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Operator: Welcome to the Golar LNG Limited Third Quarter 2025 Results Presentation. After the slide presentation by CEO, Karl Fredrik Staubo ; and CFO, Eduardo Maranhao, there will be a question-and-answer session. [Operator Instructions] I will now pass you over to Karl Fredrik Staubo. Karl, please go ahead. Karl Staubo: Thank you, operator, and good morning from our head office in Bermuda. Welcome to Golar's Q3 2025 Earnings Results Presentation. My name is Karl Fredrik Staubo, the CEO of Golar, and I'm accompanied today by our CFO, Eduardo Maranhao. Before we get into the presentation, please note the forward-looking statements on Slide 2. Starting on Slide 3 and an overview of Golar. Following our announcement on October 23, our existing fleet of 3 FLNGs are now fully contracted on 20-year charter durations with a total EBITDA backlog of $17 billion before commodity upside and inflationary adjustments. Now that the existing fleet is fully contracted, the key focus of the company is now on developing our fourth FLNG unit. During the quarter, we've made significant technical and commercial progress in deciding on size and design of our next units. As you can see on the bottom half of the slide, we have 3 different growth designs, the Mark 1, 2 and 3, which differ in liquefaction size ranging from 2.5 million tons all the way up to 5.4 million tons. We're on track to decide on the next FLNG project in the coming months. Over the course of the last 5 months, we've also concluded just over $1 billion in new corporate debt facilities and retired our October Norwegian bond maturity of $190 million. Following these developments, we now have a cash position of $1 billion and a net debt position of around $1.4 billion. Over the last 12 months, we generated $221 million of adjusted EBITDA, mainly from the operations of the Hilli. Our EBITDA generation is set to quadruple from contracted EBITDA once our existing fleet is fully delivered during 2028. Turning to Slide 4 and the highlight of the quarter is, for sure, the final FID and successful fulfillment of all CPs for Mark II's 20-year charter in Argentina. We now have earnings visibility for all our assets through 2045 and beyond. The total earnings backlog stands at $17 billion before commodity upside and inflationary adjustments, and this creates a very solid base to add further attractive FLNG projects to the portfolio. Turning to Slide 5, we highlight some of the key characteristics of our FLNG charter agreements. Golar aims to structure our long-term contracts as solid infrastructure cash flow with meaningful contractual protections. Some of the key attributes to these protections include that all of our contracts are paid in U.S. dollars. All cash flows are paid offshore and net of any local taxes in the country where we operate. All of our contracts are on English law. And for all our long-term contracts, operating costs and maintenance CapEx is either passed through or reimbursable by our counterparts. In addition to these strong protections, we have further fiscal protections for our 2 contracts in Argentina, including 30-year noninterruptible export licenses, environmental assessment approvals and protection from any changes to fiscal or regulatory terms, including taxes, et cetera, through the large investment protection under the RIGI framework in Argentina. We furthermore have corporate guarantees from the parent companies of our counterparts for a significant portion of the contract backlog to safeguard the cash flows. Our mission is to identify attractive gas reserves globally and utilize our FLNG technology to monetize these assets together with strong upstream partners. We try to structure the contract in a manner where we reduce the country risk by creating the mentioned strong contractual and regulatory protections as well as creating a buffer between Golar's operations and the country where we operate. These buffers are essentially the charters of the unit, which in turn includes Perenco in Cameroon, BP offshore Mauritania and Senegal and the ESA Consortium in Argentina, where we have the pro rata corporate guarantees from the shareholders, which comprise Pan American Energy, YPF, Pampa and Harbour. Turning to Slide 7 and a business update for the quarter. Q3 was one of the strongest quarter in the history of Golar, now adding $8 billion of firm EBITDA backlog through the lifting of all CPs and FID for the 20-year charter of Mark II to Argentina. In addition, we entered the U.S. rated unsecured market with Golar's first ever U.S. documented $500 million bond with a 5-year duration carrying a 7.5% coupon. In the quarter, we also retired a Norwegian bond with a net outstanding amount of $190 million at maturity in October. We've also signed the Hilli redeployment scope in between her contracts in Cameroon and before starting the contract in Argentina, where the vessel will return to her original construction shipyard at Seatrium in Singapore. We've also approved the ordering of long lead items for the fourth FLNG, and we've approved a new $150 million buyback program in line with our track record of buying back over 9 million shares over the course of the last 5 years. Turning to Slide 8 and focus on Hilli. Hilli maintains her market-leading operational track record with another quarter of 100% economic uptime. We've now delivered 142 cargoes since start-up or producing more than 9.8 million tons of LNG. During the quarter, the unit generated $51 million of adjusted EBITDA to Golar. Turning to Slide 2 and focus on the Gimi. Gimi started her commercial operations date under the 20-year contract for BP offshore Mauritania and Senegal in June this year. We're very pleased to see that operations are stabilizing and continuously improving in throughput. We're now fine-tuning operations with daily production frequently exceeding base capacity. In addition, we're actively working with the GTA partners to identify and develop value-enhancing initiatives for the GTA projects. These initiatives include operational efficiencies and debottlenecking of production capacity to improve unit economics and overall throughput, which will then benefit the potential earnings of Gimi over and beyond the base EBITDA. We're also pleased to announce that we're in very advanced stages of entering into a new credit approved $1.2 billion bank refinancing facility of the Gimi. We expect this facility to close within this quarter, and Eduardo will explain this in further detail in the later section. Turning to Slide 3 and a focus on the Mark II. As already explained, the key highlight of the quarter was the FID reached in August and the CP satisfaction met in October. The project remains on schedule for delivery in Q4 '27, and we expect to commence operations in Argentina during '28. To date, we have spent $1 billion out of the total conversion budget of $2.2 billion and the $1 billion has been fully equity funded by Golar to date. You can see on the pictures some of the progress made on the shipyard in China. To the left, you can see the ship, which is divided in 2 parts and now sits on land. In the middle, we have had the key laying ceremony to construct the new mid-ship section, which will be 80 meters long and 63 meters wide and will house the liquefaction plant of the units. And you can see the model structural assembly ongoing to the far right. This is part of the equipment that will be injected into the mid-section. Turning to Slide 11. Year-to-date, we've secured $14 billion in adjusted EBITDA backlog across Hilli and the Mark II, where all of the FID and CPs for Hilli was met in May and for the Mark II between August and October. We see the combination of these 2 contracts as a very strong addition to Golar's portfolio, generating a base EBITDA of $685 million over 20 years before meaningful commodity upside and inflationary adjustments, both of which Eduardo will explain in further detail later on. Turning to our key focus going forward is adding Unit #4, where we explain further details on Slide #12. As we explained on our Q2 call, we made commitments to the 3 shipyards to come up with updated pricing, delivery and payment terms if we were to go ahead with 1 of the 3 designs. We have now obtained such pricing and delivery times from all the 3 shipyards. The Mark I design is the same design of both the Hilli and Gimi. It's a proven design. We know it well, and the current pricing works and aligns with some of the commercial discussions ongoing. The Mark II would be a repeat of the vessel currently under construction, and we are pleased to reconfirm time and price with the shipyard. We've also spent a considerable amount of time getting an updated price time and schedule for the Mark III, and we continue to see yard pressure for attractive slots and delivery times. And we do think that timing is of the essence if you want to lock in attractive delivery. The key pressure item for the delivery of all 3 assets are long lead items. These long lead items see significant pressure both on delivery and price, mainly driven by the AI data center boom in the U.S. We now see relatively new entrants into some of these suppliers where companies like Google, Alphabet, Meta and so on are ordering gas turbines in large quantities, putting price pressure and delivery pressure. Being an existing large and long-term client of these sub-suppliers helps us in securing attractive slots despite the increased competitive landscape. We have, therefore, gotten Board approval to enter into long lead items during this quarter, and we expect to do so in the coming weeks and months to safeguard the delivery times now confirmed by the shipyards through -- over the course of the last few months. So what do we mean when we say we're going to go ahead ordering Unit #4? Well, we think the case study of the Mark II over the course of the last 12 months is relevant and what's highlighted on Slide 13. The Mark II, we placed the order in September '24 on speculation. Even if we had very strong commercial lead, the order was initially on speculation. In May '25, we signed a 20-year charter with SESA. FID was met in August and all conditions met in October. What we clearly saw from ordering the unit on speculation alongside the redeployment of Hilli was that we were able to drive considerable commercial value in Golar's favor by having a firm delivery and several commercial opportunities available. We are planning to following the same recipe for Unit #4. There were several commercial interests, both on the Hilli redeployment and on Mark II that lost out to the Argentinians. We have obviously maintained those discussions, and we've also developed incremental units, incremental projects. Therefore, we plan on using the same methodology to drive commercial value in our favor with a similar time line expected for a new project. The CapEx to EBITDA for the Mark II was 5.5x for a 20-year contract before the commodity upside and the inflationary adjustments. We continue to see a strong development in the commercial pipeline for new projects, and we're therefore comfortable to go ahead with ordering the long leads imminently. Turning to Page 14. We've made further advances for the next unit. We've confirmed between 36 and 38 months of construction time, both for the Mark I and the Mark II and around 48 months for the Mark III. The primary reason for the longer lead time on the Mark III is that for that unit, we are not starting with a donor vessel, but purpose building from the get-go, and it's also larger in size and require longer time. As already explained, we received updated pricing delivery and payment terms, which are broadly satisfactory to the project economics that we're targeting. We have identified and inspected donor vessels. And given the state of the current LNG shipping market, we're very pleased with the levels in which we can source attractive conversion units. We're now working to narrow commercial opportunity set and upstream timing and decide on FLNG design. We will target long-term infrastructure contracts, and we have positioned the balance sheet to facilitate to add one more unit. We're now on track to decide on the fourth FLNG vessel in the coming months, but starting with long lead items imminent. Turning to Slide 15 and to elaborate a bit on the market opportunity and what we see ahead of us. It's tempting to look to the FPSO industry's development, which started in 1985 with its first unit and grew very quickly to around 20 units 10 years later. We see and today stands at more than 250 units globally with 10 projects to 15 projects added annually. We see a similar development taking place in the FLNG industry. We're very pleased to see the increasing adoption by the industry that FLNGs are the cheapest, quickest and most efficient way of monetizing stranded and associated and flare gas resources globally. Golar pioneered this business with the first delivery in 2018, and the fleet now stands at 14 units with several planned incremental projects in development. We're pleased with our position as the only proven provider of FLNG as-a-service, and we plan on maintaining an active growth strategy for as long as we can secure economics along the lines of our existing contracts for 20-year durations. We will, however, maintain our policy of having maximum unchartered FLNG at the time. As we've explained over several calls, we still -- the key premise of our business. The gas liquefaction has 3 cost drivers: the cost of lifting the gas, the cost of liquefying the gas and the shipping distance from where the gas is produced to where it's consumed. The largest current exporter in the world of LNG is the U.S. They also happen to be the largest source of growth of incremental supply over the coming 5 years to 10 years. And they also happen to be the most expensive producer, so the incremental producer. Hence, if we can source projects where we can produce the gas significantly cheaper than Henry Hub, we know we have an attractive cost competitive advantage in constructing the liquefaction units. And more often than not, our projects are closer to end users and therefore, have a shipping advantage. And if we have this or continue to develop projects with the 3 significant cost advantages over the largest and incremental producer in this market, we believe we have a very strong business and one that we will continue to grow. Turning to Eduardo for group results. Eduardo Maranhao: Thank you, Karl, and good morning, everyone. I'm pleased to give an overview of Golar's financial performance for the third quarter of 2025. So moving to Slide 18, let's review the key financial highlights of the quarter. Following Gimi's COD in June, this was the first quarter with full operations of both of our units. I'm pleased to share that Gimi has been performing extremely well and daily production is now frequently exceeding base capacity. We achieved total operating revenues of $123 million in the quarter and net FLNG tariffs of $132 million in this quarter. Hilli contributed $51 million to our EBITDA, while Gimi added $48 million this quarter. In connection with the start-up of operations of Gimi, we incurred certain one-off expenses, which are expected to be normalized in the next quarters. When accounting for the corporate and project development expenses this quarter, our total adjusted EBITDA reached $83 million. Total EBITDA for the last 12 months ended in Q3 was $221 million. This quarter, we reported a net income of $46 million. This figure is inclusive of $12 million of noncash items, such as adjustments in the value of embedded TTF and Brent derivatives within the Hilli contract as well as changes in our interest rate swaps. In October, we raised $500 million under our first U.S. rated senior unsecured bonds with a new 5-year note at a cost of 7.5% . Following that, we repaid $190 million of our unsecured Norwegian bonds issued back in 2021. Our liquidity now stands at approximately $1 billion of cash on hand. So following that, our net debt position right now stands at just under $1.4 billion. Lastly, we're pleased to declare a dividend of $0.25 per share this quarter with a record date of November 17 and payment scheduled for November 24. Now moving to Slide 19. We continue to focus on accretive growth while maintaining a sustainable policy of shareholder returns. As our units come online, we plan to return most of operating cash flow after debt service to shareholders, while we'll continue to recycle capital through asset level financings and existing debt optimization to fund accretive growth. These are not mutually exclusive. Over the last 5 years, we returned more than $800 million to shareholders, including dividends of over $260 million and buybacks of more than 9.3 million shares at an average price of $125 per share, bringing the total share count to 102 million shares outstanding at the end of Q3. In line with that, I'm pleased to announce that our Board has approved a new buyback program of up to $150 million. Now moving to Slide 20. Following the announcement of the Mark II FID and CP's fulfillment, we now have full visibility of our earnings for the next 20 years. This gives us a clear path to cash flow growth and increased shareholder returns. By 2028, when our 3 FLNG units are fully delivered in operation, we expect our EBITDA to grow by more than 4x compared to the last 12 months. This can grow even further, subject to further commodity upside from Hilli and the Mark II. This incremental free cash flow upside under the SESA charters in Argentina can be estimated at approximately $100 million per year for every dollar per million Btu increase in FOB prices above $8 per million Btu. In 2028, when the Mark II comes online, our free cash flow to equity generation could be around $500 million to $600 million or approximately $5 to $6 a share before further commodity upside. Now moving to Slide 21. So how do we plan to fund that growth? Going forward, we plan to use the liquidity released from debt financing proceeds to be allocated to fund accretive FLNG growth. We have now received final credit approvals for a new $1.2 billion bank facility for FLNG Gimi at improved terms, and we expect it to close within Q4. This facility carries improved terms and conditions compared to the current one and is expected to release net proceeds of over $400 million net to us. At 5.6x the Gimi's annual contracted EBITDA, this is a good example of what can be achieved on the back of our long-term charters. When looking at our existing debt at Hilli and targeting a level of 4x to 5x its annual contracted EBITDA, in that case, even at a lower level than the Gimi one, we could release up to $1 billion in proceeds from that by refinancing the existing debt with a new facility. Similarly, if we apply the same multiples to the Mark II, which is currently completely unencumbered, we could be looking to raise up to $2 billion from new financings. Combined, these 2 transactions could raise up to $3 billion in fresh proceeds, which can be used to fund further FLNG growth. Now moving to Slide 22. Following the confirmation of the contracts in Argentina with the FIDs of Hilli and the Mark II, we now have a total firm EBITDA backlog of more than $17 billion before commodity upside and further inflation adjustments. I wanted to recap how this is built up once all units are in operation. So starting with our share of the Gimi earnings. This is expected to add $150 million, followed by the $285 million from Hilli, as you can see on the slide, and $400 million from the Mark II. When you deduct our corporate expenses, we're left with a base EBITDA of $800 million fully secured for the next 20 years. As I explained before, changes in LNG prices could significantly give a very high upside to us. And in that case, we have a limited downside with a very significant and uncapped upside. For example, if we assume FOB LNG prices of $10 per million Btu, our EBITDA could be in excess of $1 billion per year. At $15, this number could grow to $1.5 billion. As a reference, if all the units were in operation in '22 and assuming LNG prices during that time, we could be earning close to $3.5 billion in that given year. This really shows the huge upside potential of our commodity upside. So lastly, on Slide 23, I wanted to summarize the different ways our investors can have exposure to Golar. Our shares are listed on NASDAQ, and I'm pleased to see increased volumes with daily liquidity exceeding $50 million per day. Following our latest issuance of our new U.S. rated $500 million unsecured bonds in October, we now have 2 unsecured bonds trading in the market with a total outstanding amount of $800 million. We have also issued $575 million of convertible bonds back in June. So I think that ends this slide here. I'll now hand the call back to you, Karl. Karl Staubo: Thanks, Eduardo. Turning to Slide 25 to summarize. We're very pleased with the development of the quarter and in particular, 2025 year-to-date. We remain the only proven service provider of FLNG as-a-service, combined between Hilli and Gimi having now delivered more than 150 LNG cargoes. Our earnings backlog now stands at $17 billion of EBITDA before commodity upside and inflationary adjustments. This will further increase as we add additional units. Our EBITDA is set to quadruple between now and 2028, and the pathway to multiple return in shareholder returns is beyond the quadruple as the EBITDA growth is far in excess of debt service growth. We remain a strong balance sheet position to provide for additional growth units. Our fully delivered net debt-to-EBITDA stands at around 3.4x with a current cash position of around $1 billion. We're on track to order our fourth FLNG unit, and we're in the process of ordering long lead items during this quarter. Our focus remains on shareholder returns, and we're pleased that the Board approved yesterday a new $150 million buyback program, which is in line with the $812 million returned to shareholders in the last 5 years. That concludes the prepared remarks of today's presentation. I'm happy to turn the call back to the operator for any questions. Operator: [Operator Instructions] Your first question comes from the line of Chris Robertson from Deutsche Bank Securities. Christopher Robertson: Just we saw some correlation in the share price recently with some -- with the Argentine market due to the recent election cycle. And one of the things that could help reduce the market's perception of risk around Argentina, perhaps if SESA is able to lock in long-term offtake agreements. So I was wondering if you could comment on SESA's current strategy, what they're currently doing if they're out competing in the market for long-term offtake sale purchase agreements and where things stand on that front? Karl Staubo: We've observed the same, which is interesting. I think we tried to explain the structure of our contracts on Slide 5 in this deck. These contracts are for 20-year durations, and we've structured them independent of political parties. We subjectively are pleased to see the outcome of the election. However, our contracts -- the FID for the Mark II was taken before the outcome of the election. And we do not think that it would have any material impact on our earnings irrespective of outcome. But subjectively, we're pleased to see the development. To answer your question on long-term offtake, that's a SESA decision. We are obviously shareholders of SESA. So the current plan is to initially lock in the offtake for the Hilli volumes for a decent period of time. And we're pleased to see the activity level and interest for that offtake. As earlier explained, the world is looking to diversify sources of LNG and the attractiveness of Argentina sitting on the world's second largest shale discovery is very interesting because it will be a long-term and very significant exporter of LNG for the coming decades. So we see very strong interest from all the big industrial and trading houses for that volume. We do expect them to sign the first offtake contracts within this quarter. Christopher Robertson: Great. Just turning to the donor vessels at the moment, they seem to be relatively cheap. That being said, there's a little bit of cost inflation as you probably saw here on long lead items and also from the shipyards just being relatively full. So with that in mind, can you comment if the future projects could target a similar potential CapEx to EBITDA ratio of 5.5x, as you noted in the slides here? Or is that calculation a bit different with recent costs? And if you could comment on where total CapEx stands today on some of the new potential projects? Karl Staubo: I think it's fair to say that the topside equipment, the topside equipment cost inflation and construction time offsets the saving of the donor vessel and more so. The cost inflation pressure is higher than what you save on the ship, even if they do partly net off each other, but stronger pressure on the upside to put it that way. However, we're pleased to see that, that's also the case for liquefaction fees. And we are planning or targeting to do new projects with similar economics on CapEx to EBITDA ratios versus the existing projects. Christopher Robertson: And just as a follow-up on that. If you were to move forward with the Mark II having that option at the shipyard, would that be locked in at the similar price of the Fuji? Or has there been some cost inflation that could impact that as well? Karl Staubo: It's -- you have a cheaper donor vessel than the Fuji. You have a higher long lead items. But the overall price, I would say, for this context is broadly in line with a slight increase. Broadly in line with the existing Fuji. Operator: Your next question comes from the line of Even Kolsgaard from Clarksons Securities. Even Kolsgaard: So I have a question related to Gimi and the capacity of that ship. I know you answered something similar before and touched upon it in your presentation, but one of your partners is very vocal about the potential raising the nameplate capacity of that ship. I think the specific number is about 10% to 20% above the current nameplate capacity. So do you have any comments or color on that statement? And if it's possible? Karl Staubo: Yes. So when you make reference to nameplate, there's a few different numbers. So let's talk about nameplate. The nameplate capacity of Gimi is 2.7 mtpa. The contracted volume is 2.4 mtpa. So when we say that the unit makes $215 million of annual EBITDA, that's with reference to the 2.4 mtpa, which is 90% of the 2.7 mtpa. Is it possible that you can produce more than 2.4 mtpa and up towards 2.7 mtpa? Yes, absolutely. Is it possible that we can produce more than 2.7 mtpa? We are evaluating that through the debottlenecking exercise that I mentioned during the call. That could include upgrading certain equipment. The magnitude in percentages over and beyond 2.7 mtpa, we are not in a position to have a clear stance on today. The way it works is that if you change one single component, that component itself could be like 15% or 20% production increase, but then you face a bottleneck elsewhere in the liquefaction plant. So it's a knock-on effect, and you need to go through the entire system to really gauge the total potential debottleneck potential. So for now, producing more than 2.4 mtpa, whether that's feasible? Yes, we think so. It's subject to operations upstream and ambient temperature. Are we -- is it possible to do over the design nameplate? Perhaps, but that's through the debottleneck exercise, and we're not going to commit to any percentages until that exercise is done. Even Kolsgaard: Okay. So my second one is on the market for FLNGs. As you've said, there has been a growing numbers of LNGs and interest in that market. But we also see new companies that are doing FLNGs like Delfin LNG and Amigo LNG. And these companies are private, so we don't really know much about the CapEx or contract structures that they get for the tollings, et cetera. But do you have any information when it comes to how does these units compare to yours in terms of competitiveness? And are you also seeing more competition when it comes to potential projects that you are looking at? Karl Staubo: So we're pleased to see that more people adopt FLNG technology. I don't think I want to go into any of the specific projects that you mentioned, but we're pleased to see increased adoption. I think it's still fair to say that there are more PowerPoint FLNG companies than real FLNG companies. But even including the projects that you mentioned, none of them are offering FLNG as a service. All of them are utilizing gas that they control or in areas where they control. They're not offering this to an upstream partner -- an external upstream partner. So do we see increased competition for shipyard slots and long leads? Yes. Some of that is not driven by FLNGs. It's by AI data centers, it's by container ships, it's by LNG ships, but it's also FLNGs for sure. Do we see competition for FLNG as a service right now? No. Operator: Your next question comes from the line of Spiro Dounis from Citi. Spiro Dounis: First question, I wanted to hit quickly on the buyback. The buyback was linked to those notes you did early this summer. Curious how you're thinking about deploying this program and what metrics you'll be looking at each quarter to decide how much you're going to repurchase? Eduardo Maranhao: Spiro, this is Eduardo here. So as we stated during the call, over the last 4.5 years, we bought back over 9.3 million shares. I think we have taken a pretty opportunistic approach to that. Following the convertible bonds, we bought back 2.5 million shares and the previously approved program had then been exhausted. So I think we have received approval yesterday from the Board for a new program of up to $150 million, which we will continue to actively and opportunistically execute in the market in the coming months. I think we will not change our approach to buybacks as we have been consistently doing over the last 4.5 years. Spiro Dounis: Got it. So that's great to hear. Second question, maybe just moving to the fourth FLNG unit. Curious if you could put a finer point on maybe some of the gating items here to moving forward. I realize you talked about some of them, but you also mentioned going back to potential customers you had spoken to before. Curious how big that list is and maybe why they're stronger candidates now versus not prior? Karl Staubo: So well, the list of existing clients is very obvious. It's Perenco, BP, Kosmos and the SESA partnership. I think we're obviously with Hilli departing in Cameroon. Cameroon has more gas reserves that are currently not being monetized. The day we leave, there will be no LNG exports from Cameroon. I think we have a proven operating model there. It's been a very successful partnership across all the parties, and we would be pleased to continue to work in Cameroon if we can find the right resource and agree the right terms. I think for the GTA project, many options are being evaluated to enhance the unit economics of that project, which could include increased liquefaction capacity. In Argentina, there's an expressed interest to continue to grow exports. I think as late as yesterday, there was an announcement between YPF, Eni and XRG. We -- so those are obviously the existing clients. There were other clients that were -- or other prospective clients that we're competing for the Mark II and Hilli. Some of them have now developed further since sort of losing has to the Argentinians last year and have gotten gas approvals, export rights and so forth that make the project more mature and more positioned to lock in an FLNG. So those are the ones we develop in addition to the continuous business development our BD team continues to develop. And some of them are in areas we're currently not operating in as well. And we do see strong demand pull, obviously, from West Africa and South America, but it would be interesting to see if it would be possible to open other areas as well that we're currently in discussions for. Operator: Your next question comes from the line of John Mackay from Goldman Sachs. John Mackay: Maybe I'll just pick up on that last one. It sounds like you are lining up for a fourth vessel order effectively before we know exactly where it's going, similar to what you did last time, makes sense. But I guess my question is going with the Mark I or Mark II or Mark III, each of those kind of has a different market where it could end up going. So I was just wondering if you could kind of talk about where you're seeing the commercial opportunities relative to each of those 3 options. Karl Staubo: John, so you're right. As we said in the prepared remarks, we are planning to narrow the design in the coming months. The long lead items, the critical long lead items are, in fact, the same or interchangeable between the designs. It's mainly the gas turbine and the cold box. The difference is the magnitude of how many turbines you order for the different designs. When we make the slot reservation and commitments to the long leads, it is interchangeable. And therefore, the reason for going ahead with that now is that, that's still flexible to design, subject to the deciding design in the next coming months. And that's where we're targeting. Where we see the smaller ones, so the Mark I, that's West Africa business, the way we see it. Mark II is more versatile in terms of geographical or geography. And Mark III effectively currently has 2 projects that we're working on. So that it's fewer projects for Mark II than necessarily for Mark III than the other 2. But yes, so we're now planning to narrow that range to decide on which vessel to go for. John Mackay: I appreciate that. A quick second one for me. Just can you remind us the status of the pipeline for Argentina, kind of what we should look for next? When we kind of need to see something moving forward? Any updates there? Karl Staubo: So there are 2 relevant pipelines. The least cumbersome one is the one that connects the existing grid to the Hilli. That's under construction and very much on track. The one you are referring to is the new pipeline from the Vaca Muerta to the Gulf of San Matias -- that pipeline is a SESA work stream is independent of our contracts because we are paid as long as we're on site and available, irrespective of whether we liquefy or not. However, it's obviously important for us that, that pipeline is built because that is what speaks to the upside and the overall economics. SESA is now in an active round where they are auctioning out the EPC contract and/or a tariff-based service agreement, subject to which model they go for. And our understanding is that they expect to enter into a contract and award it in the first half of next year. The construction time of the pipeline is less than 2 years. Hence, that should be well within the timeline for Mark I's arrival. They're also in parallel working on all the regulatory framework needed, including right-of-way RIGI protection and so forth. The good thing is that the absolute majority of the distance, the pipeline will go next to the oil pipeline that was approved last year. Hence, right-of-way is already -- that path has already been laid because you can just go exactly next to it. So we think this is a repeat, and we understand that SESA is happy with the engagement from the potential EPC providers of that pipeline. Operator: Your next question comes from the line of Alexander Bidwell from Webber Research & Advisory. Alexander Bidwell: Just wanted to pick up on just a couple of the previous questions on some of the commercial demand or rather demand for FLNG units. Are there any pockets of demand that surprise you? Any specific regions where you feel commercial discussions have picked up more so than others? Karl Staubo: I don't think surprise is the right word. These are very large infrastructure projects that require a lot of stakeholder and a lot of time. So to say that it's surprising, I don't think it's right to characteristic. But what we do see is that as we've said a few times on the call, there's an increasing industry adoption. People are not scared of deploying an FLNG anymore. And it's a bit like if your neighbor has one, you want one, too. And if you just look at where FLNGs are deployed or being planned to be deployed in terms of contracts already sanctioned and just look at the neighboring countries, they all have pretty much the similar reserves. Why would your neighbor do something and make billions of dollars of LNG cash flows a year when you're not. And that dynamic is now ongoing, stronger than previous because more people are adopting the projects. Alexander Bidwell: Interesting. That's a great analogy. And for my second question, could you talk to, I guess, the key steps to greenlighting and optimization or debottlenecking at on the Gimi? And then once you approve or decide the path forward, could you walk us through how the actual work might be executed? Could there be any potential impact to production, et cetera? Karl Staubo: The question is probably just as well placed to BP or Kosmos. But the way this works is it's an interaction, right? So the gas comes is lifted from the ground, then goes through a BP-operated FPSO. Then the gas is sent to the Gimi, then circulated on a hub that's BP operated and then offloaded. So when you talk about debottlenecking, it's not just Gimi. It's the whole process from the gas is lifted until it's loaded onto a ship. For example, one of the key performance measure of an FLNG is the quality of the gas entering the unit and ambient temperature. Now ambient temperature is a little bit tricky to play around with, but you can do smart things like air inlet cooling and so forth. So when you talk about debottlenecking, it's not just on the FLNG on itself, it's through the value chain and where does each dollar deployed make the maximum output and how do we work together to optimize that output. So for now, that's the discussion. Maybe you can tweak the gas treatment on the FPSO to send a more optimized gas stream to the FLNG and thereby increase throughput, as an example, right? So the work we are currently discussing does not require any movement of Gimi -- she stays where she is. It might entail maintenance shutdown of the trains, but you never shut down all 4. You just do like shut down a train for 1 week, maybe do certain upgrades or change some of the equipment to get that back up and running before you do the next one. And that would obviously be in accordance with the upstream to boost output. And the NPV of that would be massively positive if nobody is incentivized to do it because it's working today. So this is an opportunity set, which could benefit everybody. Operator: Your next question comes from the line of Liam Burke from B. Riley Securities. Liam Burke: You're talking about future projects, and you pretty much have an idea of what the cost of the FLNG is. When you're looking at the implicit returns on that project, are you looking at just tolling agreements? Or do you factor in some sort of commodity premium on the cash flow generation of future LNGs? Karl Staubo: The latter. So to explain, we do not want to be in any project if the cash breakeven of the project is not competitive. Then it's a partnership that sets up for failure over time. And by competitive, we mean competitive to U.S. exports. So the way we try to structure the project is to charge what we think is a fair but also attractive to Golar firm tolling part and then a commodity upside if the achieved FOB price significantly overshoots the cash breakeven of the project. In that way, we can make a project with an attractive cash breakeven to all the stakeholders and aligned structure on making money together if and when gas prices go up. The only thing we know is over the next 20 years, nobody knows where the gas price is going. It will be volatile. So it's important to have an attractive cash breakeven and capture the upsides when they're there. Liam Burke: Great. In terms of the Gimi operational efficiencies and debottlenecking, are you gleaning anything from that process that can help you on future FLNG projects? Karl Staubo: Yes. So if you look at our units, they're getting more efficient. The Gimi is more -- slightly more efficient than the Hilli Mark II is quite a bit more efficient than the Gimi, both in terms of fuel consumption, emissions, water intake, many different things. So we're constantly adopting technology advances. Like think of it as a car. If you bought the Volkswagen Golf 5 years ago and you ordered a new one now, it looks very similar, but it's got a nicer radio, better sound system and whatever else it has, better headlights. It's the same car, but it's nicer. Liam Burke: I'll be sure to consider that when looking at the golf. Operator: We will take our final question. The final question comes from the line of Sherif Elmaghrabi from BTIG. Sherif Elmaghrabi: So the buyback program was reloaded in Q3. And in the past, you've shown some flexibility regarding how to reinvest in the company. So my question is, how are you thinking about shareholder returns through buybacks versus that outstanding 30% interest in the Gimi given where the stock is today? Karl Staubo: That's for us -- so the $150 million is set for share buybacks, right? When it comes to the Gimi, that's obviously -- the 30% stake is owned by Keppel Capital. If that can be acquired accretive to where we can do other FLNG growth and/or where we are trading on the market, we will, for sure, consider it. If not, we don't need to buy it. Sherif Elmaghrabi: Got it. And then turning to the fleet. If we fast forward a year and you secured a contract for a fourth FLNG, but the order book for gas turbines has obviously grown. Do you have a sense of how that affects delivery timelines for a fifth unit? Is it a few months more than I think you said up to 48 months for Mark III, for example? Karl Staubo: Okay. To just give you an example, up until June this year, the delivery time for a gas turbine was 24 months. In June, some of these are down to almost single suppliers. In June, one of these suppliers sent a letter to all its clients saying lead times just went from 34 months -- to 24 months to 36 months. So that's a 1-year delay. If you're an existing client and you have an existing program, maybe you can sneak in the middle there somewhere. But you're talking significant potential delays unless you lock in the long leads, which is why we're going ahead now because in developing these projects, you need to know when you start up to drive commercial value. And if you keep letting the critical items slide, even if the shipyard is ready on everything else, if you can't get the topside equipment there, you don't get the ship. Operator: This concludes today's question-and-answer session. I will now hand back for closing remarks. Karl Staubo: Thank you all for dialing in. As we said, we're now in Bermuda. Eduardo and I will head to New York later today and hope to see some of you there over the course of today and tomorrow. Other than that, thank you for listening in, and we're pleased to stay in touch. Thank you. Eduardo Maranhao: Have a good day. Karl Staubo: Thank you. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Thank you to everyone for joining Robinhood's Q3 2025 Earnings Call, whether you're tuning into the live stream at home or here with us in person. With us today are Chairman and CEO, Vlad Tenev; CFO, Jason Warnick; SVP of Finance and Strategy and Treasurer, Shiv Verma; and VP of Corporate Finance and Investor Relations, Chris Koegel. Vlad and Jason will offer opening remarks and then open the call to Q&A. During the Q&A portion of the call, we will answer questions from the audience, which includes institutional research analysts, finance content creators who may hold an ownership position in Robinhood and both institutional and retail shareholders. As a reminder, today's call will contain forward-looking statements. Actual results could differ materially from our current expectations, and we may not provide updates unless legally required. Potential risk factors that could cause differences, including regulatory developments that we continue to monitor are described in the press release we issued today, the earnings presentation and our SEC filings, all of which can be found at investors.robinhood.com. Today's discussion will also include non-GAAP financial measures. Reconciliations to the GAAP measures we consider most directly comparable can be found in the earnings presentation. With that, please welcome Vlad and Jason. Vladimir Tenev: Good to see everyone. It's great to be here with all of you today. We have a live audience again this time from Downtown San Francisco. And also great to, I think, for the first time in our earnings call, have institutional and retail shareholders, so buy side joining us. So welcome, and thank you. Also, we have our institutional analysts. So good to see a lot of familiar faces here. Q3 was another quarter of relentless product velocity. So we were excited to see that. It was really across our 3 focus areas, which, as a reminder, #1 in active traders, #1 in wallet share for the next generation, #1 global financial ecosystem. So I'll briefly go through each of these. Active traders. We want active traders to feel like they are at a disadvantage if they trade anywhere other than Robinhood. And we've rolled out a ton of great new products for active traders. You guys might have seen second annual HOOD Summit in Vegas just a couple of weeks ago. We announced a bunch of brokerage updates, shorting multiple brokerage accounts, AI-driven custom indicators powered by Robinhood Cortex, a whole new social platform, Robinhood Social. And we've got more. We've got more for you guys. We can't wait to share more next month at our first ever AI event on December 16. Innovation like this really has the active trader engine humming. In Q3, we had record equity and option trading volumes, and October looks even better. For both equities and options in the month of October, we had new single day all-time and new monthly records. So both of those businesses just continuing to perform strongly. Prediction markets are really on fire. It's hard to believe that we launched this just about a year ago with the presidential election markets. We've doubled volume every quarter since then to 2.3 billion contracts in Q3. And the month of October alone was up to 2.5 billion contracts. So October by itself was bigger than all of Q3 combined. Customers really love the product, and we're bringing them even more. We're now at over 1,000 live contracts, and we've expanded categories. So it's not just sports but also economics, politics, culture. We're making the UI much cleaner to experience even better. And I think it's really exciting to see where this can go. I mean, we love being early to this new asset class. And some people are saying this could be one of the largest asset classes because you can price risk in pretty much anything. We have a massive opportunity with assets as well. Turning to wallet share. Our assets are now up to over 1/3 of $1 trillion as the generational wealth transfer of $120 trillion is fully in motion. So I think it's really great to see our financial super app accelerating. On the long-term money side, retirement, now up over $25 billion, which more than doubled in the past year. And Robinhood Strategies, which we just launched in March, now has over $1 billion in assets and is one of the fastest-growing digital advisers. On the banking front, Robinhood Gold Card, now over 0.5 million cardholders with over $8 billion in annual spend. So the numbers there just keep growing. That's 5x growth in cardholders since the beginning of the year. And we'll get into this a little bit more in Jason's section, but we like what we see there. The customer behavior is good, and that's given us confidence to accelerate the rollout, and we're going to accelerate it even further. And Robinhood Banking started early customer readout -- early customer rollout quite recently. So far, we like what we're seeing there, too. Customers are direct depositing. You might have seen some nice screenshots of the user experience and the onboarding flow and people really love that they're getting interest, not just on their savings, but they have an opportunity to earn a good interest on checking. So it's really about simplifying things for customers. And the plan is to just keep scaling this, keep adding more services, more products. And last but not least, we've been really grinding to build out the #1 global financial ecosystem. So 10 years from now, the aim is to have over half of our revenue be outside the U.S. and also cut another way. Right now, we're majority retail. We think we can get to over half being non-retail institutional. And these are tough goals, but I think the opportunity is there, and we're going after it. Three areas of progress to highlight from Q3. tokenization, which are stock tokens in the EU. We're now up to 400-plus public companies and growing. There's a lot of innovation to be done. We're working hard. Robinhood Ventures in the U.S. So we found a way to give exposure to non-accredited retail to private companies, which we think is super important and a huge opportunity for us. We've already made some initial investments. We're working towards the public offering for Robinhood Ventures in the coming months. Bitstamp around the world, our first scaled institutional business, we're very excited about that. We are continuing to grow. We're adding capabilities. We're adding more institutional customers. Volumes are up 60-plus percent quarter-over-quarter for Bitstamp. And it's great to see that we're accelerating even as we're integrating. And I think that's like not a common thing. It's a big business. I think the team has done a really nice job kind of integrating and making sure that product velocity just continues to increase. And as a result of all this, great business results in Q3, revenues up over 100% year-over-year to a record of nearly $1.3 billion, record net deposits in the quarter, over $20 billion. We've already exceeded last year's record of $50 billion in net deposits, and we still have another entire quarter to go. So we feel really good about the traction there. Gold subscribers up to a record 3.9 million, and that's 14-plus percent adoption when you look at the overall net account base, and it's nearly 40% for customers that joined in quarter, our new customers. International customers, nearly 700,000 international funded, including Bitstamp. So the U.K. and EU are continuing to grow nicely. And we feel great about Q3 product velocity and results. I think it was a strong quarter, and I'll turn it over to Jason to go through financials before we get into Q&A. Jason Warnick: Sounds good. Thanks, Vlad. In Q3, we delivered another quarter of strong profitable growth. Revenue doubled while margins expanded and earnings per share more than tripled from last year. Year-to-date through Q3, revenues are up 65%. Earnings per share is up 150%, and we continue to stay disciplined on expenses to deliver 75% incremental adjusted EBITDA margins. And it's exciting that as our business grows, we're continuing to diversify. In Q3, 2 more businesses, —Prediction Markets and Bitstamp each surpassed $100 million in annualized revenue, bringing us to $11 million in total and underscoring the growing diversification and strength of our business. Prediction Markets reached that milestone in less than a year. It's our fastest in history, and it's already tracking towards a $300 million run rate based on October volumes. So just really, really going fast. Now let's take a closer look at our Q3 results compared to a year ago. Revenues doubled to an all-time high of nearly $1.3 billion as our customers remained engaged and continue to bring more of their assets to the platform. Trading volumes were up double to triple digits across equities, options and crypto, and we continue to grow market share across product categories. We're also seeing strong contributions from newer products like prediction markets, index options and futures. Interest-earning assets were up over 50%, driven by strong margin and cash sweep growth. It's great to see margin continuing to hit new highs as we win larger customers and gain market share. And securities lending also hit an all-time high with a strong market backdrop as IPO activity continued to pick up. And Robinhood Gold grew to 3.9 million subscribers. That's over 75% year-over-year growth as we continue to broaden the value proposition, including Robinhood Banking, which is just beginning to roll out. Turning to expenses. Q3 adjusted OpEx and share-based compensation came in at $613 million, it's about $40 million above the midpoint of our prior outlook range. This was driven by 2 items that are both related to our strong performance. First, stronger year-to-date results led to higher Q3 employee bonus accrual. That is higher for Q3, but also includes a catch-up for the first half of the year. And second, the significant increase in our stock price this year triggered vesting on the remaining tranche of the 2019 CEO market-based award. This resulted in unplanned payroll tax expense in G&A. We are through that award now, so glad you get to go back to your $40,000 a year. Looking ahead to the rest of the year, we're tracking toward full year 2025 adjusted OpEx plus SBC of around $2.28 billion, but it could be higher or lower depending on how the rest of the year plays out. This reflects our strong year-to-date business results, which had us tracking to the top end of our prior outlook range as well as some increased investment in new growth areas like Prediction Markets and Robinhood Ventures. I think each of these areas have significant potential for us. And lastly, this also incorporates the cost of Vlad's market-based award, which were not previously included in our outlook. I'll also provide a quick update on the strong results we're seeing so far in Q4, as you may have seen in the release. October was a strong month across the business. We saw continued momentum in net deposits, new records set across equities, options, prediction markets, and margin and a nice step-up in crypto volumes. And before we go to Q&A, I'm sure you saw in the release that I'm going to be retiring next year. I'll transition in Q1 from my operating role into an advisory role and will stay on until September 1. I'm incredibly happy and proud to share that Shiv Verma will be stepping into the role of CFO. I've worked closely with Shiv these past 7 years, and I've got absolutely complete confidence in him. You're going to find that he's seriously world-class. Vladimir Tenev: At this time, I'd like to invite Shiv Verma to join us up here. Okay. First of all, I want to thank Jason for all he's done for Robinhood. He's been an incredible steward of the company, not just the finance team, but the entire company and is leaving the finance team in a much stronger position than when he joined. Among his many assets, and you guys are obviously familiar with some of them, I would be remiss to not mention that his good looks were a main reason why we wanted to do these earnings on video, which everyone can agree. So I'm sure he'll be missed by this audience as well. I also want to congratulate Shiv. He's been working closely with me for some time now. You guys will increasingly see he's an exceptional operator. He's got a strong track record of not just being lean and disciplined, but also advocating for growth. And I think that balance is critical to so much that we do here. Tomorrow, Shiv celebrates 7 years at Robinhood. So while he's got his hands on nearly everything, he's currently SVP of Finance and Strategy and also our Treasurer. So Shiv, welcome. Maybe he'll say a few words as well. Shiv Verma: Yes. Thank you, Vlad. I'm so excited and humbled for the opportunity to serve our customers and shareholders. Much appreciation to you, the Board and the entire leadership team for the trust. To Jason, a heartfelt thank you. We joined 6 weeks apart, and we've been on quite the journey together. Many of you know Jason is a fantastic CFO, but he's also an incredible colleague, mentor and friend. I just want to express my sincere gratitude. For today, I'll keep it short and just want to introduce myself. As Vlad said, I've been here a little over 7 years, and I've seen the company scale from a couple of million customers and a few billion assets to now 27 million customers and over $300 billion in assets globally. I work closely with Vlad, Jason and the entire team. I've gotten to worn a lot of different hats. And as Vlad said today, I lead 4 teams: finance, strategy, corp dev, and treasury. In terms of what to expect, big picture, more of the same. Our top goal is still to grow and to keep delivering for customers to ship amazing products with high velocity. We also believe in a lean and disciplined culture, and this is personally where I spend a lot of time. We obsess about capital allocation and ROI. We pride ourselves on small teams that can deliver outsized results, and we believe in profitable growth. And lastly, our financial North Star is going to remain the same, grow earnings per share and free cash flow per share and compound long-term shareholder value, plain and simple. So I'm excited to partner with everyone. I'll turn it back to Vlad and Jason and talk about this great quarter. Jason Warnick: Thanks, Shiv, and I do look forward to seeing Shiv competing on Jeopardy someday. Chris, why don't we go ahead and take some questions. Chris Koegel: All right. Thank you, Jason. For the Q&A session, we'll start by answering shareholder questions from Say Technologies from shareholders who are joining us on video. And after the Say questions, we'll turn to live questions from our audience and then go to dial-in participants. So I'll kick it off with our first question from Say, which comes from Preston. Unknown Analyst: Well, Vlad and Jason, can you guys see me okay? Vladimir Tenev: I see you now. There you are. Look at that. He's got the Robinhood logo. Did you draw that yourself? Unknown Analyst: I painted that in class a couple of days ago. Vladimir Tenev: Awesome. Unknown Analyst: But I was wondering how quickly do you expect to roll out Robinhood Banking to users? Vladimir Tenev: Yes. Great question. This will be a relatively fast rollout. When you compare banking to the credit card, there's not the same considerations around making sure the economics between the borrowing and the spending are perfectly calibrated. I think banking is a simpler product in that way. And so the rollout will just be governed by customer feedback. We like what we see thus far, and so we're going to continue to rollout. And we expect that if there's no surprises, it should be pretty quick. We've already got customers trying it, including cash delivery available in some markets and early results are really good. So if you're in the state of New York and have access to banking, you can try it right now. Chris Koegel: All right. Thank you, Vlad. The next question is from [indiscernible]. All right. I'll read it. So [indiscernible] question was there was recent AWS-related outage. How are you strengthening platform resiliency to address that? Vladimir Tenev: Sure. Yes, that's a great question. So for those of you that don't recall this, even though pretty much the entire Internet was briefly affected, including my kids elementary school, they couldn't take attendance. AWS had an outage a few weeks back, and that led to degraded app performance for a significant number of our customers. Now the good news is it actually demonstrates how much progress we've made in the resilience of our systems over the past few years. If this had happened to us like an outage of the infrastructure provider of this magnitude, if it had happened a few years ago, we probably would have been fully down. But we made a lot of investments in that time period. And so even though things were slower and there were higher latencies, a lot of customers could manage their risk and place orders, although we didn't provide them with the type of experience that we would want. That's for sure. And one thing that you can be assured of is every opportunity, every outage like this, even if it's a third-party related is an opportunity for us to further strengthen our resilience. So we've been hard at work looking at how we could become even better. And that's internally and also in conversations with all of our partners. So this is part and parcel of what we have to do. We want to be our customers, not just primary financial account, but we want to be their secondary financial account as well, which means that we have to continue to be robust. Chris Koegel: All right. Thank you, Vlad. And let's take one more question from Say on video and see if we can go 2 for 3 here. So the next question is from Griffin. Unknown Analyst: Really great quarter, first of all, but I wanted to ask around the super-app nature and kind of the evolution of Robinhood. So obviously, it was started to democratize investing for everyone. And now as you evolve into the full financial kind of ecosystem and also the true super-app for the next generation, how do you see this ecosystem maturing? So what products do you think will kind of be the core tie around all of this? And also, how do you see the biggest opportunities for this next generation as everyone's finances get more complex? Vladimir Tenev: Yes. I think that's a great question. I mean you're seeing that part of this vision is somewhat predictable in a sense. We have to look at how does money enter our ecosystem. And of course, we have all of the existing mechanisms, but Robinhood Banking -- the goal with Robinhood Banking is to be the place where our customers deposit their paychecks as well. So that will handle the inflow of money. And a lot of the assets over time, we do believe will be invested. But the question is, can we minimize the reasons customers have for ever withdrawing money and make it as easy as possible for people to get money in. And over time, there will be new products, new product categories like Prediction Markets that arise. And we want to use our combination of best-in-class user experience and also economics to make sure we're a big player in everything that customers want to do with their money, not just in the U.S. but increasingly globally. So it's going to be a combination of getting broader, but also selectively going deeper in areas where we feel like we have competitive advantage. Chris Koegel: All right. Thank you, Vlad. That concludes our shareholder questions from Say Technologies. And so now we'll move to Q&A from our live audience. The first question is going to be from Patrick Moley at Piper Sandler. Patrick Moley: For my question, I want to say congratulations to both Jason and Shiv. Jason, really enjoyed working with you. Shiv, looking forward to getting to know you a little better. So I had one on Prediction Markets. You've obviously become one of the leaders in the space, but there's been a lot of new entrants recently. So I was hoping you could talk about just the strategy there and what you think gives you the right to win long term? And then as a second part to that, can you talk through some of the strategic considerations around maintaining your position today as kind of a retail distribution for the venues versus maybe trying to develop something internally, whether that's organic or inorganic? Vladimir Tenev: Yes, yes. So I think one of the advantages we have entering any market, Prediction Markets aren't an exception is that we have distribution. And we have lots of customers, 26 million-plus funded accounts in the U.S. that are trading and using us for all sorts of things. And from an infrastructure standpoint, we actually have an increasing set of tools that can plug in and are being built to be multi-asset. So not just our mobile app, but increasingly on web. We have Robinhood Legend. We have all of these things that, that we announced at HOOD Summit. And it's really an ecosystem of financial services, and you'll see great integration between all of our platforms and all of our assets and account types increasingly so in the future. I think when we think about vertical integration, like should we be a market maker or should we be an exchange in any asset? One thing we look at is, is the vertical integration going to be accretive to us? Is it going to be something that is increasingly commoditized over time? And my feeling for how this is going to evolve in Prediction Markets at least is there's going to be a lot of entrants in the space, a lot of exchanges. And in the same way that across equities and options, customers are well served because there's a wide variety of venues that are competing on cost to offer great execution. I think Prediction Markets will evolve that way, too. And I think in that world, the customer certainly benefits because different DCMs and markets will compete for who offers the lowest cost. And I think the power continues to be in our distribution and offering a wide variety of products and services. I think we're the only ones currently that have this powerful combination for traders, not just being able to trade Prediction Markets, but crypto, options, equities, futures, I think it's a great combination, and there are certain advantages for everything being in one place under a simple, easy-to-use platform. I think we can keep pressing on that advantage. And as you've noticed, I think the product has continued to evolve at a pretty rapid pace. I think you should expect that to continue and to even accelerate. Chris Koegel: All right. Next question from Alex Markgraff from KeyBanc. Alexander Markgraff: Jason, Shiv; congrats. Maybe, Jason, one on crypto, the crypto business for a second. Just want to understand better as you've moved through the third quarter and early part of the fourth quarter, the mix of smart exchange routing and how that's sort of factored into the numbers that we're seeing. Jason Warnick: Yes. So the blended take rate is kind of in the high $0.60 zone. And we are liking what we're seeing for smart exchange routing, really robust interest by customers. And the take rate that we're seeing so far into Q4 is kind of in the same zone. We'll have to watch how the mix plays out. But we like what we're seeing from customers. They're bringing more -- when they select smart exchange routing, they're bringing more of their trading volume to Robinhood. So we feel really good about the offering that we have. Vladimir Tenev: Yes. And I would just add one thing there. It's a big step towards pricing being a little bit more personalized, right? And what we had before, a lot of people ask us as well, your take rate is so much lower across the board. Can you raise your take rate. But I think the real story is a little bit more complex than that because certainly, if you're an active trader, you're trading huge volumes, you're able to use advanced offerings on exchanges. And in the past, we didn't have tools to offer those customers we might not have been super competitive for lower take rates. And that's what smart exchange routing really unlocks for us for those that are super active and bringing a ton of volume, almost like prosumer traders which we're seeing more of now that we've got Robinhood Legend, can we make Robinhood a no-brainer for them. And we've seen more and more of those customers choosing us and coming in here after smart exchange routing, which is very exciting because that's just customer segment that we felt we were underpenetrated with. Chris Koegel: All right. The next question is from Devin Ryan from Citizens. [Operator Instructions]. Devin Ryan: Vlad, Jason, Shiv, and Shiv welcome to the call. I know you've been a big part of the story already. So kind of welcome to the stage here. And Jason, to you as well, the success to date and the best practices you put in place with the firm on strong footing. So congratulations. Jason Warnick: Thanks, Devin. Devin Ryan: Question on private markets. Demand and activity that we're tracking is recovering. Last week, Morgan Stanley announced the acquisition of EquityZen. I know there can be some barriers with accredited investors, maybe that makes a little bit complicated. But can you just talk about whether there's demand from your customer base and especially as companies stay private longer, just -- and a lot of the values created in the private markets, it would seem like Robinhood is in a great position to both be a trading hub and help create liquidity in the system, but then also maybe even in primary capital for private markets. So the question is just whether there's an increasing interest in private markets, if there's a plan there to do more. I know it connects to tokenization as well and also if M&A would make sense there as well. Vladimir Tenev: Yes. Maybe I'll start, but Shiv has also been working on the Robinhood Ventures front. So maybe I'll ask him to say a few words as well. Look, I think private markets are a huge opportunity and just let's focus on the U.S. perhaps first because that's where we have the largest portion of our business, although international with tokenization provides some interesting opportunities as well. In the U.S., I think it's one of the biggest iniquities that we think is part of our mission to help resolve. You mentioned yourself, you have a lot of these companies that are staying private longer. They're avoiding the public markets. They're private in valuations of hundreds of billions now, right? And if you want access to the AI innovation economy or space technologies, you don't have a ton of pure-play public companies to select from. So we think it's a bigger problem, particularly as these technologies have so much potential to upend the lives of retail consumers, giving access to that is a big part of it. A few years ago, we rolled out IPO access. And I would say that at first, people were kind of skeptical about it, right? Like we would have to really work hard to get companies to be interested to give retail IPO allocations. And recently, pretty much every company that's notable that's thinking about going public comes to us, talks to us about their retail engagement strategy. And now they're looking at how do we engage retail better earnings calls, not just shareholder Q&A, but doing -- making earnings more compelling so that retail wants to actually watch and participate and learn as well. And we've noticed the allocations to retail going up in public companies, public IPOs, which we've been very happy about. And I think that's a trend that's going to continue. And we want to do that at earlier stage. And I think that's really the thesis behind Robinhood Ventures. And we found a way to do it, we believe, unaccredited. And maybe Shiv can talk a little bit more about that. Shiv Verma: Yes. We've been working on this for a while, and we're super excited. In terms of the demand, when we talk to customers, it's one of the top things they want. They want access to these best-in-class technology companies that they use and love. And when you ask them, there's 3 big things they want. First is daily liquidity. Second, not to be accredited. 85% of Americans aren't accredited today, so they get left out. And third, more concentrated portfolios. They want to access again the names they love. And so when we designed the product, that was our main use case, how do we do that? And we think we found a great way to do that. We're on a file with the SEC for Robinhood Ventures I. We're in the quiet period, so we can't say too much more there. But we think this vehicle will be great and expect pretty strong customer demand. And then the other thing we're working on is how do you make it great for companies because you need both the customers but also the companies. And so we're trying to think what's the best way to partner and innovate with these customers and companies as well and have some really great traction there. So we're excited to share more about the fund in the coming months. But as Vlad said, this is just Fund I and just to start, our ambitions in the space are pretty large. Chris Koegel: The next question is going to come from Jeff John Roberts from Fortune. Jeff John Roberts: My question is about tokenized equities, which seem to be the future, and they seem very cool. But I'm curious, when do you think they're going to scale Vlad? And also what implications they might have for Robinhood's revenue when it comes to payment for order flow or otherwise? Vladimir Tenev: Yes. Great to see you, by the way. I forgot to mention we have some folks from the media joining us today, too. So thanks for the question. So tokenized equities, as you might remember from the event in France, there's 3 phases to the rollout. And we're still in Phase 1, but we're really ramping up the number of tokens available on the platform. So we're now up over 400 available. And I think that makes us the largest in terms of selection. I think, the largest, maybe one of the largest at the very least. But I think where it really starts to get interesting is Phase 2 and Phase 3, which is them available for secondary trading on Bitstamp and then eventually them being on DeFi where the possibilities really start to multiply. You start thinking about self-custody collateralized lending and borrowing, which we think could be very, very disruptive as well. Currently, the model is just foreign exchange in the EU. Yes, we take a relatively low simple foreign exchange fee for tokens. And actually, we're pretty happy with that. I think that's 10 basis points, if I'm not mistaken, which is actually slightly higher than what we would be foregoing with payment for order flow. Chris Koegel: All right. The next question in the front row. Unknown Analyst: Vlad, this is for you. Anyone who's had the pleasure of being an investor or customer over the last many years, I think has seen an incredibly inspirational change in product execution base. I'm curious to understand from you guys, what have been the contributing factors there? How do you see that maintaining or increasing over the coming years, but really incredible job, and it's so fun to be a customer. Vladimir Tenev: Well, thank you. Yes, we appreciate that. I think that we've grown as a company and I think it's easy to sort of like dismiss what happened during COVID as we were sort of like too bloated and got too big and got away from us. But I think a lot of what we did actually was we built the foundation for the company subsequent to that. So we brought great people into the company. And I think we realized well -- we realized that we had to ask ourselves serious questions about what kind of culture we wanted, what we wanted to be, did we want to ship fast. And I think that set the foundation, both infrastructurally and from a people standpoint to the product velocity that you see now. So I think we obviously had to make some tough decisions getting fit. I think we've also -- I think this is sort of underreported. I think a lot of people don't like to talk about this, but we were pretty early to adopt AI and actually like drive that through the organization, particularly in the areas where we think there's maximum impact, customer service and engineering, where we actually -- I believe, we're best-in-class in our industry. So you'll hear more about that at the AI event, but I think that there's not a lot said about that because we're not a foundation model company, but I think we're right up there leading the financial services industry with -- how we're deploying it at scale. Jason Warnick: Two things that I would add, which I think both relate to speed of decision-making. We made the change to a general manager model. And I think having leaders over their specific business owning goals and driving against their milestones helped us move faster. The second piece was alignment on what our financial tenants were around kind of what the ROI and other financial guardrails are and just getting a complete alignment across the teams that build and the teams that support on what those hurdles are and what those requirements are allowed us to move even faster once there was alignment on that. So those are 2 aspects that I think help us move faster. Chris Koegel: All right. Yes, and also in the front row. Unknown Analyst: Cryptocurrency-related products and revenue have been an important part of Robinhood's growth story. What are your thoughts on adopting Bitcoin or other digital assets as part of your corporate treasury strategy? Vladimir Tenev: Shiv, what do you think about that one? Shiv Verma: So we spend a lot of time thinking about this. We like alignment with the community. We are a big player in crypto. We want to keep doing it. We like that our customers are engaged in it. What we always try to figure out is, is it the right thing for shareholders as well. If you put it on your balance sheet, it has the positives in that you're aligned with the community, but it does take up capital. Our shareholders can also go and buy Bitcoin directly on Robinhood, and so are we making that decision for them? And is it the best use of our capital? There's a lot of different things you're doing from new products for growth, investing in engineering. So we have this debate constantly. And I think the short answer is we're still thinking about it. There's pros and cons to both of it, and it's one that we're going to keep actively looking at. Chris Koegel: All right. Before we move to the virtual queue, are there any other questions from folks in person? All right. Now to the dial-in community. All right. [Operator Instructions] So the first question is from James Yaro at Goldman Sachs. All right. We're not -- we don't have James at the moment. So we'll go to the next question. And James, jump back in if you can hear us. All right. So the next question is from Ben Budish at Barclays. All right. Well, in the meantime, while we work to connect with our virtual community, Alex Markgraff, do you have another question? All right. Let's get Alex a mic. Shiv, do you want to tell -- share any more about yourself while we're waiting? Shiv Verma: I think we're getting Alex on mic. So we're in good shape. Alexander Markgraff: Vlad, you mentioned the wealth transfer in your prepared remarks. And I'd just be curious to get your thoughts as to in that sort of longer arc opportunity where we are today. And then Jason or Shiv, maybe just thinking about the contribution to growth, again, sort of a longer-term question, but when we think about the contribution to growth from the wealth transfer, how should we sort of think about that over a 5-, 10-year arc? Vladimir Tenev: Yes. Maybe I'll start with some of the things we're thinking about on the product side. We've been really thinking about how to make Robinhood more useful for you, the more of your family is on it. So -- and -- you see this with credit card and now the banking offering. Like the product is really a family product. Family is a first-class experience. You can get your partner, a credit card or a bank account and make it really easy to create accounts for children and other household staff as well. And a lot of people have been using it as like a family financial hub. And I think you should expect that to be broader and deeper across the entire ecosystem. You guys might probably recognize even though we've added a bunch of account types to the product, a few years ago, Robinhood just used to be a single individual brokerage account. We didn't even have retirement accounts. Now you have retirement accounts. You can have recently launched up to 10 custom individual brokerage accounts, which people have been really loving. But we still have a ways to go. We don't have trust. We don't have custodial, but we think that's an opportunity to continue to both get people when they're younger, but also when customers get wealthier, they tend to start diversifying, putting things into trust. So we see that as an opportunity as well. And I think this is an area where trade PMR is also going to become increasingly important as we work to integrate that platform, particularly as financial needs become a little bit more complicated, having a person there to help you navigate the entire thing and give a little bit more customized advice, I think will be a great complement to our suite of digital services. So over the next year, you'll see a lot more. We're attacking this problem and this huge $100-plus trillion opportunity from multiple angles. And I actually -- I don't think it's on the radar of a lot of our competitors. I mean you don't hear about people designing with the whole family in mind. And I think that's a big opportunity for us to differentiate. Jason Warnick: Stepping back, we've been winning market share really across every category that we're in. And I think as we execute against the vision that Vlad was sharing, we're positioned to take an outsized share of that -- of the wealth transfer. Chris Koegel: All right. The next question I'm going to read on behalf of James Yaro from Goldman Sachs. We are seeing tokenization across Robinhood and other firms and your tokenized equities product and those of peers are not interoperable as they are slightly differently structured and on different blockchains in many cases. Does this result in fragmentation of liquidity across the equity market? How do you expect this market to develop? And how would you make these tokenized stocks interoperable? Vladimir Tenev: Yes. Yes, I can peel that one. So right now, certainly, Robinhood stock tokens are not as interoperable as we would like, but that's just because they're actually not on DeFi yet. So they're very much in the Robinhood walled garden, which has certain advantages. Right now, every trade that a customer does is backed by a traditional equities trade in a TradFi market. And as we continue to build up the liquidity and the collection of -- and the supply of tokens, I think that's going to lead to actually a really great initial customer experience. Over time, I do expect greater interoperability. As you've seen with other assets in the crypto world, even if they're on other chains, the community tends to get involved and build bridges and wrappers. And so I think that's less of a concern. I think every major tokenized asset will eventually end up being multichain. So it's just a question of how do we get there. But interoperability, not a huge concern. I think it will come. In terms of liquidity fragmentation, I mean, that's nothing new, especially if you look at it on a global level across all asset classes, there's multiple exchanges. There are multiple market makers involved. And this is something that they know how to deal with, managing liquidity and trading across different venues. And I think in some ways, crypto technology and infrastructure makes that a somewhat easier problem because the cost and complexity of integration from an engineering standpoint is just -- tends to be much simpler. Chris Koegel: All right. Thank you, Vlad. The next question is for Jason, and it's from Ben Budish at Barclays. I'll read it on his behalf. You've called out a number of cost items impacting this year, some of which it sounds like won't recur. How should we think about the run rate into 2026? Jason Warnick: Yes. So we're working through planning right now for 2026. But what I would tell you is that we're approaching it the same way that we've approached the last couple of years, which is we think that we can invest for growth while delivering profitable growth, meaning margin expansion. The way that we approach that is that we ask the existing businesses to find efficiencies. And when we set targets and build our plans, we ask them to grow their cost base in the low single digits and in some cases, even lower. And we use those savings then to reinvest into growth, things like increasing spend in marketing, which we love the ROI efficiency of our marketing spend, but then also investing in new businesses. And you see the kind of outcomes that we've been able to deliver the last couple of years in terms of fast revenue growth and relatively more modest expense growth, and that's the approach that we're taking right now for -- as we plan for 2026. Chris Koegel: All right. Thank you, Jason. We're going to take another shot at going to the live phone queue. All right. So the next question is from Brian Bedell at Deutsche Bank. Brian Bedell: Can you hear me okay? Jason Warnick: We hear you. The telephone works. Brian Bedell: Excellent. All right. The old-fashioned, TradFi telephone. Well, I just want to say, first of all, congrats, Jason, on retirement. It's been great working with you, and welcome, Shiv. Looking forward to working with you as well. Maybe my question will go to Prediction Markets. So maybe if you can just talk about how the customer behavior has been forming just in the last 2 months. We've seen a big increase in volume, obviously, in September with the NFL and college games added. And how are you seeing that maybe sort of shape in coming into October? Are you seeing that volume increase coming from more new users coming into the Prediction Markets or rather greater usage of existing users? And then if you can talk about maybe just your thoughts around time line of launching new contracts and potentially even weaving in things around maybe single stocks that active traders can start using. Vladimir Tenev: Yes, I can start. We are working on this. We've actually increased the diversity of the contracts we offer tremendously in the past few weeks, launching entirely new categories. I mean, recently, lots of new entertainment and culture markets -- you've seen us broaden out the technology markets as well. So now we're offering over 1,000 live event contracts for customers to trade. We're seeing a lot of adoption. It might not be surprised because we have such a large established customer base, a lot of adoption from existing users, particularly traders, but we're seeing new customers as well. So there's customers that join Robinhood because they want access to our prediction markets offering. And I think there's plenty more we could do, not just increasing contract diversity, but making the user experience better, making it a little bit more discoverable in the product. And the team continues to work hard. You should see the product continue to improve week-over-week. Jason Warnick: Much like our active trader offering, a relatively smaller portion of our customers are participating in the market. And I think as we continue to work on the user interface and discoverability of the product, we've got expectation that we can take that higher. Chris Koegel: All right. The next question is from Dan Dolev at Mizuho. Dan Dolev: Great job again on an outstanding quarter. I wanted to thank you Jason. Thank you, Jason. It was a pleasure working with you, and I look forward to working with you, Shiv. And my question for you, Vlad, is Bitstamp very, very strong, I think, over 60% growth quarter-over-quarter. This seems incredibly strategic to Robinhood. Can you maybe elaborate on the long-term strategic importance of this because it seems to be off to a great start. Vladimir Tenev: Yes. And actually, it was -- we've had the pleasure of the Bitstamp team on the engineering side is actually at our offices. So we got to hang out with a lot of them yesterday with Johann and really talk through what's our plan for next year. And you're right that we've had pretty tremendous success growing volumes and improving the product post acquisition. But we definitely aren't getting complacent. We're not slowing down. We see a huge opportunity. I think Bitstamp can be very key to our tokenization plans as we enter Phase 2 of our tokenization vision. We really want to lean in there and give people access to real assets that have fundamental utility on the platform. It's also our first institutional business. And the one thing I really appreciate with institutional customers is they have lots of choices for where they take their business, and they're definitely not shy about telling us all of the things that we do -- that we need to do better, which there are a lot of, believe it or not. I think we -- there's so many things that we hear from our institutional customers. So we're going to have a busy year. And I think that as we continue to be successful and build more things, I think we'll see that volumes and market shares will follow. Chris Koegel: All right. Vladimir Tenev: Johann is very nervous watching me say all this. Chris Koegel: All right. The next question is from Brett Knoblauch at Cantor. Brett Knoblauch: Congrats on the quarter. On the Robinhood Social, could you maybe just dive into that a bit deeper and when you expect for that to rollout and how you expect maybe users to begin using that and how should impact maybe financials and when you would expect it to impact financials going forward? Vladimir Tenev: Yes. I think this is something where it may be somewhat challenging to forecast precisely the impact because the way we see it is this is going to be a new source of information for customers. It will be a source of trading ideas. We really want the product to be great, and we think that it can be just a source of information. We want to -- we think we can be the place where a lot of business and financial-related discussion can happen and hopefully originate. And we've done some experiments with social features over the years. And we have seen that when executed properly, and I think we're being very thoughtful with how to make sure all of the content is high quality, of course, with verification of traders, we have an advantage there. We think it can be an engaging product that makes Robinhood not just useful when you have an idea that you want to trade on, but it can be actually where your ideas originate, which I think is a big opportunity because it allows us to close the loop. And if the ideas come from Robinhood and we're the place where they execute on the trades, the platform just becomes more powerful. And that power and the network effect will continue as we continue to roll out more assets. I think we're going to be the only place where you're going to have live verified trades across not just equities, options and crypto, but also prediction markets and futures. And so the diversity of content, I think, should be quite compelling for folks that are interested in business and finance. Jason Warnick: In terms of monetization, we really see this as an opportunity to spin the flywheel, attract more customers to the platform because of the rich social experience and then be able to capture a greater share of trading activity and other financial activities across the platform. Chris Koegel: All right. Next question is from Ed Engel at Compass Point. Edward Engel: You talked about aspirations outside the U.S. and you guys talked about over half of, hopefully, one day, your user base will be outside the U.S. How does M&A play into that strategy? And can we expect you to kind of continue kind of launching market by market? Or could they create an opportunity to kind of launching a couple of markets simultaneously given a bigger transaction? Jason Warnick: Over time, I think it's probably a mix. I mean we naturally gravitate towards organic growth, and you're seeing examples of that, for example, in the U.K., but we do have an active corp dev team. Actually, Shiv has been leading that for some time now. And when deals make sense for us, great team, great technology, ability to accelerate the roadmap, we don't shy away from those kinds of opportunities as well. Chris Koegel: Okay. The next question is from Steven Chubak at Wolfe. Steven Chubak: Congrats, Jason and Shiv. I wanted to start with a question just on the international strategy and the growth that you've seen thus far. I was hoping to get some perspective, Vlad, in terms of how that growth is tracking relative to plan? Is there more that you can do in terms of product deployment and innovation to maybe help accelerate that growth? It just hasn't gotten as much airplay as like some of the other opportunities. So I was hoping you can unpack that a little bit further. Vladimir Tenev: Yes. I think it's still early in our international plan. That's why when we talk about this opportunity, it's really a 10-year vision because unlike the U.S., when we expand into these markets, we don't have an existing established customer base to cross-sell into. But we're really seeing signs that we like. And so we've continued to invest even more. Cohort activity, both in the U.K. and the EU has been improving, and that's actually led us to start doing marketing initiatives because we're starting to see like real ROIs to marketing activity as revenue goes online. In the EU with -- to catch a token event just a few months ago, we launched in 30 countries with stock tokens, which we're really excited about. I mean you've seen that ramp up. But again, it was a couple of months ago. So not much time has passed. So I think this is one of those things where 5, 10 years from now, we'll look back and we'll say, man, we underestimated the growth of that business as we tend to do with things that are early. But we like the early signs, and we're continuing to increase our investment. And there's so much to build. I mean, even I mentioned with tokenization, we're still just in Phase 1. So I think over time, it will become clear how those products actually have significant advantages over what you might find elsewhere. Chris Koegel: All right. Thank you. The next question is from Amit. Amit is investing. Unknown Analyst: A big thank you, Jason, over the years on your execution and congrats to you, Shiv, on your new role. My question is for you, Vlad. Going back to tokenization, you recently said tokenization will eat the broader financial system. Outside of just tokenized equities, can you give us a more larger look on how big of a size the opportunity is, why right now is the time to go after it? And what Robinhood is really thinking about over the next couple of years in terms of taking advantage of the opportunity? I know there's a lot of different other assets besides equities that could be tokenized. So can you just speak a little bit more on how you guys are thinking of the opportunity? Vladimir Tenev: Yes. I think the opportunity is very exciting. One of the things that I think is both a problem and an opportunity with the traditional crypto is that crypto and the traditional financial system up until fairly recently have kind of been 2 separate worlds. And I think Robinhood has a unique position as a scaled crypto business, but also a scaled business in traditional finance to bridge the 2 and actually make room for what we consider traditional assets, but really things like securities, products with real fundamental utility to leverage blockchain technology and actually be tradable on chain where customers can self-custody, they can engage with a variety of protocols, collateralized borrowing and lending and where those assets can be traded 24/7 real time in fractional quantities. You've obviously seen some efforts in private companies in the EU with our OpenAI and SpaceX token giveaways there. So I think we're really interested in continuing to pull on that and making those products available to customers. The other opportunities that I'm personally excited about is real estate, private credit, unique assets and collectibles like art. If you think about what's a part of your portfolio, if you're a high net worth individual, there's a lot of these assets that actually retail can't access currently. And I think that tokenization is a way to enable that at scale and sort of like reduce some of the downsides that would typically be associated with holding those assets, like lack of liquidity being locked into positions, not being able to like chunk the assets out and invest in portions of them. So that's why we're continuing to push on it, both in the U.S. and outside. And you should expect this to become bigger and bigger in the coming years, of course, starting with stocks, which is the asset class that we think has the most potential, and we're also closest to. Chris Koegel: Okay. Thank you, Vlad. The next question is from Roy from Crossroads. Unknown Analyst: Huge congratulations to Jason and also Shiv, and congrats to everybody on a great quarter, too. And very impressive, there's been a huge increase in predictions market activity. And I'm curious if the volume shown in the platform is a mix of Kalshi and Robinhood? Or is it just pure Robinhood? And also, is Robinhood considering expanding this internationally even alongside or even ahead of its current trading expansion plans? Jason Warnick: Yes. I mean, sure. The volumes that we're showing are the volumes that are on Robinhood. I'm sure Kalshi is counting the activity that we send to them, which is quite substantial. And for contracts that we offer, I think a very large chunk of Kalshi's volume is actually coming from Robinhood. In terms of international, Vlad, I'll let you cover that one. Vladimir Tenev: Yes. We're definitely looking into it closely. And you talk about tokenization as some of the previous callers have brought up, Prediction Markets is another asset class that actually has a strong crypto component, particularly outside the U.S. So we're definitely taking a look at what's the most effective way to get that to our customers. And I think it's going to be on a case-by-case basis, maybe slightly different in each jurisdiction, but we have some options as a scaled traditional player, but also on the crypto side, I think we will have our pick of what's best in each jurisdiction, and that's something we're definitely closely looking at. Chris Koegel: Okay. The next question is from Matti Daleiden from JPMorgan. Madeline Daleiden: This is Matti on for Ken. On shorting, has Robinhood experienced a noticeable pickup in customers applying for margin accounts in order to participate in the short selling since your 3Q launch? What have early adoption numbers and customer behavior looked like in these first few months? Vladimir Tenev: Yes. So shorting is something that we've announced at the HOOD Summit event in Vegas a couple of weeks ago. Customers are very excited about it. It's somewhat hard to believe that we've been able to get to this point without offering shorting. But we've been rolling it out to employees and doing final testing. It's actually not yet rolled out to external customers. So we think people will love it, but too early to tell. And I guess to answer your question, no. I mean, I don't think the increase in margin usage has been in anticipation of shorting because it's just not yet available. Chris Koegel: The next question is from Tannor with Future Investing. Unknown Analyst: First off, I just wanted to start off with a -- can you guys hear me? Jason Warnick: Yes, we can hear you. Unknown Analyst: Okay. Sorry. With a crypto question around crypto staking on the Robinhood platform so far, if there's any insights there? And then also just maybe a small request, if you guys are open to publishing event contract volume on their monthly metrics updates going forward? That's it. Jason Warnick: On the amount stake, I think it's -- we exited the quarter at about $1 billion. The market has been pretty volatile over the last few days. So I think it's come down a little bit, but customers are responding very well to the ability to stake. Vladimir Tenev: And what about the event contract volume published and monthly metrics? Jason Warnick: Yes, I'll leave that with Shiv as something to consider. I don't want to promise that for him, but we do like, in all seriousness, being as transparent as possible for investors, and we're always looking at ways to provide incremental disclosure to help you understand the business. So that's something we'll look at. Vladimir Tenev: Yes. Thanks for the suggestion. Chris Koegel: All right. That is the last question from our virtual queue. Is there anybody else in the audience here who didn't get to ask a question earlier that wants to ask a question? Vladimir Tenev: Perhaps one of the virtual... Chris Koegel: All right. Well, I think let's pass it back to you, Vlad. Vladimir Tenev: Okay. I think you guys should know that we are not slowing down. The team remains incredibly excited to continue our mission, and there's so much to do. Roadmap is full. AI event is coming up, which I think will be very, very exciting. So hopefully, some of you will be able to join us there, at least virtually. And to commemorate this occasion, bittersweet, though it might be, I've learned that Jason has a favorite dessert. And so we've actually brought one here, and Jason wanted to share this with everyone in person and virtually vicariously, a [Baked Alaska]. Jason Warnick: You all wonder why I'm retiring. Vladimir Tenev: Unfortunately, they wouldn't let us light it here even though that would have been very cool. So this is... Jason Warnick: It looks incredible. It's the first time I've ever had it, actually growing up, my favorite was Lemon meringue pie, and this brings back fond memories. So -- and underneath, I anticipate there's ice cream, which is my favorite. Vladimir Tenev: I wish they gave me the lighter, and I just like tried unsuccessfully to light it. But... Jason Warnick: Thank you, and I appreciate all the kind words of encouragement. And I do believe we're leaving the company in an incredible position. And I think you're going to find in short order that Shiv is, if not an upgrade, equally as good at driving the company forward. So thank you. Vladimir Tenev: Thank you. We'll see if he can finish an entire one of these. It looks like there's one for each of us up here. Shiv Verma: We'll bring some of the team to help with that. Jason Warnick: All right. Thank you. Vladimir Tenev: Thank you, all.
