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Operator: Good morning, everyone, and welcome to Orion Energy Systems Fiscal 2026 Second Quarter Conference Call. [Operator Instructions] In this call, Sally Washlow, Orion's CEO; and Per Brodin, its CFO, will review the company's second quarter results and its fiscal 2026 outlook. Then we will open the call to investor questions. Today's conference is being recorded. A replay will be posted in the Investors section of the company's website, orionlighting.com. I will now turn the call over to Per Brodin, Orion's CFO. John Brodin: Thank you, Rica. First, as a reminder, prepared remarks and answers to questions include statements that are forward-looking under the Private Securities Litigation Reform Act of 1995. Forward-looking statements generally include words such as anticipate, believe, expect, project or similar words. Also, any statements describing future objectives or goals, company plans and outlook are also forward-looking. These forward-looking statements are subject to various risks that could cause actual results to differ materially from current expectations. Risks include, among other matters, those that Orion has described in its press release issued this morning and in its SEC filings. Except as described therein, Orion disclaims any obligation to update or revise forward-looking statements made as of today. In addition, reconciliations of certain non-GAAP financial metrics to their nearest GAAP measures are also provided in today's press release. Now I will turn the call over to Orion's CEO, Sally Washlow. Sally Washlow: Thank you, Per. Good morning, and thank you for being with us today. I am extremely pleased to report our Q2 results, highlighting a year-over-year increase of more than 1/3 in gross profit. This is also our fourth straight quarter of positive adjusted EBITDA. We recorded incremental growth in total revenue and significantly more than that in maintenance services, even as we unburdened ourselves of an unprofitable contract. And we saw a welcome bounce back in EV charging as the sector-wide uncertainty of the earlier part of the year began to dissipate. When we last convened, I said that we are on track to achieve 3 milestones in fiscal 2026. Milestone 1, by the end of the second quarter, a positive resolution that enables a publicly traded Orion to maximize its opportunity for growth in shareholder value. We achieved that by maintaining our NASDAQ listing. Milestone 2, by the end of the third quarter, the enactment of a growth, profitability and cost containment initiative that enables Orion to become a recognized long-term market leader in its core businesses. This is already contributing in the second quarter as we reported 34% higher gross profit and the fourth straight quarter of positive adjusted EBITDA. Milestone 3, by the end of the fourth quarter, $84 million in revenue at or near a positive adjusted EBITDA for the full fiscal year. We are on plan and our expectation for the fiscal year is unchanged. We have only just begun, and we are demonstrating building towards sustainable and profitable growth beginning in the second half of this year. Even in these early innings, it is gratifying to see that our work is being increasingly recognized and not just by our shareholders. Our partners and customers have long recognized Orion as their go-to partner for installation, ongoing maintenance and managed services for LED lighting and EV charging. We are also seeing an increase in activity related to quoting and winning work within electrical infrastructure. As I noted in our last call, industrial, commercial and public sector facilities operated by some of the largest enterprises in the United States rely on Orion. With products made in America, along with the global supply chain and now in our fourth decade, Orion serves as a go-to provider to Fortune 100 corporations and other global leaders in sectors ranging from manufacturing to government to retail. A recent illustration is last month's announcement of a major retailer's 3-year renewal with us, representing reoccurring revenue of between $42 million to $45 million. Our largest long-time customers stay with us year after year because we deliver unsurpassed quality and unsurpassed ROI. Whether deployed independently or in a combination with our ESCO and distribution partners, Orion solutions deliver unrivaled ROI to industrial facilities requiring the most demanding standards of efficiency, reliability and compliance. That recognition serves us particularly well at this pivotal moment. Just in Q2 alone, we saw an upswing in the lighting market with the recent Dodge Momentum Index report that commercial, industrial and public sector construction planning is 33% ahead of year ago levels. We see an improved outlook in the EV charging market with the confidence boosting federal declaration reassuring the availability of $5 billion in government EV charging funds. We are beginning to see increased opportunities for electrical infrastructure installation and maintenance with megatrends from reshoring to refurbishing to replacing manufacturing and other industrial plants in the United States. All of these tailwinds mean that Orion has a multi-sector reoccurring revenue win at our back, whether it is in lighting, EV charging or maintenance services. As I promised on our first call, we will continue to keep you apprised with increasing frequency and with increasing granularity throughout this fiscal year and beyond. Now drilling down further on the second quarter. Once again, Q2 featured solid stability and progress in our 3 business lines as well as positive guideposts for the rest of the fiscal year. The quarter resulted in enhanced margins, reduced costs and meaningful progress on the bottom line. We remain in a solid position for the full fiscal year. Orion's Q2 '26 revenue was $19.9 million versus $19.4 million in Q2 '25. Q2 '26 gross profit grew 800 basis points to 31% versus 23.1% in Q2 '25, and we achieved our fourth consecutive quarter of positive adjusted EBITDA. Per will provide details in a minute. Let's look at a quick snapshot of some of the highlights from Q2, which featured solid accomplishments in our 3 business lines. In Lighting, we had some significant new business wins exemplified by $11 million in government lighting and up to $7 million in LED lighting for facilities belonging to some of the biggest names in the automotive industry. In EV charging, we saw a welcome bounce back from the uncertainty that the entire EV sector experienced in the first few months of the year. A particular Q2 highlight was the $8.5 million in EV charging work in Massachusetts. We also saw the continence boosting federal clarification reassuring the availability of $5 billion in government EV charging funds. In maintenance, these and other engagements featured ongoing managed services that ramp reoccurring revenue and ensure a close, continuous and expanding relationship with our enterprise customers. It's also important to note a couple of particular points about Q2. One is that our maintenance services achieved significant growth even while allowing the lapse of an unprofitable contract. Another is that EV charging showed a welcome bounce back from the uncertainty that the entire EV sector experienced in the first few months of the year. Our Q2 gross profit now at 31%, a year-over-year jump of more than 1/3 was also a standout. This was largely achieved by continuing reductions in LED lighting fixture cost via our ongoing improvements in reengineering, plant efficiency and improved sourcing as well as via both margin and volume increases in our maintenance services business. We continue to benefit from the success of our cost control initiatives, and we expect to see ongoing improvement throughout the rest of the fiscal year. On the new business front, we continue to build our expanding pipeline of contracted LED lighting projects even as we penetrate and radiate within existing maintenance services customers. We are laser-focused on increasing sales in our LED lighting distribution business. On the new product front, we continue to gain traction with our value-based LED lighting fixtures. The marquee name here is Triton Pro designed and engineered in response to popular demand from both customers and channel partners. Triton Pro is a competitively priced LED lighting line that is getting traction with a number of customers. We also continue to partner with our customers to bring together seemingly discrete products and services into the connective tissue domain of electrical infrastructure, a name we've been dropping lately, you may have noticed. Electrical infrastructure integrates offerings like LED lighting, high-voltage EV charging stations and a high-impact array of maintenance and managed services. We'll have more to say about this initiative as well. For now, suffice to say that it is in response to requests from our customers as well as those megatrends I mentioned earlier: data centers, AI, manufacturing, retail, electrification, industrial and complete commercial fleet management and others. These are the headlines of the day. You see these headlines in the Wall Street Journal, in Barron's, in your hometown paper. You may have noticed that you see them in Orion press releases, too. Orion sits squarely in the confluence of these megatrends, and it has solutions to not just serve them, but to accelerate them. With that, let me turn to Orion's CFO, Per Brodin, to review our financial performance and outlook. John Brodin: Thank you, Sally. Today, we reported fiscal Q2 '26 revenue of $19.9 million as compared to $19.4 million in Q2 '25, with 2 of Orion's 3 segments growing year-over-year. LED lighting segment revenue decreased 2% to $10.7 million compared to $10.8 million in Q2 '25, reflecting increased project activity and distribution channel sales, offset by lower ESCO channel sales. Orion's expanded LED lighting project pipeline and efforts to drive growth in the distribution channel are expected to contribute to higher revenues in the back half of fiscal '26 versus fiscal '25. Lighting achieved a Q2 '26 gross margin of 27.5% versus 25.4% in Q2 '25, with pricing increases, cost reductions and sourcing initiatives being amplified by a more favorable Q2 '26 project and revenue mix. Maintenance segment revenue increased 18% to $4.5 million in Q2 '26 from $3.8 million in Q2 '25, reflecting the benefit of new customer contracts and the expansion of some existing relationships. We achieved a maintenance segment gross margin of 23.7% in Q2 '26 versus 15.3% in Q2 '25, as there was a significant inventory charge recorded in Q2 '25 as part of the segment restructuring. EV charging solutions revenue was $4.8 million in Q2 '26 compared to $4.7 million in Q2 '25, reflecting the expected completion of a significant project within the quarter. EV achieved a strong gross margin of 45.8% in Q2 '26 versus 23.7% in Q2 '25 due to a strong improvement in sales mix. Our overall gross margin increased 790 basis points to 31% versus 23.1% in Q2 '25, reflecting pricing and cost improvements in all segments, particularly LED lighting and maintenance. We expect overall gross margin to remain strong in fiscal '26, though it will likely vary on a quarter-by-quarter basis due to revenue mix and volume. Total operating expenses declined to $6.4 million in Q2 '26 from $7.7 million in Q2 '25, reflecting ongoing overhead and personnel expense reductions and earnout expense of $0.6 million in Q2 '25 that did not recur in 2026. We expect operating expense to approximate Q2 levels in the remaining 2 quarters this year. Reflecting stronger gross margin and lower operating expenses, Orion's Q2 '26 net loss improved to $0.6 million or $0.17 per share from a net loss of $3.6 million or $1.10 per share in Q2 '25. Adjusted EBITDA improved to a positive $0.5 million in Q2 '26 versus a negative $1.4 million in Q2 '25, reflecting cost control and financial discipline. As Sally mentioned, this was Orion's fourth consecutive quarter of positive adjusted EBITDA that puts our trailing 12-month adjusted EBITDA at $0.9 million on sales of $80 million. Year-to-date cash provided by operating activities improved to $1.3 million in Q2 '26 from a use of cash of $2.5 million in the prior year period, primarily due to the improved bottom line performance. During the year, we have also had a net paydown of our revolving credit borrowings by $1.25 million. Net working capital was $8.1 million at Q2 '26 versus $8.7 million at year-end, primarily reflecting the use of cash to pay down on the revolver. Available financial liquidity was $13.5 million versus $13 million at year-end. During the quarter, we issued $1 million of common stock and made $875,000 of cash payments to partially satisfy the Voltrek earn-out obligation. Turning to our fiscal '26 outlook. We have reiterated the fiscal '26 revenue growth expectation of 5% to approximately $84 million that we initiated in June. We have also reiterated that our revenue growth outlook positions Orion to approach or achieve positive adjusted EBITDA for the full fiscal year, depending on revenue mix. This growth outlook anticipates modest growth in LED lighting and electrical maintenance revenues and flat to slightly lower EV charging revenues. And this concludes our prepared remarks. Operator, would you please commence the question-and-answer session? Operator: [Operator Instructions] Our first question comes from the line of Eric Stine of Craig-Hallum Capital Group. Eric Stine: So maybe just starting on the EV business. I mean, clearly, a positive development with clarity from the government. And I know that a lot of your business there has been through utility programs. But I guess I'm curious what you are seeing with some of your customers. And I think this maybe goes hand-in-hand with the energy infrastructure initiatives and a bundled offering. But I do know that part of the reason that you made this acquisition a while back is because your customers were requesting these capabilities. So just curious what you're seeing from your enterprise customers. Sally Washlow: Eric, yes, we're absolutely seeing some of that from our enterprise customers, bringing whether it's an LED lighting project that would have started out as that, but bringing then EV charging into their parking lots as well. So that is some of the things that we're seeing in that. Our business was -- had a lot of utility programs, but I think you've seen in recent announcements, further expansion of the work with Boston Public Schools, MassDOT, as well as the state continues to build out its infrastructure and then hiring additional salespeople. We hired gentlemen based in our Florida office to help further expand our geographic reach as well. And we have a couple of other areas targeted that we're investigating right now and more to come on that. Eric Stine: Okay. And then, I mean, I guess, segue to energy infrastructure, is this something where you feel like you can accelerate some of that traction if you are going to the market with more of a bundled offering? Or maybe that's -- I'm not sure if that's how you think about it or not, but a bundled offering where, again, a customer just has one point of contact for everything that they want to do. Sally Washlow: Yes. We're certainly looking at that, and a lot of it has been developed through customer requests. We're on site. They see the work that we do. An example of this would be it started as an LED lighting project, but maybe they need help bringing their facilities up to code. And then they turn to us to say, "Can you do that and manage that project for us as well?" So those are where the work in electrical infrastructure is expanding, and we're at the very beginning of this as well, but even energy storage so that they look to offload the peak time, so working to develop relationships to bring energy storage into their facilities as well. Eric Stine: Got it. Okay. Maybe last one. Just you had the maintenance agreement renewal. I think we can all kind of guess who that customer is. But just curious, maybe not to that size, given who that customer is, but what are you seeing on that front? Clearly, you are sounding more positive, although modest growth this year, certainly long term on the maintenance side. What are you seeing in terms of demand there from other enterprise customers? Sally Washlow: So we have some other customers as well. It's a little bit of a slower build as we work with them. But month-over-month, that revenue is growing with them as well and the trust that they have in us. So we think that, that will continue to expand. Operator: Our next question comes from the line of Sameer Joshi of H.C. Wainwright. Sameer Joshi: Just a little bit more on the EV outlook. I know you are expecting flat or slightly lower year-over-year growth there. But in terms of the strategy going forward, given that these funds are now -- the $5 billion are being made available, do you expect or are you planning to have some kind of a geographic expansion or maybe a roll-up with some other similar businesses that might increase the size of your EV offering? Sally Washlow: Sameer, we are certainly looking at a geographic expansion. And of note, hiring a sales gentleman to lead our Jacksonville office and then other areas of the country as well. The teams are working on mapping out where we best have personnel and then also where there's a lot of EV infrastructure work going on. So we certainly expect further geographic expansion. Sameer Joshi: Understood. Switching to lighting. I think one of the things I may have misheard, but just making sure the $42 million to $45 million recurring revenue potential, is that over the life of the contract? Or what do those numbers represent? Sally Washlow: Yes. It's a 3-year contract renewal. So that's over the life of the 3-year contract. Sameer Joshi: Okay. And then, of course, I should have started with congratulations on the cost control efforts and the results. But I also heard during the commentary from both of you, the word ongoing. Should we expect further improvements in gross margins to like mid-30s or near that level? And on the operating expense front, I have noticed in the last couple of quarters, your sales and marketing expense as a percent of revenues have reduced. Are there some synergies you are seeing there that we may have missed? John Brodin: Yes, Sameer, I think a couple of thoughts on those questions. I'll try to catch all of them. On the expense line, I think what I tried to convey is that the Q2, the most recent quarter that we completed from an OpEx standpoint is the level that I think we expect for the next 2 quarters. We are -- I think some of the other comments are aimed at saying that we will continue to look for savings opportunities that are out there. But at the same time, we'll also look for opportunities that we may need to invest a little bit of money as we did with the salesperson in EV because we think that will have a good payback for us as we expand sales in the EV segment. From a margin standpoint, I don't think in the near term, we have an expectation of getting into the mid-30s. I think being in the neighborhood of the high 20s to 30% is probably more realistic. As I mentioned, there will definitely be some fluctuation there depending on mix as well as sales volumes that cover fixed costs within our COGS structure. So hopefully, that clarifies those two. Sameer Joshi: Yes, understood. Just last one maybe and just a clarification. The $875,000 paid during the quarter, were they part of -- on a GAAP accounting basis from a previous quarter? Or are these $875,000 included in the OpEx that are for the September ending quarter? John Brodin: The $875,000 that was paid had been accrued as of March 31, as was the $1 million that was paid in equity. So we had the larger accrual at March 31, we made those two payments. And then there's still a remaining balance that as we've disclosed separately, is subject to arbitration. So we expect that to play out over the next quarter or so. Sameer Joshi: And has that been accrued or is that pending the settlement? John Brodin: We've accrued what we believe is the appropriate amount, and that was accrued as of March 31. Operator: [Operator Instructions] Our next question comes from the line of Bill Dezellem of Tieton Capital Management. William Dezellem: I have a group of questions. I'd like to start with the Lighting business. You brought in some talent to reignite ESCO distribution revenues. Would you please discuss whether there's been any tangible benefit yet? And I recognize it's very early to ask the question or whether that pipeline is still developing. John Brodin: Bill, it's Per. Yes, I think in my remarks, I mentioned that in the quarter, our distribution channel revenues increased, and that's where the, I'll say, the main talent addition that we discussed back in the June time frame was mentioned. I think that he has landed on solid ground and with a running start of some sort because of his connections within the industry. And we think that he will continue to build that. That was consistent with another comment I made in my commentary. So I think the ESCO channel, we've not made recent investments from a sales standpoint in that channel, but that is a channel that we will also press on to ensure that we can maximize the opportunities on all 3 of the lighting channels. William Dezellem: So in spite of his short tenure, there already has been a benefit. So if that's the case, presumably one doesn't hit their full stride and at maximum performance in just a few months. So presumably, that business builds and that's part of what your comments were alluding to relative to the remainder of the year? John Brodin: That's correct. And we have high expectations as we move forward into the next 2 years. William Dezellem: Great. And Per, did I hear you in response to my question, also say that you will be adding additional sales talent in the distribution arena? And if that is the case, are you essentially waiting for a little higher revenue so that you can pay for that individual who will then generate the next level and start layering on top of layers? John Brodin: No, I did not say that. I'd say that it's something that would certainly be considered as the current executive continues to perform and as we evaluate other opportunities to grow that channel. But no firm plans at this time. William Dezellem: Okay. That's helpful. And then I'd like to shift to maintenance real quick. The quarter you said had a headwind because you had unprofitable maintenance contract that you walked away from. How much of a revenue headwind was that in the quarter? Sally Washlow: So we -- I don't have the exact number right now at my fingertips, but it was from last quarter. So quarter-over-quarter as that -- or last year, I apologize. As those contracts lapse, then we're growing the business in other areas was the intent of that. John Brodin: Last year, we essentially were wrapping up that contract in Q2 of fiscal '25. So there was headwind of a tough comp, but it was not -- I'd just say round numbers, it would have been less than $0.5 million. William Dezellem: Okay. And then did you add any notable business beyond your largest customer in the maintenance arena this quarter specifically? Sally Washlow: We have continued to add some customers or growth within customers beyond the large customer. The large customer does take up a significant portion of it. So they're of note to us because they are growing every month, and we'll continue to watch their growth and further partner with them and gain more customers in that area. John Brodin: Maybe another way to think about it, Bill, is we've gained new customers over the past year, and the business we're doing with them has expanded as we've moved forward in that relationship. William Dezellem: Per, I'm going to build off of that. Do you see an opportunity with those customers to continue to build further as you execute? Or are you now reaching kind of a steady-state run rate with them and you'll be needing to add additional -- not that you don't want to already, but you'll need to add additional customers to build revenue further? John Brodin: I think it will be a little bit of both. The -- we don't believe we're at run rate with some of these newer customers. So we think that will continue to expand, and we think we will continue to attract new customers as we move forward. William Dezellem: Right. Okay. That is helpful. And then at a high level, do you see the maintenance business as a lead generator for product sales, whether it be lighting or EV? Sally Washlow: I mean we are seeing some of that with the maintenance products. Product sales within that segment are increasing. So certainly, we look to all customer touch points as potential lead generators into other areas. William Dezellem: I guess, Sally, where I was going with that is, does it give you a special insight that you may not otherwise have if you weren't inside the customers' 4 walls doing the work? Sally Washlow: Yes. So I guess to answer that part of it, absolutely, we see some of that with the expansion of some of the services that we're doing. Had we not been within the 4 walls of the customer and maybe doing work in other areas, and they're asking, "Can you project manage this part of bringing some of our systems up to code as well?" We wouldn't have gotten that business had we not been there working side-by-side with them. William Dezellem: That's helpful. And then I know I'm taking up a lot of time, but one additional question or clarification relative to the EV business. I heard I thought 2 different things in terms of your commentary. One is some level of caution for the remainder of the year for sales there, but that there's also more clarity on the EV rules and that bodes well for the future. So let me try to put a fine point on it here that the Q1 EV revenue was $2.7 million. Here in Q2, it was $4.8 million. Are you anticipating approximately holding at this $4.8 million for the next couple of quarters? Or do you continue to see some level of growth from the $4.8 million? Sally Washlow: Yes. I think we're cautious on our guidance for the year because we ultimately lost a couple of months there with all the uncertainty at the beginning of the year. But our expectation is to be flat to a little bit down in EV for the year. But I think your numbers are right in the realm of what we expect to do for the next couple of quarters to deliver on that and start to regain some momentum from what was basically lost or at a standstill in the first quarter. Operator: Our next question comes from the line of Steve Rudd of Blackwall. Steve Rudd: Very encouraging results. Can you talk about the cost containment? I mean, obviously, we're seeing top line trend of growth from a cost containment and cost leveraging point of view or infrastructure leveraging point of view, how much more room do we have to go? John Brodin: If I interpret your question properly. We think we have -- I'll step back. Earlier in the year, we think we rightsized the business so that we could be at or above breakeven in the $80 million to $83 million of revenue standpoint. And that's on an adjusted EBITDA basis. I think now that we have 4 consecutive quarters of positive adjusted EBITDA and $80 million of trailing 12 revenues, I think that's holding true. So -- and then if you look at our guidance, we obviously are expecting a little bit stronger performance in the second half compared to the first half to get to the $84 million. In terms of what we can deliver with the infrastructure that we have, we think that we can leverage this infrastructure quite a bit. There certainly are some variable costs such as commissions on sales. We always are happy to pay increases in commissions because that means our sales are increasing. So there'll be some things like that, that will come to us. But we think on an overall basis, we'll be able to leverage this infrastructure with a fair amount of revenue growth. Steve Rudd: So it's your assessment at this point that you have your baseline costs exactly where you'd like them to be and not much more to be done there? John Brodin: I'd say in general, yes. But to my -- one of my previous comments, you're always looking for opportunities for savings. And some of that you may need to try to find money to invest in growth opportunities, and that's the balance that we'll continue to work on as we move forward. Operator: This concludes our Q&A session. I'll now turn the conference back to Sally Washlow for concluding remarks. Sally Washlow: I want to thank everyone again for taking time to join us today. We look forward to updating investors on our third quarter call in early February. In the interim, we hope to have an opportunity to meet with many of you either in person or virtually. We will be presenting at a number of conferences, including the Craig-Hallum Alpha Select Conference on November 18. Details will be coming out tomorrow and the Singular "Best of the Undercovered" (sic) [ Uncovered ] conference on December 11. We will announce details via press releases. Please also reach out to our Investor Relations team with any questions or to set up a meeting. Their contact information is at the bottom of today's press release. Thank you again for your interest in Orion. I look forward to updating you on our progress next quarter. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Ladies and gentlemen, welcome to the Vonovia SE Interim Results for the 9 Months 2025 Analyst and Investor Call. I'm [ Moritz ], the Chorus Call operator [Operator Instructions] The conference is being recorded [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Rene. Please go ahead. Rene Hoffmann: Thank you, [ Moritz ], and welcome, everybody, to our 9 months 2025 earnings call. Speakers today are once again, CEO, Rolf Buch; and CFO, Philip Grosse. They will be happy to lead through today's presentation and then answer your questions. With that, over to you, Rolf. Rolf Buch: Thank you, Rene, and welcome to everybody also from my side. Today, it's earning call #50, so 5-0 for me, but also for the company. And as you are well aware, it is my last one. I want to take this opportunity to remind everybody of what drives Vonovia and what makes this company different. That is why before Philip dives into the 9 months results, I will share a few slides that are more fundamental and general, but very instrumental for understanding how Vonovia approaches the business. But let me start with a brief summary on Page 3 to get us started. 9 months into the year, we are fully on track towards achieving the upper end of the guidance. Total EBITDA is up 6.4%. EBT is up even slightly higher with 6.8% and post minorities EBITDA, the most important figure for you, as I know, is up like EBITDA by 6.4%. As you will see on the guidance page, our growth momentum carries over into next year and will gain full momentum towards '28. We are well on track for our ambitious EBITDA targets. And most importantly, organic rent growth will increase to around 5% by '28. Personally, I think with higher investments and the strong underlying market rental growth, Vonovia may well see rent growth above 5% by then. The market in which we operate continues to normalize and move in the right direction. Organic value growth is happening, and we will probably see a bit more in H2 than what we have seen in H1. The transaction market remains somewhat below the levels we have seen in the ultra-low interest rate period, but it is back to the normal level that we have seen before that period. On Page 4, let me summarize our fundamental beliefs, what our fundamental beliefs are and why I think Vonovia is different. First, a mantra that I keep repeating because it is so fundamental. Our business is built on and followed certain megatrends that provide stability and safeguard Vonovia's long-term earnings and value growth. Imbalance of supply and demand in urban areas, the focus on CO2 reduction and the positive impact of demographic change on our business will not go away for the next 20 to 30 years. Against this backdrop, there are 3 guiding principles that we believe in. First, it is a low-risk business and a low-margin business because the underlying business is regulated and very low risk, the incremental yields are comparatively low. The consequences for us is that cost leadership is crucial, and we achieved this by building scale and rigorously pursuing standardization and industrialization. Second, -- our business is a B2C business. The long-term nature of rental contracts and the relation with our customers makes us a subscription-based business based on real estate. The consequences for us is that we pursue deep vertical and horizontal integration, maximum control over our value chain through in-sourcing and rolling out ancillary services to increase our share of wallets of our tenants. And third, location and portfolio quality matters. Even though it's a subscription-based business, it is still real estate. And there, location matters. There is not the one initial yield for German resi. Supply/demand imbalance is very different in different locations and housing market in urban areas simply have different fundamentals compared to the countryside. And when you are in the right location, you can unlock additional earnings and value growth through investments in the long run. The consequence for us is that we have worked hard through acquisition and disposal to focus our portfolio in the right locations. And second, we have developed the know-how and the capacity to run a large-scale and industrialized investment program. I mentioned the low risk in the underlying business in the markets in which we operate. The beautiful thing about that is obviously that our operating performance does not produce negative surprises. Rents keep going up, tenants pay their rent in full and vacancy only exists in cases where we do modernization work in the apartment. What may be a surprise to some people, even though it should build into -- it is built in the system and actually should not be a surprise is the acceleration of rent growth. We have spent a lot of time and effort in trying to explain the catch-up effect in rent from higher inflation of the past years. It is becoming more and more evident now. As you see on the guidance page later, we are continuing to move upwards to around 5% organic rent growth and above, which will, of course, have very positive implications for both earnings and value growth. Go to Page 6. One of the consequences of running a B2C end consumer business is the need for scale. The size we have reached is impossible to replicate and clearly gives us an advantage on the cost side that cannot be copied by other players who are smaller and in most cases, are a lot smaller. The chart on the bottom shows for Germany how the increase in the portfolio volume led to an expansion of the margins and the reduction of the cost per unit. What is also noteworthy here is that our customer satisfaction increased sustainable from an index 100 at the IPO to 125 today. The cost per unit number is maybe a bit complex and more difficult to compare. So let me make my point about the scale and efficiency very simple and transparent. Let's have a look on Page 7 for gross yields and adjusted net yields. Gross yields are rental income divided by fair value. Gross yields differ within the peer group, which is, of course, no surprise given the very different portfolio locations and quality. If you then look at the adjusted net yields, so EBITDA operations adjusted for maintenance because maintenance spending is clearly not a sign of efficiency, but capitalization policy, we see that the cost leakage with German resi is very different. Vonovia loses 0.4 percentage points between gross and net. And if you look only at the German portfolio, it is just 0.2% versus almost a full percentage point of the peer group. This is the result of our superior scale and efficiency that we have reached since the IPO when our spread was as high as 1.5 percentage points. Of course, at this time, we had a much smaller portfolio. In a business with low initial yield, this gap is huge. It means that we are uniquely positioned to succeed in low-yielding markets, which, of course, have higher growth potential. And it means that we generate more than EUR 400 million additional EBITDA with our platform and our way to do business, then we would have the average peer group leakage. And it means that we are extremely well positioned for a successful second Vonovia strategy. I have mentioned our platform a couple of times, so let me give you a better understanding of what I mean by that. This is Page 8. We have developed a fully integrated one-stop shop that covers the entire value chain in our business from the acquisition and development of new units to the asset and property management to the value-add and facility management to the disposal expertise. We cover the full range of the asset life cycle. And we do it an operating system that is SAP head to toe, which clearly defined interfaces between operating entities and central support functions and the seamless integration between local and central responsibilities. Today, this platform services most of our own portfolio. Owning and operating European's largest residential asset base, including being one of the largest homebuilders, safeguards unparalleled experience and a unique data pool that forms a strong backbone of the platform. Page 9. We are all aware of our activities to increase non-rental EBITDA. The general effort to do that so is not new. We have been ramping up for nonrental EBITDA since the IPO to as much as 20% of total EBITDA by '21. The sudden change in interest rate environment and our focus on liquidity generation over profitability resulted in lower non-rental EBITDAs for good reasons. Going forward, however, there is absolutely no reason why we should not be able to grow outside the rental segment. Of course, the absolute amounts are bigger than in '21, thanks to the successful integration of Deutsche Wohnen. But the underlying strategy of doing more than just collecting rent has been in Vonovia's DNA since the IPO, and there is no reason why this should not be a key element of Vonovia's strategy going forward because it makes all sense of the world. The objective for '28 to reach a level of non-rental EBITDA that we have achieved before Deutsche Wohnen is really not a stretch. Let's go to Page 10 to talk about more about locations. Again, this seems to be misunderstood by the market sometimes. Germany is not the same all across the country. Fundamentals and yields are very different in different locations. The general distinction I would make is that there are urban markets, which tend to come with lower initial yields and there are rural markets, which tend to come with higher initial yield. In both cases, this is obviously a function of the different long-term growth potential of these markets. The strong convictions about the different quality of local markets within Germany prompted a laser focus to make sure that we are in the right location. The large acquisition to grow our portfolios are well known. But what is sometimes forgotten is that we sold more than 100,000 units in what we consider rural and therefore, weaker market. Between the IPO and today, we cut the number of locations in half, and that led to not just better portfolio quality, but also to higher efficiency. And why it is so important to be in the right locations, let's go to Page 11. Most of you will have seen this analysis in previous earnings calls. The appeal of our business, as we see it, is that the annual rent growth may not always be as high as in other sectors, but it is as robust as it can get and allows us to predict our rental growth for many years to come. The gap between the market reality rent levels and our rent level ensures many years of attractive risk-adjusted rent growth. Of course, this does not apply to all markets, but only to the ones where you have a structural supply and demand imbalance. And that's why vacancy is not a concern for us. Doing modernization and charging a higher rent for a better product is not a concern for us and reletting an apartment in line with the regulation at a higher rent is not a concern for us. Affordability to make it short, is not our problem and not the problem for our tenants. As I said earlier, not only the right location matters when it comes to asset management, investments are key to unlocking further earnings and value growth. As consequences, comprehensive investment programs have been a cornerstone of Vonovia's strategy since the IPO. And the peer group comparison clearly shows that we have invested more. I know that the return of these investments cannot be easily extrapolated from the financial results because there is no immediate link between the investment amount of 1 year and the return in the next year as many of these investments take more than 1 year to be completed. That is why we looked at all investments that we have made and fully completed between 2014 and 2024. The aggregate investment amount was EUR 7.4 billion, and the average operating yield we have achieved was 7.1%. So to us, it makes all the sense in the world to continue with these investments and to increase them to EUR 2 billion per year as planned by '28. They make economic sense, and they also make sense from a sustainability point of view. So it's a win-win situation. We talked about locations. We talked about buying and selling to be in the right markets, and we talked about investments to deliver additional growth. Let me put this into context on Page 13. Because of the dynamic in our local markets and because of the comprehensive investment we have been making, we have been able to deliver best-in-class rental growth. As I said earlier, I'm personally convinced that this gap will widen in the future from superior market rent growth and superior investment driven rent growth. And this rent growth, combined with the investment and the portfolio focus has delivered a higher CAGR for value growth based on the development of fair value per square meter since the IPO. The market focus seems to be very much on earning these days, and that is fine. But let's not forget that you have 2 types of returns, earnings and value. I learned this by you 13 years ago where I joined the industry. This is a good segue into the last page of this chapter before I hand over to Philip. When you invest in Vonovia, you do not buy into an initial yield portfolio. That is why I refuse to accept the argument that we are a bond proxy and that it is all about the spread between bond yields and the net initial yield of our portfolio. Rather one should look at the total shareholder return, so earnings and organic value growth and compare that to other equity investments on a risk-adjusted basis, of course. And while it is entirely up to the investors and the market in general, what they make out of it, I consider 13% total return based on the current share price and an attractive from a risk return point of view, and that is why I look forward to remaining a Vonovia shareholder long beyond my tenure here at Vonovia. And with this, over to Philip. Philip Grosse: Thank you, Rolf, and welcome also from my side. I will start with Page 16. I think it actually speaks for itself. So no need to go into too much detail here. But let me allow to make one important point. Our Rental segment is still impacted by the smaller portfolio. Year-on-year, we have 9,000 fewer units, and that, of course, weighs on the top line. Nonetheless, nominal growth in our Rental segment alone, so excluding the non-rental EBITDA contributions overcompensated the increase in the net financial result in the first 9 months, and that is exactly the logic we have been talking about and the consequence of our long-term and very balanced maturity profile. Yes, our interest expenses are going up as expected, but rents are going up more. And combined with the non-rental growth, we will continue to be able to deliver attractive risk-adjusted earnings growth. Let's go through the 4 segments one by one and start with the Rental segment on Page 17. Rental revenue, as you can see, was almost up 3%, only held back by losing some of our top line as explained. Maintenance was a touch higher as expected and operating expenses were very much in line with last year. All in all, we basically managed to preserve the top line growth on the EBITDA level for a year-on-year increase of 2.5%. Organic rent growth remained very robust with 4.2% overall and 2.8% from market rent growth. Like in previous quarters, no need to deep dive on occupancy and collection rates as they both remain exceptionally high and are expected to remain at that superior level for the foreseeable future. On value add, that is Page 18. As you can see, the internal revenues grew by more than 15%, and that is largely a result of our increased investment and our higher in-sourcing ratio. The year-on-year comparison is skewed in so far as that the prior year includes EUR 58 million nonrecurring adjusted EBITDA from the coax network lease agreement we have made with Vodafone. Adjusting for this onetime benefit last year, value-add EBITDA were actually up 11% equally as expected. In spite of this onetime effect, we expect the value-add EBITDA for the full year to be considerably higher than last year, and that's mainly driven by higher investments and value creation in our craftsman organization as well as rising contributions from our energy business. So here, we are well on track towards further expanding the EBITDA contribution from our value-add segment as we have been guiding for. Recurring sales on Page 19, we sold 1,553 units to be precise, in the first 9 months, up 2.4% compared to last year, revenue growth of almost 12% and the higher fair value step-up far exceeded the growth in units and resulted in EUR 300 million for the 9 months 2025. And it's the combination of higher revenue and higher gross profit plus stable selling costs that drove the EBITDA contribution to almost EUR 57 million, which is 45% above the prior year. For recurring sales, we remain, again, very much on track towards further expanding EBITDA contribution. Finally, development on Page 20. We have explained in previous calls the development EBITDA was positively impacted by a larger land sale that closed early this year, hence, the extraordinary and not sustainable gross margin. If we adjust for this land sale, however, the gross margin comes down to 19%, which I consider a very normalized developer margin we are targeting that is yes, as we have been expecting for. Either way, our development business is a valuable contributor to the overall EBITDA. And here too, the increasing EBITDA contribution is very much on track. That much about the segments. On EPRA NTA, that is Page 21. The main point for the NTA really is that to a new law that will bring a reduction in corporate income tax, we saw a shift of roughly EUR 2.3 billion from deferred tax liabilities to IFRS equity. So on a net basis, more or less flat, but the composition somewhat changed. Page 22 for the debt KPIs. There isn't much change from one quarter to the other. And the bottom line on the leverage side remains that we consider it well under control. The yardstick for that is mainly with what the rating agencies expect from us to be safe on our BBB+ rating with a stable outlook. As I said last time, different points in the cycle require a stronger focus on some debt KPIs more than on others, and we are at a point where our main attention is on the ICR. There are 2 ways to look at the ICR. The numerator is the same in both cases, adjusted EBITDA total of the last 12 months, but the denominator is different. One definition, and that is the one used in bond covenants uses net cash interest and the denominator. This can be a bit volatile from time to time, depending on the interest payment dates. The bond covenant threshold is 1.8x. So I hope we can all agree that this is somewhat irrelevant from a risk point of view. To allow for a more normalized measurement of ICR, we are using the net financial result that we also use in getting from adjusted EBITDA to adjusted EBT. The ICR threshold we have set to ourselves internally is, as you know, 3.5x. Let me reiterate. Our focus is to make sure our debt KPIs are in line with the BBB+ rating criteria and a stable outlook. This is now essentially an organic development as we expect values and EBITDA to grow and therefore, to further move the debt KPIs in the right territory or even further. On the guidance, this is on Page 23. We have fine-tuned 2025 guidance and moved to the upper end of the range for both rental income and adjusted EBITDA total. As we usually do in the third quarter, we are also giving an initial guidance for the next year. No need to read all individual line items now, but do allow me to zoom in on the organic rent growth. You may recall the concept of the additional irrevocable rent increase claim that we introduced a few quarters back. We are showing it here again to demonstrate that the rent growth is coming. It is actually already there, apartment by apartment. But because of the Kappungsgrenze, it cannot be implemented just yet. Kappungsgrenze, as a reminder, is the cap that allows you not to increase rents by more than 15% for selling tenants over a 3-year time horizon in tight markets. We explained the underlying concept on Page 30 of the presentation in more detail. Let me say this, for 2026, we have a net increase of another 0.4 percentage points to a total of 3% that is already booked onto the underlying apartments, but can only be implemented once the rental cap has lapsed in subsequent years. I can put it differently, if the 0.4 percentage points net buildup would be harvested already next year, 2026 organic rent growth would be around 4.6%. So you can actually see that the acceleration is coming through as promised. Without any rental cap, by the way, 2026 organic rent growth would be north of 7%. We did the math on how much net buildup and net use of this additional irrevocable rent increase claim we will have on our way to 2028. And based on our probably rather conservative assumptions for future rent indices, we will see a net use that will take the actual organic rent growth to around 5%, also supported by higher investments. So what we are moving towards is a step change in rental growth that surpasses historic rent growth numbers, which should not come as a surprise actually because at the end of the day, this is higher inflation finding its way over time into organic rent growth like we have always said. And referring back to the commentary Rolf made, this higher level of rent growth will have a positive impact on both types of shareholder return, and that is earnings growth and value growth. Final comment on the guidance page. Some of you are asking for more clarity on minorities and taxes. EBT minorities are expected to be around 10% of adjusted EBT. And cash taxes, and that obviously includes taxes for our disposal segments are expected to be inside 10% of the adjusted EBITDA total for 2025 and same applies for 2026. The CEO handover process is underway, and Luka will be joining at the end of this month before he will officially assume his new role as CEO starting in January. We will miss Rolf, but we are equally excited about Luka joining and with that commentary, for the last time, Rolf, back to you. Rolf Buch: And for the last time -- thank you, Philip. Before we go to the Q&A, allow me briefly summarize the relevant point of today's presentation. As we laid out, the way Vonovia approaches the business is different, and it has led to operational outperformance that we expect to continue. This puts the company in an excellent position for the future earnings and value growth. Our market environment and operating business remains rock solid, and we are well on track towards achieving our ambitious targets, both for rental and non-rental growth. We have put the company into a tremendous stable footing, and we have -- and we leave it well positioned for further earnings and value growth. We have built a platform that is second to none and will prove to be the cornerstone in the company's effort to build a second Vonovia. All this will be in great hands with Luka. I wish him and the entire Vonovia team all the best and have no doubt that together, they will write a new and very successful chapter in the history of Vonovia. But more important, I would like to thank you all for your support in the last 12 years. Without the support and the willingness to invest, it would not have been possible to build this Vonovia, this great platform. With this, thank you very much. And back to Rene for the Q&A. Rene Hoffmann: Thank you, Rolf. Thank you, Philip. I hand it back to [ Moritz ] for the Q&A. And just as a reminder, everybody, let's keep it to 2 questions per person, please. [ Moritz ], can you start the Q&A part? Operator: [Operator Instructions] And the first question comes from Charles Bossier from UBS. Charles Boissier: I have 2 questions. The first one is on the change in the organic rent growth guidance for 2028 from 4% plus to now 5%. What exactly has changed, I would say, versus the initial guidance that you had set up, whether in the market or in terms of your ability to capture that rental growth? Philip Grosse: Charles, answer is very, very simple. We've been telling you before above 4%. I think now we have become more precise. If we look at the underlying data, and we have done a very comprehensive analysis, we can see that historic inflation is coming through over time to the extent allowed by the Kappungsgrenze, the rental caps, and you will see also going forward numbers in between 2.5% to 3%, non-investment driven and the other bit is investment driven. That is currently 1.4%, but with us more or less doubling the investments vis-a-vis what we have seen last year, we will see also an acceleration in rental growth, in the investment-driven bit. And here, as a reminder, cash-on-cash is 6% to 7% with the vast majority ending up in the rental EBITDA and a portion of that ending up because of the value creation of our craftsman organization in the value-add EBITDA. Charles Boissier: Okay. Very clear. And on the transaction market, you present quite a positive story of normalization and you're also pointing to H2 valuation accelerating versus H1. Still in Q3, it seems rather slow in terms of transaction activity. Of course, there were some small deals here and there, 850 apartments at long transaction. But what are you seeing in the transaction market that makes you confident that it has normalized and you would be able to sell assets at book values? Rolf Buch: So first of all, even in the bad times where the transaction market was much worse, we sold assets for book value. So it's probably quality of assets, which is relevant. But to be very clear, what you see and what is seen in the public is the big transactions. In reality, there is an underlying transaction market of smaller players. And this I mentioned in my speech is actually back to the level where it has been before the ultra-low investment rate environment. So -- what we see here in the listed sector is just a small part of the big transactions. But the market really is consisting out of a lot of smaller transactions. And there, we see a very stable thing, and we see the demand and we see supply coming to the market. So I can confirm that the market is pretty stable and going in the right direction. And as Philip said, we will expect a higher valuation in H2 than what uplift than we have seen in H1. Operator: Then the next question comes from Valerie Jacob from Bernstein. Valerie Jacob Guezi: I've just got a follow-up question, a clarification on the comment that you made that you expect organic growth in asset values to be higher in H2. I think part of it is mechanically driven by you spending more CapEx. So I was wondering, is this comment is also valid if we exclude the CapEx from your asset value growth? That's my first question. I've got a second question. Philip Grosse: You have that acceleration on both sides on a gross as well as on a net basis. And in H1, you have seen net value growth of 70 basis points, and that number will be exceeded in H2. Valerie Jacob Guezi: Okay. That's clear. My second question is on your ICR. I mean I'm not sure this is helpful that you're changing a definition again. So I was just wondering, going forward, are you still going to publish the definition on the bond definition? Or are you only going to publish your own definition? Philip Grosse: Valerie, I think what we just wanted to make clear is that we internally manage our business in a different way and not by bond covenants. That, by the way, is no different if you look at LTV metrics. Because if you look at the covenants that the LTV is not a concept in the bond covenants. But here, you more look at capital -- more broader capital ratios. The flip side, if you will, on the bond definition is, as I said, there's a bit more volatility. It very much depends point in time where you actually pay interest. Over time, if you don't make the quarter-by-quarter comparison, the 2 are very, very similar to each other. So typically, a difference of 10 basis points. And more specifically, we will disclose both. Operator: And the next question comes from Bart Gysens from Morgan Stanley. Bart Gysens: My first question is also on the ICR actually. You talk about moving that into better territory. But I just wanted to understand how you can do that for the ICR. I mean the average cost of debt is running at 1.9%. You managed to keep that flat. You have to refi about EUR 4 billion to EUR 5 billion a year medium term. Now even if reported EBITDA grows by 7% per annum as you're guiding, that suggests that actually if you finance at the current marginal cost of debt, interest cover will not improve on the contrary. So how do you look at that? And are you considering more alternative solutions like convertible bonds or preferred equity? Philip Grosse: No, Bart, to be very precise, where we are moving in the right direction is in terms of LTV and is in terms of net debt to EBITDA. LTV because I have conviction as we have seen this in the running here that the rental increase, net of the investment required to achieve that rental increase will translate itself into value growth. And if I look at net debt to EBITDA, we have, as you know, a number of initiatives which are running very well to, in particular, increase also the nonrental EBITDA and that will move that metric further down. The ICR is really our intention to keep that somewhat stable at current level. And that is going to be the major focus. And here, yes, we probably need some positive backdrop in market in terms of refinancing costs. Our assumption is that this somewhat remains at current level of 4%. And it's also no secret that I think that convertible product as part of the capital structure is a good addition. You should not overplay it. So it should be a moderate portion of your capital structure in terms of liquidity and the underlying stock, plus in terms of the overall debt burden. But with that having said, I think there is capacity for more. And to be crystal clear, convertible is for us, no ambiguity, 100% debt. And the assumption always is that it will never come to the dilution, but that if the convertible is in the money and at maturity is going to be refinanced by a new convertible [indiscernible] was at a higher stock price and that is essentially, if you do the math, reducing contingent dilution. But again, the focus, and that is what is driving the capital structure going forward is going to be the ICR. Bart Gysens: Great. And then my other question is on recurring sales on Slide 19. So you've sold more or less the same amount of units as a year ago, but at a different price point, right, around 10% higher per unit. Have you started selling a different type or quality or location? Should we read anything into this? Rolf Buch: No, I think the biggest -- there might be a small different mixture, but I think what you should read is that what we have announced, we have sold also this product in the period where liquidity was for us important actually with less focus on price. As we announced in October or November last year, we said now we will come back to normal. And what you see is that the margin is actually coming back what we have expected. So this, of course, comes together with the recovery of the market. So you see here that the market obviously is ready to pay the well-known premium, which was paid before the crisis for individual apartments versus blocks. So the retail and wholesale margin is back to normal, which is also, I think, an additional answer to the question about what -- why the market is coming back. You can see it in this figure. Operator: . And the next question comes from Thomas Neuhold from Kepler Cheuvreux. Thomas Neuhold: My first question would be on the non-rental business. Can you please provide us an update on the new expanded business areas such as stranded assets, occupancy rights and third-party business? Did you manage to strike already some interesting deals there? Rolf Buch: Yes. I think to what we call managed to green assets, which is a former called undeveloped assets, but I think managed to green is a much better and more precise definition. As you know, we have signed the first deal. We are in a round to -- in the final round and actually exclusive negotiation with others with more potential. It took us a little bit longer to get this started than originally we expected. But now I think we are on the full run. So I don't see anything else. This is the same for the occupancy rights. And actually, to be very clear, we manage all these additional activities in total, the 10 where we see -- we are in line with our expectation. We are in line with the guidance which we have given you to '28. So there is no reason to do any -- to be nervous actually or the opposite. Some of them are getting better and especially for the second Vonovia, as you know, we will not talk about potential deals there. But I can tell you that in the last 2 months, which are remaining for me here, there is still a lot of opportunity where we are in discussions. Thomas Neuhold: And my second question is for Philip. Can you please give us an indication what impact the lowered corporate tax rate in Germany will have on your cash tax rate going forward once it's going to be implemented? Philip Grosse: I mean, still some time out. It's starting 2028. So this is now asking for a very long-term guidance. This is, as I said, for now, predominantly impacting deferred tax liabilities, which because of the embedded reduction in corporate tax rate is resulting in that one-off gain of EUR 2.3 billion. In terms of more broader picture, I think let me tell you that much. I mean, by us significantly increasing our investments, our rental and value-add business is not hugely impacted by tax payments because most of the investments we undertake according to German GAAP are actually reducing our taxable income, and that you will see in lower tax rates actually for our rental and value-add business going forward. That, however, is somewhat compensated by higher tax rates because we do more disposal business, and that is for development to sell equally as for our recurring sales business. And yes, here, you may have some small benefits in the long run on the lowering of the tax rate. I think what is, however, even more important, and that is in particular for development to sell in global assets is about structuring and the way how you sell it essentially, which allows you to optimize the tax line. Operator: The next question comes from Andrew McCreath from Green Street. Andrew McCreath: I also have 2. Firstly, on development. Looking at your numbers, 3Q doesn't suggest much acceleration in activity. Could you please just provide some color on the dynamics there? Are you seeing any improvement in sales pace? That would be the first question. And the second would be on construction. For the initial projects in Berlin and Dresden, you've guided to an all-in cost of EUR 3,600 per square meter. What sort of yield on costs are you underwriting for these developments? Philip Grosse: On your first question, Andrew, on the development, as I said, if you look at the profitability, that was really much driven by the sale of a land plot we closed in Q1. And that is essentially also the somewhat overriding story for this year because we have sold essentially all project developments we had in our pipeline in the last 2 years in order to generate cash. And because of the crisis did not start new projects, we first need to have building up a platform on the basis of which we can earn the targeted gross margins of 15% to 20%. You will see a kind of more steady development already next year but only partially because also next year is going to be a mix between first completions and selling of those completions or started projects, which we sell based on POC method. But you will also see the disposal of land plots in the coming year. And I think the kind of ramp-up as we have been budgeting for is really to come through as of 2027 and beyond. Rolf Buch: And for the new construction, I think this is one topic which is not only important for Vonovia, but for the whole German market. I think with the about turbo and with [indiscernible] the most recent new legislation, it will provide us with the possibility to reduce the construction cost by 30%. So this famous EUR 3,500, all including, which is actually comparable to the lateral letting. And we are targeting a initial yield of roughly 5%. And then, of course, these buildings come with in the first years, no maintenance and an increase of rent, which is often very indexed. So that's why the initial yield is low, but then the yield will go up over time. And that's why it's a good investment. And this is either for us on our own balance sheet or if it's for sale, it's for others who are ready to invest 5% yield. Philip Grosse: Let me be very clear and add one thing. What you see in the development EBITDA is only development to sell. And development to sell, as I said, we are targeting gross margins of 15% to 20%, and we are essentially targeting IRRs north of 10%. And that is what you will see in that profitability line. So it's not yield on cost driven how we manage that business. It's IRR driven. Operator: The next question comes from Paul May from Barclays. Paul May: Just a couple of questions from my side. Thanks for the analysis on the return on investment, I think 7.1% you highlight over multiple years. I think as you know, we calculate close to 5% based on reported numbers. I think you said that's not possible to make that calculation. So thank you for providing that color. Just wondered why is that below the 8% to 10% return on investment that you've previously and multiple times guided to? That is the first question. And the second question, I think you highlighted through the presentation how you're better than other listed peers based on your NOI yields. But I think on our numbers, where a lot of your cost comes is through your admin cost line versus others. And if you look at it more on an EBIT yield or EBIT margin basis, you're either lower or similar to peers, and therefore, you obviously your yield much lower. And also, are you penalizing certain peers by including land in their gross asset value and not including, say, housing profits or housing sale profits in the EBITDA or in the NOI? Just wondering if you're sort of overly penalizing certain peers. Rolf Buch: No, I think the last one we are not doing. This is all public information, and I think Rene can guide you through. To be very clear, we are operating a little bit different in a different platform. That's why I added the site of the platform that our way to do central and noncentral is a little different. That's why this is the reason for efficiency. So I think the only way how you can really compare it is to do the net yield and the gross yield, and we can guide you through this, but this is based on public information. The other question was about... Philip Grosse: One was on the yield of the investment program. Paul, we've been, I think, explaining for quite some time that the mix of our various investment programs, and that is the energetic modernization of the building that are the reletting investments when we have tenant churn, that is also our develop to hold business are averaging out with cash-on-cash yields of 6% to 7% and that we, at least historically, are more at the upper end of the range that calculation is demonstrating. What we are benefiting here and that is probably a bit different for Vonovia than for the broader sector is that we are able to compensate for some of the maintenance spend, which, by definition, is a part of broader investments by putting our own craftsman organization into play because here, again, we can earn some extra money. So that yield is actually vast majority ending up in the rental EBITDA, but part also in the value-add EBITDA. And it's only for that very reason that we can achieve these high numbers. Operator: The next question comes from Thomas Rothaeusler from Deutsche Bank. Thomas Rothaeusler: Two questions. The first one is on the value-add business. Operating profit was only flat despite the pickup of investments. Actually, we see the same pattern for rental growth, which even came down if you look at modernization-driven rent adjustments. You basically say that investment returns come with a time lag of more than 1 year. Just wondering by when we should see a meaningful -- more meaningful pickup here. Rolf Buch: I think what you're doing is now you're comparing quarter-by-quarter, right? Thomas Rothaeusler: Actually, year-on-year, if I look at the investments year-on-year and look at the performance of the value-add business and look at the performance from rental growth out of monetization measures. Philip Grosse: What is -- if you look, Thomas, at the profitability line of value-add, what is distorting a year-by-year comparison is a very big onetime benefit we have seen last year by the conclusion of a finance lease agreement with Vodafone, and that resulted in an EBITDA, which is not repeating itself this year of more than EUR 50 million. Now if I look at the composition of the various profitability streams, which are adding up to the value add is really very much the craftsman organization where we have seen a very nice turnaround story. Craftsman organization, a, benefiting from higher investment volumes; b, benefiting from higher in-sourcing ratio that, by the way, is also why you see that change in terms of revenues in favor of internal versus external. And what you can equally see is that we are seeing a nice ramp-up in our energy business, and that is thanks to the investments we undertaken photovoltaic. All the other businesses really flattish with the exception of multimedia, where we have year-on-year a decline, I think, of 60%, and that is because of that onetime impact, which is not repeating itself. Is that sufficiently answering your question? Thomas Rothaeusler: Perfect. On the second point is actually on disposals. I mean you referred to improved investment markets. Should we expect this to allow you to speed up noncore disposals maybe? Rolf Buch: Yes. I think we are now back on the normal level. So we are doing noncore disposals as it is accretive and attractive for the pricing. So we are not pushing so much for volume, but we are pushing a little bit also related to the price. Yes, but it is becoming easier also for the noncore disposal. Operator: The next question comes from Marc Mozzi from Bank of America. Marc Louis Mozzi: My first question is around your number of shares. How should we assume the number of shares you're going to use for the calculation of your dividend and EPS for this year at the end of the year because there are some changes here. And I'm just wondering if you can help us having some clarity on that number. I'm talking about the weighted average, not the total. Philip Grosse: I think there is no change whatsoever. It's always the same if we look at profitability numbers, we take the weighted average of the past 4 quarters. By way of reference, little change. I mean, what you have seen in terms of increase in share count is, a, the scrip dividend, which has seen a take-up of slightly above 30%; and b, I think in total, 12 million shares as a result of the domination and profit loss transfer agreement with Deutsche Wohnen, so people accepting the exchange offer, but that is really marginal. When we look at balance sheet numbers, and that is EPRA NTA, we look at the year-end number in terms of share count, but also no change. And the dividend is always end of period. Marc Louis Mozzi: Fair enough. And the other question is around the dividend. And I would like to understand how we should think about the dividend per share for the year because we know that it's 50% of the EBT. So that's roughly EUR 950 million plus surplus liquidity, which I understand is very subjective. I guess you would like to show some dividend growth, what sort of growth on which basis, how are you going to assess your dividend proposal to the shareholder and to the Board? Philip Grosse: Look, Mark, no change here. I mean, for now, I think our dividend policy is what our dividend policy is. It's 50% of EBT plus liquidity, and that is based on the operating free cash flow. And as usual, we will discuss that at the appropriate time and make a proposal to the shareholder meeting, which I think is in May next year. Marc Louis Mozzi: Are you comfortable with the current market forecast of your dividend for this year? Philip Grosse: [indiscernible] what that is actually. Marc Louis Mozzi: Fair enough. That's exactly what I thought. It's EUR 126 million, EUR 125 million... Rolf Buch: So we should not come even not indirect to dividend guidance. This is not the time we will come with a dividend proposal and not we, but the new management team will come with a dividend proposal if it's appropriate and this is next year. Marc Louis Mozzi: Fair enough. I totally understand. Well, Rolf, I would like to congratulate you for running Vonovia for the past 12 years and all the best for what's next for you. Operator: The next question comes from Simon Stippig from Warburg Research. Simon Stippig: First one is on Page 7, you showed your gross to net yield translation. And you mentioned that here in Germany, it's only 20 basis points. So in Sweden and Austria, I think you're holding only 11% based on units of your portfolio. So could you explain me the reasoning of why holding on to the portfolios in Austria and Sweden? And second one would be -- in regard to your operating free cash flow, Q3 was the lowest compared to previous quarters. I know it's mainly due to net working capital movements that comes obviously from your development to sell pipeline. But could you explain or indicate what we can expect here for the last quarter? And then also more importantly, what you see here for the next year. And by that, I mean items that are not so well explained, not like the minorities, for example, I think you were very clear in previous conference calls. But maybe the capitalization rate, does it stay the same and also your capital commitment to development to sell? And lastly, I, Rolf, stay in good health and best of luck for the next challenge. Rolf Buch: Okay. For example, the first time -- the first question I take, I think Austria in this respect is probably less relevant. It's all about Sweden. And you know in Sweden, this is a warm rent, so it includes the energy. So that's why the gap, which is actually energy is counted here as cost to operate. That's why technically it is higher, and that's why we are coming to 0.4% in total. But this -- then you have to compare the Swedish business with other Swedish players, which, of course, we have done, and we could provide you the same, for example, comparison with Heimstaden and we are more efficient with Heimstaden. That's why I mentioned the 0.2% because in the end, this slide is more relevant if you compare it to the German peers, you would compare it more with 0.2% and not the 0.4%, which is in the -- in the notes. But because you cannot directly extract from our reported figures, the 0.4%, you can report from the figures that we -- I think we showed the 0.4%. But the difference between 0.4% and 0.2% is because of the different nature in the Swedish market where everybody has to cover the cost as a part of cost and not of a pass-through item. Philip Grosse: Then, Simon, on your second question, a bit more specific on the operating free cash flow. I mean, you know that we are not guiding on that. What we have been guiding for is excluding changes in the net working capital, why is it that we have done that? Because there's, by definition, some volatility, in particular, if you look on a quarter-by-quarter comparison because it largely depends on the point in time when we have the cash in, for instance, for bigger global exits in the development to sell business. So please don't get nervous on the quarter-by-quarter comparison, but that's not really the picture to draw. More long term, how I would look at it without guiding, if I were you, is that if you start with the depreciation line, that is impacted by, in particular, our investments in photovoltaic, which I think is around EUR 100 million per annum, depreciation 20 years. And given that we do invest in photovoltaic quite significantly, you will see that line gradually going up, which is positive for the cash flow. I think as in the past, net working capital is very difficult. And as a reminder, there are 2 elements in it. It's development to sell, where my intention is to manage the business in a way that it's at least more or less flattish in terms of the net working capital movements, not on a quarter-by-quarter comparison, but on a rolling 12-month basis. What, however, is also in there is the managed to green business, Rolf was mentioning, and that will require an initial capital buildup. So that kind of portion will be negative and how negative depends on how much we are actually able to acquire. But we will give details on that, and we will also give details on the split of those 2 elements going forward, how it affects the net working capital. And the rest, I think, is straightforward. Capitalized maintenance, I would kind of monitor vis-a-vis inflation because this is what's driving that line item. Dividends and minorities, I think we talked about in length. So you should have all the details, including the additional disclosure we put on our web page. And income taxes, I think the guidance somewhat remains also longer term, and I was making that point previously that I expect that to be slightly inside 10% of total EBITDA. Simon Stippig: Great. Second question was very clear. Maybe I can ask a follow-up on the first one. Is that possible? Philip Grosse: Yes. Simon Stippig: Great. I think it's more profound because you made the case that you want to get to scale and scale brings your cost ratio down. So I just wonder in Austria, you're not building up the portfolio. And then Sweden also, I'm sure things have changed since you acquired BUWOG and also since you expanded into geographies in the North. But is it really that you want to build that up? Or is it more a hold case? Or is it really also the potential that you could sell it and then reallocate the cash towards your own business in Germany or even buying back shares? Rolf Buch: So first of all, and really Austria and Sweden is actually 2 types of story. First of all, the Austrian platform is partly because of language, because of very similar rental systems is partly integrated into or has a higher overlap between the German platform. So -- and then, of course, Austria is also linked to the development business because in Austria, they are running a development to sell business. So you're building a part, you're taking it on your platform for 10 years and then you are selling it with a high margin. So that's why the Austrian part is probably more linked to the development business than to the rental business. For the Swedish business, actually, the same applies. We have bought -- the only 2 listed companies. So we have consolidated the listed market there. We have superior cost in comparison to the other listed -- other Swedish operators are nonlisted by definition because they're not listed left, but we know this data. So it's the same. It's the same opportunity then in Germany, we have in Sweden for the second Vonovia. So I see actually in both in Germany and in Sweden, the chance for playing this platform and making money out of doing just services based on the better cost structure in comparison to people who own assets and want to get rid of the expensive platform where they operate or buy new assets with a very attractive platform. So I see the possibility in both and also you cannot compare Sweden to Germany. You have to compare Sweden to Swedish and you have to compare Germany to Germany. So that's why I think it's 2 different markets. And in those markets, the presentation we have shown you on Page 7 is applicable also -- is applicable. Operator: The next question comes from Pierre-Emmanuel Clouard from Jefferies. Pierre-Emmanuel Clouard: Actually, I have a quick follow-up question on Simon's question about Sweden. Is this something that has been discussed with Board members about potential sale of the Swedish portfolio? Or is it up to the new CEO, especially in light of a rebound of the investment market? Is it an open question? Or is it not a case today and Sweden will be there among Vonovia's portfolio for many, many years. Rolf Buch: So to be very clear, it was discussed in the period of '22 where we talked about disposal. And this was a question where we ended up with alternative structures, which are more attractive at this time. In the moment, it is not part of the discussion which the Management Board is doing with the Supervisory Board, and it's not a discussion inside the Management Board, but also to be clear. So I personally think -- and I think this is not coming to a surprise for you. I personally think that if you are talking about second Vonovia, it is better if you cover more jurisdictions than less. So I think this is important for the second Vonovia strategy, but I'm also here only 2 months left. So I think the new management team under the lead of Luka has also to think about it. But at the moment, there's no indication that there is a thinking, but I should not predict what happens in the future. Pierre-Emmanuel Clouard: Okay. That's clear. And my second question is on the value-add business and Vonovia in general. With the expected increase in minimum wage in Germany, is there any impact to expect on the -- on margins on your value-add business segment from 2027? Rolf Buch: No. Very simple question, no. Pierre-Emmanuel Clouard: Right. Why that? Rolf Buch: Because the business where we operate, so the craftsmen are much above the minimum salary anyway because this is a different general agreement with the unions. So there is no impact. And the people in some parts of the gardeners are close to the minimum salary, but these are pass-through items to the tenants. Operator: The next question comes from Manuel Martin from ODDO BHF. Manuel Martin: The first question, it's a bit kind of accounting question. We saw the effect of the change in legislation on deferred taxes in the P&L and also in the EPRA NTA calculation. When it comes to the EPRA NTA calculation, the EPRA NTA seems to have nevertheless decreased marginally in 3Q versus H1. Is there a special reason behind that? Or is this also kind of effects in the deferred tax? Maybe you can give us a hint there, please? Philip Grosse: This is predominantly driven by the liabilities we had to account for, for the guaranteed dividend in the context of the exchange offer we made to Deutsche Wohnen minority shareholders. Roughly EUR 400 million. Manuel Martin: EUR 400 million. All right. Second question is a bit more broader question on the market. I mean the rental increases in the market and which Vonovia is showing and will show in the future, is this something which is also monitored by government and politicians? And what do you hear from politicians? Might that be an issue in the future? Rolf Buch: No, I think you have to distinguish between sitting tenants and new letting. So for the sitting tenants, it's very simple. I just showed it in the political debate here in Germany. Our increase in sitting tenant between '22 and '24 was 4.8% for sitting tenants without investment. So just having the apartment with no increase. And the increase in salary was more than 10%. So the affordability is going up and not down. So we have no affordability gap. For the new letting, of course, there is an issue because especially if you refer to the gray market. So the market which is outside the mid-price from the partly illegal, of course, where the situation is extreme, where we really have an affordability issue for gray market rents, EUR 20 for Berlin. This is beyond the affordability of normal people. And that's why you have to distinguish this. I think it's getting more and more understood by the politicians, that this is 2 things. But the gray market, even with the mid-price premise, you cannot stop it. So there is only one solution to work on the imbalance of supply and demand to do more products. That's why we have the [indiscernible] where I think this will help. But as you see me in the press, we also now have to work on the rental regulation because the existing rental regulation with mid-price premise with Kappungsgrenze and with the EUR 2 and EUR 3 will not make it happen that there will be more investment in housing. And this means that the situation of high gray rents will be coming worse and not better. And I am positive that one day the politicians will get it. Manuel Martin: Okay. I see. And Rolf, all the best for you in your future positions or plans. Operator: The next question comes from Neil Green from JPMorgan. Neil Green: Just one, please, and it goes back to kind of one of the earlier comments about marginal debt costs. I think you said around 4% was in the guidance. I think your long-term unsecured bonds are trading within that 4% at the moment. And I think it's fair to say then that the secured debt would also probably be within 4% as well. So I'm just wondering whether that 4% assumption you have is kind of conservative or if there's something that I'm perhaps missing, please? Philip Grosse: I think we will see later today the actual proof point where our cost of debt are currently because we are in the market with a bigger bond issuance, 7, 11 and 15 years. Look, I mean, if you do a midterm planning, I think it is overly aggressive if you were to assume a decrease in rates. And the 4% I've been mentioning actually in our internal planning, I'm even putting kind of a safety margin on top of it because you never know whether there is a slight shift up or down vis-a-vis spot rates. I feel comfortable with the assumption of kind of a stable financing environment. As I said before, that obviously is very paramount for us on how aggressively we need to manage the ICR. But again, my baseline is that 4%. Operator: Ladies and gentlemen, this was the last question. I would now like to turn the conference back over to Rene for any closing remarks. Rene Hoffmann: Thank you, [ Moritz ], and especially thanks, everybody, for dialing in and joining this call. As always, if you have any follow-ups, you know where to find me and also my colleagues, feel free to ask. We're looking forward to connecting with you in the days and weeks ahead. And that concludes today's call. As always, stay safe, happy and healthy. Bye now. Rolf Buch: Bye-bye. Operator: Ladies and gentlemen, the conference has now concluded, and you may disconnect. Thank you for joining, and have a pleasant day. Goodbye.
