matters to them that they want this one unified experience. So this idea that like you can use the data you have at scale to generate things like recommendations and then make those available on all services, websites, mobile apps, messaging inside of a chat or in a voice conversation with the customer, all delivered via AI. That's a really enticing value prop. And so I think that there's just -- there's a lot we're doing now that the results we're seeing are a little bit of the actions that we've taken in the last 12 months, 24 months. But I think there's even more that we can do. And frankly, like there's even an element of social proof to all of this. I talked to businesses that said, hey, 12 months, 24 months ago, they didn't think of Klaviyo as an enterprise brand that we are quickly changing that perception, and I expect to see that snowball. Operator: Ryan MacWilliams from Wells Fargo has the next question. Ryan MacWilliams: Great to see continued strong new customer additions. This question is more in regards to your customers. So we're hearing SEO struggles come up more for SMB. And I was wondering, are you seeing customers look to Klaviyo as a way to support new market activities to combat SEO efficiency getting more challenging? Or are you seeing existing customers look to add new use cases as a result? Andrew Bialecki: Yes, it's a great question. So I'll say 2 things. We look at Klaviyo as really as the bedrock of how a business operates and works with maintains and grows its engagement with its most important asset, its customers. those end consumers. So we're noticing actually like 2 trends. The first is for some businesses, they're seeing a lot of growth through AEO and effectively like getting discovered through some of the AI applications that are out there. And so that's driving more consumer relationships. For other businesses, we find them -- they're actually -- when it's uncertain what their strategy is, they're coming back to Klaviyo to say, "Hey, how can I do more with my existing consumer relationships? How can I nurture those harder? And this is where AI really plays in. I mean one of the things we want to deliver them is like, look, we automatically, agentically give every single business for every single one of their consumers a path on like what is the absolute best experience they can deliver to that consumer. So when they do acquire them that those consumer relationships are more valuable, more durable, higher LTV. So it's a bit bifurcated, but I think when there's uncertainty and revenue is really on the blind, we find people come back to us. Just as an example of that, we're about to enter the holiday season. We find that for most of our businesses we work with, especially in retail, this is when they see the highest percentage of return consumers coming to their business. They know the consumers when they're shopping for the holidays come back to businesses they already know. And that's why you see so much more incremental usage of Klaviyo. And we're excited actually to have all these -- some of the AI functionality we've delivered now help them do a better job connecting those customers to the exact right product or the exact right service in the most critical time of the year for them. Operator: The next question is from Scott Berg, Needham & Company. Scott Berg: Really nice quarter here. I guess one question for me is we've been to a lot of sales and marketing conferences in the last month or 2. And we're seeing a ton of customer interest in the space, but budgets tend to be just a little bit light right now. And your commentary suggests that there should be a lot of expansion of budgets on some of this newer AI functionality as we get into the new calendar year. Does that track with what you all are seeing today? Or are you seeing customers more emphatically kind of spend on some of this functionality here even in the third or fourth quarters? Andrew Bialecki: Yes. Let me make 2 comments on that because I think it's probably a bit of a clarification too, like how we think about our role in the awareness buying process, what we think of like the marketing and sales cycle. So the first is every product that Klaviyo builds -- at its core, we make sure that like it needs to show its ROI, there needs to be revenue directly attributable back to that product. I think that's the case that not a lot of sales and marketing products can make. Oftentimes, there are tools that you might have a sales team use or a marketing team use. And it's not only like its productivity to that person, but you can't -- you might be able to measure the hours saved, but you can't see the dollars that, that product is generating. And I guess the second point is like, so what's the difference between how we build products for marketing, for sales for revenue generation versus a lot of what's out there in the market. And this is why we started to attach to this word agentic. I think there's a big difference between AI products that sort of assist a person doing a job. That's great, and we should want those products. But ultimately, they're just kind of -- they're not doing the work for you. They're just helping you do the work. What we found with a lot of the AI applications inside of Klaviyo. And if you look at what, for instance, our marketing agent is doing, the goal is to help -- assist a little bit, but it's really doing the job that we find the business we work with, they don't have the time or maybe the skills to get done or maybe they just don't want to do it. And so we've now changed this paradigm where instead of using software as a tool to help somebody do their job, but still ultimately, it's the person who you're really measuring the ROI on, we're now literally building algorithms agents that can do a big chunk of the process and a human can review the results. So an example we talked about with marketing agent, we're now generating not just creative or content, but entire campaigns, who you should send to, what's the purpose. We're giving that to our customers to then review. And then they're telling us, hey, whether that's good enough, maybe making some small tweaks and then they're deploying it. That's a totally different way of doing marketing than having a tool that helps somebody ultimately have to do all the different steps. And then we're learning from that and seeing what the results are and automatically optimizing the content that we show them next, right, or the next campaigns that we generate. This is just a different way about thinking about leveraging AI. I think it's even more ROI driving. And so the conversations, I've talked about, you are the normal things of, hey, how do we make sure that the quality meets a certain bar that you can trust that AI is actually doing the right thing. So we've built so many checks into our marketing agent. We have a whole quality agent that runs that vets everything. People actually are so excited about that. They want to apply it to their human created content as well. They want to put on everything they're doing inside of Klaviyo. So I think that's the big difference there is there's a difference between driving actual revenue and actually doing the work versus just being a tool that's part of the process. Operator: Up next is Arjun Bhatia from William Blair. Arjun Bhatia: I just had a couple of quick ones. First, Amanda, I think you mentioned you're going to start running sort of pricing pilots for marketing agent coming up here. Can you just maybe touch a little bit on what that might look like and what you're starting to experiment with? And then second, we're heading into Q4, important holiday season, as you pointed out, just would love to get your sense on how you think that's shaping up relative to last year? Amanda Whalen: Sure. So on marketing agent, we're seeing great results. We talked about on the call some of the outstanding results that our customers are seeing in terms of improvements in open rates, improvements in the KAV that they're generating per campaign. It's really helping amplify the work that they were doing and enable them to do more work at higher quality in less time. So there's a lot of excitement about it and generating a lot of value. And so we're going to start experimenting over the next couple of months with what does that look like in terms of a pricing pilot of how do we monetize it. Some of it, we're going to continue to build into the product natively, the things that we think are really important for all brands to have access to. And a great example of that is some of the image work that we talked about on our last quarterly call. But again, in those places where customers are really seeing that incremental value, we're working on how do we charge it. And we've got great confidence in that because of the results that we're seeing from some of our other areas where we're already using AI in the product, right? So we're live right now with customer agents and customers are seeing great results from that, and it's driving paid revenue. And then we're also seeing great results from marketing analytics, which incorporates a lot of AI-driven insights and analytics into helping our customers better target. So examples we've had recently are customers -- one customer who's using marketing analytics and its predictive gender feature, which is an AI-enabled feature to predict the gender of a given consumer and better target the campaigns that get sent to them, which is helping them generate higher KAV. So again, seeing great traction there, which gives us real optimism about our ability to monetize it. And then as it turns to outlook and how we're thinking about holiday, the way that we think about holiday is this is the most important time for our customers. This is where many of them generate a huge portion of their revenue over the course of the year. And so they're hyper focused on what will it take to make those -- make that holiday successful. Tough to predict exactly how the holiday is going to unfold. We've seen a lot of news out there recently. But what we can say with confidence is what we've seen over the last couple of years, which is during this holiday season, consumers go back to the brands that they know and love. And so as our brands and the customers we work with are thinking about getting ready for the holiday, they're thinking about how do I strengthen those relationships with the loyal consumers who I've already got so that I can make my holiday as successful as possible. And the great news is that is exactly what Klaviyo helps these brands do. It's historically been and how do we help them with marketing to them. But importantly, we're becoming even more critical to their businesses as they also add in service as well and really create this end-to-end consumer experience. So as we look forward to the holiday, what we believe is we've got confidence in how customers are going to turn to us across whatever, however the holiday unfolds. Operator: And our final question today comes from Terry Tillman, Truist Securities. Connor Passarella: This is Connor Passarella on for Terry. I want to follow up on the previous commentary on the holiday season and specifically how that relates to service product adoption. Just for the 3 service products, there's introductory promotional pricing through December 31. Is there typically interest from the customer base to committing to these new -- or to new products during the holiday period of Q4? Or do you kind of often have customers that just want to focus on executing into the end of the year? Andrew Bialecki: Yes. It's a good question. So among the 3 Klaviyo service products in that product line, it's a little -- we're seeing some differential in behavior. So let me just walk through them. So the first is for our Customer Hub product. We've made the integration onto our customers' websites, into their stack so seamless, like literally just a few clicks, and it's already leveraging and trained on all of the data inside of a Klaviyo account. We're finding a lot of customers want to adopt that even up leading into the holiday season because they know it will drive incremental revenue. So we're seeing really good uptake there. I think similarly, where you find where customers that have not used a customer agent and AI that can automatically resolve conversations or help guide consumers. There are some folks that want to test that out and have larger deployments, but we're also seeing really good uptake there. And I'd say maybe for larger -- and then finally, for our help desk, that sometimes depending on the size of the team can be more of a bigger build of, hey, I up the learning new system. We've already -- we had a lot of conversations with folks say like, "Hey, this is great. Just talk to me later in December, early January, once I get through the holiday rush. So that product might be a little bit -- that may be delayed a few months. But in general, actually, one of the things I'm really excited about is if you think about we launched all these products at the end of September, there's a lot of companies that would say, hey, our technology stack is set for the end of the year. And already, we're seeing really good growth in a time when you might not expect it. And then just to wrap up the call, look, we've been a public company now for 2 years, and I just want to reflect a little bit on some of the accomplishments we've had. Amanda touched on these. We've been growing logos. We've now expanded our product portfolio from beyond e-mail and text messaging to now incorporate a lot of marketing channels, customer service, analytics, our Klaviyo data platform products. We truly are building out the CRM stack. We've done a lot of growing in international and with larger accounts in the enterprise. These are all things we said we'd set out to do when we went public. I think we're executing really well against those. And we also believe that we want to be one of the highest growth software companies at scale and prove you can do it profitably. And I think we're doing a great job of that. And then finally, when we think about AI, we look at that as a total unlock for our business and for our customers. When you give our software, a logic engine, a brain that it can work on top of, customers, our businesses, they're going to do better marketing, build better experiences that is going to drive LTV with consumers. And that's ultimately what we index for our customers -- when our customers win, that's how we win. So anyway, thank you, everybody, for taking the time, and we're going to get back to building. Operator: Once again, everyone, that does conclude today's conference. We would like to thank you all for your participation today. You may now disconnect.