Graeme Jennings: " Renaud Adams: " Marthinus Theunissen: " Bruno Lemelin: " Sathish Kasinathan: " BofA Securities, Research Division Tanya Jakusconek: " Scotiabank Global Banking and Markets, Research Division Anita Soni: " CIBC Capital Markets, Research Division Mohamed Sidibe: " National Bank Financial, Inc., Research Division[ id="-1" name="Operator" /> Thank you for standing by. This is your conference operator. Welcome to the IAMGOLD Third Quarter 2025 Operating and Financial Results Conference Call and Webcast. [Operator Instructions] The conference call is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Graeme Jennings, Vice President of Investor Relations for IAMGOLD. Please go ahead, Mr. Jennings. Graeme Jennings: Thank you, operator, and welcome, everyone, to our conference call today. Joining us on the call are Reno Adams, President and Chief Executive Officer; Martin Newson, Chief Financial Officer; Bruno Lemelin, Chief Operating Officer; Annie Torkia Lagace, Chief Legal and Strategy Officer; and Dorna Quinn, Chief People Officer. We are calling today from IAMGOLD's Toronto office, which is located on Treaty 13 territory on the traditional lands of many nations, including the Mississaugas of the Credit, Anishinaabe , the Chippewa, Haudenosaunee and the Wendat Peoples. At IAMGOLD we believe respecting and upholding indigenous rights is founded upon relationships that foster trust, transparency and mutual respect. Please note that our remarks on this call will include forward-looking statements and refer to non-IFRS measures. We encourage you to refer to the cautionary statements and disclosures on non-IFRS measures included in the presentation and reconciliations of these measures in our most recent MD&A, each under the heading non-GAAP Financial Measures. With respect to the technical information to be discussed, please refer to the information in the presentation under the heading Qualified Person and Technical Information. The slides referenced on this call can be viewed on our website. I'll now turn the call over to our President and CEO, Renaud Adams. Renaud Adams: Thank you, Graham, and good morning, everyone, and thank you for joining us today. This is an exciting time for IAMGOLD with another quarter of production, led by strong performance at Cote Gold and Esakana mines, helping to fuel record cash flow generation for the company. The current strong gold market has been very well timed for IAMGOLD, coinciding with the advancement of our assets, allowing the company to advance our strategic plans ahead of schedule. We are proud of this transformation and also to introduce today our new logo and refreshed brand, which we believe reflects who we are today. We are extremely proud of our roots and history. But now our name stands for innovative, accountable mining. IAMGOLD is a modern gold mining company that is proudly Canadian with strong cash flow and significant long-term growth opportunities ahead. We mine with a mining redefined purpose in mind, putting safety, responsibility and people first. We hold ourselves accountable and embrace change and drive innovations at every level from smarter systems and technology to better ways of working. There are many highlights to discuss for IAMGOLD today from our operations, financial achievement and an improved share buyback program, which remains subject to TSX approval. We will also discuss our forward-looking plans, including the expansion scenario for Cote Gold, which is expected to demonstrate significant upside to the current mine plan at Cote. Finally, we will cover the recent announcement of acquisitions to consolidate the Chibougamau region in Quebec to create an elegant complex. These transactions further position IAMGOLD as a leading modern Canadian-focused multi-asset gold mining company. I am proud of our team's achievement and remain confident in our ability to deliver enduring values for our investors and partners while maintaining a steadfast commitment to safety and accountability. Turning to the quarter, and we're now on Slide 5. At IAMGOLD, the safety of our people and communities remains our top priority. In the third quarter, our total recordable injury rate was 0.56, a 15% improvement year-over-year on a 12 months rolling average and comparing well with our industry peers. We are focused on advancing our critical risk management program, including an important integration of contractor into the IAMGOLD way of safety management with the goal to reduce high potential incidents. Looking at operations on an attributable basis, IAMGOLD produced 190,000 ounces of gold in the third quarter. The quarterly performance was led by strong results at Cote, which produced a record 106,000 ounces on a 100% basis. followed by improved quarter-over-quarter attributable production at Essakane as the mine saw grades bounce back while mining deeper into Phase 7 of the pit. Year-to-date, IAMGOLD has reported 524,000 ounces of attributable production. As we will walk through in a moment, production is expected to be the highest in the fourth quarter, positioning the company well to achieve our guidance target of 735,000 to 825,000 ounces of gold this year. On a cost basis, IAMGOLD reported third quarter cash cost of $1,588 an ounce and an all-in sustaining cost of $1,956 an ounce. Costs remain higher year-to-date as the record gold prices directly translate into higher royalty compound with the new royalty regime in Burkina Faso as well as higher unit costs at Cote from an increased proportion of supplementary contracted crushing to stabilize operations during our first full shutdown and until the second cone crusher is installed in the fourth quarter. Cash costs and all-in sustaining costs for the year are expected to be at the top end of the guidance range, though we expect to see a strong end to the year with higher expected cash flow in the fourth quarter on an improved production and higher margins. With that, I will pass the call over to our CFO to walk us through our financial highlights. Maarten? Marthinus Theunissen: Thank you, Rud, and good morning, everyone. It was indeed an important quarter for IAMGOLD as we were able to use the strong financial results to take significant steps towards our goal of delevering the company and advancing our plans to reward shareholders. Mine site free cash flow was $292.5 million in the third quarter, a record achieved of IAMGOLD's high production levels following the ramp-up of project, increasing the company's exposure to the gold price during a record high gold price environment. The record mine site free cash flow improves our financial position and the company's net debt was reduced by $210.7 million to $813.2 million at the end of the third quarter. IAMGOLD had $314.3 million in cash and cash equivalents and approximately $391.9 million available on the credit facility resulting in total liquidity at the end of the third quarter of approximately $707.2 million. As we noted last quarter, Essakane declared a significant dividend in June of approximately $855 million, representing all of the undistributed profits of Essakane up to and including the 2024 financial year. IAMGOLD's 85% portion of the dividend net of taxes was approximately $680 million and is expected to be paid over the next 12 months through a revised framework that enables payments to be made at any time of the year based on the cash generated in excess of working capital requirements by Essakane. At September 30, $186 million of IAMGOLD's consolidated cash and cash equivalents was held by Essakane in Burkina Faso. -- which was used to pay IAMGOLD a dividend of $98 million in early October. The remaining portion of the company's dividend receivable was converted into a shareholder account with the first payment against the shareholder account of $56 million also received in October. The company expects to receive monthly payments going forward. These funds were used to make additional payments of $170 million against the company's second lien notes with $130 million of the original $400 million remaining outstanding on the 4th of November. Holistically, when we consider our liquidity outlook under high gold price environment, we are in the fortunate position to continue to repay debt and commence in the not-too-distant future on another of our strategic initiatives, which is to reward our shareholders. Accordingly, subsequent to quarter end, our Board of Directors approved a share buyback program to be put in place through an NCIB program, allowing for the purchase of up to approximately 10% of IAMGOLD's outstanding common shares. All common shares purchased under the NCIB will be either canceled or placed under trust to satisfy future obligations under the company's share incentive plan. IAMGOLD will file a notice of intention to implement an NCIB with the TSX and which is subject to TSX approval. Following the approval, IAMGOLD will be allowed to purchase these common shares over a 12-month period in the open market. This initiative reflects management confidence in the company's long-term value and its commitment to disciplined capital allocation. The actual number of common shares that may be purchased if any, and the timing of such purchases will be determined by the company based on a number of factors, including the company's financial performance, the availability of cash flows and the consideration of other uses of cash, including capital investment opportunities and debt reduction. Turning to our financial results. Revenues from continuing operations totaled $706.7 million from sales of 203,000 ounces on a 100% basis at a record average realized price of $3,492 per ounce. Cost of sales, excluding depreciation, was $324.2 million and adjusted EBITDA was a record $359.5 million compared to $221.7 million in the third quarter last year. At the bottom line, adjusted earnings per share in the third quarter was $0.30. Looking at the cash flow waterfall on the left side of Slide 7, we can see the year-to-date impact on our operating cash flow of the gold prepay deliveries, which we completed in June as well as the impact of the second lien term payment and the dividend payment to the government of Burkina Faso following its account driven declaration. On a mine site free cash flow IAMGOLD generated $292.3 million in the third quarter, including $135.6 million from Cote and $150.5 million from Essakane, driven by higher revenues due to the higher realized gold price, partially offset by higher production costs. And with that, I will pass the call to Bruno Lemelin, our Chief Operations Officer, to discuss our operating results. Bruno? Bruno Lemelin: Thank you, Martin. Starting with Cote Gold, it was a strong quarter with Cote reaching new milestones while maintaining stable performance at the processing plant. Notably, the plant underwent its first full shutdown in August, which was executed successfully. I'm very proud of our team at Cote. It's important to remember that it's still the first full year of operation at the mine with nameplate throughput achieved at the end of Q2. Our teams are learning every day how to better position Cote for success, including the refinement of the mine plan of the maintenance schedules and identifying efficiency to drive continuous improvement. Now looking at the third quarter, Cote produced 106,000 ounces on a 100% basis, which is a record quarter of production for the mine. Mining activity totaled 11.5 million tonnes in the quarter with 3.8 million ore tonnes mined equating to a strip ratio of 2:1. The average grade mined was 0.96 gram per tonne in line with plan and demonstrating good reconciliation with our reserve and grade control model. Looking ahead, mining activities will continue to work on extending the pit perimeter to support efficient gold mining and also in preparation for the future expansion of Cote. On processing, mill throughput totaled 3 million tonnes in the quarter, averaging near nameplate in July and September. The first annual maintenance shutdown in August was successful with the comprehensive maintenance cycle completed and including the replacement of the high-pressure grinding roll tires, relining of the ball mill, changes to the primary crusher outer shell and additional maintenance work on the electrical infrastructure. Head grade averaged 1.18 gram per tonne with feed material comprised of a combination of direct feed ore and stockpiles. Mill recoveries averaged 94% in the quarter, which continues to be above design rates. Turning to cost. A major driver of cost this year has been associated with the temporary aggregate crusher, which is being contracted to support the processing plant. The plant was built with a single secondary cone crusher as part of the crushing circuit. And through day-to-day operations, we learned that this is a bottleneck. This has been addressed with the addition of a second cone crusher to sustainably achieve the nameplate throughput rate and provide redundancy during shutdowns. We accelerated the push to achieve nameplate to midyear from our original target of Q4 in part because we found a way to maximize throughput and offset the bottleneck by incorporating an additional refeed system using a contractor aggregate plan. Moving ahead, nameplate by 5 to 6 months allows for maximizing tonnes milled today versus waiting for the second cone crusher to provide the additional facility. This may account for an extra $4 per tonne milled, yet brings the opportunity to monetize tonnes already mined through the end of the year. In the third quarter, the aggregate crusher processed a higher proportion of ore due to the shutdown in August. The use of the aggregate crusher is expected to be reduced following the installation of the secondary cone crusher in Q4 and eventually eliminated. Looking at mining costs, we averaged $4.51 per tonne in the third quarter. Mining costs are higher than planned due to higher tire and wear and also impacted by the operation of the aggregate crusher and the feed system. The aggregate crusher requires the utilization of mining equipment to feed it, including haul trucks and a shovel, resulting in higher amounts of rehandling that is accounted to mine. These trucks will decrease into 2026 as further operational improvements are made and the elimination of the contracted aggregate plan. Milling unit costs also increased in the quarter, averaging $22 per tonne mill. The temporary aggregate crusher system has a direct impact on our processing unit cost as it is more costly to operate. And in the third quarter, we rely on it more due to the August shutdown. Overall, we estimate around $6 per ton was associated with the cost of the aggregate crusher in the third quarter. Maintenance costs to replace the HPGR tire and wear components accounted for $1.87 per tonne during the quarter. Unit costs are expected to decline over the course of 2026 following the installation of the additional cone crusher in the fourth quarter of this year. Looking ahead, we remain confident in our Cote Gold production guidance of 360,000 to 400,000 gold ounces on a 100% basis, which is essentially a doubling of production from last year. As noted here, we expect cash costs to exceed the top end of our updated guidance range of $1,100 to $1,200 per ounce sold, primarily due to a combination of higher royalties impacted by a significant increase in gold price, an increase in the expected usage of the supplementary crushing during the year to support the mill feed and the expensing of certain parts and supply that were previously expected to be capitalized. Taken together, Cote is performing very well from operation of this site less than 20 months after pouring its first gold. We are looking forward to seeing the impact of the installation of the second cone crusher in Q4 on availability and throughput paving the way for future expansion option, which leads us to what is the most exciting slide, the advancement of the Cote Gas and super pit scenario. As we have discussed previously, we are working towards announcing in 2026 an updated mine plan that envision the Cote operating at a higher throughput, targeting a significantly larger ore base from both Cote and Gosselin. The first step is drilling out the super pit of Cote and Gosselin to provide the resource foundation for the mine plan. Our drills are busy at work with over 50,000 meters drilled so far this year with the goal to infill and upgrade mine and bring the bulk of mineralization there into measured and instated. Our currently designed, Cote has the mining capacity to average an annual ore mining rate of 50,000 tonnes per day versus our current nameplate processing rate of 36,000 tonnes per day. As part of the 2026 technical report, we will look to find the right balance between an increased processing rate with mining rates targeting the combined Cote Gosselin super pit. In this scenario, we anticipate a mine plan that prioritize the expansion of the plant, which should be implemented years before other major capital items that would be part of the super pit scenario, including tailings capacity expansion and all. The updated mine plan and technical report is expected to be completed by the end of next year. And in the interim, we will continue to focus on optimizing Cote, reducing our cost profile and capturing low opportunities for operational improvements and capacity expansion. Turning to Quebec. In the third quarter, Westwood produced 23,000 ounces, bringing the year-to-date production to 76,000 ounces, tracking below the bottom end of the guidance range of 125,000 to 140,000 ounces. The third quarter at Westwood saw similar results as prior quarters this year as mining activities underground operated to lower grade stopes encountering areas of challenging ground conditions resulted in higher-than-expected dilution and lower mining recoveries. The teams are implementing mitigation measures that include changes in blasting techniques and refinement, stope design and sequencing. We are already seeing improvements from these efforts in October with the average grade so far this month from underground averaging over 9 gram per tonne in the month. The Grand Duc open pit added another quarter of decent ore volumes with a reported of 315,000 tonnes mined. Open pit activities from Grand Duc are currently being evaluated for an expansion and extension of the pit. The outline scenario would push the pit into Phase 4, which would allow for mining until 2027. Mill throughput in the third quarter was 250,000 tonnes, which was below the average throughput rate over the previous quarter due to a 14-day shutdown of the plant in July for the replacement of a critical gear in the grinding circuit, resulting in plant availability in the quarter of 75% versus 90% in the same prior year period. We expect to see mill throughput return to near 90% as we see in the fourth quarter. As a result of the low availability and lower tonne mill, we saw an increase in milling unit costs in the quarter. Likewise, mining costs also remained elevated due to an increase in the number of stopes prepared underground to set up the mine for the remainder of the year, combined with an increase in mining cost, labor cost and exclusive and power consumption. Together, cash costs were $1,924 an ounce in the quarter. Looking at this year, as noted, Westwood production is expected to be below the bottom end of the range of 125,000 to 140,000 ounces. Accordingly, and despite unit cost improvement expected in the fourth quarter, annual average cash costs are expected above the guided range of $1,275 to $1,375 per ounce and AISC is expected to be above the range of $1,800 to $1,900 per ounce. The turnaround in October is expected to be sustainable as we continue to refine stope design and the varying underground condition at Westwood. Despite the challenges in the first 9 months of this year, I'm very proud of the team there as they have demonstrated their innovative and accountable mindset to operation, safety and environmental care. Turning to Essakane. It was a strong quarter for the mine with production of 108,000 gold ounce on a 100% basis or 92,000 ounces based on our 85% interest. Production rebounded on higher grades as mining activities were deeper into Phase 7. Mining activity totaled 8.7 million tonnes with ore tonnes mined of 3.2 million tonnes, equating to a strip ratio of 1.7:1. Total tonnes mined was lower than prior periods as the mining fleet did not operate at full capacity in August due to a fuel shortage in the country. The situation improved in September and the mining fleet was able to operate at capacity to end the quarter and into October. Net throughput was 3.1 million tonnes at an average head grade of 1.18 grams per tonne. The transition to the higher grade benches in Phase 7 was initially expected earlier in the year, but was realized in the third quarter. Grades have continued to reconcile positively to the reserve model in October, positioning the mine for a strong fourth quarter. On a cost basis, Essakane reported cash costs of $1,737 per ounce and AISC at $1,914 an ounce in the quarter, an improvement on the prior quarter. Despite the production improvement costs remained elevated in the quarter. Over the same period last year, royalty costs have increased 61% on a per ounce basis due to the strong gold market and the new royalty decrease. Royalties accounted for $283 an ounce in the third quarter. Additional drivers include a higher proportion of mining costs being expensed as well as higher maintenance activities and an increase in consumable costs, including diesel and grinding media. With the equivalent labor, contractor and facility costs also increased due to the appreciation of the local currency, which is drag to the euro. Looking ahead, we estimate that Essakane will be at the midpoint of the 100% basis estimate of 400,000 to 440,000 ounces, which equates to the lower end of the attributable production guidance target based on 85% of 360,000 to 400,000 ounces. Production is expected to be higher in the first quarter due to the higher grade as the mining sequence move in the primary zone of Phase 7. Cash costs are expected to be at the higher end of the guidance target of $1,600 to $1,700 per ounce sold and AISC is expected to be $1,850 to $1,950 per ounce sold. Looking beyond next year, we are initiating conversations with the government on the mining lease renewal when ours expires in 2028. While the cost of operations in country have risen, Essakane continues to be a world-class mine and an important member of the Burkinabe. The mine has over 2 million ounces in reserves and is positioned to generate significant free cash flows moving forward. With that, I will pass it back to Renaud to discuss our latest exciting news coming from Chibougamau Chapais. Renaud? Renaud Adams: Thank you, Bruno. I really want to take a moment here to talk about our news from the 2 weeks ago when IAMGOLD announced the proposed acquisitions of Northern Superior in Orbec mine for total consideration of approximately $267 million in shares of IAMGOLD and approximately $13 million in cash. The strategic rationale for these transactions are clear when you look at this map here. Our goal was to consolidate IAMGOLD's land position and gold resources in the Chibougamau Chapais district, where IAMGOLD Nelligan and Monster Lake assets are located, creating the next great Canadian mining camp. Our Nelligan deposit has 3.1 million ounces indicated and another 5.2 million ounces of inferred with rapid growth from minimal drilling in recent years. Nelligan is a large-scale open pit style of deposit with average grades around 0.95 grams a tonne. Monster Lake located approximately 15 kilometers north of Nelligan is a high-grade underground style project. Prior to the acquisition announcement, we were looking at putting out economics on Nelligan and Monster Lake envisioning a project that would take most of the ore feed from Nelligan with a high-grade kicker from Monster Lake. The potential additions of Philibert may result in a revised time line of technical study and proposed mining scenario. Northern Superior's primary asset, Philibert, is an open pit style deposit located 8 kilometers northeast of Nelligan. Philibert has estimated mineral resources of approximately 2 million ounces at an average of 1.1 grams of gold, making it at this time, smaller but yet higher grade than Nelligan. In the consolidated scenario in a conceptual mill to pit and underground complex mine plan, we envision Philibert as having the potential to be the initial deposit due to the higher grade infrastructure advantage, providing important synergies versus a stand-alone Nelligan. This year, we have drilled over 16,000 meters at Nelligan and over 17,000 meters at Monster Lake, with both projects having seen the programs upside and continued success at the drill pit. Upon completion of the transaction, we look forward next year to putting together a comprehensive program at Philibert to extend and expand mineralization as we look to bring all these assets together. As of today, the combination of Nelligan and Monster Lake with Northern Superior's assets an Orbec's property, which are now referred as the Nelligan Mining Complex will rank as the fourth largest preproduction gold camp in Canada with estimated mineral resources of over 3.8 million ounces indicated and 8.7 million ounces inferred. The closing of the proposed transactions remain subject to shareholder votes from both Northern Superior and Orbec shareholders as well as other customary closing conditions for transactions of that nature. Together, this asset has a bright future, and we look forward to welcoming the Northern Superior and Orbec shareholders to the IAMGOLD team. It will be an exciting year for us with significant value growth opportunity ahead and many catalysts, starting with the upside scenario for Cote Gold, but also including the advancement of the Nelligan mining complex as well as the valuable contribution of Westwood and Essakane. So thank you for your support. With that, I would like to pass the call back to the operator for the Q&A. Operator?[ id="-1" name="Operator" /> [Operator Instructions] First question will come from Sathish Kasinathan with Bank of America. Sathish Kasinathan: Congrats on a strong quarter in addition to initiate share buybacks. My first question is on Cote Gold. So once the secondary crusher is installed, can you give us a sense of like what the anticipated cost improvements could be? Maybe talk about how you see the exit rate of cost as you exit 2025? Renaud Adams: Yes. It's an excellent question. As we mentioned, we appreciate the very high record free cash flow at Cote and everywhere, but that doesn't take away our focus on cost. We made a conscious choice in the Q2 to maintain the aggregate plant functioning, maximizing throughput, maximizing grade by allowing more rehandling and maximizing grade and production and free cash flow it has worked just perfectly. Now as you've mentioned, moving forward. So as Bruno mentioned in his note or Maarten both, there's about $6 a tonne right from the start on a per tonne of ore by using and operating the aggregate plant. And we think that with the second crusher, we'll be capable to generate our own stockpile internally. So that's one of the focus. So right from the start down the road, and I'm not saying that's going to be a walk in a park in a quarter. But on the milling side, definitely, our objective remains to stabilize eventually down the road towards the $12. We appreciate that there are other assets maybe that could do slightly better. But for us at $12, we believe with the kind of design and configuration, that's probably achievable. There will be some transitions, of course, Q1, probably a transition as we enter Q2. On the mining side, yes, we appreciate the -- again, there's rehandling has been a big component of it. Could we stabilize in the short term more towards the 350. So we're working on our plan as we speak. But we believe that the big component here is to be capable to operate without the aggregate plan, which will have a big effect. There's other aspect we need to improve. We need to improve significantly tire consumption, life on it. There's probably room to improve significantly, 50%, 60% consumption. So all that will have an impact on it. Our objective remains down the road to be as close as the $3 per tonne mine. I know there's been inflation is all over the place and everyone is facing the same. But this is an objective, not going to be there at the start of the year, but as we advance in the year, 3 and 12 remains our strategic target. And that's the risk become pure math. You mine at the reserve grade as we're doing, you try to uplift your grade as you separate the lower grade. And with the 400,000 ounces plus and with a better unit cost and a very low strip ratio at Cote, we definitely see this asset performing amongst the best leading on the cost side. That's what we see. Bruno, do you want to add anything? Bruno Lemelin: That's exactly right. The mining costs will have better performance once we stop using the aggregate crusher, producing much more leading inland. There's also many projects in terms of improving drilling performance as we drive vertically in the pit with less fracture time. So we expect improvement quarter after quarter. Renaud Adams: No, no, that's what we could say at this stage as we complete our plan for next year. Sathish Kasinathan: Yes. That's helpful. Maybe one follow-up on the share buybacks. So I understand that you will begin share repurchases after you pay down the $130 million in debt. But is there like a minimum target in mind maybe tied to a certain percentage of free cash flow that we should look at in terms of the potential for buybacks going forward? Marthinus Theunissen: Once we have the program in plan by the end of the year, it gives us that flexibility to start allocating capital to the different parts of the business. And we're kind of looking at it in third, where we would look at internal growth and opportunities as well as we still want to repay the amount drawn credit facility, $250 million. And then the third part is buying back shares. We don't have to do this sequentially. We can do all of this at the same time. So we were kind of breaking it down into 2/3 and starting next year, we'll look at the cash being generated and then do it that way. So that's kind of as close as a percentage, I guess, 1/3 that we can give at this point. [ id="-1" name="Operator" /> The next question will come from Tanya Jakusconek. Tanya Jakusconek: On the balance sheet. I really was impressed on you getting your net debt to EBITDA down so low versus Q2. Sorry, the 4 calls going on at the same time. So I've missed a lot of yours. I want a clarification, if I could. Slide 11, you have a new technical report and mine plan to be released in the second half of '25. I thought that was coming in the second half of '26. Has that been moved forward? Renaud Adams: No. If there was any mention to '25, that would be a typo or a mistake, Tanya. But no, we remain with disclosure of our next Cote Gold expansion late '26. Tanya Jakusconek: No, no. I just -- I joined when you talked about Westwood and so it was a slide before, and I noticed that and I said, Oh my God, they've moved it. I wasn't aware of it. Okay. No worries. And just maybe still on Côté, if I could. You talked about bringing the processing cost down to about $12, the mining cost down to 3. We had talked on the previous conference call that you thought you would get there by mid-2026. Should it be fair to say that we're still looking for that second half of '26, where we should see these costs get into that range? Is that a fair assumption? Renaud Adams: Well, there is one thing that we don't control and it's some external factors. So let's start with that, like if there is an inflation. So I'm looking at our peers, I'm looking at what we could eventually do, and this is our objective. I think the parking the aggregate plan, you would start like transitioning in Q1 and starting in Q2, you must see the effect of much less rehandling, more direct feed to final destinations, a little bit of -- we're going to continue to rehandle around the HGO and if your mine, your grade is lower for a period of time, you would swap in an NGO. But yes, starting Q2, this is where we start seeing effect of it and continue to work very hard towards achieving the lowest. But we need to control our consumptions, mostly around, of course, mentioned tires and rehandling and so forth. I think we're competitive when it comes to the procurement and so forth. So it's really on consumptions and better control of our maintenance. We believe that the HPGR should be running better at 2, allowing to feed it at a smaller size and so forth and increases life. So it's not just like a ticket type of item, but the big impact would start with the pricing. And the cost will be what it would be in the sense that we cannot control some external factor. But what we can control, this is our intention in '26 to get it done. Tanya Jakusconek: Okay. SO I should sort of mid-'26 that we should hopefully be there. Renaud Adams: Yes, mid-'26 you should start. Tanya Jakusconek: Yes. Okay. And can I just come back? I wanted to -- one more technical, if I could. On just on your reserves and resources, I'm asking all companies, what are you thinking about in terms of pricing as you get your mine plans in place and start thinking about your pit shells and so forth. What pricing assumptions are you looking at for year-end 2025 and 2026 sort of inflation in cost? Renaud Adams: The most important aspects are the reserve. And as we're relooking at Côté and so forth. We're very comfortable to remain at the 1,700 or so for reserve at Côté, and we're going to -- we'll look at as well what the industry is aligning and so forth. So there is no real rush there. Essakane is a longer short-term life of mine. So there's an ability here to increase a bit and maximize cash flow down there. But typically, for our main asset like Côté, we're not seeing more than 1,700 at this stage for the year-end exercise. And we're also testing the long-term resource deposit like the Nelligan and so forth. We'll be testing it probably up to 2,500 as a resource exercise. But we'll be disciplined. We're not intended to use the full gold price in the short term and like to see how the industry -- eventually, of course, we're going to pick the price for the Côté study and so forth, but it is not our intention to transform our asset in low grade using the gold price. Tanya Jakusconek: Okay. And if I can ask a financial question. I just -- I saw your debt target, your net debt to EBITDA down to 0.74. And I think I heard that we still have another $250 million in 2026 that we want to reduce our debt by. So I'm just wondering, one, is that correct? I should think about another $250 million for 2026. Do we have a net debt-to-EBITDA target you're comfortable with so that I can -- and a minimum cash balance on the balance sheet, so I can then sort of look at my share buyback. Marthinus Theunissen: So that is correct. We $250 million drawn on the credit facility, and we would like to pay that down in 2025 or 2026. But we also have $130 million left on our second lien that we plan to do this year. So that then leads us to next year. We think $200 million to $250 million is a good minimum cash balance for our company. Over time, as I mentioned earlier, we will probably build that up as 1/3 of the capital allocation would go to that. But that's kind of the main benchmark is $200 million to $250 million minimum cash and then pay down that $250 million. So from a net debt-to-EBITDA ratio, that would bring us down to 0.5 or maybe even less. We are comfortable with 1 and lower, but we also understand it's a very high gold price environment. So we don't put all of our targets for net debt-to-EBITDA using a high gold price. So we're kind of looking at it what would it be at lower gold prices as well. So we don't want it to be much higher than in a lower gold price environment. Tanya Jakusconek: Okay. That's great. And if I could squeeze in an exploration question. I would really like to talk a little bit about the Nelligan camp. And maybe, Renaud, I'm keen to -- you said there are synergies of that entire camp. It's never going to be called the Nelligan camp once this is done. Can you talk about like is it going to be -- are you envisioning like one central mill to sort of treat all of these ores? Like how are you envisioning this? Renaud Adams: Well, the -- I have the pleasure to be leading the Rosebel Gold Mines at the very early days of IAMGOLD following the takeover of Cambior. And at the very early days when I rejoined this company, and I was looking at this camp, there was like a kind of an obvious type of look alike, if you will. And I'm sure you're very familiar as well with the Rosebel concept back in time where we started with 2 and eventually had 6 mining areas and so forth. I like that one even further because of the high-grade underground component as well that comes at play. So the kind of the close is for us, and we've operated this place for many years. So we have a pretty good understanding and mining experience. But think of it as a bit of a kind of a Rosebel concept back in time, definitely a center processing facility kind of gravity center and fed and hopefully, multiple mining sources that eventually comes and go as you advance in time. So that's the closest example I could take -- I could think of. Tanya Jakusconek: And one tailings facility or should I think of that as well? Renaud Adams: Sorry. Yes, definitely. Yes. One tailing. But again, with the new concept and minimizing footprint and the importance of protecting and minimizing environmental footprint, I could see over time, a kind of a use as well of depleted pit to be incorporated in the scenario of how you minimize for tailings purpose. So early stage, but this is our concept here. So the priority will be Philibert, Nelligan, and Monster Lake and eventually, hopefully, as we continue to drill, maybe incorporating more areas. Tanya Jakusconek: Look forward to hearing more about it next year. [ id="-1" name="Operator" /> [Operator Instructions] Our next question will come from Anita Soni with CIBC World Markets. Anita Soni: Similar position to Tanya with a number of competing conference calls. So I apologize if I missed anything. But I just want to follow up on Tanya's questions around costs going into next year. I guess I was just trying to understand if as we look at Cote and sort of push towards higher tonnage sort of things that you're thinking about what are the inflationary factors that you're facing on the mining cost front? And where do you see some offsets in terms of maybe pushing higher tonnes? Renaud Adams: You were breaking up a bit Anita. Maybe on the mining -- well, if we got your questions on the inflationary aspects on the cost and so forth, yes, we did see some pressure, but it's more around -- we don't see necessarily like on the pressure on the procurement side. And Maarten, you can add to this. I think it's really around the productivity and creating -- moving more towards bulk mining, as Bruno said, as we open the pit even further and creating more phases and minimizing the movement of equipment during blast. This is all productivity. This is all like same equipment, more movement, less rehandling and the tire and improving on drilling blasting. This is like the most important aspect of '26. that would probably get us to a significant improvement. There's no reason for Côté to lag its peers when it comes to the best mining we could do. But we've been very restricted, we haven't allowed the group to really mine within the perfect setting and force a lot of rehandling and so forth. So we need to be patient here and give a chance to the winner here to run the race. Bruno? Bruno Lemelin: Just to give you an example at the mill maintenance, we've done like numerous operation to try to find the right liners for secondary cone crusher like more than one, I guess. So 5 different type of liners were tested out. And now we are very glad to see that we have one that is performing very well that's going to double the lifetime of the liner. So we expect improved productivity, improved production, and lower cost on the tonne basis. But when you start an operation like the size Côté you need to do some predictors, you need to have an interactive process on some areas to find the best part that will trigger your top line. And that's what we do. It takes sometime, but we know where we have to work on. Anita Soni: Okay. I know these operations take some time to ramp and you've done a good job. Renaud Adams: Yes, exactly. And you mentioned more than once. And this is the thing maybe we sound like not direct to the question, but the reality being is from the commissioning, the building of the '23 to the full commissioning in '24 and you're looking at this year, our first year was to really eliminated any red flag remaining and so forth. 90% recovery at the mill, perfect reconciliation, mining at the mining grade, proven our concept of minimizing on segregation and make it more like work. And as you could see 3 quarters in a row where you've actually been capable to uplift at the mill. So those are all like significant milestones for us at the very early days. To say that we enter '26 and that what we want is an average for 4 years of the 36 with a full focus on the cost and you turn back and you look at what this group has achieved to date and now the mission is on the cost, and we're going to have the same focus and the same discipline and attacking this. I have all reason to believe that we're going to do like great, great, great improvement on this and that would be the first time really where we're going to be focusing on. So from -- it's kind of the next logical step for us after focusing this year on throughput and free cash flow and ounces and so forth. So I have all reason to believe, Anita, that you're going to see great things coming out of Côté as we make it our priority next year. Anita Soni: Yes. So for most of the operations that are doing well, year 3 is definitely the optimization year and that's year 2026. Renaud Adams: Absolutely. Anita Soni: So can I just ask just one more question in terms of grades. The mill plant feed has been above the mine grade, right? You had created something is in stockpile previously. But now the mining the grades are sort of in the 0.9 level this quarter. What should we be expecting like what the grade profile looks like going into next year? Is it going to be more along reserve grade? Or will you still have a couple of quarters of mill feed… Renaud Adams: I'll pass it to Bruno. Bruno Lemelin: Anita, this is Bruno. We have already like good inventory of high grade at the end of Q3. But the question is if we mine at 0.96, how long are we going to be able to mill at a grade above that. So we are currently looking at our 2026 budget and intent is still to mine higher proportion of ore that would have grade above the average grade. So the goal for Côté is definitely to be averaging mining at average grade, but the first three years is going to be a little bit above that. So we are talking about 1.1, 1.2, which will give us like a good path forward 400,000 gold ounce per annum. And while we are increasing capacity at the mill the grade will be reduced, but still protecting that 4, 4.50 level. Renaud Adams: Yes, if I may just add something to it. It has a lot to do as well with the volume you mine, correct? So if you look at this year how do you move from 0.96 mine to uplifting above 1.1 at the mill has a lot to do with, not super segregation, at least remove the lower grade glass from your inventory and just talk about the long term. So that practice could continue a little bit down the road. So I am confident by mining the reserve we will be capable to continue to uplift along the line of what we're seeing here. [ id="-1" name="Operator" /> The next question will come from Mohamed Sidibe with National Bank Capital Markets. Mohamed Sidibe: Apologies, I missed the start of the conference call due to conflict there. But on the grade front, but not at Côté, but maybe at Westwood, given the challenging ground conditions, I think you've seen improvement in October in terms of the underground grade there. How should we think about Q4 and maybe next year 2026 as we think about the Westwood grades and the mining rate there? Renaud Adams: Go ahead, Bruno. Bruno Lemelin: Mohamed, so the plan or if I can explain Westwood on the east side as areas with less challenging ground conditions, but with lower grade. On the central zone and western zone it has the ability to give better grades but with more challenging ground condition. So what -- when we started facing those challenging ground conditions, we just shifted our strategy and resequence the production mine tonnes toward the east. So that's the reason why you see the lower grade since the beginning of this year. Since then, we have readjusted the way that we do our blasting pattern, drilling patterns, stope design, stope parameters to take into account these ground conditions. I'm very pleased to say that we have been very successful in October in those zone and the average grade that we collected was above mine grams per tonne. And right now, what we have is we have an inventory of almost 1.5 months in front of us that are accessible. So I think the algorithm that we have developed over the past few years is working fine, but we just need to refine it further at the stope level so we can safely and profitably each so that we have in the sequence. So we just had to make some readjustment. So for the Q4, we expect a very strong Q4. And for 2026, it's going to be a balancing act between how much stope we're going to be scheduling in the east side and the central zone. So it's a risk adjusted type of plan. And again, Westwood is a mine that needs to deliver 10,000 gold ounce a month to be on [ XO ]. So very, very confident about the rest of the year and 2026 bodes very well. Renaud Adams: If I may just add to this, and thank you, Bruno, for this. To be very frank, like the mine like we did extremely well in '24, rehabilitated all the zone. There is maybe some aspect of it that maybe we try to run a little bit before walking. But the plan is I really have all the confidence that it's pure engineering, and we're already seeing quite a bit of turnaround and back on our feet. But the way we look at the mine is like we'll be absolutely happy, as Bruno says, an average of $10,000 a month, a mine capable to operate sub-2,000, bringing like significant free cash flow and longevity. So that's how we think of this mine for the next 2, 3 years. The future could be very exciting, depending on what happens in uncovering all the resources to the east and so forth. So more to come on that one. But for the time being, when I look at the next 2, 3 years, we'll be absolutely happy with the mine predictable capable to deliver if it's 10,000 a month, sub 2,000. With that, we'll be very happy and it would do very well for us. Mohamed Sidibe: That's very helpful. And if I could maybe shift to Essakane. I think you noted -- again, maybe you already commented on this, but you noted that you had in August a fuel shortage in the country. As you're looking at your operations now, we've heard kind of neighboring countries having issues and know that some of the Ivory Coast energy being provided to Burkina may have had some challenges there as well. But are you seeing any impact from fuel pressures at operation at Essakane currently? Or what is the latest that you can provide us on that front? Bruno Lemelin: So Mohamed, we are not using the same route as Mali does. So we have a very specific supply routes for fuel. So that's one. The second thing is that we have more than 48 days of inventory at site. So it gives us enough time to rearrange our logistics should we have like some hiccups. We have enough to maintain the operations uninterrupted. So it requires good logistic efforts, and we have continuous support from the government, allowing us to bring the fuels at sites at the appropriate time. But the main strategy was to make sure that we have enough fuel depo at Essakane so we can withstand a long period of time without supplies arriving to Essakane. So in a sense, we're not using the same roads. We don't see the same type of pressures as Mali and so far the other strategy that we have is increased inventory at site. Mohamed Sidibe: Great to hear. And a final question maybe on the complex and great consolidation of the complex there. What should we look at in terms of next key steps for this complex? I know that you're advancing an exploration campaign there with potential resource update in early 2026. But how could we look at this beyond what are the next key steps for the zone? Renaud Adams: So just quickly on it. So expect us like focusing on resource growth in '26, the incorporations of Philibert. So we need to answer one question that is really key. How big could that Philibert be and how does it fit in the mine plan, right? So this is the very, very key focus of '26, increased drilling program. We'll be aggressive but smart about proven record from the team. I'm not concerned at all there. And I think we will do a very good use of money deployed there. But that's the very short term. And as I mentioned, we were hoping of maybe putting some sort of a study in '26, but I think it's worthwhile like getting great answers from. Objective with almost 12 million already. So we could only shoot for the 15 million, 20 million camp. And this is what we're going to be doing. We're going to drill, drill, drill and hopefully having a very good update resource update late '26. Having said that, Nelligan and Monster Lake will be somewhat updated at year-end with the drilling of '25 in it. But look at it as resource grows in the next year or 2, and then we'll start putting study out there. And anything we could advance and start putting in place, we'll do it. But we have a high, high level of confidence that this is going to be a mining camp. Bruno, if you want to add anything to this? [ id="-1" name="Operator" /> This concludes the question-and-answer session. I would like to turn the conference back over to Mr. Graeme Jennings for any closing remarks. Please go ahead. Graeme Jennings: Thank you very much, operator, and as always thank you, everyone, for joining. If you have any questions please reach out to Bruno or myself. Thank you all. Be safe. Have a great day. [ id="-1" name="Operator" /> This brings to a close today's conference call. You may disconnect your lines. Thank you for your participation, and have a pleasant day.
Operator: Good day, everyone, and thank you for joining for today's First Capital REIT's Q3 2025 Results Webcast and Conference Call. [Operator Instructions] Also a reminder, today's session is being recorded. And it's my pleasure to turn the floor over for opening remarks and introductions to Mr. Neil Downey. Please go ahead, sir. Neil Downey: Thank you, Jim, and good afternoon, everyone. In discussing our financial and operating performance and in responding to your questions during today's call, we may make forward-looking statements. These statements are based on our current estimates and assumptions, many of which are beyond our control and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those expressed or implied in these statements. A summary of these underlying assumptions, risks and uncertainties is contained in our securities filings, including our Q3 MD&A, our MD&A for the year ended December 31, 2024, and our current AIF, which are available on SEDAR+ and our website. These forward-looking statements are made as of today's date, and except as required by securities law, we undertake no obligation to publicly update or revise any such statements. During today's call, we will also be referencing certain non-IFRS financial measures. These do not have standardized meanings prescribed by IFRS and should not be construed as alternatives to net income or cash flow from operating activities determined in accordance with IFRS. Management provides these as a complement to IFRS measures and to aid in assessing the REIT's performance. These non-IFRS measures are further defined and discussed in our MD&A, which should be read in conjunction with this conference call. And with that, I will now turn the call to Adam. Adam Paul: Okay. Thank you very much, Neil. Good afternoon, everyone, and thank you for joining us today for our Q3 conference call. We're very pleased to deliver another strong quarter of operating and financial results. It has been a great start thus far in 2025 for FCR. In the third quarter, same-property cash NOI grew by a healthy 6.4%. This excludes lease termination fees and bad debt expense. In round numbers, a little over 2% of the NOI growth was from increased occupancy and new tenants paying cash rent at One Bloor East. All other factors, which are primarily higher rents across the balance of the portfolio, contributed a little over 4% of same-property NOI growth. On a year-to-date basis, same property cash NOI, excluding lease termination fees and bad debt expense, has increased by 6%. This is a very healthy growth rate for our business. And as you've heard from Neil on prior calls, it has exceeded the expectation we had at the beginning of the year. The primary driver of this outperformance has been better-than-expected leasing. With demand continuing to exceed supply for FCR-type retail space, we expect our properties will continue to perform well. Following a record high occupancy level of 97.2% in Q2, occupancy remained solid at 97.1% in the third quarter. Our average in-place net rental rate in Q3 stood at just over $24.50 per square foot, which is an all-time high. During Q3, we renewed approximately 550,000 square feet across 146 spaces. Net rental rates in year 1 of the renewal terms averaged $27.41 per square foot representing a year 1 renewal rent increase of over 13%. Approximately 3/4 of our renewed leases in the third quarter included contractual rent escalations throughout the renewal terms. This resulted in a renewal lift of over 18% when comparing net rents in the last year of the expiring terms to the average net rent during the renewal terms. In addition to renewal leasing, we also completed approximately 150,000 square feet of new leasing at FCR share across 55 spaces. Leasing continues to be very strong. We own great assets and our leasing team's deep understanding of the strong fundamentals for our product type which I discussed in detail last quarter, positions them well to capitalize on countless opportunities for rent growth. We continue to have confidence that these market dynamics provide a very long runway for accelerated and sustained rent growth for our portfolio. We're now just over halfway through our 3-year strategic plan that we presented to our investors at the beginning of last year. At its heart, the plan is focused on delivering on 3 primary investor objectives: stability and consistent growth in FFO per unit, growth in NAV per unit and absolutely stable, reliable monthly cash distributions to our investors and growth in those distributions over time. The business continues to perform exceptionally well. So we remain on track to achieve the operating FFO per unit growth and debt-to-EBITDA metrics that are the core premise of our 3-year plan. Through the first 21 months of the plan, our operating FFO per unit CAGR, excluding several positive but nonrecurring items, is approximately 5%. We're tracking ahead on OFFO. Our debt to EBITDA has improved to the low 9s and is on track to improve further throughout 2026. We're very pleased with our results to date. And with that, I will now pass things over to Neil to expand on them. Neil Downey: Thanks, Adam. Consistent with our usual practice, we also have a slide deck available on our website at www.fcr.ca. And in my remarks, I'll make a number of references to that presentation. So let's start with Slide 6. FCR generated operating FFO of approximately $72 million during the third quarter. This compared to $73 million in Q2 2025, and it was down from $77 million in the third quarter of 2024. The prior year results were elevated by the recognition of an $11 million density bonus, which was included in interest and other income. On a per unit basis, Q3 2025 OFFO was $0.33. This was down very slightly from Q2, and it was 7% lower than the $0.36 earned in the third quarter of 2024. Excluding the 2024 density bonus income of $0.053 per unit, the FFO growth rate was 9% during the quarter on a per unit basis. So once again, we characterize the Q3 results as being very strong, with same-property NOI growth as the key driver. Now turning to net operating income specifically. Same-property NOI, excluding bad debt expense and lease termination fees was $111 million in Q3. This represents 95% of total NOI. The year-over-year growth was 6.4% or $6.7 million relative to approximately $105 million in Q3 2024. Results for the quarter also included $900,000 of lease termination income. We currently expect upwards of $1 million of additional lease termination income in the fourth quarter of this year. On a year-over-year basis, the NOI loss from dispositions was approximately $1.6 million. This relates to property sales totaling $174 million from Q4 of last year through to the end of the third quarter of this year. And finally, within other non-same-property NOI, there's a $1.3 million year-over-year decrease. $1.2 million of this amount relates to lower straight-line rent. Further down the FFO statement, interest and other income of $5.4 million was $2.5 million lower year-over-year. This is due to lower interest income on cash balances. And it's really a function of timing in the prior period. FCR carried more than $400 million of cash in the early part of the third quarter of 2024. This was in preparation for funding a $300 million debt maturity. Moving on to general and administrative expenses, which were $10.2 million. This was a 4% decline year-over-year. We've carried a handful of vacant positions this year, and we've been very focused on containing discretionary expenses. Turning to Slide 9. It summarizes the 9 months results. And here, we generated same-property NOI growth of 6%, excluding lease termination fees and bad debt expense. We expect a solid finish to the year, and as such, we believe FCR can deliver 2025 same-property NOI growth of at least 5%, which is ahead of prior expectations. Slides 8 and 9 cover key operating metrics, most of which Adam has already touched upon. And really, the theme remains quite consistent through the third quarter with continued and broad strength across our key occupancy, leasing velocity, leasing spread and rental rate metrics. Slides 10 and 11 look at various distribution payout ratio metrics. During Q3 and on a year-to-date basis, FCR's FFO and AFFO payout ratios are running in the high 60% range and the mid-80% range, respectively. Advancing to Slide 12. The REIT's September 30 net asset value per unit was $22.29. This is an increase of $0.09 from midyear and it's a year-over-year increase of $0.37 or about 2% from $21.92 at September 30, 2024. The NAV change during the quarter included a very small net fair value increase of $1 million. Now for a bit more context, beneath the surface of this net number, FCR recorded total fair value increases of $68 million related to higher NOI and cash flow assumptions. These principally related to our core multi-tenant grocery-anchored shopping center portfolio. There was also a fair value increase of approximately $8 million in the quarter related to the mark to sale price of our Anjou development site, which was sold during the quarter and 1 small other asset. These fair value increases were largely offset by $75 million of fair value losses. And really behind the losses were 2 themes: these included lower valuations for residential development properties in the Greater Toronto area and lower values for certain operating multi-res properties where market rental rates continue to be a bit soft. Turning to capital investments as outlined on Slide 13. In the third quarter, $57 million of capital was invested into the business, bringing the 9-month to-date number to $160 million. Q3 capital investments included $43 million of development-related expenditures and $14 million of leasing costs and CapEx into the operating portfolio. The most significant development expenditures during the quarter related to our Yonge and Roselawn development, the Humbertown Shopping Center redevelopment where Phases II and III are advancing nicely and our 1071 King project. It was a fairly quiet quarter on the financing front, as summarized by Slide 14. On July 31, we repaid the maturing Series S debenture, which has a principal amount of $300 million and an effective interest rate of 4.2%. The cash resources for this repayment had been raised in mid-June through the issuance of a $300 million Series E debenture. We and our partner also financed the Whitby property with a new 5-year $38 million mortgage having an effective rate of 4.7%. This financing provided cash to First Capital of $19 million. Slides 15 through 17 summarize some of the key credit metrics and the REIT's debt maturity profile. FCR is in a strong financial position. The business ended Q3 with more than $650 million of liquidity in the form of cash and availability on the 3 revolvers. The unencumbered asset pool had a total value of $6.4 billion, equating to nearly 70% of total assets and the secured debt to total asset ratio was a low 16%. FCR has only 1 debt instrument maturing in Q4 which is at the $11 million share of a mortgage on Amberlee Shopping Center located in Pickering, the maturing debt has an interest rate of 6.2%. And this Friday, we'll be up-financing the property with a new $30 million 7-year mortgage of which FCR's share is 50%. The interest rate roll-down will be approximately 200 basis points and even though there will be only a small savings in our total interest expense, FCR will generate $4 million of cash proceeds from the up-financing. Now before wrapping up my prepared remarks today, I'll make a few comments related to the upcoming special meeting of unitholders. The meeting relates to a planned internal reorganization that will simplify First Capital's structure. During the quarter, we recorded approximately $2 million of restructuring and advisory costs. And in the fourth quarter, we currently expect to incur roughly $3 million of additional costs related to the planned internal reorganization. These costs have and will be grouped with other gains, losses and expenses, and as such, they're excluded from operating FFO. In terms of time line, on October 1, the REIT Board of Trustees unanimously approved the proposed reorganization. Last week, on October 27, we announced the special meeting date which is Monday, November 24, and the meeting materials were also mailed to unitholders last week with those on record as of October 20 being entitled to vote. This is a reorganization that FCR's tax team and advisers have been working on for many months. It will be completed by way of a plan of arrangement under the Business Corporations Act Ontario with an effective date of November 30. So what does this all mean. Well, in layman's terms, the effect of the arrangement will be to flatten and simplify First Capital's organizational structure. The reorganization will be accomplished through a series of steps that ultimately see the elimination of First Capital Realty Inc. as the REIT's wholly owned subsidiary that owns directly and indirectly all of the FCR property portfolio. First Capital has received an advanced income tax ruling from the Canada Revenue Agency in connection with the steps of the arrangement. The arrangement will not result in a change to FCR's overall strategy, portfolio or operations, and there's no change to FCR's outstanding units. They continue to trade on the TSX, same ticker symbol, same CUSIP number, current FCR unitholders continue to own the same number of trust units they held before the arrangement, and there will be no direct tax consequences at the time of the reorg. Having said this, there are several key benefits from the arrangements, including, number one, simplification. The arrangement is expected to simplify First Capital's operating structure and reduce the significant complexity of legal and accounting and reporting as well as income tax compliance inherent in the existing structure. Part of the simplification will include the alignment of tax years across the REIT's subsidiary LPs, trusts and corporations. Secondly, tax efficiency. Post reorg, FCR will become a full -- fully flow-through entity holding its interest in the underlying trusts and LPs directly. This will allow income to pass to unitholders in a tax-efficient manner into perpetuity. And in this regard, the elimination of FCRI as the principal corporate subsidiary, means that substantially all of FCR's $740 million deferred tax liability will be credited to unitholders' equity through a deferred tax recovery in the fourth quarter of this year. And the third benefit relates to unitholder taxation. Beginning in 2026, cash distributions to unitholders will mirror the income profile of FCR's underlying real estate business. Since converting to a REIT in 2019, distributions to date have been effectively 100% taxable. Future distributions, however, will include taxable income but we also expect there will be some periodic capital gains distributions, which are only 50% taxable as well as a tax deferred return of capital component within the regular distribution. Any return of capital, of course, is not taxable upon receipt by unitholders. Instead, it reduces the investors' adjusted cost base in the units and therefore, defers the taxation until the future sale of those units. We, the REIT's executive leadership team, have a meaningful amount of our investable net worth in FCR units. We're financially aligned with investors, and we're very enthusiastic about the benefits of the reorganization. So this concludes my prepared remarks. I'm now pleased to turn the session to Jordi to elaborate further on FCR's recent investing and related activities. Jordan Robins: Thank you, Neil, and good afternoon. Today, I will update you on our investment, development and entitlement activities. Starting with dispositions. During the third quarter, we closed or entered into binding agreements on 3 properties with gross proceeds of $39 million. The most notable of these sales was Place Anjou, a 4.7-acre site in Montreal's East End with 2 freestanding retail buildings totaling 52,000 square feet of GLA. The $33 million sale of this future residential development, which closed in July represented a 30% premium over our IFRS value and equated to a mid-2% yield based upon income in place. During the third quarter, we also entered into a binding agreement to sell a property we own, located on [indiscernible] in Montreal. This is an IPP site tendered by an Avis car rent location. At $4.5 million, it's a small transaction of a nonstrategic FCR asset, but at a 3.4% yield on its income in place, it's a logical and an accretive sale. Closing is scheduled for December 2025. We are active on several other dispositions, and we will update you on these files as they advance. On the acquisition front, we completed the purchase of a 50% interest in an 18-acre vacant and unimproved development site located in the Ottawa suburb of Canada. Capitalizing on the property's 2 existing signalized access points and its strategic location within a major retail node, we plan to develop a large retail shopping center site. Turning to development. Phases 2 and 3 of our modernization and expansion of Humbertown Shopping Center continues. On September 30, Loblaws, whose store sits in Phase 2 of our redevelopment took possession of their renovated and enlarged 34,000 square foot premises. They anticipate opening in Q2 2026. Phase 3, which includes a newly created 20,000 square foot Shoppers Drug Mart and the Scotiabank along with a number of other to-be-announced tenants are on target for completion in the second half of 2026. On completion of the redevelopment, we will have added a total of 23,000 square feet removed all of its enclosed common area and Humbertown will look and feel like a brand-new grocery and pharmacy-anchored shopping center with anchors in ideal formats paying market rents. Looking at the associated financial returns, we will have invested approximately $45 million on this redevelopment and will generate an unlevered return that exceeds 7%. We are also redeveloping a small property that we own in Calgary, The property is located in Bridgeland, a very desirable and gentrifying neighborhood close to Downtown Calgary. The new building will be entirely occupied by Shoppers Drug Mart with a turnover scheduled in Q4 of 2025 and their opening is slated for Q2 2026. We currently have other opportunities in the planning stages, including the redevelopment of several other shopping centers. We look forward to providing in detail on this redevelopment work in future quarters. Our active mixed-use developments continue to advance as well. At Yonge and Roselawn, we remain on schedule and on budget. We own 50% of the 636-unit residential rental building with 65,000 square feet of prime retail space and serve as its development manager. The second floor slab will be completed this month and formwork is progressing to the third floor. 82% of the project costs are now awarded. Construction of our 1071 King Street West development project in Liberty Village also remains on schedule and on budget. Formwork for the 11th floor slab is underway and precast and window installation is also underway. You'll recall, we own 25% of this 298-unit, 17 story, 225,000 square foot purpose-built residential rental project, including 6,000 square feet of at-grade retail space. During this past quarter, residential occupancy commenced at our Edenbridge condominium development, which forms part of our residential inventory. Possessions have gone very well. To date, 124 owners of the 187 units sold have been given possession with 1 purchaser in the fall. Turning to entitlements. In 2025, we anticipate that we will receive approvals for 2.9 million square feet of incremental density at share. This year, we also expect to submit rezoning applications for a further 1.6 million square feet of incremental density. To date, netting out the density we've already sold, we've submitted for entitlements on approximately 18 million square feet of incremental density. This represents 77% of our 23 million square foot pipeline. As the entitlements are secured and encumbrances removed, we plan to monetize its value through the sale of 100% interest like we did in Montgomery and Anjou or a partial sale to a strategic partner like Yonge and Roselawn. We look forward to sharing further details with you as we advance. Thank you for your time today and your continued support of FCR. And with that, operator, we can now open it up to questions. Operator: [Operator Instructions] We'll take our first question today from the line of Lorne Kalmar at Desjardins. Lorne Kalmar: On the disposition side of things, there was obviously a little bit of progress made this quarter. But there's still a decent amount of wood to chop in 2026. As we sit here in November, I guess, is achieving the $750 million target, and I guess, more importantly, the low 8x leverage target by the end of '26 still feel realistic? Adam Paul: Lorne, it's Adam. Well, short answer is yes. Agreed some wood to chop, always some wood to chop. Just for your reference, one of the things we do, do every quarter is review all of the key metrics outlined in the 3-year plan. And as you saw, I think it was a couple of quarters ago, we had a couple of changes versus what we presented initially and so we updated it. So what you should expect is that if we do expect changes to occur regardless of what they are in terms of the key metrics that we've outlined, we will be updating that on a quarterly basis. So where we sit today we're a little over halfway through the 3-year plan, metrics like same-property NOI, operating FFO tracking ahead of plan. . Our view is debt-to-EBITDA is tracking on track relative to where we thought we'd be, dispositions based on the $750 million, again, a little over halfway through time-wise. Similarly a little over halfway through of the $750 million. We're about $400 million of what's closed or been announced as firm. So yes, the disclosure that we've got out is very current and at this point, we believe we will meet the objectives that we played in. Lorne Kalmar: Okay. Fair enough. And then maybe just sticking with this. I think you guys listed a couple of Yorkville assets not too long ago. Just wondering if there was any update on how investor appetite and how that is progressing. Adam Paul: Yes. So normally, Jordi would answer this, but he's in the middle of a process, like right in the middle of the process. So the only thing we're going to say today about it is exceptionally high-quality assets. We require a significant premium to sell them. Otherwise, we're happy to keep them and grow their NOI and their value but we don't have anything further to report today on those assets. Lorne Kalmar: Okay. Fair enough. And then just lastly on the, I guess, slightly revised same-property NOI target I mean, I guess, 2% next quarter gets you to 5%. Is there anything you're seeing out there that would indicate 4Q would be meaningfully below what you guys been able to do year-to-date? Or are you just erring on the side of being conservative? Neil Downey: Well, Lorne, to be precise, I said at least 5%. So it doesn't have to square up to your 2% interpolation, that's for sure. The bottom line is we perceive very solid results around the fourth quarter. I can't tell you that they'll match the 6% that we've been able to lay down for the first 9 months of the year. But I think you'll -- they'll stack up quite well versus our peers. Operator: Next question will come from the line of Mark Rothschild at Canaccord. Mark Rothschild: And looking at the same property NOI growth, which is clearly strengthened, looking out longer term, I'm not asking for guidance or anything, but how does the slowing population growth impact the type of rent growth you can get at your properties or with the location of your properties? Does it really impact the ability of the retailers to drive sales growth and pay higher rents? Adam Paul: Mark, thanks for the question. Short answer is no. The main reason is that from our lens, the fundamentals that we have today are underpinned by 7 to 8 years of activity. And over those 7 to 8 years, we have seen a significant increase in the population within the trade areas of FCR properties and we have seen almost no supply of our product type during those 7 or 8 years to service those -- that growth in customer base for our tenants. And we've gone through a period now where sales across our tenant base have grown at a higher rate as a result of inflation and just as importantly, across our tenant base, the general norm is that profit margins have been protected. And so that means that every store we have is making more profit than it used to meaning they can afford to pay more rent than they used to. So we believe that what's going on now with respect to store expansion is a catch-up phase over the last number of years. And so I can tell you discussions, live discussions with tenants today are very robust. And just as optimistic and aggressive as they have been over the last several quarters. So we see a lot of future runway for sustained growth. notwithstanding the change in the federal government's integration policy and what the impact will be on population, and we're looking forward to capturing the benefit of that opportunity. Operator: Next question comes from Sam Damiani at TD Cowen. Sam Damiani: Just on the renewal spreads in Q3, a little bit moderated from the record piece in Q2. Was there anything different or anything that was unexpected, surprising in Q3 that led to that result? And I guess a similar question in terms of how you're thinking about Q4 and 2026 leasing spreads. Is there anything idiosyncratic that might impact the average in any given quarter or next year? Adam Paul: Yes. Thanks, Sam. So look, posting up 13.5% year 1 renewal spreads north 18% blended. We're thrilled with that. That works very well for our business. So we wouldn't view it as moderated. As you know, our long-term average is lower than that. So I feel like we've kept pace with the trend that's been established over the last several quarters. So very happy with those results. And yes, generally, we expect above average -- certainly above our long-term average, continued growth. Touching on 2026 expiries, so there's nothing out of the norm with the exception that in most years, we have a small amount but an impactful amount of very low rent space that's maturing, call it, single-digit net rent space, most notably occupied by Walmart. And so if you look at our 2026 expiries, well, I guess if you look at our 2025 expiries and where they were heading into the year, what you saw was an average rent expiring at about $22 a square foot. If you exclude that low rent space, I'm talking about like the Walmarts, it averaged about $27 a square foot. And so that's kind of the -- that's the baseline for where we're delivering these low double-digit renewal spreads. If you look at 2026, our average expiring rent is about $27. We view that as a very normal year. And the reason it's normal is that we don't have any Walmarts expiring in 2026. So other than that nuance, which I know last quarter, 1 of your peers asked a question about it. And so we wanted to take the opportunity to more directly answer it. But other than that, we expect a very normal expiry year next year. Sam Damiani: Okay. Great. That's helpful. And last 1 for me, just on Deidsbury Road in Ottawa. I meanJordan, if you can provide little bit of color about what you're planning to build there, what kind of leasing interest you have already and zoning and credit line approvals in place are expected to be so... Jordan Robins: Sam, thanks. In terms of what we're planning to build, I touched on it a bit in my formal remarks. It's, call it, a conventional unenclosed shopping center at this stage with respect to tenancy, very preliminary. We've had interest based on a very small period of time for which we've owned the asset. We've got some planning work to do and in that regard, we'll keep you posted as advances, but we like the site a lot and we like where it's located. Adam Paul: Yes. The only thing I'd add is a $10 million for 18 acres, we've got a lot of optionality. Operator: We'll hear next from the line of Mario Saric at Scotiabank. Mario Saric: I wanted to stick to the leasing discussion, commented, we just talked about 26. 'And if I may, I know '27 is quite far out there, but you do have 14.5% of your total GLA expiring in '27. I was curious if there was anything within those maturities. So that may be a bit anomalous with respect to kind of low rent renewals, any known vacancies, anything kind of any idiosyncratic that may drive a blended lease spread that might be different than what you've been doing over the past 12 months. Adam Paul: Yes. Thanks for the question, Mario. So short answer is no. Nothing different as we look ahead other than what I mentioned. We don't have any really low rent, but Walmart spaces expiring next year, which when you park that aside, we look at it as a normal expiry year, no major tenants that we believe are going vacant. Strong, strong leasing environment. So happy to lease space. Certainly hope there is a little bit of turnover, the rate turnover, which is what we expect. Wouldn't read too much into 14.5% expiring in 2027. That's not abnormal looking out this far. I can assure you that in a year's time, we will not be having 14.5% of our space maturing in 2027. Some of that is already under negotiation. But we typically have between 10% and 15% maturing in any given year. And certainly from our perspective, when we look 2026, 2027, we don't see anything out of the norm, and we expect to continue to benefit from a very strong leasing environment. . Mario Saric: Got it. Okay. And then, Adam, I think you mentioned 75% of leasing completed this quarter included contractual annual escalators. If we sit back and look at the entire portfolio today, and that number has been increasing over the past couple of years for your entire portfolio today, if we were to exclude NOI growth on blended lease extensions or lease spreads, just the contractual rent growth in the portfolio today, what would that amount to from a same-store NOI perspective? Adam Paul: So I'll have Neil address that one. But just for clarity, what I said in my prepared remarks is 75% or 3/4 of the renewed leases have embedded contractual rent steps throughout the renewal term that does not necessarily mean every single one of them has an annual step. Neil? Neil Downey: Yes. So Mario, you can look at the business as having a contractual growth rate between 1% and 1.5% of the NOI line. And that's generally been the historic range. And I would say today, we're gradually gravitating towards the higher end of that bound. Mario Saric: Okay. Great. And my last question, just with respect to the 3-year plan that you announced that you're executing on, at what stage can we expect a 3-year plan to be rolled forward to include 2027? Neil Downey: Well, we're in year 2 too, yes. Yes, no, you're not the first person that's asked us that. So we're -- and we appreciate people are eager to look that far ahead. From our perspective, from what we're prepared to talk about right now is the fact that we're in -- we're still in our second year of the 3-year plan. And we very much look forward to addressing the investment community and the analyst community with where we're heading beyond 2026. It will be -- we will do that during the final year of the 3-year plan and likely during the first half of that year. So sometime in the early to mid part of next year. Operator: Our next question comes from the line of Pammi Bir at RBC Capital Markets. Pammi Bir: Just with respect to -- from a development standpoint, can you remind us how you see development spending through 2026? Neil Downey: Yes. So the way you should look at it is that we are on track for roughly $160 million, give or take, this year. And we have laid out in our 3-year plan, the total number that we expected for the 3 years. So I think from that, you can do a pretty simple rough plug, if you will, for 2026. And more specifically when we come out with our fourth quarter results in February. At that point, we'll be in a position to give you, I'll say, more targeted views on our expectations for the calendar year. Pammi Bir: Okay. That kind of leads into my next question, which is around capitalized interest as some of these developments are delivered as part of that 3-year plan, including the condos, not sure if you're prepared to provide any sort of visibility on what the capitalized interest should trend down to in 2026. Neil Downey: Well, candidly, I don't have those numbers at my fingertips, which I hope that doesn't surprise you. But I would say in very generic modeling terms, you could probably decapitalize interest through a -- proportionate to the value space that's delivered. So I think that's a simple way to think of it. And that's rather -- that's agnostic to whether it's residential inventory being delivered or its investment properties being delivered. Pammi Bir: Okay. And then just lastly, on Edenbridge, it sounds like the closings are going quite well. I think you mentioned only 1 default if I heard correctly. But are you anticipating sort of that pace to pick up over, I guess, from what we've seen in the last, I guess, through or what we'll see through Q4 and into 2026? Jordan Robins: When you say pace to pick up, you're referring to the default? Pammi Bir: Yes. I think you said -- I can't remember the exact number in terms of closing. Jordan Robins: It was one. Yes, it was one. Pammi Bir: Yes, only one default. Jordan Robins: I would say, Pammi, this is Important to point out like this is an entirely owner-occupied building. The majority of the buyers have to live in the neighborhood today. They love the neighborhood, they want to stay in the neighborhood. We've sold, as I think I mentioned, 90% of the 209 units to date. And we expect that no major deviation from the pace that we've experienced certainly based on the first 124 deliveries. Neil Downey: Right. So those suites will continue to be delivered through year-end and into early Q1. And at that point, we'll have a closeout process where we turn ownership or time over to the owners and we effectively book the sales. So that's the way to think about the 90% that's sold, Pammi. Pammi Bir: Got it. And then just lastly, on 400 King West, I think some of those closings should start next year as well. Is the assumption there that based on what you see today, I guess it might be early, but that the default rate would be similarly low there? Or is that less owner occupied? Jordan Robins: Ami, it's Jordi again. Yes, I would say that building is, in fact, less owner occupied, I would say it's more, call itconventional. That being said, we've sold 97% of the units there, we have sold the majority of those units before really pricing peak. So we feel pretty good about its prospects going forward. I would suggest the default rate there will likely be higher, but it's not something that we're especially concerned about . Adam Paul: Well, it can't be lower. Operator: We'll move on to the question from Matt Kornack at National Bank Financial. Matt Kornack: Just wanted to quickly turn back because presumably in the '25 remaining lease amount, there is either a Walmart or a similar type tenancy in that figure. Is that subject to a fixed renewal rate? Or would that go to market in the remainder of the year? Or is it going to [indiscernible]. Adam Paul: You're talking remaining 2025 lease expiries? Matt Kornack: Yes. Adam Paul: Yes, there's no major fixed rate flat option, if that's what you're asking. Matt Kornack: Okay. So that you could have a pretty sizable spread then if you're getting 20% -- high 20s versus the 18% that's maturing? Neil Downey: Correct. Yes. I mean, Matt, the only thing I would say is, as you get into the final quarter or any individual quarter, of course, the sample size is smaller. So a 40,000 square foot space is more impactful than 100,000 square foot space on a 12 month of inventory roll. Matt Kornack: Fair enough. And then I guess, just in terms of the building blocks, we understand lease renewal spreads, your retention rate is very high. You're getting more of these annual rent escalators in the blend. But is there anything that you're gaining on kind of efficiencies, recoveries or anything tangential to that, that would boost the NOI growth a little bit again on the margins probably not that much, but.. Adam Paul: Yes. Well, it's something that our leasing team has been very focused on for quite some time, and they've done a great job over the last couple of years of anywhere between 50 and 100 leases where the recovery methodology has been less than proportionate share, and they've taken it generally to proportionate share which did not come through our lease renewal rates, that's strictly on net rent. So One of the things that is now cumulatively starting to augment the NOI growth is just better tenant recoveries on operating costs. I don't have the numbers to quantify specifically where you would put it to the building block, but it's starting to chip away and make a contribution. Matt Kornack: Okay. Interesting. Last 1 for me. I mean we've heard kind of land values in Toronto, Vancouver, under some stress, given the condo market. When you look at transactions today or other people look at assets, how are they thinking about the value of density at the end of the day versus obviously, at an implied cap rate where you are, that's probably the value of the retail, but does it make sense to sell if in the future density is going to be worth a lot more. Adam Paul: Well, if we had a strong view on that, the answer is no. We wait to sell when it was worth a lot more. Jordi and his team have done a great job in a really tough market. to sell density in Montreal and Toronto at prices that we're very comfortable with and obviously don't feel like we're leaving a lot on the table. This has never been a fire sale. And if you look at our premium to net asset value on the stuff we've sold, it's been remarkable. It's been much better than we expected. And so we'll continue to take that disciplined methodical, tactical approach. And we own great real estate, even though we're selling it, we still understand the quality, and we will make sure we sell it at the appropriate time for the appropriate price. Operator: Our next question today will come from Mike Markidis at BMO Capital Markets. Michael Markidis: Quick question for me, technical in nature. Apologies. Just on Eden Bridge, I guess you're starting to residents are in occupancy, but you're not looking any inventory gains that might be in contrast to what we've seen elsewhere. Just to confirm, I guess, 2 questions on me, you won't book inventory gains until you register the units as condos [indiscernible] and number two, is with respect to Pammi's question on the decapitalization. Is there construction lines tied to that project and has, of course, effectively pay that down and therefore comes in the point. Neil Downey: Okay. Well, the short answer is yes and yes. So we will look at as closings, and therefore, the residential profit, if you will, will occur at the time of closing in Q1. And there's a significant cash repatriation from those sales processes, of course, but a lot of that goes directly to pay the construction loan. Now as you know well, Mike, the market doesn't do a particularly good job of differentiating debt within our capital stack. In other words, it treats a construction loan on a condominium project the same way it treats an unsecured debenture that's been used to finance the income portfolio. So if we pay down the construction loan, our net debt balance decreases. Michael Markidis: Right. Okay. No, I got that. And then can you just remind me from a -- just from a time to how you're going to report for consensus and all that fun stuff. Are you going to book the condo gains in OFFO? Or are you going to exclude it from OFFO? Neil Downey: A good question. So it will be included in OFFO. But importantly, we benchmarked ourselves in terms of our 3-year plan to OFFO prior to any condominium profit. So that was the baseline on which we gave that 3-year guidance of average annual -- or growth averaging at least 3% in FFO per unit was excluding any condo profits. Operator: And also, we'll take a follow-up from Lorne Kalmar. Lorne Kalmar: Sorry for having to get back in here. I just had 1 quick follow-up on Toys "R" Us. There's been a lot of chatter about a potential bankruptcy there. Just wondering if you've taken any provisions related to them and if you have plan if you do, in fact, get the space back. Jordan Robins: So we really -- it's Jordi by the way, Lorne. We don't have anything to add, but what's really in the pump of domain. Our exposure to toys is really small, represents just under 0.4% of our rent. We had previously sold Anjou, which had toys in it. They recently closed another space that we own half of. So we have 2 remaining Toys locations, and they're current in their rent at both. Toys really in both these cases, pays below market rents, and they're located in very high demand centers, 1 in Toronto, 1 on Island in Montreal. We feel, to the extent we get them back, very confident about our ability to backfill them. And really, in the case of the Montreal property, it lends quite favorably to a grocery store, and we expect we'd be focused on that opportunity in particular to the extent this space does come back. Operator: Ladies and gentlemen, that was our final question in the queue for today. I would like to thank you all for taking time to join today's First Capital REIT's Q3 2025 Results Webcast and Conference Call. We thank you all, and we hope that you enjoy the rest of your day.