Operator: Good morning, everyone, and welcome to the Trulieve Cannabis Corporation Third Quarter 2025 Financial Results Conference Call. My name is Danielle, and I will be your conference operator today. As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Christine Hersey, Vice President of Investor Relations for Trulieve. You may begin. Christine Hersey: Thank you. Good morning and thank you for joining us. During today's call, Kim Rivers, Chief Executive Officer; and Jan Reese, Chief Financial Officer will deliver prepared remarks on the financial performance and outlook for Trulieve. Following the prepared remarks, we will open the call to questions. This morning, we reported third quarter 2025 results. A copy of our earnings press release and PowerPoint presentation may be found on the Investor Relations section of our website, www.trulieve.com. An archived version of today's conference call will be available on our website later today. As a reminder, statements made during this call that are not historical facts constitute forward-looking statements, and these statements are subject to risks, uncertainties and other factors that could cause our actual results to differ materially from our historical results or from our forecast, including the risks and uncertainties described in the company's filings with the Securities and Exchange Commission, including Item 1A, Risk Factors of the company's most recent annual report on Form 10-K as well as our periodic quarterly filings. Although the company may voluntarily do so from time to time, it undertakes no commitment to update or revise these forward-looking statements whether as a result of new information, future events or otherwise, except as required by law. During the call, management will also discuss certain financial measures that are not calculated in accordance with the United States Generally Accepted Accounting Principles or GAAP. We generally refer to these as non-GAAP financial measures. These measures should not be considered in isolation or as a substitute for Trulieve's financial results prepared in accordance with GAAP. A reconciliation of these non-GAAP measures to the most directly comparable GAAP measures is available in our earnings press release that is an exhibit to our current report on Form 8-K that we furnished to the SEC today and can be found in the Investor Relations section of our website. Lastly, at times during our prepared remarks or responses to your questions, we may offer metrics to provide greater insight into the dynamics of our business or our financial results. Please be advised that we may or may not continue to provide these additional details in the future. I'll now turn the call over to our CEO, Kim Rivers. Kimberly Rivers: Thank you, Christine. Good morning, everyone, and thank you for joining us today. First, I'd like to extend a warm welcome to Jan Reese, our new Chief Financial Officer. Jan brings a wealth of leadership experience and has already made impactful contributions since joining the team. We're thrilled to have him on board. Turning to the third quarter, we are pleased to report results that highlight the continued strength of our core business. Despite seasonal pressure in the quarter, the team delivered robust margins and strong cash generation, while also expanding our customer base. As we prepare for the busy holiday season, we remain encouraged by the momentum behind meaningful cannabis reform. Trulieve continues to lead the industry forward, pushing for impactful change, while reducing the stigma surrounding cannabis. Moving to our results. Third quarter revenue of $288 million was in line with guidance and typical seasonal trends. Industry-leading gross margin at 59% reflects pricing compression, partly offset by operational efficiencies. Adjusted SG&A expense declined by $9 million compared to last year, demonstrating the team's commitment to reducing expenses in our core business. Adjusted EBITDA of $103 million improved by 7% versus last year to 36% margin, underscoring tight expense control. Operating cash flow of $77 million contributed to cash of $458 million at quarter end. Yesterday, we announced the planned redemption in December of our notes due in October 2026. Depending on terms, we may issue new notes were up $250 million. During the third quarter, retail traffic and units sold increased by 6% and 7% year-over-year, highlighting strong demand for cannabis. Consumers continue to lean in towards value and mid-tier products, reflective of general economic conditions. Wholesale revenue grew 16% compared to last year, highlighting continued execution. Outperformance in wholesale was driven by strength in Maryland, Ohio and Pennsylvania. We are expanding our wholesale business as conditions permit with careful monitoring of the credit quality of customers and industry development. In our core markets, October traffic has improved compared to September, in line with historical seasonal patterns. We are continuing to monitor consumer behavior closely for any changes in preferences and spending. As we approach year-end, our team remains focused on 4 key areas: reform, customers, distribution and branded products. I'd like to start by discussing federal and state cannabis reform given the importance for our industry. We remain optimistic that the Trump administration will address cannabis reform by rescheduling marijuana to Schedule III. This important milestone would acknowledge the medical value of cannabis and open the door for additional research. Millions of Americans rely on medical cannabis for relief, a fact that contradicts the current Schedule I classification. Rescheduling would not legalize cannabis, but it would remove the punitive tax burden on state legal operators, enabling greater conversion from the illicit market. We believe Rescheduling represents the first major domino in federal reform. Additional steps are needed to address challenges with banking and the growing divide between federal and state laws. SAFER Banking enjoys widespread bipartisan support as elected officials from both parties recognize the need to remove excess cash from dispensaries to ensure safety for workers and discourage criminal activities such as money laundering. In our home state of Florida, Trulieve continues to support the Smart and Safe Florida campaign for adult-use legalization. The 2026 ballot language includes revisions to address concerns raised during the 2024 campaign, which narrowly missed the 60% threshold required for passage. The new ballot language prohibits products and packaging that could be attractive to children, prohibits smoking in public, direct issuance of new nonvertical licenses and expressly clears the way for the state legislative body to allow homegrown marijuana. Signature gathering efforts are ongoing, and the campaign expects to reach the required number of validated signatures prior to the February 1 deadline. As of November 1, more than 1.1 million raw signatures have been submitted with over 675,000 signatures validated. We expect Florida Supreme Court review of the ballot language and summary will be concluded as required by April 1 of next year. To date, Trulieve has been the primary financial contributor to this effort, leading this charge for change in Florida. While we firmly believe in the potential for Florida to serve as a model for successful state cannabis programs, we are preserving optionality in deciding whether to contribute meaningful financing to the 2026 campaign. Trulieve's ongoing support of the campaign will be determined based upon data and the political landscape heading into the 2026 election. In Pennsylvania, we remain optimistic that a compromise can eventually be reached to enact adult-use legalization. We believe state legislators recognize the potential for adult-use to satisfy constituent demand for cannabis, while generating revenue for the state. Several bills have been filed this year, and many constructive sessions and hearings have been conducted. If adult-use is launched in Pennsylvania, Trulieve is well positioned given our established retail footprint, strong brand in retail and wholesale and scale production capabilities. With the adult-use programs already launched in 5 of 6 neighboring states, we expect Pennsylvania will enact adult-use in the near-term. In addition to reform efforts, we are driving operational improvements in 3 key areas: customers, distribution and Branded Products. Since inception, Trulieve has grown with customers at the forefront of everything we do. By providing a normalized retail environment alongside superior service, we strive to deliver exceptional customer experiences throughout the customer journey. Personalized customer messaging and engagement continues to evolve as we add new capability to our customer data platform and analytical tools. During the third quarter, we implemented new product recommendation schemas, including prompt for suggestions and repurchases. Similarly, we added enhanced customer segmentation features to allow predictive modeling for shopping patterns, frequency and anticipated order dates. These tools allow identification of customers and personalized timing of recommendations to drive reengagement. Our generous Rewards program continues to grow, reaching 820,000 members at the end of September. We continue to see greater retention and monthly spend among members, who spend on average 2.5x more than nonmembers. Rewards members completed 77% of third quarter transactions. We recently introduced new monthly rewards statements, that highlight key milestones achieved to enhance program engagement and visibility. Building upon the success of our Rewards program, today, we launched a new mobile app available for download in the Apple App Store. The Trulieve mobile app is uniquely designed to deliver a best-in-class experience that centralizes shopping, deals, gamification and rewards. The app gives customers an effortless and engaging way to browse and reserve products, push notifications to learn about special promotions or when orders are ready for pick up provides a more seamless experience compared to e-mail and text messaging. We are excited to bring these new features to our Apple customers in Florida, and we look forward to launching the app in additional markets and on Android devices in 2026. Personalized messaging, loyalty rewards, and seamless digital experiences all contribute to customer retention. Third quarter retention improved by 1% sequentially to 68% company-wide with 76% retention in medical-only markets. While customer retention metrics are strong, we are amplifying the Trulieve brand through local engagement to attract new customers. Across our markets, we are recalibrating community events to focus on 4 key areas: helping patients, serving veterans, assisting seniors, and promoting restorative justice. Through community activities, partnerships and charitable work, we are directly addressing the needs of these stakeholder groups. In October, we raised awareness and funding to fight breast cancer through register roundups, specialty products and charitable locks. This month, we are supporting veteran organizations to serve those who have sacrificed so much for our country. This weekend, Trulieve is sponsoring a weekend retreat for operation resilience led by the Independence Fund, which is an event designed to help veterans who are at high risk for suicide. We are proud to give back to these worthy causes and partner with groups that support our mission to expand access to cannabis. Alongside engagement efforts, we are investing in retail and wholesale distribution to reach new customers and drive sustainable growth. We met our 2025 retail target by opening 10 new stores in Arizona, Florida and Ohio, expanding our network to 232 stores. In September, we relocated 1 Arizona store from Scottsdale to Bisbee, broadening our reach by entering an underserved area. We are on track to refresh or remodel up to 45 stores this year. In wholesale, Maryland and Pennsylvania continue to outperform. In Ohio, our production partner continues to ramp sales of branded products, including Modern Flower and Roll One. With over 4 million square feet of production capacity, our scaled platform provides a meaningful competitive advantage, including strong gross margins and the flexibility to adapt to evolving market conditions. Our production team continues to identify operational efficiencies, driving costs lower, while delivering great products. Consistent product quality differentiates our brands in an increasingly competitive landscape. During the third quarter, we sold over 12.5 million branded product units. In-house brands, Modern Flower and Roll One continue to resonate with customers, representing almost half of the branded products sold. In Florida, we recently launched a new Roll One Clutch All In One vape. This new compact disposable vape card sold out in less than 2 weeks. We plan to launch additional Modern Flower and Roll One SKUs, including new All In One vapes in several markets. Turning now to the beverage category. Last February, we launched a new line of Farm Bill-complaint THC and CBD cocktail alternative beverages called Onward. Throughout the year, we have added new flavors and expanded distribution. In July, we added a line extension of CBD and THC energy drinks called Upward. In September, we launched new 10-milligram flavors for Onward and Upward. Onward Berry Smash, Cosmopolitan, Lemon Drop Martini and Paloma, and Upward Half & Half iced tea and Lemonade flavors are performing well, enjoying positive customer feedback. These Farm Bill-compliant THC beverages provide an opportunity to reach new customers with approachable products in familiar outlets. Onward and Upward beverages are available online and in more than 440 stores, including ABC Fine Wine & Spirits and Total Wine in Florida and specialty grocers and convenience stores in Florida and Illinois. We recently launched distribution through Anheuser-Busch in Florida and Romano Beverages in Illinois, and we are actively working to expand distribution with new and existing partners. Visit drinkonward.com to find a retail location near you or order online. Overall, we are making real progress across our focus areas, reform, customers, distribution and branded products. With continued momentum and significant flexibility in our core business, we are set to expand our leadership position while pushing for cannabis reform. With that, I'd like to turn the call over to our CFO, Jan Reese. Please go ahead. Jan Reese: Good morning, and thank you, Kim. I'm thrilled to join Trulieve, and I'm focused on driving profitable growth at a leading company and industry pioneer. Third quarter revenue was $288 million, up 1% year-over-year, driven by new store openings, adult-use in Ohio, and wholesale growth, partially offset by pricing compression and wallet pressure. Gross profit was $170 million or 59% margin. Margin performance driven by increased pricing compression, loyalty point redemption and product mix, partially offset by lower production cost. We continue to expect quarterly fluctuation based on product mix, market mix, inventory sell-through, promotional activity and idle capacity costs. SG&A expenses were $99 million or 34% of revenue, a significant improvement driven by reduced operating expenses and lower campaign support. Adjusted SG&A declined to 30% of revenue, 34% last year due to ongoing operational efficiencies. Net loss in Q3 was $27 million or $0.14 per share versus $0.33 last year. Excluding non-recurring items, net loss per share would have been $0.07. Adjusted EBITDA was $103 million, up 7% year-over-year or 36% margin, reflecting expense leverage in our core business. Turning now to our tax strategy. As a reminder, we have filed amended returns starting 2019 and continue through today. Challenging the applicability of 280E to our business. To date, we have received refunds totaling over $114 million, while we are confident in our position and strategy, final resolution may take years. We continue to accrue an uncertain tax position, while realizing lower tax payments. Important to note, rescheduling to Schedule III would have removed 280E burden, the -- and Q3 and year-to-date results would show positive net income under those conditions. Moving now to the balance sheet and cash flow. We ended Q3 with $458 million in cash and $478 million in debt. Cash flow from operations totaled $77 million with capital expenditure of $12 million with -- and free cash flow of $64 million. Turning now to our outlook, we expect low single-digit sequential revenue growth in Q4. We expect full year gross margin will be comparable to 2024. We anticipate at least $250 million in cash from operations for the full year. CapEx of $45 million, up to prior target of $40 million, reflects investments to relocate stores and minor cultivation upgrades in Ohio and Pennsylvania. We remain focused on finishing the year strong, delivering results aligned to our strategic priorities. With that, I will turn the call back over to Kim. Kimberly Rivers: Thanks, Jan. Cannabis has gained widespread support across the U.S. with public opinion shifting significantly over time as more Americans recognize its therapeutic benefits. Today, nearly 90% of Americans favor some form of legalization for medical or recreational cannabis. Currently, 40 states have established programs for medical cannabis, providing millions of patients access to relief from chronic pain, anxiety, sleep disorders, epilepsy and symptoms associated with serious illnesses, including cancer, multiple sclerosis, and PTSD. While federal and in some cases state policy lags public opinion, momentum for reform is gaining traction. The Trump administration can deliver on campaign promises to address cannabis reform by rescheduling cannabis to Schedule III. In Florida, we remain supportive of signature gathering efforts for the Smart and Safe Florida ballot initiative to legalize adult-use. With over 23 million residents and 143 million tourist visits per year, we believe Florida could be the strongest market in the U.S. striking an appropriate balance between individual freedom and responsible consumption. In Pennsylvania, we are hopeful that bipartisan adult-use legislation can pass in the coming years. We believe both Florida and Pennsylvania will eventually enact adult-use programs. As an industry leader, we remain firmly committed to pushing for meaningful reform and expanded access to cannabis. Given the strength of our core business and flexibility across our platform, Trulieve is poised and ready to define the future of cannabis. Thank you for joining us today, and as I always say, Onward. Christine Hersey: At this time, Kim Rivers and Jan Reese will be available to answer any questions. Operator, please open up the call for questions. Operator: [Operator Instructions] The first question comes from Luke Hannan from Canaccord Genuity. Luke Hannan: Kim, you touched on in your prepared remarks there, you continue to generate an industry-leading EBITDA margin. There's a couple of things underscoring that. Obviously, you have a very efficient cultivation footprint. But then also, as you pointed out, you were a little bit more efficient when it came to adjusted SG&A as well. So if we just think about those 2 components, I'm not necessarily asking for guidance here. But when it just comes to opportunities, I suppose to potentially improve on that margin, what do you see as sort of the lower-hanging fruits going forward? Kimberly Rivers: Yes. So I'm very, very proud of the team for continuing to be laser-focused on bringing as much of that top-line down all the way through the P&L. And of course, I think that we stand out among our peer set for our consistency, as it relates to being able to do that efficiently and effectively kind of regardless of what's happening at the macro level. I would tell you that really in terms of what we're seeing coming into Q4, it's going to be somewhat dependent on what happens with the customer, right? And certainly, obviously, the holiday season is something that we've got our eye on, which is typical this time of year. But given, I would say, we have a little bit of opaqueness candidly, as it relates to the consumer, at the end of Q3 coming into Q4, we saw some trading down and some price compression. I want to tell you to answer your question, the fact that we have the ability in our platform to meet the consumer where they're at, and be strategic in how we do so. I am confident in our ability to continue to deliver a strong margin. But that has to be, again, coupled with the reality, again, of the consumer profile, it will be impacted by product mix and promotion. But again, also keeping in mind that we have an amazing and flexible and modular production footprint that we're able to flex again to meet the consumer where they're at. And so I would say that, again, in line with what we've said all year, we expect that full year to be consistent with again last year as it relates to margin. And I think given the sort of differences in this year's consumer profile, I think that's pretty -- I'm very, very happy with that. Luke Hannan: That's great. And then for my follow-up here, you touched on the launch of the mobile app and then also some of the benefits associated with that. It sounds like more customer engagement is chief among them. But you also place Trulieve places emphasis on data and analytics and being able to use that effectively when it comes to the entire sort of go-to-market strategy. So I guess I'm curious, does the app make you any more efficient when it comes to being able to gather insights from that data? Or does it give you a richer set of data points to be able to sift through as well? Kimberly Rivers: Yes. Well -- so certainly, we are excited about the ability to connect in a more personal way to our customers. And I would tell you that the ability to, again, have more of an interactive platform with our customers will be important as we continue to develop our strategies around consumer personalization. So I mentioned that even on our existing web platform, we're now able to more suggestive sell based on someone's past buying patterns, as well as to be more predictive in terms of when he or she may be coming back into the store based again on past behavior. And so, which is very exciting and being able to bring those features into an app landscape, but again is a bit more real time and then to be able to also seamlessly integrate our loyalty platform into an app shopping platform is, I would say, the best of both worlds. And really, we think that it's critical as we think about getting away from the confines, and -- because we are in cannabis, we're restricted in terms of what we can do via text messaging. And given the fact that we're all mobile these days, the ability to have push notifications to remind folks when they have points available, to remind folks when there are certain things happening within our stores that, that particular shopper may be interested in, I just think it's going to be very dynamic as we move forward into this next stage of our connectivity journey here. Operator: The next question comes from Russell Stanley from Beacon Securities. Russell Stanley: First, just around retail. You've refreshed and remodeled a significant number of sites this year. Can you -- I don't know if you have this handy, but can you provide any data points regarding the impact of those efforts on traffic or basket size, what you've seen relative to expectations? And any lessons that you've learned through the process that will inform your Refresh, Remodel plans next year? Kimberly Rivers: Sure. So I, for one thing, it's very important for companies to keep an eye on the aesthetics and -- of their stores. I think there's lots of lessons that we can go over on companies that did not do that, and where they ended up with their customer base. So that's going to be, I would say, something that you should expect from us on a pretty regular basis. We'll be analyzing and it's a constant review of stores across the platform, especially with our business since many stores, as everyone will recall, were initiated in a different regulatory landscape where there were different restrictions. In Florida, for example, at the very beginning, we had to have, there were very strict rules about where we could be located, and the types of lobbies we had to have, the security features between showroom and lobby et cetera. And so opening up those floor plans as those regulations have changed to make a more welcoming environment for customers and improving customer flow, vault size, how product moves from back of house to front of the house, et cetera, is certainly important from an efficiency standpoint, and then, of course, from a customer experience standpoint as well. And so we're going to always be looking for those types of opportunities across the platform. And then again, I think it's just good hygiene to make sure that you've got welcoming fresh, bright environments for our customers that are adapting to what the expectations of a premier retail experience would be. Russell Stanley: And maybe just on the balance sheet, given the redemption -- plan of redemption, and you talked about another debt issue for up to $150 million, I think. I guess, can you talk -- it's a relatively modest amount given what you're redeeming, but can you talk about what you're seeing in terms of appetite out there, especially given the recent seemingly short-lived blip in credit spreads? Just wondering what kind of the environment you're seeing from? Would it be lenders and the appetite that you're seeing relative to 3 months, 6 months ago? Kimberly Rivers: Sure. So we haven't gone to market yet, Russ. So, I think that color on that should be probably reserved for future commentary. And I can tell you that, again, we have flexibility in our ability to whether to complete or not complete depending on terms and depending on appetite. Again, I think that our balance sheet is strong, our cash generation is strong, our core business is very solid. I think our consistency in our core business is very solid in terms of our ability to generate cash and bring that -- again, like we talked about before, bring that revenue down to bottom line profitability. So I would say stay tuned, but I feel pretty confident that we'll have optionality there, and then we'll be in a decision along, of course, with the Board to make a determination as to how much or if we decide to move forward with the race. But again, we're generating cash every quarter and feel good about where we sit. Operator: The next question comes from Bill Kirk from MKM Partners (sic) [ Roth Capital Partners]. William Kirk: In 2024, the Florida initiative didn't seem to get the kind of deserved monetary support from other MSOs. Do you expect those other MSOs to better contribute either monetarily or in other ways this time around? Kimberly Rivers: Yes. So I would say that certainly, I would love for -- you guys to asked that question on the earnings call. I have been in talks with the other CEOs. And I think that we're going to have some pretty robust conversations after Supreme Court review, once we have -- just like we said in our prepared remarks, once we have additional data and visibility into the political landscape, pulling right all the things, I do think that folks are certainly at the table in a different way than they were the last cycle. But I also think, right, that some of it is going to be dependent on where everyone sits as it relates to available cash. And of course, 280E is a big contributor there. So we shall see. But I would say that I think that the MSOs at least are working together as it relates to reform. And I think that that is a positive. And definitely, we could see that also come over to the Board effort. William Kirk: Awesome. And then are you seeing any increased momentum for regulating intoxicating hemp differently or possible closing of any -- what people call the Farm Bill loophole? And I guess if we step back, how would you like to see intoxicating hemp treated by the federal government and states? Kimberly Rivers: Yes. I mean, certainly, it's -- as you know, it's a checkerboard out there, as it relates to the states, and how they're treating intoxicating hemp. We have a little bit of a front race seat to it, not only, of course, from the regulated cannabis side of the business, but also from the beverage side of the business. In Florida, there were new rules that were issued midyear this year, and a big crackdown across the state. Products in Total Wine -- beverage products in Total Wine and ABCs were taken off shelves, because of labeling challenges among some other regulatory concerns, our branded beverage products Onward and Upward were actually able to stay on shelf. We are -- and we're compliant, which I think is actually becoming a little bit of a differentiator for us, because we're very used to, right, having to have all of our testing back up and making sure that consumers can scan back to a finished product test and that the labeling is accurate and all of those things. So certainly, we have seen a step-up in enforcement, I would say, across markets. And I think that's in line with sort of an increase in attention that it's getting, again, at both state and at the federal level. I think I hear what you hear as it relates to the federal differences in terms of potential pathways for regulating intoxicating hemp. And I think we'll see where that lands. But it does seem to me that similar to the states, the intensity of the conversation is increasing both at the state level and at the federal level. Operator: The next question comes from Brenna Cunnington from ATB Capital Markets. Brenna Cunnington: It's Brenna on for Frederico. And congrats on the results this quarter. Just continuing on the theme of the Florida ballot measure. We all know that Florida legalization would be a game changer. But the 60% approval threshold does seem to be a bit of an issue, since we saw that the majority of Floridians do actually want to legalize. So just trying to understand here, theoretically speaking, what about this time could be different? Do you think it's more of a factor of raising more voter awareness? Or was there a specific verbiage that needed to be changed last time to address potential voter issues or perhaps something else? Kimberly Rivers: Sure. So I think there's a couple of main differences. Well maybe actually 3. One, I think that there will be a big component of this that centers around just, again, the political landscape. We're in a gubernatorial race this time as opposed to a presidential race. And so the dynamics in Florida in particular, shift sometimes dramatically in terms of profile of voters that turn out between those 2 different types of races. So I think that's an important thing that we'll certainly be analyzing and watching. Two, the ballot initiative itself had some changes, as mentioned in the prepared remarks that were very -- that were specifically responsive to pulling and feedback from the last campaign, particularly voters indicated that they wanted more certainty around what the legalization program would look like in the state of Florida, specifically around confirmation that these products would not be attractive to children, that there is, of course, age gated for adults over the age of 21, that there would be no smoking allowable in public, and that there would be additional licenses that would be issued for additional competition in the marketplace as well as a pathway for home-grow. And so really by addressing those specific concerns, it does -- and early polling indicates that that does change the chances on a just plain ballot read perspective. And then I would say the third thing is really about the -- just the landscape. There's been obviously quite the news cycle around what happened in the last campaign as it relates to some public dollars being spent and taxpayer money, et cetera. The legislature passed a package of laws last legislative session that clarifies, and candidly locks down that activity, such that we believe that there will not be that same level of opposition at least from those particular paths in this next election, which we think is very important. And at the end of the day, right, I think that just a fair and straightforward election process could definitely be a game changer as well. So I do think that at least early indicators are that it's going to be a more positive backdrop. But again, we want to make sure that, that's confirmed by, again, the data and the political backdrop before we decide to move forward. Brenna Cunnington: Understood. And then our second question is just regarding the hemp and beverages, which we do know is a small category. But we would just love any additional color you could add on how sales are ramping in Florida and Illinois? And also specifically how online sales are doing? Kimberly Rivers: Yes. So it's ramping candidly ahead of what our initial expectations were. We -- I think as we have developed our partnerships with both Total Wine and ABC, they have grown pretty dramatically since inception. In addition, right, our ability to successfully land additional distribution partnerships has also been a positive, and there'll be more announcements from us on that in the near-term. We are being thoughtful in terms of how we ramp, and simply because we want to make sure -- I mean, we believe very strongly at Trulieve, and this goes back, it's in our DNA since inception, that it's important to launch and penetrate. And make sure that you're understanding and getting as much data as possible about the consumer and making pivots early to get it right, so that we're able to, again, really have lasting brand equity with those customers. And so we -- I could tell you that we -- candidly, we could be ramping faster, but we want to make sure, again, that we've got the opportunity to really have a presence in those stores and in those markets by doing things such as tasting events, trainings with the employees in those stores to make sure that they're actually educated on THC and how our beverages are different than all the other brands that may be on shelf, why they should feel comfortable recommending our beverages to consumers, what is [Technical Difficulty] as it relates to our beverages, et cetera. And so we are making sure that we do this the right way, which I think will pay dividends for the long-term. Operator: [Operator Instructions] The next question comes from Aaron Grey from Alliance Global Partners. Aaron Grey: Congrats on the quarter. First question for me, just on some of the consumer engagement initiatives, loyalty program, now mobile app. Obviously, it would seem like you're most able to leverage that in states where you might have more of an existing moat like Florida as well as Arizona. But also curious to know how you might be looking to leverage that? And build a larger presence in markets where smaller today, and maybe you rely more on wholesale. So maybe just some more color in terms of how you're able to leverage some of these products and learnings to build out a market share where you're smaller today? Kimberly Rivers: Sure. So again, our loyalty program has had incredible success across all the markets in which it's launched. And so I wouldn't say, of course, in our bigger markets like Florida, you're going to have more of an adoption rate. But I will also tell you that some of our other markets like Arizona, for example, it's been a huge tool for us, because -- and really the big learning there is, to your point, Aaron, as markets go adult-use, right, we don't necessarily have as much required data on a particular patient. So when you think about it in a market like Florida or Pennsylvania, we have a lot of information, because they have to have a patient identification card, and we have to allocate and make sure that we've got the tracking of the product that's dispensed across their recommendation from their physician. So there's a lot more already known component of those purchases and of those customers. But you contrast that with an adult-use market where someone is just -- we have to age gate, of course, and take their license information, confirm that they are an adult age 21 and up. But aside from that, you can really be more anonymous in those markets. And the loyalty program has been phenomenal in terms of having those customers actually voluntarily, right, engage with us in a more regular way, so that we can again begin to get to know them, and have that truly reciprocal relationship where we're understanding their buying patterns. We're able to offer them additional product suggestions or deals that they may be -- they may have not known about, right, because there's no reason for -- previously, there would have been no necessary reason for them to connect with us in that way. We think the app is going to take that to a completely different level. So right, you'd have the ability to preorder online, track your order, push you a notification just like Starbucks or other places where we all use apps across our normal retail experience to say, hey, your order is ready for pick up. In addition, we can talk about as it relates to our wholesale business, hey, we just launched this new all-in-one, just find it near you, right, we saw that you purchased an All In One vape previously. It's available a mile from your house at this particular location, right. So there's all kinds of capabilities that are going to be available through the app. Initially, we are definitely using it to reinforce our in-store branded products through branded retail being our core, right, our core business driver. But Aaron, to your point, in a state like Maryland, for example, where we only have 3 stores, but we have a bigger wholesale business, being able to leverage things like an app to offer gamification, et cetera, of products that are available -- and our in-house brand products that are available throughout the state and certainly is something that we'll be looking forward to as we further develop that. Aaron Grey: Really helpful color there, Kim. I appreciate that. Second question for me, just on Florida and store saturations and opportunities. Any color you could provide in terms of how you're feeling about the Florida market today additional opportunities for you to open up stores, both for the -- at the level of Trulieve and more broadly where you're seeing that? And then how that might differ for the different store model types that I know Trulieve has? And whether or not that would be dependent on adult-use becoming legalized in the state? Kimberly Rivers: Sure. So I would tell you that in Florida, we certainly -- it's interesting, because it's a little bit of a mixed bag right now. And as I mentioned, we're certainly seeing across the entire system, not just in Florida, but we're certainly seeing some price compression and some wallet pressure, and some trade-down activity. Florida is a big state. And I would tell you that one of the things we've been focused on is really ensuring that we can manage down to that specific store level, and that we understand, because not every store is positioned the same, right? And we have some stores that have very little competition around them. We have other stores that are in highly competitive environments, we have some stores that cater more towards maybe a more higher-end kind of store crowd, other stores that are more value-oriented crowds. So being able to strategically differentiate and ensure that we have the right product mix, we have the right promotional cadence, we have the right messaging techniques on a store-by-store basis is something that we have been -- we're really excited about, and that we have been really focusing on. And thankfully, we have the -- maybe the correct investments through our customer data platform and other tools that we are able to segment more specifically and effectively down to that store level. And so we look at it in Florida as really a store-by-store landscape. And you'll be seeing us launch different strategic initiatives to further lean into that. I would say that as it relates to new stores, I'll answer that as it depends, right. And I think what we are seeing in Florida is we're seeing some of our competitors actually close stores and shutter stores, which we believe is a tremendous opportunity for us to absorb those customers and let them rediscover Trulieve, and hopefully bring them into our fold. But also, right, gives us an opportunity to reevaluate the landscape and see if there are areas where we feel like we need to reposition or even potentially open additional location. So I would just say stay tuned on that, that analysis is ongoing. And absolutely, it will depend on the specifics of the location, to your point, as it relates to whether or not we would consider opening a full service, a flagship or a express type model. And as well as, of course, if adult-use is on the table, and obviously, that does change the narrative a bit as it relates to where store attractiveness -- the attractiveness of certain stores may change depending on that. Operator: The next question comes from Andrew Semple from Echelon Capital Markets (sic) [Ventum Financial Corp]. Andrew Semple: Start off with a pair of questions on capital expenditures. Just want to hone in on the capital budget of $45 million for the year. I believe you're already at $40 million in the first 9 months. So just want to check in on that, anticipate if you're seeing -- expecting to see a slowdown in the fourth quarter here on capital spending? And then just secondly on the -- on capital budgeting, I'm wondering if you have a capital budget for next year, just kind of directionally, how much you would think to spend, maybe whether it's higher or lower or roughly the same as what we're about to see in 2025? Jan Reese: Thank you. Let me take this question, Kim. First off, yes, we do have a very robust capital expenditure process and [ review ] process. We do take opportunities though, when we do have the opportunity to relocate stores to a more customer service, customer-facing program. So if you look at the $45 million that we have currently in the forecast, you can divide this in 2 main buckets. One is relocation store in Arizona, and the other one is the cultivation in Pennsylvania and Ohio, both investments long- and short-term will yield a much better return. So we went forward and make this investment. As we always do with our review process, the good things we will execute and we will do yield higher returns as we promise ourselves. Andrew Semple: Okay. And then maybe just pivoting to inventory balances. The inventory levels continue to inch higher. Do you have any color or thoughts about your inventory balances? Are you happy where that sits today? Just any thoughts around that would be appreciated. Kimberly Rivers: Yes. So as we've said consistently, our inventory is going to fluctuate a little bit from quarter-to-quarter. I think that it was $2 million increased in a -- $1.8 million in Q3. So to us, that wasn't really anything to cause any sort of alarm. And again, we believe that it's going to fluctuate quarter-to-quarter. Yes, we are happy with it now. I mean I think a couple of things just to note that we will, of course, ramp inventory prior to some store openings, which we've had in Ohio. And then additionally, as we mentioned in the prepared remarks, we've got in some markets, some new products launching as well as in Ohio, some of our brand portfolio coming through for the first time. So like we said, there's going to be a slight swings, but I don't think that there's really anything out of the ordinary there for us as it relates to inventory. Operator: This concludes our question-and-answer session. I would like to turn the call back to Christine Hersey for closing remarks. Christine Hersey: Thank you for your time today. We look forward to sharing additional updates during our next earnings call. Thanks, everyone. Have a great day. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Ladies and gentlemen, good day, and welcome to the Grasim Industries Limited Q2 FY '26 Earnings Conference Call. [Operator Instructions] I now hand the conference over to Mr. Ankit Panchmatia, Head of Investor Relations at Grasim Industries. Thank you, and over to you, sir. Ankit Panchmatia: Yes. Hi. Thanks, everyone, and good evening, and thank you for joining everyone on Grasim's Second Quarter Financial Year 2026 Earnings Call. The financial statements, press release and presentation are already uploaded on the websites of stock exchanges and our website for your reference. For safe harbor, kindly refer to cautionary statement highlighted in the last slide of our presentation. Our management team is present on this call to discuss our results and business performance. We have with us Mr. Himanshu Kapania, Managing Director, Grasim Industries and Business Head, Birla Opus Paints; Mr. Hemant Kadel, Chief Financial Officer of Grasim Industries. Also from the business team, we have with us Mr. Jayant Dhobley, Business Head of Chemicals, Cellulosic Fashion Yarn and Insulators business; Mr. Vadiraj Kulkarni, Business Head of Cellulosic Fibers business; and Mr. Sandeep Komaravelly, CEO, Birla Pivot, our B2B e-commerce business. Let me now hand over the call to Himanshu sir for his opening remarks on macro and updates on key businesses. Over to you, sir. Himanshu Kapania: Thank you, Ankit, and good evening to everyone. We welcome you to Grasim Industries Earnings Call for the quarter ending 30th September 2025. Hope you had a good Diwali and New Year Vikram Samvad 2082. Also, as today's Guru Nanak Jayanti, may you be blessed with peace, happiness and love. Starting with macroeconomics, we have now entered the final lap of this calendar year 2025 with a global economy that is not in recession, but not in a synchronized expansion either. We are living in a world where trade is rewiring, capital is repricing and geopolitics has once again become a single order economic variable, not a background noise. On October 29, 2025, the Fed cut the target range for the federal fund rate by 25 basis points to 3.75% to 4%, the lowest in 3 years. This followed an earlier cut of 25 basis points in September. The rate cuts indicate balance of risks are now shifting towards risk of growth and employment. Add to that, the Trump administration's renewed emphasis on tariff-based negotiations, especially on Europe and key Asian blocks may amplify short-term noise. However, the structural drivers of demand, competitiveness and consumption momentum remains intact. China is the second spotlight. China's GDP growth slowed to 4.8% year-on-year in quarter 3 of this calendar year 2025, the weakest pace in a year. Data shows China is not in an acute crisis, but in a structurally lower growth orbit. Property demand is frozen, household confidence is weak and private entrepreneurs are holding back CapEx decisions. The upcoming 5-year plan will be closely watched as it will set national priorities through 2030. Just to summarize, the situation that global trade is seeing is more pressure points. It is not a collapse, but more friction and friction slows velocity. And then India. The country is the positive outlier in the sentimental spectrum, but even India cannot fully decouple from the global liquidity and global trade. In a landmark move in September 2025, the center rationalized GST slabs from 4 to 3, reducing taxes across essential and aspirational items. The reform simplifies GST rates, eases compliance, boost disposable income and supports long-term economic revival. India's GDP growth for FY '25, '26 was revised upwards, thanks to a strong domestic consumption, robust investment activity and resilient exports. Supportive government reforms and RBI's accommodative monetary policy has further boosted demand while moderate inflation provides room for sustained growth. So if I had to summarize the world in one line today, globally, this a low-speed economy with pockets of strength, intermittent confidence and policymakers for moving carefully, not boldly. The world is not constant. And in this environment, winners will not be those who bet on direction. Winners will be those who stay flexible on timings. It is an era where optionality has more value than certainty. We don't need to predict the future with 100% precision. What we need to do is stay prepared for multiple futures. Grasim's multi-segment presence create a synergistic engine of growth, combining resilience with opportunity. The growth continues to exhibit resilience with trailing 12-month revenues now nearing INR 1,60,000 crores, that is over USD 18 billion compared to approximately INR 95,000 crores, that is USD 11 billion in FY '22 when measured on equal currency rates, a remarkable growth of 14%. Moreover, the stand-alone business continues to gain share now at 24% in quarter 2 FY '26 in the overall consolidated revenues nearing its highest ever milestone of INR 10,000 crores per quarter. Our CFO, Mr. Hemant Kadel, will further touch upon these numbers in detail. However, as I said earlier, we do not live in a constant world, which is why 2 years back, we entered into 2 new high-growth businesses, and I'm very happy to say that both these businesses are on track to achieve their stated targets. I will start with our growth businesses, Paints and B2B e-commerce businesses. Birla Opus is now a distinctive force in India's decorative paints landscape, not as another brand in the shelf stack but a category pace setup. We are institutionalizing a, superior paint performance; b, quality assurance up front and in writing; c, tech-led contractor, painter and consumer engagement. This resetting expectations of what premium should actually mean in India. From application science to film durability testing to shade integrity to dealer enablement, we are building this new gold or should we say, platinum standard. This why Birla Opus is becoming integral in conversations across the value chain, whether it is with retailers, contractors, applicators, builders, institutions and homeowners because we have not just launched Decorative Paints, we are raising the reference benchmark for how paints should be engineered, sold and serviced in India. I'm happy to share that we have commenced production at our largest and sixth plant in Kharagpur, West Bengal on 15th October 2025. The plant has 236 million liters per annum capacity and is one of the largest paint plant in West Bengal and Eastern India. This plant can manufacture water-based paints, solvent-based paints, colorants and distemper paint. It will significantly improve our serviceability to Eastern and Central India markets and bringing network efficiency. With this plant's commercialization, the announced project phase of Decorative Paints concludes and the decorative paints installed capacity is now 1,332 million liters per annum across the 6 plants. This makes Birla Opus the second largest decorative paints company commanding 24% of the industry capacity, a feat unmatched around the globe for speed and cost. Now we focus all our energies to bridge the gap between our volume market share and capacity share. Coming to the performance of Decorative segment, Birla Opus continues to grow its market share and expand its position as #3 decorative brand with double-digit market share, including Birla Opus and Birla white putty revenues, similar to the revenue reporting by legacy companies of all paint majors. Despite the extended monsoon, Birla Opus hits its highest ever monthly sales in the month of September and saw an equally strong October month, indicating increasing brand salience across markets. Not only the primary sales at highest level, but also the secondary sales have been touching levels higher as a percentage of primary sales, indicating fast movements that is offtake from dealers to contractors or from dealers to customers from these counters. As per internal estimates, the organized decorative paint industry has grown in low single digits on Y-on-Y basis in quarter 2 FY '26, largely due to incumbents push for lower-end economy products. However, as per our estimates, excluding Birla Opus revenues, the organized decorative paint industry has degrown slightly on a year-on-year basis. Birla Opus continues to disrupt through innovation and launched 2 big consumer proposition in the second quarter. First one was the Birla Opus Assurance Campaign, the first ever written paint promise by any paint company to assure the customers of painting performance backed by superior product quality of Birla Opus products. This campaign was another disruptive and differentiated campaign in which we launched 4 films that you must have seen on print, television and digital media. The campaign has received overwhelming response from customers, contractors, painters, dealers and thousands of paint projects under Birla Opus Assurance program have been undertaken and continue to be executed. We expect the demand for Birla Opus Assurance to accelerate snowballing into basic consumer expectation doing painting beyond product warranty. The second one was expansion of Birla Opus painting services offered under PaintCraft brand through our dealer and franchise partners on a pan-India basis. This first of its kind differentiated painting services offering that leverages digital technology and integrates the platform for all stakeholders, including company, franchise, applicators, painters and consumers. PaintCraft is a win-win for all stakeholders as it offers, a, transparent consumer pricing; b, EMI financing on painting first time in India; c, end-to-end company oversight of dealer-led painting services through trained execution network; and d, a fully GST-compliant painting service. The network has appreciated these initiatives by Birla Opus to bring a standardized painting service in the market. We're happy to announce that PaintCraft has already scaled up across 170, 1-7-0 towns and expected to reach 300-plus towns by quarter 3 and through company's dealer-operated franchisees and high-performing dealers. We remain on track to build India's differentiated and largest painting service network serviced through the largest branded franchise network. Customers can simply log in to Birla Opus website and avail the benefit of these 2 unique programs. The success of these campaigns is reflecting in our brand scores as well. Our independent research shows the consumer love for Birla Opus brand continued to rise as Birla Opus has become the #2 brand in top of mind recall across India at the end of quarter 2 FY '26. Such brand recall within 18 months of our launch and 12 months of pan-India operation is quite unheard of in the marketing world. On the product front, the premium and luxury products revenue contribution was upwards at 65% of revenue, covering all categories across emulsion enamel, wood finish and waterproofing, including retail and institutional segment. The company has also launched an array of new products and crossed 190-plus products in this portfolio. Out of this, 13 new products were launched during this quarter, the company launched a new branded tools segment with a range of non-mechanized tools under the sub-brand known as Artist. Company is proud to launch in-house made in India, high-quality range of wallpapers, which has seen excellent network response. The other new products launched are pure elegant soft shine, aerosols, aluminum paints, clear varnish and few new bases in the existing product range. The Birla Opus products have been now applied by over 6 lakh painters and contractors, across lakhs of residential sites, making it one of the largest contractor painter network in India. On distribution front, the brand has crossed its earlier guidance and reached to over 10,000 towns on a pan-India basis, which is historic achievement in such a short time. The focus now shifts to depth of presence in each of these 10,000 towns. The company's branded franchise store network has crossed 500-plus towns presence and will soon cross 4-digit mark of branded exclusive store count, making it amongst the largest branded stores in the country. The total CapEx spend for Paints business stood at INR 9,727 crores as on 30th September 2025. Grasim applauds the Birla Opus team for flawlessly executing a large and global scale greenfield project, commissioning 6 state-of-art plants simultaneously, achieved without cost overruns with rapid scale-up and consistent first-time right quality across 190-plus products. This speed showcases exceptional physical -- financial discipline and manufacturing and supply chain excellence, a truly unparalleled achievement by a dynamic start-up. Finally, continuing on Birla Opus, our CEO, Mr. Rakshit Hargave has decided to pursue opportunities outside Grasim. Today, Grasim NRC has accepted his resignation and approved his request to exit the company effective 6th December 2025. Rakshit joined Grasim in November 2021 and has played significant role at the Birla Opus start-up stage and initial scaling of the Decorative Paints business. Today, the operations are stable, and we have built a high-performing team. In the last 4 years, this team has helped establish 6 integrated manufacturing facilities, scale distribution, build brand salience and supply chain network. I believe we have built a rock-solid foundation for next level growth in the Decorative Paints business, which has all the necessary ingredients to achieve #2 revenue market share and committed profitability in the 3 years of full-scale operations. The company appreciates Rakshit's contribution and wishes him the best for the future endeavor. Rakshit's successor will be announced in due course. In the interim, I as business head for the last 5 years of Paints business, and who helped conceptualize, strategize, plan and execute this large project will directly oversee the paints business until the new CEO is appointed. Moving on to other new business, Birla Pivot, which has been marching steadily and strongly. Birla Pivot has created -- was created to solve a pressing challenge in India's business landscape, simplifying building and other sectors raw material procurement for the companies that power the nation's growth. Today, it has evolved into a one-stop shop B2B platform covering the complete spectrum of procurement, fulfillment, assured quality and quantity with financing solutions of material needs from steel and cement to tiles and chemicals, all in one smart seamless ecosystem by enabling digital adoption across the B2B [Technical Difficulty] Operator: Participants, please stay connected. The line for the management has dropped. We're reconnecting them. [Technical Difficulty] Ladies and gentlemen, thank you for patiently holding your line. Line for the management is reconnected. Over to you, sir. Himanshu Kapania: Apologies to everybody. I'm going to start again on the new business. Moving on to other new business Birla Pivot, which has been marching steadily and strongly. Birla Pivot has created to solve a pressing challenge in India's business landscape, simplifying building and other sectors, raw material procurement for the companies that power the nation's growth. Today, it has evolved into a one-stop shop B2B platform, covering the complete spectrum of procurement, fulfillment, assured quality and quantity with financing solutions of material needs from cement -- and steel to tiles and chemicals, all in one smart seamless ecosystem. By enabling digital adoption across the B2B ecosystem, Birla Pivot is not just a procurement platform, it is a catalyst for efficiency, transparency and growth in India's industrial and construction sector. Post a successful foray into building materials, the business now expands its product portfolio to become full stacked raw material procurement platform. The platform has now added a diversified range of raw materials, including polymers, solvent, textile chemicals and nonferrous metals. For your reference, B2B e-commerce market is set to hit USD 200 billion by 2030, powered by strong demand from chemicals, metals, infrastructure and construction sector, et cetera. Birla Pivot's expansion is well timed to capture this momentum, enabling smarter tech-enabled procurement. As digital penetrations remain below 2%, India's B2B e-commerce trade is on the cusp of a major shift. What does such product additions give to us. First and foremost, growth momentum, which is what is -- it is visible in quarter 2 FY '26, where the revenues are sequentially higher by 15% in spite of monsoons. Secondly, it also gears up for new aspirations, which means newer targets to our businesses beyond its stated revenue guidance of achieving INR 8,500 crores or $1 billion mark by FY '27. To conclude, Grasim's diversified business model spans India's high-growth sectors from cement powering infrastructure, decorative paints, enabling urban aspiration, B2B commerce and financial services driving enterprise and inclusion to chemicals and sustainable fibers like cellulosic, linen, wool and cotton, addressing industrial and global demand. This multi-segment presence creates a synergistic engine of growth, combining resilience with opportunity, a true force for growth building India, enabling aspiration and driving sustainable progress. Let me now hand over the call to Hemant for discussing financial performance and highlight on our core business, which is cellulosic fibers and chemicals. Over to you, Hemant. Hemant Kadel: Thank you, Himanshu. Good afternoon and festive greetings to everyone. It is a privilege to address all of you on this earnings call in my capacity as CFO. I have been with the group for more than 30 years. And during this journey, I have been part of the core management team, leading several strategic initiatives and governance responsibilities. My experience spans across corporate finance, risk management, mergers and acquisitions and enterprise-level initiatives. As a CFO of a conglomerate like Grasim, my role is to ensure that our financial strategy and execution are fully aligned with the 5 pillars that has defined our organization's long-term growth journey, which is leadership, innovation, sustainability, capital allocation and cost leadership. Coming to our current quarter performance, Grasim has delivered consistent revenue growth for 21 consecutive quarters on a year-on-year basis with trailing 12 months consolidated revenues of INR 1,59,663 crores, up by 8% compared to FY '25 revenues. The stand-alone revenue grew at a faster pace, reaching a record high of INR 9,610 crores, up by 26% year-on-year. Let me now talk about business-wise performance. Firstly, cellulosic fiber business, the average quarter 2 FY '26 cellulosic stable fiber utilization rates in China have improved to 89%. And inventory days, though higher year-on-year, have sequentially reduced to 15 days. Total sales volume of CSF was lower by 5% year-on-year due to logistics-related issues that Vilayat, which is now normalized. Specialty fiber volume mix improved to 24%, led by higher exports of specialty fibers, improved product mix and currency depreciation supported blended realization of CSF. Cellulosic fashion yarn sales volume grew by 3% year-on-year, led by festive demand. However, the realizations continue to remain impacted by cheaper imports from China. The cellulosic fibers segment revenue were up 1% year-on-year to INR 4,149 crores. High input price of key raw materials impacted the EBITDA, which degrew by 29% to INR 350 crores. Coming to our Chemicals business, the business revenue stood at 2-year high levels driven by all-round performance across caustic soda, chlorine derivatives and specialty chemicals. While the global caustic prices have softened with CFR SEA down by 5%, domestic caustic prices stood higher due to stable demand and rupee depreciation. The improvement in caustic prices led to higher ECU, which was partially impacted by increasing negative chlorine realizations. Caustic sales volume for the quarter were flat due to constrained production on account of lower power availability. Specialty Chemicals revenue contribution improved to 30% versus 26% in quarter 2 FY '25 driven by volume growth of 34% year-on-year due to stabilization of newer capacity. Specialty chemical profitability remains impacted by elevated raw material prices. During the quarter, chlorine derivative capacity increased by 11 KTPA with addition of aluminum chloride capacities. Two key projects, CPVC in partnership with Lubrizol and ECH remains on track. The mechanical completion is expected by Q3 FY '26. Post completion of ongoing projects, chlorine integration is expected to reach 70% compared to current 64%. In our Cement business, UltraTech's capacity expansion continued to reinforce its position as the backbone of India's infrastructure build-out. With every incremental 1 million tonne added, the business is structurally strengthening supply to support the country's historic CapEx cycle across roads, ports, industrial corridors, logistics infrastructure and housing. The business has recently announced capacity expansion targeting total gray cement capacity of over 240 million metric tonne per annum by March 2028. Compared to its current capacity of 192.3 million metric tonne per annum for quarter 2 FY '26, the consolidated sales volume were up by 6.9% year-on-year to 33.85 million metric tonnes. Operating EBITDA per metric tonne grew by 32% year-on-year to 966 led by volume and realization growth, coupled with lower power, fuel and logistics cost. Coming on Financial Services business, Aditya Birla Capital's financial service portfolio continued to sharpen its focus on customer-first execution. While leveraging cross-business synergies to strengthen outcomes, revenue for Q2 FY '26 grew by 3% year-on-year, led by growth in NBFC, Housing Finance and Health Insurance segments. Total lending portfolio, that is NBFC and housing finance stood highest ever at nearly INR 1,78,000 crores, up 29% year-on-year. The NIMs have started to marginally improve quarter-on-quarter. Total assets under management of AMC, Life and Health insurance grew by 10% year-on-year at nearly INR 550,000 crores. Talking about Other businesses, firstly, textile revenue grew by 6% year-on-year to INR 586 crores. The business has demonstrated remarkable turnaround, returning to profitability with EBITDA of INR 24 crores due to normalization of input prices in linen segment. Just as a reference, this business historically demonstrated 8% to 10% EBITDA margins. Coming to renewable business, Aditya Birla renewables revenue nearly doubled on a year-on-year basis to INR 259 crores, led by newer capacities and onetime revenue of INR 50 crores on account of rate differential. The business current peak capacity stood at nearly 2 gigawatt and is laying the foundation for a greener, more resilient India. It is also playing its part in the group's collective transition to a sustainable energy future. Let me now briefly touch upon the CapEx. Grasim has outlined a CapEx outlay of INR 2,263 crores for FY '26, of which INR 941 crores was deployed in first half of financial year '26. The lyocell capacity expansion with the cellulosic fiber business is progressing as scheduled and remains on course for commissioning by mid-2027. On sustainability front, happy to share that Birla cellulosic -- Cellulosic Fiber division of Grasim has received the highest rating of dark green shirt in the Canopy's Hot Button Report for the sixth consecutive year, reflecting its focus on sustainability. We remain committed to continuously elevating our sustainability performance. A key thrust will be to improve the capacity share of renewable energy and increasing recycled water usage to structurally reduce our dependence on freshwater. These shifts are integral to embedding resources efficiency into our operating model and strengthening long-term environmental resilience. On the balance sheet side, net debt declined by INR 292 crores and stood at INR 6,861 crores as on 30th September 2025 as against INR 7,153 crores as on 30th June 2025. Stand-alone net debt to TTM EBITDA stood at 2.19x as against 2.41x. With this, we open the floor for question and answers. Operator: [Operator Instructions] First question is from Avi Mehta from Macquarie. Avi Mehta: Sir, my questions were on the paint business, especially wanted to better understand your thoughts post the resignation of Rakshit, in terms of the rough time line for the successor announcement, any change in growth strategy, aggression. I would love to hear your thoughts on that. And so the second question, if I can put it up front, is on the performance in the paint business in the quarter on a sequential basis. We did -- you did point towards market share gains, but the other peers have seen -- who have announced have seen almost a 10% decline given the weak monsoon -- weak environment, I would love to know how does the business stack up versus that? Those are the 2 questions. Himanshu Kapania: Thank you, Avi. In the life of a professional, individuals take their call on where they want to build their career. Rakshit has helped Birla Opus from the very start of the business to build the project and in the initial phase of launch. Now Birla Opus has a very strong, high-performing team and will continue to stay course on the vision that has been announced to the market. I'd like to remind you the vision that the company has announced to the market, we have committed to be #2 as well as profitable within 3 years of full-scale operation. We will stay course on that. As regards to the performance of quarter 2, this our first time that we have faced a full monsoon season. And the first time we saw that the overall industry on a quarter-on-quarter basis has had a double-digit decline. And it is our internal estimate on a year-on-year basis. If you were to eliminate the performance of Birla Opus, the industry is slightly negative in performance. Our Birla Opus on a year-on-year basis had a significant growth, but on a quarter-on-quarter basis, had a low single-digit decline, which was primarily during the periods of July and August. We turned back very strongly in the month of September as well as in the month of October, as I mentioned in my opening remarks. We are seeing very strong secondaries or movement of paint buckets from the dealer counter to the contractors and consumers and as well as return of the institutional business. We remain committed to growth, and we remain committed to the vision that has been articulated to the market. I forgot to tell that Rakshit be there with us until 5th of December. Operator: [Operator Instructions] We'll take the next question from Rahul Gupta from Morgan Stanley. Rahul Gupta: A couple of questions. First, just as a continuation on the Paints question earlier. Now that we are out of a pretty long and persistent monsoon season, how should one look at the industry demand for the second half? And to that extent, with Kharagpur now fully commercialized, how should we look at your ramp-up in second half from that perspective? So that's my first question. Himanshu Kapania: Thank you, Rahul. We are highly optimistic and results of September and October bear us out of a strong quarter 3, both on a year-on-year basis as well as a quarter-on-quarter basis. So our guidance is continued double-digit growth on a quarter-on-quarter basis and a significantly high growth on a year-on-year basis. As regards to our capacity, as we mentioned, we are at 1,332 million liters per annum, with Kharagpur arrival -- in the short term, it will help our -- managing our logistics costs and better servicing on the Eastern and Central India. But in the long term, our aim is to ensure that the volume market share and capacity market share converge and all efforts -- all investments and all efforts, whether it's advertising, manpower, distribution, servicing and any new initiatives will be directed towards to match the -- our volume market share closer to our capacity share. Rahul Gupta: Got it. Maybe we will revisit on the industry a quarter later. My second question is on B2B e-commerce. See, the business is growing at a very fast pace. And if I look at this quarter numbers, the revenues are annualizing more than INR 6,000 crores. Now you have guided for INR 8,500 crores for fiscal '27. Is there a case for this number getting revised up? Or will you be reaching this targeted number sooner than fiscal '27? So any color on this will be very helpful. Sandeep Komaravelly: Thanks, Rahul. This Sandeep here. I think your observation is right. Our growth has been compared to what our expectations, I think we've been doing very well compared to our plan. We are on track. And I think our earlier recommendation was that we will achieve $1 billion scale in FY '27. There is a likely chance that we will get there and hit that milestone sooner. But for now, we are not changing any of our direction as of now. Operator: Next question is from Amit Gupta from ICICI Securities. Navin Sahadeo: This Navin Sahadeo from ICICI Securities. So 2 questions. One on paints and the second on B2B commerce. On paints, if you could just give us more details about the number of dealers in this particular quarter versus the last quarter. And the reason I'm asking this because this time, Diwali was a little advanced. As you mentioned in your presentation, there is net addition to the number of accounts from 8,000 in the previous quarter to 10,000. The SKUs have gone up. The product portfolio has also expanded. But yet, sequentially, as you mentioned in your opening comments or to the previous question that there is a marginal lower single-digit kind of a drop in revenue. So how should one look at this in terms of the expanding network in the first place. Himanshu Kapania: Thank you, Navin. You're right. We have expanded our distribution network to beyond our original guidance of 8,500 towns to 10,000 towns. And we continue to be able to expand beyond urban into the rural and the small town category. As regards dealers, the way to look at it is either we measure dealers on a quarter-wise basis or we measure on a month-wise basis. Your concern has been how is it that we have been expanding our reach and it has not translated into revenue. To measure that, we should look at the number of dealers that have participated with us in September and October. And there have been -- we've had -- we've been growing dealer participation on a month-on-month basis. There was a lull in July and August, and it has returned back to a significant growth, almost a double-digit growth of dealer participation in September, and the same momentum has continued in the month of October. So the overall number of dealers have continued to grow, if I were to measure the total number of dealers who participated in quarter 2 over quarter 1. What is important is you will say the throughput may have fallen. The throughput may have fallen on a quarterly basis. But when we measure on a September basis, the throughput is back and both in September and in October, dealer throughput is at levels and slightly higher than what it was at quarter 1. So we are -- our focus is both expansion as well as depth of performance. And currently, if you -- while we are getting a lot of dealers to be able to sample our products and start using our products, there are dealers who have sustained with us now for more than 1 year. And almost 30% of the dealers are currently doing more than 40 to 80 products for us. And that number continues to grow. And the dealers, I'm very happy to report the dealers who have worked with us in the -- over 1 year, we've sustained a large percentage of them. So I hope that answers your question. Navin Sahadeo: Just to clarify, if you could give us the number of dealers? And second is the traction that you said or rather a spurt that you've seen in September and October, is it led by the consumer style financing or the EMI options that you introduced a couple of months back? Himanshu Kapania: So those are factors which help in secondary sales. So I'll not mix the 2 certain topics that we first focus on primary sales, that is sales from companies to dealers. The number of dealers participation has grown as well as number of products sold has grown, both in September and October. Now once this has grown, how has been the throughput from the -- different from our legacy companies, which have a track record and they are able to force dealers to stock. Most of our dealers prefer to buy and keep a very low stock. So for them, the most important is throughput or secondary sales. And what has been encouraging for us is, number one, we have a central monitoring system of our tinting. And we are finding that the secondary on our tinting for dealers in September and October has been almost 120% to 130% of the volume that they purchased in September and October, showing a very strong secondary or throughput from the dealers on towards -- on to customers as well as reducing their inventory significantly. That is part one. Second thing that has helped is assurance. So it is helping painters and contractors to be able to tell to customers of the assurance program. And we've had thousands of projects being registered are -- and in multiple stages of execution at this point of time, the Assurance plan. And the third is the new painting services. Both Assurance and painting services are secondary-based programs as well as dealer stocking and dealer purchase are the primary-based programs. So both are running strong. I hope that clarifies. Navin Sahadeo: My question second was on B2B e-commerce. So if you could just help us understand the private labels now are what percentage of our revenues. And in the same way then what's different from a technology or any other innovation that we are doing in this B2B e-commerce gives the confidence that we might be able to surpass the revenue target sooner. But that was my question. Sandeep Komaravelly: I'll answer your question on the innovation that we're doing and what gives us the confidence that we will grow and continue on this growth momentum. So look, as you're aware, we have built an integrated e-commerce platform, which fundamentally forms a digital backbone and connects pretty much every stakeholder in the entire ecosystem, starting from the brands, OEMs to our buyers who are consuming these products, logistics service providers who are actually moving the material to our lending partners who are providing financial solutions to all other network operators who plug into our -- into this backbone. And what this fundamentally helps us is in creating this end-to-end visibility, which is predominantly not there in most of the sectors or most of the materials that are fundamentally transacted today. And that, I think, is where our ability to provide bring in efficiency, ability to provide the best price, ability to provide the widest assortment, ability to provide a very reliable experience, all of that come into play. And this already showing up in the way our repeat transactions are happening in the way the buyers are coming back to our platform to keep buying. And just as an indication, all the buyers who we acquired last year, they've already purchased on an average more than twice the amount this year, giving us the confidence that whatever experience that we're delivering through both a combination of our assortment and our technology backbone is giving results. And I think that is one of the biggest reasons why we believe our growth momentum will continue. And to drive all of this, we've built -- these are custom-built tech modules that we've built from the ground up, and they are very specific in terms of addressing the use cases that are for B2B. There are a bunch of solutions that have come up in the past for B2C e-commerce, but B2B e-commerce is a lot more complex. There are a lot more stakeholders. To fulfill a single transaction, it requires more than 30, 40 touch points. and to orchestrate all of this in a system that is seamless is where our edge comes in. I hope that answers the question on innovation. On the second part or on the first part that you had asked about private labels, we are right now not breaking down our revenues into different product categories, and we will share that at the right moment. But I'll share this that our private label since the time of launch, they have seen very good acceptance. Most of the buyers who are coming to our platform to buy some of the bulk categories. As the project progresses, they have shown very good interest to continue that purchasing experience with us. They started buying behind the wall categories, and now they've also started buying the finishing categories. So we are currently operating in tiles, ply, bathware and faucetware, and we continue to increase our penetration there. What we've also seen is that we see great acceptance for these private labels in our retail channel. So we fundamentally have 2 channels. One is the projects channel where we are able to directly supply materials to the site locations. And the other channel is our retail channel wherein we work with retailers who further then sell a lot of these finishing products to individual homebuilders or smaller contractors or smaller retailers. We've seen great acceptance for these private labels in the retail channels because they are seeing a great way to diversify their portfolio without having to do higher investment or having to keep inventory at their location, and that is what is driving acceptance of these private labels. So overall, I'd say all indicators are towards good experience, reliable experience. [Technical Difficulty] Operator: We have the management reconnected. Over to you, sir. Himanshu Kapania: Yes. Sorry, Navin, I guess, apologies, the line got disconnected and -- but... Operator: Next question is from Percy Panthaki from IIFL Securities. Percy Panthaki: Can you just tell us the number of distributors, your target was 50,000. Have you achieved that target? Himanshu Kapania: Yes, we are there. Percy Panthaki: Okay. Okay. And how many of them would be monthly active distributors as in ordering at least once a month? Himanshu Kapania: We believe we are better than the industry standards. Percy Panthaki: In percentage terms? Himanshu Kapania: Yes, right. Percy Panthaki: Understood. Understood. And your guidance of INR 10,000 crores turnover by FY '28, does that remain valid? Himanshu Kapania: Yes. Percy Panthaki: Understood. Understood. Also, just wanted to understand what is the next push in terms -- see, when you started off, the first push was in terms of making the distribution available and increasing the number of distributors. Now more or less, that lever is sort of done. Of course, there will be some incremental growth there, but nothing major. So for the sales growth to continue double-digit on a Q-o-Q level, what is the next thing that you will focus on? What is the next lever which will drive this growth? Himanshu Kapania: I think this very typical of any business. Focus is on consumer. So you need a distributor or a dealer to be able to make sure the products are available at the right time at the right place. That activity, we have managed. So all our attention is moving to consumers. And those -- there are 2 types of consumers. One is a painter contractor and second is direct homeowners. That's the reason why we continue to be the most visible brand amongst the most visible brand. And we are really happy to report that within a period of 1 year, this the last World Cup, then we started to advertise. And this World Cup, this happens with Women's World Cup, and we won both the World Cup. And we have -- in the results, we saw that we have top of mind recall, we are #2 brand, which is the starting fact of consumers to be able to go and ask for Birla Opus at the dealer outlet. So that is the one step, and we believe 30% to 40% of the consumers make direct purchase of paints. Remaining 60% to 70% of the consumers do it with the help of the painters and contractors. So all our effort is be able to attract maximum number of painters and contractors, ensure these painter contractors are able to experience our high-performing products and superior products as well as able to offer to customers 2 very new services, number one, direct painting services from branded by us, which has transparent pricing, EMI as a GST bill and also Assurance where not only the customer gets product warranty, but he will get in the first year itself, if there is any problem, our commitment to not only replace product, but also cover his labor costs to be able to give assurance both to the painter and contractor as well as to consumers. So all the focus of the business is to be able to do consumer-related activities. And that will help us in what is happening is that is helping us dealers who first joined and took a small percentage of our 192 products. And now we are getting dealers who are increasing the number of products that they're buying and offering to consumers. Operator: Next question is from Manish Poddar from Invesco. Manish Poddar: So just wanted to get some sense, sir, let's say, because of this rainy season, has there been any sort of impact in this Q2 thing? And that is why you're calling out, let's say, the early part of the quarter was tapered. And despite you adding stores or adding distribution, you haven't seen performance to that extent. Because what is happening is the market always correlates individuals leaving at the top to the delivery of outcomes. And if that is, I'm just trying to get some sense on that. Himanshu Kapania: Understood, Manish. So let me first clarify. We believe that we have the best growth on a quarter-on-quarter basis. Obviously, when you measure on a year-on-year basis, we are a triple-digit growth. So that may not be so relevant. But on a quarter-on-quarter basis, we had a least decline when the industry had a double-digit decline. I had almost flat or slightly negative on decline basis. What is the reason for this decline? Broadly, whenever there is monsoons, the exterior products and institution business slows down. And that is our peak monsoons in July and August. So if a part of our business is not happening. That is the reason why the slowdown happens. And that is historic of industry. On a quarter-on-quarter basis, quarter 2 is amongst the slowest quarter for the industry, and we faced it for the first time. But having said that, we have to measure the overall industry on a year-on-year basis. If you were to remove Birla Opus performance, the industry has had a slightly negative growth is what our assessment is based on various feedback that we've got from the market. Not every company has yet reported their financial results. But whatever our study of the market is against -- but Birla Opus -- with Birla Opus, there has been a low single-digit growth that has happened and Birla Opus continues to help grow the market at this point of time. I hope that answers the question. Operator: Next question is from Nirav Jimudia from Anvil Wealth. Nirav Jimudia: I have 2 questions on chemicals. Sir, the first is when we see our EBITDA run rate for chemicals, like last year, we were at anywhere between INR 250 crores to INR 300 crores. And today, when we see we have inched up to anywhere between INR 350 crores to INR 400 crores. So just want to understand from you that when can we again start seeing the meaningful improvement in the EBITDA run rate for chemicals? And if you can explain this in context of, a, chlorine value-added products. So is there any scope for improvement in per kg margins here. B, newer capacities like ECH and CPVC and when it should start contributing meaningfully? And, c, whether the benefit of the power cost reduction with our shift to renewables is optimally achieved or there is a further scope of improvement? Himanshu Kapania: [Technical Difficulty] Renewable consumption rate of... Nirav Jimudia: Sir, your voice is not audible. Himanshu Kapania: Is this better? Nirav Jimudia: Yes. This better, sir. Himanshu Kapania: So I'll go in reverse order of your questions to the extent I remember all of them. So firstly, we are at about 24%, 25% renewable level as of now, right? If I look at all that we have and all the state-level regulations, we expect that in the next 3 years, we should be able to technically get to 40%. And I use the word technically because we have not yet envisaged those projects. We have not yet signed the PPAs, but that would be a kind of aspirational level for the next 3 years. I can't forecast because, as you know, every state has its own regulation on banking, billing, surcharges, et cetera. But we think that the current 25% has feasibility to reach the 40%. Then I think your second last question was ECL. Nirav Jimudia: Yes, when it should start meaningfully contributing in terms of the operating profits? Himanshu Kapania: So that ECH and CPVC would be meaningfully contributing from Q1 of next financial year. We will be mechanical complete by Q3, worst case situation in January, but the start-up times of these plants are long and complicated. And as you know that some of it are -- there are safety risks as well. So we expect that meaningful contribution will happen from first quarter of next financial year. Then I think you had a question on chlorine derivative profitability. Rather large basket of products, right? We have probably the largest basket of chlorine derivatives in India. And some of them are pretty seasonal because, for example, water treatment and monsoon has a higher season, right? Plastics has another high season. So I think these are mature products. It's not like you're going to see breakthrough profitability in any of these traditional chlorine derivatives, but it is necessary for us to do them so that we can get the caustic utilization rates that we want. And then your very first question was around what could be the catalyst for the next improvement -- step improvement, I think, in profitability. And Nirav, the honest answer to that is it essentially depends on [ chloride ], given our large exposure still to the chlor-alkali business. It's a combination of caustic prices and chlorine demand in India. That is the most meaningful factor that drives our results. And the business of predicting caustic prices for a long time is very tricky. So far, we can make our best estimates, but it's a tricky business. Operator: Next question is from Jai Doshi from Kotak. Jai Doshi: My question is generally on market share trends. Now last year, during the course of the year on a Q-o-Q basis, you were adding 100, 150 basis points of market share every quarter. It seems to have moderated to about 20 basis points starting this year. So is this entirely the difference between primary, secondary? That's my first question. Second is, is there a risk that it decelerates further? Or you think that you will be able to gain 20, 30 basis point market share Q-o-Q from here onwards over the next few quarters as well. And lastly, mathematically, for you to sort of INR 10,000 crores in FY '28 means 13%, 14% market share. So whereas if I understand correctly, you may be at 6.5% today, gaining 20, 30 basis points quarter-on-quarter. So what do you think from here can sort of drive acceleration in sequential market share trends for you? Himanshu Kapania: Thank you, Jai. I'm not sure how you're doing your calculations and how you're arriving at quarter 1, 20 basis point or quarter 2 at a slow market share growth. So first and foremost, I want to register the revenue reporting of paint companies has 3 broad components: decorative paints, putty business as well as industrial paints. Now we have a fair bit of idea of their industrial paints, some of them are also reporting a breakup between industrial and decorative paints. Now with decorative paints and putty business of the legacy players and decorative paints and putty business of Birla White, our assessment is we have grown very significantly. And last quarter, we had talked about reaching double digit, and we have grown more than 700 to 800 basis points in this quarter further. So we are there. And on a stand-alone basis, our assessment is we will be in quarter 4 to quarter 1 of next year, double digit. We are targeting -- we're trying to reach in this -- in the quarter 4. But we are between quarter 4 of this year or quarter 1 of next year, we should be in a double-digit number. And we are -- our degree of confidence remains solid around there. So you may have your own internal calculations and the number that you are giving us as the end market share is quite different from the numbers that we have on our internal calculation basis. Operator: Next question is from Prateek Kumar from Jefferies. Prateek Kumar: I have a couple of questions. Firstly, on PSF segment and caustic, the performance on a cumulative basis remains range bound like last few quarters. Do you see any figures which could provide any positive change in performance in this business. Some of it you have already alluded and like answered that. Unknown Executive: Yes. See, we expect a slightly better performance in Q3. But obviously, there are a lot of ifs and buts in terms of U.S. tariffs, in terms of global pulp prices. We expect stability and a slightly better performance for Q3. Prateek Kumar: Okay. Also, another question is on resignation of Rakshit, which comes as a big surprise to anyone who has been tracking Birla Opus closely. My question is, should investors view this -- should investor view this transition as a natural phase in generally difficult competitive business or as inflection point of any refreshed strategy? Himanshu Kapania: It's a natural phase of professionals growing in their career. This will have no impact on the business and business will be as usual. And there will be no change in the growth strategy. Operator: Next question is from Raashi from Citigroup. Raashi Chopra: I just had a clarification. When you're saying that the paints industry has grown at low single digits in the second quarter, and it's negative, excluding Birla Opus. This just decorative organized paints or adding putty as well? Himanshu Kapania: Yes, including putty. Operator: Thank you very much. Due to time constraints, we'll have to take that as the last question. On behalf of Grasim Industries Limited, that concludes this conference. Thank you for joining us. Ladies and gentlemen, you may now disconnect your lines.
