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Magnus Ahlqvist: Good morning, everyone, and welcome to our Q3 report. We continue to develop on a good path, execute on our strategic focus areas and are glad to report a solid set of results for the third quarter. The organic growth in the quarter was 3% and North America and Ibero-America both contributed with solid growth. And now to a highlight. The operating margin was 8.1% in the quarter. We had solid improvements across all segments as well as in the Services and Technology & Solutions business lines. And as announced last quarter, we are closing down the government business within Critical Infrastructure Services. And adjusted for this business, the organic sales growth was 4% and the operating margin was 8.3%. EPS real change was strong at 19%. And the operating cash flow is above 100% in the quarter, and we continued to improve the leverage and the net debt-to-EBITDA ratio is now at 2.2. The business optimization program that we initiated at the beginning of this year is contributing and the vast majority of the cost savings have now been executed. So shifting then to the performance just for an overview in the business lines and the segments. And as stated, we are recording significant margin improvements in both business lines. Continued strong Technology & Solutions margin development with 50 basis points to 11.7%. And the sales growth in Technology & Solutions was 4% in the quarter. This is below our target, but we have a strong offering, and we have taken actions to increase the focus on client engagement and commercial development, and I expect these actions to generate stronger momentum in the coming quarters. The margin in Security Services improved 30 basis points to 6.9% and this was supported by high margin on new sales, portfolio management and strong development of the Aviation business, while the SCIS business hampered. Growth in Security Services was 1% in the quarter, and the growth rate in Services is negatively impacted by active portfolio management and the SCIS business. But important, we expect to finalize the active portfolio management work in Europe and Ibero-America during the first half of 2026 and that work is progressing according to our plans. So with that, let's move then to the segments. And as always, we start with North America, where we are pleased to report solid organic sales growth at 6% and a record Q3 operating margin. Healthy portfolio volume development and price increases in the Guarding business were key drivers of the growth and continued double-digit growth in the Pinkerton business contributed and the performance in the Technology business also supported. Technology & Solutions growth was 2% in the quarter. And similar to the previous quarter, growth in Technology was decent, but we had lower Solutions growth. And we are fine-tuning our go-to-market approach with Solutions in North America, where we leverage our in-house technology capabilities in a much better way than before. And with these changes now being in place, I expect improved growth in the coming quarters. We improved the operating margin in the Guarding and Technology business units to 9.5%, and this was supported by good cost control and leverage. So all in all, very strong performance and a record Q3 operating margin in North America. And moving then to Europe, where the operating margin improvement stands out as the highlight of the quarter. The organic growth was 2%. Price increases, impact from Turkey and aviation supported, while active portfolio management had a clear negative impact on the growth in the quarter. Sales growth in Technology & Solutions was 4% and slightly below our expectations. The operating margin improved with 70 basis points to 8.4%, and this is a significant improvement and is the result of strong execution on all strategic priorities by our European teams. And as commented, we continue to address and renegotiate the low-performing contracts in the services business in Europe. This has a clear negative impact on the growth in the short term, but it's fully in line with our strategy and the plans that we set a couple of years ago. And we expect the work where we're addressing the low-margin contracts to be completed during the first half of 2026. So all in all, very good development by European teams and also here an operating margin at a record level. We then shift to Ibero-America, where we're also pleased to report good organic growth and solid margin improvement. The organic growth was 5%. This was driven by high single-digit growth in Technology & Solutions and price increases in the Services business. And similar to Europe, there is a negative impact on the growth from active portfolio management, but we're making good progress and driving conversions to Technology & Solutions. The operating margin improvement was solid in the quarter, and the majority of the improvement is related to improvement in the services business, but some temporary one-offs also contributed. So all in all, a very good quarter also in Ibero-America. And looking then at the performance across the group, we are driving disciplined execution of the strategy, and I'm really pleased to see strong execution across all segments and from all the teams. Our customer offer is stronger than ever before, and we're also glad to report improving client retention. So with that overview, turn to the finance update and handing over to you, Andreas. Andreas Lindback: Thank you, Magnus. And we start with the income statement, where we had organic sales growth of 3% and improved the operating margin with 60 basis points, leading to a currency adjusted operating profit growth of 11% in the quarter. As we communicated in Q2, we have introduced 2 new KPIs, which are adjusting our organic growth and our operating margin for the government business to be closed down within SCIS. In the third quarter, the adjusted organic growth was 4% and the adjusted operating margin was 8.3%. And this is higher than our target to have an adjusted operating margin of 8% in the second half year of 2025 and puts us in a good position to achieve the target as we are closing the year in the fourth quarter. The close down of the government business itself is progressing according to the plan that we laid out in the second quarter and had limited impact on the operating result in Q3. Looking then below operating result, there are no material developments in amortization of acquisition-related intangibles nor in the acquisition-related costs. Items affecting comparability was SEK 1.5 billion, where we in the third quarter have made a provision of USD 154 million for the government business close down, in line with what we communicated in Q2. The remaining SEK 65 million of IAC is related to the ongoing transformation and business optimization programs. Both programs are running according to plan and the full year forecast of SEK 375 million for both programs combined remains unchanged to our previous guidance. And as Magnus mentioned earlier, we have executed the business optimization program well and the vast majority of the target SEK 200 million run rate cost savings by the end of 2025 has been executed in the third quarter. And as we're looking into 2026, we are planning to continue to reduce the investments under IAC in comparison to the SEK 375 million this year. I will come back with more details to you in Q4. Our finance net came in at SEK 419 million, which is a reduction of SEK 158 million compared to last year, and we continue the positive trend of reduced financing costs as interest rates and our debt levels are going down. For the full year, we expect the finance net to land in the range of SEK 1.8 billion to SEK 1.9 billion, which is a material decrease compared to the SEK 2.3 billion we had in 2024. Moving to tax. Here, our full year forecasted tax rate is 29.2%. The increase compared to our full year 26.7% estimate in the second quarter is mainly due to the $154 million closedown cost where we expect around 60% of the total cost to be tax deductible over time. Adjusted then for the closedown impact, the full year forecasted tax rate is 26.8%, in line with our previous communication in Q2. All in all, a strong quarter where our currency adjusted EPS growth, excluding IAC, was 19% in Q3 and 18% for the first 9 months of 2025. We then move to cash flow, where our operating cash flow was solid at SEK 3.3 billion or 106% of the operating income. This despite some negative timing impacts from Q2, as I mentioned in the previous quarter. Both our DSO and our general working capital position continued to improve and supported a good outcome in the quarter. The free cash flow landed at SEK 2.7 billion, supported by solid operating cash flow, the reduced interest payments due to the lower interest rates and debt levels and temporary positive tax timing impacts in the U.S., and we expect a majority of the positive timing impacts to reverse in the fourth quarter. For the first 9 months of the year, we have strengthened our operating cash generation, having an operating cash flow of 74% of our operating income compared to 58% last year. We are in a good position to meet our full year target of an operating cash flow of 70% to 80% of operating income, where we always target to be at the upper end of that interval. This despite that we have one additional payroll in our U.S. Guarding business in Q4, which will impact the fourth quarter cash flow negatively approximately USD 40 million. This is a negative timing impact that we have every fifth or every sixth year in the U.S., and this timing impact is relevant for Q4 as well as for the full year 2025. In 2026, we will then be back to the normal payroll pattern with 1 less payroll compared to this year. We then have a look at our net debt, which was SEK 33.4 billion at the end of the quarter. This is a reduction of SEK 2.6 billion compared to Q2, mainly supported by the strong free cash flow generation. In the quarter, we also had SEK 308 million of total IAC payments, where SEK 175 million of this was the second payment related to the U.S. government and Paragon settlement. The residual is mainly related to the ongoing transformation and business optimization program and the government business close down, which was SEK 43 million in the second quarter. And as a reminder, the total Paragon settlement amount is USD 53 million, which we pay in 3 approximately equal installments. We have now made 2 payments and the third and final payment has been made in the fourth quarter. Moving then to the right-hand side, where the net debt to EBITDA was 2.2x. This is 0.5 turn improvement compared to Q3 last year, where the positive EBITDA development, good cash generation and the strength in Swedish krona all supported positively. And we are well below our target net debt-to-EBITDA of less than 3x and expect to continue to deleverage our balance sheet in the short term. Moving on to have a look at our financing and financial position, where we continue to have a strong balance sheet, strong liquidity, and we remain without any financial covenants in our debt facilities. And after a period of important refinancing focus, our main focus in the second half of 2025 is to use the strong cash generation from the business to amortize debt. In the quarter, we have repaid SEK 1.4 billion of debt. And in the fourth quarter, we plan to amortize approximately SEK 2 billion on the term loan maturing next year. This will continue to support our cost of financing going forward, and we will have very limited refinancing needs throughout 2026. And as always, we remain committed to our investment-grade rating. So with that, I hand over back to you, Magnus. Magnus Ahlqvist: Very good. Thanks a lot, Andreas. And before we open up the Q&A, I'd just like to share a few reflections regarding the longer-term development and also a little bit looking ahead. So back in 2022, when we did the STANLEY acquisition, we accelerated the work to change the profile of Securitas to create a company with the strongest technology and digital offering to our clients in combination with high-quality Guarding services. We also shared the ambition to improve the operating margin from the prior decade, where we have been around 5% to achieve around 8% by the end of 2025. And we outlined the main focus areas to drive this improvement to 8%. And I think those of you who are following us, you're familiar with the bridge here. We exceeded 8% operating margin in Q3, and Q4 is seasonally somewhat lower margin, but we're on a good track to deliver on this ambition in the second half of this year. And while the impact from M&A activity has been limited in recent years, we have made considerable progress in the other areas. And we're about to finalize the heavy lifting work with active portfolio management and strategic assessments. But this work has been very important to create a sharper and more focused company where all the business that we are running is fully aligned with our strategy. And when you're looking at SCIS, and this is more related to a question we received a couple of times, -- the close down here and the result doesn't really represent a significant part of our overall business. It is only around 1% of the operating result. So while large in volume, very limited in terms of the operating result impact from that close down. And when I look at the strategic assessments, the remaining assessments that we have under consideration now represent approximately 1% of group sales. So we are nearing the completion of an important phase with important work. It has been rigorous and hard work, but it's been important to shape a stronger and a more focused company. And just to repeat the message also from the second quarter, we have received a question on a number of occasions on what basis we consider reaching the 8%. And as communicated earlier, if we reach the 8% operating margin in the second half of this year, excluding the SCIS business that we're closing down, we will have achieved the ambition. And delivering on this ambition is an important milestone since it represents a historical shift in the profitability profile of Securitas. But having said that, it's just a milestone on a longer journey. And talking about that journey, we have come a long way in shaping the new Securitas to be a sharper and a much stronger company. And when you take a little bit of a longer-term perspective, we are operating in a market with good growth, which is spurred by increasing threat levels, increased demand for digital and technology solutions and where we are uniquely positioned with the investments we have done in the last 5 to 6 years. And we have intentionally transformed and repositioned our portfolio to the parts of the market where there is good underlying growth and the real security needs are more important than the price per hour. And we partner with our clients for the long term, investing into the relationship, and we are building the best security solutions based on the client needs, leveraging technology, digital people and more and more real-time insights. And all of this has also led to much more profitable Securitas today compared to the 5% company we were for many years. Today, we're executing on our plan to get to 8%, as stated in the second half of this year. And we have also been able to lift the margin for 19 consecutive quarters and at the same time, deliver strong EPS growth to our shareholders. And in the increasingly complex and volatile macro environment, we're also a resilient business with the majority of our revenue is recurring and with an excellent client retention of 90%. And all of this has also been elevated or translated into higher cash flows where we are now delivering cash flow above our financial targets, and this has also contributed to an accelerated deleveraging after the STANLEY acquisition. So we're now in a position that is much, much stronger, and we can continue to invest into the growth of our business. So as we're finalizing the strategic phase, we're a much stronger company, very well positioned in an attractive market to increase our focus on profitable growth. And as more and more units reach the required profitability levels, so that means for good sustainable business, they also gained the right to shift focus on driving profitable growth. And looking at the longer term, we will continue to improve the margin as we are building scalable solutions to our clients. So we stay focused, confident and also very excited about our longer-term opportunities, and we're looking forward to sharing more in the Capital Markets Day in June. So with those perspectives, we can conclude this Q3 presentation. We're executing according to our plans, deliver strong margin with 8.1% in the quarter, EPS improvement of 19%. So with that, let us open up the Q&A session. Operator: [Operator Instructions] The next question comes from Raymond Ke from Nordea. Raymond Ke: A couple of questions from me. First one on Technology & Solutions or T&S, you had 4% in real sales growth this quarter. And on paper, the target the Board stated out for Securitas to achieve a growth within T&S of 8% to 10% sounds like it's congruent with its target of achieving 8% in EBITDA margin with the T&S having higher margins. But the outcome since your CMD seems to show that you've been forced to prioritize portfolio management at the expense of growth within T&S, at least short term. Is that a fair description, would you say? And your position now at sort of 8%, would that allow you to shift your focus more towards T&S growth? Magnus Ahlqvist: Thanks, Raymond. Well, we -- just to put some context on the Technology & Solutions growth, this is obviously a long-term target. I believe that we are very well positioned. We've spent a couple of years doing very diligent and robust work in terms of the integration. When you're looking forward, we feel confident that we're going to be able to drive the growth here at a really healthy pace. Where are we right now on that? Well, we're mostly, as we've communicated before, done with the integration work. What we are doing now based on the strength in the offering is that we're investing more in commercial capability based on the strong offering that we have. And we're also fine-tuning in a number of parts of the organization. And some of that fine-tuning is related to how we become better at cross-selling, how we start to become better at actually leveraging the combined client base. We're also aligning incentives. I should also say that it's a little bit of a mixed picture when you look at the growth rate in technology, if you look at the growth rate in solutions. Solutions, we've had really strong traction in North -- sorry, in Ibero-America, good traction in Europe. But in North America, as I've explained in the last couple of quarters, we also under new leadership, did a little bit of a reboot in terms of the organization setup. And it was the right time to do that because historically, when we didn't have strong technology capability, we're also working with other companies to help us with the technology part of the solution. Today, our own technology team is the main partner and provider. And that enables us to build a much more efficient and also much more scalable platform for the longer term. And there, why growth has been flat now in the last couple of quarters in North America, I expect that now based on the actions that we've initiated to really improve in terms of the growth. So I believe that we are in a good phase and also in really, really good shape to drive this one, but also some fine-tuning and optimization is needed and also some of the commercial investments. Andreas Lindback: In relation to the 8% target, we should say that in 2023 and 2024, we had stronger Technology & Solutions growth that have supported us on our journey to 8%. And although it is 4% now in the quarter, we still have a positive mix effect compared to the Guarding business and how that is growing as well. But one final lens on it. When we said 8% to 10%, that also included one part of M&A activities where we have said that we have done less as well. So that is one of the reasons then why we are not coming all the way up to the 8% to 10% target because it's mainly within Technology & Solutions which our M&A activities would be geared against. Raymond Ke: Right. That's very helpful. And then maybe sort of a follow-up, if you could maybe provide a bit more color with regards to how you intend to accelerate T&S growth, mainly to help us analysts better understand the pace of growth acceleration that we should be expecting across your segments going forward? Magnus Ahlqvist: Yes. So if you look at that, it is very much related to what I mentioned. So strengthening and investing a bit more in the commercial capability. We have really strong offering. I've recently also been with a number of our clients in the U.S. a couple of weeks ago. Feedback is strong. partnerships are strong and our clients and also new clients are also looking at Securitas as the main partner. So we are well positioned. And I think that is the key point. So our offering is strong, but I think that we will benefit from also investing a little bit more in the commercial resources and capability as we go forward. And then as I mentioned, we're also working in a much more diligent and intentional way now in terms of how we are leveraging existing client base for cross-selling. These are things that also relate a little bit to the work that we've done in the last couple of years to also have the right types of tools and digital platforms to enable that together with incentives as well to be able to drive it at scale. So I feel that we are in a good position here to drive this at a healthy clip going forward. Raymond Ke: Just one final, maybe sort of a detail on this, but could you elaborate on -- you mentioned the positive one-offs that boosted the margins in Ibero-America. Maybe I missed that, but how big were they? And how should we think about them going forward? Andreas Lindback: This is related to some reduced provisions related to legal cases. So there was a positive impact to the operating margin in the Ibero division. Normally, we mentioned something when it impacts at least 0.1% margin-wise in Ibero in the segment Ibero. In this case, it was a bit more than 0.1%. But just to help out there. But then important to say as well that the majority of the margin improvement in Ibero-America was driven by operational improvements, not this one-off related items. And on a total group level, it doesn't have any material impact whatsoever. Operator: The next question comes from Daniel Johansson from SEB. Unknown Analyst: I am [ Andreas ]. I'll limit myself to 2 questions here, I think. Maybe starting a bit on the cash flow. You had another quarter here with a very strong cash flow, and you're in a very good position from a balance sheet perspective. And all else equal, you probably deleveraging further here going into Q4. So I'm wondering a little bit on how you think about capital allocation here for the coming quarters and year. I mean you have a target of 3x net debt to EBITDA. There's a wide margin to that target already. You're through a quite heavy investment period. You're planning to amortize debt. So do you have enough interesting M&A in the pipeline that you would like to pursue? Or is there an opportunity for higher shareholder remuneration through extra dividends or share buybacks? Yes, if you can help me a little bit to understand on how you think about the balance sheet from here. Andreas Lindback: Thank you. When it comes to capital allocation priorities, number one, as you say as well, is to below 3%, which we are with good headroom as well when it comes to our leverage point. Priority #2, invest to drive the growth in our Solutions business. We have a CapEx guidance of around 2.5% of sales, and that we will continue to do. Priority #3 for us is the dividend to our shareholders, 50% to 60% of net income to be paid out on an annual basis. And then priority thereafter is related to bolt-on M&A activities. And here, as you rightfully say, there has not been so much activity. We have opened up for it, but we have also been focused really on driving the organic improvements in the business. We have also been focused on the strategic assessment program. So that is something that we will work on accelerating, although like you say as well, there is not a big, huge pipeline right now today, but that will, over time, start to increase. And then after that, I mean, if we don't find enough acquisitions, so to say, then we will continue to deleverage our balance sheet here. And over time, we can consider any other shareholder returns, but it's not a topic today and in the short term. And then we will have to come back to you on a more longer-term view in our Capital Markets Day here in June. Unknown Analyst: Understood. And then maybe a smaller question on the other segment. If I understand it correctly, SCIS still hampering you on a year-to-year basis. But when I look at the other segment, the loss is only SEK 56 million, so quite in line with last year. Is that due to continued good performance in AMEA and lower group costs or anything more of a one-off nature in there? Or yes, what explains that you don't have a bigger loss given SCIS is still negative, it seems? Andreas Lindback: No big one-offs. You're right. Our business in AMEA -- Africa, Middle East and Asia and the Pacific are performing well, which is supporting other. Group cost is under control. So there is no major changes there. And then we have the residual performance in the SCIS business. Operator: The next question comes from Allen Wells from Jefferies. Allen Wells: A couple from me, please. Just mindful of the kind of portfolio management comments, you said that they will continue in Europe, America into the first half. So is it right to assume that, that kind of very low single-digit growth kind of profile that we've seen for this year in those regions, but at least continues in the first half next year? I'm just keen to understand how you see the potential timing and shape of growth recovery there? And that's the first question. Secondly, just a quantification question on the tax timing comment that you made in terms of the unwind in the fourth quarter. Exactly what does that mean in terms of the impact on cash flow? And as I just think about the 3% organic growth number that you posted in Q3, what is the pricing component of that versus volume, just at an average group level? Just keen to understand where pricing is. Magnus Ahlqvist: Thanks, Allen. So on the active portfolio management, if you're looking at the current trading, it's a several percent type of impact that we're seeing on the numbers that we're reporting in the last couple of quarters. So that's the reason we highlight that there is a significant impact. We don't provide guidance, but we continue to work as we've done before. It's obviously to take care of our clients in a good way, do this in an orderly fashion. But I also call it out because it is important that we also complete that work and get that work behind us because the sooner that we do that, we can also start to focus more on profitable growth again. So that's really the perspective. But we don't provide any guidance. But I think going back a number of years, a lot of people were wondering, okay, does this mean that you're going to shrink significantly in business, et cetera? Well, as you know, over many, many years, that hasn't happened because we also have had a healthy intake in terms of new business. So we're on the right path, but we also need to finish that job, very important in Europe and Ibero-America. Then if you compare a little bit to North America, you also see the benefit there. We were done with this work earlier in North America, and they're obviously also back to much healthier growth levels, and that really contributes. So this is all part of the plan, but good thing now is that we're now kind of nearing completion of that work in the next couple of quarters. Andreas Lindback: When it comes to the 3% growth, the majority of that is price. And where we do have volume increases is in our North American business, where we have seen a good portfolio development. And it's also a very good place to have a good growth given the margin profile that we are having in our North American business. They have been through the [ APM ] program, as Magnus has just talked about. And now we are turning that business more and more into growth focus. So it's really good to see the growth numbers and the volume development in the North American business. But all in all, on the group level, most of the 3% is price. When it comes to the cash question related to tax, we have had some positive timing impacts both in Q2 and Q3 in the U.S., and we expect that to reverse in Q4. And we have talked about USD 30 million, USD 40 million of negative impact in Q4 on the cash flow related to that. Allen Wells: Can I maybe just one quick additional follow-up. Just mindful of U.S. government shutdown at the moment. Is there any impact in your business there? I guess most of it might be in SCIS, which is closing down. But I'm just wondering if there's any impact over the last month or so in terms of Securitas there. Magnus Ahlqvist: No, there is no significant impact. Operator: The next question comes from Viktor Lindeberg from DNB Carnegie. Viktor Lindeberg: Only one question from my side. Looking at the business you've reshaped now quite impressively in the past 3 years in my book at least. And looking now forward in the market, if you could help us pin down the, let's say, tendering activity that you see. How is the market in light of all the uncertainty we see with the headlines every now and then and tweets and so forth. So curious to understand the overall market tendering activity and where you see yourself in light of your profitability journey now when it comes to maybe win ratios that you have seen or foresee going forward to not only defend the 8% margin, but in light of being able to propel further upwards? Magnus Ahlqvist: Thanks, Viktor. I think this is a part that we are very excited about, and I appreciate your comment. It's been quite heavy lifting within the business over the last 4, 5 years in terms of shaping the company into the profile that we now start to become. Very intentional work. We followed by the book, most of the things that we set out to do internally 5, 6 years ago and executed on those. So I think that we are -- as a company, we're in a much stronger position. And when I look at the market, we're also -- I mean, we're operating in large, growing, attractive markets. So we're in a very good position also to tap into that and to leverage that with the strength of the offering that we have. The kind of uncertainty that we're seeing around the world, and this is obviously related to geopolitical uncertainty. It's also related to increasing crime and risk levels. My clear takeaway from a number of the client discussions, and I mean we are serving many of the most reputable companies in the world. They are looking in light of that for a strong partner, a really, really trustworthy and reliable partner that has strong capabilities. And those capabilities to us are very much focused on technology, digital and our services capabilities that we have in our portfolio. So I think that we are really well placed in that, and there is also a healthy market. An important shift that we have been able to achieve in the last 5, 6 years is that we have been much more granular and also much firmer in terms of what are the profitability levels that we need for the business to be sustainable. And I think that has been as the market leader in our industry, that has been really, really important work for us to carry out. But then when you're looking at the market because that's obviously more on a macro level, we also then have a strong position. We know the market is growing, but we're also in the last 4, 5 years, also focusing in on the segments where we see that there is a very clear security need. There is a focus on quality. And some of those that -- where we're also enjoying very, very good growth today. Examples are in technology segments. It's in the data center segments, pharmaceuticals, defense, just to mention a few. And what I'm seeing here is that the positions that we have built a few years ago we just continue to expand and grow those ones. And that gives me a lot of confidence that we are really in a much better position today, much more intentional and in a good position as well to now after we get a lot of the heavy kind of lifting work behind us to also optimize a little bit more in terms of continuous margin improvement, but also then really doubling down on more profitable growth because we have a strong offering and we want to grow, but we need to get some of that work done. But the good thing now is that now it's not 4 or 5 years out. It's a couple of quarters out. And I think that is the exciting position that we are in right now. So I believe we're in a good position, Viktor, and also a good market. Viktor Lindeberg: And by your comment, it does not really sound that clients are waiting to make decisions. It seems the market is progressing as it usually does. No incremental hesitation. Is that a fair assumption? Magnus Ahlqvist: I think so. This is a fairly slow moving and fairly conservative industry from my perspective. But it's also based on security is so important that most of our clients, they are also very deliberate in terms, okay, what are the things that we need in our security solutions and who is the partner going to be. And for that reason, some of the selling cycles are a bit longer, but the way that we build our business is very much focused on long-term value creation. So once we are in a relationship with a client, we usually develop that continuously and over time, and that is a real position of strength for us. But I wouldn't say that there is a hesitancy in that sense. It's rather the question, how can you help us and really leverage technology and digital capabilities that we have and that are also out there in the market to be able to run a more effective and more efficient security program. And there, I feel that the kind of the increasing complexity from that perspective it is clearly in our favor because then most customers also realize that it doesn't make any sense for them to invest in all of that capability. It requires real deep know-how that we have in our technology business that we're building digital capabilities and also much stronger guarding capabilities. So it's matching in a really good way. And that's the reason I'm saying I think we're in a really good position when I look at the next 5 to 10 years after a period of really reshaping the company. Operator: [Operator Instructions] The next question comes from Simon Jönsson from ABG Sundal Collier. Simon Jönsson: I just have a follow-up question on the M&A in Technology & Solutions specifically, of course. Just wondering where you think or where you see that the market is currently in terms of multiples paid for acquisitions of the kind of assets that you are looking for ballpark figures would be fine. Andreas Lindback: Thank you. Given that we have not been so active in the market, I would not really comment upon that today, to be honest, as well. That's something I need to come back to. But the things that we have done have been more or less on the same levels as -- I mean, same levels as we have done bolt-ons before. I think we should take out the STANLEY transaction that was one big transaction, generally speaking, where we have said that we paid a premium to get that down. So the multiples in the technology market is lower than that for sure. But I haven't seen any trend of reduced multiples later over the last years. So normally, in the technology space, you would pay double-digit multiples -- low double-digit multiples. And then it all depends on what kind of cost synergies that we have and, of course, revenue synergies as well. So those are the comments I would like to give at this point in time, Simon. Operator: There are no more questions at this time. So I hand the conference back to the President and CEO, Magnus Ahlqvist, for any closing comments. Magnus Ahlqvist: Very good. Thanks a lot, everyone, for joining us today. We continue on a good path as stated and excited about the next phase in our journey. Thank you.
Operator: Welcome to CellaVision Q3 Report 2025. [Operator Instructions] Now I will hand the conference over to CEO, Simon Ostergaard. Simon Østergaard: Thank you very much, and thanks to everyone taking the time to listen in to our quarterly report that we've launched this morning for our third quarter. I'm happy to say that I also have our Interim CFO, Monica Jonsson, with me, and we'll be happy to also answer any questions you may have when we get to that part of the session. So, the quarter in brief. So, we have named our quarterly report softer quarter with mixed regional performance, and this is also related to currency effects. We saw Americas and EMEA had some quarterly variations resulting in modest growth, which we are highlighting here. We are coming out with a quarter here where we are reporting net sales decreased by 1.7 percentage points to SEK 176 million. However, due to the FX headwind of minus 4.3%, then sales increased organically by 2.6% during this quarter versus the comparable quarter last year. On the EBITDA side, we increased our EBITDA to SEK 50 million. So, we increased by SEK 1 million, and this relates to -- or corresponds to an EBITDA margin of 28%, also a small increase. In terms of what we want to highlight with regards to our strategic direction and our progress, we actually see a lot of progress. It's a very exciting time for the company and our partner. We're highlighting the fact that we've completed our clinical trial. We've submitted our documentation to receive the CE Marking for our bone marrow application. So, we do expect this one to be done according to plan and obtain the CE mark by here we say, early 2026. I think we've said Q1, so that's still in line. But we are positively optimistic around it, even though there are, of course, always risks with anything, but this is an exciting time. So now we are really looking into training and the commercial launch activities for 2026. Another big chunk of our investment has gone into an upgraded software for our platforms where we've done the verification that has been completed and now being installed at customer sites for final validation before we roll it out, which is planned for next quarter, which is this quarter here in November. All right, here we go. And then a slide around the financial development. So, it's a busy slide, but what you have here is our Q3 numbers reported fresh at the very left-hand side, the comparable quarter and then the year-to-date numbers for 2025 in the middle, followed by the compare last year and then the full year 2024 on the very right-hand side. So, I talked about the organic growth and the revenue of SEK 176 million. If we sort of peel the onion and then work our way through the P&L, that translates into a gross margin of 69%. So, we increased the gross margin by 1 percentage point. We had full impact from our price increases during Q3, and we had a little bit of a product mix. So that was a positive contribution. On the operating expense side of things, we invested SEK 82 million, went down with -- as compared to last year, a little bit on sales, a little bit on admin and according to plan, invested a little bit more on the R&D side. So that actually translated into a growth of EBITDA of around 2 percentage points. So, from SEK 49 million to SEK 50 million despite the negative decline in revenue. On the R&D side, as you can see, 24% so we have -- of sales is what we have invested into R&D, of course, slightly affected by sales. However, really, the investments are following our plan, and we've capitalized a little bit less than normal, only SEK 14 million this quarter, which is primarily due to the vacation piece and partly also completion of the software upgrade, which also had a little bit of an impact on how much we capitalized. On the cash flow side of things, we had a cash flow before the working capital items of SEK 52 million. And then the working capital adjustments or impact was actually minus SEK 22 million, and the majority of that was from accounts receivable since we had quite a number of orders being placed in September. So, this is why our accounts receivable increased. So, we had an operating cash flow of SEK 29.6 million, SEK 30 million. And on the investment side, we invested SEK 22 million, both on the capitalized R&D activities, as I said, but also investments into data storage was a significant chunk this year to serve our capacity for some of our new technologies. And then after subtracting our SEK 4 million of finance activities, the cash flow that were related with that, we ended up with a total cash flow of SEK 4 million. So that's really the story around our P&L. Let's take a look at the regional highlights. So, in Americas, we had 68 million on the top line coming from the Americas region, South and Northern America, which is equivalent to an organic growth of 4%. So, we also had currency effect there, of course. I'd say, in general, it was carried by -- it came from really good traction on the large instrument platforms and less from the smaller instruments, where we saw a modest decrease. However, we also saw good traction in Latin America. So that is also positive for future growth. In general, I'd say our sort of also when we look at our leading indicator in collaboration with our strategic partner. We believe that we have an increasing potential in the U.S., which was also confirmed in the half year report of Sysmex launched yesterday. In EMEA, likewise, sales amounted to SEK 96 million versus the SEK 98 million last year. That is an organic growth of 1%. I think this was actually acceptable also in the light that we were up against a pretty tough compare since we had inventory buildup in the comparable quarter last year. So, a decent single-digit growth in reality. We had reagents growth as well, quite a bit from EMEA. However, on the hematology side, it was modest -- very modest with only 1%. So, there is some phasing of orders on the hematology side there. But generally, a good 14% growth on the reagent business. For APAC, I'd highlight that it was a soft quarter, SEK 13 million, so 10% growth, but of course, on a very low base. This was also what we hinted in our previous quarterly report where we had some inventory shipping since we are entering our program where we are manufacturing out of China. So, we ship quite a number of parts and instrument modules to China, which impacted sales, but this was the main contributor to a soft sales across APAC. We sold also outside of China. So, we do see momentum in pockets across Southeast Asia and Australia. So that is a positive outlook there. And then I also want to emphasize that we are seeing a good traction, 5x improvement of revenue sales from our reagent in APAC. Of course, it's small numbers in APAC, but it gives us the confidence that we -- that our penetration and expansion in APAC on the reagent side is on the right track. If we cut the numbers in terms of sales per product group. So same numbers but sliced per product category. We have SEK 93 million versus SEK 102 million on the instrument category. And again, contribution from the large instruments was important. And then as I just alluded to on the Made in China initiative, it is very important for us to be able to participate in the market in China by manufacturing our instrument in China. So that is a project that is also coming to the end as part of our strategy. On the reagent side, I mentioned the growth of SEK 40 million in revenue versus the SEK 35 million. So that's the 14% growth. So good to see also that our -- what we define as non-hematology is actually contributing with a decent sort of single-digit healthy growth this quarter here. So that is really good. And then finally, on the software side, SEK 43 million. So -- and that is also a correlation up against how we're doing on the instrument side, but it is actually a decent software revenue we accomplished. And also, we had a contribution coming from spare parts and consumables worth SEK 23 million. So, the key takeaways is that, as we say, yes, we've had somewhat softer quarter with some different variation across the regions. But the underlying is a healthy business, which is supported by the gradually expanding strategic partnership, which is advancing across multiple dimensions on internal processes, on the -- now the focus also on launching the products. This is another thing that the power of focus strategy that we launched in June 2022, it is starting to provide the output, both from what you see when we decided to enter the specialty arena or specialty analysis with the bone marrow that is expected to come out. So, our focus and activities are really on training and commercial launch activities, and so they will be here as we start the new calendar year. I also emphasized the software upgrade without going into details prior to launch, then I would say that it is delivering a faster, smarter workflow, and it does have a new cutting-edge user experience. In terms of our fifth pillar in our strategic direction or strategy, the power of focus, we also have these new areas where we expand beyond hematology, which is really the focus of deploying our full Ptychographic Microscopy technology, the FPM technology. And we have reported that we are lifting this into our next-generation hematology analyzer. And that is really proceeding according to plan. And based on this development, we are now also able to really scan different sample formats in the context of cytology and pathology as an example. And that is also an exciting area where we are having discussions with partners -- potential partners playing in those field. So taken together, a solid quarter. We worked hard, but also on the R&D and now on the marketing side is ramping up. So, it's a pleasure to present the results today. And with that, I think we should open the floor for questions. Any questions are, of course, welcome. Thanks. Operator: [Operator instructions] The next question comes from Simon Larsson from Danske Bank. Simon Larsson: I'd like to maybe kick off with a question on the software upgrade you announced here it's rolling out. Should we expect any financial impact from the rollout here already in Q4? And will this be sold as an option to the customers? Will it be mandatory? How will you charge for it? Just any more color on the software upgrade would be helpful. Simon Østergaard: Sure. The software upgrade is seen as an upgrade on our instruments, both on the usability and the performance to improve the workflow. We have decided to -- that this will be part of the package when you purchase the blood line, [indiscernible] as an example, then this will not come with an additional fee for the end user. So, this is really a means of differentiation. So, you should see this as a growth contributor by keep on being relevant in the labs and demonstrating our innovation muscle prior to our next-generation system. That's how you should look at it. Simon Larsson: Okay. That's very clear. And also, on the R&D CapEx here going forward, I think roughly the levels now, I'd say, like SEK 70 million per year capitalized. Should we expect this to decline here going forward as the software product is now rolling out, bone marrow is coming out. Of course, we're still investing in the next-generation instruments, I suppose. But how should -- how do you believe we should look at the capitalized R&D here in the coming, let's say, 1 or 2 years? Should it decline more to a historic level, or should it be kept roughly at the same level? Simon Østergaard: Yes, see, our aspiration is really to maintain focus on us being an innovator -- innovation company. I think we are at a pretty decent level here. On the capitalization, we have a portfolio of projects we want to start -- so this is also a bandwidth question for us. I think we're at a reasonable level. But as we see more of our projects being terminated, it is a balance as to how mature are new projects? Are we capitalizing or are they more immature than that. So, you may see some changes in our capitalization, but our intention is actually to keep on investing in the R&D phase. We expect that as we see more changes also throughout next year, we'll probably give more sort of guidance or update on how we see it as we've come to the end of the power of focus. So, we will certainly be more specific around this particular question as we enter 2026. Simon Larsson: I think that would be a good idea. I think just as you're now sort of finishing up a few of these bigger projects, it would be good to help us understand how we should look at this going forward. Maybe the final one from my end. You mentioned, I think, that the cash flow was a bit held back by an increased amount of orders placed during the end of the Q3 quarter. Could we expect that sort of this dynamic to sort of has continued into Q4, i.e., that sort of how you enter Q4 is looking sort of good on that same trajectory? Or was it just a matter of timing that it sort of ended up in the late Q3 here order intake and delivery? Simon Østergaard: That is simply just the nature of the payment terms when we receive the orders throughout September, then that's why you see this fluctuation on accounts receivable this time around. It's not a systemic thing per se. It's really a timing thing. Operator: The next question comes from Ulrik Trattner from DNB Carnegie. Ulrik Trattner: A few questions on my end. Starting off with the product mix and the gross margin, and you say you've had a favorable product mix here in the quarter, improving margins. But regardless of the mix, some portions here in your profile are increasing its gross margin sequentially, systems software or reagents. And because the margins are a bit higher than it's been before, and you're still sort of affected by negative FX in the quarter. So, can you help us decipher what segment is improving its margins? Simon Østergaard: I think -- so pricing was one element. In terms of mix thing, we still have -- we have 14% growth on the reagent side. That actually pulls down the margin. We have a little bit lower margin on the reagent side versus instruments and software. But that was still -- despite that, we had sort of solid growth on the large instruments, which kind of contributed to the 1% increase versus the last year. Ulrik Trattner: Still sort of when I sort of -- any way you look at it, if you split it up into 2 segments, like cell morphology systems or morphology systems and reagents, some of these segments have improved its gross margin sequentially and year-over-year. Simon Østergaard: Yes. So, help me out here. What are you looking for specifically which product group is it that you're... Ulrik Trattner: I'm just trying to figure out sort of what in the product mix have increased the margin. Regardless of the mix, some of your system or reagents have increased its margins sequentially. And I'm just trying to figure out whether sort of which part of it is moving the needle. Simon Østergaard: I think maybe this time around, I think we had probably more contribution from large systems versus the small. So that has been a contributor -- positively contributing to the overall gross margin. I'd say that's probably the driver you're looking for. Ulrik Trattner: Yes, That’s great. And the software upgrades live here in November enables you to commercialize wider sort of the MCDh reagents. Have you received any feedback from customers? And can you just give us sort of the highlights here of how you intend to commercialize it sort of near term? Will it be initial sort of customer feedback then gradual ramp-up? Or how should we view this? Simon Østergaard: Yes. That’s a great question. No, you're absolutely right that the software upgrade also comes with the opportunity, you can say, changes on the steering and staining device by Sysmex, which is called SP-50. So that has also been upgraded so they can host our methanol-free stain. That's an important part of this integrated software upgrade. So that allows us now to actually start positioning methanol-free stains or Sysmex to position the methanol-free stains to be used on the SP-50, which is a major milestone. So, we're in the phase of evaluating the stain with customers. I believe that Europe will be first. This is where we have the majority of our business on the [indiscernible], the classic stains. So, there will -- there can be some conversion, but obviously, the value proposition of methanol-free is strong. So, we can -- that can still contribute in Europe. And then it's also an enabler for the U.S. And we expect the launch in 2026 for the U.S. Here, there's both customer assessments and a little bit of, you can say, regional preferences that we are working on finalizing, but we expect the launch to be happening next year. That's kind of where we are for the U.S. Ulrik Trattner: And if we were to look at sort of China, and you've been working here and we can read in the reports on sort of transferring systems. And I guess it's Sysmex that is trying to build up manufacturing in China in order to participate in local tenders. So where are they in terms of operations in China? Simon Østergaard: They have a fixed site in China where we work together. So, we are doing our manufacturing of our Chinese devices within China, in their plant as part of that. And they also have cell counters manufactured out of China. And as you say, rightfully, that allows us to actually participate in hospital tenders or deals where it's a prerequisite that you have Chinese manufactured instruments. So, this is why this strategic initiative has been an important enabler for us to continue to compete in a more competitive market as opposed to other elsewhere. Ulrik Trattner: And are we to expect any effects from that initiative or... Simon Østergaard: Sorry, can you repeat that, Ulrik? Ulrik Trattner: Are we supposed to expect any acceleration in China sales from this initiative in the near term? Simon Østergaard: I think it's fair to be mindful also, if you read the report that came out yesterday from Sysmex, it is obvious that China is a fierce competitive market to be in. However, this gives us the opportunity to actually compete in collaboration with China in that market. So, protecting the market share that they report they have, and of course, aiming for growth via differentiation, is our game plan. But it is fierce that we all know that both on the pricing side and on the competitive side with local players, it is a difficult market, but it is relatively sizable out of our APAC numbers, which is also why we have invested in this program to protect our position. Ulrik Trattner: Okay. Great. And last question on my building a little bit more on the capitalized R&D. It's down quite a lot sequentially. And as you highlighted sort of summer months and reported R&D is up. To what degree is this sort of just summer months in prioritization? And how much of this is pipeline maturing? The bone marrow application has now been submitted. What is left in terms of R&D spend for bone marrow application and as well sort of the software upgrade, is also now a commercial product. So, I guess that will not run you that much R&D. Simon Østergaard: No, that's true. I think after Q2, we also released some consultant costs or some consultants, which is also reflected in the less capitalization. And as you say, of course, also the amount capitalized is equal to what we did last year, but coming from a higher base. So that is really because we are also releasing some consultants. Having said that, we are an innovation company. And I think that's super important, which is also what I tried to elaborate to Simon in the previous questions that were posed there. So, we are seeking for opportunities to invest and maintain our strategic focus of differentiating. We cannot disclose what are those programs. That would be unwise from a competitive position. But our intention is to really pursue our direction. And back to -- part of your question was also related to bone marrow. We are confident, as report, of course, there are risks, but we are confident that we are getting the CE mark for Europe. We still have investments to do to complete our trials and the work that we do to also enter the U.S., So we're not fully at harbor, so to speak, with the investments related to bone marrow. Operator: The next question comes from Christian Lee from Pareto Securities. Christian Lee: The first one is regarding the instrument sales that declined year-on-year, but your tone remains optimistic and especially for the larger systems. So, should we view this as an indication that demand strength will translate into stronger instrument sales in Q4 already? Simon Østergaard: I probably defer to sort of be super specific on what happens in Q4. However, I do note that our leading indicators are positive. I do note that Sysmex for the past 2 quarters, so including the quarter they completed, or they reported yesterday, so their Q1 and Q2 equivalent to calendar year Q2, Q3. I do note that they are signaling, or they are reporting instrument growth of 10% in the U.S. and 4% in Europe. And I think there is a healthy environment. This is also what we see. So, we're positively optimistic. So, you read my tone correctly, but I will defer for being super specific until we've seen what orders we get in and so forth. Christian Lee: Okay. Perfect. And demand for smaller instruments appears a bit softer than for the larger ones. Do you view this as a temporary situation? And what factors do you believe could drive a recovery in the near term? Simon Østergaard: Yes. No, I think it's temporarily. I think we, together with our partner, has pushed a concept which included both -- for the small labs, which included both the smearing and staining, and our DC-1 instruments. Prior to this, we had very healthy double-digit growth on the DC-1 instrument sold by itself. And then we positioned this instrument package called the DIFF-Line. And it is no secret that we had some operational performance issues with the SmearBox. So, I truly believe that part of the issue is not the market demand. It's our product issue that we had. And now we do have another simple solution that can substitute. So, it's a matter of getting aligned and getting back and really working with the opportunities as opposed to -- because we have seen a glitch in the pipeline that we built up due to this. But I really trust that it's a temporary thing. The demand is there. And also, if I look at it, especially in the U.S. All the IHNs are set up for our solution. And I do believe we're the only company who can actually serve that segment in a networked manner, from small labs integrated with the connectivity and our software solution to cater and be managed and decided upon from a diagnostic perspective at the large labs. So, it's temporary, Christian. Christian Lee: Okay. Great. My final question, Reagents performed really well with strong momentum in APAC. Do you see any risk of inventory buildup in the reagents that could dampen sales in the fourth quarter? Simon Østergaard: No, you're right. I'd say inventory buildup, then I'm thinking specifically around China. And the challenge there when you build up an own manufacturing is that, first of all, the line, we are selling a lot into China, that is then sitting in the manufacturing line. And then after that, you have a layer of 60 to 70 distributors below. So, there is a very little transparency to the end user in China. So, from that perspective, I would probably answer that, yes, there is a risk of some inventory buildup for the time being because it's very hard to translate how much is actually entering the end users for the time being. So, there's a little bit of risk for that, specifically related to target. Operator: The next question comes from Ludvig Lundgren from Nordea. Ludvig Lundgren: So I wanted to continue a bit on this last question with APAC instrument sales. So of course, it was lower in Q3 with some inventory destocking following the large Q2 order. But given that you now have local assembly in China, as I understand it, like will this lead to APAC instruments even more lumpy ahead? It has been lumpy historically as well, but could it be even further enhanced now? Simon Østergaard: I think the lumpiness is primarily driven for China and not APAC as a whole. So that's for China specifically, I would say. But temporarily, I can certainly not guarantee that there will not be some lumpiness. China -- sorry, APAC has always been quite lumpy and also because China is the biggest market that we serve. However, I do see opportunities both when we look at Japan and when we look at Southeast Asia, not the least in Australia and New Zealand. So, some lumpiness can occur. And that cannot be sort of neglected, so to speak. But still, I think it's positive that we're actually seeing opportunities both on the instrument side and then also on the reagent side, where we believe there is a good opportunity to actually bundle our offerings because we are the only provider who can actually provide both instrument software and reagents. Ludvig Lundgren: Okay. Great. So yes, just a follow-up to that. So, you saw this SEK 3 million reagent sales in APAC in Q3. Like we have seen some spikes in reagent sales historic as well. Like is this to be considered somewhat of a one-off, this level? Or does it rather reflect that you are seeing a significant increase in reagent customers in the region? Simon Østergaard: No, you're right. It's not a continuous sort of flow. There is lumpiness if you look at the revenue for APAC reagents per se. However, we do believe that the shipments that we send, they go to multiple markets. So, you should see it as a sign of us starting to actually grow the base of RAL reagents being consumed across multiple markets in APAC. I think that's the positive thing. And then also, we're also working on our logistics setup to serve the reagent market in APAC, which is another driver that can also help us facilitate and provide the reagents. So, you should expect growth, but I cannot guarantee that there will not be this lumpiness because it is a matter of -- it's large shipments that goes when they go and sometimes, they don't go. So that's how you should look at it. Ludvig Lundgren: Okay. I understand. Very clear. And then another follow-up. Just like looking at the instrument sales in APAC. So, on a rolling 12-month basis, I guess it has stabilized now around SEK 25 million, SEK 27 million, something like that. Like is this a fair level to extrapolate ahead? Or do you expect this to grow example, looking into '26? Simon Østergaard: For example, the last part, I didn't hear that. Ludvig Lundgren: Yes, for 2026, like do you expect to have a similar type of -- or similar amount of quarterly deliveries on an average level? Simon Østergaard: Yes. It's always tricky with the average question. I think it's a decent level. Having said that, there are specific opportunities, I'd say that when we look into and we discuss with our partner, there are specific opportunities sitting in APAC that are significant. And if they don't come, then you end up with this relatively flat look. However, the spikes can certainly come because we have some good opportunities across network hospitals, both in Australia, New Zealand, but also in Japan. And if they materialize, then I think we should certainly expect growth when you do your math over the 2026. Ludvig Lundgren: Okay. Great. And like -- because I think last year, we saw quite a significant spike in APAC instrument deliveries in Q4. Like is there any seasonal component to that, that customers trying to fill their budgets? Or was that more of a one-off so to say? Simon Østergaard: We compare that with last year, what I recall was that we had to serve -- we were obligated to serve a specific tender that was 5 years old type of thing. So that happens in the comparable quarter, Q4 last year. I don't expect there to be much -- you can call it seasonality per se. It's more a function of where the specific opportunities materialize rather than seasonality. Ludvig Lundgren: Okay. And then final question, like you have talked a bit before about reagent sales in the U.S. and the potential there. Like any updates on that? And if we could start to see this starting to ramp into '26? Or yes, just how to think about that? Simon Østergaard: Yes. No, I think about it in a way where we've been also at our Capital Market Day when we launched the Power of Focus, we were really emphasizing that MCDh, the methanol-free stain is the enabler to go and penetrate the reagent market in the U.S. That assumption has not changed. But now we've progressed much further. So we're actually able to bring MCDh onto the Sysmex smearing and staining device that is consuming our methanol-free stain. So, I think we've come a long way on the development side. So now it's about getting some customer feedback on the stain, whether there are any last tweaks for U.S., I do expect it to materialize, let's say, mid-2026, which, of course, means that the contribution from the reagent in 2026 U.S. is not enormously, but milestone-wise and the fact that we start launching this has enormous impact also on how we work with the team over there to actually position our total solution now also including instruments. So, by the end of the day, very exciting times for us. Operator: [Operator Instructions] There are no more questions at this time. So, I hand the conference back to the speakers for any closing comments. Simon Østergaard: Thank you very much. And first of all, thanks to all of you taking the time to listen in and staying with us throughout the Q&A. In my closure comment, I want to thank especially our strategic partners, the partner organizations all across the regions and the different functions. I really see gradual constant progress here 1.5 year after we especially launched the strategic alliance agreement with the Sysmex Corporation team. I also, in particular, I want to thank our own team, our staff. It's been extremely probably more than usual a tough quarter, and I think they know what I referred to on the internal lines. However, the dedication and the focus seems to take no ends all across our functions. So really a heartfelt piece of appreciation here. And then finally, I want to emphasize that on February 5, 2026, this is when we announce and present our year-end bulletin for 2025. So that will be published, and we are looking very much forward to present the results. And with that, I thank you for your attention and your interest in CellaVision. Thank you.
