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Stefan Wikstrand: Good morning, everyone, and welcome to our Q3 earnings call. Whilst the attendee list is starting to fill up here, I just want to point out that we will do this call as usual. So, we'll start with a brief presentation of the quarter. And then we'll go into a Q&A section where you can ask questions. [Operator Instructions] I think the attendee list is done, and everyone connected. So, with that, I will then hand over to our CEO, Vlad Suglobov. Vladislav Suglobov: Good morning, everyone, and welcome to our third quarter results call. And we obviously have also Stefan, our CFO, with us today. And let's begin by giving you a brief overview of this morning's report. We are pleased with the quarter's overall performance. In USD, revenue increased 0.2% sequentially in comparison to Q2. It's been a while since it happened when we had sequential revenue growth. The change of the trend is attributed to product improvements that we made in Q1 and Q2, and the gradual expansion of user acquisition spend, which was made possible thanks to these improvements in our products, namely in Sherlock. And Sherlock was the highlight of the quarter, achieving 5.6% growth sequentially in USD terms. Year-over-year, over the last 3 quarters, it went from minus 7.3% in Q1 to minus 3.5% in Q2 and then to plus 7.9%, almost 8% in Q3 in USD terms. So, with the positive changes that we've made to the game in Q1 and Q2, we were able to increase profitable user acquisition spend, and our new management and marketing helped bring energy to this process. And now the game seems to be on the trajectory for at least moderate growth. And the game accounts for about 29% of our net revenue. It's 1 of our 3 pillars of our revenue generation. So, this is a welcome change that should help our top-line dynamic. And if we look at the other 2 pillars of our portfolio and revenue generation, Jewels' family of games had a stable performance quarter-to-quarter, but it declined year-over-year. And Hidden City was down 5.2% sequentially in the quarter and down 14.1% year-over-year. So, not as good performance as Sherlock, but again, we did the changes, successful changes on Sherlock. And so, we were able to expand user acquisition there, and the dynamic of the game has changed. And now we have to work on the other 2 pillars of our revenue generation to try to achieve the same. So, our actively managed portfolio of games together increased 2.6% sequentially in USD terms. So, this positive dynamic of Sherlock, which is quite strong, actually shines through a more mediocre performance of the rest of the portfolio. And now that we have made these improvements to Sherlock, we will, of course, turn our attention to Jewel's family of games and Hidden City to try and use the lessons that we've learned on Sherlock to try and improve the dynamic of these 2 other games. And hopefully, will help us turn around the trend in our top line. In other news, monthly average gross revenue per paying user was at a new record of USD 70.8. And again, during the quarter, one of the tools that we used to turn around the performance of the top line is user acquisition. And we increased UA spend in the quarter to 21% compared to 19% in the previous quarter and also 19% a year ago in Q3. And if you look at how our user acquisition spend was evolving over the last few quarters, we kind of hit a minimum outside of our -- or very close to the bottom bracket of the range we previously communicated. And from there, with the help of the changes and the new management and the marketing and adding new advertising channels, we started increasing the spend, and we went all the way up to 21%, which is very close to the upper bracket of the previously communicated range, 17% to 22%. And during the fourth quarter, we think that we will have to go outside of that range, but probably not higher than 25% of revenue, most likely not higher than 25% of revenue. So, our goal is to continue this momentum and expand user acquisition to invest profitably in the growth of the portfolio revenue through existing and new games and primarily Sherlock, in order to turn around the top-line dynamic. The gross margin reached a record 71.2% in the quarter, up from 68.8% last year, thanks to the continued success of G5 Store. And we remain debt-free and continue to have strong, solid cash flow, and something we are very proud of. Now let's take a closer look at G5 Store, which continues to show remarkable growth. As you know, one of the key advantages of G5 Store is lower payment processing fees, which are in the low single digits. That's quite a contrast to the 12% to 30% fees typically charged by third-party application stores. The cost efficiency directly contributes to our improved profitability and the expansion of our gross margin. G5 Store is our third-largest source of revenue. And during the quarter, it accounted for 24.7%, so almost 1/4 of total net revenue of the company, up significantly from 17.1% last year. And it's a great milestone for us when we launched G5 Store some 5 years ago. I don't think we really thought it will be responsible for the quarter of all revenue generation in the company. And yet here we are, and it continues to grow quite substantially. Gross revenue growth in USD terms was 30% year-over-year in G5 Store and 6% sequentially. In addition to the G5 Store, we've also seen steady growth in our web shop. And web shop is a module that allows our players on mobile platforms to pay directly to G5 through their browser, through our payment processing, which obviously dramatically lowers the payment processing fee because mobile application stores, they charge the highest processing fees. And during the quarter, the revenue flowing through web shop accounted for 3% of total net revenue from mobile platforms, an improvement compared to 2.6% in Q2. We believe and we are optimistic that this percentage can continue to increase in the coming quarters, boosting our gross margin further in addition to the effect that we're getting from G5 Store. And last quarter, we mentioned that G5 Store will start to scale its revenue by licensing and distributing third-party games that are or were successful in mobile platforms. We have signed a few of these deals, and we aim to release the first game from other developers on G5 Store before the end of the year. This will bring much desired incremental revenue to mobile game developers while further expanding the reach and scale of G5 Store operations. And now G5 Store is 25% of our business, it is at a size where its strong continued growth may start positively affecting the overall top line dynamic and help us with the plan to turn the situation over to growth, obviously. Now let's look in a bit more detail on the quarter, leading up to a record gross margin. Own games accounted for over 73% of net revenue, and active own games accounted for 66% of total net revenue, up from 63% last year. Gross margin reached a record high of 71.2%, up from 68.8% a year ago, primarily as we discussed, due to the continued growth of G5 Store and with some help from the G5 web shop. Monthly average gross revenue per paying user reached a new all-time high of USD 70.8. This is compared to the last year's figure of USD 64.9. So, this continued growth of this particular key metric reflects the continued trend for the improvement of the underlying quality of the audience. We are in a situation where a relatively small number of high-paying users, high-paying players in key countries, drives a substantial part of the revenue, while acquiring other types of players in other countries is not economically justified. And so, the overall player numbers, therefore, decline. But as long as that gold cohort remains with us, as long as we can refill it with user acquisition and retain them for a long enough period of time, the fundamentals of the company will be healthy. So, in the future, you may see a situation where there is actually growth in revenue, but the audience metrics are still trending down. That would not be something abnormal. And G5 Store is another factor which affects these numbers because generally in G5 Store, we have higher paying players compared to mobile and overall smaller player numbers than on mobile to generate the same amount of revenue. So as G5 Store continues to become a larger and larger part of our revenue, the overall user numbers shrink. But again, this really doesn't mean that there is anything wrong as long as we have our golden cohort of users, and we know how to find them, and we know how to retain them and we know how to monetize them. As you remember, in free-to-play games, there's only a small number of people that actually play for the experience. So now let's look at the operating profit for the quarter on the next slide. And operating profit for the period came in at SEK 12.6 million compared to SEK 22.9 million last year, and this resulted in an EBIT margin of 5.5%, down from last year. The lower EBIT was only marginally impacted by foreign exchange revaluations. More importantly, we have deployed more capital into user acquisition during the quarter, which increased, as I mentioned, 2 percentage points compared to both previous quarter and as well as compared to last year. And this obviously had a negative impact on EBIT. However, as mentioned before, the positive changes we've made to Sherlock made it possible to expand profitable user acquisition from lower levels and turn around the game’s revenue performance. The long-term vision here is that as long as we can continue to acquire users profitably and increase the acquisition of users profitably, it does make sense for us, obviously, to do that. And we will grow back gradually to a higher profitability through that, through increasing our top line, but also with the trends in the G5 Store and G5 web shop, we'll also see in the future the expansion of the gross margin. It's been happening very reliably over the quarters, which will also help us restore profitability eventually once we have fixed the top line trend situation. During the quarter, the net capitalization impact on earnings was SEK 0.6 million compared to minus SEK 5.4 million last year. Now let's turn to talk about our cash position. Capitalization impact on cash flow was minus SEK 23.2 million, less than SEK 25.5 million last year. The movement of working capital was negative SEK 1.7 million compared to positive SEK 27.2 million last year. And total cash flow during the third quarter was SEK 10.4 million, down from SEK 53.3 million last year. Total cash at the end of the period stood at a strong SEK 247 million despite the buybacks of SEK 8.4 million that we made during the quarter. All right. Let's move on to the final slide and discuss some final thoughts on the outlook from here. So, we will continue to implement our core strategy of improving the metrics of our active games of our existing revenue pillars, which will make expanding profitable UA possible in order to turn around the trend of the revenue of these pillar games and through that, our portfolio. We also see positive momentum going into the seasonally strong Q4 and Q1. So hopefully, we'll have some help from that. In Q4, because of this, we may go as high as 25% of UA reinvestment from gross revenue. The increase will help us optimize for growth while maintaining profitability. That's the aim. And as we've said before, we will notify the market when we venture out of the range of 17% to 22% of UA to gross revenue, which is what we now plan on doing, and that's why we are communicating it clearly. During the quarter, we made 14 iterations on several games in our new game pipeline. Among notable developments, there was a discontinuation of 1 game after it failed to reach sufficient metrics, while another game passed early soft launch with promising metrics. This new game is moving forward to more advanced stages in the funnel, and we look forward to seeing further development of this concept in the next quarter. Twilight Land is now in the late-stage soft launch phase. And we have achieved very good early metrics and good midterm metrics in this game, but we need more work on the long-term metrics, and we need more observation of these long-term metrics and a few more tests. And tests at this stage of soft launch take a little bit more time because you have to wait for the players to get to the point which you're trying to measure. So, we expect that over the next several months, we will gradually increase user acquisition on Twilight Land while still doing some more tests and doing some iterations on the game. Then this increase in Twilight Land is another reason why we think we will go to a higher level of user acquisition expenses in the Q4. And through our recent initiative to expand the G5 Store with the distribution of third-party games on the platform, we have made agreements to bring third-party games to G5 Store. The teams are actively working on preparing their games for release on G5 Store and the first release, as I mentioned, is set to happen before the end of the year. And as I mentioned again, both the size of G5 Store and the speed of expansion will continue to have a positive effect on our top line dynamic. And now the store is much bigger, so it will be much easier for this effect to sort of shine through the overall revenue mix to the top line dynamic. The G5 Store growth and also growth of the flow of payments from mobile users through G5 web shop will continue to help us boost our gross margin. And we will, of course, continue to focus on operational efficiencies in development and marketing, including continued integration of generative AI where it makes sense. And it actually makes sense. Tools are getting better. Throughout all of this, we maintain strong financial discipline. We continue to generate solid cash flow and maintain a strong net cash position, which gives us the flexibility to execute on strategic initiatives that will strengthen the foundation for future growth. I'd like to end the presentation by thanking you for following G5 and also thanking the whole G5 team for their outstanding efforts in delivering this quarter's result. This concludes our presentation, and let's open the call for questions, which I think we already have. Stefan Wikstrand: Yes. And I will just repeat if you want to raise a question verbally, you raise your hand. We have already -- I will get back to that in a minute. You can also ask questions in the Q&A box that [indiscernible] has also done already. We'll get back to that one as well. But I will start by inviting Simon Jönsson from ABG to ask his question. Simon Jönsson: Hope you can hear me. I want to first off revisit the UA spending and the guidance you provided for Q4. Of course, very interesting. And I understand that the increase in Q3 was mainly Sherlock, but the further increase you expect in Q4, is that also Sherlock primarily you think? Or is it primarily other active games? Because, yeah, you said Twilight Land needs more time, so that shouldn't be the main UA driver, I think, at least. Please correct me if I'm wrong. Vladislav Suglobov: That is right. The primary driver will be -- is Sherlock. And then number two is likely going to be Hidden City because the games are quite close in terms of the genre and the mechanics. And so, we've tried, so to speak, transferring some of the successful things that we've done on Sherlock to Hidden City, and the game is quite responsive to that. So, we expect that this will continue, and we will be able to spend more on user acquisition in Hidden City. It is more difficult with Jewels family of games, Jewels of Rome, specifically, our experiments of transferring our findings from Sherlock to Jewels of Rome did not really work out. But over the next few months, we will be trying different approaches. It may or may not have effect on Q4 user acquisition, probably not. It's a short period of time until the end of the year. And then a little bit is Twilight Land. And then we don't know exactly how much, but we felt that it would be prudent to communicate that we might be exceeding the range. We basically do not want to be held back in Q4 by the 22% or having to deliver exactly 22%. And as we said, we will communicate if we think that we will exceed the range, and we think we will exceed the range for these reasons. Simon Jönsson: All right. And a follow-up on that. Since you have made changes to Sherlock earlier this year that sort of prompted this growth, have you already done similar changes to Hidden City? Is that correctly? Vladislav Suglobov: It's in early stages. So, the report covers Q3, so we discussed mostly Q3. But it's quite straightforward that if you have fixed one hidden object game, you might actually be able to fix another hidden object game as well. So, it's natural to think that we would try to do that, and we have some encouraging signs. Simon Jönsson: All right. Makes sense. Just on a final note on new releases since you said you need some more time on Twilight Land. Should we still view Twilight Land as sort of the main upcoming game, you think? Or are there others that have sort of catch up? Or yes, what's the near-term outlook coming quarters? Vladislav Suglobov: Yes. Well, it's the most complete and the most ready of the new games. Another game that was probably the second by completeness was discontinued during the quarter due to not having reached the metrics. And then the 2 other games, 1 of them already successfully passed through the initial soft launch stages with great results, I would say, unprecedented results for us. So, we're quite optimistic about this game, but it's still in the early development stages. With regard to Twilight Land potential or the potential of early -- of other games that are in earlier stages, it is -- again, it is hard to say. We try to only allow the games that have a chance of scaling to certain benchmark that we have of meaningful monthly revenue. So, in that sense, Twilight still -- we've not given hope on this game. So, it has some really good things going about it, but we have to work more on the certain longer-term metrics. And that's the situation. And we will find out in the next few months, I think. Stefan Wikstrand: Then we have Hjalmar from Redeye. There we go. Hjalmar go ahead. Hjalmar Ahlberg: Maybe just first a quick follow-up on Twilight. Would you say that, I mean, there's a small chance that the game is not being launched or that's rather a thing about when it's being launched? Vladislav Suglobov: That's a great question. I think there's still some chance that it will not be launched, and it always exists. I think until we are totally happy about the metrics. I would say, to be totally honest, I think there's still a chance that it will not be launched. But also, I think that so far, we have achieved really good results with the game on the early and medium-term LTV progression that there's also a very good chance that we will resolve the rest, and it will be launched. But we will have to wait and find out. I'm also not the person actively hands on working in the game. I know the overall situation and what is good and what is holding up. But it is difficult for me not being on the team to know exactly the chances or how they feel about that. And if you work on games for a long period of time, you always get attached to games. So, I reserve the right to say, well, this is not good enough or if we cannot reach the metrics that we think we should be reaching, and it takes too much time. But at the same time, I still -- part of me believes the team can turn this around, and we will find out which reality is going to happen. Hjalmar Ahlberg: And with your new guidance, so to say, for UA in Q4, I guess it's -- I mean, difficult to say how top line will respond in the short term. But other than that, would you say that you aim to remain stable in terms of other OpEx and so on, just to get some flavor on what to expect in terms of EBIT margin in the short term. Vladislav Suglobov: Yes. I think we are quite stable in terms of OpEx and other parameters from quarter-to-quarter. So I think there are no big changes are expected. Hjalmar Ahlberg: Right. And also, regarding the launch of third-party games, I think this was asked in Q2 as well, but have you decided how you will report this? Will it be similar to your own games in terms of gross margin, UA and so on? Just to understand how it will look financially. I guess it's a small impact in Q4, but if you can give some information and update on that. Vladislav Suglobov: Yes, it's probably a small impact in Q4. But yes, we'll be reporting exactly the same way that we report on our existing games. Hjalmar Ahlberg: All right. And also, regarding this kind of new UA approach and more focus on higher paying users. Are these kind of players that are coming from other games? Or is it like a growing user base overall? Is that something you can have any insight to? Vladislav Suglobov: Well, this is the -- the way I think about it, and we are discovering more about our user, about this golden cohort, so to speak, is the -- this is the audience that sometimes has been with us for a very long time and played several games. And sometimes this is the audience that we have acquired relatively recently. But the key differentiator for us is that the person not only plays the game for a long period of time, but they also fall into this schedule of repeated purchases that are aligned with their play cycle or every week or every couple of weeks. And some people wait for like very special deals and then buy in bulk. Some other people are more like impulse buyers. But in the end, one uniting characteristic is that they can afford to pay in these games. It's not that much money, by the way, taken on a per week or per month basis. And they are -- they seem to be okay and happily doing that for quite a long period of time. And the way our games are structured is that you can enjoy them for years. So, I mean, these users, they're mainly from the United States and Western Europe. This is where there's the highest concentration of them. But this is also where it is quite difficult to acquire organic traffic, right? Because these are highly valued users and advertisers of the whole world are after them, whether on PC or on mobile platforms. And then if you look at other countries with lower value per user, we sometimes get the influx of people from countries where historically, we cannot really find these gold cohort users. And then these players may not be as engaged or they make payments, but those are relatively small, but they inflate our user numbers and user metrics without bringing any substantial contribution to the company's revenue. And I think the overall situation in the mobile marketing ecosystem is that it evolves towards fully valuing the user, right, for the product that can make -- justify paying for that user and making profit on them. And so, we can justify paying and be competitive in the market and paying for these users and then turn a healthy profit on them. And we cannot actually justify buying in cheaper geographies, at least for now, in many cheaper geographies, the users are way cheaper there, but they also don't fall into this pattern, so they don't recoup the investment. So naturally, we skew towards buying fewer but more valuable and profitable users. And I guess, in the countries where our games don't work as well, then those users are better sold, so to speak, to some other business that can extract better profit from them, right? So, kind of that's the way the -- I think the ecosystem evolves, and it's natural that when we go from the times of receiving a lot of big numbers of users in early days of mobile gaming. But over time, we're sort of looking at consolidating the user base towards the type of users that actually is driving the revenue of the company. So at least this is the view from my perspective, looking at how mobile marketing is evolving. And yes, and then if we look at the demographics of these users, again, we discussed the countries, but they are predominantly female players of age 35 plus or even higher depending on the platform, we tend to have even more pronounced characteristics on G5 Store, where these tend to be players and payers who are even older and are even more -- skew even more female. Hjalmar Ahlberg: All right. And also, can you give some -- I mean, you indicated that 25% of UA for Q4 and that you will be in the higher end of your range. Is that kind of an indication for 2026 as well? Or will you change depending on how you perform in the coming quarters? Vladislav Suglobov: I would say that if it works out and the aim here is to kind of bottom out now, right, and then to grow out from here, we'd be happy to keep UA spend at that level if we can be certain that we are driving the growth that will make us profitable eventually. I would rather not be reducing that. On the other hand, if we feel that we are unable to deploy this much capital in Q4 for whatever reason, be it the market or the fact that we weren't able to continue improving the characteristics of games, then it will be good news for the margin in the short term, but this would also mean that maybe long term, it's not the best thing in the long run, right? Because the way out of here is expanding the acquisition that is fundamentally profitable and that will drive the increase in the top line. Hjalmar Ahlberg: Got it. And also, a final one, I forgot if you can give any information on the third-party games. Are those games that are already available on other platforms? Or is it completely new games? Vladislav Suglobov: Yes. Those are games that already exist, that exist on mobile that make good enough money there and the developers are looking to make incremental revenue, and we believe that they can make good incremental revenue that makes sense for them to port these games over to G5 Store. So, the good thing here is that the timeline of bringing this game to G5 Store is way, way shorter than developing a game from scratch, which can last years. In this case, we are talking months. And then the -- it's not as capital intensive, obviously, compared to creating a game from scratch from 0. So, we look forward to the first releases. We -- again, G5 Store continues growing. We see we are achieving amazing results like 25% for our games on average, 25% of revenue is coming from G5 Store, any developer out there would like to generate 25% extra incremental revenue, right? Wouldn't they? Even if this extra 25% are shared with the distributor, it's still an amazing deal in the market where it's difficult to find new users. It's difficult to find growth. And so, all this incremental revenue basically becomes also your incremental margin. So, I think it's a great opportunity for developers and for us. And again, the first games are coming to G5 Store relatively quickly. So, we'll see how it works out, but we're optimistic. Stefan Wikstrand: [Operator Instructions] We have 2 questions another popping into the Q&A. Vladislav Suglobov: We have 3 now. Stefan Wikstrand: Now, we have 3. Vladislav Suglobov: Okay. Let's start from the top. So, [indiscernible] is asking sales and marketing, excluding user acquisition, decreased to SEK 9.7 million from SEK 15 million. Why did the costs come down? Is the new lower level the new normal? We should expect to continue going forward. Stefan, can you remind me, does that increase -- does that line include the staff also? Stefan Wikstrand: Yes. Vladislav Suglobov: It does. Yes. So, we've done -- so user acquisition expenses went up year-over-year, 19% to 21%. But in absolute terms, I think they actually declined by 7% or so, right, because the revenue is smaller. So, user acquisition was larger last year, not as a percentage of revenue, but as an absolute number, at least in SEK. That's what I saw on the first page. I think it was minus 7%. But Stefan, correct me if I'm wrong. And then another important thing that has changed year-over-year is that we've done the rightsizing of marketing somewhere between Q1 and Q3. I think we finished with that this year. Obviously, the company has seen times where we were much larger, so we needed more people to manage this complexity. And with the decline of top line over several years, we thought that it's a good time to rightsize marketing and also with the change of management to sort of make it more efficient, more focused, more energetic. And I think it worked out given the results in Q3. But the -- yes, that basically explains the numbers, right? Stefan, am I missing? Stefan Wikstrand: No, I can only concur with that. And those changes that Vlad mentioned on kind of rightsizing the team occurred primarily in Q1 and Q2. We saw some effect in Q2, but the full effect is kind of seen in Q3. So that's why it's kind of on a lower run rate. And I think, yes, you should expect these levels rather than anything else going forward. Vladislav Suglobov: That's right. Okay. Let's move on to the next one. This is from Erik. And the question is on the G5 Store, obviously, gross margins are favorable, but do you see any difference in KPIs versus the traditional platforms in terms of user retention, ARPU or other? Yes, we do. I think we mentioned that the metrics of G5 Store across the board are way better than on mobile platforms. We have higher revenue per user. Even the difference in the processing fee does not explain the difference. So, like the gross amount is also higher. And then we retain a larger portion of that. We see higher retention rates as well. And those are 2 main things for us, right? The -- how much people are paying the average check and how well they are retained by the game. And that's why we are deriving quite a substantial revenue from G5 Store, having substantially smaller number of people actually playing through G5 Store. There seems to be a double effect here. There's obviously some selection effect where we feel that -- and we can track that some users who are very loyal to G5 games, they may begin playing on other platforms, but eventually, they will settle on G5 Store, and we make sure to incentivize players to transition to G5 Store as much as we can because it makes sense for us to have this direct connection to the player. Not everyone does it, but people who do it, they seem to be the most trusting and the most loyal customers of the company. And therefore, it's natural that they sort of inflate the overall metrics. But there also seems to be conversion of our earlier users into G5 Store by means of ways that we cannot even track. We just noticed that players were playing some time ago on other platforms and some other games and then they have decided to try and download from G5 Store. We also see people -- we also see new players converting to G5 Store. But another thing that we see is that even accounting for that, the metrics still seem to be higher. And this is where we continue to have the explanation is that our games, the type of games that we make, these very high-quality, high-resolution games with a lot of stuff happening on the screen, they appeal to older demographic and older demographic or more mature demographic, however you put it. And they, on average, prefer to enjoy this game on a large screen. It's a more premium feeling. You have more justification for spending money. You enjoy it way more. And this is really -- large screens is really where our games shine and where they are really competitive as an experience compared to games made for mobile with the scale down, let's use the word more primitive graphics. It's really a different experience on a large screen. And so, there's -- we think that this premium effect explains the difference in monetization and retention as well. So, the next question is, you mentioned in the report that Jewel's family of games likely need 6, 8 months to refresh the product. Is this something that is required before you can scale UA for the franchise? Well, nothing will prevent us from trying to scale UA for the franchise in the meantime. But the effect of that would be most pronounced if we were able to implement the changes in the game that would be -- that will improve the metrics. One of the challenges that we have is that in order to be able to conduct multiple tests and measurements, you need enough users, and you need enough players. And with this trend towards smaller number of high-paying players, we need larger cohorts of these to make conclusive decision whether or not the change in the game was positive. Or I would just say that we will be able to do these changes, iterations in a more educated and faster way if we had enough inflow of new users. So, we might actually increase user acquisition spend on these games sort of ahead of the improvements in our efforts to make the iterations and have measurable results faster. Okay. We have next question from [indiscernible] again. If you release a game on G5 Store, will you own the customer data? Will the gamer be able to transfer progress to mobile? Or will he or she lose progress if he or she switched to mobile? So, look, we're getting into the details of our contracts with the developers. I wouldn't like to do that. They're confidential, but we obviously are thinking about these questions, and we're trying to make a fair deal here, which would make sense for us as the party bringing users to the table, but as well to the developer and their main interest is incremental revenue, really, not user data. So that's the way I see this should work, and we try to align the agreements in accordance to these principles. And once again, I think the -- if you think of smaller developers, it's great to have that business, but it's also not so great in the sense that you have to -- you are very dependent on Apple or Google or any distribution stores, but you're also very dependent on advertising companies and incremental revenue is very hard to find. So, they really want that incremental revenue, and we can give it to them. And I think that's an important point in the discussion when we have it with them. The next question is, is the company focused on releasing in U.S. and Europe? Or are there any plans to translate and release current and future games to Asia, Japan and China? So, first of all, all our games are localized in Japanese and in Mandarin and Cantonese. So, they're not unavailable there. They are available. Historically, we had some big successes in Japan. Unfortunately, we were not able to replicate them later on. We are working on bringing our games to China. And hopefully, there will be some announcements in the coming quarters, but there's not much that I can say now. Yes, that's the end of the list. No more hands, no more questions. I think that's it. Stefan Wikstrand: I think that's it. Vladislav Suglobov: All right. Stefan Wikstrand: Okay. Well, then, any final remarks before we wrap up? Vladislav Suglobov: No. Thank you, everyone, for spending your morning with us. And thank you for following G5. We'll talk soon. Stefan Wikstrand: Thank you. Bye.
Trond Fiskum: Okay. Then I think we start again. So welcome to everyone participating here at this live event at Arctic. And of course, welcome also to those participating online. Sorry for the technical difficulties that we had here. I want to thank Arctic as well for allowing us to have this earnings call at their facilities. So we jump straight into the key points for the quarter. We have had good EBIT growth and significant cash flow improvement in the quarter in spite of the challenging market. As most other players in the market, automotive industry, Kongsberg Automotive has faced also a challenging situation with the market. And as a consequence, our revenues are down around 10% comparing to third quarter last year. So we had EUR 162.9 million in turnover in Q3 versus EUR 181.6 million last year. And this is a direct result of the market situation in the global vehicle industry. The largest impact is in the market in North America due to the ongoing tariff situation there. That has caused higher costs, market uncertainties and therefore, also a lower demand. And in spite of those lower revenues, we see an improved EBIT of EUR 4.9 million in the quarter. This is up from EUR 1.1 million same quarter last year, which is a solid improvement from both previous quarters and also from Q3 last year. On cash flow, we see also a positive trend. We delivered EUR 6.6 million in positive cash flow, which is EUR 11.8 million improvement from Q3 last year. Cost reductions, we are moving forward with our programs according to schedule. On tariffs, we have been able to mitigate the costs this quarter and the net impact of tariff cost this year is -- or this quarter is close to 0. And then we have some challenges on warranties, and we will get back to that in later in the presentation. Here we take a closer look at the financials, comparing those in the quarter versus the last 4 quarters. On revenues, we see the 10% drop in Q3, which is, as mentioned, caused by the market situation. We also have a currency effect due to a weaker dollar of around EUR 5.4 million, which is an implication of the business that we have in North America where the contracts are in U.S. dollar. On EBIT, we see the positive trend. We do see the dip in Q2 where we had significant warranty accruals. That was the main reason for the drop, but you see the underlying improvement going back from Q3 last year until now. We also have some warranty accruals in this quarter. Erik will talk a little bit more about that later. But the positive thing here is that we've been able to improve EBIT in spite of lower revenues, which is good. It's not on the level far from where we want to be. There's still a lot of work ahead, but it's a positive indication. Free cash flow, positive trend also here. And you see the positive trend on the last 12 months. So last 12 months, we are close to 0 now due to the positive result in this quarter, a result of lower cost base reduced -- some reduced net working capital due to lower sales and also more cash discipline when it comes to investments. So overall, I would say, a positive indication on the -- trend on the profitability and cash flow that is very important for us. And as previously announced, we have the cost reduction efforts, which will give us around EUR 40 million in improved cost base and a 4% to 5% improvement on EBIT on stable revenues. The cost saving programs are moving forward according to plan. We have completed the program that we launched in '24. We have completed the program that we launched at the beginning of '25, and we are on track with the program that we launched in May, which will be completed fully by Q3 '26. We start to see the good results of these programs, which also Erik will show in the EBIT bridge later in the presentation. And also due to the lower market activity, we are also making additional adjustments in the cost base to align with the demand and to safeguard our profitability. This is mainly impacting manufacturing locations. On business wins, we report a business win with an estimated lifetime revenue of around EUR 34 million. This is lower than previous quarter and also during 2024. What we do see is that there is a lower activity in the market when it comes to new contracts. This is a consequence of the tariff situation and that the focus has been more on managing that situation and also the lower demand. We also see some of our customer programs being postponed. We have a strong focus on market activities. We keep a very tight dialogue with our customers. And we do continue with a good and strong pipeline of opportunities. And very importantly, we have not lost any major contract opportunities during '25. So it's a number that we would like to see higher, but it's also a number I'm not too concerned about due to the current situation and the good pipeline opportunities that we still have. On the business wins, we also have done the revision of our investor policy. We have had a discussion with the Board of Directors and decided that we will only announce strategically important business wins going forward, and our investor policy will be updated to reflect this. Warranty cost. This is an area that remains a concern for us. We reported in Q3 -- or Q2 increased warranty accrual. In Q3, we have a total warranty cost of EUR 2.7 million of which EUR 2.5 million is increased accruals for future expenses. And due to the situation that we uncovered in Q2, we conducted quite a comprehensive review of our exposure to warranty liabilities across our entire product portfolio and also -- and our customer base. And as a result, unfortunately, we have uncovered some additional risks on further and future warranty liabilities. The problems we see here is not primarily related to our ability to deliver quality products. The challenge here is historically unfavorable contractual terms when it comes to warranty and also that warranty management has not been very optimal. This is disappointing, and it may potentially impact our profitability going forward. Those that have been responsible for this are no longer a part of the company, as they were a part of the leadership change that took place in the beginning of the year. It's very hard to make any estimates on the net value of the total liabilities that we may be held accountable for. It's quite complex and a lot of different potential outcomes here. And we are working very hard to address these forthcomings. We have also implemented a much more proactive approach to warranty management and strengthened the team there. And at this point, we are -- and cannot disclose any further details due to the ongoing discussions we have with affected customers. And as soon as we have more information, we will provide that, when we have more clarity on the potential financial impact. Tariffs, we have previously communicated that we will recover 100% of the tariff cost. That has been a clear ambition for us, and we were very much aware that this was not an easy task. The process with our customers are -- can be challenging, have been challenging. They request a lot of documentation, and there are also some tough negotiations that are taking place. We have been very firm and consistent in all our customer negotiations, and that has been basically that we cannot absorb this cost and tariff-related cost has to be passed on to the end consumer. That's been a consistent message, both in the U.S. where we have the biggest impact, but also in China, where we have also some impact of the tariffs that have been implemented there. The approach has given good results. In Q3, we had 0 net impact of the tariff cost. We continue to have some costs that we have not been compensated for yet, but we have agreements in place with our customers. So it's more a question of time to get that compensation. And for those of you that follow the automotive business and industry closely, you would have heard about Nexperia, which is a Chinese semiconductor manufacturer that has put a halt on export to -- out of China because of a dispute and the situation in the Netherlands. So this caused quite a lot of disruptions in the industry. KA also have some products that are directly impacted by the semiconductors. We have been proactively managing the situation and been able to secure supply of the semiconductors so we have had no issues related to that situation. And as previously announced and communicated, the main concern here for us is not the direct cost impact of the tariffs. We have been able to mitigate that. The concern here is the impact that we have already seen materialized on the market demand. Then some other highlights in the quarter. Two of the acquisitions that we have previously announced, the first one is Chassis Autonomy, which is a transaction that we completed in the quarter. We now own 100% of the company and full integration is ongoing. It is a very interesting technology. We received a lot of interest from potential customers. So we're very excited about the Steer-by-Wire technology. This, we expect to play an important part of Kongsberg Automotive's future. The transaction and all payments of the shares were done in the quarter and the net cash effect of the transaction was positive also in the quarter. The acquisition of the 25% share of -- the remaining share of our joint venture in China with Dongfeng and Nissan was also completed. We have now full ownership of that company, and that also means all our operations in China. This gives us more flexibility and strategic options in that important market. And also this transaction was fully paid in Q3. Last on this slide is the renewal of the EUR 25 million loan facility. We have agreed to renew that. That is a loan facility we have with NordLB that was established in 2020. It was set to mature in January '26. And this we have agreed to renew with 1 more year with the same interest terms. Okay. Now looking a bit forward. We have to deal with the current challenges and also look forward, of course. And we have been working very hard during the quarter to work on a new strategic direction for Kongsberg Automotive. End of September, we had a strategy seminar with the Board of Directors. This is still some work in progress, but a key outcome of that seminar was that we decided that the business -- let's say, business unit, Driveline is no longer going to be considered as noncore. Instead, we recognize that this is a business that continue to create value for Kongsberg Automotive, and we will continue to pursue opportunities within that area to win new businesses, extend current contracts and to optimize the pricing. This is also reflected in our financial reporting. So you will see that the numbers from Driveline is not now reported separately, but reported as a part of the business area Drive Control Systems. We continue working on the strategy, and the plan is to present this on the Capital Markets Day on December 16 in Kongsberg. So you are hereby all invited to that event. I think it will be a great event with some very interesting updates about our strategic goals, our strategies to achieve those goals. And we also give you some hands-on insights and a look at the products that will be a key part of Kongsberg Automotive going forward at our tech center that is also located in Kongsberg. Let's see. We are also trying to see if we can get some opportunities for some test driving. We are checking the possibilities. We will let you know. So we also organize some transport from Oslo, and we will have lunch. So yes, I hope to see as many as possible on that event. And we will provide more practical information about this during November, and you will see that from us. Okay. We continue to stay focused on our priorities for '25. We continue to adjust our cost base, as you have seen, and we are taking the additional necessary steps to adjust the menu level further because of the market volumes. We continue to focus on generating cash -- positive cash flow with disciplined CapEx management and targeted reduction of net working capital. We have made changes in the leadership on the top level. We start from the top. We do need to continue working on strengthening the leadership teams across the entire organization. That is a very important priority for us. We need strong leaders and strong teams to -- with the right competencies, values and mindset, supported by clear structure of accountability and responsibility. We're also working on the future with innovations and profitable growth. We have a very strong focus on customer needs and very tight dialogue with them on, I would say, every -- all levels. And this is also very important for us to understand what their needs are going forward and how we can create value in that, let's say, space of opportunities. We do believe that KA is well positioned to deliver long-term and sustainable financial performance. The 2026 priorities, together with the longer-term goals and strategies will be shared during the Capital Markets Day in December. So that was the summary, and I will hand over to Erik to go through the financial updates. Erik Magelssen: Thank you, Trond. Can you hear me? Trond Fiskum: Yes. Erik Magelssen: Good. Also on the webcast? Trond Fiskum: Yes. Erik Magelssen: I was last in KA from 1999 to 2006, and it's very motivating and interesting to be back. I think what we're trying to do is to merge the best of how KA was managed and run in those days back then and then with the new best practices and processes. So I think we're trying to see -- starting to see some truth of that, and that's very motivated and interesting. I'll take you through some more of the figures. As commented by Trond, the Driveline segment is now part of Drive Control Systems and is no longer defined as noncore. And this is also the way that we, as management, run and manage that business. You see the revenue level in Q3 was EUR 95.1 million, and before the negative currency translation effect, it was around EUR 99 million and still lower than the EUR 110 million in Q3 '24. So the revenue is also lower than Q2 '25, and that is also what we communicated in Q2. We did expect the second half of this year to be weaker and lower sales than the first half year. Even though we have lower sales, we record a higher EBIT in Q2 '25 compared to Q3 '24, driven by lower operating costs and lower warranty accruals. I will also comment upon that later. The net effect of tariff cost in this quarter is 0 isolated, which is good. And I think it's the first quarter when we have that. But we still have a balance of tariff costs that we will get reimbursed from our customers, and that is ongoing work. So then on the other business area, Flow Control Systems, the revenue is significantly lower than in Q2 '25. But if you kind of adjust for the currency translation effects, it's not so much lower than Q3 '24. In this business area, we had an impairment made in Q3 of EUR 1 million so then we had an EBIT of EUR 4 million before that impairment. And the reason why we do impairment of development asset is part of streamlining our R&D portfolio and where we want to focus our resources. So it's part of that ongoing strategy process that also Trond referred to. And the reduction in operating cost reduces the effect of -- we have a lost contribution. So ending up in an EBIT of EUR 3 million in Q3. On this EBIT bridge, just pointing out some points, you see the effect of the lower operating cost compared to the same period in '24 with a plus EUR 4.8 million and plus EUR 12.4 million. And this effectively mitigates the effect of the lower volume and mix, which is good. And as I commented, the net effect of tariff cost was 0 in Q3. And year-to-date, we have -- EUR 2.9 million we're going to get reimbursement. The warranty cost in Q3, as Trond mentioned, was EUR 2.7 million. And in Q3 '24, it was EUR 7.2 million. So that's the bridge effect of EUR 4.5 million that you have there. So this is just to underline that we do have warranty costs also in this quarter in 2025. Both in Q3 '24 and in the earlier quarters, there were a reversal of impairments done. So that explains the majority of that bridge effect of impairment, then ending up from an EBIT of EUR 4.9 million then in Q3 '25, which is significantly higher than the EUR 1.1 million in Q3 last year. So coming from a negative EBIT of EUR 8.3 million in Q3 '24, with the effects we see here, we end up with a positive EBIT of EUR 1.6 million in Q3 '25, then driven by the lower -- the higher EBIT, the lower net currency loss and tax effects. And this is also, of course, driving the cash flow together with the operating result, which we'll see coming into now. So the positive result in profitability and working capital effects contributes to the net positive cash flow of EUR 6.6 million in Q3 '25. And looking back just compared to Q3 '24, we have higher cash from operations, lower investment levels and positive currency effect. And this also gives, which is very positive, a significant increase in the 12-month trend, which is now close to 0. And then in line with what we have communicated, one of our key priorities is to generate positive cash flow. And that is much more important than actually having positive results. You have to get the cash flow coming out of that. That's much more potential in Kongsberg Automotive on both on the working capital side and the whole capital employed area. So just to underline that, that we start to see here that we are moving into a positive cash flow situation. And that improved cash flow and profitability also materializes in the reduction in net interest-bearing debt and then reduction in the leverage ratio, the blue line here, which is the key in relation to the bond loan that we have where we have a covenant level. So we see we go from -- it's been increasing since Q4 '24 from 2.1 up to 3.1 and now we have 2.6 in this quarter here. Everything we do on profitability improvements, cash flow will kind of materialize in net interest-bearing debt and this -- the leverage ratio we measure here. And as to the return on capital employed of 1.7% that we have in Q3 is, of course, not satisfactory and also a key priority for us to improve. The equity ratio increased from 30.7% to 31%. And as our improvement programs continue, giving increased profitability, the equity ratio will also continue to increase. And it is kind of continued work for us to achieve reductions in capital employed. And we want this to be an integrated part of the operations in the business area and something that we do every day and that we will follow up the business areas on every day and then instead of doing this kind of -- on a kind of piecemeal basis. So that's very ingrained in us to get this as part of the daily work to get inventory down, accounts receivable down and only do the good and best investment levels. So I think, all in all, a positive quarter for us, positive results, fairly good cash flow, positive cash flow increase in the 12-month trend. We do have challenges and difficulties, but we are managing a positive result -- increased result with a significantly lower revenue level, which is kind of our -- we -- the only thing we really can control is our own costs. And then we have to manage with the market that we have. When the market picks up again, we will be positioned to kind of get a very good profitability level out of that. I think, Trond, that brings us into the summary and outlook. Trond Fiskum: Okay. Thank you, Erik. So to summarize our presentation, just quickly go through the key points again. We do see that we have the positive trend on EBIT and cash flow in spite of a challenging market. We do see that the cost reduction programs are going according to schedule and that we are taking additional measures due to the market situation. The tariff costs are being effectively mitigated. And we have the warranty liabilities that we are addressing, and we will provide updates as soon as we have more clarity on the financial impact. And we will hold the Capital Markets Day on December 16, where you are all invited and we will share some exciting news on strategic goals and the strategies. So I hope as many can participate on that event as possible. We want to emphasize the messages that we've given in the previous earnings call, that is to restore value creation for our shareholders. That remains a key priority for us. We are very much focused on that and find the balance between short-term and longer-term priorities. We do believe strongly in the future of KA, and we are very determined to succeed so we can realize the full potential of KA. And we do believe that we are on the right path. We see some positive indications here. But it's important also to remember, this is not a sprint, it's a marathon. We have a lot of work ahead of us. The numbers are going in the right direction, but they're far from where we want to be. I would say the positive thing here, we do see that there is a lot of things to work with. There's a lot of improvement opportunities. Yes, there are some challenges. But eventually, we will solve them and also with some help from the market, we will see stronger financial results. Regarding the outlook in the shorter term, we do have no changes on the EBIT outlook. We expect the EBIT to surpass both first half this year and second half last year. The rest of the year, we do see a stable outlook compared to Q3. For 2026, we are cautiously optimistic, but we are very also aware that there's a lot of uncertainties. The market scenario is very hard to predict. We don't know what is the next coming from the other side of the Atlantic. So it's something we are monitoring very tightly, and we're managing the situation, and we're prepared for any scenario, I would say. But as a base case, it's cautiously optimistic. I think that concludes our presentation, and we are ready for the Q&A. We have questions that can be done and made also here in the room and also on the web. Therese Skurdal: So let's get started with the first question from the webcast. What is the reason that Driveline is now considered no -- noncore? Trond Fiskum: Driveline, as mentioned, we had a strategic review with the Board. What we see from Driveline business is that it is a business that creates value for us. It is profitable. We do also see opportunities in that area that we can capture without too big efforts. There are also opportunities to extend profitable contracts. There are possibilities to optimize pricing. And we also see that the customer base is important for us for new products that we are developing and launching. So that is the reason why we have made that decision. Therese Skurdal: Thank you. So next question, why will KA change the new business win reporting going forward? Erik Magelssen: Yes, I can answer that. Just to underline, as we also mentioned, that we will continue to announce strategically important contracts. They can be fairly small. They can be quite small, but it depends on the market, the type of contract, new type of customers. And we will always summarize the business win in the quarterly reports and then more -- a bit more detail than we do now. But I think the fact is that KA at any given time, we'll have a number of contracts that are being renewed. Now some contracts expire and we get into new contracts, big and small, but I think that doing this change. We're doing it to get a better communication with the market and improved communication because it's better to kind of summarize this in the quarterly reports instead of kind of doing piecemeal announcements of certain business wins. So just to underline that we will continue to report strategically important contracts that will also mean very significant ones in value, and we will always summarize it in the quarterly reports. And this is also in line with our peers, and I think what our larger companies on Oslo Stock Exchange do. We're kind of aligning more with that. Therese Skurdal: Thank you. Is there any questions here in the audience? Unknown Attendee: Given the challenging market and I guess, declining revenue growth on your current revenue base, how much could you improve profitability with improved product mix, but also potential further cost improvements? Trond Fiskum: There is -- I cannot give you a number at this point, but there are obviously opportunities to improve. So if you take the current cost base and assume that we can capture both of the market and volume growth without adding much fixed costs can give a quite positive case. So that will be an ambition going forward. And then you can do the math. But -- and then it depends on the market development. What we do see is that there's a lot of uncertainties in the short term. In the longer term, we do expect growth. And then the question is how big growth that will be. I think we are well positioned to capture that growth. And we will then work very hard to maintain our cost base and not increase our cost base further. And then we can have a good gearing effect. I don't -- when it comes to product mix, I think it's more on the revenues overall. And of course, we will work to optimize both our variable cost and pricing going forward. And when it comes to also profitability, a key element here is to resolve our challenges when it comes to warranty and remove that from our current cost base. So yes, there are challenges also on the warranty, but I also remember that it has been a part of our cost base over the last years. So it also represents an improvement opportunity for us. Therese Skurdal: Any further questions here in the room? Unknown Attendee: Regarding the new business that we have bought, what is the business cases in those 3 -- sorry, 2 parts, Chassis Autonomy and the China part? Trond Fiskum: Chassis Autonomy has a Steer-by-Wire technology that has a very interesting, let's say, future. There's a big demand for it. The forecast estimated need for -- and market development for that kind of technology is very large. By 2035, the estimate is more than EUR 3 billion. And the target is to capture a meaningful portion of that market. Specific ambitions and targets, I would like to come back to you on that on the Capital Markets Day, and then we can share more information. That will be one of the products that we will highlight in that event. And then we'll talk more about how we see that market developing and what is our business case. But it's a new development. There are always risks when it comes to taking on that. But we do believe that we have both the customer relationships, we have the technology and the capabilities to take that technology to the market. And so far, I would say the interest is very strong. So it looks very promising. But we'll come back to this on the Capital Markets Day, and we'll share more insights about that on that event. On the China case, we had a situation where our joint venture partners wanted to leave the joint venture. So we decided to make the acquisition. The alternative would have not been so very positive for us not to buy that share, someone else could have done it. And now we have the flexibility and, let's say, the possibilities to look at alternatives and strategic alternatives for that market that we didn't have before. Also there, we are working on a strategy that we will be able to share on the Capital Markets Day regarding China. I don't have the exact numbers, if you were asking for that, but we will share the strategic rationale and what our plans are for both those 2 businesses on the Capital Markets Day. Therese Skurdal: So let's take a question from the webcast. Have your demand to pass on 100% of the tariff cost affected your new business wins? Trond Fiskum: The answer is no. I cannot say that. I think those discussions have been very constructive, very -- I will say, we've been very firm, but I don't see that the tariff discussions as such has had any impact on our business wins. Therese Skurdal: Thank you. How is the merger between the 2 factories in Sweden coming along? Trond Fiskum: It's moving forward. The merger between those 2 plants to move Ljungsarp plant into Mullsjö is moving forward according to plan. We have monthly reviews with the team. And the plan is to conclude that transfer by Q3 next year. So that move is going according to plan. Therese Skurdal: Any more questions here in the room? Unknown Attendee: You have proven today that you are able to manage the situation in the market reducing costs. If the market increases again or when the market increases again, will you be able to keep the cost base as you have it today? Or do you need to also parallel increase the cost so -- how do you see that in the future? Trond Fiskum: The clear ambition is to maintain the cost base as we have today. We know that there are some costs on our fixed cost base that are, let's say, semi-variables. But the clear ambition is to maintain the cost base as it is today, that we will work very hard to achieve. There are new technologies like AI and other technologies that can enable us to do that. It will be -- can be challenging if the volume increases are significant, but that will be a clear ambition to maintain the cost base as low as we can. There are further opportunities to streamline our operations so that is also work in progress. But what I can confirm is that, that will be an ambition, definitely. Erik Magelssen: Yes. Just to supplement on that, that is ambition. I think, to a large extent, we will be able to do that. And of course, we will increase cost later than earlier. So we'll kind of always drag it along and then we have to make sure that we will deliver the project in the right quality to the customer at the right time. So -- but that will be the clear ambition. That's also part of the benefit that we get from all these cost reduction programs that we will try to find better and smarter ways to work with the people and the cost base that we have, but -- yes. Unknown Attendee: I have to take the opportunity to congratulate and applaud what you have done so far. It's looking really promising for our shareholders. Trond Fiskum: Thank you. Therese Skurdal: So no further questions in the webcast too. If there are no further questions here in the room, we can conclude. Trond Fiskum: Then thank you very much for your participation. Thank you for Arctic again for hosting this for us at their facilities. That was excellent. And have an excellent day.
Operator: Good morning. This is the Chorus Call conference operator. Welcome, and thank you for joining the Nexi 9 Months 2025 Financial Results Presentation. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Paolo Bertoluzzo, CEO of Nexi. Please go ahead, sir. Paolo Bertoluzzo: Good morning to everyone, and welcome to our 9-month results call for 2025. As usual, I'm here with Bernardo Mingrone, our Deputy GM and Chief Financial Officer, with Stefania Mantegazza leading IR, and a few more members of our team who may help to answer your questions as needed. As usual, we'll start with a summary of the key messages. I will hand over to Bernardo to cover the results in more detail, and I will come back for the closing remarks and, most importantly, to answer to your questions. Let me jump to Page 3 with the summary of the key messages. First of all, we continue to deliver profitable growth for the 9 months in the quarter. Revenues are up 2.8% for the 9 months and 1.8% in the quarter. As anticipated in the third quarter, we see more material effects of the extraordinary events that we had anticipated when we provided the guidance in March this year. More precisely, we are talking about the bank losses from the past and some key bank contract price renegotiation effects. These effects will peak probably in Q4 this year, and then we will start slowing down across 2026 with a more material reduction in the second half. The underlying growth, therefore, net of this effect, is at about 6% year-on-year, both in the 9 months and in the quarter. Merchant solutions revenues are up 2.7% in the 9 months and 0.6% versus the same quarter last year, with underlying growth being at around 5% to 6% in both the 9 months and the third quarter. EBITDA is growing at about 3.5% in the 9 months, with a 35-basis point margin expansion. The quarter results in terms of margin are a bit affected by the revenue mix that sees a stronger IS and some operating cost phasing. Second key message: We continue to shape Nexi for future profitable growth, 3 key points that we want to underline. We continue to progress our strategy execution in the integrated payment space, the space of convergence across payments and software. As discussed in the past, our strategy is based on partnerships with ISVs. And since the beginning of the year, we have added about 50 partners, ISV partners to our pool, that is about 500 across all our geographies. Second key message that we want to reiterate, we continue to build a stronger multichannel approach to the Italian market, obviously, deleveraging our very strong partnerships with the Italian banks, but also adding to this strong channel also complementary channels, targeting more precisely SMEs, which is our core focus. And these complementary channels by now represent year-to-date about 26% of our total new sales. Last but not least, we want to underline that merchant solutions in Germany is growing double-digit in the 9 months, with even acceleration in the third quarter, supported by customer base and market share growth. And we really want to stress this performance in Germany because, obviously, there's a lot of debate around how strong players like Nexi are in competing with the newer players focused on SMEs, the single platform, and all of that. And clearly, the performance in Germany shows very well that we can compete, we can win effectively and have accelerated growth as well. The third key message we want to deliver is that we continue to create value for our shareholders. Across '24 and '25, we did delivered EUR 1.1 billion of capital to our shareholders while becoming, at the same time, an investment-grade issuer since the end of last year. Net financial debt is now down to 2.6x EBITDA, notwithstanding the fact that we have returned in the year already EUR 600 million to shareholders as a remuneration, which is a 20% increase versus the previous year. Obviously, in March '26, we will talk about the capital allocation for 2026 on the back of the more than EUR 800 million cash that we will generate in 2025. Coming to guidance, we confirm we will land revenues in the low to mid-single-digit year-on-year growth space. We confirm that we will generate excess cash for more than EUR 800 million with a high degree of confidence. As far as the margin is concerned, for sure, it will be positive with Q3 with Q4, by the way, seeing a margin expansion better than Q3. Where it will land precisely will depend on the volumes we will see in Q4 and the business mix that we will see in Q4. In any case, we are talking about only a few million euros here and there. Let me now hand over to Bernardo to go through the results more in detail. Bernardo Mingrone: Thanks, Paolo. Good morning. Starting on Slide #5 with revenues. As Paolo has already mentioned, this quarter was significantly impacted by discontinuities as expected. This has been accelerating throughout the course of the year. You can see the revenue growth in the quarter of 1.8% is distant from our underlying growth of 6%, and this gap is widening compared to the 9 months. So, as we said, this is the highest impact we've had year-to-date, and the peak is expected to be reached in the coming quarter. With regards to EBITDA and EBITDA margin, EBITDA is growing. The margin, and please remember, we're always talking about an EBITDA margin north of 57%, suffered in the quarter from what I would characterize as a slightly different revenue mix than what we might have planned with a bigger contribution coming from issuing the merchant solutions and also a bit of phasing effect on some costs, which might have spilled over from one quarter to the other, which is impacting the margin accretion. However, for the year, we are positive at 35 basis points. Moving on to merchant solutions on the next slide. We have growth in the quarter. Again, here, this is the business unit on which the negative impact coming from the discontinuities we've talked about that impacts us the most. You can see the underlying growth is mid-single digit. Overall, I think we can point to continued growth in international scheme volumes, albeit with a softer summer. We have a slightly unfavorable volume mix, as I was mentioning earlier, as a group, but also within merchant solutions, with some pricing and mix effects in e-commerce in Poland. We're talking about -- sorry, just a few million euros here, but that makes a difference, obviously, in terms of year-on-year growth. I think more importantly, from a volumes perspective, Poland, but more importantly, also Germany, which is growing in the quarter in the mid-teens, have shown a robust performance. We continue to grow our franchise in the most valuable segment of SMEs. We continue to upsell and cross-sell the value-added products and services. And indeed, we're making progress on the ISV partnerships front with more than 50 signed in the 9 months and the year-to-date. Issuing solutions had a very strong quarter, 6.5%, 6.6% growth. This is usual. It is being sustained by volume growth, the international debit product in Italy, upselling, and cross-selling throughout the group. I think it's fair to say that part of this higher performance in the quarter than for the 9 months will be reversed in the fourth quarter. We expect it to benefit less from year-on-year project work, which, as you know, as we've discussed in the past, it's very hard to predict in which quarter they will be booked. And we're also expecting in the fourth quarter to see the first effects of some in-sourcing from a large Nordic client that we've spoken of many times in the past. This is something a decision which goes back 3 or 4 years and has been postponed a number of times is now kicking in. So, the fourth quarter is softer than the third, but a strong year-to-date and expected for the full year in any event on issuing. DBS is the business unit which has the most reliance on, let's say, project work or one-off billings. So, it's lumpier. I don't read too much in the quarterly performance. Overall, for the year, we expect growth and a good performance from the business unit. Indeed, we recently launched in October, a very important piece as part of our payments business, the verification of PE, which affects hundreds of banks across Europe. We're the largest player in the space, and this was a big success for us. From a geographic perspective, it doesn't surprise -- shouldn't surprise that Italy is the region which was impacted the most by the discontinuities, the Italian banks that we've spoken of so many times. Nordics, I would say, good performance in the low single-digit area, but benefiting from continued progress on selling value-added products and services to our client base. DACH, I would say, very strong performance in Germany, slightly less so in Switzerland, but overall, good performance from the region and CSC, which is probably the most impacted by the softer summer and what I said earlier about Poland. Finally, before handing the floor back to Paolo, on costs. Costs grew about 3% in the quarter. HR costs still showing the benefits of the initiatives which were put in place last year and continue to be implemented during the course of this year. Slight growth coming on the non-HR costs, which is the one most impacted by volume growth, by inflation, by the growth of our business in general. But as you know, we manage our cost base as a whole. And you can see the 2% growth for the 9 months is pretty much in line with our expectations, and I don't expect the final part of the year to be any different. Actually, the fourth quarter expect to be better than the third and probably better than the 9 months to date. So, I think other than the phasing effect, which I mentioned earlier, which has to do with intra-group VAT and the timing of these things. And again, we're talking about a few millions of euros here and there. I would expect strong cost performance for 2025. So let me hand the floor back to Paolo for his final remarks. Paolo Bertoluzzo: Thank you, Bernardo. Let me just reiterate Page 11, the messages that I already anticipated on guidance. We will end our top line growth in the low to mid-single-digit space with underlying growth acceleration. Cash -- excess cash, will generate at least the EUR 800 million that we committed to with a high degree of confidence. And as far as the margin is concerned, for sure, it will be positive. We expect the Q4 performance in terms of margin expansion to be better than Q3. Where exactly it will land will depend on the dynamics in Q4. But in any case, we are talking about a few million euros shifting here and there. Let me close from where I started, 3 key messages on Page 13. We continue to deliver profitable growth across the business. We continue to shape Nexi for future profitable growth. And again, the 3 topics that really want to underline is the progress in integrated payment space across geographies, the continued acceleration of the newer channels in Italy together with continued good performance of the bank partnerships as well. And last but not least, a very strong performance and improving day by day in Germany for merchant services. And last but not least, continue to stay very focused on value creation. We're returning this year EUR 600 million to our shareholders in March. We'll talk about what we will do for 2026 on the back of a strong increase of excess cash generated in 2025. Last but not least, let me anticipate and invite you actually to the Capital Market Day that we will have at the beginning of March, more precisely, the current plan date is the 5th of March. Let me stop here, and let's open to your questions. Operator: [Operator Instructions] The first question is from Grégoire Hermann, Barclays. Grégoire Hermann: Just 3 of them, please. Just on the guidance, can you confirm whether you need reacceleration in Q4 to meet the EBITDA guidance or simply the cost reversal that you mentioned that you expect in Q4 is enough for you to meet that cadence? And then I think on the revenue, the guidance still leaves a pretty wide range for Q4. Can you comment whether you expect a reacceleration in Q4 there? And finally, on issuing solutions, you mentioned some phasing effects -- would you be able to quantify this phasing effect, please? Paolo Bertoluzzo: Greg, this is Paolo. Thank you for your question. Let me just comment on guidance, and then I'll pass to Bernardo on the issuing effect. As both Bernardo and I said, in Q4, we expect to see the peak of these extraordinary effects. And therefore, it's going to be difficult unless we surprise ourselves to see an acceleration of revenues in Q4. Nevertheless, we expect to see positive revenues in Q4. And in particular, we expect to see some instead acceleration from merchant services. Again, it will depend very much on November and December that, as you know, are very much peak months in our industry. While as anticipated by Bernardo, we've seen some reversing on some phasing in issuing that instead in the Q4 will perform not as good as in Q3 and year-to-date. Let me pass over to Bernardo. Bernardo Mingrone: Grégoire, I mean, as Paolo was saying, I think let me just add to his comments. I mean, in terms of the evolution of revenues during the course of the year, I would highlight what we put in the slide in terms of the underlying revenue growth, which has been pretty homogeneous throughout the quarters. Quarter 1 was probably a little lower than Quarter 2 and Quarter 3 was similar to Quarter 1 in terms of the underlying. And that's pretty homogeneous. Where you get the big gap between reported and underlying is this effect of banks which are exiting. And I think we spoke of this other times. I mean we do our best to slow this down as much as possible to hold on to clients which are being migrated from our platform to others as much as possible. But the impact of this is that we have a longer period of time in which there's a gap between underlying and reported. And the shape of this curve, this gap is very hard to predict. I mean it really depends on our efforts and also on the banks trying to migrate these customers' efforts. So, it's very hard to call the basis point how it's going to impact. However, with regards to issuing, going back to the issuing question, we're talking about single-digit million euros of impact coming from project work, which was probably in the fourth quarter compared to the -- or gap between year-on-year fourth quarter and fourth quarter at this point compared to third quarter and third quarter because that's what we're talking about. And we have a similar impact, something which is less than EUR 10 million in a year coming from the migration away from this Nordic customer. So how quickly they migrate away from us, I mean, it's really up to them and how that impacts us in the fourth quarter, we will see. But those are the 2 impacts. Operator: The next question is from Josh Levin, Autonomous Research. Josh Levin: Two questions from me. First, any views on what PSD 3 and PSR might mean for Nexi and the broader European payments landscape? And then second of all, I guess it's refreshing to have a call where the scripted remarks don't talk about AI. But to the extent you can, are you able so far to internally quantify the impact of AI on any of your unit economics? Paolo Bertoluzzo: Thank you for your both questions. Actually, we don't talk about that a lot in the call, and I'm very happy to cover both. PSD 3, PSR, I think, we don't see any material effects directly on the business and so on and so forth. If anything, we see some positive effect because the new regulations are creating further complexities into our business. And ultimately, our company is in the business of simplifying payments for our customers, being merchants, corporates, banks and so on and so forth. And the reality is that the more complexity is around, the better positioned are large players like us versus the smaller ones that normally struggle to follow through on the complexity. So, in general, we believe this is going to be something positive for us. On AI, we are all in, in AI since, I would say, 1.5 years ago. This year, we already see the contribution across, I would say, mainly technology expenses, both CapEx and OpEx for double-digit million euros. Let me not be precise in this specific case. For next year, we are planning much more than that, and this is across technology development, software development, software testing, infrastructure management, operations, onboarding, marketing, back-office processes, general productivity. We are all over the place on this. And we really believe that this will be a great contributor to increasing efficiency across the company and also obviously enabling us to invest more into growth over time as well as supporting continued margin expansion and cash generation. Obviously, we are also very much into leveraging AI for product innovation and differentiation. And most importantly, we are deeply into the topic of Agentic commerce, which, as we all know, will become relevant over time for the e-commerce part of the business. And on this front, we are participating both on the big tech initiatives. We are one of the few European companies cooperating with Google in the setting of the new standards on the Agentic side of commerce. But at the same time, we're deeply involved with international schemes, Mastercard and Visa in setting the future rules that are fundamental in defining how Agentic commerce will work. And clearly, this will be very much also European-specific or in any case, continent-specific because they will have to be consistent with European regulation. And again, given the position we have, we believe we are in a good place to be able to shape this and be a protagonist in this space as well. Operator: The next question is from Hannes Leitner at Jefferies. Hannes Leitner: Can you give us an update on the Sabadell joint venture given the Spanish banks have been not merging? And then can you talk about the 2026 expectation? Current consensus is just looking for a slight acceleration, but your headwinds with the Italian banking contract should come out of the base. So maybe you can talk there a little bit about the expectation from project work, the issuing contract ramping down and the underlying market trend growth you see, that would be it. Paolo Bertoluzzo: Let me take both questions. Sabadell, finally, after, I think, 2 years, we have seen what has been the conclusion. Sabadell remains an independent bank. We are obviously happy to see it. And again, here, let me lay down the facts as clearly as I can, even if we discuss them in the past with many of you. First of all, we have no commitment whatsoever any longer across the 2 of us because this was an old deal that was happening in old market conditions. And therefore, there is no obligation any longer among the 2 parties. We are in great relationships. a great relationship, and we have agreed this very, very friendly. At the same time, we continue to consider Spain an interesting market for a company like Nexi. And honestly, we continue to consider Sabadell a fantastic potential partner in Spain, given how focused they are on payments, given how focused they are on SME, given how deeply entrenched into the local ecosystem they are. And therefore, we will continue to have conversations with them to see if there are new opportunities to do something together on completely new terms, potentially also completely different business model. So great relationship, still interested in doing something at different terms. We will see. We'll see where it lands in the coming months. We are very, very relaxed about it and actually happy to have the opportunity to have the conversation. As far as 2026 is concerned, obviously, as you can imagine, we are working on our budget for next year. We'll talk about it in March together with the guidance. I can only reiterate what both Bernardo and I said as far as risk is concerned, we should always remember that our performance this year is materially affected by these exceptional events. And therefore, the dynamic will really depend on how these events come into place and then unwind over time. As we said, we see these events peaking in Q4 this year, then continuing at a slightly lower level in the first half of next year and then slowing down towards the last part of the year. Therefore, we would expect this - the overall effect on a yearly basis to be probably a bit less than what we have seen this year, and this should support with our underlying growth continuing should support some acceleration, but this is a topic for March. Hannes Leitner: Maybe just a quick follow-up on German performance. Was this kind of also driven by one of your competitors basically being in the spotlight with credit downgrades? Or is that all organic initiatives? Paolo Bertoluzzo: No, no, no. It's all organic initiatives. This is growth coming from effective products in the market, competitive products in the market, a strong focus on the most valuable segments being SME and in particular, the mid- part of SMEs and the more national corporates, mid-corporates, supported by a strong and focused investment in go-to-market and in sales and honestly, a strong team in place in the market. It's all organic. And by the way, we are winning not just against, I think, the incumbent you in mind, but a little bit more across the board. Maybe coming back on your questions around guidance into next year. As I think we have anticipated in March as well, this year, a lot of the effect that we have seen from these exceptionals has to do with merchant services in Italy in particular. Next year, we should see less impact into merchant services and more into issuing given this phasing. So, let's see how it evolves. Operator: The next question is from Sébastien Sztabowicz, Kepler Cheuvreux. Sébastien Sztabowicz: On pricing environment, you mentioned a little bit more pricing pressure in Poland, if I'm right. Have you seen any kind of changes in the competitive landscape, new players being a bit more aggressive in some of your markets, whether it is traditional PSPs or some digital players or commerce platform coming to the market? That would be the first question. The second one, in terms of contract renewal, do you have any major contract renewal coming into the next 12 to 18 months to understand if there is more downside risk to your revenue on top of what you expect already from the contract ramping down at Banco BPM and other discontinuities? Paolo Bertoluzzo: Thank you for the 2 questions. On pricing pressure from new players and so on and so forth. I think what we are seeing in Polish e-commerce that again, we're really talking about a few million euros here, which just made it explicit to you and transparent to you because in the quarter and in the region. In merchant services, they have some -- a few basis points impact. But in the scheme of things, that are totally marginal. Honestly, we don't see any major change in dynamics. Obviously, there is more pressure in various countries from these newer players more focused on SMEs. We are competitive in the market. We have to stay competitive. We do what we need to stay competitive. I think the performance in Germany is showcasing it very well. Poland, we continue to take share also in this environment. Obviously, in places like Italy and Denmark where we are by far the leaders in the market, we are more attacked by these players that we are, by definition, the more visible ones. But that's the reason why we are ramping up our direct sales channels next to the -- and in partnership with the bank ones to help us remain and stay competitive versus these players that normally have a direct go-to-market as well. So, we believe we are overall well set up to compete in that space, and we will continue, obviously, to invest to stay competitive. As far as the second question is concerned on contract renewals, I think we did comment a little bit on this topic last time. We have won the renewals on 100% of the deals that were up for renewal over the last 15 months by now or something like that. I think we said 12, 3 months ago. So, I guess now it's 15%. Going forward, we see much, much less of potential renegotiations or situations coming. I think probably the one that is worth mentioning is going to be the renewal of the Monte dei Paschi distribution agreement on the book in 2027. We have a great relationship with the bank and don't forget that the book is ours. So, we're really talking about the distribution agreement because we did buy the merchant book back in 2017. So, but obviously, we will do whatever we can to continue the great relationship we have with them, and we just renewed other contracts with them only a few weeks ago. Operator: The next question is from Aditya Buddhavarapu, Bank of America. Aditya Buddhavarapu: Could you just clarify the comments on Q4? Did you say at the beginning of the Q&A that you expect an acceleration in merchant services? Maybe I didn't fully capture that. So, if you could just clarify that. And then also just related to that, can you talk about what you've seen so far in Q4 in terms of volumes? I know October is probably a smaller month, but any color on what you're seeing on volumes or the broader macro would be interesting. Second question, you talked a lot about the ISV partnerships, and you have about 500 in place right now. How big are those partnerships in terms of your overall volumes today and how fast are they growing? Any color would be appreciated. And then finally, just on the underlying acceleration you talked about in 2026. Could you just talk about again the drivers there? What should help to improve that? Paolo Bertoluzzo: Let me take the 3 of them. Q4 MS reacceleration, probably, yes. We are talking about small numbers again here. Let's be clear. We're always talking about a few million euros shifting here and there. And that should be supported by the various initiatives that we are doing, but also from the fact that at least in Italy, in terms of volume, we should start seeing some reversal of the strong impact that we had so far on MS, in particular, from the Banco now recently from the Cassa Centrale. So that should happen. As we also said, instead we will start seeing more impact on IS over the next few quarters. Then let's see what happens. If I look at the volume dynamics in October in Italy, we already see a little bit of better volume growth. So, it looks like it's moving in the right direction. But again, very early to say. Again, never forget that the fourth quarter is really, really shaped by what happens at Christmas and Black Friday. So, let's see what happens. On ISVs, it's difficult to give a number because the classification of what an ISVs versus an ISO versus an ECR provider is very, very complicated. So, we don't want to be stuck to numbers that then change over time and then confuse you. Let me just give you a little bit of the flavor here. We are talking a lot about this topic because we believe that long-term, it will be impacting our industry also in our geographies. However, this is a topic that in terms of overall impact is extremely small and fragmented across Europe at this stage, at least the Europe that we see. Nothing to do with the U.S. It's coming slowly. It's coming in a very differentiated way across the various markets. This topic of ISVs and therefore, the materiality of it is more visible in the Nordics, where this started a bit earlier. As you know, the Nordics are super digitalized as economies and therefore, also SMEs are digitalizing faster. And that's the reason why we see it there faster as a dynamic. Germany is very much behind the Nordic situation, even if we start to see obviously more focus there. In Germany, what is still big is ISOs, resellers, these types of dynamics, which are not precisely IVs. Poland, I would say, is more or less in the state of Germany. And last but not least, Southern Europe, Italy, but also Greece, Croatia and the other markets where we are present, this is really, really, really small. Obviously, we are working to take position, but you hardly see these volumes. A lot of players are trying to get organized to do this, but they are still in the process. And obviously, we are in the process of working with many of them. As far as 2023 is concerned, I can only reiterate what I said before in terms of the market risk dynamics. Again, as we said in the past, we see our underlying growth remaining solid in the mid-single-digit plus and ideally accelerating on the back of the market share gains here and there, plus the initiatives to increase value for our merchants with softer merchant financing and the various topics we discussed in the past. The profile of precise will, therefore, depend very much on what happens on these exceptional events that we discussed in the past. Again, as I said before, this should ease out, especially towards the end of 2026. If it happens the way we see it happening as we speak, the overall impact should be a bit lower than this year. And therefore, this should support some reacceleration. But again, on the back of strong underlying. Operator: The next question is from Alexandre Faure, BNP Paribas. Alexandre Faure: I have 2, 3 questions, if I may. One is going back on this commentary you made on both discontinuities having reached or reaching peak pressure in Q4. Just a little surprised because to your point, it feels like issuing will come under pressure next year. You mentioned that renegotiation in the Nordics, but I think Banco BPM was also supposed to migrate off next year? So, is this being pushed a little bit? Just trying to get a sense of the latest timing there. And maybe relating to that, how should we think of any potential lingering margin headwind if we have some of those lucrative relationships continuing to dwindle in 2026? And my last question is completely separate topic that you touched on earlier, Agentic Commerce. Just curious, Paolo, how you think about it more broadly, looking maybe 3, 4 years out? Would you view this as an opportunity to take further share away, maybe from banks who might struggle to keep up? And beyond share dynamics, how would you view Agentic Commerce impacting yields and margin. I think there's more work you need to do, maybe you'll be able to price for that. So, any thoughts there, much appreciated. Paolo Bertoluzzo: Alexandre, thank you for your 3 questions, or maybe 2 plus 1. First of all, on the discontinuities in Q4, again, we don't have full control of the phasing of all these things. You're right in saying that most of the effects from Banco issuing are expected at some point into next year. To be honest with you, we don't have a full visibility because we understand the supplier they've chosen is behind plan. We may start to see something on a part of it in the last quarter. But again, it's not just Banco. There are smaller things as well. So that is why, if you combine everything, we expect to see the last quarter this year as the one with the highest impact. And again, as I said, into next year, then from this peak, we expect to have basically the first and the second quarter starting to slow down, probably more similar to the third quarter this year, and then instead having a material reduction towards the year-end. But again, the exact phasing is not depending on us. And by the way, we fight as much as we can to make this happen as late as possible and as small as possible. As far as margin headwinds into next year, clearly, this dynamic put pressure on margin. The simple fact that we will expand EBITDA margin this year tells you that as we do all of that, we also have a number of initiatives that increase margin, that the new things we are doing are margin contributing. And by the way, we continue to do a pretty hard work on efficiency as usual, but obviously, even more in the case of the environment we're in. And that's one of the reasons why I think, as I was answering to the question of Josh, in the very beginning, we are so focused on AI and lever also to create space for margin expansion and also reinvestment. As we look into next year, this is exactly what we're looking at. I think ultimately, we're we'll be landing on margin next year will depend very much also on where and how much we decide to invest ourselves into the various topics that we have been talking about in this call as well. Agentic Commerce, listen, I think it's a super fascinating topic. Let's be very clear. I think if people tell you they know exactly what will happen, how it will happen, and so on and so forth, they may be stretching it a little bit. It's super complex. And by the way, to a certain extent, we like complexity because, as we said in the past and also today, it's always an advantage for people that are really focused on that scale with competence in this environment. But let me try to add a few comments here. First of all, never forget that ecommerce for Nexi is maybe unfortunately, a relatively small thing in the sense that we are talking about 5% to 10% of our total revenues, growing nicely. And this is clearly one of our growth engines, but is a relatively smaller part of our portfolio, point # 1. On that basis, we see, as you mentioned rightly so, this complexity potentially being an asset for us because, again, the smaller players, the banks in general, will struggle to be a part of this "Potential revolution in ecommerce". Clearly, our partner banks in Italy will benefit from our efforts, and we'll be partnering with them also on this front. I want to be very, very clear. But never forget that ultimately, we are partnering with banks in Italy, Greece, and Croatia elsewhere. Banks are competitors. And therefore, we believe that we really struggle to keep up in this space, or at least many of them. To be honest with you then, how this will develop will depend very much on customers. And when I'm talking customers, I'm talking about consumers, the ones that buy stuff. Because if you really want to be extreme version of Agentic Commerce, which is the one where not only you start the commerce activity from AI, from agents, but you complete the transaction, including the payments in an agent-to-agent dynamic, that really requires a big leap of faith from the customer that basically has to trust an agent fully for spending his or her money. And I think that this is maybe one day possible, maybe for certain verticals and product categories. But honestly, how big it will be in the future, I think, is really something that we will need to see. In any case, we are investing in this space, and we will be organizing ourselves in this space for obviously, enabling merchants in any case to be able to interact with agents, because maybe it is going to be just a small thing. But our role is to help merchants to accept any type of transaction, any type of payments, also the ones coming through agents. At the same time, we're already working on what we can do on the issuing side to make sure that our products, our cards are Agentic Commerce-ready. Therefore, we see a lot of work that we can do to enable all of this. I'm sure we'll talk about it again many times in the future. Operator: The next question is from Justin Forsythe from UBS. Justin Forsythe: Just a few here for me. I want to hit first fiscalization in Italy. If I'm not mistaken, I believe that's meant to take place and become enacted, I believe, January of next year. Do you see that as a potential forcing factor for greater adoption of software-led payments in Italy and/or potential for Nexi and Nexi's ISV partners to grow? Second question is around the Zip Pay partnership in Ireland, which I believe you helped roll out this application within your DBS solutions business. Maybe you could talk a little bit about how you won that, what the monetization and rollout timing looks like there? And just more broadly speaking, how you see the go-forward opportunities within DBS. And whether you see this as a business line that's strategic to you longer-term and add synergies across your other business lines? And maybe updated thoughts on what you plan to do with that asset, if anything? I know there's been some news on that subject. And finally, just a real quick cleanup question for you, Bernardo. If I have the math right, it seems like you had 0% growth in international schemes in the quarter. I know you noted some softness in Southern Europe. Also, I'm sure that has to do with the bank M&A as well in MS. But maybe if you could provide a normalized number there and/or also, I know we were commenting on trends in October month-to-date. Maybe you could add Germany and the Nordics to that as well, if you don't mind. Thank you very much. Paolo Bertoluzzo: Hi Justin, I'll let Bernardo take the last question. On fiscalization, yes, it's right. It's happening. It will happen in a few months, but it will happen in such a way that will not require merchants to change neither the cash register nor their acceptance solutions because the reconciliation will be done by the tax, basically authorities, the tax authority technology in basically the cloud. And therefore, the only thing that merchants will have to do is going to be to connect in the cloud, to associate in the cloud, their cash register, which is already connected. Don't forget here, maybe let me make one step back because -- so that everybody can follow this conversation. In Italy as well as in other places, there is already the obligation to have your cash register connected with the tax authorities, okay? The new news that will be implemented into next year is that there will be a connection in between what the terminal is transacting on digital payments, the point-of-sale terminal and what the cash register is registering and is transacting. And this connection in between -- clearly, this is intended to avoid certain behaviors for tax avoidance that we're playing with the 2 devices being not connected. Now this connection will happen in the cloud. And therefore, there is no need for changing the ECR. There is no change for changing your cash register. There is no need to change your acceptance solutions, your point-of-sale terminal. The connection will happen in the cloud. The merchants will simply need to register in the cloud the 2, if you like, components and associate the 2 of them. Obviously, we will be helping. We're already helping the merchants that we will be able to do it with Nexi in one click through our digital assets in the cloud, okay? Around the market, as you can imagine, you have some ECR vendors that are claiming that you need to change everything and so on and so forth. But honestly, that's a marginal, I would say, commercially aggressive behavior, but that's not -- that's absolutely not needed. So, we believe that this dynamic of digitization of merchants will continue with its own pace that in Italy so far is relatively slow. And honestly, we will try to accelerate ourselves through our partnerships with our own initiatives but should not see a material change because of digitalization. On this account-to-account instant pay-based service that we have developed with the Irish banks, I think it's a nice service. We are very proud of being chosen by them and by a number of other countries also outside of Europe. I would love to tell you it's big and growing. The reality is that it's relatively small, you don't sit into the big scheme of things, but it is something that, again, we are very proud of and we'll continue to pursue because ultimately, whenever we are chosen by central banks, and we're chosen by bank consortia is always a great testimony of the value that we can create and how deep we are into technology and modern solutions. As far as DBS is concerned, more broadly, we are where we were every single time we talked about it. There are areas of this business that are less strategic, and we'll continuously review the portfolio and pursue certain potential sales. But again, this has already happened, will continue to happen on a one-to-one basis. Last one, Bernardo. Bernardo Mingrone: So Justin, I think I presume you referred to that 1% growth of value managed transactions in the 9 months that we reported is on Slide 6. I couldn't find the 0% you're referring to. But I think your question was --- Justin Forsythe: Bernardo, just to clarify, I was just saying that international schemes in the 9 months was -- what was it, about 5%. And I think that implies something close to 0 for the 3Q. Bernardo Mingrone: Yes. Okay. Fine. I mean it's -- in general, I mean, there's a recast, as you can see in the database due to the fact that we're aligning, let's say, the -- as we re-platform across the group, in particular in Italy, we have recast some of the historic volumes just to make sure they're 100% aligned with the revenue. I mean the revenues were always 100% correct. The volumes, maybe we had more than -- we were calculating maybe more than 1x some kind of volumes because they were driving certain revenues. And that probably gives you the impact you're referring to. But in general, I think the crux of the question was about the impact of the banks that are leaving the portfolio. So, the underlying, let's say, volume. And I would say that in Italy, that weighs probably 5 percentage points more or less, and it's about half that at the group level. So, if you look at it at the Italian level, it's twice what it is at the group level. Justin Forsythe: And the last piece of that was just on the Nordics and Germany in October, if there's any additional comments there. Thanks. Bernardo Mingrone: In October, Germany, as we mentioned, for the first 9 months for the third quarter is performing very well, mid-teens in terms of growth. I think the acquiring volumes are strong. Post terminals may be lumpier. But in general, I think even October is a strong month continuing on the -- like the rest of the year. And Poland, if you look at physical acquiring and ecommerce, both volumes are strong. As I said, when we called out Poland, we're talking about more of a pricing stroke, let's say, shift to marketplaces, larger customers on ecommerce compared to smaller customers, which has a pricing effect. But on volume growth, Poland is performing pretty well as well. Paolo Bertoluzzo: I think in general, the way you should see it, Justin, is Nordics trailing around mid-single-digit volume growth, maybe a bit short of that, but around mid-single digit, which is pretty good for a market that is already penetrated where we have a strong leadership position. And instead, Germany and also Poland, by the way, in the high single-digit type of space. Operator: The last question is from Gabriele Venturi, Banca Akros. Gabriele Venturi: Could you please comment on potential risk and impacts that could arise from possible M&A developments that could involve Credit Agricole Italia and BPM or BPM and the new Mediobanca Monte dei Paschi? Thank you. Paolo Bertoluzzo: Well, listen, you know better than I do that the situation is super, super open, and there are many options that we can read in the media, then obviously, we are just spectators to all of this. The only thing I can comment is that we have a very strong partnership with Credit Agricole that has just been renewed for the next 3 to 4 years across issuing and acquiring to 2029 and the performance with them is super strong and relationship is great. Same goes on for Monte dei Paschi, where, as I said, we just renewed a part of the issuing contracts. The other part is longer-term, and we'll have in the coming months a conversation on how to extend the merchant book distribution agreement while the merchant book itself is already ours. So, both parties, we have strong relationship. You know where Banco is eating to. So, let's see, it's very difficult for us to provide any further comments. We are, I think, in a strong position with both Credit Agricole and Monte dei Paschi. Operator: Mr. Bertoluzzo, there are no more questions registered at this time. I turn the conference back to you for any closing remarks. Paolo Bertoluzzo: Well, thank you again for attending this call. And most importantly, looking forward to seeing you in early March for not just results, but for the Capital Market Day. We plan to have in the same day a quick update on Q4 results, but then obviously looking to strategy and longer-term outlook for the company. And in that context, we will provide the guidance for 2026 and also capital allocation, our commitment for 2026 on the back of a very strong cash generation this year that is expected to land with EUR 100 more million of cash generated versus last year. Thank you very much and looking forward to seeing you over the next few hours and days in many conversations. Thank you. Operator: Thank you. Ladies and gentlemen, thank you for joining. The conference is now over, and you may disconnect your telephones.