Operator: Ladies and gentlemen, thank you for joining us, and welcome to the Unity Technologies Q3 Earnings Call. [Operator Instructions] I will now hand the conference over to Alex Giaimo, Head of Investor Relations. Alex, please go ahead. Alex Giaimo: Thank you, Nicole. Good morning, everyone. Welcome to Unity's third quarter 2025 earnings call. Today, I'm pleased to be joined by our CEO, Matt Bromberg, and our CFO, Jarrod Yahes. Before we begin, I would note that today's discussion contains forward-looking statements, including statements about goals, business outlook, industry trends, expectations for future financial performance and similar items, all of which are subject to risks, uncertainties and assumptions. You can find more information about these risks in the Risk Factors section of our filings at sec.gov. Actual results may differ, and we take no obligation to revise or update any forward-looking statements. Finally, during today's meeting, we will discuss non-GAAP financial measures. These non-GAAP financial measures are in addition to and not a substitute for or superior to financial performance prepared in accordance with GAAP. A full reconciliation of GAAP to non-GAAP is available in our press release and on the sec.gov website. And with that, I'll hand it over to Matt. Matthew Bromberg: Thanks, Alex, and good morning. On behalf of everyone at Unity from across the globe, I'd like to thank each of you for joining us today. On our last call, we posited that the second quarter of 2025 would ultimately be seen as an inflection point in Unity's trajectory, the moment where it became clear that the company was poised to deliver sustainable long-term growth in the years ahead. Today, with the third quarter now behind us, it's clear that's precisely what was happening. In Q3, Unity showed strength across both our Grow and Create segments, driving results that once again meaningfully exceeded both our guidance and consensus for both revenue and adjusted EBITDA, including an 11% quarter-over-quarter lift in our Grow segment, driven by Vector AI. Progress in the Create segment has been equally exciting. After backing out the impact of nonstrategic revenue, our Create subscription software business increased 13% year-over-year, reflecting the fundamental improvements we've made in both the quality of our product and the connection we have with our customers. But this inflection point we're referencing is about so much more than just the financial results we're reporting because in the new Unity, we're not choosing between execution and vision. We need to achieve both. The video game industry has already overtaken Hollywood, music and linear video combined in scale. We believe social media and short-form video are the next targets. As consumers increasingly demand that their entertainment be interactive in nature and creators search relentlessly for ways to increase engagement and time spent, all roads lead to gaming as the solution. Unity has always been about democratizing access to technology. We aim to give every software developer the tools and the platform to become a game developer. That's in our DNA. Advancements in artificial intelligence will enable us to enhance and extend this mission. Soon Unity Software will empower any creator, not just any software developer, to build interactive experiences. We believe this new form of democratization will not only spark an unprecedented explosion of content creation and more time spent in games, it will also make user acquisition and personalized discovery through Unity Vector more vital than ever. Players will have more choices about how and where to play than at any other point in history with Unity uniquely positioned at the intersection of the creation, discovery and monetization of those games, all powered by Vector AI. For the most talented segment of developers, this increase in the efficiency of content creation won't just be about making more content; it will mean making more time, more time to build something truly different and great as the basic game elements increasingly become just table stakes. We believe the real metric for the skilled game developers of the future won't be time to market, it will be time to innovation. How long did it take not just to complete the basic requirements, but to ship something that changes the nature of the art. And Unity will continue to be the bridge between that creativity and the players who turn it into the next global phenomenon. For now, let's dive a little more deeply into some of the product improvements we delivered in the quarter. During Q3, we continued to make rapid fundamental advancements in Unity Vector, delivering stronger returns for our customers. These performance gains are broad-based, spanning client size, geography, operating system and genre. As we continue to ingest higher-quality signals and refine our models, Vector will keep learning, driving sustainable, healthy revenue growth well into the future. We expect these efforts to be further enhanced by the highly differentiated behavioral data available through our runtime, which should begin having a financial impact in 2026. In August, we rolled out the Developer Data Framework, a unified system featuring dashboards that allow our customers to control how data is collected, shared and used in the production and operation of the interactive applications they build with Unity. This framework is designed to enable developers to unlock the power of the runtime to better diagnose problems and to optimize the experiences they offer their players. We are pleased to report that over 90% of new projects built with Unity 6.2 are now utilizing the new Developer Data Framework. In October, we announced our expansion into cross-platform commerce with Unity IAP, enabling developers to manage their entire global commerce and catalog from a single dashboard within Unity. The scale of this opportunity is meaningful. Each year, more than $120 billion of in-app purchases are made in mobile gaming alone. The majority of these purchases are taking place in a made with Unity game. As the gaming ecosystem continues to open beyond the traditional app stores, providing developers with a central Unity-native commerce capability is a big win for our customers in the ecosystem. Alongside our announced partnership with Stripe, we also recently entered into a new partnership with Coda and are in active discussions with several other payment providers. With the Unity Engine and runtime at the core and our industry-leading distribution, we are uniquely positioned to help developers capture value from the generational platform shifts that are taking place. And we'll help them drive success through accessible, open, easily integrated commerce solutions. That's just the first step for us. Over time, you'll see us take every opportunity we can to provide content creators with the trusted, open, developer-friendly platform they need to develop, deploy and grow interactive entertainment. The increased velocity of our product release cadence is occurring against the backdrop of steadily improved quality, stability and performance of the Unity engine. Since the launch of Unity 6, customer reported issues are 22% less frequent. And with enhanced quality and features, we're seeing significant continued momentum and adoption. Unity 6 has now registered over 9.4 million downloads, a 42% increase from just last quarter. Developers of all sizes are using Unity to create many of the most popular games in the industry. In the last few months, we've seen a meaningful increase in high-quality Unity games hitting the charts from developers of previously modest scale. PEAK, a co-op climbing adventure game built by just a handful of developers in a few weeks, has sold well over 10 million copies worldwide since its launch in June. Megabonk just became one of the most played games on Steam of all time. Schedule I, a made with Unity game created by a single incredibly talented developer is one of the highest revenue-generating games over the last 6 months. Kenny Son and friends' BALL x PIT sold over 300,000 copies in its first 5 days, all made with Unity, all made with very modest-sized teams. This is the dream that Unity lives to serve. And each week, we're seeing new breakout hits like these. This is not an outlier. It's a trend. Before passing the mic to Jarrod, I do want to take a moment to highlight the advancements we're making with respect to emerging technologies like extended and augmented reality. We recently announced day 1 support for Android XR in close collaboration with Google and Samsung. This initiative enables teams across gaming, education, entertainment and enterprise to quickly build new games and apps or port existing Unity apps to the Android XR ecosystem. With shipments of AR and VR headsets expected to grow 39% in 2025, this is an area where we're fully leaning in and will ensure that Unity has the capabilities in place to support robust industry growth. And finally, we're incredibly excited to connect with thousands of creators and industry professionals at our upcoming user conference, which we call Unite, just 2 weeks from now in Barcelona. Unite offers us an opportunity to celebrate and showcase the incredible talent and success of Unity creators as well as to highlight some of the exciting new Unity products that are going to be pivotal to our vision and the future of gaming. Thank you again for your time and attention this morning, as always. With that, I'll pass over to Jarrod for an overview of our financial performance. Jarrod? Jarrod Yahes: Thanks, Matt, and good morning, everyone. The inflection in Unity's business we spoke about last quarter is rapidly translating into faster revenue growth and improved profitability. In the third quarter itself, we added $30 million of high-margin incremental Grow revenue on a sequential basis, resulting in $19 million of additional adjusted EBITDA, well in excess of the top end of our guidance range. Grow revenue in the third quarter was $318 million, up 11% sequentially and up 6% year-over-year. Revenue upside compared to our guidance was driven by the exceptional performance of Vector, which drove further acceleration of the Unity ad network even when compared to the rapid sequential growth we saw last quarter. We are proud of the turnaround in our Grow business, sparked by the launch of Unity Vector, and we're confident that this business will continue to grow strongly into the future. In Create, revenue was $152 million, up 3% year-over-year. As a reminder, we lapped $12 million in nonstrategic Create revenue from the third quarter of 2024 and $12 million of revenue from a large customer win recorded in the second quarter of 2025. Excluding the impact of nonstrategic revenue, our Create business grew 13% year-over-year, powered by strength in our subscription business. Growth was driven by ARPU improvements from ongoing price increases and continued momentum in China, which has been an extremely bright spot for us in 2025. Turning from revenue to non-GAAP profitability. Adjusted EBITDA for the quarter was $109 million, representing 23% margins, an improvement of 200 basis points year-over-year and versus the second quarter as both sales and marketing and G&A costs came down as a percentage of revenues. As a team, we're executing steadily around operating expense reduction opportunities, maintaining our cost discipline and increasingly leveraging automation and AI. Over a multiyear time horizon, we believe Unity has the potential for dramatically higher margins driven by extremely high flow-through contribution margins, combined with operating leverage resulting from faster revenue growth. Unity had record free cash flow in the third quarter of $151 million, representing an improvement of $36 million year-over-year. This represents our second straight quarter of record free cash flow, showcasing the success of the restructuring efforts we have taken over the last 2 years. While there are always quarterly movements due to working capital, investors should expect Unity to continue to convert an extremely high percentage of our adjusted EBITDA to free cash flow, highlighting the cash flow generative nature of our business. Our balance sheet remains strong with cash of $1.9 billion and convertible debt of $2.2 billion. With that, I'd now like to turn to guidance for the fourth quarter. We're expecting total fourth quarter revenues of $480 million to $490 million and adjusted EBITDA of $110 million to $115 million. In Grow, we're forecasting mid-single-digit sequential revenue growth. We expect Vector to continue to drive strong performance while also experiencing benefits from work we've done to leverage Vector in other Grow products. In Create, we're forecasting steady revenue growth. Excluding the impact of nonstrategic revenue, our guidance assumes high single-digit year-over-year revenue growth driven by continued strength in our subscription business. We expect adjusted EBITDA margins to remain stable in the fourth quarter. While revenue growth remains strong and flow-through margins highly attractive, we have some known expense items in the fourth quarter, including Unite, our global user conference. We are also seeing outperformance in Create bookings, resulting in end-of-year accelerators for Unity's sales force. With that, I'd like to thank you for joining us on Unity's third quarter 2025 conference call. Let me now turn the call over to Alex so that we can take your questions. Alex Giaimo: Thanks, Jarrod. Nicole, I'll hand it to you for questions. Operator: [Operator Instructions] Your first question comes from the line of Matthew Cost with Morgan Stanley. Matthew Cost: In terms of the faster revenue growth for Grow in the second quarter, I was wondering if you could break down a little bit more what the drivers of that were. Is this a function of Vector improving its ad targeting capabilities for people who are already using it? Is it about rolling Vector out to more customers? Were there new customers coming into your ad business entirely? I guess help us understand the moving pieces for that acceleration in Grow in the second quarter -- excuse me, in the third quarter. And then I do have one follow-up as well. Matthew Bromberg: Matt, thanks for the question. Vector AI is proving to be scalable and highly performant. When compared to our prior offerings, what's really important about it is it's able to ingest vastly larger quantums of data, more complex types of data with more features and respond to changes in the real-time marketplace more effectively, and then to learn from those changes. So the self-learning AI continues to improve as we continue to invest in its development and as we continue to invest in the development of the data sets to feed it. And we believe the road map we have in place, coupled with positive trends in overall mobile gaming advertising spend is positioning us really well for continued sustainable growth over the long term. I think as I mentioned in my comments upfront, it's important to note that we're seeing really broad-based strength across all geographies and platforms and game genres. It doesn't mean that that's always true with every single customer in any given day. There's always work to do to optimize, and we are investing and working really hard to do that. But there's nothing at all structural that we see standing between us and continued broad-based improvement for our customers, which is a really powerful dynamic, and it's really encouraging. We feel very good about having the infrastructure and systems in place to power continued sustainable growth over the long term with Vector. And we just -- we couldn't be more thrilled with the progress we're making. Matthew Cost: Great. And then on the Developer Data Framework and the runtime data, very encouraging to hear about the high uptake of the Developer Data Framework with new customers. I guess, how should we think through the impact in 2026 that, that data might have? Obviously, Vector in the absence of that data is clearly improving. How big of a sea change might that be? And how should we think through the timing and magnitude of that impact? Matthew Bromberg: The way to think about runtime data is as a multiyear growth opportunity, a long-term advantage for us and a moat. It's -- you shouldn't think about it as like a lightning strike that's going to happen on a particular day. I also think it's probably critically important here to emphasize for everybody that absent any contribution from runtime data, we remain really highly confident in the growth trajectory of Vector, and you could already see that from the progress we're making. Having said all that, yes, we're really pleased about the launch of the Developer Data Framework in August, as you mentioned. We're pleased with the opt-in rates and the developer reception, and we feel like we have the pipes and the processes and privacy in place. And as more and more games are built in Unity 6, these tools are all going to have an increasingly important impact. We also -- the really positive adoption trends, as you noted, will speed that. But listen, this is a marathon, not a sprint, which doesn't mean as the great Jeff van Gundy, the former coach of the Knicks once observed. It doesn't mean we're not running as fast as we can the whole race. We are, but it's a long-term race. And we're feeling really, really good about the progress we're making. Operator: Your next question comes from the line of Brent Thill with Jefferies. Brent Thill: Jarrod, on the guide for Grow at mid-single digit, you just put up 11% sequential. Maybe just talk through what you're embedding in the guide, why you're expecting the sequential slowdown. Jarrod Yahes: Sure, Brent. And thanks for the question. I think, firstly, just taking a step back and looking back, we're really excited about the progress we've made with Vector. This is sort of the second quarter where we've seen extremely fast, rapid sequential growth. There's nothing looking forward that gives us any pause about where we are with respect to the momentum, where we are with respect to leveraging data to help with model improvements and our product road map is really exciting as we look forward. Ultimately, the guide is a function of many things. It's a function of where we are run rating into the quarter. It's a function of the seasonality that takes place in the fourth quarter, and it's a function of the data that we expect to flow into the model. We outperformed our third quarter expectations based on where we were when we reported the second quarter. We feel great about where we are. There's nothing to say that our performance will not continue to improve over the course of the fourth quarter, and we'll end up in as phenomenal of a place as the third quarter. So again, on our side, there's no reservation. There's no hesitation. I think we feel really good about the guide and about where we came out vis-a-vis the third quarter. Matthew Bromberg: And just the one thing I'd add to that, Jarrod, and that's well said, is that like, keep in mind, we're not running this business to a quarterly earnings clock. New product rollouts, enhancements, these are things that are organic to the business. They come when they come. The quarter ends on whatever day it ends. It's just not how we're running the railroad. So I wouldn't read anything into where particular things happen to fall over the course of 1 month or another month. The long-term prognosis for this business is really, really good. Operator: Your next question comes from the line of Alec Brondolo with Wells Fargo. Alec Brondolo: With regard to the non-Vector Grow business, could you call out some specific points of improvement, maybe ways that you were able to leverage the learning from Vector into other areas of the business? I think you mentioned in the prepared remarks, there was some improvement in the third quarter driven by that, but maybe some specific examples might be helpful for us. Matthew Bromberg: Yes. Thank you very much for the question. We are really excited about the entirety of our ad business. And I appreciate your question because I think we rightly focus on Unity Vector a lot. That is the largest and fastest-growing segment of that business. But we're really excited about the opportunities across the whole segment. And we do have plans in place to incorporate some of the technology and learnings from Vector into our other ad businesses. Now that we are through the launch -- the first piece of the launch of Vector, we do have additional cycles to apply to that. It's something we've already begun. We're optimistic about some of the early results we've seen and the scale of the opportunity there over time. And ultimately, our goal is to drive healthy and sustainable growth across the entirety of that business, and we feel great about the opportunity to do that. Operator: Your next question comes from the line of Chris Kuntarich with UBS. Christopher Kuntarich: I want to ask on the Unity in-app payments initiative here. How should we be thinking about this from the perspective of an incremental monetization opportunity versus more of a value add for your customers? Matthew Bromberg: Chris, thanks for the question. We're super excited about this opportunity. And there was again some news this morning in this space, which underlines just the trend that globally app stores are opening up all over the world as a consequence of legal challenges and other regulations and just the trends that we're seeing. And that, combined with the increase in mobile in-app purchase spending is really exciting. As we noted upfront, there's this enormous -- there's just an enormous opportunity for Unity to be able to deliver value to its developers to enable them to manage cross-platform multi-store their full catalogs and manage payment providers all natively from inside the engine that they're already using to build and operate their live service business. So this is something that we're really excited about it. It's something that as we spend time with customers, I think they're really excited about it. I saw a recent survey that said they thought more than 3/4 of game developers would incorporate alternative app stores into their business model in the next few years. I think that's maybe even undershooting what we're going to see. So it's a real opportunity for us to provide value. The product is completely free to our users. We'll collect a modest fee that's negotiated with the merchant of record, but that's not really what it's about for us. We do think though that over time, we'll be able to build new commerce products that deliver more value to the developers, and we'll be able to enhance this offering over time, and that can grow into a meaningful product opportunity for us. But more than anything, the point that we're hoping that folks will take away in our customer set is this is just a perfect example of the kind of product that only Unity can provide, natively, deeply integrated into the tool you already use. And it's, we hope, one big, but not the final step in enhancing our role as a platform across the entirety of the video game space; mobile, PC, ultimately console and to be there for developers and to help them in what's going to become an increasingly complex, more open world. Christopher Kuntarich: Really appreciate that. Maybe just one follow-up. As we think about Vector and where it is bidding across various mediation solutions, you called out really strong scalability here. Is there any evidence that Vector is going out and bidding more into nonlevel play mediation solutions? Matthew Bromberg: At a high level, Chris, I'd just say that we've seen that Vector is really competitive across all platforms, and we're seeing that continuing. Operator: Your next question comes from the line of Vasily Karasyov with Cannonball. Vasily Karasyov: Congratulations. I wanted to ask for details on the Grow segment growth in Q3. Can you please tell us how the revenue from the solutions, excluding Unity Vector, did in the quarter? And what does the guidance -- your guidance for Q4 imply for that chunk of revenue? And also, if you could, how we should think about it longer term? Is it sequential growth, flat? What is like the rule of thumb for us to model it out? Matthew Bromberg: Vasily, thank you for the question. We are not reporting breakdowns in the ad revenue number. So we really can't get into that. I would say that in general, we couldn't be more thrilled with the progress we're making across the entire segment. We're seeing really positive trends across all of our ad businesses, and we expect that number to grow over time. But beyond that, I don't think we want to comment too much. Operator: Your next question comes from the line of Andrew Boone with Citizens. Andrew Boone: Matt, in your prepared comments, you spoke about empowering any creator, not just software developers. Can you flesh out that comment and help us understand kind of the bigger picture strategy and the product road map as generative AI becomes more impactful? And then, Jarrod, is there anything on the cost side that we should be aware of as we think about 2026? It sounds like you may have some opportunities here. What does that look like? Matthew Bromberg: Yes, I'll take the first part, and Jarrod, you can follow up, and thank you very much for the question. Yes, here's what I was getting at. The DNA of Unity is around this -- has always been around this notion of democratization of game development. What that meant 20 years ago was we provided a set of tools and technologies and the platforms that enabled any software developer to be able to get into the games industry. And our dream was that like -- and that was impossible before because you could not -- unless you were a really big, scalable business, you couldn't invest in what was required to make that real. And the dream of the founders of Unity was one day, an individual sitting in his or her living room could build a game that millions of people could play. And that dream has become more than a reality. And that's sort of the thing that's at the beating heart of what we do. And what we're seeing in the kind of next turn of the wheel here is that AI technologies are going to allow us to make that game development process ever more accessible, which is going to impact not just our professional game developers, who are going to be able to build more efficiently and effectively. And as I mentioned, especially for the professionals, will give them additional cycles to create great things as they spend less time mired in the just kind of getting to the start line, which is a significant challenge for game developers. When you're launching a new game and you look at what else is in the market, you often think, okay, first, I have to build all the features and functionality that exists in the competitor games in the marketplace, and then I have to go figure out how to innovate on top. And you spend so much of your time in that initial piece that you often have not much time left for the innovation piece. And so we think for the professional developer, we're going to be able to provide tools that help them move more quickly through some of those routinized tasks and enable them to spend more time on the innovation piece. We think that's going to have a really important and already has had a really important impact on the marketplace. At the same time, this dream of democratization is going to become more accessible. Whereas before we were just hoping that we have software developers come game developers, I think what we're going to see is the Unity tools that we're going to provide are going to make it more and more accessible for nondevelopers and just regular content creators to be able to create interactive experiences as an initial matter, and then take those experiences as far as they want them to go inside the Unity ecosystem. What I was talking about in the remarks about interactivity is one of the things we have learned, I think, from years of building interactive applications is that engagement is the coin of the realm, engagement and time spent. And whenever creators are looking to enhance engagement and time spent, ultimately, they move to interactivity as the solution. Interactivity creates more engagement, creates more social interaction. It's what content creation ultimately is all about. So the combination of the democratization of the tools plus more interactivity across more different content types is something that we're really, really excited about, and we think we have a really important role to play. Jarrod Yahes: And just following up on the second part of your question, Andrew, on the cost side, we're excited about the progress we've made so far this year. EBITDA margins are up 200 basis points year-over-year and sequentially in the third quarter. They're up 400 basis points from the beginning of the year. What we've seen is operating leverage across the business, and we are blessed with extremely high gross margins. Gross margins at Unity are about 82%, 83%. Contribution margins are dramatically higher than that. There's a significant portion of our cost of goods sold that are actually fixed. What that really means for us looking forward into 2026 is that we can expect to benefit from the revenue growth that we expect in the form of significant operating leverage. If you look back over the last couple of years, we've had to battle against operating deleverage from the simplification and streamlining of our business. The opposite is going to happen looking forward in 2026. When you combine that operating leverage with cost discipline and our ability to leverage AI and automation to improve our business, we really think there's the potential to both expand margins and invest in some of the really important product initiatives that Matt has been laying out. We think there's a huge organic growth opportunity in our industry. We think we're really blessed with the assets that we have. I think when you think about elements like IP, when you think about collaboration, when you think about some of the data that we uniquely have access to, we think that we can expand the margins of the business while also significantly investing in the product opportunity, really resulting in a nice setup for 2026 from a margin perspective. Operator: Your next question comes from the line of Dylan Becker with William Blair. Dylan Becker: Matt, maybe going back to the idea of in-app purchase monetization. I think the opportunity there is fairly clear. But wondering as well kind of the economics of that shift to a third-party payments provider, how that impacts your customers, the publishers, the studios themselves, right? Is that something that's going to be flowed through 100% to kind of their bottom line? Is that something that they're going to redeploy maybe lower ROAS threshold, maybe they accelerate content creation. It feels like there are other indirect ways that, that can be valuable and accretive to your business. Just wondering how you guys kind of think through the indirect opportunity there as well. Matthew Bromberg: Yes. I think from the perspective of the developer, Dylan, the way to think about this is they're going to recapture some margin taking over more responsibility for their own commerce. But they're not going to recapture all that margin because there are things to do, right? To your point, they've got to be more responsible for processing payments, and they've got to do some promotion to potentially encourage customers to move to their commerce solution. So there are ways that both costs and promotional costs that chip away at that. Having said all that, there's meaningful money left over. And we have, I think, on prior calls, talked about the fact that we believe that a lot of that leftover margin is going to be turned into a fuel for growth. That's what companies do. If they can continue to buy ROAS positive advertising to drive growth, that's what they're going to do. And when your business gets more profitable, that's the first thing you're going to think about. And so we expect that to be, over time, I think, a real positive for us and for the industry as a whole, frankly. And then as we talked about on the commerce side itself, we're excited about the opportunity to be an open partner to the developer and to help the developer navigate what is going to be an increasingly complex hybrid world as it relates to commerce and transactions going forward. Operator: Your next question comes from the line of Benjamin Black with Deutsche Bank. Benjamin Black: I'm curious, is there anything you're seeing in the performance of Vector and the Unity ad network today that may change your strategy to potentially go after the larger e-commerce or web-based advertising opportunity earlier? And then a follow-up on the runtime, just looking beyond data retrieval, what other steps are necessary for the data to be distilled, to be put to work? And when next year do you think we should start seeing sort of the early innings of the impact on the financials? Matthew Bromberg: Ben, thanks for the question. I think over the long term, we're really bullish about the opportunities outside of gaming in the advertising space. We are primarily focused on the gaming market. It's what we know best. We think it's what's most valuable for our customers and our partners. But we are mindful of the opportunity over time. As I think we've shared before, our first foray into non-gaming revenue is more associated with programmatic advertising. And we're excited about the opportunity in programmatic. We think we can create a more efficient, really transparent path for brands to bid on mobile gaming ad opportunities and to enrich that path with additional data that they have not had before to create better outcomes. Programmatic ads is something like a $700 billion in ad spend in 2026 is a projection. So there are real opportunities, and we think that spend is going to move more from the traditional open web into other environments like CTV and retail media. And we think with the scale that we're operating in, combined with the privacy safe way that we can help advertisers access the mobile customer, we think there's a real opportunity here. We made a really big hire in this space last month. We launched a product we call the Audience Hub, which is kind of our first foray into helping brands of all types reach this new audience. And we've recently seen that campaigns powered by our Audience Hub are delivering meaningful lifts in engagement rates. So we're pretty excited about that in non-gaming. And then we'll think about e-commerce potentially next, but it's not something that's really close in for us. Benjamin Black: The question on runtime? Matthew Bromberg: I'm sorry, go ahead. If you want to -- you want to reiterate? Or I can... Benjamin Black: Yes, go ahead. Matthew Bromberg: Listen, as I said, the runtime opportunity is going to be meaningful for us. We think it's unique to Unity. And it is something that is -- it's not a science project. It's -- although it is a little bit of a science project, but it is an applied science project. And it's one that we're working really diligently on, and we're really, really pleased with the progress we see. And we're very bullish on the idea at a high level that one of the things that makes Unity really interesting, by the way, in all parts of our business is that kind of unique among both gaming platforms, but also app platforms, we are operating horizontally, tens of thousands, hundreds of thousands of applications that are connected by our runtime, billions of consumers, and the opportunity to understand and help our customers -- our developer customers understand the game player customer, the app user customers better and to help make user acquisition more efficient, we think, is an extraordinary one. Operator: Your next question comes from the line of Eric Sheridan with Goldman Sachs. Eric Sheridan: Maybe ask one bigger picture one, and then I'll bring it back to the P&L. When you think about the scope to apply greater and increased levels of compute capacity to your business over the next 3 to 5 years, how do you think about your line of sight into that capacity and the step function changes that increased compute could actually lead to in terms of second and third derivative order effects of how the business could scale and grow in the years ahead? And the second part would be, with that potential on the revenue side, how do you think about any offsetting impacts on margin as compute capacity also scales as well? Matthew Bromberg: Thanks for the question, Eric. I think what's exciting about our business is that we see opportunities on all sides of that. As the cost of compute goes down and we become more efficient, despite the fact that we will do -- our business will grow, especially on the Grow side, we believe over time that as a percentage of the cost of our cloud costs are going to continue to go down and the efficiency that will enable that. Even though we'll be working with ever greater quantums of data and even though we'll be working on increasingly more inference that, that ultimately is going to be a real positive for our business. At the same time, that trend is also going to be, we think, long-term positive for our Create business as we talked about, as the expansion of the number of creators who are building games and using Unity, who are increasingly using compute-intensive solutions to do that. again, as that efficiency continues to rise over time, we hope and expect that there will be no sort of friction to more and more people using our tools and platforms to build content, which we think is going to be great for our business. Jarrod Yahes: Yes. Eric, I would just add on to that, which is to say that cloud costs for Unity today are the second largest cost in our business. You would have seen that in the third quarter, our cost of revenue would have increased, and that's really directly in line with the very significant growth that we experienced in our Grow business. We are not afraid of building our business where it is computationally intensive for a period of time because what we found is that over time, we are able to make that consumption of compute much more efficient, much more effective. The cloud providers are doing a great job of driving efficiencies over time, reducing unit prices to us and our developers on our side are becoming much more effective and efficient in terms of the way that they are consuming compute, effectively commoditizing layers of compute on a very regular and recurring basis. So we're not afraid of getting more advanced in terms of the consumption that we use because we know that this is going to go down over time in terms of cost to serve. Operator: Your next question comes from the line of Martin Yang with Oppenheimer. Martin Yang: I'm curious about your prepared remarks comment regarding China. Is there anything different that's happening in China where you see momentum? There are very unique aspects of the ecosystem in automotive and mini apps. Anything that worth elaborating on in China for our business? Matthew Bromberg: Yes, there's actually a lot to elaborate on there. So Martin, thank you for the question. China has been a real bright spot for us. And it's no accident. Unity is the only platform that works seamlessly with all of the Chinese platforms, including Open Harmony, which is increasingly becoming the standard for mobile in China. So we have a really important and growing business there. As I think you know, China is the largest market for gaming in the world, I think, at this point and is growing really, really quickly. And we're really well positioned there on the gaming side, having been there for quite some time and again, having worked really hard and well to ensure that our technology is compatible and will be compatible over the long term. Lots of big hit games in the Chinese market are made with Unity. At the same time, on the industry side, Asia has been a real bright spot for us, particularly with respect to automotive, where the vast majority of the automakers in Asia are using Unity's technology for development of their in-dash experiences, for example. We've also had a lot of penetration in our industry team across more manufacturing businesses in China, lots of work around visualization of factory floors and the like. So China has been and we hope will continue to be a real bright spot for our business. Jarrod Yahes: Martin, I would just add to that. When you look at our Chinese revenue, which we do disclose, it's improved from 15% of revenue to 20% of revenue over the course of the past year. That's a pretty broad-based increase in terms of the revenue growth. So that is both impacting our Create business, which Matt outlined in detail. But what we're also seeing is publishers of Chinese games leverage Unity for global user acquisition. And as Unity Vector improves its efficacy, that is a global phenomenon, and we are seeing that growth in China take place across both Grow and across Create. We're also seeing that as Unity is delivering a quality product, our ability to enforce our intellectual property is resounding with clients. Customers understand that we're providing a high-quality product. They're paying for that high-quality product, and that's also resulting in strong growth in China and globally in Asia. Martin Yang: I have a follow-up on the publisher experience because the Unity engine in China is a bit different from the Unity engine elsewhere. How do the publishers use Unity ads differently as they're on a different engine? Is there anything unique about their experience? Matthew Bromberg: No. From the ad perspective, it is pretty straightforward and for all important intents and purposes, the same. Operator: Your next question comes from the line of Tom Champion with Piper Sandler. Thomas Champion: I just wanted to pick up on the last question related to China. It did look like a lot of the year-over-year growth on a dollar basis came from China. I'm just curious, Jarrod, maybe you said that was balanced across Create and Grow. But if we looked at growth on the Grow side on a geographic basis, would that look a little more balanced than maybe it does in aggregate? So that would be the first question. And then, Jarrod, I'm wondering if you could just touch a little bit on capital allocation. It seems like you've gotten awful lot of cash and really nice free cash flow generation here. What's kind of the thinking on capital allocation going forward? Matthew Bromberg: Yes. Thank you for the question. I'll just make a brief comment, and then I'll pass it over to Jarrod. The revenue growth in Create really has 3 principal drivers in the third quarter. The first one was the impact, the ongoing impact of the price increases that we've had, which are beginning to roll through, now been a couple of quarters, so beginning to roll through the P&L and we'll continue to do so over the course of 2026. As you pointed out, growth in China is a meaningful piece. And then also more broadly, more generally outside of China, the growth in our industry business as well. And it's really those 3 that are driving the really positive results in Create. Jarrod Yahes: Yes. I think that's absolutely right. And I think when you look at -- we did talk about a very large customer win in the second quarter. So that's important to sort of call out with respect to China. You're correct on the capital side, Tom. I mean, we've been doing a great job in terms of generating cash. Cash has gone up by just about $0.5 billion over the course of the past year. Some small component of that is from financing and the refinancing transaction we undertook in February, but the vast majority of that is cash flow from operations and really high free cash flow conversion on EBITDA. Look, from a business perspective, what we're doing right now is focusing very sharply. We think that there are product opportunities that are organic to our business, that really require our full attention. We do have some refinancings prospectively that we will undertake and some converts that are coming due, but there's nothing we need to do in terms of additional capital raise to meet those obligations. And I think we are going to absolutely be keeping our eyes out for potential acquisition opportunities, but there's a very high threshold and a very high hurdle for us in consideration of the strong product opportunities and organic growth opportunities that we're seeing in front of us. So thrilled with the cash generation. I'm going to be very savvy with respect to how we think about that capital so as not to distract us from what we think is an improving and really attractive organic growth opportunity in front of us. Operator: Your final question comes from the line of Clark Lampen with BTIG. William Lampen: We've dug into a lot of sort of very specific things on the product side and sort of Unity specific. Maybe if we pull back and sort of talk about the mobile market for a second, I wanted to see if you guys could provide some perspective on the way that products like Vector and what some of your peers have released are really impacting the market and developer spend. It sounds like financing companies are stepping in to sort of provide more ubiquitous capital to the market. Are we in a phase right now where you think the market is improving, capturing momentum and that's likely to continue into 2026. Maybe help us think about, I guess, the sort of systematic backdrop and how that's improving alongside the product work you're doing. Matthew Bromberg: You bet. Thank you for the question, Clark. We're really bullish on the growth of the games business as a whole, not just the mobile business, which we feel really good about and we think is going to grow, but also the business as a whole. And I know there has been certain kind of targeted spots of difficulty in this market. I believe that we are at a fascinating mode of kind of creative destruction in which the games business is resetting and reimagining itself, but it's going to do that in the context of growth. And as I talked about upfront, the explosion of really amazing new games, which we're already seeing, which is going to accelerate markedly in the months and years ahead is going to put the importance of AI-driven discovery ever more in the forefront. So to the extent that we can help developers sort through and publishers sort through what is a difficult market from their perspective because there's going to be so much more content and it's going to continue to be more and more competitive. It's a very competitive marketplace. So we think we have a role to play in helping our customers take advantage of that growing pie by providing them better and more effective and more efficient tools, both to acquire new customers, but also to better manage the customers they have, which is why we're so excited about where we sit in the games industry right now. Everybody is -- most of the other participants in the games business are very vertically focused on one kind of game or on one platform or one set of devices. We exist horizontally across all of them. And our only interest is in doing everything we can to make sure the ecosystem is healthy and that developers can continue to build their businesses. And we're able to help them across the entire life cycle of their businesses from prototyping games through operating those games in live service, figuring out how to optimize revenue and engagement of the games that they're operating on an ongoing basis and then helping them acquire new users. And to the extent all those activities become increasingly driven by AI and increasingly driven by an understanding of consumer behavior, the fact that the pieces of what we offer are tied tightly together around those 2 things is going to be really meaningful for us over time. And so we're really excited both about the growth of the market and the role we think we have to play in it. William Lampen: Okay. And if I may ask, I guess, just a very quick sort of Vector-related follow-up. In prior quarters, you talked about sort of returns dispersion between your customers and some experiencing sort of better performance than others. Has that narrowed of late? Are you seeing sort of a tighter band right now and sort of higher ROAS on average for all customers? Or is it sort of maybe moving in the other direction and we should think about growth being driven by a smaller handful maybe of larger customers that are leaning into this a lot more aggressively. I'm just curious, I guess, how that's sort of evolved and what you've seen. Matthew Bromberg: You bet. No, we are seeing broad-based improvement across all of our customer sets, small and big geography, genre, the improvements are really quite broad-based. Operator: This concludes the question-and-answer session. I will now turn the call back to Alex for closing remarks. Alex Giaimo: Thanks, everyone, for joining. We look forward to connecting throughout the quarter. Have a great day.
Operator: Good morning. I would like to welcome everyone to Kennametal's First Quarter and Fiscal 2026 Earnings Conference Call. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Michael Pici, Vice President of Investor Relations. Please go ahead. Michael Pici: Thank you, operator. Welcome, everyone, and thank you for joining us to review Kennametal's First Quarter Fiscal 2026 results. This morning, we issued our earnings press release and posted our presentation slides on our website. We will be referring to that slide deck throughout today's call. I'm Michael Pici, Vice President of Investor Relations. Joining me on the call today are: Sanjay Chowbey, President and Chief Executive Officer; and Pat Watson, Vice President and Chief Financial Officer. After Sanjay and Pat's prepared remarks, we will open the line for questions. At this time, I would like to direct your attention to our forward-looking disclosure statement. Today's discussion contains comments that constitute forward-looking statements and as such, involve a number of assumptions, risks and uncertainties that could cause the company's actual results, performance or achievements to differ materially from those expressed in or implied by such statements. These risk factors and uncertainties are detailed in Kennametal's SEC filings. In addition, we will be discussing non-GAAP financial measures on the call today. Reconciliations to GAAP financial measures that we believe are most directly comparable can be found at the back of the slide deck and on our Form 8-K on our website. And with that, I'll turn the call over to Sanjay. Sanjay Chowbey: Thank you, Mike. Good morning, and thank you for joining us. I'll begin the call today with a brief overview of the quarter, including some end market commentary, followed by a spotlight on one of our growth focus areas, Power Generation. From there, Pat will cover the quarterly financial results as well as the fiscal year '26 outlook. Finally, I'll make some summary comments, and then we will open the line for questions. Turning to Slide 3. Let me begin by addressing some of the highlights from our strong first quarter. Our global commercial teams continue to advance our strategic growth initiatives. In the quarter, infrastructure secured 2 large project wins within our Earthworks end market. Both wins were a direct result of our team's efforts with those customers to deliver high-quality technical support and superior product performance. That combination has and will continue to be a winning formula for us. In Metal Cutting, we won projects in Energy, Aerospace and Defense and Transportation. For example, we increased our share of wallet with an aerospace customer to provide high precision tooling solutions for machining military components. As you know, we continue to prioritize above-market growth, and these wins position us well in markets that are benefiting from long-term secular growth trends. We also continue to respond to the evolving tariff landscape, and we remain committed to fully offsetting the impact of tariffs through various actions, including product moves, supply chain optimization and surcharges as appropriate. Separately, we have implemented pricing actions in response to the continuing rise in tungsten costs, which have increased since August and are at historically high levels. We remain confident in our ability to price to offset the rising tungsten costs. On the cost improvement front, we realized $8 million in restructuring savings this quarter, and we continue to execute our plans to lower structural cost by reducing employment costs and consolidating manufacturing operations. Now let's move to our quarterly results, which exceeded the sales and EPS outlook we provided last quarter. Compared to the outlook, sales were primarily driven by better-than-expected volume across all end markets. EPS benefited from the additional volume and a lower-than-anticipated tax rate. Year-over-year, sales increased 3% organically. That's our first quarter of organic growth in 2 years and reflects modest relief from the broad market weakness that has impacted our end markets for the past 8 quarters. As you may recall, historically, down cycles tend to last 4 to 8 quarters. Adjusted EPS increased to $0.34 compared to $0.29 in the prior year quarter. In terms of profitability, adjusted EBITDA margin was 15.3% compared to 14.3% in the prior year quarter. Cash from operating activities year-to-date was $17 million compared to $46 million in the prior year period. Free operating cash flow year-to-date was negative $5 million compared to $21 million in the prior year. And finally, we returned $25 million to shareholders through share repurchases of $10 million and dividends of $15 million. Today, we are raising our sales and EPS outlook for fiscal '26. This update reflects the modestly improved market conditions, additional price and tariff surcharges and our favorable performance in the first quarter. Pat will provide more details on our updated outlook shortly. In summary, we are pleased with this quarter's results, and we continue to focus on delivering our commitments throughout fiscal '26. Turning to Slide 4 and our end market update. As a reminder, our full year outlook reflects forecasts of specific market drivers and general market conditions. I will focus on the bottom half of the slide and address the 2 markets that have changed since our last call. First, IHS estimates for Transportation slightly improved from the previous estimate, while still being in the negative low single-digit range. Volumes in the Americas have improved from the prior estimate, partially offset by pressure that continues to impact EMEA. And secondly, for Aerospace and Defense, expectations are improving as the aerospace industry has recovered from supply chain challenges and will benefit from the recent approval that will increase OEM production. Market factors remain mostly unchanged within the other end markets. Turning to Slide 5. We are seeing emerging opportunities in Power Generation, driven by rising demand for both renewable and traditional energy sources to support the expansion of AI data centers. This is an expanding opportunity for Kennametal across both of our segments, and we are capitalizing on this trend. As we shared last quarter, we secured a key win in Metal Cutting connected to the backup generators that are providing energy security to those data centers. And it's our deep expertise in application engineering and machining complex engine components that is positioning us particularly well to support customers as they manufacture backup power generation systems and utility scale gas turbines. With respect to the gas turbines, these applications require the same capabilities that we have long applied in Aerospace and Defense. So this is also an area that we know very well. While this slide focused on Metal Cutting, the opportunity extends across both segments. In Infrastructure, our wear-resistant solutions and a strong position in oil and gas extraction aligns with the growing need for natural gas as a reliable fuel source for uninterrupted power. So while our recent wins are in backup power systems, the opportunity is much broader, and we are well positioned to capitalize on that as the trend continues. Now let me turn the call over to Pat, who will review the first quarter financial performance and the outlook. Patrick Watson: Thank you, Sanjay, and good morning, everyone. I will begin on Slide 6 with a review of the first quarter operating results. Sales were up 3% year-over-year on both a reported and organic basis. At the segment level, Metal Cutting and Infrastructure both increased 3% organically and by end market. On a constant currency basis, Aerospace and Defense grew 20%; Earthworks grew 5%; Energy increased 1%; General Engineering was flat and Transportation declined 1%. Regionally, on a constant currency basis, sales in the Americas increased 7%, EMEA was flat and sales decreased 1% in Asia Pacific. The sales performance this quarter exceeded the outlook we provided last quarter. Relative to those expectations, share gains in Earthworks, better-than-expected auto build rates and overall modest volume improvements were the catalysts for the outperformance. I will provide more color when reviewing the segment performance in a moment. Adjusted EBITDA and operating margins were 15.3% and 8.2%, respectively, versus 14.3% and 7.6% in the prior year quarter. The improved margin was driven by price and tariff surcharges and incremental year-over-year restructuring savings of $8 million, partially offset by higher compensation costs, tariffs and general inflation and a prior year benefit from net insurance proceeds of $4 million that did not repeat in the current year. Adjusted EPS was $0.34 in the quarter versus $0.29 in the prior year period. The main drivers of our EPS performance are highlighted on the bridge on Slide 7. The year-over-year effect of operations this quarter was positive $0.05. This reflects incremental restructuring benefits, favorable timing of price/raw material costs, tariff surcharges and the advanced manufacturing tax credit, partially offset by higher compensation costs, tariffs and general inflation. The headwind of $0.04 from the net insurance benefits received in the prior year due to the tornado that damaged our Rogers facility. You can also see $0.04 of transactional gains related to preferential Bolivia exchange rates. Slides 8 and 9 detail the performance of our segments this quarter. Reported Metal Cutting sales were up 5% compared to the prior year quarter with 3% organic growth and favorable foreign currency exchange of 2%. Regionally, excluding the effects of currency, the Americas increased 6%, EMEA increased 1% and Asia Pacific declined 1%. Looking at sales by end market, Aerospace and Defense increased 16% year-over-year from improved build rates in the Americas and easing supply chain pressures in EMEA. Energy grew 12% this quarter due to data center power generation wins. General Engineering was flat year-over-year from lower production activity, primarily in EMEA. And lastly, Transportation declined 1% year-over-year due to project timing in Asia Pacific and an overall slowdown in EMEA and the Americas. Metal Cutting adjusted operating margin of 8% decreased 20 basis points year-over-year, primarily from higher compensation costs, tariffs and general inflation. These factors are partially offset by higher prices and surcharges and incremental year-over-year restructuring savings of approximately $6 million. Turning to Slide 9 for Infrastructure. Infrastructure sales increased 3% organically with reported sales growth of 1%, which was negatively affected 3 points from the divestiture, which closed in June. Regionally, on a constant currency basis, Americas sales increased 7%, Asia Pacific was flat and EMEA sales decreased by 3%. Looking at sales by end market on a constant currency basis, Aerospace and Defense increased 28% from defense orders driven by continued execution on our growth initiatives in both EMEA and the Americas. Earthworks increased 5% due to mining share gains in the Americas and higher global construction demand, partially offset by Asia Pacific mining market softness. General Engineering was flat due to higher powder demand in the Americas and higher demand in Asia, partially offset by lower industrial activity in EMEA. And lastly, Energy declined 5%, mainly in EMEA, driven by project timing and from a lower U.S. land rig count. Adjusted operating margin increased 190 basis points year-over-year to 8.8%. Adjusted operating income of $17 million increased primarily due to the favorable timing of pricing compared to raw material costs, partially offset by prior year net insurance proceeds of $4 million and higher compensation costs and general inflation. Additionally, we recognized year-over-year restructuring savings of approximately $2 million. Now turning to Slide 10 to review our free operating cash flow and balance sheet. Our first quarter net cash flow from operating activities was $17 million compared to $46 million in the prior year period. The change in net cash flow from operating activities was driven by working capital changes, including a higher investment in inventory, primarily from rising tungsten prices. Because sales volumes declined less than normal from the fourth quarter of FY '25 and pricing and tungsten value was up, working capital was a more challenging comparison this quarter. Our first quarter free operating cash flow decreased to negative $5 million from positive $21 million in the prior year, primarily from the lower cash flow from operations. On a dollar basis, year-over-year, primary working capital increased to $660 million and on a percentage of sales basis, it increased to 32%. Net capital expenditures of $23 million declined modestly from $25 million in the prior year quarter. In total, we returned $25 million to shareholders through our share repurchase and dividend programs. We repurchased 475,000 shares or $10 million in Q1 under our $200 million authorization. And as we have every quarter since becoming a public company over 50 years ago, we paid a dividend to our shareholders. We remain committed to returning cash to shareholders while executing our strategy to drive growth and margin improvement. We continue to maintain a healthy balance sheet and debt maturity profile with no near-term refunding requirements. At quarter end, we had combined cash and revolver availability of approximately $800 million, and we're well within our financial covenants. The full balance sheet can be found on Slide 17 in the appendix. Now on Slide 11 regarding the full year outlook. We now expect FY '26 sales to be between $2.1 billion and $2.17 billion, with volume ranging from negative 1% to positive 3%, net price and tariff surcharge combined of approximately 7%, and we anticipate approximately 2% tailwind from foreign exchange. We now expect adjusted EPS to be in the range of $1.35 to $1.65. The increased outlook reflects additional pricing actions related to the rising cost of tungsten and additional surcharges in place to address the changes in policy since our August call. The adjusted tax rate for the year is now 27%. And as a result of the additional cash that we need to invest in inventory due to higher tungsten costs, free operating cash flow as a percent of adjusted net income is now 100%. All of the other elements of our outlook remain unchanged. Turning to Slide 12 regarding our second quarter outlook. We expect Q2 sales to be between $500 million and $520 million, with volume ranging from negative 4% to flat, price and tariff surcharge realization of approximately 7% and a 2% positive impact from foreign exchange. One comment regarding the adjusted effective tax rate this quarter. The rate of approximately 30% assumes a discrete item that is driving the rate higher in Q1 than our full year outlook. We expect adjusted EPS in the range of $0.30 to $0.40. The other key assumptions for the quarter are all noted on the slide. And with that, I'll turn it back over to Sanjay. Sanjay Chowbey: Thank you, Pat. Turning to Slide 13. Let me take a few minutes to summarize. We delivered a solid first quarter, thanks to modest improvements in a couple of end markets, project wins on commercial side and cost improvement actions. We continue to make steady progress on our strategic growth initiatives, lean transformation and a structural cost improvement while also exploring ways to strengthen our portfolio over time. In parallel, we are monitoring external drivers such as trade and monetary policies and raw material prices and taking timely and necessary actions. We remain confident in our plan for long-term value creation for our shareholders. And with that, operator, please open the line for questions. Operator: [Operator Instructions] Today's first question comes from Angel Castillo with Morgan Stanley. Angel Castillo Malpica: Congrats on a strong quarter here. I just wanted to touch base a little bit more on the end market outlook. I think, you noted a little bit on the kind of prepared remarks about what you're seeing across end markets. But I think it kind of stood out to me that some of the changes on Slide 4 for each end market were quite notable in terms of going from down to up or materially kind of more into the double digits, all the while some of the kind of market factors that are listed below seemed a lot more muted to unchanged. Can you just clarify, I guess, within each of these, what specifically is kind of driving the material kind of uplift? And in particular, maybe also from a regional standpoint, how should we think about the mix of which regions are driving kind of the improved outlook for each of these? Sanjay Chowbey: Yes. Thank you, Angel. Good question. So let me walk you through that slide, which is Slide 4. Just first of all, as a reminder, on that slide, the top half of the slide is basically reflecting our sales trend and the bottom half of the page reflects what is the external factor, which is the market. So in all of these end markets, there are 3 pieces: first one is, APT and surcharge -- APT-related price increase and surcharges; second is, market itself, whether the market improved or it stayed flat; and the third piece is, project wins and share gains. So as we discussed in our prepared remarks, there were definitely some markets where we had bigger benefit of project wins, for example, in Aerospace and also in Energy, especially in the Power Generation side. Now let me walk you through the other factors. So like I said, APT and surcharge-related price affects all end markets. Specific to where we saw changes in end market in Transportation and Aerospace where we saw the biggest change -- changes. Let me walk you through that a little bit. So for Transportation, we saw Americas coming out a little bit stronger in the Q1, and we have outlook at this point also for the full year and based on even IHS data that we expect while still being in the low single digit in a negative territory, the Transportation IHS forecast at this point is improved from the prior outlook we had 3 months ago. In Aerospace, the customer build rate and also supply chain constraint easing up and also from a Defense perspective, definitely, we are seeing market to be stronger in that regard. Earthworks, when you see the arrow going up on the top of the page -- half of the page, that is mostly driven by share win. Same thing in Energy. Energy is more or less staying flat with respect to oil and gas. If you look at the rig counts and all that, about the same as where we anticipated 3 months ago. But we have had good project wins when it comes to the Power Generation and that helped in the Energy. And in General Engineering, we are seeing improvements. In Q1, we have seen some. But for you look at -- when you look at the full year, other than China, more or less, I think we're seeing slight improvement or flattish type situation in the Gen Eng when it comes to IPI. So that's really what we have at this point. Again, in summary, APT and surcharge helping and share wins are also helping along with that and modest improvement in a couple of end markets. Angel Castillo Malpica: That's very helpful. And maybe just as my follow-up, just to kind of double-click on some of these numbers. But maybe on the market share dynamic, could you just give us a little bit more color as to -- is that because the kind of cadence of wins here maybe it's seemingly accelerating in some of these end markets. Is there something about either the product that's really resonating with customers? Is it more related to being competitive advantages to being a domestic producer? And then as it relates to this or maybe more to the price dynamic that's driving some of these improvements, any concerns here that as you look at tungsten prices or kind of you're passing through higher prices here, any concerns that people start to consider either trading to other non-tungsten equipment? Or I guess, anything that you would note as it pertains to kind of elasticity of the customer to be willing to continue to kind of take these higher prices? Sanjay Chowbey: Sure. So first of all, with respect to share gain, it is definitely driven by what we have discussed before, the 3 main drivers: first, innovative solutions; secondly, our commercial excellence, which includes our engagement with customers and application support; and third, operational excellence. Our overall operational performance at this point, including safety, by the way. Safety, quality, on-time delivery has been very good. We continue to make good progress on that. So I think all of those combinations are definitely helping us in share gain. With respect to -- I think just to confirm, your second part of the question was, can you remind me? Patrick Watson: Moving [ something ] away from. Sanjay Chowbey: Okay. Yes. Sorry, yes. Angel Castillo Malpica: Yes, so specific to the customers for the price increases in tungsten? Sanjay Chowbey: Got it. Yes. Tungsten, yes. We have looked at that -- from our perspective, what we provide in terms of the innovative solutions, I believe that the value customers get through our solutions has -- is very strong in terms of like even with higher tungsten prices, it will make more sense for them to continue using that rather than changing it to stainless steel or some other type because the performance that they receive from our solution will more than offset even the increase that they're going to see from the tungsten prices. So we don't see a big risk from that. But Angel, to your broader question, as you look at some of the end markets, they are still on the fence. Can things get worse? Yes. Like we know there is a monetary policies, trade policies and things like that. So things can get worse. But overall, we have taken a very balanced approach in terms of what we see from the market and also from price dynamics, and on top of that, overall our share gain initiatives. Operator: And our next question today comes from Tami Zakaria with JPMorgan. Tami Zakaria: Very nice quarter. I wanted to ask you about the $250 million TAM from engines, large engines, which I thought was very interesting. How much of this $250 million is simply volume? Or does it also include pricing? And I may have missed it, but what share of that $250 million do you realistically expect to gain over the next 3 years? Sanjay Chowbey: Yes, Tami, good question. So first, let me explain that the $250 million that we have carved out to show as a TAM for Power Generation, some of this used to sit within either Energy or Transportation. Now we have carved it out to say, what is it so that we can really focus on that? And then how much is the growth initiative here. At this point, as we pointed out there, if you look at last 2, 3 years, that market has been growing in the high single-digit range, and we are still projecting it to grow at 10% rate for the next few years. So that's how we see it. At this point, of course, the $250 million does include the latest price dynamics in that. But in the bigger picture, it does have -- like the historical trend is there from that perspective. And as far as we are concerned, market share-wise, we don't disclose at this point about that information. However, we are very confident that our solutions and our overall value proposition with application support and custom solutions that we are very well positioned to win in this. Tami Zakaria: Understood. That is very helpful. I wanted to ask you about the Energy end market outlook a bit. I think it improved to mid-single digits from flat, if I'm reading it correctly. What's really driving this improved outlook for Energy? Rig counts is still down. Is it well? So could you just elaborate on that a little bit? Sanjay Chowbey: Yes. As you look at that, again, Slide 4, in the bottom half of the page, we are clearly telling you that oil and gas stays about the same, right? It's not getting worse. That's good news. But overall sales, which is in the top half of the page, we are saying it's improving because we have definitely impact of APT-related price increase and also surcharges if applicable. And as you know, a lot of products that is used in oil and gas does have very heavy content or greater content of the raw material. Patrick Watson: And just to tack on to that, Tami, keep in mind that across our Energy portfolio between both businesses, it's pretty diversified. So beyond having the exposure in oil and gas, which we think of primarily in Infrastructure, Metal Cutting has some exposure there as well. Obviously, we've been talking about the opportunities we have in reciprocating Power Gen and more traditional power gen sources. And as you followed us over the last couple of years, the great position we have in wind power as well. Operator: And our next question today comes from Steven Fisher at UBS. Steven Fisher: Congrats on the quarter. Just to come back to the share gain dynamics a little bit. I know this is something you obviously embedded in your multiyear outlook since 2023. So it's nice to see it coming through. I guess just now that we're starting to see this a little bit more visibly and you started to talk about it more, what visibility do you have to anything else in kind of lined up that could materialize in some program wins over the next couple of quarters? Sanjay Chowbey: Yes. Again, good question, Steven. Let me start by first addressing some of the higher growth end markets that we see right now from Aerospace and Defense, we have had success in that for the last 2, 3 years. Actually, we have talked about it all the way back in the Investor Day. And we have a good pipeline of projects that we continue to work on. Then when it comes to Power Generation, we already talked about a little bit. So that also has good pipeline. When it comes to Transportation, we will position ourselves very well as the transportation industry was going through quite a bit of dynamic shift in terms of the powertrain. And we have solutions which will support whether a customer launches new internal combustion engine or hybrid or plug-in hybrid or battery-only electric vehicle, we have good solutions, and we have very good strong application support for that. So well positioned on that. And in parallel, we continue to work on Earthworks, as you saw some of the project wins we reported in Q1. And finally, coming to General Engineering, our strong relationships with our channel partner and really working together to do what's best for our end customers have also bode well for us, and we'll continue to work on all of these 5 end markets. Steven Fisher: That's really helpful. And then I guess just on the tungsten price, can you just talk about how much of that top line benefit and margin dynamic you saw in Q1 relative to what might still be ahead? What could you still see there in Q2? And then are you expecting to see things in balance between your -- what you're passing along and what you're experiencing by, say, Q3? Patrick Watson: Yes. If we think about that, [ that's a modest ] -- we saw a modest amount of tailwind, I would say, Steve, in the first quarter, right? And then what you're going to see here as we go into Q2 -- and in Q2, we'll see a little bit of ramp-up there. Price will go up. We'll get a little bit of tailwind from that. We did see a -- we saw a little bit of advanced buying here in Q1, call that low single digits that might be flopped between Q1 and Q2 from a volume perspective. And that's part of what's animating, I'll say, our volume outlook for Q2. But as you think about Q3, Q3, we should see a pretty significant step-up in price/raw. If tungsten prices were to stick around where they are currently, we probably have our strongest EPS quarter in Q3 as we get into Q4, get into basically price/raw neutrality at this point in time. And as we've talked about on prior calls, we tend to -- what flows through the P&L tends to lag the market by about 2 quarters. If we were to see increases in tungsten prices throughout this quarter, that would tell us that, that period of favorable price/raw would continue more into the fourth quarter. Obviously, if we were to see some of that tungsten price roll off, we would start seeing some of that fall through in Q4 as well. But right now, our outlook assumes stable pricing for the balance of the year from a tungsten perspective. Operator: And our next question today comes from Steve Barger at KeyBanc Capital Markets. Steve Barger: Going back to data center, you said some of that TAM used to sit in Energy or Transportation. So what is the incremental machining opportunity you see from data center? And can you frame up, does it add single-digit millions of revenue, double-digit millions? How are you thinking about that? Sanjay Chowbey: Yes, Steve, it's definitely built into that $250 million. At this point, over the last few years, we have seen that in the $100 million range, and then we're raising it to a 10% CAGR. Steve Barger: Got it. Okay. And then, Sanjay, going back to your comment on some higher expectations for General Engineering. I think everybody is looking for the turn there. So is your outlook based on expectations for improvement just due to how long this downturn has been? Or is it customers saying they want to restock? Or are they seeing actual demand pick up that they're either seeing it or they're planning for it? Can you just frame up that comment? Sanjay Chowbey: Yes, sure. Steve, when it comes to General Engineering, I think at this point, by region, I'll comment a little bit. In U.S. and Americas in general, we saw a slight improvement. And by the way, you'll hear the word slight quite a bit here just because we are on the fence. I can tell you that even if you look at our outlook, the way we have framed it, overall volume for the full year, we are saying at midpoint is 1%. So that gives you the idea that we're right on the fence, a slight bit of improvement in IPI will help us, and that's what we have built because that's what we have seen from external projection perspective. In recent months, we have seen some improvement in Americas. EMEA, in Q1, we saw, but the projection for the rest of the year is more flattish. And in China, we have seen positive projection, slight bit of positive projection. Operator: And our next question today comes from Chris Dankert at Loop. Christopher Dankert: I guess just to circle back to the earlier question, can you kind of help frame for us what the assumed price/cost impact actually is in the guide? Are we assuming dollar neutrality for the year? Is it dollar positive margin? Can you just kind of walk us through what's actually assumed in your guide from a price/cost perspective here? Patrick Watson: Yes. So I would say for the full year, there will be positive price/raw, right? And you just kind of have to look through where the volume is because, again, volume at this point in time on a full year basis, as Sanjay just talked about, it's up 1%, right, at the midpoint of the guide, right? In addition to that, I would just point out to you that think about some of the comments we had last quarter in terms of some of the tailwinds we had in the prior year that are just not repeating here this year. So when we just think about that overall profitability and EPS walk, yes, we're going to have a very modest amount of positive volume, not quite frankly, enough to write [ home about ] from a leverage perspective. We will have some benefits, obviously, from the restructuring coming through. We're going to have significant amounts of cost inflation here coming through in the business, whether that relates to tungsten tariff costs as well as, I would say, the normal salary inflation that comes about in addition to some of the headwinds that we've got in, in terms of $15 million that we talked about in the prior quarter in terms of net tornado benefits that occurred in the prior year and some additional tax credits that came through from a tungsten perspective as well as about a $5 million pension headwind. So we'll see that positive price raw here really in Q3. And as we just talked about previously, when we get out to Q4, we'll really get to a more neutral basis. Christopher Dankert: Okay. Okay. That's helpful. And then as we're thinking about those restructuring savings, any additional color either in terms of the ratability there or maybe just even how to think about what the key programs are inside that restructuring savings? Patrick Watson: Yes, I'd say it's pretty ratable throughout the year, maybe with a little bit of a trail off in Q4 as we start lapping some stuff. In terms of what's in that program, we've done some shifting of resources that what's been able to unlock some cost as well as in the last year, talked about the closure of 2 facilities, one here in the U.S. and the consolidation of 2 locations in Spain that are driving that. Sanjay Chowbey: Yes, we are on track for the $35 million that we have projected for the year. Operator: And our next question today comes from Julian Mitchell of Barclays. Julian Mitchell: I just wanted to try and dial in again a little bit on the sort of EPS guide change and the moving parts there. So I think the guide midpoint went up by sort of $0.40 or so. And maybe $0.05 of that is the lower tax rate. So are we right in thinking that sort of the price/cost part of that $0.40 is kind of more than half of it? So maybe, I don't know, $0.20, $0.30 tailwind from price/cost versus the prior guide? And then it sounds like a lot of that comes in the third fiscal quarter. And as we look ahead, simplistically, if the tungsten price stays where it is today, is it sort of neutral after this year? Or does it sort of flip to a kind of headwind as your COGS catch up? Just trying to understand that dynamic, please. Patrick Watson: Yes. Good questions, Julian. I would say the best way to think about the change in the outlook is you got outlook to outlook, there's really 2 primary changes. One is volume and the second one is price, right? And so there is some incremental volume in there in terms of the change, and you can probably call that in EPS terms, $0.20-ish, $0.30 -- $0.25, $0.30, right? I think that tax number is probably a little bit hot. So it's probably closer to about $0.03 of tax, ETR to ETR, when you do the math, Julian. And then so you'll have some remainder in that. And included in that is price/raw favorability that's in the year, but you've also got some muting of that is some higher variable comp, okay? That's also nestled in there. So as you think about Q4, and I'm going to switch now to talking about this sequentially because I think on a year-over-year basis becomes a little more difficult. Q4, effectively, what's in the outlook is neutrality. And unless there's a change in tungsten, right, we would expect to be price/raw neutral on that piece going forward from that as you think about the following fiscal year, right? As we think about that from a headwind perspective, yes, there is some favorability this year that we will have on price/raw that won't repeat next year, right? And when you do that from a year-over-year perspective, I appreciate that would be seen as a headwind. But if you think of it sequentially, we'll be on the same basis. Julian Mitchell: That's helpful. So you've got sort of that -- as you said, it's sort of $0.20 to $0.30 price/cost tailwind this year. Is that right? Patrick Watson: Yes. I go back to the math I just kind of gave you there, Julian, so. Sanjay Chowbey: Yes. I think, Julian, keep that in mind, as Pat said, that volume, which, again, if you look at prior outlook versus this outlook, has improved by 350 basis points. Price improved by 300 basis points. Average was 4%, now it's 7%. So it gives you an idea that volume is playing a role in EPS. And within the volume, you've got project wins, you've got some improvement in market. And then also, I think those are the 2 main components of that. Julian Mitchell: That's helpful. And then just my sort of second question would be around just the sort of Power Gen exposure, and you have that helpful kind of Slide 5 that you've touched on a couple of times already. Just wanted to understand what is your revenue sort of exposure as pertains to that Slide 5 material? What was your dollar revenue in the last 12 months or fiscal '25? Or just trying to understand what your sort of jumping off point is today in revenue as we look ahead to that TAM expansion. Sanjay Chowbey: Yes. Julian, we are not disclosing that deeper detail. But let me just tell you the information you have, if you look at the Metal Cutting slide, you will see that Metal Cutting Energy had improved by 12%, whereas Infrastructure Energy had a decline. This is Q1 by 5%. That will tell you, you can do some math in that, and you can see that some of the increase in Metal Cutting Energy revenue is driven by some of those projects. Operator: And our next question today comes from Joe Ritchie at Goldman Sachs. Joseph Ritchie: Yes. Nice to see the strong start to the year. Just a couple of quick ones. I know we've talked a lot about tungsten. It's interesting to me the -- look, tungsten prices were up materially this past quarter. And Pat, you kind of talked through the dynamics. It typically takes a couple of quarters. I was just wondering, has anything changed from a timing standpoint in your ability to pass through price earlier than you have historically? Just seems like the dynamics have gotten perhaps a little bit better on the margin there. Just any thoughts around that would be helpful. Patrick Watson: Yes. I think 2 things to think about there as it relates to pricing. We've got 2 semi-unique circumstances going on simultaneously here. One is where tungsten is sitting at today is a historical high, right? And then secondly, I would say we've got the tariff surcharges that are in place, which are a unique event for us and many other companies in terms of how they've had to deal with some of the tariff costs. So I think the situation is pretty unique that we're in at the moment. I do credit the commercial teams. They have gotten out there and been aggressive where they can be and been smart about where we can make sure we're raising prices to cover the costs. And that's never an easy conversation with the client. No client ever really wants to have their price raised. But as Sanjay talked about previously, we remain very confident in our ability to go out there and get the cost and make sure we're covering for it. We've had a track record of doing so. And I think some of the commercial capabilities that as an organization that we've developed over the last couple of years, not only do they help us in terms of going out and winning market share, but they also help us in terms of making sure we're accurately pricing for the product that we have and the value we're creating for the customer. Joseph Ritchie: Got it. That's helpful. And I guess just maybe following up on that tariff discussion. To the extent that you're putting surcharges through, how are you guys thinking about a situation in which tariffs are potentially rolled back? What does that ultimately mean for kind of like the price/cost equation that you have baked into the guide for the year? Sanjay Chowbey: Yes, sure. Joe, I think, first of all, tariff situation, as you guys know, has been very dynamic. And we have taken a very broad sets of actions, starting with like production move, supply chain optimization and where necessary, we did implement surcharges. And as things have changed, those surcharges also have been very dynamic from our side. For example, when the tariff for products going from U.S. to Canada, that was taken down, we took the surcharges out. So we are very quickly adopting and doing what we need to do to recoup the cost that we need to, but at the same time, being very, very competitive in the market. So we'll continue to do that. And in the long term, let's say, some of the tariffs that we get to a point where they become permanent, then we will make those changes in the permanent prices. So that's the way we are looking at it. Operator: Thank you. This concludes the question-and-answer session. I'd like to turn the conference back over to Sanjay Chowbey for closing remarks. Sanjay Chowbey: Thank you, operator, and thank you, everyone, for joining the call today. As always, we appreciate your interest and support. Please don't hesitate to reach out to Mike if you have any questions. Have a great day. Thank you. Operator: Thank you. A replay of this event will be available approximately 1 hour after its conclusion. To access the replay, you may dial toll-free within the United States (877) 344-7529. Outside of the United States, you may dial (412) 317-0088. You will be prompted to enter the conference ID of 7492050 then the pound or hash symbol. You will be asked to record your name and company. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Jose Costa: Good day, everyone, welcome to Prio's Third Quarter Video Conference call. I am Jose Gustavo, IR Manager, and I will be host of this event. [Operator Instructions] The translated presentation is available on our IR website. The comments on the results will be presented by our CEO, Roberto Monteiro; our CFO, Milton; Chairman and COO, Francisco Francilmar. After the presentation, they will be available for the Q&A session. [Operator Instructions] This event is being recorded and will be available on our IR website. This presentation contains information based on future estimates and forecasts based on assumptions adopted by the company, which can change. It should not be considered fact or be used as a basis for financial projections beyond the plans expressed by the company. Now I'll give the floor to Roberto Monteiro, our CEO. Roberto Monteiro: Good afternoon, everyone. Welcome to Prio's Third Quarter 2025 Earnings Call. Well, I wanted to give you an overview of summary of our third quarter results. I believe we had some good things and some bad things. I'll start with the most difficult, the most challenging point, which was the Peregrino shutdown. That would be the bad thing. We had 2 Peregrino shutdowns during the quarter. One of them was a scheduled shutdown in July. So that was okay. That's -- that was normal operation for the field. But then still in this quarter, we had a second shutdown at Peregrino lasting 63 days. This was due to a regulatory issue and so on and that was a major negative point for us during the quarter. On the other hand, we had a lot of very, very positive points in Q3. This quarter, I think this was the company's best quarter in the other assets. So considering Frade, Albacora and TBMT field. Trading also did very well from a funding perspective, the company also did very well. So we had all of these very positive aspects with one negative point, which was the Peregrino shutdown. I'll go into that later, but -- and obviously, among these positives, we also had Wahoo, which also made great strides. I will address these points one by one. And then I'll pass it on to Francilmar and Milton to go into more detail in their specific areas. So speaking briefly, Peregrino, we already talked about it. We had a 63-day shutdown. We recovered, and we recently resumed production. The field is producing well. It is producing more than 100,000 barrels per day. It is producing around 106,000 barrels daily. So it came back well. It continues to do well. We had already reached that number before the shutdown. So it came back well in line with what we had projected. And then we'll talk a little about the next steps for Peregrino field. Moving on to our operations. The first one I would like to draw your attention to was Wahoo Field. We finally obtained an installation license at Wahoo Field. We have already contracted and pulled in the [indiscernible] of the vessel called amazon or pipeline. Everything is going according to plan, 2 wells have already been drilled. The results are in keeping with what we expected. So everything is going well on the Wahoo work front. Another front that I thought was positive this quarter was Albacora's operating efficiency. We had a record 91% for the quarter. We had a month with 97%, if I'm not mistaken, and another month of 94% within the quarter. So it's very positive. However, in the last month of the quarter, in September, we had one compressor failing, which we already knew with our Leste field at Albacora. Compression is the only system for which we still do not have adequate redundancy. So we had downtime and will recover soon. Unfortunately, these are items that we call long lead time items. Items with long delivery times, which we buy abroad. But anyway, it's addressed. They're going to solve it, we've already bought it, it's going to arrive, we're going to solve it. But I thought was positive is that we had one problem. It was totally focused on one point. So all the work we've done at Albacora over the last 12 months is starting to bear fruit. So that's why Frade was worth bringing this up as a major positive highlight. We performed a workover in TBMT 6, another well that had had problems with the pump. So the Polvo TBMT cluster returned to producing 14,000, 14,500 barrels daily and as it had been producing last year before all the problems we had there with workovers, IBAMA and so on. Moving a little more to the corporate side. We issued -- well, actually, there were 2 issuances. We issued a local debenture but close to this quarter, we issued it in the second quarter. It closed in the third quarter. And we issued $700 million in bonds, which we issued in the third quarter and the money will come in during the fourth quarter, along with the repurchase of a large portion of the bonds that would mature in 2026. So with that, the company improved, became even stronger from the point of view of cash position, long-term capital structure and so on and so forth. As for the company's results, when we look at them, our EBITDA totaled $320 million in the third quarter which was more or less in line with what we generated in the previous quarter. What happened here is that Peregrino -- the shutdown at Peregrino, of course, that obviously hurt us, but as we reduced inventory and sold oil that was in stock, we managed to maintain in Q3, a figure that was more or less similar to the previous quarter at $320 million and we had a net income of $92 million. What did worsen significantly from one quarter to the next, obviously, and moving on to the next slide was the lifting cost. The lifting cost for this quarter was 17%, actually, not 17%, $17.4 per barrel. And it did get worse because we decided to include all costs related to Peregrino as and expensed in this quarter. So we are not going to carry anything forward. The impact of the Peregrino shutdown is here in the third quarter. Actually, not all of it because Peregrino came back on, it was more or less in mid-October. So there will be those 15 days in October that will go into the next quarter, but then it is done. We could have accounted for it differently, but we didn't. We didn't do any of that. Our approach was to report everything as an expense and then our lifting cost in the third quarter rose to $17 per barrel. The fourth quarter will be impacted by those 15 days of October. But after that, we will be 100% clear. Another interesting draft to look at on the slide, Slide #4, is the one on the right which is production. We see that total production for the quarter was 88. However, the company's production, which would be those ores excluding the gray part of the bar, which would be the assets operated by Prio. We see that production posted higher numbers than in the last 3, 4, 5 quarters. So I think that here, we can see our work, the fruit of our labor in terms of our operations. As I said, our cash position is very strong. We closed the quarter with $1.7 billion. And today, our cash position is even higher than that. We have a little over $2 billion in cash. So we are fully prepared now for the closing of Peregrino and for the whole of next year. Milton will talk about this, but we will have almost no maturities next year. Another index that also worsened slightly was our debt largely due to the Peregrino problem. And we managed to sell 8 million barrels or so -- 8 million or so just in line with last quarter. So we could have done better if Peregrino had maintained production. So this is a summary of the quarter. I think we had some very positive development, especially with regard to our operations. But we had this Peregrino issue that ended up tarnishing the quarter. Peregrino has already been resolved. We will talk about it later, and we will address the next steps for Peregrino. The company as a whole, I think, is well prepared for the coming quarters, for the coming years and beyond. I'll stop here and hand over to Francilmar, who will go through the assets one by one. Milton will talk about the financials, and I'll come back to wrap things up. Thank you very much, Francilmar? Francilmar Fernandes: Hello, everyone. Thank you, Roberto. I will start on Slide 5 with the overall performance of our assets. It was a pretty busy quarter we had here. We had some positives and some negatives. Overall, we ended up producing less. We had a major impact with the shutdown at Peregrino field and Peregrino is currently the company's largest producer. Had significant developments at Albacora and TBMT. And really relatively stable quarter in terms of efficiency at Frade. But overall, we ended up having a strong negative impact on the lifting cost. It was $17. I can't even remember when we last had a number like that. But it was really impacted by the shutdown of Peregrino where we had a slight increase in costs to solve the problems and with no production. So that really had an impact, but it was a one-off. We hope that in the next quarter, we will be able to capture the improvements. We will work hard so that in the coming quarters, we can return to the number that we think is minimally comfortable for us to be at. Moving on to Slide #6. So we'll go over a few more details about Frade Field. This quarter, we had good field efficiency exceeding 97%, which we consider a good number for Frade but production was impacted by the natural decline of the field. We suffered a little bit coming out of that compression problem we had. But it has been fully resolved. We have no problems at the field. Today, we are operating at 100%. We're working very hard to adapt the unit there, making the final adjustments so that we can receive the oil from Wahoo. So few adjustments, commissioning of some materials that were already installed in the past. So nothing too out of the ordinary. Moving on to Slide 7, updating you on Polvo and TBMT. It was a quarter of deliveries of evolution at the field. We completed the workover of those 2 wells that had been idle since last year when we received the approvals. After that, we had the failure of a third well, TBMT 6. And as we had obtained approval for a good number of workovers for many wells, we quickly mobilized the rig. Within the same quarter, we sorted and repaired this well and is producing normally. And as a result, we already have operating efficiency over 90%, in fact, much better than that today and with full production. We're producing a little over 14,000 barrels, and we should still have relatively stable production, but a natural decline of this field. Just much more controlled for the coming quarters. On Slide 8, at Albacora Leste field, it was a quarter of relatively good performance. In fact, the best performance we have ever had at the field. And this is thanks to the repairs we made, all the effort that was made to repair or improve the power generation system and the water injection system. Our weakness remains the compression system. We have already repaired some things, but there were setbacks and others. We're still waiting for the compressor we purchased a brand new one. These are products and equipment with very long lead times. We are also facing a problem with the power system, the transformer which is connected to the compressor, but we are working hard to resolve this in the next quarter. So with that, we're able to deliver this level of efficiency, but still with some fragility in terms of redundancy. By delivering this in the coming quarters, we will be in a more stable state of production and operating efficiency for the field. Moving on to Slide 9. Let's talk a little bit about Peregrino in general. Peregrino had a quarter marked by downtime. By the field that was closed. So we stopped production for 63 days this quarter, which had a profound impact on production. And we made a huge effort to repair to try to have it back on as soon as possible. But there was a lot of physical work there repairing lines, replacing sections, repairing various systems that we had to handle to meet the requirements of the law. That was overcome. We joined forces with the operator, both people who are working on the transition and people who work some of our units that we redirected there and the suppliers as well. So all the focus was on that. That's what are under the bridge, and we overcame this challenge. Now we are working to finalize the transition. We hope to have news very soon. We have a team on board and the team at the office so all the final details are being finalized so that we can move forward and start operating the asset, maintaining efficiency, safety and smooth operations. Moving on to Slide #10. Updates on Wahoo Field. This period also saw significant progress. We received a license to install the subsea system, the connection or, as we call it, the subsea tieback and we mobilized the vessels both the ship for laying the rigid pipeline and the ship for laying the flexible pipelines as well as installation of the subsea equipment that was ready here. We have already begun installing some equipment and both the rigid and flexible pipeline vessels are being released for operation and undergoing loading preparation and the entire mobilization phase that is part of the schedule. The next phase now for the subsea part is to do the installation at the field itself, laying the rigid and flexible pipelines, all the various equipment that we install on the seabed, make the connections to the wells and then schedule commissioning further down the line. So everything is going according to schedule. We have already advised the market, and we will keep you updated on the next development. The next step, in fact, is the first oil. In addition to that, there is something I haven't mentioned in detail, which was the rig. We finished drilling the second well. We are completing the second well and later on, we will drill the third and fourth wells trying to apply the lessons we have already learned from these 2 wells. Overall, in terms of the reservoir between pros and cons, the result is in line with what we were expecting. We need more data. So we will still continue to study and cover the area to check for additional opportunities and have a better understanding of the reservoir. This happens in every well. So these are ongoing issues that will be present as we continue to develop the field. And with that, I turn the floor over to Milton. Milton Rangel: Thank you. Now on Slide #11, we talk about Prio's financial performance in the quarter. Our total revenue stood at USD 607 million. Brands reference in the quarter was 68.3%, with the equivalent FOB brand for sale at 64.15% and the quantity sold in the quarter was 8.8 million barrels. This helps us understand the total revenue of $607 million with FOB revenue of $566 million. What is important to highlight here for this quarter. Well, as we have already explained, Peregrino suffered a significant impact this quarter. We had 9 days of scheduled downtime in July. And since August 15, until mid-October, we had the intervention or the inspection in Peregrino and the field's production was interrupted. We had a shutdown. Therefore, the 15 days in August plus the entire month of September, in addition to the 9 days in July, brought an important impact to our financial statements. For the purposes of COGS, we recognize the COGS of the Peregrino or COGS for Peregrino for July and August and the cost for September, which would be the OpEx for September of around $20 million is included in the line of other operating expenses. This is purely accounting since we did not have associated production and revenue. Therefore, we do not recognize COGS. So this is recorded as a loss in these other operating expenses. When we show the lifting cost of $17.4, this already includes both with which is the COGS of the field reflecting this loss, just to give a complete view of the company's lifting cost performance which driven by lease losses or this lack of production coming from Peregrino for the consolidated numbers to $17.4. With that, our EBITDA was around USD 309 million with a margin of 55% adjusted EBITDA, excluding these nonrecurring items of [ $320 million ] with a margin of 57%. We also recorded an increase in financial results, which I think is worth going over quickly. We recognized USD 14.5 million in the quarter related to hedge transactions that were carried out mostly in June, July and August. Basically, the premium paid as the oil remained high, these options were not exercised. So it is the value of the premium of these options. And also, we had an impact of around USD 23.5 million related to the marking of unsettled hedges. And these are positions from September, October and November, which due to the fluctuation in the value of these hedges, we posted as a negative this quarter, although this has not been something cash or something fully realized. In addition, the company experienced an increase in gross debt which amounted to approximately USD 4.6 billion, leading to a slightly higher financial expense, something around $68 million in the quarter, which helps to explain much of this increase in financial expenses. Now moving on to the next slide, #12, we talk about funding. I'm already looking at the central charge on the amortization schedule. What is important for us to note here. Well, we have a large amount in 2026 of USD 600 million referring to our bond maturing in the middle of next year -- in the midst of 2026. Therefore, it's important to highlight that in October, we issued a new bond. We made a tender offer on top of the existing bonds, which had an acceptance rate of around 70%, meaning that we bought back this amount of $430 million, $431 million, leaving around USD 170 million still on our balance sheet for this original bond, which will mature in June. And with that, we issued USD 700 million in a new transaction this time, senior unsecured. While the previous bond was senior secured, and now we are migrating to the senior unsecured modality with a 5-year term, a rate of [ 6.75% ] I mean $1.65 per year. And that being in the next quarter is a subsequent event because it occurred in October. But we will already see a change in this amortization profile in the next presentations. Moreover, we also issued USD 539 million in debentures swapped for BRL. There is total exposure of this amount to dollar over the term of the 2 series of the debentures. And we had already done a lot of work to bring the maturities of working capital lines to the years of 2027 and '28 as we can see. Therefore, with this bond issue, our 2026 has virtually no debt. The value is very small. And we have a lot of peace of mind at a very important moment of capital allocation. When we have Peregrino coming along, the closing of 40% followed by the other 20%, we also have the under Wahoo's CapEx. Before, this is a moment of tranquility for the year of 2026 in terms of maturity. Well, duration of [ 2.78 ] in the third quarter and an average cost of debt of [ 6.35 ]. With the bond, we will be able to increase this duration a little bit more, considering this 5-year term with a duration of around 4.4 or 4.5 years. Moving on to the next slide here on net debt variation or proxy for our cash generation. We are coming out of net debt in the second quarter of USD 2.77 billion, our adjusted EBITDA ex IFRS of USD 320 million. As we said earlier, working capital expenses of $75 million, largely explained by payments to suppliers and also because we made several sales but have not yet received the cash, therefore, you still have a large amount of receivables coming along. CapEx largely relates to development of Wahoo, which is now in full swing. Well, we had the workover in TBMT, integrity expenses in Albacora Leste, and there were also issues related to the Peregrino shutdown. USD 20 million of this OpEx from Peregrino that is outside this adjusted EBITDA. So to make up the cash, it enters here in a separate column. Share buyback of USD 7 million and financial result of $80 million, largely here by $14 million of the premium paid in hedge with approximately $66 million approximately in interest or financial expenses from our debt portfolio. And with that, we arrived at a net debt of USD 2.8 billion at the end of the third quarter. We're now Slide #14 is on leverage. We basically measure here the net debt indicator to the company's adjusted EBITDA. In the third quarter, we reached 2x, which was slightly higher than the second quarter of '25, which was 1.8. Well, this slight increase I would say that is largely associated with the Peregrino shutdown generating less EBITDA, less cash generation. So it pulls this indicator up a bit. But still well below the 2.5x limit we have in our covenants. It's important to mention that we have an important event related to the closing of Peregrino that should take place probably in February or maybe even sooner, and we are in a very comfortable cash position, which currently is about USD 2 billion and with the Peregrino closing, bringing in an additional 40% of Peregrino's position. With Wahoo coming in over the next year, we expect strong cash generation and considerable financial robustness for the company in the coming quarters. With that, I'll hand over to Roberto to talk about ESG and the next steps. Thank you. Roberto Monteiro: Thank you, Milton. Well, I'm going to talk a little bit about environment and society, and then we will talk about the company's next steps. We continue to work on the sustainability front through the -- through our Prio Institute, working on programs such as the open sea initiative, which connects local fishermen to the oil and gas sector and so on. On the safety side, we conducted an emergency drill with the Navy, IBAMA and Albacora last year, which went very well. We held a second meeting on safety knowledge bills and also trained competent personnel who work at heights. We conducted SGSO, SGIP and SGSS audits. So safety is always a nonnegotiable thing for us and very important item in our culture. Within the health and well-being pillars, we achieved through our traditional programs some important things. We promoted a race, we had our first Prio owned race, which took place at a Jockey Club. It was super interesting cardiological and preventive evaluations, yoga and so on. In the third quarter, I mean, we had sponsorship events in the third quarter like racing and other events. And we also sponsored other events like Prima Facie and Rio Gastronomia. Well, now moving on to the next steps, Slide 16. Here, we have almost the same steps as shown in the last quarter. The focus on safety and health will always be present as will M&A opportunities. And in the middle, that is important within Albacora Leste's operating efficiency, we have promised in advance in this operating efficiency. I think it has happened. Today, we have a very specific issue related to gas compression. But the Albacora Leste field has been operating in a very stable, very safe, very consistent manner. So I think this is already a gain. We still have to resolve the gas compression issue. But I think we already reached a new level at Albacora Leste. At Wahoo, we have made very good progress in the 2 wells we have already drilled. The results were very much in line with what we expected. As for the pipeline, the boat is already in Brazil, and it will now undergo inspection by IBAMA, so it can go to the field to start the pipe laying. It will load the pipes up to launch line. So everything is on track and moving forward so that the first oil is expected to come in between March and April as we promised in the material fact. Costs are also very much aligned with no major setbacks. And the last point here that was pending is the closing of Peregrino. This closing of Peregrino is contractually scheduled for February of next year. However, now after this introduction and the return into -- the return back into operation, we have worked together with Equinor and ANP right after we resumed production, authorized the closing, meaning that today, there are no impediments from their regulators or any competent agency. And so today, we are ready for the closing as ANP has already approved it. And then there is a transfer of [ Elo ], but this will happen right afterwards with IBAMA. Therefore, today, we are ready for the closing of Peregrino, which is supposed to happen in February of next year. Today, we are working with Equinor to check the possibility of anticipating the closing. Nothing is settled yet but we are prepared since it makes a lot of sense to us. I mean, taking charge of the operation and start working to capture synergies in the field. In the coming months, our focus will be very operational as you can tell. Of course, M&As are always important, but it will take a back seat during the next few months. And as I said, our focus remains on the operational issues. And very soon, we will go from 115,000 barrels a day to slightly over 150,000 barrels a day with the enter of Peregrino and later with Wahoo, we will reach 190,000 barrels a day. And then with the remaining 20% from Peregrino, we will surpass 200,000 barrels a day. Therefore, the next 6 to 8 months will be crucial for us to reach these 200,000 barrels a day with great focus on the operational side. Now I'll stop here by thanking our employees and society and shareholders are always with us. And now, I will open the floor for questions. Thank you. Operator: Hello, everyone. Welcome to the Q&A session of our earnings conference call. So we are opening the floor for questions. First question from Gabriel Barra with Citi. Gabriel Coelho Barra: We'll try to focus on one question, but kind of a long one regarding the company's capital structure. I think that this was mentioned that the company's cash position, as the closing of Peregrino to happen in the short term. And in treasury, you have a high percentage of the company in the buyback that you've done recently. So the first point I would like to understand is why not cancel the shares now? Just trying to get a sense of why not canceling the shares and get to the 10%, given that you're very close to the number. Anything related to the closing because it seems to me that the cash position of the company is very comfortable. So I would like to understand the company's strategy regarding that. The second point, and perhaps it's a philosophical discussion we've had with the company for quite a while now. The company is also a very strong company in M&A deals, creating a lot of value to the shareholders, given a very successful execution of capital allocation. But when we look at the company today, as Roberto has just said, we are getting close to 200,000 barrels daily and with a very strong cash generation starting next year. And with our CapEx plan that accommodates the operating cash generation. So how should we think about dividend payout and share buyback looking forward, Roberto? Because I think that the company has slightly more leveraged now. But looking at cash generation, it seems that you are kind of comfortable as of 2026? So if you could speak about shares in treasury, how we should think about that and how we should think about dividends looking forward. These are the main 2 points of my question. Roberto Monteiro: Thank you, Gabriel. One way I'd like to look at the company is through the forecast for the next 12 to 18 months, at least the end of next year. And the forecast of cash generation and consequently, our cash position until the end of next year. So even with oil slightly stressed at $60 per barrel. Some people say it can go temporarily to $50. But just to do an exercise, considering $60 per barrel, we consider that our minimum cash for the company if we don't do anything and I mean, if we don't have any M&A deal or any other investments other than what is already in the radar investments in Wahoo, Peregrino, Albacora, Frade, everything is in the plan. So we would have a cash position, a minimum cash position which is always greater than $900 million. So clearly, we have a stronger cash position for us to think about the next 12 months. So there are 2 things that we can do. One of 2 things. We can have M&A deals, like I said, I don't think that this is going to be our focus in the coming months or quarters. This is not something we are working actively on. And we can reinvest in our own company because today, we find much superior returns to returns we've had in the past in M&A deals by buying back the shares of the company. So this issuance was very important to us because we kind of equalized all maturities. Now we have a very comfortable cash position for the next 12, 18 months. And looking forward, our cash position is very comfortable. And a lot of leeway there. And with that, as soon as we start seeing this leverage curve declining. I wouldn't like to go back to buying back the shares when the curve is upward and we don't know where it is going to stabilize. But the moment it stabilizes and the moment we understand that it's starting to drop and we'll look at that on a monthly basis, then I think it is the right moment for the company to go back to the market and start the buyback. And if we do repurchase the shares, we have to cancel them. So canceling the shares to me, is kind of a secondary move. The decision is whether the company should go back to share buyback. It should happen eventually. But due to financial discipline, it is important for us to expect that move when we see the leverage starting to invert the leverage curve.