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: 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: Thank you for standing by, and welcome to the Cytokinetics Q3 2025 Earnings Conference Call. This call is being recorded and all participants will be in a listen-only mode. [Operator Instructions] I would now like to turn the call over to Diane Weiser, Cytokinetics Senior Vice President of Corporate Affairs. Please go ahead. Diane Weiser: Good afternoon, and thanks for joining us on the call today. Robert Blum, President and Chief Executive Officer, will begin with an overview of the quarter and recent developments. Andrew Callos, EVP and Chief Commercial Officer, will address commercial readiness activities for aficamten. Fady Malik, EVP of R&D, will provide updates related to the clinical development program and medical affairs activities for aficamten. Stuart Kupfer, SVP and Chief Medical Officer, will provide updates on the clinical development program for omecamtiv mecarbil and ulacamten. Sung Lee, EVP and Chief Financial Officer, will provide a financial overview of the past quarter. And finally, Robert will provide closing comments and review our expected key milestones for the remainder of 2025. Please note that portions of the following discussion, including our responses to questions, contain statements that relate to future events and performance rather than historical facts and constitute forward-looking statements. Our actual results might differ materially from those projected in these forward-looking statements. Additional information concerning factors that could cause our actual results to differ materially from those in these forward-looking statements is contained in our SEC filings, including our current report regarding our third quarter 2025 financial results filed on Form 8-K that was furnished to the SEC today. We undertake no obligation to update any forward-looking statements after this call. Now I will turn the call over to Robert. Robert I. Blum: Thank you, Diane, and thank you all for joining us on the call today. The past quarter was highly productive and defining for Cytokinetics. We made significant progress across the company's priority objectives as we advance towards the end of the year when we hope to achieve our first potential FDA approval of aficamten for patients with oHCM. Our major accomplishments this past quarter were dedicated to preparing for that milestone, including continuing constructive engagements with FDA, completing key commercial launch readiness activities and fortifying our capital structure. During the quarter, we held our late-cycle meeting with the FDA. As we previously disclosed during the meeting, we discussed our proposed REMS program, including elements to assure safe use, or ETASU, as well as anticipated post-marketing requirements. Prior to the meeting, we had received FDA's responses to our proposed REMS and label for aficamten. And based on our exchanges and discussions with FDA to date, we continue to expect a differentiated label and risk mitigation profile for aficamten if approved by the FDA. We've completed all GCP inspections by the FDA with no observations noted. Moreover, to date, we have not been notified of the intention of FDA to conduct pre-approval inspections. We look forward to continuing our dialogue with FDA ahead of the PDUFA date. In recent months, we've also leaned further into commercial readiness with the onboarding of our commercial field sales colleagues and the finalization of promotional campaigns and patient support programs, with objective to further differentiate how we show up commercially. At the same time, in Q3, we achieved an important clinical milestone within the development program for aficamten. We presented the positive primary results from MAPLE-HCM, which demonstrated superiority of aficamten to metoprolol in patients with oHCM, challenging the long-held status quo of treatment in this disease. Our intention is to file a supplemental NDA for MAPLE-HCM following its potential initial FDA approval. But in the meantime, we believe these results may help catalyze certain prescribers and help unlock more of the market upon the initial introduction of aficamten as may result in increased commercial launch velocity. Following closely behind the potential approval and launch of aficamten in the United States is the expected potential approval of aficamten in the EU. During the quarter, we received the Day 120 List of Questions from the EMA, and we subsequently submitted our responses. More recently, we've continued EMA interactions, and we're preparing Day 180 responses. We're encouraged by ongoing interactions, and we expect a final decision from the European Commission in the first half of next year, even possibly on the earlier side of the year, given the pace of our review to date. In parallel, our European launch readiness activities are well underway, focused on market access planning, medical education and engagement with the cardiology community and to ensure a strong foundation for a successful introduction of aficamten in Europe. We also continue to work closely with Sanofi to support the potential approval of aficamten in China to further broaden the global opportunity and reinforce our commitment to making this therapy available to patients worldwide. To achieve all of this, we're fortunate to have a strong balance sheet, which we further bolstered during the quarter through our convertible note offering. As Sung will elaborate, this transaction helps not only to provide additional capital at this important time, but also financial flexibility. And lastly, we continue to build momentum across our broader pipeline at this important inflection point in our corporate development, reflecting our ongoing commitment to sustained innovation and longer term growth. With that, I'll turn the call over now to Andrew, please. Andrew Callos: Thanks, Robert. We continue to make strong progress with commercial readiness activities towards the potential FDA approval of aficamten next month. As Robert mentioned, our interactions with the FDA to date have reinforced our expectations for a differentiated risk mitigation profile anchored in REMS and label, and we have confirmed our go-to-market plans and promotional campaign. Following anticipated approval in December, our launch process will begin immediately. Within days, our website, patient navigators, patient support services will go live to begin supporting physicians and patients on their treatment journey. Shortly thereafter, in early January, our fully trained cardiovascular sales and medical teams will be in the field engaging healthcare professionals with full commercial launch, inclusive of product availability and REMS operations to follow. To ensure a seamless and impactful launch, we've invested deeply in assembling the right team and creating the right infrastructure. Over the last several months, we've built a strong and highly experienced cardiovascular sales team with our field sales representatives averaging over 20 years of industry experience and 14 years of cardiovascular experience. These are seasoned sales professionals who understand the nuances of launching a new medicine in a specialized market. Our sales team is on board and completing training to ensure that our full team will be prepared to begin HCP engagement within days of FDA approval. A subset of our sales team has already been in the field since early September, introducing Cytokinetics to key oHCM HCPs and providing disease education. Core to our launch strategy and consistent with the value and our vision of a differentiated patient-centric treatment experience, one that has been built from the ground up specifically for aficamten. Our approach is designed to be simple and integrated across all touch points for both HCPs and patients. At the heart of this model is a highly qualified team of patient navigators who will serve as a central point of contact throughout the patient journey. These navigators are also on board and have completed their training or are completing their training and preparations ahead of their anticipated approval to ensure readiness. We've developed a distinct and compelling promotional HCP campaign that highlights the differentiated characters of aficamten and key attributes of our REMS program. We believe this campaign will clearly communicate the clinical value of aficamten and support broad awareness among cardiologists. Ahead of launch, we continue to engage with payers to educate them on the evidence from our clinical trial as well as the clinical and economic burden of HCM. We remain confident in our ability to see parity access by the second half of 2026. Importantly, our strategy is comparable access with focus to differentiate based on the clinical profile of aficamten, our REMS program and our comprehensive bespoke patient support services. As we stand several weeks out from our potential approval, I'm pleased with our commercial preparation and launch readiness, and I'm confident in our ability to execute quickly and effectively if aficamten is approved. As we look ahead to measuring the pace and velocity of our launch after approval, we will focus on a few key metrics. First, HCP prescribing breadth as measured by the number of HCPs who are actively writing prescriptions. Second, prescribing depth as measured by the volume of prescriptions and HCP writes for aficamten. To achieve rapid uptake, we will quickly engage existing CMI prescribers with an eye to expanding the prescribing universe to those who treat HCM, but have yet to prescribe a CMI. More specifically, our goal for our field-based cardiology account specialists was to reach nearly all of the estimated 650 HCPs or approximately 80% of the HCM prescribing to date within the first few weeks of January. And third metric is the volume of patients on aficamten. We will be closely monitoring and supporting patient uptake, including time of conversion to commercial drug, adherence, compliance and persistency. These measures will provide us early insights into the speed and trajectory of our launch rate of change and overall strength of our commercial execution focused on category growth and overall preferential share in an expanding market. Finally, our attention is not only on the U.S., but also in the EU, where we've made meaningful progress in preparing for potential commercial launch of aficamten in that geography. We recently hired a General Manager for Italy alongside colleagues that are already on board in the U.K., France and Germany and also began recruiting and hiring our full German commercial team inclusive of our field sales reps. In addition, we are preparing dossiers for upcoming discussions with HA bodies across key EU countries, with potential EMA approval expected in the first half of 2026, we remain on track for a launch in Germany in the first half of 2026 with other geographies to follow in '26 and '27. With that, I'll turn the call over to Fady. Fady Malik: Thanks, Andrew. During the quarter, we are pleased to have presented new data that further reinforces the differentiation of aficamten and its potential for patients with HCM. Most notably, at the ESC Congress, we presented positive primary results from MAPLE-HCM, which were simultaneously published in the New England Journal of Medicine. The results which show superiority of aficamten to metoprolol represent a watershed moment in treatment of oHCM. While patients treated with aficamten experienced a significant improvement in exercise capacity, those on metoprolol showed a decline, challenging the long-standing rationale for beta blocker used as the standard-of-care therapy in this disease. This finding has resonated strongly across the cardiology community as we heard firsthand from many healthcare professionals and key opinion leaders on site at ESC. In addition to improving exercise capacity, aficamten also produced larger improvements in symptoms, gradients and cardiac biomarkers as compared to metoprolol. Improvements were consistent across all prespecified subgroups and confidence of the robustness of the findings. Importantly, adverse events were similar in the 2 groups and the safety of aficamten observed in MAPLE-HCM was consistent with previous studies. To that end, as the evidence of aficamten expands, so too does our confidence in its consistent safety profile. An updated integrated safety analysis representing nearly 700 patient years of exposure from REDWOOD-HCM, SEQUOIA-HCM, FOREST-HCM and now MAPLE-HCM as well, aficamten was shown to be well tolerated with a low incidence of LVEF less than 50% over extended periods of exposure, with no occurrences associated with a serious event of heart failure. Long-term treatment with aficamten has also been shown to not be associated with an increased risk for atrial fibrillation. Looking ahead and coming up this month at the AHA scientific session, pleased to have 3 late-breaker presentations with additional data from MAPLE-HCM providing new insights into these results. With respect to the ongoing clinical trial program for aficamten, the next major data milestone for us will be the readout of ACACIA-HCM, the pivotal Phase 3 trial in nHCM. We completed enrollment of the primary cohort, excluding Japan, in the first quarter of 2025, and we now expect to report the top line results from this cohort of ACACIA-HCM in the second quarter of 2026. During the third quarter, we completed enrollment of patients in the Japan cohort, closing enrollment of ACACIA-HCM worldwide. If the results of ACACIA-HCM are positive, it represents an opportunity to address the needs of a highly underserved patient population and an important opportunity to expand the therapeutic impact of aficamten. Our belief in the therapeutic potential of aficamten in nHCM is founded in the existing body of evidence from the nHCM cohort of REDWOOD-HCM and strengthened by their longer term follow-up in the FOREST-HCM trial as recently reported. At the Heart Failure Society of America meeting in late September, we presented new data covering at least 96 weeks of treatment in these nHCM patients. What you saw, albeit in an open-label setting was that 79% of the patients treated with aficamten improved by at least 1 NYHA functional class. Patients also had a mean increase in their KCCQ Clinical Summary Score of 11.2 points as well as improvements in cardiac biomarkers. Few patients experienced LVEF less than 50 and all instances were reversible after down titration or short treatment interruption. We are hopeful that these data may be replicated in the results of ACACIA-HCM given the similarity in patient populations and dosing scheme involved. Alongside our clinical research, our Medical Affairs organization has been very active, engaging the HCM community broadly as we prepare for launches in both the U.S. and Europe. They conducted recent advisory board meetings in the U.S. and Europe and met with the HCM community of physicians at ESC and HFSA alongside institutional visits in their territories. Our team of therapeutic medical scientists in Germany is in place, and we now have medical directors located in Germany, the U.K. and France, supported by our regional group located in Switzerland. Our field team in the U.S. have now also partnered with their newly hired sales colleagues to compliantly conduct introductory meetings with key opinion leaders and healthcare professionals. Now I'll turn it over to Stuart to provide updates on our ongoing clinical trials in heart failure. Stuart Kupfer: Thanks, Fady. During the quarter, we continued conduct of COMET-HF, the confirmatory Phase 3 clinical trial of omecamtiv mecarbil in patients with symptomatic heart failure with severely reduced ejection fraction less than 30%. These are patients who remain at high risk for frequent hospitalization and mortality despite receiving maximally tolerated guideline-directed therapies. COMET-HF is designed to confirm the findings of the positive Phase 3 clinical trial of GALACTIC-HF in a more severe HFrEF population in whom we believe this mechanism may be able to deliver greater cardiovascular risk reduction. In October, we conducted an investigator meeting in Europe, which revealed tremendous enthusiasm for COMET-HF. Many of the investigators had participated in GALACTIC-HF, and it was really wonderful to see their continued enthusiasm for the potential benefits of omecamtiv mecarbil. We now have over 75% of sites in North America and Europe activated and are continuing to activate sites around the world. We expect to continue patient enrollment in COMET-HF into 2026. We also continue to conduct AMBER-HFpEF, the Phase 2 clinical trial of ulacamten in patients with symptomatic heart failure with preserved ejection fraction of at least 60%. By inhibiting cardiac myosin to attenuate hypercontractility, ulacamten is uniquely positioned to address the underlying diastolic dysfunction in this subgroup of HFpEF patients. HFpEF represents approximately half of all heart failure cases and remains an area of high unmet need with limited treatment options. Enrollment in AMBER-HFpEF is progressing, and we expect to complete cohorts 1 and 2 in 2026 to inform FDA interactions and the decisions to proceed towards potential registrational studies. We're pleased with the continued execution of these ongoing clinical trials, each in a different form of heart failure, which reflects our continuing commitment to further advance innovative medicines within our specialty cardiology franchise. And with that, I'll pass it to Sung. Sung Lee: Thanks, Stuart. We're pleased to report our third quarter of 2025 financial results. Starting with the balance sheet. We finished the third quarter with approximately $1.25 billion in cash and investments compared to $1 billion at the end of the second quarter of 2025. Our cash and investments increased quarter-over-quarter due to the net proceeds of $327 million received from the issuance of $750 million aggregate principal amount of the convertible senior notes due 2031 and concurrent exchange of $399.5 million aggregate principal amount of our 2027 notes. These transactions together accomplish our goal of providing the company with financial flexibility ahead of the potential launch of aficamten for oHCM. Excluding the net proceeds received from this transaction, our cash would have declined by approximately $112 million quarter-over-quarter. In October, we received proceeds of $100 million from the Tranche 5 loan provided by Royalty Pharma, which will enable us to finish 2025 with approximately $1.2 billion in cash and investments. R&D expenses for the second quarter were $99.2 million compared to $84.6 million for the same period in 2024. The increase was primarily due to advancing our clinical trials and higher personnel-related costs, including stock-based compensation. G&A expenses for the third quarter of 2025 were $69.5 million compared to $56.7 million for the same period in 2024. The increase was primarily due to investments towards commercial readiness and higher personnel-related costs, including stock-based compensation. Net loss for the third quarter of 2025 was $306.2 million or $2.55 per share compared to a net loss of $160.5 million or $1.36 per share for the same period in 2024. The net loss for the third quarter of 2025 includes the debt conversion expense of $121.2 million due to the induced exchange of $399.5 million of aggregate principal amount of the 2027 notes. Turning to our financial guidance. We are narrowing our full year 2025 GAAP operating expense range to $680 million to $700 million from the previous range of $670 million to $710 million. Stock-based compensation that is included in GAAP operating expense is expected to be between $110 million and $120 million. Excluding stock-based compensation from GAAP operating expense results in a range of $560 million to $590 million. As we near the close of 2025, we have taken important steps to add flexibility and strength to our balance sheet. This positions us well ahead of the PDUFA date for aficamten in the U.S., potential approval in the EU in the first half of 2026 and the readout of results from ACACIA-HCM expected in the second quarter of 2026. With that, I'll hand it back to Robert. Robert I. Blum: Thank you, Sung. This quarter, we made substantial progress across the company. We reported additional data that continues to validate our pioneering and leading science, and reinforce the differentiated profile of aficamten, while also finalizing our commercial launch readiness and maintaining momentum across our pipeline. These accomplishments underscore the focus, rigor and dedication of our teams as we move closer to the most important milestone in our company's history. To help us prepare for this pivotal phase in the company's evolution, we were pleased to welcome James Daly to our Board of Directors during the quarter. Jim brings more than 30 years of global biopharma commercial leadership experience including long-standing senior commercialization expertise from his time as Chief Commercial Officer at Incyte and in senior commercial roles at Amgen, alongside now Board roles at leading commercial biopharma companies. We look forward to his guidance and oversight now as a Board member at Cytokinetics. As we approach our first potential FDA approval at Cytokinetics, I want to thank our employees, our partners and our shareholders for their continued trust and support. We're approaching a pivotal moment in our company's history, standing at an important threshold after many years of disciplined investment in our science, pipeline and infrastructure as well as capital structure, and that will enable our planned transition to a fully integrated commercial company. At this juncture, we are not spectators, but instead, we are active participants in shaping the next chapter for our company. Our near-term focus remains on potential regulatory approvals and commercial launch and velocity. I'm confident in the strength of our teams and the clarity of our shared vision now translating to execution. With that, I'll recap our upcoming milestones. For aficamten, we expect to advance NDA review activities with FDA to support the potential U.S. approval of aficamten by the end of the year. We expect to advance go-to-market strategies and continue launch preparations for aficamten in the United States. We expect to continue go-to-market planning in Germany and expand commercial readiness activities in Europe in 2025 and in preparation for potential approval of aficamten by the EMA in the first half of 2026. We expect to continue to coordinate with Sanofi to support the potential approval of aficamten in China, pending approval by the NMPA. And we expect to report top line results from the primary cohort of ACACIA-HCM in the second quarter of 2026 and continue patient enrollment and conduct of the adolescent cohort in CEDAR-HCM into 2026. For omecamtiv mecarbil, we expect to continue patient enrollment and conduct of COMET-HF through 2026. For ulacamten, we expect to continue patient enrollment and conduct of AMBER-HFpEF through 2026. And finally, for preclinical development and ongoing research, we expect to continue ongoing preclinical development and research activities directed to additional muscle biology-focused programs. And operator, with that, we can now open up the call to questions, please. Operator: [Operator Instructions] We'll hear first from the line of Gena Wang at Barclays. Huidong Wang: I have tons of questions on approval, but I will save that for my peers. So I will ask one question regarding ACACIA data. I think you did mention that the data will be coming out in 2Q '26. So as we remember that you added pVO2 as a dual primary endpoint for regulatory feedback from Europe and Japan. So technically, the drug should receive approval as long as you hit 1 of the 2 primary endpoints. So -- but in the case of missing pVO2, do you anticipate any issue of approval in Europe and Japan? I assume U.S. will be totally okay as long as you're hitting one endpoint. Robert I. Blum: I'll ask Fady to respond to that. Fady Malik: Gena, I think it's really difficult to know what will guarantee approval or not. Obviously, it depends on the magnitude of the other results. It depends on safety profile, depends on lots of things. But I think the trial will be considered positive based on our statistical analysis plan of either endpoint is positive, but you'd like to see them at least minimally moving in the same direction. You'd like to see magnitudes that we think are clinically meaningful. You like to see consistency across the other endpoints. So I think all of those things go into regulators' evaluation of whether a trial not only was statistically significant, but represents a clinically meaningful therapeutic in the field. Operator: Our next question today will come from the line of Salim Syed at Mizuho. Salim Syed: I'll also ask one on ACACIA, just given the amount of attention this trial is receiving. And sorry for the granularity around the p-value here. But Fady, so the ACACIA trial p-value is split, as I understand it, between KCCQ and peak VO2, both at 0.025, so equal. And if one wanted to play devil's advocate for a second here, just curious why is that the better strategy at this point versus what ODYSSEY had, which was weighted to KCCQ at 0.04 and came in with a p-value of 0.06, which was close to hitting and also a better p-value than what we saw with ODYSSEY with the peak VO2 measure. And the trial only needing, again, statically one measure to hit to be successful. And to that point, while the study is still blinded, if you wanted to, could you change the weighting between the 2 endpoints in ACACIA before unblinding the results? Robert I. Blum: Again, I kind of go through the -- what I said earlier is that any positive result is not necessarily a meaningful result. You could -- I think the ODYSSEY trial missed and the KCCQ delta was 2 or 3, I can't remember the exact number, but pretty modest, and I doubt would -- if you consider the magnitude of effect would be that compelling to regulators. So we powered this trial of 0.025 for each based on what we think is a solid clinical effect at KCCQ that's 5 points and with peak VO2's improved by 1.0. Now that powering -- the trial is powered at 90% power for each of those magnitudes doesn't mean that the trial is positive only if we reach those magnitudes. The minimum, I guess, positive difference for those endpoints is substantially smaller and gets into the range of where it's probably debatable whether the size of the effect is meaningful or not. So we think we have adequately powered each endpoint. We think allocating alpha equally provides us an opportunity to win the best on each endpoint. And at this point, I don't anticipate us making any changes to that. Operator: Our next question today will come from Akash Tewari at Jefferies. Zaki Molvi: This is actually Zaki on for Akash. So just again on Nonobstructive. You've talked about how Bristol's ODYSSEY study had an outlier placebo. And to us, it almost seems like their standard deviation on KCCQ in particular, came in higher than they expected in their protocol. So for ACACIA, you've chosen to keep the trial actually at a similar size of ODYSSEY with an even more aggressive alpha split. So I just want to know in terms of what you're seeing on blinded variability, what gives you confidence that, one, you're not underpowered versus ODYSSEY and two, that placebo is actually tracking in line with your expectations around that 5-point placebo-adjusted delta on KCCQ? Fady Malik: Well, I think your last point is impossible to answer because we're blinded, so we don't know what the placebo effect is in ACACIA. We do monitor the variability of the combined data set and for now, the variability appears to be within our assumptions. So I think we're adequately powered based on the global variability. And again, I'll just say that the variability that we've observed in the KCCQ and several trials that we run using that metric is generally about 15-point range, which tracked with SEQUOIA, it's tracked with other trials we've done in that area. And I think the indication, it's not really any different at this point. So I think we're tracking along our assumptions and for now, we'll just let things play out and see how they read out next year. Robert I. Blum: I might also underscore that variability is a function of a number of factors, including experience in the course of conduct of studies such as this. And please understand that we believe that one way to manage variability as we have done, is to go to centers with ample experience conducting clinical research using aficamten and as has already been historically validated in our prior studies. So we do believe that's something that serves to our favor. Operator: Our next question will come from Carter Gould at Cantor Fitzgerald. Carter Gould: Maybe I'll give ACACIA a break for a minute. Andrew detailed a lot of metrics that you'll be watching. Which of those metrics are you likely to share with the investment community? And any of those I can get you to commit to today? And do you anticipate blocking third-party prescription data during the launch? Robert I. Blum: Andrew? Andrew Callos: So those 3 metrics I talked about in terms of prescribing breadth and depth as well as volume of patients is what we plan on sharing. No, we're not going to give targets and share what those would be. Relative to data, this is a very limited distribution the REMS drives that as well. The specialty pharmacies or 2 of them will not report data. We will report that on a quarterly basis. There are also pharmacies that will be qualified IDN pharmacies through large healthcare systems. Many of those will be reported through syndicated data, but that will be a very small portion of our overall volume, maybe around 20% to 30% or so. So if you look at syndicated data from IQVIA or Symphony or one of those sources, you're not going to see anywhere near the complete picture, but we certainly will give that picture on a quarterly basis. Operator: Our next question will come from the line of James Condulis at Stifel. James Condulis: I'd like to ask one on back to ACACIA and again, on blinded data. I was curious how much of a line of sight do you have on kind of like blinded safety data and maybe what the LVF less than 50% rate looks like? Obviously, not anything specific, but like how it compares to, say, what you saw in SEQUOIA and Obstructive. Just curious if there's any color there. Robert I. Blum: Yes, I'm going to try carefully here. I'll just say that there's nothing out of the blinded data that are unexpected based on what we've seen so far. Operator: Moving on, we'll hear from Cory Kasimov at Evercore. Cory Kasimov: So I want to go back to the pending launch. And I'm curious, do you anticipate the implementation of another REMS program at these HCM clinics where they're already prescribing mavacamten is going to be a barrier that we should expect to kind of slow down the cadence of launch in the early days? Or is the process of registering centers relatively straightforward at this point? Robert I. Blum: So I'll ask Andrew to comment. I might just start by saying we're respectful of the fact that there are existing workflows that have already been adapted. And as Andrew has already highlighted, it's our goal to be enabling a REMS program and implementation that should create for a more flexible and easy experience for physicians, patients and pharmacists within established workflows. Maybe Andrew can elaborate. Andrew Callos: Yes, it's a good question. There's a lot of centers that physicians who are writing today. So part of the goal would be for a differentiated REMS program alongside MAPLE, alongside SEQUOIA to these get more over the line, so to speak, to prescribing. So that would be new workflow for them. Those who have existing workflow. The workflow in the office really is around echo for titration and monitoring. That is similar. So you're going to have echo monitoring potentially with, say, a different frequency or the ability to titrate up at each point of monitoring. So it's the same kind of workflow, if you will. So we're not anticipating that the workflow around monitoring or the window for monitoring will cause must act, especially among high users and high centers. So we are expecting that a differentiated REMS, the differentiated label and an overall profile will drive differentiated use when physicians certainly understand that. So that's the way we've been thinking about it. Operator: Next, we'll hear from Tess Romero at JPMorgan. Caroline Poacher: This is Caroline Poacher on for Tess Romero with JPMorgan. Just one from us on aficamten and oHCM. So acknowledging that the late cycle meeting took place on September 15, can you just comment on if the REMS has been finalized yet at this point in the review process? And if not, what are the remaining items of the REMS that need to be finalized? And when would you expect this to be completed? Robert I. Blum: So we're continuing with interactions with FDA, and we have not finalized those matters. We do anticipate that we're making progress towards enablement of finalization of those in order to meet the PDUFA date. With that said, we've had exchanges and interactions -- and as I've indicated previously, we don't believe that we're engaging around framework, but rather some operational details, things that speak more to things like web pages and that which is administrative. Those are things that we think should come together to be enabling of FDA to review this and hopefully approve it in time for the PDUFA date. Operator: Moving forward, Maxwell Skor with Morgan Stanley. Maxwell Skor: One more on ACACIA. Could you just confirm whether there are any shared trial sites between ODYSSEY and ACACIA, approximately how many -- the percentage overlap? And if so, what potential impact that might have on, let's say, a placebo response or other factors relevant to interpreting ACACIA results? Fady Malik: Max, I can't give you the exact overlap, but the overlap is not very large. Obviously, sites were conducting 2 trials that were simultaneously in the same patients, it would be a bit problematic. Some trials have finished their commitment and obviously and then became a case of sites later and things. But the overlap, I don't think is very large. We ended up generally going to sites that we already had experience with or have visited ourselves, either our HCM team or clinical operations group. And so we ended up choosing a cadre of sites in South America, Europe, North America, Australia, China, Israel that represented either our own prior experience or had -- clearly had experience in other HCM trials. Operator: Yasmeen Rahimi with Piper Sandler. You have our next question. Yasmeen Rahimi: Maybe a question for Andrew. You did such a nice job outlining your commercial strategy. How are you thinking about pricing? It sounded like you're thinking about pricing and parity to mavacamten. Obviously, given the product profile, you may have flexibility to go higher. So I appreciate any color around that. Andrew Callos: Sure. So we'll communicate our price what it's set. But I think you can think about when a second product comes out or a category that's already been priced is typically priced in proximity to the initial product. So I would think we're going to be in that same kind of ballpark, plus or minus maybe a small percentage, but we're certainly going to be in that range. Operator: Our next question today will come from Roanna Ruiz at Leerink Partners. Roanna Clarissa Ruiz: So a quick follow-up of the aficamten potential U.S. launch. Could you share more details about what you expect in terms of time to conversion to commercial drug, patient compliance over time? And anything you're hearing or learning about the possible rate in which early adopters could prescribe aficamten? Andrew Callos: Sure. So thanks for the question. So in terms of conversion, in the beginning, we'll have blocks as payers go through reviews, medical exception is certainly the path that, that will go through. Medical exception can be as fast as, say, 2 to 3 weeks or it could take 90 days. So it depends on the plan, depends on the doctor's office, the documentation and if it's in compliance with what the plan wants. But I think you can think in that time frame, we're going to have the patient support programs where we can have them for commercial patients to bridge them through that process. Medicare patients, of course, we can't do that. We'll provide free drug for those that are appropriate for patient assistance. And so that's how I would think about time to conversion until we have more broader access. In terms of compliance, we are seeing that at least in this category, compliance and persistency is higher than you see for other cardiovascular drug. I'm guessing likely because of the time frame it takes to get our drug, the commitment of going through echos and the like that you're going to see compliance after 2 years probably still be above 50% or so. And then your third question was, can you remind me? Roanna Clarissa Ruiz: Yes. The last part was about early adopter physicians prescribing aficamten out of the gate. Andrew Callos: Yes. So this is a very, very focused market, 650 prescribers or so, about 80% of the market. Those prescribers, we know well. We've actually been interacting with many of them already. We will call on the vast majority, if not all of them in the first few weeks of launch. When you think about those high users, if you will, when we've done even most -- market research even in the last month or so, MAPLE with SEQUOIA increases their urgency to treat. So we're expecting to get high use, if you will, relative to other physicians in those physicians that were early adopters for CMIs, we should see the same for aficamten if it gets approved. So that's our expectation. Operator: We'll go next to Mayank Mamtani at B. Riley Securities. Mayank Mamtani: Productive third quarter. Would love to hear your thoughts maybe for Andrew on what your latest thinking is on peak CMI drug penetration. Maybe if you can also comment on where it stands now and your expectation of scenarios where it could land in the kind of near-term, 1 to 2 years. And like you said about your impact of the MAPLE-HCM data, but also a lot of real-world data coming from your peers, including at AHA. If you could maybe comment on that, that would be helpful. And a subpart question was around some of the patient navigator training that you're doing that happens around when you have a label in hand. I was just curious if any key FAQs or pushbacks you're preparing for would also be helpful to get color on. Andrew Callos: So a lot of questions there, so I'll try to address those. CMI penetration, I think, was your first question. Right now, the penetration is probably in the 15% to 20% range of oHCM, and I'm defining that as the number of eligible patients, those that are Class II, Class III, those that are treated with the CMI. So we are expecting, as we said all along, around 80% or so of the market to be available, meaning patients who are eligible, but not currently on a CMI. The expectation is that, that probably penetration probably increases in the -- around 5 percentage points each year. So when you look at real-world evidence when you look at additional trials, that certainly will increase penetration. If guidelines are impacted, if MAPLE helps influence guidelines in '26 or '27, that certainly will accelerate penetration. So I think there's things that can change the trajectory of penetration, but that's where it is now. In terms of training, we did provide the label to the FDA. We've had a few rounds of feedback. I think that we've alluded to. I think we can certainly train on a draft label and then we'll train again on the final. That's pretty typical around how you would train relative to a label and relative to a REMS. Operator: Moving forward, we'll take our next question from Joe Pantginis at H.C. Wainwright. Joseph Pantginis: So curious, just totally switching gears here to omecamtiv mecarbil. Right now, the guidance is moving enrollment continuing into 2026. When do you anticipate providing more visibility as to sites, enrollment numbers? And what levels of clarity can we get, do you think, starting in '26? Robert I. Blum: We'll ask Stuart maybe to take that, please. Stuart Kupfer: As I mentioned, we are making good progress in terms of site activation. We have 75% of sites activated in North America and Europe. And we're seeing screening picking up, randomization picking up. And I mean we're sort of not at a point where we can sort of start providing those numbers because I think we're going to hold off on that until we have all the sites activated and we have a good trajectory. But so far, so good. Study conduct is going well and so with site interaction and screening. Robert I. Blum: So Joe, I think as we roll into the new year and have a better sense of how these new sites that have been activated are enrolling, we should be able to tighten some of that guidance to the expectation of when we might complete enrollment. And then from there, as you know, this is a study that's accruing events. It's event-driven, and we can maybe point more generally to when we might expect data. Operator: Our next question will come from the line of Paul Choi with Goldman Sachs. Kyuwon Choi: I want to ask on your partnered CAMELLIA trial and just if you can provide any updates on timing on that and just sort of maybe help us think about when your partner might be able to launch in Japan and just sort of what would be a reasonable assumption there? And then on the AMBER trial study for HFpEF, would you be in a position to potentially present some initial data on that in 2026? Robert I. Blum: I'll ask Fady to tackle those, please. Fady Malik: Yes. I mean with regards to the progress of the oHCM trial in Japan, I mean, the strategy in Japan will be a little bit tied more to completion both of ACACIA and CAMELLIA. We expect them really to kind of complete in a similar time frame and both leading to regulatory interactions and ultimately approval there. So I can't really give you specifics yet in terms of where it is, but CAMELLIA is moving along within line of that expectation. And then AMBER, I think we're still a little too early for us to commit to data in 2026. We should be able to say more about that probably at our next earnings call. Operator: Next, we'll hear from Serge Belanger at Needham. John Gionco: This is John Gionco on for Serge today. So with the results of MAPLE now in the public domain, curious what your time lines look like in terms of how quickly you'd like to file the sNDA to incorporate that data into API label and whether you think having it in the label will alter in any way prescribing habits for treating physicians? Robert I. Blum: So I'll take the first part and ask Andrew to address the second part. But our goal is if we see aficamten approved based on the SEQUOIA results by the end of this year that we're moving very swiftly to submitting a supplemental NDA based on MAPLE data promptly in early 2026 to be enabling of a potential expanded label even possibly by the end of 2026. Andrew can comment on how that may factor into expanded use. Andrew Callos: We've tested this several times, including most recently this quarter. Each time we get a top line increased use of CMI, so CMI penetration goes up and increased brand share for aficamten or preferential share, if you will. So a larger market, larger share of that market. When you segment it, those that are kind of the core users, they're basically saying it's confirmatory of safety and efficacy, and that gives them even more reason in belief. When you look at those that are heavy beta blocker, it really challenges their belief in the efficacy of beta blockers. It increases their urgency to treat or urgency to refer I think that second group is going to take a little longer, some of them and guidelines as well as continued education and promotion will certainly continue to move those. So at a high level, we're expecting a larger market, a larger share, and we're certainly seeing this as one of the expansion strategies we've talked about in terms of a bigger market. Operator: Next, we'll hear from Kripa Devarakonda at Truist Securities. Unknown Analyst: Alex on for Kripa. Based on your updated late cycle meeting with the FDA and the nature of the day 120 List of Questions for the CHMP, is there anything we should be aware of to indicate that the REMS requirement could possibly be meaningfully different from the U.S. and EU? Robert I. Blum: Well, there is no REMS requirement in the EU. That's all handled through labeling, as you know. But I do think that to your question, we're expecting that aficamten, if approved in the U.S. and in the EU will be addressed similarly in terms of risk mitigation. Operator: Our next question will come from Ash Verma at UBS. Hearing no response, we'll move forward. We'll hear instead from Jason Zemansky at Bank of America. Jason Zemansky: Congrats on the progress. Maybe just to switch gears, but in light of your recent balance sheet updates, where do you stand in terms of your ability to support both the U.S. and EU launches? I mean, do you foresee any need for additional capital, especially given your expectations for the launch? Sung Lee: Jason, this is Sung. Thanks for the question. We can't rule out future financing. But with that said, we expect to finish the year with $2.2 billion in cash and investments I'm sorry. $1.2 billion Thank you. I got a little excited there. So that puts us in a very strong position, not only to launch aficamten in the U.S., but also to continue to build out in the EU and importantly, to continue to advance our pipeline. Keep in mind that we do have access to further capital potentially up to $175 million. This is from the Tranche 7 loan from Royalty Pharma. So we'll continuously weigh our options in terms of capital requirements and capital structure. Operator: And now we'll move to Ash Verma with UBS. Unknown Analyst: This is Natalie on for Ash. This is Natalie on for Ash Verma at UBS. So we just had a quick question on nHCM. Now I know there's a lot of discussion about the heterogeneity of this patient population. Have you guys been able to identify if there is a specific set of patients that see the most benefit from CMI? Fady Malik: Well, I would say that, that question remains unanswered, maybe perhaps we will require both analyses of the ODYSSEY data, the ACACIA data when they come out. We think enrolling patients that are symptomatic, that have classic HCM -- classic HCM phenotype as evident on echocardiography that have certain biomarker increases. I think all of those things talk about a symptomatic, highly symptomatic and functionally limited patient population. And based on our prior experience in REDWOOD, we think that population should be responsive to aficamten. So I think we'll have more to say when we see the ACACIA data in next year. Robert I. Blum: I think I would add that we've been following a cohort of Nonobstructive patients for over 2 years now. And the large majority of them are responding well symptomatically and based on cardiac biomarker improvement. So I think what we're observing so far, at least in this cohort in FOREST is a pretty general improvement in response to treatment. Operator: And thank you, ladies and gentlemen. That was our final question from our audience today. Mr. Blum, I'm happy to turn it back to you for any additional or closing remarks you have. Robert I. Blum: Thank you. I want to thank all of our participants on the call today. I want to thank you for your continued support as well as your interest in Cytokinetics. This will conclude our Q3 earnings call. And my hope is that next time we convene in one of these earnings calls, we'll talk about what could be the first potential approval for aficamten and a product arising out of our long-standing research and development, a very important milestone for our company and all of our stakeholders, including our shareholders. With that, operator, we can now conclude the call. Operator: Thank you. And ladies and gentlemen, thank you for joining today's Cytokinetics Q3 2025 Earnings Call. You may now disconnect your lines.
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: Welcome to the QuidelOrtho Third Quarter 2025 Financial Results Conference Call and webcast. [Operator Instructions] Please note, this conference call is being recorded. An audio replay of the conference call will be available on the company's website shortly after this call. I would now like to turn the call over to Juliet Cunningham, Vice President of Investor Relations. Juliet Cunningham: Thank you. Good afternoon, everyone. Thanks for joining the Quidel Third Quarter 2025 Financial Results Conference Call. Joining me today are Brian Blaser, President and Chief Executive Officer; and Joe Busky, Chief Financial Officer. This conference call is being simultaneously webcast on the Investor Relations page of our website. To assist in the presentation, we also posted supplemental information on the Investor Relations page that will be referenced throughout this call. This conference call and supplemental information contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Statements that are not strictly historical, including the company's expectations, plans, financial guidance and future performance and prospects are forward-looking statements that are subject to certain risks, uncertainties, assumptions and other factors. This includes the expected impact of tariffs and macroeconomic conditions and the proposed acquisition of LEX Diagnostics. Actual results may vary materially from those expressed or implied in these forward-looking statements. Information about potential factors that could affect our actual results is available on our annual report on Form 10-K for the 2024 fiscal year and subsequent reports filed with the SEC, including the Risk Factors section. Forward-looking statements are made as of today, November 5, 2025, and we assume no obligation to update any forward-looking statements, except as required by law. In addition, today's call includes discussion of certain non-GAAP financial measures. Tables reconciling these non-GAAP measures to their most directly comparable GAAP measures are available in our earnings release and the supplemental information, which is on the Investor Relations page of our website at quidelortho.com. Lastly, unless stated otherwise, all year-over-year revenue growth rates given on today's call are on a constant currency basis. Now I'd like to turn the call over to our CEO, Brian Blaser. Brian Blaser: Thanks, Juliet. Good afternoon, everyone, and thanks for joining us today. This quarter, we delivered another solid performance that reflects the strength of our diversified global diagnostics portfolio. We reported organic sales growth of 5%, excluding COVID sales and the U.S. donor screening business that we are in the process of exiting. This growth demonstrated the underlying strength and durability of our labs, immunohematology and point-of-care businesses across our global geographies. We also delivered significant improvements to adjusted EBITDA, expanding to 25% of sales in the quarter, primarily driven by our continued focus and execution against our margin improvement initiatives. And these initiatives have now delivered over $140 million in cost savings and put us well on our path to sustainable mid- to high 20s EBITDA margins. And at the same time, we have made targeted investments in key strategic areas to position us for sustained long-term growth. None of this would have been possible without the dedication and focus of our exceptional team here at QuidelOrtho. So I want to thank them for their hard work and commitment during what has been a transformative period. Together, we are building momentum and remain focused on the opportunities ahead. So let me further summarize our quarterly highlights before I turn things over to Joe for additional financial details. And as a reminder, unless otherwise noted, I'll be discussing growth rates on a constant currency basis. In our Labs business, revenue grew 4%. Demand for our VITROS immunoassay and clinical chemistry platforms remained solid, supported by stable customer renewal rates and new business wins across our regions. We continue to benefit from underpenetration in the immunoassay segment as well as our brand recognition for testing solutions that have the lowest total cost of ownership and as the leader in customer service and support. Our immunohematology business grew 5%, reflecting consistent strong demand from blood banks and hospitals as we expand automated testing solutions and strengthen our position in key geographies. And within our point-of-care business, our Triage product line posted 7% growth, supported by our strong value proposition, ongoing momentum in cardiac and BMP testing and growing contribution from international markets. Other cardiac revenue increased by $8 million compared to the prior year period. Respiratory revenue declined versus the prior year quarter, primarily due to the 63% decline in COVID revenue. Flu revenue also decreased by 8% year-over-year due to timing versus the prior year period. And as a result, our North America revenue was down 12% in total, but up 5% year-over-year, excluding the impact of respiratory revenue and the U.S. donor screening exit. Our Q3 performance outside the U.S., excluding COVID, was led by strength in Latin America, which grew 21% overall and 22% in labs. Japan, Asia Pacific and China each grew approximately 5%, and our Europe, Middle East and Africa region grew 3%, while also increasing EBITDA margins by over 700 basis points year-to-date as a result of our cost discipline and focus on profitable growth. We continue to see significant growth opportunities outside the United States, reflecting our historical underpenetration in these markets. Moving now to our Q3 profitability. We are seeing consistent benefits from our -- in our results from the cost actions we have taken over the last year. Adjusted EBITDA in Q3 was $177 million and adjusted EBITDA margin was 25%, which is a 180 basis point improvement from the prior year period. Adjusted diluted EPS was $0.80. And these results reflect significant improvements in our underlying cost structure while also mitigating recent tariff headwinds. Our Q3 and year-to-date results continue to demonstrate considerable progress across our organization. Our global commercial team remains focused on profitable growth and expansion in key markets and strategic accounts. During the third quarter, we achieved several important competitive wins across both established and emerging geographies. In R&D, our team continues to focus on advancing a robust pipeline, including ongoing menu expansion and the development of next-generation systems. A great example of impactful menu expansion is the clearance of our new VITROS high-sensitivity troponin assay that we announced on Monday. This new test elevates our cardiac panel to world-class performance by providing clinicians with higher sensitivity and precision that allows for earlier detection of patients having a heart attack. It also leads to a reduction in unnecessary hospital admissions and ultimately lower cost for patient care. Getting this assay in the hands of our customers was a key focus for me as I joined the company, and I am especially proud of our R&D and regulatory affairs team for the work that they have done over the last several months to gain FDA clearance. Turning now to operations. Our team is aggressively executing further cost improvements to reduce direct and indirect procurement costs, optimize our global supply chain and consolidate our manufacturing footprint. The team has also done an outstanding job of managing the impact of tariffs, and we continue to expect to fully offset these impacts in 2025. We also continue to support LEX Diagnostics in their ongoing review of their 510(k) and CLIA waiver submission with the FDA. They continue to engage in a productive and collaborative dialogue with the agency. And based on the current review time line, we continue to anticipate FDA clearance by late 2025 or early 2026. So I'll conclude by saying that we are encouraged by the progress we've made and confident in the path ahead. We remain focused on our execution to deliver sustainable, profitable growth. And with that, I'll turn the call over to Joe to take you through the details of our third quarter financial results. Joseph Busky: Okay. Thanks, Brian, and hello, everyone. I'll start by taking you through our third quarter results, which are detailed on Slide 3 of our earnings presentation, which is available on the Investor Relations section of our website. I'll also discuss our full year 2025 financial guidance, and then we'll open up the call for your questions. Total reported revenue for the third quarter of '25 was $700 million compared to $727 million in the prior year period. The 4% year-over-year decrease was primarily due to lower COVID and donor screening revenue, the latter of which is related to the continued wind down of the U.S. business. Excluding COVID and donor screening, reported revenue growth was 5%. Foreign currency translation had a favorable impact of approximately 90 basis points during the third quarter. And based on FX exchange rates as of the end of October, we would expect FX to have a neutral impact on revenue and adjusted EBITDA for the full year. We said that we were pleased to see strength in our core business with continued mid-single-digit growth, and Brian provided updates on our business unit and regional performance, so I'll focus more on our P&L and balance sheet. Third quarter adjusted gross profit margin was 48.7% versus 49.2% in the prior year period. The 50 basis point year-over-year decrease was primarily driven by tariff impacts offset by cost mitigations. Non-GAAP operating expenses of $217 million comprised of SG&A and R&D decreased by $16 million or 7% as a direct result of our ongoing cost savings actions. Included in the other operating expense line of the P&L, we recorded $9 million of legal expense in connection with the final resolution of a long-running dispute with a COVID supplier that dates back to 2021. Q3 results included $40 million in restructuring, integration and other charges, which included approximately $11 million related to the discontinuation of the development of the Savanna platform. Integration costs were $28 million, which were primarily related to our ERP system conversion that went live in Q3. As expected, we saw our vendor-related system conversion costs decreased by $1.3 million from Q2, and we continue to expect integration costs to decrease significantly in 2026. We also recorded a $10 million expense on the asset impairment line related to the expected value of the sale of our Raritan, New Jersey facility. As we discussed last quarter, once we complete the Raritan facility consolidation, which is planned in 2027, we expect to save about $20 million in annual operating costs. As summarized on Slide 6, this is another example of the actions we are taking to move toward our adjusted EBITDA margin goal of mid- to high 20s. Moving now to profitability metrics. As Brian discussed, adjusted EBITDA was $177 million and adjusted EBITDA margin was 25%, a 180 basis point year-over-year improvement despite the lower respiratory revenue. And on a year-to-date basis, adjusted EBITDA was $444 million or a 13% increase compared to the prior year period with a 22% margin, which represents an increase of 320 basis points. Adjusted diluted EPS was $0.80 in the third quarter and year-to-date adjusted diluted EPS was $1.66, which was growth of 36%. This growth demonstrates the success of our cost savings initiatives as we continue to drive toward our margin expansion targets. All right. Turning now to the balance sheet on Slide 7. We finished the quarter with $98 million in cash and $100 million in borrowings under our $700 million revolving credit facility. During the third quarter, onetime cash flows associated with systems integration decreased by $5 million or 23% compared to Q2. However, adjusted free cash flow was a negative $50 million, largely due to the timing of accounts receivable collections that moved into Q4 and accounts payable disbursements that moved up into Q3 from Q4 as a direct result of our ERP system conversion. These temporary cash flow impacts from our system conversion were manageable due to the flexibility provided by our recent debt refinancing. Because these impacts are purely timing related, we continue to expect full year adjusted recurring cash flow to represent 25% to 30% of adjusted EBITDA. We completed our debt refinancing in August, improving our debt covenant terms and reducing the required amortization over the life of the loan. A summary of our debt refinancing is on Slide 8 of our earnings presentation. And as part of the refinancing, we booked a $5 million loss on extinguishment of debt within the quarter. At the end of Q3, our net debt to adjusted EBITDA ratio was 4.4x, and our goal continues to be net debt leverage of between 2.5 and 3.5x. Note that the Q3 leverage ratio was slightly higher than anticipated due to the ERP system conversion impacts to our Q3 cash flow. Our consolidated leverage ratio was 3.8x, including the pro forma EBITDA adjustments permitted and defined under our credit agreement. This compares to the credit agreement leverage ratio covenant of 4.5x. And during the third quarter, the company's stock price and market cap, which remained below management's view of the company's intrinsic value prompted an interim goodwill assessment. As a result, we booked a $701 million goodwill impairment charge in Q3. And note, we have no goodwill remaining on the balance sheet as of the end of Q3. All right. Now turning to Slide 9. Based on our current business outlook, we are providing our full year 2025 financial guidance as follows. Given that we only have 2 months left in the year, we are taking the opportunity to narrow our 2025 financial guidance. Therefore, we now expect full year 2025 total reported revenue of between $2.68 billion and $2.74 billion with neutral FX impact to the full year. While we're pleased with our revenue performance in Q3, we continue to expect a typical respiratory season with timing consistent with pre-pandemic patterns and similar to last year. That is occurring later in the fourth quarter and into the first quarter. And importantly, the midpoint of our narrowed guidance range remains the same as our prior guidance. Year-to-date COVID revenue was $60 million, and we continue to expect between $70 million and $100 million for the full year. We believe this range is reasonable and reflects endemic levels. We are also narrowing our adjusted EBITDA range to $585 million to $605 million, which is, again, the same midpoint as our prior guidance. This adjusted EBITDA guidance includes incremental cost savings in the range of $30 million to $40 million in '25, primarily related to indirect procurement efforts, and these savings are in addition to any tariff-related offsets. Our outlook continues to reflect an adjusted EBITDA margin of 22% for the full year, which is a 250 basis point improvement versus the prior year. Following our debt refinancing in August, we expect interest expense for the full year to be up by approximately $17 million for a total of $177 million. This includes a roughly 100 basis point increase in the weighted average interest rate and the additional amortization of deferred financing fees tied to the new term loans A and B. For the full year, we expect our effective tax rate to rise by roughly 1 percentage point from the previous guidance to 25%, reflecting the impact of tariff mitigation measures that have shifted income across different geographies. So we are also updating our adjusted diluted EPS guidance solely to reflect higher interest expense and the taxes just discussed. We now expect full year 2025 adjusted diluted EPS of $2 to $2.15. Approximately $0.19 of the impact is attributable to higher interest expense and $0.05 in higher taxes at the midpoint of the guidance. To wrap up, we're encouraged by the progress we made in the first 9 months of the year, and we remain disciplined in our approach to margin expansion, cash generation and balance sheet improvement. We're confident that our financial discipline combined with our strategic priorities positions us well to drive long-term value for our shareholders. With that, I'll ask the operator to please open up the line for questions. Operator: [Operator Instructions] Our first question comes from the line of Andrew Brackmann with William Blair. Andrew Brackmann: Brian, I think in your prepared remarks, you mentioned some competitive wins. Can you maybe just give a little bit more color around that commentary? And I guess, in particular, on the labs front and on that segment, can you maybe just sort of talk about shared dynamics there and how things like this additional assay that you added, I think, on Monday on VITROS should help there. Brian Blaser: Yes. Our competitive wins have been dispersed across our geographies pretty evenly. We've had some nice wins in North America. I would say we had some very significant wins in Latin America as well as EMEA. And you see that -- you certainly see those reflected in the underlying growth rates. So we're excited about the traction that we're getting in those markets. And importantly, I would say we're very focused on wins now that are profitable as opposed to just winning at all costs. So I give a lot of credit to our commercial team for the discipline that they've placed in their organizations to make that happen. As far as troponin, the launch of high-sense troponin goes, first, what I would say there is I'm just so proud of the work that the team did there in conjunction with FDA, by the way, to gain the clearance of that assay in exactly 90 days from the time we submitted it. It's an excellent assay. It performs very well compared to peers. And it really strengthens our cardiac panel, and more and more clinicians are requiring high-sensitivity troponin on their platforms. I would say, by itself, it's not going to have a huge impact on our short-term growth rates, but it was a long-term competitive factor for the competitiveness of our cardiac panel. So getting that assay on the panel was really important, and it was a huge priority for me when I joined the business. So we're excited about that and expecting to be taking orders later this year and shipping product as quickly as we can. Andrew Brackmann: Okay. That's great color. And then I'll just ask China, so hopefully, we can move on. I mean it looks like you're not seeing any impact from VBP or DRG dynamics. I think it was 5% constant currency growth in the country, this region -- this quarter. I just want to make sure that's right, and that's the expectation moving forward. And then also on China, I think there was a new procurement policy that came out late in Q3. Any color on how we should think about that? Brian Blaser: Yes. So there's not a whole lot that's changed from our -- the last update that we did for Q2. We had adjusted our guidance in the -- on the Q2 call to mid-single-digit growth to reflect the sort of competitive dynamics in all of these different policies that were taking place. We have seen some impact from VBP and the debundling on our business, and that is reflected in the mid-single-digit growth forecast for the rest of 2025. We probably have seen less impact than others because a pretty high proportion of our instruments are used in stat labs where they're less likely to debundle panels and that sort of thing. So really, not much has changed there since our last update. As it relates to the new policy that came out around localization, we already have manufacturing in China and our objective will be to continue to be in compliance with the regulations so that we can continue to manufacture and invest in China as long as the economics there remain favorable. Operator: Our next question comes from the line of Jack Meehan with Nephron Research. Jack, can you confirm your line is not on mute? Our next question comes from the line of Lu Li with UBS. Lu Li: Great. I want to go back to the 2025 guidance. It does -- so you are keeping the EBITDA margin at 22% unchanged. It does seem like the Q4 implied margin will be sequentially lower compared to Q3. I'm wondering any color that you can offer on that front, and then I have a follow-up. Joseph Busky: Yes. Lu, it's Joe. Yes, we did take the opportunity given that we only have 2 months left in the year to narrow the guidance. And we do want to stress the point that even though we've narrowed the guidance on revenue and adjusted EBITDA, the midpoints of that guidance are still precisely the same. And the adjusted EPS guidance, again, was narrowed and also adjusted for the nonoperational areas of interest expense being higher due to the refinance and the tax rate being slightly higher due to some mix of income by jurisdiction because of tariff mitigation actions. But if you look at Q4 sequentially versus Q3, I would say that the margins might be slightly lower because we will probably likely, like every year, we see slightly higher instrument revenue in Q4 as customers are attempting to use their budgets and you see a lot more instrument revenue in Q4 versus other quarters. And just as a reminder, the instrument revenue for us and most of the folks in our space is much lower than the reagents and consumables margins. So you do get a sort of a negative mix impact by that instrument revenue. And then also, I would say, and this is fairly typical each year for us, we tend to see a little higher incentive compensation expense in Q4 versus previous quarters. And so that's going to have the impact of pulling down the margin slightly. So hopefully, that answers your question. Lu Li: I appreciate the color. Second question on instrument. What is the instrument performance in the quarter? And then, Brian, I think you mentioned there was a next-generation instrument in the pipeline. Do you have a time line for that? Brian Blaser: I can start with the last part of that. Yes, the nice thing about the work we've been doing on margin expansion and getting the organization focused is we're now in a position where we can start to think about these new systems. We're still in the very early stages of concept development. So not in a position where we can share schedules at this time, but we hope to be talking a lot more about that in the future. Joseph Busky: Yes. And Lu, the Q3 instrument revenue was down slightly, about $5 million year-over-year versus Q3 prior year. And this is not largely unexpected. We are seeing a higher number of contract extensions with our existing customers, which is -- actually is a positive thing for us from a margin mix perspective. And so that's what's driving that. Yes. Operator: Our next question comes from the line of Jack Meehan with Nephron Research. Jack Meehan: Sorry about earlier, had a phone issue. I wanted to start, I was just wondering if you could give us an update on the Sofia franchise, where you stand in terms of installed base and pull-through. And kind of secondarily, I saw on the guidance slide, you expect over half of the flu test to be combo. Just curious your thoughts around kind of the durability of the ABC test and physician preference around that. Brian Blaser: Yes. So what I can say about the Sofia installed base is it continues to be stable, expanding, very durable. It's a workhorse platform. And the durability of our flu combo test is also very solid. We've really seen very steady performance in terms of sales of that test over the last 2 years. So we're looking forward to yet another solid season here in the upcoming respiratory season with Sofia. Jack Meehan: Great. And then you're further -- or LEX is further into their FDA submission. Can you give us just an update on how you're thinking around launch timing and positioning of that relative to Sofia? Brian Blaser: Yes. As I mentioned in the prepared remarks, the dialogue with FDA continues to be constructive. There's -- we haven't seen anything really out of the ordinary. Assuming an approval late this year or early 2026, we'll be looking to ramp up placements of the platform so that we can participate as much as we possibly can in the following year respiratory season. So that's our current plan. Jack Meehan: Got it. And then last one. I saw on the slide still targeting the 100 to 200 bps expansion for 2026, which is great. Can you just talk about how you're thinking about free cash flow conversion like as a percentage of EBITDA, like how -- what we should be plugged in for that for 2026? Joseph Busky: Yes. Jack, so Q3 was certainly a disappointing quarter for us for cash flow, primarily driven by the impacts of the system conversions, which had the impact of delaying cash into Q4 for us. But despite that timing issue due to the system conversions, we still feel that the full year 2025 recurring free cash flow will be in that range of 25% to 30%. And we still are confident in getting to the target of 50% of adjusted EBITDA for recurring free cash flow. We won't hit that target next year. I would believe that hitting the cash flow target would be consistent with the time lines we have on hitting the EBITDA margin targets. So I would more target, I would say, mid-'27. So for 2026, I would expect us to make progress towards that 50% target, but not fully get there. And the levers that we've talked about already are mitigating CapEx, reducing the number of days on hand of inventory on the balance sheet and reducing the level of integration or onetime related cash costs that we've seen in the last couple of years. And then obviously, the EBITDA margin improvement as providing additional cash flow. Those are the levers. Operator: Our next question comes from the line of Tycho Peterson with Jefferies. Jack Melick: This is Jack on for Tycho. Saw a nice step-up in imunoheme growth. Is that mid-single-digit growth something we could look at as more sustainable moving forward? Or is it more one-off outperformance in the quarter? Joseph Busky: Jack, yes, we did have a really nice quarter for immunohematology at 5% growth. But I would say there's probably a little bit of timing between Q3 and Q4. And I would expect that the full year immunohematology growth will be right around where we'd expect it to be sort of in that 3% to 4% range. Jack Melick: Okay. And then how should we think about LEX as it receives approval and you start to commercialize that next year in terms of sequential sort of step-up in OpEx spend relative to that 100 to 200 basis point margin improvement? Joseph Busky: Yes. Jack, the LEX, we do expect, as Brian said, we're going to expect to get FDA clearance late this year, early next year, and we'll have a very limited rollout in the first part of the year and the first part of the respiratory season, and we'll have a more fulsome rollout in the second half of 2026 as the respiratory season heats up in Q3, Q4. I would expect that LEX will likely have a dilutive impact on margins next year to some extent. I certainly wouldn't expect it to be accretive. We will work hard to keep or mitigate, I should say, any dilutive impact of LEX. But I wouldn't expect any accretive impact from LEX until we get more up to scale with revenue, which I would not expect to happen for sure until we get into 2027 or potentially 2028. Operator: Our next question comes from the line of Patrick Donnelly with Citi. Unknown Analyst: This is Brendan on for Patrick. I want to touch on the U.S. donor screening business. As we kind of move into next year, how should we think about modeling that over the course of the year? And I think before, you've kind of mentioned that margin benefit should start to roll through. I'm just curious how we should be thinking about margins over the course of next year with a focus on the U.S. donor screening business. Joseph Busky: Yes. Brendan, yes, just -- it's a good question. As a reminder, the donor screening -- the U.S. donor screening business, it has been quite a headwind on our top line this year. For the quarter, we're down $13 million or 48%. And for the year-to-date, we're down $55 million or 57%. It is -- so it has been quite a headwind on that top line. We do expect that we'll be somewhere between $40 million to $50 million of revenue this year, and that residual revenue will completely wind down in the first half of 2026. So that top line headwind that we've been seeing from the donor screening exit will dissipate as you get into second quarter and for sure, as we get into the second half of next year. We do have some stranded costs that we have to pull out of the business. But once we are complete with that, I would expect that we'll be somewhere in the range of 50 basis points of margin accretion that will likely happen as you get into later '26 or into early '27. Unknown Analyst: Appreciate that. And then within the lab business, I believe you talked about integrated analyzers being around like 30% of the installed base with more runway to go. I was wondering if you could update us kind of where you guys are at in terms of the analyzers in the installed base? And how should we think about kind of like the long-term opportunity in terms of adding growth there? Brian Blaser: Yes. Thank you for the questions, Brendan. Our integrated analyzer placements are almost completely inverse to our competitors' situation in the marketplace. So where they might have more -- let's say, 60% of their placements are integrated with a lot of immunoassay volume. Our installed base is heavily clinical chemistry with less immunoassay, probably in the 30% to 40% range. So we have, I think, a tremendous opportunity there in terms of our runway for additional placement of integrated systems, and that's been our strategy for the last several years and will continue to be. Operator: Our next question comes from the line of Andrew Cooper with Raymond James. Andrew Cooper: Maybe just a quick one for me first. Nice to see the high-sensitivity troponin launch on VITROS. If we go back a bit, we used to talk about TriageTrue and bringing that high-sensitivity troponin to the point of care. Would love just the latest there given that product is, I think, in Europe, not yet in the U.S. And how important or how much of an opportunity do you view that point of care today relative to maybe how it was thought about a few years ago, even if predating some of your time here? Brian Blaser: Yes. So thanks, Andrew. I appreciate that question. That is an assay that ultimately we would love to have on Triage. We do have it outside the U.S. It's a very successful test. There are some technical challenges that we have to overcome in order to have it meet the sort of performance requirements for the U.S. market. So we're looking at that and seeing if we can press over those hurdles to get that assay into the market at some point. But don't have anything really concrete to share with you in the short term at this point. Andrew Cooper: Okay. And then on the cost save efforts and transformation efforts that are underway, I think when these plans were initially kind of laid out, you obviously had certain programs that you had an eye on and likely a little bit to kind of go find and capture. Maybe just give a little bit of what have you found as you continue to dig? Maybe what surprised you where there's more room to pull some costs out and maybe where there's a little bit less as well. Brian Blaser: Well, our initial focus was heavily around just staffing of the organization kind of at all levels across the board. And we took out close to 12% of the organization as a result, and that was the focus of our initial efforts. Lately, we have been more focused on indirect and direct procurement, have made a lot of progress on indirect procurement. We're now starting to turn our attention to the direct side of things, which are mainly product cost-related things and a little harder for us to action on. But there's nothing that's really surprised me in terms of where the cost pools were located in the business that we needed to go after. It's just a lot of heavy lifting and hard work to activate it. I would say as we get further down the path, it gets harder and harder to find new things, but we every day continue to come to work and challenge every corner of our P&L for cost savings, and we'll continue to do that. It's just a matter of operating the business. Operator: That will conclude today's question-and-answer session. I will now pass the call back over to Brian Blaser for closing remarks. Brian Blaser: Thank you, operator. Thanks, everyone, for taking the time to be with us today. I'll just conclude by saying that we're proud of the very solid progress that we're making and confident in the direction that the company is heading. Our team and its disciplined execution, operational focus and commitment to innovation are delivering tangible results and positioning us well for the future. So thank you for your time today and your continued support and interest in the business. Take care. Operator: That concludes today's call. Thank you for your participation. You may now disconnect your lines.