Operator: Good afternoon, and welcome to the conference call of Fresenius Investor Relations, which is now starting. May I hand you over to Nick Stone, Head of Investor Relations. Nick Stone: Thank you, Valentina. Hello, everyone. Welcome to our year-to-date and Q3 earnings call and webcast. The presentation was e-mailed to our distribution list earlier today and is available on fresenius.com. On Slide 2 of the presentation, you'll find the usual safe harbor statement unless stated otherwise, we will comment on our performance using constant exchange rates or CER. Today, I'm delighted to be joined by Michael and Sara, who will take you through the EBIT guidance raise and the disciplined execution that drove the continued performance this quarter. As usual, the call will last approximately 1 hour with a presentation taken around 25 to 30 minutes with the remaining time for your questions. To give everyone a chance to participate, please limit the questions to 1 to 2 only. We can always come back for a second round, if needed. And with that, I will now hand the call over to Michael. Michael Sen: Yes. Thank you, Nick, and welcome to everyone joining us on a very, very busy day. Exactly 3 years ago, we hit the reset button and then embarked on a new strategic and transformative journey to deliver a step change in performance with what we call future Fresenius. This transformation was about simplifying our structure, sharpening our focus and instilling a performance-driven mindset. But it wasn't just about operational changes. It was about rebuilding the portfolio, reshaping our culture and fostering accountability, a cultural power driving us forward. Fast forward to today, and we have started the next phase, Rejuvenate. This has kicked off with great traction and focus and will guide us for the next few years. This phase is all about upgrading the core, scaling our platforms and as a result, elevate our performance to deliver profitable long-term growth. This means, in essence, bringing new products and innovations to market, focusing on the needs of patients and customers and infusing fresh energy into our leadership and management teams to deliver further value, expand ecosystems and create more opportunities for the company. At the start of the year, we committed to delivering incremental revenue and earnings growth through new products and services, and our performance year-to-date demonstrates our continued momentum. Future Fresenius continues to deliver. I am pleased to share with you yet another strong quarter driven by the resilience and consistency of disciplined execution across Kabi and Helios. Despite ongoing macroeconomic volatility and geopolitical tensions, we have maintained transparent market communication our adaptive and focused strategy has proven effective in navigating these challenges. Now let's turn to the third quarter highlights. After an excellent start to the year, I'm pleased to announce that following the Q2 organic revenue guidance upgrade, we're now raising our full year EBIT growth guidance from 3% to 7%, to 4% to 8%. The upgraded guidance represents the success of our future Fresenius strategy and is based on the excellent momentum we have seen year-to-date. Encouragingly, we see sustained strength in our bottom line with core EPS growing by an impressive 14%, significantly outpacing top-line growth. This performance reflects strong market position and top-line growth yielding margin expansion, and we expect this momentum to continue. Kabi is an ongoing key driver of our profitability, achieving an excellent 16.7% EBIT margin. We see broad-based performance across all Kabi segments with particular strength from newly launched products and continued pipeline progress, particularly in our IV generics and biosimilars. Great job by the team. Helios delivered another good quarter, maintaining a solid EBIT margin, demonstrating the resilience of its operations. In addition, based on the strong cash flow delivery in the quarter, we are now back in our self-imposed target corridor that we have tightened at the beginning of the year. Now let's take a closer look at our core businesses, starting with Kabi. In pharma, we have further focused and simplified the business with the successful divestment of the Calea Home Care business in Canada. In the U.S., I am pleased Fresenius was recognized for supply and service excellence. These recognitions demonstrate our unwavering commitment to ensuring supply continuity for essential medicines and technology. It also recognizes the more than $1 billion we have invested over the several years to strengthen our capabilities and support for the U.S. health care system. We will continue with U.S. investment to support the health care system to deliver affordable and life-changing medicines for patients. In Nutrition, we continue to enhance our globally leading portfolio and strengthening our position in this fundamentally attractive market through innovation and differentiation. In Q3, we delivered 3 new product launches focused on patients with high energy and protein needs in MedTech, we announced our leadership of the EASYGEN consortium a collaboration with industry and academia aimed at accelerating CAR-T cell therapy manufacturing reducing costs and improving patient at across Europe. This initiative underscores our commitment to advancing cutting-edge therapies and technologies. Now turning to biopharma. Again, we are increasing sales quarter-over-quarter as more medicines launch into key markets. For denosumab the key milestone was achieved with a CMS issuing permanent and product-specific billing codes, the HCPCS Q-codes. This is an important step forward in expanding access to high-quality biologic medicines, while driving broader adoption and ensuring more patients benefit from these innovative cost-effective treatments. Another major milestone was the first delivery of Tyenne vials to European countries from our Map Science plant in Argentina. We have now largely completed the technology transfer delivering a fully vertically integrated supply chain and manufacturing platform to support Cayenne. This marks a step-up upgrading our core to deliver efficiency and increased capability showcasing the benefits of a vertically integrated platform. All these advancements underscore our commitment to patients around the globe to deliver accessible, innovative and high-quality health care solutions. Kabi remains at the forefront of innovation, operational excellence and patient care. Now let's take a closer look at our resilient and a very strong foundation. Our highly cash-generative pharma business continued to deliver strong and stable performance. Year-to-date, we have successfully launched 12 products with a total of 15 launches expected for the full year. As part of Rejuvenate, we are further optimizing our cost of goods sold, streamlining our network and strategically investing to further scale this high-margin platform. With a globally leading portfolio and a local for local approach, we deliver essential medicines to patients worldwide. In the U.S., we supply 70% of the FDA's essential medicines list underscoring our critical role in health care in the U.S. with stable organic growth, highly accretive margins and an attractive cash generation, pharma remains a strong contributor to our balance sheet and a profitable foundation for sustainable long-term growth. Now double-clicking on biosimilars, we continue to see strong growth momentum, really strong growth momentum. Last year, the business reached EBIT breakeven, marking its transition into a scalable, fully operational platform. With Map Science, we have built a robust development and manufacturing platform, demonstrating our ability to quickly advance molecules from development through regulatory approval and into the market. Our biopharma franchise has now 11 products launched and marketed globally. As previously outlined, a key advancement of biopharma is the integration of Map Science to deliver a dedicated development and manufacturing platform, including contract manufacturing. For biopharma, we will continue to upgrade the core and scale the platform to deliver further simplification and drive increased efficiencies as we strive to become a global leader. Now let's look at some of our recently launched medicines or molecule, starting with Tyenne, our tocilizumab biosimilar, we continue to make great progress leveraging our first-mover advantage. We continue to see excellent market share growth development, which is supported by multiple PBM and health plan contracts, many of which are exclusive. Turning to Otulfi, our ustekinumab biosimilar, we anticipate incremental sales in Q4 following our exclusive U.S. distribution agreement with CivicaScript. As for our denosumab, we already achieved sales -- little sales in Q3. This is the only biosimilar to offer a subcutaneous 120-milligram prefilled syringe for oncology indications delivering a key differentiation from even the originator and competitors. This product profile really strengthens our competitive position. In addition, we are pleased to have recently received FDA interchangeability designation for both denosumab products. This allows the medicine to be dispensed at the pharmacy as a substitute for the reference product, creating greater access patient and health care professionals. Also the FDA's recent draft guidance aimed at streamlining the biosimilar approval process and broadening interchangeability designations in the U.S. is a promising development for patients and payers. But it may have not fundamentally changed the existing framework, we see this as a further support for market growth and expect the U.S. biosimilar landscape to continue evolving positively. For the remainder of the year and into next, we expect the portfolio momentum to continue as contracting agreements convert into prescriptions so watch this space. Over the past 2 years, what we labeled as in growth factors, they have delivered an impressive 37% EBIT on a CAGR basis and year-to-date, we've achieved an exceptional 18% year-over-year EBIT growth. This performance is underpinned by new products and new innovations, which we will continue to upgrade and scale as part of Rejuvenate. The growth vectors are performing in line, if not even better than initially envisioned when we launched Future Fresenius. Not only are they driving accelerated top-line growth, but they are also significantly advancing our margin profile. At the same time, our structural improvements to the cost base continue to support margin expansion. The growth vectors, the key drivers behind Kabi's elevated profitability, while our established pharma portfolio remains a strong, resilient and profitable foundation. Looking ahead into 2026 and beyond, we expect this positive trajectory to continue key drivers here are the increasing contributions from biopharma, sustained product momentum and upcoming innovations in Nutrition, the step up in MedTech profitability, all underpinned by our resilient pharma business. Now let's turn to the Q3 highlights in our care provision platform, Helios. Overall, the German reimbursement environment continues to be, by and large, supportive. However, for 2026, the projected DRG inflator is anticipated to be approximately 3%, which is lower than initially expected due to a methodology change that favored the lower parameter versus the corridor of the 2 parameters previously used. This new percentage is broadly in line with the historical median. The onetime invoice surcharge 3.25% with public insurance is an encouraging development. It is effective between November 1, 2025 and October 31, 2026, and is a clear positive supporting several years of previous hospital cost inflation. We continue to remain optimistic about government reimbursement in the coming years, even though recent events would seem to prioritize rather fiscal over health care policy. At Helios Germany, we remain committed to advancing medical innovation and improving patient outcomes. For example, in Berlin and [indiscernible] in lung cancer centers are pioneering the use of innovative robot-assisted bronchoscopy system. The cutting-edge technology enables earlier and more accurate diagnosis, often unlocking opportunities for life-saving curative treatments, making or marking a true paradigm shift in pulmonology. In Spain, Quirónsalud continues to demonstrate its strong focus on research and innovation. With 285 new clinical trials initiated year-to-date, including 159 in Phase I and Phase II. This just reinforces its position as a leader in clinical innovation with a best-in-class health care professionals in state-of-the-art hospitals we remain the top choice for patients seeking exceptional care. I'm excited by our continued EPS momentum through structural cost savings we laid the foundation for transformation. Now in Rejuvenate, we're building on that strong foundation by upgrading the core, scaling our platforms and elevating performance to drive long-term profitable growth. Productivity is no longer just about cost side. It's fueled by growth, new products, innovation and serving the market. The results speak for themselves from minus 13% EPS growth in fiscal '22, we hit the reset button to double-digit growth today. The transformation has been, I would say, remarkable. My [indiscernible] should be very proud, and we are 1 team, and I would like to say thank you to our entire team. In the year-to-date, EPS increased by a powerful 14%. This is impressive and has been driven by the continued execution of our future Fresenius strategy, further operational progress and a benefit from reduced interest expenses. Our strong EPS growth is significantly outpacing top-line growth, highlighting our ability to sustainably improve returns and to deliver shareholder value. We expect this positive trend to continue as we close out the year. The EPS momentum generated by rejuvenate is evident as our growth vectors continue to deliver further profitability improvements. For example, biopharma is gaining significant traction with momentum accelerating going forward. With that, I'll hand it over to Sara. Sara Hennicken: Thank you, Michael, and thank you all for joining. Let's start with our financial highlights. Consistent strong organic sales growth, sequentially increase in EBIT growth and a meaningful EPS improvement. Looking at the top line, Q3 was another strong quarter with 6% organic revenue. Our consistent delivery demonstrates the strength of our business as well as the structural demand for the system critical products and services we offer. EBIT growth was in line with revenue growth at 6% and a nice acceleration from Q2. Kabi's excellent performance has offset the expected and well flagged Q3 effects at Helios. My KPI this year is our core EPS growth. In Q3, we grew EPS by an impressive 14% and achieved another quarter of double-digit growth, making it 2 out of 3 quarters in 2025. 2 effects came into play. Our strong operating results, combined with a significant year-over-year decrease in interest expense of EUR 35 million. Following our Q3 financing activities and with the continued focus on interest expense management, we now expect EUR 330 million to EUR 340 million of interest expense for the full year. Our tax rate for the quarter was 24.7%, in line with our expectations for the full year. The leverage ratio at 3x net debt to EBITDA was within our self-imposed target corridor of 2.5x to 3x. More deleveraging is expected before year-end. Kabi had a strong quarter with a successful and disciplined execution on launch pipeline and rollouts. This resulted in some contributions already materializing in Q3, that were initially only expected in Q4 of this year. Organic revenue grew by 7%, placing it at the upper end of the structural growth range with some additional benefits from pricing effects in Argentina. The growth vectors remain the primary driver of performance. Biopharma in particular, stood out with impressive 37% organic growth. Nutrition delivered 7% growth, demonstrating the attractiveness and structural strength of this business despite the impact of the key to volume-based tendering in China. Pharma sales increased by 2% organically, relative to a strong prior-year base. In Q3, Kabi delivered an excellent EBIT margin of 16.7%. This represents roughly 80 basis points on margin expansion year-over-year, including the absorption of the Keto effect. [indiscernible] contributed to the performance. First, the growth factor significantly expanded their EBIT margin year-over-year to 15.9%, moving close to Kabi structure margin range of 16% to 18%. Second, an excellent profitability at pharma with a margin of 22%. And third, the strong operating leverage due to the disciplined execution and further incremental structural productivity improvements across all business units. Over to Helios. Our hospital business continues to deliver strong organic top-line growth at 5%. Year-to-date, revenue grew by 6% organically, which is at the upper end of the structural growth band. We delivered solid profitability with an EBIT margin of 7.5% despite the loss of energy release payments and the fluctuations in Spain. Year-to-date, the EBIT margin is at 9.1%. At Helios Germany, we achieved solid organic growth of 4%, driven by strong acquisition growth and positive pricing effects, balanced by somewhat lower case mix points. This performance also needs to be viewed against the strong prior year base, which included some favorable technical revenue reclassifications. From an EBIT perspective, margins stood at 8%. And as a reminder, Q3 '24 included the final energy release payment. The performance program is progressing and has achieved over half of the around EUR 100 million target year-to-date. Further significant progress is expected in Q4 with potentially some spillover into next year. Helios Spain achieved strong organic growth of 7%, driven by a favorable mix of activities and pricing as well as a strong performance in the occupational risk prevention business. With operating leverage at work, the EBIT margin in Spain reflects the usual summer dip. Nevertheless, at 6.6% in Q3 and the margin showed a 20 basis point increase year-over-year. Year-to-date, Helios Spain has delivered a strong margin of 11.3%. Moving to our cash flow. Again, a strong performance, especially against the backdrop of a tough prior-year comparison. We continue to deliver on our cash conversion ambition. Operating cash flow in Q3 was driven, in particular, by Kabi, contributing approximately EUR 440 million, a great achievement. Helios delivered a robust and reliable Q3 cash flow of around EUR 330 million despite a very tough prior-year comparisons. Proceeds from our pro rata sale of Fresenius Medical Care shares are included in the cash flow bridge under acquisitions and amounted to approximately EUR 30 million in the quarter. As of today, we have sold approximately 1.5 million shares in conjunction with FMC's ongoing share buyback. ACM cash flow numbers are a testament to the reliability of our cash generation with EUR 2.2 billion in operating cash flow. When considering free cash flow for the last 12 months, note that dividend suspension in 2024 influenced the prior-year LTM number. Over the past 2 years, we have made significant progress in reducing our leverage by approximately 100 basis points. This deleveraging has been a key driver behind the acceleration of our EPS growth highlighting the focus we've tried on cash flow. Deleveraging remains one of our top priorities within our capital allocation framework. At the same time, we are balancing this with targeted investments aligned with our strategic agenda and strict return criteria to upgrade the core and scale our platforms and ultimately, to create value and deliver long-term profitable growth. On the financing side, we adopted a forward-looking perspective and capitalize on attractive market windows. With the successful transactions in September, we proactively addressed our refinancing needs for 2025 and most of the first half of '26. We issued 2 EUR 500 million bonds with attractive coupons and concurrently repaid early a EUR 500 million bond with a coupon of 4.25% maturing in May '26. At the same time, we signed a new EUR 400 million loan agreement with the European Investment Bank, which will be used to support our R&D activities and selective CapEx investments. These activities demonstrate our commitment to managing within our self-imposed leverage corridor of 2.5x to 3x net debt to EBITDA. With that, let's wrap up Q3 and take a look at Q4, where we expect an acceleration of earnings growth. As mentioned, positive phasing effects have helped our Q3 performance thereby derisking the expected acceleration to some extent. At Helios, we expect a further increase in EBIT contribution due to the performance program in Germany. In addition, we anticipate to start receiving the surcharge for publicly insured patients, which came into effect on first of November. At the same time, we expect the usual year-end topics, including reimbursement settlements, which may affect EBIT. The fourth quarter will also reflect a year-over-year comparison without energy relief payment. In Spain, Q4 is typically the strongest quarter of the year, but this is against a tough prior-year comparison. Kabi will continue to absorb the adverse effects from Keto, as well as macroeconomic headwinds, which includes some effects from U.S. tariffs, particularly for MedTech. However, the strong product launch execution combined with our successful productivity measures, has resulted in an excellent EBIT margin year-to-date. The operational momentum is expected to continue. Given this context, we may deliberately decided to make some incremental investments during Q4, such as in R&D. This aligns well with Rejuvenate to upgrade our core and scale our platforms. Taking all of this together, what does it mean for our full year guidance. Following our Q2 revenue upgrade, we're now raising our full-year EBIT guidance. Based on the good momentum and disciplined execution in the first 9 months, we now expect group EBIT growth at constant currency to be in the range of between 4% to 8%. Remember that guidance is at constant exchange rates, adjusted for translation effects. We continue to expect FX volatility in Q4, and if current rates persist, revenue and EBIT will each be adversely impacted by approximately 2 percentage points. In summary, our disciplined execution and strong operational momentum has provided us well for the remainder of the year, with continued focus on delivering sustainable growth, driving productivity and maintaining financial discipline, we are confident in our ability to achieve our upgraded guidance and create long-term value. Thank you for your attention. And with that, I'll hand back to Michael. Michael Sen: Well, thank you, Sara. As we look ahead, Fresenius is very well positioned to seize the opportunities, which also lie ahead with a strong presence in attractive markets underpinned by a robust secular growth trend, we are committed to sustaining our momentum in driving long-term profitable growth and shareholder value. Global macro trends, such as rising health care spending driven by aging populations, the prevalence of chronic diseases and the demand for advanced treatments aligned perfectly with our strength. These dynamics present a unique opportunity for Fresenius to deliver innovative solutions prove patient outcomes, while helping to advance cost-effective health care systems. Our strategy remains centered on being a trusted partner to health care providers worldwide. While we are not entirely immune to external challenges like tariffs or our diversified portfolio and our local-for-local approach provides resilience. Additionally, our strong European hospital business bolstered by Germany's hospital reforms positions us to capitalize on these favorable developments. As Europe's leading hospital provider, we leverage clustering and thereby benefiting from economies of scale, while optimizing our operations and enhance patient care. Beyond scale, innovation is central to our strategy. We are investing in AI and digital transformation to enhance clinical decision-making, streamlined workloads and improve patient experiences. These next-generation capabilities will strengthen our leadership in medical quality and innovation. Our performance in the year-to-date reflects strong execution across our businesses. Fresenius is now a more focused and agile organization ready to capture the opportunities that lie ahead. As focus turns to 2026 and beyond, we are committed to leveraging these strengths to deliver long-term sustainable growth creating value for patients, partners and shareholders. With that, ladies and gentlemen, we'll open up for Q&A. Operator: [Operator Instructions] The first question comes from Oliver Metzger, ODDO BHF. Oliver Metzger: Yes. The first 1 is on Kabi in particular in Nutrition. So surprising was a quite strong performance in Q3. So was the Keto impact just lower than expected? Or has the remaining business performed better than thought? Second question on Helios Germany. So in the market, there's still some consolidation ongoing. And yes, there's always this, let's say, quarterly volatility, but can you talk about the volumes? Do you see still the typical 2% volume growth? Or do you recognize just an uptake due to market share gains as we see plenty of hospitals going out of the market? Michael Sen: Yes. Oliver, let's start with the Kabi question. I could make it easy and say yes, the rest performed and performed much not better, but we were able to demonstrate catering underlying demand. And things have to work on all cylinders. This is what happened -- by the way, even in China, outside the national volume-based tenders, there's still some provincial, some regions left where Keto can be catered. But outside of that one, I mentioned in my speech, 3 new launches worldwide, basically uptick in Europe on an enteral nutrition. But also the U.S., even though it's a low base, but a very strong performance. We started with lipids. Last call, I said we are now adding other things like amino acids and that all yielded to that great performance, which you saw. Sara Hennicken: And maybe I can take the Helios Germany question. So if you look at the picture in Q3, we actually had a very good activity. Activity growth actually was around 7% However, we did see some, let's say, less complex cases within that activity, which means that if you look at it from a case mix perspective and case weight perspective, there was a 4.4% growth for Q3, i.e., above your 2%. Oliver Metzger: Okay. And regarding the market share gains, do you see more volumes apart from case? Sara Hennicken: Market share gains, it's difficult to tell from 1 quarter to another. I think in general, what we see and what we think should be there is a consolidation in the market. We have overcapacity in the market, and we are under focused on quality. So I hope that with the new regulation, we will get more focus on quality, which brings us to our cluster concept and actually hopefully reduces the overcapacity we're seeing and get some kind of productivity into the system as well. Michael Sen: And to maybe add to that one, there is no consolidation opportunity for us. First of all, it doesn't fit our strategy. The second thing is most of the systems or the, let's say, entities, which go out of the system are kind of like broke. Operator: The next question comes from Hassan Al-Wakeel from Barclays. Hassan Al-Wakeel: I will squeeze in 3, please. Firstly, clearly, your guide implies a significant acceleration in Q4. And that has been your consistent messaging year-to-date. But why the wide range with the quarter to go? What are the key pushes and pulls into Q4 and specifically as you head into 2026 on EBIT growth? Secondly, on the strength in Nutrition at 7%. What are the key drivers here as well as for the broader growth sectors, given the strength in growth vector margin, but also underlying Kabi margin despite higher corporate costs in Kabi and, of course, Keto. And then finally, on German hospital reimbursement, the surcharge is clearly 1 way the hospital sector is being supported. But does the lower DRG for '26 leave you concerned about the possibility of a similar DRG inflator beyond next year with no surcharge? Michael Sen: Yes. I think let's start with the last one. I think this is crystal ball. We go 1 year to the other, and there have been -- how should I say, this was a very special political situation, where the German government and especially the Minister of Health, let's put it in my words, was under some pressure to rather compromise on fiscal priority than, let's say, public health topics. So I don't think this is a precursor for the next years to come. On Nutrition that we already alluded to, there's a lot of new products which came to market. And as I said, in China, overall, obviously, the entire numbers have been contracting because Keto was missing, but everything else in all the other regions was firing on all cylinders, especially the U.S. is, again, a small base, but the base keeps growing every quarter. And it will be already a nice pace going into the next year, and it has a nice margin conversion with the 3 chamber bags. And as I said, now amino acids. And next year, there will be more portfolio amendments to the solution we have. And maybe I'll share later on even a great news, which happened in the last couple of days, also positive for Q4, winning a big private research hospital in the U.S. on not only Ivenix pump, but nutrition, dedicated sets and so on and so forth in the U.S. Now on the guide, I think it is -- you mentioned it correctly. It is, I think, important to differentiate between the absolute momentum we have and the momentum is just great. And it will continue from an underlying business dynamics in all our businesses, primarily, obviously, Kabi, and we can go through each and every individual business, where the underlying fundamental dynamics in the market, us bringing new products, new innovations in the market, rolling out, expanding will obviously -- we saw it in the first 9 months will happen in Q4 and will go beyond Q4. So a Q4 close is a year-end close and it's not a cliff. So whatever happens that Q4 does not mean anything in the speed and the dynamics of the underlying momentum is in any way jeopardized. On the contrary, it keeps accelerating. Yet on Q4, it's a year-end, and we need to look at a lot of things -- and this will decide whether 1 thing falls into 1 side or the other side. And then we talk about, I don't know, 10 basis points in the guide. So I would not overemphasize or put too much effort into where exactly we navigate into that guide. There we will update you, but rather look at the underlying trend drivers and that is positive. Also in Q4, there is biopharma, which is going to expand. Now to which extent, we have to work hard on that one. Q3 biopharma already was a great uptake vis-a-vis Q2, what was it, EUR 195 million, and now we had EUR 228 million or EUR 229 million. And in Q4, even more uptake. So if it all happens, if it happens. If it doesn't happen, it's not falling off a cliff, but it then pushed out to the next year. So this is the moving parts I would kind of like frame the guide. I think there's too much overemphasis on a short-term finding a data point. Operator: The next question comes from Oliver Reinberg from Kepler Cheuvreux. Oliver Reinberg: 2 from my side, please. And the first, I wanted to get a bit of color for next year. I mean, I understand, obviously, the guidance will only be provided in February. But I was wondering if you can just talk about the head and tailwinds. I think there's sometimes a bit of excitement building on German Helios obviously facing clearly more favorable pricing. We're going to see the further ramp-up of biosimilars and IV Generics Nutrition also should do well. So can you just talk about what are the kind of headwinds to be called out for next year? Any color here would be great. And secondly, just on AI. I mean there's a lot of talks on the workflow. You also touched on I was just wondering, can you just give a flavor to what extent does AI also provides a kind of cost savings opportunity in new kind of processes? Is that only playing in kind of a larger role today? And how significant could this be going forward? Michael Sen: Yes. Oliver, I'll try again with the guidance. I think this will be a recurring theme. But the difference is to, let's say, the last 2 years, we're not just leaving you with saying we're going to get there when we get out in February. Obviously, a lot of things can change from now to February. Look at how dynamic the -- not only the end markets are, but the whole geopolitical, geoeconomic framework. When we started the year with our outlook, there was no talk about tariffs. Then the new administration started and you have the feeling the world is going to collapse with tariffs. We always try to stick with the fact and always be very transparent with you guys as to where we stand and what the impact is. Now where we stand today is different than a couple of months ago because at least there are statements out there that generics and biosimilars may be exempted, but there are still tariffs, which we even absorb in the upgraded guidance. So what I'm trying to say is there's a lot of moving parts in the regulatory and geopolitical environment, nobody knows what's going to happen. Then we need to have our budget, which we have next week. But again, coming to the big underlying momentum, biosimilars, Rejuvenate, Tyenne, working nicely over the course of the first 9 months. We expect more in Q4, we expect more in going into 2026. Into 2026, denosumab and ustekinumab, are just being launched in Q4. This is, by the way, also a factor for Q4 where we lend whether it's, I don't know, x million or x plus million, that doesn't matter because the momentum will come next year. This is a full commercial focus on the biosimilar team next year on really on the market and commercialization because there's no new regulatory approval, where we have to work on the documents and so on and so forth. Nutrition, I said in the U.S. next to what we have now, there will be more elements as in attachment to the portfolio right now. I can talk about compounding, for example. So things are happening, but they need to be then obviously executed. There will be, again, launches on the IV generics side. There will be on the medical technology side, we're actually very satisfied with what we see on the MedTech side also in margin improvement over the course of the last 3 quarters, and this was driven, we have said it in the calls before by the adaptive nomogram, which is software. Now there will be an annualized kind of impact of the adaptive nomogram going into Q1, Q2 next year. So a lot of exciting things are happening. Obviously, especially Sara we will make sure that the whole organization is disciplined on cost and cash. And then we'll take it from there and update you on the guidance, when we go into next year, again, because it's the beginning of the year, we'll be very transparent with the assumptions. And obviously, I wouldn't say more conservative, but because it's the beginning of the year and then we'll go step by step. Oliver Reinberg: That was it? Michael Sen: AI, sorry, AI. Yes, AI is a topic. Look, we need to differentiate between the industrial side and the hospital side. In the industrial side, I think like many companies, we are embedding AI and AI functionalities and AI agents, with partners into our processes. Kabi has a big program being implemented on further increasing commercial excellence, better managing the sales force, data-driven AI plays a role in there. We talk about having a few AI pilot projects, which, by the way, are then funded by a central innovation budget, when it comes to speeding up on regulatory approval that plays a role as we move now having a real development machine on biosimilars, but the same holds true for reg affairs on IV generics. So AI can help you there on the documents and all these kind of stuff. Also in tech ops, when we talk about enhancing the manufacturing product, these are all how should I say, little pilot projects we have. And so this does not entail huge investments. But we are trying it out and on these pilot projects, probably we're going to see the benefit. Where for us, it plays a more nuanced role is on the care delivery side. There, it is not only about the productivity, efficiency as such with the efficiency, for example, with Quirónsalud, applying AI on doctor-patient conversations. We have a tool called scribe. We are freeing up resources and thereby are able to increase the throughput of patients and concurrently get to better clinical outcome. So we have a few, let's say, functionalities and even agents on that side, but the impact there is obviously 1 of the key levers to drive also the margin up going forward. Operator: The next question comes from Hugo Solvet from BNP Paribas. Hugo Solvet: I have 3, please. First, maybe, Michael, on the biosimilar, the FDA draft guidance on interchangeability, which you qualified as promising. What could be more concretely the potential impact from lower R&D requirement in the U.S. for your biosimilar business model. Is that a pull forward of sales of profitability? Or will you be keen to reinvest more to gain scale? Second, we've into biosimilars, sorry, we've seen cutting prices of Humira in Q3? Or do you think this may impact the penetration of non-originator or branded products? And lastly, maybe 1 for Sara, a quick clarification on the pro rata share sales alongside Fresenius Medical Care share buyback. Could you confirm your selling equivalent of what your stake is? And what the proceeds from that sales are used for? Is it to lower leverage further? Sara Hennicken: Maybe let me start with the last 1 straightforward. Yes, it's pro rata. So in the end, we will maintain our share relative shareholding in FMC. And actually, I mean, that funding goes into lowering our leverage and into our overall capital allocation. So I think we are fully focused on getting free cash flow up and thereby creating additional headroom for be it lowering our leverage or doing targeted investments into our business. Michael Sen: The second one was a little hard to hear again, I didn't get it 100%. But on the first one, yes, it is a positive development, which we see in the U.S., by and large, all the developments in the U.S., whether it's as a whole tariff discussion, whether it's a deregulation on biosimilars. We're playing exactly into these themes with our portfolio also going into next year. And it has been already discussed prior, but having enough clinical or scientific evidence so that you don't need to do a Phase III clinical studies, obviously helps to increase the time to market. That is what it's all about. And obviously, to speed up the whole process, make it less complex, less burdensome because there's already a proof of the data. And the interchangeability, it's a good one. I wouldn't overestimate, but it's just another data point where today, if you want to get interchangeability designation, which we, by the way, have on denosumab you need an extra study. So it's an extra burden, a special name for that study. This is also admitted. So that means that marketplace is very, very, very vibrant. So yes, if there is any change on R&D, we will immediately reinvest it into the pipeline, into the portfolio. Our strategy is clear to be a fully vertically integrated player. Our biosimilar team calls it a biosimilar powerhouse. And that means you need to have a really robust pipeline, and there is much more coming. The decisive point is the manufacturing because it is a very also a competitive market. The manufacturing process is a complex process. You need bioreactors. You need to be competitive concurrently, and therefore, you also need to have a nice manufacturing platform. And then the commercialization, also in the last only couple of 3 quarters, 4 quarters has seen many, many changes from national formularies on PBMs. Now we were going to direct health plans we may be going to direct employer plans. We have special deals like the direct distribution deal with Civica, which is a new animal. So we view all of this as you know, opening up the adoption and diffusion of biosimilars. Operator: The next question comes from Veronika Dubajova from Citi. Veronika Dubajova: I have 2, please. The first 1 is just on the profitability of the growth vectors, which obviously, I think is running much better than many of us expected. And I think, Sara, you remarks that you are now very, very close to the 16% to 18% corridor for caveat to have as a whole. Just curious if you can elaborate on what has been the source of the kind of upside this year from your perspective? And is this that we're starting to hit better profitability in devices? Is it that biosimilar business that's driving this surprise or anything else, if you can kind of give us some color. And I guess as you fast forward, sort of how are you thinking about that Kabi midterm margin guidance, especially for growth factors given the progress that you are making this year in spite of the Keto headwind. So that's kind of my first question. And then my second question, you're going to laugh at me, I'm not going to ask about 2026. I want to ask about 2027. There has been a lot of debate about whether the invoice surcharge creates a meaningful risk for your Helios profitability as we move into 2027. So I wanted to give you guys an opportunity to touch upon how you're thinking about the benefit from the surcharge when we move into '26 and then how that unwinds into 2027. And I guess simplistically, what your degree of comfort is with the Helios expectations that are in consensus right now for 2027? You are welcome to shut me down, but I got to try. Sara Hennicken: Veronika, I'm happy to take a go at your 2027 question. I think, first of all, it's fair to say, if you look at the German reimbursement schemes, you have seen that probably since 2019 or even in prior, we always have changes in regulation. We always have during COVID, it was gotten to an extreme, obviously. But since then, we have always had different pockets of funding because we are navigating in an industry which is structurally underfunded hospitals in Germany are actually in the red. So I think there are always some extra pockets as an add-on. I think if you appreciate when the whole topic on surcharge came, it was a surcharge on the DRG inflator and people assume DRG inflator to be similar to last year. Now as Michael -- actually, as Michael alluded to, it was a very particular situation in which the decision -- in which the discussion on the DRG inflator team about that it was not between the 2 kind of data points, the 5-point something at the 3 points that they opted for the lower end. I think that was a very -- there was a decision taken in a special situation. Now where does it leave us? Simply and I only go from a pricing perspective now simply if you take the surcharge and what may most likely become the DRG inflator, you are close to where we are this year around in terms of math. Now does that leave us with a cliff because the surcharge will go away. I would say that so far, we have always experienced that as we operate in a sector which is chronically under financed that there will be new pockets opening we hope, I think that is our institutional expectation that we see regulation, which gives us more clarity and longer-term perspective because obviously, we are navigating an environment, which is not helpful to have those pockets shifting year-over-year. But I think also you can rely on, if you look at the Helios performance, we have managed that quite well historically. Irrespective of what those reimbursement schemes were, I think we were the ones, who were relatively adaptive to it from the start. So bottom line, am I concerned about the cliff? No, I am not. There will be other pockets of value and funding because they need to be in the structure we currently operate in. Michael Sen: Yes. I think that was a very perfect answer, and Veronika, probably what is also behind the question for your clients and hopefully, our investors, are we afraid of regulatory going up and down and so on and so forth in a business which we actually deem is very reliable and stable, and Sara just gave the answer. The fact of the matter is that roughly 80% of German hospitals are in red ink. So either they support the whole system via these mechanisms or they will go out of business, and then we will catch the patients. And we have the cluster concept, and that is why we are hitting so much on driving our program irrespective of regulatory changes that we are ready to have the best capacity utilization of our in essence, infrastructure assets and with the help of digitization, which we see in Spain works, navigate patients through complex and less complex cases. Now with regards to where is the Kabi margin band, well, this is also something we've got to look at that 1 when we go out next year or maybe the year after or in between, this is an involvement I really wanted to remind everybody where we started. We started with the 15% to 17%, and the margin of the overall Kabi business was below that margin band. If you look at the makeup of the Kabi EBIT contribution today, it's almost half-half growth vectors versus the base business, which is also contributing and growing. So that has been the strategy all along and will remain the strategy. The only point now in rejuvenate is this new innovative things which we have on for the last 2 years, 3 years, even are now coming to market. Let's go through them one-by-one. Medical technology or MedTech, of course, they have a program, which is a competitiveness program, they call it above and beyond. But also going on new products, like I said, adaptive nomogram. Adaptive Nomogram is software and in parts recurring revenue. And it's a new thing, and it's picking up, and there will be a pickup in Q3, Q4. And then we will come up with what lies behind -- beyond that one in the end of '26 or '27. Ivenix, yes, we know that we have, let's say, some homework to do in industrializing that one. But the market demand, the customer demand, the customer feedback is enormous. I just shared with you that we just received a contract from a large private research hospital in Florida on x amount of Ivenix pump together with solutions, together with Nutrition, together with dedicated and non-dedicated sets, which shows you how we can deepen also on customer engagement with the portfolio we have. Biosimilars has been driven primarily by Tyenne this year and will be driven by Tyenne next year, by the denosumab, by ustekinumab, by still adalimumab, by Map Science, their partners selling bevacizumab, pembrolizumab. And to some extent, if we really achieve at some point, the fully vertically integrated biosimilar powerhouse, then the milestone payments will play a minor role already in the makeup of the whole thing. Today, they play a minor role compared to what the molecules are catering. So thereby, it remains what we said the dynamics is great. Sara Hennicken: Maybe, could I -- sorry, if you like, Veronika, happy to give you some feedback on Q3, which indeed was a good one, 15.9% margin. If you look at it, it derives from really the volume of top line development, we have seen in pieces of some nice price development overall, it was a good mix. There were some milestones on biopharma. And also don't forget, we do have a very strong cost and efficiency discipline in there as well, which also helped the margin this quarter. Nick Stone: We've got 3 participants left. So if we can encourage them to stick the 1 to 2, then hopefully, we can be finished in the next 15 to 20 minutes. So I think Graham Doyle, UBS. Over to you, please. Graham? Graham Doyle: Okay. Perfect. Yes, I can stick to 2. Michael, just on the sequential improvement in biopharma, just kind of help us model. You were up kind of $40 million in Q3. Is that sort of what we should be thinking for Q4 just help us to model as we then ramp into next year? And then the second question is around the German surcharge. Would next year be a good year maybe to do some of these kind of interesting investments and maybe pull forward something from, say, '27 to help kind of smooth the numbers through the year. Is that something you could do? Michael Sen: You want to start with the second one. Sara Hennicken: If I got it correctly on investments on -- you mean for the overall group. Yes. So overall... Graham Doyle: Exactly. Sara Hennicken: Look, I think on the -- and I wouldn't make it on the surcharge to be very honest, because we said if you take surcharge plus what's currently in debate on the DRG, you're not too far off from what we've seen in this year's DRG. But coming back to what Mike has said is, we see a very strong momentum in all our businesses. We see a lot of positive momentum on the Kabi's side, but we also, with the company program coming to fruition and some annualization effects in '26. There should also be some positive effect on the Helios side. If you take all of that together, of course, in the context of Rejuvenate, we will step up our investment focus. And I think on capital allocation, I said deleveraging will remain core. But at the same time, we balance that with deliberate investments. And maybe even Q4, if I look at the momentum we currently see and where we are on the Kabi side year-to-date, maybe we may take some decisions to do some incremental investments also in Q4 because in the end, it's about fueling our pipeline with a step-up in R&D with step-up in CapEx and will step up in other investments, and we are prepared to do that. Michael Sen: Yes. And then Graham, I can make it short, so that the others have time, the EUR 40 million may be a bit too high fetched. I mean, already going from Q2, as I said, which was the EUR 40 million. There will be incremental sequential growth, but $40 million, maybe twice. Operator: The next question comes from Falko Friedrichs from Deutsche Bank. Falko Friedrichs: Let me keep it to one. It's on the pharma margin within Kabi trending around 22%. And at the CMD, you said around 20% is a reasonable level for the business. So is 22% the new 20% for this business? Or is this just an extraordinary year and sort of starting next year, we should be eyeing rather than 20% again? Michael Sen: Yes. Well, we can make that 1 short. We said by and large, take a ruler and take 20%. There can be quarters where it's higher. There can be quarters where it's lower. The Q3 number was quite strong, because we decided to go for commercial batches rather than stability batches. That is what Sara also alluded to R&D type of things, investments in Q4. So stability batches, as you know, are needed for future launches, products, which is future revenue, which will come in which we took a deliberate decision to take it into Q4 and rather give the capacity to commercial batches. That is, in essence, in Q3. Operator: The next question comes from David Adlington from JPMorgan. David Adlington: Great. Maybe 2 related to the last question, really. The year-to-date margin for Kabi 16.6% and that you kept the 16% to 16.5% full year range. If you pulled out some needs some investments potentially, I'm guessing on the R&D side in Kabi. Is that why you haven't increased the range for the full year? And maybe just some help around how we should be modeling that fourth quarter margin? Sara Hennicken: So I think if you look at where we stand today, I think how we had a very strong performance in terms of margin, but it's the underlying momentum we are seeing, which is strong. Now if you look at Q4, as Michael said, there is its year-end. So a, yes, we will take the freedom to take potentially some investment decisions. B, there was some more positive phasing in Q3, where things came earlier than initially anticipated. And then as the business turns to year-end. Obviously, there are topics whether we post the batch end of December or beginning of January doesn't really change the underlying momentum of the success of the business. And of course, around year-end, you have customers wanting something from not wanting something you have suppliers wanting something from us or not wanting something from us. You have final settlement, final invoices and so on. So it's just a quarter which we will diligently work through, but we don't see a change in the underlying momentum. Nick Stone: Okay. That was our last question. Thank you, David. Michael, if there's anything you want to conclude with otherwise... Michael Sen: No, I would want to conclude with reiterating, where also Sara left it, look at the business, look at the underlying momentum, which is in the each and every individual business. This is a strong momentum, which is going to carry also into 2026, and then we'll take it from there. Nick Stone: Super. Thank you very much. We can conclude the call there, and we look forward to seeing you folks in Paris tomorrow. Operator: We want to thank Fresenius and all the participants for taking part in this conference call. Good bye.
Operator: Good morning, and welcome to the RYAM Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the call over to your host, Mr. Mickey Walsh, Treasurer and Vice President of Investor Relations. Thank you, Mr. Walsh. You may begin. Mickey Walsh: Good morning, and welcome to RYAM's Third Quarter 2025 Earnings Conference Call. Joining me on today's call are De Lyle Bloomquist, our President and CEO; and Marcus Moeltner, our CFO and Senior Vice President of Finance. Last evening, we released our earnings report and accompanying presentation materials, which are available on our website at ryam.com. These materials provide key insights into our financial performance and strategic direction. During today's discussion, we may make forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially. These risks are outlined in our earnings release, SEC filings and on Slide 2 of the presentation. We will also reference certain non-GAAP financial measures to offer additional perspective on our operational performance. Reconciliations to the most comparable GAAP measures can be found in our presentation on Slides 27 to 30. We appreciate your participation in today's call and ongoing interest in RYAM. I will now turn the call over to De Lyle. De Lyle Bloomquist: Well, good morning, everyone, and thank you for joining us. Before Marcus walks through the financial results for Q3, I want to cover 5 topics today. First, our updated 2025 bridge and guidance. Second, recent developments in tariffs and trade. Third, our progress resolving the operational challenges we experienced earlier this year. Fourth, the work underway at Temiscaming to restore profitability and position the site for divestiture. And finally, how we're executing to the plan that increases our EBITDA to over $300 million as we exit 2027. 2025 has been a challenging year for RYAM. In response to the extraordinary headwinds, we have focused squarely on strengthening the company's cash generation, enforcing capital investment discipline and protecting our core Cellulose Specialties franchise. I believe that this approach is working and that our third quarter results reflect the normalization of our core business and the continued progress across the strategic plan. Now let's move to Slide 4. Full year adjusted EBITDA guidance is now $135 million to $140 million, refined from our prior $150 million to $160 million range. The change is primarily driven by proactive downtime of our noncore paperboard and high-yield pulp production during the holiday season to monetize inventory and protect cash given the weaker paperboard markets. We also are experiencing increased market weakness in the business, but this negative was largely offset by FX tailwinds in the quarter. We also faced increased headwinds to our fluff business, primarily due to the U.S. fluff industry exports to China being displaced by the China 10% tariffs and creating increased competition into non-China markets. The Cellulose Specialties business performed near expectations and returned to normalized EBITDA margins in Q3. Turning to Slide 5. Please note that importantly, there are still 0 tariffs on our Cellulose Specialties and dissolving wood pulp products into China, 0 tariffs on U.S. sales to the EU and 0 tariffs on Canadian imports into the United States. Though direct tariff impacts have stabilized, we continue to work through the 10% tariff on our fluff products into China. We're collaborating with customers and adjusting geographic mix as part of our mitigation strategy. We're also developing a dissolving wood pulp fluff product that would avoid this China tariff. Our technical team is working to refine this new product to reduce unit production costs. Major development in Q3 was the U.S. ITC's preliminary affirmative injury determination and the ongoing antidumping and countervailing duty investigations covering Brazilian and Norwegian dissolving pulp imports. This determination allows the Department of Commerce to move forward with its investigations with preliminary duty determinations expected in early 2026. As a reminder, an estimated 190,000 tons of specialty grade acetate pulp are imported into the U.S. from Brazil each year and about 5,000 tons of ethers pulp are imported from Europe. So this case matters. It's a significant step toward a fair level playing field for U.S. producers of high-purity specialty cellulose pulp. Overall, we now believe that trade conditions are generally trending in our favor as we move towards 2026. On Slide 6, the isolated operational challenges we've discussed previously are stabilizing. In Q3, operational challenges at Tartas continued, including French national strikes that adversely affected Tartas. These were not RYAM-specific strikes, and the RYAM team did an outstanding job keeping customers supplied. As mentioned last quarter, we were understaffed in key technical roles at Tartas. Since June, we filled most of the open key positions via new hires, including the transfer of a couple of technical managers from Temiscaming and expect all key positions to be filled by year-end. Jesup and Fernandina are performing to expectations. Slide 7 outlines the actions underway at Temiscaming. 2025 has been a difficult year for the Paperboard and high-yield pulp business. We now expect an EBITDA loss of about $14 million compared with historical profitability of roughly $30 million. The decrease in 2025 guidance is due primarily to lower paperboard prices and volumes due to new U.S. capacity and our plan to idle the Paperboard line and 1 of the 2 high-yield pulp lines for 3 weeks in the fourth quarter to improve working capital and cash flow. Our plan to return the Temiscaming site to historical profitability is focused on 4 key initiatives. First, reducing Temiscaming costs by approximately $10 million. This initiative has been fully implemented through utility contract improvements and benefits derived from high-return strategic capital investments. Second, improving the Paperboard's line OEE by approximately $10 million in 2026 as a result of fewer economic shutdowns, grade optimization and enhanced maintenance reliability. Further upside of $5 million is expected to be realized in 2027 as supply and demand normalizes, resulting in no economic production shutdowns. Third, advancing the commercialization of new product development to generate an estimated $10 million in 2026 EBITDA and another $5 million in 2027. The new freezer board grade has been qualified and launched in Q3 and orders are being secured. The rolled softwood high-yield pulp qualification trials are advancing well with potential customers and the oil and grease resistant board trials will begin this quarter. Additionally, we are developing another new product, a high-yield pulp wrapper product that is in testing, which we will believe will deliver 2026 cost savings and potential for new market entry. And fourth, we're in active negotiations with U.S. customers affected by the 15% tariff on EU board imports and participating in an AFRY-led study evaluating strategic options for all the assets on the site, including the currently suspended HPC line. We recently responded to an opportunistic inquiry about Temiscaming, so there is current interest in the business. As we restore positive profits and cash flow to Temiscaming in 2026 and once the USMCA free trade review is completed in July of 2026, we believe we can divest the site at a fair value. Turning to Slide 8. Starting from our normalized EBITDA baseline, we've updated our plan to double our EBITDA from our current guidance over the next 2 years. I will walk through each step and provide an update on how we're progressing. On the pricing front, we believe that we're tracking ahead of plan. We are targeting a significant price reset to reflect the inherent value of our Cellulose Specialty products, which we believe requires recapturing lost value from prior year's inflation. On cost, the $30 million reduction program for 2026 is almost fully implemented. And as upside, we are now working on a $20 million of EBITDA benefit for 2027 that would be derived from strategic capital projects. From a specialty commodity sales mix standpoint, we are increasingly confident that we will realize the $30 million in EBITDA growth from margin improvement. I'll expand on why in a moment. Finally, our biomaterials projects are progressing, and I'll cover this progress in more detail in a couple of slides. In short, our strategy remains firmly intact, and we have a clear line of sight to achieving our 2027 run rate target. Slide 9 expands on the pricing and market fundamentals for our core business. We are highly confident that RYAM is in a strong position to realize a significant price reset for its Cellulose Specialty products. We believe that the market is conducive to capturing product value because industry capacity utilization is over 90% with no expected major capacity additions before 2029. RYAM holds most of the excess Cellulose Specialty capacity, and the industry is highly concentrated with RYAM and 2 other producers accounting for roughly 80% of the global Cellulose Specialty capacity. This is important because we're making a strong push on 2026 cellulose specialties pricing, i.e., pursuing a meaningful reset beyond prior year increases to reflect the value of our high-purity products, which requires us to recapture lost value from inflation that has increased nearly 35% faster than our average cellulose specialty pricing since 2014. We also continue to capture the opportunities to enrich our sales mix towards specialty cellulose. We are on track to requalify Temiscaming CS volumes to generate $5 million of EBITDA in 2026, with 2 customers already qualified and a third expected by year-end. We also remain highly confident we will generate $20 million in EBITDA over the next 2 years via specialty margin enhancement versus commodity sales. This objective will be driven by organic growth across Cellulose Specialty markets, supported by RYAM's outsized share of available excess capacity and potential upside to the plan from increased cellulose specialty volumes following Georgia-Pacific's Memphis facility closure, which produced an estimated 10,000 to 20,000 metric tons of cotton linter pulp grades that go into cellulose specialty applications. Finally, we continue to expect to realize $15 million of additional EBITDA when ether demand in the EU returns to historical levels, which would also be upside to our plan. On cost, $24 million in strategic investments made this year will generate $20 million in cost reductions at our HPC plants in 2026. We also are taking action to reduce corporate costs by $10.5 million, including eliminating lightly used medical benefits, increasing management span of control, reducing clerical roles via automation and terminating nonemployee technician and professional contracts. We are also working on upside to this cost improvements initiative. We are actively working on projects at the HPC plants to generate another $20 million in EBITDA for 2027 and believe that we can take out another $4 million to $6 million in corporate costs via AI and automation over the next 2 to 3 years. On Slide 10, I highlight the progress we are making on our biomaterial projects. The Altamaha Green Energy or AGE project is a $500 million 70-megawatt renewable power project to be based at our Jesup facility. RYAM will own 49% of this project. Recent progress includes reaching agreement on the EPC contract in September and receiving our air permit in October. Joint venture is now focused on reviewing project financing options, after which the project will move to its FID. RYAM will invest $46 million of equity to realize an annual proportional EBITDA of $50-plus million. Assuming a utility valuation multiple, this project is expected to generate a 12x ROI on RYAM's equity. The $64 million BioNova Fernandina Beach second-generation bioethanol project is expected to generate $15 million (sic) [ $19 million ] of annual proportional EBITDA for RYAM in return for $6 million of RYAM cash equity, generating a 19x ROI on RYAM equity, assuming a comparable multiple. Funding is secured, the air permit has been approved and engagement with the city of Fernandina Beach has begun with respect to a potential settlement on the land use application. The U.S. BioNova CTO project will produce about 13,000 tons per year of CTO from feedstock primarily sourced from our Jesup and Fernandina plants. Engineering for the project is complete that incorporates a high-quality used CTO plant that we acquired for $350,000 in September. Commercial discussions are advancing, and we expect to file the air permit application by the end of November. This project is expected to generate $6 million (sic) [ $7 million ] of annual proportional EBITDA per year on a total CapEx of $9 million, of which RYAM will contribute less than $2 million of equity. Using a comparable market valuation multiple, this project is expected to generate a 16x ROI on RYAM's equity. The European BioNova CTO tolling project is small, but requires no RYAM equity. We'll supply feedstock from our Tartas plant to a third-party toller, which will generate approximately $1 million of annual proportional EBITDA. And finally, the pre-biotics project at Jesup is one of the more exciting projects in the BioNova portfolio. As a result of exceptional efficacy results that show that our product delivers significantly higher weight gain and feed conversion performance in poultry than competing alternative feed additives, we are redesigning the plant to a smaller modular footprint that can scale up with demand growth due to lower initial dosing requirements. We've also signed a commercial sales MOU with a feed additives manufacturer for U.S. poultry and swine feed applications. While the redesign may extend this project's time line, this is a positive adjustment. The trial data confirmed our product's superior performance, and as a result, we believe meaningfully expands the commercial opportunities ahead. Across all these initiatives, RYAM demonstrated its ability to recycle capital into high-return projects due to low capital intensity, attractive project capital and repeatable outsized investment returns. Slide 11 explains why we can do this. The crux of these opportunities is RYAM's extensive and unique asset base. The noted biomaterial projects will be located at existing RYAM Cellulose fiber plants where the infrastructure, utilities, raw material sources and site management are already in place. Thus, RYAM's asset base anchors our ability to scale new biomaterial projects efficiently. We also believe that replicating this asset base would be prohibitively expensive. Thus, it is unique to RYAM. As a case in point, the replacement value of Jesup alone is estimated to be over $4 billion. So we believe that RYAM is uniquely positioned to pursue such opportunities at very attractive ROIs on equity invested. The technical and market viability of most of our projects are already proven. Pre-biotics isn't the only opportunity that would be new. We are, therefore, taking the necessary steps, including animal feed trials and resizing the plant to mitigate the market and capital risk for this project. The project that I summarized on the previous slide will generate high returns and very profitable growth through 2028, 2029. For the 2030s decade, we are investigating promising opportunities today in biomaterials and bioenergy to provide profitable growth. For example, we are currently conducting due diligence with GranBio for a pilot-scale ethanol-to-jet plant at our Jesup facility. If this due diligence concludes that such a project would be successful, we will then proceed to construction, which would be fully funded by a DOE grant. We've also signed an MOU with Verso Energy to evaluate eSAF production at Jesup and Tartas that will align with the EU decarbonization mandate starting in 2030. Just yesterday, we were informed that Verso Energy's project at our Tartas plant was selected by the EU Commission for its innovation fund and will receive a $37 million grant towards the construction and commissioning of the Tartas eSAF project after a final investment decision is made. Turning to Slide 12. I'd like to close with 3 points. First, our near-term issues are mostly behind us. The tariff situation has stabilized and the extraordinary operational challenges, except maybe those challenges tied to political turmoil, are resolved. Second, the underlying fundamentals of our strategy remain intact, and our EBITDA-enhancing initiatives are advancing. The core business is performing to expectations with a significant 2026 pricing reset being pursued. The $30 million in structural cost targets will be delivered for 2026, and we're now working on a further $20 million to $25 million plant and corporate cost reductions for 2027. Our confidence continues to build that organic growth across cellulose specialty markets will further expand EBITDA margins by $30 million over the next 2 years. The Temiscaming turnaround efforts are effectively underway and our biomaterials portfolio continues to progress. Third, RYAM valuation remains compelling. We believe that an up to 5x upside to the stock price for our shareholders would be implied by the comparable double-digit valuation of our competition in a recent transaction on our targeted 2027 $300-plus million run rate EBITDA. 2025 has been a challenging year, but we are getting through it with our strategy intact. Our core is solid and performing and our growth initiatives are advancing. We remain confident in the path ahead and are focused on execution on this plan for our shareholders. With that, I'll hand the call over to Marcus to take us through the Q3 financial highlights. Marcus Moeltner: Thank you, De Lyle. Let's now turn to Slide 13, which summarizes our third quarter 2025 financial highlights. In the third quarter, revenue was $353 million, down $48 million year-over-year. Operating income was $9 million, an improvement of $26 million compared to the prior year. Adjusted EBITDA was $42 million, a $9 million decrease from Q3 2024. And adjusted free cash flow year-to-date was negative $83 million, driven by working capital timing that is expected to improve in the fourth quarter. The primary drivers of the EBITDA change this quarter can be summarized with the following highlights. In Paperboard, earnings decreased by approximately $10 million, reflecting lower sales volumes and pricing from tariff uncertainty, competitive EU imports and new U.S. capacity, along with higher fixed costs for market-related downtime and the allocation of Temiscaming net custodial site expenses. In high-yield pulp, earnings declined by approximately $10 million due to continued oversupply in China and higher fixed costs resulting from market downtime. And in Cellulose Commodities, earnings increased by $7 million, driven by stronger fluff pricing, improved mix and the absence of prior year impairment and suspension charges. Given these weaker-than-expected results in our noncore business, we have now refined our full year 2025 adjusted EBITDA guidance to a range of $135 million to $140 million, implying $25 million to $30 million of adjusted free cash flow for the fourth quarter. Let's now review our segment results, beginning with Cellulose Specialties on Slide 14. Quarterly net sales for CS were $204 million, down $28 million or 12% from the prior year. The decline was driven by a 17% decrease in sales volumes, partially offset by a 7% increase in average sales prices from negotiated price actions and improved mix. Operating income was $49 million compared to $46 million in the third quarter of 2024. The improvement was driven by higher average selling prices, lower fixed costs related to the Temiscaming Cellulose indefinite suspension and a $7 million energy cost benefit from the sale of excess emissions allowances, partially offset by lower volumes, higher operating costs and the impacts of national labor strikes in France. Adjusted EBITDA was $66 million compared to $65 million last year, with margins increasing to 32% from 28%. Turning to Slide 15. Quarterly net sales for Biomaterials were $8 million, flat compared to the prior year. Higher turpentine volumes were offset by lower bioethanol sales volumes caused by temporary feedstock constraints and labor disruptions at Tartas. Operating income was $1 million compared to $3 million in the third quarter of 2024, reflecting higher shared and ancillary service costs. Adjusted EBITDA was $1 million compared to $4 million in the prior year, with margins of 13% versus 50% in Q3 of 2024. Turning to Slide 16. Quarterly net sales for Cellulose Commodities were $85 million, down $1 million or 1% from the prior year quarter. A 2% decrease in volumes, mainly due to the prioritization of production towards cellulose specialties and the absence of Temiscaming sales volumes following the indefinite suspension was largely offset by additional viscose sales as part of inventory and cash management efforts and an 8% increase in average selling price driven by higher fluff pricing and mix improvement. Operating loss was $13 million compared with $55 million last year. The improvement reflects the absence of a $25 million noncash impairment charge and $7 million of indefinite suspension costs recorded in the prior year, combined with higher selling prices, lower fixed costs following the indefinite suspension of Temiscaming Cellulose operations and improved cost performance. Adjusted EBITDA was negative $3 million compared to negative $10 million in the prior year quarter. Let's now move to Slide 17, which covers our Paperboard segment. Quarterly net sales were $39 million, down $16 million or 29% compared to the prior year. Average sales prices decreased 10% and sales volumes were down 21%, driven by mix, shifting customer dynamics associated with tariff uncertainty and increased competitive activity due to EU imports and the start-up of new U.S. capacity. Operating loss was $4 million compared to operating income of $7 million in the prior year quarter. The change was driven by lower sales, higher fixed costs for market downtime and the allocation of Temiscaming net custodial site costs, partially offset by lower purchase pulp costs. Adjusted EBITDA was $1 million compared to $11 million in Q3 of 2024, with margins of 3% compared to 20% in the prior year. Turning to Slide 18. Quarterly net sales for high-yield pulp were $24 million, down $4 million or 14% compared to the prior year quarter. Average sales prices declined 10% and volumes decreased 8%, reflecting weaker demand, oversupply in China and shipment delays to customers in India. Operating loss was $10 million compared to breakeven results in the prior year. The decline reflects lower sales, higher fixed costs from market downtime and the allocation of net custodial site costs. Adjusted EBITDA was negative $9 million compared to positive $1 million in Q3 of 2024, with margins of negative 38% compared to 4% last year. Slide 19 provides an overview of our balance sheet and liquidity. We ended the quarter with $140 million of total liquidity, including $77 million of cash and a net secured leverage ratio of 4.1x within the 5x covenant threshold. During the quarter, we experienced working capital outflows across receivables, payables, customer rebates and inventory, which pressured free cash flow. These outflows also reflect temporary inventory management actions by a large Cellulose Specialties customer that affected order timing. We expect working capital levels to normalize as we progress through the fourth quarter and as sales volumes increase. We remain focused on driving working capital efficiency and improving cash flow generation. For the full year, we expect adjusted EBITDA in the range of $135 million to $140 million and positive free cash flow in the fourth quarter as these timing effects ease. In addition, we have $40 million of committed green debt available to support the execution of our Biomaterials portfolio as the projects move forward. The company will also look to proactively pursue a refi in 2026 to lower interest expense by leveraging RYAM's expected stronger operating performance and potentially lower debt as a result of the targeted divestment of Temiscaming. With that, operator, please open the call for questions. Operator: [Operator Instructions] Our first question comes from the line of Daniel Harriman with Sidoti. Daniel Harriman: Just wanted to hit on two in the beginning, one for De Lyle and one for Marcus. De Lyle, just going back to the Paperboard and High-Yield Pulp assets. Can you just talk again, I know you went through it all, but what specific operational and financial milestones do you think you need to achieve in 2026 to make those assets viable for a sale? And then Marcus, you touched on this at the end of your comments, but with leverage at 4.1x, can you just talk a little bit about how you're thinking about refinancing and repricing opportunities considering that the debt is callable in '26? And then what level of EBITDA would give you comfort that you can regain full balance sheet flexibility? Really appreciate it, guys. De Lyle Bloomquist: Daniel, this is De Lyle. I'll see if I can address your question on the Paperboard and High-Yield Pulp business. The way I would look at it is that before I can sell it, there's 2 gating items that we have to get passed. One is the USMCA renewal that is under negotiations right now between the 3 governments. And let's say that, that gets done by the deadline, which should be around July of 2026. I don't think there'll be any interest on anybody's part until we get -- in terms of buying those assets until we get to that point. The other gating item is that the -- I believe that the business needs to get back to positive EBITDA and positive cash flow. And I outlined 4 different things that we're pursuing to make that happen. I would say 2 of them are high probability or locked. One is the cost reduction, which is largely locked and given the activity we've already done. The other is the OEE of the paperboard plant, which has been demonstrating significant improvement over the past couple of months, and we expect to continue to do so as we go into 2026. The last element I would say is really big is really the new product development and the uptake of those new products into the market. So to get to a positive EBITDA, I need all 3 of those elements. And so really, the last critical element that needs to fall in place is the successful commercialization of those new products, which we should start seeing in the first quarter and second quarter of '26. So once I get to a positive EBITDA, positive cash flow and we get past the negotiations on the USMCA, I think at that point, we've got an asset now that's attractive, and we'll be able to dispose of it. Marcus Moeltner: Dan, thanks for your question. Yes, as you mentioned, the term debt becomes callable in May of next year, and there's a 2% takeout premium, right, which falls to 1% in November. I think the key here is, as we've gone through the materials, navigating these transitional headwinds and then demonstrating that this business should return to historical levels of EBITDA, right? We exited last year at $50 million quarters. And when we demonstrate that kind of cadence, we'll anniversary some weaker quarters that we had this year and get our LTM back up over the $200 million level. That certainly is going to give us a better leverage profile to be out in the marketplace and then continue to tell our story on the backdrop of all the positive items De Lyle mentioned in his review and look to do the breakeven on a refi. And we certainly see a line of sight where we can take a measurable amount of interest out of this business at that time. De Lyle Bloomquist: Does that answer your question, Daniel? Daniel Harriman: Yes, it does. Operator: Our next question comes from the line of Nick Toor with BlackRoot Capital. Nauman (Nick) Toor: I just want to hone into a bullet point that you have on Slide 9, which says that as we kick off 2026 Cellulose Specialties pricing discussions, we are targeting a significant reset beyond prior year increases, reflecting the value of our products and recapturing lost value from prior year's inflation. Could you give me a little bit of color on how much value has been lost from prior year's inflation as you head into these negotiations next month or this month? And what does -- what is baked currently into your guidance? And what is the impact of 1% increase in pricing over your cost inflation? De Lyle Bloomquist: Okay. I know it's early over there in the West. I certainly appreciate you getting up early to participate on the call. That's a question you ask, I'll see if I can try to answer it each of the different components. Starting off with just kind of the rule of thumb on a 1% increase in pricing. It generally generates $8 million to $9 million increase in EBITDA when we talk about increasing our CS pricing by 1%, okay? So you take that. And as I stated in the presentation, since 2014, the inflation has increased 35% more than the average pricing for our CS products. So if you take 8% or 9% for every 1% increase in pricing, the value lost is somewhere in the tune of $300 million. I think that's the right math. But anyway, you can certainly do the math quickly. In the plan that we've laid out with respect to getting to $300 million from our pro forma '25 number, we assumed essentially a 1% higher rate of increase on pricing than inflation. So I think we show on the slide an $89 million increase over 2 years in pricing, offsetting the $80 million in inflation. Largely, the reason for that assumption is because that's what our analysts out there are saying that we can get a 4% to 6% increase in our pricing given the tight market conditions, given the highly concentrated industry we're in and so forth. So we just assume the midpoint on that to drive that number. What I'll tell you is that we internally believe we need to increase that at a much faster rate than just 1% above inflation to get back to a level that will allow us to reinvest back into our plants and make our facilities viable for the long term because, quite frankly, since 2014, pricing where it has been has not been sustainable. And you've seen that in the industry, in that we've seen a competition and capacity gets shut down and rationalized with GP Foley being the last one -- not the last one, actually, Temiscaming operations being the last line being shut down, but GP Foley, Cosmo out of Washington State, and just recently, the CLP plant in Memphis, Tennessee, which is not in cellulose specialties, but certainly in the same applications, all right? So pricing must go up. It must go up. So I know the next question would be, well, how much more do you think is going to go up than just the 1% above inflation? It's going to be multiples of that number. It has to be multiples of that number, so that we can get the capital we need to reinvest back in the plants and make these facilities the gold standard that they need to be. So I can't tell you exactly the number that we're after, but all I can tell you is that we're not looking at a 5% increase. We're not looking at a 10% increase. We're looking at higher numbers. Nauman (Nick) Toor: So there is roughly $300 million of cash flow that needs to be recaptured, whether that happens -- a big portion of it probably happens next year and then the remaining in the years after that. But that's an extremely significant number considering your market cap is around $400 million. So that's very exciting. So now that the capacity has been taken out of the industry to the extent that it has and capacity utilization levels are as high as they are, now there is space for -- in the industry for there to be more rational pricing and recapture what has been lost through inflation over the last 9 or 10 years. Is that a fair assumption? De Lyle Bloomquist: That's -- I couldn't have summarized it better, Nick. That's exactly right. Nauman (Nick) Toor: Okay. Great. And then just second question, I think I see the stock is trading a few percentage points [ better ], which is sometimes the market gives you a gift. But it seems like your reduction in EBITDA from last quarter to this quarter was because of your decision to shut down your operations for a little bit to generate cash from your working capital. Can you just give me -- I think you mentioned in one of your slides that you -- the $10 million loss was from that decision, but that generated or is expected to generate additional working capital and improve the cash flows overall for the company. What's the magnitude of that working capital release? De Lyle Bloomquist: Roughly about $14 million. Nauman (Nick) Toor: Okay. So you basically sort of made the decision you're going to get the EBITDA down by time, but get $14 million more of cash? De Lyle Bloomquist: Yes, yes. Now $10 million of EBITDA loss or nonrecurring impact as a result of the, we call it, market or economic shutdowns of the Temiscaming facility. That's over the whole year. So the $14 million benefit is really over the whole year. Marcus Moeltner: Yes. And Nick, to De Lyle's comment, the -- so that's the portion related to downtime. If you look at our guidance in Q4, we're expecting close to $30 million of working capital release, as you saw in the bridge. De Lyle Bloomquist: Yes. A good chunk of that is Paperboard, but a good chunk of it. There's also a big chunk of it coming out of CS. Nauman (Nick) Toor: Got it. Got it. Got it. And then just last question, just honing in on your AGE project, which seems incredible. It seems like you've basically passed most of the hurdles for your FID. So just working on the financing, you've got an investment-grade counterparty there. And I think the EBITDA now is $50 million applicable to you, which is worth $500 million of value. Again, your market cap is in the $400 million. It's -- is there anything that is preventing or is there any major things that you're concerned about that could potentially derail that project? Or is now just the timing of funding or getting the funding finalized? De Lyle Bloomquist: It's just getting the funding finalized, Nick. And just to correct you, it's not $500 million of, call it, market cap. I think it's $650 million of market cap because you need to -- this is essentially a utility, 3-year contract, fixed pricing, no volatility coming from a Georgia Power, which is a statewide utility. So you take a 13x multiple and times it by the $50-plus million, it's a $650 million potential impact to our ROI. So we understand and we recognize that it's a super project for this business. The hurdle on this really, it's not so much the project financing, it's really finding the $46 million of equity that we got to -- we, RYAM, have got to put in the business. And we're looking at options of how we're going to find that money to put it to fund this. That's really the issue. Nauman (Nick) Toor: Okay. Okay. Sounds good. Well, I mean, as you know, I own almost 2 million shares of the stock, and I feel like I'm underinvested. So there's very exciting times for the company and it looks like you guys are making very rapid progress on the biomaterials initiatives. But the really exciting news coming out of this quarter, which we didn't know last quarter was the magnitude of price increases that are possible going into next year. So good luck with those negotiations, and thanks for the time. Operator: Our next question comes from the line of Amit Prasad with RBC. Amit Prasad: It's Amit on for Matt. Just starting off with Temiscaming. You noted a $5 million benefit in 2026 from qualifying volumes in other lines. What would that be on a run rate basis? And when do you expect those incremental volumes to show up? And I guess, how much of that historical Temiscaming business do you expect to ultimately have retained through transferring production to other facilities by the end of 2026? De Lyle Bloomquist: So you're asking on the amount of volumes that we're able to convert from our old HPC line in Temiscaming over to our facilities in Jesup, Fernandina and Tartas. What we're talking about with respect to the $5 million that we're looking to see in terms of increased EBITDA for '26 is conversions that have occurred this year, all right? We've already seen a significant amount of conversion since we suspended the operations back in July of 2024. So what we're saying is that -- and as we said at the time of the suspension, there was a number of products that would take multiple years in terms of qualification. So we're just now getting through the conversion on -- with 3 customers this year. And when those conversions are completed this year, that should add another $5 million of EBITDA for our business going forward. That being said, there'll be more opportunities in 2026 and probably after that, that's probably about the extent we're going to be able to get to as some of the business like MCC and some other grades that we are producing in Temiscaming have gone to the competition. But we're getting to the end of the road with respect to what we're going to be able to realize from the full conversion of those Specialty Cellulose business that we had up at the Temiscaming facility. I hope that answers your question. Amit Prasad: Yes, that's perfect. And I guess one other quick one for me. We saw paperboard realizations move significantly lower quarter-on-quarter. How much of that was just pricing related being down on a like-for-like basis versus just mix and potentially some FX? De Lyle Bloomquist: That's a really, really technical question and probably beyond my ability to answer it specifically, but we certainly would be happy to try to answer that question to you one-on-one. Amit, after we've done a little bit of investigation, is it okay just to punt that for a couple of hours. Amit Prasad: Yes, absolutely. No problem at all. Operator: [Operator Instructions] Our next question comes from the line of Dmitry Silversteyn with Water Tower Research. Dmitry Silversteyn: I have a couple of them. First of all, you talked about working on a new fluff product that would avoid the tariffs, the 10% import tariffs from China or into China. Can you talk about sort of what would allow -- kind of what the changes are that would allow the new product to bypass these tariffs? And when do you think this product will be available for commercial sales? De Lyle Bloomquist: Dmitry, welcome, and thank you for being on the call. Great question with respect to our new product development around fluff. We've developed it. We have a product that we believe that would qualify as a dissolving wood pulp product from a tariff perspective into China that would go into the fluff business, all right, or into the fluff market. And that's really the key is that it has to be a dissolving wood pulp product to be able to get into China without any tariffs. And that's -- and we're really the only, I believe, the only fluff producer who can do that because we're a specialty cellulose producer that can make dissolving wood pulp, whereas all the other fluff producers in the world cannot. So it's a real comparative advantage to be able to do that. So we can do that today. The issue that we're dealing with is that the cost of that conversion from fluff to a dissolving wood pulp product as the cost per ton is higher than the cost we would bear by paying a 10% fluff duty right now. So we've -- we continue to work on seeing if there's a means to lower the unit cost of production to make that dissolving wood pulp fluff. And in the meantime, we'll continue to do what we're doing, which is extend and expand our geographical diversity away from China to keep our fluff volumes high and keep the operation at capacity. But the truth of the matter is we have a product. We just have to figure out a way to make it cheaper. Dmitry Silversteyn: Understood. That's a very good level of granularity there. I appreciate it, De Lyle. My next question is, you talked about the $30 million in cost reduction projects that you announced last quarter being pretty much fully implemented by now, and we're just sort of waiting for the ramp-up and get to that run rate. You also mentioned that there's an additional $20 million in EBITDA improvement projects for -- through 2027. Is it too early to ask you to provide sort of some major buckets of where that cost saving is going to come from? De Lyle Bloomquist: Well, it can be the same major buckets that we've had for 2025 and '24, which is around improving reliability, improving material usage on our variable inputs through automation, through, I would call it, preventative and even predictive maintenance practices and measuring devices so that we can capture or catch maintenance requirements before any kind of catastrophic failure. Those are the things we've been focusing on in the past. That's what we'll be focusing in the future. And as I said in the past, a couple of analyst calls, we have a good backlog of projects that we're going through to -- that we'll invest in. And as capital gets available, we'll execute, that will give us the returns that we've been seeing for the last couple of years on these type of investments. Those are generally the same -- the buckets, though, Dmitry, that we'll be investing similar to the investments we did last year or this year. Dmitry Silversteyn: Okay. So basically, kind of like a Japanese Kaizen approach where you just do better every time you go through this and get a little bit more out of it. De Lyle Bloomquist: That's exactly right. Exactly right. Yes. Dmitry Silversteyn: Okay. Okay. Great. And then my last question, you mentioned in your High-Yield Pulp business that there was a shipment delays of a business going to India, and that accounted for some of your volume losses in that business in the quarter. What was the nature of those delays? And have they been resolved? Is there going to be a catch-up in the fourth quarter? Or is this sort of missed until next year? De Lyle Bloomquist: It's just a timing issue. We'll capture it in the fourth quarter. And really, what it comes down to is the lane between Montreal, Canada and the ports in India, the capacity of those ocean lanes are pretty slim, pretty narrow. And as a consequence, if you miss a ship, then you got to wait a month, right, for the next ship to show up to take it to India. So that's really the issue that we're dealing with. Operator: Mr. Bloomquist, we have no further questions at this time. I'd like to turn the floor back over to you for closing comments. De Lyle Bloomquist: Okay. Well, thank you. In closing, just to reiterate, the temporary headwinds that defined 2025, we believe are now largely behind us and that our core business is now performing as expected. As we talked about in the Q&A, pricing negotiations are underway, and we will continue to value and put priority on value -- on the value we provide to our customers so that we can be able to get the money that needed to reinvest back into our assets. Our operations are stable, and our teams are executing with discipline. We have a clear strategy and a strong portfolio of high-return projects that position the company for margin expansion and stronger cash generation and we are very disciplined in our capital deployment. These actions should reinforce your confidence in our path to sustain the growth and the long-term value creation of the project or of the company. Our focus now is very simple: execute with precision and continue to demonstrate the strength and potential of the company. And thank you for joining us this morning. Operator: Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.
Operator: Thank you for standing by. My name is Kayla, and I will be your conference operator today. At this time, I'd like to welcome everyone to the 60-minute Sonos Fourth Quarter and Fiscal 2025 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to James Baglanis, Head of Corporate Finance. You may begin. James Baglanis: Good morning, and welcome to Sonos' Fourth Quarter and Fiscal 2025 Earnings Conference Call. I am James Baglanis, and with me today are Sonos CEO, Tom Conrad; CFO, Saori Casey; and Chief Legal and Business Development Officer, Eddie Lazarus. Before I hand it over to Tom, I would like to remind everyone that today's discussion will include forward-looking statements regarding future events and our future financial performance. These statements reflect our views as of today only and should not be considered as representing our views of any subsequent date. These statements are also subject to material risks and uncertainties that could cause actual results to differ materially from the expectations reflected in the forward-looking statements. A discussion of these risk factors is fully detailed under the caption Risk Factors in our filings with the SEC. During this call, we will also refer to certain non-GAAP financial measures. For information regarding our non-GAAP financials and a reconciliation of GAAP to non-GAAP measures, please refer to today's press release regarding our fourth quarter and fiscal 2025 results posted to the Investor Relations portion of our website. As a reminder, the press release, supplemental earnings presentation, including our guidance and conference call transcript will be available on our Investor Relations website, investors.sonos.com. I will now turn the call over to Tom. Thomas Conrad: Good morning, everyone, and thank you for joining us today. Q4 brings a strong close to fiscal 2025 for Sonos. In Q4, we grew revenues 13% year-over-year and posted strong positive adjusted EBITDA. 2025 was, without question, a transitional year for the company, but I'm proud of all we accomplished. We restored the quality of our software and now can speak confidently about the new capabilities we're delivering across the Sonos experience. We drove efficiencies and financial discipline into every aspect of our operations. We reorganized the way that we work in product and engineering. And as a result, today, we are executing with greater urgency, focus and effectiveness. Over the course of the last 3 quarters, you've also seen the work we're doing to rebuild our senior leadership team. And today, I'm thrilled to announce another important step on this front. In January, Colleen DeCourcy will join Sonos as our new Chief Marketing Officer. Colleen is one of the most celebrated creative leaders of her generation, bringing extraordinary taste, cultural insight and a proven ability to connect creativity with business growth. She joined us following a successful tenure at Snap, where she served as Head of Marketing and Chief Creative Officer and before that, as Co-President and Chief Creative Officer at Wieden+Kennedy. All of this progress creates a strong foundation of excellence from which to return to growth and expand profitability, but there is more to do. The company doesn't just need more discipline, better execution and a revitalized team. We need a new strategy. Over the last several years, Sonos has produced excellent products. But in thinking about what hardware to make, what software experiences to deliver and how to bring those offerings effectively to market, we've lost focus on what makes us different and better. And what's more, we've lacked an organizing theory of the case. I'm changing that, and I'd like to tell you a bit more about the details today. While others sell fragments, a sound bar for the TV, headphones for the commute, Bluetooth for the beach, Sonos is every dimension and sound for the home, music, movies, stories, rooms, formats, conversations and control, all connected into a single, cohesive and radically easy system. The pursuit of this system is now our organizing lens for decisions and the foundation of our durable advantage. The Sonos system is independent by design and is the premier platform to connect first- and third-party experiences with incredible audio. It's why today, Spotify, Apple Music, YouTube Music, Amazon Music and over 100 others all thrive on Sonos. It's also why we bring together Bluetooth, AirPlay, Spotify Connect and analog sources alongside formats like Dolby Atmos and Lossless Audio to uniquely deliver every dimension of sound. With our installed base of over 53 million smart Internet-connected devices and more than 17 million homes and growing every day, the Sonos platform is the trusted place where services old and new work side by side, giving households freedom of choice anchored in a system that they love. Casting into the future, we see a world where live natural conversations with AI personalities are as commonplace as smartphones are today. And we believe Sonos' expertise in Internet-connected, voice-enabled personal hardware products for the home can position us as the center of these interactions. Starting now, our future hardware and software road maps are single-mindedly directed at leveraging our position in the home to deliver bold experiences, both traditional and entirely new that will make Sonos even more relevant and beloved in the eyes of our customers. From a financial perspective, this strategy is underpinned by a compounding model built on generating new households and increasing lifetime value. Generating new households means bringing more homes into the Sonos ecosystem, growing our installed base through great gateway products, sharper marketing that tells our story more forcefully and continued international expansion. Increasing lifetime value is about deepening our relationship within every household. That starts with engagement, delivering products that become an essential part of everyday life and then encouraging people to grow their Sonos systems over time, whether that's adding more rooms, headphones or building out a comprehensive home theater experience. At the end of fiscal 2025, the average Sonos household grew their system to 3.13 products and multiproduct households increased to an average of 4.49, still well below what we believe a fully realized Sonos home can become. But lifetime value isn't just about how many products someone owns, it's about the horizon over which they're investing in their Sonos systems. We want households to keep upgrading, expanding and discovering new ways to enjoy Sonos for decades. We'll do that by keeping system fresh through reliable software, excellent service and product updates that inspire people to reinvest in Sonos. As one example of the power of this compounding model, we see a $5 billion revenue opportunity in driving devices per multiproduct household higher to 6 per home and another $7 billion in converting single product households to current multiproduct levels. Taken together, this alone is a $12 billion opportunity just within our existing base. Our opportunity is to write the next great chapter for Sonos. For the last many years, we were just selling speakers and experimenting with new categories. Today, we're building a cohesive system that compounds in value, stronger as it grows, smarter as it evolves and more essential over time. We hold just 6% of the $24 billion global premium audio market. There is no reason we cannot garner a much larger share of this market while we simultaneously grow the sound system category that we invented. While our strategy will take time to fully manifest in our hardware portfolio, including the delivery of entirely new products for use cases and spaces in the home that we do not occupy today, we enter fiscal 2026 with an incredible portfolio of products that we are bringing into tight alignment with the strategy through software updates. We'll further strengthen the family with new hardware products launching in the second half of the year, and we'll continue to sharpen our brand storytelling, expand internationally, drive excellence in our installer channel and partner selectively to reach new audiences. As we turn this page, we also continue to execute effectively and with discipline. We've reduced our operating expense run rate by more than $100 million while selectively investing in the opportunities where our conviction is highest. We've kept margins healthy even while navigating tariffs. We've grown adjusted EBITDA despite top line challenges. We've invested in innovation to unlock future growth while returning capital to shareholders through buybacks. And we've deepened our relationships with our channel and installer partners. What drives all of this is the world we're building for our customers, a home that comes alive with sound and experiences that move seamlessly between moments, moods and spaces where every product, software component and interaction works together and the whole becomes much greater than the sum of its parts. I've said before that Sonos is one of the few companies in the world with the ingredients to build beloved consumer products at the very highest level. As we enter fiscal 2026, I've never been more certain of our ability to do this. I see it in the passion of our team in the way customers respond when we make their systems better and in the discipline with which we've reshaped the company around our core strengths. Great things lie ahead. Now let me turn things over to Saori. Saori Casey: Thank you, Tom. Hi, everyone. We closed out fiscal 2025 on a high note as we delivered strong Q4 financial results. Revenue of $288 million was near the high end of our guidance range, driven by solid demand. On a year-over-year basis, revenue grew 13% versus our guidance of up 2% to 14%. We saw strong double-digit growth in EMEA and our growth markets more than doubled in Q4. Our growth markets contributed more than 1/4 of our overall Q4 growth rate. On a product basis, we also achieved strong double-digit growth in home theater and plug-ins. Q4 GAAP gross margin was 43.7% and non-GAAP gross margin was 45.1%, both at the high end of our guidance range. Compared to last year's Q4, gross margin improved nearly 340 basis points on a GAAP basis and more than 400 basis points on a non-GAAP basis, driven by comp over onetime hits in prior year from inventory reserves to app recovery-related costs, in addition to cost savings and leverage, partly offset by impact of tariffs this year. Q4 GAAP operating expenses were $160 million, down 7% year-over-year. Non-GAAP operating expenses of $135 million were down 6% year-over-year. On a normalized basis, primarily for variable compensation, non-GAAP operating expenses declined by 19% due to cost optimization efforts we had set out in August of last year. Adjusted EBITDA was positive $6 million, which was $4 million above the midpoint of our guidance range. This is a $29 million improvement year-over-year due to higher revenue, better gross margin and lower operating expenses. Our balance sheet remains strong as our net cash balance ended the quarter at $228 million, which includes $53 million of marketable securities as we hold some excess cash in short duration treasury bills. We also have an undrawn revolving credit facilities at our disposal, which we just extended for another 5 years. Q4 cash flow was negative $2 million, up from negative $54 million last year, primarily due to higher cash earnings. CapEx was $5 million, down from $16 million last year. Our period-end inventory balance declined 26% year-over-year to $171 million as we comp over last year's inventory build ahead of launch of Arc Ultra and Sub 4 and work down of component inventory. Our inventory consists of $153 million of finished goods and $18 million of components. As I said in the past, returning capital to shareholders remain a key pillar of our capital allocation framework. Accordingly, we spent $20 million of share repurchases in Q4 at an average price of $13.39, reducing our share count by 1.3%. For fiscal 2025, as a whole, we spent $81 million to repurchase 5.7 million shares at an average price of $14.23. We have $130 million remaining on our current share repurchase authorization. In addition to keeping our share count in check through regular share repurchases, we're managing dilution through the actions that we took to reorganize and reduce layers of senior management, which has resulted in our annualized stock-based compensation expense decreasing from $101 million in Q1 to $68 million in Q4. For the full year, our revenue was $1.44 billion. While our overall revenue declined 5% year-over-year, we saw strong double-digit growth in our growth markets, which contributed almost 1 percentage point of growth rate to total revenue. We also saw growth in home theater, which helped us gain further share in U.S. premium home theater for the third year in a row, where we retained our #1 position. We also improved our share in EMEA, where we hold the #2 position in premium home theater. In fiscal 2025, we grew our installed base 5% to 17.1 million households. Devices per average household grew to 3.13, up 2% from the prior year. We also saw growth in devices per multiproduct household, which improved to 4.49, up 2% year-over-year. Consistent with past years, our existing households accounted for 45% of product registrations. GAAP gross margin came in at 43.7%. Non-GAAP gross margin of 45.2% was down just 60 basis points year-over-year despite price decrease on key products and tariffs due to cost savings efforts and product mix. Our GAAP and non-GAAP operating expenses declined by 8% and 10%, respectively, on a reported basis and 16% and 17% on a normalized basis. Adjusted EBITDA increased 23% year-over-year to $132 million, driving 210 basis points of margin improvement to 9.2%. This is a direct result of our transformation efforts over the past 5 quarters, which have resulted in Sonos becoming a leaner and more focused organization with sharper financial discipline. As we continue our transformation journey and gain operating leverage through top line growth, we expect to increase our margin over time. Non-GAAP earnings per share grew 31% to $0.64 due to lower operating expenses and reduced diluted share count. Lastly, free cash flow was $108 million, down from $135 million in fiscal 2024 due to $35 million of nonrecurring items this year. Excluding these nonrecurring items, which included $24 million of cash restructuring payments and $11 million of tax payments for intercompany transfer of IP, fiscal 2025 cash flow would have been $144 million, up [ $9 billion ] or 7% year-over-year. Turning to our guidance. The Q1 outlook we're providing today reflects the trends that we have observed quarter-to-date as well as our expectation of demand in the holidays. We expect Q1 revenue to be in the range of $510 million to $560 million, down minus 7% to up 2% year-over-year. Growth in underlying demand should be slightly positive at the midpoint, better than the year-over-year change in revenue as we comp over launch and channel fill of Arc Ultra and Sub 4 in Q1 of last year. Looking beyond Q1, we expect improving year-over-year comparison with new product launches concentrated in the second half of fiscal 2026. We expect Q1 GAAP gross margin to be in the range of 44% to 46% with non-GAAP gross margin approximately 110 basis points higher than GAAP. This represents a year-over-year increase of more than 100 basis points increase at the midpoint for both figures. This guidance comprehends the impact of tariffs and pricing changes. Please note that we expect our Q1 gross margin to benefit from the following 2 factors: one, leverage from holiday sales volume; and two, a lower effective tariff rates, thanks to our seasonal inventory build in Q4. We expect our effective tariff rate to step up and stabilize in Q2, representing a further 100 basis point headwind versus Q1. We expect Q1 GAAP operating expenses to be in the range of $152 million to $162 million, down 19% at midpoint from last year, with non-GAAP operating expenses to be lower than GAAP by approximately $16 million. Please note that our operating expenses will vary quarter-by-quarter in part due to timing of product launches and associated expenses. Bringing it all together, we expect Q1 adjusted EBITDA to be in the range of $94 million to $137 million, representing year-over-year growth of 27% and a margin of approximately 22% at midpoint of roughly 500 basis points of margin expansion. When I first outlined our transformation journey in August of 2024, we committed to improving efficiency, regaining profitability and investing in long-term growth. In fiscal 2025, we executed on this pivotal work, growing adjusted EBITDA by 23% and non-GAAP EPS by 31%. Our results reflect the progress we've made in becoming a leaner and more nimble organization. Furthermore, we evolved our pricing strategy with an eye towards growing households and increasing lifetime value. I want to thank the entire Sonos team for their commitment and resilience in executing and adapting to many changes this past year as we navigate this journey. It is important to note that this critical improvement in our profitability did not come at the expense of future growth. Though we have significantly reduced our operating expenses, we have grown our investments in enhancing our core software experience, expanding our global footprint and investing in our people. We'll remain disciplined as we focus on returning to durable top line growth, balancing continued profitability improvements with reinvesting efficiency gains and advancing our pricing framework in alignment with our corporate strategy to strengthen our platform, attract new households and increasing customer lifetime value. With only a small fraction of the global market captured so far, our view is that there is a vast opportunity in front of us. After the call, we will upload our new investor presentation to our IR website, which has been updated to reflect the strategy Tom described earlier in the call as well as our fiscal 2025 results in our Q1 guidance. With that, I'd like to turn the call over for questions. Operator: [Operator Instructions] Our first question comes from the line of Steven Frankel with Rosenblatt. Steven Frankel: Tom, you've laid out an interesting new description of your strategy. And I'd like to drill down just a little bit. To date, you relied on third parties like Alexa for bringing intelligence to the product. Are you talking about maybe trying to bring some of those capabilities in-house when you're describing AI interactions with your products? Thomas Conrad: I think you'll see us be a platform for both third-party AI experiences as well as our own first-party experiences in the same way that in the past, we hosted Alexa and Google Assistant and our own Sonos Voice experience. So I think there's tons of opportunity in both of those lanes for us. Steven Frankel: Okay. And then in terms of the holiday season, could you give us some insights into your promotional posture for holidays and what you expect your competitors to be doing at this point? Saori Casey: Steven, it's Saori. Thanks for the question about the holidays. Clearly, the holiday -- the peak of the holidays are still ahead of us and with some of the tariff-related activities, mitigation factors that we've put in place. We're monitoring that. And so far, those are coming in as expected. And so that's comprehended in our guidance that we provided on the call. We're continuing to see demand track so far. And so as we go into the holidays, we have some of the usual activities that we're contemplating, but combined with some of the, again, the tariff mitigation activities that we have contemplated. And so we are monitoring how those play out. Steven Frankel: And should we expect you to -- given your desire to improve the products per household and get upgrades going, extend a lot more efforts going forward in the installed base through e-mail marketing and promotions to the installed base as opposed to advertising, marketing promotions in the channel in general? Saori Casey: Yes. One of the things I mentioned on the call or referenced was the pricing strategy that we're now starting to take, which is in alignment with the strategy that Tom described on the call, which is exactly to improve the household acquisitions, but the quality household that will provide the repurchase cycle. And so the pricing strategy that we have started to reorient ourselves in the spring when we, in particular, reduced the pricing of the Era 100 speaks to product selectively that we're taking on the pricing where we'll bring in the quality household with the tendency for the future repurchases and maximizing our lifetime value from our customers. Thomas Conrad: I was just going to add. I think it's important to remember that there's really kind of these 2 levers in the model. The first is growing households. And so part of growing households is going to be about doing a better job of telling a sort of full funnel marketing message from driving awareness for the Sonos system to gaining consideration among consumers and then driving to purchase for new households. We'll do that through better gateway products, more compelling experiences, better differentiation and stronger marketing. And then as you point out, there's real opportunity for us around better engaging with our existing customer base to drive expanded lifetime value, and we'll do that through both the current product portfolio, marketed better and through entirely new products that will drive new use cases in the home for our customers. Operator: Your next question comes from the line of Erik Woodring with Morgan Stanley. Erik Woodring: Tom, I think it's really exciting that you can lay out this new strategy for Sonos. And I just wanted to ask you about it. Again, I guess I'm putting words in your mouth here, but it sounds a little bit like you're attempting to become more of a broad-based smart home platform because obviously, to date, the differentiating Sonos value prop has been the system of connected sound devices that you've provided. So when you say a cohesive system that compounds in value, can you maybe just give us a little bit more granular understanding of exactly what that means and maybe some of the adjacencies that you're referencing? And then I have a quick follow-up, please. Thomas Conrad: Sure. I'd like to start by kind of contrasting what we're doing under this new strategy to where we've most recently been. I think for the last -- maybe as many as 7 or 8 years, the company has been very focused on building great individual products, best-in-class sound bar, a best-in-class pair of noise canceling headphones, a best-in-class portable speaker. And the execution of the company from product to marketing has really reflected that category approach. And what we're doing with this strategy is going to seem at some level familiar because in a way, it is a return to form. Sonos started as a connected system, not just this kind of loose collection of products. And so thematically, we are going back to our roots. But I think what has changed in the last decade is the scale of what system can mean today. Early Sonos really just connected a few rooms together to play music in sync and frankly, at the founding, not even from the Internet, from a collection of MP3 files that sat on a hard drive in your home. Fast forward 20 years, the canvas is just far, far bigger. We have hundreds of services, formats, traditional voice control and this whole new explosion of AI personalities that I think can all come together in the home. And so yes, we are evaluating the opportunity for ambience in the home and entertainment in the home outside of just audio and video and film. But I think better to think about like the entirety of the canvas of what the consumer experience can be in the home and what the Sonos platform with our 17 million homes, more than 53 million Internet-connected voice-enabled devices already in the field, what that platform can become in this sort of new era. Erik Woodring: Okay. I got you. That makes sense. I'm looking forward to hearing more about that as we keep going. And then say, can you maybe help us better understand how you guys are absorbing what I think are relatively outsized tariff costs? Like if I just say 60% of your business is in the U.S. and the average tariff rate in the areas where you produce your devices is, call it, roughly 20%. That's a pretty sizable tariff headwind. We're talking like several tens of millions of tariff -- incremental tariff costs. So at the same time, I think you're trying to open your funnel a bit with certain pricing actions. So just can you help bring it all together and help us understand, obviously, a very strong 1Q profitability guide even before we get to the OpEx dynamics. How are you absorbing all of these costs? Thomas Conrad: Erik, I'm going to jump in here because I'm just so proud of how the company has reacted to this unexpected headwind that sort of fell in our lap in April. And it's taken a real kind of not just cross-functional effort inside of Sonos, but in our entire ecosystem of working with our partners to get to the mediation of these tariffs that we've been described in Saori's remarks. But just to put some numbers to it, so you can think about it. In Q1, we're looking at about 300 basis points of margin impact due to tariffs at their sort of current blended rate. Virtually all of that impact has been mitigated by our actions. And so what are those actions? Those are pricing, those are how we're using promotion. That's all the work we've done with our channel partners to share the burden of these costs. So great progress for Q1. Now looking forward to Q2, the blended rate -- the tariff rate stays the same, call it, about 20% on the products that we make in Malaysia and Vietnam that come to the United States. But as the sort of blended effective rate fully sort of lands in Q2, we see that margin impact in total, it was 300 basis points become about 400 basis points. And so our mitigations sort of are already fully landed. They're going to land at about that 300 basis points place. So in the end, fully realized, we'll see about 100 basis points of margin impact across the whole business due to the tariffs. Again, this is just one of those things, those curve balls that you tackle in a company like ours. I'm just really, really proud of all of the hard work that the team has done. And frankly, also how well it's all landing in the market because, of course, going into it, there's a lot of modeling that you do, a bunch of analysis, particularly around the elastic response to things like price changes. And I think the team has done just a great job of predicting where the market would be. And so far, we're seeing that our estimates are really playing out in the real world. Erik Woodring: Well, okay. That is awesome. That is very impressive. And maybe just the last one, and this is kind of open-ended for you, Tom, is you characterized 2025 as a transitional year. How are you characterizing 2026 today? And then that's it for me. Thomas Conrad: Thanks. I mean I really feel like it's a whole new chapter. I mean last time we were together on the call, I had just been named the CEO and described that when you're an interim CEO, particularly under the circumstances that I came into Sonos, you're focused kind of on the immediate horizon. And we did a lot of work to sort of transition the company in 2025. And I really feel like we're turning the page on a new chapter for the company now. We're looking much farther out on the horizon. I'm so excited about Colleen joining us to breathe new creative energy and execution into our marketing organization. We've delivered a strategy that brings the entire company together around the Sonos system. And we're beginning to execute on the road map that will land first a whole set of new experiences powered by software and to land new messaging in our marketing that will tell the world about what we intend to be and the services that we can provide in their homes. And then in time, of course, you'll see new hardware expression of the strategy come to market as well. And it's just -- I mean, honestly, it's just sort of a delight to get to be focused on the next chapter of Sonos and to feel like the transition is now behind us. Operator: And your next question comes from the line of Brent Thill with Jefferies. Brent Thill: Just to follow up on the heels of that question. Just when you think about being in the C5 months, I know you've had a playbook, but as you kind of put it, you're now the full-time coach. So on this new playbook that you're unveiling, maybe if you can give us just a hint of how you think about the biggest areas of improvement and the action plans to achieve those improvement plans. Thomas Conrad: I'm an engineer and builder by background. And when you face a new sort of opportunity, product definition, the first work that you do is sort of decompose it into its constituent parts and begin to execute. And so much of what we've been doing is that work of decomposition of building the right team, improving our operating discipline, setting out a clear strategy to the team, setting a financial model that we know will drive growth and then doing the work of defining what are the product executions that deliver on the strategy. And so for my part, I'm just -- I'm excited about doing that decomposition and getting to work on the constituent pieces with the entirety of the company behind me. And I'm just -- again, I'll just reiterate my enthusiasm for where I think we can be in time. Brent Thill: I guess the question we get is how much change needs to happen in your mind for you to get and achieve this? Is this a fine-tune? Or is this more of a drastic overhaul? Thomas Conrad: I think we're really building from a place of strength here. We have tens of millions of Internet connected voice-enabled devices of the highest quality in 17 million homes. We've got a software platform that was designed from the ground up for both third and first-party services to express themselves. We have best-in-class sound and microphone technology. We now have an incredible world-class marketing leader at the helm of our marketing organization. And I think at the end of the day, in most cases, setting the strategy is a tiny fraction of the work, and it's just about execution after that. And so now we're really just in execute mode. Saori Casey: Just to add to that, Brent, this is Saori. Some of the other activities that we've already have started reoriented, as Tom called 2025, the transition year that we're looking forward to advancing is things like the pricing strategy that we started to implement in the middle of FY '25 that we're starting to see some of the fruit of that. And with Tom's new strategy that's being more clearly articulated, we're really aligning that sort of the portfolio view of how we look at our products and how we price and how we expect the margin of those products with a lifetime value of the customer in mind as well. And so that's another aspect of how we're approaching the company differently than in the past that we can speak to. And this is all in addition to some of the OpEx cost optimizations that we've been doing, the transformation work that we've been doing that has taken, as Tom said, over $100 million, and there are more efficiencies that we're working on that we're really actively looking to where to best invest for the future growth of the company. So there's many aspects of how we operate are different than in the past that I wanted to just add to the point that Tom is making. Brent Thill: Yes, that's great. Just while we have you, just when you mentioned EMEA was strong in the quarter, maybe just double-click into what you're seeing in EMEA. Saori Casey: Yes. No, aside from some of our execution, we are seeing also some parts of EMEA market also doing as well. But certainly, we've seen EMEA respond well to some of these pricing changes that we've made in the middle of the year and products like Arc Ultra, that's more of a global speak, has done really well at the home theater space. They've continued to gain share in the space. And so both between the innovation of the products that we have and the pricing strategy and how we're approaching some of these markets that have been relatively depressed in the last couple of years. EMEA had been hit even harder than U.S. in the past years. And so we're starting -- we're really excited to see some of the recoveries that we're seeing in those markets. In addition, as we also mentioned, we're looking at some of the geographic expansions as well. And so there are some markets that we focused on that are also starting to fruit. Operator: [Operator Instructions] And there are no further questions at this time. Tom Conrad, I'll turn the call back over to you. Thomas Conrad: Thank you. Just as we close, I want to come back just for a second to the heart of our strategy. At the center of everything we're working on is the Sonos system. One connected experience that gets better with every product, update and household we add and most importantly, where the whole is far greater than the sum of its parts. It's a pretty simple idea with enormous potential, and I'm so excited about where we're headed. I also want to thank the team for the hard work that brought us here, our partners for the incredible teamwork they've shown us this year and our investors for believing in me and where the company is headed. So thank you so much for joining us today, and we look forward to talking to you next quarter. Operator: This concludes today's conference call. You may now disconnect.