Britt Jensen: Hello, everyone, and welcome to this conference call presenting our Q4 and full year results from 2024, '25 for Ambu. My name is Britt Meelby Jensen. I'm the CEO of Ambu. And with me today, I have Henrik Skak Bender, our Chief Financial Officer. So let's get going. So we'll start with the highlights from the year that we just exited. And overall, we delivered a very strong organic revenue growth of 13.1% and if we look at our endoscopy business, that grew for the year, 15.4%. This underscores the continued momentum and potential of moving patients from using reusable endoscopes to single-use endoscopes. If we look at our margins, we delivered a margin of 13.0% for the year, and this is impacted positively by our operational leverage where we continue to drive scale and be more efficient. And then on the other side, we also -- given we are a growth company as the most important, we are, as we have previously communicated, continuing to invest in commercial resources and scale in order to continue to deliver that growth. At the same time, we had 2 external factors, and Henrik will come back to that in terms of FX and tariffs that had a negative impact on the results. What we also launched in this quarter was October 1, where we held our Capital Markets Day. We launched our next-era strategy, a strong testament to the progress we have made over the last couple of years, and I'll come back to talk a bit about that as well. In connection with this, we both extended, and we increased our long-term guidance towards '29, '30 and what we are delivering also that Henrik will present for our short-term guidance is in line with these ambitions. So if we dive into the specific results for the year, starting with the overview here, the 13.1% organic revenue growth for the quarter Q4, we delivered 10% and if we take a step back, this is well in line with what we said a year ago when we were up here that we were expecting to have higher growth in the first half of the year than the second half of the year, which is also what we have delivered. If we look at the split, and I'm going to comment on this shortly, we had almost 10% growth in anesthesia and patient monitoring 9.9% and then the 15.4% in our endoscopy solution business. Both of these being lower in Q4 compared to the full year, again, as expected. Then our EBIT margin before special items landed at 13.0%, and we ended up with a cash flow of DKK 407 million positive for the year. Let's look at the endoscopy solutions revenue, starting with the respiratory organic revenue growth where we saw, as we have also communicated throughout the quarter, a solid double-digit growth in this segment of 11.4% and then slightly lower 8.8% for Q4. Again, this is as expected, and it's related to the timing of order in particular, in the rest of world, and nothing that we expect is going to continue where if we look ahead for this segment, we believe that the coming years will be continuing to be solid double-digit growth in this segment, very much driven by the breadth that we have in our endoscopy solutions. And what has been driving the growth this year has very much been our bronchoscopy solutions, and that is continuing to drive our revenue growth in the coming period together with also starting to see increasing revenue from our newly launched video laryngoscope solution SureSight. If we then look at the rest of our portfolio, and this is the segments that we refer to as urology, ENT and GI. Here we also had a higher organic revenue for the year of almost 20%, 19.6%. And then in the quarter, slightly softer. And although we normally do not comment on these different areas, and this is very different therapy areas that we are covering in this group. I think it's fair to also explain a little bit this quarter to say that in Q4, in particular, we saw a significantly lower growth in ENT than we saw in urology and GI. Let me come back to that because this is well in line with our strategy of key focus on urology and respiratory as our 2 key segments. If we look at urology specific, we have now not only our aScope 4 Cysto, but we also have our aScope 5 Cysto. We have our aScope Uretero, which -- the 2 latter are contributing still with a fairly limited part of the overall urology revenue, but that is something that when we look ahead, we expect to continue to see good momentum on our aScope 4 Cysto but where we also would gradually see these solutions driving an increasing share of growth. And I think it's important here to pause and take a step back and say, if we look at the overall momentum that we see when we launch new solutions in the market and when we take a couple of years back, looking at our aScope 5 Broncho. It's very clear that it takes some quarters at the launch curve, and we have talked about this a number of times, is not steep as you will see in other areas, but it's relatively more flat, but then it will also continue to grow quarter-over-quarter for many years. As we have shown that we see still the primarily primary driver of the overall revenue in endoscopy is coming from solutions that have been on the market for quite some years. So this also makes us comfortable when we look at this segment that there's good momentum as we move into this year and the coming years in terms of generating growth in this specific business area. If we then look at anesthesia and patient monitoring, 9.9% for the full year. There's no doubt that this has been an extraordinary year. The revenue growth has been driven by price increases, which was also, as we had communicated, leading to a couple of quarters of very high growth. And then the growth in our last quarter of 6.4% reflects the good balance of where we actually see a lot of growth coming from volume growth and also some growth still coming from price increases. This is purely driven by the fact that we have growth in the market and that we are able to deliver on the demand from our customers. We have not launched any new solutions in this area. We have not added commercial resources. So it's basically our existing people driving the growth and also fueled by very strong customer loyalty and the acceptance and appreciation of our solutions. If we then take a look at our -- if we then take a look at our strategy and what we launched because a month ago, we launched a very strong ambition when we look ahead to achieve global endoscopy leadership. So this is basically on the back of a couple of very successful years with our ZOOM IN strategy where we were successful at a fairly high pace of doing the turnaround of Ambu and then looking ahead as a strong growth company based on the solutions, the market potential, we feel very comfortable of having an ambition of global endoscopy leadership, building on the momentum that we see in the market and acceptance of single-use endoscopy solutions. So our strategy includes some strategic choices that we have made and also a couple of strategic things. And then -- and let me briefly do a recap of those starting with the strategic choices. What we communicated in relation to our strategy is that there are 2 key areas that are our primary focus areas as we look ahead. And this is our respiratory business formerly known as pulmonology, but now also expanded as we also had strong airways management solutions, and then we have urology. Then when we look at our ENT, we still see some strong potential to continue to grow in ENT, although our portfolio is slimmer in this area, we are investing in new innovation to also meet a growing need for single-use endoscopy in this area. Then when we look at GI, we have a long-term ambition of unlocking gastroenterology, which is a very realistic ambition as we see it because there are some of the same dynamics and the same needs in this segment as we see in other segments, but we also acknowledge that this is something that will take time. And we are investing more limited right now, in particular, when it comes to the commercial side. But we do believe that we are the ones that will eventually lead the transition to single use in this segment. All of this is then combined in our EndoIntelligence, where we are continuing to advance the software, the AI solutions that supports our endoscopes and where we have the benefit of having 1 software platform for all our endoscopes combined as the only player in the field. Last but not least, we are also confirming that anesthesia and patient monitoring remains meaningful for our company. And we continue also in this area to grow. But here, we are more focused on the profitable growth, meaning that we are investing less, and we are expecting more scale, as you have seen in the recent results from the past year. If we then look at the strategic focus themes, let me recap this. We have 4 specific areas where we believe that we can continue to make a difference. The first one is very important around customer centricity making sure that we continue to focus on our clinicians but also expand that focus to the health systems where our broad endoscopy portfolio can play a role. And then we see opportunities here to accelerate our adoption of single-use as well also as creating more evidence both on the clinical solutions, health economic and not least sustainability which is also playing an increasing role for our customers. Innovation remains at the heart of what we do at Ambu. And we also believe that we can deploy new technology either in-house or through an increased focus on partnerships to simply be able to be on the forefront of delivering new endoscopy solutions that plays a real role and makes a real improvement for our customers. Then to succeed with both our growth, but also with our margin improvement, it's super high on our radar to continue to build a scalable, profitable platform. We continue to see a number of efficiencies that we can leverage over the coming years, which is part of the plan that we are fully executing and that we have slightly extended. And then last but not least, the most important in Ambu to deliver on our strategy to deliver on our plan is our people and the culture that we have built and that we really cater for in Ambu and this is where we see great opportunities to continue to fuel this culture of growth and of empowerment because we have a lot of highly motivated and highly capable colleagues all around the world. So this is, in a nutshell, our strategy. And let me talk a bit about the growth because -- and where we see our growth coming from. And instead of looking at the market size, which is huge, let's look at the growth in the single-use market because this is actually what matters. And there are a couple of important points here when we look at the market. Overall, if we start on the right side here, we expect that the single-use endoscopy market is continuing to grow with over 20% CAGR, at least in the period until 2029 to '30. If we look at where this comes from, there's the underlying endoscopy procedure growth, which is roughly around 5% which is very much driven by both the aging population, increasing chronic diseases and also an increasing trend towards minimal invasive procedures. But then there is the big transition from being -- from using reusable endoscopes to single-use endoscopes, where we see that growing at least around 15% on an annual basis. And this growth we see coming from both solutions that are already on the market, most of these solutions from Ambu and then also new solutions that are in development right now. But we do see a continued conversion where customers have agreed in many of the subsegments that we are in -- that single-use endoscopy is the solution to a lot of the challenges that they have in the hospitals. And this is something that they also see as a standard of care as we move ahead. We did a survey among customers earlier this year and among potential customers as well, where they said that in respiratory, urology and ENT, where we did the survey. The clinicians said that roughly 70% of their procedures can be done with a single-use endoscope. And we are far from that today. So that also explains the great potential. And let's look a little bit at what is driving this conversion to single use. And there are 4 main things that are the drivers. One is the higher efficiency that we see in the hospitals. So there's more and more evidence out there that customers can actually treat, or hospitals and clinics can treat many more patients when they use a single use endoscope. Because they don't have to wait for a scope being available or the reprocessing that needs to be done. And this one is super meaningful in the hospitals today where resources is a constraint. Then there are better economics. If you do the full budget model -- budget impact model from the hospitals, it's very clear that it comes out more economic viable to use single-use in most cases. We have the strong clinical performance where the quality of the single-use scopes have reached, in many segments, at a level where it is very strong and comparable to single-use and on some aspects, even better. And then we have sustainability, which, in particular, in Europe, and we are seeing also the trend in pockets of the U.S. where sustainability really plays a role in the choices of the hospitals. So if we have to take a step back and say what is really the potential of Ambu and how do we see it, it's basically a very attractive market that we are playing in. And we are, as market leaders, leading the structural shift to single-use solutions. We have the broadest single-use endoscopy and also a very strong proprietary platform to deliver this growth and the largest commercial footprint in single-use. Our solutions and our innovation is very focused on meeting and solving the problems that we see with the customers so they can treat more patients with better outcomes. We have a setup which is already very competitive and scalable when it comes to cost, and this is something that we are continuing to fuel by ongoing initiatives that we have -- and this is basically what brings us to a very clear path of solid double-digit organic revenue growth longer term and also a margin expansion towards 2030 that Henrik will come back to. So before I hand over to Henrik, let me just briefly talk about the EndoIntelligence where we have received a couple of questions. And basically, we are not sharing all the full programs that we have in development. But what I can say is that EndoIntelligence is building on the hardware platform that we have, where we are also working on a next-generation supported by the software that we are really continuing to improve across all endoscopy solution areas and then AI-enabled applications. So we are basically able to support the doctors, both in being more efficient before they do the procedures with the patients, during the procedures, enabling much better diagnostic support than they have been able to so far and then also after the procedure where there typically is an increasing level of documentation being done where we can support. So this basically also means that with us being present in respiratory, urology, ENT and GI with a strong offering when it comes to our endoscopes here exemplified by our respiratory solution, adding on then additional solutions that also plays a role in helping our customers such as the video laryngoscope that we launched. We have our VivaSight One Lung Ventilation as well as our Broncho Sampler Set, we are basically becoming a company that can help the full procedure that they do with the patients in terms of endoscopy, and this is the way that we are moving forward. And then we have the benefit of the portfolio when we are engaging with the health systems where it's very meaningful that they can go into a room and actually plug any endoscope in and then do a procedure, so they can also leverage the full hardware platform and the software that we have with our solutions. So with that, I'm -- I will pause, and I will hand over to Henrik and come back in the Q&A. But just by saying that we feel super confident around our new ZOOM AHEAD strategy, we are very excited about the potential that we have, and we feel we are very well positioned to also strongly differentiate ourselves in solving our customer needs better than anyone else. And this is also where with a high market growth in single use, transitioning from reusable, we are strongly positioned for high growth as we look ahead into the future. So with that, Henrik, over to you. Henrik Bender: Thank you, Britt. And like Britt ended, I also wanted to start before I get into financials by saying we stand here today on the back of what we feel are really solid results for '24, '25 with a lot of progress on our strategic initiatives. And we also stand here today super confident, as Britt just said, and with a high level of excitement with what we have ahead, with what we launched at the Capital Markets Day guided by now our ZOOM AHEAD strategy. And I'll also come back to that and talk a little bit about our long-term targets in connection with that. But starts with, of course, with viewing first our '24, '25 financial results. Starting with growth, we had an overall growth for the year, organic growth of 13.1%, impacted by FX, both for the full year, but in particular, for the last 2 quarters. So the full year reported growth landed at 12%. For quarter 4, specifically, we had an organic growth of 10%, as Britt also presented before. Adjusted for the FX impact that in reported currency landed at 5.7% and just illustrates how impactful the depreciation of the U.S. dollar DKK currently have been on our numbers in quarter 4. In terms of business, we had a strong growth still endoscopy, though lower than the previous quarters at 12.4% and still a solid growth also in our anesthesia and patient monitoring business with 6.4% growth, bringing the total growth across the year to 15.4% for endoscopy and 9.9% for anesthesia and patient monitoring. Very satisfactory results and in alignment with our long-term guidance and also with the ambition we set out exactly a year ago when we set the guidance. In terms of the geographical split, we continue to see very solid growth in North America and Europe, less growth in Q4 for rest of world, mainly due to timing of orders, but consistently across all of the areas, strong growth. And of course, our North American growth was in reported currency, particularly impacted by the U.S. dollar DKK depreciation. So overall, a good growth momentum and a growth momentum we also see continuing in now to '25, '26. Something that I'll come back to when I talk about the guidance for '25, '26. Then turning to margin. We also landed the year on a very solid foot, we feel, in terms of our Q4 but also in terms of the full year. For the full year, '24, '25, we landed at a EBIT margin of 13.0% for quarter 4 alone at 10%. Importantly to note, for quarter 4, as also communicated in our Q4 statement, we were impacted negatively by FX and also by tariff costs. And adjusting for that, we actually landed our Q4 and have corresponded to 13.4%, fully in line with our EBITDA margin expansion plan. As also communicated on our Q3 statement, the FX impacts are temporary. We are initially impacted by the U.S. dollar depreciation, but they will, over time, be compensated then by also lower costs. But it takes quarters to really see that offsetting effect and with a continuation of the U.S. dollar DKK depreciation, it did net-net impact us negatively for quarter 4. For tariffs, I will also come back to it later. We have seen an increased tariff regime globally but specifically for our manufacturing coming from outside of North America that has impacted us in quarter 4 and will also impact us in '25, '26, but we remain very confident that with the plans we have in place already, we can mitigate a lot of this impact. It takes time to implement, like we've said from the start, depending on the initiatives, 6, 9, 12 months. So there will be a gradual phasing. And therefore, right now here in Q4, we did see a negative impact, which in part will continue into Q1 and Q2 and Q3, particularly for '25, '26. Then looking more in detail on the margin and breaking up to gross margin first, and then secondary our OpEx costs. Gross margin continued a strong development, which we've been on now for 16 consecutive quarters almost with an increase versus last year of almost a full percentage point, landing the full year gross margin at 60.2%. This, despite the negative impact from FX, is something we are very satisfied with, substantiates our ability to grow the higher gross margin business in endoscopy solutions and also drive price increases particularly in anesthesia and patient monitoring. In addition to this, it's also illustrating how we've continuously managed to drive efficiencies in our manufacturing footprint with better utilization of our factories, but also better throughput. So a really good result and a good continuation also towards our long-term ambition. In terms of OpEx, there was an increase in OpEx in quarter 4, one, because we continued with the investments and Britt -- as Britt also said in her opening, investing in commercial resources. But two, in particular, also because we did see effects from tariffs, which are reported under sales and distribution costs, which made the OpEx costs go up in absolute terms. That being said, we continue to see further potential for operating leverage and continue to be committed and confident on the long-term margin expansion journey where OpEx will be the main driver of our further leverage. If we then turn to cash flow, we landed the cash flow within expectations of the updated guidance for full year cash flow of around DKK 400 million with for quarter 4 specifically DKK 130 million, landing the full year at DKK 407 million. This is a continuation of the efforts of driving strong cash conversion. And despite the negative impact from FX on EBITDA, in particular, a continued positive momentum on also how we manage our net working capital while still making sure that we have enough safety in our supply chain and also in our inventories locally to manage customer demands where needed. So overall, a really good result. If we then break down into some of the components of cash flow, as said, EBITDA had a drop in quarter 4, mainly driven by FX. Secondary on our CapEx, we did see a slight increase, mainly due to certain timing of investments in R&D. And last but not least, we did continue to see a slight decline in our net working capital as also guided in the last quarter, particularly managing our inventory, but also our accounts receivable in a slightly more tight manner, while still making sure that we have enough buffer in our inventory and supply chain to manage customer demands. In addition to that, we are, as part of our annual report, also proposing a further cash distribution, a process we started more explicitly last year with an updated dividend policy and one that we are now extending and expanding. This concretely will consist of: one, a dividend of proposed DKK 110 million, which will be finally decided at our AGM in December and secondary, a share buyback program of a total value of DKK 150 million. We intend to start the share buyback program after the AGM and executed in full before the end of the financial year with an expectation of canceling the shares when timely needed. We do this, one, because we believe that this is the right thing to do under our dividend policy and with a continued strong balance sheet. And now because we have a negative net interest-bearing debt, we also feel it's timely to increase the cash distribution. That said, it still leaves plenty of room for us to still have high ambitions on our M&A agenda, something that we certainly still do despite a slightly higher cash distribution than previous years. With that, let me look more specifically now at the '25, '26 outlook. We are guiding for '25, '26, a growth of 10% to 13% organic growth for the year in alignment with our ZOOM AHEAD strategy. More specifically, we are guiding for endoscopy solutions, a growth of more than 15% in part with accelerated growth in respiratory and secondary by continued growth momentum in urology and GI and we have come off to a good start on both dimensions. For anesthesia and patient monitoring, we're expecting mid-single-digit growth which is in the higher end of our long-term guidance and again, an illustration, as Britt described earlier, of the continued solid momentum both on volume and on price increases within anesthesia and patient monitoring. With the growth composition of our '24, '25 financial year, we are expecting that the total growth will be more back-end loaded, and we are expecting with very high comparables for quarter 1 that we will have a lower growth in quarter 1, perhaps even just below double digit. But it doesn't change that our full year guidance for the year is 10% to 13%, and we feel very confident with the start we already see right now. Turning to EBIT margin. We are, for the full year, guiding 12% to 14%, including an impact -- expected impact from tariffs, negative impact of 2 percentage points which means that adjusted for this, we would have been guiding 14% to 16%, exactly on the path of our EBIT margin expansion. Why do we see this impact from tariffs? Well, we do because despite our ability to mitigate tariffs, there is a timing of implementation of between 6, 9 or 12 months, depending on the initiative. And that does mean that in particular, in the early part of '25, '26 financial year, we will see higher tariff costs that will gradually decline across the year. And we're expecting tariffs to have much lower impact when we turn forward towards '26, '27 and further on, something that I'll also come back to later. That also means that with slightly lower growth -- organic growth momentum for the start of the year and a higher tariff impact that our EBIT margin will also be back-end loaded for the financial year '25, '26. Last but not least, we are also in continuation with our ambitions from the ZOOM AHEAD strategy, guiding a cash conversion of around 40%, a continuation of our ability to drive efficient growth, make sure that we still invest in the business, while we manage our net working capital in an appropriate way. And with that, let me look a little bit further ahead and come back to some of the direction setting we also gave at our Capital Markets Day as part of ZOOM AHEAD on EBIT margin more explicitly. We are, as you see on the left side on the slide, in a good position to manage the tariff situation as we've increased our manufacturing footprint in North America with our manufacturing site in Noblesville in U.S. and Juarez in Mexico substantially during the past years, with particular expanding our production in Mexico. This leaves us good flexibility to manage that, more and more of our products sold in U.S. will be produced at these 2 sites, which are completely tariff exempted. Mexico included under the USMCA tariff agreement or trade agreement. That means that with further transfers towards our Mexico factory, which we are ramping up further, we do, as I explained just before, see negative impact from tariffs of around 2 percentage points for the financial year '25, '26. But we see this gradually decline and be very, very minimal when we get beyond '26, '27, which also means that despite a lower guidance for the next year at 12% to 14%, we are very confident still on our ability to deliver around 20% EBIT margin by '27, '28 as we continue the operational leverage on OpEx in particular, and we implement the mitigation actions on tariffs. And that brings me to my closure reminding us of the targets we communicated as part of ZOOM AHEAD. We feel super confident, very excited, as Britt said, on the journey ahead, confident on the potential for the high-growth in endoscopy solutions, particularly within respiratory and urology, but also in ENT and GI with a much more clear path for how to deliver on this and a very strong market demand for more and more single-use solutions. We see an increased potential also in anesthesia and patient monitoring with a strong customer loyalty, strong product portfolio and a continued solid volume development at a 3% to 5% growth, meaning that our full combined organic growth ambition CAGR for the period is 11% to 13%. In addition to the target on delivering approximately 20% EBIT margin by '27, '28, as also communicated at the ZOOM AHEAD, we also lifted the EBIT margin guidance to plus 20% by '29, '30 and across the period, an average of more than 40% cash conversion. We feel these extended and increased targets is an important part of our ZOOM AHEAD strategy and really underlines the great confidence and high excitement we feel about the future for Ambu and for single-use in particular. With that, I thank you for your attention, and I hand it to the operator for questions. Operator: [Operator Instructions] And the first question comes from Jesper Ingildsen from DNB Carnegie. Jesper Ingildsen: I have 3 questions. First, on respiratory, you see a sequential decline in growth despite the easy comparables you have from last year. Could you maybe just elaborate what makes you confident that you can see growth accelerate in the coming financial year? And then on the other endoscopy business, it sounds like it's -- the lower growth we saw here in Q4, is that related to urology and the competitive situation we've previously discussed at Q2? So I just wondered if you could elaborate a bit what caused the growth to drop to as low as 16% and essentially what needs to happen to get back on track to the 20% growth you previously talked about for that specific segment and whether that's still the ambition. And then lastly, I think you indicated that in terms of the top line growth, that would obviously be sort of like slightly below the double-digit growth in Q1 due to tough comparables and because you have a back-end loaded year. So I just wondered if you could also provide a bit more information on sort of like how to expect or think about the EBIT margin in Q1 as well, whether that could go below the 10% EBIT margin here in Q4, especially considering that the tariffs are probably going to weigh a bit more. Britt Jensen: Thank you, Jesper, for good questions. Let me comment on the first 2 on growth, and then I'll hand over to Henrik to also comment on the Q1 and your EBIT question. So first, on respiratory, I think if we take a step back, we have had discussions and questions over the last 1 to 2 years, whether this was a segment where we would see double-digit growth. And I think this is what we feel very confident around. And also, as Henrik also commented on, when we look ahead, we actually think that we are quite solid in the double-digit range. Having said that, we do see fluctuations and now we are landing on 11.6% for the year, but we do also -- we do have quarter-over-quarter some specific orders that are timed and that where we are not able to fully control or we deliver, said in other words, we deliver when the customers have the demand. So this is why we went slightly below on the 8.8%. So we -- when we look into the pipeline that we have of orders and into the year, we feel quite confident around the solid -- the strong momentum and the solid double-digit growth that, that will continue. We are entering now not only the flu season, but I think with the portfolio that we have of continued strong aScope 5 Broncho sales combined with the aScope 4 and then with our SureSight solution, having received a very strong feedback and initial positive -- being positive received by the customers, we actually do look at a segment where we see continued very solid growth for the coming -- for this year and the years after. So this is how we look at this segment. Then the other segment, which is, of course, a little more difficult to look at the number because it is, I mean, GI, which is growing nicely, but from a low base. And then we have urology being the biggest part of that segment and then ENT. I think when we look at urology, we -- I mean, we still -- with the new solutions that we have delivered where our ureteroscope, as an example, is off to a good start. But given the nature of these procedures, this is something that is -- that has slightly longer sales cycles, as I mentioned, which we often see. But overall, when we look at this segment, I mean, we do feel quite comfortable around the -- being around the 20% range, which we have also seen in the previous quarter, which is why I commented on ENT specific because that's a segment where we have basically our rhinolaryngoscope, which has been on the market for 7 years now that is continuing to drive the growth in this segment. And while we expect that growth to continue, we see a slowing down of that growth, which basically, in particular, in Q4 impacted the total growth in this area quite a lot. So this is also why we wanted to single that out to be transparent and also to make sure that we aligned around the prospect for urology and the current performance. So overall, we do think that this is a segment where we continue to see good growth. And the 2 segments combined, we feel quite comfortable that we should deliver above 15% total endoscopy growth in the year that we have just started. And as Henrik said, we are off to a good start with October. So we don't have concerns that this will not be the case. Henrik Bender: Exactly. And building on that on growth -- on your question on growth for Q1 and my indication on where we expect to land and related to that EBIT margin. On growth, I just want to particularly underline that if you look at the quarter 1 for last year, we had a solid high endoscopy growth, but an exceptionally high A&PM growth. So in terms of the composition by the businesses, it's particularly in A&PM, where you will likely see very low growth because obviously, there, you're up against exceptionally high comparables. If you then translate that into EBIT margin, as I also said on my guidance, therefore, we will see lower growth. We will likely also see higher tariffs with what we are observing right now with the current tariff regimes. And therefore, those 2 combined means that we will also see a lower EBIT margin. I'm not going to guide exactly on what number that is, but it's mainly to say, if you look at our guidance and if you look at how the EBIT margin will look quarter 1 across quarter 2, 3 and 4, then quarter 1 will likely be the lowest quarter of the 4. Operator: And the next question comes from Thyra Lee from UBS. Thyra Lee: I've got 3, if I could, please. So the first is, I'm just wondering what is driving that delta to the lower end on that 10% to 13% revenue guide versus that midterm guide of 11% to 13% that you provided at the CMD last month? It would be really useful if you could speak to the moving parts that result in the lower end here. Really, I'm just wondering if there's anything new or different that we missed since we last heard from you. And then second question is just thinking about the run rate into Q1. You gave some soft guidance, but are you expecting any margin improvement in Q1 from the 10% in Q4 that you gave this quarter? And then lastly, obviously, you're a growth story, but I'll round up with margins. Could you just confirm that the 12% to 14% on the adjusted EBIT margin includes all possible mitigating actions that you can take? So aside from shifting production to Mexico, what other actions are being taken? And you gave us a good chart in that -- in the presentation. Could you just confirm that the impact of tariffs pretty much goes to 0 over the course of 3 years and that you still feel good about that kind of 20% margin by '28? Britt Jensen: Thank you for good questions. Let me take the first one, and then I'll let you, Henrik, comment on the second and third. So basically, as you rightly say, we guided on our long-term guidance of 11% to 13% when we look at -- as a CAGR for the coming 5 years. And we feel quite comfortable that we can deliver on that. Then you can say has not -- why are we then guiding 10% to 13%? I think I want to reemphasize and make it very clear. There's nothing new that makes us see the market, the world, the potential anyway different than we saw around 1 month ago. But again, this is a 5-year guidance, and we believe our guidance of 10% to 13% is a prudent guidance and that is a guidance that is even should we land on the lower end of this, which is not any speculation that I have right now, but then we should still be very well aligned to deliver on our long-term guidance. So we do feel still quite optimistic and quite confident around the potential that we see and also that our guidance is well aligned with our plans for 11% to 13% growth -- CAGR long term. Henrik Bender: And with that, to your margin questions, Thyra, also thank you for those. If we start with the run rate EBIT margin from now Q4 going into Q1 '25, '26, I think the clear answer is, yes, we see actually continued strong margin expansion excluding FX and tariff effects. And I think that is the big caveat we have to give today. I think learning from now Q3 and Q4, actually, the biggest negative impact on EBIT margin has been FX. And therefore, exactly where that Q1 will land depends on exactly those 2 dimensions, tariff and FX. With what we see right now, we feel very confident that taking those aside, we are on a continued margin expansion plan, both on gross margin and on OpEx ratio. If you then look at a 3-year period and you asked, will the tariff go pretty much to 0 by '24 -- '27, '28? I think what I want to remind us all that I think the days where tariffs disappear completely are likely not just around the corner. So we will have a smaller margin -- marginal impact from tariffs, but it will be very, very small. And that is really why I would say not that tariffs will disappear, but that we will manage them and stay within the long-term guidance we gave already back in ZOOM IN and the one we reiterated now with ZOOM AHEAD being by '27, '28, our EBIT margin target remains around 20%, subject to certain changes if there are opportunities along the way. That still stands, and we don't see the current tariff regime in the world impacting that because we can mitigate that between now and '27, '28. Thyra Lee: Okay. Very clear. And if I could -- you just missed that, aside from shifting the production to Mexico, are there any other mitigating factors that are being taken at the moment? Henrik Bender: So happy to cover that also. Thank you. I think besides moving production, which is the bigger impact, of course, we're looking at pricing mechanisms for certain products. We are looking at what are other mitigating actions we can take. The reason why we point out the production transfer is because that is by far the single biggest initiative that will impact and mitigate the tariff cost. Britt Jensen: Yes. And I think we cannot be fully transparent on all the different things that we are looking at. But we have -- we are well in progress in implementing a number of things that should also put us in a good position in relation to tariffs. Operator: The next question comes from Tobias Berg Nissen from Danske Bank. Tobias Nissen: I have a couple of questions, if I may. Just so you just concluded a solid CMD here a month ago, but it will come in a little bit softer here in Q4 and also with the EBIT margin at the low end of the guidance here coming in at least 13%. This can suggest you kind of have limited visibility here in the short term also with these more lumpy sales and with FX and tariff headwind higher also than what we had expected. Why should we trust you when you come out with this reiterated midterm guidance, but also your longer-term guidance on the margins? That would be my first question. And then just looking at tariffs and FX, it seems like the market is at least like not that good at calculating this. How should we model this over the next coming quarters? I hear you saying that the highest impact here in H1, but how do you see it also because you have like DKK 50 million here in Q4, 30 million FX, DKK 20 million from tariffs, but also like DKK 30 million in Q3, that's only FX, right? So if you can put some more clarity on that, that could help the modeling, would be great. And also, if you could provide more details on the time line and measures you're taking to mitigate some of these tariff costs, especially with the ramp of the Mexico's plant. And if you have baked in any like one-off like cost items related to this in the guidance for next year. I know you're not guiding any special items, but any color could be great. And then just on the ENT side, another follow-up. The slower growth, is this related to higher competition? I know you mentioned [indiscernible], that the product is now 7 years old, and I know you have a HD version in your pipeline. Is the HD launch what is needed to drive this up to prior growth rates? Britt Jensen: Yes. Thank you, Tobias. And I'll comment on your last question and let Henrik handle 1 and 2. But maybe also just a small comment. So I mean, clearly, as you say, we -- I mean, we were very confident in our future growth and in our strategy when we were at the Capital Markets Day. And I have to say we -- I mean, at that time, we obviously also knew and the Q4 results coming in around that time. And we were also actually very confident that these were in line with our own expectations for the year. And in terms of also some of the choices that we had made when it came to continuing to invest in growth as well. So overall, we -- I mean, we are equally confident when we look ahead at the great potential and our ability to also deliver solid growth. So I just want to make that super clear. Then in terms of ENT, I think you should look at this as -- I mean, as an area where there's actually still limited competition. And even we have a solution that is 7 years old. So it's not built on the latest technology that we use in some of the other solutions that will come with our next-generation rhinolaryngoscope. But our effort in terms of having, in many countries, some of the same commercial resources focusing on urology and ENT basically means that there's -- and in line with our strategy that we have launched with a stronger focus on urology, I think it's fair to assume that it's probably more driven and again, not to read too much into a softer quarter because we do see the fluctuations. But it's more to do with our internal commercial focus than competition because we do see still very limited competition in the ENT space. And we're also still quite confident around the growth that we see in this segment. But we are looking also at how is it we balance our resources in -- across the different segments. And we also do, again, see some structural or temporary fluctuations that drive this, such as timing of orders we talk about, which also is why we look more at the underlying trend and the details below that in terms of new customers and the existing customers buying more. So I think we remain confident about this segment. But again, that's where we are. Henrik Bender: Exactly. And then going back to your questions on CMD linked to now our quarter 4 and FX and tariff models. I think I will start out by saying, Tobias, 2 things. So why trust us? Well, we would say what we communicated at the CMD is in line with what we're also communicating today. And then you can argue, is it softer or as expected, as Britt also said, for Q4? I think we've been quite clear on both how FX impacted us. We spent quite a bit of time on that in Q3 and also that tariffs will have a negative impact, though temporary and then go away. And this is exactly what we are reiterating today. So I think that is my main argument that the story has not changed at all. And actually, if you look at the graph we also illustrated, it's exactly the same pathway. Obviously, at the CMD, we did not discuss guidance for '25, '26 because we had not closed Q4, and it was not the time to do that. I think secondly, of course, we always take feedback for how we can be more explicit. And one of the feedbacks we have taken from the community on the call here now, for example, is to be more explicit on FX and tariffs. And therefore, you will see across the quarters of the past financial year, which is a practice we will continue. We've been much more explicit about quantifying the FX impact and the tariff impact now also here with quarter 4 in a DKK million amount because that enables us to have this discussion on where are we actually with and without FX and tariffs. The last thing I will say on that is that -- that I think on tariff is obviously something that moves by the day but now is starting to fall into a slightly more stable regime, even though I think the past now 8, 9 months have shown stability is not exactly how to describe the situation. I think on FX, I would just call out again that, that is the biggest single impact across the last 2 quarters. And I think you all on the call know how much the U.S. dollar DKK has fluctuated. And remind you, if you go back a year ago versus today, it is a quite significant depreciation that very few, including all of the banks on the call, were not forecasting. So I think there, we are at the mercy of the FX market like you. And we follow the market. We have a natural hedge. But as part of -- as we communicated in Q4, there is a time lag in between, it impacts our top line and our gross margin and therefore, EBIT margin and when you actually see the counter offsetting effect coming, particularly through COGS with our international manufacturing footprint. Specifically, therefore, how should you model? And are there any specific one-offs you should think about for '25, '26? On FX, I'll put that aside. I mean, that follows the answer I just gave. On tariffs, we are not expecting any specific one-offs related to this. I think as a practice, we operate and manage the mitigation actions within the running business, partly because we were already on the journey of ramping up in Mexico and partly because we think that is the right thing to do. So unlike other companies, we will not start reporting bigger one-offs because we don't think that is relevant given it is a temporary situation. I think secondly, in terms of how you then model, I think my best input would be to now with the added specificity that we are giving in the quarterly updates with a more explicit FX, DKK million and tariff amount. That with that, hopefully, we can better adapt that also into your models in the right way because clearly, there was a difference here on Q4 with what was in consensus and where we landed, particularly on these external factors. Operator: And the next question comes from Martin Brenoe from Nordea. Martin Brenoe: Highly appreciate also that you are giving this detailed view, and you doubled down on your CMD strategy, much appreciated. I guess where the share price is today is reflecting maybe that we've seen management being bullish and confident on Ambu before and have also seen the analysis of how big the market is. And if you just take some of that market and penetrate that, then everything is going to be good. So maybe I think to provide a bit of confidence to the outsiders here, how do you foresee Ambu accelerate back if you look at it from a more bottom-up perspective? So you say ENT will remain a drag most likely. It will not be something that will reaccelerate. So can you maybe be a bit more clear on which drivers you see for the growth from a bottom-up perspective? And I'll let you decide how to do that. That will be the first question from my side. Britt Jensen: Yes. Thank you, Martin, and actually a very good and relevant question. Let me answer that, and then, Henrik, you can supplement. So if we take -- I mean, you're right that if we look at the market, I mean, it's huge, and we can say that out of the total market, it's only 3% to 4% penetrated. When we also look at -- I mean, the last many years, we were the first to enter this market with a single-use endoscope. And we have basically, I mean, as market leaders built this market. And then we have seen some competition come in, in the last couple of years. But what I will say is I think there's a couple of things that makes me very -- I mean, very confident. I mean one thing is that it does take time to build a market. It does take time to change habits in -- among physicians, in particular, in some areas more than others. And I do think if we look at it and maybe start with -- or if we look at it overall, you could say, I feel much more confident and I actually do feel that we are much more derisked right now compared to when I stood here 2, 3 years ago. Because back then and for many years, it was pulmonology, as we call it at the time, that was basically driving the growth where right now, we stand on, you could say, essentially 4 solid legs where we have actually proven that we have solutions that meet the customer needs, not only in respiratory, where we have expanded the portfolio, but also in urology, ENT and GI, where we are today very niche focused mainly with our gastroscope. So that actually makes me confident. And in particular, then looking at the potential and if we start with respiratory, we basically went in and delivered on the need of very simple procedures. And then we gradually expanded and with our aScope 5 Broncho also we were able to meet the needs of the very advanced procedures. And some of this has to do with the customers getting used to our solutions, but a lot of it also has to do with our ability to innovate and drive superior solutions also at an affordable price. And that is where our innovation effort continues and our scale continues to play a key role, not least also because technology is playing with us in making higher quality image cameras, sensors, as an example, available at much lower cost. So that basically means that we are also able to meet the needs at the customers at prices that are attractive to them. So that's where when we look at the momentum that we see in respiratory with our bronchoscope that -- I mean -- and the continued expansion into more and more complex procedures, continuing the trajectory that we see now in the markets where we are established, mainly in U.S. and Europe, that I'm confident that we are actually on to this momentum that is continuing. And the fact that customers even themselves says that we can use it for 70% of the procedures makes me actually quite confident because normally, customers will say a lower number than they actually end up using. Then if we talk about urology, I mean, we have been able to -- in cystoscopy, which is very much around bladder cancer screenings, we have been able to build a solid presence with our cystoscopes that basically with our first generation works for what they need. And this is then where we have also leveraged technology to bring a high-definition scope out expanding with the PCNL indication. So that can also be used in the field of kidney stone management. And then we have entered the whole kidney stone management space with our ureteroscope, which is a market where, as you know well, it's the first time, we are not the first to enter that market because there is actually a demand for single-use scopes coming from a slightly different angle in terms of the reusable breaking a lot, and they spend a lot of cost on repairing. And here, we have a solid scope that can then fit into our portfolio and some of the development that we make in innovation on the platform, on the software with -- latest EndoIntelligence actually helps us there. So we do also in urology, with our expanded portfolio, see a good momentum. And this is also why with our strategy, those 2 areas are the key ones. And we are also looking at how is it then we can consolidate even further and potentially add more solutions that helps address some of the needs that we are solving, which will come on top. And then ENT, it's a little more slim. It's still an area that -- and that's in line with our strategy where we see that we can continue to grow and meet more needs, and that's what we will do there. And then combined, you can say as more of the treatment is moving outside hospitals, that's also where -- I mean, the need for solutions like ours is just increasing. So that's really why we are quite confident that we have gotten to a meaningful penetration where there is acceptance that this is, I mean, a solid standard of care. So that's really why we are looking at the potential with great confidence. And then on the side, and I will not spend too much time on this, but just to say if we then take GI, it's very clear, and I've been out with a lot of GI physicians that a lot of procedures are done outside the GI suite. There's a lot of the similar needs that we are actually solving in the other segments. We don't have right now the solutions at an affordable price to be able to go large scale into this segment, but the technology is there to my earlier point. So this is also an area where we should, of course, be the ones entering this. And that's something that comes on top of some of what we talk about here at a completely different magnitude that we are not getting carried away here, but we are solid making progress and making sure that we also don't risk the company or don't risk too much, but still also deliver on our potential in a step-by-step approach. Henrik Bender: So if I can round off, and I know we already gave a lot of details, Martin. I would say, ironically, on your question, we stand here more confident than ever based on 2 main things: the feedback from customers and the fact that what is needed to deliver, on what Britt took us through now, is fully within, to a very, very large extent, our own control. So I think our advice back would probably be to say Q4 might have been a slightly different composition than you expected. If you look at the guidance for the year to come, it's fully in line with what we communicated at Capital Markets Day and the potential we see in all of the areas for all of the products with the feedback from the customers is exactly the same. Martin Brenoe: This sounds really good. I have 2 quick follow-up. One is I love good feedback. I also appreciate it myself. But unfortunately, you cannot put it on the P&L. So wondering when we should start to see that the good feedback starts to translate into sales. What's -- and you don't have to say what you expect for this for your products in terms of SureSight and Uretero, but maybe in terms of what the historical run rate has been for previous launches. And then just finally on margin, it's going to be a bit back -- or back-end loaded year on the margin side as well. For the past 7 years, the margin has been the softest actually in Q4. So just wondering what gives you confidence in Q4, the latter part of the year being the strongest margin all of a sudden. That would also be nice. Britt Jensen: And I'll briefly -- and I'll make it brief on the revenue. I think we have talked -- and I think, again, we appreciate feedback to Henrik's point, but we have tried to also explain our -- the whole selling process and the sales cycles. And when we bring new solutions out, how we also -- how we do the evaluations before the sale. But maybe I'll just jump to the conclusion and say, as we have seen with previous product launches where we have put an effort behind like the aScope 5 Broncho, I mean, this has come gradually. And it's -- I mean, when you build the momentum and get the solutions in, we will see a steady strong growth. And then that growth is building up and coming for many years ahead. So we are, of course, continuing this year on our new solutions, being SureSight, being our ureteroscope, a continued good momentum. And yes, and I think that's as specific as I can be. But I think it is promising for the coming years that we'll see that gradual improvement. Henrik Bender: And on margin, Martin, I think 2 things. One, you're right on the historical pattern, particularly, I would say, for the last 3, 4 years. The main answer is the -- are the external factors, particularly tariffs, which will gradually decline across the quarters with our implementation of the mitigation actions. So that is by far the biggest driver of why we feel confident that the EBIT margin will increase across the year. The second thing is more timing of our internal investments where we've had now for the couple of -- past couple of years, a certain timing where a lot of -- majority of those investments often end up at the end of the financial year. The composition will be a little bit different this year. So it's really things that are right now relatively clear line of sight to how we think it will impact our P&L. Operator: And the next question comes from Anchal Verma from JPMorgan. Anchal Verma: I have 3, please. Just again, touching on the phasing for next year. You have pointed to back-end loaded here, and we've kind of discussed that. But just trying to understand, is it all down to comps at the top line? Is that the key driver of the back-end loaded year? And on margins, you've touched -- similarly, you touched on FX, tariffs and some investments being more front-end loaded. Are these key elements that we need to be aware of in terms of phasing? And then the second one -- and apologies to fish a bit more on the long-term targets. On the margin guide of 22% by 2028, which you have reiterated this morning, how should we think of that bridge from 12% to 14%, let's assume 14% that from this year to 20% in the next 2 years? And what will actually be the drivers and that's despite the tariffs and FX headwinds, which we expect to continue? And then the last one is on FX. Are you able to quantify the FX impact assumption we should assume for the top line and margins for this year if current rates continue? Maybe putting it another way, from our math, we get around a low single-digit headwind to sales and margins. Is that fair? Henrik Bender: I couldn't exactly hear what you said, the last part of the question, but I think I got the gist of it, Anchal. So let me try to go through it from your second question first and then phasing and then FX. So I think I just want to reiterate on long term, as I heard your question on the impact of tariffs and the, you can say, journey towards the particular around 20% by '27, '28. I think in all honesty, back to the point that tariff costs are temporary with the mitigation plans that we're implementing. The more relevant number to look at in terms of the EBIT margin expansion for the year we're now entering '25, '26 is actually 14% to 16% because that is excluding the bigger impact from tariffs. And if you use that number, we will be exactly on the line also of consensus with what the EBIT margin expansion plan would have been without the current tariff situation. And with us being able to mitigate them, as I answered earlier in my presentation, we really see that the underlying operational initiatives we are taking, they are bearing fruit, and we're exactly on that journey still that we communicated at the CMD and a year ago in a similar meeting like this. So that is why we feel confident that is really because if you take the tariffs aside, we are really exactly on that journey. And that is also why we've been so explicit in our communication around it. If you then look at the phasing for the financial year that we're now in, revenue, it is mainly/purely comparables that drives this back-end loaded factor. As I said before, we see a solid start of the year and on endoscopy, the growing factors, as Britt said earlier, there are still effects from new products. Obviously, they are also building across the year, which means that we will see an uptick across the year, we expect at least from the impact from these new products, even though still smaller, it is growing. The second thing is really on A&PM. If you look at how A&PM grew quarter-by-quarter in '24, '25 and you look particularly how much A&PM grew in quarter 1 on '24, '25, this is where you see particularly high comp challenge that we're up against now with our quarter 1 sales here for '25, '26. And that brings me lastly to FX. I think now for the last 2 quarters, we've been more or less explicit on exactly the DKK million impact from FX. Obviously, we are impacted by a mix of the U.S. dollar depreciation and then partly some of our currencies in which we produce and source, the Chinese renminbi, the ringgit in Malaysia and the Mexican pesos, how they correlate with the U.S. dollar. As we described in the quarter 3, there is a time lag effect whereby when we are impacted by top line immediately and when we then see the cost of the production then going down typically of up to 3 months. And that's really also what we're seeing. So to answer the question, I believe you asked then what have we assumed for '25, '26. As you see in our outlook assumptions, you see there also what exactly are the FX assumptions we've made in terms of what will be the average FX rate across the financial year '25, '26. And these are what substantiate the guidance of the 12% to 14% EBIT margin. Anchal Verma: That's very helpful. Could we perhaps -- just on the long-term targets, could there be a scenario where you could amend your long-term targets on more of an underlying basis? I think that, yes, we'll get to the 20% margin by 2028, but this is on an underlying basis, excluding the effects of tariffs and FX. Could that be a potential scenario where we get to? Henrik Bender: I don't see that. We guide EBIT margin, including FX. And fundamentally, as I said before, even though tariff will not fully go to 0 back to one of the earlier questions, we believe that with the size of the company we are becoming, the impact that will still be left is something we can manage and still deliver on the target. Operator: The next question comes from Yiwei Zhou from SEB. Yiwei Zhou: I have 2 left here. Firstly, a question on the growth for the other endoscopy solutions. I mean the quarterly growth rates are getting more lumpy if you mean that the growth should accelerate, and you still expect to deliver the 20% -- around 20% growth. I was wondering in your guidance, was there any large order pipeline embedded here in your expectation? Britt Jensen: Yes. So I think the quarter -- I mean, so what we guide on the quarter. So the long-term guidance that we have is that we expect our endoscopy solutions to grow between 15% and 20%. And what we are saying specifically for this year is over 15%. So that's -- I mean, that's the range that we see. So just to specify -- you talked specifically the 20% for the other segment. Sorry. Sorry, Yiwei. Yes. So I think we -- I mean, we overall, again, believe that we have continued solid momentum. We don't guide specifically on this segment. I should just say we guide on the overall. But I think -- I mean -- and when we guide on the overall, we feel quite comfortable around the 15-plus percent. And then I also do believe, and that's also why we wanted to single this out. I mean, urology being the big -- I mean, we see very solid continuing growth. It's the biggest part of this segment, and it's also growing at a good pace. So overall, we feel quite confident. I will not comment again on the specific 20%, but we do feel confident that we should continue to see solid growth in the -- in this everything but respiratory. And then when we combine both of them that, that should still leave us with solid endoscopy growth as we look ahead. Yiwei Zhou: Yes. But my question was what is your visibility here for '25, '26? I was wondering if you have any large order pipeline embedded in your expectation. Britt Jensen: No. I think in this segment, I mean, we have a lot of customers. And then again, we do have large customers, NHS being one where we don't see these big large orders coming in. That is more spread out, of course, still big customers having bigger orders, but we don't see any specific big order coming in. This is basically driven by solid underlying growth in terms of customers transitioning from reusable to single-use and being at very different adoption levels, some at 100% specifically on the cystoscope and others at lower levels that are then gradually increasing. So the potential we have is coming from continuing, obviously, bringing new customers on board, but also continuing to increase the penetration of single-use of our scopes with existing customers. Henrik Bender: And to build on that, the confidence you said here is based on when we look at the pattern of new customers converted just in the last few quarters and the expectations of what the running volume should be on those, we feel very confident. And that's also what we see now in the early start of this financial year that, that continued conversion, that Britt is talking about, will drive us towards the growth levels that we are indicating. So we are not dependent on any major single bulky orders to deliver on this guidance. Yiwei Zhou: Okay. That was clear. And my second question, it has actually been asked but I want to try it again. I'm still a bit surprised that you see 1% downside to your long-term growth target this year. I mean it was only 1 month ago, you said 11% to 13%. Now it's 10% to 13% for this year. I mean if I understand correctly, this will be the year where you see a full year sales contribution from the new products like ureteroscope or video laryngoscope, where the growth acceleration should be higher in the beginning. But now you are talking about 1% downside. Could you elaborate here what is the risk you're seeing for this year? Britt Jensen: Yes. So I mean, I think -- and thank you also for -- I mean, for how you put it because I think the way we looked at this was, I mean, that, again, we are fully behind. And when we set the long-term target of 11% to 13% CAGR over 5 years, we actually do feel, I mean, very comfortable around that. And then when we are to look at this year and what we have in the pipeline, we are also actually quite confident around the year that we have and what we are able to deliver. But we do see a 3 percentage point margin in the world that we live in where there's a lot of things happening. So that's basically what is driving us towards what we believe is the right guidance for this year, which is 10% to 13% on an overall level. But it doesn't -- it's not -- as I said before, it's not that we are more cautious than we were a month ago and that we -- or that we see anything that has changed. And I -- so this is, I mean, in full honesty and transparency how we have thought about it as we laid out our guidance for next year of 10% to 13%. Operator: Ladies and gentlemen, this was the last question. I would now like to turn the conference back over to Britt Meelby Jensen for any closing remarks. Britt Jensen: Thank you very much, and thanks to everyone for good questions on this call today. We look forward to our continued interactions, and I wish everyone a great day. Thank you.
Operator: Good day, everyone, and welcome to Bristow Group's Third Quarter of 2025 Earnings Call. Today's call is being recorded. [Operator Instructions] At this time, I'd like to turn the call over to Red Tilahun, Senior Manager of Investor Relations and Financial Reporting. Redeate Tilahun: Thank you, Luke. Good morning, everyone, and welcome to Bristow Group's Third Quarter 2025 Earnings Call. I am joined on the call today with our President and Chief Executive Officer, Chris Bradshaw; and Senior Vice President and Chief Financial Officer, Jennifer Whalen. Before we begin, I'd like to take this opportunity to remind everyone that during the course of this call, management may make forward-looking statements that are subject to risks and uncertainties that are described in more detail on Slide 3 of our investor presentation. You may access the investor presentation on our website. We will also reference certain non-GAAP financial measures such as EBITDA and free cash flow. A reconciliation of such measures to GAAP is included in the earnings release and the investor presentation. I'll now turn the call over to our President and CEO. Chris? Christopher Bradshaw: Thank you, Red. To begin, I want to commend the Bristow team for their steadfast dedication to deliver safe, efficient and reliable services despite the persistent supply chain challenges that have plagued the aviation industry in general and the civilian helicopter industry, in particular, for the last 4 years. I appreciate our team's unwavering commitment to operational excellence and delivering the best possible outcomes for our customers and stakeholders. We are also pleased to report another quarter of strong financial performance with adjusted EBITDA of $67.1 million in Q3 2025. Looking forward, Bristow continues to have a positive outlook for offshore energy services activity. Deepwater projects are favorably positioned, offering attractive relative returns within the asset portfolios of oil and gas companies. And we believe offshore projects will receive an increasing share of upstream capital investment. This positive long-term demand outlook is paired with a tight supply dynamic. The fleet status for offshore configured heavy and super medium helicopters remains near full effective utilization levels. The ability to bring in new capacity remains constrained with production lines that must be shared with military aircraft orders and current manufacturing lead times of approximately 24 months. We believe the tight supply of offshore helicopters supports a more constructive outlook for our sector relative to some other offshore equipment sectors. In addition, 2026 represents an important inflection point for Bristow's Government Services business as we reach the full operational run rate under the Irish Coast Guard contract and continue the transition to the new UKSAR2G contract in the United Kingdom. While the costs incurred to effectuate these contract transitions have caused a negative drag on profitability in 2025, that impact inverts in 2026 with adjusted operating income from our Government Services business nearly doubling year-over-year. For the company as a whole, I would highlight that the midpoint of Bristow's 2026 adjusted EBITDA guidance represents a 27% increase over the midpoint in 2025, reflecting the robust growth expectations for our business. I will now hand it over to our CFO for a more detailed discussion of Q3 results and our financial outlook. Jennifer? Jennifer Whalen: Thank you, Chris, and good morning, everyone. As Chris noted, we are pleased to report another quarter of strong financial results with total revenues reflecting an increase of $9.9 million and adjusted EBITDA reflecting an increase of $6.4 million on a consolidated sequential basis, both of which were primarily driven by our Government Services and Other Services segments. We have also updated and tightened our 2025 and 2026 outlook ranges, which I will discuss further on during this call. Turning now to our sequential quarter segment financial results, beginning with our Offshore Energy Services or OES segment. Revenues and adjusted operating income were both $2.4 million lower this quarter. Revenues in Europe and Africa were $6.6 million and $1.5 million lower, respectively, primarily due to lower utilization, while revenues in the Americas were $5.7 million higher, primarily due to higher utilization. The lower revenues were partially offset by lower general and administrative expenses due to a decrease in professional services fees. Overall, operating expenses were consistent with the preceding quarter, primarily due to higher personnel costs of $7.3 million due to the absence of a seasonal personnel cost benefit in Norway in the preceding quarter and higher benefits and overtime costs in the current quarter. These increases were offset by lower repairs and maintenance costs of $5.3 million, driven by higher vendor credit and a decrease in other operating expenses of $2.3 million. Moving on to Government Services. Revenues were $8.4 million higher, primarily due to the ongoing transition of the Irish Coast Guard contract as an additional base commenced operations in the third quarter. Operating expenses were $2.8 million higher and largely comprised of higher subcontractor costs, increased amortization of deferred costs and higher personnel costs, all of which were related to the new government services contract. Repairs and maintenance costs, however, were $4 million lower due to higher vendor credits and the timing of repairs. General and administrative expenses were $0.8 million higher, primarily due to higher professional services fees and personnel costs related to contract transitions. Adjusted operating income for this segment was $4.8 million higher this quarter. Before we move on to our Other Services segment, I'd like to provide color on the references to vendor credits in our OES and Government Services segment. In our industry, OEM or vendor credits are common practice and generally provided for reasons such as credits tied to asset purchases, particularly when a customer has placed orders for several aircraft, OEM performance and delays and incentives when entering or extending long-term maintenance contracts or as refunds when exiting such contracts. While we have historically received vendor credits and applied them towards aircraft and inventory parts purchases or ongoing maintenance, we benefited more materially from such credits this quarter and continue to value our strong relationships with our OEMs. As a reminder, Bristow is the world's largest operator of S92, AW189 and AW139 helicopter models, which remain the most in-demand models for both offshore crude transportation and SAR missions. Finally, revenues from other services were $3.8 million higher, primarily due to higher activity in Australia of $4.8 million, partially offset by the conclusion of a dry lease contract. The higher revenues were partially offset by higher operating expenses of $1.9 million related to the increased activity in Australia. As a result, adjusted operating income was $1.9 million higher this quarter. Moving on to Bristow's financial outlook. You may recall from our previous earnings calls that the primary factors that could bias results to either end of our guidance range include supply chain dynamics that impact aircraft availability, customer activity levels influenced by global energy demand, new contract transitions and the exchange rate of foreign currencies relative to the U.S. dollar, namely the British pound sterling and to a lesser extent, the euro. As such, we are tightening our 2025 adjusted EBITDA range to $240 million to $250 million on total projected revenues of $1.46 billion to $1.53 billion. For 2026, we are tightening our adjusted EBITDA range to $295 million to $325 million on total projected revenues of $1.6 billion to $1.7 billion. This represents an approximately 27% increase in adjusted EBITDA from the 2025 to 2026 midpoint. Given better visibility into operating costs and expected customer activity levels, we are updating the adjusted operating income guidance ranges for our OES segment to approximately $200 million for 2025. Despite current market conditions in the energy sector, we expect strong performance from this segment to continue in 2026 as evidenced by the updated adjusted operating income range of $225 million to $235 million, representing a 15% year-over-year increase from the midpoint. While margins in our Government Services segment improved this quarter and the capital investment for our 2 new government contracts have largely concluded, we expect this segment will continue to feel the effects of new contract transitions until they are fully operational. The strong margins and earning potential of this business will continue to improve as the operations and revenues for the contracts continue to ramp. The 2026 midpoint for our adjusted operating income range reflects a 76% increase compared to 2025. And in other services, we expect the improved economics of our regional airline in Australia to persist and for this segment to remain consistent and cash flow accretive. Turning now to cash flows. Operating cash flows generated approximately $122 million year-to-date 2025 compared to $126 million in the prior year. Working capital continues to be impacted by increases in inventory to support new contracts and mitigate risk related to supply chain constraints and an increase in other assets primarily related to start-up costs for new government services contracts. However, we expect working capital to improve over time as supply chain constraints subside and our new contracts conclude their transition periods and reach their full operational run rate. Additionally, as of the third quarter, our unrestricted cash balance was approximately $246 million with a total available liquidity of $313 million. Moving on to our previously announced capital allocation targets. We made an additional $25 million of accelerated principal payments on the U.K. SAR debt facility in the current quarter, bringing the total accelerated payment to $40 million this year. In summary, we remain focused on meeting our financial and operational targets and executing our capital allocation strategy while continuing to benefit from and working to maintain a strong balance sheet and liquidity position. At this time, I'll turn the call back to Chris for further remarks. Chris? Christopher Bradshaw: Thank you. In conclusion, we are pleased to highlight the company's robust growth outlook for 2026 as evidenced by expected adjusted EBITDA growth of approximately 27% year-over-year. This outlook is supported by the growth and stability of our Government Services business, the heavy weighting of our offshore energy services business to more stable production support activities and the breadth and diversity of the geographic markets we serve. With that, let's open the line for questions. Luke? Operator: [Operator Instructions] Our first question will come from Jason Bandel with Evercore ISI. Jason Bandel: I want to first ask about your guidance in OES. I give you guys a lot of credit for providing 2-year forward guidance on most -- you have only 1 quarter forward. But given the lower utilization in OES during the quarter, and I guess the tightening of the forward guidance that you talked about, Jennifer, could be slightly lower, what kind of implications should we make about the market given that? And is this a sign that customer demand for helicopters is beginning to weaken in the short term? Or how should we think about it? Christopher Bradshaw: Yes. Thanks for the question. As you noted, we did tighten the range this quarter. That's consistent with how we generally approach as we near the end of a period/beginning of a new one, we'll look to narrow that range. In this case, that updated guidance did impact the midpoint by about 2%. But in terms of the guidance around the OES business specifically, I would point to 2 main factors. First, we have experienced some persistent supply chain challenges that are impacting aircraft availability. In some cases, that might result in lost revenue opportunities. In other cases, particularly on some legacy contracts, it may result in some contractual penalties under the contract related to aircraft availability. And then the second category I would point to is fewer aircraft, a small number on contract in the North Sea and the U.S. But overall, again, still expecting positive offshore energy services activity and growth for our business. And overall, for the company, really highlighting that we're expecting 27% growth in our adjusted EBITDA year-over-year, which I think within our sector, within a peer group is a real positive differentiator. I'm not sure that anyone else is pointing to that kind of growth in the next year. Jason Bandel: Yes. I agree, Chris. And as a follow-up to that, I guess this is more of a kind of a macro level. Can we discuss your current outlook for your main OES markets and regions given some of the seasonality you have in your business? And if you can kind of just go around and what you're seeing out there would be helpful. Christopher Bradshaw: Yes, happy to do that. I would probably start with Brazil, which is a market that we believe continues to have some of the best, if not the best growth prospects for any of the offshore regions. Really right near there in the same category would be Africa, where we're seeing continued demand and a need for additional aircraft in our business there. And I'd also add the Caribbean to that list, which is still growing. So each one of those markets are ones that, again, are still growing. We're seeing net aircraft inflows, meaning that we're mobilizing additional capacity into those markets to meet the demand. The U.S., I would say, is mostly stable, though with less ad hoc work. So the U.S. Gulf is an area where we typically would see a lot of ad hoc aircraft over and above the contracted fleet count. That has admittedly decreased some, which I think is an indication of stable activity that's able to be addressed by the contracted fleet levels. And then finally, on the less positive side would be the North Sea, which is softer in terms of activity. Jason Bandel: That was helpful. And just one last quick one since you brought up in the prepared remarks on the vendor credits since some might not be as familiar with those. Why were those materially higher this quarter? And do you guys typically include that in your guidance? Jennifer Whalen: Sure. I mean it's an indication of the increased activity that we've had. I noted a few different ways that we -- that credits come about, right, buying aircraft, the incentives when you enter into long-term maintenance contracts or you exit aircraft out of those contracts and then OEM performance and delays. So all of that is -- it's a mixture of all those credits. We -- this is not anything new. It's just an increased activity we've always experienced these credits. So as activity levels continue to be increased, there's likely to be a heightened level of credits over the next period of time. Operator: Our next question comes from the line of Josh Sullivan with JonesTrading. Joshua Sullivan: So how many aircraft are you aiming to take delivery of for each of your segments? And then I guess if you could just touch on maybe the timing and location where these aircraft are expected to be deployed? Christopher Bradshaw: Yes. I would say there are really 2 categories of pending deliveries. The first are aircraft that we've actually already taken delivery of from the OEM, but are not yet placed into our operating fleet count as we're completing final configuration and modifications on those aircraft. In our Government Services business, that would be the right category for the pending deliveries. So we've taken delivery of 5 aircraft that are, again, undergoing final modifications now before being placed into operations. 2 of those are AW189s that are going to the Irish Coast Guard contract in Ireland. And 3 of them are AW139 aircraft that are going to the new SAR2G contract in the United Kingdom. The second category of pending deliveries are aircraft that are still under construction by the OEM. We have not yet taken physical delivery of these aircraft. That category would characterize the remainder, which is 7 offshore, so OES configured AW189s that we have on order. We know where those are going. Those locations are going to be split between Brazil, Africa and the North Sea. Joshua Sullivan: Got it. And then where -- between those 2 groups or just generally, where are the primary supply chain bottlenecks at this point? Christopher Bradshaw: Yes. We're still seeing significant supply chain issues, I'd say, across the board, unfortunately. So this is impacting the aftermarket. So delays for parts, components that we need to maintain the aircraft, keep them operational and in service. Over the last few years, we had more of a concentration of that type of challenge in a particular model, namely the S-92 heavy helicopter. However, we're seeing -- well, that situation has actually improved some, so it's ameliorated. So not quite where we would want it to be. We're seeing now similar issues with other helicopter models, for example, the AW189. So aftermarket support would be one category. This is now also impacting the timing of new deliveries. So not so much for the government side because I mentioned, we've already taken delivery of those aircraft now and are putting them through final modifications. But on the offshore configured AW189s, we expect there will be delays in aircraft coming off the production line. A lot of that relates to something you'll be familiar with, Josh, which is just the complexity of a modern aviation supply chain where the OEM itself over the last several decades has outsourced to an increasing number of subcontractors and vendors. And as they're now looking to produce these aircraft, they're having their own struggles in sourcing some of the components on time to meet the expected delivery schedules. So it's really both aftermarket and new deliveries that are being impacted by these supply chain issues in the industry. Joshua Sullivan: And I guess maybe a related question, just what does CapEx maybe look like in '26 as a result? Christopher Bradshaw: We see total CapEx in '26 of about $100 million. So that's in round numbers, roughly $20 million of maintenance and another $80 million of growth on a net basis, which is really related to those offshore configured AW189s that I mentioned. The one thing I would highlight there is if you take that full $100 million of CapEx growth and maintenance, run it through the waterfall of the guidance we've provided, you're still looking at approximately $140 million of free cash flow in 2026 at the midpoint of guidance, which on a company that has an equity market cap of roughly $1 billion, $140 million is a pretty healthy free cash flow yield in our view. Joshua Sullivan: Yes. And then I guess just one last one. Just any updates on the advanced mobility trials, BETA, Elroy, others? Just how is that dynamic progressing? Christopher Bradshaw: Yes. Thanks for the question. I'd say that's going very well. As you may be aware, we launched in August a Norway Sandbox project, which really represents a first-of-its-kind real-world flight testing of precertified aircraft that's being sponsored by the Norwegian government in partnership with the OEM, which in this case is Beta Technologies. And congratulations to our friends and partners at Beta Technologies for their IPO on the New York Stock Exchange yesterday. It was a nice milestone for them. And here in the test arena in Norway, we're using the Beta CX300 all-electric aircraft that's being operated by Bristow. So what this is allowing us to do is collect real-world data to validate assumptions and learn. So what's the aircraft, what are the batteries actually doing in different temperatures at different altitudes, et cetera, and take that, incorporate that again into the learnings, which, again, first of its kind test arena, we see this as being an important step in commercializing advanced air mobility. And we see this type of model being probably likely replicated in other countries and with other AAM model aircraft as well. Operator: Our next question is from Steve Silver with Argus Research. Steven Silver: They are mostly housekeeping. Just in terms of the asset sales that you guys reported this quarter and then also the proceeds from the sale of 2 helicopters, I was hoping you could provide any color just on the nature of these sales and whether we should expect any further activity like this over the coming years? Jennifer Whalen: Sure. Steve. So we opportunistically sell assets when they're no longer needed in our fleet. And typically, there are older assets that have outlasted their feasibility in the markets we serve and sold them -- and typically sold to other markets like utility or firefighting. In addition, we will look at opportunities to do sale-leaseback transactions when those make sense for helicopters in our fleet. In the case of this quarter, we performed a sale-leaseback transaction on one of our new SAR aircraft, which accounted for much of that sales proceeds for this quarter, and we did then sell an older asset as well. Steven Silver: Great. And one more, if I may. On the income tax benefit in Q3, I was hoping you could just discuss the future outlook on the tax line, especially on the effective tax rate and what your thoughts are as the net income position of the company continues to grow? Jennifer Whalen: Sure. So related to this quarter, each quarter, we do review our -- the attributes for our different tax positions by our different jurisdictions that we're in. This quarter, we determined that the valuation allowance we had on our Australian operation could be removed due to the positive results we have with that part of our business. So this release of the valuation allowance was the primary driver for the onetime tax benefit. So I wouldn't expect that -- that was a onetime deal. So as our profitability does improve, our tax rate will be closer to a normalized tax rate. We have -- we're in many different jurisdictions. So it will be some average tax rate a little bit somewhat north of what the U.S. tax rate is. Operator: Our final question will come from the line of Colby Sasso with Daniel Energy Partners. Colby Sasso: A number of larger integrated E&Ps have talked on their conference calls about a need for more exploratory drilling over the next few years. Do you see this as a focus for your customers moving forward? Christopher Bradshaw: Yes. Thanks for the question. Yes, we do see that as a focus moving forward. Our business is really much more weighted to production support activity with 85% of our revenues from offshore energy services driven by production activities. For the remainder, though, we are exposed to exploration. And I'd say our view is probably mostly in line with consensus and that we continue to believe that deepwater projects are favorably positioned with attractive relative return prospects within our oil and gas customer portfolios. And so we see an increasing share of capital investment from the upstream going into deepwater and offshore projects. And we see that as being a solid long-term driver and outlook for the business. And in our case, really coupling that with a very tight supply picture with a limited number of available heavy and super medium offshore configured helicopters today. Colby Sasso: Makes sense. And as a quick follow-up, you noted a new aircraft headed to the North Sea, but several drillers have moved their rigs out of Norway in recent years, setting no near-term upside in rates or utilization in that market. Additionally, E&Ps are not bullish on the U.K. energy industry either. Can you expand on why you see the need for new builds going into that market? Christopher Bradshaw: Yes. Fair question, and I appreciate the opportunity to expand upon that. So I would say that we do not see upside or growth in the North Sea necessarily. It is a mature market that over the long run is more likely to decline than otherwise. However, what's going on in this situation is that these are helicopter fleet replacements. So namely new AW189 that will be replacing legacy S-92s that are aging out of the fleet. And so we have customers, upstream oil and gas companies that we're looking for a more reliable aircraft, a more modern aircraft and so it's an opportunity for us to provide that on a secure long-term contract with enhanced profitability, better returns than what they're replacing. So while not growth, this is certainly value accretive for the company. Operator: This concludes our question-and-answer session. I'll now turn the call back over to Chris Bradshaw for closing remarks. Christopher Bradshaw: Thank you, Luke. And I appreciated the opportunity earlier to talk about what's going on in advanced air mobility and the important developments in that new industry sector for all-electric and hybrid aircraft platforms. As I mentioned, there are some important milestones and developments happening right now. We expect the first aircraft models in that sector to be certified next year, 2026, really just around the corner. In theory, Bristow might take delivery of the first of those aircraft in 2026. However, we think that's less likely. We're not contemplating any contributions in our guidance for next year. It's probably more likely that Bristow would take its potential first deliveries in the 2027, 2028 time frame. But we do believe that advanced air mobility and both all-electric and hybrid aircraft are going to be a part of the future of aviation. And as the global leader in vertical flight for the last 75-plus years, we believe there's a role for Bristow to play there and are excited about the partnerships we're developing with some of these OEMs and pursuing market opportunities together. We also remain excited about the growth that we're projecting for the business next year with that 27% increase in adjusted EBITDA, which we see as really a positive differentiator for the company. With that, we appreciate everyone's time today. I hope you stay safe and well. We'll talk again next quarter. Thank you. Operator: This concludes today's call. You may now disconnect at any time.
Operator: Thank you for standing by. At this time, I would like to welcome everyone to the Fiverr Third Quarter 2025 Earnings Conference Call. [Operator Instructions] I would like to now turn the conference over to Jinjin Qian. Please go ahead. Jinjin Qian: Thank you, operator, and good morning, everyone. Thank you for joining us on Fiverr's earnings conference call for the third quarter that ended September 30, 2025. Joining me on the call today are Micha Kaufman, Founder and CEO; and Esti Levy Dadon, EVP, Finance. Before we start, I'd like to remind you that during this call, we may make forward-looking statements and that these statements are based on our current expectations and assumptions as of today, and Fiverr assumes no obligation to update or revise them. A discussion of some of the important risk factors that could cause actual results to differ materially from any forward-looking statements can be found under the Risk Factors section in Fiverr's most recent Form 20-F and other filings with the SEC. During this call, we will be referring to some key performance metrics and non-GAAP financial measures, including adjusted EBITDA, adjusted EBITDA margin, and free cash flow. Further explanation and a reconciliation of each of the non-GAAP financial measures to the most directly comparable GAAP measure is provided in the earnings release we issued today in our shareholder letter, each of which is available on our website at investors.fiverr.com. And now I'll turn the call over to Micha. Micha Kaufman: Thank you, Jinjin. Good morning, everyone, and thank you for joining us. We delivered another strong quarter with solid performance across the business. In Q3 '25, revenue grew 8% year-over-year, and we achieved a record high adjusted EBITDA margin of 22%. This is a clear reflection of our disciplined execution and the inherent leverage in our market-based model. Over the past several years, we've consistently prioritizing moving upmarket and investing in product innovation to support more complex use cases and larger customers. Q3 results clearly demonstrate our success on both fronts. Spend per buyer increased 12% year-over-year, our strongest growth rate since the COVID era and off a much higher base. Not only are we seeing wallet share expansion across the broader buyer base, but more importantly, thanks to the adoption of dynamic matching and managed services, we are witnessing strong growth among projects that are significantly larger than the average marketplace transaction. In Q3, GMV for Dynamic Matching grew 22% year-over-year with 15% of job briefs having a budget of over $1,000 and an average order value of $2,200. Managed Services is capturing even larger and more sophisticated engagements with a minimum budget of $3,000. In Q3, Managed Services GMV grew 65% year-over-year with average product size reaching $17,000. The success of these offerings marks a meaningful evolution in Fiverr's value proposition. We're no longer just a platform for fast, lightweight freelance tasks. We are increasingly becoming a trusted partner for businesses executing highly specialized multistage projects that often require depth of talent and orchestration. Another area where we are seeing tremendous growth is AI-related services. As AI is increasingly reshaping how work is delivered and being implemented across industries, demand continues to surge in areas such as AI agents, workflow automation, and vibe coding. Fiverr freelancers have become an essential partner for SMBs looking to turn AI, from potential into performance. This demand is directly reflected in the Programming and Tech vertical, which grew 14% year-over-year in Q3. We believe that this AI transformation cycle mirrors an early stage of the digital transformation and could provide a multiyear tailwind for broader tech investment. To lean into this secular tailwind, we are doubling down on our investment in AI-related categories from growing specialized talent communities and launching tailored AI solutions to expanding our go-to-market channels through strategic partnerships. Our ambition is to position Fiverr as the go-to destination for finding top-tier AI talent and deploying applied AI solutions. Despite a macro environment that remains uneven, we're seeing positive signals and gaining market share. Labor markets continue to show mixed trends and broader hiring recovery remains elusive. However, our growth strategy, which centers around upmarket expansion and AI enablement is built on long-term macro-agnostic trends. We believe these are the right bets to get us back on track for GMV acceleration regardless of macroeconomic scenarios. In that context, we announced a strategic restructuring in September to streamline our organization, sharpen our product focus, and accelerate our evolution into AI-first company. This means accelerating investments in building an AI-native team, upgrading our tech infrastructure to drive faster AI integration and operational efficiency and reimagining our marketplace with an AI integrated experience. From a product perspective, this transformation is anchored on 4 key pillars: One, strengthening our go-to-market execution. We're expanding our generative engine optimization, GEO, capabilities, integrating our catalog into native AI channels and building AI-powered catalog management systems. We're also investing in partnerships that drive growth across AI-related verticals. Two, building the next Gen AI-powered buyer experience. This includes expanding LLM-powered workflows across the buyer journey, advancing our Know Your Customer, KYC, capabilities through data and product innovation and investing in customer success to deepen trust. Three, evolving our matching technology. As we serve more upmarket clients and more complex projects, we're transitioning from traditional search to agentic matching, delivering a recruiting-like experience that surpasses human performance through deeper data, richer context, and advanced reasoning. Four, investing in talent and the talent community. Talent is at the heart of the entire marketplace experience. In a world where AI is rapidly transforming how work is done, our priority is to build a high-quality, trusted talent ecosystem. This means supporting human-in-the-loop workflows, creating pathways for professional growth and deepening our commitment to long-term community engagement. I am truly excited about the opportunities ahead and the strength of the roadmap we have built. As we enter the final stretch of the year, we remain laser-focused on execution. Our momentum in AI and upmarket expansion gives me confidence in the foundation we've built. I look forward to sharing more about our 2026 roadmap in our next call. With that, I'll turn it over to Esti. Esti Levy Dadon: Thank you, Micha, and good morning, everyone. We delivered a strong third quarter, with both top and bottom lines exceeding the midpoint of our guidance. Revenue for the third quarter was $107.9 million, up 8% year-over-year. We also achieved record adjusted EBITDA and adjusted EBITDA margin. Adjusted EBITDA for Q3 was $24.2 million, representing an adjusted EBITDA margin of 22%, an improvement of 260 basis points from a year earlier. We continue to generate strong cash flow, with free cash flow totaling $29.1 million in Q3. The strategic restructuring, combined with our continued discipline in expense management, contributed to strong profitability and robust cash flow generation. As always, we remain focused on balancing between growth and profitability, while maintaining discipline in capital allocation. Q3 saw solid performance across both our Marketplace and Services segments. Marketplace revenue was $73.6 million, driven by 3.3 million active buyers, $330 in spend per buyer, and 27.6% marketplace take rate. Within the Marketplace segment, we saw strong momentum driven by the tailwinds in AI-related categories and the success of our expanded Managed Services and Dynamic Matching. These channels continue to fuel higher-value, complex projects, which in turn result in higher average transaction values and increased in share of customer spending. We continue to believe the structural tailwinds within the Marketplace segment, particularly around AI and upmarket adoption, will help offset broader economic headwinds and serve as a sustained growth driver. Services revenue was $34.3 million, representing a year-over-year growth of 40% and accounting for 32% of our total revenue in Q3. The upside was driven by Fiverr Go increasing adoption of Seller Plus, which saw 20% year-over-year growth. Fiverr Ads maintained double-digit growth as a result of ad load expansion, and AutoDS benefited from enhanced synergies with Fiverr and continued success with the Shopify partnership. Looking ahead, we expect Services revenue growth to moderate as we lap the 1-year anniversary of the acquisition, but to maintain healthy double-digit revenue growth. We continue to expect Services revenue to represent a little over 30% of total revenue for the full year 2025. Now onto guidance. For the full year 2025, we expect revenue to be in the range of $428 million to $436 million, representing year-over-year growth of 9% to 11%. We are raising our full-year adjusted EBITDA guidance and now expect it to be in the range of $88 million to $93 million, representing an adjusted EBITDA margin of 21% at the midpoint. For the fourth quarter of 2025, revenue is expected to be between $104.3 million to $112.3 million, representing a year-over-year growth of 1% to 8%. The wider-than-normal revenue guidance for the fourth quarter reflects the elevated uncertainty in macro environment with mixed signals. Adjusted EBITDA is expected to be $23.9 million to $27.9 million, representing an adjusted EBITDA margin of 24% at the midpoint. During Q3, we announced a strategic restructuring plan, which resulted in a streamlined headcount and enhanced operational efficiency. These efforts contributed to the increased adjusted EBITDA guidance in Q4. While the pace of EBITDA improvement in Q4 should not be viewed as a steady-state cadence, profitability, margin expansion, and cash flow will remain key priorities for us, even as we redeploy some of our cost base savings into selective, high-impact investments in AI, and upmarket initiatives in 2026. We remain committed to our accelerated schedule to reach the long-term adjusted EBITDA margin of 25% in 2026. With that, we'll now turn the call over to the operator for questions. Operator: [Operator Instructions] Your first question comes from Ron Josey with Citi. Unknown Analyst: This is Jake on for Ron. Micha, I wanted to double-click on how you're reimagining the marketplace to be AI first, specifically the pillars around evolving the buyer experience and improving matching. Could you just double-click and help us better understand your vision here and why you believe Fiverr is uniquely positioned to be AI first? Micha Kaufman: Thank you for the question. I should clarify that Ofer is with us on the line. He's having a sore throat. So this is why Esti was coming with the opening remarks. But in case we have questions, he will be happy to answer them. As to your question, look, I think what AI is giving us is the ability to change the way people express themselves. And you see that in the market, the way search is being augmented or replaced by prompting, it gives us an opportunity to extract more -- a more accurate representation of the actual need from the customer, which in turn gives us better tools to be able to accurately match in a very precise manner the right expert to the right mission. The same applies for more complex projects that sometimes require multi-talent and sometimes require an orchestration of those multi-talent into the end result. So this is just one example, which is very robust because the primary function that customers are using is the browsing and searching. And this is the most fundamental thing that we can use AI for. The same applies for the rest of our solutions like the dynamic matching, as an example, the project management, and so forth. And I've alluded to it in my opening remarks with everything I said about the matching capabilities, the Know Your Customer aspects. And we're already reaping the benefits or starting to reap the benefits of this being able to deliver much better matching to our customers that, in turn, result in larger types of projects and with higher satisfaction. Unknown Analyst: Ofer, I hope you feel better. Just one quick follow-up for you or Esti. Kind of given the wider 4Q revenue guidance, could you just touch on the key assumptions that would get you to the low end versus the high end, maybe specifically around GMV trends? Ofer Katz: So this is Ofer. Thank you for the concern. The assumptions for the remainder of the year is that the revenue coming from Services will continue to grow. While the revenue coming from Marketplace dependent on GMV trend that currently seem to be flat, might decline by single digit. The assumption is that the trend that we have been seeing in the last quarter will continue into the fourth quarter. And based on the high volatility of the market in the last few quarters, we kept the guidance range wide to take into consideration that. Operator: Your next question comes from Jason Helfstein with Oppenheimer. Jason Helfstein: Obviously, the spend per buyer increase was nice. I think you highlighted that this really wasn't from like the SMB, but just the ability to move into more advanced projects and does show you more than a company. I guess how does the reorganization tie into the ability to ever get back like the SMB opportunity? Like is the assumption now that you are -- you've reorganized the business to focus on higher-value jobs, and hey, if SMBs ever come back, that's great, but like there's no assumption. Like do you think there's like just -- it's been so long since we've seen SMB demand that we just shouldn't assume that it ever comes back? Or any broad thoughts about that? Ofer Katz: Right now, since the dynamics in the macro economy that we've seen hasn't changed materially, then we don't assume those changes. And while we see the Fed has started to lower interest rates, which could be constructive for SMBs, we also continue to see weak job data across full-time and staffing sectors. So the macroeconomic conditions are still highly uncertain, to say the least. So when we think about our guidance or how it's being made off, it really assumes no change in the macro front. We talked about it in the full year basis that services will be a little over 30% and of the 2025 revenue. So that will give you some idea of how we think about the marketplace versus services revenue. But overall, we continue to expect the marketplace revenue to be flat or low single-digit decline and services revenue to exit the year with double-digit growth. And that assumes no improvement in the SMB side. That said, when we look at everything that has to do with the upmarket, meaning the larger types of customers, and the larger types of projects, this is where we do see an improvement, absolutely. And that contribution is very noticeable. And as much as that portion of the business becomes larger, the contribution is going to be larger, which means that by definition, the return to growth in active buyers is going to happen, period. We've been saying that for multiple quarters, and we're seeing this. So it converges to that point, okay? That is the assumption. That's the framework. And this is what we're seeing happening in reality. Operator: Your next question comes from Doug Anmuth with JPMorgan. Douglas Anmuth: I have 2, Micha. Can you just talk, I guess, first, just about the key investments you need to make in '26 to transform into an AI-first company? And how should we think about timing as you kind of progress along this shift? And then, I guess, secondly, can you talk more about the drivers of spend per buyer in the 12% growth? Kind of like beneath the hood, what are you seeing in terms of changes in types of projects and how buyers are really engaging with the platform? Micha Kaufman: So thanks for the questions, Doug. So the investment that we're doing is, one, on talent. And I think that this is true for everyone. Finding AI natives on the talent side within the company is one area of focus. The second is the improvements that we're introducing to our infrastructure. So some of the benefits of being able to use new development, coding, design, marketing allows us not to just put more people on problems or building things on our infrastructure, but actually finding new ways of moving much, much faster without paying the price of working on a 15-year-old infrastructure. The third is the marketplace experience. On everything we do, and we've highlighted things like dynamic matching and project management and orchestration. And we've highlighted also the aspects of having a much more nuanced and much more accurate matching technology and KYC. And I've mentioned those 4 pillars, which is the go-to-market with the investment in LLM engines, GEO and partnerships, the buyer experience, the matching and the talent. So across all of these areas that I've mentioned, these are the areas that we're putting focus. And the approach is AI-first mentality, meaning we want to make sure that we maximize the new possibilities that AI gives us both internally in how we work and how we develop and how we execute, but both in how we can make AI more involved in our core business to make that core business better. As to your second question about the spend per buyer, I think that this is -- when we think about spend per buyer, there are catalysts for it. And some of it is the ability to identify categories that are now growing, some of which thanks to our move upmarket and some of which is because of the technological transformation of AI. Now I've given some examples for it. Programming and tech vertical is one of them, which has a much, much higher project size, dynamic matching and its contribution and the fact that 15% of them are from briefs that are above $1,000, managed services that have grown 65% year-over-year with an average size of $17,000. So these are very, very different from our average transaction size of services. And we continue to drive very healthy deal flow on managed services. So the nature of these projects is very strategic, not just tactical. And there are a few examples, if you are interested in more examples in the shareholder letter. Operator: [Operator Instructions] Our next question comes from Matt Condon with Citizens. Matthew Condon: Just with these product catalysts across AI and moving upmarket and potentially decoupling you from the macro environment. Just what is your confidence level that these products can actually return the marketplace business to growth in 2026 as you just more deeply integrate them? And then my second question is just on AI displacing some of the commoditized jobs at the lower end of the market. Just have we seen those plateau at this point and become less of a headwind going forward? And just the placement of those types of jobs, is it less today than it was, say, a year ago? Micha Kaufman: Thank you for the question. So as these AI-driven products or needs grow, they grow much faster than the average. And so -- and the more they become a bigger portion of the total, they are driving us to change direction and go back to growth. We're seeing that. Still, it takes time for those types of customers and those types of projects to become the majority of our business. But as they grow, we are, by definition, going back to growth. And we see that, we see that on a constant basis, and you're seeing the numbers grow every time we meet here every quarter and they become larger and larger. Today, transactions over $200 is already the majority. They're over 50% of our market base, and they're growing double digit. And transactions over $1,000 is growing in the 20s year-over-year and more than 10% of the marketplace already. So this gives you some idea that they are already meaningful in the marketplace, and they continue growing, and this is where we draw our confidence from. The second part of your question about the job displacing, I've addressed that many times. The jobs that are being displaced are the very, very simplistic types of jobs. All of us are using AI for 2 years plus. We know its limitations. There's a lot of limitations to what AI can do to its accuracy and to its quality. And customers understand that as well. And they are -- we've seen a lot of our customers and talent, by the way, using AI. But the more they use it, the more they understand its limitations and their ability to trust the outcome to be production-ready and business ready. And so the things that we have seen being displaced are very low skill types of services. Those types of services have been very small in size anyway. So the fact that they are being displaced is not a big deal. The more we invest in larger projects, the more we grow. That's the bottom line. And this is where AI doesn't replace human beings. It doesn't replace human talent and high skills. Operator: Your next question comes from Josh Chan with UBS. Joshua Chan: I just have 2 questions today. The first one is on your comment about macro uncertainty. I was just wondering, the macro has obviously been choppy for a while. So are you seeing anything different now than before that kind of led you to make that comment and that wider guidance? And then the second question is on, could you just talk about the phasing of the restructuring benefits? To what extent some of the benefits are coming into Q4 and how that kind of layers into the rest of 2026? Ofer Katz: This is Ofer. On the first question, on the contrary, there is no change in macro, which is why we have kept the guidance pretty wide. And on the second question, definitely, there will be a bigger impact after restructuring into Q4. But as we look into next year, we do plan to fill up the lines with some of the needed talent so that I would expect next year to improve in terms of EBITDA, but not to the same cadence as we are expected to see as of Q4. Operator: Your last question comes from Marvin Fong with BTIG. Marvin Fong: I hope you feel better as well. Question, I don't want to be -- cover ground that we previously did, but I think I'd like to ask it just kind of on a category basis, you called out the 14% growth in programming and tech. I just would like to know if other major categories are, how are they benefiting from AI? Are you seeing the same trends? So perhaps you could comment on like design, creative, I think that's another large category for you. But any other major categories you'd like to kind of call out and how AI might be a tailwind for that? And then second question, just on the move upmarket, obviously, really great traction there. And I was wondering if there were other unlocks that you can do? Are you satisfied with the product suite or in the next 12 months, what are some new features that you might be able to launch to address other parts of the ecosystem. So for example, 1099 versus W-2, anything along those lines would be great. Micha Kaufman: Thanks for the question. So to highlight some of the areas where we're seeing growth. So programming and tech is growing fast, and it's becoming a very meaningful category with about 20% of our business. Alongside programming and tech, we have digital marketing, video and animation, which are also growing very strong. Some of it is due to AI and the possibility of bringing highly skilled people that know how to extract the most out of AI, which is kind of the case I mentioned where you have customers sometimes trying to use AI, understanding its limitation and their limitations is not being experts in how to make the most out of it, and they come to us in these cases, and we're seeing this as a very prominent case in these verticals. And also the nature of how customers come to us is very different from 2 years ago or even a year ago. So they -- in many cases, they come more educated. They do a little bit of work on their own. They're not clueless. They can better express their needs, which also changes the basic function of what we do, which is less of explaining them what they need, but more trying to address that need by giving them a really strong and very accurate high-quality match. As we think about the move up market, there is a lot to do. And I've already highlighted both in my opening remarks and in some of the answers and in the shareholder letter, some of these areas. But just to reiterate some of them, today, many customers are already enjoying dynamic matching and managed services, but many more don't yet know that Fiverr can do these projects that are in the tens of thousands of dollars. So there is a lot of opportunity that we can unlock there. At the same time, there is the LLM channels, which are another example of areas to invest in where the traditional search or the fact that Google was the Internet up until a few years ago, and now they're not playing there alone. There are also other ways to explore the Internet and a lot of it is going to LLMs, creates a challenge, which we prefer to look as an opportunity. And we're seeing how the LLM channels at the top of funnel is contributing more and more into the top of funnel traffic, which also makes us more motivated to continue investing along those areas. And lastly, I would say that is maybe to reiterate what I said before, which is customers are more accurate in how they share their needs. They're more explicit, which is good news for us because now we have more to work with and be able to match them with this incredible base of unbelievable talent that we have on our platform so that we can address their needs. Operator: That concludes our Q&A session. I would like to now turn the call back over to Micha Kaufman for closing remarks. Micha Kaufman: Thank you, Moore, again for moderating this conference. And thank you, everyone, for participating. Wishing you a great day, and talk to all of you soon. Operator: This concludes today's call. Thank you for attending. You may now disconnect. And have a wonderful rest of your day.
