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Operator: Hello, and welcome to the Clearway Energy, Inc.'s Third Quarter 2025 Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. It is now my pleasure to introduce Senior Director, Investor Relations, Akil Marsh. Akil Marsh: Thank you for taking the time to join Clearway Energy, Inc.'s third quarter call. With me today are Craig Cornelius, the company's President and CEO; and Sarah Rubenstein, the company's CFO. Before we begin, I'd like to quickly note that today's discussion will contain forward-looking statements, which are based on assumptions that we believe to be reasonable as of this date. Actual results may differ materially. Please review the safe harbor in today's presentation as well as the risk factors in our SEC filings. In addition, we will refer to both GAAP and non-GAAP financial measures. For information regarding our non-GAAP financial measures and reconciliations to the most directly comparable GAAP measures, please refer to today's presentation. In particular, please note that we may refer to both offered and committed transactions in today's oral presentation and also may discuss such transactions during the question-and-answer portion of today's conference. Please refer to the safe harbor in today's presentation for a description of the categories of potential transactions and related risks, contingencies and uncertainties. With that, I'll hand it over to Craig. Craig Cornelius: Thank you, Akil. We appreciate everyone joining us today. Clearway is well positioned to deliver on its near- and long-term growth objectives as it proves out the inherent strength of its enterprise business model and harnesses the advantages of being a well-prepared supplier of choice amidst an emerging renaissance in the U.S. power sector. For 2025, we've narrowed our financial guidance to the top half of our originally set range, following a strong third quarter performance and the addition of well-performing drop-downs to our operating fleet. Out to 2027, we have line of sight to delivering our increased CAFD per share target of $2.70 or better, building from the successful execution of multiple acquisitions and sound preparation of multiple repowerings and sponsor developed drop-downs. And today, we're also establishing a 2030 financial target, setting a CAFD per share goal of $2.90 to $3.10 per share, which translates to a 7% to 8% growth CAGR from our 2025 guidance midpoint, reflecting the extensive progress we've made across our growth pathways and the confidence we have in their prospective success in the years to come. Growth in both the medium and long term reflects the strong traction we've made in supporting the energy needs of our country's digital infrastructure build-out and reindustrialization. We expect this to be a core driver of Clearway's growth outlook well into the 2030s. To fund this abundant opportunity set, as we've noted in the past, we'll increasingly use retained cash flow as a funding source while prudently using debt and modest equity issuances to extend our position of strength. To that end, our long-term payout ratio beyond 2030 is targeted to be less than 70%, a goal we are targeting while continuing our commitment to maintain competitive EPS growth in the long term. With the robust growth trajectory we see ahead through this decade and into the next, today's materials are geared towards giving you more visibility into where that growth will come from and how it will be conservatively funded with the goal of allowing the investment community to value Clearway with full recognition of what we see ahead. Turning to Slide 6. To reiterate key strengths of our enterprise, we have a proven track record at both Clearway Energy, Inc. and Clearway Group of being best-in-class owners and developers of energy assets here in the United States. Clearway Energy, Inc. offers a total return value proposition within the listed infrastructure space that's superior to most peers, driven by our diverse and sizable operating portfolio, steady cash flows and our advantaged position to deliver growth across multiple pathways. Clearway Group has grown its late-stage pipeline by 4x since 2017 and benefits from strategic relationships with customers and suppliers, putting it in a prime position to advance and offer attractive projects to Clearway Energy, Inc. for years to come. This success and strong alignment between the 2 companies that make up our enterprise have been key to our enterprise's growth over 12 years of strong and reliable history. As you'll see in more detail in the coming slides, this combination of enterprise alignment and bountiful accretive growth opportunities underpins our confidence in meeting our growth targets in 2030 and beyond. Turning to Slide 7. Turning to the building blocks of our growth outlook through 2030, we have a clear line of sight secured by successful commercialization of substantially all development projects planned for CWEN funding in the 2026 and 2027 COD vintages. Attractive CAFD yields are expected for these projects through long-term and favorably structured revenue contracts, secured equipment supply and clear path to permits and interconnection. Looking further out, Clearway Group's development program in 2028 and 2029 includes a total project volume of over 6.5 gigawatts, far in excess of what is needed to meet the top end of our 2030 goal. Focusing on the approximately 4.5 gigawatts of late-stage projects planned for 2028 and 2029, we expect those projects to target recurring asset CAFD of $40,000 per megawatt or greater and to enable CWEN investment at CAFD yields on average of 10.5% or better, in line with the current market for recently commercialized projects and recent drop-down offers, equating to approximately $180 million of recurring asset CAFD potential, that opportunity set is substantially larger than what is required to meet the top end of our 2030 CAFD per share goal. Turning to Slide 8. Our enterprise is advantageously positioned for growth well beyond 2030, given Clearway Group's best-in-class development pipeline and the technological and market resilience of its embedded projects. Projects are being developed at increasing scale in response to power market demand and will be commercialized with CWEN's growth objectives and investment mandate front of mind. As discussed in past quarters, our pipeline has been built for resilience through massive safe harbor investments, present geographic positioning and thoughtful procurement. Clearway has also established itself as a proven supplier of choice for utilities and hyperscalers to meet mission-critical data center demand with 1.8 gigawatts of PPAs executed and awarded to support data center loads during the last year. From this position and using pre-existing development and operating assets as a nucleus for its work, Clearway Group is now developing multi-technology generation complexes to serve gigawatt class co-located data centers across 5 states with the potential for these developments to create accretive investment opportunities for Clearway Energy, Inc. in the early 2030s. Configurations for these complexes range from approximately 1 gigawatt up to almost 5 gigawatts across multiple technologies with commercial operation stages coming online as soon as 2028 and spanning into the 2030s. The ultimate design and capacity of these complexes is subject to a number of factors. But if the enterprise is successful at bringing online just one of these large multi-generation complexes, a single one alone could allow CWEN to meet its growth objectives for multiple years in the 2030s while aligning with our capital allocation framework. Given our growth outlook and funding position, it is our view that the market could more significantly value the longevity and diversified enabling pathways of our growth outlook beyond 2030. To give our investors the ability to see that future growth potential as clearly as we do, we're aiming now to provide more visibility into the illustrative financial building blocks we plan to use to deliver durable growth well into the 2030s. As much as other power companies, if not more so, we expect that the location of our assets and their financial structures will allow our operating portfolio to benefit from rising power prices in the decade ahead. As our initial PPAs expire, our projects will be free of project level debt, which we structure to amortize at the conclusion of PPAs, making a higher power price scenario, a potential tailwind for recurring annual cash flow contribution. Additionally, while we plan with conservative assumptions for corporate and project refinancings, opportunistic execution may result in upside relative to our planned expectations. We have routinely demonstrated execution of project and corporate maturities at financing costs favorable to assumptions we incorporate into our long-term goals. We are cognizant of the many moving pieces that determine our operating portfolio's earnings power year-to-year. But over the long term, we believe the environment is shaping up to allow us to deliver low single-digit annual growth in cash flow from our existing portfolio. On top of this, we will have the opportunity to invest in growth across multiple redundant pathways in fleet enhancement, sponsor developed projects and third-party asset M&A, allocating capital across those pathways based on which investments will create the highest risk-adjusted return for Clearway Energy, Inc. By deploying 30% or more of a growing stream of retained cash flows towards growth at CAFD yields greater than 10%, we can achieve another 3 to 5 percentage points of annual growth in the long term. Finally, we can, in the long term, deliver at least 1% to 3% in compounding growth in CAFD per share through new project investments that are funded with corporate capital raised through the prudent issuance of corporate debt instruments and equity. Our track record has demonstrated the ability to create projects that deliver meaningful accretion relative to our cost for corporate capital. We have demonstrated the ability to sustain that accretion across multiple market cycles for over a decade. And we also have demonstrated a consistent commitment to prudence in the way we manage our balance sheet and judiciousness in the way we plan for and execute equity issuances. Through this simple and sustainable model and with an abundance of attractive growth opportunities ahead of us, we look forward to delivering our long-term growth target of 5% to 8-plus percentage growth well into the 2030s. Turning to Slide 11. We have continued to make progress across our redundant growth pathways, methodically executing on our prior commitments and extending our road map for growth with our trademark development craftsmanship. Our fleet optimization initiatives continue to strengthen our ability to achieve our 2030 target. Since last quarter, Mt. Storm started construction, a new long-term PPA was advanced for San Juan Mesa and safe harbor investments were made to enable 2 additional future repowerings that can be implemented over 2027 to 2029. We are now in a position where every project that is able to be repowered through 2027 can be and towards the implementation of a program that will aim to have repowered over 1 gigawatt of wind by 2029, with the majority of our wind fleet by that year being repowered or newly constructed this decade and in a strong position to perform for the decade ahead. Turning to Slide 12. Our sponsor-enabled growth program has also continued its forward progress with all previously committed investments funded in construction or on track for completion at attractive CAFD yields. All drop-downs that have commenced commercial operations in 2025 are fully funded with initial operational results showing excellent performance and anticipated CAFD contributions and CAFD yields exceeding these levels initially communicated at the time of investment commitment. This outcome was driven by further revenue contract and cost optimization as well as supportive project financing markets. Committed or recently offered drop-downs planned for COD in 2026 all remain on track for completion in that year with accretive prospective returns for CWEN. And additional sponsor developed drop-down opportunities for the 2020 COD and funding year are now coming into view. The Royal Slope project in Washington State has now been identified as a CWEN investment opportunity after executing a 20-year PPA and a 20-year energy storage agreement with the utility expecting significant data center demand growth in the region. And an additional WUB located battery storage resource has been identified as a potential additional future drop-down investment opportunity for CWEN in 2027. Turning to Slide 13. The last year has been a successful period of complementary and synergistic third-party M&A for Clearway with 3 transactions consummated at CAFD yields above 12%. Our early October announcement of the Deriva Solar portfolio acquisition capped off a fruitful year of disciplined acquisition engagement in a market environment that favored our strengths as an enterprise. The transaction leverages our core strengths in operating solar assets cost efficiently across the country and especially in California. It also positions us to enhance value in the 2030s through battery hybridizations at targeted sites and through the ability to offer solar energy and capacity value alongside our market-leading franchise for operating in new wind and PJM. Turning to Slide 14. Our 2030 CAFD per share target is built upon the strong building blocks discussed earlier. From the 2025 midpoint of guidance, we've spent the last year executing across our growth pathways through fleet improvements, enhanced capacity revenues, drop-downs and third-party M&A such that we now see a path to achieve the top end or better of our previously set 2027 target range of $2.50 to $2.70 in CAFD per share. Beyond 2027, CAFD per share growth will be further increased through what promises to be a very fruitful year of repowering investments in 2027, potential investments in now identified sponsor-enabled drop-down opportunities for the same year and the sizable late-stage pipeline Clearway Group is developing for completion in 2028 and 2029. Notable items that would net out against incremental asset CAFD from growth include the issuance of corporate debt to fund growth and the refinancing of our corporate bonds due in 2031, both of which we have conservatively accounted for in our targets. We also expect to issue modest equity to fund growth in line with our demonstrated practices and with the prospective cost of such issuance incorporated into our 2030 target. While our target represents a robust growth compound annual growth rate from 2025 levels, we will continue to evaluate the potential to prudently and methodically improve on that outlook over time through our fleet enhancement and sponsor development pathways and also through additional third-party M&A, which is not incorporated into our target setting and would continue to be subject to a rigorous standard for financial accretion. With that, I'll turn it over to Sarah, who will walk through our financial summary and provide additional detail on our financing outlook through 2030. Sarah Rubenstein: Thank you, Craig. Turning to Slide 16. For the third quarter, Clearway delivered adjusted EBITDA of $385 million and cash available for distribution or CAFD of $166 million. Year-to-date, we've generated $980 million of adjusted EBITDA and $395 million of CAFD. In our Renewables and Storage segment, wind resources in key regions tracked close to median expectations, while solar benefited from the execution and timing of growth investments. Flexible generation also performed in line with sensitivities. Turning to our balance sheet. We executed $50 million of opportunistic discrete equity issuances at accretive levels since the last earnings call through our ATM and dividend reinvestment and direct stock purchase plan. This reflects our continued commitment to capital discipline and our ability to access markets efficiently to support growth. Given the strong year-to-date performance and our expectations for the remainder of 2025, we are narrowing our 2025 CAFD guidance range to $420 million to $440 million. We're also establishing our 2026 CAFD guidance range at $470 million to $510 million. This guidance incorporates incremental contributions from drop-downs and third-party M&A as we continue to execute on our growth strategy. As in past years, our guidance midpoint assumes P50 renewable production expectations and the range reflects the potential variability in resource performance, energy pricing and timing of growth investments. As a last note on this slide, I'd like to note that our definition of CAFD is a conservative metric that represents the ongoing sustainable cash flow generation of our business and has been consistently applied throughout our history and remains unchanged. We have historically used this metric to measure the amount of cash available to distribute to our shareholders. In the interest of making our financial metrics more recognizable across peer benchmarks, we may now sometimes reference cash available for distribution interchangeably with free cash flow, a term that is more recognizable and commonly used among industry peers. The terms represent the same financial metrics, and you may see them used interchangeably beginning with these earnings materials. Turning to Slide 17. With the establishment of our 2030 CAFD per share target range, we wanted to provide greater granularity on potential funding sources and corporate capital deployment in 2026 through 2029 in support of our growth targets to achieve the target range of $2.90 to $3.10 in CAFD per share in 2030. Clearway continues to have a prudent capital allocation model to support our long-term objectives. First, utilizing retained cash flow, which will provide a greater contribution as supported by a payout ratio trending towards 70% by 2030. Next, we fund growth with corporate debt, while ensuring prudent corporate leverage, targeting a 4 to 4.5x ratio of corporate debt to EBITDA, in line with our target credit ratings. To round out our funding plan, we plan to issue moderate discrete amounts of equity when accretive in an amount that as a percentage of our public float is consistent with funding plans observed among listed utilities. Given our position of strength, opportunistic 2025 equity issuances and excess pro forma debt capacity, we have the flexibility to time the placement of future equity issuances and have the flexibility to utilize alternative sources to withstand temporary market volatility, if necessary. We do believe the discrete placement of equity at attractive levels when markets are conducive will provide a path to derisk our 4-year funding plan. This funding strategy, combined with our abundant set of high-return investment opportunities positions us well to achieve our 2030 CAFD per share target. Turning to Slide 18. To meet our goals in 2030 and beyond, our capital allocation framework is designed to create a virtuous cycle of sustainable and resilient growth. As the payout ratio decreases and goes below 70% long term, retained cash flows become a greater source of funding for accretive investments that can allow us to sustainably meet our 5% to 8% plus long-term annual growth objective. As we grow our earnings power from accretive investments and retained cash flows expand, this positive feedback loop repeats itself. With our long-term capital allocation framework, we believe we have more clarity into how we can fund our long-term growth, supported by our sponsor's abundant set of high-return opportunities. And from this position of strength, we will prudently use corporate debt and discrete equity to aim for the top end or better of our long-term targets. And with that, I'll turn the call back over to Craig for closing remarks. Craig Cornelius: Thanks, Sarah. Turning to Slide 20. We have decisively delivered a clear path to achieving our updated 2025 guidance and our 2027 target range. We've now established a 2030 growth target, demonstrating a 7% to 8% compound annual growth rate that matches up with the best in premium companies in the listed infrastructure and utility community. Our team has done an incredible job advancing our growth pathways and establishing strong visibility into how we can meet the 2030 target range we have set today. In the quarters ahead, you can expect that we will continue to operate our fleet with excellence, delivering predictable cash flow and payment of committed dividends, execute with trademark craftsmanship on the completion of the projects we have identified to enable our growth plans for the near term through 2027, further crystallize and communicate our road map to fulfill our 2030 targets through the fleet enhancement initiatives and growth investments we will complete over 2028 and 2029, demonstrate that our funding strategy is being executed in a way that is financially prudent and accretive and show each year how the enterprise we have created in Clearway has one of the most diversified and promising models in the U.S. power sector for delivering sustained profit growth alongside competitive dividend growth as we extend the strong performance of this model through the end of this decade and into the decade to come. Operator, you may open the lines for questions. Operator: [Operator Instructions] And our first question comes from the line of Dimple Gosai with Bank of America. Dimple Gosai: The first one was something on the slides that kind of caught my attention here. You flagged development of flexible gas paired with renewables near hyperscaler clusters. Can you give us a sense of timing of these opportunities and what returns do these hybrid data center complexes target and how you think of the risk return profile compared to traditional renewables? And then I have a follow-up. Craig Cornelius: Yes, sure. We've noted at the beginning of this year that we would be undertaking work to complement our existing pipeline of renewable and battery development assets and operating assets with other complementary resources that could help serve the growing co-located data center loads that the digital infrastructure community has a need to supply. And over the course of the year, we have done the work to assess which of our pre-existing development and operating assets were positioned in locations that were most responsive to the needs of our current and prospective customers in that community. And the projects that you see noted here exhibit the same geographic footprint that you'd seen noted earlier this year. and represent work that Clearway Group is doing to create a subset of investment opportunities that would likely be accessible to Clearway Energy, Inc. in 2030 and beyond. The plans we've laid out today and the goals we've set out to 2030 don't depend on any of these complexes being realized. We can hit the goals we've outlined building and developing the same projects that make up the fleet that we have today with the same type of contracting structures that we employ in our operating fleet and in our newly offered drop-down assets. For those complexes that do include potential flexible generation resources, our objective is to create a complementary gas resource that enables load following and highly contracted resources that are responsive to both the needs of interconnecting utilities, regulators and data center customers. And it may be the case that in any given complex situation, the best owner of a flexible generation resource may, in fact, be the interconnecting utility or a Clearway enterprise component. In all cases, we would envision those resources as being contracted if part of our enterprise complex in the long run and exhibiting risk-adjusted returns that are at least as good, if not superior to those you see reflected on other drop-downs today. So they're part of our long-run future. They're part of our being a responsive energy supplier that our customers can choose to do business with across the country. And they are part of how we can sustain substantial compounding growth for Clearway Energy, Inc. in the decade ahead. And we look forward to creating those projects and again, in a way that would be entirely consistent with our pre-existing capital allocation framework. Dimple Gosai: And the follow-up is repowering appears to be delivering 10% to 12% CAFD yields, which is super attractive here. Can you give us a sense of the timing of contribution and the size of that opportunity as it relates to Mt. Storm, Goat Mountain and San Juan Mesa? I believe there's sales and repurchasing mechanisms that's associated with these. Craig Cornelius: Yes. The majority of the repowering campaign, as you will note in our materials, will occur through investments that Clearway Energy, Inc. will make in 2027. And so their CAFD contribution will largely be reflected in the difference between the top end of $2.70 in CAFD per share in 2027 and our goal of delivering $2.90 to $3.10 in CAFD per share or better in 2030. You'll see most of the CAFD uplift from those assets reflected in our 2028 financial year. And we've noted the incremental CAFD contribution and the CAFD yields that you could expect to see from each of those projects individually. In every case, we're pleased to note, including through the PPA that we'd signed actually just earlier today for San Juan Mesa, that the PPA tenors on these projects and the terms of these PPAs are quite attractive. So in addition to the incremental CAFD they'll contribute and the high CAFD yield at which we're deploying capital, we're creating great longevity and contract profile for our wind fleet with these new PPAs and these new repowerings. Operator: Our next question comes from the line of Justin Clare with ROTH Capital Partners. Justin Clare: So I guess just following up on the prior line of questioning there and then some comments you made in your prepared remarks. I'm wondering what you're seeing in terms of the potential for PPA renewals, so not necessarily just for repowering, but for other projects in your pipeline. With the increase in power pricing that we're seeing, wondering if there's demand from offtakers to renew and extend PPAs at an earlier time than you might typically expect and whether or not that's something that could lead to growth in your revenue or CAFD in the coming few years? Craig Cornelius: Yes. Thanks for the question. You noted that last year, as an example of the line of questioning you're posing that we were able to extend the power purchase agreement for our Wildorado project and do so with a CAFD contribution that is part of the overall landscape of CAFD accretion that supports our 2030 goals. And that was probably a first notable instance of the trend that you're asking about, but likely not the last. More likely than not, that opportunity for extension in our wind fleet will mostly contribute to longevity and compounding of cash flow in 2030 and beyond because substantially all of our existing renewable fleet is fully contracted through to the end of this decade. And as part of any contract extension negotiations that we may undertake with customers, we will be focused on assuring that the cash flow contribution from any given asset will remain at least as high, if not higher, than we would otherwise expect under our existing revenue contracts between now and 2030. But most definitely, we see that as a potential benefit. What's apparent in the case of Mt. Storm is that we were able to convert a shorter-term defined quantity hedge to a long-term PPA. We do have some other assets in our fleet that exhibit a similar commercial profile. And for that subset of assets, we may be in a position to be able to undertake an adaptation or optimization in their revenue contracting profile between now and 2030 that could both enhance cash flow and reduce interannual variability. But when we think of the recontracting and extension opportunity, we think of it principally as a driver of our ability to deliver a long-term compounding 5% to 8% plus growth rate beyond 2030, where per the math that we'd outlined in the presentation, we'll aim for our existing operating fleet to continue to grow its CAFD per share contribution by 1% to 2%. Justin Clare: Okay. Got it. That's really helpful. And then I just had a follow-up on the 2030 targets. When I look at the 2030 CAFD per share target and then I compare that to the high end of the 2027 CAFD per share range, I calculate a CAGR between the 2 of just over 3.5%. So it's a little bit below the growth anticipated through '27 and a little bit below the growth anticipated in 2030 onward. So just wondering if that's the right interpretation and if you might be able to bridge why growth might slow in those few years before reaccelerating? Craig Cornelius: Yes. I think as you've observed over time, we have a culture of setting goals that we know exactly how to hit. And then as we complete commercialization actions that allow us to fulfill those goals, then we further revisit or update those. And one of the things that we're quite proud of is the fact that between October last year and October this year, we increased our CAFD per share expectations from $2.40 to $2.60 in CAFD per share in 2027 to $2.50 to $2.70 to $2.70 or better, all in the space of 1 year. And what you can see in that is that we have a systematic culture of setting goals that should be attractive to our investors and then revisiting them and ideally updating and increasing them as we complete individual contributing actions. We look to that 7% to 8% CAFD per share growth goal through 2030 is very much at the leading edge of what you see amongst premium utilities today. If we were to be compounding, as you noted, from $2.70, let's say, a 6% growth rate out to 2030, that would take you to, say, $0.10 a share above that range that we'd articulated. And we will certainly look as a company to what series of actions and growth investments and execution will allow us as we move forward between now and 2030 to continue to compound across our portfolio systematically at that 5% to 8% range. And as you can see from what we've outlined in our development and investment opportunity set, in total, the total amount of projects that Clearway Group is developing, which are potentially recipients of investments from Clearway Energy, Inc. in 2028 and 2029 would meaningfully exceed the amount of projects that Clearway Energy, Inc. would need to invest in to hit the top end of our existing $2.90 to $3.10 per share goal. So bottom line, we feel quite good about our opportunity set. We feel great about what 7% to 8% compound annual growth from 2025 represents. We feel that the investment opportunity set in front of us is quite robust. We've demonstrated a culture of setting goals, hitting them and then revisiting and increasing them. And we intend as a company to continue on with that excellent track record. Operator: Our next question comes from the line of Steve Fleishman with Wolfe Research. Steven Fleishman: I was going to ask that same question. So I appreciate the answer you just gave there. But Craig, just one other question. It does seem like maybe you're in a kind of a target-rich environment, both from your developer parent, but also just the M&A environment. So maybe you could first talk a little bit about how much more M&A opportunity are you seeing? And then secondly, just how are you thinking about just funding kind of those upside type opportunities if you start having billions more to invest in, just can you use this framework the same way for that incremental investment? And just how you're kind of managing that? Craig Cornelius: Yes. Well, I think to start with, and it's also reflected in the way that we've sought to articulate long-term goals and an accompanying capital allocation framework. We are mindful of the important contact we have with our investors to progressively demonstrate how our business model will continue to sustainably grow across cycles using financing sources that are demonstrably within our means. So when we think about growth goals, when we think about any individual incremental capital commitment, we're looking first to assure that we're able to successfully execute on it with financing sources that are accretive materially relative to the cash yield that we have on an investment. You've seen that's absolutely been true for each of the incremental M&A investments that we've announced here this year relative to our weighted average cost of capital at spreads that approach 500 basis points. And so in an environment where it's possible for us to sensibly acquire assets that fit with our fleet and with our investment mandate and which we can add value to, we'll want to continue to assess whether for our shareholders, it's sensible for us to make those incremental investments and reflect their addition in our long-term profit goals. But we also want to be judicious about assuring that what we are digesting at any given point in time is constant with what our investors would like to see us committing to and the magnitude of corresponding securities issuance that would come with funding them. I think one of the things that we have done through, in particular, the 1/3 of the acquisitions that we announced this year is to use it to help us look forward to a point in the future where the payout ratio in our business model is declining. Something that we reflect on is the great power of a payout ratio that's declining down to 70% or 65% and how much compounding CAFD per share growth, a payout ratio at those lower levels can enable us to fund just from our own operating sources without much in the way of equity issuance. So I think if we were to see anything that would be sensible for further acquisition, the standards we'd be applying look like the same ones that we applied to the deals that we did this year, meaning they have to be meaningfully accretive. We have to have significant synergistic value we're able to apply and extract. The funding of the investment needs to be demonstrably within our ability and, I guess, a manageable bite size. And to the extent that we are acquiring additional assets, we would look to devote their incremental cash flow, in particular, towards reducing our payout ratio and increasing the self-funding nature of our business model. Operator: Our next question comes from the line of Heidi Hauch with BNP Paribas. Heidi Hauch: Helpful detail on the long-term outlook. I just wanted to kind of take the other end of the previous question in terms of how you're thinking about asset dispositions in terms of the broader funding strategy. Is this core to the strategy? Should we think of any specific asset or portfolios as most eligible? And would this offset any equity issuance needed or help to drive incremental growth? Craig Cornelius: Yes. We have not incorporated planned disposition of assets into our capital allocation framework. or the funding sources that we assume to be able to tap into in order to deliver on our long-term growth goals. But as fiduciaries, we always remain cognizant of whether we are the best owner of an asset or whether it would be more accretive for our shareholders to selectively dispose of assets in our fleet. We certainly have done that at large scale in the context of the district thermal segment divestiture that we completed some years ago, but have also done that at very small scales around individual renewable plants that just weren't a great fit for our fleet. As we go forward to next year, we will always remain mindful of whether there are relatively small contributors to our fleet, which may be more highly valued by other buyers for whom those assets might be more significant. And there may be targeted opportunities along those lines to call it, enhance operating efficiency in our fleet by reducing project count in select areas or by conveying an asset to someone else who sees a greater strategic interest in it. What we look at in situations like that is how much CAFD a project is contributing to us, what our outlook is in long-term net present value. and whether someone else who is buying the project from us would buy it at a CAFD yield that's accretive relative to the value that's embedded in our shares today and would assign a terminal value to the asset that's higher than what we do. And in instances where that's possible, we will selectively determine that, that's in the best interest of the shareholders to dispose of an asset along those lines. But a core asset harvesting campaign to fund our growth is not part of our plan. And we feel quite good about the long-term outlook for our fleet. So the assets that are in our fleet, we're kind of enthused to own as we look out into the 2030s. Heidi Hauch: Great. That's helpful. And then secondly, going back to the data center opportunity, specifically with developing natural gas. Firstly, how soon should we expect Clearway to kind of update or formalize these contracts maybe given the extended equipment lead times for natural gas? And then secondly, just more broadly, what is driving Clearway to kind of get involved with developing flexible generation in addition to kind of the legacy renewable development? Is this driven from demand from hyperscalers or utilities or customer conversations? Just kind of curious on the broader strategy there. Craig Cornelius: Yes. The bulk of our business is to develop assets that are reflective of our deep expertise and our track record for both asset development and operation. And we are mindful that in California, we have a great existence proof for what a flexible generation fleet can do to complement renewable resources and provide a combined highly reliable increment of baseload capacity. When we think about the flexible generation fleet that we have in California and the totality of our emissions footprint, as a business, more than 95% of the megawatt hours that we generate are emissions-free. But fully 1/4, if not more, of our operating cash flow comes from a flexible generation fleet that's absolutely essential to the state of California and which has facilitated what are quite favorable reliability statistics for the state as a whole as low marginal cost renewable energy grows as it's a fraction of loads served in the state. So that's the business model that we are selectively looking to emulate in individual areas where our customers would like for us to serve them renewables and where they recognize that complementary gas helps those renewables get built and deliver into the system combined capacity that's needed. What you should know, though, and what you should focus on is that the mainstay of our business, by far the bulk of the 30 gigawatt pipeline that we maintain today, the entirety of the 11 gigawatt pipeline that we have of late-stage assets for completion over the next 7 years are renewable and battery projects in places where those are the least cost best fit resources for customers who want to buy their attributes in long-term contracts. And the plan that we've laid out, the goals that we've set and will meet through 2030 is underpinned entirely with those asset types. So the flexible generation resources that we now have in development are additional to that core capability that we have. They will help create opportunity for carbon-free resources to serve growing load in places where data centers absolutely are needed in the gigawatt scale. And they're part of how we make this business model continue to grow and compound, not just through the next 5 years, but through the next 10. Operator: Our next question comes from the line of Mark Jarvi with CIBC. Mark Jarvi: Just, Craig, on the data center energy complex facilities, do any of those build off of the existing renewable and battery installations or those new development sites? Craig Cornelius: All of them build off of either existing operating facilities or renewable and battery sites that we had in development more than 5 years ago. Mark Jarvi: So will there be a contract on existing assets? And then does that factor in the ability to drive higher returns off of those types of projects? Craig Cornelius: Yes. I think what creates an opportunity to deliver higher returns really from all the projects that we have in our development footprint today is the ability to bring a power plant online at size with credibility. And I think when we look across the footprint that we highlighted on Page 8 of our earnings materials, when you look across the footprint that we've outlined per our custom in our appendix, you will see that the average size of renewable and storage projects in our pipeline has grown appreciably. You'll see that the total quantity of late-stage projects that we have that are constructable over the next 5 years has grown significantly. You'll see that most of them are entirely storage or include a storage component. You should see that solar amongst the renewable resources is by far the largest share relative to wind in that development footprint. And what is allowing us to produce good returns today, what's allowing us to get longer PPAs, what's allowing us to deliver CAFD yields for CWEN that are higher than they have been historically are all the fact that we've got a power plant that we can construct that we can credibly bring online in the near term. And in some ways, the bigger the power plant, the greater contribution it can make to capacity and energy needs now, the higher return we can produce. So for these larger complexes, those same attributes will show up likely later in our development program into the time period after 2030. But what will make those complexes successful are the same things that are making it possible for us to develop so much over the balance of the decade between now and 2030 at high returns, which is that we know how to build power plants. We've demonstrated that we can build them when others can't. We know how to operate them. We have a robust position of interconnection queues. We've been developing the projects in places where renewables and batteries are least-cost, best-fit resources. And that those things are worth a lot, whether it's to a utility or a data center company today. Operator: And our next question comes from the line of Nelson Ng with RBC Capital Markets. Nelson Ng: Congrats on a strong quarter. So just a quick clarification on your 2030 outlook. Can you just give some more details in terms of what you're assuming for your flexible generation portfolio? And maybe just give an update on how contracted those assets are now? Craig Cornelius: Yes. When we set the range, we said it as is our philosophy at a level where we are confident we can meet the range in current market conditions for our open position, and that's reflected in that range of $290 million to $310 million. The corresponding levels look similar to what our fleet was contributing, the flexible generation fleet was contributing in 2024 and 2025. And we intend to be able to ultimately harvest even more value or aim to harvest even more value from that segment in those out years than we would need to in order to hit the range that we've articulated of $2.90 to $3.10 in CAFD per share. We are optimistic about the value that those assets will harvest in the market informed by a few key data points. First, just the marginal cost of 4-hour storage, which we're contracting extensively in the state for newly built resources and it's still very solidly in the double digits and low to even sort of mid-double digits in cost. Second, because of the ongoing increase in demand forecast, not just for CAISO, but for adjacent markets that have historically been sources of capacity for CISO and the substantially costlier profile for long-duration storage that could potentially try to -- that would be really needed to substitute for the attributes of the thermal resources. So we feel really comfortable about the durable value in our fleet, which is one of the state's most modern and most reliable and exhibits comparatively high capacity values as compared to peer capacity. And that puts us in a position to be patient in our optimization of incremental resource adequacy contracts and also clear eyed and the goal of having them contribute even more than is embedded in the $2.90 to $3.10 in CAFD per share, which we could most definitely execute within today's market environment. Nelson Ng: Okay. Great. And then just a quick follow-up question. So obviously, your development pipeline is a lot larger than what CWEN needs to hit its targets or even to exceed the targets moderately. So in terms of drop-downs and transactions, should we expect to see CWEN buy like 50% of future projects or like something much lower than 100%? Craig Cornelius: I think we both sometimes drop assets with 100% equity interest for Clearway Energy, Inc. and in some instances, have consummated equity partnerships that work like you've just described. everything we have developed and identified for potential CWEN investment through 2027 is planned for 100% CWEN equity investment. As we look later into the decade, we'll certainly be evaluating the capital allocation framework for CWEN and its embedded funding capacity and looking at how we pace development assets in relation to that funding capacity. What we have often done in the past where we've had an exceedance of development pipeline relative to CWEN's funding capacity is to selectively move our best development assets to successive periods of time where they fit neatly into CWEN's plan. And we will also look at whether there are complementary funding sources that help sustain the growth profile for CWEN while capitalizing projects that have to be built on a firm time line. What our mainstay has been throughout our history is that we use simple financing structures that will deliver predictable financial performance for CWEN. And that basic principle is what will guide what we build and how we capitalize it with CWEN over time. Operator: And our last question comes from the line of Corinne Blanchard with Deutsche Bank. Corinne Blanchard: Most of them have been answered, but maybe a quick one. I think we saw Clearway Group having now 27 gigawatts in the pipeline. And I think last quarter, it was about 29. Can you just talk about what caused that decrease? And I think as well we're seeing like early stage has decreased what prospect has increased. So just trying to understand if there's a pushback in some of those projects. Craig Cornelius: Yes. Our disclosure aim to clarify that the pipeline in Clearway Group today is actually 30 gigawatts. That's up from 29 in the last quarter. And we noted that 27 gigawatts was a pro forma pipeline level that we would expect to be at after certain select harmonization of development assets that are not necessary for the enterprise to hit its goals over the next 3 to 4 years. What you should see is that we've now dialed in a specific set of projects that we're planning on constructing over the course of the next 7 years in the late-stage pipeline progression that we have on that same page, which in total, still quite meaningfully exceeds the total quantity that Clearway Energy, Inc. needs for Clearway Group to develop and build for its plan to be realized. So in point of fact, the pipeline that we have today is up quarter-over-quarter, but we've wanted to set expectations that we would selectively harvest individual assets that are not essential to executing on the goals that we have for the next 5 years. Operator: Thank you. I'll now hand the call back over to President and CEO, Craig Cornelius, for any closing remarks. Craig Cornelius: Thank you, everyone, for joining us today and for your ongoing support of Clearway. We look forward to continuing to deliver with excellence in the quarters ahead as we strive to set the gold standard for sustainably growing mission-critical energy companies here in America. Operator, you can close the call. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for participating, and you may now disconnect.
Operator: Hello, ladies and gentlemen. Thank you for standing by for Zepp Health Corporation's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Today's conference call is being recorded. I will now hand the call over to your host, Ms. Grace Zhang, Director of Investor Relations for the company. Please go ahead, Grace. Grace Yujia Zhang: Hello, everyone, and welcome to Zepp Health Corporation's Third Quarter 2025 Earnings Conference Call. The company's financial and operating results were issued in a press release via the Newswire services earlier today and are posted online. You can also view the earnings press release and slides referred to on this call by visiting the IR section of the company's website at ir.zepp.com. Participating in today's call are Mr. Wang Wayne Huang , our Chairman of the Board of Directors and Chief Executive Officer; and Mr. Leon Deng, our Chief Financial Officer. The company's management will begin with prepared remarks, and the call will conclude with a Q&A session. Mr. Mike Yeung, our Chief Operating Officer, will join us for the Q&A session. Before we continue, please note that today's discussion will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company's actual results may be materially different from the views expressed today. Further information regarding this and other risks and uncertainties are included in the company's annual report on Form 20-F for the fiscal year ended December 31st, 2024, and other filings as filed with the U.S. Securities and Exchange Commission. The company does not assume any obligation to update any forward-looking statements, except as required under applicable law. Please also note that Zepp's earnings press release and this conference call include discussions of unaudited GAAP financial information as well as unaudited non-GAAP financial information. Zepp's press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited most directly comparable GAAP measures. I will now turn the call over to our CEO, Mr. Wayne Wang Huang. Please go ahead. Wang Huang: Thank you all for joining us today. I'm delighted to report that Zepp Health delivered another exceptional quarter with revenue grew 78.5% year-over-year, underscoring the ongoing effectiveness of our strategic brand and product evolution. We also turned our cash balance from outflow to inflow, a critical operational milestone. These results once again validate the strength of our strategy, the competitiveness of our products and the growing global recognition of the Amazfit brand. Our exceptional Q3 performance was fueled by our well-executed multi-tier product strategy, which drove consistent gross margin growth quarter-over-quarter. In September, we launched our flagship Amazfit T-Rex 3 pro, which was well received by users and endurance outdoor community with enhanced durability, advanced navigation and outdoor safety features setting new premium outdoor benchmarks. Our earlier launch Balance 2 and Helio Strap continued performing well, offering advanced analytics and better usability for daily training. Entry-level lines maintained steady sales across key global channels, underscoring Amazfit's strong positioning across consumer segments. Our gross margin continued to expand sequentially, growing from 36.2% to 38%, thanks to effective mix management and strong ongoing execution of our margin improvement initiatives that began in late 2023. Operating expenses remain prudent as we balance continued investment in R&D with selective marketing spending to support brand visibility. These improvements demonstrate our commitment to operational discipline, while maintaining innovation momentum on which Leon will provide more details later. The Amazfit T-Rex 3 Pro launch was the highlight of the quarter, designed for endurance athletes and outdoor adventures. The new model introduces key upgrades that elevate the user experience such as enhanced durability, advanced navigation and improved outdoor safety feature, providing exceptional precision and reliability in challenging terrain. The metal made its global debut during UTMB race week in Chamonix, where Amazfit ambassadors and elite trail runners use the watch for real-time checking and recovery optimization. Notably, Ruth Croft earned first place in the UTMB 2025 Women's division, marking a historic win and powerful validation of our product performance. Beyond hardware, the T-Rex 3 lineup continue to evolve through firmware upgrades that add new HYROX training modes, merging training and competition into one integrated experience. Our Balance 2 and Helio Strap, representing the perfect synergy of advanced analytics and everyday usability continued to perform strongly following their Q2 debut. During the quarter, Balance 2 updates introduced new training modes, including HYROX PFT and ultramarathon, improved data visualization, plug-in cycling speedometer connectivity and refined UI features such as one tap display and optimized digital quant feedback. Our entry-level Bip 6 and Active 2 series continued to contribute stable volume across key global channels, maintaining strong sell-through performance and solidifying Amazfit's position across diverse user tiers. Beyond hardware, we advanced our technology ecosystem on multiple fronts. A major milestone this quarter was Zepp Health's acquisition of core assets from Wild.AI. a pioneering women's wellness platform. Wild.AI uses common informed analytics to optimize performance, recovery and nutrition across all stages of our women's life. Integrating these capabilities into our ecosystem will enable Amazfit to deliver more personalized physiology aware coaching experiences to female athletes, while maintaining compatibility with third-party wearables. We also continue to integrate Zepp OS and Zepp Pro, building on the advances of Zepp OS 5.0, we enhanced AI-driven training insights and expanded our integration with platforms like Strava and TrainingPeaks, offering users more connected and data-rich performance feedback. These improvements also powered the latest firmware updates across Balance 2 and T-Rex 3. In addition, the long-awaited BioCharge feature upgrade has arrived on balance 2, integrating synchronized biometric data streams to calculate your energy levels through the day. BioCharge is a personalized body energy management feature that continuously analysis your energy levels by integrating data from your nighttime sleep, daytime naps, exertion and stress indicators. Separately, we are proud to share that Amazfit received RED Network Security [ MB certificate from SCS ]. This recognition reflects our commitment to user privacy, product safety and international compliance, further strengthening global consumer trust in our products. Our athlete and community initiatives continue to strengthen Amazfit brand equity worldwide. Athletes are now contributing to our product development process, ensuring that our sports watches are designed by athletes for athletes. In Japan, we proudly welcome Ota Aoi as Amazfit's first Japanese brand ambassador. Furthermore, we continue to expand our presence in major global and regional sports communities. During the quarter, we strengthened our presence in global and regional sports communities through continued partnerships with HYROX. We expanded our HYROX athlete roster, welcoming returning athlete Hunter Mclntyre alongside new competitors. This expansion underscores our commitment to supporting both established champions and emerging talent in functional fitness racing, while integrating athlete insights into product development. Additionally, we participate in the HYROX Beijing event, engaging local fitness communities and reinforcing our brand's global empowerment of athletes. Over the past several years, Zepp Health has completed a structural transformation of both its product and profit model. Our brand has also been significantly strengthened and reshaped with a clear positioning as a sports and performance technology brand. Today, our portfolio covers every tier from entry to premium with healthy profit margins and distinct positioning. Our high-end offerings, the T-Rex 3 Pro has delivered strong performance, proving robust market acceptance for our premium line. Meanwhile, our Balance, Active and Bip lines continue to deliver steady growth across global channels. Alongside this, our expanding Helio ecosystem featuring Helio Ring, Helio Strap and future Helio innovations has built a strong and scalable framework that supports our long-term competitiveness and sustainable growth. This solid foundation provides us strong confidence heading into the fourth quarter and 2026, as we continue to execute on our strategy and deliver lasting value to both users and shareholders. Entering the final quarter of 2025, we are confident in our continued growth, supported by a strong product pipeline, margin improvement initiative and disciplined execution despite a challenging macroeconomic environment, our strategic focus on sports tech and holistic health ecosystem is delivering earlier results. We anticipate Q4 revenue to be between USD 82 million and USD 86 million delivering 38% to 45% year-over-year growth. This growth reinforces our optimism in sustaining top line momentum and achieving greater operating leverage. What continues to fuel our success is our dual commitment, creating long-term value for shareholders and empowering users through innovative technology. Thank you for your trust and support. I will now turn the call over to Leon to go over the highlights of our third quarter financial results. Leon Cheng Deng: Thank you, Wayne. Greetings, everyone. Thank you again for joining our third quarter 2025 earnings call. The macroeconomic landscape has had some impact on our Q3 performance. On the tariff front, the situation has remained stable, and we have made the necessary short-term adjustments to our business model. Moving forward, we are focused on long-term structural supply chain optimizations. Additionally, we have increased inventory in key product lines to meet strong customer demand and mitigate potential tariff-related risks, which explains the slight increase in our inventory levels this quarter. Regarding memory chips, we have seen prices more than doubled this year due to supply constraints and increased demand, especially in the AI sector. While memory chips represent a relatively small part of our overall bill of materials, we have secured supply at a favorable pricing to mitigate the impact. We'll continue to monitor market conditions and adjust our plans accordingly. Now, let's turn to financials. In the third quarter of 2025, our revenue increased 78.5% year-over-year to $75.8 million, meeting the upper end of our previous guidance as Amazfit branded ecosystem continued to gain traction. Echo to Wayne, this performance represents strong market receptions for the T-Rex 3 Pro launched in September as well as continued strength from Balance 2 and Helio Strap, both introduced in the second quarter. In addition, the sustained popularity of our entry models, including Bip 6 and Active 2, provided steady sales volume. These positives were partially offset by Helio Strap supply constraints and typhoon-related shipment delays late in the quarter. Looking ahead, we have just started selling of our T-Rex 3 Pro 44-millimeter version on October 25th. And together with our upcoming new product launches, we expect the top line expansion continues into the holiday season. Turning to gross margin. It was influenced by various factors, including product mix, product launch timing and product life cycles such as model upgrades. In the third quarter, we reported a gross margin of 38.2% or 39.4%, excluding the impact of tariffs. This represents a 2.4% decrease compared to 40.6% in Q3 2024. The year-over-year decline was primarily driven by 3 factors related to our entry-level products. First, these products were priced lower than the previous generation to drive revenue growth, which resulted in a lower margin. Second, Prime Day discounts were applied to expand our customer base, further impacting margins. Third, as a part of our annual product cycle refreshment cycle, the current entry-level models are nearing the end of their life cycle and were offered at the promotion prices. Despite these factors, the T-Rex product line showed strong margin performance with the launch of the T-Rex 3 Pro in September, helping to offset the impact of Prime Day discounts on the T-Rex 3. Sequentially, gross margin improved by 2% compared to Q2 2025, driven by a higher contribution from the new products and a more favorable product mix. This was partially offset by promotions on entry-level products as well as the impact of front-loaded shipments ahead of the U.S. tariffs on China manufactured goods. We remain on track with our margin expansion strategy initiated in the second half of 2023 and expect further progress as new product launches gain scale. Now let's turn to costs. We remain committed to prudent cost management, continuing the program we began in Q3 2020 to reduce overall operating costs. Adjusted operating expenses for the third quarter totaled $28.6 million and 37.7% of sales compared to $28.6 million and 67.3% of sales in the third quarter of 2024 and $26.4 million and 44.4% of sales in the previous quarter. It remained stable compared with last year. The $2.2 million quarter-over-quarter increase was primarily driven by foreign exchange rate fluctuations. However, by maintaining a cost-conscious approach, we're moving towards a run rate of approximately $25 million per quarter for operating costs. Concurrently, we remain committed to investing in R&D and marketing activities to ensure our long-term competitiveness. Adjusted R&D expenses in the third quarter of 2025 were USD 10.2 million, increased by 1.5% year-over-year and remained stable quarter-over-quarter. At the same time, we focused on refined R&D approaches, as we consistently evaluated resource efficiency to ensure maximum return on investment and productivity. Adjusted selling and marketing expenses were $11.9 million in the third quarter of 2025, increased by 0.5% year-over-year and decreased by 1% quarter-over-quarter. This year-over-year increase was primarily due to front-loaded brand and channel investments ahead of the holiday season. We also expanded the Amazfit athlete roster by signing several new athletes during the quarter, including, among others, elite trail Runners, Ruth Croft, as well as marathoner Ota Aoi, Amazfit's first Japanese brand ambassador to further elevate our brand recognition. At the same time, we consistently pushed on retail profitability and channel mix improvement. We are committed in investing efficiently in marketing and branding to ensure our sustainable growth. Meanwhile, adjusted G&A expenses were $6.5 million in the third quarter of 2025, flat year-over-year and with a modest sequential increase from the second quarter of 2025, primarily reflecting normal foreign exchange fluctuations. Excluding these effects, G&A expenses will remain stable or slightly lower over the past 3 quarters, as we continue to streamline overhead, maintaining disciplined cost control, while improving operating efficiency. As a result, we achieved operating breakeven in the third quarter of 2025, a significant improvement versus Q3 2024 when adjusted operating loss was $11.3 million. This marks a key milestone in our path to sustained profitability, and we expect to be operational profitable in the fourth quarter of 2025. As of September 30, our cash balance stood at $103 million compared with $95 million in Q2 2025. Inventory levels increased slightly during the quarter as the company strategically built up stock in key product lines to prepare for upcoming product launches and Q4 consumer electronics peak season. Cash balance increased were primarily driven by improved working capital and enhanced operational efficiency. We expect the cash balance to continue to grow in Q4 2025. In terms of capital structure, the overall long-term and short-term debt levels remained consistent following the restructuring we completed during the first quarter. We refinanced a significant portion of our short-term debt into long-term instruments with a more favorable interest rate and a 2-year duration, which significantly reduced near-term liquidity pressure and enhanced our overall capital structure. Since beginning of 2023, the company has cumulatively retired $64.5 million of debt. Going forward, we will continue to optimize the capital structure for the company. We maintained our commitment to our share buyback program, underscoring our confidence in Zepp Health's long-term fundamentals and growth trajectory and our focus on delivering value for shareholders. Finally, our outlook for the fourth quarter of 2025, we expect revenue to be in the range of $82 million to $86 million, representing a 38% to 45% year-over-year growth compared to $59.5 million in the fourth quarter of 2024. We are thrilled to move into the next stage of our growth, building on our positive momentum heading into Q4 and 2026. Thank you all for your time for today. I will now open the call for questions. Operator, please go ahead. Operator: [Operator Instructions] Your first question comes from Sid Rajeev with Fundamental Research Corp. Siddharth Rajeev: Congratulations on another strong quarter. I have a few minor questions. The press release mentioned supply constraints on the Helio Strap. Do you mind giving more color on this? Leon Cheng Deng: Yes, Sid, I mean, I have mentioned the issue has a few folds. Number one is there is a memory chip issue, which impacts the whole industry and the lead time for those is actually getting quite long if we want to secure enough quantity of that. Obviously, Helio Strap is a very popular product well received by the consumers and customers all over the world. So we have a shortage in essence in every region, which we operate. So it's more constrained by the supply volume rather than the demand. And then the other thing is we also have encountered a few things like the typhoon in the Southern East China area towards the quarter end, which also like put the already constrained situation a little bit more tight. So I think that's the situation we have around the Helio Strap. But we are actually working towards resolving those. So you will see that situation improving in Q4 and into Q1. Siddharth Rajeev: And you don't give segmental revenues by region. But just to get an idea regarding the impact of tariffs, would you say North America still accounts for approximately 15% of total shipments? Leon Cheng Deng: I think so. So I think it's around 15% to 20%. But we have -- actually, we have communicated our dual sourcing strategy, whereby we supply majority of the products in the U.S.A. from Vietnam, right? So the tariff impact on that is relatively small, if not to 0. Siddharth Rajeev: And with respect to product launches, was the T-Rex Pro the only product launched last quarter? Can you give us some numbers, how many launched last quarter, how many expected in Q4? Leon Cheng Deng: Yes. I think I can give you the number for Q3. For Q4, unfortunately, I couldn't tell more about it. But I think what you can see is that, yes, indeed, in Q3, from a new product perspective, there's only T-Rex 3 Pro, both -- and only the 48 millimeter version, which we launched during the EFAT and the UTMB in September. So that's in Q3, the only new product which we launched. But then on the other hand, Helio Strap and the Balance 2 were launched in June. So those 2 products also actually have been sold for the whole quarter of Q3. And if you look at Q4, -- the first one is the T-Rex 3 Pro 44-millimeter version, which we start selling on October 25th, right? And then with regard to the new ones, I think you just have to be patient, and you will get to know those in due course. Operator: Your next question comes from Dylan Chu with Point72 HK. Dylan Chu: Congrats on the [ three ] quarter. Two questions from my side. Number one, just around new product momentum and holiday sales as related to that Q4 guide. Could you please give us a bit more color on the T-Rex 3 Pro launch as well as the 44-millimeter initial feedback so far, how would you compare that versus [indiscernible] for [ T-Rex 3 ]? And what's your current view on the holiday season demand signals? What's your overall plan for the holiday season? And sort of related to that, given the strong new product pipeline as well as the supply chain improvement you mentioned, and we can see on the balance sheet you're proactively building inventory. Is there any reason to be extra conservative in terms of 4Q guide? Because this year, the Q-on-Q guide imply a slightly lower growth compared to historical guidance. So this is my first question. Leon Cheng Deng: Thank you, Dylan. It's a long question. Let me try to answer it one by one, right? So first, on the holiday season sales, I think in so far, the signal we have received is quite positive, right? And that also translates into the guidance, which we guide. And then if you look at how we guide, I mean, obviously, we're a little bit prudent in guiding the numbers. And then on Q2, we guided 72% to 76% and then we delivered 75.8% right? So I think Q4, obviously, given the demand situation, we see there's definitely a good demand for our new products, both on the Helio Strap and also for the T-Rex 3 right? And then to answer the second part of your question, T-Rex 3 Pro actually received quite good feedback both on the 48-millimeter versions and the 44-millimeter versions. Unfortunately, I don't have enough data points to tell a trend because in so far, 44-millimeter version is only being sold for a week, and the majority of that is in China. And I think we have seen that the activation has been performing on a day-to-day basis increasing. But then on T-Rex 3 Pro 48-millimeter version, I think I can say a few more things on that. So starting from the launch date until today, the trend we have seen is that it's actually performing very well and actually, to some extent, even better than the similar performance of [ T 3 ] when we launched that product 1 year earlier. And to some extent, if you -- which is a fantastic achievement because bear in mind that T-Rex 3 compared with T-Rex 3 Pro is only half the price of T-Rex 3 Pro, right? So I would say that is actually a good trend for us to start with. And obviously, we're going to continue that momentum into Q4 and into the holiday season. I think that should give you a color for the holiday season and how you look at the different product categories performing in the upcoming months. Dylan Chu: Second question is on your channel strategy into 2026 and beyond. There seems to be a significant amount of white space, both online and offline in terms of channel opportunities. We can see recently the brand.com traffic has increased quite a bit and the offline presence continue to expand a little bit. So could you please give us a bit more color in terms of how you want to grow your channel reach into Q4 and next year? Just any thoughts around the low-hanging fruits and your focus channels would be helpful. Leon Cheng Deng: Yes. It's a good question. So what we noticed is that in the past quarters, our online presence and also the channel on online is actually growing very fast, to some extent, even outpace the growth we see on the offline channels, right? Because traditionally, we were very strong on offline channels. And now you see that Amazon and our own dot-com website is actually growing very fast. And maybe it also has something to do with the strategy, which we had to go premium, whereby most of the products, if you see, which are performing very well, are T-Rex 3, T-Rex 3 Pro, Balance 2, those are above $300 products, right? So I think looking into the next year and the next quarter, obviously, the online part will continue to play a significant role in our growth trajectory because Amazon and also our dot-com website still have a lot of potential to perform next year versus this year. We see a lot of demand and push from Amazon and a lot of aggressive plans has been built up as we speak, right? So I think number one trend is definitely online and online will continue to grow. We haven't seen the ceiling yet. So that trend for sure will definitely continue. On the other hand is the offline channel. What you noticed or maybe that kind of explained why we were a little bit more prudent or conservative on the numbers we guide is that we have some supply constraints, for example, on Helio Strap. And we also have issues when we launch the first batch of the new products, we try to prioritize online than offline. Obviously, we want these products to be seen by online users first before it goes to mainstream and it goes into the channels like Best Buy and Target, right? And if we -- which means there's still a lot of potential [ to get ] on the offline channels, well, we have enough supply of our products, for example, on T-3 Pro and on Helio Strap, the moment we resolve the supply issue, we will definitely push for a bigger reach in the offline channels for next year. So I think in essence, both we see big opportunities, both on online and offline. And obviously, if we drive a bigger growth on offline -- on online, that will give a better gross margin portfolio versus the offline channel, right? So I think that's how you should look at the channel mix going forward. And I hope that gives you a feeling for such a picture on how we are going to evolve in the upcoming quarters. Operator: Your next question comes from Yuan Zhu with Guosen Securities. Yuan Zhu: Congratulations on your results. I have 2 questions. The first relates to your outlook for Q4 regarding your top line guidance, what are your underlying assumptions for price growth and volume growth? And what's your approach to discounting during this period? And also, could management share if any marketing initiatives are planned for Q4? How should we think about the trajectory of sales and marketing expenses next quarter? Leon Cheng Deng: So let me try to answer your question one by one, right? Number one is on the outlook for Q4. It's the guidance, which we put forward. But I -- as I just mentioned, we try to -- we always try to be prudent on our guidance, and you can look at through the Q2 guidance and the realization of that. And on the assumptions, obviously, we have assumed that, number one, Q4 would be a good holiday season and which, by definition, Q4 is the highest quarter of the year, whereby people buy presents for the holiday seasons, right? And we tried to pull the average ASP up, which you see that we try to do that quarter-over-quarter, right? And together with the launch of the Balance 2, which is at the price of $300 or so and then on T-Rex 3 Pro, which is close to $400, right? We're actually -- with the launch of these products, obviously, we're trying to increase the price, improve the gross margin. And then that would drive the gross margin growth further in Q4, which you already witnessed in the margin performance between Q3 and Q2, right, which we grow 2%. And obviously, we are expecting the margin to further expand in Q4. But then it will be offset a little bit by the discounting and promotional events because, yes, unfortunately, everybody is doing that. So we probably have to do some of that, but we will try to do it selectively and then try to target on certain consumers and certain product group rather than on everything, right? And we'll try to look at the return on investment if we're going to do any discount at all. Now from a marketing investment perspective, I think what you see is that we are quite flat on the marketing expenses in the past quarters. So I think it always hovers around [ $10 million, $11 million ] per quarter. And that is also what we try to do in Q4 because as I explained many times, we believe that we can -- number one, we're going to visit on every single thing, which we're going to invest. If it doesn't carry a good ROI, we're not going to do that, right? Number two, if there's an opportunity and you see that whenever there's opportunity, we front-load marketing expenses to trade for a higher growth. That's what we did in Q3. And then if there's such an opportunity in Q4, for sure, we'll do such a thing like that because we still believe that growth and gaining market share is the most important thing, which we need to do at the current point of time. So I think if my memory is right, I think that should cover all the questions you just raised, if I -- but remind me if I missed anything. Yuan Zhu: Yes. It's very clear. And my second question is on the product road map. Just a follow-up, will there be any other new product launches this year? And if we look further ahead, could management share your plans for product iteration next year? Are there any plans to expand the lineup further perhaps with running smartwatch or smart [ trains ]and where the pace of new product launches become more intensive next year? Leon Cheng Deng: Yes. No. So I think I have answered the product -- new product question just now, I think it was coming from Sid or it's from -- coming from Dylan, I cannot remember. But if you look at Q3, we have launched T-3 Pro. And in Q4, we started selling the 44-millimeter version just a few days ago, right? So that's, for sure, one of the new products in Q4. And then there's going to be a few new products, which we have in the pipeline for this quarter as well, but then I cannot say too much about it. So I will just stop at there for Q4. And then on next year, I think what I have explained to you maybe a few times this year as well is that we have maintained this cadence of every quarter, we have 2 or 3 new products launches for the quarter. And then normally, it starts with Q1, whereby we refresh the entry-level lines; and Q2, we start with the more Apple and Samsung challenger line. And then in Q3, we look at more the T-Rex and the sports line, et cetera, et cetera. So I think next year, we'll have a similar pace and quantity of products compared to this year. So I think that's something you -- to just give you a feeling of that. But with regard to what product, which products, I think I would ask you to be patient and wait until the moment we launch those products, but I can guarantee you it's going to be exciting products. Operator: As there are no further questions, now I'd like to turn the call back over to the company's IR Director, Grace Zhang, for closing comments. Grace Yujia Zhang: Thank you, once again, for joining us today. If you have further questions, please feel free to contact Zepp Investor Relations department through the contact information provided on our website. Thank you.