Operator: Good afternoon, ladies and gentlemen. Welcome to Chunghwa Telecom Conference Call for the company's Third Quarter 2025 Operating Results. [Operator Instructions] And for your information, this conference call is now being broadcasted live over the Internet. A webcast replay will be available within an hour after the conference is finished. Please visit CHT IR website at www.cht.com.tw/ir under the IR Calendar section. And now I would like to turn it over to Ms. Angela Tsai, Vice President of Financial Department. Thank you. Ms. Tsai, please begin. Cho-Fen Tsai: Thank you. I'm Angela Tsai, Vice President of Finance at Chunghwa Telecom. Welcome to our third quarter 2025 results conference call. Joining me on the call today are Chunghwa's President, Rong-Shy Lin; and our Chief Financial Officer, Audrey Hsu. During today's call, management will begin with sharing our recent strategic achievements and provide an overview of our third quarter business results. This will be followed by a discussion of our segment performance and financial highlights. We will then open the floor for questions and answers. Please turn to Slide 2 to review our disclaimers and forward-looking statement disclosures. Now without further delay, I will turn the call over to President. President Lin, please go ahead. Rong-Shy Lin: Thank you, Angela, and hello, everyone. Welcome to our third quarter 2025 results conference call. Extending the outperforming results of this first half, we continue to beat the financial guidance in the third quarter. Our revenue, operating income, net income and EPS all exceeded the upper end of our forecast. Third quarter revenue hit its highest level since 2017, reflecting the robust growth in our core business and extending ICT services. ICT revenue alone set a new third quarter record, the highest since 2021. As Taiwan's telecom market continued to develop healthy, we are confident in our full year financial results and supported by our leadership across all business segments. For our midterm to long-term development, we believe that group expansion of -- and AI-related initiatives are critical, and we have taken proactive steps. In this area, we are pleased to see our cybersecurity subsidiary, a Chunghwa Telecom Security, successfully complete its public listing in September with International Integrated Systems soon to follow in its upcoming IPO. Moreover, in October, we launched InventAI, a new subsidiary spun off from our research division, dedicated to monetizing AI innovation. Our AI capabilities have received significant recognition and honors. On the global stage, our first self-developed Vision-Language Model technology secured first place in the transportation category at the Global AI City Challenge, a prestigious international competition co-organized by NVIDIA and a leading university worldwide. This recognition was earned through our technology, superior accuracy and predictive capabilities in analyzing highly complex traffic scenario. In Taiwan, we hold the largest portfolio of AI-related patents in the industry, far ahead of our peers, serving as a solid base for future development. We are proud of these achievements and remain committed to maintaining our competitive advantages. Our technology expertise and resilient network have also created social value to benefit the public. In August, as Taiwan was suffering from catastrophic typhoon, we overcame challenges to deliver portable OneWeb equipment and restore communication in isolated area affected by the breakdown, demonstrating our commitment to social responsibility. Additionally, as we continue to invest in facilitating ESG practice, we completed the issuance of TWD 3.5 billion sustainability bond in the third quarter to promote biodiversity, EV initiatives and other environmental projects. This reflects our action to integrate ecological conservation, decarbonization and green finance to progress towards net zero. Now let's move on to the business overview of the third quarter of 2025. Please turn to Page 5 to review our success in Taiwan's mobile market. In the third quarter, we further strengthened our leadership position in Taiwan's mobile market. According to the data from our telecom regulator, our mobile revenue market share climbed to a new high of 40.8%, while our subscriber share among peers rose to 39.4%, representing an encouraging 1.6 percentage point year-over-year increase, mainly driven by continued growth in the postpaid subscribers. We are pleased with this solid growth momentum. Our 5G performance was equally impressive. Based on regulators' data, our 5G subscriber market share rose to 38.8%, maintaining our industry-leading position. The 5G penetration rate among our smartphone users further increased to 44.7% by the end of the third quarter, while the average monthly fee uplift from 5G migration remained robust at approximately 40%. With the combined strength of our expanding subscriber base and growing 5G adoption, our mobile service revenue growth outpaced the industry achieving a solid 3.3% year-over-year increase. Postpaid ARPU also grew 1.8% year-over-year. We expect this positive trajectory to continue, supported by Taiwan's favorable mobile market landscape. Let's move on to Slide 6 for our outperforming fixed broadband business update. In the third quarter, our fixed broadband revenue grew by 3.2% year-over-year, driven by continued high-speed migration and the success of our high net 30th anniversary promotion package alongside our existing bundle plan that combine MOD WiFi and streaming services. We are pleased to report that the number of subscribers choosing speed of 300 megabits per second and above increased by about 14% year-over-year, while those opting for 500 megabits per second and above recorded a double-digit growth and the 1 gigabit per second and above achieved multiple for expansion. This higher speed migration contributed to strong ARPU performance. In the third quarter, our fixed broadband ARPU rose 3% year-over-year, representing an increase of TWD 23 per month, an encouraging sign of ongoing value expansion. Slide 7 provides a deep overview of highlights from our consumer application services. In the third quarter, our multi-play package integrating our mobile fixed broadband and WiFi services achieved impressive year-over-year growth of 22%, marking 15 consecutive quarters of expansion. In terms of our video services, subscription fluctuated in line with major sports broadcast declined year-over-year during the quarter, mainly due to the relative high base from -- base from last year Olympic Games broadcast is this event-driven variation. Our video subscription and ARPU sustained its expected upward trend. Noteworthy, we are proud of to highlight the success of drama investments in the third quarter. For example, The Outlaw Doctor won Best Asia content in Global OTT Award in Busan and [indiscernible] at the 30th Golden Bell Awards in Taiwan with multiple nominations and awards. With those wins, we will continue our content investment strategy to strengthen value for our subscribers. Meanwhile, our consumer cybersecurity services recorded a 17% year-over-year growth with a steady number of blocked malicious link per user more than doubling compared to the same period. Slide 8 illustrates the key highlights in our enterprise ICT business. We are pleased with 14% year-over-year increase of our group ICT revenue in the third quarter, fueled by the emerging service expansion. Recurring ICT revenue also grew by 19%, supported by our continued commitment to public cloud in the entity supply contracts in the government sector, which effectively contributed to the steady growth in the cloud service recurring revenue. Regarding core service pillars, IDC cloud and cybersecurity remain key ICT revenue growth drivers, posting year-over-year growth of 34%, 24% and 19%, respectively. driven by the strong demand from the financial and government-related sector. In addition, Big Data services surged by 130% year-over-year, largely attributable to the National Taxation System project. Among the newly secured projects during this quarter, we are glad to report the acquisition of our largest ever network infrastructure project, both by scale and the contract value from a leading life insurance company in Taiwan. This project is expected to generate both onetime and recurring revenue. We also won a landmark project from Taipower to assist in building its large-scale AMI big data analytics platform for smart grid management. Lastly, leveraging our deep expertise in smart transportation, we secured a project to assist Taiwan Railway to develop a smart real-time fleet management solution powered by the digital twin and 5G technologies, simulating training -- train control cabin dashboards, enabling railway operation hub center to proactively identify failing equipment and monitor dispatching vehicles, further enhancing operational efficiency and reducing maintenance costs. Slide 9 illustrated the performance of our international subsidiary. In the third quarter, our U.S. subsidiary delivered outstanding results by achieving 70% year-over-year revenue growth, primarily fueled by AIDC construction project of a Taiwan-based high-tech company in Texas. Together with the efforts of our Japan subsidiary, we anticipate securing additional related projects, strengthen our role in the global AI supply chain. Meanwhile, our Southeast Asia markets continue to thrive with our Singapore and Vietnam subsidiaries actively deliver plant construction services that are expected to contribute to future revenue. Excitingly, this quarter, we successfully introduced our proprietary solution to global markets. First, through close group collaboration, we introduced cybersecurity services from our newly leased subsidiary, Chunghwa Telecom Security, to overseas clients in Southeast Asia and Japan. Furthermore, we launched our Smart Poles solution in Thailand, fully powered by our proprietary operation platform and integrated AI and IoT solution. The solution delivers services, including adaptive lighting control, localized digital synergy in Thai and traffic flow analytics. We placed particular emphasis on our AI capabilities, which enable seamless replication of our success to other markets in different language. In addition, by supporting our aligned nations, in developing smart cities, we have leveraged our 5G private network and ICT capabilities to generate overseas smart city revenue from Paraguay and Eswatini. Last but not least, we are pleased to see the submarine cable SJC2 has commenced operation and is contributing revenue, while another cable Apricot is expected to follow in the fourth quarter. Now let's move on to Page 11 for the financial performance of our 3 business groups. In the third quarter, thanks to steady growth in mobile and fixed broadband service plus the higher sales driven by the iPhone demand, our CGB delivered a solid year-over-year increase of 2.2% in revenue. Additionally, last year's elevated expense related to the content broadcasting rights contributed to the relative increase of 11.4% year-over-year in CGB's income before tax, broadly supporting the group outperformance. Our EBG also performed well with strong ICT performance as revenue increased 7.4% year-over-year, while income before tax decreased owing to the reduced fixed voice revenue during this quarter as well as a decrease in sales margin related to a long-term enterprise customer engagement. As for IBG, revenue declined by 1.9% and income before tax dropped by 19.7%, primarily due to softened demand for voice services. However, we saw a robust growth in IBG, ICT and mobile services, which rose 14% and 19% year-over-year, respectively, supported by clients' global expansion and increased roaming revenue. Now I would like to hand the call over to Audrey for financial updates. Wen-Hsin Hsu: Thank you, President. Good afternoon. Please turn with me to Slide 12, income statement highlights, where I will cover our performance for the third quarter and first 9 months of 2025. The third quarter demonstrates strong execution and profitability. First, let's look at the top line. Revenue reached TWD 57.92 billion. This achieved a significant milestone of the highest third quarter revenue level in 9 years. This represents a solid 4.2% increase compared to the same period last year. This growth was primarily fueled by the successful expansion of our ICT business and also robust sales growth, while our core telecom service maintained positive momentum. Our strong operating performance is clearly reflected in our bottom line. Income from operations rose by 6.4% and net income increased 4.8% year-over-year. This performance was supported by steady growth across our mobile service and fixed broadband business, alongside the expansion of a high-value service, including Internet data center, IDC and cloud service. As a result of this performance, earnings per share increased from TWD 1.16 to TWD 1.22. This reflects consistent profitability and marks the highest third quarter EPS in 8 years. This operational efficiency also resulted in a strong quarter for EBITDA, which recorded a 4% gain, reaching TWD 22.11 billion for the quarter. The EBITDA margin of 38.17% was virtually in line with the 38.23% recorded in quarter 3 last year. This demonstrates sustained cash generation. So now moving now to our year-to-date performance through the first 9 months. Please focus on column 5 through 7 for the results. So revenue grew by 3.5% year-over-year, supported by strong momentum in our ICT portfolio and the sales contribution from our subsidiary, Chunghwa Precision Test Tech. Reflecting its top line strength, income from operations and net income rose 5.5% and 4.2%, respectively, primarily fueled by the continued expansion of ICT and cloud service, supported by sustained positive momentum from our core telecom business. Year-to-date EPS stands at TWD 3.79 compared to TWD 3.64 last year. Furthermore, EBITDA increased 3.6% to strong TWD 67.22 billion. The EBITDA margin stood at 39.43%, broadly consistent with prior year period. So in summary, the results highlighted the dual strength of our stable core telecom foundation and our successful pivot into high-growth ICT service. Now let's turn to Slide 13 for balance sheet highlights. We will review our financial position as of September 30, 2025, relative to year-end 2024. Our balance sheet continues to reflect our strong commitment to capital discipline and financial flexibility. Total assets decreased by 4%, a reduction primarily stemming from the utilization of cash and other current monetary assets to meet a debt maturity obligation during the period. In addition, property, plant and equipment declined by 2.1% as depreciation exceeded net additions, reflecting our continued focus on asset efficiency. Moving to the liability side. Total obligation decreased significantly by 10%. This net reduction resulted from the repayment of a maturing debt obligation and the subsequent partial refinancing through the issuance of our first ever sustainability bond that incorporates biodiversity feature. This reflects our commitment to ESG-based financing. As a result of this deleveraging, our reported debt ratio stood at a healthy 23.91%, showing a slight decrease compared to year-end 2024. Regarding liquidity, our current ratio remains stable and above 100%, highlighting healthy short-term financial flexibility. Meanwhile, our net debt-to-EBITDA ratio stood at an exceptionally low 4.5%. This reflects our highly deleveraged position and capacity to sustain our ongoing investment strategy within a balanced capital structure. Let's move to Slide 14, cash flow summary. We will review our year-to-year performance through the first 9 months of 2025. Cash flow from operating activities decreased by 8.6% year-over-year. This was driven primarily by the timing of the settlements, specifically increased payment for accounts payable and highly accounts receivable as of September 30. Capital expenditures rose 8% year-over-year, partly reflecting the timing of 5G, 4G deployment. This year's project were front-loaded in the early months, whereas last year's occurred later in the period. Some of this year's payment also relate to projects booked last year, so the increase mainly reflects timing rather than high investment activity. On an accrual base, CapEx has actually trended lower and full year mobile investment is expected to remain below 2024 level, consistent with our disciplined approach to capital management. As a result of these factors, free cash flow declined by 16.5% to TWD 28.19 billion year-over-year. This result is in line with expectations, given the short-term increase in working capital and the timing of our CapEx investment. We continue to maintain a strong cash position and stable operating inflows to support both business growth and shareholder return. Moving to Slide 15, performance highlights and guidance. I will summarize our key achievements for the period. In quarter 3 2025, the strength of our execution drove significant acceleration. We achieved record-setting Q3 revenue and EPS, while our key profitability metrics from income from operations, net income and EBITDA all performed strongly and met or exceeded our internal margin targets. For the full 9-month period, the cumulative results validate our strategy, all major metrics, including revenue, income from operations, net income, EPS and EBITDA performed above or on target for our full year guidance. The success was powered by the sustained profitability of our ICT service and the reliability of our core telecom business. Crucially, revenue growth outpaced operating expense, reflecting excellent operating leverage and efficiency. So this concludes our review of the financial performance for the third quarter and the first 9 months of 2025. We are now happy to open the door for your questions. Operator: [Operator Instructions] Cho-Fen Tsai: okay. We got one question from the dashboard. The question is that what is the driver of our international projects business? Okay. For international business, just as we mentioned that in the international markets, besides that, Chunghwa can play a role in the global AI supply chain. So actually, we see great potential of opportunities in the market of United States. So now our subsidiary in the United States are doing the project in Texas in those states that a lot of Taiwan high-tech company relocate there to do some plant construction and most of them are -- play a very important role for the AI supply chain globally. And in the Japan market, we also see similar opportunities in Japan, right? And in addition to that, we also try to introduce our self-development solutions to the global market. So for this quarter, our subsidiary, the CHT Security, their cybersecurity services, we successfully introduced the services to Southeast Asian markets and in Japan, okay, with the collaboration of our subsidiaries in Singapore and in Japan. For the Southeast Asia company, we also see the opportunities from the high-tech companies. That's the main driver of the business growth in Southeast Asia company. And we also try to introduce the smart city-related projects there. So in the third quarter, we see that we successfully introduced our Smart Pole project there. Although we want to notice that the Smart Pole is mainly developed and we introduced our in-house solutions, and we also collaborate with the partners to make it successful in Thailand. Operator: [Operator Instructions] There seems to be no further questions at this moment. I will turn it over to President Lin. Please go ahead. Rong-Shy Lin: Okay, everyone. Thank you very much for your participation. See you. Bye-bye. Operator: Yes. Thank you, President Lin. And ladies and gentlemen, we thank you for your participation in Chunghwa Telecom's conference. There will be a webcast replay within an hour. Please visit CHT IR website at www.cht.com.tw/ir under the IR Calendar section. You may now disconnect. Thank you again, and goodbye.