Operator: Good afternoon, ladies and gentlemen. Welcome to the TriplePoint Venture Growth BDC Corp. Third Quarter 2025 Earnings Conference Call. [Operator Instructions] This conference is being recorded, and a replay of the call will be available in an audio webcast on the TriplePoint Venture Growth website. Company management is pleased to share with you the company's results for the third quarter of 2025. Today, representing the company is Jim Labe, Chief Executive Officer and Chairman of the Board; Sajal Srivastava, President and Chief Investment Officer; and Mike Wilhelms, Chief Financial Officer. Before I turn the call over to Mr. Labe, I'd like to direct your attention to the customary safe harbor disclosure in the company's press release regarding forward-looking statements and remind you that during this call, management will make certain statements that relate to future events or the company's future performance or financial conditions, which are considered forward-looking statements under federal securities law. You are asked to refer to the company's most recent filings with the Securities and Exchange Commission for important factors that could cause actual results to differ materially from these statements. The company does not undertake any obligation to update any forward-looking statements or projections unless required by law. Investors are cautioned not to place undue reliance on any forward-looking statements made during the call, which reflect management's opinions only as of today. To obtain copies of our latest SEC filings, please visit the company's website at www.tpvg.com. Now I'd like to turn the conference over to Mr. Labe. James Labe: Thank you, operator. Good afternoon, everyone, and welcome to TPVG's third quarter earnings call. During the third quarter, our focus remained on furthering our strategy to increase TPVG's scale, durability, income-generating assets and NAV over the long term. We're pleased with the progress we have made in the quarter working towards these important objectives, and we expect fundings to continue to materialize over the next few quarters as we progress on our path of portfolio diversification and investment sector rotation. In addition to covering the dividend for the quarter and increasing our NAV, the third quarter marked one of growth and increased investment activity for TPVG. We took advantage of strong demand from high-quality venture growth stage companies in the sectors we are focused on to grow the debt investment portfolio. During the quarter, TPVG experienced its highest level of debt commitments and fundings since 2022, resulting in Q3 fundings that significantly exceeded our guided range, reaching the highest level in 11 quarters. Importantly, Q3 also represented the highest level of signed term sheets with venture growth stage companies at our sponsor, TriplePoint Capital. Looking at the last 3 quarters alone, signed term sheets for venture growth stage companies at TPC reached almost $1 billion. At quarter's end, our pipeline also continued to remain at near record highs since 2021. Touching on the overall venture capital market, while some uncertainties and volatility certainly still remain. Investment activity is rising and venture capital deal activity increased during the quarter due primarily to all this momentum going on in the AI space. According to PitchBook, AI investments accounted for more than 2/3 of the venture deal value last quarter. For mega deals was more than 70% of the deal value, a level not seen since 2021 and 2022. Another encouraging sign were increases in M&A and IPO activity, which collectively generated more than $75 billion across 362 exits, the strongest quarter for venture-backed companies since the pandemic. Turning to our own internal tracking. The number of equity rounds closed by our select venture capital investors year-to-date has already exceeded the aggregate total for all of last year by 34%. All these trends hold promise for what we believe are signs for continuing improvement for the venture markets versus those upheavals in the last half of 2021 and right through late 2022. We're also seeing a notable decrease in equity financing down rounds and an increase in up rounds. These days, more and more, I hear the word uptick in conversations in venture circles, and certain companies, in fact, are experiencing oversubscribed equity rounds, and there's an active secondary market, which has come back for some companies as well, including a few of our portfolio companies. There's growing optimism that venture companies are beginning to find some path to liquidity and should IPO and M&A markets for venture companies continue on this improvement, it represents additional opportunities. One of the potential benefits of our venture lending business that's often overlooked are the warrants we receive as part of our loan transactions and our equity investments. We have a sizable equity and warrant portfolio with warrant positions in 112 portfolio companies and equity investments in 53. As the exit market continues to evolve, we're well positioned to realize value for shareholders. We hold positions in a number of companies, which has also appeared in industry publications on their notable top IPO candidates list, companies such as Cohesity, Zev, Revolut, Dialpad, Filevine and others. While we're encouraged by market and portfolio developments, we remain highly focused on monitoring and working through credit situations, primarily investments from the pre-market change period, and Sajal will discuss those more in detail later in this call. Taking a closer look at the portfolio, we're pleased to report continued progress on diversification as we made commitments to 9 new borrowers during the quarter and now 19 new borrowers year-to-date. As part of the diversification, we've also been leaning into increased companies characterized by substantial revenues, strong margins, solid cash runways at or near EBITDA positive and with a clear path to cash flow generation and debt service without the need for further equity fundraising. They're generally more mature companies. They have stronger profiles, and we're the senior lender often with revolving loans with the trade-off being lower yields given their more mature profile. Turning to investment sector rotation. We continue to actively add new borrowers focused on high potential and durable sectors, especially those that are able to leverage AI to drive product differentiation, market disruption and efficiency. We remain excited by the horizontal market opportunity AI presents, and we believe it will be a massive megatrend that persists for many years to come. Similar to our select venture capital investors, AI is a clear center of gravity. The technology combines massive growth potential with equally large capital requirements, particularly around GPUs, data center infrastructure and unique models trained on proprietary data. These dynamics play directly to the strengths and advantages of our venture lending, providing non-dilutive growth capital to high-growth companies in capital-intensive markets. Over the past 2 years, we've been active in lending across the full AI stack from semiconductor companies enabling AI inference like Etched to networking infrastructure companies to power the next generation of AI data centers like Eridu. All these companies are experiencing market tailwinds and thriving in the new era of AI. Given the significant interest in AI, however, a key for us is to be disciplined in our underwriting. In AI, our focus is on whether the company's technology translates into durable, defensible value. That means real differentiation in data or model performance, early proof of enterprise adoption and strong gross margins after infrastructure costs. We believe the companies that will win tend to build leverage over time. Their models are going to be getting smarter, their integration is stickier and their cost of incremental insight goes down, not up. Outside of AI, the path continues to pursue selectivity, diversification and investment sector rotation, and we continue to make great strides. We're actively investing in attractive fields outside of just AI, verticalized software, fintech, aerospace and defense, robotics, cybersecurity and health tech, among others. As we seek to capitalize on these compelling opportunities and grow and diversify the portfolio. we continue to do so with an emphasis on U.S. companies, companies that are better capitalized and have visibility to profitability as well as business models reflective of today's market conditions and the valuations. We continue to focus on companies that have recently raised capital, have ample cash runways and have backing from one or more of our select venture investors. In summary, Q3 represented a quarter of progress for us as we seek to increase TPVG's scale, durability, income-generating assets and NAV over the long term. Importantly, we are positioning TPVG for the future to create shareholder value with the strong support of our sponsor, TPC. As we mentioned in our last quarter, as of this call, our sponsor announced a discretionary share purchase program and further demonstrating alignment with TPVG shareholders, our adviser amended its existing income incentive fee waiver to waive in full its quarterly income incentive for each quarter in 2026. Later on the call, Mike will provide an update on these topics. With that, let me turn the call over to Sajal. Sajal Srivastava: Thank you, Jim, and good afternoon. Regarding investment portfolio activity during Q3, TriplePoint Capital signed $421 million of term sheets with venture growth stage companies compared to $93 million of term sheets in Q3 2024 and $242 million in Q2. On a year-to-date basis, TPC has signed $978 million of term sheets versus $412 million over the same period in 2024. With regards to new investment allocation to TPVG during the third quarter, our adviser allocated $182 million in new commitments with 12 companies to TPVG, compared to $51 million in Q3 2024 and $160 million in Q2 2025. 75% of the portfolio companies we extended commitments to during the quarter were new customers, 90% of which are in the AI, enterprise software and semiconductor sectors, reflecting our focus on obligor diversification and sector rotation. On a year-to-date basis, we have closed $418 million to 19 new portfolio companies and 6 existing portfolio companies as compared to $103 million to 5 new portfolio companies and 4 existing portfolio companies over the same period in 2024. Of our 49 obligors with outstanding loans as of [ 9/30 ], 4 were added to the portfolio in 2023, 6 were added in 2024 and 11 were added here in 2025. So progress on our plans for obligor, vintage and sector rotation. As Mike will cover, our outstanding unfunded obligations include 10 new customers, which have yet to utilize their commitments and should add to our customer count and rebalancing efforts. During the third quarter, in anticipation of prepayment and scheduled repayment activity in Q4, we exceeded our guided range and funded $88 million in debt investments to 10 companies as compared to $33 million to 4 companies in Q3 2024 and $79 million to 9 companies in Q2 2025. These funded investments carried a weighted average annualized portfolio yield of 11.5%, down from 12.3% in Q3 -- sorry, Q2 and 13.3% in Q1. The lower overall onboarding yields in Q3 reflect a number of factors, including a higher percentage of revolving loans, enabling us to be the sole lender to our portfolio companies, more robust enterprises from a size and scale perspective, including EBITDA positive borrowers, intentionally driving higher utilization of unfunded commitments at closing given substantial borrower cash cushion levels, lower OID as a result of reduced enterprise valuations as well as the declining rate environment. On a year-to-date basis, we have funded $194 million to 22 companies at a weighted average yield of 12.1% as compared to funding $85 million to 10 companies at a weighted average yield of 14.5% over the same period in 2024. During Q3, we had $15 million of loan repayments, resulting in an overall weighted average debt portfolio yield of 13.2%. Excluding prepayments, our core portfolio yield was 12.8%, which was down from 13.6% in Q2, reflecting the impact of lower yields from new assets we are onboarding as discussed earlier. On a year-to-date basis, we have had $76 million of loan prepayments as compared to $118 million of prepayments over the same period in 2024. As I will discuss in more detail shortly after quarter's end, we received principal repayments totaling $47.5 million so far in Q4. During the quarter, our debt investment portfolio grew by over $73 million as a result of new fundings exceeding prepayment, repayment and amortization within the portfolio. This is the third consecutive quarter we've increased our debt investment portfolio on a cost basis, representing nearly $110 million of growth year-to-date as compared to $127 million of portfolio reduction last year. Although we continue to see robust demand for debt financing from venture growth stage companies as demonstrated by $123 million of new term sheets, $17 million of new commitments and $18 million of funding so far in Q4, our quarterly target for new fundings continues to be in the $25 million to $50 million range for Q4 2025 and early 2026 as we manage liquidity going into our debt financing process. During the quarter, 4 portfolio companies with debt outstanding raised $50 million of capital, compared to 5 portfolio companies with debt outstanding raising $216 million during the second quarter. We believe Q3 numbers were lower primarily due to timing and expect robust activity here in Q4. On a year-to-date basis, 13 portfolio companies with debt outstanding have raised compared to $402 million of capital last year. As of quarter end, we held warrants in 112 companies and equity investments in 53 companies with a total fair value of $134 million, up from $127 million in Q2, primarily related to a markup in our equity holdings in GrubMarket due to strong performance and improving market multiples. During Q3, one portfolio company with a principal balance of $29.8 million was upgraded from White to Clear. One portfolio company with a principal balance of $2.1 million was upgraded from Yellow to White. One portfolio company, Prodigy Finance, a fintech focused on international graduate students with a principal balance of $40.8 million was downgraded from White to Yellow and one portfolio company, Frubana, with a principal balance of $11.1 million was downgraded to Red and moved to nonaccrual as we finalize our recovery process. We did actually see slight improvement in our expected recovery from Q2's mark on Frubana despite the downgrade. During the quarter, we saw a $2.5 million increase in the fair value of our loans in Orange-rated portfolio company, Roli, which in addition to winning Time Magazine's Innovation of the Year award for the third time, held the first close of a new equity round from its existing investors as well as hold the signed term sheet from additional investors to participate. As I mentioned earlier, we experienced a $5.7 million unrealized gain on our equity investment in GrubMarket as a result of performance. As a reminder, GrubMarket acquired the assets of our portfolio company, Good Eggs, in Q3 2024, and we received this equity for consideration of our then outstanding loans. Although we took a $4.6 million realized loss on our $12 million loan at the time of the transaction, this gain reduces that loss in its entirety on an unrealized basis and reflects well in our team's recovery efforts on the Good Eggs transaction. As I mentioned earlier, here in Q4, we received $47.5 million of prepayments, mostly from 2 portfolio companies, Thirty Madison and Moda Operand. Thirty Madison announced its acquisition by RemedyMeds in Q3. And as part of the transaction, nearly $30 million of our outstanding position has been paid down in Q4 with our remaining $20 million exposure amortizing over the next 3 months. As a reminder, Thirty Madison was an existing TPVG portfolio company, but also acquired the assets of TPVG portfolio company Pill Club and assumed our outstanding loans of $20 million in full. This transaction represents a full recovery, including end of term payments on both transactions. But as a reminder, both were quite seasoned loans, so very little incremental contribution to income here in Q4. We also anticipate Thirty Madison to be upgraded to Clear rating here in Q4. We also experienced a $15.7 million paydown on our loans to Moda Operandi here in Q4, a Yellow-rated asset as a result of the company raising incremental equity and debt financing and our remaining loans of $10 million have had their maturity dates extended. And should Moda continue to perform well, we would anticipate the company to be upgraded to White over time. While some of these journeys may take longer than expected, these developments demonstrate why our team continues to dedicate time and effort on the recovery journey and also that we are building some momentum with regards to some of our historical names. In closing, we remain aligned with our stakeholders, disciplined in our underwriting and mindful of the volatile market environment as we execute on our plan for positioning TPVG for the long term. We continue to target well-positioned and well-capitalized new customers in attractive sectors to drive investment fundings and earnings power to build shareholder value. With that, I'll now turn the call over to Mike. Mike Wilhelms: Thank you, Sajal, and good afternoon, everyone. During the third quarter, we funded $88 million of new debt investments, up from $79 million last quarter, reflecting the continued expansion of our investment pipeline and conversion of signed term sheets into closed commitments. We received $15 million of prepayments and early repayments during the quarter, driving a net increase of approximately $73 million in our debt investment portfolio at cost, which now totals $737 million at quarter end as compared to $627 million at December 31, 2024, a 17% increase. As of September 30, 2025, the company had total liquidity of $234 million, consisting of $29 million of cash and cash equivalents and $205 million of available capacity under our Revolving Credit Facility. Of the $205 million of available capacity under the Revolving Credit Facility, there was $53 million of available borrowing base that could be drawn on as of September 30, 2025. We ended the quarter with a leverage ratio of 1.32x and a net leverage ratio of 1.24x, both well within our target range and reflecting increased deployment of capital to fund the debt portfolio. Subsequent to quarter end, the company has already received $48 million of principal payments -- prepayments, providing additional liquidity to support new fundings and positioning the company well for the upcoming $200 million note maturity in the first quarter of 2026. We ended the quarter with $264 million of unfunded commitments, up from $185 million last quarter. Of these unfunded commitments, approximately $60 million are milestone-based. The commitments are well laddered over the next several years with $14 million expiring in Q4 2025, $152 million in 2026, $71 million in 2027 and the final $27 million in 2028. Turning to our operating results. Total investment income for the third quarter was $22.7 million with a weighted average portfolio yield of 13.2%, compared to 14.5% in the prior quarter. The decrease in yield primarily reflects a lower level of prepayment income, lower yields on our debt investment portfolio in part due to decreases in the prime rate and a slightly larger mix of lower-yielding recently originated loans reflective of the market and borrower characteristics. 66% of our debt portfolio is floating rate and 46% of those floating rate loans were at their floors as of September 30. Following the 25 basis point Fed rate cut in late October 2025, floating rate loans at their rate floors increased to 52%. As a result, we expect the impact of any further interest rate reductions on our net investment income to be limited, particularly as lower base rates would also reduce interest expense on our floating rate revolving debt. Total operating expenses for the quarter were $12.3 million, consisting of $6.8 million from interest expense, $3.4 million of base management fees, $0.6 million of administrative expenses and $1.6 million of G&A expenses. In the current quarter, $2.1 million of income incentive fees were earned but fully waived by the adviser. Year-to-date, the adviser has waived $3.3 million of income incentive fees. In addition, under the shareholder-friendly total return requirement, income incentive fees were further reduced by $3.1 million earlier this year. Together, these actions have increased net investment income by approximately $6.5 million year-to-date. As a result of the continued fee waivers mentioned by Jim earlier, we do not expect to incur any income incentive fee expense for the fourth quarter of 2025 or for all of 2026. Net investment, net investment income for the quarter was $10.3 million or $0.26 per share, compared to $11.3 million or $0.28 per share in the prior quarter. Our net increase in net assets resulting from operations was $15.2 million or $0.38 per share, which included $0.13 per share of net realized and unrealized gains, primarily from unrealized gains on debt and equity positions. These gains were partially offset by a small unrealized foreign currency loss of $0.5 million or $0.01 per share. At quarter end, net asset value increased to $355.1 million or $8.79 per share, up from $8.65 at June 30. Now turning to our capital structure. As of quarter end, total debt outstanding was $470 million, consisting of $375 million of fixed rate term notes and $95 million drawn on our $300 million floating rate Revolving Credit Facility. Our term notes carry maturities in March 2026, February 2027 and February 2028, all at fixed rates. With our 2026 maturity approaching, our capital management strategy remains focused on maintaining liquidity and flexibility while optimizing our fixed to floating debt mix. We expect to refinance the $200 million March 2026 notes with a combination of new fixed rate unsecured notes and available revolver capacity during the first quarter of 2026. We are in the final stages of renewing our $300 million revolving credit facility, which matures at the end of this month. While the renewal amendment has not yet been executed, the preliminary terms outlined to date are constructive and favorable for the company. We expect the renewal to support our growth trajectory and align with our long-term capital plan. Regarding distributions, on October 14, our Board declared a regular quarterly distribution of $0.23 per share and a supplemental distribution of $0.02 per share, payable on December 31 to shareholders of record as of December 16. The supplemental distribution was declared in order to enable the company to distribute all of the company's remaining undistributed taxable income from the prior year. As of September 30, we had estimated spillover income of $43.4 million or $1.07 per share. As a reminder, we announced during our August call that our sponsor, TriplePoint Capital, launched a $14 million share repurchase program to buy TPVG stock below NAV. Through quarter end, TPC purchased about 591,000 shares for roughly $3.9 million, leaving about $10 million available under the program. TPC plans to adopt a 10b5-1 plan once the trading window reopens, which will allow purchases to continue automatically after the 30-day cooling off period. The program continues to demonstrate our sponsors' confidence and alignment with shareholders. Looking ahead, our priorities remain consistent. We will continue to focus on sector rotation in our debt portfolio, maintaining credit quality and preserving balance sheet flexibility as we prepare for the refinancing of our 2026 notes. With robust sponsor support and a growing investment pipeline at the platform level, TPVG remains well positioned to generate long-term shareholder value. That concludes my prepared remarks. Operator, please open the line for questions. Operator: [Operator Instructions] And your first question today will come from Crispin Love with Piper Sandler. Crispin Love: First, can you just discuss what you need to see in order to increase your funding guide? The last couple of quarters have been very active. I believe you mentioned early on that you expect fundings to remain solid. Is the key driver there, leverage and liquidity holding you back or other factors at play? I guess I'm asking it's more internal factors rather than external as you look at it? Sajal Srivastava: Crispin, this is Sajal. So I would say, obviously, quality of opportunity and credit quality selectivity drives number one. But I would say, absolutely, we're very much focused on the upcoming refinancing of our debt. And so we're mindful of liquidity and leverage ratios going into that for the time being. And then coming out of that, we'll, again, adjust and act accordingly. Crispin Love: Great. That all makes sense. And then just on credit quality, metrics in the quarter, mostly stable, slight uptick in nonaccruals on a dollar basis. But can you discuss what you're seeing in credit in your portfolio and then broadly in the venture lending space? And then has your credit underwriting changed at all recently? You mentioned more revolving loans. I believe you said larger enterprises. So just curious if there's any changes there. Sajal Srivastava: Yes. Let me start with maybe overall credit. So I would say credit performance, I would say, listen, this was a good quarter in terms of demonstrating kind of the adviser and the platform's kind of credit workout and recovery process and our commitment to resolving situations. We understand some situations may take longer than others. But with the developments with GrubMarket and Thirty Madison in particular, again, demonstrating the hard work that goes into these things and the patience and commitment and getting kind of positive outcomes in those situations. Obviously, Roli has been a long journey. We have some positive developments here this quarter. So we're comfortable. We're happy about that. As we alluded to with some of the other names, we're expecting upgrades here in Q4. I think as Jim talked to, I mean, a key element is the improvement in the equity markets and the fundraising activity is number one. I think the second thing is obviously performance by our portfolio companies. But mind you, we have to be balanced. It's all very sector-specific as well. So we're balancing overall positive trends in the venture equity markets with sector-specific challenges and company-specific challenges. But I would say we're pleased with the team's effort here in the quarter. With regards to the overall venture segment, I can't -- I can only speak to the tech world and the Tier 1 VC world where we operate. And again, we're continuing to see strong demand. We're continuing to see strong performance. And so we're very much focused on that. As we look to overall originations focus, I think as Jim talked to, very much we're avoiding the frothiness that we're seeing in certain sectors and areas and really leaning in on our core strengths, working with the best venture capital funds, the best entrepreneurs and seeing where we can be helpful and collaborative with their portfolio companies and then taking advantage of opportunities where we can earn additional return for lower risk, be it in a revolving loan or lending to an EBITDA positive company with a stronger yield profile that we normally target. Operator: And your next question today will come from Doug Harter with UBS. Cory Johnson: This is Cory Johnson on for Doug Harter. Last quarter, you were able to give some guidance in terms of about the number of repayments you expected for each quarter for the upcoming quarters. Has your view -- as the market seems to possibly be heating up, has your view on the pace of prepayments possibly changed? And do you have any line of sight into any upcoming repayments or realization? Sajal Srivastava: Hi Cory, it's Sajal. I'll take this first. So I would say our guidance continues to be to expect prepayment a quarter for 2026, just based on market conditions. But more importantly, given the amount of prepay activity that we've seen over the past 2 years and the newer vintages we're putting in place, we would expect that pace to generally slow down. And so that's why we're guiding to 1 on average per quarter. As we mentioned in our filings, here in Q4, we've had a little more than 1 in terms -- and these were more unique situations, Thirty Madison and Moda and another portfolio company, so I'd say Q4 was an exception. But generally, we continue to expect one a quarter. But again, those loans that will be prepaying will be our more seasoned loans. So we're not expecting significant or material excess income from an NII perspective. Operator: The next question will come from Christopher Nolan with Ladenburg Thalmann. Christopher Nolan: On the debt refinance, as I recall, this $200 million note is investment grade. Is that correct? Mike Wilhelms: Yes, it is. Christopher Nolan: Yes. And also as I recall, that to be index eligible for investment grade, the debt amount, I believe, has to be, what, $200 million or so and above. Is that correct? Sajal Srivastava: That's one of the factors. Yes, it is. Christopher Nolan: And so Yes, I guess my basic question is, if you're using a combination of new notes and the bank facility, is it fair to say that the new notes that you're going to be issuing will not be investment-grade index eligible. Is that correct? Mike Wilhelms: No, that's not. We're expecting to issue roughly $100 million to $125 million. That number is to be finalized, but we're expecting that to be investment grade. Christopher Nolan: But not index eligible, which I believe impacts the rate -- the coupon rate a little bit, doesn't it? Sajal Srivastava: Correct. So again, given the quantum and given where rates are, we don't think having a significant -- that large of long-term fixed rate debt in this environment makes sense given, again, the prepayment activity that we experienced and wanting to have the ability to use our revolver to pay down as we have prepays. Christopher Nolan: And I guess on a related question is where do you see the leverage ratio going? From your -- from Jim's comments, it sort of -- and Sajal's comments, it sort of indicates that the portfolio is going to grow in the fourth quarter. Mike Wilhelms: We're actually not expecting -- given the prepayment activity that we're seeing in the fourth quarter, we're expecting little to no growth. Our guidance from a leverage standpoint is 1.3 to 1.4. As you know, Chris, we came in at 1.32. I think we'll come in right about that level at the end of December as well. Our guidance is 1.3 to 1.4. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Jim Labe for any closing remarks. Please go ahead. James Labe: Thank you. As always, I'd like to thank everyone for listening and participating in today's call. We look forward to updating and talking with you all again next quarter. Thanks, and have a nice day. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Angela Broad: Good morning, and welcome to National Grid's half year results presentation. I'm Angela Broad, Head of Investor Relations, and it's great to have so many of you on the call today. Firstly, please can I draw your attention to the cautionary statement at the front of the pack. As usual, a Q&A will follow the presentation. [Operator Instructions] All of today's materials are available on our website. And of course, for any further queries after the call, please do feel free to reach out to me or one of the IR team. So with that, I'd now like to hand you over to our CEO, John Pettigrew. John? John Pettigrew: Many thanks, Angela. Good morning, everyone, and thank you for joining us today. Well, as you know, this is my last set of results, and I'll be handing over to Zoe who becomes Chief Executive on the 17th of November. So before we get started with the results presentation, let me pass it over to Zoe to say a few words. Zoe Yujnovich: Thank you, John, and good morning, everyone. Today's results are an important moment for National Grid and for me personally, as I pick up the baton from John. I want to take a moment to recognize his remarkable contribution over a decade as CEO. The strong foundation he leaves behind are a testament to his leadership and the dedication of our National Grid team. Since joining as CEO Designate on the 1st of September, I've had the privilege of meeting with many colleagues and stakeholders. What stands out to me is the scale and ambition of what we're delivering, transforming our networks and investing at pace. Our GBP 60 billion capital investment is not just a number. It's a commitment to future-proofing networks so we can meet the surge in demand we're seeing and ensure the millions of homes and businesses we serve have the reliable and clean energy they need at a price they can afford. As I step into my role in the coming days, my immediate focus will be on maintaining momentum, staying focused on performance and delivering safely and responsibly. I will approach this with a clear-eyed view of the challenges and exciting opportunities ahead. I believe in the vital function energy companies play in driving growth and prosperity. I'm committed to ensuring National Grid plays its part with an unrelenting focus on operational excellence and capital discipline as we continue to deliver for our customers and create value for our shareholders. I look forward to meeting all of you in due course, but for now, I'll hand to John and Andy to take you through the results. John Pettigrew: Thank you, Zoe. So turning to our half year results. As ever, I'm here with Andy Agg and once we've been through our respective presentations, we'll be happy to answer your questions. It's been a really positive first half as we've continued to build on our strong foundations to deliver excellent operational and financial performance. . The investments we're making in our networks have never been more important to ensure continued resilience, enable economic growth, deliver cleaner energy and meet growing power demand. And it's these drivers that underpin the strong visibility we have in our investment program, supported by our regulators. This, in turn, gives me huge confidence in National Grid's ability to carry on delivering a compelling investment proposition with investment growth around 10% per annum and underlying earnings per share growth of 6% to 8%, whilst maintaining a strong balance sheet and delivering an inflation-protected dividend. Before I come to our performance, I want to highlight three key areas which reinforce my confidence in our ability to deliver on our plans. Firstly, the strong progress we've made in securing the supply chain to deliver record levels of investment. As you know, a big focus over the last 2 years has been to secure the supply chain for our largest suite of major projects in the U.K., the accelerated strategic transmission investment or ASTI. Today, I'm pleased to say we're in a really strong position. All 6 of our Wave 1 projects are already under construction with work progressing well. Our GBP 9 billion Great Grid Partnership covering the delivery of the 8 onshore projects within Wave 2 is now up and running with our 7 strategic partners. And we're making great progress with the remaining 3 Wave 2 offshore projects where we've completed the contracting for Sea Link and announced the preferred suppliers for Eagle 3 and 4 with contracts expected to be signed in the next few months. Once complete, we'll have secured the supply chain for all 17 ASTI projects, a significant achievement. And as a result, over 3/4 of our GBP 60 billion investment plan is now underpinned by delivery mechanisms enabling us to ramp up our capital delivery. We've invested over GBP 5 billion in the first half, another record for the group, and we remain on track to deploy over GBP 11 billion of capital investment this year, in line with our guidance. The second area to highlight is the continued momentum we're seeing from both a regulatory and policy perspective. On the regulatory front, we've built on the strong foundations we set last year in the U.S. with around 75% of our 5-year investment plan approved within our rate cases. We've also seen some important policy developments. As you know, New York State announced last year that it's likely to miss its target of 70% renewable generation by 2030. As a result, we've seen a shift in the last half towards an all-of-the-above approach when it comes to balancing clean energy goals with affordability and reliability. For example, in September, following submission of our long-term gas plan, the PSC issued an order supporting the proposed Northeast Supply Enhancement or NESE pipeline. If built, the capacity provided by the pipeline would materially enhance reliability and resilience whilst also potentially reducing energy costs for New Yorkers by up to $6 billion. In the U.K., I'll come to regulatory development shortly. But on the policy front, the government is continuing to look at different ways to support faster delivery of infrastructure and accelerate economic growth. Alongside their planning reform legislation targeted at large infrastructure projects which should support delivery of projects in the 2030s, they've also launched consultations, which include proposals to allow electricity distribution network operators to carry out simple reinforcement activities without full planning permission and a revised fast track consenting process. If implemented, this could have important benefits for future transmission projects. So it's clear we're seeing strong regulatory support for the investments we're making as well as the policy progress to assist in the delivery of future projects. And then thirdly, the near-term actions we're taking to support load growth in the U.K. We're working with the government and industry, including U.S. big tech companies, as they seek to develop the U.K.'s AI infrastructure, including the creation of data centers within AI growth zones like the recently announced ones in and Cobalts Park. These projects represent tens of billions of pounds of investment in U.K. infrastructure and are evidence of the demand growth we forecast in our RIIO-T3 business plan. which is designed to connect up to 19 gigawatts of additional demand over the 5 years to March 2031, around half of which is expected to be connecting data centers. We're now working hard to facilitate these connections, including working with the government through the AI Energy Council to support the development of more AI growth zones, so we can deliver the investment needed to meet growing energy requirements. So let me now turn to our financial performance, where we've delivered a strong set of results in the first half. On an underlying basis, that is excluding the impact of timing and exceptional items, operating profit was up 13% to GBP 2.3 billion, reflecting increased regulatory revenues across our U.S. and U.K. electricity transmission businesses. This strong operating performance drove an increase in underlying earnings per share of 6% to 29.8p. As you've already heard, our business delivered a record GBP 5.1 billion of investment, up 12% year-on-year at constant currency. And in line with the policy, the Board has declared an interim dividend of 16.35p per share. Turning next to reliability and safety. I'm pleased to say reliability has remained strong across our U.K. and U.S. networks over the first half of the year. As we look ahead to the winter we're well prepared with winter readiness plans in place. The NESO recently published its winter outlook report for the U.K., in which they forecast electricity margins around 10%, the highest since 2019. In the U.S., whilst we anticipate adequate electricity margins, gas availability across the coldest days of winter remain a focus, especially in extreme weather events, and so our teams will work closely with upstream suppliers to mitigate any risks. And in July, the NESO published its report investigating the outage following the fire at our North Hyde substation and we're working closely with the government, NESO, Ofgem and industry to progress the report's recommendations. Safety, as always, remains a critical focus across our business. In the last 6 months, our lost time injury frequency rate was 0.09, inside our group target. We continue to promote a culture of safety excellence including, for example, identifying new ways to enhance our safety protocols, such as the use of digital job briefs to increase hazard recognition in the field. Moving now to our operating performance across the group, starting with Electricity Distribution. Capital investment increased by 17% and to GBP 756 million, reflecting increased asset replacement and load-related reinforcement activity. I'm pleased to say that we've now delivered over GBP 100 million of synergy savings, 6 months ahead of target following the U.K. electricity distribution acquisition in 2021. These synergies have been achieved through smarter procurement, operational efficiencies across our shared sites and integration of support functions in the group. In October, we also saw the publication of Ofgem's sector-specific methodology consultation for RIIO-ED3, which builds on the foundations of the T3 framework. We welcome the fact that Ofgem has directed networks to use a long-term planning horizon. This will ensure that delivery of the next price control also takes into account investment drivers in the decades ahead. including load growth, asset health, resilience and renewable generation. We've also made good progress on connections reform, including preparing flexible offers to customers that are likely to secure a cue position. This allows them to progress their projects ahead of a formal offer, enabling faster connections for renewables and low-carbon technologies. And finally, we continue to build our system -- our distribution system operator capabilities with the launch of the demand turner flexibility market, incentivizing increased demand as an alternative to curtailing generation. Moving to U.K. Electricity Transmission, where capital investment increased by 31% to GBP 1.7 billion, including construction of new substations to support load growth and progress on our GBP 1 billion London Power Tunnels project where we've now energized the first 2.5 kilometers during substation and. We've also been working hard to find innovative ways to expand system capacity. For example, we began work on a new substation in Uxbridge Moor, West London, with an innovative design, which will have a 70% smaller footprint and avoids the use of SF6, a potent greenhouse gas. This substation will support over a dozen new data centers and is expected to deliver 1.8 gigawatts of new capacity equivalent to powering a mid-sized city. We've also leveraged the approach to procurement frameworks using our strategic infrastructure business, including, for example, in July, when we signed an GBP 8 billion electricity transmission partnership with 7 regional partners to deliver substation infrastructure across the U.K. transmission network. Turning to policy. We're working closely with NESO and customers to support connections reform. Once NESO publishes this updated queue, we'll have a clear view of the sequencing of the specific projects required, and we can then turn our efforts to meeting these connection dates at pace. On regulation, Ofgem published its draft determination for the RIIO-T3 framework in early July, with our response published in late August. This included changes we believe are needed to the baseline return and the incentive framework to allow high-performing networks to achieve a globally competitive overall return. We've also proposed a number of refinements to streamline our funding mechanisms, enable us to recover the efficient cost of our investments and progress projects at a pace expected by our stakeholders. As you'd expect, we've engaged heavily with Ofgem at all levels of the organization ahead of the final determination, which is expected in early December. And we expect to take a decision in late February or early March following the license drafting process. Turning now to strategic infrastructure. As you've heard, our focus has been to ramp up delivery of the Wave 1 ASTI projects, whilst also ensuring we're securing the supply chain and relevant consents for Wave 2. specifically on our Wave 1 projects, examples of our progress include our offshore Eagle 1 and 2 projects where the cable manufacturing and site works for the southern converter stations are underway, our onshore Yorkshire Green upgrade project where the last of 8 200-ton transformers has now been delivered and the North London Reinforcement project where we finished reconducting 3 circuits, installing over 190 kilometers of cables. We've also completed 4 public consultations this year, including the submission of 2 major development consent order applications, Sea Link and Norwich to Tilbury, with both submissions now accepted by the planning inspectorate, a major milestone. On the regulatory front, we continue to engage with Ofgem to find a resolution to our request for a delay event on the Eagle 1 project and are encouraged by the discussions to date. We expect these negotiations to reach a final decision over the next few months. Coming to the U.S. and starting with New York, where we've continued to make strong progress across our operations. Capital investment reached GBP 1.6 billion, up 5%, driven by an increase in mains replacement expenditure. In addition, we've continued to make strong progress on our $4 billion upstate upgrade, including our Smart Path Connect transmission project, where our segment is on track to be ready to energize at the end of the year and our Climate Leadership and Community Protection Act, or CLCPA Phase 1 and 2 projects, where we expect the first round of permit approvals for the end of the calendar year. On the regulatory and policy front, in addition to the order from the PSC on the NESE pipeline and the approval of the Niagara Mohawk joint proposal, we're also engaging on the draft New York State Energy Plan. Released earlier this year, the plan outlines long-term strategies to meet New York's energy needs. It emphasizes the importance of infrastructure investment and recognizes the enduring role of the gas network in maintaining reliability, affordability and security of supply. Once finalized later this year, the plan will influence future regulatory decisions and utility planning across the state. In New England, capital investment increased by 23% to GBP 1 billion, reflecting increased spend on asset condition and system capacity in both electricity transmission and distribution, 220,000 smart meter installations and the further rollout of our fault location isolation and service restoration program. We've also agreed partners for our strategic procurement framework which will support over $3 billion of contracts over the next 5 years. And finally, on regulation and policy, we've agreed around $600 million of allowances under the Electric Sector Modernization Plan largely focused on electric vehicle highway charging and IT infrastructure, and we're continuing to work with the governor's office to advance the Energy Affordability Bill. Moving to National Grid Ventures. Capital investment was GBP 69 million, supporting asset refurbishment across our Interconnector and U.S. Generation portfolios. Operationally, we've had a strong 6 months with our Interconnector fleet at 90% availability and our Generation fleet achieving 96% reliability. We've also progressed the Propel transmission project through our Transco joint venture, where EPC contracts are now under development. Once complete, the project will help to deliver power from Long Island to the Bronx in New York City and Westchester County. We've also streamlined our portfolio, having completed the sale of National Renewables in May and announced the sale of Grain LNG in August. With all regulatory approvals received, we expect completion in the coming weeks. So let me stop there and hand over to Andy to walk you through the numbers before I come back to talk about our priorities for the second half. Andy? Andrew Agg: Thank you, John, and good morning, everyone. I'd like to highlight that, as usual, we're presenting our underlying results excluding timing, U.K. deferred tax and exceptional items and the dual results are provided at constant exchange rates unless specified. So starting with our overall performance in the first half. We've delivered strong results with underlying operating profit on a continuing basis at GBP 2.3 billion, a 13% increase from the prior year, primarily driven by higher regulated revenues in U.K. electricity transmission reflecting growth in the asset base and higher revenues in our U.S. regulated businesses following recent rate cases, partially offset by the sale of the electricity system operator last year. Strong operating profit growth partially offset by higher finance costs and a full impact in the half from the rights issue shares has led to a 6% increase in earnings per share to 29.8p. We've continued to make good progress with our capital program. with investment from continuing operations at GBP 5.1 billion, another record level, and up 12% year-over-year. In line with our policy, the Board has declared an interim dividend of 16.35p per share, representing 35% of last year's full year dividend. Moving now to our business segments, starting with U.K. Electricity Distribution. Underlying operating profit was GBP 551 million, down GBP 22 million versus the prior year. reflecting lower revenues due to headwinds from Ofgem's real price effects mechanism, which more than offset the benefit of revenue indexation and recovery of higher totex allowances and higher depreciation. In the period, we exceeded our cumulative 3-year target of GBP 100 million of synergy benefits by FY '26, 6 months ahead of schedule through leveraging our increased buying power, delivering savings from integrating support functions and working more efficiently at joint transmission and distribution sites across the U.K. Capital investment was GBP 756 million for the half year. an increase of GBP 109 million compared to the prior period, primarily driven by higher asset replacement and refurbishment and higher load-related network reinforcement. In our U.K. Electricity Transmission business, underlying operating profit was GBP 846 million, up GBP 122 million compared with the prior period. A strong first half performance was driven by higher allowed revenues partially offset by higher depreciation. Capital investment was GBP 1.7 billion, 31% higher than the prior period. This reflects our ongoing spend on substation build-out as well as the significant step-up in investments on our ASTI projects and ASTI enabling works. Moving now to the U.S., where underlying operating profit for New York was GBP 443 million, GBP 167 million higher than the prior year as a result of higher net revenue reflecting the growth of the business as we upgrade and reinforce our networks and the recovery of previously unremunerated costs following recent rate case updates. This was partially offset by increased depreciation, reflecting a higher asset base and higher costs, including property taxes and environmental provisions. Capital investment was GBP 1.6 billion. This was GBP 82 million higher than the prior year. from a further step-up in the pace of our mains replacement activity under our downstate gas rate case and increased spend on smart meters, partially offset by lower costs on Smart Path Connect as we near completion of this project. In New England, underlying operating profit was GBP 292 million, GBP 65 million higher than the prior period, following higher revenues reflecting our growing asset base and improved incentive performance, partly offset by higher depreciation and other investment-related costs as we ramp up the capital program. Capital investment was GBP 958 million, GBP 178 million higher than the prior year. This was driven by increased asset condition and system capacity investments and smart meter installations, partly offset by reduced mains replacement work. Moving to National Grid Ventures, where the underlying contribution was GBP 227 million, including joint ventures. The increase of GBP 19 million compared to the prior year was primarily due to the benefit of depreciation having ceased in Grain LNG following its classification as held for sale. This accounting treatment for Grain, along with the sale of National Grid Renewables, drove a reduction in capital investment to GBP 69 million. And our other activities reported an operating loss of GBP 27 million, GBP 11 million lower than the prior period. principally driven by lower insurance costs and the non-repeat of fair value losses in the National Grid Partners portfolio. Turning to financing costs and tax. Net finance costs were GBP 678 million, an increase of 4% compared with the prior year due to higher average net debt and the impact of higher inflation on indexed linked debt. The underlying effective tax rate before joint ventures was 11.3%, 60 basis points lower than the prior year, principally due to the benefit of higher capital allowances in our U.K. regulated businesses. and a change in the profit mix. Underlying earnings were GBP 1.5 billion, up 16% with earnings per share at 29.8p. On cash flow, Cash generated from continuing operations was GBP 3.6 billion, up 35% compared to the prior year. This increase is driven by improved profitability across the U.K. and U.S. and favorable movements in working capital. In total, net debt increased by GBP 1.5 billion to GBP 41.8 billion in the period with strong cash inflows from operations and the GBP 1.5 billion of National Grid Renewable sale proceeds, helping to offset the continued growth in capital investment. For the full year, we expect net debt to increase by around GBP 1 billion from the half year. including the Grain sale proceeds and assuming a USD 1.35 exchange rate. As John said out earlier, we've continued to make significant progress in capital delivery securing the supply chain and advancing our regulatory and policy agenda. As I previously set out, our plans were designed to be robust against a range of outcomes with respect to interest and exchange rates, and I remain confident in our ability to deliver in line with our 5-year framework. Turning to forward guidance, and we've included detailed guidance for the full year in our results statement as usual. Following strong performance over the first half of the year, we expect a modestly higher underlying EPS relative to our guidance in May. The impact of a weaker U.S. dollar and a slightly higher share count due to scrip uptake is expected to be more than offset by improved operating performance in the regulated businesses and slightly lower financing costs. With that, I'll hand you back to John. John Pettigrew: Many thanks, Andy. Now before we move to Q&A, I want to spend the final few minutes setting out our priorities for the remainder of the year as we continue to invest across our networks. Starting in the U.S. and New York where we have a number of priorities. including further work with the state on its energy plan to shape a road map that balances decarbonization, affordability and reliability. Ongoing work with Williams in our role as the sole offtaker of the NESE pipeline, as they look to secure regulatory approvals, which are expected later this year and preparing for our Downstate New York gas filing due for submission next spring, ensuring we're able to continue to invest in safety and reliability while supporting customer needs and managing affordability. In Massachusetts, our priorities include filing our gas distribution rate case, which is now planned for January to allow us more time to engage with new stakeholders and propose measures aligned with evolving state policy goals, working with the state on its affordability bill and producing our climate compliance plan, an important enabler of the cleaner energy transition. Turning to the U.K. In Electricity Transmission, our priorities are clear: to engage with Ofgem to deliver a RIIO-T3 framework that allows high-performing networks to achieve a globally competitive overall return and mechanisms that enable us to deliver at the scale and pace required. Work with the AI Energy Council as part of our efforts to collaborate across the energy and tech industries, and build on the good progress we've made in ramping up construction across our Wave 1 ASTI projects, whilst also engaging closely with stakeholders and communities as we progress our development consent orders. In Electricity Distribution, our key priority is preparing our response to the RIIO-ED3 sector-specific methodology consultation ahead of Ofgem's decision expected in the spring. And in National Grid Ventures, we have 2 key priorities: developing and winning new competitive transmission opportunities in the U.S., including an ISO-led opportunity in New England, and closing the sale of Grain LNG completing our announced divestments. Now before we take your questions, as this is my last results presentation, I want to reflect briefly on the journey I've been privileged to be part of over the past 10 years. It's been a truly transformative decade for National Grid. When I presented my first set of results back in 2016, the business looked very different with the majority of our operations in gas. Today, we're over 3/4 electric, a fundamental shift that reflects the successful portfolio repositioning that has enabled us to pivot towards growth and a geographical footprint that is more balanced across the U.K. and the U.S. I'm incredibly proud of how we've responded as an organization to meet the needs of our customers by delivering extraordinary organic growth. We've deployed nearly 3x the level of capital investment compared to 2016, and the growth in regulated asset base is expected to be over 10% this year compared to just 4% a decade ago. Our business is incredibly strong, giving me huge confidence in National Grid's ability to continue to deliver a compelling investment proposition. Beyond the numbers, I'm very proud to be handing over an organization where our values and the critical role we play for our customers are the driving force of our ambitions. Zoe is the right person to lead National Grid into this next chapter and I know she will find the clarity of our mission, the scale of the opportunities ahead to be a source of strength in the years to come. So let me stop there and give you the opportunity to ask Andy and I any questions. John Pettigrew: Okay. So we've got lots of questions. So I'm going to perhaps start with Pavan from JPMorgan. And then after Pavan, perhaps I could ask Sarah from Morgan Stanley to ask her question. So Pavan, if we can have your question, please. Pavan Mahbubani: And John, I just wanted to congratulate you on the results you've delivered during your leadership. I wish you all the best for your future beyond National Grid. So I've got 2 questions, please. Firstly, on T3 expectations? Can you give a bit more color on your dialogue with Ofgem looking at particularly some of the data points we've had earlier this year on the U.K. water CMA provisional determinations? And on do you foresee upward pressure on the return on equity? And then my second question is on net debt and the net debt guidance looks better for the full year than in May, even accounting for the proceeds of disposals. You highlighted the working capital effect in your speech. I was wondering if you could give a bit more color on the drivers of this and whether it's sort of -- that is something that should persist into the future years? Just trying to get an idea of the basis. John Pettigrew: Thanks, Pavan. Let me do a question one, then I'll hand over to Andy to do question 2. And thank you for your kind remarks. In terms of RIIO-T3, if I just take you back to our response to the draft determination, in that, we said very clearly to Ofgem, there were 2 fundamental areas that we wanted to focus on between the draft determination and the final determination. The first was the overall investable framework and the second was the workability of the regulatory framework. In terms of the investment framework itself, you would have seen in our draft determination that we made the argument that we believe the overall return needs to be comparable with what we'd see internationally. And therefore, based on what was in the draft determination, we set up that we felt that the base return should be higher. I think given what we've seen in the provisional CMA decision on water and things like I think that reinforces some of the argues that we've made. We also said as part of the financial package that we needed a lot more detail on the incentives, and that's been an area of focus since we made that response to the draft determination with Ofgem at all levels of the organization. In addition to the financial framework, we also said we needed a framework that was actually deliverable. And in particular, what we meant by that was given the scale of the CapEx that we need to deliver we need to have the ability to be able to make decisions quickly and then to move nimbly through the process, in particular, in terms of when Ofgem sets the allowances and actually agrees that the projects are needed, that it aligns with the development framework for the projects. So that has been the focus, as you can imagine, with what, 4 weeks to go. There continues to be a lot of dialogue, but the dialogue remains in those 2 broad categories. And with that, I'll hand to Andy. Andrew Agg: Pavan, thanks. So you remember back at year-end, we guided to an increase in net debt of around GBP 6 billion, but that was before you take account as you say, of any of the transaction proceeds. By the time you allow for the 2 disposals and the FX movement that we've seen, it's a relatively small difference, net difference compared to the sort of the GBP 1.5 billion increase that we're now guiding to after you take account of all of that. And that small difference is a combination of the slightly higher script uptake that we've seen over the summer and as you say, a little bit of working capital, but it's relatively small in the context of our balance sheet. So I don't see that as being a significant sort of enduring shift. John Pettigrew: Thanks, Andy. So shall I go to Sarah from Morgan Stanley next and then perhaps Mark Freshney from UBS after that. Sarah? Sarah Lester: Firstly, a very big welcome, Zoe. It's always nice to hear another Aussie accent. And John, another very big thank you to you and wishing you all the best in the next chapter. So 2 questions from me, please. And actually, they're both on U.K. Electricity Distribution. So firstly, on the ED operational RoRE performance, please. Just wondering any further color you can provide on how that's tracking against this year's 50 basis points guide and then as we look forward, anything clearly you can please add on that pathway back to the 100 basis points. And then quickly, a bit more on last month's SSMC ED, completely appreciate very early days, but wondering if you can add a bit more on your thoughts, please. If there was anything that surprised you in the document, or mostly, as you already mentioned, mainly just building on what we've already seen through the process. John Pettigrew: Yes. Thanks, Sarah. I mean, in terms of the operational performance of ED, I'd say it's very much on track to where we expected to be at the half year. As you would have seen in the results, we continue to get the impact of the real price effects that we talked about in May, but we are seeing improved performance this year. So we're on track and are guiding towards the 50 basis points of outperformance this year. And we remain of the view that we'll get closer to the 100 basis points by the end of ED. So that is very consistent with what we said in May and the performance of the first 6 months is sort of reinforcing that. In terms of the sector-specific methodology consultation, I'd say it's -- I mean it's very broad, which I think is a good thing at this stage. It very much align with our expectations. I think we were particularly pleased to see that often is set up that they intend to take a very long-term strategic view of distribution going forward over multiple price control periods and that ED3 will be set in that context. I think we're also pleased to see that in the document, they talked about the need for the investment in distribution to stay ahead of the needs of customers. So given that we're expecting to see an increase in EVs and heat pumps and those types of things, then I think we're pleased to see that. It was very consistent in terms of its messaging in terms of the need for an investable proposition and also that the incentives for things like innovation would be important. So broad I would say it met our expectations. It's very broad, and I think it's given us a landscape in which we can respond quite sensibly in time for the decision in the spring. Okay. So if I can move to Mark at UBS and then perhaps after Mark, we can take Dominic from Barclays. So Mark? Mark Freshney: John, congratulations and looking forward to seeing what you'll be doing next. I have 2 questions. Firstly, looking back over the last 2 or 3 Ofgem price controls, do you feel that Ofgem have given you allowances sufficiently -- that are sufficient for you to do all of the maintenance that you would have liked to have done? And just secondly, on infrastructure in general, I mean National Grid has been the center of capital delivery in the U.K. at a time when there wasn't much of it around. Clearly, there's -- government have been clear we're not going to cut capital investment in the U.K. We're going to keep going. What would -- what do you think the U.K. needs to do to get all of this CapEx done, not just in your area, but across the whole piece? John Pettigrew: So thank you, Mark. So in terms of in context of the last 2 or 3 price controls and have we had sufficient allowances, I think the blunt answer to that is yes. When I look at the outcomes, which is probably the most important thing, we've continued to deliver world-class reliability at 99.69, as you know I quote quite often. But also, if I just take a broader perspective and look at the number of unplanned outages we have on the network, so unexpected failures of assets today compared to 10 years ago, that actually it's about half as many today. So actually, the overall health of the network looks very resilient and strong. And therefore, I think we have had sufficient maintenance CapEx to do the work that we need to do. Obviously, as we look to T3, that continues to be dialogue with Ofgem as we get towards the FD. But certainly in the past, I think we've got a network that's reliable and resilient. And when I look at the data, suggests it's in a strong position. In terms of infrastructure and the broader question, I mean, for me, I think the things that are important, Mark, I think there's bipartisan recognition that infrastructure investment is a key enabler of economic growth in the U.K. In order to do that efficiently, having stable and predictable fiscal and regulatory frameworks is really important and something that we're focused on. I think we still like to see more done around the planning regime in the U.K. The planning legislation is going through, and I think that will streamline the process. But I do think there's more opportunity to do more so that the infrastructure can be built more efficiently and more quickly to enable that economic growth. So for me, I think those are 2 things that are really important. Okay. Let me move on to Dominic. And then perhaps after Dominic, we could do Ahmed at Jefferies. So Dominic, do you want to ask your question? Dominic Nash: Yes. Thank you, John, for your sort of decade as CEO and I think 30-ish years at Grid and also to welcome Zoe to the role and wish her all the best for the future. Two questions for me, please. Firstly, there's clearly a U.K. government focus on some sort of affordability. And within that, I think the Select Committee last week brought up network windfalls again. And I think Ofgem are now made sort of a consultant is by think beginning of 2026. So maybe you could give us an update on whether this Select Committee recommendation will change Jim's point of view on network windfalls? And secondly, on the GBP 35 billion of that you had in your draft for RIIO-T3, there's clearly a lot of uncertainty around that. I think NESO is publishing a new connection regime shortly. And I was hoping that you could provide us color as to actually what you expect to be in it like what's going to change? And will that -- how much clarity will that actually put onto the totex number that will get published in the FD on how much that's already could be secured? John Pettigrew: Yes. So thanks, Dominic. So in terms of the Select Committee last week, actually, it was an issue that has already been looked at. So this -- so just to be clear, the work that we've done demonstrates that we certainly not received any windfall profits. The analysis that they were talking about the Select Committee, I think, was a snapshot looking at expected inflation versus actual inflation. But if you look at it over the medium to long term, then it's very clear that there is no windfall profit. So I think that was the debate that was going on there. Ofgem, as you know, have already looked at this issue and have concluded that it's not in consumer's interest to reopen it. So from that perspective. And I think Ofgem actually responded to the consultation already looked at it as well. So the consultation you mentioned of next spring, actually, I don't think it's got anything to do with the windfall profit. I actually think it's to do with the way that network charges are allocated through the standing charge for suppliers. And I think it's that Ofgem are looking at, so rather than the windfall profit. In terms of the GBP 35 billion totex that you referenced, so just to be clear, so when we submitted the business plan for RIIO-T3, we said that over that 5-year period, we could spend up to GBP 35 billion, depending on basically, how quickly connections come forward. The GBP 35 billion was split out into sort of baseline CapEx, which included the traditional reliability, resilience asset help as well as those projects we had absolute certainty on but it then had a significant amount of CapEx that would be linked to the speed by which connections come forward. What we're expecting to see over the next period is new connection offers will go out to those customers that are classed protected, which means they've got planning consent and have started construction for connections in '27, '28 in January next year. For those for 2030, it will go out in Q2 and for those beyond 2030 in Q3. So I think we're going to get a sort of a lifting of the mist over the course of next year as to exactly what connections are going to be delivered within the RIIO-T3 period. We know to a large extent, where the sort of the primary spines of investment are, what the connections reform process will do will allow us to specifically know which substations in which locations are going to be invested. So I think we'll get a better view as we move through the course of next year, but it's going to take a little bit of time. Okay. So I'm going to move on to Ahmed at Jefferies and then Harry at BNP. So Ahmed? Ahmed Farman: A warm welcome to Zoe in her new role. A few questions, maybe just starting out with on the T3 process. One of the other things you talked about in your response to the DD was the workability and the simplifying of the funding framework for -- and reopen decision-making. Could you give us a sense of how is the debate on that front? And if you have been -- if you're confident you'll be able to achieve the improvements you're seeking? Another topic that's been, I think, in the press and among stakeholders is the budget for auctions is out and there's some debate whether that's enough to be able to deliver on the government's offshore wind targets. I just want to understand a little bit better how sensitive or more is the sort of the transmission CapEx plan to sort of achieving offshore wind development targets in the U.K. either T3 or T or more medium term? And then finally, just 1 for Andy. Andy, could you just give us a little bit more on the drivers for the upgrade or modest upgrade as you sort of call it, for the FY '26 outlook? You referenced regulated -- better performance in regulated businesses. I'll just love to understand that better. John Pettigrew: Yes. Thanks, Ahmed. So start with the first question on the workability. So this was 1 of the areas that we focused on in our response to the draft determination, I mean in simple terms, as I said to Dominic's answer, quite a bit of the CapEx is going to be agreed as we move through the price control period. So as big projects are defined, then we have to go through a process of agreement with Ofgem, the pre-engineering, then off to MacGreen that it's the right project to move forward and ultimately agreeing the allowances. And for us, what's really important is that those regulatory decisions dovetail and align with the project development time scale so that we're not left in a position where either we're having to spend in advance of getting the approval from Ofgem that it's the right project and/or we having to wait for clarity on what the allowances are. So it's very much about the workability of the framework and making sure that we've got a good drumbeat with Ofgem to allow us to deliver what is a significant level of CapEx at speed and at pace. So that has been a lot of discussions have been had since they're after termination at the working level to make sure we've got the right framework. And of course, we'll wait to see whether we've got the right place of the FD at the beginning of December. In terms of and the offshore wind auction, I think I'll go back to what we said in May, just to remind people that, to a large extent, we are relatively insensitive to what happens in the offshore wind auctions because Ofgem has already taken the decision that for the ASTI projects, we have a license obligation to deliver them and that it's in consumers' interest to progress those projects sort of independent of what the time scales are. And that's partly because, of course, there's an expectation that not only will it enable the flow of increased energy across the network, but it will also reduce what is an expected significant increase in constrained costs of around GBP 12 billion. So we don't see a huge amount of sensitivity between our GBP 60 billion 5-year plan and then finally, on question 3, I'll look to Andy. Andrew Agg: Yes. Thanks, Ahmed. In terms of the guidance, I think we said it versus our original guidance at the start of the year, we've obviously seen the 2 headwinds, firstly, from the dollar movement. So we're now guiding at 1.35 for the remainder of the year, which is, as you know, a small headwind, and secondly, with a slightly higher scrip uptake, there's an element of EPS dilution from that for the full year. But that is more than offset by a stronger operating performance from across the group, actually. I wouldn't call out any particular business unit. It is from across our regulated businesses. And all of that means that it puts us in a net or a modest upgrade position compared to our original guidance when we look ahead to the full year. John Pettigrew: Okay. Thank you, Andy. I'm going to go to Harry at BNP and then James at Deutsche. So Harry, we have your question, please. Harry Wyburd: And I'll add my congratulations and all the best and also hello to Zoe. So I have 2 questions, please. The first 1 is on the U.S. Now you just had a slew of sort of Democrat election wins and New York Mayor race dominated by affordability and the cost of living. I think you've been quite clear in the past that in the U.S., you are sheltered from this debate because regulation is done at the state level, et cetera. But if there was a federal move to clamp down on energy prices in the U.S. ahead of the midterms, where do you think the pain would be felt? And I have been clearly in mind that when this happened in Europe in 2022, it was painful across a wide range of business models, although less so in networks. So I'd be interested just to understand how you think or where the axe could potentially fall if energy prices really grew into a major, major political issue in the U.S. The second one is on T3. So looking at your consensus around the time that the draft determinations came out, there's several key uptick in expectations for FY '27, which is, I think, all of us looking at the fast money numbers and the Ofgem models have concluded that, that might bump your revenue for next year. How comfortable do you feel with that if we just take what we've had in the draft determination, so clearly, we'll get more in December and things might look different? But if we're just looking at what we've got in the draft, do you think we are collectively as sell-side analysts being conservative enough here? And do you think that there is a rational reason that EPS might be higher next year because of the past money? John Pettigrew: Thanks, Harry. Let me take the first question, and then I'll ask Andy to take the second. Probably just sort of a broader answer to the specifics as well, which is, so first of all, we're very conscious of the affordability debate, not just in the U.S. and the U.K. So we always take that massively into account when we think about price controls and rate cases in the U.K. and the U.S. With regards to the Mayor election, just to put that into context as well. So for New York City, they are our largest customer for our downstate gas business. We have a huge amount of interaction with them, particularly on the construction programs because quite often, where the city is doing work, we have to move our pipelines, for example. So they're a key stakeholder. And like any key stakeholder, we will engage with them to make sure we understand how we're working together, but also what their aspirations are around, and we understand that affordability is a big issue. But ultimately, for National Grid, things like our CapEx plans and affordability sit at the state level. And as you saw last year, we were very successful in agreeing with the regulator at the state level, a 3-year plan for NIMO of $5.6 billion which will take us right through to 2028. In terms of the sort of interaction between state and federal, I mean, for utility rates, then obviously, federal today don't have any jurisdiction. So I think in terms of the affordability debate, it would still sit at the state level. We need to be very mindful of that. And the way we approach that as a National Grid is when we look to do a rate case and we'll do this when we do in the coming months, we'll first reach out to all our key stakeholders and understand what are their expectations, what do they want from National Grid and how does that fit in the envelope of affordability. And quite often, that will shape the capital plan that we put forward as part of the rate case. We'll also spend a significant amount of time thinking about our vulnerable customers. You might remember in our rate case, for example, we set aside $290 million to support most vulnerable customers. And of course, we're always trying to drive the efficiency of the business through innovation as well to find more efficient ways of delivering what we need from customers. So I think for all those reasons, that's what we'll continue to do. We'll engage with stakeholders and think very carefully about what that rate case looks like in the envelope of affordability. From a federal perspective, and I think I'll reflect on what we've seen over the last 12 months, which is 1 of the key focus areas in New York, for example, has been how do you address the wholesale prices and you would have seen that the PSC has indicated they're supportive of the NESE pipeline. Based on the analysis that we did on the NESE pipeline, not only does it improve resilience and reliability in New York, but it increases the volume of supply by about 14% and potentially has about $6 billion of benefit for New Yorkers. So I think there's an interaction between federal government when you get into things like transmission pipelines and the states that I suspect will continue to be a focus going forward. Andy? Andrew Agg: Harry, thanks for the question. Yes, I think, obviously, this morning, you'll have heard that we've reaffirmed our 5-year frame guidance through to '29. And you remember when we set out that guidance, it was deliberately designed to be robust to a range of different outcomes as well. So I think it's important to take that into account. And clearly, at this stage, as you've heard from John, a couple of times now, our focus is working with Ofgem to ensure that we get to an appropriate final determinations. And that will be the point that we'll determine whether there is further guidance to be given, and that will be the point that we would do that. The other thing I'd just mentioned, of course, at this stage, we're also 1 of the topics we talk to Ofgem about is the profiling of any increases of revenue and how they fall across the 5 years of the price control. So that's something else that will be part of the mix that we'll be looking at. John Pettigrew: I'm going to move on to James at Deutsche and then perhaps we can go to Deepa at Bernstein after that. James Brand: It's James Brand from Deutsche. Also, congrats to John and also to Zoe and good luck for the future. . I have 2 questions. The first is on demand. So you said that you were kind of positioning yourselves to be ready to connect up to 19 gigawatts of additional demand Obviously, that will be absolutely huge, particularly if it was all heat demand. What's your kind of realistic expectation of how much demand growth we might see over the next 5 years? I know there's like a lot of data center connection requests, but how much do you think we can realistically expect to be added on the data center side. Maybe that's a difficult question to answer, but any thoughts around that would be super interesting. And then the second question is on coming back again to the energy affordability debate in the U.K. So obviously, the kind of noise around that has increased quite substantially. How do you view your own positioning in regards to that debate? I guess, potentially reasonably well protected given that you'll have the transmission price control locked in pretty shortly, and you can argue that the investments that are cutting our curtailment costs quite substantially. But longer term, is this a bit of a risk for you? And if you were to make any recommendations for ways to put electricity bills in the U.K. given that we have pretty much the most expensive electricity bills in the developed world, what would you recommend? John Pettigrew: Okay. Thanks, James. Let me start with the demand question. So a little bit of context. So because a lot of the demand -- a lot of the excitement is coming through the potential connection of data centers. So today, about 2.6% of all the demand that we have in the U.K. comes from data centers. You may have seen that NESO does its future energy scenarios, and it was projecting that, that could increase to about 9% by 2035. What we've seen over the last 12 months is quite a surge of requests for connections to the transmission network to support data centers and generative AI. So in our RIIO-T3 plans, our assumption is that we're expecting to see about demand growth of around about 19 gigawatts or we're going to build the network out to support that. I think it works out at about 4% growth in demand per annum. And about half of that is assumed to be for data center demand. And that's backed up by the connection agreements that have been signed in the time frame for RIIO-T3. So I think we feel comfortable that we've got a reasonably good handle on what the demand is going to do over the next 5 years or so. and a reasonably good handle on what's being expected in terms of growth in data center demand and where it will connect. And of course, you may have seen National Grid is working with the government through the AI Council to really identify where are the best locations in the U.K. to locate those data centers based on where is their access fair capacity today or where the time frame interconnections would be shorter than other places, which is an important determinant for data centers. In terms of energy affordability, I think when we stand back from our position, yes, we see an increase in the transmission element of the charge as we deliver out all these ASTI projects and the RIIO-T3 CapEx but actually against the expected constrained cost net-net, it's a reduction. So in a way, us getting on with the investment is very beneficial to consumers because it ultimately reduces the cost for them. Having said that, we're very mindful the affordability is a significant issue, which is why in our business plan we set out why it's important to have incentives around innovation to drive efficiency and indeed why we propose an efficiency measure as well. So we're very mindful of it. We're very conscious that it's a difficult time for customers. But in terms of the transmission element of the bill, I'd say we're very focused on making sure we can deliver the infrastructure to relieve those constrained costs, which result in a net-net reduction. I'm going to move to Deepa and then to Martin at BofA. So Deepa, should we take your question? Deepa Venkateswaran: First of all, thank you so much for your service for all these years and all the best for the next steps and Zoe a warm welcome. So my 2 questions. First 1 is on the RIIO-T3 draft. where do you see the risk reward on the incentives? If not the financial returns, that's very clear, you want it to be higher than what's there. But as things stand right now, where do you see the risk reward and how close is that to the 200 bps or so you would need in order to get closer to that 10% overall nominal return? And in your discussion so far with Ofgem, what's your sense on, are they moving in the right direction taking your feedback into account? So that's my first question. And the second one, I noticed that you are looking at U.S. transmission opportunities. And I think this is something that used to be talked about a long time back. Nothing has ever happened about it. So has there anything changed in the U.S. transmission landscape that is making you look at that again? And again, how big could this opportunity be? John Pettigrew: Yes. Thanks, Deepa. I guess I'll put the innovation in the context of the incentives framework, which I think is really important to help me get to an overall return that we think is appropriate to give the scale of investment going forward. So actually, the work that we've been doing with Ofgem is focusing on sort of 4 key incentives. One is being incentivized to make available the connection capacity that customers want in a timely fashion. Secondly, it's about delivering the major projects as quickly as possible and being incentivized against that in the same way as we are for the ASTI projects. Thirdly is looking at how we can reduce the cost constraints in our role as the transmission operator working with the system operator. And we've done some of that in the existing price control, and we think there's opportunity for more of that as we move forward. And then thirdly -- sorry, fourthly, it's the incentives as well. So we've been having conversations with Ofgem about that to really -- to find a framework that ideally allows us to look for opportunities to extend new technologies onto the network in a way that will reduce cost for customers. So if I give you an example, so Dynamic Ratings is a good example that we've started to deploy in our transmission divisions in the U.K. It is new technology. It allows you to get more power down the line without having to build new lines and we think those types of incentives are going to be really important if we're going to get to the overall package that works. But we're thinking about those 4 incentives as a package and innovation is a key 1 within that. In terms of the U.S. opportunities, you might recall, when we refined the strategy in May last year, we talked about the fact that our focus was going to be on transmission, both regulated and competitive and that we did see opportunities for transmission opportunities in the U.S. So our National Grid Ventures business has been looking at that. And I referenced in the speech this morning that one particular one on the horizon is a transmission line potentially from Maine down to New England that will help to reduce bills for New England customers that we -- the ISO is doing a solicitation on. So we're looking at that as a project. It's obviously in a region that we are very familiar with and understand very clearly. And obviously, we've got good capabilities with National Grid Ventures. So we are seeing some solicitations for competitive transmission in the U.S. And as part of our National Grid Ventures business, we are looking at them very carefully. We will only take them forward, as we said in the past, if we could get to a view that we're sensibly positioned to be able to win them, earn sensible returns, but that is 1 that's specifically on the short-term horizon at the moment. Just looking who is left. So Martin, if we could go to you next, I think that's the last question that I've got. Martin Young: Right. Congratulations on the results and all the best for the future. I actually wanted to come back to this topic of potentially new opportunities in transmission in the U.S. that you referenced. Could that be something that is material in terms of investments and in terms of CapEx and presumably that would come on top of your existing guidance of GBP 60 billion? So could you just give us some perspective as to how relevant this opportunity could be? And question number two, just on hybrid bonds. We have not really seen any hybrid issuance, I believe so. Is that still part of your financing toolbox? John Pettigrew: Thanks, Martin. I think Andy can take couple of those. Andrew Agg: Yes. Thanks. Martin. So on the transmission opportunities, as John said, we're in the early stages of looking at these. And so we'll have to wait and see how that may or may not grow as we go forward. But I'll remind you, if you go back to the financing strategy we set out in detail when we did the equity raise 18 months ago, we were very clear that where we do see incremental opportunities, particularly in our Ventures business, above -- that might take us above the GBP 60 billion, we would need to look for ways to finance those through the Ventures business as well in terms of potential partnering, other types of sort of off-balance sheet finance and other routes, et cetera. So i.e., it wouldn't impact our delivery or use of the equity proceeds to underpin the GBP 60 billion. And that remains absolutely the case today. In terms of hybrids, you're right. And again, when we made our financing strategy announcements 18 months ago, we were very clear that we wouldn't expect to issue any hybrid for several years. Again, that remains the case. Hybrids remain a very useful potential tool to us. We have a lot of unused hybrid capacity. At this stage, we don't have anything in the near term as you'd expect, but it will remain a tool that we can deploy appropriately later if we think that's the right thing to do. John Pettigrew: Thank you, Andy. So I don't have any further questions. So let me just wrap up by just saying, I guess, a summary of our half year results is good operational and financial performance in the last 6 months. I think we're very well positioned for the second half. And hopefully, you've taken away from today's presentation, we're very much on track to deliver the GBP 60 billion over the 5 years 18 months in. . This is my last results presentation. I'd like to say I'm just incredibly proud of the organization, what it's achieved over the last decade, but I'm also delighted to be handing over to Zoe who I think is going to be an incredible CEO. So thank you, everybody, for joining us today, and I'll see some of you very soon.