Operator: Hello, and welcome to the Group Bouygues 9 Months 2025 Results Call. [Operator Instructions] Now I will hand the conference over to Frederique Delavaud, Head of Investor Relations. Please go ahead. Frederique Delavaud: Good morning, everyone, and thank you for joining us for the presentation of Bouygues 9 months 2025 results. This presentation will be led by Pascal Grange, Deputy CEO of the Bouygues Group; Stéphane Stoll, who, as you know, was appointed CFO of the Bouygues Group beginning of August; and Christian Lecoq, CFO of Bouygues Telecom. Following their presentation, they will be answering your questions. Pascal, I'll let you start this call. Pascal Grangé: Thank you, Frederique, and good morning, everyone. Before listing our highlights, I would like to recall that, as we have already mentioned since the beginning of the year, the global macroeconomic and geopolitical environment remains very uncertain, notably in France. That being said, I want to highlight that group expects for 2025, a slight increase in sales year-on-year, excluding exchange rate effects and a slight increase in COPA year-on-year. These expectations are reflected in the group's 9 months results that are strong. Looking at the main indicators for the 9 months, we can see that. First, group sales were up 0.9% year-on-year, notably driven by the construction businesses. Q3 group sales were stable year-on-year given ForEx, which had an impact of around minus EUR 50 million over the quarter. Second, COPA increase year-on-year was notable in the first 9 months 2025. The increase was driven by the construction businesses and Equans. Third, excluding the exceptional income tax surcharge for large companies in France of EUR 60 million, the net result attributable to the group was up year-on-year. I'll remind you that the effects on the net profit attributable to the group of the French Finance law and the Social Security Financing law, which was passed during the first quarter of 2025, including mainly the exceptional income tax surcharge for large companies in France had been estimated at around EUR 100 million for the full year 2025. This is still our evaluation to date, and EUR 80 million already been recorded in the first 9 months 2025. Fourth, the group benefits from a particularly robust financial structure. At end September 2025, our net debt improved versus end September 2024. And in September [Technical Difficulty] Standard & Poor's revised our negative to stable the outlook associated with its A- credit rating. Let's now have a look at our key figures on Slide 5. Group sales in the first 9 months [Technical Difficulty] '25 stood at EUR 41.9 billion, up 0.9% year-on-year. This increase was notably driven by Bouygues Construction, Colas and Bouygues Telecom with the contribution of La Poste Telecom. In the first 9 months '25, the group COPA increased by EUR 95 million year-on-year and reached EUR 1,814 million. This increase was led by the construction businesses on Equans, TFA and Bouygues Telecom [Technical Difficulty] COPA being down year-on-year. The net profit attributable to the group was EUR 675 million. This amount is not comparable to that of the 9 months 2024 as it includes the exceptional income tax surcharge for large companies in France, minus EUR 60 million. Excluding this surcharge on a comparable basis, the net profit attributable to the group would have been up EUR 48 million year-on-year at EUR 735 million. Last, Net debt was EUR 7.6 billion, an improvement of EUR 856 million year-on-year. This is a very good performance, in particular, if we consider the amount of net acquisitions made over the year, mainly including Bouygues Telecom's acquisition of La Poste Telecom for almost EUR 1 billion. This is a theoretical vision, of course. But without these acquisitions, our net debt would have been improved by EUR 1.9 billion year-on-year. Let's now turn to the review of operations [Technical Difficulty] on Slide 8. Let's begin [Technical Difficulty] in the construction businesses. You can see that at end September 2025, the backlog was at a very high level of EUR 32.1 billion, providing good [Technical Difficulty]. Looking into details on Slide 9, let's start with Colas backlog, which was up EUR 1.4 billion year-on-year at EUR 14.2 billion, with Rail backlog up 31% year-on-year. In roads, the backlog was up 2% year-on-year, of which French and international backlogs were respectively down 3% and up 4% year-on-year. At constant exchange rates, the backlog was up 12% year-on-year. To be noted that the backlog [Technical Difficulty] to be executed in the current year and next year was up around EUR 400 million year-on-year. At Bouygues Telecom -- Bouygues Construction, the backlog stood at EUR 17.2 billion, down EUR 0.7 billion year-on-year, but stable compared to end June 2025. Civil works was down 14% year-on-year. And in building, the French backlog was up 12%, and the international backlog was up 1%. At constant exchange rates, the backlog was down 3% year-on-year. It is important to notice that EUR 17.2 billion is a very high level of backlog. At end September 2025, the backlog to be executed in the current year and next year was down around EUR 200 million year-on-year. However, additional significant contracts are expected by mid-2026, notably internationally, which will support the level of the backlog. In that respect, you probably read this morning that Bouygues Construction will carry out the civil engineering works for two new EPRs at Sizewell C nuclear power station in the U.K. as part of a civil work alliance. The share of Bouygues Construction in this construction is estimated at around EUR 3.3 billion. This is [Technical Difficulty] very good news. To be noticed that the scope of works will be carried out through the delivery of a series of work orders, and so Bouygues Construction will book the related orders as they are instructed starting from [Technical Difficulty] fourth quarter. [Technical Difficulty] at Bouygues Immobilier, the backlog was at EUR 0.7 billion at end September 2025, down EUR 0.3 billion year-on-year. The decrease of around EUR 70 million in backlog since June 2025 is mainly due to the deconsolidation of activities in Poland in July 2025. Moving to Slide 10. I will make a few comments on the strong commercial activity in the construction businesses. First, at [Technical Difficulty] level, the order intake [Technical Difficulty] was at EUR 10.8 billion. In Road activities, this order intake was slightly up with a slight decrease in Mainland France as expected in the pre local elections here, and it was up [indiscernible] internationally with significant [Technical Difficulty] awarded in Q3 in Morocco, in the U.S. and in Canada. In Rail, the order intake was up strongly in the first 9 months with also notably a significant contract awarded in the U.K. in Q3. Then [Technical Difficulty] construction level, the order intake in the first 9 months reached EUR 6.8 billion, driven largely by the contracts of less than EUR 100 million. Several large contracts were awarded in 9 months 2025, including [Technical Difficulty] three contracts for more than EUR 100 million in Q3. Do not forget that year-on-year change in order intake at Bouygues Construction is not representative, given fluctuations in the award of large contracts. As a reminder, 9 months 2024 order intake included several major contracts, notably the Torrens to Darlington Highway contract worth more than EUR 2 billion, creating a particularly strong basis of comparison. And as I already mentioned in previous calls, please also note that additional significant contracts are expected by mid-2026. At Bouygues Immobilier, residential reservations stood at EUR 0.9 billion at end September 2025. To be noted, an improvement year-on-year [Technical Difficulty] residential unit reservations [Technical Difficulty] and stable in volume in a still changing market environment and a decrease in block reservations. Two small positive signs are to be noted. Sell-off and cancellation rates improved year-on-year. Last, as we have already said many times, the commercial property market remains at a standstill. Now let's have a look at sales on Slide 11. Sales were up 2% year-on-year and 3% like-for-like at constant exchange rates. First, sales were up 1% year-on-year at EUR 11.9 billion, driven by Rail up 12%. This growth being supported notably by Egypt, France and Germany. Roads were stable with France up 2%, EMEA up 2%, Asia Pacific strongly up 19%, and North America down 5%. Colas sales were up 2% year-on-year at constant exchange rates. Second, Bouygues Construction sales were up 4% year-on-year [indiscernible] driven by its three segments of activity, all up year-on-year. Bouygues Construction sales were up 5% year-on-year at constant exchange rates. Last, at Bouygues Immobilier, sales were down 6% [Technical Difficulty] EUR 0.9 billion with residential property down 4% year-on-year, restated for the disposal of activities in Poland. Next slide. Current operating profit from activities of the construction businesses was EUR 591 million, improving EUR 115 million compared to 9 months 2024, driven by the three business segments. COPA at Colas was slightly up year-on-year, improving by EUR 11 million with the [indiscernible] margin from activities improving 0.1 points at 2.7%. COPA at Bouygues Construction was strongly up year-on-year, increasing by EUR 45 million and with 0.4 points COPA margin improvement at 3.3%. At Bouygues Immobilier level, COPA was up EUR 59 million year-on-year. It includes some one-off items, representing a global amount of EUR 27 million with the disposal of Poland activities in particular. Now I'll hand over to [Technical Difficulty] who will comment Equans results. Stéphane Stoll: Thank you, Pascal. Good morning, everyone. Let's move to Slide 14. Equans backlog at end of September 2025 was stable year-on-year at EUR 25.8 billion. Order [Technical Difficulty] 9 months of 2025 stood at EUR 13.9 billion, a high level close to the one of September 2024. It is worth noticing that order intake in contracts of less than EUR 5 million was up year-on-year [Technical Difficulty] representing more than 2/3 [Technical Difficulty] intake. On the other hand, order intake in projects of more than EUR 5 million was down year-on-year, reflecting a high basis of comparison in 2024 and a wait-and-see stance in some areas of activity, notably in [Technical Difficulty] data centers in Europe and on the EV market. In parallel, we continue to observe a gradual improvement in the order intake margin. As for sales, they were down 2% year-on-year in the 9 months 2025. This essentially reflects three main items. First, [indiscernible] the continued careful selection of [Technical Difficulty]. Second, a proactive exit from nonstrategic activities, notably the new business in the U.K. that we mentioned in the previous publications. And third, a temporary slowdown in relation to the wait-and-see stance in data centers and gigafactories I mentioned earlier. First 9 months sales were also impacted by a negative exchange effect of minus EUR 55 million. This effect concentrated in Q3, sales being impacted by a negative minus EUR 66 million over the quarter. As such, Q3 sales down 4.2% year-on-year were down 2.8% year-on-year at constant exchange rates. Equans contribution to the group's COPA represented EUR 565 million, a significant increase of EUR 91 million year-on-year with a 4.1% COPA margin up 0.7 points year-on-year, confirming the continued successful execution of the Perform plan. Let me finally give you some updates on our recent M&A developments. Equans secured four bolt-on acquisitions in this quarter in Germany, Austria, Italy and North America, around EUR 180 million of full year sales. These acquisitions are in line with the strategy shared during the Capital Market Day back in 2023. To end with Equans on Slide 15, let me just add that in [Technical Difficulty] 2025, Equans will continue its strategic plan and is aiming at achieving a slight decrease in sales versus 2024 at constant exchange rate given: one, the proactive exit from remaining nonstrategic and nonperforming activities; and second, the temporary slowdown in some areas of activity. And Equans is also aiming at achieving a margin from activities close to 4.3%, up from the 4.2% mentioned end of July. Finally, Equans confirmed it is targeting a cash conversion rate, which is COPA to cash flow before working capital requirement of between 80% and 100%. And as a reminder, Equans aims to gradually catch up with the organic growth of sector peers and to achieve a margin from activities of 5% in 2025. Now Christian is going to detail Bouygues Telecom's main figures. Christian Lecoq: Thank you, Stéphane, and good morning, everyone. Before turning to Slide 17 and entering into the 9 months and the third quarter performance of Bouygues Telecom, I would like to say a few words about the integration of La Poste Telecom within Bouygues Telecom. It has now been 1 year since we [Technical Difficulty] completed the acquisition of La Poste Telecom [Technical Difficulty] have already achieved several successful milestones, notably: first, the strengthening of our mobile business, thanks to La Poste Telecom's customer base and the vast distribution network of over 6,000 post office of La Poste Group; and second, the promising [Technical Difficulty] fixed commercial offers [Technical Difficulty] in September 2025. Since October 2025, new La Poste Mobile's customers have access to Bouygues Telecom's mobile network and can benefit from [Technical Difficulty] services such as 5G or [Technical Difficulty]. That being said, performance has remained this quarter, solid and fixed, as you can see on Slide 17. FTTH continued to experience strong growth with 371,000 new customers during the first 9 months [Technical Difficulty] third quarter. With a total of 4.6 million customers, FTTH customers represented 85% of our fixed customer base, up from 79% 1 year ago. This is the result of a wider FTTH [Technical Difficulty] combined with the excellent quality of our network and services. As we have already achieved a very high level of migrations from DSL to FTTH, we will certainly observe a logical slowdown in these migrations in the coming quarters. Please also note that the target of 40 million FTTH premises marketed have been reached more than 1 year ahead of schedule, which is also a very good achievement. You can also see that we had a total of 5.3 million fixed customers at end September 2025. This represents an increase of 184,000 customers in the 9 months, of which 79,000 in the third quarter. This good momentum is driven by both: first, B.iG and B&YOU Pure Fibre offers with customer satisfaction improving and churn lowering. And second, as I have already mentioned, the promising launch of the fixed commercial offers of La Poste Telecom in September 2025. The momentum remained also good on value with fixed ABPU up EUR 0.2 year-on-year at EUR 33.4 per client and per month. As you can see on Slide 18, the commercial performance was good in mobile in a mature and still competitive market. We observed ongoing positive effects of B.iG on customer satisfaction and churn, and continued growth of converged households and [Technical Difficulty] per household. At September 2025, Bouygues Telecom had 18.5 million mobile plan customers, excluding MtoM; thanks to 231,000 new customers in the first 9 months, of which 125,000 in third quarter. Mobile ABPU, including La Poste Telecom, was stable versus Q2 2025 at EUR 17.3 per client and per month. It reflects continued low pricing for new customers in the low-end segment and the dilutive effect of La Poste Telecom as expected. Let's have a look at the key figures on Slide 19. As a reminder, La Poste Telecom has been consolidated in Bouygues Telecom's financial statements since 1st November 2024. That being said, we achieved a 5% growth in sales billed to customer year-on-year, broadly stable, excluding La Poste Telecom. Total sales were up 4% year-on-year with 3% growth in other sales. EBITDA, after leases, was stable year-on-year at EUR 1,505 million. This stability is explained by an increase in sales billed to customers and ongoing efforts to control costs, compensated by second, higher energy costs due to the end of very favorable hedging conditions between 2020 and 2024. The current operating profit from activities was down EUR 94 million at EUR 509 million, reflecting the increase in G&A in line with our CapEx trajectory and of course, the higher energy costs I already mentioned. Last, you can notice that gross CapEx was EUR 1,036 million in 9 months 2025. I'll remind you that the CapEx are nonlinear over the year. Moving to Slide 20. Let me remind you Bouygues Telecom's 2025 targets. First, sales billed to customers, including La Poste Telecom, would be higher than in 2024. Second, sales billed to customers like-to-like, excluding La Poste Telecom, are expected to be close to the level of 2024. The figure will be either slightly higher or slightly slower, depending on the duration and intensity of the competitive pressure currently [Technical Difficulty]. Third, EBITDA after leases will be broadly stable compared to 2024. In 2025, Bouygues Telecom will no longer benefit from the very favorable low hedged energy prices arranged in 2020 and 2021. La Poste Telecom’'s contribution to EBITDA after leases will be limited in 2025, with the full effect expected from 2028. And last, gross capital expenditures, excluding frequencies, is expected at around EUR 1.5 billion, including [Technical Difficulty] expenditure related to -- for the migration of La Poste Telecom Mobile customers. Pascal, I now let you share a few words on TF1. Pascal Grangé: Thank you, Christian. Turning to Slide 22. Let's talk briefly about TF1's results, which were released on the 30th [Technical Difficulty]. First, the TF1 Group reinforced its audience leadership. Among them, the total audience share among women under 50 who are purchasing decision-makers was at 33.8%, up [Technical Difficulty] the total audience share among individuals aged 25 to 49 was at 30.7%, up 0.7 points. Second, in the 9 months 2025, [Technical Difficulty] were stable year-on-year. Media sales decreased by 1% year-on-year with advertising revenues down 2%, and the continued strong growth momentum for TF1+, up 41% year-on-year. Studio TF1 posted revenues up 11% year-on-year, including a EUR 25 million contribution from JPG. Third, COPA amounted to EUR 191 million, slightly down EUR 7 million, and COPA margin was at 11.9% in 9 months '25, down 0.5 points year-on-year. It includes a cost of program of EUR 662 million. The slight decrease versus the 9 months 2024 was due notably to the base effect related to the EURO 2024 football tournament. Please also note that there was a capital gain of EUR 17 million in relation with the disposal of My Little Paris and PlayTwo recorded in Q3 2025. As a reminder, in Q3 2024 [Technical Difficulty] had a capital gain of EUR 27 million in relation to the disposal of the Ushuaia brand license. Turning to Slide 23. I will end by saying that the TF1 Group confirmed the following targets. A strong double-digit revenue growth in digital. On the dividend side, aiming for a growing dividend policy in the coming years. After observing that domestic instability adversely impacted ad market in October, first indications are also below expectations in November visibility until year-end. As such, TF1 has adjusted its 2025 guidance for margin from activities to a level between 10.5% and 11.5%. Previously, TF1 Group was targeting a broadly stable margin from activities compared to 2024, which was 12.6%. Stéphane, I'm now going to -- Stéphane is now going to comment on the group's key financial figures. Stéphane Stoll: [Technical Difficulty] start with the P&L on Slide 25. We have already discussed 9 months sales and current operating profit from activities at the beginning of this call. I will thus focus on the bottom part of the P&L this morning. First, PPA was minus EUR 77 million, [Technical Difficulty] includes mainly EUR 35 million recorded at Bouygues SA level in relation to Equans, and EUR 26 million recorded at Bouygues Telecom level. Second, other operating income and expenses, which do not reflect operational activity were negative at minus EUR 151 million end of September 2025. This amount is largely due to, on the one hand, noncurrent charges in relation to the Equans management incentive plan, which represented EUR 66 million, an amount split between Equans and Bouygues SA. On the other hand, some provision recorded at Bouygues Construction and Colas, respectively, in relation to a change in regulation in U.K. and to recent developments relating to an international project at Colas Rail dating back to 2011. Third, financial result, which comprise [Technical Difficulty] cost of net debt, interest expense on lease obligation and other financial income and expenses stood at minus EUR 305 million, an amount close but a bit higher than to that of the 9 months of 2024. Fourth, a tax charge was recorded for EUR 443 million, higher than last year in relation to higher operational results. This amount excludes the EUR 71 million of exceptional income tax surcharge for large companies in France. Fifth, [Technical Difficulty] the tax surcharge on the net result attributable to the group was minus EUR 60 million, leading this result to reach EUR 675 million, down EUR 12 million versus last year. Excluding this tax surcharge, the net result attributable to the group [Technical Difficulty] have been up EUR 48 million this year, as already mentioned by Pascal. Let's now turn to Slide 26 to describe the net debt evolution between end of December 2024 and end of September 2025. As you can see, net debt increased by around EUR 1.6 billion since the end of 2024. This negative change is quite usual and related to the seasonality of our activities. The good news is that the magnitude of the increase in the net debt is significantly lower than that of last year, which was around EUR 2.2 billion. This increase includes, first, acquisitions net of disposals totaling minus EUR 118 million achieved at Colas, Equans, Bouygues Immobilier and TF1, as well as investment in joint ventures at Bouygues Telecom and purchase of TF1 shares. Second, capital transactions and other for EUR 155 million including largely exercise of stock option. Third, dividends for a total of EUR 864 million, including EUR 755 million from Bouygues' shareholder, the remaining part being almost entirely paid to Bouygues Telecom and TF1 minority shareholders. And last, minus EUR 725 million from operations that I will comment on the next slide. So turning to the change in net debt [Technical Difficulty] for the first 9 months of 2025 on this Slide 27, you can observe that it breaks down as follows. On the one hand, net cash flow, including lease expense stood at EUR 2.7 billion, an improvement of EUR 162 million compared to the first 9 months [Technical Difficulty]. And on the other hand, net CapEx was EUR 1.5 billion, a slightly lower amount compared to the first 9 months of 2024. As such, our free cash flow before working capital requirements was EUR 1.2 billion, [Technical Difficulty] higher versus last year. on the chart that the change in working capital requirements and other stood at minus EUR 1.9 billion, a usual negative change at this period of the year. I will now turn our attention to the group financial structure on Slide 28. You can see the group maintained a very high level of liquidity at EUR 14.4 billion, which comprised EUR 3.1 billion in cash and equivalents, and EUR 11.3 billion in undrawn medium- and long-term credit facilities. Both shareholders' equity and net debt improved significantly versus end of September 2024. As a result, net gearing reached 53% at end of September 2025, an improvement compared to 61% at end of September 2024. And you can see from the chart on the right-hand side that the debt maturity schedule is well spread over time. I remind you that our next bond redemption is in October 2026. Last, I want to highlight that the group benefits from the strong credit ratings. At Standard & Poor's, our rating is A-, and the outlook associated to this rating has been revised in September from negative to stable. At Moody's, our rating is A3 with a stable outlook. Pascal, I'm giving you back the floor for the conclusion. Pascal Grangé: Indeed, I will end this presentation on Slide 30 by saying that in a very uncertain global environment, the group's six business segments continued to prove their ability to keep pace with developments in their respective markets. They also pursues their efforts to improve profitability. [Technical Difficulty] we are targeting a slight increase in current operating profit from activities versus 2024. Second, [Technical Difficulty] we specified that group's 2025 sales are expected to be slightly up versus 2024 at constant exchange rates. And that given fluctuations in currencies, notably those related to the U.S. dollar, group sales as published are now expected to be close to the level of 2024. I'll remind you that previously, the group -- the Bouygues Group was targeting for 2025 a slight increase in sales and in current operating profit from activities versus 2024. Last, the effects on profit -- on the net profit attributable to the group of the French Finance law and the Social Security financing law [Technical Difficulty] first quarter of 2025, remain estimated to date at around EUR 100 million for 2025. We have finished our presentation, and we thank you for your attention. We are now with Stéphane and Christian ready to answer your questions. Operator, please open the floor for questions. Operator: [Operator Instructions] The next question comes from Carlos Caburrasi from Kepler Cheuvreux. Carlos Caburrasi: Just a quick one from my side. You're again upgrading Equans 2025 margin target, but your 2027 view remains unchanged. So I was wondering if there's anything here that we're missing or if it's likely that by 2027, the margin will be above 5%. And if you allow me, hypothetically, where do you see Equans' margin by 2030? Does 6%, 7% seem a reasonable assumption? Stéphane Stoll: Well, we -- nothing changed since our last publication. We are indeed very pleased that Equans is moving down to 4.3% this year. We confirm that our target for now for 2027 margin [Technical Difficulty] at 5% as per our guidance from -- dating back from Capital Market Day in 2023. We are confident that we will be able to achieve this 5% margin. For now, we don't want to communicate anything else. And as to your question to the 2030 margin at Equans, let me simply state as we already stated in our last publication, that we see no reason why Equans would not be capable of achieving margins which [Technical Difficulty] are close or similar to the one that's our aim, mid long term. So that's what I can answer to your two questions. Operator: The next question comes from Mathieu Robilliard from Barclays. Mathieu Robilliard: I had a few questions. First, if I may ask, I mean you made an offer, along with other players for Altice assets. Yes, the offer was refused. You didn't change your beat. I just wanted to check if you could confirm you're still in discussion with Altice at the moment? The second one was on taxes. You flagged the impact of the change in the corporate tax in 2025, there's no discussions in the French Parliament, but 2026 would be about the same. So obviously, this has not been finalized and a lot of things can still change. But in principle, if the current proposal was to be passed, does it mean that the corporate tax that you pay in 2026 would be similar to the impact you saw in 2025 about EUR 100 million? And lastly, on telecoms, I had a question about the ARPU. So Christian, you mentioned that the ARPU including La Poste, it's flat quarter-on-quarter. I was wondering if we look at ARPU, excluding La Poste, what was the trend in Q3 compared to Q2? Is it getting a bit worse? Is it stabilizing? Obviously, it's a very competitive environment, but any color in terms of the more recent trends would be great. Pascal Grangé: First, I will answer to the question related to taxes. In fact, if the current law was to be passed this year, we will have an additional impact this year related to the -- that this additional tax is based on level of tax [Technical Difficulty] this year. So we will have to renew a new charge of around approximately EUR 40 million to EUR 50 million this year. I mean [Technical Difficulty] we have the remaining part. Overall, it will be a bit lower because -- overall the second part of this additional tax will be paid in 2026. Stéphane Stoll: Okay. On the Altice situation, as you rightly mentioned, we -- and as you know, we submitted a joint offer on October 14. And then as you know, this offer was promptly rejected by Altice on the next day. So for now, to be honest, we are not in discussion. We are hopeful that we are capable of entering into [Technical Difficulty] in the coming weeks. Since we believe that this EUR 17 billion offer that we submitted to be quite attractive for at least two major reasons: it offers a valuation of significantly more than EUR 21 billion for Altice, taking into account the valuation of the assets, which are not part of our proposal, such as XP Fibre. It thus represents a significant premium compared to the value estimated by brokers. As you know, some EUR 17 billion increase [Technical Difficulty] synergies leads to an attractive equity value for Altice shareholders. And on the -- we also believe it's an attractive offer because it provides a global solution for most of Altice France assets. So I believe -- we believe it represents a credible [Technical Difficulty] very lengthy and highly uncertain. So we are not in discussion for now, but we are still hopeful that we will be capable of entering such discussion into the near future. Christian Lecoq: Regarding mobile ABPU, mobile ABPU for Bouygues Telecom excluding La Poste Telecom, was at EUR 18.4, so plus EUR 0.1 compared to Q2, 2025. You can find all the figures at the end of the presentation in the annex on the website. I'll just remind you that usually in Q3, ABPU is better or higher because of roaming impact. We have positive roaming impact in Q4. Operator: The next question comes from Rohit Modi from Citi. Rohit Modi: I've got two basically. Firstly, on your guidance -- full year guidance. I understand the revenue guidance, flat revenue guidance would imply a decline -- kind of decline in revenue in 4Q, but your COPA guidance, slight increase still leaves some room for a decline or upside. I mean, if you can directionally guide us how we should see COPA, whether it's declining, flat or continue to increase in 4Q. That would be great. Second question is, again, sorry, on consolidation. Just trying to understand what happens in a no-deal scenario. How do you see -- are there any assets that can still go ahead and buy from SFR without having the consortium going for a joint bid? And how do you see the market if there is a no deal? Is that getting worse from here? Or you see the same kind of conditions? Stéphane Stoll: Okay. On your first question regarding the full year guidance, what we can simply say for the Q4 2025 COPA, of course, this quarter is not [Technical Difficulty] So it's difficult to answer. But I'll remind you that Q4 2024 COPA was EUR 816 million and Q4 2025 COPA would probably in the same order of magnitude than this Q4 2024. Pascal Grangé: Please, I'll remind you that, in fact, there is no -- we have some exchange rate effects, but this exchange rate effects does not affect our profitability, in fact, because, in fact, we are very local. So [Technical Difficulty] our expenses are in the same current -- the currency of our revenues. So there is no ForEx significant impact, I mean. Stéphane Stoll: On the consolidation and the no-deal scenario, [Technical Difficulty] this is still possibility. So what will change the market will remain as it is today with four competitors, and we believe that Bouygues Telecom will be capable of delivering its continued [Technical Difficulty] it's current state and delivering results in line with the strategy. So nothing more specific to comment, I believe, on this specific topic. Rohit Modi: And will there be any other effect that in case there is no group deal you can still buy from SFR that SFR will be willing to sell? Stéphane Stoll: For now, our consortium stands, our offer was confirmed. We are hopeful that we are -- we'll be still capable of entering into construction discussion with Altice in the coming weeks. It's -- we believe this deal to be of interest for all stakeholders. And so we are hopeful that we will be able at some point in time to convince Altice to change its mind. Operator: [Operator Instructions] The next question comes from Mollie Witcombe from Goldman Sachs. Mollie Witcombe: Just a couple of questions from me, please. Firstly, I'm just wondering how you're thinking about group capital allocation and shareholder remuneration in the context of the French offer. How long do you wait before looking to pursue potential other options in other businesses? Are you still looking at potential M&A options in other businesses even as this is kind of ticking along in the background? And then my second question is just on Equans top line trends. You have talked about the connection to the slowdown in data centers, et cetera. I'm just wondering, do you feel that this is more industry-wide? Is there a kind of reason why Equans in particular, is seeing this trend? And how you're thinking about it going into next year? Should we expect this to continue into kind of H1 and beyond? Or how should we think about this in the midterm? Pascal Grangé: I will answer your first question. In fact, you have seen that our financial structure is very strong and the idea of maintaining a very strong financial structure is to be able to deliver [Technical Difficulty] all our business lines. And so we have obviously this important project of consolidation of the telecom market in France. But in the meantime, we are studying and we are working on some M&A for the other business lines. There is no relationship of these different of -- the development of all business lines is independent of what we do on SFR. So [Technical Difficulty] and we have some [Technical Difficulty] either in construction, in Equans, in Colas, no issue in that respect. Stéphane Stoll: As you know, we communicated on a significant acquisition that we are pursuing in the U.S. for Colas. And as I mentioned, we [Technical Difficulty] secured Q3 quarter at Equans for bolt-on acquisitions in Germany, Austria, Italy and the U.S. So confirming the strategy of bolt-on acquisition that we presented back in 2023. On trends, we certainly believe that the temporary slowdown that I mentioned on the data centers in Europe and the EV battery gigafactory [Technical Difficulty] is definitely industry-wide specific to Equans. Having said that, we still believe that fundamentally, the markets on which Equans operates are strong and will provide interesting development opportunities. So we do not expect any further significant slowdown for now. And so that -- we believe that Equans is on a continued path. We mentioned and we confirm that we expect to -- we expect Equans to get close to its peers in terms also of organic growth. [Technical Difficulty] the plan, and we are not worried at all for next year. Equans markets are resilient. We are at the heart of three long-lasting transition, energy transition, industry transition, digital transition, and that will not change. Operator: The next question comes from Eric Ravary from CIC. Eric Ravary: Two from my side. First one is on Bouygues Construction, it's very strong COPA figure in Q3. Could you give us any comment on this performance? Is it linked to one specific project? And second question is on Equans. Could you give us the share of data centers and gigafactories in the order intake in the 2024 to assess what is a decrease of all of the order intake in '25? Pascal Grangé: First, I will answer on Bouygues Construction. In fact, our aim for -- there is a Bouygues Construction cycle in projects, which are huge projects and the profitability could vary from 1 year to the other. But there is no very specific items this year, explaining the improvement of the profitability. We have a strategic plan in order to have Bouygues Construction raising profitability to 3% to 3.5%. So we are in that range, and this is due to that strategic plan. But no very specific reason. It's a good performance for Bouygues Construction for Equans. Stéphane Stoll: On the gigafactories, as you know, just to answer your -- I don't have precise numbers available, but just gigafactories in Europe with the failure of Northvolt last year, the market is at a halt. So we don't have any significant order intake this year on this specific market, which explains the slowdown that we mentioned. And on the data center business, what we can say in general numbers is that we -- the order of magnitude of our revenues in this business is -- will be this year around EUR 800 million, and it's down more or less EUR 150 million year-to-year. Having said that, we believe we see a very positive trend this time in terms of order intake in data centers in the U.S. While the market is slow in Europe, this might change in the coming months, but it is quite strong in the U.S. and we were able to secure first project in U.S. and in Canada. And this will spell strong revenues next year in this business in the U.S. and Canada. Overall, we are not concerned by the trends, mid-term trends, especially in data center, whether in Europe or in the U.S. Of course, gigafactories, this remains probably -- will remain a slow market next year. Operator: The next question comes from Stéphane Beyazian from ODDO BHF. Stéphane Beyazian: Yes. I was wondering if you set -- if you have set yourself a deadline for getting to an agreement on the Altice bid or basically talks could resume whenever could be 1 month, in 3 months or in 6 months. Second question, I was also wondering how important infrastructure assets of SFR are in your offer. According to the press, Altice is considering to sell some of its infrastructure assets. And I was wondering if such a sale would make a deal easier or more difficulty in the future. Christian Lecoq: So regarding your second question, we share with two kinds of networks. The first one is the mobile network in medium dense area. I understood what I read in the press that the mobile network is not concerned by the willingness of SFR to sell some part of its network. The [Technical Difficulty] kind of network is the fiber network [Technical Difficulty] the horizontal part of the network. It's quite a small network and is not a problem for us if this network belongs to someone else. So no problem for... Stéphane Stoll: And on the time line for now, we don't have any specific time line in mind, and it's whenever it will happen indeed, so. Operator: There are no more questions at this time. So I hand the conference back to the speakers for any closing comments. Pascal Grangé: Thank you for joining us today. We'll be announcing full year 2025 results on 26th of February 2026. Should you have any question, please contact our Investor Relations team [Technical Difficulty] contacting for the press release and on our website. Thank you.
Operator: Hello, and welcome to the Royal Vopak Third Quarter 2025 Update. [Operator Instructions] This call is being recorded. I'm pleased to present Fatjona Topciu, Head of Investor Relations. Please go ahead with your meeting. Fatjona Topciu: Good morning, everyone, and welcome to our Q3 2025 results analyst call. My name is Fatjona Topciu, Head of IR. Our CEO, Dick Richelle; and CFO, Michiel Gilsing, will guide you through our latest results. We will refer to the Q3 2025 analyst presentation, which you can follow on screen and download from our website. After the presentation, we will have the opportunity for Q&A. A replay of the webcast will be made available on our website as well. Before we start, I would like to refer to the disclaimer content of the forward-looking statements, which you are familiar with. I would like to remind you that we may make forward-looking statements during the presentation, which involve certain risks and uncertainties. Accordingly, this is applicable to the entire call, including the answers provided to questions during the Q&A. And with that, I would like to hand over the call to Dick. D.J.M. Richelle: Thank you very much, Fatjona, and good morning to all of you. Thanks for joining us in the call this morning. Let's start with the key priorities of our strategy framework towards 2030. We continue to focus on improving the performance of our existing portfolio. This includes both our sustainability efforts and our financial results with an operating cash return target for the portfolio of above 13% throughout the cycle. As part of our grow and accelerate strategic pillars, we continue to invest in attractive opportunities in the market with a total proportional investment ambition of EUR 4 billion by 2030. Our Improve, Grow, Accelerate strategy underpins our well-diversified and resilient portfolio and provides a solid foundation to continuing to deliver value to all our stakeholders. Moving to the key highlights for the first 9 months of this year. Let's first start on the improved side. Year-to-date, demand for our services remained healthy across the entire portfolio, and that resulted in a proportional occupancy rate of 91% with continued high satisfaction from our customers. We reported strong financial performance, growing our proportional EBITDA to EUR 902 million and an operating cash return of 16.2%. At the same time, our proportional operating free cash flow per share increased by 4.3% year-on-year to EUR 5.56, demonstrating our strong cash generation. Supported by a resilient portfolio and business performance offsetting around EUR 30 million of negative currency translation impact compared to last year, we confirm our full year proportional EBITDA outlook in the range of EUR 1.17 billion to EUR 1.2 billion. We're making good progress in growing our gas and industrial footprint. We invest in additional throughput capacity at the REEF terminal in West Canada, while at the same time, we're making good progress in the terminal constructing together with our partner, AltaGas. In China, we're strengthening our industrial position with the expansion of 2 industrial terminals in Caojing and in Haiteng. We're expanding LNG infrastructure in Colombia at SPEC terminal. And in India, our joint venture, AVTL, announced the development of a greenfield LPG import terminal in Mumbai, including a bottling plant and storage for liquid products as well. AVTL also acquired 75% of LPG Hindustan terminal in Haldia. We're pleased to see the developments at multiple locations in the fast-growing Indian market. So far, since we announced our ambition to grow in gas and industrial terminals globally, we've committed EUR 1.6 billion. So now let's move to accelerate investments for the energy transition infrastructure. In Oman, we signed a joint venture agreement with OQ to develop and operate energy storage and terminal infrastructure. With our partner, we look forward to developing infrastructure at the strategic location of Duqm and jointly supporting sustainable industrial growth. The investment in Malaysia related to low carbon fuels is progressing, and we look forward to start construction early 2026. So far, since we announced our growth program for Accelerate, we've committed EUR 256 million in energy transition infrastructure. Now looking at our financial performance for the different terminal types we operate. We see an overall strong performance with higher results compared to the same period last year. Gas markets were stable with our terminals being supported by long-term contracts, mainly due to some planned out-of-service capacity, a positive one-off last year and the temporary challenges at EemsEnergyTerminal, the results of the gas segment went down on a year-to-year basis. In the Industrial segment, growth is contributing. And together with the one-off in the second quarter, we see 15% increase in this attractive and strategic segment on a year-to-year basis. Chemical markets remain weak, while our terminals continue to perform relatively stable despite some locations seeing lower occupancy rates. Energy markets, which we serve with our oil terminals continue to see strong demand, especially in the hubs like Rotterdam and Singapore. All in all, this has led to an increased proportional EBITDA of EUR 902 million and a strong operating cash return of 16.2% for the first 9 months of 2025. To mention some highlights in our strategic pillar of improve, we are pleased to see an expansion commissioned at our inland Lesedi terminal in South Africa, where we increased our terminal capacity by 40%, supporting the region with distribution of clean petroleum fuels. In Spain, our joint venture divested the Barcelona terminal, which was storing petroleum, chemical and vegetable oil products. And in a continued effort to improve our sustainability performance, we invest in a sustainable heating system at our Vlissingen terminal in the Netherlands, significantly reducing the emissions and decreasing operating costs. Now let's move to the growth investments to start with an update on this year's proportional growth CapEx spend. Year-to-date, we spent EUR 447 million on growth, and we expect this number to be around EUR 700 million for the full year, a significant increase from 2024. This figure reflects our share of investments, but not our equity contribution. Since the start of our Improve, Grow and Accelerate strategy, we've committed a total of EUR 1.9 billion. EUR 502 million of this EUR 1.9 billion has been committed since the beginning of this year. We're well underway to invest EUR 4 billion towards 2030, which we aim to allocate in opportunities that meet our investment criteria. On this slide, we highlight the investment commitments that we've taken during the third quarter. We're investing around the world with a total proportional investment commitment of EUR 188 million only this quarter. We're progressing on our LPG terminal in Canada and building a new terminal in India. In Colombia, LNG regasification capacity is expanded at SPEC terminal. And in China, our leading industrial position is strengthened with expansions in Caojing and Haiteng. All these investments around the world will do together with partners. Now let's take a closer look at the REEF terminal in West Canada. Construction work is progressing well, and the project is on track to be commissioned at the end of 2026 within budget. We're investing an additional EUR 34 million to increase the throughput capacity of the terminal, leveraging the common infrastructure of the terminal such as the constructed jetty. This additional throughput capacity will become available in the second half of 2027. In the meantime, we will continue to investigate together with our partner, AltaGas, potential optimizations of the terminal and a next phase of expansions. In Colombia, our SPEC terminal plays an important role in ensuring local energy security. With an investment of EUR 25 million, the regasification capacity will be expanded by 33%. This additional capacity will diversify SPEC business offering to new industrial customers and get connected to the country's gas grid. This investment is backed by long-term contracts and will deliver attractive operating cash returns upon completion. We're delivering on growth with multiple expansions at existing and new locations, and our capability to deliver will ensure project execution in the coming -- in the years to come, with multiple key investments coming online that will support future growth. We're on track to have both REEF and the fourth tank at Gate commissioned by the end of 2026. And further down the line, multiple expansions and new terminals will follow, supporting long-term stable and growing returns. To wrap it up, we presented strong results this quarter, supported by a healthy demand for infrastructure and leading to an operating cash return of 16.2% year-to-date. We continue to deliver growth with our key growth projects on track and new expansions announced. And we're pleased to confirm our outlook despite a negative currency translation effect of EUR 30 million. With that, I'd like to hand it over to Michiel to give more details on the year-to-date and third quarter numbers. Michiel Gilsing: Thank you, Dick. And also from my side, good morning to all of you. In the third quarter, we saw continued strong performance from our resilient portfolio. Our proportional operating free cash flow per share has increased by 4.3% year-on-year, driven by continued high demand for our storage infrastructure, increased EBITDA and our share buyback programs. These results highlight the strength of our well-diversified portfolio, particularly in times of increased uncertainty and volatility. Simultaneously, we continue to ramp up our investments in attractive and accretive growth projects while returning value to our shareholders. Let's take a closer look at the performance of the portfolio during the third quarter of this year. I would like to start with a reminder that in the second quarter of this year, we reported a one-off EUR 22 million, which was related to a commercial resolution in our Asia and Middle East business unit. This needs to be considered when comparing the third quarter with the second quarter results on a proportional revenue and EBITDA level. The proportional occupancy in Q3 was 90.3%. This decrease compared to Q2 is mainly related to a temporary impact caused by the timing of some contract renewal. We recorded proportional revenues of EUR 467 million during Q3. Excluding the one-off, on an autonomous basis, the lower occupancy was offset by improved pricing, leading to an increase in revenues. Proportional EBITDA in Q3 decreased to EUR 287 million, again caused by the one-off in Q2. On an autonomous basis, EBITDA increased by 0.4% quarter-on-quarter, indicating strong performance of our existing operating assets. And finally, our cash flow generation remains strong, which we will highlight in detail later in this presentation. As mentioned, the translation effect of foreign currencies remains a headwind to our results. If we look at the proportional EBITDA split by currency, we can see that 27% of our EBITDA is generated in euro, which means that for the remainder of the EBITDA, we face translation risks in our P&L. Comparing our results on a constant currency basis, we can clearly see that our results this year have been strong. Also, it provides additional context for our Q3 performance. Excluding one-off in the second quarter, our performance in Q3 was in line with Q2 and above Q1. Back to our global network. This slide provides a more detailed breakdown of the proportional EBITDA generated by our business units in the different regions. Excluding negative currency exchange effects of EUR 18 million and EUR 2 million divestment impact, proportional EBITDA increased by 3.2% versus year-to-date 2024. A large part of this growth can be explained by the strong contribution of EUR 17 million from our growth projects, particularly in China and the Netherlands. Additionally, we saw particularly strong performance from our Asia and Middle East business unit, which is primarily driven by the result of a commercial resolution in the second quarter. Across the remaining business units, the performance was relatively stable with some weakness in the Netherlands related to the out-of-service capacity and the temporary challenges in EemsEnergyTerminal, for which we are pleased that a technical solution has been identified and is expected to be completed by early next year, while the terminal remains fully operational. Moving on to the cash flow generation. We are continuously focused on generating predictable growing cash flows to create shareholder value for our shareholders. We achieved this by growing our revenues while maintaining high EBITDA margins and strong EBITDA to cash conversion. Despite a strong currency headwind, we saw slightly higher proportional revenues year-on-year. Since costs were stable, our proportional EBITDA margin improved by 20 basis points. The cash conversion of our portfolio, which indicates the portion of EBITDA that is converted into proportional cash flow slightly decreased to 71.4% due to an increase of operating CapEx. The proportional operating free cash flow per share increased by 4.3%, driven primarily by the reduced share count following our share buyback programs in '24 and '25. Finally, we realized a stable operating cash flow return of 16.2%, well above our long-term target of 13%. Q4 is characterized by higher operating CapEx spend, hence, operating cash return for the full year is expected to be in line with the prior year. Moving on from proportional figures to consolidated figures. We get a good picture of the cash flow that becomes available for capital allocation at the holding level. Our cash flow from operations, which includes upstream dividends from our joint ventures remains strong, showing a 2% year-on-year increase. After deducting operating CapEx and IFRS 16 lease payments from the CFFO, we arrive at a consolidated operating free cash flow of EUR 557 million, equivalent to EUR 4.82 per share. Factoring in the increase in net debt and all finance and tax-related cash flows, we arrive at free cash flow of EUR 618 million. This represents the available cash that we can strategically allocate to pay dividend, to invest in growth or to buy back our own shares. In the first 9 months of the year, we have used roughly half of our available cash flow to distribute value to shareholders. As we have completed our share buyback program for the year and paid our annual dividend, cash available in the fourth quarter will be primarily used for growth investments. This all in line with our long-term capital allocation policy that aims to deliver value to our shareholders while pursuing growth opportunities at the same time. Our capital allocation framework consists of 4 distinct pillars, aiming to maintain a robust balance sheet, distribute value to shareholders, invest in attractive growth opportunities and yearly evaluate share buyback programs. In the next part of the presentation, I will briefly highlight the developments on our key capital allocation achievements. Starting at our first priority, the balance sheet. Proportional leverage, which reflects the economic share of the joint venture debt versus the part of the EBITDA of the joint ventures decreased slightly to 2.56x compared to the end of 2024 when it was at 2.67x. If we exclude the impact of assets under construction, which do not contribute yet to the EBITDA, proportional leverage is at 2.12x, which is the lowest level in the last 5 years. Our ambition for the proportional leverage range is between 2.5 and 3x. To facilitate the development of growth opportunities that enhance cash return, Vopak's proportional leverage may temporarily fluctuate between 3 and 3.5 during the construction period, which can last 2 to 3 years. Additionally, we maintain control of our financing expenses by limiting the exposure to volatility in interest rates. We achieved this by borrowing predominantly at fixed rates, around 80%. As mentioned, we have the long-term ambition to generate reliable and attractive returns for our shareholders. This is why we increased our dividend per share by 6.7% to EUR 1.60 in 2025, adding to our long track record of annual dividend distributions. On top of that, we updated our capital allocation policy to include share buyback programs. Over the last 2 years, we have successfully completed 2 programs with a total value of EUR 400 million and as a result, decreasing our share count by 8.3%. Considering both the dividends paid and the share buyback programs, we have offered an average shareholder yield of 8.1% in the period '24, '25. Investing in growth opportunities is an important part of our capital allocation policy. As highlighted during our recent Capital Markets Day in March, we have the ambition to invest EUR 4 billion on a proportional basis by 2030 to grow our base in gas and industrial terminals and to accelerate towards energy and transition infrastructure. At this point, we have already committed around EUR 1.9 billion to growth investments since 2022, of which EUR 526 million has been commissioned and is contributing to our results. And as you can see in the graph, we are ramping up our investments significantly this year with expected proportional growth CapEx of around EUR 700 million. We continue to see attractive growth opportunities in the market that we will pursue in order to grow the cash generation of our portfolio. Our ambition remains unchanged to actively support our customers with infrastructure for the ongoing energy transition and to invest when opportunities arise at returns in line with our portfolio ambition. We see this as an opportunity to invest rather than a target to spend. In India, our joint venture, AVTL, announced an investment in a greenfield terminal at the JPNA port in Mumbai. This terminal with capacity for LPG storage, a bottling plant and capacity for liquid storage is a strategic investment serving the fast-developing Hinterland. The investment, of which EUR 70 million is Vopak's share is funded by the proceeds from the listing and is expected to be commissioned in phases starting mid-2026. Also, AVTL acquired 75% of the Hindustan LPG terminal for a total amount of EUR 100 million, which is equal to a proportional investment of EUR 42 million for Vopak. Upon the closing of the transaction, our share in this terminal will effectively rise to 31.67% from the 24% we own currently. On the Vopak holding level, we expect a cash in of EUR 32 million following the closing of the transaction. The acquisition will allow AVTL to expand its business at the Haldia location in LPG storage. For Vopak, this is another showcase on how we create and unlock value for our shareholders while optimizing our joint venture structure and controlling the cash flow at the holding level. That brings me to the full year outlook of 2025. We confirm our financial outlook with a proportional EBITDA range of EUR 1.17 billion to EUR 1.2 billion, subject to market uncertainty and currency exchange movements. We expect proportional operating CapEx of below EUR 300 million and proportional growth CapEx of around EUR 700 million for 2025. For the longer term, our ambition remains unchanged. We aim to invest EUR 4 billion proportional growth CapEx in industrial, gas and energy transition infrastructure by 2030, while generating at least 13% operating cash return from the portfolio. Our ambition, as mentioned, for the proportional leverage range is between 2.5 and 3x. Bringing it all together in this slide, we had a strong Q3 performance and delivered on our financial performance with a healthy occupancy rate and a record high proportional EBITDA for the first 9 months of the year. With regards to our growth ambition, we are well on track to invest EUR 4 billion proportional growth CapEx by 2030. We remain committed to capture opportunities to grow in industrial and gas terminals and accelerate towards infrastructure for the energy transition. Our well-diversified portfolio caters for uncertainty and volatility in the market. As a result of that, we are confirming our outlook. These factors, combined with a strong capital allocation framework create value to our shareholders, leading to an increase of free cash flow per share of 4.3% compared to last year. This concludes my remarks in the presentation, and I would like to hand back to Dick for the Q&A. D.J.M. Richelle: Thank you, Michiel. With that, I'd like to ask the operator to please open the line for question and answers. Operator: [Operator Instructions] And now we're going to take our first question, and it comes from the line of Kristof Samoy from KBC Securities. Kristof Samoy: I will start with 2. Can you elaborate a little bit on the contract renewals that you commented on during the presentation and the impact it had on occupancy rates and how you see that picking up again in the fourth quarter? And then as a general remark, it's more of a, let's say, a strategic question. What's the impact that you see on your industry of the potential for a Power of Siberia Gas Line 2? And what could the potential impact be on your ongoing business development activities? These are my first 2 questions. D.J.M. Richelle: Can you maybe before we answer, maybe repeat the second question? We couldn't quite hear it. The impact of what? Kristof Samoy: The Power of Siberia, the gas pipeline between Russia and China. D.J.M. Richelle: Okay. Yes. Okay. Well, maybe if I start with the contract renewals, that's basically in Fujairah and in Rotterdam. So it's oil storage, where we are like rolling over a contract from one party to the other. So it's a temporary occupancy consequence, as you see. And we have -- we're in the process now of rolling it over to new contracts. So that should happen in Q4 and the beginning of 2026. So fundamentally, it's not something that we're concerned about. Then maybe to the impact of the power line or the LNG connection between Russia and China. I think the way we look at it is if you consider of the main infrastructure that we have on LNG today in Western Europe, that's basically Gate and EemsEnergyTerminal. They are already fully dependent on the LNG imports that are coming from countries other than coming from Russia. So I don't think that has a big impact. I think we look still very comfortable and positive towards the medium- to long-term outlook for that infrastructure. And with what's happening between Russia directly and China is not having a major impact or not expected to have any impact on our plans for LNG in the different parts. As you can see in Colombia, as you can see with the plans that we have and the developments going on in Australia, in Pakistan, they're all kind of like individual market dynamics that we understand well and have no impact from the developments that you're describing. Operator: Now we take our next question -- and it comes from the line of David Kerstens from Jefferies. David Kerstens: I've got 2 questions, please. I think you highlighted in the press release that the -- or in the presentation that the impact of the lower occupancy was offset by better pricing and higher throughput revenues. Can you indicate where in the portfolio you see this higher pricing and where throughput revenue increases? And then also the second question, I think the contribution from growth projects on proportional EBITDA increased to EUR 17 million year-to-date, I think, versus EUR 9 million in the first half of the year. How do you expect this figure to develop for the remainder of the year and for 2026 and 2027, given that the project pipeline is now nicely building up. And I think in the past, you used to give a rough ballpark number what you expect from growth projects on EBITDA. Those are my 2 questions. D.J.M. Richelle: Yes. Thanks, David. I'll take the first one, and I'll leave Michiel to do the second one. So on the first one on the better pricing and throughput, that's mainly in the main oil terminals. We see that we still have quite a bit of an opportunity to do our pricing quite well. If you look at particular throughput levels, we've seen some additional throughput in the Vlissingen terminal because we've added actually more capacity in Vlissingen. And you also see that AVTL has seen a bit more throughput in this last quarter. So by and large, I think positive developments in that area. But I think the main one that stands out, although not to be exaggerated, but I think the one that stands out is still some power that we have on the oil side in the hub locations, mainly. David Kerstens: Pricing power, yes. D.J.M. Richelle: Yes. Operator: Now we're going to take our next question. Michiel Gilsing: Next question is on the proportional EBITDA contribution of growth projects. So indeed, the first 3 quarters were around EUR 17 million. So for the last quarter, you may expect another close to EUR 10 million contribution. Operator: And now we're going to take the question from Jeremy Kincaid from Van Lanschot Kempen. Jeremy Kincaid: I have 2 questions. Firstly, on Australia, you obviously announced that you've entered into an exclusive agreement with Seapeak. I was just wondering if you could provide an update on the potential time line going forward for that project. And in particular, I know regulatory approvals are important there. So an update on the time line would be helpful. And then secondly, Michiel, you said that the Asian and Middle East business was stronger this quarter due to a commercial resolution. Are you able to provide a little bit of color as to what that was? D.J.M. Richelle: Sure. Jeremy, maybe on Australia, to start off with, the project is developing well, as we indicate. We have a really good team in place and everything lined up to actually move forward with the permit application that is being prepared at this moment. That is, as you rightfully indicate, a lengthy and a very -- I wouldn't say lengthy, but a diligent process in that part of Australia, and we go through that. So the time line, but that obviously is subject to how the permit process is developing. The time line we expect towards the end of 2026 to have more clarity on this and to be able to hopefully move forward with the project at that time. But as I said, that depends a bit on how some of the developments on the permit are moving ahead. I think the attractiveness of the project for us is because of the location that we found for our import facility. We get good support both from the government and from all the interested parties in Australia. So we have good hopes that this project will move forward. But obviously, we have to move diligently through the approval and the permitting processes, which is happening at this moment. So happy to continue to update you in the following quarters. Michiel Gilsing: Yes. Jeremy, on the commercial resolution, effectively, that took place in Q2. So it was announced in Q2 as well. So it wasn't in Q3, but it had to do with the commercial settlement of a significant contract we have in that region in Malaysia. And as a result, we had a one-off gain of EUR 22 million. So that's effectively what happened. I can't give you all the details of this, but it's a one-off. It's a good commercial settlement, and it impacted Q2 positively. But as a result, Q3 looks weaker than Q2. Operator: Now we are going to take our next question and it comes from the line of Berkelder from AAOB. Thijs Berkelder: Thijs Berkelder, ABN AMRO ODDO BHF. I have a question on your growth CapEx. You're guiding for EUR 700 million proportional growth CapEx. What is the guidance on consolidated growth CapEx just for the modeling? The second question is on leverage. Looking at your share price, it also is clear to you probably that European investors simply want to eliminate their own economy and prefer share buybacks far over long-term strong growth CapEx plans. So looking at your leverage being at the low end of the range, what are you expecting for year-end? And is it logical to assume that the new share buyback announcement will come in? Finally, apart from Australia, can you maybe give an update on your growth projects in South Africa, in EemsEnergy and in battery storage Netherlands? Michiel Gilsing: Yes, on the -- let me start with the second question because the first question, I don't know by the top of my head, to be honest. So we need to see whether we can find a number and whether we're able to disclose it. Then on the leverage and the share buyback, yes, obviously, we prefer to grow the company because we think that the EBITDA multiples, which we can realize on the growth projects are still quite attractive. Obviously, if you look at the trading multiple of the company is historically quite low at the moment. So that still makes it attractive to do share buybacks, but growth is still prioritized over share buybacks. But definitely, we will -- like we have done in the last 2 years, yes, we will always have a positive look at the share buyback if there is room to do it. We're going through our budget process in the coming months, update our long-term financials, see what the available room is. Obviously, a lower leverage helps us there. So that's the guidance I can give at the moment, Thijs. And on the consolidated growth CapEx, it is going to be somewhere around EUR 300 million to EUR 350 million. D.J.M. Richelle: And then maybe, Thijs, on the last question, so update on South Africa, on Eems, on batteries. In terms of projects South Africa LNG fundamentals still continue to look very attractive. I think time lines is something that have to be watched given the fact that in order to build a power plant that the LNG would support or would basically supply into needs to get also the permit and we've seen that there's some delay on the permit process of the power plant. So that's what we continue to follow. Again, fundamentals still look attractive. The role that we can play looks very attractive. We need to work through these topics. I think that's on South Africa. On Eems, as we say, happy that we have the compressors identified and being put into motion to have 2026 onwards, at least the technical challenge, the temporary technical challenge solved as we indicated. And I think we're going through the renewal process for Eems at the end of 2027, and that's an ongoing process. And the third one was on batteries for the Netherlands. As we've indicated before, we have a few -- 2 to be specific battery positions that we are currently developing. That's in the Netherlands. We also have a few in Belgium, and we're developing all of them individually in the course of our normal project development funnel, expecting the first investment, if everything moves in the right direction, somewhere in the course of 2026. That's the idea. So we continue to develop this field. There are opportunities, the role that we can play. We're actually confirming the attractiveness. And let's see how the development cycle plays out and how big this can become for us. Thijs Berkelder: Maybe one additional question on growth CapEx. Are you also looking at acquisitive investments such as New Fortress has assets for sale. Is Vopak interested there? Or are you in talks on other acquisitive moves? D.J.M. Richelle: If we were, this would probably not be the right moment to share that with you. We're always looking at a lot of opportunities, Thijs. There's a lot of people that there that we get from people that have great ideas on what potentially could be done. And I think as long as it makes strategic sense for us as a company, we will definitely consider those and that could be in, I would say, the so-called more traditional space of our business, and it could also be in a little bit more adventurous pieces. But that could also, for instance, be on the battery space. We continue to keep our eyes wide open and make the right moves as we think we can get there. Operator: And the question comes from the line of Dirk Verbiesen from ING. Dirk Verbiesen: I also have some questions. Maybe I'll start on the, let's say, the cost restructuring program, the ongoing program. What are your expectations for Q4? And is this, let's say, a program to counter maybe inflationary pressures on an ongoing basis? Or should we see some benefits structurally visible in EBITDA, let's say, as from 2026? That's my first question. Second question I have is on Eems. And the announcement on Exmar and the floating gasification facility. Let's say, what is the -- maybe to get an idea on the size and scale of your commitments in this future prospect. Maybe you can share some there. And then on Oman, it is positioned in Accelerate as a potential project. But I also read that there are traditional energy flows as well. So maybe some clarification there on what the actual mix may look like and also in terms of timing on firm commitments, FIDs and so on from your side? Michiel Gilsing: Yes. Let me start with the first question and then hand it over to Dick for EemsEnergy and the Oman question. Yes, on the cost restructuring, indeed, we have quite a bit of a cost focus, didn't start this year, but already 1.5 years ago, we took out one layer in the organization. So we have reduced the number of layers in the company. So basically, every business unit, which originally reported to the division and then the division to the Executive Board, every business unit now reports to either Dick or myself. So that is a benefit where we like to control, let's say, the support functions of the business. Presently, we're in the process of looking at the global office, and we expect -- while you can -- we see it already in the monthly results that the cost is coming down of the global office, and that's going to continue in 2026. So those will be structural benefits, and we're also looking at our IT organization because we have commissioned most of our own systems on terminals where we would like to commission it. So IT department goes into a different phase. That's where we carefully look at the cash out of IT, which should also lead to structural benefits and more from 2026 because that program still has to be sort of designed. And then we have all kind of business initiatives to indeed keep the cost under control, energy management, making sure that we are smart in operating CapEx, carefully look at the way we build our projects, so to really look at each and every angle to improve the business. Part of that is maybe to cope with inflation pressure. But for us, it is really to continuously focus on areas where we can still improve the cash flow performance of the company. That's the most important thing. And then in a structural manner because the markets are quite good. The results have gone up quite a bit from a cash flow point of view over the last 3, 4 years, adding EUR 250 million cash flow to where we were in 2021. But we obviously want to make sure that we also run the company in a very efficient and effective manner. And thereby, we see still opportunities to increase our free cash flow while we are running at a high occupancy level. D.J.M. Richelle: And maybe, Dirk, on the other 2 questions, maybe first one on Eems, Indeed, so the current setup in Eems is we have 2 FSRUs. One is the one owned by Exmar and then the other one through a bit of a difficult structure, but in the end, owned by also New Fortress Energy. And that's the one that we're going to now replace in the renewal process. So after 2027, we will replace that FSRU with an FSRU from Exmar. The commitment that we have today is that we work together with Exmar on the renewal process, so the permit renewal and the customer contract renewal. That's a process that we currently go through. And that is a process that obviously, in terms of commitment, the individual commitment, we would not disclose what the individual commitment is to Exmar, but we have exclusivity on the right FSRUs to make sure that we can go through this process and make sure that we get the renewal done and then have the 2 Exmar FSRUs in place in Eems. So that's the process that we currently go through, and that's why we've announced to have that -- to reach that agreement with Exmar. I think that's one. And then the other question you asked was on Oman. And that's a joint venture that we signed with OQ. It's in the Port of Duqm and Duqm has a few attractive parts. And I think the fundamental attractiveness of Duqm sits in the fact that the renewable energy is very competitive over there simply because of the climatological circumstances of that part of Oman. So hence, the concentration of the country to produce green ammonia for exports is really focused on that part of Duqm instead of allowing all the individual producers of the potential green hydrogen, green ammonia to build their own infrastructure. The Omani government has basically said, let's bring one specialist in and make sure that we share the infrastructure in the export port of Duqm. So that's the overall plan. In the meantime, and in the initial phases of the development over there, we expect that there's, for example, a huge potential for also LPG exports in the country and specifically through the port of Duqm. So that's the reason why for now, we've classified it as a fundamental long-term investment under the Accelerate. Yes, if the first investments come in and sit in LPG, we would probably reclassify part of that investment. But I think the key message here is it's a new country. I think the role that we as Vopak can play is really a very good role, and it's an attractive country for us to be in, and we expect quite a bit from that in the future. So excited about it. Dirk Verbiesen: Okay. That's very helpful. Maybe on the restructuring efforts you are implementing, is there another expectation for Q4 of a few million? And how long will this program last as an exception that you can apply it as an exceptional charge? Michiel Gilsing: Yes. In exceptional, something still may happen in Q4 because the program is indeed ongoing. And as I said, more to come. The impact in Q4 will be -- the positive impact of lower cost will be a bit in line with what we have seen in Q3. And then obviously, any further benefits of this program are going to be included in the outlook of next year for '26. But definitely, we aim, as I said, not to be only to see an impact in '26, but also definitely beyond '26. Operator: [Operator Instructions] And the question comes from the line of Kristof Samoy from KBC Securities. Kristof Samoy: Yes. I have 2 further questions. First of all, I still need to do some number crunching on the operational cash returns. But can you maybe detail already a little bit what is the reason of the drop in the OCR quarter-on-quarter? And then secondly, what about the Vopak Energy Park in Antwerp? How is this project progressing? And is there any material change following the outcome of the IMO meeting, which was not very favorable in terms of alternative marine fuels? Michiel Gilsing: Yes. Thank you, Kristof. Let me tackle the one on the OCR, and then I hand it over to Dick for the Antwerp major development. Yes, by nature, but that maybe sounds a bit strange. But by nature, you see within Vopak always the cash return of the first quarter is the highest, and then it sort of gradually goes down during the year. And the reason for that is that most of the operating CapEx is effectively spent in Q4. So the pattern most of the time is like we spend around 10% of our operating CapEx in the first quarter and then 20% in the second, 30% in the third and 40% in the fourth. And that has to do with budget approvals with people need to design it and then start to really come on speed in the second half of the year. And as a result, if you deduct the operating CapEx from the cash flow generated by the business, effectively, if the business is relatively stable, you will notice that the cash per quarter effectively goes a bit down versus the capital employed, which is relatively stable. And as a result, the OCR gradually goes down from Q1 to ultimately Q4. And then on average, we think that it's going to land somewhere around 15% for the year. D.J.M. Richelle: Maybe Kristof, on the energy park in Antwerp, continued exciting development. How excited can you be for a land that is empty? Well, that's exactly why we are excited for it because all the infrastructure that was on the land has been demolished successfully over the past period. We're now in the phase of the necessary cleanup and that soil cleanup that is currently going on with a massive project, which is going according to plan and in line, obviously, with all the obligations that we have assumed when we acquired the site, and that goes well. I think that's on the pure progress on where the land is developing. Then on the commercial side and the development side of the land, there's a few angles that we take. There's an opportunity to host a green plastics producer over there that uses methanol as a feedstock. And that project is developing well. So we would host basically the plant on our site and build the necessary storage and infrastructure capacity needed to go to and from the plant. That's together with Vioneo. So that's one. And we're looking at ammonia and CO2 developments that look attractive, but depends a bit on the regulatory framework on how fast these developments would allow people to commit for it. I think the location continues to be very attractive for us. The outlook continues to be for us very attractive and interesting. And then specifically on the IMO, yes, that will take probably a little bit more time for people to get sufficient clarity on what needs to happen over there. The fact that we potentially would have a methanol import opportunity to support the plant. I was just speaking about, gives us the opportunity, obviously, to expand in further methanol storage in Antwerp at this particular site. So I think, by and large, good progress on the pure development of the land and then the commercial opportunities are for us also attractive. Batteries, by the way, is also an opportunity that we see over there. There's land available, good power connection available, and we will definitely pursue all the options that we have to really turn this into Vopak Energy Park in Antwerp. So I hope that helps. Operator: Now we're going to take our next question. And the question comes from the line of Thijs Berkelder from ODDO BHF. Thijs Berkelder: Question on cash in the fourth quarter related to some items. Did you already receive the shareholder loans from the Indian JV back? And how much was that? Then you're indicating you will receive EUR 32 million back related to Hindustan LPG. What is roughly the proceeds from the divestment of Barcelona? And did you make any divestments yet in the Vopak Venture entities? Michiel Gilsing: Yes. On the shareholder loan, so the application has gone to the authorities to get approval, but that's a bit of -- as I mentioned before, it's a bit of a longer process than you would hope for. But that amount is going to be around EUR 40 million. So we hope that, that is still going to be approved by the year-end, but I can't guarantee that, to be honest. So with the Haldia sales and dividend, which we will still get out of Haldia, we expect that shareholder loan plus Haldia is going to be around EUR 75 million cash in for the holding. The Barcelona cash in was relatively small because a lot of that money has been used to also repay some of the debt. So we will get some additional money, but it's lower than -- it's only a few million there. And on the Vopak Ventures, yes, good that you mentioned it, Thijs, because effectively, we have been able to reduce the portfolio already quite a bit. So some cash has come in, but it's somewhere between EUR 5 million and EUR 10 million. So the portfolio is relatively small at the moment. So basically, we have decided the likelihood that we can sell the portfolio in one lot is pretty low because of the size of the portfolio. So basically, we're going to -- what we're going to do going forward is step by step, we will reduce the portfolio to a lower amount. And in the fourth quarter, we will also look at, okay, what's still the value of the portfolio versus what we think we can still realize and then we will update the market on that as well. Thijs Berkelder: And it means a potential impairment of EUR 10 million or so? Michiel Gilsing: That could happen, but too early to tell because we need to go through the process. That's a Q4 process. But yes, I don't have any guidance on that yet, but I will update as soon as I have that. Operator: Now we will take our next question and the question comes from the line of Dirk Verbiesen from ING. Dirk Verbiesen: Yes. One follow-up, if I may. The remarks about the technical challenges in Eems and the solution or let's say, the problems have been identified. Is that -- is there a -- has that changed in a way that now a solution is found? Or is it more the same, let's say, tone of voice from Q2? Or have there been any developments there? D.J.M. Richelle: No same tone of voice, Dirk. What we've indicated is a temporary technical challenge. The solution for that challenge has been identified before Q3, and that sits in the acquisition of the procurement of additional compressor capacity. And that capacity is not typically something you buy off the shelf. That takes a little bit of time before they get in, and they are expected to be in service at the end of this year. And therefore, we expect to go back to a different and a normal type operation in -- as from 2026. So more or less in line. I think what we're more specific about now is probably the time line on when we expect it to be done, but all according to at least the plan that we have. Operator: Dear speakers, there are no further questions for today. This concludes today's conference call. Thank you for participating. You may now all disconnect. Have a nice day.