Operator: Hello and thank you for standing by. My name is Bella and I will be your conference operator today. At this time, I would like to welcome everyone to ZipRecruiter Inc. Q3 2025 Earnings Call. [Operator Instructions] I would now like to turn the conference over to Emilio Sartori, Head of Investor Relations. You may begin. Emilio Sartori: Thank you, operator, and good afternoon. Thank you for joining us for our earnings conference call during which we will discuss ZipRecruiter's performance for the quarter ended September 30, 2025 and our guidance for the fourth quarter 2025. Joining me on the call today are Ian Siegel, Co-Founder and CEO; David Travers, President; and Tim Yarbrough, CFO. Before we begin, please be reminded that forward-looking statements made today are subject to risks and uncertainties relating to future events and/or the future financial performance of ZipRecruiter. Actual results could differ materially from those anticipated in these forward-looking statements. A discussion of some of the risk factors that could cause actual results to differ materially from any forward-looking statements can be found in ZipRecruiter's quarterly report on Form 10-Q for the quarter ended September 30, 2025, which is available on our investor website and the SEC's website. The forward-looking statements in this conference call are based on current expectations as of today and ZipRecruiter assumes no obligation to update or revise them, whether as a result of new developments or otherwise. In addition, during today's call, we will discuss non-GAAP financial measures. These non-GAAP financial measures should be considered in addition to not as a substitute for or in isolation from GAAP results. Reconciliations of the non-GAAP metrics to the nearest GAAP metrics are included in ZipRecruiter's shareholder letter and in our Form 10-Q. And now I will turn the call over to Ian. Ian Siegel: Thank you and good afternoon to everyone joining us today. Despite a persistently soft labor market, ZipRecruiter's momentum continued in Q3, which we believe is clear evidence that our strategy is working. From Q1 '25 to Q3 '25, we delivered consistent sequential revenue and quarterly paid employer growth and our Q4 '25 revenue guidance at the midpoint indicates our first year-over-year increase since Q3 of '22. This performance comes despite both hires and the quits rate in the U.S. remaining near their lowest levels since 2015. ZipRecruiter is showing strength with enterprise employers in particular. Performance-based revenue grew 12% quarter-over-quarter, the most growth we've seen in the past 3 years. Multiple long-term product investments are now bearing fruit. We've made it easier for enterprises to start spending with ZipRecruiter thanks to our over 180 ATS integrations. We've improved the return on that spend through our programmatic campaign optimization tools. And we've greatly improved the job seeker application experience to enterprise jobs through the development and growing adoption of ZipApply. On the job seeker side of our marketplace, we are focused on reaching people wherever they are no matter how they choose to find work. After consistently gaining market share with job seekers, we now see generative AI as a new and rapidly growing channel of job seeker traffic. In response to this emerging market reality, in Q3 we further optimized for AI-driven discovery driving a 140% sequential increase in visits from generative AI models. We credit our 2025 performance to the multiyear investments we have been making into tomorrow's hiring solutions. ZipRecruiter's strategic strengths continue to endure despite the macro. \We remain the #1 rated job search mobile app in both app stores and the #1 rated recruiting site for employers. We maintain over 80% aided brand awareness among both the job seeker and employer sides of our marketplace. And we continue to use the billions of interactions in our marketplace to train our AI-powered matching algorithms, driving better outcomes for job seekers and employers. We believe ZipRecruiter is in a strong position to shape the future of work and lead the shift from offline to online recruiting enabling us to capture outsized market share when the market recovers. I'll now hand the call over to Dave to share some business highlights. Dave? David Travers: Thanks, Ian, and good afternoon. We continue to focus our product and technology investments on driving better matching and engagement across our marketplace. Our strong results in Q3 demonstrate the value these investments are creating for both employers and job seekers. I'm excited to share a few highlights with you. Quarterly paid employers hit 67,000, increasing 1% sequentially and 3% year-over-year. This is our first time seeing year-over-year growth in quarterly paid employers since Q1 of 2022 demonstrating the value of our brand and product offerings despite the subdued hiring market. Our enterprise strategy is delivering strong results. Enterprise customers who run sophisticated hiring campaigns rely on us to optimize their campaign performance by delivering high quality candidates. In Q3, we improved our automated campaign performance optimization solution to increase the efficiency of employer spend. As a result, enterprise customer adoption of this solution increased 19% quarter-over-quarter and drove stronger campaign performance, contributing to the 12% sequential increase in performance-based revenue in Q3. This marks the largest sequential growth in performance-based revenue in over 3 years and signals that our enterprise partners are finding increasing value in our products and services. ZipIntro, an AI-powered solution that speeds up hiring by rapidly connecting employers and job seekers for face-to-face conversations, continues to build momentum. Enterprise customers are rapidly adopting the tool. In Q3, interviews and scheduled sessions for enterprise customers increased by 80% sequentially building on the sequential growth of 90% we delivered in Q2. In Q3, we released upgrades to our next-generation resume database, including productivity tools designed to help recruiters review candidates faster, collaborate seamlessly and fill roles sooner. As a result of these enhancements, SMB employer resume unlocks increased 11% sequentially building on the 12% sequential growth in Q2. We believe that this consistent increase in employer adoption demonstrates the increasing value SMBs are finding in our resume database. Job seekers are increasingly using generative AI to search for job opportunities. And in Q3, we optimized our marketplace to help these next-generation tools easily discover and surface employer jobs. This improvement drove a 140% sequential increase in site visits from generative AI. We believe that reaching job seekers no matter how they find work will allow us to capture market share over time. In 2024, we acquired Breakroom, a workplace rating platform purpose-built for workers in frontline industries. In August of 2025, we launched Breakroom in the U.S. and it is quickly gaining traction with employers and job seekers alike. As of September, Breakroom has published over 10,000 employer profiles, up from 8,000 in the prior quarter. This is powered by over 1 million ratings from workers in the U.S. These ratings provide job seekers with crucial data on working conditions to make more informed and more confident decisions about their next great opportunity. I'll now turn the call over to Tim to review our financial results and guidance. Tim? Timothy Yarbrough: Thank you, Dave, and good afternoon, everyone. Revenue in Q3 '25 was $115 million representing a 2% decline year-over-year and a 2% increase sequentially, exceeding the midpoint of our guidance. This sequential increase was primarily driven by the 12% quarter-over-quarter increase in performance-based revenue from our enterprise employers. Quarterly paid employers were 67,000 in Q3 '25. This is an increase of 3% year-over-year and 1% sequentially. This marks the third consecutive quarter of sequential quarterly paid employer growth and importantly, our first year-over-year increase in quarterly paid employers since Q1 2022. Our continuing momentum with employers of all sizes is a strong indicator of our brand's resilience despite the macroeconomic volatility. Revenue per paid employer for Q3 '25 was $1,717, down 4% year-over-year, but up 1% sequentially driven mainly by the growth in performance-based revenue from enterprise employers. Performance-based revenue made up 24% of our total revenue in Q3 '25, up from 22% in the prior quarter. Our net loss in Q3 '25 was $9.8 million. Adjusted EBITDA in Q3 '25 was $9.2 million resulting in an adjusted EBITDA margin of 8%. This is flat compared to the 8% margin in Q2 2025 with higher revenue offset by higher expenses. As of September 30, 2025, our cash, cash equivalents and marketable securities totaled $411 million. During Q3 '25, we repurchased 2.2 million shares for a total of $10 million. Looking ahead to our guidance for Q4 '25, we anticipate revenue to be between $109 million and $115 million. The midpoint of $112 million represents a 1% increase year-over-year, a return to year-over-year revenue growth for the first time since Q3 2022. The 3% sequential decline in revenue follows typical seasonality despite a subdued macroeconomic environment. Our guidance assumes a continuation of the same stable, but subdued hiring environment observed in Q3 along with normal seasonal slowness during the holiday periods. Our adjusted EBITDA guidance midpoint of $14 million implies a full year 2025 adjusted EBITDA margin of 9%. This exceeds the mid-single-digit scenario we outlined earlier in the year. We continue to believe in disciplined capital deployment and sustained investment in high ROI product and marketing opportunities. Despite the ongoing macroeconomic challenges, we've maintained adjusted EBITDA profitability while investing in our product and technology, which we believe sets us up to achieve our long-term goal of 30% adjusted EBITDA margins. We are successfully navigating this period, stabilizing revenue this year in a subdued macro environment while leaning into strategic long-term investments that we believe will drive future growth. With that, we can now open the line up for questions. Operator? Operator: [Operator Instructions] Your first question comes from the line of Justin Patterson with KeyBanc. Sergio Segura: This is Sergio Segura on for Justin. Just the market reception for products like automated campaign optimization and ZipIntro seem to be strong. So just wondering how should we think about product innovation influencing growth against a still weak macro? Ian Siegel: This is Ian. Thank you for your question. I think what you can see is there is clear evidence that our product strategy is working and that in spite of the macro, we have been able to grow both revenue and utilization of our product by both sides of the marketplace. And I think the only explanation for why that strategy is working is because we are taking market share. We are growing because our solutions are being embraced by the market. We have picked the right lanes in which to focus. And in particular, as it relates to enterprise, we've been having tremendous success, which has been a labor of many years to put all the pieces in place as we discussed in the initial comments at the beginning of this call where it took a lot of work to get the 180 ATS integrations done, but that means that large buyers can more easily activate and start buying from ZipRecruiter. It took a lot of work to both deploy and optimize an automated campaign optimization tool and yet that's becoming a fundamental part of the value that these enterprise customers get from us because they get substantially better results when they use that tool, which is why you saw adoption of it grow by 19% in the past quarter. I think when you look at our marketplace as a whole, for a long time we've talked about the split between SMB revenue and enterprise revenue, and what you're starting to see is the balance that we have predicted for a long time start to play out. As the innovations and optimizations to our product have been deployed, we're seeing the market respond positively to that. And even in this time of what we'll call like a subdued labor market, we are finding momentum. Operator: Your next question comes from the line of Josh Chan with UBS. Joshua Chan: I was wondering if you could share a little bit about sort of your macro view. It doesn't sound like that from your perspective much has changed from a macro perspective, but curious what you saw kind of cadence through the quarter and how that informs kind of the guidance for Q4 from a macro perspective. Ian Siegel: Well, I think as we talked about coming into 2025, post election there seemed to be a really significant spike in optimism from businesses of all sizes in regards to their hiring plans. And then as we've gotten into 2025 for a variety of reasons, I think the overall picture is one of more of a continued modest decline in hiring is what we have observed. There have been brief periods of stability, but the overall bend has still been one of modest decline. The projections that we gave you are based on an expectation of a continuation of the market that we are in. We will continue to observe what is happening in the labor market as we give you future projections. But as far as our Q4 goes, our assumptions are fundamentally that the market continues on its current relative trend. Joshua Chan: Great. And I guess from a margin perspective, what's enabling the Q4 margin strength versus sort of the mid-single-digit characterization from earlier in the year? And then obviously as we kind of return to growth, will there need to be another investment phase or are we kind of off to these relatively higher margin levels compared to the recent past? Timothy