Operator: Hello, and welcome to the Clearway Energy, Inc.'s Third Quarter 2025 Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. It is now my pleasure to introduce Senior Director, Investor Relations, Akil Marsh. Akil Marsh: Thank you for taking the time to join Clearway Energy, Inc.'s third quarter call. With me today are Craig Cornelius, the company's President and CEO; and Sarah Rubenstein, the company's CFO. Before we begin, I'd like to quickly note that today's discussion will contain forward-looking statements, which are based on assumptions that we believe to be reasonable as of this date. Actual results may differ materially. Please review the safe harbor in today's presentation as well as the risk factors in our SEC filings. In addition, we will refer to both GAAP and non-GAAP financial measures. For information regarding our non-GAAP financial measures and reconciliations to the most directly comparable GAAP measures, please refer to today's presentation. In particular, please note that we may refer to both offered and committed transactions in today's oral presentation and also may discuss such transactions during the question-and-answer portion of today's conference. Please refer to the safe harbor in today's presentation for a description of the categories of potential transactions and related risks, contingencies and uncertainties. With that, I'll hand it over to Craig. Craig Cornelius: Thank you, Akil. We appreciate everyone joining us today. Clearway is well positioned to deliver on its near- and long-term growth objectives as it proves out the inherent strength of its enterprise business model and harnesses the advantages of being a well-prepared supplier of choice amidst an emerging renaissance in the U.S. power sector. For 2025, we've narrowed our financial guidance to the top half of our originally set range, following a strong third quarter performance and the addition of well-performing drop-downs to our operating fleet. Out to 2027, we have line of sight to delivering our increased CAFD per share target of $2.70 or better, building from the successful execution of multiple acquisitions and sound preparation of multiple repowerings and sponsor developed drop-downs. And today, we're also establishing a 2030 financial target, setting a CAFD per share goal of $2.90 to $3.10 per share, which translates to a 7% to 8% growth CAGR from our 2025 guidance midpoint, reflecting the extensive progress we've made across our growth pathways and the confidence we have in their prospective success in the years to come. Growth in both the medium and long term reflects the strong traction we've made in supporting the energy needs of our country's digital infrastructure build-out and reindustrialization. We expect this to be a core driver of Clearway's growth outlook well into the 2030s. To fund this abundant opportunity set, as we've noted in the past, we'll increasingly use retained cash flow as a funding source while prudently using debt and modest equity issuances to extend our position of strength. To that end, our long-term payout ratio beyond 2030 is targeted to be less than 70%, a goal we are targeting while continuing our commitment to maintain competitive EPS growth in the long term. With the robust growth trajectory we see ahead through this decade and into the next, today's materials are geared towards giving you more visibility into where that growth will come from and how it will be conservatively funded with the goal of allowing the investment community to value Clearway with full recognition of what we see ahead. Turning to Slide 6. To reiterate key strengths of our enterprise, we have a proven track record at both Clearway Energy, Inc. and Clearway Group of being best-in-class owners and developers of energy assets here in the United States. Clearway Energy, Inc. offers a total return value proposition within the listed infrastructure space that's superior to most peers, driven by our diverse and sizable operating portfolio, steady cash flows and our advantaged position to deliver growth across multiple pathways. Clearway Group has grown its late-stage pipeline by 4x since 2017 and benefits from strategic relationships with customers and suppliers, putting it in a prime position to advance and offer attractive projects to Clearway Energy, Inc. for years to come. This success and strong alignment between the 2 companies that make up our enterprise have been key to our enterprise's growth over 12 years of strong and reliable history. As you'll see in more detail in the coming slides, this combination of enterprise alignment and bountiful accretive growth opportunities underpins our confidence in meeting our growth targets in 2030 and beyond. Turning to Slide 7. Turning to the building blocks of our growth outlook through 2030, we have a clear line of sight secured by successful commercialization of substantially all development projects planned for CWEN funding in the 2026 and 2027 COD vintages. Attractive CAFD yields are expected for these projects through long-term and favorably structured revenue contracts, secured equipment supply and clear path to permits and interconnection. Looking further out, Clearway Group's development program in 2028 and 2029 includes a total project volume of over 6.5 gigawatts, far in excess of what is needed to meet the top end of our 2030 goal. Focusing on the approximately 4.5 gigawatts of late-stage projects planned for 2028 and 2029, we expect those projects to target recurring asset CAFD of $40,000 per megawatt or greater and to enable CWEN investment at CAFD yields on average of 10.5% or better, in line with the current market for recently commercialized projects and recent drop-down offers, equating to approximately $180 million of recurring asset CAFD potential, that opportunity set is substantially larger than what is required to meet the top end of our 2030 CAFD per share goal. Turning to Slide 8. Our enterprise is advantageously positioned for growth well beyond 2030, given Clearway Group's best-in-class development pipeline and the technological and market resilience of its embedded projects. Projects are being developed at increasing scale in response to power market demand and will be commercialized with CWEN's growth objectives and investment mandate front of mind. As discussed in past quarters, our pipeline has been built for resilience through massive safe harbor investments, present geographic positioning and thoughtful procurement. Clearway has also established itself as a proven supplier of choice for utilities and hyperscalers to meet mission-critical data center demand with 1.8 gigawatts of PPAs executed and awarded to support data center loads during the last year. From this position and using pre-existing development and operating assets as a nucleus for its work, Clearway Group is now developing multi-technology generation complexes to serve gigawatt class co-located data centers across 5 states with the potential for these developments to create accretive investment opportunities for Clearway Energy, Inc. in the early 2030s. Configurations for these complexes range from approximately 1 gigawatt up to almost 5 gigawatts across multiple technologies with commercial operation stages coming online as soon as 2028 and spanning into the 2030s. The ultimate design and capacity of these complexes is subject to a number of factors. But if the enterprise is successful at bringing online just one of these large multi-generation complexes, a single one alone could allow CWEN to meet its growth objectives for multiple years in the 2030s while aligning with our capital allocation framework. Given our growth outlook and funding position, it is our view that the market could more significantly value the longevity and diversified enabling pathways of our growth outlook beyond 2030. To give our investors the ability to see that future growth potential as clearly as we do, we're aiming now to provide more visibility into the illustrative financial building blocks we plan to use to deliver durable growth well into the 2030s. As much as other power companies, if not more so, we expect that the location of our assets and their financial structures will allow our operating portfolio to benefit from rising power prices in the decade ahead. As our initial PPAs expire, our projects will be free of project level debt, which we structure to amortize at the conclusion of PPAs, making a higher power price scenario, a potential tailwind for recurring annual cash flow contribution. Additionally, while we plan with conservative assumptions for corporate and project refinancings, opportunistic execution may result in upside relative to our planned expectations. We have routinely demonstrated execution of project and corporate maturities at financing costs favorable to assumptions we incorporate into our long-term goals. We are cognizant of the many moving pieces that determine our operating portfolio's earnings power year-to-year. But over the long term, we believe the environment is shaping up to allow us to deliver low single-digit annual growth in cash flow from our existing portfolio. On top of this, we will have the opportunity to invest in growth across multiple redundant pathways in fleet enhancement, sponsor developed projects and third-party asset M&A, allocating capital across those pathways based on which investments will create the highest risk-adjusted return for Clearway Energy, Inc. By deploying 30% or more of a growing stream of retained cash flows towards growth at CAFD yields greater than 10%, we can achieve another 3 to 5 percentage points of annual growth in the long term. Finally, we can, in the long term, deliver at least 1% to 3% in compounding growth in CAFD per share through new project investments that are funded with corporate capital raised through the prudent issuance of corporate debt instruments and equity. Our track record has demonstrated the ability to create projects that deliver meaningful accretion relative to our cost for corporate capital. We have demonstrated the ability to sustain that accretion across multiple market cycles for over a decade. And we also have demonstrated a consistent commitment to prudence in the way we manage our balance sheet and judiciousness in the way we plan for and execute equity issuances. Through this simple and sustainable model and with an abundance of attractive growth opportunities ahead of us, we look forward to delivering our long-term growth target of 5% to 8-plus percentage growth well into the 2030s. Turning to Slide 11. We have continued to make progress across our redundant growth pathways, methodically executing on our prior commitments and extending our road map for growth with our trademark development craftsmanship. Our fleet optimization initiatives continue to strengthen our ability to achieve our 2030 target. Since last quarter, Mt. Storm started construction, a new long-term PPA was advanced for San Juan Mesa and safe harbor investments were made to enable 2 additional future repowerings that can be implemented over 2027 to 2029. We are now in a position where every project that is able to be repowered through 2027 can be and towards the implementation of a program that will aim to have repowered over 1 gigawatt of wind by 2029, with the majority of our wind fleet by that year being repowered or newly constructed this decade and in a strong position to perform for the decade ahead. Turning to Slide 12. Our sponsor-enabled growth program has also continued its forward progress with all previously committed investments funded in construction or on track for completion at attractive CAFD yields. All drop-downs that have commenced commercial operations in 2025 are fully funded with initial operational results showing excellent performance and anticipated CAFD contributions and CAFD yields exceeding these levels initially communicated at the time of investment commitment. This outcome was driven by further revenue contract and cost optimization as well as supportive project financing markets. Committed or recently offered drop-downs planned for COD in 2026 all remain on track for completion in that year with accretive prospective returns for CWEN. And additional sponsor developed drop-down opportunities for the 2020 COD and funding year are now coming into view. The Royal Slope project in Washington State has now been identified as a CWEN investment opportunity after executing a 20-year PPA and a 20-year energy storage agreement with the utility expecting significant data center demand growth in the region. And an additional WUB located battery storage resource has been identified as a potential additional future drop-down investment opportunity for CWEN in 2027. Turning to Slide 13. The last year has been a successful period of complementary and synergistic third-party M&A for Clearway with 3 transactions consummated at CAFD yields above 12%. Our early October announcement of the Deriva Solar portfolio acquisition capped off a fruitful year of disciplined acquisition engagement in a market environment that favored our strengths as an enterprise. The transaction leverages our core strengths in operating solar assets cost efficiently across the country and especially in California. It also positions us to enhance value in the 2030s through battery hybridizations at targeted sites and through the ability to offer solar energy and capacity value alongside our market-leading franchise for operating in new wind and PJM. Turning to Slide 14. Our 2030 CAFD per share target is built upon the strong building blocks discussed earlier. From the 2025 midpoint of guidance, we've spent the last year executing across our growth pathways through fleet improvements, enhanced capacity revenues, drop-downs and third-party M&A such that we now see a path to achieve the top end or better of our previously set 2027 target range of $2.50 to $2.70 in CAFD per share. Beyond 2027, CAFD per share growth will be further increased through what promises to be a very fruitful year of repowering investments in 2027, potential investments in now identified sponsor-enabled drop-down opportunities for the same year and the sizable late-stage pipeline Clearway Group is developing for completion in 2028 and 2029. Notable items that would net out against incremental asset CAFD from growth include the issuance of corporate debt to fund growth and the refinancing of our corporate bonds due in 2031, both of which we have conservatively accounted for in our targets. We also expect to issue modest equity to fund growth in line with our demonstrated practices and with the prospective cost of such issuance incorporated into our 2030 target. While our target represents a robust growth compound annual growth rate from 2025 levels, we will continue to evaluate the potential to prudently and methodically improve on that outlook over time through our fleet enhancement and sponsor development pathways and also through additional third-party M&A, which is not incorporated into our target setting and would continue to be subject to a rigorous standard for financial accretion. With that, I'll turn it over to Sarah, who will walk through our financial summary and provide additional detail on our financing outlook through 2030. Sarah Rubenstein: Thank you, Craig. Turning to Slide 16. For the third quarter, Clearway delivered adjusted EBITDA of $385 million and cash available for distribution or CAFD of $166 million. Year-to-date, we've generated $980 million of adjusted EBITDA and $395 million of CAFD. In our Renewables and Storage segment, wind resources in key regions tracked close to median expectations, while solar benefited from the execution and timing of growth investments. Flexible generation also performed in line with sensitivities. Turning to our balance sheet. We executed $50 million of opportunistic discrete equity issuances at accretive levels since the last earnings call through our ATM and dividend reinvestment and direct stock purchase plan. This reflects our continued commitment to capital discipline and our ability to access markets efficiently to support growth. Given the strong year-to-date performance and our expectations for the remainder of 2025, we are narrowing our 2025 CAFD guidance range to $420 million to $440 million. We're also establishing our 2026 CAFD guidance range at $470 million to $510 million. This guidance incorporates incremental contributions from drop-downs and third-party M&A as we continue to execute on our growth strategy. As in past years, our guidance midpoint assumes P50 renewable production expectations and the range reflects the potential variability in resource performance, energy pricing and timing of growth investments. As a last note on this slide, I'd like to note that our definition of CAFD is a conservative metric that represents the ongoing sustainable cash flow generation of our business and has been consistently applied throughout our history and remains unchanged. We have historically used this metric to measure the amount of cash available to distribute to our shareholders. In the interest of making our financial metrics more recognizable across peer benchmarks, we may now sometimes reference cash available for distribution interchangeably with free cash flow, a term that is more recognizable and commonly used among industry peers. The terms represent the same financial metrics, and you may see them used interchangeably beginning with these earnings materials. Turning to Slide 17. With the establishment of our 2030 CAFD per share target range, we wanted to provide greater granularity on potential funding sources and corporate capital deployment in 2026 through 2029 in support of our growth targets to achieve the target range of $2.90 to $3.10 in CAFD per share in 2030. Clearway continues to have a prudent capital allocation model to support our long-term objectives. First, utilizing retained cash flow, which will provide a greater contribution as supported by a payout ratio trending towards 70% by 2030. Next, we fund growth with corporate debt, while ensuring prudent corporate leverage, targeting a 4 to 4.5x ratio of corporate debt to EBITDA, in line with our target credit ratings. To round out our funding plan, we plan to issue moderate discrete amounts of equity when accretive in an amount that as a percentage of our public float is consistent with funding plans observed among listed utilities. Given our position of strength, opportunistic 2025 equity issuances and excess pro forma debt capacity, we have the flexibility to time the placement of future equity issuances and have the flexibility to utilize alternative sources to withstand temporary market volatility, if necessary. We do believe the discrete placement of equity at attractive levels when markets are conducive will provide a path to derisk our 4-year funding plan. This funding strategy, combined with our abundant set of high-return investment opportunities positions us well to achieve our 2030 CAFD per share target. Turning to Slide 18. To meet our goals in 2030 and beyond, our capital allocation framework is designed to create a virtuous cycle of sustainable and resilient growth. As the payout ratio decreases and goes below 70% long term, retained cash flows become a greater source of funding for accretive investments that can allow us to sustainably meet our 5% to 8% plus long-term annual growth objective. As we grow our earnings power from accretive investments and retained cash flows expand, this positive feedback loop repeats itself. With our long-term capital allocation framework, we believe we have more clarity into how we can fund our long-term growth, supported by our sponsor's abundant set of high-return opportunities. And from this position of strength, we will prudently use corporate debt and discrete equity to aim for the top end or better of our long-term targets. And with that, I'll turn the call back over to Craig for closing remarks. Craig Cornelius: Thanks, Sarah. Turning to Slide 20. We have decisively delivered a clear path to achieving our updated 2025 guidance and our 2027 target range. We've now established a 2030 growth target, demonstrating a 7% to 8% compound annual growth rate that matches up with the best in premium companies in the listed infrastructure and utility community. Our team has done an incredible job advancing our growth pathways and establishing strong visibility into how we can meet the 2030 target range we have set today. In the quarters ahead, you can expect that we will continue to operate our fleet with excellence, delivering predictable cash flow and payment of committed dividends, execute with trademark craftsmanship on the completion of the projects we have identified to enable our growth plans for the near term through 2027, further crystallize and communicate our road map to fulfill our 2030 targets through the fleet enhancement initiatives and growth investments we will complete over 2028 and 2029, demonstrate that our funding strategy is being executed in a way that is financially prudent and accretive and show each year how the enterprise we have created in Clearway has one of the most diversified and promising models in the U.S. power sector for delivering sustained profit growth alongside competitive dividend growth as we extend the strong performance of this model through the end of this decade and into the decade to come. Operator, you may open the lines for questions. Operator: [Operator Instructions] And our first question comes from the line of Dimple Gosai with Bank of America. Dimple Gosai: The first one was something on the slides that kind of caught my attention here. You flagged development of flexible gas paired with renewables near hyperscaler clusters. Can you give us a sense of timing of these opportunities and what returns do these hybrid data center complexes target and how you think of the risk return profile compared to traditional renewables? And then I have a follow-up. Craig Cornelius: Yes, sure. We've noted at the beginning of this year that we would be undertaking work to complement our existing pipeline of renewable and battery development assets and operating assets with other complementary resources that could help serve the growing co-located data center loads that the digital infrastructure community has a need to supply. And over the course of the year, we have done the work to assess which of our pre-existing development and operating assets were positioned in locations that were most responsive to the needs of our current and prospective customers in that community. And the projects that you see noted here exhibit the same geographic footprint that you'd seen noted earlier this year. and represent work that Clearway Group is doing to create a subset of investment opportunities that would likely be accessible to Clearway Energy, Inc. in 2030 and beyond. The plans we've laid out today and the goals we've set out to 2030 don't depend on any of these complexes being realized. We can hit the goals we've outlined building and developing the same projects that make up the fleet that we have today with the same type of contracting structures that we employ in our operating fleet and in our newly offered drop-down assets. For those complexes that do include potential flexible generation resources, our objective is to create a complementary gas resource that enables load following and highly contracted resources that are responsive to both the needs of interconnecting utilities, regulators and data center customers. And it may be the case that in any given complex situation, the best owner of a flexible generation resource may, in fact, be the interconnecting utility or a Clearway enterprise component. In all cases, we would envision those resources as being contracted if part of our enterprise complex in the long run and exhibiting risk-adjusted returns that are at least as good, if not superior to those you see reflected on other drop-downs today. So they're part of our long-run future. They're part of our being a responsive energy supplier that our customers can choose to do business with across the country. And they are part of how we can sustain substantial compounding growth for Clearway Energy, Inc. in the decade ahead. And we look forward to creating those projects and again, in a way that would be entirely consistent with our pre-existing capital allocation framework. Dimple Gosai: And the follow-up is repowering appears to be delivering 10% to 12% CAFD yields, which is super attractive here. Can you give us a sense of the timing of contribution and the size of that opportunity as it relates to Mt. Storm, Goat Mountain and San Juan Mesa? I believe there's sales and repurchasing mechanisms that's associated with these. Craig Cornelius: Yes. The majority of the repowering campaign, as you will note in our materials, will occur through investments that Clearway Energy, Inc. will make in 2027. And so their CAFD contribution will largely be reflected in the difference between the top end of $2.70 in CAFD per share in 2027 and our goal of delivering $2.90 to $3.10 in CAFD per share or better in 2030. You'll see most of the CAFD uplift from those assets reflected in our 2028 financial year. And we've noted the incremental CAFD contribution and the CAFD yields that you could expect to see from each of those projects individually. In every case, we're pleased to note, including through the PPA that we'd signed actually just earlier today for San Juan Mesa, that the PPA tenors on these projects and the terms of these PPAs are quite attractive. So in addition to the incremental CAFD they'll contribute and the high CAFD yield at which we're deploying capital, we're creating great longevity and contract profile for our wind fleet with these new PPAs and these new repowerings. Operator: Our next question comes from the line of Justin Clare with ROTH Capital Partners. Justin Clare: So I guess just following up on the prior line of questioning there and then some comments you made in your prepared remarks. I'm wondering what you're seeing in terms of the potential for PPA renewals, so not necessarily just for repowering, but for other projects in your pipeline. With the increase in power pricing that we're seeing, wondering if there's demand from offtakers to renew and extend PPAs at an earlier time than you might typically expect and whether or not that's something that could lead to growth in your revenue or CAFD in the coming few years? Craig Cornelius: Yes. Thanks for the question. You noted that last year, as an example of the line of questioning you're posing that we were able to extend the power purchase agreement for our Wildorado project and do so with a CAFD contribution that is part of the overall landscape of CAFD accretion that supports our 2030 goals. And that was probably a first notable instance of the trend that you're asking about, but likely not the last. More likely than not, that opportunity for extension in our wind fleet will mostly contribute to longevity and compounding of cash flow in 2030 and beyond because substantially all of our existing renewable fleet is fully contracted through to the end of this decade. And as part of any contract extension negotiations that we may undertake with customers, we will be focused on assuring that the cash flow contribution from any given asset will remain at least as high, if not higher, than we would otherwise expect under our existing revenue contracts between now and 2030. But most definitely, we see that as a potential benefit. What's apparent in the case of Mt. Storm is that we were able to convert a shorter-term defined quantity hedge to a long-term PPA. We do have some other assets in our fleet that exhibit a similar commercial profile. And for that subset of assets, we may be in a position to be able to undertake an adaptation or optimization in their revenue contracting profile between now and 2030 that could both enhance cash flow and reduce interannual variability. But when we think of the recontracting and extension opportunity, we think of it principally as a driver of our ability to deliver a long-term compounding 5% to 8% plus growth rate beyond 2030, where per the math that we'd outlined in the presentation, we'll aim for our existing operating fleet to continue to grow its CAFD per share contribution by 1% to 2%. Justin Clare: Okay. Got it. That's really helpful. And then I just had a follow-up on the 2030 targets. When I look at the 2030 CAFD per share target and then I compare that to the high end of the 2027 CAFD per share range, I calculate a CAGR between the 2 of just over 3.5%. So it's a little bit below the growth anticipated through '27 and a little bit below the growth anticipated in 2030 onward. So just wondering if that's the right interpretation and if you might be able to bridge why growth might slow in those few years before reaccelerating? Craig Cornelius: Yes. I think as you've observed over time, we have a culture of setting goals that we know exactly how to hit. And then as we complete commercialization actions that allow us to fulfill those goals, then we further revisit or update those. And one of the things that we're quite proud of is the fact that between October last year and October this year, we increased our CAFD per share expectations from $2.40 to $2.60 in CAFD per share in 2027 to $2.50 to $2.70 to $2.70 or better, all in the space of 1 year. And what you can see in that is that we have a systematic culture of setting goals that should be attractive to our investors and then revisiting them and ideally updating and increasing them as we complete individual contributing actions. We look to that 7% to 8% CAFD per share growth goal through 2030 is very much at the leading edge of what you see amongst premium utilities today. If we were to be compounding, as you noted, from $2.70, let's say, a 6% growth rate out to 2030, that would take you to, say, $0.10 a share above that range that we'd articulated. And we will certainly look as a company to what series of actions and growth investments and execution will allow us as we move forward between now and 2030 to continue to compound across our portfolio systematically at that 5% to 8% range. And as you can see from what we've outlined in our development and investment opportunity set, in total, the total amount of projects that Clearway Group is developing, which are potentially recipients of investments from Clearway Energy, Inc. in 2028 and 2029 would meaningfully exceed the amount of projects that Clearway Energy, Inc. would need to invest in to hit the top end of our existing $2.90 to $3.10 per share goal. So bottom line, we feel quite good about our opportunity set. We feel great about what 7% to 8% compound annual growth from 2025 represents. We feel that the investment opportunity set in front of us is quite robust. We've demonstrated a culture of setting goals, hitting them and then revisiting and increasing them. And we intend as a company to continue on with that excellent track record. Operator: Our next question comes from the line of Steve Fleishman with Wolfe Research. Steven Fleishman: I was going to ask that same question. So I appreciate the answer you just gave there. But Craig, just one other question. It does seem like maybe you're in a kind of a target-rich environment, both from your developer parent, but also just the M&A environment. So maybe you could first talk a little bit about how much more M&A opportunity are you seeing? And then secondly, just how are you thinking about just funding kind of those upside type opportunities if you start having billions more to invest in, just can you use this framework the same way for that incremental investment? And just how you're kind of managing that? Craig Cornelius: Yes. Well, I think to start with, and it's also reflected in the way that we've sought to articulate long-term goals and an accompanying capital allocation framework. We are mindful of the important contact we have with our investors to progressively demonstrate how our business model will continue to sustainably grow across cycles using financing sources that are demonstrably within our means. So when we think about growth goals, when we think about any individual incremental capital commitment, we're looking first to assure that we're able to successfully execute on it with financing sources that are accretive materially relative to the cash yield that we have on an investment. You've seen that's absolutely been true for each of the incremental M&A investments that we've announced here this year relative to our weighted average cost of capital at spreads that approach 500 basis points. And so in an environment where it's possible for us to sensibly acquire assets that fit with our fleet and with our investment mandate and which we can add value to, we'll want to continue to assess whether for our shareholders, it's sensible for us to make those incremental investments and reflect their addition in our long-term profit goals. But we also want to be judicious about assuring that what we are digesting at any given point in time is constant with what our investors would like to see us committing to and the magnitude of corresponding securities issuance that would come with funding them. I think one of the things that we have done through, in particular, the 1/3 of the acquisitions that we announced this year is to use it to help us look forward to a point in the future where the payout ratio in our business model is declining. Something that we reflect on is the great power of a payout ratio that's declining down to 70% or 65% and how much compounding CAFD per share growth, a payout ratio at those lower levels can enable us to fund just from our own operating sources without much in the way of equity issuance. So I think if we were to see anything that would be sensible for further acquisition, the standards we'd be applying look like the same ones that we applied to the deals that we did this year, meaning they have to be meaningfully accretive. We have to have significant synergistic value we're able to apply and extract. The funding of the investment needs to be demonstrably within our ability and, I guess, a manageable bite size. And to the extent that we are acquiring additional assets, we would look to devote their incremental cash flow, in particular, towards reducing our payout ratio and increasing the self-funding nature of our business model. Operator: Our next question comes from the line of Heidi Hauch with BNP Paribas. Heidi Hauch: Helpful detail on the long-term outlook. I just wanted to kind of take the other end of the previous question in terms of how you're thinking about asset dispositions in terms of the broader funding strategy. Is this core to the strategy? Should we think of any specific asset or portfolios as most eligible? And would this offset any equity issuance needed or help to drive incremental growth? Craig Cornelius: Yes. We have not incorporated planned disposition of assets into our capital allocation framework. or the funding sources that we assume to be able to tap into in order to deliver on our long-term growth goals. But as fiduciaries, we always remain cognizant of whether we are the best owner of an asset or whether it would be more accretive for our shareholders to selectively dispose of assets in our fleet. We certainly have done that at large scale in the context of the district thermal segment divestiture that we completed some years ago, but have also done that at very small scales around individual renewable plants that just weren't a great fit for our fleet. As we go forward to next year, we will always remain mindful of whether there are relatively small contributors to our fleet, which may be more highly valued by other buyers for whom those assets might be more significant. And there may be targeted opportunities along those lines to call it, enhance operating efficiency in our fleet by reducing project count in select areas or by conveying an asset to someone else who sees a greater strategic interest in it. What we look at in situations like that is how much CAFD a project is contributing to us, what our outlook is in long-term net present value. and whether someone else who is buying the project from us would buy it at a CAFD yield that's accretive relative to the value that's embedded in our shares today and would assign a terminal value to the asset that's higher than what we do. And in instances where that's possible, we will selectively determine that, that's in the best interest of the shareholders to dispose of an asset along those lines. But a core asset harvesting campaign to fund our growth is not part of our plan. And we feel quite good about the long-term outlook for our fleet. So the assets that are in our fleet, we're kind of enthused to own as we look out into the 2030s. Heidi Hauch: Great. That's helpful. And then secondly, going back to the data center opportunity, specifically with developing natural gas. Firstly, how soon should we expect Clearway to kind of update or formalize these contracts maybe given the extended equipment lead times for natural gas? And then secondly, just more broadly, what is driving Clearway to kind of get involved with developing flexible generation in addition to kind of the legacy renewable development? Is this driven from demand from hyperscalers or utilities or customer conversations? Just kind of curious on the broader strategy there. Craig Cornelius: Yes. The bulk of our business is to develop assets that are reflective of our deep expertise and our track record for both asset development and operation. And we are mindful that in California, we have a great existence proof for what a flexible generation fleet can do to complement renewable resources and provide a combined highly reliable increment of baseload capacity. When we think about the flexible generation fleet that we have in California and the totality of our emissions footprint, as a business, more than 95% of the megawatt hours that we generate are emissions-free. But fully 1/4, if not more, of our operating cash flow comes from a flexible generation fleet that's absolutely essential to the state of California and which has facilitated what are quite favorable reliability statistics for the state as a whole as low marginal cost renewable energy grows as it's a fraction of loads served in the state. So that's the business model that we are selectively looking to emulate in individual areas where our customers would like for us to serve them renewables and where they recognize that complementary gas helps those renewables get built and deliver into the system combined capacity that's needed. What you should know, though, and what you should focus on is that the mainstay of our business, by far the bulk of the 30 gigawatt pipeline that we maintain today, the entirety of the 11 gigawatt pipeline that we have of late-stage assets for completion over the next 7 years are renewable and battery projects in places where those are the least cost best fit resources for customers who want to buy their attributes in long-term contracts. And the plan that we've laid out, the goals that we've set and will meet through 2030 is underpinned entirely with those asset types. So the flexible generation resources that we now have in development are additional to that core capability that we have. They will help create opportunity for carbon-free resources to serve growing load in places where data centers absolutely are needed in the gigawatt scale. And they're part of how we make this business model continue to grow and compound, not just through the next 5 years, but through the next 10. Operator: Our next question comes from the line of Mark Jarvi with CIBC. Mark Jarvi: Just, Craig, on the data center energy complex facilities, do any of those build off of the existing renewable and battery installations or those new development sites? Craig Cornelius: All of them build off of either existing operating facilities or renewable and battery sites that we had in development more than 5 years ago. Mark Jarvi: So will there be a contract on existing assets? And then does that factor in the ability to drive higher returns off of those types of projects? Craig Cornelius: Yes. I think what creates an opportunity to deliver higher returns really from all the projects that we have in our development footprint today is the ability to bring a power plant online at size with credibility. And I think when we look across the footprint that we highlighted on Page 8 of our earnings materials, when you look across the footprint that we've outlined per our custom in our appendix, you will see that the average size of renewable and storage projects in our pipeline has grown appreciably. You'll see that the total quantity of late-stage projects that we have that are constructable over the next 5 years has grown significantly. You'll see that most of them are entirely storage or include a storage component. You should see that solar amongst the renewable resources is by far the largest share relative to wind in that development footprint. And what is allowing us to produce good returns today, what's allowing us to get longer PPAs, what's allowing us to deliver CAFD yields for CWEN that are higher than they have been historically are all the fact that we've got a power plant that we can construct that we can credibly bring online in the near term. And in some ways, the bigger the power plant, the greater contribution it can make to capacity and energy needs now, the higher return we can produce. So for these larger complexes, those same attributes will show up likely later in our development program into the time period after 2030. But what will make those complexes successful are the same things that are making it possible for us to develop so much over the balance of the decade between now and 2030 at high returns, which is that we know how to build power plants. We've demonstrated that we can build them when others can't. We know how to operate them. We have a robust position of interconnection queues. We've been developing the projects in places where renewables and batteries are least-cost, best-fit resources. And that those things are worth a lot, whether it's to a utility or a data center company today. Operator: And our next question comes from the line of Nelson Ng with RBC Capital Markets. Nelson Ng: Congrats on a strong quarter. So just a quick clarification on your 2030 outlook. Can you just give some more details in terms of what you're assuming for your flexible generation portfolio? And maybe just give an update on how contracted those assets are now? Craig Cornelius: Yes. When we set the range, we said it as is our philosophy at a level where we are confident we can meet the range in current market conditions for our open position, and that's reflected in that range of $290 million to $310 million. The corresponding levels look similar to what our fleet was contributing, the flexible generation fleet was contributing in 2024 and 2025. And we intend to be able to ultimately harvest even more value or aim to harvest even more value from that segment in those out years than we would need to in order to hit the range that we've articulated of $2.90 to $3.10 in CAFD per share. We are optimistic about the value that those assets will harvest in the market informed by a few key data points. First, just the marginal cost of 4-hour storage, which we're contracting extensively in the state for newly built resources and it's still very solidly in the double digits and low to even sort of mid-double digits in cost. Second, because of the ongoing increase in demand forecast, not just for CAISO, but for adjacent markets that have historically been sources of capacity for CISO and the substantially costlier profile for long-duration storage that could potentially try to -- that would be really needed to substitute for the attributes of the thermal resources. So we feel really comfortable about the durable value in our fleet, which is one of the state's most modern and most reliable and exhibits comparatively high capacity values as compared to peer capacity. And that puts us in a position to be patient in our optimization of incremental resource adequacy contracts and also clear eyed and the goal of having them contribute even more than is embedded in the $2.90 to $3.10 in CAFD per share, which we could most definitely execute within today's market environment. Nelson Ng: Okay. Great. And then just a quick follow-up question. So obviously, your development pipeline is a lot larger than what CWEN needs to hit its targets or even to exceed the targets moderately. So in terms of drop-downs and transactions, should we expect to see CWEN buy like 50% of future projects or like something much lower than 100%? Craig Cornelius: I think we both sometimes drop assets with 100% equity interest for Clearway Energy, Inc. and in some instances, have consummated equity partnerships that work like you've just described. everything we have developed and identified for potential CWEN investment through 2027 is planned for 100% CWEN equity investment. As we look later into the decade, we'll certainly be evaluating the capital allocation framework for CWEN and its embedded funding capacity and looking at how we pace development assets in relation to that funding capacity. What we have often done in the past where we've had an exceedance of development pipeline relative to CWEN's funding capacity is to selectively move our best development assets to successive periods of time where they fit neatly into CWEN's plan. And we will also look at whether there are complementary funding sources that help sustain the growth profile for CWEN while capitalizing projects that have to be built on a firm time line. What our mainstay has been throughout our history is that we use simple financing structures that will deliver predictable financial performance for CWEN. And that basic principle is what will guide what we build and how we capitalize it with CWEN over time. Operator: And our last question comes from the line of Corinne Blanchard with Deutsche Bank. Corinne Blanchard: Most of them have been answered, but maybe a quick one. I think we saw Clearway Group having now 27 gigawatts in the pipeline. And I think last quarter, it was about 29. Can you just talk about what caused that decrease? And I think as well we're seeing like early stage has decreased what prospect has increased. So just trying to understand if there's a pushback in some of those projects. Craig Cornelius: Yes. Our disclosure aim to clarify that the pipeline in Clearway Group today is actually 30 gigawatts. That's up from 29 in the last quarter. And we noted that 27 gigawatts was a pro forma pipeline level that we would expect to be at after certain select harmonization of development assets that are not necessary for the enterprise to hit its goals over the next 3 to 4 years. What you should see is that we've now dialed in a specific set of projects that we're planning on constructing over the course of the next 7 years in the late-stage pipeline progression that we have on that same page, which in total, still quite meaningfully exceeds the total quantity that Clearway Energy, Inc. needs for Clearway Group to develop and build for its plan to be realized. So in point of fact, the pipeline that we have today is up quarter-over-quarter, but we've wanted to set expectations that we would selectively harvest individual assets that are not essential to executing on the goals that we have for the next 5 years. Operator: Thank you. I'll now hand the call back over to President and CEO, Craig Cornelius, for any closing remarks. Craig Cornelius: Thank you, everyone, for joining us today and for your ongoing support of Clearway. We look forward to continuing to deliver with excellence in the quarters ahead as we strive to set the gold standard for sustainably growing mission-critical energy companies here in America. Operator, you can close the call. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for participating, and you may now disconnect.
Operator: Good day, everyone, and welcome to the Mercury Systems First Quarter Fiscal 2026 Conference Call. Today's call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to the company's Vice President of Investor Relations, Tyler Hojo. Please go ahead, Mr. Hojo. Tyler Hojo: Good afternoon, and thank you for joining us. With me today is our Chairman and Chief Executive Officer, Bill Ballhaus; and our Executive Vice President and CFO, Dave Farnsworth. If you have not received a copy of the earnings press release we issued earlier this afternoon, you can find it on our website at mrcy.com. The slide presentation that we will be referencing to is posted on the Investor Relations section of the website under Events and Presentations. Turning to Slide 2 in the presentation. I'd like to remind you that today's presentation includes forward-looking statements, including information regarding Mercury's financial outlook, future plans, objectives, business prospects and anticipated financial performance. These forward-looking statements are subject to future risks and uncertainties that could cause our actual results or performance to differ materially. All forward-looking statements should be considered in conjunction with the cautionary statements on Slide 2 in the earnings press release and the risk factors included in Mercury's SEC filings. I'd also like to mention that in addition to reporting financial results in accordance with Generally Accepted Accounting Principles or GAAP, during our call, we will also discuss several non-GAAP financial measures, specifically adjusted income, adjusted earnings per share, adjusted EBITDA, and free cash flow. A reconciliation of these non-GAAP metrics is included as an appendix to today's slide presentation and in the earnings press release. I'll now turn the call over to Mercury's Chairman and CEO, Bill Ballhaus. Please turn to Slide 3. William Ballhaus: Thanks, Tyler. Good afternoon. Thank you for joining our Q1 FY '26 earnings call. We delivered Q1 results that were ahead of our expectations with solid year-over-year growth in backlog, revenue, adjusted EBITDA, and free cash flow. Our ability to accelerate deliveries on a number of our customers' high-priority programs once again contributed to strong results this quarter. Today, I'll cover 3 topics: first, some introductory comments on our business and results; second, an update on our 4 priorities: performance excellence, building a thriving growth engine, expanding margins and driving improved free cash flow; and third, performance expectations for the balance of FY '26 and longer term. Then I'll turn it over to Dave, who will walk through our financial results in more detail. Before jumping in, I'd like to thank our customers for their collaborative partnership and the trust they put in Mercury to support their most critical programs. I'd also like to thank our Mercury team for their dedication and commitment to delivering mission-critical processing at the edge. Please turn to Slide 4. Our Q1 results support our expectations for robust organic growth with expanding margins and positive free cash flow. Bookings of $250 million and a 1.11 book-to-bill, resulting in a record backlog of $1.4 billion. Revenue of $225 million, up 10.2% year-over-year, adjusted EBITDA of $35.6 million and adjusted EBITDA margin of 15.8%, up 66% and 530 basis points, respectively, year-over-year; and free cash outflow of $4.4 million, a $16.5 million improvement in free cash flow year-over-year. We ended Q1 with $305 million of cash on hand. These results reflect ongoing focus on our 4 priority areas with highlights that include solid execution across our broad portfolio of production and development programs, backlog growth of 6.5% year-over-year, a streamlined operating structure enabling increased positive operating leverage and significant margin expansion and continued progress on free cash flow drivers with net working capital down $105.7 million year-over-year or 18.8%. Please turn to Slide 5. Starting with our 4 priorities: and priority one, Performance Excellence, where our efforts positively impacted our results primarily in 2 areas: First, in Q1, we recognized $4 million of net adverse EAC changes across our portfolio, which is in line with recent quarters and down 51% year-over-year, reflecting our maturing capabilities in program management, engineering and operations, and sound execution on our development programs. Second, we accelerated customer deliveries across a number of high-margin programs, generating approximately $20 million of revenue and $10 million of adjusted EBITDA previously planned for the second quarter. This acceleration, partially driven by a $26 million year-over-year increase in point-in-time revenue, contributed to top line growth and adjusted EBITDA margins that exceeded our expectations for Q1 and will also factor into our outlook for Q2, which I'll speak to shortly. Beyond the solid performance across our portfolio of programs, we progressed on a number of actions in the quarter to increase capacity, add automation, and consolidate subscale sites and our ongoing efforts to drive scalability and efficiency. Notably, we continue to build out our highly automated manufacturing footprint in Phoenix, Arizona. We expect to bring online over 50,000 square feet of factory space in Q3 of FY '26 to support ramped production for our Common Processing Architecture programs and to allow for more efficient scaling if potential market tailwinds materialize. Please turn to Slide 6. Moving on to priority 2, Driving Organic Growth. Following record bookings in Q4, we delivered another solid quarter with $250 million of awards, resulting in a record backlog of $1.4 billion and a book-to-bill of 1.11. Notable Q1 awards reflected a healthy mix of competitive wins, follow-on production awards, and new design programs that continue to strengthen our position across key franchises, $26 million in competitive takeaways, including a major RF subsystem win supporting a ramping U.S. missile program. Multiple follow-on production awards, including an order from a leading European defense prime for an electronic-warfare application that reinforces our strong international positioning and a follow-on for RF modules supporting a major U.S. fighter aircraft. Several follow-on orders that leverage our Common Processing Architecture and include embedded anti-tamper and cybersecurity software from our recent acquisition of Star Lab. And on the development front, we saw continued momentum with new design wins across mission computing, RF and processing technologies, expanding Mercury's role on next-generation defense platforms. These awards are important, not only because of their value and impact on our growth trajectory, but also because they reflect those customers' trust in Mercury to support their most critical franchise programs with our proven capabilities and latest innovations. Beyond our backlog growth, we continue to have customer conversations on the potential for higher demand on multiple programs across our portfolio, driven by increased defense budgets globally and domestic priorities like Golden Dome. Although these potential opportunities are still in early pipeline phases, I am optimistic that they may have a positive impact on our demand environment if funding is allocated across certain program priorities to our customers over the next several quarters and beyond. Please forward to Slide 7. Now turning to priority 3, Expanding Margins. In our efforts to progress toward our targeted adjusted EBITDA margins in the low to mid-20% range, we are focused on the following drivers: backlog margin expansion as we convert lower-margin backlog and add new bookings aligned with our target margin profile, ongoing initiatives to further simplify, automate and optimize our operations, and driving organic growth to realize positive operating leverage. Q1 adjusted EBITDA margin of 15.8% was ahead of our expectations and up 530 basis points year-over-year. This margin performance was driven by the conversion of backlog previously contemplated to be delivered later in FY '26 and higher operating leverage. Gross margin of 28%, up approximately 260 basis points year-over-year was driven by a favorable mix of backlog margin converted in the quarter. We expect average backlog margin to continue to increase as we bring in new bookings that we believe will be in line with our targeted margin profile and accretive to the current average margin in our backlog. Operating expenses as a percent of revenue are down year-over-year, as a result of fully realizing the impact of previously implemented actions to further simplify, streamline, and focus our operations and ongoing initiatives to drive efficiency. Please forward to Slide 8. Finally, turning to priority 4, Improved Free Cash Flow. We continue to make progress on the drivers of free cash flow, and in particular, reducing net working capital, which at approximately $458 million is down $106 million year-over-year. Q1 free cash flow represented a $16.5 million improvement over Q1 of last year. We believe our continuous improvement related to program execution, accelerating deliveries for our customers, demand planning and supply chain management will lead to continued reduction in working capital and net debt going forward. In addition, we continue to expect to allocate factory capacity in FY '26 to programs with unbilled receivable balances, which will help drive free cash flow, although with little impact to revenue. Please turn to Slide 9. Looking ahead, I am optimistic about our team, our leadership position in delivering mission-critical processing at the edge, the market backdrop, and our expected ability over time to deliver results in line with our target profile of above-market top line growth, adjusted EBITDA margins in the low to mid-20% range, and free cash flow conversion of 50%. We believe our strong Q1 results, combined with the solid Q4 results of FY '25 reflect continued progress toward this target profile with an aggregate 1.2 book-to-bill, 10% top line growth, 17.4% adjusted EBITDA margins and positive free cash flow over the last 2 quarters. Coming out of Q1, we maintain our full year view on FY '26, which excludes any further acceleration of customer deliveries within or into FY '26 or upside bookings to our plan tied to domestic priorities like Golden Dome or increased global defense budgets. We continue to expect annual revenue growth of low single digits with the first half relatively flat year-over-year, and volume increasing sequentially as we move through the second half. Given our Q1 overperformance, we expect Q2 revenue to be down year-over-year, absent any additional acceleration of deliveries. We continue to expect full year adjusted EBITDA margin approaching mid-teens with low double-digit adjusted EBITDA margins in the first half. Given the accelerated delivery of high-margin backlog into Q1, we expect Q2 adjusted EBITDA margin approaching double digits as we convert low-margin backlog. We continue to anticipate margins to expand in the second half with Q4 adjusted EBITDA margin expected to be the highest of the fiscal year. Finally, with respect to free cash flow, we expect to be free cash flow positive for the year with second half free cash flow greater than the first half. In summary, with our momentum coming out of Q1, I expect FY '26 performance to represent another positive step toward our target profile. Additionally, I'm gaining optimism regarding the potential for tailwinds associated with increased global defense budgets and domestic priorities like Golden Dome to materialize in upside bookings to our plan over time. I look forward to providing updated commentary as we progress through the year. Before I hand it over to Dave, I wanted to touch on a new $200 million buyback authorization that was announced in our earnings press release. This authorization underscores our confidence in the business, our improving fundamentals and the multiple opportunities we see ahead to drive long-term shareholder value. With that, I'll turn it over to Dave to walk through the financial results for the quarter, and I look forward to your questions. Dave? David Farnsworth: Thank you, Bill. Our first quarter results continue to reflect solid progress toward our goal of positioning the business to deliver performance excellence characterized by organic growth, expanding margins and robust free cash flow. We still have work to do, but we are encouraged by the progress we have made and expect to continue this momentum throughout fiscal 2026. With that, please turn to Slide 10, which details our first quarter results. Our bookings for the quarter were $250.2 million with a book-to-bill of 1.11. Our record backlog of $1.4 billion is up $86.4 million or 6.5% year-over-year. Revenues for the first quarter were $225.2 million, up approximately $21 million or 10.2% compared to the prior year. During the first quarter, we were again able to accelerate customer deliveries worth approximately $20 million of revenue previously planned to be delivered in Q2 FY '26. Gross margin for the first quarter increased approximately 260 basis points to nearly 28% as compared to the same quarter last year. Gross margin improvement during the first quarter was primarily driven by favorable program mix, lower manufacturing adjustments of $7.4 million and a reduction in net EAC change impacts of approximately $4 million or 51% year-over-year. As Bill previously noted, we expect to see an improvement in our gross margin performance over time, as the average margin in our backlog improves through our continued focus on building a thriving growth engine, coupled with ongoing initiatives to simplify, automate and optimize our operations. Operating expenses increased $6.3 million or 9.6% year-over-year. The increase was primarily driven by higher compensation costs and incremental litigation and settlement expenses within selling, general and administrative costs of $7.3 million and $6 million, respectively. These increases were partially offset by a reduction in research and development costs of $5.2 million or 28.3%, driven by headcount reductions initiated in fiscal 2025 to align our team composition with our increased production mix, as we previously discussed. We also incurred $1.6 million of restructuring and other charges during the quarter as we progress on driving scale and efficiency in our operations. GAAP net loss and loss per share in the first quarter were $12.5 million and $0.21, respectively, as compared to GAAP net loss and loss per share of $17.5 million and $0.30, respectively, in the same quarter last year. The improvement in year-over-year earnings is primarily a result of increased gross margins, partially offset by increased operating expenses previously discussed. Adjusted EBITDA for the first quarter was $35.6 million, up $14.1 million or 65.8% as compared to the same quarter last year. Adjusted earnings per share was $0.26 as compared to $0.04 in the prior year. The year-over-year increase was primarily related to our increase in revenue and the associated gross margin in the current period as compared to the prior year. Free cash flow for the first quarter was an outflow of $4.4 million as compared to an outflow of $20.9 million in the prior year. This reflects a $16.5 million or 79% reduction to our outflow as compared to the prior year. Slide 11 presents Mercury's balance sheet for the last 5 quarters. We ended the first quarter with cash and cash equivalents of $304.7 million, sequentially driven primarily by $2.2 million in cash provided by operations in the first quarter, which was offset by investments of $6.5 million in capital expenditures. Over the last 4 quarters, we generated approximately a $135.6 million of free cash flow. Billed receivables decreased year-over-year and sequentially by $31.9 million and $16.9 million, respectively. Unbilled receivables decreased year-over-year and sequentially by $23.4 million and $3.6 million, respectively. The decrease in both billed and unbilled receivables reflects the progress we've made by delivering on programs to our customers. As Bill previously noted, we continue to expect to allocate factory capacity in fiscal '26 to programs with unbilled receivable balances, which will help drive free cash flow with minimal impact to revenue. Inventory decreased year-over-year by $10.8 million. Prepaid expenses and other current assets increased sequentially by $43.2 million, primarily due to our settlement in principle on the securities class action complaint. This settlement in principle is recorded as a receivable within prepaid expenses and other current assets and a corresponding accrual was recorded in accrued expenses. Accounts payable increased year-over-year and sequentially by $23.1 million and $18.7 million, respectively, driven by the timing of payments to our suppliers. Accrued expenses increased $32.2 million sequentially, primarily due to our settlement in principle on the securities class action complaint previously mentioned. Accrued compensation decreased $27.8 million sequentially, primarily due to payments under our incentive compensation plans. Deferred revenues increased year-over-year by $29.2 million as a result of additional milestone billings achieved during the period. Sequentially, deferred revenues decreased slightly by $1.3 million. Working capital decreased $105.7 million year-over-year or 18.8%, this demonstrates the progress we've made in reversing the multiyear trend of growth in working capital, resulting in a reduction of $202.3 million or 30.6% from the peak net working capital in Q1 FY '24. Net working capital remains a primary focus area for us, and we believe we can continue to deliver improvement. Turning to cash flow on Slide 12. Free cash flow for the first quarter was an outflow of $4.4 million as compared to $20.9 million in the prior year. We still expect to be free cash flow positive for the year with second half free cash flow greater than the first half, as Bill previously noted. We believe our continuous improvement in program execution, hardware delivery, just-in-time material and appropriately timed payment terms will lead to continued reduction in working capital. In closing, we are pleased with the performance in the first quarter and the higher level of predictability in the business. We believe continuing to execute on our 4 priority focus areas will not only drive revenue growth and profitability, but will also result in further margin expansion and cash conversion, demonstrating the long-term value creation potential of our business. Lastly, as you saw in our filing, we've announced that we've entered into an amendment to our revolving credit facility. This amendment extends the maturity date of the credit facility by 5 years with a facility size of $850 million. This amendment enhances our financial flexibility and provides continued access to a strong source of liquidity, allowing us to execute our strategic priorities and invest in our long-term growth. With that, I'll now turn the call back over to Bill. William Ballhaus: Thanks, Dave. With that, operator, please proceed with the Q&A. Operator: [Operator Instructions] Your first question comes from the line of Ken Herbert with RBC. Kenneth Herbert: Nice results, Bill and Dave. Maybe just to start off, when we back out sort of the pull forward on the revenues, you're sort of basically flat in terms of the growth with 12%-ish EBITDA margins, sort of in line, I think, with how you were initially guiding for the first quarter? Can you just talk about your ongoing ability to continue to pull the revenues forward as we think about that as through the rest of the fiscal year? And I know, obviously, it's hard to predict that and depending upon a lot of factors. But how do we think about that? And how do we think about that from a potential to really drive sort of incremental upside as we go through the rest of the fiscal year? William Ballhaus: Yes. Ken, thanks. This is Bill. I'll take that. If I think about the last few quarters, we have been successful as we've worked our way through the quarters at looking at the constraints on delivering to our customers and for their high priority programs, being able to work through the constraints and accelerate deliveries. The challenge with doing that is we really don't have good line of sight on how we're working through those constraints, until we get toward the middle or the end of the quarter. And so as we think about Q2 and our commentary for the balance of the year, that's the primary reason why we haven't factored any future accelerations into it. That said, we're continuing across our portfolio every day and every week to work on constraints and trying to accelerate for our customers. And we hear loud and clear from our customers that in today's environment, if -- in general, if we can deliver early, that's a very good thing for them and for their customers. So we continue to work through it. The kinds of things that we're working through are largely tied to trying to accelerate material from our suppliers, in some cases, we have some factory constraints that we need to try and work our way through as material comes in. And those are the kinds of things that we're working on, on a day-to-day basis. So again, we haven't factored it into our outlook for Q2 or for the rest of the year. We do continue to work it. And as we're successful in accelerating deliveries, then obviously, we pull that into our updated view on the current period in the fiscal year. Kenneth Herbert: And if I could, the additional capacity that you're bringing online in Phoenix, what's the timing? And can you help maybe -- help us quantify sort of what that could add in terms of either capacity or ultimately what it could add from a revenue standpoint? William Ballhaus: Yes. I mean, I think, to answer the question, I'd like to take a step back and answer it in the broader context of how we're thinking about our approach to scaling up, not only to meet our anticipated ramp, but also any potential tailwinds across a broad number of programs in our portfolio, where we're having active conversations with our customers today about increased quantity. And I would say our general outlook is that our investment profile in order to meet the anticipated ramp-up in front of us, and the potential tailwinds, I would categorize as an elegant profile, meaning incremental investment when we have line of sight to the demand. And the kinds of places that we would be investing would be adding multiple shifts. Most of our locations are operating on a single shift or an extended shift. So, we have capacity to add multiple shifts. And on certain lines, we might increase automation with additional test equipment, so that we could accelerate our processing and shrink our cycle time. So in general, what we see are incremental investments like that, that are tied to firm demand and typically not in advance of that demand. I'd say the one exception to what I just described is the capacity that we're bringing online in Phoenix that is currently and has been in our cost structure, in our operating expense in terms of the rent. We are making some incremental investments in terms of CapEx to bring additional lines up in that factory. And it's intended in the near term to meet the anticipated demand increase for our Common Processing Architecture program. I won't dimension [indiscernible] the capacity that we could potentially bring online, because it's really tied to the number of shifts, do we work extended weeks, those kinds of things. And right now, we're not forecasting or anticipating the need to do that across the board in Phoenix. David Farnsworth: I think, Bill, I would just add that it gives us additional flexibility in -- to be able to flex up. William Ballhaus: Absolutely. Kenneth Herbert: Great. William Ballhaus: And just to be clear on that point, we will have the ability to ramp up and scale up efficiently on other programs in that space should some of the tailwinds that I've mentioned materialize in bookings. Operator: Your next question comes from the line of Pete Arment with Baird. Peter Arment: Nice results there. William Ballhaus: Peter, you're a little -- David Farnsworth: Peter, we can't hear you. William Ballhaus: Yes, it's a little quiet. Peter Arment: Can you hear me now? William Ballhaus: It's a little bit better, but I think Dave puts his ear really close to the speaker, we should be able to pick up. David Farnsworth: Go ahead, Peter. Peter Arment: I'm sorry. Can you -- William Ballhaus: Here we go. David Farnsworth: [indiscernible] Peter Arment: [indiscernible] on the CPA, you guys have had a couple of good bookings quarters coming into this first quarter, and it sounds like you've had some other follow-on orders. Just could you give us the latest on how that production is ramping up? David Farnsworth: Yes. And this has been a multi-quarter progression going back to when we first brought back up the line and went through a very methodical approach to initial production. And our commentary all along has been that we had confidence that once we started to produce again and increase production, we would start to see bookings fall. And that has been the progression that we've seen. And we believe that as we continue to ramp up production and deliver, that will unlock future demand. So this is one of the parts of the business where we're continuing to focus on what we call ramp to rate, higher rate production, because we can see the potential demand, customer demand for our existing CPA products. We're also focused on how we can expand that TAM and investments that we can make in different form factors with a similar kind of CPA architecture and approach, that over time we think could expand the TAM to additional platforms where we could sell this technology into. So we're excited about the progress that we're making on our programs, the increases in production that we've been able to achieve. And this is obviously a part of the business that we're very committed to. We're excited about, and we see significant growth potential. Peter Arment: That's great color. And then if you could also just comment on kind of the European defense environment. It sounds like you're getting favorable follow-on production awards there, and seeing that mix continue to ramp? William Ballhaus: Yes, it's interesting. As we think about just the market broadly, the general tailwinds that we're seeing fall into a couple of different categories. I'd say, first, it's the growth in the domestic budgets. And it's not just the size of the defense budget, it's also the percent that's being allocated to the acquisition of technology and capabilities like we delivered. And there's also some interesting tailwinds with executive orders around the use of commercial technology and certain priorities like Golden Dome. And then another major driver, which you mentioned is the tailwinds in Europe tied to the ReArm Europe initiative, where defense budgets look like in aggregate, they're tripling over the next few years towards $1 trillion in aggregate. We have very strong channels to market to that European defense budget growth. If we look at our last -- our trailing 12 months, the growth of that part of the business has been about 15%, when we look at direct to European primes and via FMS. And I would say that, that's largely before the tailwinds have really kicked in. Now the conversations that I alluded to earlier that we're having with our primes domestically are mirrored with the European primes, where we're talking about increased quantities, accelerating rates, things like that, in areas primarily associated with EW and radar processing. Now those are conversations that are early in the pipeline, but I do think they're healthy and reflective of what could be a healthy demand environment internationally, where, again, we have good exposure, and we have a demonstrated growth rate in the 15% range over the last 12 months. Operator: Your next question comes from the line of Seth Seifman with JPMorgan. Unknown Analyst: This is [ Rocco ] on for Seth. As expected, gross margins took a bit of a step back in Q1. How should we be thinking about the margin progression through the year? Are volumes the key to expanding margins? Or are there other focus pieces to watch? William Ballhaus: Well, I'd say year-over-year, our gross margins are up about 260 basis points, and that was really a key enabler to our EBITDA margin expansion of over 500 basis points year-over-year. So we feel really good about the progression of our margins toward our target profile. And as we said before, we've got clear line of sight to our target profile that consists of improvements to our average backlog margin, as we convert low-margin backlog and replace it with bookings that are in line with our target margin, increased initiatives to drive automation and efficiency and then positive operating leverage. Those are really the 3 components of our bridge from where we are today that, again, over the last 2 quarters, our EBITDA margin has been 17.4%, and we feel like we're on our way towards the target profile of low to mid-20s focused on those 3 components. David Farnsworth: And Rocco, I know you -- I think your question, you were looking sequentially? Unknown Analyst: Yes. [indiscernible] sequentially. David Farnsworth: Yes. So sequentially, of course, there's a little bit of mix in there, from the margin standpoint. So Q4 and when we talked about this on the earnings call, we talked about, it had a very favorable mix for us during that quarter. And so we did -- our expectation was not that Q1 would approximate that same mix. Unknown Analyst: Right. That makes sense. And then how should we think about free cash flow conversion this year? Should we expect it to come in below the target of 50% following the strong conversion last year? Or is there additional cash to pull out in the near term? David Farnsworth: Well, as Bill said, and we've been talking about, we're focused on getting our working capital to the level it should be, and what we feel like the model gets us to. Of course, that takes time, and there's quarter-to-quarter kind of perturbations around that, because of timing of billings and shipments. But we do expect over the long run that we'll be at that 50% level. And -- but in any given quarter, that's -- we're not saying our expectation is this quarter or next quarter that it will be that way. But over time, and what we said for FY '26 is we expect to be free cash flow positive. Cash flow positive with the second half higher than the first half. William Ballhaus: And I think as we progress through FY '26, over time we'll be able to provide an updated view on that. Operator: Your next question comes from the line of Austin Moeller with Canaccord Genuity. Austin Moeller: Just my first question here. Can you walk us through the delivery timeline for LTAMDS based on what's currently in your backlog and the contract that was recently received by Raytheon for the next batch? David Farnsworth: Yes. Thanks for the question. I don't think we'll comment on the current deliveries and the current timeline associated with option year 1. With respect to what you referenced, there's typically a time constant from the time that primes in general, get awarded their funding until we get our funding. And we're working through the progressions associated with that time constant. And as those conversations materialize in bookings, then I think we'll be able to give an updated view on our commentary. Austin Moeller: Okay. And how do you view the revenue growth rate and backlog opportunity for your U.S. versus international customers? David Farnsworth: I mean we feel good about both potentials for growth. I don't think we've quantified one versus the other. But certainly, the tailwinds and -- that Bill talked about make us feel good about the long-term prospects for growth in both of those marketplaces. William Ballhaus: Yes. I agree. I mean, both domestically, internationally and as we look across our portfolio in general, we see a number of different growth drivers and potential tailwinds above getting to our target profile, which we've spoken to. Operator: Your next question comes from the line of Jonathan Ho with William Blair. Jonathan Ho: Congratulations on the strong results. Just wanted to ask quickly on Golden Dome and maybe what you're seeing there. Is there any sort of update in terms of timing or potential opportunities just given your ability to participate in all the theaters? David Farnsworth: Well, thanks, Jonathan. Thanks for the comment and for the question. I'd say it's still early in terms of specifics on where funding will be allocated and the timing with which it will be allocated. I will say, though, I feel like we are well positioned with respect to how that opportunity could materialize. And specifically, when you think about the different layers associated with a Golden Dome, a space layer, an airborne layer, tracking layer, interceptor, ground-based processing, shipboard processing, et cetera. And the administration's commitment to having capabilities in place over a 3-year timeframe, it really points to existing capabilities in those layers, and we participate across that entire architecture. And so while there's some uncertainty around the specifics and the timing, we do believe that over time as the funding priorities are clear and the funding is allocated to programs, eventually that's going to translate into increased demand for mission-critical processing at the edge on the platforms in those different layers, and we feel very positioned to capture those tailwinds. So there's uncertainty around the specifics. We do expect things to unfold over time, but we are very confident and believe we're well positioned to be able to capture those tailwinds, because of our broad exposure across that architecture. Jonathan Ho: And just as a quick follow-up, I just want to make sure -- I didn't completely hear one of the questions. But in terms of the U.S. government shutdown, are you seeing any impact either to funding or -- and to program starts -- or contract awards? Just wanted to make sure that there was some impact there? David Farnsworth: Yes. I would say that so far, the -- any impact associated with the shutdown, we'd say is very minimal. And there's a couple of factors behind that response. One is we have very good backlog coverage as we look at our outlook for the fiscal year. Most of our funding comes through the primes and most of our awards come from the primes. I would say that if there's an extended shutdown over time, we could see some timing-related impacts associated with new bookings. But at this point, we haven't seen anything that is beyond minimal. Operator: [Operator Instructions] Your next question comes from the line of Michael Ciarmoli with Truist Securities. Unknown Analyst: This is actually [ Sam ] on for Mike. Congrats on the nice quarter. I was curious, obviously, last quarter, you guys talked to kind of trying to work down some of the lower-margin older backlog that you guys have. I was curious if you could just give a general update on how you feel like you're progressing with that? And kind of thoughts for the rest of the year? And if there's any relationship between the pull forward on the higher-margin work and execution on that lower-margin portfolio? David Farnsworth: Yes. I think as -- sorry. As was pointed out earlier, we did accelerate some high-margin activity from Q2. We were able to complete it in Q1. So when you kind of normalize for that, we were very close to the range we were thinking about or had communicated. So, I think we made good progress on burning down or expanding some of the lower-margin activity. Still have some to go. We talked about we're going to be working on that throughout the year but made good progress and the higher margin was a result of the mix of high-margin things that we were able to bring into the quarter. Unknown Analyst: Great. And if I could just do one follow-up. On free cash flow, obviously, you guys mentioned kind of second half will be the stronger generation for the year. But should we kind of think about a steady sequential progression through 2Q into the second half? Or should it -- we think about it maybe more as a bit of a step function increase once we get closer to the end of the year? David Farnsworth: Yes. I think we only talk about cash for the year and talk about it being stronger in the second half. Cash can be -- can vary quarter-to-quarter based on just timing. Operator: Your final question comes from the line of Sheila Kah with Jefferies. Sheila Kahyaoglu: Maybe if I could just start off on your margin. You talked about margin improvement from the 16% we saw in the quarter to your target of low to mid-20s, and that's based on visibility in your bookings, positive operating leverage and increased automation. Can you maybe talk about how we should think about the timing of those? And then maybe as a follow-up to that, how we should think about the backlog margin composition as you think about your core business? And the order momentum you've seen in recent quarters? David Farnsworth: Yes. So as far as the timing goes, it really depends on how we convert over the next few quarters. If you think back to when we made the comment about our backlog margin being lower than what we would typically expect to see, it was at the end of FY '24. And since that time, we've commented that we've been able to bring in bookings that are in line with our targeted profile. So the low-margin programs in our backlog distribution at the end of FY '24 will burn off over some period of time from the end of FY '24. Now our backlog duration isn't a year, but it also isn't 2-plus years. So somewhere between, I don't know, 8 quarters-ish, that low-margin backlog should pretty much all convert. And so that would put us in the FY '27 timeframe. So we want to see how we progress through FY '26. The progress we make in Q2, Q3 and Q4 before we get any more precise around how we expect to converge on the target profile. Your second question, our backlog progression has been in line with our expectations. We've seen an increased mix towards production, which we think is just healthy in general, given the heavy mix of development programs that we had going back to 2 years ago. And the margin profile of our backlog is converging on what we believe is consistent with our targeted margin profile. Sheila Kahyaoglu: Can I actually ask one more question on the buyback. Why now on the share repurchase agreement? And just do we think about the buyback program using the revolver balance to fund the buyback? William Ballhaus: Thanks, Sheila. This is Bill. I'll take that one. We've made a lot of progress on delevering, which has been our focus over the last couple of years. And we've seen significant free cash flow. I think over the last 4 quarters, our free cash flow has been just north of $130 million. And while our primary focus is on the organic value creation opportunity in front of us, and that's primarily tied to the top line ramp, as we transition toward production, and the margin expansion that we've talked about, we also want to make sure that we've got the all appropriate degrees of freedom available to us, so that we can drive long-term shareholder value. So we haven't talked anymore about our plans for capital deployment beyond that other than our primary focus is the organic value creation opportunity in front of us. But we want to have access to all the levers and degrees of freedom. Operator: Mr. Ballhaus, that appears that there are no further questions. I would like to turn the call back over to you for any closing remarks. William Ballhaus: Casey, thank you, and thank you to all of you who participated today. We look forward to getting together to discuss our results next quarter. Thank you. Operator: This concludes today's conference call. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Flywire Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Masha Kahn, Vice President of Investor Relations. Please go ahead. Maria Kahn: Thank you, and good afternoon. With us on today's call are Mike Massaro, Chief Executive Officer; Rob Orgel, President and Chief Operating Officer; and Cosmin Pitigoi, Chief Financial Officer. Our third quarter 2025 earnings press release, supplemental presentation, and when filed Form 10-Q can be found at ir.flywire.com. During the call, we'll be discussing certain forward-looking information. Actual results could differ materially from those contemplated by these forward-looking statements. We'll also be discussing certain non-GAAP financial measures. Please refer to our press release and SEC filings for more information on the risks regarding these forward-looking statements that could cause actual results to differ materially and the required disclosures and reconciliations related to non-GAAP financial measures. This call is being webcast live and will be available for replay on our website. I would now like to turn the call over to Mike Massaro. Michael Massaro: Thanks, Masha. This quarter reinforced Flywire's leadership as a trusted partner for modern payments. Our results underscore Flywire's strong execution, resilient business model and expanding client demand across markets, supported by macro conditions that were better than expected. We signed more than 200 new clients across our 4 verticals, a clear sign of both the consistency of our execution and the global relevance of our products and platform. Flywire continued to win where it matters the most, winning new clients, expanding existing client relationships, and doing so across verticals and across geographies. Our focus remains on three priorities: optimize go-to-market excellence, accelerate product innovation, and cultivate high-performing teams. And in Q3, we delivered across all three. Our sales, client success and operations teams executed at a high level, keeping us on track to exceed our ARR contract signing goals for the year. Flywire is increasingly the partner of choice for organizations looking to modernize complex payment flows, consolidate vendors and drive measurable ROI. Our diversification strategy is delivering results with education growth now extending well beyond our traditional Big 4 markets. More than half of our new education wins this year came from outside those markets, reflecting the strength of our global reach. Within education, our Student Financial Software platform was a major growth driver in Q3 as institutions continue to consolidate all payments with Flywire to improve collections and protect revenue. Our Collection Management solution within SFS has helped institutions recover more than $360 million in past due tuition, deliver $72 million in pre-collection savings, and preserve over 177,000 student enrollments, demonstrating our impact on both institutional health and student success. Our value proposition is clear and differentiated. We bring together industry-specific software and deep expertise in payments into one integrated offering. This unique combination positions Flywire as a comprehensive solution partner with our ability to solve the most complex domestic and international payment challenges often becoming the entry point to deeper client relationships. In our travel vertical, client momentum remains strong, helping to grow this business into a meaningful contributor to total company revenue. Our integration of Sertifi continues to unlock new workflows, cross-sell opportunities and incremental monetization potential. In health care, revenue growth approached our organic corporate average in the third quarter, driven by recent wins with large enterprise customers. B2B continues to grow at multiples of overall company revenue growth, reflecting strong demand for our invoice-to-cash capabilities. Product innovation remains a key priority as we continue to leverage technology across the business to deliver results. Our teams are using AI to drive greater scale, efficiency and precision. From automated prototyping and code conversion that reduce migrations from months to weeks to data-driven insights that enhance the client experience. We are also seeing growing interest from clients in expanding their use of Flywire solutions as they look to streamline more of their payment operations through a single trusted partner. Our success reflects years of investment in go-to-market execution, product innovation and a culture built on relentless client focus. Flywire's evolution from a cross-border payments company to a diversified global software and payments leader is well underway, and the opportunity ahead is significant as we aim to deepen client relationships, expand market share and drive durable high-margin growth. Finally, none of this happens without our FlyMates. Their creativity, discipline and focus on results drive our performance and client success every day. Together, we have built a culture that values accountability, impact and growth, reflected in high engagement and talent across our teams. Flywire is built for the long term, resilient, scalable and positioned to lead. With that, I'll turn the call over to Rob to share more on our operational performance for the quarter. Rob Orgel: Good evening, everyone. We are delighted to share the results of a strong third quarter of 2025, reflecting Flywire's resilience, disciplined execution, and continued global competitive momentum, all amid a macro backdrop that was better than expected. Starting in global education, we continue to see strong momentum driven by strategic upsells, geographic expansion and deepening partnerships. We just completed our peak quarter with excellent execution, helping clients streamline payment operations and delivering great payer experiences. Our deeper integrations with China's UnionPay, Indian loan providers and agent networks are enhancing retention and engagement across key markets. Now, let me zoom into key geographies. Starting with our largest market, the U.K., we continue to see strong demand from international students choosing to study in the U.K., and Flywire is expanding its presence with several new client wins, including Heriot-Watt University and Royal Holloway, together representing roughly 39,000 students with around 11,000 international students. We also signed a new StudyLink deal with De Montfort University, further strengthening our regional footprint. Momentum continues with our U.S. federal loans disbursement offering for U.K. universities. Seven new U.K. clients signed this quarter, bringing the total to 15 since launch. Our SFS pipeline for Agresso Unit4 institutions remain strong with all 3 development partners for our Unit4 integration now live and delivering excellent results. This differentiated capability positions Flywire as the only comprehensive platform serving both domestic and international payment needs, enabling us to win broader institutional relationships and capture significantly greater wallet share. Our U.K. strategy focuses on deeper integrations that position us as the sole channel for all significant university domestic and international payment flows, either through a unified payment portal powered by our SFS solution or by integrating into existing portals for tuition and accommodation billing. The U.K. represents approximately 1/4 of Flywire total revenues and grew above the organic corporate average growth rate in the third quarter. We see substantial runway ahead across three key areas. First, domestic payment expansion. With only 12 U.K. clients currently at what we believe to be 90% plus Flywire adoption, there is considerable room to capture a higher share of payment flows at existing institutions. Second, we see runway for SFS for finance systems integrations. A large portion of U.K. universities manage student invoices in systems like Unit4 without student-facing portals. Flywire's SFS fills this critical gap, enabling real-time payment reconciliation and consolidated billing across all student charges. Third, we see runway for optimizing international payment flows. Billions in tuition payments currently appear as domestic transactions, despite being funded by parents abroad. By improving the payer journey, we can shift more of these flows to cross-border transactions through our network, capturing higher-margin revenue. Note that we've included additional detail on U.K. strategies in the earnings supplement. Turning to the United States. Financial pressures continue to weigh on U.S. educational institutions. As schools look to improve cash flow and efficiency, demand for Flywire's full suite of solutions continues to accelerate. We are deepening partnerships with leading universities. Notably, Penn State University is expanding its relationship, now adopting our full suite SFS platform for billing, payments, payment plans and third-party invoicing. Our Collection Management module of SFS also helps institutions streamline receivables and reduce administrative workload with clients like DePaul University calling Flywire invaluable to their business. This expansion reflects the value Flywire delivers in improving financial operations and enhancing the payment experience for students, families and staff. And importantly, opportunity for growth isn't just coming from long-standing relationships. There are more than 3,000 U.S. institutions that aren't Flywire clients, and we've recently signed 2 full suite SFS deals with community colleges that don't have many international students, but want to modernize their domestic payments. For them, it will bring the full benefits of SFS, and for us, it's an emerging path to securing more software and domestic revenue in a large and mostly new segment for Flywire. Our SFS pipeline remains very strong. Through Q3 2025, we've signed more than double the ARR versus the full prior year cohort. We just hosted our second annual Fusion conference, bringing together nearly 100 U.S. higher education institutions. When finance leaders from universities get on stage and talk about the ROI achieved through Flywire suite of products, it sends a strong message to the broader market. Universities must embrace change and technical innovation to stay competitive. Turning to Australia and Canada. In Australia, Q3 performance was significantly better than expected, growing above our organic corporate average growth rate during the quarter, driven by resilient demand at top universities that continue to attract students despite visa fee increases. New and upsell wins through StudyLink, including Swinburne University and Flinders University, further strengthened our position. StudyLink is helping institutions accelerate offer letter turnaround times and enhance the student experience. As a result of our expansions with StudyLink, alongside our direct selling efforts, Flywire's higher education market share in Australia's total education payment sector has expanded significantly over the past 12 months. In Canada, existing Flywire clients that previously used our platform, primarily for cross-border payments, are increasingly expanding into domestic payment flows. This trend is helping diversify revenue and offset softer international volume. During the quarter, Flywire successfully enabled domestic processing for clients such as Fanshawe College and Georgian College, deepening relationships with these institutions and broadening payment coverage across their campuses. Moving on to our progress outside the Big 4 markets. Flywire continues to see students applying to a broader range of study destinations as students hedge against potential policy changes in traditional English-speaking markets. As a result, we anticipate sustained growth outside the Big 4, Australia, Canada, the U.K. and the U.S., with strong momentum already underway across APAC and EMEA. These regions are driving diversified expansion as institutions attract more international students and modernize their payment ecosystems. In Asia, Flywire is accelerating growth in Singapore, Japan and South Korea. In Singapore, our OneDoor model continues to gain traction with Nanyang Technological University, or NTU, and the Singapore Institute of Management, or SIM, both live on Flywire for domestic and cross-border payments. In Japan and Korea, we are expanding beyond language providers into public higher education institutions, aligning with government initiatives to significantly increase international student enrollment over the next several years. In EMEA, Flywire continues to broaden its education ecosystem, deepening its footprint in higher education and adjacent segments such as private K-12, sports academies and student housing. A landmark partnership with Inspired Education Group, one of the world's largest private K-12 networks, underscores our ability to combine local expertise with global scale to manage complex cross-border payment flows. Beyond academia, Flywire is enabling leading sports academies and student housing providers across Europe to manage tuition, training and living expenses through a single seamless platform. Across these regions, Flywire's combination of local market expertise, integrated technology, and trusted partnerships continues to drive strong diversified growth and reinforce our leadership in international education payments. Moving on to our travel vertical. The travel vertical continues to grow through targeted client integrations and tailored payment solutions. To give a few client examples, Quasar Expeditions integrated Flywire with PEAK 15, simplifying bookings, payments and reconciliation while offering transparent multicurrency pricing. In Indonesia, BaliSuperHost went live with Flywire, benefiting from lower card fees, local currency payments and dynamic 3DS to boost international bookings. In Australia, Southern World's DMC integration reduced FX fees, highlighting Flywire's global payment capabilities. Bigger picture, travel delivered a standout quarter, significantly exceeding Q3 bookings plan and achieving strong year-over-year revenue growth, driven by continued momentum in destination management companies and luxury accommodations and robust performance across APAC, supported by new wins in Thailand, Australia and Indonesia. Moving on to Sertifi. Sertifi provides hotels and travel operators a streamlined way to capture incremental revenue by reducing payment friction and operational inefficiencies. It is designed to decrease turnaround times on payments and contract signatures, lowering reconciliation and manual data entry, reduces chargebacks, and improves transparency between sales and finance teams. Features like secure online portals, ACH payments, fraud prevention, multicurrency support and automated reminders enhance efficiency and the guest experience. As an example from among many client wins, one key upsell was a master services agreement with Aimbridge, the world's largest property management company covering over 1,400 locations, a strong validation of Sertifi's value. Our strategy to expand globally and cross-sell is progressing with Flywire scale reassuring enterprise clients like Marriott, Hilton, Hyatt, IHG and Choice that we can drive revenue growth, operational improvements and broader adoption outside the U.S. I'd also like to provide an update on health care. Health care continues to build momentum, as we expand our integrated payments, financing and affordability platform. A key driver of growth during the quarter was the early ramp of our new payment processing capabilities on behalf of Cleveland Clinic, a previously referenced new marquee client that we can now share the name. With nearly 6 million patient visits per year across more than 200 locations worldwide, Cleveland Clinic is now live with initial phases of implementation in the U.S. and the U.K., including MyChart payments with point-of-sale rollout underway across its U.S. locations. We're also seeing strong new client activity. This quarter, Cook County Health selected Flywire's health care affordability and integrated payment solution to consolidate vendors, accelerate cash collections and improve yield. These wins underscore the strength of our value proposition, and our ability to drive measurable financial and operational outcomes for leading health systems. Our new payment processing offering will operate at lower gross margins than the rest of the health care solutions, but it is helping us win deals, establish scale and add long-term revenue durability. In B2B, Flywire has evolved beyond a global payments network offering into an all-in-one invoice-to-cash platform with leading integrated payments capabilities. We unify receivables and invoicing across more than 140 currencies, provide transparent pricing, flexible payment options and seamless ERP integration backed by dedicated support and compliance teams. At the same time, the software plus payments proposition is so compelling that it is well-suited for entirely domestic businesses as well, and we are winning nicely in those opportunities as well. It's been 1 year since we acquired Invoiced, a move that opened the door to over $1 billion in payment volume opportunities within the Invoiced installed base. Since then, we've delivered meaningful synergies by combining Invoiced's automation and billing tools with Flywire's global payment rails, driving strong ARR growth across clients. A great recent example of success with Invoiced this quarter is KnowBe4, a global leader in human risk management operating in more than 200 countries. With Flywire's Invoiced platform, KnowBe4 expects to achieve over 95% auto reconciliation, centralized global billing and enterprise-grade compliance. One year later, we feel really good about Invoiced and how it has served as a catalyst accelerating Flywire's transformation into a leading global invoice-to-cash and payments platform. It's another great example by Flywire of software drives value in payments. I will now pass it over to Cosmin to talk about our financial performance and outlook. Cosmin? Cosmin Pitigoi: Thank you, Rob, and good evening, everyone. Today, I'll provide an overview of our third quarter results and share our outlook for the fourth quarter. We exceeded the top end of our revenue and adjusted EBITDA guidance, supported by better-than-expected macro conditions across key education markets, including Australia and the U.S. as well as a stronger peak in the U.K., upside in B2B, early go-lives and operational excellence in our payments network. As a result, we're raising our full year revenue and EBITDA guidance. Turning to our performance in the third quarter. Revenue less ancillary services was $194 million in Q3, representing a 26% year-over-year FX-neutral growth or 28% on a spot basis. Sertifi contributed almost $13 million in Q3, adding approximately 8 points of growth. Our Q3 results, once again, exceeded expectations, demonstrating our ability to thrive in a dynamic macro environment. This performance was driven by better-than-expected macro conditions across Australia and the U.S., a stronger peak in the U.K., along with continued robust underlying growth across the rest of the business. To further unpack the drivers, Australia significantly outpaced organic corporate average revenue growth in Q3 as resilient demand for top universities, new client wins, and upsells drove substantial market share expansion despite an increased $2,000 visa fee and soft caps affecting broad visa trends. The U.K. market had a strong peak season, driven by demand from India, China, the U.S., South Korea and Mexico. Early wins and integrations like Tribal ERP helped outperform visa trends. Some Q4 activity possibly shifted into Q3 due to the extended October Golden Week holiday in China, so a more normalized view of growth comes from combining Q3 and Q4 results. Our U.S. education business exceeded our expectations with first year international payers declining by slightly less than the 20% visa decline that we anticipated. The trends in the U.S. underscore solid demand for undergraduate programs in the past academic year, especially at academically rigorous institutions. However, trends were uneven across different corridors. For example, we saw a strong performance in China, Lat Am, South Korea and Hong Kong, but weaker numbers from Indian students, which could be attributed to visa issues. Canada higher education headwinds shaved 2 points of growth due to continued weak demand. However, this weakness was baked into our guide, and we'll continue to remain prudent in our expectations for Canada given weak demand, especially from Indian students. B2B, health care and travel were all slightly stronger than our expectations, thanks to go-lives and stronger-than-expected ramp-up in volumes. Fueled by a robust education peak season, total payment volume climbed to $13.9 billion, 26% higher year-over-year and almost double the average of the last 2 quarters, highlighting the growing strength and scalability of our platform. From a modernization standpoint, our spreads have remained relatively consistent and in line with the last several reporting quarters. Operationally, we're scaling smoothly without proportional cost increases. Our contact rate dropped in the mid-teens year-over-year, meaning fewer escalations despite processing significantly more volume. This efficiency is driven by AI automation, which pushed our self-service rate to 41%, up 28% year-over-year. We're successfully decoupling growth from support costs, protecting margins as we scale. Breaking down our revenue streams, transaction revenue is largely derived from fees tied to payment volume, while platform and other revenues mainly reflect software subscription and usage-based fees. Starting with transaction revenue, we saw a 24.4% year-over-year increase, approximately 4 percentage points of which were attributable to Sertifi. Transaction-related payment volume was up 30.9%, 3 percentage points of which were attributable to Sertifi, primarily in our education vertical as well as travel. Platform and other revenues increased 56% year-over-year, primarily driven by the platform fees that do not carry payment volumes, specifically revenues associated with Sertifi, which were $7.8 million and improving growth in our health care revenues. Platform-related payment volumes of $2.4 billion were up 9% year-over-year, lower than platform revenue growth as some of our software revenues do not have associated TPV volumes. Adjusted gross profit increased to $127.5 million during the quarter, up 25% year-over-year. Adjusted gross profit margin was 65.7% for Q3 2025, which is a decline of about 170 basis points, compared to Q3 2024. Our business mix continues to exert downward pressure driven by travel and B2B verticals growing faster, which have higher credit card usage, along with domestic transaction growth in the education vertical. Foreign exchange fluctuations during transaction settlements, including the positive effect of less than $1 million seen this quarter in gross margin are largely counterbalanced by FX hedges recorded in operating expenses, softening the overall impact on adjusted EBITDA. Adjusted EBITDA increase was approximately $5 million above the midpoint of our guide and grew to $57.1 million for the quarter, compared to $42.2 million in Q3 2024. Adjusted EBITDA margin was up 155 bps year-over-year, beating the high end of our previous guidance range. We continue to balance top line growth with long-term productivity and margin expansion by focusing on optimizing operations and support functions. In Q3, sales and marketing spend was $32 million or 16.6% of revenue, improving approximately 120 bps year-over-year as we maintain go-to-market investments in travel and B2B while streamlining for stronger LTV to CAC performance. G&A spend was $27 million or 13.9% of revenue, improving modestly year-over-year, but meaningfully lower as we compare year-to-date trends driven by operating leverage and continued investment in automation and systems, including Sertifi integration. Technology and development spend was $12 million or 6.4% of revenue, improving approximately 160 bps year-over-year as we scale our platform and enhance engineering productivity. While the majority of the gross profit flowed through to adjusted EBITDA this quarter, we continue to drive operating leverage while making targeted reinvestments in platforms, including Sertifi integration, systems and automation initiatives, data architecture and analytics and go-to-market expansion. To close out the income statement, GAAP net income in Q3 was $29.6 million, down roughly $9 million year-over-year due to lapping of a onetime tax benefit in the third quarter of 2024 and timing of tax provision reversals. We expect full year GAAP net income to remain positive around the high single-digit millions. Our balance sheet remains strong. We ended the quarter with $212 million of cash, cash equivalents and investments, with just $15 million of outstanding debt, we intend to pay down soon. Turning to capital allocation, we generated strong cash flow in Q3 and repurchased 0.8 million shares for approximately $10 million under our share repurchase program, keeping total fully diluted share count within our guided range below 3% for the year. Having passed the peak of our post-IPO stock-based compensation vesting schedule, stock-based compensation expenses as a percent of revenue are trending down on track to be approximately 12% for the year. We expect stock-based compensation growth to remain below gross profit margin growth as the business continues to scale in the near term and expect to continue managing dilution in a disciplined manner. Now shifting towards guidance for Q4 2025 and our early thoughts around next submission cycle for the education vertical. Some context as we enter Q4 2025. As noted previously, tuition payment patterns can shift slightly from year-to-year around major holidays. In 2025, the October Golden Week holiday extended to 8 days due to the overlap of China's National Day and the mid-autumn festival, which was longer and later than in prior years, causing some payment activity to be concentrated in Q3 prior to the start of the holidays rather than in Q4. We do not expect this temporary shift in payment timing to have a material effect on our overall annual results, but it may impact comparisons between the affected quarters. For a clear and more normalized view of growth, it's best to evaluate performance across the second half, combining Q3 and Q4 results. Hence, for full year 2025, we expect FX-neutral revenue to grow in the range of 23% to 25% year-over-year, including Sertifi. Excluding Sertifi, we expect revenue less ancillary services growth in the range of 14% to 16% year-over-year. For 2025, we're updating our full year adjusted EBITDA margin expansion outlook to a range of 330 to 370 bps. This reflects OpEx efficiencies and cost discipline across the organization, supporting a trajectory towards sustained GAAP net income profitability growth as we move into next year and beyond. On FX, with weaker U.S. rates as of September 30, we now expect the FX impact on full year revenue to be around a positive 1.5% and about 3% for the fourth quarter. Turning to Q4 2025. We expect FX-neutral revenue to grow 23% to 27% year-over-year on a reported basis or 13% to 15% when excluding Sertifi, and expect adjusted EBITDA margin to increase 50 to 200 bps year-over-year. On gross margin expectations into Q4, just a couple of dynamics to note. First, last year's Q4 gross profit margin benefited from $2.7 million in FX on settlement gains, which should be normalized for a comparable view. And secondly, we previously indicated gross profit margin would decline in the range of 100 to 200 bps headwind annually due to mix. As we see our newer verticals growing faster along with strong domestic expansion, these mix shifts are expected to create further margin pressure towards the higher end of that range. Looking ahead to 2026. While we are not yet guiding and we are still going through our usual detailed planning process, we wanted to provide some preliminary thoughts. Agents tell us that students are applying to more destinations, but demand from Indian students for U.S. and Canadian institutions remain under pressure. We're gaining great traction with clients outside the Big 4. However, it is important to note the tuition differences across different geographies. Macro-related headwinds are expected to persist, driven mainly by U.S. policy uncertainty, creating a mid-single-digit pressure into 2026, relatively similar to our current full year and Q4 2025 exit growth assumptions. We also expect both Canada and Australia revenue growth to run below organic corporate average, with Canada particularly impacted by ongoing demand softness. In closing, we remain agile and disciplined in managing our costs while leveraging the strength of our diversified business model. This diversification allows us to balance investments, allocate capital to the high ROI projects, and scale the business even amid volatility of headlines and government policies. We're confident in our differentiated products, the breadth of our growth opportunities across all verticals, and our ability to deliver meaningful and sustained shareholder value. I'll now turn it back over to operator for questions. Operator? Operator: [Operator Instructions] Our first question comes from the line of Cris Kennedy with William Blair. Cristopher Kennedy: Rob, you mentioned 12 clients in the U.K. are at 90% penetration. Can you just provide a little bit of more perspective on that metric relative to the U.S. or any other market you want to talk about? Rob Orgel: Yes. Cris, good to hear from you. So what we've described in our U.K. strategy for some time now has been about trying to move all the money. And so we have a set of potential methods that we use for achieving that objective. You can see there's a slide in the earnings supplement that sort of outlines how all that works. And thus far, we've managed to get at least 12 clients in our view over that mark. And we view that as sort of one of the core elements of our strategy going forward, and it's a strategy that works both for our clients and for us in that by consolidating with us, they get all the benefits of our platform, serving their efficiency, their administrative efficiency, they get cost savings, and we deliver a superior quality experience for the students. So whether we accomplish that through SFS, whether we accomplish that through things like integration through Tribal, it's all part of that same objective of moving all the money, and we see a lot of opportunity to do that for more clients. Cristopher Kennedy: Got it. And then just as a follow-up, Cosmin, can you just talk about the preliminary initial outlook for 2026 again? I think you talked about mid-single-digit pressure relative to the fourth quarter run rate? Or is that consistent with the fourth quarter run rate? Cosmin Pitigoi: Yes. Thanks, Cris. So pretty consistent with the fourth quarter, I would say, in general, with that mid-single-digit growth -- impact to growth. I would say, however, think of that as more coming from the U.S. is obviously, Canada is going to be still somewhat negative, but not as big of an impact. So we feel that the mid-single digit with kind of that exit growth rate that you see in our Q4 guidance around that 14% is the right way to think about it. But think of the mid-single-digit headwind is more U.S. with Canada and Australia being still negative, but a little bit less of an impact in addition to, again, we're watching the U.K. numbers. But as we think about -- as you think about the mid-single digit, we feel that it's quite a prudent approach, and we feel good about sort of where we are in terms of adjusting for what we're seeing in the environment out there. Operator: Our next question comes from the line of John Davis with Raymond James. John Davis: Mike, I kind of want to follow up a little bit on Cris' question, but just taking a big step back, it feels like we're past peak geopolitical headwinds, yet you're kind of implying similar headwind in '26 versus '25. Maybe just talk a little bit about that. What's conservatism versus what are you worried about in the U.S.? Obviously, there's a lot of unknown, but it does feel like we're hopefully over the hump. But would just love to square being past geopolitical headwinds with a similar headwind to growth in '26. Michael Massaro: Yes. JD, thanks for the question. I mean I think obviously, as Cosmin has always said, we're trying to be very data-centric in how kind of we look at the future and have a level of prudence in it. I think if you look at Australia and the U.S., there are 2 good examples of where headlines didn't quite jive with what we saw play out in those 2 markets, right? Things were more positive than probably what the headlines looked like a few months back. If you look at Canada, I think it played out, obviously, over the last 18 months in a very similar way, quite negative. And so I think we've seen both sides of it. I said if you just start looking out, right, from my perspective, over the next multiple years, like we're really excited to keep building the company, right? We just see a huge opportunity. I think we've proven our ability to navigate complex times between COVID, between some of this macro geopolitical risk in the last 18 months. We have a diversified business, multiple industries, multiple sectors, products, revenue streams, and we just continue to win. So I think as I sit here, I just think we keep continuing to prove we can navigate this environment. We're going to do so with a level of prudence per what Cosmin said. But I couldn't be more happy with how things are going and the opportunity I see ahead. John Davis: Okay. And then just new wins, pretty consistent 200 clients, plus or minus a quarter here. It feels like that's been the run rate for a while now. So clearly, having success. But Mike, just talk a little bit about -- I'm just trying to think things forward. It feels like NRR should probably get a little bit better as geopolitical headwinds pass. Maybe talk about new logo growth. Are these -- as we think about kind of ACV or size of client, are there any kind of material changes there, maybe where are those 200 new clients concentrated from a vertical perspective? Rob Orgel: JD, it's Rob. I'll step in on this one. The growth continues to be strong and diversified. So if you look at this quarter, you'd see that EDU beat out travel in ARR signed, but travel beat out EDU in total deals signed. If you look across geographies, they're diverse in both. We called out that more than half the wins in the EDU space were outside the big 4 markets, but that obviously means there's lots of good traction inside the Big 4 as well, some of which we called out in talking about SFS and similar wins. If you look over on the travel side, particular strength across APAC, across EMEA, across DMCs, across accommodations. So again, nicely diversified. Average deal size is going up over the comparable prior period. We feel very good about our achievement against our ARR goals for the year. So overall, the team continues to execute very, very well, nicely diversified wins across all the verticals. John Davis: Okay. And I'll squeeze one more in for Cosmin, if I can. I think year-to-date incremental margins have been roughly 40%, Cosmin, before the fourth quarter guide by our math is incrementals of roughly 20%. Are there any sort of incremental investments planned in the fourth quarter or anything seasonally that we should think about as we think about fourth quarter margins? Cosmin Pitigoi: Yes. I think, Dave, stepping back, I look at the full year margins, incremental margins, as you said, sort of being well above that 30% and as you know, Q3, Q4, there is seasonality. But in the first half, obviously, we were very prudent as we looked at OpEx and investments given the macro. And so as I said in my prepared remarks, we've invested in targeted ways in Q3. But as you look ahead in terms of a normalized kind of incremental margins, again, that being EBITDA over revenue. Q3 is probably a good way to look at it. So think of it as kind of in the mid-30s kind of range looking ahead and also for the year in terms of kind of where we are in terms of normal incremental margins. And again, with OpEx being very sort of disciplined as always, growing well below what I look at as gross profit growth is what I compare to. So that's the way I sort of look at it is OpEx to gross profit growth to ensure we continue driving that sort of mid-30s incremental margins growth. Operator: Our next question comes from the line of Nate Svensson with Deutsche Bank Securities. Christopher Svensson: Nice results. I wanted to ask about SFS. Obviously, continues to chug along. I think I heard 7 new clients signed in the U.K. I think in the past, you said each of these should be maybe in the low single-digit millions of annual revenue. I guess my question is more just on the time it takes to implement these wins and get them to ramp. I guess, for the deals you just announced, do you have to wait until the next academic year for them to start hitting the P&L? Or can they go live quicker than that? Just understanding those dynamics would be helpful. Rob Orgel: Rob here. So let me jump in. Let me first just start with a couple of numbers just to make sure we level set on sort of the deal counts. So for the U.S., we're at 11 SFS for the year. Some of those are live, some of those continue and will ramp either later this year or into next. In the U.K., we have 4 SFS clients live at this point. And we're -- what I announced on this call was the live count for the U.S. loan disbursement product. So that's a different product that helps support our U.K. universities. So in terms of average deal size, what we always talk about is the opportunity to grow at a given institution. So you'll see in the earnings supplement, there's a slide there that talks about the gross profit multiplier that these schools all represent. And so I think the last part of your question, the timing of that is often going to focus around where those semester and due dates are. So our goal and typically our clients' goal is to get live comfortably ahead of whatever their next peak or their next enrollment period is going to be. Just like no retailer will launch a new platform in the middle of like Christmas holidays, a school wants to get a platform in ahead of that peak period. So that's what we're always working towards and have been very successful in doing that. So what you'd see from those next batch of deals and things that we do in the future, we'll always be working to get those live in time for typically their next peak period. Christopher Svensson: That's super helpful. Appreciate it. I guess for the follow-up, this is going back again to the macro, and I know we've touched on it on a bunch of calls. But I guess I just want to understand the mechanics of the flow-through, how lower international students coming into the U.S. or any other particular country in 1 year impacts the financial metrics for Flywire in the outer years, right? So maybe some sort of breakdown or unpacking of the revenue impact to your model from first year students versus second, third or fourth year students, just how that flows through, how we should think about things like NRR, stuff like that as we move forward and as one of the prior questions implied, hopefully get past the worst of these macro headwinds. Cosmin Pitigoi: Yes, it's Cosmin. So let me try to approach that assume from a U.S. perspective. What we've told you before is if you look at U.S. international revenue, call it, roughly $80 million, roughly just half or less of that is first year. So as we look at it from new cohorts versus existing, that gives you a sense for the dynamics there. And so when we assume for this year, for example, before that 20% decline, if that continues into the future, as you can imagine, some of that impacts the second, third and fourth year and so forth, graduating classes. However, in that mid-single-digit headwind that I mentioned for this year, but also into next year and sort of looking at Q4 exit, that already basically accounts for that graduating class being smaller as that kind of decline flows through. So we've already accounted for that and actually assumed an even larger decline than that into next year. So we've already taken that view into the numbers and still feel pretty good again that the rest of the business is growing fast enough to offset that, as you can see, for example, for the Q4 guide in that 14% and then full year this year on the mid-teens growth. But again, that -- the way we look at it is, obviously, that first year and the graduating classes, we've accounted for that, but that's a little bit of the dynamics there overall. And look, in terms of NRR question, obviously, with where we are in terms of growth in the mid-teens, NRR will be below that. But again, still feel quite good about where we've kind of assumed in terms of being very prudent around the guide overall. And as we look ahead, accounting for all those dynamics, including the future graduating cohorts. Operator: Our next question comes from the line of Dan Perlin with RBC Capital Markets. Daniel Perlin: Nice results here. I wanted to just -- I don't know, maybe reconcile a little bit. So you have 50% of the new education wins that are coming outside of the big 4. And presumably, obviously, those types of transactions might be smaller institutions, maybe not quite the same level of revenues and so forth. But it does sound like you're having a lot of success. Australia was one of the markets you talked about where you're really seeing pretty material market share gains. So maybe can you just help us understand like the maybe weighted average contribution that we should be expecting? Like you've got all these new wins that are coming from maybe smaller markets. But at the same time, it does seem like you're having some pretty material success expanding into these same existing big 4 markets with deeper penetration and kind of wallet share. So just trying to weigh the 2 pieces of that. Rob Orgel: Yes. Maybe I can help a little bit with that. So obviously, we did call out success in Australia qualifies as one of the big 4. But as you focus on outside the big 4, there's a trend out there for sure where people out in the education ecosystem are now calling it sort of the big 10 or even the big 14 as they talk about adding more schools to that group. As we look for us and we sort of define sort of the group that way, we're now sort of talking about what's the mid-teens percent -- low to mid-teens percent of our education business and growing at a pace that sort of significantly exceeds the corporate average. So you're right in calling out that while some of those deals are smaller in sort of their absolute size, we're winning a lot of them, and they are good deals. And as a result, they are contributing meaningfully from what is a good piece of the business and growing very quickly. Michael Massaro: Yes. And Dan, this is Mike. I'd just add that having come back from multiple client events, international trips, there's a lot of good interest in just doing more with Flywire around the world. And so I think we have this huge footprint of clients in many geographies, and it's really up to us to introduce the right software products and the right payment solutions in those markets over time, and there's a lot of room to run in that opportunity. So we're excited we're seeing the traction, but really excited about just what that means for the future road map and growth in the future. Daniel Perlin: Yes. No, it looks great. I guess a quick question for Cosmin. So on the sales and marketing, as we just kind of think about kind of framing the context of what that might materialize into in the current environment versus maybe where you were. So like that number clearly is getting optimized to your point, at 16.6% and you look at that on a year-over-year comparison, it's obviously down. But at the same time, it does sound like you've kind of maybe hit trough periods with some of these international cross-border accounts. You got a lot of new business really across all of your segments. And I'm just wondering how do you think about spending into kind of the go-to-market motion to the extent that maybe we are past the worst? Cosmin Pitigoi: Yes. I think in general, look, we've invested in this area, and we're being very targeted around balancing, obviously, not just the top line and the TAM opportunity with the profitability side. And so as you look at kind of overall the 16.6% this quarter, we're driving productivity in those areas, but that we are definitely investing in the areas in the geos and verticals where we see the opportunity. We talked about domestic U.K. travel outside the U.S. So I would say we're certainly investing in those areas, but we're also being more efficient. One of the investments you saw around data and that architecture analytics allows us to sort of be very, very targeted around how and where we invest. And so that's one of the areas, again, that you'll see us continue to invest in, but also be more efficient. We don't need to grow the same level of gross profit, certainly not with revenue in terms of investments, but yet still find those areas of growth and go after it ambitiously. So we feel pretty good. And the sales team, as you heard, is executing quite well, and the pipeline remains quite large. So we feel pretty good about those investments even with the efficiencies that we're seeing driven in the sales and marketing areas. Operator: Our next question comes from the line of Jeff Cantwell with Seaport Research. Jeffrey Cantwell: I wanted to follow on some of the earlier questions. I want to take another shot. In your education business, the change right now where international students are increasingly attending schools outside your core 4, is that temporary? Or do you think that's the new paradigm going forward? How do you size that opportunity? I'm just curious if you could talk about volumes or revenue as you maybe start to see less international students in the U.S., for example, but those students are now attending schools outside the U.S. Any additional color there would be great. Cosmin Pitigoi: Yes. Thanks, Jeff. So I'll start and then we can see if anyone wants to pile on. But I would say, look, if you look at overall U.S., as I said, about $80 million of overall revenue in cross-border with about half of that being first years, and so we've assumed a decline in that. And I think as you look at our -- my stated assumption for next year, I would assume that, that decline continues to be in that range or larger. Again, we've assumed the other cohorts similarly being impacted. But we do know that those students will generally want to go somewhere else. So we've talked about the demand for other geographies, certainly outside the U.S., but outside the big 4. And we have products and we have a footprint in all those markets. So even with lower tuition in those markets, we feel good that we can, again, capture that volume, but it would be obviously at a different tuition rate. But again, as you look longer term, while, again, we feel good that we've captured those dynamics quite well for this year and into next year. The longer-term opportunity for us is certainly -- remains quite large, again, outside the U.S. As those trends, we feel, especially for Indian students, as we talked about coming to the U.S. and looking at other destinations, for example, specifically, we feel that, that will continue to play out. Michael Massaro: And Jeff, I'd just say, this is Mike. Over the long term, I'd just continue to say student interest in education is not waning, right? As different levels of affluence happen around the world, I think people want to see their children educated. They want to have them get the best education in the best environment in a receptive environment. And so I think there's still strong interest in the United States. I think there's some lack of clarity in some of the policy. And hopefully, as that stuff clears up, you'll see those numbers continue to come in over the long term. And I think at the same time, Flywire is positioned well because we've got clients in 40-plus countries, and we'll be there where students choose to go in the meantime. Jeffrey Cantwell: Okay. Great. Appreciate it. And then on your commentary about 2026, combine that with what you stated about your GAAP profitability going forward, my question is, are you saying that every quarter next year should be GAAP profitable? The reason I'm asking is because typically, your Q2 GAAP net income, for example, is negative just due to seasonality. But I would think perhaps maybe what certifies future impact and the operational excellence you're highlighting today, that now can maybe swing to positive. Do you mind just confirming that or giving us any additional color there? And then lastly, Mike, when you think about the next dollar of investment at Flywire these days, I'm curious where does it go? Cosmin Pitigoi: I'll be quick on my side before I pass it to Mike. But yes, I'd say, look, we're not guiding '26 yet. But for now, I would say still seasonality will lean towards Q3, but we feel good that we'll continue to see increased profitability. And again, we'll update you early next year as part of our regular guidance around the seasonality of that. Michael Massaro: And Jeff, just on your last one for me, we're so fortunate to have the choices that we have, right? We see great areas of opportunity to invest organically in the business. The payback in our go-to-market investments is great. The opportunities our product and tech teams see in developing new products or enhancing new products is strong. Cosmin's called out some of the automation and AI work we're doing to improve and scale the company. Those are all great areas of potential dollar investment for us, makes the choices a little more difficult, but they're all great choices. We continue to obviously think that we're not quite valued properly. And I think that gives us an opportunity when it comes to buyback and Cosmin will be opportunistic there. And then hopefully, people are seeing we just have a track record of finding great targets. And so although not our primary focus, we're focused on integrating in the deals we have. We're still active in looking. And so we've got those hard choices to make across those areas, but we have lots of great organic investments, and that's kind of #1 priority for us. Operator: Our next question comes from the line of Tien-Tsin Huang with JPMorgan. Tien-Tsin Huang: Great sales execution here. I get the question a lot, and I may have -- we may have discussed this before, but just on the domestic payments opportunity within EDU, just remind us of the general ARR there? And what's the pitch to win? I mean is it price? Is it increasingly more payment design that bursar offices are caring about just because of things being complex and you bring something different to the table than what an incumbent solution might offer? Just trying to better understand why -- what your right to win is there. Rob Orgel: Tien-Tsin, it's Rob here. I feel this very strongly having just come back from our Fusion conference where we had clients up on stage telling the story of their experience with Flywire and speaking to the audience there of their peers. And in that conversation, they really focus in on a couple of things, right? There is absolutely sort of back-office efficiency and benefits that they get from software that just reconciles better, offers more flexible payment plans, service their students better in terms of things that help the back office efficiency. But they really do care about the student experience. They really do care about affordability. There's a lot of pressure out there on students and the kinds of things we can do with payment plans really matter. And then you put all of that in the context of our full suite and it's helping them on things like overdue payments, which are served by our collection management platform. And it's all in one integrated sort of modern tech platform. I think what we saw at the Fusion event was folks standing up saying, this was a great experience deploying it. This is a great experience operating it and the benefits are very real for clients. So it is not about sort of the cost saving on the payment. It's about the overall benefit of all the things I just said. Operator: This concludes the question-and-answer session. Thank you all for your participation on today's call. This does conclude today's conference. You may now disconnect.
Operator: Ladies and gentlemen, good morning, and welcome to the analyst conference call on the Third Quarter 2025 Results of Ahold Delhaize. Please note this call is being webcast and recorded. [Operator Instructions] During this call, Ahold Delhaize anticipates making projections and forward-looking statements. All statements other than statements of historical facts may be forward-looking statements. Forward-looking statements are subject to risks, uncertainties and other factors that are difficult to predict and that may cause our actual results to differ materially from future results expressed or implied by such forward-looking statements. Therefore, you should not place undue reliance on any of these forward-looking statements. The introduction will be followed by a Q&A session. Any views expressed by those asking questions are not necessarily the views of Ahold Delhaize. At this time, I would like to hand the call over to JP O'Meara, Senior Vice President, Head of Investor Relations. Please go ahead, JP. John-Paul O'Meara: Thank you very much, Sharon, and I'm delighted to welcome you all today to our Q3 2025 results from sunny Zaandam. On today's call are Frans Muller, our President and CEO; and Jolanda Poots-Bijl, our CFO. After a brief presentation, we will open the call for questions. In case you haven't seen it, the earnings release and the accompanying presentation slides can be accessed through the Investors section of our website at aholddelhaize.com, which also provides extra disclosures and details for your convenience. [Operator Instructions] To ensure ease of speaking, all growth rates mentioned in today's prepared remarks will be at constant exchange rates unless otherwise stated. And with that, over to you, Frans. Frans Muller: Thank you, JP, and good morning to all of you indeed from a sunny Zaandam. As you will have seen in our interim release this morning, our 2025 year-to-date performance is a great proof of the potential and value creation we are excited about with our Growing Together strategy. From a macro, social and political perspective, there's a lot going on in the world, the effects of which are felt in our stores every day in real time. With rising inflation, stagnating economic growth and changes in government policy, which, in some cases, are becoming more frequent and more unpredictable, the business and customer climate is for sure, volatile. Whether it is the current delay to the distribution of SNAP benefits and rising health and medical costs in the U.S., timing of the food stamp payments schedule in Romania, the recent limitations on the grocery trade market implemented by the government in Serbia, this creates uncertainty. Tough choices and headwinds for consumers and businesses alike. At the same time, the industry is evolving, be it omnichannel, data, AI and mechanization. Those companies, and I would include Ahold Delhaize in that group, who are at the forefront of these changes, who are well prepared, well invested and can leverage the experience and creativity of their people, those companies will outperform. Therefore, to ensure we continue to sell successfully in this dynamic, I believe 3 things are essential to keep the rather steady: flexibility, resilience and culture. These qualities become truly powerful when they are aligned behind a focused and well-articulated plan, which is exactly what our Growing Together strategy provides. It connects how we serve customers, run our operations, invest in our people and deliver strong financial performance, all while advancing our commitment to health, sustainability and responsible growth. So let me share a few examples how this tangibly shows up across our business in how we innovate for customers, build trust through transparency and act responsibility -- responsibly in our communities. The flexibility comes to life through our work in our own brands, where we adapt quickly to evolving customer needs and local market dynamics. And by harmonizing assortments, accelerating innovation and aligning product development across our regions, our teams can respond faster and with greater position to what customers want compared to competition. This agility helps us deliver differentiated value and quality while simplifying operations and improving profitability. All of our brands have seen year-over-year growth in own brand penetration. And in both regions, we are seeing own brand sales growth outpaced the rest of the store in both dollars or euros or units. But this is not the time to sit back and relax. And therefore, we are stepping up our own brand game and have undertaken a comprehensive cross-functional and cross-regional view to identify further opportunities. We will lean into this more heavily as we move through the next seasons. We have the biggest own brand share of store growth opportunity in the U.S. Some of the foundational work put in place to sustain momentum in 2026 and beyond includes, for example, the review of our 90% of our categories to harmonize assortments, align product specs and reduce supply complexity. The identification of a pipeline for new products in high-growth categories and the activation of commercial plans across the brands to raise own brand awareness and drive higher consistency and efficiency in execution. In Europe, we are building on a very strong position with own brand share already around 50%, 5-0 percent. Therefore, we are concentrating on further strengthening competitiveness through continued assortment harmonization, expansion of our health-oriented brands like Nature's Promise and Terra and the expansion of our everyday low-price products or how we call them Price Favorites. All our European brands now have a minimum of 900 Price Favorite products across their assortments. Through our family of great local brands, we have unparalleled proximity and rich anonymized data to loyalty programs that gives us a real-time understanding of what matters most to our customers. And during challenging times, it's important that our customers do not have to choose between eating an healthy and nutritious meal and paying their rent. This mindset keeps our people motivated and connected to our purpose. Resilience for our customers comes from transparency, being open and consistent about the value, quality and health choices we provide. We strengthen trust by clearly communicating nutritional information, offering price certainty and helping customers to make -- to be informed, affordable and healthy decisions. Here, visibility and education are equally important. Customers increasingly value the healthy options accessible across our brands. They also appreciate the simplicity of easily identifying the health differences between comparable products, such as with the Guiding Stars in the U.S. and NutriScores in Europe, nutritional rating systems used for our own brand products. In the U.S., we are partnering with Circana to expand the accessibility of the system to a broader range of suppliers. Albert Heijn in the Netherlands is revamping its fresh product aisle, expanding its offering with more convenience, new snacks and ready-made meal kits. It's also introducing new fresh food packages to inspire customers to prepare fresh and nutritious meals more quickly and easily. Maxi Serbia held its third Healthy Food Every Day school program to encourage healthy eating amongst children. And in the program, students across Serbia learn about the importance of a balanced diet, eating fruit and vegetables and physical activity. And finally, our culture is reflected in how we show up for our communities. Those partnerships with organizations such as The Global FoodBanking Network and local initiatives like Food Lion Feeds and Hannaford school pantries, we help families access nutritious food and reduce waste across our value chain. It has been just over a year since Ahold Delhaize partnered with The Global FoodBanking Network. And since then, we have provided the equivalent of 2.9 million meals to those in need. Hannaford, its 200th school-based food pantry for students in need, and they launched that recently and through partnership with school districts, food banks and hunger relief organizations, the program has helped expand food access for students from preschool through college. As part of its annual Great Pantry Makeover initiatives, the Food Lion Feeds program restocked 33 food pantries to better serve neighbors experiencing food insecurity. More than 92,000 pounds of food items were donated and associates contribute more than 1,500 volunteer hours. And don't forget, by 2032, Food Lion has committed to donate 3 billion of cumulative meals. Albert Heijn held their annual "you can't learn on empty stomach" campaign, where customers could buy healthy breakfast or dinner products at a discount and donate them to the Dutch food banks. And through the campaign, more than 350,000 products were donated. These efforts are not site projects. They are part of who we are. They demonstrate that our culture of care and connection extends well beyond our stores and that we define success by the positive impact we create. Delivering for our customer communities today sets the standard for how we build the business for tomorrow. We are translating the same flexibility, resilience and culture into our physical network, supply chain infrastructure and technology investments, expanding and densifying its growth markets, modernizing logistics and embedding AI-driven innovation that will enhance both customer experience and productivity. Our U.S. brands are solidifying their real estate pipelines to accelerate new store openings in the coming years. We see the strongest opportunity for growth in the markets served by our Food Lion brand. In some of our markets like Raleigh and Charlotte, we have seen population growth of 7% to 8% in the past 5 years, and that is not slowing. Having achieved its 52nd consecutive quarter of same-store sales growth, Food Lion is well positioned to extend its record performance. Today, Food Lion is launching their omnichannel remodels at 153 stores in the Charlotte market. These remodels enhance the omnichannel shopping experience and include items like updated assortments and easy meal solutions that they're ready to cook or eat and, of course, are priced right. Self-checkouts for an enhanced and efficient shopping experience and e-commerce options for all customers through Food Lion To-Go or a store pickup. This is now the third market to complete the omnichannel remodels, where we have previously launched remodels in Raleigh and Wilmington, we continue to see strong sales performance with average weekly sales outpacing non-remodeled stores. Construction is therefore also underway on 92 store remodels in the Greensboro market, which will be launched in 2026. In Europe, Delhaize Belgium is expanding its footprint with another 8 new supermarkets that will open in '26 under the brand's affiliate model. The new stores complement Delhaize existing network and reinforce our growth ambitions in Belgium. Additionally, we expect the Delfood transaction, which is -- which are the former Louis Delhaize stores to close in the first quarter 2026, allowing Delhaize to further differentiate itself in the convenience store segment. We also continue to make good progress on the integration of Profi, where we see a strong future growth path. Over the past 3 years, the brand has opened over 200 stores and intends to ramp up expansion in the next 3 years. A few of the things we have done this year to set ourselves up for future success include like things like introducing our own brand assortment to Profi customers, enhancing value and differentiation, expanding Profi's strong quick meal service offerings of coffee, fresh pastries and convenient meals and those options also to our Mega Image and our Shop & Go stores and to meet, therefore, evolving customer needs. And we slowed our cadence of store openings to finalize the commitments we made to the competition authority. At the same time, our Romanian teams have used the time to identify optimal locations for each of our local brands to ensure we leverage their unique strength and create a better fit to local market dynamics. And you will see accelerated growth in 2026 on this front. With our customer value proposition advancing and our footprint ambitions taking shape, let me spend a few minutes on where we are on strengthening capabilities that will support the next phase of growth. The same flexibility, resilience and culture that guide our brands also drive how we invest in infrastructure, automation, technology and data. These enablers make us more efficient, deepen our customer relationship and ensure we use our data to create a faster and more connected business. So here are a few examples to illustrate this. To facilitate growing capacity demands, 2 weeks ago, we announced plans for Ahold Delhaize USA to build a new state-of-the-art distribution center in Burlington, North Carolina. The new facility, which will add over 1 million of square feet of distribution center space is expected to begin operations in 2029. To maximize efficiency, the site will leverage proven supply chain mechanization technology. And this investment is within the scope and parameters of the Growing Together financial network. Our culture of innovation is also providing new and powerful ways to interact and serve our customers as we will explore use cases for new technologies and business process improvement. With the rapid developments in AI, we see many opportunities to accelerate across selected domains of our business, focusing on the ones that can have a real impact on our business. And I'm confident that under the leadership of our new CTO, Jan Brecht, we will make fast progress building the right foundational AI platforms that will enable effective future scaling of winning AI solutions. Our teams will scale our proprietary retail media platform, Edge, to our U.S. brands in the coming year. This is an important step as retail media becomes an increasing effective way to create a relevant customer experience and provide additional revenue streams. The platform powers on-site display, sponsored search and in-store digital screens and has already proven successful at several of our European brands. As 2025 draws to a close, I'm proud of our progress and more importantly, that we have sustained and strengthened brand equity and leading market positions across the portfolio. I'm confident we are doing the right things to reinforce our strategic levers to capture growth, volume and market share. And at the same time, we are staying close to our customers and associates working hard to navigate these turbulent times together successfully. As we turn our attention to delivering a strong holiday experience for our customers, prioritizing value, healthy assortments, convenience and everything they need to create their own special and unique holiday moments, I also wish you happy holidays, starting with Thanksgiving in only a couple of weeks. Now over to Jolanda to talk more about the specifics of our third quarter and provide more color on our outlook. Jolanda Poots-Bijl: Thank you, Frans, and indeed, good morning to everyone. We've delivered a strong quarter, steady sales growth, solid execution and continued progress on our Growing Together ambitions. What I'm particularly proud of is our ability to deliver a balanced and consistent performance in a dynamic environment. The backbone is our passionate and dedicated people, supported by a strong portfolio of brands that stay close to their customers and local markets. By combining that deep local insight with the scale and capabilities of our group, we continue to adapt quickly, find efficiencies and create opportunities in real time. This balance of flexibility, resilience and culture is what underpins our financial strength and long-term value creation. Let's have a look at the key underlying results for the quarter, as shown on Slide 17. Net sales grew 6.1% to EUR 22.5 billion. This reflects good momentum across our regions, fueled by our growth model and strategic priorities, which have been a key catalyst contributing to a solid volume performance. The closure of Stop & Shop stores and the cessation of tobacco sales in Belgium negatively impacted net sales growth by 0.7 percentage points. Underlying operating margin was 4.1%. Strong performance in the U.S. more than offset the first-time consolidation of Profi and planned strategic price investments in the U.S. Diluted underlying earnings per share was EUR 0.67, up 8.7% at actual rates. Higher underlying operating profit and the impact from the share buyback program was partially offset by higher taxes and finance expenses. Slide 18 shows our results on an IFRS reported basis for Q3, which were EUR 31 million lower than our underlying results, primarily due to impairment charges on operating stores in the U.S. and an adjustment on the losses related to the affiliation in Belgium. Let's now turn to our regional performance. On Slide 19, you see comparable sales growth by region, including and excluding weather, calendar and other effects, which shows we delivered another solid quarter of steady sales growth. Looking at the regions in more detail. U.S. net sales were EUR 12.9 billion, an increase of 1.9%. Comparable sales, excluding gas, increased 3.1%, excluding a negative impact from weather of 0.2 percentage points. This reflects solid comparable performance and continued customer momentum. In addition to the positive impact from comparable sales, net sales were negatively impacted by the following: around 80 basis points from the impact of Stop & Shop closures and around 20 basis points from a decline in gasoline sales. The underlying operating margin in the U.S. was 4.6%, excuse me. Excluding nonrecurring items, margins were up 20 basis points from the prior year due to higher sales leverage and careful timing of promotions using our learnings heading into the holiday season. This more than offset our price investments and the dilutive impact from a change in sales mix from online and pharmacy sales. The nonrecurring items, including a release of a provision on our self-insurance program. This primarily resulted from continued improvements in workplace safety. Given all the stresses in the health and medical market, creating a healthy, safe workplace is equally a vital part of what we do as a company. The Stop & Shop team has been laser-focused on executing their pricing strategy and have extended key elements and refinements to an additional 88 stores in Massachusetts. At the same time, our associates are improving the quality of service and in-store execution, optimizing promotional effectiveness and tightening day-to-day operations, while there's plenty of work ahead of us, I am encouraged by the positive first response from customers, which we see in our improved Promoter Scores. As we close out the year, I expect our fourth quarter U.S. margin to be roughly in line with the prior year as we continue to invest in value, service and in the customer experience, ensuring sustained momentum into the new year. Turning now to Europe. Sales were EUR 9.6 billion, an increase of 12.4%. The integration of Profi had a positive impact of 9.1%. Adjusted comparable sales growth was 3.4%, excluding the impact of 0.6 percentage points from tobacco. We expect to see a similar impact for the coming 2 quarters when we cycle the tobacco regulation in Belgium coming into effect. As we saw in Q3, comparable sales growth eased, partly due to some of the macro effects Frans mentioned earlier. Also, to a certain extent, as we begin to comp our own successes of the past years in the region. In the CEE region, we expect to see slightly lower growth persist as market growth is pressured due to rising inflation, which, in this case, is more policy-driven, for example, VAT increases in Romania than supply driven. Underlying operating margin in Europe was 3.9%, stable versus last year. Margin improvements in Belgium and better labor productivity in general were offset by the impact of the first-year consolidation of Profi and lower profitability levels in Serbia due to the new governmental degree on grocery industry pricing. The decree started from September 1 and remains in effect until February 2026. Given this new headwind, as we look into the fourth quarter, we expect that the margin profile for Europe will be at a similar level to that of the third quarter. I remain encouraged by how our local brands continue to balance affordability and innovation while protecting profitability, a clear sign of operational resilience. Our relative performance remains strong, and we continue to see the long-term growth and margin opportunities in line with our Growing Together plan, particularly as we drive more alignment of best practices and leverage our scale. Our omnichannel ecosystems continue to drive growth and differentiation and help us build market share. During the quarter, online grocery sales grew 15.4% in the U.S. and 11.9% in Europe, marking a sixth consecutive quarter of double-digit online growth. In the U.S., this reflects our disciplined store-first model, which we pivoted to in 2023. This strategy supports enhanced convenience, delivery immediacy, optionality, order quality and profitability. With over 2,000 stores across our network, our customers can shop nearly the full store assortment and can take advantage of our same-day fulfillment options. Over the past 3 years, we've seen same-day delivery increase from 65% of our orders to nearly 90%. We also completed the rollout of PRISM at Food Lion and Hannaford. And with that, all 5 U.S. brands are now on our proprietary platform, which will amplify speed and impact of innovation in omnichannel convenience for our customers. As online further evolves, so too will our operations and infrastructure with it. We will further evaluate our fulfillment operations to optimize the customer experience and improve online profitability. At Albert Heijn, double-digit growth was supported by a 10% increase in orders. To support its growth, Albert Heijn has announced its real-time delivery slot system to offer personalized delivery windows during checkout based on location and order history. Using AI, this system dynamically recalculates routes and time slots to minimize emissions and maximize efficiency even as orders come in. bol enjoyed another strong quarter, growing 8.4% and is on track to deliver a very good year. As the clear #1 in the market with a reliable assortment, local relevance and growing network of international partners, bol is a well-skilled and innovative e-commerce business with the personality of a great local brand. During the quarter, bol launched branded shelves, a new self-service advertising product, giving sales partners and suppliers their own digital storefront. This marks the next step in bol's development as a full-fledged media mail platform. Moving on to Slide 23. Q3 free cash flow was EUR 389 million lower year-on-year due to phasing and lease repayments. Even with headwinds from foreign currency, we remain on track to deliver on our full year 2025 free cash flow commitments. Our strong balance sheet gives us the flexibility and resilience to keep investing in the business while also returning cash to our shareholders. In that context, we are pleased to reconfirm the continuation of our EUR 1 billion annual share buyback program for 2026, underlining our confidence in future cash generation and earnings growth. Alongside financial results, we continue to advance our healthy community and planet ambitions. Our MSCI AA and Sustainalytics low-risk ratings have been reaffirmed, reflecting consistent ESG performance. Through initiatives such as the Healthy Future Academy, we are equipping associates with knowledge, skills and confidence to further integrate health and sustainability in their daily work. The program takes learners on a journey from farm to plate, covering topics like nature and climate, circularity and health throughout Ahold Delhaize value chain. Across our brands, we're making healthier and sustainable products more affordable and accessible. From Delhaize Belgium reformulated own brand canned vegetables to new hybrid meat and plant-based products. In addition, we continue to foster collaboration with suppliers across our value chain to support regenerative farming and reduce greenhouse gas emissions. Ahold Delhaize USA recently introduced their partnership with Danone North America and The Nature Conservancy aiming to reduce methane from yogurt production over the next 5 years. This follows earlier partnerships with Kellanova, General Mills and Campbell Soup. These examples show how commercial performance across our brands and responsibilities go hand-in-hand. As we move into Q4, our priorities are clear: deliver a strong holiday season, serving our customers with healthy and affordable products. I'm confident that our strong foundations, dedicated associates and customer-first mindset enable us to deliver on our promises for the year, which you can see reiterated on Slide 25. As it is important to track underlying operational performance in both our reporting and our outlook, for 2026, we will align our external guidance to a currency-neutral basis, which is also more attuned to market practice for multicurrency companies. In summary, our strong year-to-date performance reflects a company that is flexible in execution, resilient in performance and guided by a culture of accountability and care. These qualities, together with our clear strategic focus, position us well to continue driving sustainable growth and long-term value creation. And with that, I thank you for tuning in. And Sharon, please open the lines for questions. Operator: [Operator Instructions] And your first question today comes from the line of Robert Jan Vos from ABN AMRO ODDO BHF. Robert Vos: I have 2. Since you mentioned it as one of the reasons for the strong margin expansion in the U.S. in Q4, could you quantify the impact of the timing of the promotional activities in the U.S. in Q3? And my second question is, you talked about the growth in Europe and that it is expected to be a bit more subdued going forward. It was 2.8% in the quarter. However, if we look at food inflation levels in the countries of presence, these are generally a bit higher than that. So that indicates some negative volumes. Can you elaborate on this, please? Those were my 2 questions. Frans Muller: Robert Jan, Jolanda takes the first question, then I take the second one. Jolanda Poots-Bijl: Okay, Robert Jan. Yes, the Q4 question you asked about the promo phasing. As we indicated, our Q3 results were impacted by one-offs of 20 basis points in the U.S., and this 20 basis points is related to the release of the provision that I talked about and the promo phasing, and that's the guidance we can give you on this front. Frans Muller: And on the European margins, they are corrected 3.4% in Europe for the quarter compared to a comparable of 2.8%, which we report. And it has to do with the timing and phasing effects of nonrecurring items from last year. Robert Vos: That's clear. But can you maybe elaborate a little bit on volumes? Were they still positive in most brands? Frans Muller: Yes. Volumes year-to-date, we have positive volumes, and we also expect that will be the same for the fourth quarter. Operator: We will now take the next question, and the question comes from the line of Sreedhar Mahamkali from UBS. Sreedhar Mahamkali: Perhaps if you can talk a little bit about the comments you made, Frans, on the real estate team pulling together pipeline and the warehouse [ Burlington ] you made $860 million. If you can help us understand what we should be thinking about the growth in terms of new footage new stores, maybe next year or the year after, how we should be thinking about what sort of magnitude? That's the first one. Second one is just a bit more of a request to clarify the U.S. margin drivers in the quarter. I know you've talked about 20 basis points. But did you just say, I think the 20 basis points refers both to the provision release and the promo shift? Or was the provision release 20 basis points and then the rest is in the underlying 20 basis points improvement? And the real question there, I guess, for me is, is the provision release a longer-term realizing you provisioned very, very prudently, and this could be there in a year, 2 years', 3 years' time? Frans Muller: Thank you, Sreedhar, for your questions. Jolanda will take up the second one or partially the third one. On the first question on the DC, the DC for Food Lion in the Carolinas is, of course, an evidence of our success, I would almost say. We grow very fast with Food Lion and have also future plans to grow further, both in store remodels like the 153 we just launched in Charlotte, but also with new store openings like we said before. And those new store openings, that is organic growth for Food Lion and the store remodels and the increased success of Food Lion needs more capacity, which is a good thing. The other thing is that we also said in our Grow Together strategy for the 4 years period that we will remodel 1,000 stores in the U.S. So we are on the path of growth. And when we talk about store growth, then we talk about Food Lion, Hannaford and The GIANT Company. And let's not forget that we are in the southern part of the East Coast, where both we see population growth and GDP growth as well. So we're in a very good spot there, and that's why we need more capacity. So it's a logical effect of our success. Jolanda Poots-Bijl: Thank you, Sreedhar, for asking that question on the U.S. margin. The 20 basis points is indeed a combination of the promo phasing that we referred to and the release of the provision. And then your next question on the provision, that's a provision that is reassessed every year, but we do not expect at this point further releases on that provision. So it's a one-off, and that's why we refer to it. Operator: Your next question comes from the line of Rob Joyce from BNP Paribas. Robert Joyce: I'm going to go with 3 as well. So just looking through the kind of SNAP impact from the payment pause, which is probably a [ P ] of one event. Do we now think the U.S. margin has reached a point where it should be kind of broadly flat going forward and looking into 2026? And do you think you are gaining share in the U.S. and can continue to gain share at this kind of margin level? That's still in the U.S. And then in terms of Europe, I mean, it looks like you're suggesting margins should be down, give or take, 50 basis points in the fourth quarter. How do we think about that flowing into next year? Is that a drag on margins we should think about for 2026? Or is 2026 a Europe margin growth on the back of some of those Profi synergies in particular? Jolanda Poots-Bijl: Thank you for the questions asked. First, starting with the U.S. margin profile, which we disclosed will be for Q4 comparable to the prior year, which was 4.2%. We envision to maintain our cadence of price investments, continuation of the sales mix. Bear in mind, [ Rx ] and online are growing double digit. And there's indeed the promo shift from Q3 to Q4 that we see there. If I look at the European Q4 margin, as I disclosed in my statement just now, we expect the Q4 European margin profile to be comparable to Q3 this year, which was around 3.8%. And there you see the impact of the first-year consolidation of Profi. We discussed in previous calls that Profi, the closure of the transaction was somewhat later than we hoped for, and therefore, the synergies also kick in somewhat later. The second impact in the European margin profile is Serbia, the decree that I talked about, which is in there. Overall, as we say, we're steadfast on our commitments to deliver on our Growing Together strategy with an average of 4% margin over the whole period and a 4% growth CAGR, and I don't see any reason to deviate from that. So confident for the next year. And of course, we will provide detailed guidance in February going forward. Robert Joyce: Sorry, just to follow up on that U.S. margin. The question on the market share. Do you think you're taking market share now in the U.S.? And are you kind of at the right level to continue taking share? Frans Muller: We take market share in the U.S. We also see with the latest numbers on grocery development that we trend better than the market. And I think this has to do with the price investments we made, the online performance where we have a very strong penetration. So I think we can confirm that we gain market share in the U.S. geography as a whole. Jolanda Poots-Bijl: We also expect positive volumes in Q3 for the U.S. as well. So yes. Frans Muller: That's what I said before. So the Q4 trend is the year-to-date is positive volume that will prolong for the Q4. And I'm also happy we had yesterday our total Stop & Shop team with us. And also from them, we see now that they trade positive volumes as well. So that's going in the right direction. Operator: Your next question comes from the line of William Woods from Bernstein. William Woods: The first one is on Stop & Shop. I suppose, are you happy that you've done enough at Stop & Shop to date to sustain that turnaround? And I suppose what have you learned and adapted as you've rolled out this strategy? And then the second one is just a shorter-term question on SNAP. How are you thinking about the impact of SNAP at the moment? What are your latest conversations on that? Frans Muller: So Jolanda will say a few things about the nutritional assist programs. I will say a few things more about Stop & Shop. So you were faster on your feet already talking about Stop & Shop than I thought. So I was saying a few things about Stop & Shop because we are excited about the development there. The team was with us, and we had a full report yesterday as we see from them every month with our full management board because this supports an important project. The Stop & Shop team has now invested -- price invested in 70% of their fleet. And like Jolanda mentioned before, 88 new stores to be price-invested in Massachusetts. We have improved execution in our stores, availability, fresh performance and that topic, we work hard on productivity and execution. We closed last year 32 loss-making stores, as we earlier said to you. We have already a very strong online performance with Stop & Shop and a good 10% penetration. And we also see, if you look at the market numbers that we gained volumes that our NPS are trading very nicely up. And also the team with Roger's leadership has also renewed, and we see also there a lot of energy and positivism. Having said all that, that does not mean that we have not still a lot of things to do. And that's what I mentioned before, the type of turnarounds need more time. But good evidence. Team is enthusiastic and energized about the results we see. So I'm optimistic going forward. But again, we come back to you next quarter on this topic, too. Jolanda Poots-Bijl: Yes. Thank you, William, for the question on SNAP. First of all, we think it's quite disappointment, very disappointing for those impacted, those families in need, especially with the winter and holiday season ahead of us. Thus far, for the business, we do not see material impact. We, of course, will closely monitor developments going forward, and we will stay close to our communities. Yesterday, Food Lion released that they've contributed an additional EUR 1 million in support to help the communities they operate in. And also our whole focus on reduction of prices, the price investments of EUR 1 billion in 4 years' time will also support these families. So closely monitoring impact. That's what we're doing. William Woods: But just to clarify on the SNAP impact, if it doesn't get paid or only half of it gets paid, so you're just saying that there's no material impact to Q4. Is that right? Jolanda Poots-Bijl: That's not what I said, William, exactly. I said thus far, we don't see a material impact, and we closely monitor developments going forward. And we remained -- okay. Operator: [Operator Instructions] We will now go to our next question, and our next question today comes from the line of Fernand de Boer from Degroof Petercam. Fernand de Boer: Maybe to come back on the SNAP impact. Could you quantify? Because I think a couple of years ago, you did quantify how much SNAP was of your U.S. sales? And that's the first question. And the second one is on the Netherlands with bol. At this moment is still going very well, I think. But also Amazon recently announced a huge investment program for the Netherlands. Do you see this market changing? And how are you going to prepare for the investment of Amazon? Jolanda Poots-Bijl: Thank you for the question. The SNAP penetration, that's the only quantification that I could provide at this point in time. It's a very -- at a very low level in our company. So it's at one of the lowest levels since a few years pre-COVID. So low penetration, no material impact thus far, and we will monitor just like you what's really happening in the next few months. Frans Muller: And at the same time, Fernand, like Jolanda mentioned before, we did a lot of things on value and price investments. If it's our own brands, if it's investing in our prices. And we're very fortunate that we have a very good relationship with Feeding America and our local food banks to make sure that we can support those families and communities in need. That is now our first priority. And then we monitor the situation how this will evolve, the shutdown and therefore, also the connected SNAP funding. Talking about Amazon and bol, it's a competitive environment. It's -- we see every quarter something new in this beautiful online space in the Netherlands. But I just would like to come back to the facts and how we prepared for that. bol has an 8.4% growth, which is, therefore, growing roughly double how the marketplace is growing for general merchandise. So we're gaining share again. Like Jolanda already mentioned, we're up for a very good year for bol, both top line and bottom line. The company does a great job in adding new categories like refurbished, for example. And the company is also under the leadership of Maite made a very nice transition from Margaret, it was successful, Margaret in her leadership to Maite into the future, and it has gone very smooth. 