Simon Roberts: Good morning, everyone, and welcome to our '25/'26 interim results presentation. Thank you for joining us today. I'm going to start with a brief introduction before handing over to Blathnaid to cover the financials. I will then share some more detail on our strategic progress over the first half of this year. You may remember this slide from our primary results in April. This is the plan that we set out to you then with a commitment to accelerate into the year with a clear set of balanced choices, but with a priority above all else to sustain the strong competitive position we've built over the last 5 years. We have delivered on this priority in the first half, focused and effective investment in our customer proposition has consistently delivered on our winning combination of great value, trusted quality and leading service. And that has resulted in more and more customers choosing us for their big weekly shop, driving continued volume growth and market share gains. Now we came into this year with great momentum. We planned for a strong summer and we really delivered through playing to Sainsbury's strengths. We invested where it mattered most to customers, extending our Aldi Price Match to even more everyday essentials and building on our market-leading personalization capabilities, making personalized Your Nectar Prices available to all supermarket customers. And our product innovation continues to really set us apart. With more than 600 new products this summer, we focused on units on summer sharing products and outdoor eating. Alongside outstanding fresh food availability, this allowed us to fully capture the benefit of the weather when demand was at its highest. And Argos delivered a good seasonal performance, grew market share and improved profitability. Our entire team stepped up again and really delivered for customers. I want to take a moment here to thank all our colleagues, partners, farmers and suppliers for their hard work, their dedication and their care which really helped us to deliver this strong summer performance. So we started the year with strong momentum and a clear plan. We set ourselves up for success over the summer, and we delivered. Our offer has never been stronger. And you can see here how that comes through in our overall customer satisfaction, which continues to lead against our full choice competitors, but also in terms of our position in the market, reflecting a fifth year of outperformance. We are now at our highest H1 market share in 5 years. As you know, our key focus over the first 3 to 4 years of Food First was resetting our value proposition investing over GBP 1 billion through this period. We learned how to invest in the most focused and effective way, selectively investing where it matters most to customers. And we have found a winning value formula that really works for our customers with the combination of Aldi Price Match, Nectar Prices and Your Nectar Prices. And so in a year where competitive intensity has stepped up, and where as an industry, we are facing into higher employment and regulatory costs, we have made balanced choices to keep price inflation behind the wider market and to ease cost of living pressures for customers. Customers are responding to the value we've consistently been delivering on the items that they buy most often. And this is why at a time when inflation is very much back in the headlines we are the only grocer improving value perception with customers year-on-year. We are balancing our investment in value whilst driving forward our focus on innovation and quality. Customers have always trusted and expected Sainsbury to deliver a leading quality, and we are further extending our reputation here through the continued growth of our premium Taste the Difference ranges. As we continue to drive innovation and with a real focus on fresh food, more and more customers are choosing Taste the Difference. We achieved 18% growth in Taste the Difference fresh sales over the first half. And as you can see here, customer perceptions of our quality continue to be significantly ahead of competitors. Through the strength of our value proposition with our passion and reputation for quality and innovation, and the consistent availability and customer service we're now achieving, we are delivering the winning combination. As a result, we have almost 1 million more loyal primary customers those who are doing the bulk of their grocery shopping with us week in, week out. And the strength of our grocery proposition is clear. 65% of customers shop both Aldi Price Match and Taste the Difference products in the same basket during the first half. This is a clear demonstration of the way customers are now shopping with us across the full spectrum of our offer. Now we know that the strength of our own brand assortment is the reason many customers choose to shop with us and delivering the breadth and quality of our own brand products is only possible through the support of our suppliers and a commitment to long-term partnership. We continue to work collaboratively with our farmers and suppliers to face into food industry challenges. Long-term agreements enable suppliers to invest for the long term and in outcomes that are great for customers and positive for the environment. And these commitments to resilience extend further than the U.K. Our partnership with Fair Trade is a great example of the work we're doing to strengthen our supply chains around the world and support the communities from which we source. Having switched all our by Sainsbury's black tea to Fairtrade in July, we are now the biggest U.K. grocery retailer of Fairtrade tea. Now everything we do comes back to our purpose to make good food, joyful, accessible and affordable for everyone every day. And our partnership with Comic Relief supports us here through a shared vision of a future where everyone has access to good food. Our Nourish the Nation program is helping fund meals and holiday club places for families that need them most. We will work with charities such as FareShare, City Harvest and the Felix Project to distribute over 5 million meals this winter. So as we reflect on where we are halfway through the 3-year Sainsbury's Next Level plan, I'm pleased with the progress we're making against our commitments through making balanced choices, we have delivered sustained strong momentum. We have invested where it matters most. And as a result, more customers are trusting us to deliver great value, trusted quality and leading service. And it's this winning combination that has driven grocery volume growth ahead of the market for a fifth consecutive year, and helped deliver a profit performance ahead of our expectations in the first half. And we head into this festive season with great momentum and confidence in the strength of our Christmas offer. We have the most important part of the year still ahead of us. And while we are strengthening our profit guidance today for the full year, we are deliberately giving ourselves the capacity to sustain the strength of our competitive position through continuing to make the right balanced choices. With that, I will now hand over to Blathnaid to cover the financials. Blathnaid Bergin: Good morning, and thank you, Simon. I will now cover the financial highlights for the 28 weeks to the 13th of September. Starting first with a reminder of our financial framework. This lays out the factors that underpin our commitments to deliver profit leverage from sales growth, strong sustained cash flows, higher returns on capital employed and enhanced shareholder returns. We made good progress on delivering profit leverage in the first year of the Next Level strategy. But this year, we have significant incremental cost pressures through higher National Insurance contributions and an EPR charge. Our priority is sustaining our strong competitive position. And so we're unlikely to move forward on profit leverage again this year despite our continued delivery of food volume growth ahead of the market. As outlined previously, we continue to invest in our business for future growth while maintaining our cash commitments. We are also delivering on our commitment to enhance shareholder returns, and we expect to return more than GBP 800 million to shareholders this year through dividends and buybacks. Turning now to our sales performance for the first half. Sales in Sainsbury's grew by 5.2% with consistent volume growth through the quarter despite higher inflation. Argos sales grew by 2.3%, helped by a good summer weather and offsetting a Q2 comparative, which was boosted by significant strategic stock clearance activity last year. Together, this delivered total retail sales growth of 4.8%, excluding fuel and 2.7% growth, including fuel. Retail underlying operating profit was broadly in line with last year's at GBP 504 million, which was ahead of our expectations. Sainsbury's profits were down slightly year-on-year, with volume growth and cost saving delivery, enabling focused investment in value, customer service and quality and partially offsetting higher employment and regulatory costs and elevated disruption from our space reallocation activity. Improved profitability in Argos year-on-year primarily reflected a stronger trading margin performance versus last year's clearance activity. We announced in January last year a phased withdrawal from core banking, that is loans, credit cards and deposits and a move to a model where financial services that are complementary to the retail offer will be provided by third parties. We've made excellent progress with this over the last 6 months. We completed the sale of loans and credit cards and savings to NatWest and transferred the Argos Financial Services book to NewDay. We additionally signed agreements on our home and car insurance back books with Allianz and completed deals on ATMs with NoteMachine and on Travel Money with Fexco. Alongside the strong execution in partnership with NatWest and NewDay, these deals have contributed to the extra cash proceeds that we announced today. We are now expecting net proceeds of more than GBP 400 million, significantly higher than our original guidance, and we will return GBP 400 million of cash to shareholders via special dividend and share buybacks. We have also established forward arrangements with these financial services partners that will give us strong ongoing commission income. In the short term, the ATM and Travel Money disposals mean that we now expect the Financial Services underlying profit contribution to be broadly breakeven this year, lower than our previous guidance as the income from these businesses drop into the discontinued line until the deals are completed and a new revenue arrangements in place. This is reflected in the restated financial services numbers. This is just a transitionary impact, and we continue to expect the underlying operating profit contribution from Financial Services products of at least GBP 40 million in the financial year to March 2028. This comprises of income from the NewDay partnership together with the commission's income from insurance, Travel Money, care and ATMs. Total underlying operating profit increased by 7%. And driven by this year's financial services profit against last year's restated loss, while underlying EPS increased 12%, reflecting a reduced share count as a consequence of share buybacks. In December, we will pay an interim dividend of 4.1p, up 5% year-on-year, in line with our policy of paying an interim dividend of 30% of the prior year's full year dividend and we will pay a special dividend of 11p also in December. The next slide lays out items excluded from underlying results. We incurred GBP 95 million of nonunderlying costs in the half with the largest item relating to retail restructuring costs of GBP 58 million. The largest element of these relate to the costs ahead of our full reopening of our distribution center at Daventry. Cash costs were around GBP 55 million, with the majority relating to redundancy payments associated with the head office restructuring that we completed and booked in the P&L last year. We continue to expect retail restructuring cash costs of around GBP 100 million in the full year and Next Level Sainsbury's strategy implementation cash costs of around GBP 150 million over the 3 years of the program. Turning to our cash flow metrics. Retail free cash flow of GBP 310 million was down year-on-year, mainly due to lower working capital inflows and CapEx phasing leaning more to H1 year-on-year. Net debt was broadly unchanged year-on-year but GBP 231 million lower versus the year-end position, primarily relating to the timing of a net GBP 250 million cash inflow from the bank that will be paid out as dividend to shareholders in the second half. This table shows the key elements of cash flow and the movements in net debt this year and last. A lower working capital inflow was primarily driven by timing and a strong benefit from inventory reduction last year. Cash contributions to the pension scheme were down year-on-year, in line with our guidance of around GBP 26 million in the full year. CapEx was higher year-on-year, primarily reflecting the phasing of work on our new store openings and store refit activity. We continue to expect capital expenditure of between GBP 800 million and GBP 850 million versus GBP 825 million last year. As mentioned earlier, we received a GBP 300 million dividend from the bank, partially offset by a GBP 50 million payment relating to the withdrawal from core banking. We expect to receive the majority of the remaining bank proceeds in the second half of this year, which will be used to fund the additional buyback activity this year and next. The movement in other is primarily driven by higher additions of lease liabilities last year, reflecting the Homebase stores acquisition and our new London office. We continue to expect to deliver retail free cash flow of at least GBP 500 million in the full year. Net debt to EBITDA is broadly unchanged year-on-year, benefiting from the bank cash inflow. On shareholder returns, we will now return GBP 400 million of bank proceeds to shareholders through a GBP 250 million special dividend and GBP 150 million addition to the share buyback. We will add GBP 50 million to this year's buyback to make the total buyback GBP 250 million, and we will add GBP 100 million to next year's core buyback. As you know, we will specify the level of next year's core buyback with our preliminary results next April, but to be clear, this GBP 100 million will be in addition to the core level. In this financial year through paying ordinary dividends of more than GBP 300 million and a GBP 250 million special dividend as well as a GBP 250 million share buyback we will return more than GBP 800 million to shareholders. In summary, we have traded strongly in the first half of the year. Together with cost savings, this has allowed us to make focus and effective investment in the customer proposition and additionally offset higher costs to deliver a retail operating profit ahead of our expectations. Strong execution in our Financial Services phased withdrawal strategy has produced higher-than-expected proceeds and this will be reflected in enhanced cash returns to shareholders. We now expect to generate a retail underlying operating profit of more than GBP 1 billion in the full year, reflecting the strength of our H1 performance, but allowing us to continue to make balanced choices to sustain the strength of our competitive position. We continue to expect to generate retail free cash flow of at least GBP 500 million. Thank you for your time. I'll now hand back to Simon. Simon Roberts: Thank you, Blathnaid. Now as I said, we're at the halfway point of the 3-year plan that we set out in February 2024. And I'll now run through each of the strategic outcomes that we put in place to define this next phase of our growth. Starting with our plan to be First choice for food. We are bringing more of our food range to more customers in more locations attracting more bigger basket primary shoppers and delivering further grocery volume share gains. We've built really strong foundations over the last 4 years, providing great momentum, and we've built on those with investment in areas that really matter most to our customers on value, on quality and freshness, on availability and on range. And this is reflected in customer satisfaction metrics across the board, where we've taken a big step forward, as you can see. But what really stands out for me is the progress we've made on value perception in every channel in supermarkets, in convenience and in online. We're making sure customers have access to great prices, however they want to shop with us. And so at a time when customers are much more sensitive to rising prices and inflation is top of mind, the consistency and focus on our pricing investments is really resonating. We've shown you before the significant improvement we've made on value versus our competitors since the launch of Food First back in 2020. And now building on this, you can see on this slide, we've made focused and effective investments in the first half of this year, and that has further improved our price position against all competitors. We have the biggest Aldi Price Match in the market, having extended the number of everyday essentials included in April and Nectar Price is now on around 10,000 products. Both of these key value platforms are included in the value index you can see here. But beyond this, we're offering more value to more customers through Your Nectar Prices with personalized offers and up to 10 items each and every week that are tailored to each customer based on their shopping habits. We are leading the way in personalization across U.K. grocery, having first launched this capability back in 2021. And we've gone even further this half, fully scaling Your Nectar Prices across all supermarket tills, enabling many more customers to access this really meaningful personalized value. And it's worth highlighting here that if we did include Your Nectar Prices within the value index, this would further strengthen our position against every competitor. Now the consequence is that more customers are choosing Sainsbury's for their main grocery shop. We also did something quite different with our marketing investment and focus in the first half cutting through a much noisier market. Through the peak summer weeks, we've dialed up our marketing across Aldi Price Match and at the same time, Taste the Difference, and we delivered a campaign focused on everyday trade-ups. This helped drive the strongest brand consideration for Sainsbury's since 2013. Now our reputation for food quality, range and innovation sets us apart. Working closely with suppliers, we delivered more than 600 new summer products with the result that we were the go to for customers' key summer occasions. And from an already strong position, the strength of our Taste the Difference momentum delivered the biggest premium own label market share gains. And we can see great opportunity here. The potential for gaining more in-home dining occasions is clear from the chart on the left. And we've taken a further step forward in the last month with the launch of Taste the Difference discovery, a range of restaurant-quality meal solutions and premium specialty products and ingredients. The response from customers has already been really strong with premium dining sales growing 40% since launch. Now these new ranges really lean into the core strengths of our brand and customer demographic and we're really excited about how far we can take this. Now a key part of the strategy we laid out in February last year was to build on the renewed strength of the Sainsbury's grocery proposition and to bring it to more customers in more locations. What we didn't know then was that we would be presented with an opportunity to achieve some of that through new supermarket openings, filling in a number of key target locations through the acquisition of stores from both Homebase and the Co-op. We've now opened 4 of these stores, 2 of each in the first half, and we're delighted with the results. Collectively, the 6 new supermarkets and 12 new convenience store openings we achieved in H1 are trading around 20% ahead of budget. And specifically on the Homebase stores, we're particularly pleased with the look and feel we've been able to deliver in these stores, but on a much lower than standard fit out cost. While the feedback from colleagues and customers on the transformation of the former Co-op stores, has been exceptional. Now subject to final planning consents, we plan to open another 6 supermarkets in the second half, including 3 Homebase conversions and up to 12 more supermarkets next year. In total, we expect our new store opening program and the growth of food space in existing supermarkets to have added more than 1 million square feet of grocery space by the end of next year, an increase of around 6% over the 3 years. And we remain excited about the opportunity we have to reach new customers in new key target locations, and we expect this to be a strong driver of market share gains over time, particularly as the new stores mature and the disruption from refit activity reduces. Now alongside new store openings, we have been continuing to invest selectively in our existing supermarkets through our More for More plan, reallocating space to provide more food range. And there's no cookie-cutter approach to our store refit program with the level of capital spend, change and space reallocation adapted to fit the trading profile and potential of different supermarkets. We're learning as we go, and we're rolling out rapidly the most successful elements. So in particular, we have improved the prominence of Nectar Prices and the look and feel of our center aisles. We have extended range and enhanced presentation in beers, wines and spirits, also often relocating the department within the store, delivering a sales uplift. Our free from hubs combining fresh, frozen and ambient products in 1 aisle are contributing to a growth of 14% in free from across the business. That's a 7% market outperformance. And we've made our Food to Go fixtures more compelling and easier to shop with new formats delivering double-digit sales outperformance. So in those stores where we have come through the disruption, we're really pleased with progress with the stores delivering higher food sales, higher trading intensity and a good customer response to the range improvements. So in two, the work we've been doing over the last year to improve the customer offer is really delivering. We've been investing in leadership and enhanced capabilities across our clothing business. And as a result, we're now seeing improvements in ranges, product design and in our operational performance, too. Our combination of great value and quality design is driving stronger customer perception metrics, and we've also significantly improved availability. We delivered sales growth of 7.8% in the first half, with higher full price sales, and we've achieved our fifth consecutive quarter of market outperformance. So turning next to Loyalty everyone loves. We continue to believe that our well-invested loyalty in retail media capability is a fundamental requirement for success in grocery retail. And Nectar is at the leading edge here in the U.K. and globally in terms of enabling personalized rewards for customers and in delivering leading retail media capabilities. As a result, Nectar continues to generate very strong returns. A reminder here of the 2 sides of Nectar. On the left-hand side, our customer-facing Nectar loyalty scheme, which is how we deliver value to customers through points earned inside Sainsbury's and with coalition partners as well as through Nectar Prices and increasingly through personalized Your Nectar Prices. On the right-hand side is our Nectar360 Retail Media business. We help our suppliers and other clients understand how customers shop and help them talk directly to the millions who visit our stores and our websites every week, either directly through our media in-store and online or using our targeting capabilities to address customers on third-party media. Retail Media continues to grow its share of total media spend in the U.K., driven by the high return on investment it delivers, and we're at the forefront of making it easier and more effective for clients and agencies to tailor the effectiveness of their digital media investments. Nectar Prices continues to deliver outstanding value for customers, supported by suppliers, Nectar Prices were available on up to 10,000 products in the first half delivering customers an average GBP 14 saving on an GBP 80 weekly shop. We also extended the availability of Your Nectar personalized prices. Previously, this was only available to customers shopping online or through using SmartShop in stores. We have now extended this to be available for all our customers in our supermarkets. As a consequence, more and more customers are now accessing individual and personalized value, which is even more meaningful and accessed every week through the Nectar app. And an important reminder here on how much customers can earn through collecting Nectar points in Sainsbury's and also through our coalition partners, particularly given the growing number of customers who now use the Nectar app. Now at a time when value for money is much more on customers' minds and there's a lot of noise out there in the market, it's been important to increase visibility here on the extra value benefits Nectar customers are seeing. These benefits are getting stronger and stronger and becoming increasingly valued by Nectar customers, and this is reflected in the value perception scores we have presented today. We talked in July about the launch of Nectar360 Pollen. This is a bespoke platform built in-house that helps clients assemble tailored omnichannel retail media campaigns. Now we're just starting to roll it out to clients now, and the feedback has been every bit as good as the response we got when we first announced it. We think this will be a game changer for clients' return on investment and another driver of significant growth for us. We're also getting really good returns on our investment across the connected digital media screens in store, particularly where we're rolling these out to our center aisles. All in, we're comfortably ahead of our profit plan. So turning to Argos. We're making good progress with our More Argos, more Often strategy. Our focus is on building a more profitable business through improving the customer proposition, investing in product range and the digital customer experience. We're building on our reputation for convenience and value and continuing to optimize the efficiency of our fulfillment network. We're making progress on the key customer metrics outlined here on value for money and promotions, but also on quality and range. This is driving higher online traffic and an increase in both volume growth and basket size in a deflationary market. Our digital performance is where we are really starting to make a key difference, most notably through investing in the Argos app, with strong results, as you can see from the chart on the right. But also through investing to make sure that customers find Argos as a solution more often and more easily, driving greater engagement through social channels and launching our own podcasts as well as scaling the use of AI and personalization in our digital channels. With an improving conversion by making the customer journey easier once customers find us from search tools and personalized recommendations to enhance product pages all the way through to payment. This is how we will build a more sustainable, profitable sales base and the move we made earlier this year to put in place a dedicated leadership team for Argos is really making a difference to the focus and the effectiveness of our strategic actions and operational delivery. Range wise, alongside the sharpening of our own brand ranges, we're building deeper partnerships with key brands and bringing new brands and ranges into the offer through supplier direct fulfillment. We're also now giving the customers the option of Click & Collect on these SDF ranges. Customer familiarity with our Big Red promotional events is building too as reflected in the promotional and value perception scores shown earlier. And we're trialing a delivery subscription offer, Argos Plus for the first time. We're continuing to refine and reset the store operating model, investing in the store network and in technology. This improves colleague productivity and the customer experience, particularly through easier collection and returns processes. Now turning to Save and invest to win. The strength of our cost-saving program is a key differentiator. And at the time of higher-than-normal operating cost inflation, it means that we can offset more of that incremental cost than our competitors. It's not just about finding ways to save money, it's about delivering sustained cost savings through structural efficiency gains, particularly through capital investment in improved technology and infrastructure. We have a well-developed program with a good pipeline of initiatives and some of the big capital investments are starting to generate savings, which will build over multiple years. And we continue to be encouraged by progress in driving end-to-end productivity and efficiency benefits. Now having delivered around GBP 350 million of savings last year, we're well on track to deliver to our plan this year and GBP 1 billion of savings over the 3 years to March '27. Our investment in the replatforming of our general merchandise logistics network will deliver savings of around GBP 70 million when the program is complete and we're just going live in our Daventry warehouse. This is centralizing Argos and general merchandise stock in fewer locations, bringing more automation and improving productivity and capacity. And we're building on the strength of the machine learning forecasting platform. This has already significantly improved our forecasting and our stock accuracy and we're now extending the benefits further down the supply chain by giving suppliers greater visibility and self-serve functionality. As you can see on the right-hand side of this chart, our use of video analytics technology to reduce shrink at self-checkout locations has significantly exceeded expectations, and we're now rolling this out rapidly to more stores. As a reminder, these are the commitments that we made at our Capital Markets Day in February 2024 with the launch of the 3-year Next Level Sainsbury's plan. We're now halfway through our Next Level plan. And in a year like this, where competitive intensity has stepped up, making the right balanced choices has never been more important. So while we have very clearly prioritized sustaining the strength of our competitive position this year, we remain on track to deliver these commitments over the 3 years of the plan. We are continuing to drive forward progress against our Next Level plans, and we are strengthening our capabilities for the future. We're consistently delivering for customers and more and more are trusting Sainsbury's for their weekly shop. And as you will have seen in the latest Kantar reads, this momentum has been sustained into the third quarter despite some tough comparatives to the same period last year. We expect Christmas to be very competitive, and hence, we're giving ourselves the capacity to make the right balanced choices with really strong plans for Christmas across value, innovation and quality, and by making sure that our service is at its best, both in store and online. Our whole team and I are really excited about what we can deliver this Christmas, and we look forward to updating you on that in January. Now before Blathnaid and I take your questions, we wanted to share our Christmas ad, which went live just a couple of days ago. [Presentation] Operator: Hello, and welcome to Sainsbury's 2025-'26 Interim Results Announcement Analyst Q&A Call. On the call this morning is Simon Roberts, Chief Executive; and Blathnaid Bergin, Chief Financial Officer. We'll now go to the Q&A. Operator: [Operator Instructions] Our first question is from Freddie Wild from Jefferies. Frederick Wild: Congratulations on a very strong set of results. So my 3 questions. First, if you could give us a bit of help on the consumer outlook into Christmas. You've obviously just made some really quite encouraging comments. But how do you see the sort of Grocery business into Christmas? And how do you see Argos into Christmas as well? Then second, Simon, you were very impressively accurate on your food inflation outlook when we talked at the full year. So I wondered if you could give us an update on where you see food inflation going from here? And finally, obviously, you've now over delivered a bit into half 1. Could you help us understand the half 1 versus half 2 phasing dynamics for retail EBIT? Simon Roberts: Freddie, thank you. Okay. So let me -- let's take those in turn. Look, I think for obvious reasons, the consumer is very focused on the cost of living. And that's why as you can see in our first half, we set a very clear priority back in April, and that priority was to sustain the strength of our competitive position given all we've done over the last 5 years. And what I think we can see is value for money is absolutely, of course, at the center of how households up and down the country are thinking, a lot of uncertainty out there. And so what we've been able to do is give customers real confidence and the fact they can trust value at Sainsbury's. We extended our Aldi Price Match in the half, the biggest Aldi Price Match in the market, 10,000 products now in Nectar Prices. And so what you can see, I think, is customers are going to be very focused on value, and our offer is really matching that expectation. That will continue, to your question right into Christmas. We have a very strong plan for this Christmas. And also, I think, importantly, particularly at this time of year, at this point about celebrating without compromise, and that's where Taste the Difference and trading up into Taste the Difference is playing a very important role for us. We always said, didn't we? If we could get value at Sainsbury's really working for customers and our reputation for quality would come alongside that. And we're now really rolling forward both on quality and value and service, and the combination of all those things is giving customers the reason to do more of their big shop with us. And I make the point that we shared in the presentation, which is we've seen value perceptions in Sainsbury's customers improve year-on-year. We're the only grocer in the U.K. where that's happened, and you can see the impact on our volume share. In terms of your question on inflation, look, I think what can we see? We can see that actually the industry has largely solved for the higher costs that have come through this year. There's still more inflation, I would say, to get through. But when we think about the impacts of National Insurance, EPR, the higher costs, both in retailers but also as they've come through in the cost of COGS, we can see how the industry has responded to that. We also know, and we said this in April, didn't we? It's intensely competitive out there. This is an intensely competitive industry. Competition has stepped up. There's a lot of noise out there in the market. And so we've got both this inflation passing through, but also very clearly at a higher level of competition, and that's the reason we set such a clear priority for us to make sure that we sustained our competitive position in the first half, and you can see how that's played through for us. Look, I think as we look ahead, clearly, cost pressures are going to continue to be there in terms of the increases to living wage and other costs as well. And so very importantly, for us, our Save and invest to win strategy is super important. We have a very mature efficiency and cost program now. We've committed to save GBP 1 billion over the 3 years. In fact, at the end of this financial year, since we started our Food First, we'll deliver close on GBP 2 billion for the cost savings in the first 5 years. And that's really important given the obvious continued cost pressures that are out there. And then on your last question on the balance of the half, look, I think -- we're encouraged with the first half. We've seen that focus on value and quality and service with customers really play through into our results. Actually, as you've seen profits a little bit down at Sainsbury's in the half, improved a bit year-on-year and Argos in the half. And so therefore, we were able to deliver a profit outcome a bit ahead of our expectations actually for the first half. We inflated a bit behind the market in the half. That was all about the fact we wanted to make sure our value position was right. And so we come into the second half, actually with really strong momentum. You'll have seen the recent market reads. And we're very deliberately giving ourselves the capacity to continue to make balanced choices. There's a lot of customer expectations on value out there, there's some uncertainty out there. I think probably a bit of caution in the GM market. Let's see how that plays through in the second half, given nondiscretionary spend will be more cautious. So for all those reasons and giving ourselves that capacity through the second half, Freddie. Operator: Our next question is from Sreedhar Mahamkali from UBS. Sreedhar Mahamkali: Maybe just a couple of questions on Argos and on the buyback, please. And I guess the first one is, clearly, you went through a process with JD.com. Can you discuss a little bit more the context for this and why you terminated the talks and how we should think about any potential future conversations? And I guess second one from an investor's point of view, something that I get fairly regularly these days is like JD.com progressed, which means there was a clear ability to separate Argos growth and its financial performance. I guess why shouldn't investors get the same level of visibility of Argos profits in the segmental disclosure. And I guess the third one, maybe just on the buyback. I think you talked about a core buyback. Given the cash flow outlook already for next year as part of the plan, is it reasonable to think that will carry on at the GBP 200 million sort of run rate into next year. And then we add GBP 100 million so taking the total to GBP 300 million. Does that sound reasonable at this point of the year? Simon Roberts: Sreedhar, thank you. Well, why don't I take the first question and then Blathnaid, maybe on your second and third question. Okay. So yes, just to recap. And as we said early September, look, of course, our obvious and key question is to make sure we continue to secure the strongest and most successful feature for Argos. And as we said early September, we've been in a process of discussions over a number of months to explore the discussion around acquisition of Argos. And look, I think as we said very clearly, early September, those discussions had reached a relatively advanced stage, but then given there was a substantial representation of the terms of those discussions, it was clearly in the interest of shareholders actually and our wider stakeholders as well that we stop those discussions and we pulled away from that. And look, clearly, we're very focused on delivering the best outcome for shareholders. And we have a very clear More Argos, more often plan. You can see in the half, we grew sales, we improved profitability year-on-year. We grew market share in Argos. And I think this is beginning to show the first encouraging signs of the work the team are doing to really focus on what we need to do in Argos. And that's about making sure for customers, we deliver exactly the range and assortment that customers want to be able to access through Argos. We know customers love Argos. They love the convenience it brings. So we're extending our ranges, as you've seen in the presentation this morning, making sure we're absolutely on our A game at Argos on value, and also improving the digital experience. You saw in the presentation the big step-up in online search that we're able to now achieve. And so all of our focus is on delivering More Argos, more often. Of course, the market out there is highly competitive. We've got to make sure that we really deliver that plan well. And as part of that, you remember, we put a dedicated leadership team in place earlier this year, totally focused on the Argos business. And that's beginning to drive some of the improvements that we're seeing as the team really gets around the things that we need to do. And so clearly, a period of time through the summer. I'd make the point that while these discussions were going on, I think one of the things that we can draw from today's results is we weren't distracted at all by that. The team were very focused on delivering the plan and a smaller team, a much smaller team working on these conversations whilst they continued. They stopped early September and now we're completely focused on what we need to do. Blathnaid? Blathnaid Bergin: Great. So Sreedhar look segmental reporting is very much on our minds at the moment and a live discussion in the business today, particularly as we exit Financial Services, so we'll update you on that in the prelims at the moment, but something we are looking at. And on the buyback, look, we are really pleased today to be able to announce the addition of the incremental bank proceeds taking our buyback this year to GBP 250 million. That's core of GBP 200 million and GBP 50 million of additional coming from the bank proceeds. We've committed an additional GBP 100 million from the bank proceeds next year. And if you look at our capital allocation policy, we have committed to at least GBP 500 million retail free cash flow. If you assume GBP 300 million goes back in dividend we don't have a better use for shareholders' money, we'll return that to shareholders. So I think that's a reasonable working assumption for your model for next year. Simon Roberts: Thanks, Blathnaid. Maybe just one last point to your question as we wrap all that together. Look, I think the other important point to make is we learned a lot to the process that we went through in the summer. We learned how we can make Argos even better. We also learned that Argos is separable. It's not something that's wholly straightforward immediately, but it's something that we identified a read through. So we learned a lot through this process, which is also very helpful to us, too. Sreedhar Mahamkali: Maybe just a very short follow-up. Just on that slide where you present the Argos and Grocery, Sainsbury's EBIT. You show Argos as preconcessional rents. Is that the way you look at it in the business? Or is there further granularity that we probably could expect in time? Blathnaid Bergin: It is the way we look at it in the business today because it was one of the synergies we took when we acquired Argos. That's one of the discussions that's on our mind as we head into sort of prelims on that, and we'll give more visibility as we complete those discussions. Operator: Our next question is from Lizzie Moore from Citi. Elizabeth Moore: So firstly, I was just wondering around Nectar360 Pollen. Obviously, it's quite early, but really interested to hear any more detail around the early momentum you've seen there. And then related to that, you mentioned you're tracking ahead of your target for GBP 100 million of incremental Retail Media EBIT by March '27. Just wondering if you could give us a sense of how much we might expect you to be able to exceed that target by. And then second question -- sorry. Simon Roberts: No, it's okay. Next question, yes. Elizabeth Moore: Yes. Just ahead of the budget. I was wondering if you could give us some color around the latest discussions you've had on potential increases to business rates on properties over GBP 500,000. And if you could just share how you're thinking about the potential headwind from that in fiscal '27. Simon Roberts: Okay. Got it. Thanks, Lizzie. All right. So let's start with Nectar -- well Nectar and Nectar360 to your question that we're very energized and encouraged with the progress we're making across Nectar actually as a platform to really deliver for customers and really create value in our business. And look, I said in the presentation, I think as we think about the strategic capabilities that are necessary to really win in this industry, having a leading loyalty program, having personalized value and having the retail media platform that we're building out are absolutely essential. And you can see more and more now how that strategic capability is making such a difference for what we can deliver for customers, but also what we can deliver clearly for shareholders and in value terms, too. Nectar360 Pollen, clearly something we built earlier this year. We're actually going live right now. We had our first series of client conversations this week. The feedback is exceptional. Because clearly, what we're doing here is building a capability that's dynamic, is agile and gives clients and brand partners and suppliers the ability to build their campaigns using the platform, getting live quickly in a very dynamic way in what is a first-to-market solution. So obviously, over the coming months, that will scale out. It's going to really revolutionize how brands and agencies can work with us. And we think it's going to create both a lot of connectivity and a lot of value as we do that. In terms of your question on our ambitions financially for Nectar, look, we're really encouraged with progress here. You heard in the presentation today how both sides of Nectar are really powering the business forward. We'll talk some more about this at the year-end. Clearly, we see the launch of Pollen is very important in the progress we're making, and we continue to build momentum on Nectar ahead of what we expected. So really, really good news. Yes. I think turning to more nearer-term questions in terms of the budget. Look, I think as you'd expect, we have had, as an industry, actually, a series of discussions at the most senior level of government on the topic of business rates. We've been given the opportunity to present our case really clearly as to why there shouldn't be any further impacts on retail cost through business rates. Everyone on this call is very well aware of the scale of costs that have come to the industry this year on National Insurance, EPR and hence, the reason why we've made our case very clearly, particularly important, as you say, for large retail stores, not least given the importance of the role those stores play, but also a huge number of people that we employ as large retailers. And so clearly, we need to hope and expect our politicians now to make the decisions based on the very strong case we've made, and we'll see that at the end of the month. And I guess the broader point here, no one wants to see inflation go up further. We're doing a lot through our internal efficiency and cost saving programs to contain the effects of inflation. As I said, we actually inflated a bit behind the market in the first half. That was to make sure we were almost competitive. We clearly don't want to see any impact on business rates adding further cost to the system. Operator: Our next question is from Rob Joyce from BNP Paribas. Robert Joyce: So firstly, just on the Sainsbury's core business. I guess we look at last year, second half, you kind of grew profits there, double the rate you did in the first half. So 2 questions, I guess. First one, do we think we can grow profits in the second half of this year to come? Or should we expect it to be down again? And then looking into next year, in a more normalized cost environment, do you think the business should be back to kind of that mid- to high single-digit sort of growth or EBIT growth next year? And the second one, just on Argos. I think this year -- this time last year, you gave us a bit of an update on how you're trading in the first 6 weeks of the quarter or so. Wonder if you could give us an update on how Argos is trading thus far in the quarter? And are we expecting it to be sort of in growth over the next couple of periods? Or do you think we're sort of back to a more normalized sort of flat to down Argos position? Simon Roberts: Thanks, Rob. Well, let's talk first to your question on the half and how we think about the second half of the year. Look, I think first point I would make here is -- and forgive me repeating this, we set out our plan for this year very clearly with that priority of sustaining the strength of our competitive position. And as you can see in today's results, we made very focused and effective investments in our value proposition in that first half. And you can see how that's played through, both in improving our value perceptions year-on-year, the only grocer to have done that, but also the fact we've continued to grow our volume. And I'd make the point against some strong comps last year. So the strength of the Grocery performance in the first half really underscored by the strength of our competitive position. And as you've heard me say a number of times, making balanced choices, making sure we have the capacity to do what we need to do has been a very important part of our plan over a number of years. We set that out way back in 2020, 2021, and that continues to be very important for us. And so when we think about the first half, obviously, we invested a bit more in areas like Aldi Price Match. We invested more in areas like marketing. I talked about that in the presentation this morning. And we also had clearly the benefit of some very good weather in the first half, which was clearly helpful to both the Grocery business, but also the Argos business, too. So there are a number of tailwinds that came alongside how we thought the first half would go. And that's why we've performed a bit better than we expected in the first half. When we look to the second half, to your question, look, in the Grocery business, and you can see this in the recent market reads, our momentum continues. And we continue to deliver strong volume share growth against strong comps last year. We're carrying that momentum into the second half. But look, despite the fact it's the first week in November, and there are 7 very critical weeks to come. And until the end of the year, we want to make sure we just retain the capacity in our guidance to continue to make those balanced choices given the significance of the part of the year to come, and that's what we're doing today. We're going to sustain the strength of our competitive position, as I said at the start of the year, and we'll continue to make those balanced choices. And look, I'd say just to double underlying that, those balanced choices have always served us well and have served the outcome we've been able to achieve well. In terms of how we then think about Argos, look, probably not a lot to add to what I've said other than obviously to say the customer is going to be more cautious here given all of the uncertainty that's out there. And so as part of those balanced choices, we want to make sure we've got the capacity for probably a bit more of a cautious customer in GM, certainly until things are clear on the other side of the budget, likely to be a very competitive sector, I think, through the last few weeks of Christmas this year for all the obvious reasons. And as you say, we've got a very strong plan in Argos, but competition will be intensified. Customers will shop later. Customers will hold back a bit on spending for all the reasons that are out there. And those are the things that we've obviously factored into making sure we've got the capacity to make the choices we need to over the second half. Operator: Our next question is from Fran ois Digard from Kepler Cheuvreux. François Digard: Three questions, if I may. What were your expectations going into H1? Because you mentioned you exceeded your expectations, but could you quantify that excess -- what were you prepared to see your H1 underlying profit decline by how much? Second question is Argos' performance benefited partly from favorable weather. You have mentioned in the past wanting to make the business less volatile. How far along are you in that process? And what level of volatility should we expect going forward as normal? And third, on Retail Media, I understand you will share more details in final results. But could you help us to see how the market is evolving? You mentioned growth, but what is your share of it? Or at least what is the food retailers share versus players like Amazon right now? Simon Roberts: Fran ois, thank you. So why don't I pick up the questions on Argos and where we're getting to there and also Retail Media and maybe just to your question on our kind of expectations and how they played through in H1. Blathnaid, do you want to pick that up? Blathnaid Bergin: Yes. So look, we entered H1 cautiously. If you remember the backdrop as we entered H1, there was a few things that went on there. We exceeded our expectations largely because we had some really good weather and we known good weather because we're South-based. In food, we tend to outperform and take more market share and the same in Argos as well with those seasonal products. So if you think about the good weather, we got good sell-through in Argos, and we got an uplift in the food as well. So that's why we exceeded expectations in H1. Simon Roberts: Thanks, Blathnaid. And then just to the question on what is More Argos, more often all about, Fran ois, in terms of us building a really clear plan out in Argos such that we can deliver for customers, really inspiring choice that gives them confidence to make Argos their first choice, a digital experience that's friction-free and really easy to access and then trusted value given the obvious competition in the market. And so we are in the early phases of delivering that plan. I think what we saw in the first half was an encouraging performance given we grew share. Clearly, the weather helped us grow sales year-on-year. We know that Argos benefits seasonally when the weather is good. Last year, we had a particularly difficult year because the summer was so poor. That led us to a lot of clearance in the second quarter last year. And so the reason the sales were softer in Q2 compared to Q1 was we anniversaried that very significant clearance activity last year. And so in the second quarter, actually, sales were a bit up, but less than the first quarter, but actually profitability improved in the second quarter as we anniversaried what was a high level of clearance last year. And so when we look at what we're doing in the Argos business, we've said before, our priority here isn't a short-term profit outcome. It's to build the base of the Argos business in customer traffic, in loyalty, in value, in assortment, in the digital experience. And then, of course, in the efficiency programs we're delivering to make sure over time, we can improve the level of outcome that we can achieve. And as we come into the second half and also to Rob's earlier question, we've got stronger momentum in Argos, but it's a cautious customer and a cautious market out there. And so we're going to need to be a really strong position coming into this Christmas and really competitive, which we'll make sure we're able to do. Look, on Retail Media, I made the point just before to Lizzie's question, this is an essential capability to win in this industry. And our team across Nectar360 and Nectar more broadly are really leading out here in terms of the capabilities we've been investing in. We've really put a big focus on this key part of our business over the recent number of years. As we built out our Next Level strategy, we were very clear that Loyalty everyone loves was a core part of how we're going to power both our customer delivery, but also our value creation narrative. And we're clearly on track to deliver the GBP 100 million additional that we committed to over the life of this plan. And we are also very focused on making sure in Retail Media as we launched Nectar Pollen and the other work that we're doing that we continue to take a leading position here. I just would make the point that the launch of personalized Nectar value is so important in this because obviously, it's bringing more customers into our Nectar ecosystem. Thanks, Fran ois. Operator: Our next question is from William Woods from Bernstein. William Woods: In terms of -- you've shown some quite good data on your value and quality perception, growing or improving ahead of the market and Tesco with your volume market share gains have been softer than Tesco maybe even slightly in the last few months. Do you think there's a disconnect there between the value and quality perception improvements versus the market share gains? The second one is on Argos. Just trying to understand the underlying Argos performance here. How much do you think things like Switch and the iPhone contributed to growth in H1. And then the final one is just on your gold, silver, bronze store strategy. How are you seeing your gold stores preform? Are there any learnings or kind of further adaptations you're taking there? Simon Roberts: Thanks, William. We just about heard your question. The line wasn't great. But I think just where are we on value and the balance of the value market share gains and quality, the underlying Argos performance and then how we think about our store space program. So I'll take each of those in turn. Look, on the first one, we're really encouraged actually by our volume market share gains, as I said, year-over-year. And the reason I talk volume market share gains, we've always said from the start that we're focused on volume because that's clearly a very clear measure of customers choosing to trust Sainsbury's to put more items in their basket, and that's why we measure ourselves against volume market share. In the presentation today, you can see actually the growing evidence that customers are both trading down in the basket but also trading up in the basket. 65% of customers in the half both bought in the same basket Aldi Price Match line and a Taste the Difference line. And I think that's a very important example now of the fact that we're getting trusted at the entry price point, and we're getting trusted on the trade-up. 1 in 3 baskets can train Taste the Difference, 65% of baskets customers are buying in Aldi Price Match line and Taste the Difference line. And we set out a very clear plan, didn't we this year to make sure that we sustained our competitive position. We inflated a bit behind the market, and that's really played through. And the other final point I'd make to your question is that our value investment has been very anchored in the products that people buy most often. You remember going way back to the beginning, we talked about the importance of the center of the plate. If I look at a category level where we've seen the strongest performance, the key big fresh food categories are the ones we're winning against the market most, and that's because customers are trusting that center of the plate and then doing the rest of the shop and filling their full basket across the whole supermarket. In terms of the question on underlying Argos performance, look, as I've said, the weather definitely helped us in Argos. We saw the strength of seasonal products come through, particularly actually in the first quarter where the year-on-year comps of the weather were clearly much stronger. And so when the sun shone, Argos really came into its own. Look, I'd be really clear to say, look, we planned for a good summer, but we clearly sold a lot of our seasonal products in the first quarter. And look, I'm pleased we did that, right, because what we didn't have was any stock overhang going into the second part of the year. We did a very effective plan to max out the summer when it came. We sold through well, and that meant we could get ourselves on a really stable and good footing coming into Q3. Yes, of course, the Switch is an important part. Technology is an important part of the Argos overall performance, but seasonal really came through in the first quarter, and we really planned for that. And then on your question on our space, 2 key components to this. So you remember, we laid out a plan More for More, which is bringing more of Sainsbury's range to more customers in more locations. You remember, too, we've always said there are key target locations in the U.K. We'd like to have a Sainsbury's store, and we haven't got one today. That's why when the Homebase opportunity came to us, we really looked at that, and we're well on now with getting the Homebase conversions open. We've opened the first of those, trading ahead of expectations and really working actually. What are we seeing? We're seeing trading up, and we're seeing the ability to fit out those stores at a lower cost than we expected. Our property team are doing a brilliant job actually on the ground, making sure we get the Sainsbury's offer landed really well in some of these sites and customers are responding really well. And on the other side of our More for More program, this was about taking space from GM into food. And in this year, we'll land just over 50 schemes Obviously, we're constantly solving to make sure we get the best trading intensity outcome, improvement in volume, improvement in customer satisfaction and obviously, a good return on the capital that we're investing in these schemes. And you can see a lot of the stores out there now. What we can particularly see, as you saw in the presentation, is the areas of the shop we've really focused on Food to Go, our center aisles on Nectar, beers, wines and spirits, free from. These are the areas where we're really making sure that those elements of the store, we're getting the best returns, we're rolling them out as fast as we can. Operator: Our next question is from Benjamin Yokyong-Zoega from Deutsche Bank. Benjamin Yokyong-Zoega: Congratulations on the results. I just had a couple, one on Grocery and one on Argos. On the Grocery, I mean, it's great to see the volume outperformance and the inflation behind the market. Just wondering what impact, if any, you've seen from recent price cuts from competitors? And is it your intention to broadly maintain your value position over the rest of the year? And then on Argos, you've outlined the cautious near-term outlook for discretionary. But I just wanted to check how inventory levels are compared to last year? And if there's any color you could give on the deflationary market backdrop you mentioned and if this is more pronounced in certain categories? Simon Roberts: Benjamin, thank you. Well, why don't I pick up kind of the key grocery themes you've had. I know Blathnaid will want to comment on where we are in our stock position in Argos, and we can add to it from there. Look, I think at the risk of repeating myself, so forgive me for this, Benjamin, I think look, we set out a really clear plan to make sure this year we sustain the strength of our value position. I think we were clear in April to say there was a lot of noise in the market, and it was important, therefore, that the clarity of the Sainsbury's value quality and service message really cut through in that context, and that's exactly what we've done in the half. As you can see, we inflated a bit behind the market. You can see, as you indicated, our volume share improved year-on-year-on-year despite some strong comps. And that's because we invested a bit more, but in a very focused and effective way. We increased the Aldi Price Match on to more everyday essentials. We increased the number of products in the Nectar Prices range. And as I said in the update as well, we also did some more marketing this summer. And we, for the first time, ran a very bold marketing campaign on Aldi Price Match right alongside our focus on everyday trade-ups on Taste the Difference. And so we invested some more in marketing as well as sustaining the strength of our value position. And net-net, when we look at where that's brought us to over the half, we're really pleased with what that's meant because, as I said, we've seen value perceptions in Sainsbury's customers improve year-on-year, and we've been the only one in the market to do that. And we're going to carry that momentum into the second half, right, because it's absolutely a core part of our formula. And we've shown that by growing our volume, volume over fixed cost is what we said over the life of our plan. And when we look out over the 3 years of Next Level, we're very focused on growing volume market share and making sure that we can drive the right financial returns as we do that over time. Argos, Blathnaid. Blathnaid Bergin: Right. So what we're seeing in the Argos market is it's largely electricals and furniture that are a little bit deflationary. But just to sort of talk about working capital, we have a real discipline in the business around cash and around working capital. Last year, we ran a pretty big working capital program in Argos. We reduced inventory by just over GBP 90 million while improving availability. So it's really important to get the right balance on that, and we exited the year-end clean on inventory as well. As we came out the back end of this summer, you've seen in the numbers, we had a good sell-through on seasonals. And again, we exited the period clean. So inventory is reducing ever so slightly this year in Argos as we wrap up the end of that inventory working capital program, and we'll continue that discipline to make sure we're delivering our cash targets for the business. So pretty pleased with the position, particularly as the availability is improving. Simon Roberts: Thanks, Benjamin. Operator: Our next question is from Manjari Dhar from RBC Capital. Manjari Dhar: My first question is just on marketing spend. I know you mentioned that you've done a little bit more this summer. I was just wondering how you're thinking about your spend running into Christmas? And are you deploying that marketing spend any differently this year? And then my second question is just on Argos. I wondered if you could give us some more color on the economics of the Argos Plus trial. How does this work? And I guess, what do you need to see from this trial to pass that as a success? And then finally, I just had a question on the cost savings for this year. I just wondered if you could give us some color on sort of how that phases between H1, H2. How much have you seen so far? And how much should we expect still to come? Simon Roberts: Thanks, Manjari. Okay. Let's take those in turn, and if I take the first 2 and then Blathnaid can speak to where we are on our cost plans, both this year and as we look ahead. So look, I think right back to the start of the conversation, sustaining the strength of our competitive position was our clear priority this year. That's why balanced choices play such an important part. You can see, Manjari, to your question how that's played out in the first half. We invested more, as I've said, in Aldi Price Match. We extended Nectar Prices. That really converted with customers such that the value perception improved year-on-year as we've talked. Yes, and it was an important shift actually for us to run value and trade-up side by side through the summer. That was a very specific choice we made actually to test what we could see in terms of the returns on those campaigns. And we were really pleased with them actually. As I said in the upfront presentation, we saw the highest return in terms of brand consideration for Sainsbury's on the Taste the Difference campaign that we've seen in over a decade. And so that's given us real confidence in how our marketing is coming through, both digitally and in all above-the-line channels. Our marketing team have done actually a fantastic job over the last number of years, resetting how we think about Sainsbury's and more recently, Argos marketing, and we can see that cut through with customers. And look, when I talk about retaining the capacity for the second half, you've seen us go live with our Christmas campaign last weekend with the return of BFG. And as you would imagine, we have a very focused and very intentionally focused on value and quality as we come into this Christmas to make sure that our resonance with customers is where it needs to be. On Argos -- on the Argos Plus trial, look, I'd make the point, this is a trial. We're just testing how customers think about this, whether by paying an annual fee and getting delivery for free is something that customers would respond to. We're in the early phases of testing that. And obviously, we'll update you when we know some more. It really speaks to making sure that convenience at Argos is a standout reason that customers would choose to shop with us. And so obviously, we're doing lots of things in the More Argos, more often plan to make sure we're getting the proposition right. But importantly, we can deliver that proposition at the right cost and the right efficiency. So that will work through and we'll update in due course. Blathnaid Bergin: Great. Maybe then on cost savings, look, we're really pleased with the progress we're making against the GBP 1 billion target over the 3 years. We delivered GBP 349 million last year. We estimate it will be broadly split 1/3, 1/3, 1/3. And if you think about this year, you think about the phasing pretty flat across the 2 halves is the way to model it. So about half of it delivered and about half of it to come in the second half of the year. Simon Roberts: Yes. And just to reiterate, clearly, the GBP 1 billion cost saving target over the 3 years, which we remain on track for with a strong pipeline into next year as the maturity of this program continues to build out. Thanks, Manjari. Operator: Our next question is from James Anstead from Barclays. James Anstead: Two questions on Argos, if that's okay, please. You mentioned that you learned Argos is separable, which is an interesting lesson. But I guess that also during those discussions, you must have had a lot of time to think about some of the complexities in the relationship between Argos and Sainsbury that makes it harder to separate. So my question is when you think about the structure of Argos going forward and how it fits together with the core Sainsbury business, will you be deliberately chipping away at some of those relationship complexities, if you understand the question? And a much quicker second one, which is it looks like the Argos losses narrowed significantly in the first half. Is it fair to assume it would have been profitable without the EPR charge that was registered in 1H? Simon Roberts: Thanks, James. Okay. Why don't I speak to what we learned on your question separability and then Blathnaid can come back on the question of the first half and how the profit shaped up. Yes, without repeating myself, for obvious reasons, we really stared through this process of what it would take to separate Argos out to the fullest extent. I would make the point that back in February '24, when we laid out our Next Level plan, we were really clear at the time that we saw Argos and Sainsbury's in terms of what it needs to deliver for customers and the operating model of both businesses as being quite separate. And we made that statement clearly then. And that's one of the reasons why in our strategy, we were very clear about first choice of food and More Argos, more often as being 2 distinct elements of our Next Level plan. And as you've seen actually over the last period of time, one of the things the team and I have been really focused on is how do we make sure we set up Argos with what it needs and how similarly, do we make sure that the focus in the Grocery business and in Sainsbury's is what's needed there. And I think what we can see in these results is that approach continuing to build through and build momentum. And so in Argos, we have a dedicated management team now. Graham is the MD of the Argos business. That team is completely focused on making sure we land and deliver and drive through More Argos, more often plan. Obviously, there are elements of how we're organized where we still share resources across the group. Obviously, areas like how our technology operates. If we were to fully separate that, we would need to understand what's required there. And that's one of the things we've looked at quite closely. So we definitely learned what it would take to separate these 2 businesses. We've made progress in organizing ourselves to make sure that Argos has what it needs and Sainsbury's has what it needs. And so clearly, that's one of the things that we continue to drive through as we execute the strategy that we laid out. Blathnaid? Blathnaid Bergin: Very short answer, James, yes, it would have been breakeven if we hadn't had the charge. Simon Roberts: Thank you. Thanks, James. Operator: Our next question is from Clive Black from Shore Capital. Clive Black: Some short ones from me. You've mentioned the cost headwinds from the government policy in this current year. Could you just -- you might have done this before, so apologies, but could you just quantify what the EPR, NIC and National Living Wage elevated cost base was or is for FY '26, given you achieved flat profits in the first half? Simon Roberts: Sure. So thanks, Clive. Well, let me just recap on the key parts of this. So clearly, on NIC, that was GBP 140 million of cost for us. And we made that very clear at the time when we talked about the impact of National Insurance. We then did, obviously, our pay increase in January of this year. Now we've had a policy of living the market on colleague pay over a number of years now. And so our annual pay award was ahead of the National Living Wage. But clearly, that's an inflationary cost that we plan for through our Save and invest to win program. So I wouldn't classify our pay award for colleagues as something that we didn't plan for. We had that planned. And then on EPR, it's GBP 53 million to your question. So GBP 140 million on National Insurance and GBP 53 million on Extended Producer Responsibility. Clive Black: And I just wanted to look into next year. I'm not seeking any form of guidance, but just in terms of moving parts. Firstly, in the expectation that inflation -- food inflation will probably ease, although remain in the system. First, would you expect volumes to positively respond to that inflationary easing? And secondly, I just wonder how you feel about the balance of mix in terms of what are the drivers to either trade up or trade down going forward, given you have spoken about a strong value quotient, but equally your traditional traits around quality and innovation really coming through. Simon Roberts: Yes. Thanks, Clive. Look, I think as you say, look, clearly, we'll talk into next year at the end of this year. But I think, look, I mean, most importantly, in the latest read, good to see inflation stop going up. And look, I think there's clearly going to be ongoing cost pressure in the system. I think the fact that the industry is largely either solved or continues to solve for the inflation there. I'd make the point, there's still inflation to get through the pipe. The industry continues to behave, I think, broadly rationally. Cost pressures clearly exist across the board and everyone is working to retain their own competitive position and pass through inflation. I expect that to continue. We know, to your question on the link to volume. We know don't we were the kind of trigger point is for an impact in volume to start to become more pronounced. You've seen in our own performance, the fact we've been able to grow volume on volume, on volume share. So I think we've got that balance exactly right for us and for Sainsbury's customers actually, but it's something we pay a lot of attention to because our plan is based on winning and growing volume market share. And so the balance of our value position, how we pass through inflation in a way that makes sure our value position is strong is one of the things that is the sort of first priority of how we think about these things. And then look, I think we've learned a lot since 2020 about the power of the Sainsbury's grocery proposition when all the components of it really come together. And we knew back then that our reputation for quality was indisputable, but customers weren't really seeing it all because we were too expensive. And so 5 years later, we're now seeing value perceptions improve year-on-year again at Sainsbury's, a combination of all the things that we've done. And that's meaning that the strength of our quality, and I'd go further and say the strength of our assortment more broadly is becoming even stronger in terms of customers' consideration of where they shop. And that's what we're seeing these big trolley shops continue to grow with 1 million more customers shopping with us. And so when we look ahead, we feel very confident about the grocery proposition that we've been building as a team. We still think there's plenty in front of us to do. But our own brand assortment, the strength of Taste the Difference, what we've done in the entry price point, the fact now that 65% of customers in the first half, both traded down and traded up in the same basket, all this points to the importance of making sure we make these balanced choices to maintain the value position because when our value is as strong as it is, customers see so much more in Sainsbury's that they didn't see before. And so linking the 2 questions together, we're confident we'll continue to grow volume market share as we continue to strengthen and improve the combination of value, quality, service and availability, too, which has also really stepped up. Clive Black: And then just look, a quick last question for me. You've got a very strong balance sheet. I mean your fixed charge cover went up in the half. I noted once you distribute the Financial Services dividends and buyback, you're still going to be barely geared. I just wonder how you characterize your balance sheet from a capital discipline perspective. What ratios do you want to work to on an ongoing basis? Blathnaid Bergin: Good question, Clive. Look, we like to -- if you look at the capital allocation policy, we like to operate within 2.4 to 3x net debt-to-EBITDA. We'll continue to target to be in the middle of that range. As we travel over the next few years, we have great capability to invest in our business. If any opportunities come along, we'll be in a position to take advantage of those, but we'll continue to operate within that range of the capital allocation policy, and we'll make choices to keep us in that range. Operator: Our final question is from Sreedhar Mahamkali from UBS. Simon Roberts: Sreedhar, round 2. Sreedhar Mahamkali: I'm so sorry, I almost never do this, but I thought somebody would pick this up, but I think it's helpful to understand there. This is really about the VI, I think the slide -- there was a really interesting Slide 27, there it is. I just wanted to better understand this, please, and where you show 90 basis points improvement versus Asda in the first half. Please explain how you actually measure this, how narrow or broad-based this is? And then really kind of taking a big step back, what is the right price position for you on the Grocery side? Is it protecting where you've got to after 4 or 5 years of investing? Or do you proactively need to improve it further steadily each period? Simon Roberts: Sreedhar, thank you. So look, this is -- I mean, first of all, this is value reality. This is actual value measured at the beginning of the financial year in March versus where we are at the end of the half. And clearly, what this reflects is our actual value position when you take into -- include our Aldi Price Match and our Nectar Prices. What it doesn't include, which is an important distinction to make to your question, it doesn't include the added value of your Nectar Prices because obviously, they're unique to every customer that accesses them. And so when you think about this slide, this is on the value that's available to everybody and then personalized value comes on top of it. The key point clearly is that we set ourselves a very clear priority this year to sustain our competitive position. That meant we inflated a little bit behind the market this year. I've made the point before, our value investment goes into the products people buy most often and that's how our value perceptions have improved. That's at the core of building baskets and trolleys out. That's at the core of customers saving GBP 14 on an GBP 80 weekly shop, and that's before Your Nectar Prices, which is additive to that. You're on mute, Sreedhar. Blathnaid Bergin: You're still on mute. Sreedhar Mahamkali: You can hear me now? Simon Roberts: Yes. Sreedhar Mahamkali: Yes, sorry, I just wanted to understand how many SKUs, like how much of the basket is covered in this index? Or is it narrow? Simon Roberts: It's a very wide SKU count included in this. I mean this is the broadest context of the shop. Okay. Just to check any final questions. Operator: That was our final question. Simon Roberts: There is one final question, yes? Operator: No. That was our final question. I will hand it back to you for the final remarks. Simon Roberts: Okay. Great. Sreedhar round 2 was our last question. Okay. Well, thanks, everyone, for joining us this morning. I know it's a busy week. As you can see, we're really encouraged and pleased with our H1 performance, but importantly, the momentum in the business into this really important second half of the year. Plenty to navigate over the second half. But as you can see, we continue to make the right balanced choices, and we do that as we go into this Christmas with really strong plans both in Argos and in Sainsbury's. So plenty for us now as a team to get on and deliver for customers and deliver more broadly, and we look forward to talking with you again in early January. Thanks very much.