Yarbrough: Yes. This is Tim. Thanks for the question, Josh. So as far as margins go, what you see in Q4 is reflective of I think more of a typical seasonal pattern in our marketing investment. When we make these investments, we're doing so opportunistically based on the returns that we're seeing. And so over the course of Q4, typically we see a slight downturn in terms of hiring overall especially surrounding the holidays and oftentimes our marketing investments reflect that. Overall though we're still leaning into opportunities for high ROI opportunities as we see them, but that's generally going to result in a higher adjusted EBITDA margin in periods like Q4. Operator: Your next question comes from the line of Trevor Young with Barclays. Trevor Young: Great. On the 12% sequential growth in the performance-based revs on the enterprise side, was there something that kind of changed this quarter that all of a sudden made it click? I know we've been talking for a lot of quarters and frankly, a number of years on the continual changes to the product, all the ATS system integrations, taking out the campaign optimization tools and so forth. But it just seems like that was really a strong pickup. Just wondering if there's any nuance there as to why this quarter it was particularly strong. David Travers: Trevor, this is Dave. It was really strong this quarter. I think it is the cumulative effect of a bunch of things we've been up to for a long time, but I would highlight 2. One, as we've talked about before, continuing to take market share and continuing to have the highest rated job seeker apps in the app stores of both Google and Apple. Fundamentally, enterprises want job seekers and increasingly, it's clear to them not only that job seekers are choosing ZipRecruiter, but why they're choosing ZipRecruiter. And so that is incredibly powerful for our enterprise customers and our continued momentum there. And then secondly, the campaign performance tool that we've mentioned a couple of times already. Fundamentally, it takes less work now to get better results with our latest generation tool where you, as a customer, say what your goals are and the magic of our technology empowered by AI and a bunch of other underlying tech makes it increasingly likely that you're going to have your goals not just met but exceeded. And so that is fundamentally the 2 underlying things. We've been executing well against that and enterprises don't move on a dime. It takes several quarters of great execution for that to come to fruition and we feel really good about where we're at. Trevor Young: That's really helpful. And to that point that enterprises are maybe slow to move, but maybe once there's that inertia there, should we then assume that that performance-based revenue should be stronger sooner than the recovery on the subscription side of things? Is that a fair way of thinking about it for 4Q and then beyond? David Travers: I definitely think in Q3 we were taking share rather than riding an overall market trend and we feel very good about the indicators we see in terms of what the long-term potential is there. So I'm feeling good about it. And I think when I talk to customers all the time, it increases my confidence that we're doing all the right things to serve the high end of the market. Operator: Your last question comes from the line of Kishan Patel with Raymond James. Kishan Patel: This is Kishan on for Josh Beck. What is driving quarterly paid employer trends, which returned to growth this quarter? And are growth trends different across new employers on Zip versus reactivations? Timothy Yarbrough: Kishan, thanks for the question. This is Tim. The trends have been consistent all year long so showing quarterly paid employer growth sequentially in Q1, Q2 and now in Q3. And I think all of this is reflective of our forward-looking stance on customer acquisition and engagement. The strength that we're seeing is coming from both of those categories that you mentioned. So we are seeing a return of new paid -- an increase in new paid employers and a return of former employers that were at our marketplace before that are looking to reengage in hiring. So those 2 vectors have been driving the paid employer growth number throughout the course of the year. Ian Siegel: And I would just add, this is Ian, that the level of engagement on our platform is achieving new heights and there's a combination of product improvements that have led to this. But on a year-over-year basis, 24% more of the SMBs that use our service for recruiting are getting 5-plus candidates within the first 24 hours and that is a direct testament to the algorithmic matching that we're doing, which is identifying messaging and inducing those candidates to apply. So I think just fundamentally, the service is getting better. Kishan Patel: Got it. If I can ask a follow-up. You mentioned site visits from GenAI search engines are up 140% year-over-year. Can you share any surprises on conversion quality or downstream revenue from that uptick versus traditional traffic? Ian Siegel: This is Ian again. Yes, I would say we're all watching generative AI very closely as a new source of job seeker traffic and a new pattern of job seeker behavior. It is still emergent. It is rapidly changing. The quality of traffic from that is on par with the quality of traffic we're seeing from other sources. I think it is definitely poised for continued growth and it's something we're putting a lot of attention on to. And we are quarter-by-quarter optimizing our site and the experience that we provide both to job seekers and to those engines to increase the probability that we are the answer that one of those engines get or that a job seeker that comes from one of those engines has a strong experience on ZipRecruiter. David Travers: This is Dave. The other thing I would add to that is that in addition to doing all the work to make ourselves visible, structure our data, et cetera so that generative AI becomes a powerful new growth channel for us with job seekers, that's the handoff to then create the great experience once they get there. So we talked about ZipIntro obviously earlier, but that's a pattern of job seeker behavior where they start out in generative AI having that conversation about where to look for a job and then end up on ZipRecruiter where they're quickly then talking to a real employer about a real job opportunity. And we see explosive growth in both the front end with generative AI and then in the subsequent conversation with a hiring manager and that's a powerful combination. Operator: That concludes our Q&A session. Ladies and gentlemen, thank you all for joining and you may now disconnect. Everyone, have a great day.
Operator: Good morning. We welcome you to the EDP and EDP Renewables 9 Months 2025 Results Presentation. [Operator Instructions] I now hand the conference over to Mr. Miguel Viana, Head of IR and ESG. Please go ahead, sir. Miguel Viana: Good morning. Welcome to EDP and EDPR 9 Months 2025 Results Conference Call. We have with us today our CEO, Miguel Stilwell d' Andrade; and our CFO, Rui Teixeira, that will present you the main highlights of EDP and EDPR financial performance in the first 9 months of 2025. The presentation will be followed by a Q&A session in which we'll be receiving just written questions that you can insert from now onwards in the text box available in the webcast. As we'll have just later on at 10:00 a.m. London time, our Capital Markets Day presentation. So the Q&A session will be focused on teams around the 9 months financial performance. I'll pass now the floor to our CEO, Miguel Stilwell d' Andrade. Miguel de Andrade: Thank you, Miguel, and good morning, everyone. So thank you for attending our 9 months 2025 results conference call. As Miguel said, we'll be doing the EDP results and then the EDPR, so really a 2-in-1 call, but for the reasons that Miguel has already mentioned. And so I'll go straight into the EDP overall numbers. If we go to Slide 3, we'll see the recurring net profit has reached EUR 974 million in the first 9 months of the year. So that's up 5% in underlying terms. And that reflects basically higher wind and solar installed capacity, higher generation and also the resilient electricity networks. On the wind and solar front, underlying EBITDA is growing 21% year-on-year, and that's supported by almost 20 gigawatts of installed capacity and generation up also 14% year-on-year. Electricity networks, they continue to show good resilience. Underlying performance, excluding asset rotation gains and FX is increasing 3% year-on-year. And our integrated business in Iberia is also delivering solid results. So although year-on-year comparison was impacted by higher sourcing costs, lower hydro volumes and lower contracted prices, this was partially mitigated by the performance of our FlexGen fleet in Iberia. It's also important to note that the asset rotation gains were lower at this point in the year, so EUR 55 million versus EUR 250 million last year, so the same time last year at the EBITDA level. And I think that just reinforces the strength of our underlying performance. So if you look at the numbers ex capital gains. Finally, just to mention, we'll also show -- or we continue to show an improvement in efficiency with lower costs and better productivity metrics, for example, in things like OpEx per megawatt, et cetera, and Rui will get into that in his slides. So overall, these results underscore the strength of our integrated model even in the context of reduced asset rotation gains. And with that, I'll pass it over to Rui to present the EDP and the EDPR financials. Rui Manuel Rodrigues Teixeira: Thank you very much, Miguel. Good morning to you all. So let me start first with EDP's results. And then moving to Slide 5. So our EBITDA reached EUR 3.7 billion in the 9 months of 2025. That's a 2% increase on underlying year-on-year or actually 4% when excluding FX effects. So let's look to the recurring figures. Renewables clients, energy management decreased EUR 99 million year-on-year. And this is coming from EUR 198 million decrease in this segment, the hydro, clients and energy management, comparing last year, the fact that we have now lower hydro volumes, lower contracted price and higher sourcing costs. This is mainly in Iberia, and there is also some FX impact in Brazil. Strong performance of EDPR, EUR 1,100 million (sic) [ EUR 111 million ] year-on-year. If we compare last year's asset rotation gains of EUR 179 million with this year's EUR 59 million, this means an increase of EUR 231 million in underlying terms. driven by the increase in installed capacity. And obviously, this is following the record additions we had in 2024. On the network side, EBITDA is declining EUR 91 million, but this is mostly due to the absence of asset rotation this year compared to the EUR 71 million or the capital gains from the asset rotation, compared to the EUR 71 million that we booked in the 9 months '24 and also the loss of EBITDA from the transmission lots that were sold, which together, they -- with the asset rotation gain represent around EUR 102 million reduction versus last year. Additionally, this segment is also impacted by the euro-Brazilian real depreciation. If we now move to Slide 6, the performance on the wind and solar segment. Recurring underlying EBITDA grew 21% or 23% when excluding FX impacts. It's a robust growth. It reflects a significant step-up in generation following our record capacity additions last year. Although this has been negatively impacted by worse renewable resources in Q3, mostly in North America, you may have seen that it was one of the worst quarters in 20 or more than years, I think, since 1989. So I won't spend too much time here. We'll provide a bit more color on EDPR's performance in the next section. So let me move now to Slide 7 and deep dive into the hydro activity in Iberia. So hydro inflows, 38% above the long-term average, higher than the 33% level that we saw last year. However, despite this increase, the hydro generation was lower year-on-year since the rainfall was primarily used to reestablish reservoir levels, and this was mostly in Q1, as you can see by the chart on the right-hand side. So even with lower generation year-on-year, hydro output remained above average and the uncontracted volumes were sold at higher prices compared to 2024, with the Iberian pool price reaching EUR 65 per megawatt hour versus EUR 52 per megawatt hour in the 9 months of '24. The contracted volumes were sold at a lower price of EUR 70 per megawatt hour in this year compared to the EUR 90 per megawatt hour in the 9 months last year. Regarding the outlook for the remaining part of the year, October was dry with the hydrological index 36% below average. Meantime has starting to rain. In any case, we see reservoir levels still above average, but obviously decreasing. So I would say that we can expect a weaker fourth quarter as compared to previously expectations into Q3. If we now move to Slide 8 to our hydro, clients and energy management segment. As a whole, EBITDA stood at EUR 1.1 million or EUR 1.14 million. That represents a fall of 15% versus last year as expected. It's a mix of different dynamics. So Iberia in the 9 months '24 were impacted by extraordinary gas sourcing costs. In one hand, hydro generation volumes net of pumping were 7.2 terawatt hours versus 8 terawatt hours last year. So that's a 10% drop. While on the other hand, pumping generation increased by 28% and CCGT's generation increased by more than 3 terawatt hours as requested by the system operators, both from Portugal and Spain. I would also highlight that in line with the trend that we saw in the second quarter, in the 9 months, we had an increase in flexibility revenues from generation, but also some costs on the supply side, which we expect to persist in the fourth quarter 2025. Finally, in Brazil, EBITDA declined from EUR 141 million to EUR 106 million, but this is primarily due to FX impact. So overall, despite the decline in headline figures, following a very strong 2024, the segment continues very solid. Now moving to Slide 9 on the networks. Recurring EBITDA reached EUR 1.18 million -- billion in the 9 months this year. That represents a 7% -- minus 7% year-on-year. This decline is primarily explained by the absence of asset rotation gains in '25, as I introduced before, which amounted to EUR 71 million in the 9 months last year. But there's also some other moving pieces here. So let me break this down probably in 3 main building blocks. So the first one is a EUR 33 million increase of EBITDA in Iberia following inflation update in Portugal and RAB growth in Iberia in Spain. Flat EBITDA in Brazilian real, driven by the improvement in operations being mitigated by the loss of EBITDA from transmission lines that were sold. And naturally, the Brazilian real devaluation and no capital gains and the segment is minus EUR 53 million versus last year. So all in all, EBITDA for electricity networks, excluding asset rotation gains and ForEx increased 3%, showing the resilience that is expected from this segment. If we now move to Slide 10. Net debt stood at EUR 17.3 billion from EUR 15.6 billion at year-end 2024. This is obviously reflecting the execution of the investment plan, the annual payment of dividends and the fact that we will have proceeds from asset rotation and tax equity, we expect it to be mostly concentrated in the last quarter. So the key drivers for the change in net debt include EUR 2.1 billion organic cash flow, reflecting an improved working capital performance with organic cash flow increasing EUR 0.5 billion year-on-year from EUR 1.6 billion in the 9 months last year, EUR 0.8 billion of dividend, annual payment -- dividend annual payment executed in May. EUR 2.4 billion of net cash investments, including EUR 3.1 billion of cash CapEx, including EUR 0.5 billion related to working capital changes with PP&E suppliers. And this is offset by EUR 0.4 billion of asset rotation proceeds and EUR 0.3 billion of tax equity proceeds. And then we have about EUR 0.8 billion from regulatory receivables and others. For the year-end, we expect to reach the EUR 16 billion net debt, considering the EUR 2 billion asset