46,000 partners on the platform, and we increasingly develop the relationship. We talk about logistics viable, advertising viable. So we make bol an even better platform for them to compete with. And we also see that the number of suppliers, the number of partners on the platform is increasing, and we also have a very nice tap into Chinese and Asian suppliers directly on the platform, which gives us a great advantage. You have seen with all the other Chinese players that there is a little bit lower strength because of European regulation on quality and on trading. And that's why also people recognize that bol in its quality assessment, quality and compliance with the European law that they're very much in line and that is for more and more customers and asset. And just look, Fernand, I don't know if it's for your -- for family members or nephews and nieces, just look at the sensational toys catalog over Christmas for Sinterklaas here, 3 million copies out and sensational good toy catalog. So with Black Friday coming up, with Sinterklaas, with Christmas coming up, bol is super prepared for the season, and I'm very confident that we have a very strong run there as well. So yes, we see people investing, making announcements. We look at our own thing and our own strength to see where we can improve both pricing, both value, both logistics and services. And that's why I sound -- and you can hear that. That's why I sound quite enthusiastic, excited about this business. And I'm very proud about the bol team, how they progressed so far. Fernand de Boer: May I do one follow-up on the promotions. Why did you change the strategy there? Why did you do the phasing? Is it simply more to get in Q4 and a little bit less in Q3? Or how does that work? Jolanda Poots-Bijl: Yes, you're referring to the promotions for the U.S., right? Fernand de Boer: Yes, yes. Jolanda Poots-Bijl: Yes, yes, exactly. That promo phasing, as we call it, we're just learning from our promos, optimizing and heading into the holiday season, we shifted a bit of that promo atmosphere into the Q4 quarter based on the learnings we had. But it's also -- don't make too big a thing out of it. It's trending over time. You adjust where you think you can optimize your returns, and that's just what's going on. Frans Muller: And $1 billion price investments, $1 billion price investment for the U.S. in our total Growing Together plan, that is absolutely our commitment, and we are in line with that commitment. Operator: We will now take our final question for today. And the final question comes from the line of Maxime Stranart from ING Bank. Maxime Stranart: I hope you can hear me well. So 2 questions for me as well. Firstly, looking at the U.S., it looks like your comment on Hannaford posting consecutive quarters of growth has disappeared from the release. So I just want to inquire there what has happened with Hannaford precisely. And secondly, looking at Europe, you have decreased your guidance for Profi for full year sales. Anything we should read into it and how it would translate into growth in 2026? That would be all for me. Frans Muller: Yes. So thanks for your engaged question on our beautiful brand, Hannaford in the Northeast. [indiscernible] but also this quarter was another consecutive quarter of same-store sales increase. So strong as they go and going strong. So don't have any second thoughts. A few things on Profi, Jolanda? Jolanda Poots-Bijl: Yes. You asked about the sales profile for this year on Profi. That has been impacted more by macroeconomic factors than anything else. It's the VAT being increased with 2% in Romania, which, of course, impacts sales. And the food vouchers in Romania, the timing of that provision to customers has changed and impacted sales somewhat. There was also a small increase -- a small impact because the 87 stores that we are selling is related to the transaction with Profi happened somewhat earlier than we projected. So it's now in November, and we planned for it in January, which is all good, of course. Is there anything that would impact our structural guidance on the growth for Profi? Not at all. So it's macroeconomic and some of the stores that needed to be sold earlier in timing than we predicted earlier onwards. Frans Muller: Just quickly ChatGPT the data -- data on Hannaford, so super proud. It was the 17th consecutive quarter for growth -- comparable sales growth for Hannaford. So that is then also that data point with you. Operator: We have a follow-up question from Rob Joyce, BNP Paribas. Robert Joyce: Just a couple of quick follow-ups. I think -- sorry if I just missed it in that last Profi answer, but are we still expecting Profi from 2026 to be back in a position of kind of expanding profitability and growing there? And then the second question was, I just had a few questions about the U.S. slowing in the most recent months. Have you seen any sort of change in the trajectory of the U.S. business there? Any underlying weakness in the consumer? Frans Muller: Yes. On the U.S., thanks for that question. I think we gave you already the data that we are -- if you look at Nielsen numbers that although the market is a little bit softer that we did better than the market. So we gained share. And inflation in U.S. at the moment is roughly in 2.5% food at home. So I think we see that we are very well positioned there, but the market was slightly softer. But in that slightly softness, we gained share. Jolanda Poots-Bijl: And the question around Profi, we're very happy to have Profi in our family of great local brands. We will invest in opening up stores going forward intensely because we really see that there is an opportunity for Profi to grow going forward. And as we stated earlier, Profi is expected to come into the average European margin levels in 2 to 3 years going forward with the synergies that we are now realizing and that will impact 2026 positively already. Frans Muller: And synergies come in better than planned, by the way. So also the teams are very successfully working on that. Jolanda Poots-Bijl: On a positive note by our CEO. Frans Muller: No. But I think we have a little bit of experience with integrating businesses, I think. And it's never easy. It's the cultural component, the people component, the network, the synergies. And at the same time, also keep on accelerating your growth because Profi is a growth machine for us and 200 stores in the last years. That means also as from '26, we start growing again fiercely because that market gives quite some opportunities, especially with the business model of Profi and in the rural areas. That's why this is strategically the right move. That's why we're close to EUR 5 billion in Romania in sales #2, and that's the planning we have. Operator: Thank you. I will now hand the call back to JP for closing remarks. John-Paul O'Meara: Thank you very much, Sharon, and thank you all for joining us today. We look forward to catching up with you in the coming weeks. And just to reiterate, a happy holidays to everyone that we don't see between now and the end of the year. Jolanda Poots-Bijl: Thanks for joining us. Frans Muller: Thank you. All the best to you. Have a good week. Bye-bye. Operator: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
Unknown Executive: Ladies and gentlemen, thank you very much for joining us today, taking time out to presumably busy schedule. Now, we would like to begin TMC's FY '26 Q2 Financial Results Briefing. I am [indiscernible] from Corporate Communications, pleased to be your MC today. Now I would like to invite our Chief Financial Officer, Kenta Kon, for his presentation. Kon-san, over to you. Kenta Kon: Good afternoon, ladies and gentlemen. Thank you for the introduction. I am Kon. Before I begin, I would like to start by sincerely thanking our customers around the world, who love Toyota cars; our shareholders, who support our efforts; our dealers and buyers and our other stakeholders. Here is a summary of Q2 results. Our operating income for the first half of this fiscal year was JPY 2 trillion. Despite the impact of U.S. tariffs, strong demand supported by the competitiveness of products has led to increased sales volumes, mainly in Japan and North America and has expanded value chain profits. The full year operating income forecast is JPY 3.4 trillion, despite the impact of the U.S. tariffs, we have continued to build upon our improvement efforts, such as increasing sales volume, improving costs and expanding value chain profits. We are steadily translating comprehensive future investments into improved productivity and increased returns with a strong focus on improving the breakeven volume. As for shareholder returns, to reward our long-term shareholders, the interim dividend is raised to JPY 45 per share, and the full year dividend forecast is JPY 95 per share. As announced at the Japan Mobility Show 2025, we will clearly define the 5 brands of the Toyota Group with clear directions. A diverse range of products, meet the needs of each individual customers and thereby expanding choice for our customers. I will now delve into our financial results for the period ended September 2025. Consolidated vehicle sales for the first half reached 4,783,000 units or 105% of the same period last year. Toyota and Lexus vehicle sales totaled 5,267,000 units or 104.7% compared to the previous fiscal year. Thanks to a strong demand from customers around the world, vehicle sales increased mainly in Japan and North America. The ratio of electrified vehicles rose to 46.9%, driven mainly by strong HEV sales in regions such as North America and China. Consolidated financial results. Sales revenues of JPY 24,630.7 billion; operating income, JPY 2,005.6 billion; income before income taxes, JPY 2,478.1 billion; and net income of JPY 1,773.4 billion. The factors that impacted operating income year-on-year, are shown on the slide. Next, the geographical operating income. In Japan, operating income decreased mainly due to the impact of exchange rate fluctuations and increased expenses in North America, it decreased because of the impact of the U.S. tariffs. Other regions saw an increase, mainly due to higher sales volume, improved model mix and other factors. Our China business saw increase in operating income and share of profit of investments accounted for using the equity method. Operating income in the Financial Services segment increased largely due to an increase in loan balances. Now, we will move on to the shareholder returns. We will raise the interim dividend by JPY 5 compared to the previous fiscal year to JPY 45 per share. The forecasted full year dividend will also be increased by JPY 5, reaching JPY 95 per share. We will continue to increase dividends in a stable and continuous manner to reward our long-term shareholders. As for share repurchases, in June of this year, we passed the resolution to establish a repurchase program of approximately JPY 3.2 trillion as part of taking Toyota Industries Corporation private. Therefore, no new share repurchase program will be established at this time. We will continue to conduct flexible repurchases of shares, considering factors such as common stock prices. Next, I'll explain the forecast for the fiscal year ending March '26. Consolidated vehicle sales remain unchanged from the previous forecast. Toyota Lexus vehicle sales has been revised upward by 100,000 units to 10.5 million units. Through the strong competitiveness of our products, we will capture even more robust demand, particularly in North America. Next, let me explain the full year consolidated forecast. We have adopted the full year ForEx rate assumptions of JPY 146 per dollar and JPY 169 per euro. Our forecast for the full year consolidated performance are sales revenues of JPY 49 trillion, operating income of JPY 3,400 billion, income before income taxes of JPY 4,180 billion, and net income of JPY 2,930 billion. The factors impacting operating income year-on-year are as stated on the slide, despite the impact of U.S. tariffs amounting to JPY 1.45 trillion improvement efforts such as increasing volume, model mix, cost reductions and expanding value chain profits are expected to result in a positive impact of JPY 0.9 trillion. To maintain and strengthen our earnings power, we will work with all stakeholders, including suppliers and dealers to leverage results of the strengthening of our operational foundations to further improve productivity. I believe, everyone here has seen the models we unveiled at the Japan Mobility Show. These cars speak more for themselves than I ever could. Each and every product is something that could not be created overnight. Toyota is a company managed through its products, which are the results of long-term efforts built up by many people. Our products were created by our development teams, production teams, suppliers, dealers, and of course, our customers and the market. The first half financial results reflect these efforts, and our cars have generated solid profits. And now, in addition to Toyota, Lexus, Daihatsu and GR, we are able to introduce the new Century brand. By having each brand take on clearer roles within the Toyota Group to form complementary relationships, we can expand customers' choices even further with a diverse range of products that meet the needs of each individual. We hope you will continue to have even higher expectations for the Toyota Group moving forward. A diverse range of products supported by such strong brands has led to 150 million units owned by our customers worldwide, and the value chain business has expanded to the order of JPY 2 trillion in operating income. This is the result of the efforts by our teams on the front lines in service, sales finance, used car sales, insurance, and other areas to maximize the value of each vehicle, supported by product strengths, such as ease of repair and strong supply of parts, as well as high residual values. The new RAV4 is the first to adopt Arene, a platform designed to efficiently develop software. RAV4 is our best-selling global model, with annual sales of 1 million units. We deliberately chose to lead with this challenging model. By utilizing the vast amount of data collected from roads and vehicles across the world, we will develop and refine SDVs together with our customers. By adding our SDV strategy to the virtuous cycle of the new cars and value chain businesses, we will further strengthen our profit foundation. Over the past two years, we have grappled with certification issues and lack of capacity head-on, carrying out to reinforce our operational foundation. As a result, we have thoroughly focused on safety and quality while securing additional capacity, leading to a stable production. On the other hand, investments in human resources and future-oriented investments have expanded, and, combined with the impact of U.S. tariffs, our break-even volume has risen significantly. To bring our break-even volume back onto a downward trend, we are launching a company-wide initiative. We will review the allocation of people, materials, and capital, and turn the results of the reinforcement of our operational foundations into earning power. We will pursue waste-free, value-added work and improve productivity, and also continue to focus on improving the break-even volume. This concludes my explanation of the financial results. Thank you. Unknown Executive: Thank you very much, Kon-san. Now we would like to open the floor for questions. Let's prepare the stage. Unknown Executive: [Operator Instructions] Your questions will be addressed by our Chief Financial Officer, Kenta Kon as well as our COO, Takanori Azuma from the accounting group. Please allow them to be seated as they respond to your questions. [Operator Instructions] In the second row in the middle section, please. Unknown Analyst: I am Taguchi from Nikkan Kogyo Shimbun. Two questions. Number one, first of all, for the past several years, you are focusing on earning power. There must have been various external factors. But how have you raised your earning power with those efforts? And how has that been reflected in these Q2 results? Now 15% in September is something that we heard about the U.S. tariffs, as determined. And further, throughout the year, how do you plan to minimize the impact? I am sure you're working in various fronts, but probably you can tell us your directions. Kenta Kon: Thank you very much for your questions. Well, earning power. So the first question was how our efforts have delivered, and that certainly is a question about our financial results themselves. As I mentioned in my presentation, JPY 2 trillion and JPY 3.4 trillion in operating income is what we have announced. We do have external factors, of course, but we do have global customers with very strong demand for products. And we feel that day in, day out, because of the high quality and the power of our products, which has been the result of our accumulated efforts. Regionally, North America, as you know, because of the impact of the tariffs, the situation is not rosy although I cannot share with you other than North America, for example, China, Europe, Asian markets and Africa. These markets, although the situation is not easy, but in terms of both revenues and sales volumes, we have seen some healthy situations. Brazil experienced some typhoons and hurricanes, but yesterday, we announced the restarting of the production. Actually, that has been brought forward by tremendous efforts made on the -- in the front line of our business, and that certainly is a part, a very important part of our earning power. In terms of our value chain, JPY 2 trillion annually is the revenues that we can expect for 150 million cars being owned, of course, is the basis of that value chain revenues. But once again, that represents the power of our products. Residual value of used cars, for example, is maintained very high. And also, Toyota vehicles are often said as being very easy to repair, because that concept is already built in, in the design of the cars. The repair personnel is involved in design so that easy to repair is an important part of our product, although it is not visible from outside. All of those components put together have been integrated into our earning power and that's the Q2 results. As for the second question of your is about the impact of the U.S. tariffs, how we responded successfully. I think I showed you some slide about that. Did I? Well, JPY 1.45 trillion is the impact from the U.S. tariffs. At the beginning of the year, our President, Sato-san talked about this. We really should not panic and try and respond hastily by raising prices of the cars. That's not our way. For each vehicle, each model, each region, we will scrutinize the competitive landscape and the market, and we carefully determine the price point. And as you can see on this slide, and of course, the efforts were not solely made to respond to the tariffs, but as you can see on the right-hand side, our improvement efforts amounted to JPY 90 million -- excuse me, JPY 900 billion, JPY 900 billion. And of course, that includes strong sales reflecting the strong capacity of the product as well as the value chain revenues. Do you have anything to add? Probably not. Thank you for your question. Unknown Executive: So next to the previous questioner. Mizuno from Yomiuri Newspaper. Mizuno Tetsuya: My question is to Kon-san. The Chinese semiconductors, the Nexperia, they shift Nexperia. What sort of countermeasures are you taking against that shortfall? Has it impacted you? And what sort of measures do you intend to take going forward, please? Unknown Executive: Mizuno-san. If you could ask 2 questions at once? Or are you satisfied with just one? Mizuno Tetsuya: Just one is fine. Kenta Kon: Well, most recently, we have not seen any impact so far, but we do know that there's a risk. Therefore, we're trying to scope the impact and the areas where the impact would be felt, and we are currently monitoring the situation very closely. And of course, this is not only for Toyota, but it's, I think, for the entire supply chain, and we're looking for alternatives and what other options have available. We are researching such alternatives, and also monitoring very closely the impact situation. Unknown Executive: May I have the person with the white jacket in front? Unknown Attendee: I'm [indiscernible] from TV Tokyo. I have two questions, for Kon-san. Number one, about the U.S. market forecast. For the entire year, you have made some changes or not, no, you have not made any changes. But according to researchers, after October because of the tariffs, car prices could rise in the general U.S. market. So how do you view the North American market going forward? The second question is about what you mentioned in the second part of your presentation, earning power in order to regain the downward trend, the all-out efforts will be made. What sort of efforts will you be making in terms of breakeven volumes, for example, what level would you like to bring it back by what time frame? Kenta Kon: Thank you very much for your questions. As for the North American markets going forward, as you mentioned and very rightly so the volumes that we expect have not been changed from the previous announcements. As we hear from the U.S., we see lots of very strong demand for our products. You may know this, the sales incentives tend to be really low, reflecting the strong value of our products. Still, we can barely cover the demand, and our inventory level tends to be rather low. And of course, on the front line, they are doing their very best in producing the number of cars needed. In terms of sales, therefore, we expect very healthy situations going forward. Now about the breakeven volumes in our earning power. I said that we will be making an all-on efforts involving different and various activities and initiatives. There are so many, I don't know, which one should take the highest priority, but enhancing the value-add work, eliminating wasteful tasks. For example, wasteful time of meetings with lots of people involved without much contributions. And of course, we'll be very careful in determining price point and increased sales certainly reduces breakeven volumes, our value chain revenues as well. We do not have the clear goals in terms of quantities, but we have seen this trend of increasing breakeven volumes, and we would like to see it decline. Unknown Executive: Second or third row from the back, yes. Unknown Attendee: Chikauka from Nikkei CrossTech. I have two questions as well. First question about hybrid. Hybrid is growing quite rapidly. So going forward, do you have any expectations about the future growth of hybrid going forward? As for EV, in 2030, 3.5 million units, I think is your base volume and you don't intend to change that base volume? That's the first question. Second question is about the price pass-through of tariff costs, tariffs basically speaking, or in essence, should be borne by the U.S. side. That is my recognition. If so, well, you mentioned that there's a strong demand for Toyota, which means that perhaps 15% of the entire tariff could be passed through to prices, and then for Toyota and for your cooperating companies that would lead to increased profit and would be beneficial for both. So would you say this is not as simple as that? Could you tell me your thinking on this point, on this issue? Kenta Kon: Yes. May I? Regarding hybrid vehicles, it is growing very rapidly. And would that continue going forward? I guess is the gist of your question. Well, we believe that growth will continue. And I can't say, but from what I hear of from my observations of the market, the request for increased production toward hybrids and the demand from customers for hybrids is very strong. So we would like to accommodate such requests through production -- through increased production and accommodate the customers' requests, thereby increasing our volume for hybrids, I believe. As for BEV, well, we're looking at the actual demand, and it seems that compared to our initial estimations, things are actually declining. That is -- there's a shortfall against our expectations. And therefore, we have to look at the customer and market situation to at an appropriate timing, deliver good products that meet their needs. And the next one was about the price pass-through of tariff costs. Well, if you say that because you have such competitive product, if you increase your prices by 15%, it will be beneficial for all you said, but for many years, in the case of Toyota, we have many cars that's really been loved and used by our customers. For example, Carola, Hilux, Surf, or 4Runner in the United States or Highland Cruiser -- these -- we have many, many different models, and many customers are loyal to these brands. They continue to use them for many, many years, and many of our customers are fans of our cars, which means that for us to price these vehicles out of the expectations of customers is very difficult for us to do. So we want to enhance the value of these cars in order to charge the customers an appropriate price that meets that value, because if you outprice the customers' expectations, you can really lose their loyalty. So our method would be to take it step by step. As for hybrids, in 2025, I think somebody said it will reach 5 million units. Perhaps it was a goal that somebody mentioned, I'm sorry, I'm not quite sure about this, but 5 million in 2020-something, do you have a goal like that, a numerical target? You mean hybrids. Yes, hybrids. Really, well, at least I don't have any numbers firsthand on when we will reach 5 million, but the hybrid ratio amongst our -- sorry, 4.46 million units this year, that's about 200,000 unit up from last year. So this pace of growth, I think, we will -- we should maintain this pace of growth going forward. Unknown Executive: Now person in the second row, in this section, please. Unknown Attendee: I am Nakano from Nishinippon Daily. Now I have two questions. The first question is about Kandamachi in Fukuoka Prefecture. The battery plan for EVs. In April, you were to be -- to sign the MoU with the Prefecture, but now it has been prolonged and postponed to autumn. What is the progress? And also, 2028 start of operation that has been planned as well as the production capacity? Have there been any changes to your original plans? The next question is about taxes. Under Takaichi -- Prime Minister Takaichi, the tax treatment Minister has been appointed and some special measures could be taken in terms of taxes. And what is the view on that situation? And also, with the outlook for any preferential tax treatment. Do you have any outlook for that? Unknown Executive: Thank you very much for your questions. As for the first question, Fukuoka Kanda battery factory, ongoing study continues. So I heard that is. Now we are talking with the Fukuoka government and stakeholders in Fukuoka Prefecture currently. As for the taxation, well, we have seen the changes in the administration in this country. Now there are various taxes involved in automotives and revising and changing of those taxes have been something that JAMA and other organizations have been advocating towards the government, Well, when it comes to taxes, we have to consider how we may be able to maintain monozukuri in production in this country in a healthy way. It's very important for the entire industry, not only for the automotives. I hope any form of taxes will be able to enhance domestic demand for the industrial products. Therefore, it is my belief that JAMA will continue to advocate for that. Unknown Executive: Then the person in white at the very back of the room. Unknown Attendee: From Kyoto, my name is Tokumitsu. I also have two questions. First question, the Japan Mobility Show is now on, and I saw the exhibit there. And the Century branding has come to a milestone, I think, but I think that some of these pilot cars are also viewed toward mass production. So do they represent the future production plans of Toyota. The second question is about the impact of tariffs? You said it was of JPY 1.4 trillion, but now that's been increased to JPY 1.45 trillion. So a slight increase. And in August, the -- you had calculated on a reduction in auto tariffs, but you did make that modification after the imposition of the actual tariffs in September. Is that the reason for this slight increase is the question? Kenta Kon: Regarding the Japan Mobility Show, thank you very much for coming to our booth at the Japan Mobility Show. As you said, well, I don't know if we intend to mass produce all of them. But of course, several of these models overall be marketed in the future, at least I believe they will be. And I think this attest to the strength of our product competitiveness. That's it in a nutshell, but especially the Century brand was launched. We were able to launch a totally new brand called Century, which I thought was a very big step forward, because currently, new car names, new models are very hard to come by. But to start from starting a totally new brand, I think, was a major initiative in the company, and it's also a big message from us. The launch -- you may have heard the presentation to launch Century, our Chairman, Toyota said this is the pride of Japan. He said, Century, the car and the brand is the pride of Japan, he said. So from that perspective, it goes beyond just car model. I mean, I think, in Toyota, it represents not just a model, but something beyond that. So I do hope that you will take it as such. Regarding the second question, may I address that question? In the first quarter, it was JPY 1.4 trillion, but now we've added 5 million. And as you said, from mid-September, there was a 15% tariff imposed. That is a tariff level was decreased. So this is based on the recalculation of the impact of tariffs and the tariff impact will hit not only Toyota, but also our suppliers and about 70% of part and components -- well, the components and parts manufacturers account for 70% of the market. So we want to work together with them to overcome this. When I visit the suppliers, each supplier has, for example, embarked on labor-saving and also changing their processes, et cetera, to challenge new initiatives to address the impact. So in addition to the product competitiveness, we would like to master our forces together as a manufacturing industry to overcome the tariff issue. Unknown Executive: The person on the left, please. Unknown Attendee: I am Toyoshima, WBS TV Tokyo. Kon-san, I have some questions for you. As a result of the U.S.-Japan tariff agreement. What do you think of it? Well, actually, the end result was as Toyota had expected, 15%, but now you are expecting the JPY 5 million in negative increase, is it because you have taken the very conservative way of revisiting your numbers? Or is a situation really, really difficult? Well, shortly after the announcement of your Q2 results, your stock price went up a little bit, but now it began to decline. Probably the market expected more of the improvement in revenues and profit, but how do you view that? Are there any risks of downward revisions going forward or upward revisions. Any of you? Kenta Kon: Thank you very much for your questions. Well, to be honest with you, what do we review the situation? Well, they are striking the agreement itself is something that we are extremely thankful to the government officials. Without anything being decided, we really cannot plan on production in the automotive industry, which certainly is a very big industry. So uncertainties would not lead us to focus, cannot plan on cost reduction, cannot plan anything. Therefore, I really would like to thank all those people who are involved in the negotiations. And it is not a small improvement. And certainly, we will have to work on what we can do, both short term and mid- to long term in order to make further improvement, not only North America, but procurement, production, sales and marketing, all of us have to work together to bring about some positive results. Are you relieved? Or do you still see the situation to be rather difficult? Well, I would say both. Well, upward revision or downward revision possibilities. Actually, we are often called being very conservative in our projections, but I do believe we are being pretty neutral about this. But of course, towards the end of the year, we certainly do make efforts so that we can provide you with the -- even the slightest upside. Thank you very much for your questions. Unknown Executive: Now we'd like to entertain questions from participants online. And after that, we'll come back to the people in the audience for questions. [Operator Instructions] Okay. Terasaki-san from Best Car, please. Unknown Attendee: Can you hear me? Unknown Executive: Yes, we hear you. Unknown Attendee: This is Terasaki from the Editorial Department of Best Car I have two questions. First question. Well, it's been mentioned several times about the value chain and that it takes up a big portion of your operating profit. And looking at the graph, from 2020 for 5 years, you've probably increased your operating profit from value chain by double. You're doing many things. I think, of course, value of used cars is increasing. But 5 years ago, I believe the residual value of your used cars was still very high, but the operating profit doubling, I think, is something really a tremendous feat. So specifically, what pushed up the operating income so much? And you have 150 million cars in position. That's quite a large number, but 5 years ago, I think you had similar numbers. So what changed to boost the operating profit in the value chain so much over the past 5 years to the extent that you can disclose? That's the first question. Second question, since this is a good opportunity, you talked about the Japan Mobility Show, but in the booth in the Southern Hall, it was a very popular in Century. There was a 40-minute waiting line to view the Century. And so for the mobility show as a whole, I think the Japanese market will be boosted and galvanized. So if you could, Kon-san, talk about your impressions about the heat at the Mobility Show? Takanori Azuma: Yes. First question will be addressed by myself, Azuma. The value chain, well, about 7 years ago, for the employees and to the outside, the -- then President talked about leveraging on the ownership and 6,000 stores and overseas 16,000 dealership network, leveraging that strong dealership network to communicate one-to-one basis with our customers. And that declaration was made in 2017 or '16. And then we started Tinto, and about 5 years ago, the car ownership was a little more than JPY 100 million. But over the last 5 years, thanks to you, new car sales has been increasing 10 million a year. And also, our ownership of our cars has also increased. And against that backdrop in Europe, we extended our guarantee period so that we can entice customers to come to our dealers more often. And as the years go by, our -- we lose contact with our customers, but we wanted to recapture that content -- contact, sorry, to have them come to our dealers and purchase supplies and accessories. And that cycle has now begun to turn, and that's now expanding from Europe to the other regions. So that's one major initiative that led to this. And in Asia, we offer second part that is more inexpensive accessories and supplies and also financial services are provided. So we want to utilize the dealership network to extend our touch points with the customers. And just the head office telling these regions what to do, you'll not come up with good ideas, but such good practices are now being leveraged across various regions, and we are building on these good practices, sharing these good practices, and that's leading, I think, to the very good results we are seeing today. Kenta Kon: About the Japan Mobility Show. Thank you very much for your attendance. And my question about the Japan Mobility Show was your question. Well, we had such a large turnout so many customers who were viewing our cars with joy. And I was very, very happy to see the delight on their faces. The Japan Mobility Show, Motor Show, well, I think all across the world, you see regions where the scope or scale of these mobility shows are being reduced. And they're shifting toward the electronics and the electrical components of cars. But in Japan, we call this a Mobility Show. It's a show for mobility, and to have so many people come and delight in these exhibits and have fun. We were really encouraged and heartened by them. And looking at the smiles on the faces of customers, we are very, very happy ourselves. Unknown Executive: Now let's come back to the on-site journalists. In the middle section, the second row from the front. Unknown Attendee: I am [ Matsumi from Trinity Daily ]. About the United States, I have 2 questions. President Trump the other day talked about $10 billion investment for Toyota to build a new plant in the United States. So what is your take on what he had said? And have you made any changes to your investment plan in the United States? So that's the first question. Second question, the U.S. government talked about Toyota expanding its dealers network to sell other brands' cars. Is it true? And if you -- if it is, when are you starting that effort? Kenta Kon: Thank you for your questions. For one thing, $10 billion, I read that in news. Now the United States really wants to see employment increasing and customers should be served with next generation of cars and services. Therefore, we do plan sizable investment plan going forward. I cannot really say it's $10 billion, but I would say Toyota will continue to make a sizable investment in the United States. I have to limit myself to that. Now in terms of Toyota's dealership to sell imported cars, well, Toyota makes cars in the United States. So we are considering doing something about the Toyota cars made in the United States. Now how about other OEMs? Vehicles being sold in Toyota's dealers network. Well, it is not for us to decide. But if there are any demand or requests for that end, then we may consider it. Unknown Executive: Yes, the person in front of the microphone with a spectacle. Unknown Attendee: Ohira from Asahi newspaper. It's related to that. I have 2 questions on tariffs. First question. Toyota, you're considering selling U.S.-made cars in Japan and that was announced when President Trump came to Japan. But considering the briskness of the U.S. market and also the U.S. and Japan production capabilities and cost of transportation, it doesn't seem to be very economically rational. So what would be the goal or what was the motivation of doing this if you're going to do it? Also, second question in relation to that, the -- for the cars assembled in the United States, conventionally, you are procuring parts from across North America. Now these parts may be replaced by U.S. domestic made parts. Are you considering such a shift? Or have you already started such initiatives? Kenta Kon: Yes. Thank you. First question -- I'd like to address the first question about the economic rationale, what's the meaning of -- or rationale behind engaging in reverse imports. As you say, when you look at the economic situation currently, it may not be such an economically rational initiative. But it may deliver to Japanese customers products that are not easily available in Japan. And of course, the model segments, et cetera, and how to price these models, what sort of supply structure we will take, there are many challenges. So we will consider all these challenges to consider what sort of business we can make out of that offering. So we are currently making preparations now. So that's it for the first question. Takanori Azuma: Thank you. Regarding the second question about the local production in the United States, and of course, this is not just limited to the United States, but in all regions of the world, we want to produce locally and procure locally so that we can manufacture cars on that basis in each region. For example, this year, in North Carolina, we have built a battery plant, which was a major decision, and this led to increasing the local procurement rate in North America. So our plan to produce locally as much as possible remains unchanged. We would like to move -- make efforts toward that end going forward. Unknown Attendee: How about Mexico? How about replacing with the Mexican parts? Are you considering such a possibility? Takanori Azuma: Well, currently, we have no concrete plans to do that yet. But let me consider the suppliers who have already made forays into the local market and the manufacturing they do there. And of course, they are hiring employees, and they have to, of course, create a livelihood of their families as well. Therefore, I think we'll have to take all that into consideration when we make such decisions. Unknown Executive: The 2 people who have raised their hands will be the last to ask questions. Let's begin with you. Unknown Attendee: I am Fukui from Nikkan Jidosha. I have 2 questions. So your sales remains brisk because of your product competitiveness. Even the ever better cars that you have advocated for the past 10 years certainly delivered the results. Now at the Mobility Show, you announced a new brand strategy, which sounds a bit futuristic. In 2024, you experienced the certification irregularities. And at the time, you revisited your product plans altogether. And you launched various projects to do so, revisited them and some projects, I understand, have been either delayed or canceled. What sort of impact do you see now out of that because development takes 2 to 3 years? Your healthy product portfolio towards the latter half of 2020s, do you think you will be able to maintain momentum and that would impact your profitability? So I would like to learn your midterm view. In relation with that, your investment in the United States has been mentioned this year, for the year, you increased number to about -- by 130 units, but then your production plan remains at around 10 million and in United States, you have a very low inventory level because your cars are selling so well. So how do you plan on your capacity increase in terms of production? Because just increasing the capacity would only increase your fixed cost. So how do you plan to go over 10 million vehicles? Do you plan to enhance your alliance within the group and to be more efficient in procurement of components? So what's your plan going forward? Kenta Kon: Thank you very much for your questions. About the product competitiveness for the midterm future, it seems that you may have a question about that. Well, 2 years ago, we did experience the certification irregularities, and we put on lots of efforts in reinforcing our foundation. Well, sometimes we had to halt our production lines. So 2 years ago, 1 year ago, we experienced that quite frequently. That is not about the product competitiveness, but it was about the production. But certainly, those hiccups we experienced in the past, but they have decreased -- they have been decreasing very rapidly. It is still increasing the fixed cost rapidly will have a future impact. Therefore, we really have to be careful when we plan for that. For example, it may be an impact of 1 second or 2 seconds on the production line, but we have to make steady efforts in order to enhance our productivity step by step. We are not talking about thousands or hundreds of thousands of vehicles or million vehicles to increase in our production. So when it comes to the product competitiveness in the midterm, we will make sure that we will maintain that going forward. That's all from myself. Anything would you like to add? Unknown Executive: Final question, the person in the very front row. Unknown Attendee: Yao from Nihon Keizai newspaper. I have also 2 questions as well. First question. Your management is based on product and region. So one of your access is, of course, the region and you want to be the best in town. So compared to other manufacturers you have a revenue structure that's not biased in particular countries or regions. So what sort of impact do you feel from the tariffs on this regional-based sales operation? And another is related to this. You -- about maintaining the production capacity of 3 million units a year domestically in Japan. In the previous financial results, you also announced about the new construction in Toyota City of a factory, but due to increased tariffs by the United States, your export costs will increase. And I believe that you announced that you will adjust destinations to adjust for that. So how do you intend to work towards maintaining the 3 million units production capacity in the domestic market in Japan? Takanori Azuma: So I'd like to address the first question. Well, we manage our company based on product and also region, and we are also managing company based on that. And about 10 years ago, we were skewed on North America. More than half of our sales was from the United States and the remainder from the rest of the world. But if we had been imposed such tariffs with the same sort of situation, then the impact would have been much larger. So we have to think first about the customers in each region to engage in our business operations, and that's done by the regions. The same for revenue Lexus customers, GR customers and the mini car companies, each are attended to by each of these divisions or regions. So the regions are working hard not against each other, but in a balanced manner, and that's why we have a very good revenue structure. For example, in Africa, in the past, Africa was part of the other -- the rest of the world. Also, Latin America was the same. But these regions have been referred or transferred to Toyota Tsusho and with Zephyr I think it's being run by -- that business is run by people who think first about Africa. So they support very high revenues in Africa. And in the earnings report, Japan, Asia, Europe, Africa and the other regions, and the other regions are actually leading the revenue for us. And within Asia, India and also in Europe, there were some very difficult regions where Toyota were using these markets to polish our products, but now these regions are seeing an increase in revenue. So we're very well balanced in terms of regions. And so all of Toyota is making a global effort to accommodate the U.S. tariffs. And so we would like to ask each of the regions to actually focus on their respective regions and the businesses there. Kenta Kon: Regarding the 3 million production capacity and our strategy vis-a-vis local production, well, 3 million units domestically is a very, very important goal for Toyota. We have the field, genba, right next to the production facilities, which enables us to turn that cycle very rapidly. And that would help monozukuri or manufacturing prowess in Toyota. And so that becomes a source of our global competitiveness, I believe. Of course, to safeguard monozukuri or manufacturing in Japan, we need to maintain or retain a significant amount of domestic production because if that declines and then the supply chain will also weaken that could lead to or impact jobs and others. So we have to earn foreign currency and purchase resources to run the domestic business. I think that's how we survive. And so domestic production in Japan must be safeguarded and protected. On the other hand, local production is important too in many ways. And I think to manufacture where the customers are, to sell where there is a market for the product or to produce where there's a market for the product. And also, we must develop components and parts or vehicles that match those needs. And then that's best produced locally. So in Japan and non-Japan areas, perhaps we can allocate the production of different models. That sort of adjustment is done. But we don't intend to transfer something drastically from Japan to the United States or overseas to Japan. We're not discussing such drastic measures. We will continue as we have in the past. Thank you. Unknown Executive: Thank you very much, ladies and gentlemen. It is now time to close the session. Thank you very much for being with us today. Please excuse the presenters. With this, we would like to conclude TMC's FY '26 Q2 Financial Results Briefing. Thank you very much. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
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.
Ivan Vindheim: Good morning, everyone, both in the room and online. Thank you very much for joining us this morning in connection with the release and the presentation of Mowi's third quarter results of 2025. My name is Ivan Vindheim, and I'm the CEO of Mowi. And together with our CFO Kristian Ellingsen, I will take you through the numbers and the fundamentals this morning and to the best of my and our ability, add a few appropriate comments to them. And after presentation, our analyst, Ole Petter Urheim, will host Q&A session. Those of you who are following the presentation online, can submit your questions or comments in advance or as we go along by e-mail. Please refer to websites at mowi.com for necessary details. Disclaimer is both long and extensive. So I think we leave it for a self-study. So with that out of the way, I think we are ready for the highlights of the quarter. And to begin with, and on a general note, I think it's fair to say that the third quarter was like previous quarters this year, characterized by soft prices following well-supplied markets. And in the third quarter, with prices even below industry cost. For our part, this translated into EUR 1.39 billion in operating revenues and an operational profit of EUR 112 million on record high harvest volumes of 166,000 tonnes. The latter slightly above our guidance. Otherwise, the third quarter is typically the more challenging time of year biologically, and this third quarter was no exception to the rule. But despite this, our weighted realized production cost of EUR 5.42 per kilo for 7 farming countries was stable quarter-over-quarter and down by 5% year-over-year. So all else being equal, our P&L cost in the third quarter is down by EUR 50 million year-over-year and EUR 126 million year-to-date, which are both considerable amounts. And furthermore, our standing biomass cost continues to develop well on lower feed prices, which bodes well for our P&L cost next year. But in the third quarter, however, we expect a stable realized production cost quarter-over-quarter. Otherwise, our acquisition of Nova Sea was approved and closed in October. So now we are in full swing with the integration chasing EUR 34 million in synergies among other things. And for this sake, this entity will be fully consolidated as from the fourth quarter. Carrying on 2 other divisions, Consumer and Feed. They delivered another strong quarter. I think it's fair to say with record-high earnings to mention some. And in terms of our strategic review of the Feed division, it's progressing, and we expect to reach a conclusion before year-end. And finally, as the last bullet point reads, our Board of Directors has decided to distribute a quarterly dividend of NOK 1.50 per share after the third quarter. I think that does it for the highlights of the quarter. So then we move on to our Farming volume guidance. As we can see from the chart here, we have update since last time we reported, once again, now from 545,000 tonnes to 554,000 tonnes, primarily due to the consolidation of Nova Sea as from that fourth quarter. And it's equivalent to a growth of as high as 10.5% year-over-year. And next year, we expect to have 605,000 tonnes in Mowi, and that translates to a further 9.2% growth year-over-year. And finally, we reaffirm our 2029 organic farming volume target of at least 650,000 tonnes. And this, will achieve through, among other things, increased smolt stocking and by means of postsmolt because we are still unutilized license capacity in Mowi in several other countries where we operate. And with postsmolt, we can increase the productivity on licenses already in operation, which are to be set into operation. And further on that note, this is a picture of Kilvik, which will be a 6,000 tonnes state-of-the-art postsmolt RAS facility on the coast of Helgeland when finished and which came in with a Nova Sea acquisition. And in October, we were ordered 4 new closed containment systems for postsmolt production in Region West in the wake of the new environmental licensing scheme in Norway and the return of previously revoked licenses under the traffic light system. So altogether, this increases our postsmolt volumes in Norway from 30 million postsmolt to 40 million postsmolt and to 50 million postsmolt on group level in the 500 grams to 1.2 kilograms range. So Mowi's Farming volume growth continues unabated after the rather quiet 2010s and is now surpassing that of the wider industry by a large margin, cementing our #1 position in the market for the Atlantic salmon. Then from the grand scheme of things to more specifically about the third quarter. And first here, our key financial figures. There are a lot of numbers on this slide. So I think you will have to focus on the most important ones now and leave the rest for later in Kristian's session. And as we have just been through turnover profit, I think we skip them here and go straight to cash and net interest-bearing debt, which stood at EUR 1.76 billion at the end of the quarter. And when Nova Sea fully consolidated and paid for, it would have been EUR 2.51 billion with a corresponding equity ratio of 46%. But the latter is indicating a sustainable debt level and a solid balance sheet also post-closing. But having said that, we will revert to our new and exact debt target after the fourth quarter when the budget for next year has been set. Furthermore, underlying earnings per share was EUR 0.13 in the quarter whilst annualized return on capital employed was 7.5%, both affected by the soft prices in the quarter. And the same goes for our region margins for the value chain, which we will get back to in detail shortly when we go through the different business entities. But first, somewhat more about the prices in the quarter, which we have characterized as soft a few times already following well-supplied markets in the third quarter like previous quarters this year and in the third quarter, with prices even below industry costs. But on a positive note, however, industry supply growth has now normalized after unprecedented growth earlier this year and is now hovering around 0%, which under normal circumstances should pave the way for better prices going forward. Then our own price performance in the quarter, which I would say was strong in relative terms as it was 15% above the reference price, which is the standard we like to hold ourselves to internally and against which we measure ourselves, as you can hear. Positively, impacted by contract share 21% in the quarter and contract prices above the prevailing spot price in addition to reasonably good harvest weights and the high quality of our fish. So with that, I think we can start to drill down into the different business entities. And we begin as usual with Mowi Norway, our largest and most important entity by far and locomotive our business model. And if you take the numbers first, operational profit was EUR 111 million from Mowi Norway in the quarter whilst margin was EUR 1.5 per kilo and harvest volumes 99,500 tonnes. In a rather challenging quarter for Mowi Norway, I think it's fair to say, given the season but still a decent quarter with costs down year-over-year, as you can see from the chart here on quite neutral harvest volumes, but unfortunately, more than outweighed by lower prices year-over-year, which is where the shoe pinches this year. And these comments also apply to the different regions in Mowi Norway in the quarter and to some more than others with our margin slam dunk by Region North this time around on good biology and on very low cost whilst we struggled somewhat more in the other regions, but still a decent quarter for Mowi Norway, I would say, all in all given the prevailing prices. Then the volume guidance for Mowi Norway, which we have upped since last time we reported from 320,000 tonnes to 329,000 tonnes due to primarily the consolidation of Nova Sea as from the fourth quarter and is equivalent to a growth of 8.4% year-over-year. And next year, we expect to harvest 380,000 tonnes in Mowi Norway, and that translates to a further growth of 15.5% year-over-year. But the short-term goal on these assets is still 400,000 tonnes, which we hope to reach in the not-too-distant future and which would be the next milestone in Mowi in Norway. Then the last slide on Norway, our sales contract portfolio. Contract share was 19% for Mowi Norway in the quarter and was with that spot on our guidance. And these contracts contributed positively to our earnings, as I said earlier this morning. As for the fourth quarter, we expect our contract share in Norway to be about 23%, relatively stable contract prices quarter-over-quarter. And this contract share is including Nova Sea. And finally, as to next year, as we are negotiating new contracts as we speak, we cannot say much about that today other than to refer to the fourth quarter release. In the meantime, we must keep our cards close to our chest for natural reasons. That concludes Mowi Norway. So then we can have a look at our 6 other farming countries and we start with Mowi Scotland. Mowi Scotland was a margin winner in the third quarter, only beaten by Region North in Norway, thanks partly to the highest contract share in the group in the quarter. And this resulted in a margin of EUR 1.54 per kilo for 17,000 tonnes harvest volumes in Scotland, which in turn translated into an operational profit of EUR 27 million, which is a strong result, I would say, on reasonably good biology, I guess, it could add to that. Otherwise, this is a picture of our new broodstock facility at Ardessie, which will supply us with high-quality eggs in Mowi Scotland going forward. As you all know, it all starts with high-quality eggs in this industry as genetics trumps most things for all living beings and even more so for the salmon as the environment in the sea is much tougher than on land. And speaking of the sea, then overseas to Chile. Mowi Chile posted an operational profit of EUR 12 million in the third quarter by means of a margin of EUR 0.55 per kilo on 22,000 tonnes harvest volumes, which is a decent result, I would say, given the prevailing prices, thanks once again to the lowest cost in the group in the quarter. And finally, biology was also once again strong in Chile in the third quarter. That was unfortunately not the case in Canada in the quarter. We suffered a loss of EUR 31 million due to very challenging biology, particularly in the East, following a prolonged period with very high sea temperatures, which led to several low DO incidents and significant issues with sea lice with all that entails. But on a positive side, biology has now recovered. So hopefully, we have put this behind us, knock on wood, which brings us to our 2 smallest farming entities, Mowi Ireland and Mowi Faroes. And if you take Mowi Ireland first. Our Irish operation has also been through a few challenging months biologically this summer and autumn. So in light of that, I would say, an operating profit of EUR 1 million in Ireland in the quarter is respectable. The same, I would say, about Mowi Faroes margin of EUR 0.55 in the quarter, considering that we have 100% spot price exposure in the Faroes. It is translated into an operating profit of EUR 1 million for Mowi Faroes in the third quarter on almost 2,500 tonnes harvest volumes. Biological metrics was once again strong in the Faroes in the quarter. Then further out into the Atlantic Ocean and to Iceland and our Atlantic farming operation, Arctic Fish. Arctic Fish wrestled both low prices and high cost in the quarter, and this resulted in a loss of EUR 6 million in Iceland in the third quarter. But biology continues to develop reasonably well. And combined with our cost measures in Iceland, we still believe we will get the cost level down to a sustainable level. I think that concludes Mowi Farming. So then we can move on to Consumer Products, our downstream business. Low prices for farming means low raw material costs for Consumer Products and therefore, higher profit. And this relationship proved to be true also in the third quarter as we posted a quarterly record high operating EBIT of EUR 66 million, which is up by more than 50% year-over-year on sold volumes at record high levels, where the latter is also demonstrating a strong demand for our products. Then last one out this morning, Mowi Feed. The third quarter is high season for our feed operation as it follows the sea temperatures in the Northern Hemisphere and the growth in sea for Mowi Farming, and this translated into a quarterly record high operational EBITDA of EUR 26 million in the quarter. Otherwise, our Feed continues to perform well. And in terms of our strategic review of this division, as we said earlier this morning, is progressing, and we expect to reach a conclusion before year-end. But beyond that, we do not have any further comments on this, this morning. So please bear that in mind when we come to the Q&A session. So then, Kristian, the floor is all yours. You can take us through the financial figures and the fundamentals. Thank you so far. Kristian Ellingsen: Thank you very much, Ivan. Good morning, everyone. I hope you are doing well. As usual, we start with the overview of profit and loss, which shows record high year-to-date volumes and revenues while quarterly revenue was stable from Q2. Operational EBIT was down from Q3 '24 on lower spot prices, partly offset by lower costs and higher volumes. And with regards to the items between operational EBIT and financial EBIT, this was mainly related to the net fair value adjustment of biomass, which was positive this time around on higher salmon prices, including forward prices versus the end of the second quarter. Income from associated companies was mainly related to Nova Sea with an operational profit of EUR 0.87 per kilo in the quarter, and Nova Sea will be consolidated into the group figures from Q4. Net financial items were relatively stable as lower interest cost was offset by other movements. Earnings translated into an underlying earnings per share of EUR 0.13 while the cash flow per share was good at EUR 0.39. Return on capital employed year-to-date was 12.6%, slightly above the minimum target level, and this reflects a year with higher supply and pressure on prices. We then move on to the financial position, the balance sheet, which was relatively stable from Q3 '24 as we see here in the table. Mowi has a strong financial position. And including the effects of the acquisition of Nova Sea, equity ratio would be 46% or 49% measured on the covenant methodology. There was a good cash generation in the quarter, and net interest-bearing debt ended at EUR 1.76 billion. Working capital release contributed positively. This includes the effect of lower biomass costs, which was down 5% from last year and 4% sequentially from Q2. On taxes and CapEx, the comparison figures in Q3 '24 were impacted by some special effects such as tax refunds in Canada and traffic light auction in Norway on CapEx. So adjusted for these effects, tax and CapEx were in practice quite stable. Interest payments are down as reflected here. Our long-term net interest-bearing debt target will be updated after Q4 when the budget for '26 has been set. Yes. So our cost -- sorry, our cash flow guidance for 2025 has been updated related to the inclusion of effects for Nova Sea in Q4. And in brackets, we have listed the previously indicated figures. So working capital tie-up is estimated to EUR 75 million. On CapEx, we expect EUR 355 million. Nova Sea has ongoing construction projects related to fresh water expansion and the new processing facility. And the estimate on interest payments has been increased to EUR 95 million while the updated tax estimate is now EUR 170 million. This overview on our financing is unchanged from the previous quarter. So we then leave this for self-study. We then give some words here on the cost development, which definitely goes in the right direction as also shown here on the graph. As guided, the realized P&L costs in Q3 of EUR 5.42 per kilo was stable from EUR 5.39 in Q2. And the realized cost is also expected to be stable on this EUR 5.4 level in Q4 based on current information. The cost reduction in Q3 '24 was EUR 50 million, and the year-to-date effect is EUR 126 million. The cost reductions are driven by lower feed prices with feed prices being down 13% versus Q3 last year, but our various cost measures, operational and improvements have also helped. So the cash cost has come down, and the cost at stock per kilo standing biomass is down 5%, as mentioned from last year. And we expect realized P&L cost in 2026 to be reduced versus 2025. And it's, of course, very positive that our different cost measures are now visible in our numbers. And since 2020, the cost focus in Mowi has been significantly increased. Cost has been emphasized as one of our strategic pillars. And operational improvements throughout the value chain and the cost saving program in recent years with almost 2,000 different initiatives have given results. And we have a very good starting point for our cost work as we are now the #1 or #2 performer in the various regions. And the 3-year average shows that we are all -- we are also #1 in Norway as shown here on the growth. But we are not finished here. We have identified a potential for EUR 300 million to EUR 400 million savings in the next 5 years through postsmolt Mowi 4.0, yield, automation and of course, the cost saving and productivity programs. And that is a nice segue into the next slide, which shows productivity and FTEs. Salary and personnel costs, that's the second largest cost item after Feed. And since we initiated this productivity program back in 2020, we have reduced close to 3,500 FTEs as shown here on the graph on a like-for-like basis. And if you also look at nominal FTEs, they are down 7% in a time with a significant volume increase for Mowi. So productivity has really improved significantly. We make sure that all of our measures do not negatively impact operations or HSE, and this has been achieved through automation, rightsizing, natural turnover, less overtime, less contracted labor, retirement, et cetera. This slide here shows some of our achievement on productivity, including preliminary 2026 figures. And in Mowi Farming, we see that we have a 38% increase on tonnes per employee. In Norway, we started on a higher productivity level, but productivity is still up 20%. And in downstream, we have a 30% productivity improvement. And this has been achieved through a combination of automation, digitalization, general focus on cost, focus on FTEs, looking through the value chain, challenging the business units, the departments. So a solid work. We then move on to market fundamentals starting with supply. Supply growth was, as already mentioned, record high also in the third quarter with more volumes than Q3 '24, driven by Norway. The biological improvements earlier in '25 combined with seasonal challenges in Q3 led to this growth, which came after 3 years with 0 growth for the industry. We estimate 5% demand growth in the quarter with a 12% higher consumption, partially offset then by lower prices. In Europe, consumption increased by 7% year-on-year on strong retail performance. Promotional activity and lower shelf prices has had a positive effect on demand. In the U.S., consumption increased by 13% with the prepacked segment driving good retail volumes. And Asia has seen a 34% volume increase with strong growth in all regions. And lower price points and more large-sized salmon was more available this quarter, and that has helped. And China has been particularly strong at 40% growth, as we see here in the numbers. And while demand has been good at 5% growth, the high supply in the market has taken its toll on prices. And we saw an inflection point on supply in September and a good price response from that. If you take a look at industry supply growth estimates for Q4, we expect negative volume growth year-on-year in Europe but positive in Chile. And also for 2026, the situation is a bit different in Europe versus Chile. If you look at the total, based on overall biomass statistics and current trends, we estimate 1% global industry supply growth versus as high as 9% than for 2025. Mowi's own volume guidance has been increased to record high 554,000 tonnes for 2025. That's up 10.5% year-on-year. And for '26, we then estimate a further increase up to 605,000 tonnes, up 9.2%, supported by biomass and sea up 10.9%. Then we're ready for some comments from Ivan on the outlook. Ivan Vindheim: Thank you, Kristian. Much appreciated. Then it's time to conclude with some closing remarks before we wrap up the Q&A session hosted by our analyst, Ole Petter Urheim. And to begin with, and on a general note, as I said earlier this morning, the third quarter was like previous quarters this year, characterized by soft prices following well-supplied markets. And in the third quarter, the price is even below industry cost. But on a positive note, however, industry supply growth has now normalized after unprecedented growth earlier this year and is now hovering around 0%, which on the normal circumstances should pave the way for better prices going forward. Otherwise, we continue to see strong demand for our products, demonstrated by sold volumes at record high levels in Consumer Products in the quarter. And our standing biomass cost in sea continues to develop well on lower feed prices, which bodes well for our P&L cost next year. In the fourth quarter, however, we expect a stable realized production cost quarter-over-quarter. So then the only outstanding piece of the puzzle is our farming volumes and our volume guidance, which we have increased since last time we reported for this year, once again, now from 545,000 tonnes to 554,000 tonnes. This is equivalent to a growth of as high as 10.5% a year-over-year. And next year, we expect to harvest 605,000 tonnes in Mowi, and that translates to a further 9.2% growth year-over-year. So Mowi's Farming volume growth continues unabated and is surpassing that to the wider industry and our listed peers by a large margin, as we saw earlier this morning. So once again, a big thank you to all of my colleagues who have made it happen. It's, of course, much, much appreciated. So with this short summary, Ole Petter and Kristian, I think we're ready for the Q&A session. So if Kristian can please join me on the stage and help me out with answering the questions, then you, Ole Petter can administer the questions from the audience and the web. Ole Petter Juvik Urheim: Yes. And I think we will start with questions here from the audience. Christian Nordby: Christian Nordby, Arctic Securities. We've seen in Chile quite a buildup in overall biomass. What's your view on biology in Chile based on this higher biomass there? And do you fear that this could backlash into worse productivity later? Ivan Vindheim: So that's a good question, Christian. And biology in Chile has been really good this year. And I also say last year. And as I said, during the presentation this morning, the lowest cost in Mowi is in Chile. So that is also a proof. So -- and we expect a continued good biology going forward. Christian Nordby: And you're now going into closed cage postsmolt production. Can you -- is it the same design for all the ones you're ordering? Or is it different? Or have you done this before at that design? And can you give some insight into it? Ivan Vindheim: This, we have done in Mowi for a long, long time. We started in 2013. So when we order the 4 new ones here, we go from 6 to 10 closed containment systems for postsmolt production. We use the same technology. We use it for postsmolt, as you said, and it works also financially. The reason why we ordered 4 last ones here was because of the new environmental licensing scheme in Norway, which makes this viable from a financial point of view. Henrik Knutsen: Henrik Knutsen, Pareto Securities. You mentioned biomass close to 11% higher year-over-year. Do you have a comparable figure if you were to include or exclude Nova Sea? Ivan Vindheim: That we can take after the Q&A session. Henrik Knutsen: Okay. And how much more biomass do you have in sea in Norway, again, including or excluding Nova Sea? Ivan Vindheim: And again, that should be taken after the Q&A session. Martin Kaland: Martin Kaland, ABG Sundal Collier. Have you seen or experienced any impact from the tariffs in the U.S. on prices to end consumers, consumption or trade flows? Ivan Vindheim: That's really a good question. So, so far, so good. But of course, there is impact here, but nothing that has been dramatic so far. So let's see how this develops. Martin Kaland: And did you mention CapEx for the closed containment systems and the volume potential you expect from it? Ivan Vindheim: We don't. As said, we will order this month, right? So we are a little bit ahead of the curve and we start to talk about the CapEx amount, et cetera, that we have to work to at a later stage. But again, it's financially viable with the new environmental licensing scheme. So we use licenses we have, which will be returned to us. So there was a silent audience today. Do we have any questions from the web, Ole Petter? Ole Petter Juvik Urheim: Yes, we have. So we have received a question from the web on how demand in China is given the strong developments in recent quarters? Kristian Ellingsen: Yes. China has been very good in recent years. We see now that China is around 6% of the global consumption for salmon. So the position has been increased. We see in China, of course, positive responses from lower prices. But we also see a growing middle class. We see that logistics has improved and various restrictions have improved. We also see that there are some interesting trends on sales channels in China. We see that there is an interesting mix of e-commerce and home delivery solutions, et cetera. So the take from the Norwegian Seafood Council is that the home consumption for salmon in China is higher than we have perhaps previously estimated. It's actually around 60% according to them on the total consumption. And if you take that home consumption, it's actually tilted a little bit towards various e-commerce solutions than more traditional retail that we know from, for example, Europe. So there are some interesting developments, interesting trends. Again, the positive effects on prices are there. But we believe also that should salmon prices improve, there are some structural things that also happened here on the demand side. So at least this is partly sticky. So -- and with the growing middle class, I think there is still good potential in China. Ole Petter Juvik Urheim: Yes. And we have a question from Alexander Sloane from Barclays. Can you quantify expected farming costs decline in 2026 as you see it today? Kristian Ellingsen: We choose not to be that specific. But let's say it like this, we have indicated, of course, the cost level in Q3, Q4. It's around the EUR 5.4 level. We will see that there is a potential versus that to put it like that, so i.e., lower than that. But apart from that, I think the best indication is what we have already said on the biomass cost at stock reductions, 4% quarter-over-quarter and 5% year-on-year. And then, of course, there's always a question of how much inflation will contribute on the other side. Will there be any surprises on the biology, et cetera. So that's why it's always very difficult for us to give any numbers on these kind of estimates. But I think those -- looking at the biomass cost of stock, the current cost level and down from there, at least those are some indication. I could also just add that we, of course, have talked a lot about feed prices here today and the effects of that. But if you look at the cost year-to-date in farming and the reduction there, it's actually between 75% and 80% that's related to feed. But that also means that there are some other elements that also down like health costs, like productivity helps, more volumes helps, of course, on dilution, but also repair and maintenance costs down. So we see that it helps to work with our cost base and to realize reduction also in other areas. Ole Petter Juvik Urheim: Another question from Alexander Sloane. With your 1% global supply growth forecast for 2026, what do you see as key upside and downside risks? Ivan Vindheim: Yes. Maybe I can start. So no, internally, we see more downside risk than upside risk. So to say less is more when you answer questions. So that's at least the start of the question. Maybe you have some more bits and pieces you want to add, Kristian? Kristian Ellingsen: No, I think that's a good summary. And of course, Ivan has also mentioned the 2-way division of the market. That could be expected on the current composition of the biomass, et cetera, but I definitely agree that there is on the downside risk. Ivan Vindheim: And maybe I could add this to the question. No one has better biological KPIs, metrics, of course, than the Chilean farmers. So bear that in mind, all of you. So we are not world champions in Norway, although we'd like to think we are. Ole Petter Juvik Urheim: Okay. So last question from Alexander Sloane here. What impact do you think that Peru reduced quota could have on fish oil and fish meal prices? Any risk we see repeat of 2023 spike? Kristian Ellingsen: I think it's important here to say that there has been such a provisional quota so far on the anchovy fishery in Peru. There is an ongoing research fishery to determine this quota what that will be now in the end. There are some rumors that stocks have -- that there have been some migration then from the northern part to the more southern part. Usually, it is a northern fishery, that's the most important in Peru. But of course, we have to look at both the quotas for the northern fishery and also the southern fishery should there be any movements here on the stocks. So it's a little bit early to give any more information that. Let's wait for the final quota information, et cetera. Ole Petter Juvik Urheim: Yes. And then seems to be the last question from Knut-Ivar Bakken, Sparbanken Markets. Mowi will invest in 4 closed containment system to restore 2.6 licenses in Region West. In addition, you already operate other closed containment systems. Should we expect that Mowi will invest in more closed containment systems in 2026 and 2027 to restore all of the 10.5 withdrawn licenses? Ivan Vindheim: It depends. It depends. So let's revert to that at a later stage. Ole Petter Juvik Urheim: Okay. With that, I think we can conclude the Q&A. Ivan Vindheim: Thank you. Then it only remains for me to thank everyone for the attention. We hope to see you back already in February at our fourth quarter release, if not before. So in the meantime, please take care and have a great day ahead. Thank you.