Operator: Good morning, ladies and gentlemen, and welcome to The Andersons 2025 Third Quarter Earnings Conference Call. My name is Joe, and I will be your coordinator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I will now hand the presentation to your host for today, Mr. Mike Hoelter, Vice President, Corporate Controller and Investor Relations. Please proceed. Michael Hoelter: Thanks, Joe. Good morning, everyone, and thank you for joining us for The Andersons Third Quarter earnings call. We have provided a slide presentation that will enhance today's discussion. This webcast is being recorded, and the recording and the supporting slides will be made available on the Investors page of our website shortly. Please direct your attention to the disclosure statement on Slide 2 as well as the disclaimers in the press release related to forward-looking statements. Certain information discussed today constitutes forward-looking statements that reflect the company's current views with respect to future events, financial performance and industry conditions. These forward-looking statements are subject to various risks and uncertainties. Actual results could differ materially as a result of many factors, which are described in the company's reports on file with the SEC. We encourage you to review these factors. This presentation and today's prepared remarks contain non-GAAP financial measures. Reconciliations of the GAAP to non-GAAP measures are included within the appendix of this presentation. On the call with me today are Bill Krueger, President and Chief Executive Officer; and Brian Valentine, Executive Vice President and Chief Financial Officer. After our prepared remarks, we will be happy to take your questions. I will now turn the call over to Bill. William Krueger: Thanks, Mike, and good morning, everyone. Thank you for joining this call to discuss our third quarter results and outlook for the remainder of 2025. This quarter represents the first reporting period since we completed the purchase of the minority share in our ethanol plants at the end of July, supporting strategic growth in renewable fuels. In the third quarter, we recognized income for 45Z tax credits on our share of gallons produced and sold to date in 2025. As we move into 2026, we are continuing to make investments to further improve plant production efficiency for ethanol and co-products, lower carbon intensity and to grow our renewable feedstocks merchandising, all of which are part of our stated strategy. In Agribusiness, we are executing on our strategy to selectively invest in facility expansions and improvements to support our customer base. We have talked previously about 2 significant long-term construction projects that we expect to have fully operational in 2026. They include the addition of soybean meal export capacity and other operational improvements at our Port of Houston facility and the addition of a mineral processing plant at our Carlsbad, New Mexico transload facility. We are also investing additional growth capital in our premium ingredient business at our Mansfield, Illinois location to meet customer demand for cleaned corn being used in the chip, tortilla and pet food markets. Once again, our renewables business had a solid quarter with higher production and yields supported by strong demand. However, corn and production costs were higher than the prior year. We expect to see a reduction in the price of corn as we move through harvest. In agribusiness, we had improved year-over-year fertilizer results with increased volume and margin. The ag cycle remains in a trough due to abundant domestic supply and uncertainty around trade policy resulting in limited export trade flows for some commodities. We remain focused on supporting our customers in the current environment. We continue to evaluate potential growth opportunities within our strategy and expect that more M&A opportunities may come to market because of the current economic pressures. Next, Brian will discuss our quarterly results. Brian Valentine: Thanks, Bill, and good morning, everyone. We're now turning to our third quarter results on Slide #5. In the third quarter of 2025, the company reported net income attributable to The Andersons of $20 million or $0.59 per diluted share and adjusted net income of $29 million or $0.84 per diluted share. This compares to adjusted net income of $25 million or $0.72 per diluted share in the third quarter of 2024. Revenues increased slightly with the addition of Skyland despite overall lower commodity prices. Gross profit declined due to challenging ag fundamentals, combined with higher input costs in renewables. Expenses also increased with the majority relating to the addition of Skyland. Adjusted pretax earnings were $31 million for the quarter compared to $35 million in 2024, with the decline coming from agribusiness. This was partially offset by the net company impact of 45Z tax credits of $9 million, which included a cumulative catch-up for various costs to achieve as well as incentives. Adjusted EBITDA for the third quarter was $78 million compared to $97 million in 2024. Our effective tax rate varies each quarter based primarily on tax credits earned and the amount of income or loss attributable to noncontrolling interests. In addition, in the current quarter, we eliminated certain reserves against uncertain tax positions. We now expect our full year adjusted effective tax rate to be in the range of 15% to 18%. Next, we'll move to Slide 6 to discuss cash, liquidity and debt. We generated cash flow from operations before changes in working capital of $68 million in the third quarter of 2025 compared to $86 million in the third quarter of 2024. This continues to demonstrate our ability to generate positive cash flows throughout the ag cycle. Our readily marketable grain inventories continue to be well in excess of our short-term debt, and we ended the quarter with a cash balance of $82 million. Next, we'll take a look at capital spending and long-term debt on Slide #7. Third quarter capital spending was $67 million compared to $38 million in 2024, with the increased attributable to spending on long-term growth projects as well as normal maintenance capital on the addition of the Skyland grain assets. We continue to take a disciplined, responsible approach to capital spending, which we expect will be approximately $200 million for the year, excluding acquisitions. Our long-term debt-to-EBITDA is approximately 2x, which remains well below our stated target of less than 2.5x. We continue to have a balance sheet with significant capacity to support further growth investments even after the $425 million in cash paid to acquire the full ownership of our ethanol plants during the third quarter. We are evaluating additional capital investments, including projects to improve efficiency and increase capacity at our existing facilities as well as further M&A opportunities that align with our growth strategy. Next, we'll move on to a review of each of our businesses, beginning with Agribusiness on Slide 8. The Agribusiness segment reported adjusted pretax income attributable to the company of $2 million compared to $19 million in the third quarter of 2024. We completed wheat harvest during the quarter, and we're pleased with the volumes and quality in both the Eastern and Western grain belts. We earned wheat carry income in the third quarter and are positioned for continued space income. However, similar to the first half of the year, oversupplied grain markets and global trade uncertainty negatively impacted our grain asset locations for other commodities. Farmers remained hesitant to sell at current prices and corn harvest delays resulted in limited inventory builds in the third quarter. In addition, customers continue to make short-term purchasing decisions, reducing our merchandising opportunities. Finally, our fertilizer business benefited from increased margins and volume in this typically quiet quarter as producers focus on grain harvest. We continue to evaluate opportunities to optimize our portfolio and integrate our former Trade and Nutrient business segments as well as Skyland. During the third quarter, we made the decision to exit a few underperforming businesses that no longer align with our strategy, which led to some additional write-downs. We continue to review our portfolio, which could result in further changes going forward. Agribusiness had adjusted EBITDA of $29 million in the third quarter compared to $45 million in 2024. Moving to Slide 9. Renewables had another solid quarter, generating adjusted pretax income attributable of $46 million compared to $26 million in the third quarter of 2024. Included in the third quarter segment results are year-to-date 45Z tax credits of $20 million. Our ethanol plants continue to perform well with increased yields for both ethanol and corn oil. Ethanol board crush was similar to last year, but higher Eastern corn basis and natural gas costs impacted profitability. Corn oil prices improved, while feed values remain challenged. As Bill mentioned, third quarter results include 2 months of our full ownership of the ethanol plants, which added $12 million of pretax earnings, including the value of tax credits relating to August and September. Renewables had adjusted EBITDA of $67 million in the third quarter compared to $63 million last year. And with that, I'll turn things back over to Bill for some comments about our outlook. William Krueger: Thanks, Brian. In our Renewables segment, fourth quarter demand has remained consistent with 2025 exports expected to reach record volumes. The recent rally in corn futures has reduced board crush. However, corn basis has retreated to harvest values, and we are filling our space. With the fall maintenance shutdown safely behind us, our plants are set up well for strong fourth quarter production. We have approved additional capital focused on further increasing yields for both ethanol and corn oil. We will continue to invest in these well-maintained assets, looking for incremental opportunities to improve efficiency, increase capacity and lower the carbon intensity of our ethanol. Our expected Q4 production should enable us to generate additional 45Z tax credits, resulting in $10 million to $15 million of EBITDA after accounting for the incremental qualification expenses. Looking ahead, the rate at which we generate 45Z tax credits is expected to increase based on the guidelines effective for 2026 through 2029. As we mentioned previously, we are preparing for the opportunity to sequester carbon on site at our Clymers, Indiana production facility. The Class VI well permit filed on our behalf continues to move through regulatory review processes. Once this project is approved and operational, we will further reduce the carbon intensity score of the ethanol, enabling us to generate additional tax credits. Our Agribusiness segment is focused on wrapping up the harvest for 2025, with soybeans nearly completed, Western U.S. corn harvest at an estimated 80% complete and the Eastern crop an estimated 70% completed, there are pockets of harvest that are behind these levels due to higher-than-normal rainfall. Corn yield expectations are coming down from late summer estimates due to less than ideal finishing conditions in some areas, but we still anticipate record production across the grain belt. Clarity on trade policy and tariffs will reduce market uncertainties and should provide merchandising and sales opportunities. This, combined with the larger corn and wheat crop providing elevation and space income would allow for better results in the next few quarters. We welcome the positive direction of the trade discussions and we'll closely monitor details, which should emerge over the next few months. Without this clarity, markets are expected to remain challenged through the first half of 2026. Fertilizer activity in the fourth quarter is expected to be at higher margins, but volumes may be challenged if farmers delay purchases because of continued uncertainty. We remain very focused on integration activities in the Agribusiness segment as well as the completion of our previously announced growth projects. We will continue to invest in our safety practices and culture, particularly around assets newer to our portfolio. As mentioned earlier, with the near-term macro challenges in U.S. agriculture markets, we will continue to optimize our portfolio of businesses and the enterprise organizations that support them to extract more value for the shareholder. We believe that the current environment is causing others to do the same, and we'll look at opportunities to achieve growth through acquisitions where we might be a better owner. I want to point out that cash generated through our operations and the variety of tax credits in our renewables business is expected to provide us with additional dry powder for continued reinvestment in both renewables and agribusiness. With the strength of our balance sheet and the desire to grow, we expect to evaluate opportunities within our existing facility footprint as well as acquisitions that fit our financial and strategic criteria. Last quarter, I shared with you a conversion of our run rate 2026 financial target to EPS of $4.30. We anticipate reaching that target with improved agribusiness results, increased ethanol plant ownership and the impact of tax credits. As I noted in the earnings release, we are hosting an Investor Day on December 9, where we will update our long-term targets through 2028 and provide additional details about our strategy and outlook. I am proud of our team's resilience in this dynamic and challenging environment. We will continue to make responsible decisions that benefit our customers and maximize shareholder value as we execute our strategy. And with that, we are happy to answer your questions. Operator: [Operator Instructions] And our first question here will come from Pooran Sharma with Stephens. Pooran Sharma: Congrats on posting the strong results. Just wanted to maybe focus on 45Z tax credits. You did mention that there's the potential or that we should expect to see an increase in contribution from these credits. And we're just doing some rough math. Do you think that increase gets to like $0.10 per gallon for 4Q? And just wondering if you could maybe provide some details around how that gets monetized. In regards to 2026, do you think that your CI score -- with the CI score adjustments that you could get to around a $0.20 per gallon tax credit in 2026? William Krueger: Both are -- all 3 of those are really good questions. Let's start with Q4. As I mentioned in the script, we are expecting a $10 million to $15 million EBITDA benefit from 45Z tax credits on a net basis for 2024 -- for 2025 Q4. For 2026, as we mentioned at the -- in our Q2 call and again today, is we will give more guidance on 2026 forward at our Investor Day on December 9. Pooran Sharma: Great. I appreciate you pointing that out there for me. Maybe just shift into agribusiness and understand that with the policy kind of clarity, trade policy clarity, you can maybe start to see a little more improvement. And just wondering if you do get that and if you do get China to kind of actually start to purchase on that 12 million metric tons this year, even just the 25 million metric tons annually, do you think that -- how quickly do you think you can get back to a more normalized earnings kind of environment for agribusiness if you do get those kind of 2 pieces for that business? And then how quickly can that change in the China trade policy have an impact on the sorghum market? And sorry, just lastly, just wanted to also understand how Skyland is faring if you could confirm your EBITDA contribution expectations for that business? William Krueger: I will take the first 2. So for The Andersons, we will benefit more from China purchasing sorghum than soybeans. The opportunity exists as soon as they buy U.S. sorghum and soybeans, we're unable to provide guidance until we actually see them come into the market and purchase product. As we read the summaries of the meeting, the metric tons of soybeans need to be purchased by the end of the year, but don't need to ship by the end of the year. So we'll need to see clarity around those purchases. On sorghum, it would likely be a strong uplift pretty immediately for us. We -- our asset in Houston, our Western grain assets have seen very robust sorghum harvest. So we look forward to the opportunity to see any export business for sorghum. On the Skyland specific question, I'll let Brian handle that one. Brian Valentine: Yes, sure. I mean, Pooran, when we originally talked about Skyland, our original EBITDA estimate was a run rate of about $30 million to $40 million a year. With the headwinds that we've seen this year, we probably will be closer to about half of that number for 2025. But to your point, and just following on Bill's comments, depending on what happens with sorghum exports, we should be able to get back to that run rate if things normalize from that perspective. Operator: And our next question will come from Ben Mayhew with BMO Capital Markets. Benjamin Mayhew: First of all, congratulations on the really strong quarter. So my first question has to do with ethanol demand. And just kind of thinking about as we head deeper into fourth quarter, board crush is coming off from third quarter. How are you thinking about just kind of the run rate of margins, the outlook now that we have E15 approval in California, I mean what's the impact of that? Do we -- maybe do we expect lighter export volumes? Or do you expect export volumes to remain strong? And just trying to get a sense of how we exit the year with ethanol margins, which seem to be overall in a lot better place than historically. William Krueger: Yes, Ben, good questions. The start -- the first part of -- or I'm going to take the second part first. The approval in California is just that. It's approval, and they have to still work through some minor details with CARB that we think will be completed by year-end. So we do look at the E15 as a very positive move in California. Today, we believe that there's plenty of production capacity to handle the additional California barrels that will be consumed in 2026. We also think that as the U.S. is priced today, that we expect demand in 2026 to be relatively flat on both exports and domestic with the potential of a slight uptick in California once the CARB regulations are finalized. In terms of the board crush coming off, that's -- you are correct, it has fallen off. But the corn basis levels have come down substantially as we're entering into the final parts of this 2025 harvest. So if you look at a net effect, I'm not so sure that you can just make the broad assumption that overall ethanol margins are down. You should likely want to take into play the various regions and the reduction of corn basis driving the corn values down lower. Benjamin Mayhew: Got it. That makes sense. My second question has to do with your comments on your financial position and just kind of getting back into the M&A search, if you will. So it sounds like you think this environment is to the point where things are -- fundamentals are poor enough in certain areas where assets will likely come to sale. So I'm just wondering like what are some examples of these asset types that we could think about? And maybe you can't answer this, maybe this is an Investor Day thing, but when you think about the sheer amount of cash flow you're just going to get from these 45Z tax credits, I mean, assuming it all kind of plays out as we think it's going to in the moment, over time, I mean, how do you think about that cash accumulation and what you want to spend it on? What like -- and so maybe you can't fully go into that until the Investor Day, but can you give us a teaser or a hint as to what you're thinking in the near term? William Krueger: Yes. You are correct. That is the plan for the Investor Day in just a little over a month. But the one thing I do want to remind everyone is over the last several years, we've been very disciplined with our capital allocation. So we don't plan to deviate from that mindset. We think it's rewarded our shareholders well. And we do believe there will be opportunities. I don't feel that it's appropriate to be commenting on what we're going to be spending the money on today. As I did state in my script, though, we like our core area of operations, and we're going to continue to be focused on our core strengths as a company and looking for opportunities to deploy capital in those areas. Operator: [Operator Instructions] Our next question will come from Jaeson Schmidt with Lake Street. Jaeson Schmidt: Just given the current backdrop, do you think the agribusiness margins have troughed here in Q3? William Krueger: That's an excellent question. As we look towards Q4 with the size of the wheat harvest that got completed and the corn crop that we're finishing up right now, I think it's fair to assume knowing what we know today that Q4 '25 results should be trending back closer to a Q4 2024 results, obviously, stating that we still have a ways to go to get through Q4, but we do feel like the market dynamics are set up as long as we have clarity on trade policy that 2026 should provide more opportunities than 2025. And Jaeson, back to the comment that I made in the script is our assumptions come from increased agribusiness results. Our fertilizer business is going to have a decent 2025. We need to focus on the grains and grains products side of that business, and that's kind of where we're looking at 2026 today. Jaeson Schmidt: Got you. That's really helpful. And then can you remind us what the remaining CapEx requirements are for the 2 large construction projects? Brian Valentine: Yes. I would say, look, we expect our full year CapEx this year, we expect to be in the range of $200 million, probably 60%-ish of that is growth capital. And so I would say with regard to those projects, there's probably another $30 million to $50 million. Jaeson Schmidt: Okay. Perfect. And then just the last one for me, and I'll jump back into queue. Just going off some of the previous questions, I know you mentioned sort of your discipline with your capital allocation strategy. But just kind of reconciling that with this excess cash flow that will be coming into the tax credits, does that change sort of the size and scope of things you'd look at in the future? William Krueger: That's a fair question. And I think if you look back, Jaeson, over the last 2 years, our size and scope have altered with the $425 million capital deployment for the ethanol plants, the $75 million for Houston. I really do think that we've looked -- we've started to look at larger opportunities that maybe have more scale. Simultaneously, if we see an easy bolt-on that fits right down the fairway for us, we're likely going to continue to look at those. But I do think that you make a good observation that our expected cash flows in the future will allow us to look at larger M&A projects. Operator: And our next question will be a follow-up from Ben Mayhew with BMO Capital Markets. Benjamin Mayhew: I'm back for one more. Just a question on the fertilizer business. And you noted in third quarter, which is typically a weaker quarter for this business, volumes and margins were up. So like what does that indicate to you ahead of the next planting season? And I guess attached to that question is an update on the U.S. farmer. Now versus maybe a month or 2 ago, what are you hearing from the farmers in terms of level of optimism and willingness to kind of spend on inputs for the next marketing year? William Krueger: I will start with the sentiment portion of that. I don't know that you could have had a much lower farmer sentiment 60 days ago, we have had a nice rally in soybeans, I think, don't quote me on this, but somewhere around 15 month highs. So with the recent rallies in the futures market, the optimism that there will be funds coming out of Washington, D.C. once the government reopens, I think has raised the sentiment of the U.S. producer. And so in comparing -- in looking at our fertilizer business in a silo, comparing Q4 or excuse me, Q3 of 2025 to Q3 of 2024 is where the uptick was coming. I do think that the producer is going to be cautious. They're making a lot of their fall application decisions as we speak. And you could see, as I mentioned in the script, is if there's uncertainty, they could delay those decisions until the spring. And that's what we are -- we plan to figure out over the next 30 days, just to be quite honest with you. Operator: And with that, we will conclude our question-and-answer session. I'd like to turn the conference back over to Mike Hoelter for any closing remarks. Michael Hoelter: Thanks, Joe. We want to thank you all for joining us this morning. Our next earnings conference call is scheduled for Wednesday, February 18, 2026, at 8:30 a.m. Eastern Time when we will review our fourth quarter results. As always, thank you for your interest in The Andersons, and we look forward to speaking with you again soon. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.
Operator: Good morning. This is the Chorus Call conference operator. Welcome, and thank you for joining the Nexi 9 Months 2025 Financial Results Presentation. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Paolo Bertoluzzo, CEO of Nexi. Please go ahead, sir. Paolo Bertoluzzo: Good morning to everyone, and welcome to our 9-month results call for 2025. As usual, I'm here with Bernardo Mingrone, our Deputy GM and Chief Financial Officer, with Stefania Mantegazza leading IR, and a few more members of our team who may help to answer your questions as needed. As usual, we'll start with a summary of the key messages. I will hand over to Bernardo to cover the results in more detail, and I will come back for the closing remarks and, most importantly, to answer to your questions. Let me jump to Page 3 with the summary of the key messages. First of all, we continue to deliver profitable growth for the 9 months in the quarter. Revenues are up 2.8% for the 9 months and 1.8% in the quarter. As anticipated in the third quarter, we see more material effects of the extraordinary events that we had anticipated when we provided the guidance in March this year. More precisely, we are talking about the bank losses from the past and some key bank contract price renegotiation effects. These effects will peak probably in Q4 this year, and then we will start slowing down across 2026 with a more material reduction in the second half. The underlying growth, therefore, net of this effect, is at about 6% year-on-year, both in the 9 months and in the quarter. Merchant solutions revenues are up 2.7% in the 9 months and 0.6% versus the same quarter last year, with underlying growth being at around 5% to 6% in both the 9 months and the third quarter. EBITDA is growing at about 3.5% in the 9 months, with a 35-basis point margin expansion. The quarter results in terms of margin are a bit affected by the revenue mix that sees a stronger IS and some operating cost phasing. Second key message: We continue to shape Nexi for future profitable growth, 3 key points that we want to underline. We continue to progress our strategy execution in the integrated payment space, the space of convergence across payments and software. As discussed in the past, our strategy is based on partnerships with ISVs. And since the beginning of the year, we have added about 50 partners, ISV partners to our pool, that is about 500 across all our geographies. Second key message that we want to reiterate, we continue to build a stronger multichannel approach to the Italian market, obviously, deleveraging our very strong partnerships with the Italian banks, but also adding to this strong channel also complementary channels, targeting more precisely SMEs, which is our core focus. And these complementary channels by now represent year-to-date about 26% of our total new sales. Last but not least, we want to underline that merchant solutions in Germany is growing double-digit in the 9 months, with even acceleration in the third quarter, supported by customer base and market share growth. And we really want to stress this performance in Germany because, obviously, there's a lot of debate around how strong players like Nexi are in competing with the newer players focused on SMEs, the single platform, and all of that. And clearly, the performance in Germany shows very well that we can compete, we can win effectively and have accelerated growth as well. The third key message we want to deliver is that we continue to create value for our shareholders. Across '24 and '25, we did delivered EUR 1.1 billion of capital to our shareholders while becoming, at the same time, an investment-grade issuer since the end of last year. Net financial debt is now down to 2.6x EBITDA, notwithstanding the fact that we have returned in the year already EUR 600 million to shareholders as a remuneration, which is a 20% increase versus the previous year. Obviously, in March '26, we will talk about the capital allocation for 2026 on the back of the more than EUR 800 million cash that we will generate in 2025. Coming to guidance, we confirm we will land revenues in the low to mid-single-digit year-on-year growth space. We confirm that we will generate excess cash for more than EUR 800 million with a high degree of confidence. As far as the margin is concerned, for sure, it will be positive with Q3 with Q4, by the way, seeing a margin expansion better than Q3. Where it will land precisely will depend on the volumes we will see in Q4 and the business mix that we will see in Q4. In any case, we are talking about only a few million euros here and there. Let me now hand over to Bernardo to go through the results more in detail. Bernardo Mingrone: Thanks, Paolo. Good morning. Starting on Slide #5 with revenues. As Paolo has already mentioned, this quarter was significantly impacted by discontinuities as expected. This has been accelerating throughout the course of the year. You can see the revenue growth in the quarter of 1.8% is distant from our underlying growth of 6%, and this gap is widening compared to the 9 months. So, as we said, this is the highest impact we've had year-to-date, and the peak is expected to be reached in the coming quarter. With regards to EBITDA and EBITDA margin, EBITDA is growing. The margin, and please remember, we're always talking about an EBITDA margin north of 57%, suffered in the quarter from what I would characterize as a slightly different revenue mix than what we might have planned with a bigger contribution coming from issuing the merchant solutions and also a bit of phasing effect on some costs, which might have spilled over from one quarter to the other, which is impacting the margin accretion. However, for the year, we are positive at 35 basis points. Moving on to merchant solutions on the next slide. We have growth in the quarter. Again, here, this is the business unit on which the negative impact coming from the discontinuities we've talked about that impacts us the most. You can see the underlying growth is mid-single digit. Overall, I think we can point to continued growth in international scheme volumes, albeit with a softer summer. We have a slightly unfavorable volume mix, as I was mentioning earlier, as a group, but also within merchant solutions, with some pricing and mix effects in e-commerce in Poland. We're talking about -- sorry, just a few million euros here, but that makes a difference, obviously, in terms of year-on-year growth. I think more importantly, from a volumes perspective, Poland, but more importantly, also Germany, which is growing in the quarter in the mid-teens, have shown a robust performance. We continue to grow our franchise in the most valuable segment of SMEs. We continue to upsell and cross-sell the value-added products and services. And indeed, we're making progress on the ISV partnerships front with more than 50 signed in the 9 months and the year-to-date. Issuing solutions had a very strong quarter, 6.5%, 6.6% growth. This is usual. It is being sustained by volume growth, the international debit product in Italy, upselling, and cross-selling throughout the group. I think it's fair to say that part of this higher performance in the quarter than for the 9 months will be reversed in the fourth quarter. We expect it to benefit less from year-on-year project work, which, as you know, as we've discussed in the past, it's very hard to predict in which quarter they will be booked. And we're also expecting in the fourth quarter to see the first effects of some in-sourcing from a large Nordic client that we've spoken of many times in the past. This is something a decision which goes back 3 or 4 years and has been postponed a number of times is now kicking in. So, the fourth quarter is softer than the third, but a strong year-to-date and expected for the full year in any event on issuing. DBS is the business unit which has the most reliance on, let's say, project work or one-off billings. So, it's lumpier. I don't read too much in the quarterly performance. Overall, for the year, we expect growth and a good performance from the business unit. Indeed, we recently launched in October, a very important piece as part of our payments business, the verification of PE, which affects hundreds of banks across Europe. We're the largest player in the space, and this was a big success for us. From a geographic perspective, it doesn't surprise -- shouldn't surprise that Italy is the region which was impacted the most by the discontinuities, the Italian banks that we've spoken of so many times. Nordics, I would say, good performance in the low single-digit area, but benefiting from continued progress on selling value-added products and services to our client base. DACH, I would say, very strong performance in Germany, slightly less so in Switzerland, but overall, good performance from the region and CSC, which is probably the most impacted by the softer summer and what I said earlier about Poland. Finally, before handing the floor back to Paolo, on costs. Costs grew about 3% in the quarter. HR costs still showing the benefits of the initiatives which were put in place last year and continue to be implemented during the course of this year. Slight growth coming on the non-HR costs, which is the one most impacted by volume growth, by inflation, by the growth of our business in general. But as you know, we manage our cost base as a whole. And you can see the 2% growth for the 9 months is pretty much in line with our expectations, and I don't expect the final part of the year to be any different. Actually, the fourth quarter expect to be better than the third and probably better than the 9 months to date. So, I think other than the phasing effect, which I mentioned earlier, which has to do with intra-group VAT and the timing of these things. And again, we're talking about a few millions of euros here and there. I would expect strong cost performance for 2025. So let me hand the floor back to Paolo for his final remarks. Paolo Bertoluzzo: Thank you, Bernardo. Let me just reiterate Page 11, the messages that I already anticipated on guidance. We will end our top line growth in the low to mid-single-digit space with underlying growth acceleration. Cash -- excess cash, will generate at least the EUR 800 million that we committed to with a high degree of confidence. And as far as the margin is concerned, for sure, it will be positive. We expect the Q4 performance in terms of margin expansion to be better than Q3. Where exactly it will land will depend on the dynamics in Q4. But in any case, we are talking about a few million euros shifting here and there. Let me close from where I started, 3 key messages on Page 13. We continue to deliver profitable growth across the business. We continue to shape Nexi for future profitable growth. And again, the 3 topics that really want to underline is the progress in integrated payment space across geographies, the continued acceleration of the newer channels in Italy together with continued good performance of the bank partnerships as well. And last but not least, a very strong performance and improving day by day in Germany for merchant services. And last but not least, continue to stay very focused on value creation. We're returning this year EUR 600 million to our shareholders in March. We'll talk about what we will do for 2026 on the back of a strong increase of excess cash generated in 2025. Last but not least, let me anticipate and invite you actually to the Capital Market Day that we will have at the beginning of March, more precisely, the current plan date is the 5th of March. Let me stop here, and let's open to your questions. Operator: [Operator Instructions] The first question is from Grégoire Hermann, Barclays. Grégoire Hermann: Just 3 of them, please. Just on the guidance, can you confirm whether you need reacceleration in Q4 to meet the EBITDA guidance or simply the cost reversal that you mentioned that you expect in Q4 is enough for you to meet that cadence? And then I think on the revenue, the guidance still leaves a pretty wide range for Q4. Can you comment whether you expect a reacceleration in Q4 there? And finally, on issuing solutions, you mentioned some phasing effects -- would you be able to quantify this phasing effect, please? Paolo Bertoluzzo: Greg, this is Paolo. Thank you for your question. Let me just comment on guidance, and then I'll pass to Bernardo on the issuing effect. As both Bernardo and I said, in Q4, we expect to see the peak of these extraordinary effects. And therefore, it's going to be difficult unless we surprise ourselves to see an acceleration of revenues in Q4. Nevertheless, we expect to see positive revenues in Q4. And in particular, we expect to see some instead acceleration from merchant services. Again, it will depend very much on November and December that, as you know, are very much peak months in our industry. While as anticipated by Bernardo, we've seen some reversing on some phasing in issuing that instead in the Q4 will perform not as good as in Q3 and year-to-date. Let me pass over to Bernardo. Bernardo Mingrone: Grégoire, I mean, as Paolo was saying, I think let me just add to his comments. I mean, in terms of the evolution of revenues during the course of the year, I would highlight what we put in the slide in terms of the underlying revenue growth, which has been pretty homogeneous throughout the quarters. Quarter 1 was probably a little lower than Quarter 2 and Quarter 3 was similar to Quarter 1 in terms of the underlying. And that's pretty homogeneous. Where you get the big gap between reported and underlying is this effect of banks which are exiting. And I think we spoke of this other times. I mean we do our best to slow this down as much as possible to hold on to clients which are being migrated from our platform to others as much as possible. But the impact of this is that we have a longer period of time in which there's a gap between underlying and reported. And the shape of this curve, this gap is very hard to predict. I mean it really depends on our efforts and also on the banks trying to migrate these customers' efforts. So, it's very hard to call the basis point how it's going to impact. However, with regards to issuing, going back to the issuing question, we're talking about single-digit million euros of impact coming from project work, which was probably in the fourth quarter compared to the -- or gap between year-on-year fourth quarter and fourth quarter at this point compared to third quarter and third quarter because that's what we're talking about. And we have a similar impact, something which is less than EUR 10 million in a year coming from the migration away from this Nordic customer. So how quickly they migrate away from us, I mean, it's really up to them and how that impacts us in the fourth quarter, we will see. But those are the 2 impacts. Operator: The next question is from Josh Levin, Autonomous Research. Josh Levin: Two questions from me. First, any views on what PSD 3 and PSR might mean for Nexi and the broader European payments landscape? And then second of all, I guess it's refreshing to have a call where the scripted remarks don't talk about AI. But to the extent you can, are you able so far to internally quantify the impact of AI on any of your unit economics? Paolo Bertoluzzo: Thank you for your both questions. Actually, we don't talk about that a lot in the call, and I'm very happy to cover both. PSD 3, PSR, I think, we don't see any material effects directly on the business and so on and so forth. If anything, we see some positive effect because the new regulations are creating further complexities into our business. And ultimately, our company is in the business of simplifying payments for our customers, being merchants, corporates, banks and so on and so forth. And the reality is that the more complexity is around, the better positioned are large players like us versus the smaller ones that normally struggle to follow through on the complexity. So, in general, we believe this is going to be something positive for us. On AI, we are all in, in AI since, I would say, 1.5 years ago. This year, we already see the contribution across, I would say, mainly technology expenses, both CapEx and OpEx for double-digit million euros. Let me not be precise in this specific case. For next year, we are planning much more than that, and this is across technology development, software development, software testing, infrastructure management, operations, onboarding, marketing, back-office processes, general productivity. We are all over the place on this. And we really believe that this will be a great contributor to increasing efficiency across the company and also obviously enabling us to invest more into growth over time as well as supporting continued margin expansion and cash generation. Obviously, we are also very much into leveraging AI for product innovation and differentiation. And most importantly, we are deeply into the topic of Agentic commerce, which, as we all know, will become relevant over time for the e-commerce part of the business. And on this front, we are participating both on the big tech initiatives. We are one of the few European companies cooperating with Google in the setting of the new standards on the Agentic side of commerce. But at the same time, we're deeply involved with international schemes, Mastercard and Visa in setting the future rules that are fundamental in defining how Agentic commerce will work. And clearly, this will be very much also European-specific or in any case, continent-specific because they will have to be consistent with European regulation. And again, given the position we have, we believe we are in a good place to be able to shape this and be a protagonist in this space as well. Operator: The next question is from Hannes Leitner at Jefferies. Hannes Leitner: Can you give us an update on the Sabadell joint venture given the Spanish banks have been not merging? And then can you talk about the 2026 expectation? Current consensus is just looking for a slight acceleration, but your headwinds with the Italian banking contract should come out of the base. So maybe you can talk there a little bit about the expectation from project work, the issuing contract ramping down and the underlying market trend growth you see, that would be it. Paolo Bertoluzzo: Let me take both questions. Sabadell, finally, after, I think, 2 years, we have seen what has been the conclusion. Sabadell remains an independent bank. We are obviously happy to see it. And again, here, let me lay down the facts as clearly as I can, even if we discuss them in the past with many of you. First of all, we have no commitment whatsoever any longer across the 2 of us because this was an old deal that was happening in old market conditions. And therefore, there is no obligation any longer among the 2 parties. We are in great relationships. a great relationship, and we have agreed this very, very friendly. At the same time, we continue to consider Spain an interesting market for a company like Nexi. And honestly, we continue to consider Sabadell a fantastic potential partner in Spain, given how focused they are on payments, given how focused they are on SME, given how deeply entrenched into the local ecosystem they are. And therefore, we will continue to have conversations with them to see if there are new opportunities to do something together on completely new terms, potentially also completely different business model. So great relationship, still interested in doing something at different terms. We will see. We'll see where it lands in the coming months. We are very, very relaxed about it and actually happy to have the opportunity to have the conversation. As far as 2026 is concerned, obviously, as you can imagine, we are working on our budget for next year. We'll talk about it in March together with the guidance. I can only reiterate what both Bernardo and I said as far as risk is concerned, we should always remember that our performance this year is materially affected by these exceptional events. And therefore, the dynamic will really depend on how these events come into place and then unwind over time. As we said, we see these events peaking in Q4 this year, then continuing at a slightly lower level in the first half of next year and then slowing down towards the last part of the year. Therefore, we would expect this - the overall effect on a yearly basis to be probably a bit less than what we have seen this year, and this should support with our underlying growth continuing should support some acceleration, but this is a topic for March. Hannes Leitner: Maybe just a quick follow-up on German performance. Was this kind of also driven by one of your competitors basically being in the spotlight with credit downgrades? Or is that all organic initiatives? Paolo Bertoluzzo: No, no, no. It's all organic initiatives. This is growth coming from effective products in the market, competitive products in the market, a strong focus on the most valuable segments being SME and in particular, the mid- part of SMEs and the more national corporates, mid-corporates, supported by a strong and focused investment in go-to-market and in sales and honestly, a strong team in place in the market. It's all organic. And by the way, we are winning not just against, I think, the incumbent you in mind, but a little bit more across the board. Maybe coming back on your questions around guidance into next year. As I think we have anticipated in March as well, this year, a lot of the effect that we have seen from these exceptionals has to do with merchant services in Italy in particular. Next year, we should see less impact into merchant services and more into issuing given this phasing. So, let's see how it evolves. Operator: The next question is from Sébastien Sztabowicz, Kepler Cheuvreux. Sébastien Sztabowicz: On pricing environment, you mentioned a little bit more pricing pressure in Poland, if I'm right. Have you seen any kind of changes in the competitive landscape, new players being a bit more aggressive in some of your markets, whether it is traditional PSPs or some digital players or commerce platform coming to the market? That would be the first question. The second one, in terms of contract renewal, do you have any major contract renewal coming into the next 12 to 18 months to understand if there is more downside risk to your revenue on top of what you expect already from the contract ramping down at Banco BPM and other discontinuities? Paolo Bertoluzzo: Thank you for the 2 questions. On pricing pressure from new players and so on and so forth. I think what we are seeing in Polish e-commerce that again, we're really talking about a few million euros here, which just made it explicit to you and transparent to you because in the quarter and in the region. In merchant services, they have some -- a few basis points impact. But in the scheme of things, that are totally marginal. Honestly, we don't see any major change in dynamics. Obviously, there is more pressure in various countries from these newer players more focused on SMEs. We are competitive in the market. We have to stay competitive. We do what we need to stay competitive. I think the performance in Germany is showcasing it very well. Poland, we continue to take share also in this environment. Obviously, in places like Italy and Denmark where we are by far the leaders in the market, we are more attacked by these players that we are, by definition, the more visible ones. But that's the reason why we are ramping up our direct sales channels next to the -- and in partnership with the bank ones to help us remain and stay competitive versus these players that normally have a direct go-to-market as well. So, we believe we are overall well set up to compete in that space, and we will continue, obviously, to invest to stay competitive. As far as the second question is concerned on contract renewals, I think we did comment a little bit on this topic last time. We have won the renewals on 100% of the deals that were up for renewal over the last 15 months by now or something like that. I think we said 12, 3 months ago. So, I guess now it's 15%. Going forward, we see much, much less of potential renegotiations or situations coming. I think probably the one that is worth mentioning is going to be the renewal of the Monte dei Paschi distribution agreement on the book in 2027. We have a great relationship with the bank and don't forget that the book is ours. So, we're really talking about the distribution agreement because we did buy the merchant book back in 2017. So, but obviously, we will do whatever we can to continue the great relationship we have with them, and we just renewed other contracts with them only a few weeks ago. Operator: The next question is from Aditya Buddhavarapu, Bank of America. Aditya Buddhavarapu: Could you just clarify the comments on Q4? Did you say at the beginning of the Q&A that you expect an acceleration in merchant services? Maybe I didn't fully capture that. So, if you could just clarify that. And then also just related to that, can you talk about what you've seen so far in Q4 in terms of volumes? I know October is probably a smaller month, but any color on what you're seeing on volumes or the broader macro would be interesting. Second question, you talked a lot about the ISV partnerships, and you have about 500 in place right now. How big are those partnerships in terms of your overall volumes today and how fast are they growing? Any color would be appreciated. And then finally, just on the underlying acceleration you talked about in 2026. Could you just talk about again the drivers there? What should help to improve that? Paolo Bertoluzzo: Let me take the 3 of them. Q4 MS reacceleration, probably, yes. We are talking about small numbers again here. Let's be clear. We're always talking about a few million euros shifting here and there. And that should be supported by the various initiatives that we are doing, but also from the fact that at least in Italy, in terms of volume, we should start seeing some reversal of the strong impact that we had so far on MS, in particular, from the Banco now recently from the Cassa Centrale. So that should happen. As we also said, instead we will start seeing more impact on IS over the next few quarters. Then let's see what happens. If I look at the volume dynamics in October in Italy, we already see a little bit of better volume growth. So, it looks like it's moving in the right direction. But again, very early to say. Again, never forget that the fourth quarter is really, really shaped by what happens at Christmas and Black Friday. So, let's see what happens. On ISVs, it's difficult to give a number because the classification of what an ISVs versus an ISO versus an ECR provider is very, very complicated. So, we don't want to be stuck to numbers that then change over time and then confuse you. Let me just give you a little bit of the flavor here. We are talking a lot about this topic because we believe that long-term, it will be impacting our industry also in our geographies. However, this is a topic that in terms of overall impact is extremely small and fragmented across Europe at this stage, at least the Europe that we see. Nothing to do with the U.S. It's coming slowly. It's coming in a very differentiated way across the various markets. This topic of ISVs and therefore, the materiality of it is more visible in the Nordics, where this started a bit earlier. As you know, the Nordics are super digitalized as economies and therefore, also SMEs are digitalizing faster. And that's the reason why we see it there faster as a dynamic. Germany is very much behind the Nordic situation, even if we start to see obviously more focus there. In Germany, what is still big is ISOs, resellers, these types of dynamics, which are not precisely IVs. Poland, I would say, is more or less in the state of Germany. And last but not least, Southern Europe, Italy, but also Greece, Croatia and the other markets where we are present, this is really, really, really small. Obviously, we are working to take position, but you hardly see these volumes. A lot of players are trying to get organized to do this, but they are still in the process. And obviously, we are in the process of working with many of them. As far as 2023 is concerned, I can only reiterate what I said before in terms of the market risk dynamics. Again, as we said in the past, we see our underlying growth remaining solid in the mid-single-digit plus and ideally accelerating on the back of the market share gains here and there, plus the initiatives to increase value for our merchants with softer merchant financing and the various topics we discussed in the past. The profile of precise will, therefore, depend very much on what happens on these exceptional events that we discussed in the past. Again, as I said before, this should ease out, especially towards the end of 2026. If it happens the way we see it happening as we speak, the overall impact should be a bit lower than this year. And therefore, this should support some reacceleration. But again, on the back of strong underlying. Operator: The next question is from Alexandre Faure, BNP Paribas. Alexandre Faure: I have 2, 3 questions, if I may. One is going back on this commentary you made on both discontinuities having reached or reaching peak pressure in Q4. Just a little surprised because to your point, it feels like issuing will come under pressure next year. You mentioned that renegotiation in the Nordics, but I think Banco BPM was also supposed to migrate off next year? So, is this being pushed a little bit? Just trying to get a sense of the latest timing there. And maybe relating to that, how should we think of any potential lingering margin headwind if we have some of those lucrative relationships continuing to dwindle in 2026? And my last question is completely separate topic that you touched on earlier, Agentic Commerce. Just curious, Paolo, how you think about it more broadly, looking maybe 3, 4 years out? Would you view this as an opportunity to take further share away, maybe from banks who might struggle to keep up? And beyond share dynamics, how would you view Agentic Commerce impacting yields and margin. I think there's more work you need to do, maybe you'll be able to price for that. So, any thoughts there, much appreciated. Paolo Bertoluzzo: Alexandre, thank you for your 3 questions, or maybe 2 plus 1. First of all, on the discontinuities in Q4, again, we don't have full control of the phasing of all these things. You're right in saying that most of the effects from Banco issuing are expected at some point into next year. To be honest with you, we don't have a full visibility because we understand the supplier they've chosen is behind plan. We may start to see something on a part of it in the last quarter. But again, it's not just Banco. There are smaller things as well. So that is why, if you combine everything, we expect to see the last quarter this year as the one with the highest impact. And again, as I said, into next year, then from this peak, we expect to have basically the first and the second quarter starting to slow down, probably more similar to the third quarter this year, and then instead having a material reduction towards the year-end. But again, the exact phasing is not depending on us. And by the way, we fight as much as we can to make this happen as late as possible and as small as possible. As far as margin headwinds into next year, clearly, this dynamic put pressure on margin. The simple fact that we will expand EBITDA margin this year tells you that as we do all of that, we also have a number of initiatives that increase margin, that the new things we are doing are margin contributing. And by the way, we continue to do a pretty hard work on efficiency as usual, but obviously, even more in the case of the environment we're in. And that's one of the reasons why I think, as I was answering to the question of Josh, in the very beginning, we are so focused on AI and lever also to create space for margin expansion and also reinvestment. As we look into next year, this is exactly what we're looking at. I think ultimately, we're we'll be landing on margin next year will depend very much also on where and how much we decide to invest ourselves into the various topics that we have been talking about in this call as well. Agentic Commerce, listen, I think it's a super fascinating topic. Let's be very clear. I think if people tell you they know exactly what will happen, how it will happen, and so on and so forth, they may be stretching it a little bit. It's super complex. And by the way, to a certain extent, we like complexity because, as we said in the past and also today, it's always an advantage for people that are really focused on that scale with competence in this environment. But let me try to add a few comments here. First of all, never forget that ecommerce for Nexi is maybe unfortunately, a relatively small thing in the sense that we are talking about 5% to 10% of our total revenues, growing nicely. And this is clearly one of our growth engines, but is a relatively smaller part of our portfolio, point # 1. On that basis, we see, as you mentioned rightly so, this complexity potentially being an asset for us because, again, the smaller players, the banks in general, will struggle to be a part of this "Potential revolution in ecommerce". Clearly, our partner banks in Italy will benefit from our efforts, and we'll be partnering with them also on this front. I want to be very, very clear. But never forget that ultimately, we are partnering with banks in Italy, Greece, and Croatia elsewhere. Banks are competitors. And therefore, we believe that we really struggle to keep up in this space, or at least many of them. To be honest with you then, how this will develop will depend very much on customers. And when I'm talking customers, I'm talking about consumers, the ones that buy stuff. Because if you really want to be extreme version of Agentic Commerce, which is the one where not only you start the commerce activity from AI, from agents, but you complete the transaction, including the payments in an agent-to-agent dynamic, that really requires a big leap of faith from the customer that basically has to trust an agent fully for spending his or her money. And I think that this is maybe one day possible, maybe for certain verticals and product categories. But honestly, how big it will be in the future, I think, is really something that we will need to see. In any case, we are investing in this space, and we will be organizing ourselves in this space for obviously, enabling merchants in any case to be able to interact with agents, because maybe it is going to be just a small thing. But our role is to help merchants to accept any type of transaction, any type of payments, also the ones coming through agents. At the same time, we're already working on what we can do on the issuing side to make sure that our products, our cards are Agentic Commerce-ready. Therefore, we see a lot of work that we can do to enable all of this. I'm sure we'll talk about it again many times in the future. Operator: The next question is from Justin Forsythe from UBS. Justin Forsythe: Just a few here for me. I want to hit first fiscalization in Italy. If I'm not mistaken, I believe that's meant to take place and become enacted, I believe, January of next year. Do you see that as a potential forcing factor for greater adoption of software-led payments in Italy and/or potential for Nexi and Nexi's ISV partners to grow? Second question is around the Zip Pay partnership in Ireland, which I believe you helped roll out this application within your DBS solutions business. Maybe you could talk a little bit about how you won that, what the monetization and rollout timing looks like there? And just more broadly speaking, how you see the go-forward opportunities within DBS. And whether you see this as a business line that's strategic to you longer-term and add synergies across your other business lines? And maybe updated thoughts on what you plan to do with that asset, if anything? I know there's been some news on that subject. And finally, just a real quick cleanup question for you, Bernardo. If I have the math right, it seems like you had 0% growth in international schemes in the quarter. I know you noted some softness in Southern Europe. Also, I'm sure that has to do with the bank M&A as well in MS. But maybe if you could provide a normalized number there and/or also, I know we were commenting on trends in October month-to-date. Maybe you could add Germany and the Nordics to that as well, if you don't mind. Thank you very much. Paolo Bertoluzzo: Hi Justin, I'll let Bernardo take the last question. On fiscalization, yes, it's right. It's happening. It will happen in a few months, but it will happen in such a way that will not require merchants to change neither the cash register nor their acceptance solutions because the reconciliation will be done by the tax, basically authorities, the tax authority technology in basically the cloud. And therefore, the only thing that merchants will have to do is going to be to connect in the cloud, to associate in the cloud, their cash register, which is already connected. Don't forget here, maybe let me make one step back because -- so that everybody can follow this conversation. In Italy as well as in other places, there is already the obligation to have your cash register connected with the tax authorities, okay? The new news that will be implemented into next year is that there will be a connection in between what the terminal is transacting on digital payments, the point-of-sale terminal and what the cash register is registering and is transacting. And this connection in between -- clearly, this is intended to avoid certain behaviors for tax avoidance that we're playing with the 2 devices being not connected. Now this connection will happen in the cloud. And therefore, there is no need for changing the ECR. There is no change for changing your cash register. There is no need to change your acceptance solutions, your point-of-sale terminal. The connection will happen in the cloud. The merchants will simply need to register in the cloud the 2, if you like, components and associate the 2 of them. Obviously, we will be helping. We're already helping the merchants that we will be able to do it with Nexi in one click through our digital assets in the cloud, okay? Around the market, as you can imagine, you have some ECR vendors that are claiming that you need to change everything and so on and so forth. But honestly, that's a marginal, I would say, commercially aggressive behavior, but that's not -- that's absolutely not needed. So, we believe that this dynamic of digitization of merchants will continue with its own pace that in Italy so far is relatively slow. And honestly, we will try to accelerate ourselves through our partnerships with our own initiatives but should not see a material change because of digitalization. On this account-to-account instant pay-based service that we have developed with the Irish banks, I think it's a nice service. We are very proud of being chosen by them and by a number of other countries also outside of Europe. I would love to tell you it's big and growing. The reality is that it's relatively small, you don't sit into the big scheme of things, but it is something that, again, we are very proud of and we'll continue to pursue because ultimately, whenever we are chosen by central banks, and we're chosen by bank consortia is always a great testimony of the value that we can create and how deep we are into technology and modern solutions. As far as DBS is concerned, more broadly, we are where we were every single time we talked about it. There are areas of this business that are less strategic, and we'll continuously review the portfolio and pursue certain potential sales. But again, this has already happened, will continue to happen on a one-to-one basis. Last one, Bernardo. Bernardo Mingrone: So Justin, I think I presume you referred to that 1% growth of value managed transactions in the 9 months that we reported is on Slide 6. I couldn't find the 0% you're referring to. But I think your question was --- Justin Forsythe: Bernardo, just to clarify, I was just saying that international schemes in the 9 months was -- what was it, about 5%. And I think that implies something close to 0 for the 3Q. Bernardo Mingrone: Yes. Okay. Fine. I mean it's -- in general, I mean, there's a recast, as you can see in the database due to the fact that we're aligning, let's say, the -- as we re-platform across the group, in particular in Italy, we have recast some of the historic volumes just to make sure they're 100% aligned with the revenue. I mean the revenues were always 100% correct. The volumes, maybe we had more than -- we were calculating maybe more than 1x some kind of volumes because they were driving certain revenues. And that probably gives you the impact you're referring to. But in general, I think the crux of the question was about the impact of the banks that are leaving the portfolio. So, the underlying, let's say, volume. And I would say that in Italy, that weighs probably 5 percentage points more or less, and it's about half that at the group level. So, if you look at it at the Italian level, it's twice what it is at the group level. Justin Forsythe: And the last piece of that was just on the Nordics and Germany in October, if there's any additional comments there. Thanks. Bernardo Mingrone: In October, Germany, as we mentioned, for the first 9 months for the third quarter is performing very well, mid-teens in terms of growth. I think the acquiring volumes are strong. Post terminals may be lumpier. But in general, I think even October is a strong month continuing on the -- like the rest of the year. And Poland, if you look at physical acquiring and ecommerce, both volumes are strong. As I said, when we called out Poland, we're talking about more of a pricing stroke, let's say, shift to marketplaces, larger customers on ecommerce compared to smaller customers, which has a pricing effect. But on volume growth, Poland is performing pretty well as well. Paolo Bertoluzzo: I think in general, the way you should see it, Justin, is Nordics trailing around mid-single-digit volume growth, maybe a bit short of that, but around mid-single digit, which is pretty good for a market that is already penetrated where we have a strong leadership position. And instead, Germany and also Poland, by the way, in the high single-digit type of space. Operator: The last question is from Gabriele Venturi, Banca Akros. Gabriele Venturi: Could you please comment on potential risk and impacts that could arise from possible M&A developments that could involve Credit Agricole Italia and BPM or BPM and the new Mediobanca Monte dei Paschi? Thank you. Paolo Bertoluzzo: Well, listen, you know better than I do that the situation is super, super open, and there are many options that we can read in the media, then obviously, we are just spectators to all of this. The only thing I can comment is that we have a very strong partnership with Credit Agricole that has just been renewed for the next 3 to 4 years across issuing and acquiring to 2029 and the performance with them is super strong and relationship is great. Same goes on for Monte dei Paschi, where, as I said, we just renewed a part of the issuing contracts. The other part is longer-term, and we'll have in the coming months a conversation on how to extend the merchant book distribution agreement while the merchant book itself is already ours. So, both parties, we have strong relationship. You know where Banco is eating to. So, let's see, it's very difficult for us to provide any further comments. We are, I think, in a strong position with both Credit Agricole and Monte dei Paschi. Operator: Mr. Bertoluzzo, there are no more questions registered at this time. I turn the conference back to you for any closing remarks. Paolo Bertoluzzo: Well, thank you again for attending this call. And most importantly, looking forward to seeing you in early March for not just results, but for the Capital Market Day. We plan to have in the same day a quick update on Q4 results, but then obviously looking to strategy and longer-term outlook for the company. And in that context, we will provide the guidance for 2026 and also capital allocation, our commitment for 2026 on the back of a very strong cash generation this year that is expected to land with EUR 100 more million of cash generated versus last year. Thank you very much and looking forward to seeing you over the next few hours and days in many conversations. Thank you. Operator: Thank you. Ladies and gentlemen, thank you for joining. The conference is now over, and you may disconnect your telephones.
Operator: Good day, and welcome to the Kratos Defense & Security Solutions Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Marie Mendoza, Senior VP and General Counsel. Please go ahead. Marie Mendoza: Thank you. Good afternoon, everyone. Thank you for joining us for the Kratos Defense & Security Solutions Third Quarter 2025 Conference Call. With me today is Eric DeMarco, Kratos' President and Chief Executive Officer; and Deanna Lund, Kratos' Executive Vice President and Chief Financial Officer. Before we begin the substance of today's call, I'd like everyone to please take note of the safe harbor paragraph that is included at the end of today's press release. This paragraph emphasizes the major uncertainties and risks inherent in the forward-looking statements we will make this afternoon. Please keep these uncertainties and risks in mind as we discuss future strategic initiatives, potential market opportunities, operational outlook, financial guidance and other forward-looking statements during today's call. Today's call will also include a discussion of non-GAAP financial measures as that term is defined in Regulation G. Non-GAAP financial measures should not be considered in isolation from or as a substitute for financial information presented in compliance with GAAP. Accordingly, at the end of today's press release, we have provided a reconciliation of these non-GAAP financial measures to the company's financial results prepared in accordance with GAAP. Eric DeMarco: Thank you, Marie. Our Q3 financial results are representative of the increasing demand for Kratos' military-grade hardware or systems and software to support the national security of the United States and its allies. Also reflecting this demand, today, we have increased our full year 2025 revenue forecast, which now reflects 14% to 15% organic growth over fiscal '24. This is up from our original forecasted growth of 11% to 13%. Additionally, we have increased our full year 2026 organic revenue growth forecast to 15% to 20%, up from our previous 13% to 15% above expected annual 2025 revenue. And we are providing today a preliminary 2027 revenue growth target of 18% to 23% organic growth above the 2026 revenue range, which is 15% to 20% above 2025. Also importantly, we are projecting an approximate 100 basis point EBITDA margin expansion for 2026 above 2025 and another approximate 100 basis point margin expansion again in 2027 over 2026 as we scale the business and transition to more profitable contracts. We expect our EBITDA margins to expand even though we continue to make significant and potentially increasing bid proposal and related investments as the number of opportunities Kratos has continues to grow. I want to emphasize very importantly, none of these forecasts include the Orbit acquisition we announced today. We will include Orbit once that transaction closes, which is scheduled for -- hopefully in Q1 of next year. Directly related to Kratos' accelerating growth trajectory, Congress, the administration and the Pentagon are all aligned to reform DoD procurement practices and rebuild the U.S. defense industrial base. This is represented in presidential executive orders, the Senate FoRGED Act, the House SPEED Act and the DoD's initiative to improve the acquisition process, each of which are expected to be good for Kratos. Additionally, the funding to support these national security initiatives for the United States and its allies is being put in place with an expected 2026 U.S. security spend of approximately $1 trillion. NATO allies increasing their security spend from 2% up to 5% of GDP and Pacific allies expected to do the same. United States, industry and Kratos are at the beginning of a generational recapitalization and rebuild of the West National Security apparatus to address the existing geopolitical threat environment and to deter and defeat our enemies. I believe that this global recapitalization and rebuild is structural in nature, both policy and threat-driven. This is not temporary or a one-off, and this will be a multiyear, multi-decade and duration exercise. Directly related to this rebuild and increased opportunity set, Kratos is making significant investments in facilities, plant, equipment, et cetera, to rapidly scale and support major new program wins we have received and that we expect to receive. Importantly, Kratos does not build it and hope that they will come. Our investments are made with program contract or partner commitment line of sight and with expected ultimate rate of returns that are acceptable to Kratos' stakeholders. I will reiterate that the number of additional or new opportunities for Kratos is at a record level. It is increasing, and it has accelerated over the past few months, and Kratos is positioned to take advantage. The government this summer announced that Kratos' Valkyrie would become a program of record with the Marines under the MUX TACAIR program. We are now able to report that this program is officially underway and will include the Kratos Valkyrie aircraft with Kratos' incredible partner, Northrop Grumman Mission Systems. We, Kratos and Northrop together expect to receive the initial formal contract award in the next few months. We had expected the award sooner, but similar to many awards across industry and Kratos, it has been delayed as a result of the federal government shutdown. The MUX TACAIR program is expected to progress from evaluation of various mission scenarios and the associated military methods of employment through low-rate production and then to full-rate production. We expect that Valkyrie systems under the program of record will include both RATO or rocket-assisted takeoff and conventional takeoff aircraft as well as multiple mission configurations. The joint Kratos Northrop Grumman System will provide a state-of-the-art CCA capability at a price point that will enable the Valkyrie system to be procured, distributed and operated in very high quantities which addresses the consistent war gaming result for the need for affordable mass to provide an advantage and a win for the United States. MUX TACAIR CCA brings exactly this. I can now also officially say that Airbus has partnered with Kratos to develop a German variant of the Kratos Valkyrie CCA. And in the third quarter we just ended, we shipped the first two Valkyries to Airbus under this new contract. As a result of the pending European need, the opportunity space here is substantial, including as evidenced by the Ukraine-Russia war and the significantly increased defense spending committed by the European nations. The first Valkyrie opportunity in Europe will be with the German Air Force solicitation for their own CCA, and this is our joint initial focus with Airbus. The European CCA System will leverage developed and proven baseline Kratos Valkyrie configured with Airbus-specific German Mission Systems to satisfy the operational needs unique to the threats in that region. Air-to-ground and air-to-surface capability is expected initial key in the European theater, as noted by several of the countries that we have been working with in addition to the United States. Consistent with the approach we have taken for the United States Marines, this mission-configured Valkyrie provides a CCA that can be procured and deployed in mass, matching the quantities needed to deter the threat and defeat the threat should it come to that. Very exciting for Kratos, our partner, Northrop Grumman, recently announced that they are actively looking at their Lumberjack jet-powered modular munition as an armament for the Kratos Valkyrie. I encourage you to go to Northrop's website and certain recent publications for more information on the Lumberjack, on the Valkyrie with the Lumberjack being a truly incredible technologically leading system. Through Kratos' many initiatives with Northrop, I must say that I believe that Northrop is one of the most proactive and innovative of all the national security companies out there, including recent new defense companies that have emerged in the market. Additionally, Kratos recently unveiled our Ragnarok low-cost cruise missile, which Kratos' Ghost Works has been working on in stealth mode and which we displayed stowed in the weapons bay of Kratos' Valkyrie at the U.S. Marine's Miramar Air Show in September. The Ragnarok is a $150,000 internal and external carry high-performance strike system that Kratos has specifically developed for the Valkyrie and also for certain other systems. We believe that Kratos' Valkyrie, which is in production and flying since 2019, is a clear competitive differentiator for Kratos with customers that are not interested in the PowerPoint or having to invest hundreds of millions or billions of dollars in a forever development program. The Valkyrie exists. It is in production, it is flying, it is coming, and Kratos, our customers and our partners are getting ready. Consistent with our past practices, we have not included sales of production quantity Valkyries in our base case financial forecast we provided today, only limited RDT&E type quantities. We will continue to be conservative and only include large production quantities in our forecast when we have programmatic contractual funding and/or delivery clarity. Kratos has been working with and supporting Taiwan for about 20 years with high-performance unmanned jet aircraft systems employed as targets for their military to train and test against. As we recently announced, we're excited about our collaboration with Taiwan's NCSIST or National Chung-Shan Institute of Science and Technology. This is Taiwan's DARPA equivalent to develop a Kamikaze variant of Kratos' in-production flying today tactical fire jet system. The combination of our most recent and capable advanced version of the tactical fire jet, which Kratos Ghost Works also has been working on in stealth mode configured with NCSIST's Mission Systems and weapon is called The Mighty Hornet 4. The Mighty Hornet 4 will be capable of ship hunting and ship killing and certain other key missions for Taiwan, which I am unable to discuss publicly, but which I believe will be a big surprise for a certain country. By combining the technology skill sets of Kratos and NCSIST, we're creating a unique system with an incredible performance to cost ratio at a cost point that is expected to enable extremely large numbers to be fielded affordably. Once again, similar to Kratos' Valkyrie, Kratos' tactical fire jet is currently flying in production and well down the production execution and cost learning curves and our customers can come and see their aircraft and the actual costs. Ultimately, these systems are expected to be produced in Taiwan under license from Kratos, which arrangement is expected to provide key advantages to both parties. For example, under the contemplated arrangement, Taiwan would control their production rate and employ their country citizens. While Kratos will receive a license fee with Kratos also freeing up U.S. production capacity for the US CCA opportunity and related jet drone aircraft opportunities, which U.S. production rates are expected to increase rapidly for Kratos. It was also recently announced that Korea Aerospace Industries has signed an MOU with Kratos to develop AI-enabled manned/unmanned teaming systems to integrate piloted aircraft with collaborative drones for future Korean air opportunities and operations. This agreement provides KAI, a U.S. partner in Kratos with proven flying and production unmanned combat platforms while aligning with Seoul's push to inject artificial intelligence and autonomy into next-generation air power. The Kratos KAI partnership aligns with South Korea's effort to scale artificial intelligence-enabled systems and expand defense exports, turning the Kratos partnership into both a strategic and industrial initiative. We are excited about our agreement with KAI. And here again, I believe that Kratos' success differentiator is that we have significant experience with actual artificial intelligence and augmented autonomy or auto pilot flying jet drone aircraft today. We don't do first attempts, PowerPoints or renditions. Since our last report to you, Kratos' Athena jet drones have had a successful series of customer flights, including in swarms, which included a leading VC-backed artificial intelligence company software system onboard Athena. Importantly, we have additional tactical drone opportunities we are pursuing, one of which I believe could be a catalyst for the company and that I now expect Kratos to receive in the next few months, which Kratos Ghost Works has been heavily involved with. Additionally, there are also two other new opportunities, which I believe that Kratos remains in a sole source position on, including one opportunity with Kratos' new Clone Ranger drone system that our Ghost Works recently publicly released. I believe that contributing to the positive momentum we are seeing with Kratos' drone business, the Trump administration and the State Department have recently announced that they will revise U.S. policy related to the sale of drones internationally, the Missile Technology Control Regime, or MTCR, in order to address the rapidly changing threat in technological and competitive environment. These changes in MTCR policy and related rules interpretations that have been published are expected to be favorable for U.S. drone and missile-related companies, including Kratos, and we believe that we are already seeing the benefit in certain of our international drone and missile-related initiatives, including as related to Kratos' jet engines on certain systems. We believe that Kratos is the world technological leader in developing, building and flying affordable tactical jet drones, and I emphasize affordable. This is a word of concept none of our competitors we are aware of ever discussed, and we believe this is a clear differentiator for us now. Kratos' market-leading jet drone position did not happen overnight. We've been at it for over a decade, and the market is finally coming our way due to the current state of warfare, Kratos' first-to-market position that Kratos has actual in production and flying jet aircraft and the low cost and affordability of Kratos' jet drone systems. Since our last report to you, we have formally received contracts on both Poseidon and [ Deimos with Deimos ] being Kratos' -- being with Kratos' teammate Leidos on the sea-launched Cruise Missile Nuclear or SLCM-N program, where the Kratos Leidos team was one of the teams down selected. Also importantly and separately, it was also reported that Kratos Turbine Technologies as the prime has received a contract related to the SLCM-N jet engine propulsion system. SLCM-N is a top national security priority and is expected to be a multibillion-dollar program of record. Poseidon, a single award to Kratos as the prime with the current anticipated total potential value of approximately $750 million is classified, is expected to begin ramping for Kratos in 2028 once the new Kratos dedicated facility, which is already underway is complete. As we were able to recently announce, we have now also been successful, won and received the formal contracts on both Anaconda and Helios, respectively. Helios is a next-generation hypersonic materials testing center that Kratos will own and operate, and we expect to shortly be able to announce the location for this major new Kratos facility and program. Anaconda will also be Kratos owned and operated. It's a state-of-the-art radar integration complex located in Indiana for the AN/SPY-1 radar sustainment and modernization efforts. Both Anaconda and Helios are expected to be multiyear, multi-decade Kratos programs with the potential of each being a $1 billion franchise opportunity for Kratos over the lifetime of the requirements based on the DoD's expected demand with these respective Kratos owned and operated facilities expected to be complete in 2028 when operations are planned to begin. To provide you an example of how valuable Anaconda and Helios are to Kratos, certain of the current systems Anaconda will be sustaining are suspected to be in service through 2065. We are continuing to pursue projects Nemesis, ARES, Vulcan and others, which we hope to be able to update you on in the first half next year, plus there are several additional new opportunities we have now been approached with that we are assessing. Prometheus with our partner, RAFAEL, is on budget and on schedule for 2027 operations with Prometheus having made a number of experienced solid rocket motor and energetic-related hires, including the Chief Operating Officer. Kratos' GEK Turbofan initiative with our partner, General Electric Aerospace and Kratos' new production and test facility in Oklahoma is also on budget, on schedule and expected to begin operations in '27. Separate from GEK, we have now been informed that we will be receiving two initial turbo jet engine program, low-rate initial production contracts from two separate customers for two separate systems, which we expect to be executing on in Q2, Q3 next year. Similar to Kratos' jet drones, with Kratos small jet engines, we made the internally funded investments to be first to market with actual relevant working products, which has enabled us to be designed in on several new low-cost cruise missiles, drones and other systems, and we are now heading towards production. We expect that in the future, as the merchant supplier of affordable small jet engines, Kratos will be in production on multiple programs and systems. On our Boom Supersonic program, we are excited that our work with Boom is positioning for its next big step with the planned first run of the Symphony engine next year. Kratos is the world technological leader in developing, building and flying affordable hypersonic systems, including our first-to-market hypersonic flyers, Erinyes and Dark Fury, our first-to-market Zeus 1 and Zeus 2 solid rocket motors and certain other hypersonic systems we have now successfully flown. We expect Kratos' hypersonic franchise, including MACH-TB program and additional programs we have, including one with our partner, Lockheed Martin, to be an important future growth driver for Kratos beginning in 2026. Similar to Northrop, Lockheed is an incredibly important partner of Kratos with actual working bleeding-edge technology systems and capabilities. We have a unique position in the satellite industry with Kratos' first-to-market open space software command control and other capabilities have earned us a large and growing share of the national security market. And Kratos is also a technological leader in software-defined networks for commercial satellites and in space domain awareness or SDA, including with our globally owned and operated SDA system. Kratos' satellite business with our virtualized C2 and TT&C capabilities is well positioned for the golden dome and other missile defense-related initiatives. Okay. Importantly, in 2019, Kratos acquired Florida Turbine Technologies, which is now Kratos KTT. A core capability of Florida Turbines or KTT, in addition to jet engines and propulsion systems for drones, missiles, hypersonic and space systems is also industrial gas turbines or IGTs, which we have helped build and support for 25 years. With the artificial intelligence and related data center market explosion, we are all seeing there is currently not enough power capacity in the United States to satisfy the related expected future data center demand. I can now report that Kratos is under contract with a well-known technology industrialist, both company and individual related to IGTs for power generation for data centers, including specifically artificial intelligence initiatives. We are under a very restrictive NDA, but I will say that the potential opportunity for Kratos here, if Kratos and our partner are successful in executing the plan, which Kratos is laser-focused on doing is large and could be another franchise type opportunity or catalyst for the company. We have certain critical path milestones that we need to hit through the end of 2026, at which time I will have better clarity on the probability and potential of this initiative, but I did want to mention this to you as we are now under contract with this new opportunity. Since our last report, we've announced that Kratos will be the exclusive Chaparral VTOL cargo drone aircraft manufacturer for Elroy Air, another opportunity that if our partner's business plan is successful based on the potential market demand, including with the Department of Defense, could be an additional future growth catalyst for Kratos. On the IGT and Elroy Air opportunities, both of which are dual-use commercial national security type market opportunities, Kratos was chosen as the partner as Kratos is a leading technologist in these respective areas, and Kratos can rapidly engineer, develop, demonstrate and be first to market with low-cost, high-volume manufacturing ready products. We are also now currently in discussions on additional potential large impact dual-use aircraft-related programs in Kratos Turbine Technologies wheelhouse. The internal name we have for this is Pegasus, which I'll be able to hopefully update you on in my next quarterly report. Today, we announced that Kratos is acquiring Orbit for a purchase price of approximately $356 million. Orbit is a leading global provider of mission-critical satellite-based communication systems for unmanned aerial, seaborne, undersea and land systems and also manned military and other systems. Orbit provides its hardware products and systems to major air forces, traditional prime contractors and emerging new defense and space companies. Orbit's customers are worldwide, including Israel, the United States, Europe and the Pacific region, with most of Orbit's large customers already being existing customers of Kratos. Since the acquisition -- excuse me, once the acquisition is complete, Orbit, which is headquartered in Israel, will report through Kratos' Microwave Electronics Division, which is headquartered in Jerusalem. And as you know, has been rapidly growing its unmanned systems space and satellite capabilities. The acquisition of Orbit is expected to be immediately accretive across virtually every financial [ metrics ] for Kratos. Orbit checks every box in the Kratos acquisition, including outstanding leadership and culture, mission-committed employees and leading technology with real battle-proven hardware, products and systems that are right in Kratos' sweet spot. The combination of Kratos' microwave technology and Orbit's communication technology is expected to provide new growth opportunities that are currently not available to either company on a stand-alone basis. This includes the antenna area. With the global recapitalization of weapon and space systems underway, Orbit significantly advances Kratos' position to take advantage of this situation, including internationally and in Europe. Also importantly, this was a negotiated transaction between Kratos and Orbit. This significantly reduced disruption to both companies' operations and the commitment that we have to our joint national security-focused mission. Orbit's most recent published annual revenue was approximately $70 million and EBITDA of approximately 23%. Once again, I want to emphasize, none of Orbit's financial information is included in the financial guidance that Kratos has provided today, and we will not include it in our financial forecast until the acquisition is complete, which, as I mentioned before, is currently expected sometime in Q1, probably March '26. Deanna? Deanna Lund: Thank you, Eric. Good afternoon. As we have included a detailed summary of the third quarter financial performance as well as the initial fourth quarter and modifications to full year 2025 financial guidance in the press release we published earlier today, I will focus on the highlights in my remarks today. Revenues for the third quarter were $346.7 million (sic) [ 347.6 million, ] above our estimated range of $315 million to $325 million with overachievement of forecasted revenues across all of our businesses with the single largest increase in our Unmanned Systems business, including a shipment of tactical Valkyries to an international customer, which received regulatory approval in the third quarter. As a reminder, when we provided our third quarter guidance, we had indicated that out of an abundance of caution due to the uncertainty of the timing of regulatory approval, we had forecasted this shipment in the fourth quarter. Additional notable organic revenue growth was reported in our defense rocket support and space training and cyber businesses with organic revenue growth rates of 47.2% and 21.2%, respectively. Adjusted EBITDA for the third quarter of '25 was $30.8 million, also above our estimated range of $25 million to $30 million, reflecting the increased volume, offset partially by continued increased subcontractor and material costs on certain multiyear fixed price contracts in our Unmanned Systems business, revenue mix and elevated bid proposal and other new opportunity pursuit costs. Unmanned Systems third quarter ' 25 revenue was up $23 million or 35.8% organically, reflecting the shipment of international tactical Valkyries. KGS third quarter '25 revenues was up $48.7 million year-over-year from the third quarter of '24 with organic revenue growth of 20%, excluding the impact of the February 25 acquisition of certain assets of Norden Millimeter, Inc. Third quarter '25 cash flow used in operations was $13.3 million, primarily reflecting the working capital requirements related to the revenue growth impacting our receivables by approximately $25 million, increases in other assets of approximately $3 million, primarily reflecting investments we are continuing to make related to certain development initiatives in our Unmanned Systems business. Free cash flow used in operations for the third quarter of '25 was $41.3 million after reflecting funding of $28 million of capital expenditures. As we planned, we are continuing to make investments to expand and build out certain of our manufacturing and production facilities in our microwave products, rocket systems, hypersonic and jet engine businesses to meet existing and anticipated customer orders and requirements and investing in related new machinery, equipment and systems. Consolidated DSOs or days sales outstanding increased from 103 days in the second quarter to 111 days, reflecting the over 26% revenue growth and the timing of milestone billings. Our contract mix for the third quarter of '25 was 70% fixed price, 27% cost plus fixed fee contracts and 3% time and material contracts. Revenues generated from contracts with the U.S. federal government during the third quarter of '25 were approximately 67%, including revenues generated from contracts with the DOW, non-DOW federal government agencies and FMS contracts. In the third quarter of '25, we generated 16% of revenues from commercial customers and 17% from foreign customers. Now moving to financial guidance. Our financial guidance we provided today includes our expectations and assumptions for our supply chain execution, the impact of the federal government shutdown and for employee sourcing, hiring, retention and the related costs. We have increased our full year '25 revenue guidance from $1.290 billion to $1.310 billion to $1.320 billion to $1.330 billion, reflecting an organic growth rate of 14% to 15% over 2024 and maintain our adjusted EBITDA guidance of $114 million to $120 million, reflecting the expected mix of revenues and an elevated level of new opportunity pursuit costs and other investments. Our fourth quarter revenue guidance of $320 million to $330 million reflects an estimated organic growth rate of 11% to 14% over Q4 of '24, which growth is reflective of the elevated bid proposal and other investments we are making. Our guidance continues to include the impact of increased material and subcontractor costs on certain of our multiyear fixed price contracts, specifically in our Unmanned Systems target drone business, where we have experienced cost growth from certain ancillary materials on our targets and for which we are unable to seek recovery from the customer until the renewal of future production lot contracts occurs. We are continuing to aggressively manage costs where we can to minimize the impact to our margins. We are adjusting our full year free cash flow and operating cash flow estimates primarily as a result of the increased organic revenue growth we are experiencing and the related future contractual payment milestone and other expected customer payment dates and also reflecting Kratos making long lead material purchases ahead of contract funding award to meet customer execution time lines, which has resulted in an increase in our customer accounts receivable balances. Additionally, the federal government shutdown and its impact on government program, administrative and other offices and functions has resulted in certain expected government contract receivable payment dates to be delayed, resulting in an increase in customer accounts receivable days sales outstanding. The collection of these receivables is expected in the future. It is only a timing-related matter of the expected collection date. Additionally, certain of the new facility, facility expansion, machinery equipment and other capital expenditures and investments we had planned for 2025 are now expected to be incurred in 2026, including as a result of our managing the company's cash expenditures to the degree that we can control, which has resulted in a reduction in our full year 2025 capital expenditure forecast. Kratos' operating cash flow guidance also assumes certain investments in our Rocket Systems and Unmanned Systems businesses related to the procurement of rocket and related systems and the completion of certain derivatives of our Unmanned Systems vehicle of approximately $28 million to $32 million. Eric DeMarco: Great. Thank you, Deanna. We'll turn it over to the moderator for questions. Operator: [Operator Instructions] Your first question comes from Sheila Kahyaoglu from Jefferies. Ellen Page: This is Ellen on for Sheila. Maybe to start, you noted that the German Air Force is procuring Valkyrie. Can you give us a little bit more color on the international opportunity for that program? And any thoughts on the revenue contribution from Valkyrie in the next few years would be great as well. Eric DeMarco: Right. So specifically, Airbus procured the Valkyries. Airbus has procured the Valkyries specifically related to a CCA opportunity initially with the German Luftwaffe. However, as I alluded to in my prepared remarks, because we have flying aircraft and now they're in Europe with Airbus, we're going after another -- a number of additional tactical drone or CCA opportunities in Europe. And we have the advantage here because, again, we have actual flying aircraft that have been flying since 2019. Also, as I mentioned in my remarks, in our financial forecast, the only revenue, only that we have for anything we said for Valkyrie is for RDT&E and S&T and like the two we just sent to Airbus. We are not including any production level forecasted revenue in our numbers until, as I said, we have absolute clarity programmatically funding and delivery dates, so we have no false starts. Ellen Page: Great. Sorry about that on Airbus. And can you tell us a little bit more about the revenue synergy opportunities from Orbital? Congrats on that acquisition. Eric DeMarco: Yes, the -- it's competitive, but this is what I'll tell you. The vast majority of antennas right out there right now are parabolic or they're hit, fixed to their hardware. And Kratos' Microwave business is an expert in AESA's silicon-based and other types of radar enhancement technologies that are being deployed right now. And we see a very good opportunity. I said 1 plus 1 equals 3. It's probably going to be 1 plus 1 equals 5 with our technology, Orbit's technology, their installed base and their customer base. Operator: Your next question comes from Seth Seifman from JPMorgan. Seth Seifman: I wanted to ask about the Valkyrie progress with the Marines. And you talked about kind of moving up to full-rate production and looking at a level of a fleet size that could really bring affordable mass. And so how do you think about that ramp-up over the next several years and what they might be looking at? Eric DeMarco: Right. So what I -- what we see here is this is going to be your typical program of record, where for near-term, mid-term, long-term. Near-term, the infrastructure is being put in place to handle production quantity types of Valkyries that are going to be deployed with the customer. And so this is -- and I can't get into too many details, but it's a typical program of record. The personnel are being identified and allocated or assigned and budgeted for by the government. There is going to be launch equipment. There is going to be recovery equipment. There is going to be communication equipment. There is going to be logistics. There's going to be spares. There's going to be training. All of that infrastructure is going to be put in place. That has begun. While that is happening, there will be Valkyrie sales with Northrop Grumman Mission Systems on it in the near-term, okay? So they can start utilizing the aircraft, right? Then midterm, we'll go into full-rate production once that infrastructure is out there. And long-term, that full-rate production, I believe, is going to go for a number of years, and it will be for my opinion, dozens and dozens and dozens of aircraft initially because of the affordability and the low cost point and the mission that they're specifically targeting. Seth Seifman: Right. Dozens and dozens as an annual rate or as a cumulative program objective? Eric DeMarco: Annual. Seth Seifman: Annual. That's what I thought. Okay. Okay. Excellent. Very good. Cool. And then as we think about the EBITDA progression over the next couple of years, and we think about when we kind of flip over to cash positive or as the cash burn starts to narrow, I know probably not a good time to give specific guidance in that regard. But just in terms of maybe a framework for people to think of more qualitatively about how that evolves along with the EBITDA growth. Eric DeMarco: Yes. So we have absolute line of sight now, Seth, on when the business will turn cash flow positive and then how it will start to ramp. We have line of sight on it. We can see it, okay? The flex point here is the number of program opportunities that continue to come to us and they're increasing. And let me dig into this a little bit for you so you understand what's going on here. This started 6, 9, 12 months ago, and it's been accelerating, where if the government customer has a viable alternative to what I'll frame as a traditional in certain areas, they're giving that viable past performance qualified company, Kratos, a chance. Take a look at the last couple, 3, 4 months, okay? We won Helios, multiyear decade program. We won Anaconda, multiyear decade program, okay? We won Poseidon, which I had not talked about previously, it's classified. We won that, okay? We are being encouraged to bid prime on very large program opportunities, and it's accelerating. So based on the hand of cards we have right now, we have line of sight on this in a few years. However, the opportunity set of multi-hundred million dollar, billion dollar opportunities continues to increase. This is one of the reasons our EBITDA margins, I expected them to be up higher. They're not because of the bid proposal and the capture costs because these are big programs we're spending. So we can see where those lines are going to converge, but they may move out a little bit if the opportunity set continues to come at us and the strength it has been. Operator: Your next question comes from Michael Ciarmoli from Truist Securities. Michael Ciarmoli: Nice results. I don't know, Eric or Deanna, the accelerating organic growth in the guidance for '26-'27, definitely encouraging. Can you give us maybe a little bit more detail around what specifically is driving that acceleration? I mean I know, Eric, you just mentioned some of the program wins. Is that the driver? And then can you maybe parse out the growth between KUS and KGS? And maybe just back to the question Seth was asking on Valkyrie with the Marine Corps. Is that baked in there or not? Eric DeMarco: Yes. The Valkyrie with the Marine Corps is not baked in to any numbers we gave today. When that happens, that is going to be a step function upside. Now to the first part of your question, our hypersonic franchise, it will be the clear driver of growth for us for the next 2 or 3 years. And this is programmatic. This is not just MACH-TB. We are on a number of programs we cannot talk about. I alluded, we're on several with Lockheed Martin, for example. And they are all either just starting or they are ramping. I'll tie into that hypersonic franchise, our rocket system business. Think ballistic missile targets, think sub orbital vehicles, I can't say much more about that. We are the industry leader in those areas. So this is missile defense-related stuff, right? So -- and they go hypersonic speeds, which is why they're in our hypersonic franchise. Also in KTT, okay, we are building the engines for numerous hypersonic weapons. We can't talk about it. We're under NDA, a lot of them are classified. Those are going to be going into production '26, '27. So number one, the biggie, the hypersonic franchise across the company. It is growing. And Michael, it's possible in the next 2 years, 3 years, our Rocket System business is the biggest division in the entire company, and it's going to pass space, okay? Another big growth driver for us is the Space business. okay? The whole thing has turned around in the last 6, 12 months on us -- 6, 9 months on us. We have the issues with the commercial guys, they couldn't get their satellites up. It has been -- that has been blown away by what's going on, I'll say, in the national security area, including the classified area for Kratos with our ground systems to command and control the stuff that's going up. It's the growth rate on that business considering it's a $400 million business. I think that division is $400 million or so. I think it's going to $500 million or something like that next year. On programs we've won, it's up $100 million, something like that, okay? So the space and satellite business is looking great. Third, microwave electronics. The microwave electronics business, both internationally and domestically, everything you and I are chatting about here, what does it need? Microwave electronics. And then the next one is engines. And it's engines for missiles, engines for drones, engines for -- these are not hypersonic engines. This is separate thing, turbojets and turbo fans. And then another big one that's taking off is in our C5ISR business. This is all the hardware we build for virtually every prime, for virtually every missile, radar and air defense system they build. We build the hardware. We are the merchant supplier of military-grade hardware for air defense systems. And so you look at Northrop or Lockheed or Raytheon, I can go on, the systems they're talking about, we're on them. So those are the ones that are -- we just have programmatic clarity, which is why we're looking at 15 to 20 next year and 18 to 23 in '27. Michael Ciarmoli: Okay. Got it. That's great detail. Just for clarity, is the GEK800 engine in that forecast? Or is that beyond? Eric DeMarco: No, that kicks in. So that facility is going to come online in '27. So that's going to be, hopefully, this time next year when we're giving '28 target, that's going to be one of the big step-ups in '28. Operator: Your next question comes from Mike Crawford from B. Riley Securities. Michael Crawford: Just to continue on that hypersonics discussion. If you look at like any other provider like say a Castelion, which has its low-cost Blackbeard hypersonic missile. When they do testing, that's got to be on one of your MACH-TB or MACH-XL vehicles, yes? Eric DeMarco: Okay. I cannot talk about Castelion, but I can tell you that it was recently announced by two separate companies, you can go look, that they're going to be launching things on Kratos' systems. I'll give you a specific one that happened yesterday, Mike. Take a look at hypersonics with an X down in Australia. They just closed the funding round. They have the DART hypersonic drone. We have exclusive rights for that in the United States. That specifically will be launched on Kratos' Zeus. There's a lot of information on that because of the funding round they just closed. The spirit of what you said is correct. I just have to be careful on NDAs I'm on. Michael Crawford: Okay. I understand. And maybe then just shift gears. What opportunities do you have in next-generation command and control? Eric DeMarco: That's primarily we can't -- I can't talk about that or I would. We're involved in it. I'm not going to get into it. Sorry. You're asking some stumping questions, my friend. Operator: Your next question comes from Jan Engelbrecht from Baird. Jan-Frans Engelbrecht: Eric and Deanna, congrats on a really strong print. I'd like to get some more details on Valkyrie. Just if we look at the '26 presidential budget request, that was $58 million for the prototype. That's a 12-month contract, but then in the reconciliation bill, there's $270 million for sort of, I'll quote it, the development, integration and production of Marine Corps unmanned combat aircraft. And to my knowledge, Valkyrie is sort of one of one. So just wanted to get your thoughts there. And then also just the recent Marine Force Design Update in October. They said there were going to be 2 more flights this year. Is this for calendar year 2025? Or is it government fiscal year '26? Eric DeMarco: Yes. Yes. So on the first part of your question, on the budgeting and what you saw in the reconciliation bill and your takeaway on that is absolutely correct. Absolutely correct. And that is one of the areas on how that will be spent over fiscal '26 and '27. That is something that's being ironed -- was being ironed out real time, it's kind of delayed now with the government shutdown. So that's what's going on there. Your question on Marine Force structure, I cannot, for obvious security reasons, get into flight schedules. However, I'm glad you brought that up. I did not mention it in my prepared remarks. You may have seen the paper the Marines put out last week on their force structure and their priorities. And on two of the critical capability areas, the Valkyrie was specifically called out, which ties into they're moving out on their program of record. Jan-Frans Engelbrecht: Perfect. That's really helpful. And then if I could have a quick follow-up, on Prometheus. I just wanted to sort of understand exactly what solid rocket motor area Kratos is going after. I would assume that it's sort of small diameter, tactical missiles, but does it extend to larger missile defense applications. And then just how should we think about sort of a realistic market share capture? Sort of how long -- it's operational by 2027, the facility, but then as you do qualification and testing just so we don't get ahead of ourselves for when revenue can ramp? If you could just size that up for us as well. Eric DeMarco: Yes, sir. So initially, Prometheus will be on tactical missiles exactly as you referred to. So I'll give you an example, so like a Tamir, for example. So tactical missiles, not large rocket systems like Zeus, which is like 32 or 33 inches or Oriole, which is like 23 inches. These are going to be tactical in nature. And as you know, we have -- I can't use the word commitment. We have an indication from our partner, RAFAEL for both on the rocket engine and the energetic of tens of thousands of those once this is up and running. That ties into the second part of your question on the market share, okay? Our primary initial thesis that closes the business cases with our partner, RAFAEL and missiles energetics requirements and solid rocket motor requirements that RAFAEL has both internationally and in the United States, business case was closed with that. Now to answer your question, we are already -- we have been in discussions for several, several months now with the platform guys. So think Lockheed, think Raytheon, think Boeing, the guys that don't necessarily want to go to ATK or Aerojet because they're part of another company, there are competitive reasons to get their solid rocket loaders, okay. The demand, as you know, is incredible, and it's going to be there for the foreseeable future. We expect, as I've said before, that once this is up and running, both with the RAFAEL piece and the third-party piece, this will be $1 billion or multibillion-dollar valuation business. I don't want to give market share guesses right now. My perspective is, and I'm pretty sure I'm right, the market opportunity here is so big because the demand is so big, especially because there is no merchant supplier out there that has qualified systems other than Prometheus, we're going to do great. Operator: Your next question comes from Jonathan Siegmann from Stifel. Jonathan Siegmann: So in the news, there was the XQ-58 flying with AI by the Air Force. I was wondering if you could comment a bit on that and any kind of update on opportunities with the Air Force. And then second, on the Valkyrie again, just you're partnered with a handful of companies on three continents that integrate the mission systems with the aircraft. Some of these new guys are pitching their secret sauce as their own AI attached to a specific aircraft. Can you just kind of contrast your open mission system architecture with the new entrants? Eric DeMarco: Yes, I'm glad you mentioned that. Yes, the Valkyrie has been flying with the United States Air Force. We've been flying with F-22s now, F-35s, F-15s, F-16s, and we're doing that relatively routinely. I believe the Air Force put something out on that. I cannot get ahead of the customer, but I'm the CEO, I drink the Kool-Aid. I feel great about our position with the Valkyrie and our other drones with the Air Force because they've been flying since -- Valkyrie since 2019. They've deployed weapons, they're low cost, they're affordable. They are flown with multiple artificial intelligence, I call it augmented autonomy packages, both of the government and of many of the other guys that are out there. So second part of your question, take a look at Athena, I can't talk about, that's classified, but Athena has been flying for quite a while, and it just knocked out a number of Athenas in swarms with one of the new defense tech artificial intelligence company's software on board, just knocked it out of the park. And so that customer is getting an incredible amount of data from that. And there are many more of those that we're doing. We just don't talk about them. Again, it's RDT&E and S&T. On the third part of your question, I don't want to speak for any of these other companies. I'll speak for Kratos, okay? We have been flying augmented autonomy, artificial -- if you will, artificial intelligence, the new buzzword, okay, interloop autopilots for years, decades, we have people that have been doing this, okay? So have the big primes. This is not a black box type thing, in my opinion. It's just not a black box type thing. And we should know since we have probably 8 to 10 different jets flying with it right now. So I'm not going to comment about the other guys. I'm not worried about them one bit in any way at all. We're going to win, and I think by today's report, especially with this MTCR rule change and this interpretation and the position paper that Marco Rubio put out at state, the fact that we've got these planes flying right now, you said about three -- the continents and everything, this is why. And we're going to be -- I think this time next year, we're going to be under contract for jet aircraft in a handful of five different countries. Operator: Your next question comes from Anthony Valentini from Goldman Sachs. Anthony Valentini: Eric, I just want to quickly return to some of the Valkyrie comments that you guys made. Maybe two quick ones for you there. What do you guys have in WIP today? And what's the current annual capacity for Valkyrie? Deanna Lund: Yes. So Anthony, we are producing our second lot of 12. So we just about completed the first lot of 12 and the second line of 12 should be completed mid next year sometime. Eric DeMarco: And on the first lot, the second lot, a number of the first lot have been sold and virtually every one of the second lot have -- they're white tails, but they've got a name on the tail, where we're expecting them to go if things go our way. On the second part of your question, today, right now, we can do 50 a year. Anthony Valentini: Okay. That's helpful. And then, Deanna, maybe on the margin front, I know you guys have talked about this target drone program in the past. It's been a drag, and I think it's supposed to be for multiple more years. How much of a drag is that in 2026 and 2027 implied margins? Deanna Lund: There's still a drag clearly in 2026, and '27 there is -- it's a little bit less because part of the drag is related to our manufacturing overhead. We expanded our Oklahoma target drone facility about a year ago, so -- and it's not at full capacity right now. So that excess overhead cost is also part of the margin drag in addition to the two target drone contracts where we're on 5-year production lot contracts. We're about halfway through that. So we've got about another 2-plus years to go. We should be renegotiating the next 5-year production lot in the next year or so. So we are doing what we can to mitigate the cost as much as possible, doing large supply buys with our suppliers to get as much quantity discounts as we can. But we do have about another 2-plus years to go on that. Eric DeMarco: Yes. And so coming at it just a different way. In 2028, those two contracts will be renegotiated. We should be in production on Valkyrie and/or Tactical Firejet and/or Clone Ranger in this new facility, which will reduce their overheads -- the fixed overheads. All of that will be a force multiplier. We could see a significant step up in margins in '28 because of those reasons. Anthony Valentini: Okay. That's perfect. Super helpful. Eric, maybe like a little bit more high level there. I'm sure you're aware of this, but there's a lot of these defense tech companies out there that are kind of talking about the ability to drive margins that are, let's just call it, 20% EBITDA plus as a result of them spending more on IRAD and having more software and just doing things at scale and at low cost. So I'm curious, for you guys once you get through the growth opportunities that you have over the next X number of years, is there a reason to believe that this could be a 20%-plus EBITDA margin business? Or is it lower and more in line with Prime? Like how do you guys think through that? And how should we be framing that? Eric DeMarco: Yes. So on the first part of your question, whoever these guys are that are telling you this, ask them -- tell them to read the Truth in Negotiations rules or TINA. And then you judge for yourself based on what they're doing if they can make 20% EBITDA margins based on TINA, okay? So now to Kratos. Our margins, as we went through today, and as Deanna and I just explained to you, they are going to continue to go up, '26, '27, '28. They would have gone up more in Q3 and in Q4 and for forecasted next year. The bid and proposal and capture costs that we are expending right now on new opportunities as prime is incredible. And I mean, look what we just reported. We just reported, I think, 23% growth. We just increased next year's organic growth up to 15% to 20%, and we're projecting the following year's organic revenue growth to be 18% to 23% above next year's 15% to 20%. This is all new programs we've either won or we're going after and the customers have said, we think you're going to win. So that's suppressing the margins a little bit. Let's say that cools down a little bit going into '28, '29. This also ties into the question earlier, Anthony, about my line of sight on positive cash flow, okay? This ties into it. If the assumption is that this incredible growth period starts slowing down a little bit, say, '29 or '30, the B&P will come down, the development contracts which are lower margin will come down. The lines will cross. Our margin rates are going to go up significantly, and we're going to start generating significant cash flow. That's what our models look like right now. Operator: Your next question comes from Ken Herbert from RBC. Kenneth Herbert: Eric, I wanted to ask about the expected procurement reform changes that should get announced later this week by Hegseth and Feinberg. To the extent to which you follow these because they really seem to lean into commercial pricing policies, sort of speed of technology to the war fighter, things that you seem to obviously have leaned into as well. To the extent to which you can comment, how do you view these potential reforms benefiting Kratos and maybe shifting some of these dynamics around either top line or margin opportunity? Eric DeMarco: Yes. Great question, Ken. I read the 6-page summary briefing that came out this morning on that. Obviously, I'm looking forward to see what the Secretary is going to say on Friday. I believe this is going to be exactly consistent with Wicker's FoRGED Act, with the House's SPEED Act, with the 3 or 4 executive orders. This is now the Pentagon coming forward. I think that this is going to be outstanding for Kratos because what this is basically saying, and I think take a look at what the Marine Corps said yesterday, bring us your products, let us test them and we'll buy them. This whole procurement paradigm is changing. It has to change because of speed. We have to deploy things, and we have to do it quickly. So I'm very excited about this. Again, I frankly believe this is one of the reasons the venture guys are backing all these new defense tech companies and all the money they've spent on lobbyists, they're helping shape this, they're doing this and which is great for Kratos. And let me tell you what I see coming here is let's take a look at the $1 trillion spend, 50% of that goes to the war fighter's salary, his medical and his retirement. That leaves $500 billion. About half of that $500 billion or $250 billion is buying hardware and stuff from contractors. Let's just pick a number, let's just, say 10% of that a year is not going to go to the traditionals anymore. It's going to go to guys like Kratos, that's $25 billion a year that's going to start flowing to guys like us and the new defense tech guys, that's going to be growing 5% or 6% a year. That's when I talk about structural, and that's what I think you're referring to the Secretary is going to do on Friday. This is structural. It's administration, it's Department of War or Department of Defense, whatever we call it. It's the House, it's the Senate, and it's because of the threat. Kenneth Herbert: Appreciate that, Eric. Just one quick follow-on. I mean, obviously, this isn't the first time we've tried fairly ambitious procurement reform. What do you think is different now in terms of how do you handicap this to perhaps be more successful or to stick, obviously, beyond sort of what's contemplated? Eric DeMarco: So I think from now until the next election or January of '29, I think that this is going to rip, and it's going to accelerate because of this administration, you mentioned Feinberg. There are a number of other ex entrepreneurial, commercial venture guys, private equity guys that are in the administration. So that's important. The administration has many of these people in the right places. That's number one. Number two, I'm going to go back to the new defense tech companies and the venture capitalists that are funding them. They are spending an enormous amount of money lobbying, trying to change the policies. I mean take a look at one of the acts I read and you go to somebody's website, it's like it was taken right off of their website, one of the new defense tech guys. So that is a big change we didn't have before. And one of the reasons the military is doing it and this administration is doing it is they're looking at this money as a force multiplier to their budgets. This is why contracts are changing now to incentive based. In other words, you four guys, you win, you each develop and bring us something. And if whoever gets there first or second, we're going to down select the two, you get a prize of $100 million. Now you can go to gate #3. Literally, there are procurements coming up that we're involved in that are like this. And so companies whose DNA is to not buy back stock, not pay dividends, but to take your shareholders' money, which we treat every dollar as our own and develop a new product for a specific need or a requirement, this is why we're being successful. Operator: Your next question comes from Colin Canfield from Cantor. Colin Canfield: So maybe just summarizing the building blocks that you gave in terms of the guidance. It sounds like, based on what we have today, call it, roughly $2 billion revenue line item in '27 and then we get upside from there, call it, maybe Q2 to Q3 on a mix of Marine Corps production and then probably Air Force CCA developmental work. So as we think about those building blocks, a, does that building block -- like does that make sense? B, what are some of the additional U.S. customers beyond Marine Corps and Air Force that you feel really strong on. And then C, is it fair to characterize that starting point as fundamentally being kind of a production doubling cycle, if it's like going from like low rate initial production to full rate production over a 3-year period such that if it's $2 billion in '28, and it's more like $2.4 billion, and then maybe it's like 5 years from now, it's like $5-ish billion. Is that -- does that all make sense? Eric DeMarco: Yes. Okay. So on your base case assumption that you're talking about, let's put aside tactical drones, put those aside. I'll come back to them, all right? The growth rates we gave you today, which I fully expect will continue into '28 when we give our target next year, that excludes tactical production. Let me give you a big one that's coming that I haven't talked about in a long time, but we are under contract, okay? We are under contract for the ground transporters for Sentinel. This is a multi-hundred million dollar initial contract before it goes into production. This is going to start ramping '27, '28, '29. So there's a big program of record out there. We are on, it's enormous. I can't get ahead of my partner, Northrop. This is going to kick in for us in some of those out years. That is in our forecast because it's a program of record. Okay. Let me give you another one. Please keep this one in mind, too, the jet engine production. Okay. Think depending on the size of the engine, these are just the turbojets, this is not GEK, $30,000 to $50,000 per engine for us, okay? So if we get to 1,000 engines a year in '28, which if you take a look at some of these low-cost cruise missile programs that we are designed in on, that's not out of the ordinary, that helps get you there. So putting the tactical drones aside, we are looking at line of sight on being a multibillion-dollar company over the next several years. As you said, we're going to get to $2 billion relatively soon. Then let's bring in the tactical. I don't want to talk specifically about the Marines or the Air Force. I can't do that, okay? But if you take the Valkyrie and what we're doing with the Marine in Europe. One of the other ones I talked about that we're sole source on, but I think I'm going to be able to talk about a lot when we report Q4 in February, okay? We could be producing -- let's be super duper conservative. 