Operator: Good morning. Thank you for attending today's O-I Glass Third Quarter 2025 Earnings Conference Call. My name is Jerry, and I will be your moderator today. [Operator Instructions] I would now like to pass the conference over to our host, Chris Manuel, Vice President of Investor Relations. Please go ahead. Christopher Manuel: Thank you, Jerry, and welcome, everyone, to the O-I Glass Third Quarter 2025 Earnings Conference Call. Our discussion today will be led by Gordon Hardie, our CEO; and John Haudrich, our CFO. Following prepared remarks, we will host a Q&A session. Presentation materials for this call are available on the company's website. Please review the safe harbor comments and disclosure of our use of non-GAAP financial measures included in those materials. Now, I'd like to turn the call over to Gordon, who will start on Slide 3. Gordon Hardie: Good morning, everybody, and thank you for your interest in O-I Glass. Today, we will review our third quarter performance, examine recent market trends and highlight the progress we have made on our transformation journey. We will also share our improved outlook for 2025 and an early view on key business drivers for further improvement in 2026. Before we begin, I want to acknowledge the dedication and determination of the entire O-I team. Your commitment, teamwork and execution are the drivers behind our ongoing transformation. Last night, we reported third quarter adjusted earnings of $0.48 per share, delivering strong results that exceeded both last year's performance and our own initial plans. Our top line remained stable, supported by higher average selling prices and favorable FX, even as overall consumer demand remained subdued. We saw revenue growth in non-alcoholic beverages, food and RTDs, while beer and wine experienced declines due to softer consumer demand. Importantly, the execution of our strategic initiatives is leading to a higher quality of revenue as we strip out waste and inefficiencies, expand in growing categories and exit some unprofitable business. As a result, segment operating profit rose by more than 60% year-over-year, and margins are up a robust 570 basis points, propelled by significant benefits from our strategic program and increased production levels following last year's inventory reduction. Fit to Win contributed another $75 million in the third quarter and $220 million year-to-date. We now expect to surpass our original 2025 savings target, and this program is strengthening our competitiveness, enhancing performance and enabling durable profit improvement. Despite ongoing macroeconomic headwinds, our strategy is delivering results. We have raised our full year 2025 guidance and now expect adjusted earnings per share to nearly double versus 2024. Momentum is building, and we anticipate continued growth in adjusted earnings and free cash flow in 2026 as we advance towards the target set out at our recent Investor Day. Let's now move to Page 4. As we review our quarterly results, it is important to consider current trends within the broader market context. Packaging dynamics are evolving. short-term cyclical pressures, including inflation, consumer price resistance and elevated supply chain inventories have temporarily dampened demand. However, we anticipate these headwinds will ease over time. Longer-term factors such as lower per capita alcohol consumption and increased substrate competition will persist in certain markets, yet these challenges are expected to be offset by growing interest in premiumization and sustainability. Furthermore, rising consumer health awareness is driving growth in no, low alcohol beverages as well as food and water. These trends suggest a more balanced and sustained demand for glass over the long term. In the interim, our focus remains on eliminating waste and inefficiencies, building higher quality revenue streams, delivering a more profitable portfolio and positioning the business for future shifts in consumer demand. O-I has navigated market volatility effectively, maintaining stable net sales in recent years. As we address near-term cyclical pressures, we are carefully balancing price and volume to achieve a relatively stable top line. For the full year, we now expect pricing to be flat and sales volumes to be down about 2%, which is consistent with softer consumer demand. Despite this, our Fit to Win initiative is delivering a higher quality business mix and strengthening our competitive position, as evidenced by improved margins and segment profits. Looking ahead, we anticipate O-I will achieve 1% to 2% annual sales volume growth post 2027, as markets stabilize, strategic initiatives enhance our cost position, and we drive profitable growth in the next phase of our strategy. Let's now turn to Page 5 to review the progress of our Fit to Win initiative, which I'm pleased to report is ahead of schedule. Fit to Win is significantly reducing costs across the enterprise as well as optimizing our network and value chain to enhance competitiveness and support future growth. In the third quarter, we achieved another $75 million in savings with benefits of $220 million through the first 9 months of the year, well ahead of our initial plans. With this momentum, we expect 2025 savings will range between $275 million and $300 million, which exceeds our current year goal. So we are well on our way to at least $650 million of benefits by 2027 on a cumulative basis. We are making excellent progress in Phase A, which focuses on streamlining SG&A costs and initial network optimization actions. We've already secured $100 million in SG&A savings in 2025, and we are on track to reach our 3-year target ahead of schedule. Our network optimization is also moving quickly. We have communicated the closure of 13% of capacity to align supply with demand. 8% is now complete and all remaining actions should be completed by early next year. Phase B centers on transforming our entire value chain. The first wave of our total organization effectiveness rolled-out across 15 plants is completed, and each location has met or exceeded expectations. The second wave covering another 15 plants is in progress, and we should complete the remaining plants by the end of next year with benefits continuing into 2027 and beyond. Our teams are driving strong results in procurement and energy reduction, further boosting savings and resilience. New supplier agreements are set to enhance productivity and competitiveness over the next 3 years. Overall, the Fit to Win program is delivering results faster than planned. We are well ahead of our targets for 2025 and are positioned to unlock even greater value through 2027, despite challenging market conditions. Now, I'll hand it over to John, who will start with a review of our third quarter results on Page 6. John Haudrich: Thanks, Gordon, and good morning, everyone. Let's begin with our third quarter top line results. Net sales held firm at approximately $1.7 billion with modest improvements in gross price, especially in the Americas. Favorable FX provided a helpful tailwind even as consumer demand remained muted. Shipments in tons declined by 5% as modest growth in the NAB food and RTD categories was more than offset by lower performance in beer and wine. Keep in mind, this headline figure does not fully reflect underlying trends as several factors which are not indicative of actual consumption impacted volumes by approximately 3 percentage points. These factors include: a major capital project commissioning in Europe, which we discussed during last quarter's call; inventory correction in the Mexico and North America beer category related to changes in U.S. trade and immigration policies; and mix changes as we exited some unprofitable business lines, consistent with our focus on increasing economic profit as well as the ongoing trend towards container lightweighting. Excluding these factors, shipments were down about 2%, which is more in line with softer underlying consumer consumption trends. Importantly, overall volumes improved over the course of the quarter and shipments were nearly flat with the prior year in September. While revenues were stable, margins improved significantly and O-I delivered third quarter adjusted earnings of $0.48 per share, exceeding both last year's results and our own plans. This achievement was driven by favorable net price, significantly lower costs, thanks to Fit to Win initiatives and higher production levels despite softer sales volumes. A lower tax rate also benefited the bottom line. Overall, O-I has delivered strong third quarter results, outperforming expectations through disciplined execution, cost reductions and continued momentum from our strategic program, positioning the company for ongoing success. Moving to segment profit on Page 7. The momentum is clear as segment operating profit improved more than 60% from 2024 with robust gains in both the Americas and Europe. In the Americas, segment operating profit rose nearly 60%, propelled by higher net price and continued Fit to Win benefits. Volumes were down 7%. We believe underlying consumer consumption represented half of this decline, while specific factors drove the other half, namely lapping new business wins in 2024, inventory adjustments in the beer value chain across North America and Mexico as well as mix change as we exited some unprofitable business. In Europe, segment operating profit surged by 70%, reflecting contributions from strategic initiatives and higher production following last year's inventory reductions. Net price was a headwind and sales volumes dipped due to a major capital project start-up. Importantly, volumes were about flat, excluding this event. In summary, segment operating profits increased significantly with strong gains in both the Americas and Europe, reflecting the continued success and disciplined execution of our key initiatives. Now let's turn to Page 8 for our updated business outlook. Looking ahead, our outlook for 2025 has improved. Given our strong year-to-date performance and the momentum of Fit to Win, we have raised our full year earnings guidance. We now expect adjusted earnings in the range of $1.55 to $1.65 per share, nearly double our 2024 results. This meaningful increase reflects stronger initiative benefits and better net price, partially offset by slightly lower sales volume. Free cash flow is projected at $150 million to $200 million, an improvement of approximately $300 million versus last year and closer to $400 million increase prior to restructuring costs. Although the adjusted earnings outlook has improved, our free cash flow guidance remains unchanged due to higher-than-expected restructuring opportunities and the settlement of a legacy environmental liability, which together totaled more than $25 million. Higher restructuring is a result of O-I's accelerated network optimization initiatives, which are expected to deliver benefits in 2026 and beyond. Excluding these temporary and elevated charges, our free cash flow is nearing the 5% of sales benchmark, which is our 2027 target. We successfully refinanced our bank credit agreement last month at favorable economics, which also extends out maturities. Leverage improved over the last quarter, and we continue to expect our leverage ratio will land in the mid-3s by year-end. Despite a challenging macroeconomic backdrop, we are executing effectively and our self-help initiatives are delivering results that exceed our original expectations. As a result, we are increasing our full year adjusted earnings per share guidance and expect this positive momentum to continue into next year. Now let's turn to Page 9 for our early perspectives on key business drivers for 2026. Looking ahead to 2026, we anticipate continued momentum with higher adjusted earnings and free cash flow as we advance towards our 2027 objectives outlined at Investor Day. Revenue is expected to remain stable or increase modestly, supported by better mix, fairly consistent sales volume and higher gross price, reflecting the pass-through of 2025 inflation. This aligns with our strategy to maintain a stable top line while executing Fit to Win to further strengthen our competitive position and lay the groundwork for profitable growth after 2027. Adjusted earnings are projected to improve, fueled by another year of strong initiative benefits. These gains should more than offset the impact of lower net price as we reset favorable energy contracts in Europe, which are expiring at the end of this year. Free cash flow is expected to rise, driven by increased earnings and disciplined capital allocation. Cash restructuring costs should be at or below 2025 levels as we complete key initiatives by mid-2026. Our balance sheet should continue to improve with financial leverage in the low 3s by year-end 2026. With strong execution, ongoing transformation and a clear strategic direction, O-I is well positioned to deliver lasting value to all stakeholders. Now back to Gordon on Page 10. Gordon Hardie: Thanks, John. As we wrap up today's call, I want to emphasize the significant progress O-I has achieved and the solid competitive foundation we are establishing for the future. Our strong year-to-date performance driven by the ongoing success of our Fit to Win program has enabled us to raise the 2025 adjusted earnings guidance once again. Looking ahead, we anticipate continued growth in both earnings and free cash flow in 2026. We are delivering on the commitments made at our recent Investor Day, maintaining a stable top line, enhancing our quality of revenue and advancing our transformation despite a challenging environment. Our efforts to realign our network and supply chain are supporting mix improvement and positioning us for long-term profitable growth. Our cost transformation initiatives are generating substantial savings and increasing our competitiveness, and we have streamlined our organization to be more agile and focused. As a result, margins and earnings are up, free cash flow is increasing, and our balance sheet continues to strengthen. Most importantly, we are executing well, building momentum and expect to create sustainable value for our shareholders. Thank you for your continued support and confidence in O-I. We look forward to building on this momentum and achieving even greater success together. We're now happy to take any questions you may have. Operator: [Operator Instructions] We will now take our first question from Ghansham Panjabi from Baird. Ghansham Panjabi: Gordon, as you think about the demand environment -- as you sort of think about the demand environment and the variability we've seen over the years, et cetera, how much of this most recent decline is influencing your view as it relates to what's actually a cyclical decline versus some sort of secular change because of changing consumer preferences and so on and so forth? Because if you go back to 2019, volumes are down roughly mid-teens, you're aligning your capacity down by pretty much a comparable amount. And I'm just curious as to what you think is the right baseline for volumes going forward or is this the new starting point? Gordon Hardie: Yes. Thanks, Ghansham. It's quite a dynamic demand environment. And depending on where -- what segments and categories you look at and what part of the world, there are probably different dynamics. I think it's fair to say that beer across the board, and wine across the board are declining. And certainly, we've seen that in most of the markets. But within beer, there's a dynamic where premium beers are showing some growth. But it's mid-tier and maybe lower equity brands, if I can put it that way, losing share to private label. So, there definitely is a piece around beer and wine that we see because consumers are challenged, right? I hear that. I'm in the market a lot. I hear that quite a bit. What we are seeing, though, is a growth in non-alcoholic beers. And interestingly, we're hearing in different markets that up to 60% of new users of the non-alcoholic category are Gen Z-ers. So, they're coming into the beer category via non-alcoholic ranges. So, I think there's a piece there, quite a large chunk around beer that's, I would say, cyclical. And then the shift, people -- health and wellness accessing beer through low and non-alcoholic beverages, which I think will kind of grow. I very much think we're still in the midst of the implications of COVID and how it disrupted supply chains and behaviors and the stages of -- with particularly Gen Z-ers enter different kind of categories. So, I think there's very much a part in beer, which I think is cyclical. Wine, I think some of it is structural. Younger consumers, what you hear is finding it difficult to access wine. It can be a complicated category to access with different appellations and labels and so on. But what we do hear is the wine industry saying, "Okay, how do we make it easier for consumers to access the category?" So, I think there's some work being done there that should help that over time. The way we look at it, Ghansham, is, as I've mentioned before, we have about 1.7x the volume of our nearest competitors. And in this period of kind of volatile demand, I think the most clear path for us to create value is to increase the profitability and the returns and the cash on the volumes that we have and really strengthen the portfolio and strengthen the core business and generate higher returns and higher cash flow from what we have and shedding volume that doesn't deliver economic profit or a cash for us. And you'll see that starting to come through in the results where volumes are down, but margins are up very significantly, cash will be up significantly for the year. So, what is the right base? That's a $64,000 question. But what I am clear on is that we are only focused on volume that delivers economic profit for us. Now we are in that early stage of that 3-horizon strategy where we said we got to get Fit in order that we access growth. There is volume available in the market if you wanted to chase really low margins and give up a whole bunch of terms that will destroy cash. That's not our game plan. So, we are getting Fit in order that when the market turns, then we can access the kind of growth. And we have a very clear view on the kind of growth we're looking for, what categories, what segments, what markets, what customers. That's very clear to us internally. But there's a timing issue. We've got to work through the Fit to Win, getting much more competitive than we have been when the market turns, access that growth. As we said going forward, just to close out, we would then expect 1% to 2% volume growth that would be EP accretive and cash accretive for us going forward post 2027. So that's a long answer, Ghansham, but that's kind of how we look at it, yes? Ghansham Panjabi: Okay. Just one quick follow-up. On the 13% capacity cut, how does that skew between the regions? And I'll turn it over. John Haudrich: Ghansham, this is John. On the balance, there is probably a little bit more going on in the Americas than in Europe. But what I would say is where we stand right now, the Americas is substantially advanced, and the final stages are going to be over in Europe. Operator: We will now take our next question from Josh Spector from UBS. Joshua Spector: I was wondering if you could talk a little bit more about the volume kind of cadence and the results in the quarter. I think you explained a decent amount of it, particularly within the Americas between some of the beer headwinds in the quarter and the exits that you guys did. Just wondering if you could bucket those 2 pieces apart a little bit for us. So, should we expect more exits on a go-forward basis? Does that matter for profitability since there's maybe some offset there? So just helping to pick that apart would be helpful to start. Gordon Hardie: Sure. So, if you take a look at the 5%, I'd break it out about 2% is just softer consumer demand and consumers being more challenged, I think, and kind of price resistance in the market. And then between network optimization and a deliberate decision to exit volume that did not make sense for us from an EP point of view, and then also some very deliberate strategies around lightweighting, that's about 3%. So, the underlying, we think, is about 2%, right? And we probably see that holding to year-end. John Haudrich: Yes. I would add, just looking at the numbers here, Josh, the exiting of unprofitable business probably was 1 percentage point of that 3-percentage point that we would say is not specifically due to consumer consumption trends, and that will episodically continue for the business. I think we flagged this back at Investor Day, there is a low single-digit -- kind of mid-single-digit kind of portfolio of our business that is deeply economic profit negative. And we are either going to raise prices in that market or we're going to exit that business. And that's the process that we're going through as we go over the next year or so. Joshua Spector: I appreciate that. And I also appreciate some of the kind of early overview here of '26. I don't know if there's -- if it's too early to frame this in a real quantifiable way. But I guess the easy math that you've kind of laid out is you expect at least a couple of hundred million benefit of cost savings. You guys earlier sized that the energy contract reset. I think it was $130 million, I guess. Correct me if I'm wrong. I guess if you think volumes are flat, is the bogey that you should have earnings up $70 million in that context if we go sideways from here? Or are there other ways that you would think about puts and takes we should be adding? John Haudrich: One is, we probably don't want to get into quantification just yet. We expect a nice increase next year as we move our way towards that $1.45 billion in 2027. Of course, we have to absorb that energy credit reset -- energy reset. That number, as we mentioned back even at Investor Day, is about $150 million. That still remains to be very much in line with that right now. So, as we look at the puts and takes of the business, kind of stable volume, we'll have gross price up against low single-digit kind of normalizing inflation, but then we'll absorb the energy reset, as we mentioned, that mark-to-market and then very robust -- continued robust Fit to Win benefits. But we'll come back at the end of the year with quantification, but we expect a nice bump next year. Operator: We will now take our next question from Francisco Ruiz from BNP. Francisco Ruiz: I have 2, if I may. The first one is on the restructuring, it's kind of a follow-up on the previous question. Out of the 13% capacity reduction that you are aiming, how much is already announced? And how much is pending apart from the French announcement that you made at the beginning of the year? The second question is in Latin America, more specifically in Brazil, with a very bad quarter in terms of volumes overall. Some of your competitors are increasing capacity. How do you see the area in the coming quarters? John Haudrich: Yes, Francisco, this is John. I'll touch base on the -- and cover the first one. On the restructuring, if we go back to 2024, we were carrying about 13% excess capacity, and that was costing us about $250 million of unabsorbed fixed costs. We have since then announced closure of 13% of our capacity, which would ultimately get us substantially out of that fixed cost absorption. Right now, as of the end of the third quarter, we have completed 8 percentage points of that 13%. And as I mentioned earlier, that is substantially more skewed to the Americas. We have a remaining 5% left to go, which will be done by the early part of next year, and that is going to be skewed towards Europe, including what we've announced in France. We anticipate restructuring charges this year of around $140 million to $150 million, a little bit on the high end of what we originally anticipated because we're moving faster in certain areas. But we anticipate a carryover of restructuring costs next year that will be at or below that level. And we should be out of that exit range of that cash activity by mid-2026. So, really, the fundamental cash flow moving -- momentum going forward in the back half of the year will be better. Gordon Hardie: Yes. Francisco, with regard to Brazil, I was actually in Brazil a couple of weeks ago and spent a week touring the market and meeting with customers. A couple of -- on the positive side, we're seeing very strong growth in non-alcoholic beverages, so waters and juices in Brazil. We're seeing strong growth in wine in Brazil and strong growth in spirits. Where the big declines came were in beer. And I know it's easy to blame the weather, but everywhere I went, people spoke about it being probably the coldest winter in 30 years in Brazil, and that's definitely had an impact on consumption, and also people being challenged in terms of spending power and a bit of trading down going on in beer for sure. What we are seeing is customers launching new offerings to the market. There were also some sizable price increases went into the market that impacted volumes, I think, in the short term. And then on the food side, for us, we saw a decline in volumes. That was very largely driven by raw material shortages, particularly kind of olives, and that impacted our business. But the main piece around beer was largely weather-driven and some mid- to-high single-digit pricing going in on shelf, which I think put a bit of pressure on consumption. That's starting to sort of come back, and we're obviously heading into the summer months in Brazil and would expect better volumes going forward. Francisco Ruiz: Just another question. I don't know if you have mentioned, but as you did in other quarters, can you give an idea of the current trading in October? John Haudrich: Yes. I would say as we take a look at -- going back to what Gordon had indicated, we think the full year is going to be down about 2% now, consistent with that underlying consumer consumption. Fourth quarter is kind of playing out in that low single-digit territory. So, nothing particularly new against the consumer consumption trends. Operator: We will now take our next question from Mike Roxland from Truist. Michael Roxland: Congrats on a strong quarter in a tough environment. Can you hear me? Gordon Hardie: Yes. Michael Roxland: Perfect. Okay, great. Just wanted to follow up on the pruning of unprofitable business. I realize you mentioned in response to an earlier question that in the Americas, that amounted to about 1%. Can you comment on what that was in Europe? Because when I look at some of your peers, your peers had volumes that increased low-single-digits. Your European volumes declined 4% in 3Q. So, I'm just wondering how much of that volume decline in Europe was you guys walking away from unprofitable business, which your peers then possibly picked up versus, let's say, underlying consumer weakness? John Haudrich: Yes, Mike, as we had indicated, overall, the number -- the shipments were down about 3% in Europe overall. We attribute that substantially to that major project that was underway. We talked about that last quarter. It was primarily in the spirits category. So that was the biggest impact. Yes, we were walking away from some business there, but I think it was more skewed towards that major project. Gordon Hardie: Yes. And just to add a bit of color on Europe for us, Mike. We kind of look at this in probably 3 parts. Southern Europe was very strong for us actually and strong growth in all categories and particularly waters, food, RTDs. In Western Europe, we were impacted a bit by wine with wine exports down and spirits, some of the French spirits not picking up yet in terms of shipments to either the U.S. or to China. Northern Europe was good, was strong for us across food and spirits and beer. And then, as John said, we had that commissioning, which was slower than we had anticipated. So, yes, we're pretty happy where we are in Europe, given the context there. We're very focused on improving the profitability of the volumes we have, and we're not chasing volume just for the sake of volume, and we're being very disciplined around that. As I said, there is volume out there that can destroy your margins and eat your cash, and that's not our game plan. John Haudrich: One thing to add, Michael, on the question about the walking away from unprofitable business, and you can see that in our revenue and earnings [ recs ]. Yes, the revenue is down as a result, but the decremental margins on the lower volumes were half of what you would normally expect. So, you see us walking away from unprofitable business, and it's very visible in the bottom line performance of the business. Michael Roxland: Got it. Great color. Really appreciate it. And just one follow-up. Just wanted to ask you about the cost spread to aluminum cans. And given where aluminum prices are today in the U.S., where does the spread currently stand relative to the 25% you cited at your Investor Day? And do you think you could gain share next year if aluminum remains elevated and as hedges -- alumina hedges roll off? And I also realize it's early stages, but can you comment on how much your actions thus far have reduced the cost spread to cans? John Haudrich: Yes. Mike, I'll kick off on the first part of that is, if you take a look at the elevated cost of aluminum right now, we would say that, that has moved that cost differential, for example, in the U.S., which was between 25% and 30%, more into that zone where we believe that historically, glass can compete well, which is 15% or lower premium to aluminum. So, it's early days, obviously, and as things flush through in the system, -- but that's what we're seeing as far as the competitive position of the product. Gordon Hardie: Yes. And then, Mike, as you've said, and I think as we've said in our Investor Day, we can't be reliant on the price of aluminum to be competitive to cans. We've got to find our own path there to 15% or less spread between cans and glass, which we are focused on. But it does give us a bit of extra time if aluminum prices rise. But we've got to get there irrespective of where aluminum is over the journey between now and 2027. But just as a close out on that, the closer we are, the more competitive we are, then the more choice our customers have in which substrates to use and indeed consumers, which one they choose on shelf. Operator: We will now take our next question from George Staphos from Bank of America. George Staphos: Congratulations on the progress and on the decremental margin. It was a nice job this last quarter, guys. Three questions. I'll ask them in sequence for time. First of all, if we go to Slide 7 and your -- if you will, your bridging or waterfall chart, on the items that were controllable, where did you perform best and where did you perform least well relative to the increase in your guidance for the year? Related question, I remember from last quarter, there were some operations that you were studying when and how you might be able to close, restructure, but there were some timing factors that determined whether that would wind up remaining on the books, so to speak, in terms of downtime or whether you could actually move it to non-operating and restructure and potentially have a better result. How did that play out? Is that still playing out? Is it still downtime? And then the last question, as we look to 2026, recognizing, again, there's a lot of water that still needs to flow under the bridge, we get it. It would suggest given that you're at least expecting good results for next year, good being defined by up earnings or up cash flow, that at least your initial commercial discussions with customers on pricing resets is going favorably. Can you talk about where that process stands earlier than normal, later than normal? Any qualitative commentary would be helpful. Gordon Hardie: Yes. I might take the last question first, George, if you don't mind. I mean we're heading into that season. As John said, we would expect sort of gross pricing to probably be up. Your capacities are tight, but it's early days yet. And -- but we're focused on being very disciplined in terms of improving the profitability of the volume we have. Anything that doesn't make economic sense for us in any contract negotiations going forward, we would shift that out of the business and dedicate our assets to that volume that is delivering the kind of margins and cash targets we have. John Haudrich: Yes, George. And to the other questions as far as what changed in performance as we -- in the quarter and then as we look to the guidance going forward. Obviously, Fit to Win in the cost performance is exceeding our expectations. We increased our full year guidance of that by $25 million to $50 million for the full year. At the same token, you also see that net price has been positive relative to what we thought going into the year, and that has offset some of the softer sales volumes that we have. So, when we look at it, the commercial performance net-net of price and volume is right where we expected it overall, a little bit different componentry. But really the driver of increased performance in the quarter, expectation for the fourth quarter better performance and for the full year is largely driven by Fit to Win improvements, okay? On your next question, you had asked about operations and closures and restructuring opportunities. As you may recall, last quarter, we said we had announced about 10% capacity closures, and now we're at about 13%. So, we, in fact, have been able to identify those additional 3 percentage points of capacity that, again, balances supply with demand at the end of the day and are moving towards closing those out on a permanent basis. And again, 8% of it was done at the end of the third quarter. So, we were still carrying some restructuring charges, I mean -- sorry, LOB or temporary downtime charges through the quarter, and we will through the end of the year. But once we get out from underneath that in the early part of next year, that will substantially be out of the system. George Staphos: John, recognizing it's the same pair of pants. It's just different pockets. Does that help the fact that you're able to close that incremental capacity help your guided EBIT and EBITDA for the year? And if so, is there a way to quantify that? John Haudrich: Yes. Yes, I think it is. And keep in mind, when we talk about our Fit to Win numbers and benefits, the $270 million to $300 million this year, we are taking an accounting in for their -- those permanent closures. And so, as we do better on that and make more progress on that, that is driving in part the upside of the performance on the cost performance. In addition to that, what we call Phase B, which is also doing better, which is the more accelerated total organization TOE projects and other cost-related things. So Fit to Win is going up because of a lot of things, but partly because of the ability to close out capacity. Now, keep in mind, the activity in Europe is going to shift a little bit into the early part of next year from maybe our original expectations, but we've been able to pull forward some activities into the Americas. So, net-net, we're able to backfill some of that time. Operator: We will now take our next question from Anthony Pettinari from Citi. Bryan Burgmeier: This is Bryan Burgmeier on for Anthony. Just following up on maybe the volume discussion from earlier. You talked about growth in non-alcoholic beer and maybe some younger consumers staying away from wine. Just maybe from a high level, how would you frame kind of O-I's ability to maybe capture some of these new product launches? Do we expect that to maybe be more of a 2027 item once you're through Fit to win? Or are you may be seeing some early traction with new product launches and kind of new business in '25 and '26? Gordon Hardie: Yes. We actually are seeing customer's response to consumer softness by introducing new products. If I take a look at our -- or what we call our funnel, I'd say it's up about 8% to 10% this year already. And our total NPD, so that's products that are new to the portfolio or products that are renovated already in the portfolio but might be value engineered or designed to look -- stand out on shelf, they're running at about kind of 10% of our volume. So, we absolutely are seeing more NPD. And as we simplify our plants, as we make them more flexible and as we work on the strategy of best at both, which we outlined at Investor Day, we're able to respond more rapidly. We're also in the process of reshaping the NPD organization and ways of working, which was very -- I would say, it was decentralized to a point where it was wasteful. We've now reshaped that, and that new kind of NPD go-to-market organization will kick off in January. And we expect to be able to slash our time to market by at least 50%. So being able to respond more quickly to customers and their marketing teams and bringing products to market. And we see growing demand for that, particularly as new consumers kind of maybe are not engaging with older brands in the same way and there are need for new offerings. That's absolutely a feature driving the market. And I think we've -- with our Fit to Win approach and the organization being much more agile, working with customers differently and working with suppliers differently, where we've been able to ramp up the speed at which we can get to market. And again, I think there's kind of a narrative out there that Gen Z are walking away from certain categories, and we actually see them just coming into categories in a different way. As I said, 60% of non-alcoholic new consumers are Gen Z-ers in many of the markets we're operating in. So, there's no question that NPD is a key part of our value shift strategy as we go forward, because typically, we would have better margins in new products. John Haudrich: I would -- building on that, I mean, even though the market has been a little soft out there, the NAB non-alcoholic beverage category in North America and Europe is up mid-single digits. And so, we are seeing a bright spot in those categories. And in particular, waters in that categories have been doing very well. And we've gotten some notable wins in those categories. We're seeing people come over to that. And it's interesting, you can even Google it. There is articles out there saying about how people go out to dinner and they might have had a glass of wine, but now they prefer sparkling water or something like that on their table. So, it's an interesting set of dynamics that are playing through that also benefit the business. Gordon Hardie: Yes. And I think glass is very well placed with these younger consumers because across the world, they are far more sustainability aware and are -- have a very, very positive view on glass packaging. And so, we're seeing that come through in these categories as well. So that's -- they're positive trends for us. Bryan Burgmeier: Got it. Got it. Really appreciate all the detail. It's really helpful. And then, just a quick follow-up, John. I think you mentioned a charge from an environmental liability during the quarter. I guess, is that a new item? I didn't recall hearing that before, but maybe I missed it. Just any detail you can provide on that. John Haudrich: Yes. I mean, we've flagged this up for the last several quarters in the 10-Q, but there was a former subsidiary that had an old paper mill that stopped operation in 1967. It's now on federal land, and we had -- there was a settlement with the federal government. So, it's something 58 years old, but we did make a payment on that in the quarter. It was a little bit over $15 million as part of that $25 million plus number that I was referring to. Operator: We will now take our next question from Arun Viswanathan from RBC Capital Markets. Arun Viswanathan: Congrats on the progress as well. I guess, I just wanted to go back to the volume and understand maybe some of the cushioning that you have. So, I think in the past, you've noted that each point of volume is maybe $0.07 in EPS, which we could potentially gross up to maybe $14 million of EBIT and each point of production is $0.13, which is maybe, I don't know, $25 million of EBIT. So, I think you went in the year expecting this year was going to be flattish on volumes. You're up low to mid-singles in the first half. I know you're up 4% in Q1, but it does look like you're now maybe down 1% on the year or so, maybe could end up the year down 2% or 3%. So, does that kind of imply that you have $40 million to $50 million of EBIT cushion within Fit to Win benefits that's offsetting that greater than expected weakness in volumes? Maybe you can just kind of frame out how you're finding extra savings to offset the volume weakness. John Haudrich: Yes, Arun, I'll take that one. From a commercial performance standpoint, I think we're almost exactly on where we expected going into the year, okay? So, yes, volumes are down, what we said about 2% for the year, and that has the cost that you referred to. But also, net price has been more favorable than anticipated going into the year. Those 2 have generally offset each other, okay? So, when you think of the net effect -- and Gordon had said in the prepared comments, we're really trying to manage these levers between price and volume in a pretty soft environment, right? And so, we're trying to find that balance of -- that provides the best reasonable financial outcome to the business as we try to manage a stable top line. So, with those 2 essentially offsetting each other, really the improvement in the year is Fit to Win. And that's where -- that's driving the upside, and that's driving -- this is the second time now that we raised guidance for the year, and it's really driven by the momentum on what we can control. Gordon Hardie: Yes. And just as a point on that -- sorry, go ahead. Arun Viswanathan: No, that's fine. Sorry, Gordon. Gordon Hardie: Yes. No. And as I've said since the [ out start ], we're focused on better quality revenue and not chasing what I call kind of profitless prosperity volume for volume's sake. And we really are strengthening the quality of the portfolio we have and improving the returns on the portfolio we have. And you can also see that coming through in the margin expansion and obviously seeing it coming through on the cash side as well. And that's going to be an ongoing feature for us, right, really improving the quality of the revenue we have going forward. Arun Viswanathan: Great. And then given this volume performance, do you think you'd have to take additional downtime as you go into '26? Maybe you can also just update us on inventory levels and -- especially related to maybe Europe and some of those wine markets and spirits and areas that you're seeing weakness. And if that -- if you do have to take that downtime, again, would you have other levers to pull on to offset those headwinds? John Haudrich: As far as our -- currently, I mean, we are balancing supply with demand, and we have -- we still are carrying some lack of business downtime. But keep in mind, we did increase our permanent capacity closures, which we anticipate to be done by early part of next year. As a result, we think that we are going to be reasonably balanced between supply and demand once that's done, and it will be substantially out of that LOB category for the business or the temporary downtime category for the business. As we look to the inventory management, I think we ended the third quarter in the low 50s, maybe 52 or 53 days. Our goal is around 50 days this year, which would be about a 15% decrease on a year-over-year basis. The softer sales volumes that we're seeing right now, we may end up in the 50 to low-50s-somewhere range, but very close to the overall goal that we anticipated. Gordon Hardie: So, I think we have time for one more question. Operator: We will now take our next question from Gabe Hajde from Wells Fargo. Gabe Hajde: Two questions. I guess, looking at the model and just thinking about kind of how you're describing commercially things shaking out the way you wanted, competition a little bit different. I know you can't necessarily dictate and manage this quarter-to-quarter, but price accelerating pretty heavily in the Americas and not -- maybe I think [indiscernible] might have already answered this, but can you parse out for us maybe the intentional business moves that's flowing through on the mix side, maybe the formulary price adjustments that are flowing through in the Americas and then intentional price that you're taking in North America, if that makes any sense? John Haudrich: Yes, Gabe, I can take a stab at that, and Gordon can build on if he has any additional comments. Our price, gross and net price is obviously softer in the first quarter. It's better -- I mean, soft first half of the year and it's better in the second half of the year. What you are seeing in the Americas is -- keep in mind, for example, North America, we pass through energy on a monthly or quarterly basis. And so -- through the PAF process. So, you pick up a little bit more there. I would also say the Americas, from a capacity standpoint is probably in the mid-to-high 90s as far as capacity utilization. So, it's a pretty tight environment in the Americas overall as a backdrop. Compared to Europe, it is probably mid-90s to low 90s to give you just a relative comparison. But keep in mind, Europe should improve as a number of different capacity closures are completed. Gordon Hardie: And then on the portfolio piece, Gabe, I mean, we have a very clear sort of process for how we make those decisions. And I think in previous calls and certainly at Investor Day, we mentioned that we have visibility now in the business right down to SKU level on what the economic profit is by SKU in effect. And I also mentioned that there's a bunch of things you can do internally to improve the economic profit of a particular product or a particular range. And we take a look at those and we say, okay, we can get that done. Does that make sense for us? Even having done that, or even if we were to do that on some ranges, we would still need significant price increases from the customers. And some customers would say, yes, okay, the price and quality and what you give and service and so on is worth it. Some say, no, yes, that's not for me. And then we make a view that, that piece goes out because what we find as well is, those pieces of business add a lot of complexity into our supply chain. A lot -- there's a lot of hidden costs in there as well or there can be. And it brings complexity to the lines. And as part of our operation strategy of best at both, that relies on us having less complexity, particularly on the big furnaces on the big lines. And that has been a feature of the business over the years that the lines that were built for much longer runs ended up too complex. So, we're cleaning up all of that. And so, there's a very intentional process of how we do that, and we understand what the financial implications are for that. And getting that non-economic volume out of the business is good, and you can see it coming through. And then it frees up capacity for power SKUs where we make a lot more money. And that's really the thinking behind it, Gabe. Gabe Hajde: Got it. Maybe that kind of feeds into my second question. Most of the capacity adjustments, I think you talked about in the U.S. or in the Americas. By our math, maybe 0.5 million tons or so that's been identified in Europe. What about the tons and closures, and really, I think you talked about 40% of that business that gets exported out of your European operations into some other part of the world, and it's still relatively depressed. So, I guess what's enabling you to service that business as you talk about having the potential to come back with those capacity adjustments? Gordon Hardie: Yes. I think if you look at spirits largely in China, the 2 core markets for spirits out of Europe are the U.S. and China. And I think what we're going through in the U.S. with some -- I'll call them short term in the context of years, there's some pricing that consumers are coming up against. We think that's a cyclical thing. And we also think the inventory in the system will work its way out. And the U.S. will continue to take large quantities of spirits out of Europe. And China at the moment is experiencing the same thing and where demand is suppressed there. And again, we see that working its way out over time and those markets coming back. And then you see the growth of markets like India and South Korea growing strongly. We're seeing the start of green shoots in travel retail, which is up about 3% in volume year-to-date, but still not back, particularly on a value basis, to where it was pre-COVID. So, I think these are cyclical things that are going to work itself out. And we see ourselves having the capacity to match that when it comes back. John Haudrich: And to build on that, Gabe, yes, we are closing out excess capacity to balance supply with demand. But keep in mind, our TOE, Total Organization Effectiveness program is intended to unlock trapped capacity in the system. That will allow us to grow, and that is by far the cheapest way to get capacity within the system with great operating leverage when you enable it. Gordon Hardie: And so, getting the operations a lot fitter and then sweating them a lot harder than they were in the past, Gabe. Operator: I will now pass the conference back over to Chris for any additional remarks. Christopher Manuel: Thank you. That concludes our earnings call. Please note, our year-end and fourth quarter call is currently scheduled for Wednesday, February 11, 2026. And remember, make it a memorable moment by choosing safe, sustainable glass. Thank you. Gordon Hardie: Thank you. John Haudrich: Thanks all. Operator: That concludes the O-I Glass Third Quarter 2025 Earnings Conference Call. Thank you for your participation. You may now disconnect your lines.
Operator: Greetings, and welcome to Aurora Cannabis Inc. Fiscal Second Quarter 2026 Results Conference Call. [Operator Instructions] The conference is being recorded today, Wednesday, November 5, 2025. I would now like to turn the conference over to your host, Simona King, Chief Financial Officer of Aurora Cannabis. Please go ahead. Simona King: Hello, and thank you for joining us. With me is Miguel Martin, Executive Chairman and CEO. Earlier this morning, we filed our financials for the fiscal second quarter 2026 period ending September 30, 2025, and issued a news release containing these results. This news release, along with our financial statements and MD&A is available on our IR website as well as via SEDAR and EDGAR. We have also posted an investor presentation to our IR website for reference purposes. Our discussion today serves as a reminder that certain matters could constitute forward-looking statements that are subject to risks and uncertainties relating to our future financial or business performance. Actual results could differ materially from those anticipated in those forward-looking statements. Risk factors that may affect actual results are detailed in our annual information form and other periodic filings and registration statements. These documents may similarly be accessed via SEDAR and EDGAR. Following our prepared remarks, we'll conduct a question-and-answer session with our covering analysts. With that, I'll turn the call over to Miguel. Please go ahead. Miguel Martin: Thanks, Simona. Aurora's sustained strategic focus on global medical cannabis, the highest margin segment of the industry, combined with exceptional operational execution has once again delivered standout financial results. This performance is further reinforced by a strong cash position and the absence of cannabis business-related debt. In our view, Aurora is highly differentiated for the following reasons: First, we are Canada's largest medical cannabis company. Second, we are Canada's leading exporter of medical cannabis with world-class GMP facilities in Canada and Germany that enable us to supply global markets with high-quality premium products. Third, we are market leaders in Germany, Australia, Poland and the U.K., the 4 biggest nationally legal medical cannabis markets outside of Canada. And fourth, we are best positioned to gain a strong foothold in emerging markets as they develop, drawing on our proven successful commercial execution and global regulatory expertise. We will explore these themes in greater detail momentarily. But first, here are key highlights from Q2 2026 compared to Q2 2025. Net revenue rose 11% to $90 million, which included record global medical cannabis revenue increasing 15% and record international revenue increasing 22%. Consolidated adjusted gross margin improved 700 basis points to 61% as we benefited from higher cannabis margins due to increased international revenue. Note that we had originally set a 60% adjusted gross margin target for our medical cannabis business and have consistently exceeded that target over the last 3 years, reaching 69% during the second quarter. And finally, adjusted EBITDA rose more than 52% to $15 million, exceeding our top line growth by a factor of 5. Stepping back from the quarter, we have grown our net revenue over the last 5 years from $68 million to $90 million with adjusted EBITDA increasing $73 million from negative $58 million to a positive $15 million. These results illustrate our continued focus on profitable and sustainable growth. Over the past decade, we have built a competitive moat that continues to fuel international revenue gains and adjusted gross margin expansion, momentum we expect to sustain well into the future. Traction in global medical cannabis is a long-term proposition. And through our investment in science, technology and people, coupled with supporting patient access and physician engagement, we have built the foundation for continued success. The capital we have invested in our European and Australian GMP-certified manufacturing and distribution facilities positions us to lead amongst the select few cannabis companies with both regulatory certifications that most markets require. 90% of our annual manufacturing capacity is within multiple GMP-certified facilities, and our products comply with these increasingly stringent international standards. Beyond manufacturing our own products, we are also able to distribute them compliantly and profitably around the world. We view vertical integration as a structural advantage for us, primarily for 2 reasons. First, we sell medical products and consistency of supply is critical. Being out of stock or substituting cultivars due to fragmented sourcing is neither optimal for prescribers nor patients. Longevity with cultivars, quality and reliability build confidence with both constituencies. Second, we have lower production costs than others, made possible by our focus on yield, potency improvement and operational efficiencies. At our manufacturing site in Germany, we are doubling production as we prepare for further growth in the market and adjacent countries. This investment will allow us to significantly increase capacity while also targeting yield and operational efficiencies to more closely align that facility with our Canadian sites. The bar for recertification keeps rising, especially in Germany, and we are pleased to have recently been GMP certified for another 3 years. Having EU GMP production in Central Europe provides regulators and stakeholders the ability to depend on the same genetics and product consistency that we have in Canada. Let's now dive into a discussion on individual medical cannabis markets. Australia is our largest medical cannabis market outside of Canada, where we currently hold the second largest share. The Australian market offers one of the broadest ranges of product formats beyond North America, allowing us to fully leverage our diverse portfolio. Over the past 2 years, it has experienced rapid expansion, now representing a $1 billion market opportunity according to the Pennington Institute. Turning to Europe. Germany is the largest market and growing with expanding mainstream acceptance. We increased our revenue during the second quarter, supported by a broad set of core and premium products and are gaining share based upon our strong reputation amongst wholesalers, distributors and pharmacists. Imports, as reported by the German regulators has increased rapidly from 8 metric tons in 2018 to 72 metric tons in 2024 and is currently on track to more than double in 2025. The new German government is exploring changes to the descheduling of cannabis first enacted about 18 months ago with the potential for modifications to the current telehealth framework. We support reasonable access to high-quality medical cannabis and await further details of the proposal. We are confident in our ability to adapt to potential changes in the telehealth framework, drawing on our successful experience in Poland. However, modifications to home delivery regulations could present greater challenges, particularly for patients in rural areas. Ultimately, we believe that established operators with a proven track record like Aurora will be able to successfully navigate any potential regulatory changes. Germany is also carefully observed across Europe and its potential impact on neighbor European countries is significant. Let's now discuss Poland, where we are already the established leader in advancing medical cannabis. This market size has more than doubled from a little over 2 tons annually in 2023 to approximately 5 tons in 2025. Further growth is expected following the increase in the annual import limits. We generated robust revenue growth during the second quarter as we benefited from our launch of 2 proprietary cultivars a few months ago. To our knowledge, these are the highest potency medical cannabis products available in the country. We look forward to continuing to deliver a sustained pipeline of innovative, high-quality and premium products for the Polish market, all manufactured in our GMP-certified Canadian facilities. Poland's regulatory standards include a lengthy registration process, which has concentrated 80% to 90% of the market share in 4 cannabis companies, including Aurora. We have a dedicated commercial and regulatory team on the ground there focused on executing on our growth strategies while also maintaining solid relationships with the regulatory authorities, which has enabled us to navigate the shift in prescriptions from telehealth platforms to clinics. Our experience and expertise in the market have benefited us compared to others as we were better prepared to succeed in this evolving marketplace. Success in both Germany and Poland will influence surrounding countries. And as medical cannabis succeeds, more countries will establish their own frameworks. Our facility in Leuna, Germany and our regulator engagement across the EU represent differentiated advantages for us to capitalize on these opportunities. The U.K. is an exciting and growing market where we are expanding our distribution and clinic relationships through new partnerships and successfully launched proprietary cultivar-specific inhalable cannabis extracts, also known as vapes that are performing well. The U.K. permits products other than dried flower and oil, which has enabled us to expand the variety of high-quality medical cannabis available. There is also a strong subset of prescribing physicians and lighter competition in the premium and super premium segments where we operate. Let me now talk about other opportunities across Europe where there is already broad support for legalization of medical cannabis. In Spain, applications are very restricted, but slowly opening up, which we view positively. In France, we have partnered with the government since the start of its tender. A permanent medical framework is expected to take shape in 2026, and we stand ready to serve patients from day 1. Both Switzerland and Austria are now online, while Turkey and Ukraine are showing positive developments for medical cannabis as well. Interestingly, more than half of EU member countries are integrating medical cannabis into health care, including reimbursement. So the momentum is promising. These developments are leading towards greater international alignment on regulatory approaches, an obvious advantage for compliant EU GMP-certified companies like Aurora. Physicians and patients increasingly recognize and appreciate our medicinal quality, and our Leuna facility in Germany has provided us with the opportunity to host regulatory and governmental visits. Turning to Canada. We are #1 in medical cannabis and the largest provider to Canadian veterans. Net revenue grew year-over-year as we benefited from higher revenue from both insurance covered and self-paying patients. While the overall market is relatively steady, we have grown market share as we have benefited from investments in world-class talent, facilities and experience. Our priorities remain enhancing our online marketplace, product innovation and increased product assortment, operational excellence and, of course, ensuring a high-quality patient experience, especially for our veteran communities. To sum up, we are pleased to have reported yet another great quarter at Aurora that illustrates our steadfast execution of our strategic priorities. We feel confident about our future because we believe we are ideally positioned for profitable growth as the leader in global medical cannabis. Let me now turn the call over to Simona for a detailed financial overview of fiscal Q2, followed by a discussion of our fiscal Q3 outlook. Simona King: Thank you, Miguel. The profitable growth achieved in Q2 is a strong testament to the strength of our medical cannabis strategy and our consistent ability to translate vision into results. Let's review Q2 2026 compared to the prior year quarter and then discuss our Q3 2026 outlook. First, net revenue of $90.4 million represented 11% growth, supported by significant contributions from our global medical cannabis and plant propagation segment. Second, consolidated adjusted gross margin rose to 61%, 700 basis points higher, while adjusted gross profit increased to $51.8 million, a 22% increase. Both our global medical cannabis and consumer cannabis segments generated higher margins than the prior year quarter. Third, adjusted EBITDA grew 52% to $15.4 million from $10.1 million. And fourth, we ended the quarter with $142 million in cash and cash equivalents and no cannabis business debt. In medical cannabis, net revenue rose 15% to $70.5 million due to 22% growth internationally, combined with continued strong contributions from Canadian Medical. Medical cannabis comprised 78% of net revenue compared to 76% in the prior year quarter and approximately 94% of adjusted gross profit. Adjusted gross margin for medical cannabis was 69%, up from 68%, driven by increased revenue in higher-margin international markets. Consumer cannabis net revenue was $6.9 million, down from $10.4 million. The year-over-year change was the expected result of our continued decision to prioritize sales to our higher-margin medical cannabis business. Adjusted gross margin for consumer cannabis was 27% compared to 15% in the prior year quarter. The margin increase was due to sales of higher-margin products and cost improvements through spending efficiency. VIVO's plant propagation net revenue increased to $11.6 million, up 34% from $8.6 million in the prior year quarter. This improvement is due to higher orchid sales, which is an exciting and evolving market in North America that offers strong margins. Adjusted gross margin for plant propagation revenue was 10% compared to 19% in the prior year quarter. This decrease is from costs incurred related to inventory write-offs caused by nonrecurring quality issue as well as some surplus crops that were not sold during the first quarter of fiscal 2026. Consolidated adjusted SG&A increased 12% to $35.5 million compared to the prior year quarter and supported year-over-year net revenue growth of 11%. The increase relates to higher freight and logistics costs, notably from increasing sales to Europe and investments in our commercial teams in Europe and Australia. Adjusted EBITDA increased to $15.4 million from $10.1 million. This 52% improvement from the prior year quarter was due to a substantial increase in gross profit resulting from higher net revenue before fair value adjustments required under IFRS. Adjusted net income was $7.1 million compared to $3 million in the prior year period. The improvement relates to an increase in an adjusted gross profit before fair value adjustments of $9.2 million, partially offset by an increase in adjusted SG&A of $3.8 million. Our balance sheet remains one of the strongest in the global cannabis industry. We held $142 million in cash and cash equivalents as of September 30, and our cannabis operations are completely debt-free. Our plant propagation business holds nonrecourse debt that is secured by a significant fixed asset base held at VIVO. Free cash flow was negative $42.3 million compared to negative $26.4 million in the prior year quarter, reflecting the expected cash outflows that typically occur in the second quarter of the fiscal year as referenced in our last earnings call. Let me now provide some thoughts on what we expect for Q3 2026, which ends on December 31. Consolidated net revenue is expected to increase year-over-year, driven primarily by 8% to 12% growth in our global medical cannabis segment. Plant propagation revenue is expected to perform in line with traditional seasonal trends as 25% to 35% of revenues are normally earned in the second half of the calendar year. Consolidated adjusted gross margins are expected to remain strong, driven primarily by industry-leading margins in our cannabis business with plant propagation adjusted gross margins expected to mostly perform in line with historical trends. Continued strength in our adjusted gross margins and higher global medical cannabis revenue should lead to year-over-year annual adjusted EBITDA growth. And finally, free cash flow is expected to be positive in Q3 2026 due to continued strong performance and improved operating cash yield. Thank you for your time. I'll now turn the call back to Miguel. Miguel Martin: Thanks, Simona. The global medical cannabis market is expected to exceed $9 billion, and we have built a strong competitive position around the world based upon our proven commercial execution, combined with our regulatory and scientific expertise. Our near decade of investment and march to profitability has given us a considerable head start in fully capitalizing on this opportunity. We are fully committed to strengthening our leadership position in Canada, Europe and Australia through consistent revenue generation and positive adjusted EBITDA growth. These advantages are the building blocks to enhance long-term value for our shareholders. We look forward to sharing further developments and strategic plan updates with you. Operator, please open the lines for questions. Operator: [Operator Instructions] Your first question comes from Bill Kirk with ROTH Capital Partners. William Kirk: Miguel, you talked about the previous goal of 60% medical gross margins and obviously, how you're running well above that at 69% recent quarters. What do you think a realistic goal is? And I guess, why are the margins structurally better than you expected? Is it less competition than you envisioned? Is it better demand for your offerings? Or is it maybe surprises in the cost to produce? Miguel Martin: It's a bit of all of the above. So let me start where you ended. Our production costs continue to go down. Yield in genetics and what we're getting out of our facilities has created an advantage. I think the second part is increasingly business outside of North America or in Europe or in different parts of the world where you do have higher margins. Now the discrepancy between the target and where it's at, we do see different markets getting a little bit more expensive, whether that's funding for partners in the distribution network or telehealth or even on the clinic side, where I see some investments. But I think it's a mix of all the above. And then lastly, and you did mention it, is execution. We are finding efficiencies in our execution using common medicinal cultivars around the world, gives us production efficiencies. The execution that we have of similar execution, say, in Poland, Germany and the U.K. creates some efficiencies. So I think all of that comes together for these industry-leading margins. William Kirk: And then you mentioned the production assets in Germany as an advantage. Right now, are you enjoying those advantages with competitors maybe having some difficulties getting some product through Portugal into Germany? And I guess, what's the status of some of those delays and investigations that folks are experiencing in that route to Germany? Miguel Martin: Yes. I mean the first thing is, as you mentioned, Germany is a very difficult place to get certified product into and increasingly so. So it's an EU GMP standard with audits. We just had ours, as we mentioned, so we're good for 3 years. Others have had different issues. I'm not here to sort of speak negatively about that situation. I can tell you, though, that our Canadian facilities and the German facilities that are certified are solid. That vertical integration that we have, growing the vast majority of the products we sell in certified EU GMP facilities creates an advantage for us. I mean there's no disruption. And as we mentioned in our comments, is lost, this is medicine. And so for patients and practitioners, they value that consistency of high-quality certified supply. And more and more so, so are the regulators and other key stakeholders. So I think that advantage is going to continue to grow for us and not only be in Germany, but also be in other markets. William Kirk: And if I could sneak one more in for Simona. There was a big drop in accounts payable in 2Q from 1Q. And as far as I can tell, it's the lowest absolute level in a long time. So why the change quarter-over-quarter in accounts payable and why so low? Simona King: Yes. Thank you for the question. And typically, what we see in Q2, a lot of the outflows, cash outflows occur in that quarter as a result of various activities that historically have occurred in Q2. So that's the reason that the accounts payable has gone down. And again, this is in line with historical trends that we generally see in the second quarter of the fiscal year. Operator: Next question, Frederico Gomes with ATB Capital Markets. Frederico Yokota Gomes: First question is on the proposed change to the budget in Canada regarding the, I guess, the price ceiling for reimbursement for medical cannabis veterans. So how do you see that? What could be the impact to your business in Canada? Miguel Martin: So let me first say that this came out last night, but we're disappointed that the federal government has proposed these changes without consultation from the cannabis industry or medical cannabis companies like Aurora. Importantly, veteran patients depend on a clinically supported system that ensures for them safe, consistent access to their cannabis medications. Lowering and this potential lowering of the reimbursement rate puts that entire support system at risk, could disrupt continuity of care, clinical oversight or even push patients to higher-risk alternatives. So given the newness of this announcement and really the uncertainty of the timelines of implementation and lack of consultation, which hasn't happened yet, we're in the process of evaluating the impact and our next steps, and it would be premature for me to comment. But it's early days. It just came out last night, and a lot is going to happen until we see where this lands. Frederico Yokota Gomes: Perfect. I guess one other question. Did you see any impact in Germany regarding that period in which I think they halted the cannabis import permits there because they had reached their quota. Did you see any impact in the market, or for Aurora specifically? And secondly, just to follow up on Germany. Could you comment on price compression in that market? Miguel Martin: Yes. I mean, so what you're referencing is that the German government had hit their import limit and they had to get -- which is very common, and it happens throughout the year as they want to raise the overall limit. And so it was about a 3 or 4-week process. Didn't disrupt us. We have a great relationship with the regulators and the staging of our permits for that market were fine and started back in January, it will go back to the higher number and everything should be there. I can't speak to others. In terms of pricing in Germany, like a lot of markets, we're seeing compression mostly on the value side. And so we operate mostly in the core and the premium piece and so baseline pricing for where we operate really hasn't been that affected. Now as I mentioned with Bill's question, with the implementation of telehealth and some other sort of aspects of that distribution chain, there are some additional costs that are coming in on that side. But overall, we've been pretty happy with the way the pricing has landed for core and premium products. Operator: Next question, Derek Lessard with TD Cowen. Derek Lessard: Congrats on a very solid quarter there. Miguel, just a question on the German investment that you recently announced. Curious what you're seeing in the market that led to that decision. Miguel Martin: Yes. I assume you're talking about the Leuna production facility? Derek Lessard: Yes. Miguel Martin: Yes. So we've got 2 very large EU GMP facilities in Ontario. We built a facility in Leuna, Germany. And for indoor GMP, similar genetics, similar setup to what we do in Canada. We've been really happy with it, and thus, the announcement to double production. Even with a bit of higher energy costs, it's still a very compelling proposition to have that facility straight up producing. So we added upgrades to very innovative lighting and irrigation systems to mirror what we're doing in Canada, again, being able to use the same world-class practices and genetics in that facility, doubling the overall production in there. And importantly, having an EU GMP certified modern indoor facility in Mainland Europe has been great. We've had delegations from countries that are in the cannabis system. We have had delegations from countries that are not in the cannabis system. Regulators and a lot of other key stakeholders visit that facility, and it's been very additive for us. And so we like it. It works as a stand-alone production facility, but it works even better as sort of a showcase of everything that we're doing in that key market. Derek Lessard: Okay. And maybe just one question on Australia. It looks like sales were a little bit softer in the quarter. Can you just maybe talk about that? Miguel Martin: Yes. So Australia is the only market we have where a majority of our sales are in the value segment. And that goes back to the history of the company before we bought the remaining 90%. And the majority of those sales were in a concession system for value products. That's a market where it's been inundated with a lot of value products. And so that's had a bit of an impact on our business there. We are transitioning that market to the same world-class core and premium products we sell everywhere else, and we're very bullish on that. But it's going to take a little bit of time before that portfolio is properly allocated to value being a smaller segment and into core and premium. We're still very bullish on it. It's the biggest market outside of Canada. There are advantages there because you can sell other formats beyond flower and oil, and we've launched edibles and some other things there. So we're bullish on it. It's just as we work through this transition in the portfolio, there's been a little bit of pressure. Operator: Next question comes from Pablo Zuanic with Zuanic & Associates. Pablo Zuanic: Miguel, 2 questions related and the same type of question related to the U.K. and Poland. I think you said you're the market leader in both markets. Do you need to invest downstream there? For example, buying clinics or online pharmacies or brick-and-mortar pharmacies in the U.K., it seems that that market is forward integrated like Australia, and that may be necessary to win in that market. But correct me if I'm wrong. And in the case of Poland, is downstream integration even a possibility or the regulations do not allow that? If you can talk about that, please. Miguel Martin: Sure. We're not the market leader in the U.K., just for clarification. We're one of the top companies, but not the market leader. Let me talk about Poland first. So Poland, we are not allowed to be the wholesaler or distributor. So we can be the manufacturer. There are some companies that also own or have relationships with clinics. As the telehealth system in Poland changed, clinics became very important. And so we partner with clinics, and we continue to look at that. Each and every market, we do look at do we need to own pieces of that vertical structure or can we partner? And there are a lot of great partners out there that want premium, high-quality products from Aurora. So we have a lot of advantages in being able to do that. So right now in Poland, we're the manufacturer. We've got a very substantive team on the ground from selling to prescribing physicians, and interacting with key stakeholders. We are not the wholesaler, and we work with clinics. In the U.K., similar situation. To your point, clinics are very important as a way to onboard and connect with patients, both those coming into the system. So today, we produce the products. We have a very strong network of partnering with wholesalers that's actually expanding. And we have a network of clinics that service it. If it looks like there's an opportunity to change that and actually acquire one part of that vertical, we will. But in some cases, you don't want to compete against your customers. And so I think you sort of have to be careful. But we're very flexible. We have different models in different countries depending on what works for us. Obviously, by our margin structure and the results, it's working, but we stay flexible. Pablo Zuanic: That's good color. Look, I mean, just a follow-up in terms of the timeline for the potential changes in Germany and Australia. In the case of Germany, the way I understand it, the cabinet already approved the changes that have been proposed. Now that has to go through parliament. What's the timeline there? How long could that take? And the same question regarding Australia, the TGA is going through a consultation period. How long could that take? I'm not asking in terms of how things play out, but what are the key milestones that we should be looking for? Miguel Martin: Well, I mean, it's a proposal in Germany from the Health Minister, needs a lot of alignment from a lot of different constituencies. So in terms of timing, we'll know more at the end of this month in terms of what gets put forth. There's going to be a lot of debate on it. So you're going to go into the spring until you know anything about where that's going to land. As we've talked about, there's 2 parts of it. The first part has a lot less impact, which is a change in the telehealth components, not dissimilar to Poland. The second component potentially around the prohibition of delivery of these products, which is completely contrary to how all other medical products are delivered and the impact to rural patients, that's going to be the more controversial one. So we'll see, but end of November, then into the spring in terms of Germany. In Australia, there really isn't a timeline. You've got 2 regulatory agencies that are looking at a variety of different things. I will say we recently saw an interest by the regulatory authorities in Australia to start testing products and looking at some of the adulteration that may be happening in that market to these medical products, and as a company, takes the regulatory responsibilities and production responsibilities seriously, we look forward to that. So Australia is a little bit more open-ended, but you're not hearing things that would have, say, the same impact on the prohibition of delivery through the mail like you hear in Germany. Operator: I would like to turn the floor over to Miguel for closing remarks. Miguel Martin: Well, listen, we're really excited about communicating this quarter to everyone and sharing the work that we're doing. And obviously, we'll continue to do that. We want to thank everyone for their interest in Aurora, and we wish everyone a great day. All the best. Operator: This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.