Kazumi Tamaki: Let us get started. Welcome to the earnings briefing of AGC Inc. for the third quarter of fiscal year 2025. I'm Kazumi Tamaki, General Manager, Corporate Communications and Investor Relations, serving as moderator. Today's attendees are Shinji Miyaji, Executive Vice President, Executive Officer and CFO; and Tomoyuki Shiokawa, Executive Officer, General Manager of Finance and Control Division. We will first have CFO Miyaji, provide an overview of the financial results for the third quarter, followed by a Q&A session. We are planning to finish at 3:45 p.m. Your cooperation is appreciated. Without further ado, I ask CFO, Miyaji, to start his presentation. Shinji Miyaji: Thank you. This is Shinji Miyaji, the CFO. Please turn to Page 3. The highlights. Net sales for the first 9 months totaled JPY 1,512.1 billion, down JPY 22.1 billion year-on-year. Positives included an improved product mix and pricing policies for automotive glass, increased shipments and pricing policies for Performance Chemicals and pricing policies for architectural glass in Europe and the Americas, while negatives included a PVC price decline, decreased shipments of EUV photo blanks and European architectural glass and the impact of last year's Russian business transfer. Operating profit was JPY 94.8 billion, up JPY 0.8 billion on effects of profit improvement measures in displays and others despite the adverse impact of the aforementioned factors as well as higher raw materials and fuel costs. Net income attributable to the owners of the parent was up JPY 145.9 billion at JPY 39.5 billion due to the aforementioned positive factors and the nonrecurrence of last year's loss on sale of shares related to the Russian business transfer and large impairment losses in biopharmaceutical CDMO. Operating profit for the third quarter exceeded JPY 40 billion for the first time in 3 years since Q2 of 2022, following profit improvement measures such as pricing policies for European architectural glass and automotive glass. Full year outlook remains unchanged from that announced in August. Page 6. Net sales and operating profit were as explained earlier. Profit before tax included profit increasing factors mentioned earlier in relation to the net income attributable to the owners of the parent as well as impairment losses and foreign exchange losses in biopharmaceutical CDMO during Q2. Page 7. By segment, Architectural Glass, Electronics and Chemicals saw a decrease in the sales and profit. Automotive posted higher sales and profit. Life Science posted lower sales but improved profit. Page 8. I will explain the factors behind year-on-year variance in operating profit. Sales volume, prices, product mix resulted in a positive impact of JPY 10.9 billion. While there was a decline in the selling price of PVC and in shipments of semiconductor-related materials and architectural glass in Europe, there were positive effects from improvements in the product mix and pricing policies for automotive glass and for architectural glass in Europe and the U.S. in Performance Chemicals. Raw material prices differences resulted in a JPY 8.1 billion decrease and cost and other differences, a JPY 2 billion decrease. As a result, operating profit increased by JPY 0.8 billion to JPY 94.8 billion. Page 9, please. Next, balance sheet. The total assets amounted to JPY 2,874.2 billion, down JPY 15.5 billion from the end of last year. The D/E ratio was 0.42x. Please turn to Page 10. This is the cash flow statement. Operating cash flow was JPY 164.7 billion. Investment cash flow, negative JPY 126.4 billion. Consequently, free cash flow was JPY 38.4 billion. Page 11, please. I will now explain CapEx, depreciation and R&D expenses. CapEx totaled JPY 174.1 billion, depreciation amounted to JPY 132.6 billion, and R&D expenses of JPY 44.1 billion. Major capital investment projects are listed as shown. Next, I'll move to the segment-by-segment presentation. Please turn to Page 13. First, Architectural Glass segment. Sales were JPY 320.8 billion; operating profit, JPY 10 billion. In Asia, sales decreased by JPY 3.8 billion to JPY 109.7 billion due to lower prices in Indonesia and other regions, coupled with reduced shipments. In Europe and Americas, sales decreased by JPY 5.2 billion to JPY 209.2 billion due to lower shipments in Europe and transfer of Russian business in February of the previous year. The effects of our pricing policy began contributing from the second quarter onward. Operating profit decreased by JPY 4 billion due to the revenue decline factors that I mentioned earlier and rising raw material and fuel costs. Asia accounted for about 30% of operating profit, while Europe and Americas, about 70%. Please turn to Page 14. Automotive segment sales increased by JPY 10.6 billion to JPY 385.6 billion, and operating profit increased by JPY 12 billion to JPY 23.4 billion. Shipments decreased in Europe, but increased in Japan. To counter rising raw material and fuel prices and manufacturing costs, we implemented structural reforms and productivity and product mix improvements and pricing strategies. Please turn to Page 15. The Electronics segment sales reached JPY 259.7 billion; operating profit, JPY 36 billion. The Display segment saw sales increase by JPY 4 billion to JPY 136.2 billion, driven by higher shipments of LCD glass substrate. The Electronics Materials segment experienced a JPY 11.1 billion decrease in sales to JPY 122.2 billion due to lower shipments of EUV mask blanks, compounded by the impact of yen's appreciation. As a result, operating profit decreased by JPY 400 million. In operating profit, 70% was represented by electronic materials and 30% by displays. Please turn to Page 16. Next, Chemicals. Net sales, JPY 431.3 billion and operating profit, JPY 39.7 billion. Essential chemicals sales were down JPY 20 billion at JPY 284.6 billion on a declining prices of PVC. Sales in Performance Chemicals, up JPY 11.4 billion at JPY 143.6 billion on increased shipments and higher prices of fluorine-related products for semiconductors and transport applications. Profit breakdown was Essential Chemicals, about 30%; Performance Chemicals around 70%. Page 17. Life Science. Net sales, JPY 96.1 billion and operating loss of JPY 16.2 billion. Sales were down despite increased shipments on expanded biopharmaceutical CDMO capacity due to the nonrecurrence of last year's onetime revenue from the contract project settlements and production issues at the Boulder site. Despite effective fixed cost reductions in biopharmaceutical CDMO, profit improvement was only JPY 0.5 billion, seriously affected by aforementioned revenue-reducing factors. Page 18. Strategic Businesses. Net sales were down JPY 2.2 billion at JPY 363.3 billion year-on-year. Despite growth in Performance Chemicals and Mobility, affected by a temporary slowdown in electronic shipments and the nonrecurrence of onetime revenue from contract project settlements in Life Science. Operating profit was down JPY 7.2 billion at JPY 40.7 billion, strongly affected by declining electronics shipments. Page 20. The full year forecast remains unchanged from August. Page 21. No changes to the full year forecast by segment either. Page 22. Comparing the fourth quarter forecast to the third quarter by segment, Architectural glass expects increased shipments in Japan with the demand increasing for renovation to energy-saving glass. Asia also expects increased shipments on a recovering demand. South America expects shipments to remain strong. Europe expects flat shipments quarter-on-quarter affected by the continued weak economy. In automotive, shipments to increase in Japan, but decrease in Europe and the Americas. We'll continue working on pricing policies and structural reforms. In electronics, display expects a slight decrease in shipments of LCD glass substrates. Electronic Materials expects shipments of semiconductor-related materials to be flat quarter-on-quarter. Optoelectronics expects decreased shipments due to the entry into the adjustment period. Page 23. Next, chemicals. Essential Chemicals. Although regular facility maintenance is planned in Southeast Asia, shipments are expected to increase driven by a gradual startup of the expanded facility in Thailand. Performance Chemicals. Shipments of fluorine-related products for semiconductors and transportation applications are expected to remain firm. Next, Life Sciences. Contract sales for small molecule pharmaceuticals and agrochemical CDMO are expected to increase. For biopharmaceutical CDMO, the loss is expected to narrow due to sales increase at a site in Denmark and the structural reform of the Colorado sites. Turn to Page 24, please. There are no changes to the full year outlook for strategic businesses. Page 25. There are also no changes to the full year outlook for CapEx, depreciation and R&D expenses. Please turn to Page 26. With regard to shareholder returns, the dividend forecast remains unchanged as a stable dividend policy targeting at a DOE of about 3% remain unchanged. Please turn to Page 28. I will now explain the 2 organizational changes announced today together with the earnings results. So let me go over the details. The first is one aimed at improving the profitability of the Chemicals segment. As shown on the left of the slide, the chlor-alkali business was previously categorized as essential chemicals, while the business centered on fluorine-related products was categorized as Performance Chemicals. Starting from January 2026, next year, the entire chemical chain in Japan from upstream electrolysis to downstream performance chemicals products will be integrated into a single SBU, strategic business unit, in order to optimize the overall business and improve profitability. That is shown on the right of the slide at the bottom. The essential chemicals business in South Asia, on the other hand, will become an independent SBU, strategic business unit to accelerate its profitability improvement. So going forward, from next year onward, the subsegment structure for the Chemicals segment in our earnings announcements will also align with this organizational change. Now please turn to Page 29. The second organizational change is to accelerate productivity innovation. As you can see in this diagram, up until now, the Information Systems division handled IT infrastructure development, while the digital and innovation promotion division focused on business process innovation using digital technologies. And these functioned as separate entities collaborating on digital initiatives. Now as you can see in this diagram, as a superstructure, we are establishing a new digital and innovation management division to oversee these functions. As you can see on the right bottom corner, our company has been selected as a DX stock fifth time 4 years in a row, and our DX initiatives have been rated highly externally as one of the most advanced companies. In this regard, through its organizational reform, we will pursue synergies and strategies and technologies and human resources. Furthermore, we will advance digital solutions as business innovation under a unified digital strategy to enhance corporate value and strengthen competitiveness further. That concludes my presentation. Thank you for your attention. Kazumi Tamaki: We will now take questions. If you wish to ask questions, please push the Q&A button and type in your questions. We will first go over the questions we received in advance. The first question. The actual results for the third quarter, how it compared to the projected results. Miyaji would respond. Shinji Miyaji: For the third quarter, sales on par with our projection for operating profit, a bit stronger than our expectation. That is overall for the company by segment, the situation was as follows. First, architectural glass sales or slightly lower, but operating profit was slightly higher than projection. Especially since the second quarter, in the -- in Europe and the Americas, policy -- pricing policies and cost reductions measures have proven to be effective. As a result, operating profit was better than our projections. For automotive, sales and operating profit were both better than our projection for sales. Improvement in product mix based on our strategy of volume to value, we saw effect. And we also implemented prices, reflecting that. And this strategy proved to be effective. And as a result, both sales and operating profit were better than our projection. Electronics, overall, sales were slightly better than projection, whereas for operating profit, slightly lower than our projection. For sales, some did better than others. But for operating profit, in particular, in display, we saw a temporary cost increase, and we had some impacts in foreign currency with higher Asian currencies. So as a result, operating profit was slightly lower than our projection. For chemicals, sales were slightly lower than our projection. Operating profit, slightly better. Especially in operating profit, Essential Chemicals and Performance Chemicals, both saw the effect of cost improvements, resulting in slightly better results than expectation. Life Science sales slightly lower, operating profit on par with our projection. For sales in small molecule pharmaceuticals, sales were not that exciting. But for operating profit, both biopharmaceuticals and small molecule pharmaceuticals were on line with our projections. Kazumi Tamaki: Next question. Earlier, you talked about outlook for the fourth quarter qualitatively. But once again, if you compare this to the third quarter, how do you expect the fourth quarter to play out? Can you give us more details? That was the question. Shinji Miyaji: So for the fourth quarter outlook, in terms of sales revenue, those will be on par with the third quarter probably. But in terms of operating profit compared to third quarter, we are going to see a decline probably. So that's the overall outlook. By segment, as I said earlier, for architectural glass, both sales and operating profit will be in line with the third quarter. In our view and for Japan and Asia, demand is expected to increase. But in Europe and others. Because of seasonality partially, there will be a decline. So overall, both sales and profit will be in line with the third quarter. As for automotive business, in U.S. and Europe in the fourth quarter, because of seasonality, we're expecting a decline. There is going to be increase in shipment in Japan, but because of the shipment decline in Europe and Americas, we are going to see a decline in both revenue and profit. As for Electronics, sales are expected to be as the same as the third quarter, but we're going to see a decline in profit. As for electronic materials, in terms of sales, especially after electronics materials are going to -- has already passed the peak in shipments. So in the fourth quarter, we are expected to see some decline. And as for LCD glass substrate, the demand is a bit weaker compared to third quarter. So operating profit will be affected by that decline. And operating profit is going well in Opto electronics, but the display, but for -- this cannot cover the electronic material decline in profit. And as for Chemicals, we are going to see increase in revenue but decline in profit. Especially in Thailand, there will be a production facility that will come online. And so there will be shipment increase. And as for fluorine products, in the fourth quarter, demand is a bit stronger. So we're expecting the sales to increase. But as for operating profit, in essential chemicals, there will be scheduled maintenance -- turnaround maintenance, and there is going to be a slight dip. So there is going to be a decrease in profit. And Life Science, we're expecting increase in both revenue and profit. In terms of sales, the sales are expected to increase in the sites in Copenhagen and operating profit will also increase accordingly. And fixed cost in sites in Colorado will improve. And so costs will be declined. The full-scale effect will be from the next fiscal year, but there will be a slight effect that will be already materialized in the fourth quarter. Kazumi Tamaki: The next question for EUV mask blanks on quarter-on-quarter or year-on-year basis. What is the situation, is the question. And compared to the plan, how were the situation in the third quarter? Shinji Miyaji: Here again, not much change in our stories. In 2020, we saw a big growth in this business. But this year, rather in 2024, we saw a big growth in this business. But for this year, due to the demand situation for our main clients, we expect the shipments to decrease. For 2026 onward, we expect sales to increase -- start to increase again. But as far as this year is concerned, not very exciting. We don't disclose the season-by-season changes, but the overall story remains unchanged. In Taiwan and others, our clients there, and we are continuing to expand our customer base, and we are seeing the effects of that. Kazumi Tamaki: This, once again, EUV mask blanks question. In major customers, there are various news headlines that are being heard. So compared to 3 months before, is there any change in your outlook for demand? That was the question. Shinji Miyaji: So EV manufacturers, as you know, all those that you already know. And in each in those manufacturers, there is various capital policies that are announced and there's subsidy provided by the government. So basically, this has been favorite -- favorable for us. And there is also a lot of news and in-house production is going to start up in foundries first. And so the demand that we initially assumed is now coming to materialize. So there are slightly less concern with a little bit of less visual thinking. Kazumi Tamaki: Next question. Also on EUV mask blanks. Other than your main customer, how is your market share increasing. And what about the situation of certification in state-of-the-art areas, including 2-nanometer? Shinji Miyaji: It's very difficult to give you the details. But regarding our market share, other than our main customers, we have yet to see a rapid increase in our market share. 2 nanometer, 1.4 nanometer, we are developing those to be certified. We will continue our efforts in these areas, and we are seeing the effect to a certain degree. For this year, with this factor in mind, sales are not growing that rapidly either. So starting next year, we would like to supply to new customers as well as increased supplies to existing customers. Kazumi Tamaki: Next question. With regard to image sensor glass filters, was there any entry by competitors? And from the next fiscal year onward, what will be your outlook for shipments, inclusive of the competitive landscape. That was the question. Shinji Miyaji: So for glass filter for image sensors, there are a lot of different manufacturers that have been around. And we are targeting at super high-end products or customers that are producing those products. Those are the main customers. So in that sense, whether there are competitors or not, well, there are many competitors in image sensors, but as for super high-end segment, there is very limited competition. So that has not changed. But I'm not saying that there's no competitor whatsoever. So we keep providing cutting-edge products to lead and get ahead of the pack and to secure the dominant position. And that exclusive strong position has not changed. Kazumi Tamaki: Moving on to Life Science. What is the effect of the sale of the Colorado sites? Where are you on that? And once the sales materialize, what impact would it have on your results? Shinji Miyaji: The Colorado site sales, we are working towards that. But so far, there is nothing that we can make any announcement on. Quite a number of companies are showing interest in this site itself. So we will continue to pursue early sale. But this is November already. So it seems not very likely that we will have the sale complete by the end of this year, meaning it's going to be next year that is a more likely scenario. Kazumi Tamaki: Next question is for biopharmaceutical business. Can you explain the status by site? Shinji Miyaji: By site. Well, what is easiest to understand is Colorado. It is going to be closed and the redundancies have been announced. Headcounts declined. And the cost is expected to decline further to the end of this year, and this is going to be a contributor for the next fiscal year. That will be easiest to understand. As for Seattle, in the past, there were some production disruptions, but major -- many of those have been resolved. So in terms of production, there's much less concern now. So we are now striving to obtain demand or orders, and we are seeing some results, and there is an obvious increase in inquiries. But as I've been saying all along, it takes time to move to the full-scale production. So the full-scale recovery is not expected until 2027. So overall, what we can say is that in Europe, in Copenhagen, we have increased the production capacity and there were some problems that we faced, but those have been now resolved. So in terms of manufacturing products, there is no concern. So we have to get orders, win orders and produce products. We are totally focused on that now. And as for animal cells, that is how we are. But in Heidelberg microbes and the Milan genetic sales, they are all performing quite well. So there's no concern and apprehension and things are going well. So animal cells have to be restructured, and we have to increase the capacity utilization, and we're striving for that. And the order taking is increasing steadily. But when it comes to really solid performance, we have to wait until 2027. Kazumi Tamaki: The next question is for Life Science business overall. Sales is behind and operating profit is on track it appears compared to the full year forecast. Is the demand tracking behind your projection? If that's the case, why is it that profit is doing well. Shinji Miyaji: Well, we can't really say that profit is doing well. But so far, we've been able to do what we have been planning to do, assuming to do. Up to third quarter, the first 9 months for small molecule pharmaceuticals, slightly below our projection. But this is a real seasonal business, lots of sales in the fourth quarter, so we're not concerned. So overall, we are seeing steady progress, both for small molecule and biopharmaceuticals. So next year is going to be very important. As for the Life Science business as a whole, if you look at the third quarter actual results, cost and other contributors turn out to be negative on a year-on-year basis. So was there any particular onetime factor like withdrawal costs. So what is the breakdown of this item. So in comparison to the third quarter last year, in 2024 third quarter, there was a onetime revenue I think this was cancellation fee. There was a onetime revenue in quite some amount. So there's no such thing that was a big factor. Kazumi Tamaki: The next question is about the Boulder sites. The production issues continued, but how about the third quarter. Did you continue to see the production issues in the third quarter? Shinji Miyaji: For our Boulder sites operation, since we decided to discontinue our operation there, the third quarter is already preparing for that. So it's not really production issues. It's just that preparation for the business withdrawal took place during this period. Kazumi Tamaki: The next question is about Chemicals segment. Essential Chemicals and Performance Chemicals, both seems to have improved in profitability. What was the factor behind this? Shinji Miyaji: Well, yes, this is about a comparison to the last fiscal year, right? So in comparison to the previous year, is it the question. The question is about the comparison. So improvement, is it from the second quarter in what comparison to what, I'm not sure. But this was a question that was pre-received. So there is no specification about the time period. So as compared to the second quarter, I would guess, on an annual basis, there's a decline in profit. So probably profitability has increased from the second quarter. So in comparison to second quarter, so what has improved? Well, more or less, Essential Chemicals improved more, especially outside of Japan, shipments have increased and cost has declined. Cost was reduced in the Essential Chemicals, both in Japan and overseas. As for Performance Chemicals, cost has decreased. In Japan, essentials and performance chemicals, utility charges have declined. But as compared to the second quarter, profits have increased. Kazumi Tamaki: Next question is on Essential Chemicals. The capacity increase in Thailand, what is the current status? By the end of the year, you expect full capacity operation. Does that remain unchanged? Shinji Miyaji: Yes, we have started the operation, and we expect full capacity operation at the year-end. So things are proceeding as planned. And the impact is, as explained earlier, for this year, profit-wise, no contribution, but steady ramp-up. Kazumi Tamaki: Next question is about Chemicals segment. From next year, there's going to be organizational change. What is the purpose behind this once again? Shinji Miyaji: Well, the same slide is now shown here. So previously, our subsegments were divided as shown on the left, but this will be changed to what is shown on the right. So we start with electrolysis and with electrolysis, chlorine and caustic soda are generated and using chlorine as a feedstock, chlorine and other Performance Chemicals products are produced. And the whole thing is called chemical chain. And in Japan in the upstream, the chlor-alkali business. And in the downstream, there's Performance Chemicals products, and they belong to different business headquarters, business units. So it's not about optimization of chains, but it's about optimization of business units. So they are byproducts to each other. So if you look at the Japanese chemical chain as a whole, you can further -- there's further room for more optimization. So we have changed our gear to have optimization of the total chain. So rather than upstream and downstreams looked at separately, we look at volume of caustic soda and chlorine and optimize them in the whole chemical chain. And Essential Chemicals, Southeast Asia will be separated out because they had been a totally independent business separate from Japanese essential chemicals from the beginning, but they were in the same SBU with the Japanese Essential Chemicals, but Southeast Asia business is self-complete. So as a strategic business unit, it became independent and profitability improvement initiative that is underway has to be accelerated in this regard. Kazumi Tamaki: Next question for automotive. The situation in the third quarter. 3 months ago, you were expecting a decline in revenue and profit from Q2 to Q3. The actual was a double-digit growth in profit. What were the differences? Shinji Miyaji: So we're talking about quarter-on-quarter. It's not double-digit increase. The profit increase from Q2 was JPY 0.8 billion, I think. For automotive, in the second quarter, JPY 7.4 billion, up to JPY 8.3 billion in the third quarter. So JPY 900 million or JPY 0.9 billion. So it's not really double digit. But, especially in Japan and Asia, we continue to see strong business. That's one big factor. And North America is recovering somewhat. So combined -- those 2 factors combined was better than our projection. And therefore, Q3 was better than Q2, but not a big jump. Kazumi Tamaki: We are running out of time. So this will be the last question. So for architectural glass, in Europe, demand has been sluggish, but prices seems to have increased significantly. So what was the factor for this? Was there any supply capacity decline? And also, you haven't seen signs for bottoming out in Asian market. Can you tell us your outlook for demand in Asia? Shinji Miyaji: So there's a question about Europe and Asia. As for Europe, last year, we have to go back to the end of last year. There was a severe winter weather and gas prices surged. And we have not been able to recover on that immediately from the gas prices and the spread has worsened significantly because of that late catch-up. So the gas increase or cost increase passed on to the product price has been implemented, and that result has been reflected in the second quarter onward. On the other hand, in order to increase price, you have to look at the capacity. And so our company and whole industry, including our company, has taken some supply reduction. And from the second quarter onward, there were some effects from maintenance of prices. So as you know, the European economy has been quite weak, so we cannot expect too much from the demand increase, but prices are expected to be maintained at a relatively higher level. On the other hand, for Asia, demand is not strong, especially in Thailand, industrial structure is not that favorable. So it's a bit difficult. In Indonesia, there is going to be a gradual recovery. But compared to the past, there's an industrial structural issue that still remains. And so in terms of architectural glass, the profit improvement in Southeast Asia is a challenge for us. Kazumi Tamaki: It is now time, so we're going to end the Q&A session here. For the answers, we couldn't respond, the IR personnel will come back to you later. If you have any further questions, please call us in Japanese at 03-3218-5096, that is for questions in Japanese. And if you wish to communicate in English, please send to us at this address and please fill out the survey sheets that you will see after you leave. Thank you very much. Have a good day.
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 day, and thank you for standing by. Welcome to Glanbia Third Quarter 2025 Interim Management Statement Call. [Operator Instructions] Please be advised that today's conference is being recorded. I'd now like to hand the conference over to Mr. Liam Hennigan, Group Secretary and Head of Investor Relations. Thank you. Please go ahead, sir. Liam Hennigan: Thank you. Good morning, and welcome to the Glanbia Q3 2025 Interim Management Statement Call. During today's call, the directors may make forward-looking statements. These statements have been made by the directors in good faith based on the information available to them up to the time of their approval of this interim management statement. Due to the inherent uncertainties, including both economic and business risk factors underlying such forward-looking information, actual results may differ materially from those expressed or implied by these statements. The directors undertake no obligation to update any forward-looking statements made on today's call, whether as a result of new information, future events or otherwise. I'm now going to hand the call over to Hugh McGuire, CEO of Glanbia plc. Hugh McGuire: Thank you, Liam. Good morning, everyone, and welcome to the Glanbia Quarter 3 2025 Interim Management Statement Call and Presentation. On today's call, I will provide an overview of our performance for the first 9 months of the year. And I'm joined by my colleague, Mark Garvey, who will cover the financials and outlook. At the end of the presentation, we will be very happy to take your questions. Overall, quarter 3 year-to-date performance for the group was ahead of our expectations. Group revenue increased by 3.3% with strong performances in our Performance Nutrition and Health & Nutrition segments in the third quarter and continued good growth in our Dairy Nutrition segment. In Performance Nutrition, like-for-like revenue increased by 2.5% year-to-date, excluding the impact of SlimFast and Body & Fit. We continue to see strong consumer demand with double-digit volume growth in the third quarter in our priority growth brands, Optimum Nutrition and Isopure. In Health & Nutrition, we continue to see good momentum with strong demand from end-use markets with like-for-like revenue growth of 6.1% year-to-date. And in Dairy Nutrition, we saw strong volume growth across proteins and cheese and an increase in pricing driven by protein solutions. We continue to make good progress on our group-wide transformation program to simplify our business and drive efficiencies across our new operating model, supporting the next phase of growth. We've completed the sale of non-core brands Body & Fit and SlimFast in our Performance Nutrition division, and we acquired Sweetmix within our Health & Nutrition division. We'll continue to focus on shareholder returns by leveraging our strong cash flow and, in the year-to-date, we repurchased and canceled over 15 million Glanbia shares at a cost of EUR 197 million, which represented an average purchase price of EUR 13.10. I'm pleased to say that based on the continued momentum within our Performance Nutrition segment, we are upgrading our like-for-like revenue guidance for the full year to 3% to 4%, excluding the impact of SlimFast and Body & Fit. And we now expect full year adjusted earnings per share to be at the upper end of our full year guidance range of $1.30 to $1.33. We look forward to meeting investors and analysts at our Capital Markets Day in London on the 19th of November, where we will have an opportunity to delve more into the growth strategy for the group and associated financial targets. Performance Nutrition delivered a better-than-expected performance during the period with like-for-like revenue increasing by 2.5% excluding the impact of SlimFast and Body & Fit, which have now been sold. In the third quarter, we delivered a sequential improvement growing like-for-like revenue by double digits excluding the impact of disposed brands. Year-to-date, the volume performance was driven predominantly by strong category growth with good growth in food, drug, mass and e-commerce channels in both the U.S. and international markets, somewhat offset by lower revenue in the club and specialty channels in the U.S. and a reduction in margin diluted promotions. We continue to scale our international business, which delivered strong like-for-like growth of 8.8% year-to-date excluding SlimFast and Body & Fit, particularly in Asia Pacific. Pricing was broadly in line with expectations with a marginally negative year-over-year impact as a result of tactical price changes, primarily relating to higher-margin products in energy category, which are delivering a strong volume uplift. We continue to navigate ongoing elevated whey prices driven by strong category demand and have responded to this inflation by increasing prices in our international markets in the first quarter of the year. Pricing in the U.S. market comes into effect in the fourth quarter. We continue to expect approximately 15% to 20% of new whey protein isolate supply from the back end of 2025 and through 2026. In terms of brand performance, Optimum Nutrition, our largest brand at 68% of Performance Nutrition revenue, delivered like-for-like revenue growth of 4.6% and U.S. consumption growth of 8.8%. We saw strong double-digit growth in the U.S. food drug mass channel, growing ahead of the category, and continued strong growth in the online channel. We continue to grow our household penetration and expand the brand's distribution. We have a world-leading portfolio of high-quality products within the Optimum Nutrition and Isopure brands, and we continue to focus on innovation and education. We've launched a number of products this year, such as Optimum Nutrition Pro Quench, Clear Whey Collagen, and new products across our creative platform, plus the extension of our Isopure proposition into gut health and immune system support. And we're seeing good growth in our non-whey innovation products for both brands. Our education effort continues to pace, including the Optimum Insiders event we hosted at the McLaren Technology Center, the launch of the Optimum Nutrition Academy program in the U.S. and the continued rollout of Coach Optimum, our AI-powered virtual coach into new markets. Our healthy lifestyle portfolio delivered like-for-like revenue growth of 2.6% and U.S. consumption growth of 6.8%. Our priority growth lifestyle brand, Isopure, continues to enjoy strong growth across all our channels. We introduced a new look and formula for Isopure, improving brand visibility and flavor, and we also launched our new creative campaign, More of What Matters, driving continued growth in household penetration and TDP. We're continuing to roll out and market test of our new ready-to-drink innovation, Isopure Protein Water. As stated already, due to the momentum in the third quarter, which we see continuing in the fourth quarter, we are pleased to upgrade our full year like-for-like revenue guidance to 3% to 4% growth excluding the impact of SlimFast and Body & Fit. Turning to our Health & Nutrition segment, which comprises the premix solutions and flavors platforms and focuses on priority high-growth end-use markets such as vitamin, minerals and supplements, active lifestyle nutrition and functional beverages. This segment delivered a strong performance in the year-to-date, delivering like-for-like revenue growth of 6.1%. This was driven by a 6.9% increase in volume and a 0.8% decrease in price. Total revenue increased by 11.5% as a result of a 7.6% increase from the acquisitions of Flavor Producers and Sweetmix, somewhat offset by a decrease of negative 2.2% as a result of the impact of the 53rd week in the prior year. We are pleased with the strong performance in the quarter, which was driven by good growth across BMS and functional beverage markets, and we continue to see good broad-based demand with strong growth particularly in EMEA and Asia Pacific. Pricing was slightly negative as a result of certain pass-through pricing to customers. During the third quarter, we completed the acquisition of Sweetmix, a high-quality Brazil-based nutritional premix and ingredient solutions business, which will allow continued expansion in the Latin America region. We'll continue to invest in innovation and new capabilities and are building out our new powder flavor capability with planned capital investment in Flavor's spray drying that allow us to capture additional opportunities across our broader B2B customer base. In terms of guidance, we are reiterating our full year guidance of mid-single-digit like-for-like revenue growth in 2025, which will be predominantly volume led and is currently tracking towards the upper end of the range. Dairy Nutrition combines our U.S. cheese and dairy protein portfolios and is largely one integrated manufacturing footprint with a high supply and operational interdependency and is also the route to market for our joint venture supply of whey and cheese ingredients. This business provides a scale leadership position in dairy as a leading producer of whey protein isolate and the #1 producer of American-style cheddar cheese. In the year-to-date, like-for-like revenue increased by 6.1%, driven by a 3.5% increase in volume and a 2.6% increase in price. Total revenue increased by 3.2% as a result of a negative 2.9% decrease from the impact of the 53rd week in the prior year. The volume increase was seen across cheese and protein solutions with strong whey protein demand, particularly targeting the high protein ready-to-eat category. And we continue to see good demand for colostrum targeting gut health and immunity. Pricing increase was largely driven by favorable dairy market pricing in the first half of the year with strong protein markets in particular. Broader dairy market pricing turned negative during the third quarter. For full year '25, we'll continue to expect profit growth across Dairy Nutrition and our joint venture combined. And with that, I will hand over to Mark. Mark Garvey: Thank you, and good morning to everyone on the call. The group has a strong balance sheet and, at the end of the third quarter, net debt was just under $719 million. We have committed facilities of approximately $1.4 billion with an average maturity of 3 years. At year-end, we expect net debt to adjusted EBITDA to be approximately 1.25x. The acquisition of Sweetmix in Brazil closed in August for $41 million. The disposals of SlimFast U.S., SlimFast U.K. and Body & Fit have now been completed as of September 22, October 20 and October 31, respectively. Prior to completion, these businesses have generated approximately $105 million of revenue in 2025. Total consideration for these transactions including working capital transferred was approximately $63 million, of which $14 million has been deferred up to 15 months. Following these transactions, a further charge of approximately $30 million is expected to be taken related to the sale of the SlimFast brand, which will be confirmed with our annual accounts. Capital expenditure, both strategic and business sustaining initiatives for the year, is expected to be between $80 million and $90 million with investments primarily related to ongoing capacity enhancements, business integrations and IT investments to drive further efficiencies in operations. During the first 9 months of the year, the group repurchased approximately EUR 197 million worth of ordinary shares via our share buyback program, which equated to over 15 million Glanbia shares at an average purchase price of EUR 13.10. Shares repurchase represents over 5% of the weighted average number of ordinary shares and issue at the beginning of the year. Approximately EUR 103 million in dividends were also returned to shareholders this year, in line with our dividend payout ratio of 25% to 35% of adjusted earnings per share. We look forward to the opportunity to review our capital allocation framework with you at our upcoming Capital Markets Day on the 19th of November. Now let me turn to outlook and, firstly, revenue growth. We are pleased to upgrade Performance Nutrition revenue growth expectations. We now expect Performance Nutrition like-for-like revenue growth excluding SlimFast and Body & Fit to be 3% to 4%, previously 2% to 3%. We continue to see strong growth in the category, which is supporting growth in the second half alongside distribution gains and planned innovation. Providing further confidence in the third quarter, we saw a strong sequential improvement, particularly in our Optimum Nutrition brand, which increased like-for-like revenue by 14.3% in the quarter. Health & Nutrition delivered a good performance year-to-date across premix solutions and flavors platforms, while we continue to expect like-for-like mid-single-digit revenue growth for the full year, the business is currently tracking towards the upper end of this range. Moving on then to earnings expectations. In Performance Nutrition, we continued to navigate elevated whey costs, and we have now procured our whey needs through the first half of 2026 with whey costs remaining elevated due to strong end market demand. As previously discussed, we have line of sight to approximately 15% to 20% of new whey protein isolate supply coming to market late 2025 through 2026, which has been somewhat delayed from expectations earlier in the year. We have implemented pricing in our international markets in Q2 and in the Americas in Q4, and we anticipate further pricing actions in 2026 as demand for protein is expected to remain strong. Performance Nutrition EBITDA margins are tracking towards the lower end of the 13% to 14% guided range for the full year as we manage some dissynergies for the remainder of the year related to the disposals I've mentioned earlier. Health & Nutrition EBITDA margins are expected to be between 18% and 19% for the year. Dairy Nutrition delivered a strong performance year-to-date on the back of good volume growth in protein solutions and strong dairy market pricing in the first half of the year. We continue to expect profitability growth across Dairy Nutrition and our joint venture operations combined, as previously guided. Operating cash flow conversion is expected to be over 80% for the year. And finally, we are also pleased to update adjusted earnings per share expectations to the upper end of the previously guided range of $1.30 to $1.33. And with that, I will turn it back to Hugh. Hugh McGuire: Thanks, Mark. Just to close, I'd like to reinforce our conviction that Glanbia remains well positioned for growth. In terms of our focus, we're pleased to upgrade our revenue guidance in our Performance Nutrition division today as we're seeing improved trends with strong growth in the category. We also continue to see strong customer demand in our Health & Nutrition and Dairy Nutrition segments. We continue to execute initiatives as part of our group-wide transformation program across our four pillars, simplifying our organization and delivering efficiencies for the next phase of growth. We are navigating high-end whey prices carefully with a number of initiatives ongoing to address this. We continue to invest in key talent and capabilities to drive growth across our great portfolio of Better Nutrition brands and ingredients that operate in exciting categories with market-leading positions in high-growth end-use markets. We are focused on delivering long-term growth and shareholder value. And with that, I would like to hand it over to the operator for questions. Operator: [Operator Instructions] We will now take our first question from the line of Alex Sloane from Barclays. Alexander Sloane: The first one, actually just to dig in a little bit on the impressive acceleration in Optimum Nutrition in quarter 3. You've given some stats that show that obviously some of that has been driven by new distribution, but actually there's been also a strong healthy uptick in consumption growth in the U.S. So just wondering sort of kind of slightly at odds with what we're hearing on the kind of broader U.S. consumer. So what do you think is driving that and how sustainable you see that with kind of potentially more pricing as you alluded to come? And the second one, in terms of the margin outlook, obviously, thanks for the color there in terms of tracking towards the lower end of that 13% to 14%. As we think about 2026 and the moving parts, I mean, it sounds like that whey costs are maybe slightly more elevated. How should we be thinking -- it's early days, but how should we be thinking about '26 margin outlook for PN in this environment? Hugh McGuire: Alex, Hugh here. I'll let Mark take the margin question and maybe I'll address the acceleration in ON. I suppose first thing I'd say, look, very happy with consumption in the quarter and performance across our priority growth brands. A mixture of reasons, I think we're seeing very strong growth across our protein and creatine categories. Certainly, strong category growth in powders and ON, and Isopure continue to take share. We're seeing strong growth in international as well, as you'll see in the numbers, and some new distribution wins in the quarter in the U.S., particularly and no longer lapping the kind of private label impact that we spoke about earlier on in the year and then a little bit of innovation. But I think happy that majority is velocity with a little bit of distribution in there. So overall performance is very strong. I think what I'd say as well is, look, protein is a mega trend. We're seeing good demand for powders. They're the highest quality, the cleanest ingredients, the most versatile and they have a low cost per serve. So we're seeing the powder category growth rates accelerate. So overall very happy with that. In terms of pricing, we've called it out. We priced earlier on in the year in international markets. We saw a little bit of elasticity. But once the market competitors reactive, we're not seeing that elasticity now. We're back into volume growth. I think for North America, given the timing with elasticity, we're not expecting significant elasticity at this point in time. Price increases go live this week. Consumption is strong. Our consumers are highly engaged in the category. It's an affordable product. So would be positive about outlook as we go into quarter 4 and into 2026. Mark Garvey: Alex, just on your margin question, yes, you're right, we did say it's going to be towards the lower end of the range, primarily because of the sales that we just announced. We have some dissynergies we have to manage through, and we'll manage through those into early '26. So I'm not overly concerned about them. We'll sort of manage through that. You're right, it's early days for '26 at this point, and we'll obviously talk a lot more about this when we get to our full year results. But I would say at this point, look, we're very comfortable with the revenue momentum we're seeing, and we probably expect to see that now coming into '26. And overall, I would expect to see EBITDA and margin progression into '26. We have acquired our whey now for the first half. We had said you might recall the last call, we acquired whey for the first quarter. And I said that price is pretty much in line with the second half '25. Now that we acquired the first half, it's marginally higher than the second half of '25. We are putting price increases through in North America. They're done now, and that will be coming through in market. And I expect as we see whey continue to be elevated, we'll probably putting more price increases through next year to be determined in terms of timing. There will also be a margin benefit, obviously, for the Body & Fit and SlimFast sale. That will help us into next year, and some of our transformation work will help as well. And as we sort of look to increase more marketing as well, all in all, I still expect to see margin progression from '25 to '26. Operator: We will now take the next question from the line of Patrick Higgins from Goodbody. Patrick Higgins: Maybe just focusing on Health & Nutrition, obviously, another really strong print in terms of volumes there. Obviously, at the time of the H1, you were expecting maybe a little bit of a slowdown just on possible tariff pull-through in Q2. Was that perhaps a touch conservative on your part? Or did you just see a kind of uplift in terms of the EMEA and Asia Pacific markets that offset that? And clearly really strong given the broader consumer trends we're seeing across the U.S., but globally. So interested to hear your kind of comments on what's underpinning that kind of end market demand. And that's on the volume piece. And then on the pricing side, could you maybe just talk us through some of the pricing dynamics in that division and expectations into Q4? I know there was some tariff kind of costs that you might have to pass through at some point. Should we expect that in Q4? Hugh McGuire: Yes. Patrick, I speak to kind of overall volumes and Mark will speak to price. I think in H1, we probably were being a little bit cautious. We were still coming through a significant tariff turbulence, I suppose, is the best way to put it. So we weren't quite clear on the impact, particularly between China and the U.S. Pleasing to see good growth across all of our end-use markets, but particularly in our international markets, as we've called out. And I think what you're seeing here is this is a smaller part of our overall portfolio, but we're leveraging our broader B2B base and benefiting from the trends that we see in Performance Nutrition overall. So very happy with quarter 3 performance in H&N. Mark Garvey: Yes. On the pricing dynamic, Patrick, there are some tariff impacts, but there's also some commodity pass-through impacts as well. So to the extent that certain prices of materials have come back, we will actually pass those through. So that tends to be how that flows through in the pricing. I think for the fourth quarter, we're expecting the pricing negativity to be a bit better actually than what you saw in the third quarter. So overall, for the year, probably less than 1% negative on price, I would say, for the year, expecting a reasonably good quarter as well on the volume side, and that's why we say we're tracking towards the upper end of our mid-single-digit range now. I'm pleased to see that as we come to the end of the year. Operator: Our next question comes from the line of David Roux from Morgan Stanley. David Roux: Just a couple from my side. Mark, so just to clarify on your comments around whey costs. So as you mentioned, Q1, you had indicated your sort of covered whey costs were sort of flat versus last year. Can you just confirm your comments on how that looks for prices covered to H1? Did you say it was higher versus last year overall? And then -- so then just my second question on Optimum Nutrition. The implied guidance on like-for-like for Performance Nutrition into Q4 implies quite a marked slowdown. Could you maybe just comment on how Optimum Nutrition has performed over basically the first part of Q4? And has it kind of seen a marked slowdown from Q3 as implied by your Performance Nutrition guidance? Mark Garvey: So on the whey cost, David, so as I said at the last call, we have procured through the first quarter, and those costs were in line with the second half '25. As we procured in the second quarter, whey cost went up a little bit. So we're going to look at the first half of '26, they are marginally ahead of the second half of '25. So a little bit higher, and that's why if you look at pricing, that's part of dynamic for us into next year as well. Hugh McGuire: Yes. Maybe just to add as well, David, I think when we spoke to you in August, we would have actually seen whey come off its peak. But what we've seen as we went into September and then specifically at October, we saw prices increase again, all driven by demand. Demand is very strong. You can see that from our own numbers as well. We haven't changed our view on the additional supply coming onstream next year. In fact, we're starting to see that come in now, but demand is very strong. So as Mark said, pricing is done this year. We are now starting to evaluate pricing for kind of late spring, early summer next year as well. But overall, fundamentally, it's all driven by strong demand. In terms of second question on ON, look, probably it's a little bit of conservatism. Consumption remains strong and, answer to your specific question, we're happy with consumption as we go to quarter 4. But you always have -- we ship to a lot of markets all over the world, and we always have a little bit of inventory movement as we go into the back end of the year getting ready for New Year, new you. David Roux: And sorry, just a follow-up on the whey costs. So is the covered position through 1H of next year, would that be inflationary or deflationary versus the prior year? Mark Garvey: It will be inflationary. Operator: Our next question comes from the line of Nicola Tang from BNP Paribas Exane. Ming Tang: First, maybe just to come back on the H&N business again. You talked about this broad-based strength across end markets. Could you give a little bit more color on are you outperforming your end markets? Or are you just exposed to end markets which are growing particularly well? And the second question is -- congrats on all the non-core divestments that you managed to close in Q3. I remember when you announced those non-core divestments, the wording was quite open with respect to continuing broader portfolio assessment and you continue to look at potential further divestments. Do you see scope for further non-core divestments in the near future? Hugh McGuire: Nicola, yes, I think what I'd say, I think you answered it. Look, we're doing well in the end markets that we supply into vitamin and minerals function and beverage and active lifestyle nutrition, so quite similar to our consumer goods business as well. So we're seeing a lot of those similar trends. I think I said it earlier on as well, we're leveraging our broad-based B2B customer base right now particularly with our Flavor acquisition, we have a natural and organic liquid flavor business. We're building our natural and organic powder flavor business as well. That's very much on trend also. And then we're also leveraging our broader protein capability through Dairy Nutrition as well, where we're doing a lot of flavor and fortification work combined with protein. So overall, benefiting from the good trends we see across the broader Glanbia Group. I think, look, what I'd say is the non-core investments, we'll always keep that under review. We're very much focused on driving our priority growth brands within PN. We have a nice portfolio as well, but decisions will all be made in terms of priority investments. And we'll give a little bit more color on our growth drivers at our Capital Markets Day in a couple of weeks' time. Operator: [Operator Instructions] We will now take our next question from the line of Damian McNeela from Deutsche Numis. Damian McNeela: Two questions from me, please. Firstly, can you just provide a little bit more color on the sort of the U.S. category growth? I think you pointed to both protein and creatine has been good components of the growth. But can you sort of talk about whether it's split or weighted to one versus the other there, please. And then just I think at the time of the interims, you talked about longer-term discussions about incremental whey coming to the market beyond '26, '27, '28. Is there any sort of update that you can provide on those conversations, given the sort of continued demand for whey that we see coming through from the U.S., please? Hugh McGuire: Damian, yes, what I'd say is both categories are growing very strongly, both protein and creatine, and not just in the U.S., I think we're seeing that globally as well. So with very strong growth for Optimum Nutrition creatine, and we have a multitude of products across that portfolio now as well with new flavors and new formats being launched. And we're seeing good growth in protein. And what I can say is, look, we've clearly seen the ready-to-mix powder protein category accelerate in the U.S., of course, in 2025. And we're benefiting from that. Our powders -- like we manufacture. We have the largest brand. We manufacture the highest quality. All our manufacturing is in-house with the cleanest ingredients. And powders are versatile. And look, I have no direct data that would say that consumers are switching or moving across formats, let's say. I wouldn't conclude that, but we do have the lowest cost per serve. I think we spoke to you before about making sure that we had the right price pack architecture, the right opening price points. And an example, one of our online customers were seeing very strong demand for the smaller price points. And particularly for our new customers over 80% of customers buying that size of Optimal Nutrition are new to our brand, which is really interesting for us. So overall, I think generally, we're in good demand spaces. In terms of incremental, yes, actually, we have approved capacity for one of our own facilities in the U.S., where we would put it in additional capacity for whey protein isolate for 2027. And one of our local partners here in Europe actually will be announcing additional capacity actually next week as well. So we're working across '26, '27 and into '28 because these investments take time to plan, time to build. But certainly, all of our suppliers are interested in putting in more capacity. Operator: Our next question comes from the line of Karel Zoete from Kepler Cheuvreux. Karel Zoete: I have a question with regards to channel dynamics in the U.S. because it's been, of course, some discussions out about the club channel last year and then the contract loss. What are you seeing across U.S. channels? And then within club, is private label still gaining share? Hugh McGuire: Yes. I think we've called it out specifically. Actually, for our brands, where we're seeing the greatest growth right now is across food, drug, mass and e-commerce channels. Very, very strong double-digit growth across both. Club channel continues to be very important, the broader club channel. We've had some nice wins across -- there's a number of customers who do the club channel. So we've had some nice wins in that broader club channel base. And within private label, the impact on our business from private label that we spoke about earlier on in the year, that has stabilized now and we're happy with ON performance. Operator: [Operator Instructions] Our next question comes from the line of Cathal Kenny from Davy. Cathal Kenny: Firstly, back to the category growth in Q3. What's your best guess for the powders category growth in North America? That's my first question. Second question then is Isopure. Obviously, a very strong Q3, backing up a very good volume growth in Q2. Can you dial in to some of the drivers of that? I know you gave some headline commentary on velocity, distribution, but would be interested lean into the Isopure performance a little bit more. They are my two questions. Hugh McGuire: Yes. It's hard to call -- look we don't get data for some of the channels in the U.S. So it's hard to call overall growth. But what we've certainly seen in food, drug, mass channels where we do get data, that is publicly available, that we have seen growth accelerate from flat to low single digit now into the teens, low teens. So good category growth overall and which ON and Isopure outperforming that category growth. We see good growth within our e-commerce channel as well. So demand generally for powder has certainly accelerated in the U.S. over the course of 2025. Now how long that will continue, that's always hard to call. But certainly, the demand currently is good and we don't see any signs that, that demand will come off as we head into 2026. In terms of Isopure, probably velocity for ON certainly is the key driver, also a little bit of distribution, a little bit of innovation for Isopure. Primarily, it will be significantly more distribution that's coming off a much lower distribution base, much lower household penetration numbers as well. So significant growth in household penetration and point of distribution. But also some nice new innovation as well that we're launching. So for all -- for both our priority growth brands, it's strong velocity, some nice new distribution wins and nice innovation coming into the category. Cathal Kenny: Just a quick follow-up on the pricing point. Are you saying that you expect lower levels of elasticity around this price increase you're now taking in North America? Hugh McGuire: Yes. I think what we've traditionally said, Cathal, is we sometimes talk about elasticity of, one, it tends to come out at around 0.8 from prior experiences. But that doesn't last that long because normally, it's once the entire -- we're the first to move on price, and the category will tend to react. We saw that earlier on in the year in international. The volume growth is back now. I think demand is so strong at the moment that this pricing is well expected. And I think generally, for consumers, it's an inflationary environment in the U.S. But also as we said before, our consumer demand is strong. They're highly engaged in the category. The consumer demand tends to be resilient, and we're in a great format in terms of cost per serve. So it's hard one to call. We're also coming into New Year and new you. So while you won't have much promo effect between now and the end of the year, quarter 1 is obviously a big promotional calendar period for the entire industry. So by the time everything settles, you're kind of coming out into quarter 2 next year. So at this stage, we're not actually expecting significant elasticity. Operator: I'm showing no further questions. Thank you all very much for your questions. I'll now turn the conference back to the CEO, Mr. Hugh McGuire, for his closing comments. Hugh McGuire: Thank you very much. Look, just to close, very pleased with the strong performance in the third quarter. Glanbia remains well positioned for growth. We're moving at pace to deliver on our strategic ambition, and I look forward to speaking more about this at our Capital Markets Day on the 19th of November. Thank you. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect your lines.