2028, let's say we're doing 50 a year at $10 million each. There is an incremental $500 million, okay? Tactical fire jet, okay, use $500,000 to $700,000 per plane just depending on the mission system, okay? This could be 200 to 300 a year by 2028. That's what we're talking here. This is a very important system internationally. This is one of the reasons these rule changes and interpretations are so important for us, All right? Okay. Then there are some other ones that you alluded to. I can't talk about if we're successful on them, I think we're going to be successful on at least one of them, that would start being very material also in '28. So that's why -- that's the meat on the bone on why I agree with your vision, let's say, through 2030. Colin Canfield: Got it. Definitely appreciate that color. And then as we think about kind of, we'll call it, like the production style work of essentially like we think of the umbrella, right, it's Anduril's Lattice versus Shield AI's Hivemind, with both of them being extremely competitive for each of the mission sets. But the production volumes that follow those likely demonstrate some relative growth that's either exponential or logarithmic, right? More platforms coming on that's more software. How do you think about all of that goodness that we just talked about in terms of those building blocks versus the potential upside of those software partners getting more significant growth and thus driving more production towards Kratos? Eric DeMarco: Okay. So yes, that's a good question. Deanna calls this my CEO stars aligned vision, okay? Let's say that Anduril was right with the Barracuda, okay? Let's say that some of the -- let's say Castelion is right, okay, with Bluebeard or Blackbeard, okay? Let's say some of these guys are right. On the air-breathing engine side, okay? This is also the big guy, so take a look at Comet, take a look at Lumberjack, take a look at Franklin, take a look at Mace, take a look at CMMT, okay? All of which are going to need some type of a brain as you're talking about for their mission. They're all going to need engines, and we see how warfare now is quantity. And it's not going to be quantities of $3 million JASSMs ER, XR and LRASMs. It's going to be Barracudas, it's going to be things like that. So let's say my 1,000-engine-a-year type of a thing is low by 2,000 a year at $50,000 or 3,000 engines a year at $50,000. This is how we will participate if they're successful, and I hope they are for U.S. national security. Colin Canfield: Got it, got it. And just last one to make sure that we have the accretion dynamics ironed out in terms of orbital. But maybe just if we do the rough math, it sounds like it's 350 divided by 15 for LTM EBITDA and then roughly, call it, 350 divided by, let's call it, 20 to 30. So at, let's call it, a mid-teens, low teens EBITDA multiple of takeout for revenue sake, what are the key IP technologies that you view you're getting within an asset? Eric DeMarco: Okay. So the number one that I'm focused on is their miniaturization technology on unmanned aerial vehicles, unmanned ground systems, unmanned ships and unmanned submersibles which has proven -- in my mind, this is a significant -- this ties into your question on how we're going to ride the coattails on them. This is another avenue for Kratos to participate in vast quantities of systems that need communication capabilities in very difficult environments, including A2/AD. This is how I see it for them. Operator: Your next question comes from Andre Madrid from BTIG. Andre Madrid: Eric and Deanna, you previously mentioned, earlier on the call, you said that hypersonics could be the largest single franchise within the business. And then I think on a note back in early October, you said that this would be a multibillion-dollar franchise for Kratos. Obviously, there's a big difference between being the biggest business and multibillion dollar. When might you see it reach the $1 billion range? And what are the puts and takes of that growth across the BUs? I get that that's a lot, and I know there might be the issue of NDAs, but at least what needs to happen for that to occur? Eric DeMarco: I believe in Kratos calendar 2028, it's a $1 billion-plus business franchise. Nothing needs to -- okay, this will happen unless the global peace breaks out. That's it, that's it. That's what it is. Andre Madrid: And the puts and takes, I guess, like, obviously, that touches a lot of the BUs. How do you... Eric DeMarco: So the puts and takes, I'll take -- I'll do the takes first because I'm the optimist, okay? You're going to laugh at this one since we're in the middle of a government shutdown. If the government gets it shipped together and we get budgets or continuing resolutions kind of sort of on time, we could get there in '27, okay? That's the take. The puts, it doesn't happen until '29. We have government shutdowns and the children argue with each other, and we have more continuing resolutions with additional reconciliation bills and it's a mess, then it's '29. It's really the funding of the programs, of the various programs we have. Andre Madrid: Got it, got it. No, that checks out. And then maybe a quick one, Deanna, on the CapEx push out into '26. I mean what business units or programs are going to be most affected by that push out? Deanna Lund: It's primarily in the KGS business. So it's our integration payload facility in Indiana. So that's just some of the timing of construction that will happen predominantly in '26 and then our advanced manufacturing facility in Birmingham. So the GEK facility that we're building in Oklahoma, that wasn't scheduled to start until '26 anyway. So just -- it was predominantly those two first ones that I mentioned. Operator: Your next question comes from Austin Moeller from Canaccord Genuity. Austin Moeller: Eric and Deanna, so how do you view your expected long-term revenue mix for U.S. versus international Valkyrie sales, just given the recent commentary and announcements of international partnerships for it? Eric DeMarco: The -- so let's talk relative and then absolute. On a relative basis, the U.S. is going to be far and away the biggest because that's where the biggest budgets are. And in some of the earlier commentary we were talking about with the MUX TACAIR program, et cetera. However, on absolute dollars, we go back to the previous discussion. And what I know some of the programmatic buy plans are on certain of the international guys we're chasing with Airbus. '28, '29 -- let's say, internationally, it's 20 or 30 Valkyries a year at $10 million each. So there's a couple of $300 million in revenue that on a relative basis is going to be -- could be very small to the U.S. But on an absolute basis, it could be very important to us. And Austin, while you're -- since you mentioned this, I want to emphasize something. One of the opportunities that we're chasing that I believe in the tactical high-performance bigger jet drone area is that I believe we're sole source on if this all comes through the government approvals and everything. It's not a Valkyrie. Take a look at our Clone Ranger. If you throw that in your bucket, international, if that comes to fruition, we're going to know in the next year and then I'll be able to crisply answer your question. International absolute could be even bigger, still on a relative basis small to the U.S., but it could be even bigger because that's a real customer out there that's interested in the Clone Ranger. Austin Moeller: Okay. And what are your thoughts on the Army CCA program that was announced at AUSA? Would this be rail launched or use runways? And would it be potentially paired with Army rotorcraft? Eric DeMarco: Great question, great question. My opinion is these are not going to be tied to runways for the obvious reason. These are -- and expeditionary reasons. These are going to be rail launched or they're going to be VTOL launched. You've seen a lot of VTOLs come out recently. So these are not going to be runway dependent. They're going to be rail launched or VTOL. Primarily rail, it's the best way to do it. And I do believe that they will be loosely tied to manned helicopter -- loosely tied to manned helicopter gunships. A lot of them, especially if they use our technology, they're going to be pretty autonomous. Operator: Your next question comes from Pete Skibitski from Alembic Global. Peter Skibitski: Eric, I don't know if you can answer this or maybe, Deanna, but on MACH-TB, do the economics of that program change for you if you use a Kratos flight test asset versus -- Zeus or Erinyes versus a supplier's test asset? Deanna Lund: There are different margin rates depending on the content of what we're providing, yes. I can't get into the specifics, but it's... Peter Skibitski: Higher content is better for you. Okay. And then on Helios, you got the $68 million contract in October for the new facility. When does that facility come online? And kind of what further awards or contracts are you kind of expecting there? And is that connected to MACH-TB or is that fully separate? Eric DeMarco: Yes. It can be connected to MACH-TB but it's not tied to it at all, and I'll explain why. So obviously, this is an arc jet and a laser facility for incredible heat to test hypersonic weapons and materials. So it's going to use an enormous amount of power, like crazy electricity. We're down to two sites. We're going to be making the decision probably in the next 30 days that either have the infrastructure and the power capacity already or they're willing to put it in, okay? This ties into something in my prepared remarks that Kratos does that other companies out there don't do. We don't go and start building a generic 1 billion square foot facility somewhere without a program. okay? Because programs are specific and they require different types of business structure, different types of security, different types of power. So -- and you need a customer that's going to pay for it for a rate of return. The initial $68 million is to get the facility going, et cetera, et cetera. So Kratos will build the facility, Kratos will pay for the facility. It will come out of our CapEx. The customer is giving us a contract where we're going to be able to recover that CapEx either in the overhead rates on the contractor through a lease plus a rate of return. This is why it's so incredibly positive that our shareholders invest in us to let us do this. It is an incredible force multiplier for us. Once the facility is up and running, the number of systems, the backlog on hypersonic or high-speed related systems with exotic materials that need to be tested is incredible here in the United States. As you know, we basically shut this capability down, and that's why Russia and China caught up to us. So this will be similar to Anaconda in annuity for Kratos. We will own the facility. We will operate the facility. And it will go, as I said on Anaconda on the Slide 1, for decades, and it will be a multi-hundred million dollar, billion dollar revenue stream for us over time. Peter Skibitski: Okay. Great. I appreciate it. Last quick one for me. I don't know if you can answer this either, but Poseidon, can you maybe at least tell us what segment that is going to be in? Eric DeMarco: No. Peter Skibitski: I thought I'd try. Eric DeMarco: But I'll make you feel good on this. One of the reasons our book-to-bill was 1.2:1, we got the first big block of Poseidon. So that's -- I'm glad you asked and I wanted to point that out to you that a big part of our book-to-bill was the first piece. It was a first piece of Poseidon. Peter Skibitski: Okay. Well, KGS book-to-bill was pretty strong this quarter. Eric DeMarco: No, I'm not talking. Operator: Your next question comes from Joe Gomes from Noble Capital. Joseph Gomes: Been a long call, a lot of questions, so I'm going to ask you one real quick one here, Eric. So with the acquisition -- proposed acquisition of Orbit, a bunch of these CapEx that you've talked about, how comfortable are you right now with where your cash position is? Eric DeMarco: I'm extremely comfortable, like we're in a very good position. And if I think the opportunity sets out there, so we could have a similar result that we had before, I got to look at that. But right now, I'm looking at -- that's how I feel about it. Operator: There are no further questions at this time. I'll now hand back to Mr. DeMarco for any closing remarks. Eric DeMarco: Great. Thank you all for joining us. Appreciate the Q&A. I look forward to speaking with you all when we report Q4 at the end of February. Thank you. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Welcome to the Medicover Q3 2025 Report Presentation. [Operator Instructions] Now I will hand the conference over to the speakers, CEO, John Stubbington; and CFO, Anand Patel. Please go ahead. John Stubbington: Good morning, everybody. John here. Welcome to our Q3 report. And I'd like to start with thanking all of our people for producing a really good result. So thank you for all your hard work. Q1, I described as strong. Q2, I described as stronger. I think Q3, what we're seeing here is a really good, solid, consistent and healthy performance. If you look on the right-hand side, you can see growth is a good performance at 12.1%, especially when you consider that Hungary no longer is in these numbers. So that's quite a pleasing position for us. If you look at EBITDA, it's very respectable increase of 32%, which is really, really positive for us. And you can see that coming through with the adjusted margin of 17.2%. Moving up by 14.6% is really, really solid and quite an impressive performance by the team. We'll talk about that a little bit later on because there's some other sort of factors that are pushing that forward and pushing that back, and we'll try and give you a bit more context on that. Operating cash flows, again, very healthy at EUR 98.8 million, a positive movement of 36.7%, which is, again, really pleasing for us and good to see is what we need. So that's really, really good. And as predicted, we talked about our leverage that as we did the acquisitions that, that would come down. And we see that, that is coming down despite the fact that we did our 2 biggest deals ever in Q2 and which has been very positive for us. So Healthcare Services being driven by high organic growth and the improvements coming through the fact that we've put so much extra capacity on in this area, the utilization of the assets is starting to be seen. When you start, you put all the staff on, you put all the facilities on, you're ready to take customers. But it takes time for customers to come. And more importantly, it takes time for customers to come back, and we did that in many different places across the world. And Diagnostic Services is really, really pleasing to see their performance. They've had quite a lot of headwinds that have affected them and they're navigating them really well, and I'm really pleased with the team to be able to see them do that. And I note to the bottom about our greenhouse gas emissions that we've had those validated, which is a good part of that journey. So if we forward -- and if we move forward and look at our revenue positions, basically, if you look at the bars and look at the percentages, really good solid growth there, 19.5%, 19.8%, 12.1%, which looks a little bit lower. But again, we need to take into consideration Hungary and the fact that we've got a bigger base. So we're really pleased with that progression, and we're really pleased, most importantly, with the consistency of that. If we look at our revenue by country, there's some slight mix change here. Some of this, again, driven by Hungary. I seem to be saying Hungary a lot and a little bit driven by currency from an Indian perspective. And then revenue by payer, relatively consistent, a little bit of a change in terms of the growth rates. The consumer segment, 58% is a really important part of what we do. And of course, at times with consumers, you'll find people being very active, times being a little bit cautious, and we're watching those particular conditions. As we go to Healthcare Services, Healthcare Services revenue growth of 9.6%, feels really strange to be able to talk about Healthcare Services and see single rather than double digit. But of course, if you adjust that for Hungary, we go back up to 12.4%, which I think is good, steady growth. Revenues at EUR 406.5 million, which is very respectable revenue by country. It's pretty pleasing across the board that you see Romania, 16%, Poland at 17% and India, again, affected by currency. So it looks a little bit different. Strong development in terms of sport and wellness and in our ambulatory clinics in Poland, which contributed to the drive of the revenue in fee-for-service. And we've got good progression in terms of the public revenues that we've got in Romania and some of the Polish hospitals. We launched a new hospital in Hyderabad. And of course, as we launch new capacity, that has an impact in terms of the profitability. Again, we're investing in the staff. We're investing in the facility. We're putting out the capacity before the customers come. And whilst the growth in India is a little bit lower than some people may have expected at 8.8% in local currency, some of this is driven by a conscious change in terms of the way that we're steering the business in terms of having less governmental pay, which puts that down. But our underlying trend in India in terms of doctor recruitment is really, really strong. And that's one of the reasons why we've decided to pull forward the planned hospital for next year into this year because we feel that we've got good momentum in terms of the recruitment. We can take advantage of that, and we can get faster growth. So we'll see that come through in Q4. And again, that's 2 new big hospitals that will go on to the -- on to our network and having those through will have an impact in terms of a little bit of drain on our profitability and margins. One word of caution, we talked about the strong margin. Part of that is created by our funded business where there's been a slower phasing of recruitment of doctors. That happens from time to time. There's nothing that is particularly unusual for us, but we will catch up on that. That puts a little bit of extra power into the margin, which will adjust as we go through Q1 -- Q4 and Q1. And that's one of the reasons why we've talked through that, that might happen over the next coming quarters. Membership is okay. Membership is pretty good. If we look at it from a -- without having Hungary involved, we've got growth of 2%. But at the same time, we want to balance this by sharing with you for the first time the number of relationships we have because you can see our fee-for-service line is much higher now in terms of its percentage of our business. And it's really about relationships as well as what being about memberships for us because if we can establish a relationship, we get people that come to us sometimes funded, sometimes through fee-for-service and sometimes through paying out of pocket. And you've got a mix here of different relationships being funded NFZ, some of our benefit customers for loyalty, et cetera. And we'll continue to publish this number so that you can see how that progresses. This doesn't affect this quarter, but you can see that there was a strike in Andhra Pradesh in India in October. That meant that all the hospitals in that location were not taking inpatient stays for governmental pay. Obviously, that will have a slight effect on us in the fourth quarter, but was probably needed to be able to make sure that the government did pay some of their bills, which can take quite a bit of time to settle. All the indicators on the right-hand side from our Healthcare Services are pretty good and a positive progression from the team. So thank you very much. Diagnostic Services, they continued with their strong momentum across the business. And as I say, I'm really, really pleased with the team. Revenue increased by 17.8%, which is pretty impressive. So well done to them. Organic growth at 12.4%, which is still solid and really good for this segment. Strong demand from fee-for-service, which is very positive for us because that's the big part of our revenue stream. Germany, which everybody has been concerned about, worried about and watching with a close eye. We continue to watch it with a close eye, but the team have navigated that really, really well, and we're seeing increasing volumes there, which is helping us adjust as well as our initiatives to be able to drive efficiency. And overall, we've got an increase in tests, which, again, is quite impressive, and that's really positive for us. So revenue, EUR 191.7 million, very pleasing. If you look at the progression by country, there's strong percentage growth there in each of the countries. So congratulations to the team. And I know Germany is 5%. Considering the reform, I think that's pretty good for them. Margin, great to see some improvement here. We've got operational leverage. We'll continue to get that operational leverage if we continue with the lab growth, very solid number of tests. And again, really pleasing strong and good growth in the fee-for-service segment. You can see at 24%. So overall, pretty good. I'll hand over now to Anand, who will talk you through some of the details of the financials. Anand Patel: Thank you, John. Good morning, everyone. So pleased to report on another good quarter for Medicover building on the momentum and themes of prior quarters. So as a reminder of those themes, one, we've got double-digit organic revenue growth again; two, margin expansion across all profit measures; three, strong and consistent performance across both business units. We've mentioned previously from John that we've normalized leverage back down to 3.2, so in line with the guidance we've given in prior quarters. And in the quarter, we've also seen an improvement in our ROIC numbers and in our cash. In terms of overall, so from an organic growth perspective, so I'll talk about organic growth to kind of strip out the Hungary effect, and Hungary will obviously impact our numbers in terms of year-on-year growth overall for the next 3 quarters. So organic revenue growth was 12.4%, which is very pleasing. In terms of EBIT, particularly impressed and pleased with that number internally. So we've got EBIT of EUR 42.8 million with a margin of 7.2%, a lot higher than last year. You'll remember in Q3 last year, we did some impairments. But actually, even if you kind of do a like-for-like comparison, putting back in the impairments for want of a better phrase, we still got healthy margin accretion across the EBIT lines. So very pleased with that, and that actually flows through to our EPS pretty well. From an EBITDA perspective, growing faster than revenues, as you can imagine, due to the margin expansion of 260 basis points. So EBITDA at EUR 98.2 million. And finally, as I mentioned just previously, the earnings per share was very strong in the quarter as well. Again, we've seen consistent growth in earnings per share during the year, and we further did that in Q3 as well. In terms of Healthcare, again, 12.4% organic growth, price driving 7.5%, but still strong volume growth as well as you can see. EBITDAaL growth I'll talk about EUR 50.5 million, which is up and margin rate is up 260 basis points year-on-year. I guess the only other thing I'll talk about on this slide, particularly is the loss from the immature hospitals. So you can see that actually the loss in Q3 is EUR 2.7 million. That is the same charge as we had in Q2. But we've seen really healthy underlying performance in the like-for-like hospitals. What has happened in the quarter is that we've opened a new hospital in India, which is additive in terms of making a loss. But actually, there's been a really strong improvement in the flow and profitability build of the other hospitals. And finally, going back to what John's point was with regards to utilizing our capacity, you can see that flowing through in terms of the medical cost ratios coming down as well. In terms of Diagnostics, I think John touched on it, so really pleasing performance again. So again, organic growth of 12.4%. Here, price accounts for 3%. And as you know, due to the German reform, we've got price reductions in Germany. But actually, overall, even in Germany and across the whole of Diagnostics, we've got strong volume growth is what I'd say. In terms of the other measures, I'd say EBIT growth, again, pretty strong in Germany and in total DS. So we grew to EUR 20.6 million with strong margin rate accretion. And the pleasing thing to note in Germany, because Germany is roughly 50% of DS, that actually, as I said, revenues were up, volumes were up despite the margin contraction -- sorry, the price reduction and overall margins in Germany were up year-on-year as well. So with all the challenges, I think the team are doing a really good job in managing that. In terms of other metrics, I've mentioned leverage. We'll talk about guidance for the full year on the next slide. Tax rate is in line with prior expectations. So previously, we've said our ETR will be between 26% and 30%, and we remain in line with that guidance. Strong net cash flow driven by the improvement in margins flowing through into the cash in our business. So we're pleased about that with a really good performance in free recurring cash flow, which I'll talk about in the next slide. But actually, in the quarter, recurring cash flow was 9.4% of revenue, which is a lot higher than last year. And finally, in terms of ROIC, as you can see, 12.3%. You'll remember at year-end '24, we reported a 6.7% number. So really strong improvement through the year. In terms of CapEx, you can see in the quarter, we had spend of EUR 46.3 million. That is 7.8% of revenues. There's a bit of a catch-up you would have seen in prior quarters, but the numbers were lower. So there's a bit of catch-up in Q3. In terms of full year guidance just to manage now, we kind of say that the number will be between 6.5% to 7%, but broadly in line with what we've said previously. We have mentioned that actually there is kind of clear blue water between our free cash flow as we improve that versus our organic growth investment. So that's pleasing to see and hopefully we'll build on that in the future. In terms of the split of CapEx spend, so you can see in the quarter, the lion's share of the CapEx spend was spent in Healthcare Services. We have in the hospital, there's some land. And overall, the medical space we've got at the end of the quarter is 988,000 square meters. And the final slide from me. So in terms of guidance for the full year and our targets that we mentioned previously, our position is unchanged. So obviously, with the quarter to go, I'd hope it would be. So we've previously said we're going to beat the target, and we continue to say we're going to do so. So as a reminder, we will beat the organic growth revenue numbers of EUR 2.2 billion, the adjusted organic EBITDA of EUR 350 million. We will have leverage below 3.5x and you have seen that we're kind of guiding to, that's what we were 3.2x at the end of Q3, and we'll be below 3.5x at the end of the year. And in the bottom corner, you can see the metrics that we gave in terms of EBIT and adjusted EBITDA, and we'll beat those as well. So in summary for me, a really good quarter, and I'll hand back to John. John Stubbington: Thanks, Anand. So key takeaways. We continue to deliver solid organic growth driven by both divisions, which is really, really good. We've got consistent margin expansion driven by the improved utilization. Customers are coming to users. Customers are coming back. On top of that, we have got a number of efficiency initiatives that are really needed in health care to be able to manage the way that people want to consume more. The maturity in our network can be seen in the hospitals. The fact that we're putting 1 or 2 more on, I think that if you look back at the average losses per hospital, it will probably help you model that as you go forward. Our leverage has normalized, so as promised, as committed to and starting to come back into our guidance. There's some mild headwinds that we're seeing. There's nothing unusual in those. We're commenting on them so that you're aware of them, and we fully expect to be able to navigate through. Thank you very much. Operator: [Operator Instructions] The next question comes from Julia Angeli Strand from Handelsbanken. Julia Strand: Can you hear me? John Stubbington: Yes. Julia Strand: Yes. So my first question relates to India. So what made you change the mix to a more private segment? Is this just to reflect changed consumer behavior? Or is this strike related? John Stubbington: No. I think that over the course of our discussions as we've developed things, we've always said that we wanted to get more cash, more insurance and start to manage some of the ROCE to appropriate kind of levels. Everybody knows if you operate in India, the payment cycle from the governmental pay takes a little bit of time. We will -- it's an important part of Indian society to be able to provide these services. So we will continue to provide these services. It's just that as we grow our network and we grow our doctor capacity, we have the ability to change that mix while still being good providers of that service. And we're just seeing the beginnings of that starting to flow through. And that's just affected the mix and therefore, affected the growth. I mean we could accelerate growth very fast by doing much more ROCE. But again, that would affect our cash flow. So it's a conscious decision as we move forward with our plans to accelerate. Julia Strand: Okay. That's clear. And then on the strike, where do you -- do you think that this strike could come back? Or has this been resolved? John Stubbington: This is not unusual in terms of the health care community taking action because the government payment cycle can be infrequent and can be lengthy. And sometimes it goes too far. When it goes too far, the people take action. I think we've seen this once before in our time there. So it's not something that happens particularly frequently. This was in one state. So we should point out to one state. I can't remember whether I stated it was in one state, but it's only in one state, Andhra and now is resolved in terms of they're no longer on strike, but it was there through October. So we'll see that being a little bit of a setback for us. It shouldn't be massive, massive, massive, but it's there. Julia Strand: Okay. Understood. And then just lastly, before I get back into the queue. The EBITDA loss in Q4, should that stay on the same level as in this quarter? Or should it be higher considering you're doing more openings? John Stubbington: Yes, it's going to be higher. You're talking about -- currently, you see an opening in Q3, but of course, you haven't got a full quarter of that opening in Q3. And then we're going to add on another hospital. And when you put the hospital on, you have a period where you actually recruited the staff before you've even opened the hospital. So you'll see some of those expenses start to come through for the next hospital as well as a full maturity of the new hospital. And whilst the -- we fully expect the other hospitals to do well, I would be surprised if they cover that off. You've now got a good history in terms of this particular line where we shared quite a bit of data. I would imagine that from a modeling perspective, you should be able to put that through your numbers in terms of averages because I think it would be appropriate to use that if you want to guide it. Operator: The next question comes from Mattias Vadsten from SEB. Mattias Vadsten: I have a few. So first one, you talked about early indications of a more cautious sort of consumer behavior. I think this needs to be captured a little bit. If you could provide the details, what you're seeing? And more generally in the business, would you say sort of double-digit organic sales growth is still doable as we move into 2026 and the general trajectory for Medicover? That's the first one. John Stubbington: Yes. I mean we are a little bit more cautious on the consumer line. That's only because we're seeing a bit of consumer behavior in some of our product lines, which is not dramatic, but there's enough there for us to be able to feel that we should share that with you. It's not unusual for us. So we're not sitting here saying we're seeing something that's a massive change that we need to adjust to, but we always have to adapt. So when we see these things, we have to adapt our pricing. We have to adapt our promotions. We have to adapt the way that we push things through. So we'll probably see us dealing with that over the course of Q4, Q1. And as we move longer term, we fully expect that a healthier -- the normal kind of Medicover cycle starts to come through. You asked about double digit. It'd be interesting for us to see, but we'll be around that mark, I would have thought in terms of the performance. We've got the Hungary adjustment, which does affect us whether we like it or not and 1 or 2 other things. So we'll have to wait and see what happens. Mattias Vadsten: And the next one relates to Germany. So long question short, do you see less competition in that country now? Or is this sort of yet to materialize except that there are fewer actors in the market? John Stubbington: I've said all the time about reform that there's good and bad things about reform. Reform kind of like drives you to do more efficiency, and we've done all that kind of thing and reform cuts off the tail. And as it cuts off the tail, bigger providers are there. I still think it's too early in the cycle to be able to see all of that. We're in the third quarter of this reform. But what you are seeing is an increasing volume. If you're seeing those increasing volumes, I think that kind of indicates the shift in the market conditions that we kind of expected to happen related to what you're intimating. But I think in terms of doing an analysis that demonstrates statistically that, that has happened, it's a bit too early. Mattias Vadsten: And jumping on to my next question relating to margins. If we look on the lease adjusted EBITDA, EBITDA margin, it's up by a significant 2.1 percentage point in the first 9 months, 2025. I appreciate this is not the nature of the business to be able to perform each year. So I fully understand it will moderate. I'm just after what you mean by this comment. And then if we look into 2026, just throwing out something like 0.5 percentage point margin expansion. Is this something that is doable? I mean I appreciate that this rate that you've shown this year is not possible to sustain. So what do you mean by those comments? Anand Patel: I'll start and I'll let John finish. So look, I think what we have seen consistently this year is margin expansion, let's say, in excess of 150 basis points per quarter. Yes. So we kind of would assume that's a sensible number to aspire to in Q4 at the very least, I guess, in terms of the short term. So we saw no underlying changes in the momentum of those themes. There's still capacity that we can fill in terms of the space. So John said previously, I've said previously, there's still clear headroom in terms of us upping our utilization levels, and we can still maximize those facilities. I guess in the short term, it depends on your take on the moderation numbers. So John is talking about a strike in India that's kind of happened in Q4. That will moderate revenues naturally, which means the flow-through in Q4 won't be as much as it was before and a slight change potentially in behavior from a consumer perspective. So does that mean that 0.5% margin rate accretion in 2026 is a sensible number? I think it's probably a little bit more, but we're just being cautious in terms of we see kind of a little bit more headwinds, I guess, in the short term rather than in the longer term over 2026. We've still got ample opportunity to grow our margins is what I'd say. John Stubbington: Yes. To add that, I don't think that we -- in terms of talking about the future, we don't give future guidance other than what we've given. Our underlying model is still strong. We're just seeing 1 or 2 little signs, mild headwinds and little operational things that we need to sort out. I don't think that affects our underlying -- the underlying strength of our overall model. And one of the great things about Medicover in terms of our model is our diversity. And because of our diversity, we can do things like India and move everything on. So the business is sound. Mattias Vadsten: I think that is a very good answer. I will probably squeeze in one last one. I mean price health slightly less in Q3 vis-a-vis Q2. This is a development we have expected for some time. Will this development continue in Q4 and into 2026 with less price contribution? John Stubbington: Yes, I think we've got a good price volume mix in our divisions. It's slightly different at the moment in the current cycle. There's higher price in Healthcare Services and lower price in Diagnostics, higher volumes in Diagnostics, lower volumes versus Diagnostics and Healthcare services. That's kind of a natural cycles that change over periods of time. We've had, as you know, going back in the short-term history, quite a lot of inflationary factors that have been higher than a normal kind of cycle. And I think all you're seeing is that those inflationary factors are coming down. So you've seen that in the price impact. And it's health care. Health care has a hell of a lot of people that want health care, and there's a limited amount of people that can deliver health care. And those limited amount of people will always be saying, well, I'm adding value to society. You need to give me to pay me what I'm worth and those pressures will always be there. So I would expect that we will come down and then those pressures will hit again, and we'll start to adjust as appropriate. You know as a team, our position when it comes to pricing. We feel that we're really good value for customers. We believe that we deliver a really good service considering the prices that people pay. And to be able to do that consistently, we have to be able to adjust our pricing so that the medical profession and the people delivering this get an appropriate pay to be able to stay with us to deliver this for the long term consistently. Operator: The next question comes from Kristofer Liljeberg from Carnegie. Kristofer Liljeberg-Svensson: Two questions, I think. Coming back to your comment here about margins in the Q4. If I phrase it like this, you have the phasing effects, hospital opening strike, et cetera. So maybe if you could give us some more help how much lower margin we should assume in Q4 than third quarter? Do you think it will be more like what you saw in Q1 or somewhere between Q1 and what you have had in the last 2 quarters? Anand Patel: Yes. I think Q3 is clearly an outlier, I would say. Sometimes you have a great quarter. I think somewhere between Q1 and Q2 are probably sensible in terms of an assumption in terms of margin rate accretion year-on-year for Q4. Kristofer Liljeberg-Svensson: Great. And also coming back to a previous question here, growth outlook for next year. I noticed that you mentioned Hungary being a negative impact, of course. But if we were to adjust for that, would that make you more confident to be able growing double digits in 2026 over 2025? John Stubbington: Yes. I think we're not sitting here sending a big message that's saying our business has fundamentally changed. We -- I've sent a message, which is just saying over the next couple of quarters, there's a few things that we just need to navigate. But I don't think that affects our long-term position. So we're a growth company. Everybody knows we're a growth company. We're a much bigger company now, of course. So those percentages are tougher to get. But I would fully expect us to over that period, be in a zone that people are used to. Anand Patel: Yes. So just to add to that, we've always said we're very focused on organic growth, and that clearly excludes acquisitions, that clearly excludes disposals. So if you look at the organic growth numbers, which excludes Hungary for Q3, the numbers are 12.4%. And we'll carry on reporting against our organic growth numbers. And I think rather than look at the total growth, which is a bit muted in the month, as John says, nearly 10%, 9.6% for Healthcare Services, the organic growth number is more pertinent. That's all we're saying. Kristofer Liljeberg-Svensson: Okay. Good. Could I -- just one more. As CapEx investments are going up here a bit again, how should we think about depreciation as a percentage of sales? It has trended down somewhat from the peak 2 years ago. Will it continue down or even out at current levels? Anand Patel: Yes. So look, I'm not going to talk about next year's depreciation charge because at some stage, we'll give guidance for 2026 CapEx, which we're not going to do today. I think I mentioned earlier that our CapEx this year will be 6.5% to 7%. So there'll be some spend in Q4. You can do the math on that. But there will be minimal flow-through from that. I would thought it's just a timing effect from '25 into '26, and we'll talk about next year when we're ready to talk about 2026 and future targets. Operator: The next question comes from Kane Slutzkin from Deutsche Bank. Kane Slutzkin: Just on target, just wondering the sort of '23 to '25 target is obviously quite stale now. I'm just wondering, will you be unveiling sort of fresh midterm targets maybe for '26 to '28 when you report year-end? And then just can you provide some color on the acquired businesses, how they have been performing and the synergies you may or may not be getting there? John Stubbington: Yes. I mean we've never -- we've been pretty consistent about guidance saying that we want to hit the numbers that we need to hit first. Once we've done that, we'll make the decisions about when and where we issue the new guidance, but we're fully aware that everybody expects us to do so. So we hit the number and then we'll share. So that's the same as we said in the past 2 quarters, I think. And then in the acquired business is very positive for us, a little bit slower with SYNLAB because it's a bit more of a difficult integration that you have to do, whereas the Healthcare Services side in terms of CityFit it's almost immediate. So the fact that people were going to -- going to their gym locations and now going to the same locations that we own the business makes the synergy come almost from day 1. So that's performing really, really well. SYNLAB, there's a number of countries there. So as you would expect, as you're doing different things in different countries, some of them have gone really, really well. Some of them take a little bit more time. But the maturity of that will start to come through. There's nothing that we're sitting here saying that is a negative from these businesses perspective. It's a positive contribution to our model and the team are doing well in terms of pushing forward to get the synergies that we planned with just a slight delay. Anand Patel: I guess the only thing I'd add to that, if you look in the Q3 report, what we have done somewhere at the back is split out the revenue and the net profit from the acquisitions group together. And what you can see is actually if you calculate the margin rate, which I'm not going to do for you, it's accretive versus company levels, which we said it would be anyway. So we're pleased. I said there's always more we can do. We haven't split out in the report, just to be very clear. But you can see in the pack that yes, it's contributing on a healthy basis to our business and is margin accretive. Kane Slutzkin: Great. Sorry, just one last one. Could you just remind us where you are on the potential listing of the Indian business? Is that still in play? John Stubbington: Yes. I mean we've -- I mean, your questions are going to get more and more intense as we go through each quarter from this point forward. We -- December 12, I think, announced that we would explore this. At that stage, we said it would take up to 2 years. Obviously, we're approaching the anniversary of December 12. So people will be expecting more. It's one of those things that it takes a bit of time in India. We're doing our prep work. The team are doing well on that, pushing forward. Now we need the performance to accelerate a bit. We're at the business end of that. So we've had a few setbacks, as everybody knows as we've gone through the year. But as I said earlier, our underlying trend of recruitment in India has been strong, and that's one of the reasons why we opened Sangeeth. It's one of the -- sorry, one of the reasons we opened the hospital in Q3. One of the reasons why we have pushed forward opening another hospital into Q4, which originally was planned for 2026, which again, as a consequence of that, will create some losses in our Q4. But we think it's the right thing to do because we've got some good momentum. So strike doesn't really help us again. Currency doesn't really help us again in terms of positions, but nothing has changed from our perspective. As soon as it does, we will inform you. Operator: The next question comes from Bram Buring from Wood. Bram Buring: Most of my questions have been answered, but I wanted to ask about admin costs in the quarter. I was a bit surprised to see that they were down Q-on-Q. Is that -- is there something specific behind that? Or should we continue to expect admin costs to be closer to this 3Q level than what we've seen more recently? Anand Patel: No, no, I would assume it's a seasonality thing. There's nothing specific. We did admin costs in Q3 per se, I would say. So I would look at the 9-month number and assume that's a better trend for the full year. Operator: The next question comes from [ Bola Dimmer from SurePath ]. Unknown Analyst: Two questions on India, please. You mentioned you're changing the share of this private pay in India in your revenue. Can you tell us what is your current revenue split between private pay and public pay in India? And what is your target split in this regard? Anand Patel: Yes. So look, we don't disclose that information. I think the one thing I would say is that the reason -- one of the reasons for Medicover being totally successful in the past and present is due to the diversity that John mentioned. So it's good to have an even split of fee-for-service versus insured versus public pay. So that means that when one area has a downturn, then the other kind of has an upturn normally. So we don't guide on that, but we're building the right split for us to make sure that we can not be subject to any specific area. Unknown Analyst: Okay. Also, when I look at your peers, which operate in the similar regions in India like Aster DM or KIMS, their revenue per bed is twice higher than yours. Could you share, I mean, your thoughts on the reason behind this big gap? Is it just the question of maturity effect or location or actually the split between public and private? John Stubbington: Well, you've kind of answered your own question, which is really good in terms of there is maturity. So you tick on maturity and there is location that takes into a factor. I mean, if you go back in time, I think we have shared and said that one of the approaches that we've got for India is to try and do more of our operations in Tier 1 cities and more of our operations in larger hospitals. If you're in Tier 1 and if you're in larger hospitals, you will find that the types of things that you can do are more comprehensive and the pricing of being in a Tier 1 city versus 2 and 3 is very, very different. And one of the things that people should find attractive about us as we go through the IPO is the fact that we're behind, and therefore, that's going to mature up. So you kind of answered your own question. I'm just confirming what you said. Unknown Analyst: Okay. Great. And the last one on the CE, I assume. So you mentioned this more cautious consumer. Could you, I mean, kind of elaborate, is this slowdown mostly visible in the funded private pay or public pay? John Stubbington: No, no. It's very much related to out-of-pocket fee-for-service line where people are deciding themselves whether they pay or whether they don't pay. We're seeing some signs in certain lines, not in all lines, some are going really, really well, really, really strong. And we've shared it with you so that you're aware of it. And from our perspective, it isn't anything that's particularly fantastically new that we haven't seen in our 30-year history or I haven't seen in my 15-, 16-year now history with Medicover. It's just that we -- when this happens, we have to get a little bit more creative. We have to repurpose a bit and we have to do things with our pricing and our proposition, which we will do. But usually, if that trend kind of continues, it will take -- we'll probably see a little bit of softness maybe in the Q4, Q1 as we move forward. But from a long-term perspective, from our business perspective, we have got a really solid business with a very broad base of propositions that we offer to people. This is not something that is a major concern for us over the long term. Our business hasn't fundamentally changed. We've just shared a little bit more information with you. Operator: [Operator Instructions] There are no more questions at this time. So I hand the conference back to the speakers for any written questions or closing comments. Hanna Bjellquist: Thank you very much. We have a few questions in the chat. And the first one is how do you see the outlook for 2026 for the Polish market in context of the savings announced by the ministry. Apart from the impact on public revenues, do you see any impact in other areas, laboratory diagnostic subscription? John Stubbington: Yes. There's going to be a lot of noise from the ministry currently. There's a new Minister of Health. She's looking at lots of things and has got a good track record in some of the things that she's done. So there's going to be lots of noise of different statements and different positions that are taken. It takes a bit of time usually once a statement said, even if they then say they want to do it, it takes a little bit of time to filter through into market conditions. Also, I think some of this was announced this morning or just recently in terms of looking for savings within the NFZ spend. Versus competition, we, in terms of our mix, have less than most of our competition because our focus has always been on other lines not related to governmental funds. So even if there is adjustments there, we won't be affected as much as our competition. And historically, we've always found ways if the government are paying less, the underlying demand is still the same. You can't say to yourself, I haven't got a health issue. You can't ignore it, but often that means that the health issue gets bigger. So these kind of things will happen. We're used to them happening. I don't see it as being a fundamentally big shift for us. Hanna Bjellquist: I think we have been through mentioned about the consumer behavior. We have also talked about India and the mix. Could you remind us about the background of Hungary? John Stubbington: Yes, it's just a historic position for us. We withdrew from Hungary a long, long time ago. And when we did, we offered -- we carried on with a partnership that we had together from an insurance perspective that we always knew would come to an end. They've scaled considerably. And as a consequence of that, wanted to move in a direction where we were no longer the partner, and we've always planned for that. So it's been a planned position, probably lasted longer than we thought and was a very fruitful partnership with a really good team, and we wish them the best of luck, and it helps us because now we've got more management time to focus on other opportunities that we have. So it's a good thing for us. We mentioned it a lot today because the figures are affected by it. But as we go forward, that will wash out, and we'll just move on. Anand Patel: And from a cost perspective, all these costs were dealt with in Q2. So there's no impact in Q3 numbers. And actually, it was, let's say, a small profit as a consequence of the transfer. Hanna Bjellquist: And we have talked about the Indian strike, but we do not want to give you any numbers, state any impact on the revenue and EBITDA, but we have mentioned it before. John Stubbington: Okay. Well, thank you very much, everybody. Today, we shared a little bit more in terms of some of our thinking around Q4, Q1. And from a 2026 perspective, we are a really solid, strong business. If you look at what we've delivered in Q1, Q2, Q3 this year, they're really exciting numbers. They're really positive numbers. There's a degree of consistency. You can see our operational leverage coming through. A bit of that is going to be affected by the fact we're doing new openings. A bit of that is going to be affected by the consumer caution we talked about and a little bit by the need to increase supply for our funded customers, which is absolutely the right thing to do. We have to look after our customers. They come to us for health care, and we intend to deliver good health care. And if that means we need to invest more, we will do it, which is great. So we're on a good trend. We anticipate that trend will continue, and we look forward to sharing how we do in Q4. Thank you very much.
Unknown Executive: Good morning, everyone. Welcome to our third quarter of 2025 Results Conference Call. First, let me introduce our management. We have our former beloved CEO, Khun Somchai. Somchai Lertsutiwong: [Foreign Language] Unknown Executive: Our newly appointed CEO, Khun Pratthana. Pratthana Leelapanang: [Foreign Language] Unknown Executive: Our CFO, Khun Tee. Tee Seeumpornroj: [Foreign Language] Unknown Executive: We have Chief Enterprise Business, Khun Phupa. Phupa Akavipat: [Foreign Language] Unknown Executive: We also have Chief Retail Business, Khun Prapat. Prapat Siangjan: [Foreign Language] Unknown Executive: Khun Nattiya and myself will be briefing you the results and running this session. So at this moment, allow me to officially welcome Khun Pratthana, our new Chief Executive Officer, following the transition from Khun Somchai, who has successfully led AIS for the past decade through multiple transformation milestones. Khun Somchai has been with AIS close to 30 years, and holding CEO position for the past 11 years. Now let us hear from Khun Somchai, as he would like to share a few words with this community. Somchai Lertsutiwong: Good morning, investors and analysts. I would like to take this opportunity to thank all of you that support me all the time. For me is a really great time here. It have been the pleasure me to serving as a CEO for the past 11 years. I will miss the -- missing with all of you, but I never miss the Roadshow. Even if you still invite me, I am willing to go with Pratthana, and I will be by your side and follow up and push Pratthana to make more and more return to -- off you. Okay. For me, I view hard list leadership to Khun Pratthana, who you'll know well. And I feel confident as we will continue to go with greater vision and energy. I hope the investor analysts will continue to support AIS under the next chapter of leadership under Khun Pratthana. Thank you very much. We hope to see you in any Roadshow that you invite me. Thank you very much. Unknown Executive: Thank you Khun Somchai for your kind words. We truly will miss you, and we hope that we can invite to the roadshow. Before we begin the quarterly session, let me introduce the new office chart. While we now have Khun Pratthana as our new CEO. Khun Pratthana also has been with AIS close to 30 years. Before this position, we are familiar with his role as Chief Consumer Business, taking care of mobile service, and then he was promoted to Deputy CEO, Chief Operating Officer, next to CEO position. Under Khun Pratthana, we have 2 Deputy CEOs, and now 7 business units responsible by C levels reporting to him. At this moment Khun Pratthana will be acting as Mobile Business unit head, while Khun Tee is acting as Broadband Business unit head. The company is in the process of succession plan. Now let us hear a few words from Khun Pratthana. Pratthana Leelapanang: Very good morning to the -- everyone here in the conference call, to all analysts. I've been honored that the company appointed me as the new leader of the team. Under Khun Somchai leadership, AIS has evolved from mobile network operator into a fully, I would like to use the word, integrated digital service providers. And we have set -- we believe that AIS under leadership of Khun Somchai have set a new benchmark for multiple times, including this quarter for the industry. I'm very committed to build upon the strong foundations of AIS, and to drive AIS together with the whole team to a very new era whereby digital and AI infrastructures will play a very pivotal role for country capabilities in the digital economies era. AIS team as a whole is looking forward to work hard internally and with partners across industry to deliver exceptional experience for the customer and exceptional values for our every customer. With the comprehensive sets, our product service across 5G, broadband, enterprise solutions, retail, entertainment and about to come digital financial services. Again, I'm truly honored, and we are very committed to bringing the best for Thailand and society sustainably. Thank you very much. Unknown Executive: Thank you very much for your notes, and we now expect to hear more from him in subsequent events. Now let me begin with a short brief and then going directly into Q&A. At this time, you may also reserve to ask the question through the chat box. Please kindly put your name and your corporate name. In the third quarter, AIS continued posting solid results with core service revenue continued growing, supporting by strong connectivity and content proposition, despite a challenging economic situation. Mobile remained resilient, focusing on 5G and driving more values to uplift ARPU alongside content engagement. Broadband delivered another strong quarter with continued focus on quality subscribers, innovative products and premium bundles beyond broadband. Enterprise momentum remains solid, driven by EDS & Cloud, while we will continue to drive data center growth through our [Technical Difficulty]. The retail business grow uncertain retail strategy in product mix, stock management and sales capability. Profitability was strong from efficient cost control and lower spectrum costs. Looking at the first 9 months of 2025, AIS delivered a quality across all key metrics. Our EBITDA margin remained strong at 55% total revenue with ROIC at 15%. The net debt to EBITDA was at 1.9x, underscoring a very solid financial position and a low cost of borrowing. Overall, AIS continued to outperform with quality growth in expanding our business beyond connectivity and efficient capital management. We expect to continue delivering strong returns to shareholder. While we are anticipating that this investment community will be interested on the impact from 2100 megahertz NT contract expiry and the recent auction cost savings. We have placed an illustration showing the accounting impact in both MD&A and our conference call slides, where you can download through our website. Further questions regarding specifically on this, please reach out to IR team after this session. And this is the end of a short brief, and we'll start with the Q&A session now. Unknown Executive: [Operator Instructions] And we have Ranjan from JPM. Ranjan Sharma: First of all, all the best Khun Somchai. I wish you all the best, and it's been a great leadership of AIS under you, and all the best to Khun Pratthana, look forward to the same execution under you as well. So with that, I can come to my question. Like Khun Pratthana, can you help us understand your key objectives and KPIs as we look to lead the organization and also how you think about capital allocation as well. Pratthana Leelapanang: So the key objective and KPI of the organizations is to bring forward the growth for a cross business, integrating mobile broadband, enterprise, entertainment, retail, and digital financial service to come. So we truly believe that AIS can play more roles in the AI and digital infrastructure, bringing values to the countries so that we set forward ourselves to go there. Ranjan Sharma: Can I just follow up on the capital allocation side as well, I mean, given that you're generating such strong free cash flows now, how you look to use the excess capital? Tee Seeumpornroj: Sorry. We didn't hear you clearly. Are you asking about the excess -- excess cash? Ranjan Sharma: Yes. Given your strong free cash flow generation of the business, how you think about capital allocation going forward? Tee Seeumpornroj: Okay. Yes. I think in the end, first and foremost, every time this, then -- it's dividend, right? So I think we committed to pay a high dividend payout ratio. That's to be expected from our shareholders in a way. But apart from that, I think we are preparing -- it's actually good that we have excess capital right now because looking forward we see a lot of growth path that we can take. Khun Pratthana mentioned a bit about growing in a few directions, enterprise, infrastructure, also mobile and broadband as well. We still believe there's room to grow. So I think you may see that we may come back with a bit more investment over the next few years and also in preparation for the spectrum auction that we anticipated to happen in the next year or 2. I think that will be a certain requirement to put the money back to work and hopefully to grow the business again. Unknown Executive: We have Piyush from HSBC. Piyush Choudhary: First of all, all the best, Khun Somchai, and congrats Khun Pratthana on the new role, and wish you the best. I have few questions. Firstly, if you can discuss about the macro environment in Thailand. And how do you see the kind of growth outlook in both mobile and fixed broadband, the ARPU outlook as well? Second question is your 9-month performance has been really strong. So why guidance has been kept unchanged. Are you expecting kind of any headwinds in the fourth quarter on the cost side? And thirdly, if I may ask, there was a sharp decline in admin and other expenses of 21% year-on-year, what drove it and the outlook for the same? Pratthana Leelapanang: Allow me to address the first one in the macro environment. Thailand is now still, I would say, under the period of recovering. Especially the last quarter, we start to see a bit more positive in economy recovery. We believe towards the end of the year and next year will be still under the phase of recovery. In any way, we do not see a negative side, but positive sign. For mobile, broadband and telecom in Thailand, it's very clear that the market is really move on focusing on value creation rather than hyper competition. And you also see from us and our competitors on that particular focus, so the profitability has been brought back to the industry, and we both are competing to bring value for customers. In terms of outlook, when we think about how things would grow, I believe that the digital services based on both mobile, broadband, enterprise, we play a very important role to add values. So we do expect a positive side of it continue on. On the guidance, we do not expect the surprise for the last quarter. And this is now about to end the quarter. We do not have a plan also to revise it. That's what I want to say. Unknown Executive: On your last question about admin side. In admin, we also booked performance-related item. That's basically the bonus. So there's accrual in particular quarter, especially last quarter and some adjustment in this quarter as well. Next, on the top three, we have a high base. If you recall, last year, we mentioned that we booked the accrual performance base in Q3 for Q2 and Q1 as well. So we started the year in 2024 with a very conservative outlook. And we had a very low admin expense in first and second quarter last year. So in third quarter, we accrue more performance bonus, and therefore, it was a high base. Piyush Choudhary: Right. Third quarter number is a normalized number. There is no reversal of any provisions, right, in this? Unknown Executive: It's not that big of an item. So you may -- some look at the third quarter onward. If no further questions from Piyush, we have Thitithep from KKPS. Thitithep Nophaket: Okay. I have 3 questions. Number one on the mobile phone revenue gap between [indiscernible], we have seen quite a substantial gap in the past 2 or 3 quarters. May I have your view on why the CapEx is, because when I look at the price band of 2 companies, they are almost identical and the U.S. went the gap to continue in the next few quarters as the first question. The second 1 may have your view on the CapEx outlook for 2026 and possibly 2027? Because right now our 5G network already covered in 95% of the population. And the third 1 right now, people are using the 5G package is already 35%, 36% of user subscriber base. Do you expect that my pension has to continue? And what would be the peak, can it lead to 100% in the next few years? Those are all the figures. Pratthana Leelapanang: Allow me to address the first one. In terms of mobile revenue gaps, I would say we look inwards rather than outward. We have been very focusing on the customer needs, acquiring the right segment of a customer on the quality basis. So that has been helping as to improve the mobile revenue as well as improve the customer experiment along the way. Because you might remember when we talk about unlimited low plan and all of those is continue to be tapered off. So that has helped improve the ARPU and revenue. On the other side of competition, I think they were also putting forward that attempt as well, depending on the speed of each company. But I do see a positive trend of both competing on building on values. Whether the gap is wider remain to be seen, we don't know. But we will continue on focusing on what we are doing, bringing our quality and value to mobile services. So I think that's number one. On number two, in terms of investment for network, we will continue on making sure that we strengthen our network services with the proper CapEx to fund that particular experience. For the past year, 1.5 years, the CapEx has been on the low side simply because we are pre-investing in 5G, and the capacity is enough. We have seen the continued ongoing of traffic for both mobile and broadband. That would require us to make sure that we invest profitably to lead in the customer experience continue on. So that you can expect that we will fund that in 2026, '27 onward. On your last question regarding 5G, now we are at about 30-plus percent of penetrations. We do believe that 5G penetration can go to 70%, 80%, 90%, not so far away from now. Everyone would need to use it, and we are confident that it will grow. So I think there are a lot more room for AIS to build on that piece. Unknown Executive: Now we have from Khun Pisut from KS. Pisut Ngamvijitvong: Yes. First of all, congratulation to your good results, Khun Somchai for your retirement. Hopefully, you have a good time with your baby, and also Khun Pratthana. Somchai Lertsutiwong: I will quote your suggestion for my daughter. Thank you very much. Pisut Ngamvijitvong: [indiscernible] Unknown Executive: [Foreign Language] Pisut Ngamvijitvong: My first question is about your [ C-Band ]. If you look at your ARPU, it went up from 120 to 150. I mean, 120 before the market consolidation to 150 in this quarter. And prepaying revenue has gone up nicely. Do you think this is -- what is the right proportion of mix between prepaid and postpaid level because you see that the prepaid revenue mix has been going up as well. And we have seen the 2 steps when you reset the price for [indiscernible] 2024 and also over the... Unknown Executive: [Foreign Language] Pisut Ngamvijitvong: My question is about prepaid revenue. Basically, it went up quite okay. My question is that how far your prepaid ARPU can go up further? And what is -- what do you think -- what is the mix for the level in the prepaid and postpaid? Pratthana Leelapanang: Okay. On prepaid, I would like to put the perspective of prepaid and postpaid announced that they could be so cut, it very much like the method of payment. People subscribe monthly subscription in prepaid, and they do pay mainly subscription very large segment ten or millions of customer paying subscription for data in a monthly basis. So I would say that very close to postpaid in some way and the way they pay for it is through the bank account, bank application and so on. So it's a mixture now of how they want to use packages and the way of payment among pre and post. Prepaid has been continuing on recover from past 4, 5 year, whereby there are a huge amount of customers, and many of those have multiple SIM and some SIM are inactive. When the country strengthened the personal identification or those number has been disappeared for the market in millions. So the number of prepaid and overall shrink a bit for the past 3 years. And at the same time, the market recover from hypercompetition or overly provide unlimited data. So that has helped prepaid ARPU to continue on. We do believe that both prepaid and postpaid ARPU will highly depend on the needs of customers to use data. And we do expect that the data demand will continue on growing year-on-year. So that's what I believe it would be. On the prepaid alone ARPU, we still think there are room because the penetration of 5G will continue on growing for both postpaid and prepaid. So that you can expect that you'll see a continuation of it. Pisut Ngamvijitvong: My second question is about your network CapEx. Your 9 months network CapEx seems below your full year guidance quite a bit. But you'll keep the guidance unchanged. You may not want to change the [indiscernible] EBITDA, but in terms of the network CapEx, do you think it is possible for you to understand what do you target to spend for this year? And this means that we will help the free cash flow to make more aggressive presettlements for this year and next year. Pratthana Leelapanang: Allow me to address this one. We are very committed to network qualities. Supporting our customers, it will be on schedule on our plan. There are many of work in progress that may not immediately reflect in Q3, but that's on plan. Pisut Ngamvijitvong: My last question is about -- on the liquidity front, the NBTC has been trying to enforce some of the market package to serve to help us -- I mean, the cost of living of the people. I think first thing that about to find out. And also what I heard from the industry is that it's about to revisit the selling rate for voice and data not spotting that what's happening next year is about 3.5 gigahertz plan that could be option in 2027. Could you please give some comments on these 3 things on the [indiscernible] front? Pratthana Leelapanang: On the attempt of the regulators, we see as a very positive trend that the government do see a very strong value of digital services, and it will be part of every one, as well as the government service through that digital services. That's why mobile and broadband has been on the highlighted how the government will support tie to have access to all of those in a very economical way. What we have been providing AIS and the industry is a very competitive telecom services, and we are the third from the lowest price in the world in terms of price per gigabyte or even broadband in service. So we see a very good trend. Even though it looked like -- there will be more imposed, and we will work with regulators to bring the best for the consumers. So that's what I would say. And the cost structure itself also is unavoidable anyway that we have continue on cost structure of spectrum network investment and many more. It will continue on to be in next year, the new spectrum comes, it will be more. But with the economical of scale, and the technologies, we believe that we will bring in value continue on with -- even with those structures. Unknown Executive: Next we have Khun Wasu from Maybank. Wasu Mattanapotchanart: I'm Wasu from Maybank. I have three questions. So the first 1 is about the admin expense. Can we expect the admin expense to be relatively stable Q-on-Q in the fourth quarter? Or alternatively, can we use the number that we saw in Q3 as the base going forward. So that's the first question. The second question is about the marketing expense. So I'm aware that 4Q is usually the high expense for the marketing expense. But for this year, in particular, is it reasonable to assume that the marketing expense will drop year-on-year because of the more earning period that we are seeing this year. So that's the second question. And the final question is about the CapEx trend over the long term. Given that Khun Pratthana just mentioned that the data usage is rising. And also to -- just completed the network consolidation process last month. So should we expect AIS to increase the network CapEx in 2026 and 2027 to maintain the network quality leadership going forward. Unknown Executive: On admin side, it may be difficult to gauge where the numbers will land. However, in third quarter, because there are some adjustments on both the staff-related and IT rationalization. So likelihood is fourth quarter, it could be higher on the admin side. Marketing wise, yes, it's morning period. However, we also do have plans on certain marketing campaigns also relative to the content engagement. Normally, it's a high season. So difficult to say what the number will be, but we expect that we will continue to try to manage the marketing campaigns as properly. CapEx trend in the future. So maybe just remind you a bit that 2, 3 years back, if you recall, we did invest quite heavily on the 700 megahertz for 5G. So that also gave us quite a lot of capacity over the last few years. As we are moving forward, we also -- as Khun Pratthana mentioned, we want to ensure that we lead in the network quality leadership and customer experience, including some new features of the network that we want to build upon. So the tendency is we are looking at the higher trend of the CapEx versus this year. Next we have Arthur from Citibank. Arthur Pineda: Firstly, all the best to Khun Somchai and congrats to Khun Pratthana for taking the hot seat. Several questions, please. Firstly, you mentioned digital and AI services as a key focus area. How should we see this from an investment and CapEx standpoint? Are you, for instance, looking to invest more in additional data center capacities outside of the JV with GULF or things like GP as a service? I'm just wondering how this impacts CapEx and earnings volatility going forward? Second question I had is with regard to mobile. AIS has been gaining market share over the last 2 quarters. What do you think it's been doing differently, both of you seem to be quite rational and focus on quality subscribers. I'm just wondering what's driving that gap? Is this mainly because of the churn related to their network outage? And has that started to change into the fourth quarter? Pratthana Leelapanang: The first one regarding AI and digital infrastructure. We are pursuing with the joint venture structure with GULF into AIS, as well as [ GSA ], I believe we have also released information regarding the joint investment with GULF on that. We do see a very strong demand and needs of investing in AI infrastructures. That would also related to GPU and AI factories that later on, you probably will see -- allow me to not go into detail today, but that will be past and passive of our plan to go for very strong demand. It will be in form of the joint ventures with partners and maybe more that to be released later. That's the first one. The second one regarding mobile. We are very focused on quality, supporting existing customer and quality acquisitions. We did not change our strategy at all for the past 24 months. And I think it is the right strategy to make sure that customers have the best product, and we hope to continue on. The competitors some way somehow moving in the same direction. And I believe that we also see a very positive trend later as well. Arthur Pineda: So if you could -- just allow me ask another question. I'm just wondering about pricing for the mobile services. Consolidation has happened 2 years ago. We've not really seen any notable changes for pricing in the industry even with inflation and all. I'm just wondering the outlook for 2026, do you expect this to remain static and the strategy will just remain on upselling and bundling? Or is there room for prices to finally move? Pratthana Leelapanang: The whole mobile base is beyond $90 million, and all of those are all in different price plans. The pricing in the market for new acquisition has been improved in the ways that the unsustainable price plan has been eliminated or continue on to be improved in terms of value offering. With that, on the surface, we may not see the price hike, but you have -- if you look closer, you will see the elimination of those unsustainable plan. That's the whole fundamental of it. And with the base and a new customer coming in, we see the demand to use more data continue on. And that gives us opportunity to offer them individually with the proper packages for the upsell and cross sales. And that's also, again, has helped improve our revenue and profitabilities. And we see that one continue on rather than price hike. Unknown Executive: We have Ranjan to follow up. Ranjan Sharma: I have my follow-up question. Thank you for giving me the opportunity. It's actually coming from an investor. So I want to ask them on your behalf. Can you give more clarity on future CapEx and how that's going to evolve? And how are you going to allocate that between mobile, broadband, data centers, digital banks and the other initiatives that you might have. So the question is around the total CapEx spending in the coming periods and how it is going to be allocated between the different businesses -- existing and new business. Tee Seeumpornroj: I think, you're asking for the future plan that we are still working with the shareholders and the Board. But in terms of the trend and direction, as I think when Nattiya mentioned the past 2 years, I think we minimize the spending on CapEx because we invested earlier when we expanded 5G. The next 2 years, what we'll do, as Khun Pratthana mentioned as well is, we will try to come back to make sure we have the best network in the market. You see the trend of data usage still going up. So we want to make sure that we have enough capacity to serve the customers. In terms of how we separate that? I think it's hard to say because mobile broadband is easy. I think you can project that they can use certain percentage to revenue. We have more customers, we have more usage in our network. So that we need to invest a bit more there. Also, when we acquired TTB, we also didn't spend a lot in terms of CapEx for network on the broadband side. After 2 years and it's time to actually go back and start to make sure we have enough thought to expand the service again. But when you rope in data center and other big ticket infrastructure, that sometimes take a bit of time to build up. And also, we're going to invest when we also get some security on future cash flow. So we can tally the numbers out, but I think that us get that plan finalized with the Board, and we give guidance next year. But whatever we spend on data center or even the AI infrastructure, it will need to link to certain anchor demand that we feel secure with that number because it's a JV, so it won't show up as part of the CapEx of even to guide, but maybe in terms of investment that we're going to put into the JV, we're still working at all those formulas. And hopefully, when we do guidance for next year, then we can give you a bit more clarity on that. Unknown Executive: We have Nuttapop from Thanachart. Nuttapop Prasitsuksant: I think since you have reclaimed #1 market share in mobile again, so right now maybe looking for the new revenue stream. So may I start the first question on Enterprise Business that we see a lot of new investment in AI data center globally. Do you see an uptick or like accelerating demand for big corporate or even small corporate in Thailand to take up this kind of like -- to basically to propel your Enterprise Business, that's number one. Or do you think Thailand need some, I don't know, 3, 5 years like time before that to grow? Second one is on the product sales also. We have seen a big improvement in terms of margin. But I think over the past few years, sales revenue or like broadband sales revenue is quite stable. So can we expect more of the margin improvement or the sales improvement to boost that portion later? Because I think you have to do a lot of the renovation of your branches, of your service points, can we hope for the growth on that? And lastly, Khun Pratthana, do you think that -- are you still happy with these four pillars, if I'm not wrong, to drive AIS further? Or do you think to get the new revenue stream or to move the company further? Do you expect another pillar to be added going forward? Pratthana Leelapanang: Allow me to take the first question about the enterprise and the uptake on the AI and data center. We still see the strong demand from the enterprise customer, the big customer, including the hyperscaler that coming to Thailand. We still see around 18% to 20% market growth and strong demand on that one. If you're talking about how they adopt the AI, I think all the enterprise customers are talking about AI demanding more on the network infrastructure because the AI also required to download and upload more. We see business from the hyperscaler who invested and expand in the data center in Thailand, that I think the information I could share. Tee Seeumpornroj: From the sales side, the first 9 months that we performed is about 13% growth comparing to last year. So that is the, I think, is driven by the apples that -- what we are actually a lot in September. And in terms of the margins, the contribution margin is growing about 7.5% is about 8% comparing to last year. So that is -- I'm going to keep momentum -- of this momentum until the year-end. For the sales side, I think we're going to achieve more than double digit for the year-end also for the -- that is my perspective in terms of the sales. Okay. For the expected margin improvement, we're going to improve about, maybe 10% comparing to last year also in year 2025 comparing 2024. What we are going to achieve is -- the first one we are going to focus on the product, which is the Apple, which is the highest season of the fourth quarter of AI retail. The second one, we're keeping on the renovations, which is -- we're going to have more 20 locations that we're going to renew it to make the atmosphere and also the occurrence of the store. We're going to focus on our own brand, which is [ Laem ]. I think when you get the sample last time, and I think we get, in terms of the sales a bit growing, and I think the market is improving also on that one. But last but very important is about the financing focus, which is the -- how to make the people come to the store and easy to buy. I think that is going to work firstly with the bank and nonbank. I think those are the four focus for detail. And yes, of course, the last very important that we're going to introduce -- actually, we are on the trial phase is about the omnichannel. Once you go to the retail store, and you cannot find the model or the color that you want, from now on, you can order and you can pay at your store, you get the point of the AIS point, and then we ship to your house within the certain days that we are going to focus on this one. Pratthana Leelapanang: And the last one regarding the growth pillars. I'd like to address in a way to reflect markets and the stage of Thailand. In mobile, our #1 core pillar. Once again, we are only at 30-plus percent in 5G penetrations. There is a lot more room for us to better serve customers in the deeper penetration of 5G. In other countries, go beyond 50%, 60%, 70% already. And that pillar is still very strong for us to do more work, to serve customers and grow the company in mobile pillars. The second one, broadband. The broadband, fundamentally every home will need broadband in the future. Thailand is at about 50% household -- living household penetration of broadband, and we do see room for us to grow. As Khun Tee mentioned earlier that we make sure that our investment will support that strongly to get every whole broadband available. And thirdly, a very important pillar is the enterprise, which every enterprise in the future would be digitalized. We're just starting the journey of enterprise in term of enterprise telecommunication solutions as well as the digital infrastructure, AI infrastructure for the future enterprise as well as the digital government. So those are 3 fundamental pillars that I believe did continue on to be very important for us to make sure that we meet the demand and provide the best product and services. And on top of that now, is entertainment, retail, digital financing are coming on top to serve the customer. With these 3 plus 3 pillars are our key pillars to move forward. There will be more to come and later on when the times can be released the information. Unknown Executive: We have Izzati from Macquarie. Izzati Hakim: I have a question on the AI infrastructure. So I just wanted to get a sense in terms of the competitive landscape, especially when it comes to the DC to DC connections, the terrestrial fiber wholesale part of the business, which I believe is topped under your EDS segment. So with the hyperscalers coming in Thailand and also in ASEAN in a big way, how has that changed in terms of negotiating with these key clients of yours? And are we seeing any competitive pressures coming from smaller private companies trying to provide similar services in terms of connectivity. Just want to get your thoughts on that. Pratthana Leelapanang: Allow me to take these questions. About the AI and infrastructure, actually, the way that we see is relating to the data center business and also the software on top of that. We have the strong, let's say, the partnership and strong position on the pricing point on the electric city as well. I mean, when we build the data center that normally we would have the anchor customer or some secure customer before we build and those customers come to us because of the TCO and mostly coming from the cost of electricity that we can manage the price. And then -- that is a key issue that I want to share. The second one about the DCI, I mean the data center cross-connect interconnectivity. We have the solid foundation that is ready to serve. The upcoming demand of the data center, as we see now, we have around 40 -- this is roughly number of the data center around Thailand. And we see the growth around 20% or the demand of around up to 1 gig in the near future. So our infrastructure on that 1 is ready. And when you talk about the EDS, we also have the feature that we call the sale network management, which allow the customer who are in the data center managed network by themselves and then increase our time to market also the service quality to our customer. I think -- our competitors, we don't see the significant competitiveness or the price point fighting on that space a lot. I mean, it may be -- it is because of the -- we have very big infrastructure to serve the demand already. And instead of seeing the competitors, we see them as a partner because we partner with them, we have the model to go to market and expand our adoption to the partner as well. That is our strategy to do this year and next year. Unknown Executive: We have Khun Supachai's question from the chat box. So the first question is, can you explain the slower year-on-year growth in Enterprise revenue in the third quarter compared to the first half? What is the trend in the fourth quarter? Pratthana Leelapanang: Actually, the reason that we see -- even though the slower on that one is very limited and very minimum. The explanation is about the Prompt Pay that we have on the order. We are working on to recover that one. I think that's a short answer for that question. Unknown Executive: What is the trend in fourth quarter? Pratthana Leelapanang: I think we will be able to catch up the expectation from the shareholder on the enterprise revenue. Unknown Executive: The second question goes to retail, and that's from [indiscernible]. What is the recent development in retail business after introducing your house spend being up. What is the feedback on this brand, particularly any new initiative to share? Tee Seeumpornroj: Okay. We launched on July this year, and I see the growth until today is about 56% growth comparing to the first launching. So we're going to complete maybe $15 million. This is -- you see from the number, it's not that much comparing to the other revenue that we have, but anyway, the margin of the level on the house branding is extremely high comparing to what we are actually selling in the store. So that is the first milestone that we actually. The second one is we're going to increase in terms of the SKU, the number of the linkage. So we're going to add up another three more items, which is related to the iPhone 17, this is going to boost up sales of iPhone 17 also, so that is our own brand. And the third one is, we're going to sales in more channel. We just start selling in our own location, which is populated by the AIS, but we go in to expand to the partners, [indiscernible], so that is the link up in the summary. And like I said before, so the online sales in our own channel going to be one of our focus. The omnichannel, once you go to online, you can shop online, you can go to offline, you can go online also. So that is the three things in short that we are going to focus differently comparing to last quarter. Unknown Executive: Third question, what would be a big change Khun Pratthana would like to bring to AIS in the next 3 to 5 years? Pratthana Leelapanang: First of all, I must say that we -- under Khun Somchai leadership, we have set the industry benchmark bringing company into a very strong integrated digital service providers. Number one is not changed, but to build on the strength and the fundamental asset that we have on integrated digital service providers. And number two, as I mentioned earlier at the beginning that we are very clear that in the digital and AI infrastructure era, AIS could play a very important role serving the countries, bringing a pivotal point of these capability, product and services to the country and to every customer, and we do intend to do so. Unknown Executive: On the side note, he asked me to also -- big congrats to Khun Pratthana and thank you Khun Somchai for your leadership and support. I am learning a lot from watching you lead. I wish you a happy retirement. That's from [indiscernible]. Next we have Khun Pisut from KS, again. Pisut Ngamvijitvong: Yes. Thank you for the follow-up questions. The first one is on many revenue grew 5% versus the GDP growth, 2% plus minus, even below. I remember that Khun Somchai management used to mention that the mobile growth will be similar to the GDP growth and this is much better than what you have said before. So next year, GDP growth would be not much different from this year or even slower. And Khun Pratthana come in recently imply some confidence that AIS will outgrow the mobile [indiscernible] with the GDP effective next year. This my interpretation scores. What do you have idea on this one? Pratthana Leelapanang: Currently, we are entering into the phase that everyone, every business do require to use digital services to even leave or do what. I think it's fundamental that digital infrastructure fund the growth of the countries. So we do hope, next year GDP would be better than what you said. We do really hope for that. But once again, the 5G broadband enterprise, we have started a lot, but there are a lot more things to do. So in mobile, in particular, as mentioned, 5G is just 30% penetration, and we expect to be more. So I would say that it will be ongoing, hopefully, I can say, growth and development of customer behavior as we start to see growth coming back and new application will come in, I'm very positive about that. Pisut Ngamvijitvong: And my next question is, with your revenue keep growing, right, and your CapEx will be higher in the [indiscernible] but your CapEx from sales or CapEx intensity would be stable or even lower. Am I on the right direction on this one? Tee Seeumpornroj: I think you should look at the long term compared to the past, not compared to just this year or last year. I think the -- if you'd go back a little bit higher than this past 2 years, but it won't be as high as when we start expanding the 5G. I think the reason for that is, as mentioned, we want to modernize our network as well, and also prepare for new growth. So that's something that we need to put some of the money upfront so that we can grow the business more than just the current mobile broadband services. But as I mentioned, percent to sales, it won't -- you can look at that as a benchmark. It varies within those range. Unknown Executive: Next we have Khun Minling. She leaves us questions in the chat box. Can you compare 2,100 megahertz, which will expire in 2027 with 3,500 megahertz that -- which one you prefer. And if you can get 3,500 megahertz before 2027, will 2,100 megahertz still be needed? Pratthana Leelapanang: 2,100 megahertz is on Schedule 2 reoptions as is expired. And NBTC and the country are looking at our spectrum bands whether it make available in public for auctions. We cannot say right now, in particular, as Khun Somchai always mentioned that we look at every spectrum both individually and collectively, value combined. So we see later when NBTC and now which one is available, we will be participating. The 2,100 megahertz is a fundamental band for our network and competitor network, for sure. 3,500 megahertz would be new to the industry previously source of in between telecom and television satellites. We believe that the schedule of 3,500 megahertz will be parts and parts of the whole thing related to satellite television as well. We cannot say whether it's going to be available sooner than scheduled, it remain to be seen, but we will consider it individually. There will be more spectrum as well that NBTC might put it for auction. So we will look at everyone, as mentioned. Unknown Executive: And the last question from [indiscernible] from the chat box. First, congratulations on your results. I have two questions. First, could you share how the ARPU momentum looks for the mobile and home internet business in October? Second, what is your revenue guidance for the fourth quarter? And what positive factors are you expecting to support it? Pratthana Leelapanang: So we see good trend. The government has been supportive of countries to recover. For the past few weeks, the stipulation program also help every businesses. And even though it's not direct to us, we see a very positive trend ongoing for mobile. I think for the fourth quarter on the broadband side, I think we will still see the positive trend continue. But given normally the last month, we won't get to sell a lot anyway. So I think we still expect a good result. But in the end, it's also depending on the competition in the market. After we announced our result and also our competitor announced the result and I think both sides will go back and try to revise the SIG so that still the unknown factor that can impact the performance towards the last 2 months, yes. Unknown Executive: We would like the last questions from Piyush, follow-up from HSBC. Piyush Choudhary: I have two questions. Firstly, on home broadband. Could you share what drove kind of the ARPU quarter-on-quarter by 2%? And what other initiatives company is undertaking to continue this ARPU growth in home broadband? Secondly, on the mobile side, 5G subscriber penetration is still hovering around 34%. So what is the limiting factor? What initiatives like company could take to further improve this penetration? If you can share the split of 5G subs between prepaid and postpaid? Tee Seeumpornroj: I think on the broadband ARPU, okay, the strategy for sure is, right now, we try to offer a higher-quality broadband service to the higher segment. The more we can get the people who have money to spend to subscribe a better service than it's better for us. We are not looking at increasing ARPU across the board. Normally, we will have new product and services launching in the last quarter of the year as well. But this year, we refrain from that because we are doing the IT migration of the system. So the new product service is going to come out probably early next year. And that will be the continued effort in trying to lifting the ARPU up. We're looking at increasing a number of services that we have with existing customers as well. That hopefully will continue to fill the ARPU growth for 1 to 2, 3 more years. Pratthana Leelapanang: For mobile 5G, the growth of 5G is going along with the 5G device penetration in the markets. Thailand markets are not under the highly subsidy markets, customers purchase their phone individually rather than highly subsidized to fund the growth of 5G. So the key factor is 5G device penetration and 5G device injection to Thailand. We see a positive trend of more and more model continue on being a better offering of 5G model bit by bit. 4G and 3G, I would say, 4G mostly is still widely available at very economical price. So it will take a bit of time as well for 5G to bring down into those level of price, but we see a positive trend. To really support customer, as our Retail, Khun Prapat mentioned, our footprints, our service direct to customer would be able to help AIS to support customer into the 5G era. We continue on seeing a very strong trend of customer adopting better phone with financial services that we, together with our partner, provide later on next year would be also from ourselves supporting customer as a part of the plan, and that would be the engines that we will do a better job for our customer. Unknown Executive: To support on this, we also see 5G handsets growing at 30% year-on-year. If you look at 5G package subscription growing at 36%, so they are growing hand in hand. So there are no further questions and our time -- sorry -- and our time is up. And therefore, thank you, everyone, for participating and see you in the next meeting.