rotation proceeds in total expected for the year and the EUR 1 billion tax equity proceeds in total expected for the year. And that, as I said before, it's -- we are expecting that to come -- so the remaining piece is in Q4. And with this, we will be reaching a 19% FFO net debt ratio and therefore, meeting our BBB goal in terms of funding net debt ratios. Now on Slide 11, recurring net profit, EUR 974 million. So that's a 5% increase year-on-year. This is coming on the back of a lower EBITDA, as I explained before, EUR 139 million, lower than last year, a combination of lower asset rotation gains and the decreased results from the integrated segment in Iberia. Higher D&A and provisions, increasing EUR 107 million, resulting from our investment path and the increased net financial costs driven by higher cost of debt, 4.5% last year and this year, 4.9%. And this is primarily due to the higher cost of debt in Brazilian real, which is it's floating and also the average -- the higher average nominal debt. So we also have some lower income taxes, lower noncontrolling interest. And basically, this takes us to the net profit. So highlighting again that excluding asset rotation gains, the underlying performance on the net profit shows a 5% increase versus last year. So definitely a very solid operational performance. In reported terms, net profit reached EUR 952 million, including the negative impact of around EUR 22 million, mostly related to some EDPR impacts. So I will now turn to EDPR's performance for the first 9 months of 2025. So on Slide 14 (sic) [ Slide 13 ], you can see that EDPR delivered a strong set of results. I mean, this is marked by robust underlying EBITDA and net profit, continued capacity delivery, solid progress on the asset rotation plan throughout 2025. Operationally, EDPR reached 19.8 gigawatts of installed capacity with generation up 14% despite this lower renewable resource that we experienced in Q3. The average selling price declined 9% year-on-year to an average of EUR 54 per megawatt hour, reflecting the changes in the generation mix, lower average prices in Europe, mainly from hedges normalization and the lower feed-in tariff prices in Portugal. Recurring EBITDA reached EUR 1.4 billion. That's up 9% year-on-year, with underlying EBITDA growing by 21%. I think it's important really to note that asset rotation gains were EUR 59 million this period compared to EUR 179 million in the same period last year because this really shows the strength of the underlying business performance. Recurring net profit came at EUR 189 million or if we exclude asset rotation gains, EUR 153 million. So that's definitely a very important increase, EUR 111 million versus 9 months 2024. Overall, these results underscore EDPR's ability to combine the growth, efficiency and value creation, reinforcing our confidence in the outlook for the remaining of the year. So now let's go a bit deeper into EDPR's results. So if you focus on EBITDA, Slide 15 (sic) [ Slide 14 ], this was driven by EUR 1.6 billion from electricity sales, EUR 308 million of tax equity revenues from North America. That's a 20% increase in generation and new capacity additions. On the back of this, EUR 59 million of capital gain from asset rotations that we closed in Spain and France and Belgium, with the remaining gains to be concentrated in the fourth quarter. And then we have less the impact of EUR 574 million from core OpEx, which is mostly in line with last year's. And I would highlight here the strong efforts in cost and efficiency improvement that we have been implementing across the company. And you also can see that on the ratios on the OpEx per megawatt that have been really under control, and I think they are probably one of the best-in-class in the sector. EUR 22 million from other net costs that improved around EUR 80 million on the back of no material impacts this year. As you may remember, last year, we had some headwinds in Colombia, also Romania. This year, we don't. And therefore, that's a significant improvement impacting our EBITDA. So these results highlight improvement in the underlying business as a whole from an operational perspective as well as this enhanced efficiency that we've been deploying. So now turning to Slide 16 (sic) [ Slide 15 ]. I'd like to look at EDPR's cash flow evolution for the first 9 months of this year. So organic cash flow reached EUR 458 million, representing a EUR 0.2 billion increase year-on-year, reflecting a solid performance of our operating portfolio as well as the changes in working capital, distributions to minority interest and the tax equity partnerships. I'd like just to note that organic cash flow excludes tax equity cash proceeds, which are typically received at the project completion and have an immediate positive impact on net debt. First 9 months of this year, we received EUR 278 million, and we remain on track to reach EUR 1 billion for the full year. As of September, net debt stood at EUR 9.2 billion. It's up EUR 0.9 billion since December last year. The increase is primarily driven by the EUR 1.6 billion in net expansion investments, obviously supporting the portfolio growth. And this is partly offset by the asset rotation proceeds from the transactions, as I mentioned, closed in Spain, France, Belgium and also U.S. Looking ahead, we do expect net debt to converge to around EUR 8 billion by year-end, supported by the timing of the asset rotation and tax equity proceeds. As I mentioned, this will be concentrated now until the end of December. Also highlighting that already in October, we closed a transaction for a 1.6-gigawatt portfolio in the U.S. Again, just to emphasize, it's a 49% sale, straight equity, no structure. And I think it came in the context, as you know, quite a lot of uncertainty throughout 2025. So definitely a great transaction executed on top of the one that we have been executing in Europe. And as you know, we have already signed some European transactions that we are expecting to close before the end of the year. Now moving to Slide 17 (sic) [ Slide 16 ]. So as previously highlighted, EDPR's recurring underlying EBITDA rose by EUR 231 million, again, on the back of the solid performance on the operational side. Depreciation and amortization increased, obviously, on the back of the new capacity additions. We do have some one-off impact from accelerated depreciation of repowering wind farm in the U.S. Financial results increased on the back of higher nominal financial debt, lower capitalized financial expenses, partly offset by some FX and derivatives. Contribution to minorities improved year-on-year following the completion of the buyback of CTG minorities in late 2024. So at the net profit level, we recognized around EUR 40 million of one-off impacts this quarter, and this is mainly from impairments in Europe related to noncore countries. So all in all, recurring net profit reached EUR 189 million. Excluding capital gains, this represents a fourfold increase versus last year. Again, just underscores the strength of EDPR's underlying performance. Summary, EDPR's performance during 9 months, I think it's a testament to the ability to execute, to adapt, deliver sustainable growth. We will have -- Miguel will be presenting the strategy for the next few years. But I think that we are definitely on a good track in terms of how we are delivering the results this year. So I would hand over to you, Miguel, for final remarks. Thank you. Miguel de Andrade: Thank you, Rui. So just to wrap up and moving on to Slide 18. Just to reinforce the guidance. So we're expecting a recurring EBITDA for 2025 of around EUR 4.9 billion, and that's supported by strong performance across all of the business segments, and you can see that already at the 9 months numbers. Breaking this down by segment. So the integrated generation supply should deliver about EUR 1.4 billion of EBITDA of about -- of which EUR 1.1 billion was already recorded in the first 9 months. Wind and solar, including EDPR, expected to contribute roughly EUR 1.9 billion, including EUR 0.1 billion of asset rotation gains and having the 2 gigawatts capacity additions on time and on budget. And electricity networks forecasted at around EUR 1.5 billion with the distribution performance mitigating the transmission asset deconsolidation and the Brazilian real devaluation. Recurring net profit, approximately EUR 1.2 billion, impacted mostly by a higher cost of debt on the Brazilian real debt, an average higher debt since the asset rotation proceeds and the tax equity proceeds are expected to be received more towards the end of the year. Net debt expected to stand near EUR 16 billion, so assuming about EUR 2 billion in asset rotation proceeds and about EUR 1 billion in tax equity proceeds for the year. All in all, guidance reflecting resilience, reflecting the strength of our integrated and diversified portfolio, as Rui has also mentioned. And obviously, we'll be providing further color on the outlook for the years ahead in the next presentation, the CMD. But for now, I'll pass it back to Miguel to see if there are any questions, so we can take those, mostly concentrated on the 9 months numbers. Thanks. Miguel Viana: Thank you. So we have here some written questions. And the first one from Pedro of CaixaBank BPI regarding the capital gain at EDPR in the first quarter, if it relates only with the sale of the 121 megawatts wind portfolio in France and Belgium? And if we can clarify the good capital gain per megawatt implicit in the transaction. Miguel de Andrade: Okay. So thank you, Pedro. Yes. So in the first -- in the third quarter, the capital gain is mostly related to the French and Belgium portfolio, and it's around EUR 0.4 million per megawatt. So the multiple was great. It was an EV per megawatt of around EUR 1.6 million per megawatt. And that implies around 28-or-so percent capital gains on invested capital. So yes, it was a great deal. I think this just reinforces that we continue to see strong demand for these portfolios. We continue to see great multiple for these portfolios. And in Europe, we've been consecutively able to deliver on good numbers here. It was a good operating portfolio with around 11 wind projects in France and 1 wind project in Belgium, all with COD around 2020. I mean in this case, the buyer is a financial investor. And as I said, we continue to see strong interest for our assets at attractive implicit yields. Miguel Viana: We have also a question about what impact we have in our 9 months '25 accounts regarding the extra cost with the ancillary services in Iberia related with the increase of these costs during this year, namely supported on the supply side? Miguel de Andrade: Yes. So ancillary services, as you know, post blackout, there was a big increase, but there has already been a structural increase before that. And I'll talk a little bit about that later in the CMD. I mean the value is estimated at around EUR 150 million. But just bear in mind that the revenues on the generation side have to then be passed on to customers. And in some cases, those contracts are already fixed. So on a net basis, we continue to benefit from our FlexGen portfolio, but obviously partially offset by sort of then the pass-through to the customers taking just happening over the next couple of years. But we can give you more detail on that also when we talk in the CMD. Miguel Viana: So we have also a question regarding the guidance for 2025. So we see now the EBITDA on the EUR 4.9 billion, which is at the top of the previous range provided. Net income at EUR 1.2 billion. So if we can comment on this evolution for the guidance for 2025. Miguel de Andrade: Yes. So what I'd comment here on the guidance is, listen, we're very confident on delivering the guidance for all the different business segments, including the integrated in Iberia. I mean we did have a weaker October, and that's also incorporated. But we are also seeing -- so that's sort of at the EBITDA level. There's no doubt we're sort of at the top end of the range. But we are seeing slightly higher financial costs, especially in Brazil and also tax rate expected to be around 25%, 26% by year-end. And therefore, the net income coming in still within the range, but close to the EUR 1.2 billion end of the range. Miguel Viana: We have also a question regarding our current exposure, regarding offshore in U.S. And if we have any comments regarding latest news regarding permitting in U.S.? Miguel de Andrade: So there was some news that came out. I think it was an article, that's probably what you're referring to, article that came out in the New York Times or something like that, around offshore in the U.S. and around the permitting. As you know, offshore in the U.S. is pretty much in hibernation mode at the moment and sort of it's been much more about just riding out this phase. We have an exposure, and we said this multiple times. We have a total exposure at the EDPR level of around EUR 300 million. It's about EUR 200 million at the EDP level. We already partially impaired that at the end of last year, assuming that we're going to delay the project 4 years. So we're keeping this exposure contained and sort of at a minimum. And we're just focused on building the legal case to defend the project permits and the value and also just then focusing on what could be the next steps. Essentially, we're at the same stage as many other of our peers are in relation to offshore in the U.S. I think the key issue here is what is the value it's taken. As many of you know, it's around the EUR 300 million at the EDPR level, which has already been partially impaired. Miguel Viana: We have also a question in terms of the -- how we are evolving in terms of hedging for 2026, where we are in terms of contracting in terms of hedging volume and prices in Iberia? Miguel de Andrade: So for hedging, as you know, we typically hedge 12 to 18 months ahead. So in this case, for 2026, we're already around 85% hedged at a price that's north of EUR 64 per megawatt hour. This is something that we do sort of on a rolling basis. But for 2026, it's pretty much all set. I would say we normally don't -- we wouldn't hedge more than this just because of -- just to make sure from a risk perspective, we don't become overhedged. So 85% is -- I would consider to be already the level of hedging that we want for 2026, and that's at the EUR 64 or north of EUR 64 actually in this case. Miguel Viana: We have the last question just in terms of execution of 2025, if we -- how do we see our delivery in terms of the target 2 gigawatts in EDPR in 2025? Miguel de Andrade: So we are on track, on time, even slightly under budget in some of the projects, but overall, very much within the budget for the 2025 project. And so I'd say that, that's -- it's a good year from an execution point of view. There's been no issues around supply chain, everything sort of is on site, and we're just wrapping up sort of -- and we'll be wrapping up sort of by the end of the year. So I'd say everything on time, on budget and on track. Miguel Viana: So we have no more questions. Miguel, just if you want to just closing remarks. Miguel de Andrade: I'd say, listen, it was a good set of -- it's been a good year, good 3 quarters. And I think we're well positioned to have a good full year and looking forward to talking to you about the next couple of years at the CMD. So look forward to seeing you all then. Thanks.