Sami Taipalus: Good morning, everyone, and welcome to the Sampo Group Third Quarter 2025 Conference Call. My name is Sami Taipalus, and I'm Head of Investor Relations at Sampo. I'm joined on the call by Group CEO, Morten Thorsrud; and Group CFO, Knut-Arne Alsaker. The call will feature a short presentation from Morten followed by Q&A. A recording of the call will later be available on sampo.com. With that, I hand over to Morten. Please go ahead. Morten Thorsrud: Thanks, Sami, and good morning, and warmly welcome to the conference call on Sampo's third quarter results also on my side. As this is my first set of results as CEO, I'm going to spend a little bit of time on our strategy and how it's playing out in our results. But before I go into that, let me first comment briefly on the third quarter as such. Sampo delivered another excellent set of results in the third quarter. By and large, we saw the same positive operating trends as earlier in the year, with strong premium growth, driven by private and SME and solid margins. The claims environment has been favorable with benign weather, large claims below budget and frequency trends in line with expectations. Still, we are continuing to be prudent in setting our loss ratio picks, meaning the benign claims environment has not fully flowed to the bottom line. On our underwriting margin, we saw a roughly 50 basis points of improvement in the underlying Nordic combined ratio, driven by both the cost and risk ratio. U.K. margins, on the other hand, continued to normalize from the elevated levels seen in the prior year, but remained within our target range. All in, year-to-date underwriting profit grew by 17%, driving a 14% increase in operating EPS to EUR 0.38. The result comes on the back of very strong performance through the strategic period so far, leading us to upgrade our operating EPS target from the period 2024 to 2026 to now above 9%. Outside of the operating result, we had a EUR 355 million gain from our stake in NOBA, driven by successful IPO, followed by strong share price performance. We sold only 1/4 of our holdings in the IPO, meaning we retain a 15% stake in NOBA valued at EUR 636 million, at the end of September. The EUR 150 million sales proceeds from the IPO will be returned to shareholders through a share buyback announced today. So that was an overview of the result. Now, let me turn to strategy. I'd like to start with a short comment on where Sampo is as a company today. We are, of course, a pure-play P&C insurer, large and well diversified with EUR 10 billion of premiums, spread across 5 markets of roughly equal portfolio size and then the 3 Baltic countries on top of this. However, what really stands out is that Sampo is at the forefront of the industry in pretty much every area in which it operates. As mainly a direct insurer, without material physical distribution, it has been essential for us to master the art of digital P&C insurance. In the Nordics, we've been at the helm of the industry digitalization, while the acquisition of Hastings in 2020 has catapulted us into a leading position in the U.K. price comparison website market. At the same time, our unparalleled partnership network with the Nordic motor industry, bring wide customer reach and expertise in new car technology. We are a leading -- we are a leader and digital frontrunner also in the Nordic commercial market, and we are the market leader and preferred partner in the Nordic large corporate market. Further, our pan-Nordic PI proposition has recently been strengthened by specialist insurer, Oona. Our Baltic business is a profitable, low-cost direct writer in a market of brokers and agents. Indeed, even Denmark, which used to be our Achilles heel, has been transformed into an attractive opportunity for us now through the acquisition of Topdanmark last year. In conclusion, we are in an enviable position to meet the future of our industry. So where do we go from here? I see the biggest opportunity in leveraging our unique set of operational capabilities to drive organic growth. As shown on this slide, we see structural growth opportunities in areas representing more than half of group's premiums. These should be familiar, is the digital U.K. market, PI in the Nordics, private property, SMEs. Our ambition in these areas are backed by structural trends as well as competitive advantages. For example, in PI, we are seeing increasing demand, combined with our first rate Nordic PI offering, which create opportunities across the customer segments. Similarly, U.K. consumers continue to shop more and more on price comparison websites, for which we have optimized our business. Taking a step back, we see growth opportunities in other parts of our portfolio as well. Right now, I would highlight Nordic motor, where we are in a pole position to benefit from a normalization in new car sales. Now, I talked a lot about growth, so before we go further, let me be completely clear on one thing, we are only interested in growing, of course, at attractive margins. The underwriting discipline that Sampo is known for remains fully intact. Turning to the numbers. Our results show that our strategy has traction. The growth that we've seen in the third quarter is a continuation of several years of strong development, as we can see on the left-hand side on this slide. Partially, this is the result of elevated inflation, particularly in the U.K., but at the same time, our growth is broadly based as we illustrate on the right-hand side. I would even argue that this understates the breadth of our growth momentum. In the third quarter, we achieved growth of 5% or more in all countries in both business area Private and Commercial in the Nordics. Let's take a closer look at operating trends by segment. I'll start with Private Nordic, which delivered a fourth consecutive quarter of record high GDP growth. What's behind this? Well, let's focus at least on 3 things. First, good underwriting through the inflation spike means that we have had -- we have not had to do corrective price actions in the same way as some of our competitors. This supports retention and increasingly allows us to attract new customers. Second, we have strong momentum in our target growth areas. PI, in particular, is strong, which is why we also have raised our guidance and outlook on GDP growth with a now ambition of more than 10% for the strategic period. Third, we are benefiting from higher new car sales with strong motor GDP growth of 13% in the quarter. Put simply, the investments we have made into underwriting, pricing and service are paying off as customer traction. Let me turn to the U.K. The last few quarters have truly illustrated the skills we have in trading on price comparison websites. By actively shifting the mix and leveraging our innovative telematics product, we have sustained attractive policy count growth and solid margins, while market pricing has fallen. This comes on the back of a strong 2024, allowing us to raise our U.K. underwriting profit growth target to now 20% to 25%. Looking ahead, we're always adapting to growth. We are always adapting growth to market conditions. The start of 2025 saw attractive motor market conditions, but as pricing declined, we have responded by slowing our growth rates. At the end of Q3, market pricing has fallen to a level, where we see fewer opportunities for growth, while larger part of the portfolio begins to hit up against target margins. As we are committed to being a disciplined underwriter, this means that we need to see increasing motor market pricing to be able to continue to grow. Like in the Nordics, we have a great track record in delivering solid margins through the cycle, also in the U.K., and we very much intend to keep this. The good news is that due to diversification, we are not too reliant on any one market or strategy for profit growth. Next, I will make a few short comments on Commercial. Our portfolio is dominated by SMEs that tend to act in a similar way to private customers. Here, we can leverage the same skill set that we have in private, particularly as the market is becoming more digital. Outside of SME, a material part of the book is what one could call local specialty business that require specific skills and a strong market presence. This includes our market-leading agriculture business in Denmark and Personal Insurance. Only some 20% of commercial sales are done via brokers, and retention are almost as high as in private. Turning to performance. We continue to deliver solid growth, driven by our target areas, SME, PI and online sales. So we can again see that our strategy has traction. Then, to the Topdanmark integration, Q3 saw a critical step in the Topdanmark integration process in the form of the legal merger of Topdanmark into If. Following this, we have seen a surge in synergies, as we've been able to move to If's Nordic operating model and start also to restructure our reinsurance programs. We have now delivered run rate synergies of EUR 24 million year-to-date, meaning we have reached our target for 2025 one quarter early. You should take this with a pinch of salt, synergy emergence can be a bit lumpy. So we stick to our target of EUR 140 million of ultimate synergies in 2028. Nonetheless, the strong execution to date increases our confidence in being able to achieve this figure. Longer term, the most important thing about the Topdanmark deal is that it transforms our competitive position in Denmark. Since it's still early days, we are not yet fully benefiting from our combined strength in the Danish market, and thus, there is a clear opportunity to improve the performance going forward. Final slide, let me try to tie it all together. We are in a great position as a group. Our results show that we have an organic growth strategy that is working and that we continue to deliver attractive and stable margins. The third quarter performance brings year-to-date underwriting profit growth to 17%, driving a 14% increase in 9-month operating EPS. This follows a 13% operating EPS growth in 2024. On back of these strong results, we have increased our operating EPS target for 2024 to 2026 to above 9%, up from the previous target of about 7%. The increase in the target show that we are going into 2026 with confidence and with ambition. We have great momentum, and we will not let up on pace. That concludes my opening remarks. Back to you, Sami, for Q&A. Sami Taipalus: Thank you, Morten. Operator, we are now ready to begin the question-and-answer session. Operator: [Operator Instructions] The next question comes from David Barma from Bank of America. David Barma: Firstly, on growth in Nordic Private, it was really good again this quarter. Could you give us a bit more color on growth by country? We spent a lot of time on Norway in the last few quarters, but maybe if you could give us some color on the rest of the geographies and the key lines that have been driving the growth in Q3, please? And then secondly, on Storm Amy in October, would you have some early estimates that you can share on the impact for Sampo, please? And then lastly, on the U.K., top line and policy count growth were still pretty strong in the quarter despite average premium being down high single digits. So could you please comment on the profitability of that new business? And how you're seeing market conditions change since the comments you've made on -- regarding Q3, I mean, in the last 6 weeks or so? Morten Thorsrud: Yes. Perfect. I'll try to answer to these 3 questions. First, on growth in Nordic Private, yes, quite a stellar performance, 10% growth overall for Private Nordic, and it's actually quite broad-based. So we have 5% or more in all countries, which actually is the situation, both within Private and Commercial. So both Private and Commercial produced more than 5% growth in all countries. And Norway, of course, still continue to stand out with double-digit growth. But it's good to see that the growth now is broad-based, and also, definitely, the other countries strongly support the growth story. When it comes to Storm Amy, it was a fairly sizable event, mainly impacting Norway in beginning of October. Initial estimate for us is between EUR 30 million and EUR 40 million. So somewhat sizable event, but of course, we're used to seeing these events from time to time, typically in the fall. Top line and policy growth in the U.K., what you will see is that we shifted the growth towards a little bit some other areas. So we had -- continued to have good growth in our telematics offering, also in other areas like bike, van, home. And then we had less growth in, what you could call, the core or classic motor product. So I think we used our excellent capabilities in the U.K. market in driving growth in areas where we believe that we still get attractive margins. And we still then have the same target for our U.K. operation. We talked about 88% to 90% in operating ratio. That is still what we focus on, and that's still what we aim to achieve when we write business, also the new business that we write now. Operator: The next question comes from Ulrik Zürcher of Nordea. Ulrik Zürcher: Yes. I thought the Nordic cost ratio was quite impressive in this quarter. Has anything changed? I think you indicated around 22.5% or something for the full year, which would mean, the cost ratio is a bit back-end loaded into Q4. Has that changed? And also, I'm wondering about given the strong top line momentum and scale economics that you have with -- like what should we look out for, for cost improvement in '26? Morten Thorsrud: Yes. The Nordic cost ratio develops favorably. As you remember, the starting point is 23%, when we include the overhead cost in Topdanmark, that is now included in If's cost base. And the progress is good. So we have a target of 40 basis points reductions for this year, and that's also the target for next year. Of course, growth is supporting this, and also, the synergy realization is supporting this. But again, there is nothing new on the target. We have a 40 basis points target for this year and also next year on cost ratio reduction in the Nordics. Ulrik Zürcher: Okay. Great. And also just a follow-up slightly on Norway. Like, obviously, this sort of exceptional situation can't continue forever. Do you see it continuing into next year? Or are we approaching sort of the peak of the market repricing? Morten Thorsrud: That's hard to comment on really what will happen in the future. Pricing in the Norwegian market has come down a little bit over the last few months. And, of course, it's difficult to expect that repricing will continue on these levels, but I'll revert from speculating when it comes to exactly when. Ulrik Zürcher: And also, a last one, just on the renewal date. I think it was mentioned in your presentation, but -- should we expect like continued strong commercial momentum into the renewal date with both price hikes and new volumes or just more normalized 5%? Morten Thorsrud: I think we continue to expect good development on the commercial book of business, also in the coming quarters. Operator: The next question comes from Vinit Malhotra from Mediobanca. Vinit Malhotra: Hope you can hear me clearly. The 2 questions I would choose today. First is the solvency even when adjusted for a little bit the buyback. I mean, was -- is there anything you would flag in that operating earnings contribution of about 9%, a touch lighter than other quarters. And maybe there's nothing to flag really, but I just thought I'll ask you on the solvency. The other thing I would -- wanted to quickly check is -- when we see your Slide 56, which is very helpful on the new car sales, and I see some big moves, but also Sweden being a little lower than recent, at least last 2 quarters, is there something to flag? Because also Q3 '24 was quite weak on the Swedish number here on the Slide 56. Is there something you would like to flag here? Also because -- are you seeing more competition? We've heard one of your peers talk about opening new contracts with car dealers. There's something you'd like to -- is there something there that is worth noting here for you? Knut Alsaker: Vinit, why don't I start with the solvency, Knut-Arne here, while Morten is trying to find Slide 46 (sic) [ Slide 56 ]. There's really nothing to flag on the solvency in terms of things that worry me. There are some things to be aware of in the 172% that we print. As you referred to, it is including the full buyback, which we announced today, which shaved off 5% on the solvency. Then there are some seasonality in calculating solvency ratios, where that ratio will go up in the beginning of the year because we have a tilt on renewals towards 1/1. So there's a lot of premium reserves, which is beneficial for the solvency calculation, and there's less premium reserves in the third quarter. In the third quarter, that basically shaved off a couple of percentage points of the solvency. But like I said, that will come back. Then, the solvency ratio in the third -- on 30th of September was lower due to higher FX risk related to NOBA. We didn't -- we basically couldn't hedge the Swedish krona exposure before we knew what the share price roughly would land on when it comes to NOBA post-IPO, but that is now being done, and a lot of it has already been done. So that will add back some 3, 4 percentage points on the solvency as well. And then fourthly, I think it is, there is a bit of technicalities related to the legal merger of Topdanmark, it's only 1% or so. That also will come back in the beginning of the year when we have the internal model in place. That is on top of the already announced SCR benefit of EUR 60 million to EUR 90 million, which we talked before. So there are some things that move the solvency ratio a little bit like I now had listed, but nothing that worries me in terms of the stability and solidity of our capital base. Morten Thorsrud: Good. And then to the now famous Slide 56. So that's the overview of new car sales in the Nordics. And as it shows, strong development in the Nordics overall, new car sales increasing with almost 10%, which is, of course, something that supports us, in particular, business area Private, where we see a 13% GDP growth on motor actually in the third quarter. Then the growth is mainly driven by other countries than Sweden. And for us, it's, in particular, important with growth in the Swedish market due to this special car damage warranty construction, where we are clearly the market leader, continue to be the market leader, which means that we have a good upside when the Swedish market continue to bounce back. But it's good to see now at least that the Swedish new car sales is also starting to show positive development. Operator: The next question comes from Nadia Claressa from JPMorgan. Nadia Claressa: Two questions from me, please. The first one is just going back on reserving. I think based on your opening commentary, Morten, it does seem like Q3 was a case of being opportunistically more cautious. So if you could just please confirm that the Q3 PYD is driven purely by this rather than any developments or underlying issues in your book? That would be great. And also, is this something that we should continue to expect going forward if the large loss experience allows for it? Or was this also more extra caution given your first quarter as CEO? So that's the first question. And secondly, on the change in the operating EPS target, just out of curiosity, why are you upgrading this now? I mean, were there any specific drivers that changed your view in the past quarter alone? Or was this more of like a catch-up given the strong year-to-date performance? Morten Thorsrud: Good. I think on the reserving, you're exactly right that this is how we typically operate. We try to be cautious. We would like to have sufficient reserves, and of course, we saw a very benign development in the third quarter with benign development on large claims, benign development in terms of weather claims and also favorable frequency development. So it's part of our DNA to make sure that we have strong reserves, and there is nothing more than that, that explains the reason why we have a little bit less runoff gain in this quarter. Then, to the change in the operating EPS target, while we thought it was natural to do an update in a way almost midterm in the strategy period. Could I have done it after Q2, but then it would have been the previous CEO making predictions for the future. So we thought it was sensible for us to do it now. And it's a good way for me to, of course, also indicate that we have a strong belief in continued strong development, continued strong performance. So that's why we chose to update the operating EPS target at this time. Operator: The next question comes from Vash Gosalia from Goldman Sachs. Vash Gosalia: Just one quick question as most of the other ones have been asked. Just on the new car sales, could you help us understand what are your market shares in each country with new car sales? Why I'm asking this is because your comments sort of makes me believe that you're going to benefit from rising sales in each country. But in the past, you have mentioned that Sweden is an exception where you, I think, have around 40% market share. So just trying to get a sense of where the other countries are, and that will be quite helpful. Morten Thorsrud: Yes, it's correct that we will benefit from increased new car sales in, of course, all markets. We are somewhat stronger on new car transactions than used car transactions. So a growth in this will benefit us in all markets. Don't have sort of exact market shares on the top of my head. But, in Sweden, we have about 70% -- 7-0, 70% market share on the car damage warranty construction. We have partnership with, by far, the most of the large brands in Sweden. And that's why that market is of particular importance. And again, when you buy a car in Sweden, you get a car damage warranty that comes with the car for free, is paid by the importer, and we are the main provider of this type of insurance. Vash Gosalia: So sorry, just to follow up on that. For the other countries, could you at least give us a flavor of how far you are from the 70% mark? I mean, would you say you're roughly close to that? Or materially... Morten Thorsrud: No, no, that's far from. This is quite an exceptional thing. The car damage warranty construction is something that only exists in Sweden. In the other markets, we would be typically having a market share a little bit above our underlying market share in motor in each market. So we will have an overweight towards new cars, but absolutely not in the same magnitude. Operator: The next question comes from Emil Immonen from DNB Carnegie. Emil Immonen: Just a couple more. First, on the operating EPS growth target, the 9%. Could you maybe elaborate on exactly how you think about it? The underlying driving factors as to reach it on average, you don't need that much growth next year, it would seem to me at this point. Morten Thorsrud: Yes. And I think, in many ways, you have to look at the target with the same lens that you typically do when looking at Sampo's targets, it's an above 9% target. It's not 9%, it's above 9%. And I think it's signaling that we expect that we'll continue a strong performance, but it's an above 9% target. Emil Immonen: Okay. And then one more question on NOBA, about how you approach that now as an investment. It was IPO-ed, and it's performing quite well on the stock market, it would seem. Is it still a legacy investment in your view that you want to exit fully? Or what's the thinking on that? Morten Thorsrud: Yes, we've been rather clear on that all the time that our strategy is to exit fully. So we sold down from 20% to 15% in conjunction with the IPO. And we will, of course, in the future, also reduce our holding and eventually exit the NOBA position. Operator: The next question comes from Henry Heathfield from Morningstar. Henry Heathfield: I was just wondering if I could return back to this sort of cost ratio, basically in the Nordics. So if I'm right, you're tracking or you're currently at 22.5%. Based on the 40 bps, you should be at 22.6% if I am right, and you're at EUR 24 million year-to-date, which is the target. So I'm just kind of wondering what's stopping you, either this year or next year, from kind of raising those cost synergy targets? Morten Thorsrud: I think we believe that we have an ambitious target in reducing by 40 basis points for a number of years going forward. That will give us strong support in terms of also underlying profitability. Of course, cost ratio is always jumping a bit up and down quarter-to-quarter. But yes, we are on good track on delivering on the 40 basis points improvement for this year and also have a good outlook then for next year. But I think 40 basis points is substantial and an important contribution, of course, to the Nordic business. So we continue with that as the target. Henry Heathfield: Is there anything I should be thinking about in terms of the fourth quarter in terms of headwinds or you're just being conservative basically and sticking to your targets really? Morten Thorsrud: No. I think, on the fourth quarter, we, of course, have the information about the Storm Amy, which is why we chose not to increase the forecast, but rather stick to the previous announced forecast or outlook. That, of course, is a sizable event, but something that is quite natural for our business, something that we typically see at this time of the year. But that's what's kind of puts a little bit of caution on the fourth quarter. Operator: The next question comes from Youdish Chicooree from Autonomous Research. Youdish Chicooree: This is Youdish from Autonomous Research. So my 2 questions. The first one is on the growth topic in the Nordics. You talked about the solid and broad-based trends in Private and Commercial. But could you also comment on Industrial? And yes, I'm really -- I really want to know whether you think this segment could be a drag on the overall growth next year. That's my first question. And then secondly, on the fixed income running yield, I mean, for the first time, the mark-to-market yield dropped below the running yield. So I was wondering if you could help us understand the implications of this and whether the book yield or the book running yield will drop by roughly 30 basis points in the coming couple of years, basically? Morten Thorsrud: Yes. I'll address the growth in Industrial, and then, Knut-Arne will do the fixed income and running yield. . Industrial is showing a minus 50% growth in gross written premiums in the third quarter. One should bear in mind that it's a small quarter for industrial. There's not that many customers renewing in the third quarter. So in terms of nominal amounts, this is not a huge figure. Year-to-date growth is down by some 4% in industrial. Largely, this is driven by the derisking that we've done in Industrial, where we'd like to see less volatility from our industrial business, and in particular, the property part of it, which should secure our profits going forward. In terms of growth, Industrial is, of course, a little bit different than the other business areas. We will only grow in Industrial when we see that the market opportunity allows for it. And the Industrial, which, of course, is the same also for other business areas, but you have more volatility on the pricing in the Industrial segment. So, therefore, it's natural that the growth in industrial is a little bit more volatile than what you see in Private and Commercial, but it's usually more a stable development. Knut Alsaker: On the fixed income running yield, Youdish, I would say that you're right in your assumption, everything else equal, and then, let's see where rates go in the future. But everything else equal, the running yield would trend downwards to the mark-to-market yield that we indicated end of third quarter. So roughly a 30 basis point drop, but trending downward, not necessarily in 1 quarter, obviously, given the maturity profile that we have. Operator: The next question comes from Vash Gosalia from Goldman Sachs. Vash Gosalia: Just a quick follow-up on your comment on NOBA. So we know you have, I think, 180-day restriction. But just trying to understand, is it fair to assume that you would sell down the entire stake within the current plan, so which is by the end of 2026? Or do you think there's a risk some of it might fall over to 2027 as well? Morten Thorsrud: No, it's correct that we have a 180-day lockup, and we started with ownership of close to 20%. Now, we reduced it down to 15%. It's not likely that we will sell off everything, of course, at once after the lockup period expires. We have to look at the market development, and most likely, this is going to be a more gradual process. But it all depends on market conditions at the time. So it could take some time, but -- and I think that's the natural sort of expectation that we do this gradually in a controlled manner. Operator: There are no more questions at this time. So I hand the conference back to the speakers for any closing comments. Sami Taipalus: All right. Thank you very much. That concludes the call for today. Thank you for listening in.
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.
Operator: Good morning, ladies and gentlemen, and welcome to Siemens Healthineers' Conference Call. As a reminder, this conference is being recorded. Before we begin, I would like to draw your attention to the safe harbor statement on Page 2 of the Siemens Healthineers presentation. This conference call may include forward-looking statements. These statements are based on the company's current expectations and certain assumptions and are, therefore, subject to certain risks and uncertainties. At this time, I would like to turn the call over to your host today, Mr. Marc Koebernick, Head of Investor Relations. Please go ahead, sir. Marc Koebernick: Thank you, operator. Good morning, and welcome to our fourth quarter 2026 earnings -- '25 earnings call. It's great that you are tuning in again today. At 7:00 a.m., we published our Q4 results, and the materials for today's results are all available on the IR section of the Siemens Healthineers website. It is common practice that our CEO, Bernd Montag; and our CFO, Jochen Schmitz, will be presenting to you what you need to know about our Q4 of fiscal '25 and about the outlook 2026. After their presentation, we will have a Q&A session. [Operator Instructions] Additionally, please note that a full transcript and recording of today's call will be made available on our Investor Relations website. Again, thank you for being here. And now I'll turn it over to our CEO, Bernd Montag. Bernhard Montag: Thank you, Marc. Dear analysts and investors, welcome to our year-end earnings call. Many thanks for joining. We closed fiscal year '25 successfully with a solid quarter and achieved our guidance. Growth came in at the upper end of our outlook range, and we grew in all regions, except China. This broad-based growth was fueled by healthy global demand and our leading position in the market reflected in the book-to-bill of 1.14 for the fiscal year '25. We are very satisfied with the performance in terms of adjusted EPS, which is well within the upper half of the outlook range. Excluding tariffs, adjusted EPS would even be above the upper end of our initial outlook provided back in November '24. I'm also very happy about the development of our free cash flow throughout the year, improving our leverage to 2.8x EBITDA. So we have finished this year strongly, as indicated early on, all resulting in a proposed dividend increase to EUR 1. Let me briefly also run through the highlights of our segments. Imaging, Varian and Advanced Therapies taken altogether increased revenue by almost 8%, driven by excellent performance in Imaging with continued margin expansion from scale, excluding tariffs. I'm very proud to see that Varian since the combination has grown every single year by at least high single-digit percentages, the margin expansion in Varian, excluding tariffs reached the upper end of our initial segment assumption of November 24. And Advanced Therapies contributed solid growth by keeping margins stable after a step-up in margin last year. With a successful and diligent implementation of our transformation program in Diagnostics, we have achieved another step change in profitability despite market challenges in China in fiscal year '25. And most importantly, we have prepared the business for future success. With this, I would like to hand over to Jochen. Jochen Schmitz: Yes. Thank you, Bernd. I will start with some color on the strong equipment book-to-bill of 1.12 in Q4. Book-to-bill was again clearly above 1 in Imaging, in Varian and in Advanced Therapies, which underlines the healthy growth trajectory. The businesses in all segments is well on track. Equipment book-to-bill in China continued to be around 1%. Revenue in China also continued at around the EUR 620 million mark in Q4 as in previous quarters. And there is still no sign in our numbers of a sustained market recovery in China. And this has implications also for our outlook. I will comment on China towards the end of my presentation again. Aside from China, we saw revenue growth across the board with excellent growth in the Americas and EMEA continued to grow on high absolute levels. I'm particularly happy with the solid revenue growth for the group in Q4. At this fiscal year, we successfully rebalanced the load over the quarters, taking some burden of Q4. In the first 9 months of fiscal year 2024, we grew by 4.3% and then had a strong finish with 6.5% ex antigen in Q4. This fiscal year, we grew by 6.8% in the first 9 months and finished the year with a solid 3.7% in Q4. On earnings, the year-over-year margin development was mainly impacted by tariffs. Excluding tariffs, the Q4 margin expanded by more than 100 basis points, driven by the strong operational margin expansion ex tariffs in the segments. Earnings per share, including tariffs, were at the prior quarter level. Excluding tariffs, EPS would be around EUR 0.74, i.e., growing by 10% year-over-year. And now let me run through the segment performances, starting with Imaging. In Imaging, our PETNET business and Photon Counting CT stood out as growth drivers again this quarter. Lifting Imaging revenue by 6.5% versus tough comps of 8% in the prior year quarter. Imaging's adjusted EBIT margin in Q4 phased roughly 350 basis points of headwinds in total from tariffs, unfavorable business mix and negative impact from special items. The special items were headwinds versus the excellent margin in the prior year quarter, for example, in the shift of government grants from Q4 to Q3 or a provision increase necessary for service field inspections. And now to our segments focusing on Therapy, Varian and Advanced Therapies. Since '23, Varian has had a cascade of double-digit Q4 in revenue growth. Based on that, Varian grew 1.4% on very, very tough comps. The lumpiness from prior year quarters is reflected in this year's Q4 growth rate with very consistent revenue delivery in absolute terms over the whole fiscal year and over the quarters for fiscal year 2025. Margin development, though, is very good at Varian. Excluding tariff impacts, Varian achieved a strong 21.5% margin, driven mainly by favorable business mix. Advanced Therapies showed solid revenue growth of 3.8% and generated a solid 19.5% margin, excluding tariffs on the strong level of the prior year quarter. And now let's complete the segment run through with Diagnostics. Diagnostics posted flattish year-over-year revenue due to volume-based procurement in China. We have already pointed to this impacting the second half of this fiscal year and that this will carry over into the next fiscal year until the impact is fully annualized in revenues as a new baseline. This expectation materializes as indicated. Nonetheless, the margin expansion in Diagnostics is still very well on track. The margin expansion benefited from a weaker prior year quarter. We said last year that the Q4 margin in fiscal '24, excluding negative effects related to prior year periods was around 7%. Taking this into consideration, the year-over-year margin expansion in Q4 was driven by operational improvements despite a negative effect of roughly 100 basis points from tariffs. Now let's have a look at the revenue margin performance of the group in Q4. With Q4, we grew year-over-year revenues ex foreign exchange each quarter for the third consecutive year, a strong testament to our revenue growth performance. Excluding tariff, this track record also holds for group margin expansion. Year-over-year and sequential margin expansion for the third consecutive year. A strong proof point that operationally, we consistently turned our strong revenue growth into operational earnings growth. And this brings me to the outlook for fiscal year 2026. We expect our growth trajectory to continue this year. In fiscal year 2026, we expect comparable revenue growth of 5% to 6%. As in the previous year, we have decided to be prudent in terms of assessing growth opportunities in China. We have been saying throughout 2025 that we need to see a sustained recovery to become more optimistic. We have not seen this so far and have hence decided again to assume flattish revenue in China for fiscal year 2026. Beyond this, we expect our good operational earnings performance to continue. However, in fiscal year 2026, we expect earnings growth to be negatively offset by the current macro challenges, particularly a strong euro and the tariffs, including these macro headwinds, we expect adjusted earnings per share to be between EUR 2.20 and EUR 2.40. I will break down the macro headwinds and the operational improvements in more detail later. But first, let's have a look at what the key assumptions for the segments and the other reconciling items are. On the top line, we expect Imaging, Varian and Advanced Therapies to continue on their growth trajectories. We expect Imaging to continue its strong trajectory after 8% growth in 2025 with very decent mid-single-digit growth in 2026. We expect also Varian to continue its growth trajectory in the high single digits as well as Advanced Therapies within mid-single digits. Diagnostics, we expect to be flattish due to the annualizing of volume-based procurement in 2026. On margins, you can obviously see the headwinds from foreign exchange and tariffs in the assumptions for the segments. However, when you exclude the headwinds from foreign exchange and tariffs, we see margin expansion in every segment. For Imaging, we assume that due to FX and tariff headwinds, margins will slightly decline. Those effects are even more pronounced in Advanced Therapies because of its higher exposure to foreign exchange and tariffs. We assume Varian and Diagnostics to face less tariff headwinds and no material headwinds from foreign exchange due to the different value-add structure. For Varian, we assume that the underlying margin expansion compensates for the tariff headwinds, broadly resulting in a year-over-year flat margin development. And for Diagnostics, we assume that the underlying margin expansion overcompensates for tariff headwinds leading to a minor margin expansion. Below the line, taking the guidance midpoint for financial income and tax, we assume year-over-year slight headwind in financial income net. This is mainly due to refinancing at higher rates and the lack of one-off gains from fair value accounting of smaller venture-type investments from a slightly normalized tax rate. It feels like many moving parts. But if we take it to the group level, it is not as complex as it seems. Hence, you find on the next slide, the main moving parts for EPS development from 2025 to 2026. I will talk you through the key effects from left to right. In foreign exchange, we assume a headwind of around EUR 0.15 year-over-year, primarily driven by the U.S. dollar depreciating versus the euro and many other currencies also depreciating against the strong euro, leading to a significant foreign exchange headwind. For example, in Q4, the difference between reported and comparable revenue growth was around 4 percentage points with the euro being around 6% stronger than in the prior year quarter compared to the U.S. dollar. We expect the foreign exchange impact on translation to continue with even more than 4 percentage point headwinds on nominal growth rates in our fiscal Q1 and Q2, where the weaker U.S. dollar of today compares to a period of a stronger U.S. dollar in the prior year period. And we expect a similar pattern in many other currencies compared to the euro. From annualizing tariffs in fiscal year 2026, we expect around another EUR 0.15 of year-over-year headwinds. We saw around EUR 200 million impact in fiscal year 2025 and expect around EUR 400 million in 2026. Fiscal year 2025 includes the first mitigation measures like early shipment and lower tariff rates before the 15% deal with the EU, which have paid off by now. Fiscal year 2026 includes mitigation measures like optimized sourcing, selected pricing measures. However, it does not include further mitigation from better pricing or potential shifting of value add. And as outlined above, there are EUR 0.03 year-over-year headwinds in financial income in 2025 from one-off gains from fair value accounting of smaller venture-type items, which cannot be expected for fiscal year '26. Excluding these 3 headwinds, we expect an underlying EPS growth of around 10% net driven by the operational improvements in the segment. We expect fiscal year 2026 to be the year that will be most affected by tariffs. Assuming a tariff environment like today's persisting, we expect the impacts from tariffs to become less each year based on our mitigation efforts. We expect tariffs to be fully mitigate it over the medium term. The 3 main mitigation levers are: market adaptive pricing, tight cost control and if this is not sufficient, shifting value add with our global manufacturing setup and our strong footprint in the United States and other places in the world, we have all the means to shift value add if necessary. We are evaluating the multiple options we have, and we will pull the trigger when these -- when there is planning certainty and if it makes obviously economic sense. Before I close, let me share our latest view on Q1. We expect revenue growth in Q1 to be below our outlook range of 5% to 6%, we expect Imaging and wearing growth in Q1 to be roughly around the assumptions for fiscal year 2026. That means mid-single digits and high single digit, respectively. However, we expect Diagnostics to be slightly negative due to the volume-based procurement impacts. Also, we expect Advanced Therapies to have a slightly softer start to the next fiscal year due to tariffs and foreign exchange, we expect margins in Q1 to be below the prior year quarter. And with this, back to you, Bernd. Bernhard Montag: Thanks, Jochen. This Q4 not only marked the end of our fiscal year but also concluded the so-called new ambition phase of our strategy. We launched new ambition after the closing of the transformative Varian acquisition at our last Capital Market Day in November 21. After that, the environment became much tougher. There were unexpected macro challenges like the extended duration of the pandemic, the inflation shock, the supply chain crisis, the anticorruption campaign in China and geopolitical tensions. Last but not least, higher tariffs came on top. Nonetheless, we have delivered around 6% revenue growth and double-digit EPS growth per year since '22 and what's maybe even more important than looking to the future. We have widened our innovation lead with breakthrough technologies like Photon Counting CT, our low helium platform in MR and HyperSight, RapidArc and perfect kinetics in Varian. We have grown our clinical relevance in cancer by combining imaging and therapy under one roof and being at the forefront of theranostics. We have increased our relevant in vascular interventions by developing new partnerships with device and robotic companies, and we are becoming more relevant in the nascent field of diagnosing and treating Alzheimer's. We have grown our C-level relevance with more than 200 value partnerships to date, a testament to this unique strength and new way of doing business and creating recurring revenues. We have further strengthened our leadership in AI with over 110 AI-supported products and techniques like Deep Resolve and MRI, which powered more than 30 million scans since its introduction in '22. Lastly, but no less, importantly, let me highlight the great turnaround our Diagnostics team has achieved from negative margins in the year of peak inflation and supply chain disruptions, they have taken Diagnostics to high single-digit margins, and they will not stop there. So what's next for Siemens Healthineers? As you are all aware, we have our Capital Markets Day coming up, and we have received a lot of interest in the event. We will present the next phase of our strategy and update you on our financial framework and the midterm financial outlook. All our business segments will be presenting their growth strategy, innovation road maps and plans on how to further improve profitability. And at a special highlight, we will give you a deeper look into our AI machine room. So coming to London, on the 17th should be worth your while, and I look forward to seeing you there in person. Marc Koebernick: So I think it's me now. Thanks, Bernd. Let's go to the Q&A. [Operator Instructions] And we have the first question or caller on the line, this would be Veronika Dubajova from Citi. Veronika Dubajova: I will keep it to one, maybe with the hope that I can come back again. But just looking at the guidance for fiscal '26. I was hoping you could both talk to sort of what gets you to the top end versus the low end, a slightly wider range than usual. It's obviously contemplating a lot of moving parts. So I kind of love to understand how you're thinking about it. And maybe at this point in time, I know it's very early, but where within the range do you feel most comfortable? That's my question. Jochen Schmitz: Veronika, it's always -- it's a great question. That's when you start off the year and say, okay, what bring you to the upper and the lower end. Obviously, conceptually, it has something to do with top line obviously being more at the upper end of the range in top line helps you to get further up in bottom line. I think that is more than logical. Then you also know that we have a certain spread of profitability levels in the segments, which can also make a difference depending on, I would say, how the growth trajectories will play out precisely amongst the segments. And I think what I'm saying here is not a surprise, yes, if Imaging is stronger relative to what we initially thought. For example, you see that moving this will give, I would say, a positive segment mix into profitability as an example. We have not built in, as I said, we have not built in any aggressive assumptions on China, flat China. If that assumption is -- would be too conservative is a thing -- is a topic. Otherwise, I think these are the, I would say, the main moving parts, I would say. Maybe one last aspect you didn't about it, but I still want to say it. Where we were very, very happy with what we saw on Varian. On the margin side, we are seeing that the 20%, we were always guiding for over the midterm is really inside. And you can see what large revenue quarter despite the fact that the growth rate was not super large can make of a difference. So with this, back to you, Marc. Marc Koebernick: Good. So we move on to Hassan from Barclays. Hassan Al-Wakeel: If you could talk a bit about the contribution of Photon Counting CT to, a, the Imaging revenue growth in the quarter, and b, the CT order book. I appreciate it's relatively early in your lower-priced launches. But any color around existing customers versus competitor replacements on the order front would be very helpful. Jochen Schmitz: Yes. First of all, when we highlight segments or businesses or products in our earnings call for Imaging, then they obviously grow faster than the average. That is the reason how we do this, yes? That means Molecular Imaging and Photon Counting CT were highlighted. And because they grew faster than the average and the average was already strong with 6.5%. On Photon Counting, we see, in general, an ongoing strong interest in the market for everything around this topic. I think when you just hear and maybe that's even more important, if you hear the buzz in the industry about this, every serious competitor is talking about this technology and that they want to have it desperately. But we are leading the camp by far. We have, as you know, the 3 product lines meanwhile out there. We have very, very good price points in place. Meanwhile, for Photon Counting CT, and we are very, very happy with what we see with regard to the demand patterns. And the demand patterns because we talk here revenue, the demand patterns are not only order intake and backlog development, they also transfer well into revenue, and that is a very, very promising and very, very happy about this. Bernhard Montag: For many customers, who so far have not been in our camps, I would say many, there are not too many, but because I think, especially in the high end, we have also a very high market share. I mean in general, it is for many of those who so far have not been in the camp, the reason to switch to our camp. And this can be hospital chains. This can be academic medical centers, not only because they look at it as a CT scanner, but as a means to offer new kinds of care, the preventive applications of early detection of coronary artery disease is something the frontrunners develop at scale. And there simply is only one company, you can do that with here. Marc Koebernick: So maybe also to add to that. We don't want to steal Andre's show totally in 1.5 weeks. When we have the CMD, so should maybe look forward to some more transparency on that topic then. Going on to the next call online, that will be David Adlington. David Adlington: Yes, just a question on China, please. GE's decision to sell their business there feels like a bit of a watershed moment. I just wondered how confident you were on the outlook for China isn't permanently diminished? And if we don't get a recovery there, are you still committed? I suppose following on from that, do you get an opportunity to pick up share following GE's exit? Bernhard Montag: So first of all, David, I mean, I'm not sure whether there is a GE exit. I mean I didn't follow their earnings call, but from my understanding, they were very positive about China. But I'm not invested into them. So you need to ask experts. So I take the question more as how do we look at the Chinese market, yes? So I mean, as Jochen said, there's basically 2 aspects here. On the one hand, we see in the next year, no reason to go into the year with a more bullish assumption of short-term growth in China. While we are confident that the market will return to mid- to high single-digit growth rates, it is an attractive market for us. It is and remains an attractive market for us. It is a market in which we were able to defend our market share. So when I say, defend our market share, while in the rest of the World, we have a very strong track record of market share increases. In China, we are on the same level as a couple of years ago, which is a success since basically, we are the only multinational company, which with the scale, with the local presence we have built with the 8,000 employees we have in the country, which is best positioned to withstand the challenges of a bit of uphill battles now and then from a regulatory and government environment point of view, but also when it comes to the rising strength of local competitors, yes. So that's basically the story. And I believe in when looking at different angle, so you didn't ask this way, but looking at the 6%, close to 6% growth we had in the last fiscal year and a similar guidance for the current year. It is a message here that we can achieve this without China contributing, which also means here that China is important from a mix point of view, but on the other hand, it's also just whatever, "12% to 15%" of revenue. Marc Koebernick: And then we're moving on to Julien Ouaddour from Bank of America. Julien Ouaddour: So my question is about the Imaging guidance. If I remember correctly, I think last year, you guided already for mid-single-digit growth for Imaging, you achieved standing 8%. Would it be fair that mid-single-digit growth this year is also kind of prudence? Can you confirm the drivers such as PETNET Photon Counting will continue to drive some growth. And if we can have any color on the specific growth you expect from CT and Molecular Imaging this year? I mean are we talking high single digit, double digit for these 2 businesses, that would be helpful. Jochen Schmitz: Julien, first of all, we are very happy with what we see in Imaging with 8.5% growth for the full fiscal year. I think that is a stellar number. And therefore you celebrate this, but this forms the basis for next year. That's always, I would say the flip side. On the other hand, when we look at order backlog and everything we achieved from an order intake order, I would say, secular growth drivers we have in this business, and you mentioned most of them, and maybe you did not talk touch about MRI, which is also a very, very strong foothold for us and with dry magnet and everything we will do there. I think we will see also this as a very, very old healthy growth driver in that business. Molecular Imaging with PETNET Photon Counting CT, obviously, will remain growth drivers also for this year. And I'm not sure if you listened -- I mean most of you listened very carefully to what I said, but I even had a word in front of mid-single digits which was decent mid-single digit. And yes, we are very happy what we see and decent mid-single-digit means that we are very, very confident about this. Julien Ouaddour: And so like does it mean that Photon Counting and Molecular Imaging, I mean, are growing double digit, I mean, 2025, and do you expect it to continue into 2026 just for these 2 businesses? Jochen Schmitz: Yes, I would say, Julien as Marc nicely said, we should keep some thunder left for Andre for the week -- in 12 days, but when you grow 8.5% and we highlight Molecular Imaging and Photon Counting, I think the math is relatively easy to be done. Marc Koebernick: So going to the next caller on the line, that would be Oliver Reinberg from Kepler. Oliver Reinberg: It would be on top line, could you just unpack a bit the kind of 5% to 6% assumption for next year? I mean I understand the kind of base effect you just talked about and obviously, the kind of China assumption, but can you just provide some kind of color what do you assume on pricing and in particular also in Americas where we've seen very strong growth if there's a kind of a tough comp for next year? And if I may bid on that, it sounded that on pricing, you're not willing to do more to offset the kind of tariffs. Can you just provide a bit of flavor why that is? And how quickly you expect this kind of headwind to offset? Jochen Schmitz: Maybe I'll start with the latter one. I think we -- I think we are -- since tariffs are a topic relatively clear about the, I would say, the levers how we want to offset tariffs in the midterm. And pricing and smart pricing was always the topic in this regard. But you might recall from the inflation times that there is obviously a time lag to revenue with pricing. And we also have to have this in mind, yes. Therefore, we will look at pricing and pricing -- our pricing excellence, our pricing, sometimes we have maybe a bit more than excellent. We have also certain pricing power will be a driver to compensate the tariff impact over the midterm, yes? Very clear message. But -- and I think that's also an important topic, but we will do this, as I said, in a smart way because we are very, very mindful about our market share gaining strategies, which brought us where we are today in Imaging, where we are today in Varian, where we are today in Advanced Therapies. Therefore, we need to strike that balance. But I think we have a clear plan in and it's also built in to our EUR 400 million mitigation -- net effect from tariffs this year. And with regard to, I would say, to the 5% to 6% growth for Siemens Healthineers, when you look at segments, I think the picture is relatively similar to what we have painted, what we have seen last year. And from a market standpoint, I'm not sure, Bernd, if you want to say something to the market or should I do? Whatever. Okay. I think we expect to see when you look at backlog development, we expect to see, despite having tougher comps in the United States or North American market, we expect to see strong contribution from the North American market, which is very healthy. Europe is growing again, which I think is good. And we also see, I would say, very, very good development in APJ and as we said, China, we have derisked. We have not built in growth tailwind from China into our numbers. Bernhard Montag: Yes. And maybe some more comment on the healthy development of the -- continued healthy development of the U.S. market. I mean we see that the technologies we provide are at the core of dealing with of treating and detecting early many, many, many diseases. So I mean, you can look at it in 2 ways when double clicking on Imaging, on the one hand, you can look at what's the growth of radiology and radiology is a profit center for institutions. When you look at -- from a hospital point of view. But on the other way to look at it is whether it is early detection of Alzheimer's, whether it is early detection of coronary artery disease with Photon Counting CT, whether it is planning minimally invasive surgeries, a lot of new treatment schemes require imaging. So it's a business in itself "for our customers", but it is in addition, center piece for delivering modern and state-of-the-art care. In addition, people continue to build out their ambulatory facilities, which means that there is also the need for additional sites of care, which triggers another growth, especially on the -- in MRI, CT sometimes also Molecular Imaging and also when it comes to the interventional market in AT. Marc Koebernick: Maybe just obviously, also have in mind that the PETNET business is largely still a U.S. business, and that's been growing very, very strongly. So that also contributes to the strong U.S. growth. Maybe going on to Falko from Deutsche Bank now. Falko Friedrichs: My one question is in case the Siemens Group announces an exit from their stake in your company at their event next week, could you remind us of the potential financial implications for your company, if there are any? I'm thinking of the financing rates, for instance. Jochen Schmitz: Falko, I think I said that already several times, when we look at our financing structure, it is at arm's length per se. When I look at if and when we need to refinance ourselves, I would expect us to be in a very, very healthy rating environment. And I don't expect significant impacts on our interest expenses just from the fact that Siemens may decide on their stake or to deconsolidate their stake in Siemens Healthineers. I think what we need to be mindful about is that we financed a lot of the Varian deal at a point in time when interest rates were low -- very low. And as you might know, we have to refinance any way independent of any stake development, a lot of money in the next calendar year, calendar year '26 more than EUR 3 billion, for example. And therefore, I think we will have, to a certain extent, if the interest rate environment stays as it is any way to deal with higher interest expenses, but not due to the fact that Siemens deconsolidates potentially. This is a very, very minor impact. Marc Koebernick: Moving on to Julien Dormois from Jefferies. Julien Dormois: It's actually relates to Varian. So obviously, Q4 was a bit weakish and you explained that because of the comps, and we see that probably the phasing effect considering the strong guidance for '26. But my question relates more to what you have done at Varian over the past couple of years on reducing the lumpiness on the margin side. Do you believe there is room also to flatten a little bit the growth curve at Varian in the future? Or is it just the nature of the business to see that sort of quarterly lumpiness in the numbers of Varian? Bernhard Montag: Jochen gave me a signal that I should answer that is difficult for me. No, no. no. So I mean, one topic is a little bit in the nature of the business. And it's maybe sometimes also fair to compare the, let's say, volatility of the AT business and the volatility of the Varian business. I mean, because what the 2 businesses have in common is that there is a limited number of units contributing to the equipment revenue per quarter. Yes, I mean, to give you a feeling roughly in both businesses. It's about whatever, delivering 200 units, yes, per quarter, yes. I hope it's not too detailed number here, but imagine something like this, yes. I mean AT is the smaller business simply because the average price of our cath lab is maybe just half of the average price of linac. So -- and that simply this lack of the law of big numbers, contributes to -- is one reason for the higher volatility in the Varian and AT growth rates compared to Imaging, where we just have multiple businesses contributing CT, MR, MI, X-ray and so on and so on, where simply these effects smooth out more than in Varian. And I mean -- and what we got wrong also in the more positive outlook which we gave in the Q3 numbers when we were hinting towards, let's say, a bit of a normal or to be expected growth rate in Varian for Q4, was the timing of a large deal, which starts to turn into revenue. Which is now pushed out by a quarter or will happen in the next quarter or will start in the next quarter. So you see these effects much more in Varian. We want to, of course, avoid this. Over time, nobody is happy when there are surprises like this, or volatilities like this. We still have the opportunity to further streamline the production. We are switching step-by-step to a build-to-order philosophy. And I think another aspect which really helps over time is that the recurring revenue on Varian is very high. So that also step-by-step, the importance of 5 linacs more or less, doesn't show so much in the overall growth rate. On the other hand, I really -- I mean talking about Varian, I want to highlight still, I mean, while the top line was a bit below what we kind of guided for in the last quarter. Profitability was really an exclamation mark. I mean, as Jochen said, and I think it's worthwhile to repeat that. Marc Koebernick: So moving on to Hugo from Exane. Hugo Solvet: A quick one on China, please. I understand that the guide is cautious and Bernd, you commented on the fact that for the long term, it will be an important growth driver nonetheless. Curious, what are you seeing exactly on the ground there? Are you seeing some green shoots tenders slowly but surely moving in the right direction? That would be helpful. Bernhard Montag: I mean not -- what we don't see is the very clear green shoot. And as you know, we have clearly said that we don't want to base our assumptions on speculations meaning at some point in time, it has to go back here because I think there was a bit of a learning as you know, and I'm -- this is meant to be expressing our learning curve or you can also call it self critical, 2 years ago when we had to go in -- exactly 2 years ago when we had to give the guidance for the fiscal year '24. When that was a month or so after the anticorruption campaign started. We were -- basically our assumption was based on the -- let's say, our guidance was based on the assumption that something like the effect of the anticorruption campaign should take 6 months, 2 quarters and then things will go back to what we are used to. But that was an unsubstantiated assumption in which we basically were betting on what authorities are doing and how purchasing schemes will be regulated in China. We don't want to do this again, yes, because I mean, in this fiscal -- the year '24 was, on the one hand, a good year for Siemens Healthineers because we could compensate that this assumption wasn't true by stronger business in the rest of the world, but it somehow was a cloud over the share price for quite a while in that year. So from that point of view, we have clearly said we don't -- we only changed the assumption on China when we really, really see signs of a significant new momentum in the market. And this is not what we see. Otherwise, we would have not built that guidance or that assumption into the guidance. Marc Koebernick: Moving on to the next caller online. That will be Oli from ODDO. Oliver Metzger: One question on Diagnostics. So there is the China NVP headwind which should be, let's say, phase out somewhere in -- after Q1, but can you also make a comment about what do you see from an underlying performance for Diagnostic, if you exclude the headwind for Q4, but also what do you expect more from regional perspective for next year? Jochen Schmitz: Oli, I think, unfortunately, I would say your assumption on this is over with Q1 is too optimistic. Why is it -- I think we will see impact from this throughout the year because there is -- this is an ongoing process, and they go into -- they drive this volume-based procurement through the -- all the provinces and all the panels, which could be affected by this. And this is an ongoing process. I think when we started to seeing that this will happen, I think we talked about 1.5 years of impact at least, I think we said we expect to see this in the second half of fiscal year 2025, more pronounced and throughout 2026. And that's what we expect, and that's why we also guided for only flat growth development. And when you look at the industry, I think we are obviously very much in line with what you see from others, even maybe slightly less impacted because our business in China is a bit smaller than some of the other main players in the industry. When we look at underlying other, I would say, drivers of our top line development. I think it's definitely still the transformation, the transformation in, in what we call core lab solutions, which is the biggest portion of the business, where we drive, so to say, the installed base towards Atellica only. I think we are very, very satisfied with what we see on Atellica. The transformation is working well, but also as explained in the past, by switching and/or shifting the installed base towards Atellica and also winning new deals with Atellica. We also look carefully into the existing installed base, and there are accounts, which do not cater I would say, perfectly for what we want to accomplish with Atellica, and therefore, we let them deliberately go. Therefore, there is also, I would say, a structural, I would say, clean up of revenue built into that translation. From a market standpoint, I think we see, I would say, generally speaking, we see healthy markets in Europe, in North America, but also in APJ. I think the only exception is China. Marc Koebernick: So we are slowly but surely coming to the top of the hour. 2 callers on the line left, Sam England from Berenberg. Samuel England: Just around tariff mitigations post 2026. So if you look at the bridge you provided, can you give us a bit of a sense for what proportion of the mitigations on that from pricing cost control, which are presumably things that are easier for you to do versus shifting manufacturing around and around manufacturing. How are you thinking about the decision to move manufacturing now? What would need to happen you to take that step and what sort of time scale could you deliver manufacturing changes? Jochen Schmitz: Let me first say, as always said, we report out a net number. Because from our standpoint, that is the most meaningful way of looking at it. Otherwise, you inflate numbers and then you inflate -- potentially you inflate mitigation measures and then you discuss things and it doesn't help. So what comes from what? I think, when I would say the vast majority for mitigation comes also today from, I would say, smart pricing, but this will increase over time. As I mentioned beforehand, pricing takes a certain time before it finds its way into the P&L. What do I mean with this? You need to negotiate a deal, then you hopefully book a deal, and then you have a time lag between booking and rev rec. And that is, on average, for example, in Imaging, between 6 and 9 months, just the time line between booking and billing just to give you a flavor. So therefore, it takes time. And as I said, we are not following here a brutal pricing way. We follow a smart pricing way. We look where our pockets of strength are, where pricing excellence plays a role, where pricing power plays a role. And we have, so to say, as a boundary condition for how we think about pricing is our market share gaining strategy. I said that several times already. Therefore, we are very, very confident that smart pricing or market adaptive pricing will be one of the main levers to mitigate tariffs, but it will not only -- be the only one. Tight cost control, I think we are currently and we will announce that, and we talk a lot about this about our new strategic phase in 12 days from now. When you start a new phase, you also look into your own house, you look to clean the desk, yes. And we look for a period of -- also higher productivity than normal. You know that our normal productivity is around 5 percentage points of total cost, and we have a clear guidance in the team to go beyond that. Also here for the next 2 to 3 years, yes, and we expect here, I would say, the major things kicking in more in 2027 and 2028 as we have to initiate those measures and then implement. That's why we also guided for a constantly lower impact from tariffs over the years under the current assumptions for tariffs. And that maybe leads perfectly over to your other question, value-add structure shifts. There are -- there is still uncertainty out there on tariffs. We see that on a daily basis, to be honest. And making shifts is something we are happy to do, but we also need to be careful that we don't rush anything in this regard, because these are major decisions. And we also need to be mindful where to shift to. I mean it's because you can also think about United States sounds obvious. It's also a very attractive position to a certain extent. On the other hand, you could also think about different shifts and you think about other low-cost environments, which then maybe have a different driver behind. It's not that it doesn't directly relate or reduce the tariff, but it offers you other advantages, which fall more onto this under the topic of tight cost control and so on. So therefore, we are looking carefully in it, and we try to find a solution which is sustainable, which is long term, because value-add shift is not a short-term measure and has -- should have a long-term impact. Marc Koebernick: Moving on to the last caller for today. Closing off with Richard from Goldman Sachs. Richard Felton: Great. So just coming back to market share trends in China. Bernd, you mentioned that you've been successful at defending your share in recent years. But I'd be interested in your thoughts sort of on the forward, if anything is changing in the competitive dynamics as the market comes back post anticorruption? I suppose sort of the context of my question is the results of some of the local Chinese competitors. It looks like their businesses have recovered ahead of the multinationals, and there's been some interesting product launches. So any comments on how you see those share trends evolving going forward would be very helpful. Bernhard Montag: Yes. Thank you. I mean when it comes to market share development, I mean, just to reiterate what I said, I mean, we said, we were able to keep our market share to defend it on the high level and also to maintain our #1 position in the market. Compared to the rest of the world, yes, the gap to others is not as high and compared to the rest of the world, we have not been gaining market share but defending market share in a market with a different set of competitors. Now what is changing in the Chinese market is, on the one hand, the effects of the anticorruption campaign, but then I mean we talked about that in Diagnostics, which is not your question here, but we also see it in Diagnostics changes to this volume-based procurement. We see more and more experiments and I choose the word consciously to go with provincial central biddings for health care equipment. As an experiment, this is also for the provinces, a learning curve to go through here because there have been provinces in which complete no name companies have won some of the tenders and it was simply based on price. And now the question is, can they deliver at all? What's the service and so on and so on. So there is a learning curve also an adaptation of what this means from a transformation of the business in this part of the market, which so far have been very much governed by using so-called business partners. So -- but overall, from a competitive dynamic, what we see is -- and this is high-level statement. We defend our market share. The smaller multinationals are losing, yes. And with this, I mean, companies like Philips, like Canon, I have the impression that GE is also a bit weakening while local competitors are gaining share from this. And I think that one topic is here that is really, really important, and we benefit from having scale in China, as I said in the question before. We have 8,000 employees in China. We are very locally present. We have 1,000 engineers. We have -- we manufacture the vast majority of our products and for the local demand locally, and that is important to have. And if you are subscale in the market, it's tricky to maintain a position, but I believe we are very well positioned for the future. Marc Koebernick: So that basically brings us to the end of today's call. Thanks for all your questions. Thanks for dialing in. And obviously, looking forward very much to seeing all you in person at our Capital Markets Day on the 17th of November in London. So bye-bye, stay safe until then. Operator: That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. A recording of this conference call will be available on the Investor Relations section of the Siemens Healthineers website.