Operator: Good day, everyone, and thank you for joining for today's First Capital REIT's Q3 2025 Results Webcast and Conference Call. [Operator Instructions] Also a reminder, today's session is being recorded. And it's my pleasure to turn the floor over for opening remarks and introductions to Mr. Neil Downey. Please go ahead, sir. Neil Downey: Thank you, Jim, and good afternoon, everyone. In discussing our financial and operating performance and in responding to your questions during today's call, we may make forward-looking statements. These statements are based on our current estimates and assumptions, many of which are beyond our control and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those expressed or implied in these statements. A summary of these underlying assumptions, risks and uncertainties is contained in our securities filings, including our Q3 MD&A, our MD&A for the year ended December 31, 2024, and our current AIF, which are available on SEDAR+ and our website. These forward-looking statements are made as of today's date, and except as required by securities law, we undertake no obligation to publicly update or revise any such statements. During today's call, we will also be referencing certain non-IFRS financial measures. These do not have standardized meanings prescribed by IFRS and should not be construed as alternatives to net income or cash flow from operating activities determined in accordance with IFRS. Management provides these as a complement to IFRS measures and to aid in assessing the REIT's performance. These non-IFRS measures are further defined and discussed in our MD&A, which should be read in conjunction with this conference call. And with that, I will now turn the call to Adam. Adam Paul: Okay. Thank you very much, Neil. Good afternoon, everyone, and thank you for joining us today for our Q3 conference call. We're very pleased to deliver another strong quarter of operating and financial results. It has been a great start thus far in 2025 for FCR. In the third quarter, same-property cash NOI grew by a healthy 6.4%. This excludes lease termination fees and bad debt expense. In round numbers, a little over 2% of the NOI growth was from increased occupancy and new tenants paying cash rent at One Bloor East. All other factors, which are primarily higher rents across the balance of the portfolio, contributed a little over 4% of same-property NOI growth. On a year-to-date basis, same property cash NOI, excluding lease termination fees and bad debt expense, has increased by 6%. This is a very healthy growth rate for our business. And as you've heard from Neil on prior calls, it has exceeded the expectation we had at the beginning of the year. The primary driver of this outperformance has been better-than-expected leasing. With demand continuing to exceed supply for FCR-type retail space, we expect our properties will continue to perform well. Following a record high occupancy level of 97.2% in Q2, occupancy remained solid at 97.1% in the third quarter. Our average in-place net rental rate in Q3 stood at just over $24.50 per square foot, which is an all-time high. During Q3, we renewed approximately 550,000 square feet across 146 spaces. Net rental rates in year 1 of the renewal terms averaged $27.41 per square foot representing a year 1 renewal rent increase of over 13%. Approximately 3/4 of our renewed leases in the third quarter included contractual rent escalations throughout the renewal terms. This resulted in a renewal lift of over 18% when comparing net rents in the last year of the expiring terms to the average net rent during the renewal terms. In addition to renewal leasing, we also completed approximately 150,000 square feet of new leasing at FCR share across 55 spaces. Leasing continues to be very strong. We own great assets and our leasing team's deep understanding of the strong fundamentals for our product type which I discussed in detail last quarter, positions them well to capitalize on countless opportunities for rent growth. We continue to have confidence that these market dynamics provide a very long runway for accelerated and sustained rent growth for our portfolio. We're now just over halfway through our 3-year strategic plan that we presented to our investors at the beginning of last year. At its heart, the plan is focused on delivering on 3 primary investor objectives: stability and consistent growth in FFO per unit, growth in NAV per unit and absolutely stable, reliable monthly cash distributions to our investors and growth in those distributions over time. The business continues to perform exceptionally well. So we remain on track to achieve the operating FFO per unit growth and debt-to-EBITDA metrics that are the core premise of our 3-year plan. Through the first 21 months of the plan, our operating FFO per unit CAGR, excluding several positive but nonrecurring items, is approximately 5%. We're tracking ahead on OFFO. Our debt to EBITDA has improved to the low 9s and is on track to improve further throughout 2026. We're very pleased with our results to date. And with that, I will now pass things over to Neil to expand on them. Neil Downey: Thanks, Adam. Consistent with our usual practice, we also have a slide deck available on our website at www.fcr.ca. And in my remarks, I'll make a number of references to that presentation. So let's start with Slide 6. FCR generated operating FFO of approximately $72 million during the third quarter. This compared to $73 million in Q2 2025, and it was down from $77 million in the third quarter of 2024. The prior year results were elevated by the recognition of an $11 million density bonus, which was included in interest and other income. On a per unit basis, Q3 2025 OFFO was $0.33. This was down very slightly from Q2, and it was 7% lower than the $0.36 earned in the third quarter of 2024. Excluding the 2024 density bonus income of $0.053 per unit, the FFO growth rate was 9% during the quarter on a per unit basis. So once again, we characterize the Q3 results as being very strong, with same-property NOI growth as the key driver. Now turning to net operating income specifically. Same-property NOI, excluding bad debt expense and lease termination fees was $111 million in Q3. This represents 95% of total NOI. The year-over-year growth was 6.4% or $6.7 million relative to approximately $105 million in Q3 2024. Results for the quarter also included $900,000 of lease termination income. We currently expect upwards of $1 million of additional lease termination income in the fourth quarter of this year. On a year-over-year basis, the NOI loss from dispositions was approximately $1.6 million. This relates to property sales totaling $174 million from Q4 of last year through to the end of the third quarter of this year. And finally, within other non-same-property NOI, there's a $1.3 million year-over-year decrease. $1.2 million of this amount relates to lower straight-line rent. Further down the FFO statement, interest and other income of $5.4 million was $2.5 million lower year-over-year. This is due to lower interest income on cash balances. And it's really a function of timing in the prior period. FCR carried more than $400 million of cash in the early part of the third quarter of 2024. This was in preparation for funding a $300 million debt maturity. Moving on to general and administrative expenses, which were $10.2 million. This was a 4% decline year-over-year. We've carried a handful of vacant positions this year, and we've been very focused on containing discretionary expenses. Turning to Slide 9. It summarizes the 9 months results. And here, we generated same-property NOI growth of 6%, excluding lease termination fees and bad debt expense. We expect a solid finish to the year, and as such, we believe FCR can deliver 2025 same-property NOI growth of at least 5%, which is ahead of prior expectations. Slides 8 and 9 cover key operating metrics, most of which Adam has already touched upon. And really, the theme remains quite consistent through the third quarter with continued and broad strength across our key occupancy, leasing velocity, leasing spread and rental rate metrics. Slides 10 and 11 look at various distribution payout ratio metrics. During Q3 and on a year-to-date basis, FCR's FFO and AFFO payout ratios are running in the high 60% range and the mid-80% range, respectively. Advancing to Slide 12. The REIT's September 30 net asset value per unit was $22.29. This is an increase of $0.09 from midyear and it's a year-over-year increase of $0.37 or about 2% from $21.92 at September 30, 2024. The NAV change during the quarter included a very small net fair value increase of $1 million. Now for a bit more context, beneath the surface of this net number, FCR recorded total fair value increases of $68 million related to higher NOI and cash flow assumptions. These principally related to our core multi-tenant grocery-anchored shopping center portfolio. There was also a fair value increase of approximately $8 million in the quarter related to the mark to sale price of our Anjou development site, which was sold during the quarter and 1 small other asset. These fair value increases were largely offset by $75 million of fair value losses. And really behind the losses were 2 themes: these included lower valuations for residential development properties in the Greater Toronto area and lower values for certain operating multi-res properties where market rental rates continue to be a bit soft. Turning to capital investments as outlined on Slide 13. In the third quarter, $57 million of capital was invested into the business, bringing the 9-month to-date number to $160 million. Q3 capital investments included $43 million of development-related expenditures and $14 million of leasing costs and CapEx into the operating portfolio. The most significant development expenditures during the quarter related to our Yonge and Roselawn development, the Humbertown Shopping Center redevelopment where Phases II and III are advancing nicely and our 1071 King project. It was a fairly quiet quarter on the financing front, as summarized by Slide 14. On July 31, we repaid the maturing Series S debenture, which has a principal amount of $300 million and an effective interest rate of 4.2%. The cash resources for this repayment had been raised in mid-June through the issuance of a $300 million Series E debenture. We and our partner also financed the Whitby property with a new 5-year $38 million mortgage having an effective rate of 4.7%. This financing provided cash to First Capital of $19 million. Slides 15 through 17 summarize some of the key credit metrics and the REIT's debt maturity profile. FCR is in a strong financial position. The business ended Q3 with more than $650 million of liquidity in the form of cash and availability on the 3 revolvers. The unencumbered asset pool had a total value of $6.4 billion, equating to nearly 70% of total assets and the secured debt to total asset ratio was a low 16%. FCR has only 1 debt instrument maturing in Q4 which is at the $11 million share of a mortgage on Amberlee Shopping Center located in Pickering, the maturing debt has an interest rate of 6.2%. And this Friday, we'll be up-financing the property with a new $30 million 7-year mortgage of which FCR's share is 50%. The interest rate roll-down will be approximately 200 basis points and even though there will be only a small savings in our total interest expense, FCR will generate $4 million of cash proceeds from the up-financing. Now before wrapping up my prepared remarks today, I'll make a few comments related to the upcoming special meeting of unitholders. The meeting relates to a planned internal reorganization that will simplify First Capital's structure. During the quarter, we recorded approximately $2 million of restructuring and advisory costs. And in the fourth quarter, we currently expect to incur roughly $3 million of additional costs related to the planned internal reorganization. These costs have and will be grouped with other gains, losses and expenses, and as such, they're excluded from operating FFO. In terms of time line, on October 1, the REIT Board of Trustees unanimously approved the proposed reorganization. Last week, on October 27, we announced the special meeting date which is Monday, November 24, and the meeting materials were also mailed to unitholders last week with those on record as of October 20 being entitled to vote. This is a reorganization that FCR's tax team and advisers have been working on for many months. It will be completed by way of a plan of arrangement under the Business Corporations Act Ontario with an effective date of November 30. So what does this all mean. Well, in layman's terms, the effect of the arrangement will be to flatten and simplify First Capital's organizational structure. The reorganization will be accomplished through a series of steps that ultimately see the elimination of First Capital Realty Inc. as the REIT's wholly owned subsidiary that owns directly and indirectly all of the FCR property portfolio. First Capital has received an advanced income tax ruling from the Canada Revenue Agency in connection with the steps of the arrangement. The arrangement will not result in a change to FCR's overall strategy, portfolio or operations, and there's no change to FCR's outstanding units. They continue to trade on the TSX, same ticker symbol, same CUSIP number, current FCR unitholders continue to own the same number of trust units they held before the arrangement, and there will be no direct tax consequences at the time of the reorg. Having said this, there are several key benefits from the arrangements, including, number one, simplification. The arrangement is expected to simplify First Capital's operating structure and reduce the significant complexity of legal and accounting and reporting as well as income tax compliance inherent in the existing structure. Part of the simplification will include the alignment of tax years across the REIT's subsidiary LPs, trusts and corporations. Secondly, tax efficiency. Post reorg, FCR will become a full -- fully flow-through entity holding its interest in the underlying trusts and LPs directly. This will allow income to pass to unitholders in a tax-efficient manner into perpetuity. And in this regard, the elimination of FCRI as the principal corporate subsidiary, means that substantially all of FCR's $740 million deferred tax liability will be credited to unitholders' equity through a deferred tax recovery in the fourth quarter of this year. And the third benefit relates to unitholder taxation. Beginning in 2026, cash distributions to unitholders will mirror the income profile of FCR's underlying real estate business. Since converting to a REIT in 2019, distributions to date have been effectively 100% taxable. Future distributions, however, will include taxable income but we also expect there will be some periodic capital gains distributions, which are only 50% taxable as well as a tax deferred return of capital component within the regular distribution. Any return of capital, of course, is not taxable upon receipt by unitholders. Instead, it reduces the investors' adjusted cost base in the units and therefore, defers the taxation until the future sale of those units. We, the REIT's executive leadership team, have a meaningful amount of our investable net worth in FCR units. We're financially aligned with investors, and we're very enthusiastic about the benefits of the reorganization. So this concludes my prepared remarks. I'm now pleased to turn the session to Jordi to elaborate further on FCR's recent investing and related activities. Jordan Robins: Thank you, Neil, and good afternoon. Today, I will update you on our investment, development and entitlement activities. Starting with dispositions. During the third quarter, we closed or entered into binding agreements on 3 properties with gross proceeds of $39 million. The most notable of these sales was Place Anjou, a 4.7-acre site in Montreal's East End with 2 freestanding retail buildings totaling 52,000 square feet of GLA. The $33 million sale of this future residential development, which closed in July represented a 30% premium over our IFRS value and equated to a mid-2% yield based upon income in place. During the third quarter, we also entered into a binding agreement to sell a property we own, located on [indiscernible] in Montreal. This is an IPP site tendered by an Avis car rent location. At $4.5 million, it's a small transaction of a nonstrategic FCR asset, but at a 3.4% yield on its income in place, it's a logical and an accretive sale. Closing is scheduled for December 2025. We are active on several other dispositions, and we will update you on these files as they advance. On the acquisition front, we completed the purchase of a 50% interest in an 18-acre vacant and unimproved development site located in the Ottawa suburb of Canada. Capitalizing on the property's 2 existing signalized access points and its strategic location within a major retail node, we plan to develop a large retail shopping center site. Turning to development. Phases 2 and 3 of our modernization and expansion of Humbertown Shopping Center continues. On September 30, Loblaws, whose store sits in Phase 2 of our redevelopment took possession of their renovated and enlarged 34,000 square foot premises. They anticipate opening in Q2 2026. Phase 3, which includes a newly created 20,000 square foot Shoppers Drug Mart and the Scotiabank along with a number of other to-be-announced tenants are on target for completion in the second half of 2026. On completion of the redevelopment, we will have added a total of 23,000 square feet removed all of its enclosed common area and Humbertown will look and feel like a brand-new grocery and pharmacy-anchored shopping center with anchors in ideal formats paying market rents. Looking at the associated financial returns, we will have invested approximately $45 million on this redevelopment and will generate an unlevered return that exceeds 7%. We are also redeveloping a small property that we own in Calgary, The property is located in Bridgeland, a very desirable and gentrifying neighborhood close to Downtown Calgary. The new building will be entirely occupied by Shoppers Drug Mart with a turnover scheduled in Q4 of 2025 and their opening is slated for Q2 2026. We currently have other opportunities in the planning stages, including the redevelopment of several other shopping centers. We look forward to providing in detail on this redevelopment work in future quarters. Our active mixed-use developments continue to advance as well. At Yonge and Roselawn, we remain on schedule and on budget. We own 50% of the 636-unit residential rental building with 65,000 square feet of prime retail space and serve as its development manager. The second floor slab will be completed this month and formwork is progressing to the third floor. 82% of the project costs are now awarded. Construction of our 1071 King Street West development project in Liberty Village also remains on schedule and on budget. Formwork for the 11th floor slab is underway and precast and window installation is also underway. You'll recall, we own 25% of this 298-unit, 17 story, 225,000 square foot purpose-built residential rental project, including 6,000 square feet of at-grade retail space. During this past quarter, residential occupancy commenced at our Edenbridge condominium development, which forms part of our residential inventory. Possessions have gone very well. To date, 124 owners of the 187 units sold have been given possession with 1 purchaser in the fall. Turning to entitlements. In 2025, we anticipate that we will receive approvals for 2.9 million square feet of incremental density at share. This year, we also expect to submit rezoning applications for a further 1.6 million square feet of incremental density. To date, netting out the density we've already sold, we've submitted for entitlements on approximately 18 million square feet of incremental density. This represents 77% of our 23 million square foot pipeline. As the entitlements are secured and encumbrances removed, we plan to monetize its value through the sale of 100% interest like we did in Montgomery and Anjou or a partial sale to a strategic partner like Yonge and Roselawn. We look forward to sharing further details with you as we advance. Thank you for your time today and your continued support of FCR. And with that, operator, we can now open it up to questions. Operator: [Operator Instructions] We'll take our first question today from the line of Lorne Kalmar at Desjardins. Lorne Kalmar: On the disposition side of things, there was obviously a little bit of progress made this quarter. But there's still a decent amount of wood to chop in 2026. As we sit here in November, I guess, is achieving the $750 million target, and I guess, more importantly, the low 8x leverage target by the end of '26 still feel realistic? Adam Paul: Lorne, it's Adam. Well, short answer is yes. Agreed some wood to chop, always some wood to chop. Just for your reference, one of the things we do, do every quarter is review all of the key metrics outlined in the 3-year plan. And as you saw, I think it was a couple of quarters ago, we had a couple of changes versus what we presented initially and so we updated it. So what you should expect is that if we do expect changes to occur regardless of what they are in terms of the key metrics that we've outlined, we will be updating that on a quarterly basis. So where we sit today we're a little over halfway through the 3-year plan, metrics like same-property NOI, operating FFO tracking ahead of plan. . Our view is debt-to-EBITDA is tracking on track relative to where we thought we'd be, dispositions based on the $750 million, again, a little over halfway through time-wise. Similarly a little over halfway through of the $750 million. We're about $400 million of what's closed or been announced as firm. So yes, the disclosure that we've got out is very current and at this point, we believe we will meet the objectives that we played in. Lorne Kalmar: Okay. Fair enough. And then maybe just sticking with this. I think you guys listed a couple of Yorkville assets not too long ago. Just wondering if there was any update on how investor appetite and how that is progressing. Adam Paul: Yes. So normally, Jordi would answer this, but he's in the middle of a process, like right in the middle of the process. So the only thing we're going to say today about it is exceptionally high-quality assets. We require a significant premium to sell them. Otherwise, we're happy to keep them and grow their NOI and their value but we don't have anything further to report today on those assets. Lorne Kalmar: Okay. Fair enough. And then just lastly on the, I guess, slightly revised same-property NOI target I mean, I guess, 2% next quarter gets you to 5%. Is there anything you're seeing out there that would indicate 4Q would be meaningfully below what you guys been able to do year-to-date? Or are you just erring on the side of being conservative? Neil Downey: Well, Lorne, to be precise, I said at least 5%. So it doesn't have to square up to your 2% interpolation, that's for sure. The bottom line is we perceive very solid results around the fourth quarter. I can't tell you that they'll match the 6% that we've been able to lay down for the first 9 months of the year. But I think you'll -- they'll stack up quite well versus our peers. Operator: Next question will come from the line of Mark Rothschild at Canaccord. Mark Rothschild: And looking at the same property NOI growth, which is clearly strengthened, looking out longer term, I'm not asking for guidance or anything, but how does the slowing population growth impact the type of rent growth you can get at your properties or with the location of your properties? Does it really impact the ability of the retailers to drive sales growth and pay higher rents? Adam Paul: Mark, thanks for the question. Short answer is no. The main reason is that from our lens, the fundamentals that we have today are underpinned by 7 to 8 years of activity. And over those 7 to 8 years, we have seen a significant increase in the population within the trade areas of FCR properties and we have seen almost no supply of our product type during those 7 or 8 years to service those -- that growth in customer base for our tenants. And we've gone through a period now where sales across our tenant base have grown at a higher rate as a result of inflation and just as importantly, across our tenant base, the general norm is that profit margins have been protected. And so that means that every store we have is making more profit than it used to meaning they can afford to pay more rent than they used to. So we believe that what's going on now with respect to store expansion is a catch-up phase over the last number of years. And so I can tell you discussions, live discussions with tenants today are very robust. And just as optimistic and aggressive as they have been over the last several quarters. So we see a lot of future runway for sustained growth. notwithstanding the change in the federal government's integration policy and what the impact will be on population, and we're looking forward to capturing the benefit of that opportunity. Operator: Next question comes from Sam Damiani at TD Cowen. Sam Damiani: Just on the renewal spreads in Q3, a little bit moderated from the record piece in Q2. Was there anything different or anything that was unexpected, surprising in Q3 that led to that result? And I guess a similar question in terms of how you're thinking about Q4 and 2026 leasing spreads. Is there anything idiosyncratic that might impact the average in any given quarter or next year? Adam Paul: Yes. Thanks, Sam. So look, posting up 13.5% year 1 renewal spreads north 18% blended. We're thrilled with that. That works very well for our business. So we wouldn't view it as moderated. As you know, our long-term average is lower than that. So I feel like we've kept pace with the trend that's been established over the last several quarters. So very happy with those results. And yes, generally, we expect above average -- certainly above our long-term average, continued growth. Touching on 2026 expiries, so there's nothing out of the norm with the exception that in most years, we have a small amount but an impactful amount of very low rent space that's maturing, call it, single-digit net rent space, most notably occupied by Walmart. And so if you look at our 2026 expiries, well, I guess if you look at our 2025 expiries and where they were heading into the year, what you saw was an average rent expiring at about $22 a square foot. If you exclude that low rent space, I'm talking about like the Walmarts, it averaged about $27 a square foot. And so that's kind of the -- that's the baseline for where we're delivering these low double-digit renewal spreads. If you look at 2026, our average expiring rent is about $27. We view that as a very normal year. And the reason it's normal is that we don't have any Walmarts expiring in 2026. So other than that nuance, which I know last quarter, 1 of your peers asked a question about it. And so we wanted to take the opportunity to more directly answer it. But other than that, we expect a very normal expiry year next year. Sam Damiani: Okay. Great. That's helpful. And last 1 for me, just on Deidsbury Road in Ottawa. I meanJordan, if you can provide little bit of color about what you're planning to build there, what kind of leasing interest you have already and zoning and credit line approvals in place are expected to be so... Jordan Robins: Sam, thanks. In terms of what we're planning to build, I touched on it a bit in my formal remarks. It's, call it, a conventional unenclosed shopping center at this stage with respect to tenancy, very preliminary. We've had interest based on a very small period of time for which we've owned the asset. We've got some planning work to do and in that regard, we'll keep you posted as advances, but we like the site a lot and we like where it's located. Adam Paul: Yes. The only thing I'd add is a $10 million for 18 acres, we've got a lot of optionality. Operator: We'll hear next from the line of Mario Saric at Scotiabank. Mario Saric: I wanted to stick to the leasing discussion, commented, we just talked about 26. 'And if I may, I know '27 is quite far out there, but you do have 14.5% of your total GLA expiring in '27. I was curious if there was anything within those maturities. So that may be a bit anomalous with respect to kind of low rent renewals, any known vacancies, anything kind of any idiosyncratic that may drive a blended lease spread that might be different than what you've been doing over the past 12 months. Adam Paul: Yes. Thanks for the question, Mario. So short answer is no. Nothing different as we look ahead other than what I mentioned. We don't have any really low rent, but Walmart spaces expiring next year, which when you park that aside, we look at it as a normal expiry year, no major tenants that we believe are going vacant. Strong, strong leasing environment. So happy to lease space. Certainly hope there is a little bit of turnover, the rate turnover, which is what we expect. Wouldn't read too much into 14.5% expiring in 2027. That's not abnormal looking out this far. I can assure you that in a year's time, we will not be having 14.5% of our space maturing in 2027. Some of that is already under negotiation. But we typically have between 10% and 15% maturing in any given year. And certainly from our perspective, when we look 2026, 2027, we don't see anything out of the norm, and we expect to continue to benefit from a very strong leasing environment. . Mario Saric: Got it. Okay. And then, Adam, I think you mentioned 75% of leasing completed this quarter included contractual annual escalators. If we sit back and look at the entire portfolio today, and that number has been increasing over the past couple of years for your entire portfolio today, if we were to exclude NOI growth on blended lease extensions or lease spreads, just the contractual rent growth in the portfolio today, what would that amount to from a same-store NOI perspective? Adam Paul: So I'll have Neil address that one. But just for clarity, what I said in my prepared remarks is 75% or 3/4 of the renewed leases have embedded contractual rent steps throughout the renewal term that does not necessarily mean every single one of them has an annual step. Neil? Neil Downey: Yes. So Mario, you can look at the business as having a contractual growth rate between 1% and 1.5% of the NOI line. And that's generally been the historic range. And I would say today, we're gradually gravitating towards the higher end of that bound. Mario Saric: Okay. Great. And my last question, just with respect to the 3-year plan that you announced that you're executing on, at what stage can we expect a 3-year plan to be rolled forward to include 2027? Neil Downey: Well, we're in year 2 too, yes. Yes, no, you're not the first person that's asked us that. So we're -- and we appreciate people are eager to look that far ahead. From our perspective, from what we're prepared to talk about right now is the fact that we're in -- we're still in our second year of the 3-year plan. And we very much look forward to addressing the investment community and the analyst community with where we're heading beyond 2026. It will be -- we will do that during the final year of the 3-year plan and likely during the first half of that year. So sometime in the early to mid part of next year. Operator: Our next question comes from the line of Pammi Bir at RBC Capital Markets. Pammi Bir: Just with respect to -- from a development standpoint, can you remind us how you see development spending through 2026? Neil Downey: Yes. So the way you should look at it is that we are on track for roughly $160 million, give or take, this year. And we have laid out in our 3-year plan, the total number that we expected for the 3 years. So I think from that, you can do a pretty simple rough plug, if you will, for 2026. And more specifically when we come out with our fourth quarter results in February. At that point, we'll be in a position to give you, I'll say, more targeted views on our expectations for the calendar year. Pammi Bir: Okay. That kind of leads into my next question, which is around capitalized interest as some of these developments are delivered as part of that 3-year plan, including the condos, not sure if you're prepared to provide any sort of visibility on what the capitalized interest should trend down to in 2026. Neil Downey: Well, candidly, I don't have those numbers at my fingertips, which I hope that doesn't surprise you. But I would say in very generic modeling terms, you could probably decapitalize interest through a -- proportionate to the value space that's delivered. So I think that's a simple way to think of it. And that's rather -- that's agnostic to whether it's residential inventory being delivered or its investment properties being delivered. Pammi Bir: Okay. And then just lastly, on Edenbridge, it sounds like the closings are going quite well. I think you mentioned only 1 default if I heard correctly. But are you anticipating sort of that pace to pick up over, I guess, from what we've seen in the last, I guess, through or what we'll see through Q4 and into 2026? Jordan Robins: When you say pace to pick up, you're referring to the default? Pammi Bir: Yes. I think you said -- I can't remember the exact number in terms of closing. Jordan Robins: It was one. Yes, it was one. Pammi Bir: Yes, only one default. Jordan Robins: I would say, Pammi, this is Important to point out like this is an entirely owner-occupied building. The majority of the buyers have to live in the neighborhood today. They love the neighborhood, they want to stay in the neighborhood. We've sold, as I think I mentioned, 90% of the 209 units to date. And we expect that no major deviation from the pace that we've experienced certainly based on the first 124 deliveries. Neil Downey: Right. So those suites will continue to be delivered through year-end and into early Q1. And at that point, we'll have a closeout process where we turn ownership or time over to the owners and we effectively book the sales. So that's the way to think about the 90% that's sold, Pammi. Pammi Bir: Got it. And then just lastly, on 400 King West, I think some of those closings should start next year as well. Is the assumption there that based on what you see today, I guess it might be early, but that the default rate would be similarly low there? Or is that less owner occupied? Jordan Robins: Ami, it's Jordi again. Yes, I would say that building is, in fact, less owner occupied, I would say it's more, call itconventional. That being said, we've sold 97% of the units there, we have sold the majority of those units before really pricing peak. So we feel pretty good about its prospects going forward. I would suggest the default rate there will likely be higher, but it's not something that we're especially concerned about . Adam Paul: Well, it can't be lower. Operator: We'll move on to the question from Matt Kornack at National Bank Financial. Matt Kornack: Just wanted to quickly turn back because presumably in the '25 remaining lease amount, there is either a Walmart or a similar type tenancy in that figure. Is that subject to a fixed renewal rate? Or would that go to market in the remainder of the year? Or is it going to [indiscernible]. Adam Paul: You're talking remaining 2025 lease expiries? Matt Kornack: Yes. Adam Paul: Yes, there's no major fixed rate flat option, if that's what you're asking. Matt Kornack: Okay. So that you could have a pretty sizable spread then if you're getting 20% -- high 20s versus the 18% that's maturing? Neil Downey: Correct. Yes. I mean, Matt, the only thing I would say is, as you get into the final quarter or any individual quarter, of course, the sample size is smaller. So a 40,000 square foot space is more impactful than 100,000 square foot space on a 12 month of inventory roll. Matt Kornack: Fair enough. And then I guess, just in terms of the building blocks, we understand lease renewal spreads, your retention rate is very high. You're getting more of these annual rent escalators in the blend. But is there anything that you're gaining on kind of efficiencies, recoveries or anything tangential to that, that would boost the NOI growth a little bit again on the margins probably not that much, but.. Adam Paul: Yes. Well, it's something that our leasing team has been very focused on for quite some time, and they've done a great job over the last couple of years of anywhere between 50 and 100 leases where the recovery methodology has been less than proportionate share, and they've taken it generally to proportionate share which did not come through our lease renewal rates, that's strictly on net rent. So One of the things that is now cumulatively starting to augment the NOI growth is just better tenant recoveries on operating costs. I don't have the numbers to quantify specifically where you would put it to the building block, but it's starting to chip away and make a contribution. Matt Kornack: Okay. Interesting. Last 1 for me. I mean we've heard kind of land values in Toronto, Vancouver, under some stress, given the condo market. When you look at transactions today or other people look at assets, how are they thinking about the value of density at the end of the day versus obviously, at an implied cap rate where you are, that's probably the value of the retail, but does it make sense to sell if in the future density is going to be worth a lot more. Adam Paul: Well, if we had a strong view on that, the answer is no. We wait to sell when it was worth a lot more. Jordi and his team have done a great job in a really tough market. to sell density in Montreal and Toronto at prices that we're very comfortable with and obviously don't feel like we're leaving a lot on the table. This has never been a fire sale. And if you look at our premium to net asset value on the stuff we've sold, it's been remarkable. It's been much better than we expected. And so we'll continue to take that disciplined methodical, tactical approach. And we own great real estate, even though we're selling it, we still understand the quality, and we will make sure we sell it at the appropriate time for the appropriate price. Operator: Our next question today will come from Mike Markidis at BMO Capital Markets. Michael Markidis: Quick question for me, technical in nature. Apologies. Just on Eden Bridge, I guess you're starting to residents are in occupancy, but you're not looking any inventory gains that might be in contrast to what we've seen elsewhere. Just to confirm, I guess, 2 questions on me, you won't book inventory gains until you register the units as condos [indiscernible] and number two, is with respect to Pammi's question on the decapitalization. Is there construction lines tied to that project and has, of course, effectively pay that down and therefore comes in the point. Neil Downey: Okay. Well, the short answer is yes and yes. So we will look at as closings, and therefore, the residential profit, if you will, will occur at the time of closing in Q1. And there's a significant cash repatriation from those sales processes, of course, but a lot of that goes directly to pay the construction loan. Now as you know well, Mike, the market doesn't do a particularly good job of differentiating debt within our capital stack. In other words, it treats a construction loan on a condominium project the same way it treats an unsecured debenture that's been used to finance the income portfolio. So if we pay down the construction loan, our net debt balance decreases. Michael Markidis: Right. Okay. No, I got that. And then can you just remind me from a -- just from a time to how you're going to report for consensus and all that fun stuff. Are you going to book the condo gains in OFFO? Or are you going to exclude it from OFFO? Neil Downey: A good question. So it will be included in OFFO. But importantly, we benchmarked ourselves in terms of our 3-year plan to OFFO prior to any condominium profit. So that was the baseline on which we gave that 3-year guidance of average annual -- or growth averaging at least 3% in FFO per unit was excluding any condo profits. Operator: And also, we'll take a follow-up from Lorne Kalmar. Lorne Kalmar: Sorry for having to get back in here. I just had 1 quick follow-up on Toys "R" Us. There's been a lot of chatter about a potential bankruptcy there. Just wondering if you've taken any provisions related to them and if you have plan if you do, in fact, get the space back. Jordan Robins: So we really -- it's Jordi by the way, Lorne. We don't have anything to add, but what's really in the pump of domain. Our exposure to toys is really small, represents just under 0.4% of our rent. We had previously sold Anjou, which had toys in it. They recently closed another space that we own half of. So we have 2 remaining Toys locations, and they're current in their rent at both. Toys really in both these cases, pays below market rents, and they're located in very high demand centers, 1 in Toronto, 1 on Island in Montreal. We feel, to the extent we get them back, very confident about our ability to backfill them. And really, in the case of the Montreal property, it lends quite favorably to a grocery store, and we expect we'd be focused on that opportunity in particular to the extent this space does come back. Operator: Ladies and gentlemen, that was our final question in the queue for today. I would like to thank you all for taking time to join today's First Capital REIT's Q3 2025 Results Webcast and Conference Call. We thank you all, and we hope that you enjoy the rest of your day.
Operator: Good afternoon, and welcome to the conference call of Fresenius Investor Relations, which is now starting. May I hand you over to Nick Stone, Head of Investor Relations. Nick Stone: Thank you, Valentina. Hello, everyone. Welcome to our year-to-date and Q3 earnings call and webcast. The presentation was e-mailed to our distribution list earlier today and is available on fresenius.com. On Slide 2 of the presentation, you'll find the usual safe harbor statement unless stated otherwise, we will comment on our performance using constant exchange rates or CER. Today, I'm delighted to be joined by Michael and Sara, who will take you through the EBIT guidance raise and the disciplined execution that drove the continued performance this quarter. As usual, the call will last approximately 1 hour with a presentation taken around 25 to 30 minutes with the remaining time for your questions. To give everyone a chance to participate, please limit the questions to 1 to 2 only. We can always come back for a second round, if needed. And with that, I will now hand the call over to Michael. Michael Sen: Yes. Thank you, Nick, and welcome to everyone joining us on a very, very busy day. Exactly 3 years ago, we hit the reset button and then embarked on a new strategic and transformative journey to deliver a step change in performance with what we call future Fresenius. This transformation was about simplifying our structure, sharpening our focus and instilling a performance-driven mindset. But it wasn't just about operational changes. It was about rebuilding the portfolio, reshaping our culture and fostering accountability, a cultural power driving us forward. Fast forward to today, and we have started the next phase, Rejuvenate. This has kicked off with great traction and focus and will guide us for the next few years. This phase is all about upgrading the core, scaling our platforms and as a result, elevate our performance to deliver profitable long-term growth. This means, in essence, bringing new products and innovations to market, focusing on the needs of patients and customers and infusing fresh energy into our leadership and management teams to deliver further value, expand ecosystems and create more opportunities for the company. At the start of the year, we committed to delivering incremental revenue and earnings growth through new products and services, and our performance year-to-date demonstrates our continued momentum. Future Fresenius continues to deliver. I am pleased to share with you yet another strong quarter driven by the resilience and consistency of disciplined execution across Kabi and Helios. Despite ongoing macroeconomic volatility and geopolitical tensions, we have maintained transparent market communication our adaptive and focused strategy has proven effective in navigating these challenges. Now let's turn to the third quarter highlights. After an excellent start to the year, I'm pleased to announce that following the Q2 organic revenue guidance upgrade, we're now raising our full year EBIT growth guidance from 3% to 7%, to 4% to 8%. The upgraded guidance represents the success of our future Fresenius strategy and is based on the excellent momentum we have seen year-to-date. Encouragingly, we see sustained strength in our bottom line with core EPS growing by an impressive 14%, significantly outpacing top-line growth. This performance reflects strong market position and top-line growth yielding margin expansion, and we expect this momentum to continue. Kabi is an ongoing key driver of our profitability, achieving an excellent 16.7% EBIT margin. We see broad-based performance across all Kabi segments with particular strength from newly launched products and continued pipeline progress, particularly in our IV generics and biosimilars. Great job by the team. Helios delivered another good quarter, maintaining a solid EBIT margin, demonstrating the resilience of its operations. In addition, based on the strong cash flow delivery in the quarter, we are now back in our self-imposed target corridor that we have tightened at the beginning of the year. Now let's take a closer look at our core businesses, starting with Kabi. In pharma, we have further focused and simplified the business with the successful divestment of the Calea Home Care business in Canada. In the U.S., I am pleased Fresenius was recognized for supply and service excellence. These recognitions demonstrate our unwavering commitment to ensuring supply continuity for essential medicines and technology. It also recognizes the more than $1 billion we have invested over the several years to strengthen our capabilities and support for the U.S. health care system. We will continue with U.S. investment to support the health care system to deliver affordable and life-changing medicines for patients. In Nutrition, we continue to enhance our globally leading portfolio and strengthening our position in this fundamentally attractive market through innovation and differentiation. In Q3, we delivered 3 new product launches focused on patients with high energy and protein needs in MedTech, we announced our leadership of the EASYGEN consortium a collaboration with industry and academia aimed at accelerating CAR-T cell therapy manufacturing reducing costs and improving patient at across Europe. This initiative underscores our commitment to advancing cutting-edge therapies and technologies. Now turning to biopharma. Again, we are increasing sales quarter-over-quarter as more medicines launch into key markets. For denosumab the key milestone was achieved with a CMS issuing permanent and product-specific billing codes, the HCPCS Q-codes. This is an important step forward in expanding access to high-quality biologic medicines, while driving broader adoption and ensuring more patients benefit from these innovative cost-effective treatments. Another major milestone was the first delivery of Tyenne vials to European countries from our Map Science plant in Argentina. We have now largely completed the technology transfer delivering a fully vertically integrated supply chain and manufacturing platform to support Cayenne. This marks a step-up upgrading our core to deliver efficiency and increased capability showcasing the benefits of a vertically integrated platform. All these advancements underscore our commitment to patients around the globe to deliver accessible, innovative and high-quality health care solutions. Kabi remains at the forefront of innovation, operational excellence and patient care. Now let's take a closer look at our resilient and a very strong foundation. Our highly cash-generative pharma business continued to deliver strong and stable performance. Year-to-date, we have successfully launched 12 products with a total of 15 launches expected for the full year. As part of Rejuvenate, we are further optimizing our cost of goods sold, streamlining our network and strategically investing to further scale this high-margin platform. With a globally leading portfolio and a local for local approach, we deliver essential medicines to patients worldwide. In the U.S., we supply 70% of the FDA's essential medicines list underscoring our critical role in health care in the U.S. with stable organic growth, highly accretive margins and an attractive cash generation, pharma remains a strong contributor to our balance sheet and a profitable foundation for sustainable long-term growth. Now double-clicking on biosimilars, we continue to see strong growth momentum, really strong growth momentum. Last year, the business reached EBIT breakeven, marking its transition into a scalable, fully operational platform. With Map Science, we have built a robust development and manufacturing platform, demonstrating our ability to quickly advance molecules from development through regulatory approval and into the market. Our biopharma franchise has now 11 products launched and marketed globally. As previously outlined, a key advancement of biopharma is the integration of Map Science to deliver a dedicated development and manufacturing platform, including contract manufacturing. For biopharma, we will continue to upgrade the core and scale the platform to deliver further simplification and drive increased efficiencies as we strive to become a global leader. Now let's look at some of our recently launched medicines or molecule, starting with Tyenne, our tocilizumab biosimilar, we continue to make great progress leveraging our first-mover advantage. We continue to see excellent market share growth development, which is supported by multiple PBM and health plan contracts, many of which are exclusive. Turning to Otulfi, our ustekinumab biosimilar, we anticipate incremental sales in Q4 following our exclusive U.S. distribution agreement with CivicaScript. As for our denosumab, we already achieved sales -- little sales in Q3. This is the only biosimilar to offer a subcutaneous 120-milligram prefilled syringe for oncology indications delivering a key differentiation from even the originator and competitors. This product profile really strengthens our competitive position. In addition, we are pleased to have recently received FDA interchangeability designation for both denosumab products. This allows the medicine to be dispensed at the pharmacy as a substitute for the reference product, creating greater access patient and health care professionals. Also the FDA's recent draft guidance aimed at streamlining the biosimilar approval process and broadening interchangeability designations in the U.S. is a promising development for patients and payers. But it may have not fundamentally changed the existing framework, we see this as a further support for market growth and expect the U.S. biosimilar landscape to continue evolving positively. For the remainder of the year and into next, we expect the portfolio momentum to continue as contracting agreements convert into prescriptions so watch this space. Over the past 2 years, what we labeled as in growth factors, they have delivered an impressive 37% EBIT on a CAGR basis and year-to-date, we've achieved an exceptional 18% year-over-year EBIT growth. This performance is underpinned by new products and new innovations, which we will continue to upgrade and scale as part of Rejuvenate. The growth vectors are performing in line, if not even better than initially envisioned when we launched Future Fresenius. Not only are they driving accelerated top-line growth, but they are also significantly advancing our margin profile. At the same time, our structural improvements to the cost base continue to support margin expansion. The growth vectors, the key drivers behind Kabi's elevated profitability, while our established pharma portfolio remains a strong, resilient and profitable foundation. Looking ahead into 2026 and beyond, we expect this positive trajectory to continue key drivers here are the increasing contributions from biopharma, sustained product momentum and upcoming innovations in Nutrition, the step up in MedTech profitability, all underpinned by our resilient pharma business. Now let's turn to the Q3 highlights in our care provision platform, Helios. Overall, the German reimbursement environment continues to be, by and large, supportive. However, for 2026, the projected DRG inflator is anticipated to be approximately 3%, which is lower than initially expected due to a methodology change that favored the lower parameter versus the corridor of the 2 parameters previously used. This new percentage is broadly in line with the historical median. The onetime invoice surcharge 3.25% with public insurance is an encouraging development. It is effective between November 1, 2025 and October 31, 2026, and is a clear positive supporting several years of previous hospital cost inflation. We continue to remain optimistic about government reimbursement in the coming years, even though recent events would seem to prioritize rather fiscal over health care policy. At Helios Germany, we remain committed to advancing medical innovation and improving patient outcomes. For example, in Berlin and [indiscernible] in lung cancer centers are pioneering the use of innovative robot-assisted bronchoscopy system. The cutting-edge technology enables earlier and more accurate diagnosis, often unlocking opportunities for life-saving curative treatments, making or marking a true paradigm shift in pulmonology. In Spain, Quirónsalud continues to demonstrate its strong focus on research and innovation. With 285 new clinical trials initiated year-to-date, including 159 in Phase I and Phase II. This just reinforces its position as a leader in clinical innovation with a best-in-class health care professionals in state-of-the-art hospitals we remain the top choice for patients seeking exceptional care. I'm excited by our continued EPS momentum through structural cost savings we laid the foundation for transformation. Now in Rejuvenate, we're building on that strong foundation by upgrading the core, scaling our platforms and elevating performance to drive long-term profitable growth. Productivity is no longer just about cost side. It's fueled by growth, new products, innovation and serving the market. The results speak for themselves from minus 13% EPS growth in fiscal '22, we hit the reset button to double-digit growth today. The transformation has been, I would say, remarkable. My [indiscernible] should be very proud, and we are 1 team, and I would like to say thank you to our entire team. In the year-to-date, EPS increased by a powerful 14%. This is impressive and has been driven by the continued execution of our future Fresenius strategy, further operational progress and a benefit from reduced interest expenses. Our strong EPS growth is significantly outpacing top-line growth, highlighting our ability to sustainably improve returns and to deliver shareholder value. We expect this positive trend to continue as we close out the year. The EPS momentum generated by rejuvenate is evident as our growth vectors continue to deliver further profitability improvements. For example, biopharma is gaining significant traction with momentum accelerating going forward. With that, I'll hand it over to Sara. Sara Hennicken: Thank you, Michael, and thank you all for joining. Let's start with our financial highlights. Consistent strong organic sales growth, sequentially increase in EBIT growth and a meaningful EPS improvement. Looking at the top line, Q3 was another strong quarter with 6% organic revenue. Our consistent delivery demonstrates the strength of our business as well as the structural demand for the system critical products and services we offer. EBIT growth was in line with revenue growth at 6% and a nice acceleration from Q2. Kabi's excellent performance has offset the expected and well flagged Q3 effects at Helios. My KPI this year is our core EPS growth. In Q3, we grew EPS by an impressive 14% and achieved another quarter of double-digit growth, making it 2 out of 3 quarters in 2025. 2 effects came into play. Our strong operating results, combined with a significant year-over-year decrease in interest expense of EUR 35 million. Following our Q3 financing activities and with the continued focus on interest expense management, we now expect EUR 330 million to EUR 340 million of interest expense for the full year. Our tax rate for the quarter was 24.7%, in line with our expectations for the full year. The leverage ratio at 3x net debt to EBITDA was within our self-imposed target corridor of 2.5x to 3x. More deleveraging is expected before year-end. Kabi had a strong quarter with a successful and disciplined execution on launch pipeline and rollouts. This resulted in some contributions already materializing in Q3, that were initially only expected in Q4 of this year. Organic revenue grew by 7%, placing it at the upper end of the structural growth range with some additional benefits from pricing effects in Argentina. The growth vectors remain the primary driver of performance. Biopharma in particular, stood out with impressive 37% organic growth. Nutrition delivered 7% growth, demonstrating the attractiveness and structural strength of this business despite the impact of the key to volume-based tendering in China. Pharma sales increased by 2% organically, relative to a strong prior-year base. In Q3, Kabi delivered an excellent EBIT margin of 16.7%. This represents roughly 80 basis points on margin expansion year-over-year, including the absorption of the Keto effect. [indiscernible] contributed to the performance. First, the growth factor significantly expanded their EBIT margin year-over-year to 15.9%, moving close to Kabi structure margin range of 16% to 18%. Second, an excellent profitability at pharma with a margin of 22%. And third, the strong operating leverage due to the disciplined execution and further incremental structural productivity improvements across all business units. Over to Helios. Our hospital business continues to deliver strong organic top-line growth at 5%. Year-to-date, revenue grew by 6% organically, which is at the upper end of the structural growth band. We delivered solid profitability with an EBIT margin of 7.5% despite the loss of energy release payments and the fluctuations in Spain. Year-to-date, the EBIT margin is at 9.1%. At Helios Germany, we achieved solid organic growth of 4%, driven by strong acquisition growth and positive pricing effects, balanced by somewhat lower case mix points. This performance also needs to be viewed against the strong prior year base, which included some favorable technical revenue reclassifications. From an EBIT perspective, margins stood at 8%. And as a reminder, Q3 '24 included the final energy release payment. The performance program is progressing and has achieved over half of the around EUR 100 million target year-to-date. Further significant progress is expected in Q4 with potentially some spillover into next year. Helios Spain achieved strong organic growth of 7%, driven by a favorable mix of activities and pricing as well as a strong performance in the occupational risk prevention business. With operating leverage at work, the EBIT margin in Spain reflects the usual summer dip. Nevertheless, at 6.6% in Q3 and the margin showed a 20 basis point increase year-over-year. Year-to-date, Helios Spain has delivered a strong margin of 11.3%. Moving to our cash flow. Again, a strong performance, especially against the backdrop of a tough prior-year comparison. We continue to deliver on our cash conversion ambition. Operating cash flow in Q3 was driven, in particular, by Kabi, contributing approximately EUR 440 million, a great achievement. Helios delivered a robust and reliable Q3 cash flow of around EUR 330 million despite a very tough prior-year comparisons. Proceeds from our pro rata sale of Fresenius Medical Care shares are included in the cash flow bridge under acquisitions and amounted to approximately EUR 30 million in the quarter. As of today, we have sold approximately 1.5 million shares in conjunction with FMC's ongoing share buyback. ACM cash flow numbers are a testament to the reliability of our cash generation with EUR 2.2 billion in operating cash flow. When considering free cash flow for the last 12 months, note that dividend suspension in 2024 influenced the prior-year LTM number. Over the past 2 years, we have made significant progress in reducing our leverage by approximately 100 basis points. This deleveraging has been a key driver behind the acceleration of our EPS growth highlighting the focus we've tried on cash flow. Deleveraging remains one of our top priorities within our capital allocation framework. At the same time, we are balancing this with targeted investments aligned with our strategic agenda and strict return criteria to upgrade the core and scale our platforms and ultimately, to create value and deliver long-term profitable growth. On the financing side, we adopted a forward-looking perspective and capitalize on attractive market windows. With the successful transactions in September, we proactively addressed our refinancing needs for 2025 and most of the first half of '26. We issued 2 EUR 500 million bonds with attractive coupons and concurrently repaid early a EUR 500 million bond with a coupon of 4.25% maturing in May '26. At the same time, we signed a new EUR 400 million loan agreement with the European Investment Bank, which will be used to support our R&D activities and selective CapEx investments. These activities demonstrate our commitment to managing within our self-imposed leverage corridor of 2.5x to 3x net debt to EBITDA. With that, let's wrap up Q3 and take a look at Q4, where we expect an acceleration of earnings growth. As mentioned, positive phasing effects have helped our Q3 performance thereby derisking the expected acceleration to some extent. At Helios, we expect a further increase in EBIT contribution due to the performance program in Germany. In addition, we anticipate to start receiving the surcharge for publicly insured patients, which came into effect on first of November. At the same time, we expect the usual year-end topics, including reimbursement settlements, which may affect EBIT. The fourth quarter will also reflect a year-over-year comparison without energy relief payment. In Spain, Q4 is typically the strongest quarter of the year, but this is against a tough prior-year comparison. Kabi will continue to absorb the adverse effects from Keto, as well as macroeconomic headwinds, which includes some effects from U.S. tariffs, particularly for MedTech. However, the strong product launch execution combined with our successful productivity measures, has resulted in an excellent EBIT margin year-to-date. The operational momentum is expected to continue. Given this context, we may deliberately decided to make some incremental investments during Q4, such as in R&D. This aligns well with Rejuvenate to upgrade our core and scale our platforms. Taking all of this together, what does it mean for our full year guidance. Following our Q2 revenue upgrade, we're now raising our full-year EBIT guidance. Based on the good momentum and disciplined execution in the first 9 months, we now expect group EBIT growth at constant currency to be in the range of between 4% to 8%. Remember that guidance is at constant exchange rates, adjusted for translation effects. We continue to expect FX volatility in Q4, and if current rates persist, revenue and EBIT will each be adversely impacted by approximately 2 percentage points. In summary, our disciplined execution and strong operational momentum has provided us well for the remainder of the year, with continued focus on delivering sustainable growth, driving productivity and maintaining financial discipline, we are confident in our ability to achieve our upgraded guidance and create long-term value. Thank you for your attention. And with that, I'll hand back to Michael. Michael Sen: Well, thank you, Sara. As we look ahead, Fresenius is very well positioned to seize the opportunities, which also lie ahead with a strong presence in attractive markets underpinned by a robust secular growth trend, we are committed to sustaining our momentum in driving long-term profitable growth and shareholder value. Global macro trends, such as rising health care spending driven by aging populations, the prevalence of chronic diseases and the demand for advanced treatments aligned perfectly with our strength. These dynamics present a unique opportunity for Fresenius to deliver innovative solutions prove patient outcomes, while helping to advance cost-effective health care systems. Our strategy remains centered on being a trusted partner to health care providers worldwide. While we are not entirely immune to external challenges like tariffs or our diversified portfolio and our local-for-local approach provides resilience. Additionally, our strong European hospital business bolstered by Germany's hospital reforms positions us to capitalize on these favorable developments. As Europe's leading hospital provider, we leverage clustering and thereby benefiting from economies of scale, while optimizing our operations and enhance patient care. Beyond scale, innovation is central to our strategy. We are investing in AI and digital transformation to enhance clinical decision-making, streamlined workloads and improve patient experiences. These next-generation capabilities will strengthen our leadership in medical quality and innovation. Our performance in the year-to-date reflects strong execution across our businesses. Fresenius is now a more focused and agile organization ready to capture the opportunities that lie ahead. As focus turns to 2026 and beyond, we are committed to leveraging these strengths to deliver long-term sustainable growth creating value for patients, partners and shareholders. With that, ladies and gentlemen, we'll open up for Q&A. Operator: [Operator Instructions] The first question comes from Oliver Metzger, ODDO BHF. Oliver Metzger: Yes. The first 1 is on Kabi in particular in Nutrition. So surprising was a quite strong performance in Q3. So was the Keto impact just lower than expected? Or has the remaining business performed better than thought? Second question on Helios Germany. So in the market, there's still some consolidation ongoing. And yes, there's always this, let's say, quarterly volatility, but can you talk about the volumes? Do you see still the typical 2% volume growth? Or do you recognize just an uptake due to market share gains as we see plenty of hospitals going out of the market? Michael Sen: Yes. Oliver, let's start with the Kabi question. I could make it easy and say yes, the rest performed and performed much not better, but we were able to demonstrate catering underlying demand. And things have to work on all cylinders. This is what happened -- by the way, even in China, outside the national volume-based tenders, there's still some provincial, some regions left where Keto can be catered. But outside of that one, I mentioned in my speech, 3 new launches worldwide, basically uptick in Europe on an enteral nutrition. But also the U.S., even though it's a low base, but a very strong performance. We started with lipids. Last call, I said we are now adding other things like amino acids and that all yielded to that great performance, which you saw. Sara Hennicken: And maybe I can take the Helios Germany question. So if you look at the picture in Q3, we actually had a very good activity. Activity growth actually was around 7% However, we did see some, let's say, less complex cases within that activity, which means that if you look at it from a case mix perspective and case weight perspective, there was a 4.4% growth for Q3, i.e., above your 2%. Oliver Metzger: Okay. And regarding the market share gains, do you see more volumes apart from case? Sara Hennicken: Market share gains, it's difficult to tell from 1 quarter to another. I think in general, what we see and what we think should be there is a consolidation in the market. We have overcapacity in the market, and we are under focused on quality. So I hope that with the new regulation, we will get more focus on quality, which brings us to our cluster concept and actually hopefully reduces the overcapacity we're seeing and get some kind of productivity into the system as well. Michael Sen: And to maybe add to that one, there is no consolidation opportunity for us. First of all, it doesn't fit our strategy. The second thing is most of the systems or the, let's say, entities, which go out of the system are kind of like broke. Operator: The next question comes from Hassan Al-Wakeel from Barclays. Hassan Al-Wakeel: I will squeeze in 3, please. Firstly, clearly, your guide implies a significant acceleration in Q4. And that has been your consistent messaging year-to-date. But why the wide range with the quarter to go? What are the key pushes and pulls into Q4 and specifically as you head into 2026 on EBIT growth? Secondly, on the strength in Nutrition at 7%. What are the key drivers here as well as for the broader growth sectors, given the strength in growth vector margin, but also underlying Kabi margin despite higher corporate costs in Kabi and, of course, Keto. And then finally, on German hospital reimbursement, the surcharge is clearly 1 way the hospital sector is being supported. But does the lower DRG for '26 leave you concerned about the possibility of a similar DRG inflator beyond next year with no surcharge? Michael Sen: Yes. I think let's start with the last one. I think this is crystal ball. We go 1 year to the other, and there have been -- how should I say, this was a very special political situation, where the German government and especially the Minister of Health, let's put it in my words, was under some pressure to rather compromise on fiscal priority than, let's say, public health topics. So I don't think this is a precursor for the next years to come. On Nutrition that we already alluded to, there's a lot of new products which came to market. And as I said, in China, overall, obviously, the entire numbers have been contracting because Keto was missing, but everything else in all the other regions was firing on all cylinders, especially the U.S. is, again, a small base, but the base keeps growing every quarter. And it will be already a nice pace going into the next year, and it has a nice margin conversion with the 3 chamber bags. And as I said, now amino acids. And next year, there will be more portfolio amendments to the solution we have. And maybe I'll share later on even a great news, which happened in the last couple of days, also positive for Q4, winning a big private research hospital in the U.S. on not only Ivenix pump, but nutrition, dedicated sets and so on and so forth in the U.S. Now on the guide, I think it is -- you mentioned it correctly. It is, I think, important to differentiate between the absolute momentum we have and the momentum is just great. And it will continue from an underlying business dynamics in all our businesses, primarily, obviously, Kabi, and we can go through each and every individual business, where the underlying fundamental dynamics in the market, us bringing new products, new innovations in the market, rolling out, expanding will obviously -- we saw it in the first 9 months will happen in Q4 and will go beyond Q4. So a Q4 close is a year-end close and it's not a cliff. So whatever happens that Q4 does not mean anything in the speed and the dynamics of the underlying momentum is in any way jeopardized. On the contrary, it keeps accelerating. Yet on Q4, it's a year-end, and we need to look at a lot of things -- and this will decide whether 1 thing falls into 1 side or the other side. And then we talk about, I don't know, 10 basis points in the guide. So I would not overemphasize or put too much effort into where exactly we navigate into that guide. There we will update you, but rather look at the underlying trend drivers and that is positive. Also in Q4, there is biopharma, which is going to expand. Now to which extent, we have to work hard on that one. Q3 biopharma already was a great uptake vis-a-vis Q2, what was it, EUR 195 million, and now we had EUR 228 million or EUR 229 million. And in Q4, even more uptake. So if it all happens, if it happens. If it doesn't happen, it's not falling off a cliff, but it then pushed out to the next year. So this is the moving parts I would kind of like frame the guide. I think there's too much overemphasis on a short-term finding a data point. Operator: The next question comes from Oliver Reinberg from Kepler Cheuvreux. Oliver Reinberg: 2 from my side, please. And the first, I wanted to get a bit of color for next year. I mean, I understand, obviously, the guidance will only be provided in February. But I was wondering if you can just talk about the head and tailwinds. I think there's sometimes a bit of excitement building on German Helios obviously facing clearly more favorable pricing. We're going to see the further ramp-up of biosimilars and IV Generics Nutrition also should do well. So can you just talk about what are the kind of headwinds to be called out for next year? Any color here would be great. And secondly, just on AI. I mean there's a lot of talks on the workflow. You also touched on I was just wondering, can you just give a flavor to what extent does AI also provides a kind of cost savings opportunity in new kind of processes? Is that only playing in kind of a larger role today? And how significant could this be going forward? Michael Sen: Yes. Oliver, I'll try again with the guidance. I think this will be a recurring theme. But the difference is to, let's say, the last 2 years, we're not just leaving you with saying we're going to get there when we get out in February. Obviously, a lot of things can change from now to February. Look at how dynamic the -- not only the end markets are, but the whole geopolitical, geoeconomic framework. When we started the year with our outlook, there was no talk about tariffs. Then the new administration started and you have the feeling the world is going to collapse with tariffs. We always try to stick with the fact and always be very transparent with you guys as to where we stand and what the impact is. Now where we stand today is different than a couple of months ago because at least there are statements out there that generics and biosimilars may be exempted, but there are still tariffs, which we even absorb in the upgraded guidance. So what I'm trying to say is there's a lot of moving parts in the regulatory and geopolitical environment, nobody knows what's going to happen. Then we need to have our budget, which we have next week. But again, coming to the big underlying momentum, biosimilars, Rejuvenate, Tyenne, working nicely over the course of the first 9 months. We expect more in Q4, we expect more in going into 2026. Into 2026, denosumab and ustekinumab, are just being launched in Q4. This is, by the way, also a factor for Q4 where we lend whether it's, I don't know, x million or x plus million, that doesn't matter because the momentum will come next year. This is a full commercial focus on the biosimilar team next year on really on the market and commercialization because there's no new regulatory approval, where we have to work on the documents and so on and so forth. Nutrition, I said in the U.S. next to what we have now, there will be more elements as in attachment to the portfolio right now. I can talk about compounding, for example. So things are happening, but they need to be then obviously executed. There will be, again, launches on the IV generics side. There will be on the medical technology side, we're actually very satisfied with what we see on the MedTech side also in margin improvement over the course of the last 3 quarters, and this was driven, we have said it in the calls before by the adaptive nomogram, which is software. Now there will be an annualized kind of impact of the adaptive nomogram going into Q1, Q2 next year. So a lot of exciting things are happening. Obviously, especially Sara we will make sure that the whole organization is disciplined on cost and cash. And then we'll take it from there and update you on the guidance, when we go into next year, again, because it's the beginning of the year, we'll be very transparent with the assumptions. And obviously, I wouldn't say more conservative, but because it's the beginning of the year and then we'll go step by step. Oliver Reinberg: That was it? Michael Sen: AI, sorry, AI. Yes, AI is a topic. Look, we need to differentiate between the industrial side and the hospital side. In the industrial side, I think like many companies, we are embedding AI and AI functionalities and AI agents, with partners into our processes. Kabi has a big program being implemented on further increasing commercial excellence, better managing the sales force, data-driven AI plays a role in there. We talk about having a few AI pilot projects, which, by the way, are then funded by a central innovation budget, when it comes to speeding up on regulatory approval that plays a role as we move now having a real development machine on biosimilars, but the same holds true for reg affairs on IV generics. So AI can help you there on the documents and all these kind of stuff. Also in tech ops, when we talk about enhancing the manufacturing product, these are all how should I say, little pilot projects we have. And so this does not entail huge investments. But we are trying it out and on these pilot projects, probably we're going to see the benefit. Where for us, it plays a more nuanced role is on the care delivery side. There, it is not only about the productivity, efficiency as such with the efficiency, for example, with Quirónsalud, applying AI on doctor-patient conversations. We have a tool called scribe. We are freeing up resources and thereby are able to increase the throughput of patients and concurrently get to better clinical outcome. So we have a few, let's say, functionalities and even agents on that side, but the impact there is obviously 1 of the key levers to drive also the margin up going forward. Operator: The next question comes from Hugo Solvet from BNP Paribas. Hugo Solvet: I have 3, please. First, maybe, Michael, on the biosimilar, the FDA draft guidance on interchangeability, which you qualified as promising. What could be more concretely the potential impact from lower R&D requirement in the U.S. for your biosimilar business model. Is that a pull forward of sales of profitability? Or will you be keen to reinvest more to gain scale? Second, we've into biosimilars, sorry, we've seen cutting prices of Humira in Q3? Or do you think this may impact the penetration of non-originator or branded products? And lastly, maybe 1 for Sara, a quick clarification on the pro rata share sales alongside Fresenius Medical Care share buyback. Could you confirm your selling equivalent of what your stake is? And what the proceeds from that sales are used for? Is it to lower leverage further? Sara Hennicken: Maybe let me start with the last 1 straightforward. Yes, it's pro rata. So in the end, we will maintain our share relative shareholding in FMC. And actually, I mean, that funding goes into lowering our leverage and into our overall capital allocation. So I think we are fully focused on getting free cash flow up and thereby creating additional headroom for be it lowering our leverage or doing targeted investments into our business. Michael Sen: The second one was a little hard to hear again, I didn't get it 100%. But on the first one, yes, it is a positive development, which we see in the U.S., by and large, all the developments in the U.S., whether it's as a whole tariff discussion, whether it's a deregulation on biosimilars. We're playing exactly into these themes with our portfolio also going into next year. And it has been already discussed prior, but having enough clinical or scientific evidence so that you don't need to do a Phase III clinical studies, obviously helps to increase the time to market. That is what it's all about. And obviously, to speed up the whole process, make it less complex, less burdensome because there's already a proof of the data. And the interchangeability, it's a good one. I wouldn't overestimate, but it's just another data point where today, if you want to get interchangeability designation, which we, by the way, have on denosumab you need an extra study. So it's an extra burden, a special name for that study. This is also admitted. So that means that marketplace is very, very, very vibrant. So yes, if there is any change on R&D, we will immediately reinvest it into the pipeline, into the portfolio. Our strategy is clear to be a fully vertically integrated player. Our biosimilar team calls it a biosimilar powerhouse. And that means you need to have a really robust pipeline, and there is much more coming. The decisive point is the manufacturing because it is a very also a competitive market. The manufacturing process is a complex process. You need bioreactors. You need to be competitive concurrently, and therefore, you also need to have a nice manufacturing platform. And then the commercialization, also in the last only couple of 3 quarters, 4 quarters has seen many, many changes from national formularies on PBMs. Now we were going to direct health plans we may be going to direct employer plans. We have special deals like the direct distribution deal with Civica, which is a new animal. So we view all of this as you know, opening up the adoption and diffusion of biosimilars. Operator: The next question comes from Veronika Dubajova from Citi. Veronika Dubajova: I have 2, please. The first 1 is just on the profitability of the growth vectors, which obviously, I think is running much better than many of us expected. And I think, Sara, you remarks that you are now very, very close to the 16% to 18% corridor for caveat to have as a whole. Just curious if you can elaborate on what has been the source of the kind of upside this year from your perspective? And is this that we're starting to hit better profitability in devices? Is it that biosimilar business that's driving this surprise or anything else, if you can kind of give us some color. And I guess as you fast forward, sort of how are you thinking about that Kabi midterm margin guidance, especially for growth factors given the progress that you are making this year in spite of the Keto headwind. So that's kind of my first question. And then my second question, you're going to laugh at me, I'm not going to ask about 2026. I want to ask about 2027. There has been a lot of debate about whether the invoice surcharge creates a meaningful risk for your Helios profitability as we move into 2027. So I wanted to give you guys an opportunity to touch upon how you're thinking about the benefit from the surcharge when we move into '26 and then how that unwinds into 2027. And I guess simplistically, what your degree of comfort is with the Helios expectations that are in consensus right now for 2027? You are welcome to shut me down, but I got to try. Sara Hennicken: Veronika, I'm happy to take a go at your 2027 question. I think, first of all, it's fair to say, if you look at the German reimbursement schemes, you have seen that probably since 2019 or even in prior, we always have changes in regulation. We always have during COVID, it was gotten to an extreme, obviously. But since then, we have always had different pockets of funding because we are navigating in an industry which is structurally underfunded hospitals in Germany are actually in the red. So I think there are always some extra pockets as an add-on. I think if you appreciate when the whole topic on surcharge came, it was a surcharge on the DRG inflator and people assume DRG inflator to be similar to last year. Now as Michael -- actually, as Michael alluded to, it was a very particular situation in which the decision -- in which the discussion on the DRG inflator team about that it was not between the 2 kind of data points, the 5-point something at the 3 points that they opted for the lower end. I think that was a very -- there was a decision taken in a special situation. Now where does it leave us? Simply and I only go from a pricing perspective now simply if you take the surcharge and what may most likely become the DRG inflator, you are close to where we are this year around in terms of math. Now does that leave us with a cliff because the surcharge will go away. I would say that so far, we have always experienced that as we operate in a sector which is chronically under financed that there will be new pockets opening we hope, I think that is our institutional expectation that we see regulation, which gives us more clarity and longer-term perspective because obviously, we are navigating an environment, which is not helpful to have those pockets shifting year-over-year. But I think also you can rely on, if you look at the Helios performance, we have managed that quite well historically. Irrespective of what those reimbursement schemes were, I think we were the ones, who were relatively adaptive to it from the start. So bottom line, am I concerned about the cliff? No, I am not. There will be other pockets of value and funding because they need to be in the structure we currently operate in. Michael Sen: Yes. I think that was a very perfect answer, and Veronika, probably what is also behind the question for your clients and hopefully, our investors, are we afraid of regulatory going up and down and so on and so forth in a business which we actually deem is very reliable and stable, and Sara just gave the answer. The fact of the matter is that roughly 80% of German hospitals are in red ink. So either they support the whole system via these mechanisms or they will go out of business, and then we will catch the patients. And we have the cluster concept, and that is why we are hitting so much on driving our program irrespective of regulatory changes that we are ready to have the best capacity utilization of our in essence, infrastructure assets and with the help of digitization, which we see in Spain works, navigate patients through complex and less complex cases. Now with regards to where is the Kabi margin band, well, this is also something we've got to look at that 1 when we go out next year or maybe the year after or in between, this is an involvement I really wanted to remind everybody where we started. We started with the 15% to 17%, and the margin of the overall Kabi business was below that margin band. If you look at the makeup of the Kabi EBIT contribution today, it's almost half-half growth vectors versus the base business, which is also contributing and growing. So that has been the strategy all along and will remain the strategy. The only point now in rejuvenate is this new innovative things which we have on for the last 2 years, 3 years, even are now coming to market. Let's go through them one-by-one. Medical technology or MedTech, of course, they have a program, which is a competitiveness program, they call it above and beyond. But also going on new products, like I said, adaptive nomogram. Adaptive Nomogram is software and in parts recurring revenue. And it's a new thing, and it's picking up, and there will be a pickup in Q3, Q4. And then we will come up with what lies behind -- beyond that one in the end of '26 or '27. Ivenix, yes, we know that we have, let's say, some homework to do in industrializing that one. But the market demand, the customer demand, the customer feedback is enormous. I just shared with you that we just received a contract from a large private research hospital in Florida on x amount of Ivenix pump together with solutions, together with Nutrition, together with dedicated and non-dedicated sets, which shows you how we can deepen also on customer engagement with the portfolio we have. Biosimilars has been driven primarily by Tyenne this year and will be driven by Tyenne next year, by the denosumab, by ustekinumab, by still adalimumab, by Map Science, their partners selling bevacizumab, pembrolizumab. And to some extent, if we really achieve at some point, the fully vertically integrated biosimilar powerhouse, then the milestone payments will play a minor role already in the makeup of the whole thing. Today, they play a minor role compared to what the molecules are catering. So thereby, it remains what we said the dynamics is great. Sara Hennicken: Maybe, could I -- sorry, if you like, Veronika, happy to give you some feedback on Q3, which indeed was a good one, 15.9% margin. If you look at it, it derives from really the volume of top line development, we have seen in pieces of some nice price development overall, it was a good mix. There were some milestones on biopharma. And also don't forget, we do have a very strong cost and efficiency discipline in there as well, which also helped the margin this quarter. Nick Stone: We've got 3 participants left. So if we can encourage them to stick the 1 to 2, then hopefully, we can be finished in the next 15 to 20 minutes. So I think Graham Doyle, UBS. Over to you, please. Graham? Graham Doyle: Okay. Perfect. Yes, I can stick to 2. Michael, just on the sequential improvement in biopharma, just kind of help us model. You were up kind of $40 million in Q3. Is that sort of what we should be thinking for Q4 just help us to model as we then ramp into next year? And then the second question is around the German surcharge. Would next year be a good year maybe to do some of these kind of interesting investments and maybe pull forward something from, say, '27 to help kind of smooth the numbers through the year. Is that something you could do? Michael Sen: You want to start with the second one. Sara Hennicken: If I got it correctly on investments on -- you mean for the overall group. Yes. So overall... Graham Doyle: Exactly. Sara Hennicken: Look, I think on the -- and I wouldn't make it on the surcharge to be very honest, because we said if you take surcharge plus what's currently in debate on the DRG, you're not too far off from what we've seen in this year's DRG. But coming back to what Mike has said is, we see a very strong momentum in all our businesses. We see a lot of positive momentum on the Kabi's side, but we also, with the company program coming to fruition and some annualization effects in '26. There should also be some positive effect on the Helios side. If you take all of that together, of course, in the context of Rejuvenate, we will step up our investment focus. And I think on capital allocation, I said deleveraging will remain core. But at the same time, we balance that with deliberate investments. And maybe even Q4, if I look at the momentum we currently see and where we are on the Kabi side year-to-date, maybe we may take some decisions to do some incremental investments also in Q4 because in the end, it's about fueling our pipeline with a step-up in R&D with step-up in CapEx and will step up in other investments, and we are prepared to do that. Michael Sen: Yes. And then Graham, I can make it short, so that the others have time, the EUR 40 million may be a bit too high fetched. I mean, already going from Q2, as I said, which was the EUR 40 million. There will be incremental sequential growth, but $40 million, maybe twice. Operator: The next question comes from Falko Friedrichs from Deutsche Bank. Falko Friedrichs: Let me keep it to one. It's on the pharma margin within Kabi trending around 22%. And at the CMD, you said around 20% is a reasonable level for the business. So is 22% the new 20% for this business? Or is this just an extraordinary year and sort of starting next year, we should be eyeing rather than 20% again? Michael Sen: Yes. Well, we can make that 1 short. We said by and large, take a ruler and take 20%. There can be quarters where it's higher. There can be quarters where it's lower. The Q3 number was quite strong, because we decided to go for commercial batches rather than stability batches. That is what Sara also alluded to R&D type of things, investments in Q4. So stability batches, as you know, are needed for future launches, products, which is future revenue, which will come in which we took a deliberate decision to take it into Q4 and rather give the capacity to commercial batches. That is, in essence, in Q3. Operator: The next question comes from David Adlington from JPMorgan. David Adlington: Great. Maybe 2 related to the last question, really. The year-to-date margin for Kabi 16.6% and that you kept the 16% to 16.5% full year range. If you pulled out some needs some investments potentially, I'm guessing on the R&D side in Kabi. Is that why you haven't increased the range for the full year? And maybe just some help around how we should be modeling that fourth quarter margin? Sara Hennicken: So I think if you look at where we stand today, I think how we had a very strong performance in terms of margin, but it's the underlying momentum we are seeing, which is strong. Now if you look at Q4, as Michael said, there is its year-end. So a, yes, we will take the freedom to take potentially some investment decisions. B, there was some more positive phasing in Q3, where things came earlier than initially anticipated. And then as the business turns to year-end. Obviously, there are topics whether we post the batch end of December or beginning of January doesn't really change the underlying momentum of the success of the business. And of course, around year-end, you have customers wanting something from not wanting something you have suppliers wanting something from us or not wanting something from us. You have final settlement, final invoices and so on. So it's just a quarter which we will diligently work through, but we don't see a change in the underlying momentum. Nick Stone: Okay. That was our last question. Thank you, David. Michael, if there's anything you want to conclude with otherwise... Michael Sen: No, I would want to conclude with reiterating, where also Sara left it, look at the business, look at the underlying momentum, which is in the each and every individual business. This is a strong momentum, which is going to carry also into 2026, and then we'll take it from there. Nick Stone: Super. Thank you very much. We can conclude the call there, and we look forward to seeing you folks in Paris tomorrow. Operator: We want to thank Fresenius and all the participants for taking part in this conference call. Good bye.