Unknown Executive: Thank you very much for attending the briefing session by Eisai Company Limited. We will now begin financial results and business update session by Eisai Company Limited for Q2 fiscal 2025. Today, this is held in hybrid format combining in-person attendance and virtual attendance. For those attending in person, we have distributed flash report financial results and deck of slide presentation. Those of you who are participating virtually, please download these materials from the website. The presenter today is Mr. Haruo Naito, Representative Corporate Officer and Chief Executive Officer. Mr. Naito, CEO, please. Haruo Naito: Let me begin our presentation for the first half of FY 2025. So let me look at the results for the first half. As you see at the very first bullet point, inorganic business of us. Pharmaceutical business has shown steady growth in profits as well. Most of the profits are from the frontline business, which is Pharmaceutical business and we could achieve increase in both revenue and profits. I believe that that is the most important point that I wanted to share with you today. And regarding our forecast for the full year results, I believe that there are various opinions. So when we see the stock price trend after announcement, I was disappointed. However, I believe that there are some requirements for the second half that is written in the second bullet point. Anti-Tau antibody and narcolepsy treatment, these are the 2 next generation neurology area promising projects of Eisai into which we are making investment of resources into this because clinical trials and studies are now reaching the peak. And on top of that, there are structural reforms in Europe and in line with such structural reforms, there will be various expenses to be incurred. Therefore, we do not intend to revise the full year forecast. So we did not make any revisions to the full year forecast. In the red box, revenue was JPY 400 billion. Compared to the previous year given the stronger yen trend, we could achieve about 4% increase in revenue year-on-year. And as I said earlier, in the next line Pharmaceutical business revenue JPY 393.3 billion is shown here. And most of the JPY 400 billion in revenue was generated from our organic business. Cost of sales, given the impacts of domestic drug price revision and changes in the product mix, were offset and the cost of sales was managed within the planned range. Gross profit was increased by about 3.0 percentage points from a year earlier. R&D expenses accounted for 18.9% of the revenue. Therefore, R&D expenses were managed under 20% of the revenue. We were able to manage these expenses as such. One of the reasons for this was the clinical study expenses for LEQEMBI have peaked out, which have started to show decline and in the previous year, there were some restructuring including the headcount reduction. Therefore, R&D expenses ratio to the revenue was controlled within 20%. Now for SG&A expenses increased by 3.6%. As you see below this line, Lenvima grew very steadily. Therefore, expenses regarding shared profit of Lenvima paid to Merck increased and SG&A related to R&D. We are still in the phase of increasing the resource investment into the LEQEMBI. Therefore, operating profit was JPY 34.4 billion, which has shown the significant increase of 23.6% from the previous year. And operating profit estimated for the full year is reported to be JPY 54.5 billion and most of which is going to be generated from Pharmaceutical business. So in other words, the profit structure of Eisai has shifted to be more dependent on the organic business in order to increase and record profits and we have started such a transformation of our profit structure during this first half in this fiscal year. The Pharmaceutical business is grown by 3 global brand products. LEQEMBI, which has grown 153% year-on-year. We believe that this was a significant growth. It's about 2.5x the size recorded last year and details of this will be explained later. And for Lenvima, in main markets for us in the United States, there was a negative impact of Inflation Reduction Act. There were some suppression caused by this act, but this negative impact was offset and for all the cancer types we were able to grow Lenvima business. Therefore, Lenvima has been able to maintain its growth so far. And Dayvigo as well, the impact of drug price reduction in Japan was offset and 15% growth was shown. Now looking at the breakdown of changes in operating profit, JPY 27.8 billion last year. Gross profit increased JPY 9.1 billion. R&D expenses, because of the reasons I mentioned earlier, was controlled better by JPY 6.2 billion. SG&A expenses increased JPY 7.1 billion thus reducing the operating profit. And other income and expenses include some changes from the previous year, therefore, recorded minus JPY 1.7 billion. And we recorded JPY 34.4 billion operating profit, which was 8.6% operating profit margin. Today, I would like to focus on LEQEMBI, but I prepared just 1 sheet of the slide for Lenvima. Since its launch, 10 years have passed and it has been approved in 81 countries and marketed in those countries and already we have been able to contribute to 580,000 patients in the world and it has been indicated for 7 indications in 5 cancer types. And due to the favorable court decision and settlement agreements to resolve litigation of the high-purity patients in the U.S., generic versions of Lenvima will not be launched until July 1, 2030. As you see, JPY 166.5 billion was the total revenue. But you can see in this pie chart, sales by cancer type is shown here and the largest revenue is generated from the indication of RCC, which has been the driver of growth. For RCC, there are 2 studies which have been conducted together with Merck, LITESPARK-011 study and LITESPARK-012. With these 2 studies, the top one is for second line of RCC, Lenvima with belzutifan, Merck's anticancer treatment combined with Lenvima and the primary endpoint was the extension of a progression-free survival. This primary endpoint was already met. And together with regulatory authorities, including FDA, discussions for preparation of the potential submission have begun. And the bottom one is the first-line trial for RCC and this is based upon the assessment variation of the treatment pembrolizumab, KEYTRUDA was added to the above mentioned combination and with the same regimen conducted in the first-line study for RCC. And compared to that, favorable results were obtained and ESMO was the place where the results were published. And these studies are ongoing steadily in this expansion of the label based upon this base RCC indication. So we believe that this is going to be very positive factors for further driving the revenue. LEQEMBI has been recently approved in Canada. Therefore, LEQEMBI has been approved in 51 countries and territories. So the requirements to be the truly global product have been met through building such a foundation. For us, we understand that Alzheimer's Disease is a progressive disease and may be potentially fatal disease. Therefore, removal of Abeta plaque is confirmed through amyloid beta PET, but it is not the end of a treatment and the neurodegeneration process will continue and the cognitive decline will continue. That has been shown by data. Therefore, for this kind of disease, the early initiation of treatment and maintenance of treatment should be continued and that is the key to treat such disease. That is the key point that we have been continuing to have in our mind and I believe that this has expanded the basis for this treatment. As you see, the administration methods are shown at the bottom. During the first 18 months after initiation treatment was started, the IV once every 2 weeks are provided and after that, maintenance treatment period will be started. In the past, there was only 1 option to dose through IV once a month. But this time, LEQEMBI IQLIK self-administration method is approved and launched with a great option of once a week dosing. Therefore, it has made maintenance treatment much easier through the launch of LEQEMBI IQLIK. Now value proposition by LEQEMBI is being enhanced. Regarding administration period and dosing, as I said earlier, in the genre of maintenance treatment that has been cultivated by LEQEMBI. And when it comes to safety, particularly incidence of ARIA, based upon the real-world data in the United States and also Japan's all case surveillance, including over 10,000 patients. Based upon such a large scale data, the incidence of ARIA and the severity or seriousness of ARIA are all within expectation described in label. So we did not belittle the importance of ARIA. However, based upon this safety data, we believe that ARIA can be manageable. That has been confirmed. And now if you turn to efficacy aspect. Above all, Clarity AD has been conducted during the open-label extension study for 4 years and CDRSB difference against placebo over 48 months and this is the difference from the reference of ADNI and CDR difference has been expanded to 3x or 4x. So toxic substance is shown to being removed through disease-modifying effect of this drug in your brain. That has been shown by this data and AIC was the place the U.S. real data, 2-year real-world data was shown and 8.8 out of 10 was shown in terms of satisfaction score and 87% of the patients were continuing LEQEMBI treatment and 84% of patients had not progressed to the next stage of the disease. Such very quite robust data results were obtained from this real-world evidence. And in the daily lives, how cognitive function has been maintained or improved. Humanized message was utilized in order to show that in an easy-to-understand manner in explanation to patients. Now you can see here the first half results in revenue of LEQEMBI. Please look at the very bottom line. JPY 41.1 billion was recorded as the global revenue, which was 153% of the result recorded in the previous year. As we have been reporting to you, in China due to the geopolitical risk, the stockpiling for the period until the end of this calendar year. By the end of December, distributors have purchased to secure the inventory up until the end of calendar year. Therefore, JPY 7.7 billion was recorded in Q1. And in parenthesis, you can see the actual demand excluding such stockpiling by distributors in China are recorded and JPY 2.7 billion was recorded in the Q2 and the JPY 5.1 billion in the total first half. So considering all this, JPY 38.3 billion was recorded based upon the China's actual demand basis. Even with this 135%, very high growth ratio was recorded from a year earlier. In all regions, high growth were recorded exceeding plans for all regions. And JPY 76.5 billion has been shown here as the forecast for full year and our progress to date against this forecast exceeded 50%. Therefore, we are deepening our confidence in achieving this full year forecast. Now turning to LEQEMBI IQLIK. I have brought this with me here. This was the first ever commercial unit produced. This is the real thing, real product, very valuable products. I would like to decorate this in frame or box in my office. So this is the memorable and commemorative first-ever products and this was launched on October 6 this year. And what are the benefits for patients? First, the patients or care partners are able to administer at their home within approximately 15 seconds or so on the average and they don't have to drive or visit the infusion centers in person. We believe that this will be a great benefit for them. For medical institutions, on the other hand, they don't have to do a lot of monitoring or preparation for IV infusion, securing [ chairs ] or monitoring by nurses or health care providers involved in the administration. These medical resources can be reduced. This will be a significant saving and they will be able to expand the capacity to accept new patients. At the time of launch, we started the LEQEMBI Companion program. LEQEMBI IQLIK is to be covered under Medicare Part D. The reimbursement shall be conducted by private insurer. Although they are still under the supervision of CMS, but private insurers will be in charge of reimbursement and private insurers have set the cycle of formulary introduction at 15 months. Therefore, in January 2027, the formal formulary will be putting this LEQEMBI IQLIK on their list and there is a program called the Medical Exception Process in the meantime until the IQLIK will be put on the formulary. So under this Medical Exception Process, the reimbursement can be allowed and this has been used widely in the United States and this process will be applied to LEQEMBI IQLIK as well. Information and support related to this process are provided by our area reimbursement managers and nurse educators are providing in-person or online support to patients for dosing and providing demo kits for dosing training. This is the demo kits. And 4 weeks have passed since launch and IQLIK initial delivery has been conducted at 34 facilities in the U.S. and demo kits for administration training were provided to 341 facilities and they have started preparations for use. And Medical Exception Process, under which I believe that most of the patients have applied for this and we anticipate a smooth reimbursement process to be conducted under this process. So as regards to the reimbursement for LEQEMBI IQLIK, we do not have any concerns and we believe that the reimbursement process will be smoothly conducted. Regarding initiation treatment for IQLIK: during the first 18 months and submission for this initiation treatment has been started in the United States and a rolling submission process has been utilized. And the last such submission will be conducted in December this year. And we were expecting to receive priority review status if that is approved and then in 6 months approval may be provided in first quarter of FY 2026 for both for initiation treatment and maintenance treatment. For both periods of treatment, LEQEMBI IQLIK may be utilized before dosing. So that is approaching. And in Japan, we are prioritizing the submission for the initiation treatment for SC-AI. This will be conducted by the end of this December. On the right hand side, you can see that this IQLIK has been selected by TIME Magazine as one of the best inventions of 2025. Now another topic I would like to talk about is the confirmatory tests using BBM in the United States. There has been a significant advancement during the past 6 months. In July, AIC was held in Toronto, Canada. Alzheimer's Association of the U.S. put forth BBM Clinical Practice Guideline. And BBM tests with 90% or higher sensitivity and specificity can be recommended for confirmatory amyloid beta diagnosis. That has been proposed and published through this guideline. And Fujirebio's BBM was approved before this. Based upon the composite score, this BBM was granted the IVD clearance and this achieved the above criteria of 90% or higher sensitivity and specificity. Under this practice guideline, Fujirebio's BBM is now allowed to be used as confirmatory diagnosis. LabCorp and Quest Diagnostics or other leading clinical laboratory companies in the U.S. have introduced this as a test item. Therefore, confirmatory testing has been started utilizing this BBM. C2N as well, based upon different methodology, submitted FDA regulatory filing for BBM. And CMS for Medicare, a new national payment rate of $128 per test for BBM has been decided and it will be applied as effective from January 2026. That has been already announced. We believe that this will drive the use of BBM further as a tailwind. Currently, already for amyloid beta confirmatory tests, about 10% of such tests are estimated to be conducted utilizing BBM. Outside of the box, triage test. Roche BBM using pTau-181 was granted IVD clearance. This is particularly for PCP, primary care physicians, who may use this for triage. Now I am showing rather complicated diagram I'm afraid, but I would like to use this for explanation. What I would like to say is by introduction of BBM test, amyloid beta test particularly confirmatory test, and how the number of such tests and the number of positive cases will change up until FY 2027. Rather based upon the robust data, we would like to present our estimates. First of all, please look at the bottom blue line, solid line. This shows the number of amyloid beta confirmatory tests based on BBM. This shows the trend of increase in the number of such tests. If you look at FY 2025, as I said earlier, about 10% of the confirmatory tests is being conducted using BBM. And then over '26 and particularly after 2026 with higher likelihood, the BBM-based confirmatory tests are expected to increase. And next, please look at the orange solid line. This shows the number of amyloid beta confirmatory tests using PET and CSF only. So during FY 2024, PET and CSF were the only approaches for the amyloid beta confirmatory test. So this shows the trend of number of such tests based upon the conventional methods. And once the BBM confirmatory tests are launched and then orange line, the curve will be less steep. And the purple solid line shows the number of amyloid beta confirmatory tests of all 3 methods: PET, CSF and BBM. The total number of confirmatory tests are shown. And above that, if you look at the red solid line, preclinical triage utilizing the ones like Roche's BBM. And the total number of BBM tests is shown here for both triage and confirmatory tests and this has shown an exponential increase. Based upon this, if you look at the pink bar first, the pale pink bar shows the amyloid beta the confirmatory test. The total number shows for 2024 only PET and CSF were used and in 2025, the BBM is added and going forward, the number will increase. And the pink arrow shows the number of amyloid beta positive cases, which is expected to be increasing. And the number of confirmatory test as well as the positivity rate are also considered to be increasing. And the positivity rate was 50% in 2024. But in 2027, it's expected to be reaching 80% as positivity rate. Why? In triage or prescreening, BBM will be used and the PET CSF positivity rate will be between 50% to 70%. And then that is the 1 step to increase the positivity rate. And BBM confirmatory test becomes available and then for example PCPs will be able to utilize this for diagnosing and ordering the test and the results of the test will return it to them and their proficiency will be enhanced. Before ordering the confirmatory test for BBM, the confirmatory test precision for the cognitive function test will be increased. So their proficiency level will be enhanced based upon this and the positivity rate is expected to reach 80% or so. So amyloid beta cases will increase significantly and actually, there has been quite a high correlationship between this numbers and growth rate of LEQEMBI. I believe that this is another evidence to show that LEQEMBI is expected to grow further towards FY '27. The other day we've presented that there are 3 options for modified AD continuum that only Eisai can deliver. I would just like to share with you once again the gist of this. First, with the current LEQEMBI, suppression of cognitive decline after AD onset. The biggest characteristic here is long-term administration. We have 48-month long-term data. Efficacy was demonstrated and expansion of efficacy was demonstrated. Why is that possible? It is shown in the third bullet point. There is low immunogenicity neutralizing antibody incidence of lecanemab. This allows for long-term administration. Because of this advantage due to property, it is possible to suppress cognitive decline after AD onset. And before MCI, the earliest stage, preclinical AD or stage is tested in the trial. As shown in the middle, the biggest characteristic of our trial is shown in the second bullet point. Pure preclinical AD patients are selected. Global CDR is 0 not 0.5, but 0. Abeta accumulation is measured with Abeta PET, it is greater than 40 centiloid. This is preclinical AD as determined under the guidelines. These patients are selected in this trial. That is showing the precision and accuracy of a preclinical AD trial. This duration of a preclinical AD stage is very long. So low immunogenicity and neutralizing antibody incidence can be utilized for long-term administration. And the final bullet point, data endpoint is PACC5. Preclinical AD clinical conditions or symptoms are most precisely reflected in PACC5. Such endpoint is used. And this is also based on the guidelines determined by FDA and EMA. And therefore, this is very legitimate. For regulatory purposes, we have conducted a Phase III study. That is the characteristic of AHEAD 3-45 Study. And finally, combination with etalanetug. This goes without saying that there are 2 major pathologies of Abeta and Tau. We are able to approach both. This is a treatment that is epoch making in that sense. We are aiming to maintain cognitive function after AD onset. This cannot be done by anyone in the world. No one can come near us. This is the unique option that is available from Eisai. Etalanetug has obtained clinical proof of mechanism with DIAD population. 202 Study with sporadic AD is enrolling patients steadily. Biomarker is used mainly for optimal dose and target population, biomarker evaluation is used mainly. This is a study design, which is quite epoch making in that sense and first data readout is expected in fiscal 2027. As for preclinical, data readout from Phase III is scheduled for fiscal 2028. Preclinical AD, what is preclinical AD? This shows the summary concept. Early AD is shown on the left, prevalence is 240 million people. That is the estimated prevalence. A large number of people are estimated to have early AD. Preclinical AD and in order to calculate people who are eligible for AD-DMT, we use a Phase III study criteria and number of patients eligible for AD-DMT is estimated to be 2.3 million people. What I'm trying to say is that we also have a very large potential market in preclinical AD. It is quite near us. In addition to early AD, there is a huge market potential of preclinical AD, which is right in front of us. Now nationwide in the United States, National Education Program is being held, 1,000 people participated. Shown on this photograph, the left 2 are patient and family, they are smiling; and 3 people on the right side are U.S. leading AD experts. We have a very large volume of data and they were confirmed once again. We also have IQLIK, a breakthrough administration method. These were discussed in this program with many people responding actively. On the right side, this is a medical program. This is on the concept of smoldering Alzheimer's disease. AD continues to smolder. Plaque removal is not the end of the story. Toxic species continue to increase. Continuous treatment, therefore, is necessary and such campaign is continued. Another major initiative is targeting PCPs, primary care physicians. Primary care physicians are very important. Many MCI patients first visit PCPs and there should be correct diagnosis and speedy referral to the specialists in order for treatment to start. So in the second half, PCP specializing representatives are assigned. 3,500 targeted PCPs are the primary targets. The key message is shown as an example on the right side. This is the cover of the brochure. Early referral can mean early intervention with LEQEMBI. Early referral to specialists and that would mean early intervention with LEQEMBI. That is the message. And therefore, PCPs will have to be able to quite accurately diagnose MCIs and refer patients to nearby IDNs, which is a group of clinics with a number of specialists. There should be quick referral to such institutions. We would like to help PCPs by establishing a standard procedure for referral and IQLIK and BBM developments will also be a strong tailwind. For similar purpose to promote treatment, we have a targeted DTC TV campaign. This is not a normal TV campaign, but it's targeted. Who are the targets? Early AD diagnosed patients. These patients are not taking the next steps such as the tests or informed consent. That is understood to be the case. So targeted DTC TV campaigns were conducted. We were able to see good results in the first half. We will double the effort so that there will be next steps taken by the patients to move on to informed consent and actual infusion. This campaign has already started. In other markets, we are also seeing good progress. In Japan initial introduction, there are 800 initial treatment facilities and there are 1,600 follow-up facilities. 800 initial treatment facilities will be treating for the initial 6 months. And as shown in the middle of this, we have done TV campaigns to increase awareness of the disease. About 1 in 3 of Japanese population is aware of MCI now, what MCI is as a disease. Such disease awareness initiative campaigns effects are shown. This is wonderful. And 330,000 have visited specialists and close to 30,000 have received Abeta tests. The speed of referral from PCPs to specialists has also increased by about fourfold. On the right side, LEQEMBI in China. Yin Fa Tong through collaboration with JD Health is a digital platform for promoting visits to clinicians and diagnosis and follow-up. Yin Fa Tong is now used by 620,000 people and cumulative consultation number is 26,000. Digital means it is used to build the pathway and much progress is seen. And next bullet point is extremely important. In China, currently we are focusing on self-pay market. Towards the market with self-pay patients, we are promoting. But for true expansion, it is important to be listed on the NRDL. The Chinese government recently decided to leverage private commercial insurance for innovative drugs. Such a new scheme is being introduced or proposed by Chinese government. We would like to respond to this and in China, we would like to improve our access to very huge market in China. As for Europe: LEQEMBI in Europe. In Germany and in Austria, we were able to launch very smoothly. In Germany, the drug is reimbursed at discretionary price. In Europe, commercial and medical activities. The first bullet point it mentions CAP, controlled access program, is obligated in all European countries by the authority. And what needs to be done here is that prescribing doctors and prescribing facilities have to satisfy certain conditions as prescribed under CAP. So satisfying doctors and facilities need to be registered and LEQEMBI can be prescribed in these registered facilities. That is the scheme. 350 facilities, 420 doctors are registered in case of Germany. Number of facilities registered and number of doctors registered, there is no limit for LEQEMBI. There has to be prior registration for certain products. In that sense, large clinics and specialists are starting to prescribe smoothly. And I have 3 more slides before I end. Eisai's mission in AD is to make AD diagnosis and treatment familiar for patients and encouraging them their standardization and widespread adoption. IQLIK and BBM are the potential 2 innovations to achieve this. This example was seen in rheumatoid arthritis. BBMs appeared, major disease-modifying drugs instead of IVs were made available, SC-AI formulation emerged leading to a major transformation. So this could be repeated. We see great potential in both early AD and preclinical AD. With that, I would like to conclude and thank you very much for your kind attention. Unknown Executive: We will now move on to Q&A session. We will be entertaining questions from analysts and investors before entertaining questions from the members of the media. If you have question, please give us your name and affiliation before your question. If you have a question, please raise your hand. Hidemaru Yamaguchi: My name is Yamaguchi. I'm Citi. I have a question about the performance and the actual results as you explained at the outset, but there are still others. And if you include that number in the revenue generated from other businesses than Pharmaceutical business and I believe that if you add that number, then there will be further upside to the second half. But inclusive of that considering the restructuring in Europe and also R&D so the upside will be used for those expenditures. But inclusive of that potential upside, there are still uncertainties. That's why you have kept your full year forecast unchanged. Haruo Naito: The first one, the onetime is going to be offset by onetime factors. So actual revenue from organic business or profits, JPY 54.5 billion. That is the number that we believe that we are going to approach. Hidemaru Yamaguchi: So JPY 54.5 billion is the number that you are going to keep as it is. Haruo Naito: But under this number, the most will be brought about by the organic business. I see. Then the shortage not depending on the onetime factors. Hidemaru Yamaguchi: Understood. On Page 11, I was interested in this diagram. I have 1 question. The total number of tests increased and hitting rate or positivity rate. So these are the 2 functions and how these 2 are going to play out? Could you please give us the dynamics? Haruo Naito: For your question, Mr. Toyosaki is going to respond. Hideki Toyosaki: I am in charge of medical affairs in the United States. My name is Toyosaki. In FY 2024, we have taken this data from the claims data. And for FY 2025 this year, similarly based upon the claims data, amyloid beta tests and number of BBM tests and the positivity rates that has been already confirmed to be increasing. This trend of increase is one thing and on top of that, as has been explained in presentation with the spread of BBM, there are several positive events. First of all, clinical practice guideline was published and based upon certain criteria, there has been a recommendation to use BBM as the confirmatory test. Fujirebio's BBM has been granted the clearance. Therefore, there are requirements that have been met by the BBM. And LabCorp and Quest and leading laboratory companies have added this in their menu of the testing. And in January next year, the CMS national payment rate will be applied and about $130 per test will be applied throughout the country and BBM reimbursement will be consistently applied. These events are being conducted and happening in the United States one after another. So considering this, first of all, the use of BBM as confirmatory test will significantly increase. And for PCP, the triage BBM tests have been granted from Roche. Therefore, not only for neurologists, but also for PCP, the test of BBM as a triage will be increasing. And in 2027, we believe that there will be such an increase in the number of BBM-based tests. Seiji Wakao: I'm Wakao from JPMorgan. First question is about returning to ROE of 8% for next year. That is the target and could you elaborate on this? Up to second quarter, the actual business is performing very well. So ROE of 8% level to be achieved, I believe you are making positive progress. So how do you see the situation currently? Having said so, in the next fiscal year, would you require sales from other businesses? Pharmaceutical business is performing very strongly. So with major products, do you expect to be able to achieve 8% return on equity? Haruo Naito: That question will be addressed by Mr. Iike. Terushige Iike: Thank you very much for your question. This is Iike speaking. Last fiscal year and the fiscal year before that in the so-called other businesses, operating profit was about JPY 40 billion. And we wanted to wean ourselves from relying on that and so that is what we are seeing in this fiscal year. In this fiscal year, as CEO mentioned, especially in the second half we are planning to make expenditure in structural reform mainly in Europe. There were more reliance on onetime factors in the past 2 fiscal years. But without relying on these onetime factors, we want to achieve the figure as we informed in guidance. LEQEMBI in the past and up to this fiscal year is still incurring loss as a single product, but the margin of loss has been reduced substantially since last fiscal year and there will be a continuation of positive trend. And therefore, in terms of operating margin, we expect a significant increase and we would like to be able to meet the expectations of shareholders for ROE. And beyond that, we would like to return to double-digit figure and we are on the way to achieving. We are in the process of achieving this as we see the situation. Another point, this was not discussed much, but China. In China, we have LEQEMBI and Dayvigo and Urece, this is the gout treatment drug. We have these 3 products in China, NRDL listing or stage before that, coverage by commercial insurance. If this can be achieved, there is a potential for rapid expansion. In the past in China, Lenvima was the driving force pushing up the company-wide performance. So we would also like to continue to make much efforts in China market so that it can be a factor for growth. Seiji Wakao: I have 1 more question. On Page 9, SC coverage is shown quite extensively. Based on the presentation today, LEQEMBI IQLIK; in terms of sales increase, it may be after January 2027 that sales increase will be observed from LEQEMBI IQLIK. Is that correct? And initial dosing indication may be approved in the first quarter next year? And from January 2027, do you expect to book sales for that indication as well? Haruo Naito: Medical Exception Process we believe will be applied to about 80% to 90% of the patients. In January 2027, listing of official formulary is expected. But before waiting until then, high probability we believe that patients will be able to be reimbursed for the insurance. Between Eisai and insurer, we will have to agree on this or negotiate. So Medical Exception Process, it says exception, but it's not exceptional. Regularly this scheme is utilized. I believe your concern is that we may have to wait until then to see large sales, but that is not the case. Please follow up, Mr. Haruna. Katsuya Haruna: Thank you very much for your question. I'm Haruna responsible for U.S. business. I would like to add to what CEO said. Commercial insurers, patients and HCPs are giving us very positive feedback. As for insurance reimbursements, earlier CEO Naito mentioned, in January 2027 it may be listed in formulary. But before waiting until then, through this process we believe that it can be made more widely available. Easy example to understand is IV reimbursement rate and the current SC level is similar. Therefore, we do not see this as a bottleneck at all. The initial treatment in next year, if that is achieved, I believe that will be a major game changer. With the launch of IQLIK, long-term treatment will become easier and that is also a major benefit. For patients, it is a huge benefit. Kazuaki Hashiguchi: My name is Hashiguchi from Daiwa Securities. Regarding your forecast for the results. At the beginning of the fiscal year, onetime expenses were not included, but onetime revenue was included. But regarding the progress for first half, the cost of sales ratio was lower than planned. In my reading and R&D expenses compared to full year forecast, the progress seems to be slower. These trends are expected to continue into the second half. And even without onetime revenue, you will be able to get closer to JPY 54.5 billion in operating profit excluding onetime factors. Haruo Naito: R&D expenses, whether these expenses will be contained with this level, we are not sure yet. But as I said earlier, we are going to put resources into the forecast projects and we are sure that we needed to continue to invest resources into these main themes. The more efficient expenditure of R&D expenses should be secured. As Mr. Hashiguchi mentioned, that is almost the same scenario we have in our mind. Kazuaki Hashiguchi: Another question is about etalanetug Study 202. Data readout is expected in fiscal year 2027 and clinicaltrial.gov shows the primary completion date is December 2026. And so this shows that the progress has been slower than expectation. But do you think this is different from what you say here from the primary completion date and what kind of events do you foresee for fiscal year '26 and '27? Haruo Naito: Mr. [ Horea ] is going to respond to your question. Unknown Executive: I am in charge of translational science. My name is Horea. Let me respond to your question. Regarding Study 202, the completion of the study as described in clinical.gov is scheduled to be at the end of December 2026. But after that, the samples will be analyzed and the results of the biomarkers will be summarized and inclusive of the statistical analysis and readout from the trial is expected in the first half of fiscal year 2027. Thank you for your question. Unknown Executive: Are there any other questions? Yes. Fumiyoshi Sakai: I am Sakai from UBS. About Medical Exception Process. In the past, SC formulation when it was near launch, Medicare Part D to Medical Part B switch was mentioned. By cutting our process, sales can be booked earlier. More clinics will be using SC, more institutions will be using SC. Is that what you are saying? And as for Medical Exception Process, is this introduced in practice? Can you cite some actual example? Haruo Naito: IQLIK was to be applied to Medicare Part D. It will be applied to Medicare Part D. Did I mention switch from Medical Part B to Part D? From Part D to Part B, did I really mention that? I trust Mr. Sakai so I may have mentioned that. But Medicare Part D will be applied. That is the category of the product. So please understand that Part D will be applied. And as for Medical Exception Process, details will be given. Katsuya Haruna: This is Haruna speaking. First, about maintenance treatment of IQLIK, IV LEQEMBI will be Part B and from Part B IV, they will be switched to IQLIK which is applied Part D and that switch is actually occurring. When you are switching to Part D, Medical Exception Process is used for insurance reimbursement. And to add a little more, LEQEMBI IQLIK is already being prescribed and patients are receiving IQLIK treatment already. Is this common practice? MAP is very common for MS or diabetes Medicare Part D drugs, anticancer drug is not included. But in most drugs when new drugs are launched, this process takes place and many use this process. Neurologists, we conducted a market research of neurologists before the launch of IQLIK and more than 80% of neurologists have used MAP process before. We are also providing information, but physicians are already familiar with this process. And by providing ample information, reimbursement is taking place very smoothly. Fumiyoshi Sakai: I also have a question on reimbursement in China listing on NRDL. What is the timing that you expect to be listed and how will you apply? I understand that there is stockpiling of inventory, but what is the timing for NRDL listing? Haruo Naito: Ms. Sasaki will respond. Sayoko Sasaki: Thank you, Mr. Sakai, for that question. I am Sasaki responsible for China business listing on NRDL. And as I introduced on the slide for innovative drug, Chinese government is introducing a way to increase access by leveraging commercial insurance usage. We are considering the market environment, including competitive landscape and expansion of the use of BBM. And when we decide that we are able to use this, we would like to make use. In self-pay market, we will achieve growth and by utilizing such program, we believe we can accelerate the growth. NRDL and related initiatives, these are announced by the authorities in China. We cannot say the timing on our part. So I hope Mr. Sakai will also pay close attention to announcements by Chinese authorities. Fumiyoshi Sakai: Understood. But price will be lowered so how should we understand the offsetting impact? Haruo Naito: This is preaching to the converted, but sales equal price multiplied by number of units sold. So naturally that will have to be taken into consideration. Otherwise, we will be scolded by investors. Unknown Executive: We would like to receive questions from participants online. Operator: Mr. Tony Ren from Macquarie Securities. Tony Ren: Tony from Macquarie. Can you guys hear me clearly? Unknown Executive: Yes, we can hear you. Tony Ren: Perfect. So first one, a simple one. So it appears that your gross profit margin declined a little bit. On Slide #1, that is attributed to product mix and the drug price revision. Just wanted to see if you could provide a little bit more color on the extent of the price revision and the degree of product mix change. Haruo Naito: For your question, Mr. Iike is going to respond. Terushige Iike: Thank you very much for your question. This is Iike speaking. I would like to respond to your question. As you commented, there was a drug price revision in Japan and due to this in terms of ratio, that was the biggest factor in terms of percentage of contribution to the decline in the gross profit. And the biggest product for us, Lenvima, there was a Medicare Part D redesign in the United States. The gross to net has been lower to what it was in the past. And it is also related to the growth of LEQEMBI. But in terms of ratio, these 2 had the larger portions in the contribution to the lowering of the gross profit. So that's why I mentioned the product mix. Tony Ren: Okay. How should we think about gross profit margin going forward in the second half of this year and possibly into next fiscal year? Haruo Naito: Mr. Iike is going to respond to your question. Terushige Iike: For this fiscal year, as we have already reported to you, we believe that the gross profit margin is going to be controlled within the guidance. Towards next fiscal year, it will depend on the product mix, but we do not believe that there will be significant change and we will be able to control as we do. Tony Ren: Okay. And if I may, also just want to go back to ask about the Medicare Part D Medical Exception Process here because if we have to wait until January 2027, that does appear to be quite far away. So out of the -- we understand the current approval rate is pretty high. Just want to quantify that. So out of 100 patients or doctors applying for the Medical Exception Process, what percentage of them will be successful today? Would that be something like 50% or more like 70% or even higher? Haruo Naito: For your question, Mr. Haruna is going to respond. Katsuya Haruna: Thank you very much for your question. First, generally speaking about -- well, it may depend on what data you refer to, but 70% or 80% is the current success rate. But it's only 4 weeks since it was launched. Therefore, there will be some fluctuations in data, but we have observed already over 90% success rate. So we have seen steady progress. And going forward, we expect to see increased number of patients over longer term and then the data may be fluctuating. But as an early signal now, we believe that we are very confident in providing this products or drug to patients. Tony Ren: Okay. 90% is a very good number. Thank you very much. Operator: Ms. Sogi, Sanford Bernstein, please. Miki Sogi: First question, I believe you have heard from the people in the field. The other day we were able to speak with early adopter doctors. And clearly amongst the patients, early stage patients when they are given LEQEMBI or Kisunla, stronger efficacy, higher efficacy is observed. And the doctor said that the doctor is treating more MCI patients. So clearly efficacious or clear responding patient segment is becoming clear. I think this is very important for the adoption of the drug. Real-world evidence indicating such data, is Eisai collecting such data? Regarding early treatments, do you plan to run campaigns? Haruo Naito: Mr. Toyosaki will respond. And regarding Japan, Mr. Yusa will respond. Hideki Toyosaki: Thank you very much for your question. I would like to mention 2 things. The first is, as you rightly mentioned, early treatment. Early start of the treatment and early diagnosis and early treatment and maintaining through maintenance treatment. Such treatment will offer the optimal outcome to our patients. That is our belief. As for clinical studies in CLARITY AD trial, irrespective of Tau level, pathologically very early stage patients, low Tau patients or Tau level negative patients are included in the study. In this population when we look at Tau substudy results over 4 years, more than half of the patients were able to maintain their stage or have shown improvement. I believe that is one of the uniqueness of lecanemab. And therefore, early treatment and patients who received early treatment can expect to maintain the disease condition over long term. So long-term continuation of the treatment is the focus. Currently, in the United States in 9 institutions and we will increase the number of institutions, but we are in the process of collecting real-world evidence. Interim analysis will be presented in summer this year at AAIC and we will continue to collect the data and we plan to present the final analysis data next year. So I hope you will look forward to that data. That is the situation in the United States. Toshihiko Yusa: Thank you for your question regarding Japan. I'm Yusa responsible for Japan business responding. As for data creation in Japan, as you know, all patient study and registry survey are underway. And as you pointed out MMS score, what level of patients are responding in what way. Such data is collected and Phase IV is also planned in Japan. Earlier stage patients in campaign, whether campaign was planned was also a question. We are conducting TV commercials focusing on MCI in DTC. This was explained by CEO Naito earlier in November last year and May this year. And in August this year, we have run these 3 campaigns. So this has led to increased awareness of MCI. Haruo Naito: Ms. Sogi, you've also mentioned that when LEQEMBI is started early and MMSE, the higher the score of MMSE, the greater the efficacy is and ability to maintain MMSE and CDR scores. That is what we are also told from the physicians. And as for LEQEMBI, 29 to 30 score of MMSE, only LEQEMBI is indicated for this segment of patients. So in particular, we are looking at this very early stage MCI patients and we would like to lead to early diagnosis and early treatment of this segment of patients. Miki Sogi: Another question. On the other hand, in the United States, Kisunla and LEQEMBI are included in formulary in some of the clinics. Both are available. Patients are increasing. There is an infusion capacity issue. With the same capacity, double the number of patients can be treated with Kisunla. I hear that oftentimes institutions are using Kisunla for that purpose. The number of accounts, there can be only accounts – Kisunla only accounts and accounts with both LEQEMBI and Kisunla and it may be due to the balance of these numbers. But until spreading dose starts in the accounts with both LEQEMBI and Kisunla, one may be preferred over the other. But as far as the trajectory is concerned, before IQLIK is used more widely, is there a potential for slowdown for LEQEMBI? But of course market overall may be growing so I hope that there will be no slowdown. What is your expectation? Haruo Naito: That question will be addressed by Mr. Haruna. Katsuya Haruna: Thank you for your question. This is Haruna responding. First, about the U.S. market overall. Regarding market share, LEQEMBI has the majority of the market share in particular amongst IDNs where there are neurology specialists, we have received very high marks. LEQEMBI's value and positioning are not affected we believe. And as you rightly pointed out, on the other hand, the competitor, Kisunla is once monthly treatment. Treatment may be discontinued after 12 months to 18 months and some medical institutions may prefer this. We are fully aware of that. What is important is that LEQEMBI has a solid position in the market and it's growing and Kisunla is used by those who prefer once-monthly dosing and that is also growing as a new market. So overall, AD market is growing. AD market on a quarter-by-quarter basis continues to grow at double-digit pace. So we have seen this substantial growth. If I may focus more on LEQEMBI. LEQEMBI growth has not stopped and we do not believe it will stop. It will accelerate. Looking more closely, LEQEMBI prescribing physicians, more than 50% of AD treating doctors are prescribing only LEQEMBI. Majority of prescribers are prescribing LEQEMBI only according to the data. So we believe LEQEMBI has established a very solid position. When I visit health care providers, certainly there are some who say that they prefer once monthly dosing and some patients and health care professionals prefer discontinuation after 12 to 18 months, but treatment effect was observed through the course of LEQEMBI treatment. And there are patients who are given Kisunla who are struggling to decide whether it is truly good to discontinue treatment and we have seen increased number of inquiries into Eisai because of that. IQLIK launch: without IQLIK launch, it's not that the position of LEQEMBI will change. We have a very strong potential and we expect continuous growth. We are confident that growth will continue, and we hope to be able to demonstrate that with actual fact going forward. Haruo Naito: If I may add to that. As Mr. Haruna mentioned, donanemab is it eroding rock solid market of LEQEMBI? We do not think so. Very solidly established, LEQEMBI market is not affected. There are patients who may wish to discontinue treatment after 12 to 18 months and there may be such health care providers as well. And initial treatment can be given with a monthly dosing, that may be preferred by some patients and health care providers. That is a market that is newly created as donanemab market. So donanemab is achieving growth by creating that donanemab market. But we have a very solidly established market. This market includes IDNs who are the core health care providers in the United States. I will not mention the names, but universities with well-established medical schools have their group and they apply the same standard and provide the same treatment. Such integrated IDN network provider treatment and AD treatment is conducted in these core IDNs. We believe that our share is about 80 versus 20. We have a very solid share with LEQEMBI in IDNs. As for AIC, ambulatory infusion centers and group practices, these are also important health care providers in the market in the United States. Here Kisunla advantage may be seen relatively more so in comparison to IDN. But it is not at all the case that we have less than 50% share versus the competitor. That is not occurring looking at the data. What I am trying to say is that with Kisunla, will our core market be eroded? That is not at all the case. And Kisunla is creating its own market. That is occurring naturally. As we have presented today, initial treatment indication for IQLIK may be approved as early as in the first quarter of 2026. So once monthly IV infusion or weekly auto-injection at home will be the options. And when that becomes a reality, which will be chosen by patients and health care providers. And looking at that, we have to make utmost efforts. As for the possibility to end treatment after 12 to 18 months and we are taking the opposite approach. Our antibody has property that allows for long-term administration because immunogenicity is low and neutralizing antibody incidence is low and because of that, long-term administration is possible. As for the 48-month data that I've mentioned before, toxic Abeta oligomer continues to be removed with long-term administration and CDRSB effect size becomes larger as a result. That is demonstrated and the reference is Adoni data. These are predefined patients. Before the start of Phase III, Adoni patients are selected in baseline. So the study is not biased. It is quite transparent and we have selected a reference, which allows for high quality comparison. This disease is a progressive disease. It continues to progress. Under Abeta PET after confirmation of plaque removal, can treatment be ended? Is that the right concept? Our position is that for AD, the right option is continuous treatment, which is the right option. I believe sooner or later patients and health care providers will make a decision. Unknown Executive: We would like to receive questions from the media. If you have any question, please raise your hand. Hinako Banno: My name is Banno. I am from Nikkei Newspaper. Regarding the situation in United States, I have a question about tariffs. I don't think there have been any recent movements for tariffs. But based upon the currently available conditions, what impact do you foresee for your business? And I believe that in China, you are stockpiling or increasing the inventory level. But to what extent or by when do you think you have secured the inventory level? Haruo Naito: For your question, Mr. Iike is going to respond. Terushige Iike: Thank you very much for your question. In terms of systems, we have not seen any secure or certain things. Given this situation, as we have indicated, the inventory -- I'm sorry, Mr. Yasuno, please. Could you please respond to the question? Because you are here traveling all the way from the U.S. Tatsuyuki Yasuno: I am in charge of the United States. My name is Yasuno. As you know, the tariffs for the pharmaceutical products are out of the scope of reciprocal tariffs according to the Section 232 of the U.S. Trade Expansion Act. And there has been an investigation being conducted in order to make decision whether there are any impacts on the national security. Based upon this, the Executive Order from President Trump has not been issued yet. And using the SNS, President Trump mentioned that he intends to impose 100% tariff rate on to the pharmaceutical products. Other than that, there has been no announcement. So there are lots of uncertainties. Therefore, for us, we have not been able to calculate what impact we foresee because of this on our business yet. But on the other hand, as Mr. Ike mentioned, going forward the pharmaceutical products to be imported into the United States to prepare for the potential tariff, we are conducting various measures such as inventory management and supply chain measures. Regarding the pharmaceutical products, which are necessary for the U.S. market, up until far into the next fiscal year, we have secured inventory. Therefore, for the time being, we do not think that we will be impacted by tariffs. Hinako Banno: I have another question. This is a question I'd like to ask CEO. Regarding MFN Pfizer and AstraZeneca, other leading companies have reached agreement with the U.S. government. How this rule is going to be implemented is not known yet. For you, how big this can be a threat for you? How serious threat do you think this can be for your business? Haruo Naito: I think in countries of OECD whose GDP per capita is at 60% or higher than that of the U.S. is going to be the criteria. I mean the minimum price should be in those countries to be applied to the U.S. market. But it will depend on whether this is going to be the listed price. And this will be based upon -- reimbursement will be based upon the cost effectiveness and this will be forced by the government agencies. Therefore, there is no room for discretion by companies. Unless you accept that price reimbursement, you are not allowed to deliver your products to patients in need. The mission for pharmaceutical companies is to deliver stably their pharmaceutical products to patients who need them. That is the fundamental mission for us. We have to deliver that mission. If it's going to be listed price and then the price level set by ourselves will be -- has been deployed throughout the EU and LEQEMBI is priced as that in the U.S. price. In Asia as well, the price of LEQEMBI is at the same level or even higher than that in the United States. So which price level will be referred to, it's going to be very important. For that, very severe decision-making may be necessary. That caused our concern. Mr. Yasuno, do you have anything to add? Tatsuyuki Yasuno: Yes, I am in charge of U.S. business. My name is Yasuno. As our CEO mentioned, that is the stance of the company. What is happening in the U.S. now? I believe you know the situation there. President Trump have sent the direct letters to 17 companies, out of which 3 companies have reached some kind of agreement that has been announced. According to the speculation, by the end of this week, 2 other companies may be announcing their agreements with the government. That is the information we received from our DC team in Washington, D.C. So those 17 companies which received the letters from the President Trump or U.S. government have started discussion with the U.S. government. But on the other hand, U.S. Association of Pharma Companies, PhRMA, before adopting this middleman or PDN or 340B reform. These are considered to be challenges. That is what PhRMA is explaining in its advocacy activities. We of course are closely watching what is happening day by day. Through such monitoring, we would like to prepare ourselves. Unknown Executive: It is now time. We would like to end the earnings call by Eisai. Thank you very much for your time. Thank you for your kind attendance. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Operator: Good morning. This is the Chorus Call conference operator. Welcome, and thank you for joining the Fineco Third Quarter 2025 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Alessandro Foti, CEO and General Manager of Fineco. Please go ahead, sir. Alessandro Foti: Good morning, everyone, and thank you for joining our third quarter 2025 results conference call. In the first 9 months of 2025, net profit at EUR 480.5 million and revenues at EUR 969.6 million, supported by our nonfinancial income, investing up by 10% year-on-year, thanks to the volume effect and the higher control of the value chain by Fineco Asset Management, and brokerage is up by 16.5% year-on-year, thanks to the enlargement of our active investors. Importantly, if we zoom on our quarterly dynamics, net profit and revenues were back to the sequential quarter-on-quarter growth. Our net financial income has already bottomed out and fully absorbed the decreasing interest rates and was up around 2% versus the second quarter on the back of positive deposit net sales and positive reinvestment yield. Operating costs well under control at EUR 259.9 million, increasing by around 6% year-on-year by excluding costs related to the growth of the business. Cost income ratio was equal to 26.8%, confirming operating leverage as a key strength of the bank. Moving to our commercial results. The underlying step-up in our growth dynamics gets crystal clear month by month. This is underpinned by the positive tailwinds from structural trends, and we are leveraging on this solid momentum through a more efficient marketing. The result of this acceleration has been clearly visible in the first 9 months of 2025. First of all, we added around 145,000 new clients, up by 33% year-on-year. In October, new clients are around 19,000, the second best month on record, up more than 25% year-on-year. Second, our net sales were EUR 9.4 billion in the 9 months up by strong 36% year-on-year. In October, estimated total net sales saw a further continuation of this trend at around EUR 1.3 billion, up by more than 30% year-on-year. The mix was very positive with assets under management at around EUR 0.5 billion net sales, up by more than 20% year-on-year. Deposits at around minus EUR 0.1 billion, and assets under custody at around EUR 0.9 billion, leading to the best month ever for brokerage revenues at around EUR 31.5 million. Our capital position continued to be strong and safe with a net common equity Tier 1 ratio at 23.9%, and a leverage ratio of 5.11%. On the right-hand side of the slide, you can find the summary of our guidance. Our outlook for 2025 has improved, thanks to the acceleration of the structural growth and under it, our business model. More in detail, our net financial income bottomed earlier than expected in the second quarter, thanks to the positive deposit net sales and reinvestment yields. On investing, we are experiencing the solid year-on-year increase of our assets under management net sales currently with the lower interest rates. Brokerage revenues for 2025, we expect a record year, thanks to the continuously growing floor driven by the higher asset under custody and enlargement of our active investors. October revenues are just the latest evidence of the higher floor of the business. Banking fees are expecting a slight decrease in 2025 versus 2024 due to new regulation on instant payment. On operating costs, we expect a growth around 6% year-on-year, not including a few millions of additional costs for growth initiatives in a range between EUR 5 million and EUR 10 million, mainly for marketing and Fineco Asset Management and AI. Finally, in 2025, we expect a payout ratio in the range between 70% and 80%. On 2026, we expect all the business areas to contribute positively in terms of growth to our revenue growth. Net interest income is expected to grow year-on-year on the back of positive deposits, net sales and reinvestment yields. On investing, we expect a solid growth on our asset under management net sales. Banking fees expected to grow on the back of a higher number of clients. Brokerage revenue expected to grow, thanks to the increase of the asset under custody and active investors. On 2026 guidance, more details will be provided during the next year, Capital Market Day on March 4. Let's now move to Slide 5. Before moving into the details of the presentation, let me stress that month after month, Fineco is recording a continuous acceleration of its growth dynamics supported by a very healthy underlying quality. As you know, our business model relies on diversified and quality revenue stream, allowing the bank to deal with any market environment. On the banking revenues, our net financial income is a capital-light one with lending being only in an ancillary business, and it's driven by how our clients valuable and sticky transactional liquidity. Let me stress that deposits are joining our platform for the quality of our banking services and not due to aggressive commercial campaign on short-term rates. That's why our deposits are so valuable and our cost of funding is practically close to 0. Our investing revenues are recording and healthy and future-proof expansion as they are already aligned with clients' rising demand for transparency, efficiency and convenience. This approach is mirrored in the quality of our revenue mix, which is almost entirely recurring with a very low percentage of upfront fees and no performance fees at all. Finally, our brokerage is clearly experiencing a further step up on the floor of the business, thanks to the capability of our platform to have a structurally higher number of active investors, leading to a structurally higher stock of assets under custody. This is driven by the structural increase in client interest to be more active on the financial market, and this is building a bridge between the brokerage and investing world, which we are the only one able to scoop given our market position. Let's now move to Slide 7 and start commenting on the most recent plan. Net financial income fully absorbed the decreasing market rates, thanks to the organic growth and our valuable deposit base. This net financial income was up by 1.9% quarter-on-quarter, led by the positive deposit, net fees in the higher reinvestment yield of our bonds running off. This despite the still declining average 3-month Euribor. Let me quickly remind you the quality of our net interest income, which is capital light and driven by our clients' valuable and sticky transactional liquidity. That's why our deposits are so valuable and will be the driver going forward for the growth of our net financial income. Let's now move on to Slide 8. Investing revenues reached EUR 295.6 million in the first 9 months of 2025, increasing by a solid 10% year-on-year on the back both of growing volumes, thanks to our best-in-class market positioning and of the higher efficiency of the value chain through Fineco Asset Management. Let me remind you the great quality of our investing revenues mirroring our transparent and fair approach towards clients. Our revenues are mostly driven by recurring management fees with very low upfront and no performance fees at all. Let's move on to Slide 9. In this slide, we are representing the 2 main sources of growth for our investing business going forward. On one hand, the Fineco Asset Management is progressively increasing the control of the investing value chain, its contribution to the group net sales has been consistent over the cycle, thanks to its incredible time to market in delivering new investment solutions aligned with clients' needs. The contribution of Fineco Asset Management, assets under management after the total stock of assets under management has been steadily growing, and it's now equal to 39%. On the other hand, being a platform, Fineco is the best place to catch the latest trends in terms of client investment behaviors. There is a clear change underway in the structure of the market with clients increasingly looking for transparent, efficient and convenient solutions. All of this is channeling a strong demand towards advanced advisory services and with an explicit fee where Fineco is by far the best positioned in Italy, as you can see down in the slide. Let's now move to Slide 10 for a focus on brokerage. Brokerage registered a very strong first 9 months with EUR 187 million revenues driven by our larger active investment base and growing stock of assets under custody. October further built on this, delivering a record month with EUR 31.5 million estimated revenues. Let me stress that the revenues to our assets under custody are expected to grow as we roll out our new initiatives on stock lending, auto forex, ETFs and systematic internalizer. Average revenues in the 9 months are around 7.3% higher versus 2020 with much healthier underlying dynamics. This is driven by the structural increase in client interest to be more active on the financial markets and building a clear bridge between the brokers and investing world. The brokerage business represents the best sign of how fast the structural financial market is evolving as technology is driving a swift change in clients' behaviors, thanks to higher transparency. For this reason, we consider the brokers Italian market very underpenetrated, and we see a strong opportunity to grow despite already being the market leader. And again, October numbers are a clear sign of this opportunity. Let's now move on the Slide 12 for a focus on our capital ratio. Fineco confirmed once again capital position well above requirement on the wave of a safe balance sheet. Common equity Tier 1 ratio at 23.93%, and the leverage ratio at a very sound 5.11%, while risk-weighted assets were equal to EUR 5.81 billion, total capital ratio at 32.53%. As for the liquidity ratios, liquidity coverage ratios is over 900% and net stable funding ratio is over 400%, while the ratio, high-quality liquid assets on deposits is at 80%, well above the average of the industry. Going forward, we confirm that we will continue to generate capital structure and organically, thanks to our capital light business model. Given the strong acceleration of our growth, we are taking more time to have a clear view on deposit net sales going forward and the underlying dynamics are strongly improving. If despite the strong acceleration in our growth, there will remain excess capital, we will decide on the best way to return it back to the market. Now let's move to Slide 18. Let's now focus on our guidance. Our outlook for 2025 has improved thanks to the acceleration of the structural trends behind our business. More in details, our net financial income bottomed earlier than expected, thanks to the positive deposit net sales and reinvestment yields. On investing, we are experiencing the solid year-on-year increase of our assets under management net sales currently with lower interest rates. Brokerage revenues are expected to remain strong with a continuously growing floor, thanks to the higher asset under custody and the enlargement of our active investor base. For 2025, we expect record revenues with October number being just the latest evidence of the higher floor. Banking fees are expected with a slight decrease compared to 2024 due to the new regulation on instant payments. For 2026, we expect all the business hires to contribute positively to our revenue growth. The net interest income is expected to grow year-on-year on the back of deposits, net sales and reinvestment yields. On investing, we expected solid growth of our assets under management net sales. Banking fees are expected to grow on the back of higher clients. Brokerage revenues are expected to grow, thanks to the higher asset under custody and the enlargement of active investors. On 2026 guidance, more details will be provided during the next year Capital Market Day on March 4. On operating cost for 2025, we expect to grow at around 6% year-on-year, not including few millions of additional costs for growth initiatives in a range between EUR 5 million and EUR 10 million mainly for marketing, Fineco asset management and AI initiatives. Cost/income, we expect it comfortably below 30% in 2025, thanks to the scalability of our platform and the strong operating gearing we have. On the payout ratio, we expect that for 2025 in a range between 70% and 80%. On leverage ratio, our goal is to remain above 4.5%. Cost of risk was equal to 7 basis points, thanks to the quality of our lending portfolio. And for 2025, we expect it in the range between 5 and 10 basis points. Finally, we expect a robust and high-quality net sales and the continued strong growth expected for our client acquisition as we are in the sweet spot to keep on adding new market shares. Let now move on to Slide 19 for a deep dive on our growth opportunities. Fineco enjoy a unique market positioning to catch the long-term growth opportunity, resulting by the huge Italian households whilst in the fast-changing clients' behaviors. In the graph, you can see the strong potential of our growth given the stock of financial wealth on the Italian families. Our market share is still small, and the room to grow is huge. We are very positive on our future outlook as we have no competition on our market positioning. As a matter of fact, Fineco is the only big player with a service model truly based on transparency, efficiency and convenience. Moving now to Slide 20. The step-up of our growth trajectory is clearly materializing, as you can easily see in our recent client acquisition. On top of the slide, you can see the impressive acceleration of new clients, which is further building up in the first 9 months of 2025. This acceleration is very healthy because it's based on the quality of our offer and not on an aggressive marketing campaign with short-term rate remuneration. As a result, all our new clients are improving the metrics of the bank by bringing more deposits or more business for brokerage and investing. This value is recognized by our clients, as shown by our customer satisfaction of 94% and our Net Promoter Score way above the industry average. Let's now move to Slide 21. The cumulative growth on high-quality new clients is translating into better net sales dynamics shown by the 36% increase of our total net sales year-on-year. Let me share that the mix of our net sales mirrors our positioning as the reference partner for all clients' financial needs, with asset under management is driven by client interest for transparent, efficient and convenient investment solution. Our banking platform is attracting valuable transaction liquidity. Finally, asset under custody are clearly sign of the increasing clients' engagement on our brokerage platform, thus contributing to our revenue generation. On top of this, we see a sizable mix shift opportunity coming from the huge stock of Govies of our clients, both over the last couple of years. Let me now hand it to Paolo, our Deputy General Manager and Head of Global Business, to comment on Slide 22. Paolo Grazia: Thank you, Alessandro. Good morning, everybody. As you know, the financial industry is quickly heading into an inflection point and it's going to be heavily reshaped by technology. Thanks to our deep internal know-how and data control, Fineco is the only real player able to take massive advantage from it and to further accelerate our growth journey. This will be reached with our usual cost effective approach. We are planning to launch an efficient and pervasive AI implementation in 2 directions. First, focusing on productivity of our network of personal financial adviser; and second, playing attention to the cost efficiency and the bank -- of the bank by reshaping the internal processes. While on the latter, we will update the market in the next month. We have already started to reengineer our financial adviser platform with the integration of an AI assistant. This is a key enabler to boost our network productivity and deliver a better quality service to clients, and ultimately improving our revenues growth via stronger net sales and assets under management. Our very first initiatives are already live and widely used by our network. Our financial planners have in their hands a powerful AI assistant, which is going to be a game changer for wealth management. In the slide, you can see the main features of the AI assistant, among which is worth underlying, one, the portfolio builder, a powerful tool to immediately create quality portfolio fed with Fineco financial logic and optimize on client goals. And the portfolio builder is also a content creator, a communication tool able to create professional and customizable reports, proposals, portfolio reviews and brochures automatically generating narratives, content to support the financial planners. It's also a powerful marketing tool, allowing for comparison of existing portfolio of prospect clients. The AI system is also a search tool, a faster info-search process for internal memo and communication. The next wave of AI implementation will focus on CRM for our financial advisers, fully integrated with client data. It will empower our financial adviser to manage their agenda more efficiently, enabling a structured approach to client engagement and cross-selling by streamlining customer management and unlocking new commercial opportunities. This will represent a further step in enhancing productivity across our network and driving for an even stronger growth. Finally, we are working to bring an AI powered search tool also to our brokerage client, our finance clients, allowing for an even easier experience to our state-of-the-art platform. I will hand it back to Alessandro to move on Slide 23. Alessandro Foti: Thank you, Paolo. Let me now focus on our assets under custody, a component to our business that is sometimes undervalued by the market, but that is the real cornerstone of our fee-driven growth. This is true for investing as assets under custody remains the main source fueling our asset under management sales. As you know, around 90% of our growth is organically driven. As a consequence, new clients tend to show an asset allocation more skewed towards assets under custody, and the job of our financial advisers is to improve their mix into asset under management. For brokerage, the expansion of assets under custody and the growing base of active investors are key factors leading to a structurally higher floor in our revenues, which we expect to grow as we roll out our new initiatives on the stock lending, after-tax, ETFs and systematic internalizers. Finally, in the fast-growing ETF space, we are exploring new revenue opportunities, which we expand moving into Slide 24. Fineco is uniquely positioned to capture the strong client-driven shift towards more efficient investment solutions such as ETFs. The stock is quickly on the rise and now exceed EUR 15 billion. And ETFs now accounting for half of the asset under custody net sales. Thanks to our focus on transparency, efficiency and convenience, we are the only player capable of fully recognizing and monetize the structural trend with no harm on our profitability. First of all, the growing interest on ETFs is generating a positive volume effect for our investing business, thanks to our advanced advisory wrappers made of ETFs, we can move in the investing world of clients that are not interested in traditional mutual funds, thus we have no cannibalization risk on the existing fund business. At the same time, our leadership in ETFs retail flows makes us the main gateway for issues into the Italian retail market, while we currently manage all cost to handle clients without recurring fees from ETFs, talks are underway with our partners to find a fair balance. Finally, Fineco Asset Management is going to be playing a big role in the ETFs world, our Irish firm already launched its first active ETFs, and more are going to be introduced. Thank you for your time. We can now open the call to questions. Operator: [Operator Instructions] The first question is from Marco Nicolai of Jefferies. Marco Nicolai: First question is on the brokerage number for October. So almost EUR 32 million in a month. It's a record number. Just wanted to know if there is some -- so what's the impact from the BTP Valore issuance? And if you can comment on the underlying trend x the BTP Valore revenues? Then another question on the crypto front. I think you didn't mention it in the various projects in the presentation, you mentioned AI and other projects but not crypto. Just wanted to know if you had any updates there on the talks with Bank of Italy? One of your peers got recently the MiCA license from Cyprus in the past days. I don't know, my perception is that there could be other geographies that are quicker than Italy in granting these licenses and if that could slow down your projects here and the growth you could have in brokerage coming from the crypto side? And then another question on the payout. You mentioned 70% to 80% for 2025. I guess your leverage ratio will be well above your minimum targets for '25. And if that's the case, shall we consider 80% for 2025? Or you think there are other moving parts in the leverage ratio that could negatively affect it? So these are my questions. Alessandro Foti: Let me start by commenting on the October brokerage numbers. The impact of the -- from the BTP Valore has been more or less in the region of EUR 5 million. So this means that in any case is remaining so excluding the contribution of the BTP Valore, the numbers are EUR 26 million revenues in the month of October, that is quite significantly above the average of the revenues generated in the previous month. And this clearly is clear, perfectly current with the underlying trends that we are commenting by some time. So there is a continuous quite significant growth of the base of clients whereas continuously adding new active investor to the platform. Second, the continuous building up of assets under custody is clearly contributing in that direction because clients are not trading -- are trading stocks and trading bonds and they are trading ETFs as well. And so we remain extremely positive on the future evolution of brokerage exactly for the reasons we commented during the presentation. So structural changes underway and a continuously growing quite significantly the important growth in terms of number of clients and the Fineco emerging as the clear winning platform here in Italy. On crypto, I leave the floor to Paolo for giving the latest update on what's going on there. Paolo Grazia: So the crypto is still a project. We're still in talks with the regulator. We have no news for now from the last call that we had. We are very aware that we have plenty of competitors that are getting the MiCA license. Unfortunately, in Italy, there is nobody yet, I guess, that has MiCA license, but we keep on talking and explaining our view to the regulators, and we hope we will come with a solution in the next few months. Alessandro Foti: On the payout, we clearly, what we want to make very clear that Fineco is a growth story, it's a unique growth story because the uniqueness is represented by the fact that we are combining together an incredibly pool of growth together with a quite generous payments of dividends. But we are not a dividend stock. So clearly, our goal is not to give the market the highest possible dividend. So our main goal is to keep on accelerating as much as we can in directional growth. At the same time, remaining in a very compelling story from a dividend point of view. So clearly, we will see. So now, we are at year-end, we are going to take the final decision, which is going to be the final dividend payout. But so there's that. Again, my opinion there, the most important takeaway that again, Fineco is a quite unique case in the financial industry, strong growth and at the same time, very generous deal. Operator: The next question is from Luigi De Bellis of Equita. Luigi De Bellis: I have 3 questions. The first one, so in the recent months, Fineco has seen an acceleration in new client growth. What has changed to drive this momentum? And if do you expect this trend to continue at the same speed in terms of client acquisition? And can you comment also on the quality profile of this newly acquired client and also the acceleration that we are seeing in the net bank transfer that you mentioned in the Slide #7, that is above plus 20%. The second question on the asset under custody so a huge amount reaching EUR 52 billion. You mentioned the revenues on assets under custody expected to grow. Can you elaborate on this and the speed of this acceleration expected? And the last question on the Germany project. So could you provide an update on the initiatives? What are the current development and expected time lines for the rollout? Alessandro Foti: Yes. Regarding the acceleration of new clients, what is driving this growth is clearly structural tailwinds because as we explaining continuously that Fineco is the only one large established significant bank in Italy that is really offering efficiency, transparency and convenience. And this kind of demand is rapidly growing, driven by the completely different technological landscape, which I think is much easier to make comparison. It's -- everything is the information is spreading out incredibly rapidly. And then there is quite significantly accelerating process of generational passage. So Fineco is the -- so now that there is the x generation that is mostly entering into the game. And this generation is characterized by significantly different habits and behaviors by the previous generations, where again, sorry if I'm repeating myself, the request for efficiency, transparency and convenience is emerging as a clear need. And Fineco is the only one player that is fully satisfied this -- for this reason, we think that really, the strong growth is going to continue, probably is going to keep on accelerating even more going forward because all these tailwinds are going to keep on gaining strength and momentum. And the acceleration of the net bank transfer has an immediate consequence of this because -- and this also is giving to me the opportunity to answer to the other questions on the quality of new clients. The quality is remaining extremely high and robust. We are not observing any kind of dilution in the quality of clients we are taking on board. And this clearly is mainly driven by the approach by the business model of the bank. Very importantly, Fineco is not attracting clients because it's taking shortcuts. We are not putting in place aggressive short-term initiatives for taking on board new clients. So we are not, for example, overpaying clients with high rates on the projects. By the way, in this moment, we have -- there are plenty of banks that they are making continuously very, very high offer on rates. But we're not -- and so the results that the clients that are opening an account in Fineco, they are opening an account just exclusively because they are interested in using our platforms, our services. And this really is very positive for the -- in terms of quality of clients, and is incredibly positive for the evolution of the revenue generation that is going to every single additional client we are adding to the platform is to some extent, contributing in increasing the revenues of the bank. And on the speed of growth in brokerage revenues, as we are saying. So the more clients we are taking on board, the more assets under custody we are keeping on building up and the more you can expect that the floor of the business is continuously going up. We are driving on the concept of floor because we are interested in seeing -- on seeing how brokerage is performing without considering the theoretically short-term impact caused by volatility. By the way, until so far, the volatility this year has not been particularly relevant, has been a level of volatility that has been, let me say, average. So this is clear. And so yes, brokerage to remain on the fast lane growth. On the time line and what's going on, on the Germany rollout, again, I'm leaving the floor to Paolo to give a little bit more flavor. Paolo Grazia: Yes, we have the plan. We finalized all the information we needed. And we still miss some internal approval, but we have the idea of rolling out by the end of 2026 in the friends and family mode. So this is pretty much the time horizon we have. Operator: The next question is from Enrico Bolzoni of JPMorgan. Enrico Bolzoni: So I have a few million brokerage given the very strong print. So you mentioned about the possibility of monetizing that you see in different ways. One of your European competitors recently announced the decision to offer securities lending on AUC, and they were quite specific so they disclosed that they think they'd be able to generate about 20 basis point margin on the AUC that are eligible for securities lending. So I wanted to ask you, first of all, where do you stand in that process? I think it's something in the past you mentioned you wanted to pursue yourself? Second question, what proportion of your AUC is eligible? And thirdly, if you can confirm that 20 basis point might be reasonable number to expect in terms of revenue that you could generate out of that? So that's my first question. And then my second question, I was looking at your AUM flows. So in the quarter, you had over EUR 900 million. You also disclosed that a good chunk of that, so roughly EUR 600 million came from Advanced Advisory Solutions, which is positive. But could you please disclose what was the margin on average on this EUR 600 million of AUM that actually related to what you see after. That would be helpful for us to understand whether indeed there is no margin dilution from these type of contracts. Alessandro Foti: Okay. Thank you. So regarding on the -- let me start by brokerage. Possibility to monetize assets under custody, yes, as we explained during the presentation. The way we have quite a very interesting additional evolution there in terms of increasing the margins generated by assets under custody. Let me remind, one is, for sure, represented by the stock lending. The bank is in the process of deploying a much an extremely structured platform for taking advantage by the stock lending and some. On the margins, clearly, 20 basis points we think that overall is a conservative number. So it probably can be even more. And on the proportion of assets under custody eligible, this is a moving picture because exactly one of the rationale behind the platform is going to expand as much as we can the eligible amount of assets under custody we have, and so particularly. Another clear direction is the -- as we were mentioning, is represented by the AutoFX and some of them, I will leave to Paolo and some -- if you want to make some technical comments on the AutoFX. Paolo Grazia: Yes. We have a growing number of orders that are going to the American, the United States market, NASDAQ and NYSE. So there is a lot of flows going there. And of course, there is big revenues attached because our clients, they have euros on their accounts and they trade on the USD. So the AutoFX is a new service that allows the client to be much more -- it's a faster mode of executing an order. So the exchange is made automatically by the platform. So this is something that is giving us a simpler order for the clients. So it's easier for the client to place the order. And for us, there is a slightly higher margin compared to the fact that before the client had to change every time the FX, the AutoFX is better for the client, but also better for us. Alessandro Foti: Then we have exactly, what we are continuously now -- is the other announcement in terms of revenues represented by ETFs. So what's going on there? We think -- we confirm that by year-end, we are going to finalize the first arrangement that you get by the ETFs were the recurring fees. Overall, at the European level, the industry is moving exactly in that direction. So the largest issues are progressively moving in the direction to close arrangements with the largest European players in terms of control of retail flows on ETFs, and Fineco is going to be one of them. And so this clearly, again, is confirming the importance to play big, to be really the reference platform there. On the asset under management flows. So on the margin, so we are not making any specific distinction. So for us, the margins, on the -- so for us, it's indifferent if the clients are putting in the advisory platforms, actively managed funds, ETFs, assets under custody because what the clients paying is an advisory fee that is totally different. It's totally not correlated with -- is independent by the -- what is put in the portfolio. So theoretically, the clients can ask of having a portfolio that is made exclusive by asset under custody. And for us, the margins are going to be exactly the same if the client is putting -- is having a portfolio represented 100% by actively managed parts. So this exactly is something that is the great advantage that Fineco has. Fineco is extremely advanced in making clients paying an advisory fee. And so being completely detached by the inducement based model. And so again, this is going to be another big trend that is emerging. Enrico Bolzoni: If I maybe, just a very quick follow-up. It's very helpful when you commented the 20 bps is perhaps low. I think that the idea behind that 20 bps is that a portion of the revenues will be shared with clients. So the underlying return could be actually higher than 20 bps. Is this what you are also thinking of? So 20 bps, could it be a number that you internalize so net what you pay to clients from securities lending? Or you think it could be generally an even bigger number? Alessandro Foti: So it's clear that when we are showing the margins, we are considering that we have to pay the clients because this is clearly by law. And so clearly, there is a gain so we can confirm that we think that also including what we have to pay to clients, probably this 20 basis point margin is on the conservative side. Operator: The next question is from Hugo Cruz of KBW. Hugo Moniz Marques Da Cruz: I just had a question around your comment on brokerage revenues and how that converts into P&L, particularly trading profit because when I look at consensus, it is trading flat, flattish going forward. So that doesn't seem to make sense to me in light of your comments that brokerage revenue should continue to go up. So if you could give a bit more color on how the brokerage revenues and trading profit, how we convert into trading profit? Alessandro Foti: First of all, let me remind you that for us, trading profit is not something that is driven by the bank taking some kind of risk, it's a kind of free of risk market making. So we are -- when we were mentioning among the components that they are -- we expect are going to keep on contributing in making the brokerage revenues growing, also the systematic internalization of orders of clients. And so we expect that the more we are going to keep on building up the volumes and business, and as well, we expect also the opportunity offered by the systematic internalizing -- internalization of orders is going to keep on growing as well. We are not surprised by the fact that the market tends to be a little bit always in a step behind what's going on in brokerage because as we said during the presentation, probably everything that is in the region of assets under custody and brokerage, brokerage has been probably a little bit the most misunderstood component of our business because clearly, as we are seeing assets, typically until the recent past, big growth in asset under custody has been not very well welcomed by the market. But the asset under custody clearly is the fuel for brokerage going forward and for the asset under management as well. So we think that brokerage is by definition on the fast lane of growth in the future exactly for a combination of structural reason, big growth of clients and a significant shift in the client's views and the increasing level of participation of clients, and the growing interest by clients for solutions like represented by ETFs, what is important to remind that when we're talking about brokerage, clients are trading on everything on the platforms. They're trading on stocks, they're trading on ETFs, but their trading on bonds as well. And so this is the reason why the brokerage is going to keep on doing very well. Operator: The next question is from Christiane Holstein of Bank of America. Christiane Holstein: My first one is on the CMD next year. So I know you flagged that you'll be announcing 2026 guidance. But just because there has been a CMD before, I was just wondering what else we can expect? Are you looking to also give a multiyear target, for example? Secondly, you previously highlighted the introduction of private markets in September. I didn't hear any update on this. So I was wondering if you could better say how that's been going and then how the interest has been from clients so far? And then thirdly, on investing management fee margin. So this has seemed to be relatively stable more recently. I know you also flagged the benefits from ETP on investing and obviously, FAM is higher margin. So as the uptake here improves, we should hopefully expect the margin to strengthen. But I was just wondering what your expectations are here. Alessandro Foti: So on the -- what you can expect by the Capital Market Day on the next March 2026. From Capital Markets Day, we are going to give a much further and much more important and relevant details regarding what you can expect in terms of our strategy, evolution, also the rationale behind the entering more in depth, also in the initiatives, what we are going, what we can expect we are going to deliver to the market. And yes, finally we are going to give to the market that something that is going to help you in better modeling on the longer term, the projections of the bank. Yes. We think that this is the right moment because as we are saying, the bank is technically entering in a significantly different -- it's moving throughout in a relevant inflection point because this is exactly what's going on in the market. And so we think that we -- is the right moment to share with the market more details regarding the extremely exciting future that we see ahead for this bank. Private market, this is going to be -- the placement is going to start within the next few days. So probably let me say, by the next week, the product is going to be launched and is going to be up and running, and we will see. We confirm that we remain quite positive because there is an evident demand by clients. And so yes, in the next few days, this is going to be deployed. And commenting on investment management fee markets. As you know, we don't like to drive the market on the fee margins because clearly, for us, what is important is the direct -- is the evolution of revenues because revenues is a combination of volumes and margins. And these are much more important because this tends to clearly to -- tends to better represent the evolution of the market. It's a matter of fact that Fineco is by definition in a much better position than the industry in order also of having more stable margins because we are definitely less under pressure. But for 2 main reasons. The first one that Fineco is historically positioned on the lower side in terms of commissions we are charging to clients. And so by definition, this is making us less exposed to the building up pressure on margins. Second, that the journey in terms of increasing penetration of the asset under -- Fineco Asset Management solution is still underway. And this is different by other participants of the industry that now has been where the percentage represented by the whole internal products has been -- everything has been almost done. And this, in any case, with Fineco remaining and the only one large and truly open platform because this continuously growing percentage of Fineco Asset Management products is not driven by the fact that we are expected to close down the platform. The platform is going to remain an open platform. It's driven by the fact that Fineco is incredibly great in delivering continuously extremely innovative solutions and incredibly fast on bringing this to the market and so being able to remain always a step ahead of the market. Operator: The next question is from Gian Luca Ferrari of Mediobanca. Gian Ferrari: Three for me, please. First, on the AI project that Paolo described, can you share with us some KPIs of the business case here? So how much you invested in this project? And if you calculate any IRR you expect from the project itself. Second question is on the EUR 22 billion bonds. How much is expiring in 2026? And if you can remind us what is the conversion rate you expect to have on those bonds? The final one is on your lending and particularly on the fact that the stock has remained flat at EUR 5.1 billion in the context of declining interest rates. So I was wondering if your clients have any appetite for a bit of re-leverage considering your very strong capital ratios and lower interest rates. Alessandro Foti: So on the AI project. So first of all, let me make few comments there. So Fineco, is in a great position in order to leverage on AI because thanks to the kind of bank we are, that Fineco is a tech company. So with AI, what is the most important element is not exactly how much you spend. But how much you are able to transform what you are investing in something that makes sense. So in the AI project, what is really -- so because everybody theoretically, there is no -- it's a commodity, the AI agents are commodities. And so the real difference is made by your capability of leveraging on high-quality, easily accessible base of data because if you don't have that, artificial intelligence is not going to work. And second, you had to be in the position to train your system, your products and so on. And again, you were back again to the point. So Fineco is -- being a tech company because Fineco is not just using technology, but is in control of the most part of the technology we are using. So this means that, for example, our data warehousing system has been by many years, a key strength of the bank. So for us, it's extremely easy to extract high-quality, easily accessible data. This make what you need in terms of investments much less than is presently requested by someone that sit on a much more complex infrastructure. So for example, if you are mostly leveraging on outsourced platforms or you sit on different layers of software, and so clearly, this is going to be to extract easily accessible and high-quality data is going to be really very difficult and incredibly expensive. The same way for the training the programs. So the more you are in control of your processes, the more you are in control of your platforms, and the easier it's going to be to go throughout the training process. You don't need to have, for example, external system integrator, taking care of you for training the process. And so this means that again, I think this is going to be much better in terms of results and much, much less expensive. And so honestly speaking, so our AI projects are what we expect to invest considering what to expect to get for this project. Honestly speaking, this is a completely meaningless point because we expect quite an important increase in the productivity of network. We expect a significant improvement in the process of the bank. But on top of that, what we expect to spend is going to be really fraction of the positive impact caused by the... Gian Ferrari: And on the increased productivity, any quantitative indication? Alessandro Foti: I think that -- so let me say. So also assuming, let me say, staying on the conservative side, and assuming, I don't know, a 10% increase in the productivity, this is going to be a huge number. So -- but Paolo can give you a little bit more color on this point. Paolo Grazia: Yes. On the KPI, we are really on unchartered waters because it's -- there is no -- there are some studies in the U.S. that they are saying that the productivity of the financial tech can improve up to 20%. And I think it's something that can be reasonable in my opinion. But again, still we are in unchartered waters. So we -- for now, we're just focused on deploying the service, on improving the service, on hiring the people inside the bank that are part of the AI team that is growing. And as usual, we focus and we put effort on having our own resources, our own people that develop the technology. And I think we're doing a great job, and we are very happy with the fact that we are very fast in developing new tools and delivering to the -- for now to the financial planner, to our financial planner platform. Alessandro Foti: On the expiring bonds, next year, EUR 4.2 billion in terms of reinvestment. So what we can expect in terms of transformation, for example, in asset under management solution. This clearly depends on the market conditions. So as much as we stay in an environment with short-term rates, low and the yield curve keeping or remaining positively shaped, if not even steeper. And this clearly is going to be -- is going to bode well for a continuously increasing transformation rate. But again, it's difficult to give you a precise number right now because -- but what we can say that the conversion rate is mostly driven by the combination of short-term rates staying low and the yield curve remaining. And the steeper it is, the yield curve and the better it is for the transformation process. On lending, yes, the stock is flat, but we are observing some interesting transformation because, again, we confirm that we don't have any particular appetite for the residential mortgage business that we consider by far the lowest profitable product that a bank can have on the shelf. For these reasons, we don't have any appetite for residential. We are providing residential mortgages just to our interesting clients. And so we expect that the overall stock on there is going to keep on declining. At the same time, there is a quite significant growing interest by clients for the Lombard loans. And Lombard loans are expected to keep on building up. We have in the pipeline a very interesting future developments there that we think are going to keep on making quite even more interested in using our Lombard loan solutions. Operator: The next question is from Ian White of Autonomous Research. Ian White: Just a few from my side as well, please. Firstly, just going back to the net management fee margin. It is about flat year-over-year by my calculations at 69 bps. Can you just help us understand the moving parts there? I'm looking at the details. The insurance products have declined, equity markets are higher, FAM penetration is higher. So are you able just to complete that bridge for me, why aren't we seeing more margin accretion there year-over-year, please? That's question one. Secondly, on Slide 23, you mentioned that the adviser network is focused on improving client mix from AUC into AUM. Can you just talk us through a little bit of what those efforts actually look like in practice. I'm wondering if it mostly requires convincing your clients to switch from being an execution-only customer to an advised customer? And also if you can share any figures there to help us better understand the flow of client assets from AUC into AUM, please? And that's question two. And just lastly, you mentioned in your prepared remarks the systematic internalizer as a forward-looking driver of growth in brokerage. Can I just clarify, is something likely to change there in the coming months that would increase revenue capture? Are there certain products where you might begin internalizing that you're not currently, for example? And that's my third question. Alessandro Foti: Let me start by the net fee margins. So the net fee margins remained relatively stable. And so exactly for the reasons we were describing. So the bank is definitely in a more comfortable position with respect to the industry because it's been always characterized by not overcharging clients with very high commissions. And so by definition, we are definitely less vulnerable than the industry on the building up pressure on margins. And second, the driver are mostly -- so yes, insurance is lower. So because -- and the equity markets are not growing particularly big. So still, we are not seeing any significant growth in terms of appetite by clients for the equity market. And for sure, Fineco Asset Management is continuously growing and is contributing on the margins because we had a better control of the value chain. And this despite the mix of the products, both by the client is remaining on the cautious side, mostly represented by fixed income solutions, in any cases, the better control on the exchange contributing. But again, we are not particularly -- for us, the main focus is on the evolution of the revenues because it's clear that overall, we are living in an environment so the huge difference between the, for example, the brokerage world and the investing world that, generally speaking, the investing world as an industry is, by definition, is expected to keep on facing pressure on margins. This is not the key, for example, for the brokerage business. So that's where the pressure on margin is going to be much, much lower. On the other hand, the more you are becoming sophisticated in managing the flows, the infrastructures and the more you are going to have room for increasing your margins, and this is exactly the key when we're talking about the systematic internalizer. Yes, Europe is progressively moving more and more in the direction of being more similar to the U.S. market where a growing component, large component of the profitability is represented by the management of flows. And this is exactly what's going on in Europe as well. So Europe has been lagging behind in a big way, but now, the situation is changing. The example is Germany. Germany is a market in which the percentage represented by the management of flows is quite high there. And yes, clearly, this business is a volume business. The more you are keeping on growing in terms of sites, the more you're keeping on hedging assets on the platform, the more you are going to have high-quality clients using the platform. And the more -- let me say, instead of using systematic internalizing, the management of flows is going to become an important driver in increasing the margins on the brokerage business. And as we are saying, we have plenty of initiatives on the pipeline that's exactly moving in that direction and that are going to deploy in the coming months. And internalizing something that's now you don't -- no, internalizing more that we are doing now that -- because really, we are practically internalizing everything. So ranging from stocks, ETFs. ETFs is emerging as a growing and important component of the -- internally in terms of internalization of flows and so on. So the direction is not internalizing, it's something that now we don't know, but internalizing more and more because clearly, this is -- because we are going to become more sophisticated, the growth on the volumes are going to help, yes, this is a big trend. Operator: The next question is from Alberto Villa of Intermonte SIM. Alberto Villa: Two very quick questions from my side. One is back on the new client acquisition, impressive trend there. I was wondering, how much they are contributing to the net sales in the first 9 months of 2025, let's say, the new clients you get -- you got in the last 12 months? And I was wondering what the average assets you get from a new client after 12 months, if that is already comparable to the average customer you have in-house or there is any, let's say, timing from the acquisition of the client to getting this -- moving the asset to Fineco? And the second question is on the advisory -- advanced advisory stock that has grown now to above EUR 37 billion. I understood that you have the same margin, whatever is the underlying assets the client has. I was wondering what has been the contribution in terms of revenues in the first 9 months of the year from the advanced advisory assets. Alessandro Foti: So in terms of what is the contribution of the new client acquisition, more or less, we can say that in terms of new total financial assets, 65% is brought by the new clients. So the 65% is driven by the new client acquisition, and the remaining part is the continuously growing share of wallet on the existing clients. Yes, this is more or less is the split. And after 12 months, so clearly, we have to make a distinction because there is a kind of polarization in the clients we're acquiring because one is that we have the relatively young clients, they're going big. And the other company that is growing big is represented by the rich clients or other banking clients. These are the 2 segments in which we are growing the most because this, by definition, are the 2 segments that are the most sensible to the concept of getting delivered efficiency, transparency and convenience. And typically, so we -- so yes, after 12 months, we can say that a large part of the -- on the assets of the clients have transferred into the bank. But still, we have a significant room for growing on our existing base of clients because we are making estimates on -- in order to understand which is the potential represented by clients that are theoretically perceived as more clients on the platform and then putting together the significant amount of information we have because having all clients using the transaction banking platforms, we know everything of the clients. So where they're living, how much they're making in terms of salary, the amount of taxes they are paying, where they are spending, how much they're spending. And so at the moment, our so-called still small clients that has an upside of the bank and average potential of another EUR 50 billion, more or less. I'm not saying that we're going to get all of that. But clearly, the more the trends, the new trends are building up in terms of strength and the more also we're going to be able to get even more share of wallet by our clients. The advanced advisory stock, no, we are not giving the split of these revenues. Operator: The next question is from Elena Perini of Intesa Sanpaolo. Elena Perini: I've got only one last question. It is to ask you if you have already made some calculations about the potential impact of the Italian Budget Law for next year? Alessandro Foti: Not yet because everything is still so unclear that it's probably, yes, we are making some time, some simulation, taking -- considering the rumors that are on the market. But honestly speaking, it's a little bit -- I think that the risk is to -- is a waste of time because everything is still underway. But honestly speaking, we are completely not concerned by this because this is not -- for us, what is important is the structural trajectory of the bank. So this can be, okay, fine. It's part of the game, but it's not going to change anything. So we are not, honestly speaking, particularly neither concerned nor particularly interested in what's going on there. Operator: [Operator Instructions] Mr. Foti, there are no more questions registered at this time. Alessandro Foti: Thank you to everybody for the extremely interesting questions we got. As usual, we are absolutely at your disposal for entering in additional follow-up. And so thank you again for taking the time to participate to our financial results conference call. Operator: Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones. Thank you.