Laura Lindholm: A warm welcome, and thank you for joining Cloetta's Q3 Interim Report Presentation. I'm Laura Lindholm, the Director of Communications and Investor Relations. Our CEO, Katarina; and CFO, Frans will first go through our results, after which we will move to the Q&A [Operator Instructions] Over to you, Katarina. Katarina Tell: Thank you, Laura. I'm very proud to present our third quarter results. We have now successfully established a strong uplift in profitability. We are steadily approaching our midterm target of an EBIT margin of at least 12% by 2027. And this quarter is an important milestone on our continued focus on driving profitable growth. But first, over to the agenda. Today, it looks as following. I will start with Cloetta in a brief. Then I recap on our strategic framework and our updated financial targets that we shared earlier in this year. After that, I move over to our Q3 highlights. Our CFO, Frans, will then walk you through our Q3 financials. And as always, we wrap up with a Q&A. For any new listeners on the call, let me start to tell you a bit about Cloetta. Today, we are the leading confectionery company in Northern Europe. We were founded in 1862 and have for over 160 years, been spreading joy through our iconic brands, and we are planning to stick around for at least another 160 years. We have grown a lot since the early days, and now we have operation in 11 countries. In 2024, we hit SEK 8.6 billion in sales, and our operating margin was 10.6%. As I already mentioned, we have now established a strong uplift from this profitability level, which we will talk more about today. Over half of our sales come from our 10 biggest brands, and we call them our Superbrands. Despite the current geopolitical uncertainty, our company remains largely unaffected. This resilience is due to several key factors. First, we operate in a noncyclical market with stable consumer demand, which provides a solid foundation even in uncertain times. Second, our strong and trusted brands gives us the ability to adjust prices when needed without losing customer loyalty. Third, our broad product portfolio allow us to offer a range of alternatives, helping us adapt quickly shift in consumer behaviors. And finally, our primary focus is on Northern Europe, a region that is generally less impacted by global geopolitical tensions compared to other parts of the world. Together, these strengths position us well to continue to deliver stable performance and long-term value. I will now briefly walk you through how we bring our vision to life through our strategic framework and then in relation to this, also our updated financial targets. For more detailed information, please view the recording of our Investor Day available on our website. So let me start by talking about our vision at Cloetta because it's really capture what we're all about. Our vision is to be the winning confectionery company inspiring a more joyful world. And that is not just a nice phrase on a wall. For us, it's really a commitment to excellence, to innovation and most importantly, to the joy we bring to people every single day. This vision is what guide us, and it is what pushes us to keep improving, to stay curious and to lead the way in our industry. We have created a clear strategic framework to guide us forward. And right at the center is, of course, our vision, to be the winning confectionery company inspiring a more joyful world. But having a vision isn't enough on its own. We can't chase every opportunity or be everywhere at once. So we have made some choices that will help us scale, grow and make the biggest impact where it matters the most. We have 5 core markets, and they are Sweden, Denmark, Norway, Finland and the Netherlands. Around 80% of our total sales today come from our core markets. Our first strategic priority is to focus on our 10 Superbrands in our core markets. These are the brands with the biggest potential and by focusing on expanding strategy, we can unlock new opportunities, grow and drive scale. I will today also give you 2 examples of how we work with them. Next, we are looking beyond our core markets. We have identified 3 high potential markets outside our core markets, and they are the U.K., Germany and North America. By focusing more and making clear choices, we believe we can truly make a difference and achieve strong growth in those markets. Our third priority is to step up marketing and innovation. The market is constantly evolving, and we need to stay ahead, not just reacting to trends, but actually helping them to shape them as well. For the past 7 years, we focused purely on organic growth, but now we are open to exploring M&A as long as it fits our strategy and makes good business sense. That said, any M&A would be an accelerator and is not built in the plan to reach our financial targets. To make all of this happen, we also need the right enablers in place. That means having a simple, efficient operating model and a structure that supports our goals. During Q2, we announced changes to our organizational structure, including some reduction in positions and updates to our group management team. The goal is to better align with our strategy and move faster, but also to support our profitability journey, and we have now finalized all major project milestones. People and our culture are, of course, key to our success. Without that, everything else is just a black box. Our culture is the foundation of everything we do, and we are committed to build a strong, capable and joyful organization. I would like to take the opportunity to thank all my colleagues for keeping their eye on our progress and delivering results, especially during the last 6 months of transformation. Now I'd like to share a few concrete examples of how we are bringing our strategic framework to life. Today, I would especially like to focus on our first pillar, and that is win with Superbrands. One of our key focus areas here is expanding our top 10 brands into new categories, sales channels and core markets. In Q3, we initiated 2 now ongoing launches for Malaco, a super brand within the candy category. The launch of Fruit Drops builds on the trend of consumers increasingly looking for sustainable products and with more natural ingredients. The launch is still ongoing, but both pouches are already available in Sweden. One is available in Norway and both will be launched in Denmark in the first quarter next year. Fruit Drops are vegan and do not include artificial colors or flavors. They contribute to our sustainability agenda and are also aligned with our targets to offer products that match the evolving consumer preferences. The other ongoing launch I would like to highlight is the Chewy Soft Bites. Consumers are seeking for exciting sensory experience and Chewy Soft Bites certainly reflects this trend. This is another multi-market launch, which builds on product that was already proven consumer concept in the U.K. They have been in the Dutch market for a bit more than a year and are now launched in Denmark, Norway and Sweden. And the 3 bags are already now among the top 10 most sold novelties in Denmark in 2025. My other example of our achievement within Superbrand is related to the pastilles category, which is around 10% of our total sales. In the quarter, we were very successfully launched a limited edition of Läkerol hot pepper pastilles in the Nordic. The target of this limited launch was to bring new consumer both to the brand but also to the category. We more than succeeded as more than 40% of the consumer who brought the products were new to the pastilles category. Linked to our strategic priorities and vision, we updated our long-term financial targets in March this year. With a clear plan, we have stepped up our long-term organic target from 1% to 2% to 3% to 4%. Our long-term adjusted EBIT target will remain at 14%, but our plan shows that we should at least reach 12% by 2027. Historically, our net debt target has been around 2.5. Considering our consistent achievement of this target in recent years, we have set a new net debt target below 1.5. However, should a compelling M&A opportunity arise, we might temporarily exceed it. Last but not least, our dividend policy have moved from a payout without a range of 40% to 60% to above 50% of the profit after taxes. And now a short quarterly update. As previously mentioned, our strong uplift in profitability continues, and I'd like to highlight some key takeaways. We are committed to profitable growth, and this is also reflected in this quarter. We reached 11.9% in EBIT margin, which brings our rolling 12 months profitability to 11.4%. We have now a strong uplift in profitability established, and we are steadily approaching our target of at least 12% by 2027. In this quarter, we delivered stable, profitable and organic sales growth with some regional variations. The Nordic region showed strong organic sales growth, while the other European markets faced some short-term challenges due to slowing inflation and related market dynamics. We continue to grow double digit in the U.S. Inflation continued to slow down in all our European markets and retailers and food industry manufacturers experienced some pressure related to food pricing. At the same time, lower inflation creates opportunities. And one example is that more consumer most likely will return to the chocolate category. With our broad portfolio and our new strategic framework, we have a clear path towards our long-term organic growth target of 3% to 4%. As previously mentioned, our new strategic framework is in place and all our major milestones linked to our operating structure are also achieved. With strategy and most of the structure now in place, we expect to see the result of this work during next year. And now it's finally time for the financial, and I hand over to Frans, who is eager to walk you through both our third quarter and first 9 months financials. Frans Rydén: Thank you, Katarina. So yes, let me take you through some more details here. But again, I would also summarize this as stable growth, strong uplift in profitability, strong cash flow resulting in a strong financial position. So starting with the net sales, as I always do. So in the quarter, we delivered stable, profitable organic sales growth of 1.3%, which brings the year-to-date organic growth to 2.2%. And I'm emphasizing profitable here, and that is key and a key aspect to understand the growth in the quarter, and I will come back to that. Now within this growth, as Katarina highlighted, we had strong growth in the Nordic region, a very strong growth, as a matter of fact, as well as in North America, but that growth was partially offset by the rest of Europe as sales were affected by changing retailer dynamics. Now we don't report sales or growth by market. But in the report towards the back, you have a table there where we do report percent share of total sales by market. Now it is a bit of a blunt tool to understand the detailed growth in the quarter. But if you look at the year-to-date, you can get a view of what I just shared. So if you add up the percentages, you can see that the sales outside of the Nordic region have dropped from accounting for 34% of our total net sales last year, year-to-date Q3 last year to only 31% of our total sales Q3 -- Q3 year-to-date this year. So it's a drop of a couple of percent there, and that's sort of an indication of what I just shared. And that is net of the fact that the strong growth we see in North America, of course, counts in the reporting as outside the Nordic region. Now one of the benefits of our portfolio is not only that we play in various confectionery categories, but also that our sales are across a number of markets. And I would argue that a continued stable profitable growth despite the rest of Europe faring a bit worse lately is an effect of that. Now without going into too much details by market here outside of the Nordic region, I'd like to say that it's well known that the general inflation has put a strain on consumers, and that in turn has affected retailers and the trade dynamics have changed, and there are both societal and political pressures relating to food pricing. And those pressures picked up as some of the commodity cost inflation slowed down over the summer, including a very much publicized cost of cocoa coming down from its historically high peak. So not all costs have come down, of course, and there is a delay when changes start to affect manufacturers. But in this environment, our strategy has remained to drive profitable growth also when it has meant giving up some short-term sales. And the context here is very important, and that context includes that we are still rebuilding margins that we used to have but have lost in the Branded Package segment. And we are rebuilding those margins through growth and scale through cost controls and efficiencies and while continuing to invest in marketing and innovation, but also through fair pricing. Now before moving on to the sales by segment and the profitability, let me also state that the reported sales were affected by currency headwinds as the Swedish krona strengthened. Nonetheless, the sales of SEK 2.177 billion that you see in the left graph on the last column of the left graph, that is our ninth consecutive quarter of sales above SEK 2 billion. And it is actually a step-up in sales of almost SEK 100 million versus quarter 2 this year. And as you recall, quarter 2 really benefited heavily from the Easter phasing. So we are pleased with continuing the upward trajectory in our sales. Separately, note that the structural changes in the quarter is zero, and that is as the divestment of the Nutisal brand took place in June last year and therefore, no longer feature in the quarterly comparator, but of course, it's still there in the year-to-date. So moving on to the sales by segment and showing -- actually, starting with the base of the slide today is the Pick & Mix segment, which grew a strong 9.4% in the quarter. And just, I mean, let your eyes feast over those previous quarters here. I mean it is very, very nice. Now that growth was then partially offset by the branded package shown above, where organic sales were down 1.8%, which is actually quite similar to the average development in the first half of this year. But again, as mentioned, related to the development outside the Nordic region. And this is arguably another angle to the strength of our portfolio that we have this portfolio where we can pick up on shifts in consumer behavior, whether that is at the macro level with consumers increasingly loving our Candyking Pick & Mix offering or at the micro level, allowing us to lean on other categories as we did when the price of cocoa spiked. I think it's also a sign of strength that consumers have continued to buy our product as prices in retail have gone up. And also for Q3, our volumes, they're actually down only about 1%. And if I would exclude chocolate in that, then our volumes are actually flat to growing. Then unpacking the branded package sales a little bit, maybe pun intended there, the growth is affected by our continued optimization of the product portfolio to improve profitability. And I'll come back to that as well. But primarily, this is about us staying firm to our strategy of growing profitably rather than to grow at any expense. And the focus on profit is obviously best reflected when we look at the profit. So let's move on to that. So we're very pleased with the result in the quarter to deliver another uplift of operating profit margin adjusted to 11.9%. That's 110 bps better than last year, and it lifts the year-to-date margin to 11.5% and the rolling 12-month margin, as Katarina mentioned, to 11.4%, and that is the strongest since 2019. 11.9% also makes this quarter the fourth consecutive quarter with a margin above 11%. And we can compare that to the prior 3 years where the average margin was, let's say, in the 10%-ish range, but where no individual quarter actually reached 11%. So when we talk about a permanent uplift in operating profit margin, I think that is a fair representation. Obviously, it's also interesting to note that we are consistently getting closer to our midterm target, which is to reach a margin of at least 12% no later than 2027. I want to break this down a little bit further. So if we look at the key drivers for the improved profitability, they are, number one, carryover effect of fair pricing initiatives that we took last year and a little bit at the start of this year, but it's not new pricing in the quarter. Secondly, it's about cost control and efficiencies. And both segments are favorable here. For Pick & Mix, it's on account of efficiencies in merchandising and fixtures. And on the branded package side, again, the portfolio optimization and net revenue management comes back. And as a comment on that, when we optimize the portfolio, it is about replacing slower-moving, lower-margin products with something better, and that helps not only our business, but also our customers by providing a product that the consumer wants even more of. So it's really a win-win-win situation. And then finally, on cost control and efficiencies, both segments benefit from savings from the change to the organizational structure to benefit our new strategy that Katarina mentioned. Then the volume mix, it is unfavorable. And within there, you do have an unfavorable mix as Pick & Mix grows faster than the Branded Package segment but that is partially offset by a favorable mix within the branded package on account of the focus of profitable growth, as mentioned. You also have the effect of the slightly lower volumes, which is sort of the 1% that I mentioned, but also given lower production, it means that there is less volumes to spread the fixed cost over. Finally, and maybe most importantly, for the long-term outlook, the step-up in profitability is not due to any reduction in the investments behind our Superbrands. And I do want to add that at SEK 259 million, as you see in the last column in the left graph, that is actually our highest ever quarterly profit in Swedish krona. In this strong profit, I can also mention that we -- it doesn't include any reimbursement for costs that we incurred in Q1 2024 as a result of the isolated quality incident at that time due to one of our suppliers. But that process is ongoing, and we now estimate to receive such reimbursement in, let's say, in the next 6 months. So with that, let's step up and look at the profitability by segment and see if that actually reflects what I just said. So over and under, you see that both segments margin improved in the quarter, both over last year for the quarter and also year-to-date. The Pick & Mix segment on the lower half, where quarterly margin again is above 9%, also shows why we, during the Investor Day, raised the margin target for Pick & Mix from the prior 5% to 7% to what we now have now is 7% to 9%. And for the Branded Package segment at the top, we improved the adjusted operating profit to 12.9%. And while that is a good thing, we also know that this margin used to be above 14%, and we will continue this work as outlined in the Investor Day through the focus on our Superbrands in our core market through stepping up in the effectiveness of our marketing and innovation and to continue to recover margins there. That said, let's move to the sales, general and admin. Here, you see that costs are down both in absolute and as a percent of sales. But firstly, the strengthening of the Swedish krona in the quarter, which we earlier saw suppressed our reported sales. It does have the opposite effect when we translate our foreign incurred SG&A to Swedish krona. But then you have the net effect of cost controls, offsetting annual salary increases and other inflation, while again not driven by reduced investments in our Superbrands. Now with respect to the cost control, the quarter does benefit from savings from the restructuring program for the new organization. And here, I can reconfirm what we have shared earlier that we expect to achieve up to 20% of the annualized savings of SEK 60 million to SEK 70 million in the second half of the year and the full effect as of the first quarter next year. On the year-to-date, I want to mention the items affecting comparability there of SEK 52 million in lower cost, and that SEK 52 million is the net effect of the onetime impairment of Nutisal that we took last year when we sold it and then the provision related to the organizational changes this year, which is mostly severance cost. So since the provision this year is smaller than the impairment last year, the items affecting comparability comes out as a favorable variance here. Coming then to our cash flow. As mentioned in quarter 2, our normal seasonal pattern is to tie up cash in the first half and generate cash in the second half. And that holds very much true as we look at quarter 3. So in the quarter, we generated a very healthy SEK 339 million in free cash flow. On a profit after tax of SEK 189 million, so almost double the profit. The key driver of the free cash flow is, of course, the stronger operating result, but then a favorable working capital management. But also as the comparator where last year, the steep inflation meant a much less favorable working capital. Last year in Q3, we actually opened with extra payables on account of purchases to replace raw materials with quality defect, which was again the same thing as this isolated quality issue that I mentioned earlier. Now this year, of course, we don't have that problem. Our CapEx in the quarter at SEK 41 million remains on the lower side. And as presented during the Investor Day, is that we expect investments will start to rise in the future to secure growth and profit. Now in this strong free cash flow, -- could it be just phasing from Q2? Well, the answer is no because actually, on a year-to-date basis, this is the first time ever that we've exceeded SEK 0.5 billion in free cash flow. It's actually strong -- so it's the strongest we've had year-to-date. It's more than 50% higher than year-to-date last year. So obviously, it's not a phasing. Finally, with our strong financial position, we have also paid back SEK 800 million of loans to our credit institutions, and you see that in the graph at the top and to the right, which brings me to my last slide on financial position. So we closed the quarter with a net debt to EBITDA of 1.1. So again, better than our new lower target to be below 1.5 and 1.1 is the same we delivered in Q1 this year. And these 2 quarters are tied for the gold, 1.1 is the lowest ever we've had for Cloetta. And the result is a combination of the strong cash flow that we looked at, resulting in lower net debt, bringing it down to SEK 1.4 billion. That's almost down SEK 0.5 billion versus Q3 last year. And then, of course, the improved earnings that we have now spoken quite a bit about. In quarter 2, leverage went up a bit as we paid dividends. So it's great to see that it's back down again to an all-time low. And actually, on the note of dividend, it is really encouraging that our year-to-date profit after tax of SEK 558 million is already SEK 1.96 per share, and that's only after 3 quarters, mind you. So we're pleased to have created good conditions also with respect to our fourth financial target on dividend in addition to top line growth, the stronger EBIT margin and keeping leverage low. Finally, we have plenty of access to additional unused credit facilities and commercial papers based on the new credit facilities entered into during the quarter and as shared earlier in the press release. So access to cash, together with our cash on hand totaled about SEK 2.5 billion as we closed the quarter. So for yet one more quarter, I conclude that our financial position is very strong. And with that, over to you, Laura. Laura Lindholm: Thank you very much, Frans, and thank you very much, Katarina. We already have questions in the chat, but we will start with the telephone lines. [ Valentina ] over to you and for our first caller. Operator: [Operator Instructions] The first question comes from Adrian Elmlund from Nordea. Adrian Elmlund: Adrian here from Nordea. Can you hear me? Katarina Tell: Yes. Frans Rydén: Yes. Adrian Elmlund: Very good. Pleased to see the results. I have a couple of questions, 3 of them, I think. So first off, [ Berry Kelevot ] noted this morning that they expected some mid-single-digit percentage decline of their sales and volumes in cocoa products in the upcoming financial year. So this is, as you know, due to the continued pressure of high cocoa prices. But kind of my question here to you is, do you believe that the market has priced in the inflated cocoa prices, meaning basically what price per tonne do you think is priced in? Looking at the chart now, I think that we're seeing some USD 6,500 per tonne at the moment. Just want to see your reflections on that during the overall market. Frans Rydén: Yes. So I'm just thinking how to reflect this. I think it's -- I think the way that we like to think about this is that, obviously, when costs are coming down, which they have, at least for the cocoa, but not all commodities are down. Sugar, for example, is actually up. And cocoa is not really cheap based on historical levels. But when they're coming down, that's a good thing. It means that over time, the cost for the consumer will be lower, they'll come back into the category. So we think that's a very good thing. Now at the same time, it doesn't happen immediately. It depends on how much inventory you have, what kind of contracts you have in place, how the rest of your business looks. And of course, we look at the competitors and we -- when they publish their results, we can see what is happening in their business. But I don't really want to comment on their businesses instead focus on ours. And ours is simply the following that, that we will continue to execute our fair pricing, which means that when costs go up, we take pricing. And when they come down, we roll back. But of course, it has to be done in a responsible manner as well together with the retailers. And that, I think, over time, will serve everyone really well. And I think what we will see is that consumers that maybe have moved into, let's say, chocolate muffins and similar products when cocoa was very expensive and they've given up on their chocolate tablets, they'll come back into the confectionery category. But exactly how much has been priced in, I think that varies really between the different players in the market. Adrian Elmlund: Okay. A second question here. I want to dig a bit into the margin contribution here between the Nordics and the rest of Europe. Kind of what I'm looking here is trying to understand how much of the margin uplift in the quarter is thanks to a stronger geographical mix, contract your own margin enhancing activities or sort of product mix? Frans Rydén: Okay. Fair enough. So maybe given that we don't actually publish margins by market, but I think what I could help you here is to start with that. So we are Northern Europe's leading confectionery company. It's not just a slogan. We have very strong relationships with our customers that go back decades and decades, maybe hundreds of years in some cases. And our position with the consumers is unparalleled, I would argue, for the products that we play in. So we're very, very strong there. Whereas in the rest of Europe, we're more of a challenger, which is where the opportunity comes from. Here's what we can make something different out of our business. But obviously, we are much stronger in the Nordic regions than before. Now I think if you think about the 2 big markets there like Germany and U.K., I think it's fair to say that Germany is perceived as a market with a lot of strong discount retailers and that you have to work hard for your margins there. But for the U.K. we have in the past actually reported a little bit around the profitability there. I think it was as late as Q2 this year and certainly in last year as well, where we said that we had some negative taxable results in the U.K. And as a result, we had deferred tax provisions that we chose not to recognize. So we basically have said that the U.K. result is not good. So if you think about the U.K. having negative taxable results and the fact that Germany is a tough market, you could see how there is a favorable mix when the Nordic European countries are growing faster. But beyond that, I can't share you a number today. Adrian Elmlund: That really helps. Kind of a follow-up question to that, if I may. like how confident are you that the sales pressure that you're now seeing outside the Nordics, as you stated in the CEO words, are short term? And why are you not seeing similar patterns in the Nordics? Do you think that can happen? Katarina Tell: Yes. I can answer this one. So as mentioned also in the CEO word is, of course, we have -- we launched our new strategy during the spring. We have created a structure, done some reorganization. And now we are -- the strategy are set. The organizational setup or structure are more or less done. So we expect to see the result of this next year. And as you remember, we have to grow with the Superbrands, and then we have to grow beyond core markets. And here, we see still some opportunities where we believe we will have growth in U.K., in Germany, in North America. And then we also have the third strategic pillar, and that is to grow through innovation and excel in marketing. We believe in the strategies, and we believe also we have the structure in place to deliver on the strategies for next year, if that answers your questions. Adrian Elmlund: Okay. I have one final question. Sorry for taking multiple questions here. But the final one. Regarding the pilot stores here in the U.S., you said that you're going to give us some news before the year-end. But could you share anything with regards to how these insights into the consumer preferences, as you stated, have -- like what feedback have you gotten? It basically implies at least that you've gotten some positive feedback. Katarina Tell: So it's very much about learning how is the best mix, how are the consumers' behavior in the store and so on. And this is, of course, important when you roll out a concept to have those learnings going forward. Laura Lindholm: Adrian and Valentina, it seems we have no further questions from the lines. Could you confirm that? Operator: We have no more questions from the phone. Laura Lindholm: Thank you very much. Then we move over to the chat. Speaking of the U.S., we have a question from Danske Bank. The U.S. market size, how large is the U.S. as a percentage of your total sales? Frans Rydén: So we actually shared for North America is what we've shared, and I think we'll stay with that when we have the Investor Day. So in 2024, it was about 3% of our total sales that we had direct sales in there. Of course, products tends also to enter maybe in a more indirect way to the U.S. market, but we have 3% sales. And since then, as you know, we've been growing in double-digit numbers. So simply put, should be north of 3% sales. Laura Lindholm: Thank you, Frans. And then a second question also from Danske Bank about raw material costs and margin outlook. With raw material like sugar and cocoa down year-to-date, how do you see this impacting your cost and sales in 2026 on this, all else equal, do you expect margins to be stronger or weaker going forward? Frans Rydén: Well, so our midterm target is to reach at least 12% by 2027, and we're not there yet, 11.4%. So obviously, we are intent to improve on the margins. And as I mentioned, on the Branded Package segment, we used to be above 14%. So it's -- this is not greed. This is actually recovering the margins that we have lost, and we will do that by continuing to invest behind our brands and in innovation. And it's a critical part of the new strategy is about stepping up our marketing innovation. I think it's going to be a win-win-win again for us, for our customers and for the consumer. So the margins will improve. Then how does the raw material and pricing go into this? So we'll stay with what we said before here, which is that we will price for the cost. And of course, in the past, we've also lowered the prices at times when they have come down, but we have to look at the whole portfolio, and we have to also look at the variance versus when we took pricing the last time in that market because the pricing is not -- let's say, it's not always exactly going at the same time in each market. It depends on the contracts. So we will price for cost. Laura Lindholm: Very good. And then the next question also from Danske Bank is about the IKEA global partnership. How has your global partnership with IKEA developed? Do you think which refers to the quarter? Katarina Tell: Yes. So the cooperation progress according to plan. So the last year, we had an agreement with IKEA in Sweden, but it was only limited to IKEA Sweden. And this year, we signed a global contract with IKEA. I said, it's progressing according to plan. And in the next quarterly release, we will give you a more detailed update about how it's progressing with IKEA. Laura Lindholm: Thank you, Katarina. And then also 2 more from Danske Bank. First one is about the M&A pipeline. How does your acquisition pipeline look like? Are there any companies you are currently in discussion with? Frans Rydén: Number one, [ Emmanuel ] thank you very much for asking a lot of questions. It's a lot more fun. But now unfortunately, obviously, we can't get into any specifics. But I think the most important aspect here, and Katarina emphasized it in the beginning as well, which is that M&A for us is an accelerator. We can deliver these financial targets without an M&A. So we're not going to jump into something unless it really makes business sense, and it helps drive the strategy forward. So -- but of course, we are open to it, and we're being approached and we're looking at things, but we're not going to just jump on to something. Laura Lindholm: Very good. And then the final one from Danske Bank. On Pick & Mix, how much is volume growth versus price? Any particular market you want to highlight during Q3? Frans Rydén: So what we've said in the past is that we don't separate price from other things. And part of the reason for that is -- and Pick & Mix is a great example because the pricing model will look different between customers depending on what type of assortment they have contracted with us to carry. For example, if there's more chocolate or less chocolate, it has to do with how often they want our merchandisers to refill and clean the shelves, if this should happen over weekends to have continued strong sales on Saturdays, not only on Fridays and whatever -- like there's a very complex setup. And if I would give you a price number, then every customer who had seen a lower price increase than that will be happy and they will be silent. But everyone who thought that they got a higher price increase than that, they will be calling us and complaining. So it's not really a fair number to give. I think what I can say, however, is that Pick & Mix, and we said this before, is clearly on consumer trend. It's about individualization. It's about plastic free, it's in-store, arguably entertainment. Consumers spend a lot of time in front of Pick & Mix shelves when they pick their fruit and their meat, where cereals and stuff, you just throw that into the cart when you're shopping. So it is a fantastic segment of confectionery and there is volume growth. There's real volume growth in there. Laura Lindholm: Thank you, Frans, and thank you, Emmanuel, at Danske Bank. We move over to DNB Carnegie. How do you see the impact from the lower cocoa prices in terms of lag or total impact going forward? Frans Rydén: Yes. So again, so obviously, when we are having conversations with our customers, we do that based on the world market prices. But then you have the different thing, which is how long time does it take to get the pricing, how much inventories do you hold, what kind of -- what have you contracted? And I would assume it's the same thing for all our other peer companies out there. And so this will vary. What we will do is we will continue to build our margins, and we will continue to execute fair pricing. Laura Lindholm: Thank you very much. Frans, I think there's another question on Pick & Mix, but we, I think, have answered that already previously through to the Danske Bank question. Good. Operator, any last questions from the telephone lines? Operator: No more questions from the phone. Laura Lindholm: Thank you. That concludes our event. And we take, of course, the opportunity to remind everyone of our upcoming IR events. Our next report, the Q4 report is published on the 4th of February, and that's followed by an investor lunch in Stockholm arranged by Danske Bank on the 5th, the following day. But before that, quite a lot is happening. Next week, we attend the Berenberg Pan-European Discovery Conference, U.S.A. and then also after that, have a planned visit to Ljungsbro in Sweden together with Danske Bank. It's time to conclude. And before we meet again, we, of course, hope that you get the chance to enjoy our wide portfolio of confectionery products during many joyful occasions. Thank you for today. Frans Rydén: Thank you. Bye-bye. Laura Lindholm: Thank you. Bye-bye.
Operator: Welcome to Oncopeptides' Third Quarter Earnings Call for 2025. [Operator Instructions] Now I will hand the conference over to CEO, Sofia Heigis; and CFO, Henrik Bergentoft. Please go ahead. Sofia Heigis: Hi, everyone, and welcome to the presentation of Oncopeptides report for the third quarter of 2025. My name is Sofia Heigis, and I am the CEO of Oncopeptides. As we have increased our shareholder base in the last quarter, I wish to welcome old as well as new shareholders to this earnings call. This is our standard disclaimer. As usual, I'm joined by our CFO, Henrik Bergentoft, and together, we'll present our financial and operational performance for the third quarter, which is concluding that we are still on track towards becoming a profitable company by the end of 2026. The third quarter was a strategically important period for Oncopeptides, as we knew we will have to demonstrate resilience in execution given the vacation period. Net sales reached SEK 20.2 million, representing a 174% increase year-over-year and marking our fourth consecutive quarter-over-quarter growth. In July, we delivered an all-time high, which was followed by another all-time high in September. In between, we saw a seasonal slowdown typical during the European vacation period. And all in all, we saw a quarter of growth, which is a stronger result than the same period 2024. So even though we are still sensitive to seasonal effects, this is a sign of how we have strengthened our position and advanced our launch. Our cash position at the end of the period was SEK 147.9 million, reflecting the successful completion of a rights issue of SEK 150 million, which was oversubscribed by 157%. The strong investor interest underlies confidence in our long-term strategy and provides the financial flexibility to continue building momentum while advancing our partnering discussions, including ongoing negotiations in Japan. On the scientific side, Pepaxti continued to gain credibility and recognition, and following its inclusion in the EHA/EMN clinical guidelines earlier this year, new independent publications and real-world presentations at the IMS Annual Meeting have further reinforced Pepaxti's efficacy and tolerability in real-life use. We also saw continued commercial traction in all our key European markets, with Italy leading the growth, Spain reaching full regional access, and Germany demonstrating more resilience than previous year in the same period. In short, a resilient and strategically important quarter that positions us well for a strong finish to 2025. I'll now hand over to Henrik for a closer look at the financials. Henrik Bergentoft: Thank you so much, Sofia. So let's start with the financial summary for the third quarter of 2025. As said, net sales increased to SEK 20.2 million, a 174% growth compared to last year, excluding the milestone payment from the South Korea licensing deal in 2024. This demonstrates significant top-line momentum. The gross profit reached SEK 19.9 million, reflecting a robust gross margin of 99%, which underscores the strength and scalability of our business model. Operating expenses decreased by about 3% for both the quarter and the 9-month period, showing our continued focus on cost control. As a direct function of sales growth and cost control, our EBIT improved from minus SEK 61.3 million last year to minus SEK 47.1 million this quarter. The net profit amounted to minus SEK 60.9 million, highlighting that this includes net financial items that were impacted by the noncash fair valuation of warrants amounted to minus SEK 10.6 million. Overall, these results demonstrate strong revenue growth and improved cost efficiency despite ongoing investments in our operations, altogether taking us towards the next platform of being profitable by the end of 2026. Looking at operating expenses. Our quarterly sales and marketing costs increased from SEK 29.8 million in 2024 to SEK 31.9 million in 2025. This reflects our expansion efforts with the completion of our organization in Spain and Germany last year and the establishment of our Italian organization this year. General and administrative costs rose just slightly from SEK 18.4 million to SEK 19 million this year. Research and development costs decreased from SEK 21.9 million to SEK 17.3 million as we currently have no ongoing clinical studies. However, we are still advancing our preclinical portfolio. All combined, the cost trend shows our commitment to strategic cost-conscious growth while maintaining discipline in our R&D spending. Turning to liquidity. Our cash position at the end of Q3 amounted to SEK 148 million following the successful rights issue in the third quarter, which was oversubscribed at 157% and injected approximately SEK 150 million before issue-related costs. Our liquidity is now estimated to last until we reach cash flow positive at the end of 2026, assuming continued sales growth. We certainly are proud to have attracted such an interest from both existing and new shareholders in the rights issue. So ending up with some key takeaways from the financial perspective. The company is delivering rapid revenue growth and maintaining exceptional gross margins. Cost control measures are yielding results with operating expenses trending down meanwhile revenue is growing. Liquidity is strong, and recent capital raise provides a runway for continued execution and growth. The business is well-positioned to achieve cash flow positive by the end of 2026, assuming our ongoing sales momentum. That concludes the financial presentation, and I hand over back to you again, Sofia. Sofia Heigis: Thank you, Henrik. Let's now turn to the commercial side, where we continue to build strong momentum across Europe and make progress towards our long-term goal of profitability. We have seen a strong growth trajectory in the last 3 quarters, and our European business continues to grow, supported by positive clinical experience and peer-to-peer recommendations. Looking back, the third quarter is always affected by the vacation period, which is why it is encouraging to see growth and increased demand now in Q3 2025. It's a clear sign of more markets contributing to our revenue stream. Following the inclusion of the EHA/EMN guidelines in July, Pepaxti has gained further recognition from leading myeloma experts. This type of validation has a tangible effect in the field. It strengthens awareness, drives clarity on positioning of Pepaxti, generate confidence among HCPs, which leads to new prescribers through peer-to-peer recommendations. All these factors are critical to our launch success, which support us to make a real difference for more and more patients, which, in turn, of course, drives uptake to generate shareholder value. We continue to build on peptides around the European opportunity for Pepaxti, which we estimate at roughly SEK 1.5 billion annually. There are, however, patients in need for Pepaxti also in the rest of the world. And we are working with current partners and to find new partners to address that unmet need and add revenue streams. The long-term value will be generated from our pipeline, which we are advancing in the preclinical setting with several exciting assets getting closer to clinic. Outside of Europe, our focus remains on concluding a partnership for Japan. Discussions are advancing well, but takes time, a lot due to internal processes and governance, and we are still in late-stage due diligence phase. The structure of the potential agreement follows market practice, including upfront and milestone payments and double-digit royalties, with the partner assuming all costs related to regulatory and commercial activities in Japan. Japan represents a market roughly the size of Germany with a well-defined path to approval agreed with the Japanese regulatory authorities, and key opinion leaders supporting their need of Pepaxti. To close the Japanese partnership will be a landmark event for Oncoenptides, unlocking significant long-term value for both patients and shareholders, and we are focused on concluding a deal that is a win-win for both us and our partner, which naturally will be a win for patients in Japan. Let's move to an update on our European key markets. Regarding market access, we have seen some very positive progress for Irish HCPs. We have an early access program open to ensure HCPs could gain experience to assess if they will support the unmet need for Ireland. This support is critical to be able to get into a price negotiation. Ireland is a small and centralized market. And in a very short time, we have seen 12 patients being included in the AAP program. The data that has been submitted to the payer authority is very encouraging, and KOLs are supporting the need, which is once more confirming that Pepaxti [indiscernible] beyond expectations in real life. We are discussing with HCl publishing a very encouraging data that they have generated, which can support launches also in other markets. We are hopeful that the strong evidence leads to access, but having said that, it commonly takes time and is usually very difficult to gain on Ireland. We expect to know more within the coming quarters. As already mentioned, we hit all-time high demand in July, followed by all-time high demand in September. The vacation period in Europe with a primarily very August, is temporarily affecting net sales growth. I will get more into details per country in a short while. Important to note is that by the end of Q3, more than 550 patients have been treated since launch, and we are now really making a difference to many patients in Europe. The rare disease launch is not only the effort of the company, but all launches are dependent on peer-to-peer recommendations. These can originate from own experience, published real-world data, or guidelines are some of the most important sources for such recommendations. And as already mentioned in the last quarter, we saw great progress in these areas. We have 2-woretsublished and presented at the International Myeloma Society. We got the inclusion of Pepaxti in the updated EHA/EMN guidelines in July, and we got a strong recommendation in our [indiscernible], which is great as these guidelines are now being referenced across Europe. One more important aspect for the mid- and long-term delivery of the launch is to close evidence gaps. That appears due to how the treatment landscape evolves, and that can support differentiation and inform treatment decisions over time. As a small company, we don't see the return on investment in setting up our own studies to close these gaps, but we do invest in ideas that fit our strategy coming from external investigators. This type of study is very cost-effective for us and generates scientific engagements, which is also important to the launch. Here, we do see increased interest from KOLs to generate data on the PDC platform, and we now have investigator-initiated trials contracted in all markets. Here is a map illustrating the sales growth across Europe in Q3 compared to previous quarters. I will now get into more details per market. Germany remains our largest market. It's the market most affected by the vacation period. And when we look at our segments, we can conclude by sales data that the vacation period is affecting the overall multiple myeloma market, and we do see a decline in demand in August. This is also the case for capacity. We anticipated this and are looking to catch up in Q4. Given the slowness in the market, it's important and encouraging to see how we are continuously broadening the prescriber base. Increased experience in Germany has led to several R&D projects being generated currently. And on the topic of scientific progress, we recently signed our very first investigator-initiated study, which we investigate the impact of Pepaxti on systemic inflammation that is ongoing in multiple myeloma patients, the effect on T cells, and further how Pepaxti is diffe5rentiated from other activators by not only affecting the nucleus DNA but also the mitochondrial DNA. These are important scientific questions that will advance our scientific understanding and fuel our launch. [indiscernible] several proposals under review from German KOLs, which is demonstrating the increased interest in Pepaxti and the PDC platform, which we actually lacked at launch. So very encouraging signs as these studies have the potential to close important evidence gaps that can support our launch mid and long term, and also support our pipeline development. Finally, we do see good progress in awareness, which was confirmed by and boosted by the annual German-speaking Hematology Congress taking place now in October. Majority of companies are focused on immunotherapy and earlier lines of treatment. And our symposium, which was focused on the real patients that are more old and in the clinical trials, attracted so many participants as we had to use the overflow room to accommodate everyone. This is a sign that there is a great interest and need to discuss the target patient profile of Pepaxti, and that there is a need to complement immunotherapy. As mentioned, it's encouraging to see that quarter-over-quarter grow our prescriber base. And what we can conclude is that there is still a lot of room to continue this trend, both through our own activities and through peer-to-peer accommodations. The heat map for Germany is visualizing how we are broadening sales of Pepaxti, even though Germany is a scattered market and we have many customers, focusing on the highly populated areas is of importance. And these areas are the most crowded with many pharma companies working to build awareness, and at the same time, many physicians starting to restrict access to pharma. The challenge for us is that we are a small company and the only company launching PBC, while there are many companies launching [indiscernible] opportunity, how we are unique. We have a unique product that really delivers in real life. And as physicians gain experience, they appreciate Pepaxti and they continue to use. We have resiliency, and we are continuing to capture potential step by step. Italy is the second largest market and was the strongest contributor to demand growth in the third quarter. Italy is an excellent example of how better understanding and awareness of Pepaxti gives positive clinical experience already ahead of launch and with a more centralized prescriber base can directly translate into change of prescribing behavior when physicians now get access to Pepaxti. In the third quarter, we reached 90% access at hospital level, and we now only have one high-potential region left to fully unlock. Looking at the strong collaboration between our local field team and prescribers continues to drive performance, confirming that Pepaxti is making a meaningful difference for patients, with encouraging real-world data from Italy presented at the IMS Annual Meeting. This data is highlighting Pepaxti's effectiveness and tolerability in heavily pretreated patients, further supporting uptake in peer-to-peer advocacy. In Italy, we have several investigators from our clinical development program. And already now, we have one investigator-initiated trial ongoing to close an important evidence gap. To conclude on Italy, we have a strong start of the launch and a very promising foundation to build on. [indiscernible] and is demonstrating the evolution on the Italian launch. We sold the first vials already in Q1 ahead of plan. We started to gain regional access in Q2, and we now have a fairly broad base of prescribers already in Q3. Spain stands out as modular scalability for our commercial approach. We now have full regional access across the country. This means we have seen orders from all the regions in multiple myeloma patients, and this is another milestone achieved. Also in Spain, we see scientific progress and launch supporting activities progressing. The real-world data from Spanish investigators presented at the IMS Annual Meeting is the first of its kind, as all patients are previously treated with a bispecific antibody. And given that this drug class is recently launched, we don't have data from our clinical program on how these patients respond to Pepaxti, which is why it is so important and very encouraging to see that also in this patient group, Pepaxti [indiscernible] is confirmed. Just like in Italy, we have an investigator-initiated trial running. And in Spain, the focus is not only on Pepaxti, but also generating evidence in the preclinic for our PDC platform, which can support our partnership discussions for other PDC. Spanish [indiscernible] full coverage of the country, and now it's about increasing the number of prescribers and ensuring more patients are getting Pepaxti, already in fourth line to continue to accelerate the sales for Spain. Moving to partnerships. In addition to the ongoing negotiations with Japanese partners, we continue to explore other deals. In fact, earlier this week, I attended Europe, where we had many interesting and promising first discussions with different types of partners for both Pepaxti and our pipeline. To share a very brief summary and reflection, there is an increased interest to look into NK cell engagement as a result of that the T cell space is being becoming crowded. In addition, indications with extremely high unmet needs like glioblastoma, is of interest to many companies. That this is not only us finding our pipeline strategic interesting, but also many partners are showing interest and want to understand the many opportunities we have at Oncopeptides [indiscernible]. Discussions will continue, and we will keep the market posted. Our current partnerships in South Korea, our partners SCBIO, has a program for Pepaxti, providing full financial support to patients with triple refractory multiple myeloma patients. The program [indiscernible] in Asia beyond the clinical development program, with the first patient being treated at St. Mary Hospital. This initiative not only broadens Pepaxti's global footprint, but also underscores its recognition as a meaningful treatment option for patients with few remain [indiscernible]. The next stage in South Korea is a regulatory submission, which our partner is working towards. We continue to build our PDC platform with Pepaxti leading the way, serving as a proof of concept for the technology. In parallel, we are advancing our SPiKEs platform, focusing on NK cell engagement for oncology, hematology, and autoimmune disease. Both programs illustrate our broader strategy to grow geographically, to partner smartly, and innovate purposely. I will not elaborate more on the pipeline right now as I will get more into details in our upcoming Capital Markets update next week. And before I conclude, I would like to remind everyone about this event, which is on November 13 from 9 to 12 Central European time. will be an online event broadcast here from Stockholm featuring leading myeloma experts, key stakeholders of Oncopeptides, and myself, who will give an update on the future of Oncopeptides, focusing on opportunities beyond what is our core today. If you haven't already, I encourage you to register via our website. It will be an insightful session on both our commercial progress and scientific road map. To summarize, we have a growth momentum. We are now delivering the fourth consecutive quarter of double -- of growth, tracking towards profitability by end of 2026. We have a strong European foundation. Pepaxti is fully approved and reimbursed in key markets, representing about half of the total European opportunity estimated at SEK 1.5 billion per year. We are expanding globally, advancing negotiations ongoing for Japan, and with established partnerships already in South Korea, Africa, and EMEA. We are demonstrating scientific progress with real-world data publications, guideline inclusion, and investigator-initiated trials in all markets, which are strengthening Pepaxti's position. We have an innovative pipeline with next-generation PDC SPiKEs platform that offers long-term growth potential in oncology, hematology, and immunology. And with solid execution, disciplined cost management, and growing market endorsement, Oncopeptides is well on track to deliver sustainable value creation. That concludes the presentation, and I would like to open up for questions. Operator: [Operator Instructions] The next question comes from Richard Ramanius from Redeye. Richard Ramanius: I have a few questions. I'll take them one by one. The first one is how do vacations impact sales exactly? Is that due to sales representatives being on holidays, since I assume patients who are sick are going to continue being treated and doctors continue treating them? Sofia Heigis: Thank you for the question. So it's actually a mix of several different aspects. One is just as you said, that we are, of course, committed to give our teams vacation. So our activity is reduced during certain periods over summer time like in all businesses. But it's also important to note that when the HCPs go on vacation, and in particular in Germany, where you have office-based clinics, there are quite many times quite few HCPs seeing these patients. So they are having fewer patient visits basically. And of course, if multiple myeloma patients are progressing and they will still get treatment. And that is, of course, why we still see growth because the physicians have learned to identify the patients for Pepaxti better, also without us being there as frequent. But I would argue that those are the 2 main factors. So it is really relating to less in the offices and of course, lower activity for Pepaxti. Richard Ramanius: Then I had a question about costs, which decreased quarter-over-quarter. Is this going to carry over into next quarters? Or are Q1 and Q2 more representative of future costs? Henrik Bergentoft: Thank you, Richard, for the question. So what we have said is that we have established an organization that is in place to take us towards profitability next year. And the benchmark we have set out is really the cost base for 2024 that, that will more or less continue onwards to give just to repeat what we have said before. But answering more directly to your question, Q1 and Q2 is more representative for the final quarter because Q3, by natural reasons, contain less activities as compared to the fourth quarter. Richard Ramanius: Yes. I understand. I also looked at the heat maps that Sofia presented from the various countries. And I noticed, especially Italy seems to have a higher growth trend than Spain and -- or uptake and Spain higher than Germany. Would you agree to this? And this trend, you could extrapolate into 2026? Sofia Heigis: I would definitely agree to that. That's a very good analysis made of you. And it comes, of course, with the experience ahead of launch in the different countries where we have previously said that both Italy and Spain, they have more experience from our clinical development program. In Spain, we have the chance to have quite a few patients in early access because luckily price negotiated [indiscernible] experience in this current treatment landscape is really giving the prescribers confidence from the very start. Then another aspect that I mentioned many times before, but I think it can be repeated is that [indiscernible] and Italy are commonly faster uptake in multiple myeloma due to that they have a more centralized prescriber base. So they have pure hematologists, specialists on multiple myeloma prescribing, meaning that every physician see more patients. When it comes to Germany, that is a more scattered market where we have office-based physicians, and they see all the different oncology and hematology indications, and fewer patients per prescriber. And that is together with basically no chance to prepare the launch based on where the Oncopeptide financial situation when the price is then making Germany stand out to be a slower market if you look at the launch uptake from the very start. Italy is for sure the strongest and then Spain. Operator: [Operator Instructions] There are no more phone questions at this time. So I hand the conference back to the speakers for any written questions and closing comments. Henrik Bergentoft: Thank you. And there are a couple of written questions. The first one is, can you comment on October sales? Sofia Heigis: I almost anticipated that question as we actually did comment on July sales in our last report. And we did that due to that we had the rights issue, and we wanted to be as transparent as possible. So what I can say to October as we are not really assessing sales or sales per month per quarter. But as I shared throughout my presentation, we have a very strong momentum in our markets. During the month of October, we have had all the annual hematology site meetings take place both in Spain, in Italy, and in Germany during this month. Late September we had [indiscernible], and in the annual meetings, you have the top [indiscernible] in the countries, but also many prescribers. And that gives us a great opportunity to really pressure test where we stand, gain insights, and also engage, of course, a lot with these physicians. And all in all, the outcome of those meetings and symposia mentioned in Germany, where we had to use the overflow, which is actually quite rare, is very positive. So we are seeing in October that really -- as I mentioned, we're seeing how the guidelines are starting to kind of kick in, and we are seeing a very good sentiment in the markets. Henrik Bergentoft: Question on timeline for [indiscernible]. Sofia Heigis: Yes. So when it comes to the SPiKEs platform, we are -- it's a very -- as many of you know, NK cell engager, that's novel, it's innovative, and it's new. And that is why it requires more work in the preclinic because the preclinical data will inform how you go about in the clinic, which is a much, much higher investment. So you want to do the right studies in preclinic to inform your clinical program to really ensure that you make the right investment at that stage. So we are currently still in preclinic. We also need to do formulation work because these are new assets. And when it comes to the timeline, I would refrain from comment on that because it actually has to do with finances, either if Oncopeptides will be able to finance or if a partnership would be able to finance. And when it comes to partnerships, we have interesting discussions. But as we know both from Oncopeptides and other companies, these type of discussions takes time. So I would like to refrain from commenting on when we can enter because it really comes down to both the preclinical efforts we are making to build kind of a good direction for the clinic, but also the financial situation. Henrik Bergentoft: And speaking of timeline, last question, do you expect that Japan [indiscernible]. Sofia Heigis: So like I mentioned, the discussions are advancing well. We still are advancing with the partner we have been talking about before, but we also have interest from several other partners that we are discussing with to ensure that at the end of the day can conclude the best possible deal. When it comes to the timeline, it's a lot due to the internal processes and governance on the Japanese partner side because Oncopeptides is a small company and we operate with what would be argued a fair speed. But in Japan, there is a culture and [indiscernible] so where they have a lot of committees and where they seek consensus, and they need to go through these committees, we are not controlling the timeline. What we are controlling is that we are progressing, ensuring that we are working towards the best deal possible. Henrik Bergentoft: With that, the Q&A session is concluded, and you want to give some final remarks, Sofia? Sofia Heigis: Yes, sure. So first of all, thank you, everyone, for joining us and listening to us [indiscernible] today with 4 consecutive quarters of strong growth, increasing scientific recognition, and the strengthened financial foundation, we are now entering the final quarter of 2025 with both focus and confidence. We continue to execute with discipline. We will continue to work to expand access to Pepaxti across Europe and in the rest of the world, and we are still progressing towards our profitability target for 2026. And I am looking forward to seeing many of you again at our Capital Market update next week on November 13. So thank you so much, and have a great day.
Operator: Ladies and gentlemen, hello, and welcome to the bpost Group Third Quarter 2025 Analyst Conference Call. On today's call, we have Mr. Philippe Dartienne, CFO. Please note, this call is being recorded. I will now hand over to your host, Mr. Philippe Dartienne, CFO, to begin today's conference. Please go ahead, sir. Philippe Dartienne: Thank you very much. Good morning, ladies and gentlemen. Welcome to all of you, and thank you for joining us. I'm pleased to present to you our third quarter results as CFO for the bpost Group. Chris, our CEO, could not make it today, and I have with me Antoine Lebecq from Investor Relations. We posted the materials on our website this morning. We will walk you through the presentation, and then we'll take your questions. As always, 2 questions each will ensure everyone gets a chance to be addressed in the upcoming hour. I'll start with the quarterly financials, then move on our financial outlook and provide an update on our key transformation initiative for 2025. As you can see on the highlights on Page 3, our group operating income for the third quarter amount to EUR 1.030 billion, remaining broadly stable year-on-year and almost at constant scope as Staci has already contributed for 2 months in the same period last year. As usual, the summer quarters show some seasonal softness, but beyond this, we saw a mix of different factors. At Radial U.S., we continue to see the expected impact for the 2024 contract termination, but even more this time, the materialization effect of those announced earlier this year. As a reminder, these are the same ones that led us to take an impairment at the beginning of the year. Altogether, those elements more than offset the extra month of Staci contribution in the quarter. At the same time, we continue to see good volume growth in Asian cross-border activities. While in Belgium, the domestic mail volumes declined, this was partially compensated by a decent volume growth in Parcels. Our group adjusted EBIT came at minus EUR 3 million, representing a year-on-year decrease of EUR 16.3 million, mainly driven by Radial U.S., where despite sustained margin action, the revenue shortfall due to the anticipated churn and seasonal softness did not allow full absorption of fixed costs in the quarter. More broadly, at bpost Group level, the results we are presenting today are in line with our expectations, and we reconfirm our EBIT outlook at around EUR 180 million for the year 2025. On Slide 4, you will note that the EUR 14 million decline in net profit mirrors the EBIT evolution as in the same period last year, the acquisition of -- the acquisition debt was already on balance sheet and the financial results remain broadly stable. Let's move now to the details of our 3 segments. I'm on Page 5 with BeNe Last Mile segment. We see that the revenue declined by EUR 9 million, amounting to EUR 512 million. Domestic Mail recorded around EUR 16 million decline in revenue, of which EUR 10 million stemmed from transactional and advertising mail and EUR 6 million from press. Excluding press, mail volume contracted by 9.4% in the quarter compared to only 6.7% last year, which had benefited from the election uplift in September 2024. The decline in mail volume had a negative revenue impact of around EUR 20 million, of which was partially compensated by half through a positive price and mix effect of EUR 4.7 million or roughly EUR 10 million. As a result, domestic mail revenue were down by 4.6% or minus 10% year-over-year. On Parcels, revenue increased by EUR 4 million or 3.2% year-on-year, reflecting a volume growth of 2.8% and a slightly positive price/mix effect of 0.5% in this quarter. On the volume side, the reported 2.8% actually corresponds to an average growth of 4.4% per working day. Over the past months, this momentum has been mainly supported by the outperformance of marketplace, notably boosted by sales events and continued strength in the apparel segment. Let's move to the P&L of Last Mile on Page 6. Including some higher intersegment revenues from inbound cross-border volumes handled in the domestic network, our total operating income was slightly down by 1.4% or minus EUR 8 million. At the same time, on the cost side, our OpEx, including D&A, remained broadly stable and mainly reflects 2 effects: lower FTEs resulting from lower volume and efficiency gain, notably from the reorganization of our distribution rounds and retail offices, which are progressing in line with plan, and on the other hand, higher salary cost per FTE around up to 2% year-over-year following the March '25 salary indexation. In contrast with the first half of the year, when EBIT had contracted sharply by almost EUR 64 million year-on-year, mainly due to the end of the press concession in June '24, we see that despite structural mail decline, parcel growth and initial projects of -- sorry, and initial effects of our reorganization are helping to attenuate EBIT erosion. Moving on to 3PL on Page 7. 3PL revenues were broadly stable overall as 2 offsetting events affecting -- came into play. First, effect. 3PL Europe, where revenue increased by EUR 62 million, we benefited from 1 additional month of Staci revenue in the quarter, along with continued commercial expansion of Radial and Active Ants in Europe. That said, sales from existing customers or the famous same-store sale remained soft and even negative in certain geographies during the quarter. As a side note, since we are 1 year after the acquisition of Staci, there will be no further consolidation impact going forward. As we are now advancing in the integration of Staci, Radial Europe and Active Ants, we are really starting to operate as one single business unit as explained at our Capital Market Day in June. Our P&L is being increasingly managed together, this means that from now on, we will only report on 3PL Europe as one single business and gradually phase out stand-alone reporting from individual entities. Second effect, in 3PL North America, revenue decreased by EUR 58 million. At constant exchange rate, this corresponds to a decrease of 24%, mainly driven by revenue churn from contract announced in 2024 and even more so from those announced early '25, partially offset by in-year contribution of new customers, around 60% of which are Radial Fast Track customers as we presented to you at our Capital Market Day. While we are seeing positive and encouraging signs on that front, and I'll come back to that on a moment, we are still feeling the impact as expected of the churn. We continue to execute our sales development plan, and we are confident that these efforts will pay off, but it needs a bit of patience. Let's move on to the P&L of 3PL on Slide 8. With this, the total operating income slightly increased by 1.1%, while our operating expense and D&A increased by 4.8%, primarily driven by in Europe, Staci consolidation impact and one-off reorganization costs, including site closures and relocation of customers to further accelerate 3PL Europe integration and cost structure optimization. In North America, lower variable OpEx in line with the revenue development at Radial U.S., and sustained variable contribution margin close to record high level. The EBIT evolution at Radial U.S. is certainly one of the key highlights of this quarter performance and also the main reason for the gap versus market expectation. Despite 1 additional month of Staci contribution, the minus EUR 30 million EBIT decline in 3PL from plus EUR 1.7 million last year, indeed clearly reflects the situation at Radial U.S. After 3 consecutive years of contraction, revenues are now about 45% below their peak level in Q3 2022. In this quarter, the combined effect of churn and seasonal softness limited our ability to fully absorb fixed costs despite strong VCM discipline and tight cost control. Ironically, we are now at a point where revenue have reached their lowest level ever, and yet our VCM margin stands at all-time high. Looking ahead, the solution lies in top line recovery, and on that front, we are executing our plan and making good progress. Moving on to cross-border on Page 9. Cross-border Europe revenue increased by EUR 11 million or plus 14% year-over-year. This growth was driven by strong volume increase from Asia across all major destinations, notably Belgium, fueled by large Chinese platform and U.S. Across-border North America, Landmark Global continues to face the broader tariff environment that is weighing on existing business and delaying new opportunities. However, this was offset by strong domestic volume in Canada, resulting in an overall plus 1.4% revenue increase for North America, including a 6% negative FX impact. Overall, our cross-border operating income increased by roughly $12 million or 8.7%. As shown on Page 10, our OpEx and D&A increased at the same time by 9.6%, mainly reflecting higher transportation costs linked to the volume growth I just mentioned. EBIT slightly increased to above EUR 17 million with a margin of 11.5%, reflecting a slight dilution from commercial products. Moving on to Corporate segment on Page 11. Adjusted EBIT improved by EUR 1 million to minus EUR 9 million as cost containment measures across spend categories helped offset higher payroll driven by more FTEs and March '25 salary indexation. Then we move to the cash flow on Slide 12. The net cash outflow for the quarter amounts to minus EUR 16 million, representing an improvement of EUR 275 million year-on-year, mainly reflecting the acquisition of Staci last year, which was partially funded in cash for a bit less than EUR 300 million. Besides that, the remaining items to flag are the following: Cash flow from operating activities before change in working cap stood at EUR 71 million and decreased by EUR 7 million year-over-year, mainly reflecting higher corporate tax payment. Change in working capital and provision amounted to EUR 17 million. The plus EUR 16 million variance is primarily explained by the settlement of some terminal dues and some client balances. The net cash outflow from investing activities totaled EUR 28 million, driven by our CapEx for international e-commerce logistics, parcel lockers and capacity expansion. Also, our domestic fleet was considered into this EUR 28 million. This item constitute the main variation in our free cash flow. The net cash outflow for financing activities amounted to minus EUR 776 million and mainly consisted of lease liabilities outflows, while we had on top of the acquisition debt last year. This brings us now to the outlook and our strategic priorities of 2025. Outlook 2025. We presented our group EBIT outlook of the range EUR 150 million to EUR 180 million back in February, and during the Q2 results in August, we indicated that we were targeting the upper end of the range. With a year-to-date EBIT of EUR 97 million, the results we're presenting today are broadly in line with our plan, now allowing us to confirm our full-year outlook at around EUR 180 million. This implies achieving an EBIT of around EUR 80 million to EUR 85 million in Q4 compared with EUR 80 million in the same quarter last year -- sorry, compared to EUR 84 million last year, which we are cautiously optimistic about. Based on current assumption and expectation, we believe this is achievable, particularly thanks to our preparation and readiness for an efficient peak execution across the group. In North America, we validated client volume capacity plan. We have secured to hiring over 4,100 seasonal workers to ensure full site coverage and put peak incentive plans in place. In BeNe Last Mile, beyond the usual measures, we have implemented additional productivity initiatives, including tracking performance at each distribution offices and site and setting up a national tool to further optimize interim and reinforcement of the planning. Of course, we remain vigilant amid challenging market conditions, notably as volume development and the phasing out of end of year peak volumes in Belgium and internationally remain uncertain and partially beyond our control. To wrap up on our outlook, we are also updating our CapEx guidance with a downward revision from EUR 180 million to EUR 140 million. This reflects our disciplined approach to spending in Belgium and in the U.S. and a strategic phasing towards 2026. Overall, we remain focused on prioritization and value creation, ensuring that every euro invested is where it has the highest impact in the group. Finally, as we usually do, I take a few minutes to walk you through the progress we've made on our transformation plan over the last months as part of our Reshape2029 journey we presented to you at the Capital Market Day. When it comes to the update on the strategic initiative, bpost continues to accelerate its transformation, shifting firmly towards becoming an international logistics and parcel operator. Let me walk you through the tangible progress we've made across our segment. I'll start with BeNe Last Mile. Following 2 successful pilot phases, we launched our 9 delivery service on October 15. As new B2B service consisting in a 9-time delivery solution targeted at technician and field workers that helps eliminate detours from central depots and save up to 1.5 hours per day for these technician and field workers. In practice, parcels are collected by bpots until 6:00 p.m. on working days, sorted overnight and then delivered before 7:00 a.m. to selected parcel lockers of our network across Flanders, Brussels and Wallonia. The service is exclusively available for B2B shipment, internal deliveries or business-to-business exchanges requiring high level of reliability. Meanwhile, still in Belgium, our bbox network of parcel lockers continue to expand strongly. We have now around 2,000 active units with 800 more contracted, most of them located in prime location and high-traffic venues like supermarkets. As announced recently with Lidl, we target to have 240 lockers by the end of this year, which represents nearly 10% of the targeted APM capacity. We currently install up to 12 new lockers per day, and by the end of this year, we intend to have 2,500 lockers installed in Belgium. On our future operating model, one of the pillar is bulk rounds, consisting in dedicated parcels round in bulk, serving pickup and drop-off points, including lockers. Here as well, after a successful pilot phase, this model is now fully operational across all sorting centers, servicing 26 distribution offices and handling over 12,000 parcels a day. Before end 2025, we will extend to 29 offices with a capacity close to 21,000 parcels a day. This bulk model is set to become a cornerstone of our 2026 peak strategy capable of managing nearly half of the out-of-home volumes. Let's shift to 3PL Europe. We are entering into a new chapter in leadership with Rainer Kiefer taking over as CFO of 3PL Europe and Staci Americas as of January 2026, succeeding Thomas Mortier, who announced earlier this year its intention to step down at the end of the year and will move into a part-time advisory role starting January 2026. Rainer brings extensive experience from DSV and DB Schenker with a strong track record in transformation and scaling across Europe. This appointment reflects our ambition to accelerate the transformation of the 3PL business, strengthen our European footprint and drive value creation across the full spectrum of contract logistics, fulfillment and omnichannel solutions. With Thomas supporting this transition and Rainer taking a help, we are confident that the business is well positioned to execute the next phase of our growth strategy. In parallel, the integration of Staci remains firmly on track. As cost synergies start to materialize in the second half of the year, we expect to overdeliver on our 2025 synergy targets. The 2026 targets are already secured, fully in line with what we presented to you at the Capital Market Day. In 3PL U.S., our Radial Fast Track rollout is ahead of our plan. 16 customers are already live and 2 more are set to launch in the fourth quarter 2025, each contributing an average ACV between EUR 4 million and EUR 5 million. The in-year revenue from Fast Track is already exceeding internal targets, providing strong momentum in U.S. and validating the scalable potential of the model. As Chris mentioned it last time, there's still a lot of work ahead of us, and the first results are not always immediately visible in the P&L. This is notably the case this quarter in the U.S. That said, we are confident that we are on the right track and focused on doing the right things to deliver sustainable results. We are now ready to take your questions. Again, questions each will allow every one of you to be addressed in the upcoming hour. Operator, please open the line for questions. Operator: [Operator Instructions] The next question comes from Frank Claassen from Degroof Petercam. Frank Claassen: My 2 questions. First of all, on Radial, minus 25% organically in Q3. Could you split the minus 25% between, let's say, the negative same-store sales and the impact of the churn? Is this, let's say, and what can we expect going forward? Is this the bottom? Or do you expect an improving trend in the coming quarters? That's my first question. My second question on Staci. I understand that you don't break down the EBIT anymore or give the separate EBIT. Could you elaborate on how the profitability is developing? Is it according to plan? I recall that you had a sort of guidance or, let's say, target of 10% to 12% EBIT for Staci. Is that still valid? Could you elaborate on that? Philippe Dartienne: Okay. Thank you for your 2 questions. Let's start with Radial. Indeed, we observed a severe decrease in the current quarter, which is mostly explained by the churn. Again, the churn coming that was announced in 2024 that has a full-year impact in 2025 and some churn that were announced at the beginning of the year, and then they're only materializing now. I have one very specific example in mind where the customer said, we're going to stop 1 of the 2 warehouses in the first -- sorry, in the third quarter, so meaning now. This is part of the explanation and this is the bulk of it. Same-store sales evolution is not positive, but nowhere near what we observed in the recent quarters. If you recall, we had a terrible sequence of -- if it's in 2024, minus 4 at the beginning of the year, we peaked, wrong word, but it's a high amount, even it's a negative one, around 9% in the fourth quarter 2024. The beginning of the year was also in negative territories, lower than the minus 9%. Now we are slightly negative, but it's not what it mainly explains the different impact on the EBIT. Simply why? Because the basis at which it applies is also by far lower. This being said, very important to notice that the variable contribution margin has been extremely high, again, sustained quarters-after-quarters, which is a positive sign. That's for Radial. Sorry, and there was a subset in your question about what is the trend. The trend for us is twofold. We have launched in the first quarter of this year, our new product offering or service offering, which is Radial Fast Track that aims at offering solutions which are more flexible, standardized, easy to onboard type of solution, also very asset-light in terms of CapEx and automation, and it's picking up. It's picking up. We have signed 16 customers. We will onboard another 2 between now and the end of the year. Also, important to note is that we will be onboarding customers nearly close to the peak, which is -- which shows how flexible this solution is to onboard new customers. Historically, it was taking roughly 12 months to onboard new customers at Radial because of the high level of customization in the processes and also in the IT systems. In terms of trends, we are optimistic about the product that we have launched because we see it's picking up. There is traction on the market. On the other hand, we need to be realistic. When we are losing customers average size between EUR 50 million and EUR 70 million, while the ACV of the Fast Track typical customers is around 5. You can do the math as well as me. It takes time to be able to compensate this churn. We are also not aware of any new customers who have announced their departure in the near future. That's for Radial. For Staci, it's going according to plan. Yes, it's going according to plan. The EBIT margin is a bit on the low end of the range this quarter, which is mostly explained by the fact that, as I said it, and again, we already announced that there is no news in that one that we want to operate on a geographical platform as one entity, one go-to-market. We have several territories, like Belgium, the Netherlands, U.K., Germany, Italy, where we're really operating as one. The local managers there, they look at their portfolio of customers, what is their needs, what is the solution, the operational solution available to serve those customers and also the footprint. Some movement has been already initiated to relocate customers where they better fit with the requirement of the customer and also optimizing the footprint. It's also the case in the U.S. where one warehouse has been shut down and customers have been transferred to a new site. In Germany, the former site of Staci Germany in Boston has been shut down and customers has been transferred to a former Radial site in Halle. In the Netherlands, in the Active Ants portfolio, we have decided to close 1 of the 2 warehousing in Nieuwegein and those customers have been transferred to Roosendaal. This cost -- these transfers demonstrate that we really want to operate at a local level as one, but it has, unfortunately, on the short term, some cost. There is cost attached to shutting down warehouses and to move customers. It's all for the better. It's to serve the customer in the best possible way and the most efficient way on those territories. Operator: [Operator Instructions] The next question comes from Henk Slotboom from The Idea. Henk Slotboom: One question from my side. We've been hearing a lot about levies on Chinese goods. The French want to do it unilaterally. The Dutch have already said, they might follow the French maybe already as soon as the 1st of January of next year. Now personally, I don't think that EUR 2 per parcel will stop the avalanche of parcels to Europe. It will simply be relocated. What does the situation look like in Belgium? I don't know, if they have similar ideas to do things unilaterally. Well, could it be the case that you benefit from it if stuff is not flown at Schiphol Amsterdam Airport, but at Liège or Brussels instead provided, of course, there are no drugs over there. Philippe Dartienne: Thank you for your question, Henk. Indeed, the situation in Belgium is that the government is thinking of putting EUR 2 per parcel levy. Now it leads to a lot of questions. There is also who's going to collect this EUR 2, which is a very practical problem, and there is no answer to that. Of course, we are not -- we are there to carry the parcels. We are not there to collect this kind of surcharge or taxes levies, whatever you name it. There will definitely be a question of implementation. Interestingly enough, we had a discussion yesterday with one of our Board members who is coming from the Nordic, who faced a bit the same situation, and it took more than 12 months to find a technical solution to implement it. It's still an intent at this stage. There is no implementation date decided. Indeed, it will be difficult to implement. Your comment about, of course, if other countries are deciding for the levies, let's say, in the Netherlands, France, Germany, it could lead to additional volumes in Belgium, but anyway, it would only be a temporary solution. At this stage, it's a very good question, but it's a big question mark when it comes to the implementation date and also the practicalities behind it. Henk Slotboom: Can I ask an add-on to that, Philippe? Philippe Dartienne: Sure. Henk Slotboom: If I look at, for example, Austria Post or Polish Post and that sort of things, they've been entering alliances with, for example, Temu and Shein, who want to move part of their logistics and then I'm talking about warehousing and that sort of things to Europe. You have a fantastic network of fulfillment centers with Radial Europe, with Active Ants, with Staci. Is anything there being discussed with the large Chinese platforms? Philippe Dartienne: Again, a very good question from Henk, as usual. There are movements indeed, we see the Chinese are coming closer to Europe. They are also thinking of implementing themselves in Turkey, which is also close to Europe. Indeed, it's a movement that we see in the market, but I will not comment any further at this stage. Operator: The next question comes from Marco Limite from Barclays. Marco Limite: I've got 2 follow-up questions. One is on Radial U.S. Do we have to think about Q4 as the last quarter of year-over-year decline in revenues, and therefore, we should expect growth from next year? It’s the first question. Second question, on Staci Europe, I mean, if I look at the Q3 numbers, it feels like that most of the decline year-over-year is coming from Radial U.S. At the same time, you've got 1 month more of Radial Europe in the base now. We basically have got 3PL Europe being flat despite growth and despite an additional month. On top of that, you are also talking about synergies being ahead. Just the math doesn't work for me why year-over-year, things are flat despite tailwinds from synergies and an additional month. If you can clarify. Philippe Dartienne: Good. I'll start with Radial. No, in 2026, there still might be some decline in top line because there will be the full-year impact of the customer churn that we observed in 2025. Of course, the one announced in '24 will be over in '25, but there are some of them that will have an impact in 2026. This being said, what is really important for us to look at is the profitability and the cash generation profile and the quality of the portfolio. I really want to remind what we said at the Capital Market Day, not only we want to go for the mid-market, not to have big customers dependent on 2 big customers are requiring huge investment in terms of customization of system, high automation. We want to move out of that one, and they will be gradually phased out. We want to reinforce ourselves our presence in other type of customers. ACV of Radial Fast Track is in the range of 5 million, so totally different, but also and equally important in my eyes is also the portfolio itself in terms of the number of verticals where we want to operate in. In the past, it was focused on only 2. We really want to broaden that one, and we see first signs of result -- positive result going into that direction. Again, as I said, and again, I'm also repeating what we said at the time of the Capital Market Day, it's a long journey. It's not a 1- or 2-quarter journey. It's a long journey to move from big anchor customer focused or very capital intensive and focused on 2 verticals to something which is more nimble and flexible going forward. Again, the math plays against us when it comes in terms of timing. There will be a delay between the moment we could see growth again to be totally honest, transparent, but also totally aligned with what our forecasts are. There is nothing -- no news on that one. There is no change of strategy. There is no acceleration or degradation of the situation. It's happening as we had planned to do it. Marco Limite: Can I just follow up on this one? Is there a risk that more or other large customers are going to, let's say, leave Radial U.S. in the future because you are moving type of strategy and type of service? Philippe Dartienne: The risk is always there, Marco. This being said, interestingly enough, very interestingly, in our Radial Fast Track customers, we have 16 of them that we have new ones, but there is also 2 of them that were former old solution type of customers moved to Radial Fast Track. This also demonstrates that we have now with this solution, capabilities to address their demand. Marco Limite: Europe or 3PL Europe? Philippe Dartienne: Yes, I didn't forget. Don't worry. On Staci, the math add up, but there were maybe -- we need to remind all the elements of the equations. First one and is the vast majority, it's all about the costs relating to the optimization of the operations in different geographies in the U.S., in the Netherlands, in Germany, that explains the chunk of the fact that indeed, when you do the math, you don't see a growth when you come to Staci. There is also, but to a lesser extent, some softness in certain territories, and I'm mostly thinking about France, where the same-store sales has been negative in the quarter. On the other hand, as a positive note, in France, we are not seeing the departure of any customers. Operator: The next question comes from Marc Zwartsenburg from ING. Marc Zwartsenburg: I also have a bit of a follow-up on Radial U,S., because I think you mentioned you will also see a significant decline still in Q4, and that fits also with the story with the mentioning of the churn of the larger accounts. I think originally, there was a sort of a guidance of minus 10% to 20% a bit on the full-year top line, which would indicate still, say, mid-single-digit double digit, let's say, 15% maximum year-on-year decline if you plug in, say, minus 20%. Is that still an applicable guidance that we're looking at still a double-digit decline of around 15% for Q4? Just to get a bit of more feel on the movement of Radial because it's quite big numbers we're talking. That's my first question. Philippe Dartienne: You want me to take it immediately. It's more in the range of 15% to 20%. Marc Zwartsenburg: Q4, we're talking about? Philippe Dartienne: Yes. Marc Zwartsenburg: Then on the parcel volumes, so the working day adjusted number is plus 4.4%. That's a slight improvement from Q2, but how do you -- was that stable through the quarter? How are you looking to the big season? Do you already have a bit of an indication on the big events for Q4, what you expect there? Because I think also here, the guidance was more like a mid-single-digit to high single-digit growth. It looks now more like on the low end of the mid-single digits. What are your thoughts there? What kind of trends do you see? Philippe Dartienne: In fact, there is one very important element. It's not that it's totally new this year, but we see -- and typically in Belgium, we see more-and-more before the peak was very -- excuse me, very focused on 1 or 2 days. By the way, in Belgium, we have the peak, but with also Christmas and Sinterklaas. In fact, it's the month end of November and the month of December, which are, in fact, higher months. Unlike what we see in the U.S., when you see the peak, it's a couple of days. It's more spread all over that period, combined with the fact that we see more-and-more our customers, the one selling directly to the customers or through platform, offering throughout the year, promotion, discount and this kind of stuff. It's very difficult to predict how it will look like. But for sure, we see it's become that higher activity is spread over more days or weeks than it was in the past. Marc Zwartsenburg: Do you see September, October trending higher than the 4.4%? Philippe Dartienne: In that range. Marc Zwartsenburg: It's rather stable. That's currently the trend. Philippe Dartienne: Yes. Marc Zwartsenburg: Then lastly, I know you're not disclosing it, but could you give a bit of an indication of the EBIT contribution of Staci, because it's still important to model that properly also through the quarters because we saw quite a miss on the consensus on particularly the 3PL division and whether that's Staci or whether that's Radial U.S. or whether that's the extra cost, it would be helpful to have a bit more granularity. Can you help us there? Philippe Dartienne: I can help you in repeating what I told you is that the big chunk of the fact that it doesn't grow is linked to this optimization, cost optimization, operational optimization, which is the majority of the variance and the rest coming from same sourcing. You could count on. Marc Zwartsenburg: Staci have no growth on the revenue side and a bit of impact from the fine-tuning of the optimization of the warehouses. Is that how we should see it? Philippe Dartienne: Yes. Marc Zwartsenburg: How long will that take that optimization of the warehouses till when should we pencil that in that the margins may be a bit more at the low end? Philippe Dartienne: I would say -- in fact, the more the people will start working together and depending on the customer need, it might lead to additional ones. This one were the obvious one. I would say, in the next 2 quarters, I'm not expecting any site closures or major site closures now, but It's an ongoing process. Marc Zwartsenburg: For 2 quarters -- yes, exactly. We will see a little bit of double running costs in the meantime. Then after that, we should see the efficiencies coming through. Philippe Dartienne: I hope it will come faster, but it's not to be excluded that we might decide here or there to restructure on another warehouse. There is one that was already planned in the U.S. By the way, it was a journey, nearly 3 years journey at the time of the acquisition of Amware by Staci, they looked at the portfolio, and we were totally aware of that because it was an element that was shared with us at the time of the acquisition. They knew that they had a plan to restructure 3 warehouses. They have done 1 in '24. There is a second one in '25, and there will be the third one in '26. Marc Zwartsenburg: Then thinking about '26, we should see a higher EBIT than what we probably will see in 2025. Is that? Philippe Dartienne: Yes. Marc Zwartsenburg: The path towards your long-term outlook to see a higher EBITDA? Philippe Dartienne: Don't drag me into a budget discussion and a guidance for '26. We will come to you on that one when we publish the Q4, but I give you some element. I have the impression of painting an impressionist painting with dots of colors, some quantities. I'm doing some quantities on the U.S., but don't drag me where I don't want to be dragged. Marc Zwartsenburg: It's the time of the year budget. Operator: The next question comes from Marc Zeck from Kepler Cheuvreux. Marc Zeck: Two, if I may. First one on -- again, Radial U.S. Could you give us a bit of more color or feeling about, let's say, the top 5 customers at Radial U.S., how much of sales is that broadly speaking? For these customers, is there kind of a contract renegotiation period upcoming end of '25 or early in '26? Or is these contracts mostly locked in for a longer period of time? That would be my first question. Second question also on, let's say, the broader U.S. business. I believe we've seen quite a bit of pull forward buying into the U.S. imports for the first 9 months of the year were pretty good, I believe, into the U.S., but we see container imports or container arrivals at U.S. ports dropping quite sharply now in Q4. Is your business in the U.S. mostly related to ocean freight? Should we expect a bit of a negative business development on same-store sales as well for Radial U.S.? Or are you kind of air freight exposed from a product category where we still see quite good numbers, I would say, in the overall market? That's my 2 questions. Philippe Dartienne: Okay. Let me start with the second one. It's a bit of both. Of course, all your comments are valid. We are exposed to air freight and ocean freight. I give you a very practical example. In one of the customers that we have onboarded with Radial Fast Track is a fashion brand coming from Australia, who wanted to be implemented in the U.S. They wanted to have fulfillment there. We are hearing from customers, some other customers that they want to be in the U.S. rather than systematically air freighting stuff. By the way, it's no different than what we are seeing with the Chinese platform now. Let's refer to the comment or the question earlier on the Chinese who want to be implemented -- to implement themselves in Europe to avoid tariffs is the same that we are seeing in U.S. We have a very practical example, as I said, of one who really has decided to come physically in the U.S., and there, we have definitely a role to play and a good service offering. When it comes to Radial, I also want to -- do we have big renewal in the pipe for the coming quarters? The answer is no. We already have renewed some of them in the course of 2025. There, I want to reiterate something which is extremely, extremely important. In the past, what we saw at Radial, especially with the big customers, the situation was the following. They were asking for a lot of customization, a lot of automation that typically are passed on to the customer over a period of 6 to 8 years, while we were having contracts of roughly 4 years. At the same time, we had also our warehouses locked for a period of 7 to 8 years. In many instances, what we saw is the customer left or didn't renew the contract, and we were there even if there was some provision in the contract with unamortized portion of own developments and the liability linked with these warehouses. Since the last 18 months, all renewal or all new contracts signed are [indiscernible] with the lease of the warehouses. It's also important to look at what could be the impact of the customers. In fact, the Radial situation we are in right now is absolutely not the same as the one we saw years ago. Operator: Ladies and gentlemen, there are no further questions. I will hand it back to Philippe to conclude today's conference. Thank you. Philippe Dartienne: Thank you very much, guys, for your intense question session. Antoine is always there to do the follow-up with you in the coming days and weeks. Let's stay in touch. Next time, we'll see, we'll be able to demonstrate that we have executed the peak in a qualitative and efficient way. Thank you very much. Have a good day. Operator: Thank you for joining today's call. You may now disconnect.