Operator: Ladies and gentlemen, greetings, and welcome to the Baldwin Group Third Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Bonnie Bishop, Executive Director, Investor Relations. Please go ahead. Bonnie Bishop: Thank you. Welcome to the Baldwin Group's Third Quarter 2025 Earnings Call. Today's call is being recorded. Third quarter financial results, supplemental information and Form 10-Q were issued earlier this afternoon and are available on the company's website at ir.baldwin.com. Please note that remarks made today may include forward-looking statements subject to various assumptions, risks and uncertainties, including, for example, our strategy with respect to our capital allocation in the future. The company's actual results may differ materially from those contemplated by such statements. For a more detailed discussion, please refer to the note regarding forward-looking statements in the company's earnings release and our most recent Form 10-Q, both of which are available on the Baldwin website. During the call today, the company may also discuss certain non-GAAP financial measures. For a more detailed discussion of these non-GAAP financial measures and historical reconciliation to the most closely comparable GAAP measures, please refer to the company's earnings release and supplemental information, both of which have been posted on the company's website at ir.baldwin.com. I will now turn the call over to Trevor Baldwin, Chief Executive Officer of the Baldwin Group. Trevor Baldwin: Good afternoon, and thank you for joining us to discuss our third quarter results reported earlier today. I'm joined by Brad Hale, Chief Financial Officer; and Bonnie Bishop, Executive Director of Investor Relations. We generated strong overall results in the third quarter despite a dynamic operating environment and the expected persistence of certain idiosyncrasies we highlighted last quarter. Organic revenue growth in the quarter was 5%, bringing our year-to-date organic revenue growth to 9%. Adjusted EBITDA was flat year-over-year, bringing our year-to-date adjusted EBITDA growth to 9%. Adjusted EBITDA margin and adjusted diluted earnings per share contracted slightly in the quarter. On a year-to-date basis, adjusted EBITDA margin is roughly flat year-over-year and adjusted diluted earnings per share has grown 11% year-over-year. We previously discussed two temporary items that we expected to have a finite impact on our results over the near term. First, a procedural accounting change in our Insurance Advisory Solutions segment impacting timing of when we recognize commission revenues. And second, the reduced commission from QBE that went effective on May 1 on the builder-sourced homeowners’ book of business we are rolling into our recently formed reciprocal exchange BRIE. As a reminder, these are temporary headwinds persisting through the first half of 2026, which then reverse into tailwinds as these are not revenues that are lost, just deferred relative to when they will be recognized in our P&L. Adjusting for these items, total commissions and fees organic revenue growth in Q3 would have been 10% and total overall organic revenue growth would have been 9%, bringing the year-to-date totals for both metrics to 11%. In Insurance Advisory Solutions, overall organic revenue growth was flat compared to the third quarter of 2024. Removing the impact of the procedural accounting change, overall organic revenue growth was 4% and organic growth on core commissions and fees was 6%. Sales velocity remained top decile at 20% in the third quarter, bringing year-to-date sales velocity to 19%, highlighting our consistent ability to take share and win new business. In fact, as we sit here today, our backlog of won but not yet booked new business that should bind in the first half of 2026 is sitting at a historic high for our firm, including several 7-figure commission and fee client wins from large global competitors, highlighting the demand for our innovative advice and solutions in the marketplace and the growing power and impact of our integrated operating platform. We are consistently performing in the top decile for new business generation in our industry based on recent industry data showing the median at 12.2% and the top quartile at 15.9%, reinforcing the effectiveness of our go-to-market strategy and the positive regard clients and prospects have for our teams and the solutions we are delivering. The impact of rate and exposure or renewal premium change was a meaningful headwind at minus 5.7%, reflective of the continued client caution tied to macro uncertainty and reduction in large cat-exposed coastal property pricing, partially offset by ongoing rate action in certain litigation-exposed casualty lines of business. From where we sit today, we expect the third quarter renewal premium change headwind reflects a floor going forward from which we will see incremental improvement over the coming quarters. However, we don't anticipate this fully reverses into a tailwind in the near term, highlighting the importance of our industry-leading new business generation capabilities to drive sustainable growth over time. In our Underwriting Capacity & Technology Solutions segment, organic revenue growth came in at 16%, driven by continued strength in our multifamily portfolio, which grew commissions and fees at 16% and our commercial umbrella portfolio, which grew organic revenue 15%. As discussed last quarter, we continue to maintain underwriting discipline in our E&S homeowners’ book in a rapidly softening property environment, which was a 400 basis point drag on UCTS organic growth in the quarter. In July, we began migrating renewals of the builder book away from QBE into the reciprocal insurance exchange we launched earlier this year, which thus far is performing in line to slightly better than expectations. Additionally, following the transaction we announced with Hippo, we have begun work with the Hippo and Spinnaker teams on a second builder homeowners insurance program, which we expect to launch next year. Over time, we expect it will materially increase our capture rate of Westwood's builder business into proprietary MSI programs, which sits at around a 30% capture rate today. This should unlock a meaningful growth opportunity for MGA and expand vital insurance capacity for our builder partners and their homebuyer customers. In our Mainstreet Insurance Solutions segment, organic revenue growth was slightly negative, driven by the onetime commission reset on the QBE Builder book and continued elevated attrition in our Medicare business due to the broader managed care marketplace disruption. Removing the impact of the onetime commission reset on the QBE Builder book, overall organic revenue growth was 8%. As a reminder, this impact will persist until April of 2026, after which it turns into a multiyear tailwind as the commission reduction we are absorbing today reverses back into fee revenues for our attorney-in-fact vehicle, which manages the reciprocal exchange. I want to take a minute to talk about the exciting momentum we are seeing across our embedded home insurance businesses. As I mentioned last quarter, in December, we launched our new technology platform and digital experience to support the seamless sale of home insurance at point of mortgage origination and home sale. This quarter, our embedded mortgage and real estate business went live with 3 new mortgage and real estate channel partners, bringing the total channel partners live on our platform to 10. Included in the partners who went live on our platform in Q3 was a top 20 mortgage originator who went live in mid-August and has shown very promising proof points of success. In our second week post go-live, we sold over 150% of the volume achieved by their previous insurance partner in their best day ever over a two year period, and we have maintained those elevated volumes. These results are enabled by our proprietary technology platform that powers our digital insurance buying experience and the seamless nature of this process in the mortgage and real estate transaction flows. In fact, when a potential homeowner engages through our digital experience, we bind a home insurance policy for them at a rate that is 3.5x what is achieved through nondigital channels. The power of our technology platform and digital agent experience includes AI-powered real-time agent advice, which is driving tremendous momentum in conversion rates and presents opportunity for margin expansion in the medium to long term. We remain bullish on the growth prospects for this business as we continue to make progress towards simplifying the homeownership journey through our embedded technology. Our pipeline of new embedded partners in this channel is as strong as we have seen yet with our implementation backlog well into 2026. As we mentioned last quarter, we completed the acquisition of Hippo's Homebuilder Distribution network in July. We are now live and facilitating the home insurance process for 20 of the top 25 homebuilders across the country. Our builder partners account for 57% of all new homes built in the U.S. and 93% of the homes built by the top 25 builders in the U.S. In aggregate, the partners in our combined embedded home insurance strategies drove over 500,000 home and mortgage closings in 2024, which accounts for roughly 12% of homes sold in the U.S. annually, positioning us as the leading embedded personal lines distribution platform in the $500 billion premium U.S. personal lines market. Before I turn it over to Brad to provide additional details on our Q3 financial performance, I want to share a strategic update that marks a pivotal moment in our evolution. Today, we're announcing our 3B30 Catalyst program, a 3-year transformation program launched during the third quarter of 2025. Catalyst is designed to accelerate the infusion of automation, business process optimization and artificial intelligence to transform and elevate our workforce, building on our 2 foundational pillars of talent and technology for building the broker of the future and meeting our aspirational goal of 3B30. This initiative is designed not only to elevate the work and impact our colleagues are delivering on a daily basis, but to unlock new avenues for growth. By aligning our workforce and technology investments with the demands of a rapidly changing market, we are positioning ourselves to accelerate innovation across our client engagement model and insurance product offerings, enhance client and colleague experience through smarter, more agile client service delivery, empower our teams to elevate their focus on high-impact growth-driving activities and enable enhanced real-time decision-making by streamlining processes, data and systems. We anticipate a cumulative transformation charge of approximately $40 million by the end of 2028 with cumulative savings over the same period of approximately $50 million and projected run rate annualized savings of $40 million by the end of 2028. We expect savings to ramp over time with no material savings in 2025, $3 million to $5 million in savings in 2026 and $10 million to $15 million in 2027. We expect charges of $15 million in each of 2026 and 2027. The 3B30 catalyst program is designed to accelerate our ability to capture operating leverage across our business while simultaneously enhancing growth, both organically and through M&A. Cash restructuring charges of approximately $40 million reflect the savings to cost ratio of roughly 1.25x and are largely related to workforce transformation and technology implementation. The charges represent less than 10% of expected free cash flow over the next 3 years and do not impact our expectation to deliver double-digit free cash flow growth driven by strong growth in revenue, operating income and working capital improvements. This is an important step forward for our firm, one that reflects our commitment to positioning ourselves for the rapidly evolving technology landscape, further bolstering our status as a leading destination for our industry's top talent and accelerating our pace to fulfill our vision for the broker of the future. As we move forward, we remain focused on delivering long-term value for our clients, colleagues and shareholders, driving growth and innovation and expanding margins and free cash flow. In summary, we're pleased with our third quarter results in such a dynamic insurance market and macro-operating environment. While we expect we will continue to face an insurance marketplace in transition, we are increasingly confident in our ability to deliver in 2026 and beyond as evidenced by the strength of the underlying momentum in the business. We sincerely thank our clients for placing their trust in us to provide strategic guidance, expert insights and innovative solutions in an ever-changing risk landscape. We also extend our deep appreciation to our colleagues for their steadfast dedication and tireless efforts in delivering meaningful results for our clients and valued insurance partners. With that, I will turn it over to Brad, who will detail our financial results. Bradford Hale: Thanks, Trevor, and good afternoon, everyone. For the third quarter, we generated organic revenue growth of 5% and total revenue of $365.4 million. Looking at the segment level, organic revenue growth was flat in IAS, up 16% in UCTS and down 2% in MIS. We reported GAAP net loss for the third quarter of $30.2 million or GAAP diluted loss per share of $0.27. Adjusted net income for the third quarter, which excludes share-based compensation, amortization and other onetime expenses, was $36.5 million or $0.31 per fully diluted share. A table reconciling GAAP net income to adjusted net income can be found in our earnings release and our 10-Q filed with the SEC. Adjusted EBITDA for the third quarter was roughly flat at $72.5 million compared to $72.8 million in the prior year period. Adjusted EBITDA margin declined approximately 170 basis points year-over-year to 19.8% for the quarter compared to 21.5% in the prior year period. Adjusted free cash flow for the third quarter was up 26% to $42 million compared to $33 million in Q3 2024. The increase in adjusted free cash flow was driven by improved working capital, which we communicated would normalize in the back half of 2025. We ended the quarter with net leverage at approximately 4.1x, down from Q2 2025 and remain on track to hit or exceed our goal of 4x by the end of the year. On that topic, with the business entering this period of a positive inflection on our financial profile through improved free cash flow, reduced leverage and line of sight to achieve our goal of bringing leverage under 4x and maintaining it there going forward, I want to take a minute to talk about capital allocation priorities. First, our highest and best use of capital is organic reinvestment in our business, whether it is the technology platforms we have built to support our leading embedded insurance franchise, continued investment in specialized insurance talent or ongoing investments in scaling our sales force, these investments drive our highest returns measured on both an internal rate of return and return on invested capital basis. We have ample opportunity to continue these investments at elevated returns with the governor on those investments being the margin accretion objectives we have outlined and remain committed to. Second is M&A, where we have proven over the past 5 years, we can be disciplined allocators of capital to drive enhanced business results and strong financial returns. We are enthused by the quality of opportunities in our pipeline, and we plan to remain thoughtful relative to our capital allocation strategy, resulting in an M&A cadence that is more episodic in nature. Third, and a new leg of the stool for capital allocation at Baldwin behind internal reinvestment and M&A, we are adding share repurchases. We believe this can be an important tool used opportunistically to deploy capital when we see market dislocations to create compelling return opportunities for our shareholders. Consistent with the foregoing, based on discussions held with our Board of Directors, once our net leverage is comfortably under 4x, our Board intends to authorize a share buyback plan of up to $200 million, subject to maintaining our long-term leverage goals. On the capital management front, in September, we announced the successful repricing of our Term Loan B to SOFR plus 250 basis points, a 50 basis points improvement on the spread or approximately $5 million of annual interest expense savings. We also had entered into a floating to fixed interest rate swap agreement with a notional amount of $500 million, which exchanges 1-month SOFR for a fixed rate of 3.244%. Moving to expectations. For the fourth quarter, we expect revenue of $345 million to $355 million and organic revenue growth in the mid-single digits. We anticipate adjusted EBITDA between $68 million and $73 million and adjusted diluted EPS of $0.28 to $0.32 per share. Consistent with prior years, we are also sharing a broad initial view of 2026 financial expectations. We preliminarily expect 2026 revenue in the $1.66 billion to $1.7 billion range, organic growth in the high single digits, adjusted EBITDA in the $380 million to $400 million range and adjusted diluted earnings per share between $1.95 and $2.10. This would result in a 5-year CAGR for all of those metrics in the high teens to low 20s percent. In addition, we expect double-digit growth in operating free cash flow. As we've previously indicated, we expect an acceleration of organic revenue growth in the back half of 2026 once we lap the idiosyncratic headwinds discussed. In summary, we are pleased with the overall performance of the business year-to-date as we continue to navigate a dynamic operating environment. We continue to see incredibly strong internal fundamentals across all 3 of our segments and feel confident in our ability to generate durable outsized results for shareholders. We will now take questions. Operator? Operator: [Operator Instructions] Our first question comes from Gregory Peters with Raymond James. Charles Peters: So I think I'd like to start with the results in the IAS segment. You called out a couple of things in your commentary, the flat organic. I think you said excluding the revenue recognition change, I think you said organic was up 4%. And then you talked about the sales velocity being up really strong. And I guess what I'm trying to get at is I'm trying to reconcile what we hear from you quarter after quarter, which is really strong sales velocity and success in the sales velocity and trying to reconcile that with what we're seeing with the IAS organic numbers. And maybe that's -- maybe that the revenue recognition change is going to what is the deciding factor here and what changes next year. I'm not sure, but I thought I'd just give you an opportunity to talk more about that. Trevor Baldwin: Yes. Greg, it's Trevor. So let's -- I think, unpack a few points there. One, again, sales velocity of 20% in the quarter, 19% year-to-date, strong results, something we're, I think, super pleased with top decile relative to what we see across the industry. And I think strong confirmation around the value that clients and prospects are seeing from our teams and how they go to market. And a lot of confidence around that momentum. You heard me talk about the largest backlog of clients won but not yet booked, including some very large clients from large global brokers. So the momentum there continues. The second is the accounting procedural change we mentioned, which is about a $7 million headwind to revenue and $5 million headwind to EBITDA in the quarter. Of note, that's not revenue that's gone. That's simply timing. As a reminder, we move from truing up to cash receipt trends on a monthly basis to waiting until policy expiration. And so that's simply revenue and EBITDA that will be booked next year upon policy expirations. The third is rate and exposure. Renewal premium change was a 5.7% headwind in the quarter, representing kind of a low point in our historical data as well as what we expect to be a floor going forward. I anticipate that we will see that incrementally improve over the coming quarters before normalizing into a neutral, if not slight tailwind in the back half of next year. And as we unpack that data, I think it's helpful to parse it a little bit as we look at our Property and Casualty business in IAS, rate and exposure was about a 2.8% headwind. And you can think about that being probably about 1/3 rate, 2/3 just sluggish exposure pull-through as we continue to see client caution. On the employee benefit side, it was about an 800 basis point headwind. And you can think about that largely being exposure driven as a result of a softer employment environment. What I would tell you is based on what we're seeing in health care cost trend, renewal dynamics, et cetera, we expect that to normalize back up certainly by the beginning of 2026 based on expected rate pull-through as a result of elevated medical loss ratios that have been seen across the industry. As you just step back broadly, we're in a period of, call it, 12 to 18 months of renewal premium change headwinds. We called that out on our last call, where we expected this year to be a 2% to 3% headwind. We're sitting at 2.5% headwind year-to-date. And I would expect that that's still a good number for the full year. As we think about the impact of that next year, I think that headwind ebbs and likely flattens out or reverses into a slight tailwind as you get into the back half of next year as we begin lapping some of these periods of elevated rate pullback, particularly in large cat-exposed property. So we feel really good about the underlying fundamentals in the IAS business. We feel good about client retention. We feel good about -- really good about new business wins and momentum that continues to build there. And we expect we've got 6 to 9 months of continued, what I'd call, insurance and macro market headwinds that are going to show up in the form of ebbing renewal premium change headwinds. But ultimately, as you think about the broader dynamics of kind of where the dynamics of risk are headed, both from a natural catastrophe standpoint in terms of frequency and severity of events, in terms of social inflation or legal system abuse on casualty, it's hard to imagine a world where renewal premium change isn't at least low to mid-single digits over time. And if you normalize to that, just taking the 5.7% RPC to flat plus normalizing for the accounting change, IAS is a double-digit growth business in the quarter. Charles Peters: Just a clarification on the procedural change. Is that -- so it's a headwind, a couple of quarters of headwind. Is there going to be -- once we anniversary it, is there going to be like 4 quarters of an unusual benefit and then we go back to some normalized rate? Trevor Baldwin: Yes, that's the right way to think about it, Greg. Charles Peters: Yes. Great. The second question -- I guess it's technically the third, but the second question I had was on the organic revenue results in the Underwriting Capacity & Technology Solutions business because that's been really very consistent and strong -- recorded strong results. And I'm just curious about what kind of competition you're seeing in that marketplace. And I guess the genesis behind that would be earlier today, Progressive had its quarterly call, and they talked about renters insurance as being an area of focus for them. And so it just triggered, hey, how are you -- it doesn't show up in your numbers, but how are you seeing competitive pressures in your [UCTS] business? Trevor Baldwin: Yes. So Greg, I'd say broadly, we have a diversified portfolio of products, including both commercial and personal lines, including property, short tail, casualty, mid and long tail. And so there's not a broad brush, I'd say, commentary to answer that question. Competitive dynamics, market pressures vary product by product, line by line. At a very high level, what I would tell you is we're very thoughtful about the products that we go to market with and ensuring that we've been able to identify a way in which we can carve out a real right to win, both around how the product is built and underwritten and highly segmented from a pricing standpoint as well as from a distribution standpoint and how we have unique access and competitive advantage relative to the way in which our product is being sold into the marketplace. Specific to your question around renters, I think there's multiple ways in which people go to market for that business. We happen to go to market exclusively as an embedded insurance provider, meaning we're partnering with the ERP technology platforms, the property management firms, used to operate their buildings and manage their leases and books. And so we become that kind of embedded solution of convenience. As a result, we're not -- our renters product is not sold in traditional manners. I think as Progressive thinks about their product, I suspect it's more like a GEICO renters product or a Lemonade renters product, and that's a more traditional go-to-market strategy. And that's just one -- we're just not competing for that type of business. Our renters customer is one that is opting into our product because they can find it in less than 30 seconds natively in the leasing workflow. It's the solution of convenience. We, in fact, are going to be launching next year a new innovative renters product that is embedded into the rent ledger and so kind of naturally embedded into the rent payment, which we're really excited about some of the momentum that could drive and the continued building penetration. So we feel good about our competitive positioning there. It's not that we don't have competitors. We do. But this is a space we've been in for a while. We have leading market share, and we feel really good about our right to win and the competitive moats we have as a result of our technology platform and how that enables our go-to-market. Operator: Our next question comes from Charlie Lederer with BMO Capital Markets. Charles Lederer: Quick one on your preliminary outlook for 2026 organic of high single digits. What are you, if anything, embedding for the attorney-in-fact fees and BRIE and also the embedded mortgage channel revenue? Trevor Baldwin: Yes. Charlie, this is Trevor. I would tell you that we have nominal assumptions built in for the attorney-in-fact, and while I wouldn't quite call it nominal on embedded, it's not -- it's certainly not heroic. That's a business we expect to build over time. We're super excited about the momentum we have there. You heard me share some of those statistics around the early proof points of success with some of our mortgage partners that have gone live on the platform. So we're quite enthused. We've got a terrific backlog. Our digital agent workflow and kind of how it's embedded into the mortgage process, how it enables a seamless insurance buying and binding experience is driving really, really compelling conversion statistics. When a potential homeowner opts into our digital experience, we find a home policy for them 3.5x the rate at which we do through traditional channels. And as a result, we're already ahead of our early kind of pro formas and expectations around conversion rates in the mortgage channel, and we're super excited. So lots of momentum there. But we don't -- we anticipate that has a growing impact on our financial results, but not a material impact on 2026. Charles Lederer: That's helpful. And then maybe just another one on -- if I take out the pull forward that you guys called out last quarter and then take out some of the headwinds this quarter from the accounting change and then presumably, the pull forward was taken out of this quarter. I mean the acceleration is like pretty pronounced. I guess -- I mean, is that just sales velocity? Because sales velocity was a little slower. So I'm trying to kind of connect the dots. Maybe it's just business mix. I don't know if there's any color you can add. Trevor Baldwin: I mean, I guess I'm not fully following the question, Charlie. Like sales velocity was 20%, so quite strong. When you say pull forward, you mean the impact of the procedural accounting change and how that pushes out the timing of recognizing revenue? Charles Lederer: I was more talking about like the -- I think you guys talked about two energy clients last quarter that bumped up the IAS organic. Maybe I'm... Trevor Baldwin: Yes. Those were pulled forward into the second quarter, correct? Charles Lederer: I From the third quarter, right? Or was it... Trevor Baldwin: That's correct. Charles Lederer: Yes. So I guess if you kind of factor that in, it's a pretty pronounced acceleration. So I don't know if that's just business mix or -- yes, I guess I was just trying to understand. Trevor Baldwin: Yes. I'm following you, Charlie. So yes, I think I would point you to rate and exposure and the headwinds that created as an offset. But yes, as you heard, we're feeling really good about the underlying momentum in the IAS business. It's somewhat masked by the market renewal premium change dynamics and this accounting change that's just simply pushing revenue into next year. But at 20% sales velocity, that's as good as it gets. And we're super pleased with the momentum and the backlog of new business and how that positions us into 2026. Operator: The next question comes from Elyse Greenspan with Wells Fargo. Elyse Greenspan: I guess I have a follow-up trying to parse together some of just the commentary on IAS and specific to the guide, right? I think you guys said organic mid-single digits, right, I think, in the fourth quarter. What are you assuming for IAS? And then within the guidance next year for high single-digit organic, I think you said that's back half heavy. So do you expect to start like in the low single digits and pick up? And then also, what does that imply, I guess, for IAS embedded within the guide next year as well? Trevor Baldwin: Yes. Elyse, this is Trevor. So consistent with past practice, we're not going to get into segment level OG guide. What I would say is we feel good about mid-single digits for Q4 across the business. As we look towards 2026, we feel good about high single digits and we would expect organic growth to accelerate through the year, particularly in the back half as we lap the 2 idiosyncratic headwinds that we called out that come to an end then. As you've overheard in some of the earlier Q&A, we have strong new business momentum in the IAS business. We have had pretty meaningful renewal premium change headwinds, some driven by rate, some driven by exposure. We expect that we've seen the floor there and that, that begins to ebb. But I would still expect RPC headwinds in the first half of next year before that begins to normalize. Elyse Greenspan: And then within the guidance for next year, what -- within the revenue guide, what are you assuming for M&A? And I know, obviously, it depends upon when they are -- when the deals close, but what's embedded within next year's guidance for any level of M&A? Bradford Hale: Yes. I would say we have a nominal amount of M&A embedded into next year's guidance. We continue to maintain a strong pipeline. with a lot of really interesting opportunities, but it's nominal to the guide we provided for '26. Elyse Greenspan: And then the savings that you guys outlined like $3 million to $5 million next year, right, I think $10 million to $15 million in '27. Is the expectation that those will all fall to the bottom line and help margin? Or is there some level of reinvestment being contemplated as well? Trevor Baldwin: Those savings articulated are net of reinvestment. Operator: Our next question comes from Pablo Singzon with JPMorgan. Pablo Singzon: So maybe first one for Trevor. I know you spoke about employee benefits early on this year. I was a bit surprised by your uptick. I think you had mentioned something like an 800 bps headwind there versus about 300 bps in P&C. Is there anything unique about the employers you place insurance for? Maybe they work in industries that are more economic sensitive? And just given the weakness in the labor market that's being widely reported on today, what gives you confidence that you'll see a recovery in IAS OG next year? Trevor Baldwin: Yes. Pablo, no, I don't think there's a particular uniqueness in our employee benefits client base. I mean, as I think about where it skews heavy, our largest concentration of benefits clients would be in -- on the West Coast with a pretty heavy bent towards technology. So maybe we skew a little bit heavier there, which would make sense just based on some of the headcount trends we've seen relative to kind of early adopters on AI and things of that nature. As we -- as you mentioned, our confidence around the OG and the acceleration heading into next year, that's less about -- that doesn't contemplate a stronger labor market. That contemplates kind of real-time visibility that we have now into the cost of health care and the cost of health insurance and how that ultimately will inflate premiums. There's been a pretty significant increase in health care cost trend this year, well documented in the managed care space, but I'd say that, that also exists in the traditional pre-65 marketplace as well. And while I'd say that is good in multiple ways for our business. One, as costs go up, demand for our advice and our innovative solutions goes up. Our scale and the breadth of kind of tools and capabilities enable us to bring value in ways that many of our smaller competitors are just unable to do. And it also drives ultimately up costs for a business that's largely commission-oriented. When premiums are up, as you know, our revenues tend to trend in a similar direction. Pablo Singzon: Okay. That's helpful. And then Second question is just on the PBE and the ramp-up in attorney-in-fact fees, right? So I guess the question there is holding premium volumes constant, and this goes to basically the gap between the commission you lost and how much you still earn in fees, right? How many years will it take you to sort of get back to your previous state, assuming premium volumes are the same, right? Trevor Baldwin: Yes, we expect it to take 2 to 2.5 years from 05/01/2026. Importantly, Pablo, for the time being, we account for that AIF on the equity method. And so it will not come into revenue. It will come into EBITDA. Operator: Our next question comes from Andrew Anderson with Jefferies. Andrew Andersen: Sorry, maybe some more questions on the reciprocal. I think in response to an earlier question, you said you were anticipating a nominal benefit from the reciprocal in organic. I guess, is there -- is any part of this going into organic? If you could just maybe parse that out a bit? Bradford Hale: Yes, Andrew, thanks. It's Brad. No, there's no benefit to organic on the reciprocal. I think that was in reference to the other part of that question. The only benefit of the AIF is the direct earnings benefit where we get 75% of the earnings under the equity method. Andrew Andersen: Okay. And then when we're talking about this turning into a tailwind, and you kind of just mentioned a moment ago, it sounds like it could take 2 years to fully flip over. And I think the fee income would be on kind of the policies binding and on a look back. So I guess I'm struggling with how it turns into a tailwind in the second half of '26? It feels like maybe you're past the peak of the headwind, but there still is a headwind persisting until we get to the end of 2 years. Is that the right way of thinking about it? Trevor Baldwin: No. no, it's not. So on 04/30/2026, the headwinds from the commission step down going from 31 to 26 on the QBE program ceased to be a headwind because the entire portfolio will have annualized on to that 26% commission rate. At the same time, the attorney-in-fact, which we own, will be accruing revenue in at 5% of premium as earned into the reciprocal. And that's an important distinction because commissions are booked upfront upon policy binding, whereas AIF fees are booked over life of the policy ratably. And so there is a difference in the earn-in rate from a timing perspective, which drives some of this. And then there's also the time line that it takes to roll all of the premium off of QBE in all of the states we're doing business into the reciprocal. And so while the first 12 months, you fully absorb the commission reduction, it takes us a couple of years to fully roll all of that premium off of QBE in all of the states we're doing business in fully into the reciprocal. The AIF does not begin earning AIF fees until those premiums renew into that reciprocal vehicle. Now importantly, we started with Texas on July 1, which is the largest state in the QBE portfolio and we will likely be following thereafter with California, which is the second largest state. And so we intend to get through the states with the largest volumes of premium next year and have the vast majority of that premium rolling in. As a result, the AIF fees, they're already beginning to earn they're just not meaningful at this point in time, but they will build month by month. And after that 2- to 2.5-year time period should be fully run rated in. Operator: Our next question comes from Brian Meredith with UBS. Brian Meredith: Two questions. Just first one, Trevor, just curious your assumptions as far as how much you're going to be able to renew in the reciprocal in your guidance? And what is it looking like so far? Trevor Baldwin: Yes. So we are currently renewing at a rate that is slightly better than our assumption coming in. We are constraining that with a higher cancellation reserve out of -- I'd say, an appropriate degree of caution. But thus far, we've seen cancellation rates level out at a level that is below what our initial assumptions were. Brian Meredith: Great. That's helpful. And the second question, just big picture back on the capital management, and I appreciate the color, Brad, you gave on getting below -- comfortably below 4x before you buy back stock. But just given where your stock is trading right now and it feels like it's obviously below its intrinsic value. Why wouldn't you use some of the free cash flow you're generating right now and buy back some stock a little bit right now? It seems like a pretty good return on investment. Bradford Hale: Yes. Thanks, Brian. So look, we do, as we mentioned in the prepared remarks, intend to authorize a buyback program once our leverage is comfortably below 4x. We've been incredibly vocal publicly about reaching that guide and the critical importance of financial flexibility that comes post reaching that sort of less than 4x. Importantly, we don't intend to use buybacks programmatically. Really, this adds a tool to the toolkit for us when we're seeing periods of dislocation in our stock price. It is very clearly a third option for us for capital deployment after, as we talked about organic investments and M&A. But certainly, there are times where it makes financial sense, as you indicated. That decision point will really be whether we feel like we can generate significantly better risk-adjusted returns at that point in time through a buyback versus deploying capital through M&A. And we leverage various valuation techniques and metrics as well as our line of sight to the M&A pipeline and making that decision. So 4x remains a priority, and that's why we're not stepping in now. Trevor Baldwin: But Brian, we agree with your general sentiment, which is it is a very attractive investment opportunity right now. And we just feel like we've made very strong commitments to our shareholders around prioritizing getting leverage under 4x before all else. And so we'll be there shortly, and then we'll see where things stand. Operator: Our next question comes from Tommy McJoynt with KBW. Thomas Mcjoynt-Griffith: When you give us that $40 million annualized run rate savings from the expense program, what expense line denominator should we reference to get to a result of thinking about Baldwin's automation efforts are going to take out x percent of expenses out of the business? Trevor Baldwin: Yes, you should largely think about that as being related to workforce transformation. Thomas Mcjoynt-Griffith: Okay. And then you did mention the 3B30. I don't know if I just didn't hear it, but when you first introduced it a year ago, it was 3B30 in 5. Is there a time line for that program still? And is it still the same? Trevor Baldwin: Haven't changed. Same time line. Operator: Our next question comes from Pablo Singzon with JPMorgan. Pablo Singzon: So on the UCTS business, I think about $15 million of the organic revenues generated this year are arising from basically this -- a rental program that has converted to captive format. And I guess the question there is, do you expect that business to grow next year? And do you expect further conversions, right? Because effectively, what's happening is that instead of booking a commission, you're booking a premium and that helps organic. So I was just wondering sort of your plans for at least that piece of UCTS. Trevor Baldwin: Yes, Pablo, we would expect it to continue to grow, but not at the rate on a relative basis that it is now. We think about that captive as really being an opportunity to optimize the economics on a very well-run, low volatility program. And so you should really think about that as our way of accessing the appropriate level of supplemental and contingent revenues on a high-performing program. And with that, I think we're going to wrap up for the evening. So I want to just thank you all for joining us on the call. We're really excited for the growing momentum we have across our business. as we head into 2026. In closing, I want to thank our colleagues for their hard work and dedication in delivering innovative solutions and exceptional results for our clients. And I also want to thank our clients for their continued trust and confidence in our teams. Thank you all very much, and we look forward to speaking to you again next quarter. Operator: Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Third Quarter 2025 Macerich Earnings Conference Call. [Operator Instructions]. Alexandra Johnstone: Thank you for joining us on our third quarter 2025 earnings call. During this call, we will make certain statements that may be deemed forward-looking within the meaning of the safe harbor of the Private Securities Litigation Reform Act of 1995, including statements regarding projections, plans or future expectations. Actual results may differ materially due to a variety of risks and uncertainties set forth in today's earnings results, supplemental and our SEC filings. Reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures are included in the supplemental filed on Form 8-K with the SEC, which is posted in the Investor section of the website at macerich.com. Joining us today are Jack Hsieh, President and Chief Executive Officer; Dan Swanstrom, Senior Executive Vice President and Chief Financial Officer; and Doug Healey, Senior Executive Vice President of Leasing. And with us in the room is Brad Miller, Senior Vice President of Portfolio Management. With that, I would like to turn the call over to Jack. Jackson Hsieh: Thank you, Alexandra. We had another great quarter at Macerich as we've remained ahead of schedule on our Path Forward plan and well positioned to deliver on our 2028 targets. I want to thank everyone at Macerich for their continued contributions to our success. Today, I'll spend some time on the operational performance improvement pillar of our Path Forward plan. Then I'll have Doug and Dan speak to the state of our portfolio and leasing outlook as well as the progress on the balance sheet. For the last few quarters, I've been talking about the momentum we've built up in our leasing efforts. This momentum has driven our confidence in hitting our 2028 targets and pursuing an incremental opportunity such as the acquisition of Crabtree in June. I'll update you on that leasing while also providing some additional specifics that further demonstrate how well we're executing against the plan. During the third quarter, we signed 1.5 million square feet of new and renewal leases, which is an 87% increase from Q3 2024. This brings year-to-date signed leases in 2025 to 5.4 million square feet in the total portfolio, an 86% increase compared to the same period in 2024. That is well ahead of schedule on leasing volume, and we're executing on target for our market net effective rent assumptions used in our 5-year plan. As we've stated on prior calls related to our leasing speedometer, which tracks revenue completion percentage for all new leasing activity in the 5-year plan, our initial goal for new lease deals was 70% by year-end 2025. We're currently at 70% today. Our large pipeline of LOIs puts us on track for the 85% completion target by mid-2026. Turning to the SNO pipeline. It has grown from $87 million in August to $99 million as of today, which again has put us on pace to meet or exceed our target of $100 million by year-end. With the inclusion of Crabtree, we expect a total of $140 million of incremental SNO. Of the remaining $40 million in SNO left to achieve, roughly 90% is in our A, B and C rated spaces. Another way to look at it is that 68% is in our fortress or fortress potential properties. In our Path Forward plan, the strategy around new deals is to improve permanent occupancy, which will enhance our thriving retail centers. We believe these new leases will improve merchandising mix, which improves traffic, generates higher sales and better productivity. This positions our portfolio to drive increased rents in 2028 and beyond once we have all the work done. In a moment, Doug will highlight several of the examples of our recent deals with retailers who are already having a tremendous positive impact on our centers. New deals approved by our Executive Leasing Committee, which reviews and approves deals on a biweekly basis, is up 61% from the same time last year, and is more than all of the new deals approved in 2024, affirming the health of the overall retailer landlord environment for best-in-class centers. We are also making tremendous progress on our anchor leasing initiatives. We have 30 anchors targeted to open between 2025 and 2028, of which 25 are committed to sporting goods, fashion, entertainment, grocery and other retail uses. Re-leasing these vacant anchors is an important part of our Path Forward plan as they help with the permanent leasing in their respective wings, improving the merchandising mix and most importantly, driving customer traffic and dwell time. As I've said in the past, I'm really excited about what we're doing with House of Sport in particular. We have 9 committed locations with them. Dick's House of Sport had their grand opening at Freehold in the former Lord & Taylor Box this past Friday. This, along with the recent opening of the Freehold Athletic Club and Dave & Buster's in the prior Sears Wane joining Primark has revitalized this center. Dick's has made the rollout of House of Sport a critical component of their growth plans and have publicly stated they are creating the future of retail with this concept. They are quoting incremental traffic to a mall, in the mid-teens percentage 1 year after a House of Sport opens. And that's consistent with what we've analyzed. As I said last quarter, leasing momentum I've described today gave us the confidence to opportunistically pursue Crabtree Mall, which we believe will be a very compelling investment based on the early progress on leasing. One of the more important considerations in that acquisition was the opportunity to deploy our operating, leasing and marketing platforms to invigorate leasing momentum and drive permanent occupancy to capture the embedded NOI growth potential. I believe our team has more than delivered on that front so far at Crabtree, and we'll have more to share in the coming months. As we look ahead, we'll continue to evaluate potential new investment opportunities. That said, we'll remain patient and disciplined in terms of additional external growth. We are very focused on leasing, driving operational improvement throughout the portfolio and hitting our deleveraging targets. Doug, why don't you take it from here? Doug Healey: Thanks, Jack. Like last quarter, in my remarks this afternoon, I'll refer to total portfolio statistics and where applicable, I'll provide the go-forward portfolio statistics as well. Portfolio sales at the end of the third quarter were $867 per square foot. That's up almost 4% when compared to the same period in 2024. However, when you look at our go-forward portfolio, sales were actually $905 per square foot. Traffic through the third quarter was flat when compared to the same period in 2024. Occupancy at the end of the third quarter was 93.4%, up 140 basis points from last quarter. The go-forward portfolio occupancy at the end of the third quarter was 94.3%, which is up 150 basis points from last quarter. And a quick update on the Forever 21 liquidation, which has been a drag on our occupancy for the past few quarters. To date, of the 0.5 million square feet that became vacant, we have commitments on 74% of that square footage. And again, with much better brands paying significantly more rent than Forever 21 was paying. Trailing 12-month leasing spreads as of September 30, 2025, remain positive at 5.9%, and this now represents 16 consecutive quarters of positive leasing spreads. In the third quarter, we opened 355,000 square feet of new stores for a total of 852,000 square feet year-to-date through September 30. And after years in the making, we finally opened our 11,000 square foot Hermès store at Scottsdale Fashion Square. Hermès, an iconic brand that is arguably the most sought-after luxury retailer in our industry, will join the likes of Dior, Louis Vuitton, Cartier, Saint Laurent, Versace, Prada and Brunello Cucinelli, just to name a few. This is Hermès’ first store in Arizona with its closest being in Las Vegas. The addition of Hermès now unquestionably makes Scottsdale Fashion Square the primary luxury destination, not only in the Scottsdale market, but also in the entire state of Arizona and at the same time, making Scottsdale one of the most important luxury addresses in the United States. We also opened a 42,000 square foot Level 99 at Tysons Corner. For those not familiar, Level 99 is the first-of-its-kind entertainment destination for adults, featuring real-world interactive social gaming with over 50 physical and mental challenge rooms. Already being considered best-in-class in the entertainment category, this will be Level 99's third location in the United States behind Natick, Massachusetts and Providence Rhode Island, with many more slated to open in the next several years, including Walt Disney World in Orlando, Florida. Level 99 joins Heidi Lau, Cheesecake Factory, Maggiano's, Coastal Flats and Seasons 52 as we continue to reimagine and remerchandise Tyson's East End Entertainment wing. Turning to our lease expirations. As of September 30, we had commitments on 94% of our 2025 expiring square footage that is expected to renew and not close with another 5% in the letter of intent stage. In terms of our 2026 expiring square footage, we have commitments on almost 55% of our expiring square footage with another 30% in the letter of intent stage. So, as I mentioned last quarter, we're basically done with 2025 and in very good shape with our 2026 business. In fact, when looking at our 2026 expirations, we're significantly ahead of where we were at this time last year when we were dealing with our 2025 expirations. As Jack alluded to in his earlier remarks, the retailer environment, tenant demand remains strong, even despite the noise of politics, uncertainty in the macroeconomic environment and the pending tariffs. And this is not just me telling you this, but rather it's evidenced by retailer activity in our portfolio. Legacy retailers are reinventing themselves and coming up with brand extensions to meet the demands of consumers. One of the best examples is Gap and how they've adapted their brands and merchandise to once again become one of the most relevant retailers in our industry. And as a result, their open-to-buys have significantly increased. Other examples include American Eagle, which is expanding and opening new stores and their brand extensions, Aerie and OFFLINE are doing the same. J.Crew is rolling out their factory concept as well as Madewell. And Levi's is doing the same thing with Beyond Yoga. JD Sports has caught fire in the U.S. and is on a major rollout as are Coach, PacSun and Abercrombie & Fitch, just to name a few. And then you have the emerging brands, many of which are rapidly opening stores to support their online business. Examples include Pop Mart, Rowan, On Running, Cider, Addicted, Princess Polly, Brandy Melville, Skims, and many, many more. And as Jack also mentioned, there's Dick's House of Sport, one of the greatest big box concepts in recent history. Dick's has reimagined the sporting goods business and will ultimately redefine the entire category. So, my point here is this. never has the depth and breadth of retailer demand across all categories been what it is today. And to me, that speaks not only to the strength of our portfolio, but importantly, to the health of the Class A Mall Sector across the country. And with that, I'll turn the call over to Dan to go through our third quarter financial results. Daniel Swanstrom: Thanks, Doug, and good afternoon. I'll start with a review of third quarter financial results. FFO, excluding financing expense in connection with Chandler Freehold, accrued default interest expense and loss on non-real estate investments was approximately $93 million or $0.35 per share during the third quarter of 2025. Similar to the last few quarters, I would like to highlight the following item included in our FFO adjusted for the quarter. $7.5 million of interest expense relates to the amortization of debt mark-to-market resulting from our various JV interest acquisitions. As a reminder, this noncash expense is included in interest expense. Go-forward Portfolio centers NOI, excluding lease termination income, increased 1.7% in the third quarter of 2025 compared to the third quarter of 2024. Year-to-date, the go-forward portfolio centers NOI has increased almost 2% compared to the same period in 2024. Turning to the balance sheet. We continue to make strong progress on the balance sheet initiatives contained in our Path Forward plan. We have only one remaining maturing loan in 2025 for approximately $200 million on our South Plains property. We expect this loan will be in technical default at maturity as we continue discussions with the lender to obtain a potential loan extension. We do not have any additional commentary at this time. We're continuing to proactively address our remaining 2026 debt maturities through a combination of potential asset sales, refinancings, loan modifications or property givebacks. In fact, over the course of the last year, we've paid down almost $1 billion of debt that had a 2026 maturity date, including most recently approximately $350 million of repayments through the combined sales of Lakewood and Atlas Park. We currently have approximately $1 billion of liquidity, including $650 million of capacity on our revolving line of credit. From a leverage perspective, net debt to EBITDA at the end of the third quarter was 7.76x, which is a full turn lower than at the outset of the Path Forward plan. And importantly, we've outlined our strategy to further reduce leverage to the low to mid-6x range over the next couple of years. During the third quarter of 2025, we sold 2.8 million shares of common stock for approximately $50 million of net proceeds through the company's ATM program at a weighted average price of $18.03 per share. While our recent acquisition of Crabtree Mall is expected to keep the company within its previously stated deleveraging targets under the Path Forward plan, these ATM proceeds bring the Crabtree acquisition closer to being leverage neutral as it relates to our goal of low to mid-6x target leverage. We are making substantial progress in executing on planned dispositions as part of the Path Forward plan. In July, we closed on the sale of Atlas Park for $72 million. We used our 50% portion of the net proceeds from this sale to repay our 50% portion of the $65 million loan on the property that had an effective interest rate of over 9% and a 2026 maturity date. In August, we closed on the sale of Lakewood for $332 million, including the assumption by the buyer of the $317 million loan on the property that also had a 2026 maturity date. In August, we also closed on the sale of Valley Mall for $22 million. This asset was unencumbered. These sales transactions are consistent with our stated disposition plan to improve the balance sheet and refine the portfolio. We have made substantial progress on the sales and giveback component of the plan and have identified a clear path to achieving our $2 billion disposition target. To date, we have completed almost $1.2 billion in mall dispositions. And as you will see in the disclosure we've provided in our supplement, this includes Country Club Plaza, Biltmore, Southridge, The Oaks, Wilton Mall, South Park, Atlas Park, Lakewood Center and Valley Mall, all of which are now closed. This total also includes Santa Monica Place in which the loan encumbering this property is in default and the property is in receivership. In addition, we have identified internally several additional Eddy assets for sale or giveback over the next year or so, which would increase total mall dispositions to the $1.4 billion to $1.5 billion range. The remaining dispositions in our plan represent the sale of outparcels, freestanding retail, non-enclosed mall assets and land. As you will recall, our 2025 goal for this bucket of dispositions is $100 million to $150 million in total sales for the year. I'm pleased to report that we currently have approximately $130 million sold or under contract against this target. Year-to-date, we have now closed on land sales for $55 million at our share and various outparcels assets for $11 million at our share. And we currently have approximately $15 million of additional land sales and approximately $50 million of additional outparcel sales under contract for sale. We continue to expect to be substantially complete on our $2 billion disposition program by the end of 2026. We'll provide further updates on these sales as we progress through the year. In conclusion, we are making great progress on our Path Forward Plan objectives to reduce leverage, to refine the portfolio and to strengthen the balance sheet. With that, I'll turn the call back over to the operator. Operator: [Operator Instructions] And our first question will come from Vince Tibone with Green Street. Vince Tibone: I just wanted to follow up on the equity issuance here. I totally understand the deleveraging goals, but the prior equity raise is closer to $20. I know you're very bullish on the stock over the intermediate term. So, I guess kind of what drove the decision to do $50 million here? And then also, should we expect further ATM issuances over time? Or was this kind of more of a 1 quarter event to get let Crabtree more leverage neutral? Daniel Swanstrom: Vince, this is Dan. I'll start and then Jack can chime in. I think the main objective in the third quarter was to make Crabtree leverage neutral, as I mentioned. Going forward, we'll continue to evaluate the ATM use in the context of accretive growth like Crabtree. We'll continue to be thoughtful and disciplined in our approach and evaluation. We've completed the equity issuance portion of the Path Forward plan. And I know Jack's previously said we would consider equity outside of the plan in the context of these type of acquisition or large capital projects that are accretive to our 2028 Path Forward Plan targets. Vince Tibone: No, that's really helpful. And then maybe my next one, just switching gears. I just wanted to clarify on the SNO pipeline, you highlighted $6 million of that was related to Crabtree. Was that all incremental leasing at Crabtree since August? Just wanted to confirm that wasn't leases that were in place when the mall was acquired back in the second quarter. Daniel Swanstrom: Yes, Vince, if you recall, when we acquired it, it was 11% going-in yield, but with in-place SNO, it brought it up to about 12.5%. So it's really a combination of what was in place at the time of acquisition plus incremental leasing by the team since we've taken ownership. Are you able to parse those 2 just because I think it would be helpful to kind of isolate what, how much leasing took place kind of over the last 3 months if you have it handy. Jackson Hsieh: Vince, we can follow up with you afterwards. But I would tell you that there's a lot of good progress on the leasing front in terms of deals that have been approved and run through our committee. We've made, we've signed some deals actually already. So we've got others in process. So we'll give more update as we make more progress. Operator: And the next question will come from Samir Khanal, Bank of America. Samir Khanal: I guess, Doug, maybe talk about the '26 expirations. You talked about the commitments on the 55%. I think it was another 30% on the LOIs. Talk about the economics on those deals, the pricing, kind of the spreads you're seeing on those versus maybe the '25 expirations. Doug Healey: Samir, yes, you're right. We. I think in my opening remarks, we said 55% of our expiring square footage and 30% in the letter of intent stage. So we're basically trading paper on 88% of our business in 2026. And to put it in perspective, and I mentioned this earlier, at this time last year, we were only 23% committed when looking at our 2025 expiration. So we're way ahead of where we were last year. And as with our new deals, our renewal deals, both in '25, '26, and we're going out to '27 is all at or mostly all at or above our target market rents that are in the 5-year plan. Samir Khanal: Got it. And then I guess, Jack, just turning over to you on this $100 million of SNO pipeline, which is you're tracking ahead of kind of your budget here. You talked about the $130 million opportunity without Crabtree, $140 million with Crabtree. Given the momentum that you have in leasing here, as you saw through the last several quarters, is it fair to assume you're tracking to exceed the 140 at this point? Jackson Hsieh: It's possible. It really is because I think we can probably be more thoughtful or be more price sensitive on renewals as well. I mean we're seeing momentum across the board, as Doug said, on new and renewals that we're approving and signing from a net effective rent standpoint. We also had, if you recall, reserves built in the plan. So we're trying to, as we continue to gain more momentum to lease additional space that we didn't really believe we could lease, that's, I think that gives us an ability to kind of exceed that 140 target as we continue to make progress. Operator: And our next question will come from Michael Griffin with Evercore. Michael Griffin: Just wanted to get some color around these anchor leases that you've got expected to commence over the next couple of years. Should we think about the cadence of that being more back half weighted to '27 or '28? Do you think some will commence next year? And then can you give us a sense of how the capital costs are going to be associated with commencing those leases? Jackson Hsieh: Yes. I think like a safe assumption is back half of '27, early part of '28 when these actually open, the large majority of them. Now we're able to obviously lease in line once we've got commitments as we go through our leasing efforts within the malls itself. As it relates to economics, I think we've given commentary around in-line deals, tenant allowance being something typically into 1 to 1.5x annual rent in the form of tenant allowance. For anchor transactions, it's more. It really depends on the nature and the type of tenant. Dick's House of Sport, they're great. They're not cheap. They're definitely more than 1x. I'll tell you that. But each deal is different, and they're different depending on the center, where they are in the market. In some of the deals, we've structured them as opportunities for them to purchase some of the vacant anchors. Others are leasehold lease deals where we're providing a fairly meaningful tenant allowance as part of their commitment to open. So I wouldn't say there's like a rule of thumb. And if you look at other large tenants that we deem as demand generators, I would say the Dick's deals are probably on the higher end of what they, in terms of landlord costs. But obviously, we believe that they drive tremendous incremental mall traffic. We certainly analyzed it, and we believe that they'll be very successful like what we've seen early days at Freehold. Michael Griffin: Jack, I appreciate the color there. And then, Dan, I know you're not going to comment on specifics around South Plains in general, but can you give us a sense of sort of what the lender appetite is like for these non-Fortress or non-Fortress potential assets if you were to choose to refi them? And then any sense on interest rate you could get if you decide to go down the path of refinancing some of these assets? Daniel Swanstrom: Yes. I mean, look, it's really case by case based on the assets. Obviously, we don't want to comment on South Plains in particular. But I think we've all seen a very constructive debt financing markets across not just Class A assets, but more recently going down in the quality spectrum. So I think the market is open for refinancings, but it's case by case really based on the specific asset. Operator: The next question will come from Linda Tsai with Jefferies. Linda Yu Tsai: In terms of getting to $100 million in SNO by year-end potentially, could you also provide the timing of when that comes online? Brad Miller: Sure. This is Brad Miller. I'll take it. So of the $100 million, $20 million will come online in 2025, and the rest will come on in 2026 and thereafter. Linda Yu Tsai: Got it. And then with 30 anchors targeted to open, how many other anchors are you still trying to lease up? Jackson Hsieh: Yes. So, I think we have 25 committed, 3, we have papers trading LOIs out and then 2 are in prospecting stage. There are some other anchors that are in the portfolio, but those are kind of in like giveback assets. And so, the totality of what we're referencing are anchors in our go-forward portfolio. Operator: And our next question comes from Floris Van Dijkum with Ladenburg. Floris Gerbrand Van Dijkum: Question on the opportunities out there for additional malls like Crabtree. What are you guys seeing? And what is the financing appetite for those kinds of properties, the A minus assets in your view, it's, can you borrow at under 10% on a secured basis now? Or where are borrowing costs trending for those kinds? Jackson Hsieh: Floris, I'll take the front end, and I'll let Dan talk about the financing. But we're quite happy and excited about Crabtree. We think it's a unique asset in a unique market. We've got quite a significant amount of leasing demand and interest and tours that have been happening since we bought the asset. The asset needed capital. We've already repainted the interior. We've got mockups on rails and lighting already put in place, plans to do wayfinding and work on bathrooms and do some maintenance and improvement on the parking areas. I mean that's a unique asset. Just it's like you put a little bit of capital in there. I think a lot of tenants got very excited with us stepping in long-term owner operator in the mall space. And so I think it's a great rally opportunity for us to generate a lot of really good return. Look, we're looking for other, we're evaluating other opportunities. I can just tell you, we don't have anything that sort of satisfies us, I would say, imminently or in this quarter at this point. But I think in time, more of these opportunities have come up as loans go either into receivership or special servicing. I mean you've got to have a capital commitment and a plan to really get these centers to go in the right direction like a Crabtree. And so I suspect we'll see more opportunity as we roll into 2026 and 2027. I mean I think you know us from a, when we think about acquisitions, you can look at our overall capital allocation progress year-to-date since I've been here, we've sold $1.2 billion of centers at about an 8 cap. Why do we sell them? A, they were either noncore, took too much capital to achieve driving centers that would satisfy IRRs and return on investment for us. You saw us buy out our partner on the PPRT JV, which included Lakewood, Los Cerritos and Washington Square. That was done at a low 7 cap, but really critical properties that we couldn't refinance anything. We had the Dick’s; we had the Sears. We own the Sears locations in both Los Cerritos and Washington Square. So, there were a lot of strategic reasons for us to gain control of that asset to effectuate the business plans, which we will be able to drive leasing and anchor decisions in a couple of our best centers. And then we showed the example of Crabtree. So, look, bottom line is we're going to look at opportunities that are accretive to our 2028 FFO per share, where we believe we have the ability to drive incremental leasing and NOI growth that can generate strong IRRs and return on investment. And I'd say we're very disciplined about what we're looking at. So, and then Dan, I think you can comment. The financing market has really improved for these assets. Daniel Swanstrom: Yes, that's right, Floris. We're seeing a very improved financing market for these types of assets. In fact, look, for us, in August, we were able to close on about $160 million term loan on Crabtree, which was well inside the 10% that you quoted. Our loan is at an interest rate of SOFR plus 250. And this particular term loan gives us tremendous flexibility. It's got 2-year term plus 2 1-year extension options. So, we have flexibility to prosecute the asset management plan with this structure. And we also were able to negotiate an early prepayment without penalty if we chose to do that. So, a lot of flexibility on our loan, but certainly well inside the 10% you quoted, SOFR plus 2.50% in kind of the mid-6% range. Jackson Hsieh: And I'd say like, Floris, if a private buyer wanted to get leverage, they can get investment-grade debt securitization and there's more Mezz opportunity out there. I think you saw the recap on NorthPark Mall. They got pretty good levels on that refinancing to take out their partners. So, I think the financing markets and the Mezz markets are improving quite a bit as we speak; malls that have the right operator, have the right capital commitment and the expertise to kind of get it done. Operator: Our next question will come from Ronald Kamdem with Morgan Stanley. Ronald Kamdem: Just on the go-forward portfolio, just quickly on the same-store NOI in the quarter, any way to sort of quantify sort of the drag from either Forever 21 or proactively taking on space? Just what that sort of did to that same-store number? And if I could ask quickly as well, just that occupancy of 94.3% in your mind, what do you think is sort of peak occupancy for that portfolio? Daniel Swanstrom: Ronald, this is Dan. I'll start on the first point on NOI. Again, just recall, 2025 is a transitional year as we're executing on our re-tenanting initiatives across the portfolio, and we have some frictional downtime. The second half of '25, to your question on Forever 21 is also impacted on a year-over-year comp basis. So near term, there's an impact. But as Doug indicated, longer term, a significant positive with higher quality tenants and our ability to double the rent in those spaces when the backfills come in. But our 1.7% growth, if you were to adjust for Forever 21 would be closer to 3% plus for the quarter. Operator: And our next question will come from Omotayo Okusanya with Deutsche Bank. Omotayo Okusanya: I know you don't have a lot of exposure to Saks as a whole, maybe like Neiman, Macy’s, Brooks or maybe an Oak somewhere. But just curious how you're kind of thinking through the situation there, just given some of the media speculation about some difficulties that you're dealing with. Jackson Hsieh: Yes. Obviously, we're not going to comment specifically on the tenant. I think you referenced Saks Fifth Avenue, right? So, we have, I think we have one at Fashion Outlets of Chicago. Yes, we can't talk about a specific tenant basis. Operator: And our next question will come from Haendel St. Juste with Mizuho. Haendel St. Juste: I wanted to go back to the portfolio sales, saw the productivity continues to get better here. Maybe some more color on the categories, the regions driving this and give us some color on foot traffic and sales throughout the quarter and the back-to-school season and expectations for the holiday season. Jackson Hsieh: Sure. I mean, look, the strong momentum we're seeing on leasing, which is obviously really critical for our plan, it's not showing up in traffic. Traffic, as Doug talked about, was kind of generally flat. But if you look at comp sales comparing 2025 to 2024, in the third quarter for our go-forward portfolio, those numbers were 3.5% and our fortress properties, 4.8%. So obviously, the strong properties saw better performance from a '24 versus '25 third quarter basis. That's obviously a lot better than Q1, Q2. Q1, we had election, liberation day was flowing through there, tariffs, a lot of noise. So, it's really encouraging to see in the third quarter this kind of turn. Part of that is back-to-school, other factors. And in terms of categories in the third quarter, apparel and accessories, fast food, general and home furnishings and jewelry did quite well, obviously, athleisure as well. So, it feels like the higher-end customer, obviously, there's, we've got a duality lower income. I think there's obviously more challenges in the higher income customer bracket. We're seeing those categories. Obviously, the fortress is performing better than the overall go-forward that I gave you those numbers. So, I think that is sort of the tail right now. And as Doug maybe alluded to, I think the retailers are generally optimistic in the fourth quarter. They've got tariffs and they've got other things that they've got to manage with suppliers and potential price increases and other pressures on vendors. But it feels pretty good for the fourth quarter, which as the holiday season is upon us. Haendel St. Juste: Got it. And if I could follow up one more, maybe more on the transaction market. We've seen a few more A mall trades. And I guess I'm curious what your, what you make us some of the cap rates we've seen for Brickell, Taubman, NorthPark and what you think the read-through for your go-forward portfolio is? Jackson Hsieh: I feel like those are a little bit different. I mean, like Crabtree was an auction process. They had an institutional owner that had no debt on the property that was looking to maximize value. NorthPark was sort of like an internal JV buyout. Obviously, it was a pretty, they got great financing. It was a very exciting cap rate relative to how that might translate in our best properties. I think Brickell, I don't know the details of it, but same situation where there's a JV buyout. Obviously, the partner, Simon, they know that partner, they know the asset quite well. So, I feel like those were auction arm's length transactions, so a little bit different. But I do think that Crabtree is a good beginning comp. I think there'll be others that, others that we're not, there's other processes that we're not participating in. So that will give more insight as to where the proper levels are for what I would call fully auctioned and marketed centers. Operator: And our next question will come from Greg McGinniss with Scotiabank. Greg McGinniss: I was curious on that incremental rent to $99 million, how much of that is coming from the anchor spaces that you're now filling up? Brad Miller: It's definitely. this is Brad Miller. It is, I don't have the number off the top of my head, but it is definitely a part of the $99 million, and we can follow up with you. Greg McGinniss: Okay. And then for an asset like Fashion District, which sits into the go-forward portfolio, but there's been different plans for that asset over the years, obviously, an expensive redevelopment, bought it from your partner, hopeful for getting the arena there that fell through. Is there additional plans for redevelopment there or anything to kind of excite tenants for that asset? Jackson Hsieh: We finally redirected leasing energy and effort on that center. We really had our hands tied because of the arena. We really couldn't do anything because it was taking up such critical space and you're trying to, you can imagine, you're trying to hold tenants together that would be potentially part of where the arena would sit and we had to move them. The teams are actually I'd say I'm cautiously optimistic about some of the early momentum that we're starting to see there. I think the mayor is very focused in this area as well, and there's efforts to try to just improve the overall area that Fashion District of Philadelphia sits in. We don't have any debt on the property. So, I think we're going to do our best to try to figure out how to create the right kind of leasing momentum and merchandising mix and really make sure that we can, with the IRRs and Return on Investment makes sense. So, we're going through that right now. I'd say it's still early days. But so far, from what I've seen from the early parts of the feedback from the teams on our quarterly asset reviews, we're finally getting after it. And I think that we can get some help from the city in terms of what their plans are for that area to try to improve it that might improve our prospects there. Operator: And the next question will come from Todd Thomas with KeyBanc Capital Markets. Todd Thomas: Doug, I wanted to follow up on leasing. Two questions actually. First, it looks like spreads, re-leasing spreads this quarter were down with the T12 re-leasing metric decreasing to 5.9%. You said that you're tracking ahead of the market rent projections in the Path Forward plan, but what does that mean for re-leasing spreads going forward? If you could provide some color. And then the second question, I think you characterized your commentary around the '25 and '26 expirations that have been addressed as a percent of the tenants that are expected to renew. What kind of tenant retention are you anticipating in '26? Is there anything worth calling out or noting in terms of nonrenewal activity? Jackson Hsieh: Maybe, Doug, can take on the first part, on the re-leasing spread, we're leasing ahead of schedule, as you can see from a velocity standpoint. And as we said, we're ahead of net effective rents on new and renewal deals that we've signed up and approved. Depending on the mix of the pool every quarter, you're going to see variation on releasing spreads. I would not read honestly too much into it. We're having what I call significant increases in leasing. And the thing you want to focus on, are we on track with our speedometer ,because that's a revenue concept as it relates to completion. Are we above our net effective rent projections for each space? These are space-by-space numbers that we have throughout the entire go-forward portfolio. And I would tell you that this number is going to move around. And I wouldn't, if it's up, if it's like 15%, I wouldn't look and conclude too much into it. Depending on the nature of the renewals and what we have going into the mix at that time, it's going to influence that. So to me, the number that I focus on, are we ahead on a net effective rent basis because that's the real dollars that are going to materialize relative to the snow we're projecting and our renewals. And then Doug, you follow up on that second part of the question. Doug Healey: Yes. No, I think you kind of hit on it, Jack. So we talked about where we were in 2025 and 2026. We're way ahead in 2026 compared to this time last year. And as part of our 5-year plan, we're really focused on 2027 and 2028 as well. We've had success getting the retailers to come to the table in order to address these future years, which I think is extremely important because it really mitigates the risk of our 5-year plan. And as Jack sort of alluded to, in terms of spreads, Todd, it's really more about hitting our market rents that are part of the 5-year plan. And I can tell you that with both our new deals and renewing our expirations, we are hitting our targets as part of the 5-year plan. Brad Miller: To the second part of your question on tenant retention, too. I think for '26, we're expecting about 85%. Operator: And our next question will come from Alexander Goldfarb with Piper Sandler. Alexander Goldfarb: So 2 questions. First, just thinking about the Canadian and Mexican tourists and snow birders. Arizona, obviously, a big market. What has ultimately happened? There was concern at the beginning, towards the beginning of the year that there would be a lot fewer like Canadians coming down and maybe that would impact sales. Are there retailers seeing that play out? Or this winter is looking more like a normal one in which case your percent rents from the Scottsdale assets, et cetera, should not really be any impact? Just trying to understand if there's going to be an impact or not. Jackson Hsieh: Look, I mean I think for sure, between ATC, the Canadians coming over, it's definitely a reduced number. We've seen it at fashion outlets in Chicago, which is typically an international kind of customer that goes in there. That being said, if you look at the third quarter, our best, the center that had the highest '25 versus '24 third quarter sales performance is Scottsdale Fashion Square, top of the list. So it's sort of, I think, I don't know if I draw too much conclusion. Our assets are pretty, they're not, I wouldn't call them necessarily tourist destinations with the exception of maybe Chicago that gets a little bit more influenced there. But definitely, there's been less Canadians coming into the country and that's, but I haven't seen a material impact in the sales performance within our portfolio. Alexander Goldfarb: Okay. And then the second question is, Doug, you guys mentioned a lot of strength on the leasing front, and that's been a theme that we've been hearing. At the same time, there are news articles like a number of talking about like Chipotle and other brands that have been struggling because consumers have been shying away from them. So how do you guys interpret some of these conflicting signals where it would seem like the consumer is under stress, they're pulling back. And at the same time, it seems like they're still shopping the malls and the retailers remain healthy and the retailers are growing. I'm just trying to understand how to drive sort of conflicting signals between what the retailers seem to actually be doing versus some of these headlines that we read about. Doug Healey: Yes. Alex, it's Doug. Thanks. It's a great question because I talk about all this retailer demand, Jack was talking about the leases we signed, we've talked about our executive leasing committee. And the numbers we're putting up, the metrics we're putting up are counterintuitive to everything that you read about in the paper or on the news. And I think there's a few reasons for that. One is our, Macerich has a must-have portfolio. There's not a lot of new supply, and the retailers have to expand. I mean they're taking down leases for 5, 7, 10 years, and they're sophisticated enough, they're able to see past what's going on and maybe what you're reading about in the paper. They're being very opportunistic and are using this opportunity to take down great space in great malls, all of which we have. So, and then you have the emerging brands, which I referred to. And more and more, they're coming to the plate because we know that when they open bricks-and-mortar stores, it helps their online business. It supports their online business. So there's a lot of going on right now in my world that are just counterintuitive to everything that we're reading about or hearing about. Operator: And the next question will come from Craig Mailman with Citi. Craig Mailman: This is Sidney McInteer on for Craig. So I know we already touched on acquisitions a bit. So maybe on the flip side for the dispositions. You've been making good progress on the asset sales with Lakewood, Valley Mall, Atlas Park. How are you thinking about the pace of asset sales moving forward? And what's the appetite like for some of the non-Fortress dispositions that you've identified in the portfolio? Doug Healey: Yes. Thanks for the question. In terms of the remaining Eddy mall sales, we've got a handful that I indicated that are in that kind of $200 million plus range. A couple of those will be determined based on the timing of the debt maturities as they mature through 2026, and we'll evaluate in the context of a sale or in some instances, a potential giveback. Now as it relates to the outparcels, we've identified this pool, $100 million to $150 million in 2025. That pool is $500 million plus. So the majority of those remaining assets, the team is working through now in terms of readying them for sale for 2026. So as I said in my prepared remarks, I think the progress on the dispositions has been phenomenal by the team. They've done a great job across the organization with the dollars of assets sold to date, and we're on track to substantially complete the $2 billion disposition program by the end of '26. Craig Mailman: That's helpful. And then maybe a quick follow-up on Forever 21. Of that 74% committed, how are TIs and concessions trending? And have you had to split any boxes leading to higher CapEx commitments? Or is it mostly single tenants you're able to find to backfill? Doug Healey: I would say it's Doug. I would say it's a mix. In some instances, we're just simply replacing a large Forever 21 box, and that may require a little bit less capital. But in some cases, we are dividing up a box. And the reason we're doing it is because we have demand. for a long time, we've been trying to get these large-format tenants in our properties and just haven't had the space. So if there's ever a silver lining that comes with a liquidation like this, it really freed up our ability to go after some of these retailers that we've been wanting to, but just didn't have the space. Without getting into specifics, I mean, think about Dick’s House of Sport, think about Zara, think about Uniqlo, think about Round 1. I mean those are all tenants that we're replacing Forever 21. And I think going to be significantly more rent with much better retailers that -- and Jack was talking about this, that are going to drive traffic to these wings and increase dwell time within the center. So I think we're in pretty good shape. And to be 74% at this point, given the timing of their liquidation is a good thing. And if you think about it, when we did all these Forever 21 deals, they were sort of the darling of the industry. They looked at the best malls and they always got the best space. So to get back some of the space is sort of a bonus. Operator: And our next question will come from Michael Mueller with JPMorgan. Michael Mueller: Just a quick one on lease spreads. This year and last year, the rent spreads on the overall portfolio have been higher than what you reported for the stronger go-forward portfolio. Just curious what's driving that. Brad Miller: This is Brad Miller. I wouldn't read too much into it. It's just the pool of leases that are being signed on each of the spaces. Michael Mueller: Okay. So basically mix. And then actually, if I can sneak a follow-up in there. Dan, when do you think you'll be at a position where you can start to think about tightening the 2028 FFO range? Do you think it could be next year? Or do you want to get past the asset sales next year and get into '27? Daniel Swanstrom: I think that's something we'll evaluate as we get closer to year-end and further along with the program to provide any updates. We just put out the version 2.0 at the June NAREIT, and it is a multiyear plan. So, I think we'll evaluate as we get kind of through this year and see where we're at in totality on all the initiatives across the Path Forward Plan. Operator: And the next question will come from Caitlin Burrows with Goldman Sachs. Caitlin Burrows: Just one and it goes as a decent follow-up to that last one. So, on the Path Forward plan, right now, you guys have a midpoint of $1.81 and you've mentioned Crabtree is $0.08 accretive. So maybe this was more of a 2Q question, but I don't think it got asked then. Would you say the new target is $0.08 higher, so midpoint $1.89 or not exactly? Doug Healey: Yes, that's right, Caitlin. The Path Forward plan was put out before the Crabtree acquisition. So, the midpoint of that range was $1.81. The Crabtree was expected to be $0.08 accretive. Obviously, there's adjustments along the way, for example, the ATM $50 million that we just used. But I think that's the right way to think about it in terms of the plan that was put out pre-Crabtree and then the accretive $0.08 to that plan subsequent to that. Operator: And now this does conclude our question-and-answer session. I would now like to turn it back to Jack for closing remarks. Jackson Hsieh: All right. Thank you, operator. Thank you, Michelle. I'd like to thank all of you for participating in our Q3 2025 earnings call. We're excited about our progress on our Path Forward plan and about the future prospects for our company. So with that, good evening. Operator: This concludes today's conference call. Thank you for participating, and you may now disconnect.