Operator: Greetings, and welcome to Aurora Cannabis Inc. Fiscal Second Quarter 2026 Results Conference Call. [Operator Instructions] The conference is being recorded today, Wednesday, November 5, 2025. I would now like to turn the conference over to your host, Simona King, Chief Financial Officer of Aurora Cannabis. Please go ahead. Simona King: Hello, and thank you for joining us. With me is Miguel Martin, Executive Chairman and CEO. Earlier this morning, we filed our financials for the fiscal second quarter 2026 period ending September 30, 2025, and issued a news release containing these results. This news release, along with our financial statements and MD&A is available on our IR website as well as via SEDAR and EDGAR. We have also posted an investor presentation to our IR website for reference purposes. Our discussion today serves as a reminder that certain matters could constitute forward-looking statements that are subject to risks and uncertainties relating to our future financial or business performance. Actual results could differ materially from those anticipated in those forward-looking statements. Risk factors that may affect actual results are detailed in our annual information form and other periodic filings and registration statements. These documents may similarly be accessed via SEDAR and EDGAR. Following our prepared remarks, we'll conduct a question-and-answer session with our covering analysts. With that, I'll turn the call over to Miguel. Please go ahead. Miguel Martin: Thanks, Simona. Aurora's sustained strategic focus on global medical cannabis, the highest margin segment of the industry, combined with exceptional operational execution has once again delivered standout financial results. This performance is further reinforced by a strong cash position and the absence of cannabis business-related debt. In our view, Aurora is highly differentiated for the following reasons: First, we are Canada's largest medical cannabis company. Second, we are Canada's leading exporter of medical cannabis with world-class GMP facilities in Canada and Germany that enable us to supply global markets with high-quality premium products. Third, we are market leaders in Germany, Australia, Poland and the U.K., the 4 biggest nationally legal medical cannabis markets outside of Canada. And fourth, we are best positioned to gain a strong foothold in emerging markets as they develop, drawing on our proven successful commercial execution and global regulatory expertise. We will explore these themes in greater detail momentarily. But first, here are key highlights from Q2 2026 compared to Q2 2025. Net revenue rose 11% to $90 million, which included record global medical cannabis revenue increasing 15% and record international revenue increasing 22%. Consolidated adjusted gross margin improved 700 basis points to 61% as we benefited from higher cannabis margins due to increased international revenue. Note that we had originally set a 60% adjusted gross margin target for our medical cannabis business and have consistently exceeded that target over the last 3 years, reaching 69% during the second quarter. And finally, adjusted EBITDA rose more than 52% to $15 million, exceeding our top line growth by a factor of 5. Stepping back from the quarter, we have grown our net revenue over the last 5 years from $68 million to $90 million with adjusted EBITDA increasing $73 million from negative $58 million to a positive $15 million. These results illustrate our continued focus on profitable and sustainable growth. Over the past decade, we have built a competitive moat that continues to fuel international revenue gains and adjusted gross margin expansion, momentum we expect to sustain well into the future. Traction in global medical cannabis is a long-term proposition. And through our investment in science, technology and people, coupled with supporting patient access and physician engagement, we have built the foundation for continued success. The capital we have invested in our European and Australian GMP-certified manufacturing and distribution facilities positions us to lead amongst the select few cannabis companies with both regulatory certifications that most markets require. 90% of our annual manufacturing capacity is within multiple GMP-certified facilities, and our products comply with these increasingly stringent international standards. Beyond manufacturing our own products, we are also able to distribute them compliantly and profitably around the world. We view vertical integration as a structural advantage for us, primarily for 2 reasons. First, we sell medical products and consistency of supply is critical. Being out of stock or substituting cultivars due to fragmented sourcing is neither optimal for prescribers nor patients. Longevity with cultivars, quality and reliability build confidence with both constituencies. Second, we have lower production costs than others, made possible by our focus on yield, potency improvement and operational efficiencies. At our manufacturing site in Germany, we are doubling production as we prepare for further growth in the market and adjacent countries. This investment will allow us to significantly increase capacity while also targeting yield and operational efficiencies to more closely align that facility with our Canadian sites. The bar for recertification keeps rising, especially in Germany, and we are pleased to have recently been GMP certified for another 3 years. Having EU GMP production in Central Europe provides regulators and stakeholders the ability to depend on the same genetics and product consistency that we have in Canada. Let's now dive into a discussion on individual medical cannabis markets. Australia is our largest medical cannabis market outside of Canada, where we currently hold the second largest share. The Australian market offers one of the broadest ranges of product formats beyond North America, allowing us to fully leverage our diverse portfolio. Over the past 2 years, it has experienced rapid expansion, now representing a $1 billion market opportunity according to the Pennington Institute. Turning to Europe. Germany is the largest market and growing with expanding mainstream acceptance. We increased our revenue during the second quarter, supported by a broad set of core and premium products and are gaining share based upon our strong reputation amongst wholesalers, distributors and pharmacists. Imports, as reported by the German regulators has increased rapidly from 8 metric tons in 2018 to 72 metric tons in 2024 and is currently on track to more than double in 2025. The new German government is exploring changes to the descheduling of cannabis first enacted about 18 months ago with the potential for modifications to the current telehealth framework. We support reasonable access to high-quality medical cannabis and await further details of the proposal. We are confident in our ability to adapt to potential changes in the telehealth framework, drawing on our successful experience in Poland. However, modifications to home delivery regulations could present greater challenges, particularly for patients in rural areas. Ultimately, we believe that established operators with a proven track record like Aurora will be able to successfully navigate any potential regulatory changes. Germany is also carefully observed across Europe and its potential impact on neighbor European countries is significant. Let's now discuss Poland, where we are already the established leader in advancing medical cannabis. This market size has more than doubled from a little over 2 tons annually in 2023 to approximately 5 tons in 2025. Further growth is expected following the increase in the annual import limits. We generated robust revenue growth during the second quarter as we benefited from our launch of 2 proprietary cultivars a few months ago. To our knowledge, these are the highest potency medical cannabis products available in the country. We look forward to continuing to deliver a sustained pipeline of innovative, high-quality and premium products for the Polish market, all manufactured in our GMP-certified Canadian facilities. Poland's regulatory standards include a lengthy registration process, which has concentrated 80% to 90% of the market share in 4 cannabis companies, including Aurora. We have a dedicated commercial and regulatory team on the ground there focused on executing on our growth strategies while also maintaining solid relationships with the regulatory authorities, which has enabled us to navigate the shift in prescriptions from telehealth platforms to clinics. Our experience and expertise in the market have benefited us compared to others as we were better prepared to succeed in this evolving marketplace. Success in both Germany and Poland will influence surrounding countries. And as medical cannabis succeeds, more countries will establish their own frameworks. Our facility in Leuna, Germany and our regulator engagement across the EU represent differentiated advantages for us to capitalize on these opportunities. The U.K. is an exciting and growing market where we are expanding our distribution and clinic relationships through new partnerships and successfully launched proprietary cultivar-specific inhalable cannabis extracts, also known as vapes that are performing well. The U.K. permits products other than dried flower and oil, which has enabled us to expand the variety of high-quality medical cannabis available. There is also a strong subset of prescribing physicians and lighter competition in the premium and super premium segments where we operate. Let me now talk about other opportunities across Europe where there is already broad support for legalization of medical cannabis. In Spain, applications are very restricted, but slowly opening up, which we view positively. In France, we have partnered with the government since the start of its tender. A permanent medical framework is expected to take shape in 2026, and we stand ready to serve patients from day 1. Both Switzerland and Austria are now online, while Turkey and Ukraine are showing positive developments for medical cannabis as well. Interestingly, more than half of EU member countries are integrating medical cannabis into health care, including reimbursement. So the momentum is promising. These developments are leading towards greater international alignment on regulatory approaches, an obvious advantage for compliant EU GMP-certified companies like Aurora. Physicians and patients increasingly recognize and appreciate our medicinal quality, and our Leuna facility in Germany has provided us with the opportunity to host regulatory and governmental visits. Turning to Canada. We are #1 in medical cannabis and the largest provider to Canadian veterans. Net revenue grew year-over-year as we benefited from higher revenue from both insurance covered and self-paying patients. While the overall market is relatively steady, we have grown market share as we have benefited from investments in world-class talent, facilities and experience. Our priorities remain enhancing our online marketplace, product innovation and increased product assortment, operational excellence and, of course, ensuring a high-quality patient experience, especially for our veteran communities. To sum up, we are pleased to have reported yet another great quarter at Aurora that illustrates our steadfast execution of our strategic priorities. We feel confident about our future because we believe we are ideally positioned for profitable growth as the leader in global medical cannabis. Let me now turn the call over to Simona for a detailed financial overview of fiscal Q2, followed by a discussion of our fiscal Q3 outlook. Simona King: Thank you, Miguel. The profitable growth achieved in Q2 is a strong testament to the strength of our medical cannabis strategy and our consistent ability to translate vision into results. Let's review Q2 2026 compared to the prior year quarter and then discuss our Q3 2026 outlook. First, net revenue of $90.4 million represented 11% growth, supported by significant contributions from our global medical cannabis and plant propagation segment. Second, consolidated adjusted gross margin rose to 61%, 700 basis points higher, while adjusted gross profit increased to $51.8 million, a 22% increase. Both our global medical cannabis and consumer cannabis segments generated higher margins than the prior year quarter. Third, adjusted EBITDA grew 52% to $15.4 million from $10.1 million. And fourth, we ended the quarter with $142 million in cash and cash equivalents and no cannabis business debt. In medical cannabis, net revenue rose 15% to $70.5 million due to 22% growth internationally, combined with continued strong contributions from Canadian Medical. Medical cannabis comprised 78% of net revenue compared to 76% in the prior year quarter and approximately 94% of adjusted gross profit. Adjusted gross margin for medical cannabis was 69%, up from 68%, driven by increased revenue in higher-margin international markets. Consumer cannabis net revenue was $6.9 million, down from $10.4 million. The year-over-year change was the expected result of our continued decision to prioritize sales to our higher-margin medical cannabis business. Adjusted gross margin for consumer cannabis was 27% compared to 15% in the prior year quarter. The margin increase was due to sales of higher-margin products and cost improvements through spending efficiency. VIVO's plant propagation net revenue increased to $11.6 million, up 34% from $8.6 million in the prior year quarter. This improvement is due to higher orchid sales, which is an exciting and evolving market in North America that offers strong margins. Adjusted gross margin for plant propagation revenue was 10% compared to 19% in the prior year quarter. This decrease is from costs incurred related to inventory write-offs caused by nonrecurring quality issue as well as some surplus crops that were not sold during the first quarter of fiscal 2026. Consolidated adjusted SG&A increased 12% to $35.5 million compared to the prior year quarter and supported year-over-year net revenue growth of 11%. The increase relates to higher freight and logistics costs, notably from increasing sales to Europe and investments in our commercial teams in Europe and Australia. Adjusted EBITDA increased to $15.4 million from $10.1 million. This 52% improvement from the prior year quarter was due to a substantial increase in gross profit resulting from higher net revenue before fair value adjustments required under IFRS. Adjusted net income was $7.1 million compared to $3 million in the prior year period. The improvement relates to an increase in an adjusted gross profit before fair value adjustments of $9.2 million, partially offset by an increase in adjusted SG&A of $3.8 million. Our balance sheet remains one of the strongest in the global cannabis industry. We held $142 million in cash and cash equivalents as of September 30, and our cannabis operations are completely debt-free. Our plant propagation business holds nonrecourse debt that is secured by a significant fixed asset base held at VIVO. Free cash flow was negative $42.3 million compared to negative $26.4 million in the prior year quarter, reflecting the expected cash outflows that typically occur in the second quarter of the fiscal year as referenced in our last earnings call. Let me now provide some thoughts on what we expect for Q3 2026, which ends on December 31. Consolidated net revenue is expected to increase year-over-year, driven primarily by 8% to 12% growth in our global medical cannabis segment. Plant propagation revenue is expected to perform in line with traditional seasonal trends as 25% to 35% of revenues are normally earned in the second half of the calendar year. Consolidated adjusted gross margins are expected to remain strong, driven primarily by industry-leading margins in our cannabis business with plant propagation adjusted gross margins expected to mostly perform in line with historical trends. Continued strength in our adjusted gross margins and higher global medical cannabis revenue should lead to year-over-year annual adjusted EBITDA growth. And finally, free cash flow is expected to be positive in Q3 2026 due to continued strong performance and improved operating cash yield. Thank you for your time. I'll now turn the call back to Miguel. Miguel Martin: Thanks, Simona. The global medical cannabis market is expected to exceed $9 billion, and we have built a strong competitive position around the world based upon our proven commercial execution, combined with our regulatory and scientific expertise. Our near decade of investment and march to profitability has given us a considerable head start in fully capitalizing on this opportunity. We are fully committed to strengthening our leadership position in Canada, Europe and Australia through consistent revenue generation and positive adjusted EBITDA growth. These advantages are the building blocks to enhance long-term value for our shareholders. We look forward to sharing further developments and strategic plan updates with you. Operator, please open the lines for questions. Operator: [Operator Instructions] Your first question comes from Bill Kirk with ROTH Capital Partners. William Kirk: Miguel, you talked about the previous goal of 60% medical gross margins and obviously, how you're running well above that at 69% recent quarters. What do you think a realistic goal is? And I guess, why are the margins structurally better than you expected? Is it less competition than you envisioned? Is it better demand for your offerings? Or is it maybe surprises in the cost to produce? Miguel Martin: It's a bit of all of the above. So let me start where you ended. Our production costs continue to go down. Yield in genetics and what we're getting out of our facilities has created an advantage. I think the second part is increasingly business outside of North America or in Europe or in different parts of the world where you do have higher margins. Now the discrepancy between the target and where it's at, we do see different markets getting a little bit more expensive, whether that's funding for partners in the distribution network or telehealth or even on the clinic side, where I see some investments. But I think it's a mix of all the above. And then lastly, and you did mention it, is execution. We are finding efficiencies in our execution using common medicinal cultivars around the world, gives us production efficiencies. The execution that we have of similar execution, say, in Poland, Germany and the U.K. creates some efficiencies. So I think all of that comes together for these industry-leading margins. William Kirk: And then you mentioned the production assets in Germany as an advantage. Right now, are you enjoying those advantages with competitors maybe having some difficulties getting some product through Portugal into Germany? And I guess, what's the status of some of those delays and investigations that folks are experiencing in that route to Germany? Miguel Martin: Yes. I mean the first thing is, as you mentioned, Germany is a very difficult place to get certified product into and increasingly so. So it's an EU GMP standard with audits. We just had ours, as we mentioned, so we're good for 3 years. Others have had different issues. I'm not here to sort of speak negatively about that situation. I can tell you, though, that our Canadian facilities and the German facilities that are certified are solid. That vertical integration that we have, growing the vast majority of the products we sell in certified EU GMP facilities creates an advantage for us. I mean there's no disruption. And as we mentioned in our comments, is lost, this is medicine. And so for patients and practitioners, they value that consistency of high-quality certified supply. And more and more so, so are the regulators and other key stakeholders. So I think that advantage is going to continue to grow for us and not only be in Germany, but also be in other markets. William Kirk: And if I could sneak one more in for Simona. There was a big drop in accounts payable in 2Q from 1Q. And as far as I can tell, it's the lowest absolute level in a long time. So why the change quarter-over-quarter in accounts payable and why so low? Simona King: Yes. Thank you for the question. And typically, what we see in Q2, a lot of the outflows, cash outflows occur in that quarter as a result of various activities that historically have occurred in Q2. So that's the reason that the accounts payable has gone down. And again, this is in line with historical trends that we generally see in the second quarter of the fiscal year. Operator: Next question, Frederico Gomes with ATB Capital Markets. Frederico Yokota Gomes: First question is on the proposed change to the budget in Canada regarding the, I guess, the price ceiling for reimbursement for medical cannabis veterans. So how do you see that? What could be the impact to your business in Canada? Miguel Martin: So let me first say that this came out last night, but we're disappointed that the federal government has proposed these changes without consultation from the cannabis industry or medical cannabis companies like Aurora. Importantly, veteran patients depend on a clinically supported system that ensures for them safe, consistent access to their cannabis medications. Lowering and this potential lowering of the reimbursement rate puts that entire support system at risk, could disrupt continuity of care, clinical oversight or even push patients to higher-risk alternatives. So given the newness of this announcement and really the uncertainty of the timelines of implementation and lack of consultation, which hasn't happened yet, we're in the process of evaluating the impact and our next steps, and it would be premature for me to comment. But it's early days. It just came out last night, and a lot is going to happen until we see where this lands. Frederico Yokota Gomes: Perfect. I guess one other question. Did you see any impact in Germany regarding that period in which I think they halted the cannabis import permits there because they had reached their quota. Did you see any impact in the market, or for Aurora specifically? And secondly, just to follow up on Germany. Could you comment on price compression in that market? Miguel Martin: Yes. I mean, so what you're referencing is that the German government had hit their import limit and they had to get -- which is very common, and it happens throughout the year as they want to raise the overall limit. And so it was about a 3 or 4-week process. Didn't disrupt us. We have a great relationship with the regulators and the staging of our permits for that market were fine and started back in January, it will go back to the higher number and everything should be there. I can't speak to others. In terms of pricing in Germany, like a lot of markets, we're seeing compression mostly on the value side. And so we operate mostly in the core and the premium piece and so baseline pricing for where we operate really hasn't been that affected. Now as I mentioned with Bill's question, with the implementation of telehealth and some other sort of aspects of that distribution chain, there are some additional costs that are coming in on that side. But overall, we've been pretty happy with the way the pricing has landed for core and premium products. Operator: Next question, Derek Lessard with TD Cowen. Derek Lessard: Congrats on a very solid quarter there. Miguel, just a question on the German investment that you recently announced. Curious what you're seeing in the market that led to that decision. Miguel Martin: Yes. I assume you're talking about the Leuna production facility? Derek Lessard: Yes. Miguel Martin: Yes. So we've got 2 very large EU GMP facilities in Ontario. We built a facility in Leuna, Germany. And for indoor GMP, similar genetics, similar setup to what we do in Canada. We've been really happy with it, and thus, the announcement to double production. Even with a bit of higher energy costs, it's still a very compelling proposition to have that facility straight up producing. So we added upgrades to very innovative lighting and irrigation systems to mirror what we're doing in Canada, again, being able to use the same world-class practices and genetics in that facility, doubling the overall production in there. And importantly, having an EU GMP certified modern indoor facility in Mainland Europe has been great. We've had delegations from countries that are in the cannabis system. We have had delegations from countries that are not in the cannabis system. Regulators and a lot of other key stakeholders visit that facility, and it's been very additive for us. And so we like it. It works as a stand-alone production facility, but it works even better as sort of a showcase of everything that we're doing in that key market. Derek Lessard: Okay. And maybe just one question on Australia. It looks like sales were a little bit softer in the quarter. Can you just maybe talk about that? Miguel Martin: Yes. So Australia is the only market we have where a majority of our sales are in the value segment. And that goes back to the history of the company before we bought the remaining 90%. And the majority of those sales were in a concession system for value products. That's a market where it's been inundated with a lot of value products. And so that's had a bit of an impact on our business there. We are transitioning that market to the same world-class core and premium products we sell everywhere else, and we're very bullish on that. But it's going to take a little bit of time before that portfolio is properly allocated to value being a smaller segment and into core and premium. We're still very bullish on it. It's the biggest market outside of Canada. There are advantages there because you can sell other formats beyond flower and oil, and we've launched edibles and some other things there. So we're bullish on it. It's just as we work through this transition in the portfolio, there's been a little bit of pressure. Operator: Next question comes from Pablo Zuanic with Zuanic & Associates. Pablo Zuanic: Miguel, 2 questions related and the same type of question related to the U.K. and Poland. I think you said you're the market leader in both markets. Do you need to invest downstream there? For example, buying clinics or online pharmacies or brick-and-mortar pharmacies in the U.K., it seems that that market is forward integrated like Australia, and that may be necessary to win in that market. But correct me if I'm wrong. And in the case of Poland, is downstream integration even a possibility or the regulations do not allow that? If you can talk about that, please. Miguel Martin: Sure. We're not the market leader in the U.K., just for clarification. We're one of the top companies, but not the market leader. Let me talk about Poland first. So Poland, we are not allowed to be the wholesaler or distributor. So we can be the manufacturer. There are some companies that also own or have relationships with clinics. As the telehealth system in Poland changed, clinics became very important. And so we partner with clinics, and we continue to look at that. Each and every market, we do look at do we need to own pieces of that vertical structure or can we partner? And there are a lot of great partners out there that want premium, high-quality products from Aurora. So we have a lot of advantages in being able to do that. So right now in Poland, we're the manufacturer. We've got a very substantive team on the ground from selling to prescribing physicians, and interacting with key stakeholders. We are not the wholesaler, and we work with clinics. In the U.K., similar situation. To your point, clinics are very important as a way to onboard and connect with patients, both those coming into the system. So today, we produce the products. We have a very strong network of partnering with wholesalers that's actually expanding. And we have a network of clinics that service it. If it looks like there's an opportunity to change that and actually acquire one part of that vertical, we will. But in some cases, you don't want to compete against your customers. And so I think you sort of have to be careful. But we're very flexible. We have different models in different countries depending on what works for us. Obviously, by our margin structure and the results, it's working, but we stay flexible. Pablo Zuanic: That's good color. Look, I mean, just a follow-up in terms of the timeline for the potential changes in Germany and Australia. In the case of Germany, the way I understand it, the cabinet already approved the changes that have been proposed. Now that has to go through parliament. What's the timeline there? How long could that take? And the same question regarding Australia, the TGA is going through a consultation period. How long could that take? I'm not asking in terms of how things play out, but what are the key milestones that we should be looking for? Miguel Martin: Well, I mean, it's a proposal in Germany from the Health Minister, needs a lot of alignment from a lot of different constituencies. So in terms of timing, we'll know more at the end of this month in terms of what gets put forth. There's going to be a lot of debate on it. So you're going to go into the spring until you know anything about where that's going to land. As we've talked about, there's 2 parts of it. The first part has a lot less impact, which is a change in the telehealth components, not dissimilar to Poland. The second component potentially around the prohibition of delivery of these products, which is completely contrary to how all other medical products are delivered and the impact to rural patients, that's going to be the more controversial one. So we'll see, but end of November, then into the spring in terms of Germany. In Australia, there really isn't a timeline. You've got 2 regulatory agencies that are looking at a variety of different things. I will say we recently saw an interest by the regulatory authorities in Australia to start testing products and looking at some of the adulteration that may be happening in that market to these medical products, and as a company, takes the regulatory responsibilities and production responsibilities seriously, we look forward to that. So Australia is a little bit more open-ended, but you're not hearing things that would have, say, the same impact on the prohibition of delivery through the mail like you hear in Germany. Operator: I would like to turn the floor over to Miguel for closing remarks. Miguel Martin: Well, listen, we're really excited about communicating this quarter to everyone and sharing the work that we're doing. And obviously, we'll continue to do that. We want to thank everyone for their interest in Aurora, and we wish everyone a great day. All the best. Operator: This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.
Operator: Good morning. This is the Chorus Call conference operator. Welcome, and thank you for joining the Fineco Third Quarter 2025 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Alessandro Foti, CEO and General Manager of Fineco. Please go ahead, sir. Alessandro Foti: Good morning, everyone, and thank you for joining our third quarter 2025 results conference call. In the first 9 months of 2025, net profit at EUR 480.5 million and revenues at EUR 969.6 million, supported by our nonfinancial income, investing up by 10% year-on-year, thanks to the volume effect and the higher control of the value chain by Fineco Asset Management, and brokerage is up by 16.5% year-on-year, thanks to the enlargement of our active investors. Importantly, if we zoom on our quarterly dynamics, net profit and revenues were back to the sequential quarter-on-quarter growth. Our net financial income has already bottomed out and fully absorbed the decreasing interest rates and was up around 2% versus the second quarter on the back of positive deposit net sales and positive reinvestment yield. Operating costs well under control at EUR 259.9 million, increasing by around 6% year-on-year by excluding costs related to the growth of the business. Cost income ratio was equal to 26.8%, confirming operating leverage as a key strength of the bank. Moving to our commercial results. The underlying step-up in our growth dynamics gets crystal clear month by month. This is underpinned by the positive tailwinds from structural trends, and we are leveraging on this solid momentum through a more efficient marketing. The result of this acceleration has been clearly visible in the first 9 months of 2025. First of all, we added around 145,000 new clients, up by 33% year-on-year. In October, new clients are around 19,000, the second best month on record, up more than 25% year-on-year. Second, our net sales were EUR 9.4 billion in the 9 months up by strong 36% year-on-year. In October, estimated total net sales saw a further continuation of this trend at around EUR 1.3 billion, up by more than 30% year-on-year. The mix was very positive with assets under management at around EUR 0.5 billion net sales, up by more than 20% year-on-year. Deposits at around minus EUR 0.1 billion, and assets under custody at around EUR 0.9 billion, leading to the best month ever for brokerage revenues at around EUR 31.5 million. Our capital position continued to be strong and safe with a net common equity Tier 1 ratio at 23.9%, and a leverage ratio of 5.11%. On the right-hand side of the slide, you can find the summary of our guidance. Our outlook for 2025 has improved, thanks to the acceleration of the structural growth and under it, our business model. More in detail, our net financial income bottomed earlier than expected in the second quarter, thanks to the positive deposit net sales and reinvestment yields. On investing, we are experiencing the solid year-on-year increase of our assets under management net sales currently with the lower interest rates. Brokerage revenues for 2025, we expect a record year, thanks to the continuously growing floor driven by the higher asset under custody and enlargement of our active investors. October revenues are just the latest evidence of the higher floor of the business. Banking fees are expecting a slight decrease in 2025 versus 2024 due to new regulation on instant payment. On operating costs, we expect a growth around 6% year-on-year, not including a few millions of additional costs for growth initiatives in a range between EUR 5 million and EUR 10 million, mainly for marketing and Fineco Asset Management and AI. Finally, in 2025, we expect a payout ratio in the range between 70% and 80%. On 2026, we expect all the business areas to contribute positively in terms of growth to our revenue growth. Net interest income is expected to grow year-on-year on the back of positive deposits, net sales and reinvestment yields. On investing, we expect a solid growth on our asset under management net sales. Banking fees expected to grow on the back of a higher number of clients. Brokerage revenue expected to grow, thanks to the increase of the asset under custody and active investors. On 2026 guidance, more details will be provided during the next year, Capital Market Day on March 4. Let's now move to Slide 5. Before moving into the details of the presentation, let me stress that month after month, Fineco is recording a continuous acceleration of its growth dynamics supported by a very healthy underlying quality. As you know, our business model relies on diversified and quality revenue stream, allowing the bank to deal with any market environment. On the banking revenues, our net financial income is a capital-light one with lending being only in an ancillary business, and it's driven by how our clients valuable and sticky transactional liquidity. Let me stress that deposits are joining our platform for the quality of our banking services and not due to aggressive commercial campaign on short-term rates. That's why our deposits are so valuable and our cost of funding is practically close to 0. Our investing revenues are recording and healthy and future-proof expansion as they are already aligned with clients' rising demand for transparency, efficiency and convenience. This approach is mirrored in the quality of our revenue mix, which is almost entirely recurring with a very low percentage of upfront fees and no performance fees at all. Finally, our brokerage is clearly experiencing a further step up on the floor of the business, thanks to the capability of our platform to have a structurally higher number of active investors, leading to a structurally higher stock of assets under custody. This is driven by the structural increase in client interest to be more active on the financial market, and this is building a bridge between the brokerage and investing world, which we are the only one able to scoop given our market position. Let's now move to Slide 7 and start commenting on the most recent plan. Net financial income fully absorbed the decreasing market rates, thanks to the organic growth and our valuable deposit base. This net financial income was up by 1.9% quarter-on-quarter, led by the positive deposit, net fees in the higher reinvestment yield of our bonds running off. This despite the still declining average 3-month Euribor. Let me quickly remind you the quality of our net interest income, which is capital light and driven by our clients' valuable and sticky transactional liquidity. That's why our deposits are so valuable and will be the driver going forward for the growth of our net financial income. Let's now move on to Slide 8. Investing revenues reached EUR 295.6 million in the first 9 months of 2025, increasing by a solid 10% year-on-year on the back both of growing volumes, thanks to our best-in-class market positioning and of the higher efficiency of the value chain through Fineco Asset Management. Let me remind you the great quality of our investing revenues mirroring our transparent and fair approach towards clients. Our revenues are mostly driven by recurring management fees with very low upfront and no performance fees at all. Let's move on to Slide 9. In this slide, we are representing the 2 main sources of growth for our investing business going forward. On one hand, the Fineco Asset Management is progressively increasing the control of the investing value chain, its contribution to the group net sales has been consistent over the cycle, thanks to its incredible time to market in delivering new investment solutions aligned with clients' needs. The contribution of Fineco Asset Management, assets under management after the total stock of assets under management has been steadily growing, and it's now equal to 39%. On the other hand, being a platform, Fineco is the best place to catch the latest trends in terms of client investment behaviors. There is a clear change underway in the structure of the market with clients increasingly looking for transparent, efficient and convenient solutions. All of this is channeling a strong demand towards advanced advisory services and with an explicit fee where Fineco is by far the best positioned in Italy, as you can see down in the slide. Let's now move to Slide 10 for a focus on brokerage. Brokerage registered a very strong first 9 months with EUR 187 million revenues driven by our larger active investment base and growing stock of assets under custody. October further built on this, delivering a record month with EUR 31.5 million estimated revenues. Let me stress that the revenues to our assets under custody are expected to grow as we roll out our new initiatives on stock lending, auto forex, ETFs and systematic internalizer. Average revenues in the 9 months are around 7.3% higher versus 2020 with much healthier underlying dynamics. This is driven by the structural increase in client interest to be more active on the financial markets and building a clear bridge between the brokers and investing world. The brokerage business represents the best sign of how fast the structural financial market is evolving as technology is driving a swift change in clients' behaviors, thanks to higher transparency. For this reason, we consider the brokers Italian market very underpenetrated, and we see a strong opportunity to grow despite already being the market leader. And again, October numbers are a clear sign of this opportunity. Let's now move on the Slide 12 for a focus on our capital ratio. Fineco confirmed once again capital position well above requirement on the wave of a safe balance sheet. Common equity Tier 1 ratio at 23.93%, and the leverage ratio at a very sound 5.11%, while risk-weighted assets were equal to EUR 5.81 billion, total capital ratio at 32.53%. As for the liquidity ratios, liquidity coverage ratios is over 900% and net stable funding ratio is over 400%, while the ratio, high-quality liquid assets on deposits is at 80%, well above the average of the industry. Going forward, we confirm that we will continue to generate capital structure and organically, thanks to our capital light business model. Given the strong acceleration of our growth, we are taking more time to have a clear view on deposit net sales going forward and the underlying dynamics are strongly improving. If despite the strong acceleration in our growth, there will remain excess capital, we will decide on the best way to return it back to the market. Now let's move to Slide 18. Let's now focus on our guidance. Our outlook for 2025 has improved thanks to the acceleration of the structural trends behind our business. More in details, our net financial income bottomed earlier than expected, thanks to the positive deposit net sales and reinvestment yields. On investing, we are experiencing the solid year-on-year increase of our assets under management net sales currently with lower interest rates. Brokerage revenues are expected to remain strong with a continuously growing floor, thanks to the higher asset under custody and the enlargement of our active investor base. For 2025, we expect record revenues with October number being just the latest evidence of the higher floor. Banking fees are expected with a slight decrease compared to 2024 due to the new regulation on instant payments. For 2026, we expect all the business hires to contribute positively to our revenue growth. The net interest income is expected to grow year-on-year on the back of deposits, net sales and reinvestment yields. On investing, we expected solid growth of our assets under management net sales. Banking fees are expected to grow on the back of higher clients. Brokerage revenues are expected to grow, thanks to the higher asset under custody and the enlargement of active investors. On 2026 guidance, more details will be provided during the next year Capital Market Day on March 4. On operating cost for 2025, we expect to grow at around 6% year-on-year, not including few millions of additional costs for growth initiatives in a range between EUR 5 million and EUR 10 million mainly for marketing, Fineco asset management and AI initiatives. Cost/income, we expect it comfortably below 30% in 2025, thanks to the scalability of our platform and the strong operating gearing we have. On the payout ratio, we expect that for 2025 in a range between 70% and 80%. On leverage ratio, our goal is to remain above 4.5%. Cost of risk was equal to 7 basis points, thanks to the quality of our lending portfolio. And for 2025, we expect it in the range between 5 and 10 basis points. Finally, we expect a robust and high-quality net sales and the continued strong growth expected for our client acquisition as we are in the sweet spot to keep on adding new market shares. Let now move on to Slide 19 for a deep dive on our growth opportunities. Fineco enjoy a unique market positioning to catch the long-term growth opportunity, resulting by the huge Italian households whilst in the fast-changing clients' behaviors. In the graph, you can see the strong potential of our growth given the stock of financial wealth on the Italian families. Our market share is still small, and the room to grow is huge. We are very positive on our future outlook as we have no competition on our market positioning. As a matter of fact, Fineco is the only big player with a service model truly based on transparency, efficiency and convenience. Moving now to Slide 20. The step-up of our growth trajectory is clearly materializing, as you can easily see in our recent client acquisition. On top of the slide, you can see the impressive acceleration of new clients, which is further building up in the first 9 months of 2025. This acceleration is very healthy because it's based on the quality of our offer and not on an aggressive marketing campaign with short-term rate remuneration. As a result, all our new clients are improving the metrics of the bank by bringing more deposits or more business for brokerage and investing. This value is recognized by our clients, as shown by our customer satisfaction of 94% and our Net Promoter Score way above the industry average. Let's now move to Slide 21. The cumulative growth on high-quality new clients is translating into better net sales dynamics shown by the 36% increase of our total net sales year-on-year. Let me share that the mix of our net sales mirrors our positioning as the reference partner for all clients' financial needs, with asset under management is driven by client interest for transparent, efficient and convenient investment solution. Our banking platform is attracting valuable transaction liquidity. Finally, asset under custody are clearly sign of the increasing clients' engagement on our brokerage platform, thus contributing to our revenue generation. On top of this, we see a sizable mix shift opportunity coming from the huge stock of Govies of our clients, both over the last couple of years. Let me now hand it to Paolo, our Deputy General Manager and Head of Global Business, to comment on Slide 22. Paolo Grazia: Thank you, Alessandro. Good morning, everybody. As you know, the financial industry is quickly heading into an inflection point and it's going to be heavily reshaped by technology. Thanks to our deep internal know-how and data control, Fineco is the only real player able to take massive advantage from it and to further accelerate our growth journey. This will be reached with our usual cost effective approach. We are planning to launch an efficient and pervasive AI implementation in 2 directions. First, focusing on productivity of our network of personal financial adviser; and second, playing attention to the cost efficiency and the bank -- of the bank by reshaping the internal processes. While on the latter, we will update the market in the next month. We have already started to reengineer our financial adviser platform with the integration of an AI assistant. This is a key enabler to boost our network productivity and deliver a better quality service to clients, and ultimately improving our revenues growth via stronger net sales and assets under management. Our very first initiatives are already live and widely used by our network. Our financial planners have in their hands a powerful AI assistant, which is going to be a game changer for wealth management. In the slide, you can see the main features of the AI assistant, among which is worth underlying, one, the portfolio builder, a powerful tool to immediately create quality portfolio fed with Fineco financial logic and optimize on client goals. And the portfolio builder is also a content creator, a communication tool able to create professional and customizable reports, proposals, portfolio reviews and brochures automatically generating narratives, content to support the financial planners. It's also a powerful marketing tool, allowing for comparison of existing portfolio of prospect clients. The AI system is also a search tool, a faster info-search process for internal memo and communication. The next wave of AI implementation will focus on CRM for our financial advisers, fully integrated with client data. It will empower our financial adviser to manage their agenda more efficiently, enabling a structured approach to client engagement and cross-selling by streamlining customer management and unlocking new commercial opportunities. This will represent a further step in enhancing productivity across our network and driving for an even stronger growth. Finally, we are working to bring an AI powered search tool also to our brokerage client, our finance clients, allowing for an even easier experience to our state-of-the-art platform. I will hand it back to Alessandro to move on Slide 23. Alessandro Foti: Thank you, Paolo. Let me now focus on our assets under custody, a component to our business that is sometimes undervalued by the market, but that is the real cornerstone of our fee-driven growth. This is true for investing as assets under custody remains the main source fueling our asset under management sales. As you know, around 90% of our growth is organically driven. As a consequence, new clients tend to show an asset allocation more skewed towards assets under custody, and the job of our financial advisers is to improve their mix into asset under management. For brokerage, the expansion of assets under custody and the growing base of active investors are key factors leading to a structurally higher floor in our revenues, which we expect to grow as we roll out our new initiatives on the stock lending, after-tax, ETFs and systematic internalizers. Finally, in the fast-growing ETF space, we are exploring new revenue opportunities, which we expand moving into Slide 24. Fineco is uniquely positioned to capture the strong client-driven shift towards more efficient investment solutions such as ETFs. The stock is quickly on the rise and now exceed EUR 15 billion. And ETFs now accounting for half of the asset under custody net sales. Thanks to our focus on transparency, efficiency and convenience, we are the only player capable of fully recognizing and monetize the structural trend with no harm on our profitability. First of all, the growing interest on ETFs is generating a positive volume effect for our investing business, thanks to our advanced advisory wrappers made of ETFs, we can move in the investing world of clients that are not interested in traditional mutual funds, thus we have no cannibalization risk on the existing fund business. At the same time, our leadership in ETFs retail flows makes us the main gateway for issues into the Italian retail market, while we currently manage all cost to handle clients without recurring fees from ETFs, talks are underway with our partners to find a fair balance. Finally, Fineco Asset Management is going to be playing a big role in the ETFs world, our Irish firm already launched its first active ETFs, and more are going to be introduced. Thank you for your time. We can now open the call to questions. Operator: [Operator Instructions] The first question is from Marco Nicolai of Jefferies. Marco Nicolai: First question is on the brokerage number for October. So almost EUR 32 million in a month. It's a record number. Just wanted to know if there is some -- so what's the impact from the BTP Valore issuance? And if you can comment on the underlying trend x the BTP Valore revenues? Then another question on the crypto front. I think you didn't mention it in the various projects in the presentation, you mentioned AI and other projects but not crypto. Just wanted to know if you had any updates there on the talks with Bank of Italy? One of your peers got recently the MiCA license from Cyprus in the past days. I don't know, my perception is that there could be other geographies that are quicker than Italy in granting these licenses and if that could slow down your projects here and the growth you could have in brokerage coming from the crypto side? And then another question on the payout. You mentioned 70% to 80% for 2025. I guess your leverage ratio will be well above your minimum targets for '25. And if that's the case, shall we consider 80% for 2025? Or you think there are other moving parts in the leverage ratio that could negatively affect it? So these are my questions. Alessandro Foti: Let me start by commenting on the October brokerage numbers. The impact of the -- from the BTP Valore has been more or less in the region of EUR 5 million. So this means that in any case is remaining so excluding the contribution of the BTP Valore, the numbers are EUR 26 million revenues in the month of October, that is quite significantly above the average of the revenues generated in the previous month. And this clearly is clear, perfectly current with the underlying trends that we are commenting by some time. So there is a continuous quite significant growth of the base of clients whereas continuously adding new active investor to the platform. Second, the continuous building up of assets under custody is clearly contributing in that direction because clients are not trading -- are trading stocks and trading bonds and they are trading ETFs as well. And so we remain extremely positive on the future evolution of brokerage exactly for the reasons we commented during the presentation. So structural changes underway and a continuously growing quite significantly the important growth in terms of number of clients and the Fineco emerging as the clear winning platform here in Italy. On crypto, I leave the floor to Paolo for giving the latest update on what's going on there. Paolo Grazia: So the crypto is still a project. We're still in talks with the regulator. We have no news for now from the last call that we had. We are very aware that we have plenty of competitors that are getting the MiCA license. Unfortunately, in Italy, there is nobody yet, I guess, that has MiCA license, but we keep on talking and explaining our view to the regulators, and we hope we will come with a solution in the next few months. Alessandro Foti: On the payout, we clearly, what we want to make very clear that Fineco is a growth story, it's a unique growth story because the uniqueness is represented by the fact that we are combining together an incredibly pool of growth together with a quite generous payments of dividends. But we are not a dividend stock. So clearly, our goal is not to give the market the highest possible dividend. So our main goal is to keep on accelerating as much as we can in directional growth. At the same time, remaining in a very compelling story from a dividend point of view. So clearly, we will see. So now, we are at year-end, we are going to take the final decision, which is going to be the final dividend payout. But so there's that. Again, my opinion there, the most important takeaway that again, Fineco is a quite unique case in the financial industry, strong growth and at the same time, very generous deal. Operator: The next question is from Luigi De Bellis of Equita. Luigi De Bellis: I have 3 questions. The first one, so in the recent months, Fineco has seen an acceleration in new client growth. What has changed to drive this momentum? And if do you expect this trend to continue at the same speed in terms of client acquisition? And can you comment also on the quality profile of this newly acquired client and also the acceleration that we are seeing in the net bank transfer that you mentioned in the Slide #7, that is above plus 20%. The second question on the asset under custody so a huge amount reaching EUR 52 billion. You mentioned the revenues on assets under custody expected to grow. Can you elaborate on this and the speed of this acceleration expected? And the last question on the Germany project. So could you provide an update on the initiatives? What are the current development and expected time lines for the rollout? Alessandro Foti: Yes. Regarding the acceleration of new clients, what is driving this growth is clearly structural tailwinds because as we explaining continuously that Fineco is the only one large established significant bank in Italy that is really offering efficiency, transparency and convenience. And this kind of demand is rapidly growing, driven by the completely different technological landscape, which I think is much easier to make comparison. It's -- everything is the information is spreading out incredibly rapidly. And then there is quite significantly accelerating process of generational passage. So Fineco is the -- so now that there is the x generation that is mostly entering into the game. And this generation is characterized by significantly different habits and behaviors by the previous generations, where again, sorry if I'm repeating myself, the request for efficiency, transparency and convenience is emerging as a clear need. And Fineco is the only one player that is fully satisfied this -- for this reason, we think that really, the strong growth is going to continue, probably is going to keep on accelerating even more going forward because all these tailwinds are going to keep on gaining strength and momentum. And the acceleration of the net bank transfer has an immediate consequence of this because -- and this also is giving to me the opportunity to answer to the other questions on the quality of new clients. The quality is remaining extremely high and robust. We are not observing any kind of dilution in the quality of clients we are taking on board. And this clearly is mainly driven by the approach by the business model of the bank. Very importantly, Fineco is not attracting clients because it's taking shortcuts. We are not putting in place aggressive short-term initiatives for taking on board new clients. So we are not, for example, overpaying clients with high rates on the projects. By the way, in this moment, we have -- there are plenty of banks that they are making continuously very, very high offer on rates. But we're not -- and so the results that the clients that are opening an account in Fineco, they are opening an account just exclusively because they are interested in using our platforms, our services. And this really is very positive for the -- in terms of quality of clients, and is incredibly positive for the evolution of the revenue generation that is going to every single additional client we are adding to the platform is to some extent, contributing in increasing the revenues of the bank. And on the speed of growth in brokerage revenues, as we are saying. So the more clients we are taking on board, the more assets under custody we are keeping on building up and the more you can expect that the floor of the business is continuously going up. We are driving on the concept of floor because we are interested in seeing -- on seeing how brokerage is performing without considering the theoretically short-term impact caused by volatility. By the way, until so far, the volatility this year has not been particularly relevant, has been a level of volatility that has been, let me say, average. So this is clear. And so yes, brokerage to remain on the fast lane growth. On the time line and what's going on, on the Germany rollout, again, I'm leaving the floor to Paolo to give a little bit more flavor. Paolo Grazia: Yes, we have the plan. We finalized all the information we needed. And we still miss some internal approval, but we have the idea of rolling out by the end of 2026 in the friends and family mode. So this is pretty much the time horizon we have. Operator: The next question is from Enrico Bolzoni of JPMorgan. Enrico Bolzoni: So I have a few million brokerage given the very strong print. So you mentioned about the possibility of monetizing that you see in different ways. One of your European competitors recently announced the decision to offer securities lending on AUC, and they were quite specific so they disclosed that they think they'd be able to generate about 20 basis point margin on the AUC that are eligible for securities lending. So I wanted to ask you, first of all, where do you stand in that process? I think it's something in the past you mentioned you wanted to pursue yourself? Second question, what proportion of your AUC is eligible? And thirdly, if you can confirm that 20 basis point might be reasonable number to expect in terms of revenue that you could generate out of that? So that's my first question. And then my second question, I was looking at your AUM flows. So in the quarter, you had over EUR 900 million. You also disclosed that a good chunk of that, so roughly EUR 600 million came from Advanced Advisory Solutions, which is positive. But could you please disclose what was the margin on average on this EUR 600 million of AUM that actually related to what you see after. That would be helpful for us to understand whether indeed there is no margin dilution from these type of contracts. Alessandro Foti: Okay. Thank you. So regarding on the -- let me start by brokerage. Possibility to monetize assets under custody, yes, as we explained during the presentation. The way we have quite a very interesting additional evolution there in terms of increasing the margins generated by assets under custody. Let me remind, one is, for sure, represented by the stock lending. The bank is in the process of deploying a much an extremely structured platform for taking advantage by the stock lending and some. On the margins, clearly, 20 basis points we think that overall is a conservative number. So it probably can be even more. And on the proportion of assets under custody eligible, this is a moving picture because exactly one of the rationale behind the platform is going to expand as much as we can the eligible amount of assets under custody we have, and so particularly. Another clear direction is the -- as we were mentioning, is represented by the AutoFX and some of them, I will leave to Paolo and some -- if you want to make some technical comments on the AutoFX. Paolo Grazia: Yes. We have a growing number of orders that are going to the American, the United States market, NASDAQ and NYSE. So there is a lot of flows going there. And of course, there is big revenues attached because our clients, they have euros on their accounts and they trade on the USD. So the AutoFX is a new service that allows the client to be much more -- it's a faster mode of executing an order. So the exchange is made automatically by the platform. So this is something that is giving us a simpler order for the clients. So it's easier for the client to place the order. And for us, there is a slightly higher margin compared to the fact that before the client had to change every time the FX, the AutoFX is better for the client, but also better for us. Alessandro Foti: Then we have exactly, what we are continuously now -- is the other announcement in terms of revenues represented by ETFs. So what's going on there? We think -- we confirm that by year-end, we are going to finalize the first arrangement that you get by the ETFs were the recurring fees. Overall, at the European level, the industry is moving exactly in that direction. So the largest issues are progressively moving in the direction to close arrangements with the largest European players in terms of control of retail flows on ETFs, and Fineco is going to be one of them. And so this clearly, again, is confirming the importance to play big, to be really the reference platform there. On the asset under management flows. So on the margin, so we are not making any specific distinction. So for us, the margins, on the -- so for us, it's indifferent if the clients are putting in the advisory platforms, actively managed funds, ETFs, assets under custody because what the clients paying is an advisory fee that is totally different. It's totally not correlated with -- is independent by the -- what is put in the portfolio. So theoretically, the clients can ask of having a portfolio that is made exclusive by asset under custody. And for us, the margins are going to be exactly the same if the client is putting -- is having a portfolio represented 100% by actively managed parts. So this exactly is something that is the great advantage that Fineco has. Fineco is extremely advanced in making clients paying an advisory fee. And so being completely detached by the inducement based model. And so again, this is going to be another big trend that is emerging. Enrico Bolzoni: If I maybe, just a very quick follow-up. It's very helpful when you commented the 20 bps is perhaps low. I think that the idea behind that 20 bps is that a portion of the revenues will be shared with clients. So the underlying return could be actually higher than 20 bps. Is this what you are also thinking of? So 20 bps, could it be a number that you internalize so net what you pay to clients from securities lending? Or you think it could be generally an even bigger number? Alessandro Foti: So it's clear that when we are showing the margins, we are considering that we have to pay the clients because this is clearly by law. And so clearly, there is a gain so we can confirm that we think that also including what we have to pay to clients, probably this 20 basis point margin is on the conservative side. Operator: The next question is from Hugo Cruz of KBW. Hugo Moniz Marques Da Cruz: I just had a question around your comment on brokerage revenues and how that converts into P&L, particularly trading profit because when I look at consensus, it is trading flat, flattish going forward. So that doesn't seem to make sense to me in light of your comments that brokerage revenue should continue to go up. So if you could give a bit more color on how the brokerage revenues and trading profit, how we convert into trading profit? Alessandro Foti: First of all, let me remind you that for us, trading profit is not something that is driven by the bank taking some kind of risk, it's a kind of free of risk market making. So we are -- when we were mentioning among the components that they are -- we expect are going to keep on contributing in making the brokerage revenues growing, also the systematic internalization of orders of clients. And so we expect that the more we are going to keep on building up the volumes and business, and as well, we expect also the opportunity offered by the systematic internalizing -- internalization of orders is going to keep on growing as well. We are not surprised by the fact that the market tends to be a little bit always in a step behind what's going on in brokerage because as we said during the presentation, probably everything that is in the region of assets under custody and brokerage, brokerage has been probably a little bit the most misunderstood component of our business because clearly, as we are seeing assets, typically until the recent past, big growth in asset under custody has been not very well welcomed by the market. But the asset under custody clearly is the fuel for brokerage going forward and for the asset under management as well. So we think that brokerage is by definition on the fast lane of growth in the future exactly for a combination of structural reason, big growth of clients and a significant shift in the client's views and the increasing level of participation of clients, and the growing interest by clients for solutions like represented by ETFs, what is important to remind that when we're talking about brokerage, clients are trading on everything on the platforms. They're trading on stocks, they're trading on ETFs, but their trading on bonds as well. And so this is the reason why the brokerage is going to keep on doing very well. Operator: The next question is from Christiane Holstein of Bank of America. Christiane Holstein: My first one is on the CMD next year. So I know you flagged that you'll be announcing 2026 guidance. But just because there has been a CMD before, I was just wondering what else we can expect? Are you looking to also give a multiyear target, for example? Secondly, you previously highlighted the introduction of private markets in September. I didn't hear any update on this. So I was wondering if you could better say how that's been going and then how the interest has been from clients so far? And then thirdly, on investing management fee margin. So this has seemed to be relatively stable more recently. I know you also flagged the benefits from ETP on investing and obviously, FAM is higher margin. So as the uptake here improves, we should hopefully expect the margin to strengthen. But I was just wondering what your expectations are here. Alessandro Foti: So on the -- what you can expect by the Capital Market Day on the next March 2026. From Capital Markets Day, we are going to give a much further and much more important and relevant details regarding what you can expect in terms of our strategy, evolution, also the rationale behind the entering more in depth, also in the initiatives, what we are going, what we can expect we are going to deliver to the market. And yes, finally we are going to give to the market that something that is going to help you in better modeling on the longer term, the projections of the bank. Yes. We think that this is the right moment because as we are saying, the bank is technically entering in a significantly different -- it's moving throughout in a relevant inflection point because this is exactly what's going on in the market. And so we think that we -- is the right moment to share with the market more details regarding the extremely exciting future that we see ahead for this bank. Private market, this is going to be -- the placement is going to start within the next few days. So probably let me say, by the next week, the product is going to be launched and is going to be up and running, and we will see. We confirm that we remain quite positive because there is an evident demand by clients. And so yes, in the next few days, this is going to be deployed. And commenting on investment management fee markets. As you know, we don't like to drive the market on the fee margins because clearly, for us, what is important is the direct -- is the evolution of revenues because revenues is a combination of volumes and margins. And these are much more important because this tends to clearly to -- tends to better represent the evolution of the market. It's a matter of fact that Fineco is by definition in a much better position than the industry in order also of having more stable margins because we are definitely less under pressure. But for 2 main reasons. The first one that Fineco is historically positioned on the lower side in terms of commissions we are charging to clients. And so by definition, this is making us less exposed to the building up pressure on margins. Second, that the journey in terms of increasing penetration of the asset under -- Fineco Asset Management solution is still underway. And this is different by other participants of the industry that now has been where the percentage represented by the whole internal products has been -- everything has been almost done. And this, in any case, with Fineco remaining and the only one large and truly open platform because this continuously growing percentage of Fineco Asset Management products is not driven by the fact that we are expected to close down the platform. The platform is going to remain an open platform. It's driven by the fact that Fineco is incredibly great in delivering continuously extremely innovative solutions and incredibly fast on bringing this to the market and so being able to remain always a step ahead of the market. Operator: The next question is from Gian Luca Ferrari of Mediobanca. Gian Ferrari: Three for me, please. First, on the AI project that Paolo described, can you share with us some KPIs of the business case here? So how much you invested in this project? And if you calculate any IRR you expect from the project itself. Second question is on the EUR 22 billion bonds. How much is expiring in 2026? And if you can remind us what is the conversion rate you expect to have on those bonds? The final one is on your lending and particularly on the fact that the stock has remained flat at EUR 5.1 billion in the context of declining interest rates. So I was wondering if your clients have any appetite for a bit of re-leverage considering your very strong capital ratios and lower interest rates. Alessandro Foti: So on the AI project. So first of all, let me make few comments there. So Fineco, is in a great position in order to leverage on AI because thanks to the kind of bank we are, that Fineco is a tech company. So with AI, what is the most important element is not exactly how much you spend. But how much you are able to transform what you are investing in something that makes sense. So in the AI project, what is really -- so because everybody theoretically, there is no -- it's a commodity, the AI agents are commodities. And so the real difference is made by your capability of leveraging on high-quality, easily accessible base of data because if you don't have that, artificial intelligence is not going to work. And second, you had to be in the position to train your system, your products and so on. And again, you were back again to the point. So Fineco is -- being a tech company because Fineco is not just using technology, but is in control of the most part of the technology we are using. So this means that, for example, our data warehousing system has been by many years, a key strength of the bank. So for us, it's extremely easy to extract high-quality, easily accessible data. This make what you need in terms of investments much less than is presently requested by someone that sit on a much more complex infrastructure. So for example, if you are mostly leveraging on outsourced platforms or you sit on different layers of software, and so clearly, this is going to be to extract easily accessible and high-quality data is going to be really very difficult and incredibly expensive. The same way for the training the programs. So the more you are in control of your processes, the more you are in control of your platforms, and the easier it's going to be to go throughout the training process. You don't need to have, for example, external system integrator, taking care of you for training the process. And so this means that again, I think this is going to be much better in terms of results and much, much less expensive. And so honestly speaking, so our AI projects are what we expect to invest considering what to expect to get for this project. Honestly speaking, this is a completely meaningless point because we expect quite an important increase in the productivity of network. We expect a significant improvement in the process of the bank. But on top of that, what we expect to spend is going to be really fraction of the positive impact caused by the... Gian Ferrari: And on the increased productivity, any quantitative indication? Alessandro Foti: I think that -- so let me say. So also assuming, let me say, staying on the conservative side, and assuming, I don't know, a 10% increase in the productivity, this is going to be a huge number. So -- but Paolo can give you a little bit more color on this point. Paolo Grazia: Yes. On the KPI, we are really on unchartered waters because it's -- there is no -- there are some studies in the U.S. that they are saying that the productivity of the financial tech can improve up to 20%. And I think it's something that can be reasonable in my opinion. But again, still we are in unchartered waters. So we -- for now, we're just focused on deploying the service, on improving the service, on hiring the people inside the bank that are part of the AI team that is growing. And as usual, we focus and we put effort on having our own resources, our own people that develop the technology. And I think we're doing a great job, and we are very happy with the fact that we are very fast in developing new tools and delivering to the -- for now to the financial planner, to our financial planner platform. Alessandro Foti: On the expiring bonds, next year, EUR 4.2 billion in terms of reinvestment. So what we can expect in terms of transformation, for example, in asset under management solution. This clearly depends on the market conditions. So as much as we stay in an environment with short-term rates, low and the yield curve keeping or remaining positively shaped, if not even steeper. And this clearly is going to be -- is going to bode well for a continuously increasing transformation rate. But again, it's difficult to give you a precise number right now because -- but what we can say that the conversion rate is mostly driven by the combination of short-term rates staying low and the yield curve remaining. And the steeper it is, the yield curve and the better it is for the transformation process. On lending, yes, the stock is flat, but we are observing some interesting transformation because, again, we confirm that we don't have any particular appetite for the residential mortgage business that we consider by far the lowest profitable product that a bank can have on the shelf. For these reasons, we don't have any appetite for residential. We are providing residential mortgages just to our interesting clients. And so we expect that the overall stock on there is going to keep on declining. At the same time, there is a quite significant growing interest by clients for the Lombard loans. And Lombard loans are expected to keep on building up. We have in the pipeline a very interesting future developments there that we think are going to keep on making quite even more interested in using our Lombard loan solutions. Operator: The next question is from Ian White of Autonomous Research. Ian White: Just a few from my side as well, please. Firstly, just going back to the net management fee margin. It is about flat year-over-year by my calculations at 69 bps. Can you just help us understand the moving parts there? I'm looking at the details. The insurance products have declined, equity markets are higher, FAM penetration is higher. So are you able just to complete that bridge for me, why aren't we seeing more margin accretion there year-over-year, please? That's question one. Secondly, on Slide 23, you mentioned that the adviser network is focused on improving client mix from AUC into AUM. Can you just talk us through a little bit of what those efforts actually look like in practice. I'm wondering if it mostly requires convincing your clients to switch from being an execution-only customer to an advised customer? And also if you can share any figures there to help us better understand the flow of client assets from AUC into AUM, please? And that's question two. And just lastly, you mentioned in your prepared remarks the systematic internalizer as a forward-looking driver of growth in brokerage. Can I just clarify, is something likely to change there in the coming months that would increase revenue capture? Are there certain products where you might begin internalizing that you're not currently, for example? And that's my third question. Alessandro Foti: Let me start by the net fee margins. So the net fee margins remained relatively stable. And so exactly for the reasons we were describing. So the bank is definitely in a more comfortable position with respect to the industry because it's been always characterized by not overcharging clients with very high commissions. And so by definition, we are definitely less vulnerable than the industry on the building up pressure on margins. And second, the driver are mostly -- so yes, insurance is lower. So because -- and the equity markets are not growing particularly big. So still, we are not seeing any significant growth in terms of appetite by clients for the equity market. And for sure, Fineco Asset Management is continuously growing and is contributing on the margins because we had a better control of the value chain. And this despite the mix of the products, both by the client is remaining on the cautious side, mostly represented by fixed income solutions, in any cases, the better control on the exchange contributing. But again, we are not particularly -- for us, the main focus is on the evolution of the revenues because it's clear that overall, we are living in an environment so the huge difference between the, for example, the brokerage world and the investing world that, generally speaking, the investing world as an industry is, by definition, is expected to keep on facing pressure on margins. This is not the key, for example, for the brokerage business. So that's where the pressure on margin is going to be much, much lower. On the other hand, the more you are becoming sophisticated in managing the flows, the infrastructures and the more you are going to have room for increasing your margins, and this is exactly the key when we're talking about the systematic internalizer. Yes, Europe is progressively moving more and more in the direction of being more similar to the U.S. market where a growing component, large component of the profitability is represented by the management of flows. And this is exactly what's going on in Europe as well. So Europe has been lagging behind in a big way, but now, the situation is changing. The example is Germany. Germany is a market in which the percentage represented by the management of flows is quite high there. And yes, clearly, this business is a volume business. The more you are keeping on growing in terms of sites, the more you're keeping on hedging assets on the platform, the more you are going to have high-quality clients using the platform. And the more -- let me say, instead of using systematic internalizing, the management of flows is going to become an important driver in increasing the margins on the brokerage business. And as we are saying, we have plenty of initiatives on the pipeline that's exactly moving in that direction and that are going to deploy in the coming months. And internalizing something that's now you don't -- no, internalizing more that we are doing now that -- because really, we are practically internalizing everything. So ranging from stocks, ETFs. ETFs is emerging as a growing and important component of the -- internally in terms of internalization of flows and so on. So the direction is not internalizing, it's something that now we don't know, but internalizing more and more because clearly, this is -- because we are going to become more sophisticated, the growth on the volumes are going to help, yes, this is a big trend. Operator: The next question is from Alberto Villa of Intermonte SIM. Alberto Villa: Two very quick questions from my side. One is back on the new client acquisition, impressive trend there. I was wondering, how much they are contributing to the net sales in the first 9 months of 2025, let's say, the new clients you get -- you got in the last 12 months? And I was wondering what the average assets you get from a new client after 12 months, if that is already comparable to the average customer you have in-house or there is any, let's say, timing from the acquisition of the client to getting this -- moving the asset to Fineco? And the second question is on the advisory -- advanced advisory stock that has grown now to above EUR 37 billion. I understood that you have the same margin, whatever is the underlying assets the client has. I was wondering what has been the contribution in terms of revenues in the first 9 months of the year from the advanced advisory assets. Alessandro Foti: So in terms of what is the contribution of the new client acquisition, more or less, we can say that in terms of new total financial assets, 65% is brought by the new clients. So the 65% is driven by the new client acquisition, and the remaining part is the continuously growing share of wallet on the existing clients. Yes, this is more or less is the split. And after 12 months, so clearly, we have to make a distinction because there is a kind of polarization in the clients we're acquiring because one is that we have the relatively young clients, they're going big. And the other company that is growing big is represented by the rich clients or other banking clients. These are the 2 segments in which we are growing the most because this, by definition, are the 2 segments that are the most sensible to the concept of getting delivered efficiency, transparency and convenience. And typically, so we -- so yes, after 12 months, we can say that a large part of the -- on the assets of the clients have transferred into the bank. But still, we have a significant room for growing on our existing base of clients because we are making estimates on -- in order to understand which is the potential represented by clients that are theoretically perceived as more clients on the platform and then putting together the significant amount of information we have because having all clients using the transaction banking platforms, we know everything of the clients. So where they're living, how much they're making in terms of salary, the amount of taxes they are paying, where they are spending, how much they're spending. And so at the moment, our so-called still small clients that has an upside of the bank and average potential of another EUR 50 billion, more or less. I'm not saying that we're going to get all of that. But clearly, the more the trends, the new trends are building up in terms of strength and the more also we're going to be able to get even more share of wallet by our clients. The advanced advisory stock, no, we are not giving the split of these revenues. Operator: The next question is from Elena Perini of Intesa Sanpaolo. Elena Perini: I've got only one last question. It is to ask you if you have already made some calculations about the potential impact of the Italian Budget Law for next year? Alessandro Foti: Not yet because everything is still so unclear that it's probably, yes, we are making some time, some simulation, taking -- considering the rumors that are on the market. But honestly speaking, it's a little bit -- I think that the risk is to -- is a waste of time because everything is still underway. But honestly speaking, we are completely not concerned by this because this is not -- for us, what is important is the structural trajectory of the bank. So this can be, okay, fine. It's part of the game, but it's not going to change anything. So we are not, honestly speaking, particularly neither concerned nor particularly interested in what's going on there. Operator: [Operator Instructions] Mr. Foti, there are no more questions registered at this time. Alessandro Foti: Thank you to everybody for the extremely interesting questions we got. As usual, we are absolutely at your disposal for entering in additional follow-up. And so thank you again for taking the time to participate to our financial results conference call. Operator: Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones. Thank you.
Operator: Good morning, and welcome to the Par Pacific Third Quarter Earnings Call. [Operator Instructions] I would now like to turn the conference over to Ashimi Patel, Vice President of Investor Relations. Please go ahead. Ashimi Patel: Thank you, George. Welcome to Par Pacific's Third Quarter Earnings Conference Call. Joining me today are William Monteleone, President and Chief Executive Officer; Richard Creamer, EVP of Refining and Logistics; and Shawn Flores, SVP and Chief Financial Officer. Before we begin, note that our comments today may include forward-looking statements. Any forward-looking statements are subject to change and are not guarantees of future performance or events. They are subject to risks and uncertainties, and actual results may differ materially from these forward-looking statements. Accordingly, investors should not place undue reliance on forward-looking statements, and we disclaim any obligation to update or revise them. I refer you to our investor presentation on our website and to our filings with the SEC for non-GAAP reconciliations and additional information. I'll now turn the call over to our President and Chief Executive Officer, William Monteleone. William Monteleone: Thank you, Ashimi, and good morning, everyone. We are pleased to announce strong third quarter operating and financial results. The organization fired on all cylinders as we safely and reliably throughput a near record 198,000 barrels per day, maximized logistics system utilization and delivered above industry trend retail results. This crisp commercial and operational execution drove core financial results of $170 million and $2.10 in adjusted EBITDA and adjusted EPS, respectively. In addition, we captured the benefit of small refinery exemptions, resulting in an earnings boost of approximately $200 million. In total, third quarter adjusted EBITDA was $372 million and adjusted net income was $5.95 per share. As we enter November, we are optimistic about the market outlook. Product margins are rallying in response to tight fundamental supply and demand balances and heightened geopolitical disruptions. Our fourth quarter combined index averaged $15.55 per barrel in October, up from the third quarter. While we typically expect fourth quarter seasonal market conditions to taper off due to lower gasoline margins, our distillate production orientation is lifting our combined index. The Retail business continues to deliver exceptional results, reflecting encouraging trends from improved focus on inside sales and gross margin. In particular, we're seeing improving food top and bottom line results. Quarterly same-store fuel and in-store revenue increased by 1.8% and 0.9% compared to the third quarter of 2024. Looking forward, our development pipeline is expanding with the recent groundbreaking on our second new-to-industry store in the Pacific Northwest and an expanding list of attractive redevelopment or new-to-industry opportunities in Hawaii. We've made considerable progress on our key strategic objectives this year. In Montana, we're pleased with a strong third quarter result, reflected both by record quarterly throughput and OpEx per barrel under our ownership. As throughput increases, we're quickly debottlenecking new constraints. Like our other acquisitions, we have developed an attractive list of low-capital, high-return projects that will allow us to increase the mid-cycle earnings power of the Billings asset from our original expectations. These projects focus on improved logistics flexibility and efficiency, lighter crude processing, expanded hydrotreating capacity and enhanced jet and diesel production capabilities. The Hawaii SAF project continues to progress towards startup. We've achieved mechanical completion and startup of the pretreatment unit and are encouraged by the early results. Focus has turned towards completing construction of the remaining reactors and associated systems. We are targeting mechanical completion by the late fourth quarter and startup shortly thereafter. We are also pleased to announce the closing of the Hawaii Renewables joint venture with Mitsubishi and ENEOS in late October. We've received $100 million in proceeds and are excited by the prospects of this newly formed partnership. Our balance sheet continues to strengthen, and we expect further improvement as we convert this quarter's strong earnings to cash and record the inflow associated with the Hawaii SAF joint venture. The combination of our strong financial position and solid operating momentum positions us to pursue growth and continue opportunistic share repurchases. I'll now turn the call over to Richard to discuss Refining and Logistics operations. Richard Creamer: Thank you, Will. Third quarter combined throughput was a strong 198,000 barrels per day, reflecting exceptional performance across all of our locations. We also achieved a new record low in Refining production costs at $6.13 per barrel. In Hawaii, throughput was 82,000 barrels per day. In September, the team set a new monthly throughput record of nearly 90,000 barrels per day, partially offsetting crude delivery delays that occurred in July. Production costs were $4.66 per barrel. Washington throughput was 39,000 barrels per day and production costs were $4.31 per barrel. Washington continues to excel in reliability and efficiency, capturing the benefits of a strong market environment. Shifting to Wyoming, throughput was 19,000 barrels per day and production costs were $8.11 per barrel. The strong operating results and return to normalized production costs are reflective of the Wyoming team's execution and resilience to operational challenges earlier this year. Finally, in Montana, third quarter throughput was a record high 58,000 barrels per day and production costs were a record low at $8.76 per barrel. This quarter's performance is an example of the Billings refinery potential. Effective reliability investment and the team's strong execution is yielding operational and cultural benefits that are consistent with our acquisition objectives. In the fourth quarter, we do anticipate lower throughput and increased costs associated with routine [ coker ] maintenance. Looking further into the fourth quarter, we expect system-wide throughput between 184,000 and 193,000 barrels per day. Hawaii throughput is expected between 84,000 and 87,000 barrels per day and Washington between 35,000 and 37,000. Wyoming is forecasted to be between 15,000 and 16,000 barrels per day and Montana between 50,000 and 53,000. Both are reflective of seasonal market demand conditions. And Washington's lower Q4 throughput guidance reflects crude unit inefficiencies that will be addressed during the Q1 2026 planned outage. I'll now turn the call over to Shawn to cover our financial results. Shawn Flores: Thank you, Richard. Third quarter adjusted EBITDA and adjusted earnings were $372 million and $303 million or $5.95 per share. The Refining segment generated adjusted EBITDA of $338 million compared to $108 million in the second quarter. Third quarter results include a $203 million gain associated with the full and partial small refinery exemptions granted for the 2019 through 2024 compliance periods. This gain reflects the expected cash benefit based on September 30 RIN prices and is included in our adjusted results since the related obligations were expensed in prior periods. For comparability, our regional commentary on margin capture will exclude the impact of the SRE benefits. Starting with Hawaii, the Singapore 3-1-2 averaged $16.34 per barrel and our crude diff was $6.07, resulting in a Hawaii Index of $10.27 per barrel. Hawaii margin capture was 111%, including a combined $11 million impact from product crack hedging and price lag. Excluding these items, capture was 125%, reflecting lower purchase product costs and steady clean product freight rates. In Montana and Wyoming, margin capture was 93% and 91%, respectively, consistent with our target range and reflecting a return to normal operations following the second quarter turnaround and maintenance activity. Lastly, in Washington, our index averaged $16.66 per barrel, margin capture was 69%, reflecting the widening discount of jet relative to diesel during the third quarter. Looking to the fourth quarter, our combined Refining index averaged $15.55 per barrel in October, up nearly $1 per barrel compared to the third quarter, primarily driven by strength in the Singapore market. The Singapore 3-1-2 Index averaged $20.52 per barrel in October, an increase of over $4 per barrel compared to the third quarter average. We expect our fourth quarter Hawaii crude differential to land between $5.50 and $6 per barrel. In the Rockies and the Pacific Northwest, distillate margins remained strong, partially offset by seasonal declines in gasoline and asphalt netbacks. Unplanned outages on the West Coast have narrowed jet to diesel spreads in October with prompt jet now trading at typical spreads to diesel in the Pacific Northwest. Moving to the Logistics segment, third quarter adjusted EBITDA was a record $37 million, up $7 million from the second quarter. The improvement reflects the return to normal summer operations in Montana and Wyoming and higher system utilization in Hawaii. In our Retail segment, third quarter adjusted EBITDA was $22 million compared to $23 million in the second quarter. Retail results continue to outperform our mid-cycle target, supported by strong in-store sales growth, improved cost control and solid fuel margins. This marks the third consecutive quarter of record LTM retail adjusted EBITDA, which now stands at $86 million. Turning to cash flow, cash provided by operations was $219 million, including a working capital outflow of $147 million, primarily driven by higher RIN inventory associated with the small refinery exemptions. We expect the working capital impact to reverse over the next few quarters as we monetize our excess RIN position. Additionally, our federal tax assets continue to enhance the cash conversion of our earnings. We began the year with an NOL balance of approximately $1 billion and have utilized over $375 million year-to-date, reducing our cash tax payments by $80 million. Cash used in investing activities totaled $32 million in the third quarter. Year-to-date, accrued CapEx and deferred turnaround expenditures totaled $204 million with our full year outlook trending toward the upper end of our $240 million guidance. Cash used in financing activities totaled $197 million, driven by an ABL paydown of $147 million and share repurchases of 16 million. Year-to-date, we've repurchased 5.7 million shares, reducing our basic share count by over 9%. Shifting to the balance sheet, gross term debt as of September 30 was $642 million or 3x our LTM Retail and Logistics EBITDA, positioning us at the low end of our 3 to 4x leverage target. Quarter end liquidity increased 14% to $735 million, reflecting an excess capital position relative to our minimum liquidity of $300 million to $400 million. Looking ahead, cash proceeds from the Hawaii Renewables JV and future monetization of excess RINS are expected to further bolster our liquidity position. With a strong balance sheet and constructive outlook, we're well positioned to pursue strategic growth and continue opportunistic share repurchases. This concludes our prepared remarks. George, we'll turn it back to you for Q&A. Operator: [Operator Instructions] Our first question comes from Matthew Blair with Tudor, Pickering, Holt. Matthew Blair: Congrats on the strong results overall. I would say that Washington capture might have been a little bit lower than our expectations. Was that primarily due to the dynamics on jet versus diesel in the quarter? And if so, would you expect that to reverse out in the fourth quarter? Shawn Flores: Matt, it's Shawn. That's correct. We sell a fair amount of jet fuel out of our Tacoma facility. Our index really reflects the diesel market dynamics. And we saw, at least in the Pacific Northwest, jet to diesel spreads north of $20 per barrel. And as I mentioned in my prepared remarks, this spread is now compressed down to more typical levels. I think this morning, it's trading $4 to $5 per barrel discount to diesel. So we estimated that was about a 15% capture impact to Q3. I think adjusting for that, we're right sort of within our range of 85% to 95%. Matthew Blair: Sounds good. And then could you also discuss the turnaround schedule for 2026? I think you might have mentioned some upcoming work at Washington. Are you also expecting any work at Hawaii or Wyoming? And what -- any further comments on the timing and total capital cost of this planned activity next year? William Monteleone: Matthew, it's Will. I think consistent with our prior disclosures, we're planning to conduct a turnaround in Hawaii next year. And we're going to have a small planned outage in Washington, as Richard referenced, to address some of the crude unit inefficiencies that we're seeing. And then we have elected to defer the Wyoming turnaround, given the time we had inside the units during the outage earlier this year. So that's the main update on that front, and we'll be back in front of everybody in December with our expectations on capital requirements. Operator: Our next question comes from Ryan Todd with Piper Sandler. Ryan Todd: Maybe one first on cash. You should see a significant influx in cash over the next few quarters in the form of JV -- the payment from the JV and the reversal of the 3Q working capital headwind as you monetize the RINS from the SREs. And that's on top of the organic free cash flow that you're generating. During the third quarter, you were more active strengthening the balance sheet compared to share buybacks. How should we think about your priorities for the use of all this cash going forward? William Monteleone: Sure, Ryan. It's Will. You're correct. I mean I think our balance sheet is improving quickly and is in good a shape as I've seen it. And again, I think that really positions us to both pursue growth as well as consider and weigh that against our share repurchase opportunity. And so I'd say over the near term, we're focused on completing the construction on Hawaii Renewables project. And then as we kind of look into the future, we're looking at projects that can propel the Montana business mid-cycle EBITDA generation higher. I'd say we see a mix of low capital and high-return implant projects as well as some enhanced logistics capabilities and market access opportunities that we see as most attractive in that area. And I would say, as always, we'll weigh that against the opportunity to repurchase shares. And I think given our capital position, we can really do all of the above. Ryan Todd: Great. And then maybe just a follow-up to some of your comments earlier. I mean you're seeing quite a bit of strength in the Singapore margin environment. Can you maybe talk about what you're seeing there in terms of drivers, sustainability of that strength? And how you think about the sustainability outlook there at the Hawaii refinery? William Monteleone: Sure. You're correct, Ryan. I think we're seeing the Singapore margin environment at levels that would be almost consistent with, call it, the third quarter of 2023. So I think this morning, we saw gas, oil cracks at $30. It's the first time I've seen that in a long time. And again, I think the drivers of this are you've got really -- you do have existing tight and low inventories across the OECD kind of major tankage positions. And then I think you overlay that on top of the disruptions that you're seeing from sanctions and the potential impacts on crude flows into both India and into China, and again, I think that's what has the market really focused on overall availability and supply of distillate as we head into the winter and as we work through pretty elevated and strong demand that we're seeing on the harvest side. So I think those are the key things that we're seeing. And again, it is a strong backdrop, particularly for our distillate-oriented refineries. Operator: [Operator Instructions] Our next question comes from Alexa Petrick with Goldman Sachs. Alexa Petrick: I wanted to ask, can you provide some color on early thoughts on how Q4 is shaping out? How should we think about captures quarter-over-quarter? You talked a little about the jet diesel differential, but maybe if you could expand on some of the moving pieces. Shawn Flores: Alexa, it's Shawn. Yes, I think the Refining index overall, as we mentioned, at $15.55 per barrel up relative to the Q3. I would expect some seasonal dynamics to take hold as we get into the latter half of the quarter, particularly in the Rockies, as it relates to gasoline and asphalt netbacks. But as far as capture, I'll maybe just take through the different regions. In Hawaii, our guidance is still around that 110% capture level. I think when you look over the last 2 to 3 years, we've averaged between 110% and 120%. And the elevated capture has really been linked to the elevated clean product freight rates, and we haven't really seen that change. So I think the one thing I'd call out in Hawaii is we do have a small crack hedge book position. We typically layer that in 2 to 3 months in advance. And so like in Q3, I think it's fair to assume it's a marginal headwind going into Q4. But again, we typically only hedge about 15% to 25% of our Singapore exposure. So pretty minor impact in Hawaii. In Tacoma, our mid-cycle guidance continues to be in the 85% to 95% range, should expect to see some favorable impacts on the jet to diesel dynamics. And partially offsetting those dynamics will be the asphalt netbacks worsening as you get into late November and December. I think Montana and Wyoming, the market conditions are strong. Diesel margins, in particular, north of $45 per barrel in the upper Rockies. But again, I think as you get into December, we would expect some seasonal dynamics to take hold. Alexa Petrick: Okay. That's helpful. And then maybe to follow up, I mean, you guys have a high distillate yield relative to a lot of your peers. So curious as we think about incremental heavy barrels entering the market, how are you thinking about distillate going forward maybe relative to gasoline cracks? Or -- I'll kind of turn it to you on how you're thinking about the products. William Monteleone: Sure. Yes, we're typically in max diesel mode, I would say, across the majority of our refineries. I would say, max distillate mode. pretty much 100% of the time. And again, that's been the case in each of the markets that we're serving. And I don't think we see a significant incentive to move to heavier barrels. And generally speaking, we're ensuring the crudes we're buying have adequate amounts of intermediates to fill up our downstream processing units, so we maximize the overall distillate yield. So I don't see any major changes. And in general, the average barrel in the world definitely continues to get lighter, given our complexity configuration and location that tends to match up pretty well with what we do. Operator: Our next question comes from Jason Gabelman with TD Cowen. Jason Gabelman: I wanted to ask about the RINS received from the small refinery exemptions. Are you going to pursue additional opportunities there for exemptions that you didn't receive in your refinery? Some of your peers have discussed trying to submit additional petitions for 2018 to 2024 on refineries they think should have received RINS. So wondering if you're going to do the same or if you're satisfied with the outcome. William Monteleone: Yes, Jason, I mean, I think I'd tell you, we will avail ourselves of all opportunities that we think are consistent with the law and what the EPA is proposing and how the DOE is scoring the exemption petitions. And again, we've spent significant time on this over the last 7 to 8 years and I think have generally a good feel for how the EPA approaches and the DOE is approaching the scoring here. So I wouldn't point out anything that I think is material to us right now. I think there are probably some things where we've -- we'll see clarifications over time, but I don't think it's anything I'd point out as material. Jason Gabelman: Okay. And connected to that, are you going to change the way that you go about managing your RIN liability moving forward and more directly ask just purchasing less RINS to cover your liability than you have in the past? William Monteleone: Yes. I think I'd prefer not to get into our commercial strategy and positioning on RINS. That said, I would tell you, at the end of the day, I think the law and the approach that the EPA and the DOE have taken or the approach they've taken is consistent with the law. I think we'd expect that approach to continue forward. That said, I think in this area, as history would tell you, you have to be prepared for a wide range of outcomes. And again, I think we manage our commercial position as such, recognizing that there are, I'll just say, tail risks out there that we have to constantly be thinking about how we want to manage it. But I'd say, our system gives us a fair amount of flexibility to ensure we can capture the benefit of the smaller refinery exemptions over time and certainly see this as a benefit and consistent with the law. Jason Gabelman: Yes. Understood. My follow-up is on Montana, which seem to run very well out of its turnaround. As you look forward, do you expect it to sustain these lower operating costs that are below, I think, your base case assumptions? Or do you view this more as a onetime benefit and OpEx should kind of move back above that $9 per barrel range? William Monteleone: Yes. Thanks, Jason. And I think you're right, it was a great and strong performance of the Montana team. I think you should expect seasonal improvements on OpEx per barrel as we ramp rates in the summer. And then I think as you get into the softer quarters, you'll see that start to taper down. In general, what I'd tell you is we still think the $10 per barrel annual target is the right number for the Montana team. And again, I think we feel confident we're moving in the right direction to achieving that. Operator: Ladies and gentlemen, this was our last question. I would like to turn the conference back over to William Monteleone any closing remarks. William Monteleone: Great. Thank you, George. With a high distillate yield and strong balance sheet, our enterprise is well positioned to grow and thrive in the current market environment. I want to congratulate our entire team on a strong operational and financial quarter. I hope everyone has a great day. Thank you. Operator: Ladies and gentlemen, the conference has now concluded. Thank you for attending today's presentation. You may now disconnect. Goodbye.