Operator: Good morning, and welcome to the RYAM Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the call over to your host, Mr. Mickey Walsh, Treasurer and Vice President of Investor Relations. Thank you, Mr. Walsh. You may begin. Mickey Walsh: Good morning, and welcome to RYAM's Third Quarter 2025 Earnings Conference Call. Joining me on today's call are De Lyle Bloomquist, our President and CEO; and Marcus Moeltner, our CFO and Senior Vice President of Finance. Last evening, we released our earnings report and accompanying presentation materials, which are available on our website at ryam.com. These materials provide key insights into our financial performance and strategic direction. During today's discussion, we may make forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially. These risks are outlined in our earnings release, SEC filings and on Slide 2 of the presentation. We will also reference certain non-GAAP financial measures to offer additional perspective on our operational performance. Reconciliations to the most comparable GAAP measures can be found in our presentation on Slides 27 to 30. We appreciate your participation in today's call and ongoing interest in RYAM. I will now turn the call over to De Lyle. De Lyle Bloomquist: Well, good morning, everyone, and thank you for joining us. Before Marcus walks through the financial results for Q3, I want to cover 5 topics today. First, our updated 2025 bridge and guidance. Second, recent developments in tariffs and trade. Third, our progress resolving the operational challenges we experienced earlier this year. Fourth, the work underway at Temiscaming to restore profitability and position the site for divestiture. And finally, how we're executing to the plan that increases our EBITDA to over $300 million as we exit 2027. 2025 has been a challenging year for RYAM. In response to the extraordinary headwinds, we have focused squarely on strengthening the company's cash generation, enforcing capital investment discipline and protecting our core Cellulose Specialties franchise. I believe that this approach is working and that our third quarter results reflect the normalization of our core business and the continued progress across the strategic plan. Now let's move to Slide 4. Full year adjusted EBITDA guidance is now $135 million to $140 million, refined from our prior $150 million to $160 million range. The change is primarily driven by proactive downtime of our noncore paperboard and high-yield pulp production during the holiday season to monetize inventory and protect cash given the weaker paperboard markets. We also are experiencing increased market weakness in the business, but this negative was largely offset by FX tailwinds in the quarter. We also faced increased headwinds to our fluff business, primarily due to the U.S. fluff industry exports to China being displaced by the China 10% tariffs and creating increased competition into non-China markets. The Cellulose Specialties business performed near expectations and returned to normalized EBITDA margins in Q3. Turning to Slide 5. Please note that importantly, there are still 0 tariffs on our Cellulose Specialties and dissolving wood pulp products into China, 0 tariffs on U.S. sales to the EU and 0 tariffs on Canadian imports into the United States. Though direct tariff impacts have stabilized, we continue to work through the 10% tariff on our fluff products into China. We're collaborating with customers and adjusting geographic mix as part of our mitigation strategy. We're also developing a dissolving wood pulp fluff product that would avoid this China tariff. Our technical team is working to refine this new product to reduce unit production costs. Major development in Q3 was the U.S. ITC's preliminary affirmative injury determination and the ongoing antidumping and countervailing duty investigations covering Brazilian and Norwegian dissolving pulp imports. This determination allows the Department of Commerce to move forward with its investigations with preliminary duty determinations expected in early 2026. As a reminder, an estimated 190,000 tons of specialty grade acetate pulp are imported into the U.S. from Brazil each year and about 5,000 tons of ethers pulp are imported from Europe. So this case matters. It's a significant step toward a fair level playing field for U.S. producers of high-purity specialty cellulose pulp. Overall, we now believe that trade conditions are generally trending in our favor as we move towards 2026. On Slide 6, the isolated operational challenges we've discussed previously are stabilizing. In Q3, operational challenges at Tartas continued, including French national strikes that adversely affected Tartas. These were not RYAM-specific strikes, and the RYAM team did an outstanding job keeping customers supplied. As mentioned last quarter, we were understaffed in key technical roles at Tartas. Since June, we filled most of the open key positions via new hires, including the transfer of a couple of technical managers from Temiscaming and expect all key positions to be filled by year-end. Jesup and Fernandina are performing to expectations. Slide 7 outlines the actions underway at Temiscaming. 2025 has been a difficult year for the Paperboard and high-yield pulp business. We now expect an EBITDA loss of about $14 million compared with historical profitability of roughly $30 million. The decrease in 2025 guidance is due primarily to lower paperboard prices and volumes due to new U.S. capacity and our plan to idle the Paperboard line and 1 of the 2 high-yield pulp lines for 3 weeks in the fourth quarter to improve working capital and cash flow. Our plan to return the Temiscaming site to historical profitability is focused on 4 key initiatives. First, reducing Temiscaming costs by approximately $10 million. This initiative has been fully implemented through utility contract improvements and benefits derived from high-return strategic capital investments. Second, improving the Paperboard's line OEE by approximately $10 million in 2026 as a result of fewer economic shutdowns, grade optimization and enhanced maintenance reliability. Further upside of $5 million is expected to be realized in 2027 as supply and demand normalizes, resulting in no economic production shutdowns. Third, advancing the commercialization of new product development to generate an estimated $10 million in 2026 EBITDA and another $5 million in 2027. The new freezer board grade has been qualified and launched in Q3 and orders are being secured. The rolled softwood high-yield pulp qualification trials are advancing well with potential customers and the oil and grease resistant board trials will begin this quarter. Additionally, we are developing another new product, a high-yield pulp wrapper product that is in testing, which we will believe will deliver 2026 cost savings and potential for new market entry. And fourth, we're in active negotiations with U.S. customers affected by the 15% tariff on EU board imports and participating in an AFRY-led study evaluating strategic options for all the assets on the site, including the currently suspended HPC line. We recently responded to an opportunistic inquiry about Temiscaming, so there is current interest in the business. As we restore positive profits and cash flow to Temiscaming in 2026 and once the USMCA free trade review is completed in July of 2026, we believe we can divest the site at a fair value. Turning to Slide 8. Starting from our normalized EBITDA baseline, we've updated our plan to double our EBITDA from our current guidance over the next 2 years. I will walk through each step and provide an update on how we're progressing. On the pricing front, we believe that we're tracking ahead of plan. We are targeting a significant price reset to reflect the inherent value of our Cellulose Specialty products, which we believe requires recapturing lost value from prior year's inflation. On cost, the $30 million reduction program for 2026 is almost fully implemented. And as upside, we are now working on a $20 million of EBITDA benefit for 2027 that would be derived from strategic capital projects. From a specialty commodity sales mix standpoint, we are increasingly confident that we will realize the $30 million in EBITDA growth from margin improvement. I'll expand on why in a moment. Finally, our biomaterials projects are progressing, and I'll cover this progress in more detail in a couple of slides. In short, our strategy remains firmly intact, and we have a clear line of sight to achieving our 2027 run rate target. Slide 9 expands on the pricing and market fundamentals for our core business. We are highly confident that RYAM is in a strong position to realize a significant price reset for its Cellulose Specialty products. We believe that the market is conducive to capturing product value because industry capacity utilization is over 90% with no expected major capacity additions before 2029. RYAM holds most of the excess Cellulose Specialty capacity, and the industry is highly concentrated with RYAM and 2 other producers accounting for roughly 80% of the global Cellulose Specialty capacity. This is important because we're making a strong push on 2026 cellulose specialties pricing, i.e., pursuing a meaningful reset beyond prior year increases to reflect the value of our high-purity products, which requires us to recapture lost value from inflation that has increased nearly 35% faster than our average cellulose specialty pricing since 2014. We also continue to capture the opportunities to enrich our sales mix towards specialty cellulose. We are on track to requalify Temiscaming CS volumes to generate $5 million of EBITDA in 2026, with 2 customers already qualified and a third expected by year-end. We also remain highly confident we will generate $20 million in EBITDA over the next 2 years via specialty margin enhancement versus commodity sales. This objective will be driven by organic growth across Cellulose Specialty markets, supported by RYAM's outsized share of available excess capacity and potential upside to the plan from increased cellulose specialty volumes following Georgia-Pacific's Memphis facility closure, which produced an estimated 10,000 to 20,000 metric tons of cotton linter pulp grades that go into cellulose specialty applications. Finally, we continue to expect to realize $15 million of additional EBITDA when ether demand in the EU returns to historical levels, which would also be upside to our plan. On cost, $24 million in strategic investments made this year will generate $20 million in cost reductions at our HPC plants in 2026. We also are taking action to reduce corporate costs by $10.5 million, including eliminating lightly used medical benefits, increasing management span of control, reducing clerical roles via automation and terminating nonemployee technician and professional contracts. We are also working on upside to this cost improvements initiative. We are actively working on projects at the HPC plants to generate another $20 million in EBITDA for 2027 and believe that we can take out another $4 million to $6 million in corporate costs via AI and automation over the next 2 to 3 years. On Slide 10, I highlight the progress we are making on our biomaterial projects. The Altamaha Green Energy or AGE project is a $500 million 70-megawatt renewable power project to be based at our Jesup facility. RYAM will own 49% of this project. Recent progress includes reaching agreement on the EPC contract in September and receiving our air permit in October. Joint venture is now focused on reviewing project financing options, after which the project will move to its FID. RYAM will invest $46 million of equity to realize an annual proportional EBITDA of $50-plus million. Assuming a utility valuation multiple, this project is expected to generate a 12x ROI on RYAM's equity. The $64 million BioNova Fernandina Beach second-generation bioethanol project is expected to generate $15 million (sic) [ $19 million ] of annual proportional EBITDA for RYAM in return for $6 million of RYAM cash equity, generating a 19x ROI on RYAM equity, assuming a comparable multiple. Funding is secured, the air permit has been approved and engagement with the city of Fernandina Beach has begun with respect to a potential settlement on the land use application. The U.S. BioNova CTO project will produce about 13,000 tons per year of CTO from feedstock primarily sourced from our Jesup and Fernandina plants. Engineering for the project is complete that incorporates a high-quality used CTO plant that we acquired for $350,000 in September. Commercial discussions are advancing, and we expect to file the air permit application by the end of November. This project is expected to generate $6 million (sic) [ $7 million ] of annual proportional EBITDA per year on a total CapEx of $9 million, of which RYAM will contribute less than $2 million of equity. Using a comparable market valuation multiple, this project is expected to generate a 16x ROI on RYAM's equity. The European BioNova CTO tolling project is small, but requires no RYAM equity. We'll supply feedstock from our Tartas plant to a third-party toller, which will generate approximately $1 million of annual proportional EBITDA. And finally, the pre-biotics project at Jesup is one of the more exciting projects in the BioNova portfolio. As a result of exceptional efficacy results that show that our product delivers significantly higher weight gain and feed conversion performance in poultry than competing alternative feed additives, we are redesigning the plant to a smaller modular footprint that can scale up with demand growth due to lower initial dosing requirements. We've also signed a commercial sales MOU with a feed additives manufacturer for U.S. poultry and swine feed applications. While the redesign may extend this project's time line, this is a positive adjustment. The trial data confirmed our product's superior performance, and as a result, we believe meaningfully expands the commercial opportunities ahead. Across all these initiatives, RYAM demonstrated its ability to recycle capital into high-return projects due to low capital intensity, attractive project capital and repeatable outsized investment returns. Slide 11 explains why we can do this. The crux of these opportunities is RYAM's extensive and unique asset base. The noted biomaterial projects will be located at existing RYAM Cellulose fiber plants where the infrastructure, utilities, raw material sources and site management are already in place. Thus, RYAM's asset base anchors our ability to scale new biomaterial projects efficiently. We also believe that replicating this asset base would be prohibitively expensive. Thus, it is unique to RYAM. As a case in point, the replacement value of Jesup alone is estimated to be over $4 billion. So we believe that RYAM is uniquely positioned to pursue such opportunities at very attractive ROIs on equity invested. The technical and market viability of most of our projects are already proven. Pre-biotics isn't the only opportunity that would be new. We are, therefore, taking the necessary steps, including animal feed trials and resizing the plant to mitigate the market and capital risk for this project. The project that I summarized on the previous slide will generate high returns and very profitable growth through 2028, 2029. For the 2030s decade, we are investigating promising opportunities today in biomaterials and bioenergy to provide profitable growth. For example, we are currently conducting due diligence with GranBio for a pilot-scale ethanol-to-jet plant at our Jesup facility. If this due diligence concludes that such a project would be successful, we will then proceed to construction, which would be fully funded by a DOE grant. We've also signed an MOU with Verso Energy to evaluate eSAF production at Jesup and Tartas that will align with the EU decarbonization mandate starting in 2030. Just yesterday, we were informed that Verso Energy's project at our Tartas plant was selected by the EU Commission for its innovation fund and will receive a $37 million grant towards the construction and commissioning of the Tartas eSAF project after a final investment decision is made. Turning to Slide 12. I'd like to close with 3 points. First, our near-term issues are mostly behind us. The tariff situation has stabilized and the extraordinary operational challenges, except maybe those challenges tied to political turmoil, are resolved. Second, the underlying fundamentals of our strategy remain intact, and our EBITDA-enhancing initiatives are advancing. The core business is performing to expectations with a significant 2026 pricing reset being pursued. The $30 million in structural cost targets will be delivered for 2026, and we're now working on a further $20 million to $25 million plant and corporate cost reductions for 2027. Our confidence continues to build that organic growth across cellulose specialty markets will further expand EBITDA margins by $30 million over the next 2 years. The Temiscaming turnaround efforts are effectively underway and our biomaterials portfolio continues to progress. Third, RYAM valuation remains compelling. We believe that an up to 5x upside to the stock price for our shareholders would be implied by the comparable double-digit valuation of our competition in a recent transaction on our targeted 2027 $300-plus million run rate EBITDA. 2025 has been a challenging year, but we are getting through it with our strategy intact. Our core is solid and performing and our growth initiatives are advancing. We remain confident in the path ahead and are focused on execution on this plan for our shareholders. With that, I'll hand the call over to Marcus to take us through the Q3 financial highlights. Marcus Moeltner: Thank you, De Lyle. Let's now turn to Slide 13, which summarizes our third quarter 2025 financial highlights. In the third quarter, revenue was $353 million, down $48 million year-over-year. Operating income was $9 million, an improvement of $26 million compared to the prior year. Adjusted EBITDA was $42 million, a $9 million decrease from Q3 2024. And adjusted free cash flow year-to-date was negative $83 million, driven by working capital timing that is expected to improve in the fourth quarter. The primary drivers of the EBITDA change this quarter can be summarized with the following highlights. In Paperboard, earnings decreased by approximately $10 million, reflecting lower sales volumes and pricing from tariff uncertainty, competitive EU imports and new U.S. capacity, along with higher fixed costs for market-related downtime and the allocation of Temiscaming net custodial site expenses. In high-yield pulp, earnings declined by approximately $10 million due to continued oversupply in China and higher fixed costs resulting from market downtime. And in Cellulose Commodities, earnings increased by $7 million, driven by stronger fluff pricing, improved mix and the absence of prior year impairment and suspension charges. Given these weaker-than-expected results in our noncore business, we have now refined our full year 2025 adjusted EBITDA guidance to a range of $135 million to $140 million, implying $25 million to $30 million of adjusted free cash flow for the fourth quarter. Let's now review our segment results, beginning with Cellulose Specialties on Slide 14. Quarterly net sales for CS were $204 million, down $28 million or 12% from the prior year. The decline was driven by a 17% decrease in sales volumes, partially offset by a 7% increase in average sales prices from negotiated price actions and improved mix. Operating income was $49 million compared to $46 million in the third quarter of 2024. The improvement was driven by higher average selling prices, lower fixed costs related to the Temiscaming Cellulose indefinite suspension and a $7 million energy cost benefit from the sale of excess emissions allowances, partially offset by lower volumes, higher operating costs and the impacts of national labor strikes in France. Adjusted EBITDA was $66 million compared to $65 million last year, with margins increasing to 32% from 28%. Turning to Slide 15. Quarterly net sales for Biomaterials were $8 million, flat compared to the prior year. Higher turpentine volumes were offset by lower bioethanol sales volumes caused by temporary feedstock constraints and labor disruptions at Tartas. Operating income was $1 million compared to $3 million in the third quarter of 2024, reflecting higher shared and ancillary service costs. Adjusted EBITDA was $1 million compared to $4 million in the prior year, with margins of 13% versus 50% in Q3 of 2024. Turning to Slide 16. Quarterly net sales for Cellulose Commodities were $85 million, down $1 million or 1% from the prior year quarter. A 2% decrease in volumes, mainly due to the prioritization of production towards cellulose specialties and the absence of Temiscaming sales volumes following the indefinite suspension was largely offset by additional viscose sales as part of inventory and cash management efforts and an 8% increase in average selling price driven by higher fluff pricing and mix improvement. Operating loss was $13 million compared with $55 million last year. The improvement reflects the absence of a $25 million noncash impairment charge and $7 million of indefinite suspension costs recorded in the prior year, combined with higher selling prices, lower fixed costs following the indefinite suspension of Temiscaming Cellulose operations and improved cost performance. Adjusted EBITDA was negative $3 million compared to negative $10 million in the prior year quarter. Let's now move to Slide 17, which covers our Paperboard segment. Quarterly net sales were $39 million, down $16 million or 29% compared to the prior year. Average sales prices decreased 10% and sales volumes were down 21%, driven by mix, shifting customer dynamics associated with tariff uncertainty and increased competitive activity due to EU imports and the start-up of new U.S. capacity. Operating loss was $4 million compared to operating income of $7 million in the prior year quarter. The change was driven by lower sales, higher fixed costs for market downtime and the allocation of Temiscaming net custodial site costs, partially offset by lower purchase pulp costs. Adjusted EBITDA was $1 million compared to $11 million in Q3 of 2024, with margins of 3% compared to 20% in the prior year. Turning to Slide 18. Quarterly net sales for high-yield pulp were $24 million, down $4 million or 14% compared to the prior year quarter. Average sales prices declined 10% and volumes decreased 8%, reflecting weaker demand, oversupply in China and shipment delays to customers in India. Operating loss was $10 million compared to breakeven results in the prior year. The decline reflects lower sales, higher fixed costs from market downtime and the allocation of net custodial site costs. Adjusted EBITDA was negative $9 million compared to positive $1 million in Q3 of 2024, with margins of negative 38% compared to 4% last year. Slide 19 provides an overview of our balance sheet and liquidity. We ended the quarter with $140 million of total liquidity, including $77 million of cash and a net secured leverage ratio of 4.1x within the 5x covenant threshold. During the quarter, we experienced working capital outflows across receivables, payables, customer rebates and inventory, which pressured free cash flow. These outflows also reflect temporary inventory management actions by a large Cellulose Specialties customer that affected order timing. We expect working capital levels to normalize as we progress through the fourth quarter and as sales volumes increase. We remain focused on driving working capital efficiency and improving cash flow generation. For the full year, we expect adjusted EBITDA in the range of $135 million to $140 million and positive free cash flow in the fourth quarter as these timing effects ease. In addition, we have $40 million of committed green debt available to support the execution of our Biomaterials portfolio as the projects move forward. The company will also look to proactively pursue a refi in 2026 to lower interest expense by leveraging RYAM's expected stronger operating performance and potentially lower debt as a result of the targeted divestment of Temiscaming. With that, operator, please open the call for questions. Operator: [Operator Instructions] Our first question comes from the line of Daniel Harriman with Sidoti. Daniel Harriman: Just wanted to hit on two in the beginning, one for De Lyle and one for Marcus. De Lyle, just going back to the Paperboard and High-Yield Pulp assets. Can you just talk again, I know you went through it all, but what specific operational and financial milestones do you think you need to achieve in 2026 to make those assets viable for a sale? And then Marcus, you touched on this at the end of your comments, but with leverage at 4.1x, can you just talk a little bit about how you're thinking about refinancing and repricing opportunities considering that the debt is callable in '26? And then what level of EBITDA would give you comfort that you can regain full balance sheet flexibility? Really appreciate it, guys. De Lyle Bloomquist: Daniel, this is De Lyle. I'll see if I can address your question on the Paperboard and High-Yield Pulp business. The way I would look at it is that before I can sell it, there's 2 gating items that we have to get passed. One is the USMCA renewal that is under negotiations right now between the 3 governments. And let's say that, that gets done by the deadline, which should be around July of 2026. I don't think there'll be any interest on anybody's part until we get -- in terms of buying those assets until we get to that point. The other gating item is that the -- I believe that the business needs to get back to positive EBITDA and positive cash flow. And I outlined 4 different things that we're pursuing to make that happen. I would say 2 of them are high probability or locked. One is the cost reduction, which is largely locked and given the activity we've already done. The other is the OEE of the paperboard plant, which has been demonstrating significant improvement over the past couple of months, and we expect to continue to do so as we go into 2026. The last element I would say is really big is really the new product development and the uptake of those new products into the market. So to get to a positive EBITDA, I need all 3 of those elements. And so really, the last critical element that needs to fall in place is the successful commercialization of those new products, which we should start seeing in the first quarter and second quarter of '26. So once I get to a positive EBITDA, positive cash flow and we get past the negotiations on the USMCA, I think at that point, we've got an asset now that's attractive, and we'll be able to dispose of it. Marcus Moeltner: Dan, thanks for your question. Yes, as you mentioned, the term debt becomes callable in May of next year, and there's a 2% takeout premium, right, which falls to 1% in November. I think the key here is, as we've gone through the materials, navigating these transitional headwinds and then demonstrating that this business should return to historical levels of EBITDA, right? We exited last year at $50 million quarters. And when we demonstrate that kind of cadence, we'll anniversary some weaker quarters that we had this year and get our LTM back up over the $200 million level. That certainly is going to give us a better leverage profile to be out in the marketplace and then continue to tell our story on the backdrop of all the positive items De Lyle mentioned in his review and look to do the breakeven on a refi. And we certainly see a line of sight where we can take a measurable amount of interest out of this business at that time. De Lyle Bloomquist: Does that answer your question, Daniel? Daniel Harriman: Yes, it does. Operator: Our next question comes from the line of Nick Toor with BlackRoot Capital. Nauman (Nick) Toor: I just want to hone into a bullet point that you have on Slide 9, which says that as we kick off 2026 Cellulose Specialties pricing discussions, we are targeting a significant reset beyond prior year increases, reflecting the value of our products and recapturing lost value from prior year's inflation. Could you give me a little bit of color on how much value has been lost from prior year's inflation as you head into these negotiations next month or this month? And what does -- what is baked currently into your guidance? And what is the impact of 1% increase in pricing over your cost inflation? De Lyle Bloomquist: Okay. I know it's early over there in the West. I certainly appreciate you getting up early to participate on the call. That's a question you ask, I'll see if I can try to answer it each of the different components. Starting off with just kind of the rule of thumb on a 1% increase in pricing. It generally generates $8 million to $9 million increase in EBITDA when we talk about increasing our CS pricing by 1%, okay? So you take that. And as I stated in the presentation, since 2014, the inflation has increased 35% more than the average pricing for our CS products. So if you take 8% or 9% for every 1% increase in pricing, the value lost is somewhere in the tune of $300 million. I think that's the right math. But anyway, you can certainly do the math quickly. In the plan that we've laid out with respect to getting to $300 million from our pro forma '25 number, we assumed essentially a 1% higher rate of increase on pricing than inflation. So I think we show on the slide an $89 million increase over 2 years in pricing, offsetting the $80 million in inflation. Largely, the reason for that assumption is because that's what our analysts out there are saying that we can get a 4% to 6% increase in our pricing given the tight market conditions, given the highly concentrated industry we're in and so forth. So we just assume the midpoint on that to drive that number. What I'll tell you is that we internally believe we need to increase that at a much faster rate than just 1% above inflation to get back to a level that will allow us to reinvest back into our plants and make our facilities viable for the long term because, quite frankly, since 2014, pricing where it has been has not been sustainable. And you've seen that in the industry, in that we've seen a competition and capacity gets shut down and rationalized with GP Foley being the last one -- not the last one, actually, Temiscaming operations being the last line being shut down, but GP Foley, Cosmo out of Washington State, and just recently, the CLP plant in Memphis, Tennessee, which is not in cellulose specialties, but certainly in the same applications, all right? So pricing must go up. It must go up. So I know the next question would be, well, how much more do you think is going to go up than just the 1% above inflation? It's going to be multiples of that number. It has to be multiples of that number, so that we can get the capital we need to reinvest back in the plants and make these facilities the gold standard that they need to be. So I can't tell you exactly the number that we're after, but all I can tell you is that we're not looking at a 5% increase. We're not looking at a 10% increase. We're looking at higher numbers. Nauman (Nick) Toor: So there is roughly $300 million of cash flow that needs to be recaptured, whether that happens -- a big portion of it probably happens next year and then the remaining in the years after that. But that's an extremely significant number considering your market cap is around $400 million. So that's very exciting. So now that the capacity has been taken out of the industry to the extent that it has and capacity utilization levels are as high as they are, now there is space for -- in the industry for there to be more rational pricing and recapture what has been lost through inflation over the last 9 or 10 years. Is that a fair assumption? De Lyle Bloomquist: That's -- I couldn't have summarized it better, Nick. That's exactly right. Nauman (Nick) Toor: Okay. Great. And then just second question, I think I see the stock is trading a few percentage points [ better ], which is sometimes the market gives you a gift. But it seems like your reduction in EBITDA from last quarter to this quarter was because of your decision to shut down your operations for a little bit to generate cash from your working capital. Can you just give me -- I think you mentioned in one of your slides that you -- the $10 million loss was from that decision, but that generated or is expected to generate additional working capital and improve the cash flows overall for the company. What's the magnitude of that working capital release? De Lyle Bloomquist: Roughly about $14 million. Nauman (Nick) Toor: Okay. So you basically sort of made the decision you're going to get the EBITDA down by time, but get $14 million more of cash? De Lyle Bloomquist: Yes, yes. Now $10 million of EBITDA loss or nonrecurring impact as a result of the, we call it, market or economic shutdowns of the Temiscaming facility. That's over the whole year. So the $14 million benefit is really over the whole year. Marcus Moeltner: Yes. And Nick, to De Lyle's comment, the -- so that's the portion related to downtime. If you look at our guidance in Q4, we're expecting close to $30 million of working capital release, as you saw in the bridge. De Lyle Bloomquist: Yes. A good chunk of that is Paperboard, but a good chunk of it. There's also a big chunk of it coming out of CS. Nauman (Nick) Toor: Got it. Got it. Got it. And then just last question, just honing in on your AGE project, which seems incredible. It seems like you've basically passed most of the hurdles for your FID. So just working on the financing, you've got an investment-grade counterparty there. And I think the EBITDA now is $50 million applicable to you, which is worth $500 million of value. Again, your market cap is in the $400 million. It's -- is there anything that is preventing or is there any major things that you're concerned about that could potentially derail that project? Or is now just the timing of funding or getting the funding finalized? De Lyle Bloomquist: It's just getting the funding finalized, Nick. And just to correct you, it's not $500 million of, call it, market cap. I think it's $650 million of market cap because you need to -- this is essentially a utility, 3-year contract, fixed pricing, no volatility coming from a Georgia Power, which is a statewide utility. So you take a 13x multiple and times it by the $50-plus million, it's a $650 million potential impact to our ROI. So we understand and we recognize that it's a super project for this business. The hurdle on this really, it's not so much the project financing, it's really finding the $46 million of equity that we got to -- we, RYAM, have got to put in the business. And we're looking at options of how we're going to find that money to put it to fund this. That's really the issue. Nauman (Nick) Toor: Okay. Okay. Sounds good. Well, I mean, as you know, I own almost 2 million shares of the stock, and I feel like I'm underinvested. So there's very exciting times for the company and it looks like you guys are making very rapid progress on the biomaterials initiatives. But the really exciting news coming out of this quarter, which we didn't know last quarter was the magnitude of price increases that are possible going into next year. So good luck with those negotiations, and thanks for the time. Operator: Our next question comes from the line of Amit Prasad with RBC. Amit Prasad: It's Amit on for Matt. Just starting off with Temiscaming. You noted a $5 million benefit in 2026 from qualifying volumes in other lines. What would that be on a run rate basis? And when do you expect those incremental volumes to show up? And I guess, how much of that historical Temiscaming business do you expect to ultimately have retained through transferring production to other facilities by the end of 2026? De Lyle Bloomquist: So you're asking on the amount of volumes that we're able to convert from our old HPC line in Temiscaming over to our facilities in Jesup, Fernandina and Tartas. What we're talking about with respect to the $5 million that we're looking to see in terms of increased EBITDA for '26 is conversions that have occurred this year, all right? We've already seen a significant amount of conversion since we suspended the operations back in July of 2024. So what we're saying is that -- and as we said at the time of the suspension, there was a number of products that would take multiple years in terms of qualification. So we're just now getting through the conversion on -- with 3 customers this year. And when those conversions are completed this year, that should add another $5 million of EBITDA for our business going forward. That being said, there'll be more opportunities in 2026 and probably after that, that's probably about the extent we're going to be able to get to as some of the business like MCC and some other grades that we are producing in Temiscaming have gone to the competition. But we're getting to the end of the road with respect to what we're going to be able to realize from the full conversion of those Specialty Cellulose business that we had up at the Temiscaming facility. I hope that answers your question. Amit Prasad: Yes, that's perfect. And I guess one other quick one for me. We saw paperboard realizations move significantly lower quarter-on-quarter. How much of that was just pricing related being down on a like-for-like basis versus just mix and potentially some FX? De Lyle Bloomquist: That's a really, really technical question and probably beyond my ability to answer it specifically, but we certainly would be happy to try to answer that question to you one-on-one. Amit, after we've done a little bit of investigation, is it okay just to punt that for a couple of hours. Amit Prasad: Yes, absolutely. No problem at all. Operator: [Operator Instructions] Our next question comes from the line of Dmitry Silversteyn with Water Tower Research. Dmitry Silversteyn: I have a couple of them. First of all, you talked about working on a new fluff product that would avoid the tariffs, the 10% import tariffs from China or into China. Can you talk about sort of what would allow -- kind of what the changes are that would allow the new product to bypass these tariffs? And when do you think this product will be available for commercial sales? De Lyle Bloomquist: Dmitry, welcome, and thank you for being on the call. Great question with respect to our new product development around fluff. We've developed it. We have a product that we believe that would qualify as a dissolving wood pulp product from a tariff perspective into China that would go into the fluff business, all right, or into the fluff market. And that's really the key is that it has to be a dissolving wood pulp product to be able to get into China without any tariffs. And that's -- and we're really the only, I believe, the only fluff producer who can do that because we're a specialty cellulose producer that can make dissolving wood pulp, whereas all the other fluff producers in the world cannot. So it's a real comparative advantage to be able to do that. So we can do that today. The issue that we're dealing with is that the cost of that conversion from fluff to a dissolving wood pulp product as the cost per ton is higher than the cost we would bear by paying a 10% fluff duty right now. So we've -- we continue to work on seeing if there's a means to lower the unit cost of production to make that dissolving wood pulp fluff. And in the meantime, we'll continue to do what we're doing, which is extend and expand our geographical diversity away from China to keep our fluff volumes high and keep the operation at capacity. But the truth of the matter is we have a product. We just have to figure out a way to make it cheaper. Dmitry Silversteyn: Understood. That's a very good level of granularity there. I appreciate it, De Lyle. My next question is, you talked about the $30 million in cost reduction projects that you announced last quarter being pretty much fully implemented by now, and we're just sort of waiting for the ramp-up and get to that run rate. You also mentioned that there's an additional $20 million in EBITDA improvement projects for -- through 2027. Is it too early to ask you to provide sort of some major buckets of where that cost saving is going to come from? De Lyle Bloomquist: Well, it can be the same major buckets that we've had for 2025 and '24, which is around improving reliability, improving material usage on our variable inputs through automation, through, I would call it, preventative and even predictive maintenance practices and measuring devices so that we can capture or catch maintenance requirements before any kind of catastrophic failure. Those are the things we've been focusing on in the past. That's what we'll be focusing in the future. And as I said in the past, a couple of analyst calls, we have a good backlog of projects that we're going through to -- that we'll invest in. And as capital gets available, we'll execute, that will give us the returns that we've been seeing for the last couple of years on these type of investments. Those are generally the same -- the buckets, though, Dmitry, that we'll be investing similar to the investments we did last year or this year. Dmitry Silversteyn: Okay. So basically, kind of like a Japanese Kaizen approach where you just do better every time you go through this and get a little bit more out of it. De Lyle Bloomquist: That's exactly right. Exactly right. Yes. Dmitry Silversteyn: Okay. Okay. Great. And then my last question, you mentioned in your High-Yield Pulp business that there was a shipment delays of a business going to India, and that accounted for some of your volume losses in that business in the quarter. What was the nature of those delays? And have they been resolved? Is there going to be a catch-up in the fourth quarter? Or is this sort of missed until next year? De Lyle Bloomquist: It's just a timing issue. We'll capture it in the fourth quarter. And really, what it comes down to is the lane between Montreal, Canada and the ports in India, the capacity of those ocean lanes are pretty slim, pretty narrow. And as a consequence, if you miss a ship, then you got to wait a month, right, for the next ship to show up to take it to India. So that's really the issue that we're dealing with. Operator: Mr. Bloomquist, we have no further questions at this time. I'd like to turn the floor back over to you for closing comments. De Lyle Bloomquist: Okay. Well, thank you. In closing, just to reiterate, the temporary headwinds that defined 2025, we believe are now largely behind us and that our core business is now performing as expected. As we talked about in the Q&A, pricing negotiations are underway, and we will continue to value and put priority on value -- on the value we provide to our customers so that we can be able to get the money that needed to reinvest back into our assets. Our operations are stable, and our teams are executing with discipline. We have a clear strategy and a strong portfolio of high-return projects that position the company for margin expansion and stronger cash generation and we are very disciplined in our capital deployment. These actions should reinforce your confidence in our path to sustain the growth and the long-term value creation of the project or of the company. Our focus now is very simple: execute with precision and continue to demonstrate the strength and potential of the company. And thank you for joining us this morning. Operator: Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.
Operator: Good day. My name is David, and I'll be your conference facilitator. I would like to welcome everyone to the Aeva Technologies Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, today's conference call is being recorded and simultaneously webcast. I would now like to turn the call over to Andrew Fung, Senior Director of Investor Relations and Corporate Development. Andrew, please go ahead. Andrew Fung: Thank you, and welcome, everyone to Aeva's Third Quarter 2025 Earnings Conference Call. Joining on the call today are Soroush Salehian, Aeva's Co-Founder and CEO; and Saurabh Sinha, Aeva's CFO. Ahead of this call, we issued our third quarter 2025 press release and presentation. which we will refer to today and can be found on our Investor Relations website at investors.aeva.com. Please note that on this call, we will be making forward-looking statements based on current expectations and assumptions, which are subject to risks and uncertainties. These statements reflect our views only as of today and should not be relied upon as representative of our views as of any subsequent date. These statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from expectations. For a further discussion of the material risks and other important factors that could affect our financial results, please refer to our filings with the SEC, including our most recent Form 10-Q and Form 10-K. In addition, during today's call, we will discuss non-GAAP financial measures, which we believe are useful as supplemental measures of Aeva's performance. These non-GAAP measures should be considered in addition to and not as a substitute for or in isolation from GAAP results. The webcast replay of this call will be available on our company website under the Investor Relations link. And with that, let me turn the call over to Soroush. Soroush Dardashti: Thanks, Andrew, and good afternoon, everyone. It has been an incredibly busy and productive quarter here at Aeva. Following Aeva Day this summer, where we shared how our breakthrough unified perception platform is enabling new levels of perception for customers across a broad range of applications, interest for Aeva's technology has continued to grow significantly. Our focus has been on achieving important milestones for our partners and positioning Aeva to meet the expanding demand to adopt our differentiated FMCW technology. The key highlight this quarter is our progress with the top 10 global passenger OEM. At the start of the year, we announced that the OEM had selected Aeva for a development program and also issued Aeva a letter of intent for production, where upon successful completion of the development program, the engagement would transition to a serious production award opportunity. I am very pleased to share that we have completed the development program ahead of plan and are now in late-stage contract negotiations for a series production award and more on that later. We also continue to make good progress on the Daimler Truck production program. Aeva's deliverables for the initial vehicle builds have been completed, and we are now shifting our focus to support Daimler Truck's growing vehicle fleet in 2026 and have already received the initial orders for next year's shipments of our Atlas final samples. And overall, we remain on track for Daimler Truck's planned market entry in 2027. Outside of automotive, we are pushing deeper into precision sensing. We have already started shipping against our first 1,000-plus units orders for our Eve 1D sensors. And in just a few months, we have expanded our precision sensing product line with the unveiling of our Eve 1V sensor. This builds on the EV 1D product by adding motion measurements to our product line to address what we believe is more of the multibillion-dollar manufacturing automation market. Reception has been really strong with multiple customers already placing initial orders with the opportunity to incorporate Eve 1D and 1V into their product portfolios. In Q3, we completed installation and bring up of the production line for our Eve sensors in Thailand. The first sensors have come off the line and shipped to customers. And we believe we now have the capacity ahead of time to fulfill next year's volume and we will continue to increase the capacity as the demand grows. Now to support our growing commercial traction across multiple segments and our scaling, today, we announced a $100 million investment from one of the world's leading investment firms, Apollo Global Management in the form of convertible notes. This comes at a defining time in the industry, and we believe it further positions Aeva to support not only the scaling of our existing programs, but to also win additional programs. This also follows our partnership and strategic investment from LG Innotek that we announced earlier this year, further reinforcing Aeva's leadership position in next generation of sensing and perception. So to sum up this quarter, Aeva continues to execute on the exciting and vast opportunities we highlighted at Aeva Day. We believe that we are positioned to finish the year strong, including closing the top 10 global passenger OEM production program decision. And with our differentiated technology and strong balance sheet, we see this as just the beginning with significant potential to continue our momentum into 2026 and forward. Now, let's go into more detail on our key business developments. Starting first with our engagement with the top 10 global passenger OEM. As we shared at the start of this year, this OEM selected Aeva for a development program using our Atlas Ultra sensor for the OEM's next-generation global production platform. We expected to complete the development program by the end of this year, and I am pleased to say that, we have successfully completed it in Q3 ahead of plan. The development program was focused on packaging and integration to be able to incorporate our Atlas Ultra as one standard platform across the OEM's multiple vehicle model lines. This is a global production program with a worldwide rollout plan across geographies, excluding China. And the OEM plans to offer Level 3 across a broad range of their global vehicle model lineup, not just the top-of-the-line models. As part of our joint development, we also successfully completed key performance testing to help ensure that Atlas Ultra enables the OEM to introduce new functions of Level 3 driving, including both highway and city driving. In addition, we completed comprehensive manufacturing audits with our partner, LG Innotek for this OEM and detailed out our industrialization plan for the OEM's planned production. All of this now paves the way for the OEM to make the series production award. As we disclosed earlier this year, we secured a letter of intent from this OEM toward the series production program award, where upon successful completion of the development program, the engagement would transition to a global production program opportunity for Aeva. We are now in late stages of contract negotiations and believe that Aeva is well positioned to supply for the series production program. Beyond this particular program, we believe that the top 10 OEMs selection of Aeva for their global series production program would represent one of the strongest validations of our technology platform, in particular, of the superior performance and maturity of our technology. This OEM has a long history of leading in the automotive industry with significant influence and a reputation for excellence and introducing industry-defining features in automotive at mass volume on a global scale. This would also be the first time a passenger OEM would transition from time-of-flight to FMCW to enable Level 3 for both highway and city driving. As such, we believe their vote of confidence in Aeva has the potential to accelerate the interest in FMCW technology as a blueprint for other fast follower passenger car makers. To that end, we are already engaged with a number of OEMs and industry players across RFI and RFQ stages looking to leverage 4D LiDAR for passenger vehicles, trucking and mobility. Over the course of this year, our pipeline has continued to grow, and we expect our first passenger OEM win to further increase interest in Aeva as other OEMs view the top 10 OEMs decision as a reference design for implementing Level 3 automated driving functionality. Turning to our production program with Daimler Truck. We are progressing well on the OEM's milestones, keeping us on track to meet Daimler Truck's planned market entry in 2027. We have now completed sensor deliveries for the OEM's initial vehicle builds and Daimler Truck, together with its subsidiary, Torc, are operating this fleet of trucks on large routes to validate production intent hardware and autonomous capabilities ahead of commercialization. Aeva is the exclusive long-range and ultra-long-range LiDAR supplier for Daimler Truck's autonomous truck production program, with our Atlas 4D LiDAR playing an important role as the primary detection sensor. We're now preparing for next year to support the expansion of vehicle fleet rollout by Daimler Truck and Torc. And we have already received the first orders for 2026 and plan to deliver our Atlas C samples to fulfill Daimler Truck scaling of vehicle builds throughout next year and ahead of launch. Now moving to precision sensing, with the introduction of our Eve 1V motion sensor, Aeva is expanding into a whole new category of applications within the multibillion-dollar manufacturing automation market. Eve 1V uses our core FMCW LiDAR on chip technology to deliver high-precision contactless motion sensing, which means we can consistently do this more accurately, faster and without the wear and tear challenges of traditional encoders and tactile sensors that are used to measure an object motion in manufacturing today. We also designed Eve 1V for a wide range of applications and flexibility for users across multiple processes. This has the potential to be a game changer for the industry and reception so far has been very encouraging. We have already received initial orders from multiple customers for our Eve 1V sensor. Now, more broadly, the number of engagements for our precision sensing capabilities continue to increase since we first announced our product line this year. Precision sensing is a unique market opportunity for Aeva due to our technology's ability to achieve the needed micron-level accuracy that is not really possible with traditional time-of-flight LiDAR. We are working aggressively now to meet the growing interest, including ramping up manufacturing. And importantly, over time, we plan to expand our product lines for industrial manufacturing and robotics to new categories beyond 1D and 1V to address even more of this major market opportunity. Key to enabling this is the precision sensor manufacturing line at our partner, Fabrinet, a leader in the manufacturing of optical components. This quarter, we completed installation and bring up of our line with the first sensors produced and shipped to customers. We now have the capacity in place to fulfill next year's expected volumes for Eve 1D and building capacity for our 1B sensors following its introduction. We have also started shipping against our initial orders of over 1,000 units that we received just a few months ago. Our ability to scale is driven by our chip-based architecture, which we designed specifically for fully automated assembly process steps. By integrating all optics onto a silicon photonics module, we have significantly reduced the number of components within a LiDAR that can be manufactured with greater efficiency and quality. And through our partnership with global manufacturing leaders, we believe that we can lean on their expertise and scale to ramp production quickly without the need to invest significant levels of CapEx. With that, let me now turn the call to Sourabh, who will discuss our financial results. Saurabh Sinha: Thank you, Soroush, and good afternoon, everyone. Let me share more about Aeva's third quarter 2025 financial results. Starting with revenue, it was $3.6 million in Q3, with contribution from ongoing sensor shipments to multiple customers as well as NRV, such as for the Daimler Truck program. Moving to non-GAAP operating loss for this quarter. It declined by 13% year-over-year to $27.2 million, which largely reflects our target to reduce full year 2025 non-GAAP operating expense by 10% to 20% year-over-year. Aeva's gross cash use, which we define as operating cash flow less CapEx, was $33.6 million in Q3, which is higher than the prior quarter due to timing of certain payments and working capital adjustments. In addition, we have received cash of $32.5 million in gross proceeds from LG Innotek upon closing of their strategic equity investment. This brought total available liquidity at end of September to $173.9 million, excluding the Apollo investment we announced today. This is comprised of $48.9 million in cash, cash equivalents and marketable securities and a $125 million in undrawn facility that is fully available to draw at Aeva's sole discretion. Let me talk a bit more about the capital raise we announced today. The $100 million in convertible senior notes will provide incremental capital for Aeva to continue to accelerate our ongoing growth. The notes have a coupon of 4.375% payable in cash or stock at the option of the company and conversion price of 115% to the stock price. The notes are due in 7 years in November 2032. This represents a flexible source of unsecured capital, with no financial or maintenance covenants, and we will retain the flexibility to settle the convertible in cash, shares or any combination at our election upon a conversion. For additional details, please refer to the related 8-K. Including the new investment, our total pro forma liquidity position now stands at approximately $270 million, which we believe provides Aeva's strong competitive advantage to support existing programs as well as secure more wins. As we detailed at Aeva Day this summer, Aeva's unified perception platform enables us to bring new levels of perception to a broad range of large markets and applications. Our momentum has only grown since then. And as we continue to execute, we believe that we are in a strong position to convert additional opportunities into wins. With that, let me turn the call back to Soroush for closing remarks. Soroush Dardashti: Thanks, Saurabh. At a pivotal time for the industry, Aeva is increasing its leadership position in next-generation sensing and perception. We are firing on all cylinders, achieving major milestones on existing programs, progressing towards additional wins and strengthening our balance sheet to scale multiple programs across many markets. I would like to thank the Aeva team for their continued dedication and our stakeholders for their ongoing support. Together, we are in a strong position to realize Aeva's vision to bring the next wave of perception to all devices. And with that, we will now move to Q&A. Operator: [Operator Instructions] We'll take our first question from Colin Rusch with Oppenheimer & Company. Colin Rusch: Can you talk a little bit about the ramp in Metrology sales? I mean, certainly, it looks like you have a pretty meaningful opportunity there in a number of applications. I'd just love to understand kind of how that cadence of product rollout really starts to hit as we get to the balance of this year and into 2026. Soroush Dardashti: Yes. Colin, this is Soroush. Happy to answer that. So obviously, as you know, we're -- as I said, we're firing on multiple cylinders here. So, we announced our Eve 1D sensor just a few months ago earlier this year. Since then, we talked about how the traction in the market has been very strong. Following that, we started getting initial orders. We talked about the first 1,000-plus units orders. And since then, a couple of things that we've done in the past 2 or 3 months. One, we pulled forward our setup of our manufacturing line for the Eve sensor due to this increasing demand. Our team is engaged with multiple tens of customers in this space alone. Each one represents significant opportunity volumes for us. And in this quarter, what we talked about just earlier today was we've now been able to set up the line quickly within a couple of months' time frame and also start building out the units off of this line, and we started to ship the first unit against those 1,000-plus units order already. So that's very important for us, which means we're starting to now crank that gear around shipping units towards those customers. Separate from that, as we also get in the market, we're also getting feedback from customers about the capabilities of our sensors. So beyond measuring micron level accuracy for distance sensors, we have also been able to provide an initial SKU or a new type of product with our Eve 1V sensor, which is now measuring the speed of things on the manufacturing line at a very high level of accuracy, right? So sub-millimeter per second precision. So that is what provides additional opportunities for us. We are already starting getting some orders for that as well from existing customers, also some new customers. But just to give you a rough sense of that, the market for this industry, as we talked earlier, is about 2 million sensors a year for these kind of displacement sensors. And it's roughly ASPs are higher than automotive. So, it's multibillion dollars, $4 billion going to about $6 billion in the coming years. And we are partnering already with some of the key leaders in the space, including SICK and LMI, and others that are coming down the pipe that we can talk about, hopefully as we go forward. And those themselves represent double-digit percent of the market share here, right? So you're talking about, for example, SICK maybe shipping 200,000 or 250,000 sensors annually every year, right? So, when you look at that, I think for us, the way we see the ramp-up is, obviously, it's not going to be overnight, but it's going to be faster also than some of the automotive applications. So, it helps us kind of also fill in that revenue growth and pipeline for the company as we go along. So, we're very encouraged by the reception that we're seeing from the market. Importantly, we're now shifting gears on focus on building the units and we're bringing up the manufacturing line and getting ready for the demand ahead of time for next year, right? So that's what I can share at this point. And as we are able to get additional information from our customers and orders, of course, we'll be talking about that as well. Colin Rusch: Okay. Perfect. And then as a follow-up, just the L2 ADAS and kind of L2+ ADAS opportunity on the trucking side seems pretty substantial. Obviously, those are some longer sales cycles, but also the articulation of the insurance needs and all the other value capture for the truck OEMs seems pretty substantial. Can you talk about the breadth and depth of customers looking at your solution for that L2 and L2+ sort of application in the trucking market? Soroush Dardashti: Yes, absolutely. So as I mentioned on the call earlier, we've been focused on the one unified perception platform that can allow us to enter multiple market segments with one core technology without a ton of optimizations using the same hardware platform with adaptive software that can go into addressing these multiple markets across automotive, both for Level 3 and driving as well as entering into Level 2+, especially in commercial vehicles, which is your question, I'll get to that in a second. But also, then applying that to the other markets, including industrial that we just talked about. So specifically, on L2+, one of the biggest debates that we have talked about over and over again in the past few years is the need for LiDAR and then the famous quotes around, you don't need LiDAR for even going into Level 2 -- Level 3 applications maybe but Level 2. I think over time, that argument has fallen. I think Level 3 is very clear with our progress and the successful completion of this top 10 OEM that Level 3 with LiDAR is going to be standard and it's going to be the key enabling feature for making these vehicles and driving the customers' choice of purchase. But on the Level 2+, I think we have a unique opportunity at Aeva, due to our unique technology, which is because of the fact that we can measure velocity, because of the fact that we can do some of the perception of the sensor, we've been able to demonstrate that we can do more, reducing the need and maybe the cost of other modalities in the Level 2 traditional stack, which is today, especially for commercial vehicles, tends to be camera image sensors plus maybe radar and then some compute box. So, one of the partnerships that we have there that we talked about earlier is with Bendix, which is the market leader in North America, part of a large Tier 1 company around providing Level 2+ ADAS. It's really automatic emergency braking. This company is shipping already in the 200,000 to 300,000 fusion systems every year, these automatic emergency braking systems every year. And they're really standard as the technology of choice for the flagship models of many of the top vehicle OEMs, right? Volvo, PACCAR, Navistar, even Daimler in some examples. So we see an opportunity here together with Bendix to provide a next-generation Level 2+ solution that leverages our 4D LiDAR technology, reducing the need of some of those other components and having the combination of image camera plus 4D information, with processing on the edge, an edge device that I think is going to be bringing the cost down -- but because we leverage the same core unified platform, chip technology, we can use the economies of scale to then also provide those benefits and the flywheel effect into other markets. So, we think that's a massive opportunity. We're working towards that. We introduced this partner earlier in the year, but we think that could be another marquee win for us, especially as we close out this top 10 passenger OEM. We think that, that is going to set the reference as a blueprint for other OEMs in Level 3 for passenger and Level 4 in trucking, but also maybe in Level 2+ for certain commercial vehicle trucking applications as well. Operator: We'll take our next question from Suji Desilva with ROTH Capital. Sujeeva De Silva: Congratulations on the progress here. My question is really around the length of the design cycle for additional customer opportunities. Looking at the Tier 1 you're on the brink of signing with; I'm wondering the step of having to proliferate the design across their model line. I'm curious, what's involved there and how detailed a process that is? And if there can be learnings from what you're doing here, kind of building a catalog of placements and tweaks and software updates that would be leverageable to shorten the design cycle for future customers. Soroush Dardashti: Yes, Suji, happy to answer that. This is Soroush. So, look, I think, first of all, I hope you can hear our voice. We are very excited about the progress that we have made and the successful completion of this top 10 passenger OEM program. To give a quick recap, earlier in the year, we announced and said that, we were awarded a development program from this top 10 passenger OEM, along with a letter of intent for the series production award. And we set out that, there are going to be a number of milestones that we're going to be working together to really develop a scalable modular platform for their global production platform. And that's going to be applied to multiple vehicle model lines. So since then, we have completed all the key milestones satisfactorily, which includes, as I mentioned earlier, around packaging and integration of our sensors to make sure that really works across the OEM's multiple vehicle model lineup -- and this is not intended to go into one top trim or premium model only. It's intended to be really as a standard platform across their multiple vehicle models. And two was around aligning our performance, making sure that it really addresses the key use cases, most importantly, to enable Level 3 driving from the get-go, both across highway and then also eventually around city driving, which is we think is going to be a key driver. And then third piece was around really the industrialization and manufacturing, in which together with our partnership with LG Innotek, which we secured along with a strategic investment, we then got to work, and we did comprehensive audits of our manufacturing line with a manufacturing partner, LG Innotek and this top 10 OEM and really defined a clear industrialization plan of how we're going to go to production. So, in some way, this was really the first phase of the series production development. And what we have now is, we said at the beginning of the year, we're going to complete this by the end of the year. We are seeing now the OEM is very eager to also move forward faster, and they're pulling forward that timeline. So, we were able to successfully complete this a quarter early, which is now in Q3, we have completed that. And the work from here really is around -- we're in late stages of commercial negotiations and that -- so we're feeling good about that. Obviously, it's not done until the ink is dry, but we have -- we are feeling confident about our position about securing this program. So that's what I would say. And I think you asked an important question, which is what is the -- what does it work from here, the cycles for additional wins and how could this OEM be relevant. This OEM is a major OEM, a top 10 OEM globally and we see that this program is for worldwide deployment, excluding China. They are making millions of vehicles every year. They're known as a leader to bring in new technology, but also do it at scale. So that's very important. So, I think that -- what we believe that does as they have shown time and again over the many decades is that, it's going to provide a blueprint and a reference design for other OEMs that are looking to provide this Level 3 functionality really with FMCW technology, we believe, to use that and also implement that. So that is going to be basically from a competitive landscape, we think that is going to be critical. So, we believe that this could be a defining moment when we would have that award around our company, but also the industry for the adoption of Level 3 technology in the next 3-plus years, right? So that, I think, is very important in our plans ahead. So that's a quick background on that. Sujeeva De Silva: Okay. A quick follow-up there on the applicability to mobility, I guess, urban scenarios, where is time of flight sufficient there versus FMCW? Curious your thoughts there as you sound like you're kind of addressing both highway and mobility in your comments. Soroush Dardashti: Yes. I think -- look, the way I think the OEMs in this OEM and others kind of see it is they're making a platform technology choice that they're going to be working with in hardware, hopefully, for many years to come. This obviously will be a long-term production going into the next decade. And the idea is that, we've talked about it, you need to future-proof the stack, right? And we believe we are at this inflection point where this is one of the first times -- it will be the first time actually that an OEM in the passenger car space will be transitioning from time-of-flight LiDAR to FMCW. And this obviously is a testament to both the technology capability as well as maturity of our products. But also, it is important because they -- we think that is going to lead up to other, of course, programs. My personal opinion is that, in a few years from now, consumers when they buy vehicles is not going to be just based on any more specs on feeds or speeds or infotainment. It's going to really be also importantly around the ease of use and saving us time in our daily commutes and our day-to-day life. And that, I think, is going to be one of the key enablers by Level 3. Like Level 3 driving is going to be the key driver for the sales of cars, not these other things. So that is why I think we're going to see that as you're starting to see some of that in Asia, we're going to see that for the rest of the world that is going to be the key driver for, I think, most key OEMs to go to really have Level 3 from the get-go. And this means it needs to be end-to-end, right? Like you get in the car, and you get to a destination from point A to point B, which includes city driving as well as highway. So long form of that is, yes, we believe that they're choosing one hardware and they're going to use it for all use cases and use a software approach of upgrade over time to be able to enable highway city driving, but most importantly, that Level 3 functionality end-to-end. Operator: And we'll take our next question from George Gianarikas with Canaccord Genuity. Unknown Analyst: You have Matt here on for George. Congrats on the quarter. So just to start off, could you guys just provide a little more color on the timeline with Daimler? Like what's kind of needed for the program to reach validation ahead of production? And then maybe just a little bit about the Torc relationship. It looked like they were looking for a capital partner for that. With that and potential slipping of funding, do you foresee any slippage in the timeline? Soroush Dardashti: Yes, sure. Happy to answer that. I think you had some questions that I think maybe for Daimler. But I can tell you a high level, look, first of all, Daimler Truck and Torc, they have been very clear and public about their commitment to autonomy. This is one of their key drivers of growth. If you look at that from Karen and the management team at Daimler talking even on their public earnings, and they have been very clear and consistent about their messaging. 2027 market entry is on track as a go for us. We are obviously a key portion for the technology and perception detection. So, as I mentioned, we're the exclusive supplier for LiDAR on long range and ultra-long range for Daimler Truck and Torc. We are progressing on track. They are also progressing on track in delivering on their milestones. We have clear line of sight with 2026 vehicle build plans and the growing of that. We actually have received initial orders already, and we're going to start shipping our Atlas C samples against that. So that's important. I think just to also -- you mentioned about capitalization. Obviously, I think that's a question for Daimler and Torc. But as you know, Torc is an independent subsidiary of Daimler Truck, right? And they're investing heavily in this very committed. So, we don't think that, that is a risk topic for us to really worry about. I think overall, the program is really progressing well. And I think, look, if any OEM has the scale to really make this happen and the resources, including capital is really Daimler Truck. And others, of course, are also working on it. We are also engaged with a number of other OEMs in the commercial vehicle space. So overall, I think we're feeling good about that. I think Justin also mentioned Daimler Truck has publicly talked about, I think even recently about the outlook for autonomy because of the use cases in the business case of over, I think, about $3 billion of annual revenues and $1 billion profit by 2030 just from autonomous trucking. So that -- I think it's important for the industry that players, including Daimler Truck and others, make this happen. And we think the timeline remains in '27 and the scaling is going to go from there. So, we're feeling confident about that and our ability to deliver against it. Unknown Analyst: Great. And maybe just to switch gears here. It looks like you guys obviously raised the $100 million investment from Apollo. Could you just provide a little more color on what you intend to use that for and how that's going to help you just push commercialization faster? Saurabh Sinha: Matt, this is Saurabh. Happy to take your question. So, the $100 million in convertible notes is for general corporate purposes. We are already, as we mentioned in our prepared remarks, making tremendous progress with our customers and potential customers. And we use our unified platform, perception platform, which helps us to execute on multiple wins and bring new customers on board without any step function increase in our expenditure. In fact, we have been very disciplined in our capital allocation and spending and this year, we are coming down from last year in the range of 10% to 20% on a non-GAAP OpEx basis despite increasing our commercial momentum. So, we feel pretty good about it. It's for general corporate purposes. Soroush Dardashti: Yes. And just to add to that, I think, obviously, Apollo by themselves, the name is one of the leaders in financial investments. We're excited to have them as partners. I think it sends a clear signal as sole investor party to really support our growth and momentum here. And it comes at an important time, I think, for our company, but also an inflection point in the industry. I think we have all the pieces in place. We have methodically, as we talked about, set out our plan to grow from each segment, establish a leadership position within key players, we are executing on that, and we're looking forward to execute that well, right? So, from automotive, from trucking with Daimler Truck, passenger top 10 OEM and others that we're working on, industrial with SICK, LMI. We have the partnership with LG Innotek around that for industrial as well as the robotics applications and then expanding from that. So that we're very excited about the progress so far. And obviously, we're looking forward to continue on this momentum. Operator: And we'll take our next question from Richard Shannon with Craig-Hallum. Richard Shannon: Apologize for the ambient noise rolling through an airport here tonight. I guess, I'll ask kind of a 2-parter around the top 10 OEM. Just want to make sure that you're in an exclusive negotiation position. There aren't any other competitors here. I think you alluded to that's probably the case, but I just want to make sure that, that is accurate. And then also maybe if you can elaborate, hopefully, you mentioned this before when I was on the call, but what kind of time frames are we looking at for ramping here? I would assume it's earlier than '27, but just want to get your take on that sort of. Soroush Dardashti: Yes, absolutely. Look, I don't want to comment on anything that is sensitive or confidential information, obviously here, but I think, hopefully, you can see from the updates we provided, we feel that we are the only party here that is going through this late-stage negotiations. But I will stop at that. I think we're feeling good about securing this production program. And importantly, I think the timing of that is pulled forward, so to really get going on this. So, you asked about kind of what it looks like from here and kind of the timing. I think, look, the point of this initial development program was to ensure that we have a solution jointly that's going to be applicable to the OEM's broad vehicle lineup. It's going to be from an integration standpoint, it works across multiple trends, multiple models that the performance enables Level 3 driving for both highway, as well as city, and to also make sure that we have the proper industrialization plan and comprehensive audits, and all of that so that we can really hit the ground running. The team is working very diligently on that. This is in another way or form, really the first stage of the series development already. So, we are really hitting the ground running. And we think that we are on track for this late '27, early '28 timeline for the launch of this OEM. So that's been the timeline that we have been working with, and we are excited to deliver on it. Richard Shannon: Okay. Appreciate that detail, Soroush. My last question here is just from this comment in the press release, I suspect you may be addressed in the prepared remarks today, did not get it early to hear, but you're just talking about growing interest and engagements from other major OEMs leveraging for L3 automotive applications here. Is there some sort of catalyst or other event here driving this related either to the market or to Aeva's products and technology development? Maybe just clarify what you meant by that. Soroush Dardashti: Yes, absolutely. Look, I think we have been obviously engaged in a number of programs across various stages from RFIs to RFQs in multiple segments within automotive as well as industrial. Your question, I think, is around automotive. Within automotive includes passenger, multiple programs there and trucking. I think one -- there's multiple, I think, factors that have been happening, of course, in the industry as well as, I think, with Aeva. So first of all, we have laid out a clear foundation of our path to winning business and delivering on it, which includes partnering with the leaders in each respective space, which means they have to also want to partner with us and select us; and two, leveraging our perception platform and the chip-based technology to scale that according to their time lines; and three, be able to apply that without having to invest heavily in a bunch of new CapEx or a bunch of new teams for different product lines and segments using this approach of the one platform. So, we've been able to do that. I think obviously, with our progression and the successful completion of this development program with the top 10 passenger OEM, and we hope that upon a production when this will be the first time that a passenger car maker will be transitioning from time-of-flight to FMCW to enable a key use case that's differentiated for the end customers. And we think that, that is a key driver with some of those uptick in the engagements for us. We think that, that has the potential to provide us with potential additional wins in a faster time frame than we have in the first one. As you know, first one is always the toughest. But I think importantly, because this OEM is really seen as a leader in automotive, introducing new technology, but doing so at scale, they ship millions of vehicles every year. We think that, that is going to be a catalyst and really a blueprint, or a reference design for other OEMs and fast followers to also enable that functionality. So, I think that's part of the main interest in this space. The second piece also, I think, is around some of the consolidation in the market. We have always talked about that even though Aeva came as one of the last players in the space, we took a contrarian path, but one that we believe is going to have the future-proof technology. And similar to radars who transitioned from kind of pulse-based atomic flight system to FMCW, we have always believed and talked about that, that will be a transition that will happen over time as well. So, I think that is with both the developments in the market, some of the consolidation in the players as well as the transition of the OEMs to technology here that is more FMCW based, we think are going to be the catalysts in our growing momentum within automotive and also additional markets. Operator: Thank you. That does conclude the final question we have for today, and this will conclude Aeva Technologies Third Quarter 2025 Earnings Conference Call. Thank you all for your participation. You may now disconnect.
Kevin Lorenz: Good afternoon, ladies and gentlemen, and welcome to WashTec's conference call on the Q3 results 2025. My name is Kevin Lorenz, Investor Relations Manager at WashTec. And with me today, I have our Chief Operating Officer, Michael Drolshagen, who will provide an update on the current developments at WashTec and our Chief Financial Officer, Andreas Pabst, who will guide you through the results of the first 9 months. Following the presentation, the floor will be open for questions. [Operator Instructions] Of course, this call will be recorded and made available on our Investor Relations website. With that, I'm handing over to our CEO, Michael Drolshagen. Michael Drolshagen: Ladies and gentlemen, thank you, Kevin, and a warm welcome to WashTec AG's earnings call for the third quarter of 2025. My name is Michael Drolshagen, I'm CEO and CTO of WashTec AG. Before my colleague, Andreas Pabst presents the figures for Q3 2025, I would like to present to you the most important recent developments. Let's start by looking at the general economic environment in our core markets, the U.S.A. and Europe. In Europe, we are seeing the first signs of recovery, but uncertainties remain due to geopolitical risks and protectionist measures. In the U.S.A., new tariffs and a weak dollar are making export conditions more difficult, while demand for capital goods remains stable. Due to the low level of exports to the U.S.A. shown in the last call, the risk for WashTec is low. General economic growth is suffering from the current trade barriers, which is also reflected in the lower market forecast for Europe and the U.S.A. for 2026. This means that WashTec's challenge going forward, such as subdued investment willingness. But given the current order backlog for WashTec, we remain positive. This is supported by our digitalization and sustainable technology offering, which gives us great opportunities for differentiation and growth. Let us take this opportunity to take another look at the core of our strategic orientation and where we currently stand, our house of strategy. Our increasingly smart products form the basis of our business model. However, we go far beyond this by bundling these products into modular tailor-made solutions that are precisely tailored to the needs of our customers. The focus is on the entire customer journey from the initial contact to long-term support. We offer complete solutions from a single source, machines, chemicals and software. With the scope configurator launched in Germany in August this year, we can now configure our products in the same way as a car and create bundles with chemicals and services. This not only makes the job of our sales staff easier, but also gives our customers greater transparency and streamlines the entire process from order creation to machine installation. In the coming months, we will roll out this solution to all markets and also integrate all our products. Our digital products enable intelligent payment and control systems, data analysis and performance optimization as well as customer loyalty through smart user guidance. We are clearly positioning ourselves as a solution provider with a focus on Europe and North America. But strategy is nothing without culture. That is why we focus on customer orientation, enthusiasm and personal responsibility as well as a corporate culture that motivates and supports our employees. Our strategy is brought to life by the people who implement it. And in order to be able to act quickly and empower our employees, we have defined and described 4 core areas to provide clear guidance for all employees into WashTec family. Clear statements for our employees and our organization, expectation management for our financial figures, lean processes and a clear customer focus. The framework is in place. Now it is up to the team to bring the strategy to life step by step. And as we can see today, we are already well on our way. A special milestone in 2025 was the completion and official launch of our new rollover machine, SmartCare Connect as well as our first and most important digital products in May of this year. With SmartCare Connect, we have created a digital solution that not only complements our product range, but also sets new standards in the industry. The market launch was extremely successful. We received very positive feedback from the market in the first few months after the launch. Our customers particularly appreciate its initiative usability, its intuitive usability, integration into existing systems and the wide range of options for data analysis and performance optimization. The system achieves top washing results with short washing times, especially when used in combination with our sustainable chemicals. The positioning of SmartCare Connect is clear. It is the digital heart of our new generation of washing systems and stands for innovation, efficiency and sustainability. With SmartCare Connect, we offer a solution that creates real added value for both large fleet operators and individual locations throughout the entire life cycle of the system. At the same time, our SoftCare SE remains a central component of our portfolio. It stands for proven quality and reliability. While SmartCare Connect focuses primarily on digitalization, smart networking and washing speed with washing time, SoftCare SE impresses with its robust and proven technology. Both product lines complement each other perfectly and enable us to offer the right solution for every customer. The first few months after the launch of SmartCare Connect confirm that we are on the right track. Demand is high, customer feedback is extremely positive and the market response shows that our strategy is spot on. We will continue to pursue this path consistently. Our efficiency programs are a key component in achieving our midterm target EBIT margin of 12% to 14%. Just to repeat our midterm targets, we are aiming for free cash flow of EUR 40 million to EUR 50 million, average revenue growth of 5% per year and a ROCE of over 28%. As just explained, the key levers with regards to our EBIT margin target are our efficiency program. These are the global scope configurator, cost reductions through modularization, quality improvement, optimization of the product footprint and reduction of installation costs. We will discuss these programs in more detail during our Capital Markets webcast on November 20. Our message is clear. We have had a very strong third quarter and are fully on track to achieve our targets 2025. For 2026, it will be crucial to focus on our further efficiency programs in order to realize this proportional EBIT margin growth by 2027. As part of our strategic goals, we are focusing on sustainable reductions in production costs, particularly for our SoftCare SE and SmartCare products. We see great potential here through complexity reduction, modularization and standardization as well as the harmonization of central components. We estimate a reduction in variant diversity of over 20% at component and module level, which will also have an impact on our supplier base and its consolidation. However, the effects here will be felt downstream. The goal is clear and is being pursued with enthusiasm, significant savings and further simplification of our product platforms by 2027. A key highlight of the current financial year is the successful rollout of our new digital products. Following an intensive preparation phase, we are already in the middle of the rollout phase with pilot projects. We have been able to launch our EasyCarWash PRO and CarWash Assist solutions on the market and gradually expand their introduction. EasyCarWash PRO and 4U and CarWash Assist are already in use in over 50 pilot facilities in more than 5 countries. Further pilot facilities are planned in over 7 countries and over 500 new facilities are planned for 2026. The feedback from our key accounts and from area sales is extremely promising. The rollout of our digital products is an important component of our growth strategy and sends a clear signal to the market. WashTec is shaping the future of vehicle washing digitally, networked and customer-oriented. Another important step we decided on is WashTec's new share buyback program. The Executive Board and Supervisory Board gave the green light on the 23rd of October. The program will start tomorrow on the 6th of November and will run until 4th of May 2026. A total of up to 100,000 shares or a maximum value of EUR 5 million can be repurchased. Why do we think this is a good program? First, a share buyback is a clear sign of our confidence in our own financial strength and the future development of our company. We have a solid balance sheet, a strong liquidity position. With the buyback, we are sending a signal to the capital market that we believe in the sustainable success of WashTec. Second, our buyback program increases the value of each remaining share, reducing the number of outstanding shares increases earnings per share. I will now hand over to our CFO, who will present the detailed financial figures and the performance of the individual segments. Thank you for your attention and enjoy the second part. Andreas, the stage is yours. Andreas Pabst: Thank you, Michael. Also from my side, a very warm welcome. I really appreciate that you are all in our call today. Let's go directly to our results. I am pleased to present our results for the first 9 months of 2025 as the numbers speak for themselves, not only compared to prior year, but also in a 5 years perspective. We did very well, strong top line growth and outpacing growth of profitability. We achieved revenues of EUR 358 million, up 7.2% year-on-year, confirming the strong market demand especially in Europe. EBIT grew disproportionately by 17.4% to EUR 32 million, significantly outpacing revenue growth. This is the second highest EBIT in the last 5 years. Only 2021, the year after COVID showed a higher number here, which had a significant catch-up effect. Our EBIT margin improved to 9.0% compared to 8.2% last year. This reflects the success of our cost discipline and operational excellence initiatives, combined with a tailwind from higher revenues. Also, free cash flow rose by 11.2% versus the prior year to now EUR 28 million. This is mainly driven by optimized working capital management and higher net income. The free cash flow ratio of 7.8% is highest in the last 5 years. And if you now look at Q3 stand-alone, the figures are even more impressive. EBIT increased by 35.8% compared to prior year, and it even outpaced the double-digit revenue growth of 10.3%. Also on the long run, WashTec had never seen a higher increase in those numbers year-on-year. Overall, we achieved revenues of EUR 126 million in the third quarter with an EBIT margin of 11.8% or in absolute terms, EUR 50 million. So overall, in Q3, we are clearly on track according to our ambitions. Top line growth accompanied by an overproportional growth of profitability. As you see from this slide, we have a pretty strong top line growth in all business lines. It's a broad-based growth and a solid foundation of recurring revenue, meaning the sum of service and consumables, which now accounts for 47.5% of total revenue. Revenue from equipment grew especially in Q3 with 13.7% year-on-year. For the first 9 months of 2025, this results in an increase of 6%, reaching now EUR 184 million. Growth momentum in Europe and other segments successfully offset the subdued performance in North America, especially Germany and France continued their very strong performance also in Q3. Service revenue grew by 7.5%, totaling EUR 116 million. This improvement reflects our focus on process optimization, digital connectivity and expanded capacity. We hired additional service technicians and field service solution software. By September, we had approximately 13,000 machines connected, an increase of around 14% compared to year-end 2024, a clear indicator of our progress in building a digitally enabled service ecosystem. This will help us in future to grow our profitability even further. Consumables delivered the strongest growth, up 11% to EUR 53.7 million. Looking at the revenue share, equipment remains our strong or largest contributor at 51.2%, but recurring revenue, meaning services, which accounts for 32.5% and consumables, which accounts for 15% are catching up. Therefore, the recurring revenues are now up to 47.5%, last year's 46.9%. The revenue mix develops further to our goal of 50% recurring and therefore, higher predictable revenues. Let's now turn the perspective and take our segments into the focus. Our results clearly demonstrate resilient growth in Europe and other regions, while North America faced headwinds not only but also from currency effects. Revenue, Europe and Other segment increased by 10.3% year-on-year, reaching EUR 309 million. EBIT rose even more sharply, up to EUR 23.6 million to EUR 33 million, driven by strong revenue performance across all business lines. The EBIT margin improved to 10.5% compared to 9.8% last year. These results reflect execution and the benefits of our high capacity load in our production plants. Besides this, we work full steam on our efficiency programs and have already achieved important milestones this year, further to come. Nonetheless, we will see the full contribution of these efforts as planned next year or part-wise even in 2027. Despite that, we had some additional expenses related to corporate strategy and ongoing IT projects. Contrary, revenues declined in North America by 9% in the first 9 months. FX had some impact. On a U.S. dollar basis, revenue is down by 6.1%. However, operational performance stabilized in the third quarter, especially equipment revenues came back. Overall, North America delivered an EBIT of EUR 1.4 million in Q3, up from EUR 1.0 million in the prior year. With that much better Q3 result, the segment stands now after 9 months at breakeven. This gives me some optimism for the coming quarters. To visualize different influences on our EBIT, this bridge might be helpful. Due to higher revenues, we could book EUR 7.3 million additional gross profit and another EUR 3.1 million due to higher gross profit margin. The gross profit margin is now at 31.6% compared to 30.4% last year. This positive performance was mainly due to the increased business volume in Europe, as already mentioned, given in the current setup of our production plants and working close to the limit, and we are facing in some regions, installation capacity constraints. The product and the regional mix also supported this development. Contrary, we had higher selling and marketing costs resulting from higher outbound freight rates in connection with the revenue growth and of the expansion of our sales organization as well as from the launch of the new products. Higher administrative expenses are mainly linked to IT expenses for ongoing projects such as already named SAP investments and new software for the service optimization. In total, earnings before interest and taxes are up by EUR 4.8 million to now EUR 32.4 million. This results in an EBIT margin of 9.0%. Now some other important KPIs. In line with EBIT development, net income increased compared to last year, similar earnings per share. We achieved EUR 1.57 compared to last year's EUR 1.30. Our net financial debt of EUR 60 million is EUR 5 million above prior year's level. with credit lines of around EUR 100 million, unused by more than 50%, our financial position is quite strong. In respect of net operating working capital, we see more or less similar numbers by around EUR 90 million compared to end of September last year. Compared to the end of last year, which was at EUR 94 million, we are down by EUR 4 million. We are still cautious about investments, meaning after 9 months, we spent EUR 5.5 million. The main portion of those investments is linked to our North American production plant, where we bought some machines to strengthen our local production footprint and to our digital products and solutions. Our equity ratio is at 25.5% compared to 26.7% end of Q3 2024. But our balance sheet is still very solid and very healthy. In terms of employees, 85 more people work for WashTec compared to 1 year ago. The majority is hired for service. I already spoke about this one. Let us now debate a little bit about our order backlog. As usual, this slide doesn't give absolute numbers, but index numbers based on a 5 years view. In the first 9 months of 2025, WashTec Group did very well in terms of order intake, especially in Germany and France, we had a very strong order intake, whereas North America remained at prior year's level in euro and a little bit above in U.S. dollar. Especially in Q3, we saw here some progress. Consequently, this overall higher order intake results in higher order backlog, which is 20% over year-end 2024 and a comparable level compared to end of Q3 2024. Knowing about this good order backlog, we have some clarity on increasing equipment revenues in the next 6 months in all segments. This provides us with a solid base for the months ahead. Coming now to our guidance. WashTec confirms its guidance for the group for 2025 based on our current order backlog as well as progress of our initiatives. Especially the EBIT development in Q3 supports our guidance with regards to a disproportional increase of EBIT compared to revenues. We now expect revenues and earnings growth in Europe and other segments to be comparatively stronger and in North America, relatively weaker in local currency. But overall, we expect for the group, a full year growth of revenues by mid-single-digit percentage and a disproportionate EBIT increase in excess of revenue growth. Full year's free cash flow is expected to be in the range of EUR 35 million to EUR 45 million, and we also see improvement in our ROCE number. Summing up, we confirm our group guidance for 2025, and we look optimistic into the future. This forecast is based on the assumption that the current global trade conflict will not have any significant negative impact on investment behavior in the car wash market. Next slide, please. So before we start with the Q&A session, a quick reminder about our upcoming capital markets communications. Feedback we got from you after our first capital market webcast on July 10, we feel ourself-confirmed that this type of communication really adds some value. Therefore, we have recently announced to do our second capital market webcast on November 20. Currently, we are working on the details. But I can tell you that we want to explain in much more details what is the plan in future for our consumable business as well as some deep dive into our efficiency programs. These are essential part in our plan to achieve our midterm profitability targets. So we hope that you dial in. Straight after, we will be in November at the German Equity Forum where we can meet in present. We are looking forward to meet you there. So that's it from my side. Thank you for listening. Kevin Lorenz: [Operator Instructions] And we already have the first question from Stefan Augustin from Warburg Research. Stefan Augustin: My first question is actually on the very strong European margin. If I look at the recurring revenues, it's likely not a positive mix effect. So is this then driven by the efficiency programs? Or is that simply driven by the volume and load? That would be my first question. And from that one, I have likely a follow-up. Andreas Pabst: Let me take this one, Mr. Augustin. Thank you for asking that question. So yes, you are right. In Europe, we are doing very, very well. And our gross profit margin is influenced by similar different topics. For sure, there is a higher revenue, which helps us there. The production load is better. And there is also a small contribution by better material prices, but also we see the first effects on the efficiency programs, not at a stage where we wanted to have them. That is what we have announced a little bit, but we see that they are also contributing. Stefan Augustin: Okay. From that one, looking maybe into Q4 and taking your full year guidance, which implies that we have maybe a slightly lower or roughly the same volume in Q4 as the last year. If you have savings on the material side, gains, would it be fair to assume that on the European business, you should at least be able to get the same absolute amount of EBIT with the same volume? Andreas Pabst: So indeed, yes, we are planning that we reach or achieve our guidance in total. We will be stronger in Europe compared to last year and weaker in North America. So if I look at the Q4 for Europe stand-alone, as you asked, I'm positive that we are doing here pretty well again. Stefan Augustin: Okay. And then maybe a bit on the order intake. If I read your slide correctly, my assumption would be that we have a book-to-bill in Q3 that is very close to 1. And what it does not show me is the actual growth in the order intake Q3 year-over-year. Can you comment on that one? Andreas Pabst: Yes, a very important topic, which is a regular bigger order, which we receive once in a year is related to North America, where we -- in the comparable numbers last year, we had from bigger customer, a great order in the figures. We did not have received this order this year, but we expect to receive it in the fourth quarter. So that is one part of the explanation. Stefan Augustin: All right. And the last one, could you help me a little bit with how much the IT and other implementation costs have burdened Q3? Andreas Pabst: It will come in future when its Q3 already. So it's -- the question is how much was it in Q3? So we are really -- we are facing the implementation of, for example, SAP S/4HANA is pretty expensive, and we started the program in beginning of this year and every quarter, it's a little bit more. So stand-alone in Q3, if you ask me right now, I would say it had cost us between EUR 0.5 million and EUR 1 million together with the other programs. Stefan Augustin: Okay. And that one, you indicated it's going to go up a little bit going further. Andreas Pabst: Correct. Yes. So according to the plan, which we see is that we will need next year for fully implement S/4HANA and some other IT programs as well. It's not only S/4HANA, but the plan is that we will have done this with the first 2 major steps until Q4 2026. Michael Drolshagen: We do a lot of SAP S/4HANA has advantages that is driven by cloud costs, and we started in parallel to reduce the cost for cloud data storage that we -- with all our manpower and efforts to -- that you have only the data in the cloud in SAP S/4HANA that really need there and the others are still on-premise or somewhere else to have our costs under control in the IT sector. Stefan Augustin: I don't want to spoil the upcoming Capital Markets Day, but I assume that, let's say, you skipped how much that could be in 2026. Would you be happy to share at this point or... Andreas Pabst: Probably -- we will not give a detailed number for our introduction cost of S/4HANA. Probably that is too much insight, but we will give an indication about it, how we see it. Stefan Augustin: Okay. And then finally, do you think -- would you describe yourself at this point also very confident to achieve your full year guidance with respect to sales? Andreas Pabst: Yes. Simple answer, yes. We feel confident. Kevin Lorenz: We have another question from Nicole Winkler from Berenberg. Nicole Winkler: Maybe starting with a housekeeping question. In your report, you mentioned that all 3 business lines contributed to revenue growth in Europe in Q3. How about North America? Was it mainly driven by service and consumables again in Q3? Or do you already see the uptick of equipment sales? Andreas Pabst: North America, that goes along with the story which we already said in Q2 about a major customer who places orders again. So what we now see in North America is that especially equipment in Q3 contributed here. But also there was not too bad in terms of service and consumables. But comparable to last year, the equipment topic was in favor for us. Nicole Winkler: Perfect. Maybe this also goes along with this one big customer, but you also mentioned that contract negotiations in North America are finally finalized and order intake increased significantly. Now looking at the order backlog, you cannot see this yet. So basically, can you give us some more color here when we should see also these kind of orders coming in from big North American client in your order backlog? Andreas Pabst: So I assume the client you are mentioning is we are confident with it. Yes, the orders are coming in. The order backlog is fine. The client I mentioned in my speech before is a different one, where we expect to get the orders in Q4 this year. Nicole Winkler: Okay. Understood. Maybe also regarding the service revenue, can you give us some more detail in which amount the optimization of processes, the digitally connected equipment and increased capacity in this area contributed to revenue growth. What I would like to understand is because you mentioned it that now you have like, I guess, 13,000 connected units by now. Do they already contribute to service and consumable business? Andreas Pabst: Yes. The more machines are connected the better we can work with the data, the better we can push the efficiency of our service business line. What is important for this year also, and maybe I just mentioned it somewhere in between the lines, we have hired throughout the year a lot of new service technicians. And you understand immediately that if you hire a new person, you need to train this person, you need to educate this person. So at the beginning, this person contributes to the top line, but not necessarily in the same amount to the gross margin. And what we see now is in Q3 that we are catching up here again, and we are in the same EBIT margin in service like we have been last year. And I think that is really something very positive, understanding how much new service technicians we have hired. Michael Drolshagen: And it takes us 3 to 9 months currently to train them. And this is also where we work on to reduce our complexity that in future that they contribute faster to revenue and EBIT margin than it's today. Nicole Winkler: Okay. Understood. And one last question regarding your shift of workforce from Germany to Czech Republic. Have you had any restructuring costs? And if yes, which amount in Q3? Michael Drolshagen: We have cost because we have to train the people and we have some processes and people in parallel. How much it is, I can calculate it in my brain fast if you have the number. Andreas Pabst: So the topic is that in the moment when we shift, we need additional people. So we need the people here and we need the people there in Czech because they have to train. But if your question is referring to severance payments or stuff like this, so we are really happy that we could do this and can do this without any major severance payments. So we are just using fluctuation. We are reducing temporary workers. And so as of today, and we are not fully through, but as of today, we do not have any significant severance payments. Michael Drolshagen: You can calculate around 10 to 15 people in parallel for 2 to 3 months. And this is over 1 year time period. This is our extra cost here. We have calculated this in the savings and we hope that after the starting phase that the savings we gain that we can cover the extra cost in the following months. Kevin Lorenz: And we have another question from Alexander Galitsa from Hauck Aufhäuser. Aliaksandr Halitsa: I have a couple of topics, different ones. Maybe first one, just a clarification. You mentioned in your remarks that for 2026, you will be focusing on pushing forward the initiatives that are underway to prepare the company for disproportionate growth in 2027. I'm not sure if I heard it, maybe I misheard, but could you just clarify that should we read it in a sense that one should not necessarily expect disproportionate EBIT growth in 2026 or it was not that -- it was not meant that way? Andreas Pabst: What I meant was that we will have still some costs with doing all those efficiency programs and that we will see the efficiency gains from those programs on a full year's perspective in 2027. And we really need to execute those programs and that they really kick in because in the Capital Markets Day and also Michael today repeated it again that in 2027, we want to achieve an EBIT ratio between 12% and 14%. So if you go from 2025 to 2027, I do not think that it will be a linear growth. So there will be a little bit of burden in 2026, but we will also grow in 2026, that's what I believe. Aliaksandr Halitsa: Perfect. And maybe just a quick follow-up since you mentioned the range, 12% to 14% is obviously a big bandwidth. The upper end of this bandwidth, what would you say you need to achieve to get there? Michael Drolshagen: We have calculated this already. Otherwise, we couldn't promise that we try to achieve it. So we need revenue growth in our segments. We think we can do this not only in equipment also in chemicals and service. And on the other side, we have really to focus on our bottom line. There is a lot of opportunity there. And if we do this in the right way, so reducing complexity by 20%, 30%, implementing our installation process in the next levels, which we are focusing on currently. And I think we are close to implement the next phase. We have some standard programs, how we want to achieve efficiency in the indirect areas. So if the growing is coming as we expect it, and it looks like in the order intake and we do our homework in the bottom line with our program, then I'm really confident that we can achieve that. Aliaksandr Halitsa: Perfect. Then maybe briefly on consumables growth. I just wonder if you could somehow elucidate to what extent consumable growth is already driven by the bundling initiatives? And maybe what's the sort of natural progression in terms of time frame when those bundles are going to play a role in that regard? Michael Drolshagen: We implemented the scope configurator just a few months ago. So there is not a lot of revenue and EBIT margin due to bundling in that area. So we expect more in that area 2026, but we have to roll out the system. We have to train the people and so on that the full scope we think we will get in 2027. So it's a step-by-step market by market. We started now in Germany with focus on Germany and now we go from the biggest markets to the smallest markets to get efficiency as early as possible, but this takes time. And we think full gain is in 2027. Aliaksandr Halitsa: And you're generally confident that this would -- is getting traction within customers and there's not going to be a major pushback on the bundle offer? Michael Drolshagen: We are deeply convinced that this will ease up the process and also for our customers that they clearly see what they order for what kind of money and what they get finally. And we can use and chemicals are driven by headcount as more headcount you put in the system as more you can achieve. And with that, we can also use our equipment salespeople in a better way than we have done it before. Aliaksandr Halitsa: Understood. And then just 2 last topics I have. One is on equipment growth. I think you already mentioned that backlog gives you certain visibility. Could you confirm or is that reasonable to expect that equipment should be also growing year-on-year in Q4? Because I think you're kind of competing also against a strong base. But based on your backlog, is that a reasonable assumption that equipment should grow? Andreas Pabst: Being a little bit cautious. Last year Q4 2024 was a pretty strong equipment quarter. We expect that this year will be on the same level like last year. But in equipment, you really have the topic that you are -- you do not have it always in your own hand if the revenue slips to the beginning of January 2026 or if you can make it in 2025. So our expectation is that we can repeat what we had last year. Aliaksandr Halitsa: Okay. Perfect. And then very last one. I don't know how material this topic is, but there has been a press release from you some time ago on a partnership with Prag, I believe, is the owner of 100-plus petrol stations. And I think they've commented that they are delighted to have 30 of those stations digitalized. Just wonder what does WashTec get incrementally from a partnership like that? Will you start selling more services and consumables into this specific customer? Or how should one read that news flow? Andreas Pabst: I think the most important thing here is that we are confident that our digital initiatives, they are accepted by the customer. And Prag is for sure, one of midsized customer where we tested if it works. And we got really positive feedback from the cooperation with Prag, and I think it's moving here in the right direction. I do not want to comment if we make now much more revenue or EBIT with one single customer. I think that is not here the place to speak about a single customer. Michael Drolshagen: What we see -- probably in that direction, what we see in the data with our pilot facilities, not only with that customer is that we increase on our operator side, the number of washes per site. So this we see already with our pilots. And this is good news for our operators. And this on mid- and long-term run is a good news for our equipment sales, which is in a year's perspective, but it's also good for our service and equipment as more washes we have as more we have traffic here in that business. So this is what we see, and we have to support here that we have good numbers that we have a good app and good equipment installed and that we have transparent data available and can provide this to our operators and they set in place, the next step will come automatically. Kevin Lorenz: We have no further questions. Michael Drolshagen: Okay. Then ladies and gentlemen, on behalf of the Management Board, we would like to thank you for your interest in our company and wish you a pleasant day. Thanks. Andreas Pabst: Thank you very much for joining. Bye-bye.