Operator: Good afternoon, and welcome to the Upstart Third Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the call over to Sonya Banerjee, Head of Investor Relations. Sonya, please go ahead. Sonya Banerjee: Thank you. Welcome to the Upstart Earnings Call for the third quarter of 2025. With me on today's call are Dave Girouard, our Co-Founder and CEO; Paul Gu, our Co-Founder and CTO; and Sanjay Datta, our CFO. During today's call, we will make forward-looking statements, which include statements about our outlook and business strategy. These statements are based on our expectations and beliefs as of today, which are subject to a variety of risks, uncertainties, and assumptions and should not be viewed as a guarantee of future performance. Actual results may differ materially as a result of various risk factors that have been described in our SEC filings. We assume no obligation to update any forward-looking statements as a result of new information or future events, except as required by law. Our discussion will include non-GAAP financial measures, which are not a substitute for our GAAP results. Reconciliations of our historical GAAP to non-GAAP results can be found in our earnings materials, which are available on our IR website. And with that, Dave, over to you. David Girouard: Thanks, Sonya. Good afternoon, everyone, and thank you for joining us. To kick things off, I'll share my perspective on our business. Upstart today is a dramatically stronger company than it was just a few years ago. Our technology, our business, and our teams have never been better. The opportunity for AI and credit is unimaginably large, and there's no one better positioned than Upstart to lead this $1 trillion industry to this exciting and inevitable direction. Now turning to Q3. Upstart continued to execute on its 2025 game plan of rapid growth, profits, and AI leadership, all under the auspices of exceptional credit performance and precise macro handling. In addition to 80% year-on-year growth in transaction volume and 71% revenue growth, we were nicely profitable once again. In fact, Q3 GAAP net income grew by a factor of 6 over the prior quarter. Consumer demand for Upstart continued to grow rapidly with more than 2 million applications submitted in Q3, up over 30% from Q2 and reaching the highest level in more than 3 years. Despite this awesome demand, transaction volume on our platform was less than we anticipated. Our risk models responded to macroeconomic signals they observed by moderately reducing approvals and increasing interest rates. This drove a reduction in our conversion rate from 23.9% in Q2 to 20.6% in Q3. If you follow the Upstart Macro Index, you would have seen that this macro indicator ticked up modestly in July and August, which is essentially what our model responded to over the course of the quarter. We believe this to be nothing more than a speed bump with UMI reverting to lower numbers since. To be clear, we see no material deterioration in consumer credit strength. And in fact, we've seen recent signs of improvement. You can and should expect that our models will always do their best to price prevailing risk appropriately. Precise and rapid tuning to changing economic conditions is a foundational capability of Upstart AI, and we're confident this precision is winning hearts and minds for Upstart in the credit market right now. The system is behaving exactly as it was designed. At a minimum, our Q3 results should give you confidence that we don't sacrifice credit performance to achieve transaction volume targets. Turning to our newer products, which include small-dollar loans, auto, and home. These offerings continue to improve and mature, accounting for almost 12% of originations and 22% of new borrowers in Q3. Transaction volume for auto, home, and small-dollar each grew in the range of 300% year-on-year. Our auto retail business, in particular, has really begun to accelerate. We more than doubled the number of live lending rooftops on Upstart in Q3 compared to the prior quarter. Transaction volume for auto retail also grew more than 70% sequentially. We expanded to 4 new states in Q3 and made some significant improvements to our software. This is really a breakout business for us. Additionally, we've been quietly working on a hybrid product called an auto secured personal loan that's beginning to gain traction. As it relates to our home business, beyond continued process innovation, our unique partnerships with banks and credit unions mean we offer the best rates to the primest borrowers compared to other fintechs by as much as 300 basis points. Best rates and best processes are what we're all about. Our continued process and automation breakthroughs in our secured products, meaning home and auto, give us confidence that they will be real growth drivers for Upstart in 2026. Finally, with respect to funding on the Upstart platform, we're in an exceptionally strong position in our core business with significant excess capacity. On the bank and credit union side, we added 7 new partners, our best quarter for new logos this year, and we reached a new all-time high in monthly available funding from these partners in Q3. On the capital market side, we continue to have exceptionally strong execution with our institutional partners. Having signed our first agreement in 2023, we now have 10 active partners. In August, we renewed one of our largest partners for the second time. And importantly, Upstart has 100% retention of all private credit partners to date. We believe that we have the industry's best AI for responding rapidly and precisely to changes in the environment, and this is a central reason why our partners have confidence in us. In September, we also issued a securitization with strong demand, leading to significant oversubscription of all classes despite upsizing and tightening of spreads. This ABS deal involved 30 investors, including 7 first-timers, demonstrating the strength of Upstart's reputation in the market. We've also continued to make progress securing third-party funding to support our newer products. We've signed 17 partner agreements this year, including 9 signed in Q3 alone, and expect to ramp these partners into production this quarter and next. All in all, we're all systems go to finish the year strong and get ready for what we think will be an amazing 2026 for Upstart. To wrap things up, we're making rapid progress as the leader in AI-powered credit. The somewhat complicated macro economy we all see today is, in my view, the perfect opportunity to demonstrate the strength of our AI platform, and we're doing just that. While legacy financial services execs continue to ponder the use of AI and credit, the Upstart platform has now generated more than $50 billion in AI-powered loans since inception. Unlike other AI platforms, we generate our own training data with more than 98 million borrower repayment events to date, with about 105,000 more repayments due each day, driving improved separation and model accuracy. This is enabling us to build quickly toward a future of always-on credit, where every American is persistently and precisely underwritten, providing them with the best rate anywhere, 24/7 credit access right from their phone, with little to no process. That is a proposition and a future that we are betting on 100%. With respect to the investor community, I feel more than ever that those who stay will be champions. With that, I'll turn things over to Paul Gu, my Co-Founder and Upstart's Chief Technology Officer. Paul? Paul Gu: Thanks, Dave. I'll start by addressing the model conservatism we experienced in parts of Q3. Over the past few years, one of our biggest advances has been our model's ability to respond with speed and precision to changes in macro conditions. This progress stems from a suite of techniques that are proprietary and critical to resilience through a diversity of economic environments. A few months ago, that led the model to tighten on credit while certain risk signals were elevated before recently normalizing. That model behavior partially reflects irreducible volatility in the outside world, but is also a function of our model design and sampling variance, both of which continue to improve. Since the start of Q3, the improvements we've made to our calibration methodology are expected to cut unwanted month-to-month volatility in model calibration-driven conversion changes by about 50%. As we continue to innovate on our model calibration techniques, we'll increasingly be able to minimize conversion volatility in the business while delivering on target credit performance. Beyond calibration, Q3 was a productive foundation-building quarter with a number of technology improvements that will power our next phase of growth. I'll start with personal loans. First, we took another leap forward in our evergreen engineering quest to lower latency in pricing loans. By parallelizing another major portion of loan pricing, we reduced end-to-end latency by as much as 30% and are now rolling it out platform-wide. Reduced latency unlocks the ability to build larger and more complex models as well as make use of the ever-growing data set of 98 million repayment events that Dave mentioned. Next, we launched a true machine learning model to optimize take rates. It is our intention to capture value in relation to the value that we create for our borrowers. We expect that this framework, over time, will unlock a significant improvement in our ability to monetize model wins that benefit borrowers who are already vested for as well as increase our competitiveness in new segments where we're still establishing our edge. In the domain of customer acquisition, our ability to utilize digital partnership channels that relied on cloud environments or APIs to target offers was historically limited by the complexity of our underwriting models. This quarter, we built a programming language agnostic framework for data transformation that makes it much faster to translate our models to work with any partner ecosystem. We also worked with a key partner to enable larger model sizes in their cloud environment, allowing more of Upstart's unique underwriting algorithms to be used in targeting. On our direct marketing channels, we developed a proprietary technique to target marketing spend based on causal impact to conversion. Compared to our prior, more textbook technique, early results show a 50% uplift in incremental originations from the same level of spend. Advanced AI and underwriting ultimately need equally advanced AI and acquisition, and the successes this quarter were a big step towards that. I'll wrap up my remarks with a few technological highlights that are driving growth in newer products. We've made rapid progress automating the process of getting a HELOC. When we launched instant property valuations back in June, we automatically approved less than 1% of home loans. Since then, automatic home loan approvals have grown to 10% in September and about 20% in October. While we'd love to simply automate away almost all the documents like we have in personal loans, the world of home loans is just less digital, less standardized, and there are more requirements. So for the next leg of improving the HELOC funnel, we've begun using multimodal AI to do the work of human document reviewers in real time. Our rapid pace of process improvements makes me optimistic that we're on a path to an industry-leading home equity product. Additionally, our small-dollar relief loans continue to make rapid progress. In September, we launched Instant Funding for the first time. Most borrowers who qualify for instant funding see funds in their bank account within around 90 seconds of approval. While small installment loans at bank-friendly APRs are a wonderful innovation, you should expect to see a lot more from Upstart in this area in the coming months. Thanks to the team's work this quarter, I'm more excited than ever about our upcoming pipeline of technology wins. With that, I'll turn it over to Sanjay. Sanjay? Sanjay Datta: Thanks, Paul, and thanks to all of our participants for sharing some of your time with us today. I'll now spend a bit of time reviewing our Q3 numbers. At a headline level, we were pleased to finish the quarter with healthy annual and sequential revenue growth as well as extend our run back to profitability. Within that, our transaction revenue this past quarter was marginally short of expectations as our models expressed some temporary conservatism in piloting the current environmental dynamics, but this was largely offset by growth in interest income from the strong return performance of our balance sheet. Margins and take rates have remained steady, and credit performance continues to land right on target. We are carrying a larger-than-normal loan balance on our books as we work towards closing a number of deals across all of our new product areas, which will both reduce R&D carrying balances and flow new volume directly to our lenders and investors. We remain pleased with the progress of those various conversations and expect to have tangible outcomes on this front by the end of the year. More broadly, third-party capital in our core unsecured lending segment remains readily accessible, handily outstripping our borrower supply, and is currently not in any way an impediment to growth. Spreads on our third-party capital continue to compress, partially a result of the competitive funding environment and partially as an expression of investor confidence in the steadfast performance of our credit. With respect to borrower approvability, our model has exhibited some recent caution in response to a UMI run-up of almost 0.2 points that happened over the course of the past quarter before more recently subsiding as well as to a rising trend in repayment speeds, which is generally an encouraging longer-term signal for credit, but in the near term, limits interest income from current loans and requires higher coupons to compensate. In all of this, we, as always, care, first and foremost, about getting credit performance right, which will always result in the best long-term outcome for our business. We have an inherent belief that AI models are better suited to navigating a complex and changing environment than human intuition, and we have demonstrated the discipline to heat them even when they express a bias toward moderation as now. If the currently observed higher repayment speeds and easing consumption growth are indeed indicators of imminent credit improvement, these could represent the long-anticipated tailwinds that could accelerate growth prospects heading into next year. In the meantime, we continue to be guided by the North Star of prudence in the underwriting of risk on behalf of our lenders and investors. With this as context, here are some of the financial highlights from Q3 of 2025. Total revenue for Q3 came in at roughly $277 million, up 71% year-on-year and 8% sequentially. This overall number included revenue from fees of approximately $259 million, which was up 54% year-on-year, but short of our internal expectations by roughly 6%, mainly for the model-related reasons previously mentioned. Within fee revenues, our servicing revenue stream continued its steady growth clip at a 10% sequential rate. Much of the shortfall in expected fees was counterbalanced by higher-than-expected net interest income of approximately $19 million, resulting from continuing strong return performance on a loan balance that remains temporarily elevated. To reiterate, we are aiming to enter into a phase of reducing our R&D-related balance sheet holdings, which we anticipate will gain steam in Q4 and continue into 2026, and we would expect this revenue item to moderate as we are successful. The volume of loan transactions across our platform was approximately 428,000, up 128% from the prior year and 15% sequentially, and representing approximately 300,000 new borrowers. The average loan size of approximately $6,670 was 12% lower than the prior quarter from a combination of borrowers requesting lower loan amounts, a model exercising increased caution in improving loan sizes, and a mix shift towards smaller loan products and risk rights. Our contribution margin, a non-GAAP metric, which we define as revenue from fees minus variable costs for borrower acquisition, verification, and servicing as a percentage of revenue from fees came in at 57% in Q3, down approximately 1 percentage point from the prior quarter and versus guidance as lower conversion rates created some mild upward pressure on both acquisition and onboarding unit costs. In total, GAAP operating expenses were around $253 million in Q3, roughly flat to Q2. Expenses that are considered variable relating to borrower acquisition, verification, and servicing were up 11% sequentially relative to the 15% increase in volume of loan transactions. Fixed expenses were actually down 7% quarter-on-quarter, largely due to a reduction in compensation-related accruals. Q3 GAAP net income was approximately positive $32 million, well ahead of expectations and reflecting outperformance on net interest income, reduced fixed costs, and a $7.2 million gain on our convertible debt repurchase. GAAP earnings per share were $0.23 based on a diluted weighted average share count of 110 million. Adjusted EBITDA was roughly $71 million, also corresponding ahead of expectations. Adjusted earnings per share were $0.52 based on a diluted weighted average share count of 125 million. We ended Q3 with approximately $1.2 billion of loans held directly on our balance sheet, up from just over $1 billion in Q2. As shared last quarter, we have multiple new products simultaneously exiting R&D status and entering the scale-up phase. And our business development efforts this past quarter have been aimed at putting in place the third-party capital arrangements that will enable us to shift away from balance sheet funding on these emerging products and release back our invested capital. We are very pleased with the progress of these efforts and believe that we are on a path to putting multiple agreements in place across all of these new product lines, which will set them up to further scale in 2026. Exact deal timing is, of course, not perfectly predictable, and it is important for us to do the right deals with the right partners. So we will take the necessary time to ensure we are well set up on this front for next year. In the meantime, returns from our balance sheet holdings continue to be strong, delivering healthy spreads above market base rates, as can be seen in the data on Page 23 of our earnings presentation. As we look to Q4, the broader economic backdrop for credit remains favorable in our estimation. Decelerating personal consumption growth is a signal of improving credit health, if perhaps counterintuitively so. Against this, we perceive a labor market that has remained at full employment since lockdown, meaning there are as many open jobs as job seekers in the economy, as well as a muted impact of the recent tariff policies on inflation and a gradual easing of the monetary climate. In this scenario, we once again assume a stable UMI as well as holiday seasonality typical of Q4, which tends to serve as a mild headwind. We expect the impact of any further rate cuts this year to both improve consumer financial health and lower investor return requirements. But at this stage, any such effects would not be felt until the new year. In this environment, we will continue to produce model and targeting accuracy gains as well as automation wins to grow our top line. Our net interest income will start to benefit from the returns on our committed capital investments that were made in prior years. Now that our P&L is once again back to profitability, we will plan to begin dialing up our forward investment into customer lifetime value by slightly moderating take rates in exchange for higher origination volumes and higher repeat transactions in the future. And as usual, we will expect to continue our fixed expense discipline in how we manage the cost side of our business. With this context, for Q4 of 2025, we are expecting total revenues of approximately $288 million, consisting of revenue from fees of approximately $262 million and total net interest income of approximately $26 million. Contribution margin of approximately 53%, GAAP net income of approximately $17 million, adjusted net income of approximately $52 million, adjusted EBITDA of approximately $63 million, with a basic weighted average share count of approximately 98 million shares and a diluted weighted average share count of approximately 111 million shares. For the full year of 2025, we now expect total revenues of approximately $1.035 billion, consisting of revenue from fees of approximately $946 million and net interest income of approximately $89 million. Adjusted EBITDA margin of approximately 22%, and we expect GAAP net income of approximately $50 million. Before we move to Q&A, I will take the opportunity to thank all of the various teams across Upstart for their hard work and continuing dedication to our mission. And with that, operator, over to you. Operator: [Operator Instructions] Our first question comes from Dan Dolev with Mizuho. Dan Dolev: Just wanted to ask a quick question on the application demand. It seems very strong quarter-over-quarter. Maybe, Sanjay, if you can comment on the strong demand in the third quarter, and then maybe just like tie it all into the guidance, which was a little bit below what we were expecting and below the guidance in 2Q. So, how do you square these 2 things together? David Girouard: Dan, this is Dave. Yes, as we said in the remarks, we grew applications about 30% quarter-on-quarter, which was ahead of the origination, the transaction volume quarter-on-quarter. And really, a lot of things came together in terms of just marketing programs and cross-selling and all these things. So the application growth is certainly great to see. I think what it really highlights is that our model took a step towards conservatism during the third quarter, just based on seeing macro factors. And I think that is just a natural thing we might expect. As we said, it's since reverted, but it was a period of time where it saw signals, and it was moving quickly. I think maybe overreacting. I think in some sense, having a model that overreacts is better than having ones that underreact because it did revert. But I think it is useful to point out that the application volume was quite strong, our strongest in 3 years, and grew quite a lot. And I think that's a very healthy statement for the business, even if it didn't in Q3 transfer to as much volume as we expected. Operator: [Operator Instructions] We'll go to our next question from Kyle Peterson with Needham. Kyle Peterson: I wanted to ask specifically in auto, obviously, there's been some high-profile bankruptcies and kind of negative credit events in the space. Have any of the headlines or news impacted your expansion plans or how conversations with customers are going? Or I guess just how has the recent news and events impacted how you guys are viewing things and progressing in auto right now? David Girouard: Yes. None of that has had a direct impact on us for sure. We have not seen that type of couple of examples that were out there of fraud zone activity. So, I don't think it's anything that we would describe as widespread. It's not something from our perspective that is widespread. I think when you have examples like that, it does create a little bit of caution in the market. So banks or others providing senior financing probably do a bit more diligence, et cetera. But I don't think there's any wholesale change in the market, but that is the nature of it. A couple of the larger banks got bitten on that particular auto lender. But we've been pretty rigorous about building processes to make sure we're effectively underwriting the dealership themselves and mitigating risks against dealer activity that's not what we want. So, this is an area that I think we're handling well. We have not seen any major issues. But again, I think whenever you read headlines, it does cause a little caution in terms of increasing amounts of diligence or questions that need to be asked, et cetera, but that's part of the course Kyle Peterson: I guess as a follow-up, I wanted to specifically ask about what you guys are seeing in the super prime segment. I guess, looking at the originations, it was down a little bit sequentially. So, I guess, was that where the model tightness that you guys called out? Did you see a little more in that 720-plus FICO score versus the core product? Or is there more competition there? I guess, just like what are you guys seeing? And is any of that concentrated more in the super prime? Just trying to think how we should square that with some of the positive commentary on demand and funding capacity from your bank partners. Sanjay Datta: Kyle, this is Sanjay. I think it's a combination of things. I mean, the thing you pointed out is definitely a factor, meaning our models reacted generally to some macro signals as Dave described. I think that was true of the primary segments as well. In fact, if you look at the segmentation of our UMI, the subprime consumer is actually at a relatively low UMI, probably somewhere around 1.2, 1.3. And if you start to look into the segments in the low to mid-700s, it's quite a bit higher. So, there was definitely a model impact. I think it's fair to say that it's also a very competitive segment, and we see other growth numbers in that segment, and they're healthy. So there's a price impact or an aspect of competition as well. Operator: [Operator Instructions] We'll take our next question from Pete Christiansen with Citi. Peter Christiansen: I want to follow up on some of the earlier questions. As it relates to the improvements that you made with your marketing channels, which sounds pretty exciting and is obviously illustrated by the higher number of applications. Is there a way to at least get your sense for the quality of these leads? I know the AI system was a bit conservative this quarter. So, taking that into account, do you think that the quality of applications has remained the same or maybe improved or what have you with these new capabilities? Paul Gu: Peter, this is Paul. Yes. So I spoke in my prepared remarks nice wins we had in applying AI to customer acquisition. And the way you can think about those wins is ultimately, at the point of customer acquisition, we are somewhat indifferent between selecting for people who have a high propensity to apply and people who have a high propensity to convert or be approved. Ultimately, it's the product of those 2 things that we're solving for, of course. And so the improvements we make can help, one, both, or ultimately just the product of those things. So obviously, we did have a larger increase in applications relative to where the final originations count ended up. So I think mechanically, you can infer from that change in the likelihood to convert through the funnel. Of course, the conversion rates are lower. Now that's in large part, as we already said, because we were knowingly making a choice with our model to be a little bit more conservative on the credit side in earlier parts of the quarter. So relative to that model, of course, we did end up marketing to people who were a little less likely to be approved or a little less likely to convert, but that's not necessarily a chosen strategy. Peter Christiansen: Then my second question, non-prime auto has had elevated delinquencies even before some of the more noticeable news events that have been happening in the space for a couple of months now. Dave, I'm just curious, if we were to see an improvement in that specific category, would that be a needle mover for Upstart's auto originations? David Girouard: Yes. We've seen very good credit performance in auto. So we do feel good that our models are working that become calibrated. To the extent others are having issues or what have you, maybe some are withdrawing from the market; those can be good things. Maybe it suggests a transition or an inflection point in the market. So for us, it is just really important. We get calibration, we get more separation. We bring partners on. We keep refining the processes. And I think it's going really well on all fronts there. So I think in 2026, we do feel very optimistic that the auto business as a whole is going to be a contributor. Again, a little disruption or a little noise in the market when you're new like us to it, can be a good thing. It means there's an opportunity when things are shifting. Operator: We'll move to our next question from Simon Clinch with Rothschild & Company, Redburn. Simon Alistair Clinch: I wanted to just jump back to the first question, really, about the application volume growth that you saw. And just, Sanjay, if you could just remind us what you said about what's implied in the fourth quarter? Because it sounds like you're assuming that the conservatism in the model is going to continue in the fourth quarter, despite your comments around the UMI actually starting to show some signs of improvement. Is that correct? Sanjay Datta: Simon, I guess I would note that the improvements in UMIs are materializing. As usual, we are conservative and want to watch them bake, and we're already past the month of October. So some amount of Q4 was impacted by that UMI rise as well; even though it is now subsiding, we will, of course, follow it with some lag. So, I think that what we described is the model impact in Q3, even though it appears to be abating, will impact Q4 as well. Simon Alistair Clinch: Just as a follow-up, then, when we look at the broad demand for personal loan growth, I mean, the kind of view I've had through most of this year, and I think is consensus view is that there's a lot of demand for just refinancing credit card debt. Is that still very much the case that's really driving that personal loan demand? Or are we seeing that demand broaden out into other drivers? Sanjay Datta: I think refinancing debt really continues to be the dominant use case for personal loans. But it is very much the duct tape of credit. It's useful for so many things. And so there's a very long tail of ways that people use personal loans. I think in some cases, because the process is so much simpler and the rates can be quite competitive, that it does compete at some places with secured loans, whether that would be to buy a used car off of a website or what have you, places where you might otherwise, or home improvement, where you don't want to get a HELOC. So I think an unsecured loan, if it's fast, easy, and the rate is competitive, will always be very, very broadly useful to the consumer. Operator: We'll go next to Patrick Moley with Piper Sandler. Patrick Moley: I just have one on the balance sheet expansion you saw in the quarter. Just wondering how conversations with some of the potential funding partners of the R&D products have trended recently? And then you touched earlier on the auto, some of the credit issues we've seen recently in auto, and how that's impacted the consumer. But has there been any contraction in demand from any of your private credit partners there? And then I understand that they're waiting to see how the portfolios season in some of those R&D products. Is there anything you can share with us there on how they're feeling about that and how those conversations have gone? Sanjay Datta: Patrick, this is Sanjay. Yes, as we said in the remarks, we're very pleased with the direction of all of those conversations. We're obviously having them across a number of different new product areas right now. I think appetite is good. These are large deals, a multiyear time frame, and a large check size. So there's a lot of diligence in these conversations and these processes, and they are not perfectly predictable in terms of timeline. But with respect to progress, I think it's all going well. We're excited about all of it. On the auto side, in particular, I don't think there are any concerns about credit, to be honest, at least in the loans that we're producing, I think the credit performance is pretty clear. As Dave mentioned, there's some broader noise about fraud in the space, and I do believe that has probably lengthened timelines in terms of these processes. Everyone's diligence lists have sort of doubled and tripled in size. And so that's sort of a component. With respect to timing, I don't think it's really changed the motivation or the appetite at all with respect to the specific conversations we're having. I do believe we now have enough seasoning in our portfolio for people to look at our loan cates and get a really good sense for calibration and for how the credit is performing. So it's really just deal processes, legal processes, getting in place financing, bank relationships, et cetera. So they're heavy lifts, but I think we're very happy with how they're going. We're very excited about the partners we're talking with. And as we said, we hope to have some tangible outcomes for you guys to digest pretty soon. Operator: And our next question comes from Mihir Bhatia with Bank of America. Mihir Bhatia: I wanted to start with the conversion rate. You talked a little bit about the conversion rate being impacted by higher UMI. Is that the primary factor? Are there other factors that maybe we aren't seeing or you aren't seeing from the outside inside the models that's driving it? And then just on conversion rate, Paul, I think, mentioned --touched on limiting variability in the metric going forward. Can you talk about that some more? And if there's a particular level that should stabilize that? Like is this low 20s percent the right level? David Girouard: Yes. Dave, I'll cover the first half of the question, and then Paul can answer the second. No, really, the conservatism in the model is, from our point of view, pretty much the dominant driver of the change in conversion rate. So it comes in the form of a small fraction, fewer people approved, the rates they're approved at being a little bit higher, which means just marginally less likely to take that load, and then sometimes the approved loan size is a little smaller. So that is the basics of a slightly more conservative twist in the model. So again, we don't believe this is anything sustainable. And we do think that we'll get to a model that's a little less responsive, honestly, and maybe overresponsive in this particular case. But no, there's no other factor going on, as you saw the application volume is quite strong. Paul Gu: Then, on the second part of the question, about the reduction in volatility around conversion rates, and specifically around the macro calibration contribution to conversion rates. So, a few things to understand about this. The first is, as Dave said, one of the single largest contributors, almost every quarter, to the overall conversion rate, which is the state of macro conditions. If borrowers are generally financially healthy, that's going to be helpful. If borrowers are struggling, that's going to be unhelpful. And that's just because, of course, approvability is such a big, immutable part of conversion. I want to point out that there is a second component of conversion, which is also not necessarily normative. It's not good or bad, and that's the mix of applicants. We talked a little about this earlier in the question about targeting and what kinds of people come in the door. And there's always some trade-off between propensity to apply and propensity to be approved or converted. And so there's always an optimization going on there. And I think that's neither good nor bad. It's just that we do what's optimal for the business. And so that can cause it to move a little bit. But the thing that I was referencing earlier in my prepared remarks about what happened this quarter and the improvements we've made that we expect to be durable and lasting with respect to reducing variance on this metric specifically has to do with managing how the model responds to the latest signals in macro. So over the last few years, one of the things that we invested the most heavily in was building our models in such a way that we think they are the fastest, most precise at responding to the latest patterns in borrower repayment, including at the macro level. So if it's like federal employees or if it's like service sector workers or if it's high primness borrowers or low primness borrowers that are being impacted, or it's everybody being impacted by a big macro event, we want our models to be the very fastest at responding and respond as precisely as the data allows. And so we've made a ton of progress towards that. We're very proud of the sort of system we've designed and built. But one of the side effects of that system is that it can be a little overly responsive to the latest changes. And that, in addition to being responsive, there's always some kind of sampling and measurement error. You can think about what we have, of course, a large amount of data, but relative to all people in the U.S. or the whole economy, it's still a relatively small sample. So there's a natural statistical sampling error that comes about from that. And we were doing a lot of work this quarter on understanding how much natural error there is in the match between the sample and the actual levels of calibration. Then we devised some techniques to be able to shrink that measurement error by about half, so that we don't have as much what I call unwanted variance in this metric. We really just want the model to respond to real changes as opposed to changes that are just measurement error, and we were able to reduce that measurement error by a very significant amount this quarter, which means that in future periods, we expect that all else equal, we will see less volatility in our conversion rates as affected by macro. So that's good. Mihir Bhatia: And Sanjay, I think you also called out that repayments have increased in the script. Any theories on what is driving that? Are those folks refi loans away from you at a lower rate? Is that the borrower's financial? He is just improving, so the people are paying off their loans faster. Can you just talk a little bit about what's going on there and just the credit implications of that? Have you seen delinquency rates already move because of that? Sanjay Datta: I mean, as we said, it's an empirical observation that repayment speeds have increased. It seems pretty broad. I mean, I think there are a lot of theories as to what's behind it, but we don't know for sure, obviously. It seems to be broader than just one specific use case, meaning I don't think it's just a refi boom. It seems to be happening across both partial and full prepayments, which would imply that it's something broader than just a spike in refinancing. As we said, in the broader scheme of things, this is typically a good thing. When repayments are happening faster, you'd expect that it's on some level of reflection of improving underlying consumer health. You'd expect it to be inversely correlated to defaults over time. So that's what we would like to see. But in isolation, with all else constant, repayment happens faster. In the immediate term, it means there's a little bit less interest to be earned on the loans to offset the defaults. And so in the immediate term, your model becomes a little bit more conservative on pricing. It puts a bit more coupon into the loans. So that it compensates for the fact that the duration of the loan has become shorter in a sense. So, there's a bit of an immediate conservatism by the model. But I think in the broader scheme of things, we're pretty excited to see it because it means that on some level, personal fiscal situations are probably a little bit more stable. Operator: We'll move next to Reggie Smith with JPMorgan. Reginald Smith: The origination number again. But I guess my question is thinking about -- obviously, there are 2 components to the conversion rate are what you guys are approving and then the consumer acceptance. I was curious if either had an outsized impact on the conversion rate. And then I was also curious, as you look at your application flow, much of it, do you have a sense of what is shown, I guess, comparison pricing with other loan products? So, like, I don't know if your loans are showing against LendingClub or SoFi or something like that, if you had a sense of that mix. And the reason I ask both of these questions is that obviously, those 2 companies had very strong origination trends this last quarter. And I'm just trying to figure out if there was a share shift, if you guys were fighting with one hand, time you back because of your model, like just trying to sort through all that stuff. So anything you can provide there would be helpful. And I have one follow-up. Paul Gu: Yes. This is Paul. Yes, the conversion changes were predominantly related to our model's level of conservatism, so reflected in approvals primarily, and that tends to be the single most sensitive metric when you flip someone from approved or denied, you have a 100% decline in their relative conversion rate. So that's the thing that's most sensitive and tends to dominate changes in the metric, and that's what happened in this particular time period. Reginald Smith: And so, I guess you were like declining super prime. I think you talked about there being some sensitivity in that area. Is that the right way to think about it? David Girouard: No, declines don't happen in the super prime area. The rates just move up a little bit for somebody who would be at the end of the spectrum. It's at the other end of the spectrum where there are a lot of declines. So the combination of those 2 things is what really amounts to a lower conversion. Reginald Smith: And then, if I could ask one more. Just thinking about the HELOC product, and I know it's early days, but how should we think about the, I guess, day 1 economics or take rate for that product relative to, I guess, your base corporate average? Paul Gu: Reggie, let's see. I mean, I think in the past, we've alluded to the fact that take rates will be healthy, but a little bit more modest than in PL, but on much larger loan sizes. So, without quite knowing exact numbers yet, maybe you could think about a take rate that's maybe roughly half the amount, but a loan size that's certainly far more than double. Reginald Smith: And then the last one, I guess, nothing to call out from a credit performance in your book, despite what you guys are seeing in the UMI, just to be clear. David Girouard: That's correct. We've seen exceptional credit performance, and that's kind of the whole reason for UMI is to make proper adjustments. Also, Reggie, your question that we didn't get to was what others are doing in the market and if they're growing at higher rates at this particular period of time. We obviously don't know what's behind their rates. We don't know what their models look like, how quickly they respond to signals they see. But there's no question, if you just look at the nature of lending, that there's always a way to grow. In our view, the model is always right. The model is going to tell us what's proven at what price, and we don't overrule the model. So I think that's probably our way of looking at it. Reginald Smith: It sounds like, if I'm hearing you right, that the model may have given you guys a false negative, and like a blip, and things are better than what may have been showing up a couple of months ago in the model. David Girouard: I mean, we don't know false negatives. It may be something that's helpful to us down the road, that it saw what it saw and it priced what it priced. So it doesn't necessarily mean it was, in any sense, a false negative. It's a constantly learning system. Paul Gu: No, nothing to add. Operator: And our next question comes from James Faucette with Morgan Stanley. James Faucette: Just a couple of quick follow-ups for me. Can you give any specificity to what elements of the model kind of you saw weaken and then subsequently improve, or other indications? Just trying to get a sense of where your systems may have been looking versus the broader market. Paul Gu: Yes. I think, first of all, we definitely wouldn't describe the model as weakening. As a reminder, our primary performance metric for the model is model separation, and our separation accuracy metrics are our highest ever. The other metric that we track very closely is what we call model calibration, and that's about how the question of credit performance. And as has been said several times, credit performance really has been exceptionally strong for us in this time period. And so what was weaker in this period was the model's ability to approve as many people or convert as many people. And that certainly was a direct result of the increased conservatism that resulted from the model observing a couple of months of elevated risk signals in various pockets of borrowers. And so that you can think of more of what we call a macro change that the model was responding to. I think with the benefit of hindsight, you could call that a bit of a false negative, I suppose. But of course, I think in the moment, there is a correctness to reacting to the signals that you're seeing. And I think we directionally think that is the right thing to do. That's what we'd like our model to continue doing. I did say that some of that reaction, we think, was due to a certain natural noise in what I call sampling or measurement error. And we did come up with some really good ways to reduce that. And so that noise going forward will be a whole lot less, which is a really, really great technical win for us. But ultimately, there is some level of directional responsiveness that we always want the model to have to the latest changes in what's going on in the world. And if that means that for a month or 2, the model gets more conservative, we think that's just the right thing to do. James Faucette: And then, as you look forward to the December quarter and as you're forecasting, how are you thinking about exit rates? You made it pretty clear that you think that there will be a little bit of lagging or continuing effect as we go into the fourth quarter. But are you expecting that by the time we get to the end of the quarter, you'll be back? And how are you feeling about the right way that we should be thinking about the run rates as we go into 2026? David Girouard: I think we're quite optimistic about the quarter. I mean, I think we have good growth rates. We are taking an appropriate level of conservatism. We have a very, very good pipeline of model improvements that very typically will drive conversion rates up. So in our view, actually, a lot of things are working really well. And it's really important from our perspective to say that the model taking a bit of a conservative breather is a feature, not a bug. And if others aren't doing the same, maybe we'll figure out why over time. But it's the strength of the model, not a weakness, that it's making different decisions or taking a different take on the market. But in the grander scheme of things, we think the consumer's health is good. We think our models are getting better. The new products are breaking out. So we think we're in for a very strong 2026 and feel very good about the fourth quarter as well. Operator: We'll move next to Rob Wildhack with Autonomous Research. Robert Wildhack: One more question on this subprime, superprime point. I mean, Sanjay, I think you mentioned that the UMI is lower for subprime, higher for some of the higher FICOs. If we zoom way out, we all see and hear a lot of headlines around this K-shaped economy, where super prime is doing quite well and subprime is struggling. So why do you think there's that difference between what the UMI suggests and what we're seeing and hearing more broadly? Sanjay Datta: Rob, it's a good question. I mean, we see directly, obviously, the data we have at our disposal. I think maybe it's important to be precise with labels. So just to be very precise, if you think about the sub-660 population as measured through the traditional credit score lens, that is a population that, in our estimation, is in reasonably, I would say, actually quite good shape with respect to what their same default trends were pre-COVID. And so consequently, the UMI is relatively modest. If you go into the primary end of unsecured lending, so now let's talk about the 720 to 750 segment. Those default rates are quite elevated compared to those same default rates pre-COVID, and their UMIs are consequently quite a bit higher. And of course, we would talk about that segment as being a prime segment in the context of unsecured lending. Now, if you go to an even higher FI segment than that, let's talk about the 800-plus segment. That is a population that I think is actually doing very well. They probably don't do a lot of unsecured borrowing, though. So they're not maybe in our label set or in our data set. And so I think you have this U-shaped thing in the economy where at the very low end or maybe the low end of the unsecured lending spectrum, let's call it, 600 to mid-600s, things are very good. And at the very high end, maybe even beyond the unsecured borrowing population, things are quite good, and then there's like a peak in the middle. And so I think we all use different labels to refer to different parts of that spectrum. whether one part is prime or subprime or super prime or even not even in your data set. But I mean, very specifically, I think that's what we see. Robert Wildhack: And then just quickly, a couple of the OpEx lines caught our attention. Engineering and G&A were both lower sequentially, better than what we were all expecting again, better than what was implied by the guidance. Can you give some colors on the drivers there? Sanjay Datta: Sure. Yes. I mean, some of it is just like our ongoing fixed expense discipline, which we've been focused on for some time. Some of that is, frankly, mechanical. As we reduce our outlook as a business for this year, we will reduce our expectation for things like bonus payouts and other comp accruals. And so there's a bit of a mechanical adjustment to a lower outlook that sort of reduces the fixed cost base as well, which is working as designed. Operator: And we'll go next to John Hecht with Jefferies. John Hecht: First question is, you talked about the use case for the broader unsecured loans. It looks like your HELOC loans are $55,000 to $60,000 on average. Can you give us the use case there? David Girouard: Home equity loans are general-purpose loans. So people tap them for lots of reasons. We don't have a breakout today of what the use case is for ours in particular. But of course, people know the most obvious thing is oftentimes used for home improvement, but quite often can also be used for other types of debt retirement or anything. So we think of HELOCs and personal loans as having, in some sense, being trade-offs from each other with respect to a general purpose set of funds, a little bit different rates, different process. But in some sense, they are substitutes for each other. Robert Wildhack: And then I know this might sound a little bit like beating a dead horse. But just on this concept of the UMI and the tightening or conservatism and the dichotomy, just from what we've seen, some auto finance companies, some unsecured lenders, subprime, prime. And virtually everybody we've covered this quarter has experienced good volumes, but not only good volumes, but really positive credit trends. You guys talk about this concept of calibration over and over. I guess maybe what I'm seeking is, does your engine not disclose to you what it's seeing that's causing the difference between it and the market? Or are you able to see why it's doing things differently? You mentioned pockets of weakness in certain populations. Again, what population or what demographic was that, or geography or something? I mean, is there something you can point to so we get an understanding of what this black box is doing to some degree? Paul Gu: Yes. I think the principal way that you should think about this is that we've intentionally built our system so that it can respond faster than traditional credit metrics would. So in our experience, when other players talk about their credit performance, it's a very backwards-looking metric in the sense that you're typically looking at a somewhat mature cohort of loans and you're measuring something like the actual charge-off rates. If you think about charge-offs in a lot of something like auto, you're often talking about something that could go 180 days since it was first delinquent. And then there are mixed effects, and then there are sort of effects from new populations getting originated and mixed in there. And the confounding variables that come with all of those things generally create a pretty substantial obscuring effect to being able to tell what's really going on in credit performance in real time. And so we've built a system that is much better at precisely being able to, in real time, tell you what actually is going on when you control for all of those variables. So think of it as a system where holding constant all of the changes in your borrower population across, in our case, the thousands of variables that we use to actually underwrite and understand the risk of loans. When you control for all of those things, you control for the timing, the cohorts, the vintages, then what are you actually seeing? And how does that interact with any of these thousands of variables so that you can actually see the sort of underlying patterns? And that, I would say, is one possibility that you could see something that's very segment-specific. I don't think that's the story we have in this particular period. The other thing that it very simply lets you see is if there is an across-the-board move that would have been either detected 3 or 6 months later by traditional credit metrics or wouldn't have been detected at all because it would have gotten obscured by the sort of changing mixes or new originations getting blended in. And in our case, we're able to see that. Now again, as I said earlier, I think it's possible to be overreactive to sort of that precise, fast-moving signal. And I think we optimized the balance a little bit better through some of our work this particular quarter. But ultimately, our goal is to be faster and more precise than anybody else in the market can be. And so we don't find it necessarily surprising that there are periods of time where others are saying one thing, and we're saying totally the opposite. Operator: It appears there are no further questions at this time. I'd like to turn the conference back to Dave Gerardo for any additional or closing remarks. David Girouard: All right. Thanks, everybody, for joining us today. We're excited to finish the year with a flurry of activity and progress when setting ourselves up for an amazing 2026 for Upstart and our shareholders. Thanks for joining us today. Operator: And this concludes today's call. Thank you for your participation. You may now disconnect.
Crissa Marie Bondad: " Alvin Lao: " Parvin Mamedov: " Crissa Marie Bondad: Hi, everyone. Good morning. Welcome to the third quarter results briefing of D&L Industries. To discuss the results, we have Mr. Alvin Lao, President and CEO of D&L Industries. After his presentation, we will have a Q&A portion. I'll now hand over the presentation to Alvin. Alvin Lao: Good morning, everyone. Thank you for joining us today for the results presentation for the third quarter of 2025. So, our highlights are that we were able to increase net income by 8% for the first 9 months of the year. And compared to the third quarter last year, net income was higher by 12% for this year's third quarter. So, we saw volume growth coming in at a pretty good level at 11%, up despite the much higher coated oil prices we're experiencing this year compared to previous years. Our exports continue to do well with the growth in gross profits from exports. It's up by 22% year-on-year. Our CapEx continues to be very manageable, so continuing to trend lower. And so, giving us a lot of more cash in our cash flow. And the final point there is that this year definitely has been challenging, but we are -- we continue to be confident and we continue to perform despite the challenges. So, the first slide, here, we see how we did in terms of net income in previous years as well as the first 9 months of the year comparing it this year's versus last year's first 9 months. And so, you can see there the 9-month net income coming in at PHP 1.95 billion, so slightly below PHP 2 billion. And then here, you can see how Batangas plant is continuing to perform. So still profitable. And so, you can say that for 4 consecutive quarters, the Batangas plant has been profitable. And we have mentioned before that this is actually ahead of our expectations. We were not expecting the Batangas plant to be profitable for at least the first 2 years. So, this has come in earlier than we had expected. In terms of the condensed income statement, so the big jump there, you can see in revenues. So, for the first 9 months of the year versus last year, revenues were higher by 40%. However, admittedly, the bulk of this is due to price increases with a lot of raw materials, especially coated oil being significantly higher this year versus last year. So, you can see that cost of goods sold, the jump there has actually been quite high as well. So, for us -- so one big trend or change that you can see. So, interest rates have been going higher, and we have had to borrow more because of the higher working capital requirements. So, interest expense is up this year versus last year. Then another change that you'll see in terms of income tax, we are paying significantly less income tax this year, primarily because of the operations coming from the new plant, which is in Quezon where we are experiencing an income tax holiday. But the end result, we do see our net income coming in at PHP 1.95 billion, higher by 8% compared to last year. So, if you were to compare that to last year's full year net income coming in at about PHP 2.3 billion. So, we need a little under PHP 400 million in the last quarter of the year to at least match the performance from last year. So, fingers crossed. Okay. The next slide, so we've got more details on our export sales. So, in terms of export revenues, it's higher by 20%. However, -- so what we're seeing is that we had our biggest growth driver this year, which has made the biggest impact is really biodiesel. So, the biodiesel blend went up from 2% to 3% starting October 1 of last year. And that means in terms of our product mix, the commodity side increased much faster than the domestic -- sorry, the high-margin side. And so that's why you see the exports as a percent of sales figure there in the yellow box coming in at 27%. So, it's not that exports did grow. It's really more that the domestic side grew much faster, primarily because of biodiesel. So, more details on the exports and how they're doing. So gross profits there, you can see on the right, exports higher by 22% versus 8% growth from our domestic side. So, both sides growing, it's just that exports are growing faster. And then, of course, on the bottom there, you can see in terms of blended gross profit margins, we're seeing export gross profits coming in significantly higher than for the domestic side. Now the next slide looks at volume growth. So, we have our 4 main segments here, and then we have split it up between high margin and commodities. And so, we can see here that in terms of volume, we actually experienced higher growth in our high-margin business, whereas for commodities, it still experienced growth, but overall, it was higher by a smaller amount. But if you look at the big numbers there, the biggest change came from the commodity side of Chemrez. So that's the second row for the oleochemical business with volume growing by 49%. And then the next highest growth came from the high-margin food side with volume higher by 22%. So overall, high-margin volume up by 14%, commodities volume up by 10% and overall volume up by 11%. So, the next slide shows you on a quarterly basis, how high-margin sales have moved. And so, we wanted to present this because the bulk of our profits do come from our high-margin side. And so, as you can see, last quarter, the high-margin segment overall volume actually dropped slightly by 4%. However, this year, on a quarterly basis, volume is actually higher by 12%. And in the next slide, you can see here how more focused on our high-margin segment. And the margins overall have come down. And we'll see that -- we'll see more details later when we go into the segments, but this is primarily due to the lower margins on our food ingredients business, which is primarily a result of higher costs, which is predominantly coconut oil. For the next slide, so a closer look at our commodity segment. So, revenue significantly higher, up by 75% overall for commodities. So earlier, we showed that volume was higher by 10% for commodities, but with revenue higher by 75%. So, you can see that we are able to -- it's much easier to pass on price changes on the commodity side and the margins are lower than where they were last year. But I would say that's pretty much the midpoint of where we would normally achieve the margins for our commodity business at between 7% and 8%. The next slide, so you can see the product mix between high margin. So that's the dark side at the bottom and the commodity side of our businesses, which is the lighter side at the top. So, this is something that we started seeing actually earlier in the year. So, in our previous briefings, we had also shown that high-margin segment as a percent of overall revenue has gone below 50%. But again, this is primarily due to the fast growth of biodiesel. So, with much higher growth in commodities, significantly higher than for the high-margin side, we can expect that product shift to change this way. And I would say it's temporary. And later on, we can discuss about biodiesel in more details. So, here's a look at our free cash flows. So, change in working capital. So, a big chunk of cash, which is very close to where it was. Actually, it is a slight improvement from where we were in the first and second quarters. But because of our continued profitability as well as much better management of working capital. Free cash flow, which was negative PHP 3-plus billion in the first quarter, it's still negative, but now below PHP 1 billion. So, it's a big improvement. So quite a lot of things moving here. We've got higher earnings. We've got slightly better change in working capital. And of course, CapEx has been much more muted compared to previous periods. And speaking of CapEx, so here, we can see -- so we started commercial operations in our new plant in Batangas in July 2023. So, CapEx actually peaked the year before in 2022 and has been trending lower. If you were to annualize this year's number, we're projected to come in below PHP 800 million for CapEx for the full year, which is significantly lower than before. And I'm not sure if that will be the level that would be on a more recurring basis. There might still be some room there for further improvements in the next couple of years, but it's getting close. So here, we can see how our 2 most used raw materials, which are coconut oil and palm oil how their prices have moved over the last 15 years, the brown line being coconut oil. So, we experienced that peak at roughly pretty much at around $3,000 a tonne that came in a couple of months ago. Currently, we're at around $2,500 a tonne. That spread or gap between coconut oil and palm oil, it is still quite significant. So, it's not as wide as it was when we saw the peak in coconut oil prices, but it is still fairly large. Then we have the other factors that affect our costs like the dollar-peso exchange rate. And above, we have our margins. And so, what we have mentioned in the past is that our margins don't necessarily reflect just the high costs. But if you were to go back to the previous slides with our product mix, you'll notice that the margins follow our product mix more closely rather than just the movement in our costs. So, here's a look at our group results. So, our 4 major groups, food ingredients, oleochemicals, which are under Chemrez, specialty plastics and then fourth, our consumer products business. So, food ingredients is still the #1 largest business in terms of revenues. Chemrez has been -- has become the biggest contributor of net income followed by specialty plastics. So, more details on food ingredients. So, this business has seen very good top line growth, revenue up by 40% volume -- even volume is higher overall by 7%. And you can see in the details in the 4 boxes at the bottom, except for the commodity business, which is the second box. All the other segments, which are all higher margin volume as well as revenue have seen significant improvements. And so this is -- I would say this is a very good sign. It is a precursor to us setting up a very good foundation for growth in the food ingredients segment going forward. So net income lower by 66%. Again, this is primarily due to the shift caused by much higher coconut oil prices. And we do believe that just like what has happened in the past, whenever prices hit peak and prices accelerated upwards, it was only a matter of time, a short period of time before prices would come back down. We believe that is something that is likely going to happen as well. And so, when that happens, things will normalize. And so, margins as well as profitability in this segment will improve. For Chemrez, so overall, very good numbers, volume up 30%, revenue up 90% net income up 88%. So, volume higher across the board, doing quite well, slightly lower margins. Part of it is because of higher costs. We do use coconut oil in our oleochemicals segment, especially, of course, for biodiesel. And speaking of biodiesel, so in terms of the blend, so we started at 1% blend in 2007, which became 2% in 2009. So, the blend was increased to 3% last year and was -- the increase to 4%, which was supposed to happen this year has been postponed. We do not know yet when that 4% blend will be implemented. We anticipate that it shouldn't take too long, but it is going to be a net positive for everyone in the industry when that happens. For specialty plastics, volume slightly lower, but this was a business that is coming off a high base because it's been growing -- it had been growing significantly well in previous periods. But overall, we still see an improvement with net income higher by 2%. And then fourth, so our smallest segment doing very well, volume up by 6%, revenue up 32%, net income up by 50%. And what we see here is that the biggest volume increase coming from personal care with the biggest increase in margins as well, reflecting that trend of people really being back to normal. So, after COVID, it took the Philippines quite a while to stabilize. I would say things are very much back to normal now. The traffic is back to normal. The malls are full, a lot of restaurants with a lot of long lines. So understandably, compared to what we saw during COVID, the personal care business is back. So, in terms of what we classify as related party expenses. So, we can see in this chart, on the left, we have rentals that the company pays for a lot of its fixed assets. So, these include land, buildings as well as barges. This comes in normally at between 1% and 2% of costs and expenses. So, if you look at the balance sheet of D&L, you'll see that D&L doesn't own any land or buildings, and most of these are leased from affiliated companies. And on the right side, D&L charges a fee to manage a lot of what we call shared services, so everything from admin, finance, legal and so on, and that's related party income. In terms of our cost structure, so no major surprises here, raw materials still being our #1 largest cost, followed by labor and then depreciation and rental. So if you were to look at what's classified as fixed costs, it's pretty much just depreciation and rental, maybe a little bit of utilities and then maybe half of others. So that's coming in at less than 10% of our costs classified as fixed. And on the right side there, you can see around 31% of our raw materials are imported primarily in U.S. dollars. So, a quick look at our balance sheet. You can see that our debt is higher because we had to borrow more to support the higher working capital required. However, if you look at our ratios, specifically return on equity, return on invested capital, we saw the bottom in 2024. So understandably, as we were constructing our plant and putting in more investments, we saw our ratios drop. But as things are getting better, as the CapEx number has started to stabilize, then we see ROE and ROIC improving. In terms of the capital structure, so we're currently at 3x interest cover. And net debt is at PHP 22 billion. Average cost of debt is 6.1%. This includes the effect of stock steps. And on the next slide, you can see there just how -- so we've been tracking for the last 10 years, our net debt effective interest rate as well as interest cover. So, for our working capital, so what I referred to earlier, overall cash conversion is significant, has improved by a lot, currently at 117 days compared to 139 days last year. So, we see big improvements in inventory and in receivables with inventory now down to 82 days and receivables further improving to 46 days. In terms of our listed shares, D&L is currently ranked #64 among the largest companies in the Philippines with a market cap of approximately PHP 32 billion. And we just wanted to highlight here how the family -- since the IPO in 2012, so in the last 13 years, the family has bought back almost 600 million shares, which is roughly 8.3% of total outstanding shares, which leaves the float currently at 26%. And this year, we've actually bought much more than last year. So last year, the family bought 20 million shares this year, as of date, we have bought 69 million shares. So as the price continues to be attractive, we're also buying shares in our company. And foreign ownership in D&L currently at 10%. So, in terms of how the stock has done, so since the IPO, the composite index has been up slightly by 2%. D&L is still higher by 12%, and based on the dividend this year, our dividend yield is at roughly 4.7% based on today's prices. So that doesn't include the increase -- the potential increase in the dividend that should come due to higher income this year, which is -- so that dividend is for next year. And at the bottom there, you can see the various conferences that we are continuing to participate in. So that's the deck in a nutshell. We're open for Q&A. Crissa Marie Bondad: So, we have Brad on the line raising his hand. So, Brad, let me just allow you to talk and you may ask your questions. Parvin Mamedov: Sorry, I must have clicked the wrong link. This is Parvin. Congratulations on the results. It seems like coconut crude oil prices are finally turning around. I had a big picture question. So, if I look at your gross profit margin, so the company has been through many cycles of high and low coconut oil prices. For example, the last one in 2022, it almost hit, I think, 2,000, which if you account for inflation comparable to what is happening now. But gross profit margins, especially if we look at the last 3 months for Q3, I think they are the lowest in -- maybe since 2013 or '14. I was wondering if there is something different about this cycle or this year specifically that the impact of higher coconut oil prices is taking longer to -- maybe it's taking for you longer to pass through it. Alvin Lao: Well, so it's a good observation. In terms of the peak, if you were to use -- if you were to adjust for inflation, the peak is not that far. However, the bottom, I would say, is in that sense would be quite far. So, what I mean by that, the difference in percent between the bottom and the top is much larger now compared to before, if that makes sense. So that -- it just means that the magnitude of change being much bigger, it's a lot harder to manage and the effect on us has been greater. I would say that's a major factor. The other factor here is that when going from a biodiesel blend of 2% to 3% or a 50% increase, even though from 0% to 1%, so that happened in 2007 and then 1% to 2%, which happened in 2009, when we saw the peak in 2011, that wasn't a factor at all. However, so I guess what I'm trying to say here is in terms of what happened with coconut oil price, it does look like that 1% increase in the blend did have an impact on coconut oil prices. And that further aggravated how rapidly coconut oil prices have moved. And so, it's really more just the magnitude of the change. It's much bigger compared to what it was before. Parvin Mamedov: And a quick follow-up. So, it seems like there is much bigger divergence between palm oil and coconut oil. And if we assume that for next, let's say, 2 years, coconut oil price will be coming down maybe 10%, 15% every year. What kind of an impact would it have on your financial statements? Alvin Lao: We believe that currently, our margins are lower because of that delay or lag when we adjust prices going up. And we will see a similar lag when we adjust lower. So, the margins should be much better on the way down. Parvin Mamedov: How long does it usually take? For example, I think coconut oil prices stopped -- started coming down since July of this year. So, it has been already 3, 4 months. For example, for October or November, do you already see that you were able to pass through all of the price increase and you're back to normalized margins? Or basically, how long does it take? Alvin Lao: So this is a little harder to -- so normally, it's 30 to 45 days. However, when it comes to coconut oil, we have a lot of storage and a lot of the product that we store were not just bought in the last 1 or 2 months. Some of them were bought in much earlier periods. And so, with the price coming down now, but with all of this inventory purchased maybe 3, 4, even 5 months ago, they are bought at higher prices or even the same price. So, it has affected us. But in general, it should be 30 to 45 days. Parvin Mamedov: For Q4, do you think we will already see a normalized margin or it will be more like Q1 or even Q2 of 2026? Alvin Lao: Maybe not fully normalized yet. It will depend on -- because the -- so we thought after the peak a couple of months ago, we thought the prices would come down quickly. They haven't come down as quickly as we anticipated. So, a lot of it is hinging on how quickly prices come down. But I think it's fair to say that we're past the trough or the lowest in terms of margins. They're not going to go any lower in the fourth quarter. We're pretty sure of that. So, they should be higher in the fourth quarter. In terms of how much higher, I can't say for sure at this point. Parvin Mamedov: And last question, have you had any pushback because you have been increasing prices, not on commodity side, I guess, on more high-margin product side? Any pushback from clients? Alvin Lao: We're always getting pushback for raising prices. I mean it's just part of the -- it's just how it is buyers paying higher prices. But the upside here, I believe, is that the market has kind of been used to paying significantly higher prices in the last 12 months. So going forward, when costs go down, the market will still be in this high price mode history, recent history. So it won't be as hard to charge prices that are higher, if you know what I mean, like because everyone is already paying higher prices for the last 12 months, even when coconut oil prices coming down, as you sell, since everyone still remembers and is used to paying higher prices, there's less resistance to pay higher prices now. Crissa Marie Bondad: The next question comes from Brian Oy. Actually, Alvin has touched on some of it, but I'll read it anyway. So, in case Alvin would like to add something else. So, given the recent pullback in coconut oil prices, do you see Q3 2025 as the bottom for gross margins? Is the worst over for working capital pressure? Alvin Lao: Yes. This is pretty much the lowest we've seen in terms of gross margins for a while. It's hard to see it getting any lower. It doesn't make sense. I mean, just looking at our history, looking at our -- what we're capable of, looking at the value that we give to our clients, it's really a factor more of how our costs have moved. And it's just the price lag when we pass on higher prices. So, it's not going to last definitely. Crissa Marie Bondad: Next question comes from Mike [indiscernible]. So, if we strip out the temporary tax holiday from Batangas, what would be the normalized effective tax rate and margins? Alvin Lao: So, I have to turn to Crissa to answer this. Crissa Marie Bondad: So, for the Batangas plant, so our income tax holiday started in 2023. So initially, it was 4 years, and we got a 2-year extension. So, it will end. So, 2023 plus 4, 2027 plus 2, it will end in 2029. For the corporate tax rate in the Philippines, as you -- as all of us are familiar with, so it's currently at 25%. But in our company, we have certain segments that enjoy income tax, preferred income tax rates, for example, for our biodiesel business, which is 10% of gross income. We have a plant in Laguna for our specialty plastics plant, which is taxed at 5% of gross income. And for FIT or the plant in Batangas, so income tax holiday expires in 2029. And after that, I believe we can still enjoy the 5% tax on gross income, I think, until 2034. So, on average, I'd say that after all the income tax holiday, it should be around 20%, definitely less than 25%, but that would be by the year around 2035. So, from now until 2029, we'll probably average around 15% effective tax rate. By 2029, it should be a little higher than that, but still well below the 25% corporate income tax because of the 5% tax on gross income for Quezon located plant. So, there you go. Next question comes from [indiscernible]. Congratulations for the remarkable performance in the first 9 months amidst a challenging business environment. My question is, given higher cash flow, lower CapEx spending and higher net income, is there any chance of increasing your cash dividend payout in 2026? Alvin Lao: Good question. So, it's the Board who will decide that. Off hand, so we've got -- so we issued the bond in 2021. The 3-year portion matured last year. The 5-year portion is maturing September next year. So that's PHP 2 billion that we have to pay out. And even though CapEx is trending lower and even if working capital is managed much better now and even if commodity prices or coconut oil prices come back down, the effect of all the borrowing we had from building our Batangas plant, that amount of debt, it's still going to be there. And so with that in mind, maybe not 2026. 2026 might be too early for us. That's my personal projection. It might be -- we might need another couple of years to be comfortable with paying down the debt even more. Maybe see interest -- so now our interest cover is 3x, which is -- before it was over, I think, 20 in previous periods before we built the plant. So, I would say we would need interest cover at a much higher level before we would discuss a higher payout. Crissa Marie Bondad: Next question comes from Daryl Wong. Could you help share more color on why Batangas plant net profits were down quarter-on-quarter? Alvin Lao: So, in terms of our food manufacturing, a lot of it is done out of the Batangas plant. And with food net income lower by 66% overall. That is -- that has -- a big chunk of that is coming from our Batangas plant. And I guess the other factor is biodiesel. We don't make any biodiesel in the Batangas plant. It's made here in our Quezon City plant. And biodiesel has been a big driver of growth for us this year. So that's the 2 sides. Crissa Marie Bondad: Next question comes from Dan Brian. Two questions. Question number one, currently, do you see coconut oil and palm oil declining or holding steady? Do you see more reasons for it to go down or hold steady? Second question, what segments will drive growth for the near-term? Alvin Lao: Okay. So, coconut oil, just looking at it -- so if you were a technical analyst, you'd probably say that coconut oil prices went up too fast. And from a historical perspective, it's always had that pattern in the past of whenever the increase is super rapid, the decline would be super rapid as well. So, my bet would be that coconut oil prices are still headed lower. Palm oil, on the other hand, the supply is much bigger. So, the price movement there is not as -- it doesn't fluctuate as much. So, it has a higher chance of being a lot steadier. Second question in terms of what will drive growth for the near-term. So, Crissa, could you please show again the food ingredients slide. So, you can see here -- so in food ingredients, we have the high-margin side and the low margin side. The low-margin side there is a second box at the bottom, what's called refined vegetable oils. So, you can see here the gross profit margin coming in at 5.6%, whereas all the other -- the first, third and fourth boxes, gross margins are significantly higher. And for the refined oil side, volume actually fell by 2%, but it was coming off a high base, meaning it just grew a lot since COVID, whereas the high-margin side of our food business, it was the opposite. They were not really doing well. They did really badly during COVID. But now you can see both on a volume as well as revenue basis, much higher growth. So, your question in terms of what will drive growth near-term. I mean, I'm just looking at these numbers. Once these margins normalize, you can just imagine the impact on the profitability. It's going to be quite big, the positive impact. So that would be -- I would say in terms of what would make the biggest difference, this will likely be the one. Crissa Marie Bondad: Next question comes from Brian Oy. So, what was the revenue and gross margin at the Batangas plant in the third quarter? Alvin Lao: Okay. So, we don't break that down. But what we do break down -- Crissa, could you go to the exports slide, the second slide? What we do break down is, in general, the amounts for exports in terms of revenue, gross profits and margins. So, I would say this is a better representation because we don't just export from our Batangas plant. We also export from our other operations as well. And I would say this is a better way to get a feel of how the exports are doing versus the domestic side. And it's also -- it gives a better picture really of how the different operations -- to summarize all the different operations. Crissa Marie Bondad: Next question comes from Rainier Yu. So, 2 questions. First question, can you give more color on the net income growth for oleochemicals despite margins dropping quite significantly? Second question, any seasonality seen in Batangas plants operations or profitability? Alvin Lao: So, in terms of Chemrez, so net income grew because of that 49% increase in volume from biodiesel. So, when you go from a 2% blend to a 3% blend, that's 50% increase. So more or less, the volume growth in biodiesel is in line with that increase in the blend. Margins, well, they're lower precisely because biodiesel is a lower-margin business compared to the other oleochemical businesses. So, when you have a lower-margin business growing faster than the higher-margin businesses, then that change in product shift -- the change in product mix shifts your overall margins lower. And that's really what happened, I would say. In terms of the second question, seasonality in the Batangas plant operations, I don't think so. We don't really -- there's -- we don't make any products where there would be significant difference in terms of time of the year or the temperature or season. So not really much in terms of seasonality, I would say. Crissa Marie Bondad: I don't see any more outstanding questions from my end. So maybe we can give our investors one more minute in case they have further questions. Okay. Parvin is raising his hand. So, Parvin, you may ask your question. Parvin Mamedov: I had a quick follow-up on margins for food segment. Could you explain in a little bit more detail why the profitability there dropped more than in other segments? Alvin Lao: In food ingredients? Parvin Mamedov: Yes. Alvin Lao: Okay. So, this was really a function of -- so partly -- so a big chunk of it is because of the higher coconut oil prices. And then earlier, there was a question asked, I think you were the one who asked this, Parvin, in terms of resistance when it comes to raising prices. So, there's always resistance, but the problem comes when you reach a point where the price is so high that the customer doesn't -- it doesn't make sense for the customer to buy anymore, and they just stop buying. We kind of -- I believe we kind of hit that point with some of our products. And so even if volume is up by 7%, I believe we did lose some business just because the customer -- our customer, which are food manufacturers, food retailers, they just couldn't buy it anymore because the price was just too high. So high cost and very resistant price acceptance by the customer, it's just a perfect typhoon or perfect storm that will result in margins and net income dropping. Parvin Mamedov: But then what the customers do, do they -- like, let's say, crispy cream, right. Do they switch to palm oil? Do they change the recipe? Alvin Lao: So, coconut oil -- so I believe the doughnut makers will be using, I think, soybean oil, not necessarily coconut oil. But anyway, I get your -- the users of coconut oil, some of them already switched a long time ago when prices -- from $1,000 a ton when it went up to $1,500, you can see a lot of them already switching when it went up to $2,000, even more switched all the way up to $3,000. I mean, those that could switch already switched. So those that could not switch, a lot of them just had to absorb it. So, one thing that helps is that when you look at most of our customers, cost breakdown. Usually, food cost is anywhere from maybe 18% to 30%, 35%. And out of that 18% to 35%, less than 1% is from the food oils in general. So even if that product or even if that raw material cost went up so much, the overall impact on their cost is not as significant. So yes, there's resistance. They just buy so much less. They use up all the inventory. So, they don't keep any inventory anymore. So not necessarily that they stop buying, but they just buy a lot less than before. So, when prices come down, that behavior will change. They need inventory. So, they will buy more than what they normally buy because they need to stock up on inventory again. They will be less resistant in terms of ordering larger volumes. So that change in behavior will result in demand -- a significant rise in demand. So, volume up overall in a very difficult market, when the costs come down, as it comes down, we anticipate volume will go up even more. So, the margins will also go up and the profitability will definitely improve as well. Crissa Marie Bondad: Our next question comes from Peter Wong. So, for each individual subsegment of food ingredients, what should be the normalized gross profit margin? Alvin Lao: Okay. So not sure how to answer that because if you recall the chart for coconut oil, it's really volatile. So, it's kind of hard to say there's a normal period. But in general, the lowest margin will be the refined vegetable oils. That's usually low to mid-single digits. So anywhere in the past, so 5.6% is where it's at right now. So that's the second box. on the screen. That's pretty much close to the high of what we would normally see for a commodity product. It can go as low as 2% or even lower GPM. So, you could say it's barely profitable. So, the profits from our food ingredients business really comes from the other 3 segments, which are usually double digit. So, specialty fats and oils, current GPM is 9.6%. That's where we've seen the biggest drop. If you can see there, it's negative 9%. So, it used to be at 18-plus percent last year. So that in normal times would be above 20% GPM. Whereas specialty ingredients, food safety, higher margins than specialty fats and oils, so specialty ingredients, probably mid- to high 20s. Food safety should be around mid-30s should be more normal. Crissa Marie Bondad: A follow-up question from Peter. So, for food ingredients, you mentioned that those who can switch would have switched to alternative when coconut oil prices increased. I guess we are losing volume with existing customers, but D&L is reporting a very healthy increase in volume. What are the new sources of demand such that we have such a good volume increase in the recent quarters despite very high coconut oil prices. Alvin Lao: Yes. Okay. This is very complicated because of the industry environment we're in. When you have prices this high, it's not just us that's selling to very reluctant customers. Our competitors are also in the same boat. And a lot of our competitors are, I would say, in much worse position than us. And what's happening is because our company is seen as the leader in our industry, where a lot of large customers have reliance on our competitors are not as -- they're just not as stable and reliable as we are because we've been around longer. We're a listed company. We hold our reputation very, very seriously. So, we really treat our customers very well. And so even in this very difficult environment, as you see from refined vegetable oils, the volume is down, but it's only down by 2%. It's really not a big drop. I can tell you for our other competitors, their volumes are likely down by a lot more. So, what's happening is our -- for a lot of our customers, they're buying less. So, if you just look at our regular customers, the drop in volume is much more than 2% for the refined vegetable oils. But what's happening is for some other food manufacturers, food retailers that are buying from -- sorry, that we're buying from our competitors, our competitors are not able to service them anymore. So, they're turning to us. They're now buying from us. So, every time there's difficulty in the industry, we're the company that a lot of customers turn to. So, what's happening is we're gaining market share. And that is something that's happening this time again. It happens every time there's a difficult crisis happening in the industry. So in terms of volume, yes, we've lost a lot of volume with our regular customers, but we kind of gained volume from our nonregular customers when their suppliers gave up or couldn't service their requirements anymore because when prices go up as much as it has from $1,000 a ton to $3,000 a ton, that requires much more cash in terms of inventory, receivables. And a lot of our competitors are not built to withstand these large financial shocks. So, because we are run relatively conservatively, because -- well, it helps that we're listed and we have good lines with our banks. We were able to raise a bond a couple of years ago. It helped that we do have the cash to sustain such a crisis. So, it's much more than just what we see happening just for us as a company. It's really what's happening in the industry. Crissa Marie Bondad: Next question comes from Clark. How much do you think your pricing can stick if ever coconut oil prices go down? Since it would be difficult for customers to switch given the differentiated nature of the high-margin products, do you think we can maintain the high pricing? Alvin Lao: Short answer is yes because this is not -- volatility of coconut oil is not new to us. I mean we've been doing this business for roughly 40 years, almost 40 years. I mean, just food ingredients. And it's just part of the cycle. So, we just have to write it out. I would say -- so earlier, I was talking about how we've seen a lot of customers who use coconut oil, they use up all their inventory. They're just buying what they need. A lot of those who have switched have already switched. I can bet you that a lot of them, when the price normalizes, they will gladly switch back to coconut oil. And you don't need to wait for $1,000 a ton for that to happen. It will happen much earlier because there really is a significant difference in taste, in quality and in so many other aspects that makes coconut oil advantageous. So, the short answer is yes. We will see that. Crissa Marie Bondad: Just a follow-up on that stickiness. So, from Peter Wong. How sticky these new customers will be if coconut prices decline significantly from here on and our competitors can go back to servicing these customers that weakened? My guess is stickiness will be low for refined vegetable oil. What about for the other 3 segments? Basically, his question is, to what extent will you be able to keep the elevated volume to enjoy higher margins as and when coconut prices declined significantly? Alvin Lao: So, I wish I could say that customers who turn to us in bad times will stay with us in good times. However, this is reality. We will keep some definitely. We will lose some. Because there are some companies who will prioritize different things, and we won't be the cheapest out there. So, it's just part of business. We can't be the best at quality and reliability and be cheap as well. I mean something's got to give, right? So, it's fine. And that's really -- it's really part of the game. I mean we're not in this for the short-term. We really look at this as a long-term. I guess one way to look at this, we have some new customers who didn't buy from us before who are now buying from us. And now they're experiencing the improvement in quality, the much higher reliability. They will remember this, and they will include this as part of their criteria, the next time they buy, the next time when prices are lower. But some customers will not remember, and this is part of the game. Crissa Marie Bondad: Next question comes from Rainier Yu. Has the company seen any demand impact from the U.S. tariffs. Alvin Lao: Very little because we don't sell that much to the U.S. I think overall, our U.S. revenue is around maybe 2% to 3%, I think. But out of that, I would say a lot of those products, the customers don't necessarily prioritize price, which where the tariffs have an impact. So short answer, the impact is not that significant. Crissa Marie Bondad: No outstanding questions that I can see from my end. So, we can give our investors another 1 minute just in case they have further questions. Okay. There's a follow-up question from Peter. How is the industry landscape in biodiesel? Any new capacity being planned by your competitors? My guess is demand would have stabilized and will be at the current level based on current blending. Alvin Lao: We heard there were a couple of companies that had planned to build plants before like Petron, but they decided not to go ahead. There are maybe 1 or 2 companies who have built plants. But in terms of positioning, we're definitely still the biggest. So, if the question is, has competition dramatically increased? The answer is no. There's some out of like maybe, I think, 12 companies certified by the Department of Energy as biodiesel manufacturers. There's a couple of new ones, I believe, but the overall impact on supply, I don't think has changed much. In terms of demand, demand is pretty steady because it's a law, it's a mandate. So, the oil companies are required to comply with 3% blend. So, price does not come into play in this case. Crissa Marie Bondad: Next question comes from Dan Brian. Have there been any exciting R&D updates recently? Alvin Lao: So, we're constantly investing in R&D. We're constantly coming up with new products, new innovations, some of which we've talked about, which we're very excited about, some which we will disclose when the time is right. Crissa Marie Bondad: No outstanding questions so far. Okay. So, if no more questions, that concludes our third quarter briefing. Again, thank you so much, everyone, for joining this briefing. And as usual, if you have any further questions, you may always reach out to us. Thanks again, and see you at our next briefing. Alvin Lao: Thanks, everyone. Take care.