Operator: Good day, and thank you for standing by. Welcome to the Avista Corporation Q3 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Stacey Walters, Investor Relations Manager. Please go ahead. Stacey Walters: Good morning. It's great to have you with us for Avista's Third Quarter 2025 Earnings Conference Call. Our earnings and third quarter Form 10-Q were released premarket this morning. You can find both documents on our website. Joining me today are Avista Corp. President and CEO, Heather Rosentrater; and Senior Vice President, CFO, Treasurer and Regulatory Affairs Officer, Kevin Christie. We will be making forward-looking statements during this call. These involve assumptions, risks and uncertainties, which are subject to change. Various factors could cause actual results to differ materially from the expectations we discuss in today's call. Please refer to our Form 10-K for 2024 and our Form 10-Q for the third quarter of 2025 for a full discussion of these risk factors. Both are available on our website. I'll begin with a recap of the financial results presented in today's press release. Consolidated earnings year-to-date in 2025 were $1.51 per diluted share compared to $1.44 year-to-date in 2024. For the third quarter of 2025, our consolidated earnings were $0.36 per diluted share compared to $0.23 per diluted share for the third quarter of 2024. Now I'll turn the call over to Heather. Heather Rosentrater: Thank you, Stacey. I want to start by highlighting that our third quarter results underscore the strength of our core utility operations and our disciplined approach to cost management. Year-to-date results at Avista Utilities of $1.63 per diluted share reflects a nearly 15% increase over 2024's year-to-date results. This reflects the constructive regulatory outcomes and diligent capital deployment that continue to enhance our financial performance and advance our long-term strategy. As we pursue our strategic initiatives, including the project shortlisted in our 2025 request for proposals or RFP, we remain firmly committed to supporting reliable and affordable customer service, community investment and shareholder value. Today, we are affirming our earnings guidance with Avista Utilities expected to be at the upper end of its guidance range and consolidated results expected at the lower end of the range due to valuation losses in our other businesses during the first half of the year. The 2025 wildfire season has ended, and I'm pleased with the significant progress we've made with our wildfire resiliency program. We concluded the season without needing to initiate a public safety power shutoff, fortunately, but we were well prepared to elevate our system into risk responsive levels as conditions warranted. This success is the direct result of strategic grid and process improvements, continued collaboration with communities and first responders and the dedication of our team. This summer, we completed pilot projects for both strategic undergrounding and installation of covered conductor. We'll be building on this work going forward. With the lessons learned and forming our key decision-making about where and how to deploy these technologies as we advance towards our grid hardening goals. In addition, we began installation of weather stations throughout our service territory. These stations bring critical real-time data to our operations team and inform future system design decisions. Our goal is to have a weather station installed on every circuit by 2029. We also expanded our network of AI-enabled cameras, giving our teams and first responders greater access to wildfire monitoring and early detection tools. By the end of 2026, we expect to have coverage of a majority of our high-risk areas through these technologically advanced cameras. All these tools continue to improve and expand the data that goes into our fireweather dashboard, which enables us to react faster to changing conditions and better understand and mitigate risk. This month, we will submit our wildfire mitigation plan to the Idaho Public Utilities Commission. We've been filing our wildfire mitigation plans with the commission for many years now. However, this will be the first wildfire mitigation plan filed after the Wildfire Standard of Care Act was passed by the Idaho legislature earlier this year. The new legislation establishes a standard of care for wildfire risk mitigation and utilities reasonably implementing their plans will now have protection against liability for wildfire in Idaho. And in Washington, we're working through the rule-making process with other stakeholders following the Washington legislation also passed earlier this year around filing and approval of wildfire mitigation plans. We kicked off our 2025 all-source RFP back in May, looking for up to 425 megawatts of new capacity and at least 5 megawatts of demand response. As I mentioned in last quarter's earnings call, we saw a positive response to the RFP receiving over 80 bids with 69 supply-side bids totaling nearly 14 gigawatts of capacity and 17 demand response projects offering almost 300 megawatts. We've narrowed the responses down to a short list and these bidders sent in more detailed proposals in October. There's 1 final chance for bidders to refresh their prices this month. From there, we'll make our final project selections and start negotiations before the year-end. The shortlist has diverse options with supply-side resources like wind, solar, storage, stand-alone and hybrid and thermal as well as demand response projects. There's a mix of ownership options, too, including self-builds, build transfer agreements and power purchase agreements, which gives us more financial flexibility. Some projects are in Montana and could leverage our existing transmission resources in the state as modeled in our integrated resource plan. A big focus is on taking advantage of federal tax credits before they expire. To fully qualify, selected projects need to begin construction by July 2026 and be online by 2029 to 2030. We are working with shortlist bidders to make sure everyone is on track to meet those deadlines and get the most out of any applicable tax credits. I continue to be optimistic about the opportunities ahead, particularly as we engage with potential large load customers. These conversations are increasingly central to our long-term planning and investment strategy. Our RFP is helping us evaluate new generation resources and system capacity and is playing a key role in informing our discussions with large industrial customers who are exploring expansion opportunities within our service territory. We're working closely with several of these potential customers to assess how incremental load can be integrated into our system in a way that supports reliability, affordability and long-term value. Serving this level of demand will require not only new generation but also regional grid expansion. System impact studies show we have capacity to accommodate a portion of these requests. With these near-term opportunities best suited to serve customers with scalable implementation capability. We are committed to being competitive in attracting these loads and we view them as an important tool to support customer affordability and as a catalyst for innovation, infrastructure investment and long-term value creation. We'll continue to update you on our progress in future calls. Now I'll hand the call to Kevin for more discussion of our earnings. Kevin Christie: Thank you, Heather. I'm pleased to report a beat to market expectations with our third quarter financial results. Our third quarter results reflect significant growth from the same period in 2024. The strength of our consistent operational execution, including constructive regulatory outcomes, customer load growth and our continuing commitment to cost discipline drive our success. Alongside our other initiatives, regulatory outcomes are key to our progress. And in the third quarter, we implemented constructive, approved settlements of both our Oregon and Idaho general rate cases. We expect to file our next Washington general rate case in the first quarter of 2026. In Washington, we were required to file multiyear rate plans of at least 2 and up to 4 years. While many of the details of the case are still in development, we are evaluating whether we file a 2-year, 3-year or 4-year rate plan. With good regulatory alignment, we are confident that a longer rate plan can be beneficial for us and our customers. The law also provides us with the ability to file a new plan during a 3- or a 4-year rate plan, if necessary. We continually invest in our utility infrastructure to support customer growth and maintain our systems so that we can safely and reliably serve our customers. Capital expenditures at Avista Utilities were $363 million in the first 3 quarters of 2025. We expect capital expenditures of $525 million in 2025. From 2025 through 2030, we expect capital expenditures of $3.7 billion, resulting in an annual growth rate of 6%. In addition to this base capital, our current estimate of the potential capital opportunity for both our RFP and the addition of a potential large load customer is up to $500 million from 2026 through 2029. If these opportunities materialize, we expect the potential capital to be weighted approximately 75-25 between a potential new large load customer and self-build opportunities. We also expect that this potential investment would be spread somewhat evenly throughout the 4-year period. These estimates do not include any incremental capital requirements that could result from incremental transmission projects like regional grid expansion. In July, we issued $120 million of long-term debt and we do not expect further debt issuances this year. We expect to issue up to $80 million of common stock in 2025. That includes $45 million, which was issued during the first 3 quarters of the year. In 2026, we expect to issue approximately $120 million of long-term debt and up to $80 million of common stock. We are confirming our consolidated earnings guidance with a range of $2.52 to $2.72 per diluted share for 2025. As a result of the $0.16 of losses associated with our investment portfolio year-to-date, we expect to be at the low end of the consolidated range. We expect Avista Utilities to contribute toward the upper end of the range of $2.43 to $2.61 per diluted share. Our guidance for Avista Utilities includes an expected negative impact from the energy recovery mechanism of $0.14 in the 90% customer, 10% company sharing band. We have incurred $0.12 under the ERM year-to-date. Due to the staggered timing of rate cases throughout our multiple jurisdictions, going forward, our expected return on equity at Avista Utilities is 8.8%. AEL&P continues to perform well, and we expect it to contribute $0.09 to $0.11 per diluted share. Over the long term, we expect that our earnings will grow 4% to 6% from the midpoint of our 2025 guidance. I'd like to finish by saying that at Avista, we have positive momentum, our core business is performing per our expectations, and we have much to be optimistic about as we look to execute upon our business plans. Now we'll be happy to take your questions. Operator: [Operator Instructions] Our first question comes from the line of Shar Pourreza with Wells Fargo. Unknown Analyst: It's actually Alex on for Shar. So just on the $80 million equity needs you have out there for '26, you have a lot of incremental CapEx opportunities you've highlighted. So I just want to get a sense on additional funding sources. Would you look at other avenues? And maybe what about a divestiture of your other business to fund the growth at the utility? Is that something you'd consider? Kevin Christie: Yes. Thanks for the question, Alex. Yes, we're indicating that an expectation of up to $80 million for 2026 as we mentioned. And if we are fortunate enough to have additional spending opportunity or capital investment opportunity for the RFP, large customer or both, then that might change the equity needs, but not significantly so. And I would continue to expect that we would use our periodic offering program as the vehicle. It's not a significant enough increase in equity needs that we would need to do something more dramatic by making a sale of some business or something like that. Unknown Analyst: Okay. Got it. And just sort of just the messaging just around looks like the rate base outlook from 5% to 6%, you're now expecting that 6% at the utility. Can you just remind us if that includes the incremental CapEx opportunities you've highlighted or would that push you past that 6%? And can you just walk us through what that means to your 4% to 6% earnings range over the long term? Kevin Christie: As we continue to have opportunity to add to our capital plan and if it comes in the form of the items we highlighted and/or additional transmission, that would help take us towards the top end of our growth range that we stated at 4% to 6%. I don't believe it would take us above that, but let's see what happens with large loads. And there's -- as Heather indicated, there's a lot of great conversation going on with potential developers. Operator: [Operator Instructions] Our next question comes from the line of Julian Dumoulin-Smith with Jefferies. Brian Russo: It's Brian Russo on for Julian. Just on the upcoming Washington MYRP filing. You mentioned that you're evaluating the 2- or 3- or 4-year plan. Just curious, how do you manage around external risks of inflation and interest rates and even power costs while under more than the 2-year plan that you're currently in. Would you need to seek ERM modifications to kind of insulate yourself from power costs? Kevin Christie: Well, there's a few aspects here that I want to get into with you, Brian. First, after a 2-year period. So let's say, hypothetically speaking, that we file a 4-year. And we move our way through the first couple of years or even just the first year, and we find that we're off track either because of inflation or we've had additional investment opportunities that aren't reflected in the case. Then we have the opportunity to refile, so that case then becomes a 2-year and you, in essence, start over. So we've got a wonderful set of optionality to move forward if we need to by, in essence, cutting that case back from 3 or 4 years to a 2-year case. In addition, as we think about how we would proceed, and again, these pieces are all coming together. So it's all preliminary. We would expect to have power supply resets in each subsequent year, at least that would be our objective as we go into the case. So when you ask about the ERM, that's how we would address that. Now I'll just proactively answer a question about the ERM. We have talked about how the outcome from the last case wasn't quite what we had hoped it would be in Washington. And we've gone through that workshop process that we felt we were obligated to do. We had great conversations with the parties that involve -- get involved in these workshops. And our approach going into this next case is to likely not try to modify the ERM itself. And that's because of the order that we heard from or in our last case in the commission, the words that they used and Puget is still out working on a proceeding that comes well I think, towards the middle of next year, we'll have a better idea of whether or not Puget had success modifying their ERM-like mechanism. So we're going to set the ERM aside for now, and then we're going to look to see if Puget has success and if they do, then we'll try to move forward with something similar. And what we're going to focus on is resetting power supply cost at a more appropriate level. And we think we have a path to setting power supply at that more appropriate level. And if we're able to do that, then the impact of the ERM is somewhat muted. Brian Russo: Okay. Great. I think are we still assuming a power cost drag in 2026 per your most recent disclosures? Kevin Christie: Yes. We're -- I think our disclosures have covered that pretty well. I'll reinforce that without a change to the ERM and given how power supply was set in the last case that we would expect a drag from the ERM. Now hopefully, because of weather and other factors, it won't be as severe as it is in 2025. but it's too soon to be able to predict that. Brian Russo: Okay. Great. And just can you remind us again on the other businesses, how the mark-to-market works. I think there's a quarter lag, right? So this September quarter actually reflected June mark-to-market values. So it's possible, hypothetically, in your year-end update that could capture September clean -- mark-to-market clean energy investment values, which arguably were well off their lows following the old BBB and executive order, et cetera. Kevin Christie: Yes, you're following it pretty well, Brian. And yes, there is a quarter lag for some of our investments, a fairly significant amount of the investments. And so this quarter reflects second quarter for those investments, and we'll see how it turns out for the rest of the year. We're, as we've mentioned before, not able to call the bottom, but we're encouraged that we saw the impacts in the first half of the year. And then this quarter, it flattened out to some extent. And the dust seems to be settling around some of the clean energy narrative that had been out there. So we're optimistic. But again, it's hard for us to be able to call whether or not that will completely turn around by the time we are talking to you next quarter. Brian Russo: Okay. Great. And then just lastly, on the increment -- potential incremental CapEx. How should we think about kind of the mix of debt and equity financing? Is it 50-50 or something different than that? Kevin Christie: Well, our base capital plan that we've described and the amount of debt versus equity for base capital for this year and as now we're describing for next year is $120 million debt, $80 million equity and then if we have incremental spending opportunities after that, there's, of course, a lot of complexities that we would have to work our way through. But generally speaking, I'd expect incremental capital to be in roughly 50-50. Operator: I'm showing no further questions at this time. I would now like to turn it back to Stacey Walters for closing remarks. Stacey Walters: Thank you all for joining us today and for your interest in Avista. Have a great day. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Good morning, and thank you for standing by. My name is John, and I will be your conference operator today. At this time, I would like to welcome everyone to the Triple Flag Precious Metals Third Quarter 2025 Conference Call. [Operator Instructions] I would now like to turn the conference over to Sheldon Vanderkooy, CEO. Please go ahead. Sheldon Vanderkooy: Thanks, John. Good morning, everyone, and thank you for joining us to discuss Triple Flag's third quarter results. Today, I am joined by our CFO, Eban Bari; and our Chief Operating Officer, James Dendle. 2025 has been an exceptional year so far, and Triple Flag has achieved another record quarter in Q3. We recorded 27,000 GEOs in the quarter, which drove record adjusted EBITDA of $79 million and record operating cash flow per share of USD 0.39. Shareholders are directly benefiting from the higher gold prices through higher cash flow per share. We should continue to benefit in Q4 and beyond as well as current gold prices are well in excess of the average gold price realized in Q3. We expect to achieve 2025 GEOs between the midpoint and the high end of our 2025 guidance range. I am very pleased with the additions we have made to the portfolio year-to-date. Year-to-date, Triple Flag has now deployed over $350 million of capital over 5 investments. In H1, we announced our investments in the Tres Quebradas lithium mine in Argentina, the Arcata silver mine in Peru and an additional interest in the Johnson Camp copper mine in Arizona, all of which have now started production either in line or ahead of our investment case. Early in the third quarter, we completed our acquisition of a 1% NSR royalty on the Arthur project in Nevada operated by AngloGold Ashanti. And most recently, we have acquired a royalty package on Pan American's producing Minera Florida gold mine in Chile for $23 million. James will provide further details on Minera Florida later in the presentation. This is exactly the sort of royalty that drives shareholder value over time in the royalty sector as we have open-ended exposure to top line revenues and resource expansion over time. Together, our investments year-to-date are providing near-term increasing cash flows as well as longer-dated optionality. They are also located in the right jurisdictions. The bulk of the value is in the Western United States and the remainder is in Chile, Peru and Argentina. I will now hand over to Eban to discuss our financials for the third quarter of 2025. Eban Bari: Thank you, Sheldon. As noted by Sheldon, we had an excellent third quarter with just over 27,000 GEOs. This puts Triple Flag on track to achieve between the midpoint and high end of our 2025 GEOs guidance. These strong volumes in Q3 were delivered in the backdrop of strong metal -- precious metals prices, which reached a record quarterly average of nearly $3,500 per ounce for gold and nearly $40 per ounce for silver. Accordingly, we are pleased to highlight that operating cash flow per share, the single most important metric we focus on as a company, has increased by over 25% year-over-year. Lastly, I'd like to comment on our balance sheet. We exited the quarter with essentially 0 net debt despite deploying significant capital during the third quarter for the acquisition of the Arthur Gold royalty and the Minera Florida royalty. Today, we're in a net cash position. Overall, strong balance sheet, record operating cash flow and total liquidity available of nearly $1 billion provides us with the capital to continue deploying dollars into accretive opportunities to drive future growth for our shareholders. It also allows us to continue returning superior returns to shareholders, and we're pleased to declare a quarterly cash dividend of USD 0.0575 per share. Triple Flag remains focused on top-tier precious metals assets with revenue that's nearly 90% sourced from mining-friendly jurisdictions in both Australia and the Americas. Northparkes and Cerro Lindo continue to be 2 largest contributors to revenues in the third quarter with Northparkes achieving another record quarter due to continued processing of higher open pit grades from stockpiled ore. Triple Flag sales mix remains 100% derived from precious metals, including nearly 3/4 from gold. We do not expect this to materially change, and this will continue to provide investors with exposure to the strong gold and silver price environment. I will now turn it over to James to discuss the producing Minera Florida gold mine in Chile. James Dendle: Thank you, Eban. Minera Florida is located approximately 75 kilometers southwest of Santiago in Chile and is owned and operated by Pan American Silver. It's an underground mine that produces gold and silver ore with the zinc concentrate byproduct. During the third quarter, we were pleased to acquire a package of 3 net smelter return royalties on Minera Florida, ranging from 0.8% to 1.5% for a total cash consideration of $23 million from a third party. Minera Florida has a long history of consistent performance, continuous operation and reserve replacement and has produced over 2.5 million ounces of gold and 14 million ounces of silver since commissioning in 1986. The mine has always operated with a relatively short reserve life. Over the last 20 years, the mine has had approximately 0.5 million ounces of gold in reserves at any one time, which equates to about 4 to 5 years of visible reserve life. Historic annual production at Minera Florida has ranged between 75,000 and 100,000 ounces of gold per annum. Driven by mill expansion potential to increase the nameplate capacity, Triple Flag expects GEOs for Minera Florida to increase to approximately 1,000 ounces by 2028. The exploration potential of this mine is significant. And given Minera Florida's impressive track record of reserve replacement since 1986, we see this asset continuing to perform for decades to come. I'll pass it back to Sheldon for closing remarks. Sheldon Vanderkooy: Thank you, James. In closing, Triple Flag is performing very well and is positioned to continue this performance going forward. Our shareholders are benefiting from our strong current production and the increase in gold prices, which are translating into record cash flows per share. I am very pleased at our success in reinvesting those cash flows in further streams and royalties, which will benefit our shareholders for decades to come. There are a number of near-term catalysts across our portfolio. First, Johnson Camp mine, Tres Quebradas and Arcata have all recently started production and will continue to ramp up into 2026. Second, on the project front, economic studies for Arthur and Hope Bay are on track for completion in the first half of 2026, and we look forward to ongoing exploration updates on the Fletcher zone from Beta Hunt. And finally, the Koné project continues to make good progress, targeting production in 2027. That concludes our presentation. Operator, please open the floor to questions. Operator: [Operator Instructions] Our first question comes from the line of Fahad Tariq with Jefferies. Fahad Tariq: Just on the deal pipeline, maybe talk a little bit more about how the Minera Florida transaction was sourced. Was this -- I mean, it was a third-party royalty from a family. Just curious if there was any sort of process? Or was this a relationship that was like preexisting? Any more color there would be helpful. James Dendle: Yes, I can take this. Yes, it was, I think, a fairly concentrated process. We developed a bit of a report with family over the course of negotiating the deal. And that was good because we actually were able to undertake a site visit. And very often, as you know, with these third-party royalty sales, you can't do that, whereas we actually have a team down in Chile earlier on in the year, spending a couple of days at site. So we had access to Pan American Silver in this instance and the whole mine sales team. Fahad Tariq: Okay. Great. Yes, that's helpful. And then maybe just switching gears to the ATO stream. It looks like there was an international arbitration that was started in early October. Can you maybe just give us an update on how the discussions are going with Step Gold? And what's Triple Flag's expectation for a potential resolution? Sheldon Vanderkooy: Fahad, it's Sheldon. I'll take this one. We tried to be really transparent in the press release and give everyone like direction on the legal proceedings we've started. I'm a little limited in what I can say, but I can provide some background and direction to you in the market. First of all, I'm going to start by saying we're just extremely confident in our legal position. We're owed about USD 10 million. STEP's market cap is a little over CAD 500 million. They have production, they have cash flow. They clearly have the ability to pay. We are in dialogue with Steppe's controlling shareholder. There is no doubt in my mind that they are building Phase 2. And the last thing I'd note is we're going to land in the top half of our guidance range even if we don't receive a single ounce from Steppe Gold here to the end of the year. I really can't go any further into how this is going to get resolved, but we are in discussions, and we are very confident in our legal position. Fahad Tariq: Okay. And then just -- sorry, just maybe a follow-up, if you can answer this part. You're in discussions with the largest shareholders. Are you in discussions directly with Steppe Gold? Sheldon Vanderkooy: I would take the largest shareholder as being in discussions with Steppe Gold. Operator: Your next question comes from the line of Sam Overwater with Scotiabank. Sam Overwater: I just had a question on the transaction opportunities. I think the last time we spoke, you guys were evaluating opportunities between $100 million and $300 million. I just wanted a little bit more color on that. Like what geographies and jurisdictions are these opportunities in? What are the structures of these deals, debt equity stream, et cetera? Is there any royalty opportunities -- and then on top of that, too, like what are the -- a lot of the purposes on the transactions in terms of asset sales, construction funding, et cetera? Sheldon Vanderkooy: Yes. Thanks, Sam. I appreciate that. Yes, the opportunity set, I think, still is squarely in the $100 million to $300 million. Obviously, we've done deals that are smaller than that. We'll look at those. There are larger ones as well. It's probably instructive to look at what we've done already year-to-date. We've done $350 million of deals year-to-date. It's a pretty good mix of smaller royalties than we had the larger Arthur transaction, which is actually a corporate transaction, which is just another way to find good assets at reasonable prices for our portfolio. The opportunity set, it's a real mix. I mean, it's streams, it's royalties. I would say it's concentrated in jurisdictions that investors will be very happy with, I would say, like the Americas traditional mining jurisdictions. And the use of proceeds or what's driving it, it really runs the gamut. I think you kind of summed it up pretty well. It's -- people need money for various things, and that creates the opportunity for companies like ours to step in with financing. Sam Overwater: Great. And then just on top of that as well, corporate transactions. How are you guys assessing corporate transactions relative to sort of other opportunities in the current landscape? Is there anything you're currently considering? Sheldon Vanderkooy: Yes. I mean I don't view a big distinction between corporate transactions and other transactions. I mean we acquired that Arthur royalty. It was via an acquisition of Origin and then a spinout. The Maverix acquisition was a way to acquire a great portfolio at a reasonable price. So we're always looking for ways to add good assets to our portfolio at returns that are attractive and accretive to shareholder value. Sam Overwater: Great. And then lastly, does Triple Flag currently have like an equity portfolio to sell? Are you considering any sales in an equity portfolio or anything like that? Sheldon Vanderkooy: No. Operator: Your next question comes from the line of Brian MacArthur from Raymond James. Brian MacArthur: I just wondered if you can comment a little bit on Prieska and what's going on there. I mean there's a statement Orion looks like they've signed a term sheet with Glencore. But what actually needs to happen there for you to move that forward post -- other than the South African regulatory approvals? James Dendle: Brian, it's James. I'll pick that up. So as you'll recall, Prieska was always contemplated as a single integrated project comprising 2 zones, what they refer to as the Uppers, which is the upper remnant areas of the historical mine and the Deeps, which is the sort of untouched sulfide ore body. The Deeps is of great interest to us because it hosts the precious metals. It also has the exploration upside and it's the part of the ore body we're most focused on. The company through looking to stage their capital expenditures has disaggregated the project to the Uppers, which they'll develop first and the Deeps that they'll develop progressively thereafter. There is a dewatering component to that. And as you noted, they've received, I think, a very supportive nonbinding letter of intent from Glencore, which they're working through at the moment. So that is all very positive. Given our primary economic interest is in the Deeps, we will be evaluating the right but not obligation to fund the stream into the Deeps when they actually are at the stage to make a final investment decision on that project. So we expect the company to make an investment decision on the upper this year and an investment decision on the Deeps next year. So as a reminder, we have no obligation to fund the stream, but we like the asset. So it's a funding decision for Triple Flag in 2026. Brian MacArthur: But just to be clear, so can you -- I mean, do they develop the upper, if you think of it that way with the money they have and you just get the option to wait and then just come in on the lower? Or do you have to execute once they make a decision to do the upper, if I want to look at it that way. That's what I'm trying to figure out is when you're I get it, you've got -- you have the option to do it or not do it, but I don't know if there's a drop dead part of the contract that makes you decide or whether you can wait and see how the second part goes if you see what I'm saying? James Dendle: Yes, we can wait until the second part is ready to go. The nice thing is that the company will be progressing with the dewatering of the Deeps while mining the Uppers, so that they continue to derisk and develop the project whilst we get the opportunity to wait to make the investment decision on the Deeps. So there's no drop debt in that sense. We just have the opportunity to wait a little longer. You'll recall we have a small royalty on the project as a whole. So when the upper start producing, obviously, the royalty will pay because that applies to both zones. Operator: Your next question comes from the line of Derick Ma with TD Cowen. Derick Ma: On the El Mochito stream disposal, you got a fair amount of consideration to perhaps a win-win situation for both parties. But could you discuss how the situation arose and how you evaluate these types of situations versus retaining optionality in the portfolio? Sheldon Vanderkooy: Yes. Sure, Derick. It's Sheldon. I'll speak to that. El Mochito, it's a fairly small mine. It's based in Honduras. We acquired as part of the Maverix portfolio. It was undercapitalized and they were having difficulty servicing the stream as part of their operations. Eventually, what we did, and we're close to the operator. They're a private company, and we were looking for ways to get additional capital that was not our capital into that project so they could be in a position to start paying out on the stream. Basically, I think this is a win-win-win situation where we found the outside capital, they're bringing that in, and then we're structuring ourselves to come out on these terms. It's good value for us, and I think it allows them to move forward without the stream in place. Derick Ma: Okay. And how do you kind of evaluate these type of situations versus retaining optionality when you look across your portfolio when other opportunities come up like this? Sheldon Vanderkooy: I mean every situation is different. I think -- I put it this way, I'm very happy with the structure of this -- and the way this is being resolved. It's getting us good value out. It allows them to go on. Generally, we're not looking at selling streams, but this is essentially a structured sale of a stream, but it's really based on an asset-by-asset basis. Operator: [Operator Instructions] Our next question comes from the line of Cosmos Chiu with CIBC. Cosmos Chiu: Maybe my first question is on Minera Florida. James, you mentioned that you were on site. My understanding is that this past quarter or this past year, there's been some issues in terms of negative grade reconciliation, unplanned mine sequencing into lower-grade ore zones. I think you mentioned that as much as well in your guidance. You said, I think Minera Florida long term was capable of doing 75,000 to 100,000 ounces. This past year, 78,000 to 90,000. So the top end is lower. So I guess my question is, James, how much of that have you factored in into your valuation? And is it just really a one-off and it's really going to bounce back? Or how do you look at it? James Dendle: Yes, Carl, good question. The valuation and the production assumptions over a short period of time, of course, you consider what's actually happening on the short term as a guide for the long term. But the interesting thing is, as you know, about Minera Florida is there's a very long history of operations here. So we actually had access to the full history of production records that gave us great confidence in the forecast. And at the end of the day, quarterly variance in a gold mine is not a new thing. So for sure, there's quarterly variance on-month scale that exists, and I'm sure it will occur in the future. But in the long term, we think the mine will operate in accordance to how it's operated historically, which is in the range we stated. Cosmos Chiu: Maybe switching gears a little bit, bigger picture. Sheldon, as you mentioned, you reiterated in your release as well, 2029 guidance outlook. Outlook is you're still looking for 135,000 to 145,000 ounces GEOs. That's a very good increase from what level you're at today. Could you maybe summarize for us what goes into that thinking? What needs to come on for you to hit that growth into 2029? James Dendle: Yes, sure. Carlos, I can take that. We've got a few assets ramping up. There's some new assets, too. Sheldon mentioned the Arcata silver mine, that has literally shipped concentrate for the first time this week. That will be ramping up into 2026. There are other assets, obviously adding Minera Florida is a small addition, 3Q, Johnson Camp all ramping up. Montage is building Koné, which will be additive to that outlook. But there's also -- we expect production increases from some of the operating mines. We expect after a lower year next year from Northparkes that to start building back up again. We expect increased volumes from [indiscernible], although incremental. Same with Beta Hunt, Westgold has been very public with an expansion to Beta Hunt 2 million tonnes per annum, which is on track. So all of those additions build up to the outlook number. So there isn't one specific asset that drives that increase. It's actually nicely diversified across a large suite of well-positioned assets. Cosmos Chiu: Great. And then maybe one last question, the 2025 GEOs. The gold/silver ratio you've used is 85:1 in terms of the calculation of GEOs converting silver into gold. I just want to confirm, silver has actually outperformed a little bit compared to gold into 2025. That benefits Triple Flag. Am I correct in the sense that I think there's a good percentage of your revenue actually coming from silver. That's number one. Number two, it also benefits your GEO calculation, if I'm not mistaken, if you can confirm that as well. And then third, when do you consider, I guess, changing that ratio? Or I guess, it's not too late in 2025, it's not needed in 2025, but how do you consider that into 2026? Sheldon Vanderkooy: Carl, it's Sheldon. I'll take that. 85: 1, that's pretty close to what it is right now. Obviously, it's volatile. It moves around. It's been various places during the year. I think year-to-date, and you're right, obviously, as the silver price is stronger relative to gold price, that helps GEOs and the opposite when the opposite occurs. The year as a whole, we've actually had a bit of a headwind on the average silver price because of just the timing of when the silver price ran. And I think that's come across in ourselves and all our peers. We always make an allowance for that. We're pretty conservative when trying to set our guidance. And so we just accommodated that within our production. Right now, it's coming in line. And in terms of assessing it, I mean, we just -- every time we put out a new guidance or anything like that, we look at what the current gold/silver ratio is and make sure we're not too far out of line and that is properly conservative. Obviously, when we do our 2026 guidance, we'll look at what the conditions are at that time and react accordingly. Cosmos Chiu: Yes. Sounds like a good plan. And I guess the important part, Sleldon, as you mentioned, is that you're now aiming for the top end of guidance for 2024. Sheldon Vanderkooy: That's right. silver prices all the way through. Cosmos Chiu: Congrats on the solid Q3. Operator: At this time, we have no further questions. I will now turn the call over to Sheldon Vanderkooy for closing remarks. Sheldon Vanderkooy: Yes. Thanks, everyone. Q3 was another good quarter, and we're actually having just a great year in 2025. Really appreciate the support from all of our investors. Thank you all. Bye. Operator: Ladies and gentlemen, this concludes today's conference call. You may now disconnect your lines. We thank you for your participation. Have a pleasant day.
Henrik Andersen: Good morning, and welcome to Vestas' Q3 reporting and also closing and looking forward to close a very solid year 2025. I'll also take here the opportunity to extend a big thank you to our customers, colleagues and not least our external stakeholders, great support and commitment through the current environment through the first current 9 months of the year to the execution we are talking and going to talk much more about, today. So with that, could I go here to the key highlights. So, key highlights, revenue of EUR 5.3 billion. That's an increase of 3% year-on-year driven by higher deliveries, despite negative foreign exchange development. When we look at the EBIT margin of 7.8%, earnings achieved through improved Onshore project execution, lower warranty costs, partly offset by our manufacturing ramp-up, which is continuing, but also progressing well. When we look at the order intake of 4.6 gigawatts, up 4% year-on-year, driven by U.S. and Germany and Onshore is up more than 60% quarter-on-quarter comparison to last year. When we look at the manufacturing ramp-up, the driver cost and also investments the Onshore and Offshore ramp-up is progressing as we focused on delivering a very busy fourth quarter but also as importantly, getting a strong start of 2026. By this, we also decided to return value to our shareholders, I think, most importantly, in line with our capital structure strategy and also solid liquidity position, a share buyback of EUR 150 million will be initiated and will be starting as of tomorrow morning. And then on the outlook, we narrowed the outlook in terms of turnover EBIT, reflecting the lower Service EBIT, but also the stronger Onshore execution. With that, I will talk about the market environment we are in. And again here, wind energy is key to affordability, security and sustainability. That is our narrative and we can see it actually working in across many of our markets, as you've also seen in our order intake and not least also in our delivery table. When we look at our global environment, no doubt, inflation, raw materials and transport costs are stable, but tariffs will increase cost over time for the end user. When we look at the ongoing geopolitical and trade volatility leading to a regularization. We have spoken about that in now many of the previous quarters, and I will almost say the previous years. And we are seeing it's continuing, and we are dealing and planning and executing well in it. When we look at the market environment, there is a heightening focus on energy security and affordability across many of our main markets. The grid investment is prioritized in our key markets and we can see it's progressing in a number of markets, but also probably have status quo in the numbers of others. On the permitting side, it is improving in some markets, but overall permitting auctions and market design is still challenging. Maybe here is the perfect place also to just express a bit of a concern with Europe's continuing introduction of rules like CSRD, CBAM and others, while the rest of the world are after competitiveness. However, when we then look at the project level, I will say, Vestas, we see a strong project execution in the quarter and also year-to-date. We see some regional disruptions from time to time, but we are coping very well with it. And of course, that's then leading to the result we are also seeing in Power Solutions today, which I'm sure Jakob will talk us much more in details about. When we look at the Power Solutions in Q3 2025, strong quarter across all key markets. So, when we look at the Q3 order intake of 4.6 gigawatt, that's up 4% compared to the last year. The increase was mainly driven by strong order intake in the Americas, especially in the U.S. as well as continued positive momentum in EMEA, especially in Germany. There are no Offshore orders in Q3, so it is a clean Onshore order intake quarter. The ASP declined to EUR 1.01 million per megawatt in Q3 compared to EUR 1.11 million per megawatt in the prior quarter. The decline was driven by a change in the order mix with higher share of supply-only orders in the U.S. Generally, we are very pleased with the positive continuing price and price discipline we are showing and our customers' support and understands it. When we look at the order backlog in Power Solutions, it increased to EUR 31.6 billion. That's up EUR 3.3 billion compared to 1 year ago as our energy solutions continue to have good traction with customers across our core markets. And you can see more of the details in the chart to the right. With that, on to Service. So, Service outlook revised and also the recovery plan is progressing as we go through and we are now three quarters in. So, the Service order backlog increased to EUR 36.6 billion from EUR 35.1 billion a year ago, despite EUR 1.5 billion headwind from foreign exchange rate movements year-to-date. When we see a Service, it reached 159 gigawatt under Service. It's flat compared to Q2, as additions were offset by a higher level of expiries and also deselecting in the quarter as the commercial reset continues. This is some of the consequences we have spoken about in the previous quarters as part of our Service turnaround. And I think we can now start seeing that some of it also shows at least in the Service under -- the gigawatt under Service as such. When we look at the Service recovery plan, which runs until the end of 2026, it's progressing, and we are seeing early signs of operational improvements and also a reduction especially in our overdue work orders and the backlog of the same. That's very healthy, and it's very positive to see. And of course, we will continue working with that, and we look forward to talk more in details over the coming days. However, earnings in Service are also affected by foreign exchange rate headwinds as well as some costs related to some specific Offshore sites, which has led to a revision of the 2025 outlook of Service. You will see here to the right, the breakdown of the Service order backlog, EUR 36.6 billion overall, of which EUR 31 billion is Onshore, 159 gigawatts under active Service contracts and then an average duration of 11 years. You will see the breakdown on the regions below. And as you will also not surprisingly see in Asia Pacific, if you don't have new order intake, it also is limited to how much you grow gigawatt under Service. With that, take you through development. Development, not a lot, so I'll have that pretty quickly. Discipline, the same. We also focus very much about finding projects and advancing projects. But as you can also see, the environment right now is a lot of focus on in the key markets to progress projects, and we haven't really progressed anything in Q3. So, I'm pretty sure from a performance point of view, they also feel that for Q4. In Q3 2025, we had a pipeline of development projects that were stable around 27 gigawatts with Australia, U.S., Spain and Brazil, holding the largest opportunities. Strategic focus is on maturing and growing a quality project pipeline as well as conversion of mature projects in project sales and related turbine order intake. You can see the regional breakdown below. And I'll go to sustainability. In Q3, Vestas is the most sustainable energy company in the world, and we keep having that focus also with our customers and stakeholders. When we look at the turbines produced and shipped in the last 12 months, they are expected to avoid 461 million tonnes of greenhouse gas emissions over the course of their lifetime. You will see that here to the right. And of course, as we are ramping up, we expect that to continue increasing. The carbon emission from our own operations over the last 12 months increased by less than 1%, which is actually a very positive achievement, because our activities are increasing. So therefore, keeping Scope 1 and 2 at the current level is a testament to the focus and execution of our operations across. It is also saying when we ramp up Offshore, it is a significant change in business mix. So, there will be an upward pressure on the carbon emission, because we are using and spending more time at sea, at vessels and other transport measures. When we look at the number of recordable injuries per million working hours, that was up from 2.8 to 3.3 year-on-year. Safety remains a top priority for us as we tirelessly work to improve our safety performance across our value chain. I think also here from a personal point of view, I would say this is not good enough. When we see overall the year, we have less serious injuries and we have no fatalities that's positive. But the higher frequencies in especially Northern Europe and North America with onboarding many of our new colleagues, that also means that when we ramp-up Offshore, we see some of those frequent injuries we shouldn't see. So therefore, we have highlighted that. We talked directly to our colleagues, how do we see our colleagues and our family members remain safe on sites in this. So therefore, we are taking it extremely serious that it has not gone down, but actually gone up in the last 12 months after Q3. With that, I will hand over to the financials. Jakob, take it away. Jakob Wegge-Larsen: Thank you, Henrik, and let me take us through details. I'll just flip the slides. Let us take through the details of the income statement and the highest ever third quarter gross profit. Revenue increased 3% year-on-year, driven by growth in Power Solutions offset by slightly lower revenue in Service, primarily as a result of negative foreign exchange rate developments. Gross profit, that I just spoke to, increased to record-breaking EUR 772 million in the quarter, the highest ever in the third quarter. The record was achieved by improved profitability in Onshore, lower warranty costs, partly offset by manufacturing ramp-up costs. And EBIT margin before special items was 7.8% in the third quarter. As mentioned throughout the year, '25 is a backend-loaded year. The third quarter that we are just going out of was a strong start to a busy second half, and we expect a better balance between earnings in the third and fourth quarters compared to previous years. Diving into the segments starting with the strong performance in Power Solutions, as Henrik also alluded to. Revenue increased by 4% year-on-year, driven by higher megawatt delivered at stable average selling prices. EBIT margin before special items improved to 3.9 percentage points year-on-year to 8.1%. The improvement was driven by lower warranty provisions, continued strong onshore project profitability and importantly, execution, partly offset by costs related to the manufacturing ramp-up in our Offshore in Europe and Onshore U.S. Moving into the Service segment. Service revenue declined 3% year-on-year due to lower transactional sales compared to last year, while contract revenue was stable. Revenue growth in the quarter was affected by 3% currency headwind. Service generated EBIT of EUR 153 million, corresponding to an EBIT margin of 17%. The profit levels is in line with recent quarters, but we expect additional costs in Q4 related to some specific Offshore sites. The Service recovery plan continues and it will take time before benefits are visible in the financials. Net working capital decreased in Q3, mainly due to a reduction in inventory as a result of high project deliveries in the quarter and continued focus on working capital management. Important to notice, compared to Q3 last year, we have seen EUR 1.4 billion improvement in the net working capital. That leads us into the cash flow statement, where importantly, and what you have seen also where we say we initiated a share buyback on the back of strong cash flows and our net cash position. Our operating cash flow was EUR 840 million in the quarter, a significant improvement compared to last year. The improvement was driven by better profitability and a favorable development in net working capital, as you just saw. Adjusted free cash flow in the quarter amounted to EUR 508 million, also a substantial improvement, driven by the same reasons as mentioned in above. And then finally, we ended the quarter with a net cash position of EUR 0.5 billion. Total investments in the quarter amounted to EUR 274 million in quarter 3. The spending is primarily related to tangible investments such as transport equipment and tools as well as property plans and equipment across our turbine portfolio, such as the Offshore 15-megawatt EnVentus and our 4-megawatt platform in the U.S. Importantly, we are also very pleased to welcome more than 400 new Vestas colleagues at the Onshore blade factory in Poland, which we took over in September from LM Wind Power. The factory will deliver blades for our EnVentus platform and expand our industrial competitiveness in Europe. Looking at provisions and our lost production factor, we see signs of stabilization. The repairs of the sites mentioned in previous quarters are now largely completed. Disregarding these sites, the underlying LPF has trended down during '25. Warranty costs amounted to EUR 160 million in the quarter, corresponding to 3% of the revenue, and that is a significant improvement from the 6% we saw in Q3 last year. Warranty consumption was EUR 206 million for the quarter. The higher consumption level in the quarter is related to the above-mentioned repairs. And finally, ending on a high, we can report our best EPS and RoCE in 5 years. Net debt-to-EBITDA ended the quarter at minus 0.2x compared to 0.9x a year ago. Investment-grade rating from Moody's, we still have with a stable outlook. Earnings per share, measured on a 12-month rolling basis, improved to EUR 0.9, driven by the better profitability. Our return on capital employed, which broke the 10% barrier last quarter improved again and now to 13.6% as the earnings recovery continues. And finally, our strong financial position and improved key metrics allows us to return cash to shareholders. Thus, we are initiating a share buyback of EUR 150 million starting tomorrow. And now back to Henrik to take us through the outlook. Henrik Andersen: Thank you so much. So thank you, Jakob, and thanks very nice slide to finish with. And if we were a bit out of sync, I have to catch up with that change of your slides in the future. But we will rehearse that. When we look at the outlook, the outlook for the year, revenue narrowed EUR 18.5 billion, EUR 19.5 billion from previous EUR 18 billion to EUR 20 billion. Of course, there are some negative foreign exchange that you picked up. On the EBIT margin before special items, 5% to 6% narrowed from 4% to 7%, and Service is expected to generate an EBIT before special items of around EUR 625 million. And then total investments remained stable at EUR 1.2 billion, as we also had in our previous outlook. With that, I will just say thank you for listening in. I will pass to the operator, and we will go to the Q&A. And also in that slide, you will be able to see the financial calendar for 2026. Over to you, operator. Operator: [Operator Instructions] The first question comes from the line of Sean McLoughlin from HSBC. Sean McLoughlin: Let me just come to Offshore. The ramp looks to be progressing as expected, but you've postponed the investment in the blade plant in Poland. I wanted to understand just what is your latest view here on the market? And what is the risk that we might see in early peak of deliveries in '26 and '27 and potential underutilization thereafter? And ultimately, what would it take in your mind to kind of put that blade expansion back on track? Henrik Andersen: Thank you, Sean, and with a little bit of risk of using an expression here and throwing a good colleague under the bus. I will sort of say here, that blade factory that is so-called stopped in Poland was never built in Poland either. It's actually an old decision that was paused 18 months ago. It got interpreted a bit and probably got its own life and that I will use a bit also to say to everyone here on the call and others listening in. It seems like Offshore is getting an unreasonable bashing everywhere in the day-to-day press or among analysts. Yes, there have been headwinds and others. But from us, we don't see that. It is a piece of land we have. So if we, at some point in time, wanted to do a further capacity expansion, then it's an opportunity and option for us. And right now, we are working well. We are progressing well with our own capacity plant upgrade and that we will just wait and see. This is a dependency on what happens in the backlog when we look 4 years plus ahead that's where we will adjust capacity. Currently, we don't see any reason for raising the question or question too, if we need to adjust capacity downwards. That's for sure, Sean. So, we are ramping up. And therefore, in a call like this, start talking about capacity downwards. That's not -- we have a backlog of more than EUR 10 billion of projects and we will be throughout this year, next year and into '27 reach what we will call a more stable full capacity utilization. Sean McLoughlin: And if I could just follow up on Offshore is looking at the moving parts for you effectively not lifting the midpoint of the guidance after the strong Q3 surprise? I mean, is Offshore a component of that? Or is that really driven by Service? Henrik Andersen: I don't -- as I said here, if we look at the midpoint here, you can sort of see if you have three quarters now, you can see we struggled to absorb the Offshore ramp and the ramp-up cost in generally, if we are laying around EUR 2.5 billion in turnover. Now we are above EUR 5 billion. We have a very good quarter. But again, there, it's a lot easier to absorb it when we have a higher turnover. So, we are pleased with where we are, probably is around the maximum of the ramp we are seeing here in the second half of the year. So therefore, coming into '26, we should start seeing also, it's reducing and disappearing over time. So, that is sort of the -- in our heads, the timing of it. And then as I said, in the mid-range, also here, Sean, of course, we still have also the business absorbing for instance, tariff and other exchanges that happens in the world. So, we're not -- we're actually very pleased with what is in here, and we're also very pleased with what Onshore execution is supporting our continued investment into Offshore. Operator: The next question comes from the line of John Kim from Deutsche Bank. John-B Kim: Two questions, if I may. If we think about the updated guidance here and include the headwinds in Service, I believe it still implies a sequential -- a weaker margin in Q4 for Power Solutions. I'm just wondering if you could give us a bit of color here whether it's more about the cadence of the Onshore deliveries or potentially a bigger drag in Q4 from Offshore? How should we think about that? Henrik Andersen: I think here, it's the busiest quarter again in Q4. We walk into Q4. You will have seen it. We always said when we started the year back end loaded, but it's second half of the year. I will sort of say here, when you look at that, John, I would much rather see it in that we have managed to equalize Q3 and Q4 much better. Last year, we didn't. So therefore, compared to last year, we are looking into a Q4 that looks fairly much as execution of Q3. And then there can be a variation to the theme of what do we have in the backlog in there. You shouldn't read more into that. Then it is a busy quarter. We got 56 days to go, and we will always be subject to the normal variables in Q4. So that -- yes, we won't try to make it worse, that's for sure, in the Onshore execution, which we so far have had a really good run at this year. John-B Kim: Okay. Helpful. And on the Service guidance, EUR 625 million as the updated guide. I want to say there's a little bit under EUR 20 million in FX headwind. Is the remainder of the difference from EUR 700 million to EUR 625 million due to the Offshore that you had mentioned in the commentary? Henrik Andersen: I won't comment on your FX calculation. I think, we probably will see it slightly a bit more than that. But as I said, let's not do that. What we are just saying here, if we have a couple of things where we put a lot of vessels and a lot of people see in a Q4, it will drag something. So when we see that in a Q4 of a Service, which, let's just say, between us, we maybe end up around EUR 1 billion in turnover, then you can easily invest EUR 20 million in some of these Offshore sites in a quarter, and that's why we are guiding towards the EUR 625 million. Operator: The next question comes from the line of Kristian Tornøe from SEB. Kristian Tornøe Johansen: I have two questions. First one is about the production ramp-up in Offshore and Onshore as well. So, you've been fairly clear stating that it has a material earnings dilution impact this year. Considering the progress you've done so far, how confident are you that this will have a materially lower dilution next year? Henrik Andersen: How material are we, we had listed. We know that it's ordinary ramp. So, that means, the longer you get in, the better we get added, Kristian. But it's also here for both the Onshore U.S. and Offshore. We see a tendency too that we are further into the Onshore U.S. So, that should be definitely disappearing over the coming 2026. And then, as I said, in the Offshore ramp, listen, we opened these the nacelle factory less than 6 months ago. So therefore, we are at a maximum of both onboarding and running the education and training there. So, I can't give you a date where it maxed out and then it starts coming down, but we do everything we can to actually having coming out gradually over '26. Will it be totally done in '26? I don't know, because there always be things. So that we will talk more about when we get to 2026 outlook in February. But we are comfortable with it, and that's probably the main reason here. We have more than 0.5 gigawatt I see now in the Baltic Sea and the North Sea. So, we see that progressing. But of course, we are into the winter season where it's a slightly different environment to construct and install Offshore. Kristian Tornøe Johansen: Understood. Fair enough. And then, my second question is on your order intake in the APAC region, which again this quarter was fairly low. So, just any commentary on the outlook and your optimism for actually seeing APAC orders pick up? Henrik Andersen: I would just say nothing more than he should be doing better. There's a whole region out there in Asia Pacific, so that we encourage them to do. I think, it's lumpy when you are in markets of the nature of what they have in Asia Pacific. They are a bit more depending on when does it come over the finish line. I'm pretty sure that it's a whole region and not wanting to show us and you that they are good. They're doing zero in fourth quarter, because that's not the intention. So, we'll see where they end in 31st of December, but game on for the region to build a proper FOI in fourth quarter. Operator: The next question comes from the line of Dan Togo Jensen from DNB Carnegie. Dan Jensen: Sorry, can you hear me now? Henrik Andersen: Yes. Dan Jensen: Okay. Good. A couple of my questions from my side as well. On warranty provisions, low this quarter here, but how should we think of this level both absolutely and also relative, of course, as you put on more on the Offshore side? Can you maintain this level here? Or is there a risk that we will start to see level or an increase in that ratio? And then a question on the share buyback, the EUR 150 million. Can you elaborate a bit about the math behind reaching the EUR 150 million? I mean, cash flow -- free cash flow generation was more than EUR 0.5 billion, and you have almost EUR 0.5 billion in cash by end Q3, and how should we think of it by end Q4? Will you again be possibly in a position where share buybacks could roll into the current program be released by a new program? Jakob Wegge-Larsen: Dan, this is Jakob here, let me take the first part, and then Henrik will comment on the latter. Warranty, what we should remember, and I'm sure that those are also the numbers you're looking at. '23, we had more than 5%. '24, we were down to 4.3%. And then this year, we are hovering around the 3%. So, it's something we're really proud of, and it's an outcome of our focus on quality. We also see the underlying LPF reducing as we say, except for these couple of sites. And our ambition is to continue that journey down. And again, looking at next year, we'll talk about after Q4, but it's certainly our ambition. We are not satisfied with the current level of 3%. We see further potential and we have higher ambitions. Dan Jensen: Okay. Sounds good. And then, on share buyback? Henrik Andersen: On the share buyback, I think always when we do these things, we look at it in a bigger scheme of things. We have had a highest EPS, as Jakob mentioned, highest EPS and highest return on capital employed for 5 years. As you know, our Chairman very well. It's probably also the highest EPS for most of the 10 years. So therefore, when we look into this, we think it's fairly reasonable that we also say to shareholders, you will get cash back. Could we have done more? Yes. Could we have done less? Yes. But we ended EUR 150 million, because it's also the time of the year where we can get this done until the 17th of December. And then, of course, we get together again in beginning of February. And as you're rightly saying, we're not about piling up cash here in an environment where we feel very comfortable of the investments we have been doing and still are doing in Offshore, but that is also to say if people have struggling to see the value in Vestas shares, then share buyback is the best way we can also say, we -- at least, we trust in the Vestas share. Operator: The next question comes from the line of Akash Gupta from JPMorgan. Akash Gupta: My first one is on Service. So, I think when we look at your Q4 -- implied Q4, it's slightly over EUR 140 million adjusted EBIT, which is smaller since 2020. Can you tell us maybe how much of this is structural and how much of this is like temporary figures? And can you also talk about growth rates for Service in Q4, given last year, we had 30% year-on-year growth in Service top line. So, that's the first one. Henrik Andersen: Thanks, Akash. I will say sort of top line first. When you see the Service top line, there can be, and there was also last year some repowerings. Therefore, if Q-on-Q, there are differences in the top line that can relate to special things like that. And you will also appreciate we do have transactional sales as part of it, which can vary. We don't comment much about that and don't want to comment much about it. But as we also discussed over the last quarters when we have embarked into this Service reset. It is important for us that also we get better in saying, in this quarter, we already know this is what we are going to do in the quarter in especially some of these Offshore sites. So therefore, we have to give you a bit more guidance on some of these. That is not a recurring thing. So therefore, when you're into next year, you should see probably year-to-date and what we have done in the previous quarters is the underlying run rate of the business. So, I'm not so nervous of that, but we got to pick it up with you when we have already now a month into Q4. So that's the reason why we are seeing it. And as I said, it relates to something specifically in Offshore that is in the quarter, dragging it down. Akash Gupta: Are these Offshore sites are same as where you were fixing some quality issues where you took provisions or they are different? Henrik Andersen: They are partly, partly different. So therefore, it's not related to any of that, and it's not related to the 236 either. So, this is something where we just know that when you're in this season, and you got to have it, then it's a focus from us, and it's a focus from the customers, and it is very few customers involved as well. Akash Gupta: And my second one is on produced and shipped turbine in the quarter. You had slightly over 3 gigawatt, which is down 17% year-on-year, and we had growth here in first half, and now we are flat on a year-to-date basis. Can you tell us what is driving it? Are there any supply chain issues like probably sourcing of magnets or any retooling of facilities? So, can you elaborate what's driving this Q3 produced and shipped turbines and expectations for Q4? Henrik Andersen: No, I will say here, and I think Jakob spoke to that, if I can point to a positive here. We get better and better together with our partners in having a straight through on the production and also the supply chain. So, we've been better able to control inventory. And therefore, if we do that, then are we also, to some extent, in some quarters, you can't adjust it completely from what is going to be delivered and constructed next quarter. So, we have been better at that, and there are no -- we haven't yet seen any influence of any supply chain shortages, then we wouldn't have used the expression of very good execution in Onshore. So, we actually, again, coming into Q4, we won't be many weeks away from when we have all what we need on site. So therefore, Akash, we are -- we see good traction on execution towards the end of '25 as well. Operator: The next question comes from the line of Colin Moody from RBC. Colin Moody: Just focusing on the very strong margin performance in Power Solutions this quarter, well understood on the drivers regarding warranties and volumes. But maybe just on that project execution point. Am I right in thinking this is essentially a contingencies release? And could you help us understand how much of a contributor this was and generally, should there be some more in Q4 to come? And generally, on contingencies, do you recognize the benefits of that release every quarter as projects approach the end or more kind of towards the back end of the year? Henrik Andersen: I don't know if I'm commenting on something a new special way of doing. We do exactly what we've always done. If we have a project, we do a pre and post cal cap, when we get the final payment from the customer, we put it into our P&L. So therefore, I can't comment on what others are doing in contingencies or whatever. We run whatever we do when we have a project, as you would expect us to do, there's always something in a project where you have what if something goes wrong. And of course, that gets released when you also have the project completed. So, it's a quarter where Onshore execution has been and delivered this. And of course, even in this quarter in Power Solutions, we have also spent quite a lot of amount in ramping still and investing in the Offshore and Onshore ramp. So for us, this is a normal quarter. But I think you should read back to what I started saying by it is difficult to absorb our investments in ramp when you have a much lower turnover and top line as you saw in Q1 and Q2. That's what you should read into it. There is nothing else. Then it's just a clean execution and profitability, and that's also what we are looking in for the full year. Colin Moody: Well understood. And then maybe just a second question, if I could. On U.S. market trends, clearly, very strong U.S. orders intake year-to-date. Just thinking about the July safe harbor coming up in 2026. How do you think about order developments going forward? And am I right in thinking that you shouldn't necessarily expect a big peak or ramp ahead of that deadline. But actually, you could continue to see very strong order momentum even beyond 2026 into 2027 and beyond? Henrik Andersen: Yes. Thank you. As I said, it's always difficult to predict in individual quarters. You know my statistics in that, that has been relatively poor, as Claus Almer will remind me of. So I think here, we are also saying we take the orders we can get to. I think it's also fair saying we are pleased with what we are seeing. We are having a well-covered order backlog in the U.S. and people are building out and planning for building out. What is that based on? That's based on that the Wind also in the U.S. has a very attractive levelized cost of energy. It goes well in combining up against gas and others. So therefore, it's a build-out ROCE that we will continue to see in the U.S. also beyond whenever PTC is expiring or not. I think we will probably have had more orders if we haven't had some uncertainties around the tariff side. But outside that, no, we love getting close to our customers in the U.S. and keep developing that plan for the coming years. So, we're in a good state. I won't comment on when orders are coming because that's simply too difficult to predict. But don't forget, when we talk about tariffs, we have a very, very large local supply chain that has been there for more than 2 decades. And of course, that we are supported well for and customers can come and see both the sourcing of the components and supply chain into the U.S. factories, which gives a very comfort situation and confidence situation between us and customers in the U.S. Operator: The next question comes from the line of Claus Almer from Nordea. Claus Almer: First of all, congratulations with the solid Q3. I will not ask about orders, but about the tariffs. So, first of all, did tariffs in Q3 had an impact on the profitability in power? That would be the first one. Henrik Andersen: Yes, it will always have now because if you're paying and your sourcing and you're constructing, Claus, you can see the deliveries in the table we have in the interim report. So therefore, of course, part of that is already under influence of tariff. And of those, that is -- that will be fully booked under and also split in the ratio between customer and us. Claus Almer: So, it's the quote that you're expecting to be able to mitigate some of these effects. So, could you maybe quantify what was the headwind in Q3 that maybe will vanish over the coming quarters or years? Henrik Andersen: That goes a little tight in what we are sitting with. So, we have a P&L to optimize in and for our customers and that we do very well. We can't mitigate 100% of tariffs, because there is not an opportunity to be 100% local sourcing in the U.S. So therefore, there will be a tariff and they will come on either projects or components and therefore, be booked up against the projects when we execute on them. We don't have an interest in sharing that. Why is that? It's not a market for many. So therefore, we keep that execution with us and our customers. They understand what we are doing and they support what we are doing, and I think we are in the best possible way, trying to mitigate what we can mitigate, but mitigate all of it, not possible. Claus Almer: Fair enough. Then my second question, which is also tariffs. So, there's been some quotes out today from you, Jakob, that U.S. customers are holding back due to the tariff uncertainty, which also was mentioned on this call. I guess this is mainly the ongoing U.S.-China situation which may last for quite a while. So, is there any way that you can reduce this uncertainty and thereby unlocking some of these projects in the pipeline? Henrik Andersen: I will just say maybe Jakob better comment on his -- himself. We fully agree on that. Of course, as I also said to the previous one, we will probably have taken more if it wasn't for the tariff, and that's absolutely right. And there is also probably a continuing backlog sitting and waiting for clearance on a few of these things. So therefore, let's see what happens there. But as I said, I'm not trying to predict sort of macroeconomics and geopolitics these days, because it's simply not predictable. So therefore, we do what we do. Whenever there is clarity and whatever the offtake is there, there are also cases now where the offtake is so much in demand that you actually will execute on it, whether there is small, low or even high tariffs on it, because that's what you need to get to your electricity and your energy supply. So year-to-date, we have more than 2 gigawatt of orders and our U.S. team are doing a cracking job in doing that. So, we do what we can to support them, Claus. So I think here, really, really good progress. Claus Almer: There's no doubt on 1.8 gigawatts from the U.S. -- player from the U.S. was quite amazing in the quarter. That was all for me. Operator: The next question comes from the line of Ajay Patel from Goldman Sachs. Ajay Patel: A couple of questions, please. Firstly, on Offshore, we're largely through this year, I'm just thinking about the Offshore business where that has been hampered by a number of issues this year, fixed cost absorption, ramp-up cost, maybe lower margins on the contracts. And I'm thinking beyond because that's a sizeable proportion of the reflection on the profitability of Vestas. Is there any sort of guide you can give on the ramp-up costs this year so that we can have better modeling of how that profitability may turn? And then the second question I had was you're performing really well on the Onshore side. You can see the green shoots of Offshore turning around sizably. You talked to Service margins improving by the end of the Service plan. It looks like the significant profit improvement to happen over the next 2 to 3 years. I'm just thinking today's buyback. Can we infer that sizable amount of cash flow that buybacks will be very much part of that debate. And that really, we're really looking at a picture that's got returns of value as a sizable proportion of the investment case? Henrik Andersen: You're asking me quite a number of questions in the question. S,o, I will try to, sort of, we believe very much in our three business areas. Onshore, very mature, very well developed. And you can say the Onshore has been -- if I was an inside Vestas colleague has been paying a lot for some of the investments we have continued doing in the Offshore. We are absolutely convinced and we adamant that Offshore will be a really great business area, not only for Vestas, but for a few around and also for our customers. So, we are not being caught by the same, I call it, a bit the frustration or depression over Offshore. But the great days of Offshore in the P&L for Vestas will rightly so come when you look beyond the further ramp-up in terms of projects in '26. So therefore, second half '26 into '27, you're right, Offshore would start looking much more like what we're also seeing in the Offshore profitability. That comes together with that we are doing the right things in Service. So yes, you can definitely come into a higher EBIT margin when you do the future years. It's not why we are looking at a share buyback in an individual quarter. But I think it's a testament from the Board and also from management here to see, we feel confident of what we are doing and where we are and that confidence you need to see. Because if there's something we probably discussed in the last 4 quarters, which is, when did the business turn around, when was it, we were comfortable of the turnaround we have done? And is it working? And I think today, we can definitely say to people, this is the first sign of it's working and then, of course, everyone can do their predictions. The more cash we get available, the more we will probably redistribute back. Because the biggest part of the investment we needed to get done in Offshore is actually behind us. Operator: The next question comes from the line of Alex Jones from Bank of America. Alexander Jones: Great. Two, if I can. First, just to follow up on tariff costs. To what extent were those already hitting the P&L this quarter? Or are there still the sort of incremental increase in tariff costs ahead as you work through inventory imported before the various tariff measures were put in place? And then second question, if I can, on Offshore. And sorry if I missed it, but could you explain exactly what is happening at the Offshore sites either because of technology or because of your customers' demand that is driving additional costs in Service in Q4? Henrik Andersen: If I take the Offshore first, then I can leave the tariff a bit more on to Jakob. I think we've spoken about the tariff already. But on the Offshore, it is specific sites. It is where we are manning up. It is not related to our 236, and it's not related to the, sort of, back in Q3 and Q4 last year, where we had a component failure in one of the platforms. So, this is about that we have, what I would probably more call a hyper care in a couple of Offshore sites where we agreed that with the customer. And therefore, of course, we are also investing in that. So, that is in winter and a high season for Offshore is a way of also us saying we are investing with in also prioritizing cost here. So that's what we have done and that's what we are sort of pre-guiding you on for Q4. Jakob Wegge-Larsen: And on the question around tariffs, it is hitting our books right now. As Henrik also answered in the previous question, continue hitting in Q4. But what is important is, and that's what we're also saying with our narrowed guidance, we can keep that within the narrowed guidance and you will see doing the math that we have the same midpoint as we had basically since the beginning of the year. So in that sense, yes, it's in there, and it will continue to be in there. Operator: The next question comes from the line of Max Yates from Morgan Stanley. Max Yates: Just one question from me. Just on the Services business. Could you give us an update on how the turnaround program is going? Are customers kind of accepting the renegotiated terms? And I guess maybe if you could just help us with the kind of how long we will actually -- how long it will take to actually see this in numbers? I guess you're kind of operating in a 16% to 18% margin. I appreciate you won't want to give guidance to '26, but do we still see sort of '26 as a year where the groundwork is being laid for future margin improvement? Or do you really see it as we'll start to see some of the improvement is actually coming through in kind of growth and margins in the Service business as we go into 2026? Just trying to get a sense of -- so we don't anticipate it happening sooner than we actually see it in numbers. Henrik Andersen: Max, I'll really, really appreciate your comment in that way, because I couldn't agree with you more. This is a global business that has 159 gigawatt under Service. And we have more than 15,000 employees. So, when you do a reset and a turnaround of the business, it will take longer time. So, please don't start making things in 22% or 25% Service margin in '26. We have said it takes the 2 years. We are 5 quarters away from finishing this work, because it does take some time. I'm really pleased with where we are in the Service team and Christian Venderby, who heads it, have done a really good job. We know the details of what we are going through, but I think also as we are hinting here. When we looked and talked about this 2 or 3 quarters ago where we said we probably would foresee that we will have some flat gigawatt under Service, then surprisingly it didn't happen in the first 1 or 2 quarters. Now it does happen, because we are getting to some of the gigawatts where, as I think we also spoke about that, for instance, something like multi-brand, it doesn't make an awful lot of value for shareholders, and it doesn't make an awful lot of sense for us, unless we have customers that ask us specifically to do it more on a cost-plus basis. So therefore, you will see now that we're actually having a real firm grip of what is happening from quarter-to-quarter. So, we're in good momentum. We're in good momentum of addressing where we wanted to have a better operational environment. And then we have a good momentum and also talking to customers straight and that includes even escalations to me as well. So, we are actually pretty pleased of where we are with the commercial reset and we are not done with it. That will be wrong. But that's because you cannot fix that much in 1 or 2 quarters. But run rate up until third quarter is the run rate. I will say, and that's, for me, the middle of the road we are going with. Operator: The next question comes from the line of Lucas Ferhani from Jefferies. Lucas Ferhani: Just a follow-up on Offshore. When are you kind of booked out to? I know you said you have EUR 10 billion of projects in the backlog that kind of last you until 2027, even into 2028. And then, when you look at the kind of the recent failed auction in several countries in Europe, and maybe the AR7 in the U.K. that was maybe slightly below expectations. It depends on who you asked to, how do you feel about kind of the ability to kind of get those redone and then rebid and then the orders coming through to the turbine suppliers kind of roughly on time? Henrik Andersen: Yes. No, as I said, it's a good 10 gigawatt. We are sitting and muscling around. We have more PSAs, but there are also more PSAs in discussions. So, I'm not so worried about that. And then, when you look at the near term right now, we have a lot to do in the coming 3 to 4 years. So that is also the cycle of it. So, where you come from -- and I keep in currency stay -- don't compare. Compare, but don't compare between the backlog and the process we're running between Offshore and Onshore. Because Offshore processes are longer and therefore, not so nervous about that. If there's one thing that concerns me and I hinted that a bit here is that we, at least in Europe, where Offshore should be one of the biggest solutions to get our, I would call it, less energy dependence on friends outside Europe. We are 50% dependent on energy import and Offshore should be one of the things we scale faster. But it seems like every country in Europe choose to go through a failed auction before they get it right. And of course, that takes time. And we've seen a number of countries, including the Danish government went through, I think last year, but that also means now you have a CFD backed. And even with the CFDs that will significantly improve the Danish electricity price as well. So therefore, it works and it works across. So, we are not so nervous about that. And when we look at AR7 in the U.K., I can only give a praise. Maybe I will also have one of the ones that would like to have a bit larger budget committed. But on the other hand, the government and the Secretary of State, that knows a lot about, Ed Miliband. Yes, he has conditioned himself that he can take individual projects out and also potentially progress that. So, I think we got to work through this. And if somebody wants to characterize it as an Offshore crisis, I'm not in that category. So, I think it's a proven technology. It's a proven market access that works and therefore, now is the time to show leadership, both from developers and OEMs to get it built out. So, we are more positive on that. We see '25, '26 to some extent, I'm happy that we are doing what we are doing right now, because if we had more stress on the factories and the ramp-up, that would only -- that will actually only create more concerns at Vestas. So, we don't have that. So, we are comfortable executing on it. And what I'm probably most encouraged by is also our customers like the discussions and the detailed discussions we are having leading up to 2030 and even beyond. Lucas Ferhani: Perfect. And just a quick follow-up on tariff. I think most of what we are seeing and what has impacted you so far is more the section 232 on maybe steel or specific components. But there's also a probe that has been launched in the U.S. into Wind specifically. Can you talk about how do you understand that? I obviously see that there's not much information out there. But how do you look at that risk of what could come out of this probe? Henrik Andersen: I know and there is sections and there are EU tariffs and there are other tariffs that seems to be changing every quarter. So, we are basically taking the stand that we will deal with it as it's being thrown at us, and therefore, we are also dealing with this. Outcomes, I can't predict, but what we are both guiding for, for the rest of the year is what we know and what we are dealing with and therefore, it's priced in. And I think we are best doing and best served with doing that. Because otherwise, we have to start changing every time there is a change in legislation. It might be -- it goes up in tariff, it might be that it goes -- I think the last week, we've seen initiatives that seems to be maybe talking to tariff returning towards the zero again in some areas. But let's see. I don't comment on that because it's way outside my area where I can affect it. What we can affect is how we execute and how we deal with them. And that's where we have a fantastic team in the U.S. and North America that are absolutely on the details with that. Operator: The next question comes from the line of Henry Tarr from Berenberg. Henry Tarr: Congratulations again on a strong quarter. The first question is just around Onshore and Onshore margins into 2026. Clearly, that business is running very well today. As I look into next year, what are the key drivers, sort of, volumes look relatively stable, pricing seems to level out. How are you seeing, sort of, cost trends and mix? Do you think there's more -- a little more juice left in that onshore margin as you look out? Or are we already sort of performing as well as you can hope? Henrik Andersen: Thanks, Henry. I think, I don't know, juice left, maybe I should comment differently. I think on '26, we'll comment on the 5th of February. I've learned that lesson over the years. We do nothing in the Onshore business to try to make it run worse right now, and we're actually doing reasonably well. So, what we have seen here expect more of the same. If we can do more and we can get more, it's probably where we have more concurrent projects where we can avoid having change cost and other stuff in the Onshore. But I'm really just pleased with seeing what is happening in the Onshore. And of course, we don't do that. I think that's also only fair, because there are limited players. So there's no need for them to sit and read the P&L of individual business segments between Onshore and Offshore. Onshore really well, and we will see if we can do more of the same next year. And we will try very hard. Henry Tarr: Fair enough. And then, just on staying on the Onshore from an orders outlook. You sort of covered the U.S. How about the rest of the world as you look to Europe and so on? I know you sort of referenced in the materials that you see potential for high single-digit growth in Onshore wind, sort of, globally out to 2030. Are you still, sort of, happy with that view and you still see a lot of movement and activity in Onshore Wind in Europe as you look out over the next few years? Henrik Andersen: I think there are two reasons in Europe. I think some of the countries are leading the way. If you take Germany, if you take a couple of countries like Romania and others, I think they are leading the way and saying, this is how we can get more done and built. And I think, those countries are absolutely examples to follow. I think on the -- on top of that, I think it's getting more and more discussed in details how we can do a repowering in Europe which again speaks back to Wind was very much founded and invented out of Europe. And therefore, we also have an aging fleet and that, of course, opens up a European repowering that could be a real business opportunity for people like us. It could also be a huge business opportunity for the owners and the developers. And secondly, it's a fantastic way of increasing the energy production in Europe. So that -- there are two levers there. I will avoid -- I would avoid commenting on countries where they potentially haven't got it right. But let us say, we are very pleased with our Spanish colleagues and our factory in Spain. But I think on the permitting side and the flow of projects in Spain, there's probably still some outstanding to wish for. So therefore, in Europe, we see really positive underlying. And of course, Germany is one, if you -- if we spoke about it 3 years ago, Henry, we wouldn't have gotten to the number we see today. And that's thanks to both current and previous government in Germany. When it comes to Asia and Asia Pacific, a lot is being done. A lot of also is being considered. Some of the countries are a bit new on the block getting into that. But as I said, there's still some firm order intake to be shown from our colleagues in Asia Pacific. And then, in Latin America, similar, we have had Brazil that's probably gone very low in PPAs. And therefore, we'll see when Brazil returns to that. But we do have some good feelings around that also Latin America will start showing some strength again, because some of the data centers and others are moving into LatAm across. So, I think bit disappointed probably where we are year-to-date in Asia Pacific and LatAm, very encouraged by where we are in North America and in Europe. And that, I think, is a trend that we see continuing. Operator: The next question comes from the line of Casper Blom from Danske Bank. Casper Blom: A bit of another kind of question from my side. I think it's been close to 7 years since you launched the EnVentus turbine platform. And we now see that more and more of the orders you get in are for these larger 6, 7-megawatt Onshore turbines. At the same time, we've also seen you talk about stable pricing environment now for the last 3 years or so after that was this material price hike a few years ago. Is it fair to say that there is an opportunity from you guys, sort of, sticking to the current technology, keeping pricing flat, and then basically just having, how could you say operational efficiency from the fact that you have now gained very, very material experience in developing this turbine? And as a supplement, do you have any kind of plans of adding new platforms in the foreseeable future? Henrik Andersen: First of all, platform introductions never happened on an analyst call. So Casper, that's the first. The other thing is EnVentus, we are super pleased. And you can say that you're touching spot on. The more we ramp up and the more we get in the backlog, the better we become at it and that also goes for our supply chain. So, when I started extending a big thank you here, it also goes to our partners in the supply chain, because they help us getting some of those costs out. And I think today, from when we have been in an environment where inflation was very close to zero or even at par and then interest rate. Everyone have seen a cost inflationary which, of course, also for some projects have either potentially dangered the project for being built. Now it's also about getting and returning and getting it built, and therefore, cost out is absolutely name of the game for all of us. So that goes through the supply chain and it goes into our factories. And the more volume you have, the better you get at it. So, that's an overarching one. And I think you saw some of that. If you take the V163, 4.5 megawatts that are now selling across most of the world, but particularly in North America and in the U.S. That was developed as a probably an 80% component from a 4-megawatt platform. And that also means that we are running high cost-out programs on. So of course, that's a school and textbook example of how we want also to build the EnVentus. So, you're right, Casper. And I think some of it will be using to continue to improve our profitability. Some of it, we will definitely also let go back to the customer. So, we make sure that the projects are being built and not being stopped for not having attractive enough investments case with local governments. Casper Blom: If I may supplement. I think, if one goes back in time, there was sort of a general rule of thumb that pricing would come down by maybe 3% or 5% a year due to technological advantages and sharing this with customers. Isn't it then fair to assume that, when -- as long as you can stick to current pricing and you continue to get better, then it's in favor of your margin? Or is that too simple? Henrik Andersen: I think, it's maybe a bit from an industrial company of nearly EUR 20 billion and maybe it is a little simplified. But I will say here, now you bring 5% in as a price reduction and other stuff. I think, we are now back at a profitable area for Vestas. So, it's not this morning, we got up and said, now we need to lower prices. As I said, we like the commercial discipline. We need to make money. If we don't make money, we don't invest in the technology for the future either. So therefore, it's a combination. But as I said here, we will share it in a reasonable ratio with our partners and customers. Come on, there's nothing better than having a signature and winning a business with a customer. So therefore, that's the prime target, and that pays for the rest. So therefore, Casper, what you've seen today is we can now definitely say and prove that we are out of the dark days of '22. And I think that's really what we want to say to both you and the rest of the market with what we are doing today. Operator: The next question comes from the line of Deepa Venkateswaran from Bernstein. Deepa Venkateswaran: I had two questions. So Henrik, I wanted to pick up on something that you mentioned, which probably is not something a lot of investors focus on, which is your CapEx. So this year, you're spending over 6% of revenues on CapEx. You've also said that your big investment program in Offshore is nearly done. So, on an ongoing basis, particularly given cash is king and can be buybacks in the future, what is a more reasonable level of CapEx for your business going forward, either absolute or percentage of revenues, of course, assuming no big investments and further platforms, right? So that was my first question. And secondly, I think on demand, particularly in the U.S. there's a lot of hype about demand from AI. People want to be building a gigawatt a week and so on. So, what are you sensing in terms of the opportunity for Vestas to kind of capture and what are you hearing from your customers on the impact from this new AI demand? Henrik Andersen: First of all, a gigawatt a week, then I will not get much sleep, that's for sure. Deepa Venkateswaran: Maybe that was global. Henrik Andersen: Okay. But as I said here, the reality is real. And that's maybe the way to prevent it. In AI terms, the reality is real. It's happening, and the electricity demand is going up. Then we can always discuss sometimes is the demand and supply out of sync. Then of course, it only gives one thing, which is an underlying increase of electricity prices, which unfortunately, you are seeing in part of the U.S. And I think, for that matter, will come to Europe as well. So I think there's something in this AI where we as said, we are part of the underlying base load. So therefore, we are the ones that has to build part of the baseload together with many others. So therefore, energy in demand is definitely it. And I think if we look at a country that normally does very long-term planning, namely China, you can see how they have built out energy sources in the last 3, 4 years. And namely, last year, they build as much renewable. They build as much coal. They build as much some of the nuclear as the rest of the world did together. So, somebody is taking bigger upfront decisions than probably the rest of the world are doing. And so for me, as a pretty fact-based person, I like to see that we take some of these decisions may be a bit quicker, and that also goes for the U.S. So U.S. are in a demand for energy and electricity. And therefore, we will continue to see that build out and Wind is part of it. Maybe we should call it something else than wind, but it actually is with a low LCOE, and it does local manufacturing, and therefore, it's supporting U.S. in its energy supply. So that's really. On the CapEx side, don't underestimate, there will still be tools and there will still be factories and other stuff that from time to time will affect the CapEx. But I think Jakob is nodding that when we look at EUR 1.2 billion, that's probably a bit where we spent quite a lot this year. But if a factory or other footprint comes in, that will then variate and deviate to the theme. But as we said all along, it should be start going slightly lower, but we won't give a guidance for it until we are in February for the coming year. And then, as you can see, we are not nervous for actually using the cash to buybacks. Because if we're not forced to invest more, then actually buying our own shares is with a pretty good return on the multiples we are seeing. Could we have the last question, Operator? Operator: So the next question comes from the line of Martin Wilkie from Citi. Martin Wilkie: Just a follow-up to that question on data center. When we look at some of the hyperscalers and where they're signing renewable PPAs. A lot of it seems to be in Latin America and Europe and actually not very much in the U.S. And when you look at the outlook and potential for data center orders, is that how you see it as well that they're actually more realistic in those regions? Or is there actually sort of pent-up demand opportunity in North America, where obviously, the volume of data center is probably a lot higher. Just to understand regionally how we could think about that. Henrik Andersen: Martin, I will say, I don't think so. I think, when you see other continents like Europe and Latin America wanted to announce data centers, I think it's actually because they want to have a bite of the party. I think the two main places to have these data centers will be China and the U.S. That's where the AI balancing act is happening. We are behind in Europe. So, if we get a data center somewhere in Europe and we are building it, yes, sure. We will applaud it. But I think the underlying is that U.S., but they are probably not just announcing it to the same extent as you are seeing. Because as much as you see the demand and supply, the demand side is right now higher than the supply side of possible build-outs. And that's probably why you're seeing less of those announcements in the U.S. But working for an American bank, I'm pretty sure you will know a lot of what goes on in the U.S. as well. So thanks, Martin. Martin Wilkie: Can I just have one unrelated follow-up just on Service. And obviously, you talked about these costs in the fourth quarter. But just to clarify, these will be effectively a onetime hit in the fourth quarter. And obviously in the past when you have percentage of completion, then you can amortize these costs over the life of service contracts, but we shouldn't read anything into the revised outlook for the fourth quarter in terms of what it could mean for '26. And I know you're not guiding '26 yet, but just so we can understand that these costs should be contained in the fourth quarter? Henrik Andersen: You're absolutely right. It should be contained in fourth quarter, and we don't intend that, and that also sits outside any POC for the service contracts in Offshore. So you're absolutely right -- assumption is right, Martin. Okay. With that, thank you so much. Thank you for listening in. Thank you for all your interest and the question. Really look forward to meet many of you over the coming days. And therefore, thanks again year-to-date, and see you soon.