Operator: Good afternoon, ladies and gentlemen. Welcome to Chunghwa Telecom Conference Call for the company's Third Quarter 2025 Operating Results. [Operator Instructions] And for your information, this conference call is now being broadcasted live over the Internet. A webcast replay will be available within an hour after the conference is finished. Please visit CHT IR website at www.cht.com.tw/ir under the IR Calendar section. And now I would like to turn it over to Ms. Angela Tsai, Vice President of Financial Department. Thank you. Ms. Tsai, please begin. Cho-Fen Tsai: Thank you. I'm Angela Tsai, Vice President of Finance at Chunghwa Telecom. Welcome to our third quarter 2025 results conference call. Joining me on the call today are Chunghwa's President, Rong-Shy Lin; and our Chief Financial Officer, Audrey Hsu. During today's call, management will begin with sharing our recent strategic achievements and provide an overview of our third quarter business results. This will be followed by a discussion of our segment performance and financial highlights. We will then open the floor for questions and answers. Please turn to Slide 2 to review our disclaimers and forward-looking statement disclosures. Now without further delay, I will turn the call over to President. President Lin, please go ahead. Rong-Shy Lin: Thank you, Angela, and hello, everyone. Welcome to our third quarter 2025 results conference call. Extending the outperforming results of this first half, we continue to beat the financial guidance in the third quarter. Our revenue, operating income, net income and EPS all exceeded the upper end of our forecast. Third quarter revenue hit its highest level since 2017, reflecting the robust growth in our core business and extending ICT services. ICT revenue alone set a new third quarter record, the highest since 2021. As Taiwan's telecom market continued to develop healthy, we are confident in our full year financial results and supported by our leadership across all business segments. For our midterm to long-term development, we believe that group expansion of -- and AI-related initiatives are critical, and we have taken proactive steps. In this area, we are pleased to see our cybersecurity subsidiary, a Chunghwa Telecom Security, successfully complete its public listing in September with International Integrated Systems soon to follow in its upcoming IPO. Moreover, in October, we launched InventAI, a new subsidiary spun off from our research division, dedicated to monetizing AI innovation. Our AI capabilities have received significant recognition and honors. On the global stage, our first self-developed Vision-Language Model technology secured first place in the transportation category at the Global AI City Challenge, a prestigious international competition co-organized by NVIDIA and a leading university worldwide. This recognition was earned through our technology, superior accuracy and predictive capabilities in analyzing highly complex traffic scenario. In Taiwan, we hold the largest portfolio of AI-related patents in the industry, far ahead of our peers, serving as a solid base for future development. We are proud of these achievements and remain committed to maintaining our competitive advantages. Our technology expertise and resilient network have also created social value to benefit the public. In August, as Taiwan was suffering from catastrophic typhoon, we overcame challenges to deliver portable OneWeb equipment and restore communication in isolated area affected by the breakdown, demonstrating our commitment to social responsibility. Additionally, as we continue to invest in facilitating ESG practice, we completed the issuance of TWD 3.5 billion sustainability bond in the third quarter to promote biodiversity, EV initiatives and other environmental projects. This reflects our action to integrate ecological conservation, decarbonization and green finance to progress towards net zero. Now let's move on to the business overview of the third quarter of 2025. Please turn to Page 5 to review our success in Taiwan's mobile market. In the third quarter, we further strengthened our leadership position in Taiwan's mobile market. According to the data from our telecom regulator, our mobile revenue market share climbed to a new high of 40.8%, while our subscriber share among peers rose to 39.4%, representing an encouraging 1.6 percentage point year-over-year increase, mainly driven by continued growth in the postpaid subscribers. We are pleased with this solid growth momentum. Our 5G performance was equally impressive. Based on regulators' data, our 5G subscriber market share rose to 38.8%, maintaining our industry-leading position. The 5G penetration rate among our smartphone users further increased to 44.7% by the end of the third quarter, while the average monthly fee uplift from 5G migration remained robust at approximately 40%. With the combined strength of our expanding subscriber base and growing 5G adoption, our mobile service revenue growth outpaced the industry achieving a solid 3.3% year-over-year increase. Postpaid ARPU also grew 1.8% year-over-year. We expect this positive trajectory to continue, supported by Taiwan's favorable mobile market landscape. Let's move on to Slide 6 for our outperforming fixed broadband business update. In the third quarter, our fixed broadband revenue grew by 3.2% year-over-year, driven by continued high-speed migration and the success of our high net 30th anniversary promotion package alongside our existing bundle plan that combine MOD WiFi and streaming services. We are pleased to report that the number of subscribers choosing speed of 300 megabits per second and above increased by about 14% year-over-year, while those opting for 500 megabits per second and above recorded a double-digit growth and the 1 gigabit per second and above achieved multiple for expansion. This higher speed migration contributed to strong ARPU performance. In the third quarter, our fixed broadband ARPU rose 3% year-over-year, representing an increase of TWD 23 per month, an encouraging sign of ongoing value expansion. Slide 7 provides a deep overview of highlights from our consumer application services. In the third quarter, our multi-play package integrating our mobile fixed broadband and WiFi services achieved impressive year-over-year growth of 22%, marking 15 consecutive quarters of expansion. In terms of our video services, subscription fluctuated in line with major sports broadcast declined year-over-year during the quarter, mainly due to the relative high base from -- base from last year Olympic Games broadcast is this event-driven variation. Our video subscription and ARPU sustained its expected upward trend. Noteworthy, we are proud of to highlight the success of drama investments in the third quarter. For example, The Outlaw Doctor won Best Asia content in Global OTT Award in Busan and [indiscernible] at the 30th Golden Bell Awards in Taiwan with multiple nominations and awards. With those wins, we will continue our content investment strategy to strengthen value for our subscribers. Meanwhile, our consumer cybersecurity services recorded a 17% year-over-year growth with a steady number of blocked malicious link per user more than doubling compared to the same period. Slide 8 illustrates the key highlights in our enterprise ICT business. We are pleased with 14% year-over-year increase of our group ICT revenue in the third quarter, fueled by the emerging service expansion. Recurring ICT revenue also grew by 19%, supported by our continued commitment to public cloud in the entity supply contracts in the government sector, which effectively contributed to the steady growth in the cloud service recurring revenue. Regarding core service pillars, IDC cloud and cybersecurity remain key ICT revenue growth drivers, posting year-over-year growth of 34%, 24% and 19%, respectively. driven by the strong demand from the financial and government-related sector. In addition, Big Data services surged by 130% year-over-year, largely attributable to the National Taxation System project. Among the newly secured projects during this quarter, we are glad to report the acquisition of our largest ever network infrastructure project, both by scale and the contract value from a leading life insurance company in Taiwan. This project is expected to generate both onetime and recurring revenue. We also won a landmark project from Taipower to assist in building its large-scale AMI big data analytics platform for smart grid management. Lastly, leveraging our deep expertise in smart transportation, we secured a project to assist Taiwan Railway to develop a smart real-time fleet management solution powered by the digital twin and 5G technologies, simulating training -- train control cabin dashboards, enabling railway operation hub center to proactively identify failing equipment and monitor dispatching vehicles, further enhancing operational efficiency and reducing maintenance costs. Slide 9 illustrated the performance of our international subsidiary. In the third quarter, our U.S. subsidiary delivered outstanding results by achieving 70% year-over-year revenue growth, primarily fueled by AIDC construction project of a Taiwan-based high-tech company in Texas. Together with the efforts of our Japan subsidiary, we anticipate securing additional related projects, strengthen our role in the global AI supply chain. Meanwhile, our Southeast Asia markets continue to thrive with our Singapore and Vietnam subsidiaries actively deliver plant construction services that are expected to contribute to future revenue. Excitingly, this quarter, we successfully introduced our proprietary solution to global markets. First, through close group collaboration, we introduced cybersecurity services from our newly leased subsidiary, Chunghwa Telecom Security, to overseas clients in Southeast Asia and Japan. Furthermore, we launched our Smart Poles solution in Thailand, fully powered by our proprietary operation platform and integrated AI and IoT solution. The solution delivers services, including adaptive lighting control, localized digital synergy in Thai and traffic flow analytics. We placed particular emphasis on our AI capabilities, which enable seamless replication of our success to other markets in different language. In addition, by supporting our aligned nations, in developing smart cities, we have leveraged our 5G private network and ICT capabilities to generate overseas smart city revenue from Paraguay and Eswatini. Last but not least, we are pleased to see the submarine cable SJC2 has commenced operation and is contributing revenue, while another cable Apricot is expected to follow in the fourth quarter. Now let's move on to Page 11 for the financial performance of our 3 business groups. In the third quarter, thanks to steady growth in mobile and fixed broadband service plus the higher sales driven by the iPhone demand, our CGB delivered a solid year-over-year increase of 2.2% in revenue. Additionally, last year's elevated expense related to the content broadcasting rights contributed to the relative increase of 11.4% year-over-year in CGB's income before tax, broadly supporting the group outperformance. Our EBG also performed well with strong ICT performance as revenue increased 7.4% year-over-year, while income before tax decreased owing to the reduced fixed voice revenue during this quarter as well as a decrease in sales margin related to a long-term enterprise customer engagement. As for IBG, revenue declined by 1.9% and income before tax dropped by 19.7%, primarily due to softened demand for voice services. However, we saw a robust growth in IBG, ICT and mobile services, which rose 14% and 19% year-over-year, respectively, supported by clients' global expansion and increased roaming revenue. Now I would like to hand the call over to Audrey for financial updates. Wen-Hsin Hsu: Thank you, President. Good afternoon. Please turn with me to Slide 12, income statement highlights, where I will cover our performance for the third quarter and first 9 months of 2025. The third quarter demonstrates strong execution and profitability. First, let's look at the top line. Revenue reached TWD 57.92 billion. This achieved a significant milestone of the highest third quarter revenue level in 9 years. This represents a solid 4.2% increase compared to the same period last year. This growth was primarily fueled by the successful expansion of our ICT business and also robust sales growth, while our core telecom service maintained positive momentum. Our strong operating performance is clearly reflected in our bottom line. Income from operations rose by 6.4% and net income increased 4.8% year-over-year. This performance was supported by steady growth across our mobile service and fixed broadband business, alongside the expansion of a high-value service, including Internet data center, IDC and cloud service. As a result of this performance, earnings per share increased from TWD 1.16 to TWD 1.22. This reflects consistent profitability and marks the highest third quarter EPS in 8 years. This operational efficiency also resulted in a strong quarter for EBITDA, which recorded a 4% gain, reaching TWD 22.11 billion for the quarter. The EBITDA margin of 38.17% was virtually in line with the 38.23% recorded in quarter 3 last year. This demonstrates sustained cash generation. So now moving now to our year-to-date performance through the first 9 months. Please focus on column 5 through 7 for the results. So revenue grew by 3.5% year-over-year, supported by strong momentum in our ICT portfolio and the sales contribution from our subsidiary, Chunghwa Precision Test Tech. Reflecting its top line strength, income from operations and net income rose 5.5% and 4.2%, respectively, primarily fueled by the continued expansion of ICT and cloud service, supported by sustained positive momentum from our core telecom business. Year-to-date EPS stands at TWD 3.79 compared to TWD 3.64 last year. Furthermore, EBITDA increased 3.6% to strong TWD 67.22 billion. The EBITDA margin stood at 39.43%, broadly consistent with prior year period. So in summary, the results highlighted the dual strength of our stable core telecom foundation and our successful pivot into high-growth ICT service. Now let's turn to Slide 13 for balance sheet highlights. We will review our financial position as of September 30, 2025, relative to year-end 2024. Our balance sheet continues to reflect our strong commitment to capital discipline and financial flexibility. Total assets decreased by 4%, a reduction primarily stemming from the utilization of cash and other current monetary assets to meet a debt maturity obligation during the period. In addition, property, plant and equipment declined by 2.1% as depreciation exceeded net additions, reflecting our continued focus on asset efficiency. Moving to the liability side. Total obligation decreased significantly by 10%. This net reduction resulted from the repayment of a maturing debt obligation and the subsequent partial refinancing through the issuance of our first ever sustainability bond that incorporates biodiversity feature. This reflects our commitment to ESG-based financing. As a result of this deleveraging, our reported debt ratio stood at a healthy 23.91%, showing a slight decrease compared to year-end 2024. Regarding liquidity, our current ratio remains stable and above 100%, highlighting healthy short-term financial flexibility. Meanwhile, our net debt-to-EBITDA ratio stood at an exceptionally low 4.5%. This reflects our highly deleveraged position and capacity to sustain our ongoing investment strategy within a balanced capital structure. Let's move to Slide 14, cash flow summary. We will review our year-to-year performance through the first 9 months of 2025. Cash flow from operating activities decreased by 8.6% year-over-year. This was driven primarily by the timing of the settlements, specifically increased payment for accounts payable and highly accounts receivable as of September 30. Capital expenditures rose 8% year-over-year, partly reflecting the timing of 5G, 4G deployment. This year's project were front-loaded in the early months, whereas last year's occurred later in the period. Some of this year's payment also relate to projects booked last year, so the increase mainly reflects timing rather than high investment activity. On an accrual base, CapEx has actually trended lower and full year mobile investment is expected to remain below 2024 level, consistent with our disciplined approach to capital management. As a result of these factors, free cash flow declined by 16.5% to TWD 28.19 billion year-over-year. This result is in line with expectations, given the short-term increase in working capital and the timing of our CapEx investment. We continue to maintain a strong cash position and stable operating inflows to support both business growth and shareholder return. Moving to Slide 15, performance highlights and guidance. I will summarize our key achievements for the period. In quarter 3 2025, the strength of