Operator: Good afternoon, and welcome to the Ultragenyx Third Quarter 2025 Financial Results Conference Call. [Operator Instructions] It is now my pleasure to turn the call to Joshua Higa, Vice President of Investor Relations. Joshua Higa: Thank you. We have issued a press release detailing our financial results, which you can find on our website at ultragenyx.com. Joining me on this call are Emil Kakkis, Chief Executive Officer and President; Erik Harris, Chief Commercial Officer; Howard Horn, Chief Financial Officer; and Eric Crombez, Chief Medical Officer. I'd like to remind everyone that during today's call, we will be making forward-looking statements. These statements are subject to certain risks and uncertainties, and our actual results may differ materially. Please refer to the risk factors discussed in our latest SEC filings. I'll now turn the call over to Emil. Emil Kakkis: Thanks, Josh, and good afternoon, everyone. Today, Ultragenyx is on the cusp of significant evolution and growth. We have 4 commercial products that have delivered consistent and substantial double-digit annual revenue growth over many years. We have 2 BLA submissions in progress for programs that are poised to address significant medical need for patients with ultra-rare diseases. We also have multiple late-stage clinical program with transformative commercial potential that are approaching pivotal data readouts. We're at a defining moment for the company, and I'm pleased to report that our team is ready to maximize the opportunities ahead. We announced earlier today that we took an important step to strengthen our financial position, receiving $400 million of nondilutive capital from OMERS through the cap sale of a portion of our Crysvita royalties. Importantly, we were able to defer the start of payments under this financing until January 2028. These funds and this timing bolster our balance sheet as we approach pivotal data readouts for our most significant commercial opportunities in osteogenesis imperfecta and Angelman syndrome. Importantly, we'll continue to focus on managing our cash burn and prioritizing our investments. Shifting to clinical. We continue to see exciting momentum across our late-stage programs, beginning with GTX-102, our investigational antisense oligonucleotide for Angelman syndrome. In July, we announced the pivotal 48-week Aspire study completed enrollment with 129 patients and is expected to read out data in the second half of 2026. Last week, we announced the first patient had been dosed in the Phase II/III Aurora study, which evaluates GTX-102 in additional ages and genotypes. This study, along with a fully enrolled Phase III Aspire study will generate data across the spectrum of genotypes and ages. Turning to UX143 for the treatment of osteogenesis imperfecta, the conduct of the Phase III Orbit and Cosmic study continues to go well. We hear stories from investigators who have patients in the open-label Phase II about how well their patients are doing, the improvements in their bone mineral density and the profound effect this drug is having on their lives. Data from the Phase III studies are on track to read out around the end of the year, which to us means December or January. As we move into the final analyses, we remain confident in setrusumab's mechanism of action, its ability to make more bone in the places that need more strength, which should reduce fractures. If successful, this will lead to a transformational treatment for pediatric and adult patients with osteogenesis imperfecta. For our existing approved products, our global commercial organization continues to deliver meaningful revenue and cash flow every year. This year, they are on track to deliver total revenue between $640 million and $670 million, which would be 14% to 20% growth from last year. Crysvita is the largest product in the portfolio, and we expect revenue to continue growing in the U.S., Canada, Latin America and Turkey as more and more patients initiate this important medicine. Dojolvi, Evkeeza, Mepsevii also meaningfully contribute to our financial base and provide a steady diversified source of revenue, is also expected to grow over time. I'll now turn the call over to Erik Harris to share more details on his team's efforts last quarter. Erik Harris: Thank you, Emil, and good afternoon, everyone. As Emil mentioned, the commercial organization is continuing to successfully launch 4 products across the globe. Starting with Crysvita in Latin America. In the third quarter, our team generated another 50 new start forms that led to approximately 50 more patients on reimbursed therapy. We now have approximately 875 patients on commercial product in the region as the team continues to meet the growing demand for this important product. Health care providers continually share positive feedback on how well their patients feel when on Crysvita, and this has led to an increasing number of doctors writing prescriptions for more than one patient. I'll now shift to Crysvita in the United States and Canada, where our partner, Kyowa Kirin, has been leading commercialization since the transition in April 2023. While the third quarter 2025 royalty revenue was impacted by expected seasonality, we also know that there has been continued underlying growth in new start forms and new patients on reimbursed therapy. We expect strong fourth quarter revenue growth consistent with prior quarters. Moving on to Dojolvi in the United States. Growth of new start forms in the third quarter continued to steadily increase, consistent with patterns we have seen in prior quarters. Since launching this product in 2020, our team has generated approximately 700 new start forms leading to approximately 625 patients on reimbursed therapy. The split between pediatric and adult patients continues to be approximately 65% peds and 35% adults. The number of new prescribers also continues to grow with a total of approximately 275 unique prescribers at the end of the third quarter. For Dojolvi across the EMEA region, we are approaching 300 patients treated under named patient sales across the region. We continue to be pleased with this demand, especially since we are not actively marketing the therapy and simply responding to named patient requests. The majority of demand has been in France, but we also see increasing interest from patients and families in other EMEA countries, including Kuwait, Saudi Arabia and Greece. In closing, I'll make a few brief comments Evkeeza, which we began commercializing in our territories outside of the U.S. with formal reimbursement approvals in just the last couple of years. In the EMEA region, we now have patients on reimbursed therapy from nearly all of the major countries, and we have added approximately 120 patients since the beginning of the year. In total, there are approximately 310 patients across 17 countries who are receiving Evkeeza. I want to recognize the tireless efforts from my European team as they continue to successfully navigate the country-by-country pricing negotiations and respond to named patient treatment requests across the whole EMEA region. As I have mentioned in the previous earnings calls, we continue to expect some quarter-to-quarter variability in revenue, but we remain confident in the growing underlying demand of all of our products around the world. With that, I'll turn the call to Howard to share more details on our financial results and guidance. Howard Horn: Thank you, Erik, and good afternoon, everyone. Before I go through our financials and guidance, I want to touch on the financing we announced earlier today. Additional details are in the press release and 8-K, but the essence is that we received $400 million through the sale of an additional 25% of our royalty interest on the future sales of Crysvita in the United States and Canada. Payments to OMERS will start in January 2028 and are capped, just like our prior royalty financing agreement with OMERS. We were fortunate to have many financing tools at our disposal, and monetizing another strip of our Crysvita royalty with OMERS proved to be the best option. We went through a competitive process and OMERS provided an attractive cost of capital and a beneficial payment holiday in a cap transaction. These terms helped us minimize the impact on our P&L and maximize liquidity. Importantly, Crysvita has proven to be a unique and highly valuable asset, one that we expect will continue delivering meaningful value after the cap on this agreement is hit and the royalty stream has returned to Ultragenyx. Adding $400 million to our balance sheet will help us deliver on our expected launches, setting us up for our next stage of growth and on our path to profitability in 2027. We will also continue to maintain our financial discipline, leveraging our existing infrastructure to launch UX111 and DTX401, if they are approved, and remain focused over the next year on delivering Phase III results for UX143 and GTX-102. Now turning to the financials for the quarter. I'll start with total revenue. In the third quarter of 2025, we reported $160 million, representing 15% growth over the quarter of 2024 and 18% growth for the first 9 months of 2025 over the first 9 months of 2024. Crysvita contributed $112 million in the third quarter and $57 million from North America, $47 million from Latin America and Turkey, and $8 million from Europe. Dojolvi contributed $24 million, consistent with its expected steady growth trajectory. Evkeeza [ contributed ] $17 million as demand continues to build following the launch in our territories outside of the United States. And Mepsevii contributed $7 million as we continue to treat patients in this ultra-rare indication. Total operating expenses for the quarter were $331 million, which included R&D [ expenses ] of $216 million and [indiscernible] investments in prelaunch inventory manufacturing, [ SG&A ] expenses of $87 million and cost of sales of $28 million. Operating expenses also included noncash stock-based compensation of [ $37 million ]. For the [ quarter ], net loss was $180 million or $1.81 per share. As of September 30, we had $447 million in cash, cash equivalents and [ marketable debt ] securities, which has been further strengthened by the $400 million raised through the Crysvita royalty transaction we announced today. For the 3 months ended September 30, 2025, net cash used in operations was $91 million. In total, for the 9 months ended September 30, 2025, it was $366 million. We do expect 2025 net cash used in operations to [indiscernible] increase compared to 2024, and we also reaffirm our path to full year GAAP profitability in 2027. Shifting to revenue guidance for 2025, we are reaffirming the guidance we previously provided. Total revenue is expected to be between $640 million and $670 million, which represents 14% to 20% growth over 2024. Crysvita revenue is expected to be to be between $460 million and $480 million, which includes all regions and all forms of Crysvita revenue to Ultragenyx. This range represents 12% to 17% [ growth ] over 2024. Dojolvi revenue is expected to be between [ $90 million ] and $100 million, which represents 2% to 14% growth over 2024. With that, I'll turn the call over to Eric Crombez, who will provide updates on the clinical programs. Eric Crombez: Thank you, Howard, and good afternoon, everyone. I'll touch on UX111 for the treatment of MPS IIIA and DTX401 for the treatment of Glycogen Storage Disease Type Ia. Starting with UX111, we have had constructive formal and informal interactions with the FDA since receiving a complete response letter in July. We have also reviewed the additional longer-term data that the FDA requested, and we continue to see a durable treatment effect based on multiple biomarkers related to MPS IIIA with further separation in multiple clinical end points from natural history while maintaining an acceptable safety profile. The FDA interactions and internal progress we have made to address the observation give us confidence in a BLA resubmission in early 2026, followed by an FDA review of up to 6 months. Shifting to DTX401. In September at the International Congress of Inborn Errors of Metabolism in Japan, we presented final 96-week results from the pivotal GlucoGene study. These results show durable, clinically meaningful and statistically significant improvement in cornstarch reduction while maintaining good glucose control. At week 96, study patients originally treated with DTX401 had been on study for nearly 2 years and patients originally randomized placebo had 48 weeks of treatment with DTX401 after crossover to study drug. At week 96, patients saw a 61% reduction in daily cornstarch intake across both the DTX401 and placebo to DTX401 crossover groups. This also corresponded to a mean decrease in the number of daily doses of cornstarch with the DTX401 group reducing by almost 2 doses at week 96. The placebo to DTX401 crossover group, on average, dropped 1.6 daily doses by week 96. The improved glucose control and reduction in dependence on cornstarch is particularly important overnight with the increased risk of hypoglycemia while patients are sleeping and less able to detect symptoms. Reducing overnight cornstarch doses also helps to alleviate the burden of needing to wait to take cornstarch and the real risk of missed doses. At week 96, 67% of patients were able to eliminate at least 1 nighttime dose of cornstarch. The DTX401 group saw a 70% reduction of nighttime cornstarch when compared to baseline and the crossover group saw a similar mean reduction of 75% compared to week 48. These clinical results were also supported by improvement in patients' impressions of their disease as measured by a Global Impression of Change scale or PGIC and patient interviews. In the DTX401 group, 10 of 12 or 83% of patients felt that the disease management was improved 96 weeks after receiving DTX401. For the placebo to DTX401 crossover group, 18 of 19 or 95% of patients had improved disease management just 48 weeks after receiving DTX401. What is most important is that patients were able to reduce their dependence on day and nighttime cornstarch, feeling better while doing so, all while maintaining good glycemic control. This is why we believe this could be a transformative and life-changing treatment for these patients. In August, the FDA granted us the ability to begin a rolling submission of our BLA, which is underway and going well. The complete application will include the 96-week clinical data and the CMC updates that are in process based on the UX111 feedback. We expect to complete the DTX401 rolling submission next month. I'll now turn the call back to Emil to provide some closing remarks. Emil Kakkis: Thank you, Eric. I'll quickly recap the milestones and catalysts as we head toward the end of the year. For UX143 in osteogenesis imperfecta, the last patients in both the Orbit and Cosmic studies have had their final visits, and we are on track to share top line data from these studies in December or January. For GTX-102 in Angelman syndrome, we continue treating patients in the 48-week Aspire study and continue enrollment in the supportive Aurora study. For DTX401 and GSDIa, the rolling BLA submission continues, and we are on track to complete this filing in December. Lastly, UX111 in Sanfilippo syndrome, we are responding to observation noted [indiscernible] and expect to resubmit the BLA early in 2026. We are well positioned to deliver transformative therapies for rare disease patients while generating meaningful long-term shareholder value. We have a growing base of global revenue, a strong balance sheet and focus to execute on our top priorities. We look forward to sharing setrusumab data and reading out the GTX-102 Phase III data in the second half of 2026. With that, let's move on to your questions. Operator, please provide the Q&A instructions. Operator: [Operator Instructions] Our first question comes from Gena Wang with Barclays. Huidong Wang: I know you will have very important data update on Orbit and Cosmic, you said, around year-end 2025, so maybe if you can walk us through the logics there. Like should we actually more likely expecting the data will be at the JPMorgan giving the so close to holiday time? And also when you share the data, I assume it will be both Cosmic and Orbit data. And then if you can also talk about the different scenario, how would you take to the next level? Emil Kakkis: Great. Well, first, I'll say that we -- it's going to include Cosmic and Orbit both together. So both will come out together. We're saying December or January because we're doing the cleaning process and the finishing of the database locking analysis, and we don't have the precise timing. We're providing some variability there because of the process is not defined, but we will expect to report on both either in December or in January. Operator: Your next question comes from Maury Raycroft with Jefferies. Maurice Raycroft: Maybe just following up on Gena's question for OI. Well, I guess to start off, can you comment on what you're seeing in the open-label extension from the Phase II? And you provided some anecdotal perspective there, but can you provide more quantitative perspective? And just anything additional on how we should think about the range of effect sizes on fracture reduction? And what would be needed to succeed for the final analysis? Emil Kakkis: Okay. Well, we haven't put out another cut of the Phase II data, so I can't give you any more quantitation. I think what we've been observing in the trial is consistent with what we've put out before and we decided to focus our work on the Phase III. So we don't have any more quantitative data, but we're comfortable with what you've seen on Phase II is consistent as we move forward. Now with regard to what we expect in Phase III, we've said that anywhere between 40% and 70% reduction in fractures, in that range, is a very good fracture reduction level. And I don't think that the exact percentage within that range matters as much as how patients feel and how they're functioning. And from the Phase II study, it's pretty clear that the way patients are functioning is quite important in terms of their ability to take on exercises, to walk better, get out of wheelchairs or using walkers, et cetera. So we think anywhere in that range -- and I think most KOLs have suggested something better than 40%. We've seen 67% in the Phase II study. I think anywhere in that range is -- I think, would be a clinically meaningful change for these patients. But the effect on their overall function, I think, will ultimately be even more important in how the product launches. And I would tie that back to XLH because in XLH, the rickets score change didn't really change people's views. It shows the drug worked but how patients felt on the drug that drove the adoption of that drug. So we're speaking from experience there on what we expect. But everything we've seen in Phase II says that this drug has a potential for it to be transformative in changing not only the fracture rate but how patients feel and how they function on a day-to-day basis. Operator: Your next question comes from Yigal Nochomovitz with Citi. Yigal Nochomovitz: Could you just clarify with regard to the UX111 and the 401 submission? I thought the idea was to sort out the CMC-related questions on UX101 first and then get that submitted and then do 401. But now it seems like you're going to do 401 and then 111. And you mentioned something about an observation, so maybe that's the reason. But -- or is there another reason, please? Emil Kakkis: Well, the filings were always very close to each other. I mean, they were always within a month of each other, so what we -- there are some aspects of the program involved, the inspection facility that need to be in -- common to both, but there were certain things that were specific to 111. In our Type A meeting, the FDA made some combination, but it did require us to have full reports. And some of those reports take -- took a little bit more time, which is why 111 is now following 401. But there's no real change, just the exact timing of when the final reports for things could be put together that are needed for each. 401 doesn't have some of those things because it is the new filing, and so we felt we can get the things that are uncommon done in time and kept 401 on track to file this next month. So it's a slight change, but I don't think it's a fundamental change. It's just what we have to get done and when. Yigal Nochomovitz: Okay. And then if I could just do one follow-up, so on the first OMERS transaction back in 2022, I guess, how much of that is -- how close are you to the cap of the 1.45, if you could comment on that aspect of it? Emil Kakkis: Well, I'll let Howard go through it. But we sent -- at that time, we sold 30% and we had a cap. And now we're selling a little bit of extension of that plus another piece. But the cap ultimately is going to cover both pieces. But maybe, Howard, you can explain it simply for them. Howard Horn: Yes, Yigal, thank you for the question. We can't actually tell you how we're tracking to the cap. But I think what Emil said was important that the prior deal with OMERS, so the 2020 agreement with the 30%, that has its own cap. Once it's hit, it will then flow into this new deal. And together, that piece plus the additional 25% that we announced today will together have its own cap of 1.55x the $400 million that we raised. There's actually a really helpful page in our corporate deck that's either on our website or will be there soon that describes this. Operator: And your next question comes from Tazeen Ahmad with Bank of America. Tazeen Ahmad: Just to stay on the point of this OMERS topic, that $400 million that you announced today, how far does that go in helping to address any concerns investors might have about the potential for financing needs coming up in 2026, especially as it relates to September when your priority vouchers would need to be renewed, if you could give some color on that? And then secondly, on the scenarios of Orbit and Cosmic, how are you thinking about if one of the studies is positive and the other is not? So let's say that Orbit is positive and Cosmic is not and vice versa, how would that impact, you think, your chances of getting approved in OI? Emil Kakkis: Well, let me answer the Orbit, Cosmic first. Then I'll let Howard talk about the OMERS transaction [ being ] the cash runway story. With regard to Orbit and Cosmic, we think both studies have -- are powered to succeed. So we're expecting both to succeed. If on the outside chance that one doesn't and one does, I think that we'll have enough data to help support the full range of the indication. Remember, Orbit is against placebo and is older kids. Cosmic is younger kids and against the control. If we show good bone mineral density improvements in the younger kids but versus maybe the p-values didn't hit for -- versus bisphosphonates, for example, but we show that the effect is still happening, I think we can manage that in terms of getting the age indication by showing the treatment effect is occurring and then safety is good down at the young ages. If -- the Cosmic study is smaller, but 1 advantage of it is that it's a narrower population because there are young patients only of 2 to 7 rather than including adults. So even though it's smaller, it also is a narrower population. So it could also achieve -- with the narrower population, maybe there's less variation. It could come out positive and show a good effect, if Orbit turned out to be -- have too much variation and was missing slightly. But we can then show that the older patients are seeing the same effect we saw before. So I think if we get one or the other study positive, we'll be able to work forward. And how we solve the issue of the age range and the indication, I don't expect there to be a difference in how the drug works. I think both studies should show a substantial bone mineral density benefit improvement and should show improvement in fractures. So we're confident in the program, but I think we can make it work with either combination of results. Now I'll let Howard talk about the OMERS deal and cash runway sort of question. Howard Horn: Yes. So I guess maybe I'll couch this in the term -- in terms of our pathway to profitability in '27. There are a number of assumptions that go into that. First of all, the recent changes in timing are all factored into what I'm about to say, but on the revenue front, we expect to have continued double-digit growth from our current products and some contributions from launches. On the expense side, we will continue to manage expenses, but we will incorporate some select investments to maximize our launches as we talked about today with prelaunch inventory build. And then on the financial side, we do incorporate monetization of 3 PRVs, so from UX111, DTX401 and UX143. We've talked about in the past, if one of those wasn't to come to pass, that we think that the aggregate value of the others would get us to the same cash point. And of course, today's financing that we announced bolsters the balance sheet. But in aggregate, we think that all of those levers will put us on our path to profitability in '27. Operator: And your next question comes from Maxwell Skor with Morgan Stanley. Maxwell Skor: Great. So based on your KOL interactions, how do physicians think about potentially initiating setrusumab, for example, prioritizing younger patients versus those with more advanced disease? Some checks we've done indicated earlier use in younger patients, but just wondering your thoughts and feedback from the community. Emil Kakkis: I think if we demonstrate the strong fracture effect across the age range, I think that it's very likely the earliest adoption will be the patient with the most severe disease. And I think for many, that will be the type IIIs and type IV patients. We'd expect a higher fraction of those patients to get treated, and many of them are affected at a younger age. But really, at any age, if they're Type IIIs and IVs, they have a more severe phenotype. Within Type I population, there may be a range of spectrum. There's a significant fraction, maybe half or more, that have enough fractures to be really a detriment and for which even if they're not having fractures there, a change in behavior, their avoidance of activities or the sedentary activities are a problem that they would still want to get treated. So I think the area where most KOLs would wonder about is on the milder Type I patients, but a lot of these patients are not even diagnosed very efficiently. So we do think that it could shift younger, but I would say from our experience in Crysvita, we see growing and growing use in adult patients because even in OI, there is substantial effect. They may have less fractures, but they still have bone dysfunction that is hurting their ability to enjoy life well. So I think it will be used across the spectrum, but I would expect younger and more severe patients to get more immediate access compared to others. Operator: Your next question comes from Jack Allen with Baird. Jack Allen: Congrats to the team on the progress made over the course of the quarter. Two quick ones from me. The first of which was on R&D. Howard, I apologize, but I think your remarks are a little choppy for those on the line at the top of the call. I was hoping you could dive in a little bit more on the third quarter R&D, and you referred to some prelaunch manufacturing spend there. How should we think about that in the quarter and then the run rate moving forward on R&D? And then just briefly on osteogenesis imperfecta, I was wondering how you guys are thinking about the commercial opportunity there as compared to maybe XLH and your prelaunch efforts and I guess, analysis of that market. Emil Kakkis: Okay. Thank you. I'll touch on the commercial, excuse me, if that's right. Actually, Howard, why don't you do the R&D first? Howard Horn: Yes, Jack, you got it. My point that I was trying to make there is in the quarter, the $216 million for R&D expense, it came up a little bit. I mean, I guess, it was a diversion from our trend, and I wanted to explain that, that was related to investments in prelaunch inventory and getting ready for these launches. So that's the point I was trying to call out. And apologies if the line had garbled. Emil, over to you on OI. Emil Kakkis: Yes. So in OI, when you look at the population and our view of the OI population is that they're probably 50% to 100% larger than XLH based on our discussion with KOLs. We see a lot of patients and have a big sample size. We think of pricing is probably similar to our Crysvita program, so we'd expect that the OI opportunity is larger than our XLH program. Operator: And your next question comes from Joseph Schwartz with Leerink Partners. Will Soghikian: This is Will on for Joe. Congrats on the progress this quarter. I just have one question on the Angelman program. Considering there are multiple ASOs in development here, we might be in an environment in a few years where there are multiple approved options. While it's difficult to envision how the competitive landscape might shake out, can you help us understand how the patients, parents and caregivers for this disease may be making their treatment decisions? Is this something purely driven by the overall data? Or are there other attributes such as dosing schedule, specific end points, safety, et cetera, that are driving these decisions? Emil Kakkis: Thank you. An interesting question. Of course, there's a lot of unknowns and what will actually play out. In our mind, right now, our ASO is the most potent and has shown the best long-term data. I think in the end, the data will speak to parents as to what is important. With regard to how they make decisions, we've certainly talked to a lot of parents and understand what their views are of patients. I would say to you, there's no interest in knowing what the primary versus secondary end point or other end point. They want to know how their kids are doing, and it's broader than picking one thing. We will have all the end points. And I think the end points across the different programs are broad enough and cover enough of the same domains for parents to be able to tell. With regard to the schedule, I think that both programs in the long term are ending up in at least -- the Ionis program, our program are both in the Q3 kind of scheduling down the road. I think it's going to be more about -- I don't think the schedule itself is going to matter or if there's a load or not. I don't think that's going to really alter it. It's going to be more about potency. The other thing I think important is our patient support programs and how we help patients with treatments. At Ultragenyx, we have, I think, one of the best support programs to ensure that people can get access to drug, and they maintain access even when they change insurance and other things. So we'll help support patients to achieve their access goals and getting treated. So at the end of the day, I think the potency and safety will matter, will be the most important thing. But if there's multiple products out there, it's how we handle the administration and support for our patients will have a big impact on what works. And the last thing I'll point out is that we are rolling -- rolled our Phase III and moving along very quickly, and I feel we will have the potential to be out ahead of other ASOs. But let's see which one is best, and I think patients will probably opt for the best one when the trial is all done. Operator: Your next question comes from Anupam Rama with JPMorgan. Joyce Chang Robbins: This is Joyce on for Anupam. Maybe just one from us for GTX-102 following up on Angelman. Realize here that the Aurora supportive study has only just started enrolling. But how should we think about the enrollment curve for that trial relative to what you observed with the pivotal Aspire trial? Emil Kakkis: Thank you. The Aurora trial, we actually expect to enroll pretty quickly. There's a lot of patients lined up for it. We haven't set a precise time line for enrollment, but we were impressed with the speed of enrolling into a sham-controlled trial. This trial is actually open label. I think that I'm expecting competition to get enrolled in the trial, and so we expect it to go pretty quickly. I think it's going to be an important study though for -- open up our understanding of treatment safety and efficacy, both in a wider array of genotypes. So we do think it will go quickly, but we haven't set right now a time line specifically for it. Operator: Your next question comes from Yaron Werber with TD Securities. Steve Scala: Congratulations on a great quarter. This is Stephen on for Yaron. Just one on OI. How are you thinking about the length of a course of treatment for setrusumab. We've heard different KOLs say different things about exploring bisphosphonates in combination or in cycles with setrusumab just based on the relative effects because setrusumab might build more bone mass, whereas bisphosphonates have a more freezing effect. Do you expect the majority or all patients to be on setrusumab continuously? And then secondly, whether there's any concern about bone pain from folks switching off of bisphosphonates that you've heard of anecdotally? Emil Kakkis: Yes. Well, I'll give you my more personal opinions, and I think bisphosphonates are going to become obsolete. I think they don't create good bone. They hold bone densities that exist. But I think the anti-sclerostin approach is enabling normal bone metabolism, bone creation and bone resorption but better balanced. And I think in the long run, the paradigm of building bone with an anti-sclerostin and then capturing or locking it in with bisphosphonates, which has been established in the osteoporosis world, will not be the right answer for OI. And we have patients now on a couple of years, and we are confident that chronic therapy is actually necessary in order to maintain the gains in bone they have achieved and to keep bone healthy. I think the FDA even has its own concerns about bisphosphonates because -- of long-term bisphosphonate use, seems to result in more fractures or problems because of the altered structure. So we're trying to break through the paradigm of 1 year of anti-sclerostin and then bisphosphonate lock-in. I think that model is for a different disease state and a different time. And I think everything we're seeing says this is a chronic treatment and that by maintaining anti-sclerostin treatment, what you're really doing is dialing up the balance between bone production and bone resorption to the proper place in a disease that drives that dial normally down toward resorption and away from bone production. And that dial needs to stay where it needs to stay in order to keep the patients with a steady state, of high-quality bone without using a bone poison to prevent breakdown of bone as a strategy. So in my view, setrusumab is future and bisphosphonates should probably become obsolete for OI. Operator: Your next question comes from Salveen Richter with Goldman Sachs. Unknown Analyst: This is [ Lydia ] on for Salveen. Maybe just another on OI. Could you just speak to any statistical work or study design changes you've made post the second interim analysis? Emil Kakkis: Well, I don't believe we made any. But Eric, I don't know if you -- Crombez, if you wanted to have any thoughts. I don't think there were any -- I'm not familiar with any changes at all. Eric Crombez: No, no, no, the statistical plan remains in place. We did take the opportunity to really verify our assumptions, verify our statistical plan and all of our modeling and rework really told us the plan we had in place is the right plan and really giving us a lot of confidence going into a final data readout. Operator: Your next question comes from Mahdi Goudarzi with Truist Securities. Mehdi Goudarzi: This is Mahdi on for Joon. Following previous questions on OI. Given Cosmic superiority studies in younger, narrower population, what are the scenarios if it misses and even if Orbit hits, what are the impacts on adoption of the drug? Emil Kakkis: Yes. Well, the trial -- thank you. So the point is that Cosmic is head to head against bisphosphonates and it has to be superior. First of all, I don't think bisphosphonates were -- in those patients had to be -- they were on bisphosphonates before they started. So we're crossing over onto our drug. I believe the bisphosphonates benefit, which is only about 20%, is relatively modest, so we actually are not concerned about it. But the question is the trial being smaller, for whatever reason misses, what does it do? We'll still have the safety bone mineral density data from that population, which I think would be supportive for allowing a label that includes that age group even if we can't be superior to bisphosphonate. Particularly, remember, in the U.S., there is no requirement to be superior to another treatment for approval. The treatment that what -- would have an effect on adoption, I actually don't think it would. I think people will see what's happening. I think the little kids have terrible bone density problems. And I think seeing the big picture across the age group, I think, will drive adoption on all age groups. So I appreciate the question, but I do think that, at this time, I don't think will have a major impact either way. Operator: Your next question comes from Raj Selvaraju with H.C. Wainwright. Mitchell Kapoor: This is Mitchell on for Ram. I wanted to ask about if you could just talk us through how the Crysvita transaction came to be and if there's a threshold at which you view a mature product is better used for monetization for capital recycling into the pipeline versus the recurring income from the product. Emil Kakkis: I'll start and then let Howard talk. I mean we're always looking for the most efficient cost of capital. And in this case, the valuation people placed on the Crysvita royalty was excellent, and we did well that way. But I think, in general, we'd want to try to keep our revenue streams and not do this, but I think we're just at a critical moment here. But for us, with 3, potentially 4 products launching in the next couple of years, we're going to be in a very different place very soon, and we won't be -- need to be talking about this. But maybe, Howard, you can touch on how the Crysvita transaction came together. Howard Horn: Yes. We evaluated a number of different things. This was a competitive process ultimately where we're looking -- what we were looking for were meaningful proceeds at the lowest cost of capital to minimize the P&L impact of interest expense while also maximizing our cash preservation. The payment holiday helps with that and these other terms help with it. But as Emil mentioned, we thought that we could take some future-dated revenues and pull them into today to bolster our balance sheet to make sure we had what we needed to launch up to 4 programs in the near future and to put us on our growth path that we expect. Operator: Your next question comes from Laura Chico with Wedbush. Unknown Analyst: This is [ Thomas ] on for Laura Chico. Perhaps one question for 701 for Wilson disease. Can you discuss what you will need to see from the fourth cohort to have confidence in advancing the fourth to the [ 13-hour ] dose into future studies? Emil Kakkis: Yes, thank you. So I'll touch on it, and Eric, I don't know if you can add a little bit more. But I think if you can do a gene therapy, you want to see a substantial effect in the majority of patients, right? We want to see something that's compelling. And what we're doing right now is increasing the dose to try to help enhance the fraction of patients that see that kind of effect. We're excited about what we're seeing and where there's some data being presented soon. But Eric, maybe you can talk about what you want to look for in the data for Wilson as we make that decision to go to Phase III. Eric Crombez: Yes. No, and I think it's important to stress that, first and foremost, we are looking for the majority of patients to come off of current standard of care, which is chelators and zinc. And Emil mentioned increasing dose. We also are changing our immunomodulation program. So we think that those changes will be at least additive, if not, synergistic with improving or really maximizing the efficacy we see with this gene therapy. So saw great results that we've presented externally so far, and we were close to that mark. We did think it was worth taking this extra time to do this cohort to try to get the majority off of patients. And what's nice with Wilson and looking at copper is you have a lot of different ways to measure copper, so I think we will be able to make a clear decision there. Operator: Your next question comes from Luca Issi with RBC Capital Markets. Shelby Hill: This is Shelby on for Luca. Can you just remind us how we should think about loss of exclusivity for setrusumab? This has obviously been a long journey for this molecule given it was originally developed by Novartis, the Mereo and finally, you guys. So I believe some of the initial IP actually expires at the end of the decade in 2028. Is that the foundational IP, so a biosimilar can, in theory, come soon after that? Or do you have additional IP estate that can maybe push out the loss of exclusivity to a later time point? Any color there, much appreciated. Emil Kakkis: Well, thank you. I think we've always looked at the whole exclusivity story as being really important. I think we have, of course, orphan designation, which would give us certain protection, which is well past 2030. So I'd start with that. So that's the first part of the story. Second thing, even if there are -- if there were no patents, the truth is that biologics like that rarely change. And the follow-on biologics may occur, but I think that it would be different from what typical loss of exclusivity. The -- I don't think I can go through all the details of the patents that protect us now for the program. There are also additional things we are putting together related to our discoveries of how to treat, how to do chronic treatment and other key things. So our -- we feel pretty good about where we're at right now. But you're right, molecule has been around a while, and it was being developed for OI -- I mean, osteoporosis in the past. But I think a combination of drug exclusivity and our expectation to have some IP protecting it should put us in a good place to take this program forward. Operator: Your next question comes from Sami Corwin with William Blair. Samantha Corwin: I was curious if you could walk us through, again, the rescue arm in Orbit and how that's factored into the statistical analysis plan. And then as you got conversations with neurologists, how are they kind of viewing utility of the Bayley-4 cognition versus Bayley-4 communication? Emil Kakkis: So the rescue arm -- the point of the rescue arm is that if a patient was having a lot of fractures and a lot of PIs are worried, if they come in the trial off the bisphosphonates and have a lot of fractures, they're sort of stuck in the trial. They'd have to withdraw. The kid was doing badly. So we'd offer them that they could rescue if they have a large number of fractures, seeing certain number of fractures. But they do have to be in the trial at least 1 year. And then after that, they could rescue. The idea then is that with a 1-year sample time in a higher number of fractures, we will have had enough time to assess their AFR, right, and determine their annualized fracture rate, right? If you have a lot of fractures, then a 1-year time frame is enough to make that -- the estimate of the AFR. So if a patient goes into the rescue arm, we include all the time that they've been on drug as included in their analysis and estimate their AFR from the time -- the sampling time. Does that make sense to you? So because we're doing an annualized fracture rate reduction, we just need a sample time that's adequate estimate of their true fracture. So that's the way it's working. But it was a necessary part of doing the trial and because doctors couldn't keep patients off bisphosphonates indefinitely and have a tremendous amount of problems. And rather than having to withdraw, it'd be better to find a way to keep them in the trial and cross them over. So thank you for that question. The next question was on the utility of Bayley-4 versus -- cognition versus communication. I will say to you, honestly, it doesn't matter what the primary end point is because I've never talked to parents in how -- they don't ask me what the primary end point of trials are. They -- you might talk about what you're measuring, but they are never going to depend on primary or secondary to make decisions. They want to look at all -- the whole story. And that is what we're going to provide, the whole story. We will have a receptive and express communication in our program. We'll have answers for that, and we compare them. And the idea of what you position first is it's more of a regulatory thing, has, I think, limited value and at least in rare. I know in other big market diseases, the primary end point and its exact crafting turns that into a big deal. But in rare, I have not seen it happen. It's not really mattered because people will look at all the data and incorporate it. Our plan then is to focus on the Bayley-4 cognition. We saw the best effect. It's a fundamental brain function issue. But we're also looking at the rest of the communication and other end points, one, through the multi-main responder index and then through individual secondary and tertiary end points. So we'll be able to speak to all the issues, all the end points and be able to provide comparisons between the products as well. So I think that's why I'm not as concerned about what people chose as primary. We have to do that for regulatory purposes. But in the real world, I never went to my doctor and said my primary end point is this, but my secondary is this. And what can you do for me? And no one ever speaks that way. So I'm really comfortable with what we have. We're covering every domain, and I think I feel good about the type of data we've seen so far in our expansion study. Patients make me confident that we're going to see changes in communication and cognition and sleep and behaviors and fine motor and expressive. That will be, I think, an amazing future for Angelman patients, frankly, because who could have thought we could change a kid with severe developmental delay and actually start causing their brains to develop. I think it's a miraculous situation. We're really proud to be part of it. Operator: And your next question comes from Gavin Clark-Gartner with Evercore ISI. Gavin Clark-Gartner: Just wanted to ask on the ongoing Aspire Angelman study. Is there any commentary you can make on the variability you're seeing, any of the blinded data, any of the baseline characteristics, really just anything that gives you confidence in the ongoing study? Emil Kakkis: Well, the study is going well, and we're confident. We normally do not talk about data on a trial when it's ongoing. I don't know, Eric, if there's any high-level color you can provide and the patient population. I believe they're very similar to the expansion patients we've already reported on. Eric Crombez: Yes. No, exactly. And I think that's important. We don't bring untested things into Phase III and really carrying over our learnings and understanding from Phase II. So same entry criteria, same end points, same patient population and again, looking in Aspire for patients with full deletion. So those are patients, really expressing no protein, very consistent phenotype and the most severe end of that spectrum. So we do anticipate very consistent results just to what we saw in Phase II. Operator: There are no further questions at this time. So I'll hand the floor back to Joshua Higa for closing remarks. Joshua Higa: Thank you. This concludes today's call. If there are additional questions, please contact us by phone or at ir@ultragenyx.com. Thank you for joining us. Operator: Thank you. All parties may now disconnect.
Operator: " Jack Khattar: " Timothy Dec: " Peter Vozzo: " Lin Tsai: " Jefferies LLC, Research Division Annabel Samimy: " Stifel, Nicolaus & Company, Incorporated, Research Division David Amsellem: " Piper Sandler & Co., Research Division Pavan Patel: " BofA Securities, Research Division Stacy Ku: " TD Cowen, Research Division Operator: Good afternoon, and welcome to the Supernus Pharmaceuticals Third Quarter 2025 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I will now turn the conference over to Peter Vozzo of ICR Healthcare Investor Relations representative for Supernus Pharmaceuticals. You may now begin. Peter Vozzo: Thank you, Raven. Good afternoon, everyone, and thank you for joining us today for Supernus Pharmaceuticals Third Quarter 2025 Financial Results Conference Call. Today, after the close of the market, the company issued a press release announcing these results. On the call with me today are Supernus Chief Executive Officer, Jack Khattar; Chief Financial Officer, Tim Dec. Today's call is being made available via the Investor Relations section of the company's website at www.ir.supernus.com. During the course of this call, management may make certain forward-looking statements regarding future events and the company's future performance. These forward-looking statements reflect Supernus' current perspective on existing trends and information. Any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, including those noted in the Risk Factors section of the company's latest SEC filings. Actual results may differ materially from those projected in these forward-looking statements. For the benefit of those who may be listening to the replay, this call is being held and recorded on November 4, 2025. Since then, the company may have made additional announcements related to the topics discussed. Please reference the company's most recent press releases and current filings with the SEC. Supernus declines any obligation to update these forward-looking statements, except as required by applicable securities laws. I will now turn the call over to Jack. Jack Khattar: Thank you, Peter. Supernus delivered strong operating results in the third quarter, reflecting continued momentum from Qelbree and GOCOVRI, collaboration revenues from Zurzuvae and an encouraging start to the launch of Onapgo. With these 4 growth products, we have built a solid foundation for a new phase of accelerated growth for the company. During the third quarter of 2025, these 4 growth products accounted for approximately 78% of total revenues. Starting with Onapgo. -- during the third quarter of 2025, Onapgo generated net sales of $6.8 million, up from $1.6 million in the second quarter. From launch through September 30, 2025, more than 1,300 enrollment forms were submitted by over 450 prescribers. Initial feedback from prescribers has been positive regarding the product and its performance. In addition, prescribers appreciate the high level of service provided by Supernus in its Circle of Care program. Due to stronger-than-expected demand for Onapgo, supplier constraints are impacting the company's ability to fully meet this demand. As a result of this supply imbalance, the company is prioritizing care for patients currently on Onapgo. This requires pausing delivery to patients who have not started on ACO. The company is working to build adequate inventory and resume new patient initiation as soon as possible, and we will provide timely updates as progress is made in resolving the supply constraint. Switching now to Zurzuvae. Collaboration revenue from Zurzuvae was $20.2 million in the third quarter of 2025, representing approximately 2 months of collaboration revenue since the closing of the Sage acquisition on July 31, 2025. Full third quarter 2025 U.S. sales of Zurzuvae as reported by our partner, Biogen, increased approximately 150% compared to the same period in 2024 and approximately 19% compared to the second quarter of 2025. We anticipate that the integration of Sage will be substantially completed by the end of this year. We continue to expect potential synergies up to $200 million on an annual basis by mid-2026. Regarding Qelbree, the brand had another robust performance in the third quarter of 2025 with 23% growth in prescriptions as reported by IQVIA and 31% growth in net sales compared to same period last year. The total ADHD market continues to experience healthy growth with an increase of 12% in prescriptions in the third quarter of 2025 compared to third quarter 2024. Prescription growth for the same period in the adult segment was 16%, outpacing the 5% growth in the pediatric segment. Qelbree had a strong back-to-school season with pediatric prescriptions growing by 19% in the third quarter compared to the same period last year, while at the same time, posting robust third quarter prescription growth in adults of 32%. In addition, the number of prescribers in the third quarter grew by 18% compared to the same period last year. Switching to GOCOVRI, the product continues its strong performance on the back of the momentum it had in the first half of this year. Net sales grew by 15% in the third quarter 2025 compared to the same period last year behind growth in prescriptions and number of prescribers. Moving on to R&D. For our SPN-443 program, we have selected ADHD as the lead indication. We expect to initiate a Phase I single ascending, multiple ascending dose study in adult healthy volunteers in 2026. We are on track to initiate a follow-on Phase IIb multicenter randomized, double-blind, placebo-controlled trial with SPN-820 in approximately 200 adults with major depressive disorder by the end of 2025. This study will examine the safety and tolerability of SPN-820 and its efficacy at a dose of 2,400 milligram given intermittently twice per week as an adjunctive treatment in the current baseline antidepressant therapy. Our Phase IIb randomized, double-blind, placebo-controlled study of SPN-817 is ongoing with a targeted enrollment of approximately 258 adult patients with treatment-resistant focal seizures. This trial utilizes 3-milligram and 4-milligram twice daily doses. Finally, corporate development will continue to be a top priority for us as we look for additional strategic opportunities to further strengthen our future growth and leadership position in CNS through additional revenue-generating products or late-stage pipeline product candidates. With that, I will now turn the call over to Tim. Timothy Dec: Thank you, Jack. Good afternoon, everyone. As I review our third quarter 2025 results, please refer to today's press release that was issued earlier today. Total revenue for the third quarter of 2025 was $192.1 million compared to $175.7 million in the same quarter last year. Total revenue in the third quarter of 2025 was comprised of net product sales of $168.5 million, collaboration revenues associated with Zurzuvae of $20.2 million and royalty, licensing and other revenues of $3.4 million. Please note, collaboration revenues represent approximately 50% of the sales of Zurzuvae reported by Biogen. During the third quarter of 2025, collaboration revenues represented approximately 2 months of sales reported by Supernus from the closing of the Sage acquisition on July 31, 2025. Excluding net product sales of Trokendi XR and Oxtellar XR, total revenue for the third quarter of 2025 increased 30% compared to the same quarter last year. This increase was primarily due to the increase in net product sales of our growth products, Qelbree and GOCOVRI as well as from the launch of Onapgo in April 2025 and the additional collaboration revenues from Zurzuvae. For the third quarter of 2025, combined R&D and SG&A expenses were $209 million as compared to $98.8 million for the same quarter last year. Operating loss on a GAAP basis for the third quarter of 2025 was $60.2 million as compared to operating earnings of $40.9 million for the same quarter last year. The change was primarily due to higher SG&A expenses, which included approximately $70 million of acquisition-related costs from the Sage acquisition, approximately $30 million of Sage operating costs in Q3 2025 and incremental intangible asset amortization from ZurZuVAe and Onapgo. GAAP net loss was $45.1 million for the third quarter of 2025 or a loss of $0.80 per diluted share compared to GAAP net earnings of $38.5 million or $0.69 per diluted share in the same quarter last year. On a non-GAAP basis, which excludes amortization intangibles, share-based compensation, contingent consideration, depreciation and acquisition-related costs, adjusted operating earnings for the third quarter of 2025 was $41.9 million compared to $67.7 million in the same quarter of the prior year. Total revenues for the 9 months ended September 30, 2025, were $507.4 million compared to $487.7 million in the same period last year. Total revenues were comprised of net product sales of $468.5 million, Zurzuvae-related collaboration revenues of $20.2 million and royalty licensing and other revenues of $18.7 million. Excluding net product sales of Trokendi XR and Oxtellar XR, total revenues for the 9 months ended September 30, 2025, increased 25% compared to the same period last year. Combined R&D and SG&A expenses for the 9 months ended September 30, 2025, were $441.6 million as compared to $322.3 million for the same period last year. The change was primarily due to higher SG&A expenses, which includes approximately $70 million of acquisition-related costs from the Sage acquisition and $30 million related to Sage operating costs recorded since the closing of the acquisition on July 31. Operating loss on a GAAP basis for the 9 months ended September 30, 2025, was $58.3 million as compared to operating earnings of $60.3 million for the same period last year. GAAP net loss was $34.4 million for the 9 months ended September 30, 2025, or a loss of $0.61 per diluted share compared to GAAP net earnings of $58.5 million or $1.05 per diluted share in the same period last year. On a non-GAAP basis, which excludes amortization of intangibles and share-based compensation, contingent consideration, depreciation and acquisition-related costs, adjusted operating earnings were $110.2 million compared to $135.4 million for the same period last year. As of September 30, 2025, the company had approximately $281 million in cash, cash equivalents and marketable securities compared to $454 million as of December 31, 2024. The decrease was primarily due to the funding of the Sage acquisition, partially offset by cash generated from operations. The company's balance sheet remains strong with no debt and significant financial flexibility for potential M&A or other growth opportunities. And as Jack mentioned, the integration of Sage is on track and will be substantially complete by year-end. Now turning to guidance. We are updating our full year 2025 financial guidance primarily to reflect Supernus' strong performance in the first 9 months of the year. We expect total revenue to range from $685 million to $705 million, up from the previous range of $670 million to $700 million, comprised of net product sales, Zurzuvae collaboration revenues and royalty and licensing revenues. Note that total revenue guidance for full year 2025 assumes approximately $75 million to $85 million of combined net sales of Trokendi XR and Oxtellar XR, up from $65 million to $75 million previously. For the full year 2025, we expect combined R&D and SG&A expenses to range from $505 million to $530 million, unchanged from the previous range. Overall, we expect full year 2025 operating loss in the range of $65 million to $75 million. compared to the previous range of an operating loss of $70 million to $80 million. And finally, we expect non-GAAP operating earnings to range from $125 million to $145 million, up from the previous guidance of $105 million to $135 million. Please refer to the earnings press release issued prior to this call that identifies the various ranges of reconciling items between GAAP and non-GAAP. With that, I will now turn the call back over to the operator for Q&A. Operator? Operator: [Operator Instructions] So it looks like our first question will come from Andrew Tsai with Jefferies Institute. Lin Tsai: Nice execution this quarter. I wanted to ask on Onapgo. It sounds like it's off to a strong start. And so if you guys could have met all the patient demand this quarter, there were no supply constraints, how many more patients would have received Onapgo? And where would the sales have been? Jack Khattar: Yes. Andrew, I'll take that. It's a little bit hard to project these numbers, obviously, as far as to exactly the number of patients we would have had. But -- the big picture here is the product has been doing amazingly well, exceeding all expectations from a demand perspective and the response from the physician community, the patient and Parkinson's community has been phenomenal. And we are very committed, obviously, to this product. And our key focus right now is to make sure we take care of our existing patients. And we have about slightly more than 400 patients. So we've had significant growth also in the number of patients, obviously, from the last quarter. And as I mentioned earlier, I mean, the feedback regarding the product has been really good. The high level of service we are providing patients and physicians is very much noticeable and very much appreciated in the marketplace because these products need and patients need attention and they care, and that's what we're trying to do here. So regarding the supply issue, I mean, we will deal with it. That is something we'll be able to overcome. No question about it. We're very committed to Onapgo on the long term as a product. And as I mentioned, I mean, the opportunity here is vast. If you look at the European experience, apomorphine infusion devices have been available for more than 2 decades actually and have served and helped thousands and thousands of patients. And our intention is nothing less than duplicating that kind of success in the U.S. because we know there are a lot of patients in the U.S. who need and could really take advantage of a product like this. So -- so that's really where we are. But definitely, I mean, we're very much focused on addressing the supply constraint. And hopefully, we'll be able to get everybody who's in the pipeline, so to speak, and start initiating patients again. Lin Tsai: And secondly, as a follow-up, just to manage Street expectations, is the supply constraint in such a way where we should be thinking that Q4 might be softer relative to Q3? Or could it still grow because you still have supply, I guess. Like I'm trying to gauge whether there's a potential bolus in Q4 or whether it could actually be softer actually. I don't know how to think about it. But any color would be helpful. Jack Khattar: Yes. Yes. I mean the situation changes by the hour because we're working around the clock literally with our suppliers trying to line up more batches, line up more deliveries. So it's -- and it's a very fluid situation. But since you asked the question, I mean, earlier way back when we launched, people asked me, is on NONAPGO built into the annual guidance? And I said, yes, it's in the high single digit for the year. And obviously, we're pretty much already there in a way with the third quarter cumulative year-to-date, we have about $8.4 million. Certainly, we'll have shipments in the fourth quarter, no question about it. It's really hard for me now to tell you today. Is it going to be higher? Is it going to be slightly lower, a little bit more lower because we truly don't know yet, and we don't have a clear picture at this point. Operator: We will now hear from Stacy Ku from TD Cowen. Stacy Ku: Nice quarter. Congrats on the nice quarter. Some follow-ups on an Onapgo. First, maybe walk through for us what the rate limiting steps are -- and then more specifically, what is the high and low end in terms of the amount of time that you think you'll need to resolve this issue? So just some type of range as you're talking about all these different details, which we very much appreciate. So that's the first question. And then the second, of course, ZURZUVAE was approved ahead of Onapgo. But just given this really high patient demand and it seems like the inability to address what the patients are asking for, are we going to expect this to persist? Or are they going to be absorbed by the competitor? So that's the second question. And then third, maybe just off topic from ANOPKo.be just help us understand margins. They have looked pretty healthy for this quarter. So just help us understand where they're going to settle as more products are coming on board versus where they are currently. Jack Khattar: Yes, sure. Yes. I mean the key rate-limiting steps or issues, the constraints we're talking about, it's really a lot of it is capacity. Again, because of the significant demand, it's a high-quality problem, but obviously, we need to address it and make sure we catch up because to your second question, we know patients when we have the enrollment forms, clearly, there is a period of time anyway that happens before initiation, but we do have patients waiting for initiation. So obviously, we're working very diligently to do this as quickly as possible so we can initiate and go back to initiating patients. But we're trying to preserve right now the inventory we have. And of course, we have deliveries coming in, but we're trying to preserve that inventory for people who are already on therapy because, obviously, these are existing patients we need to take care of. Whether -- so the patients, a lot of them, I guess, will wait. Some of them may end up going somewhere else. That's okay because once we are back on track, I mean, again, back to the fact that the product is a great product. It's something that is very much needed in this marketplace, specifically because apomorphine is a molecule that treats Parkinson's like any other molecule. It's not another levodopa/carbidopa. It's very much differentiated and there is a need for it. So we will be able to go through this situation and get that on track at some point. As far as the margins, the margins on ONAPGO will end up being pretty close similar to APOKYN from a manufacturing perspective, gross margins because it's under the same setup and partnership with our partner in Europe, who is the licensor. So it's very similar to the APOKYN setup. Stacy Ku: Okay. And just to confirm, when you talk about capacity, are you talking about the device or the actual API? Just help us understand what is the supply limitation? Jack Khattar: Yes, sure. Yes, the issue is related more to the cartridge, the filling of the cartridges. So that's -- on the pumps, we have no issues with the pump. It's more scheduling, getting enough production time at the CRO, specifically on the cartridges, the drug cartridge. Operator: Our next question comes from David Amsellem from Piper Sandler. David Amsellem: So I have Onapgo question and then also a Zurzuvae question. So on Onapgo, just coming back to the previous questions about potential lost business to a competitor. Have you -- I guess the question here is, what have you heard in the field regarding that? And I guess, in real time, can you give us a sense of how much of your patients that -- where PEFs have already been submitted, do you expect to keep? Is that the vast majority? Is it something less? Just help us understand how to think about that and the potential for lost business with some more granularity. So that's number one. And then secondly, on Zurzuvae, can you tell us how many reps you have detailing the product, your plans for sales force expansion? And also the -- your willingness, I guess, and motivation to try to acquire the other 50% of the asset that your partner has. How are you thinking about that? Jack Khattar: Yes. Starting with on Onapgo, I mean, as far as the potential loss, this is a fairly recent situation we're dealing with. So it's not like we've had a long time to evaluate or we've had a lot of feedback from the field around this issue. So it's a little bit hard for me, obviously, to predict what the potential loss. But again, at the end of the day, big picture, given how good this product is and the need for it, of course, you're always concerned you're going to lose some of your patients to competitors or other products, obviously, out there. But if these patients really need a product like this, once we come back and we do have the inventory, we have a good confidence that we can get a lot of these patients back into the product and so forth. And we're talking because basically of experience. I mean, the patients who are on Onapgo, the experience we've seen in Europe for more than 2 decades, as I mentioned earlier, the differentiation of the molecule versus the other treatments out there, that really speaks volumes for the need for a product like this, but not only the need, but also the validation from a clinical and medical perspective that this is a product that really helps patients out there. So all these factors, hopefully, will obviously limit, reduces, minimizes any potential loss for patients as time goes on. So regarding Zurzuvae number of reps, I mean, we haven't really disclosed that. Biogen hasn't disclosed it. But it's really as far as -- I mean, this is a specialty area, OB/GYN. So you could, in a way, guess how big the sales force. It can be -- obviously, there's a limited number of OB/GYNs you can go after in the U.S. And the expansion, I mean, it just happened in the fourth quarter of last year into the first quarter of this year. So we just had the expansion, we meaning Sage and our partner, Biogen. And I think, obviously, we're starting to see a lot of the fruits of that expansion, given that the product and the growth of the product with its great performance so far. Would we consider more expansion? I mean, everything is always open as an option for us. Certainly, that is something we will have to discuss with our partner, Biogen, in making these type of decisions. Now typically, on our products on Supernus, as you guys probably well know and remember, I mean, we typically take expansions one step at a time, make sure the first expansion, we got the return on it. It is really proving to be a wise approach and then whether it verifies another expansion or not. And we'll approach this the same way, and we'll discuss it with our partner as far as potential future expansions. And then as far as our willingness to get the other 50%, I mean, look, we're extremely happy with the 50% we own. The 50% we purchased on its own merited the deal that we did, obviously. Again, we have a great relationship with our partner, Biogen. I mean, anything could be discussed at any time. So I never say no, but I can't give you a definite answer clearly that we will definitely get it or not. So -- but I mean, we -- this product is a great product and the potential. The 50% on its own is a great opportunity for us. The 100%, yes, will be a bigger opportunity. That's for sure. Operator: Our next question comes from Pavan Patel from BofA Securities. Pavan Patel: First on net pricing on Onapgo. Can you talk about how we should think about the current gross net deductions versus steady state? And given 2/3 of the patient segment is Medicare, would you expect a 35% gross net deduction? Or could pricing look better on a steady-state basis? And if you can speak to what that gross net deduction looks like currently? And then second question, I think, Jack, at a recent Berger conference, you mentioned from a BD perspective that you would look at assets with synergies to the recent Sage acquisition. Can you provide some more details on that? Does that mean women's health, which is historically a very tough competitive space to play in or other assets like depression? Jack Khattar: Yes, sure. Regarding the price, I mean, all I can tell you at this point because obviously, this is -- it moves and it will move around as the launch gets more cemented as the reimbursement things are more in place as time goes on. I mean, on a WACC basis, we expect the annual cost for a patient is probably going to be around $105,000, $100,000, very much in line with the other products in this space. So as far as the gross to net, another quarter or so will give us a little bit more of a better assessment as to where it might be heading. It is not very, very high. So your numbers are not too far off. It might be a little bit lower than that, but we'll see where it lands eventually. And hopefully, we'll be able to give people a little bit more guidance. On the BD side, we are, as I mentioned in my prepared remarks, we are very much focused on more potential acquisitions and doing BD. And our priorities haven't really changed as far as what type of assets, meaning commercial stage will be our top priority, whether that is in CNS, across neurology, psychiatry and now, of course, to your point, across women's health, given that, that's another vertical that we just now have within the company. We have a great infrastructure from a commercial perspective. So if we can find something in women's health that makes a lot of sense, absolutely, that is something we will be considering. But aside from that, clearly, in neurology, whether it's neurology, psychiatry or movement disorder specialists, that is also synergistic with Parkinson's. So all these areas are obviously things that we look at. And we're very open to rare diseases as well because, again, from a patient support, we have a great infrastructure around the Parkinson's franchise that we have and great services. So we can clearly execute very well around rare diseases as well. So we're very focused on all that. Clearly, the women's health opens up a whole new area for us that before the Sage acquisition was not something we would have looked at, obviously, probably more seriously. But it's an interesting acquisition that we did with Sage that it gave us another vertical that we can look at, and it got us there through a CNS product. So yes, I mean, it really increases the number of opportunities. In general, I mean, and we're starting to really look at women's health, yes, you might be right. I mean, the number of opportunities may not be too numerous out there. But with time and diligence, we'll probably be able to find something only time will tell clearly. Pavan Patel: And if I could just ask a follow-up question as well. On AbbVie's call, their R&D had walked us through some key differences between Vyalev and Onapgo. And our own work shows that even though Vyalev is expected to capture the bulk of share here, there's a patient segment in which patients would benefit from Onapgo therapy. Maybe if you can help us better understand what is that niche that you're hoping to carve out? And what's the messaging here from your sales force to the movement disorder specialists that treat these patients? Jack Khattar: Yes, sure. And I looked at what AbbVie mentioned at their earnings call. And we try not to make comparisons, obviously, because there are no head-to-head trials. So it's unfair to any of the products to make such kind of comparisons. We just tell people look at the labels on both products and make your own conclusions, so to speak. But at the end of the day, to us, what really matters is how is it being used and what's the feedback you're getting from the marketplace. I mean that's really what differentiates your product versus another product is the performance of that product, the level of service we are providing that surrounds that product clearly. And as I mentioned earlier, I mean, apomorphine is apomorphine, and it has incredible characteristics from a mechanistic perspective, how it works -- it's a very unique molecule that penetrates the brain and it doesn't have any protein competition. So in other words, it has great penetration. It doesn't need metabolic conversion and it acts like dopamine. So typically, the metabolic conversion for those of you who are very close to Parkinson's are typically done by the presynaptic neurons. And as time goes on, what happens to these neurons, right? So when you have a molecule that acts exactly like dopamine and really penetrates the brain very well and directly acts on the postsynaptic dopamine receptors and at the same time, has -- structurally, it's very similar to dopamine. I mean, that's really a great molecule. And not too many drugs in the Parkinson's space have that clearly from a mechanism point of view and so forth. So that strongly differentiates apomorphine from the other molecules. And again, as I mentioned, as far as our service, I mean, I could say we have maybe best-in-class service surrounding our patients, taking care of our patients, making sure we have great initiation, training, follow-ups, titration, all that is done in-person nurses that really surround our patients with care. Operator: So... Our next question comes from Annabel Samimy from Stifel. Annabel Samimy: Good quarter. Just going back to Onapgo and the reception to it, physicians are clearly interested in the apomorphine molecule else this wouldn't have seen such high demand. So when you think of the patients that are going on treatment or enrolling -- filling out the inpatient enrollment forms, are these patients that have already been on some form of apomorphine? And is there, I guess, a temporary option to lock them into treatment with apomorphine while you're getting supply up and running so that you can sort of not lose them to a potential levodopa/carbidopa pump. Can you just talk about the dynamics there for a minute, if there's a middle ground there until they get on board and you have the capacity? Jack Khattar: Yes. I mean they're very different products, APOKYN and Onapgo. APOKYN clearly is for acute treatment of acute episodes. It's a single bolus injection, so to speak. Now Onapgo has that capability of giving you a bolus injection. But if you're trying to give an Onapgo patient an APOKYN product, APOKYN is not going to give you, of course, the continuous infusion, so to speak. So it's a little bit -- there are different products. Clearly, from a medical perspective, I mean, the physician will have to decide is APOKYN or would APOKYN be helpful for that patient? I mean that will be decided by the physician, of course, on a case-by-case scenario. As far as the typical patient we are getting on -- on ONAPGO, yes, some of them are used to apomorphine have used apomorphine before because we know we have actually APOKYN patients who are on Onapgo. And they have gotten or some of the forms are on patients from APOKYN. So we -- yes, the answer is yes. It's not a huge portion. It's -- we estimate it somewhere in the 15%, 17% is coming from APOKYN. So yes, these patients would be -- would have had exposure on apomorphine, either used to it or what have you and obviously -- and we've said historically, you might remember, people were asking about cannibalization and potential of cannibalization on APOKYN. We always said those patients who potentially are taking maybe 3 injections a day or 4 injections a day, they may choose to put a pump instead of doing multiple injections a day. So -- and that portion of the business, we always estimated it's probably in the 15% domain. Annabel Samimy: Okay. Got it. And just -- I know that one other point of differentiation you've always pointed to is the safety. Is that resonating with physicians at all? Or they're mostly focused on the type of molecule that they want to move forward with as far as next stage of treatment? Jack Khattar: Yes. I mean, clearly, again, back to making comparisons and so forth. I mean, if you look at the side effects and the labels of both products, obviously, there are big differences in key areas across the label. And physicians, of course, I mean, they've had scenarios probably. Some patients have some of these reactions, whether on onapgo or on Vylev or vice versa or what have you. So I mean, at the end of the day, the things that are really driving what we believe is driving and on a recent survey, I mean, we looked at it and it says basically that the top reasons that is driving physicians to prescribe, number one is the significant improvement they are expecting and would expect from Onapgo for any daily good on time. I mean that's really the top reason they look at and consider when they're considering Onapgo. And then the second is really the positive impact on the quality of life that this product. And a lot of these are based on, of course, our data, the clinical studies and so forth from the products. It's resonating with these physicians. So the sustained also improvement through like week 52. So a lot of these messages we're getting back from the surveys we're doing as to what are the top reasons they think about and the top reasons why they will be considering prescribing kind of ties into the data on the product and the efficacy of the product. Annabel Samimy: Got it. And then just one other question going back to expanding into the OB/GYN space. Clearly, it's an interesting area as a first point of contact. And I'm just wondering if you -- expanding into the space, has there been any resistance from Biogen here? Or are they on board with this potential expansion? And do you have any sense of timing when that can happen? Jack Khattar: So you mean expansion of Supernus into other areas in women's health? Annabel Samimy: No, into the OB/GYN market as a target audience. Jack Khattar: On Zurzuvae. Annabel Samimy: Yes, yes. Jack Khattar: Yes. Yes. I mean as far as the expansion of our current sales force on Zurzuvae, definitely, I mean, that is something we will work very closely with Biogen. No question about it. I mean all the decisions around -- this is a great and has been a great, great partnership with Biogen across board. So that is something we'll work and we'll have to work very closely with them. As far as us, Supernus expanding into women's health into other areas with different brands in women's health, obviously, that is more of an independent decision that we can take on our own. Annabel Samimy: Yes. No, I was referring specifically to Zurzuvae. And the timing -- is there any timing on that? Or that's just a future goal? Jack Khattar: Yes. I mean we don't have any specific -- I mean, we treat Zurzuvae like we treat our brands. I mean we're constantly evaluating. We look at it periodically. Do we need to expand the sales force? If so, how big, how small of an expansion. So I mean, we're constantly doing that across all our brands. So I don't have a specific timing. Now we just got an expansion that just happened basically beginning of this year, more or less, we, meaning us and Biogen on Zurzuvae, right? So we're evaluating that. Did that make a huge impact? Obviously, it is making an impact, as you can see from the results quarter-over-quarter, -- of course, in addition to the fact we have a lot of other programs happening. It's not just the sales force. So that is a continuous evaluation. I don't have a specific timing to tell you. Definitely, we'll do it in '26 or mid-'26 or '27. I truly don't have that. Operator: I am showing no further questions at this time. I would now like to turn it back over to Mr. Jack Khattar for closing remarks. Jack Khattar: Thank you for joining us on this call today. Supernus has a diversified portfolio of growth products where our future success is not solely dependent on one single product. Qelbree's success to date and future growth is augmented by continued growth from GOCOVRI and early growth from Zurzuvae and Onapgo, 2 products that were launched less than 2 years ago and that have significant market opportunity. Regarding Onapgo, the company will provide timely updates as progress is made in resolving the supply constraint. We are very focused on these 4 products and on advancing our pipeline to position Supernus as a long-term growth company while generating strong cash flows behind the strength of our expanded product portfolio and through the efficiency of our operations. Thanks again for joining us this afternoon. Operator: Perfect. I will now close -- thank you so much for the conference today. This does conclude the program. You may now disconnect.
Operator: " Kate Patterson: " Samuel Wilson: " Kevin Kraus: " Michael Funk: " BofA Securities Josh Nichols: " B. Riley Securities Peter Levine: " Evercore ISI Catharine Trebnick: " Rosenblatt Securities Inc. Unknown Analyst: " Operator: Good day, and thank you for standing by. Welcome to the 8x8 Inc. Second Quarter 2026 Earnings Conference Call. [Operator Instructions] Please be advised today's conference is being recorded. I would now like to hand the conference over to your speaker today, Kate Patterson, Vice President of Finance. Please go ahead. Kate Patterson: Thank you, operator, and good afternoon, everyone. Today's agenda will include a review of our results for the second quarter of fiscal 2026 with Samuel Wilson, our Chief Executive Officer; and Kevin Kraus, our Chief Financial Officer. Following our prepared remarks, there will be a question-and-answer session. Before we get started, let me remind you that our discussion today includes forward-looking statements about our future financial performance, including investments in innovation and our focus on profitability and cash flow, as well as statements regarding our business, products and growth strategies. We caution you not to put undue reliance on these forward-looking statements as they involve risks and uncertainties that may cause actual results to vary materially from forward-looking statements as described in our risk factors in our reports filed with the SEC. Any forward-looking statements made on this call and in the presentation slides reflect our analysis as of today, and we have no plans or obligations to update them. All financial metrics that will be discussed on this call are non-GAAP, unless otherwise noted. These non-GAAP metrics, together with year-over-year comparisons in some cases, were not prepared in accordance with U.S. Generally Accepted Accounting Principles or GAAP. A reconciliation of these non-GAAP metrics to the closest comparable GAAP metric is provided in our earnings press release and earnings presentation slides, which are available on 8x8's Investor Relations website at investors.8x8.com. With that, I'll turn the call over to our Chief Executive Officer, Samuel Wilson. Samuel Wilson: Thank you all for joining us today. As we mentioned last quarter, we are transitioning our conference call format. We're moving away from reading lengthy prepared remarks and instead are posting a detailed quarterly letter complete with business and financial highlights to the Investor Relations website in the Quarterly Results section. This quarter, Kevin and I will share brief remarks highlighting a few important points. Q2 was another strong quarter for 8x8, and the results reflect the progress we're making in the business. We are continuing to execute against our priorities for the year, returning to growth, expanding our use of AI to improve both customer and employee outcomes, completing the Fuze platform shutdown and driving stronger retention through cross-sell and multiproduct adoption. But the real story this quarter is innovation. It is transforming how customers experience 8x8 and what is powering our growth. We've embedded AI throughout our platform to make communications smarter, faster and more personal from real-time call summarization and contact center to AI-powered transcription work and 8x8 work to new agentless payment capabilities to digital channels like Viber and RCS in 8x8 Engage. Engage is our AI-powered CX solution that extends contact center capabilities to all customer-facing employees. Internally, we're using AI to work smarter, automating processes, improving forecasting and helping our teams deliver faster, higher-quality customer experiences. We view AI as elevating and enhancing the work of our employees, making us more efficient. We are also transforming how we take our innovation to market, aligning our sales, marketing and partner motions around customer outcomes. And I'm excited to share that Stephen Hamil has stepped into the role of Chief Revenue Officer to lead this next phase. Stephen successfully drove our CPaaS API usage in the Asia-Pacific region and around the world. So, some key points. Today, we announced 8x8 Workforce Management available starting next week to all contact center customers at no additional cost through our new 8x8 App Store. Yes, you heard that right. We're making Workforce Management available free of charge to all of our contact center customers, existing and new ones. We already have customers running it in production. This is a big moment for 2 reasons. First, this is our first product-led growth or PLG launch. We've introduced a high-value solution designed to drive adoption with a premium version planned for future release. Workforce Management is available to everyone. Second, it marks the beginning of a broader expansion. We'll be adding more applications to the 8x8 App Store shortly, giving customers a modern, flexible, self-service way to activate new capabilities. We're expecting strong demand for 8x8 Workforce Management, so we've begun a progressive rollout starting next week. The 8x8 App Store and PLG strategy was implemented to better support the accelerating pace of AI-native product innovation, and it reflects our commitment to delivering outcomes that matters. We have new apps teed up for both UC and CC in the near future. Switching gears, I want to highlight how we're changing the lives of our customers. One example is one of the largest automotive dealerships in the U.K. Before working with 8x8, they were juggling 9 different communication systems across its dealerships, creating complexity and slow response times. By moving to 8x8, they consolidated everything, voice, video, contact center analytics to one integrated platform. The impact has been transformational. The dealer group now uses 8x8 contact center, video elevation, Conversational IQ with a strong adoption of web chat and digital engagement. They're also piloting smart assistant and intelligent customer assistant to automate quality assurance and bring real-time AI analytics to their service teams. Their IT leader summed it up well when he said, 8x8 helps us focus on what matters most, providing the best experience to our customers. In short, we went from 9 vendors down to 1, unlocking better visibility, faster response times and stronger connection with every customer. Across the Atlantic, a multi-hundred-million-dollar software company uses 8x8 is another powerful example of how our innovation drives measurable business outcomes. They are using multiple 8x8 products, including UCaaS and CCaaS as well as Engage, Secure Pay and Conversational IQ to deliver a seamless data-driven customer experience across their network. Their team has fully embraced 8x8 as a strategic platform, not just for communication, but for business transformation. They're leveraging analytics and engagement insights from 8x8 Engage to refine the sales and service workflows to connect all customer-facing employees in and out of the contact center. They're also piloting Smart Assist to improve mystery shopper scores and coach their frontline teams in real time. It's a deep collaborative relationship from executive leadership to frontline users built on trust, measurable outcomes and shared success. This software vendor exemplifies what we mean when we talk about long-term customer partnerships built on a comprehensive portfolio of products. These are the kinds of outcomes that define our innovation story, outcomes that are measurable, transformationable and rooted in customer success. They show what makes 8x8 different. We're not just delivering new features or chasing trends. We're helping organizations simplify their technology, empower their employees and create experiences their customers remember. Whether it's a service provider and an auto dealership resolving an issue in one interaction or a software team using analytics and automation to raise customer satisfaction scores, these are real examples of 8x8 innovation in action. That's what makes this journey so exciting, innovation that creates lasting impact for our customers, our people and ultimately, our shareholders. With that, I turn it over to Kevin to share a few highlights from the quarter. Kevin Kraus: Thanks, Sam. Good afternoon, everyone, and I also want to thank you for joining us for our fiscal Q2 2026 earnings call. Detailed financial results are available in our press release and in the trended financials on our Investor Relations site. As Sam mentioned, we're introducing a slightly different format this quarter, and I have also posted a shareholder letter and financial highlights alongside our quarterly materials. With that information already available, I'll focus my remarks on a few key highlights. Unless otherwise noted, all figures other than revenue and cash flow are presented on a non-GAAP basis. Q2 marked our second consecutive quarter of year-over-year revenue growth, reflecting healthy usage trends and disciplined execution. Total revenue was $184.1 million, and service revenue was $179.1 million, with both exceeding the high end of guidance by roughly $4 million and growing 1.7% and 2.3% year-over-year, respectively, driven by continued strength in our usage-based offerings. Excluding revenue from Fuze customers, whether on the 8x8 platform or not, service revenue grew nearly 6% year-over-year, higher growth than we achieved last quarter and our fourth quarter of acceleration. Service revenue remaining on the Fuze platform declined to approximately 3% of total service revenue, down from approximately 7% in Q2 '25. We are on track to move the remaining Fuze customers onto the 8x8 platform by calendar year-end. Usage revenue, which includes our CPaaS communication API, saw another record performance totaling approximately 19% of service revenue compared to approximately 13% in Q2 '25. Gross profit for the quarter was $120.9 million, about $2 million above our implied guidance midpoint, reflecting strong execution and revenue outperformance. Gross margin was 65.7%, down sequentially due to the continued mix shift toward our usage revenue, which carries a lower margin profile, but will add meaningful profit dollars as usage revenue continues to scale. Operating income came in at $17.3 million, exceeding expectations and resulting in a 9.4% operating margin, above the high-end of guidance. Fully diluted EPS landed at $0.09 per share, $0.01 above the high-end of our guidance range. Cash flow from operations was $8.8 million for the quarter, above the high-end of guidance. We ended the quarter with $76.7 million in cash, cash equivalents and restricted cash. We continue to allocate capital to debt reduction. During the quarter, we made a $10 million term loan prepayment. And subsequent to quarter end, we made an additional $5 million term loan payment. With these actions, we have reduced our debt principal by $224 million or 41% since the August 2022 peak debt of $548 million. Our next required term loan payment of $2 million isn't due until June 30, 2026. These proactive delevering actions demonstrate our continued commitment to disciplined capital management. Stock-based compensation as a percentage of revenue was 2.9%, another multiyear low for the company. This continues a clear downward trend, reflecting our ongoing focus on prudent equity management. While our diluted share count has grown, the year-over-year increase declined notably versus the prior quarter's growth for the second quarter in a row. We are committed to minimizing dilution over time and managing compensation costs in a thoughtful and sustainable manner. Looking to Q3, our revenue guidance reflects a sequential decline following record usage revenue in Q2 and the ongoing wind down of Fuze-related revenue. Customer engagement remains healthy, but we are forecasting usage-based revenue growth more cautiously given potential variability in consumption patterns. As usage continues to represent a larger share of total revenue, we have incorporated this dynamic into our outlook with an appropriately measured approach. Given the rapid growth of our usage revenue, we are guiding to lower gross margins for the remainder of the year. Importantly, this mix shift reflects increasing engagement with our platform and expanding use cases across our customer base. We are actively managing this evolution through disciplined execution and targeted go-to-market initiatives, and we remain confident in our ability to deliver durable long-term growth and profitability. For fiscal Q3 '26, we are providing the following guidance. Service revenue is expected to be between $172 million and $177 million. Total revenue is anticipated to be between $177 million and $182 million. We anticipate gross margin between 64% and 66%, and we anticipate operating margin between 9% and 10%. In fiscal Q3, we expect contractual interest expense, which excludes amortization of debt issuance costs, to be approximately $4.2 million based on current interest rates and the principal outstanding on our term loan and 2028 convertible notes. We expect to make cash interest payments of approximately $2.2 million, which reflects only the term loan interest payment as the semiannual interest on our 2028 convertible notes is payable during Q2 and Q4 only. Our term loan interest rate assumption is approximately 7%, reflecting SOFR plus 3% -- we anticipate fully diluted non-GAAP earnings per share in the range of $0.08 to $0.09 per share based on approximately 143.5 million fully diluted shares outstanding. We anticipate cash flow from operations to be between $10 million and $14 million, driven by the timing of cash interest payments and other payments we make in the normal course of business. For full fiscal year 2026, we are updating our guidance as follows: Service revenue is anticipated to be between $692 million and $706 million. Total revenue is anticipated to be between $712 million and $726 million. We anticipate gross margin to be between 65% and 66%. Full year operating margin is projected between 8.5% and 9.5%, translating to non-GAAP operating income of approximately $65 million at the midpoint of our full year revenue and operating margin guidance. Although operating margin is expected to decline year-over-year due to mix-related gross margin pressure, we expect non-GAAP net income to remain relatively stable, supported by significantly lower interest expense compared to fiscal 2025. We expect fully diluted non-GAAP earnings per share to be in the range of $0.31 to $0.33 for the year, assuming approximately 143 million average diluted shares outstanding, and we anticipate cash flow from operations to be between $38 million and $42 million for the full year. In summary, Q2 reflected steady execution, consistent profitability and ongoing progress in strengthening our balance sheet. With disciplined expense management and a clear focus on profitable growth, we enter the second half of the fiscal year with strong momentum and confidence in our ability to deliver sustained shareholder value. With that, I will turn the call over for Q&A. Operator: [Operator Instructions] Our first question comes from Michael Funk with Bank of America. Michael Funk: I have 3, if I could. So, first on the service margin comments that you had. I understand you're saying more usage-based revenue. But maybe help us think about the P times the Q there, how much of that driven by volume versus change in price? Kevin Kraus: Right now, it's mostly -- Michael, this is Kevin. Mostly right now, it's volume because of the absolute usage volume that we're seeing. So, our margins on the, say, the application side are very stable and consistent right now and have been for years. it's a pure mix issue for the usage-based portion of the service revenue. So right now, not as much price, although we are seeing some pricing pressures in some deals, it's not -- in totality, it's not a price driver right now. Michael Funk: Then just thinking about the revenue trajectory, thank you for the revenue ex-Fuze. But is ex-Fuze, that the right way to think about the revenue trajectory exiting the year as you end of life remain Fuze customers? Samuel Wilson: Yes. But remember, as we end of life -- and it's not end of life, we're upgrading the Fuze customers, just for any lawyers listening. We're upgrading Fuze customers on the 8x8 platform. Michael, we still have a bit of a comp. So, it's gone from the numerator and denominator to just the denominator. So, I think we'll have maybe a2 point, maybe slightly lower, slightly less, whatever headwind in next year's growth rate as we roll off these Fuze customers, and then we'll be back to normalized sort of growth rates ex any other things we do. Michael Funk: Do you anticipate you'll give us a pro forma ex-Fuze next year for more comparability? Samuel Wilson: That's like 2 quarters away, Michael, I haven't thought that far in advance yet. Probably, like we'll give you numbers if it makes your life easier. Michael Funk: And then last one for me, and then I'll hand it off. So, a number of comments in the letter about the go-to-market changes that you're making. And one of the comments was the improvement in pipeline quality. So, I'd love to know how you're measuring the pipeline quality and maybe some of the improvement you've seen there? Samuel Wilson: So we measure pipeline quality as deals that get to Stage 3. So, we run a 7-stage sales process, and we consider anything that's Stage 3 plus to be high quality. That means there's been a first meeting, there's been discovery. There's a vetting process that's been done, et cetera. And so that's where we're seeing the improvements in quality. Michael Funk: And how have you improved the quality, Sam? Are there more guardrails around what allows a salesperson to enter something into the funnel? What's contributing to the improvement in the quality? Samuel Wilson: Look, I'd love to give you a simple answer, but yes, we're using more SDRs. So, they're having ability to weed out some of the stuff. The use of AI in our sales process, I cannot understate how important the use of artificial intelligence has been in improving our GTM efficiency and processes and those things. So, it's a number of contributing factors. It's not death by 1,000 cuts; it's improved quality by 1,000 paper clips. Operator: Our next question comes from Josh Nichols with B. Riley. Josh Nichols: Good to see revenue coming in at the top end or above the top end of the range. I was just looking at the guidance breakdown. And with Fuze transitioning at calendar year-end, I think the guidance kind of implies that maybe service revenue troughs out in like 4Q, but is the expectation that going from there, since you don't have those comps into fiscal '27, you start to see improvements on a sequential basis without the Fuze overhang? Samuel Wilson: So, Josh, your question is completely appropriate. It's just really hard to answer now that usage is 19% of our revenue, right? So, we try to be very conservative with our usage-based modeling. I mean, we're still early in this transition to usage-based revenue. And I'd like to get a little bit bigger pool that -- so mathematically, 1 customer can't swing it, or 3 customers can't swing it or a change in economic can swing it. So, I'm not ready to yet predict exactly when you're going to see that. It will depend a little bit on some renewals coming up. It will depend on our usage, and it will depend on new bookings that we put into the mix, right? So, it's a lot of moving pieces. I do feel confident that with that 2 quarters of accelerating growth, we are sort of on the track to continue to grow, and we can put in the rearview mirror these year-over-year declines perpetually. But I'm not ready to say where and when yet, if that's okay with you. Josh Nichols: I guess just to flip the question a little bit, like you said, that you've been taking a pretty conservative approach to the usage-based revenue. And yes, I think that that makes sense. If you could talk about how you're kind of handicapping what you're seeing versus how you're guiding or how you're -- Samuel Wilson: So, what we do is we basically take the exit run rate for a quarter, and we run that forward in perpetuity, right? So, we're not assuming -- even though the business is growing, we're not necessarily assuming it's going to grow. And then we add in known growth businesses, right? So, we know we've got a big deal coming or we know we've got Christmas coming or the holidays, we'll adjust accordingly. But our baseline is always on usages. Whatever we're running on the exit quarter, that's what we're going to run in perpetuity. And so, when it's growing and it's growing nicely right now, especially with all the AI stuff and the CPaaS stuff, it's just has a tendency a beat and then we try to flow that through. Kevin Kraus: Yes. Sam's comment about seasonality in the usage portion of our business is something that can have an impact and that, again, could really. Samuel Wilson: It's a great point, Kevin. I was to state that. But like I mean we are entering the holiday season. So, we see more marketing campaigns. We see, in general, more phone calls, particularly in our retail vertical, our hospitality vertical, those kinds of things. And then we generally see in the March quarter, our fourth quarter, a little bit more seasonal, less usage on the holidays. Kevin Kraus: Lunar New Year. Samuel Wilson: China Asia shuts down a little bit, right? So, we are starting to see a little bit more seasonality in the business. Josh Nichols: And then last question for me, usage-based up to like close to 20% of revenue. We're seeing very nice acceleration there. I know you talked about the margin outlook, right, and how that's impacting the margin, still really healthy margins, but 65% to 66% non-GAAP. Any idea maybe it's hard to ask or pumps on, but exactly like where that kind of winds up leveling out at as we think a few quarters ahead? Kevin Kraus: It really depends on the mix. Like I mentioned on from Michael's question about our margins being relatively stable for different portions of the business. It really will boil down to mix. The point I want to make, though, on this is that we look at absolute dollar profitability. And so, if gross margin is positive, for that piece of the business, great. And it is a light OpEx model. So more of that flows to the bottom line. So, as we scale, we may see the gross margin deteriorate a little bit, but the bottom line and the cash flow are what we're looking at as well, and that's looking like it could be even improving over time based upon the cost base of that particular portion of the business. Samuel Wilson: I just have to step in. I can't stress enough what Kevin is saying for our investors, right? We said this numerous times in the past. We would not be surprised if we saw gross margin come down a little bit as we scale the business while gross profit dollars increase. It's just a mix. It's how customers are adding on AI products or messaging products or these kinds of things. But we know the more products we sell customers, the stickier they are, the higher the LTV, the higher the average revenue per customer. It's the right thing to do for the long-term value of the customer, and therefore, it's the long-term value of the shareholders. Operator: Our next question comes from Peter Levine with Evercore. Peter Levine: Congrats on the deleveraging. I think that was obviously part of the plan for a while. So good to see that. Maybe to go back to a prior question around the pricing pressure that you're seeing. I've heard from some of your competitors that during COVID, prices were high, and now that 2, 3 years as renewals come up, pricing becomes part of the conversation. And you've seen a bit of not a commoditization, but pricing used as a lever. How much of that are you seeing as part of renewals where you're going to have to go through a period of time whereas these renewals that you've had over the past 3 years come due, like is that part of the equation? Is that some of the headwinds that you guys are dealing with or seeing today? Samuel Wilson: Yes, of course. I mean, I think look, during the pandemic, you saw rush buying, especially from the on-prem to cloud type of systems. And as those reach 2 and 3 renewals, they're being rightsized. So, it's not just -- I want to be clear, pricing pressure is certainly happening, mainly led by a certain video conferencing company who seems to sort of be price-agnostic sometimes. But also, we are seeing some rationalization of seats driven by the economic situation, et cetera. What's offsetting that is our AI products, our messaging products, our digital products, et cetera, right? So, I mean, I can't stress this enough. Like the idea that we're surprised this is happening is completely false. We completely know it was happening. We're managing it accordingly. And this is one of the reasons we've added more products to the mix, right? So, what we're seeing is customers may reduce the number of UC seats but add RCS, which we now offer globally into the mix. And that's offsetting the average revenue per customer. And this is why we're seeing average revenue per customer increase on a year-over-year basis, particularly as we get more 3, 4, 5 product customers. And our retention rates are going up as we get more multiproduct customers. So, in the end, this post-COVID transition is certainly one we have to deal with. It's one we're very aware of, and we're managing, but it's not one that scares us. Peter Levine: Maybe WFM, obviously, it's a free offering. Maybe walk us through the strategy there. And then I guess if there's a way to handicap what percentage of your customers are actually using you guys today for WFM versus like a point solution. Curious to know what the strategy was behind offering that. Obviously, I think we know some of the drivers, but curious to know what the strategy is and what you do in the next 4 quarters. Samuel Wilson: So, we saw an opportunity with WFM market. So contrary to probably what you've heard -- and Peter, I know you know this like the back of your hand, right? Contrary to what people sometimes say is the most popular WFM product in the world is Excel, right, by far. And with the average contact center in the United States being 73 seats and probably 50 -- 40 to 50 seats in international markets, Excel sort of works. And so what we wanted to do was build a product that's better than Excel for managing WFM and giving a way to our customers to provide value and really start to enter the world of product-led growth with a Pro version, which will offer probably enhanced analytics or better forecasting or multisite. There's a couple of different ways we can take it in the future. But just simply having a product to replace Excel adds tremendous more value to our customers, which is what we care about, right? We're in a game of renewal and those kinds of things. And it just drives the multiproduct, LTV, the ability to add product-led growth through our new App Store, which we're super excited about, all these kinds of things. And it's just -- we really want to drive value into our customers, and it was a way, given how software and expenses work, it was a way to drive a lot of value into our contact center seats very quickly. We see our competitors charging $20 and $30 a month for arguably something that isn't that hard. And so we really wanted to drive that cost curve down and drive more to a freemium model for it to really meet our customers where they're at. In terms of -- now what our product is it isn't designed for a big contact center. We're not trying to compete with Calabrio and Verint and those guys, right? They offer gamification and other things that we're not sort of up to yet, and most of our basic customers don't really want. And so we saw the market need for a replacement for spreadsheets, not a replacement for collaborate or Verint. If you want to -- if you're running 1,000 -- we have many customers running 1,000 or more contact center seats, you're going to use one of those higher-end products because they're just designed differently and they work differently. Peter Levine: And maybe just squeeze the last one. Obviously, I talked about some of the deleveraging you guys have had. How do you think about M&A, smaller tuck-ins versus organic, right? Obviously, there's a cost to both sides of that. But how do you think about it? And maybe help us understand, are there still any covenants that you have to manage through with the debt levels that you have today? Just help us understand how you're thinking about organic versus kind of tuck-in M&A to kind of accelerate some of the product development. Samuel Wilson: Sure. So, we did an acquisition last -- in the March quarter. It was a small tuck-in acquisition. It's not material, so we didn't make a big deal out of it, but we've done one. We're looking at others. We're active in the market, so we're looking. Debt retirement is still a primary route that we think to drive stakeholder value over time. So we're definitely focused on that. We are in a term loan A, so there are some covenants. They're very manageable. They're fully disclosed in our filings. There's nothing to worry about from them. I wouldn't want to do anything outrageous. Like I see people who want -- who advocate these large AI acquisitions that bring on losses and those kinds of things. We are a cash flow-driven company, and we do work on cash flow and focus on cash flow, and that's what we're focused on. So, I would say we are looking at M&A. We think it definitely is part of our capital allocation strategy to acquire tuck-ins to drive geographic expansion, product portfolio expansion or customer expansion. Those are the big 3 that we look at. And when one comes, we have no problem pulling the trigger. Kevin Kraus: Yes, the amendment we did also created a basket for tuck-ins as well, which we articulated last quarter, if you remember. So, we have that freedom in our term loan. Operator: Our next question comes from Catharine Trebnick with Rosenblatt Securities. Catharine Trebnick: Sam, how are you seeing the buying pattern change now that AI seems to be more part of the discussion? And what are you seeing the difference with like the traditional brokers versus like the professional service guys? It seems to me from -- well, I'll tell you what I think afterward. Let me get your opinion first. Samuel Wilson: So first off, look, I want to break this into 2 parts. There's AI itself, the technology AI itself. I think what we're seeing is customers are driving really to the first core use case adoptions and adopting those. So, Agent Assist or we call Smart Assist or our AI receptionists, those kinds of things, very specific targeted use cases. We're obviously, most of us in the industry are spreading it across things like summarization or those kinds of analysis. And so, there's a lot of those first use cases are getting adopted. So, what's changing, I would say, is the buyer doesn't come in and say, "Hey, what do you guys sell for AI?" The buyer comes in he or she comes in and says, "Look, we're looking for an Agent Assist solution. Can you tell me about the ones that you offer?" And through our SaaS partnership, we always get to offer great things. The second one is much more subtle, and I think we were in front of it and will remain in front of it for an extended period of time, is that AI is sold on a consumption-based model. the whole notion of Assist of AI. And I know that Gartner and others have tried to bend old SaaS metrics into the world of AI. They don't work. What works is usage. The customer wants to pay, and we're even seeing it -- and I know this is going to -- people overreact to this comment, so please don't. But we're even seeing it spill back into our subscription-based services where people want to try to morph them more into a consumption-based service. So, what do they want? They want a right to adjust the number of seats after 1 year, 2 year, 3 years because they just don't know how many employees they're going to have. And I just -- I absolutely believe that our industry, our SaaS industry is going towards that consumption usage-based model. It is an unstoppable force. And you can argue by yourself, as much as you want, but the reality is that's where we're going. And so, what we see is usage-based specific use cases are what's driving our business right now. Catharine Trebnick: Because I've been -- well, we can deal with it more on the post call. But I've been hearing that because it's more complex that the traditional telco guys aren't really set up to do a more complex sale. And so that -- Samuel Wilson: I mean that's true. Look, our professional services team is booked constantly, right? Our professional team is like we're booked all the time. I mean, we can get into the nuance here for investors, but there is like we're starting to see the whole concept of deployment change. It's a lot more -- we're selling more continuous services because these models require constant fine-tuning and there's no use cases and whatever. And customers would rather just buy a flat x number of hours per month every month contracted, let's go than one big lump sum purchase upfront. Operator: Our next question comes from Siti Panigrahi with Mizuho. Unknown Analyst: It's Chad on for Siti. Just first, I'd be curious if you could expand on any actions you're taking on sort of the cost side as sort of this lower margin revenue comes through the P&L and sort of what you're looking at to expand operating margins from here? Samuel Wilson: Yes. I mean we're aggressively deploying AI technologies in-house. We don't just sell it for our customers. We use it ourselves, and we're seeing ROI benefits. I mean, obviously, there's -- this is a little bit of that margin issue that you guys like to obsess about. But when you first buy AI, it actually drives down your margin because you're running the old process and the new process side by side until you get the new one fully ramped. So, some of those issues that we see going on. Obviously, as we grow in size and we return to growth, we're putting pressure on our suppliers to give us good unit pricing. And eventually, that stuff flows through. But a lot of this is just mix. I mean I've tried to warn Wall Street for years that I believe over time, as we move more to a usage-based model, what you would see is increasing revenue growth, decreasing gross margin, increasing gross profit dollars and over time, an increase in operating margins because you're more aligned with your customers and the more aligned you get with your customers, the higher LTV you drive over time. Kevin Kraus: A little color on what Sam just said, which was excellently stated. I'll give you an example of we're using AI internally. We are able to use AI to right-size a lot of our, say, software purchases. I'll give an example, where we're able to actually get great insight to the use of AI as to the use of each of the seats or whatever, so we don't overbuy upon renewal. So that's one example of using AI of many that we're doing right now to have cost control without removing the ability to work efficiently internally in the company. So, we're seeing -- we're starting to see good signs there. Unknown Analyst: Really appreciate the color. And then just one follow-up from us. If you could talk about sort of how the revenue trends were in the quarter from a domestic U.S. standpoint versus international and how that relates to sort of the better revenue outlook from here? Samuel Wilson: I mean it's no surprise, and Kevin can give you more details. But like our U.S. business isn't doing as well as our international business, right? I think our business outside the U.K. is almost 40% of our -- I'm sorry, the U.K. and international is almost 40% of our business, and it's growing substantially faster than our U.S. business. I mean the U.S. is kind of the center of price compression and gamesmanship and some of those kinds of things relative to what we're seeing in international markets where we're doing much better. Kate Patterson: Also, the customer base is largely U.S. Samuel Wilson: Yes, customer base is largely U.S., as Kate just said. Operator: And I'm not showing any further questions at this time. I'd like to turn the call back over to Sam for any further remarks. Samuel Wilson: All right. Thank you, everyone. Thank you for the earnings call. Any feedback you want to give the super positive on our new format, please send those to me at samuel.wilson@8x8.com. Any negative feedback you want to give, those go to Kate Patterson. I say that jokingly. But any feedback you want to give us on the new format around a shortened script and a letter and those kinds of things is much appreciated. And with that, we look forward to meeting with all our investors again in 90 days with how we'll do over the next quarter. Thank you, everyone. And if I don't talk to you before then, happy holidays. Operator: Thank you. Ladies and gentlemen, this does conclude today's presentation. You may now disconnect, and have a wonderful day.