Angela Broad: Good morning, and welcome to National Grid's half year results presentation. I'm Angela Broad, Head of Investor Relations, and it's great to have so many of you on the call today. Firstly, please can I draw your attention to the cautionary statement at the front of the pack. As usual, a Q&A will follow the presentation. [Operator Instructions] All of today's materials are available on our website. And of course, for any further queries after the call, please do feel free to reach out to me or one of the IR team. So with that, I'd now like to hand you over to our CEO, John Pettigrew. John? John Pettigrew: Many thanks, Angela. Good morning, everyone, and thank you for joining us today. Well, as you know, this is my last set of results, and I'll be handing over to Zoe who becomes Chief Executive on the 17th of November. So before we get started with the results presentation, let me pass it over to Zoe to say a few words. Zoe Yujnovich: Thank you, John, and good morning, everyone. Today's results are an important moment for National Grid and for me personally, as I pick up the baton from John. I want to take a moment to recognize his remarkable contribution over a decade as CEO. The strong foundation he leaves behind are a testament to his leadership and the dedication of our National Grid team. Since joining as CEO Designate on the 1st of September, I've had the privilege of meeting with many colleagues and stakeholders. What stands out to me is the scale and ambition of what we're delivering, transforming our networks and investing at pace. Our GBP 60 billion capital investment is not just a number. It's a commitment to future-proofing networks so we can meet the surge in demand we're seeing and ensure the millions of homes and businesses we serve have the reliable and clean energy they need at a price they can afford. As I step into my role in the coming days, my immediate focus will be on maintaining momentum, staying focused on performance and delivering safely and responsibly. I will approach this with a clear-eyed view of the challenges and exciting opportunities ahead. I believe in the vital function energy companies play in driving growth and prosperity. I'm committed to ensuring National Grid plays its part with an unrelenting focus on operational excellence and capital discipline as we continue to deliver for our customers and create value for our shareholders. I look forward to meeting all of you in due course, but for now, I'll hand to John and Andy to take you through the results. John Pettigrew: Thank you, Zoe. So turning to our half year results. As ever, I'm here with Andy Agg and once we've been through our respective presentations, we'll be happy to answer your questions. It's been a really positive first half as we've continued to build on our strong foundations to deliver excellent operational and financial performance. . The investments we're making in our networks have never been more important to ensure continued resilience, enable economic growth, deliver cleaner energy and meet growing power demand. And it's these drivers that underpin the strong visibility we have in our investment program, supported by our regulators. This, in turn, gives me huge confidence in National Grid's ability to carry on delivering a compelling investment proposition with investment growth around 10% per annum and underlying earnings per share growth of 6% to 8%, whilst maintaining a strong balance sheet and delivering an inflation-protected dividend. Before I come to our performance, I want to highlight three key areas which reinforce my confidence in our ability to deliver on our plans. Firstly, the strong progress we've made in securing the supply chain to deliver record levels of investment. As you know, a big focus over the last 2 years has been to secure the supply chain for our largest suite of major projects in the U.K., the accelerated strategic transmission investment or ASTI. Today, I'm pleased to say we're in a really strong position. All 6 of our Wave 1 projects are already under construction with work progressing well. Our GBP 9 billion Great Grid Partnership covering the delivery of the 8 onshore projects within Wave 2 is now up and running with our 7 strategic partners. And we're making great progress with the remaining 3 Wave 2 offshore projects where we've completed the contracting for Sea Link and announced the preferred suppliers for Eagle 3 and 4 with contracts expected to be signed in the next few months. Once complete, we'll have secured the supply chain for all 17 ASTI projects, a significant achievement. And as a result, over 3/4 of our GBP 60 billion investment plan is now underpinned by delivery mechanisms enabling us to ramp up our capital delivery. We've invested over GBP 5 billion in the first half, another record for the group, and we remain on track to deploy over GBP 11 billion of capital investment this year, in line with our guidance. The second area to highlight is the continued momentum we're seeing from both a regulatory and policy perspective. On the regulatory front, we've built on the strong foundations we set last year in the U.S. with around 75% of our 5-year investment plan approved within our rate cases. We've also seen some important policy developments. As you know, New York State announced last year that it's likely to miss its target of 70% renewable generation by 2030. As a result, we've seen a shift in the last half towards an all-of-the-above approach when it comes to balancing clean energy goals with affordability and reliability. For example, in September, following submission of our long-term gas plan, the PSC issued an order supporting the proposed Northeast Supply Enhancement or NESE pipeline. If built, the capacity provided by the pipeline would materially enhance reliability and resilience whilst also potentially reducing energy costs for New Yorkers by up to $6 billion. In the U.K., I'll come to regulatory development shortly. But on the policy front, the government is continuing to look at different ways to support faster delivery of infrastructure and accelerate economic growth. Alongside their planning reform legislation targeted at large infrastructure projects which should support delivery of projects in the 2030s, they've also launched consultations, which include proposals to allow electricity distribution network operators to carry out simple reinforcement activities without full planning permission and a revised fast track consenting process. If implemented, this could have important benefits for future transmission projects. So it's clear we're seeing strong regulatory support for the investments we're making as well as the policy progress to assist in the delivery of future projects. And then thirdly, the near-term actions we're taking to support load growth in the U.K. We're working with the government and industry, including U.S. big tech companies, as they seek to develop the U.K.'s AI infrastructure, including the creation of data centers within AI growth zones like the recently announced ones in and Cobalts Park. These projects represent tens of billions of pounds of investment in U.K. infrastructure and are evidence of the demand growth we forecast in our RIIO-T3 business plan. which is designed to connect up to 19 gigawatts of additional demand over the 5 years to March 2031, around half of which is expected to be connecting data centers. We're now working hard to facilitate these connections, including working with the government through the AI Energy Council to support the development of more AI growth zones, so we can deliver the investment needed to meet growing energy requirements. So let me now turn to our financial performance, where we've delivered a strong set of results in the first half. On an underlying basis, that is excluding the impact of timing and exceptional items, operating profit was up 13% to GBP 2.3 billion, reflecting increased regulatory revenues across our U.S. and U.K. electricity transmission businesses. This strong operating performance drove an increase in underlying earnings per share of 6% to 29.8p. As you've already heard, our business delivered a record GBP 5.1 billion of investment, up 12% year-on-year at constant currency. And in line with the policy, the Board has declared an interim dividend of 16.35p per share. Turning next to reliability and safety. I'm pleased to say reliability has remained strong across our U.K. and U.S. networks over the first half of the year. As we look ahead to the winter we're well prepared with winter readiness plans in place. The NESO recently published its winter outlook report for the U.K., in which they forecast electricity margins around 10%, the highest since 2019. In the U.S., whilst we anticipate adequate electricity margins, gas availability across the coldest days of winter remain a focus, especially in extreme weather events, and so our teams will work closely with upstream suppliers to mitigate any risks. And in July, the NESO published its report investigating the outage following the fire at our North Hyde substation and we're working closely with the government, NESO, Ofgem and industry to progress the report's recommendations. Safety, as always, remains a critical focus across our business. In the last 6 months, our lost time injury frequency rate was 0.09, inside our group target. We continue to promote a culture of safety excellence including, for example, identifying new ways to enhance our safety protocols, such as the use of digital job briefs to increase hazard recognition in the field. Moving now to our operating performance across the group, starting with Electricity Distribution. Capital investment increased by 17% and to GBP 756 million, reflecting increased asset replacement and load-related reinforcement activity. I'm pleased to say that we've now delivered over GBP 100 million of synergy savings, 6 months ahead of target following the U.K. electricity distribution acquisition in 2021. These synergies have been achieved through smarter procurement, operational efficiencies across our shared sites and integration of support functions in the group. In October, we also saw the publication of Ofgem's sector-specific methodology consultation for RIIO-ED3, which builds on the foundations of the T3 framework. We welcome the fact that Ofgem has directed networks to use a long-term planning horizon. This will ensure that delivery of the next price control also takes into account investment drivers in the decades ahead. including load growth, asset health, resilience and renewable generation. We've also made good progress on connections reform, including preparing flexible offers to customers that are likely to secure a cue position. This allows them to progress their projects ahead of a formal offer, enabling faster connections for renewables and low-carbon technologies. And finally, we continue to build our system -- our distribution system operator capabilities with the launch of the demand turner flexibility market, incentivizing increased demand as an alternative to curtailing generation. Moving to U.K. Electricity Transmission, where capital investment increased by 31% to GBP 1.7 billion, including construction of new substations to support load growth and progress on our GBP 1 billion London Power Tunnels project where we've now energized the first 2.5 kilometers during substation and. We've also been working hard to find innovative ways to expand system capacity. For example, we began work on a new substation in Uxbridge Moor, West London, with an innovative design, which will have a 70% smaller footprint and avoids the use of SF6, a potent greenhouse gas. This substation will support over a dozen new data centers and is expected to deliver 1.8 gigawatts of new capacity equivalent to powering a mid-sized city. We've also leveraged the approach to procurement frameworks using our strategic infrastructure business, including, for example, in July, when we signed an GBP 8 billion electricity transmission partnership with 7 regional partners to deliver substation infrastructure across the U.K. transmission network. Turning to policy. We're working closely with NESO and customers to support connections reform. Once NESO publishes this updated queue, we'll have a clear view of the sequencing of the specific projects required, and we can then turn our efforts to meeting these connection dates at pace. On regulation, Ofgem published its draft determination for the RIIO-T3 framework in early July, with our response published in late August. This included changes we believe are needed to the baseline return and the incentive framework to allow high-performing networks to achieve a globally competitive overall return. We've also proposed a number of refinements to streamline our funding mechanisms, enable us to recover the efficient cost of our investments and progress projects at a pace expected by our stakeholders. As you'd expect, we've engaged heavily with Ofgem at all levels of the organization ahead of the final determination, which is expected in early December. And we expect to take a decision in late February or early March following the license drafting process. Turning now to strategic infrastructure. As you've heard, our focus has been to ramp up delivery of the Wave 1 ASTI projects, whilst also ensuring we're securing the supply chain and relevant consents for Wave 2. specifically on our Wave 1 projects, examples of our progress include our offshore Eagle 1 and 2 projects where the cable manufacturing and site works for the southern converter stations are underway, our onshore Yorkshire Green upgrade project where the last of 8 200-ton transformers has now been delivered and the North London Reinforcement project where we finished reconducting 3 circuits, installing over 190 kilometers of cables. We've also completed 4 public consultations this year, including the submission of 2 major development consent order applications, Sea Link and Norwich to Tilbury, with both submissions now accepted by the planning inspectorate, a major milestone. On the regulatory front, we continue to engage with Ofgem to find a resolution to our request for a delay event on the Eagle 1 project and are encouraged by the discussions to date. We expect these negotiations to reach a final decision over the next few months. Coming to the U.S. and starting with New York, where we've continued to make strong progress across our operations. Capital investment reached GBP 1.6 billion, up 5%, driven by an increase in mains replacement expenditure. In addition, we've continued to make strong progress on our $4 billion upstate upgrade, including our Smart Path Connect transmission project, where our segment is on track to be ready to energize at the end of the year and our Climate Leadership and Community Protection Act, or CLCPA Phase 1 and 2 projects, where we expect the first round of permit approvals for the end of the calendar year. On the regulatory and policy front, in addition to the order from the PSC on the NESE pipeline and the approval of the Niagara Mohawk joint proposal, we're also engaging on the draft New York State Energy Plan. Released earlier this year, the plan outlines long-term strategies to meet New York's energy needs. It emphasizes the importance of infrastructure investment and recognizes the enduring role of the gas network in maintaining reliability, affordability and security of supply. Once finalized later this year, the plan will influence future regulatory decisions and utility planning across the state. In New England, capital investment increased by 23% to GBP 1 billion, reflecting increased spend on asset condition and system capacity in both electricity transmission and distribution, 220,000 smart meter installations and the further rollout of our fault location isolation and service restoration program. We've also agreed partners for our strategic procurement framework which will support over $3 billion of contracts over the next 5 years. And finally, on regulation and policy, we've agreed around $600 million of allowances under the Electric Sector Modernization Plan largely focused on electric vehicle highway charging and IT infrastructure, and we're continuing to work with the governor's office to advance the Energy Affordability Bill. Moving to National Grid Ventures. Capital investment was GBP 69 million, supporting asset refurbishment across our Interconnector and U.S. Generation portfolios. Operationally, we've had a strong 6 months with our Interconnector fleet at 90% availability and our Generation fleet achieving 96% reliability. We've also progressed the Propel transmission project through our Transco joint venture, where EPC contracts are now under development. Once complete, the project will help to deliver power from Long Island to the Bronx in New York City and Westchester County. We've also streamlined our portfolio, having completed the sale of National Renewables in May and announced the sale of Grain LNG in August. With all regulatory approvals received, we expect completion in the coming weeks. So let me stop there and hand over to Andy to walk you through the numbers before I come back to talk about our priorities for the second half. Andy? Andrew Agg: Thank you, John, and good morning, everyone. I'd like to highlight that, as usual, we're presenting our underlying results excluding timing, U.K. deferred tax and exceptional items and the dual results are provided at constant exchange rates unless specified. So starting with our overall performance in the first half. We've delivered strong results with underlying operating profit on a continuing basis at GBP 2.3 billion, a 13% increase from the prior year, primarily driven by higher regulated revenues in U.K. electricity transmission reflecting growth in the asset base and higher revenues in our U.S. regulated businesses following recent rate cases, partially offset by the sale of the electricity system operator last year. Strong operating profit growth partially offset by higher finance costs and a full impact in the half from the rights issue shares has led to a 6% increase in earnings per share to 29.8p. We've continued to make good progress with our capital program. with investment from continuing operations at GBP 5.1 billion, another record level, and up 12% year-over-year. In line with our policy, the Board has declared an interim dividend of 16.35p per share, representing 35% of last year's full year dividend. Moving now to our business segments, starting with U.K. Electricity Distribution. Underlying operating profit was GBP 551 million, down GBP 22 million versus the prior year. reflecting lower revenues due to headwinds from Ofgem's real price effects mechanism, which more than offset the benefit of revenue indexation and recovery of higher totex allowances and higher depreciation. In the period, we exceeded our cumulative 3-year target of GBP 100 million of synergy benefits by FY '26, 6 months ahead of schedule through leveraging our increased buying power, delivering savings from integrating support functions and working more efficiently at joint transmission and distribution sites across the U.K. Capital investment was GBP 756 million for the half year. an increase of GBP 109 million compared to the prior period, primarily driven by higher asset replacement and refurbishment and higher load-related network reinforcement. In our U.K. Electricity Transmission business, underlying operating profit was GBP 846 million, up GBP 122 million compared with the prior period. A strong first half performance was driven by higher allowed revenues partially offset by higher depreciation. Capital investment was GBP 1.7 billion, 31% higher than the prior period. This reflects our ongoing spend on substation build-out as well as the significant step-up in investments on our ASTI projects and ASTI enabling works. Moving now to the U.S., where underlying operating profit for New York was GBP 443 million, GBP 167 million higher than the prior year as a result of higher net revenue reflecting the growth of the business as we upgrade and reinforce our networks and the recovery of previously unremunerated costs following recent rate case updates. This was partially offset by increased depreciation, reflecting a higher asset base and higher costs, including property taxes and environmental provisions. Capital investment was GBP 1.6 billion. This was GBP 82 million higher than the prior year. from a further step-up in the pace of our mains replacement activity under our downstate gas rate case and increased spend on smart meters, partially offset by lower costs on Smart Path Connect as we near completion of this project. In New England, underlying operating profit was GBP 292 million, GBP 65 million higher than the prior period, following higher revenues reflecting our growing asset base and improved incentive performance, partly offset by higher depreciation and other investment-related costs as we ramp up the capital program. Capital investment was GBP 958 million, GBP 178 million higher than the prior year. This was driven by increased asset condition and system capacity investments and smart meter installations, partly offset by reduced mains replacement work. Moving to National Grid Ventures, where the underlying contribution was GBP 227 million, including joint ventures. The increase of GBP 19 million compared to the prior year was primarily due to the benefit of depreciation having ceased in Grain LNG following its classification as held for sale. This accounting treatment for Grain, along with the sale of National Grid Renewables, drove a reduction in capital investment to GBP 69 million. And our other activities reported an operating loss of GBP 27 million, GBP 11 million lower than the prior period. principally driven by lower insurance costs and the non-repeat of fair value losses in the National Grid Partners portfolio. Turning to financing costs and tax. Net finance costs were GBP 678 million, an increase of 4% compared with the prior year due to higher average net debt and the impact of higher inflation on indexed linked debt. The underlying effective tax rate before joint ventures was 11.3%, 60 basis points lower than the prior year, principally due to the benefit of higher capital allowances in our U.K. regulated businesses. and a change in the profit mix. Underlying earnings were GBP 1.5 billion, up 16% with earnings per share at 29.8p. On cash flow, Cash generated from continuing operations was GBP 3.6 billion, up 35% compared to the prior year. This increase is driven by improved profitability across the U.K. and U.S. and favorable movements in working capital. In total, net debt increased by GBP 1.5 billion to GBP 41.8 billion in the period with strong cash inflows from operations and the GBP 1.5 billion of National Grid Renewable sale proceeds, helping to offset the continued growth in capital investment. For the full year, we expect net debt to increase by around GBP 1 billion from the half year. including the Grain sale proceeds and assuming a USD 1.35 exchange rate. As John said out earlier, we've continued to make significant progress in capital delivery securing the supply chain and advancing our regulatory and policy agenda. As I previously set out, our plans were designed to be robust against a range of outcomes with respect to interest and exchange rates, and I remain confident in our ability to deliver in line with our 5-year framework. Turning to forward guidance, and we've included detailed guidance for the full year in our results statement as usual. Following strong performance over the first half of the year, we expect a modestly higher underlying EPS relative to our guidance in May. The impact of a weaker U.S. dollar and a slightly higher share count due to scrip uptake is expected to be more than offset by improved operating performance in the regulated businesses and slightly lower financing costs. With that, I'll hand you back to John. John Pettigrew: Many thanks, Andy. Now before we move to Q&A, I want to spend the final few minutes setting out our priorities for the remainder of the year as we continue to invest across our networks. Starting in the U.S. and New York where we have a number of priorities. including further work with the state on its energy plan to shape a road map that balances decarbonization, affordability and reliability. Ongoing work with Williams in our role as the sole offtaker of the NESE pipeline, as they look to secure regulatory approvals, which are expected later this year and preparing for our Downstate New York gas filing due for submission next spring, ensuring we're able to continue to invest in safety and reliability while supporting customer needs and managing affordability. In Massachusetts, our priorities include filing our gas distribution rate case, which is now planned for January to allow us more time to engage with new stakeholders and propose measures aligned with evolving state policy goals, working with the state on its affordability bill and producing our climate compliance plan, an important enabler of the cleaner energy transition. Turning to the U.K. In Electricity Transmission, our priorities are clear: to engage with Ofgem to deliver a RIIO-T3 framework that allows high-performing networks to achieve a globally competitive overall return and mechanisms that enable us to deliver at the scale and pace required. Work with the AI Energy Council as part of our efforts to collaborate across the energy and tech industries, and build on the good progress we've made in ramping up construction across our Wave 1 ASTI projects, whilst also engaging closely with stakeholders and communities as we progress our development consent orders. In Electricity Distribution, our key priority is preparing our response to the RIIO-ED3 sector-specific methodology consultation ahead of Ofgem's decision expected in the spring. And in National Grid Ventures, we have 2 key priorities: developing and winning new competitive transmission opportunities in the U.S., including an ISO-led opportunity in New England, and closing the sale of Grain LNG completing our announced divestments. Now before we take your questions, as this is my last results presentation, I want to reflect briefly on the journey I've been privileged to be part of over the past 10 years. It's been a truly transformative decade for National Grid. When I presented my first set of results back in 2016, the business looked very different with the majority of our operations in gas. Today, we're over 3/4 electric, a fundamental shift that reflects the successful portfolio repositioning that has enabled us to pivot towards growth and a geographical footprint that is more balanced across the U.K. and the U.S. I'm incredibly proud of how we've responded as an organization to meet the needs of our customers by delivering extraordinary organic growth. We've deployed nearly 3x the level of capital investment compared to 2016, and the growth in regulated asset base is expected to be over 10% this year compared to just 4% a decade ago. Our business is incredibly strong, giving me huge confidence in National Grid's ability to continue to deliver a compelling investment proposition. Beyond the numbers, I'm very proud to be handing over an organization where our values and the critical role we play for our customers are the driving force of our ambitions. Zoe is the right person to lead National Grid into this next chapter and I know she will find the clarity of our mission, the scale of the opportunities ahead to be a source of strength in the years to come. So let me stop there and give you the opportunity to ask Andy and I any questions. John Pettigrew: Okay. So we've got lots of questions. So I'm going to perhaps start with Pavan from JPMorgan. And then after Pavan, perhaps I could ask Sarah from Morgan Stanley to ask her question. So Pavan, if we can have your question, please. Pavan Mahbubani: And John, I just wanted to congratulate you on the results you've delivered during your leadership. I wish you all the best for your future beyond National Grid. So I've got 2 questions, please. Firstly, on T3 expectations? Can you give a bit more color on your dialogue with Ofgem looking at particularly some of the data points we've had earlier this year on the U.K. water CMA provisional determinations? And on do you foresee upward pressure on the return on equity? And then my second question is on net debt and the net debt guidance looks better for the full year than in May, even accounting for the proceeds of disposals. You highlighted the working capital effect in your speech. I was wondering if you could give a bit more color on the drivers of this and whether it's sort of -- that is something that should persist into the future years? Just trying to get an idea of the basis. John Pettigrew: Thanks, Pavan. Let me do a question one, then I'll hand over to Andy to do question 2. And thank you for your kind remarks. In terms of RIIO-T3, if I just take you back to our response to the draft determination, in that, we said very clearly to Ofgem, there were 2 fundamental areas that we wanted to focus on between the draft determination and the final determination. The first was the overall investable framework and the second was the workability of the regulatory framework. In terms of the investment framework itself, you would have seen in our draft determination that we made the argument that we believe the overall return needs to be comparable with what we'd see internationally. And therefore, based on what was in the draft determination, we set up that we felt that the base return should be higher. I think given what we've seen in the provisional CMA decision on water and things like I think that reinforces some of the argues that we've made. We also said as part of the financial package that we needed a lot more detail on the incentives, and that's been an area of focus since we made that response to the draft determination with Ofgem at all levels of the organization. In addition to the financial framework, we also said we needed a framework that was actually deliverable. And in particular, what we meant by that was given the scale of the CapEx that we need to deliver we need to have the ability to be able to make decisions quickly and then to move nimbly through the process, in particular, in terms of when Ofgem sets the allowances and actually agrees that the projects are needed, that it aligns with the development framework for the projects. So that has been the focus, as you can imagine, with what, 4 weeks to go. There continues to be a lot of dialogue, but the dialogue remains in those 2 broad categories. And with that, I'll hand to Andy. Andrew Agg: Pavan, thanks. So you remember back at year-end, we guided to an increase in net debt of around GBP 6 billion, but that was before you take account as you say, of any of the transaction proceeds. By the time you allow for the 2 disposals and the FX movement that we've seen, it's a relatively small difference, net difference compared to the sort of the GBP 1.5 billion increase that we're now guiding to after you take account of all of that. And that small difference is a combination of the slightly higher script uptake that we've seen over the summer and as you say, a little bit of working capital, but it's relatively small in the context of our balance sheet. So I don't see that as being a significant sort of enduring shift. John Pettigrew: Thanks, Andy. So shall I go to Sarah from Morgan Stanley next and then perhaps Mark Freshney from UBS after that. Sarah? Sarah Lester: Firstly, a very big welcome, Zoe. It's always nice to hear another Aussie accent. And John, another very big thank you to you and wishing you all the best in the next chapter. So 2 questions from me, please. And actually, they're both on U.K. Electricity Distribution. So firstly, on the ED operational RoRE performance, please. Just wondering any further color you can provide on how that's tracking against this year's 50 basis points guide and then as we look forward, anything clearly you can please add on that pathway back to the 100 basis points. And then quickly, a bit more on last month's SSMC ED, completely appreciate very early days, but wondering if you can add a bit more on your thoughts, please. If there was anything that surprised you in the document, or mostly, as you already mentioned, mainly just building on what we've already seen through the process. John Pettigrew: Yes. Thanks, Sarah. I mean, in terms of the operational performance of ED, I'd say it's very much on track to where we expected to be at the half year. As you would have seen in the results, we continue to get the impact of the real price effects that we talked about in May, but we are seeing improved performance this year. So we're on track and are guiding towards the 50 basis points of outperformance this year. And we remain of the view that we'll get closer to the 100 basis points by the end of ED. So that is very consistent with what we said in May and the performance of the first 6 months is sort of reinforcing that. In terms of the sector-specific methodology consultation, I'd say it's -- I mean it's very broad, which I think is a good thing at this stage. It very much align with our expectations. I think we were particularly pleased to see that often is set up that they intend to take a very long-term strategic view of distribution going forward over multiple price control periods and that ED3 will be set in that context. I think we're also pleased to see that in the document, they talked about the need for the investment in distribution to stay ahead of the needs of customers. So given that we're expecting to see an increase in EVs and heat pumps and those types of things, then I think we're pleased to see that. It was very consistent in terms of its messaging in terms of the need for an investable proposition and also that the incentives for things like innovation would be important. So broad I would say it met our expectations. It's very broad, and I think it's given us a landscape in which we can respond quite sensibly in time for the decision in the spring. Okay. So if I can move to Mark at UBS and then perhaps after Mark, we can take Dominic from Barclays. So Mark? Mark Freshney: John, congratulations and looking forward to seeing what you'll be doing next. I have 2 questions. Firstly, looking back over the last 2 or 3 Ofgem price controls, do you feel that Ofgem have given you allowances sufficiently -- that are sufficient for you to do all of the maintenance that you would have liked to have done? And just secondly, on infrastructure in general, I mean National Grid has been the center of capital delivery in the U.K. at a time when there wasn't much of it around. Clearly, there's -- government have been clear we're not going to cut capital investment in the U.K. We're going to keep going. What would -- what do you think the U.K. needs to do to get all of this CapEx done, not just in your area, but across the whole piece? John Pettigrew: So thank you, Mark. So in terms of in context of the last 2 or 3 price controls and have we had sufficient allowances, I think the blunt answer to that is yes. When I look at the outcomes, which is probably the most important thing, we've continued to deliver world-class reliability at 99.69, as you know I quote quite often. But also, if I just take a broader perspective and look at the number of unplanned outages we have on the network, so unexpected failures of assets today compared to 10 years ago, that actually it's about half as many today. So actually, the overall health of the network looks very resilient and strong. And therefore, I think we have had sufficient maintenance CapEx to do the work that we need to do. Obviously, as we look to T3, that continues to be dialogue with Ofgem as we get towards the FD. But certainly in the past, I think we've got a network that's reliable and resilient. And when I look at the data, suggests it's in a strong position. In terms of infrastructure and the broader question, I mean, for me, I think the things that are important, Mark, I think there's bipartisan recognition that infrastructure investment is a key enabler of economic growth in the U.K. In order to do that efficiently, having stable and predictable fiscal and regulatory frameworks is really important and something that we're focused on. I think we still like to see more done around the planning regime in the U.K. The planning legislation is going through, and I think that will streamline the process. But I do think there's more opportunity to do more so that the infrastructure can be built more efficiently and more quickly to enable that economic growth. So for me, I think those are 2 things that are really important. Okay. Let me move on to Dominic. And then perhaps after Dominic, we could do Ahmed at Jefferies. So Dominic, do you want to ask your question? Dominic Nash: Yes. Thank you, John, for your sort of decade as CEO and I think 30-ish years at Grid and also to welcome Zoe to the role and wish her all the best for the future. Two questions for me, please. Firstly, there's clearly a U.K. government focus on some sort of affordability. And within that, I think the Select Committee last week brought up network windfalls again. And I think Ofgem are now made sort of a consultant is by think beginning of 2026. So maybe you could give us an update on whether this Select Committee recommendation will change Jim's point of view on network windfalls? And secondly, on the GBP 35 billion of that you had in your draft for RIIO-T3, there's clearly a lot of uncertainty around that. I think NESO is publishing a new connection regime shortly. And I was hoping that you could provide us color as to actually what you expect to be in it like what's going to change? And will that -- how much clarity will that actually put onto the totex number that will get published in the FD on how much that's already could be secured? John Pettigrew: Yes. So thanks, Dominic. So in terms of the Select Committee last week, actually, it was an issue that has already been looked at. So this -- so just to be clear, the work that we've done demonstrates that we certainly not received any windfall profits. The analysis that they were talking about the Select Committee, I think, was a snapshot looking at expected inflation versus actual inflation. But if you look at it over the medium to long term, then it's very clear that there is no windfall profit. So I think that was the debate that was going on there. Ofgem, as you know, have already looked at this issue and have concluded that it's not in consumer's interest to reopen it. So from that perspective. And I think Ofgem actually responded to the consultation already looked at it as well. So the consultation you mentioned of next spring, actually, I don't think it's got anything to do with the windfall profit. I actually think it's to do with the way that network charges are allocated through the standing charge for suppliers. And I think it's that Ofgem are looking at, so rather than the windfall profit. In terms of the GBP 35 billion totex that you referenced, so just to be clear, so when we submitted the business plan for RIIO-T3, we said that over that 5-year period, we could spend up to GBP 35 billion, depending on basically, how quickly connections come forward. The GBP 35 billion was split out into sort of baseline CapEx, which included the traditional reliability, resilience asset help as well as those projects we had absolute certainty on but it then had a significant amount of CapEx that would be linked to the speed by which connections come forward. What we're expecting to see over the next period is new connection offers will go out to those customers that are classed protected, which means they've got planning consent and have started construction for connections in '27, '28 in January next year. For those for 2030, it will go out in Q2 and for those beyond 2030 in Q3. So I think we're going to get a sort of a lifting of the mist over the course of next year as to exactly what connections are going to be delivered within the RIIO-T3 period. We know to a large extent, where the sort of the primary spines of investment are, what the connections reform process will do will allow us to specifically know which substations in which locations are going to be invested. So I think we'll get a better view as we move through the course of next year, but it's going to take a little bit of time. Okay. So I'm going to move on to Ahmed at Jefferies and then Harry at BNP. So Ahmed? Ahmed Farman: A warm welcome to Zoe in her new role. A few questions, maybe just starting out with on the T3 process. One of the other things you talked about in your response to the DD was the workability and the simplifying of the funding framework for -- and reopen decision-making. Could you give us a sense of how is the debate on that front? And if you have been -- if you're confident you'll be able to achieve the improvements you're seeking? Another topic that's been, I think, in the press and among stakeholders is the budget for auctions is out and there's some debate whether that's enough to be able to deliver on the government's offshore wind targets. I just want to understand a little bit better how sensitive or more is the sort of the transmission CapEx plan to sort of achieving offshore wind development targets in the U.K. either T3 or T or more medium term? And then finally, just 1 for Andy. Andy, could you just give us a little bit more on the drivers for the upgrade or modest upgrade as you sort of call it, for the FY '26 outlook? You referenced regulated -- better performance in regulated businesses. I'll just love to understand that better. John Pettigrew: Yes. Thanks, Ahmed. So start with the first question on the workability. So this was 1 of the areas that we focused on in our response to the draft determination, I mean in simple terms, as I said to Dominic's answer, quite a bit of the CapEx is going to be agreed as we move through the price control period. So as big projects are defined, then we have to go through a process of agreement with Ofgem, the pre-engineering, then off to MacGreen that it's the right project to move forward and ultimately agreeing the allowances. And for us, what's really important is that those regulatory decisions dovetail and align with the project development time scale so that we're not left in a position where either we're having to spend in advance of getting the approval from Ofgem that it's the right project and/or we having to wait for clarity on what the allowances are. So it's very much about the workability of the framework and making sure that we've got a good drumbeat with Ofgem to allow us to deliver what is a significant level of CapEx at speed and at pace. So that has been a lot of discussions have been had since they're after termination at the working level to make sure we've got the right framework. And of course, we'll wait to see whether we've got the right place of the FD at the beginning of December. In terms of and the offshore wind auction, I think I'll go back to what we said in May, just to remind people that, to a large extent, we are relatively insensitive to what happens in the offshore wind auctions because Ofgem has already taken the decision that for the ASTI projects, we have a license obligation to deliver them and that it's in consumers' interest to progress those projects sort of independent of what the time scales are. And that's partly because, of course, there's an expectation that not only will it enable the flow of increased energy across the network, but it will also reduce what is an expected significant increase in constrained costs of around GBP 12 billion. So we don't see a huge amount of sensitivity between our GBP 60 billion 5-year plan and then finally, on question 3, I'll look to Andy. Andrew Agg: Yes. Thanks, Ahmed. In terms of the guidance, I think we said it versus our original guidance at the start of the year, we've obviously seen the 2 headwinds, firstly, from the dollar movement. So we're now guiding at 1.35 for the remainder of the year, which is, as you know, a small headwind, and secondly, with a slightly higher scrip uptake, there's an element of EPS dilution from that for the full year. But that is more than offset by a stronger operating performance from across the group, actually. I wouldn't call out any particular business unit. It is from across our regulated businesses. And all of that means that it puts us in a net or a modest upgrade position compared to our original guidance when we look ahead to the full year. John Pettigrew: Okay. Thank you, Andy. I'm going to go to Harry at BNP and then James at Deutsche. So Harry, we have your question, please. Harry Wyburd: And I'll add my congratulations and all the best and also hello to Zoe. So I have 2 questions, please. The first 1 is on the U.S. Now you just had a slew of sort of Democrat election wins and New York Mayor race dominated by affordability and the cost of living. I think you've been quite clear in the past that in the U.S., you are sheltered from this debate because regulation is done at the state level, et cetera. But if there was a federal move to clamp down on energy prices in the U.S. ahead of the midterms, where do you think the pain would be felt? And I have been clearly in mind that when this happened in Europe in 2022, it was painful across a wide range of business models, although less so in networks. So I'd be interested just to understand how you think or where the axe could potentially fall if energy prices really grew into a major, major political issue in the U.S. The second one is on T3. So looking at your consensus around the time that the draft determinations came out, there's several key uptick in expectations for FY '27, which is, I think, all of us looking at the fast money numbers and the Ofgem models have concluded that, that might bump your revenue for next year. How comfortable do you feel with that if we just take what we've had in the draft determination, so clearly, we'll get more in December and things might look different? But if we're just looking at what we've got in the draft, do you think we are collectively as sell-side analysts being conservative enough here? And do you think that there is a rational reason that EPS might be higher next year because of the past money? John Pettigrew: Thanks, Harry. Let me take the first question, and then I'll ask Andy to take the second. Probably just sort of a broader answer to the specifics as well, which is, so first of all, we're very conscious of the affordability debate, not just in the U.S. and the U.K. So we always take that massively into account when we think about price controls and rate cases in the U.K. and the U.S. With regards to the Mayor election, just to put that into context as well. So for New York City, they are our largest customer for our downstate gas business. We have a huge amount of interaction with them, particularly on the construction programs because quite often, where the city is doing work, we have to move our pipelines, for example. So they're a key stakeholder. And like any key stakeholder, we will engage with them to make sure we understand how we're working together, but also what their aspirations are around, and we understand that affordability is a big issue. But ultimately, for National Grid, things like our CapEx plans and affordability sit at the state level. And as you saw last year, we were very successful in agreeing with the regulator at the state level, a 3-year plan for NIMO of $5.6 billion which will take us right through to 2028. In terms of the sort of interaction between state and federal, I mean, for utility rates, then obviously, federal today don't have any jurisdiction. So I think in terms of the affordability debate, it would still sit at the state level. We need to be very mindful of that. And the way we approach that as a National Grid is when we look to do a rate case and we'll do this when we do in the coming months, we'll first reach out to all our key stakeholders and understand what are their expectations, what do they want from National Grid and how does that fit in the envelope of affordability. And quite often, that will shape the capital plan that we put forward as part of the rate case. We'll also spend a significant amount of time thinking about our vulnerable customers. You might remember in our rate case, for example, we set aside $290 million to support most vulnerable customers. And of course, we're always trying to drive the efficiency of the business through innovation as well to find more efficient ways of delivering what we need from customers. So I think for all those reasons, that's what we'll continue to do. We'll engage with stakeholders and think very carefully about what that rate case looks like in the envelope of affordability. From a federal perspective, and I think I'll reflect on what we've seen over the last 12 months, which is 1 of the key focus areas in New York, for example, has been how do you address the wholesale prices and you would have seen that the PSC has indicated they're supportive of the NESE pipeline. Based on the analysis that we did on the NESE pipeline, not only does it improve resilience and reliability in New York, but it increases the volume of supply by about 14% and potentially has about $6 billion of benefit for New Yorkers. So I think there's an interaction between federal government when you get into things like transmission pipelines and the states that I suspect will continue to be a focus going forward. Andy? Andrew Agg: Harry, thanks for the question. Yes, I think, obviously, this morning, you'll have heard that we've reaffirmed our 5-year frame guidance through to '29. And you remember when we set out that guidance, it was deliberately designed to be robust to a range of different outcomes as well. So I think it's important to take that into account. And clearly, at this stage, as you've heard from John, a couple of times now, our focus is working with Ofgem to ensure that we get to an appropriate final determinations. And that will be the point that we'll determine whether there is further guidance to be given, and that will be the point that we would do that. The other thing I'd just mentioned, of course, at this stage, we're also 1 of the topics we talk to Ofgem about is the profiling of any increases of revenue and how they fall across the 5 years of the price control. So that's something else that will be part of the mix that we'll be looking at. John Pettigrew: I'm going to move on to James at Deutsche and then perhaps we can go to Deepa at Bernstein after that. James Brand: It's James Brand from Deutsche. Also, congrats to John and also to Zoe and good luck for the future. . I have 2 questions. The first is on demand. So you said that you were kind of positioning yourselves to be ready to connect up to 19 gigawatts of additional demand Obviously, that will be absolutely huge, particularly if it was all heat demand. What's your kind of realistic expectation of how much demand growth we might see over the next 5 years? I know there's like a lot of data center connection requests, but how much do you think we can realistically expect to be added on the data center side. Maybe that's a difficult question to answer, but any thoughts around that would be super interesting. And then the second question is on coming back again to the energy affordability debate in the U.K. So obviously, the kind of noise around that has increased quite substantially. How do you view your own positioning in regards to that debate? I guess, potentially reasonably well protected given that you'll have the transmission price control locked in pretty shortly, and you can argue that the investments that are cutting our curtailment costs quite substantially. But longer term, is this a bit of a risk for you? And if you were to make any recommendations for ways to put electricity bills in the U.K. given that we have pretty much the most expensive electricity bills in the developed world, what would you recommend? John Pettigrew: Okay. Thanks, James. Let me start with the demand question. So a little bit of context. So because a lot of the demand -- a lot of the excitement is coming through the potential connection of data centers. So today, about 2.6% of all the demand that we have in the U.K. comes from data centers. You may have seen that NESO does its future energy scenarios, and it was projecting that, that could increase to about 9% by 2035. What we've seen over the last 12 months is quite a surge of requests for connections to the transmission network to support data centers and generative AI. So in our RIIO-T3 plans, our assumption is that we're expecting to see about demand growth of around about 19 gigawatts or we're going to build the network out to support that. I think it works out at about 4% growth in demand per annum. And about half of that is assumed to be for data center demand. And that's backed up by the connection agreements that have been signed in the time frame for RIIO-T3. So I think we feel comfortable that we've got a reasonably good handle on what the demand is going to do over the next 5 years or so. and a reasonably good handle on what's being expected in terms of growth in data center demand and where it will connect. And of course, you may have seen National Grid is working with the government through the AI Council to really identify where are the best locations in the U.K. to locate those data centers based on where is their access fair capacity today or where the time frame interconnections would be shorter than other places, which is an important determinant for data centers. In terms of energy affordability, I think when we stand back from our position, yes, we see an increase in the transmission element of the charge as we deliver out all these ASTI projects and the RIIO-T3 CapEx but actually against the expected constrained cost net-net, it's a reduction. So in a way, us getting on with the investment is very beneficial to consumers because it ultimately reduces the cost for them. Having said that, we're very mindful the affordability is a significant issue, which is why in our business plan we set out why it's important to have incentives around innovation to drive efficiency and indeed why we propose an efficiency measure as well. So we're very mindful of it. We're very conscious that it's a difficult time for customers. But in terms of the transmission element of the bill, I'd say we're very focused on making sure we can deliver the infrastructure to relieve those constrained costs, which result in a net-net reduction. I'm going to move to Deepa and then to Martin at BofA. So Deepa, should we take your question? Deepa Venkateswaran: First of all, thank you so much for your service for all these years and all the best for the next steps and Zoe a warm welcome. So my 2 questions. First 1 is on the RIIO-T3 draft. where do you see the risk reward on the incentives? If not the financial returns, that's very clear, you want it to be higher than what's there. But as things stand right now, where do you see the risk reward and how close is that to the 200 bps or so you would need in order to get closer to that 10% overall nominal return? And in your discussion so far with Ofgem, what's your sense on, are they moving in the right direction taking your feedback into account? So that's my first question. And the second one, I noticed that you are looking at U.S. transmission opportunities. And I think this is something that used to be talked about a long time back. Nothing has ever happened about it. So has there anything changed in the U.S. transmission landscape that is making you look at that again? And again, how big could this opportunity be? John Pettigrew: Yes. Thanks, Deepa. I guess I'll put the innovation in the context of the incentives framework, which I think is really important to help me get to an overall return that we think is appropriate to give the scale of investment going forward. So actually, the work that we've been doing with Ofgem is focusing on sort of 4 key incentives. One is being incentivized to make available the connection capacity that customers want in a timely fashion. Secondly, it's about delivering the major projects as quickly as possible and being incentivized against that in the same way as we are for the ASTI projects. Thirdly is looking at how we can reduce the cost constraints in our role as the transmission operator working with the system operator. And we've done some of that in the existing price control, and we think there's opportunity for more of that as we move forward. And then thirdly -- sorry, fourthly, it's the incentives as well. So we've been having conversations with Ofgem about that to really -- to find a framework that ideally allows us to look for opportunities to extend new technologies onto the network in a way that will reduce cost for customers. So if I give you an example, so Dynamic Ratings is a good example that we've started to deploy in our transmission divisions in the U.K. It is new technology. It allows you to get more power down the line without having to build new lines and we think those types of incentives are going to be really important if we're going to get to the overall package that works. But we're thinking about those 4 incentives as a package and innovation is a key 1 within that. In terms of the U.S. opportunities, you might recall, when we refined the strategy in May last year, we talked about the fact that our focus was going to be on transmission, both regulated and competitive and that we did see opportunities for transmission opportunities in the U.S. So our National Grid Ventures business has been looking at that. And I referenced in the speech this morning that one particular one on the horizon is a transmission line potentially from Maine down to New England that will help to reduce bills for New England customers that we -- the ISO is doing a solicitation on. So we're looking at that as a project. It's obviously in a region that we are very familiar with and understand very clearly. And obviously, we've got good capabilities with National Grid Ventures. So we are seeing some solicitations for competitive transmission in the U.S. And as part of our National Grid Ventures business, we are looking at them very carefully. We will only take them forward, as we said in the past, if we could get to a view that we're sensibly positioned to be able to win them, earn sensible returns, but that is 1 that's specifically on the short-term horizon at the moment. Just looking who is left. So Martin, if we could go to you next, I think that's the last question that I've got. Martin Young: Right. Congratulations on the results and all the best for the future. I actually wanted to come back to this topic of potentially new opportunities in transmission in the U.S. that you referenced. Could that be something that is material in terms of investments and in terms of CapEx and presumably that would come on top of your existing guidance of GBP 60 billion? So could you just give us some perspective as to how relevant this opportunity could be? And question number two, just on hybrid bonds. We have not really seen any hybrid issuance, I believe so. Is that still part of your financing toolbox? John Pettigrew: Thanks, Martin. I think Andy can take couple of those. Andrew Agg: Yes. Thanks. Martin. So on the transmission opportunities, as John said, we're in the early stages of looking at these. And so we'll have to wait and see how that may or may not grow as we go forward. But I'll remind you, if you go back to the financing strategy we set out in detail when we did the equity raise 18 months ago, we were very clear that where we do see incremental opportunities, particularly in our Ventures business, above -- that might take us above the GBP 60 billion, we would need to look for ways to finance those through the Ventures business as well in terms of potential partnering, other types of sort of off-balance sheet finance and other routes, et cetera. So i.e., it wouldn't impact our delivery or use of the equity proceeds to underpin the GBP 60 billion. And that remains absolutely the case today. In terms of hybrids, you're right. And again, when we made our financing strategy announcements 18 months ago, we were very clear that we wouldn't expect to issue any hybrid for several years. Again, that remains the case. Hybrids remain a very useful potential tool to us. We have a lot of unused hybrid capacity. At this stage, we don't have anything in the near term as you'd expect, but it will remain a tool that we can deploy appropriately later if we think that's the right thing to do. John Pettigrew: Thank you, Andy. So I don't have any further questions. So let me just wrap up by just saying, I guess, a summary of our half year results is good operational and financial performance in the last 6 months. I think we're very well positioned for the second half. And hopefully, you've taken away from today's presentation, we're very much on track to deliver the GBP 60 billion over the 5 years 18 months in. . This is my last results presentation. I'd like to say I'm just incredibly proud of the organization, what it's achieved over the last decade, but I'm also delighted to be handing over to Zoe who I think is going to be an incredible CEO. So thank you, everybody, for joining us today, and I'll see some of you very soon.
Operator: Thank you for standing by. This is the conference operator. Welcome to the Equinox Gold Third Quarter 2025 Results and Corporate Update. [Operator Instructions] And the conference is being recorded. [Operator Instructions] I would now like to turn the conference over to Ryan King, EVP, Capital Markets for Equinox Gold. Please go ahead. Ryan King: Thank you, operator. Good morning, everyone, and thank you for taking the time to join the call with us this morning. Before we commence, I'd like to direct everyone to our forward-looking statements on Slide 2. Our remarks and answers to your questions today may contain forward-looking information about the company's future performance. Although management believes our forward-looking statements are based on fair and reasonable assumptions, actual results may turn out to be different from these forward-looking statements. For a complete discussion of the risks, uncertainties and factors that may lead to actual operating and financial results being different from the estimates contained in our forward-looking statements, please refer to the risks identified in the section titled risks related to the business in Equinox Gold's most recently filed annual information form, which is available on SEDAR+, on EDGAR and on our website. And finally, I should mention that all figures are in U.S. dollars unless otherwise stated. With me on the call today are Darren Hall, Chief Executive Officer; Pete Hardie, Chief Financial Officer; and David Schummer, Chief Operating Officer. We will be discussing our third quarter 2025 production and cost results and providing an update on ramp-up progress at our Greenstone and Valentine mines after which we will take questions. The slide deck we are referencing is available for download on our website at equinoxgold.com, under the Shareholder Events section. You can also click on the webcast link to join the live presentation. And with that, I will turn the call over to Darren. Darren Hall: Thanks, Ryan, and turning to Slide 3. Good morning, everyone, and I appreciate you taking the time to join us on the call today. Firstly, I would like to acknowledge the efforts of all of Equinox's employees and business partners for their continued focus to responsibly deliver over 236,000 ounces during our first full quarter, including Calibre assets. Well done to the entire team. It is truly an exciting time for Equinox as we begin to realize the value of our expanded Americas-focused gold portfolio anchored by 2 new cornerstone gold mines in Greenstone and Valentine. As I've mentioned previously, the leadership team, supported by the entire organization is focused on creating shareholder returns by consistently delivering on its commitments, which are focused on demonstrated operational excellence, advancing high-return organic growth, rationalizing the portfolio and disciplined capital allocation. These are more than just words. Over the last quarter, we have made material progress on each of these commitments. Just a few examples: operational excellence. Production and costs were in line or favorable compared to consensus expectations and we remain on track to deliver into our full year consolidated production guidance. Importantly, we have made meaningful progress at Greenstone, which I'll talk to shortly. Advancing high-return organic growth. We poured force gold at Valentine where the ramp-up is progressing extremely well, a game, which I'll provide color on shortly. Additionally, Castle Mountain was accepted into the U.S. Federal Permitting Improvement Steering Council's FAST-41 permitting program, which defines an anticipated record of decision in December of 2026. Rationalizing the portfolio. Post quarter end, we closed the sale of our Nevada assets for $115 million, including $88 million in cash. Disciplined capital allocation. We retired $139 million of debt during Q3 and have commenced Q4 with an additional $25 million in October. Turning to Slide 4. During Q3, we sold 239,000 ounces at an average cost of $1,434 per ounce at an all-in sustaining cost of just over $1,800 per ounce which underscores the enhanced scale and earnings power of the new company. Our adjusted net income was $147 million or $0.19 per share with adjusted EBITDA of $420 million. We ended the quarter with $348 million in cash, not including the $88 million from the sale of our Nevada assets, which closed post quarter end. With year-to-date production of 634,000 ounces, we are well positioned to deliver the midpoint of our 2025 production guidance of 785,000 to 915,000 ounces after divesting Nevada and prior to considering any production from Valentine. Equinox has entered a pivotal phase with increasing Canadian production driven by asset optimization and the addition of Valentine, positioning us for stronger cash flow and earnings in the quarters ahead. Turning to Slide 5. Greenstone's performance improved meaningfully in Q3, and we remain on track to deliver into the low end of our production guidance at Greenstone. Importantly, Q3 mining rates exceeded 185,000 tonnes per day, which was a 10% increase over Q2 and a 21% increase over Q1. Importantly, process grades improved 13% in Q3 to 1.05 grams per tonnes. Improvements to pit floors, haul roads and dumps, along with implementation of double-side loading have led to lower cycle times and increased productivity. Our focus on equipment maintenance practices, more efficient shift changes and the use of hot seating during shifts is also contributing to improved equipment utilization, which is resulting in increased daily mining performance. Since July, we have implemented additional dilution management measures, including enhanced grade control protocols and improved tracking systems, which is positively contributing to increased grades quarter-over-quarter. In the mill, despite 10 days of downtime due to planned maintenance events, including a 7-day shut to replace HPGR grinding rolls, total tonnes processed in Q3 were consistent with Q2 as we saw a 6% improvement in tonnes per hour processed. Further process improvements are underway, including commissioning of additional final refeed and core source stockpile conveyors that will enable consistent delivery material to the grinding circuit during periods of downs by providing additional redundancy. The positive momentum has continued into Q4 with October mining rates exceeding 205,000 tonnes per day, a 10% increase over Q3. In the process plant, we have seen mill grades improve to 1.34 grams per tonne, a 27% increase over Q3 and a 15% improvement in tonnes milled per day versus the Q3 average. The strategy being made across the board, coupled with increasing grades underscores our confidence that Greenstone will deliver a strong Q4 and continue that momentum into 2026. Turning to Slide 6. Valentine commissioning continues ahead of expectations with ore introduced into the circuit on August 27 and first gold was poured on September 14. The plant averaged nearly 5,000 tonnes per day or 73% of nameplate for the first 66 days of operation. Performance in October continues to demonstrate strong progress with throughput averaging over 6,200 tonnes per day or 91% of nameplate. Importantly, 18 days or 58% of the days during October were greater than nameplate. Recoveries exceeded 93% for the month from lower grade commissioning ores, which again, are consistent with feasibility level recoveries, albeit a lower grade. Performance at this level is truly a testament to the robustness of the design and disciplined execution by our construction, commissioning and operations teams over the last 18 months. While we're still early in the journey, based on what I have seen, I fully expect Valentine to deliver into the upper end of the Q4 production range of 15,000 to 30,000 ounces. With the ramp-up progressing extremely well, I anticipate Valentine will reach nameplate capacity by Q2 2026. On this basis, 2026 should be a strong year with production anticipated to be between 150,000 to 200,000 ounces. In parallel, we're advancing our Phase II expansion studies and see a clear path to increasing throughput to between 4.5 million to 5 million tonnes per year. I will provide a fulsome update when we announce full funds approval which I anticipate in early Q2 2026. Concurrently exploration drilling has accelerated across the property with 4 drills in operation, the team is following up on several new discoveries, including the previously released Frank Zone. Assays are pending for a number of significant intercepts, which could meaningfully add to the resource base in the coming years. Needless to say, we are very optimistic on Valentine's exploration potential. Turning to Slide 7. Looking to 2026, I expect continued improvement in production and cash flow, supported by increasing contributions from both Greenstone and Valentine. We have seen a lift in our share price over the past few months, supported by a stronger gold price and steady operational delivery. That being said, I believe there is still a disconnect between our intrinsic value and how we are currently trading. Since 2022, our peers have seen significantly higher equity performance and while I recognize we've got work to do as we continue to build confidence by delivering our commitments. I believe there's a meaningful upside potential in our share price. The opportunity ahead is significant, and our strategy is solid. By demonstrating operational excellence, advancing our high-return organic growth assets, rationalizing the portfolio with a disciplined capital allocation strategy, I'm confident that we will become a reliable top quartile value to diversify gold producer. With that, operator, we are ready to take questions. Operator: [Operator Instructions] The first question today comes from Francesco Costanzo with Scotiabank. Francesco Costanzo: Congrats on a good quarter. Maybe I'll start with Valentine. With the first of gold poured that was completed in September. Can you discuss some of the key performance milestones that you're tracking during the mine and mill ramp up? And then maybe after that, could you give us an update on the Phase II expansion study to increase the throughput to 5 million tonnes per annum? Darren Hall: Yes. Francisco, thanks and appreciate yours and Scotia's continued support. When we think about the milestones of Valentine, I guess, is that there's a lot of moving parts as you birth a new asset like Valentine. But I guess as the headline number here is that if we think of the first 66 days of performance of the entire facility since introducing ore in August 27, we've exceeded 70% of nameplate. And if we think about October in isolation, it's over 90% of nameplate. So all of the things that the team are focused on are clearly delivering in a great product. And as we look forward, they're now thinking about what's happening next, which is a good segue into Phase 2. We've tried purposely not to distract the team with Phase 2. But in the background, we have been doing work and over the last quarter, we've continued on our, we'll call it, options study analysis. And we now have good clarity on what the preferred option is going forward. And it's really a much simpler view than what we'd ever seen before. It doesn't include the addition of flotation. It specifically includes the addition of a twin ball mill, which provides additional redundancy in the circuit, which we see will comfortably deliver close to 5 million tonnes. So in this month, we'll actually commence the feasibility study and as I foresee earlier, I would anticipate going to the board in early Q2 for full funds approval so I would anticipate providing a fairly fulsome update here in the latter part of Q1 or early Q2. Francesco Costanzo: Yes, that's great. Maybe if I could just 1 more on deleveraging. So net debt currently sitting around $1.3 billion. Can you outline your strategy for deleveraging and how that might relate to portfolio rationalization work that's underway. And with the Pan sale now closed, can you maybe highlight when we might expect to see the next transactions? Darren Hall: Sure. I guess there are 2 things that are running in parallel that we can kind of put a ring fence, if you will, around portfolio optimization. But if we think about -- I think you mentioned a $1.3 billion net debt. And if we look forward for the next 12 months and we think about our production portfolio, we call it 1 million ounces given the buoyancy and the privilege we see with buoyancy and gold price right now, and we look at our total cost, it's easy to see over $1 billion that we can put against delevering the balance sheet. So ignoring any asset sales, by the end of next year, we're going to be in a very, very solid liquidity position with a significant portion, if not the majority of our debt extinguished. So as we start to think about Valentine coming online, I would anticipate that we'll definitely be fully funded on Valentine before we make a go commitment. And we think about the additional organic growth that comes post that with Castle Mountain, we're going to be in a very solid position with that as well. Now specifically as it relates to our assets, well, if I think of assets as children, I love them all, but for the right price, I'll gladly part with one. So we have seen interest in some of our assets. And to that end, there are people when we encourage people, if you're interested in having a discussion come to us and we'll gladly entertain and we'll see how it makes sense. And if those assets and that offer would make more sense and value to our shareholders in someone else's hand versus ours. But we're not desperate to transact. But for the right price, if it makes sense for our shareholders, we'll gladly entertain and progress any opportunities. But this is very clearly a path for us to realize some additional value and look at how we could use cash from any sales in terms of funding our organic growth portfolio. But to reinforce also, this is looking at disposal of, not acquisitions. Operator: The next question comes from Anita Soni with CIBC World Markets. Anita Soni: Darren, I just wanted to ask about your calculation of mine site free cash flow. I think there are some items in there that relate to basically nonoperating mines, so Los Filos, Castle Mountain and Valentine. Can you give a breakout of percentages or even millions of dollars like which ones I would allocate it to? Darren Hall: Yes, Anita. Again, I don't have that information in front of me, but I'll ask Peter. Pete, you're in a position to... Peter Hardie: Unfortunately, no, not at this moment, Anita. I'm happy to -- we'll have that for you after the call. Anita Soni: Okay. Then I'll ask on Valentine, a follow-up question, I guess. On Valentine, the grades that you're introducing right now, it was like 0.77 grams per tonne, I think. And then I'm just -- not that this is the time to be concerned, but I was just curious, was that just a deliberate decision right now until you get the recovery rates where you want them to be, not to waste or is that something where you are in the mining sequence at lower grades initially? And how will that evolve over the next couple of quarters? Darren Hall: No. Thanks, Anita. And I appreciate the question, and it's a really, really good question. No, we're seeing very solid and actually positive reconciliation from our ore control to our resource and reserve models at Valentine. So very comfortable with what we see there, as we've talked about previously. As we talk about being in the first 2 months, we've specifically commissioned the plant on lower-grade materials. And the reason being is this that we want to practice on material is less important. But in hindsight, Jason and the team have done such a fantastic job that we probably should have just commissioned on the highest grade material because we're seeing recoveries in excess of feasibility out of the gate. So no, the team has done a great. But no, it's been a purposeful decision to process lower-grade materials and ramp up as we get comfortable with getting to the point where we can declare commercial production, which we would anticipate probably in the next month or so, right, definitely in the quarter. Anita Soni: Okay. So I'm going to ask 1 more since the first one didn't get answered, if that's okay. But it's similar on the grades going into Greenstone. So I think it said in October, you're at 1.34 gram per tonne material. I'm not sure if it was being fed to the mill or if that was what was being mined. But if it's 1.34, are you starting to see higher grades coming out of the pit specifically the underground areas where you were wondering if sort of the remnants around the old workings were there or not? Like have we seen -- is there any progress or update on the profile of the skin? Darren Hall: Yes. No, absolutely. And thanks again for the great question. Is that if we think about quarter-on-quarter, we saw a significant improvement at grades milled at Greenstone. It did go to 1.05 and they are milled grades, not mine grades. We have seen an improvement in mine grades as well in the quarter. I mean average mine grade in Q3 was 0.91 grams per tonne compared to $0.78 in Q2 and as you're aware, we're mining more material than what we're processing. We're purposefully processing the higher grade material. And from the material we are seeing, we are seeing a higher grade because of where we position ourselves geographically. But secondly, I think that the concerted focus we've had on getting reliable tonnes mined, which is allowing the team to focus on quality which is minimizing dilution and then also being very purposeful in and around how we treat material in and around the voids is definitely having a very positive impact on grade. And I think I mentioned on the earlier part of this call that there's been a focus for quite some time. But I'll suffice to say, in July, things got pretty serious with respect to grade, and we saw a step change in September with the average grade in September process to 1.38 and we've been able to maintain a 1.34 in October. So I think what we're seeing is a combination of the performance in the mine, allowing for focus on quality, which is allowing for a consistency in grade fed, which was always the model, but I think that we've got the right people focused on the right things, and we're starting to see the benefit from. So that, coupled with the continued improvements we see in mill throughput on a tonnes per hour or tonnes per day basis will definitely lead to a much stronger Q4 with growth momentum into 2026. Operator: The next question comes from Mohamed Sidibe with National Bank Capital Markets. Mohamed Sidibe: Maybe I could start with Greenstone. Just wondering if you could maybe give us a little bit of color on your current stockpile in terms of tonnage and grade at Greenstone currently, if possible? Darren Hall: Yes. No, sure. At the end of month October, again, this is from memory, but I guess is that the important part of the stockpile is the highest grade material and we have the better part of a month of high-grade material in front of us and the grades in excess of 1.5 grams. Then there's the other material, which is a little lower grade material, but we're talking 2 million or 3 million tonnes at around 0.7 grams per tonne and then we've got the lower grade material as well. But in total, we've got in excess of 8 million tonnes of stockpile in front of the plant as it stands today. Mohamed Sidibe: That's great. And maybe if I could just move in terms of capital allocation priorities. I think back in Q2, you talked about, of course, deleveraging your balance sheet, paying down debt and reinvesting within your growth projects. But in terms of capital return, you had talked about potentially mid-2026. Since then, I think gold has moved over $500 per ounce. Have your thoughts changed around your capital return program at all? Or should we still target mid 2026 for a potential update on that front? Darren Hall: Well, I guess, is kind of foreshadowed earlier, if we kind of ignore any potential cash that can come in from an asset divestment, I think we're going to find ourselves significantly delevered by the end of 2026 and at that point, we'll be having some pretty material conversations about vehicles to be able to return additional capital to shareholders. I mean, Pete, what would you layer on this one. Peter Hardie: Yes. I think, Mohamed, if you're -- as you said, if you're looking at 2026, that will be a 2026 discussion. So for purposes of modeling, if you will, just assume no capital returns for next year. We are really very entirely focused, as Darren just said a couple of times now on delevering. Darren Hall: Yes. And if we think about capital allocation holistically. Aside from exploration, the most accretive investment we can make is to ensure that we deliver into our production commitments at a responsible price. From that, with cash it's delevering the balance sheet, but it's positioning ourselves for our significant organic growth as we see through Valentine Phase 2, Castle Mountain. And then the additional benefit we'll see from Los Filos in the next couple of years as well. So I think our strategy on capital allocation is very clear. And if we find ourselves with a cash inflow vis-a-vis an asset disposal that could then provide additional talk to return capital to shareholders through a dividend or a share buyback or some other form. But the organic growth opportunity within the portfolio, exploration and the assets are mentioned Valentine, Castle, Los Filos will provide significant returns to our shareholders. Operator: The next question comes from John Tumazos with Very Independent Research. John Tumazos: Could you elaborate on the Phase 2 expansion to 5 million tonnes potentially for Valentine. Would the 15,000 tonnes a day, be it the same grade to suggest the 2029 output as much as 400,000 ounces? Darren Hall: Yes, John -- and thanks for the question. I appreciate your support. If we think about the feasibility study that was put out at the end of 2022 for Valentine, it had a 2.5 million tonne base plant, expanded to 4 million tonnes. And what that did is that delivered into the feasibility study, which generated a 175,000 to 200,000 ounces a year over a reserve life of 14 years. So now what we've been looking at is what's that optimal increment that we could add to the base facility. And what we've been looking at is that optionality. So where we see right now is this that we see a path to something that's comfortably in that, call it, 5 million tonnes because it makes the math easy so would it be a 20% increment in throughput over what was included in the feasibility study. So I think then you make some assumptions on what would the incremental grade be. So if we be -- let's be -- let's assume that the grade is consistent with the average. It would then demonstrate a proportional increment of 25% improvement in production. Stepping back, I think that if we look at this -- the exploration success we've seen from Frank and the other potential along the property that will all come together around the same time. I think over the next year, we'll be sitting back and saying, clearly, we'll have an optimal incremental throughput, the material that feeds into that will be significantly impacted by our exploration success, and we look at optimizing the plants. Everything we've done to date has assumed the same relatively conservative mine plan, resource base and pit designs that we used in the 2022 feasibility study. So I think that we have a very favorable view on the increment at Valentine. But I think that will become more favorable as we optimize the plant 4 or 5 million tonne plant, and we start to see the benefits from the reconciliation that we anticipate going forward. Early days, but given the nature of the deposit, I would anticipate we're likely to see some positivity in terms of reconciliation above a cutoff. So no, I think that it's -- it's too early to say absolutely what the numbers are, John. But if I was sitting on your side of the table, trying to fill in a model, I would probably replace the $4 million with $5 million and then use something that was just proportional on throughput accordingly. Throughput beg your pardon on ounces. John Tumazos: If I can ask another, what is the best way to manage the benches at Greenstone when you have waste benches, 0.7 gram stockpile benches. And then highs as nice as 1.5 grams. Do you have all the same size shovels and trucks? Or do you have a few half size to quarter size shovels and trucks to go in and get those sweet spots without waste. Darren Hall: It's a good question. It leads to really a selectivity issue, John, in terms of how selective can you be. And I think that we're seeing that with the level of control, we can be more selective. But to take the situation where you're running from, say, a 10 or a 12-meter bench. You're making the benches smaller. Do we think there's going to be a material improvement inability to be able to deliver higher grade as a function of selectivity -- and I think in short, it's early days, but I don't believe from what I see, there's going to be a significant opportunity. There's going to be interesting areas where maybe it's more relevant than others. But generally speaking, I consider as it stands today, a Greenstone is more of a bulk mining, want to have a level of quality. But for the equipment size is rightsized for the operation we have, and it's really going to be about lowering our unit cost of production vis-a-vis mining processing and spending G&A as efficiently as we possibly can to have the most positive impact we can on all-in sustaining costs and maintaining margins given whatever gold price. And I'll maybe ask Tom. Tom, is there any layer in there from a selectivity perspective in terms of what we see from a resource reserve perspective. Unknown Executive: No, Darren, I think you covered it. I think the again, John, some of the things mentioned in the commentary of the conference call with respect to some of the ore control practices and things we're putting in with some of the automated systems and paying close attention to the geology as we go bench to bench is helping manage dilution. And we definitely are looking at some of these selectivity studies in the background. But to Darren's point, on mass, there doesn't appear to be a benefit. There can be selective areas where we can go in and be very in certain areas pick cherries out. But on mass, John, this isn't going to be a flitched -- several fetched benches as we go down. Darren Hall: Again, if we think about the contrary here at Valentine, we see good opportunity, and we have 2 specific mining fleets, a larger fleet, the smaller fleet and specifically to use a smaller fleet where there's a good opportunity to be more selective, and therefore, preferentially mine at a lower grade, not only just use the stockpiles. So yes. No, I think we have a good plan at Greenstone and we'll continue to look for those opportunities to positively impact grade. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Darren Hall for any closing remarks. Darren Hall: Yes. Thank you, operator. I'd just like to close by thanking all of our stakeholders for their continued support and everyone's participation and questions on the call this morning. It is appreciated and valued. And as always, Ryan, I and the entire leadership team are always available if you have any further questions. So with that, take care. Be well and back to the operator. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Mizuho Shen: This call is a simultaneous translation of the original call held in Japanese, provided solely for the convenience of investors. Thank you for joining the Recruit Holdings FY 2025 Q2 Earnings Call. I'm Mizuho Shen, Manager of Investor Relations and Public Relations. Today, I will give a brief talk about our business, then Junichi Arai, Executive Vice President and Chief Financial Officer, will give a presentation on results and guidance, followed by a Q&A session. Please note that today's session, including the Q&A, will be posted on our IR website after the event. Starting this fiscal year, we have integrated HR Solutions from Matching & Solutions into HR Technology. Accordingly, the year-on-year comparison of segment results in this fiscal year's financial presentation is based on FY 2024 pro forma figures, which assume that this integration had been effective as of April 1, 2024. Unless otherwise stated, comparisons will be made year-over-year. Lastly, please note that all references to dollars in this presentation refer to U.S. dollars. We have 3 business segments. HR Technology features Indeed and Glassdoor, which together create a global 2-sided talent marketplace across more than 60 countries with a focus on the U.S. As the core of our simplifying strategy, Indeed uses its broad reach, AI-powered matching and tools for faster connections to make the hiring process more efficient for employers and help job seekers find jobs faster and more easily. This strategy is enhanced in Japan through the Indeed Plus job distribution platform and the integration of placement services, including recruit agent. Staffing consists of 2 major operations: Japan and Europe, U.S. and Australia. Between 2010 and 2016, we expanded to our current scale and structure through multiple global acquisitions of staffing companies. Marketing Matching Technologies, or MMT, consists of marketing solutions of the former Matching & Solutions. In Japan, MMT provides vertical matching platforms that connect individual users and business clients in areas like the lifestyle subsegment, which includes beauty, travel, dining and SaaS solutions as well as the housing and real estate subsegment and others. These platforms offer services, including information and online reserving and booking services. Now over to Arai-san. Junichi Arai: Thank you very much. We have a slightly longer presentation than usual, so I hope you could bear with me. I will discuss the following 4 highlights of the FY 2025 Q2 earnings presentation. One, in HR Technology, revenue in the U.S. for Q2 increased by 5.8% year-over-year to $1.33 billion. Two, we have upwardly revised the full year U.S. revenue outlook in HR Technology from 0.3% year-over-year increase, basically flat announced in May to a 5.6% increase. Three, the full year consolidated financial guidance has been revised upward. Consolidated EBITDA+S for this fiscal year has been revised upward from JPY 697 billion to JPY 733.5 billion. Four, net cash at the end of September 2025 was JPY 590.5 billion. We commenced a new share repurchase program of JPY 250 billion on October 17 (sic) October 16. This is in line with the policy we announced in May 2024 to reduce net cash to around JPY 600 billion by the end of FY 2025. After reviewing our consolidated results for Q2 and the first half, I will discuss the performance and outlook by segment, followed by our full year consolidated guidance and finally, our capital allocation policy. Regarding FY 2025 Q2 consolidated results. In HR Technology, our focused monetization efforts were the primary driver of revenue growth, successfully counteracting the impact of a softer job market in the U.S. Revenue in Marketing Matching Technologies or MMT increased and revenue in staffing remained flat. As a result, total consolidated revenue increased by 2% to JPY 914.7 billion. As a result of continued efforts across all segments to further enhance productivity, EBITDA+S margin was 22.7%, exceeding Q1 of this fiscal year, driven by margin expansion in HR Technology and MMT. EBITDA+S margin over gross profit was 38.2%, reflecting our underlying cash flow generating capability. Before adding back stock-based compensation expenses, EBITDA margin improved compared to the same period last year, reaching 21.3%. For the first half of FY 2025, revenue decreased 0.3% to JPY 1,793.5 billion. EBITDA+S margin continued to expand, reaching 22%. Now I will move on to the results and outlook by segment. I will start by the results for HR Technology. For Q2, segment revenue on a U.S. dollar basis increased by 4.5% year-on-year and the 2.1% quarter-over-quarter to $2.41 billion. On a Japanese yen basis, segment revenue increased by 2.9% year-over-year to JPY 355.7 billion. As for revenue by region, turning to our U.S. performance, despite an approximately 8% decline in job postings, U.S. revenue increased by 5.8% year-over-year and by 5.6% quarter-over-quarter to $1.33 billion, exceeding our initial expectations. This was driven by successful monetization development of paid job ads with a notable contribution from premium sponsored jobs. This solution enhances our paid job ads by incorporating key features and leverages Indeed advanced matching and targeting technology. Revenue in Europe and others increased by 14.7% year-over-year to $509 million. The U.K., Canada and Germany together accounted for about 2/3 of Indeed revenue for Europe and others on a U.S. dollar basis. The revenue growth was primarily driven by the U.K. and Canada, where monetization development led to revenue growth of approximately 8% year-over-year, respectively, on a local currency basis as well as by foreign exchange impacts. Starting this fiscal year, HR Technology Japan consists of job advertising services, placement services and other hiring-related services after integrating HR solutions of the former Matching & Solutions. Revenue in Japan decreased by 7.2% year-over-year to JPY 84 billion or declined by 5.7% year-over-year on a U.S. dollar basis. Our job advertising service, Indeed Plus, which launched in January 2024, is performing above initial expectations. However, our placement services fell short of the initial assumption. This shortfall occurred because we underestimated the business impact of the system migration processes that followed our recent organizational integration. Even excluding the impact of the difference between gross to net revenue recognition related to the transition to Indeed Plus, overall, Japanese revenue came in below our initial expectations. Segment EBITDA+S margin expanded to 37.9%, driven by improved productivity and enhanced operational efficiency in the U.S. and in Europe and others. Even in a business environment where the total number of U.S. job postings continued to decline, the successful combination of a monetization development and improvements in operational efficiency and productivity was clearly reflected in segment EBITDA margin, which increased by 6.6 percentage points from the same quarter last year to 34.7%. As a result, for the first half, on a U.S. dollar basis, segment revenue increased by 4.1% year-over-year to $4.77 billion and on a Japanese yen basis, decreased by 0.5% year-over-year to JPY 697.5 billion. As for revenue by region, in the U.S., revenue increased by 3.4% year-over-year to $2.59 billion. In Europe and others, revenue increased by 13.7% year-over-year to $985 million. In Japan, revenue decreased by 5.8% year-over-year to JPY 174.3 billion or decreased by 1.3% year-over-year to USD 1.19 billion. Although placement services revenue fell slightly short of our initial expectations, job advertising services revenue performed above expectations, resulting in total revenue in Japan coming in slightly above our initial projections. Segment EBITDA+S margin was 36.5%. For the first half, sales commission, promotion expenses and advertising expenses in total amounted to approximately 13% of segment revenue, while employee benefit expenses and service outsourcing expenses totaled approximately 46% of revenue, reflecting the impact of the workforce reduction announced in early July, which began to take effect in the latter half of the first half. Now I will look -- discuss the second half outlook. But before diving into the outlook, today, I am introducing a new key performance indicator to track our monetization progress and serve as an important indicator of the future evolution of HR technology in the U.S. The U.S. average revenue per job posting on Indeed or U.S. ARPJ growth rate. Hereafter, we refer to the U.S. average revenue per job posting as U.S. ARPJ. For clarity, the U.S. ARPJ is calculated by dividing HR Technology U.S. revenue by the total number of free and paid jobs in the U.S., including those posted directly to Indeed and those aggregated from the Internet. It represents the average revenue generated per job posting on Indeed in the U.S. The U.S. ARPJ is based not only on paid job ads, but the denominator includes all jobs listed on Indeed, regardless of whether they are paid or free. Its year-over-year growth rate is the U.S. ARPJ growth rate. The revenue increase of 5.8% in the U.S. during this Q2 was driven by the U.S. ARPJ growth rate coming in at approximately 15% increase year-over-year despite an approximately 8% decline in the total number of job postings. For the first half, the U.S. ARPJ growth rate was around 13% increase year-over-year, clearly demonstrating the progress and success of our monetization strategy. This chart shows the index trend in total number of U.S. job postings on Indeed from February 2020 to the present, represented here by the Indeed Hiring Lab U.S. job posting Index. This index is based on the total number of U.S. job postings used in calculating the U.S. APJ growth rate. It is important to understand that this index is based on both free and paid job postings on Indeed, which are sourced in 2 ways. Hosted jobs are posted directly on Indeed by business clients. Indexed jobs are aggregated by Indeed from employer websites and other sources across the Internet. Our CEO, Deko stated in May 2024 that we assume that hiring demand in the U.S. will hit the bottom after decreasing for another 18 or 24 months, i.e., this second half. and we will run our business based on that. Given the current U.S. business environment, we still expect hiring demand in the U.S. to be broadly in line with our assumption at the beginning of this fiscal year, which is to continue a modest year-over-year decline throughout the second half with the trend bottoming out in Q4. Based on our assumption, we have revised our U.S. revenue outlook for Q3 and Q4. This chart shows the quarterly trend of U.S. revenue in HR Technology since Q4 FY 2019, together with the index chart that I mentioned earlier. On the far right, we have added the HR Technologies assumed trend for the IHL Index in the second half and the revenue outlook for Q3 and Q4. Looking at these results through Q2, as you can see, through FY 2023, HR Technology U.S. quarterly revenue moved largely in line with this index. However, from the beginning of FY 2024 through the first half of the current fiscal year, meaning 6 quarters, HR Technology U.S. revenue has decoupled from the declining trend in job postings. This divergence is the direct result of ongoing developments in monetization, which we have been successfully executing since our CEO, Deko, announced the beginning of year 0 in May 2024, a period of strengthening our foundation and preparing for a recovery in the business environment following the downturn. To provide clear insight into this divergence, we will report the U.S. ARPJ” growth rate as a new KPI. This metric represents our continued progress in evolving our business, capturing the success of our entire product and monetization strategy built on Indeed's foundation as a 2-sided talent marketplace that connects job seekers and employers. Currently, paid job ads remain just under 1/4 of the total number of U.S. job postings on Indeed. As we increase this penetration and as more business clients adopt our other value-added subscription services, including sourcing, branding and new AI products, the U.S. ARPJ will rise and its growth rate will accelerate, further widening the divergence from the IHL Index growth rate. Now turning to our U.S. revenue outlook for Q3 and Q4 in U.S. dollars. Despite an anticipated year-over-year decline of around 7% in the total number of U.S. job postings in the second half, we expect the U.S. ARPJ” to continue growing year-over-year at around 16% for the second half. We expect revenue for Q3 to increase by 7.2% year-over-year and decrease by 4.8% quarter-over-quarter, reflecting the seasonality of the holiday period when both job seeking and hiring activities tend to slow down. For Q4, we expect revenue to increase by 8.6% year-over-year and by 1.6% Q-on-Q. Our second half outlook is based on exchange rate assumptions of JPY 145 to the U.S. dollar and JPY 172 to the euro. We expect segment revenue to increase by 7.8% year-over-year to $4.74 billion and to increase by 2.5% year-over-year to JPY 687.9 billion. By region, in the U.S., based on the quarterly revenue assumptions I discussed earlier, we expect revenue to increase by 7.9% year-over-year to $2.56 billion and to decrease by 1.4% compared to the first half, reflecting normal seasonality. In Europe and others, we expect revenue to increase by 21.5% year-over-year to $1.03 billion, reflecting ongoing developments and monetization. In Japan, revenue in placement services, as explained earlier, will continue to decline in the second half, and we expect revenue to decrease by 7.2% year-over-year to JPY 167 billion or by 2.4% year-over-year to $1.15 billion. As I stated in the earnings presentation in May, in Japan, we are prioritizing the stable operation of our newly reorganized structure following personnel reassignments to facilitate future growth in the coming years. Since April, we have focused on maintaining stable operations for the integrated organization while launching a range of initiatives to drive business evolution and enhance efficiency, including actively leveraging AI to support future growth. Some of these initiatives are already yielding results, while others have required us to make adjustments. For those that did not meet our initial expectations, we have identified the underlying causes and are working to rectify and improve them. We remain committed to pursuing innovation boldly without fear of failure. Although corrective measures have already been underway, placement services generally take more than 6 months from the time a job seeker is introduced to a position until a successful match is finalized and revenue is recognized. Therefore, we expect the impact of these corrective actions to begin contributing from the first half of next fiscal year. Segment EBITDA+S margin is expected to reach 35.1%, up 3.4 percentage points from 31.7% in the second half of last fiscal year as we aim to balance monetization developments with further improvements in operational efficiency and productivity even in a business environment where U.S. hiring demand continues to decline modestly year-over-year. Margin expansion in the U.S. and in Europe and others is expected to continue, driven by upward revisions of revenue and progress in efficiency improvements, including the workforce reduction implemented in July. In Japan, we expect lower revenue due to the performance of placement services to contribute to a lower EBITDA+S margin. However, we also plan to control advertising and other promotional expenses carefully, which will partially offset the negative impact on margins. Based on the results for the first half and the outlook for the second half, the full year outlook has been revised upward. We now expect segment revenue to increase by 5.9% year-over-year to $9.52 billion, up from the initial outlook of a 2.4% increase to $9.2 billion. On a Japanese yen basis, we have revised our outlook upward to JPY 1,385.5 billion, representing a 1.0% increase year-on-year from the initial outlook of a 2.8% decreased to JPY 1,334.4 billion. By region, in the U.S., we have revised our outlook upward from the initial assumption of a 0.3% year-on-year increase to an increase of 5.6%, reaching $5.15 billion. In Europe and others, we have revised our outlook upward from the initial expectation of an 8.1% year-on-year increase to a 17.6% increase, reaching $2.01 billion. In Japan, we have revised our outlook downward from the initial expectation of a 2.7% year-on-year decrease to a 6.5% decrease to JPY 341.3 billion and on a U.S. dollar basis to $2.34 billion, representing a 1.9% decrease year-on-year. Segment EBITDA process margin has been revised upward from the initial outlook of 34.5% to 35.8%, representing an increase of 2.8 percentage points from 33% in the last fiscal year. Segment EBITDA margin is expected to be 31.1%, representing an increase of 3.7 percentage points from 27.4% in the last fiscal year. As for Staffing, segment revenue in Q2 increased by 0.8% to JPY 421.3 billion. In Japan, revenue increased by 6.1% to JPY 209.4 billion, driven by stable demand for Staffing. In Europe, U.S. and Australia, revenue declined by 3.9% to JPY 211.8 billion. This represents an improvement from the first quarter, driven by increased orders from large business clients as well as the impact of the Japanese yen depreciation. Segment EBITDA+S margin was 6.6%. For the first half of the fiscal year, segment revenue decreased 1.3% to JPY 829.4 billion. Segment EBITDA+S margin was 6.6%. For the second half outlook, segment revenue is expected to increase 2.3% to JPY 846 billion. Segment EBITDA margin is expected to be 4.8%. For the full year outlook, we have revised segment revenue to JPY 1,675.4 billion and segment EBITDA+S margin to 5.7% with only minor changes from the figures disclosed on May 9th. Next, I will discuss Marketing Matching Technologies or MMT. Regarding Q2 results, segment revenue increased by 6.3% year-over-year to JPY 144.3 billion with revenue growth across all subsegments. Revenue in Lifestyle, which consists of beauty, travel, dining and SaaS solutions increased by 8.5% to JPY 76.9 billion, driven by the continued growth in new business clients in Beauty. Revenue in Housing and Real Estate increased by 4.3% to JPY 38.5 billion, driven by the growth in the number of contracts closed for custom homes through Sumo Counter, our face-to-face housing consultation service. Revenue in others, which includes car and bridal, increased by 3.5% to JPY 28.8 billion. Segment EBITDA+S margin expanded to 32.3%, driven by appropriate cost control, principally related to service outsourcing expenses. For the first half, segment revenue increased by 6.7% year-on-year to JPY 281.2 billion, and segment EBITDA+S margin was 31.9%. For the second half outlook, segment revenue is expected to increase by 3.7% to JPY 286 billion, driven by continued strong performance in Lifestyle, including growth in new business clients in beauty and dining and continued increases in the number of room nights and unit price in travel. Segment EBITDA+S margin is expected to be 22.2%. I will now explain the background behind the significant difference in EBITDA+S margins between the first half and the second half of MMT. The primary factor is the seasonality of advertising and sales promotion expenses in the Japanese market. When planning for the next fiscal year, MMT carefully prioritizes these expenses across its subsegments, consolidating proposals submitted by the respective business units. Based on the latest performance outlook during the fiscal year, MMT allocates funds intensively and effectively in line with these priorities when the number of actions by individual users on our matching platform increases. Our Q4 coincides with the timing when the number of actions taken by individual users increases the most within the fiscal year due to the start of the new fiscal year in Japan in April, particularly in housing and real estate. By concentrating our spending on these expenses during this period every fiscal year, MMT aims to maintain and increase the revenue recognized in Q4 and in Q1 of the following fiscal year. In the previous fiscal year, approximately 36% of total annual sales commission, promotion expenses and advertising expenses broadly defined as marketing-related expenses were recorded in Q4. And approximately 58% were recorded in the second half with an EBITDA+S plus margin of 28.6% for the first half and 22.4% for the second half. In this fiscal year, in addition to the concentration of usual seasonal expenses in the second half, we will increase sales promotion expenses exceeding initial projections to support new growth initiatives across multiple areas aimed at realizing increased revenue in fiscal year 2026 and beyond. As a result, we expect approximately 60% of the annual marketing-related expenses to be recognized in the second half of this fiscal year. Moreover, we have a onetime impact from a planned update to MMT's accounting system at the end of the fiscal year. This upgrade will refine our revenue recognition policy, moving from a previous pro rata monthly allocation method to a daily basis recognition. This onetime transition means approximately JPY 5 billion in revenue and associated profit, which we had expected to book in March will not be recognized within the current fiscal year. Taking this into account, we expect EBITDA+S margin for the second half to be 22.2% compared with 31.9% in the first half. The full year segment revenue outlook is largely unchanged with an expected increase of 5.1% year-over-year to JPY 567.2 billion compared to the initial outlook of plus 5.1% year-over-year to JPY 567 billion, even after reflecting the one-off impact from the revenue recognition refinement that I mentioned earlier. Due to the one-off profit impact, segment EBITDA+S margin has been revised downward from the initial outlook of 27.5% to 27.0%. Regarding our segment EBITDA+S margin, our future targets remain unchanged. MMT aims to reach segment EBITDA+S margin of 30% in fiscal year 2026 and approximately 35% by FY 2028. We plan to share specific details about initiatives to drive revenue growth in the next fiscal year soon. Now based on the segment outlook, let me turn to our consolidated outlook for the second half. For the second half, we assume exchange rates of JPY 145 per U.S. dollar and JPY 172 per euro. As for the consolidated outlook for the second half of the fiscal year, revenue is expected to be JPY 1,805 billion. EBITDA+S is expected to be JPY 339 billion with the EBITDA+S margin to be 18.8%. We have revised the full year consolidated guidance, reflecting the first half results and the second half outlook of -- for each segment. Revenue guidance has been revised from JPY 3,520 billion, minus 1.1% year-over-year to JPY 3,598.5 billion, plus 1.2% year-over-year. EBITDA+S has been revised from JPY 697 billion, plus 2.7% year-over-year to JPY 733.5 billion, plus 8.1% year-over-year. EBITDA+S margin is expected to be 20.4% with EBITDA+S margin over gross profit assumed to be 34.5%. Profit attributable to owners of the parent has been revised to JPY 448.3 billion, representing an increase of 9.8% from the last fiscal year, and basic EPS is revised to JPY 313, up 15.3% year-over-year, reflecting the impact of share repurchases. Consolidated full year results will be expected to reach new record highs. Our capital allocation measures, I would like to cover this topic last. During the first half, we repurchased approximately 53 million shares for JPY 423.7 billion. Consolidated net cash and cash equivalents as of the end of September was JPY 590.5 billion. A new share repurchase program with an upper limit of JPY 250 billion started on October 17, and the market repurchase is currently being conducted through an appointed securities dealer with transaction discretion. The repurchase period is scheduled to continue until April 30, 2026, at the latest. We note that following the commencement of the share repurchase program, we may consider and execute strategic M&A transactions. The Board of Directors resolved today to pay an interim dividend of JPY 12.5 per share. The total per share dividend amount is expected to be JPY 25.0. We retired treasury stock in March of both fiscal year 2023 and fiscal year 2024 using shares acquired during the respective fiscal years. We will also consider retiring the treasury stock to be acquired through our share repurchase programs in fiscal year 2025 at the end of the fiscal year, taking into account market and business conditions. Finally, regarding the total payout ratio for the fiscal year, if we assume the currently ongoing JPY 250 billion share repurchase program is completed within the current fiscal year, in addition to the share repurchase results up to September 30 of this year, the total amount of shares repurchased this fiscal year will be JPY 677.9 billion. Additionally, taking into account the expected dividend for this fiscal year, the total payout ratio is expected to be approximately 159% based on our full year consolidated earnings forecast announced today. This concludes my presentation. Now we'd like to proceed to the Q&A session. Mizuho Shen: [Operator Instructions] So first, Nomura Securities, Oum,san please. Jiyong Oum: This is Oum from Nomura Securities. So my first question. U.S. ARPJ” second half plan, 16% increase, you said. Majority of that is premium sponsored ad contribution. Is that correct? Are there non-premium factors? Junichi Arai: Of course, premium contribution is expected. But it's not only that. There are various factors that will contribute to this number. We have incorporated other factors. As I mentioned earlier, subscription sales have partially started. And according to what we experienced now, it seems like we -- this is gaining traction. It is received positively. And as I mentioned earlier, market will continue mildly expanding. So we want to harvest and exert this monetization impact. So whether you think this is questionable or aggressive or we can do more, I hope you could take a good guess. So there are existing ones and the newly developed ones, newly launched ones. So when we announced our Q3 results, we will share with you what contributed to the results. Jiyong Oum: And my follow-up question is the current status of premium, if you could elaborate on that. I know it is difficult to disclose, but the breakdown between standard and premium, for example, what is the percentage of premium? And the number of countries or regions that you have deployed this, where you stand. So if you could give us a hint on penetration, it would be helpful. So today, we focused on the U.S. So how impactful premium is in the U.S. market and how things look like in Europe. Junichi Arai: I hope we can use different parameters to explain going forward. But today, we are focusing on the U.S. And when we disclose these numbers, then what is the revenue breakdown or hosted or indexed. All these breakdown will continue. So for today, we'd like to refrain from giving you the breakdown. But the number of users using this is increasing as we speak. Jiyong Oum: Thank you. Understood. I already use my right for one follow-up question. But in the premium, there are many functions. What is received well particularly? Junichi Arai: So the biggest reason from migration from standard to premium merchant hiring or Deko says, what we newly add on premium is what we often discuss. And any new things we can launch in the nonpremium. So what we include in the package, what we exclude from the package and the combination thereof and how we deliver this, offer this to our users. And have received the payment. There are so many things, factors that we consider. So of course, we may add new functions to raise the price of premium package in some case or do something else. So I think that the combination is diverse. So we may add some new functions to increase the unit price or take another option, and that all determines the final result. So we may share with you Q3, Q4 results on that. I hope you could look forward to it. So the candidate and the targeting function. There are industries that like that and not so well in other industries. So for the industries where this is popular, the numbers are showing. So I cannot say this across the board. It's difficult to make a general comment, market is large and the needs differ from client to client. Mizuho Shen: Next, Munakata-san from Goldman Sachs Securities. Minami Munakata: Hello. I'm Munakata from Goldman Sachs. Regarding the second quarter, U.S. Indeed growth is quite strong, which is reassuring listening to your presentation. And in addition, the -- you've also disclosed the average revenue per job posting a growth rate, which is very helpful. And here's my question. Comparing -- you have the bar graph showing the index and the revenue overlapping. The divergence between the index and the revenue with more monetization developments, you mentioned that this would increase. But currently, the assumption for the growth rate is 16% for the second half, which is at a high level. So from next fiscal year onwards, should we expect that this growth rate, the U.S. ARPJ growth rate will be maintained or even be higher -- is that realistic? And also more recently, Indeed, Talent Scout and other services have been announced and monetization of these new services, I don't think will come in, in this fiscal year, but more so for the next fiscal year, is that something we should expect? Junichi Arai: For the second quarter, the results -- perhaps this is not something I should mention much to external parties, but I think the results have some of the Deko effects. Currently, Deko is on the ground leading various efforts, monetization developments and perhaps there will be questions about this later from someone else, but we are also working on increasing efficiency of the business at such high speed, we are working on both of these efforts in parallel. Today, in my presentation, I talked about revenue outlook for the third and fourth quarters and also our interpretation of the index, our expectation of the index. This is the latest information, latest data that we are sharing at least for the third and the fourth quarters, we believe this is the level of impact of the monetization developments that we should expect. That is the pace that we are observing. For the next fiscal year, we've said that there will be many different things that will be introduced on a subscription basis, there will be an AI tool to be offered, things that are new that we have not done before will be introduced in the next fiscal year. So for these new services to be translated into value and how we should monetize in tandem, these are some of the things that we are currently considering. As for the market condition for fiscal year or calendar year 2026, we are making assumptions. And based on those assumptions, we are considering what should be the U.S. results that we can achieve for the next fiscal year. So it's not simply based on what we currently have. There will be new things that we will be stopping and by combination of these various different pieces, we are thinking about how we can increase our KPI and to reach the numbers that we've disclosed. I consider these KPIs to be quite challenging, tough KPIs with the market recovery with an increase in the number of jobs, even if we achieve the same level of growth, the growth rate itself does not increase. Therefore, we have to always overachieve in order for the growth rate to increase. So irrespective of the market recovery, we have to consider, what are some of the pieces we need to introduce in order to increase and increase revenues that we receive from our clients. So for next year, what will happen of course, will be something we will be talking about in February and May, but the fact that we've disclosed this time shows our unwavering resolve and determination for this. Minami Munakata: Thank you. I think I personally felt that determination through your presentation. As a follow-up, in my recent conversation with investors on our side, generative AI services have become more common. And some investors have said that things like ChatGPT, these are generative AI services provided by others, perhaps Indeed services may be replaced by the services offered by other companies. So that's a concern voiced by some investors. Could you elaborate once again on the strength of Indeed? Junichi Arai: For the past several months, when I met with investors, I myself have received the same questions from them. And what I said, how I responded to those questions at the time was that when a job seeker uses things like ChatGPT asking whether there is any good job out there. The ChatGPT says, what about this? And it also offers to write nice resume, I think that's a very plausible scenario. But then what would happen? So those are some of the questions that I actually received from the investors. And at the time, what I said was that job seekers, if that were to happen, they would be able to apply to more jobs since it's now easier. I think that's something that we can expect to happen. And if that is the case, how can we provide high-quality matching service and to address both job seekers and business clients to help them reach high-quality jobs for high-reach candidates. So I think that's one direction that will certainly be important. Job seekers may be sending in hundreds of applications, but they are not getting any reply because this puts a lot of burden on the business client side, the employer side. So Deko has said this from before, when matching becomes more difficult, how can we support the process is important. It's not simply placing advertisement or rather, how can we help business clients discover high-quality candidates? How can we help them select a better competitive candidates? I think these are the kind of services that will be in demand. So in that sense, as I said, we have a 2-sided marketplace. The fact that we have such a talent marketplace helps us increase the efficiency of matching. So that's how I responded to the questions from investors whether it's Yahoo!, Google or Facebook, there are already excellent platforms for jobs and technologies available for jobs. Other services have been in place and maybe if it was 10 years ago, people thought that they already had these platforms, and we would be no match. But if we look at the reality, the story is different. Maybe some companies started and they were not successful. For e-commerce, rather than booking or e-commerce, there are things out there that are mass produced as long as you pay for them, you can acquire. But jobs are different. There is only one job and selecting the right candidates, this is determined solely by the employers who are looking to hire people. So this is where we are different from EC and booking. In other words, it's always 2-way, two-sided. And I believe the fact that we have the 2-sided talent marketplace, this will continue to be appreciated by the 2 parties and to continue to be used by both sides. I think that's the nature of our business. My answer might not have been concise, but I often talk about things like this whenever I receive those questions. Minami Munakata: I understand the concept well now. Thank you. So how should I say what can we offer to business clients, simplifying hiring or helping clients determine whether a candidate is qualified or not, whether this candidate is these are real human person or not? Junichi Arai: I think in the future, there will need to be various aspects that need to be addressed. So by strengthening these pieces, I believe we will be able to differentiate ourselves. That's what Deko said. Mizuho Shen: Next, SMBC Nikko Securities, Maeda-san, please. Eiji Maeda: SMBC Nikko Securities, Maeda is my name. Thank you. So you have this proprietary original investment improvement and generating results, it's great. So the market model does not need to be worried, but every time we see the statistics, like you said, the job, we think will hit the bottom in Q4, as the stock market is having a more difficult view. And maybe that is reflected in your share price. But once again, you think that the job trend will bottom out, will show signs of bottoming out in Q4. Any changes in your forecast? And are there any risks? Junichi Arai: So when we say bottom, it is an image of ticking and turning upward. We tend to think of bottoming out that way. But even when there is a bottom, it does not necessarily mean a rapid recovery. And at the same time, it may not be overall trend. Industries may show different trends. We are starting to see many industries stopping their decline. So the U.S. labor market is impacted positively. So the decline in the labor supply in the U.S. is already impacting the market. So we do not think it will continue declining sharply going forward. That said, it may not show a V-shaped recovery right away. So to repeat my message, how we show our KPI U.S. ARPJ, how we raise our U.S. ARPJ, our important KPI, this is our focus. Eiji Maeda: Thank you. My follow-up question. So if things go as expected. Top line is growing as expected. But at one point in the future, you may shift gears to M&A. You are reducing cost through efficiencies. So once the projection changes, your cost will start rising again from Q4 to next fiscal year, what is your basic thinking of investment in this business? Junichi Arai: As we've been mentioning from the past, we do not think of doing M&A to increase our revenue. Even if we do that, it is for the future. As we received questions earlier, how we improve our U.S. ARPJ. In the future, will be the end goal. So for that purpose, we may do M&A. We will not do M&A for a short-term increase in the revenue or improve the margin by reducing the headcount. We are not thinking of that at all. So M&A will not have an impact in the short term, but will be impactful in the long run. So it will not impact in the performance in the short term. We will continue thinking on how we improve U.S. ARPJ growth rate. The same thing in the U.S. and further improvement in Japan. Once we see that, revenue will rise and costs can go down. So I think that combination is to steadily pursue this organically. Mizuho Shen: Yamamura-san from JPMorgan Securities. Junko Yamamura: This is Yamamura from JPMorgan. Can you hear me? Junichi Arai: Yes. Junko Yamamura: I just have 1 question. For me, regarding the outlook for the job postings, there may be 2 questions actually. I have a question around that. In the second half, you're expecting moderate recovery. There may not be a V-shaped recovery, but there should be a bottoming out in the Q4, which is, I think, a good thing. As Maeda-san pointed out, it is true the common debate, common discussion, there are 2 aspects. One is in the North America there has been restrictions on immigration. And if there is continued shortage of labor, it would put a lot of stress on recruit. And with the introduction of AI, of course, this would also impact the recruits business. So these are the 2 points often raised whenever we discuss this. So I would like to hear your views on these with even more shortage of labor, perhaps business clients are more motivated to hire. With the introduction of AI, maybe some companies or some jobs will no longer require human labor, but for higher quality talent that companies are willing to pay for, I think there is a huge or even a bigger demand for such talent. So with the efforts that you are currently implementing the monetization developments, perhaps will positively mesh with these developments in the market. So what is your view on the future state of your business? Junichi Arai: Well, this is what Deko says. The U.S. market is becoming closer and more similar to the Japanese market. So that's one thing. That's what he is saying over the past decades. Japan -- the Japanese market has experienced tightness, labor population declining, the population aging and others. So we are seeing similar things in the U.S. market, and he's saying the market in the U.S. is becoming more similar to the Japanese market. So as Yamamura-san said, things are happening in the market. What is happening today, what has happened? Perhaps if you trace them back to what has already happened in the Japanese market, you can certainly see a similar trend in the -- the number of job postings is actually increasing. And Deko today said this in one meeting. He, of course, looks at various stats and he tries to explain them to us. He looked at past examples of the U.S. market and from the latter half of the 1990s to 2010s over a 15-year period, the number of workers in factories in the U.S. decreased from 17 million to 11 million. However, the production output actually increased over the same period. So the white collar in the U.S. is said to be 30 million. So with AI introduction, I think this is a segment of labor that would be most impacted by AI. So we may see some decrease, but as I said, things that happened in the factory workers could happen. The unemployment rate as a result of these things did not actually increase rather workers were redistributed to other jobs -- other types of jobs. I say, oh, that's -- is that right? So the job market is huge. It's not specific to certain industries. It covers all industries. Therefore, the job market itself is enormous. I don't know what will be the analogies we would use as Japanese, maybe we would compare it to Lake Biwa, but if you consider a huge lake and a small pond, so just because AI is being introduced, it doesn't mean everyone will lose their job. I don't think that would happen. I don't think that's realistic. Maybe it will be the reality in certain areas. But if you look at the entire pool, there may be more people working in other industries, people earning more in other industries. Perhaps those are the results that we can expect. So if you consider all these things, in the U.S., the labor industry or where we operate, are becoming more similar to Japan. If you look at what is in high demand in Japan, where business clients are paying to higher talent. If you look at the Japanese market, I think we should reference that and consider them for what we are trying to do in the U.S. markets going forward. So with AI, I don't think there should be any immediate impact, but rather gradually, things will start to change with AI. So let's say, unemployment rate becoming 10%. If that were to happen, that's an extraordinary thing to happen, that's totally an extraordinary thing. And I don't think that will happen, at least that's what we are saying internally. We are not trying to make any excuses here, but let's say, the unemployment rate becomes 10%. And that is something beyond our control. That's not something we can address. It's for the government for the State to address. Of course, having said that, we want to help with no inflow of immigrants with the AI and so on. Of course, there are various factors, but they are localized and you ask us questions about recruits business being affected by these different pieces. I fully understand what you're saying, but we need to look at the entire pie, the number of jobs, the number of industries that exist, then I become skeptical with just these factors, would they bring a super huge impact on our business. It's like reducing the water in Lake Biwa by 10% or changing the color of the lake, what would it take? I think that's the kind of discussion that you are raising here. So there may be people who say that the business is quite challenging. It may be difficult. I fully respect their opinions. But I don't fully agree. I don't think that's the extent of the impact that we should expect. Going back to the question from earlier, should we expect a V-shaped recovery? No. And even without such a v-shaped recovery through efforts, I think we can go on. We want to go on. That's what I feel. Perhaps mobility will increase the type of talent. Business clients want to hire may change. They need to change. People want to work where they are needed. And I think that's the happiest situation for any worker. And of course, this is clients who are looking to hire such people. I'm sure there are clients out there who are willing to hire people who want to work with them. And we want to help support these job seekers and business clients and what are the services that we need to offer to reach and realize those goals. You go to a restaurant in the U.S., you go some places, and they are experiencing shortage of worker -- labor shortage is a serious issue. Junko Yamamura: I see. Junichi Arai: Whenever I have this -- I talk with you, Yamamura-san, we end up having conversations like this, very casual chat. Mizuho, are we already over the time? Mizuho Shen: It's already been 1 hour, but I see more hands up. So maybe we can stay on until quarter 2. So we'll go on to the next question. Morgan Stanley Securities, Tsusakan-san please. Tetsuro Tsusaka: Tsusaka speaking. Can you hear me? Junichi Arai: Yes. Tetsuro Tsusaka: So I have a simple or maybe a complex question. So Arai-san, you talked about Deko impact in one word. So for Indeed, as an organization, Deko's leadership is now incorporated and that resulted in a better growth than expected, better pricing increase than expected. So what is happening? So did the organization change or product change? I think all these factors are intertwined, but what -- in what way did things happen, if you could elaborate, please? Junichi Arai: Well, I don't want to praise him so much so that he blushes, but -- and I did not hear directly from him, but when I talk with Indeed headquarter people or the key office people I understand that he is quick. When we work with Deko, it's quick. He knows what we want and when things need to be decided, he decides right away. So what we want to do is clearly communicated. So it's easy to work with him, people say. So from the perspective of people working with him, I don't know, for a lack of a better word, it is rewarding. It motivates you, gives you a sense of fulfillment. That's what I hear from people, especially the people in products and sales. They do very detailed meetings with Deko. So if we make this kind of product, this is not good. This is what we want. Sales, please do this, very detailed requests come and concrete answers come for questions and consultations. So for sales increase and cost reduction, we can work on both sides in a very concrete terms. So the non-value-added products will not be focused. Focus is on where they are good results. Understand. So this is the recruit way. Tetsuro Tsusaka: I understand. Thank you very much. Junichi Arai: Of course, job seekers are very important. So how we offer value to job seekers comes first and foremost. That is the priority. But at the same time, how we can be appreciated by our clients so that they use more money. Deko is the businessman. So how we can bring smile on client's faces. That is all he thinks about every day, day in and day out. Please ask him directly too. Tetsuro Tsusaka: If there's an opportunity, I will. Mizuho Shen: Next will be the last question. Nagao-san from BofA. Yoshitaka Nagao: Nagao-san. I don't know if it's a question or comment. The ARPJ that you've disclosed, I have a question around that towards the second half. The ARPJ is going to increase, but looking at the formula, this is price-driven. If it is a price-driven increase, then that's good. Algorithm has been improved. Product unit prices increased and the profitability is enhanced. But if a number of job postings is decreasing or free advertising, free jobs are increasing. And still, we should see that this would contribute to the increase in the ARPJ as a residual effect. So how should we interpret this for the second half? Arai-san, are you intending for this to be price-driven increase? Junichi Arai: So far, we've had the Indeed model and if you continue to have a very strong impression of the past Indeed model, then if you look at the results 6 months from now or 1 year from now, you may think that the things are quite different from the expectations. I talked about subscription audio. For Indeed, this is a fairly new thing. So we need to consider everything, including all these new things divided by the number of jobs. We should increase, we should see an increase in the ARPJ. So as I said before, jobs that were not monetized in the past will bring in revenue and the paid jobs in the past should enjoy higher efficiency if clients are looking to reach better, more efficiently, then the clients can pay more. So the changes of how the jobs change irrespective of that, if we have more clients who value and are willing to pay for these things, then the ARPJ should increase. Just because the number of jobs decreased, it doesn't mean the growth rate increase is guaranteed. That is not the case. So as I said before, this KPI is a quite challenging, tough KPI for us. The reason I say this is because we look at the revenue for all jobs. So it includes jobs that we are not currently involved in at all. It is included in the denominator. So it requires us to consider how we can start to monetize these jobs. So that KPI includes all these things. So that's why I say this is a very tough KPI. AI tools like screening clients that are quite famous, they don't need to advertise. They already get enough applications. They have too many candidates applying. So those are clients that did not pay for our services. But going forward, this is something we can offer and sell to these clients. These are clients that we were not able to do business with in the past. But if we start to acquire these clients then, going back to Nagao-san's rather doubtful question, by doing things like this, we can increase -- we can see an increase in the ARPJ. Perhaps I did not answer that question. Yoshitaka Nagao: No, I get it. With the economic downturn, the number of job postings decrease, but there are still clients who are struggling to hire clients, who are determined to hire people, they will use the company's services and the paid advertisements or ARPJ, I don't know if it's going to be through subscription. In any case, the ARPJ will increase. Even in the economic downturn, the more clients paying for your products and services, you can see a higher ARPJ. That's certainly a realistic scenario. So as a KPI, I understand that this is a very difficult, challenging KPI that you've increased the hurdle rate yourselves, you're trying to take on this challenge yourself. I certainly see your determination, your resolve. So it's not that I've been doubtful. Junichi Arai: Sorry, because it's you Nagao-san, I was half joking when I said your question, I was doubting our intentions. Going after new clients as part of our recent initiatives. So we are starting to see positive results. That's what we are discussing with the business side. Deko also wants to maintain this momentum and do even more. Well, since Deko is saying that we can do this, I think we can. At least that's what I choose to believe. Mizuho Shen: Thank you very much for staying for a long time. So with that, we will close the Recruit Holdings FY 2025 Q2 Earnings Call. Thank you very much for late in the evening. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Operator: Ladies and gentlemen, thank you for standing by. Welcome, and thank you for joining the DHL Group conference call. Please note that the call will be recorded. You can find the privacy notice on dhl.com. [Operator Instructions] I would now like to turn the conference over to Martin Ziegenbalg, Head of Investor Relations. Please go ahead. Martin Ziegenbalg: Thank you, and a warm welcome from my side to the Q3 '25 results call. As it says on the title, I have here with me our Group CEO, Tobias; and the Group CFO, Melanie. We aim to cover all ground within the next hour or so. So therefore, without losing any further time, over to you, Tobias. Tobias Meyer: Yes. Thank you, Martin. Thank you all for participating in this call and your interest in our company. On Page 2, the highlights for the quarter. Firstly, on the short term, dealing with the changes in the global landscape, particularly the outfall of the changes in U.S. trade policy. Within the quarter, we had the abolishment of the de minimis also for the rest of the world. I think we have been able to deal with that very effectively by adjusting and shifting capacity, especially in our more asset-intensive global transportation networks that being Express, especially to do adequate yield management to overall mitigate the impact on the U.S. trade lanes and continue to take advantage where there is growth, and we'll talk about where there is growth in a minute. What is also very important to us not to only be observed with the short term, but continue to spend time and execute measures to accelerate our growth through the focus on the industry verticals that we've laid out in our Strategy 2030, but also and very importantly, to invest in those geographies that are growing and will continue to grow. We have a list of countries, which we call GT20 Global Tailwinds 20 with related trade lane development measures. And I think we can say that we also made good progress on that in the third quarter. Cash flow generation was strong. Melanie is going to talk about that in a minute, and we continue to be committed and execute on our promise on attractive shareholder returns through dividends and share buybacks, which also continued in the quarter. On Page 3, you see a statistic a graph that we published in conjunction with our global connectivenness tracker. Those of you who follow us more closely, we have been doing this for some years in collaboration with NYU Stern. And we found it worthwhile to highlight that the average distance of trade has continued to grow, actually reaching a record high. There is a strong narrative out there that talks about regionalization and french shoring and there might be reasons for such trends. But the fact of the matter is that long-distance trade continues to grow. We have massive shifts that we see in our company, but also beyond due to the changes in U.S. trade policy. But we also see that other trading partners continue to expand. I think most notably that was visible in the September export figures of China, where trade to the U.S. was down 27%, but you had double-digit growth in the trade with Southeast Asia with the trade of Europe as well and particularly the trade to the Middle East and Africa was growing a lot, Latin America as well. These being long-haul trades and that compensating for some of the decoupling that we see as it relates to the U.S., which clearly has a lower share of participation in global trade as is increasingly replaced by China as the most important trading partner for many countries in the world. That is also visible on Page 4 when it comes to our volumes here, a focus on the time-definite international piece. So that specific segment of DHL Express. You see, by and large, the trend from the second quarter continuing. So especially the decline on the U.S.-bound trade, the U.S. inbound that is, but we see also some other trades, also U.S. exports being somewhat under pressure as input factors for U.S. producers get more expensive if aluminum is double the price in the U.S. than it is in other parts of the world, it's obviously difficult to produce cost competitive products. So that is something that will continue to influence global trade and thereby our customers and the business that we do with them. As spoken, the de minimis now being abolished also for Rest of World that had a notable impact on volumes, less so for us on profitability because we were able to counteract that. But also we see that some volumes are declining that have been not so profitable for us to start with. So that also impacts our overall results. But the cost action is very important. And on Page 5, you see some details on that. Aviation costs down 8.5% in the quarter. That's hard work, and we are really pleased to see that the Express Aviation team has been able to deal with that very professionally. Service was very good in the quarter. And we are also really looking forward to the fourth quarter across all divisions. I think we're very well prepared with our setup to deliver excellent quality. But we do that in good balance with strengthening our cost competitiveness. So we have adjustments that are more cyclical, ramping down capacity shifting capacity. But on top of that, structural measures, which we have under the program Fit for Growth that really makes us a better company in many ways. Cost competitiveness is an important part of our growth journey going forward as well. So we see ourselves in making good progress on that. We keep the discipline that you used from DHL Express, but also the other divisions when it comes to yield. That's clearly also supportive of the result in the quarter. Some more examples on P&P on the following Page 6. Maybe before I go on to the profitability accelerators, it's important to note that the volume in the quarter for P&P had some shifts for some good carrying products between letter and parcel. There are details in the backup on that. So if you look on an organic basis, parcels were up around 2%. We had normal ups and downs in the volume of mail as well. The advertising mail had been quite weak in the third quarter of 2024. So year-on-year, it looks quite positive. But overall, when it comes to letter volume in Germany, there is no change to any trends. We still see that on the path that we talked about earlier. Now coming to the concrete measures that helped us also improve profitability to the level that we're now seeing, which is in line with the guidance that we've provided. AB steering, this is something that we can now do to a greater extent because of the lead time extension we got for the standard letter so that those standard letters are only brought to every address every second day, staying within the allowed lead time, but allowing for some efficiencies in that last mile and skipping households where we would elsewise only had a single letter on Monday and Tuesday, for instance, and now we bundle that to 2 letters on Tuesdays. That's what's meant with that AB steering. Joint delivery is something that we have been on for a long time. It's a really big program because it requires us to rebuild infrastructure to a great extent, but that is really very important in the long run to strengthen the efficiency of the system to ultimately become a parcel carrier that also carries some mail. We are now at 69% of parcels being jointly delivered with mail. So that's steadily progressing and supporting the efficiency, much needed efficiency within P&P. Out-of-home continues to be a focus. We continue to invest in that. We are as close to consumers as we ever were in Germany, and that is strengthening our position in that market and also on the support functions, we are nimble and efficiency focused, which you also see in the numbers. Technology plays an important role. On Page 7, there are some examples how we also deploy Agentic AI. Outside Europe, we have support for frontline recruiting, for instance, the prequalification, the initial interview of somebody who wants to work for DHL, an applicant that's done with the support of AI, customer service, probably across industries, the most common use case that is also visible in our company. More specifically on customs, it's very helpful not only from an efficiency point of view, but Agentic AI also does an excellent job in documenting the sources that were used for classification, so on the regulatory side, but also on the goods description side that does not only increase efficiency, but also service quality and compliance, very important in this area, especially when we talk about U.S. clearances is an important component of our success there. I think we have been leading in providing continued great service into the U.S. in recent months. So that's something where this also contributed. And then on service logistics, dispatch calls, for instance, following up on the dispatch of trucks is one of those areas where AI also comes in handy. When we look at growth accelerators on the following Page 8, we continue to invest organically, roughly at the same level than we had in previous years. This goes into infrastructure that improves our quality like in Barcelona and Helsinki for Express, but also investments that unlock new revenue streams, particularly in geographies like Middle East and Africa, where we're really getting into new verticals as well for supply chain, especially and then the ongoing expansion we have in our last mile activity. We continue to do targeted M&A, and we also had such in the third quarter as it relates to the merger of our e-commerce operations in U.K. with Evri. That is a consolidating move. We believe we need to be amongst the top 3 players in every e-commerce last mile market that we're in. If we're not able to reach this organically, we'll do so inorganically. We have announced a similar move for Iberia earlier in the year. We have now closed the transaction in the U.K., getting into such a market-leading position with that participation in the merged entity. We did a smaller acquisition in the U.S. that gives us access to specific capability on health care-orientated last mile, hospital logistics. And with our investment in AGEX, we get access to last mile activities in the Gulf Corporation Council countries. So again, an expansion of our footprint, which is part of the strategy that we have communicated. Similarly, we support the strategy with a strengthened management focus. We have a dedicated team for supply chain Middle East and Africa that has been executed in the third quarter. We just announced that we'll also have a similar move with DHL Global Forwarding as it relates to Latin America. So we want to have senior leadership in the region to drive the growth of those businesses. That's part of our strategy execution as well. That already brings me to my summary on Page 9. So we cover the short-term volatility that the business is exposed to. We're successful in protecting earnings and cash flow generation in that environment by doing the cyclical capacity flex, which I believe was highly effective also in this quarter, but also work on the structural measures that make us more competitive in the mid- to long term through the Fit for Growth initiatives, including increased deployment of technology such as AI-based tools. But also the long term, we saw progress in the quarter with those organic investments, the targeted M&A. We see ourselves making good progress on those structural elements of our growth journey towards Strategy 2030, and that is important to accelerate our growth trajectory in '26 and '27. We are aware that additional momentum is needed. With that, I would hand it over to Melanie to give you some more details on the financial performance of the divisions in the third quarter. Melanie Kreis: Yes. Thank you very much, Tobias, and good morning, and welcome also from my side. Thank you for joining our Q3 earnings call. I will start on Page 10 with the main takeaways by division. For DHL Express, Tobias already explained the effectiveness of our cost and yield measures. Reported Express EBIT contains a net negative EUR 54 million from nonrecurring effects, mainly related to a legal provision as well as some smaller cost of change and M&A effects. So it's worth pointing out that excluding these nonrecurring items, Express EBIT was actually up 9% year-over-year. In forwarding freight, we have seen similar market dynamics as our peers. In comparison, we have been performing relatively well in the quarter with underlying ocean freight volume growth of 5% and increases in GP and GP per tonne in air freight, both year-over-year and quarter-over-quarter, all leading to forwarding EBIT being up versus Q2. That being said, we are clearly not where we want to be with DGFF and Oscar de Bok is implementing structural improvements. Supply Chain continues to perform very well. Yes, we see somewhat slower growth in current circumstances with both currency headwinds as well as impacts from the general environment. But the structural growth tailwinds are intact for that division as reflected in very good new business signings with EUR 1.4 billion new contract value in Q3. One of the key drivers of these customer wins as well as a strong 6% plus margin is our leading digitalization, automation and standardization setup. In DHL e-commerce, EBIT includes a mix of nonrecurring effects, which I will address on the next page. Fundamentally, Q3 confirmed the intact structural e-commerce growth opportunity, which is not yet translating into accelerated profits as we keep investing into our network in this division. Last but not least, P&P is delivering very well on its strategic plan. Tobias has shown earlier the structural network changes which we are successfully implementing under Fit for Growth. And the Q3 numbers show that our measures are working with a year-over-year EBIT increase, both on a reported and as an underlying basis, which brings me to our Q3 EBIT bridge on Page 11. So in Q3 '24, we had a EUR 70 million positive one-off effect in P&P. If you adjust for this as well as this year's nonrecurring effects, our reported 7.6% year-over-year EBIT increase was actually a 10% growth, excluding nonrecurring items. On the main effects in this quarter, we are showing them very transparently on this page. There are, in total, EUR 37 million cost of change across Express, Global Forwarding Freight and DHL e-commerce. I already talked about the net minus EUR 54 million in Express being primarily driven by a legal provision. Now to the big number in DHL e-commerce. We handed over control for our U.K. e-commerce business to EY at the end of the quarter, which led to a positive deconsolidation gain. This positive effect is partially balanced by cost of change as well as a total of EUR 42 million in noncash write-downs for a full net positive effect of EUR 123 million in the quarter. We are explaining the accounting effects of the U.K. transaction on the dedicated e-com page in the backup, so I won't go through the accounting details now, but be aware that going forward, we will no longer fully consolidate our U.K. e-commerce business, but recognize the pro rata net income of our 30% stake in the combined entity in EBIT in line with the equity accounting rules. So that was a bit on accounting now. Sticking to the P&L, turning to Page 12, some more comments on the overall P&L. I think it's worth pointing out here that the 2.3% revenue decline is about equivalent to the minus 2.4% FX effect in the quarter. So while lower freight rates and U.S. tariffs were a headwind to growth, that also implies this revenue development overall also implies that on other trade lanes in regions and verticals, we saw continued growth, as Tobias already pointed out before. On the cost side, you see the benefits of our capacity flex and structural cost measures taking effect in terms of significantly lower cost for external capacity as well as in the reduction in staff costs. And at the bottom of the P&L page, you see that our continuous and consistent share buyback activity is driving a significant step-up in earnings per share growth in Q3 to 16% year-over-year. Coming now to the key points in our cash flow statement on Page 13. So EBIT growth is translating into higher growth of operating cash flow before changes in working capital. There are numerous movements across different lines in the cash flow statement. But ultimately, this growth in OCF before changes in working capital shows that -- while there are some moving parts in our EBIT bridge, the earnings quality of our EBIT growth is very healthy, and that is very important. Working capital changes contributed positively to cash flow in the quarter with the main contribution coming from DGFF. And this is, for me, another useful reminder that while we have work to do on DGFF, the business model of an asset-light forwarder is attractive through the cycle with working capital being one of the factors protecting the cash flow generation of the model. Strong growth in operating cash flow, coupled with ongoing investment control led to a very good free cash flow in Q3. And I'm pleased that in '25, we have shown a smoother cash generation across the quarters and are well on track to our unchanged EUR 3 billion full year target for free cash flow, excluding M&A. And that takes us to the use of cash and the next page. We have been consistently delivering on our dividend continuity promise and to our clear commitment on our EUR 6 billion share buyback program. With EUR 4.4 billion done by end of September, this leaves up to EUR 1.6 billion to go by end of '26. So no change here in our commitment to attractive shareholder returns. To round it up, let's turn to our unchanged guidance on Page 15. When we talked about our Q2 numbers in early August, the short notice cancellation of Rest of World de minimis to the U.S. had just been announced, and we prudently flagged a worst-case risk from this new development. By now, the abolishment of Rest of World de minimis has been implemented, and we have better visibility on the impact. So this impact is now fully reflected in the assumptions for our otherwise unchanged guidance as we reconfirm explicitly in the first bullet below the full year '25 targets. And this brings me right away to my wrap-up and the 3 main messages we want you to take away from today. The first is that in the short term, our cost and yield measures have driven a strong Q3 performance. And on this basis, we fully confirmed guidance today. Secondly, beyond short-term volatility and capacity flex, our structural cost savings drive a sustainably lower cost base, not only for the current environment, but also for the growth path thereafter. So they literally make us fit for growth. And thirdly, beyond P&L earnings, we also delivered a strong cash flow, which allows us to invest in a very targeted manner into the GDP plus verticals and regions we identified, while at the same time, offering attractive returns for our shareholders. And before we now turn to your questions, something special, a quick double advertisement in the name of our Investor Relations team. So first, for your questions, we now have a new AI tool on our IR website, which matches your questions with the information we have provided in our official publications. Martin told me that this is pretty unique in the IR arena. I would ask all of you to check it out, give me feedback. I hope that this will be a good example on how we strive to apply AI wherever helpful across the organization. And secondly, we have John Pearson and Mike Parra, our divisional CEO and our CEO, Europe of DHL Express, hosting an investor visit at our U.K. hub upcoming Monday. Contact IR here for more details if interested. I think it's definitely worth seeing. And with that, operator, please launch the Q&A. Operator: [Operator Instructions] Our first question comes from Alex Dogani at JPMorgan. Alexia Dogani: Just I'm going to limit it to 2. Just firstly, in freight forwarding, obviously, Oscar has now been in the seat for, I think, the past 90 days. Can you give us a little bit of an indication of what his plan is to improve the earnings kind of progression in that division? Because clearly, things have been approaching the 2019 levels faster than we would have thought a couple of years ago. So that's my first question. And then secondly, can you give us an update on the progress on the legal structure tiding up and when we should expect to see the overheads within the divisional reporting that you signaled at the CMD? That's it. Tobias Meyer: Thank you, Alex, for these 2 questions. So as it relates to Global Forwarding, I mean, Oscar is making progress. You saw the move on Latin America, for instance, which is, again, a closer to market move that enables us to execute our strategy in that as well. Overall, I think we know that in Global Forwarding, we have a great dependency on industry trends as well. You see that in the third quarter. That is hard for us to predict. We have seen clearly a normalization trend since COVID, but also within the year. I think there are some signs of that bottoming out, but there is a lot of uncertainty due to the changes in trade policy that we have talked about that obviously has implications on demand, quite notably so. On the other hand, we have compensating factors. I think we're all positively surprised by the trade figures that China published for September. That being one example of a counterbalancing effect. Overall, we see ourselves in the quarter with a positive development, especially in ocean freight. I think relative to our competitors, we have been doing quite well. Air freight, there's still more work to be done. And we also have that topic in terms of the freight market in Europe, especially our LTL network in Germany. So these are topics that Oscar is working on. But again, within the quarter relative to our peers, we are quite pleased. Melanie Kreis: Alexia, I'll take your second question on legal structure and the allocation of the corporate center costs. So we are well on track on the legal cleanup. As you may recall, target is to take the topic to the AGM next spring, and we are on track to do that. We will then, once we have implemented the new legal structure in the course of '26, start with the new reporting with the full allocation of the corporate center costs in '27. We will do some parallel shadow calculations for '26 so that when we start reporting in the new structure in '27, we can also restate the '26 numbers to that format. That's the time line here. Alexia Dogani: And can I just ask a follow-up on Tobias answer. Obviously, you talked about the external factors. productivity usually is an element that kind of helps improve the earnings kind of projections. We've seen other peers announce kind of relatively sizable cost savings programs. The Fit for Growth doesn't really apply to freight forwarding. Is there something that you are specifically looking at there, perhaps using natural attrition as a tailwind, just to kind of understand how costs should evolve there as well. Melanie Kreis: I think when you look, for example, at the numbers we show in our stat book, you can see that in terms of employees, we are 3.9% down in Global Forwarding Freight. So Fit for Growth and cost measures are also happening in that division. Tobias Meyer: Yes. So that I think I would absolutely echo we see ourselves good underway. You also have to see that productivity in the cycle has a cyclical element to it as well. In the downturn, we often see the files getting lighter and having less TEUs per file on the ocean freight side. Overall, also, if we look forward, Alexia, I mean, this is an area where we want to grow and rebuild also market share. So our obsession with cost is limited by that ambition to grow. We will look at productivity, continue to do so. But 2026 needs to be a year for growth for Global Forwarding. The environment is ripe for that. Some of the moves in the broader industry landscape might be helpful for us in that regard. So that's a strong focus that we have. We want to absolutely stay customer-focused in Global Forwarding and grow in those industry verticals that we have laid out. That's a clear focus for Oscar as well. Martin Ziegenbalg: Thank you, Alexia. We come to the next caller, which is from Wolfe Research. Operator: Yes, our next caller is Jacob Lacks with Wolfe Research. Jacob Lacks: So cost control was strong again with the ongoing volume pressure in Express. Can you help us think about how much of the cost outs are variable and how much are structural? And is in the EUR 1 billion Fit for Growth plan, is that on track? Or are you ahead of schedule here just given the global trade volatility? Melanie Kreis: Yes. Thank you for that question. So we are purpose really not breaking out how much of the cost is coming from the volume capacity flex and how much is structural because that is a little bit of an artificial calculation. So for example, -- we have done some rejigging to our aviation network by changing the partners we fly with. That has structurally improved our cost base under the Fit for Growth. But of course, that is now also impacted by how much volume we actually have in the network. So we don't see the benefit of kind of like pseudomathematically breaking it into the one bucket or the other. I think the important element is what you see in the bottom line and that is this very good cost development. And with that, we are overall a bit ahead of what we had envisioned under Fit for Growth for the third quarter situation. Jacob Lacks: Great. And then just one more for me. When you look at the U.S. volume declines, do you have a sense for how much of these declines are driven by de minimis and how much are higher tariffs? And to the extent we see tariffs taken off by the courts next year, could this drive a B2C volume recovery? Tobias Meyer: So I think we would not expect that. The -- even if IEEPA tariffs go, we all know that there are other legal grounds that the President could use to impose tariffs. So we think that the step down that has happened is permanent. If that would change, that would obviously provide opportunity. We would love that, would allow us also to definitely bring some business back, but we currently don't plan for that. The exact split between de minimis effect and tariffs is hard to do because it's also overlapping. So e-commerce has clearly taken a much more severe drop than B2B volumes. That's something that we very clearly see, and I think everybody would expect as well. Those B2B volumes are goods that are essential in many ways to the U.S. economy to U.S.-based customers. So the decline is significantly lower than the decline you see on the B2C on the e-commerce side. Melanie Kreis: And you also see in our overall numbers. So for B2C, we had minus 23% on the shipment side and for B2B, minus 2%, so holding quite stable. Martin Ziegenbalg: And on to the next caller from BNP. Operator: Our next question comes from James Hollins with BNP Paribas. James Hollins: James Hollins from BNP Paribas. Two from me. Melanie, please, could you try and quantify the de minimis impact? Obviously, you talked about up to EUR 200 million this year. Maybe you could give us any detail you think it's going to be and better still what you think it might be in full year '26. I know you told us not to annualize it. And then what I'd describe as a stream of questions on Express, but I'll keep it to pretend to one. If we look at Express TDI volumes obviously down 10%, 11% Q2 and Q3. B2C volumes down 23%. I was just wondering where that was versus the market, what you're seeing happening on market share and perhaps whether you could give us an early estimate where you think volumes might go in 2026. And then let's turn to the second part, TVI B2B volumes. I think previously, obviously, volume is pretty solid there. You talked about average weight per shipment. I was wondering if you could give us a bit of an update on that, if possible. Melanie Kreis: Yes. Thank you. So starting with the de minimis question. So I mean, again, when we talked about the EUR 200 million on August 5, that was days under days after the announcement that de minimis would go out end of August rest of world. So what we had done to come up with EUR 200 million was basically extrapolate the development we had seen for China, Hong Kong to the U.S. And I had already flagged then that this was really a worst-case scenario. We have now seen that there is an impact, but that we are able to manage that quite well as visible the Q3 numbers for Express. With regard to the TDI volumes, I mean, first of all, we had already taken a yield and profitability focused approach to B2C volumes long before the whole de minimis thing started. We had talked about that now for, yes, 6 quarters that we had really taken pricing action and that this had impacted our volumes, particularly on the Transpacific. And in that respect, we had seen stronger volume declines than competition. But when you look at our profitability development, I think that shows very clearly that the development is -- our approach is the right one. And to the weight question, yes, I think that's a very important point. When you look at volume and weight development, we see a less pronounced development on the weight side. So the focus also on heavier shipments for the Express network is actually paying off. Tobias Meyer: And I think if I may add to the market share, we are following that. You might have seen that some of our competitors have also published or said something to the in-quarter development. So that is something -- if you look at the entire quarter, it gives an impression that we might have lost. If you then look at how that development was within the quarter. We're not so sure about that anymore. So it's something that we watch. We obviously here are focused on TDI. We do not play in the intercontinental deferred market where there is clearly some growth that competitors have shown. Melanie commented on the profitability. The focus for 2026 is more on the weight side, given the focus on growing in industrials and the focus verticals that we have laid out. So that's our focus there, clearly B2B and tilted towards somewhat heavier weight of high-value critical goods. That's very much the focus of Express as we go into 2026. Operator: Next question comes from Marco Limite with Barclays. Marco Limite: Congrats for the Q2 results. So a question indeed on cost savings because I think the Q3 was a bit was mostly driven by cost savings. When we think about the 2026 outlook, I mean, I'm aware that probably is a bit too early to discuss about '26. But I mean, if -- specifically in the Express division, I mean, if we think about an environment where macro does not improve, you've got pricing that offset inflation. So let's say, the year-over-year improvement will be driven by cost savings. And then in your Fit for Growth program, I think you have said you have only EUR 250 million cost savings in '25 and a lot more next year. So is my, let's say, statement of Express growth next year of EUR 300 million, EUR 400 million year-over-year, right, if we assume macro stable and all coming from cost savings or that you think is a bit too bullish and I'm missing something else? Yes, maybe this is the first question. And my second question is on your full year '25 outlook. You have reported 3 quarters year-to-date up year-over-year and your current guidance at the low end implies Q4 down year-over-year. Yes, is that just, let's say, the low end is a bit more cautious? Or how do you explain that? I mean, do you just expect the e-commerce season being particularly bad? Or any color on that would be helpful. Tobias Meyer: So maybe I take the first question and then Melanie can comment on the 2025 outlook. Look, I think in the current environment to say what a stable macro means, we find this relatively difficult. If you look on the macro assumptions that we based Strategy 2030 on, and we rely on external sources that has been very disappointing, not only as it relates to trade and what has happened with tariffs in the U.S., but also the continued weakness in Europe, especially Germany, Germany having the third year without growth. So we will provide guidance in due course. We are in that process. We'll obviously continue the focus on cost savings, the cyclical part, but more important, also the structural part. We see ourselves good underway, but I think we need to wait a bit more to see with what run rate we really now exit 2025. We have picked up momentum in some areas as it relates to contract closings, for instance, in supply chain, which is also needed to get back on a solid growth term. We need to see now what happens on the U.S. side with APA and how that turns out. So these are all factors that will play out in2026. Marco Limite: Okay. Sorry, just a follow-up on that. asking the same question in a different way. Like can you confirm that you still got additional EUR 750 million cost savings next year and only EUR 250 million cost savings in '25 from the EUR 1 billion Fit for Growth program? Melanie Kreis: So as I said, we are actually ahead on the Fit for Growth measures. So in that respect, we will already see more benefits in the current year. As Tobias said, we will give guidance for '26 in March. There will be a positive contribution year-over-year from Fit for Growth going into the next year. We also have some negatives, for example, in P&P, it will be the second year of the price regulation. And then we have the macro question mark. We will put all that together for our guidance in March. With regard to Q4, yes, I follow the mathematics and the year-over-year comparison. I think one important element also linked to the first part of your question, we do plan further cost of change bookings for the fourth quarter. So in total, we will probably have cost of change up to million, half has already happened, but that means that we will also do some more cost change in Q4. And as we guide on reported EBIT, that is, of course, all included in our EBIT guidance. Operator: Next question comes from Cedar Ekblom with Morgan Stanley. Cedar Ekblom: I've got 2 questions. So firstly, on the AI rollout that you guys talk about. Have you thought what you could quantify those cost savings at considering we've got headcount down a couple of percent versus the end of 2024. I don't know if you could put some numbers around sort of lowering cost to serve. Maybe it's too early in the process, but that would be interesting to understand. And then the second question is just related to sort of the macro outlook that you talked about, Tobias, at the beginning on your global connectedness tracker. That obviously points to a world where global trade as a multiplier of GDP should continue to be pretty solid. I'm not so sure that, that is consistent with the message you gave at the Capital Markets Day where we had that sort of long-term trend that saw that decelerating. But the broader question here is, you are not growing your volumes in the businesses that are sort of most geared into global trade, sort of freight forwarding and Express. And I wonder, is it a case where the global market might continue to grow overall, but the verticals that are actually profitable for your business become far more niche. So I suppose the overall market can grow, but can your business grow overall? Or is it a case that there's only certain segments that remain profitable? It's a bit of a macro question. Tobias Meyer: Yes. Thank you, Cedar. For both of those questions, I think for AI, we would not quantify this. I think this is also very difficult to do. This technology is ultimately becoming a part of many, many applications that we use. We have dedicated programs as for customs, where we also drive that with own capacity, and that's easier to measure. But even that will quickly infiltrate into normal productivity increasements and the like. So singling out the AI effect as important as that emerging technology and very helpful technology is something that we see as difficult. Well, we'll continue to report and give updates on how we use it. and at least on a qualitative level, how it connects to our figures. As it relates to the macro outlook, I think we would stay with the view that we have shared that there is a deceleration also in the multiplier. The multiplier was significantly above 1 since at least 1990, and that will -- is not what we expect going forward. But the narrative that is out there of the regionalization is a Western perspective, and it's not a global perspective. China continues to globalize. Now in terms of us benefiting from that, it's not falling into our lap. That's, I think, a fair observation. There are some also industry sectors that we have strong exposure to that are not going to deliver the growth in Express, -- it is a story of an industry that has taken share from the general airfreight market over the last 40 years by expanding its capability. And that's what we need to do to be able to continue to grow that we have express cold chain capability, for instance, to have access to the sector that we're absolutely convinced will continue to globalize. The U.S. has a very unique point being the world's largest market and thereby being able to force companies to produce there. The rest of the world doesn't have that choice. Maybe China is the only second one to that. You will not produce modern pharmaceutical biogenetic pharmaceuticals in 20 places on this planet. This is just not what our customers tell us. These modern technologies are going to be highly concentrated, which means that for the rest of the world to participate, in that technological progress, there will be trade. That's what we see happening with a different focus, and that's what we expect going forward. Again, something that we need to actively address geographically, but also as it relates to our capability portfolio, and that's what we are working on and need to deliver on to be able to show stronger growth. I think we have a good track record in supply chain with that gradual expansion of our capability portfolio, but it's clearly a strong focus point for Express and Global Forwarding as we go into the year 2026. Operator: Our next question comes from Alex Irving with Bernstein. Alexander Irving: Two for me, please. First of all, on Express into the air peak season, both on volume and on the success of the surcharge, how are you seeing that develop, please? Second, also on Express, you've taken out quite a lot of costs year-over-year, but how much of that we need to add back as and when volumes rebound? Maybe related to that, where is the weight load factor currently, both year-over-year and also relative to your view of a normalized baseline? Melanie Kreis: I think with regard to the Express peak season, maybe not just in Express, but also in the other businesses where we see a peak season, we do expect that there will be a B2C peak season. How dynamic that will be remains to be seen. But we clearly expect the seasonal increase in the B2C volumes, and we are prepared for that in Express, but of course, also in Post & Parcel Germany and the e-com divisions. And with regard to the yes, demand surcharge driven by this seasonal additional stress on the system. We are on track with the implementation. So we do expect the positive cost offset from that seasonal surcharge also in the fourth quarter of '25. With regard to how much of the cost improvement is there to stay, as I said before, it is a mix, what we see at the moment between volume-induced capacity adjustments and structural growth levers. So of course, when volumes come back, we will eventually also flex back with capacity. But we also think that those structural fit for growth measures will give a lasting benefit, but we can't quantify that to a very precise number. With regard to weight load factor, well, given the current volume and weight situation, we are still not at an optimal point. So the cost measures are helping. But of course, ultimately, that is still a fixed cost network where it is more enjoyable when there is more volume and weight. I mean, also with regard to margin, we have seen a good development, but this is not our ultimate margin goal. So I think very well managed given the circumstances, but we look forward to the moment when volumes come back. Operator: Our next question comes from Michael Aspinall with Jefferies. Michael Aspinall: Michael here from Jefferies. A couple on Express. On the Express Rest of World kind of impact, it was mostly lower volumes. Maybe you can just talk to us as to why that is? And just thinking about the characteristics of those products. Are they kind of highly desirable B2C products or B2B that still need to move? Just thinking kind of what's happening underneath the numbers. Melanie Kreis: I think what we already assumed in August or what was kind of like our hope to keep us away from the worst-case scenario was that particularly the higher valued shipments, which had entered into the U.S. under the de minimis rule that they would be more resilient. So I mean, you had lots of machinery spare parts valued below $800 going into the U.S. under the de minimis. And our base case hypothesis was that these volumes would keep moving, but of course, then with clearance, and that is what we have now seen happening. So particularly the very low-value B2C stuff has seen the impact. partially also because customers are then changing to different forms of transporting B2C into the U.S. but we have seen more resilience on the B2B side, and that explains the difference between the minus 23% B2C volume decline and the minus 2.2% B2B. Michael Aspinall: Great. And 2 other just small ones. In Express on TDI volumes, Europe improved sequentially a little bit from minus 3% to minus 1% in 3Q. Is there anything underneath that to read into in terms of Europe getting better or not really yet? Melanie Kreis: I think it's a glass half full, glass half empty question. So yes, from minus 3% to minus 1% is moving in the right direction. Can we be satisfied with minus 1% -- clearly not. So yes, I think at the moment, we still see a more stagnant European development than we all would have hoped for. Michael Aspinall: Okay. Great. And last one, sorry to slip in 3. I think you don't really get into fuel hedging in Express. Maybe you can just remind us on that. And similarly, if there's no hedging, but you expect lower fuel surcharges, would that normally help on the volume front? Melanie Kreis: So on the fuel side, and there's a well-established mechanism in DHL Express, but also in the industry where you have a fuel surcharge. So there is a bit of a time lag about 6 weeks. But fundamentally, you then adjust and pass fluctuations in underlying fuel price on to the customer. Tobias Meyer: And the volume elasticity is relatively low to that. Operator: Our next question comes from Cristian Nedelcu with UBS. Cristian Nedelcu: Can I ask the first one in Express, your competitors are talking about adding air capacity on intra-Asia and Asia Europe. And I believe -- and correct me if I'm wrong, but I believe those are usually trade lanes where your Express margins are higher than the divisional average. So how do you see the risk of potential market share losses or margin compression there in 2026? The second one, maybe a small one on the Q3 Express. For what concerns the U.S., we've heard about the postal operators temporarily stopping deliveries to the U.S. in September. There's been maybe also some de minimis front-loading in August. did those bring any benefits to the profitability in Express in Q3 that may not repeat going forward? And the last one on Express, very useful the chart you offer with the weights into different regions. And looking at Q2 and Q3 and just focusing on Europe, weight down 3%, weight down 1%. If I compare it with the CTS ocean volumes into Europe, those have been growing around 10% year-over-year. Air freight capacity into Europe overall is also up high to low -- high single digit, low double digit. So I guess my question is a bit what do you think is driving the underperformance of Express versus ocean and air cargo only when we focus on Europe? Do you think it could be market share loss? Do you think it could be down trading or other factors that could explain that? Melanie Kreis: Okay. So maybe starting with the third one. So the missing element in the comparison is the intra-European business, where obviously air and ocean freight statistics don't show what is happening intra-Europe, but that's a big part of our Express business, and that has clearly not been the most dynamic. So that explains the difference there. Staying with the trade lane questions. So yes, I mean, the fact that intra-Asia and Asia to Europe is developing more favorably, which is why others are apparently thinking about moving capacity there is ultimately a good thing because those trade lanes are strong trade lanes for us market position in terms of profitability. So I see it more positive if intra-Asia and Asia to Europe is developing favorably. And yes, I think overall, we haven't seen any crazy capacity movements leading to difficult pricing situations beyond the normal competitive dynamics. Tobias Meyer: I would echo that. So this is good. We see ourselves in a very competitive situation, both intra-Asia. We sometimes say that Asia is DHL's second home and also Asia to Europe. So the trends that you're seeing that competitors are more interested in is something that we recognize and overall see as a positive message of this being a trade lanes where we can also can expect some growth in 2026. To your second question on the postal operators and the de minimis front loading, I think there might be small effects of that, but really not much. The de minimis front-loading, we -- others might have seen to a greater extent than we have. The postal operators, there might have been some shift for some time, but I think most of that volume just didn't show up. And we, as you are aware, have already now for several weeks, re established the postal channel to the United States Postal Service, which is particularly strong on the C2C side. So not much effect on Express in the third quarter as it relates to that. Operator: Our next question comes from Muneeba Kayani with Bank of America. Muneeba Kayani: I just wanted to understand your guidance that you've maintained and unpack some of the moving parts there because it's, of course, on the reported number and with all the one-offs. So you've got the EUR 178 million benefit on the accounting on e-commerce. That's certainly new for us. Was that something that you were expecting kind of already when you were giving your guidance maybe earlier in August? Similarly, on the cost of change, this was something you'd kind of highlighted and kind of we've taken into account into our numbers, but has that kind of impact of cost of change been different because of the phasing than what you had initially expected? And then lastly, on the de minimis kind of -- what have you accounted for into the year-end on that impact compared to that worst case of EUR 200 million. So if you could unpack those moving parts, that would be super helpful. Tobias Meyer: I think in the de minimis for us, this is now part of the run rate. So the effect is there. We don't expect much further to move than what we now have. As Melanie laid out, the impact was smaller than the worst case, significantly smaller than the worst case, and it's now part of everyday life. As it relates to the guidance, overall, this will net out for the year. So we roughly stay to where we originally seen that. Obviously, there's now the impact quarter-by-quarter, and Melanie can further elaborate on that. Melanie Kreis: Yes. I think if you put all the one-offs together, what we disclosed in Q2, what we disclosed in Q3, we currently have a net positive effect of a bit over EUR 40 million. We expect that to turn to a negative number because, as I said, we will have more cost of change now in the fourth quarter, and we don't anticipate a positive one-off in the fourth quarter. So if you say we have close to EUR 100 million in cost of change year-to-date. If you want to take that up to EUR 200 million, that gives you a feeling for the order of magnitude in the fourth quarter. So we should end the year with a negative contribution from one-offs for the full year. Muneeba Kayani: And just kind of on your 3Q Express volumes and the B2C minus 23%. Can you give us a sense of how that was in the month and like what happened in September post the de minimis? Tobias Meyer: So the swing that others might have seen was not as big for us. So I think you see over the quarters a pretty consistent trend, and we would not see much deviation from that trend. Operator: Our final question comes from Marc Zeck with Kepler Cheuvreux. Marc Zeck: One question left for me, maybe a bit on the P&P performance, I guess, that was good, certainly much higher than expected by the market. Is like EUR 200-plus million EBIT in the -- every quarter that is not Q4 kind of the run rate that you would expect now for the next year as well? I guess, we've seen the wage increases already for this quarter. So it seems like a pretty decent run rate. And with Q4 coming in, would it be fair that maybe you will end up in EBIT maybe more at the EUR 1.1 billion rather than the EUR 1.0 billion in P&P? Tobias Meyer: So I think -- the recovery that we see this year is also because the last year was relatively weak. I think that's important to keep in mind. Overall, we see ourselves very well underway to deliver the guidance. For next year, Melanie already highlighted, this will be a year without regulatory price increases in Mail. So that provides some pricing headwind for 2026. We obviously have some freedom in parcel that will also adequately utilize. So similar to other elements that we talked about, we don't see a change of trends for P&P. We have some seasonality in that business as it relates to volume and also earnings, and we expect that to be a normal peak season. That's where everything is currently pointing at. We also have higher cost to deal with that. So a normal seasonal development is what we expect to close out Q4. And then again, obviously, some of the structural cost measures will carry forward, but the headwind on input factor cost and pricing will be a factor in 2026. Operator: This concludes the Q&A session. I now hand it back to management for closing remarks. Martin Ziegenbalg: All right. We're not too far away from the 60 minutes that we were looking for. Good news for the guys in Copenhagen, who are next. Tobias, your closing remarks, please. Tobias Meyer: Well, it was an interesting quarter, and it, from our perspective, turned out quite well. We do not expect that volatility will go down. We will stay close to our customers. So first and foremost, impacted. It's easier to shift airplanes around than factories. We do see our narrative confirmed in terms of globalization not being derailed. There's clearly a deceleration relative to decades earlier, but especially in those areas that we focus on technology and the concentration of manufacturing due to economies of scale and economies of scale that continues to drive globalization and the growth of trade. And we are very focused on, a, staying close to our customers, adjusting capacity and remain fit in the institutional capability to do so. But secondly, to have enough time and management capacity to do what we clearly need to do to accelerate growth to execute on Strategy 2030, where we have more headwinds than we had originally anticipated from a macro environment. We talked intensively about that in this call as well. So there's clearly work to be done, but we remain optimistic about that and to a great extent, also excited about the opportunity that the world still offers to our company. With that, I thank you for your interest and the great questions that you post. Have a great day. Operator: This concludes today's call. Thank you for joining. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Freshworks Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference call is being recorded. I would now like to hand the conference over to your first speaker today, Brian Lan, Director of Investor Relations. Please go ahead. Brian Lan: Thank you. Good afternoon, and welcome to Freshworks Third Quarter 2025 Earnings Conference Call. Joining me today are Dennis Woodside, Freshworks' Chief Executive Officer and President; and Tyler Sloat, Freshworks' Chief Operating Officer and Chief Financial Officer. The primary purpose of today's call is to provide you with information regarding our third quarter 2025 performance and our financial outlook for our fourth quarter and full year 2025. Some of our discussion and responses to your questions may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on our management's beliefs about our business and industry, including our financial expectations and estimates, uncertainties in the macroeconomic environment in which we operate and market volatility and certain other assumptions made by the company, all of which are subject to change. These statements are subject to risks, uncertainties and assumptions that could cause actual results to differ materially from those projected in the forward-looking statements. Such risks include, but are not limited to, our ability to sustain our growth, to innovate, to reach our long-term revenue goals, to meet customer demand and to control costs and improve operating efficiency. For a discussion of additional material risks and other important factors that could affect our results, please refer to today's earnings release, our most recently filed Form 10-K and other periodic filings with the SEC. Freshworks assumes no obligation to update any forward-looking statements in order to reflect events or circumstances that may arise after the date of this call, except as required by law. During the course of today's call, we will refer to certain non-GAAP financial measures. Reconciliations between GAAP and non-GAAP financial measures for historical periods are included in our earnings release, which is available on our Investor Relations website at ir.freshworks.com. I'd encourage you to visit our Investor Relations site to access our earnings release, supplemental earnings slides, periodic SEC reports and a replay of today's call or to learn more about Freshworks. And with that, let me turn it over to Dennis. Dennis Woodside: Thank you, Brian. Freshworks delivered an outstanding Q3, marking the third consecutive quarter this year that we surpassed our estimates across growth and profitability metrics. We grew Q3 revenue 15% year-over-year to $215.1 million on both an as-reported and constant currency basis, approximately 3 points above the high end of our previously issued estimates. Non-GAAP operating margin expanded to 21%, 5 points above our estimate. Our free cash flow margin was 27%, and we added a fifth straight quarter of Rule of 40 plus. We ended the quarter with nearly 75,000 customers, including new logos such as global auto manufacturer, Stellantis; multinational bank, Societe Generale; the Pennsylvania Gaming Control Board; and Travis Perkins plc, the U.K.'s leading distributor of building materials. Our positive results also reflect significant expansion deals with existing customers like Wiley, The Access Group and iRhythm Technologies. In Q3, we saw a more than 40% year-over-year increase in the number of new and expansion deals with greater than $50,000 in ARR. Our strategy has focused on 3 key growth drivers: investing in Employee Experience, delivering AI capabilities across our products and accelerating adoption and driving continued expansion in customer experience. At our Investor Day in September, we outlined our path to $1.3 billion in ARR in the next 3 years, and we continue to make progress towards our goal of ESM, AI and ITAM, each generating over $100 million in ARR. Before we dive into the results, I want to speak to the transformative AI opportunity ahead for Freshworks. We have over 50 AI-driven applications in the hands of customers right now, and the direct monetization of these products demonstrates that we are driving incremental growth and that customers are realizing tangible outcomes from our AI. The headline here is that businesses need the right foundation, workflow, data and security that all work together, and that's what we provide. Companies will continue to rely on us because we have the operational context, data connections and governance needed to manage full-service functions like customer support and IT service at scale. Security, privacy and compliance are already built into our architecture. That's what makes our AI enterprise-ready compared to general purpose AI. Employee Experience continues to lead in durable growth, achieving over $480 million in ARR. That represents 24% year-over-year growth on an as-reported basis and 23% year-over-year growth on a constant currency basis, an acceleration from Q2. Three primary growth drivers that contributed to these results include expansion into departments outside of IT, continued growth upmarket and deepening our foothold in IT asset management with Device42. Enterprise service management continues to be an important expansion lever as customers increasingly use Freshservice in areas of their business outside of IT. Our ESM solution, Freshservice for Business Teams has doubled its annual recurring revenue in the past year and exceeded $35 million in ARR in Q3. Customers like Databricks, RingCentral and Qualcomm are using our ESM offering to automate workflows and deliver more personalized Employee Experiences at scale. As of Q3, 1 in every 4 eligible Freshservice customers are using Freshservice for business teams. To meet this surging customer demand, today, we announced that we are expanding enterprise service management access by making Freshservice for Business Teams available as an independent product for non-ITT functions. With a stand-alone product, we are no longer limited to using IT as our entry point, and we can now sell directly to HR, finance, facilities and legal, even if an organization is already locked into another ITSM tool. Second, we continue to move upmarket with midsized and enterprise customers. In Q3, ARR from customers who spend more than $100,000 with us grew 25% year-over-year. The steady flow of new product innovations like employee journeys, our AI-powered onboarding and offboarding capability and increased adoption of business teams contributed to the momentum of these larger customers. Freshworks is positioned as a clear alternative to legacy players, and we continue to displace incumbents. In Q3, we delivered our highest ITSM competitive win rates in 2 years as customers selected Freshservice for its ease of use, fast deployment and lower total cost of ownership. Freshworks has an established track record in ITSM. Mid-market and enterprise organizations want speed and simplicity and Freshworks delivers. One example is HOLT CAT, the largest U.S. dealer of Caterpillar equipment, who saw significant improvement in efficiency and productivity as agents were able to handle nearly 10,000 tickets within 6 months and bring their average ticket resolution time to under 5 hours. The third growth lever in EX is our advanced IT asset management offering expansion with Device42. In Q3, we closed our biggest Device42 new deal to date with the largest U.S.-based sporting goods retailer. Device42's deep integration with Freshservice and its differentiated discovery engine made it the clear choice for enterprises that are seeking real-time visibility and control. The momentum is evident as half of our top 10 largest deals in the quarter included a Device42 component. In addition to these 3 growth drivers, we're deepening our presence across key verticals. For example, in Q3, we doubled our law firm customer count reaching over 1,000. In sports, we want to congratulate the Los Angeles Dodgers, one of several Major League Baseball teams that rely on Freshservice on winning back-to-back World Series and also the McLaren Formula 1 team for winning back-to-back constructors championships. Finally, we continue to drive greater efficiency and focus on our go-to-market motion. On the leadership front, we welcomed Enrique Ortegon as Senior Vice President and General Manager of Americas Field Sales. Enrique's experience leading high-performing sales organizations will help sharpen our execution, accelerate growth and strengthen our GTM discipline across North and South America. Now let's talk about our AI tailwind. Freddy AI continues to be a growth driver and expansion opportunity across EX and CX and is delivering exceptional results for thousands of customers who are seeing tangible business value and returns quickly after adoption. As we stated before, we believe this can be a $100 million stand-alone revenue stream over the next 3 years. AI is becoming a core productivity engine for every team, not just for IT. And here's why Freshworks is winning. Our products sit where real work happens in customer support, IT, HR and operations, helping businesses automate tasks, resolve issues faster and deliver better experiences with less effort. Our AI is deeply embedded in how our customers work every day. It's writing replies, classifying tickets, generating insights and increasingly taking action on behalf of employees and customers. The results speak for themselves. AI ARR has doubled year-over-year. Customers are now using Freddy AI to resolve millions of problems every week. And our new AI agents are performing real work across industries from handling returns in e-commerce to managing employee requests in HR. As a testament to our AI momentum, we have seen AI Agent usage expand more than sixfold in the past 7 months, while our existing AI Copilot solutions continue to double in usage year-over-year. Freddy Copilot's ARR grew 160% year-over-year and was included in over 60% of our new customer deals over $30,000, a 5-point increase from the prior quarter. We also saw double-digit attach rates again for new SMB customers in Q3. The number of customers using Copilot grew significantly, too, by over 130% year-over-year. Travis Perkins plc upgraded from legacy complexities to service efficiency with Freshservice and Freddy AI Copilot. Travis Perkins is now able to provide best-in-class IT service management to 17,000 employees across 1,400 locations while improving operational execution, optimizing costs and increasing productivity for HR and IT teams. These Freddy Copilot customers stick with us. Their net retention rate is 112% in Q3 for both CX and EX, higher than our overall base and a tangible sign that AI is driving deeper engagement and long-term value. We believe this tailwind will continue to strengthen our growth trajectory. The number of Freddy AI Agent sessions grew over 70% in Q3, and we have seen 650,000 sessions per month since launch. Freddy AI Agent deflected more than 50% of tickets for CX and EX customers. Those who had early access to Agentic workflows that we launched in June are seeing their average deflection rate jump to 65% with a handful of customers seeing 80% of service issues resolved by AI Agent. We're seeing positive feedback from customers who have had early access in Q3 to several products we announced at our June refresh event. For example, GAIL's Bakery, a midsized U.K. cafe chain with over 170 locations used Freddy AI Agent Studio for Freshdesk to build AI agents. These Freddy AI agents now handle 1,000 inquiries per month to deflect more than 1/3 of total volume. Employees are freed from repetitive work and can dedicate more time to more complex customer cases like allergies, ingredients or complaints that require personal care. Next week, we'll share new product announcements across our entire portfolio at Refresh North America on November 13 in San Francisco and at our Virtual Summit on November 18. This includes new vertical Agentic AI agents that bring our growth strategy to life, demonstrating how we're executing through AI innovation that expands our addressable market and deepens customer value. Our third imperative, Customer Experience, grew to over $390 million in ARR, representing 8% growth year-over-year on an as-reported basis and 7% on a constant currency basis. Q3 growth was driven by deeper product adoption and customer sentiment that Freshdesk is easier to implement and use than the legacy alternatives. To build momentum, we refocused our CX products and we'll be announcing a new unified experience at Refresh next week, a single workspace that consolidates Freshdesk, Freshchat and all of our Freddy AI products for customer support teams. This hub centralizes all conversations, context and tools to help agents resolve inquiries and get work done more efficiently. This will be a force multiplier for frontline support teams, helping them improve the speed and quality of customer service. Freddy AI continues to be an expansion driver for CX with measurable impact for customers using Freddy AI agents in Freshdesk. For example, BirdsEye, a leading German outdoor retailer uses Freddy AI agents to automatically retrieve real-time order data and provide status updates, return label and invoices with customers in seconds. This has significantly reduced ticket volume and improved response times, driving higher satisfaction and greater trust in the Birds Eye brand. The potential of Agentic workflows is tremendous. Traditionally, building AI agents like this took months, designing customer support workflows, training data and endless testing. Our prebuilt AI agents help our customers deploy on day 1 to handle tasks like expediting orders, processing returns or checking delivery status. That means faster setup, faster results and a better customer experience from the start. While SMB and commercial segments continue to turn to Freshdesk, we are also seeing larger implementations with midsized and enterprise organizations like the University of Pennsylvania, who consolidated its finance support into a single hub with Freshworks. In just 6 months, the university processed more than 30,000 service tickets, streamlining workflows and improving stakeholder satisfaction. We believe customers of all sizes continue to choose Freshworks CX solutions for its AI-driven efficiency and uncomplicated customer support experience. Around the world, businesses are choosing software that delivers real outcomes, speed, simplicity and measurable ROI, and that's exactly where we stand out. Our enterprise-grade products deliver faster time to value and lower total cost of ownership, aligning perfectly with what today's buyers demand. With solid momentum behind us, we're leaning into the global opportunity ahead to expand our pipeline, acquire new customers and fuel durable growth. Thank you to our customers, partners, employees and shareholders for your ongoing support. Now let me turn it over to Tyler to go through the operational and financial details. Tyler Sloat: Thanks, Dennis, and thanks, everyone, for joining on the call and via webcast today. We are very pleased that we continued our streak of outperforming across both growth and profitability during the third quarter. We once again exceeded our revenue, non-GAAP operating income and adjusted free cash flow expectations. This strong overperformance reflects the continued demand for our AI-powered and uncomplicated EX and CX solutions. Our consistent execution and financial discipline position us well to capture the significant long-term opportunities ahead. For our call today, I'll cover the Q3 2025 financial results, provide background on the key metrics and close with our forward-looking commentary and updated expectations for Q4 and full year 2025. As a reminder, most of our discussion will be focused on non-GAAP financial results, which exclude the impact of stock-based compensation expenses, restructuring charges and other adjustments. We will also talk about our adjusted free cash flow, which excludes the cash outlay related to restructuring costs. To provide greater transparency into our underlying business performance, we will also include constant currency comparisons throughout today's call. Starting with the income statement. Q3 total revenue increased to $215.1 million, growing 15% year-over-year on both an as-reported and constant currency basis. Revenue outperformance includes a onetime $1 million contribution coming from our on-premise Device42 business. Professional Services revenue modestly declined quarter-over-quarter to just over $2 million, consistent with our ongoing shift in leveraging our partner network as we scale our business. In 2025, we saw partner involvement expand significantly across our largest deals. Partners helped to lead implementations for over half of our ARR deals greater than $50,000, a notable increase from last year, underscoring the success of our robust and growing partner ecosystem. Our EX business accelerated in Q3, growing to over $480 million in ARR, representing growth of 24% year-over-year on an as-reported basis and 23% year-over-year on a constant currency basis. Our faster growth was driven by strength across our entire EX portfolio as we saw positive momentum in not only ITSM, but also meaningful progress in ESM, advanced ITAM and AI, each of which we believe can eventually be $100 million ARR businesses. Our CX business increased to over $390 million in ARR, reflecting growth of 8% on an as-reported basis and 7% year-over-year on a constant currency basis. We continue to see healthy and predictable demand for our Freshdesk products. Moving to margins. We maintained a non-GAAP gross margin of 86% in Q3 as we continue to scale our business efficiently. Our non-GAAP operating income for Q3 came in at $45.2 million, representing a non-GAAP operating margin of 21% and ahead of our prior expectations, reflecting our continued top line momentum and effective cost management. Moving to operating metrics. Our net dollar retention came in at 105% on an as-reported basis and 104% on a constant currency basis, both in line with our expectations. Just like last quarter, Device42 represented a small drag of 60 basis points to net dollar retention. We expect Device42 retention to improve gradually as we continue to scale the business with our ITSM offering. Looking ahead, we estimate net dollar retention of approximately 105% on an as-reported basis and 104% on a constant currency basis for Q4. As of the end of Q3, the number of customers contributing more than $5,000 in ARR grew 9% year-over-year on both an as-reported and constant currency basis to 24,377 customers. This customer cohort continues to represent over 90% of our ARR. For our larger customer cohort, as of the end of Q3, the number of customers contributing more than $50,000 in ARR grew 20% year-over-year on an as-reported basis and 19% on a constant currency basis to 3,612 customers. This cohort represents over 50% of our ARR if we have continued to move upmarket successfully. For total customers, we added over 260 net new customers in the quarter and have nearly 75,000 customers as of the end of September 30. Given the continued success of our upmarket strategy and our focus on mid-market and enterprise customers, we believe total customer count is no longer a meaningful indicator of our performance. Starting with the release of Q1 results next year, we will discontinue reporting this metric on a quarterly basis and shift our focus to larger customer measures that better reflect how we manage the business and its trajectory. Now let's turn to calculated billings, balance sheet and cash items. Our calculated billings grew to $224 million in Q3, representing growth of 14% year-over-year on both an as-reported and constant currency basis, matching our prior expectation on an as-reported basis and coming in ahead of our constant currency forecast of 13%. Looking ahead to Q4 2025, our initial estimate for calculated billings growth is 17.5% year-over-year on an as-reported basis and 14% on a constant currency basis. For the full year 2025, we expect calculated billings growth to be approximately 16% year-over-year on an as-reported basis and 14% on a constant currency basis, both of which are in line with our expectations from last quarter. Moving to our cash items. We generated $57.2 million in adjusted free cash flow in Q3, driven by continued operational discipline and strong collections. This resulted in an adjusted free cash flow margin of 27%, which represents an over 5 percentage point improvement year-over-year. For the full year 2025, we now expect to generate approximately $222 million of adjusted free cash flow with approximately $55 million in Q4. As a reminder, we successfully completed our inaugural $400 million share repurchase program after buying back an additional 12 million shares in Q3 at an average price of $13.28 per share. In total, we repurchased approximately 27.9 million shares at an average price of $14.35. We continue to manage and offset share count dilution by net settling vested equity amounts. During Q3, we used approximately $15 million for that purpose. This activity is reflected in our financing activities and is excluded from our adjusted free cash flow calculations. Looking ahead, we will continue to net settle vested equity amounts and expect Q4 cash usage of approximately $12 million at current stock price levels. For the full year, we expect to use approximately $58 million to net settle vested equity amounts. We ended the quarter with cash, cash equivalents and marketable securities of approximately $813 million. Turning to our share count as of September 30, 2025. We had approximately 309 million fully diluted shares, which represents a decrease of 7% year-over-year. The fully diluted calculation includes 282 million basic shares outstanding, which represents a decrease compared to both the prior year and quarter. It also includes 24.5 million shares related to unvested RSUs and PRSUs and over 2 million shares related to outstanding options. We remain committed to thoughtfully managing our share count dilution over time. Now on to our forward-looking estimates. For the fourth quarter of 2025, we expect revenue to be in the range of $217 million to $220 million, growing 12% to 13% year-over-year. Adjusting for constant currency using FX rates from Q4 of last year, this reflects growth of 11% to 13% year-over-year, non-GAAP income from operations to be in the range of $30.6 million to $32.6 million and non-GAAP net income per share to be in the range of $0.10 to $0.12, assuming weighted average shares outstanding of approximately 284.5 million shares. For the full year 2025, we expect revenue to be in the range of $833.1 million to $836.1 million, growing approximately 16% year-over-year on both an as-reported and constant currency basis. Non-GAAP income from operations to be in the range of $167 million to $169 million and non-GAAP net income per share to be in the range of $0.62 to $0.64, assuming weighted average shares outstanding of approximately 293.9 million shares. Our financial outlook is based on a few assumptions that we would like to call out. First, our forward-looking estimates are based on FX rates as of October 31, 2025, and do not take into account any impact from currency moves. As a reminder, we had a $1 million revenue benefit in Q3 related to a large Device42 deal that we would not expect to repeat in Q4. Secondly, given our strong operating and go-to-market execution this year, we are strategically reinvesting a portion of our earnings outperformance to further build on that momentum. As such, we anticipate a onetime increase in spending during Q4 to expand our pipeline and drive customer acquisition with a modest corresponding impact on operating margins. These planned investments are reflected in our financial outlook and position us well for continued growth. Looking beyond Q4, we are reaffirming the long-term model we outlined at our Investor Day in September. Based on our current forecast, we continue to expect full year 2026 revenue growth of 13% to 14%, and we remain on track to achieve GAAP profitability by end of year. As a reminder, the fourth quarter has historically been our largest bookings quarter and a good indicator for us. So we will follow our typical cadence of providing a more detailed outlook for 2026 on our next earnings call. With that said, let me provide some additional color on our operating margin linearity for the full fiscal year 2026. We anticipate that our Q1 2026 operating margin will be slightly better than Q4 2025 and represent the low point for next year. This is driven by the strategic decision to move the timing of our annual merit increase process from April to January as well as the reset of U.S. payroll taxes and the start of new benefit plans. Following this Q1 low point, we project a subsequent linear ramp-up throughout the remainder of fiscal year 2026, culminating in an operating margin exiting Q4 2026 at over 23%. Our results underscore the exceptional execution and financial discipline our global team has demonstrated throughout the year. As we get ready to close out 2025, we remain focused on continuing that momentum and thoughtfully reinvesting in our growth to capture the multitude of significant opportunities ahead. We appreciate your continued confidence in Freshworks as we execute on our strategy to deliver long-term profitable growth. And with that, let us take your questions. Operator? Operator: [Operator Instructions] Our first question will be coming from Scott Berg of Needham & Company. Scott Berg: Really nice results here in the quarter. Dennis, I wanted to talk about the announcement today, you're selling ESM as a stand-alone solution. That's certainly not news to us that we're paying attention at the Analyst Day. I just want to hear kind of, I guess, how you're thinking about that solution. Is this going to be sold with a, I guess, a separate sales force now as you're selling it stand-alone, it's going to be sold with the same sales folks that you're using? And any changes to, I don't know, pricing or I guess, whatever the marketing message looks like around that in the stand-alone environment? Dennis Woodside: Yes. Thanks, Scott. So first of all, we launched Freshservice for Business Teams in 2022. We had a lot of demand outside of core IT departments for a service desk solution. And that, as you know, has been a huge driver for us. We crossed $35 million in ARR. That business has doubled year-over-year. About 1/4 of our customers now for -- Freshservice customers now are using Freshservice for business teams in some way, shape or form. So it's a really strong value proposition. And what we've seen is some prospects where they might be locked into a contract for their Core ITSM with a larger incumbent, they don't necessarily want to increase their vendor dependency on that incumbent. They want to preserve optionality to potentially move to us at a later date. But they need a solution now for the teams outside of IT, and that's why we launched this. In those cases, we can sell to them now. We can preserve that optionality, get to know them a little bit. So when that contract does come up for renewal for Core ITSM, we were there, and they've had a positive experience with us. There's no new sales force around this. We already have a pretty well-worn try-to-buy way of getting a lot of customers started. So all of our typical outbound and inbound marketing methodologies apply here. It's going to be the same sales force we have. So we think we'll get a lot of scale out of that. And this is on top of the Core ESM business that we have, the product that is attached to Freshservice. We think that alone -- when we talked about this at Analyst Day, that alone has a path to $100 million. This is additive to that. So we're launching it today. We'll have more next quarter in terms of early traction, but we're pretty positive about where this is going to go just given the success of the products that we've had in the market already. Scott Berg: Excellent. And then from a follow-up perspective, maybe this is for Tyler, is it's around your buyback program expired in the quarter. You've certainly been buying back some shares at higher levels. I didn't see that repeated here, which I kind of almost expected, I guess, in the quarter or at least an expansion of those efforts. Should we take that as maybe an indication or a shift in your capital allocation strategy? Or maybe there's something more just on a timing basis there? Any details there would be great. Tyler Sloat: Yes. Thanks, Scott. Yes, so we finished the inaugural buyback in Q2 [Technical Difficulty]. So we just finished it 1.5 months ago. That was authorized a year ago for $400 million, and we completed that and we were happy to get that done. I think the weighted average price is just over $14. We are committed to working with the Board on a continued capital allocation strategy. We've always said we've been open to M&A., if that come forward. We're obviously going to invest in the business where that's needed, but we're producing a lot of cash flow now. And we'll continue to talk about the Board -- about other uses of capital, including other buybacks. We are still doing our net settles, and we provide the data there. And so we're still spending money every single quarter on net settlements, and that's been outside of the buyback. So that will be a continual discussion that we will have with the Board. Operator: And our next question will be coming from Alex Zukin of Wolfe Research. Mark Heatzig: This is Mark Heatzig, on for Alex Zukin at Wolfe. Congrats on great results. Can you just give us a little bit more color on how you're balancing the monetization versus adoption play with the Freddy AI suite of tools? Any way we should think about how that might change with the new agent capabilities? Dennis Woodside: Yes. So just to recap our strategy, we have Freddy AI agent, which is a consumption-based model for CX, where our customers pay us on a per session basis. We have Freddy Copilot, which is a per seat license adder. And then we have our Freddy Insights, which is only available in the enterprise plan. So different products have different monetization levers and paths. For AI agents, we've historically priced those based on sessions with our Agentic AI agents coming out in a matter of weeks. We have revisited pricing. We're not revealing that now, but we are going to be more in line with industry pricing, which is considerably higher than where our pricing historically has been. We think that the market will support that based on what we've seen in early access with some customers seeing up to 80% deflection rates based on their use of AI agents. What's coming in a couple of weeks are agents that are focused on very specific verticals like fintech, like travel, logistics, e-commerce that take action on behalf of the end customer, and we know that those interactions are quite valuable. We're not quite at the point to move to full resolution-based pricing and frankly, neither are our customers. So the session-based pricing makes a lot of sense for where we are now, but we're always open to evolving that as our customers ask us to and as customer demand warrants, but you will see a meaningful price change with that -- the launch of those products, which will allow us to monetize it quite well. Operator: And our next question will be coming from Patrick Walravens of Citizens Bank. Patrick Walravens: Congratulations on the third quarter in a row this year. So the big question I still get, Dennis, believe it or not, is for investors who are just looking at Freshworks, they still want to know, is it an AI winner or an AI loser. And I see lots of evidence that it should be in the winner's camp, including your $100 million target and what you just talked about actually is really interesting about the specific verticals for agents. But just to make it easier for people, if you're going to boil it down to 2 or 3 key points that you would make on that topic, why Freshworks is an AI winner? What are they? What would you lay out? Dennis Woodside: So first of all, look, we are the system of record for our customers in IT and in customer support. We have the native workflows that they're running their business off of. And that is super important for all of what we're focused on. The products that we ship have ready-made skills, guardrails, governance, things that our customers all need in order to run their support and IT departments, and that's what they demand. So there's a meme that, "Oh, everybody is going to go directly to OpenAI or to Anthropic to build their solutions." That's just not going to happen in such complex environments as Seagate's IT department or some of these others. The customers need the AI to be integrated into their workflow. They need the security. And we can tap into the best-of-breed models as the LLMs evolve by tapping into Anthropic for coding or Gemini for image and so forth. So we think that we're actually really well positioned as the market evolves and as customers continue to adopt AI to succeed there. Operator: Our next question will be coming from Elizabeth Porter of Morgan Stanley. Unknown Analyst: This is Oscar, on for Elizabeth. Congrats on the great quarter. I wanted to ask in terms of government exposure for Freshworks tends to be more state and local. But I just wanted to check if you have seen any impact from the government shutdown, either in the form of longer sales cycles or smaller deals and either directly or indirectly, if it has pressured any small businesses within CX? Dennis Woodside: Yes, it's Dennis. So we've seen no impact whatsoever. We do not have large federal government exposure. Our government business comes from state and local entities, municipalities, universities, none of which we've seen at least any kind of change. We actually landed quite a few governments and universities this last quarter, and we've seen quite a bit of expansion there. So we really just have not seen any impact at all from the shutdown or any of the federal issues. Operator: Our next question will be coming from Brent Thill of Jefferies. Brent Thill: Tyler, I apologize if you covered this, but this onetime investment you're talking about in Q4, can you articulate a little in more detail what that is? Tyler Sloat: Yes. This is really -- Brent, this is kind of reflecting on the fact that we've now strung together 4 really, really good quarters and really see a very strong demand environment for our EX products in the field specifically. And so because we've also done really, really well on our efficiencies this year, where we beat our operating kind of margin goals and consistently every quarter said, hey, part of it is timing, we're going to reinvest. But just keep beating, we actually, at the beginning of this quarter, did release spend specific to building pipe for EX in the field because the market opportunity is there. And we're still beating our goals, but we actually decided to release that spend for the year. It's more onetime just for Q4, not repeated. That's why we also kind of give the linearity for operating margins for next year as well. Brent Thill: And I'm sorry, where does that go into reps, marketing? Like what's the... Tyler Sloat: Yes. It -- majority of it is marketing, and it's really pipe and demand gen efforts. Brent Thill: Okay. I got some good ideas. We can talk later about the campaign. It has to do with Rogers. Freddy Fresh. The -- and just for Dennis, when you talk about that 25% growth above $100,000, it seems like the referenceability is building really well. Like what do you -- what are kind of the next milestones? It's been going well. It seems like it's headed in the right direction. But what are the next kind of hurdle that you'd like to see cross where you're like, okay, we're clearly on a continued trajectory and -- not that you aren't. It's just like what's the next stop, if you will? Dennis Woodside: Yes. Look, I think we've got a really good sweet spot in customers ranging from 5,000 to 20,000 employees. That's where there's a ton of business out there that's looking for a solution, that is enterprise grade, that is faster time to value, that's got AI built in, and we're going to continue focusing there. I think in terms of where we're headed, we talked in the Analyst Day about continuing to drive our EX business in the low to mid-20s in terms of growth. You saw a slight tick up in growth on a constant currency basis this quarter. We're going to keep pressing these larger and larger deals every single quarter. For us, the attach rate for D42, that's an important metric that we look at, how many of our larger deals are including Device42. We have a big milestone coming up in Q1, where we expect to release Device42 on cloud. Once we do that, we'll be able to tap into another segment of the market that doesn't want to go on-prem with any solution. They want everything to be in cloud. It will also make it easier for us to upsell our existing customers into Device42 as a product. That's going to be another accelerant to growth. So we've got a lot of positive, I would say, momentum and positive accelerants to that business. And Tyler was just talking about the demand gen investment we're making in Q4. That's all going into the EX business and into AI, but that really is a huge driver for us as well. So I think EX has a lot of kind of positive momentum behind it, and we're just going to keep leaning into it every single quarter. Operator: [Operator Instructions] Our next question will be coming from Brian Peterson of Raymond James. Johnathan McCary: This is Johnathan McCary, on for Brian. So I wanted to ask on some of the AI deployments in your customer base. Can you talk about the appetite for that and how that may differ between the SMB and then the more mid-market enterprise customers? I'm curious specifically if you're seeing that it's more important piece of the conversation in certain parts of the customer base or SMBs versus enterprises are moving from pilots to kind of forward deployments quickly. Just I'd be curious how that differs across the different customer sizes? Dennis Woodside: Yes. So as we look at our AI paid footprint, it's actually pretty even across SMB, mid-market and enterprise. We've seen traction across all 3. And different companies are in different stages of understanding AI and adopting. In terms of products, the product that clearly is leading for us has been Copilot. That's the product that for us is both most mature functionally. And if you think from a customer standpoint, that's the first port of call where you still have a human in the loop, they still have some control, so they feel more comfortable going there first. But what we've seen in the last couple of months is really an uptick in AI agent. And we think with the launch of our Agentic capabilities in CX in particular, that's really going to take off, and we're going to lean into it heavily. That plus the fact that we're going to monetize at a much higher rate than we have before. We've been, I would say, quite underpriced relative to the market when it comes to our AI agent capabilities. That we think is going to create a big opportunity for us going into next year. So I think overall, the customers, there's not one vertical. There's not -- it's not an SMB or mid-market enterprise issue. It's relatively even across CX and EX in terms of the monetization opportunities today. And we just think every one of our customers over time is going to need the AI that we offer. We're a little over 5,000 customers that are paying for AI now. That's just going to continue to grow. It's a core part of how we're selling now. Johnathan McCary: Very helpful. And then maybe one for Tyler here. It's good to see the continued strength in EX, the slight acceleration there. Just hoping, can you unpack the growth a little bit in terms of what's trending, how NRR is trending there versus net new and kind of where you think that should head longer term as you look to continue the low 20s growth profile? Tyler Sloat: Yes. I mean we're growing across all segments of the business, right? We talked about how ITSM core is strong, but also ESM that we gave out the number of over $35 million now. Device42, we've talked about as well and then the Copilot components within there. If you look at how that's going to trend, you asked about NRR. Our EX products have always had strong NRR. Device42 is a little bit of a drag because of the stuff we inherited when we made that acquisition. But we also said, "Hey, we expect that to actually start coming up." And we've also said that EX has kind of always had enterprise-grade net dollar retention numbers -- I'm sorry, churn numbers, which is single -- high single digits, and that continues, and it's just a very, very strong product. Operator: And our next question will be coming from Rob Oliver of Baird. Robert Oliver: Dennis, I wanted to go back to the ITSM win rates that you called out, I think the best in 2 years, and that's also coming, I think, as you've really pivoted the business up towards that mid-market or upper end of mid-market. And just wanted to get a sense from you for kind of what the biggest key differentiators have been there in terms of repositioning for that opportunity? And then as you look at kind of your pipeline today, how you feel about the pipeline as it sets up relative to the competition and kind of what's winning when you go head-to-head with some potentially bigger players at the low end of their stack? And then I had a quick follow-up question. Dennis Woodside: Yes, sure. So look, what we've built over the last couple of years is a complete enterprise-grade solution for -- that helps an IT department drive their operations, power their operations and deliver great employee service, and that's what we're selling. That's what's working in the marketplace. So enterprise-grade product that has the kind of security and extensibility that you'd expect and that can work in a large account. The kind of extensibility outside of Core ITSM. That's why Device42 is super important for us. Typically, buyers are looking for their ITSM and their asset management solution all in one. That's what we provide now. The functionality outside of IT, that's also something that everybody looks for when they're making these decisions. And 2 years ago, 2.5 years ago, the product wasn't there. So a lot of this momentum has happened relatively recently. A lot of customers are looking for choice in that market. There hasn't been a lot of choice. The largest provider is very focused on the biggest customers in the market or the biggest companies in the market. And that leaves a lot of room for us to compete in that kind of lower end of enterprise, upper end of mid-market. Think of New Balance with 5,000 or 6,000 employees or Seagate with 20,000 employees or we had a customer this time through Flowserve with about 20,000 employees. These are sophisticated customers. They've got sophisticated IT departments, but they're looking for something that's more modern, more flexible, enterprise-grade AI built in, and that's what we have. So I think we're just going to continue to invest in our capabilities and functionality there. We've got our Customer Advisory Board next week. We've got 40 customers coming in, and we're going to hear from them on what -- share our road map, talk about what can we do to move faster to solve more of their needs. We got a lot of ideas last year at our cab that we put into practice and launched an innovation that has delivered and that has helped us continue to move upmarket. And then at the same time, the whole go-to-market side of things has matured as well. That's why we're confident in investing more in Q4 in demand gen because we have a much better sense for how investment in demand gen connects to actual return. And we feel if we do that now, we'll just get a head start on Q1 because we've got a really good pipeline going into the last quarter. In terms of the pipeline, I would say that when we look at -- when I looked at pipeline, let's say, 18 months ago, $100,000 deal was a big deal and we made a big deal about it. Now we have tons of $100,000 deals. That's not an unusual deal anymore. The bigger deals are $0.5 million lands. And the other thing is that we would be invited into those $0.5 million RFPs 2 years ago, and we would often lose. And we'd win the $100,000 deal or the $30,000 deal, we lose to $500,000 deal. This last quarter, I don't -- I can't recall a deal over $200,000 that were involved in that loss. Now it may have happened, but nothing that I was involved in was a loss. So I think we're just getting better at competing and winning for those larger deals and the capability is there, the functionality is there. All that's a winning combination for us. Robert Oliver: Great. That's really helpful. And then, Tyler, I apologize if you touched on this at all, but that net revenue retention number is kind of really stabilized in that kind of 104% to 105% range on a constant currency basis for the last 3 quarters, and you guys are getting some market momentum. I realize a trailing indicator, but how you think about that kind of leveling off and potentially starting to improve and what kind of visibility you have into that? Tyler Sloat: Yes. We're pleased with the progress we've made there, both on the expansion products we've introduced, and we think ESM is going to be a new land, but then have a much bigger expansion opportunity once we start landing with that if we can bring in Freshservice, but obviously, with Device42 and others and on what we've been doing on churn. We've been talking about churn for a year now, how we've just been getting a little bit better incrementally, and that's not something that moves really quickly. We guided to essentially the same amount for Q4, which is stable. And obviously, at the end of the year, based on what we learned this quarter in terms of expansion in the pipe, we'll guide for next year. But yes, I feel like it's heading in the right direction. And then we've been talking about this. As the mix shift of our business continues to move more towards EX, and that is the majority of our business now, the attributes of that business are much better, and we will get a tailwind from that at some point. Operator: This concludes today's conference call. You may disconnect.
Operator: Good day, and thank you for standing by. Welcome to the MKS Third Quarter 2025 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, Paretosh Misra. Please go ahead. Paretosh Misra: Good morning, everyone. I'm Paretosh Misra, Vice President of Investor Relations, and I'm joined this morning by John Lee, President and Chief Executive Officer; and Ram Mayampurath, Executive Vice President and Chief Financial Officer. Yesterday, after market close, we released our financial results for the third quarter of 2025, which are posted to our investor website at investor.mks.com. As a reminder, various remarks about future expectations, plans and prospects for MKS comprise forward-looking statements. Actual results may differ materially as a result of various important factors, including those discussed in yesterday's press release, our most recent annual report on Form 10-K and any subsequent quarterly reports on Form 10-Q. These statements represent the company's expectations only as of today and should not be relied upon as representing the company's estimates or views as of any date subsequent to today, and the company disclaims any obligation to update these statements. During the call, we will be discussing various non-GAAP financial measures. Unless otherwise noted, all income statement-related financial measures will be non-GAAP other than revenue and gross margin. Please refer to our press release and the presentation materials posted to the Investor Relations section of our website for information regarding our non-GAAP financial results and a reconciliation to our GAAP measures. Our investor website also provides a detailed breakout of revenues by end market and division. Now I'll turn the call over to John. John Lee: Thanks, Paretosh, and good morning, everyone. MKS delivered a solid third quarter with revenue and EPS in the upper half of our guided ranges and healthy results across each of our 3 end markets. Third quarter revenue of $988 million was up 10% year-over-year, driven by strong demand in our semiconductor and electronics and packaging end markets. We continue to demonstrate strong execution in delivering value to our customers' most critical needs. Net earnings per diluted share totaled $1.93. We also continue to take advantage of our improved cash flow to reduce our leverage with another voluntary prepayment of $100 million on our term loan completed in October. MKS is uniquely positioned at the forefront of accelerating innovation and enabling the advanced technologies that power the AI era. Increasing device complexity is creating significant challenges and opportunities in both the semiconductor and advanced packaging markets. We are differentiated in our ability to serve many critical applications with our comprehensive portfolio of semiconductor capital equipment subsystems, advanced packaging chemistries and advanced packaging equipment systems. Our Q3 performance in our end market demonstrates how we are benefiting in this dynamic environment. Starting with our semiconductor market, we reported solid revenue growth year-over-year, driven by continued strength in our products supporting deposition and etching applications, which are increasingly critical for advanced memory and logic manufacturing. Our dissolved gas systems for advanced logic applications were also a solid contributor to our performance, and our services business continues to contribute steady year-over-year growth. Lower NAND upgrade activity, which was expected after a very strong second quarter, drove the sequential decline in semiconductor sales; however, our leadership in power delivery remains as strong as ever in this space. We expect fourth quarter semiconductor revenue to remain flat on a sequential basis, which would translate into a healthy double-digit year-over-year growth for 2025. This underscores how well positioned we are with the broadest portfolio of products and technologies to drive our industry's increasingly challenging technology road maps. In Electronics and Packaging, revenue exceeded the midpoint of our expectations, growing 25% year-over-year. This strong performance reflects continued momentum across our portfolio, driven by robust demand for our chemistry solutions and in particular, our chemistry equipment. The investments we have made over the past several years to position MKS to optimize the interconnect in advanced electronics are now paying off as we gain momentum in AI-related applications. Today, our chemistry revenue growth reflects our position as a leader of the most advanced packaging technologies used in high-performance computing applications. Longer term, our chemistry equipment business highlights how critical we are to our customers as they rapidly build their next-generation infrastructure. The high attach rates from our equipment sales are a leading indicator of sustainable longer-term revenue from our proprietary chemistries. It's important to keep in mind that once we build and install the equipment, it can take 6 to 12 months for customers to qualify it and then put it into production. Once in production, our chemistry provides a long tail of steady consumable revenue generally for the life of that equipment. With high single-digit growth in chemistry revenues and strong equipment sales through Q3, we have confidence our proprietary chemistry will be a key revenue generator for us in the years ahead. In Q4, we expect revenue from our electronics and packaging market to be up on a sequential basis and up double digits on a year-over-year basis. Our strong performance reflects our ability to capture emerging AI-driven demand even as broader industry demand trends remain stable in markets such as smartphones and PCs. We anticipate continued strength in our chemistry equipment business, supported by AI, offset by modest sequential declines in chemistry due to seasonal factors consistent with prior years. Assuming the midpoint of our Q4 guidance, our Electronics and Packaging business is on track to deliver robust full year growth of approximately 20%. Our specialty industrial market revenue was consistent with the stable trends we've seen over the past several quarters. Within this market, the industrial category showed sequential improvement in life and health sciences and research and defense end markets remained steady. We had a healthy quarter of design wins, particularly in research and defense. This success highlights how MKS leverages its semi and electronics R&D investments to unlock new opportunities in specialty industrial markets that generate attractive incremental margins and cash flow. Looking ahead to Q4, we expect Specialty Industrial revenue to remain relatively flat sequentially. Overall, MKS is continuing to perform at a high level in 2025, with year-over-year growth powered by our semiconductor and electronics and packaging markets. Our broad portfolio of differentiated products and technologies in areas such as vacuum, power, photonics, laser drilling and advanced chemistries positions us favorably to win new opportunities in applications critical to enabling the AI transformation. Against this exciting backdrop, we are executing with financial discipline, aligning our business to win in our key markets and reducing our leverage. I'll close by extending my thanks to our MKS team for their tireless work driving the great results we are reporting today and also to our customers and our suppliers across the globe for their collaboration and support. With that, let me turn it over to Ram to run through the financial results and fourth quarter guidance in more detail. Ram? Ramakumar Mayampurath: Thank you, John, and good morning, everyone. We delivered strong results in the third quarter, driven by healthy demand in our semiconductor and electronics and packaging end markets and continued stability in our specialty industrial end market. As in prior quarters, our execution remains strong with healthy margins, robust free cash flow and continued progress on our deleveraging goals. Third quarter revenue was $988 million, up 2% sequentially and up 10% year-over-year. The result was at the high end of our guidance and reflected better-than-expected trends in key end markets. Third quarter semiconductor revenue was $415 million, down 4% sequentially, but up 10% year-over-year. This result was at the high end of our expectations. The sequential decline was driven by lower RF power sales due to the timing of NAND upgrade activity as expected. The year-over-year growth was driven by strength in many product categories, including our vacuum products and plasma and reactive gas businesses. The fundamentals of our semiconductor business remains strong. Third quarter Electronics and Packaging revenue was $289 million, up 9% sequentially, driven by growth in our chemistry and equipment businesses. On a year-over-year basis, sales were up 25%, driven by growth in chemistry, chemistry equipment and flexible PCB drilling equipment sales. These strong results underscore the strength of our Electronics and Packaging business as we deliver enabling technologies for high-growth emerging AI applications and today's advanced consumer electronics. Chemistry revenue was up 10% year-over-year, excluding the impact of FX and palladium pass-through, continuing the strong growth trend over the last year. In our specialty industrial market, third quarter revenue was $284 million, an increase of 3% sequentially, mainly due to the improvement in the industrial market. Revenue was down 1% on a year-over-year basis. Overall, our Specialty Industrial business has remained steady for well over a year. Third quarter gross margin was 46.6%, just above the midpoint of our guidance. Gross margin were stable relative to the prior quarter, with tariff impacts of about 80 basis points, 35 basis points better than last quarter, offset by a higher mix of chemistry equipment sales. As we have stated before, the strong equipment sales we have seen throughout 2025 are a good indicator of future high-margin chemistry revenues. Third quarter operating expenses were $256 million at the high end of our guidance and higher sequentially, primarily as a result of an increase in variable costs, mostly related to employee incentive compensation tied to stronger business performance. Third quarter operating income was $205 million with an operating margin of 20.8%. Third quarter adjusted EBITDA was $240 million and above the midpoint of our expectations with adjusted EBITDA margin of 24.3%. Net interest expenses was $45 million, in line with our guidance. Third quarter effective tax rate was 17.9%, just below the midpoint of our guidance. Third quarter net earnings were $130 million or $1.93 per diluted share and above the midpoint of our guidance. Free cash flow generation was very strong at $147 million, representing over 100% of our net earnings and 15% of our revenue. Through the first 3 quarters of 2025, we generated cumulative free cash flow of $405 million, nearly as much as we did in all of 2024. We invested $50 million in capital expenditure in the quarter. We expect CapEx to sequentially increase in Q4 but fall within the low end of our annual CapEx guidance of 4% to 5% of revenue. We closed the quarter with approximately $1.4 billion of liquidity comprised of cash and cash equivalents of $697 million and our undrawn revolving credit facility of $675 million. As John highlighted, we made a voluntary principal prepayment of $100 million in October. In total, we have made $400 million in voluntary payments thus far in 2025. We remain focused on executing our long-term capital allocation priorities of investing in organic growth opportunities while reducing our leverage through principal prepayments and working with our banking partners to reduce our interest expenses as market opportunities arise. We exited the quarter with a gross debt of $4.4 billion and a net leverage ratio of 3.9x based on our trailing 12-month adjusted EBITDA of $953 million. We continue to bring down our net leverage ratio as we generate strong free cash flow, make proactive principal prepayments and deliver high year-over-year adjusted EBITDA. Finally, during the quarter, we paid a dividend of $0.22 per share or $15 million. Let me now turn to our fourth quarter outlook. The guidance we are providing represents our best estimate based on the dynamic trade environment in which we are operating. We expect revenue of $990 million, plus or minus $40 million. By end market, we expect semiconductor revenue to be $415 million, plus or minus $15 million, reflecting the continued strong fundamentals of our business. Revenue from electronics and packaging market is expected to be $295 million, plus or minus $10 million, which would be up 16% year-over-year at midpoint. As we look to model 2026, we would remind you that chemistry equipment revenue is poised to have a record year in 2025 and has historically varied significantly from year-to-year. Chemistry revenue, which is the majority of our E&P revenue, is much steadier and more predictable. Revenue from our specialty industrial market is expected to remain relatively steady at $280 million, plus or minus $15 million. We are guiding gross margin of 46%, plus or minus 100 basis points. The sequential decline is due to higher chemistry equipment sales in the mix and lower chemistry sales due to seasonality, partially offset by lower tariff-related impacts. We anticipate our mitigation actions will nearly offset tariff costs dollar for dollar beginning in Q4; however, these costs are passed through at 0 margins, and we anticipate tariff will continue to dilute our gross margin in Q4 and moving forward by approximately 50 basis points. With our mitigation initiatives in place, we remain confident in our plan to deliver our long-term gross margin objective of 47% plus. We expect fourth quarter operating expense of $255 million, plus or minus $5 million. As a reminder, OpEx is typically higher in Q1 as a result of higher stock-based compensation and fringe benefits consistent with prior years. We expect fourth quarter adjusted EBITDA of $235 million, plus or minus $24 million. We expect tax rate of approximately 2% in the fourth quarter, benefiting from certain favorable discrete tax items in the quarter and bringing our full year tax rate to just over 14%. We expect fourth quarter net earnings per diluted share of $2.27, plus or minus $0.34. Wrapping up, MKS has executed at a high level through the third quarter, and we are expecting this momentum to continue in Q4. We are winning exciting opportunities across our semiconductor and electronics and packaging end markets, and we are focused on managing our business with discipline to drive profitability and free cash flow. We remain focused on reducing our leverage. With our broad portfolio of products, strong secular tailwinds and an improving balance sheet, MKS is in a great position as we look to 2026. With that, operator, please open the call for Q&A. Operator: [Operator Instructions] Your first question comes from the line of Melissa Weathers with Deutsche Bank. Melissa Weathers: I think first, I want to touch on the E&P side. You said a couple of times in your commentary that equipment orders generally precede chemistry orders, and that can take about 6 to 12 months. You also mentioned that chemistries were at, I think, a record year in 2025. But I wasn't quite clear on how you were guiding 2026, whether or not that should maybe come down or be stable. So any color on how we should be thinking about the chemistries flow-through into 2026 after all the strong equipment sales? John Lee: Melissa it's John. Thanks for the question. So we're not really guiding 2026, obviously, for chemistry or for the company. But I would say this, the equipment that we are building and installing now puts us in a very good position for additional chemistry revenue starting in '26 and forward. I would say this, we really look at the whole market and its growth, and we've kind of said in our E&P market, we would grow 300 basis points above GDP. And that was made up of -- that was what we said at the Analyst Day, and that was made up of higher growth substrate business, single -- mid-single-digit HDI business and GDP-type MLB business. And those numbers are what we're staying with for now. But obviously, when we gave those numbers, AI wasn't in the mix, right? And so I think generally, things are better. And I would say our ability to hit the 300 basis points above GDP, our longer-term target is -- we're very confident in that fundamentally because we are shipping a lot of that equipment and a lot of the chemistry that goes with it will help us get to those longer-term targets. Melissa Weathers: Great. And then maybe on the semiconductor side, it seems we've seen some really positive pricing data points in memory in the last couple of weeks or months. And I think a lot of people are expecting a shortage situation in memory in 2026. So can you talk about like the order patterns that you guys saw in the quarter? Have you seen an acceleration in orders ahead of maybe potential capacity additions in the memory space? John Lee: Yes. We read those same reports as you do, Melissa. So I think in general, we're happy that memory is recovering, pricing is recovering and that the industry is moving towards a more constrained supply-constrained environment. And I think our customers are probably better to answer whether they're going to be ordering more equipment from us. But certainly, in general, I think everything is positive in the trend towards memory equipment. Operator: Your next question comes from the line of Jim Ricchiuti with Needham & Company. James Ricchiuti: Wondering if you could give us a little bit of a better sense within the E&P business and you could comment on Q3 or 9 months, how much of that growth is actually coming from equipment, which admittedly has been strong, and we know can be a little bit lumpy. John Lee: Yes. Thanks for the question, Jim. I think we've said historically, when we looked at the MSD business, equipment can be anywhere from 5% of total revenue to 15%. And I would say because of the last 4 quarters of really strong revenues, orders and therefore, revenues, we're towards the higher end of that range and maybe a little higher than that. So it's really going to be probably the historic 4 quarters or a year for the equipment business. James Ricchiuti: And John, the -- also curious, there's another element of equipment in the PCB area. Are you seeing any signs of a cyclical pickup in the flex PCB drilling equipment business, just given somewhat improving smartphone shipments and I guess, the potential that there may be some form factor changes coming in the market next year? John Lee: Yes, we are actually seeing a pickup in Flex. The business there, as you know, we're a market share leader in flex laser drilling. And so we have seen that pick up. And this is actually the second year where we've seen a healthy business there. It's not at the historic rates that were kind of in the 2000 time frame, 2021 time frame, but it has recovered to a very healthy level. Operator: Your next question comes from the line of Shane Brett with Morgan Stanley. Shane Brett: I want to follow up on that E&P question earlier. But considering that your chemistry sales for this year are up high single digits, some back of the envelope math indicates that your tooling business could be almost doubling this year. One, is that kind of the right way to think about it is that in the right ballpark? And just how much visibility do you have on equipment sales on a go-forward basis? John Lee: Shane, I think your math is roughly right with respect to the equipment business for chemistry equipment. And then I think what we can say is that we've had 4 strong quarters of bookings for that chemistry equipment. And we can look out certainly the lead times of our equipment are 4 to 12 months. And so we have added some capacity even to some of our equipment factories, not new buildings, but just expanding within the space that we have. And so we look forward to a couple more quarters at least of large equipment builds. We know that we have the backlog for that. Shane Brett: Got it. And for my follow-up, so your semi customers have spoken about a pickup in equipment shipments from the second half of next year. And I think your peers have been kind of cautiously optimistic towards a pickup from Q2. Just where are you guys in terms of your expectations towards semi revenue cadence through 2026? And if there's sort of any idiosyncratic tailwinds for MKS that should drive your shipments above WFE in 2026, that would be very helpful. John Lee: Yes. Certainly, we read the same things, and a lot of folks are saying kind of second half '26 is where WFE really picks up. I think we're just focused on this quarter, next quarter and the next 6 months. I would say this, our semi revenue has improved double digits year-over-year on a quarterly basis as well as year-over-year. And this is really not with a lot of NAND upgrade yet, right? We had a good NAND upgrade in Q2, not so much in Q3. And so that's still yet to come. Certainly, our customers think that's going to happen. I think we know and we're very confident in our position in our power for the high aspect ratio dielectric etch. We're very confident that when those upgrades occur, that will be us. And then certainly, even without the NAND upgrade, you can see the broad portfolio of semiconductor critical subsystems we have continued to outgrow WFE even this year. And so we look forward to 2026, where WFE follows the trends that people are expecting, another maybe high single-digit increase, we're going to enjoy some of that as well. Operator: The next question comes from the line of Krish Sankar with TD Cowen. Sreekrishnan Sankarnarayanan: I had 2 of them too. John, just to follow up on the previous question. If you do assume that in second half of next year, let's just take a time frame and say, in Q3 of next year's inflection, in theory, should you not start seeing it one quarter earlier? Or do you think there's something else different this cycle? John Lee: No, in general, I think that's still true, Krish. We -- if our customers are shipping in Q3, for instance, to your assumption, then we would certainly see that at least a quarter ahead of time. Our lead times have come back to historically low lead times anywhere from 4 to 8 weeks, sometimes 12 weeks depending on how complex the system is. But in a 4-week time frame and 8-week time frame, we do see a lot of in-quarter turns as we've talked about in the last couple of quarters. So yes, I don't see any changes to that assumption, Krish. Sreekrishnan Sankarnarayanan: Got it, John. And then I just had a 2-part question. One is, how much of your E&P sales was advanced packaging chemistry? And how much within that was AI? And then on the PCB drilling side, are drill bits a constraint? And is that impacting your business? Or you're not seeing any of that? John Lee: Yes. Maybe I'll talk about chemistry and how AI has played a part in that. In the past, we have talked about AI servers driving the top 1/3 of the PCB industry. The PCB industry calls that the substrate, right? And that top 1/3 was -- the AI part of that top 1/3 was going from 5% to 10% to 15% of that top 1/3 of the PCB industry. Since then, though, as we now know, AI is also driving the equipment for HDI and MLB. This is the next 1/3 and the last 1/3 of the PCB industry. And of course, the chemistry that goes with those. So in general, our AI revenue has gone from -- if you -- for the chemistry, kind of like 5% of the total PC business, not just the top 1/3 to double that over the last year. So it's kind of 10%. If you add equipment to that, of course, we're pushing the mid-teen percentage of the MSD business due to AI. I think your second question about -- maybe clarify your second question about... Sreekrishnan Sankarnarayanan: I was just wondering on the PCB drilling side, is drill -- drill bits a constraint? And is it impacting your PCB drilling business? John Lee: Yes, I don't know if I can comment on that drill bits. We don't do that. That's mechanical drilling, I think, what you're referring to. We're really doing laser drilling, but I have not heard that, that mechanical drilling is constraining the industry. Operator: Your next question comes from the line of Michael Mani with BofA Securities. Michael Mani: On E&P, could you help us parse through when you look at your growth drivers, what is exactly secular versus more idiosyncratic to MKS? So I mean, it seems like a lot of the HDI and MLB momentum reflects some of this secular uptick in AI. But obviously, with Atotech, you're able to go into many of these opportunity selling both equipment and chemistry. So is there a share gain overlay aspect to it that you're seeing? Can you attribute these wins to that deal? Or is it mainly just broad-based secular growth? John Lee: Yes. I think it's both, Mike. So the regular growth is -- we're an industry leader in it. And so more square meters of PCB boards and the chemistry that just enjoy that. But I would say the thing that is different this time and that's beneficial for MKS is that AI is driving these incredibly thick boards, many, many layers of HDI boards, substrate boards as well as MLB boards. And as we talked about, a lot of the equipment orders that we have gotten tied to AI for HDI and MLB are because our equipment is uniquely qualified to process much thicker boards. We had to make modifications to the equipment. We did, and then we got those orders. Now as we said, we have very high attach rates of chemistry to our equipment. So if we are unique in being able to supply that equipment versus our competitors, we're also going to get that chemistry as we talked about in the call. So I think that's unique this time around. Michael Mani: Great. And maybe a question on gross margins. Given this flow-through from potentially higher chemistry revenues over the next couple of quarters, how should we be thinking about as a good baseline for gross margins through next year? It seems like volumes are trained the right way, you're getting -- you're having seen a little more of this margin accretive business. But just any way to think about how to model margins through '26? Ramakumar Mayampurath: Michael, this is Ram. I'll take that. So if you look at the progress we have made in gross margin in 2024, all the way to Q1 of 2025, we were well over 47% in gross margin. Since then, a couple of things have happened. One is the impact of the mix that you talked about of very high fast-growing equipment sales and the impact of tariffs. As we said in our prepared remarks, we have offset the impact of tariffs dollar for dollar, but we'll see an ongoing 50 basis points impact on our gross margin because we are not marking up the tariffs that we pass through, right? So in time, we'll offset that with efficiency and ongoing operational excellence programs. And in the long term, with a normalized mix, we are very confident we can get back to that 47-plus percent that we were having before. Operator: Your next call comes from the line of Matthew Prisco with Cantor. Matthew Prisco: I guess to start, how do you see the NAND lumpiness playing out over the next handful of quarters? Kind of what are the primary moving parts you are focused on here as determinants for the linearity of that upgrade cycle? John Lee: Yes, Matt, I wish I knew. But I would say this, we have plenty of capacity, manufacturing capacity to meet any kind of uptick in either upgrades or greenfield. And I think one of our key customers has said there is a large opportunity still of upgrades just in the '26 and maybe beyond time frame. But they have said it's lumpy. But then I think overlay on top of that, the industry discussion of NAND pricing that I think Melissa asked earlier, that's just a tailwind. The discussion by many of the chip makers that NAND is now constrained. And then what's exciting is potentially a new application for NAND, driven by AI again, of course, which is in the solid state -- replacing solid state -- sorry, solid-state drives using more NAND for AI. And that would drive another layer of growth. So I think we're ready. It's lumpy, can be lumpy. We will certainly try to guide you guys as best we can in terms of when we see that coming. And -- but things can change and things probably will change rapidly. Matthew Prisco: And then maybe you could talk about progress you've made in the litho inspection and metrology part of your business. Maybe remind us of kind of year-to-date highlights and what success would look like to the team from a share gain perspective through next year? John Lee: Yes, Man, we have talked about world-class optics. This is our effort to gain more presence, obviously, in litho metrology inspection. And we've talked about in the past, revenue from that sector kind of going from $150 million to $300 million because we invested in it. And as you know, litho metrology inspection is a little flatter this past year. And so we're not immune to the cycles, but the cycles are more muted than in dep etch. But we're really happy with some of the really difficult things that we have been asked to do and delivered on that are now integral to some of the most advanced lithography machines in the world. So we will continue to invest there and continue to try to grow that share. I don't think anybody would say litho metrology inspection won't be important to semi, right? It will always be important to semi, always be a key component of semi. And I think maybe stepping back a little bit, the strategy for MKS is to be a foundational technology supplier to the entire industry. So in one decade, dep etch is more important because it's multi-patterning. In the next decade, EUV takes over and litho metrology inspection become a little more important. And from an MKS standpoint, we kind of hope that all the markets grow. But if something shifts, then we can -- we don't have to worry about it shifting away from what we're doing. Operator: Your next question comes from the line of Steve Barger with KeyBanc Capital Markets. Steve Barger: John, you alluded to some of this already, I think, but we've been reading that CoWoS or other packaging formats are evolving from organic interposer to RDL. From your perspective, is that just switching from one format you enable to another? Or is that evolution good for you due to more layers or smaller features? John Lee: Yes. I think the industry is certainly working hard on various configurations for this redistribution layer, the RDL layer using CoWoS, CoWoS-R, CoWoS-L and then even CoOP, right? So I would say this, that RDL layer is more complex as we move to organic layers. That's good for us. That's our traditional strength, organic layers versus silicon. And when you go to organic layers, the RDL layers increase a little bit, maybe from one layer to 2 or 3. So that's good for us. But I think the bigger picture are the 40 layers beneath that, that are all the substrates and PCBs. And that's really the largest growth factor for us. And that used to be 20 layers, now it's 40. As we visit customers, as we work with our customers, they're already looking at 80 layers. So think about that. It's gone from 20 to 40 just in the last couple of years, and we're working on 80. And the one after that is 3 digits, let's put it that way in terms of number of layers. Each of these layers made one at a time. You can imagine the challenges of yield, making sure that when you put 100 layers on top of each other that it still yield the same as if you had 4. So those are great challenges for the industry and opportunities for us. So that's the bigger picture. At the same time, to your point, there's a lot of CoWoS-L or S, coOp, and all that going on. We're involved in all of that. If it goes more towards organic, that's a tailwind for us. But the bigger picture is 40 layers going to 80 going to 100. Steve Barger: Right. That's good detail. And just listening to some of that, this is being driven by compute right now, which is high growth, but smaller unit volume maybe. But at some point, this likely transitions to like PC or mobile, higher volume applications. Is that your understanding? And any view on like time line of when that could happen? John Lee: Yes. I think our view is consistent with the industry is that as inferencing goes out to PCs and phones and whatnot, the chips will be bigger and more complicated. There'll be more chips that need to be integrated together. And therefore, there will be more layers of PCBs or substrates underneath. So that still has not really happened much yet, Steve. And so that's a huge potential growth driver for us. And I think everybody is working hard to make sure that things -- that AI drives this inferencing need. So I think TBD, but we're optimistic that, that will happen or some form of that will happen. Operator: Your next question comes from the line of David Liu with Mizuho. David Liu: For Vijay. Maybe the first one on revenue by geo. Can you just highlight what types of trends you're looking at split by geo? I know your customers mentioned some write-offs, but there's also maybe some tailwinds in the U.S. John Lee: Just to make sure I understand your question, you wanted some color on revenue by geography? David Liu: Yes. Just what you're seeing in terms of the demand trends by geo, yes. John Lee: Yes. Well, certainly, a lot of Asia is driving a lot of the growth for sure. But as you know, some of that's coming back to the United States as well as to Japan and Europe as people start onshoring chip fabs and packaging fabs for that matter. But I think the other larger geographic trend is China Plus One trend as things move to Southeast Asia. As you know, we are building some factories in Southeast Asia to meet that demand because our customers are moving there. So I think there is a lot of geographic movement in the industry today, especially the packaging industry, but also the chip industry as you see fabs coming up in United States, Europe, Japan and potentially India as well. David Liu: Okay. And then I don't know, any comment on the recent rumors of potentially selling the specialty coating divestiture? John Lee: Well, we're aware of those articles, but we really don't comment on market speculation, Dave. Operator: Your next question comes from the line of Joe Quatrochi with Wells Fargo. Joseph Quatrochi: Maybe one on the semi side. Given the entity list affiliate rule, it looks like it's delayed. Have you seen any change in order patterns or discussions with your customers? John Lee: Yes. Thanks for the question, Joe. Not really because I think when that rule came out, we didn't have -- I don't think the industry had time to react. But some of our customers have said the impact is X, Y, Z, but now it's delayed. So as you know, the tariff environment is kind of wake up every day and it changes. So we really haven't had any kind of different discussions with our customers based on that specific rule. Joseph Quatrochi: Got it. And then just your, I guess, conservative comments in terms of looking at like chemical growth into 2026. Is there a particular end market that you're maybe a little bit more conservative in the outlook for? Is it smartphones or PCs, something like that? John Lee: Yes. I would say the PC and smartphone markets have been stable, if you will, Joe. But there are some things that could drive it higher in the future. We're just not sure if they will, one of which is new form factors for phones, foldables, for instance, more foldables. And the other one is what we talked about earlier, I think what Steve asked the question about if inferencing cut out to phones and PCs, that certainly would be -- would change the outlook in terms of more of a growth outlook for PCs rather than kind of more stable, which is kind of our assumption. Operator: Your next question comes from the line of Mark Miller with the Benchmark Company. Mark Miller: You noted strength in dep and etch. Are you just getting share in those areas? John Lee: Yes. I think we've had a traditional strength there in deposition and etch. That's kind of a legacy MKS business. I would say this, we've gained share in multiple areas. We talked a little bit about even dissolved gas. And as the industry moves towards more advanced nodes like 2-nanometer, the ability to clean wafers, the ability to do soft etching and soft cleaning. These are all things that are driving some of our subsystems in the reactive gas part of our business. So we've got a lot of good opportunities there that we've been capitalizing on. And of course, power for NAND is something that we are very confident, we will hold that share and as that grows into higher aspect ratio etching for things like DRAM. And then we're working hard on conductor etch. And we have some great solutions there that our customers have told us are industry-leading. Mark Miller: I was wondering if you could give us some color on lasers and your outlook for next year from the laser business. John Lee: Yes, Lasers has been a little muted because, as you know, lasers are used in industrial applications and industrial applications have been more muted in the last couple of years. [ PMI ] is still kind of hovering around 50% or a little below. So I think we really have to see a change in that, Mark, before we would kind of see the lasers part of our business grow. Operator: [Operator Instructions] Your next question comes from the line of Jim Schneider with Goldman Sachs. James Schneider: I was wondering if you could maybe kind of comment on, given all the things were covered earlier with respect to tariffs, how you expect your direct China business to trend directionally heading into next year? What do you expect it to be sort of up, down or flattish? John Lee: Yes. Well, in China, we have 2 markets that go to China. The semiconductor equipment direct to China, that's out of our numbers. We still sell a little bit there, what's allowed, but that's not -- that's been out of our numbers for a while. So we do have the indirect exposure to China based through our OEM customers, and that's well known. But then we also sell obviously, advanced electronics packaging to customers in China. And that still remains a good portion of our business, but many of those customers are also building new capacity in Southeast Asia, as we talked about earlier. So we see that trend probably China will be a big part of our business from the packaging standpoint, not so much from the semi direct standpoint. And then things start moving, I think, outside of China from the packaging standpoint. James Schneider: And then maybe relative to your leverage target, you've talked consistently about 2x in 2027. Maybe talk about sort of the level of urgency to get there. Could you achieve it perhaps a little bit earlier than that? And maybe talk about some of the levers you might pull to sort of achieve it? Ramakumar Mayampurath: Jim, this is Ram. I'll take that. So we have made great progress in keeping our focus on deleveraging. We paid down $400 million in prepayment this year. That's following $426 million of prepayment we did last year. And that remains our focus. Our capital allocation strategy has not changed, investing in our business and then paying our debt down. That's been our focus. In terms of accelerating that, the best way to do that will be with our current cost structures when we see the top line come back to more normal levels, we will be able to generate more cash and accelerate our debt payment. 2.5, you're right, is the net leverage target we want to get to, and that's our goal. I don't want to speculate on a time when we'll get there, but 2.5 is our net leverage target. Operator: I'm showing no further questions at this time. I would now like to turn it back to Paretosh Misra for closing remarks. Paretosh Misra: Thank you all for joining us today and for your interest in MKS. Kathy, you may close the call, please.