our execution drove significant acceleration. We achieved record-setting Q3 revenue and EPS, while our key profitability metrics from income from operations, net income and EBITDA all performed strongly and met or exceeded our internal margin targets. For the full 9-month period, the cumulative results validate our strategy, all major metrics, including revenue, income from operations, net income, EPS and EBITDA performed above or on target for our full year guidance. The success was powered by the sustained profitability of our ICT service and the reliability of our core telecom business. Crucially, revenue growth outpaced operating expense, reflecting excellent operating leverage and efficiency. So this concludes our review of the financial performance for the third quarter and the first 9 months of 2025. We are now happy to open the door for your questions. Operator: [Operator Instructions] Cho-Fen Tsai: okay. We got one question from the dashboard. The question is that what is the driver of our international projects business? Okay. For international business, just as we mentioned that in the international markets, besides that, Chunghwa can play a role in the global AI supply chain. So actually, we see great potential of opportunities in the market of United States. So now our subsidiary in the United States are doing the project in Texas in those states that a lot of Taiwan high-tech company relocate there to do some plant construction and most of them are -- play a very important role for the AI supply chain globally. And in the Japan market, we also see similar opportunities in Japan, right? And in addition to that, we also try to introduce our self-development solutions to the global market. So for this quarter, our subsidiary, the CHT Security, their cybersecurity services, we successfully introduced the services to Southeast Asian markets and in Japan, okay, with the collaboration of our subsidiaries in Singapore and in Japan. For the Southeast Asia company, we also see the opportunities from the high-tech companies. That's the main driver of the business growth in Southeast Asia company. And we also try to introduce the smart city-related projects there. So in the third quarter, we see that we successfully introduced our Smart Pole project there. Although we want to notice that the Smart Pole is mainly developed and we introduced our in-house solutions, and we also collaborate with the partners to make it successful in Thailand. Operator: [Operator Instructions] There seems to be no further questions at this moment. I will turn it over to President Lin. Please go ahead. Rong-Shy Lin: Okay, everyone. Thank you very much for your participation. See you. Bye-bye. Operator: Yes. Thank you, President Lin. And ladies and gentlemen, we thank you for your participation in Chunghwa Telecom's conference. There will be a webcast replay within an hour. Please visit CHT IR website at www.cht.com.tw/ir under the IR Calendar section. You may now disconnect. Thank you again, and goodbye.
Operator: Good day, and welcome to the Curaleaf Holdings, Inc. Third Quarter 2025 Conference Call. Please note this event is being recorded. I would now like to turn the conference over to Camilo Lyon, the Chief Investment Officer. Please go ahead. Camilo Russi Lyon: Good afternoon, everyone, and welcome to Curaleaf Holdings Third Quarter 2025 Conference Call. Today, I'm joined by Chairman and Chief Executive Officer, Boris Jordan; and Chief Financial Officer, Ed Kremer. Before we begin, I'd like to remind everyone that the comments on today's call will include forward-looking statements within the meaning of Canadian and United States securities laws, which, by their nature, involve estimates, projections, plans, goals, forecasts and assumptions, including the successful integration of acquisitions and are subject to risks and uncertainties that could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements on certain material factors or assumptions that were applied in drawing a conclusion or making a forecast in such statements. These forward-looking statements speak only as of the date of this conference call and should not be relied upon as predictions of future events. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law. Additional information about the material factors and assumptions forming the basis of the forward-looking statements and risk factors can be found in the company's filings and press releases on SEDAR and EDGAR. During today's conference call, in order to provide greater transparency regarding Curaleaf's operating performance, we will refer to certain non-GAAP financial measures and non-GAAP financial ratios that involve adjustments to GAAP results. Such non-GAAP measures and ratios do not have a standardized meaning under U.S. GAAP. Any non-GAAP financial measures presented should not be considered to be an alternative to financial measures required by U.S. GAAP, should not be considered measures of Curaleaf's liquidity and are unlikely to be comparable to non-GAAP financial measures provided by other companies. Any non-GAAP financial measures referenced on this call are reconciled to the most directly comparable U.S. GAAP financial measure under the heading Reconciliation of non-GAAP Financial Measures in our earnings press release issued today and available on our Investor Relations website at ir.curaleaf.com. With that, I'll turn the call over to Chairman and CEO, Boris Jordan. Boris? Boris Jordan: Thank you, Camilo. Good afternoon, everyone, and thank you for joining us to discuss our third quarter 2025 results. The return to our roots plan we initiated 12 months ago, which is focused on enhancing product quality, driving growth, expanding margins and optimizing cash flow is delivering tangible results. Over the past year, we have completed significant foundational work to reset the business, leveraging our Dark Heart genetics program, investing in our supply chain and realigning our retail operations. These actions have positioned our domestic business for renewed growth while supporting rapid international expansion. I'm encouraged to report that we're seeing positive momentum across the organization despite ongoing macro pressure from price compression. In the third quarter, we generated $320 million in revenue, up 2% sequentially. Price compression continued to be a headwind consistent with last quarter, yet our domestic segment remained stable and achieved modest growth. Our International segment continued its strong trajectory, delivering 12% sequential growth and 56% year-over-year growth. Adjusted gross margins improved to 50%, an increase of 115 basis points, both sequentially and versus the prior year. Adjusted EBITDA was $69 million, representing a 22% margin, inclusive of a 200 basis point drag from our international and hemp businesses. Our balance sheet remains healthy with a quarter end cash position of $107 million after paying $28 million in principal and interest debt obligations. We generated $53 million in operating cash flow from our continuing operations and $37 million in free cash flow. Subsequent to quarter end, we made a $30 million in acquisition-related debt payments primarily to Tryke, thus completing our obligation and leaving approximately $70 million payable over the next 2 years. We also closed on an upsized $100 million revolving credit line with Needham Bank, giving us greater flexibility to manage our business and pay down more expensive debt. The U.S. segment grew modestly compared to the second quarter, reinforcing the stability we've achieved and positioning the business for a return to growth. Many of our markets delivered solid sequential growth, including Ohio, New York, Utah and Massachusetts, partially offset by seasonal softness in Arizona, muted tourism in Nevada and an ongoing pressure in New Jersey. We've made significant progress strengthening our supply chain, starting with cultivation. I can't overstate the improvement we've seen in our garden yields continue to rise across the network and potencies have steadily increased. This quarter, our average flower potency surpassed 30% for the first time in our history. That's a direct result of our team's focus, discipline and support from the Dark Hart Genetics team. Strong genetics, sound techniques and quality equipment form the winning formula we're now deploying across all markets. On the retail side, we've implemented data-driven analytics tools that are improving assortment planning, merchandising and inventory flow. With better data quality, our teams are operating with greater precision and stronger discipline, driving better connectivity throughout the supply chain. As a result, customers are finding the right product in the right place at the right time and price, which is leading to higher visits, stronger loyalty and greater lifetime value. To build on that momentum, we're leveraging our database of more than 2.1 million loyalty members to enhance customer engagement, deepen brand affinity and drive long-term sustainable demand. We're still in the early innings of this refreshed playbook with just 3 states onboarded, but the results are already starting to show. On the innovation front, our new Anthem pre-roll brand continues to gain strong traction with both customers and retailers. Since its April launch, adoption rates and customer feedback have been exceptional. In our initial launch states, the response was overwhelmingly positive, and in Illinois, Anthem Classic has already become a top 10 pre-roll brand according to BDSA. The brand is off to a fast start and continues to build awareness and momentum. To complement the Classic line, we introduced Anthem Bold, our infused pre-roll offering in September across New York, New Jersey, Illinois and Arizona. While early feedback has been outstanding, in Illinois, the addition of Anthem Bold to our in-store lineup has propelled Anthem to nearly 30% of total pre-roll sales while also expanding the overall category. We're seeing similar strength in other launch states. Given the success, our operations team is rapidly scaling production to meet growing demand and support continued momentum. ACE, our proprietary aqueous cannabis extraction oil launched last quarter continues to gain strong traction with consumers. The message of an ultra-clear, ultra-smooth oil with minimal plant extract is resonating, driving solid sell-through and reorders in New York. In Massachusetts, ACE is flying off the shelves, contributing to improved state performance. Next, we plan to introduce ACE in Florida, where we believe it has the potential to reshape the distillate market. Innovation remains at the core of our strategy and products like ACE are proving to be powerful drivers of traffic, customer engagement and sustainable growth. The Curaleaf International segment delivered another outstanding quarter with revenue up 12% sequentially and 56% year-over-year, driven primarily by continued strength in the U.K. and Germany. In the U.K., sustained patient growth in our Curaleaf Clinic, coupled with solid wholesale performance reinforced our #1 market share position. In Germany, demand for our brands remained robust despite near-term challenges tied to regulatory delays in lifting import permit caps. That issue has now been resolved as import caps were raised last week, allowing the market plenty of supply headroom for the next couple of quarters. In September, we launched the world's first medically certified liquid inhalation device, the QMID in the U.K. and Germany. Developed over several years in partnership with Jupiter Research, the QMID is currently the only Class IIa medical device of its kind available in the European market, offering patients precise and consistent dosing through advanced vaporization technology. Pharmacist feedback has been highly positive and adoption continues to grow across both markets. The device was recently approved for sale in Australia, and we expect continued momentum and strong patient uptake as awareness builds globally. Now turning to new international markets. We're seeing encouraging progress across several key geographies. In Turkey, the government continues to advance its medical cannabis draft law, which could be made public in the coming months. In concert with that, we've begun the architectural design phase of our facility and remain on track for this market to go live in the second half of 2026. In Spain, momentum is also building. In October, the Spanish Health Minister formally approved a measure authorizing the use of medical cannabis in hospitals. The government now has 3 months to publish a detailed monograph outlining the program parameters. We expect the market will initially focus on oil-based products, and we're well positioned for any outcome with our GMP-certified facility in Alicante, Spain and our strong partnership with the University of Alicante. We anticipate further clarity on next steps in early 2026. France is similarly advancing its medical cannabis framework, which we expect will follow a model similar to that of Spain, beginning with hospital distribution. Importantly, there is work being done to allow for insurance reimbursements, which we believe would quickly usher in many patients into the market. We could see the market go live in the first half of 2026 with the help of our in-country partner, we are well positioned to optimize on the French opportunity when the timing is right. Collectively, Turkey, Spain and France represent a combined population of more than 200 million people, offering a significant long-term runway for Curaleaf. While we're excited about the potential of these markets, we recognize they will take time to mature. As such, we do not anticipate meaningful revenue contribution commencing from these countries until 2027 and beyond. Turning to our hemp business. We added several new distribution partners during the quarter and are moving quickly to expand our beverage brand portfolio. We expect to share additional updates on our next earnings call. Overall, we continue to prudently scale this segment while we await federal guidance that will help shape the long-term trajectory of this category. With much of the foundational and restructuring work under our return to Roots program now complete, we are preparing to shift towards a growth mindset in 2026. We're cautiously optimistic that the early signs we're seeing today point to a strengthening domestic business. While we expect competition across our international markets to intensify, we're confident in the multiple growth drivers at our disposal to sustain robust performance next year. We also remain encouraged by the continued progress towards federal reform, even if the pace is slower than anyone would prefer. I continue to believe the administration will ultimately deliver on its commitment to reschedule cannabis to Schedule III on its own timetable, but the direction remains clear and positive for the industry. To our more than 5,000 employees worldwide, thank you for your dedication and hard work. The results we've shared today are a direct reflection on your focus, resilience and commitment to Curaleaf's mission. None of this would be possible without each and every one of you. We're energized by the opportunities ahead and remain steadfast in our mission to shape the future of cannabis responsibly and sustainably for patients, consumers and shareholders alike. With that, I'll turn the call over to our CFO, Ed Kremer. Ed? Edward Kremer: Thank you, Boris. Total revenue for the third quarter was $320 million, a 2% sequential increase compared to the second quarter and 3% decrease compared to the same period last year. Strength in Ohio, our International segment, New York and Utah was partially offset by pressure in Arizona, Nevada and New Jersey. Our domestic retail metrics continued showing signs of stabilization in the third quarter as transactions increased 2%. That said, as consumers make trade up to larger value size formats, units per transactions and AUR decreased 2% compared to the second quarter. Price compression headwinds did not abate in the third quarter as all markets we operate in showed a low double-digit decline on average as compared to the third quarter last year. By