Operator: Good morning, and welcome to The New York Times Company's 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 Anthony DiClemente, Senior Vice President, Investor Relations. Please go ahead. Anthony DiClemente: Thank you, and welcome to The New York Times Company's Third Quarter 2025 Earnings Conference Call. On the call today, we have Meredith Kopit Levien, President and Chief Executive Officer; and Will Bardeen, Executive Vice President and Chief Financial Officer. Before we begin, I would like to remind you that management will make forward-looking statements during the course of this call. These statements are based on our current expectations and assumptions, which may change over time. Our actual results could differ materially due to a number of risks and uncertainties that are described in the company's 2024 10-K and subsequent SEC filings. In addition, our presentation will include non-GAAP financial measures, and we have provided reconciliations to the most comparable GAAP measures in our earnings press release, which is available on our website at investors.nytco.com. In addition to our earnings press release, we have also posted a slide presentation relating to our results on our website at investors.nytco.com. And finally, please note that a copy of the prepared remarks from this morning's call will be posted to our investor website shortly after we conclude. With that, I will turn the call over to Meredith. Meredith Kopit Levien: Thanks, Anthony, and good morning, everyone. Q3 was another great quarter across the board at The Times. Our results affirm that our strategy is working as designed. We have world-class journalism and a portfolio of leading lifestyle products in giant spaces where people spend a lot of time. Those products are so valuable that people seek them out by name, form habits and make room for them in their daily lives. And our multi-revenue stream model with subscription, advertising, licensing and affiliate revenue lines that are all growing gives us multiple ways to monetize that value. The media and technology environment is changing rapidly, presenting significant opportunities for companies with the talent, products, intellectual property and brand equity to successfully capitalize on those shifts. The Times is one of those companies. We have a long track record of evolving to meet changing markets and new consumer needs. That, combined with our clear strategy and strong economic foundation gives us real confidence that we're well positioned to keep building a larger and more profitable company for years to come. Now let me share a few highlights from the quarter. We added 460,000 net new digital subscribers, bringing our total subscriber base to 12.3 million. This puts us further along the path to our next milestone of $15 million. These results reflect the value of having multiple levers across our full product portfolio to drive subscriber growth. Digital subscription revenue increased by 14% in the quarter, propelled by strong audience engagement across the enterprise. That engagement is evidence of our continued ability to deliver increasing value to users. We're doing this in several ways by expertly and ambitiously covering the most important news, by expanding our efforts in video, audio and AI to make our reporting more accessible to more people and by making each of our products more valuable with new content, shows, features, games and other enhancements. In Q3, we advanced all these priorities. We substantially grew the amount and impact of our video journalism in news and across the portfolio, both on our platform and in the scaled places where people are consuming it. We've now turned most of our award-winning podcasts into video shows that demonstrate both The Times convening power and our ability to influence the conversation across news and culture. We made video a more prominent part of our flagship Times app with a new watch tab and featured placements on our home feed. In cooking, we're expanding the library of both instructional videos and entertaining shows. And at The Athletic, we are now enhancing our signature analysis and reporting with NFL game footage. We also continue to innovate around our use of AI in the quarter. More and more people are using automated voice to engage with our news report. We're using AI to improve personalization, targeting and monetization across our customer journey, marketing and ad products. And AI now powers features like metric conversion on recipes and richer search on Wirecutter. Beyond video and AI, we keep adding value to our games portfolio. This quarter, we launched a new logic puzzle, Pips, which is off to a great start. Turning to advertising. We had another really strong quarter with digital advertising growing over 20% and total advertising growing nearly 12%. This performance reflects how our strategy to create a larger, more durable digital ad business is working. That entails having a portfolio of compelling products in spaces with broad marketer appeal in addition to news, particularly sports, games and shopping, a large engaged audience that marketers can target effectively and a growing supply of high-performing ad products across a range of formats. Licensing and affiliate revenues also grew in the quarter. The growth in licensing, in particular, is another proof point for how we're able to monetize the increasing value of our products. Finally, we stayed disciplined on expense growth in the quarter even as we invest into our journalism and product experiences, which is a source of our long-term advantage. I'll close with a few thoughts on our path ahead. What we do has never been more important or more valuable. Our independent journalism, trustworthy information and compelling product experiences help people understand the world and lead richer, fuller lives. Even in an environment where the moves of big tech companies are leading to less and less traffic for publishers, we see large and persistent demand for what we do. Against a backdrop of a changing ecosystem, we are confident in our ability to widen the number of people who use and engage deeply with The Times on and beyond our own platforms. That means becoming even more essential to even more people. And as we do that, we expect to deliver even more value for shareholders and for society. With that, I'll turn it over to Will for more details on the quarter. William Bardeen: Thanks, Meredith, and good morning, everyone. As Meredith described, our 2025 third quarter results demonstrate another strong quarter for subscriber growth, revenue growth, AOP growth, margin expansion and free cash flow generation. We saw healthy growth across our multiple revenue streams again in the quarter and continued to make disciplined investments aimed at further differentiating our high-quality journalism and digital products. Year-over-year, consolidated revenues grew approximately 9.5%, AOP grew by approximately 26% and AOP margin expanded by approximately 240 basis points. We generated approximately $393 million of free cash flow in the first 9 months of the year, which reflects our capital-efficient model. We also benefited in Q3 from lower cash taxes paid due to the recent change in tax law that allows us to fully deduct R&D expenditures in the current year. Over that same period, we returned approximately $191 million to shareholders consisting of approximately $110 million in share repurchases and approximately $81 million in dividends. This is consistent with our capital allocation strategy of returning at least 50% of free cash flow to our shareholders over the midterm. Now I'll discuss the third quarter's key results, followed by our financial outlook for the fourth quarter of 2025. Please note that all comparisons are to the prior year period unless otherwise specified. I'll start with our subscription revenues. We added approximately 460,000 net new digital subscribers in the quarter, bringing our total subscriber count to approximately 12.3 million. Subscriber growth came from multiple products across our portfolio. We also continue to be pleased with the rollout of our family plan subscription offering. Total digital-only ARPU grew 3.6% to $9.79 as we stepped up subscribers from promotional to higher prices and raised prices on certain tenured subscribers. We continue to be encouraged by the results we're seeing at pricing step-up points, which we believe reflects the value we continue to add into our products. As a result, we remain confident in our ARPU trajectory. With both higher digital subscribers and higher total digital-only ARPU in the third quarter, digital-only subscription revenues grew approximately 14% to $367 million. Total subscription revenues grew approximately 9% to $495 million, which was in line with the guidance we provided for the quarter. Now turning to advertising revenues. Total advertising revenues for the quarter were $132 million, an increase of approximately 12%, which is higher than the guidance we provided for the quarter. Digital advertising revenues also came in above the guidance we provided, increasing approximately 20% to $98 million. The strength in digital advertising was due mainly to strong marketer demand and new advertising supply. Affiliate licensing and other revenues increased approximately 8% in the quarter to $74 million, primarily as a result of higher licensing revenues. Adjusted operating costs grew 6.2%. This was just above the 5% to 6% guidance range that we provided last quarter. Adjusted diluted EPS in Q3 increased $0.14 to $0.59, primarily driven by higher operating profit. I'll now look ahead to Q4. Digital-only subscription revenues are expected to increase 13% to 16% and total subscription revenues are expected to increase 8% to 10%. Digital advertising revenues are expected to increase mid- to high teens and total advertising revenues are expected to increase high single to low double digits. Affiliate licensing and other revenues are expected to increase mid-single digits. Adjusted operating costs are expected to increase 6% to 7%. We intend to continue operating efficiently while making disciplined investments in our high-quality journalism and digital product experiences that add value for our audiences. In summary, our essential subscription strategy is continuing to work as designed with a valued product portfolio, multiple revenue streams, significant free cash flow generation and a strong balance sheet, we believe we are well positioned to navigate a dynamic market environment. As we enter into year-end, we continue to expect healthy growth in revenues and AOP, margin expansion and strong free cash flow generation for the full year. With that, we're happy to take your questions. Operator: [Operator Instructions] Our first question comes from Thomas Yeh with Morgan Stanley. Thomas Yeh: Two, just on the video formats, I was hoping you could dimensionalize the opportunity around that push. I think the big focus sounds like it's centered on building engagement and brand. But I guess, how should we think about how it affects advertising? Do you see this as maybe another aperture for expanding into video advertising opportunities? And then also maybe just touching on what kind of incremental investment needs this push might entail? And then secondly, on the family plan, it looks like it now represents 2% of your digital-only subscriber footprint and looks like it also came through predominantly on the game side versus the bundle. Can you talk about just what stage of the rollout you're in? And if there's any appetite to push further on that in terms of maybe restricting sharing somehow on your non-family plan? Meredith Kopit Levien: I'm happy to take both those questions, Thomas. Let me start on video. I think the first thing to say is we think it's a big opportunity for the company, and we're in early days of it. We know lots and lots of people are seeking out and getting their news and the other kinds of content we make in the form of video. And so we think having more video gives us a big opportunity to engage the people we already have more and to engage even more people and to do that both on and off our platform. And you asked specifically about advertising, I'd say we are early here. Our first priority is to do what I've just described, which is to drive more engagement. And ultimately, having a wider engaged audience is what drives every part of our business, subscriptions, advertising, affiliate licensing. So we just think -- we think this is a really important part of our go-forward growth plans, and we're very excited about what we're doing there. On family plan, we are really excited about this. We're -- it definitely played a role in the quarter. Family plan is good in a bunch of ways. It's good for market penetration. There, you can think of it as the subscribers we already have, bringing in other subscribers. And because the family plan subscription is priced at a premium, it's additive to subscription revenue. It's great for engagement. It's great for retention. And then I think you asked specifically about it's weighting to games versus the bundle that is not. I would not think about it that way. I would think about it as we've presented a family opportunity in both the bundle and in games, and we are really excited about the performance of both. Operator: And the next question comes from Benjamin Soff with Deutsche Bank. Benjamin Soff: I was wondering if you could talk a bit more about the growth rate in OpEx for 4Q, kind of what's driving that higher growth rate? And should we expect that to continue at similar levels going forward? And then on capital allocation, your cash balance has continued to grow nicely even as you've been returning 50% of free cash flow to shareholders I wanted to check in and see what your latest thoughts were there and how you might potentially go about deploying that cash. William Bardeen: Sure. Thanks. I'll take both of those. So look, on the cost for Q4, the guidance -- and this is relevant to Q3 and going forward, I think the most important thing I always want to say stepping back we remain focused over the long term on sustaining healthy revenue growth, AOP growth and margin expansion. So everything we talk about in cost is in the context of that. Now we do that -- our approach to that and our strategy is to be both disciplined in costs and efficiency, but also making long-term investments that are helping to further areas that best position us for sustainable growth. And that's our world-class news journalism lifestyle products. and the product development that underpins our content. Now that includes areas like video, which Meredith said in her remarks, which we're excited about. So specifically, to your questions on Q4 and Q3, a couple of things we're seeing there is that continued investment into the journalism products, so areas like video. We also have, as you see in Q3 results, and you can expect in Q4, flexibility to lean into areas like sales and marketing when there are good returns in the market or when we see a good opportunity for a great brand campaign. We had to have one in the market now. It's a world to understand, which we really like. And then the last thing to note is that there can be some variable expenses correlated with revenue performance that can lead to fluctuations in any given quarter. This played a bit of a role in Q3. It could well end up playing a role in Q4 as well. So that disciplined approach overall to being really focused on cost efficiency while also making investments is what you're seeing in our cost performance throughout the year as well as in the Q4 guide. There's a question on capital allocation... Anthony DiClemente: Capital allocation, okay, go ahead. William Bardeen: Yes. On that one, I would just say no change in strategy there. We believe the capital allocation strategy is working really well for us. So the key thing is top priority for us has always been we have at a core, our organic growth strategy, essential subscription strategy, so investing into high-return opportunities to continue that growth. We just mentioned video, for example. And then to this point of Meredith talked about in the remarks, a dynamic market environment. We like having a strong balance sheet that gives us optionality to capture opportunities should we see them, including opportunistic additional capital return. That's at least 50% is our -- is the capital return target. And then it's just worth making sure to reemphasize that our bar for capital allocation is really, really high. So you've seen that in our track record thus far with any M&A we've done, and you can expect us to continue to have that very high bar going forward. Operator: And the next question comes from David Karnovsky with JPMorgan. David Karnovsky: Maybe following up on the Watch tab. I wanted to see if you could speak a bit to the functionality of the product. Is the goal to make that highly personalized ? Or are you also kind of highlighting top stories and other parts of the coverage? And how do you think about the process of inserting ads there? And then just secondly, regarding other single product, I think this is the best quarter for net adds on record. Maybe you could just break that down across the various single products and for games specifically, how material were factors like putting mini crossword behind a paywall or PIPs, which you rolled out in August? Meredith Kopit Levien: I'm happy to take both of those, David. Thank you. Let me start with video and the Watch tab, and I'll step back just a little bit and note a number of things we're doing in video and the Watch tab is kind of one of them. We now have on our site and in the app substantially more news video on whatever the major stories of the day are. We have many more reporter videos with reporters essentially explaining their work and humanizing the journalism. That's great for enhancing trust, and it also serves as a teaser to longer-form work that we do. We turned most of our podcasts now into full-length shows. The Watch tab and the work we've done in the today feed to get people to watch video more and go to that tab is all just kind of part of that broader effort to get more engagement with more and more of the journalism in video. In addition, by the way, to reading and listening, neither of those things are going away. In the Watch tab specifically, I would say it is early days on your question about advertising. The most important thing we can do is get lots and lots of people to engage with our video on platform, in the tab and off-platform. And the more we do that, the more opportunity, I think, it opens up across all of our revenue lines. So I'm sort of long term optimistic about that. On your question about single product subscriptions and games, we are really pleased with the strong net adds growth in the quarter, and I would say it's kind of a strategy working as it's designed to do. We've got multiple growth levers, including games that are all going to play different roles in sort of different quarters and games definitely played a role here. On the MINI specifically, which I think you asked about, the idea here is that we were pretty intentional about long-term value creation in the case of the MINI, our decision to make that a paid subscription, very intentional one. We believed and it's proven to be the case that we would do it in a way that did not sacrifice in a big way, engaged audience. So we feel great about that. And the idea here is that we've got sort of multiple ways to monetize across the portfolio, including in games. And what we're optimizing for here is having the widest possible audience for all of our work, in this case, games and also having plenty of reasons for people to feel like they should pay. And you could sort of extrapolate that to the kind of broader theory of how we make free pay decisions across the enterprise. I think the thing to know on games is we are always adding value to the portfolio. We've got a robust pipeline kind of at all times of new games in development and a very good track record here, and we're just excited about the opportunity. Operator: And the next question goes from -- goes to Kutgun Maral with Evercore ISI. Kutgun Maral: Two, if I could. First, advertising continues to be an area of strength in the quarter, and you expect the momentum to carry into the fourth quarter. I know you called out marketer demand and new advertiser supply, but can you unpack the dynamics there a bit more? How much of this is attributable to the underlying market compared to uptick from some of the new product innovations that you've been actively rolling out across the portfolio? And second, on affiliate licensing and other revenues, you had a healthy third quarter. Is there anything more you can share on Q4 and the outlook for the slight deceleration in growth to mid-single digits? I know we're not talking about 2026 just yet, but I was hoping for more color, especially in the context of the Amazon AI partnership. Meredith Kopit Levien: Why don't I take the advertising question, Will, you'll take the one on other revenue. Look, I think the first thing to say is we're really pleased with what we saw in the quarter and frankly, so far all year. And it's a little bit of everything working to answer your question directly. The big picture here is we kind of see the ad business increasingly like we see the consumer business. The consumer strategy is to mean more to more people. And in advertising, we're kind of providing more value to more advertisers in more ways. So we've got these really big products in big spaces where there's lots of consumer interest, especially in news and I would say games and sports but also shopping and cooking. We have lots of engagement for all of those products, which allows us to really effectively target people at scale. We have great ad products. By the way, we've been at that targeting and at those ad products for many years now, very deliberately building first-party data, very deliberately building a suite of proprietary ad products. And we're continuing to sort of extend those across the portfolio. And we keep innovating in our ad products. So our AI-powered brand match, which I think we launched a year ago is really also helping on the targeting front. All of that means we've got ad products that work, and I think we're executing well. So the sort of broad answer is it's a little bit of everything that you're pointing to. William Bardeen: And then on affiliate licensing and other and the dynamics there, it's just always important to remember that, that revenue line has a lot of different items that can both create some variability quarter-to-quarter as well as make it difficult to isolate the contribution of any one particular item. And so we've said this in the past, it's obviously not just affiliate. And licensing, it's multiple licensing deals there. It's booked TV film, it's commercial printing. So a lot of different dynamics. And I think the most important thing to say there, looking forward, not just Q4 but into the future, as you said, is just given our strategy to make our news journalism and product portfolio more valuable to more people, we expect this revenue line to grow over the long term as part of our multiple -- our multi-revenue stream model. Operator: And the next question comes from Doug Arthur with Huber Research Partners. Douglas Arthur: You didn't break out The Athletic as promised. Any color on it? Was it additive in line? Any color would be helpful. Meredith Kopit Levien: Doug, I'll just say we continue to be very pleased with the performance of The Athletic. It remains on track for all the things we wanted to do. I mentioned in my remarks, sort of consistently strong engagement across the portfolio and the addition of video in lots and lots of places. I think this was the quarter where we introduced NFL footage. We already had NBA footage. We introduced NFL footage, and we're combining that with our signature journalism and our reporting, and I think that's a great product experience for engagement. NFL is a huge part of what The Athletic covers. And we're continuing to build audience and awareness for the brand, Athletic. And I would just say it's all going well, big contributor in advertising, all going very, very well. And it's still early. Douglas Arthur: Excellent. Just as a follow-up on the surge in single product subscribers. Are you getting the conversion of those over time that you expect? I mean, how is that playing out to higher-value products? Meredith Kopit Levien: I think the best way to describe it is we really -- it's really the model working kind of as it's designed to work. Our single products are serving as a wonderful engine of audience and engagement and in many instances, or funnels to get people to subscribe either to the individual product or to the bundle. That's all kind of working as we expected it to. And they're also all proving to be very valuable to the sort of multi-revenue stream monetization. I've called out games and sports, in particular, as being big spaces that marketers see real value in and want to be around. And we have on games, scaled audience, lots and lots of people who play our games. And in The Athletic, we are really growing the audience. So we see a big opportunity there. But I would say it's all kind of going. It's all working as it's designed to as far as driving subscription, advertising and ultimately, the whole model. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Anthony DiClemente for any closing remarks. Anthony DiClemente: Well, thanks, everyone, for your interest and for joining us on the earnings call. We'll see you next quarter. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Hello, everyone, and welcome to the Trainline HY 2026 Results. My name is Emily, and I'll be coordinating your call today. [Operator Instructions] I will now hand over to CEO, Jody Ford, to begin. Please go ahead. Jody Ford: Good morning, everyone. Thank you for joining us today for our half year results presentation. I'm Jody Ford, CEO of Trainline, and I'm joined by Pete Wood, our CFO. Let's first go through the disclaimer. On to the agenda for today. I'll give an introduction, briefly discussing the progress we've made in the first half. I'll recap on the opportunity ahead and update on the regulatory backdrop in the U.K. Pete will talk you through our financial performance. I'll then update you on how we are progressing against our strategic priorities and finish with an overview of our digital pay-as-you-go trial, which we recently launched in the U.K. After that, we'll hand back to the operator for questions. As a reminder, we are Europe's #1 rail app, delivering a market-leading user experience for our customers. We aggregate all major carriers and fares, offering a comprehensive range of value-saving products and features. We focus on making the booking experience as seamless as possible. And we use machine learning and AI to supercharge the experience to get customers from A to B. It's our combination of value, convenience and innovation that sets us apart. And that is evident in our scale today with far more app downloads than any of our peers. The strength of our customer proposition is reflected across the group with all 3 of our business units leaders in their respective markets. In U.K. Consumer, we have the #1 travel app in the U.K. In international consumer, we are the largest rail aggregator in Europe. And in Trainline Solutions, we have the leading B2B rail platform across the U.K. and Europe, which now generates over GBP 1 billion of annualized net ticket sales. Looking ahead, we see significant headroom to scale all 3 business units. In U.K. Consumer, we will deepen our competitive moat while increasing the lifetime value of our 18 million strong customer base. In International Consumer, we will deploy our proven aggregation playbook across France, Italy and Spain. By 2030, these markets together should represent a TAM of around EUR 23 billion, including EUR 12 billion generated on aggregated high-speed routes. And in Trainline Solutions, we will scale into the EUR 6 billion business travel opportunity across rail. Our performance in the first half demonstrates the progress we are making against this headroom opportunity. In the U.K., we delivered robust growth, reflecting continued strength in leisure travel alongside the ongoing digitization of rail ticketing. In international, we delivered positive early momentum on the French Southeast high-speed network with sales up 34% following Trenitalia's expansion of services over the summer. And in Trainline Solutions, B2B sales grew strongly, particularly in Europe with international B2B distribution up 55%. Operating leverage amplified our top line growth and the benefits of our cost optimization exercise last year, driving a 14% increase in EBITDA. As a result, we have today increased our profitability guidance for the year, as Pete will discuss shortly. This follows our announcement in September of an enhanced share buyback program, underpinned by our strong cash generation. The enhanced buyback implies we will repurchase 350 million of shares over 3 years. That's around 1/3 of our market cap. Before I hand over to Pete, let me update you on the regulatory backdrop in the U.K. This morning, the government published the outcome of its consultation on the Railways Bill with primary legislation to follow later today. This will allow for the establishment of GBR as an organization as well as the appointment of its key leaders. Since our full year presentation in May, we have maintained an assertive stance with government, pushing them to deliver on the commitment to an open, fair and competitive future retail market. While in parallel, we've sought to resolve existing examples where train operating companies self-preference today. Self-preferencing is where talks offer features within the apps, but we are prevented from offering and market them in ways that we are not allowed to do. This undermines the fair and open competition. We've consistently put forward the case that these practices be rectified. We're making progress. As you can see on the left-hand side of this slide, Previously, Trainline was prevented from offering some temporary fares that could be found on operator websites, and we were blocked from advertising in almost all stations and trains. Following our sustained engagement, the government confirmed earlier this year on both fronts, independent retailers should not be discriminated against. This is a clear step forward. However, we still face blockers and obstacles when it comes to advertising at the station. Furthermore, notable examples of self-preferencing continue to persist. We are prevented from offering train operator loyalty schemes within our app, and we are unable to provide automated delay repay, a major pain point for our customers. We continue to engage with government stakeholders in the wider industry to remove these restrictions and in turn, level the playing field. At the same time, we are innovating to extend our market-leading user experience and cement the loyalty and engagement of our customers. With that, I'll hand over to Pete to talk through our financial performance. Peter Wood: Thanks, Jay, and good morning, everyone. Before I step into the financial performance for the group, let's briefly unpack the performance of each of our business units. Starting first with U.K. Consumer, net ticket sales grew 8% to GBP 2.1 billion, reflecting continued strength in leisure travel and ongoing digitization of rail ticketing. Growth was supported by further market recovery, increased industry rail fares and lapping strikes the year before. As anticipated, growth was partly offset by the first phase of Transport for London's Project Oval expansion, which launched in February and will expand further in H2. Turning next to international, where net ticket sales grew 2% year-on-year to GBP 594 million. Growth was led by domestic customers, particularly on newly aggregated routes such as the high-speed network in Southeast France. This was offset by a 2% decline in foreign travel sales, primarily given changes to Google search results page and a leveling off of inbound demand from the U.S. for European rail travel. I'll now step through the underlying drivers in more detail. This slide breaks down the different market segments across our international business with each segment including domestic and foreign travel sales. You can see that the growth rates vary, reflecting how we are actively managing marketing investments and prioritizing routes with carrier competition. Turning first to Spain and Southeast France. We grew 11% across both markets as we positioned ourselves as the aggregator of choice, partly offset by downward pressures on Spanish rail fares. These markets now represent 22% of international net ticket sales. Elsewhere in France and in Italy, growth was more modest at 3%. Within these markets, which account for 2/3 of international net ticket sales, we continue to manage marketing spend as we await further carrier competition. In Italy, that's expected to happen from early 2027 with [ SECF ] granted slots to run high-speed rail services last month. And in the rest of France, carrier competition is set to expand shortly thereafter, which Jody will discuss later. Germany and the rest of Europe were down 16%. While these markets represent longer-term growth opportunities for Trainline, we are actively prioritizing the markets that have liberalized or are set to liberalize. While changes to Google search results page remained a drag on growth in H1, we are seeing encouraging early signs of traffic building from generative engines. We are the #1 cited rail app in ChatGPT across almost all our core markets, and we are leading in citations from Google's AI overview module, significantly ahead of our other rail aggregators. As a result, sales from generative engines have grown exponentially, increasing 13-fold since Q3 last year, albeit from a low base. Let's move next to Trainline Solutions. Net ticket sales grew 18% in the half to GBP 529 million. Growth was led by B2B distribution and our fastest growing subsegment up 36%. This reflected growing demand from corporate shifting to rail travel as well as our enabling travel management companies to scale their ticket sales in Europe, including the likes of Novan and SAP Concur. Jody will talk shortly in more detail about the strong momentum this business is generating. Bringing this together, top line growth for the group was towards the upper end of our full year expectations. Group net ticket sales grew 8% to GBP 3.2 billion. Revenue grew 2% to GBP 235 million, with growth slower than net ticket sales given the previously announced reduction in the U.K. commission rate. Gross profit was up 6% to GBP 193 million, with growth outpacing revenue given lower cost of sales. Turning to costs. We delivered a reduction of GBP 11 million across cost of sales and other admin expenses, more than offsetting the impact of the commission rate cut in the U.K. Cost of sales were down GBP 6 million, reflecting a reduction in the industry costs in the U.K. Other admin costs reduced by GBP 5 million, given the successful execution of our cost optimization plan in H2 last year. These savings enabled Trainline to deploy more marketing to Southeast France as carrier competition expanded. Our profit grew strongly, outpacing net ticket sales with adjusted EBITDA up 14% to GBP 93 million. This tracked above our previously stated guidance range for the year of between 6% and 9%, and it translated into strong earnings growth with adjusted earnings per share up 27% to GBP 0.126. Underlying free cash flow generation in the half was GBP 79 million. The strength of our cash generation underpins our enhanced share buyback program of up to GBP 150 million, which we announced in September. This is our fourth consecutive program. Over the last 2 years, we have bought back GBP 250 million worth of shares, equivalent to 15% of shares issued at IPO. With the addition of our enhanced program, it would equate to GBP 350 million of capital return to our shareholders over a 3-year period, reflecting our confidence in our outlook and the strength of our business. Altogether, I'm pleased with our performance in the first half, particularly our strong earnings growth and cash generation. Looking ahead to the full year, we continue to expect net ticket sales growth of 6% to 9% and revenue growth of 0% to 3%. Given our profitability performance in the first half, we now expect adjusted EBITDA to grow between 10% and 13% for the full year, above our originally stated guidance of 6% to 9%. Thank you. And I'll now hand back to Jay. Jody Ford: Thanks, Pete. Let's now talk about the progress we're making against our strategic priorities, starting with our U.K. consumer business. As the U.K.'s #1 travel app, our scale and user experience is unmatched. This provides Trainline with a competitive moat, which we are deepening, strengthening the loyalty and engagement of our customer base. First, we'll unlock value for customers through products like SplitSave and price prediction. Second, we solve for our customers' travel needs, including the launch of our new rail disruption features. I'll give you more details on this shortly. Third, we build trust and loyalty, scaling products like digital railcards. And fourth, we increase customer engagement, for example, expanding ancillary services we offer our customers. Let's discuss some of these in more detail. Starting with solving customer needs where we are rolling out a set of new rail disruption features. The features will support customers when navigating disruption on the rail network, leveraging the power of our AI and data tools. It will include travel forecast, which provides personalized notifications to customers in advance if their train is likely to be delayed or canceled. Customers will be able to see the location of their train in real time with a map interface powered by a signal box technology. Our forecasting capabilities will continuously improve, leveraging real-world data sources, including our base of 18 million customers transversing the rail network. Delay repay notifications, which alert customers when they are entitled to compensation. These will be an interim solution until the industry allows third-party retailers to offer fully automated delay repay. Our notifications will provide estimates of what each customer is owed plus a punch out to the relevant top website to complete their claim. Our beta test over the summer enabled the processing around GBP 1 million in compensation claims. And finally, our AI travel assistant, which offers customers a live native chat experience with real-time travel information personalized to their specific journey. Since launch, we've been selective in deploying the AI system within the app, yet it's already done strong levels of customer engagement. So far, it's had over 1 million conversations with customers, almost 1/3 of repeat users. And it's answering most queries with less than 10% handed off to customer service representatives. We'll soon to deploy the assistant more widely across the app, increasing the opportunity for customers to engage with it while also expanding its breadth of real-time knowledge capabilities. Let's watch a short video that brings to life our suite of rail disruption features. [Presentation] Jody Ford: Comes to building trust and loyalty of our customers Trainline has cultivated strong brand affinity over many years. In fact, we are the most trusted brand in the U.K. rail. And our brand consideration is at record levels, significantly outperforming all other retailers. This has supported Trainline's continued growth in the U.K., particularly when faced with notable competition, and it will become increasingly important in an AI-driven search world. One example of how we're building customer loyalty is through digital railcards. We've enhanced our selling within the booking flow, highlighting to customers how much they could save by buying a railcard alongside their ticket. This has scaled our user base 12% to 2.5 million in H1. By doing so, we are enhancing retention of highly engaged customers who transact 4x more often than non-railcard holders. And we're gaining particularly good traction with younger cohorts. Our share of the 16 to 30-year-old railcard segment has now increased to 44%. We're increasing the opportunity for customers to engage with Trainline, broadening our range of ancillary products and services and growing additional revenue streams. These include hotel bookings and insurance sales, which grew strongly in the first half. At the same time, we are optimizing how we monetize our existing products and services. For example, this year, we are focusing on enhancing advertising revenue and in the first half, improved the positioning of ad placements within the app. Likewise, we are currently running tests for a SplitSave fee. This could present a long-term option to supersede the booking fee where SplitSave applies. Now turning to our international business. We continue to position ourselves as the aggregator of choice as European markets liberalize. Over the summer, carrier competition expanded on the EUR 1 billion high-speed corridor in Southeast France. In June, Trenitalia launched 5 return services a day between Paris and Marseille. This is already having a noticeable impact with average fares down 27% on the route. In addition, Trenitalia almost doubled their operations between Paris and Lyon to 9 services a day, and that's due to increase again to 14 services a day from December. We are positioning ourselves as the aggregator of choice on the French Southeast high-speed corridor. We are leveraging our highly rated mobile app to showcase all the fares from all the high-speed carriers with features that help unlock value for customers like TopCombo, which allows customers to stitch together different carriers for return and [ multi-leg ] journeys. At the same time, we're positioning ourselves as the partner of choice for carriers, driving customer demand and in turn supporting their growth. As you know, we paused brand marketing in France a couple of years ago. With Trenitalia's recent expansion, we resumed our efforts to grow our awareness in the Southeast. We are sponsoring Lyon-based football team Olympique Lyonnais, and we are running large campaigns in online video and [ out of home ] at stations and transport hubs around Paris, Lyon and Marseille. We already have good levels of brand awareness across France at around 28%. Our focus on Southeast France has significantly increased brand awareness in the region. Across Paris, Lyon Marseille, our blended awareness score was up 12 points this year to 48%. That's supporting strong net ticket sales growth on the Southeast network, including sales between Paris-Lyon and Paris-Marseille, up 34% in the second quarter. France is a huge rail market worth about EUR 11 billion today. It is expected to grow to around EUR 14 billion or EUR 15 billion by 2030, of which around EUR 7 billion will come from aggregated high-speed routes. We see the Southeast network as a gateway for growth elsewhere in France as carrier competition expands over the coming years. This includes Proxima, who will operate under the Velvet brand. They will run trains between Paris and cities in Western France. This will include Paris de Bordeaux, France's second busiest rail route. In addition, Le Train, ilisto and Renfe are all due to launch domestic services in France too, while cross-border carrier competition is set to arrive in 2030 with Virgin Trains set to launch. In Spain, we're evolving the balance between growth and profitability. Spain has been an ideal market to hone our aggregation playbook, while carrier competition expanded across its EUR 1.5 billion high-speed rail market. We invested behind our user experience and our brand awareness. In turn, we have scaled our net ticket sales, giving us a considerable lead versus other market aggregators, and we continue to see runway for further growth. At the same time, we're increasing our focus on driving profitability in Spain. We are normalizing marketing spend while placing more emphasis upon customer engagement and growth of transaction frequency. Likewise, we are finding new ways to help carriers to grow. We recently launched Sponsored Journeys, a paid service that allows carriers to increase their prominence within our search function. We launched our first pay campaign with [ Durion ], which has been a real success, notably increasing customer demand. Across our international consumer business, increasing ancillary revenue remains a growth opportunity. Having made good progress in hotels last year, in H1, we bolstered our insurance offering with the launch of our new trip insurance product. Often alongside our existing Cancel for Any Reason product, this drove a material increase in insurance revenues. Moving on to Trainline Solutions, our fastest-growing business unit and now generating over GBP 1 billion in net ticket sales. Business travel is our main growth opportunity here and represents around 50% of Trainline Solutions sales. This is generated through our own branded channels as well as through our B2B distribution business. B2B distribution allows travel management companies and other business travel platforms to offer rail tickets to their respective customers. Primarily a U.K. business, we increasingly support our partners to sell tickets from multiple European carriers as well. They can do that all through one simple seamless connection on global API rather than tackle the complexity of connecting to multiple different carriers. As a result, international B2B distribution grew 55% in the first half. This business has good momentum. Many of the world's largest TMCs and travel platforms are now connected to our global API and trying to grow ticket sales. And in September, we expanded our partnership with the world's largest travel management company, Amex GBT, giving us confidence in our future growth. Finally, let's discuss our Digital Pay-as-you-go solution and its new trial in the U.K. As a recap, pay-as-you-go travel provides a convenient option for short distance journeys, also known as contactless or tap in, tap out. It's well established in cities like London where it is frequently used by commuters. However, prepaid ticketing generates most of the passenger revenue for the U.K. rail industry supported by price discrimination. It's far more suitable for long-distance trains where passengers tend to book in advance to get cheaper fares and reserve their seat, and we don't expect that to change. As you know, we've developed an in-app pay-as-you-go solution called digital pay-as-you-go. It leverages our geolocation technology from Signal Box and offers capabilities way beyond traditional tap in tap out systems. For customers, this includes real-time pricing, integrated railcard discounts and the ability to buy group and family tickets. For the industry, it requires no dating infrastructure, reducing the CapEx outlay and the time needed to deploy pay-as-you-go networks. We, therefore, see digital pay-as-you-go as a better solution, which when rolled out can increase our scope to serve commuters and travelers booking on the [ day ]. In September, digital pay-as-you-go trial went live on the East Midlands rail network. This represents a strategic opportunity to test our solution and demonstrate the benefits of digital pay-as-you-go in a live environment. Of the 4 trials awarded by RGG, the East Midlands trial is the most complex given it encompasses 3 different cities, Derby, Nottingham and Leicester. While it's still early days, we are learning fast and feedback that it worked flawlessly is highly encouraging. Before we wrap up, let me play a video showing our digital pay-as-you-go trial in action. [Presentation] Jody Ford: Before I hand over to the operator for questions, let me summarize the key takeaways from the [ heart ]. We have delivered a robust operating performance, improved profitability and strong cash flow, underpinning our enhanced share buyback announcement. And today, we've increased profit guidance for the year, reflecting our disciplined approach to cost management. Looking ahead, I see sizable growth opportunities for our 3 business units, all of which are leaders in their respective markets. In U.K. consumer, we are deepening our competitive moat, launching new rail disruption features and scaling digital railcards. In International Consumer, we are positioning ourselves as the aggregator of choice in Spain and Southeast France as carrier competition increases. While in Training Solutions, we are supporting B2B travel partners as they expand their rail travel sales across Europe. And finally, as you've just seen, we're off to a great start with our digital pay-you-go trial in the U.K., increasing our scope to grow sales of commute and short distance travel. So thank you very much for listening. I'll now hand over to the operator for questions. When asking please state your name and organization. Operator: [Operator Instructions] Our first question today comes from Gareth Davies with Deutsche Numis. Gareth Davies: Just -- First one from me, probably the obvious in terms of PBR consultation document this morning. At face value, it appears to tick a lot of boxes in terms of sort of level playing field and operating in a fair and transparent way on an ongoing basis. Would just be really interested to get your sort of headline thoughts on the key points that are in there and possibly anything you felt should have been covered and isn't. The second one is on the digital pay-as-you-go trial. It sounds like that's going well. Just wondering, is there any scope for that trial to be expanded and you to be allowed to use your own app and go beyond the sort of 1,000 customers that are currently doing it with East Midlands?. And then final one, just on the -- Google was obviously a headwind, particularly salient in the international business. Just wondered, now that we're lapping comps, presumably that is becoming less of an explicit headwind. Can you just give us a little update around how that's evolved? I mean, taking on board that GEO is going very well. But clearly, Google is still pretty important for international inbounds. Jody Ford: Thanks very much, Gareth. Yes, let me start at the top there with the GBR question. And look, there's been lots of news flow over the last sort of few months and an important day today. Let me go kind of right back up to the top and just sort of state that, look, I do think we're actually many years away from a GBR app launching and the 14 different sort of top existing apps ultimately closing down and those customers having to make a choice potentially to go to the GBR app. I think what's driving this is clearly the government's desire to consolidate from a customer point of view to take 14 apps into one and also to improve from a kind of cost base point of view. And then look, just to say right upfront for everyone, we look forward to that moment when it happens. We back ourselves to compete with whatever comes. And I think if you remember where we were 3 years ago with Uber launching, there was concerns and questions, a company that had huge backing that threw a lot of money at the sort of discounting tickets and massive kind of marketing campaigns. And I think 3 years later, you can see kind of how customers have reacted in terms of the strength of the Trainline offering. So sort of to set that out right at the front. Look, as you say, what we're seeing and as I mentioned earlier, principally today is about the launch of GBR primary legislation, which is about the creation of GBR. This sort of has to happen for the government to stand up GBR because of the sort of legal, financial, operational, health and safety and indeed organizational questions that need to be answered. And so that's a lot of the sort of priority for the government and GBR. As you also referenced the consultation document that was published this morning. Look, let me share a few thoughts on that. I think overall, we do actually see that, as you suggest, there's a sort of significant step forward, both in the context and direction of travel for the government. So let me sort of pick a few parts out where it's I think are encouraging. And I just upfront for those who've not had a chance to read that yet, it talks about the creation of a GBR retail unit within the overall GBR. And I think that's important to kind of note, and the elements within that, that I think are helpful. First is it talks about within that GBR retail unit, a separation of the industry management functions from the sort of commercial functions, where the former would be a lot of the RDG existing kind of organization and managing the relationship with -- amongst other third-party retailers like Trainline, whereas the latter of the commercial arm would clearly be the arm responsible for sort of standing up the app and the website and ultimately, we would compete with them. And I think that separation is really important and very helpful. Secondly, it talks about the establishment of a code of practice of how GBR interacts with all participants, obviously, third-party retailers being really important there. And that code of practice, and indeed, we've been pushing for a codification, right, of how this would operate. And I think that will be a really important step and the fact that, that will exist is really important and ultimately enforceable under GBR's license, future license. And then finally, what we get today is sort of laying out that there's the ability for -- if we felt that GBR weren't living up to or live in that code of practice for us to challenge GBR working with through the ORR and really to effectively ensure GBR do indeed operate within an open and fair market. So I think those elements are really helpful. And it's just worth noting these set of, if you like, safeguards don't exist today. And so that feels like very helpful. I think in terms of what we still need to see and it is somewhat self-evident, like this code of practice is not yet defined. And so I would anticipate, but don't have a clear time line, that work would begin on that in the early next year. And our understanding is it would be led by the ORR working with the DFT. And I would anticipate that the CMA would have significant input into that process along with obviously ourselves and other third-party retailers. So I think all of that together provides reassurance. And I think in the way you asked the question, that's I'm encouraged by kind of all of the above with important questions still to answer. What I would just note is this all relates to future design. And as I said, I think this is sort of multiple years kind of from fruition. What's also important in the interim is, as I just laid out in the presentation that we see kind of resolution on areas like delay repay in the interim so that kind of Trainline customers have access to that kind of one-click service. And so that's gone pretty deep on kind of retail and I just spend a minute then talking about the reality of what that means for the app, which is where a lot of the questions end up going. Why do I think it's potentially multiple years away? I think there will -- the next phase and the details of this will be some form of exercise that most likely is a procurement exercise from the government around working out what they want to procure. There would then be that process complete, and there would then be a build phase to develop what would be a relatively important app that would have to sort of handle a lot of different scenarios. It can't just do what [ LNER ] does on long distance or what Northern does on regional or some of the use cases of Southeastern coming in on community. It has to serve all of those. And so what I anticipate and I'm somewhat speculating here is that there would be a period of dual running. So even once the app was created, there would be a GBR app, which will be an important political win. But ultimately, that would dual run alongside the existing top apps and at various points, they would begin to fold those apps into GBR and the customers would then have to kind of restart on the new app. And to my very first point, we're excited for that opportunity. If you kind of think forward a few years and sort of the innovation we're laying out today and think forward another 3 years, I get pretty excited about where we'll be and GBR will kind of be just starting, if you like there. So that's sort of a bit of a state of the nation, right, in how we see all of the GBR points there. And to come to your second question, digital pay-as-you-go trial. Look, of course, I hope there is scope to expand and ultimately be able to put it into our B2C app. I think at this stage, we don't have visibility of that. This trial runs through to the summer. I think it's kind of early days. The government is learning. But I'm really encouraged just to underline like how well we have brought this to life. I think there have been apps that have kind of done the fare capping and the tapping now. But no one has really brought this all together with the route planning and the pricing and I think -- and the kind of UX. And so ultimately, if the government kind of wants -- or any government across Europe wants to sort of bring this to life at scale, having in the U.K., 18 million customers to help bring this to life, I do see that ultimately, it could be in the government's interest to see the third-party retailers offering this type of functionality. So look, that is obviously the aspiration. It's probably too early to speak with any precision on that yet. And then look on kind of Google headwinds and where we're at there. And I think if we sort of stand back on the international results, it's a portfolio of businesses. And as we reported over the last couple of years, we initially kind of Google trains and then we saw this expansion of the page as kind of the AI features coming in and so forth, and we did talk about that as a headwind. I think the way to think about that is that actually impacted different GEOs at different points. And I would say in the very earliest GEOs, we are, as you suggest, beginning to see that headwind turn into a tailwind and I begin to see some green shoots in some of our GEOs coming through as we've kind of entered the half, which is helpful. We don't actually begin to fully lap all of those GEOs and some of the domestic European GEos to later in this half. And so we don't yet see that. But look, I am encouraged in the spirit of the question that I do think that headwind turns into a little bit of a tailwind. So we'll keep close to that. Thanks, Gareth, for the questions. Operator: Our next question comes from Alastair Reid with Investec. Alastair Reid: A couple from me as well, sort of following up on some of those things. I guess, firstly, with the consultation today, with sort of GBR ticketing not being sort of structurally and commercially separated out, do you have any sort of concerns it could lead to potentially commission rates being reduced or the ticketing having sort of less need to cover its own costs, not being sort of overtly self-funding? And secondly, I think you touched on this already. Can you give us any examples you've seen in the past where talks have changed from one provider to another and kind of what share gains you have made in those switching moments? And then lastly, just on the topic of your sort of moats that protect the business from theoretically being disintermediated by sort of agentic AI. Can you talk about is the underlying market data in the industry sort of freely and easily available to all tech firms? And, Yes, I'll leave with that. Jody Ford: Thanks very much. Let me pick up on the first one and then you can perhaps take the second one and come back on the third. So in terms of the broader consultation and how we see the structure of that, I think kind of the direction of the question is going to the very nature of the open and fair retail. Look, we absolutely anticipate that we will be retailing on a fair basis with GBR. And I think where you're going really is the code of practice and how that is defined and we're going to have to engage and wait to see that to come through. I think what I take kind of comfort from is this statement of the value of third-party retailers and the value they've driven in terms of innovation and driving up standards for passengers. So I think that's where we now need to see that kind of actually codified out. And look, the CMA is still involved, and they will be involved going forward and they've really committed to a level playing field. But those are areas that we'll be engaged with over the coming kind of months. Pete, do you want to pick up on the second question, the provider change? Peter Wood: Yes. We've had a couple of examples in the past, Southwest Trains becoming Southwestern Rail, Virgin becoming Avanti were both kind of moments where there were shifts, and kind of as Jody outlined, there is this moment where customers have to make a choice. And from a traffic perspective, which doesn't fully represent sales necessarily, there's been quite significant shifts in the initial kind of period of time. So look, maybe around 30%, 40% in the first 6 weeks or so is something that we have seen in the past. So yes, it really does represent an opportunity for us as these things unfold. Jody Ford: Great. And then to come back to the point on U.K. moats and I think the role of the agentic AI. Look, what I'll do is I'll go up a level. And if I haven't answered the question, please come back because there's quite a lot potentially in that. We think about AI within the business in sort of 3 different areas. The first is how we productize AI and into the Trainline app that really speaks to things like the AI assistant and going forward. We talk about the ecosystem where it's a way to get traffic kind of another surface and then we talk about kind of productivity. I think you're really picking up on that middle one around the broader ecosystem. But just to say we're excited for the first point on productizing. Really feel like that AI is giving us kind of ability to solve new customer problems as it relates to disruption, not just around an AI assistant, but the data sets and predicting travel patterns and potential delays. That's kind of cool stuff. And I think speaking to the kind of moat point here, I just don't believe that there's many other players who can have the data and the dataset the kind of data smart and AI capabilities in our organization and the ability to invest behind it. So we're really pretty excited for where that's going. Then to the ecosystem point. And look, I'll give you my perspective on this, which is I've been doing this for well over a couple of decades now and watch various players enter the market over that period of time and work with them to develop -- as they develop sort of as traffic sources. And I think we're at that phase. And I think the announcements we have seen from ChatGPT, for example, increasingly give me that sense that they really want to ultimately send traffic to us and find a way over time to monetize it, which we think is a good thing, right, because it's much better to have 3 players kind of Google, Meta and let's say, ChatGPT that we're effectively buying qualified high-quality traffic from rather than having a single player or 2 players. And look, I do think that's going to take some time. These things, whilst we see and we spoke to the growth, it still represents less than 1% of our total traffic. And so I think it's -- I think we're talking years for these ad products to develop. I don’t think it's happening in the next few months. And so that's kind of how we view it evolving. And then I think you specifically asked about moats. And I kind of break our moat into 2 sets. We've got what I call our consumer moat and our platform moat. And you were pushing on the platform moat. But just as a sort of reminder, we have a very strong consumer moat. And I think in many things transversing technology change, the consumer moat really stands and is hugely important. And that's about the quality of our brand. It's about the sentiment that exists towards it. It's about our really deep vertical UX. And it's about the app installed base, like the fact we have 18 million users in the U.K. or 27 million across Europe means we have this really strong engaged base that will want to keep using us. And I think when you extract out and say open AI would have to develop a great vertical UX, not just in trains, but in hotels. in planes, in cars, but also in black dresses and selling drones. So it gets very complicated. And so they will definitely work with the great brands and the great UXs that exist out there. And I think that's part of the moat. And then finally to finish, in terms of that platform moat, yes, we have a huge number of data feeds that go back to the industry all over Europe. And these are kind of complex and difficult to develop, and that's part of the moat. And then we have huge commercial agreements because as you know, we're basically selling billions of pounds worth of tickets every year, and that requires bonding and obviously, a lot of due diligence. You can't just initiate these things. It's not like we're selling a few thousand pounds worth. And so that is also a moat, which makes it incredibly difficult to just start a business and then even if you were to, to make it work at scale becomes even more challenging given the sort of size of the numbers we're talking about. Thank you for the question. I hope that picked it all. The next question operator. Operator: Our next question comes from Ed Young with Morgan Stanley. Edward Young: I've got 2 on numbers, please, and then one on strategy. So on the EBITDA guidance upgrade, you've laid out some of the drivers of the stronger EBITDA outlook. But I wonder if you can help us understand what changed specifically since you gave the guidance in September? Is it fair to say that stronger top line has endured into H2? Or is there other moving parts that led to your change in posture there? Second of all, free cash flow growth was suppressed by working capital movement a bit in H1. Should that reverse in H2? And so should free cash flow growth mirror profit growth for the full year? And then finally, on Spain, I know you touched on it in the presentation, but I'd love to hear a bit more color about why now is the right time to move to this more balanced posture for growth versus profitability in Spain? Jody Ford: Great. I'll let Pete pick the first 2 up and come back around on Spain again. Peter Wood: Yes. Thanks, Ed. Yes, let me talk with the top line and then get to EBITDA. And if I think about the U.K. business, we've had a robust first half performance. And there were a few benefits, as I've kind of highlighted, lapping strikes and finally get those behind us kind of supported that figure somewhat. And we do have the headwind of over expanding as the year further unfolds. We've obviously had the first 47 stations which dropped in February. There are another 50 or so which are expected either in December or in January, and there are more later in the year. So there's a kind of headwind that's building. And I think net-net of that, I would expect H2 to be growing at a slower rate overall versus H1. Nonetheless, the EBITDA has performed well in H1 and that confidence we're kind of taking forward into H2. Of course, there will be drop-through from that performance at the top line. I think the other thing of note really is how we are thinking about marketing spend in international. In H1, as Jody outlined, we put more into supporting the expansion of the France and the Southeast corridors there. And that will somewhat persist into H2, where there's more services being run by Trenitalia. So we'll keep pushing there. But in Spain, we're kind of balancing growth and profitability. And look, if I take a real step back here, we started what, 3, 4 years ago when aggregation in Spain was clearly going to be this kind of big all-in-one go moment and we had a very small footprint there. And so we really pushed hard to build brand awareness to make the most of this kind of very dynamic moment for the rail traveling public in Spain. And we pushed hard on the marketing spend, and we've been really pleased with the strong growth that we've seen there. What we've now reached though is a point of kind of evolution where we're developing the next bit of the playbook. We're thinking about how we balance the profitability and the growth. And so we should -- you should expect marketing in international as a result of that to step down a bit in H2 and net-net will be also additive to delivering on the EBITDA guidance that we have shared today. And then your question on free cash flow growth and the working capital movement. Yes, this is always a slightly tricky one because the day of the week and the slightly odd 13 periods of 4 weeks that the settlement process in the U.K. rail industry means that we get some oddities on the 2 points in the year that you see it. Fundamentally, there is a good guide here for cash from a working capital perspective. It is typically a bit better at August than it is in February just because of the cycle of these things. But, when it's a Monday or a Tuesday, that can impact it all as well. So net-net, I don't think you should pay too much attention to the kind of puts and takes that we see at the different points in time, just believe that there is a goodness that lies underneath. And it's normally around the kind of GBP 15 million to GBP 20 million across the year that we would see on average even if that's not at that particular point in the year. Jody Ford: Thanks, Pete. And I think Pete mostly answered the third question around Spain, but let me just give you a little bit of a strategic overlay there. As Pete said, this was a moment in time when we saw what was happening in Spain. It was -- we were almost a 0% market share. We were in a position where all the lines and all the competitors were launching in a kind of 12-month window, and we knew we had to show up there with Trainline not really having a footprint to date. And through those 3 years, we've got to having double-digit market share. And I think importantly, we are now the #1 domestic operator by a distance, significantly ahead of [ Trez ], of Omio, of Uber and any of the other players and the kind of go-to place for aggregation. And so really, we're moving to what I would call balanced growth. We're still leaning forward into Spain and invest in that, but we just don't need this kind of launch level marketing spend. And as you've seen us over the last few years, we sort of play the overall portfolio. And we're now moving, if you like, that firepower into France as that launches to ensure that we become and remain, frankly, in France, the #1 domestic operator, and it's just a moment in time. And look, you have heard as it relates to Italy, we see a huge opportunity there in 2027, and we will think about marketing there again. But we have to kind of balance the overall portfolio and have these kind of launch phases and then what I call more balanced growth phases. Thanks for the questions, Ed. Should we take another? Operator? Operator: Our next question comes from Andrew Ross with Barclays. Andrew Ross: I've got 3, if that's okay. The first one is to follow up on Alastair's question on commission rates. Is it completely ruled out that there will be no review of commission rates for the industry as part of the detail of how GBR kind of comes together for next year? Or kind of more broadly, where are we at on that as we kind of transition from RDG into GBR around the industry commission rate? That's the first question. The second one is on pay-you-go and I guess, scenarios as to when a kind of nationwide contract may be awarded or how this might look and kind of what it might mean for you if you were or weren't to get it? And I guess I'm thinking about kind of the incremental take rate you might achieve if you were to kind of get a broader contract and any kind of cannibalization risk to your core business that you think may or may not happen, I think maybe not given the solution will be portable into your app, as I understand it. Third question is on Agentic AI. Kind of taking your view, Jody, that it's more likely for OpenAI partner with kind of a vertical specialist like yourself, which I agree with. Do you worry about any risk to kind of time spent based monetization, things like cross-selling hotels, ads, that type of thing if we move into a world of kind of agentic transactions and booking trains? Jody Ford: Thanks, Andrew. Look, on that first point, this is -- we've discussed kind of many times, I guess, the idea of commission rates. Look, I'll give you the overall kind of answer here. They have been reviewed, I think, 3 times in the last 20 years every time they've essentially come back and concluded we were at the right commission rate apart from, as you know, at the last time where it was a net 25 basis points impact. We feel that the commission rate is absolutely at the right level and multiple independent players, every time this has been looked at, everyone has concluded we're at the right level. And so I think that's what gives us confidence the way we operate, we have a number of years, kind of 3-plus years of confidence in our commission rate. Look, it's never off the table forever, right? But there is no discussion of that. And so I look forward, as I've always done, believing we're set at the right commission rate. Pete, do you want to pick up on the second one. Peter Wood: Yes. I think just as a reminder, the trials that we have are kind of the first step forward. And quite deliberately, the government is testing different technologies and really seeking to learn what those technologies offer, how customers engage and relate with the different aspects of what's being tested. So we're kind of really quite early on. And whilst we see some real political support for finding a solution for this, and there's mention of this in the [ condoc ]. So that kind of gives you an indication of the direction of travel. There's a lot of detail that still needs to be worked out in terms of how this will be implemented. And as we said in the presentation, I think whilst one route might be a kind of nationwide contract, we don't think this technology is particularly helpful or is likely to be implemented for long distance travel, right? So perhaps a nationwide contract might enable a series of different cities to pick it up. But even that's not a given at the moment as to the way forward, it could be rolled out more regionally. So there's still a lot to see there. Likewise, the commercials that would sit alongside this would need work. I think it is fair to say that on the basis of kind of fair and open, we would expect if there is some sort of national implementation that even if our technology wasn't chosen, there would be some way for us to partake and offer that to customers. So anyway, a lot of details still to be worked out. We're really pleased about the progress we're making and the political support for continuing down this path. We'll have to see how it goes. Jody Ford: And then let me pick up on this sort of Agentic AI and the sort of role of transactions. If I understood, the question was, would we lose other services if it was kind of the transaction occurred within, let's say, text interface in a ChatGPT app or something. Whilst I do see that as a use case and one could imagine certain trains being booked that way, I think we have to assume the core use case is kind of what happens on Google and on Meta. If they fully want to realize the value of that customer, then ultimately, there needs to be a high quality conversion rate. And the best way to do that is for the customer to go into, in our case, a Trainline user experience or it could be any other shopping or commerce user experience where if you think about the pages we show and the clarification of which fare you want and the flexibility of it and frankly, what [ time ] train you want and the ability then to get customer support and to get your ticket and your barcode, that's clearly better done within our app or some experience that is effectively our app. So I still envisage a world where the full experience arrives and they have given us very qualified traffic. Worth knowing that we are absolutely developing and have developed the kind of frameworks of the MCP piece to allow the AI system to engage. And you could imagine the early stuff happening, if you like, within ChatGPT, where we work with ChatGPT, if you like that and then popping into our experience to actually make the transaction come to life. But look, we're all hypothesizing of how this will look. And just to say again, it's less than 1% of traffic right now in our most sort of forward GEOs. And so I kind of feel pretty good. We've got time, I think, for just one more question, and then we'll bring to [ a close ]. Operator: Our final question comes from James Lockyer with Peel Hunt. James Lockyer: I'll just ask 2 at this stage, based on AI. So it's good that you've spoken about 1 million conversations or over 1 million handling customer queries but less than 10% being handed over. Based on the types of questions that are being asked versus the typical questions that your human agents are getting, once mature, where might that 10% land? And what level of cost savings might you be able to realize? And secondly, can you talk about how much -- how you're using AI internally? You mentioned that you are, but it would be good to hear about what we're doing there and what’s companies thinking they'd be able to grow the top line without growing headcount as fast as they might have done without AI. Is that something you're finding too? So any ROI productivity or hiring stuff you can provide there would be useful. Jody Ford: Sure. And given we're kind of at the top of the hour, brief answers, I guess, I'd say overall, the types of questions, what it's allowing is customers to get reassurance, things that they kind of like just didn't know how to -- is this ticket valid on this train? And they would then go and try and find station staff or ask a friend or start reading very detailed conditions. And AI is doing a really great job of that. It wasn't that they were necessarily going to customer service. But where you're going is right, I do think it allows efficiency. It allows our customer service teams to work on the higher value questions, if you like, because it filters out a lot of the ones that can easily be handled by AI. And I think, yes, where you're pushing right, it does lead to kind of greater productivity. As it relates to what we're doing internally, the lots of good stuff and yes, in terms of using the kind of copilot style tools, in terms of helping engineers code and that is definitely seeing kind of productivity improvements. And I think the spirit is to be able to do more with our existing employee base is absolutely how we're looking at it. And then just allowing other things here, we have an experimentation GPT, right, which has got now all of the experiments that we've kind of almost ever done over the last few years in one place, which can be accessed by a UX or a product or an engineering or commercial really quickly versus having to frankly call 9 different people and try and find out, which is what happens in most companies up to this point. And so we're increasingly finding those use cases, which are driving a more cohesive workforce and allowing us to kind of better pull that knowledge and be quicker in the development. So I think again where you're going, delivering more with our existing base is very much how we're thinking about it. Thank you very much for the questions, James, and thank you all for listening today. That's all we've got time for. To recap, we've had a strong first half, delivering a robust operating performance and improving profitability. And in turn, we have today improved our guidance for the full year and see sizable growth opportunities across all 3 of our business units. And I look forward to speaking to you all again soon. Thank you.