Operator: " Antonio Marco Rabello: " Helena Guerra: " Benjamin Steinbruch: " Luis Martinez: " Gabriel Coelho Barra: " Citigroup Inc., Research Division Rafael Barcellos: " Banco Bradesco BBI S.A., Research Division Daniel Sasson: " Itaú Corretora de Valores S.A., Research Division Guilherme Nippes: " XP Investimentos Corretora de Câmbio, Títulos e Valores Mobiliários S.A., Research Division Operator: [Interpreted] Good morning, and thank you for waiting. Welcome to CSN's conference call to present the results for the third quarter of 2025. Today with us are the company's executive officers. We would like to inform you that this event is being recorded. [Operator Instructions] Today's event is also available on CSN's Investor Relations website at ri.csn.com.br, where the presentation can be found. A replay of this call will be available shortly after its conclusion. Before moving on, we would like to clarify that any forward-looking statements made during this conference call are based on the beliefs and assumptions of CSN's management and on information currently available to the company. Such statements involve risks, uncertainties and assumptions as they relate to future events and depend on circumstances that may or may not occur. Actual events may differ due to factors such as general economic conditions in Brazil and other countries, interest and exchange rate levels, future renegotiations or prepayment of obligations of foreign currency-denominated credits, tariffs in the U.S., Brazil and other countries, changes in laws and regulations and general competitive factors on a global, regional or national level. Now we'll turn the floor to Mr. Marco Rabello, Chief Financial Officer and Investor Relations Officer, who will present CSN's operational and financial highlights for the period. Mr. Rabello, you may go on. Antonio Marco Rabello: [Interpreted] Good morning, everyone. Thanks for joining us at another conference call of CSN. Today, we are here to talk about the performance of the third quarter '25, a very special quarter, where we can see a better performance of the company in the whole of the year with historical operational records being hit, showing the CSN's continued strong in terms of efficiency, operational efficiency, but as committed to operational financial strictness and reaching results. In a movement that had credit as the main topic, the company continued with a diversified operation able to extract results from different sectors of the economy, ensuring resilience and showing the strength of the group. As we see in the highlights of Slide #2, CSN was able to expand sales volume in all its segments of operation, and it had an accurate strategy commercially in the period and strong cost controls that drove results in this quarter. Therefore, CSN reached growth of 26% in EBITDA with BRL 3.3 billion and EBITDA margin of 27%, a quarter-on-quarter growth of 330 bps points. That was also the third consecutive quarter where the company showed a drop in its leverage ratio, reaching 3.1x in the period compared to the 3.5x in the end of last year. That shows the financial discipline and the group's strong capital structure. Going to mining, another period of historical record, showing that the company is extracting more efficiency in logistics and its production capacity. That was the first time in history that CSN was able to ship more than 12 million tons with sales volume 5% above that of the previous quarter. In a quarter, we had growth showing the improvements in efficiency. In terms of costs and expenses, performance was equally positive with dilution of fixed costs and a better freight strategy, optimizing the operations results. we control things, everything is running as smooth as possible. But it's also true in the site that we don't control, price dynamics. The third quarter had an increase in iron ore prices, which led us to a growth of 57% in EBITDA in the quarter with more than BRL 1.9 billion generated and gross margin of 44%. And still, we had a change in commercial strategy that led to an expansion in 4.4% of sales in the period. We've been very accurate in our commercial strategy and the market is very much pressured by the coming of imported material and the disputes in the local market. Last quarter, CSN stood out as the only company that was able to show growth of freight and EBITDA in a very adverse scenario. This strategy has a temporary effect, and therefore, we redirected routes to increase our sales channels. Therefore, the expansion of volume in still pressured market with record penetration of imported materials show the group's commercial strength and that steel consumption is still resilient in the country. The best highlight in the period with regards to steel comes from costs. We had the lowest cost of steel production in the last 4 years, showing that the company is extracting better results in its industrial strategy, operating at full capacity, and optimizing its inputs. It's still early to say that the worst has passed, but it's the first time in a long while that we are seeing a better prospect for the steel industry as a whole. We are seeing a recovery of prices exported from China, then a lower import in the Brazilian spot market, and the first antidumping measure approved most recently. That favors the price dynamics for the future, enabling the necessary margin recovery for local producers. In the cement market, the quarter was also of historical results. The market has been very resilient, especially considering the high interest rates of the country. You can see that cement consumption grew this year, and the company was able to capture the favorable dynamics with a very right commercial strategy. And this quarter is a growth in sales and price increase. With that, we had the second largest sales volume in CSN's history with more than 3.6 million tons sold and an operation increasingly efficient in terms of cost. These are the competitive advantages of the business, combining verticalization, fantastic mineral reserves, logistic network, low energy consumption and a good portfolio of products. All this performance led to the highest EBITDA in cement in CSN's history. BRL 388 million this quarter, with EBITDA margin of 29%, way above the average of the sector. Finally, but not less important, we have the bottom part of the slide, another record reached in the quarter in the Logistics segment that showed an important driver for the group. This quarter, we had the highest volume of freight and cargo on our highway network -- railway network with record EBITDA of BRL 550 million and an EBITDA margin above the 35%. That shows that this will unlock the value of assets with a new vehicle that concentrates the strategy for infrastructure, monetizing part of this amount. On the right, we have the segment of energy that continues to benefit from the favorable market. This year, we had a low energy availability to be traded, but still the segment generated BRL 54 million EBITDA with a margin of 35%. In short, we can see on the slide all the operational excellence experience with record production sales in mining, lower production costs in steel, and the best EBITDA in history in both cement and logistics. So stronger operation positioning CSN at a different level in terms of management and efficiency. Going on to the next slide. Here, we show our EBITDA and EBITDA margin for the third quarter '25. Here, we can see the best result for the year with BRL 3.3 billion in EBITDA with a margin of almost 27%. On the right, it shows the contribution of mining this quarter with stronger volumes and better prices. In addition, we can see the contributions that were important in cement and logistics. So it's important to have a diverse operation that can show more resilience and also offset some one-time pressures in some markets. On the next slide, we show our activities in terms of investments. Here, we can see growth of 7.8% compared to the previous quarter, reflecting our efforts to maintain a high level of execution in our operations and operational records observed in the period, particularly the projects for the modernization of the company and better efficiency in our projects such as the P15 project. Going to the next slide, Slide #5. Here, we show our net working capital. So here, we can see an increase of 13% this quarter compared to the previous quarter, reflecting more accuracy commercially speaking, in the period with an impact in accounts receivable. In addition to a reduction in the supplier line, due to the settlement of the forfeiting operations. On the next slide, we show our adjusted cash flow that was negative at BRL 815 million in third quarter '25, which was better than the BRL 1.4 billion negative of the previous period, but still a result that reflects the negative effect of financial expenses due to high interest rates and investment activities, and consumption of working capital. On the next slide, we show our net debt and leverage, and also the behavior of our net debt along the quarter. As we can see on the left, the main message here is a reduction of leverage in the period with 10 basis points negative, going from 3.4% in the previous quarter to the 3.1x that we have this quarter, showing that the company has been able to align cash efficiency to record results, maximizing sales volumes, controlling costs, and increasing efficiency. In addition, it's important to show the efforts that management has been engaging to reduce indebtedness with leverage descending quarter-on-quarter towards the guidance that we provided at the end of last year for this year, even with all the adverse scenario in terms of interest rate, financial expenses, and exchange rate fluctuation. Also important to highlight is that deleveraging is organic without considering capital recycling projects that we are going to have for the future and that have the potential to reduce our leverage even faster. On the right, we see that net debt was impacted this quarter by negative cash flow, as I mentioned before, and the impact of the dividend payout. Going to the next slide, Slide #8, we show our indebtedness profile. So we can see that we continue at a very comfortable position vis-a-vis our short- and midterm obligations with BRL 18.8 billion, an amount practically stable compared to the previous quarter and efficiency to cover our debt in the next 3 years. In addition, we continue to have active management to elongate amortization flows, working with the local capital market. In the quarter, the company had new funding and renegotiated bilateral contracts, extending amortization flows until 2030. With that, we conclude our consolidated results, and we are going to move on now to Slide #10. Here, we show the highlights for the steel segment. On the first slide, we have the results of our commercial activity. So you see an increase of 4.4% in sales in the quarter, showing the change in the commercial strategy for the period, with the company implementing a more competitive attitude to return to competitive levels. The strategy that we had before a prioritized results and not volumes generated expected results, but it has a limited effect. So now it's important to resume volumes that shows that the market continues resilient and with a good level of steel consumption and especially in the domestic market. However, the market continues with high competition and a record of penetration of imported material. So how difficult it is to compete without the protection? As for the foreign market, we see a recovery of sales in the period, but still below historical results, given the difficulties to export in the context of tariff disputes and application of antidumping measures. On the next slide, when we talk about steel production, we show that the drop quarter-on-quarter and year-on-year is a consequence of the shutdown for the maintenance of blast furnace 2. It has not really hurt the performance of the company, quite the opposite. If you go to the right of the slide, you see that the production costs decreased this quarter, reaching the lowest level of the 4 years, which reflects an increased efficiency in the production process, better optimization of raw materials, and better combustion process. Performance per ton had a drop this quarter, basically because of the lower prices in the period, which offset the production dynamic of costs and volumes. When you look at the annual comparison, we see solid growth of 22% in performance per ton. Now we are going to go to financial performance of Steel works on Slide 12, and we can see the impact of the price reduction had on revenues for the period. Even with the drop in prices below average price, it is hard to compete in a very hostile environment with record penetration of imported materials with prices that are subsidized and get to the Brazilian market. That shows the importance of having protective measures to have a better economy for local producers. But in addition to a pressure in prices, all the indicators controlled by the company are getting better. CSN are having better efficiency in the production process, an operation that is increasing efficiency and that shows operational improvements when we compare to the results of 2024. In this context, important to mention all the adverse scenario, CSN is delivering EBITDA better than '24 and still is an important driver for growth this year. Now going to mining. On Slide 14, we show production and sales this quarter. So here, we can see 2 extraordinary results. The first is record production, the highest volume ever in the history of the company, which shows operational efficiency that the company is reaching in recent months, both in mines but also in the logistics chain as a whole. Then we have record sales with the highest volume in history and the first time that the company exceeded 12 million tons in a single quarter, which highlights the significant efficiency in production with the company with a tear of 4 million tons shipped in a single month for the first time. As for financial performance on Slide 15, we can see that the growth in net revenue is a result of the combination of record volumes in shipments, better realized prices in line with the favorable demand trends seen in the quarter, in addition to the positive effect of the future quotation periods. In EBITDA, we have an even stronger performance with 57% increase in the period, profitability gains of 7.8 percentage points. This increase in profitability shows resumption of iron ore prices above $100 per ton and operating performance in the company, and effective cost management. On the next slide, we have the bridge reconciling the EBITDA this quarter compared to the previous quarter. The main factors that contributed to the strong evolution of results were better iron ore prices and future quotation periods that more than offset the increase in freight costs and third-party purchases. Now we are going to talk about cement on Slide 18. Here, we have an analysis of sales volume. Once again, the sector continues very dynamic, even with all the effects of interest rates with the Minha Casa Minha Vida program, the high level of employment in the real estate segment, driving cement consumption. So we have been able to use the whole logistics network to capture new markets with growth of 5% on sales, showing this trend. The 3.6 million tons sold this quarter was the second result ever in the company, but now with a price dynamics that is more favorable, reinforcing the sustainability of our performance. On the next slide, we have the financial performance. We see an important increase quarter-on-quarter in terms of revenue and EBITDA. And the result was driven by competitive advantages in operations, an accurate commercial strategy, and a favorable demand in the cement sector. With that, we had the highest EBITDA in history, EBITDA margin going back to the level of 30%, which is significantly above the average in the sector. That shows that no matter how hard the scenario is in terms of competition or interest rates, CSN continues to show favorable results and robust profitability. Finally, the Logistics segment and another record in terms of performance in revenue and EBITDA. with a growing dynamic of cargo handling and efficiency, with the highest EBITDA ever recorded by CSM with a total of BRL 500 million and margin above 45%. The performance shows that the segment is reaching a higher level of efficiency in cargo handling and shipment showing the potential of the operation. With that, I close the presentation of the segments, and I'm going to ask Helena to talk about our ESG highlights. ESG highlights, I'm sorry. Helena Guerra: [Interpreted] Hello, everyone. Before going to details this quarter, I would like to highlight the performance of our ESG agenda connected to sustainable value to our company. In this quarter, we advanced consistently in 3 pillars that are part of our strategy and that are connected to financial performance and risk reduction, governance, social and [indiscernible]. In safety, we continue our stability in terms of number of accidents, very close to '24, 30% below '21, 33% decrease in the number of high-potential severe incidents that has been our focus for '25, reaching the best results in our historical spirit. Safety advances were our strategy, focusing on our greatest value and reduction to risks, operational, legal, it avoids costs related to interruptions and et cetera. So the result shows an important advancement in the company and how we are best in terms of leadership. In environmental, we had the report that talks about our agenda targets and et cetera. At CSN, we had the plan of climate adaptation to improve the resilience of our assets, decrease physical risks related to climate and reduce emissions of greenhouse gases in the main segments of operation, driven by projects related to operational efficiency, energy efficiency, clean energy and better processes. And that has direct impact on mitigating climate transition risks, reduces our future exposure to regulatory costs, and also strengthens our competitiveness and extends access to capital connected to ESG, and shows that decarbonization is a strategy for the company and for the future. And in diversity and inclusion, we continue to have a more inclusive environment with more representativity with an 80% increase of female representation at the group. Diversity is a clear mechanism to reduce risks. We know that diverse teams have better results and strengthen the company in terms of productivity and long-term results. As a result of all these KPIs and others, we once again, we were recognized as a benchmark by important ESG agencies in the world with better credibility, transparency, and consistency in our trajectory. We were considered one of the best companies in terms of the score in ESG and a silver medal in EcoVadis. That shows to the market that we are building a robust company with real impact and reducing risks. And that is not separate from the business. It is part of our strategy, part of risk management. So what we are bringing shows that we are having less operational risks, less financial risk, and it generates value to our -- all our stakeholders, including our shareholders. Thank you very much. Now we are going to hear our CEO, Benjamin Steinbruch. Benjamin Steinbruch: [Interpreted] Good afternoon, everyone. Thanks for joining our conference call. As it was mentioned by Marcos before and by Elena, we had a quarter that we can call exceptional in terms of operational activity. We were able in all our sectors to record improvements and best production levels ever, also cost reductions. I think that we are working the right way. We are working hard to try and maximize our production with good results. That is seeking the optimal production level for each one of our sectors so that we can, regardless of better productivity and costs, also have the right price for each one of our activities. Starting with mining, we had excellent news in terms of production, shipment with record in 3 corridors price stabilities in iron ore, which gave us the EBITDA margin of 1.9%, which we consider excellent comparing to past forecast. In sales, we were able to lower costs, working at an optimal level in terms of results. And we continue to work very hard to reduce costs, which is something that is in our control using what is best and also using our working capital as well as possible, always having an eye on prices. In terms of production, had a higher percentage and, as a consequence, a drop in prices due to the mix, but still margins were kept at very good levels. And as you all know, we have this very aggressive uncontrolled competition of product -- imported products, which makes it very difficult for us to mirror what is going on in the world in terms of protective measures against imported goods and incentives to domestic production. In Brazil, we are a bit behind all this despite the efforts of the government, the Ministry of Commerce, and others, but we have to have a more active position with regards to the disorganized coming of imported products that really affect Brazilian products. We are almost prevented from exporting to other countries. And in addition to not exporting, we have imported products coming in strongly in the country. So we believe the Brazilian government has to act on that because we have to do what others are doing in the world and really copy some of the protectionist measures that we have abroad. We have to protect our industry. In cement, we had very good results, BRL 368 million, BRL 378 million. The activity is strong, civil construction for the lower income population, also higher income, with strong demand and the sector amongst all the sectors is really heated in terms of demand. So more and more, we expect improvements in the cement sector. And logistics in terms of volumes transported, verticalization that we have also showed a very good performance. So operationally speaking, I would say that certainly, we are on the right path. We are doing what we have to do. Everyone engaged to reduce costs, working capital, improving prices, diversifying the market, doing whatever possible to work with better margins that will help us in the near future to deleverage the company together with other actions that we are paying attention to and discussing. So I would say that the quarter was better than expected. We are improving quarter-on-quarter. And I hope that this will go on. And we are doing whatever we can, whatever is possible, and almost whatever is impossible from the market's perspective to be able to reflect better performance into numbers that meet our priorities. that is to decrease the company's leverage levels. This is what I had to tell you. Once again, I would like to thank you all, and I'm going to turn the call back to Marco. Antonio Marco Rabello: [Interpreted] Thanks, Benjamin. We are going to start the Q&A session. We have all the company officers, our CEO, and we are here to take your questions. Operator: [Interpreted] [Operator Instructions] Our first question comes from Gabriel Barra from Citi. Gabriel Coelho Barra: [Interpreted] Perhaps the first point specifically when talking about leverage. Gjamin did mention some of this with regards to costs and how we can make this leverage go down. I think this is an important point for the company. But I would like to perhaps take a new perspective. This is something that I mentioned in the last call, which is divestment. Perhaps you could talk a bit about that. You have a very rich portfolio today, and you can deleverage very fast with your assets. What would be the priorities of the company today? What would be the steps in this strategy of perhaps shuffling portfolio? I would like to understand your mindset on that, considering the different businesses of the company, mining, cement, logistics. So if you could share your view on that, it would really help us on that. Another thing is that we've seen the gains in volume, but margins were not as good this quarter. So I would like to hear from you the idea of value over volume, the commercial strategy of the company, particularly in steel, and also an outlook of your strategy for the fourth quarter that seems to be tougher in terms of margins. So what should we expect for the fourth quarter and next year? These are my points. Antonio Marco Rabello: [Interpreted] Gabriel, thanks for your question, for attending the call. I'm going to answer the first part of your question, and then I'm going to turn to Martinez. Leverage. I think it's important to remind you that we are into a deleveraging process along the year. We went from 3.5x to 3.1x. Our guidance was 3 until the end of the year. So we are following this target of the company's guidance. Nothing extraordinary on the company's EBITDA or cash helped us come here, just organic operational results of the company. So that alone show how the company is focused on deleveraging the company. For -- from now on, and we did mention that before and even in the presentation today, -- in addition to the continuous improvement of our operational results that we really believe we're going to continue improving in all segments. Cement and still are going to continue operational results. Mining is going to continue at a very high level of performance. And we also have strategic projects, the most important of which being the CSN infrastructure project. The group today has 7 assets in infrastructure and logistics that will migrate to this new company. We are very much advanced in this operation. And this operation alone will bring in terms of additional liquidity to the group. The company is listed, we cannot give you the hard numbers, but we are going to have some important BRL billion to deleverage the company is still in '26. And talking about that, the project is well advanced. In the next few weeks, we are going to give new announcements of the process, formal announcements for you to have a better knowledge of where we are at, and also the timeline that we have for the CSN infrastructure for the year of 2026. Obviously, the company has a very important number of assets energy participation, we already talked about that before. It is a subject that is on the table, but we have to have a proposal to make it effective. Discussions in energy continue to advance. It may come to reality, but it depends on negotiations moving on. And these are the central priority projects that we have in terms of recycling capital. Of course, as you mentioned, and I think that this is one of the strengths of the group, the group has values in its assets in mining in steel in Brazil and abroad, the value of CSN cement, which is a delevered company, and it is the best platform for the growth of cement in Brazil, CSN infrastructure. So assets that are very valuable. And if the company decides to divest, it will certainly be a high priority in the market, even if it's a minority sale. Even then, the focus of the company and what has been approved so far is CSN infrastructure that will bring an important amount to reduce leverage and energy that we are still discussion and at some point in time can become more mature. I'm going to turn to Martinez to answer your second question. Luis Martinez: [Interpreted] Thanks for your question. Going back to strategy in the second quarter, we are very much focused on value. We had a portfolio that was more adjusted. We still had the possibility of exporting to the U.S. in coated materials. And because of an operational issue, we could maximize results. Obviously, in the third quarter, and that is a curiosity. We generally read in analyst reports that import penetration is between 15% to 30%, which is out of the ordinary anywhere in the world. It's a very high number. But when you stop and observe CSN's portfolio, and this is very important. You see in metal sheets, 45% of the market today is imported. In zinc, 40%valum, 55% prepainted 63%. So you see the situation that we had in the third quarter, a huge volume of imports. CSN is known as the coated materials, and we had to compete. It could not just feed the market to imported materials. So what we did was to have a more of a fighting strategy to recover markets that we needed in coated materials, and that was the strategy adopted. In terms of results, I think that this is a winning strategy because in the first quarter, we had 8% margin. In the second quarter, we were the only company that increased price in the Brazilian market, getting to 11%. And in the third quarter, we grew sales, which was our objective. We could no longer export. We had to direct 25,000 tons of coated material to the domestic market, which was good. I think it was the right move with the possibility of correcting our portfolio for the coming months. Another important matter, Rafael, Gabriel, sorry, is the matter of demand in Brazil. This is very important. This year, Brazil should hit a historical record of apparent consumption. The market could be showing a drop, and this is not happening. We have robust demand. What happens is that domestic sales in '25 should get to BRL 12 million against BRL 13,400 in 2023. So the room that we have to occupy the import space is very important. In the third quarter, we implemented something very important. We had price readjustments in distribution, civil construction, and in some segments of the industry. In October, I could say that almost 5% of our prices were adjusted, considering the whole revenues for October, which is very important data. Another data we have been working on is antidumping measures. And here, we do thank the government in terms of direction is taken, but the intensity is still very low. The government should have been a lot more emphatic on antidumping. CSN had a definite right of imports for metal sheets. And what's working now is that we are working on metal sheets as if it were a jurisprudence for the other materials. So what we think that's going to happen now different than what many people are saying, all in verifications of plants have been performed for all products with the exception of hot laminate. The technical note is practically completed in all markets as well. And we are very much sure that in the meeting of the G7 on November 27, we should be able to succeed on the antidumping of galvanized and prepainted products, which will give us more comfort in terms of competitivity. For the next quarter, Jin did talk about costs. We lowered costs for amounts close to BRL 300. Our emphasis in costs continues very strong. And I think that we are going to levels in the amount of BRL 3,000 per ton, obviously, optimizing production. So in blast furnace 3 -- we are working with less pellets, less coke, and maximizing the purchase of plates in a market that we have very favorable prices. So in terms of costs, we are at a very good trend. Prices were captured in October. We no longer have exports. The production has to come to the domestic market in products. And our belief is that the dumping, although slow, the dumping antidumping measures will implement partially in November, another in December, and perhaps the last products, which is less pragmatic in February. With this scenario for the fourth quarter, I believe that we are going to go back to double digits in terms of margin. So this is more of an overall scenario. And if you want, we can talk a bit more about other markets and also cement. Operator: [Interpreted] Our next question comes from Rafael Barcellos from Bradesco BBI. Rafael Barcellos: My first question is the company has showing cash burn in recent quarters. Can you talk a bit about what would be the normalized number for the company? And what initiatives can be taken to reverse the scenario? You talked about interest rates, financial expenses a bit higher. What kind of initiative can you have to reverse this position in the short term? And second question, I would like to go back to what Martinez mentioned. Talking a bit more about cement and other markets. So a follow-up. You mentioned that on November 27, you're going to have the G7 meeting, and we can have a favorable decision for galvanized. So is that correct? And if you have any information of cold and hot laminates, when the date would be? And Martinez, if you could talk about the markets. We are seeing the market some attempt of improving prices in plain sheets. Could you talk about the market appetite in terms of prices? Benjamin Steinbruch: [Interpreted] Rafael, thanks for your question. I think that first, when you talk about cash burn, -- the company was able to show in recent quarters a reduction in cash burn, as you mentioned, from BRL 4 billion to 800 million in this last quarter. There is a series of initiatives in line for us to have a positive cash, which is what is expected. The new is better operational results as we are showing quarter after quarter, improving our operational results is the most sustainable way of turning negative cash to positive cash. This quarter, we delivered a better cash position and the pillars to improve results for the coming quarters in all segments are given. We talked about the cost control in mining, cement, and now in steel, where we reached the lowest cost of steel production of the last 4 years, and that remains for the future in our main core segments. We talked about price recoveries in cement and also signs of better prices in steel as well. And in mining, we continue going well in terms of profitability, generation of EBITDA, and we are going to carry on like this. So the part of operational results that will contribute to cash burn is happening and will continue for future periods, obviously, considering the seasonality issues that we have in some parts of the year. financial expenses, I did mention that, and you mentioned that too. We already saw this quarter a reduction of financial expenses compared to previous quarters. Here, you have a focus of the company in managing debt that are a bit more burdensome in our indebtedness profile. We are making investments -- a part of the investments that we have in our cash burn, have efficient credit lines. And we are also settling some funds that are a bit more expensive for the company, which has an impact on financial expenses, and that will happen on a reduction of cash burn compared to previous quarters. And investments, which is also an important lever in '26, you're talking about the CapEx that is very close or the same -- sorry, the CapEx of '25 is very close to the CapEx we had in '24. Still with the same CapEx, we had a huge development of P15, and in the company's structuring process, notably that led to better steel prices. So we are focusing on investments in projects that have better profitability for the group. And we are having actual results in our numbers based on the strategy. So organically, we are improving our cash position for the coming quarters. In addition to that, I did talk about the CSN infra project together with other projects that the company can engage in the future will help the company deleverage faster than just based on operational results. And that will certainly have a direct impact in the volume of financial expenses and interest rates paid by the company. So we are very confident for the next quarters to be able to reverse this position. The better operational results that we are showing alone without strategic movements should already bring enough credit for the company for everyone to understand that this is going to happen in the short period of time. Martinez can you answer the second question? Luis Martinez: [Interpreted] Another data they would talk about antidumping measures, very interesting. Only 45% of the volume exported in China has positive margin, 7% to 8%. So imagine the problem that we have with the closing of Europe. We became the yard of the road for Chinese material to come in. So just for you to have an idea, Asian markets that were relatively control, you get enough China is sending 4 million; Korea, 3 million, and Brazil, 2 million. So the a of products continue. So we do have to take some measures. Another important point that is very positive is that the industry as a whole woke up to understand that still import is just one problem. You get machinery, equipment, cars, consumer goods. What's happening is not steel that is coming at 30%. You have an import of machinery getting to 30% to 35%. So dumping starts to be a more structural problem as it has always been. But now with the reinforcement of value chains, we are probably going to have a better condition for the government to be a bit faster in the process. As for process, I'm absolutely convinced that we will certainly have repainted and Galvalum approved because we have all data, the technical is approved. Everything is working, all the verifications. And along the pipeline, hot laminates is going to be the last one because the process started in June '25 and the forecast is more to the middle of the year. In the other products, up to January '25, we can have this implemented. It's important to highlight that the government can optimize time, shorten time. In metal sheets, we had a very bad experience. We started in March '24, and we only had the process approved in August '25. I believe that the government has overcome now, and that's a lesson learned for us to use the metal sheet as a jurisdiction and approve to other materials. So I'm very much confident in terms of dumping. And we are not learning out of love. We are learning out of pain. And this is for the whole of the industry. There's no other way. As for markets, I'll say that again. Although we have lots of imports, we also have a very high demand for you to replace part of what was imported, or better yet. If we had used the criteria that the United States have imports of 2021 multiplied by 0.7 and not 1.3, we would have a penetration that would be quite decent, being able to compete, assuring the government that there was competition with no problems. But import is still something that is going to consume us for some time because new players are coming to the market. Just for you to have an idea, we have another antidumping measures in metal sheet against Germany, Japan, and Netherlands. And today, probably in terms of circumvention, we also have materials from India coming to Brazil. So this scenario is becoming more complex, more difficult to be faced if we are not faster in our moves. As for markets, what I can say is the following. The market as a whole has very interesting signs. The agribusiness, and here I'm talking about farming equipment, silos, road equipment has suffered a bit, but we have signs of recovery. Of course, it's connected to interest rates, financing could be stronger, but this is not a market in which we see very strong drop. OEMs, although there is an import of vehicles, the market continues strong. We are selling a lot to the sector. And part of the volume that I lost to the U.S., I'm selling domestically instead of exporting, which is reasonable in terms of margin. Other markets are stable, like electronic appliances, packaging with a slight increase. And as the mix, this is going to improve. Overall, we believe the penetration rate in the domestic market this year will go down to 24%, 25% after a peak of 28, and we are working precisely on the conversion of what was imported to CSN. Prices, Rafael, as you asked, we implemented in October in our price portfolio an adjustment of 5%. I believe that nothing prevents us from keeping these prices until the end of the year. Obviously, we still have some things to do in the industry and to prepare to negotiate with OEMs in the beginning of next year. Preparation starts at the end of this year. But the scenario is more positive in my opinion, considering that in the case of coated materials, we are going to have antidumping measures, which will give me better conditions to compete in the market. For cement, I would say that this is a dream because cement, we had a recovery in the third quarter to margins of 30%. And I think in the fourth quarter, margins can be even better because the market should close at BRL 66 million, BRL 67 million a year. The market capacity is with competitive cost of BRL 85 million, BRL 87 million, and we are getting close to years of Olympic Games and the World Cup at BRL 72 per ton. And we did that with a strategy of selling less to more clients, and that has been very successful. we are using our distribution network and logistics with the acquisition of [indiscernible] and our assets in railway. So cement to me is going to show this year and beginning of next year, something that has not been priced yet in civil construction. We have projects as the renovation project from the federal government that can be a catalyzer of growth, Minha Casa Minha Vida that's not new where we have a bit of a sector that is more still I would say, is middle-class properties. And here, this is based on financing. Now the government is increasing financing levels that can improve a lot. And in infrastructure that there is a lot to be done. We always say that, but we do believe that that can be a good lever. Civil construction in a virtuous cycle can carry along all other sectors. So our prospect for the fourth quarter is to continue reducing costs -- we are going to capture prices, imports, and implement antidumping measures. Doing all that and having all actions in place, and still, we are going to go to double digits in 4Q and implement margins above 30%. Rafael Barcellos: [Interpreted] Just a follow-up, Marco. Thank you for the breakdown in terms of cash generation. Just a small follow-up. In terms of working capital, could you say something in the short term? And Martinez, in your case, you talked about some products and what you expect in terms of antidumping. How about galvanized and cold limited products? Antonio Marco Rabello: [Interpreted] Well, working capital I don't think we are not going to have major fluctuations. We had an impact because of accounts receivable this quarter because of a higher volume of commercial activity. If you keep the volume of activity in the coming quarters in accounts receivable, you're not going to have another impact. So you're going to keep the same pace. And a good part of the good EBITDA that we had this quarter will turn into cash keeping this same level of operation, accounts receivable, you will not have fluctuation. So there is a line the company is focusing a lot, which is inventories. And here, you might have some benefit in terms of working capital for the future. But we have an important work team to focusing on that. We see some impact in the third quarter, and that's why we have a larger volume of steel sold in this period, but we are doing that with all inventories of the company. Now metal sheet, we have the definitive right to antidumping. And fortunately, in this case, the government took 18 months too much. Prepainted is going to be approved in CMC meeting on November 27, coated end of December or the first meeting of CME in January, cold laminate the same, metal sheets for Japan, Netherlands, and others, April 26, and hot laminate March 26. These are the times we are working with. The government always has a cushion to expand. I am in Brazil today in meetings with and to talk about Brazil antidumping and also sanctions of the United States on Brazil, the tariffs. So I'm very optimistic because I see a new position of the government that can accelerate decisions. Operator: [Interpreted] Our next question comes from Daniel Sasson from Itaú BBA. Daniel Sasson: [Interpreted] My first question is to Marco. Marco, could you talk about the level of flexibility that you can see in your CapEx for next year, important projects in expansion in mining. What has been already contracted? And where do you have room to postpone if that's the case, if you are considering that? And along the same line, if you get maturities of bank debt between the end of this year, '26, '27, you have about BRL 14 billion, BRL 15 billion. And have you already started renegotiating or rolling out these debts with banks as usual? And my second question goes back to deleveraging alternatives. Could you be a bit more specific in terms of the CE generation. You have been talking about having a strategic partner to this business, particularly, and also the monetization of infrastructure logistics assets, the pool of operational assets already, but also projects at what stage we are today. That's it. Antonio Marco Rabello: [Interpreted] Daniel, thanks for your questions. Well, first, CapEx. As we mentioned, the company is managing its CapEx very efficiently. We compare '25 to '25, same level of CapEx, but all levels of segments, bringing more volume, better operations, and reducing costs. So this clearly shows how CapEx is important for the company. As for '26, which is our short-term Obviously, we do have some flexibility on CapEx. This is always true. The priority is P15. We are going to deliver on time as agreed. So that is our top priority in terms of CapEx. And the room that we have in terms of cash generation and others is going to be managed as ideally as possible. We do have the flexibility. It should be anything extremely material because our main focus is to continue improving the company's operational higher cash generation, more EBITDA, I'm sorry, as we are doing, and we delivered the best EBITDA ever of the year this quarter. So we have to take care in CapEx management because sometimes you remove it from somewhere and you have a drop in EBITDA. So to answer your question, we do have the flexibility, but it's not super material and our priority is P15. In terms of maturities, basically, the maturities for '26 and '27 are bank credits with more of bilateral credits as we did this year. We are already renegotiating some maturities of the first half of '26. So far, negotiations have been very smooth. We are able to roll out maturities for the beginning of '26. We haven't started working with '27 yet. But in '26, we are very comfortable that we are going to be able to roll out the debt of '26. Some of for instance, we have a bond of '26. A small part of the bond for '26 is in the month of April. And we are still analyzing if we are going to use the company's cash to pay it out. We have 2 operations to happen, the one in infrastructure and others, and part of the cash can be used to pay debt along the year of '26. Well, I talked about '26, '27, and in terms of other deleveraging alternatives. C3E, we wanted to close it before -- but last year, we had the floods in May that postponed the discussion. We had to have a new engineering in all assets show to the market with an independent engineering that all assets were in perfect condition for the continuation of the operation to work with the assets that needed it. So we repowered some of the products with higher power, generating more cash and EBITDA for the company. So the process was a bit delayed. In the beginning, we had a new infrastructure debenture at C3E. And that also consumes some months because of the complexity of this kind of structured finance. After everything completed, we are discussing with partners. We are very much focused. We believe we can be successful, but it's hard to say when, if it's going to be the next 4 or 5 months, but the operation itself does not really change the leverage position of the group. But it's important. We are focusing on everything that adds value, and we are pursuing this operation. With CSN infrastructure, we are very careful as a listed company, but we do expect the next few months to have a bit more formal announcement showing the advances that we had in this area. And what we can say is that it's very much connected to the plan for '26. We see a potential closing of this operation by mid next year. This is an operation that has been attracting several investors to the company. We have weekly meetings with stakeholders interested in the transaction, and we are very confident we are going to have a very successful transaction. Operator: [Interpreted] Our next question comes from Guilherme Nippes from XP. Guilherme Nippes: [Interpreted] My question has to do with the antidumping measures in steel. We are getting lots of questions. The market seems to be a bit more optimistic because many problems in terms of antidumping are being settled. And we are getting lots of questions about potential effect on prices. So I'd like to ask you this question, if you can help us out a rationale for potential impact because we see antidumping discussions in prevented about 300 laminates about 500. But we understand that because antidumping is against China, we can have part of this product changing routes. We saw that limits to South Korea and a part is going to be absorbed by the local industry. So my question is specifically about this point, and this discussion is how much do you think we could consider in terms of better prices and profitability of the products in the domestic industry? And when should we expect the antidumping on better prices? And with regards to the increases of 5%, what has to do with a better domestic environment, a better domestic market, or if it is related to antidumping. Benjamin Steinbruch: Martinez, I think the question is yours. Luis Martinez: Yes. Guilherme. Okay. In terms of antidumping, first, I'm going to say what I always mentioned, which is the issue of premiums. So if you're thinking of BQ, $470, and you think of our product in the domestic market, which is $3,600, $3,700 the premium considering you have the quotas, right? So if it's outside the quota, the premium is already about 2%. And inside the quotas, it is about 10% to 12% that for B. when we go to antidumping measures for coated materials, and those that are affected in the market is, well, we have 50% of the coated market in Brazil. And our products are connected to civil construction with a small percentage to automotive. So whatever happens in antidumping measures, if it's going to take another 2, 3 days is very positive because certainly, it gives us a cushion to adjust prices. The best adjustment, obviously, is to sell even if I sold at the same price, more volume in terms of coated material. This is what we want because today, we have capacities that came from other competitors. So restricting imports is very positive in terms of competition, and it is still healthy for the Brazilian market. Just for you to have an idea, I don't have the number by heart. But I would say that in the first quarter, imports were close to 1 million tons. In the second, 1.3 million. And in the third quarter, it went down to 970. So this is a clear sign that those that are importing have realized that the market can change. And the government is giving signs of that, the last one to the metal sheet with a definite decision. In terms of models, which I think is what you want, I believe that we could recover 5% to 7.25% in quoted materials still keeping competitiveness in the domestic market. In terms of metal sheets, and we had a huge pressure of the market because we are the only producer, we almost did not adjust prices. This is the fact that I placed in the portfolio 7,000, 8,000 tons a month already leveraged our results. So the main lever is to make import levels a bit more civilized, 10% to 13%. Once again, this scenario is more positive to CSN because it is the pipeline of our products. B is the list of our problems, I would say. But I would say that if the government wants to be fast, it would do it in February and March. And we would have the completion of verifications in local that haven't done yet and the technical note as well, which is based on the regulations of the road trade organization. So this is what we are considering. In terms of volume, we can always think of the fourth quarter, December. We don't see that some industries, for instance, electronic appliances, have a positive sign for the end of the year. We might have a higher capacity of consumers to consume within their wallet share, but the best segment is civil construction. And that shows in our cement results because CSN is almost the one-stop shop of the market in civil construction. We have a scanning that is very complete of the Brazilian market. I don't know if I missed any point, but just let me know. Operator: [Interpreted] Our next question is in writing by Nicolas from Bal, U.K. He says congratulations on the results. What is the marginal cost of debt for rollovers and on new money in 3Q '25? Benjamin Steinbruch: [Interpreted] Nicolas, thanks for your question. The cost of the debt for rollovers this quarter was the same as the historical levels in the company. It has not changed our average leverage, which is at 10% of CDI and close or the same as the first and second quarters this year. What we saw and that may raise the curiosity of some investors is a fluctuation of some of our papers in debentures and others, but that is not related to rollovers that we have been executing this period. So the effect on the papers is related to effects related to Brazil, large Brazilian companies, as we have seen in the news, and that brings some loss of confidence on stock of several Brazilian companies, but the cost of rollover has not changed compared to previous quarters. Operator: [Interpreted] Our next question also in writing comes from Santander. Could you talk about the drivers for 4Q '25, and that leads you to reach the consolidated net leverage target of 3x by the end of the year? Secondly, market concerns continue about the imbalance in the steel business. Leverage indicators are high, and the mining business where most cash is located, consider that a problem for the management of liabilities for the future? And if so, what are the plans to address it? I believe that crystallizing value in the logistics business is a possibility, I suppose. Can you update us on this and other capital structure strategies that are seriously being considered now? Benjamin Steinbruch: [Interpreted] Thanks for your question. As for the fourth quarter of the year, the main drivers of the good results that we expect for the end of the year are the operational basis that we considered during this call. Mining, steel, and cement are operating at a very efficient level with a high production volume and a strictly controlled cost, which already brings a high expectation for the fourth quarter. And also, Martinez very clearly put it, the prices in the steel segment, we are finally seeing a positive trend in terms of steel prices. and also cement that is recovering now as of the third quarter this year. So all these operational assumptions make us believe that despite the seasonality we have in the fourth quarter this year, that the fourth quarter will continue to be a quarter of excellent performance for the company as we had in the fourth quarter '24. If you remember, 4Q '24 was very good in terms of results, and it didn't have the same foundations that we have today for the year of '25. As for leverage and mining, as you mentioned, continue very good. Leverage is not a problem to mining. It continues with more cash than debt. And in still, which is the holding that in a way, consolidates the company's debt and cash -- the way to rebalance or adjust the capital structure, that perhaps what you're asking is focusing on deleveraging, which is what we have been doing in the last 2 years and most notably in 2025. And in '26, in addition to operational results, some operational results will be geared to deleveraging, but we have some nonorganic operations with CS Infra that will help us to bring the capital structure in still to a better point of balance. And remember, in addition to all these initiatives in the year of '25, for the first time in many, many years, CSN did not pay dividends in May as usual, and it is not going to pay dividends in November. It's also usual. So this is a show of the commitment of the company and the company's shareholders to deleverage the company. And when you talk about logistics, it is what I mentioned in the previous question. So I think I already detailed what is to come and when the operation is going to happen, which will certainly be a good lever for '26. Operator: [Interpreted] Our next question in writing comes from Alvaro Rodrigue, he says, you extended amortizations to 2030. What is the weighted average cost of this new debt compared to the previous one? How much incremental interest burden should investors expect and refinancing? What portion of '26, '27 maturities has been already refinanced or prefunded? How much remains exposed to market conditions? Benjamin Steinbruch: [Interpreted] Alvaro, thanks for your question. Cost of refinancing. I just answered that 1 or 2 questions ago. No changes, the same costs that we had in previous quarters. '27 maturities. In '26, we have an important portion of the first quarter already refinanced. I don't have the numbers, but it's a relevant portion, almost the whole first half of '26 already addressed. '27, not yet. When you talk about how much that remains exposed to market condition in the short term, no exposure because in '26, we have already addressed in different ways, even with the CSN Infra operations that can pay out debt. So the next operation that we still have a discussion in terms of market conditions is the bond for '28 that we are going to need to refinance. And I understand this is very important for you. This is something that we want to start addressing, although maturity is only in 2 years' time, but we want to start addressing as fast as possible to have a window of efficiency until the end of this year or the beginning of next year to start addressing this bond of '28. Operator: [Interpreted] Our next question comes from Charles Waters from Sunglass Capital. What is the cost of debt rate of the new debt incurred in '25 to refinance maturing debt? Benjamin Steinbruch: [Interpreted] Charles, thanks for your question. I already answered, I think, that question. But if you have any more questions, just let me know. Operator: [Interpreted] Next question, Constanta from. This says you mentioned you've been actively refinancing debt and that in the next 2 years, the majority of the refinancing are bank loans. Could you give us some color on what this refinancing has been like so far, covenants, if they are unsecured, do they have the same seniority as the bonds? Benjamin Steinbruch: [Interpreted] Constanta, thanks for your question. I think that refinancing is something that we already covered. I would just add that the market, in addition to the usual banks that we are still refinancing operations and continuing to lower the company -- lending to the company, we are having other banks that are interested in working with banks we haven't worked with before. So this is not a problem for '25, and it's not a problem for '26. As for the rollover, that is being rolled over with the same conditions before and with the same bond guarantees. So we don't have anything that was rolled for '26 that is senior to company bonds, all have the same level of guarantee. Operator: [Operator Instructions] There are no further questions. I want to turn the call back to Antonio Marco, CFO and IR Officer, for his final remarks. Antonio Marco Rabello: Well, thanks, everyone. Thanks of all the members of CSN that contributed to a very special quarter, record results. And also thank you for attending this conference call. We are closing our conference call for the results of the 3Q '25, and we wish you all a very good week. Operator: [Interpreted] CSN's conference call is now closed. Have a very good day.
Operator: Good morning, and welcome to Klabin's conference call. [Operator Instructions] As a reminder, this conference is being recorded, and the presentation will be in Portuguese with simultaneous translation into English. [Operator Instructions] I'd like to make a brief announcement for those following us in English. [Operator Instructions] Any statements made during this conference call in connection with Klabin's business outlook, projections, operating and financial targets and potential growth should be understood as merely forecasts based on the company's management expectations in relation to the future of Klabin. These expectations are highly dependent on market conditions, on Brazil's overall economic performance and on industry and international market behaviors and therefore are subject to change. We have with us today, Mr. Cristiano Teixeira, CEO; Marcos Ivo, CFO and IRO; and the other officers in the company. Mr. Cristiano and Mr. Ivo will start by commenting on the company's performance during the third quarter of 2025. After that, the remaining executives will also be available to answer any questions that you may wish to ask. I will now hand it over to Mr. Cristiano. Go ahead, sir. Cristiano Teixeira: Thank you. Good morning, everyone, and welcome to our earnings call. So on Slide #3, we'll quickly go through a couple of numbers. I brought a few slides for that. So just -- and when it comes to volume, here, we see our sales volume, which was higher due to our higher production. We have 25% more in pulp and 10% more in paper and 7% more in packaging. So this is a very important moment for all of us. But I would like to actually draw your attention to Slide #4. This is -- and this refers to a discussion that we have had recently. For a few years, we've been talking about this since we started the Puma II Project, where the company would be split by [ 1/3 ] between pulp, paper and packaging, so 1/3 each. Obviously, we are preparing the company for its next 10 years, but this is the design that we created when we started investments in this new investment phase starting in 2017. And this is where we are. I would just like to draw your attention to the revenue from the packaging area, which sometimes goes unseen. The company's -- but it is the biggest revenue for the company this quarter. And I'd like to remind you that we are experiencing one of the worst short fiber prices in pulp. There are many ways of analyzing these products that are commodities. One of them is to look at the lowest prices in history and update them based on the U.S. inflation, given that many of the manufacturers are based in the U.S. If we run the numbers that way, we'll see that the prices for pulp and kraftliner are below the historical worst prices with inflation correction, which makes me think that although we are going through a price issue in our curves, these are historical issues that we all know. Despite the fact that we are experiencing the worst time for these products, we are performing very well in our traditional markets, especially paper, and that's the major upside for the company. If we consider the average price of fibers, looking at the historical series that you can all access, we might be USD 100 to USD 150 below the average price for these 2 products I mentioned, so short fiber and kraftliner, which would be an annualized volume through a simple multiplication, meaning if we take our kraftliner and short fiber volumes, we could have at least BRL 1 billion more in annualized EBITDA. That is in Brazilian reais. So I'd like to draw your attention to the fact that this might be one of the most difficult moments the company has ever faced considering commodity prices, and we have had a net margin of 39% and the other businesses in the company have provided stability, which is what we often tell you. And corrugated boxes are playing their defensive role. So now I'd like to bring up Slides 5 and 6. This is something that I've been saying for a while. Our average growth rate in volume versus GDP and paper. So we have been performing above Empapel and the GDP. And when we look at the price, here, we have data from a series of years that we have been working on prices above inflation rates, and that's due to several qualities of the market. Most of our packaging are used in foods and foods have been performing very well in Brazil in the last 10 years. But we're only looking at data since 2019. So prices have also been going up above the Empapel rates and above the IPCA index. But we always have to compare to other companies. And Klabin has twice as much volume as the second biggest company. And there are several other companies ranked third, fourth and fifth. We're still very spread in corrugated boxes. If you look at these companies, Klabin has 5x the volume. So even though we have our performance that is 5x bigger than other companies, we have been outperforming Empapel inflation and GDP, which shows a performance that from my perspective has been flawless throughout this time. And this underscores our flexibility and resilience. So we will continue. Marcos will speak, and we will come back to talk about our dashboard. Marcos Paulo Conde Ivo: Thank you, Cristiano. Good morning, everyone. So on Page 6, since we had higher production, sales volume reached 1,067,000 tons in the period. Net revenue for the quarter reached BRL 5.4 billion, a 9% increase year-on-year. This was driven by the paper and packaging industries or segments, which saw higher volumes and prices. Adjusted EBITDA was BRL 2.1 billion in the third quarter, a 17% increase over the third quarter of 2024 with a margin of 39%, as Cristiano said. This reflects the increase in net revenue and also the effect of the comparison base since the third quarter of last year was impacted by planned maintenance shutdowns. Excluding these effects from the shutdowns, adjusted EBITDA growth would have been approximately 8%. Moving on to Page 7. Total cash cost per ton was BRL 3,104 in the quarter, a 2% sequential decrease versus the second quarter of '25. Compared to the same period in 2024, excluding the effect of the general shutdown for maintenance, cash cost per ton also decreased by 2% consistently. Moving on to Slide 8. Klabin ended the third quarter of 2025 with a net debt of BRL 26.1 billion, a reduction of around BRL 1.8 billion compared to the end of Q2 '25. This is mainly explained by positive free cash flow in the quarter, a receival of BRL 600 million in equity related to SPE [ Immobiliaria ] and the appreciation of the Brazilian real in the period, which affects our dollar-denominated debt. Leverage measured by the net debt to adjusted EBITDA in dollars indicator ended the quarter at 3.6x, a reduction of 0.3x compared to Q2 '25. Moving on to the next slide. The company's liquidity remains robust, finishing September at BRL 12.4 billion. This liquidity consists of BRL 9.7 billion in cash and the remainder in undrawn revolving credit lines. The average maturity of this debt at the end of the quarter was 86 months and the average cost in U.S. dollars was 5.3% per year. Moving on to Page 10. The company delivered solid free cash flow in the quarter with a positive balance of BRL 699 million. This reflects the company's current focus on ramping up production at Puma II, but also focuses on cast and -- excuse me, cost and CapEx discipline with a consequent generation of free cash flow and deleveraging. Cristiano Teixeira: I'll take this opportunity, Marcos, to draw everyone's attention to this slide. As I mentioned, we are stepping out of a long investment period for the company and stepping into a free cash flow generation period in which we try to deleverage the company. Investments are becoming more difficult. So we are taking a look inwards, and this is the new look that the company will have. This level and this pace of generating free cash flow is what we should see from the company from now on. We're quickly deleveraging, and I'm linking here to the average price, as I mentioned before. We are at the worst moment for the 2 most traded products for the company. There's still an EBITDA volume that will still come in due to statistical reasons. And as Marcos mentioned, we have a CapEx discipline, which has been very valued in the last discussions in the last few years. So we feel very confident with our level of CapEx, our operational continuity, the equipment that needed to be refurbished in the company, such as the Monte Alegre boiler, which has been addressed and has made Monte Alegre an cutting-edge side for products and productivity, and that includes cash cost and environmental factors. And Ortigueira, as we know, is a benchmark. It's a state-of-the-art plant in technology and processes. So the company is at a moment in which major investments and the risk of managing and implementing these investments are now past. This risk is in the past. We are ramping up the machinery. We will generate more EBITDA. We are at the worst moment for the curve of some products, as I mentioned. But packaging, for example, has been resilient, and the company will now go through a strong deleveraging process. Go ahead, Marcos. Marcos Paulo Conde Ivo: So continuing on Page 11, the Caete Project, which has greatly strengthened the company's forestry and cost competitiveness continues to advance and deliver results above expectations. When it comes to partnerships with financial investors, especially TIMOs, we raised BRL 3.6 billion, of which BRL 1.5 billion remains to be received. This last contribution is planned to occur by the end of this year. Considering the monetization of surplus land, we completed our first sale in the third quarter of 2025. As a result, we still have approximately 20,000 hectares of usable land that can be monetized over the next few years. Moving on to Slide 12. Earnings distributed to shareholders over the last 12 months totaled BRL 1.3 billion. This amount represents a dividend yield of 5.5%. I'd like to highlight the Board of Directors' approval on November 4 of dividends to the amount of BRL 318 million, which will be paid on November 19. Now I give the floor back to Cristiano, who talk about our business trends. Cristiano Teixeira: Great. So we want to value the last part of the presentation, the Q&A. So we're going through this very quickly, and we'll try to save time for the Q&A. So looking at the market, the first item, pulp or short fiber. We see that inventories for short fiber are building up, and that has favored our price on the last column. We see that prices have been recovering very well. We are not leaders, of course, in this item when it comes to short fiber, but we have been seeing some price recoveries because of the inventories that have been building up as we saw. In fluff, we see some stability when it comes to the market -- or excuse me, some instability when we look at the market. But when we look at the price column, there's some effect from fluff consumption in China, which is moving away from U.S. imports, and we'll have to wait and see what will happen from now on. We'll need to see what happens geopolitically, and we hope that things will normalize soon. The effects from fluff is due to the volumes in the third quarter of 2025 having a carryover effect. So when we look at the normalized rates, we also see stability. Continuing with coated board. Again, this is stable, both on -- from a market perspective, but also with volumes. And corrugated boxes and industrial bags, again, we are at a seasonal moment, and for the fourth quarter, we often see a reduction. Considering prices, this is based on the mix. So we see that harvests are happening in fruit, and this has the best price performance in Brazil due to it being virgin fibers and so on. So we see that the demand will be lower, but I've mentioned some examples in the beginning of my presentation as to why this -- that we're protected against this. So let's continue with the Q&A. Operator: [Operator Instructions] The first question will be asked by Rafael Barcellos from Bradesco BBI. Rafael Barcellos: Cristiano and Klabin team, thank you for taking my question. Cristiano, you mentioned the challenging environment in some markets like pulp. So excluding this market issue that is out of your control, I'd like to explore some questions for the items that are more at your hand. I'll focus on CapEx costs. But here, Cristiano, my question -- we'll leave it open for you to talk about any initiatives that you think can provide value for the company. But I'll focus on cost and CapEx. After some forestry operations, the new boiler in Monte Alegre and so on, are there any cost benefits that you believe we will start seeing next year? And if you can tell us a bit more about how you see costs changing next year? When it comes to CapEx, the company seems to be running at a lower CapEx level versus the guidance. So if you can tell us a little bit more about that? Was that related to any efficiencies that you were able to extract? And what should we consider for CapEx next year, especially considering that next year, you will no longer have that disbursement from the Monte Alegre boiler, which will be about BRL 800 million for this year? Those are my 2 questions. Unknown Executive: Thank you, Rafael. So we can talk about this. We have provided a guidance. I'm going to refer to the company, but I think we set a good example in providing a guidance. When it comes to costs, I've mentioned the Monte Alegre boiler, which will definitely have a benefit. It will make our operation more efficient. There have been other pieces of equipment that were updated, but Monte Alegre is already a reference. I think we've just given a few decades for Monte Alegre to continue to be a reference in cash cost. We will have some marginal benefits, but this is mostly due to these investments. And of course, we have ordinary production and cost figures, but extraordinary events. If we look at the rest of the world, these assets are -- well, this is a very old business, right? There are companies in our industry that have many -- have more than 100 years of history, machines running for over 50 years in some countries as an average. So we've seen increasing extraordinary events with production loss, which, of course, reflects on fixed costs and impacts on volumes as well and price effects. What I'd like to draw your attention to is that Klabin, our main fiber production sites like Ortigueira, which is a global benchmark with 2.5 million tons with the products that you know and Monte Alegre, which has always been a reference. So we replaced an operating boiler, and we've been providing other updates to the plant to -- in order to have stability. So for me, the most important thing is that, well, we have been giving you cost guidance. We've been giving you this space. But the most important thing is that we're providing stability to a site, which is very old, but it's very up to date when it comes to the technology. And that's also going to give the company some price stability. And we're going to continue following our guidance. Concerning CapEx, I'd just like to draw your attention to the investments, the transformational investments that we've made. The cycle is now over with the acquisition of Arauco, construction in Figueira and Monte Alegre. But at the end of the cycle, we still have some disbursements to be made, but there are other items in forestry where we don't still have stability. So we do see benefits, but it's due to the end of the cycle and considers the possibility of having stability. Rafael Barcellos: Of course. And if you allow me to ask a follow-up question, specifically on cost. If I can get an assessment of the performance in the last few quarters. And I'd also like to understand -- well, I know that you're still going to give us a guidance for next year. But I'd just like to understand the magnitude of that. In 2026, will the company be running at a lower cost than 2025? If you could help us understand your cost trajectory and how you think this will happen from now on? Unknown Executive: We're concluding the first phase, I'd say, of our budget process so that we can offer this up for a better debate with the Board. So these numbers are being discussed. What I can say is that, of course, despite some of the situations we have been facing, weather issues, which not only have affected the south of Brazil, but other parts of Brazil and the world. Obviously, these are things that everyone has to face, but we have a platform of areas and average distances that we've been discussing with you. We feel that our implementation of the [indiscernible] project has been very successful in monetizing areas and finding benefits for the management and daily operations always provides the best cost. When we look at this from a quarterly perspective, there might be variations due to the weather and due to these effects that I mentioned. But from a structural perspective, the company's cost platform and all due respect to all manufacturers, but within our own product portfolio, we have the most productive areas in the world. I'm trying not to be too passionate, but to speak about facts. We have the best productivity for pinus and eucalyptus, much higher than the global average. We have been favored by these areas that are closer to Klabin. And when it comes to technology and equipment, as I said, we're closing a huge cycle that places Klabin among the state-of-the-art plants of the world. So of course, as soon as we have more details on the short term for the cost and CapEx, we'll provide more information to the market as soon as this has been consolidated in the company. But the structural responses, looking at the real economy -- we have to refer to that, because in [ AEI ], we are making use of the advantages and productivity that we have in our operations. But the company remains a real-world company. So looking at the real economy, stability and flexibility, the company's equipment and its resources are being placed in forestry and equipment, and this is a global reference. So I apologize, I'm not talking about the short term, but I'm just saying that we're going through the budgeting process. What needs to be known is that in the real economy, the company is absolutely productive. And with long-term contracts, Klabin is positioning itself as a global competitor and maybe that is going unseen. Operator: The next question will be asked by Daniel Sasson from Itau BBA. Daniel Sasson: Cristiano, I really liked your opening speech where you talked about the company being ready to deliver more results in comparison to the rest of the market. The coated board versus kraft spread in importation, I'd just like to ask if at this level of spread, would it make sense to produce 100% of MP28 in coated board value? We know that, of course, this market is much -- much smaller than kraftliner. So are you expecting a better spread in order to do that? So I'd just like to hear this comparison between the cost and the spread in products just so that we can understand the ramp-up for this part. Also, when it comes to corrugated boxes, you've had very strong volumes up to date. The prices are flat, but you're growing in volume and share. But looking towards the future, I'd just like to understand your perspective of this market, considering the reduction in the shavings prices. And what is your commercial strategy for that? Would it make sense to be a bit less aggressive and maybe concede on prices to hold the margins, maybe a value over volume strategy? Or how would you deal with this change and market dynamics? Unknown Executive: Thank you, Daniel. So I'm going to let Soares answer that, and then Douglas will talk about corrugated boxes. Jose Soares: Daniel, thank you for your question. So to answer your question on coated board, we are projecting that we will reach 45% or 47% of machines producing coated board. And why not more than that? As you've been seeing, this market has been challenging in the U.S. and Europe as well. And there's another important factor, which is excess capacity in China. China has invaded the market with very low prices. So going into new markets means that you have to compete with Chinese coated board, and we've been avoiding that. The spread that you mentioned actually disappears when you compare our coated board price. Well, we would need to eliminate that to compete with Chinese coated board. So we haven't done that. We've taken a different route. We've been trying to differentiate our products in the internal market. We launched a new line. We're going into pharmaceuticals, which was a market that Klabin didn't work in. So although there is a premium, volumes are not so expressive. But when we look at the conditions and margins, coated board would be better than competing with Chinese coated board. So we're waiting to see if the global economy, especially in the U.S., gives any signs of a recovery, and that will give us opportunities to go into coated board with profitable conditions. With the conditions we've seen now, it's much better to have white top liner in the machine, which is priced at the same level as coated board. So that gives much better margins than kraftliner. And kraftliner itself in some markets has been providing better conditions than having folding white board. So that's the scenario for coated board right now. Cristiano Teixeira: Soares referred to the American market. So I'd just like to make a comment on that. In the last 2 weeks, I've been speaking to some executives in the U.S. And I'd like to remind you that there are different ways of looking at the economy. The U.S. economy is very strong, as you know, in services, especially. But I'd like to draw your attention to corrugated boxes in the U.S. and its production. The U.S. has significantly reduced in the last 10 years, their production. They're at the lowest in the last 10 years. As you know, this has an impact from e-commerce, but e-commerce still has a very relevant impact to the economy. But the biggest reference in consumption in any country, and this is not different in the U.S. is supermarkets. When we look at supermarkets, 70% of volumes are food products. So this cash expediting is connected to exporting. And it should have reduced more than it is if we consider closedowns in the U.S. due to cash cost. So I don't know if we'll be able to go deep into this during the call, but this has an impact on the short term, especially. On the medium and long term, this is positive for Klabin. But I have to refer to what we were discussing earlier when it comes to the forestry base. At the medium to long term, looking at this reduction in the U.S., we are replacing several products. Kraftliner is one. But I've mentioned that kraftliner, 100% virgin fibers will be at a premium in the future because this will be scarce since it's a niche product. And this will play in our favor in the long term. Douglas will now talk about corrugated boxes. Thank you. Douglas Dalmasi: So about corrugated boxes, we don't see much on the horizon in the short term. So during the last quarter, we saw that the market remains stable and Klabin has been growing over market levels. But about shavings, shaving has been stable. I don't see any relevant changes in price. They're stable. If we compare to last year, it went from BRL 600 to BRL 1,300 or BRL 1,400, and now it's back at BRL 1,200. So it's still stable. It is not changing when it comes to price, and we're still seeing higher prices this quarter or prices growing over the quarters. If we look at the company's price history, we, in the last quarter have increased to a relevant degree, and it has been going up quarter-by-quarter. And now in the last quarter, we still see an increase in -- at a lower pace if we compare to the past because we started this price increase in the last quarter. So again, in the short term, I don't really see any changes. We're growing over the market levels, and we're passing inflation on through the price. Operator: The next question will be asked by Caio Greiner from UBS. Caio Greiner: I have 2 quick questions. The first is a follow-up question after Barcellos question on CapEx. It drew my attention that your numbers in the last 12 months and even the accrued figures for this year are far below the indication that you had for total CapEx this year. So my question is, why is it being slower? Are you expecting to accelerate in the fourth quarter? Or should we imagine that part of this CapEx will carry over to next year as we saw last year? Should we expect CapEx figures for next year to be slightly higher? And the second part of my question or rather my second question is about your CapEx outlook and volumes. We've talked about this in the last quarter, but earlier this year, you went from a growth volume of about 200,000 tons for 2025. And right now, we are at 130,000 tons. But in the fourth quarter, we have maintenance downtimes. So maybe we'll be closer to 100,000 tons, if you can give me that understanding. I'd like to understand what you're imagining for 2026. I've been looking at everything that you've been saying. I understand that for some lines, the market is a bit more difficult. There's an issue of demand in kraftliner and paperboard. But I'd just like to know what you're imagining for 2026. Can we consider one more year of growth to reach those 200,000 tons that you had set during your Investor Day last year? Cristiano Teixeira: Thank you, Caio. Let's start with CapEx. It's true this is normal for the fourth quarter, not for Klabin, but for the industry. The last quarter is when the CapEx requires planning and so on. And we execute this in the fourth quarter usually. We should execute most of it. There is a marginal carryover for 2026. We don't expect higher CapEx in 2026 due to that reason. We're in line with the guidance, and we are confident with what we've been managing here, the company's CapEx, ensuring operational safety, of course, but this is marginal. Structurally, it's like I said in the beginning, we still have some residuals from the boiler, but we are going into a stability period in which we are focusing on operational continuity. That includes plant management, planting and so on. Referring to volume, I'd just like to say one thing, and I'll try to explain myself in the best way possible, but we can explain this offline afterwards if we need to. But you made a reference to the downtime, which is true. This guidance on volume was based on full operations in the recycle -- recycling machines. We always give you updates because we can, considering the market, make choices to use more or less recycled paper in our boxes and to use more virgin fibers for exportation. We had to do this, this year. So we stopped 2 machines that worked on recycled paper throughout the year because export prices were not attractive enough for them. So we gave priority to the internal market and converting more paper through virgin fibers and reduce exports. You can see this because we offset these kraftliner exportations around 45,000 tons per month with the kraftliner from Machine 28. But when we look at containerboard or kraftliner recycled, we have reduced production of recycled paper, and obviously, we've been using more virgin fibers for our boxes. So this is why we're not going to reach the production level that we had mentioned before. Looking towards 2026, Klabin should go in full into virgin fibers. We're very confident with the markets that we're working with, and we still haven't decided what to do with the recycled machines. We're looking at the budget. But depending on how the market behaves, we might continue with downtimes for the recycled machines. So we'll give you more details during Klabin Day. Operator: The next question will be asked by Eugenia Cavalheiro, Morgan Stanley. Eugenia Cavalheiro: I would like to understand leverage. You're close to the upper bound of the range that you had in your leverage policy. So I'd just like to understand if this is something that you're comfortable with, if you would prefer to go to the low end of the range, and I'd also like to understand what the next steps would be for the company either to lower your leverage. I mean, we've seen some initiatives in that direction. And I'd just like to understand if we expect those to continue and how we should understand the company. I'd also like to look at dividends and buybacks, considering shareholder remuneration. I know that you made an announcement, but I'd just like to understand if this will continue or if we are going to get -- change your leverage levels and if that can affect shareholder remuneration. Cristiano Teixeira: Thank you, Eugenia. Marcos will answer your questions. Marcos Paulo Conde Ivo: Eugenia, Klabin has 2 policies. One is for financial indebtedness, which establishes our leverage range. And the minimal leverage established by this policy is 2.5x net debt to EBITDA in U.S. dollars. So we still have a lot of space. And as Cristiano mentioned, due to the harvest cycle and the free cash flow generation in the company, the company will continue to deleverage throughout the next quarters until we get to the lower bound of our policy. So we will continue to deleverage. Considering the dividend policy, we've published a document to help the market to understand how we're doing this, and it establishes that we are making quarterly payments preferably and paying between 10% to 20% of our EBITDA in dividends. And usually, we are at the middle of this policy. This is an announcement that we've made recently that will follow that. And we don't see any reason for that to be changed. Considering buybacks, this is something that we're always looking at. Naturally, it will depend on share prices. It will depend on the project portfolio that we have being executed or being approved. This is all being analyzed. So considering that we are harvesting the investments that we have already made, considering that we don't have any major transformational investments on our horizon, this makes it more attractive, especially when we look at our prices, considering that this is a market consensus. It's a target as decided by market consensus. So this is something that we're analyzing. And of course, we have to look at it so that maybe in the future, we can do something in that direction if it's viable and if it's a good capital allocation decision for the company. Operator: The next question will be asked by Henrique Marques from Goldman Sachs. Henrique Tavian Marques: So my first question is about paperboard. I know that you've discussed this, but we still see strong competition. The domestic market has been very challenging. And according to all signs, as China reviews its 5-year plan, it will continue to export. So this is a significant growth avenue for the country. So I'd just like to know what solutions you find for this market? Is that something that you will do in company? Will you really go to the premium markets even by missing out on some of the volume? And do you think the market should have any protection measures? We know that steel companies are doing that with steel. So that's my question. And also about deleveraging. With this scenario with lower commodities, with the weaker U.S. dollar, is there anything on the macro side that you need to see for this deleveraging to happen? Or can you do all of this in company without needing to depend on pulp prices or changes to the U.S. dollar? Unknown Executive: Thank you, Henrique. So Soares will speak about the advantages that Klabin has with the -- with Machine 28, with the technology and so on. There's still a lot of good things to discuss, but I'll just talk about leverage first. And the answer is no. We don't depend on any macroeconomic conditions. We don't depend on price curves or anything. The company will deleverage strongly because its industrial park is modern, has been up to date. We have capacities. We have orders. To give you an idea of the volume of corrugated boxes that we've discussed, about 70% are in 3-year contracts. You know the contracts that we have, and we're operating at full capacity. Our equipment is up to date, and we're not depending on any macroeconomic conditions. But what may happen is that it can accelerate if the price curves improve, as I said. But even if they are maintained, which is unlikely, deleverage will be very strong. Jose Soares: Thank you for your question, Henrique. So with cardboard -- or excuse me, with coated board, there's no big mystery. You're based on big volumes. You don't need to qualify with the end user, but it's a longer product, which requires a big effort from the technical team. But after it has been qualified, then wonderful. You have a client which is often long-lasting. So that has been our approach to go to new segments, which is a slow process that needs to be continuous. I've mentioned the pharmaceutical industry. We've launched products for frozen foods, cups, white paperboard. So we'll continue doing that. Obviously, we're also depending on the global beer market, which is down. You've seen results for Heineken and Ambev. They had a reduced demand. Milk is also a market that has had different demands. So as this demand changes, we are getting prepared with quality and cost so that we can grow gradually, but don't expect miracles. That's not going to happen within 1 year. It's a gradual process because of how the market behaves. It's fragmented. Volumes are lower, and we need to make a big effort from engineering packages with the end user until you get there. So this is what we're doing. We're going through that routine. And we're tireless at trying to get there gradually. Unknown Executive: Good news, just to confirm what Soares has mentioned. Even though we are not producing the same volume of paperboard in Machine 28, and I'm referring here to the flexibility that we have at Klabin, we are providing very good quality kraft. We really believe in this product, and we're always going to choose based on profitability. This is directed, of course, by our commercial strategy, but we're very disciplined at that at Klabin. We're always going to prioritize our strategic partners and obviously, the company's results. So to answer your question, Henrique, what we're mentioning, the deleveraging that the company will have is for this mix, having less paperboard and more kraft. So that's why we believe the company will be stronger. Operator: The next question will be asked by Marcelo Arazi from BTG. Marcelo Arazi: A couple of questions. The first is about cost again. We've seen that fiber costs have gone up in the last quarters after the acquisition you made for Arauco Florestal, which indicated that you expected these costs to reduce. So what is your perspective on that? And how do you believe this will continue? And my second question is about pulp. Market perspectives are a bit worse. We know that there are structural issues. So we're investing on -- I know that you're investing on price and capacity. So I'd just like to understand your perspective for the industry and how that matches that 1/3, 1/3, 1/3 strategy. So in any case, is this change in the industry changing the percentage that you want to have in each segment? Cristiano Teixeira: Thank you. In order not to take the word again, I'll comment on this. So about the 1/3, 1/3, 1/3 strategy, this is part of the company's strategy. Of course, when we created it, our aim was to give more stability to the company, to be less reliant on commodities, even when it comes to fibers. As you know, 1/3 of this [ 1/3 ] is fluff, which is based on contracts. So this strategic model has been implemented. There is a variation quarter-to-quarter due to the price. When commodities are at their peak, this share will go up. The most important thing is that on relative terms, we're finding more stability with the current model. So Marcos will now talk about cost. Marcos Paulo Conde Ivo: Marcelo, when it comes to cash cost, first, I'd like to highlight that this quarter, we ran it at the lowest part of the guidance for the company. It was at [ BRL 3,104 ]. And this was the third quarter in a row in which we were at that level of guidance. So the message for me is that Klabin in a normalized quarter and a typical quarter will be at the lowest part of the threshold, which is a good perspective for the costs for 2026 because the accrued figures for 2025 have been impacted by this quarter. And there has been a nonrecurring effect. When we look at fiber and wood specifically, the Caete Project, which was the acquisition of Arauco in Brazil has really strengthened competitiveness for forestry and costs in Klabin in the most productive region of the world for pinus and eucalyptus. If you look back, you know that this cost was based on 3 components. First, a reduction in CapEx for buying standing wood from third parties and Klabin had a guidance at the time stating how much CapEx it would spend on buying from third parties. And now we have a new perspective. And you can clearly see a reduction there that has already taken place in 2024 and 2025. So that has been delivered strongly. The next lever was to have financial partners and to monetize our land areas. For that, we are doing much better than we had indicated to the market. We're also delivering this strongly. And the third lever was OpEx. So reducing fiber costs that we see in the company's cash cost, especially due to a reduction in the average distance and operational costs. This is also taking place. As we've been seeing for a long time, and this goes for all companies in the industry, forestry costs are not linear because this changes every quarter. You change the areas from which you're harvesting, there are weather issues. So in Klabin specifically, we try to optimize the cost of wood in the production cycle, the 15-, 16-year cycle for pinus and more than that for eucalyptus. So that means that in the cycle, you're optimizing your wood production costs. So it will be natural to see this change over the quarters, throughout the years. But clearly, the Caete Project will have a very relevant level of value generation for Klabin. Unknown Executive: Thank you, Marcelo. Thank you for your question. So to answer your question about capacity confirmed or in the pipeline to be presented to the Board or approved. Obviously, the numbers surprise us. But in any case, we are keeping an eye on it to see what will be approved. And on the other hand, we believe that the fact that the company is producing 3 types of different fibers means that we're not only exposed to eucalyptus, and that helps us with that context. And this will be a leverage for Klabin. It's a defensive portfolio that will keep our prices stable in the market. But obviously, it's very difficult to talk about the capacity that will go into the pipeline. It's hard to imagine what can happen with prices, but the fact is that the market is adjusting. There's a lot of capacity, at least 100% of the global capacity will have to go through structural changes. Operator: As there are no further questions, I would like to hand the floor to Mr. Cristiano Teixeira for his closing remarks. Go ahead, sir. Cristiano Teixeira: Thank you. Thank you, everyone. We'll see you for the next call. Operator: This concludes the company's conference call. Thank you, and have a good day.