channel, retail revenue was $226 million compared to $253 million in the third quarter of 2024, a decline of 11% year-over-year, partially offset by strength in wholesale, which increased 19% year-over-year to $90 million, representing 28% of total revenue, driven by broad-based strength across most of our states with particular strength in New York, Connecticut, Illinois and Massachusetts as well as international. By geography, domestic revenue was up slightly from the second quarter and declined 9% compared to the same period last year, largely driven by price compression as flower price per gram was down 10% and vape pricing was down mid-teens. Curaleaf International produced another robust quarter as revenue grew by 56% year-over-year, driven primarily by the U.K. and Germany businesses. During the quarter, we made strategic investments in our international supply chain, unlocking additional capacity at our NGC facility to support strong demand in Germany. In Spain, we tripled oil production to enable the launch of new QMID device. These high-return investments are strengthening Curaleaf's presence in these emerging medical markets, further establishing our position as the global leader in cannabis. Our third quarter adjusted gross profit was $160 million, resulting in a 50% adjusted gross margin, an increase of 115 basis points compared to the prior year period. The primary drivers of this expansion were cost reductions in our cultivation facilities, partially offset by continued headwinds of price compression and higher promotions. Sequentially, adjusted gross margin also expanded by 115 basis points. SG&A expenses were $110 million in the third quarter, an increase of $4 million from the year ago period. Core SG&A was $105 million, an increase of $3 million from the prior year. The year-over-year increase in our core SG&A was driven by an increase in payroll expenses as we added strategic new hires and retail labor for our new stores. Core SG&A was 32.7% of revenue in the third quarter, a 200 basis point increase compared to the prior year. Third quarter net loss from continuing operations was $54.5 million or a loss of $0.07 per share and adjusted net loss from continuing operations was $48.2 million or a loss of $0.06 per share. Third quarter adjusted EBITDA was $69 million, a decrease of 8% compared to last year, while adjusted EBITDA margin was 22%, a decrease of 115 basis points versus last year. Our International segment was a 120 basis point drag on our total EBITDA margin in the quarter. As expected, our hemp business weighed on margins by 80 basis points as we invest in marketing, brand building and product development. Now turning to our balance sheet and cash flow. We ended the quarter with cash and cash equivalents of $107 million. Inventory increased $2 million or 1% compared to the same period last year, comprised of a 4% reduction in domestic inventory and partially offset by 61% growth in international inventory to support growth initiatives. Capital expenditures in the third quarter were $16 million. For 2025, we now expect capital expenditures to be approximately $60 million with the majority of the increase coming from incremental investments in pre-roll automation to support the strong demand for our Anthem pre-roll brand. In the third quarter, we generated operating cash flow from continuing operations of $53 million, bringing the year-to-date total to $104 million, driven by improved margins and continued improvements in working capital management. Free cash flow from continuing operations was $37 million in the quarter. Our outstanding debt was $544 million. During the quarter, we repurchased $3.2 million of our 2026 notes at an 8.75% discount, and we reduced our acquisition-related debt by $13 million. Subsequently to quarter end, we retired an additional $30 million of debt, the majority of which went towards paying the third and final tranche owed to Tryke. Last month, we closed on a $100 million upsized revolving line of credit with Needham Bank at an interest rate of 7.99%, which then resets to 8.99% upon the refinancing of our bond. This is a significant accomplishment given the challenges the industry has had attaining standard banking access and speaks to the confidence and continued support our partners have in our long-term strategy. We will continue reducing various components of our debt throughout the year while maintaining ample liquidity to support our operations and growth objectives. Consumer has been resilient this year. However, macro headwinds continue to pressure disposable income. That said, overall demand for cannabis remains robust, yet pricing pressures are not abating. As such, for the fourth quarter, we expect total revenue to be up low single digits sequentially from the third quarter. With that, I'll turn the call back over to the operator to open the line for questions. Operator: [Operator Instructions] The first question comes from Aaron Grey with Alliance Global Partners. Aaron Grey: Great to see the continued momentum, especially on the international side here. I want to kind of start with my question on that. How do you guys view the potential for this momentum you've had on the international front to continue in 2026? What do you see as a potential risk to disrupt some of the growth that you've been seeing? Would you see it more so in terms of the increased competition, which force you called out in your prepared remarks? Or maybe regulatory changes such as risk to German telemedicine or otherwise. Any type of color in terms of your outlook for continued growth for international would be helpful. Boris Jordan: Aaron, thanks for the question. Well, all of the above, basically, there's always risk and regulatory in new industries like cannabis and especially early-stage industries like cannabis in Europe, where it's behind sort of U.S. and Canadian development by about 5 years. There can be regulatory changes. There's been rumblings in Germany, Australia and other markets. We know we had changes in Poland, which affected the market. However, at the moment, demand is very robust. It continues to grow. Supply chains are getting better. The government is clamping down on some of the illicit product that was hitting the markets. I think that all-in-all, we're pretty bullish on next year and the growth, but we have to look at it quarter-to-quarter because these things do change. We know -- as I said, we know there are changes coming in Germany and in other markets, but there's also new markets coming online. I think it's a mixed bag, but it's one that we're continuing to be quite positive on and continue to invest in. Operator: The next question is from Frederico Gomes with ATB Capital Markets. Frederico Yokota Gomes: Just regarding the improvement in potency and yields that you're seeing. Obviously, you mentioned all the price compression that we're seeing in those markets. Do you see any path here for substantial margin expansion in 2026 with that improved quality and improved product mix? Boris Jordan: Listen, as you see, we've had substantial margin improvement this year, as we said to the market earlier in the year that we would end the year -- exit the year at a healthy 50% gross margin. It looks as though that's where we're going to end the year. Going forward, it's a very volatile market. I wouldn't want to make the prediction of where we're going to be next year, but I can say one thing. The company's metrics internally will continue to improve. We're going to continue to put pressure on costs. We're going to continue to be more efficient in the way we manufacture. We're putting a lot of automation equipment in order to bring down costs as well and become more efficient, but where we end up with price compression is nobody can predict at this point in time. There's a lot of things in the U.S., just like there is in Europe. There's regulations in the federal government right now in hemp. Obviously, if hemp gets shut down, that would have a massive improvement to both demand and margin. I believe in the U.S. If they do something in between, it could have different effects. It's a little bit early for us to say. I think in the first quarter -- in the year-end call, we'll probably take a look at that and make some forecast to that effect. Right now, I can only say what we can control. We can control our internal metrics. We're going to be better next year than we are this year. Operator: The next question is from Russell Stanley with Beacon Securities. Russell Stanley: Maybe just following up on Germany. You mentioned the import caps just lifted last week. I think in August, you were thinking that you might see pricing and margins normalize here in Q4, but it seems like the caps took longer to get lifted than perhaps you'd expected. How are you thinking about this now? Is that more of a Q1 event? Or might it take longer? Boris Jordan: Listen, I think it's going to be difficult to tell. Again, as we all know, there is changes to German regulation coming. They may be very small. They may be large. We just don't know at this point in time. We're pretty close to the government, and we're pretty much involved in a lot of the changes that are taking place. What I can say now is that there's nothing that looks that would be catastrophic to the industry. I think that most of the changes the government looking at could even positively impact the business in terms of illicit product getting into the market and some of the dumping of product. That could actually be a positive. On the other hand, it could also have some negative consequences. It's a little bit too early to tell. We don't see any changes in the fourth quarter. We see robust demand in the fourth quarter. Basically, Curaleaf is in a slightly better position than most because we have been permitted to sell, for instance, vapes into the market because of our medically approved vape, and that is driving demand heavily here in the fourth quarter and will continue into the next quarter as we're the only company today that has a medically improved vape in Europe, which is helping us both in the U.K. and Germany. Soon, we've just got approved in Australia, and that is driving, and that's giving us a little bit of a head over everyone else and that other companies just don't have that product. Operator: The next question is from Bill Kirk with ROTH Capital Partners. William Kirk: Gallup had a pull out yesterday that showed, less Republican voter support year-over-year for cannabis legalization. If that's really the case, what do you think that means for state reform in places like Florida? Or what could it mean for federal progress on cannabis initiatives? Boris Jordan: I don't know about Gallup's report. I don't believe in most polls anyway because according to those same polls, Trump would not be President, and he is. I'm not a huge believer. In terms of our own polling that we've done together with the administration, I can only say one thing that we pulled NAGA, which is the most conservative part of the U.S. population and cannabis held firmly at 65% on adult use and I think 69% on medical. It's got very strong support from the work that we've done. Operator: The next question is from Kenric Tyghe with Canaccord. Kenric Tyghe: Boris, in your prepared remarks, you called out the more pronounced seasonality in Arizona and Florida comments similar to what we've heard out of some of your competitors. Could you provide any indication on just how much of a drag Florida and Arizona were compared to their typical performance? Or alternatively, even just give us some indication around how those states have performed quarter-to-date, where you've seen some sort of normalization there or where they're performing as they more typically would? Boris Jordan: Thank you for that question. Yes, we've seen substantial recovery in October and generally have had a very strong October. Florida for Curaleaf didn't have as much compression as we've had in previous years on cyclicality. Arizona, however, yes, we did. It's been pretty regular now. I think it's about 4 years in a row where, as we all know, Arizona tends to run exceptionally warm in -- with temperatures well over 100 degrees for most of the summer, and that tends to have an exodus of the population. But that -- we've seen a very strong recovery in the last 2 weeks of September going into October and October was very strong. It is cyclicality, is weather-based and it has recovered. Operator: The next question is from Pablo Zuanic with Zuanic & Associates. Pablo Zuanic: Boris, if you allow me, I'm going to ask you a 2-part question and both is related to hemp. Regarding hemp, in my opinion, and I could be wrong, it seems to me that Green Thumb has been able to move a lot faster in hemp because they bought Agrify and they bought the NASDAQ vehicle. They were more compliant on everything around hemp and they were able to distribute Señorita and a bunch of other hemp derivatives through that vehicle. Would that be something that you would consider buying a NASDAQ-listed vehicle that will allow you to move faster in hemp derivatives? Again, my assumption could be wrong. The second one that maybe is more important, in my interpretation, and again, I could be wrong, by reposting that video from the Commonwealth project into social, the President -- and there's a lot in that video. The President was pretty much also backing hemp-derived CBD, right? That were specifically mentioned in that video. Someone could say that backing hemp-derived CBD and perhaps other derivatives is not compatible with backing the THC cannabis industry. If they are making promises to 2 separate industries, how does that work out in the end? Does that maybe call for both the THC industry and the heavy industry maybe to work together in lobbying the federal government, which is something you've mentioned before. I'm sorry, I know there's a lot there, but hopefully, you can comment on all of that. Boris Jordan: Well, let me answer the second question first. I think the President published a video. I can guarantee you he didn't watch it until the end. I'm not sure the President had full knowledge of full content in that video. Our view that CBD alone has virtually no medical properties at all. You have to eat almost 1,000 milligrams of it to have any impact in terms of anti-inflammation or anything, and so usually, it is mixed with other elements or other cannabinoids in order to get its effectiveness. Without those cannabinoids, CBD is largely useless, unless eaten or taken in very, very high quantities. I can tell you right now, at least the briefing papers that the President administration have received, both from the regulated industry, but also from the medical industry would show that CBD alone is not very effective, and we'll soon be publishing some results of our medical studies that we've done in Europe that we've recently submitted to the MHRA in the U.K. and hope to receive approvals on that will show that. I don't think he's sending a mixed message on there. I think that was a video generally supporting CBD and other cannabinoids for medical purposes in the United States. The President has made his position clear that he supports cannabis as far as it's concerned for medical reasons, not for recreational purposes. That's, I would say, on that video. On the other purpose, I don't comment on our competitors. Curaleaf is very comfortable, very happy with the positioning that we have in the hemp-derived products. I can promise you, we're doing just fine there and are not concerned about competition, especially because the industry is so young and so early stage that really whether or not somebody sells $1 million more than the other party at this point in time really makes no difference. We're looking at a multiple tens of billions of dollars of potential revenue out of this industry over the next 5 years, and that's really the prize that everybody is after. Operator: This concludes the question-and-answer session. I would like to turn the conference back over to Camilo Lyon for any closing remarks. Camilo Russi Lyon: Thanks, everyone, for joining us tonight. We will talk again in 90 days. Have a great day. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.