Operator: Good morning, and welcome to the AMSC Second Quarter Fiscal 2025 Financial Results Call. [Operator Instructions]. Please note this event is being recorded. I would now like to turn the conference over to Nicol Golez, Director of Communications. Please go ahead. Nicol Golez: Thank you, Jason. Good morning, everyone, and welcome to American Superconductor Corporation's Second Quarter of Fiscal Year 2025 Conference Call. I am Nicol Golez, AMSC's Director of Communications. Joining me today are Daniel McGahn, Chairman, President and Chief Executive Officer; and John Kosiba, Senior Vice President, Chief Financial Officer and Treasurer. Yesterday, after the market closed, American Superconductor issued its earnings release for the second quarter of fiscal year 2025. A copy of this release is available on the Investors page of the company's website at www.amsc.com. During today's call, remarks that management may make about American Superconductor's future expectations, including expectations regarding the company's future financial results, plans and prospects constitute forward-looking statements. Actual results may differ materially from those indicated by such forward-looking statements as a result of various factors, including those set forth in the Risk Factors section of American Superconductor's Form 10-K for the year ended March 31, 2025, which the company filed with the Securities and Exchange Commission on May 21, 2025, as well as our other filings, all of which are available on our website. The company disclaims any obligation to update these forward-looking statements. On today's call, management will refer to non-GAAP net income on non-GAAP financial measure. Tables of reconciliation of GAAP to adjusted financial measures can be found in the company's earnings release. With that, I will now turn the call over to Chairman, President and Chief Executive Officer, Daniel McGahn. Daniel? Daniel McGahn: Thanks, Nicole, and good morning, everyone. I will begin today by providing an update and sharing a few remarks on our business. John Kosiba will then provide a detailed review of our financial results for the second fiscal quarter, which ended September 30, 2025, and provide guidance for the third fiscal quarter, which will end December 31, 2025. Following our comments, we'll open up the line to questions from our analysts. We executed another quarter of strong results with revenue of nearly $66 million. This is our third consecutive quarter performing at this higher revenue level. Second quarter revenue grew more than 20% year-over-year, reflecting strong execution across our grid and wind businesses. Our Grid business delivered strong growth of over 15% compared to last year's quarter. Our Wind business also posted impressive growth of over 50% from the year ago period. We delivered our fifth consecutive quarter of profitability and our ninth consecutive quarter of non-GAAP profitability. Gross margins topped 30% again, and we closed the quarter with a strong balance sheet of over $215 million in cash. Overall, we posted a quarter of very strong results. The business is growing. Revenue came from a broad mix of sectors. About 1/4 of our sales came from traditional energy projects with another 1/4 from renewable energy projects. Materials projects, which include semiconductor, accounted for over 1/5, while military and other industrial sectors made up the remaining portion. This diverse mix of revenue reflects the growing demand across our end markets and the reach of our technology. We are being designed into more and more projects where our proprietary technology has become the go-to solution, which is a great validation of the value we bring. Our technology has gained a strong foothold across multiple sectors. I'll now turn the call over to John Kosiba to review our financial results for the second quarter of fiscal 2025 and provide guidance for the third quarter of fiscal 2025, which will end December 31, 2025. John? John Kosiba: Thanks, Daniel. Good morning, everyone. AMSC generated revenues of $65.9 million for the second quarter of fiscal 2025 compared to $54.5 million in the year ago quarter. Our Grid business unit accounted for 83% of total revenues, while our wind business unit accounted for 17%. Grid business unit revenues increased by 16% in the second quarter versus the year ago quarter. The increase in revenue was primarily driven by the organic growth within our new energy product lines. Wind business unit revenues increased by 53% over the same time period. The increase in revenue was primarily driven by additional shipments of electrical control systems. Looking at the P&L in more detail. Gross margin for the second quarter of fiscal 2025 was 31% compared to 29% in the year ago quarter. This increase in gross margin was primarily due to a favorable product mix, particularly within our Grid business unit. This is now 2 consecutive quarters with gross margins exceeding 30%. Now moving on to operating expenses. R&D and SG&A expenses for the second quarter of fiscal 2025 were $17.1 million compared to $13.2 million in the year ago quarter. This increase is primarily driven by the incremental NWL operating expenses and higher stock compensation expense. Approximately 21% of R&D and SG&A expenses in the second quarter of fiscal 2025 were noncash. We generated non-GAAP net income for the second quarter of fiscal 2025 of $8.9 million or $0.20 per share, compared with a non-GAAP net income of $10 million or $0.27 per share in the year ago quarter. Our net income on the second quarter of fiscal 2025 was $4.8 million or $0.11 per share. This compares to net income of $4.9 million or $0.13 per share in the year ago quarter. Included in both net income and non-GAAP net income in the year ago quarter was the release of a $5.1 million valuation allowance due to the recording of the deferred tax liability from the acquisition of NWL. This was a noncash benefit in last year's results. Please see our press release issued last night for a reconciliation of GAAP to non-GAAP results. We ended the second quarter of fiscal 2025 with $218.8 million in cash, cash equivalents and restricted cash. We generated operating cash flow in the second quarter of fiscal 2025 of $6.5 million. Now turning to our financial guidance for the third quarter of fiscal 2025. We expect that our revenues will be in the range of $65 million to $70 million. Our net income on that revenue is expected to exceed $2 million or $0.05 per share, and our non-GAAP net income is expected to exceed $6 million or $0.14 per share. With that, I'll turn the call back over to Daniel. Daniel McGahn: Thanks, John. We have sustained an average quarterly revenue above $65 million for the past 3 quarters. And you can see we're bullish with our expectation that this trend could continue next quarter. As is common in our business, timing plays a key role in quarterly results. Some quarters benefit from accelerated timing of projects or earlier deliveries. Others see projects shift into the next quarter or next period. Typically, our 12-month backlog represents about 9 months of business. The team is always selling projects out 6, 9 or 12 months and in some cases, beyond 12 months. Our lead times have been reduced for the overall business, and we see this as a competitive advantage. We are growing, we are executing with discipline and focus, and we have tremendous tailwinds at our back. Our results reflect our progress in scaling the business, diversifying revenue and driving outstanding financial performance. For our second quarter, we saw strong order demand across energy and military markets. Most of our orders came from traditional energy and renewables, making up nearly 65% of total orders. Military followed at roughly 15%, with the rest driven by materials such as metals, mining and as well as other markets. This demand is supported by powerful tailwinds across multiple sectors with significant investments projected for 2025. In energy, traditional energy like oil and gas are expected to see over $1 trillion in capital spending, while renewables are attracting more than $750 billion. International growth, particularly in renewables, adds another layer of long-term opportunity. In materials, the global mining project pipeline exceeds $1 trillion. Investments in semiconductors and global data centers together are expected to top $650 billion. And in military, defense spending is projected to reach nearly $3 trillion. These sectors represent massive long-term capital investments. We believe we are well positioned to benefit with our broad product portfolio across power electronics, grid infrastructure and military systems. We see steady growth in demand. Over the past 4 quarters, we've averaged over $60 million in new orders per quarter. That is an improvement from the prior 4 quarters, which averaged over $45 million per quarter when we exclude the exceptional order we received from the Royal Canadian Navy. We closed the quarter with a strong pipeline of opportunities and a 12-month backlog of well over $200 million. We did win a new contract with the U.S. Navy to begin design for a whole new class of product that we will hopefully talk about in the future. As we look ahead, we did mention last quarter about a coming acceleration in our military business. We see this coming. We expect revenue to be driven by strong activity in materials, particularly semiconductors, along with increasing investments in data center infrastructure. We may even see another acceleration in the coming quarters in this part of our business. We are benefiting from power-intensive materials manufacturing. These are the feedstocks of the future. Our semiconductor offering performs exceptionally well, helping protect fabs from power variability and supporting the rapid build-out we're seeing in that market. We are just beginning in data centers. We have served grid projects to help support a more resilient grid and now hope to begin to deliver directly to data center construction projects. In addition, we've broadened our reach beyond renewables to include traditional energy projects. That diversification is making our business stronger and more resilient across multiple sectors. We are prepared to capitalize on the growing demand for energy and the need for a stable grid to support it. We are excited about the future, and we believe we're exceptionally well positioned to capitalize on the opportunities ahead. After an acceleration in the first quarter, the business performed nicely in the second quarter. We are guiding to another strong quarter ahead. Our third quarter is off to a great start, supported by healthy new orders. The business is seeing tailwinds across the energy and materials markets. Expansion in materials capacity and build-out of data centers could further accelerate this part of our business. Given our backlog and balance sheet, the business is very well positioned for what might lie ahead. Our future-facing technologies help harmonize the world's desire for decarbonization and clean energy with the need for more reliable, effective and efficient power delivery. I look forward to reporting to you again following the completion of our third fiscal quarter of 2025. Jason, we will now take questions from our analysts. Operator: [Operator Instructions]. Our first question comes from Eric Stine from Craig-Hallum. Eric Stine: So wondering if we could start -- so obviously, you talked about you've been above $60 million, $65 million here for a couple of quarters and the typical cadence of your business has been you're at a level, as orders pick up, you see -- then your revenues obviously pick up. And so I'm just curious, thoughts given your macro tailwinds, how you're positioned, expanded offering, what you're seeing on the order front and what that implies about kind of that next step up for the company? Daniel McGahn: Yes. I think the next step that's going to be determined on how all this cadence comes together at a single point in time. But we do see an acceleration coming in military, not only from new orders that I mentioned, but also based upon the more complete offering that we now have, not only protecting ships, but powering ships and powering the construction of ships. So there's a bunch of opportunities there for us. I did mention that we do see a potential acceleration kind of similar like we did in Q1 with semiconductor build-out. We have a pretty robust pipeline and backlog of orders there. And in data centers, we hope to announce at some point in the relatively near future that we've delivered on our first project to the construction of the data center. We think that opens up a whole another opportunity for us, but it's very early days there. So I think it's always hard for me to tell you definitively what it's going to look like to get to 75 or to 80 and beyond. But I think when you look at the macro environment that we're in, everything is at our back right now. We see that with the pipeline. We see that with the cadence of the orders. We see that the operation is being able to deliver timely to customers. I mentioned that our lead times are shrinking. That's a good sign, I think, in our business. It gives us a competitive advantage, we think. So as we start today, we think that the opportunities for us are bigger and brighter than they were even a quarter ago. Eric Stine: Got it. Maybe just digging in on the data center piece, I mean, obviously, top of mind in the market. I know it's early days, but I mean, is that something that you envision eventually becomes where you're spec-ed in like you have been with some of the semiconductor fabs with that data center provider? Daniel McGahn: Yes. I think that's where we're hoping to go. I don't know how long it will take. But when you think about design wins, we're spec-ed in a variety of systems for the military. We're spec-ed into a number of chip makers for fabs. We don't talk a lot, but we're spec-ed into a lot of utilities where our products are things that they can basically purchase on order as opposed to doing a whole design work and selling them on the efficacy of the technology. That's been a huge transformation of the pipeline for utilities. Some of that's driven by data center, really the data center impact on the grid. But now we're seeing that EPCs that we work with for many years are getting more and more involved with data centers, and they're attempting to pull us along with them. So our hope is that customers that are very familiar with us as they get more involved with the construction of data centers are going to turn to us like they have in other industries as a known and trusted supplier. So we think there's a very nice opportunity there. How long it takes to pay off? I don't know. I think what we're optimistic is that there are so many positive signs in our business that the business should continue to improve. I understand always the question is the cadence, and you have it right. We've gotten to a level. This is a great level for us to be at. I think we finally demonstrated the level of profitability we can get at this level. And now we're looking to kind of continue to push with our key customers to expand our order book. And I see that coming in the coming quarters. Operator: Our next question comes from Colin Rusch from Oppenheimer. Colin Rusch: Given some of your advantages around having compact form factors, your ability to deal with high voltage and some noisy power, along with some of the expertise that you guys have around DC to DC architectures and where the data centers are going in terms of how they're being built out. Can you just talk a little bit about how you see your competitive advantage in that data center opportunity given where the technology is headed and some of the legacy IP that you guys bring to the table? Daniel McGahn: Have you been on some of our sales calls recently, Colin? Colin Rusch: I mean, listen, we see the alignment. But... Daniel McGahn: I mean you're talking about kind of how we go about marketing what we have. I think -- the idea of noisy, less resilient grids are a key in the data center market. I think first and foremost, what we've really discovered is a lot of it's about time and speed. So being able to build things quickly, being able to focus on lead time, being able to focus on our supply chain, if that part of the business starts to ramp, that's been, I'll say, something that the team has had some focus on. I hope that we can talk about more specifically what we're doing. I think as we kind of figure out where our fit is, I think that there is an opportunity for an offering across our businesses. So not thinking the individual elements, but a combined offering. And I think order sizes could be quite large in the data center area. But you have it right. It's about the noisiness of the system, and it's about quieting it quickly and being able to deliver stuff to site that fits in well. You mentioned the compact nature of it. So the speed and size is kind of really paramount, we think, in this application, and that's really the strength of our technology. Colin Rusch: That's super helpful. And then kind of broadly speaking, the customer base is diversified. Your end market exposure is diversified. But the military history here is pretty meaningful for the company in terms of what your opportunity set is. Can you talk a little bit about -- you've got the ship protection system business, but there's also the port opportunity. How much progress are you making around the non-ship military exposure in terms of resilience for some of the infrastructure that the Department of Defense is looking for in its kind of asset base over the course of the next, call it, 4 to 5 years? Daniel McGahn: Yes. There's kind of 3 flavors to what we're offering. There's the protection, which is the superconductor-enabled technology. There's powering critical ship systems, which we have a number of design wins there. Many of the ships that we're on with power supplies are the same size or bigger of what we're doing in protection. So that's a very important part of the business. And the third part, as you mentioned, for ports or for construction, that's an area that we see acceleration potentially coming. We're designed in for, I'll say, a number of ship makers. We've been able to take the relationships we have and helping to build the ship with capability to now powering the capacity to build those ships. So that's an area that there's investment that is forthcoming. There are pieces of our backlog that represent that, but we think that there's some order pipeline that can help that grow. And that's why last quarter, this quarter, I see the signals of an acceleration on the military side coming. I think, again, to go back to the previous question, for us, it's always hard to kind of predict when the timing comes. We know when need dates are. We know what our build cycle is going to be, and we try to map those 2 together for the customer and deliver what they need when they need it. Operator: [Operator Instructions]. Our next question comes from Justin Clare from ROTH Capital Partners. Justin Clare: So I guess I also wanted to just follow up on the data center opportunity. And just wanted to see, are you currently engaged with utilities on that opportunity or data center developers? And then wondering if that is something you see as more at the substation level? Or do you see the ability to kind of offer a solution within the data center? Any added detail you could share on the specifics of the solution that might be a good fit for that end market? Daniel McGahn: Yes. I think the good news today, and maybe I can say it more clear than the last quarter is that the answer to your question is, d, all of the above. We started with the relationships with utilities to be able to fortify the grid. So challenges that are happening on the grid side because of the rapid build-out and demand for power from data centers. We're now seeing bids where there's direct offering to the construction of the data center that will be directly with the developer. And in many cases, it's an engineering procurement construction company that knows us well that we know well. So that puts us in a good position where we're not trying to sell the efficacy of technology. It's more about lead time and how can we get product into the field faster. The feature set, it's really -- and that's what we're talking about with the previous question, it's really managing the noisiness that can come from the grid or can cause disruptions for the data center. It's very similar to -- not quite identical, but similar to what we do for a semiconductor fab, where you're trying to deal with the speed of transient changes in the power flow. those are even more paramount and more critical for data centers even than a semi fab. So as they're trying to build out those out more rapidly, they're trying to find simple solutions for their problems that they can get to quickly. So that's why we're excited about it. I hope to talk about that market more in the future. I think it is early for us, but I'm hoping that we talk about some wins and some deliveries in the coming quarters. Justin Clare: Okay. Great. And then you mentioned that the semiconductor market and the orders there. I'm wondering for the data center end market here, would you anticipate the order sizes being similar to those in the semiconductor market? And then I guess while we're on it, I wonder if you could just speak to the trend in orders for semis. It sounds like historically, those order sizes have been increasing. Is that trend continuing at this point? Daniel McGahn: Yes. Simple order of magnitude with the semiconductor fab. We offer anywhere from $2 million to $10 million of content. We've gotten orders within those ranges to the low end and certainly to the high end. That's what's helped, I think, the financials and the scale there. On the data center side, we have projects that are exactly in that same range and larger. I think that what we need to do is kind of crawl before we walk and walk before we run. We want to get to the point where we can deliver, we'll say, first systems into the construction of data center. And then I think the opportunity there is certainly possible for larger and larger order sizes. I don't know what those will be until we get them, but certainly, we hope to be able to talk about those in the future. Justin Clare: Got it. Okay. And then just one more follow-up on the military business. You mentioned that you had won a new contract with the U.S. Navy for a new class of ship. I'm wondering, did that show up in the backlog this quarter? Or is that something you anticipate in the future? And then just thinking through the magnitude of the potential impact, you've been on one class of ship so far, if you're seeing a new class of ship now, could you potentially double the ship protection business? Any sense for the magnitude of the impact here would be helpful. Daniel McGahn: So the contract that we won is for the design of a completely new class of product, not for protection. The order of magnitude of it is greater than ship protection. But the time it will take to develop and deliver and test and qualify, that's not in the immediate future. We're at a step where we're looking to design, look to be able to understand what the value and the efficacy are there and then get into the point where you do preproduction product and do all the things we've had to do on the protection side. So I don't want to get people so excited that in the coming quarters, you're going to see that driving a ramp in the military part of our business. What's going to drive the ramp in our military business is more powering ship systems and powering the port and the construction of ships. That's what we see kind of in the very near term. So I don't -- part of why I'm not -- we don't put a press release out about this order and things because I don't want people asking for an update every quarter, every year where we are. A lot of the technology that we're going to work on for the U.S. military will be at a level of clearance. We're not going to be able to talk about it. So we're wildly excited with inside the company on this win. It's been many years in the making. There's been a whole huge team that's been after it that this has been a big part of their drive and desire to help diversify our offering for the U.S. Navy. But we're really just at a design point. So we think we have the right idea. We think it's a long-term fit for the U.S. Navy, but it will take time to go through all the process steps to eventually get into something in production that delivers real revenue. Operator: There are no more questions in the queue. This concludes our question-and-answer session. I would like to turn the conference back over to Daniel McGahn for any closing remarks. Daniel McGahn: We're really excited in the company, and I hope that comes through. I think every quarter as we go and be able to put up great numbers again, just bolsters our confidence, the ability to deliver products to great customers. In just 1 year, we've moved from breakeven to meaningful and consistent profitability. We're incredibly proud of that. We believe that's a strong indicator of how the business is scaling and how we're executing across our core markets. We're highly confident in our direction and look forward to building on this progress in the quarters ahead. The market is enabling extraordinary opportunities for us, and we hope to be able to talk to you about progress in future quarters on those as well. Thank you for your time and your patience with us, and we'll talk to you soon. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Thank you for standing by. This is the conference operator. Welcome to the Equinox Gold Third Quarter 2025 Results and Corporate Update. [Operator Instructions] And the conference is being recorded. [Operator Instructions] I would now like to turn the conference over to Ryan King, EVP, Capital Markets for Equinox Gold. Please go ahead. Ryan King: Thank you, operator. Good morning, everyone, and thank you for taking the time to join the call with us this morning. Before we commence, I'd like to direct everyone to our forward-looking statements on Slide 2. Our remarks and answers to your questions today may contain forward-looking information about the company's future performance. Although management believes our forward-looking statements are based on fair and reasonable assumptions, actual results may turn out to be different from these forward-looking statements. For a complete discussion of the risks, uncertainties and factors that may lead to actual operating and financial results being different from the estimates contained in our forward-looking statements, please refer to the risks identified in the section titled risks related to the business in Equinox Gold's most recently filed annual information form, which is available on SEDAR+, on EDGAR and on our website. And finally, I should mention that all figures are in U.S. dollars unless otherwise stated. With me on the call today are Darren Hall, Chief Executive Officer; Pete Hardie, Chief Financial Officer; and David Schummer, Chief Operating Officer. We will be discussing our third quarter 2025 production and cost results and providing an update on ramp-up progress at our Greenstone and Valentine mines after which we will take questions. The slide deck we are referencing is available for download on our website at equinoxgold.com, under the Shareholder Events section. You can also click on the webcast link to join the live presentation. And with that, I will turn the call over to Darren. Darren Hall: Thanks, Ryan, and turning to Slide 3. Good morning, everyone, and I appreciate you taking the time to join us on the call today. Firstly, I would like to acknowledge the efforts of all of Equinox's employees and business partners for their continued focus to responsibly deliver over 236,000 ounces during our first full quarter, including Calibre assets. Well done to the entire team. It is truly an exciting time for Equinox as we begin to realize the value of our expanded Americas-focused gold portfolio anchored by 2 new cornerstone gold mines in Greenstone and Valentine. As I've mentioned previously, the leadership team, supported by the entire organization is focused on creating shareholder returns by consistently delivering on its commitments, which are focused on demonstrated operational excellence, advancing high-return organic growth, rationalizing the portfolio and disciplined capital allocation. These are more than just words. Over the last quarter, we have made material progress on each of these commitments. Just a few examples: operational excellence. Production and costs were in line or favorable compared to consensus expectations and we remain on track to deliver into our full year consolidated production guidance. Importantly, we have made meaningful progress at Greenstone, which I'll talk to shortly. Advancing high-return organic growth. We poured force gold at Valentine where the ramp-up is progressing extremely well, a game, which I'll provide color on shortly. Additionally, Castle Mountain was accepted into the U.S. Federal Permitting Improvement Steering Council's FAST-41 permitting program, which defines an anticipated record of decision in December of 2026. Rationalizing the portfolio. Post quarter end, we closed the sale of our Nevada assets for $115 million, including $88 million in cash. Disciplined capital allocation. We retired $139 million of debt during Q3 and have commenced Q4 with an additional $25 million in October. Turning to Slide 4. During Q3, we sold 239,000 ounces at an average cost of $1,434 per ounce at an all-in sustaining cost of just over $1,800 per ounce which underscores the enhanced scale and earnings power of the new company. Our adjusted net income was $147 million or $0.19 per share with adjusted EBITDA of $420 million. We ended the quarter with $348 million in cash, not including the $88 million from the sale of our Nevada assets, which closed post quarter end. With year-to-date production of 634,000 ounces, we are well positioned to deliver the midpoint of our 2025 production guidance of 785,000 to 915,000 ounces after divesting Nevada and prior to considering any production from Valentine. Equinox has entered a pivotal phase with increasing Canadian production driven by asset optimization and the addition of Valentine, positioning us for stronger cash flow and earnings in the quarters ahead. Turning to Slide 5. Greenstone's performance improved meaningfully in Q3, and we remain on track to deliver into the low end of our production guidance at Greenstone. Importantly, Q3 mining rates exceeded 185,000 tonnes per day, which was a 10% increase over Q2 and a 21% increase over Q1. Importantly, process grades improved 13% in Q3 to 1.05 grams per tonnes. Improvements to pit floors, haul roads and dumps, along with implementation of double-side loading have led to lower cycle times and increased productivity. Our focus on equipment maintenance practices, more efficient shift changes and the use of hot seating during shifts is also contributing to improved equipment utilization, which is resulting in increased daily mining performance. Since July, we have implemented additional dilution management measures, including enhanced grade control protocols and improved tracking systems, which is positively contributing to increased grades quarter-over-quarter. In the mill, despite 10 days of downtime due to planned maintenance events, including a 7-day shut to replace HPGR grinding rolls, total tonnes processed in Q3 were consistent with Q2 as we saw a 6% improvement in tonnes per hour processed. Further process improvements are underway, including commissioning of additional final refeed and core source stockpile conveyors that will enable consistent delivery material to the grinding circuit during periods of downs by providing additional redundancy. The positive momentum has continued into Q4 with October mining rates exceeding 205,000 tonnes per day, a 10% increase over Q3. In the process plant, we have seen mill grades improve to 1.34 grams per tonne, a 27% increase over Q3 and a 15% improvement in tonnes milled per day versus the Q3 average. The strategy being made across the board, coupled with increasing grades underscores our confidence that Greenstone will deliver a strong Q4 and continue that momentum into 2026. Turning to Slide 6. Valentine commissioning continues ahead of expectations with ore introduced into the circuit on August 27 and first gold was poured on September 14. The plant averaged nearly 5,000 tonnes per day or 73% of nameplate for the first 66 days of operation. Performance in October continues to demonstrate strong progress with throughput averaging over 6,200 tonnes per day or 91% of nameplate. Importantly, 18 days or 58% of the days during October were greater than nameplate. Recoveries exceeded 93% for the month from lower grade commissioning ores, which again, are consistent with feasibility level recoveries, albeit a lower grade. Performance at this level is truly a testament to the robustness of the design and disciplined execution by our construction, commissioning and operations teams over the last 18 months. While we're still early in the journey, based on what I have seen, I fully expect Valentine to deliver into the upper end of the Q4 production range of 15,000 to 30,000 ounces. With the ramp-up progressing extremely well, I anticipate Valentine will reach nameplate capacity by Q2 2026. On this basis, 2026 should be a strong year with production anticipated to be between 150,000 to 200,000 ounces. In parallel, we're advancing our Phase II expansion studies and see a clear path to increasing throughput to between 4.5 million to 5 million tonnes per year. I will provide a fulsome update when we announce full funds approval which I anticipate in early Q2 2026. Concurrently exploration drilling has accelerated across the property with 4 drills in operation, the team is following up on several new discoveries, including the previously released Frank Zone. Assays are pending for a number of significant intercepts, which could meaningfully add to the resource base in the coming years. Needless to say, we are very optimistic on Valentine's exploration potential. Turning to Slide 7. Looking to 2026, I expect continued improvement in production and cash flow, supported by increasing contributions from both Greenstone and Valentine. We have seen a lift in our share price over the past few months, supported by a stronger gold price and steady operational delivery. That being said, I believe there is still a disconnect between our intrinsic value and how we are currently trading. Since 2022, our peers have seen significantly higher equity performance and while I recognize we've got work to do as we continue to build confidence by delivering our commitments. I believe there's a meaningful upside potential in our share price. The opportunity ahead is significant, and our strategy is solid. By demonstrating operational excellence, advancing our high-return organic growth assets, rationalizing the portfolio with a disciplined capital allocation strategy, I'm confident that we will become a reliable top quartile value to diversify gold producer. With that, operator, we are ready to take questions. Operator: [Operator Instructions] The first question today comes from Francesco Costanzo with Scotiabank. Francesco Costanzo: Congrats on a good quarter. Maybe I'll start with Valentine. With the first of gold poured that was completed in September. Can you discuss some of the key performance milestones that you're tracking during the mine and mill ramp up? And then maybe after that, could you give us an update on the Phase II expansion study to increase the throughput to 5 million tonnes per annum? Darren Hall: Yes. Francisco, thanks and appreciate yours and Scotia's continued support. When we think about the milestones of Valentine, I guess, is that there's a lot of moving parts as you birth a new asset like Valentine. But I guess as the headline number here is that if we think of the first 66 days of performance of the entire facility since introducing ore in August 27, we've exceeded 70% of nameplate. And if we think about October in isolation, it's over 90% of nameplate. So all of the things that the team are focused on are clearly delivering in a great product. And as we look forward, they're now thinking about what's happening next, which is a good segue into Phase 2. We've tried purposely not to distract the team with Phase 2. But in the background, we have been doing work and over the last quarter, we've continued on our, we'll call it, options study analysis. And we now have good clarity on what the preferred option is going forward. And it's really a much simpler view than what we'd ever seen before. It doesn't include the addition of flotation. It specifically includes the addition of a twin ball mill, which provides additional redundancy in the circuit, which we see will comfortably deliver close to 5 million tonnes. So in this month, we'll actually commence the feasibility study and as I foresee earlier, I would anticipate going to the board in early Q2 for full funds approval so I would anticipate providing a fairly fulsome update here in the latter part of Q1 or early Q2. Francesco Costanzo: Yes, that's great. Maybe if I could just 1 more on deleveraging. So net debt currently sitting around $1.3 billion. Can you outline your strategy for deleveraging and how that might relate to portfolio rationalization work that's underway. And with the Pan sale now closed, can you maybe highlight when we might expect to see the next transactions? Darren Hall: Sure. I guess there are 2 things that are running in parallel that we can kind of put a ring fence, if you will, around portfolio optimization. But if we think about -- I think you mentioned a $1.3 billion net debt. And if we look forward for the next 12 months and we think about our production portfolio, we call it 1 million ounces given the buoyancy and the privilege we see with buoyancy and gold price right now, and we look at our total cost, it's easy to see over $1 billion that we can put against delevering the balance sheet. So ignoring any asset sales, by the end of next year, we're going to be in a very, very solid liquidity position with a significant portion, if not the majority of our debt extinguished. So as we start to think about Valentine coming online, I would anticipate that we'll definitely be fully funded on Valentine before we make a go commitment. And we think about the additional organic growth that comes post that with Castle Mountain, we're going to be in a very solid position with that as well. Now specifically as it relates to our assets, well, if I think of assets as children, I love them all, but for the right price, I'll gladly part with one. So we have seen interest in some of our assets. And to that end, there are people when we encourage people, if you're interested in having a discussion come to us and we'll gladly entertain and we'll see how it makes sense. And if those assets and that offer would make more sense and value to our shareholders in someone else's hand versus ours. But we're not desperate to transact. But for the right price, if it makes sense for our shareholders, we'll gladly entertain and progress any opportunities. But this is very clearly a path for us to realize some additional value and look at how we could use cash from any sales in terms of funding our organic growth portfolio. But to reinforce also, this is looking at disposal of, not acquisitions. Operator: The next question comes from Anita Soni with CIBC World Markets. Anita Soni: Darren, I just wanted to ask about your calculation of mine site free cash flow. I think there are some items in there that relate to basically nonoperating mines, so Los Filos, Castle Mountain and Valentine. Can you give a breakout of percentages or even millions of dollars like which ones I would allocate it to? Darren Hall: Yes, Anita. Again, I don't have that information in front of me, but I'll ask Peter. Pete, you're in a position to... Peter Hardie: Unfortunately, no, not at this moment, Anita. I'm happy to -- we'll have that for you after the call. Anita Soni: Okay. Then I'll ask on Valentine, a follow-up question, I guess. On Valentine, the grades that you're introducing right now, it was like 0.77 grams per tonne, I think. And then I'm just -- not that this is the time to be concerned, but I was just curious, was that just a deliberate decision right now until you get the recovery rates where you want them to be, not to waste or is that something where you are in the mining sequence at lower grades initially? And how will that evolve over the next couple of quarters? Darren Hall: No. Thanks, Anita. And I appreciate the question, and it's a really, really good question. No, we're seeing very solid and actually positive reconciliation from our ore control to our resource and reserve models at Valentine. So very comfortable with what we see there, as we've talked about previously. As we talk about being in the first 2 months, we've specifically commissioned the plant on lower-grade materials. And the reason being is this that we want to practice on material is less important. But in hindsight, Jason and the team have done such a fantastic job that we probably should have just commissioned on the highest grade material because we're seeing recoveries in excess of feasibility out of the gate. So no, the team has done a great. But no, it's been a purposeful decision to process lower-grade materials and ramp up as we get comfortable with getting to the point where we can declare commercial production, which we would anticipate probably in the next month or so, right, definitely in the quarter. Anita Soni: Okay. So I'm going to ask 1 more since the first one didn't get answered, if that's okay. But it's similar on the grades going into Greenstone. So I think it said in October, you're at 1.34 gram per tonne material. I'm not sure if it was being fed to the mill or if that was what was being mined. But if it's 1.34, are you starting to see higher grades coming out of the pit specifically the underground areas where you were wondering if sort of the remnants around the old workings were there or not? Like have we seen -- is there any progress or update on the profile of the skin? Darren Hall: Yes. No, absolutely. And thanks again for the great question. Is that if we think about quarter-on-quarter, we saw a significant improvement at grades milled at Greenstone. It did go to 1.05 and they are milled grades, not mine grades. We have seen an improvement in mine grades as well in the quarter. I mean average mine grade in Q3 was 0.91 grams per tonne compared to $0.78 in Q2 and as you're aware, we're mining more material than what we're processing. We're purposefully processing the higher grade material. And from the material we are seeing, we are seeing a higher grade because of where we position ourselves geographically. But secondly, I think that the concerted focus we've had on getting reliable tonnes mined, which is allowing the team to focus on quality which is minimizing dilution and then also being very purposeful in and around how we treat material in and around the voids is definitely having a very positive impact on grade. And I think I mentioned on the earlier part of this call that there's been a focus for quite some time. But I'll suffice to say, in July, things got pretty serious with respect to grade, and we saw a step change in September with the average grade in September process to 1.38 and we've been able to maintain a 1.34 in October. So I think what we're seeing is a combination of the performance in the mine, allowing for focus on quality, which is allowing for a consistency in grade fed, which was always the model, but I think that we've got the right people focused on the right things, and we're starting to see the benefit from. So that, coupled with the continued improvements we see in mill throughput on a tonnes per hour or tonnes per day basis will definitely lead to a much stronger Q4 with growth momentum into 2026. Operator: The next question comes from Mohamed Sidibe with National Bank Capital Markets. Mohamed Sidibe: Maybe I could start with Greenstone. Just wondering if you could maybe give us a little bit of color on your current stockpile in terms of tonnage and grade at Greenstone currently, if possible? Darren Hall: Yes. No, sure. At the end of month October, again, this is from memory, but I guess is that the important part of the stockpile is the highest grade material and we have the better part of a month of high-grade material in front of us and the grades in excess of 1.5 grams. Then there's the other material, which is a little lower grade material, but we're talking 2 million or 3 million tonnes at around 0.7 grams per tonne and then we've got the lower grade material as well. But in total, we've got in excess of 8 million tonnes of stockpile in front of the plant as it stands today. Mohamed Sidibe: That's great. And maybe if I could just move in terms of capital allocation priorities. I think back in Q2, you talked about, of course, deleveraging your balance sheet, paying down debt and reinvesting within your growth projects. But in terms of capital return, you had talked about potentially mid-2026. Since then, I think gold has moved over $500 per ounce. Have your thoughts changed around your capital return program at all? Or should we still target mid 2026 for a potential update on that front? Darren Hall: Well, I guess, is kind of foreshadowed earlier, if we kind of ignore any potential cash that can come in from an asset divestment, I think we're going to find ourselves significantly delevered by the end of 2026 and at that point, we'll be having some pretty material conversations about vehicles to be able to return additional capital to shareholders. I mean, Pete, what would you layer on this one. Peter Hardie: Yes. I think, Mohamed, if you're -- as you said, if you're looking at 2026, that will be a 2026 discussion. So for purposes of modeling, if you will, just assume no capital returns for next year. We are really very entirely focused, as Darren just said a couple of times now on delevering. Darren Hall: Yes. And if we think about capital allocation holistically. Aside from exploration, the most accretive investment we can make is to ensure that we deliver into our production commitments at a responsible price. From that, with cash it's delevering the balance sheet, but it's positioning ourselves for our significant organic growth as we see through Valentine Phase 2, Castle Mountain. And then the additional benefit we'll see from Los Filos in the next couple of years as well. So I think our strategy on capital allocation is very clear. And if we find ourselves with a cash inflow vis-a-vis an asset disposal that could then provide additional talk to return capital to shareholders through a dividend or a share buyback or some other form. But the organic growth opportunity within the portfolio, exploration and the assets are mentioned Valentine, Castle, Los Filos will provide significant returns to our shareholders. Operator: The next question comes from John Tumazos with Very Independent Research. John Tumazos: Could you elaborate on the Phase 2 expansion to 5 million tonnes potentially for Valentine. Would the 15,000 tonnes a day, be it the same grade to suggest the 2029 output as much as 400,000 ounces? Darren Hall: Yes, John -- and thanks for the question. I appreciate your support. If we think about the feasibility study that was put out at the end of 2022 for Valentine, it had a 2.5 million tonne base plant, expanded to 4 million tonnes. And what that did is that delivered into the feasibility study, which generated a 175,000 to 200,000 ounces a year over a reserve life of 14 years. So now what we've been looking at is what's that optimal increment that we could add to the base facility. And what we've been looking at is that optionality. So where we see right now is this that we see a path to something that's comfortably in that, call it, 5 million tonnes because it makes the math easy so would it be a 20% increment in throughput over what was included in the feasibility study. So I think then you make some assumptions on what would the incremental grade be. So if we be -- let's be -- let's assume that the grade is consistent with the average. It would then demonstrate a proportional increment of 25% improvement in production. Stepping back, I think that if we look at this -- the exploration success we've seen from Frank and the other potential along the property that will all come together around the same time. I think over the next year, we'll be sitting back and saying, clearly, we'll have an optimal incremental throughput, the material that feeds into that will be significantly impacted by our exploration success, and we look at optimizing the plants. Everything we've done to date has assumed the same relatively conservative mine plan, resource base and pit designs that we used in the 2022 feasibility study. So I think that we have a very favorable view on the increment at Valentine. But I think that will become more favorable as we optimize the plant 4 or 5 million tonne plant, and we start to see the benefits from the reconciliation that we anticipate going forward. Early days, but given the nature of the deposit, I would anticipate we're likely to see some positivity in terms of reconciliation above a cutoff. So no, I think that it's -- it's too early to say absolutely what the numbers are, John. But if I was sitting on your side of the table, trying to fill in a model, I would probably replace the $4 million with $5 million and then use something that was just proportional on throughput accordingly. Throughput beg your pardon on ounces. John Tumazos: If I can ask another, what is the best way to manage the benches at Greenstone when you have waste benches, 0.7 gram stockpile benches. And then highs as nice as 1.5 grams. Do you have all the same size shovels and trucks? Or do you have a few half size to quarter size shovels and trucks to go in and get those sweet spots without waste. Darren Hall: It's a good question. It leads to really a selectivity issue, John, in terms of how selective can you be. And I think that we're seeing that with the level of control, we can be more selective. But to take the situation where you're running from, say, a 10 or a 12-meter bench. You're making the benches smaller. Do we think there's going to be a material improvement inability to be able to deliver higher grade as a function of selectivity -- and I think in short, it's early days, but I don't believe from what I see, there's going to be a significant opportunity. There's going to be interesting areas where maybe it's more relevant than others. But generally speaking, I consider as it stands today, a Greenstone is more of a bulk mining, want to have a level of quality. But for the equipment size is rightsized for the operation we have, and it's really going to be about lowering our unit cost of production vis-a-vis mining processing and spending G&A as efficiently as we possibly can to have the most positive impact we can on all-in sustaining costs and maintaining margins given whatever gold price. And I'll maybe ask Tom. Tom, is there any layer in there from a selectivity perspective in terms of what we see from a resource reserve perspective. Unknown Executive: No, Darren, I think you covered it. I think the again, John, some of the things mentioned in the commentary of the conference call with respect to some of the ore control practices and things we're putting in with some of the automated systems and paying close attention to the geology as we go bench to bench is helping manage dilution. And we definitely are looking at some of these selectivity studies in the background. But to Darren's point, on mass, there doesn't appear to be a benefit. There can be selective areas where we can go in and be very in certain areas pick cherries out. But on mass, John, this isn't going to be a flitched -- several fetched benches as we go down. Darren Hall: Again, if we think about the contrary here at Valentine, we see good opportunity, and we have 2 specific mining fleets, a larger fleet, the smaller fleet and specifically to use a smaller fleet where there's a good opportunity to be more selective, and therefore, preferentially mine at a lower grade, not only just use the stockpiles. So yes. No, I think we have a good plan at Greenstone and we'll continue to look for those opportunities to positively impact grade. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Darren Hall for any closing remarks. Darren Hall: Yes. Thank you, operator. I'd just like to close by thanking all of our stakeholders for their continued support and everyone's participation and questions on the call this morning. It is appreciated and valued. And as always, Ryan, I and the entire leadership team are always available if you have any further questions. So with that, take care. Be well and back to the operator. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Hello, and welcome to the P10 Third Quarter 2025 Conference Call. My name is Latif, and I will be coordinating your call today. [Operator Instructions] As a reminder, today's conference call is being recorded. I will now pass the call to your host, Mark Hood, EVP and Chief Administrative Officer. Mark, please go ahead. Mark Hood: Thank you, operator, and thank you all for joining us. On today's call, we will be joined by Luke Sarsfield, Chairman and Chief Executive Officer; and Amanda Coussens, EVP and Chief Financial Officer. Sarita Jairath, EVP and Global Head of Client Solutions; and Arjay Jensen, EVP, Head of Strategy and M&A, are also in the room with us today. Before we begin, I'd like to remind everyone that this conference call as well as the presentation slides may constitute forward-looking statements within the meaning of the federal securities laws, including the Private Securities Litigation Reform Act of 1995. Forward-looking statements reflect management's current plans, estimates, and expectations, and are inherently uncertain. Actual results for future periods may differ materially from those expressed or implied by the forward-looking statements due to a number of risks and uncertainties that are described in greater detail in our earnings release and in our periodic reports filed from time to time with the SEC. The forward-looking statements included are made only as of the date hereof. We undertake no obligation to update or revise any forward-looking statements as a result of new information or future events, except as otherwise required by law. During the call, we will also discuss certain non-GAAP measures that we believe can be useful in evaluating the company's performance. A reconciliation of these measures to the most directly comparable GAAP measure is available in our earnings release and our filings with the SEC. I will now turn the call over to Luke. Luke A. Sarsfield: Thank you, Mark. Good morning, everyone, and thank you for joining our third quarter 2025 earnings call. Our third quarter demonstrates the strength of our diversified platform and the attractive fundamentals of the market segments that are core to our differentiated investment strategies, namely the middle and lower-middle markets. Before discussing our quarterly financial results, I want to share a few observations around recent headlines regarding private credit and concerns some have raised about the credit market in general. As it relates to P10, private credit represents less than 20% of our fee-paying AUM today. We view this as an asset class with a meaningful opportunity set where disciplined managers can consistently deliver strong, stable performance, and attractive risk-adjusted returns. We have stated on previous calls that private credit is an area we would like to further expand. Having said that, in our existing private credit franchise, we continue to see a strong and robust opportunity set in the middle and lower-middle markets, and we are not seeing deterioration in our credit portfolios. Our underlying business remains incredibly strong. We have a time-tested and rigorous underwriting process, and our investment returns reflect this approach. Now, on to our third quarter results. We raised and deployed $915 million in organic gross new fee-paying assets under management. Investors may recall that we previously mentioned that in the second quarter, we pulled forward approximately $300 million in fundraising from the third quarter. Were it not for these accelerated capital commitments, we would have delivered a third consecutive $1 billion gross fundraising quarter. The fundraising and deployment environment continues to be resilient with compelling opportunities across our diverse franchise. Our expanding business continues to benefit from secular tailwinds in private markets, supporting global demand for difficult-to-access investment opportunities. We believe the market is moving in our direction as clients seek better returns and more exposure to the middle and lower-middle markets. Our distinct business model is a strong foundation upon which to fuel our organic and inorganic growth aspirations. We ended the third quarter with $29.1 billion of total fee-paying assets under management, an increase of 17% year-over-year. The momentum in our business is especially noteworthy when comparing fundraising and deployment in the first 3 quarters of 2025 to the same period in 2024. In the first 3 quarters of 2025, we raised and deployed $4.3 billion of organic fee-paying assets under management, an increase of 48% when compared to the capital raised in the same period of 2024. Other KPIs demonstrate progress over the same 9-month period. Our fee-related revenue, or FRR, has grown 5% year-to-date. And additionally, our FRR is up 11% year-to-date when excluding direct and secondary catch-up fees. We've exceeded our annual organic gross fundraising guidance of $4 billion for 2025. Consequently, we are raising our full year 2025 organic gross fundraising target and expect to finish the year closer to $5 billion. And we are well on our way to achieving the long-term guidance we provided at our Investor Day in September of 2024. All of the materials from our Investor Day are prominently featured on our Investor Relations website, and we invite you to review those materials to get a better sense of how we are thinking about the opportunities in 2026 and beyond. In the third quarter, we had a number of noteworthy accomplishments that support the ongoing momentum in our business. During the quarter, we had 17 commingled funds in the market. RCP's Secondary Fund V closed at $1.26 billion, exceeding our target of $1 billion. We've seen strong demand for our secondaries products, and this fund was no exception. We closed Secondary Fund V in 13 months. The predecessor, Secondary Fund IV was $797 million and took 25 months to close. The takeaway is that our commingled fund business continues to thrive and has achieved significant momentum. In addition, we launched 4 funds in the quarter, Bonaccord Fund III, RCP Small and Emerging Manager Fund IV, RCP Multi-Strat III, and Qualitas Funds US I. We continue to see LPs expanding their allocations across P10's franchise. We recently saw several wealth managers who were invested across our private credit and venture capital strategies commit to RCP's latest secondaries fund for the first time. Additionally, a large multifamily office that has invested in TrueBridge expanded its venture capital allocation by investing in WTI. Finally, in August, we announced a dual listing on NYSE Texas. Being recognized as a founding member of NYSE Texas provides us with a larger platform upon which to engage with the investment community. The NYSE continues to be an important partner, and we are excited to expand our relationship. Given our continued fundraising momentum, we want shareholders to understand the factors driving our long-term growth. First, we provide access to a specialized part of the market in the middle and lower-middle markets. This part of the market is difficult to navigate without a trusted partner. We offered a deep dive on the middle and lower-middle market opportunity in our second quarter earnings deck that demonstrates, through data, the structural advantages of our market focus compared to the larger, more crowded segments. Second, our firm is comprised of renowned investment franchises that have delivered durable alpha over decades through good and bad market environments and economic cycles. Returns continue to be strong as indicated in the slides in our earnings deck. Franchise diversity means we can compete for global mandates and win business in a variety of structures. We expect to drive more non-commingled opportunities over time. Third, we have a large growing LP base with a distinct selection of products and structures. We expect to have 19 funds in the market for the remainder of 2025. We are also continuing to engage with larger pools of global capital that want customized solutions. Fourth, our M&A pipeline is active, and we continue to evaluate attractive situations. We are active in our conversations and diligence. We're going to remain disciplined and on strategy as we consider adding new strategies to the platform. These core components drive our optimism in the forward of our franchise. Before I hand the call off to Amanda, I want to highlight that our share repurchases in the third quarter slowed as we have pulled forward capacity into the second quarter. During the third quarter, we repurchased approximately 110,000 shares at a weighted average price of $11.34 for a total repurchase of $1.25 million. With that, Amanda will discuss the third quarter financials. Amanda Coussens: Thank you, Luke. At the end of the quarter, fee-paying assets under management were $29.1 billion, a 17% increase on a year-over-year basis. In the third quarter, $915 million of organic fundraising and capital deployment was offset by $673 million in step-downs and expirations. We expect step-downs and expirations for full year 2025 to be slightly above our initial expectation of 5% to 7%. Increased step-downs were driven primarily by early paydowns in our credit business, demonstrating the quality of our loan portfolios and underwriting. In addition, a portion of the incremental step-downs consists of recyclable capital from our credit businesses that we expect to redeploy and continue charging fees in future periods. Another component of the increased step-downs and expirations was a large separately managed account that we expected to expire in the first half of 2026, which instead expired during 2025 and was replaced with a larger commitment from the LP following the expiration. We continue to expect step-downs and expirations to return to our historical average of 5% to 7% during 2026. FRR in the third quarter was $75.9 million, a 4% increase over the third quarter of 2024 and a 13% increase, excluding direct and secondary catch-up fees. The average core fee rate in the third quarter was 103 basis points due to strength throughout our product offerings. We continue to expect the core fee rate this year to average 103 basis points. In the third quarter, we had 17 commingled funds in the market. Our private equity strategies raised and deployed $711 million, our venture capital solution raised and deployed $12 million, and our private credit strategies added $192 million to fee-paying assets under management. Fundraising in the third quarter was driven by robust demand for secondary products as well as LP demand for multi-strategy and co-investment products. Total catch-up fees in the quarter were $370,000. The timing of fund closings drives catch-up fees. And in the third quarter, they were primarily attributable to our primary funds, which only impact our core fee rate. With many of our commingled funds early in their fundraising lives during 2025, we expect to see catch-up fees expand in 2026 and 2027. Operating expenses in the third quarter were $65.2 million, remaining flat compared to the third quarter of last year. GAAP net income in the third quarter was $3 million, an increase compared to $1.3 million for the prior year's third quarter. For the third quarter, adjusted net income, or ANI, was $28.6 million, representing a decrease of 7% from the third quarter of 2024. The reduction in ANI is primarily attributable to lower cash interest paid in the third quarter of 2024 compared to the third quarter of 2025, as a result of the debt refinancing in early August 2024, which moved cash interest paid into future quarters as well as additional borrowing costs associated with the recent Qualitas acquisition. For the quarter, fully diluted ANI per share was $0.24 compared to $0.26 in the prior year. FRE was $36 million, an increase of 3% year-over-year. In addition, our FRE margin was 47% in the third quarter. We continue to exercise cost discipline throughout our business to maintain peer-leading FRE margins in the mid-40s. Our Board of Directors approved a quarterly cash dividend of $0.0375 per share payable on December 19, 2025, to stockholders of record as of the close of business on November 28, 2025. Cash and cash equivalents at the end of the third quarter were approximately $40 million. At the end of the quarter, we had an outstanding total debt balance of $398 million, $325 million on the term loan and $73 million drawn on the revolver. Following the end of the third quarter, we paid $11 million down on the revolver. As of today, we have roughly $113 million available on our credit facilities. Our strong balance sheet and ample borrowing capacity position us to execute disciplined M&A with confidence. Our AUM, which is calculated similarly to our peers and is the sum of NAV, drawn and undrawn debt, uncalled capital commitments and capital commitments made to the platform since the NAV record date. AUM was $42.5 billion across the platform as of September 30, 2025. We believe AUM shows the breadth and scale of our business as a leading multi-asset class private market solutions provider as we continue to execute on our growth plan. Thank you for your time today. I'll now pass the call over to the operator to begin the Q&A session. Operator: [Operator Instructions] Our first question comes from the line of Ken Worthington of JPMorgan. Unknown Analyst: This is Alex on for Ken. For the first one, I wanted to double-click on the SMA-driven step down. I understand you mentioned it came earlier in '25 rather than expected in '26, but that was also matched with a larger commitment from the same client. When talking about the commitment, does that already appear in the fee-paying AUM? Or is that capital that needs to be deployed? Or are there other considerations there? Luke A. Sarsfield: Thanks, Alex. It's a good question. That does already appear in the fee-paying AUM. So we had a discussion with the client around the structure of our relationship. They added some -- they added a new mandate as part of an SMA, and that is included in the fee-paying AUM. And then as part of that, the -- one of the previously existing older mandates stepped down and stepped down just probably 6 months before we had initially expected it to. Unknown Analyst: And then for the next question, just about your point being more of a global solutions provider, understand Qualitas is helpful there, potentially win the incremental mandates. First part of that question, you mentioned they're launching a U.S. fund. Just want to understand if that's a fund for U.S. investors in their international products or what the deal is there? And then looking at channel mix, I'm seeing insurance company contributions to fee-paying AUM going up over the past handful of quarters. I wanted to check if that's just noise or variability, or if there may be a concerted effort that's flowing through the P&L of targeting the opportunity set as well. Luke A. Sarsfield: So 2 great questions. So first, on the Qualitas U.S. Fund, it's actually kind of the opposite of how you described it. So effectively what it is, is a fund that will invest primarily in the U.S. and will be marketed primarily -- virtually exclusively, I would say, to European investors. And I think this is a great example actually of synergies across our platform of being able to do things kind of in a pan-strategy way. And here in particular, this involves Qualitas and RCP. So one of the things that happened -- many things happened, but one of the very positive things that happened when we announced the Qualitas RCP deal, and remember, they had -- sorry, the Qualitas P10 deal, and remember, Qualitas and RCP have been working together for a long time, Qualitas got a lot of inbound from many of their existing LPs saying, gosh, we would love to have equivalent lower-middle market and middle market exposure that you afford us in Europe into the U.S. but it needs to be in a wrapper that works from the perspective of retail and ultra-high net worth investors in Europe. And so getting it wrapped in the right format was incredibly important, but obviously, having the right investment mixology was incredibly important. And so the beauty of this was it's really -- think of it as a joint venture product, though it's marketed as a Qualitas product, where Qualitas is really going to handle the structuring, the wrapping and obviously, primarily the distribution and the investor relations, and RCP is going to handle a lot of the portfolio mixology and the investing into the U.S., obviously, in close coordination and cooperation with Qualitas. And so it's a great example of the synergies that we talk about. So I'm actually really glad you asked the question. And I think we think there's a lot of other things like this we can do across the platform. But I think this is a great example of a synergy that we found, and I'm sure we'll continue to find many more as we continue to work and grow and execute together. The second question you asked was on insurance and the growth of insurance assets. And I would say we are not focused exclusively on insurance, but we are focused generally on expanding, as we've talked about with Sarita and team and others. We are focused on expanding our footprint and deepening our relationships with large pools of capital and large pools of capital allocators. And clearly, insurance is one of those important pools. I wouldn't say it's exclusive to insurance. It includes pensions. It includes sovereign wealth funds and it includes large endowments and foundations. It will include retail platforms and other retail aggregators. But certainly, insurance is a big part of that. And we have some funds in the market, I would say, that I think are particularly useful and appealing to insurance companies as they think about things like their return profile and kind of their broader capital allocation and obviously, doing things that are capital friendly from an NAIC perspective. And so I think we've been very lucky and very fortunate as part of this broader push to engage with larger pools of capital to have seen some real success and traction in the insurance channel. We don't think it will be unique and exclusive to the insurance channel, but it's certainly a focus of ours, Alex. Unknown Analyst: And great to see the cross-sell with Qualitas. Operator: Our next question comes from the line of Michael Cyprys of Morgan Stanley. Michael Cyprys: I appreciate the commentary on the credit trends. I was hoping you could maybe elaborate a little bit on the steps you guys are taking to support accelerated growth across your credit platform, how you envision that contributing over the next couple of years? Which parts of the market do you view as most interesting for P10? And when you look at the capability set in the platform today, where is there scope to lean in via inorganic initiatives versus more organic builds? Luke A. Sarsfield: Yes. These are all great questions. Thank you, Michael. Great questions, things we think about every day. So I'll take 3 parts of it. The first is just to underscore our relentless disciplined focus on making sure that we're always doing quality underwriting. And I will tell you, this is not some debt bed conversion we had in the last quarter because of the noise in the broader markets. This is something that we've done in a disciplined and diligent fashion since the very genesis of these platforms. And obviously, we have had -- you look at the returns, we've seen great returns across the cycles, and that's because we really focus on risk-adjusted return. We do a lot of internal work. We also engage with third parties who assist us in evaluating and marking the portfolio. We consistently go back and re-underwrite. If there are loans that are not even necessarily problematic, but not performing to our expectation or our underwriting case, we are engaged for quarters, if not years, on sort of engaging with the underlying portfolio company and making sure that they're doing all the right things to enhance that credit quality. And so we feel really, really good about our robust disciplined underwriting process. This is not something that we've come to recently. This is something we've been engaged with since the very start of the platform. I would then say, as it relates to our existing platform, we certainly see opportunities in many cases to grow the platform. And so I'll just give you kind of a few examples of things that we're really excited about. We continue to grow and expand our NAV lending franchise. That's through our Hark subsidiary. We've seen a lot of traction in that space. We obviously have a great, by the way, underwriting history in that space. But we've seen a lot of traction, a lot of uptake. It's clearly becoming a more broadly accepted and mainstream product. We're out marketing our next vintage of the core Hark product. And we just see a lot of engagement generally across NAV lending and what I would call NAV lending adjacent kind of strategies that I think are becoming just a more embedded part of the fund finance ecosystem these days. And so I think we have a lot of optimism around how that strategy plays out. We also mentioned in Enhanced, which is our impact credit strategy, we're out with an evergreen product. And we see a lot of interest and sort of engagement around that. And I think we're really, really excited for what that looks like. And then obviously, we have our WTI venture debt strategy that continues, I think, to deliver really attractive risk-adjusted returns in certain investor types, particularly those who are engaged in the venture ecosystem, but maybe want some structural protections really like that venture debt solution. And then finally, obviously, within our Five Points franchise, we do a lot of SBIC lending, and that certainly has appealed to banks and others who are seeking CRA credit as part of their underwriting and investing mandate. I would say more generally, and we've talked about this, we think there are ample opportunities within private credit. We've talked about areas like being much broader in direct lending. We've talked about areas like being much broader in asset-based lending. Clearly, there are other places like distressed and opportunistic credit. One of the real benefits that we think we have in our platform, particularly if you took something like direct lending, and this kind of goes back to that discussion we just had around Qualitas and RCP, what are some of the potential synergies across our platform. One of the real powerful things in our ecosystem is our relationships with many of the middle market sponsors through RCP in the U.S., through Qualitas in Europe. We're generally one of the top LPs in some of the best world-beating middle and lower-middle market financial sponsors. And as those sponsors do deals, and particularly as they do buyouts and those buyouts generate credit opportunities, we think we would have a really unique and differentiated sourcing engine as it relates to those. Obviously, sourcing is both a challenge and an opportunity for many direct lenders. We really have the organic built-in sourcing engine already. And so if we could kind of marry that with the right team that had the right kind of underwriting, risk assessment, disposition, we think that, just as an example, could be a really compelling place to grow the platform. Michael Cyprys: And then just as a follow-up question, if I could, more bigger picture. When you look at the mid- and lower mid-market focused managers that you're investing capital with, what challenges do you see those GPs facing, whether it's larger GPs just garnering more share of flows or tougher exit route through IPOs for smaller companies or less ability to access private wealth? Just how do you see the sort of broader trends in that part of the market for those GPs? And how do you see the opportunity for P10 to lean in and provide a broader set of solutions to help and support these GPs? Luke A. Sarsfield: Look, great, great, great question. And we think about this in so many ways, right? But the first is -- look, this is part of the broader -- this part of the market, the lower-middle market is part of the broader private asset ecosystem. And I would say no part of the broader asset ecosystem has been immune to the macro trends. What we did highlight, and I think, hopefully, you saw the slides in our second quarter earnings release, we would say we think we are in a relatively more protected and sheltered part of the market relative to some of the big trends in the upper part of the market. And so for all private equity firms engaged in buyout, whether at the upper part of the market or in the middle part of the market, DPI has been down, low these last few years. But it's been down meaningfully less in the lower-middle market than it's been down in the upper part of the market. And so we think there are some real structural advantages. You also mentioned, by the way, the prospect of some of these exits and the prospect of exit via IPO. We think that's another structural advantage in our part of the market. Most of these companies, the vast lion's share of the companies that are in kind of our GPs portfolios don't end up going public, right? They end up getting sold in some sort of transaction, whether it's a trade sale to a strategic or whether it's a sale to, frankly, one of these larger financial sponsors or one of their larger platforms that they own within their portfolio. And so we think that while certainly a robust and vibrant capital market environment, IPO environment is good for everybody, and I suspect it would be good for us and for our GPs. We're kind of a little less sensitive to it than folks playing at the upper end of the market because they obviously had a much more meaningful part of their exit via IPO. And so we continue to like and value our part of the market. Then you're asking what do we do for our GPs. And it's a really great question. And I think one of the advantages that we have in really getting folks to want to engage with us is the franchise, the history, the track record, the imprimatur, frankly, we give because of who we are. And a lot of that is informed by our data insights, right? And so when we work with our GPs, we can obviously give them through our GPScout, through our data solutions, tremendous insights around everything from macro trends in the market, trends in their space, trends in the geography they play in, and even kind of insights on specific deals, how have similar deals done historically, what are the things to watch out for, what has worked, what has not. And they often come to us in sort of an anonymized way and say, hey, we're looking at a deal that has XYZ parameters, can you help us think through this, what are the benefits, what are the detriments, what are the risks we ought to consider. And so you're not just getting capital from us. You're getting strategic advice. You're getting real insight. And then I think one of the other advantages is given the RCP platform, given the kind of brand and stature that RCP has in the marketplace, and I think very similar with Qualitas in Europe, when somebody -- when other LPs or prospective LPs see an RCP, see a Qualitas in the cap stack, they know that these are high-quality managers, that these are folks that have demonstrated good performance metrics, and that these are people who have been diligenced by kind of the best in the business, so to speak, and we're really proud of that. And so those are kind of some of the things I think we're super helpful with in that part of the business. I would also just highlight, and just to knit one other thought together, I think we're building as well a broader ecosystem of capital solutions for GPs. And so for instance, if you're a GP and you want to raise capital for one of your flagship funds, obviously, we can do that. We do that through RCP. We do that through Qualitas. And you can engage with us in that way, and we're very happy to, and we can provide all that information and insight that I talked about. If you then -- if that fund is now out of its investment period and there's a really attractive bolt-on opportunity and you need more capital through Hark, through being in that ecosystem, we can work with you to provide some sort of NAV loan that will help kind of boost the returns in that portfolio or enable you to do a tack-on deal or what have you. And if ultimately then you decide maybe I want more permanent embedded capital in my capital structure, and I want to embark at a GP stake sale, we can obviously engage with you through that via our Bonaccord business. And so I do think that that kind of platform synergy is another really powerful thing as we engage with GPs, Michael. Operator: Our next question comes from the line of Benjamin Budish of Barclays. Benjamin Budish: Luke, you alluded to what I wanted to ask about a little bit in your prior response about P10 being a little less levered to kind of the broader M&A environment. But I'm just curious, when we listen to a lot of your peers who are much more tethered to that, whether it's through realizations or much bigger exposures to net credit deployment, we do hear more about an excitement that IPOs that M&A is going to pick up meaningfully. So just curious what could that mean for P10? Obviously, your model is less tethered to that, but where do you maybe see opportunities accelerating should the M&A environment pick up as rates are coming down? Where is there potential near-term upside just from that macro perspective? Luke A. Sarsfield: Well, look, it's a great question. And when I say -- when you say we're less tethered to it, I guess what I would say is, I think we are a little inoculated on the downside is maybe how I would say it, right? But look, let's be clear, a good market is good for all participants regardless of size they play and regardless of segment. And so if we have a more accommodative backdrop with better M&A volumes, with more capital markets activity, with more financing and origination, that's going to be good for all players in the private asset ecosystem. And by the way, it will be really good for P10. And I think to the point that you mentioned where people are seeing and talking about more optimism, I think we are seeing more activity as well across our businesses. Generally, you obviously see it kind of manifest itself first in transactions at the kind of GP level and then what does that origination bleed through into credit and then the opportunities for monetizations and so on and so forth. And I think, like others have observed and opined on the calls that have happened and are going to presumably continue to happen, we see a more benign and accommodative macro environment than we have for probably at least a few years, if not longer. And that will augur well for our business. That will accelerate deployment opportunities in our credit businesses in the short run. That will amplify, I'd say, returns across the private equity ecosystem we're engaging in. And I think as people get more risk on, they really want to lean into places where there's the potential for magnified returns. And there's no place like venture, if you want to express a view on magnified returns in a more robust and risk-on growth environment. And so we think a broader positive accommodative macro trend is good for virtually everything across the platform, and we're hopeful and optimistic that we're getting to a better part of the cycle here, and we think it will be really good for P10 then. Benjamin Budish: Maybe just one maybe more kind of narrow technical question. You mentioned that some buybacks have been, I think, pulled forward in -- earlier in the year and the absolute number was a little bit lower in Q3. What's the current level of your capacity into Q4? Do you need to sort of re-up your authorization? Just any kind of tactical details around that would be helpful. Luke A. Sarsfield: I'm going to let Amanda take that one, but good question. Amanda Coussens: Thank you, Ben. So we have $26 million remaining on our buyback authorization. And I will say that while we continue to see share repurchases as an important tool for us to return capital to shareholders, we will continue to repurchase as it makes sense. Our long-term capital allocation priorities are to pay our dividends, which we've grown since -- 25% since instituting it in May of '22, M&A opportunities and share repurchases as it makes sense along with debt paydown. Operator: I would now like to turn the conference back to Luke Sarsfield for closing remarks. Sir? Luke A. Sarsfield: Thanks, Latif, and thank you all for joining us today and for the great questions. We look forward to reviewing our fourth quarter performance with you in February. On that call, we will review full year 2025, outline an exciting 2026, and provide financial guidance for the year. We are aligned with you, our fellow shareholders, and remain deeply committed to the long-term interest of our franchise. Thank you, and have a good day. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. The conference will begin in a couple of moments. One moment, please. Greetings, and welcome to the BGC Group, Inc. Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Jason Chryssicas, Head of Investor Relations. Thank you, sir. You may begin. Jason Chryssicas: Thank you, and hello, everyone. This morning, we issued BGC's third quarter 2025 financial results, which can be found at ir.bgcg.com. Any historical results provided on today's call compare only the third quarter of 2025 with the prior year periods unless otherwise specified. All references on today's call to historic and record results are to BGC's stand-alone financial results, excluding Newmark prior to the spin-off in November 2018. We will be referring to our results on a non-GAAP basis, which include the terms adjusted earnings and adjusted EBITDA. Please refer to today's investor materials on our website for additional details on our financial results and for complete and updated definitions of any non-GAAP terms, reconciliations of these items to GAAP results and how, when and why management uses them as well as relevant industry and economic statistics. The outlook discussed today assumes no material acquisitions or dispositions. Our expectations are subject to change based on various macroeconomic, social, political and/or other factors. Information on this call contains forward-looking statements, including, without limitation, statements about our economic outlook and business. These statements are subject to risks and uncertainties, which could cause actual results to differ from expectations. Except as required by law, we undertake no obligation to update any forward-looking statements. For information on factors that could cause actual results to differ from forward-looking statements and a complete discussion of the risks and other factors that may impact these forward-looking statements, see our SEC filings, including, but not limited to, the risk factors and disclosures within the SEC documents. With that, I'm now happy to turn the call over to John Abularrage, Co-Chief Executive Officer of BGC Group. John Abularrage: Thank you, Jason. Good morning, and welcome to our third quarter 2025 conference call. With me today are my fellow Co-Chief Executive Officers, Sean Windeatt; and JP Aubin, along with our Chief Financial Officer, Jason Hauf. We delivered another outstanding quarter with record third quarter revenues of $737 million, up 31% from $561 million a year ago and revenues of $628 million, up 12%, excluding OTC, was also a record. This was driven by growth across every asset class and geography. Our ability to deliver strong growth in a mixed macro environment demonstrates the strength and scale of our global platform. FMX continues to outperform, setting new records in SOFR Futures and U.S. Treasury. SOFR Futures saw both ADV and open interest increase more than threefold versus the previous quarter. This momentum continued into October, where we set multiple new daily volume and open interest records. Our U.S. Treasury market share grew to an all-time high of 37%, significantly outpacing the market. Our $25 million cost reduction program will be completed by year-end. This program will enhance our profitability and margins as we continue to focus on delivering long-term shareholder value. With that, I'd like to turn the call over to Sean to go over the quarterly results of the business in more detail. Sean Windeatt: Thank you, John. We delivered record third quarter revenues and adjusted earnings. Our ECS revenues grew by 114% to $241.6 million, driven by OTC and strong organic growth across the broader energy complex. Excluding OTC, ECS revenues grew by 21.8% versus last year. Rates revenues increased 12.1% to $195.3 million, reflecting higher volumes across all major interest rate products, including strong double-digit growth in interest rate swaps, emerging market rates and repo products. Foreign exchange revenues were up 15.9% to $106.7 million, primarily due to strong growth in emerging market currencies and FX option volumes. Credit revenues increased by 1.6% to $69.1 million, driven by higher credit derivative and structured credit volumes. Equities revenues grew by 13.2% to $60.4 million, reflecting strong European and U.S. equity volumes and continued market share gains in these geographies. Data Network and Post-Trade revenues grew by 11.9% to $34.3 million, excluding Capitalab, which we sold in the fourth quarter of 2024. This growth was driven by Fenics Market Data and Lucera. Including Capitalab, Data Network and Post-Trade revenues grew by 5.2%. Now turning to Fenics. In the third quarter, Fenics revenues increased by 12.7% to a third quarter record of $160 million. Fenics Markets reported revenues of $134.1 million, an increase of 12.5%. This growth was primarily driven by higher electronic trading volumes across rates and foreign exchange products and increased Fenics Market Data revenues. Fenics Growth Platforms generated revenues of $25.9 million, a 24.2% increase excluding Capitalab, driven by strong double-digit revenue growth in FMX and PortfolioMatch. Including Capitalab, Fenics Growth Platforms grew by 13.5%. FMX UST generated record third quarter average daily volume of $59.4 billion, more than 12% higher compared to last year, outpacing all electronic U.S. treasury platforms. This strong growth drove market share to a record 37% for the third quarter, up from 35% last quarter and 29% a year ago. FMX Futures Exchange continued to scale its SOFR Futures ADV and open interest to record levels during the third quarter. SOFR ADV and open interest each increased sequentially by more than threefold. FMX, along with its partners, continues to prioritize growing SOFR ADV and open interest, and we expect to see similar adoption in our U.S. Treasury futures offering in 2026. FMX FX ADV increased by 44% to a third quarter record $13.1 billion, driven by continued support from FMX's equity partners as well as the addition of new products and participants. PortfolioMatch ADV more than doubled, reflecting strong growth in the U.S. and EMEA credit markets. PortfolioMatch continues to gain market share in this fast-growing segment of the credit market and has rapidly expanded its non-U.S. volumes and client base. Momentum is being driven by the greater adoption of algorithmic trading and larger average trade size, which reached record levels in the third quarter, with U.S. investment-grade average trade size up nearly 50% year-over-year. Lucera, Fenics network business, providing critical real-time trading infrastructure to the capital markets once again registered double-digit revenue growth. Lucera is rapidly growing its client pipeline for its newer rates products and continues its global expansion into EMEA and Asia. And with that, I'd now like to turn the call over to Jason. Jason Hauf: Thank you, Sean, and hello, everyone. BGC generated record third quarter revenues of $736.8 million, reflecting growth across all of our geographies. EMEA revenues increased by 37.4%, Americas revenues increased by 28.1% and Asia Pacific revenues increased by 17.4%. Turning to expenses, compensation and employee benefits under GAAP and for adjusted earnings increased by 47.5% and 42.1%, respectively, due to higher commissionable revenues and the acquisition of OTC. Non-compensation expenses under GAAP and for adjusted earnings increased by 20.9% and 19.2%, respectively, primarily driven by the acquisition of OTC. Excluding OTC, non-compensation expenses under GAAP and for adjusted earnings increased by 10.3% and 7.1%, respectively. BGC's $25 million cost reduction program launched in the third quarter and will be completed by year-end 2025. We look forward to providing more detail on the program on our fourth quarter earnings call. Moving on to our record third quarter adjusted earnings. Our pretax adjusted earnings grew by 22.4% to $155.1 million. Post-tax adjusted earnings increased by 11.5% to $141.1 million, resulting in post-tax adjusted earnings per share of $0.29, and our adjusted EBITDA increased by 10.7% to $167.6 million. Turning to share count. BGC's fully diluted weighted average share count for adjusted earnings was 494.2 million shares during the period, a 1.2% decrease compared to the second quarter of 2025 and a 0.1% decrease compared to a year ago. We remain committed to repurchasing our shares. And on November 5, 2025, BGC's Board and Audit Committee reapproved our share repurchase authorization for up to $400 million. We anticipate reducing our full year share count further in the fourth quarter of 2025 in addition to repaying our $300 million senior notes due December 15. As of September 30, our liquidity was $924.7 million compared to $897.8 million as of year-end 2024. With that, I'd like to turn the call back to John to go over our fourth quarter outlook. John Abularrage: Thanks, Jason. I'm pleased to provide the following guidance for the fourth quarter of 2025. We expect to generate revenues of between $720 million and $770 million as compared to $572.3 million in the fourth quarter of 2024, which at the midpoint of our guidance would represent approximately 30% revenue growth. Excluding OTC, we expect fourth quarter revenues to grow around 11% at the midpoint. We anticipate pretax adjusted earnings to be in the range of $152.5 million to $167.5 million versus $129.5 million last year, which at the midpoint of guidance would represent approximately 24% earnings growth. And we expect our adjusted earnings tax rate to between 10% and 12% for the full year 2025. With that, operator, I'd like to turn to open the call for questions. Operator: [Operator Instructions] The first question comes from Patrick Moley with Piper Sandler. Patrick Moley: So I want to start off kind of broad. In the third quarter, we saw on exchange volumes in some of the asset classes you're active in slow down significantly. Your results, though, were quite strong. So could you help us better understand what allowed BGC to kind of outperform some of those industry proxies? Jason Chryssicas: Patrick, thanks for that. So I think, look, twofold. Number one is, as you know, we've targeted growth within the ECS sector. And even excluding the acquisition, you saw growth of 21%, excluding OTC. But it was broader than that. You also saw good growth in both rates and foreign exchange and equities. And that's been very much because of the hiring that we've been doing over the last 18 months, where we've added 150 -- around 150 new brokers, obviously generating great revenues on a revenue per head basis. So that's enabled us to take market share, targeted growth in certain geographies and asset classes and, of course, the growth of ECS. Patrick Moley: Great. And then just as a follow-up, you highlighted the strong growth you've seen in FMX. Could you help us kind of get a better sense for what's going on behind the scenes there? What are your expectations for FCM onboardings in the coming quarters? And then, Sean, could you maybe elaborate on the comment you made in your prepared remarks about UST Futures growing in 2026? What needs to happen between now and then to really get that going? Jean-Pierre Aubin: Yes. Patrick. So look, we're just ending year 1 of FMX, right? We're starting year 2. So 3 points about year 1. One, everything we say we will do in year 1, we have done. We launched, we have record open interest in ADV and onboarded 11 FCMs. We are in line with where we were with cash U.S. treasuries at the same time after launch. Two, SOFR Futures ADV and open interest both increased by more than threefold from the second quarter. Three, we are encouraged by the steady growth of open interest, which signals that FMX clients are really happy to keep their position open at FMX and cleared at LCH. Sean Windeatt: Thanks, JP. And sorry, Patrick, just to add on, it's Sean. What's going on behind the scenes now, as we've discussed with you before is, taking that integration and deepening it, right? So we told you that the 11 FCMs were on board. We will certainly get to that 12 number that we talked about. But this is just becoming BAU and integrated into aggregators and the smart order routers and making sure that SOFR becomes BAU. And then in 2026, there is not -- there's nothing necessarily that needs to be done to address your question other than getting ourselves to the position that we said we would get to in SOFR and then shifting that attention with our partners over to U.S. Treasuries. Patrick Moley: Okay. Great. That's it from me. Congrats on the strong quarter. Jason Chryssicas: Thank you. Operator: The question comes from Elias Abboud with Bank of America. Elias Abboud: Can you walk us through the strong share growth in your FMX cash markets? What would you attribute that to? How much of this is coming from those strategic peers? And then specifically on the treasury platform, I know you have a couple of different protocols there, a public cloud and then a private club, which one of those would be driving the share gains? Sean Windeatt: Why don't I start by -- in terms of the overall market share growth in Treasury, I think that is -- there was a sort of monopoly, if you like, with CME and really, that's why we got back into the marketplace on cash treasuries. So what you've seen, Elias, you've seen that the hard work of that go on for a number of years. Now it's just further adoption, yes, by our FMX partners, but also because it's the most viable second choice for what have a better phase and one would almost say equal first choice now. So that's why you've seen the growth, I think, up to 37%. And what was the second part of the question? Elias Abboud: I know you have a couple of different protocols in the Treasury platform. I think there's a public club and then a private club. Were either of those an outsized contributor to the share gains? John Abularrage: No. As Sean said, we're seeing it mainly across the board. And as we get more participants on both the peak club and your regular club, you're seeing both partners and other participants come into it. So there's not an outlier. There's nothing major that is different than kind of the underlying onboarding of our new participants and our partners leaning in. Elias Abboud: Got it. And for my follow-up, how much leverage does your Energy segment have to higher adoption of cloud and artificial intelligence going forward? Are data centers a meaningful client channel for you today? Is there anything you can share to help us quantify the extent to which higher electricity demand from these users moves the needle on your energy revenues? John Abularrage: On the revenue side, probably not. On the story, the answer is, we are very fortunate to have once been combined with Newmark. So you will have seen publicly that Newmark has done a lot on the data center side and the hyperscaler side, and that affects us because part of Amarex is energy procurement. And so we've got a great business on the energy procurement side, and Newmark has been kind enough to introduce us to some of the people that they are in contact with, and that spills over to us on the energy side. And so the short answer, and I apologize for the long-winded one, is that, yes, we are involved. We continue to be more involved. And the way that it affects us is by procuring energy for those data centers. Elias Abboud: Got it. And maybe just the last one for you here. Electronic credit revenues are flattish year-to-date, I think they're up 1%. Can you talk about what you're seeing in that business, any headwinds? And then maybe stepping back, is this a business that you think can grow at similar pace as Tradeweb or MarketAxess longer term? Or are there structural differences that would likely cause a delta in growth? John Abularrage: To take the last part first, the answer is yes, we can grow at those rates. And when it comes to electronic credit, I think it's growing a bit faster than that and certainly faster than the average that you will see. But as we said to you last time, we are launching new electronic protocols all the time, and we are gaining market share, as you see in the sweep, which we pull out for our portfolio match, and you will see other products of ours start to gain market share. And as the electronic offering becomes a greater percentage of our own credit business proportionately, you will see the overall credit start to move at a faster rate. And actually, JP, why don't you talk about our new offering? Jean-Pierre Aubin: Look, we do recognize the shift towards more electronic and institutional credit market. So we launched a new fully electronic global credit platform for our buy-side institutional clients to continue to move our business more electronic. And I can say this platform is already live globally. Operator: There are no further questions in queue at this time. I would like to turn the call back over to Mr. Abularrage for closing comments. John Abularrage: Thank you very much. Appreciate it. Operator: Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.