Operator: Good afternoon, and welcome to the conference call of Fresenius Investor Relations, which is now starting. May I hand you over to Nick Stone, Head of Investor Relations. Nick Stone: Thank you, Valentina. Hello, everyone. Welcome to our year-to-date and Q3 earnings call and webcast. The presentation was e-mailed to our distribution list earlier today and is available on fresenius.com. On Slide 2 of the presentation, you'll find the usual safe harbor statement unless stated otherwise, we will comment on our performance using constant exchange rates or CER. Today, I'm delighted to be joined by Michael and Sara, who will take you through the EBIT guidance raise and the disciplined execution that drove the continued performance this quarter. As usual, the call will last approximately 1 hour with a presentation taken around 25 to 30 minutes with the remaining time for your questions. To give everyone a chance to participate, please limit the questions to 1 to 2 only. We can always come back for a second round, if needed. And with that, I will now hand the call over to Michael. Michael Sen: Yes. Thank you, Nick, and welcome to everyone joining us on a very, very busy day. Exactly 3 years ago, we hit the reset button and then embarked on a new strategic and transformative journey to deliver a step change in performance with what we call future Fresenius. This transformation was about simplifying our structure, sharpening our focus and instilling a performance-driven mindset. But it wasn't just about operational changes. It was about rebuilding the portfolio, reshaping our culture and fostering accountability, a cultural power driving us forward. Fast forward to today, and we have started the next phase, Rejuvenate. This has kicked off with great traction and focus and will guide us for the next few years. This phase is all about upgrading the core, scaling our platforms and as a result, elevate our performance to deliver profitable long-term growth. This means, in essence, bringing new products and innovations to market, focusing on the needs of patients and customers and infusing fresh energy into our leadership and management teams to deliver further value, expand ecosystems and create more opportunities for the company. At the start of the year, we committed to delivering incremental revenue and earnings growth through new products and services, and our performance year-to-date demonstrates our continued momentum. Future Fresenius continues to deliver. I am pleased to share with you yet another strong quarter driven by the resilience and consistency of disciplined execution across Kabi and Helios. Despite ongoing macroeconomic volatility and geopolitical tensions, we have maintained transparent market communication our adaptive and focused strategy has proven effective in navigating these challenges. Now let's turn to the third quarter highlights. After an excellent start to the year, I'm pleased to announce that following the Q2 organic revenue guidance upgrade, we're now raising our full year EBIT growth guidance from 3% to 7%, to 4% to 8%. The upgraded guidance represents the success of our future Fresenius strategy and is based on the excellent momentum we have seen year-to-date. Encouragingly, we see sustained strength in our bottom line with core EPS growing by an impressive 14%, significantly outpacing top-line growth. This performance reflects strong market position and top-line growth yielding margin expansion, and we expect this momentum to continue. Kabi is an ongoing key driver of our profitability, achieving an excellent 16.7% EBIT margin. We see broad-based performance across all Kabi segments with particular strength from newly launched products and continued pipeline progress, particularly in our IV generics and biosimilars. Great job by the team. Helios delivered another good quarter, maintaining a solid EBIT margin, demonstrating the resilience of its operations. In addition, based on the strong cash flow delivery in the quarter, we are now back in our self-imposed target corridor that we have tightened at the beginning of the year. Now let's take a closer look at our core businesses, starting with Kabi. In pharma, we have further focused and simplified the business with the successful divestment of the Calea Home Care business in Canada. In the U.S., I am pleased Fresenius was recognized for supply and service excellence. These recognitions demonstrate our unwavering commitment to ensuring supply continuity for essential medicines and technology. It also recognizes the more than $1 billion we have invested over the several years to strengthen our capabilities and support for the U.S. health care system. We will continue with U.S. investment to support the health care system to deliver affordable and life-changing medicines for patients. In Nutrition, we continue to enhance our globally leading portfolio and strengthening our position in this fundamentally attractive market through innovation and differentiation. In Q3, we delivered 3 new product launches focused on patients with high energy and protein needs in MedTech, we announced our leadership of the EASYGEN consortium a collaboration with industry and academia aimed at accelerating CAR-T cell therapy manufacturing reducing costs and improving patient at across Europe. This initiative underscores our commitment to advancing cutting-edge therapies and technologies. Now turning to biopharma. Again, we are increasing sales quarter-over-quarter as more medicines launch into key markets. For denosumab the key milestone was achieved with a CMS issuing permanent and product-specific billing codes, the HCPCS Q-codes. This is an important step forward in expanding access to high-quality biologic medicines, while driving broader adoption and ensuring more patients benefit from these innovative cost-effective treatments. Another major milestone was the first delivery of Tyenne vials to European countries from our Map Science plant in Argentina. We have now largely completed the technology transfer delivering a fully vertically integrated supply chain and manufacturing platform to support Cayenne. This marks a step-up upgrading our core to deliver efficiency and increased capability showcasing the benefits of a vertically integrated platform. All these advancements underscore our commitment to patients around the globe to deliver accessible, innovative and high-quality health care solutions. Kabi remains at the forefront of innovation, operational excellence and patient care. Now let's take a closer look at our resilient and a very strong foundation. Our highly cash-generative pharma business continued to deliver strong and stable performance. Year-to-date, we have successfully launched 12 products with a total of 15 launches expected for the full year. As part of Rejuvenate, we are further optimizing our cost of goods sold, streamlining our network and strategically investing to further scale this high-margin platform. With a globally leading portfolio and a local for local approach, we deliver essential medicines to patients worldwide. In the U.S., we supply 70% of the FDA's essential medicines list underscoring our critical role in health care in the U.S. with stable organic growth, highly accretive margins and an attractive cash generation, pharma remains a strong contributor to our balance sheet and a profitable foundation for sustainable long-term growth. Now double-clicking on biosimilars, we continue to see strong growth momentum, really strong growth momentum. Last year, the business reached EBIT breakeven, marking its transition into a scalable, fully operational platform. With Map Science, we have built a robust development and manufacturing platform, demonstrating our ability to quickly advance molecules from development through regulatory approval and into the market. Our biopharma franchise has now 11 products launched and marketed globally. As previously outlined, a key advancement of biopharma is the integration of Map Science to deliver a dedicated development and manufacturing platform, including contract manufacturing. For biopharma, we will continue to upgrade the core and scale the platform to deliver further simplification and drive increased efficiencies as we strive to become a global leader. Now let's look at some of our recently launched medicines or molecule, starting with Tyenne, our tocilizumab biosimilar, we continue to make great progress leveraging our first-mover advantage. We continue to see excellent market share growth development, which is supported by multiple PBM and health plan contracts, many of which are exclusive. Turning to Otulfi, our ustekinumab biosimilar, we anticipate incremental sales in Q4 following our exclusive U.S. distribution agreement with CivicaScript. As for our denosumab, we already achieved sales -- little sales in Q3. This is the only biosimilar to offer a subcutaneous 120-milligram prefilled syringe for oncology indications delivering a key differentiation from even the originator and competitors. This product profile really strengthens our competitive position. In addition, we are pleased to have recently received FDA interchangeability designation for both denosumab products. This allows the medicine to be dispensed at the pharmacy as a substitute for the reference product, creating greater access patient and health care professionals. Also the FDA's recent draft guidance aimed at streamlining the biosimilar approval process and broadening interchangeability designations in the U.S. is a promising development for patients and payers. But it may have not fundamentally changed the existing framework, we see this as a further support for market growth and expect the U.S. biosimilar landscape to continue evolving positively. For the remainder of the year and into next, we expect the portfolio momentum to continue as contracting agreements convert into prescriptions so watch this space. Over the past 2 years, what we labeled as in growth factors, they have delivered an impressive 37% EBIT on a CAGR basis and year-to-date, we've achieved an exceptional 18% year-over-year EBIT growth. This performance is underpinned by new products and new innovations, which we will continue to upgrade and scale as part of Rejuvenate. The growth vectors are performing in line, if not even better than initially envisioned when we launched Future Fresenius. Not only are they driving accelerated top-line growth, but they are also significantly advancing our margin profile. At the same time, our structural improvements to the cost base continue to support margin expansion. The growth vectors, the key drivers behind Kabi's elevated profitability, while our established pharma portfolio remains a strong, resilient and profitable foundation. Looking ahead into 2026 and beyond, we expect this positive trajectory to continue key drivers here are the increasing contributions from biopharma, sustained product momentum and upcoming innovations in Nutrition, the step up in MedTech profitability, all underpinned by our resilient pharma business. Now let's turn to the Q3 highlights in our care provision platform, Helios. Overall, the German reimbursement environment continues to be, by and large, supportive. However, for 2026, the projected DRG inflator is anticipated to be approximately 3%, which is lower than initially expected due to a methodology change that favored the lower parameter versus the corridor of the 2 parameters previously used. This new percentage is broadly in line with the historical median. The onetime invoice surcharge 3.25% with public insurance is an encouraging development. It is effective between November 1, 2025 and October 31, 2026, and is a clear positive supporting several years of previous hospital cost inflation. We continue to remain optimistic about government reimbursement in the coming years, even though recent events would seem to prioritize rather fiscal over health care policy. At Helios Germany, we remain committed to advancing medical innovation and improving patient outcomes. For example, in Berlin and [indiscernible] in lung cancer centers are pioneering the use of innovative robot-assisted bronchoscopy system. The cutting-edge technology enables earlier and more accurate diagnosis, often unlocking opportunities for life-saving curative treatments, making or marking a true paradigm shift in pulmonology. In Spain, Quirónsalud continues to demonstrate its strong focus on research and innovation. With 285 new clinical trials initiated year-to-date, including 159 in Phase I and Phase II. This just reinforces its position as a leader in clinical innovation with a best-in-class health care professionals in state-of-the-art hospitals we remain the top choice for patients seeking exceptional care. I'm excited by our continued EPS momentum through structural cost savings we laid the foundation for transformation. Now in Rejuvenate, we're building on that strong foundation by upgrading the core, scaling our platforms and elevating performance to drive long-term profitable growth. Productivity is no longer just about cost side. It's fueled by growth, new products, innovation and serving the market. The results speak for themselves from minus 13% EPS growth in fiscal '22, we hit the reset button to double-digit growth today. The transformation has been, I would say, remarkable. My [indiscernible] should be very proud, and we are 1 team, and I would like to say thank you to our entire team. In the year-to-date, EPS increased by a powerful 14%. This is impressive and has been driven by the continued execution of our future Fresenius strategy, further operational progress and a benefit from reduced interest expenses. Our strong EPS growth is significantly outpacing top-line growth, highlighting our ability to sustainably improve returns and to deliver shareholder value. We expect this positive trend to continue as we close out the year. The EPS momentum generated by rejuvenate is evident as our growth vectors continue to deliver further profitability improvements. For example, biopharma is gaining significant traction with momentum accelerating going forward. With that, I'll hand it over to Sara. Sara Hennicken: Thank you, Michael, and thank you all for joining. Let's start with our financial highlights. Consistent strong organic sales growth, sequentially increase in EBIT growth and a meaningful EPS improvement. Looking at the top line, Q3 was another strong quarter with 6% organic revenue. Our consistent delivery demonstrates the strength of our business as well as the structural demand for the system critical products and services we offer. EBIT growth was in line with revenue growth at 6% and a nice acceleration from Q2. Kabi's excellent performance has offset the expected and well flagged Q3 effects at Helios. My KPI this year is our core EPS growth. In Q3, we grew EPS by an impressive 14% and achieved another quarter of double-digit growth, making it 2 out of 3 quarters in 2025. 2 effects came into play. Our strong operating results, combined with a significant year-over-year decrease in interest expense of EUR 35 million. Following our Q3 financing activities and with the continued focus on interest expense management, we now expect EUR 330 million to EUR 340 million of interest expense for the full year. Our tax rate for the quarter was 24.7%, in line with our expectations for the full year. The leverage ratio at 3x net debt to EBITDA was within our self-imposed target corridor of 2.5x to 3x. More deleveraging is expected before year-end. Kabi had a strong quarter with a successful and disciplined execution on launch pipeline and rollouts. This resulted in some contributions already materializing in Q3, that were initially only expected in Q4 of this year. Organic revenue grew by 7%, placing it at the upper end of the structural growth range with some additional benefits from pricing effects in Argentina. The growth vectors remain the primary driver of performance. Biopharma in particular, stood out with impressive 37% organic growth. Nutrition delivered 7% growth, demonstrating the attractiveness and structural strength of this business despite the impact of the key to volume-based tendering in China. Pharma sales increased by 2% organically, relative to a strong prior-year base. In Q3, Kabi delivered an excellent EBIT margin of 16.7%. This represents roughly 80 basis points on margin expansion year-over-year, including the absorption of the Keto effect. [indiscernible] contributed to the performance. First, the growth factor significantly expanded their EBIT margin year-over-year to 15.9%, moving close to Kabi structure margin range of 16% to 18%. Second, an excellent profitability at pharma with a margin of 22%. And third, the strong operating leverage due to the disciplined execution and further incremental structural productivity improvements across all business units. Over to Helios. Our hospital business continues to deliver strong organic top-line growth at 5%. Year-to-date, revenue grew by 6% organically, which is at the upper end of the structural growth band. We delivered solid profitability with an EBIT margin of 7.5% despite the loss of energy release payments and the fluctuations in Spain. Year-to-date, the EBIT margin is at 9.1%. At Helios Germany, we achieved solid organic growth of 4%, driven by strong acquisition growth and positive pricing effects, balanced by somewhat lower case mix points. This performance also needs to be viewed against the strong prior year base, which included some favorable technical revenue reclassifications. From an EBIT perspective, margins stood at 8%. And as a reminder, Q3 '24 included the final energy release payment. The performance program is progressing and has achieved over half of the around EUR 100 million target year-to-date. Further significant progress is expected in Q4 with potentially some spillover into next year. Helios Spain achieved strong organic growth of 7%, driven by a favorable mix of activities and pricing as well as a strong performance in the occupational risk prevention business. With operating leverage at work, the EBIT margin in Spain reflects the usual summer dip. Nevertheless, at 6.6% in Q3 and the margin showed a 20 basis point increase year-over-year. Year-to-date, Helios Spain has delivered a strong margin of 11.3%. Moving to our cash flow. Again, a strong performance, especially against the backdrop of a tough prior-year comparison. We continue to deliver on our cash conversion ambition. Operating cash flow in Q3 was driven, in particular, by Kabi, contributing approximately EUR 440 million, a great achievement. Helios delivered a robust and reliable Q3 cash flow of around EUR 330 million despite a very tough prior-year comparisons. Proceeds from our pro rata sale of Fresenius Medical Care shares are included in the cash flow bridge under acquisitions and amounted to approximately EUR 30 million in the quarter. As of today, we have sold approximately 1.5 million shares in conjunction with FMC's ongoing share buyback. ACM cash flow numbers are a testament to the reliability of our cash generation with EUR 2.2 billion in operating cash flow. When considering free cash flow for the last 12 months, note that dividend suspension in 2024 influenced the prior-year LTM number. Over the past 2 years, we have made significant progress in reducing our leverage by approximately 100 basis points. This deleveraging has been a key driver behind the acceleration of our EPS growth highlighting the focus we've tried on cash flow. Deleveraging remains one of our top priorities within our capital allocation framework. At the same time, we are balancing this with targeted investments aligned with our strategic agenda and strict return criteria to upgrade the core and scale our platforms and ultimately, to create value and deliver long-term profitable growth. On the financing side, we adopted a forward-looking perspective and capitalize on attractive market windows. With the successful transactions in September, we proactively addressed our refinancing needs for 2025 and most of the first half of '26. We issued 2 EUR 500 million bonds with attractive coupons and concurrently repaid early a EUR 500 million bond with a coupon of 4.25% maturing in May '26. At the same time, we signed a new EUR 400 million loan agreement with the European Investment Bank, which will be used to support our R&D activities and selective CapEx investments. These activities demonstrate our commitment to managing within our self-imposed leverage corridor of 2.5x to 3x net debt to EBITDA. With that, let's wrap up Q3 and take a look at Q4, where we expect an acceleration of earnings growth. As mentioned, positive phasing effects have helped our Q3 performance thereby derisking the expected acceleration to some extent. At Helios, we expect a further increase in EBIT contribution due to the performance program in Germany. In addition, we anticipate to start receiving the surcharge for publicly insured patients, which came into effect on first of November. At the same time, we expect the usual year-end topics, including reimbursement settlements, which may affect EBIT. The fourth quarter will also reflect a year-over-year comparison without energy relief payment. In Spain, Q4 is typically the strongest quarter of the year, but this is against a tough prior-year comparison. Kabi will continue to absorb the adverse effects from Keto, as well as macroeconomic headwinds, which includes some effects from U.S. tariffs, particularly for MedTech. However, the strong product launch execution combined with our successful productivity measures, has resulted in an excellent EBIT margin year-to-date. The operational momentum is expected to continue. Given this context, we may deliberately decided to make some incremental investments during Q4, such as in R&D. This aligns well with Rejuvenate to upgrade our core and scale our platforms. Taking all of this together, what does it mean for our full year guidance. Following our Q2 revenue upgrade, we're now raising our full-year EBIT guidance. Based on the good momentum and disciplined execution in the first 9 months, we now expect group EBIT growth at constant currency to be in the range of between 4% to 8%. Remember that guidance is at constant exchange rates, adjusted for translation effects. We continue to expect FX volatility in Q4, and if current rates persist, revenue and EBIT will each be adversely impacted by approximately 2 percentage points. In summary, our disciplined execution and strong operational momentum has provided us well for the remainder of the year, with continued focus on delivering sustainable growth, driving productivity and maintaining financial discipline, we are confident in our ability to achieve our upgraded guidance and create long-term value. Thank you for your attention. And with that, I'll hand back to Michael. Michael Sen: Well, thank you, Sara. As we look ahead, Fresenius is very well positioned to seize the opportunities, which also lie ahead with a strong presence in attractive markets underpinned by a robust secular growth trend, we are committed to sustaining our momentum in driving long-term profitable growth and shareholder value. Global macro trends, such as rising health care spending driven by aging populations, the prevalence of chronic diseases and the demand for advanced treatments aligned perfectly with our strength. These dynamics present a unique opportunity for Fresenius to deliver innovative solutions prove patient outcomes, while helping to advance cost-effective health care systems. Our strategy remains centered on being a trusted partner to health care providers worldwide. While we are not entirely immune to external challenges like tariffs or our diversified portfolio and our local-for-local approach provides resilience. Additionally, our strong European hospital business bolstered by Germany's hospital reforms positions us to capitalize on these favorable developments. As Europe's leading hospital provider, we leverage clustering and thereby benefiting from economies of scale, while optimizing our operations and enhance patient care. Beyond scale, innovation is central to our strategy. We are investing in AI and digital transformation to enhance clinical decision-making, streamlined workloads and improve patient experiences. These next-generation capabilities will strengthen our leadership in medical quality and innovation. Our performance in the year-to-date reflects strong execution across our businesses. Fresenius is now a more focused and agile organization ready to capture the opportunities that lie ahead. As focus turns to 2026 and beyond, we are committed to leveraging these strengths to deliver long-term sustainable growth creating value for patients, partners and shareholders. With that, ladies and gentlemen, we'll open up for Q&A. Operator: [Operator Instructions] The first question comes from Oliver Metzger, ODDO BHF. Oliver Metzger: Yes. The first 1 is on Kabi in particular in Nutrition. So surprising was a quite strong performance in Q3. So was the Keto impact just lower than expected? Or has the remaining business performed better than thought? Second question on Helios Germany. So in the market, there's still some consolidation ongoing. And yes, there's always this, let's say, quarterly volatility, but can you talk about the volumes? Do you see still the typical 2% volume growth? Or do you recognize just an uptake due to market share gains as we see plenty of hospitals going out of the market? Michael Sen: Yes. Oliver, let's start with the Kabi question. I could make it easy and say yes, the rest performed and performed much not better, but we were able to demonstrate catering underlying demand. And things have to work on all cylinders. This is what happened -- by the way, even in China, outside the national volume-based tenders, there's still some provincial, some regions left where Keto can be catered. But outside of that one, I mentioned in my speech, 3 new launches worldwide, basically uptick in Europe on an enteral nutrition. But also the U.S., even though it's a low base, but a very strong performance. We started with lipids. Last call, I said we are now adding other things like amino acids and that all yielded to that great performance, which you saw. Sara Hennicken: And maybe I can take the Helios Germany question. So if you look at the picture in Q3, we actually had a very good activity. Activity growth actually was around 7% However, we did see some, let's say, less complex cases within that activity, which means that if you look at it from a case mix perspective and case weight perspective, there was a 4.4% growth for Q3, i.e., above your 2%. Oliver Metzger: Okay. And regarding the market share gains, do you see more volumes apart from case? Sara Hennicken: Market share gains, it's difficult to tell from 1 quarter to another. I think in general, what we see and what we think should be there is a consolidation in the market. We have overcapacity in the market, and we are under focused on quality. So I hope that with the new regulation, we will get more focus on quality, which brings us to our cluster concept and actually hopefully reduces the overcapacity we're seeing and get some kind of productivity into the system as well. Michael Sen: And to maybe add to that one, there is no consolidation opportunity for us. First of all, it doesn't fit our strategy. The second thing is most of the systems or the, let's say, entities, which go out of the system are kind of like broke. Operator: The next question comes from Hassan Al-Wakeel from Barclays. Hassan Al-Wakeel: I will squeeze in 3, please. Firstly, clearly, your guide implies a significant acceleration in Q4. And that has been your consistent messaging year-to-date. But why the wide range with the quarter to go? What are the key pushes and pulls into Q4 and specifically as you head into 2026 on EBIT growth? Secondly, on the strength in Nutrition at 7%. What are the key drivers here as well as for the broader growth sectors, given the strength in growth vector margin, but also underlying Kabi margin despite higher corporate costs in Kabi and, of course, Keto. And then finally, on German hospital reimbursement, the surcharge is clearly 1 way the hospital sector is being supported. But does the lower DRG for '26 leave you concerned about the possibility of a similar DRG inflator beyond next year with no surcharge? Michael Sen: Yes. I think let's start with the last one. I think this is crystal ball. We go 1 year to the other, and there have been -- how should I say, this was a very special political situation, where the German government and especially the Minister of Health, let's put it in my words, was under some pressure to rather compromise on fiscal priority than, let's say, public health topics. So I don't think this is a precursor for the next years to come. On Nutrition that we already alluded to, there's a lot of new products which came to market. And as I said, in China, overall, obviously, the entire numbers have been contracting because Keto was missing, but everything else in all the other regions was firing on all cylinders, especially the U.S. is, again, a small base, but the base keeps growing every quarter. And it will be already a nice pace going into the next year, and it has a nice margin conversion with the 3 chamber bags. And as I said, now amino acids. And next year, there will be more portfolio amendments to the solution we have. And maybe I'll share later on even a great news, which happened in the last couple of days, also positive for Q4, winning a big private research hospital in the U.S. on not only Ivenix pump, but nutrition, dedicated sets and so on and so forth in the U.S. Now on the guide, I think it is -- you mentioned it correctly. It is, I think, important to differentiate between the absolute momentum we have and the momentum is just great. And it will continue from an underlying business dynamics in all our businesses, primarily, obviously, Kabi, and we can go through each and every individual business, where the underlying fundamental dynamics in the market, us bringing new products, new innovations in the market, rolling out, expanding will obviously -- we saw it in the first 9 months will happen in Q4 and will go beyond Q4. So a Q4 close is a year-end close and it's not a cliff. So whatever happens that Q4 does not mean anything in the speed and the dynamics of the underlying momentum is in any way jeopardized. On the contrary, it keeps accelerating. Yet on Q4, it's a year-end, and we need to look at a lot of things -- and this will decide whether 1 thing falls into 1 side or the other side. And then we talk about, I don't know, 10 basis points in the guide. So I would not overemphasize or put too much effort into where exactly we navigate into that guide. There we will update you, but rather look at the underlying trend drivers and that is positive. Also in Q4, there is biopharma, which is going to expand. Now to which extent, we have to work hard on that one. Q3 biopharma already was a great uptake vis-a-vis Q2, what was it, EUR 195 million, and now we had EUR 228 million or EUR 229 million. And in Q4, even more uptake. So if it all happens, if it happens. If it doesn't happen, it's not falling off a cliff, but it then pushed out to the next year. So this is the moving parts I would kind of like frame the guide. I think there's too much overemphasis on a short-term finding a data point. Operator: The next question comes from Oliver Reinberg from Kepler Cheuvreux. Oliver Reinberg: 2 from my side, please. And the first, I wanted to get a bit of color for next year. I mean, I understand, obviously, the guidance will only be provided in February. But I was wondering if you can just talk about the head and tailwinds. I think there's sometimes a bit of excitement building on German Helios obviously facing clearly more favorable pricing. We're going to see the further ramp-up of biosimilars and IV Generics Nutrition also should do well. So can you just talk about what are the kind of headwinds to be called out for next year? Any color here would be great. And secondly, just on AI. I mean there's a lot of talks on the workflow. You also touched on I was just wondering, can you just give a flavor to what extent does AI also provides a kind of cost savings opportunity in new kind of processes? Is that only playing in kind of a larger role today? And how significant could this be going forward? Michael Sen: Yes. Oliver, I'll try again with the guidance. I think this will be a recurring theme. But the difference is to, let's say, the last 2 years, we're not just leaving you with saying we're going to get there when we get out in February. Obviously, a lot of things can change from now to February. Look at how dynamic the -- not only the end markets are, but the whole geopolitical, geoeconomic framework. When we started the year with our outlook, there was no talk about tariffs. Then the new administration started and you have the feeling the world is going to collapse with tariffs. We always try to stick with the fact and always be very transparent with you guys as to where we stand and what the impact is. Now where we stand today is different than a couple of months ago because at least there are statements out there that generics and biosimilars may be exempted, but there are still tariffs, which we even absorb in the upgraded guidance. So what I'm trying to say is there's a lot of moving parts in the regulatory and geopolitical environment, nobody knows what's going to happen. Then we need to have our budget, which we have next week. But again, coming to the big underlying momentum, biosimilars, Rejuvenate, Tyenne, working nicely over the course of the first 9 months. We expect more in Q4, we expect more in going into 2026. Into 2026, denosumab and ustekinumab, are just being launched in Q4. This is, by the way, also a factor for Q4 where we lend whether it's, I don't know, x million or x plus million, that doesn't matter because the momentum will come next year. This is a full commercial focus on the biosimilar team next year on really on the market and commercialization because there's no new regulatory approval, where we have to work on the documents and so on and so forth. Nutrition, I said in the U.S. next to what we have now, there will be more elements as in attachment to the portfolio right now. I can talk about compounding, for example. So things are happening, but they need to be then obviously executed. There will be, again, launches on the IV generics side. There will be on the medical technology side, we're actually very satisfied with what we see on the MedTech side also in margin improvement over the course of the last 3 quarters, and this was driven, we have said it in the calls before by the adaptive nomogram, which is software. Now there will be an annualized kind of impact of the adaptive nomogram going into Q1, Q2 next year. So a lot of exciting things are happening. Obviously, especially Sara we will make sure that the whole organization is disciplined on cost and cash. And then we'll take it from there and update you on the guidance, when we go into next year, again, because it's the beginning of the year, we'll be very transparent with the assumptions. And obviously, I wouldn't say more conservative, but because it's the beginning of the year and then we'll go step by step. Oliver Reinberg: That was it? Michael Sen: AI, sorry, AI. Yes, AI is a topic. Look, we need to differentiate between the industrial side and the hospital side. In the industrial side, I think like many companies, we are embedding AI and AI functionalities and AI agents, with partners into our processes. Kabi has a big program being implemented on further increasing commercial excellence, better managing the sales force, data-driven AI plays a role in there. We talk about having a few AI pilot projects, which, by the way, are then funded by a central innovation budget, when it comes to speeding up on regulatory approval that plays a role as we move now having a real development machine on biosimilars, but the same holds true for reg affairs on IV generics. So AI can help you there on the documents and all these kind of stuff. Also in tech ops, when we talk about enhancing the manufacturing product, these are all how should I say, little pilot projects we have. And so this does not entail huge investments. But we are trying it out and on these pilot projects, probably we're going to see the benefit. Where for us, it plays a more nuanced role is on the care delivery side. There, it is not only about the productivity, efficiency as such with the efficiency, for example, with Quirónsalud, applying AI on doctor-patient conversations. We have a tool called scribe. We are freeing up resources and thereby are able to increase the throughput of patients and concurrently get to better clinical outcome. So we have a few, let's say, functionalities and even agents on that side, but the impact there is obviously 1 of the key levers to drive also the margin up going forward. Operator: The next question comes from Hugo Solvet from BNP Paribas. Hugo Solvet: I have 3, please. First, maybe, Michael, on the biosimilar, the FDA draft guidance on interchangeability, which you qualified as promising. What could be more concretely the potential impact from lower R&D requirement in the U.S. for your biosimilar business model. Is that a pull forward of sales of profitability? Or will you be keen to reinvest more to gain scale? Second, we've into biosimilars, sorry, we've seen cutting prices of Humira in Q3? Or do you think this may impact the penetration of non-originator or branded products? And lastly, maybe 1 for Sara, a quick clarification on the pro rata share sales alongside Fresenius Medical Care share buyback. Could you confirm your selling equivalent of what your stake is? And what the proceeds from that sales are used for? Is it to lower leverage further? Sara Hennicken: Maybe let me start with the last 1 straightforward. Yes, it's pro rata. So in the end, we will maintain our share relative shareholding in FMC. And actually, I mean, that funding goes into lowering our leverage and into our overall capital allocation. So I think we are fully focused on getting free cash flow up and thereby creating additional headroom for be it lowering our leverage or doing targeted investments into our business. Michael Sen: The second one was a little hard to hear again, I didn't get it 100%. But on the first one, yes, it is a positive development, which we see in the U.S., by and large, all the developments in the U.S., whether it's as a whole tariff discussion, whether it's a deregulation on biosimilars. We're playing exactly into these themes with our portfolio also going into next year. And it has been already discussed prior, but having enough clinical or scientific evidence so that you don't need to do a Phase III clinical studies, obviously helps to increase the time to market. That is what it's all about. And obviously, to speed up the whole process, make it less complex, less burdensome because there's already a proof of the data. And the interchangeability, it's a good one. I wouldn't overestimate, but it's just another data point where today, if you want to get interchangeability designation, which we, by the way, have on denosumab you need an extra study. So it's an extra burden, a special name for that study. This is also admitted. So that means that marketplace is very, very, very vibrant. So yes, if there is any change on R&D, we will immediately reinvest it into the pipeline, into the portfolio. Our strategy is clear to be a fully vertically integrated player. Our biosimilar team calls it a biosimilar powerhouse. And that means you need to have a really robust pipeline, and there is much more coming. The decisive point is the manufacturing because it is a very also a competitive market. The manufacturing process is a complex process. You need bioreactors. You need to be competitive concurrently, and therefore, you also need to have a nice manufacturing platform. And then the commercialization, also in the last only couple of 3 quarters, 4 quarters has seen many, many changes from national formularies on PBMs. Now we were going to direct health plans we may be going to direct employer plans. We have special deals like the direct distribution deal with Civica, which is a new animal. So we view all of this as you know, opening up the adoption and diffusion of biosimilars. Operator: The next question comes from Veronika Dubajova from Citi. Veronika Dubajova: I have 2, please. The first 1 is just on the profitability of the growth vectors, which obviously, I think is running much better than many of us expected. And I think, Sara, you remarks that you are now very, very close to the 16% to 18% corridor for caveat to have as a whole. Just curious if you can elaborate on what has been the source of the kind of upside this year from your perspective? And is this that we're starting to hit better profitability in devices? Is it that biosimilar business that's driving this surprise or anything else, if you can kind of give us some color. And I guess as you fast forward, sort of how are you thinking about that Kabi midterm margin guidance, especially for growth factors given the progress that you are making this year in spite of the Keto headwind. So that's kind of my first question. And then my second question, you're going to laugh at me, I'm not going to ask about 2026. I want to ask about 2027. There has been a lot of debate about whether the invoice surcharge creates a meaningful risk for your Helios profitability as we move into 2027. So I wanted to give you guys an opportunity to touch upon how you're thinking about the benefit from the surcharge when we move into '26 and then how that unwinds into 2027. And I guess simplistically, what your degree of comfort is with the Helios expectations that are in consensus right now for 2027? You are welcome to shut me down, but I got to try. Sara Hennicken: Veronika, I'm happy to take a go at your 2027 question. I think, first of all, it's fair to say, if you look at the German reimbursement schemes, you have seen that probably since 2019 or even in prior, we always have changes in regulation. We always have during COVID, it was gotten to an extreme, obviously. But since then, we have always had different pockets of funding because we are navigating in an industry which is structurally underfunded hospitals in Germany are actually in the red. So I think there are always some extra pockets as an add-on. I think if you appreciate when the whole topic on surcharge came, it was a surcharge on the DRG inflator and people assume DRG inflator to be similar to last year. Now as Michael -- actually, as Michael alluded to, it was a very particular situation in which the decision -- in which the discussion on the DRG inflator team about that it was not between the 2 kind of data points, the 5-point something at the 3 points that they opted for the lower end. I think that was a very -- there was a decision taken in a special situation. Now where does it leave us? Simply and I only go from a pricing perspective now simply if you take the surcharge and what may most likely become the DRG inflator, you are close to where we are this year around in terms of math. Now does that leave us with a cliff because the surcharge will go away. I would say that so far, we have always experienced that as we operate in a sector which is chronically under financed that there will be new pockets opening we hope, I think that is our institutional expectation that we see regulation, which gives us more clarity and longer-term perspective because obviously, we are navigating an environment, which is not helpful to have those pockets shifting year-over-year. But I think also you can rely on, if you look at the Helios performance, we have managed that quite well historically. Irrespective of what those reimbursement schemes were, I think we were the ones, who were relatively adaptive to it from the start. So bottom line, am I concerned about the cliff? No, I am not. There will be other pockets of value and funding because they need to be in the structure we currently operate in. Michael Sen: Yes. I think that was a very perfect answer, and Veronika, probably what is also behind the question for your clients and hopefully, our investors, are we afraid of regulatory going up and down and so on and so forth in a business which we actually deem is very reliable and stable, and Sara just gave the answer. The fact of the matter is that roughly 80% of German hospitals are in red ink. So either they support the whole system via these mechanisms or they will go out of business, and then we will catch the patients. And we have the cluster concept, and that is why we are hitting so much on driving our program irrespective of regulatory changes that we are ready to have the best capacity utilization of our in essence, infrastructure assets and with the help of digitization, which we see in Spain works, navigate patients through complex and less complex cases. Now with regards to where is the Kabi margin band, well, this is also something we've got to look at that 1 when we go out next year or maybe the year after or in between, this is an involvement I really wanted to remind everybody where we started. We started with the 15% to 17%, and the margin of the overall Kabi business was below that margin band. If you look at the makeup of the Kabi EBIT contribution today, it's almost half-half growth vectors versus the base business, which is also contributing and growing. So that has been the strategy all along and will remain the strategy. The only point now in rejuvenate is this new innovative things which we have on for the last 2 years, 3 years, even are now coming to market. Let's go through them one-by-one. Medical technology or MedTech, of course, they have a program, which is a competitiveness program, they call it above and beyond. But also going on new products, like I said, adaptive nomogram. Adaptive Nomogram is software and in parts recurring revenue. And it's a new thing, and it's picking up, and there will be a pickup in Q3, Q4. And then we will come up with what lies behind -- beyond that one in the end of '26 or '27. Ivenix, yes, we know that we have, let's say, some homework to do in industrializing that one. But the market demand, the customer demand, the customer feedback is enormous. I just shared with you that we just received a contract from a large private research hospital in Florida on x amount of Ivenix pump together with solutions, together with Nutrition, together with dedicated and non-dedicated sets, which shows you how we can deepen also on customer engagement with the portfolio we have. Biosimilars has been driven primarily by Tyenne this year and will be driven by Tyenne next year, by the denosumab, by ustekinumab, by still adalimumab, by Map Science, their partners selling bevacizumab, pembrolizumab. And to some extent, if we really achieve at some point, the fully vertically integrated biosimilar powerhouse, then the milestone payments will play a minor role already in the makeup of the whole thing. Today, they play a minor role compared to what the molecules are catering. So thereby, it remains what we said the dynamics is great. Sara Hennicken: Maybe, could I -- sorry, if you like, Veronika, happy to give you some feedback on Q3, which indeed was a good one, 15.9% margin. If you look at it, it derives from really the volume of top line development, we have seen in pieces of some nice price development overall, it was a good mix. There were some milestones on biopharma. And also don't forget, we do have a very strong cost and efficiency discipline in there as well, which also helped the margin this quarter. Nick Stone: We've got 3 participants left. So if we can encourage them to stick the 1 to 2, then hopefully, we can be finished in the next 15 to 20 minutes. So I think Graham Doyle, UBS. Over to you, please. Graham? Graham Doyle: Okay. Perfect. Yes, I can stick to 2. Michael, just on the sequential improvement in biopharma, just kind of help us model. You were up kind of $40 million in Q3. Is that sort of what we should be thinking for Q4 just help us to model as we then ramp into next year? And then the second question is around the German surcharge. Would next year be a good year maybe to do some of these kind of interesting investments and maybe pull forward something from, say, '27 to help kind of smooth the numbers through the year. Is that something you could do? Michael Sen: You want to start with the second one. Sara Hennicken: If I got it correctly on investments on -- you mean for the overall group. Yes. So overall... Graham Doyle: Exactly. Sara Hennicken: Look, I think on the -- and I wouldn't make it on the surcharge to be very honest, because we said if you take surcharge plus what's currently in debate on the DRG, you're not too far off from what we've seen in this year's DRG. But coming back to what Mike has said is, we see a very strong momentum in all our businesses. We see a lot of positive momentum on the Kabi's side, but we also, with the company program coming to fruition and some annualization effects in '26. There should also be some positive effect on the Helios side. If you take all of that together, of course, in the context of Rejuvenate, we will step up our investment focus. And I think on capital allocation, I said deleveraging will remain core. But at the same time, we balance that with deliberate investments. And maybe even Q4, if I look at the momentum we currently see and where we are on the Kabi side year-to-date, maybe we may take some decisions to do some incremental investments also in Q4 because in the end, it's about fueling our pipeline with a step-up in R&D with step-up in CapEx and will step up in other investments, and we are prepared to do that. Michael Sen: Yes. And then Graham, I can make it short, so that the others have time, the EUR 40 million may be a bit too high fetched. I mean, already going from Q2, as I said, which was the EUR 40 million. There will be incremental sequential growth, but $40 million, maybe twice. Operator: The next question comes from Falko Friedrichs from Deutsche Bank. Falko Friedrichs: Let me keep it to one. It's on the pharma margin within Kabi trending around 22%. And at the CMD, you said around 20% is a reasonable level for the business. So is 22% the new 20% for this business? Or is this just an extraordinary year and sort of starting next year, we should be eyeing rather than 20% again? Michael Sen: Yes. Well, we can make that 1 short. We said by and large, take a ruler and take 20%. There can be quarters where it's higher. There can be quarters where it's lower. The Q3 number was quite strong, because we decided to go for commercial batches rather than stability batches. That is what Sara also alluded to R&D type of things, investments in Q4. So stability batches, as you know, are needed for future launches, products, which is future revenue, which will come in which we took a deliberate decision to take it into Q4 and rather give the capacity to commercial batches. That is, in essence, in Q3. Operator: The next question comes from David Adlington from JPMorgan. David Adlington: Great. Maybe 2 related to the last question, really. The year-to-date margin for Kabi 16.6% and that you kept the 16% to 16.5% full year range. If you pulled out some needs some investments potentially, I'm guessing on the R&D side in Kabi. Is that why you haven't increased the range for the full year? And maybe just some help around how we should be modeling that fourth quarter margin? Sara Hennicken: So I think if you look at where we stand today, I think how we had a very strong performance in terms of margin, but it's the underlying momentum we are seeing, which is strong. Now if you look at Q4, as Michael said, there is its year-end. So a, yes, we will take the freedom to take potentially some investment decisions. B, there was some more positive phasing in Q3, where things came earlier than initially anticipated. And then as the business turns to year-end. Obviously, there are topics whether we post the batch end of December or beginning of January doesn't really change the underlying momentum of the success of the business. And of course, around year-end, you have customers wanting something from not wanting something you have suppliers wanting something from us or not wanting something from us. You have final settlement, final invoices and so on. So it's just a quarter which we will diligently work through, but we don't see a change in the underlying momentum. Nick Stone: Okay. That was our last question. Thank you, David. Michael, if there's anything you want to conclude with otherwise... Michael Sen: No, I would want to conclude with reiterating, where also Sara left it, look at the business, look at the underlying momentum, which is in the each and every individual business. This is a strong momentum, which is going to carry also into 2026, and then we'll take it from there. Nick Stone: Super. Thank you very much. We can conclude the call there, and we look forward to seeing you folks in Paris tomorrow. Operator: We want to thank Fresenius and all the participants for taking part in this conference call. Good bye.
Aurelien Nolf: Good afternoon, and welcome to Lyft Third Quarter 2025 Earnings Call. As a reminder, this conference call is being recorded. I'm Aurelien Nolf, VP, FP&A and Investor Relations. On the call today, we have our CEO, David Risher; and our CFO, Erin Brewer. As a reminder, our full prepared remarks are available on the IR website, and we will use this time to answer your questions. We will make forward-looking statements on today's call relating to our business strategy and performance, partnerships, future financial and operating results, trends in our marketplace and guidance. These statements are subject to risks and uncertainties that could cause our actual results to differ materially from those projected or implied during this call. These factors and risks are described in our earnings materials and in our recent SEC filings. All of the forward-looking statements that we make on today's call are based on our beliefs as of today, and we disclaim any obligation to update any forward-looking statements, except as required by law. Additionally, today, we are going to discuss customers. For rideshare, there are 2 customers in every car. The driver is Lyft customer and the rider is the driver customer. We care about both. Our discussion today will also include non-GAAP financial measures, which are not a substitute for GAAP results. Reconciliations of our historical GAAP to non-GAAP results can be found in our earnings materials, which are available on our IR website. And with that, I will pass the call on to David. John Risher: Thank you, Aurelien. Wow, Q3 was another record quarter across driver hours, Active Riders and gross bookings. Adjusted EBITDA grew 29% year-over-year, and our free cash flow generation for the trailing 12 months was over $1 billion for the first time in Lyft's history. As you saw this morning, our partnership with United Airlines is now live. You can now all link your accounts to earn miles on all eligible rides you take anywhere, not just to the airport. And even better, rides taken through your company business profile earn even more. Now that's big stuff. Don't worry. I'm going to give all of you about 20 seconds right now to link your account. I'm not kidding. I want you to be opening up your Lyft app. Go to that profile on the lower right-hand side, click that profile button, look for rewards, get managed rewards, add United MileagePlus . Every single one of you. That's going to be your ticket to ask a question today. So that give you a couple of seconds to get that done. Okay. Additionally, we focused on continuing to create AV partnerships that are differentiated and purposeful with each bringing unique learnings and dynamics to Lyft. We further build upon our AV framework this quarter with the announcements of Waymo as well as Tensor powered by NVIDIA, and we're demonstrating how we're positioning ourselves across the entire AV value chain. Looking ahead to 2026, we are well positioned with multiple growth catalysts converging to accelerate our momentum. I am very excited for this comeback story. And with that, let's get to your questions. Aurelien Nolf: Great. Thank you, David. We will now open the call to questions. [Operator Instructions] So I think our first question is coming from Doug Anmuth from JPMorgan. Douglas Anmuth: David, maybe I'll just ask first about your very last comment there, just about the multiple converging catalysts in 2026 and what makes you so excited there. And then if you could also just comment on insurance. You had talked about the savings from SB 371. And just curious if that is still the plan to kind of benefit from all of those savings or if there's some component that gets reinvested into the business? John Risher: Sure. Doug, two great questions. I'm going to speak very briefly here, and then Erin is going to take both of those. But I'll say very briefly on the catalyst side. I've been in this job 2.5 years now. And oh man, that we have more opportunity ahead of us than we've had since the first day. And again, we'll talk about each of the different pieces there in just a couple of seconds, but I can give you some very live data since I was just in our weekly business review. We were just looking at what happened last week. Last week was Halloween, of course, and Halloween was not only our biggest day, it was actually our biggest hour by hour. We've never had as many rides, never been able to fulfill as many rides as we have. It's our biggest day. It was our biggest week and not by a little bit. Just extraordinary momentum going on here that's allowing us to continue to grow. And I should say, just to sort of say the very obvious there, that's just in the United States. That's not even the FREENOW and Europe opportunity and the TBR opportunity. So we're coming into the quarter operationally so strong, so customer test and with so many opportunities next year, it's really a pretty extraordinary time. So I'll turn it over to Erin to talk both about the catalyst and then the insurance question or the [indiscernible], the California question. Erin Brewer: Yes. Great. Thanks, Doug. I might go on a little longer than David because I'm kind of excited about this subject. But you see our Q3 results, Active Riders growth at 18% year-over-year, all-time high. Gross bookings up 16% year-over-year, another all-time high. Adjusted EBITDA, as David mentioned, up 29%, another all-time high. So that's our consolidated business, but take any of those metrics just for North America, same, all-time highs. So we've got a lot of momentum. Our guide for the fourth quarter is for rides to be up mid- to high teens, gross bookings up 17% to 20%. So we see accelerating growth into the fourth quarter. And as we sort of sat and reflected on where we'll end up for 2025, it was important for us to talk about how we see 2026. So it really starts with our marketplace is stronger than ever, right? We've got record levels of Active Riders. We've got record driver hours, as David mentioned, record rides. And so multiple catalysts coming together to keep driving this momentum forward. And I'll just mention a few. First, David led off with the United partnership. Doug, you were first, so maybe you connected your accounts first. That's great. Congratulations. But we're excited about that. We think that's going to be a great program. Obviously, great value for Lyft, great value with our partner, United, we will see full year contributions from FREENOW, and we expect that business to grow year-over-year. We're also going to see a full year of impact from TBR Global Chauffeuring, the acquisition that we announced recently. That's only going to show up for a pretty small portion of Q4 in 2025. Underpenetrated markets remain a fantastic area for us. We had previously talked about those markets in the U.S. representing about 2/3 of that 161 billion personal vehicle trips annually that we see as our market opportunity. And in Q3 alone, about 70% of our rides growth came out of those areas in North America, and we see strong continued catalyst for growth there. I'll get to California insurance reform in a moment, but that's another area that we think has great upside in terms of continuing -- driving new demand on the platform as a result of that. And we've just got strength across our core platform. As you know, we've been driving many programs over a long period of time now to drive driver preference. We've got a great driver rewards program. That's going to underpin our platform health. We've got a fantastic business rewards program that we're continuing to promote and get out there. The acquisition of TBR is a natural catalyst. A lot of those people are business travelers. So yes, there's a lot to be excited about as we think about how we're ending 2025 and then what the setup is for 2026. So thank you for indulging me. Hopefully, you could hear the excitement in my voice. As it relates to California, just to kind of bring everyone on the same page, some people talk about this is the California insurance reform. It's also formerly known as SB 371. The headline here is the passage of this bill, which is going to go into effect in 2026 is a true win-win-win. Riders win, drivers win. And the great thing is when both of those constituents win, so does Lyft. So what does it mean? Rideshare is going to become more accessible to riders with a reduction in insurance. It does away with outdated $1 million required coverage for uninsured -- underinsured motorist requirements. It's been in place for a while. And it's 16x higher than the typical auto coverage, where a vast majority of claims are settled for under $100,000. And over time, this has increased the cost of Lyft rides. In 2025 in California, riders have been paying an average of over $6 per ride just in insurance costs alone. And then in certain areas like L.A., it's even higher. It's almost double than that. It's just nuts. So this bill modernizes those regulations. We see passing along the vast majority of those savings to riders in the form of price reduction. That's going to stimulate demand. That's going to be great for drivers, more earnings opportunities and then great growth opportunities for Lyft overall. Aurelien Nolf: Our next question comes from Eric Sheridan with Goldman Sachs. Eric Sheridan: David, I think there's a debate going on among investors right now in the sector on how to think about the engines of growth when measured against incremental margins in the sector beyond just the end of this year, but out over the next couple of years. Can you just hit refresh on your philosophical view on how to think about the balance between incenting growth, driving innovation, but also delivering on continued margin trajectory over the next couple of years? John Risher: Yes, sure. Good to hear from you. I mean, I think, gosh. When you hear that perspective, I think it almost immediately should make you think the people asked that question are sort of thinking a little bit small. They're thinking kind of 0 sum. Because, again, just to sort of state the obvious, but as you say, kind of reground, we're now doing 2.5 million rides a day. That's a big number. And by the way, when I started this job at an Investor Day, you'll have heard us say 2 million rides a day. Now it's 2.5 million rides a day. But we are more profitable now than when I started by a lot. And we're delivering better service. Here's a fun fact. Remember those Halloween stats I was just sort of putting out, we actually pick people up faster this year than we did last year, even though we were doing more rides by a lot. So what that tells you is there is an enormous amount of service upside that we've unlocked over the last couple of years that did not come at the expense of our economics. In fact, it was exactly the opposite. It's exactly the opposite. Now why might that be? Well, that might be because those 2.5 million rides, which then translates to 900 million rides a year, let's call it, plus the other guys, 1.5 billion rides a year, let's call it, so 2-point-some billion rides per year is a tiny fraction of the 161 billion rides just in North America. And then remember, with our FREENOW acquisition, TBR acquisition, we now have a TAM that's twice as big. So I sort of -- I mean, like I get this kind of conceptual trade-off, but I think that conceptual trade-off is sort of a scarcity mindset sort of 0 binary, kind of like we win, the other guys lose or whatever, whatever. I think there's so much innovation left. I'll give you a little tiny story there. We launched Lyft Silver, whenever that was, maybe 6 months ago. And now we've increased ridership just in Silver. So this is for older Americans. It's only available in the United States right now. For older Americans, those rides have increased 50% just in the last 6 months to well over 1 million rides in total. And that's just the beginning of that program. And that's not like a low-cost program or sort of a margin dilutive program, whatever. So anyway, I'd go on this for a long time, but I think that the -- customer obsession drives profitable growth. That continues to be our mantra. Innovation is what is -- that's how you get from tiny to small and medium to large, extra large. And it's a great product, and it's only going to get a better product. And I sort of -- I don't worry a whole heck of a lot about having to buy that growth or anything like that. I think there are much better ways to get that growth, and it's through innovation. Aurelien Nolf: All right. Our next question is coming from Justin Post with Bank of America. Justin Post: I'll ask a couple on AVs. I'd love to hear your thoughts on how -- nice job on the Waymo deal, but how do you think about AV economics and if that changes anything on margins? And then second, what you're seeing in markets where Waymo is currently operating? John Risher: Yes. Let me -- it was Justin, right? Yes. Let me -- I'll take the last part first. I'll kind of back into it a little bit and then maybe hand it over to Erin to talk a little bit about the economics of what we're seeing. So the first -- okay, the answer to the first question is, in markets where AVs operate, rideshare is growing faster than -- and I'm talking about comparable apples-to-apples markets than rideshare -- than markets where AVs are not operating. So that tells you right there that the first thing that happens as AVs come on is they expand the market. And this is what we -- because these are new markets, right? I mean, let's be clear. So that's very exciting for us. As an industry, we should be very excited about AVs. It's a good product. It works well. People like it, and they take that and then they take traditional driver-driven rideshare as well. So that's wonderful. So then let's talk about the economics. So in the medium term -- okay, first, like any new thing requires investment. You know that, right? So for example, in Nashville, where we're hooking up with Waymo, we're going to build a depot. Erin will talk to you about that in a couple of seconds. But the relationship -- the reason I'm going to go into a little bit of depth on this, we spent quite a lot of time with the Waymo team really trying to work out an arrangement that was built to scale. And built to scale means it's good for us and it's good for Waymo and it's good for riders. Okay. So what does that look like? That's good on one click. When you put AVs, we're talking about now in Nashville, a couple of hundred AVs that will be on the ground over the next year, and that will grow over time. When you put AVs on the ground, the first thing you want to make sure is are you set up for them to be highly available. It doesn't do any good to have an AV sitting there that's not charged, it's not clean, it's not repaired, it's not properly maintained, not ready to go. If you don't have that, you got nothing. So why are we good at that? We're good at that because our Flexdrive subsidiary has been doing it for many, many years. We have a 90% availability rate. Talk to the rental car guys, and they'll tell you that, that is an admirable enviable number. So we're good at that, and we're only going to get better. So that's number one. And we get paid for that, Erin I'll talk about that in a couple of seconds. And the second thing is you have to talk about utilization. Utilization means, okay, the car is available, but is there a rider in it because that's how revenue is generated. And the answer there is we've worked very, very closely, very deeply, very technically with Waymo to set up an arrangement where regardless of whether the car is ordered on Waymo or on Lyft, we're going to be maximizing utilization. It's an integrated supply management system that's quite technical, but -- and will be hard to implement. But once we've got it right, we'll be able to scale it up because both companies have ambitions to scale up both within Nashville and beyond over time. So that's sort of the structure of this thing. You got to have high availability, you got to have high utilization. You got to have systems that are super tightly integrated to make sure that the physical world and the digital world all come together seamlessly, and it's a beautiful experience for riders, which is how you drive growth. And now we can talk about the economics, broadly speaking, of course, you've got to invest in some physical infrastructure, but we like the unit economics there a lot, and I'll turn it over to Erin to talk about that. Erin Brewer: Yes, sure. A couple of things to think about here. David just sort of described what we call an integrated supply management partnership, right? So that's number one, on the fleet side, driving availability. And number two, as we think about the sort of integrated supply piece of it, it's about driving utilization, 2 critical things. The good thing is about this construct that we have going in with Waymo is that Lyft earns regardless of platform, right? So regardless of where the car is deployed, we're responsible for it being available. Obviously, when a ride is deployed on Lyft, then there's economics there. So that's the piece of the arrangement. David mentioned we're building a depot. We had previously disclosed we thought it would be about $10 million to $15 million investment. We signed the lease. Teams are raring to go. So we're excited about that for 2026. Aurelien Nolf: And our next question is coming from John Blackledge with TD Cowen. John Blackledge: Great. Two questions. First, can you talk about the opportunity in the low-scale markets as a driver of growth over the next couple of years? And then second, I think you maybe just got through your -- the annual insurance renewal. Just curious what we should expect to see in terms of impact to cost of revenue. Erin Brewer: Sure. John, I'll start with that, and then I'll turn it over to David to talk about what we're seeing in those scale markets. So yes, we just completed our 10/1 renewals. What we're seeing is we expect a mid-single-digit increase on a per ride basis, great outcome, very competitive. Our team continues to make really strong progress in bending that insurance cost curve. All the pillars that we talked about at our Investor Day are the same things, continuing on technology and approaches to make our platform to reduce accidents and reduce accident frequency on our platform, critical pillar. We continue to make strong advancements there. We've continued to build -- to continue to deepen our relationship with our third-party insurance partners, which has a number of benefits, including the way that we share data and can quickly and efficiently resolve claims. And then, of course, on the policy front, we talked -- I talked a little bit about California a little a minute ago, but we continue to push forward with what we think are common sense reforms on the policy front. So really, really proud of our team for the outcome on our 10/1 renewals. And I'll turn it over to David. John Risher: Sounds good, and we can even tag team on this. I mean -- so for the last -- I'll give you just a little color. Maybe it's been 18 months or so since we've really started to focus on underpenetrated markets. And the reason is, I mean, aside from just sort of diversification, let's say, you don't really want all your eggs in the sort of biggest city basket. But 2/3 -- we look at -- I just mentioned that 161 billion rides in North America. About 2/3 of those are in underpenetrated markets. And we saw in Q3, about 70% of our growth came again from those markets. So there -- so I mean it's a large part of the country, a large part of the TAM. And then there's -- we're seeing great opportunity there by doing some very clever and careful market management in those markets. I'll give you some examples so you can kind of visualize. You might think of -- back-to-school is just kind of come and gone. And so when you think back-to-school, you might think high school. But if you think college, you're talking about very significant communities, Bloomington and East Lansing and state college and so forth and so on. And in each one of these, we deployed a specific program to really tap into that back-to-school market, and we saw incredible results, actually outsized results compared to the growth we've seen elsewhere. So this is one of those -- and I will also say, without sort of tipping our hat too much, I think AI can play an interesting role here as well as we look to manage those markets more carefully than maybe we have in the past. So a lot of opportunity there, more to come. But for sure, you should expect to see quite a bit of our growth come from there in the future. Aurelien Nolf: And our next question is coming from Michael Morton from MoffettNathanson. Michael Morton: This one is for David. David, with the FREENOW acquisition complete and then the TBR deal, your global vision for Lyft is starting to come into view, and you love to talk about 2 customers in the car. So what I would love to learn what is the opportunity that you see outside of the U.S. for where those 2 consumers are being underserved by the competition and how Lyft can offer a better product for both of those consumers? And then maybe a very quick one. For Erin, we've had a couple of questions on this so far. But the #1 question we got from investors this last 90 days and after the Waymo announcement was, how can Lyft deal be accretive when the other guys talk about that they're losing money on AVs? So I don't know if maybe you could talk a little bit about is the take rate different because it's a hybrid network or anything around there, I think, would be really helpful for some of the investors asking those questions. John Risher: For sure. So Michael, if you'll permit me, I'm going to zoom out just a click from your question and then zoom back in. So the premise was, gosh, you've acquired FREENOW and you've acquired TBR. What are you going to learn, particularly about service and sort of maybe like underserved markets maybe for riders and drivers. I'll come back to the second part in a second. But let's just talk about those acquisitions for just 30 seconds each. So FREENOW, you'll remember the theory of the case is fairly simple, right? It sets us up great in the short term to become a much, much more global company. It doubles our TAM. It works with a leader in Europe across the taxi segment in particular, which is an incredibly important part of the sort of European ecosystem kind of ethos. And it sets us up very, very nicely for autonomous in the future because fleet management and government relations turned out to be really important in the world of autonomous. TBR, more recent, and we haven't talked about that publicly, of course, because it happened during the quiet period. This is a global chauffeur network, very, very global. I'd say that in the sense that it operates in some 3,000 cities around the world. And we're talking about Paris and London and Frankfurt and Manchester and Zurich and Hong Kong and Singapore and Dubai. So world capitals. Why? Because -- it focuses on executives, people doing, for example, non-deal road shows, many of the bankers on the call are very familiar with big events like the Super Bowl or F1, the sorts of things. And so -- and it offers a very, very high level of service. It's part of a $54 billion market. This is a different market from the on-demand sort of even the on-demand high-value mode, like Lyft Black, for example. This is a thing way up above that, a much, much higher service level. Okay. So if you then look at those assets that we now have, then the question becomes, right, how can you deploy them best? And also how can you take what you've learned in the United States and bring it globally? And just maybe a little bit of editorialization here. I think taking a North American company and making a global company is no small thing. But we're going to do it. We're going to do it because the great companies are truly global. They're the ones that are not just thinking of the U.S. as center of the universe and everywhere else is kind of being less them. They're the ones that learn from what you see overseas and bring it back to the United States and then take it all around the world. And so for example, if you look at TBR, their service excellence is unmatched. They're very much a global company. They're actually headquartered in Glasgow. They have their global operations center, center of excellence in Dubai. Extraordinary, extraordinary skill set there to level up the service that Lyft can provide all up and down the stack. And then FREENOW, of course, has been a high service group forever. Okay. So what are then the opportunities? I think the opportunities are I'd say that ride-hailing in Europe, in particular, has been a little bit of a degraded experience. If you spend time overseas, it's maybe not even to the quality here in the United States, and I'm not satisfied with where we are in the United States either. So I don't want to tip my hand too much, but I would say a lot of the value we're going to add from "Lyft" is bringing some of our marketplace skills like priority pickup and wait and save and some other modes to Europe, bringing our driver obsession, I think, in particular, to Europe. And then from Europe, bringing some of the service excellence that we're seeing, particularly at TBR, but also from FREENOW and bringing that all around the world. So a bit of a long answer, but I hope that gives you a list of flavor of how we're thinking about it. Erin Brewer: Yes. A couple of things maybe that I would add to that, and then I'll come back to your question, Michael, on the Waymo deal is also as you think about FREENOW, think about the skill set that we have around the way that we drive value and volume through partnerships. And our partnerships, the partners that we are aligned with are global, right? There's a great opportunity there. We talked about -- David talked about AVs just a minute ago, another great opportunity there. I think I mentioned earlier, TBR. Obviously, David highlighted that a lot of those are business rides. We've been investing across our high-value modes now for some time and just organically seeing some very strong success in Q3 alone, our high-value modes were -- grew 50% year-over-year. And so TBR is a great addition to that overall strategy. Sort of back to your Waymo question, I'd talk about a couple of things. I articulated this as being about driving availability and driving utilization. So the availability side leverages Flexdrive. And I think the unique thing here and maybe a bit of the advantage we have is this is something we know. We know how to keep a car available with very high quality, very high uptime, so to speak. And so we feel great about our ability to drive value to the partnership through that in-house expertise where, again, we're bringing skill and experience to the table. The second piece of this is all about utilization, right? And these two words are kind of, I think, the magic ingredients here, high availability and then high utilization. And if you think about this fairly differentiated way that this integrated supply management partnership is constructed, it's really designed for high utilization, whether the car is deployed across Waymo One, dispatched across Lyft, you're going to get maximum utilization. It's really sort of our vision of a hybrid network over time. So that's the framework with which I would leave you to think about this. John Risher: If you don't mind, I want to underscore exactly what Erin said and point out that in the Flexdrive side, not only are we best-of-breed in terms of availability. But as Erin said, it's an owned asset of ours. That means we don't have to pay someone else for that. So you can partner with other fleet management but that's going to cost you money, right? So we've got a very, very nice cost -- both high expertise and very nice cost position on that side. And then on the utilization side, yes, we think we've worked out a scheme that allows whether you get the car from Waymo or the car from Lyft, it's going to be the same pool, dynamically sort of dispatched depending on this kind of algorithmic work we do, and that will lead to higher utilization, which then improves the economics for both of us. Aurelien Nolf: Our next question is coming from Brad Erickson with RBC. Bradley Erickson: Two for me. So first, I think last quarter, Erin, you've given us some nice insight on how FREENOW might layer into the model, both on bookings and then on the margins. I see the 42,000 rides in the letter, but just curious if you can update us on anything there, what you wound up seeing in Q3 and then what you're embedding into the Q4 outlook? And then secondarily, when you're calling for the bookings acceleration next year, I guess, in both North America and globally, just curious if you're embedding anything additional partnerships wise that you have in the pipeline or if that's just based on everything you've announced as of today? Erin Brewer: Yes, I'll work my way backwards. The 2026 sort of building blocks that I articulated right out at the set, if you'll notice, it's just all of the things that you know about today, announced partnerships, announced acquisitions, et cetera. So that's what's embedded overall in that outlook. And then as it relates to FREENOW, I don't have a big update for you here for the back half of the year. We sort of talked about the incoming run rate. We expect FREENOW to accelerate in 2026. We're expecting about EUR 1 billion on the top line overall. So hopefully, that's helpful. We gave some additional guidance about the dynamics of how FREENOW flows into our P&L, talked about the impact on revenue margin, et cetera, but happy to go into any more detail, Brad, if you have anything else. Bradley Erickson: I guess just -- yes, you had talked about those gross margin effects last quarter. Just curious if those are playing out as expected. It sounds like they are. Erin Brewer: Yes, they are. Yes. John Risher: Brad, I might add just because we're now talking about the international world outside of the U.S. Canada also turns out to be a nice growth driver for us. We've talked about the growth there in the past. I think we delivered about 11.5 million rides in the quarter there as well. So again, I know your question was about FREENOW, but just to sort of fill up the international story just a bit more. Aurelien Nolf: Our next question is coming from Nikhil Devnani with Bernstein. Nikhil Devnani: If I could please follow up on the Waymo partnership. How does the algorithm kind of balance demand between your funnel and their funnel? Presumably, you're going to have a lot more demand on day 1 than they are. So what does that balance look like? And do you fully expect to be facilitating rides during peak times of day as well? Or is their platform the first one of choice when ride requests come in? It would be helpful to understand that. And then maybe a follow-up for Erin on insurance. Following California, are you expecting any movement in other -- any other major markets as you think about 2026 and 2027? Erin Brewer: Nikhil, I'll start with that and then turn it over to David. So as I mentioned when I talked about our 10/1 renewal, working toward common sense, what we view as common sense policy and insurance reform has long been a pillar. I think in the past, we've talked about changes to reform in Florida, changes in Georgia. So this is something that's not new. We will continue to work on it. Progress is difficult to predict. There's nothing inherently in any of the remarks that we've talked about for 2026 necessarily assumed. I mean these things are difficult overall to forecast. But I would say that we are certainly optimistic that as perhaps other states see how some of the reforms in California, we believe will lead to much better ride accessibility, better earnings opportunities for drivers that they'll think that's pretty interesting. John Risher: Well put. And then Nikhil, I'm not going to give you too much detail, but I'll say a little bit, I think, maybe so that everyone kind of understands the complexity that you're referring to. So yes, so imagine a world as will be the world we exist in next year, where there are hundreds of AVs in a market, but there's no way that all of those AVs can satisfy all the ride requests, not even close. So okay. So -- and then imagine -- again, you don't have to use your imagination. This is the future, where those ride requests for AVs are -- well, those ride requests in general, but specifically for AV, of course, are coming in from 2 different platforms. They're coming from the Waymo platform and they're coming from the Lyft platform. So -- so you get quite a complex situation there that you have to manage if you want not to do goofy things like saying, okay, well, you, Waymo, get 100 of those and Lyft, you get 300, which is never a good idea because it means inevitably, there'll be some stranded on one side, they don't get to the other and get stranded on the silly stuff like that. So anyway, to your point, so then your first thought is, well, maybe you're just going to come up with some other very basic heuristics. But it turns out those heuristics are not the way the world -- the real world is very, very -- head of marketplace stochastic. It changes very quickly, very dynamic. You have some peak times, you've got some low times. Neither one of us wants to be stuck with anyway. So I can go into detail about this maybe another time. But the point is it's not going to be straightforward. It's not going to be like, okay, someone so gets the first 10 and then you get the next 10 or whatever it is. Literally, every single time a ride request comes in, the work that we have done and we'll continue to do will be to figure out what is the absolute best way to fulfill that ride. And there will be many, many dimensions of that. Some of it is ETA and so forth, ETA, meaning how fast it is pick you up. Some of it might be time of day. It might make all the sense in the world to start picking people up at certain times of day using only AVs for certain reasons. So anyway, it's sort of a non-answer, non-answer. I grant you that. But this is the reason why this partnership, frankly, took quite a while for us to work out. But we're very confident, both companies are very confident having run a [ bajillion ] models across this thing that we have something that is going to be effectively accretive for both and keep these assets best utilized. The last thing I'll say is I think in a sense, this is really the argument for the big thing, which is a hybrid network. It's really, really hard to satisfy demand just with AVs anytime in the near future. There's just not enough supply in the world. And so -- but drivers, they own their own cars of that size. There's no asset ownership you have to have, and they come on and off quite dynamically, again, depending on pricing. So that's the third dimension. Put it all together, and we think we're going to create something where the whole is great than some of the parts. Maybe someday down the road, we'll tell you a little bit more about how we do that, but that's the big picture. Aurelien Nolf: All right. Our next question is coming from Ben Black with Deutsche Bank. Unknown Analyst: This is Kunal for Ben. A couple of follow-ups on the AV and the Waymo opportunity. One would be in terms of building out the centers, the service centers in each market. Is that something that you're going to do ahead of time like planning for the next few markets? Or is that going to be on a market-by-market basis based on partnerships that you have already entered into? And then second, what level of availability and utilization do you need to be breakeven or contribution profit neutral for the network to kind of pay off? So like in a 24-hour day, how many hours do you need the vehicle to be available? And how many hours of usage does it need to have? Erin Brewer: So Kunal, I'll start there. And then maybe, David, do you want to talk about how we think about over a much longer period of time, how you scale AVs across a broader set of partners. Short answer here, Kunal, is I'm not going to go into the details, obviously. As we ramp up this partnership, as we gain experience together, we have a lot of optimism. Obviously, both the teams will have more to say down the road, but I'm going to stop it at that. John Risher: Yes. This is going to be an area where we're going to have to be a bit a little vague. The thing -- so, yes. Let me just -- let me talk about utilization for one more second and then zoom out. So you might think to yourself, well, it's not that hard to keep an AV utilized because you don't have that many of them and you got a lot of demand. Well, it turns out that's not the way riders think about things. Riders think about things, is this close enough? So I need to get some place. And is this car close enough to pick me up on time? And if it is, then I'll take it. If it's priced right. And if it's not, then I won't. And so this is where our history comes in, right? I mean we've been operating in Nashville for a decade now. So we have an enormous amount of data about what time you would expect supply to be needed, where the demand is going to be, specifically, I mean, down to the block-by-block level. So it is this sort of -- the inputs here are everything from geography to history, to weather, to special events, is a big event weekend and so on and so forth. And that's something we've been doing for many, many years. And that's expertise that we can bring even in a -- in a new city, like it's a new city for Waymo, not a new city for us. So -- that's kind of the good news. And then you've got to make sure that, as I say, the car is available to drive and that it's priced right and so forth and so on. Again, I'm not going to talk about exactly those breakeven points. But I will say that we look at the economics of this, and we don't -- we're not scared by effect of the opposite. The unit economics you would expect would favor AVs over time, you would expect because the variable cost, obviously, to running an AV is relatively low, not 0, to be clear. There are cloud costs or electricity costs and maintenance costs and so forth. But it's -- there are certain costs you don't have to pay. And then you would expect insurance to be lower as well. So those are sort of some of the inputs that we put in our model when we try to model these things out. But we like the economics of AVs a lot and think that we've set up something that from the start is going to be accretive and then we'll get better from there. Aurelien Nolf: Great. So our next question is coming from Walt [indiscernible] from [indiscernible]. Unknown Analyst: Can you hear me now? David, I just want to go back to the earlier question in terms of Nashville, and I think you said expand beyond Nashville. I think you meant maybe downtown Nashville, but can you just update us on how you see that relationship going over time if you execute with this kind of shared inventory that you have with Waymo that obviously is different than how Uber has structured it in Phoenix. Is there opportunity to get additional markets? And what time line do you think would have to occur before that relationship could expand not just beyond downtown Nashville, but into new markets? John Risher: Yes. Good question and good clarification, Walt. So we have structured this partnership. I would say it this way. Both companies have ambitions to scale beyond just Nashville. And we built this partnership with the belief that, that's the goal. Talking about time lines is premature. But I would say that certainly, the constructs we're using here are constructs that both companies believe can be the basis of something that expands to other markets, and I'll just sort of leave it at that. Unknown Analyst: And do you think -- just a quick follow-up. Do you think the structure of how you've done this deal with Waymo, because it obviously is different when you're sharing that fleet, right, as opposed to separate fleets and Flexdrive make it a stickier relationship. Obviously, if you execute on both, it becomes maybe harder for Waymo to -- at least in those markets that you launched to try and execute on something different. John Risher: I mean I don't want to comment exactly on how they view it, but I would certainly say that our goal, and I'm speaking just from a Lyft perspective here, is to provide such a great level of service that no one has any reason to look anywhere else. But yes, and I think it's also fair to say that the deeper a partnership, the more likely it is that neither one wants to do too many other things beyond that. But here, I'm just speaking sort of generically. Aurelien Nolf: And our next question is coming from Stephen Ju with UBS. Stephen Ju: David, I don't think I've seen you guys talk about the university programs in a while. And I suppose the opportunity is as attractive as it's ever been as you get to onboard these users who get hopefully very accustomed to using Lyft on other people's money. But I also recall there were all kinds of other directions for these partnerships between getting folks to doctors' appointments, et cetera. So can we talk about the resources that you might be putting together to maybe accelerate the signing of the, I suppose, the enterprise customers because it seems like such a win-win development for everybody involved. John Risher: Yes, Stephen, I appreciate the question. I guess maybe as -- I don't know if my habit today, I'll zoom out a touch before kind of zooming in. So business-to-business opportunity, and there are different types, right? You mentioned universities as a particular area of interest, and we have specific relationships with certain universities to provide transportation on campus, very interesting. We have health care. Lyft Healthcare remains a leader in the field. It's called nonemergency medical transportation, and it's getting quite a lot of additional focus now versus the past. We've got a new -- Buck, who continues to lead that is the same, but then over him, Suzie now brings kind of new perspective and new energy to that. And then B2B, when you're thinking about kind of corporate transportation of various different types. Of course, TBR is a very high-end thing. We talked about that already, but many companies have preferred travel partners and so forth. So I'd say each of these areas is getting renewed focus. One of the nice things about really focusing on rideshare is there are a lot of -- like we're not distracted by food delivery and all kinds of things, like we can really, really focus on rideshare and look at all the different segments and how we're treating each one of them in the highest quality way. So -- maybe what I'll do, if you don't mind, I'll pivot just a tiny bit towards the business rewards or the business side of things rather than just the university and the health care side. We, for a number of years, if I'm honest, we haven't had a great offering for business travel managers who want to give their companies -- excuse me, their employees a reason to choose Lyft. Now we have one. We rolled one out at the beginning of September. You get 6% back. You just mentioned this idea of other people's money. So yes, so often as a company, it's the company that's paying. We're giving you 6% back. You can then use that on your personal rides as well. That's literally Lyft cash back, you can use it in personal rides. We've seen great uptake there. And by the way, how much does it cost? 0. It costs 0, which is different from the other guys that cost not 0. So that's an area where we -- so I would say just generally, again, business-to-business has become an increased area of focus for us. We're seeing really good traction in some of these early programs we put out. Health care has been a strength of ours for a long time. And then universities, I'm glad you bring it up. Maybe stay tuned for more on that one. Aurelien Nolf: All right. Thank you, Stephen. Thank you, David. David, any closing remarks? John Risher: I think if that's it, my main including remark is you -- then, well, better be hooking up your United MileagePlus to Lyft because that's a great program and up to 4 miles back for every dollar you spend. Look, we've had a great quarter. And the reason we've had a great quarter is not just because of what we've done in the last 3 months. It's because we've been doing over the last at least 2.5 years since I've been here, obsessing of our customers. That's what drives profitable growth. I think when Erin and I started, I think the first quarter, I think we had consumed $329 million of cash, if I'm not mistaken. Now we're producing $1 billion of cash. It's a $1.3 billion swing. And the reason that's happened is because we've been obsessed with our customers, and we have an incredible team every single day that wakes up and just crushes it, and they're the ones that get all the credit. So we get to talk about it. They're the ones that do the work. And thank you all very much to investors for traveling along with us, and we're looking forward to keeping up to date. Aurelien Nolf: Great. Thank you, David. Thank you, Erin. This concludes today's conference. Thank you for joining, and you may now disconnect.