Trond Fiskum: Okay. Then I think we start again. So welcome to everyone participating here at this live event at Arctic. And of course, welcome also to those participating online. Sorry for the technical difficulties that we had here. I want to thank Arctic as well for allowing us to have this earnings call at their facilities. So we jump straight into the key points for the quarter. We have had good EBIT growth and significant cash flow improvement in the quarter in spite of the challenging market. As most other players in the market, automotive industry, Kongsberg Automotive has faced also a challenging situation with the market. And as a consequence, our revenues are down around 10% comparing to third quarter last year. So we had EUR 162.9 million in turnover in Q3 versus EUR 181.6 million last year. And this is a direct result of the market situation in the global vehicle industry. The largest impact is in the market in North America due to the ongoing tariff situation there. That has caused higher costs, market uncertainties and therefore, also a lower demand. And in spite of those lower revenues, we see an improved EBIT of EUR 4.9 million in the quarter. This is up from EUR 1.1 million same quarter last year, which is a solid improvement from both previous quarters and also from Q3 last year. On cash flow, we see also a positive trend. We delivered EUR 6.6 million in positive cash flow, which is EUR 11.8 million improvement from Q3 last year. Cost reductions, we are moving forward with our programs according to schedule. On tariffs, we have been able to mitigate the costs this quarter and the net impact of tariff cost this year is -- or this quarter is close to 0. And then we have some challenges on warranties, and we will get back to that in later in the presentation. Here we take a closer look at the financials, comparing those in the quarter versus the last 4 quarters. On revenues, we see the 10% drop in Q3, which is, as mentioned, caused by the market situation. We also have a currency effect due to a weaker dollar of around EUR 5.4 million, which is an implication of the business that we have in North America where the contracts are in U.S. dollar. On EBIT, we see the positive trend. We do see the dip in Q2 where we had significant warranty accruals. That was the main reason for the drop, but you see the underlying improvement going back from Q3 last year until now. We also have some warranty accruals in this quarter. Erik will talk a little bit more about that later. But the positive thing here is that we've been able to improve EBIT in spite of lower revenues, which is good. It's not on the level far from where we want to be. There's still a lot of work ahead, but it's a positive indication. Free cash flow, positive trend also here. And you see the positive trend on the last 12 months. So last 12 months, we are close to 0 now due to the positive result in this quarter, a result of lower cost base reduced -- some reduced net working capital due to lower sales and also more cash discipline when it comes to investments. So overall, I would say, a positive indication on the -- trend on the profitability and cash flow that is very important for us. And as previously announced, we have the cost reduction efforts, which will give us around EUR 40 million in improved cost base and a 4% to 5% improvement on EBIT on stable revenues. The cost saving programs are moving forward according to plan. We have completed the program that we launched in '24. We have completed the program that we launched at the beginning of '25, and we are on track with the program that we launched in May, which will be completed fully by Q3 '26. We start to see the good results of these programs, which also Erik will show in the EBIT bridge later in the presentation. And also due to the lower market activity, we are also making additional adjustments in the cost base to align with the demand and to safeguard our profitability. This is mainly impacting manufacturing locations. On business wins, we report a business win with an estimated lifetime revenue of around EUR 34 million. This is lower than previous quarter and also during 2024. What we do see is that there is a lower activity in the market when it comes to new contracts. This is a consequence of the tariff situation and that the focus has been more on managing that situation and also the lower demand. We also see some of our customer programs being postponed. We have a strong focus on market activities. We keep a very tight dialogue with our customers. And we do continue with a good and strong pipeline of opportunities. And very importantly, we have not lost any major contract opportunities during '25. So it's a number that we would like to see higher, but it's also a number I'm not too concerned about due to the current situation and the good pipeline opportunities that we still have. On the business wins, we also have done the revision of our investor policy. We have had a discussion with the Board of Directors and decided that we will only announce strategically important business wins going forward, and our investor policy will be updated to reflect this. Warranty cost. This is an area that remains a concern for us. We reported in Q3 -- or Q2 increased warranty accrual. In Q3, we have a total warranty cost of EUR 2.7 million of which EUR 2.5 million is increased accruals for future expenses. And due to the situation that we uncovered in Q2, we conducted quite a comprehensive review of our exposure to warranty liabilities across our entire product portfolio and also -- and our customer base. And as a result, unfortunately, we have uncovered some additional risks on further and future warranty liabilities. The problems we see here is not primarily related to our ability to deliver quality products. The challenge here is historically unfavorable contractual terms when it comes to warranty and also that warranty management has not been very optimal. This is disappointing, and it may potentially impact our profitability going forward. Those that have been responsible for this are no longer a part of the company, as they were a part of the leadership change that took place in the beginning of the year. It's very hard to make any estimates on the net value of the total liabilities that we may be held accountable for. It's quite complex and a lot of different potential outcomes here. And we are working very hard to address these forthcomings. We have also implemented a much more proactive approach to warranty management and strengthened the team there. And at this point, we are -- and cannot disclose any further details due to the ongoing discussions we have with affected customers. And as soon as we have more information, we will provide that, when we have more clarity on the potential financial impact. Tariffs, we have previously communicated that we will recover 100% of the tariff cost. That has been a clear ambition for us, and we were very much aware that this was not an easy task. The process with our customers are -- can be challenging, have been challenging. They request a lot of documentation, and there are also some tough negotiations that are taking place. We have been very firm and consistent in all our customer negotiations, and that has been basically that we cannot absorb this cost and tariff-related cost has to be passed on to the end consumer. That's been a consistent message, both in the U.S. where we have the biggest impact, but also in China, where we have also some impact of the tariffs that have been implemented there. The approach has given good results. In Q3, we had 0 net impact of the tariff cost. We continue to have some costs that we have not been compensated for yet, but we have agreements in place with our customers. So it's more a question of time to get that compensation. And for those of you that follow the automotive business and industry closely, you would have heard about Nexperia, which is a Chinese semiconductor manufacturer that has put a halt on export to -- out of China because of a dispute and the situation in the Netherlands. So this caused quite a lot of disruptions in the industry. KA also have some products that are directly impacted by the semiconductors. We have been proactively managing the situation and been able to secure supply of the semiconductors so we have had no issues related to that situation. And as previously announced and communicated, the main concern here for us is not the direct cost impact of the tariffs. We have been able to mitigate that. The concern here is the impact that we have already seen materialized on the market demand. Then some other highlights in the quarter. Two of the acquisitions that we have previously announced, the first one is Chassis Autonomy, which is a transaction that we completed in the quarter. We now own 100% of the company and full integration is ongoing. It is a very interesting technology. We received a lot of interest from potential customers. So we're very excited about the Steer-by-Wire technology. This, we expect to play an important part of Kongsberg Automotive's future. The transaction and all payments of the shares were done in the quarter and the net cash effect of the transaction was positive also in the quarter. The acquisition of the 25% share of -- the remaining share of our joint venture in China with Dongfeng and Nissan was also completed. We have now full ownership of that company, and that also means all our operations in China. This gives us more flexibility and strategic options in that important market. And also this transaction was fully paid in Q3. Last on this slide is the renewal of the EUR 25 million loan facility. We have agreed to renew that. That is a loan facility we have with NordLB that was established in 2020. It was set to mature in January '26. And this we have agreed to renew with 1 more year with the same interest terms. Okay. Now looking a bit forward. We have to deal with the current challenges and also look forward, of course. And we have been working very hard during the quarter to work on a new strategic direction for Kongsberg Automotive. End of September, we had a strategy seminar with the Board of Directors. This is still some work in progress, but a key outcome of that seminar was that we decided that the business -- let's say, business unit, Driveline is no longer going to be considered as noncore. Instead, we recognize that this is a business that continue to create value for Kongsberg Automotive, and we will continue to pursue opportunities within that area to win new businesses, extend current contracts and to optimize the pricing. This is also reflected in our financial reporting. So you will see that the numbers from Driveline is not now reported separately, but reported as a part of the business area Drive Control Systems. We continue working on the strategy, and the plan is to present this on the Capital Markets Day on December 16 in Kongsberg. So you are hereby all invited to that event. I think it will be a great event with some very interesting updates about our strategic goals, our strategies to achieve those goals. And we also give you some hands-on insights and a look at the products that will be a key part of Kongsberg Automotive going forward at our tech center that is also located in Kongsberg. Let's see. We are also trying to see if we can get some opportunities for some test driving. We are checking the possibilities. We will let you know. So we also organize some transport from Oslo, and we will have lunch. So yes, I hope to see as many as possible on that event. And we will provide more practical information about this during November, and you will see that from us. Okay. We continue to stay focused on our priorities for '25. We continue to adjust our cost base, as you have seen, and we are taking the additional necessary steps to adjust the menu level further because of the market volumes. We continue to focus on generating cash -- positive cash flow with disciplined CapEx management and targeted reduction of net working capital. We have made changes in the leadership on the top level. We start from the top. We do need to continue working on strengthening the leadership teams across the entire organization. That is a very important priority for us. We need strong leaders and strong teams to -- with the right competencies, values and mindset, supported by clear structure of accountability and responsibility. We're also working on the future with innovations and profitable growth. We have a very strong focus on customer needs and very tight dialogue with them on, I would say, every -- all levels. And this is also very important for us to understand what their needs are going forward and how we can create value in that, let's say, space of opportunities. We do believe that KA is well positioned to deliver long-term and sustainable financial performance. The 2026 priorities, together with the longer-term goals and strategies will be shared during the Capital Markets Day in December. So that was the summary, and I will hand over to Erik to go through the financial updates. Erik Magelssen: Thank you, Trond. Can you hear me? Trond Fiskum: Yes. Erik Magelssen: Good. Also on the webcast? Trond Fiskum: Yes. Erik Magelssen: I was last in KA from 1999 to 2006, and it's very motivating and interesting to be back. I think what we're trying to do is to merge the best of how KA was managed and run in those days back then and then with the new best practices and processes. So I think we're trying to see -- starting to see some truth of that, and that's very motivated and interesting. I'll take you through some more of the figures. As commented by Trond, the Driveline segment is now part of Drive Control Systems and is no longer defined as noncore. And this is also the way that we, as management, run and manage that business. You see the revenue level in Q3 was EUR 95.1 million, and before the negative currency translation effect, it was around EUR 99 million and still lower than the EUR 110 million in Q3 '24. So the revenue is also lower than Q2 '25, and that is also what we communicated in Q2. We did expect the second half of this year to be weaker and lower sales than the first half year. Even though we have lower sales, we record a higher EBIT in Q2 '25 compared to Q3 '24, driven by lower operating costs and lower warranty accruals. I will also comment upon that later. The net effect of tariff cost in this quarter is 0 isolated, which is good. And I think it's the first quarter when we have that. But we still have a balance of tariff costs that we will get reimbursed from our customers, and that is ongoing work. So then on the other business area, Flow Control Systems, the revenue is significantly lower than in Q2 '25. But if you kind of adjust for the currency translation effects, it's not so much lower than Q3 '24. In this business area, we had an impairment made in Q3 of EUR 1 million so then we had an EBIT of EUR 4 million before that impairment. And the reason why we do impairment of development asset is part of streamlining our R&D portfolio and where we want to focus our resources. So it's part of that ongoing strategy process that also Trond referred to. And the reduction in operating cost reduces the effect of -- we have a lost contribution. So ending up in an EBIT of EUR 3 million in Q3. On this EBIT bridge, just pointing out some points, you see the effect of the lower operating cost compared to the same period in '24 with a plus EUR 4.8 million and plus EUR 12.4 million. And this effectively mitigates the effect of the lower volume and mix, which is good. And as I commented, the net effect of tariff cost was 0 in Q3. And year-to-date, we have -- EUR 2.9 million we're going to get reimbursement. The warranty cost in Q3, as Trond mentioned, was EUR 2.7 million. And in Q3 '24, it was EUR 7.2 million. So that's the bridge effect of EUR 4.5 million that you have there. So this is just to underline that we do have warranty costs also in this quarter in 2025. Both in Q3 '24 and in the earlier quarters, there were a reversal of impairments done. So that explains the majority of that bridge effect of impairment, then ending up from an EBIT of EUR 4.9 million then in Q3 '25, which is significantly higher than the EUR 1.1 million in Q3 last year. So coming from a negative EBIT of EUR 8.3 million in Q3 '24, with the effects we see here, we end up with a positive EBIT of EUR 1.6 million in Q3 '25, then driven by the lower -- the higher EBIT, the lower net currency loss and tax effects. And this is also, of course, driving the cash flow together with the operating result, which we'll see coming into now. So the positive result in profitability and working capital effects contributes to the net positive cash flow of EUR 6.6 million in Q3 '25. And looking back just compared to Q3 '24, we have higher cash from operations, lower investment levels and positive currency effect. And this also gives, which is very positive, a significant increase in the 12-month trend, which is now close to 0. And then in line with what we have communicated, one of our key priorities is to generate positive cash flow. And that is much more important than actually having positive results. You have to get the cash flow coming out of that. That's much more potential in Kongsberg Automotive on both on the working capital side and the whole capital employed area. So just to underline that, that we start to see here that we are moving into a positive cash flow situation. And that improved cash flow and profitability also materializes in the reduction in net interest-bearing debt and then reduction in the leverage ratio, the blue line here, which is the key in relation to the bond loan that we have where we have a covenant level. So we see we go from -- it's been increasing since Q4 '24 from 2.1 up to 3.1 and now we have 2.6 in this quarter here. Everything we do on profitability improvements, cash flow will kind of materialize in net interest-bearing debt and this -- the leverage ratio we measure here. And as to the return on capital employed of 1.7% that we have in Q3 is, of course, not satisfactory and also a key priority for us to improve. The equity ratio increased from 30.7% to 31%. And as our improvement programs continue, giving increased profitability, the equity ratio will also continue to increase. And it is kind of continued work for us to achieve reductions in capital employed. And we want this to be an integrated part of the operations in the business area and something that we do every day and that we will follow up the business areas on every day and then instead of doing this kind of -- on a kind of piecemeal basis. So that's very ingrained in us to get this as part of the daily work to get inventory down, accounts receivable down and only do the good and best investment levels. So I think, all in all, a positive quarter for us, positive results, fairly good cash flow, positive cash flow increase in the 12-month trend. We do have challenges and difficulties, but we are managing a positive result -- increased result with a significantly lower revenue level, which is kind of our -- we -- the only thing we really can control is our own costs. And then we have to manage with the market that we have. When the market picks up again, we will be positioned to kind of get a very good profitability level out of that. I think, Trond, that brings us into the summary and outlook. Trond Fiskum: Okay. Thank you, Erik. So to summarize our presentation, just quickly go through the key points again. We do see that we have the positive trend on EBIT and cash flow in spite of a challenging market. We do see that the cost reduction programs are going according to schedule and that we are taking additional measures due to the market situation. The tariff costs are being effectively mitigated. And we have the warranty liabilities that we are addressing, and we will provide updates as soon as we have more clarity on the financial impact. And we will hold the Capital Markets Day on December 16, where you are all invited and we will share some exciting news on strategic goals and the strategies. So I hope as many can participate on that event as possible. We want to emphasize the messages that we've given in the previous earnings call, that is to restore value creation for our shareholders. That remains a key priority for us. We are very much focused on that and find the balance between short-term and longer-term priorities. We do believe strongly in the future of KA, and we are very determined to succeed so we can realize the full potential of KA. And we do believe that we are on the right path. We see some positive indications here. But it's important also to remember, this is not a sprint, it's a marathon. We have a lot of work ahead of us. The numbers are going in the right direction, but they're far from where we want to be. I would say the positive thing here, we do see that there is a lot of things to work with. There's a lot of improvement opportunities. Yes, there are some challenges. But eventually, we will solve them and also with some help from the market, we will see stronger financial results. Regarding the outlook in the shorter term, we do have no changes on the EBIT outlook. We expect the EBIT to surpass both first half this year and second half last year. The rest of the year, we do see a stable outlook compared to Q3. For 2026, we are cautiously optimistic, but we are very also aware that there's a lot of uncertainties. The market scenario is very hard to predict. We don't know what is the next coming from the other side of the Atlantic. So it's something we are monitoring very tightly, and we're managing the situation, and we're prepared for any scenario, I would say. But as a base case, it's cautiously optimistic. I think that concludes our presentation, and we are ready for the Q&A. We have questions that can be done and made also here in the room and also on the web. Therese Skurdal: So let's get started with the first question from the webcast. What is the reason that Driveline is now considered no -- noncore? Trond Fiskum: Driveline, as mentioned, we had a strategic review with the Board. What we see from Driveline business is that it is a business that creates value for us. It is profitable. We do also see opportunities in that area that we can capture without too big efforts. There are also opportunities to extend profitable contracts. There are possibilities to optimize pricing. And we also see that the customer base is important for us for new products that we are developing and launching. So that is the reason why we have made that decision. Therese Skurdal: Thank you. So next question, why will KA change the new business win reporting going forward? Erik Magelssen: Yes, I can answer that. Just to underline, as we also mentioned, that we will continue to announce strategically important contracts. They can be fairly small. They can be quite small, but it depends on the market, the type of contract, new type of customers. And we will always summarize the business win in the quarterly reports and then more -- a bit more detail than we do now. But I think the fact is that KA at any given time, we'll have a number of contracts that are being renewed. Now some contracts expire and we get into new contracts, big and small, but I think that doing this change. We're doing it to get a better communication with the market and improved communication because it's better to kind of summarize this in the quarterly reports instead of kind of doing piecemeal announcements of certain business wins. So just to underline that we will continue to report strategically important contracts that will also mean very significant ones in value, and we will always summarize it in the quarterly reports. And this is also in line with our peers, and I think what our larger companies on Oslo Stock Exchange do. We're kind of aligning more with that. Therese Skurdal: Thank you. Is there any questions here in the audience? Unknown Attendee: Given the challenging market and I guess, declining revenue growth on your current revenue base, how much could you improve profitability with improved product mix, but also potential further cost improvements? Trond Fiskum: There is -- I cannot give you a number at this point, but there are obviously opportunities to improve. So if you take the current cost base and assume that we can capture both of the market and volume growth without adding much fixed costs can give a quite positive case. So that will be an ambition going forward. And then you can do the math. But -- and then it depends on the market development. What we do see is that there's a lot of uncertainties in the short term. In the longer term, we do expect growth. And then the question is how big growth that will be. I think we are well positioned to capture that growth. And we will then work very hard to maintain our cost base and not increase our cost base further. And then we can have a good gearing effect. I don't -- when it comes to product mix, I think it's more on the revenues overall. And of course, we will work to optimize both our variable cost and pricing going forward. And when it comes to also profitability, a key element here is to resolve our challenges when it comes to warranty and remove that from our current cost base. So yes, there are challenges also on the warranty, but I also remember that it has been a part of our cost base over the last years. So it also represents an improvement opportunity for us. Therese Skurdal: Any further questions here in the room? Unknown Attendee: Regarding the new business that we have bought, what is the business cases in those 3 -- sorry, 2 parts, Chassis Autonomy and the China part? Trond Fiskum: Chassis Autonomy has a Steer-by-Wire technology that has a very interesting, let's say, future. There's a big demand for it. The forecast estimated need for -- and market development for that kind of technology is very large. By 2035, the estimate is more than EUR 3 billion. And the target is to capture a meaningful portion of that market. Specific ambitions and targets, I would like to come back to you on that on the Capital Markets Day, and then we can share more information. That will be one of the products that we will highlight in that event. And then we'll talk more about how we see that market developing and what is our business case. But it's a new development. There are always risks when it comes to taking on that. But we do believe that we have both the customer relationships, we have the technology and the capabilities to take that technology to the market. And so far, I would say the interest is very strong. So it looks very promising. But we'll come back to this on the Capital Markets Day, and we'll share more insights about that on that event. On the China case, we had a situation where our joint venture partners wanted to leave the joint venture. So we decided to make the acquisition. The alternative would have not been so very positive for us not to buy that share, someone else could have done it. And now we have the flexibility and, let's say, the possibilities to look at alternatives and strategic alternatives for that market that we didn't have before. Also there, we are working on a strategy that we will be able to share on the Capital Markets Day regarding China. I don't have the exact numbers, if you were asking for that, but we will share the strategic rationale and what our plans are for both those 2 businesses on the Capital Markets Day. Therese Skurdal: So let's take a question from the webcast. Have your demand to pass on 100% of the tariff cost affected your new business wins? Trond Fiskum: The answer is no. I cannot say that. I think those discussions have been very constructive, very -- I will say, we've been very firm, but I don't see that the tariff discussions as such has had any impact on our business wins. Therese Skurdal: Thank you. How is the merger between the 2 factories in Sweden coming along? Trond Fiskum: It's moving forward. The merger between those 2 plants to move Ljungsarp plant into Mullsjö is moving forward according to plan. We have monthly reviews with the team. And the plan is to conclude that transfer by Q3 next year. So that move is going according to plan. Therese Skurdal: Any more questions here in the room? Unknown Attendee: You have proven today that you are able to manage the situation in the market reducing costs. If the market increases again or when the market increases again, will you be able to keep the cost base as you have it today? Or do you need to also parallel increase the cost so -- how do you see that in the future? Trond Fiskum: The clear ambition is to maintain the cost base as we have today. We know that there are some costs on our fixed cost base that are, let's say, semi-variables. But the clear ambition is to maintain the cost base as it is today, that we will work very hard to achieve. There are new technologies like AI and other technologies that can enable us to do that. It will be -- can be challenging if the volume increases are significant, but that will be a clear ambition to maintain the cost base as low as we can. There are further opportunities to streamline our operations so that is also work in progress. But what I can confirm is that, that will be an ambition, definitely. Erik Magelssen: Yes. Just to supplement on that, that is ambition. I think, to a large extent, we will be able to do that. And of course, we will increase cost later than earlier. So we'll kind of always drag it along and then we have to make sure that we will deliver the project in the right quality to the customer at the right time. So -- but that will be the clear ambition. That's also part of the benefit that we get from all these cost reduction programs that we will try to find better and smarter ways to work with the people and the cost base that we have, but -- yes. Unknown Attendee: I have to take the opportunity to congratulate and applaud what you have done so far. It's looking really promising for our shareholders. Trond Fiskum: Thank you. Therese Skurdal: So no further questions in the webcast too. If there are no further questions here in the room, we can conclude. Trond Fiskum: Then thank you very much for your participation. Thank you for Arctic again for hosting this for us at their facilities. That was excellent. And have an excellent day.
Operator: Good afternoon, and thank you for standing by. Welcome to Soleno Therapeutics Third Quarter 2025 Financial and Operating Results Conference Call and webcast. [Operator Instructions]. As a reminder, today's webcast is being recorded. I would now like to introduce Brian Ritchie of LifeSci Advisors. Please go ahead. Brian Ritchie: Thank you. Good afternoon, everyone, and thank you for joining us to discuss Soleno Therapeutics Third Quarter 2025 financial and operating results. Please note, we will be making certain forward-looking statements today. We refer you to Soleno's SEC filings for a discussion of the risks that may cause actual results to differ from the forward-looking statements. On the call with me today for Soleno are Anish Bhatnagar, Soleno's Chairman and Chief Executive Officer; Meredith Manning, Soleno's Chief Commercial Officer; and Jim MacKaness, Soleno's Chief Financial Officer. With that, I will now turn the call over to Anish. Anish Bhatnagar: Thank you, Brian, and thank you, everyone, for joining us for our third quarter results call this afternoon. Following my brief opening remarks, Meredith will review the company's commercialization progress to date, and Jim will cover the company's financial statements for the third quarter. We will then open the call for questions. We had an outstanding third quarter, building on the strong launch momentum from our second quarter. Our total net revenue more than doubled from the second quarter to $66 million, and the company achieved profitability with a positive net income of $26 million for the third quarter. Our leading indicators, including patient start forms, unique prescribers and numbers of lives covered reflect growing awareness of VYKAT XR's potential to improve hyperphagia in those with PWS. As the first and only FDA-approved treatment for patients 4 years and older for the primary feature of PWS, which is hyperphagia, VYKAT XR is providing a meaningful solution to individuals living with PWS, their caregivers and physicians. I would like to take a moment to reiterate the complexity of Prader-Willi syndrome. In addition to the hallmark symptom of hyperphagia, people with PWS suffer from a broad range of potentially serious comorbidities as well as significant behavioral problems. And while people with PWS are living longer, some into their 50s and older, the mean age of death, unfortunately still stands at around 30 years old. Patients with PWS experience a very high burden of disease compared to the general population. In particular, comorbidities associated with fluid overload, diabetes, respiratory failure and congestive heart failure are common. In a recently published registry of patients with PWS in Sweden, [ Gaiseki ] and colleagues observed a greater than 20-fold increase in heart failure, a tenfold increase in venous thrombosis and a fivefold increase in atrial fibrillation and pulmonary embolism. In a 40-year survey of mortality in patients with PWS, Butler and colleagues reported that respiratory failure and cardiac disease and cardiac failure together accounted for nearly half of all fatalities. The most common causes of death are respiratory failure, uncontrolled hyperphagia and hyperphagia-related behaviors, cardiac causes, infection, obesity and pulmonary embolism with each accounting for greater than 5% of deaths. A recent study in 2020 revealed that the mortality rate in people with PWS is substantially higher than the general U.S. population at 2.7%. This translates to over 300 fatalities per year, assuming a population of approximately 12,000 people living with PWS in the U.S. The VYKAT XR clinical program established both substantial evidence of efficacy and a safety profile deemed approvable by the FDA based on a comprehensive Phase III clinical program in 127 patients with over 400 patient years of exposure, including patients with nearly 6 years of continuous treatment. At the end of Q3, at approximately 6 months in market, we had 764 active patients. Our real-world experience, including efficacy, side effects and discontinuation rates related to therapy have been in line with our expectations. As discussed in VYKAT XR's FDA-approved label, the most common adverse events reported in our clinical trials were hypertrichosis, edema, hyperglycemia and rash. Most adverse events were self-limiting with some needing dose adjustments, interruption or other concomitant treatment. In particular, regarding fluid retention-related adverse events post launch, we see on a percent basis, the incidence being lower than what we saw in clinical trials in spite of the post-launch patients being more complex and having more comorbidities. Since approval, the discontinuation rate of VYKAT XR related to AEs was approximately 8% at the end of the third quarter, and the total discontinuation was approximately 10%. While the discontinuation rate has increased, it remains below our expected long-term rate based on our clinical trial data. It is worth noting that we did see a disruption in our launch trajectory in the wake of a short seller report that was released in mid-August, mostly in the form of a lower number of start forms and increased discontinuations for nonserious adverse events. As we have anticipated, we have started to see patients return to therapy, often as withdrawal of VYKAT XR can bring a rapid return of PWS symptoms. We continue to educate physicians and families on the compelling clinical profile of VYKAT XR, and we dedicated significant resources to these activities during the third quarter. Our team of patient and community educators, known as the PACE team, is educating families and caregivers on therapy expectations, administration and monitoring at the time of first dose and throughout the patient journey. We're also hosting live community events in collaboration with advocacy organizations, health care providers and caregivers of individuals already on VYKAT XR, so they can share their experience with other caregivers contemplating initiating treatment. We're continuing our HCP education initiatives, including facilitating physician-to-physician programs, which allows physicians to learn more about VYKAT XR from experts who have experienced treating patients with PWS-related hyperphagia. Soleno has received positive feedback on our engagement with the stakeholders in the PWS community, and we believe this will continue to fuel our growth and allow us to establish VYKAT XR, as a standard of care for hyperphagia in those living with PWS. I would now like to provide a brief update on our activities in support of potential approval of DCCR in Europe. As you know, we market DCCR in the U.S. as VYKAT XR. In parallel with our U.S. commercial launch, we have continued to progress along regulatory pathways in other geographies, the most prominent of which is the EU. In May, we announced the submission and EMA validation of our marketing authorization application. We received day 120 questions during the past quarter and are preparing our responses at this time. The nature of the questions are generally similar to what we discussed with the U.S. FDA during the approval process. Gaining approval to market DCCR in the EU would represent a meaningful expansion of our addressable market and remains a priority for us, while we continue to progress our U.S. launch. Based on widely cited prevalence data, it is estimated that there are as many as 9,500 people living with PWS in France, Germany, Italy, Spain and the U.K. combined. Diagnostic rates are high, patient care is often concentrated around centers of excellence. And as with the U.S., the PWS community has strong thought leader support. We will continue to keep you apprised of our progress there and in other territories. I will now turn the call over to Meredith to provide an update on the launch. Meredith? Meredith Manning: Thank you, Anish, and good afternoon, everyone. As Anish mentioned, since approval, we've made remarkable progress in launching VYKAT XR. Our success driving broad awareness and adoption reflects disciplined execution grounded in effectively introducing VYKAT XR to the prescriber community, individuals with PWS, their caregivers and payers. We also attribute our launch success to Soleno's steadfast commitment to educating stakeholders, sharing individuals' experience on VYKAT XR therapy and robust payer access. Soleno field teams are dedicated to ensuring comprehensive educational support on therapeutic expectations, appropriate dosing and comprehensive monitoring, all critical factors for successfully integrating VYKAT XR into clinical practice and optimizing patient outcomes. It is worth noting that many prescribers and academic centers are still in the process of setting up their designated PWS clinics. As a reminder, VYKAT XR is indicated to treat hyperphagia in adults and children 4 years of age and older with Prader-Willi syndrome. And hyperphagia is defined as extreme hunger, constant thoughts about food and constant urge to eat that cannot be satisfied with food. Throughout the last several months, we have been hearing from families, who are seeing meaningful benefit after completing titration and finding their optimal dose. While all experiences with VYKAT XR are unique, these experiences continue to reinforce the possibilities and real-world impact of VYKAT XR. And through our responsibility to comprehensive education, we always encourage people to review the full prescribing information and medication guide for important safety information, which can be found on vykatxr.com. Our commitment to patient services and market access underpins these efforts, ensuring timely access and reimbursement across all payer channels. I will now share the results of our key performance indicators, patient start forms, unique prescribers and number of covered lives. Cumulative patient start forms from launch through September 30th totaled 1,043, of which 397 were in the third quarter. We previously commented that obtaining 646 patient start forms in our first quarter of launch was outstanding and included a bolus. We recognize the rapid uptake was due to strong operational excellence, a large unmet need and pent-up demand that carried into the early part of Q3. By the end of Q3, 764 individuals were actively treated with VYKAT XR. We believe that as more and more success stories are shared with the community, they will help create a firm foundation for continued growth. The second performance indicator is the number of prescribers. We are continuing to make great strides with expanding our prescriber base. In Q3, we added an additional 199 new prescribers, bringing total unique prescribers as of September 30th to 494. Third quarter performance highlights significant progress within our key accounts. Over 50% of our top 300 providers have submitted start forms, signaling strong adoption. Importantly, a significant share of start forms originated from health care providers, who are associated with our KOL network. This is underscoring the effectiveness of our ability to educate physicians who play a pivotal role in influencing practice patterns. We are also seeing strong adoption among community treaters, highlighting our expanded reach and continued growth beyond our core targets. We have further strengthened our messaging this quarter by spotlighting real patient experiences, launching a new campaign, Make Space for what matters, that highlights VYKAT XR, as a treatment that has the potential to lessen the relentless burden of hyperphagia, creating mental space for individuals living with PWS to focus on what truly matters to them. Our third performance indicator is payer policies. We have been working diligently to secure broad coverage for VYKAT XR, resulting in policies that cover approximately 132 million lives at the end of the third quarter, including coverage policies with appropriate criteria from the top 3 national PBMs. We have achieved broad access coverage across all channels, commercial, Medicaid and Medicare, with a strong uptick in state Medicaid coverage, where we had received reimbursed claims from approximately 40 state Medicaid programs through Q3. As I stated during our last earnings call, these positive coverage decisions demonstrate payers recognizing the seriousness of PWS -- that payers recognize the seriousness of PWS, understand the true unmet need in treating hyperphagia and appreciate the meaningful value VYKAT XR can deliver. This is great progress this early in launch because one of the perceived barriers to adoption among prescribers is the lack of coverage or the lengthy reimbursement path. As we move forward, we continue to invest in stakeholder awareness, education and access resources to ensure every individual being treated with VYKAT XR, their family and clinician feel supported throughout the treatment journey. I will now turn the call over to Jim for a review of the company's financial statements for the third quarter. James MacKaness: Thank you, Meredith. Total net revenue for the third quarter ended September 30, 2025, was $66.0 million, which was more than doubled from $32.7 million in the second quarter of 2025, and we achieved profitability with a positive net income of $26.0 million for the quarter. In addition, we generated $43.5 million of cash from operating activities during the 3 months ended September 30th. At the end of the third quarter, we had $556.1 million of cash, cash equivalents and marketable securities. This includes the $230 million of gross proceeds that we raised through an underwritten offering of our common stock in July. Our strong balance sheet ensures that we are sufficiently capitalized to continue to execute on an effective U.S. launch of VYKAT XR , while in parallel progressing towards regulatory approval and commercialization, either on a stand-alone basis or with partners in the EU and other geographies. As a reminder, VYKAT XR was approved in March of this year, and therefore, the company generated no revenue in the third quarter ended September 30, 2024. Cost of goods sold was $1.1 million for the third quarter. Please note that prior to the FDA approval, costs associated with manufacturing VYKAT XR were expensed as research and development expenses. As such, a portion of the cost of goods sold during the period included inventory at 0 cost. Going forward, as we continue to sell VYKAT XR, we will deplete our 0 cost inventory and replenish it with [ ad ] cost inventory. And consequently, cost of goods sold as a percentage of revenue will increase. Research and development expense for the third quarter was $8.4 million, which includes $2.2 million of noncash stock-based compensation compared to $30.1 million, which includes $18.5 million of noncash stock-based compensation for the same period of 2024. The cadence of our research and development expenditures fluctuates depending upon the state of our clinical programs, timing of manufacturing and other projects as we move through submission, approval and now commercialization. Selling, general and administrative expense for the third quarter ended September 30, 2025, was $33.8 million, which includes $7.8 million of noncash stock-based compensation compared to $49.2 million, which includes $38.1 million of noncash stock-based compensation for the same period of 2024. The increase in expense after removing stock-based compensation reflects our ongoing investment in additional personnel and new programs to support VYKAT XR commercial launch and in support of our increased business activities. Total other income net was $3.9 million for the 3 months ended September 30, 2025, compared to total other income net of $3.6 million in the same period of 2024. Net income was approximately $26.0 million or $0.49 per basic and $0.47 per diluted share for the third quarter ended September 30, 2025, compared to a net loss of $76.6 million or $1.83 per basic and diluted share for the same period in 2024. This concludes the financial overview, and I'll now turn the call back over to Anish for closing remarks. Anish? Anish Bhatnagar: Thank you, Jim. In closing, we're very pleased with the trajectory we're on, and we will continue to work tirelessly to make this safe and effective therapy available to as many people living with PWS-related hyperphagia as possible. We had an outstanding Q3 marked by noteworthy advancements in each of our key metrics from start forms to new prescribers to lives covered all resulting in the doubling of our revenues from Q2 and leading to the company being cash flow positive. We look forward to continuing to deliver on the successful launch we have seen to date. And with that, we'll now open the call for questions. Operator: [Operator Instructions] Our first question comes from the line of Paul Choi from Goldman Sachs. Kyuwon Choi: Congrats on the good performance in the quarter with regard to the sales. My first question for the team is, can you maybe comment on the restart rate with regard to the discontinuations you're seeing? Any color from the field in terms of how many patients are restarting and sort of the time to restart there would be helpful. And then second, in terms of the number of patients on active drug that you disclosed with the press release, can you maybe comment on just how many of those are still waiting for insurance clearance versus the patient start forms? Any color there helping us connect the dots would be great. Anish Bhatnagar: Sure. Thanks, Paul. So on the restarts, this is early. So we're just starting to see it now. There's a handful of people who have already started, and we've anecdotally heard of others who are planning to start. So this is not a metric we can give meaningful numbers on, but it's early. Your second question around number of patients on active drug. Meredith, do you want to answer that? Meredith Manning: Yes. So I think, Paul, what you're looking at is active versus -- or paid versus free, and that's still a number that we're not reaching steady state and evolving. So all of the 764 have claims that are being reimbursed. Is that exactly what you're asking for? Kyuwon Choi: Maybe just some clarity, any color you can offer on the lag time between the start forms and the patients actually getting coverage, that would be helpful, too, just so we can sort of triangulate maybe how many patients might be backfilled in the quarter to come. Meredith Manning: Understood. Anish Bhatnagar: Yes. Jim, go ahead. James MacKaness: Yes. So we've been working closely with the specialty pharmacy on this. So you get your start forms and then obviously, there's a discontinuation cancellation that we've spoken to. And then we're seeing the fill rate somewhere around 30 days. It's plus or minus, obviously, depending on where the patient comes from and the amount of time to get through the benefits. But probably we're carrying about 1 month in backlog, if you like, of start forms. Operator: Our next question is from Tyler Van Buren from TD Cowen. Tyler Van Buren: Congratulations on another strong quarter of sales and achieving profitability. Curious to hear you elaborate on the impact on discontinuations and lower patient start forms due to the short report during the quarter? And I guess how you're confident that it had an impact? And then is this impact going away as we enter Q4? What can you tell us about the early launch momentum observed into Q4 here and into year-end? Anish Bhatnagar: Yes. Thanks, Tyler. So what we can tell you is that as we look at the quarter, we saw, I would say, a decrease in the August, September time frame. Now realize there's complexity of summer as well as the short report around the same time. So with the slower August, September, we're also seeing no meaningful changes into October. So we think that there is an effect, and we unfortunately think that this is on patients who've had the nonserious adverse events, probably the people who would have benefited tremendously had they stayed on therapy. So as Meredith has mentioned, as I also talked to, we're making a lot of efforts in reaching out to these people. We're having individuals who are on drug, talking to other patients, who are on drug. Yesterday, we had a webinar with about 80-plus families on that, listening to a patient who's been on VYKAT and their experiences. So we think that it's hard to say exactly when the effect would go away, but it's certainly something that we're making serious efforts on. Tyler Van Buren: And when you say no meaningful impact in October, are you saying that October looks similar to August and September or that there's no meaningful impact from the report and you're seeing some whatever a rebound in October? Anish Bhatnagar: I'm saying it's looking somewhat similar to what we saw in September. Operator: Our next question is from Moritz Reiterer from Guggenheim. Moritz Reiterer: This is Moritz on for Debjit. Congrats on a strong quarter. I have 2 questions. First of all, could you elaborate a little bit on the average dose across all patients that are currently on drug? And secondly, for your existing prescribers, could you estimate what percent of their PWS patients are currently on VYKAT? What I'm trying to get at, is there still room to grow within those existing prescribers? Or does future growth need to come from new prescribers? Anish Bhatnagar: Yes. I'll take the second part of it, and Meredith can elaborate on it. There's definitely room to grow. We have about 1,000 start forms right now. That's about 10% of the TAM. So I'd say across the board, there is room to grow. And that's particularly the case with our KOL accounts, where Meredith mentioned that more than half of them have written scripts. But as we had anticipated, their practices are pretty full, and they are -- they appear to be prescribing more when they see patients in their regular cadence of 1x to 2x a year. So we expect that to remain, and we expect that over time, we'll be getting access to those patients. But Meredith, go ahead. Meredith Manning: Yes. Adding on to what Anish said, we're very pleased with the broad prescriber base, and we continue to add new prescribers on a daily basis. So we know that there is a significant amount of room for growth, and as Anish stated on the numbers with regard to the TAM. You had asked about the average dosing. So again, that's still an evolving number. One thing that we shared last earnings call, which we'll continue to reiterate is that the majority of our patient population is coming in between 4 and 26 age. And we are continuing to make progress in the younger adults, so the 27 to 45, if you will. And we are seeing the average weight coming in a little bit heavier than what we saw in our clinical trial. Operator: Our next question is from Kristen Kluska from Cantor. Rick Miller: This is Rick Miller on for Kristen. So you mentioned the discontinuations being up after some of the nonserious AEs after the short report. Can you give us a sense for kind of the kind of the profile of the AEs that were kind of leading to these discontinuations? Is this strictly sort of the on-label safety profile that we're used to or anything else you could talk about there? Anish Bhatnagar: Sure. So yes, these are on-label AEs, typically low levels of peripheral edema or you can have hyperglycemia. And when I was referring to nonserious adverse events, as you can look at fares and you can see that a vast majority of events that are reported are nonserious. So I think what's happened is a concern that's been created because of the adverse event profile of the drug, which if nonserious, most patients are able to sort of power through and will start to see the benefits. And we're seeing that in real life. We've had numerous anecdotes of people who have stayed with low levels of edema, some levels of hyperglycemia and have done really well from an efficacy perspective. So yes, the adverse events remain sort of on-label and what we are seeing is predominantly nonserious. Operator: Our next question is from Yasmeen Rahimi from Piper Sandler. Yasmeen Rahimi: Congrats on a strong quarter. I guess, team, when you look at -- given that August and September was impacted by the short report, like what -- is this -- is the hesitation among patients that are under the care of general endocrinology? Is there a quantification on who are the type of patients or the type of physicians that need additional outreach and communication, like what does that profile look like where you guys are targeting to really have in-depth education for? That's sort of question one. And then question two is like how do you -- obviously, I think to Tyler's question, you noted that October is looking like more like September. How will you continue to communicate when we're going to -- when are we going to be out of this, I guess, fear or worried by this report? Like any visibility like that the rest of the quarter could be very much rebounding substantially? And what would your disclosures be around it? Anish Bhatnagar: So we don't expect to do sort of intra-quarter disclosures. And as you can imagine, Yasmeen, you know that there's a lot of complexity in treating hyperphagia and PWS. We're the first drug, and we're learning what the market is like and the prescribers are learning how to use the drug. So we realized that last quarter was perhaps a short report, perhaps it was summer, -- perhaps it was people going to a summer camp. And now this quarter, we're going to have Thanksgiving and Christmas, which obviously have meaning for everyone, but for PWS and those with hyperphagia, it has a very different meaning. So we have to navigate this. We have to see what it looks like, and we have to see how prescribers also get accustomed to it. As we said earlier, there are some hospitals, institutions that are trying to create PWS clinics to sort of figure out how to best administer VYKAT XR and sort of make sure that they can follow these patients. Meredith, would you like to add something? Meredith Manning: Yes. I think -- Yasmeen, we're really pleased about the program that actually we launched in August, more of your traditional speakers bureau program, and we've had really strong adoption with that. So we have recruited some of the national PWS experts to be speakers in the program, which allows for both virtual and in-person as well as an opportunity to do expert on demand, and we've seen really strong interest in that. And you asked about the profile of the prescribers who are being educated. I think what you're leaning towards and you're correct in thinking that as we're adding these new prescribers on a daily basis, who are out in the community who potentially have only 1 or 2 PWS patients, those are the ones who really need additional education on the disease state in general as well as how to integrate VYKAT XR into their practice. So we've received, as Anish said in his prepared comments, really positive feedback on these programs. And additionally, we're continuing to educate caregivers and families. So we've had live patient programs, and we'll continue to do that in Q4 as well as webinars, all received very well. Operator: Our next question is from Leland Gershell from Oppenheimer. Leland Gershell: We just wanted to maybe understand with respect to the treating physician population of patients who are on VYKAT XR, you're having close to 500 unique prescribers at the end of Q3. But in your investor materials, you said that about 300 providers are primarily treaters of about 2,100 PWS patients. So just going back to something we've talked about in the past, is it the case that we should think about these reports of adverse events as more likely to occur amongst patients, who are being cared for by those who are less specialized in Prader-Willi treatment and therefore, maybe less astute at managing some of the side effects. Wondering if you could share your insights there. Anish Bhatnagar: Yes. Thanks, Leland. I think it's fair to say that just a reminder, the adverse event profile, and if you look at edema as an example of fluid retention-related events, in our clinical trials was about 20-some percent. what we are seeing now, at least the reported events are actually lower than that. So it's actually a pretty small minority that has these events. And most of the events that are happening are low-grade events. So these are most often things that may not even need treatment. So what you're really probably concerned about is significant adverse events or serious adverse events. And those we do worry that physicians who are out there who don't have experience in using VYKAT XR and have one patient on it and choose a patient who had significant comorbidities, et cetera, and how would they manage the side effects. So we do -- we are concerned about that, and that's something, as Meredith mentioned, we have a significant effort in trying to mitigate. So we have our field teams, our MSLs, who go out, have conversations with these physicians about how to manage these things better. And we have physician-to-physician programs, where there's an expert on-demand thing where you can call a physician who has significant experience and that's actually been used very successfully recently. Leland Gershell: Great. And I just want to ask, is the time to securing reimbursement, has that changed from the past? Has that improved, increased? Or is it about the same in terms of going from start form to pull-through? Anish Bhatnagar: Meredith? Meredith Manning: Yes. So Leland, I think on our last earnings call, we mentioned that we were looking at a turnaround time targeting for 30 days. That's still our target. That's still optimal. But as you know, during the first year of launch, it can vary depending on the channel, but that's exactly what we're targeting is the 30 days. Operator: Our next question is from Brian Skorney from Baird. Brian Skorney: I just wanted to try to get a little more clarification on your comments on the disruption that occurred over the summer and how it's specifically manifesting in the numbers. Was there both a slowdown in start forms that you're saying and an increase in discontinuations and implying that you would otherwise have more than 400 start forms and/or lower than 8% discontinuation due to AEs otherwise? Or is there another figure in terms of missed refills that isn't specifically being called out on a quantification measure? Anish Bhatnagar: So thanks, Brian. I think where I was trying to go with this is that we saw a decrease in August, September. And a, we realized it's also summer. So we think it was some combination of summer, people in camps as well as the short report that caused the start forms to decrease. Now we obviously cannot pinpoint that such and so didn't come in because of they read something or whatever. But I do think that, that could -- that was likely a factor. We don't have any specific metrics on refills, et cetera. But what we are thinking through is if you have patients, who have nonserious adverse events, who discontinue and anecdotally call into the specialty pharmacy and say, I read something that I didn't like and I'm concerned and I'm not going to continue on drug. That's what we are basing the idea on that perhaps it's these anecdotal things that are out there and misleading that are leading to discontinuation that wouldn't have occurred. Operator: Our next question is from James Condulis from Stifel. James Condulis: I wanted to ask one on efficacy. Obviously, it takes some time to see it, but we're now approaching 6 months kind of plus or so. And just curious what your early kind of learnings are there, what you've heard, how you kind of think that's playing into current discontinuation rates and what that may do to discontinuation rates over time as kind of patients stay on drug for longer? Any color there would be appreciated. Anish Bhatnagar: So James, thank you for asking about efficacy. We are starting to hear anecdotes across the board on good things that are happening to these patients. There's tons of examples. We got a call the other day about a child who went without food for 9 hours. We talked to a mom about a child, who sat in temple at the Memorial service for several hours calmly without any tantrums. We heard from an adult who lives in a group home who will, after years, be able to travel alone to see their family in Florida alone. So it is starting to happen. We are seeing things happen across the board. And we think it will make a difference to these discontinuation rates. And as I was mentioning, we have started a series of patient webinars, where those who are on drug and their families are able to share their experiences with others. And the first one of those literally had 100-plus people who signed up for it. So there is a lot of interest, and this is exactly the sort of thing that will turn things around. Operator: Our next question is from Derek Archila from Wells Fargo. Derek Archila: Congrats on the progress. I guess, first, I guess, obviously, you're saying what you're seeing in October is kind of resembling September trends. I guess is the bolus over? Or do we think that it resumes as people get more comfortable or the messaging gets better, education gets better? So that's question number one. And then just quickly on the EU. I know you mentioned about the 120-day questions. I don't know if you can kind of characterize some of those requests, but do they improve your confidence of an eventual approval in Europe? Anish Bhatnagar: Sure. So in terms of the bolus, we -- this is one of those situations, where when you have the first drug for an indication, it's hard to tell what it's supposed to look like. So we're finding out as we go. But if you remember some of the conversations we had prior to launch, we said we don't know if there will be a bolus, but what we are expecting to see is a slow, steady buildup over time with a TAM of 10,000 patients, there is a lot of them out there, and it takes time for physicians to get accustomed to using a drug for an indication that has not really had a treatment before. So it's hard for us to comment on does a bolus come back or not. I think by definition, a bolus does not come back. And we're looking for a steady state that will continue over time and we'll continue to build a solid base of revenue that we have. On the EU, I can't really give you any more details on the questions, but I will say that they feel very much similar to the discussions that we had with the FDA, mostly around efficacy, the design of the studies, the sequential nature of the studies, the fact that the same patients have been used through the multiple studies, et cetera. But I would say that as we get these responses and as we get responses to these responses from the EU, we'll have a better sense of where it's going. Operator: Our next question is from Yale Jen from Laidlaw. Yale Jen: Congrats on a very great quarter. And basically I have 2 here. The first one is sort of related to the efficacy that you guys have talked -- in the press release, you even indicated you have 100 patients have more than 1 year treatment and many of those have multiple years of treatment. I just wonder whether you'll be able to do some studies of them to see over such a longer period of treatment, are those patients has been improved and how much those improve? Maybe this will be used for longer-term historical analysis. Then I have a follow-up. Anish Bhatnagar: Yes. I mean, we have, as you know, been running a long-term open-label study, then there was a randomized withdrawal, then the patients went back on drug. So we've had the ability to follow these patients very carefully for a very long period of time. And as you know, it's very unusual in a rare disease to have such long-term data. And we have seen improvements of many different kinds in these patients, and this is obviously anecdotal and doesn't apply to everyone. But only yesterday, we were looking at -- we were talking to a patient who is running a triathlon or preparing for a triathlon. This is a person who's in college. We are aware of a person who's a sous-chef. We're aware of numerous people who have graduated from high school. So the long-term effects will vary by patient, but we think that taking away the hyperphagia, which is the hallmark symptom of the disease, will, over a period of time, really alter their lives. Yale Jen: Maybe one more question here, which is about the patient size that you already have over 1,000 starting from you suggested maybe 10,000 patients, give and take. And at this stage, do you feel that you need to have additional effort to finding more patients, new patients? Or how would you prescribe -- describe your effort on that regard? Anish Bhatnagar: Meredith? Meredith Manning: Yes. So I think as we've said previously in our earnings call that we have a claims database, where we're confidently able to identify approximately 12,000 claims in individuals, who have PWS. And that -- when we look at that information, that brings our TAM down to around 10,000. So we know where the patients are and where they're being treated. I think one thing that we're very excited about that we're working on is more around machine learning to identify specifically when these patients might be coming into the physician's office to really optimize our effective targeting for the sales team. But with regard to traditional rare disease patient finding, we have the claims, so we know where they're being treated. Operator: Our next question is from Katherine Dellorusso from LifeSci. Katherine Dellorusso: Congrats on the strong quarter. So I was just curious if you have a sense of the proportion of patients, who are able to reach or be maintained on their on-label dose versus those who undergo dose reduction? And I guess, apologies if I missed this, but for those who discontinue treatment, do you have a sense of how long they're on therapy before they're coming off and kind of expectations for that going forward? Anish Bhatnagar: Yes, I can address the second part of it. So we see the discontinuations happening earlier in treatment. So they're either in titration or just after. So think of it as sort of the first 3 months. By the way, of the active patients, we think about 2/3 are beyond the 3-month time frame at this time. Do you want to address the first question, Meredith? Meredith Manning: Yes. I think it's a little more complicated than that with regard to reducing dose because if you look at our label, really the therapeutic window, if you will, is between, I think, like 3 to 5 mg per kg. So any dosing around there is considered on-label dosing. Anish Bhatnagar: So I think if you are looking at on-target dose for a given weight band, then I think it's fair to say that there's a very small minority that undergo dose reductions. In general, you would expect people to get to their target doses. Operator: [Operator Instructions] Our next question is from Ram Selvaraju from H.C. Wainwright. Jade Montgomery: This is Jade on for Ram. Congrats on the profitability this quarter. That actually leads me to my first question. Do you have some sort of idea when you might be in a position to start providing annualized revenue guidance? And secondly, as I'm sure you know, Rhythm is pursuing an expansion into PWS [ first ] setmelanotide. Do you think of that purely as a competitor drug? Or do you think there's a possibility for synergism between the 2 drugs there? Anish Bhatnagar: I'll answer the second part. Jim can take the first part. In terms of Rhythm's drug, we still have to see efficacy. As you know, the one study that's been conducted with the drug in PWS, which was a large, randomized Phase II study was negative for weight loss and hyperphagia. I believe they are conducting an open-label study. So we'll have to see what the data shows. In terms of whether it's competitive or potentially synergistic, it can be potentially synergistic because the 2 mechanisms are different from each other. So on the competition piece, we'll have to see the data and certainly, at least theoretically potentially synergistic. James MacKaness: Yes. And with regards to guidance, I'd say it's a bit early at this stage. We're obviously looking for a little bit of maturation in the various components of the business, but we'll continue to investigate that. Operator: There are no questions at this time. I would like to hand the call back to Anish. Please go ahead. Anish Bhatnagar: Thank you all for listening in today. Have a good evening. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Welcome to the SuRo Capital's Third Quarter 2025 Earnings Call. My name is Alan, and I will be your coordinator for today's event. Please note, this call is being recorded. [Operator Instructions] I will now hand you over to your host, Ben Miller, to begin today's conference. Thank you. Ben Miller: Thank you for joining us on today's call. I'm joined today by the Chairman and Chief Executive Officer of SuRo Capital, Mark Klein; and Chief Financial Officer, Allison Green. Please note that a slide presentation corresponding to today's prepared remarks by management is available on our website at www.surocap.com under Investor Relations, Events and Presentations. Today's call is being recorded and broadcast live on our website, www.surocap.com. Replay information is included in our press release issued today. This call is the property of SuRo Capital and the unauthorized reproduction of this call in any form is strictly prohibited. I would also like to call your attention to customary disclosures in today's earnings press release regarding forward-looking information. Statements made in today's conference call and webcast may constitute forward-looking statements, which relate to future events or our future performance or financial condition. These statements are not guarantees of our future performance or financial -- or future financial condition or results and involve a number of risks, estimates and uncertainties, including the impact of any market volatility that may be detrimental to our business, our portfolio companies, our industry and the global economy that would cause actual results to differ materially from the plans, intentions and expectations reflected in or suggested by the forward-looking statements. Actual results may differ materially from those in the forward-looking statements as a result of a number of factors, including, but not limited to, those described from time to time in the company's filings with the SEC. Management does not undertake to update such looking forward statements unless required to do so by law. To obtain copies of SuRo Capital's SEC filings, please visit our website at www.surocap.com or the SEC's website at sec.gov. Now I'd like to turn the call over to Mark Klein. Mark Klein: Thank you, Ben. The third quarter was another strong period for SuRo Capital, extending the rapid acceleration we have seen across public and private technology markets, particularly in artificial intelligence and digital infrastructure. Despite intermittent market volatility and ongoing geopolitical uncertainty, investor conviction in the AI build-out remained exceptionally strong. As outlined in our recent white paper, AI infrastructure, the great mobilization of our time. We view this as a generational shift where capital deployment in AI infrastructure is larger in scale than many historic national mobilizations, such as the New Deal and the Apollo Space program. As of September 30, 2025, our net asset value was $9.23 per share compared to $9.18 per share on June 30 or $8.93 on a dividend-adjusted basis and $6.73 per share at the end of the third quarter of '24 or $6.48 on a dividend-adjusted basis. About 18 months ago, we made a deliberate decision to focus on AI infrastructure, the compute, networking and data layers that make modern AI possible. That decision guided our strategy and led to cornerstone investments that have since proven transformative. Our initial position began with CoreWeave, followed by OpenAI and soon after VAST Data. Each reflected our belief that as AI scaled, the demand for compute, storage and power would accelerate faster than most anticipated. At the time, relatively few investors were focused on these areas. We saw opportunity where others hesitated. We acted early, built conviction and invested behind teams we believe would define the next wave of computing. Many saw CoreWeave as too specialized with a complicated capital structure or VAST Data as another storage play, but we saw companies at the bedrock of a new wave of innovation with incredible tech teams growing customer traction and the beginning of a generational computing cycle. That early conviction has since been validated as these companies have emerged as core enablers of the AI economy. That conviction has translated directly into results across our key holdings. CoreWeave has gone from a relative unknown to one of the fastest-growing infrastructure providers in the world, now trading at approximately 3x its IPO price. We have prudently taken some profits, but still own over 40% of our position in CoreWeave. OpenAI, the engine behind such -- so much of today's AI innovation is reportedly contemplating a $1 trillion IPO, over 6x our initial entry valuation and more than 3x the value at which we marked the position at the end of the third quarter. VAST Data, once quietly building in the background, is now at the center of AI's data infrastructure conversation and reportedly in discussions for a raise at a valuation more than 3x our entry point. Our portfolio reflects a conviction-driven approach anchored in high-impact themes like AI infrastructure and innovation, giving investors unique access to category-defining companies driving this transformation. These results stem from a disciplined process, research-driven, conviction-led and patient. We leaned in when others hesitated, stayed confident when the market was uncertain and believe the opportunity ahead remains even greater. With that backdrop, let me turn to how this strategy is playing out across our portfolio, beginning with our exposure to AI infrastructure and foundational models. Please turn to Slide 4. In October, OpenAI completed a major restructuring forming OpenAI Group PBC, a public benefit corporation. This simplified its prior cap profit model and complex share structure, enhancing transparency, governance and flexibility for future capital formation. This restructuring also positions OpenAI for broader participation in public markets and long-term scalability. Following the restructuring, Reuters and Bloomberg have reported that OpenAI is preparing for a potential initial public offering that could value the company at up to $1 trillion, one of the largest in history. If completed, the offering could raise more than $60 billion according to those reports or over twice the $26 billion raised in the Saudi Aramco public offering in 2019. At the potential $1 trillion valuation referenced in recent media reports, our exposure to OpenAI could represent roughly 1/3 of the net assets on a pro forma basis, assuming no material changes in other holdings. For clarity, our current third quarter -- in our third quarter reporting, SuRo Capital's Q3 valuation and NAV are reflective of the previously announced $300 billion money round as confirmations of the higher $500 billion valuation occurred after the close of the quarter. We view OpenAI as one of the defining companies of this era, an organization that continues to set the pace of innovation while reshaping global infrastructure demand. Today, it stands as the world's largest private company, expanding rapidly as AI becomes embedded in daily life and redefines workflows. The company's scale, reach and capital intensity exemplify the structural shifts now underway across AI, and we believe that through our significant exposure as well as our other AI-relating holdings, SuRo offers one of the most direct ways for public market investors to participate in and benefit from this era of transformational growth. We expect continued investor interest in SuRo Capital's portfolio as a differentiated way to gain exposure to OpenAI and the broader AI infrastructure powering this generational shift. Turning to infrastructure and compute. CoreWeave remains a defining position within our portfolio and the largest single investment cost in SuRo Capital's history. As of quarter end, it remains our largest position at fair value and one of the primary beneficiaries of accelerating demand for AI infrastructure. During the quarter, we monetized approximately 16.6% of our position in CW Opportunity 2, generating $7.2 million in net proceeds, including $4.7 million in realized gains. Subsequent to quarter end, we realized additional net proceeds of $7 million and realized gains of $5.3 million while maintaining a meaningful stake in the position. We expect continued monetizations from investment following the distribution subject to quarter end, we hold over 40% of our original position in CoreWeave. CoreWeave has emerged as one of the fastest-growing infrastructure providers in the world, driven by record GPU demand and partnerships with OpenAI, Microsoft and Google, including long-term supply agreements for NVIDIA's Blackwell GPUs and contracts totaling roughly $22 billion with OpenAI alone. The market continues to validate our early conviction that AI workload growth would rapidly outpace traditional cloud capacity, creating sustained demand for specialized infrastructure providers, with reports from McKinsey & Company and the U.S. Department of Energy projecting continued growth in AI-related data center power moving forward. CoreWeave remains central to what we called the great mobilization of compute. Beyond compute infrastructure, we are also seeing innovation across emerging digital and financial systems, including a new investment we made during the quarter and during the quarter. Please turn to Slide 5. Consistent with our commitment to invest early in category-defining infrastructure. In September, we made a $5 million investment in HL Digital Assets, Inc., which holds a position in HYPE, the digital token of Hyperliquid, a decentralized exchange designed for transparent, high-speed derivative and spot trading on chain. Hyperliquid has quickly become one of the fastest-growing decentralized exchanges by trading and user adoption, offering low latency execution and advanced liquidity infrastructure. In recent weeks, HYPE has seen increased attention following its listing on Robinhood's crypto platform, which expanded access and drove a notable uptick in token trading volume and liquidity. Reports have also indicated that Hyperliquid Strategies, a newly listed company, is targeting a raise of approximately $1 billion to support its treasury holdings and token accumulation strategy, further underscoring growing institutional interest in the platform. These developments have contributed to a stronger market momentum for HYPE and reinforce our view of Hyperliquid's growing importance within the decentralized financial infrastructure landscape. Hyperliquid represents the next generation of decentralized financial infrastructure, bringing institutional-grade performance to on-chain markets. We view this as a natural extension of our broader investment strategy, reflecting our focus on foundational systems that enable digital markets to scale efficiently. Shifting from our infrastructure layer holdings, our consumer and fintech portfolio companies continue to represent an important component of our overall investment mix and include several that are advancing towards larger scale. Starting with WHOOP, which continues to strengthen its position at the intersection of health, performance and technology. In October of 2025, WHOOP announced Advanced Labs, a new offering that combines clinician-reviewed blood testing with continuous wearable data, expanding its platform into diagnostics and precision health. This evolution reflects a broader industry trend toward integrating biometric data with AI-driven analysis to help transform health information into actionable insights. As technology companies continue to advance, these integrated systems moving from reactive tracking toward more proactive, personalized and valuable health insights. It underscores WHOOP's ability to connect hardware data and health science in ways that deepen engagement and expand its addressable market. Moving to Canva. The company remains one of the most recognizable private software platforms globally, with approximately $3.3 billion in annual recurring revenue and more than 240 million monthly active subscribers. Our initial investment gave us early access to a company redefining design collaboration for teams and enterprises worldwide. The company continues to deliver strong financial performance and recently completed an employer tender valuing it at about $42 billion. Following the success of Figma's IPO, Canva's scale, growth and profitability highlights its potential to be one of the next major public design platforms. Canva remains a standout performer within our portfolio and a company we are closely tracking as it relates to potential monetization opportunities. Lastly, I would like to highlight Liquid Death, an existing portfolio company where we made a $0.25 million follow-on investment in July through a convertible note. Liquid Death continues to scale its unconventional brand in premium beverages and recently announced its Sparkling Energy line, scheduled for a January '26 launch, expanding its portfolio beyond water and tea. We remain excited about the company's growth trajectory as it continues to expand into new growth and strengthen its position in the premium beverage market. With the overall of -- with that overview of key portfolio developments, I will now turn to financial and portfolio updates. Consistent with our commitment to enhance shareholder value, our Board of Directors took several steps this quarter to strengthen our capital structure and support long-term returns. First, our Board declared a $0.25 per share cash dividend paid to shareholders of record as of November 21, with a payment date of December 5. This underscores our confidence in both the strength of our portfolio and our liquidity position. Based on the size and timing of anticipated near-term future monetizations, we expect to declare and pay additional dividends in either the fourth quarter or early in the first quarter of 2026. Based on -- building on these actions, our Board approved an extension of our existing share repurchase authorization, providing ongoing flexibility to buy back shares opportunistically. In addition, our Board authorized an additional repurchase of our 6% notes due December 30, 2026, allowing us to buy back the remaining outstanding notes. These measures reflect our ongoing focus on optimizing our capital structure and delivering shareholder value. As exciting as these results are, the story is far from over. The AI revolution, which we have called the great mobilization is still in its early innings and the opportunities ahead are among the largest and most transformative we have seen. Every layer of the computing stack, from chips and networks to data and applications, is being redefined. Our approach remains the same: identify the foundational layers of change early, back the best teams building in those spaces, and hold with conviction as values compound over time. We are not just celebrating success. We are positioning for what is next because while it has been an extraordinary run so far, the most exciting part is still -- is that we are still just getting started. Thank you for your continued support. I will now turn the call over to Allison Green to review our financials. Allison Green: Thank you, Mark. I would like to follow Mark's update with a review of our investment activity and portfolio company realizations during and subsequent to Q3, a high-level review of our investment portfolio as of quarter end, including the investment theme breakdown of our portfolio, and a more detailed review of our third quarter financial results, including our current liquidity as of September 30. I'll also touch on notable items during the third quarter and subsequent to quarter end, including our recent dividend and the declaration of an additional dividend, capital raised, and shares issued via the at-the-market offering, or ATM program and recent Board-approved updates to the note repurchase program and the share repurchase program. Please turn to Slide 6. As Mark mentioned, on September 18, we made an approximately $5 million investment in the preferred shares of HL Digital Assets, Inc. HL Digital Assets, Inc.'s primary purpose is to invest in HYPE, the digital token of Hyperliquid. The $5 million does not include prepaid expenses paid at the time of the investment or other capitalized costs of the transaction. During the quarter, we also made a $250,000 follow-on investment in Liquid Death's recent 4.12% Series S convertible notes due June 2028. This follow-on investment brings our aggregate investment in Liquid Death to approximately $10.3 million to date. During the third quarter, we received distributions from CW Opportunity 2 LP following the lifting of sales restrictions on the publicly traded CoreWeave stock held by the fund on August 15. CW Opportunity 2 LP is an SPV for which the Class A membership interest is solely invested in the Class A common shares of CoreWeave, Inc. SuRo Capital is invested in the Class A common shares of CoreWeave, Inc. through its investment in the Class A membership interest of CW Opportunity 2 LP. The 2 third quarter distributions totaled approximately $7.2 million and were categorized in aggregate as approximately $2.5 million return of capital and $4.7 million gain. The aggregate third quarter distribution represented approximately 16.6% of our $15 million investment in CW Opportunity 2 LP. As of quarter end, we continue to have an exposure to CoreWeave through our remaining 83.4% of our initial investment in CW Opportunity 2 LP. During the third quarter, following the successful merger of GrabAGun Digital Holdings, Inc. and Colombier Sponsor II LLC in mid-July, we sold 395,512 public warrants of GrabAGun Digital Holdings for net proceeds of approximately $660,000, resulting in a realized gain of approximately $537,000. GrabAGun public shares are anticipated to be unrestricted in January 2026. As of quarter end, we hold 1,204,488 remaining public warrants and 1,000,040 public common shares, or approximately 75% of our original position. Subsequent to quarter end to date, SuRo Capital has received 2 additional distributions from CW Opportunity 2 LP, totaling approximately $7 million. In aggregate, the distributions were categorized as approximately $1.7 million return of capital and $5.3 million gain. The aggregate-to-date distributions totaled $14.2 million and represent approximately 28.2% of our $15 million investment in CW Opportunity 2 LP. Currently, SuRo Capital retains approximately 71.8% of our investment in CW Opportunity 2 LP. Additionally, subsequent to quarter end on October 16, Rebric Inc. doing business under the name Compliable, approved a plan to dissolve the company. As a result, SuRo Capital realized a loss of approximately $1 million on the position. Finally, subsequent to quarter end, we received a distribution from True Global Ventures 4 Plus Venture Capital Fund for approximately $137,000. I would now like to turn to our portfolio as of quarter end. Please turn to Slide 7. Our top 5 positions as of September 30 were CW Opportunity 2 LP, WHOOP, OpenAI, Blink Health and Learneo. These positions accounted for approximately 52% of the investment portfolio at fair value. Additionally, as of September 30, our top 10 positions accounted for approximately 75% of the investment portfolio. Please turn to Slide 8. Segmented by 7 general investment themes, the top allocation of our investment portfolio at September 30 was to artificial intelligence, infrastructure and applications, representing approximately 30% of the investment portfolio at fair value. Consumer goods and services and Software-as-a-Service were the next 2 largest categories with approximately 20% and 19% of our portfolio, respectively. 11% of our portfolio was invested in financial technology and services, and education technology companies accounted for approximately 10% of the fair value of our portfolio. The logistics and supply chain category accounted for approximately 8% of the fair value of our portfolio and SuRo Capital Sports accounted for approximately 2% as of September 30. Please turn to Slide 9. We ended the third quarter 2025 with a net asset value of approximately $231.8 million or $9.23 per share, which is consistent with our financial reporting. This compares to a dividend adjusted NAV of $8.93 per share as of June 30. The increase was driven primarily by valuation appreciation in several of our top positions. More specifically, the increase in NAV per share from $9.18 at the end of the second quarter was primarily attributable to a $0.23 per share increase driven by the net unrealized appreciation of our investment portfolio during the third quarter, a $0.21 per share increase due to net realized gain on the sale of investments and a $0.03 per share increase from the impact of stock-based compensation during the third quarter. These increases were offset by a $0.25 per share decrease due to the cash dividend declared and paid during Q3, a $0.14 per share decrease due to net investment loss and a $0.03 per share decrease from the impact of the issuance of common stock during the quarter. During Q3, we sold 1,230,984 shares under the ATM program at a weighted average price of $8.78 per share for gross proceeds of approximately $10.8 million and net proceeds of approximately $10.6 million after deducting commissions to the agents on shares sold. As of quarter end, up to approximately $88 million in aggregate amount of the shares remain available for sale under the ATM program. At September 30, 2025, and currently, there are 25,119,091 shares of the company's common stock outstanding. Regarding our liquidity as of quarter end. We had approximately $58.3 million of liquid assets, including approximately $54.6 million in cash and approximately $3.7 million in unrestricted public securities. Not included in our unrestricted public securities are approximately $41.9 million of public securities subject to lockup or other sales restrictions as of quarter end. This represents our investment in CoreWeave via our Class A interest of CW Opportunity 2 and our currently restricted public common shares of GrabAGun. Next, I'd like to provide more detail on the recent Board-approved updates to the note repurchase program and the share repurchase program. On October 29, SuRo Capital's Board of Directors approved an extension of the discretionary note repurchase program, which allows us to repurchase up to an additional $40 million, or the remaining aggregate principal amount of our 6% notes due 2026 through open market purchases, including block purchases, in such a manner as will comply with the provisions of the Investment Company Act of 1940, as amended, and the Securities Exchange Act of 1934, as amended. As Mark mentioned earlier, SuRo Capital is committed to initiatives that enhance shareholder value. As such, on October 29, our Board of Directors authorized an extension of the company's discretionary share repurchase program until the earlier of October 31, 2026, or the repurchase of $64.3 million in aggregate amount of the company's common stock. The dollar value of shares that may yet be purchased by the company under the share repurchase program is approximately $25 million. Since the inception of the share repurchase program in August 2017, we have repurchased a total of 6 million shares of our common stock for a total deployment of approximately $39.3 million of the $64.3 million authorized by the Board. Approximately $25 million remain authorized under the share repurchase program now set to expire on October 31, 2026. Finally, I'd like to conclude with additional commentary on our recent dividend declaration. On July 3, SuRo Capital's Board of Directors declared a cash dividend of $0.25 per share paid on July 31 to the company's common stockholders of record as of the close of business on July 21. This dividend was generally attributable to the successful monetization of public securities and other promising developments in our investment portfolio. Subsequent to quarter end, on November 3, SuRo Capital's Board of Directors declared a cash dividend of $0.25 per share payable on December 5 to the company's common stockholders of record as of the close of business on November 21. The date of declaration and amount of any dividends or distributions, including any future distributions are subject to the sole discretion of SuRo Capital's Board of Directors. The aggregate amount of distributions declared and paid by SuRo Capital will be fully taxable to stockholders. The tax character of SuRo Capital's distributions cannot be finally determined until the close of SuRo Capital's taxable year, which is December 31. SuRo Capital will not report the actual tax characteristics of each year's distributions annually to stockholders. Will report the characteristics of each year's distributions annually to stockholders and the IRS on Form 1099-DIV subsequent to year-end. As a result of the $0.25 per share cash dividend paid on July 31 to stockholders of record as of the close of business on July 21, effective as of July 21, the conversion rate applicable to the 6.5% convertible notes due 2029 was adjusted to $7.53 per share or 132.7530 shares of the company's common stock for $1,000 principal amount of the 6.5% convertible notes due 2029, from the initial conversion price of $7.75 per share or 129.0323 shares of the company's common stock for $1,000 principal amount of the 6.5% convertible notes due 2029, which had been effective since issuance. The adjustment to the conversion rate of the 6.5% convertible notes due 2029 was made pursuant to the note purchase agreement governing the 6.5% convertible notes. The conversion rate will again be adjusted for the most recently declared dividend pursuant to the note purchase agreement and effective as determined by the note purchase agreement. That concludes my comments. We would like to thank you for your interest and support of SuRo Capital. Now I will turn the call over to the operator to start the Q&A session. Operator? Operator: [Operator Instructions] We will take our first question from Brian McKenna, Citizens. Brian Mckenna: So just a few questions on a couple of your largest investments. So on CoreWeave, it looks like you sold another $7 million thus far in the fourth quarter. What's the remaining fair value on that investment as it stands today? And then is there a way to think about the time line around monetizing the rest of CoreWeave? And then just on WHOOP, it's great to see this got marked up again. Fair value is approaching $30 million. You've probably made 2.5x plus on your investment. So what's been driving the strong outperformance here in the markups? And then is there any way to think about a potential IPO of that company? Mark Klein: Great questions, Brian. Thank you. Let me -- WHOOP is -- we'll do first. WHOOP continues to perform quite well in all metrics. WHOOP also trades fairly actively in secondary markets. So it's their increased positive performance in their financial performance as well as some of the other trading in the company, have led to valuation changes. As far as an IPO in WHOOP, I don't know when they would IPO or when they would raise another round of capital. As you may note, one of its competitors, Oura raised money at an $11-plus billion valuation, which is considerably higher than what we're looking at as valuation for WHOOP. In respect to CoreWeave, the fair value of our investments as of 9/30 is about $37 million. And this has been monetized over time by the manager of the CW Opportunity Fund, and their monetizations can be tracked by their Form 4 filings. Thank you. And thank you for your support, Brian. Operator: We will take our next question from Marvin Fong, BTIG. Marvin Fong: Maybe just a couple on, I guess, under the topic of portfolio management here. But as you -- as the CoreWeave position gets sold down, what's sort of the way you'd like to manage the portfolio in terms of your AI exposure? I mean now that WHOOP could potentially be like -- well, it wouldn't be given where OpenAI is prospectively going to be marked at. But just aggregating all of your AI compute and data and infrastructure investments, is there a thinking that you'd like to keep that as the majority of the portfolio or anything like that? Just curious how we should kind of think about deploying additional capital into the AI space. Mark Klein: Thanks, Marvin. And again, thanks for your ongoing interest and support. You're correct. Our ongoing monetization of side of CoreWeave outside of the equation, obviously, the increased value of OpenAI and what that could look like at $500 billion or now the talked about $1 trillion would make the size of that investment way disproportionate in our portfolio. We continue to spend a lot of time in AI infrastructure space, in the application area, in the AI overlay over -- in existing software companies, and we will continue to do so. I think some of the other areas that we are spending time are in the cybersecurity area, where we find that there's a lot of interesting companies that have increased in value, but probably not at the rate of some of the AI companies. So hopefully, that answers your question. Operator: There are no questions on the line. I will hand over back to your host for the closing remarks. Mark Klein: Well, thank all of you for spending time with us this afternoon. Obviously, the markets have been a bit volatile today. I appreciate your thoughts, your ongoing support. As always, I'm available to chat with any of you. Feel free to give me a call or send an e-mail through our IR portal. We are extremely excited about our portfolio. Hopefully, that came through in our call today. It's been a great year, and we do actually anticipate this success not only to continue but accelerate as we look into 2026. Again, thank you all very much. Operator: Thank you for joining today's call. You may now disconnect.