Operator: Ladies and gentlemen, thank you for joining us, and welcome to the Resideo 2025 Third Quarter Earnings Call. [Operator Instructions] I will now hand the conference over to Chris Lee, Global Head of Strategic Finance. Chris, please go ahead. Christopher Lee: Thanks, and good afternoon, everyone, and thank you for joining us for Resideo's third quarter 2025 earnings call. On today's call will be Jay Geldmacher, Resideo's Chief Executive Officer; Mike Carlet, our Chief Financial Officer; Rob Aarnes, President of Resideo's ADI Global Distribution business; and Tom Surran, President of Resideo's Products and Solutions business. We would like to remind you that this afternoon's call contains forward-looking statements. Statements other than historical facts made during this call may constitute forward-looking statements and are not guarantees of future performance or results and involve a number of risks and uncertainties. Actual results may differ materially from those in the forward-looking statements as a result of a number of factors, including those described from time to time in Resideo's filings with the Securities and Exchange Commission. The company assumes no obligation to update any such forward-looking statements. We identify the principal risks and uncertainties that affect our performance in our annual report on Form 10-K and other SEC filings. In addition, we will discuss non-GAAP financial measures on today's call. These non-GAAP financial measures, which can sometimes be identified by the use of adjusted and the description of the measure should be considered in addition to, not as a substitute for or in isolation from our GAAP results. A reconciliation of GAAP to non-GAAP financial measures is included in the financial data workbook, which is accessible on the Investor Relations page of our website at investor.resideo.com. Unless stated otherwise, all numbers and results discussed on today's call other than revenue are on a non-GAAP basis. With that, I will turn the call over to Jay. Jay Geldmacher: Thank you, Chris, and thanks to everyone for joining us today. Resideo demonstrated solid execution in our third quarter. Adjusted EBITDA was a record high and approximately the midpoint of our outlook range. Net revenue was within our outlook range, despite incremental macro and operational headwinds that we believe are transitory and record high adjusted EPS exceeded the high end of our outlook range due primarily to higher net income associated with terminating the Honeywell Indemnification agreement. Our results continue to demonstrate the company's healthy operating fundamentals. We achieved low single-digit organic revenue growth year-over-year at both our ADI and Products & Solutions business segments. We increased year-over-year margin rate and profit dollars at both the gross margin and operating margin levels, leading to record high gross margin and record high EBITDA. Demand for our new products, including the First Alert combined smoke and CO connected detectors continues to be strong. We are excited about our new products introduced in the third quarter, including our new premium ElitePRO Honeywell Home smart thermostats that we believe will be one of our drivers of future growth. As been the case for several quarters, ADI's integration of Snap One continues to progress well ahead of schedule. Tom, Rob and Mike will speak more to our operating activities shortly. On the macro environment, Resideo continues to execute well amidst an unpredictable economic landscape as further rate cuts remain uncertain with concerns of inflation, along with the ongoing volatility of the tariff landscape. On tariffs, our mitigation actions continue to be effective and are materially unchanged from what we shared with you last quarter. In addition, we have not seen material tariff-related impacts to customer demand at either ADI or P&S this quarter. We also have not seen any meaningful impacts to our business from the recent U.S. government shutdown. Before I turn the call over to Tom, I'll touch upon the ongoing separation activities we announced this past July. Our various work streams are proceeding with pace and discipline, and we are on track to complete the separation during the second half of 2026 as previously communicated. Most importantly, our P&S and ADI teams remain focused and are working diligently to advance their respective go-forward strategies. I'm very pleased to announce that Rob and Tom will lead separate companies as CEOs at the completion of the anticipated spin, and they have both started to work on their go-forward organizational design and structure. Let me now hand the call over to Tom. Thomas Surran: Thanks, Jay. On a year-over-year basis, the Products & Solutions team delivered another quarter of organic net revenue growth, lapping a tough comparison and the 10th consecutive quarter of gross margin expansion. P&S' net revenue grew 2% year-over-year, which includes approximate 1% favorable impact from currency. Revenue grew due to both volume and price across the majority of our product families and sales channels, which more than offset the performance of our air products that were impacted by a softer residential HVAC channel. Let me walk through each of our primary sales channels. Let's start with the retail channel, which experienced strong point-of-sales volumes as demand for our products led by the new First Alert SC5 connected smoke and CO detector continues. As a reminder, the SC5 was developed in partnership with Google Nest and was specifically designed to seamlessly replace Google's discontinued Nest Protect alarms. The OEM channel was another highlight of the quarter, posting low double-digit percentage revenue growth year-over-year. The OEM channel posted a fourth consecutive quarter of year-over-year revenue growth, driven by greater volumes of higher-priced units in both the Americas and EMEA. The electrical distribution channel also had another quarter of year-over-year revenue growth. Greater volumes of our BRK branded safety products were sold to more residential homebuilders, increasing our dollar content per new home. We also saw volume strength in the MRO, manufactured housing and commercial markets as we look to diversify sales of our UL 8th edition safety products. Revenue in the security channel was up year-over-year, primarily due to volume increases with several customers. This includes ADT with whom we recently signed a new multiyear commercial agreement. Revenue in the HVAC channel was down by a low double-digit percentage year-over-year due to the softer residential HVAC market, which impacted sales volume. Let me add some color here. The residential housing market continues to be soft and previously relatively unchanged throughout this year. Towards the end of the third quarter, we started to see stronger market headwinds relative to last quarter, primarily due to inventory of HVAC equipment subject to the regulatory change for new refrigerants. While our thermostats do not use any type of refrigerant, we still experienced a ripple effect from the market disruption related to the regulatory change. We believe these conditions in the HVAC market are transitory. The health of the broader industry appears better now than it did several years ago. Various market signals indicate those industry participants currently impacted are looking to normalize inventory over the next quarter or 2. We believe we are well positioned to capitalize on the anticipated positive change in market conditions as our channel inventory levels in the third quarter are relatively healthy. We also have been experiencing continued demand for our Focus Pro thermostat introduced in the third quarter of last year and have received strong interest in the recently introduced ElitePRO product. Given our customer engagement, we believe demand has been building for our new products introduced this quarter, including the ElitePRO premium smart thermostats, which recently began shipping. These modern and energy-efficient premium thermostats have the largest touchscreens in their class, interoperate with video doorbells and offer precision sensing and control functionality around temperature and indoor air quality. These thermostats are powered by our Pro-IQ services, which can help our professional customers by streamlining labor, increasing loyalty and generating leads. We began taking orders for the ElitePRO during the third quarter and commenced shipping recently. Moving on to profitability. Gross margin was 43%, up 80 basis points year-over-year, driven primarily by continued efficient utilization of our factories. This is the 10th consecutive quarter of year-over-year gross margin expansion and gross margin has increased by approximately 500 basis points over that time span. Efficiency at the gross margin level, combined with operating leverage drove our 5% growth in adjusted EBITDA year-over-year. Looking ahead, we have conviction in our strategy to continue introducing differentiated new products across our Connected Home product portfolio. We anticipate profitable growth opportunities that leverage our operational scale while establishing and expanding our leading position in key markets. With that, let's turn the call over to Rob. Robert Aarnes: Thanks, Tom. The ADI team delivered another quarter of year-over-year organic net revenue growth and the 6th consecutive quarter of year-over-year gross margin expansion. ADI reported 2% net revenue growth and average daily sales growth of 3%, both year-over-year. Both include an approximate 1% favorable impact from currency. From a product category perspective, ADI saw most product categories growing a low single-digit percentage year-over-year. Tariff-related pricing more than offset volume in the quarter. ADI also achieved solid growth in our strategic focus areas. Both the datacom and Pro AV businesses each grew revenue by low double-digit percentage points year-over-year. Growth in residential AV was flat year-over-year amidst continued softness in the market. Exclusive Brands revenue grew 3% year-over-year, driven by positive momentum from our new products such as Lux Lighting and the new X4 smart home user interface from Control4. E-commerce revenue also grew 3% year-over-year, highlighting the optionality that customers have with our omnichannel experience, while also mitigating some of the temporary impact on stores arising from our ERP implementation. In August, we implemented a modern ERP platform in our U.S. business, replacing an over 40-year-old system. This deployment sets ADI up for future growth and margin expansion versus the market and our peers. Tech stack enhancements and corresponding capability building are expected to deliver even more cross-selling capabilities, optimize pricing management and enhanced digital user experiences. We prepared for the known complexity of the transition. This included the planned closure of all U.S. stores for 1 to 2 days and a modest revenue impact. The expected impact was factored into the 2025 outlook provided on last quarter's earnings call. Now despite that preparedness, we experienced additional process headwinds to those initially expected, leading to a greater financial impact than planned. Specifically, while we had a strong sales month in July, the transition headwind amounted to a few points of unachieved revenue growth in the quarter and lower cash collections. We believe the disruptions are temporary. The implementation is now nearly complete, and I can say that we see no material systems risk ahead. Operations on the new system are now running smoothly, and we are driving progressive improvement in our revenue run rate. In October, we saw increased customer engagement and pipeline size resulting in our order rates approaching pre-system implementation levels. Moving on to profitability. ADI reported 22.6% gross margin in the third quarter, up 130 basis points year-over-year and up 40 basis points sequentially. This is the 6th consecutive quarter of year-over-year gross margin expansion and gross margin has increased by approximately 300 basis points over that time span. The year-over-year margin expansion was primarily driven by another quarter of high cross-sell volumes of exclusive brands across ADI's entire customer base and mix benefits from higher e-commerce sales. The increased margin dollars were offset by nonrecurring costs associated with the system implementation, contributing to flat adjusted EBITDA growth year-over-year. The integration of Snap One continues to progress nicely. We remain ahead of our commitment of $75 million of run rate synergies exiting year 3 post acquisition. We have great confidence that we can overdeliver that amount in that time frame, if not sooner. Looking ahead, we look to build upon our scale and leading position in both the security and residential AV market, underpinned by our customer-first ethos. A proof point of our ethos was a recent award from the B2B eCommerce Association, recognizing ADI as the Enterprise B2B eCommerce Distributor of the Year. This was a result of the company's organic e-commerce growth and implementation of leading technologies that improve the customer experience. We look to continue making investments to drive profitable growth opportunities in our areas of strategic focus. We also look to maintain our world-class execution, capitalize on the revenue and cost benefits of our modern platform and achieve greater fixed cost leverage to drive stronger profitability in the future. Now let's turn the call over to Mike to discuss our third quarter financial results and outlook for the remainder of the year. Michael Carlet: Thank you, Rob. Good afternoon, everyone. Let's get straight into the quarterly earnings for the total company, including record highs in gross margin, net income, adjusted earnings per share and adjusted EBITDA. Total net revenue was $1.86 billion, up 2% year-over-year, including a 1% favorable impact from currency. Both Tom and Rob spoke earlier about the drivers of organic net revenue growth in their respective businesses. Gross margin in the quarter was 29.8%, up 110 basis points year-over-year. The increase was primarily driven by the more margin-accretive activities at ADI and the continued structural operating efficiencies at P&S. Adjusted earnings per share was $0.89, above the high end of our outlook range and up from $0.59 in the prior period. The primary reasons for the increase year-over-year were higher net income and a onetime tax benefit from terminating the Honeywell Indemnification agreement. Adjusted EBITDA was $229 million in the quarter, up 21% year-over-year and in line with the midpoint of our outlook range. The primary reasons for the increase year-over-year were the benefits associated with terminating the Honeywell Indemnification agreement and P&S' EBITDA outperformance year-over-year. Total reported cash used by operating activities was $1.571 billion, driven solely by the termination payment made to Honeywell in the quarter. After adjusting for the termination payment, adjusted cash provided by operating activities was $19 million. This amount was lower than anticipated due primarily to the timing of payments and from lower cash collections at ADI. We anticipate ADI's cash provided from operations to rebound in the fourth quarter now that the system implementation is substantially complete. Now before I provide our financial outlook for the fourth quarter of 2025 and the full year, I'd like to make a couple of framing comments. First, ADI's ERP implementation is now nearly complete, but those activities crossed into the fourth quarter and the related impact is included in our revised outlook. As Rob noted, we are achieving progressive improvement across various sales and operating metrics. Also, ADI continues to execute well against its strategy in a market where the mid-single-digit market growth rate has not meaningfully changed during 2025. Second, P&S is executing its strategy well against a challenging residential macro environment. We believe the benefit of continued new product introductions across a diverse portfolio enables P&S to offset the recent incremental softness in residential HVAC. Our continued focus on driving margin and working capital efficiencies allows for greater contribution of segment cash flow that is reflected in our increased outlook for total company cash from operations. Given some of the headwinds we are facing, we are adjusting our 2025 outlook as follows: total company net revenue to be in the range of $7.43 billion to $7.47 billion, total company adjusted EBITDA to be in the range of $818 million to $832 million, total company fully diluted adjusted earnings per share to be in the range of $2.57 to $2.67 and on cash from operations, excluding the Honeywell termination payment, we are raising our outlook to $410 million to $450 million. Our outlook for the fourth quarter of 2025 is as follows: total company net revenue to be in the range of $1.853 billion to $1.893 billion, total company adjusted EBITDA to be in the range of $211 million to $225 million and total company fully diluted earnings per share to be in the range of $0.42 to $0.52. Please go to our Investor Relations website to access our earnings presentation, which includes our outlook ranges, along with key modeling assumptions for 2025. Now before we open the call for questions, I'd like to share that we are in the midst of our 2026 financial planning process. Based upon what we know at this time, our 2026 outlook is positive and anticipates year-over-year growth in organic revenue and adjusted EBITDA that are both above current analyst estimates for 2026. We will provide more details on 2026 on the fourth quarter 2025 call as usual. Operator, let's now open the call up for questions. Operator: [Operator Instructions] Your first question comes from the line of Ian Zaffino with Oppenheimer. Ian Zaffino: Just kind of wanted to get my arms around some of the, I guess, headwinds here. Can you maybe quantify the impact of the HVAC regulatory change, I guess, both maybe in the third quarter and then as we look at your guidance? And can you maybe do the same thing on the ERP side, so we kind of understand what the different moving parts are of what hit in the third quarter? And then what's driving the delta in the guidance now versus what it was previously? Michael Carlet: Ian, yes, thanks for the question. We don't want to get into the specific impacts of each one of those. They're roughly overall similar type of impacts on the business. As we look at the headwinds that we're seeing, we're very, very focused on the fact that we believe they're transitory. They both caught us a little bit by surprise in the quarter, as we said, we had set our guidance based upon what we saw 3 months ago. And as we went through the quarter, as the HVAC market changed at the end of the quarter, as Rob and his team went through the ERP implementation, that took a bit more than we thought, but it's mostly behind us now. We're about 6 weeks through the current quarter, and we feel really good about the guidance that we're putting out there. Ian Zaffino: Okay. So I guess to be clear, both of these headwinds are going to end in this quarter or have ended and there'll be no bleed into 2026? Michael Carlet: Yes. Everything we see right now says the definitely the ERP will behind us by the end of the year. On the HVAC market, we see it bleeding slightly into next year. We see what other folks are talking about in the market out there. I'll let Tom speak to it specifically, but we do believe it is transitory in nature and won't bleed much into 2026. Tom, anything you'd add to that. Thomas Surran: No, there's -- people have estimates that whether it's at the end of this year or the end of Q1. But by midyear, almost everyone says expect it to be over. We expect it to be over by the end of the first quarter. Ian Zaffino: Okay. And then maybe on P&S, I'm just trying to understand this. If you back out the HVAC side on the P&S, can you maybe talk about what the growth would have been? Or maybe just talk about different areas of P&S that grew and did particularly well. Thomas Surran: You want me to do it? Michael Carlet: Sure. Thomas Surran: I don't think we want to give what the growth would be had we not had the headwinds in the HVAC market. But I do want to emphasize that we're really excited about how we're positioned in that market, right? So we introduced that Focus Pro as our low-end product. That product has been very successful in the market in terms of its acceptance. We just introduced a premium product. We had previously not participated in the premium market. So here's a market we're adding a product. We're going to -- our goal is to create the best product you can buy at all price points, entry, mid and premium, and we're very excited about the ElitePRO. So long term, our position in HVAC, we're very, very enthusiastic about. Now in terms of the other markets, it was pretty much everything was doing great. Retail did great. Our OEM business did great. The safety products did well. Everything seemed to do quite well, but we did have those headwinds, which, again, I think long-term, when you look at how we're going to be positioned in HVAC, it's a very positive picture. Operator: Your next question comes from the line of Erik Woodring with Morgan Stanley. Erik Woodring: Great. Maybe if we just touch on -- reask the HVAC question. I'm just trying to get a little bit better understanding of why we think these headwinds are transitory. And then I guess if the issue is an inventory glut -- for products that you don't have exposure to, why does that impact Resideo? Just trying to -- maybe just a little bit more color. Just maybe that last question is really the key there. If it's not a Resideo issue, why is Resideo being impacted? And then a quick follow-up, please. Thomas Surran: Okay. So Erik, great question. All right. So what's going on is because of this, you had a lot of inventory that was brought in, in order to protect all the distributors from the transition and the regulatory change. That inventory is still sitting in there. It's impacting the balance sheet of all the distributors and their cash and their ability to fund. It's also creating a little bit of disturbance and chaos kind of in the marketplace because now you have discounts going, trying to liquidate this and whether people hold to see if there's further discounts. There's just a lot of things that are kind of in a very dynamic situation. The amount of the impact people are saying, and you can look at all -- a lot of the HVAC equipment guys, the carriers, the trains, the Linux, what have you. You can look at the distributors of Watsco, you can look at the AHRI data, it's having a material impact. But there's also then the effect of what's actually happening in the residential housing market. There's a little bit of instability there as well. that's why we look at it long-term, why is this transitory? Because every home is going to need an HVAC system. Every -- these systems have a certain life. So you know there's going to be a replacement. We know how well we're positioned in what we've introduced with the products and then what share we're capturing. So long-term, that's why we see this as transitory. Erik Woodring: Okay. And Tom, maybe just a very quick follow-up on there. You mentioned discounts in the marketplace. Is it safe to then say your P&S gross and operating margins were negatively impacted by HVAC as well? Thomas Surran: No, that's not what I was saying. So I'm just talking about that because of this disturbance that's occurred in the market. Other parties, especially people with the equipment, especially this inventory that's the older generation, the older gases that uses the older refrigerants, that product in terms of the discounting. I wouldn't overplay that, right? So just in looking at it, I'm just saying there's a number of things that happen when you have excess inventory in the channel and how people behave. Now our products, there is no discounting of our products, but the ability of distributors to stock our product at a certain level because they have cash tied up, the ability of what's happening within customers, all of those things have some ripple to this. Erik Woodring: Okay. Okay. Super clear. Thomas Surran: We have very strong -- yes, we do have very strong margins in the HVAC market. Erik Woodring: Okay. That is -- that was super helpful. And then I don't know who wants to field this one, but I'll leave it up to you guys is, one of the most important factors that can drive a re-rating for Resideo is this kind of continued margin expansion. And granted on a year-over-year basis, you showed nice gross margin expansion. But in 3Q, we saw operating margins compress for both companies sequentially. I guess how to think about operating margins for each business into 4Q? And then like as we look out 1 to 2 years and think about investors that are looking at Resideo today for the long-term opportunity, what type of margin should they be looking for from -- operating margin should they be looking for from each one of these businesses, again, looking out, call it, 1, 2, 3 years? Just would love some framing of that, please. Michael Carlet: Sure. Sure, Erik. I'll kick it off, and I'll let Rob and Tom join in if they want to correct anything or want to add on to it. Clearly, in the quarter, when we talk about margin expansion, there's both gross margin and the operating margin. So really pleased with continued gross margin expansion. Despite the fact that the headwinds at P&S and the HVAC market, as Tom said, our HVAC margins are very robust. So as we think about that having a headwind, it flows through the bottom line at a different rate than the overall blended rate, a bit higher. So that does compress it. So that transitory nature does compress the bottom line despite which we still saw margin improvement. At ADI, as Rob talked about the impacts of the ERP implementation, as we work through that, there was incremental costs, whether that was overtime in the warehouses, whether that was work with consultants to implement the system, there's incremental SG&A in both Q3 and Q4 that, again, is onetime in nature as we work through those 2 things. I think overall, at a high level, as we go through the separation of these businesses, I want to make sure we're careful about talking about what the margins are today as segments without the allocation of overhead and what they might be in the future. But as we sit here today and look at the ADI business, Rob continues to target a double-digit operating margin as this goal. We've got long-term plans that get us there. Again, that's going to change a little bit once the business is stand-alone and we allocate all the costs out. But as it exists today, we would think that we have the ability to drive the business towards double-digit operating margins over the next 3 to 5 years. Similarly at P&S as we continue to see the operating efficiency in our factories, which that race is not yet run. We're well into the game, but the race is not yet over at all. And then the incremental margin that we think we drive with the ongoing product development and the incremental margin we can demand from that, we think there will continue to be operating margin expansion, 300 to 500 basis points over the next 3 to 5 years probably makes a lot of sense. But again, as we work through our modeling for each business on a stand-alone basis, we'll update that and get those numbers out to the market at the appropriate time. Erik Woodring: That was super helpful, Mike. And then maybe just last question, just a clarification. I'm going to pick on that last comment you made in your prepared remarks about 2026 numbers. So just a clarification as I see consensus at $7.76 billion of revs, $3 of earnings and your comment is despite the ERP, despite the HVAC kind of leakage into 2026, those estimates are on, let's call it, the lower end of what -- how you're planning for 2026? Michael Carlet: That's right, Erik. We're early in our detailed planning. But as we sit here today, we want to be clear that these headwinds are very transitory. Now we can't guarantee what else is going to happen next year. We'll guide 2026 when we usually do in February. But just as we're sitting there today, we want to be clear that we are -- we remain very comfortable with those numbers that are out there, and we would say they're at the low end of what our initial budgeting process for next year looks like. Operator: And your next question comes from the line of Neil Matalia with Jefferies. Neil Matalia: I want to ask again on the ERP impact because I think this is a really important point, especially to understand some of the fourth quarter dynamics relative to what the implied fourth quarter guidance previously was. It would be helpful to understand how much of a quantitative impact this is having on the fourth quarter. In the press release, you mentioned that there was nearly $15 million of higher costs year-over-year on SG&A and R&D related to the ERP. What level of impact are you seeing in the fourth quarter? Michael Carlet: I think at a high level; it's roughly half in the third quarter and half in the fourth quarter of those SG&A impacts as they flow through. So if you take that $15 million, you sort of split it between the 2, you're in the ballpark. And we think the impact on the revenue will be greater in Q3 than Q4, but not significantly greater. We do think we're most of the way through it right now. I think, Rob, I'll let you comment, but we're really confident with the metrics and KPIs we're seeing right now that we're getting our feedback under us. The system is running well. We're through most of the growing pains that you go through with something like this. They were higher than we expected. But at the end of the day, they didn't take much longer than we thought. They were just more than we expected. Rob, anything you'd add. Robert Aarnes: No, no. Actually -- yes, actually, Mike, you nailed it. But I'd be remiss, first of all, I didn't say that this is a really exciting time for us despite the fact that the results were disappointed, this represents a major step towards modernizing and digitizing our tech stack, which is basically a 2.5-, 3-year project finally coming to fruition, which will net a number of benefits. A lot of those I actually talked about in the prepared remarks. But we are seeing 2 real good indicators that make me feel optimistic about the go-forward recovery. One, as I mentioned earlier in the remarks, we're seeing our average daily sales rate approach pre-go-live levels, the deeper we get into Q4. That's one. Even more positive is what's going on with our project pipeline. Normally, the biggest month of the year where our pipeline would be at its peak is kind of midyear, July time frame. And we ended October with a higher pipeline volume amount than we had even in July. It was a record number for us. And so that is the -- really the most I guess, prudent indicator of the future health of the business, and we expect to convert that pipeline at the same conversion rates we've seen in quarters and years past. And so those 2 things make me optimistic that the impact of the ERP is truly transitory. Neil Matalia: Okay. That's helpful. Maybe just then to clarify and make sure we're 100% clear on this fourth quarter issue. The EBITDA guide down relative to the implied guidance previously is, call it, $40 million or so. Part of that is the higher cost from the ERP impact. Part of it is the HVAC. Can you give like a numerical breakdown relative to that $40 million of how much is coming from each, including the revenue impact for the ERP related issues that you're facing? Michael Carlet: I think at a -- yes, at a high level, if you're modeling it, I think as we said, it's roughly high single digits millions of the cost side of ERP side. The rest of it is driven by the revenue, and it's roughly equal across both businesses. Neil Matalia: Got it. Okay. And then on 2026, again, very helpful to hear the guidance. This is very much in line with the way we've been thinking about it. We just felt that the outlook was quite strong for '26 relative to what consensus had been modeling. Specifically, though, I know without giving any numbers, given you're going to wait to the fourth quarter to give that, can you at least address qualitatively what the different factors are that we should be considering from an idiosyncratic perspective. For example, there's a $70 million step-up in EBITDA just from the Honeywell-related indemnity. Are there other factors that we need to be taking into account where it's just, hey, we can look at the full year guidance for EBITDA of $865 million -- or sorry, of $825 million and then say, all right, at least $70 million higher is the bare minimum. And then from there, what other factors there are? Michael Carlet: I think that's a good way to frame it. I think the -- you take this year, you add that $70 million, you add back these transitory impacts on top of that, which gets you somewhere a little bit above what that consensus number is. And then everything else is the initiatives that we're working on, the things that we're building. Again, we're going through our plans, we'll guide what we do, but I don't think there's anything significant, but Tom talks about his new product launches that are out there. They'll continue to drive performance. As Rob talks about the benefits of the ERP system, right? Right now, it's all about the short-term pain. But the reason we're doing it is for the longer-term, midterm and long-term benefit. Those will start coming through our continued investments in the omnichannel experience at ADI, the Snap synergy that we continue to realize from bringing those together. So all those things go together. Again, there's lots of work still to go in building the specific models. But when we look at all that today, as we said, we're very comfortable that the numbers that are out there are definitely achievable. Neil Matalia: Okay. And then lastly for me on the project pipeline you just mentioned earlier, you said October was higher than where you ended July, which is not normal. What exactly are you hearing from your customers in there? Part of what we've heard in our research and background check here is that security never goes into recession. And obviously, there's a number of instance that have happened recently that we're just wondering if there's like some kind of multiyear secular up cycle that might be happening in the security market that kind of underlies a lot of these. Is there more proactive versus reactive customers now? Robert Aarnes: I would say not a whole lot has changed in that space this year going forward. We're still expecting the commercial security market to grow at low to mid-single digits. I mean it has during my entire tenure here at ADI. And in terms of ADI, we've always been able to grow kind of mid- to high single digits, and we fully expect that going forward. And I always look at our pipeline to be able to give me the -- an indicator of what we can expect 3 to 6 months out. And I think some of it is just our execution and other parts of it is we had customers that were patient with us as we navigated the disruption of ERP, and we're bringing those -- now those customers back in, and that's actually increased our pipeline as well. So I would say those are the biggest factors in terms of why I think the pipeline is growing and why we're in that position this late in the year versus we normally see these peak levels in the middle of the year when most of our big installations happen, kind of that June through July -- June, July, August time frame for our large integrators. Operator: There are no further questions at this time. This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Good afternoon, ladies and gentlemen, and welcome to LiveRamp's Fiscal 2026 Second Quarter Earnings Conference Call. [Operator Instructions]. I would now like to turn the call over to your host, Drew Borst, Vice President of Investor Relations. Please go ahead, sir. Drew Borst: Thank you, operator. Good afternoon, everyone, and thank you for joining our fiscal 2026 second quarter earnings call. With me today are Scott Howe, our CEO; and Lauren Dillard, our CFO. Today's press release and this call may contain forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially. For a detailed description of these risks, please read the Risk Factors section of our public filings and the press release. A copy of our press release and financial schedules, including any reconciliation to non-GAAP financial measures, is available at investors.liveramp.com. Also, during the call today, we'll be referring to a slide deck that is also available on our Investor Relations website. With that, I'll turn the call over to Scott. Scott Howe: Thank you, Drew, and thanks to everyone joining us today. We delivered solid Q2 results with revenue and operating income surpassing our guidance. This quarter showcased strong execution of filling our near-term financial commitments whilst strategically investing in growth drivers like AI product enhancements and our new usage-based pricing model. Q2 revenue increased by 8% and led by a notable acceleration in Marketplace and other to 18% growth. Subscription revenue grew by 5%, as expected, based on bookings a year ago and what we foresee to be the low watermark. The good news, as we anticipated at the start of the year, a growth upturn appears to be on the horizon as evidenced by ARR, which is the best leading indicator of our subscription revenue. Net new ARR in Q2 was $14 million, the largest organic increase in the past 7 quarters and equating to year-on-year growth of 7%. We are seeing good momentum across a range of use cases including Commerce Media, CTV and Cross-Media measurement. Million-dollar plus subscription customers increased by 5% sequentially to a new high of $132. In Q2, we signed a multimillion dollar new logo contract with 1 of the largest global auto manufacturers and signed a multimillion-dollar upsell with a leading social media platform. Our non-GAAP operating income climbed 10%, a testament to improving cost efficiencies achieved through expanding offshore operations in India. GAAP operating income more than doubled and the margin expanded by 7 points to a record quarterly high, driven by sustainably lower stock-based comp. Overall, it was a strong second quarter, particularly in our revenue leading indicators. Lauren will provide further details, we'll all focus on 3 key areas: First, our data collaboration platform's impact on Commerce Media integration benefits with CTV and other major publishers in catalyzing effect for AI. Second, an update on our new pricing model rollout; and third, our commitment to achieving our long-term Rule of 40 financial targets. Commerce-media, CTV and AI. I spent much of September and October on the road. Meeting with customers and prospects around the world at a variety of industry conferences and LiveRamp hosted events. In addition to dozens of one-on-one customer meetings, I participated in Ad Week in New York in Canada, Synchrony's Partner Summit in Chicago, ramp up on the road conferences in London and Sydney and our AI in marketing forum in New York City and a handful of other industry events. Throughout my many conversations, a common theme emerge, our customers recognize the immense value and expansive reach of our data collaboration network by seamlessly integrating first, second and third-party signals across diverse platforms and partners, we empower brands to execute and measure exceptional experiences throughout the entire customer journey. The tangible excitement and impactful potential of our network are evident in several key areas. Commerce Media, LiveRamp has long been the pioneering industry leader in retail media networks. Over the past year, our success has evolved into what we call Commerce Media. We are powering new networks for industry giants like Uber, PayPal, General Motors, United Airlines and many others. Each of these companies boast vital commerce partners from quick-serve restaurants and small business to local auto dealerships and travel partners. Presenting unparalleled opportunities to revolutionize the customer experience through data-driven collaboration, robust measurement, innovative media channels and expanded off-platform audience reach. CTV and deeper publisher integrations. Collaboration is thriving through deeper publisher integrations and CTV partnerships. For instance, we recently introduced new Meta attribution insights for retail media networks, including Albertsons and Target Roundel. By connecting Meta campaign results with our first-party sales data, RMNs and their partners can now clearly see how off-property sites, including Meta, drive sales orders and return on ad spend. These insights help RMNs prove value to merchant partners, improving campaign performance visibility and enabling data-driven budget allocation. CTV remains a key focus for our customers given the growing consumer engagement across various ad-supported CTV and streaming services. Our network is fully integrated with all these services, providing brands with seamless connectivity and comprehensive measurement, including de-duplicated comparative analysis across platforms. Through a clean room, unique publisher audience insights can be combined with unique advertiser insights to discover new prospects and drive superior performance. We are particularly excited about our expanding partnership with Netflix, which encompasses a range of integrations across our connectivity, data marketplace and measurement solutions. This quarter, we extended our Netflix connectivity integrations beyond the U.S. to 10 new international markets, exemplifying the type of network expansion we are pursuing with all CTV and streaming platforms, and serving as a steady source of growth for our business now and in the future. AI. AI is integral to every discussion as customers navigate its transformative opportunities and challenges. We are uniquely positioned to guide them through this evolving landscape. Our scaled data network with its comprehensive links to all of the critical data signals empowers customers to unlock AI's full potential for superior marketing outcomes. We are excited about our strategic positioning to help the entire ecosystem harness AI's power. By extending our collaboration network, we're seamlessly integrating with a wide array of AI partners. Our efforts are categorized into 6 distinct areas, each featuring multiple AI application partners, search, conversational and chat, commerce, creative, measurement and a genetic trading. These partnerships span from industry leaders like Perplexity to niche innovators like Dappier, in every instance, we connect our network to these AI-powered search experiences, enabling personalized advertising. While partner integration is a key scaling strategy, we also introduced our own AI tools for clients. For example, our new AI-powered audience segment builder is an industry-first solution, allowing marketers to instantly create precise multisource audience segments using natural language prompts, activating them in minutes. Furthermore, we've launched our AI Agentic orchestration. LiveRamp is the first platform to empower autonomous AI agents with governed access to identity, segmentation, activation and measurement solutions, enabling marketers to plan smarter campaigns, optimize investments, improve impact across all touch points. New pricing model. Turning to our second major topic. Let me now give you an update on our new pricing model. We are actively rolling out a usage-based pricing model designed to unlock incremental revenue growth by significantly boosting both our land and expand sales motions. This new model enhances our land motion with a lower cost of entry and a more flexible usage-based structure, which is particularly beneficial for midsized brands, media platforms and data providers. It also accelerates our expansion by utilizing fungible usage tokens that can be seamlessly applied across all platform capabilities and use cases. This allows customers to explore additional features at no extra cost, and these tokens are valid across the entire 12-month annual contract period rather than being limited monthly. Since launching our customer pilot in July, which runs through March, we've been steadily onboarding customers to the new pricing model. The feedback from both our sales teams and customers has been overwhelmingly positive. So much so that we are strategically expanding the pilot beyond our initial target list. We have a robust pipeline of customers perfectly positioned to benefit from this innovative model. The key selling feature for customers is a lower upfront fixed commitment, combined with the fungibility of usage across platform use cases and months. Let me share 2 compelling customer examples. One new customer, a rapidly growing beverage company perfectly illustrates how our new pricing model attracts new logos. They start with a relatively low annual contract value or ACV, but have significant upside as their business growth drives increased customer data and advertising budgets, leading to greater use of our capabilities. These factors can quickly transform a 5-figure ACV customer into a 6-figure success. In another example, we recently signed a leading domestic airline through our new pricing model. This is an existing 7-figure customer who secured an early renewal with a 20% upsell. They leverage various platform capabilities, including clean room insights for social media measurement. For them, the fungibility of usage tokens across different platform capabilities was the decisive selling point. In short, the early feedback on our new usage-based pricing model is incredibly encouraging. Consequently, we are opportunistically expanding the pilot beyond our original target list. We anticipate this new model will drive incremental revenue growth by improving our land and expand sales motions and better aligning our variable data costs with subscription revenue. Rule of 40. Moving to my final topic, let me briefly comment on our long-term financial targets. While once again hitting our short-term financial targets this quarter, we remain focused on our long-term objective of being a Rule of 40 company by FY '28. Based on the midpoint of our updated guidance, we will achieve Rule of 31 this fiscal year with 9% revenue growth and 22% operating margin, with sales productivity and ARR trending up and AI creating incremental growth opportunities for our business. We are confident that we can get back to 10% plus revenue growth. And with that level of revenue growth, our operating margin should naturally expand because our costs are highly fixed and we have ongoing cost efficiencies from our offshoring initiative. All of this to say that we remain confident, confident in our ability to reach this Rule of 40 target by FY '28. In closing, let me reiterate our strong financial performance and future outlook. Q2 success, Q2 delivered solid results, exceeding both top and bottom line expectations with double-digit operating income growth and the highest organic net new ARR in 7 quarters. Strategic leadership. Customers are actively seeking our guidance in navigating AI, Commerce Media and CTV. We've launched innovative capabilities, including cross-media intelligence, expanded CTV integrations and new AI capabilities. Positive pricing model. Early feedback on our new usage-based pricing model is consistently positive, leading to an expanded pilot. We anticipate this model will drive incremental revenue growth and better align data costs with subscription revenue. Confidence in Rule of 40. We remain confident in achieving our Rule of 40 goal by FY '28, an increase from Rule of 31 this year, fueled by incremental AI revenue growth and ongoing cost efficiencies. Thank you again for joining us today. We extend our gratitude to our exceptional customers, partners and all LiveRampers for their unwavering dedication and support. We look forward to updating you on our continued progress in the coming quarters. And with that, I'll turn the call over to Lauren. Lauren Dillard: Thanks, Scott, and thank you all for joining us. Today, I'll review our Q2 financial results and then discuss our updated outlook for FY '26 in Q3. Unless otherwise indicated, my remarks pertain to non-GAAP results and growth is relative to the year ago period. I will be referring to the earnings slide deck posted to our IR website. Starting with Q2. In summary, we delivered solid results exceeding our expectations, reflecting strong execution by the team and ongoing sales momentum against a relatively stable macro backdrop. Revenue increased by 8% and was $3 million above our guide. Non-GAAP operating income increased by 10% and was $6 million above our guidance. GAAP operating income more than doubled. Net new ARR was a 7-quarter high and we posted a strong upturn in million dollar plus subscription customers. Let me provide some additional details. Please turn to Slide 5. Total revenue was $200 million, up 8% ahead of our guide and consensus. Subscription revenue was $150 million, up 5%. Fixed subscription revenue was up 6%, in line with our expectation and usage was down slightly. ARR increased by $14 million quarter-on-quarter, which was the best organic result in the past 7 quarters. On a year-on-year basis, ARR was up 7%, pointing to an acceleration in the second half. Our $1 million-plus subscription customers increased by 5% quarter-on-quarter to a new high of 132. Subscription net retention was 102% and in line with our 100% to 105% near-term expectation. Total RPO or contracted backlog was up 29% to $652 million and current RPO was up 15% to $430 million. RPO and CRPO is declined sequentially, consistent with the historical pattern, driven by seasonality in our contract renewals. And which skewed to our fiscal second half. Turning to the selling environment. It was a solid quarter overall with signing strongly year-on-year. We had an especially strong new logo quarter and churn was better than expected. Our average deal cycle was stable sequentially at roughly 9 months and for the second consecutive quarter, our conversion rate of pipeline into contract signings was several points above the recent trend line. We're seeing good momentum with our Clean Room Insight solutions including use cases for commerce-media, CTV and cross-media measurement, and this gives us increased confidence heading into our seasonally high renewal period in Q3 and Q4. Marketplace and other revenue increased 18% to $50 million. Data Marketplace, which accounted for roughly 75% of Marketplace and other revenue grew by 14%. As expected, data marketplace growth accelerated by approximately 5 points sequentially, driven by a stable ad spending environment and new CTV integrations. Moving beyond revenue. Gross margin was 72%, in line with our guide and down 3 points year-on-year due to higher cloud hosting expenses related to our platform modernization. Operating expenses were $100 million, roughly flat year-on-year and lower than expected due mostly to the timing of project-related spending in G&A. Operating income was $45 million, up 10% versus a year ago, and our operating margin edged up to over 22%. GAAP operating income was $21 million, up from $7 million a year ago, and the margin expanded by 7 points, driven in part by a more disciplined approach to stock compensation. Free cash flow was $57 million, of which $50 million was put towards opportunistic share repurchases in the quarter. Fiscal year-to-date, we've repurchased $80 million in stock. We have $177 million remaining under the authorization that expires on December 31, 2026. Our balance sheet remains very strong with $377 million in cash and short-term investments and 0 debt. In summary, Q2 was solid, coming in ahead of our guidance on the top line and especially on the bottom line, record GAAP operating margin, the best net new ARR quarter in 7 quarters, strong growth in million-dollar plus subscription customers and a sizable return of cash to shareholders for our buyback. Let me now turn to our financial outlook for FY '26 and Q3. Please turn to Slide 12. Please keep in mind our non-GAAP guidance excludes intangible amortization, stock comp and restructuring and related charges. Starting with the full year. We are increasing our FY '26 revenue guidance by $3 million at the midpoint, passing through the Q2 [ beat ]. We have narrowed the range by lifting the low end to reflect less macroeconomic risk now that we're halfway through the fiscal year. We now expect FY '26 revenue to be between $804 million and $818 million, which is growth of 8% to 10%. Let me now provide some color on the revenue components. Subscription revenue is still expected to be up mid- to high single digits. Fixed subscription is still expected to be up mid- to high single digits with improving growth in the second half. Subscription usage growth is now expected to be up high single digits, driven mostly by the above trend growth in Q1. We assume second half usage is roughly flat year-on-year. Marketplace and other revenue is now expected to grow mid-teens, outpacing digital ad market growth and benefiting from the new CTV platform integration Scott and I mentioned. Beyond revenue, we now expect gross margin to be approximately 72% versus our prior expectation of mid-70s. We originally expected second half gross margins to rebound to the mid-70s, driven by savings associated with migrating customers to an upgraded back end. While the migration remains on track for completion in Q4, the cost optimization is taking longer than expected as we continue running 2 platforms to ensure stable customer experience. That said, we reiterate our guidance for non-GAAP operating income to be between $178 million and $182 million. Our operating income guide is unchanged despite an increase in revenue, reflecting the lower gross margin I just mentioned, offset by incremental OpEx efficiency. At the midpoint of the guide, operating income is growing 3%, and the margin is expanding 4 points to 22%. The combination of offshoring and general cost discipline continues to afford us the ability to invest in key growth areas, while at the same time, driving significant margin expansion. That comp is expected to decline 23% year-on-year to $83 million, again reflecting a more disciplined approach to share-based compensation over the last couple of years. We now expect GAAP operating income to be between $83 million and $87 million, equating to a record high margin of 10% to 11% and a year-on-year increase of 9 to 10 points. Lastly, we continue to expect free cash flow to be up this year with savings from the new federal tax legislation offsetting a normalization in working capital. Our EBITDA conversion rate is expected to be above our 75% target rate. We expect to deploy a substantial amount of this year's free cash flow towards share repurchases, consistent with our recent practice. As always, we will be opportunistic depending on market conditions. Given the decline in stock-based comp, combined with our repurchase activity, like last year, we are again expecting to more than offset dilution. Now moving to Q3. We expect total revenue to be between $209 million and $213 million, non-GAAP operating income between $55 million and $57 million, an operating margin of roughly 27%. A few other call-outs for Q3, we expect subscription revenue to be up mid-single digits. Marketplace and other revenue is expected to be up low teens. And finally, we expect gross margin to be similar to Q2 as we work through the final phases of our back-end upgrade and migration effort, which will be completed in Q4. Let me wrap up before Q&A. Our second quarter featured strong execution and healthy demand with results ahead of expectation across the board and double-digit growth in operating income. We're seeing sustained sales momentum and a robust pipeline heading into our seasonally high renewal quarters in the second half. Our focus remains on converting that pipeline into signing and keeping churn low to set the stage for accelerating revenue growth in FY '27. And finally, we remain on track for another strong year of free cash flow, reflecting more than 30% growth in operating income, benefits from the recently enacted tax legislation and continued discipline in balancing growth investments with efficiency. We plan to deploy a substantial portion of that free cash flow towards share repurchases and underscoring both our confidence in the business and our commitment to long-term shareholder value. Thanks again for joining us. We're excited for what's ahead and grateful to the customers and teammates who may get possible. Operator, we will now open the call to questions. Operator: [Operator Instructions]. And we will take our first question from Jason Kreyer from Craig-Hallum. Cal Bartyzal: This is Cal on for Jason tonight. Maybe just to start, can you elaborate on some of the drivers of the improvement in ARR in the quarter? Lauren Dillard: Sure. I'd be happy to, Cal. This is Lauren. A few things I'd highlight. First with respect to the strength of gross new ARR cross-sell and upsell of our clean room solution continues to be a big driver here. And these are for the use cases that Scott mentioned. So measurement and, in particular, CTV measurement cross-media intelligence and to support just a growing number of retail and commerce-media use cases. We also saw a really nice uptick in new logo activity in the quarter, which was encouraging, specifically for our connectivity or data onboarding use cases. And we think this is a reflection of an increase in focus as we've rolled out now a dedicated new logo sales team, as well as the new pricing model, which allows us to address a larger ICP. In addition, we also had much lower customer churn in the quarter both on an absolute basis and particularly compared to Q1, which was impacted by the couple of unusual events we discussed last call. Importantly, though, we believe these trends are durable. And while 7% ARR growth is solid and certainly trending in the right direction, it's not our final destination. We believe we have the product and market demand for faster growth over time. And that's exactly what the team is focused on here in the back half. Cal Bartyzal: Great. And then as a follow-up, you alluded to some of this on the call, but your renewal cycles, they're a little skewed towards the second half of your fiscal year. So with these new solutions and integrations coming to market, how do you feel about the upsell opportunity here over the next 2 quarters? Scott Howe: I think we feel really good about it. And I'll reference again the road trip I just took. There are so many different levers of growth and depending on which client we're talking to, they're excited about something a little bit different. So we have XMI Cross-Media Intelligence. We have our commerce-media networks that are taking us in completely new directions with new types of clients. We have CTV expansion. And we have some really exciting opportunities in AI. So I was talking to a sales rep just last night, and he told me, I can't remember being at LiveRamp and having this many things that our clients are excited to talk about. So we've got to deliver, but I feel really optimistic about our ability to do that. Operator: Our next question comes from the line of Shyam Patil from Susquehanna. Unknown Analyst: This is [ Mitchel ] on for Shyam. There's been a lot of debate about how AI search and AI overviews are hurting click-through rates to the open web. How are you thinking about the implications that this dynamic might have on your business? Scott Howe: Yes, [ Mitchel, ] this is Scott. I'll take that. And thanks for being on the call today. I recognize to everybody who's on the call that this is 1 of the busiest earnings weeks and you're juggling a lot of balls. 2 thoughts come to mind with your question. First off, I would tell you our exposure to the open web is low. I mean throughout LiveRamp's history, we've always seen changes in our activation profile. We see the winners and losers sometimes far before the market as a whole does. And if some things don't work as effectively, the money just flows to the things that do work. And we've seen that in recent years. We've been the beneficiary of that with the growth in CTV, and social media and commerce media as well. I looked at our top destinations actually just earlier today. And the vast majority of our top 20 destinations, I mean in no particular order. Companies like Meta, Roku, LinkedIn, Spotify, Disney+, Pandora, Twitter X, I guess, and TikTok, they're simply not impacted by these open web shifts that people are talking about. And then the second point that I'd make is our upside from AI is high. AI models are only as effective as the signals that power the underlying intelligence of those models. And first and second-party data, the kind that empowers everything we currently do is the great differentiator that makes any model even better. Our clients want to standardize and control how their data is used, which puts us right at the center of a long-term future growth driver. And the investments that we've made that Lauren and I both referenced, modernizing our stack, creating AI readiness and usage-based pricing, they build the foundation for our success as AI starts to take off. Operator: Our next question comes from the line of Mark Zgutowicz from the Benchmark Company. Unknown Analyst: This is Alex on for Mark. I have 2, if you don't mind. First one, just on the degree of macro conservatism baked into the guide on the revenue guide for the year. Curious if you can provide an update there. And how you're thinking about potential incrementality from these pilots in addition to working with AI labs? And then second question. Curious if you can elaborate on the mix of retail in CPG versus non in terms of incremental ARR in the second half as you point towards an acceleration? Lauren Dillard: Sure. I'm certainly happy to take the first. So with respect to our guidance, kind of at this point in the year, the swing factors are mostly in our variable revenue sources, so specifically subscription usage and data marketplace. And as we typically do, we have built in some conservatism here, which is -- accounts for the relatively wide range in the back half. At the midpoint, we're assuming the macro remains fairly consistent with what we've seen recently. The low end of the range assumes a pretty major deterioration in the macro in the back half. But in short, we believe we've built in an appropriate level of conservatism into our guide. Scott Howe: Yes. In terms of the retail versus non-retail commerce-media stuff, I don't know if I have those specific numbers because I don't know if we broke it out, did the math. We can get that. But I would tell you that if I just think about what I believe is happening. We're seeing growth in both places. And our kind of traditional retail media, what we're trying to do is build density. So it's usage increases. We're trying to scale the number of merchant partners that are working with each major retailer. And then from a new logo, new starts perspective, that's where we're really excited about expanding from retail to commerce-media. Some of the things I talked about, like PayPal or Uber, the airlines, that just exposes us to really different businesses. And instead of just thinking about merchant partners it's causing us to think about, well, how do we connect with quick-serve restaurants or restaurants as a whole, how do we connect with SMB merchant partners that are driving payments usage. How do we connect with travel partners. And so all of that opens up new TAM for us. And so I think that will be an even greater accelerator for our growth next year than even maybe the traditional retail media side where we've long been strong. Lauren Dillard: Alex, really quickly. There was a second part of your first question, which is on the pricing pilot, and I didn't answer it. So on to now. We have not baked in any upside in this year's guide to account for pricing upside. I may just take the opportunity to reiterate what Scott mentioned, which is at a high level, our hypothesis is, over time, the new model will unlock incremental revenue growth by benefiting both our land and expand sales motions. As Scott mentioned, on the land front, it offers a lower entry point, which should allow us to address a larger ICP. And on the expand front, due to the fungibility of the tokens, enables customers to more seamlessly grow into our product suite. Right now, we're in the middle of the pilot, which we expect to run through the balance of this fiscal year. We're learning a lot. We expect to continue to learn a lot, which will help us fine-tune the model and approach ahead of rolling it out in the early part of next year. And we expect to roll it out very thoughtfully and for the benefit to accrue over several quarters. So this is something you -- we would expect to see some benefit from as we move through next fiscal year. But so far, nothing baked into this year's guide. Operator: [Operator Instructions]. Our next question comes from the line of Clark Wright from D.A. Davidson. Clark Wright: Maybe to start, can you elaborate on the step-up in platform investments this year? Is this something that stretches into fiscal 2027? Scott Howe: Yes. Clark, I'll start, and Lauren will certainly probably jump in here. But yes, we have actually stepped up our investments recently. We are confident about this driving incremental revenue in the coming quarters and years. The investments are in 3 critical areas. First, we're upgrading our platform both the front and back end to provide our customers just with a better experience, more intuitive UI, faster processing, more stability. Second, we're investing in AI product capabilities. I mentioned that. AI-powered segment builder, Agentic orchestration, I talked about those in my prepared remarks. AI is really reshaping the digital advertising ecosystem. And so these investments ensure we're ready to capture the opportunities that are emerging from these changes. And then third, the kind of companion piece with this is the investments we're making in our new usage-based pricing model. And that ensures that we'll have the optimal revenue model as the volumes kind of expand from what we're seeing in terms of increased collaboration and the AI opportunity, we're going to monetize that through this new variable usage-based pricing model. Lauren Dillard: And Clark, I would just simply add that while we're making these investments to fuel future revenue growth, we're not sacrificing bottom line growth in the short term. Again, we're guiding to FY '26 operating income growth of over 30% and 4 points of margin expansion and finally, we just mentioned to the earlier part of your question, we believe this investment period will abate by the end of this fiscal year, which puts us in a really strong position for both revenue growth and continued margin expansion in FY '27. Clark Wright: That's helpful. Appreciate that color. And then turning to the growth picture, direct subscription customer count has effectively stabilized after declining for 5 straight quarters. Do you have the visibility to call this the trough or a potential inflection in growth going forward? Or is that still yet to be determined given some of the other moving factors? Lauren Dillard: Yes. I would characterize that it's stabilizing, especially now that we've worked through the international headwind that we've discussed on past calls, and you saw that in the results this quarter. In addition, I mentioned this a bit earlier, we saw a nice uptick in new logo activity in the quarter, which we think is durable. This is a combination of building out a dedicated new logo sales force and also having a new pricing model that allows us to serve a larger TAM over time. As we look out over the medium to long term, we do think there are a couple of meaningful levers for customer count growth, the pricing model, which I just mentioned. And then also our Clean Room strategy. As Scott discussed as kind of these big Clean Room networks to support use cases in retail or commerce media take hold, we have the ability to pull customers through these large anchor nodes that we're supporting. And we think that can be a source of sustained new logo growth over time. The final point I would just make here is that the quality of our new customer adds continues to be very impressive. It certainly was again in Q2. GM, Uber, constellation brands. I think this is a real testament to the criticality of what we do and to the value we deliver to our customers. Operator: We have no further questions. I will now turn the call back over to Lauren Dillard for closing remarks. Lauren Dillard: All right. Thank you. I'd love to close with just a few remarks. So first, our second quarter featured again, strong execution and healthy demand with results ahead of expectations across the board and double-digit growth in operating income. We're seeing sustained sales momentum and a robust pipeline heading into our seasonally high renewal quarters in the second half. Our focus, of course, remains on converting that pipeline into sales and keeping churn low to set the stage for accelerating top line growth next year. And finally, we remain on track for another strong year of free cash flow reflecting more than 30% growth in operating income and continued discipline in balancing growth investments with efficiency. We plan to deploy a substantial portion of that free cash toward share repurchases, underscoring both our confidence in the business and our commitment to long-term shareholder value. Thanks again for joining us. We look forward to speaking with many of you in the days ahead. Operator: The meeting has now concluded. Thank you all for joining. You may now disconnect.
Operator: Thank you for standing by. At this time, I would like to welcome everyone to today's Hamilton Beach Brands Third Quarter 2025 Earnings Conference Call. [Operator Instructions] So with further ado, I will turn the call over to Brendon Frey, partner with ICR. Brendon, you have the floor. Brendon Frey: Thank you, Tamika. Good afternoon, everyone, and welcome to the Third Quarter 2025 Earnings Conference Call and Webcast for Hamilton Beach Brands. Earlier today, after the stock market closed, we issued our third quarter 2025 earnings release, which is available on our corporate website. Our speakers today are Scott Tidey, President and CEO; and Sally Cunningham, Senior Vice President, Chief Financial Officer and Treasurer. Our presentation today includes forward-looking statements. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in either our prepared remarks or during the Q&A. Additional information regarding these remarks and uncertainties is available in our 10-Q, our earnings release and our annual report on Form 10-K for the year ended December 31, 2024. The company disclaims any obligation to update these forward-looking statements, which may not be updated until our quarterly conference call -- our next quarterly conference call, if at all. The company will also discuss certain non-GAAP measures. Reconciliation for Regulation G purposes can be found in our earnings release. With that, I'll now turn the call over to Scott. Scott? R. Tidey: Thank you, Brendon, and good afternoon, everyone. Thank you for joining us today. Our third quarter performance represents a step in the right direction towards normalization following the significant disruption our industry faced after higher tariffs were implemented in April. As the third quarter progressed, retailers started to resume more typical buying patterns after destocking inventory purchases purchased evident in the sequential improvement in our year-over-year sales trend compared with the second quarter. While profitability declined more meaningful than revenue in Q3, this was driven primarily by onetime incremental tariff costs of $5 million and to a lesser extent, a timing mismatch between ongoing tariff rate increases and our pricing adjustments. This significant headwind was partially offset by a favorable mix shift led by increased penetration of our higher-margin commercial and health businesses. Importantly, we have fully absorbed the impact on gross margins from the peak tariff rate and have moved forward with a more balanced inventory position and a clear line of sight on returning gross margins more in line with historical levels. This will be achieved over the coming quarters through the strategic actions we've taken in response to higher tariffs. To review, we meaningfully accelerated our margin -- our manufacturing diversification efforts away from China to other APAC countries and remain nimble as multiple trade negotiations played out and agreements are finalized. With a more diversified geographical sourcing structure, we have the ability to quickly shift our procurement to markets that are in the best economic interest of the business. We took decisive actions, implementing increases at the end of June and August that align with the current tariff rate increases. Our retail partners have been understanding and acceptance of necessary price adjustments, which were carefully balanced to maintain our competitive market position while protecting margins. Our strong brand equity and market leadership have enabled us to take these necessary steps while maintaining our value proposition to consumers. And we have been implementing comprehensive cost management measures across the organization that generated $10 million in annualized savings with the benefit of these actions starting to materialize in the third quarter. Looking at the performance highlights by business division, our core business continued to expand its reach as we shipped our kitchen collections by Hamilton Beach line to a leading mass market retailer nationwide. This commercial -- this broader rollout increases our already significant retail presence and reinforces our market-leading position across the small appliance space. Looking ahead, our robust pipeline of new products in high-growth categories like blender kitchen systems, specialty coffee and air fryer should position us for further market share gains. Our premium business continues to perform well, highlighted by the successful launch of our high-end Lotus brand. Initial sell-through results have exceeded expectations by strong double digits, which is remarkable for a new premium line, especially as the majority of our initial advertising support for Lotus is planned for November and December. Based on this performance, we are actively negotiating to increase shelf space, positioning Lotus for even broader market reach. Beyond Lotus, we also have new innovative launches planned across our CHI and Clorox brand partnerships in the coming quarters that should help fuel further growth. Our commercial business delivered outstanding results in the third quarter. In fact, we believe inventory constraints limited our performance, which speaks to the strong and growing underlying demand for our innovative commercial solutions. Our recent Sunkist brand launch continues to be a resounding success with branded commercial juicers and sectionizers continue to deliver outsized results. Looking ahead, we are focused on accelerating our commercial business expansion through new channel penetration and expansion of our relationships with large food and hospitality chains. Furthermore, we are diversifying our manufacturing base for our commercial line to make sure we are positioned to fully capture the growing market opportunity ahead. Our newest division, Hamilton Beach Health achieved a major milestone by reaching positive operating profit for the first time this quarter. We're seeing new partnership deals develop, including a new specialty pharmacy partnership with CenterWell and Lumisir, both of which are top 15 specialty pharmacies in the U.S. Additionally, we saw the successful launch of a new HealthBeacon Harmony software product with Novartis Ireland with strong interest for expansion into other markets. Beyond these product advancements, the team has also recently implemented several digital improvements, resulting in a smoother patient experience, lower patient acquisition cost and higher conversion rates. These new developments, along with expanding our patient subscription base by 50% this year and the conditions treated using our SmartSharp system leave us very excited about HealthBeacon's future. Finally, our digital initiatives continue to gain traction this quarter. We exceeded our point-of-sale expectations during one of the largest digital retail events of the year. Looking ahead, we're placing a large emphasis on digital growth in Q4 to capitalize on the important holiday shopping season. In closing, we have greater clarity into our cost and pricing architecture now that tariff rates on certain Chinese imports have moderated significantly from the peaks reached in the second quarter and trade relations have improved. While uncertainty in the marketplace remains, we expect the strength of our brand portfolio, recent sourcing diversification efforts and pricing actions will lead to further top line and margin recovery in the fourth quarter. With that, I'll turn it over to Sally. Sally Cunningham: Great. Thank you, Scott. Good afternoon, everyone. As Scott detailed, our third quarter sales trend improved compared with the second quarter. And while gross margins were down year-over-year, the pressure was largely temporary and the impact from the peak tariff rate on China is now fully behind us. Turning to our results, starting with revenue. Total revenue in the third quarter was $132.8 million, down 15.2% from last year's third quarter, but up 300 basis points compared with the second quarter's year-over-year performance. The revenue decline was primarily driven by lower volumes in our U.S. consumer business, reflecting overall softness in consumer demand as well as timing of retailer purchases, specifically one large retailer that delayed orders for most of the third quarter. As a reminder, some retailers paused buying in the second quarter to assess inventory levels and price increases flowing from the new tariffs implemented by the United States in April 2025. While most retailers resumed buying in the second quarter, the [indiscernible] negatively affected volumes during the early part of the third quarter. Turning to gross profit and margin. Gross profit was $28 million or 21.1% of total revenue in the third quarter compared to $43.9 million or 28% in the year ago period. The decline in gross profit margin was primarily due to the flow of onetime incremental tariff costs of $5 million, the majority of which are related to the temporary 125% China tariff costs that were in effect for a period of time earlier this year. Additionally, gross margin was impacted by a delay between tariff-related rising costs and the effective date of pricing adjustments. This created a temporary compression of gross profit margin that we expect to normalize in future periods. It is important to note that excluding the $5 million of 125% onetime tariff costs, gross margin would have been $33 million or 24.8% of total revenue. Selling, general and administrative expenses decreased $8.2 million to $25.1 million or 18.9% of total revenue compared to $33.3 million or 21.2% of total revenue in the third quarter of 2024. The decrease was primarily driven by $6.8 million of lower personnel costs, including reduced stock-based compensation expense due to changes in our stock price year-over-year as well as benefits associated with the restructuring actions we took in the second quarter. Operating profit was $2.9 million or 2.2% of total revenue compared to $10.6 million or 6.8% of total revenue in the third quarter of 2024 as the temporary impact on gross margins from the peak tariff rate more than offset the expense leverage we delivered in the third quarter. Excluding the $5 million, 125% onetime tariff costs, operating profit would have been $7.9 million or 5.9%. Income before taxes was $2 million compared to $2.7 million. The prior year period included a onetime noncash charge of $7.6 million related to the termination of the company's overfunded pension plan. Income tax expense was $0.4 million in the third quarter compared to income tax expense of $0.7 million a year ago. Net income was $1.7 million or $0.12 per diluted share compared to net income of $1.9 million or $0.14 per diluted share a year ago. Now turning to our balance sheet and cash flows. For the 9 months ended September 30, 2025, net cash used for operating activities was $14.6 million compared to net cash provided of $35.2 million for the 9 months ended September 30, 2024. The decrease was primarily due to a $27.5 million change in accounts payable due to lower purchasing activity from decreased sales volume and inventory turnover as well as shorter payment terms with new suppliers under the company's China diversification initiatives. During the 3 months ended September 30, 2025, the company repurchased approximately 39,000 shares totaling $0.6 million and paid $1.6 million in dividends. On September 30, 2025, our net debt position or total debt minus cash and cash equivalents and highly liquid short-term investments was $32.8 million compared to a net debt position of $22.5 million at the end of the prior year period. In closing, we are encouraged with how we have navigated the dynamic trade environment this year. With greater clarity around the go-forward tariff rates for most all of the U.S.'s trade partners, the situation continues to stabilize. We anticipate that our fourth quarter results will show further progress towards improving our sales trend and gross margins. And while our continued recovery won't be linear in 2026, we expect our annual performance to benefit nicely from the actions we've taken this year, diversifying our sourcing structure and lowering our fixed cost base. This concludes our prepared remarks. We will now turn the line back to the operator for Q&A. Operator: [Operator Instructions] Your first question is from the line of Adam Bradley with AJB Capital. Adam Bradley: Thank you for the color around the gross margins. Can you please clarify the 370 basis point or $5 million tariff cost, was that a charge? Or how should we think about that? In the past, I believe you used FIFO accounting, and it's taken time for costs to flow through the P&L. And this seems different. What we hear you saying is that the $5 million charge was recognized in the quarter that those purchases were made. Just some clarity around that to help us understand that better. Sally Cunningham: Okay. Sure. Adam, so the costs relate to the 125% tariff that was temporarily put in place in the April time frame earlier this year. So you are right. These are costs that were incurred in April of this year that did flow through our P&L in the third quarter. And what it really represents is some containers that we had on the water when this spike in tariff occurred that we are not able to -- or we made the decision to not pass on to the consumer. And so for us to absorb as a onetime cost, and that flowed through in its entirety in the third quarter. And I think that's a little bit different from kind of the more go-forward increased tariffs that we're seeing from IEPPA in from China and other Asian countries. which we do consider part of our go-forward kind of cost structure and that we have taken actions to cover those additional expenses. Adam Bradley: Okay. So the $5 million that you paid, you didn't -- it's not a charge on the P&L separately. It just flowed through in your cost of goods? Sally Cunningham: Correct. Operator: [Operator Instructions] We do have a follow-up from Adam Bradley. Adam Bradley: And can you expand a little bit on a more normalized rate from your largest retailer. Can you give us a little bit more color around that? The second quarter earnings report, you shared that they had pretty -- I may be paraphrasing here, but paused orders. And then it sounds like from what you are stating in this Q3 report that they continue to pause orders. Did they -- did you lose shelf space? Did -- are you back to normal ordering patterns? Are you almost back? What kind of color can you give us on that to help us understand sales trends? R. Tidey: Yes, Adam, this is Scott. So yes, on that customer and specifically, they -- you're right, they did pause placing orders. Their inventories got lower throughout that time period. But if you look now, we've been shipping them now for several months, and we feel like the business is back on track. As we indicated, we had a very robust promotional event in October, and that customer was included, and we exceeded our expectations with that customer. And we really, now looking into the fourth quarter, we feel like we're going to be having a record number of promotional activities this fourth quarter. And that customer, along with many of our other retailers will be part of that. Adam Bradley: Are you experiencing any catch-up of inventory to replace what was lost? Or is it more of a normal flow? R. Tidey: I think we're kind of in the normal flow right now. I mean we had a little bit of a catch-up. The market has been a little bit different depending on the category of lower in units, but up in dollars because of price increases. But I think we're kind of back into a normalized pattern with this customer. Adam Bradley: Okay. Great. Are you seeing a different behavior from other large customers? Or is it consistent with some of the larger ones? R. Tidey: No. I think for the most part, we feel like we're in a normal cadence with a lot of our -- a lot of -- I mean, actually probably with all of our retail partners. There was definitely that time period where they stalled in the second quarter, took a hard look. Some people were sitting on higher cost inventory that due to these surprising 125% tariffs and everybody is trying to figure that out. But I think really for the last -- most of the third quarter, with the exception of this one retailer, we were shipping as normal and promoting. Operator: At this time, there are no further audio questions. I will now hand the call back over to our speakers for any closing remarks. Adam Bradley: Thank you, Tamika. I think that's it from the Hamilton Beach brands. Appreciate everybody's time. Operator: This concludes today's call. Thank you for joining. You may now disconnect your lines.
Operator: Thank you for standing by, and welcome to the Dutch Bros Third Quarter 2025 Earnings Conference Call and Webcast. This conference call and webcast is being recorded today. November 5, 2025, at 5 p.m. Eastern Time and will be available for replay shortly after it has concluded. [Operator Instructions] I would now like to turn the call over to Neil Patel, Dutch Bros Senior Manager, Investor Relations. Please go ahead. Neil Patel: Good afternoon, and welcome. I'm joined by Christine Barone, CEO and President; and Josh Guenser, CFO. We issued our earnings press release for the quarter ended September 30, 2025, after the market closed today. The earnings press release, along with a supplemental information deck have been posted to our Investor Relations website at investors.dutchbros.com. Please be aware that all statements in our prepared remarks and in response to your questions, other than those of historical fact are forward-looking statements and are subject to risks, uncertainties and assumptions that may cause actual results to differ materially. They are qualified by the cautionary statements in our earnings press release and the risk factors in our latest SEC filings, including our most recent annual report on Form 10-K and quarterly report on Form 10-Q. We assume no obligation to update any forward-looking statements. We will also reference non-GAAP financial measures on today's call. As a reminder, non-GAAP measures are neither substitutes for nor superior to measures that are prepared under GAAP. Please review the reconciliation of non-GAAP measures to comparable GAAP results in our earnings press release. Before I pass it off, I'd like to take a moment to acknowledge Paddy Warren, our former Senior Director of Investor Relations and Capital Markets, who has made a significant impact on Dutch Bros since the IPO. We are grateful for his contributions and look forward to continuing the dialogue with many of you at upcoming investor-focused events. With that, I would now like to turn the call over to Christine. Christine Barone: Thank you, Neil, and good afternoon, everyone. Dutch Bros continues to exceed expectations, driven by the passion our Broistas bring to our shops every day and a focused set of transaction-driving initiatives that provide multiyear growth visibility. Our differentiated culture, our long-term shop growth model and our superior 4-wall economics reinforce that Dutch Bros is in a category of its own. Our third quarter results reaffirm the strength of our differentiated strategy, one that continues to fuel our momentum and unlock meaningful long-term value creation. The road ahead is both exciting and full of opportunity, and we are just getting started. In Q3, we delivered revenue growth of 25%, system same-shop sales growth of 5.7% and company-operated same-shop sales growth of 7.4%, reflecting the strength of our strategic focus and continued customer demand. Our transaction-driving initiatives continue to demonstrate outstanding results, with growth across all dayparts. System transaction growth was 4.7% and company-operated transaction growth was 6.8% in the quarter. Q3 marked our fifth consecutive quarter of transaction growth, making us a clear outlier in the current environment and putting Dutch Bros in a category of its own. This performance underscores our ability to drive durable growth through a focused set of idiosyncratic transaction drivers. New shop productivity remains elevated with system-wide AUVs at record highs. We continue to see consistently long lines and strong customer demand as we expand into the Midwest and Southeast. These results underscore the broad appeal and portability of our brand across diverse geographies. Our long-term system shop opening cadence remains firmly on track and we remain highly confident in our goal of 2,029 shops in 2029. We've successfully expanded into six continuous new states this year, including five in the third quarter, bringing our total presence to 24 states. I'm very excited to share that our shop opening cadence is expected to accelerate heading into next year, with approximately 175 new system shops projected to open in 2026. We continue to step forward in our growth journey, reflecting the strength of our pipeline, our confidence in our 4-wall model, our continued performance of shops in new markets and an annual growth rate consistent with our mid-teens new shop target. We've also made continued investments in people, tools and processes and market planning over the last 24 months. These investments enhance our ability to execute with discipline and transition us to a place of accelerating our pipeline. Our pipeline, which has now reached record levels, has approved shops at a pace of 30-plus potential sites per month over the last 6 months as the investments in our real estate team and strong AUVs continue to reinforce our confidence in reaching our goal of 2,029 shops in 2029. Momentum is continuing to build, and I've never been more confident in our ability to execute on our ambitious growth plans. Our Q3 results set a strong tone for the year and the strength has continued through October. We are raising our full year guidance for total revenues and same-shop sales growth, reflecting the confidence in the long-term durability of our model and the effectiveness of our transaction-driving initiatives. Josh will share more details shortly. Let's begin today's business update by talking about what differentiates our brand. Our culture and our baristas are the heartbeat of our brand. It's something that simply cannot be replicated. It is not just what we do, but how we do it that sets us apart. From the moment the customer pulls into our drive-thru, they experience energy, authenticity and a genuine sense of belonging. We are in the business of making people feel seen, heard and appreciated. Our baristas create a high-energy welcoming environment that turns a stop at a drive-thru into a memorable moment. Our service model is built around authentic interactions and fostering real relationships. This deep emotional connection keeps our customers coming back day after day. We have a simple but very powerful mission. It is to be a fun loving, mind-blowing company that makes a massive difference one cup at a time. During every interaction, our baristas have an opportunity to brighten someone's day by living our core values of radiate kindness, get up early, stay up late and change the world. Our drive-thru model is purpose-built to deliver an exceptional experience that balances the interplay of speed, quality and service. This one-of-a-kind approach allows us to serve high quality, handcrafted, customized beverages with remarkable efficiency and consistency without compromising on our customer experience. Since 1992, we've been hand pulling espresso shots, crafting beverages and serving love with precision and care. Our ability to offer extensive customization is unmatched, empowering customers to create drinks that are uniquely theirs, turning every drive-thru interaction into a moment of powerful emotional connection. This level of customization, paired with our high energy service model continues to resonate with our customers. It is about the connection, the excitement and the consistency of our experience that keeps the Dutch Bros customer emotional connection so powerful. And our customization-forward approach is improving with our focus on throughput. The sequential transaction growth we saw in Q3 showed clear progress on this initiative as we begin translating our efforts into results. Our training programs for shop leadership are driving smarter labor deployment decisions across production zones and dayparts, improving quality and elevating the customer experience through consistency. We are beginning to see a shift in peak demand patterns, driven by our transaction-driving initiatives. With improved labor deployment, we are now better positioned to meet this evolving demand. Enhanced shop dashboards are empowering shop leaders to make better deployment decisions during peak and off-peak hours. And as a result, we're gaining better traction across order taking, order making and order handoffs, all while delivering industry-leading customer service. Let me take a moment to highlight how we ensure a consistent customer experience. Before Broistas ever make any beverage, they're immersed in our purpose. They learn what makes Dutch Bros so unique. It's the connection, service and energy. Only then do they begin our training, mastering not only the beverage-making process, but learning every role in the shop. We've built a shop environment that is electric, fun and unmistakably Dutch. It's this energetic environment that fuels a positive Broista experience which in turn drives a consistent differentiated experience for every customer. Our company-operated model provides a clear path for growth, whether it's through the operator pathway or becoming a leader for our MOB training teams. Today, we have over 475 operators in the pipeline, with an average tenure of approximately 7.5 years. It's this clear pathway that allows us to build depth and experience and to scale our culture effectively, and it's working. In the 2025 InTouch Insight's QSR drive-thru report, we ranked #1 in order accuracy, satisfaction and beverage quality across beverage players. Dutch Bros also earned the top spot in Forbes 2026 Best Customer Service list in the beverage category within restaurants. That is the power of investing in our people, and the Dutch Bros' difference. We're thoughtfully expanding our beverage-first concept through our food program, which has evolved from a pilot into a broader rollout as we close out 2025 and head into 2026. Our food program rollout is designed to strengthen our beverage offering by driving breakfast and morning daypart occasions, a time of the day where we have tremendous opportunity. As we expand the food program throughout 2026, we're aiming to be a one-stop shop during the morning daypart. We continue to see both ticket and transaction lift from our food program, which expanded to approximately 160 shops by the end of Q3. We are regularly measuring customer feedback KPIs such as quality, likelihood to recommend and value and we are very pleased with the results, which have remained consistent or improved with each successive phase of the rollout. Looking forward, our 2026 rollout cadence will follow a strategic and methodical approach, with plans to complete the rollout by the end of the year. Due to shop layout constraints, we expect that approximately 25% of our 2025 year-end shop count may not be able to accommodate hot food. However, that percentage will decline over time as our new shops are being built to accommodate hot food. Our strategic push into breakfast in the morning daypart through our focused food rollout only strengthens the Dutch Bros model, making it even more compelling. We have built a strong and differentiated digital presence, powered by our initiatives that are continuing to translate to transaction strength. Our enhanced paid advertising strategy to build brand awareness continues to deliver impressive results across our shop base, especially in our newer markets and vintages. These efforts are fueling our transaction momentum, and we expect this trend to continue as we pursue our TAM in parallel with strategic paid media investments. We believe there is a sizable room for aided and unaided awareness to grow long term, and we are at the early innings of our momentum. Order Ahead is continuing to gain traction and our investments are making accessing Dutch Bros seamless across multiple touch points. We're adding meaningful sophistication to our analytics engine, setting Dutch Bros apart even at this early stage. At the end of Q3, our Order Ahead mix reached 13% with some new markets mixing at nearly double the system average. This growth highlights the natural strength of our program and the enthusiasm our customers have for Dutch Bros. To build on this momentum, we recently enhanced the user experience by introducing a more precise order pickup time feature, which has already led to improvements in order readiness and an increase in scheduled orders. The increasing Order Ahead mix has also created a powerful on-ramp for our Dutch Rewards program. This program continues to remain a key engine for driving transaction growth over the long term. In Q3, approximately 72% of system transactions were attributed to Dutch Rewards, marking a 5-point improvement year-over-year. With Order Ahead feeding into this ecosystem, we're now focused on unlocking the full potential of segmentation, deepening engagement and driving transaction growth by confidently reaching the right customer at the right time. Notably, in Q3, Dutch Rewards contributed to transaction growth with us running almost exclusively segmented offers, further underscoring the organic strength behind our loyalty platform and the ability to manage discounts strategically year-over-year. Even more encouraging is the momentum we're seeing from younger cohorts within Dutch Rewards, highlighting the strength and long-term potential of our loyalty program. In addition to a strong digital presence, we have a differentiated innovation platform. Since 1992, our commitment to beverage innovation has been a cornerstone of our success. We have seen success in leading the industry in beverage trends and delivering exceptional experiences across our coffee, energy and refreshment offerings. In July, we introduced three exciting new beverages, Blue Lagoon with Strawberry Fruit, Mudslide Mocha and Strawberry Colada, demonstrating the breadth and strength of our innovation across the entire menu. We kept the buzz going throughout the quarter with engaging brand activations, including the launch of the FUNBOY drink floatie, National Dog Day Bandanna and Car Coasters, all designed to deepen customer connection and drive brand love. In August, we brought back fall LTO offerings like the Caramel Pumpkin Brûlée and Cookie Butter Latte, alongside the Candied Cherry Rebel, reinforcing our commitment to category-wide innovation and customer relevance. This LTO lineup was our most successful fall LTO launch to date. At Dutch Bros, innovation goes far beyond beverages. Our value proposition is about the experience, the connection and the energy our customers feel every time they visit. We pioneered the drive-thru innovation platform, and these limited time offerings provide that unforgettable moment. In addition to our differentiated innovation engine and robust digital presence, we've reached an incredible and advantageous scale. Just 4 years ago, we celebrated our 500th shop opening in Texas during the year of our IPO. This year, we surpassed 1,000 shops and we're well on our way to doubling that as part of our multiyear journey to reach 2,029 shops in 2029. Beyond shop growth, we've successfully scaled system-wide AUVs, which are at record levels and significantly improved adjusted EBITDA, clear indicators of the durability of the Dutch Bros brand. We've also assembled a management team with experience at scale, positioning us to execute on our rapid growth ambitions with confidence. Our team brings depth, enabling us to successfully make agile strategic decisions that support our long-term vision. We are investing in advanced analytics, tools and processes to maintain differentiated momentum as we scale, laying the foundation for disciplined, self-funded growth. In closing, the momentum in our business remains strong, and we are just getting started. We're in the early innings of a multiyear journey, and our focused strategy is clear and working. We are built around culture. It's the engine of our differentiated customer experience. Our Broistas bring this culture, energy and connection to life every single day, delivering magic at the window that continues to connect deeply with our customers. We are focused on delighting our customers and growing sales and it's paying off. Our multiyear transaction-driving initiatives continue to resonate, marking our fifth consecutive quarter of transaction growth. We have a differentiated innovation engine and strong digital presence that isn't easily replicated. From high-velocity LTOs to the virality of our product in merch drops, we're delivering a best-in-class experience that is setting us apart and positioning us to naturally take share. We are on track to have 2,029 shops in 2029. Our AUVs are at record levels, highlighting the portability of our brand. Our long-term 4-pronged strategy is simple and powerful; grow our people, grow our shop base, grow our transactions and grow our margins. We are playing the long game, and we're executing. We are on the offensive and our efforts are positioning us to win. With that, I will turn it to Josh, who will discuss our financial results. Joshua Guenser: Thanks, Christine. I'll provide a recap of our third quarter results, along with an updated outlook for 2025. Our third quarter performance built on the strong momentum from Q2 and reinforced that a differentiated model is resonating with customers. With our digital presence and our other transaction-driving initiatives still in the early stages, we remain confident in the long-term growth potential of our business. Third quarter revenue was $424 million, an increase of 25% or $85 million over the third quarter of last year. System same-shop sales growth was 5.7%, driven by an exceptional 4.7% transaction growth. We saw strength across our transaction-driving initiatives throughout the quarter. particularly Order Ahead and Dutch Rewards, which contributed to the Q3 momentum. With Q4 off to a great start, we are raising our full year system same-shop sales growth guidance to approximately 5%. This implies approximately 3% to 4% system same-shop sales growth in the fourth quarter, which includes the continued momentum we have seen in October, the early positive impact we are seeing from shops that have the new hot food program, a full quarter lap of Order Ahead and the impact of cycling a strong Q4 from last year. We remain excited about the opportunity with food. Early shop results suggest that we could expect an approximate 4% comp lift in shops that have food, with about 1/4 of that coming from transaction growth. We plan to continue rolling this out to shops that can support hot food throughout 2026. So we would expect that lift to be phased in throughout the year. During the quarter, we opened 38 new shops, bringing our total system shop count to 1,081 shops. In Q3, a substantial portion of our openings occurred later in the quarter, and we anticipate a similar situation in Q4. Any new openings below 160 in 2025 are expected to be incremental to our 2026 target of approximately 175 system shops. As Christine mentioned, our development pipeline is at record levels. And the pace at which we are adding to our pipeline provides strong visibility on our path towards 2,029 shops in 2029. In the quarter, adjusted EBITDA was $78 million, an increase of 22% or $14 million over the third quarter of last year. Switching to our company-operated shops. Revenue in Q3 was $393 million, an increase of 27% or $85 million over the third quarter of last year. Company-operated same-shop sales growth was an outstanding 7.4% with 6.8% coming from transaction growth. Company-operated shop contribution was $109 million, an increase of 20% or $18 million year-over-year. Company-operated shop contribution margin was 27.8%. Beverage, food and packaging costs were 25.9% of company-operated shop revenue, which is 60 basis points unfavorable year-over-year, driven primarily by higher coffee costs. We continue to expect the impact of coffee costs to accelerate into Q4 and as of now anticipate that coffee costs may remain elevated into 2026. We would also expect elevated costs associated with our broader hot food rollout to begin in Q4 of 2025. Labor costs were 27.5% of company-operated shop revenue, which is 10 basis points favorable year-over-year, primarily driven by sales leverage and partially offset by the impact of labor investments made earlier in the year to support our long-term growth. Looking into Q4, we are anticipating the quarter to be impacted by approximately 50 basis points from regulatory changes, resulting in higher employer payroll taxes in the state of California. Occupancy and other costs were 17% of company-operated shop revenue, which is 60 basis points unfavorable year-over-year, driven largely from the impact of occupancy rates from new shops as we have made great progress in shifting our portfolio to more capital-efficient, build-to-suit lease arrangements. We expect this impact to continue in Q4 and into 2026 as we maintain this momentum. Preopening expenses were 1.8% of company-operated shop revenue, which is 60 basis points unfavorable year-over-year, driven by the proportion of shops in newer markets and the associated cost of sending our training teams to support these openings. Given our planned openings for Q4, we would expect preopening expenses on a per shop basis to remain relatively consistent with what we experienced in Q3. Moving down the P&L. Adjusted SG&A was $58 million or 13.6% of total revenue. We continue to be thoughtful about investments we make in SG&A while driving consistent leverage as we grow the top line. Given the continued momentum here, we now expect approximately 110 basis points of leverage on adjusted SG&A for 2025. For the quarter, we delivered $0.19 of adjusted EPS, up from $0.16 or 19% from Q3 of last year. Let me now provide an update on our balance sheet, cash flow and liquidity. As of September 30, we have approximately $706 million in total liquidity. This liquidity includes $267 million in cash and cash equivalents and approximately $440 million in our undrawn revolver. During the quarter, our net cash position sequentially increased by approximately $14 million from Q2, driven by strong cash flow from operations. In Q3, our average CapEx per shop was $1.4 million, clearly demonstrating our ability to transition our portfolio to more capital-efficient, build-to-suit lease arrangements. This gives us strong visibility and confidence into positive cash flow generation, reinforcing the scale and strength of our long-term financial model. Now let me provide an update on our 2025 guidance. In light of our strong performance throughout the third quarter and into October, we are raising our full year guidance for total revenues and system same-shop sales growth. Total revenues are now projected to be between $1.61 billion and $1.615 billion. System same-shop sales growth is now expected to be approximately 5%. Adjusted EBITDA remains in the range of $285 million to $290 million. Total system shop openings in 2025 are targeted to be 160. Any new shop openings below 160 in 2025 are expected to be incremental to our 2026 target of approximately 175 shops, reflecting confidence in our shop growth trajectory. Capital expenditures remain in the range of $240 million to $260 million. We are energized by the strength of our business. Our people, our resilient financial model and our differentiated transaction-driving initiatives place us in a category of our own. Our high-growth, multiyear trajectory is exceptionally well positioned to deliver consistent, dependable results supported by record high AUVs and a superior 4-wall model. Thank you, everyone. We will now take your questions. Operator, please open the lines. Operator: [Operator Instructions] Your first question comes from Christine Cho with Goldman Sachs. Hyun Jin Cho: So I'd like to kind of understand a little bit better in terms of -- when comparing kind of innovation, paid advertising, Order Ahead, industry awards, all of these things that were catalyst to your traffic year-to-date which are some of the levers do you think have the highest remaining runway? And what 2026 product and platform innovations are most likely to continue as a Bros' multiyear growth algo? Christine Barone: Yes, Christine, thanks so much for your question. When I look across all of the different levers we have, I actually think we're in early innings in many of them. I look at innovation and how our teams are really looking at each promo period and understanding what worked exceptionally well, where the market is going and what they can tweak to add to that. We just had our strongest fall LTO launch and brought back a number of the drinks for last year and just executed them really well. With paid advertising, I think we're continuing to do a lot of learning in which channels work best for us, where we spend versus the maturity of the market. And so again, early innings there as we continue to learn analytically just where to place those -- place our dollars in that paid advertising. And just as a reminder, we're really using paid advertising to grow brand awareness. It's that on-ramp for the brand that we then get customers into Dutch Rewards, where 72% of our transactions are Dutch Rewards transaction. So we really have this very efficient channel to speak with them. On Dutch Rewards, we've really made the transition this year in moving from all broad-based offers to more segmented offers. We have a lot of runway still ahead to further segment that customer base, learning what drives different customers to increase their frequency. So a lot of runway still there as well. Then looking at mobile order, again, we continue to see that nice steady march up in mobile order. And we are really learning like operationally as we hit some very high penetration levels, especially in newer markets. how to split our KDSes between different stations to deliver on those. And then we're at the very beginning of food, but incredibly encouraged by what we're seeing early on. The love from both our Broistas and our customers for that program. So when I look across the board, I actually think we still have a lot to go in each of our areas to drive transactions. Hyun Jin Cho: We've heard some of the peers highlight consumers under 35 as kind of particularly challenged cohort in the recent months, driven by unemployment and student loan repayment, et cetera. So given kind of your exposure to this age cohort, could you kind of talk to any changes in consumer spending behavior that you're seeing amongst the younger consumers, although your numbers really seems to suggest that, that's not the case for you? Christine Barone: Yes. So as you can see, we had an incredibly strong quarter with 5.7% system same-shop sales growth. When we look across our younger cohorts, again, with 75% of those transactions coming from Dutch Rewards, we can segment that by age cohort. And we're seeing really incredible performance out of those younger cohorts. I think that during times like this, customers are choosing the brands that they love the most and really deciding to spend their dollars there. And what we're seeing out of gen Z and that continued growth and that huge in that cohort is really encouraging. Operator: [Operator Instructions] Next question comes from Dennis Geiger with UBS. Dennis Geiger: Congrats on the strong results, guys. Very helpful data points on the food offering. I was wondering if you could speak a little bit more to what you're seeing from a customer feedback standpoint. Employees, how that's working. I'm curious, anything else on sort of attachment for mentality. I mean you gave us the important numbers, I know. And just related to that, that 25% that won't get food, can you give us a breakdown of company versus license there and what that looks like? And I guess last, just on the food. If you could touch at all more on the food costs in the fourth quarter, the hot food costs that you spoke to. Christine Barone: Thanks so much, Dennis. I'll start with customer and Broista feedback. So that's something that we're carefully managing. We actually have trackers in place to manage that every single week. One of the things I'm really encouraged by is, as we are rolling this out in successive markets, we're actually seeing improvements in both Broista feedback and in customer feedback as we continue to roll this out. So I think we have just an incredible launch and start of the hot food program. I am incredibly impressed with how our Broistas are embracing the program and rolling this out to our customers. I'll give it to Josh for some of the margin questions. Joshua Guenser: Yes.Well, and the question on the kind of the breakout between company franchise, really, that limitation is related to space constraints and the size of the shop. So we haven't given the specific breakdown of what that looks like. But you can imagine in the older shops that where there are more franchise shops, that's where there would be challenges in being able to launch hot food. On the margin specific, we're in 160 shops at the end of Q3. So you can imagine just on a relative percentage basis, it is a smaller impact, but as you might expect, COGS for food is relatively higher than beverage. So I would assume a slight amount of pressure coming into Q4 and then as we roll this out that adding to it in 2026 as well. Operator: Next question, Andy Barish with Jefferies. Andrew Barish: Could you give us a little more color just sort of on the ticket dynamic or check dynamics? Obviously, you're seeing a negative mix with pricing, I think, around 2% or so. What's going on there? And then as you look out to '26, I'm assuming food could be a part of getting that going back in the right direction. Joshua Guenser: Yes, Andy, thanks for the question. As you pointed out, yes, we're sitting on about 2 points of price, that's being offset by about 1 point of mix. That has been fairly persistent, consistent throughout the year. So we've seen a bit of offset coming from mix, largely driven by lower items per transaction, certainly contributing to that as we've launched Order Ahead, that is targeting more of an individual type occasion. So that would be an element of it as well. Certainly, not providing guidance on 2026 comp yet, but what I would share is we're sitting on about 2 points of price. We roll off about half of that in January and the other half in July. Going to be very thoughtful about how we think about our overall value prop for the year, but feel really good about how we're positioning ourselves heading into next year. Christine Barone: And I would just add with that 4% comp lift that we're seeing in food, about 1/4 of that is coming from transaction growth, which we're really excited about. We thought we might be missing a beverage occasion there. So starting to see that and then 3/4 of that coming from ticket and attach. Operator: Next question, Andrew Charles with TD Cowen. Andrew Charles: Your successes in competition with the largest restaurant in the world, piloting a new line of energy and iced coffee and beverages in Colorado at the start of September. Can you help articulate what you observed in the last 2 months of sales in that market since that pilot launch? Christine Barone: Yes. Thanks so much for your question, Andrew. So as we actually look across all of our markets and have been paying particular attention to shops in that market, we have not seen any impact on our shops. We continue to have a great quarter and into a great October. And so really excited by what we're seeing overall, but did not see an impact from that test. Operator: Next question, Sara Senatore with Bank of America. Sara Senatore: Hopefully, I can get in a question. The half is just a clarification on, Christine, your comment about your consumers kind of choosing the brands that resonate with them. I guess do you have a sense of coffee, you're sort of really taking share in the coffee segment? Or if coffee broadly is doing better? I guess just trying to put that in the context of this perception that maybe coffee would be more cyclical or more easily kind of given up. But it sounds like actually, there's a lot of strength, and I wasn't sure if that was the segment or Bros particular or both. And the question was about seeing improved transactions during peak hours. Are there any metrics you can share about throughput? I don't know if it's a number of transactions or number of beverages? Just sort of where you are now and what you think a target might be as I think about how throughput might contribute to transaction growth. Christine Barone: Yes. So on your first question on the strength of the market, so we do believe it is a strong market overall. We also believe we're performing exceptionally well within that market and able to compete in a way that is likely driving some share gains. I think that we are just super well positioned when you take beverage overall. Both coffee and energy are growing. Energy is -- seems to be growing faster. And we are -- the category creator really of customized energy. So very well positioned in that high-growth space. We're also seeing higher iced, higher customization customers that want that quick interaction, but for it to be quite memorable. So we just believe we're incredibly well positioned across the market. And then from throughput metrics, we haven't shared those, but that is something that we track. So we are tracking transactions at peak. We're tracking things like window time, other things like that. And then we're also very closely looking at how our labor is deployed to really match those demand curves. And all of those things, our teams are just doing a great job to make sure that our customers are having an incredible experience. Operator: Next question, David Tarantino with Baird. David Tarantino: Congrats on great results here. Josh, I was wondering if you could comment on why the EBITDA guidance range didn't increase in the sales guidance range. I'm just wondering what some of the cost offsets were that you didn't contemplate previously? Joshua Guenser: Yes. Great question, David. So we've been really thrilled with the overall performance of the business and the strength of our 4-wall model that supported us to the ability to make some investments. In particular, if you look at our preopening costs, we are continuing just to see incredible openings as we go into these new markets. We continue to be met with really long lines. So we're sending our training teams out to -- in support of those openings, just to really set our teams up for success. So as we commented, we validated preopening costs in Q3, and we'd anticipate seeing on a per shop basis, preopening costs being consistent in Q4 with what we saw in Q3. Certainly, with a greater number of openings in Q4, that's higher absolute dollar basis as well. The other side of that is we've continued to see accelerated coffee costs coming into the P&L. That will accelerate into Q4. Certainly previously contemplated, but it is one that will continue to accelerate into Q4. And then the third piece that is impacting is the higher taxes that I referenced in the State of California, putting about 50 basis points of margin pressure in the labor line. And that's really kind of a full year amount that we're expecting to impact the individual quarter. Operator: Next question, Brian Harbour with Morgan Stanley. Brian Harbour: When you talk about the left from food, is that basically -- is that like the original cohort of stores that had it measured after 6 or 12 months. Could you just talk about how you arrived at that? And then is -- do you think that you can sort of augment that over time? Like obviously, once you have it more broadly rolled out, maybe awareness goes up, you could advertise it? Like how do you think about continuing to drive food over time? Christine Barone: Yes. So as we look at the lift from food and how we're measuring that, we are measuring a kind of pre-post versus control. We're looking at absolute transaction growth. We're looking at overall same-shop sales growth in those markets and have had the food program in some shops for a longer period of time now. So giving us confidence to share the numbers at that point. And then I think the way to think about food is it's really a program that we're just getting started with. We've had traditionally about 4 SKUs within our shops, the 3 Muffin tops and the granola bar. This initial food rollout is just moving us to 8 SKUs, so just adding 4 SKUs there. But what it is, if it's providing a capability where we now have ovens. We're putting in the inventory management required to have that food program. So I think of it as really serving as a base for what this could be over time and think that it has huge potential as we go forward. Operator: Next question, Sharon Zackfia with William Blair. Sharon Zackfia: I'm curious, as you've been expanding into the Southeast and now into the Midwest, by the way, welcome to Greater Chicago. Are you seeing kind of a similar customer demographic? And anything that surprises you in the way that customers are using Dutch or the dayparts or the product mix? Just wondering what you're learning as you're growing further nationally. Christine Barone: I think we're seeing some of the same things that we've seen in that we do have a higher coffee mix as we first go into newer markets. We are seeing that higher mobile order mix as well as we go into new markets. Those things have been pretty consistent. I do think if we really reach this more national scale as we pass that 1,000 shop mark, the brand kind of proceeds itself. And so when we show up in these markets, we're just met with incredible excitement initial demand. They already know that our sticker days are coming and are lining up for the sticker day. So I do think as we reach higher scale, we are seeing the benefits from that as we go into new markets. I think we've also done a lot of learning in what is the best way to go into a new market, make sure the team is set up for success and what are our phases of marketing as we go through those new markets. And as we've shared, we're incredibly excited by that new shop productivity that we continue to see. Operator: Next question, John Ivankoe with JPMorgan. John Ivankoe: I was hoping to drill in a little bit in terms of what's going on in some specific markets. And obviously, you're located next or at least near some specialty coffee outlets that have been closing stores. And yet in other markets, there's a number of specialty coffee outlets that have been significantly opening stores. So I wanted to see if there is any interesting dynamics we can talk about on a market level basis that maybe you're influencing in positive or negatively, your access to real estate people and customers? Anything that we can maybe talk about that's a little bit below the surface. Christine Barone: Yes. So I think as we continue to open shops like the one dynamic that you'll see is more of our new shops and those newer vintages, are in the company-operated side in the business. So I think as you probably saw, we had a 7.4% same-shop sales within company-owned driven by very strong traffic at almost 7% there, 6.8%. And as we continue to look for new shops and new markets, I think the strength of the brand, the longevity that we have, we have been out there as a landlord. We have incredibly attractive cap rates now as we continue to grow across the country. We're really not seeing any shortage in sites. And as I shared in my prepared remarks, we've actually added about 30 sites per month over the last 6 months into our pipeline. So seeing great availability of great sites. And I think it's also due to, as we're ingesting data more quickly into our models and seeing the performance that we're seeing now, we're really able to better pinpoint how we're going to do in a market. So we have both confidence in what that will look like when it opens, but also, we are finding great sites as we move across the country. Operator: Next question, Gregory Francfort with Guggenheim Partners. Gregory Francfort: I just wanted to follow up on that, Christine. I mean 30 sites a month, I mean, that's a ton of stores. Is that normal that -- that would only translate if you open 300 sites approved or 350 sites approved, that would only translate into 150 or 200 openings? Or is this an indication that '27 and '28, you're going to really ramp the store growth? And can you maybe just talk about the availability of real estate and what you're seeing out there from a competitive perspective? Just a follow-up to John. Christine Barone: Yes. So thanks, Greg. As we look ahead, we're really confident in that 2,029 shops in 2029. And part of that is building that really strong pipeline right now. So as we look ahead, a lot of the shops that we're adding now are really going to open 2 years from now. And so that gives us just great visibility into getting to that ramped up period where we'll be opening those shops. Not all of them will translate, but the majority of them certainly do translate into actual sites as we've looked at history. So we are ramping up that pipeline to prepare for that higher growth as we move ahead. Operator: Next question, Jeff Farmer with Gordon Haskett. Jeffrey Farmer: You did touch on it, but any color you can offer on the scale of your paid advertising efforts in the Q3, Q4, just the back half of this year relative to, let's say, a year ago? And then as we look forward, would you expect that scale to further build? Christine Barone: Yes. So as we look at paid advertising, we really look to continue to ramp that as we ramp our sales and for that to keep pace. We've been very happy with the results that we're seeing and really view that as paired along with our Dutch Rewards program. So 72% of our transactions are coming through Dutch Rewards at the shop level. And as we look at that, it's really important to use paid advertising to build the brand awareness and then to quickly get our customers into the Dutch Rewards program so that we can speak to them that way. Operator: Next question, Jeffrey Bernstein with Barclays. Jeffrey Bernstein: Great. Just a question on the mobile order and pay. I think you said it's now at a 13% mix, so creeping higher, but I don't believe that's with any material internal push on your part. And I think you mentioned some of those markets are actually double that, so maybe 1/4 of their sales or traffic from mobile order. So I'm just wondering -- there are clearly peers in the beverage segment well above that. I'm just wondering if you could talk about what you'd like to see with that in terms of the acceleration, maybe quantify any kind of benefits you see in terms of traffic or check or frequency? Anything incremental learnings as we think about the next couple of years and where that 13% goes? Christine Barone: Yes. So as we look at that 13% mix, we're very happy with where that is. I think we've shared in the past that this is something that's customer-driven and was the #1 thing that our customers were asking for from functionality from our app. And we want our customers to be able to order in the channel and in the way that they'd like to order. I think naturally, over time, given what we're seeing with new shops, if that percentage will increase as I think we're seeing very close to like market level volumes in mobile order in those new shops. And some -- I think customers actually really act in a way that makes a ton of sense. So in our smaller shops or our double -- original double drive-thrus, it just doesn't add as much speed to your day as it does in the new shops that we're rolling out. So I would expect to have some bifurcation in the newer and legacy markets over time, but incredibly encouraged by what we're seeing. It continues to grow. We also like the interplay that we're seeing between mobile order and food and how easy it is to attach items once you're mobile ordering. So a lot of good things there. Operator: Logan Reich with RBC Capital Markets. Logan Reich: Congrats on the solid results. My question is on the food rollout. More on the operational side. I'm trying to fit it into one question. But can you just give any additional color on what the changes in the operations are in the back of house for the stores that have proved? Like just curious if you need to add any additional labor to fulfill food or any differences you're noticing on throughput with the stores with food versus those without? And then just separately on your last comment related to mobile order pay. Like do you view food as a driver of mobile order pay or vice versa? I'm just trying to get an understanding of the interplay between those two aspects of your business. Christine Barone: Yes. So from an operations standpoint with food, we are adding new equipment into the shop. We're adding new training, obviously, as we roll that out. And then some of the operational metrics we're looking at is, one, as we built out the food platform and the offering that we have, the oven cycle time for the food items is below the average drink make time. And so that was very intentional. We never want to slow down our line as we add in food. And as we roll this out to new shops, we're continuing to see throughput gains in those AM dayparts in the shops that we've rolled out food. So we really are seeing that work seamlessly. And then from a labor perspective, we are investing in labor and food as those sales grow. So overall, I think that food has slightly higher COGS, but a lot of the other line items, really, as you scale, work quite well with food, and it can really leverage some of those other places. So as we are seeing those volume gains, we are investing against the volume gains themselves. And then for mobile order and how that's interplaying, I just think that the app is such an easy way to discover new offerings that we have. And so I think part of that is interplaying with it. I also think that there is a high mix between a customer in the morning, who wants mobile order, who might also want a food item. And so I think we're seeing some of that natural mix together as well. Operator: Nick Setyan with Mizuho. Nerses Setyan: Congrats on the qreat quarter. Just a clarification, a question. The clarification, the 50 bps labor headwind, that's just in Q4? Or is that something that's going to continue into 2026? And then the question is just an update on the CPG rollout in 2026. But how are we supposed to think about modeling it? Is it just pure licensing flow through? Any numbers around it or just bracket in terms of how we should think about the CPG overlap next year would be very helpful. Joshua Guenser: Nick, thanks for the question. Yes, the labor impact is a full year impact that we would anticipate in Q4 as a result of some regulatory changes. So that would come into effect in Q4. The ongoing run rate, obviously, would be something less than that. The amount is a full year amount in a quarter. Christine, would you talk through the CPG piece? Christine Barone: Yes. and then on the CPG rollout, so we are really in the midst of selling right now to retailers. We are also finalizing all the products and doing all the final testings as we get ready to launch this. We are really encouraged by the enthusiasm that we're seeing from retailers for the CPG lineup. That is something that we'll roll out throughout 2026. So as retailers do their resets throughout the year, you'll start to see the Dutch Bros product come in. We've also shared that we're really going to have the CPG offering follow our shops. And so it will be a regional rollout based on where we have shops so that customers can really experience Dutch Bros at the shop first and then go experience at home. Operator: Chris O'Cull with Stifel. Christopher O'Cull: Congrats on another great quarter. Christine, I appreciate the comments you made earlier about the people first culture and the Broista engagement as being the concept's primary competitive moat. But as you scale to, let's say, 2,000 or more shops, it would be harder to sustain this culture. And I'm just wondering, beyond promoting from within, what specific or measurable mechanisms do you have in place to ensure the quality and consistency of the Broista experience isn't diluted? For instance, how do you systematically identify and correct any kind of cultural drift as you expand? Christine Barone: Yes. Thanks so much for your question. So as we look ahead, I think we are in a really unique position with being able to open all of our new shops in all of our new markets with operators that have been with the brand for quite some time, on average 7.5 years. And I think at 1,000 shops, that's what's really served us incredibly well is having culture carriers who have been looking forward to that opportunity to go open a new market. We do have measurement mechanisms in place. We do surveys. We do things like that. I think that those are important metrics to have, but we also have great listening systems. And I think that's the most important piece is making sure that as we roll anything out, we are listening very deeply to how our teams are feeling about different things to make sure that we're enhancing the experience as we roll out food, for example, doing a food benefit for our Broista and so that they can taste and share in that great food as they come on to their shifts. And so I think we're being incredibly thoughtful about ensuring that our shops are staffed well, that we're listening to what's driving satisfaction at the Broista level and just continuing to enhance that experience the same way we're looking at our customer experience. Operator: I would like to turn the floor over to management for closing remarks. Christine Barone: Yes, thanks for your questions. In September, we proudly hosted our annual book for Kids Day with the Dutch Bros Foundation supporting over 245 local nonprofit organizations focused on programs serving youth in our communities. Giving back to the communities we serve is core to who we are. Our local operators and franchisees selected each of these nonprofit partners, ensuring the impact was felt directly in the neighborhoods we serve. Also in September [indiscernible] from all around the country to join us at our headquarters for a leadership development program. It was an incredible opportunity to share stories, learn from each other and continue building the strong foundation that fuels our growth. Investing in our people and giving back to our communities is core to who we are and our mission remains unchanged. Whether we are swinging drinks or serving up love, Dutch Bros has always been and will always be about the people. It's this deep connection with our communities that continues to fuel our purpose and drive our growth. Thank you to all our team members for bringing our mission to life. You are the reason our customers continue to show up every single day. I am incredibly grateful for all of you. Thank you. Operator: This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.